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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended: September 30, 2003
[_] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from:
Commission File No. 333-60608
JANEL WORLD TRADE, LTD.
(Name of small business issuer in its charter)
Nevada 86-1005291
(State of other jurisdiction of (IRS Employer Identification No.)
Incorporation or organization)
150-14 132nd Avenue, Jamaica, NY 11434
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (718) 527-3800
Securities issued pursuant to Section 12(b) of the Act:
Name of exchange on
Title of each class which registered
------------------- -------------------
None None
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Securities registered pursuant to Section 12(g) of the Act: None
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 (the
"Act") during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [_]
Indicate by check mark 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 information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). [_]
State the aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the price at which the common equity
was last sold, or the average bid and asked price of such common equity, as of
the last business day of the registrant's most recently completed second fiscal
quarter. $1,246,180 (last sale as of 3/31/03)
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
State the number of shares outstanding of each of the issuer's class of common
equity, as of the latest practicable date: 16,843,000
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents if incorporated by reference and the Part
of the Form 10-K into which the document is incorporated: (1) Any annual report
to security holders; (2) Any proxy or information statement; and (3) Any
prospectus filed pursuant to Rule 424(b) or (c) under the Securities Act of
1933.
None.
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PART 1
Item 1. Description of Business
General Development of Business
Janel World Trade, Ltd. has its executive offices at 150-14 132nd
Avenue, Jamaica, NY 11434, tel. (718) 527-3800, adjacent to the John F. Kennedy
International Airport. The company and its predecessors have been in business
since 1974 as a logistics services provider for importers and exporters
worldwide. It is primarily engaged, through its wholly owned subsidiaries, 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.
In addition to its traditional freight forwarding and customs brokerage
activities, Janel offers various related, 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 its 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.
Janel conducts its business through a network of company-operated
facilities and independent agent relationships in most trading countries. During
fiscal 2003 (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 $56.9 million in 2003, $44.8 million
in 2002 and $46.7 million in 2001. In fiscal 2003, approximately 65% of revenue
related to import activities, 10% to export, 20% to break-bulk and forwarding,
and 5% to warehousing, distribution and trucking. By market, the company's
revenue in fiscal 2003 derived from three principal industries: consumer
wearing apparel/textiles - approximately 30-35% (unchanged from 2002); machines/
machine parts - approximately 25-30% (5% less than 2002); household appliances -
approximately 15% (unchanged from 2002); and sporting goods and accessories -
approximately 5% (increased from 2002).
History
Janel commenced business in 1974 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
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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, the 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."
The company operates out of five leased locations in the United States:
Jamaica, New York (headquarters); Lynbrook, New York (accounting); Elk Grove
Village (Chicago, Illinois); Forest Park (Atlanta, Georgia); and Inglewood (Los
Angeles, California). Each Janel office is managed independently, with each
manager having over 20 years experience with the company. Janel Shanghai, Janel
Hong Kong and Janel China (Shenzhen) operate as independently owned franchises
within the company's network. Janel's President, Stephen P. Cesarski, and its
Executive Vice President, James N. Jannello, each personally own a 10% profit
interest in each of Janel Shanghai and Janel Hong Kong. Janel Miami (Florida)
and Janel Bangkok (Thailand) operate only as franchises under the Janel name,
but are not otherwise affiliated with the company's corporate network. Mr.
Jannello, Janel's Executive Vice President, owns 50% of the Janel Miami office.
Freight Forwarding and Related 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, 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.
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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.
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 27 years of experience clearing a wide range of goods
through U.S. Customs, from automobiles to heavy machinery to textiles. The
company currently has nine 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.
Other Logistics 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 repackaging,
domestic pickup and forwarding, "hazmat" certifications for hazardous cargoes,
letters of credit, language translation services, online shipment tracking and
electronic billing.
Information Systems
In May 2000, Janel upgraded its information system hardware to 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 T-1 online national network 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 tracking and tracing of
customer shipments.
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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 2003, the company shipped goods and provided
logistics services for approximately 1,000 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. The company's six largest accounts
are: The Conair Corporation, Depa International, FAG Bearings Corporation, Ralph
Lauren Childrenswear, Heidelberg USA and Modell's Sporting Goods.
James N. Jannello and Stephen P. Cesarski 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.
Employees
As of September 30, 2003, Janel employed 65 people; 30 in its Jamaica,
New York headquarters; 5 in Lynbrook, New York; 8 in Elk Grove Village,
Illinois; 6 in Forest Park, Georgia; and 16 in Inglewood, California.
Approximately 47 of the Company's employees are engaged principally in
operations, 11 in finance and administration and 7 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.
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.
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.
Seasonality
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
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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. 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.
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. 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. Many of Janel's
customers may ship a significant portion of their goods at or near the end of a
quarter and the company may not learn of a resulting shortfall in revenues until
late in a quarter.
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.
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 Customs Service of the
Department of Treasury in each U.S. Customs district in which it does business.
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.
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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.
Risk Factors
1. We May Not Be Successful in Growing Either Internally or Through
Acquisitions.
Our growth strategy primarily focuses on internal growth in domestic
and international freight forwarding, local pick up and delivery, customs
brokerage and acquisitions. Our ability to grow will depend on a number of
factors, including:
- existing and emerging competition;
- ability to operate profitably in the face of competitive pressures;
- the recruitment, training and retention of operating and management
employees;
- the strength of demand for our services;
- the availability of capital to support our growth; and
- the ability to identify, negotiate and fund acquisitions when
appropriate.
2. Acquisitions Involve Risks, Including Those Relating to:
- the integration of acquired businesses, including different
information systems;
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- the retention of prior levels of business;
- the retention of employees;
- the diversion of management attention;
- the write-offs resulting from impairment of acquired intangible
assets; and
- unexpected liabilities.
We cannot assure that we will be successful in implementing any of our
business strategies or plans for future growth.
3. Events Affecting the Volume of International Trade and International
Operations Could Adversely Affect Our International Operations.
Our international operations are directly related to and dependent on
the volume of international trade, particularly trade between the United States
and foreign nations. This trade, as well as our international operations, are
influenced by many factors, including:
- economic and political conditions in the United States and abroad;
- major work stoppages, such as the 2002 West Coast work stoppage;
- exchange controls, currency conversion and fluctuations;
- wars, other armed conflicts and terrorism; and
- United States and foreign laws relating to tariffs, trade
restrictions, foreign investment and taxation.
Trade-related events beyond our control, such as a failure of various
nations to reach or adopt international trade agreements or an increase in
bilateral or multilateral trade restrictions, could have a material adverse
effect on our international operations. Our operations also depend on the
availability of independent carriers that provide cargo space for international
operations.
4. Our Business Has Been and Could Continue to Be Adversely Affected by Negative
Conditions in the United States Economy or the Industries of Our Principal
Customers.
Demand for our services had been adversely affected by negative
conditions in the United States economy or the industries of our customers. A
substantial number of our principal customers are in the household products,
garments, industrial equipment, telecommunications and related industries, and
their business had been adversely affected, particularly during the 2001-2002
period. These customers collectively account for a substantial percentage of our
revenues. Adverse conditions or worsening conditions in the industries of our
customers could cause us to lose a significant customer or experience a decrease
in the shipment volume and business levels of our customers. Either of these
events could negatively affect our financial results. Adverse economic
conditions outside the United States can also have an adverse effect on our
customers and our business. We expect that demand for our services, and
consequently our results of operations, will be sensitive to domestic and global
economic conditions and other factors beyond our control.
5. The Terrorist Attacks on September 11, 2001, Have Created Economic, Political
and Regulatory Uncertainties, Some of Which May Materially Harm Our Business and
Prospects and Our Ability to Conduct Business in the Ordinary Course.
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The terrorist attacks that took place in the United States on September
11, 2001, have adversely affected many businesses, including our business. The
national and global responses to these terrorist attacks, which are varied and
unpredictable, may materially adversely affect us in ways we cannot currently
predict. Some of the possible future effects include reduced business activity
by our customers, increased shipping costs, changes in security measures or
regulatory requirements for air and other travel and reductions in available
commercial flights that may make it more difficult for us to arrange for the
transport of our customers' freight and increased credit and business risk for
customers in industries that were severely affected by the attacks.
6. Our Ability to Serve Our Customers Depends on the Availability of Cargo Space
from Third Parties.
Our ability to serve our customers depends on the availability of air
and sea cargo space, including space on passenger and cargo airlines and ocean
carriers that service the transportation lanes that we use. Shortages of cargo
space are most likely to develop around holidays and in especially heavy
shipment lanes. In addition, available cargo space could be reduced as a result
of decreases in the number of passenger airlines or ocean carriers serving
particular transportation lanes at particular times. This could occur as a
result of economic conditions, transportation strikes, regulatory changes and
other factors beyond our control. Our future operating results could be
adversely affected by significant shortages of suitable cargo space and
associated increases in rates charged by passenger airlines or ocean carriers
for cargo space.
7. We May Lose Business to Competitors.
Competition within the freight industry is intense. We compete in North
America primarily with fully integrated carriers, including much larger and
well-financed national companies and smaller freight forwarders.
Internationally, we compete primarily with the major European-based freight
forwarders. We expect to encounter continued competition from those forwarders
that have a predominantly international focus and have established international
networks, including those based in the United States and Europe. We also expect
to continue to encounter competition from other forwarders with nationwide
networks, regional and local forwarders, passenger and cargo air carriers,
trucking companies, cargo sales agents and brokers, and carriers and
associations of shippers organized for the purpose of consolidating their
members' shipments to obtain lower freight rates from carriers. As a customs
broker and ocean freight forwarder, we encounter strong competition in every
port in which we do business, often competing with large domestic and foreign
firms as well as local and regional firms. Our inability to compete successfully
in our industry could cause us to lose customers or lower the volume of our
shipments.
8. Our Success Depends on the Efforts of Our Founder and Other Key Managers and
Personnel.
Our founder, James N. Jannello, continues to serve as Executive Vice
President and Chief Executive Officer, and Stephen P. Cesarski continues to
serve as President and Chief Operating Officer. We believe that our success is
highly dependent on the continuing efforts of Mr. Jannello and the other
executive officers and key employees, as well as our ability to attract and
retain other skilled managers and personnel. None of our officers or key
employees are subject to employment contracts. The loss of the services of any
of our key personnel could have a material adverse effect on us.
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9. Janel's Officers and Directors Control the Company.
The officers and directors of the company control the vote of
approximately 72% of the outstanding shares of common stock. The company's stock
option plan provides 1,600,000 shares of common stock regarding which options
may be granted to key employees of the company. As a result, the officers and
directors of the company control the election of the company's directors and
will have the ability to control the affairs of the company. Furthermore, they
will, by virtue of their control of a large majority of the voting shares, have
controlling influence over, among other things, the ability to amend the
company's Certificate of Incorporation and By-Laws or effect or preclude
fundamental corporate transactions involving the company, including the
acceptance or rejection of any proposals relating to a merger of the company or
an acquisition of the company by another entity.
10. Failure to Comply with Governmental Permit and Licensing Requirements Could
Result in Fines or Revocation of Our Operating Authorities, and Changes in These
Requirements Could Adversely Affect Us.
Our operations are subject to various state, local, federal and foreign
regulations that in many instances require permits and licenses. Our failure to
maintain required permits or licenses, or to comply with applicable regulations,
could result in substantial fines or revocation of our operating authorities.
Moreover, government deregulation efforts, "modernization" of the regulations
governing customs clearance and changes in the international trade and tariff
environment could require material expenditures or otherwise adversely affect
us.
11. Our Stock Price Is Subject to Volatility.
Our common stock trades on the OTC Bulletin Board under the symbol
"JLWT." The market price of our common stock has been subject to significant
fluctuations. Such fluctuations, as well as economic conditions generally, may
adversely affect the market price of our securities.
12. We Have No Assurance of a Continued Public Trading Market.
Janel's common stock is quoted in the over-the-counter market on the
OTC Bulletin Board and is subject to the low-priced security or so-called "penny
stock" rules that impose additional sales practice requirements on
broker-dealers who sell such securities. For any transaction involving a penny
stock, the rules require, among other things, the delivery, prior to the
transaction, of a disclosure schedule required by the SEC relating to the penny
stock market. The broker-dealer also must disclose the commissions payable to
both the broker-dealer and the registered representative and current quotations
for the securities. Finally, monthly statements must be sent disclosing recent
price information for the penny stocks held in the customer's account. As a
result, characterization as a "penny stock" can adversely affect the market
liquidity for the securities.
13. We Have No History of Paying Dividends.
Janel has not paid cash dividends on our common stock. We currently
anticipate that we will retain all future earnings for use in our business and
do not anticipate paying any cash dividends in the foreseeable future.
Item 2. Properties
Janel leases all of its office facilities. The executive offices in
Jamaica, New York consist of approximately 5,000 square feet of office space
adjoined by 9,000 square feet of warehouse space, all subject to a lease with a
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term ending January 31, 2010, and an annual base rent of $132,300 through
January 31, 2005, and $145,500 thereafter. Its administrative office in
Lynbrook, New York is approximately 1,318 square feet and is occupied under a
lease which expires February 28, 2008, with an annual rent of $35,000 for 2004,
which increases to $38,000 in the last year of the lease. Janel's Illinois
office occupies approximately 2,063 square feet with an additional 800 square
feet of warehouse space under a lease which expires June 30, 2005, with an
annual rent of $30,000. Janel's Georgia location occupies approximately 3,000
square feet of office and warehouse space, under a lease which expires in August
31, 2006 with an annual rent of $29,000. Janel's Los Angeles office occupies
approximately 3,000 square feet of office under a lease which expires in June
2007 with an annual rent of $61,380. Certain of the leases also provide for
annual increases based upon increases in taxes or service charges.
Item 3. 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.
Item 4. Submission of Matters to a Vote of Security Holders
There was no submission of matters to a vote of security holders during
the company's fiscal year ended September 30, 2003.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The company's common stock is quoted on the OTC Bulletin Board. The
following table sets forth the range of the high and low bid prices for the
company's common stock as reported on the OTC Bulletin Board for the periods
indicated. Quotations do not necessarily represent actual transactions and do
not reflect related mark-ups, mark-downs or commissions:
Fiscal 2003 High Bid Low Bid
- -------------- -------- -------
First Quarter $ .67 $ .24
Second Quarter $ .35 $ .21
Third Quarter $ .67 $ .26
Fourth Quarter $ .85 $ .52
Fiscal 2002 High Bid Low Bid
- -------------- -------- -------
First Quarter -- --
Second Quarter -- --
Third Quarter $ .05 $ .01
Fourth Quarter $2.25 $ .05
At December 1, 2003, the company had 57 holders of record and
approximately 600 beneficial holders of its shares of common stock. On December
24, 2003, the last sale price of the shares of common stock as reported by the
OTC Bulletin Board was $.90 per share.
Securities which were issued or sold by the Registrant within the past
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three years and which were not registered under the Securities Act of 1933 (the
"Securities Act"), are as follows:
On July 22, 2002, Janel's Board of Directors authorized the sale and
issuance of up to 1,803,000 shares of restricted common stock for a purchase
price of $.01 per share to a list of 43 employees and five consultants as an
incentive for performance. A total of 1,801,000 shares were purchased for an
aggregate cash consideration of $18,010, all of which was applied to the
company's general working capital.
On October 28, 2002, Janel's Board of Directors approved an agreement
for the sale and issuance of 42,000 shares of restricted common stock to the
company's attorneys in consideration for a reduction of $15,609 of outstanding
legal fees and costs, which was satisfied by the issuance and delivery of the
shares.
Exemption from registration under the Securities Act is claimed for the
sales of common stock referred to above in reliance upon the exemption afforded
by Section 4(2) of the Securities Act for transactions not involving a public
offering. Each certificate evidencing such shares of common stock bears an
appropriate restrictive legend, and "stop transfer" orders are maintained on the
company's stock transfer records with respect to each of the holders of that
common stock. None of the sales involved participation by an underwriter or a
broker-dealer.
Item 6. Selected Financial Data
Year Ended September 30,
- ------------------------------------------------------------------------------------------------------------------------------
2003 2002 2001 2000 1999
- ------------------------------------------------------------------------------------------------------------------------------
Freight Forwarding Revenues $ 56,916,276 $ 44,848,442 $ 46,650,094 $ 53,160,777 $ 46,862,628
------------ ------------ ------------ ------------ ------------
- ------------------------------------------------------------------------------------------------------------------------------
Net Income (Loss) $ 196,787 $ (118,783) $ 38,966 $ (130,647) $ 12,632
------------ ------------ ------------ ------------ ------------
- ------------------------------------------------------------------------------------------------------------------------------
Net Income (Loss) per common share $ 0.0117 $ (0.0077) N/A N/A N/A
------------ ------------ ------------ ------------ ------------
- ------------------------------------------------------------------------------------------------------------------------------
Total Assets $ 5,798,260 $ 4,726,296 $ 4,732,370 $ 5,038,883 $ 5,095,406
------------ ------------ ------------ ------------ ------------
- ------------------------------------------------------------------------------------------------------------------------------
Long-Term Obligations $ 78,568 $ 78,568 $ 153,619 $ 212,343 $ 260,493
------------ ------------ ------------ ------------ ------------
- ------------------------------------------------------------------------------------------------------------------------------
Cash Dividends Declared
- ------------------------------------------------------------------------------------------------------------------------------
per common share N/A N/A N/A N/A N/A
------------ ------------ ------------ ------------ ------------
- ------------------------------------------------------------------------------------------------------------------------------
13
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Forward-Looking Statements
The statements contained in all parts of this document that are not
historical facts are, or may be deemed to be, "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. Such forward-looking statements include,
but are not limited to, those relating to the following: the effect and benefits
of the company's reverse merger transaction; Janel's plans to reduce costs
(including the scope, timing, impact and effects thereof); potential annualized
cost savings; plans for direct entry into the trucking and warehouse
distribution business (including the scope, timing, impact and effects thereof);
the company's ability to improve its cost structure; plans for opening
additional domestic and foreign branch offices (including the scope, timing,
impact and effects thereof); the sensitivity of demand for the company's
services to domestic and global economic and political conditions; expected
growth; future operating expenses; future margins; fluctuations in currency
valuations; fluctuations in interest rates; future acquisitions and any effects,
benefits, results, terms or other aspects of such acquisitions; ability to
continue growth and implement growth and business strategy; the ability of
expected sources of liquidity to support working capital and capital expenditure
requirements; future expectations and outlook and any other statements regarding
future growth, cash needs, operations, business plans and financial results and
any other statements that are not historical facts.
When used in this document, the words "anticipate," "estimate,"
"expect," "may," "plans," "project," and similar expressions are intended to be
among the statements that identify forward-looking statements. Janel's results
may differ significantly from the results discussed in the forward-looking
statements. Such statements involve risks and uncertainties, including, but not
limited to, those relating to costs, delays and difficulties related to the
company's dependence on its ability to attract and retain skilled managers and
other personnel; the intense competition within the freight industry; the
uncertainty of the company's ability to manage and continue its growth and
implement its business strategy; the company's dependence on the availability of
cargo space to serve its customers; effects of regulation; its vulnerability to
general economic conditions and dependence on its principal customers; accuracy
of accounting and other estimates; risk of international operations; risks
relating to acquisitions; the company's future financial and operating results,
cash needs and demand for its services; and the company's ability to maintain
and comply with permits and licenses; as well as other risk factors described in
this Annual Report. Should one or more of these risks or uncertainties
materialize, or should underlying assumptions prove incorrect, actual outcomes
may vary materially from those projected.
Overview
Janel operates its business as a single segment primarily comprised of
full-service cargo transportation logistics management, including freight
forwarding via air, ocean and land-based carriers, customs brokerage services,
warehousing and distribution services, and other value-added logistics services.
The following discussion and analysis addresses the results of
operations for the fiscal year ended September 30, 2003, as compared to the
results of operations for the fiscal year ended September 30, 2002; the fiscal
14
year ended September 30, 2002 as compared to the results of operations for the
fiscal year ended September 30, 2001; and the results of operations for the
fiscal year ended September 30, 2001, as compared to the results of operations
for the fiscal year ended September 30, 2000. The discussion and analysis then
addresses the liquidity and financial condition of the company, and other
matters.
Results of Operations - Fiscal Year Ended September 30, 2003 Compared to Fiscal
Year Ended September 30, 2002
Revenue.
Total forwarding revenue for fiscal 2003 was a record $56,916,276 as
compared to $44,848,442 for fiscal 2002, a year-over-year increase of
$12,067,834, or 26.9%. The increase in revenue was primarily due to the general
improvement in international trade during fiscal 2003 in all of the principal
industry sectors served by the company, in particular, wearing apparel and
finished garments, household electronics and sporting goods and accessories.
During fiscal 2003, the company substantially increased its overall business
activities with existing clients as well as through the addition of new clients,
with the company having serviced approximately 1,000 individual clients
accounting for approximately 28,000 shipments, as compared to approximately 700
individual clients accounting for approximately 25,000 shipments in fiscal 2002.
Net revenue (forwarding revenue minus forwarding expenses) in fiscal 2003 was a
record $6,315,977, an increase of $492,652 or 8.5%, as compared to $5,823,325 in
fiscal 2002.
Forwarding Expense.
Forwarding expense 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. Forwarding
expense also includes any duties and/or trucking charges related to the
shipments. For fiscal year 2003, forwarding expense increased by $11,575,182, or
29.7%, to $50,600,299 as compared to $39,025,117 for fiscal year 2002.
Forwarding expense increased year-over-year at a slightly higher percentage than
forwarding revenue because, in fiscal 2003, a somewhat higher proportion of the
company's total shipments utilized ocean freight, for which the company earns
slightly lower margins than for air freight.
Selling, General and Administrative Expense.
Selling, general and administrative expense increased $385,007, or
6.9%, to $5,956,591 in fiscal 2003 as compared to $5,571,584 in fiscal 2002.
However, as a percentage of revenue, SG&A expense in fiscal 2003 was 10.46%, an
improvement of 196 basis points as compared to 12.42% as a percentage of revenue
in fiscal 2002.
Income from Operations.
Janel's income from operations rose $105,880, or 45.9%, to a record
$336,652 in fiscal 2003 as compared to $230,682 in fiscal 2002. The relatively
greater percentage increase in operating income as compared to year-over-year
revenue generally reflects the positive leverage effect derived from the largely
fixed nature of SG&A expense. The operating income margin (income from
15
operations divided by net revenue) improved by 137 basis points to 5.33% in
fiscal 2003 from 3.96% in fiscal 2002.
Impairment Loss.
In the fourth quarter of fiscal 2002, Janel booked a nonrecurring,
non-cash charge of $250,000 for an impairment loss related to the company's July
26, 2002 reverse merger transaction with Wine Systems Design, Inc. ("WSD"),
through which Janel World Trade, Ltd. became a publicly traded company. Under
the terms of the transaction, 4,000,000 shares of Janel common stock remaining
with the former WSD shareholders were assigned a value of $250,000 representing
the estimated fair value of the transaction. This amount, which represented the
cost of the acquisition over the fair value of net assets acquired, was
attributed to goodwill. The goodwill was subsequently reviewed for impairment
and was written off. No similar charge was incurred in fiscal 2003.
Income (Loss) Before Income Taxes.
Income before taxes in fiscal 2003 was a record $356,287, the same as
income from operations, as compared to a loss before taxes of $(9,283) in fiscal
2002. This represented a year-to-year improvement of $365,570. As discussed
above, fiscal 2002 income before income taxes included the effect of the
non-recurring charge for impairment loss of $250,000 in that year's fourth
quarter. Excluding the effect of the impairment loss and interest and dividend
income, Janel's income before taxes in fiscal 2002 would have been the same as
its income from operations, i.e., $230,682.
Income Taxes.
The effective income tax rate in both fiscal 2003 and fiscal 2002
reflects the U.S. federal statutory rate and applicable state income taxes. The
charge for impairment loss in fiscal 2002 was non-tax deductible and, therefore,
did not affect the company's provision for income taxes in that year.
Net Income (Loss).
For fiscal 2003, Janel reported record net income of $196,787, an
increase of $315,570 as compared to the reported net loss of $(118,783) in
fiscal 2002, which included the effect of the one-time impairment loss described
above. However, excluding the effect of the charge for impairment loss, the
company's net income for fiscal 2002 would have been $131,217. Janel's net
profit margin (net income as a percent of net revenue) was 3.12% in fiscal 2003,
an improvement of 516 basis points as compared to (2.04)% in fiscal 2002 (or an
improvement of 87 basis points as compared to 2.25% in fiscal 2002, excluding
the impairment loss).
Results of Operations - Fiscal Year Ended September 30, 2002 Compared to Fiscal
Year Ended September 30, 2001
Revenue.
Total revenue for fiscal 2002 was $44,848,442 as compared to
$46,650,094 for fiscal 2001, a year-over-year decrease of $(1,801,652), or
16
(3.9)%. The lower level of revenue was primarily due to the general decline in
international trade over the course of the year following the events of
September 11, 2001.
Forwarding Expense.
Forwarding expense 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. Forwarding
expense also includes any duties and/or trucking charges related to the
shipments. For fiscal year 2002, forwarding expense decreased by $1,717,066, or
4.2%, to $39,025,117 as compared to $40,742,183 for fiscal year 2001. The
decline was consistent with the lower level of forwarding revenue
year-over-year.
Selling, General and Administrative Expense.
Selling, general and administrative expense decreased $274,800, or
4.7%, to $5,571,584 in fiscal 2002 as compared to $5,846,384 in fiscal 2001. As
a percentage of revenue, SG&A expense in fiscal 2002 at 12.42% remained
essentially flat as compared to the prior year.
Income from Operations.
Primarily as a result of the proportionately greater percentage
declines in forwarding and SG&A expenses relative to the percentage decline in
revenue in fiscal 2002 as compared to fiscal 2001, Janel's income from
operations rose $203,259, or 741.2%, to $230,682 in fiscal 2002 as compared to
$27,423 in fiscal 2001. Despite the year-over-year decline in revenue, the
operating income margin (i.e., based on income before taxes and other items) on
net revenue (total forwarding revenue less forwarding expenses) increased by 350
basis points from 0.46% in fiscal 2001 to 3.96% in fiscal 2002.
Impairment Loss.
In the fourth quarter of fiscal 2002, Janel booked a non-recurring,
non-cash charge of $250,000 for an impairment loss related to the company's
reverse merger transaction with Wine Systems Design, Inc. ("WSD"), completed on
July 26, 2002, and through which Janel World Trade, Ltd. became a publicly
traded company. Under the terms of the transaction, 4,000,000 shares of Janel
common stock were assigned a value of $250,000 representing the estimated fair
value of the WSD public shell. This amount, which represented the cost of the
acquisition over the fair value of net assets acquired, was attributed to
goodwill. The goodwill was subsequently reviewed for impairment and was written
off.
Income (Loss) Before Income Taxes.
Primarily as a result of the nonrecurring charge for impairment loss of
$250,000, the company reported a loss before income taxes of $(9,283) in fiscal
2002 as compared to income before income taxes of $66,666 in fiscal 2001.
Excluding the effect of the impairment loss, Janel's income before taxes in
fiscal 2002 would have been $240,717, an increase of $174,051 or 261.1% as
compared to income before taxes reported in fiscal 2001.
Income Taxes.
The effective income tax rate in both the fiscal 2002 and fiscal 2001
years reflects the U.S. federal statutory rate and applicable state income
taxes. The charge for impairment loss was non-tax deductible and, therefore, did
not affect the company's provision for income taxes.
17
Net Income (Loss).
For fiscal 2002, Janel reported a net loss of $(118,783), a decrease of
$(157,749) as compared to reported net income of $38,966 in fiscal 2001.
However, excluding the effect of the charge for impairment loss, the company's
net income for fiscal 2002 would have been $131,217, an increase of $92,251 or
236.7% as compared to fiscal 2001. On the same basis, Janel's net profit margin
(net income as a percent of net revenue) would have increased by 159 basis
points from 0.66% in fiscal 2001 to 2.25% in fiscal 2002.
Results of Operations - Fiscal Year Ended September 30, 2001 Compared to Fiscal
Year Ended September 30, 2000
Revenue.
Forwarding revenue for fiscal 2001 were $46,650,094 as compared to
$53,160,777 for fiscal 2000, a year-over-year decrease of $(6,510,683), or
(12.2)%. The lower level of revenue was primarily due to the winding down and
cessation in late 2000 of a contract under which Janel had supplied tower and
container equipment and associated services to a telecom-related customer in
Southeast Asia.
Forwarding Expense.
For fiscal year 2001, forwarding expense decreased by $6,278,073, or
13.4%, to $40,742,183 as compared to $47,020,256 for fiscal year 2000. The
decline was consistent with the lower level of forwarding revenue
year-over-year.
Selling, General and Administrative Expense.
Selling, general and administrative expenses decreased $384,828, or
6.2%, to $5,846,384 in fiscal 2001 as compared to $6,231,212 in fiscal 2000.
Primarily due to the relatively fixed nature of year-over-year expenses
associated with SG&A, when compared to the lower base of revenue in fiscal 2001,
SG&A expense as a percentage of revenue in fiscal 2001 increased to 12.52% as
compared to 11.72% in fiscal 2000.
Income (Loss) Before Income Taxes.
Primarily as a result of the proportionately greater percentage decline
in forwarding expense relative to the percentage decline in revenue in fiscal
2001 as compared to fiscal 2000, the company reported income before income taxes
of $66,666 in fiscal 2001 as compared to a loss before income taxes of
$(102,847) in fiscal 2000. For fiscal 2001, the pretax income margin on net
revenue (forwarding revenue less forwarding expenses) was 1.13% in fiscal 2001
versus a corresponding pretax income margin that was negative in fiscal 2000.
Income Taxes.
The effective income tax rate in both the fiscal 2001 and fiscal 2000
years reflects the U.S. federal statutory rate and applicable state income
taxes.
Net Income (Loss).
For fiscal 2001, Janel reported a net income of $38,966, an increase of
$169,613 as compared to reported net loss of $(130,647) in fiscal 2000. The
company's net profit margin was 0.66% in fiscal 2001 versus a negative margin in
fiscal 2000 based on the net loss reported for the year.
18
Liquidity and Capital Resources
Janel's ability to meet its liquidity requirements, which include
satisfying its debt obligations, funding working capital, day-to-day operating
expenses and capital expenditures depends upon its future performance, which is
subject to general economic conditions and other factors, some of which are
beyond its control. During the 12 months ended September 30, 2003, Janel's
primary requirements for working capital have been directly related to the
funding of increased accounts receivable.
At September 30, 2003, cash decreased by $138,535 to $1,060,406 from
$1,198,941 at September 30, 2002. For the 12 months ended September 30, 2003,
Janel's primary use of cash in operating activities was to finance an increase
in its accounts receivable by $1,248,272, partially offset by an increase in
accounts payable and accrued expenses of $342,507 and an increase in prepaid
expenses and sundry current assets of $40,998. For financing activities, Janel
increased cash through bank borrowings of $500,000.
At September 30, 2002, cash decreased by $230,141 to $1,198,941 from
$1,429,082 at September 30, 2001. For the 12 months ended September 30, 2002,
Janel's primary use of cash in operating activities was to finance an increase
in its accounts receivable by $321,037, partially offset by an increase in
accounts payable and accrued expenses of $36,462. For financing activities,
Janel used cash to repay long-term debt of $99,608 (primarily capitalized lease
obligations maturing by September 30, 2002) and bank borrowings of $25,000.
At September 30, 2003, Janel had $700,000 ($100,000 as of September 30,
2002)of available borrowings remaining under a line of credit with a bank
pursuant to which it may borrow up to $1,500,000 ($400,000 as of September 30,
2002) bearing interest at prime plus one-half of one percent, collateralized by
certificates of deposit. Management believes anticipated cash flow from
operations and availability under a line of credit is sufficient to meet the
working capital and operating needs of its currently existing sources of
business. However, the company is also proceeding with its comprehensive growth
strategy for fiscal 2004 and beyond, which encompasses a number of potential
elements, as detailed below under "Current Outlook." To successfully execute
various of these growth strategy elements in the coming months, the company will
need to secure additional capital funding estimated at up to $6,000,000 during
that period. There is no guarantee either that such additional capital as
necessary to execute the company's business plan and intended growth strategy
will be available or, if available, will be extended to the company at mutually
acceptable terms.
Reverse Merger with Wine Systems Design, Inc.
In June and July 2002, C and N Corp., a predecessor of the company,
entered into and completed a reverse merger transaction with Wine Systems
Design, Inc., formally changed the corporate name to Janel World Trade, Ltd. and
became a public company traded on the OTC Bulletin Board under the symbol
"JLWT." As a result of the merger transaction and related amendments to the
company's certificate of incorporation, Janel is authorized to issue up to
225,000,000 shares of common stock, $.001 par value each, of which 16,843,000
shares are currently issued and outstanding.
Current Outlook
Janel is primarily engaged in the business of providing full-service
19
cargo transportation logistics management, including freight forwarding - via
air, ocean and land-based carriers - customs brokerage services, warehousing and
distribution services, and other value-added logistics services. Its results of
operations are affected by the general economic cycle, particularly as it
influences global trade levels and specifically the import and export activities
of Janel's various current and prospective customers. Historically, the
company's quarterly results of operations have been subject to seasonal trends
which have been the result of, or influenced by, numerous factors including
climate, national holidays, consumer demand, economic conditions, the growth and
diversification of its international network and service offerings, and other
similar and subtle forces.
Based upon the results for the fiscal year ended September 30, 2003,
and its current operations, Janel projects that gross revenue from its currently
existing accounts and businesses for its fiscal year ending September 30, 2004
will grow by approximately 10-15% to approximately $62-$65 million.
In addition, Janel is progressing with the implementation of its
business plan and strategy to grow its revenue and profitability for fiscal 2004
and beyond through other avenues. The company's strategy for growth includes
plans to: open additional branch offices domestically and/or outside the
continental United States; introduce additional revenue streams for its existing
headquarters and branch locations; proceed with negotiations and due diligence
with privately held transportation-related firms which may ultimately lead to
their acquisition by the company; expand its existing sales force by hiring
additional commission-only sales representatives with established customer
bases; increase its focus on growing 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; 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. Assuming successful execution of substantial elements of these
growth strategies, the company projects that gross revenue for fiscal 2004
(which may approximate $100 million) could be significantly greater than its
gross revenue for fiscal 2003, and that profitability will be commensurately
greater than should Janel's fiscal 2003 results, as well.
Item 7a. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item 8. Financial Statements and Supplementary Data
The financial statements and supplementary data required by this Item 8
are included in the company's Consolidated Financial Statements listed in Item
15(a) of this Annual Report.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
On July 26, 2002, Janel's Board of Directors accepted the resignation
of Michael L. Stuck, CPA, P.C. as the company's independent certifying
accountant and confirmed the appointment of Paritz & Company, P.A. as its
independent certifying accountant to audit its financial statements for the year
ended September 30, 2002, as well as for the years ended September 30, 2001,
2000 and 1999.
The decision to change independent auditors was the result of the
reverse merger transaction (which is discussed in the company's Form 8-K Report
dated July 16, 2002 and filed July 18, 2002) whereby Janel was acquired by Wine
20
Systems Design, Inc. The independent certifying accountant of Wine Systems
Design, Inc. had been Michael L. Stuck, CPA, P.C. The merger resulted in the
business of Janel becoming the business of the company and the officers and
directors of Janel becoming the officers and directors of the company. Paritz &
Company, P.A. has been the independent certifying accountant of the corporate
predecessor of Janel for many years and was therefore familiar with its
financial books and records and accounting principles.
Janel believes, and has been advised by Michael L. Stuck, CPA, P.C.
that it concurs in such belief, that (a) the company and Michael L. Stuck, CPA,
P.C. did not have any disagreement on a matter of accounting principles or
practices, financial statement disclosure or auditing scope or procedure during
the period ended June 30, 2001 and through the date of that firm's resignation
within the meaning of Item 304(a)(1)(iv)(A) of Regulation S-K promulgated under
the Securities Exchange Act of 1934, and (b) there were no events of the kind
set forth in Item 304(a)(1)(v)(A) of Regulation S-K.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures.
As required by Rule 13a-15 under the Act, within the 90 days prior to
the filing date of this report, the company carried out an evaluation of the
effectiveness of the design and operation of the company's disclosure controls
and procedures. This evaluation was carried out under the supervision and with
the participation of the company's management, including the company's Executive
Vice President and Chief Executive Officer, President and Chief Operating
Officer, and Controller and Principal Financial and Accounting Officer. Based
upon that evaluation, the company's Executive Vice President and Chief Executive
Officer, President and Chief Operating Officer and Controller and Principal
Financial and Accounting Officer, have concluded that the company's disclosure
controls and procedures are effective in timely alerting them to material
information relating to the company required to be included in the company's
periodic SEC filings.
Disclosure controls and procedures are controls and other procedures
that are designed to ensure that information required to be disclosed in company
reports filed or submitted under the Act is recorded, processed, summarized and
reported, within the time periods specified in the SEC rules and forms.
Disclosure controls and procedures include, without limitation, controls and
procedures designed to ensure that information required to be disclosed in
company reports filed under the Exchange Act is accumulated and communicated to
management, including the company's Chief Executive Officer, Chief Operating
Officer, and Principal Financial and Accounting Officer as appropriate, to allow
timely decisions regarding required disclosures.
Changes in Internal Controls.
There have been no changes in internal controls or in other factors
that could significantly affect these controls subsequent to the date of their
evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.
Item 10. Directors and Executive Officers of the Registrant
The executive officers and directors of the Registrant are as follows:
21
Name Age Position
- ---- --- --------
Stephen P. Cesarski 58 President, Chief
Operating Officer and Director
James N. Jannello 59 Executive Vice President,
Chief Executive Officer and
Director
William J. Lally 50 Director
Ruth Werra 62 Secretary
Linda Bieler 42 Controller and Chief Financial
and Accounting Officer
Stephen P. Cesarski has been the President and a director of Janel
since 1978. Mr. Cesarski is the Chief Operating Officer and is principally
engaged in sales and marketing and also manages the export side of the company's
business.
James N. Jannello is the Executive Vice President and has been the
Chief Executive Officer of Janel since it was founded in 1974. Mr. Jannello's
principal function is the overseeing of all of the company's operations,
management of the import side of the business and the setting of billing rates
and charges, and the maintenance of relationships with overseas agents
worldwide. Mr. Jannello is a licensed Customs House Broker.
William J. Lally was initially employed by Janel in New York City in
1975 and moved to Chicago, Illinois in 1979, where he is the President of the
Janel Group of Illinois, Inc. Mr. Lally became a director of the company in July
2002.
Ruth Werra has been the Secretary of Janel since 1994 and has been
employed by the company since 1975. She is the office manager of the New York
executive office and oversees the maintenance of Janel's corporate records. Mrs.
Werra also oversees the entry and clearance of all personal effects shipments
handled by the New York office.
Linda Bieler has been the Controller of Janel since 1994. She is the
Chief Financial and Accounting Officer and oversees accounting operations for
all branches, and manages its information systems and generation of its reports.
Directors hold office until the next annual meeting of shareholders and
thereafter until their successors have been duly elected and qualified. The
executive officers are elected by the Board of Directors on an annual basis and
serve under the direction of the board. Executive officers devote all of their
business time to the company's affairs.
Janel's Board of Directors does not yet include any "independent"
directors, and the company does not have a separate Audit Committee or a
Compensation Committee.
Item 11. Executive Compensation.
Summary Compensation Table
The following table sets forth, for the fiscal years ended September
30, 2003, 2002 and 2001, the cash compensation paid by the company, as well as
certain other compensation paid with respect to those years and months, to the
Chief Executive Officer and, to the extent applicable, each of the three other
most highly compensated executive officers of the company in all capacities in
which they served.
JANEL WORLD TRADE LTD. AND SUBSIDIARIES
SUMMARY COMPENSATION TABLE
ANNUAL
COMPENSATION LONG-TERM COMPENSATION
----------------------------- ---------------------------
NAME AND
PRINCIPAL
POSITION AWARDS PAYOUTS
OTHER ANNUAL RESTRICTED SECURITIES LTIP ALL OTHER
YEAR SALARY BONUS COMPENSATION STOCK UNDERLYING PAYOUTS COMPENSATION
($) ($) ($) AWARDS ($) OPTIONS/ SARS (#) ($)
-------------------------------------------------------------------------------------------------------
Stephen Cesarski (1) 2001 155,680 45,000 21,415 (1)
President 2002 153,285 35,000 17,981 (1)
2003 164,085 6,080 41,772 (1)
- ------------------------------------------------------------------------------------------------------------------------------------
James Jannello (2) 2001 149,680 45,200 13,615 (2)
Executive Vice President 2002 147,377 35,000 13,685 (2)
2003 160,337 6,080 50,729 (2)
- ------------------------------------------------------------------------------------------------------------------------------------
Noel J. Jannello (3) 2001 118,460 11,712 (3)
Vice President 2002 118,436 8,819 (3)
2003 124,426 13,913 (3)
- ------------------------------------------------------------------------------------------------------------------------------------
William Lally (4) 2001 100,560 7,423 (4)
Director 2002 100,560 4,075 (4)
2003 108,382 21,004 (4)
- ------------------------------------------------------------------------------------------------------------------------------------
(1) Includes $11,374, $9,783 and $8,774 of medical insurance premiums paid on
behalf of such individual for each of the fiscal years ended 2003, 2002 and
2001, respectively, $26,002, $6,009 and $6,009 for automobile and
automobile-related costs, including insurance, incurred on behalf of such
individual, for each of the fiscal years ended 2003, 2002 and 2001,
respectively, $4,396, $2,189 and $1,703 of 401K paid on behalf of such
individual for each of the fiscal years ended 2003, 2002 and 2001, respectively,
$4,929 of profit-sharing contribution paid on behalf of such individual,
respectively, for the fiscal year ended 2001.
(2) Includes $10,494, $5,761 and $1,211 of medical insurance premiums paid on
behalf of such individual for each of the fiscal years ended 2003, 2002 and
2001, respectively, $35,895, $5,819 and $5,819 for automobile and
automobile-related costs, including insurance, incurred on behalf of such
individual, for each of the fiscal years ended 2003, 2002 and 2001,
respectively, $4,340, $2,105 and $1,656 of 401K paid on behalf of such
individual for each of the fiscal years ended 2003, 2002 and 2001, respectively,
$4,929 of profit-sharing contribution paid on behalf of such individual,
respectively, for the fiscal year ended 2001.
(3) Includes $4,500, $4,500 and $4,500 of medical insurance premiums paid on
behalf of such individual for each of the fiscal years ended 2003, 2002 and
2001, respectively, $6,496, $3,000 and $2,750 for automobile and
automobile-related costs, including insurance, incurred on behalf of such
individual, for each of the fiscal years ended 2003, 2002 and 2001,
respectively, $2,917, $1,319 and $948 of 401K paid on behalf of such individual
for each of the fiscal years ended 2003, 2002 and 2001, respectively, $3,514 of
profit-sharing contribution paid on behalf of such individual, respectively, for
the fiscal year ended 2001.
(4) Includes $19,643, $4,075 and $4,075 for automobile and automobile-related
costs, including insurance, incurred on behalf of such individual for each of
the fiscal years ended 2003, 2002 and 2001, respectively, $1,361 and $314 of
401K paid on behalf of such individual for each of the fiscal years ended 2003
and 2001, respectively, $3,034 of profit-sharing contribution paid on behalf of
such individual, respectively, for the fiscal year ended 2001.
22
Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matter
The following table sets forth certain information regarding shares
of common stock beneficially owned as of December 29, 2003, by (i) each person,
known to the company, who beneficially owns more than 5% of the common stock,
(ii) each of the company's directors and (iii) all officers and directors as a
group:
Name and Address of Shares Beneficially Percentage of
Beneficial Owner Owned Stock Outstanding (1)
- -------------------- ------------------- ---------------------
Stephen P. Cesarski 5,500,000 32.65%
150-14 132nd Avenue
Jamaica, NY 11434
James N. Jannello 5,500,000 32.65%
150-14 132nd Avenue
Jamaica, NY 11434
William J. Lally 1,000,000 5.94%
17 West 312th Deer Path Rd.
Bensenville, IL 60106
All Officers and Directors 12,050,000 71.54%
as a Group (5 persons)
- ----------
(1) All of these shares are owned of record.
Common Stock
Janel is authorized to issue up to 225,000,000 shares of common stock,
$.001 par value each, of which 16,843,000 shares are currently issued and
outstanding. The holders of common stock are entitled to one vote for each share
held of record on all matters to be voted on by shareholders. There is no
cumulative voting with respect to the election of directors, with the result
that the holders of more than 50% of the shares of common stock can elect all of
the directors. The company's principal officers, James N. Jannello and Stephen
P. Cesarski, collectively own 65.3% of the issued and outstanding common stock
and therefore can elect all of the directors. The holders of common stock are
entitled to receive dividends when and if declared by the Board of Directors out
of funds legally available therefore. In the event of liquidation, dissolution
or winding up of the company, the owners of common stock are entitled to share
all assets remaining available for distribution after the payment of liabilities
and after provision has been made for each class stock, if any, having a
preference over the common stock as such. The common stock has no conversion,
preemptive or other subscription rights, and there are no redemption revisions
applicable to the common stock.
Savings and Stock Option Plans
401(k) and Profit-Sharing Plan.
The company maintains an Internal Revenue Code Section 401(k) salary
23
deferral savings and profit-sharing plan (the "Plan") for all of its eligible
employees who have been employed for at least one year and are at least 21 years
old. Subject to certain limitations, the Plan allows participants to voluntarily
contribute up to 15% of their pay on a pre-tax basis. Under the Plan, the
company may make matching contributions on behalf of the pre-tax contributions
made up to a maximum of 25% of the participant's first 5% of compensation
contributed as Elective Deferrals in the year. All participants are fully vested
in their accounts in the Plan with respect to their salary deferral
contributions, and are vested in company matching contributions at the rate of
20% after three years of service, 40% after four years of service, 60% after
five years of service, 80% after six years of service, with 100% vesting after
seven years of service.
Stock Option Plan.
On December 12, 2002, Janel's Board of Directors and majority of its
shareholders approved and adopted the Janel World Trade, Ltd. Stock Option
Incentive Plan (the "Option Plan") providing for options to purchase up to
1,600,000 shares of common stock for issuance to valued employees and
consultants of the company as an incentive for superior performance.
To date, no options have been granted under the Option Plan. The Option
Plan is administered by the Board of Directors, which is authorized to grant
incentive stock options and non qualified stock options to selected employees
and consultants of the company and to determine the participants, the number of
options to be granted and other terms and provisions of each option.
The exercise price of any incentive stock option or nonqualified option
granted under the Option Plan may not be less than 100% of the fair market value
of the shares of common stock of the company at the time of the grant. In the
case of incentive stock options granted to holders of more than 10% of the
voting power of the company, the exercise price may not be less than 110% of the
fair market value.
Under the terms of the Option Plan, the aggregate fair market value
(determined at the time of grant) of shares issuable to any one recipient upon
exercise of incentive stock options exercisable for the first time during any
one calendar year may not exceed $100,000. Options granted under the Option Plan
may be exercisable in either one, two or three equal annual installments at the
discretion of the Board of Directors, but in no event may a stock option be
exercisable prior to the expiration of six months from the date of grant, unless
the grantee dies or becomes disabled prior thereto. Stock options granted under
the Option Plan have a maximum term of 10 years from the date of grant, except
that with respect to incentive stock options granted to an employee who, at the
time of the grant, is a holder of more than 10% of the voting power of the
company, the stock option shall expire not more than five years from the date of
the grant. The option price must be paid in full on the date of exercise and is
payable in cash or in shares of common stock having a fair market value on the
date the option is exercised equal to the option price, as determined by the
Board of Directors.
If a grantee's employment by, or provision of services to, the company
shall be terminated, the Board of Directors may, in its discretion, permit the
exercise of stock options for a period not to exceed one year following such
termination of employment with respect to incentive stock options and for a
period not to extend beyond the expiration date with respect to non qualified
options, except that no incentive stock option may be exercised after three
months following the grantee's termination of employment, unless due to death or
permanent disability, in which case the option may be exercised for a period of
up to one year following such termination.
24
Transfer Agent.
The company's current transfer agent is Executive Registrar, 3615 South
Huron Street, Suite 104, Englewood, CO 80110.
Item 13. Certain Relationships and Related Transactions
Stephen P. Cesarski, Janel's President and Chief Operating Officer, and
James N. Jannello, Janel's Executive Vice President and Chief Executive Officer,
each own a 10% profit interest in each of Janel Shanghai and Janel Hong Kong.
Mr. Jannello also owns 50% of Janel Miami (Florida), which is a franchisee using
the Janel name, but in which the company has no equity or other direct economic
interest.
As of the fiscal year end of September 30, 2003, James N. Jannello was
indebted to the company in the aggregate sum of $149,582 and William J. Lally
was indebted to the company in the aggregate amount of $8,750. The officer loan
to Mr. Jannello bears interest at 4% per annum. The officer loan to Mr. Lally is
non-interest bearing. The officer loans are due on demand.
The transactions described above involve actual or potential conflicts
of interest between Janel and its officers. To reduce the potential for
conflicts of interest between the company and its officers and directors in the
future, Janel's policy will be not to enter into potential conflict-of-interest
transactions with officers, directors or other affiliates unless the terms of
such transactions are at least as favorable to Janel as those which would have
been obtainable from an unaffiliated source. The company has no plans to enter
into any additional transactions that involve actual or potential conflicts of
interest between Janel and its officers or directors, and will not enter into
any such transaction in the future without first obtaining an independent
opinion with regard to fairness to Janel of the terms and conditions of any such
transaction.
Item 14. Principal Accounting Fees and Services
Audit Fees
The aggregate fees billed by Paritz & Company, P.A. for the annual
audit were $24,500 and $20,000 for the fiscal years ended September 30, 2003 and
2002, respectively, and their fees for review of the interim financial
statements were $10,500 and $5,000 for the fiscal years ended September 30, 2003
and 2002, respectively.
Financial Information Systems Design and Implementation Fees
Paritz & Company, P.A. did not render any professional services to
Janel World Trade, Ltd. for financial information systems design and
implementation, as described in Paragraph (c)(4)(ii) of Rule 2-01 of Regulation
S-X, during the fiscal years ended September 30, 2003 and 2002.
All Other Fees
The aggregate fees billed by Paritz & Company, P.A. for all other
services rendered to Janel World Trade, Ltd. during the fiscal years ended
September 30, 2003 and 2002, other than audit services, were $5,000 in each
fiscal year. These "other fees" were for tax services.
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
25
(a) Financial Statements
Independent Auditor's Report
Consolidated Balance Sheets as at September 30, 2003 and 2002
Consolidated Statement of Operations for the Years Ended
September 30, 2003, 2002 and 2001
Consolidated Statement of Changes in Stockholders' Equity for
the Years Ended September 30, 2003, 2002 and 2001
Consolidated Statement of Cash Flows for the Years Ended
September 30, 2003, 2002 and 2001
Notes to Consolidated Financial Statements
(b) Reports on Form 8-K.
Janel has not filed any Form 8-K report during the last
quarter of the fiscal year ended September 30, 2003.
(c) Exhibits.
2. Agreement and Plan of Merger dated July 18, 2002 by and among
Wine Systems Design, Inc., WSD Acquisition, Inc. and Janel
World Transport, Ltd.**
3 (i) Articles of Incorporation of Wine Systems Design, Inc.
(predecessor name) filed on August 31, 2000.*
3 (ii) By-laws of Wine Systems Design, Inc. (predecessor name)
adopted on September 1, 2000.*
10.1 Janel Stock Option Incentive Plan adopted December 12, 2002.
23.1 Consent of Paritz & Company, P.A.
23.2 Letter dated August 1, 2002, from Michael L. Stuck, C.P.A.,
P.C., the former independent certifying accountant.***
99.1 Officers' Certifications pursuant to the Sarbanes-Oxley Act of
2002.
- ----------
* Incorporated by reference to Exhibits filed as part of the
Wine Systems Design, Inc. (predecessor name) Registration
Statement on Form SB-2 under File No. 333-60608, filed May 10,
2001.
** Incorporated by reference to Exhibits filed as part of the
company's Form 8-K report, filed July 18, 2002.
*** Incorporated by reference to Exhibits filed as part of the
company's Form 8-K/A report, filed August 1, 2002.
(d) Financial Statement Schedules.
Schedules are omitted because they are not applicable, are not required
or because the information is included in the company's Consolidated
Financial Statements or notes thereto.
27
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
December 30, 2003
JANEL WORLD TRADE, LTD.
By:/s/ James N. Jannello
---------------------------------------
James N. Jannello, Executive Vice President
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ James N. Jannello
- -----------------------
James N. Jannello Executive Vice President, December 30, 2003
Chief Executive Officer
and Director
/s/ Stephen P. Cesarski
- -----------------------
Stephen P. Cesarski President, Chief Operating December 30, 2003
Officer and Director
/s/ William J. Lally
- -----------------------
William J. Lally Director December 30, 2003
/s/ Linda Bieler
- -----------------------
Linda Bieler Controller and Chief Financial December 30, 2003
and Accounting Officer
/s/ Ruth Werra
- -----------------------
Ruth Werra Secretary December 30, 2003
28
Paritz & Company, P.A.
================================================================================
JANEL WORLD TRADE LTD. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
WITH
INDEPENDENT AUDITORS' REPORT
YEARS ENDED SEPTEMBER 30, 2003 AND 2002
================================================================================
INDEPENDENT AUDITORS' REPORT
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, 2003 and 2002 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,
2003. 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 auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. 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, 2003 and 2002 and the results of
its operations and its cash flows for each of the three years in the period
ended September 30, 2003 in conformity with accounting principles generally
accepted in the United States of America.
Hackensack, New Jersey
November 25, 2003
JANEL WORLD TRADE LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
================================================================================
SEPTEMBER 30,
-----------------------------
2003 2002
---------- ----------
ASSETS
CURRENT ASSETS:
Cash (Notes 1,6) $1,060,406 $1,198,941
Accounts receivable, net of allowance for
doubtful accounts of $30,000 in 2003 4,307,822 3,059,550
Marketable securities (Note 3) 41,093 33,523
Loans receivable - officers (Note 4) 158,332 159,532
- other 18,479 19,325
Prepaid expenses and sundry current assets 57,844 98,842
---------- ----------
TOTAL CURRENT ASSETS 5,643,976 4,569,713
---------- ----------
Property and equipment, net (Note 5) 102,930 107,876
---------- ----------
OTHER ASSETS:
Security deposits 51,354 48,707
---------- ----------
TOTAL OTHER ASSETS 51,354 48,707
---------- ----------
TOTAL ASSETS $5,798,260 $4,726,296
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable - bank (Note 6) $ 800,000 $ 300,000
Accounts payable 2,273,345 1,758,204
Accrued expenses and taxes payable 108,640 281,274
Current portion of long-term debt (Note 7) 3,840 11,898
---------- ----------
TOTAL CURRENT LIABILITIES 3,185,825 2,351,376
---------- ----------
OTHER LIABILITIES:
Deferred compensation 78,568 78,568
---------- ----------
TOTAL OTHER LIABILITIES 78,568 78,568
---------- ----------
STOCKHOLDERS' EQUITY (Note 8) 2,533,867 2,296,352
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $5,798,260 $4,726,296
========== ==========
The accompanying notes are an integral part of these consolidated
financial statements
JANEL WORLD TRADE LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
================================================================================
YEAR ENDED SEPTEMBER 30,
-------------------------------------------------------
2003 2002 2001
------------ ------------ ------------
FREIGHT FORWARDING REVENUES $ 56,916,276 $ 44,848,442 $ 46,650,094
------------ ------------ ------------
COSTS AND EXPENSES:
Forwarding expenses 50,600,299 39,025,117 40,742,183
Selling, general and administrative 5,956,591 5,571,584 5,846,384
Interest 22,824 21,059 34,104
------------ ------------ ------------
TOTAL COSTS AND EXPENSES 56,579,714 44,617,760 46,622,671
------------ ------------ ------------
INCOME(LOSS) BEFORE OTHER ITEMS 336,562 230,682 27,423
------------ ------------ ------------
OTHER ITEMS:
Impairment loss (Note 2) -- (250,000) --
Interest and dividend income 19,725 10,035 39,243
------------ ------------ ------------
TOTAL OTHER ITEMS 19,725 (239,965) 39,243
------------ ------------ ------------
INCOME(LOSS) BEFORE INCOME TAXES 356,287 (9,283) 66,666
Income taxes (Note 9) 159,500 109,500 27,700
------------ ------------ ------------
NET INCOME (LOSS) $ 196,787 $ (118,783) $ 38,966
============ ============ ============
BASIC AND DILUTED INCOME (LOSS) PER SHARE $ .0117 $ (.0077) N/A
============ ============ ============
WEIGHTED NUMBER OF SHARES OUTSTANDING 16,839,433 15,350,332 N/A
============ ============ ============
The accompanying notes are an integral part of these consolidated
financial statements
JANEL WORLD TRADE LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
================================================================================
ACCUMULATED
ADDITIONAL STOCK OTHER
CAPITAL STOCK PAID-IN RETAINED SUBSCRIPTION COMPREHENSIVE
SHARES $ CAPITAL EARNINGS RECEIVABLE GAIN (LOSS) TOTAL
---------- --------- ----------- ----------- ----------- ----------- -----------
BALANCE - SEPTEMBER 30, 2000 1,000 3,200 228,887 1,912,125 -- 13,304 2,157,516
Net income -- -- 38,966 -- 38,966
Other comprehensive (losses):
Unrealized losses on available-for-sale
marketable securities -- -- -- -- -- (26,671) (26,671)
---------- --------- ----------- ----------- ----------- ----------- -----------
BALANCE - SEPTEMBER 30, 2001 1,000 3,200 228,887 1,951,091 -- (13,367) 2,169,811
Net loss -- -- (118,783) -- (118,783)
Effect of stock splits and return of
shares (Note 2) 14,999,000 11,800 238,200 250,000
Sale of common stock (Note 8) 1,801,000 1,801 16,209 -- (18,010) -- --
Other comprehensive (losses):
Unrealized losses on available-for-sale
marketable securities -- -- -- -- -- (4,676) (4,676)
---------- --------- ----------- ----------- ----------- ----------- -----------
BALANCE - SEPTEMBER 30, 2002 16,801,000 16,801 483,296 1,832,308 (18,010) (18,043) 2,296,352
Net income -- -- 196,787 -- 196,787
Stock subscription received 18,010 18,010
Issuance of common stock (Note 8) 42,000 42 15,567 -- -- -- 15,609
Other comprehensive gains:
Unrealized gains on available-for-sale
marketable securities -- -- -- -- -- 7,109 7,109
---------- --------- ----------- ----------- ----------- ----------- -----------
BALANCE - SEPTEMBER 30, 2003 16,843,000 16,843 $ 498,863 $ 2,029,095 $ -- $ (10,934) $ 2,533,867
========== ========= =========== =========== =========== =========== ===========
The accompanying notes are an integral part of these consolidated
financial statements
JANEL WORLD TRADE LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
================================================================================
YEAR ENDED SEPTEMBER 30,
-----------------------------------------------
2003 2002 2001
----------- ----------- -----------
OPERATING ACTIVITIES:
Net income (loss) $ 196,787 $ (118,783) $ 38,966
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Impairment loss -- 250,000 --
Stock issued for services 15,609
Depreciation and amortization 55,892 84,561 122,799
Changes in operating assets and liabilities:
Accounts receivable (1,248,272) (321,037) 691,141
Loans receivable 2,046 (19,338) 21,653
Prepaid expenses and sundry current assets 40,998 9,897 71,611
Accounts payable and accrued expenses 342,507 36,462 (349,936)
Other (2,647) (56) 1,523
----------- ----------- -----------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (597,080) (78,294) 597,757
----------- ----------- -----------
INVESTING ACTIVITIES:
Acquisition of property and equipment, net (50,946) (26,632) (51,376)
Purchase of marketable securities (461) (607) (7,306)
----------- ----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (51,407) (27,239) (58,682)
----------- ----------- -----------
FINANCING ACTIVITIES:
Repayment of long-term debt (8,058) (99,608) (93,872)
Bank borrowings (repayment) 500,000 (25,000) 125,000
Proceeds from sale of common stock 18,010 -- --
----------- ----------- -----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 509,952 (124,608) 31,128
----------- ----------- -----------
INCREASE (DECREASE) IN CASH (138,535) (230,141) 570,203
CASH - BEGINNING OF YEAR 1,198,941 1,429,082 858,879
----------- ----------- -----------
CASH - END OF YEAR $ 1,060,406 $ 1,198,941 $ 1,429,082
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Cash paid during the year for:
Interest $ 22,824 $ 21,059 $ 34,104
=========== =========== ===========
Income taxes $ 115,797 $ 4,654 $ 16,002
=========== =========== ===========
Non-cash financing activities:
Non-cash repayment of long-term debt $ -- $ 44,469 $ --
=========== =========== ===========
The accompanying notes are an integral part of these consolidated
financial statements
JANEL WORLD TRADE LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2003 AND 2002
================================================================================
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business description
The Company is primarily 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.
Basis of consolidation
The accompanying consolidated financial statements include the accounts
of the Company and its subsidiaries, all of which are wholly owned. All
inter company 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
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. It is the Company's intent to maintain a liquid
portfolio to take advantage of investment opportunities. 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.
Revenues and revenue recognition
Airfreight, ocean freight and custom brokerage services revenues
include the charges to the Company for carrying the shipments and
customs clearance. Revenues recognized in other capacities include only
the commissions and fees earned.
Revenues related to export shipments are recognized at the time the
freight is tendered to a direct carrier at origin. Revenues related to
import shipments are recognized upon presentation of the entry for
customs clearance. All other revenues, including break-bulk services,
local transportation, distribution services and logistics management,
are recognized upon performance.
Deferred compensation plan
The Company has a deferred compensation plan for key executives which
provides benefits due to death, retirement or termination of
employment. Such benefits shall be determined and paid in accordance
with the plan. The plan does not qualify under the Internal Revenue
Code and, therefore, tax deductions are allowable only when the
benefits are paid.
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.
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,
2003, accumulated other comprehensive income (loss) consists of
unrealized losses on unrestricted available-for-sale marketable equity
securities.
Recent pronouncements
In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 141, "Business
Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets".
SFAS 141,requires that all business combinations be accounted for by
the purchase method of accounting and changes the criteria for
recognition of intangible assets acquired in a business combination.
The provisions of SFAS 141 apply to all business combinations initiated
after June 30, 2001. SFAS 142 requires that goodwill and intangible
assets with indefinite useful lives no longer be amortized; however,
these assets must be reviewed at least annually for impairment.
Intangible assets with finite useful lives will continue to be
amortized over their respectful useful lives. The standard also
establishes specific guidance for testing for impairment of goodwill
and intangible assets with indefinite useful lives. Goodwill and
intangible assets acquired after June 30, 2001 are subject immediately
to the non-amortization provisions of SFAS 142.
In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets". SFAS 144 establishes a
single accounting model, based on the framework established in SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of", for long-lived assets to be
disposed of by sale, and resolves implementation issues related to SFAS
121. The Company was required to adopt SFAS 144 no later than the first
quarter of fiscal 2003. The Company does not expect the adoption of
SFAS 144 to have a material impact on its operating results or
financial position.
2 ACQUISITION AND MERGERS
Pursuant to an agreement and plan of merger dated as of June 17, 2002,
C and N Corp. ("CN") was merged into Janel World Transport, Ltd.
("Janel"), a newly formed Nevada corporation having the same
shareholders as CN. In connection therewith, the shareholders of CN
were issued 11,000,000 shares of Janel common stock ("Janel shares").
Pursuant to an agreement and plan of merger dated June 18, 2002 among
Janel, Wine Systems Design, Inc. ("WSD"), a publicly owned Nevada
corporation and WSD Acquisition, Inc. ("WSD Acquisition"), a Nevada
corporation and wholly owned subsidiary of WSD, the following
transactions occurred:
(i) WSD effectuated a 19.2307 shares for 1 share stock split
resulting in WSD's capitalization becoming 225,000,000
authorized shares of common stock ("WSD common stock"), of
which 202,076,923 shares were issued and outstanding.
(ii) WSD issued and delivered 11,000,000 shares of WSD common stock
to WSD Acquisition for the sole purpose of distributing those
shares in exchange for 11,000,000 shares of Janel common
stock.
(iii) WSD shareholders returned 198,076,923 shares of WSD common
stock which WSD then canceled, resulting in 15,000,000 WSD
common shares remaining issued and outstanding.
(iv) Janel shareholders exchanged 11,000,000 Janel shares for the
11,000,000 shares of WSD common stock owned by WSD
Acquisition.
(v) On July 3, 2002, WSD Acquisition and Janel merged into WSD,
which became the surviving corporation.
(vi) On July 3, 2002 WSD changed its name to Janel World Trade Ltd.
Prior to the above-mentioned transactions, WSD was a corporation
without any current business transactions or operations, assets or
liabilities. Accordingly, the merger was accounted for as a reverse
purchase, the effect of which was that Janel was the surviving
corporation.
The 4,000,000 shares of Janel common stock owned by the former
stockholders of WSD and others, were assigned a value of $250,000
representing the estimated fair value of the WSD public shell. This
amount, which represented the cost of the acquisition over the fair
value of net assets acquired, was attributed to goodwill. The goodwill
was subsequently reviewed for impairment and was written off as of
September 30, 2002.
3 MARKETABLE SECURITIES
Marketable securities consist of the following:
Unrealized
Holding
Cost (losses) Gains Fair value
---- -------------- ----------
As of September 30, 2003:
Mutual Funds $ 52,027 $(10,934) $ 41,093
======== ======== ========
As of September 30, 2002:
Mutual Funds $ 51,566 $(18,043) $ 33,523
======== ======== ========
4 LOANS RECEIVABLE - OFFICERS
The loans receivable - officers bear interest at 4% per annum and are
due on demand.
5 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,
------------------------------------
2003 2002 Life
Furniture and fixtures $ 93,296 $ 91,523 5-7 years
Computer equipment 291,759 609,956 5 years
-------- --------
385,055 701,479
Less accumulated depreciation and
and amortization 282,125 593,603
-------- --------
$102,930 $107,876
======== ========
6 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 plus 1/2% and are collateralized by substantially all
assets of the Company. In addition, all borrowings under this agreement
are personally guaranteed by certain stockholders of the Company.
7 LONG-TERM DEBT
Long-term debt consists of various capitalized lease obligations
payable in monthly installments of approximately $725 inclusive of
interest at 7% to 10% per annum. These leases are collateralized by
security interests in certain property and equipment.
8 STOCKHOLDERS' EQUITY
Janel is authorized to issue 225,000,000 shares of common stock, par
value $.001.
See Note 2 for information relating to shares issued in connection with
the acquisition, merger and issuance of common stock.
On July 22, 2002 Janel's Board of Directors agreed to and approved the
sale of 1,801,000 shares of restricted common stock for a purchase
price of $.01 per share to forty-three employees and five consultants
as an incentive for performance.
9 INCOME TAXES
Income taxes consist of the following:
Year Ended September 30,
------------------------------------------
2003 2002 2001
-------- -------- --------
Federal $ 93,000 $ 66,100 $ 11,000
State and local 66,500 43,400 16,700
-------- -------- --------
$159,500 $109,500 $ 27,700
======== ======== ========
The reconciliation of income tax computed at the Federal statutory rate
to the provision for income taxes is as follows:
Year Ended September 30,
----------------------------------------------
2003 2002 2001
--------- --------- ---------
Federal taxes (benefit) at statutory rates $ 121,000 $ (3,150) $ 15,200
Non-deductible expenses 4,250 86,300 --
State and local taxes, net of Federal benefit 34,250 26,350 12,500
--------- --------- ---------
$ 159,500 $ 109,500 $ 27,700
========= ========= =========
10 PROFIT SHARING AND 401k 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, 2003, 2002 and 2001
aggregated approximately $22,000, $22,500 and $100,000, respectively.
11 RENTAL COMMITMENTS
The Company conducts its operations from leased premises. Rental
expense on operating leases for the years ended September 30, 2003,
2002 and 2001 were approximately $288,000, $275,000 and $299,000,
respectively.
Future minimum lease commitments (excluding renewal options) under
non cancelable leases are as follows:
Year ended September 30, 2004 $287,000
2005 290,000
2006 270,000
2007 230,000
2008 162,000
Thereafter 194,000
12 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) 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 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.
(c) Relationships with officers
Janel's President and Chief Operating Officer, and Executive Vice
President and Chief Executive Officer ("EVP"), respectively, each own a
10% profit interest in each of Janel Shanghai and Janel Hong Kong. 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.
13 GENERAL COMMENTS
(d) In October 2002 the Company issued 42,000 unregistered shares of
common stock as payment for legal services.
(e) On December 12, 2002 the Company adopted the "Janel World Trade
Ltd. Stock Option Incentive Plan" (the "Plan") reserving 1,600,000
shares of the Company's $.001 par value common stock for stock options.
No options have been granted under this plan.
The exercise price of any incentive stock option or
unqualified option granted under the Option Plan may not be
less than 100% of the fair market value of the shares of
common stock of the Company at the time of the grant. In the
case of incentive stock options granted to holders of more
than 10% of the voting power of the Company, the exercise
price may not be less than 110% of the fair market value.