Item 1. Description of Business.
General Development of Business
Janel World Trade, Ltd. has its executive offices at 150-14 132nd Avenue, Jamaica, NY 11434, tel. (718) 527-3800, adjacent to the John F. Kennedy International Airport. The company and its predecessors have been in business since 1974 as a logistics services provider for importers and exporters worldwide. It is primarily engaged, through its wholly owned subsidiaries, in full-service cargo transportation logistics management, including freight forwarding - via air, ocean and land-based carriers - customs brokerage services, and warehousing and distribution services.
In addition to its traditional freight forwarding and customs brokerage activities, Janel offers various related, value-added logistics services, such as freight consolidation, insurance, a direct client computer access interface, logistics planning, landed-cost calculations, in-house computer tracking, product repackaging, online shipment tracking and electronic billing. The value-added services and systems are intended to help its customers streamline operations, reduce inventories, increase the speed and reliability of worldwide deliveries and improve the overall management and efficiency of the customer’s supply-chain activities.
Janel conducts its business through a network of company-operated facilities and independent agent relationships in most trading countries. During fiscal 2006 (Janel’s fiscal year ends September 30), the company handled approximately 28,000 individual import and export shipments, predominately originating or terminating in the United States, Europe and the Far East. Janel generated gross revenue of approximately $77.2 million in fiscal 2006, $73.5 million in fiscal 2005 and $69.9 million in 2004. In fiscal 2006, approximately 70% of revenue related to import activities (unchanged from 2005), 5% to export, 20% to break-bulk and forwarding, and 5% to warehousing, distribution and trucking (unchanged from 2005). By market, the company’s revenue in fiscal 2006 derived from four principal industries: consumer wearing apparel/textiles - approximately 35% (unchanged from 2005); machines/machine parts - approximately 10% (unchanged from 2005); household appliances - approximately 20% (unchanged from 2005); and sporting goods and accessories - approximately 10% (unchanged from 2005).
History
Janel commenced business in 1974 as Janel International Forwarding Company, Inc., a New York corporation. In 1976, the “Janel Group” was established in New York City as a company primarily focused on quality import customs brokerage and related transportation services. Janel’s initial customer base consisted of importers and exporters of machines and machine parts, principally through what was then West Germany. Shortly thereafter, the company began expanding its business scope into project transportation and high-value general cargo forwarding. In 1979, Janel expanded to the Midwest and West Coast, opening branches in Chicago and Los Angeles, respectively. Additional locations were opened in Atlanta (1995) and Miami (franchise agent) (1997). In 1980, C and N Corp. was organized as a Delaware corporation to be the corporate parent of the various Janel Group operating subsidiaries.
In 1990, Janel agreed to the use of its name by a Bangkok, Thailand office to facilitate business operations during 1990 and 1992 in which it serviced a United States cellular communications carrier. In 1997, Janel designed and manufactured (through a subcontractor) electronic switching equipment shelters, which it sold to the carrier together with consulting services on transportation logistics and coordination for construction of cellular telephone sites in Thailand.
In 2000, Janel opened the office in Shanghai, China, followed by the opening of the Hong Kong office in 2001 and the opening of an office in Shenzhen, China in 2003.
In June and July 2002, the corporate parent, C and N Corp., entered into and completed a reverse merger transaction with Wine Systems Design, Inc. in which it formally changed its state of incorporation from Delaware to Nevada, changed its corporate name to Janel World Trade, Ltd. and became a public company traded on the Nasdaq Bulletin Board under the symbol “JLWT.”
The company operates out of five leased locations in the United States: Jamaica (headquarters) and Lynbrook (accounting) in New York; Elk Grove Village (Chicago, Illinois); Forest Park (Atlanta, Georgia); and Inglewood (Los Angeles, California). Each Janel office is managed independently, with each manager having over 20 years experience with the company. Janel Shanghai, Janel Hong Kong and Janel China (Shenzhen) operate as independently owned franchises within the company’s network. Janel’s President, Stephen P. Cesarski, and its Executive Vice President, James N. Jannello, each personally own a 10% profit interest in each of Janel Shanghai and Janel Hong Kong. Janel Miami (Florida) and Janel Bangkok (Thailand) operate only as franchises under the Janel name, but are not otherwise affiliated with the company’s corporate network. Mr. Jannello, Janel’s Executive Vice President, owns 50% of the Janel Miami office.
Freight Forwarding and Related Services
As a cargo freight forwarder, Janel procures shipments from its customers, consolidates shipments bound for a particular destination from a common place of origin, determines the routing over which the consolidated shipment will move, selects a carrier (air, ocean, land) serving that route on the basis of departure time, available cargo capacity and rate, and books the consolidated shipment for transportation with the selected carrier. In addition, Janel prepares all required shipping documents, delivers the shipment to the transporting carrier and, in many cases, arranges clearance of the various components of the shipment through customs at the final destination. If so requested by its customers, Janel will also arrange for delivery of the individual components of the consolidated shipment from the arrival terminal to their intended consignees.
As a result of its consolidation of customer shipments and its ongoing volume relationships with numerous carriers, a freight forwarder is usually able to obtain lower rates from such carriers than its customers could obtain directly. Accordingly, a forwarder is generally able to offer its customers a lower rate than would otherwise be available directly to the customer, providing the forwarder with its profit opportunity as an intermediary between the carrier and end-customer. The forwarder’s gross profit is represented by the difference between the rate it is charged by the carrier and the rate it, in turn, charges its customer.
In fulfilling its intermediary role, the forwarder can draw upon the transportation assets and capabilities of any individual carrier or combination thereof comprised of airlines and/or air cargo carriers, ocean shipping carriers and land-based carriers, such as trucking companies. Janel solicits freight from its customers to fill containers, charging rates lower than the rates that would be offered directly to its customers for similar type shipments.
Customs Brokerage Services
As part of its integrated logistics services, Janel provides customs brokerage clearance services in the United States and in most foreign countries. These services typically entail the preparation and assembly of required documentation in many instances (Janel provides in-house translation services into Chinese, Spanish or Italian), the advancement of customs duties on behalf of importers, and the arrangement for the delivery of goods after the customs clearance process is completed. Additionally, other services may be provided such as the procurement and placement of surety bonds on behalf of importers and the arrangement of bonded warehouse services, which allow importers to store goods while deferring payment of customs duties until the goods are delivered.
Janel has over 28 years of experience clearing a wide range of goods through U.S. Customs, from automobiles to heavy machinery to textiles. The company currently has seven fully licensed customs house brokers on staff. Janel is fully certified with U.S. Customs for both ABI and AES transmissions. The company has established an active “correspondent Customs House Broker Network” of individuals specially chosen for their ability to service customers throughout those locations in the United States where Janel does not have its own branch office. In addition, the company regularly works with a group of proven independent attorneys, whose specialization in transportation, U.S. Customs law and classifications has resulted in substantial savings to customers.
Other Logistics Services
In addition to providing air, ocean and land freight forwarding and customs brokerage services, Janel provides its import and export customers with an array of fully integrated global logistics services. These logistics services include warehousing and distribution services, door-to-door freight pickup and delivery, cargo consolidation and de-consolidation, project cargo management, insurance, direct client computer access interface, logistics planning, landed-cost calculations, duty-drawback (recovery of previously paid duties when goods are re-exported), in-house computer tracking, product repackaging, domestic pickup and forwarding, “hazmat” certifications for hazardous cargoes, letters of credit, language translation services, online shipment tracking and electronic billing.
Information Systems
In May 2000, Janel upgraded its information system hardware to an IBM AS 400 system that is utilized by all of its offices in the United States. The company’s information technology capabilities also include DCS/HBU Logistics software, a T-1 online national network and a nationwide in-house e-mail network. These systems enable Janel to perform in-house computer tracking and to offer customers landed-cost calculations and online Internet information availability via the company’s websites relative to the tracking and tracing of customer shipments.
Customers, Sales and Marketing
While Janel’s customer base represents a multitude of diverse industry groups, the bulk of the company’s shipments are related to three principal markets: consumer wearing apparel and textiles, machines and machine parts, and household appliances. During fiscal 2006, the company shipped goods and provided logistics services for approximately 1,000 individual accounts. Janel markets its global cargo transportation and integrated logistics services worldwide. In markets where the company does not operate its own facilities, its direct sales efforts are supplemented by the referral of business through one or more of the company’s franchise or agent relationships. The company’s six largest accounts in fiscal 2006 were: H.H. Brown Shoe Company (which accounts for approximately 10.85% of revenue), The Conair Corporation, Leisure Merchandise, Modell’s Sporting Goods, and The Selmer Company,
James N. Jannello and Stephen P. Cesarski are principally responsible for the marketing of the company’s services. Each branch office manager is responsible for sales activities in their U.S. local market area. Janel attempts to cultivate strong, long-term relationships with its customers and referral sources through high-quality service and management.
Employees
As of September 30, 2006, Janel employed 64 people; 34 in its Jamaica, New York headquarters and Lynbrook, New York back office; 8 in Elk Grove Village, Illinois; 7 in Forest Park, Georgia; and 15 in Inglewood, California. Approximately 47 of the company’s employees are engaged principally in operations, 11 in finance and administration and 6 in sales, marketing and customer service. Janel is not a party to any collective bargaining agreement and considers its relations with its employees to be good.
To retain the services of highly qualified, experienced and motivated employees, Janel management emphasizes an incentive compensation program and adopted a stock option plan in December 2002.
Competition
Competition within the freight forwarding industry is intense, characterized by low economic barriers to entry resulting in a large number of highly fragmented participants around the world. Janel competes for customers on the basis of its services and capabilities against other providers ranging from multinational, multi-billion dollar firms with hundreds of offices worldwide to regional and local freight forwarders to “mom-and-pop” businesses with only one or a few customers.
Currency Risks
The nature of Janel’s operations requires it to deal with currencies other than the U.S. Dollar. This results in the company being exposed to the inherent risks of international currency markets and governmental interference. A number of countries where Janel maintains offices or agent relationships have currency control regulations that influence its ability to hedge foreign currency exposure. The company tries to compensate for these exposures by accelerating international currency settlements among those offices or agents.
Seasonality
Historically, Janel’s quarterly operating results have been subject to seasonal trends. The fiscal first quarter has traditionally been the weakest and the fiscal third and fourth quarters have traditionally been the strongest. This pattern has been the result of, or influenced by, numerous factors including climate, national holidays, consumer demand, economic conditions and other similar and subtle forces. This historical seasonality has also been influenced by the growth and diversification of Janel’s international network and service offerings. The company cannot accurately forecast many of these factors, nor can it estimate the relative impact of any particular factor and, as a result, there is no assurance that historical patterns will continue in the future.
A significant portion of Janel’s revenues are derived from customers in industries with shipping patterns closely tied to consumer demand and from customers with shipping patterns dependent upon just-in-time production schedules. Therefore, the timing of Janel’s revenues are, to a large degree, affected by factors beyond the company’s control, such as shifting consumer demand for retail goods and manufacturing production delays. Many of Janel’s customers may ship a significant portion of their goods at or near the end of a quarter and the company may not learn of a resulting shortfall in revenue until late in a quarter.
Environmental Issues
In the United States, Janel is subject to federal, state and local provisions regulating the discharge of materials into the environment or otherwise for the protection of the environment. Similar laws apply in many foreign jurisdictions in which Janel operates. Although current operations have not been significantly affected by compliance with these environmental laws, governments are becoming increasingly sensitive to environmental issues and the company cannot predict what impact future environmental regulations may have on its business. Janel does not anticipate making any material capital expenditures for environmental control purposes during the remainder of the current or succeeding fiscal years.
Regulation
With respect to Janel’s activities in the air transportation industry in the United States, it is subject to regulation by the Department of Transportation as an indirect air carrier. The company’s overseas offices and agents are licensed as freight forwarders in their respective countries of operation. Janel is licensed in each of its offices as a freight forwarder by the International Air Transport Association. IATA is a voluntary association of airlines which prescribes certain operating procedures for freight forwarders acting as agents of its members. The majority of the company’s freight forwarding businesses is conducted with airlines that are IATA members.
Janel is licensed as a customs broker by the Department of Homeland Security Customs and Border Service. All U.S. customs brokers are required to maintain prescribed records and are subject to periodic audits by the Customs Service. In other jurisdictions in which Janel performs clearance services, it is licensed by the appropriate governmental authority.
Janel is registered as an Ocean Transportation Intermediary and licensed as a NVOCC carrier (non-vessel operating common carrier) by the Federal Maritime Commission. The FMC has established certain qualifications for shipping agents, including certain surety bonding requirements.
Janel does not believe that current U.S. and foreign governmental regulations impose significant economic restraint on its business operations.
Cargo Liability
When acting as an airfreight consolidator, Janel assumes a carrier’s liability for lost or damaged shipments. This legal liability is typically limited by contract to the lower of the transaction value or the released value ($9.07 per pound unless the customer declares a higher value and pays a surcharge), excepted for loss or damages caused by willful misconduct in the absence of an appropriate airway bill. The airline that the company utilizes to make the actual shipment is generally liable to Janel in the same manner and to the same extent. When acting solely as the agent of an airline or shipper, Janel does not assume any contractual liability for loss or damage to shipments tendered to the airline.
When acting as an ocean freight consolidator, Janel assumes a carrier’s liability for lost or damaged shipments. This liability is strictly limited by contract to the lower of a transaction value or the released value ($500 for package or customary freight unit unless the customer declares a higher value and pays a surcharge). The steamship line which Janel utilizes to make the actual shipment is generally liable to the company in the same manner and to the same extent. In its ocean freight forwarding and customs clearance operations, Janel does not assume cargo liability.
When providing warehouse and distribution services, Janel limits its legal liability by contract to an amount generally equal to the lower of fair value or $.50 per pound with a maximum of $50 per “lot,” defined as the smallest unit that the warehouse is required to track. Upon payment of a surcharge for warehouse and distribution services, Janel would assume additional liability.
The company maintains marine cargo insurance covering claims for losses attributable to missing or damaged shipments for which it is legally liable. Janel also maintains insurance coverage for the property of others stored in company warehouse facilities.
Item 1A.
Item 1A.
Risk Factors
1. We May Not Be Successful in Growing Either Internally or Through Acquisitions.
Our growth strategy primarily focuses on internal growth in domestic and international freight forwarding, local pick up and delivery, customs brokerage and acquisitions. Our ability to grow will depend on a number of factors, including:
- existing and emerging competition;
- ability to operate profitably in the face of competitive pressures;
- the recruitment, training and retention of operating and management employees;
- the strength of demand for our services;
- the availability of capital to support our growth; and
- the ability to identify, negotiate and fund acquisitions when
appropriate.
2. Acquisitions Involve Risks, Including Those Relating to:
- the integration of acquired businesses, including different information systems;
- the retention of prior levels of business;
- the retention of employees;
- the diversion of management attention;
- the write-offs resulting from impairment of acquired intangible assets; and
- unexpected liabilities.
We cannot assure that we will be successful in implementing any of our business strategies or plans for future growth.
3. Events Affecting the Volume of International Trade and International Operations Could Adversely Affect Our International Operations.
Our international operations are directly related to and dependent on the volume of international trade, particularly trade between the United States and foreign nations. This trade, as well as our international operations, are influenced by many factors, including:
- economic and political conditions in the United States and abroad;
- major work stoppages, such as the 2002 West Coast work stoppage;
- exchange controls, currency conversion and fluctuations;
- war, other armed conflicts and terrorism; and
- United States and foreign laws relating to tariffs, trade restrictions, foreign investment and taxation.
Trade-related events beyond our control, such as a failure of various nations to reach or adopt international trade agreements or an increase in bilateral or multilateral trade restrictions, could have a material adverse effect on our international operations. Our operations also depend on the availability of independent carriers that provide cargo space for international operations.
4. Our Business Has Been and Could Continue to Be Adversely Affected by Negative Conditions in the United States Economy or the Industries of Our Principal Customers.
Demand for our services had been adversely affected by negative conditions in the United States economy or the industries of our customers. A substantial number of our principal customers are in the household products, garments, industrial equipment, telecommunications and related industries, and their business had been adversely affected, particularly during the 2001-2002 period. These customers collectively account for a substantial percentage of our revenue. Adverse conditions or worsening conditions in the industries of our customers could cause us to lose a significant customer or experience a decrease in the shipment volume and business levels of our customers. Either of these events could negatively affect our financial results. Adverse economic conditions outside the United States can also have an adverse effect on our customers and our business. We expect that demand for our services, and consequently our results of operations, will be sensitive to domestic and global economic conditions and other factors beyond our control.
5. The Terrorist Attacks on September 11, 2001, and their Aftermath, Have Created Economic, Political and Regulatory Uncertainties, Some of Which May Materially Harm Our Business and Prospects and Our Ability to Conduct Business in the Ordinary Course.
The terrorist attacks that took place in the United States on September 11, 2001, have adversely affected many businesses, including our business. The national and global responses to these terrorist attacks, which are varied and unpredictable, may materially adversely affect us in ways we cannot currently predict. Some of the possible future effects include reduced business activity by our customers, increased shipping costs, changes in security measures or regulatory requirements for air and other travel and reductions in available commercial flights that may make it more difficult for us to arrange for the transport of our customers’ freight and increased credit and business risk for customers in industries that were severely affected by the attacks.
6. Our Ability to Serve Our Customers Depends on the Availability of Cargo Space from Third Parties.
Our ability to serve our customers depends on the availability of air and sea cargo space, including space on passenger and cargo airlines and ocean carriers that service the transportation lanes that we use. Shortages of cargo space are most likely to develop around holidays and in especially heavy transportation lanes. In addition, available cargo space could be reduced as a result of decreases in the number of passenger airlines or ocean carriers serving particular shipment lanes at particular times. This could occur as a result of economic conditions, transportation strikes, regulatory changes and other factors beyond our control. Our future operating results could be adversely affected by significant shortages of suitable cargo space and associated increases in rates charged by passenger airlines or ocean carriers for cargo space.
7. We May Lose Business to Competitors.
Competition within the freight industry is intense. We compete in North America primarily with fully integrated carriers, including much larger and well-financed national companies and smaller freight forwarders. Internationally, we compete primarily with the major European-based freight forwarders. We expect to encounter continued competition from those forwarders that have a predominantly international focus and have established international networks, including those based in the United States and Europe. We also expect to continue to encounter competition from other forwarders with nationwide networks, regional and local forwarders, passenger and cargo air carriers, trucking companies, cargo sales agents and brokers, and carriers and associations of shippers organized for the purpose of consolidating their members’ shipments to obtain lower freight rates from carriers. As a customs broker and ocean freight forwarder, we encounter strong competition in every port in which we do business, often competing with large domestic and foreign firms as well as local and regional firms. Our inability to compete successfully in our industry could cause us to lose customers or lower the volume of our shipments.
8. Our Success Depends on the Efforts of Our Founders and Other Key Managers and Personnel.
Our founder, James N. Jannello, continues to serve as Executive Vice President and Chief Executive Officer, and Stephen P. Cesarski continues to serve as President and Chief Operating Officer. We believe that our success is highly dependent on the continuing efforts of Mr. Jannello and the other executive officers and key employees, as well as our ability to attract and retain other skilled managers and personnel. None of our officers or key employees are subject to employment contracts. The loss of the services of any of our key personnel could have a material adverse effect on us.
9. Janel’s Officers and Directors Control the Company.
The officers and directors of the company control the vote of approximately 71% of the outstanding shares of common stock. The company’s stock option plan provides 1,600,000 shares of common stock regarding which options may be granted to key employees of the company. As a result, the officers and directors of the company control the election of the company’s directors and will have the ability to control the affairs of the company. Furthermore, they will, by virtue of their control of a large majority of the voting shares, have controlling influence over, among other things, the ability to amend the company’s Certificate of Incorporation and By-Laws or effect or preclude fundamental corporate transactions involving the company, including the acceptance or rejection of any proposals relating to a merger of the company or an acquisition of the company by another entity.
10. Failure to Comply with Governmental Permit and Licensing Requirements Could Result in Fines or Revocation of Our Operating Authorities, and Changes in These Requirements Could Adversely Affect Us.
Our operations are subject to various state, local, federal and foreign regulations that in many instances require permits and licenses. Our failure to maintain required permits or licenses, or to comply with applicable regulations, could result in substantial fines or revocation of our operating authorities. Moreover, government deregulation efforts, “modernization” of the regulations governing customs clearance and changes in the international trade and tariff environment could require material expenditures or otherwise adversely affect us.
11. Our Stock Price Is Subject to Volatility.
Our common stock trades on the OTC Bulletin Board under the symbol “JLWT.” The market price of our common stock has been subject to significant fluctuations. Such fluctuations, as well as economic conditions generally, may adversely affect the market price of our securities.
12. We Have No Assurance of a Continued Public Trading Market.
Janel’s common stock is quoted in the over-the-counter market on the OTC Bulletin Board and is subject to the low-priced security or so-called “penny stock” rules that impose additional sales practice requirements on broker-dealers who sell such securities. For any transaction involving a penny stock, the rules require, among other things, the delivery, prior to the transaction, of a disclosure schedule required by the SEC relating to the penny stock market. The broker-dealer also must disclose the commissions payable to both the broker-dealer and the registered representative and current quotations for the securities. Finally, monthly statements must be sent disclosing recent price information for the penny stocks held in the customer’s account. As a result, characterization as a “penny stock” can adversely affect the market liquidity for the securities.
13. We Have No History of Paying Dividends.
Janel has not paid cash dividends on our common stock. We currently anticipate that we will retain all future earnings for use in our business and do not anticipate paying any cash dividends in the foreseeable future.
Item 1B.
Item 1B.
Unresolved Staff Comments.
None.
Item 2.
Item 2.
Properties.
Janel leases all of its office facilities. The executive offices in Jamaica, New York consist of approximately 5,000 square feet of office space adjoined by 9,000 square feet of warehouse space, all subject to a lease with a term ending January 31, 2010, and an annual base rent of $132,300 through January 31, 2005, and $145,500 thereafter. Its administrative office in Lynbrook, New York is approximately 1,318 square feet and is occupied under a lease which expires February 28, 2008, with an annual rent of $35,000 for 2005, which increases to $38,000 in the last year of the lease. Janel’s Illinois office occupies approximately 2,063 square feet with an additional 800 square feet of warehouse space under a lease which expires November 30, 2009, with an annual rent of $38,478 until December 1, 2007, when the rent increases to $40,536 for the remainder of the lease term. Janel’s Georgia location occupies approximately 3,000 square feet of office and warehouse space, under a lease which expires in August 31, 2009 with an annual rent of $29,190, which increases to $30,066 on September 1, 2007 and to $30,968 on September 1, 2008. Janel’s Los Angeles office occupies approximately 3,000 square feet of office under a lease which expires in June 2007 with an annual rent of $61,380. Certain of the leases also provide for annual increases based upon increases in taxes or service charges.
Item 3.
Item 3.
Legal Proceedings.
Janel is occasionally subject to claims and lawsuits which typically arise in the normal course of business. While the outcome of these claims cannot be predicted with certainty, management does not believe that the outcome of any of these legal matters will have a material adverse effect on the company’s financial position or results of operations.
Item 4.
Item 4.
Submission of Matters to a Vote of Security Holders.
There was no submission of matters to a vote of security holders during the company’s fiscal year ended September 30, 2006.
PART II
Item 5.
Item 5.
Market for Registrant’s Common Equity and Related Stockholder Matters, and Issuer Purchases of Equity Security Securities.
The company’s common stock is quoted on the OTC Bulletin Board. The following table sets forth the range of the high and low bid prices for the company’s common stock as reported on the OTC Bulletin Board for the periods indicated. Quotations do not necessarily represent actual transactions and do not reflect related mark-ups, mark-downs or commissions:
At December 7, 2006, the company had 45 holders of record and approximately 550 beneficial holders of its shares of common stock. On December 27, 2006, the last sale price of the shares of common stock as reported by the OTC Bulletin Board was $0.42 per share.
Securities which were issued or sold by the Registrant within the past three years and which were not registered under the Securities Act of 1933 (the “Securities Act”), are as follows:
On March 13, 2006, Janel authorized the issuance to Strategic Growth International, Inc. (“SGI”) of 180,000 unregistered shares of Janel’s $.001 par value common stock, 18,000 shares to Karl Birkenfeld, and 2,000 shares to Westcap Securities, Inc. The shares were valued at $1.02 per share. SGI was also issued a warrant to purchase up to 400,000 shares of Janel common stock exercisable from February 1, 2007 to October 2, 2010 at an exercise price of $1.02 per share. The 200,000 Janel shares issued to SGI and its associates are subject to a lock-up agreement. The 400,000 Janel shares issuable upon exercise of the warrants are subject to antidilution provisions and also have limited registration rights. The shares and warrants were issued as part of the compensation due to SGI pursuant to an agreement with respect to the provision of consulting services with regard to financial and investor relations for a term which began October 3, 2005 and ended October 2, 2006. The lock-up provisions require the holders to refrain from selling, transferring, hypothecating or otherwise disposing of their Janel shares until February 1, 2007.
The registration rights of the 400,000 Janel shares issuable upon exercise of the warrant provide the holders with the right to have their shares included in the next securities registration statement (except for a registration statement on Forms S-4 or S-8) filed by Janel with the Securities and Exchange Commission during the entire term of the warrant.
The amount and terms of the issuance of the Janel shares and the warrant were determined by arms-length negotiation between the parties. There are no material relationships between Janel or its respective officers, directors, affiliates and principal shareholders, and the officers, directors, and affiliates of SGI.
Exemption from registration under the Securities Act is claimed for the sales of common stock referred to above in reliance upon the exemption afforded by Section 4(2) of the Securities Act for transactions not involving a public offering. Each certificate evidencing such shares of common stock bears an appropriate restrictive legend, and “stop transfer” orders are maintained on the company’s stock transfer records with respect to each of the holders of that common stock. None of the sales involved participation by an underwriter or a broker-dealer.
Item 6.
Item 6.
Selected Financial Data.
Year Ended September 30,
Item 7.
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Forward-Looking Statements
The statements contained in all parts of this document that are not historical facts are, or may be deemed to be, “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements include, but are not limited to, those relating to the following: the effect and benefits of the company’s reverse merger transaction; Janel’s plans to reduce costs (including the scope, timing, impact and effects thereof); potential annualized cost savings; plans for direct entry into the trucking and warehouse distribution business (including the scope, timing, impact and effects thereof); the company’s ability to improve its cost structure; plans for opening additional domestic and foreign branch offices (including the scope, timing, impact and effects thereof); the sensitivity of demand for the company’s services to domestic and global economic and political conditions; expected growth; future operating expenses; future margins; fluctuations in currency valuations; fluctuations in interest rates; future acquisitions and any effects, benefits, results, terms or other aspects of such acquisitions; ability to continue growth and implement growth and business strategy; the ability of expected sources of liquidity to support working capital and capital expenditure requirements; future expectations and outlook and any other statements regarding future growth, cash needs, operations, business plans and financial results and any other statements that are not historical facts.
When used in this document, the words “anticipate,” “estimate,” “expect,” “may,” “plans,” “project,” and similar expressions are intended to be among the statements that identify forward-looking statements. Janel’s results may differ significantly from the results discussed in the forward-looking statements. Such statements involve risks and uncertainties, including, but not limited to, those relating to costs, delays and difficulties related to the company’s dependence on its ability to attract and retain skilled managers and other personnel; the intense competition within the freight industry; the uncertainty of the company’s ability to manage and continue its growth and implement its business strategy; the company’s dependence on the availability of cargo space to serve its customers; effects of regulation; its vulnerability to general economic conditions and dependence on its principal customers; accuracy of accounting and other estimates; risk of international operations; risks relating to acquisitions; the company’s future financial and operating results, cash needs and demand for its services; and the company’s ability to maintain and comply with permits and licenses; as well as other risk factors described in this Annual Report. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual outcomes may vary materially from those projected.
Overview
The following discussion and analysis addresses the results of operations for the fiscal year ended September 30, 2006, as compared to the results of operations for the fiscal year ended September 30, 2005; the fiscal year ended September 30, 2005 as compared to the results of operations for the fiscal year ended September 30, 2004; and the results of operations for the fiscal year ended September 30, 2004, as compared to the results of operations for the fiscal year ended September 30, 2003. The discussion and analysis then addresses the liquidity and financial condition of the company, and other matters.
Results of Operations
Janel operates its business as a single segment primarily comprised of full-service cargo transportation logistics management, including freight forwarding via air, ocean and land-based carriers, customs brokerage services, warehousing and distribution services, and other value-added logistics services.
Fiscal Year Ended September 30, 2006 Compared to Fiscal Year Ended September 30,
Revenue. Total revenue for fiscal 2006 was a record $77,220,070, as compared to $73,484,334 for fiscal 2005, a year-over-year increase of $3,735,736, or 5.1%. The increase in revenue was primarily due to the general improvement in international trade during fiscal 2006 in all of the principal industry sectors served by the company, in particular, wearing apparel and finished garments, household electronics, and sporting goods and accessories. During fiscal 2006, the company increased its overall business activities with existing clients, and through the addition of new clients. Net revenue (revenue minus forwarding expenses) in fiscal 2006 was a record $8,052,822, an increase of $442,161, or 5.8%, as compared to $7,610,661 in fiscal 2005.
Forwarding Expense. Forwarding expense is primarily comprised of the fees paid by Janel directly to cargo carriers to handle and transport its actual freight shipments on behalf of its customers between initial and final terminal points. Forwarding expense also includes any duties and/or trucking charges related to the shipments. For fiscal year 2006, forwarding expense increased by $3,293,575, or 5.0%, to $69,167,248, as compared to $65,873,673 for fiscal year 2005. The company’s export business is conducted predominantly by ocean freight. Customer improvements in supply-chain management and inventory planning have reduced the frequency of time-critical shipments which require airfreight. These factors have resulted in the increased use of lower-cost ocean freight. As a general rule, ocean freight costs less than airfreight, and is marked up at a lower percentage 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.
Selling, General and Administrative Expense. Selling, general and administrative expense increased $520,470, or 7.7%, to $7,299,039 in fiscal 2006, as compared to $6,778,569 in fiscal 2005. As a percentage of revenue, SG&A expense in fiscal 2006 was 9.45% as compared to 9.22% as a percentage of revenue in fiscal 2005. The year-over-year dollar increase in SG&A resulted from a general increase in most categories of SG&A expenses in fiscal 2006, including increased commissions on increased sales, as compared to fiscal 2005.
Income Before Taxes. Income before taxes in fiscal 2006 was $328,495, which represented a year-to-year decrease of $446,374, or 57.6%, as compared to income before taxes of $774,869 in fiscal 2005. The principal reason for the decline was the payment of stock-based compensation in fiscal 2006 in the amount of $452,360, which accounted for more than the total dollar decrease. No stock-based compensation was paid in fiscal 2005.
Income Taxes. The effective income tax rates in fiscal 2006 and fiscal 2005 are 83% and 44%, respectively. The increase of 39% is attributable to the non-deductible stock warrant issued as part of the stock based compensation. No deferred taxes have been provided in connection with the issuance of the warrant.
Net Income. For fiscal 2006, Janel reported record net income of $56,995, a decrease of $373,024, or 86.7%, as compared to the reported net income of $430,019 in fiscal 2005. Janel’s net profit margin (net income as a percent of net revenue) was 0.71% in fiscal 2006, a decline of 494 basis points as compared to 5.65% in fiscal 2005. The principal reason for the significant decline was the negative effect on net income resulting from the payment in fiscal 2006 of stock-based compensation in the amount of $452,360.
Fiscal Year Ended September 30, 2005 Compared to Fiscal Year Ended September 30,
Revenue. Total revenue for fiscal 2005 was a record $73,484,334, as compared to $69,981,639 for fiscal 2004, a year-over-year increase of $3,502,695, or 5.0%. The increase in revenue was primarily due to the general improvement in international trade during fiscal 2005 in all of the principal industry sectors served by the company, in particular, wearing apparel and finished garments, household electronics, and sporting goods and accessories. During fiscal 2005, the company substantially increased its overall business activities with existing clients, and through the addition of new clients, notwithstanding its elimination of nine low-margin accounts that had accounted for approximately $10,800,000 of revenue during fiscal 2004, but accounted for only approximately $550,000 of revenue in fiscal 2005. Net revenue (revenue minus forwarding expenses) in fiscal 2005 was a record $7,610,661, an increase of $670,199, or 9.7%, as compared to $6,940,462 in fiscal 2004.
Forwarding Expense. For fiscal year 2005, forwarding expense increased by $2,832,496, or 4.5%, to $65,873,673 as compared to $63,041,177 for fiscal year 2004. The percentage increase in forwarding expense is less than the percentage increase in revenue because of the elimination of low-margin customer accounts. The company’s export business is conducted predominantly by ocean freight. Customer improvements in supply-chain management and inventory planning reduced the frequency of time-critical shipments which require airfreight. These factors resulted in the increased use of lower-cost ocean freight.
Selling, General and Administrative Expense. Selling, general and administrative expense increased $454,963, or 7.2%, to $6,778,569 in fiscal 2005, as compared to $6,323,606 in fiscal 2004. As a percentage of revenue, SG&A expense in fiscal 2005 was 9.22% as compared to 9.03% as a percentage of revenue in fiscal 2004. The year-over-year dollar increase in SG&A resulted from an increase in accounting, legal and investor relations expenses, the hiring of three additional salespeople and the related incremental expenses in fiscal 2005, and increased commissions on increased sales, as compared to fiscal 2004.
Income (Loss) Before Taxes. Income before taxes in fiscal 2005 increased to a record $774,869, which represented a year-to-year improvement of $305,914, or 65.2%, as compared to income before taxes of $468,955 in fiscal 2004. Income before taxes was lower than income before other items for the period primarily as the result of a charge of $50,098 taken during the year reflecting costs related to abandoned business acquisitions. The principal reason for the significant increase was the elimination of low-margin customer accounts, increased business activity by new customer accounts and increased shipping activity by existing customers.
Income Taxes. The effective income tax rates in both fiscal 2005 and fiscal 2004 generally reflect the U.S. federal statutory rate and applicable state income taxes.
Net Income (Loss). For fiscal 2005, Janel reported record net income of $430,019, an increase of $165,664, or 62.7%, as compared to the reported net income of $264,355 in fiscal 2004. Janel’s net profit margin (net income as a percent of net revenue) was 5.65% in fiscal 2005, an improvement of 184 basis points as compared to 3.81% in fiscal 2004. The principal reason for the significant gain was the elimination of the low-margin customer accounts, increased business activity by new customer accounts and increased shipping activity by existing customers.
Fiscal Year Ended September 30, 2004 Compared to Fiscal Year Ended September 30,
Revenue. Total revenue for fiscal 2004 was a record $69,981,639, as compared to $56,916,276 for fiscal 2003, a year-over-year increase of $13,065,363, or 23.0%. The increase in revenue was primarily due to the general improvement in international trade during fiscal 2004 in all of the principal industry sectors served by the company, in particular, wearing apparel and finished garments, household electronics and sporting goods and accessories. During fiscal 2004, the company substantially increased its overall business activities with existing clients as well as through the addition of new clients. Net revenue in fiscal 2004 was a record $6,940,462, an increase of $624,485, or 9.9%, as compared to $6,315,977 in fiscal 2003.
Forwarding Expense. For fiscal year 2004, forwarding expense increased by $12,440,878, or 24.6%, to $63,041,177 as compared to $50,600,299 for fiscal year 2003. Forwarding expense increased year-over-year at a slightly higher percentage than revenue because, in fiscal 2004, a somewhat higher proportion of the company’s total shipments utilized ocean freight, for which the company earns slightly lower margins than for air-freight.
Selling, General and Administrative Expense. Selling, general and administrative expense increased $367,015, or 6.2%, to $6,323,606 in fiscal 2004, as compared to $5,956,591 in fiscal 2003. However, as a percentage of revenue, SG&A expense in fiscal 2004 was 9.03%, an improvement of 143 basis points as compared to 10.46% as a percentage of revenue in fiscal 2003.
Income (Loss) Before Taxes. Income before taxes in fiscal 2004 was a record $468,955, which was less than income before other items for the period, primarily as a result a charge of $119,160 taken in the fiscal fourth quarter reflecting costs related to abandoned business acquisitions. Nonetheless, this represented a year-to-year improvement of $112,668., or 31.6%, as compared to income before taxes of $356,287 in fiscal 2003.
Income Taxes. The effective income tax rate in both fiscal 2004 and fiscal 2003 generally reflects the U.S. federal statutory rate and applicable state income taxes.
Net Income (Loss). For fiscal 2004, Janel reported record net income of $264,355, an increase of $67,568, or 34.3%, as compared to the reported net income of $196,787 in fiscal 2003. Janel’s net profit margin (net income as a percent of net revenue) was 3.81% in fiscal 2004, an improvement of 69 basis points as compared to 3.12% in fiscal 2003.
Liquidity and Capital Resources
Janel’s ability to meet its liquidity requirements, which include satisfying its debt obligations, funding working capital, day-to-day operating expenses and capital expenditures depends upon its future performance, which is subject to general economic conditions and other factors, some of which are beyond its control. During the 12 months ended September 30, 2006, Janel’s net working capital (total current assets less total current liabilities) increased by $567,438, primarily as a result of a increase in cash and cash equivalents of $548,714.
At September 30, 2006, cash increased by $548,714 to $1,341,952 from $793,238 at September 30, 2005. For the 12 months ended September 30, 2006, Janel’s primary source of cash was the adjustment to net income of $452,360 representing the stock-based compensation expense as well as its net income of $56,995. The decrease in its accounts receivable of $524,990 was largely offset by a decrease in accounts payable of $478,858. During fiscal 2006, net cash was also used in investing activities represented by the acquisition of property and equipment in the amount of $43,478.
At September 30, 2005, cash decreased by $494,269 to $793,238 from $1,287,507 at September 30, 2004. For the 12 months ended September 30, 2005, Janel’s primary source of cash was its net income of $430,019. In operating activities, the company used cash primarily to finance an increase in its accounts receivable by $53,879, which was more than offset by an increase in accounts payable and accrued expenses of $71,152. During fiscal 2005, net cash was also used in investing activities represented by the acquisition of property and equipment in the amount of $227,320. For financing activities, Janel decreased cash by $808,390 primarily through the repayment in full of a bank note payable in the amount of $800,000.
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 is adequate for financing its receivables, and it obtained a reduced interest rate. At September 30, 2006, Janel had $1,500,000 of available borrowing under its line of credit, bearing interest at prime less one-half of one percent (0.5%) per annum, collateralized by substantially all the assets of Janel and personal guarantees by certain shareholders of the company. Management believes that anticipated cash flow before other items and availability under its expanded line of credit are sufficient to meet its current working capital and operating needs. 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 various 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. Its results of operations are affected by the general economic cycle, particularly as it influences global trade levels and specifically the import and export activities of Janel’s various current and prospective customers. Historically, the company’s quarterly results of operations have been subject to seasonal trends which have been the result of, or influenced by, numerous factors including climate, national holidays, consumer demand, economic conditions, the growth and diversification of its international network and service offerings, and other similar and subtle forces.
Based upon the results for the fiscal year ended September 30, 2006, and its current operations, Janel conservatively projects that gross revenue from its currently existing accounts and businesses for its fiscal year ending September 30, 2007 will grow by approximately 4% to approximately $80 million.
In addition, Janel is progressing with the implementation of its business plan and strategy to grow its revenue and profitability for fiscal 2007 and beyond through other avenues. The company’s strategy for growth includes plans to: open additional branch offices domestically and/or outside the continental United States; introduce additional revenue streams for its existing headquarters and branch locations; proceed with negotiations and due diligence with privately held transportation-related firms which may ultimately lead to their acquisition by the company; expand its existing sales force by hiring additional commission-only sales representatives with established customer bases; increase its focus on growing revenue related to export activities; evaluate direct entry into the trucking and warehouse distribution business as a complement to the services already provided to existing customers; and continue its focus on containing current and prospective overhead and operating expenses, particularly with regard to the efficient integration of any additional offices or acquisitions. Assuming successful execution of substantial elements of these growth strategies, the company projects that gross revenue for fiscal 2007 will be greater than its gross revenue for fiscal 2006, and that profitability will be commensurately greater than Janel’s fiscal 2006 results, as well.
Contractual Obligations and Commitments
The following table presents, as of September 30, 2006, the company’s significant fixed and determinable contractual obligations, by payment date. Further discussion of the nature of the obligations is included in Notes 7 and 11 to the Consolidated Financial Statements:
________________
(1) Represents principal payments only.
(2) Leases represent future minimum lease payments under non-cancellable operating leases (primarily the rental of premises). In accordance with accounting principles generally accepted in the United States, the company’s operating leases are not recorded in its balance sheet.
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 that 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 that 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 this Annual Report on Form 10-K for the fiscal year ended September 30, 2006.
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
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 breakbulk and value added services such as local transportation, distribution services and logistics management. Each of these services has separate fee that is recognized as revenue upon completion of the service.
Customers will frequently request an all-inclusive rate for a set of services that is known in the industry as “door-to-door services.” In these cases, the customer is billed a single rate for all services from pickup at origin to delivery. The allocation of revenue and expense among the components of services when provided under an all inclusive rate are done in an objective manner on a fair value basis in accordance with Emerging Issues Task Force (EITF) 00-21, “Revenue Arrangements with Multiple Deliverables.”
Estimates
While judgments and estimates are a necessary component of any system of accounting, the company’s 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;
b.
the useful lives of long-term assets;
c.
the accrual of costs related to ancillary services the company provides; and
c.
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 7a.
Item 7a.
Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.
Item 8.
Item 8.
Financial Statements and Supplementary Data.
The financial statements and supplementary data required by this Item 8 are included in the company’s Consolidated Financial Statements listed in Item 15(a) of this Annual Report.
Item 9.
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
Not applicable.
Item 9A.
Item 9A.
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 annual report, and believe that the system is effective. There have been no changes in our internal control over financial reporting during the most recent fiscal year that have materially affected, or are reasonably likely to materially affect, the company’s internal control over financial reporting.
Item 9B.
Item 9B.
Other Information.
None
PART III
Item 10.
Item 10.
Directors, Executive Officers and Corporate Governance.
The executive officers and directors of the Registrant are as follows:
Stephen P. Cesarski has been the President and a director of Janel since 1978. Mr. Cesarski is the Chief Operating Officer and is principally engaged in sales and marketing and also manages the export side of the company’s business.
James N. Jannello is the Executive Vice President and a director, and has been the Chief Executive Officer of Janel since it was founded in 1974. Mr. Jannello’s principal function is the overseeing of all of the company’s operations, management of the import side of the business and the setting of billing rates and charges, and the maintenance of relationships with overseas agents worldwide. Mr. Jannello is a licensed Customs House Broker.
William J. Lally was initially employed by Janel in New York City in 1975 and moved to Chicago, Illinois in 1979, where he is the President of the Janel Group of Illinois, Inc. Mr. Lally became a director of the company in July 2002.
Noel J. Jannello was initially employed by Janel in 1995, and has been Vice President and operations executive since 2003. His principal function is the overseeing of the company's U.S. operations. Mr. Janello is a graduate of Bradley University (B.A., Advertising & Marketing, 1993), and is the son of James N. Jannello.
Ruth Werra has been the Secretary of Janel since 1994 and has been employed by the company since 1975. She is the office manager of the New York executive office and oversees the maintenance of Janel’s corporate records. Mrs. Werra also oversees the entry and clearance of all personal effects shipments handled by the New York office.
Linda Bieler has been the Controller of Janel since 1994. She is the Chief Financial and Accounting Officer and oversees accounting operations for all branches, and manages its information systems and generation of its reports.
Directors hold office until the next annual meeting of shareholders and thereafter until their successors have been duly elected and qualified. The executive officers are elected by the Board of Directors on an annual basis and serve under the direction of the board. Executive officers devote all of their business time to the company’s affairs.
Janel’s Board of Directors does not yet include any “independent” directors, and the company does not have any standing Audit, Compensation or Nominating Committees. The Board of Directors met three times during fiscal 2006.
Item 11.
Item 11.
Executive Compensation
Summary Compensation Table
The following table sets forth, for the fiscal years ended September 30, 2006, and 2004, the cash compensation paid by the company, as well as certain other compensation paid with respect to those years and months, to the Chief Executive Officer and, to the extent applicable, each of the three other most highly compensated executive officers of the company in all capacities in which they served.
(1)
Includes $15,259, $15,755 and $12,821 of medical insurance premiums paid on behalf of such individual for each of the fiscal years ended 2006, 2005 and 2004, respectively, $30,248, $34,437 and $33,889 for automobile and automobile-related costs, including insurance, incurred on behalf of such individual for each of the fiscal years ended 2006, 2005 and 2004, respectively, and $2,173, $2,076 and $1,946 of 401K paid on behalf of such individual for each of the fiscal years ended 2006, 2005 and 2004, respectively.
(2)
Includes $13,366, $12,435 and $10,132 of medical insurance premiums paid on behalf of such individual for each of the fiscal years ended 2006, 2005 and 2004, respectively, $36,714, $34,334 and $37,623 for automobile and automobile-related costs, including insurance, incurred on behalf of such individual for each of the fiscal years ended 2006, 2005 and 2004, respectively, and $2,238, $2,141 and $1,995 of 401K paid on behalf of such individual for each of the fiscal years ended 2006, 2005 and 2004, respectively.
(3)
Includes $5,995, $5,172 and $10,132 of medical insurance premiums paid on behalf of such individual for each of the fiscal years ended 2006, 2005 and 2004, respectively, $10,025, $9,210 and $12,937 for automobile and automobile-related costs, including insurance, incurred on behalf of such individual for each of the fiscal years ended 2006, 2005 and 2004, respectively, and $1,487, $1,311 and $1,173 of 401K paid on behalf of such individual for each fiscal years ended 2006, 2005 and 2004, respectively. Noel J. Jannello is the son of James N. Janello.
(4)
Includes $13,153, $13,715 and $13,112 for automobile and automobile-related costs, including insurance, incurred on behalf of such individual for each of the fiscal years ended 2006, 2005 and 2004, respectively
Item 12.
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The following table sets forth certain information regarding shares of common stock beneficially owned as of December 29, 2006, by (i) each person, known to the company, who beneficially owns more than 5% of the common stock, (ii) each of the company’s directors and (iii) all officers and directors as a group:
__________________________
* Less than one percent (1%)
(1) All of these shares are owned of record.
Common Stock
Janel is authorized to issue up to 225,000,000 shares of common stock, $.001 par value each, of which 17,043,000 shares are currently issued and outstanding. The holders of common stock are entitled to one vote for each share held of record on all matters to be voted on by shareholders. There is no cumulative voting with respect to the election of directors, with the result that the holders of more than 50% of the shares of common stock can elect all of the directors. The company’s principal officers, James N. Jannello and Stephen P. Cesarski, collectively own 64.54% of the issued and outstanding common stock and therefore can elect all of the directors. The holders of common stock are entitled to receive dividends when and if declared by the Board of Directors out of funds legally available therefore. In the event of liquidation, dissolution or winding up of the company, the owners of common stock are entitled to share all assets remaining available for distribution after the payment of liabilities and after provision has been made for each class stock, if any, having a preference over the common stock as such. The common stock has no conversion, preemptive or other subscription rights, and there are no redemption revisions applicable to the common stock.
Savings and Stock Option Plans
401(k) and Profit-Sharing Plan.
The company maintains an Internal Revenue Code Section 401(k) salary deferral savings and profit-sharing plan (the “Plan”) for all of its eligible employees who have been employed for at least one year and are at least 21 years old. Subject to certain limitations, the Plan allows participants to voluntarily contribute up to 15% of their pay on a pre-tax basis. Under the Plan, the company may make matching contributions on behalf of the pre-tax contributions made up to a maximum of 25% of the participant’s first 5% of compensation contributed as Elective Deferrals in the year. All participants are fully vested in their accounts in the Plan with respect to their salary deferral contributions, and are vested in company matching contributions at the rate of 20% after three years of service, 40% after four years of service, 60% after five years of service, 80% after six years of service, with 100% vesting after seven years of service.
Stock Option Plan.
On December 12, 2002, Janel’s Board of Directors and majority of its shareholders approved and adopted the Janel World Trade, Ltd. Stock Option Incentive Plan (the “Option Plan”) providing for options to purchase up to 1,600,000 shares of common stock for issuance to valued employees and consultants of the company as an incentive for superior performance.
To date, no options have been granted under the Option Plan. The Option Plan is administered by the Board of Directors, which is authorized to grant incentive stock options and non qualified stock options to selected employees and consultants of the company and to determine the participants, the number of options to be granted and other terms and provisions of each option.
The exercise price of any incentive stock option or nonqualified option granted under the Option Plan may not be less than 100% of the fair market value of the shares of common stock of the company at the time of the grant. In the case of incentive stock options granted to holders of more than 10% of the voting power of the company, the exercise price may not be less than 110% of the fair market value.
Under the terms of the Option Plan, the aggregate fair market value (determined at the time of grant) of shares issuable to any one recipient upon exercise of incentive stock options exercisable for the first time during any one calendar year may not exceed $100,000. Options granted under the Option Plan may be exercisable in either one, two or three equal annual installments at the discretion of the Board of Directors, but in no event may a stock option be exercisable prior to the expiration of six months from the date of grant, unless the grantee dies or becomes disabled prior thereto. Stock options granted under the Option Plan have a maximum term of 10 years from the date of grant, except that with respect to incentive stock options granted to an employee who, at the time of the grant, is a holder of more than 10% of the voting power of the company, the stock option shall expire not more than five years from the date of the grant. The option price must be paid in full on the date of exercise and is payable in cash or in shares of common stock having a fair market value on the date the option is exercised equal to the option price, as determined by the Board of Directors.
If a grantee’s employment by, or provision of services to, the company shall be terminated, the Board of Directors may, in its discretion, permit the exercise of stock options for a period not to exceed one year following such termination of employment with respect to incentive stock options and for a period not to extend beyond the expiration date with respect to non qualified options, except that no incentive stock option may be exercised after three months following the grantee’s termination of employment, unless due to death or permanent disability, in which case the option may be exercised for a period of up to one year following such termination.
Transfer Agent.
The company’s current transfer agent is Executive Registrar and Transfer Agency, Inc., 3615 South Huron Street, Suite 104, Englewood, CO 80110.
.
Item 13.
Item 13.
Certain Relationships and Related Transactions and Director Independence.
Stephen P. Cesarski, Janel’s President and Chief Operating Officer, and James N. Jannello, Janel’s Executive Vice President and Chief Executive Officer, each own a 10% profit interest in each of Janel Shanghai and Janel Hong Kong. Mr. Jannello also owns 50% of Janel Miami (Florida), which is a franchisee using the Janel name, but in which the company has no equity or other direct economic interest.
As of the fiscal year end of September 30, 2006, James N. Jannello was indebted to the company in the aggregate sum of $139,357, and William J. Lally was indebted in the aggregate amount of $5,150. The officer loan to Mr. Jannello bears interest at 4% per annum. The officer loan to Mr. Lally is non-interest bearing. The officer loans are due on demand.
The transactions described above involve actual or potential conflicts of interest between Janel and its officers. To reduce the potential for conflicts of interest between the company and its officers and directors in the future, Janel’s policy will be not to enter into potential conflict-of-interest transactions with officers, directors or other affiliates unless the terms of such transactions are at least as favorable to Janel as those which would have been obtainable from an unaffiliated source. The company has no plans to enter into any additional transactions that involve actual or potential conflicts of interest between Janel and its officers or directors, and will not enter into any such transaction in the future without first obtaining an independent opinion with regard to fairness to Janel of the terms and conditions of any such transaction.
Item 14.
Item 14.
Principal Accounting Fees and Services.
Audit Fees
The aggregate fees billed by Paritz & Company, P.A. for the annual audit were $25,000 and $25,000 for the fiscal years ended September 30, 2006 and 2005, respectively, and their fees for review of the interim financial statements were $15,000 and $10,500 for the fiscal years ended September 30, 2006 and 2005, respectively.
Financial Information Systems Design and Implementation Fees
Paritz & Company, P.A. did not render any professional services to Janel World Trade, Ltd. for financial information systems design and implementation, as described in Paragraph (c)(4)(ii) of Rule 2-01 of Regulation S-X, during the fiscal years ended September 30, 2006 and 2005.
All Other Fees
The aggregate fees billed by Paritz & Company, P.A. for all other services rendered to Janel World Trade, Ltd. during the fiscal years ended September 30, 2006 and 2005, other than audit services, were $3,700 in the fiscal year ended September 30, 2006 and $13,907 for the fiscal year ended September 30, 2005. These “other fees” were for services related to abandoned acquisitions and tax services ($5,000 in each of the two fiscal years).
PART IV
Item 15.
Item 15.
Exhibits, Financial Statement Schedules.
(a) Financial Statements.
Report of Independent Registered Accounting Firm
Consolidated Balance Sheets as at September 30, 2006 and 2005
Consolidated Statement of Operations for the Years Ended September 30, 2006, 2005 and
Consolidated Statement of Changes in Stockholders’ Equity for the Years Ended September 30, 2006, 2005 and 2004
Consolidated Statement of Cash Flows for the Years Ended September 30, 2006, 2005 and
Notes to Consolidated Financial Statements
(c) Exhibits.
2.
Agreement and Plan of Merger dated July 18, 2002 by and among Wine Systems Design, Inc., WSD Acquisition, Inc. and Janel World Transport, Ltd.**
2.1
Acquisition Agreement dated July 6, 2005 by and among Janel World Trade, Ltd., Freight Wings, Inc. and Harjinder P. Singh.**** (The transaction proposed in this document was subsequently cancelled.)
(i)
Articles of Incorporation of Wine Systems Design, Inc. (predecessor name) filed on August 31, 2000.*
(ii)
By-laws of Wine Systems Design, Inc. (predecessor name) adopted on September 1, 2000.*
4.
Form of Series A Warrant Agreement dated March 10, 2006, and form of Series A Warrant.******
10.1
Janel Stock Option Incentive Plan adopted December 12, 2002.
10.2
Financial Public & Investor Relations Agreement signed March 10, 2006 by Janel World Trade, Ltd. and Strategic Growth International, Inc.******
23.1
Consent of Paritz & Company, P.A.
23.2
Letter dated August 1, 2002, from Michael L. Stuck, C.P.A., P.C., the former independent certifying accountant.***
Rule 13(a)-14(a)/15(d)-14(a) Certifications.
Section 1350 Certification.
99.1
January 11, 2006 Janel World Trade, Ltd. earnings release regarding the fiscal year and fourth quarter ended September 30, 2005.*****
99.1
August 17, 2006 Janel World Trade, Ltd. press release regarding the consolidated financial results for the three and nine month periods ended June 30, 2006.*******
99.1
October 12, 2006 Janel World Trade, Ltd. press release regarding adoption of a stock buy back program.********
_________________________
*
Incorporated by reference to Exhibits filed as part of the Wine Systems Design, Inc. (predecessor name) Registration Statement on Form SB-2 under File No. 333-60608, filed May 10, 2001.
**
Incorporated by reference to Exhibits filed as part of the company’s Form 8-K report, filed July 18, 2002.
***
Incorporated by reference to Exhibits filed as part of the company’s Form 8-K/A report, filed August 1, 2002.
****
Incorporated by reference to Exhibits filed as part of the company’s Form 8-K/A report, filed July 12, 2005.
*****
Incorporated by reference to Exhibits filed as part of the company’s Form 8-K report, filed January 12, 2006.
******
Incorporated by reference to Exhibits filed as part of the company’s Form 8-K report, filed March 17, 2006.
*******
Incorporated by reference to Exhibits filed as part of the company’s Form 8-K report, filed August 22, 2006.
********
Incorporated by reference to Exhibits filed as part of the company’s Form 8-K report, filed October 16, 2006.
(d) Financial Statement Schedules.
Schedules are omitted because they are not applicable, are not required or because the information is included in the company’s Consolidated Financial Statements or notes thereto.
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.
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
/s/ James N. Jannello
Executive Vice President, Chief
December 29, 2006
James N. Jannello
Executive Officer and Director
/s/ Stephen P. Cesarski
President, Chief Operating Officer
December 29, 2006
Stephen P. Cesarski
and Director
/s/ William J. Lally
Director
December 29, 2006
William J. Lally
/s/ Linda Bieler
Controller and Chief Financial and
December 29, 2006
Linda Bieler
Accounting Officer
/s/ Ruth Werra
Secretary
December 29, 2006
Ruth Werra
Paritz & Company, P.A.
JANEL WORLD TRADE LTD. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
WITH
REPORT OF INDEPENDENT REGISTERED ACCOUNTING FIRM
YEARS ENDED SEPTEMBER 30, 2006 AND 2005
Paritz & Company, P.A.
Warren Street, Suite 25
Hackensack, New Jersey 07601
(201)342-7753
Fax: (201) 342-7598
E-Mail: paritz @paritz.com
Certified Public Accountants
REPORT OF INDEPENDENT REGISTERED ACCOUNTING FIRM
Board of Directors
Janel World Trade Ltd. and Subsidiaries
Jamaica, New York
We have audited the accompanying consolidated balance sheets of Janel World Trade Ltd. and Subsidiaries as of September 30, 2006 and 2005 and the related consolidated statements of operations, changes in stockholders’ equity and cash flows for each of the three years in the period ended September 30, 2006. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Janel World Trade Ltd. and Subsidiaries as of September 30, 2006 and 2005 and the results of its operations and its cash flows for each of the three years in the period ended September 30, 2006 in conformity with accounting principles generally accepted in the United States of America.
Paritz & Company, P.A.
/s/ Paritz & Company P.A.
Hackensack, New Jersey
December 7, 2006
JANEL WORLD TRADE LTD. AND SUBSIDIARIES
The accompanying notes are an integral part of these consolidated financial statements
JANEL WORLD TRADE LTD. AND SUBSIDIARIES
The accompanying notes are an integral part of these consolidated financial statements
JANEL WORLD TRADE LTD. AND SUBSIDIARIES
The accompanying notes are an integral part of these consolidated financial statements
JANEL WORLD TRADE LTD. AND SUBSIDIARIES
The accompanying notes are an integral part of these consolidated financial statements
JANEL WORLD TRADE LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2006 AND 2005
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business description
The Company is primarily engaged in full-service cargo transportation logistics management, including freight forwarding via air, ocean and land-based carriers, customs brokerage services and warehousing and distribution services.
Basis of consolidation
The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries, all of which are wholly owned. All intercompany transactions and balances have been eliminated in consolidation.
Uses of estimates in the preparation of financial statements
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of net revenue and expenses during each reporting period. Actual results could differ from those estimates.
Cash and cash equivalents
Cash and cash equivalents consist of cash and highly liquid investments with remaining maturities of less than ninety days at the date of purchase.
The Company maintains cash balances at various financial institutions. Accounts at each institution are insured by the Federal Deposit Insurance Corporation up to $100,000. The Company’s accounts at these institutions may, at times, exceed the federally insured limits. The Company has not experienced any losses in such accounts.
Marketable securities
The Company classifies all of its short-term investments as available-for-sale securities. Such short-term investments consist primarily of mutual funds which are stated at market value, with unrealized gains and losses on such securities reflected as other comprehensive income (loss) in stockholders’ equity. Realized gains and losses on short-term investments are included in earnings and are derived using the specific identification method for determining the cost of securities. It is the Company’s intent to maintain a liquid portfolio to take advantage of investment opportunities. Therefore, all securities are considered to be available for sale and are classified as current assets.
Property and equipment and depreciation policy
Property and equipment are recorded at cost. Depreciation is provided for in amounts sufficient to amortize the costs of the related assets over their estimated useful lives on the straight-line and accelerated methods for both financial reporting and income tax purposes.
Maintenance, repairs and minor renewals are charged to expense when incurred. Replacements and major renewals are capitalized.
Revenues and revenue recognition
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 to the Company for carrying the shipments when the Company acts as a freight consolidator. Ocean freight revenues include the charges to the Company 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 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 breakbulk and value added services such as local transportation, distribution services and logistics management. Each of these services has a separate fee which is recognized as revenue upon completion of the service.
Customers will frequently request an all inclusive rate for a set of services, which 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 service 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”.
Deferred compensation plan
The Company has a deferred compensation plan for key executives which provides benefits due to death, retirement or termination of employment. Such benefits shall be determined and paid in accordance with the plan. The plan does not qualify under the Internal Revenue Code and, therefore, tax deductions are allowable only when the benefits are paid.
Impairment of long-lived assets
Long-lived assets are reviewed for impairment when circumstances indicate the carrying value of an asset may not be recoverable. For assets that are to be held and used, an impairment is recognized when the estimated undiscounted cash flows associated with the asset or group of assets is less than their carrying value. If impairment exists, an adjustment is made to write the asset down to its fair value, and a loss is recorded as the difference between the carrying value and fair value. Fair values are determined based on quoted market values, discounted cash flows or internal and external appraisals, as applicable. Assets to be disposed of are carried at the lower of carrying value or estimated net realizable value.
Income per common share
Basic net income per common share is calculated by dividing net income available to common shareholders by the weighted average of common shares outstanding during the period. Diluted net income per common share is calculated using the weighted average of common shares outstanding adjusted to include the potentially dilutive effect of stock options.
Comprehensive income
Comprehensive income encompasses all changes in stockholders’ equity other than those arising from stockholders, and generally consists of net income and unrealized gains and losses on unrestricted available-for-sale marketable equity securities. As of September 30, 2006, accumulated other comprehensive income consists of unrealized gains on unrestricted available-for-sale marketable equity securities.
ABANDONED ACQUISITIONS
During the years ended September 30, 2005 and 2004 the Company negotiated several business acquisitions. In connection therewith, the Company incurred legal and accounting fees aggregating $50,098 and $119,160, respectively. Since these transactions have not been consummated and negotiations have terminated, these costs have been charged to expense in the accompanying consolidated statements of operations.
MARKETABLE SECURITIES
Marketable securities consist of the following:
LOANS RECEIVABLE - OFFICERS
The loans receivable - officers bear interest at 4% per annum and are due on demand.
PROPERTY AND EQUIPMENT
A summary of property and equipment and the estimated lives used in the computation of depreciation and amortization is as follows:
NOTE PAYABLE - BANK
The Company has an available line of credit with a bank pursuant to which it may borrow up to $1,500,000. Advances under this facility bear interest at prime minus ½%. The availability of credit under this line at no time shall exceed the borrowing base for this line, which is calculated as 80% of eligible accounts receivable. In addition, all borrowings under this agreement are personally guaranteed by certain stockholders of the Company.
LONG-TERM DEBT
Long-term debt consists of various capitalized lease obligations payable in monthly installments of approximately $700 inclusive of interest at 5% to 11% per annum. These leases are collateralized by security interests in certain property and equipment.
STOCKHOLDERS’ EQUITY
Janel is authorized to issue 225,000,000 shares of common stock, par value $.001.
On March 10, 2006 the Company entered into a Financial Public & Investor Relations Agreement pursuant to which it agreed to pay a monthly fee of $6,000 through September 2006 plus issue 200,000 unregistered shares of the Company’s common stock valued at $1.02 per share and a warrant to purchase 400,000 shares of the Company’s common stock, exercisable from February 1, 2007 to October 2, 2010 at an exercise price of $1.02 per share, subject to antidilution.
INCOME TAXES
Income taxes consist of the following:
The reconciliation of income tax computed at the Federal statutory rate to the provision for income taxes is as follows:
PROFIT SHARING AND 401(k) PLANS
The Company maintains a non-contributory profit sharing and 401(k) plan covering substantially all full-time employees. The expense charged to operations for the years ended September 30, 2006, 2005 and 2004 aggregated approximately $25,000, $23,000, and $23,000, respectively.
RENTAL COMMITMENTS
The Company conducts its operations from leased premises. Rental expense on operating leases for the years ended September 30, 2006, 2005 and 2004 was approximately $324,000, $311,000 and $294,000, respectively.
Future minimum lease commitments (excluding renewal options) under noncancelable leases are as follows;
RISKS AND UNCERTAINTIES
(a)
Currency risks
The nature of Janel’s operations requires it to deal with currencies other than the U.S. Dollar. This results in the Company being exposed to the inherent risks of international currency markets and governmental interference. A number of countries where Janel maintains offices or agent relationships have currency control regulations that influence its ability to hedge foreign currency exposure. The Company tries to compensate for these exposures by accelerating international currency settlements among those officers or agents.
(b)
Legal proceedings
Janel is occasionally subject to claims and lawsuits which typically arise in the normal course of business. While the outcome of these claims cannot be predicated with certainty, management does not believe that the outcome of any of these legal matters will have a material adverse effect on the Company’s financial position or results of operations.
(c)
Relationships with officers
Janel’s President and Chief Operating Officer and Executive Vice President and Chief Executive Officer (“EVP”), each own a 10% profit interest in each of Janel Shanghai and Janel Hong Kong. In addition, the EVP owns 50% of Janel Miami (Florida), which is a franchise using the Janel name, but in which the Company has no equity or other direct economic interest.
These relationships involve actual or potential conflicts of interest between Janel and its officers.
SUBSEQUENT EVENT
On October 12, 2006, the Company’s Board of Directors authorized the repurchase of up to 300,000 shares of the Company’s common stock, subject to certain conditions. It is expected that purchases under the program, depending upon prevailing market conditions, and other factors such as the Company’s cash position, will be made during the next twelve months. The repurchase plan may be suspended by the Company at any time.