JANEL CORP - Quarter Report: 2011 December (Form 10-Q)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly period ended December 31, 2011

OR

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

SECURITIES EXCHANGE ACT OF 1934

Commission file number 333-60608

JANEL WORLD TRADE, LTD.

(Exact name of registrant as specified in its charter)

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

Inapplicable

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x    No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes x No ¨

Indicate by check mark if the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer  ¨  Accelerated Filer  ¨  Non-Accelerated Filer ¨  Smaller Reporting Company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).

Yes ¨ No x

The number of shares of Common Stock outstanding as of February 13, 2012 was 21,854,868.

JANEL WORLD TRADE, LTD.

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION

ITEM 1.           FINANCIAL STATEMENTS

JANEL WORLD TRADE LTD. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

See notes to financial statements

JANEL WORLD TRADE LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

See notes to financial statements

JANEL WORLD TRADE LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

See notes to financial statements

JANEL WORLD TRADE, LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

See notes to financial statements

JANEL WORLD TRADE, LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2011

(Unaudited)

1            BASIS OF PRESENTATION

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

2            INVENTORIES

Inventories consisting of merchandise purchased for resale, are valued at the lower of cost (determined on the first in, first out basis) or market (replacement cost).

3            DEFERRED COMPENSATION

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

4            BUSINESS SEGMENT INFORMATION

For the three months ended December 31, 2011 the Company operates in two reportable segments which are full service cargo transportation logistics management and food sales. The computer software, support and maintenance segment was discontinued during the fiscal year ended September 30, 2011.

The following table presents financial information about the Company’s reportable segments as of and for the three months ended December 31, 2011 and 2010.

5            LONG-TERM DEBT

Long-term debt consists of the following:

6            ACQUISITIONS

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

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

Purchase price allocation

In accordance with the acquisition method of accounting the Company has initially allocated the consideration to the net tangible and identifiable intangible assets, based on their estimated fair values. Goodwill represents the excess of the purchase price over the fair value of the underlying net tangible and identifiable intangible assets. The factors that contributed to the recognition of goodwill included securing buyer-specific synergies that increase revenue and profits and are not otherwise available to a marketplace participant, and the acquisition of a talented workforce.

The consideration has been allocated as follows:

7            SALE OF COMMON STOCK

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

8             LEGAL PROCEEDINGS

(a) On August 22, 2011, Janel’s former chief financial officer filed a civil suit in the United States District Court for the Eastern District of New York (Case No. CV-114041), against defendants Janel World Trade, Ltd., James N. Jannello, the Chief Executive Officer of the Company, and Stephen Cesarski, the former president of the Company. The complaint alleges among other things, discrimination and harassment.

(b) 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.

9            SUBSEQUENT EVENTS

(a) The Company has reviewed its subsequent events through the date the financial statements were issued and has determined, other than below, that no additional material subsequent events have occurred through such date.

(b) On January 11, 2012 the Company entered into a settlement agreement and settled the above lawsuit (see 8(a) above) for $250,000. The settlement amount was fully reserved for at fiscal year ended September 30, 2011.

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 operates its business as two reportable segments. Primarily we are a non-asset based third party logistics services company, engaged in full-service cargo transportation logistics management, including freight forwarding – via air, ocean and land-based carriers, customs brokerage services, and warehousing and distribution services. Our second, smaller segment, which we started during April 2011, is comprised of vertical sales and supply chain services primarily in the food industry and includes supplier selection, manufacturing, transportation, import, distribution, marketing and sales within the food industry. During our 2011 fiscal year we discontinued our computer software sales, support and maintenance business segment.

Our headquarters are in Jamaica, New York and we operate through a network which includes 5 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.

Our new food sales segment is asset based as products are purchased from suppliers and held in inventory for the sale of the products at a future date. When selling to supermarket chains, the Company is required to prepay fees (commonly referred to as “slotting fees”) for positioning of retail store shelf space. Slotting fees are accounted for as a direct reduction to revenue when paid.

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

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

results of operations

The following discussion and analysis addresses the results of operations for the three months ended December 31, 2011, as compared to the results of operations for the three months ended December 31, 2010. The discussion and analysis then addresses the liquidity and financial condition of the Company, and other matters.

Janel operates its business as two reportable segments. The first segment is 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 second segment is comprised of vertical sales primarily in the food industry and includes; supplier selection, manufacturing, transportation, import, distribution, marketing and sales within the food industry; the purchase of products from suppliers that are held in inventory for the sale of the products at a future date; and, when selling to supermarket chains, the Company is required to prepay fees (commonly referred to as “slotting fees”) for positioning of retail store shelf space. These slotting fees are accounted for as a direct reduction to revenue when paid. During the 2011 fiscal year, we discontinued our computer software sales, support and maintenance business segment.

Three months ended December 31, 2011 and 2010

Revenue. Total revenue for the three months ended December 31, 2011 was $23,585,132, as compared to $26,433,994 for the same period of fiscal 2010, a decrease of $2,848,862 (or 10.8%). For the three months ended December 31, 2011, revenue from the new food industry segment (which commenced in April 2011) was $235,997 (after a reduction from revenue of $190,900 for the payment of slotting fees – see above). When compared to the prior year, the Company’s transportation logistics segment revenue decreased by 11.7% to $23,349,135 for the three months ended December 31, 2011, from $26,433,994 for the same period of 2010. This decrease is mainly the result of lower ocean freight shipping activity by our top two customers for the three months ended December 31, 2011 when compared to the prior year applicable period.

Cost of Sales. Cost of sales within the transportation logistics segment 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. Cost of sales within the food industry segment is primarily comprised of the cost associated with the purchase of product from suppliers and includes all freight costs incurred to move the product from the suppliers to our warehouse for inventory staging.

For the three months ended December 31, 2011, total cost of sales decreased by $2,588,503 (or 10.9%) to $21,245,534, as compared to $23,834,037 for the same period of 2010. As a percentage of revenue, total cost of sales decreased to 90.08% for the three months ended December 31, 2011, from 90.16% for the same period of 2010, a 0.08 percentage point decrease. When compared to the prior year, the Company’s transportation logistics segment cost of sales decreased by $2,895,683 (or 12.2%) to $20,938,354 from $23,834,037 for the same period of 2010, and as a percentage of revenue decreased to 89.68% compared to 90.16% for the same period of 2010, a 0.48 percentage point decrease. The decrease is primarily a result of the decrease in revenue for the three months ended December 31, 2011 as compared to the prior year applicable period. Cost of sales within the food industry segment (which commenced in April 2011) were $301,178 for the three months ended December 31, 2011, while there were no such costs for the prior year applicable period.

Selling, General and Administrative Expense. For the three months ended December 31, 2011 and 2010, selling, general and administrative expenses were $2,636,146 (11.2% of revenue), and $2,425,544 (9.2% of revenue), respectively. This represents a year-over-year increase of $210,602, or 8.7%. The increases in amount and as a percentage of revenue are primarily the result of the selling, general and administrative expenses associated with the food industry segment (which commenced in April 2011) of approximately $155,040 for the three months ended December 31, 2011, while there were no such expenses for the prior year applicable period.

Depreciation and Amortization. For the three months ended December 31, 2011 and 2010, depreciation and amortization expenses were $79,931 and $79,142, respectively. This represents a year over year increase of $789, or 1.0%.

Interest Expense. For the three months ended December 31, 2011 and 2010, interest expense was $39,633 and $47,043, respectively. This $7,410 decrease is primarily the result of a $20,648 reduction of imputed interest amortization expense to $13,333 for the three months ended December 31, 2011 from $33,981 for the prior year applicable period. Offsetting this decrease are higher interest costs primarily the result of higher borrowings during the three months ended December 31, 2011 versus the same period of 2010. The $13,333 imputed interest expense is associated with the Ferrara asset purchase acquisition (refer to Note 6 to the Consolidated Financial Statements)

(Loss) Income Before Taxes and Discontinued Operations. For the reasons stated above, the Company incurred a loss before taxes and discontinued operations of ($414,912) for the three months ended December 31, 2011, as compared to income before taxes and discontinued operations of $49,481 for the same period of 2010.

Income Taxes.   The company recorded a net income tax benefit of ($168,000) for the three months ended December 31, 2011 compared to an income tax provision of $27,359 for the same period of 2010. Both fiscal periods reflect the U.S. federal statutory rate and applicable state income taxes.

Net (Loss) Income.   For the three months ended December 31, 2011, there was a net loss of ($246,912) compared to net income of $8,570 for the same period of 2010. Net loss available to common shareholders for the three months ended December 31, 2011 was ($250,662), or ($0.01) per diluted share, as compared to net income available to common shareholders of $4,820, or $0.00 per diluted share, for the same period of 2010.

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. In addition, the new food industry segment will require working capital for the purchase of products from suppliers to be held in inventory for the sale of the products at a future date and for the prepayment of fees (commonly referred to as slotting fees) for positioning of retail store shelf space. Within our transportation logistics segment, generally we do not have a need for significant capital expenditure as we are a non-asset based freight forwarder.

Janel’s cash flow performance for the three months ended December 31, 2011 fiscal is not necessarily indicative of future cash flow performance.

As of December 31, 2011, and compared with the prior fiscal year, the Company’s cash and cash equivalents declined by $724,460, or 59.6%, to $491,022 from $1,215,482, respectively. During the three months ended December 31, 2011, Janel’s net working capital (current assets minus current liabilities) decreased by $263,025, or 36.8%, from $714,716 at September 30, 2011, to $451,691 at December 31, 2011. This decrease is primarily due to the net loss of ($246,912) for the three months ended December 31, 2011.

Cash flows from continuing operating activities. Net cash used in continuing operating activities was ($445,174) for the three months ended December 31, 2011, compared to net cash provided by continuing operating activities of $359,681 for the three months ended December 31, 2010. The change was principally driven by a decrease in payments of outstanding accounts payable, the net loss for the three months ended December 31, 2011, the purchase of inventory for the new food industry segment, an increase in security deposits, and a change in the deferred tax asset, which were partially offset by an increase in payments of outstanding accounts receivable and a decrease in prepaid expenses.

Cash flows from discontinued operating activities. There was no net cash used in discontinued operating activities for the three months ended December 31, 2011, compared to net cash used in discontinued operating activities of ($8,659) for the three months ended December 31, 2010.

Cash flows from investing activities. Net cash used for investing activities, primarily capital expenditures for property and equipment, were $33,306 and $13,822 for the three months ended December 31, 2011 and 2010, respectively.

Cash flows from financing activities. Net cash provided by financing activities was $464,673 for the three months ended December 31, 2011, compared to net cash used in financing activities of ($476,630) for the three months ended December 31, 2010. The cash provided by financing activities for the three months ended December 31, 2011, consisted primarily of an increase in the amount of $350,000 in borrowings under our bank line of credit and the sale on October 14, 2011 of 750,000 shares of the Company’s common stock for $150,000. Net cash used in financing activities for the three months ended December 31, 2010 primarily consisted of the early repayment on October 4, 2010 of the $435,000 non-interest bearing note payable due under the July 2008 FIL asset purchase acquisition (refer to Note 2(B) of our consolidated audited financial statements included in the Company’s Form 10-K for the fiscal year ended September 30, 2011).

Community National Bank Borrowing Facility. On August 3, 2010, the Company’s Janel Group of New York, Inc. (“Janel New York”) subsidiary entered into a one year $3.5 million revolving line of credit agreement with Community National Bank (“CNB”). The new credit facility (the “CNB Facility”) replaces Janel New York’s previous term loan agreement with JPMorgan Chase Bank. The interest rate of the CNB Facility was the prime rate plus 1%, with a minimum rate of 5%. Under the CNB Facility, Janel New York may borrow up to $3.5 million limited to 80% of the Company’s aggregate outstanding eligible accounts receivable. On August 3, 2010, $951,190 of the CNB Facility was used to pay off the outstanding balances under the term loan with JPMorgan Chase Bank. While the CNB Facility was initially for a one year term expiring on July 31, 2011, on August 1, 2011 the CNB Facility was renewed for an additional one year term. Obligations under the CNB Facility are secured by all of the assets of the Company, are guaranteed by the Company, and were originally guaranteed by James N. Jannello, the Company’s Chief Executive Officer. Effective November 1, 2011, the terms of the CNB Facility were amended to release James N. Jannello from his personal guarantee of the Company’s obligations to CNB, to increase the minimum interest rate from 5.0% per annum to 7.0% per annum, and an unused line fee equal to one-half of one percent per annum was instituted. All other terms of the CNB Facility remained unchanged. As of December 31, 2011, there were outstanding borrowings of $1,301,335 under the CNB Facility (which represented 56.9% of the amount available thereunder) out of a total amount available for borrowing under the CNB Facility of approximately $2,288,788.

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

Working Capital Requirements. The Company’s cash needs are currently met by the CNB Facility and cash on hand. As of December 31, 2011, the Company had $987,453 available under its $3.5 million CNB Facility and $491,022 in cash from operations and cash on hand. We believe that our current financial resources will be sufficient to finance our operations and obligations (current and long-term liabilities) for the long and short terms. However, our actual working capital needs for the long and short terms will depend upon numerous factors, including our operating results, the cost associated with growing the Company either internally or through acquisition, the amount of inventory levels required within the new food industry segment to have a seamless supply chain necessary to re-stock the product being sold to new customers, the level of cost associated with the prepayment of fees (commonly referred to as slotting fees) for positioning of retail store shelf space within the new food industry segment, competition, and the availability of a revolving credit facility, none of which can be predicted with certainty.

Current Outlook

Janel’s 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. The Company cannot accurately forecast many of these factors nor can the Company 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.

Janel is progressing with the implementation of its business plan and strategy to grow its revenue and profitability for fiscal 2012 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; accelerate the revenue growth within the new food industry segment; 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.

Certain elements of the Company’s growth strategy, principally proposals for acquisition and accelerating the revenue growth within the new food industry segment, are contingent upon the availability of adequate financing on 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 long-term 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, accruals for cargo insurance, and deferred income taxes. Management bases its estimates on historical experience and on various assumptions which are believed to be reasonable under the circumstances. We reevaluate these significant factors as facts and circumstances change. Historically, actual results have not differed significantly from our estimates. These accounting policies are more fully described in Note 1 of the Notes to the Consolidated Financial Statements.

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

Revenue Recognition

A. Full-Service Cargo Transportation Logistics Management

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

Airfreight revenues include the charges for carrying the shipments when the Company acts as a freight consolidator. Ocean freight revenues include the charges for carrying the shipments when the Company acts as a Non-Vessel Operating Common Carrier (NVOCC). In each case, the Company is acting as an indirect carrier. When acting as an indirect carrier, the Company will issue a House Airway Bill (HAWB) or a House Ocean Bill of Lading (HOBL) to customers as the contract of carriage. In turn, when the freight is physically tendered to a direct carrier, the Company receives a contract of carriage known as a Master Airway Bill for airfreight shipments and a Master Ocean Bill of Lading for ocean shipments. At this point the risk of loss passes to the carrier, however, in order to claim for any such loss, the customer is first obligated to pay the freight charges.

Based upon the terms in the contract of carriage, revenues related to shipments where the Company issues a HAWB or a HOBL are recognized at the time the freight is tendered to the direct carrier. Costs related to the shipments are recognized at the same time.

Revenues realized when the Company acts as an agent for the shipper and does not issue a HAWB or a HOBL include only the commission and fees earned for the services performed. These revenues are recognized upon completion of the services.

Customs brokerage and other services involves provide multiple services at destination including clearing shipments through customs by preparing required documentation, calculating and providing for payment of duties and other charges on behalf of the customers, arranging for any required inspections, and arranging for final delivery. These revenues are recognized upon completion of the services.

The movement of freight may require multiple services. In most instances the Company may perform multiple services including destination break bulk and value added services such as local transportation, distribution services and logistics management. Each of these services has separate fee that is recognized as revenue upon completion of the service.

Customers will frequently request an all-inclusive rate for a set of services that is known in the industry as “door-to-door services.” In these cases, the customer is billed a single rate for all services from pickup at origin to delivery. The allocation of revenue and expense among the components of services when provided under an all inclusive rate are done in an objective manner on a fair value basis in accordance with Emerging Issues Task Force (EITF) 00-21, “Revenue Arrangements with Multiple Deliverables.”

B. Food Sales

The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery of products has occurred, the sales price is fixed or determinable, and collectability is reasonably assured. This generally means that we recognize revenue when title to our products is transferred to our customers. Title usually transfers upon shipment to or receipt at our customer’s locations, as determined by the specific sales terms of each transaction.

When selling to supermarket chains, the Company is required to prepay fees (commonly referred to as slotting fees) for positioning of retail store shelf space. These fees are charged as a reduction to revenue when paid.

Our customers can earn certain incentives, which are included as deductions from revenue in the consolidated statements of operations. To date, these incentives include, but are not limited to, cash discounts for early payment of our invoices.

Estimates

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

a.    accounts receivable valuation;

b.    the useful lives of long-term assets;

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

d.    accrual of tax expense on an interim basis.

Management believes that the methods utilized in all of these areas are non-aggressive in approach and consistent in application. Management believes that there are limited, if any, alternative accounting principles or methods which could be applied to the Company’s transactions. While the use of estimates means that actual future results may be different from those contemplated by the estimates, the Company believes that alternative principles and methods used for making such estimates would not produce materially different results than those reported.

ITEM 4.     CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We maintain a system of disclosure controls and procedures that is designed to provide reasonable assurance that information, which is required to be disclosed by us in the reports that we file or submit under the Securities and Exchange Act of 1934, as amended (“Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission, and is accumulated and communicated to management in a timely manner. Our Chief Executive Officer, Chief Operating Officer and Chief Financial Officer have evaluated this system of disclosure controls and procedures as of the end of the period covered by this quarterly report, and have concluded that the system is effective. There have been no changes in our internal control over financial reporting during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.