JANEL CORP - Quarter Report: 2010 March (Form 10-Q)
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-Q
| x |
QUARTERLY
REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the
quarterly period ended: March
31, 2010
| o |
TRANSITION
REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
Commission
File No. 333-60608
JANEL
WORLD TRADE, LTD.
(Exact
name of registrant as specified in its charter)
|
NEVADA
|
86-1005291
|
|
(State
of incorporation)
|
(I.R.S.
Employer Identification Number)
|
|
11434
|
|
|
(Address
of principal executive offices)
|
(Zip
Code)
|
(718)
527-3800
(Registrant's
telephone number, including area code)
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months
(or for such shorter period that the registrant was required to file such
reports) and (2) has been subject to such filing requirements for the past 90
days. Yes x No
o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “large
accelerated filer” and “accelerated filer” in Rule 12b-2 of the Exchange
Act.
Large
accelerated filer o Accelerated
filer o Non-Accelerated
filer x
Indicate
by checkmark whether the registrant is a shell company (as defined in Rule 12b-2
of the Act). Yes o No x
State the
number of shares outstanding of each of the issuer's class of common equity, as
of the latest practicable date: 18,381,082.
PART
I - FINANCIAL INFORMATION
Item
1. Financial Statements.
(a) Janel’s unaudited,
interim financial statements for its second fiscal quarter (the three and six
months ended March 31, 2010) have been set forth below. Management’s Discussion
and Analysis of the Company’s Financial Condition and the Results of Operations
for the second fiscal quarter will be found at Item 2, following the financial
statements.
2
JANEL
WORLD TRADE LTD. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
|
March 31,
2010
|
SEPTEMBER
30,
2009
|
|||||||
|
(Unaudited)
|
(Audited)
|
|||||||
|
ASSETS
|
||||||||
|
CURRENT
ASSETS:
|
||||||||
|
Cash
and cash equivalents
|
$ | 867,959 | $ | 1,483,150 | ||||
|
Accounts
receivable, net of allowance for doubtful accounts of $42,374 at March 31,
2010 and $85,368 at September 30, 2009
|
5,130,549 | 4,616,244 | ||||||
|
Marketable
securities
|
56,564 | 52,100 | ||||||
|
Loans
receivable – officers
|
95,925 | 114,616 | ||||||
|
- other
|
2,925 | 4,908 | ||||||
|
Prepaid
expenses and sundry current assets
|
95,484 | 239,437 | ||||||
|
Tax
refund receivable
|
289,000 | 289,000 | ||||||
|
TOTAL
CURRENT ASSETS
|
6,538,406 | 6,799,455 | ||||||
|
PROPERTY
AND EQUIPMENT, NET
|
144,789 | 179,779 | ||||||
|
OTHER
ASSETS:
|
||||||||
|
Intangible
assets, net
|
1,795,228 | 1,875,754 | ||||||
|
Security
deposits
|
55,453 | 55,991 | ||||||
|
Deferred
income taxes
|
1,103,000 | 1,114,000 | ||||||
|
TOTAL
OTHER ASSETS
|
2,953,681 | 3,045,745 | ||||||
|
TOTAL
ASSETS
|
$ | 9,636,876 | $ | 10,024,979 | ||||
|
CURRENT
LIABILITIES:
|
||||||||
|
Note
payable - other
|
$ | - | $ | 125,000 | ||||
|
Accounts
payable – trade
|
3,238,681 | 3,116,830 | ||||||
|
- related party
|
- | 100,078 | ||||||
|
Accrued
expenses and taxes payable
|
254,032 | 422,110 | ||||||
|
Current
portion of long-term debt
|
1,230,331 | 544,141 | ||||||
|
TOTAL
CURRENT LIABILITIES
|
4,723,044 | 4,308,159 | ||||||
|
OTHER
LIABILITIES:
|
||||||||
|
Long-term
debt
|
525,335 | 1,506,096 | ||||||
|
Deferred
compensation
|
78,568 | 78,568 | ||||||
|
TOTAL
OTHER LIABILITIES
|
603,903 | 1,584,664 | ||||||
|
STOCKHOLDERS’
EQUITY
|
4,309,929 | 4,132,156 | ||||||
|
TOTAL
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
$ | 9,636,876 | $ | 10,024,979 | ||||
See notes
to financial statements
F-1
JANEL
WORLD TRADE LTD. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF INCOME
(Unaudited)
|
SIX
MONTHS ENDED MARCH 31,
|
THREE
MONTHS ENDED MARCH 31,
|
|||||||||||||||
|
2010
|
2009
|
2010
|
2009
|
|||||||||||||
|
REVENUES
|
$ | 36,268,887 | $ | 38,417,901 | $ | 19,270,955 | $ | 17,151,773 | ||||||||
|
COSTS
AND EXPENSES:
|
||||||||||||||||
|
Forwarding
expenses
|
32,280,020 | 34,088,675 | 17,196,205 | 15,111,987 | ||||||||||||
|
Selling,
general and administrative
|
3,762,273 | 4,607,086 | 1,860,403 | 2,311,073 | ||||||||||||
|
Amortization
of intangible assets
|
80,526 | 179,062 | 40,263 | 89,531 | ||||||||||||
|
TOTAL
COSTS AND EXPENSES
|
36,122,819 | 38,874,823 | 19,096,871 | 17,512,591 | ||||||||||||
|
OPERATING
INCOME (LOSS)
|
146,068 | (456,922 | ) | 174,084 | (360,818 | ) | ||||||||||
|
OTHER
ITEMS:
|
||||||||||||||||
|
Interest
and dividend income
|
2,806 | 11,380 | 1,137 | 7,504 | ||||||||||||
|
Interest
expense
|
(54,827 | ) | (109,683 | ) | (32,537 | ) | (51,421 | ) | ||||||||
|
TOTAL
OTHER ITEMS
|
(52,021 | ) | (98,303 | ) | (31,400 | ) | (43,917 | ) | ||||||||
|
INCOME
(LOSS) BEFORE INCOME TAXES
|
94,047 | (555,225 | ) | 142,684 | (404,735 | ) | ||||||||||
|
Income
taxes (credits)
|
38,000 | (155,000 | ) | 36,600 | (120,000 | ) | ||||||||||
|
NET
INCOME (LOSS)
|
56,047 | (400,225 | ) | 106,084 | (284,735 | ) | ||||||||||
|
Preferred
stock dividends
|
7,500 | 7,500 | 3,750 | 3,750 | ||||||||||||
|
NET
INCOME (LOSS) AVAILABLE TO
|
||||||||||||||||
|
COMMON
STOCKHOLDERS
|
$ | 48,547 | $ | (407,725 | ) | $ | 102,334 | $ | (288,485 | ) | ||||||
|
OTHER
COMPREHENSIVE INCOME
|
||||||||||||||||
|
NET
OF TAX:
|
||||||||||||||||
|
Unrealized
gain(loss) from available for sale securities
|
$ | 4,272 | $ | (13,768 | ) | $ | 3,150 | $ | (2,901 | ) | ||||||
|
Basic
earnings (loss) per share
|
$ | .003 | $ | (.02 | ) | $ | .007 | $ | (.02 | ) | ||||||
|
Fully
diluted earnings (loss) per share
|
$ | .003 | $ | (.02 | ) | $ | .006 | $ | (.02 | ) | ||||||
|
Basic
weighted number of shares outstanding
|
18,013,332 | 17,513,130 | 18,013,332 | 17,511,485 | ||||||||||||
|
Fully
diluted weighted number of shares outstanding
|
18,453,332 | 17,913,130 | 18,453,332 | 17,911,485 | ||||||||||||
See notes
to financial statements
F-2
JANEL
WORLD TRADE LTD. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
|
CAPITAL
STOCK
|
PREFERRED
STOCK
|
TREASURY
|
ADDITIONAL
PAID-IN
|
RETAINED
|
ACCUMULATED
OTHER
COMPREHENSIVE
GAIN
|
||||||||||||||||||||||
|
|
SHARES
|
$
|
SHARES
|
$
|
STOCK
|
CAPITAL
|
EARNINGS
|
(LOSS)
|
TOTAL
|
||||||||||||||||||
|
BALANCE
– SEPTEMBER 30, 2009
|
18,013,332 | $ | 18,014 | 1,285,000 | $ | 1,285.00 | $ | (11,266 | ) | $ | 3,964,085.00 | $ | 173,845 | $ | (13,807 | ) | $ | 4,132,156 | |||||||||
|
Net
income
|
- | - | - | - | 56,047 | - | 56,047 | ||||||||||||||||||||
|
Dividends
to preferred shareholders
|
- | - | - | - | - | - | (7,546 | ) | - | (7,546 | ) | ||||||||||||||||
|
Other
comprehensive gains (losses):
|
|||||||||||||||||||||||||||
|
Unrealized
gains on available-for-sale marketable
securities
|
- | - | - | - | - | - | - | 4,272 | 4,272 | ||||||||||||||||||
|
Settlement
of litigation (Note 4)
|
300,000 | 300 | (50,500 | ) | (50.50 | ) | - | 124,750.50 | - | - | 125,000 | ||||||||||||||||
|
BALANCE
– MARCH 31, 2010
|
18,313,332 | $ | 18,314 | 1,234,500 | $ | 1,234.50 | $ | (11,266 | ) | $ | 4,088,835.50 | $ | 222,346 | $ | (9,535 | ) | $ | 4,309,929 | |||||||||
See notes
to financial statements
F-3
JANEL
WORLD TRADE LTD. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
|
CAPITAL
STOCK
|
PREFERRED
STOCK
|
TREASURY
|
ADDITIONAL
PAID-IN
|
RETAINED
|
ACCUMULATED
OTHER
COMPREHENSIVE
GAIN
|
||||||||||||||||||||||
|
SHARES
|
$
|
SHARES
|
$
|
STOCK
|
CAPITAL
|
EARNINGS
|
(LOSS)
|
TOTAL
|
|||||||||||||||||||
|
BALANCE
– SEPTEMBER 30, 2008
|
17,426,661 | $ | 17,427 | 1,285,000 | $ | 1,285 | $ | (2,743 | ) | $ | 3,438,677 | $ | 1,430,043 | $ | (13,610 | ) | $ | 4,871,079 | |||||||||
|
Net
loss
|
- | - | - | - | (400,225 | ) | - | (400,225 | ) | ||||||||||||||||||
|
Purchase
of 12,676 shares of treasury stock
|
- | - | - | - | (8,523 | ) | - | - | - | (8,523 | ) | ||||||||||||||||
|
Dividends
to preferred shareholders
|
- | - | - | - | - | - | (7,500 | ) | - | (7,500 | ) | ||||||||||||||||
|
Other
comprehensive gains (losses):
|
|||||||||||||||||||||||||||
|
Unrealized
gains (losses) on available-for-sale marketable
securities
|
- | - | - | - | - | - | - | (13,768 | ) | (13,768 | ) | ||||||||||||||||
|
BALANCE
– MARCH 31, 2009
|
17,426,661 | $ | 17,427 | 1,285,000 | $ | 1,285 | $ | (11,266 | ) | $ | 3,438,677 | $ | 1,022,318 | $ | (27,378 | ) | $ | 4,441,063 | |||||||||
See notes
to financial statements
F-4
JANEL
WORLD TRADE, LTD. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Unaudited)
|
SIX
MONTHS ENDED MARCH 31,
|
||||||||
|
2010
|
2009
|
|||||||
|
OPERATING
ACTIVITIES:
|
||||||||
|
Net
income (loss)
|
$ | 56,047 | $ | (400,225 | ) | |||
|
Adjustments
to reconcile net income (loss) to net
|
||||||||
|
cash
provided by (used in) operating activities:
|
||||||||
|
Depreciation
and amortization
|
121,695 | 246,684 | ||||||
|
Amortization
of imputed interest
|
13,764 | 23,430 | ||||||
|
Deferred
income taxes
|
11,000 | (192,000 | ) | |||||
|
Changes
in operating assets and liabilities:
|
||||||||
|
Accounts
receivable
|
(514,305 | ) | 2,000,236 | |||||
|
Prepaid
expenses and sundry current assets
|
144,491 | 7,665 | ||||||
|
Accounts
payable and accrued expenses
|
(49,978 | ) | (1,437,917 | ) | ||||
|
NET
CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES
|
(217,286 | ) | 247,873 | |||||
|
INVESTING
ACTIVITIES:
|
||||||||
|
Acquisition
of property and equipment
|
(6,179 | ) | (12,238 | ) | ||||
|
Purchase
of marketable securities
|
(192 | ) | (245 | ) | ||||
|
NET
CASH USED IN INVESTING ACTIVITIES
|
(6,371 | ) | (12,483 | ) | ||||
|
FINANCING
ACTIVITIES:
|
||||||||
|
Dividends
paid
|
(3,796 | ) | - | |||||
|
Repayment
of long-term debt
|
(308,334 | ) | (192,767 | ) | ||||
|
Repayment of
loans receivable
|
20,674 | 2,407 | ||||||
|
Purchase
of treasury stock
|
- | (8,523 | ) | |||||
|
Repayment
of loans payable – related party
|
(100,078 | ) | (140,399 | ) | ||||
|
NET
CASH USED IN FINANCING ACTIVITIES
|
(391,534 | ) | (339,282 | ) | ||||
|
DECREASE
IN CASH AND CASH EQUIVALENTS
|
(615,191 | ) | (103,892 | ) | ||||
|
CASH
AND CASH EQUIVALENTS – BEGINNING OF PERIOD
|
1,483,150 | 2,428,098 | ||||||
|
CASH
AND CASH EQUIVALENTS – END OF PERIOD
|
$ | 867,959 | $ | 2,324,206 | ||||
|
SUPPLEMENTAL
DISCLOSURES OF CASH FLOW INFORMATION:
|
||||||||
|
Cash
paid during the period for:
|
||||||||
|
Interest
|
$ | 41,063 | $ | 42,855 | ||||
|
Income
taxes
|
$ | 1,708 | $ | 76,973 | ||||
|
Non-cash
financing activities:
|
||||||||
|
Unrealized
gain (loss) on marketable securities
|
$ | 4,272 | $ | (13,768 | ) | |||
|
Dividends
declared to preferred stockholders
|
$ | (3,750 | ) | $ | (7,500 | ) | ||
|
Cancellation
of note payable-other (Note 4)
|
$ | (125,000 | ) | $ | - | |||
See notes
to financial statements
F-5
JANEL
WORLD TRADE, LTD. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31,
2010
(Unaudited)
|
1
|
BASIS
OF PRESENTATION
|
The
attached consolidated financial statements have been prepared pursuant to the
rules and regulations of the Securities and Exchange Commission. As a
result, certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. The Company believes that
the disclosures made are adequate to make the information presented not
misleading. The consolidated financial statements reflect all
adjustments which are, in the opinion of management, necessary to a fair
statement of the results for the interim periods presented. These
consolidated financial statements should be read in conjunction with the audited
consolidated financial statements and related notes included in the Company=s
Form 10-K as filed with the Securities and Exchange Commission on or about
January 13, 2010.
|
2
|
BUSINESS
SEGMENT INFORMATION
|
The
Company is organized into two reportable segments, full service cargo
transportation logistics management and computer software sales, support and
maintenance.
|
Six
Months Ended March
31, 2010
|
Consolidated
|
Transportation
Logistics
|
Computer
Software
|
|||||||||
|
Total
revenues
|
$ | 36,268,887 | $ | 36,211,681 | $ | 57,206 | ||||||
|
Net
revenues
|
$ | 3,988,867 | $ | 3,931,661 | $ | 57,206 | ||||||
|
Operating
income (loss)
|
$ | 146,068 | $ | 322,198 | $ | (176,130 | ) | |||||
|
Identifiable
assets
|
$ | 9,636,876 | $ | 9,541,084 | $ | 95,792 | ||||||
|
Capital
expenditures
|
$ | 6,179 | $ | 6,179 | $ | - | ||||||
|
Depreciation
and amortization
|
$ | 121,695 | $ | 105,382 | $ | 16,313 | ||||||
|
Equity
|
$ | 4,309,929 | $ | 9,329,606 | $ | (5,019,677 | ) | |||||
|
Six
Months Ended March
31, 2009
|
Consolidated
|
Transportation
Logistics
|
Computer
Software
|
|||||||||
|
Total
revenues
|
$ | 38,417,901 | $ | 38,258,193 | $ | 159,708 | ||||||
|
Net
revenues
|
$ | 4,329,226 | $ | 4,169,518 | $ | 159,708 | ||||||
|
Operating
income (loss)
|
$ | (456,922 | ) | $ | (116,411 | ) | $ | (340,511 | ) | |||
|
Identifiable
assets
|
$ | 11,300,823 | $ | 9,933,727 | $ | 1,367,096 | ||||||
|
Capital
expenditures
|
$ | 12,240 | $ | 10,702 | $ | 1,538 | ||||||
|
Depreciation
and amortization
|
$ | 270,114 | $ | 144,756 | $ | 125,358 | ||||||
|
Equity
|
$ | 4,441,063 | $ | 7,769,264 | $ | (3,328,201 | ) | |||||
F-6
|
Three
Months Ended March
31, 2010
|
Consolidated
|
Transportation
Logistics
|
Computer
Software
|
|||||||||
|
Total
revenues
|
$ | 19,270,955 | $ | 19,246,785 | $ | 24,170 | ||||||
|
Net
revenues
|
$ | 2,074,750 | $ | 2,050,580 | $ | 24,170 | ||||||
|
Operating
income (loss)
|
$ | 174,084 | $ | 253,918 | $ | (79,834 | ) | |||||
|
Identifiable
assets
|
$ | 9,636,876 | $ | 9,541,084 | $ | 95,792 | ||||||
|
Capital
expenditures
|
$ | 5,214 | $ | 5,214 | $ | - | ||||||
|
Depreciation
and amortization
|
$ | 54,070 | $ | 45,914 | $ | 8,156 | ||||||
|
Equity
|
$ | 4,309,929 | $ | 9,329,606 | $ | (5,019,677 | ) | |||||
|
Three
Months Ended March
31, 2009
|
Consolidated
|
Transportation
Logistics
|
Computer
Software
|
|||||||||
|
Total
revenues
|
$ | 17,151,773 | $ | 17,115,139 | $ | 36,634 | ||||||
|
Net
revenues
|
$ | 2,039,786 | $ | 2,003,152 | $ | 36,634 | ||||||
|
Operating
income (loss)
|
$ | (360,818 | ) | $ | (147,870 | ) | $ | (212,948 | ) | |||
|
Identifiable
assets
|
$ | 11,300,823 | $ | 9,933,727 | $ | 1,367,096 | ||||||
|
Capital
expenditures
|
$ | 7,315 | $ | 5,777 | $ | 1,538 | ||||||
|
Depreciation
and amortization
|
$ | 135,235 | $ | 72,534 | $ | 62,701 | ||||||
|
Equity
|
$ | 4,441,063 | $ | 7,769,264 | $ | (3,328,201 | ) | |||||
|
3
|
LONG-TERM
DEBT
|
Long-term
debt consists of the following:
|
March
31,
2010
|
September
30,
2009
|
|||||||
|
Term
loan payable in monthly installments of principal of $25,000 through July
1, 2010 and $40,000 monthly commencing August 1, 2010 through December 1,
2010, plus interest at the bank’s prime rate plus 3% per annum, with a
final payment due December 31, 2010. The agreement requires the
Company to maintain certain net income levels, as defined. The loan is
collateralized by substantially all assets of the Company and is
personally guaranteed by certain stockholders of the
Company.
|
$ | 1,091,191 | $ | 1,316,191 | ||||
|
Non-interest
bearing note payable, net of imputed interest, with a payment of $435,000
due in July 2011.
|
400.588 | 386,824 | ||||||
|
Term
loan payable in monthly installments of $13,889, plus interest at a bank’s
prime rate minus .50% per annum. The loan is collateralized by
substantially all assets of a subsidiary of the Company.
|
263,887 | 347,222 | ||||||
| 1,755,666 | 2,050,237 | |||||||
|
Less
current portion
|
1,230,331 | 544,141 | ||||||
| $ | 525,335 | $ | 1,506,096 | |||||
F-7
These
obligations mature as follows:
|
2010
|
$ | 1,230,331 | $ | 474,140 | ||||
|
2011
|
525,335 | 1,391,311 | ||||||
| $ | 1,755.666 | $ | 1,865,451 |
|
4
|
LEGAL
PROCEEDINGS
|
(1) Janel
is occasionally subject to claims and lawsuits which typically arise in the
normal course of business. While the outcome of these claims cannot
be predicated with certainty, management does not believe that the outcome of
any of these legal matters will have a material adverse effect on the Company’s
financial position or results of operations.
(2) On
February 11, 2008, The Company filed a lawsuit in the United States District
Court for the Southern District of New York against defendants World Logistics
Services, Inc. (“World Logistics”), a Delaware Corporation formerly known as
“Order Logistics, Inc.” Richard S. Francis (“Francis”), the President of World
Logistics; and Brian P. Griffin (“Griffin”), who was the Chief Executive Officer
of World Logistics when Janel completed an acquisition in October 2007 of
certain World Logistics assets.
Janel
claims that the defendants made false and misleading statements of material
facts concerning the exclusivity of the rights to the assets which were sold to
Janel by having concealed and withheld the provisions of a settlement agreement
with a third-party business associate and creditor made only two days before the
closing of the asset sale, in which World Logistics agreed to the cancellation
of a restrictive covenant which had prevented the creditor from using World
Logistics proprietary computer software, or soliciting its list of valuable
customers and employees.
Janel has
charged that the defendants violated the anti-fraud provisions of the Federal
securities laws, committed common law fraud, breach of contract and other
wrongdoing, with the specific intent to defraud Janel and obtain 285,000 shares
of its newly authorized Class B convertible preferred stock, and more than
$2,300,000 in payments by Janel of the defendants’ long overdue obligations to
suppliers, creditors and tax authorities.
In May
2008, the defendants filed a motion to the court asking it to dismiss the case
based upon the defendants’ claim that the complaint “fails to state a claim upon
which relief may be granted”. The Company, in turn, filed a brief in
opposition to the defendants’ motion showing that it is meritless and should be
denied. In March 2009 the court entered an order denying the defendants’ motions
to dismiss in their entirety.
In April
2009 the defendants Francis and Griffin filed answers to the Janel complaint and
they each counterclaimed that Janel breached agreements and withheld payments
from them. In May 2009 Janel filed replies denying each of the
counterclaims as meritless.
On March
22, 2010 the Company reached a settlement agreement and mutual general release
with one of the defendants in the lawsuit filed against World Logistics Services
Inc. Terms of the settlement include the issuance of 300,000 shares
of Janel’s common stock, elimination of a $125,000 note payable to a defendant
and a release of any and all claims and demands of the defendant.
F-8
Item
2. 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 Janel’s
Annual Report on Form 10-K filed with the SEC on January 13,
2010. Should one or more of these risks or uncertainties materialize,
or should underlying assumptions prove incorrect, actual outcomes may vary
materially from those projected.
Overview
The following discussion and analysis
addresses the results of operations for the three and six months ended March 31,
2010, as compared to the results of operations for the three and six months
ended March 31, 2009. The discussion and analysis then addresses the liquidity
and financial condition of the Company, and other matters.
3
Results
of Operations
Janel operates its business as two
reportable segments comprised of: 1) 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, and 2) computer software sales,
support and maintenance.
Three
Months Ended March 31, 2010 Compared to Three Months Ended March 31,
2009
Revenue. Revenue
for the second quarter of fiscal 2010 was $19,270,955, as compared to
$17,151,773 for the same period of fiscal 2009, a year-over-year increase of
$2,119,182, or 12.4%. For the three months of fiscal 2010, transportation
logistics accounted for revenue of $19,246,785, while computer software revenue
was $24,170, generated from the Company’s October 18, 2007 acquisition of
certain assets of World Logistics, Inc. (formerly named "Order Logistics Inc.").
The increased level of transportation logistics revenue reflected the relative
strengthening of the U.S. economy year-over-year, and the consequent increase in
shipping activity by existing customers between the two periods. Computer
software-related revenue during the period was also negatively affected as a
result of the Company’s earlier closing of former World Logistics operations in
South Carolina, which were then consolidated into the Company’s Chicago
operations, and from the continuing cutbacks the Company has made in that
business segment.
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. As a general rule, revenue received by the Company for
shipments via ocean freight are marked up at a lower percentage versus their
related forwarding expense than are shipments via airfreight, i.e., forwarding
expense as a percentage of revenue is generally higher (and the Company earns
less) for ocean freight than for airfreight.
For the second quarter of fiscal 2010,
forwarding expense increased by $2,084,218, or 13.8%, to $17,196,205, as
compared to $15,111,987 for the second quarter of fiscal 2009. The percentage
increase in forwarding expense was greater than the percentage increase in
transportation logistics revenue, up 12.5% year-over-year, yielding an
unfavorable increase of 1.1 percentage points in the measure of forwarding
expense as a percentage of revenue to 89.2% in the second quarter of fiscal
2010, from 88.1% for the second fiscal quarter of 2009. This is
principally the result of ocean freight shipments in the fiscal 2010 quarter
accounting for a higher proportion of the overall shipping activity (versus
airfreight), as compared to the fiscal 2009 quarter.
Selling, General and Administrative
Expense. Selling, general and administrative expense in second
quarter of fiscal 2010 decreased by $450,670, or 19.5%, to $1,860,403, as
compared to $2,311,073 in the second quarter of fiscal 2009. The year-over-year
absolute dollar decrease in SG&A primarily resulted from cutbacks made as
part of the Company’s ongoing austerity program, during which personnel
positions have been eliminated, workweek reductions have been implemented, and
all additional overhead expenses have been tightly
monitored. Primarily because of the higher revenue base, SG&A as
a percentage of revenue decreased by 382 basis points, from 13.47% in the second
quarter of fiscal 2009 to 9.65% in the second quarter of fiscal
2010.
4
Income (Loss) Before
Taxes. Janel’s results improved from a loss before taxes of
$(404,735) in the second quarter of fiscal 2009, to income before taxes of
$142,684 in the second quarter of fiscal 2010. Charges related to the
amortization of intangible assets were $40,263, and $89,531 in the second
quarters of 2010 and 2009, respectively. Similarly, interest expense,
pertaining essentially to acquisition financing, declined to $32,537 during the
fiscal 2010 second quarter from $51,421 in the corresponding year-earlier
period.
Income Taxes. The
effective income tax rate in both the 2010 and 2009 fiscal periods reflects the
U.S. federal statutory rate and applicable state income taxes.
Net Income
(Loss). Net income available to common shareholders for the
second quarter of fiscal 2010 was $102,334, or $0.006 per fully diluted share,
an improvement of $390,819 as compared to net loss available to common
shareholders of $(288,485), or $(0.02) per fully diluted share, in the second
quarter of fiscal 2009. The same principal factors as described above
for the second fiscal quarters contributed to the corresponding net income and
net loss for the two periods.
Six
Months Ended March 31, 2010 Compared to Six Months Ended March 31,
2009
Revenue. Revenue
for the six months ended March 31, 2010 was $36,268,887, as compared to
$38,417,901 for the same period of fiscal 2009, a year-over-year decrease of
$(2,149,014), or (5.6)%. The lower level of first half revenue primarily
reflected the negative comparison of year-over-year first quarters as the level
of business activity and related shipping among the Company’s customers, as the
recession-weakened U.S. economy was still recovering during the
period. For the six months of 2010, transportation logistics
accounted for revenue of $36,211,681, while computer software revenue was
$57,206.
Forwarding Expense. For
the six months ended March 31, 2010, forwarding expense was $32,280,020, as
compared to $34,088,675 for the same period of fiscal 2009, a year-over-year
decrease of $1,808,655 or 5.3%. The percentage decrease was less than the
decrease in transportation logistics revenue, down (5.6)%, for the six months
ended March 31, 2010, as compared to fiscal 2009, resulting in forwarding
expense as a percentage of revenue climbing marginally to 89%, as compared to
the year-earlier 88.7%, a worsening of 0.3 percentage points. This is
principally the result of ocean freight shipments (with lower margins) in the
fiscal 2010 six months accounting for a higher proportion (versus airfreight) of
the half’s overall shipping activity than in the prior year six
months.
Selling, General and Administrative
Expense. For the six-month periods ended March 31, 2010 and
2009, selling, general and administrative expenses were $3,762,273 (10.37%) of
revenue) and $4,607,086 (11.99%), respectively. This represents a year-over-year
improvement of $844,813, or 18.3%. The year-over-year absolute dollar decrease
in SG&A primarily reflects first half savings as a result of cutbacks made
as part of the Company’s ongoing austerity program, during which personnel
positions have been eliminated, workweek reductions have been implemented and
all additional overhead expenses have been tightly monitored.
5
Income (Loss) Before Taxes.
Janel reported an income before taxes of $94,047 for the six months ended
March 31, 2010 as compared to loss before taxes of $(555,225) for the six months
ended March 31, 2009. Charges related to amortization of intangible assets were
$80,526 and $179,062 in the first half of 2010 and 2009, respectively.
Similarly, interest expense, pertaining principally to acquisition financing,
declined from $109,683 in the first half of 2009 to $54,827 in the latest
six-month period.
Income Taxes. The
effective income tax rate in both the 2010 and 2009 fiscal periods reflects the
U.S. federal statutory rate and applicable state income taxes.
Net Income
(Loss). Janel reported net income available to common
shareholders for the six months ended March 31, 2010 of $48,547, or $0.003 per
diluted share, up $456,272 as compared to a net loss available to common
shareholders of $(407,725), or $(0.02) per diluted share, for the six months
ended March 31, 2009.
Liquidity
and Capital Resources
Janel’s ability to meet its liquidity
requirements, which include satisfying its debt obligations and funding working
capital, day-to-day operating expenses and capital expenditures depends upon its
future performance, and is subject to general economic conditions and other
factors, some of which are beyond its control.
As of March 31, 2010, and compared with
the year-earlier figure, the Company’s cash and cash equivalents declined by
$1,456,247, or 62.7%, to $867,959 from $2,324,206, respectively. During the six
months ended March 31, 2010, Janel’s net working capital (current assets minus
current liabilities) decreased by $675,934 or 27.1%, from $2,491,296 at
September 30, 2009, to $1,815,362 at March 31, 2010. This decline
reflected an increase in accounts receivable of approximately $514,000 more than
offset by decreases in cash and cash equivalents and prepaid expenses and sundry
current assets of accounts receivable of approximately $615,000 and $144,000,
respectively, and an increase in the current portion of long-term debt of
approximately $686,000. Janel’s cash flow performance for the six months is not
necessarily indicative of future cash flow performance.
In March 2004, Janel increased its line
of credit with a bank from $1,500,000 to $2,000,000. In January 2005, Janel
entered into agreements providing for a transfer of its line of credit to
another bank on identical terms, except that the available line of credit
increased to $3,000,000. In July 2005, Janel decreased its line of credit from
$3,000,000 to $1,500,000 because its cash flow had become adequate for financing
its receivables, and because it obtained a reduced interest rate. During the
first quarter of 2008, to help finance the Company’s acquisition of certain
assets of Order Logistics, Inc., the Company borrowed $1,700,000 (including a
temporary increase of $200,000) under this existing line of credit, while also
issuing a note payable in the amount of $125,000. In addition, Janel
entered into a term loan agreement with a different bank in the amount of
$500,000 (see Note 2 to financial statements). At June 30, 2008,
Janel had no remaining available borrowing under its line of credit. The
outstanding balance of notes payable of $1,825,000 bears interest at prime plus
three-quarters of one percent (0.75%) per annum and is collateralized by
substantially all the assets of Janel and personal guarantees by certain
shareholders of the Company. As of December 31, 2008, the Company had
taken down the full $500,000 of available borrowing under its three-year term
loan agreement, bearing interest at prime plus one-half of one percent (0.50%)
per annum, collateralized by substantially all the assets of Order Logistics,
Inc. In April 2008, the outstanding bank note payable of $1,700,000 was
converted into a term loan payable in monthly installments of $20,238 plus
interest at the bank’s prime rate plus 0.75% per annum, or LIBOR plus 2% per
annum. In addition, the bank gave the Company a new credit line of
$1,500,000, which expired on March 31, 2009. To finance the acquisition of
certain assets of Ferrara International Logistics, Inc., the Company issued a
non-interest bearing note payable, net of imputed interest, with payments of
$435,000 in July 2009 and July 2011.
6
In May
2009, Janel, its subsidiaries and affiliated companies, together with James N.
Jannello and Stephen Cesarski, entered into a forbearance agreement with J.P.
Morgan Chase Bank, N.A. (the Agreement") to resolve a default on the part of the
Company in: (a) making timely payment upon maturity of a promissory note due to
the bank (the "Line Note") in the sum of $250,868.06 on March 31, 2009 (Messrs.
Jannello and Cesarski are guarantors of payment of the Line Note); and (b) the
Debt Service Coverage Ratio covenant in the Credit Agreement with the bank. The
Agreement provides that the bank will refrain from exercising its collection
rights against the Company and guarantors, provided that the Company delivers
full payment of all principal, interest and late fees due to the bank on the
Line Note, amounting to approximately $252,000.00, on or before July 31,
2009.
The
Agreement also provides that beginning May 22, 2009, interest on the Line Note,
and on a Term Note in the principal sum of $1,457,142.80, will accrue at a rate
per annum which will equal the CD Floating Rate plus three percent (3.0%) based
upon the actual number of days the principal is outstanding over a year of 360
days. The Company is required to furnish the bank with a projection
of monthly cash receipts and disbursements prepared and certified by the
Company’s chief financial officer for the twelve (12) month period beginning
July 2009. The Company may not prepay any indebtedness to any person without the
prior written consent of the bank. If the Company or the guarantors
default in payment of the amounts required to be paid to the bank under the
terms of the Agreement or the loan documents, if a petition for bankruptcy under
any chapter of the United States bankruptcy code or any other debt relief law
against the Company or the guarantors, or any other judicial action is taken
with respect to the Company or the guarantors by any creditor, if any
representation or warranty made to the bank by the Company in untrue, incorrect
or misleading in any material respect, if any judgment is filed against or with
respect to any collateral securing the Company’s obligations to the bank in
excess of $100,000.00, or there is any substantial impairment of the prospect of
the Company’s full satisfaction of its obligations to the bank or substantial
impairment of the value of the collateral or the priority of the bank's security
interest in or lien upon any collateral, the forbearance will be terminated, and
all outstanding obligations will be immediately due and payable at the bank's
sole option.
7
On January 4, 2010, the Company amended
the term loan agreement with JPMorgan Chase Bank, its principal lender, under
the following terms. The Company is required to make monthly installments of
principal of $25,000 through July 1, 2010, and $40,000 monthly commencing August
1, 2010, through December 1, 2010, plus interest at the bank’s prime rate plus
3% per annum, with a final payment due December 31, 2010. The agreement requires
the Company to maintain certain net income levels, as defined by the agreement.
The loan is collateralized by substantially all assets of the Company, and is
personally guaranteed by certain stockholders of the Company. However, the
Company is also proceeding with its comprehensive growth strategy for fiscal
2006 and beyond, which encompasses a number of potential elements, as detailed
below under “Current Outlook.” To successfully execute several of these growth
strategy elements in the coming months, the Company will need to secure
additional capital funding estimated at up to $10,000,000 during that period.
There is no assurance 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.
Current
Outlook
Janel is primarily engaged in the
business of providing full-service cargo transportation logistics management,
including freight forwarding via air, ocean and land-based carriers, customs
brokerage services, warehousing and distribution services, and other value-added
logistics services and in the business of computer software sales, support and
maintenance. Its results of operations are affected by the general economic
cycle, particularly as it influences global trade levels and specifically the
import and export activities of Janel’s various current and prospective
customers.
Historically,
the Company’s quarterly results of operations have been subject to seasonal
trends which have been the result of, or influenced by, numerous factors
including climate, national holidays, consumer demand, economic conditions, the
growth and diversification of its international network and service offerings,
and other similar and subtle forces.
Management has been engaged in
reviewing the profitability of various customer accounts with a view toward
eliminating accounts which are only marginally profitable, and focusing on
accounts that are more profitable, with a view to increasing its overall profit
margin. Based upon the results for the six months ended March 31, 2010, and its
current expectations for the remainder of fiscal 2010, Janel projects that gross
revenue for its fiscal year ending September 30, 2010, will increase by at least
5% from fiscal 2009 to approximately $75 million. The Company expects
to revisit its full-year projection subsequent to the end of its fiscal third
quarter ended September 30, 2010.
In addition, Janel is progressing with
the implementation of its business plan and strategy to grow its revenue and
profitability for fiscal 2010 and beyond through other avenues. The Company’s
strategy for 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;
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.
8
Certain
elements of the Company’s growth strategy, principally proposals for
acquisition, are contingent upon the availability of adequate financing at terms
acceptable to the Company. The Company is continuing in its efforts
to secure long-term financing, but has to date been unable to complete any such
financing transactions at terms it deems acceptable, and cannot presently
anticipate when or if financing on acceptable terms will become available.
Therefore, the implementation of significant aspects of the Company’s strategic
growth plan may be deferred beyond the originally anticipated
timing.
Critical
Accounting Policies and Estimates
Management’s Discussion and Analysis of
Financial Condition and Results of Operations discusses the Company’s
consolidated financial statements, which have been prepared in accordance with
accounting principles generally accepted in the United States of America. The
preparation of these financial statements requires management to make estimates
and assumptions about future events that affect the amounts reported in the
financial statements and accompanying notes. Since future events and their
effects cannot be determined with absolute certainty, the determination of
estimates requires the exercise of judgment. Actual results could differ from
those estimates, and such difference may be material to the financial
statements. The most significant accounting estimates inherent in the
preparation of our financial statements include estimates as to the appropriate
carrying value of certain assets and liabilities which are not readily apparent
from other sources, primarily allowance for doubtful accounts, accruals for
transportation and other direct costs, and accruals for cargo insurance.
Management bases its estimates on historical experience and on various
assumptions which are believed to be reasonable under the circumstances. We
reevaluate these significant factors as facts and circumstances change.
Historically, actual results have not differed significantly from our estimates.
These accounting policies are described at relevant sections in this discussion
and analysis and in the notes to the consolidated financial statements included
in our Annual Report on Form 10-K for the fiscal year ended September 30,
2009.
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
A.
Full-Service Cargo Transportation Logistics Management
Revenues are derived from airfreight,
ocean freight and custom brokerage services. The Company is a non-asset-based
carrier and accordingly does not own transportation assets. The Company
generates the major portion of its air and ocean freight revenues by purchasing
transportation services from direct carriers (airlines, steam ship lines, etc.)
and reselling those services to its customers. By consolidating shipments from
multiple customers and availing itself of its buying power, the Company is able
to negotiate favorable rates from the direct carriers, while offering to its
customers lower rates than the customers could obtain themselves.
9
Airfreight revenues include the charges
for carrying the shipments when the Company acts as a freight consolidator.
Ocean freight revenues include the charges for carrying the shipments when the
Company acts as a Non-Vessel Operating Common Carrier (NVOCC). In
each case, the Company is acting as an indirect carrier. When acting
as an indirect carrier, the Company will issue a House Airway Bill (HAWB) or a
House Ocean Bill of Lading (HOBL) to customers as the contract of
carriage. In turn, when the freight is physically tendered to a
direct carrier, the Company receives a contract of carriage known as a Master
Airway Bill for airfreight shipments and a Master Ocean Bill of Lading for ocean
shipments. At this point the risk of loss passes to the carrier,
however, in order to claim for any such loss, the customer is first obligated to
pay the freight charges.
Based upon the terms in the contract of
carriage, revenues related to shipments where the Company issues a HAWB or a
HOBL are recognized at the time the freight is tendered to the direct
carrier. Costs related to the shipments are recognized at the same
time.
Revenues realized when the Company acts
as an agent for the shipper and does not issue a HAWB or a HOBL include only the
commission and fees earned for the services performed. These revenues
are recognized upon completion of the services.
Customs brokerage and other services
involve providing multiple services at destination including clearing shipments
through customs by preparing required documentation, calculating and providing
for payment of duties and other charges on behalf of the customers, arranging
for any required inspections, and arranging for final delivery. These
revenues are recognized upon completion of the services.
The movement of freight may require
multiple services. In most instances the Company may perform multiple services
including destination break-bulk and value added services such as local
transportation, distribution services and logistics management. Each
of these services has separate fee that is recognized as revenue upon completion
of the service.
Customers will frequently request an
all-inclusive rate for a set of services that is known in the industry as
“door-to-door services.” In these cases, the customer is billed a
single rate for all services from pickup at origin to delivery. The
allocation of revenue and expense among the components of services when provided
under an all inclusive rate are done in an objective manner on a fair value
basis in accordance with Emerging Issues Task Force (EITF) 00-21, “Revenue
Arrangements with Multiple Deliverables.”
B.
Computer Software Sales, Support and Maintenance
The
Company recognizes revenue, including multiple element arrangements, in
accordance with the provisions of the SEC's Staff Accounting bulletin ("SAB")
No. 104, Revenue
Recognition, and the Financial Accounting Standards Board's ("FASB"), and
EITF 00-21, Revenue Agreements
with Multiple Deliverables. Revenue from the sale of the
Company's products and services are recognized when persuasive evidence of an
arrangement exists, delivery has occurred (or services have been rendered), the
price is fixed or determinable, and collectability is reasonably assured.
Amounts billed in excess of revenue recognized are recorded as deferred revenue
in the balance sheet.
10
Estimates
While judgments and estimates are a
necessary component of any system of accounting, the Company’s use of estimates
is limited primarily to the following areas that in the aggregate are not a
major component of the Company’s consolidated statements of income:
|
|
a.
|
accounts
receivable valuation;
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b.
|
the
useful lives of long-term assets;
|
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c.
|
the
accrual of costs related to ancillary services the Company provides;
and
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d.
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accrual
of tax expense on an interim basis.
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Management believes that the methods
utilized in all of these areas are non-aggressive in approach and consistent in
application. Management believes that there are limited, if any, alternative
accounting principles or methods which could be applied to the Company’s
transactions. While the use of estimates means that actual future results may be
different from those contemplated by the estimates, the Company believes that
alternative principles and methods used for making such estimates would not
produce materially different results than those reported.
Item
3 Quantitative and Qualitative Disclosures About Market
Risk.
Not applicable.
Item
4. Controls and Procedures.
We maintain a system of disclosure
controls and procedures that is designed to provide reasonable assurance that
information, which is required to be disclosed by the Company in the reports
that it files or submits under the Securities and Exchange Act of 1934, as
amended, is recorded, processed, summarized and reported within the time periods
specified in the rules and forms of the Securities and Exchange Commission, and
is accumulated and communicated to management in a timely manner. Our Chief
Executive Officer and Chief Financial Officer have evaluated this system of
disclosure controls and procedures as of the end of the period covered by this
quarterly report, and concluded that the system is effective. There have been no
changes in our internal control over financial reporting during the most recent
fiscal quarter that have materially affected, or are reasonably likely to
materially affect, the Company’s internal control over financial
reporting.
11
PART II - OTHER
INFORMATION
Item
1. 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.
Subsequent
to the October 2007 acquisition of certain assets of Order Logistics, Inc.
(“OLI”), a Delaware corporation, consisting principally of proprietary
technology, office locations and personnel, and customer relationships, Janel
learned that immediately prior to the closing of the acquisition, OLI had
entered into an undisclosed agreement with a third party (the “Settlement
Agreement”) which permitted that party to use OLI proprietary technology and
customer relationships being purchased by Janel, and to solicit OLI employees in
its South Carolina office. Janel believes that OLI’s failure to disclose the
Settlement Agreement prior to the closing of the asset acquisition was a
material violation of the OLI covenants, representations and warrantees set
forth in the October 18, 2007 Asset Purchase Agreement which has damaged the
value of the assets acquired by Janel.
On February 11, 2008, Janel World
Trade, Ltd. (“Janel”) filed a lawsuit in the United States District Court for
the Southern District of New York against defendants World Logistics Services,
Inc. (“World Logistics”), a Delaware Corporation formerly known as “Order
Logistics, Inc.;” Richard S. Francis ("Francis”), the President of World
Logistics; and Brian P. Griffin (“Griffin”), who was the Chief Executive Officer
of World Logistics when Janel completed an acquisition in October 2007 of
certain World Logistics assets consisting of proprietary technology,
intellectual property (including the name “Order Logistics”), office equipment,
and customer lists for Janel's exclusive use in the management and expansion of
Janel’s international integrated logistics transport services business. The
technology was acquired by Janel to enable it to integrate the tracking of all
of the different aspects of the production, movement and delivery of goods,
making the entire process electronically visible in “real time” by both its
managers and clients.
Janel claims that the defendants made
false and misleading statements of material facts concerning the exclusivity of
the rights to the assets which were offered and sold to Janel by having
concealed and withheld the provisions of a settlement agreement with a
third-party business associate and creditor made only two days before the
closing of the asset sale, in which World Logistics agreed to the cancellation
of a restrictive covenant which had prevented the creditor from using World
Logistics proprietary computer software, or soliciting its list of valuable
customers and employees.
Janel has charged that the defendants
violated the anti-fraud provisions of the federal securities laws, committed
common law fraud, breach of contract and other wrongdoing, with the specific
intent to defraud Janel and obtain 285,000 shares of its newly authorized Class
B convertible preferred stock, and more than $2,300,000 in payments by Janel of
the defendants long overdue obligations to suppliers, creditors and tax
authorities.
12
In May 2008, the defendants filed a
motion to dismiss the case based upon the defendants' claim that the complaint
"fails to state a claim upon which relief may be granted." The company filed a
brief opposing the defendants' motion. In March 2009, the court entered an order
denying the defendants motions to dismiss in their entirety. In April 2009 the
defendants filed answers to the company's complaint, and counterclaimed that the
company breached agreements and withheld payments due to the defendants. In May
2009, the company filed replies denying each of the counterclaims as
meritless.
In March
2010, Mr. Griffin and Janel entered into a settlement agreement in which Mr.
Griffin withdrew all of his counterclaims against Janel, and agreed to provide
both testimonial and documentary evidence as a witness for the company.
Janel withdrew all of its claims in the lawsuit against Mr. Griffin, and issued
374,500 shares of Janel’s common stock in
April and May 2010, without additional consideration, to a limited list of
persons formerly associated World Logistics, not including Mr.
Griffin.
The Janel claims against Richard S.
Francis, and his counterclaims against Janel, continue in litigation, and are
presently in the discovery phase.
Item
2. Unregistered Sale of Equity Securities and Use of
Proceeds.
Not applicable.
Item
3. Defaults Upon Senior Securities.
Not applicable.
Item
4. Submission of Matters to a Vote of Security Holders.
There were no matters submitted to a
vote of shareholders during the second fiscal
quarter
ended March 31, 2010.
Item
5. Other Information.
Not applicable.
Item
6. Exhibits and Reports on Form 8-K.
(a)
Exhibits required by item 601 of Regulation S-K.
|
Exhibit
|
||
|
Number
|
Description
of Exhibit
|
|
|
31
|
Rule
13(a)-14(a)/15(d)-14(a) Certifications.
|
|
|
32
|
Section
1350 Certification.
|
(b) Reports on Form
8-K. The Company filed a report on Form 8-K during the second
fiscal quarter ended March 31, 2010 on January 27, 2010.
13
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.
| JANEL WORLD TRADE, LTD. | |||
|
May
17, 2010
|
By:
|
/s/ James N. Jannello | |
| James N. Jannello | |||
| Chief Executive Officer | |||
14