Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
JLWT > SEC Filings for JLWT > Form 10-Q on 14-Aug-2013All Recent SEC Filings

Show all filings for JANEL WORLD TRADE LTD

Form 10-Q for JANEL WORLD TRADE LTD


14-Aug-2013

Quarterly Report


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

forward-looking statements

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

overview

Janel is a non-asset based third party logistics services company, engaged in full-service cargo transportation logistics management, including freight forwarding - via air, ocean and land-based carriers, customs brokerage services, and warehousing and distribution services. From April 2011 until June 2012, we operated a vertical sales and supply chain food industry business segment including supplier selection, manufacturing, transportation, import, distribution, marketing and sales within the food industry. During the June 2012 quarter the Company divested itself of and discontinued the food industry segment and now operates as one reportable business segment.

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

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

Historically, Janel's quarterly operating results have been subject to seasonal trends. The fiscal first quarter has traditionally been the weakest and the fiscal third and fourth quarters have traditionally been the strongest. This pattern has been the result of, or influenced by, numerous factors including climate, national holidays, consumer demand, economic conditions and other similar and subtle forces. This historical seasonality has also been influenced by the growth and diversification of Janel's international network and service offerings.

A significant portion of Janel's revenues are derived from customers in industries with shipping patterns closely tied to consumer demand and from customers with shipping patterns dependent upon just-in-time production schedules. Many of Janel's customers may ship a significant portion of their goods at or near the end of a quarter. Therefore, the timing of Janel's revenues are, to a large degree, affected by factors beyond the Company's control, such as shifting consumer demand for retail goods and manufacturing production delays. The Company cannot accurately forecast many of these factors, nor can it estimate the relative impact of any particular factor and, as a result, there is no assurance that historical patterns will continue in the future.

The Company's New Jersey branch office was acquired in July 2008 from Ferrara International Logistics, Inc. ("FIL") when the Company purchased from FIL its customs brokerage customer list. In October 2010 the New Jersey branch office was expanded with the purchase from FIL of the remaining assets and customer lists of FIL consisting of the international freight forwarding services associated with the movement of air and ocean shipments, warehousing (handling and storage) and trucking. On April 23, 2013 Nicholas V. Ferrara, the principal of FIL, resigned as a director of the Company to focus his attention on the New Jersey branch's business. On April 25, 2013 Mr. Ferrara notified the Company that he is exploring his options with respect to his future with the Company, one of which is for Mr. Ferrara to purchase from the Company certain fixed and other assets of the New Jersey branch for cash, and assume all of the obligations of the New Jersey branch office in exchange for the customer lists which were previously acquired by Janel from FIL. The Company and Mr. Ferrara are continuing their discussions.

- 10 -

results of operations

The following discussion and analysis addresses the results of operations for the three and nine months ended June 30, 2013, as compared to the results of operations for the three and nine months ended June 30, 2013. The discussion and analysis then addresses the liquidity and financial condition of the Company, and other matters. As noted above, during the June 2012 quarter, the Company divested itself of the food segment and therefore only has one reportable business segment.

Three months ended June 30, 2013 and 2012

Revenue.Total revenue from continuing operations for the three months ended June 30, 2013 was $21,867,209, as compared to $24,012,080 for the three months ended June 30, 2012, a decrease of $2,144,871 or 8.9%. This decrease is mainly the result of lower ocean and air shipping activity when compared to the prior year. Net revenue (revenue minus forwarding expense) for the three months ended June 30, 2013 was $2,393,689, a decrease of $156,658 or 6.1% as compared to net revenue of $2,550,347 for the three months ended June 30, 2012.

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, and includes any duties, trucking and warehousing charges related to the shipments.

For the three months ended June 30, 2013, forwarding expense decreased by $1,988,213, or 9.3%, to $19,473,520 as compared to $21,461,733 for the three months ended June 30, 2012 and as a percentage of revenue decreased to 89.1% for the three months ended June 30, 2013, from 89.4% for the three months ended June 30, 2012, an 0.3 percentage point decrease. This percentage decrease is principally because a larger share of the Company's revenues during the 2013 period was from warehouse revenue generated at our New Jersey warehouse when compared to the prior year. Typically forwarding expenses associated with warehouse revenue as a percentage of revenue are lower than forwarding expenses as a percentage of revenue associated with freight movements.

Selling, General and Administrative Expense. For the three months ended June 30, 2013 and 2012, selling, general and administrative expenses were $2,457,176 and $2,510,805, respectively, a decrease of $53,629, or 2.1% when compared to the prior year mainly due to staff and payroll cost reductions. As a percentage of revenue, selling, general and administrative expenses were 11.2% and 10.5% of revenue for the three months ended June 30, 2013 and 2012, respectively, an 0.7 percentage point increase which is mainly the result of the decrease in revenue for the three months ended June 30, 2013 when compared to the prior year and expenses which do not decrease in proportion to lower revenue.

Depreciation and Amortization. For the three months ended June 30, 2013 and 2012, depreciation and amortization expenses were $104,245 and $104,916, respectively. This represents a year over year decrease of $671.

Interest Expense. For the three months ended June 30, 2013 and 2012, interest expense was $35,073 and $44,872, respectively, a decrease of $9,799. This decrease is primarily the result of incurring $13,333 of imputed interest amortization during the three months ended June 30, 2012 versus having no imputed interest amortization during the three months ended June 30, 2013. Offsetting this $13,333 decrease are higher interest costs due to increased borrowings under our revolving line of credit with Community National Bank during the three months ended June 30, 2013 versus the three months ended June 30, 2012.

Loss From Continuing Operations. For the reasons stated above, the Company incurred a loss before taxes from continuing operations of ($202,805) and ($110,246) for the three months ended June 30, 2013 and 2012, respectively.

Income Taxes. The company recorded a net income tax provision of $4,000 for the three months ended June 30, 2013 and a net income tax benefit of ($132,001) for the three months ended June 30, 2012. The three months ended June 30, 2013 reflects applicable state income taxes, only, and does not reflect a deferred tax benefit at the U.S. federal statutory rate as the company provides for a valuation allowance against any deferred tax asset. The three months ended June 30, 2012 reflects a deferred tax benefit at the U.S. federal statutory rate and applicable state income taxes.

Loss From Discontinued Operations. The Company discontinued its food segment business in June, 2012. While this segment provided no revenues during the 2013 period, the Company did incur some ongoing expenses associated with the discontinued operations. The three months ended June 30, 2013 and 2012 reflect a loss from discontinued operations of ($13,827) and ($236,867), respectively.

Net Loss. For the three months ended June 30, 2013 and 2012, there was a net loss of ($220,632) and ($215,112), respectively. Net loss available to common shareholders for the three months ended June 30, 2013 and 2012 was ($224,382) or ($0.01) per diluted share and ($218,862) or ($0.01) per diluted share, respectively.

- 11 -

Nine months ended June 30, 2013 and 2012

Revenue.Total revenue from continuing operations for the nine months ended June 30, 2013 was $64,919,530, as compared to $69,452,316 for the nine months ended June 30, 2012, a decrease of $4,532,786 or 6.5%. This decrease is mainly the result of lower ocean and air shipping activity when compared to the prior year. Net revenue (revenue minus forwarding expense) for the nine months ended June 30, 2013 was $7,214,880, an increase of $13,174 or 0.2% as compared to net revenue of $7,201,706 for the nine months ended June 30, 2012.

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, and includes any duties, trucking and warehousing charges related to the shipments.

For the nine months ended June 30, 2013, forwarding expense decreased by $4,545,960, or 7.3%, to $57,704,650 as compared to $62,250,610 for the nine months ended June 30, 2012 and as a percentage of revenue decreased to 88.9% for the nine months ended June 30, 2013, from 89.6% for the nine months ended June 30, 2012, an 0.7 percentage point decrease. This percentage decrease is principally because a larger share of the Company's revenues during the 2013 period was from warehouse revenue generated at our New Jersey warehouse when compared to the prior year. Typically forwarding expenses associated with warehouse revenue as a percentage of revenue are lower than forwarding expenses as a percentage of revenue associated with freight movements.

Selling, General and Administrative Expense. For the nine months ended June 30, 2013 and 2012, selling, general and administrative expenses were $7,473,207 and $7,547,758, respectively, a decrease of $74,551, or 1.0% when compared to the prior year mainly due to staff and payroll cost reductions. As a percentage of revenue, selling, general and administrative expenses were 11.5% and 10.9% of revenue for the nine months ended June 30, 2013 and 2012, respectively, an 0.6 percentage point increase which is mainly the result of the decrease in revenue for the nine months ended June 30, 2013 when compared to the prior year and expenses which do not decrease in proportion to lower revenue.

Depreciation and Amortization. For the nine months ended June 30, 2013 and 2012, depreciation and amortization expenses were $311,961 and $286,592, respectively. This represents a year over year increase of $25,369, or 8.9%, and is mainly the result of the depreciation expenses associated with the 15,000 square foot walk/drive-in freezer installed during the second quarter of fiscal 2012 in our New Jersey warehouse.

Interest Expense. For the nine months ended June 30, 2013 and 2012, interest expense was $106,624 and $126,144, respectively, a decrease of $19,520. This decrease is primarily the result of incurring $40,000 of imputed interest amortization during the nine months ended June 30, 2012 versus having no imputed interest amortization during the nine months ended June 30, 2013. Offsetting this $19,520 decrease are higher interest costs due to increased borrowings under our revolving line of credit with Community National Bank during the nine months ended June 30, 2013 versus the nine months ended June 30, 2012.

Loss From Continuing Operations. For the reasons stated above, the Company incurred a loss before taxes from continuing operations of ($676,912) and ($757,144) for the nine months ended June 30, 2013 and 2012, respectively.

Income Taxes. The company recorded a net income tax provision of $11,000 for the nine months ended June 30, 2013 and a net income tax benefit of ($564,615) for the nine months ended June 30, 2012. The nine months ended June 30, 2013 reflects applicable state income taxes, only, and does not reflect a deferred tax benefit at the U.S. federal statutory rate as the company provides for a valuation allowance against any deferred tax asset. The nine months ended June 30, 2012 reflects a deferred tax benefit at the U.S. federal statutory rate and applicable state income taxes.

Loss From Discontinued Operations. The Company discontinued its food segment business in June, 2012. While this segment provided no revenues during the 2013 period, the Company did incur some ongoing expenses associated with the discontinued operations. The nine months ended June 30, 2013 and 2012 reflect a loss from discontinued operations of ($23,066) and ($667,326), respectively.

Net Loss. For the nine months ended June 30, 2013 and 2012, there was a net loss of ($710,978) and ($859,855), respectively. Net loss available to common shareholders for the nine months ended June 30, 2013 and 2012 was ($722,228) or ($0.03) per diluted share and ($871,105) or ($0.04) per diluted share, respectively.

liquidity and capital resources

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

- 12 -

Janel's cash flow performance for the nine months ended June 30, 2013 is not necessarily indicative of future cash flow performance.

As of June 30, 2013, and compared with the prior fiscal year ended September 30, 2012, the Company's cash and cash equivalents decreased by ($234,148) or (30.3%), to $539,720 from $773,868, respectively. During the nine months ended June 30, 2013, Janel's net working capital (current assets minus current liabilities) decreased by ($526,596) from a negative ($206,879) at September 30, 2012 to a negative ($733,475) at June 30, 2013. This decrease in net working capital is primarily due to the net loss of ($710,978) for the nine months ended June 30, 2013.

Cash flows from continuing operating activities. Net cash used in continuing operating activities were ($323,576) and ($233,533) for the nine months ended June 30, 2013 and 2012, respectively. The change was principally driven by an increase in collection of outstanding accounts receivable; which were partially offset by an increase in payments of outstanding accounts payable and the net loss for the nine months ended June 30, 2013.

Cash flows from discontinued operating activities. For the nine months ended June 30, 2013 and 2012, net cash used in discontinued operating activities were ($23,066) and ($663,506), respectively.

Cash flows from investing activities. Net cash provided by investing activities, primarily the sale of marketable securities, was $58,358 for the nine months ended June 30, 2013. Net cash used for investing activities, primarily capital expenditures for property and equipment, was ($114,638) for the nine months ended June 30, 2012.

Cash flows from financing activities. Net cash provided by financing activities was $54,136 and $713,764 for the nine months ended June 30, 2013 and 2012, respectively. The cash provided by financing activities for the nine months ended June 30, 2013 consisted primarily of a net increase of $130,000 in borrowings under our bank line of credit which were partially offset by the repayment of long term debt in the amount of $64,614. The cash provided by financing activities for the nine months ended June 30, 2012 consisted primarily of an increase of $650,000 in borrowings under our bank line of credit, the sale on October 14, 2011 of 750,000 shares of the Company's common stock for $150,000 and the repayment of a loan receivable in the amount of $92,817; which were partially offset by the repayment of a note payable in the amount of $100,000 and the repayment of long term debt in the amount of $67,803.

Community National Bank Borrowing Facility. On August 3, 2010, the Company's Janel Group of New York, Inc. ("Janel New York") subsidiary entered into a one year $3.5 million revolving line of credit agreement with Community National Bank ("CNB"). Currently, the interest rate of the CNB Facility is the prime rate plus 1%, with a minimum rate of 7%. Under the CNB Facility as currently amended, Janel New York may borrow up to $2.5 million limited to 80% of the Company's aggregate outstanding eligible accounts receivable. The CNB Facility has been periodically renewed and will currently expire on September 30, 2013. Obligations under the CNB Facility are secured by all of the assets of the Company, are guaranteed by the Company, and are guaranteed by James N. Jannello, the Company's Chief Executive Officer. As of June 30, 2013, there were outstanding borrowings of $1,731,336 under the CNB Facility (which represented 90.6% of the amount available thereunder) out of a total amount available for borrowing under the CNB Facility of approximately $1,911,104

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

Working Capital Requirements. The Company's cash needs are currently met by the CNB Facility and cash on hand. As of June 30, 2013, the Company had $179,768 available under its $2.5 million CNB Facility and $539,720 in cash on hand. Our actual working capital needs for the short and long terms will depend upon numerous factors, including our operating results, the availability of a revolving line of credit, competition, and the cost associated with growing the Company either internally or through acquisition, none of which can be predicted with certainty. If our results of operations and our availability under our bank line of credit are insufficient to meet our cash needs, we will be required to obtain additional investment capital or debt funding to continue operations. We are actively pursuing additional investment capital for the very short and long terms; however there is no assurance that our efforts will be successful. If we are not successful in funding our working capital requirements, the Company's operations will be materially negatively impacted.

- 13 -

Current Outlook

Our results of operations are affected by the general economic cycle, particularly as it influences global trade levels and specifically the import and export activities of Janel's various current and prospective customers. Historically, the Company's quarterly results of operations have been subject to seasonal trends which have been the result of, or influenced by, numerous factors including climate, national holidays, consumer demand, economic conditions, the growth and diversification of its international network and service offerings, and other similar and subtle forces. We cannot accurately forecast many of these factors nor can we estimate accurately the relative influence of any particular factor and, as a result, there can be no assurance that historical patterns, if any, will continue in future periods.

Due to continuing losses in our food segment business, the Company's Board of Directors determined to divest the food segment business in June 2012 and refocus our growth strategy on our transportation logistics business. As a result, the losses from the food segment have been eliminated.

Janel's business plan and strategy continues to be the growth of its revenue and profitability for fiscal 2013 and beyond through several avenues. During March of the 2012 fiscal year we placed in service a new 15,000 square foot walk/drive-in freezer in our New Jersey warehouse to complement our traditional freight forwarding and logistics business, and we have realized expanded warehouse revenue with higher gross profit margins from this new service. The Company's strategy for further growth includes plans to: open, as warranted, additional branch offices domestically and/or outside the continental United States; introduce additional revenue streams for its existing headquarters and branch locations; expand its existing sales force by hiring additional commission-only sales representatives with established customer bases; increase its focus on growing revenue related to export activities; evaluate direct entry into the trucking and warehouse distribution business as a complement to the services already provided to existing customers; seek out and pursue privately held transportation-related firms which may ultimately lead to their acquisition by the Company; and continue its focus on containing current and prospective overhead and operating expenses, particularly with regard to the efficient integration of any additional offices or acquisitions.

Certain elements of our profitability and growth strategy are contingent upon the availability of adequate financing on terms acceptable to the Company. We are currently focused on securing additional investment capital, but to date we have been unable to secure additional investment capital on terms we deem acceptable. There can be no assurance that we will be successful in raising additional capital on terms acceptable to us. Therefore, the implementation of significant aspects of our strategic growth plan may be delayed. Accordingly, our key milestone in the very short term is the successful raise of additional investment capital in order to grow our traditional freight forwarding and logistics business. If this milestone is not reached in a timely manner, the Company's continued operations and growth plans will be materially negatively impacted.

The Company's New Jersey branch office was acquired in July 2008 from Ferrara International Logistics, Inc. ("FIL") when the Company purchased from FIL its customs brokerage customer list. In October 2010 the New Jersey branch office was expanded with the purchase from FIL of the remaining assets and customer lists of FIL consisting of the international freight forwarding services associated with the movement of air and ocean shipments, warehousing (handling and storage) and trucking. On April 23, 2013 Nicholas V. Ferrara, the principal of FIL, resigned as a director of the Company to focus his attention on the New Jersey branch's business. On April 25, 2013 Mr. Ferrara notified the Company that he is exploring his options with respect to his future with the Company, one of which is for Mr. Ferrara to purchase from the Company certain fixed and other assets of the New Jersey branch for cash, and assume all of the obligations of the New Jersey branch office in exchange for the customer lists which were previously acquired by Janel from FIL. The Company and Mr. Ferrara are continuing their discussions.

Critical Accounting Policies and Estimates

Management's Discussion and Analysis of Financial Condition and Results of Operations discusses the Company's consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes. Since future events and their effects cannot be determined with absolute certainty, the determination of estimates requires the exercise of judgment. Actual results could differ from those estimates, and such difference may be material to the financial statements. The most significant accounting estimates inherent in the preparation of our financial statements include estimates as to the appropriate carrying value of certain assets and liabilities which are not readily apparent from other sources, primarily allowance for doubtful accounts, accruals for transportation and other direct costs, accruals for cargo insurance, and deferred income taxes. Management bases its estimates on historical experience and on various assumptions which are believed to be reasonable under the circumstances. We reevaluate these significant factors as facts and circumstances change. Historically, actual results have not differed significantly from our estimates. These accounting policies are more fully described in Note 1 of the Notes to the Consolidated Financial Statements.

- 14 -

Management believes that the nature of the Company's business is such that there are few, if any, complex challenges in accounting for operations. Revenue recognition is considered the critical accounting policy due to the complexity of arranging and managing global logistics and supply-chain management transactions.

Revenue Recognition

Full-Service Cargo Transportation Logistics Management

Revenues are derived from airfreight, ocean freight and custom brokerage services. The Company is a non-asset-based carrier and accordingly does not own transportation assets. The Company generates the major portion of its air and ocean freight revenues by purchasing transportation services from direct carriers (airlines, steam ship lines, etc.) and reselling those services to its customers. By consolidating shipments from multiple customers and availing . . .

  Add JLWT to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for JLWT - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.