JANEL CORP
10-Ks and 10-Qs
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended September 30, 2019
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from ________ to ________.
Commission file number: 333-60608
JANEL CORPORATION
(Exact name of registrant as specified in its charter)
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Nevada
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86-1005291
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.)
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303 Merrick Road, Suite 400, Lynbrook, New York
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11563
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(Address of principal executive offices)
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(Zip Code)
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Registrant’s telephone number, including area code
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(516) 256-8143
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Securities registered pursuant to Section 12(b) of the Act:
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Title of Each Class
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Trading Symbol(s)
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Name of Each Exchange on Which Registered
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None
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None
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None
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Securities registered pursuant to Section 12(g) of the Act:
Title of Class
Common Stock, $0.001 par value
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Act. Yes
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No
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Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes
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No
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
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No
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Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during
the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes
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No
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Indicate by check mark if the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See definition of
“large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer
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Accelerated Filer
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Non-Accelerated
Filer
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Smaller Reporting Company
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Emerging Growth Company
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards
provided pursuant to Section 13(a) of the Exchange Act.
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
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No
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The aggregate market value of the registrant’s common stock, $0.001 par value (“Common Stock”), held by non-affiliates of the registrant based on the closing sales price of the Common Stock on the
Over-The-Counter (OTC) market on March 31, 2019, was $2,458,926.
The number of shares of the registrant’s Common Stock outstanding as of
January 28, 2020 was
887,412.
DOCUMENTS INCORPORATED BY REFERENCE
None.
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Page
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PART I
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Item 1.
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1
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Item 1A.
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5
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Item 1B.
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14
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Item 2.
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14
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Item 3.
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15
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Item 4.
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15
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PART II
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Item 5.
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15
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Item 6
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16
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Item 7.
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16
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Item 7A.
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27
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Item 8.
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27
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Item 9.
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27
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Item 9A.
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28
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Item 9B.
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31
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PART III
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Item 10.
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31
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Item 11.
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36
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Item 12.
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37
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Item 13.
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39
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Item 14.
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39
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PART IV
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Item 15.
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40
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Item 16.
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40
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41
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains certain statements that 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. These forward – looking statements may generally be identified by the use of the words "may," "will," "intends," "plans," projects," "believes," "should," "expects," "predicts,"
"anticipates," "estimates," and similar expressions or the negative of these terms or other comparable terminology. These statements are necessarily estimates reflecting management's best judgment based upon current information and involve a
number of risks, uncertainties and assumptions. We caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made, and readers are advised that various factors, including, but not limited
to, those set forth elsewhere in this Report, could affect our financial performance and could cause our actual results for future periods to differ materially from those anticipated or projected. While it is impossible to identify all such
factors, such factors include, but are not limited to,
our strategy of expanding our business through acquisitions of other businesses; the risk that we may fail to realize the expected benefits or strategic objectives of any acquisition,
or that we spend resources exploring acquisitions that are not consummated; litigation, indemnification claims and other unforeseen claims and liabilities that may arise from an acquisition; economic and other conditions in the markets in which we
operate; the risk that we may not have sufficient working capital to continue operations; instability in the financial markets; the material weaknesses identified in our internal control over financial reporting; our dependence on key employees;
competition from parties who sell their businesses to us and from professionals who cease working for us; terrorist attacks and other acts of violence or war; security breaches or cybersecurity attacks; competition faced by our global logistics
services freight carriers with greater financial resources and from companies that operate in areas in which we plan to expand; our dependence on the availability of cargo space from third parties; recessions and other economic developments that
reduce freight volumes; other events affecting the volume of international trade and international operations; risks arising from our global logistics services business’ ability to manage staffing needs; competition faced in the freight forwarding,
freight brokerage, logistics and supply chain management industry; industry consolidation and our ability to gain sufficient market presence with respect to our global logistics services business; risks arising from our ability to comply with
governmental permit and licensing requirements or statutory and regulatory requirements; seasonal trends; competition faced by our manufacturing (Indco) business from competitors with greater financial resources; Indco’s dependence on individual
purchase orders to generate revenue; any decrease in the availability, or increase in the cost, of raw materials used by Indco; Indco’s ability to obtain and retain skilled technical personnel; risks associated with product liability claims due to
alleged defects in Indco’s products; risks arising from the environmental, health and safety regulations applicable to Indco; the reliance of our Indco and life sciences businesses on a single location to manufacture their products; the ability of
our life sciences business to compete effectively; the ability of our life sciences business to introduce new products in a timely manner; product or other liabilities associated with the manufacture and sale of new products and services; changes
in governmental regulations applicable to our life sciences business; the ability of our life sciences business to continually produce products that meet high quality standards such as purity, reproducibility and/or absence of cross-reactivity; the
controlling influence exerted by our officers and directors and one of our stockholders; our inability to issue dividends in the foreseeable future; and risks related to ownership of our common stock, including volatility and the lack of a
guaranteed continued public trading market for our common stock.
Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual outcomes may vary materially
from those projected. You should not place undue reliance on any of our forward-looking statements which speak only as of the date they are made. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a
result of new information, future events or otherwise.
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BUSINESS
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Our Business
Janel Corporation (“Janel,” the “Company” or the “Registrant”) is a holding company with subsidiaries in three business segments: Global Logistics Services, Manufacturing and Life Sciences. The
Company strives to create shareholder value primarily through three strategic priorities: supporting its businesses’ efforts to make investments and to build long-term profits; allocating Janel capital at high risk-adjusted rates of return; and
attracting and retaining exceptional talent.
A management group at the holding company level (the “corporate group”) focuses on significant capital allocation decisions, corporate
governance and supporting Janel’s subsidiaries where appropriate. Janel expects to grow through its subsidiaries’ organic growth and by completing acquisitions. We plan to either acquire businesses within our existing segments or expand our
portfolio into new strategic segments. Our acquisition strategy focuses on reasonably-priced companies with strong and capable management teams, attractive existing business economics and stable and predictable earnings power.
Janel was incorporated on August 31, 2000
and is domiciled in the state of Nevada. Its corporate headquarters are located in Lynbrook, New York.
Janel and its consolidated subsidiaries employ 174 full-time people in the United States. None of these employees is covered by a collective bargaining agreement. Janel and its subsidiaries have
experienced no work stoppages and consider relations with their employees to be good.
Global Logistics Services
The Company's Global Logistics Services segment is comprised of several wholly-owned subsidiaries (collectively "Janel Group"). Janel Group is a non-asset based, full-service provider of cargo
transportation logistics management services, including freight forwarding via air-, ocean- and land-based carriers, customs brokerage services, warehousing and distribution services, and other value-added logistics services.
On November 20, 2018, the Company completed a business combination whereby we acquired the membership interest of Honor Worldwide Logistics, LLC (“Honor”), a global logistics services provider
with two U.S. locations.
On October 17, 2018, the Company completed a business combination whereby we acquired substantially all of the assets and certain liabilities of a global logistics services provider with one
U.S. location.
On January 3, 2018, the Company acquired Global Trading Resources, Inc. (“GTRI”), a full-service cargo transportation logistics management service provider.
On April 1, 2017, the Company acquired the equity of W.J. Byrnes & Co., Inc. (“Byrnes”). Byrnes is a global logistics services provider with five U.S. locations.
Manufacturing
The Company's Manufacturing segment is comprised of Indco, Inc. ("Indco”). Indco is a majority-owned subsidiary of the Company that manufactures and distributes mixing equipment and
apparatus for specific applications within various industries. Indco’s customer base is comprised of small- to mid-sized businesses
as well as other larger customers for which Indco fulfills repetitive production orders.
Life Sciences
The Company’s Life Sciences segment is comprised of Aves Labs, Inc. ("Aves"), Antibodies Incorporated ("Antibodies"), IgG, LLC (IgG”) and PhosphoSolutions, LLC (“Phospho”), which are wholly-owned
subsidiaries of the Company. The Company’s Life Sciences segment manufactures and distributes high-quality monoclonal and polyclonal antibodies, diagnostic reagents and other immunoreagents for biomedical research and provides antibody
manufacturing for academic and industry research scientists. Our Life Sciences business also produces products for other life science companies on an original equipment manufacturer (OEM) basis.
On July 1, 2019, we acquired the
membership interests of a life sciences company
to expand our
product offerings in Life Sciences.
On June 22, 2018, the Company acquired all the common stock of Antibodies.
On March 5, 2018, the Company acquired all of the common stock of Aves.
Our Business Segments
We have three reportable segments: Global Logistics Services, Manufacturing and Life Sciences.
Global Logistics Services
The Company’s Global Logistics Services segment is comprised of several wholly-owned subsidiaries, collectively known as “Janel Group.” Janel Group is a non-asset based, full-service provider of cargo
transportation logistics management services, including freight forwarding via air-, ocean- and land-based carriers, customs brokerage services, warehousing and distribution services, and other value-added logistics services.
Janel Group helps its clients move and manage freight efficiently to reduce inventories and to increase supply chain speed and reliability. Key services include customs entry filing, arrangement of
freight forwarding by air, ocean and ground, warehousing, cargo insurance procurement, logistics planning, product repackaging and online shipment tracking.
Janel Group earns flat fees for certain services, such as customs entry filing. For brokered services, Janel Group earns the difference between the rate charged by a service provider and the rate
Janel Group charges the customer for the provider’s service. Janel Group’s freight consolidation activities, in addition to on-going volume-based relationships with providers, allows Janel Group to command preferred service rates that can be passed
on profitably to the customer.
Our Global Logistics Services revenue is greatly influenced by the price of transportation services and other items such as fuel prices. We and others in the industry, therefore, tend to track net
revenue, which is a non-GAAP measure calculated as total revenues less forwarding expenses attributable to our Global Logistics Services segment. We consider net revenue to be our primary performance measurement. Accordingly, the discussion of our
results of operations focuses on the changes in our net revenues. For further detail, see the section titled “Non-GAAP Financial Measures” in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
During the fiscal year ended
September 30, 2019, Janel Group handled approximately 57,000 individual
import and export shipments originating or
terminating in countries around the world. Approximately 44% of the gross revenue from these activities related to ocean import and export, 24% to freight forwarding, 20% to air import and export and the remainder to custom brokerage.
Janel
Group had no customers that accounted for more than 10% of Janel Corporation’s total revenue in fiscal 2019.
Based upon net revenue, our customers are diverse, with the largest individual customer accounting
for about 4% of net revenues and the top ten customers accounting for 25% of
net revenues during fiscal 2019. For our service offerings by net revenues, during the fiscal year ended September 30, 2019, 49% related to customs brokerage, 19% to freight forwarding, 18% to ocean import
and export
and 14% to air import and export.
Janel Group operates out of thirteen leased, full-service locations in the United States: Lynbrook, New York (headquarters, operations and accounting); Lynnfield (Boston), Massachusetts; Pawtucket
(Providence), Rhode Island; Edison (Newark), New Jersey; Essington (Philadelphia), Pennsylvania; Atlanta, Georgia; Elk Grove Village (Chicago), Illinois; Tucson, Arizona; Torrance (Los Angeles), California; Daly City (San Francisco), California;
Portland, Oregon; Houston, Texas and North Charleston (Charleston) South Carolina. Janel Group maintains a network of independent agent relationships in many trading countries, giving it the ability to provide a global service to its clients.
Each office is responsible for its growth and profitability. The Janel Group leadership helps the offices as needed with efforts such as hiring new people, maintaining a common information technology
platform and centralized accounting services. Our growth strategy includes servicing existing customers well and winning more of their business, hiring new people that can grow our company, and adding new companies or services through acquisitions.
Our goal is to maintain a high-quality service network that shares one brand connected with a common information technology platform.
The logistics industry is highly fragmented, with low barriers to entry and intense competition. Janel Group competes against providers ranging in size from “mom-and-pop” businesses to multi-national
firms with hundreds of offices worldwide. Many Janel Group customers utilize more than one logistics provider.
The global forwarding industry requires dealings in currencies other than the U.S. Dollar. As a result, Janel Group is exposed to the inherent risks of international currency markets and governmental
interference. Some countries in which Janel Group maintains agent relationships have currency control regulations that influence Janel Group’s ability to hedge foreign currency exposure. Janel Group tries to manage these exposures by accelerating
international currency settlements among those agents.
Historically, Janel Group’s quarterly operating results have been subject to seasonal trends. The fiscal third and fourth quarters have traditionally been the strongest, and the fiscal second quarter
has traditionally been the weakest. 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.
A significant portion of Janel Group’s revenues are derived from customers in industries with shipping patterns tied to consumer demand and/or just-in-time production schedules. Many of Janel Group’s
customers may ship a significant portion of their goods at or near the end of a quarter. Therefore, the timing of Janel Group revenues is, to a large degree, affected by factors beyond its control, such as shifting consumer demand for retail goods
and manufacturing production delays. Janel Group cannot accurately forecast many of these factors, nor can it estimate the relative impact of any given factor. Therefore, historical patterns experienced may not continue in the future.
Government Regulation
Interstate and international transportation of freight is highly regulated. Failure to comply with applicable state and federal regulations, or to maintain required permits or licenses, can result in
substantial fines or revocation of operating permits or authorities imposed on both transportation intermediaries and their shipper customers. We cannot give assurance as to the degree or cost of future regulations on our business.
Janel Group is a customs broker licensed and permitted by U.S. Customs and Border Protection (“CBP”). All U.S. customs brokers are required to maintain prescribed records and are subject to periodic
audits by CBP. Janel Group is a registered Ocean Transportation Intermediary (“OTI”) and is licensed as a non-vessel operating common carrier (“NVOCC”) by the Federal Maritime Commission (“FMC”). The FMC has established certain qualifications for
shipping agents, including certain surety bonding requirements. We also operate as a Transportation Security Administration (“TSA”) certified Indirect Air Carrier (“IAC”), providing air freight services, subject to commercial standards set forth by
the International Air Transport Association (“IATA”) and federal regulations issued by the Transportation Security Administration.
Risk Management and Insurance
As a property freight broker, we are not legally liable for loss or damage to our customers’ cargo. In our customer contracts, we may agree to assume cargo liability up to a stated maximum. We
typically do not assume cargo liability above minimum industry standards in our international freight forwarding, ocean transportation or air freight businesses on international or domestic air shipments. With regards to international freight
forwarding, ocean transportation and international domestic air freight shipments, we offer our customers the option to purchase shippers’ insurance coverage to insure goods in transit. When we agree to store goods for our customers for longer
terms, we provide limited warehouseman’s coverage to our customers and typically contract for warehousing services from companies that provide us the same degree of coverage.
We maintain a broad cargo liability insurance policy to help protect us against catastrophic losses that may not be recovered from the responsible contracted carrier. We also carry various liability
insurance policies, including automobile and general liability, with an umbrella policy.
Manufacturing
The Company’s Manufacturing segment is comprised of Indco, Inc. (“Indco”) which is a majority-owned subsidiary of the Company. Indco manufactures and distributes mixing equipment and apparatus for
specific applications within various industries.
Indco’s headquarters and manufacturing operations are located in a single leased facility in New Albany, Indiana.
Indco provides solutions for the mixing needs of customers operating in diverse industries, including chemicals, inks, paints, construction, plastics, adhesives, cosmetics, food and pharmaceuticals.
Solutions include over 2,500 standard product configurations, both manufactured and distributed, available for order from Indco’s website and its print catalog, mailed quarterly. In addition, Indco manufactures custom-designed mixing solutions that
Indco helps specify, design, machine, assemble and distribute. During the fiscal year ended September 30, 2019, Indco made approximately 5,400 individual shipments to customers. In fiscal 2019, approximately 85% of Indco’s revenue came from
manufacturing activity. The remainder of its revenue came from non-manufactured product distribution activity. Indco’s revenue generally is level throughout the year with little seasonality.
Indco relies on a variety of providers of raw materials, mechanical components and other services in order to manufacture its products. These providers include national and multi-national suppliers
for common industrial components such as motors, gear drives, motor controls and many other standard hardware products. Additionally, regional and local suppliers provide Indco-specific parts such as castings and fabricated metal components. Raw
materials, primarily steel bar, plate and shafts, are sourced from domestic steel mills through local distributors. Alternative or substantially similar options are available from suppliers other than those Indco currently employs. While custom
cast or fabricated parts are at greater risk for supply interruption, alternative equivalent suppliers are typically available.
Our growth strategy within the industrial mixer business is to expand our reputation as a high-quality manufacturer of often customized products to meet specialized mixing needs. Indco’s products are
often utilized in mission-critical applications, making our high quality and strong service offering highly valuable to our customers. Our growth strategy includes keeping our direct relationship with the customer relevant through our web presence,
introducing new relevant products and expanding our reach into new and existing markets with sales efforts and partners.
The industrial mixer manufacturing industry is highly fragmented with low barriers to entry. Indco competes with companies of all sizes based on a combination of pricing, lead-times, service, quality
and ability to reach customers through internet presence and catalog circulation.
Government regulation directly governing Indco’s industrial mixer product line is minimal. Changing energy efficiency standards, however, as mandated by the Department of Energy, can, over time,
affect electric motor manufacturers whose products are used by Indco. Historically, these changes have resulted in only minor changes to our product line.
Indco is subject to U.S. federal, state and local provisions regulating the discharge of materials into the environment or otherwise for the protection of the environment. Although current operations
have not been significantly affected by compliance with these environmental laws, the Company cannot predict what impact future environmental regulations may have on Indco. Indco does not anticipate making any material capital expenditures for
environmental control purposes during the remainder of the current or succeeding fiscal years.
Life Sciences
The Company’s wholly-owned Life Science subsidiaries consist of Antibodies, Aves, IgG and Phospho. The Company’s wholly-owned Life Science subsidiaries manufacture and distributes high-quality
antibodies monoclonal and polyclonal antibodies, diagnostic reagents and other immunoreagents for biomedical research and provide antibody manufacturing for academic and industry research scientists. Our Life Sciences segment also produces products
for life science companies on an original equipment manufacturer (OEM) basis. Through a combined portfolio of approximately 1,200 products and a range of custom services, the Life Sciences segment
provides
the scientific community with high quality tools to support critical research efforts.
Our Life Science businesses are based in Davis, California on an
owned 40-acre facility and
a leased facility
in Aurora, Colorado
.
Our growth strategy is to place high-quality products in the hands of more researchers to accelerate scientific discovery.
Our strategies include:
•
Product innovation
: By
working with key researchers and scientific organizations, we seek to develop new products to enhance the range of tools available and thereby expand the capabilities of life science researchers.
•
Operational improvement
: We
continue to enhance our operational designs and processes to be more efficient, which supports higher profitability and enables us to devote more resources to investments in growth and innovation.
•
Attract and retain exceptional talent
: High quality scientists enable our top-quality products and services to be offered which are key to our reputation in the market place.
•
Acquisitions and investments
:
We intend to grow by acquiring new businesses with high quality reputations that will benefit from our combined innovation and operational strength.
•
Customers and distribution methods:
We sell our biotechnology products directly to customers, principally direct through our website or distributors. Some of our customers utilize our scientific expertise and production capabilities and purchase our products and
re-label them. Our reputation for quality products is critical to our ability to attract new customers for both our products and services.
•
Competitors:
A number of
companies supply protein-related research and diagnostic reagents. Customers choose their products based upon product quality, reputation and price. We believe a number of our products have long-standing reputations and that our portfolio
overall is well-regarded, especially amongst the academic, diagnostic and pharmaceutical research community.
•
Manufacturing:
We manufacture our products in Davis, California and Aurora, Colorado.
Our antibodies are produced using a variety of technologies including traditional animal immunization and hybridoma technology as well as
recombinant antibody techniques. We are not dependent on key or sole source suppliers for most of our products as we typically have several outside sources for all critical raw materials necessary for the manufacture of our products.
The majority of our life science products are shipped within two days of receipt of the customers’ orders. Consequently, we typically do not maintain significant backlog of orders for our Life
Science segment products.
Our Life Science business is subject to regulation. Antibodies maintains International Organization of Standardization certification for medical devices to support our manufacturing operation. We also
comply with regulations related to the United States Department of Agriculture, National Institutes of Health, Office of Laboratory Animal Welfare and the United States Food and Drug Administration. Many of our customers are regulated and must
verify our compliance with their standards throughout the supply chain, which requires us to maintain careful records. The failure to comply with these regulations may impair our ability to compete in the marketplace.
Additional information with respect to Janel’s businesses
Our principal executive offices and corporate headquarters are located at 303 Merrick Road, Suite 400, Lynbrook, New York 11563, and our telephone number is (516) 256-8143.
Janel maintains a website (
http://www.janelcorp.com
) where certain corporate governance documents and links to its subsidiaries’ websites can be found. Janel’s periodic reports filed with the
SEC can be accessed at the SEC’s website (
http://www.sec.gov
) and indirectly through Janel’s website (
http://www.janelcorp.com
). The information contained or connected to our website is not incorporated by reference into this Annual
Report on Form 10-K and should not be considered part of this Annual Report on Form 10-K.
The following risk factors should be read carefully in connection with evaluation of the Company’s business and any forward-looking statements made in this Annual Report on Form 10-K and elsewhere.
See the section entitled “Cautionary Statement Regarding Forward-Looking Statements” set forth above. Any of the following risks or others discussed in this Annual Report on Form 10-K or the Company’s other SEC filings could materially adversely
affect the Company’s business, operating results and financial condition.
An investment in Janel’s common stock is subject to risks inherent to the Company’s business. The material risks and uncertainties that management believes affect Janel are described below. Additional
risks and uncertainties that management is not aware of or focused on or that management currently deems immaterial may also impair the Company’s business operations.
Risk Factors Related To Janel’s Growth Strategy
Janel’s strategy of expanding its business through acquisitions of other businesses presents special risks.
Janel expects to grow its businesses in part by completing acquisitions. Janel either will acquire businesses within its existing segments, or it will expand its portfolio into new segments. In either
case:
• Janel’s financial condition may not be sufficient to support the funding needs of an expansion program;
• Janel may not be able to successfully identify suitable investment opportunities;
• acquisitions that Janel undertakes may not be successfully consummated or enhance profitability; or
• expansion opportunities may not be available to Janel upon reasonable terms.
There may be a limited number of operating companies available for acquisition that Janel deems to be desirable targets. Consequently, there may be a high level of competition among companies seeking
to acquire these targets. Janel may be in competition with entities whose financial resources, technical expertise and managerial capabilities are significantly greater than Janel’s. Therefore, Janel may be at a competitive disadvantage in
negotiating and executing possible acquisitions. Even if Janel is successful in a competitive bidding process for an acquisition, this competition may affect the terms of completed transactions, and, as a result, Janel may pay more or receive less
favorable terms than it expected for potential acquisitions.
In addition, even if Janel is able to successfully compete with these entities, it expects future acquisitions to encounter risks similar to those that past acquisitions have encountered, such as:
• difficulty in assimilating/integrating the operations and personnel of the acquired businesses;
• potential disruption of Janel’s or the target’s ongoing business;
• inability to realize the projected operational and financial benefits from the acquisition or to maximize financial and strategic benefits through the incorporation of acquired personnel and clients;
• difficulty maintaining uniform standards, controls, procedures and policies;
• impairment of relationships with employees and clients resulting from integration of the newly acquired company;
• strain on managerial and operational resources as management tries to oversee larger operations;
• significantly increased need for working capital to operate the acquired companies;
• exposure to unforeseen liabilities of acquired companies; and
• need to incur additional indebtedness, issue stock (which may have rights superior to the rights of Janel’s stockholders and which may have a dilutive effect on Janel’s stockholders), or use cash in order to complete
the acquisition.
Furthermore, management’s attention may be diverted by acquisition, investment, transition or integration activities. Janel may be required to dedicate additional management and other resources to
newly acquired businesses. Additionally, should Janel acquire a new line of business in which it has no operating history, the success of such new business cannot be assured. If an acquired entity is not efficiently or completely integrated, then
Janel’s business, financial condition and operating results could be materially adversely affected.
Janel might fail to realize the expected benefits or strategic objectives of any acquisition it undertakes, or it may spend resources exploring acquisitions that
are not consummated.
Due to its acquisition strategy, Janel faces a number of risks that could adversely affect Janel’s business, financial condition and operating results. Janel might not achieve its expected return on
investment or may lose money. Janel may be adversely impacted by liabilities that it assumes from an acquired business, including from that business’s known and unknown obligations, intellectual property or other assets, terminated employees,
current or former clients or other third parties.
In addition, Janel may fail to identify or adequately assess the magnitude of certain liabilities, shortcomings or other circumstances prior to acquiring, investing in or partnering with a company,
including potential exposure to regulatory sanctions or liabilities resulting from an acquired business’s previous activities, internal controls and security environment. If any of these circumstances occurs, they could result in unexpected legal
or regulatory exposure, unfavorable accounting treatment, unexpected increases in taxes or other adverse effects on Janel’s business.
Litigation, indemnification claims and other unforeseen claims and liabilities may arise from the acquisition or operation of acquired businesses.
Janel may face litigation or other claims as a result of certain terms and conditions of our acquisition agreements, such as earn-out payments or closing net asset adjustments. Alternatively,
shareholder litigation may arise as a result of proposed acquisitions. If Janel is unable to complete the number and kind of acquisitions for which it plans, or if Janel is inefficient or unsuccessful at integrating any acquired businesses into its
operations, Janel may not be able to achieve its planned rates of growth or improve its market share, profitability or competitive position.
Risk Factors Related To Janel’s Business And Industries
(in thousands except per share data)
Economic and other conditions in the markets in which Janel operates can affect demand for services and the Company’s results of operations.
Janel’s future operating results are dependent upon the economic environments of the markets in which it operates. Demand for services could be adversely affected by economic conditions in the
industries of Janel’s customers. Janel expects the demand for its services (and, consequently, results of operations) to continue to be sensitive to domestic and, increasingly, global economic conditions and other factors beyond Janel’s control.
Janel may not have sufficient working capital to continue operations.
Janel’s cash needs are currently met by commercial bank credit facilities, cash on hand and cash generated from current operations. Actual working capital needs for the short and long terms will
depend upon numerous factors, including operating results, the availability of a revolving line of credit, competition, and the cost associated with growing, either internally or through acquisition, none of which can be predicted with certainty.
If results of operations and availability under Janel’s bank lines of credit are insufficient to meet cash needs, Janel will be required to obtain additional investment capital or debt funding to continue operations.
Our substantial debt obligations could restrict our operations and financial condition. Additionally, our ability to generate cash to make payments on our indebtedness depends on many factors beyond our control.
As of September 30, 2019, we had approximately $16,514 of short-term borrowings and long-term debt. We may also incur additional indebtedness in the future. Our debt service obligations will require
us to use a portion of our operating cash flow to pay interest and principal on indebtedness rather than for other corporate purposes, including funding future expansion of our business and ongoing capital expenditures, which could impede our
growth. Our substantial indebtedness could have other adverse consequences, including:
• making it more difficult for us to satisfy our financial obligations;
• increasing our vulnerability to adverse economic, regulatory, and industry conditions, and placing us at a disadvantage compared to our competitors that are less leveraged;
• limiting our ability to compete and our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;
• limiting our ability to borrow additional funds for working capital, capital expenditures, acquisitions, and general corporate or other purposes; and
• exposing us to greater interest rate risk, including the risk to variable borrowings of a rate increase and the risk to fixed borrowings of a rate decrease.
Our ability to make payments on our indebtedness will depend on our ability to generate cash in the future. Our ability to generate cash is subject to general economic, financial, competitive,
legislative, regulatory, and other factors, many of which are beyond our control.
Our business may not generate sufficient cash flow from operations, and future borrowings may not be available to us in an amount sufficient to enable us to pay our indebtedness when scheduled
payments are due or to fund other liquidity needs. In these circumstances, we may need to refinance all or a portion of our indebtedness on or before maturity. Any refinancing of our debt could be at higher interest rates and may require make-whole
payments and compliance with more onerous covenants, which could further restrict our business operations. Our ability to refinance our indebtedness or obtain additional financing would depend on, among other things, our financial condition at the
time, restriction in the agreements governing our indebtedness, and the condition of the financial markets and the industry in which we operate. As a result, we may not be able to refinance any of our indebtedness on commercially reasonable terms
or at all. Without this financing, we may have to seek additional equity or debt financing or restructure our debt, which could harm our long-term business prospects. Our failure to comply with the terms of any existing or future indebtedness could
result in an event of default which, if not cured or waived, could result in the acceleration of the payment of all of our debt.
Instability in the financial markets may adversely affect our business.
Instability in the global financial markets could reduce availability of credit to our business. Although we currently have a revolving credit agreement with Santander Bank, N.A. in place until
October 17, 2020, tightening credit markets could make it more difficult for us to access funds, refinance our existing indebtedness, enter into agreements for new indebtedness, or obtain funding through the issuance of the Company’s securities. In
2017, the U.K.’s Financial Conduct Authority, which regulates LIBOR, announced its intention to phase out LIBOR by the end of 2021. It is unclear if LIBOR will cease to exist at that time or if new methods of calculating LIBOR will be established
such that it continues to exist after 2021. If LIBOR ceases to exist, we will need to renegotiate our revolving credit facility, as well as Indco’s credit agreement with First Merchants Bank. This could have an adverse effect on our financing costs
by increasing the cost of our variable rate indebtedness.
We have identified material weaknesses in our internal control over financial reporting which could, if not remediated, result in material misstatements in our
financial statements.
As disclosed in Part II--Item 9A, we have identified certain material weaknesses in our internal control over financial reporting. A material weakness is defined as a deficiency, or combination of
deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. As a result of
these material weaknesses, our management concluded that our internal control over financial reporting was not effective as of September 30, 2019 and 2018, based on criteria set forth by the Committee of Sponsoring Organizations of the Treadway
Commission in Internal Control—An Integrated Framework. We have developed and are actively engaged in executing a remediation plan designed to address these material weaknesses. If our remediation measures are insufficient to address these material
weaknesses, or if additional material weaknesses in our internal controls are discovered or occur in the future, our consolidated financial statements may contain material misstatements and we could be required to restate our financial results. For
more information see Part II – Item 9A. In addition, if we identify additional deficiencies in our internal control over financial reporting, the disclosure of that fact, even if quickly remedied, could reduce the market’s confidence in our
financial statements and harm our share price. Although we believe that we are taking appropriate action to remediate the control deficiency, if we are unable to effectively remediate these material weaknesses or are otherwise unable to maintain
adequate internal control over financial reporting in the future, we may not be able to prepare reliable financial statements and comply with our reporting obligations on a timely basis under the federal securities laws and our credit facilities.
Such developments could materially adversely affect our business and the market price of our common shares through loss of public and investor confidence, as well as subject us to legal and regulatory action.
Janel’s businesses are dependent upon key employees.
Janel believes that the success of its subsidiaries is highly dependent on the continuing efforts of certain key employees, including technical personnel, particularly experienced engineers and
scientists in our Life Sciences business. Only some of our employees are subject to employment agreements. The competition for experienced engineers and scientists in our Life Sciences business is intense. The loss of the services of key personnel
could have a material adverse effect on Janel’s business.
Janel may face competition from parties who sell their businesses to Janel and from professionals who cease working for Janel.
While we typically enter into non-competition and non-solicitation agreements with parties that sell their businesses to us, one or more of the former owners of an acquired business who cease working
for Janel or persons who leave Janel’s employment may compete with Janel or solicit Janel’s employees or clients in the future. Even if ultimately resolved in Janel’s favor, any litigation associated with enforcing non-competition or
non-solicitation agreements could be time consuming, costly and distract management’s focus from Janel’s business.
Moreover, states and foreign jurisdictions may interpret restrictions on competition narrowly and in favor of employees. Therefore, certain restrictions on competition or solicitation may be
unenforceable. In addition, Janel may decide not to pursue legal remedies if it determines that the costs or other factors outweigh the benefits of any possible legal recourse or if the likelihood of success does not justify the costs of pursuing a
legal remedy. Such persons, because they have worked for Janel or an acquired business, may be able to compete more effectively with Janel and may be more successful in soliciting its employees and clients than unaffiliated third parties.
Terrorist attacks and other acts of violence or war may affect any market on which the Company’s shares trade, the markets in which the Company’s subsidiaries
operate, and the Company’s business operations and profitability.
Terrorist acts or acts of war or armed conflict could negatively affect Janel’s business operations. Any of these acts could result in increased volatility in, or damage to, the United States and
worldwide financial markets and economy, and, in particular, could lead to increased regulatory requirements with respect to the security and safety of freight shipments and transportation. Acts of terrorism or armed conflict, and the uncertainty
caused by such conflicts, could cause a reduction in demand for Janel’s businesses. In particular, this would have a corresponding negative effect on Janel’s Global Logistics Services business.
Security breaches or cybersecurity attacks could adversely affect Janel’s ability to operate, could result in personal information being misappropriated, and may
cause Janel to be held liable or suffer harm to its reputation.
We are dependent on information technology systems and infrastructures to carry out important operational activities and to maintain our business records. In addition, we rely on the systems of third
parties. As part of our normal business operations, we connect and store certain personal identifying and confidential information relating to our customers, vendors, employees and suppliers. External and internal risks, such as malware, insecure
coding, “Acts of God,” data leakage and human error pose a direct threat to our information technology systems and operations. Our third parties and we may be subject to cybersecurity attacks and other intentional hacking. Any failure to identify
and address such defects or errors or prevent a cyber-attack could result in service interruptions, operational difficulties, loss of revenues or market share, liability to customers or others, diversion of resources, injury to our reputation and
increased service and maintenance costs. Addressing such issues could prove to be impossible or very costly and responding to resulting claims or liability could similarly involve substantial cost.
In addition, our insurance coverage and/or indemnification arrangements that we enter into, if any, may not be adequate to cover all of the costs related to cybersecurity attacks or disruptions
resulting from such events.
We must also rely on the safeguards put in place by customers, suppliers, vendors or other third parties to minimize the impact of cyber threats, other security threats or business disruptions. These
third parties may have varying levels of cybersecurity expertise and safeguards. In the event of a breach affecting these third parties, our business and financial results could suffer materially. With respect to our commercial arrangements with
these third parties, we have processes designed to require that the third parties and their employees and agents agree to maintain certain standards for the storage, protection and transfer of confidential, personal and proprietary information.
While, to date, we have not had a significant cyber-attack or breach that has had a material impact on our business or results of operations, we remain at risk of a data breach due to the intentional or unintentional non-compliance by a third
party’s employee or agent, the breakdown of a third party’s data protection processes or a cyber-attack on a third party’s information network and systems.
Risk Factors Related To Janel’s Global Logistics Services Business (Janel Group)
Janel Group faces aggressive competition from freight carriers with greater financial resources and from companies that operate in areas in which Janel Group
plans to expand in the future.
Janel Group faces intense competition within the freight industry on a local, regional, national and global basis. Many of Janel Group’s competitors have much larger facilities and far greater
financial resources. In the freight forwarding industry, Janel Group competes with a large and diverse group of freight forwarding concerns, commercial air and ocean carriers and a large number of locally established companies in geographic areas
where Janel Group does business or intends to do business in the future. The loss of customers, agents or employees to competitors could adversely impact Janel Group’s ability to maintain profitability.
In addition, the transport of freight, both domestically and internationally, is highly competitive and price sensitive, and new competitors emerge annually. Changes in the volume of freight
transported, shippers’ preferences as to the timing of deliveries as a means to control shipping costs, economic and political conditions, both in the United States and abroad, work stoppages, U.S. and foreign laws relating to tariffs, trade
restrictions, foreign investments and taxation may all have significant impact on Janel Group’s overall business, growth and profitability.
Janel Group’s ability to serve its customers depends on the availability of cargo space from third parties.
Janel Group’s ability to serve its 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 Janel Group uses. 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 airlines or
ocean carriers serving particular shipment lanes at particular times. These shortages could occur as a result of economic conditions, transportation strikes, regulatory changes and other factors beyond Janel Group’s control. Janel Group’s future
operating results could be adversely affected by significant shortages of suitable cargo space and associated increases in rates charged by airlines or ocean carriers for cargo space. In addition, any determination that Janel Group’s third-party
carriers have violated laws and regulations could seriously damage its reputation and brands, resulting in diminished revenue and profit and increased operating costs.
Recessions and other economic developments that reduce freight volumes could have a material adverse impact on Janel Group’s business.
The transportation industry historically has experienced cyclical fluctuations in financial results due to economic recession, downturns in business cycles of customers like those that Janel Group
services, interest rate fluctuations and other economic factors beyond Janel Group’s control. Deterioration in the economic environment subjects Janel Group’s business to various risks that may have a material impact on its operating results and
cause it, and therefore Janel, to not reach its long-term growth goals, as a result of, for example, the following:
• a reduction in overall freight volumes in the marketplace, reducing Janel Group’s opportunities for growth;
• economic difficulties encountered by some of Janel Group’s customers, who may, therefore, not be able to pay Janel Group in a timely manner or at all, or may go out of business;
• economic difficulties encountered by a significant number of Janel Group’s transportation providers, who may go out of business and, therefore, leave Janel Group unable to secure sufficient
equipment or other transportation services to meet commitments to its customers; and
• the inability of Janel Group to appropriately adjust its expenses to changing market demands.
In addition, if a downturn in the business cycles of Janel Group’s customers causes a reduction in the volume of freight shipped by those customers, its, and therefore Janel’s, operating results could
be adversely affected.
Other events affecting the volume of international trade and international operations could adversely affect Janel Group’s international operations.
In addition to economic conditions, Janel Group’s international supply chain services 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 Janel Group’s international supply chain services, is influenced by many factors, including:
• economic and political conditions in the United States and abroad;
• major work stoppages;
• exchange controls, currency conversion and fluctuations;
• war, other armed conflicts and terrorism; and
• U.S. and foreign laws relating to tariffs, trade restrictions, foreign investment and taxation.
The foregoing and other events beyond Janel Group’s 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 Janel Group’s business.
In particular, changes to major international trade arrangements (e.g., the United States-Mexico-Canada Agreement), and the imposition of tariffs by certain foreign governments, including China, in
response to the imposition of tariffs or modification of trade relationships by the United States, could negatively impact our results of operations. Recently, the Trump Administration imposed tariffs on a broad range of products imported into the
United States. In response to the tariffs imposed by the United States, the European Union, Canada, Mexico and China have announced tariffs on U.S. goods and services. The new tariffs, along with any additional tariffs or trade restrictions that
may be implemented by the United States or retaliatory trade measures or tariffs implemented by other countries, could result in reduced economic activity, increased costs in operating our business, reduced demand and changes in purchasing
behaviors, limits on trade with the United States or other potentially adverse economic outcomes. While tariffs and other retaliatory trade measures imposed by other countries on U.S. goods have not yet had a significant impact on our business or
results of operations, we cannot predict further developments, and such existing or future tariffs could have a material adverse effect on our financial condition, results of operations and liquidity.
Janel Group may be unable to manage its staffing needs, which may have an adverse impact on its costs of doing business.
In order to respond to the high variability in Janel Group’s business model, it may be necessary to adjust staffing levels to changing market demands. In periods of rapid change, it is more difficult
to match Janel Group’s staffing levels to its business needs. In addition, Janel Group has other primarily variable expenses that are fixed for a period of time, and it may not be able to adequately adjust them in a period of rapid change in market
demand.
Janel Group faces competition in the freight forwarding, freight brokerage, logistics and supply chain management industry.
The freight forwarding, freight brokerage, logistics and supply chain management industry is intensely competitive and is expected to remain so for the foreseeable future. Janel Group faces
competition from a number of companies, including many that have significantly greater financial, technical and marketing resources. Customers increasingly are turning to competitive bidding processes, in which they solicit bids from a number of
competitors, including competitors that are larger than Janel Group. Increased competition may lead to revenue reductions, reduced profit margins or a loss of market share, any one of which could harm Janel Group’s business. There are many factors
that could impair Janel Group’s profitability, including the following:
• competition with other transportation services companies, some of which have a broader coverage network, a wider range of services, more fully developed information technology systems and
greater capital resources than those of Janel Group;
• reduction by Janel Group’s competitors of their rates to gain business, especially during times of declining growth rates in the economy, which reductions may limit Janel Group’s ability to
maintain or increase rates, maintain its operating margins or maintain significant growth in its business;
• shifts in the business of shippers to asset-based trucking companies that also offer brokerage services in order to secure access to those companies’ trucking capacity, particularly in times of
tight industry-wide capacity;
• solicitation by shippers of bids from multiple transportation providers for their shipping needs and the resulting depression of freight rates or loss of business to competitors; and
• the use by Janel Group’s competitors of cooperative relationships to increase their ability to address shipper needs.
Janel Group’s industry is consolidating, and if it cannot gain sufficient market presence, Janel Group may not be able to compete successfully against
larger companies in its industry.
There currently is a trend within Janel Group’s industry towards consolidation of the niche players into larger companies that are attempting to increase global operations through the acquisition of
regional and local freight forwarders, brokers and other freight logistics providers. If Janel Group cannot gain sufficient market presence or otherwise establish a successful strategy in its industry, it may not be able to compete successfully
against larger companies in its industry.
Failure to comply with governmental permit and licensing requirements or statutory and regulatory requirements could result in civil and criminal sanctions,
fines or revocation of Janel Group’s operating authorities, and changes in these requirements could adversely affect Janel Group’s business.
Janel Group’s operations are subject to various state, local, federal and foreign statutes and regulations prohibiting various activities that in many instances require permits and licenses. Failure
to maintain compliance with applicable law and regulations, required permits or licenses, or to comply with applicable regulations, could result in substantial fines or revocation of Janel Group’s 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 Janel Group’s business
specifically.
Janel Group’s business is subject to seasonal trends.
Historically, Janel Group’s operating results have been subject to seasonal trends when measured on a quarterly basis. Its second fiscal quarter has traditionally been the weakest, and the third and
fourth fiscal quarters have traditionally been the strongest. As a result, its quarterly operating results are likely to continue to fluctuate. This trend is dependent on numerous factors, including the markets in which Janel Group operates,
holiday seasons, consumer demand, climate, economic conditions and numerous other factors. This historical seasonality has also been influenced by the growth and diversification of Janel Group’s international network and service offerings. A
substantial portion of Janel Group’s revenue is derived from customers in industries whose shipping patterns are tied closely to consumer demand which can sometimes be difficult to predict or are based on just-in-time production schedules.
Therefore, Janel Group’s revenue is, to a large degree, affected by factors that are outside of its control. Janel Group’s historic operating patterns may not continue in future periods as it cannot influence or forecast many of these factors.
Risk Factors Related To Janel’s Manufacturing Business
Indco faces aggressive competition from competitors with greater financial resources.
Indco is a producer of industrial mixers and mixing equipment for a variety of industries. The industrial mixer manufacturing industry is highly fragmented with low barriers to entry. This market is
addressed by companies ranging in size from large, publicly held concerns with resources greater than those of Indco to small privately-owned entities. New competitors emerge annually, and many aggressively market through electronic media. Our
competitors may be more innovative than us, and as a result, Indco may be unable to compete effectively.
Because most of Indco’s contracts are individual purchase orders and not long-term agreements, Indco may not be able to generate a similar amount of revenue in
the future.
Indco must bid or negotiate each of its contracts separately, and when it completes a contract, there is generally no continuing source of revenue under that contract. As a result, Indco cannot assure
that it will have a continuing stream of revenue from any contract. Indco’s failure to generate new business on an ongoing basis would materially impair its ability to operate profitably.
Any decrease in the availability, or increase in the cost, of raw materials could materially affect Indco’s revenue and earnings.
The availability of certain critical raw materials is subject to factors that are not within Indco’s control. In some cases, these critical raw materials are purchased from suppliers operating in countries that may
be subject to unstable political and economic conditions. While Indco has historically been able to source its raw materials from an assortment of suppliers, at any given time, Indco may be unable to obtain an adequate supply of critical raw
materials on a timely basis, at prices and other terms acceptable to it, or at all. If Indco is unable to obtain adequate and timely deliveries of required raw materials, it may be unable to timely manufacture sufficient quantities of products.
This could cause Indco to lose sales, incur additional costs, delay new product introductions or suffer harm to Indco’s reputation.
If suppliers increase the price of critical raw materials or are unwilling or unable to meet Indco’s demand, it may not have alternative sources of supply. In addition, costs of certain critical raw materials have
been volatile due to factors beyond Indco’s control. Raw material costs are included in Indco’s contracts with customers, but in some cases Indco is exposed to changes in raw material costs from the time purchase orders are placed to when it
purchases the raw materials for production. Changes in business conditions could adversely affect Indco’s ability to recover rapid increases in raw material costs and may adversely affect Indco’s, and therefore Janel’s, results of operations.
Failure to obtain and retain skilled technical personnel could adversely affect Indco’s operations.
Indco’s production facilities require skilled personnel to operate and provide technical services and support for its business. Competition for the personnel required for Indco’s business intensifies
as activity increases. In periods of high utilization, it may become more difficult to find and retain qualified individuals. This could increase Indco’s costs or have other adverse effects on its operations.
If Indco’s customers successfully assert product liability claims against it due to defects in Indco’s products, its operating results may suffer and its reputation may be harmed.
Indco faces an inherent risk of exposure to claims in the event that the failure, use or misuse of its products results, or is alleged to result, in bodily injury, property damage or economic loss.
While Indco believes that it meets or exceeds existing professional specification standards recognized or required in the industries in which it operates, Indco has been subject to claims in the past, and it may be subject to claims in the future.
A successful product liability claims or series of claims against Indco, or a significant warranty claim or series of claims against it, could materially decrease its liquidity, and therefore Janel’s financial condition.
The extensive environmental, health and safety regulatory regimes applicable to Indco’s operations create potential exposure to significant
liabilities
.
The nature of Indco’s manufacturing business subjects its operations to numerous and varied federal, state, local and international laws and regulations relating to pollution, protection of public
health and the environment, natural resource damages and occupational safety and health.
Failure to comply with these laws and regulations, or with the permits required for Indco’s operations, could result in fines or civil or criminal sanctions, third party claims for property damage or
personal injury, and investigation and cleanup costs. Potentially significant expenditures could be required in order to comply with new environmental laws or requirements that may be adopted or imposed in the future.
Indco has used, and currently uses, certain substances that are considered hazardous, extremely hazardous or toxic under worker safety and health laws and regulations. Although Indco implements
controls and procedures designed to reduce continuing risk of adverse impacts and environmental, health, and safety issues, Indco could incur substantial cleanup costs, fines and civil or criminal sanctions, and third-party property damage or
personal injury claims as a result of violations, non-compliance or liabilities under these regulatory regimes. As a manufacturing business, Indco also must comply with federal and state environmental laws and regulations which relate to the manner
in which Indco stores and disposes of materials and the reports that Indco is required to file. Indco cannot ensure that it will not incur additional costs to maintain compliance with environmental laws and regulations or that it will not incur
significant penalties for failure to be in compliance.
Indco relies on a single location to manufacture its products.
Indco’s business operates out of a single location in New Albany, Indiana. Indco employs lean manufacturing techniques and therefore carries little inventory. Indco could experience prolonged periods
of reduced production due to unforeseen catastrophic events occurring in or around its facility in Indiana. As a result, Indco may be unable to shift manufacturing capabilities to alternate locations, accept materials from suppliers, meet customer
shipment needs or address other severe consequences that may be encountered, and Indco may suffer damage to its reputation. Indco’s, and therefore Janel’s, financial condition and results of operations could be materially adversely affected were
such events to occur.
Risk Factors Related To Janel’s Life Sciences Business
It may be difficult for Life Sciences to implement its strategies for revenue growth in light of competitive challenges.
Life Sciences faces significant competition across many of its product lines. Competitors include companies ranging from start-up companies, which may be able to more quickly respond to customers’
needs, to large multinational companies, which may have greater financial, marketing, operational, and research and development resources than the Company.
In addition, consolidation trends in the pharmaceutical, biotechnology and diagnostics industries have served to create fewer customer accounts and to concentrate purchasing decisions for some
customers. Failure to anticipate and respond to competitors’ actions may impact the future sales and earnings of Life Sciences and therefore Janel.
If Life Sciences does not compete effectively, its business may be harmed.
Life Sciences encounters aggressive competition from numerous competitors in many areas of its business. It may not be able to compete effectively with all of these competitors. To remain competitive,
Life Sciences must develop new products and periodically enhance its existing products. We anticipate that Life Sciences may also have to adjust the prices of many of its products to stay competitive. In addition, new competitors, technologies or
market trends may emerge to threaten or reduce the value of our product lines.
If Life Sciences does not introduce new products in a timely manner, it may lose market share and be unable to achieve revenue growth targets.
Life Sciences sells many of its products in industries characterized by frequent new product and service introductions and evolving customer needs and industry standards. Many of the businesses
competing with Life Sciences in these industries have significant financial and other resources to invest in new technologies, substantial intellectual property portfolios, significant experience in new product development, regulatory expertise,
manufacturing capabilities and established distribution channels to deliver products to customers. Failure to innovate and develop new products may impact the future sales and earnings of Life Sciences and therefore Janel.
The manufacture and sale of products and services may expose us to product and other liability claims for which we could have substantial liability.
Life Sciences faces an inherent business risk of exposure to product and other liability claims if its products, services or product candidates are alleged or found to have caused injury, damage or
loss. While we retain product liability insurance, we may be unable to obtain insurance with adequate levels of coverage for potential liability on acceptable terms or claims of this nature may be excluded from coverage under the terms of any
insurance policy that we obtain. If we are unable to obtain such insurance or the amounts of any claims successfully brought against us substantially exceed our coverage, then our business could be adversely impacted.
Changes in governmental regulations may reduce demand for our products or increase our expenses.
Life Sciences competes in markets in which it or its customers must comply with federal, state, local and foreign regulations, such as environmental, health and safety, and food and drug regulations.
We develop, configure and market our products to meet customer needs created by these regulations. Any significant change in these regulations could reduce demand for our products or increase our costs of producing these products.
The Life Sciences business operates from two locations, which exposes it to certain risks.
Our Life Sciences business operates out of two locations in Davis, California and Aurora, Colorado. Any significant disruption of those operations for any reason, such as strikes or other labor
unrest, power interruptions, fire, earthquakes, or other events beyond our control, could adversely affect our sales and customer relationships and therefore adversely affect our business.
The success of Life Sciences depends on its ability to continually produce products that meet high quality standards such as purity, reproducibility and/or
absence of cross-reactivity.
Product quality and reputation are key purchasing decision factors for our Life Science customers. While our Life Science operations have experienced and qualified personnel, long operating histories
and substantial production systems and protocols in place, failure on our part to meet our customers’ high-quality product expectations (in particular with respect to product purity, reproducibility and specificity) could adversely impact our
business.
Risk Factors Related To Ownership of Janel’s Common Stock
Janel’s officers and directors and one of its stockholders have a controlling influence over Janel.
Janel’s officers and directors control the vote of approximately 70.3% of the outstanding shares of Janel’s common stock, which includes Janel common stock such persons can acquire through the exercise of vested
options granted to them.
As a result, Janel’s officers and directors control the election of Janel’s directors and therefore have the ability to control the affairs of Janel. Furthermore, one particular investor in
the Company has the right to appoint 50% of the members of Janel’s board of directors.
As a result, these officers, directors and stockholders have controlling influence over, among other things, the ability to amend Janel’s certificate of incorporation and bylaws or effect or preclude
fundamental corporate transactions involving Janel, including the acceptance or rejection of any proposals relating to a merger of Janel or an acquisition of Janel by another entity. The interests of these officers, directors and stockholders may
conflict with those of other stockholders. This concentration of ownership may also delay, deter or prevent a change in control of Janel, and some transactions may be more difficult or impossible without the support of these parties.
It is unlikely that Janel will issue dividends on its common stock in the foreseeable future.
Janel has never declared nor paid cash dividends on its common stock, and it does not intend to pay dividends in the foreseeable future. The payment of dividends in the future will be at the
discretion of Janel’s board of directors.
Janel’s stock price is subject to volatility.
Janel’s common stock trades on the OTC Bulletin Board under the symbol “JANL.” The market price of Janel’s common stock has been subject to significant fluctuations. There is an absence of a true
market for Janel shares and thus a valid valuation is not readily maintained. This result is caused in part by the concentrated holdings of Janel, which has led to abnormal price volatility. Such fluctuations as well as economic conditions
generally may adversely affect the market price of Janel’s common stock.
Janel has 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, to the extent the market price of our common stock falls below $5.00 per share, may be 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. These disclosure requirements may have the effect of reducing the level of trading
activity in the secondary market for the stock that is subject to these penny stock rules. Consequently, to the extent we are subject to the penny stock rules, such rules may affect the ability of broker-dealers to trade our securities. As a
result, characterization as a “penny stock” can discourage investor interest in and limit the marketability of our common stock.
Janel incurs significant costs to comply with the laws and regulations affecting public companies which could harm its business and results of operations.
Janel is subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the Sarbanes-Oxley Act of 2002, as amended (the “Sarbanes-Oxley Act”), and
other applicable securities rules and regulations. These rules and regulations have increased and will continue to increase Janel’s legal, accounting and financial compliance costs and have made, and will continue to make, some activities more
time-consuming and costly. For example, these rules and regulations could make it more difficult and more costly for Janel to obtain director and officer liability insurance, and it may be required to accept reduced policy limits and coverage or to
incur substantial costs to maintain the same or similar coverage. These rules and regulations could also make it more difficult for Janel to attract and retain qualified persons to serve on its board of directors or its board committees or as
executive officers. Janel’s management and other personnel devote a substantial amount of time to these compliance initiatives. As a result, management’s attention may be diverted from other business concerns, which could harm Janel’s business and
operating results.
There are no unresolved staff comments as of the date of this report.
Janel’s executive offices are located in approximately 6,800 square feet of leased space in Lynbrook, New York. The lease term ends January 31, 2020. On November 15, 2019, the Company entered into a
new lease agreement for 6,900 square feet of space in Garden City, New York. This new location will serve as Janel’s executive offices. The lease agreement expires on March 31, 2025.
As of September 30, 2019, Janel Group leased office space in thirteen cities located in the United States. Lease terms for these locations expire at various dates through August 31, 2023.
As of September 30, 2019, Indco leased office and manufacturing space in a single facility in New Albany, Indiana. The lease term ends July 31, 2020. Indco is currently negotiating the purchase of
this property.
As of September 30, 2019, Antibodies owned an approximately 40-acre facility in Davis, California.
As of September 30, 2019, Phospho leased office and manufacturing space in a single facility in Aurora, Colorado. The lease is on a month-to-month basis.
The Company believes the owned and leased properties are adequate to meet its occupancy needs in the foreseeable future.
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 business, results of operations, financial condition or cash flows.
In December 2017, Janel Group received a Notice of Copyright Infringement letter from counsel for Warren Communications News, Inc. (“Warren”), the publisher of the International
Trade Today (“ITT”) newsletter. The letter alleges that Janel Group infringed upon Warren’s registered copyrights in its ITT newsletter. The Company believes it has meritorious defenses to the allegations. The Company is not presently able to
reasonably estimate potential losses, if any, related to the allegations.
Not applicable.
PART II
(in thousands, except share and per share data)
Janel Corporation’s common stock is traded on the Over-The-Counter (OTC) market under the symbol “JANL.”
The following table sets forth the high and low bid prices for the common stock for each full quarterly period during the fiscal years indicated. The prices reflect the high and low closing prices as
available through the OTC market and represent prices between dealers. They do not reflect retailer markups, markdowns or commissions and may not represent actual transactions.
|
|
Fiscal Year 2019
|
Fiscal Year 2018
|
||||||||||||||
|
Fiscal Quarter
|
High
|
Low
|
High
|
Low
|
||||||||||||
|
First Quarter, ended December 31,
|
$
|
9.35
|
$
|
6.03
|
$
|
10.35
|
$
|
5.00
|
||||||||
|
|
||||||||||||||||
|
Second Quarter, ended March 31,
|
$
|
9.25
|
$
|
5.01
|
$
|
9.01
|
$
|
6.60
|
||||||||
|
|
||||||||||||||||
|
Third Quarter, ended June 30,
|
$
|
9.00
|
$
|
5.01
|
$
|
9.01
|
$
|
6.75
|
||||||||
|
|
||||||||||||||||
|
Fourth Quarter, ended September 30,
|
$
|
10.17
|
$
|
7.01
|
$
|
8.90
|
$
|
6.00
|
||||||||
On January 10, 2020, the Company had 60
holders of its shares of common stock. This amount does not include “street name” holders or
beneficial holders of our common stock, whose holders of record are banks, brokers and other financial institutions.
The closing price of the common stock on that date was $8.90
per share.
Common Stock Dividends
We have not declared, and currently do not plan to declare in the foreseeable future, dividends on our common stock.
Series A Convertible Preferred Stock (“Series A Stock”)
On September 24, 2018, the 20,000 shares of Series A Stock then outstanding were repurchased by the Company for $400. On September 27, 2018, all outstanding shares of the Series A Stock were
retired.
Series B Convertible Preferred Stock (“Series B Stock”)
On September 5, 2019, holders of 640 shares of Series B Stock converted their stock into 6,400 shares of common stock. The Company has 631 shares of Series B Stock outstanding as of September 30,
2019.
Series C Cumulative Preferred Stock (“Series C Stock”)
On September 27, 2018, the Company paid cash dividends of $1,093 to holders of Series C Stock.
Common Stock Warrants
In connection with the Securities Purchase Agreement with Oaxaca Group, LLC, dated October 6, 2013, the Company issued warrants to purchase an aggregate of 250,000 shares of common stock at $4.00 per
share. The warrants were set to expire on October 5, 2018. On September 27, 2018, the warrants to purchase 250,000 shares of common stock at $4.00 were exercised by Oaxaca Group in full. As a result, the Company has no stock warrants outstanding.
Securities Authorized for Issuance under Equity Compensation Plans
For certain information concerning securities authorized for issuance under our equity compensation plans, see “Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters.”
Consistent with the rules applicable to “smaller reporting companies”, we have omitted the information required by Item 6.
Our discussions below in this Item 7 should be read in conjunction with our consolidated financial statements, including the notes thereto, included in this Annual Report on Form 10-K.
•
Introduction
•
Business Performance
•
Liquidity and Capital Resources
•
Current Outlook
•
Critical Accounting Policies and Estimates
•
New Accounting Standards
•
Non - GAAP Financial Measures
This discussion and analysis should be read along with Janel’s audited financial statements and related notes thereto as of September 30, 2019 and 2018 and for each of the two years in the period
ended September 30, 2019 included in this Annual Report. As discussed above, effective October 1, 2018, the Company realigned its Manufacturing segment, which was separated into two segments named Manufacturing and Life Sciences. Accordingly, the
Company now operates in three reportable segments: (1) Global Logistics Services, (2) Manufacturing and (3) Life Sciences. Year-to-year comparisons between 2018 and 2017 have been omitted from this Form 10-K, but may be found in “
Management’s Discussion and Analysis of Financial Condition
” in Part II, Item 7 of our Form 10-K for the fiscal year ended
September 30, 2018, which specific discussion is incorporated herein by reference. The following discussion presents results of operations for the Manufacturing segment on a realigned basis for the years ended September 30, 2018.
INTRODUCTION
Janel is a holding company with subsidiaries in three business segments: Global Logistics Services, Manufacturing and Life Sciences. The Company strives to create shareholder value primarily through
three strategic priorities: supporting its businesses’ efforts to make investments and to build long-term profits; allocating Janel’s capital at higher risk-adjusted rates of return; and attracting and retaining exceptional talent. A management
group at the holding company level (the “corporate group”) focuses on significant capital allocation decisions, corporate governance and supporting Janel’s subsidiaries where appropriate. Janel expects to grow through its subsidiaries’ organic
growth and by completing acquisitions. We plan to either acquire businesses within our existing segments or expand our portfolio into new strategic segments. Our acquisition strategy focuses on reasonably-priced companies with strong and capable
management teams, attractive existing business economics and stable and predictable earnings power.
Year Ended September 30, 2019 Acquisitions
On September 6, 2019, the Company acquired Phospho, which we include in our Life Sciences segment.
On July 1, 2019, we acquired the
membership interests of a life sciences company
to expand our product offerings, which we include in our Life
Sciences segment
.
On November 20, 2018, the Company acquired Honor, which we include in our Global Logistics Services segment.
On October 17, 2018, we completed a business combination whereby we acquired substantially all of the assets and certain liabilities of a global logistics services provider
, which we include in our Global Logistics
Services segment.
Year Ended September 30, 2018 Acquisitions
On June 22, 2018, the Company acquired Antibodies, which we include in our Life Sciences segment.
On March 5, 2018, the Company acquired the common stock of Aves, which we include in our Life Sciences segment.
On January 3, 2018, the Company acquired GTRI, which we include in our Global Logistics Services segment.
Results of Operations – Janel Corporation
(In thousands except for per share data)
|
Financial Summary
|
||||||||
|
in thousands
|
||||||||
|
(Fiscal years ended September 30,)
|
||||||||
|
|
||||||||
|
|
2019
|
2018
|
||||||
|
Corporate expenses
|
$
|
2,367
|
$
|
2,092
|
||||
|
Amortization of intangible assets
|
915
|
807
|
||||||
|
Stock-based compensation
|
203
|
506
|
||||||
|
Merger and acquistion expenses
|
166
|
465
|
||||||
|
Total corporate expenses
|
$
|
3,651
|
$
|
3,870
|
||||
Corporate expenses decreased by $219 to $3,651, or 5.7%, in fiscal 2019 as compared to fiscal 2018. The dollar decrease was due primarily to decreases in stock-based compensation and merger and
acquisition expenses, offset by increases in amortization of intangible expenses and salaries related to increased headcount at the corporate offices. We incur merger and acquisition deal-related expenses and intangible amortization at the
corporate level rather than at the segment level.
Interest Expense
Interest expense for the consolidated company increased $195, or 39.1%, to $694 in fiscal 2019 from approximately $499 in fiscal 2018. The increase was primarily due to higher average debt balances to
support our acquisition efforts.
Income Taxes
On a consolidated basis, the Company recorded an income tax provision of $330 in fiscal 2019, as compared to $130 in fiscal 2018. The increase was primarily due to increased pretax income, partially
off-set by a related one-time income tax benefit of $49 due to the new tax rate change during the year ended September 30, 2018. In 2016, a deferred tax asset was established to reflect a net operating loss carryforward, which the Company has begun
using, and expects to continue to use, through ongoing profitability.
Preferred Stock Dividends
Preferred stock dividends include the Company's Series A Stock and dividends accrued but not paid on the Company's Series C Stock. For the year ended September 30, 2019 and 2018, preferred stock
dividends were $571 and $438, respectively. The increase of $133, or 30.4%, was the result of a higher number of shares of Series C Stock outstanding to support acquisitions and an increase in dividend rate as of January 1, 2019 to 6%.
Preferred stock dividends include $15 in annual dividends, paid quarterly, on the Company’s Series A Stock. On September 24, 2018, the 20,000 shares of Series A Stock were repurchased by the Company
for $400. On September 27, 2018, the Series A Stock was retired.
Dividends accrued but not paid on the Company’s Series C Stock were $1,041 and $470, as of September 30, 2019 and 2018, respectively.
By the filing of an amendment to the
certificate of designation for the Series C Stock on October 17, 2017, the annual dividend rate decreased to 5% from 7% per annum of the original issuance price.
The amendment on October 17, 2017 to the annual
dividend rate decrease was treated as an extinguishment for accounting purposes, and the fair value prior to modification was $8,224 and $6,912 after modification, for a change of $1,312. In accordance with Accounting Standards Codification Topic
260, “Earnings Per Share,” this incremental benefit was treated as an adjustment to earnings per share for common stockholders
for the fiscal year ended September 30, 2018. On September 27, 2018, the Company
paid $1,093 to holders of Series C Stock.
Net Income (Loss) Available to Common Shareholders
Net income (loss) available to common shareholders was ($297), or ($0.35) per diluted share, for fiscal 2019 and $1,072, or $1.28 per diluted share, for fiscal 2018. The decrease was primarily due to
the gain on extinguishment of Series C Stock dividends of $1,312, partially offset by dividends to preferred shares, an increase in professional fees and stock-based compensation and higher expenses associated with acquisition activities.
Results of Operations – Segment Financial Results
The following table sets forth our segment financial results for the years ended September 30, 2019 and 2018:
|
Years Ended September 30,
|
||||||||
|
(In thousands)
|
2019
|
2018
|
||||||
|
Revenue:
|
||||||||
|
Global Logistics Services
|
$
|
69,655
|
$
|
57,200
|
||||
|
Manufacturing
|
9,042
|
8,337
|
||||||
|
Life Sciences
|
5,657
|
1,984
|
||||||
|
Total revenues
|
84,354
|
67,521
|
||||||
|
|
||||||||
|
Gross Profit:
|
||||||||
|
Global Logistics Services
|
16,336
|
14,515
|
||||||
|
Manufacturing
|
5,022
|
4,540
|
||||||
|
Life Sciences
|
3,748
|
1,257
|
||||||
|
Total gross profit
|
25,106
|
20,312
|
||||||
|
|
||||||||
|
Income from Operations:
|
||||||||
|
Global Logistics Services
|
2,480
|
2,679
|
||||||
|
Manufacturing
|
1,909
|
1,710
|
||||||
|
Life Sciences
|
841
|
368
|
||||||
|
Total income from operations by segment
|
5,230
|
4,757
|
||||||
|
|
||||||||
|
Corporate administrative expenses
|
(2,736
|
)
|
(3,063
|
)
|
||||
|
Amortization expense
|
(915
|
)
|
(807
|
)
|
||||
|
Interest expense
|
(694
|
)
|
(499
|
)
|
||||
|
Change in fair value of mandatorily redeemable non-controlling interest
|
61
|
(10
|
)
|
|||||
|
Net income before taxes
|
946
|
378
|
||||||
|
Income taxes expense
|
(330
|
)
|
(130
|
)
|
||||
|
Net Income
|
$
|
616
|
$
|
248
|
||||
BUSINESS PERFORMANCE
Consolidated revenues for the year ended September 30, 2019 were $84,354, or 24.9% higher than fiscal 2018. Revenues for our Global Logistics Services segment increased mostly due to acquisitions and
higher freight rates, while revenues for our Manufacturing segment increased due to strong organic growth. Revenues for our Life Sciences segment increased largely due to acquisitions.
The Company’s net income from continuing operations for the year ended September 30, 2019 totaled approximately $616 or $0.65 per diluted share, compared to approximately $248 or $0.30 per diluted
share for the year ended September 30, 2018. Our profits in fiscal 2019 were positively impacted by lower corporate and administrative expense, lower stock-based compensation, offset by additional expenses related to interest expense and income tax
expense. These expenses impacted our overall operating results and our adjusted operating profits for fiscal 2019 relative to prior years.
Results of Operations – Global Logistics Services
|
Financial Summary
|
||||||||
|
in thousands
|
||||||||
|
(Fiscal years ended September 30,)
|
||||||||
|
|
2019
|
2018
|
||||||
|
Revenue
|
$
|
69,655
|
$
|
57,200
|
||||
|
Forwarding expense
|
53,319
|
42,685
|
||||||
|
Net revenue
|
$
|
16,336
|
$
|
14,515
|
||||
|
Net revenue yield
|
23
|
%
|
25
|
%
|
||||
|
Income from operations
|
$
|
2,480
|
$
|
2,679
|
||||
Fiscal 2019 compared with fiscal 2018
Revenue
Total revenue in fiscal 2019 was $69,655 as compared to $57,200 in fiscal 2018, an increase of $12,455 or 21.8%. Revenue increased year over year due to higher freight rates, partially offset by a
slight organic decline in our base business. The higher freight expenses drove higher purchased transportation expenses. Our volume as measured by twenty-foot equivalent units (“TEUs”), metric tons and custom entries grew 50%, 20% and 7%,
respectively.
Net Revenue
Net revenue in fiscal 2019 was $16,336, an increase of $1,821, or 12.5%, as compared to $14,515 in fiscal 2018. This increase was mainly the result of additional net revenue from an acquisition, which
was partially offset by a slight organic decline in our base business. Our net revenue yield (net revenue divided by gross revenues) declined to 23.5% in fiscal 2019 compared to 25.4% in fiscal 2018 largely due to an increase in transportation
rates and changes in our mix of business.
Selling, General and Administrative Expense
s
Selling, general and administrative expenses from continuing operations in fiscal 2019 were $13,856, as compared to $11,836 in fiscal 2018. The increase of $2,020, or 17.1%,
was mainly due to additional expenses from the acquisition of Honor, Sea Cargo and GTRI and higher expenses related to our investments in a marketing program, which were partially
offset by cost efficiencies experienced across the rest of Janel Group. As a percentage of gross revenue, selling, general and administrative expenses were 20.1% and 20.7% for fiscal 2019 and fiscal 2018, respectively.
Income from Operations
Operating income decreased to $2,480 in fiscal 2019 compared to $2,679 in fiscal 2018, a decrease of 7.4%. The benefit from acquisitions and integration efficiencies from prior year acquisition
investments more than offset an investment in the integration of recent acquisitions and a marketing program in fiscal 2019. Our operating margin as a percentage of net revenue was 15.2% in fiscal 2019 compared to 18.5% in fiscal 2018.
Results of Operations - Manufacturing
|
Financial Summary
|
||||||||
|
in thousands
|
||||||||
|
(Fiscal years ended September 30,)
|
||||||||
|
|
||||||||
|
|
2019
|
2018
|
||||||
|
Revenue
|
$
|
9,042
|
$
|
8,337
|
||||
|
Gross profit
|
$
|
5,022
|
$
|
4,540
|
||||
|
Gross profit margin
|
55.5
|
%
|
54.5
|
%
|
||||
|
Income from operations
|
$
|
1,909
|
$
|
1,710
|
||||
Fiscal 2019 compared with fiscal 2018
Note Regarding Comparison Between Periods
We are presenting the below discussion of the results of operations for our Manufacturing segment for the fiscal year ended September 30, 2019 as compared to the fiscal year ended September 30, 2018
which reflects the realignment of our segments effective October 1, 2018, as discussed above, and the resulting realignment of our Manufacturing segment’s results of operations for prior periods.
Revenue
Total revenue was $9,042 in fiscal 2019 compared with $8,337 in fiscal 2018, an increase of 8.5%. The revenue growth reflected strong growth across the business.
Gross Profit
Gross profit was $5,022 and $4,540 for fiscal years 2019 and 2018, respectively. Gross profit margin at Indco in the full-year period of fiscal 2019 was 55.5%, as compared to 54.5% in fiscal 2018.
Gross profit margin overall for the Manufacturing segment increased slightly due to strong business demand and leverage of fixed expenses.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the Manufacturing segment was $3,113 and $2,830 for fiscal years 2019 and 2018, respectively. Our expenses within the mixing business increased
year-over-year due to stock-based compensation expense. As a percentage of gross revenue, selling, general and administrative expenses were 34.4% and 33.9% for fiscal 2019 and fiscal 2018, respectively.
Income from Operations
Operating income for fiscal 2019 was $1,909 compared to $1,710 in fiscal 2018. Indco’s operating income increased 11.6% versus the prior year due to strong business growth which more than offset
stock-based compensation expenses and items related to our debt refinancing and related dividend actions.
Results of Operations - Life Sciences
|
Financial Summary
|
||||||||
|
in thousands
|
||||||||
|
(Fiscal years ended September 30,)
|
||||||||
|
|
||||||||
|
|
2019
|
2018
|
||||||
|
Revenue
|
$
|
5,657
|
$
|
1,984
|
||||
|
Gross profit
|
$
|
3,748
|
$
|
1,257
|
||||
|
Gross profit margin
|
66.3
|
%
|
63.4
|
%
|
||||
|
Income from operations
|
$
|
841
|
$
|
368
|
||||
Note Regarding Comparison Between Periods
Janel acquired its first Life Sciences business on March 5, 2018. Therefore, fiscal 2018 figures represent the results of only seven months of Janel ownership. Janel acquired Aves on March 5, 2018,
Antibodies on June 22, 2018, IgG on July 1, 2019 and Phospho on September 6, 2019.
Fiscal 2019 compared with fiscal 2018
Revenue
Total revenue was $5,657 in fiscal 2019 compared with $1,984 in fiscal 2018. The increase in sales was almost entirely due to acquisitions.
Gross Profit
Gross profit was $3,748 and $1,257 for fiscal years 2019 and 2018, respectively. The gross profit margin of 66.3% in fiscal 2019 increased compared to 63.4% in the prior fiscal year due to the mix of
acquisitions. The gross profit margin was also impacted by the amortization of non-cash acquired inventory expenses of $250 and $190 for fiscal 2019 and 2018, respectively.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the Life Sciences segment were $2,907 and $889 for fiscal years 2019 and 2018, respectively.
Our expenses
within the business increased year-over-year due to stock-based compensation expense
As a percentage of gross revenue, selling, general and administrative expenses were 51.4% and 44.8% for fiscal 2019 and fiscal 2018, respectively. The expenses rose faster than revenue due to mix of
business from acquisitions and investments in growth initiatives.
Income from Operations
The Life Sciences business earned $841 and $368 in operating income for fiscal 2019 and 2018, respectively. The difference in operating margin of 14.9% in fiscal 2019 compared with 18.5% in fiscal
2018 largely due to changes in mix of business from acquisitions and investments in growth initiatives.
LIQUIDITY AND CAPITAL RESOURCES
General
Our ability to satisfy liquidity requirements, including debt obligations, and fund working capital, day-to-day operating expenses and capital expenditures, depends upon future performance, which is
subject to general economic conditions, competition and other factors, some of which are beyond our control. Subsidiaries depend on commercial credit facilities to fund day-to-day operations as there is a difference between the timing of collection
cycles and the timing of payments to vendors. Generally, we do not make significant capital expenditures.
Janel’s cash flow performance for the 2019 fiscal year is not necessarily indicative of future cash flow performance. As of September 30, 2019, and compared with the prior fiscal year, the Company’s
cash and cash equivalents increased by $1,578, or 270%, to $2,163 from $585. During the fiscal year ended September 30, 2019, Janel’s net working capital deficiency (current assets less current liabilities) decreased by $397, from ($6,587) at
September 30, 2018 to ($6,190) at September 30, 2019. This decrease is considered nominal, representing relatively stable collections from customers and payments of vendors in 2019 and 2018.
Cash flows from continuing operating activities
Net cash provided by continuing operating activities for fiscal years 2019 and 2018 was $7,203 and $848, respectively. The increase in cash provided by continuing operations in fiscal 2019 was driven
principally by higher net income, an increase in accounts payable and accrued expenses, partially offset by a modest increase in accounts receivable.
Cash flows from investing activities
Net cash used for investing activities, mainly for the acquisition of subsidiaries, was $6,600 for fiscal 2019 and $7,600 for fiscal 2018. The fiscal 2019 amount was associated with the Honor, Sea
Cargo, IgG and Phospho acquisitions, and the fiscal 2018 amount was associated with the GTRI, Aves and Antibodies acquisitions.
Cash flows from financing activities
Net cash provided by financing activities was $975 for fiscal 2019 and $6,349 for fiscal 2018. Net cash provided by financing activities in fiscal 2019 primarily included proceeds from our term loan
offset by repayments on line of credit, and in fiscal 2018 primarily included proceeds from the sales of Series C Stock, proceeds from a line of credit and proceeds from a senior secured term loan.
Credit Facilities
Global Logistics Services
Santander Bank Facility
On October 17, 2017, the Janel Group subsidiaries (collectively the "Janel Group Borrowers"), with Janel Corporation as a guarantor, entered into a Loan and Security Agreement (the "Santander Loan
Agreement") with Santander Bank, N.A. ("Santander") with respect to a revolving line of credit facility (the "Santander Facility"). The Santander Facility provides that the Janel Group Borrowers can borrow up to $10,000, limited to 85% of the Janel
Group Borrowers' aggregate outstanding eligible accounts receivable, subject to adjustment as set forth in the Santander Loan Agreement. Interest accrues on the Santander Facility at an annual rate equal to, at the Janel Group Borrowers' option,
Prime plus 0.50%, or LIBOR (30, 60 or 90 day) plus 2.50% subject to a LIBOR floor of 75 basis points. The Janel Group Borrowers' obligations under the Santander Facility are secured by all of the assets of the Janel Group Borrowers. The Santander
Loan Agreement requires, among other things, that the Janel Group Borrowers, on a quarterly basis, maintain a Minimum Debt Service Coverage ratio, as defined in the Santander Loan Agreement. The loan is subject to earlier termination as provided in
the Santander Loan Agreement and matures on October 17, 2020, unless renewed. The Santander Loan Agreement requires the Company to maintain a lock box with Santander in addition to containing certain subjective acceleration clauses. As a result of
these terms, the loan is classified as a current liability on the consolidated balance sheet.
On March 21, 2018, the Janel Group Borrowers, the Company and Aves entered into an amendment with Santander (the "Santander Amendment") with respect to the Santander Loan Agreement. Pursuant to the
Santander Amendment, among other changes Aves was added as a loan party obligor (but not a Janel Group Borrower) under the Santander Loan Agreement, the maximum amount available under the Santander Loan Agreement was increased from $10,000 to
$11,000 (subject to 85% of eligible receivables), the foreign account sublimit was increased from $1,500 to $2,000, a one-time waiver was granted until May 31, 2018 for the stated event of default related to the delivery of the quarterly financial
statements for the fiscal quarter ended December 31, 2017, and a one-time waiver, retroactive to March 5, 2018, of the provision that prohibits the Company from using proceeds of the revolving loan to finance acquisitions was granted for the
purpose of partially funding the acquisition of Aves.
On November 20, 2018, the Company and its wholly-owned subsidiaries entered into the Limited Waiver, Joinder and Second Amendment (“Amendment No. 2”) to the Santander Loan Agreement (as amended by the
Santander Amendment), with Santander Bank, N.A. Pursuant to, and among other changes affected by, Amendment No. 2: (1) Honor Worldwide Logistics LLC, HWL Brokerage LLC and Global Trading Resources Inc. were added as new borrowers under the
Santander Loan Agreement; (2) Aves was released as a loan party obligor under the Santander Loan Agreement; (3) the maximum revolving facility amount available was increased from $11,000 to $17,000 (limited to 85% of the borrowers’ eligible
accounts receivable borrowing base and reserves); (4) the foreign account sublimit was increased from $2,000 to $2,500; (5) the letter of credit limit was increased from $500 to $1,000; (6) the definitions of “Debt Service Coverage Ratio,” “Debt
Service Coverage Ratio (Borrower Group)” and “Loan Party” were restated; (7) the permitted acquisition debt basket was increased from $2,500 to $4,000; and (8) the permitted indebtedness basket was increased from $500 to $1,000.
At September 30, 2019, outstanding borrowings under the Santander Facility were $8,391, representing 49.4% of the $17,000 available thereunder, and interest was accruing at an effective interest rate
of 5.50%. As of May 1, 2019, Santander had granted the Janel Group Borrowers a one-time waiver until July 31, 2019 for an event of default related to the delivery of the audited financial statements for the fiscal year ended September 30, 2018.
Other than as specifically referenced above, the Janel Group Borrowers were in compliance with the covenants defined in the Santander Loan Agreement as of September 30, 2019.
At September 30, 2018, outstanding borrowings under the Santander Facility were $9,730, representing 88.5% of the $11,000 available thereunder, and interest was accruing at an effective interest rate
of 5.75%.
Working Capital Requirements
Through September 30, 2019, Janel Group’s cash needs were met by the Santander Facility and cash on hand. As of September 30, 2019, the Janel Group had, subject to collateral availability, $8,609
available under its $17,000 Santander Facility and $1,116 in cash.
The Company believes that its current financial resources will be sufficient to finance Janel Group’s operations and obligations (current and long-term liabilities) for the long and short term.
However, Janel Group’s actual working capital needs will depend upon numerous factors, including operating results, the costs associated with growing Janel Group, either organically or through acquisitions, competition and availability under the
Santander Facility, none of which can be predicted with certainty. If cash flow and available credit are not sufficient to fund working capital, Janel Group’s operations will be materially negatively impacted.
Manufacturing
First Merchants Bank Credit Facility
On March 21, 2016, Indco executed a Credit Agreement (the "First Merchants Credit Agreement") with First Merchants Bank with respect to a $6,000 term loan and $1,500 (limited to the borrowing base and
reserves) revolving loan (together, the "First Merchants Facility"). Interest accrues on the term loan at an annual rate equal to the one-month LIBOR plus either 3.75% (if Indco's cash flow leverage ratio is less than or equal to 2:1) or 4.75% (if
Indco's cash flow leverage ratio is greater than 2:1). Interest accrues on the revolving loan at an annual rate equal to the one-month LIBOR plus 2.75%. Indco's obligations under the First Merchants Facility are secured by all of Indco's assets and
are guaranteed by the Company. The First Merchants Credit Agreement requires, among other things, that Indco, on a monthly basis, not exceed a "maximum total funded debt to EBITDA ratio" and maintain a "minimum fixed charge covenant ratio," both as
defined in the First Merchants Credit Agreement. The First Merchants Facility requires monthly payments until the expiration date on the fifth anniversary of the loan. The loan is subject to earlier termination as provided in the First Merchants
Credit Agreement.
On August 30, 2019, Indco and First Merchants entered into Amendment No. 1 to Credit Agreement modifying the terms of Indco’s credit facilities with First Merchants and extending the maturity date of
the credit facilities. Under the revised terms, the credit facilities will consist of a $5,500 Term Loan and $1,000 (limited to the borrowing base and reserves) Revolving Loan. Interest will accrue on the Term Loan at an annual rate equal to the
one-month LIBOR plus either 2.75% (if Indco’s total funded debt to EBITDA ratio is less than 2:1), or 3.5% (if Indco’s total funded debt to EBITDA ratio is greater than or equal to 2:1). Interest will accrue on the Revolving Loan at an annual rate
equal to the one-month LIBOR plus 2.75%. Indco’s obligations under the First Merchants credit facilities are secured by all of Indco’s assets and are guaranteed by Janel, and Janel’s guarantee of Indco’s obligations is secured by a pledge of
Janel’s Indco shares. The First Merchants credit facilities will expire on August 30, 2024 (subject to earlier termination as provided in the Credit Agreement) unless renewed.
As of September 30, 2019, there were no outstanding borrowings under the revolving loan and $5,455 of borrowings under the term loan, with interest accruing on the term loan at an effective interest
rate of 6.01%. Indco was in compliance with the covenants defined in the First Merchants Credit Agreement at both September 30, 2019 and September 30, 2018.
As of September 30, 2018, there were no outstanding borrowings under the revolving loan and $2,713 of borrowings under the term loan, with interest accruing on the term loan at an effective interest rate of 5.85%.
Working Capital Requirements
Manufacturing’s cash needs are currently met by the term loan and revolving credit facility under the First Merchants Credit Agreement and cash on hand. As of September 30, 2019, Manufacturing had
$1,000 available under its $1,000 revolving facility subject to collateral availability and $501 in cash. The Company believes that the current financial resources will be sufficient to finance Manufacturing operations and obligations (current and
long-term liabilities) for the long and short term. However, actual working capital needs will depend upon numerous factors, including operating results, the cost associated with growing Manufacturing either organically or through acquisitions,
competition and availability under the revolving credit facility, none of which can be predicted with certainty. If cash flow and available credit are not sufficient to fund working capital, Manufacturing’s operations will be materially negatively
impacted.
Life Sciences
First Northern Bank of Dixon
On June 21, 2018, AB Merger Sub, Inc., a wholly-owned, indirect subsidiary of the Company, entered into a Business Loan Agreement (the "First Northern Loan Agreement") and Promissory Note with First
Northern Bank of Dixon ("First Northern"), with respect to a $2,025 senior secured term loan (the "Senior Secured Term Loan"). The First Northern Loan Agreement and Promissory Note are dated and effective as of June 14, 2018. The proceeds of the
Senior Secured Term Loan were used to fund a portion of the merger consideration to acquire Antibodies.
Interest will accrue on the Senior Secured Term Loan at an annual rate based on the five-year Treasury constant maturity (index) plus 2.50% (margin) for years one through five then adjusted and fixed
for years six through ten using the same index and margin.
The borrower's and the Company's obligations to First Northern under the First Northern Loan Agreement are secured by certain real property owned by Antibodies as of the closing of the Antibodies
merger. The Senior Secured Term Loan will mature on June 14, 2028 (subject to earlier termination as provided in the First Northern Loan Agreement). The First Northern Loan Agreement requires, among other things, that the borrowers maintain certain
Minimum Debt Service Coverage, Debt to Tangible Net Worth and Tangible Net Worth ratios as defined in the First Northern Loan Agreement.
As of September 30, 2019, the total amount outstanding under the Senior Secured Term Loan was $1,975, of which $1,933 is included in long-term debt and $42 is included in current portion of long-term debt, with interest
accruing at an effective interest rate of 5.28%.
As of September 30, 2018, the total amount outstanding under the Senior Secured Term Loan was $2,015, of which $1,975 is included in long-term debt and $40 is included in current portion of long-term
debt, with interest accruing at an effective interest rate of 5.28%.
Working Capital Requirements
Life Sciences cash needs are currently met by the First Northern Loan Agreement and cash on hand of $373. The Company believes that the current financial resources will be sufficient to finance Life
Sciences operations and obligations (current and long-term liabilities) for the long and short term. However, actual working capital needs will depend upon numerous factors, including operating results, the cost associated with growing Life
Sciences either organically or through acquisitions, competition and availability under the revolving credit facility, none of which can be predicted with certainty. If cash flow and available credit are not sufficient to fund working capital, Life
Sciences operations will be materially negatively impacted.
CURRENT OUTLOOK
The results of operations in the Global Logistics Services, Manufacturing and Life Sciences segments are affected by the general economic cycle, particularly as it influences global trade levels and
specifically the import and export activities of our Janel Group business’s various current and prospective customers. Historically, the Company’s annual 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 Janel Group’s international network and service offerings, and other similar and subtle forces. The
Company cannot accurately forecast many of these factors, nor can it estimate accurately the relative influence of any particular factor and, as a result, there can be no assurance that historical patterns, if any, will continue in future periods.
The Company’s subsidiaries are implementing business strategies to grow revenue and profitability for fiscal 2020 and beyond. Janel Group’s strategy calls for additional branch offices, introduction
of new revenue streams for existing locations, sales force expansion, additional acquisitions, and a continued focus on implementing lean methodologies to contain operating expenses.
Our Manufacturing and Life Sciences segments expect to introduce new product lines and wider distribution and promotion of its products with internet sales efforts. In addition to supporting its
subsidiaries’ growth plans, the Company may seek to grow Janel by entering new business segments through acquisition.
Certain elements of the Company’s profitability and growth strategy, including proposals for acquisition and accelerating revenue growth, are contingent upon the availability of adequate financing on
terms acceptable to the Company.
Without adequate equity and/or debt financing, the implementation of significant aspects of the Company’s strategic growth plan may be deferred beyond the originally anticipated timing, and the
Company’s operations will be materially negatively impacted.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The Company’s consolidated financial statements have been prepared in accordance with U.S. GAAP. 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 differences may be material to the financial statements. The most significant accounting estimates inherent in the preparation of our financial statements include estimates as to
revenue recognition, the appropriate carrying value of certain assets and liabilities which are not readily apparent from other sources, primarily allowance for doubtful accounts, accruals for transportation and other direct costs, accruals for
cargo insurance, and deferred income taxes. Management bases its estimates on historical experience and on various assumptions which are believed to be reasonable under the circumstances. We reevaluate these significant factors as facts and
circumstances change. Historically, actual results have not differed significantly from our estimates. Note 1 of the notes to consolidated financial statements included herein includes a summary of the significant accounting policies and methods
used in the preparation of our consolidated financial statements. The following is a brief discussion of certain accounting policies and estimates.
Management believes that the nature of the Company’s business is such that there are few 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.
Income taxes
The Company uses the asset and liability method of accounting for income taxes in accordance with Accounting Standards Codification Topic 740, “Income Taxes.” Under this method, income tax expense is
recognized for the amount of: (i) taxes payable or refundable for the current year and (ii) deferred tax consequences of temporary differences resulting from matters that have been recognized in an entity’s financial statements or tax returns.
Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date.
On December 22, 2017, the United States enacted tax reform legislation through the Tax Cuts and Jobs Act (the “Tax Reform Act”), which significantly changed the existing U.S. tax laws, including by reducing the
corporate tax rate from 34% to 21%, moving from a worldwide tax system to a territorial system as well as other changes. As a result of the enactment of the Tax Reform Act, the Company made a reasonable estimate and recorded an additional one-time
income tax benefit of $49 during the first quarter of fiscal 2018, related to the estimated re-measurement of certain deferred tax assets, primarily net operating losses and deferred tax liabilities attributable to intangible assets.
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 operations:
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accounts receivable valuation;
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the useful lives of long-term assets;
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the accrual of costs related to ancillary services the Company provides; and
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accrual of tax expense on an interim basis.
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Management believes that the methods utilized in these areas are consistent in application. Management further 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 mean 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.
Critical Accounting Policies and Estimates Applicable to the Global Logistics Services Segment
Revenue Recognition
Revenues are derived from customs brokerage services and from freight forwarding services.
Customs brokerage services include activities required for the clearance of shipments through government customs regimes, such as preparing required documentation, calculating and providing for
payment of duties and other charges on behalf of customers, arranging required inspections and arranging final delivery. Revenues are recognized upon completion of the services.
Freight forwarding may require multiple services, including long-distance shipment via air, ocean or ground assets, destination handling (“break bulk”), warehousing, distribution and other logistics
management activities. As an asset-light business, Janel Group owns none of the assets by which it fulfills its customers’ logistics needs. Rather, it purchases the services its customers need from asset owners, such as airlines and steamship
lines, and resells them. By consolidating shipments from multiple customers, Janel Group can negotiate terms of service with asset owners that are more favorable than those the customers could negotiate themselves. In the case of ocean and air
freight movements, Janel Group may negotiate a contract of carriage.
On October 1, 2018, the Company adopted ASU 2014-09,
Revenue from Contracts with Customers
("ASC Topic 606"), using the modified retrospective method. Results
for reporting periods beginning on or after October 1, 2018 are presented under ASC Topic 606; however, prior period amounts are not adjusted and continue to be reported in accordance with the accounting standards in effect for those periods.
Revenue is recognized upon transfer of control of promised services to customers. With respect to its Global Logistics Services segment, the Company has determined that in general each shipment
transaction or service order constitutes a separate contract with the customer. When the Company provides multiple services to a customer, different contracts may be present for different services.
The Company typically satisfies its performance obligations as services are rendered at a point in time. A typical shipment would include services rendered at origin, such as pick-up and delivery
to port, freight services from origin to destination port and destination services, such as customs clearance and final delivery. The Company measures the performance of its obligations as services are completed at a point in time during the life
of a shipment, including services at origin, freight and destination. The Company fulfills nearly all of its performance obligations within a one to two-month period.
The Company evaluates whether amounts billed to customers should be reported as gross or net revenue. Generally, revenue is recorded on a gross basis when the Company is primarily responsible for
fulfilling the promise to provide the services, when it has discretion in setting the prices for the services to the customers, and the Company has the ability to direct the use of the services provided by the third party. Revenue is recognized on
a net basis when we do not have latitude in carrier selection or establish rates with the carrier.
In the Global Logistics Services
segment, the Company disaggregates its revenues by its four primary service categories: ocean import and export, freight
forwarding, customs brokerage and air import and export.
Net Revenue
Our total revenues represent the total dollar value of services and goods we sell to our customers. Our net revenue is calculated as Revenue – Global Logistics Services less Cost and Expenses –
Forwarding Expenses, as presented on our consolidated statement of operations, which are purchased transportation and related services, including contracted air, ocean, rail, motor carrier and other costs. Total revenues can be influenced greatly
by changes in transportation rates or other items, such as fuel prices, which we do not control. Our net revenue, however, is the primary indicator of our ability to source, add value, and sell services and products that are provided by third
parties; therefore, we consider net revenue to be our primary performance measurement. Accordingly, the discussion of our results of operations focuses on the changes in our net revenue. The difference between the rate billed to our customers (the
sell rate) and the rate we pay to the carrier (the buy rate) is termed “net revenue”, “yield” or “margin.”
Critical Accounting Policies and Estimates Applicable to the Manufacturing and Life Sciences Segments
Revenue Recognition Manufacturing
Revenues from Indco are derived from the engineering, manufacture and delivery of specialty mixing equipment and accessories. Indco receives customer product orders via phone call, email, internet, or fax. The
pricing of each standard product sold is listed in Indco's print and web-based catalog. Customer specific products are priced by quote. A sales order acknowledgement is sent to every customer for every order to confirm pricing and the
specifications of the products ordered. The revenue is recognized at a point in time when the product is shipped to the customer.
Revenue Recognition Life Sciences
Revenues from Aves, Antibodies, IgG and Phospho are derived from the sale of high-quality monoclonal and polyclonal antibodies, diagnostic reagents and diagnostic kits and other immunoreagents for
biomedical research and antibody manufacturing. Payments are received either by credit card or invoice by Aves, Antibodies, IgG and Phospho. Revenues from Aves, Antibodies, IgG and Phospho are recognized when products are shipped and risk of loss
is transferred to the carrier(s) used.
NEW ACCOUNTING STANDARDS
Adoption of ASC Topic 606, "Revenue from Contracts with Customers"
On October 1, 2018, the Company adopted ASU 2014-09,
Revenue from Contracts with Customers
("ASC Topic 606"), using the modified retrospective method. Results
for reporting periods beginning on or after October 1, 2018 are presented under ASC Topic 606; however, prior period amounts are not adjusted and continue to be reported in accordance with the accounting standards in effect for those periods.
The Company recorded an
increase
to the opening balance of retained earnings of
$32
, net of tax, as of October 1, 2018 due to the cumulative impact of adoption of ASC Topic 606. The impact to revenue and associated cost for the fiscal year ended September 30, 2019 was
a decrease of $443 and $403, respectively,
as a result of applying ASC Topic 606.
NON-GAAP FINANCIAL MEASURES
While we prepare our financial statements in accordance with U.S. GAAP, we also utilize and present certain financial measures, in particular adjusted operating income, which is not based on or
included in U.S. GAAP (we refer to these as "non-GAAP financial measures").
Net Revenue
Net revenue is a non-GAAP measure calculated as total revenue less forwarding expenses attributable to the Company's Global Logistics Services segment. Our total revenue represents the total dollar
value of services and goods we sell to our customers. Forwarding expenses attributable to the Company’s Global Logistics Services segment refer to purchased transportation and related services including contracted air, ocean, rail, motor carrier
and other costs. Total revenue can be influenced greatly by changes in transportation rates or other items, such as fuel prices, which we do not control. Management believes that providing net revenue is useful to investors as net revenue is the
primary indicator of our ability to source, add value and sell services and products that are provided by third parties, and we consider net revenue to be our primary performance measurement. The difference between the rate billed to our customers
(the sell rate) and the rate we pay to the carrier (the buy rate) is termed “net revenue”, “yield” or “margin.” As presented, net revenue matches gross margin.
Adjusted Operating Income
As a result of our acquisition strategy, our net income includes material non-cash charges relating to the amortization of customer-related intangible assets in the ordinary course of business as well
as other intangible assets acquired in our acquisitions. Although these charges may increase as we complete more acquisitions, we believe we will be growing the value of our intangible assets such as customer relationships. Because these charges
are not indicative of our operations, we believe that adjusted operating income is a useful financial measure for investors because it eliminates the effect of these non-cash costs and provides an important metric for our business that is more
representative of the actual results of our operations.
Adjusted operating income (which excludes the non-cash impact of amortization of intangible assets, stock-based compensation and amortization of acquired inventory valuation) is used by management as
a supplemental performance measure to assess our business’s ability to generate cash and economic returns.
Adjusted operating income is a non-GAAP measure of income and does not include the effects of preferred stock dividends, interest and taxes.
We believe that net revenue and adjusted operating income provide useful information in understanding and evaluating our operating results in the same manner as management. However, net revenue and
adjusted operating income are not financial measures calculated in accordance with U.S. GAAP and should not be considered as a substitute for total revenue, operating income or any other operating performance measures calculated in accordance with
U.S. GAAP. Using these non-GAAP financial measures to analyze our business has material limitations because the calculations are based on the subjective determination of management regarding the nature and classification of events and circumstances
that users of the financial statements may find significant.
In addition, although other companies in our industry may report measures titled net revenue, adjusted operating income or similar measures, such non-GAAP financial measures may be calculated
differently from how we calculate our non-GAAP financial measures, which reduces their overall usefulness as comparative measures. Because of these limitations, you should consider net revenue and adjusted operating income alongside other financial
performance measures, including total revenue, operating income and our other financial results presented in accordance with U.S. GAAP.
Consistent with the rules applicable to “smaller reporting companies”, we have omitted the information required by Item 7A.
The financial statements and supplementary data required by this Item 8 are included in the Company’s Consolidated Financial Statements and set forth in the pages indicated in Item 15(a) of this
Annual Report and are incorporated herein by reference.
On February 22, 2019, upon the recommendation and approval of the Audit Committee of the Board of Directors (the “Audit Committee”) of the Company, which action was ratified by the Board of Directors,
the Company dismissed Crowe LLP (“Crowe”) as its principal independent registered public accounting firm, as the Company and Crowe could not reach mutually acceptable financial terms of engagement for the 2018 fiscal year-end audit work as a result
of the need to significantly increase the scope of Crowe’s audit procedures due to the internal control matters noted below.
On January 4, 2018, Crowe was appointed as the Company’s principal independent registered public accounting firm for the fiscal year ended September 30, 2018. As Crowe had not completed its audit of
the Company’s financial statements for the fiscal year ended September 30, 2018 as of the date of its dismissal, Crowe did not issue any report on the Company’s financial statements that contained any adverse opinion or disclaimer of opinion, or
was qualified or modified as to uncertainty, audit scope, or accounting principles. During the fiscal year ended September 30, 2018 and the subsequent interim period through February 22, 2019, there have been no disagreements with Crowe on any
matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of Crowe, would have caused it to make reference to the subject matter of the
disagreements in connection with its report on the financial statements for such year. Otherwise, there were no “reportable events” within the meaning of Item 304(a)(1)(v) of Regulation S-K during the fiscal year ended September 30, 2018, other
than the need to significantly increase the scope of Crowe’s audit procedures, as referenced above, and certain material weaknesses in the Company’s internal control over financial reporting, as described below in Item 9A and which description is
incorporated by reference herein.
On February 22, 2019, the Audit Committee recommended and approved the appointment of Prager Metis CPAs, LLC (“Prager”) as the Company’s principal independent registered public accounting firm for the
fiscal years ending September 30, 2018 and 2019, which action was ratified by the Board of Directors. During the Company’s fiscal years ended September 30, 2018 and 2017 and the subsequent interim period through February 22, 2019, neither the
Company, nor anyone acting on its behalf, consulted with Prager regarding (i) the application of accounting principles to a specified transaction, either completed or proposed; (ii) the type of audit opinion that might be rendered on the Company’s
financial statements, and neither a written report nor oral advice was provided to the Company that Prager concluded was an important factor considered by the Company in reaching a decision as to the accounting, auditing or financial reporting
issue; (iii) any matter that was the subject of a disagreement within the meaning of Item 304(a)(1)(iv) and the related instructions of Regulation S-K; or (iv) any “reportable event” within the meaning of Item 304(a)(1)(v) of Regulation S-K.
In connection with the engagement of Prager, the Company authorized Crowe to respond fully to inquires of Prager concerning the matters referenced above.
Evaluation of Disclosure Controls and Procedures
Janel maintains a system of disclosure controls and procedures that is designed to provide reasonable assurance that information, which is required to be disclosed in the reports that it files or
submits under the Securities Exchange Act of 1934, as amended (“Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission (“SEC”) and is
accumulated and communicated to management, including its Chief Executive Officer and Principal Financial Officer, to allow timely decisions regarding required disclosures. Any controls and procedures, no matter how well designed and operated, can
provide only reasonable assurance of achieving the desire control objectives. The Company’s management, with the participation of the Chief Executive Officer and Principal Financial Officer, has evaluated the effectiveness of the design and
operation of the Company’s disclosure controls and procedures as of September 30, 2019, and based on their evaluation, has concluded that our disclosure controls and procedures were not effective as of such date because of the discovered material
weaknesses in our internal control over financial reporting described below.
While the material weaknesses described below did not result in a material misstatement to the Company’s consolidated financial statements for any period in the two-year period ended September 30, 2019, it did
represent a material weakness as of September 30, 2019, since there existed a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements would not have been prevented or detected on a timely basis.
Notwithstanding the identified material weaknesses, management, including our Chief Executive Officer and Principal Financial Officer, believes the consolidated financial statements included in this Form 10-K fairly represent in all material
respects our financial condition, results of operations and cash flows as of and for the periods presented in accordance with U.S. GAAP. In addition, as discussed below, the Company has taken steps to remediate the material weaknesses.
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. Internal control over financial reporting is defined in Rule
13a-15(f) or 15d-15(f) promulgated under the Exchange Act, as amended, as a process designed by, or under the supervision of, our Chief Executive Officer and Principal Financial Officer and effected by our Board of Directors, management and other
personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP and includes those policies and procedures that: (i) pertain
to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with U.S. GAAP, and that the Company’s receipts and expenditures are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of
compliance with policies or procedures may deteriorate.
Under the supervision and with the participation of our management, including our Chief Executive Officer and Principal Financial Officer, we have performed an evaluation of the effectiveness of our internal control
over financial reporting under the framework in
Internal Control-Integrated Framework (2013)
, issued by the Committee of Sponsoring Organizations of the Commission. Based on this assessment, management,
including our Chief Executive Officer and Principal Financial Officer, has concluded that our internal control over financial reporting was not effective as of September 30, 2019 due to material weaknesses in our internal control over financial
reporting, which is disclosed below.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material
misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. As previously disclosed, management previously identified the following material weaknesses as of September 30, 2018:
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Management did not have a process or control in place to perform an assessment of gross versus net revenue recognition criteria in accordance with ASC Topic 605-45 Revenue Recognition – Principal Agent Consideration (“ASC Topic
605-45”) with respect to the Company’s Global Logistics Services segment.
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Management did not have a process or control in place to perform an assessment of timing of revenue recognition criteria in accordance with ASC Topic 605-45 with respect to the Company’s Global Logistics Services segment.
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Management identified a number of deficiencies related over the design, implementation and effectiveness of certain information technology general controls, including segregation of duties, user access, change management, data
backups and hardware security, some of which have a direct impact on our financial reporting with respect to the Company’s Global Logistics Services segment.
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The Company had inadequate controls over a) journal entries and approvals, b) cash disbursements and application of cash receipts, c) payroll changes and d) vendor setup and creation, credit policies and infrequent transactions with
respect to the Company’s Global Logistics Services segment.
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We did not maintain adequate controls over journal entry approval with respect to the Company’s Global Logistics Services segment.
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We did not maintain adequate controls over inventory valuation as it relates to overhead costs with respect to the Company’s Life Sciences segment.
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As a result of these material weaknesses, our management concluded that our internal control over financial reporting was not effective as of September 30, 2018.
In light of this conclusion, during fiscal 2019, management took steps towards remediating a number of the issues that contributed to these material weaknesses, including the following:
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Management appointed a new senior internal controls specialist.
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Management implemented new system controls to capture pass through costs in accordance with ASC Topic 605-45 in the accounting system for our Company’s Global Logistics Services segment through specific system codes.
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Management implemented a new system-triggered revenue recognition process based on target dates (e.g., delivery date, file transfer date, etc.) for specific transaction types in our Company’s Global Logistics Services segment.
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Management created new policies related to controls over the Information Technology (“IT”) infrastructure, related to segregation of duties, user access and change management.
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Management reviewed segregation of duty within approval processes related to Finance, Operations, Human Resources (“HR”) and IT.
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Management is currently reviewing user access rights within critical systems to limit the exposure to conflicts of interest and/or the circumvention of approvals.
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Management implemented auto-computer backup service on all user computer systems.
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SOC 1 and SOC 2 (“Service Organization Control”) reports were reviewed by IT management and mapped to current processes to complementary user entity controls sections of reports.
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Management created new policies and procedures to cover the controls in the following areas:
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Journal entry approvals are now being recorded within the accounting system.
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New personnel are being recruited to increase capacity and strengthen controls around the cash disbursements and cash receipts process.
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Payroll reconciliations are being implemented in the review of payroll change approvals process.
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Legacy vendors are now being reviewed to inactivate duplicates. The procurement policy is being finalized by finance for review by operations.
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Management implemented procedures at our Life Sciences segment to more accurately allocate overhead cost in the manufacturing process.
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As part of our assessment of internal control over financial reporting, management evaluated all controls to assess whether they were designed and operating effectively as of September 30, 2019. Our management
believes that the foregoing efforts will effectively remediate the previously identified material weaknesses identified as of September 30, 2018. That said, the new and enhanced controls have not operated for a sufficient amount of time to conclude
that the material weaknesses have been remediated. As we continue to evaluate and work to improve our internal control over financial reporting, our management may decide to take additional measures to address the material weakness or modify the
remediation plan described above.
As of September 30, 2019, management identified the following additional deficiencies related to our Life Sciences segment:
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The Company had inadequate controls over 1) recording of sales orders and timeliness of revenue recognition in accordance with ASC 606, 2) recording of journal entries and approvals, 3) payroll recording and
processing of payroll changes, 4) vendor setup and creation, 5) documentation of inventory cycle count results, and 6) recording of inventory and updating of standard costing worksheets used in the valuation of inventory.
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A number of deficiencies were identified related to the design, implementation and effectiveness of certain information technology general controls, including segregation of duties, user access, change
management, data back-ups and review of SOC 1 and 2 reports from critical vendors, some of which could have a direct impact on the Company’s financial reporting.
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In addition, as of September 30, 2019, management identified the following additional deficiency related to the Company’s Global Logistics Services segment.
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Managemnet did not have an effective process or control in place to perform an assessment of gross versus net revenue recognition criteria in accordance with ASC Topic 606, Revenue from Contracts with
Customers – Principal Agent Consideration ( “ASC Topic 606”)
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Based on the nature and interrelationship of the noted deficiencies, management concluded that these additional deficiencies, in the aggregate, resulted in a reasonable possibility that a material
misstatement in our interim or annual financial statements would not be prevented or detected on a timely basis, and as such, constituted a material weakness.
We are engaging an external consultant to assist in the development and execution of a plan to remediate our material weakness related to our Life Sciences segment noted above. This process will
commence during the second quarter of fiscal 2020.
We have developed and are executing on our plan to remediate our material weakness in connection with the information technology controls by expanding our in-house expertise on information technology
general controls, as well as continuing to consult with external third parties. This process commenced during the fourth quarter of fiscal 2019 and is ongoing.
Our management believes that the foregoing efforts will effectively remediate the material weaknesses. That said, the new and enhanced controls have not operated for a sufficient amount of time to
conclude that the material weakness has been remediated. As we continue to evaluate and work to improve our internal control over financial reporting, our management may decide to take additional measures to address the material weakness or modify
the remediation plan described above. Our executive management team, together with our board of directors, is committed to achieving and maintaining a strong control environment, high ethical standards, and financial reporting integrity.
As of September 30, 2019, management assessed the effectiveness of our internal control over financial reporting. As a result of the material weakness in connection with the accounting for information
technology general controls, our management concluded that the Company did not maintain effective internal controls over financial reporting as of September 30, 2019. Notwithstanding this material weakness in our internal controls over financial
reporting as of September 30, 2019, management has concluded that the consolidated financial statements and notes to the consolidated financial statements included in this Form 10-K present fairly, in all material respects, our financial position,
results of operations and cash flows for the periods presented in conformity with U.S. GAAP.
This Annual Report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to
attestation by the Company’s registered public accounting firm pursuant to the exemption provided to issuers that are neither “large accelerated filers” nor “accelerated filers” under the Dodd-Frank Wall Street Reform and Consumer Protection Act.
Changes in Internal Control Over Financial Reporting
Other than the ongoing remediation efforts described above, there was no change in our internal control over financial reporting that occurred during the quarter ended September 30, 2019 that has
materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitation on the Effectiveness of Internal Controls
The effectiveness of any system of internal control over financial reporting is subject to inherent limitations, including the exercise of judgment in designing, implementing, operating, and
evaluating the controls and procedures, and the inability to eliminate misconduct completely. Accordingly, any system of internal control over financial reporting can only provide reasonable, not absolute, assurances. In addition, projections of
any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. We intend to continue
to monitor and upgrade our internal controls as necessary or appropriate for our business, but cannot assure that such improvements will be sufficient to provide us with effective internal control over financial reporting.
None.
PART III
Directors and Executive Officers
The executive officers and directors of the Company are as follows:
|
Name
|
Age
|
Position
|
||
|
Dominique Schulte
|
46
|
Chairman, President and Chief Executive Officer
|
||
|
Brendan J. Killackey
|
45
|
Director, Chief Information Officer
|
||
|
Gerard van Kesteren
|
70
|
Director, Chair of Audit Committee
|
||
|
John J. Gonzalez, II
|
69
|
Director, Senior Advisor for Mergers and Acquisitions and Chair of Compensation Committee
|
||
|
Gregory J. Melsen
|
67
|
Director, Chair of Nominating and Governance Committee
|
||
|
Vincent A. Verde
|
57
|
Principal Financial Officer, Treasurer and Secretary
|
Dominique Schulte
has served as a Director of Janel since November 2015 and as Chairman of the Board since May 8, 2018. Since October 1, 2018, Ms. Schulte has
served as the Company’s President and Chief Executive Officer. Ms. Schulte practiced law at Simpson Thatcher & Bartlett LLP in New York, from 1999 through 2009, where she specialized in corporate and securities law and oversaw a number of
successful securities transactions. Ms. Schulte is the managing member of Oaxaca Group, LLC (“Oaxaca”), which is the Company’s largest individual shareholder. Pursuant to the terms of the Securities Purchase Agreement dated October 6, 2013, entered
into between the Company and Oaxaca (the “Securities Purchase Agreement”), the Company agreed to appoint up to two candidates nominated by Oaxaca to become members of the Company’s Board of Directors. Ms. Schulte was appointed to the Company’s
board of directors in accordance with the terms of the Securities Purchase Agreement. Ms. Schulte is well-qualified to serve as a member of the Company’s board of directors based on her extensive experience in the practice of corporate and
securities law.
Brendan J. Killackey
was elected to the Company’s board of directors in September 2014 and served as Chief Executive Officer from February 2015 through
September 2018. Since October 1, 2018, Mr. Killackey has served as the Company’s Chief Information Officer. Mr. Killackey previously owned Progressive Technology Partners, LLC, a technology consultancy firm, which he founded in 2001. Given Janel’s
and its subsidiaries’ reliance on technology, Mr. Killackey’s background and experience are valuable to the Company, and, therefore, he is well-qualified to serve as a member of the Company’s board of directors.
Gerard van Kesteren
has served as a Director of Janel since November 2015. From 1999 until 2014, Mr. van Kesteren served as the Chief Financial Officer of
Kuehne + Nagel Group, an international freight forwarder and leading global provider of innovative and fully integrated supply chain solutions. Mr. van Kesteren has served as a director of Gategroup Holding AG since April 2015. Mr. van Kesteren is
well-qualified to serve as a member of the Company’s board of directors based on his extensive experience in the freight forwarding and logistics industry. Mr. van Kesteren serves as the chair of the Audit Committee.
John J. Gonzalez, II
has served as a Director of Janel since June 2016. Prior to that, he was a Senior Managing Director of Janel Group, following the August
2014 purchase by the Company of Alpha International and President Container Lines (“Alpha/PCL”), which he co-founded in 1979. Mr. Gonzalez has been involved in the transportation business since 1969. Mr. Gonzalez is well-qualified to serve as a
member of the Company’s board of directors based on his extensive experience in the freight forwarding and logistics industry. Mr. Gonzalez serves as chair of the Compensation Committee.
Gregory J. Melsen
has served as a Director of Janel since January 2018. Prior to that,
he was Chief Financial Officer
and Vice President of Human Resources for Healthsense, Inc., a leading provider of passive remote monitors for seniors from 2014 to 2015; and was Vice President-Finance, Treasurer and Chief Financial Officer of Techne Corporation (now Bio-Techne
Corporation), a holding company for biotechnology and clinic diagnostic brands.
He also served as Interim Chief Executive Officer of Techne Corporation from December 2012 through March 2013. Mr. Melsen has over 40 years of business experience, primarily in the accounting and
finance areas. He has served as Chief Financial Officer at a number of companies and has 19 years of public accounting experience, including nine years as partner at Deloitte. Mr. Melsen is well-qualified to serve as a member of the Company’s board
of directors based on his extensive experience in accounting and finance. Mr. Melsen serves as Chair of the Nominating and Governance Committee.
Mr. Vincent A. Verde
is Principal Financial Officer, Treasurer and Secretary of the Company
and has served in such capacities since May 2018. From February 2018 to May 2018, Mr. Verde served as Controller of the Company. From January 2018 to February 2018, Mr. Verde served as a consultant for the Company. Prior to joining the Company,
from December 2016 to February 2017, Mr. Verde served as a consultant for Xylem Inc., a publicly traded manufacturer and servicer of engineered solutions. Mr. Verde served from November 2014 to November 2016 as Subsidiary Controller for Teledyne
Bolt, Inc., a developer, manufacturer and distributor of marine seismic data acquisition equipment and underwater remotely operated robotic vehicles and subsidiary of Teledyne Technologies Inc. (“Teledyne”). From January 2012 to November 2014,
Mr. Verde served as Vice President and Corporate Controller for Bolt Technology Corporation, a then-publicly traded manufacturer and distributor of geophysical equipment and industrial clutches, which was acquired by Teledyne in November 2014.
Mr. Verde has 17 years of public accounting experience, including eight years as Audit manager at Deloitte.
Directors hold office for a one year term until they are re-elected or 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.
Board of Directors
During the fiscal year ended September 30, 2019, the board of directors met fifteen times. No incumbent directors attended fewer than 75% of the aggregate of the total number of meetings of the board
of directors of the Company and the total number of meetings held by all board committees in which that director served.
Committees
.
The Company’s board of directors has established an audit committee, a compensation committee and a nominating and corporate governance committee. Each committee operates under a charter that has been
approved by the Company’s board of directors and is available on its website located at
www.janelcorp.com
.
Audit Committee.
The Company’s audit committee (“Audit Committee”) oversees its corporate accounting and financial reporting process. The Audit Committee consists of Mr. van Kesteren as the chair; Mr. Gonzalez and Mr.
Melsen. The Audit Committee met five times during fiscal 2019. The Audit Committee has the following responsibilities, among others, as set forth in the audit committee charter:
• reviewing and assessing the effectiveness of external auditors, their independence from Janel and any additional assignments they may be given, as well as reviewing their appointment, termination, and remuneration;
• reviewing and assessing the scope and plan of the audit, the examination process, audit results and reports, as well as whether auditor recommendations have been implemented by management;
• recommending the approval of the annual internal audit concept and report, including the responses of management thereto;
• assessing management’s established risk assessment and any proposed measures to reduce risk;
• assessing the Company’s efforts and policies of compliance with relevant laws and regulations;
• reviewing, in tandem with external auditors, as well as the Chief Executive Officer and the Principal Financial Officer, whether accounting principles and the financial control mechanisms of Janel and its subsidiaries
are appropriate in view of Janel’s size and complexity; and
• reviewing annual and interim statutory and consolidated financial statements intended for publication and recommending such financial statements to the board of directors.
The Company’s board of directors has determined that Mr. Melsen’s extensive experience as a partner with Deloitte and his experience as Chief Financial Officer of Healthsense, Inc. and Techne Corporation qualifies
him as an audit committee financial expert. In addition, the board of directors designated Gerard van Kesteren as an audit committee financial expert considering his experience as Chief Financial Officer of Kuehne + Nagel Group. The board of
directors of the Company has determined that Mr. Melsen is independent based on the Company’s independence criteria for audit committee membership. Furthermore, the board of directors of the Company has determined that Mr. van Kesteren is not
“independent” based on the Company’s independence criteria for audit committee membership, as he receives an annual $20,000 consulting fee for services rendered to the Company’s Global Logistics Services segment.
Compensation Committee
The Company’s compensation committee (the “Compensation Committee”) formulates, reviews and recommends compensation policies that are consistent with Janel’s established compensation philosophy and
that will enable it to attract and retain high-quality leadership. The compensation committee met four times during fiscal 2019. The Compensation Committee has the following responsibilities, among others, as set forth in the Compensation
Committee’s charter:
• reviewing and approving the Company’s general compensation philosophy and objectives;
• reviewing and approving the corporate goals and individual objectives relevant to the compensation of the Company’s Chief Executive Officer and evaluating the performance of the Chief Executive Officer considering these
objectives;
• approving base salary amounts, incentive and bonus compensation amounts and individual stock and/or option grants and awards for the Chief Executive Officer and, based on the recommendation of the Chief Executive
Officer, all corporate officers at or above the Vice President level;
• reviewing all forms of compensation for the Company’s senior management, including the form and amount of current salary, deferred salary, cash and non-cash benefits, and all compensation plans;
• reviewing the Company’s severance or similar termination payments and administering the Company’s stock option and other incentive compensation plans and programs;
• amending or modifying, where appropriate, the provisions of any compensation or benefit plan that does not require stockholder approval;
• preparing and approving reports to stockholders on compensation matters which are required by the SEC and other government bodies;
• performing an annual performance appraisal for members of the Company’s senior management designated by the board of directors;
• establishing levels of director compensation to include marketplace reviews of retainers, meeting fees, stock plans and other similar components of compensation; and
• annually reviewing succession plans for key positions within the Company.
The Company’s Compensation Committee consists of Mr. Gonzalez, Mr. Melsen and Mr. van Kesteren. Mr. Gonzalez serves as the chair of the Compensation Committee. The Company’s board of directors has
determined that Mr. Melsen and Mr. van Kesteren are independent members of the Compensation Committee.
Nominating and Corporate Governance Committee
The Company’s nominating and corporate governance committee (the “Nominating and Corporate Governance Committee”) is responsible for developing and implementing policies and procedures that are
intended to assure that Janel’s board of directors and the boards of directors (or equivalent) of its subsidiaries will be appropriately constituted and organized to meet its fiduciary obligations to the Company and its stockholders on an ongoing
basis. The Nominating and Corporate Governance Committee met four times during fiscal 2019. Among other matters, the Nominating and Corporate Governance Committee is responsible for the following, as set forth in the Nominating and Corporate
Governance Committee’s charter:
• making recommendations to Janel’s board of directors regarding matters and practices concerning the board, its committees and individual directors, as well as matters and practices of the
boards, committees and individual directors of each of Janel’s subsidiaries;
• periodically evaluating the size, composition and governance structure of Janel’s board of directors and its committees and the boards and committees of Janel’s subsidiaries and determining the
future requirements of each such body;
• periodically making recommendations concerning the qualifications, criteria, compensation and retirement age of members of Janel’s board of directors and the boards of its subsidiaries, which
recommendations, upon approval by Janel’s board of directors, shall be incorporated in Janel’s Corporate Governance Guidelines;
• recommending nominees for election to Janel’s board of directors and the boards of its subsidiaries and establishing and administering a board evaluation process; and
• reviewing timely nominations by stockholders for the election of individuals to Janel’s board of directors, and ensure that such stockholders are advised of any action taken by the board of
directors with respect thereto.
The Company’s Nominating and Corporate Governance Committee consists of the Company’s full board of directors. Mr. Melsen serves as the chair of the Nominating and Corporate Governance Committee.
Independence of Directors
The Company is not currently subject to listing requirements of any national securities exchange or inter-dealer quotation system which has requirements that a majority of the board
of directors be “independent” and, as a result, is not at this time required to (and does not) have a board of directors comprised of a majority of independent directors.
Pursuant to Item 407(a) of Regulation S-K, however, Janel must
disclose each director that is independent under the independence standards of either the New York Stock Exchange or Nasdaq, as selected by Janel. The Company has elected to use the independence standards prescribed under Nasdaq Rule 5605(2), which
defines an “independent director” as a person who does not have any relationship with the Company which, in the opinion of the Company’s board of directors would interfere with the exercise of independent judgment in carrying out the
responsibilities of a director. Based on the applicable criteria, the Company’s board of directors has determined that Mr. Killackey is not independent, as he is an employee of the Company. Ms. Schulte is not independent by virtue of the fact that
she is an Executive Officer of the Company. The board of directors has determined that Mr. Melsen and Mr. van Kesteren are independent directors. Mr. Gonzalez is not currently an independent director as he was an employee of the Company during the
last three years; however, is expected to qualify as an independent director beginning in March 2020.
Director Compensation
During the Company’s fiscal year ended September 30, 2019, Mr. Killackey, the Company’s Chief Information Officer, did not receive any additional compensation for serving as a director. Ms. Schulte
waived any board compensation during fiscal 2019. The following table summarizes the compensation paid to the other directors for their services during the Company’s fiscal year ended September 30, 2019 (actual dollar amounts):
|
Fees Earned or
|
Option
|
All Other
|
||||||||||||||
|
Name
|
Paid in Cash
(1)
|
Awards
(2)
|
Compensation
|
Total
|
||||||||||||
|
Gerard van Kesteren
|
$
|
40,000
|
$
|
15,167
|
$
|
20,000
|
(3)
|
$
|
75,167
|
|||||||
|
John J. Gonzalez
|
$
|
40,000
|
$
|
15,167
|
$
|
108,992
|
(4)
|
$
|
164,159
|
|||||||
|
Gregory J. Melsen
|
$
|
40,000
|
$
|
15,167
|
$
|
-
|
$
|
55,167
|
||||||||
|
|
(1) |
Compensation is paid on a monthly basis.
|
|
|
(2) |
The aggregate number of options outstanding as of September 30, 2019 for each director is as follows: Gerard van Kesteren – 6,341, John J. Gonzalez II – 42,500, and Gregory J. Melsen – 4,375.
|
|
|
(3) |
Represents compensation paid to Mr. van Kesteren in connection with his consulting agreement.
|
|
|
(4) |
Represents compensation paid to Mr. Gonzalez in connection with his consulting agreement
|
Pursuant to the Company’s non-employee director compensation policy, non-employee directors receive a retainer at an annual rate of $30,000, payable on a monthly basis, and 2,500 options, pursuant to
the Amended and Restated Janel Corporation 2017 Equity Incentive Plan or such other equity plan that the Company may adopt from time to time.
Committee chairs receive an additional retainer at an annual rate of $10,000. According to the non-employee director compensation policy, non-employee directors will be reimbursed for their reasonable
travel and other expenses incurred to attend board of directors or board committee meetings.
Employment Arrangements
(actual dollar amounts)
On February 26, 2017, the Company entered into an agreement with Mr. Gonzalez to serve as a Director and Senior Advisor for mergers and acquisitions for the Company, effective October 1,
2017.
The current term of the agreement ends on September 30, 2021, and thereafter will renew automatically for an additional two-year term unless either party provides notice that it does not wish to renew. Under the terms of the
agreement, the Company pays Mr. Gonzalez an annual retainer of $40,000 for his service as a director and chair of the Compensation Committee, an annual consulting fee of $90,000 and cost of health insurance of $18,992.
Code of Business Conduct and Ethics
The Company has adopted a code of business conduct and ethics that applies to all of its employees, including executive officers and directors. The code of business conduct and ethics is available on
the Company’s website at
www.janelcorp.com
. The Company intends to disclose, if required, any future amendments to, or waivers from, the code of business conduct and ethics within four business days of the waiver or amendment through a
website posting or by filing a Current Report on Form 8-K with the SEC.
Corporate Governance Guidelines
The Company’s board of directors has adopted corporate governance guidelines that serve as a flexible framework within which its board of directors and its committees operate. These guidelines cover a
number of areas, including the size and composition of the board of directors, director selection criteria and qualifications, the agenda for board meetings, board member access to management and independent advisors, director compensation,
director orientation and continuing education and annual board and committee self-evaluations. A copy of the corporate governance guidelines is available on the Company’s website at
www.janelcorp.com.
Communications with the Board
Any stockholder desiring to contact the board, or any specific director(s), may send written communications to: Board of Directors (Attention: (Name(s) of director(s), as applicable)), c/o the
Company’s Secretary, 303 Merrick Road, Suite 400, Lynbrook, New York 11563. Any proper communication so received will be processed by the Secretary. If it is unclear from the communication received whether it was intended or appropriate for the
board, the Secretary will (subject to any applicable regulatory requirements) use his or her judgment to determine whether such communication should be conveyed to the board or, as appropriate, to the member(s) of the board named in the
communication.
Leadership Structure and Risk Oversight
While the board believes that there are various structures which can provide successful leadership to the Company, the Company’s executive functions are carried out by Ms. Schulte, the Company’s
President and Chief Executive Officer, who also serves as chairman of the Company’s board of directors and, together with the other directors, brings experience, oversight and expertise to the management of the Company.
The board believes that, due to the small size of the Company, this leadership structure best serves the Company and its stockholders. Management is responsible for the day-to-day management of risks
the Company faces, while the board has collective responsibility for the oversight of risk management. In its risk oversight role, the board has the responsibility to satisfy itself that the risk management processes designed and implemented by
management are adequate and functioning as designed. To do this, management discusses with the board the risks facing the Company and its strategy for managing them.
Delinquent Section 16(a) Reports
Section 16(a) of the Securities Exchange Act, as amended, requires that the Company’s directors and executive officers and each person who owns more than 10% of the Company’s common stock file with
the SEC in a timely manner an initial report of beneficial ownership and subsequent reports of changes in beneficial ownership of the shares. To the Company’s knowledge, based solely on our review of such reports and on written communications from
our directors and executive officers, we believe that during the fiscal year ended September 30, 2019, all reports required to be filed pursuant to Section 16(a) were filed on a timely basis.
Introduction
(actual dollar amounts)
The following table provides summary information concerning compensation paid or accrued by us to our Chief Executive Officer and President, our Chief Information Technology Officer and our Principal
Financial Officer, Treasurer and Secretary. We refer to these individuals collectively as the “named executive officers”.
Summary Compensation Table
The following table sets forth information regarding the total compensation paid or earned by the named executive officers as compensation for their services in all capacities during the fiscal years
ended September 30, 2019 and 2018 (actual dollar amounts):
|
Base
|
All Other
|
|||||||||
|
Name and Principal Position
|
Year
|
Salary ($)
|
Bonus ($)
|
Comp. ($)
|
Total ($)
|
|||||
|
Dominique Schulte, Chief Executive Officer and President
|
2019
|
-
|
-
|
-
|
-
|
|||||
|
2018
|
-
|
-
|
-
|
-
|
||||||
|
Brendan J. Killackey, Chief Information Technology Officer
|
2019
|
150,000
|
71,734
|
12,915
|
(1)
|
234,649
|
||||
|
2018
|
150,000
|
119,343
|
11,044
|
280,387
|
||||||
|
Vincent A. Verde, Principal Financial Officer, Treasurer and Secretary
|
2019
|
175,000
|
25,000
|
18,089
|
(2)
|
218,089
|
||||
|
2018
|
102,084
|
-
|
24,538
|
126,622
|
(1) Includes $6,263 of medical insurance premiums and $6,652 of 401(k) contributions paid on behalf of Mr. Killackey for the fiscal years ended 2019.
Mr. Killackey was elected
to the Company’s board of directors in September 2014 and served as Chief Executive Officer from February 2015 through September 2018. Effective October 1, 2018, Mr. Killackey was appointed as the Company’s Chief Information Officer.
(2) Vincent A. Verde was appointed as Principal Financial Officer, Treasurer and Secretary on May 8, 2018. From February 2018 to May 8, 2018, Mr. Verde served as Controller of the Company. From January 2018 to
February 2018, Mr. Verde served as a consultant for the Company. Annual base salary for Mr. Verde is $175,000. Amounts reported under all other compensation for the fiscal year ended September 30, 2019 include $12,089 of medical insurance premiums
and $6,000 of 401(k) contributions paid on behalf of Mr. Verde for the fiscal years ended 2019.
Long-Term Incentive Plan Awards
While the Company has adopted the Amended and Restated 2017 Equity Incentive Plan, pursuant to which certain stock awards may be granted to the Company’s directors, officers, employees and
consultants, our current intent is to utilize this plan to only make annual equity awards to the Company’s non-employee directors.
Savings and Stock Option Plans
401(k) and Profit-Sharing Plan
(actual dollar amounts)
The Company maintains a qualified retirement plan, commonly referred to as a 401(k) plan; covering substantially all full-time employees under each segment.
Prior to July 2019, the Company maintained separate contributory 401(k) plans covering substantially all full-time employees under each segment. Beginning in March 2019 through July 2019, the Company
combined all plans into the Janel Corporation 401(k) Plan.
The Janel Corporation 401(k) Plan allows for employee salary deferrals including Roth 401(k) deferrals, employer matching contributions, employer profit sharing contributions and employee rollovers.
The Janel Corporation 401(k) Plan provides for participant contributions of up to 50% of annual compensation (not to exceed the IRS limit), as defined by the plan. The Company contributes an amount equal to 50% of the participant’s first 6% of
contributions.
The combined expenses charged to operations for contributions made to the plans for the benefit of the employees for the fiscal years ended September 30, 2019 and 2018 were approximately $214 and
$138, respectively.
The administrative expense charged to operations for the fiscal years ended September 30, 2019 and 2018 aggregated approximately $26 and $11, respectively.
Stock Option Plans
On October 30, 2013, the board of directors adopted Janel’s 2013 Non-Qualified Stock Option Plan (the “2013 Option Plan”) providing for options to purchase up to 100,000 shares of common stock for
issuance to directors, officers, employees of and consultants to the Company and its subsidiaries.
The exercise price and other terms of any nonqualified option granted under the 2013 Option Plan is determined by the Compensation Committee of the board of directors.
Outstanding Equity Awards at September 30, 2019
The following table provides information with respect to the option awards held by our named executive officers at September 30, 2019. None of our named executive officers had any outstanding
stock awards at September 30, 2019.
|
Option Awards
|
|||||||||||||||||
|
Name
|
Number of securities underlying unexercised options (#) exercisable
|
Number of securities underlying unexercised options (#) unexerciseable
|
Equity incentive plan awards: Number of securities underlying unexcercised uneared options (#)
|
Option Exercise Price
|
Option Expiration Date
|
||||||||||||
|
Brendan J. Killackey
|
5,000
|
-
|
-
|
$
|
4.50
|
12/29/2024
|
|||||||||||
|
8,000
|
-
|
-
|
$
|
8.01
|
5/12/2027
|
||||||||||||
The following tables set forth information concerning beneficial ownership of shares of common stock outstanding as of September 30, 2019. For purposes of calculating beneficial ownership, Rule 13d-3
of the Exchange Act requires inclusion of shares of common stock that may be acquired within sixty days of the stated date. Unless otherwise indicated in the footnotes to a table, beneficial ownership of shares represents sole voting and investment
power with respect to those shares.
Certain Beneficial Owners
The following table reflects the names and addresses of the only persons known to the Company to be the beneficial owners of 5% or more of the outstanding shares of the Company’s common stock as of
September 30, 2019.
|
Name and address of Beneficial Owner
|
Shares Beneficially Owned
|
Percent of Class
|
||
|
Oaxaca Group L.L.C.
|
447,647
|
50.7%
|
||
|
65 Bank Street
|
||||
|
New York, NY 10014
|
||||
|
John J. Gonzalez, II (1)
|
100,834
|
10.8%
|
||
|
303 Merrick Road, Suite 400
|
||||
|
Lynbrook, NY 11563
|
(1) Includes 40,000 shares of common stock issuable upon the exercise of stock options that may be exercised within 60 days of September 30, 2019.
Management
The following table sets forth information with respect to the beneficial ownership of the shares of common stock as of September 30, 2019 by each “named executive officer”, each current director and
each nominee for election as a director and all directors and executive officers of the Company as a group. An asterisk (*) indicates ownership of less than 1%.
|
Name of Beneficial Owner
|
Shares Beneficially Owned
|
Percent of Class
|
||
|
Dominique Schulte
(1)
|
447,647
|
50.7%
|
||
|
John J. Gonzalez, II
(2)
|
100,834
|
10.8%
|
||
|
Gerard van Kesteren
(3)
|
31,802
|
3.6%
|
||
|
Brendan J. Killackey
(4)
|
44,129
|
4.9%
|
||
|
Gregory J. Melsen
(5)
|
2,709
|
*
|
||
|
Vincent A. Verde
|
-
|
-
|
||
|
Total
|
627,121
|
70.3%
|
(1) These shares are held by Oaxaca Group L.L.C. Ms. Schulte is the sole member of Oaxaca Group L.L.C. and, therefore, shares beneficial ownership of the shares.
(2) Includes 40,834 shares of common stock issuable upon the exercise of stock options that may be exercised within 60 days of September 30, 2019.
(3) Includes 3,841 shares of common stock issuable upon the exercise of stock options that may be exercised within 60 days of September 30, 2019.
(4) Includes 13,000 shares of common stock issuable upon the exercise of stock options that may be exercised within 60 days of September 30, 2019.
(5) Includes 2,709 shares of common stock issuable upon the exercise of stock options that may be exercised within 60 days of September 30, 2019.
Equity Compensation Plan Information
The following table provides information, as of September 30, 2019, with respect to all compensation arrangements maintained by the Company under which shares of common stock may be issued:
|
Column A
|
Column B
|
Column C
|
||||||||||
|
Plan Category: Equity Compensation plans not approved by security holders:
|
Number of securities to be issued, upon exercise of outstanding options, warrants and rights
|
Weighted-average exercise price of outsanding options, warrants and rights
|
Number of securities remaining available for future issuance under equity compensation plans
|
|||||||||
|
2013 Stock Option Plan
|
57,621
|
$
|
4.89
|
12,879
|
||||||||
|
Amended and Restated 2017 Equity Incentive Plan
|
73,216
|
$
|
8.05
|
18,823
|
||||||||
|
John Joseph Gonzalez, II - Options
|
40,000
|
$
|
4.25
|
-
|
||||||||
|
Consultant - Options
|
6,053
|
$
|
4.13
|
-
|
||||||||
|
Consultant - Options
|
45,000
|
$
|
8.04
|
-
|
||||||||
|
Total
|
221,890
|
$
|
6.44
|
31,702
|
||||||||
(actual dollar amounts)
Related Party Transactions
We are not aware of any transactions since October 1, 2019 or any proposed transactions in which the Company was a party where the amount involved exceeded the lesser of 1% of the average of the
Company’s total assets at year-end for the last two completed fiscal years and $120,000, and in which a director, executive officer, holder of more than 5% of our common stock or any member of the immediate family of any of the foregoing persons,
had or will have a direct or indirect material interest.
The firm of Prager Metis CPAs, LLC served as the Company’s sole independent public accountants for the fiscal years ended September 30, 2019 and 2018.
Audit Fees
Audit fees include fees paid and accrued by the Company to the Auditors in connection with the annual audit of the Company’s consolidated financial statements, and review of the Company’s interim
financial statements. Audit fees also include fees for services performed by the Auditors that are closely related to the audit and in many cases could only be provided by the Auditors. Such services include consents related to SEC and other
regulatory filings.
The aggregate fees billed to the Company by the Auditors, as applicable, for audit services rendered to the Company for the years ended September 30, 2019 and 2018 totaled $277,500 and $230,000,
respectively.
Audit Related Fees
Audit related services include agreed upon procedures attestation. The aggregate fees billed to the Company by Prager Metis CPAs, LLC for audit related fees rendered to the Company for the fiscal year
ended September 30, 2018 totaled $10,000. The Auditors did not bill any fees for audit related services rendered to the Company for the fiscal year ended September 30, 2019.
Tax Fees
Tax fees include corporate tax compliance, counsel and advisory services. The aggregate fees billed to the Company by the Auditors, as applicable, for the tax related services rendered to the Company
for the fiscal years ended September 30, 2019 and 2018 totaled $23,250 and $18,375, respectively.
All Other Fees
The Auditors did not bill other fees to the Company for fiscal years ended September 30, 2019 and 2018.
Approval of Independent Auditor Services and Fees
The Audit Committee reviews all fees charged by the Company’s independent auditors and actively monitors the relationship between audit and non-audit services provided. The Audit Committee must
pre-approve all audit and non-audit services provided by the Company’s independent auditors and fees charged.
PART IV
| (a) |
Documents filed as part of this report
|
| (1) |
Financial Statements.
|
The Consolidated Financial Statements filed as part of this report are listed on the Table of Contents to Consolidated Financial Statements.
All other schedules are omitted because they are not applicable, are not required, or because the required information is included in the consolidated financial statements or notes thereto.
| (b) |
Exhibits
|
Exhibits required to be attached by Item 601 of Regulation S-K are listed in the Index to Exhibits attached hereto, which is incorporated herein by reference.
None.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Janel Corporation has duly caused this report to be signed on its behalf by the undersigned, thereto duly
authorized.
|
JANEL CORPORATION
(Registrant)
|
||
|
Date: January 28, 2020
|
By:
|
/s/ Dominique Schulte
|
|
Dominique Schulte
|
||
|
Director, Chairman, President and Chief Executive Officer (Principal Executive Officer)
|
||
|
Date: January 28, 2020
|
By:
|
/s/ Vincent A. Verde
|
|
Vincent A. Verde
|
||
|
Principal Financial Officer, Treasurer and Secretary
|
||
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates
indicated.
|
Signature
|
Title
|
Date
|
|||
|
/s/
|
John J. Gonzalez, II
|
Director
|
January 28, 2020
|
||
|
John J. Gonzalez, II
|
|||||
|
/s/
|
Brendan J. Killackey
|
Director
|
January 28, 2020
|
||
|
Brendan J. Killackey
|
|||||
|
/s/
|
Gregory J. Melsen
|
Director
|
January 28, 2020
|
||
|
Gregory J. Melsen
|
|||||
|
/s/
|
Gerard van Kesteren
|
Director
|
January 28, 2020
|
||
|
Gerard van Kesteren
|
|||||
|
Exhibit No.
|
Description
|
|
Agreement and Plan of Merger, dated May 8, 2018, by and among Antibodies Incorporated, AB HoldCo, Inc., AB Merger Sub, Inc., Richard Krogsrud, as Representative of the Stockholders, and the
Rollover Stockholders signatory thereto (incorporated by reference to Exhibit 2.1 of the Company’s Current Report on Form 8-K filed May 11, 2018)
|
|
|
Articles of Incorporation of Wine Systems Design, Inc. (predecessor name) (incorporated by reference to Exhibit 3A to Wine Systems Design, Inc. (predecessor name) Registration Statement on
Form SB-2 filed May 10, 2001)
|
|
|
Amended and Restated By-Laws of Janel Corporation (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed November 1, 2013)
|
|
|
Certificate of Designations of Series B Convertible Stock (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed October 22, 2007)
|
|
|
Certificate of Designations of Series C Cumulative Preferred Stock (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed August 29, 2014)
|
|
|
Certificate of Change filed Pursuant to NRS 78.209 for Registrant (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed April 21, 2015)
|
|
|
Certificate of Amendment to Articles of Incorporation of the Registrant (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed April 21, 2015)
|
|
|
Amendment to Certificate of Designation After Issuance of Class or Series pursuant to NRS 78.1955 for Series C Cumulative Preferred Stock (incorporated by reference to Exhibit 3.1 to the
Company’s Current Report on Form 8-K filed March 25, 2016)
|
|
|
Amendment to Certificate of Designation After Issuance of Class or Series pursuant to NRS 78.1955 for Series C Cumulative Preferred Stock (incorporated by reference to Exhibit 3.7 to the
Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2017)
|
|
|
Amendment to Certificate of Designation After Issuance of Class or Series pursuant to NRS 78.1955 for Series C Cumulative Preferred Stock (incorporated by reference to Exhibit 3.1 to the
Company’s Current Report on Form 8-K/A filed October 17, 2017)
|
|
|
Description of Registrants Securities (filed herewith)
|
|
|
Janel World Trade, Ltd. 2013 Non-Qualified Stock Option Plan (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed November 1, 2013)
|
|
|
Loan and Security Agreement dated March 27, 2014 between Janel World Trade, Ltd. and its subsidiaries, and Presidential Financial Corporation (incorporated by reference to Exhibit 10.1 to the
Company’s Current Report on Form 8-K filed April 2, 2014)
|
|
|
First Amendment to the Loan and Security Agreement, dated September 10, 2014 between Janel World Trade, Ltd. and its subsidiaries, and Presidential Financial Corporation (incorporated by
reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed September 16, 2014)
|
|
|
Second Amendment to the Loan and Security Agreement, dated September 25, 2014 between Janel World Trade, Ltd. and its subsidiaries, and Presidential Financial Corporation (incorporated by
reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed September 30, 2014)
|
|
|
Third Amendment to the Loan and Security Agreement, dated October 9, 2014 between Janel World Trade, Ltd. and its subsidiaries, and Presidential Financial Corporation (incorporated by
reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed October 15, 2014)
|
|
|
Fourth Amendment to the Loan and Security Agreement and Demand Secured Promissory Note, dated August 18, 2015, by and among Janel Corporation (formerly, Janel World Trade, Ltd.), Janel Group,
Inc. (formerly, the Janel Group of New York), The Janel Group of Illinois, The Janel Group of Georgia, The Janel Group of Los Angeles, Janel Ferrara Logistics, LLC, Alpha International, LP, PCL Transport, LLC and Presidential Financial
Corporation (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed August 20, 2015)
|
|
|
Amended and Restated Demand Secured Promissory Note made by Janel Corporation (and its subsidiaries) in favor of Presidential Financial Corporation, dated August 18, 2015 (incorporated by
reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed August 20, 2015)
|
|
|
Credit Agreement, effective as of February 29, 2016, by and between Indco, Inc. and First Merchants Bank (incorporated by reference to Exhibit 10.5 to the Company's Current Report on Form 8-K
filed March 25, 2016)
|
|
|
Term Loan Promissory Note, effective as of February 29, 2016, made by Indco, Inc. payable to First Merchants Bank (incorporated by reference to Exhibit 10.6 to the Company's Current Report on
Form 8-K filed March 25, 2016)
|
|
|
Revolving Loan Promissory Note, effective as of February 29, 2016, made by Indco, Inc. payable to First Merchants Bank (incorporated by reference to Exhibit 10.7 to the Company's Current
Report on Form 8-K filed March 25, 2016)
|
|
|
Security Agreement, effective as of February 29, 2016, made by Indco and the Company, Inc. for the benefit of First Merchants Bank (incorporated by reference to Exhibit 10.8 to the Company's
Current Report on Form 8-K filed March 25, 2016)
|
|
|
Continuing Guaranty Agreement, effective as of February 29, 2016, made by Janel Corporation for the benefit of First Merchants Bank (incorporated by reference to Exhibit 10.9 to the Company's
Current Report on Form 8-K filed March 25, 2016)
|
|
|
Agreement of Lease dated January 2, 2015 between 303 Merrick LLC and The Janel Group of New York, Inc. (incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q
for the quarter ended December 31, 2014)
|
|
|
Janel Corporation 2017 Amended and Restated Equity Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company’s current Report on Form 8-K filed May 11, 2018)
|
|
|
Restricted Stock Award Agreement between Janel Corporation and Gerard van Kesteren dated May 12, 2017 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K
filed September 5, 2017)
|
|
Loan and Security Agreement, effective as of October 17, 2017, by and between Janel Corporation, Janel Group, Inc., PCL Transport, LLC, Janel Alpha GP, LLC, W.J. Byrnes & Co., Liberty
International, Inc., and The Janel Group of Georgia, Inc., and Santander Bank, N.A. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed October 17, 2017)
|
|
|
Revolving Credit Note, effective as of October 17, 2017 payable to Santander Bank, N.A. (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed October 17,
2017)
|
|
|
First Amendment to the Loan and Security Agreement, dated March 21, 2018, by and among Janel Group, Inc., PCL Transport, LLC, Janel Alpha GP, LLC, W.J. Byrnes & Co., Inc., Liberty
International, Inc., The Janel Group Georgia, Inc., Aves Labs, Inc., Janel Corporation and Santander Bank, N.A. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report in Form 8-K filed March 23, 2018)
|
|
|
Limited Waiver, Joiner and Second Amendment, dated November 20, 2018, to the Loan and Security Agreement, by and among Janel Group, Inc., The Janel Group of Georgia, Inc., Aves Labs, Inc.,
Honor Worldwide Logistics LLC, HWL Brokerage LLC, Global Trading Resources, Inc., Janel Corporation and Santander Bank, N.A. (incorporated by reference to Exhibit 10.1 to Company’s Current Report of Form 8-K filed November 26, 2018)
|
|
|
Redemption Agreement, dated September 24, 2018, among the Company and the holders of all of the issued and outstanding shares of the Company’s Series A Convertible Preferred Stock
(incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed September 28, 2018)
|
|
|
Business Loan Agreement, dated June 14, 2018, by and between AB Merger Sub, Inc. and First Northern Bank of Dixon (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on
Form 8-K filed June 27, 2018)
|
|
|
Promissory Note, dated June 14, 2018, made by AB Merger Sub, Inc. payable to First Northern Bank of Dixon (incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K
filed June 27, 2018)
|
|
|
Deed of Trust, dated June 14, 2018, by Antibodies Incorporated, as Trustor (incorporated by reference to Exhibit 10.3 of the Company’s Current Report on Form 8-K filed June 27, 2018)
|
|
|
Commercial Guaranty, dated June 14, 2018, from Janel Corporation (as Guarantor) to First Northern Bank of Dixon (incorporated by reference to Exhibit 10.4 of the Company’s Current Report on
Form 8-K filed June 27, 2018)
|
|
|
Commercial Guaranty, dated June 14, 2018, from AB HoldCo, Inc. (as Guarantor) to First Northern Bank of Dixon (incorporated by reference to Exhibit 10.5 of the Company’s Current Report on Form
8-K filed June 27, 2018)
|
|
|
Note Purchase Agreement, dated June 22, 2018, by and between AB HoldCo, Inc. and Richard Krogsrud (incorporated by reference to Exhibit 10.6 of the Company’s Current Report on Form 8-K filed
June 27, 2018)
|
|
|
Note Purchase Agreement, dated June 22, 2018, by and between AB HoldCo, Inc. and the Michael L. Smith and Ardyce F. Smith 1994 Revocable Trust (incorporated by reference to Exhibit 10.7 of the
Company’s Current Report on Form 8-K filed June 27, 2018)
|
|
|
Subordinated Promissory Note, dated June 22, 2018, made by AB HoldCo, Inc. payable to Richard Krogsrud (incorporated by reference to Exhibit 10.8 of the Company’s Current Report on Form 8-K
filed June 27, 2018)
|
|
|
Subordinated Promissory Note, dated June 22, 2018, made by AB HoldCo, Inc. payable to the Michael L. Smith and Ardyce F. Smith 1994 Revocable Trust (incorporated by reference to Exhibit 10.9
of the Company’s Current Report on Form 8-K filed June 27, 2018)
|
|
|
Amendment No. 1 to Credit Agreement, effective as of August 30, 2019, by and between Indco, Inc. and First Merchants Bank (incorporated by reference to Exhibit 10.4 of the Company;'s Current
Report on Form8-K filed on September 6, 2019)
|
|
|
Term Loan Promissory Note, effective as of August 30, 2019, made by Indco, Inc. payable to First Merchamnt Bank (incorporated by reference to Exhibit 10.2 to the Company's Current Report on
Form 8-K filed on September 6, 2019).
|
|
|
Revolving Loan Promissory Note, effective as of August 30, 2019 made by Indco, Inc. payable to First Merchant Bank (incorporated by reference to Exhibit 10.3 to the Company's Current Report on
Form 8-K filed on Septemver 5, 2019).
|
|
|
Pledge Agreement, effective as of August 30, 2019, by Janel Corporation to First Merchant Bank (incorporated by reference to Exhibit 10.4 of the Company;'s Current Report on Form8-K filed on
September 6, 2019)
|
|
|
Consulting Agreement, dated February 26, 2017, between Janel Corporation and John J. Gonzalez, II (incorporated by reference to Exhibit 10.30 of the Company's Form 10-K for the year ended
September 30, 2018 filed on July 26, 2019).
|
|
|
Consulting Agreement, dated September 28, 2016, between Janel Corporation and Gerard van Kesteren ((incorporated by reference to Exhibit 10.31 of the Company's Form 10-K for the year ended
September 30, 2018 filed on July 26, 2019).
|
|
|
Amendment No. 1 to Credit Agreement, effective as of August 30, 2019, by and between Indco, Inc. and First Merchants Bank
|
|
|
Subsidiaries of the Registrant (filed herewith)
|
|
|
Consent of Prager Metis CPAs, LLC (filed herewith)
|
|
|
Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer (filed herewith)
|
|
|
Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer (filed herewith)
|
|
|
Section 1350 Certification of Principal Executive Officer (furnished herewith)
|
|
|
Section 1350 Certification of Principal Executive Officer (furnished herewith)
|
|
|
101
|
Interactive data files providing financial information from the Registrant’s Annual Report on Form 10-K for the fiscal year ended September 30, 2019 in XBRL (eXtensible Business Reporting
Language) pursuant to Rule 405 of Regulation S-T: (i) Consolidated Balance Sheets as of September 30, 2019 and September 30, 2018, (ii) Consolidated Statements of Operations for the years ended September 30, 2019 and 2018, (iii)
Consolidated Statements of Stockholders’ Equity for the years ended September 30, 2019 and 2018 (iv) Consolidated Statements of Cash Flows for the years ended September 30, 2019 and 2018, and (v) Notes to Consolidated Financial Statements
|
† Represents management contract, compensatory plan or arrangement in which directors and/or executive officers are entitled to participate.
The agreements and other documents filed as exhibits to this report are not intended to provide factual information or other disclosure other than with respect to the terms of the
agreements or other documents themselves, and you should not rely on them for that purpose. In particular, any representations and warranties made by us in these agreements or other documents were made solely within the specific context of the
relevant agreement or document and may not describe the actual state of affairs as of the date they were made or at any other time.
|
Page
|
|
|
F-1
|
|
|
F-2
|
|
|
F-3
|
|
|
F-4
|
|
|
F-5
|
|
|
F-6
|
To the Stockholders and the Board of Directors of
Janel Corporation and Subsidiaries
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Janel Corporation and Subsidiaries (the “Company”) as of September 30, 2019 and 2018, and the related consolidated
statements of operations, changes in stockholder’s equity and cash flows for the years ended September 30, 2019 and 2018, and the related notes to the consolidated financial statements (collectively, the consolidated financial statements). In our
opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of September 30, 2019 and 2018, and the results of its operations, stockholder’s equity and its cash
flows for the years ended September 30, 2019 and 2018, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial
statements based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulation of the
Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement, whether due to error or fraud. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our
audit, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we
express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing
procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used
and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion.
/s/ Prager Metis CPAs, LLC
We have served as the Company’s auditor since 2019
Basking Ridge, New Jersey
January 28, 2020
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
|
September 30,
|
||||||||
|
2019
|
2018
|
|||||||
|
ASSETS
|
||||||||
|
Current Assets:
|
||||||||
|
Cash
|
$
|
2,163
|
$
|
585
|
||||
|
Accounts receivable, net of allowance for doubtful accounts
|
21,351
|
19,726
|
||||||
|
Inventory, net
|
4,371
|
2,391
|
||||||
|
Prepaid expenses and other current assets
|
531
|
354
|
||||||
|
Note receivable
|
139
|
-
|
||||||
|
Total current assets
|
28,555
|
23,056
|
||||||
|
Property and Equipment, net
|
3,954
|
3,787
|
||||||
|
Other Assets:
|
||||||||
|
Intangible assets, net
|
13,598
|
12,347
|
||||||
|
Goodwill
|
13,525
|
11,458
|
||||||
|
Note receivable
|
-
|
129
|
||||||
|
Security deposits and other long term assets
|
87
|
134
|
||||||
|
Total other assets
|
27,210
|
24,068
|
||||||
|
Total assets
|
$
|
59,719
|
$
|
50,911
|
||||
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
||||||||
|
Current Liabilities:
|
||||||||
|
Line of credit
|
$
|
8,391
|
$
|
9,730
|
||||
|
Accounts payable - trade
|
22,061
|
16,798
|
||||||
|
Accrued expenses and other current liabilities
|
2,272
|
1,748
|
||||||
|
Dividends payable
|
1,041
|
470
|
||||||
|
Current portion of long-term debt
|
980
|
897
|
||||||
|
Total current liabilities
|
34,745
|
29,643
|
||||||
|
Other Liabilities:
|
||||||||
|
Long-term debt
|
6,602
|
3,831
|
||||||
|
Subordinated promissory notes
|
541
|
344
|
||||||
|
Mandatorily redeemable non-controlling interest
|
619
|
681
|
||||||
|
Deferred income taxes
|
2,000
|
1,131
|
||||||
|
Other liabilities
|
334
|
254
|
||||||
|
Total other liabilities
|
10,096
|
6,241
|
||||||
|
Total liabilities
|
44,841
|
35,884
|
||||||
|
Stockholders' Equity:
|
||||||||
|
Preferred Stock, $0.001 par value; 100,000 shares authorized
|
||||||||
|
Series B 5,700 shares authorized and 631 and 1,271 shares issued and outstanding as of September 30, 2019 and 2018, respectively.
|
-
|
-
|
||||||
|
Series C 20,000 shares authorized and 20,000 shares issued and outstanding at September 30, 2019 and 2018, liquidation value of $12,541 and $11,966 at September 30, 2019 and September 30,
2018, respectively
|
-
|
-
|
||||||
|
Common stock, $0.001 par value; 4,500,000 shares authorized, 863,812 issued and 843,812 outstanding as of September 30, 2019 and 837,951 issued and 817,951 outstanding as of September 30,
2018
|
1
|
1
|
||||||
|
Paid-in capital
|
15,075
|
15,872
|
||||||
|
Treasury stock, at cost, 20,000 shares
|
(240
|
)
|
(240
|
)
|
||||
|
Accumulated earnings (deficit)
|
42
|
(606
|
)
|
|||||
|
Total stockholders' equity
|
14,878
|
15,027
|
||||||
|
Total liabilities and stockholders' equity
|
$
|
59,719
|
$
|
50,911
|
||||
The accompanying notes are an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)
|
Year Ended September 30,
|
||||||||
|
2019
|
2018
|
|||||||
|
Revenue
|
$
|
84,354
|
$
|
67,521
|
||||
|
Forwarding expenses and cost of revenues
|
59,248
|
47,209
|
||||||
|
Gross profit
|
25,106
|
20,312
|
||||||
|
Cost and Expenses:
|
||||||||
|
Selling, general and administrative
|
22,612
|
18,618
|
||||||
|
Amortization of intangible assets
|
915
|
807
|
||||||
|
Total Costs and Expenses
|
23,527
|
19,425
|
||||||
|
Income from Operations
|
1,579
|
887
|
||||||
|
Other Items:
|
||||||||
|
Interest expense net of interest income
|
(694
|
)
|
(499
|
)
|
||||
|
Change in fair value of mandatorily redeemable non-controlling interest
|
61
|
(10
|
)
|
|||||
|
Income Before Income Taxes
|
946
|
378
|
||||||
|
Income tax expense
|
(330
|
)
|
(130
|
)
|
||||
|
Net Income
|
616
|
248
|
||||||
|
Preferred stock dividends
|
(571
|
)
|
(438
|
)
|
||||
|
Non-controlling interest dividends
|
(342
|
)
|
(50
|
)
|
||||
|
Gain on extinguishment of Preferred Stock Series C dividends
|
-
|
1,312
|
||||||
|
Net Income (Loss) Available to Common Stockholders
|
$
|
(297
|
)
|
$
|
1,072
|
|||
|
Net Income per share
|
||||||||
|
Basic
|
$
|
0.65
|
$
|
0.43
|
||||
|
Diluted
|
$
|
0.65
|
$
|
0.30
|
||||
|
Net income (loss) per share attributable to common stockholders:
|
||||||||
|
Basic
|
$
|
(0.35
|
)
|
$
|
1.86
|
|||
|
Diluted
|
$
|
(0.35
|
)
|
$
|
1.28
|
|||
|
Weighted average number of shares outstanding:
|
||||||||
|
Basic
|
851,234
|
574,721
|
||||||
|
Diluted
|
851,234
|
834,485
|
||||||
The accompanying notes are an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(in thousands, except share and per share data)
|
PREFERRED STOCK
|
COMMON STOCK
|
PAID-IN CAPITAL
|
TREASURY STOCK
|
ACCUMULATED
EARNING (DEFICIT)
|
TOTAL EQUITY
|
|||||||||||||||||||||||||||||||
|
SHARES
|
$
|
SHARES
|
$
|
$
|
SHARES
|
$
|
$
|
$
|
||||||||||||||||||||||||||||
|
Balance - September 30, 2017
|
35,476
|
$
|
-
|
573,951
|
$
|
1
|
$
|
12,312
|
20,000
|
$
|
(240
|
)
|
$
|
(854
|
)
|
$
|
11,219
|
|||||||||||||||||||
|
Net Income
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
248
|
248
|
|||||||||||||||||||||||||||
|
Issuance of Series C Preferred Stock
|
5,795
|
-
|
-
|
-
|
2,897
|
-
|
-
|
-
|
2,897
|
|||||||||||||||||||||||||||
|
Dividends to preferred stockholders
|
-
|
-
|
-
|
-
|
(438
|
)
|
-
|
-
|
-
|
(438
|
)
|
|||||||||||||||||||||||||
|
Dividend to non-controlling interest
|
-
|
-
|
-
|
-
|
(50
|
)
|
-
|
-
|
-
|
(50
|
)
|
|||||||||||||||||||||||||
|
Repurchase of Preferred A Shares
|
(20,000
|
)
|
-
|
-
|
-
|
(400
|
)
|
-
|
-
|
-
|
(400
|
)
|
||||||||||||||||||||||||
|
Exercise of warrants
|
-
|
-
|
250,000
|
-
|
1,000
|
-
|
-
|
-
|
1,000
|
|||||||||||||||||||||||||||
|
Stock based compensation
|
-
|
-
|
-
|
-
|
506
|
-
|
-
|
-
|
506
|
|||||||||||||||||||||||||||
|
Stock option exercise
|
-
|
-
|
14,000
|
-
|
45
|
-
|
-
|
-
|
45
|
|||||||||||||||||||||||||||
|
Balance - September 30, 2018
|
21,271
|
$
|
-
|
837,951
|
$
|
1
|
$
|
15,872
|
20,000
|
$
|
(240
|
)
|
$
|
(606
|
)
|
$
|
15,027
|
|||||||||||||||||||
|
Net Income
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
616
|
616
|
|||||||||||||||||||||||||||
|
Cumulative effect of change in accounting principle
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
32
|
32
|
|||||||||||||||||||||||||||
|
Dividends to preferred stockholders
|
-
|
-
|
-
|
-
|
(571
|
)
|
-
|
-
|
-
|
(571
|
)
|
|||||||||||||||||||||||||
|
Dividend to non-controlling interest
|
-
|
-
|
-
|
-
|
(342
|
)
|
-
|
-
|
-
|
(342
|
)
|
|||||||||||||||||||||||||
|
Preferred B shares converted
|
(640
|
)
|
-
|
6,400
|
-
|
-
|
-
|
-
|
-
|
-
|
||||||||||||||||||||||||||
|
Restricted stock issued
|
-
|
-
|
10,000
|
-
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||||||||||||||
|
Vested restricted stock unissued
|
-
|
-
|
-
|
-
|
(159
|
)
|
-
|
-
|
-
|
(159
|
)
|
|||||||||||||||||||||||||
|
Stock based compensation
|
-
|
-
|
-
|
-
|
203
|
-
|
-
|
-
|
203
|
|||||||||||||||||||||||||||
|
Stock option exercise
|
-
|
-
|
9,461
|
-
|
72
|
-
|
-
|
-
|
72
|
|||||||||||||||||||||||||||
|
Balance - September 30, 2019
|
20,631
|
$
|
-
|
863,812
|
$
|
1
|
$
|
15,075
|
20,000
|
$
|
(240
|
)
|
$
|
42
|
$
|
14,878
|
||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
|
Year Ended September 30,
|
||||||||
|
2019
|
2018
|
|||||||
|
Cash Flows From Operating Activities:
|
||||||||
|
Net income
|
$
|
616
|
$
|
248
|
||||
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
||||||||
|
Provision for uncollectible accounts
|
385
|
22
|
||||||
|
Depreciation
|
282
|
100
|
||||||
|
Deferred income tax
|
267
|
69
|
||||||
|
Amortization of intangible assets
|
915
|
807
|
||||||
|
Amortization of acquired inventory valuation
|
250
|
190
|
||||||
|
Amortization of loan costs
|
10
|
10
|
||||||
|
Stock based compensation
|
296
|
678
|
||||||
|
Change in fair value of mandatorily redeemable noncontrolling interest
|
(61
|
)
|
10
|
|||||
|
Changes in operating assets and liabilities, net of effects of acquisitions:
|
||||||||
|
Accounts receivable
|
(365
|
)
|
(3,936
|
)
|
||||
|
Inventory
|
(67
|
)
|
(74
|
)
|
||||
|
Prepaid expenses and other current assets
|
(152
|
)
|
23
|
|||||
|
Security deposits and other long term assets
|
50
|
(23
|
)
|
|||||
|
Accounts payable and accrued expenses
|
4,697
|
2,549
|
||||||
|
Other liabilities
|
80
|
175
|
||||||
|
Net cash provided by operating activities
|
7,203
|
848
|
||||||
|
Cash Flows From Investing Activities:
|
||||||||
|
Acquisition of property and equipment, net of $49 (2019) in disposals
|
(421
|
)
|
(89
|
)
|
||||
|
Note Receivable
|
-
|
(125
|
)
|
|||||
|
Acquisitions
|
(6,179
|
)
|
(7,386
|
)
|
||||
|
Net cash used in investing activities
|
(6,600
|
)
|
(7,600
|
)
|
||||
|
Cash Flows From Financing Activities:
|
||||||||
|
Dividends paid to preferred stockholders
|
-
|
(1,093
|
)
|
|||||
|
Dividends paid to minority shareholders
|
(342
|
)
|
(51
|
)
|
||||
|
Repayments of (borrowings under) term loan
|
2,701
|
(1,157
|
)
|
|||||
|
Proceeds from senior securied term loan
|
-
|
2,025
|
||||||
|
Proceeds from sale of Series C Preferred Stock
|
-
|
2,898
|
||||||
|
Proceeds from stock option exercise
|
72
|
46
|
||||||
|
Line of credit, proceeds (borrowing), net
|
(1,348
|
)
|
3,581
|
|||||
|
Repurchase of Preferred A Shares
|
-
|
(400
|
)
|
|||||
|
Exercise of warrants
|
-
|
1,000
|
||||||
|
Repayment of notes payable - related party
|
(108
|
)
|
(500
|
)
|
||||
|
Net cash provided by financing activities
|
975
|
6,349
|
||||||
|
Net increase (decrease) in cash
|
1,578
|
(403
|
)
|
|||||
|
Cash at beginning of the period
|
585
|
988
|
||||||
|
Cash at end of period
|
$
|
2,163
|
$
|
585
|
||||
|
Supplemental Disclosure of Cash Flow Information:
|
||||||||
|
Cash paid during the period for:
|
||||||||
|
Interest
|
$
|
649
|
$
|
488
|
||||
|
Income taxes
|
$
|
146
|
$
|
93
|
||||
|
Non-cash investing activities:
|
||||||||
|
Contingent earn-out acquisition
|
$
|
50
|
$
|
-
|
||||
|
Subordinated Promissory notes of Honor
|
$
|
456
|
$
|
-
|
||||
|
Subordinated promissory notes of Antibodies
|
$
|
-
|
$
|
344
|
||||
|
Non-cash financing activities:
|
||||||||
|
Dividends declared to preferred stockholders
|
$
|
571
|
$
|
655
|
||||
|
Vested restricted stock unissued
|
$
|
159
|
$
|
-
|
||||
The accompanying notes are an integral part of these consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands except share and per share data)
| 1 |
SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
|
Business description
Janel is a holding company that had the following two reportable segments at September 30, 2018: Global Logistics Services and Manufacturing. Effective October 1, 2018, the Company realigned its Manufacturing
segment, which was separated into two segments named Manufacturing and Life Sciences. Accordingly, the Company’s current structure consists of the following three reportable segments: (1) Global Logistics Services, (2) Manufacturing and (3) Life
Sciences. The Company has reported its segment results for all periods presented under the realigned business segments for the prior year to be consistent with the current presentation, as reflected in note 13.
A management group at the holding company level (the “corporate group”) focuses on significant capital allocation decisions and corporate governance and
supporting Janel’s subsidiaries where appropriate. Janel expects to grow through its subsidiaries’ organic growth and by completing acquisitions. We plan to either acquire businesses within our existing segments or expand our portfolio into new
strategic segments. Our acquisition strategy focuses on reasonably-priced companies with strong and capable management teams, attractive existing business economics and stable and predictable earnings power.
Global Logistics Services
The Company’s Global Logistics Services segment is comprised of several wholly-owned subsidiaries, collectively known as “Janel Group.” Janel Group is a non-asset based, full-service provider of
cargo transportation logistics management services, including freight forwarding via air-, ocean- and land-based carriers, customs brokerage services, warehousing and distribution services, and other value-added logistics services.
On November 20, 2018, we completed a business combination whereby we acquired the membership interest of Honor Worldwide Logistics, LLC (“Honor”), a global logistics services provider with two U.S.
locations. See note 2.
On October 17, 2018, we completed a business combination whereby we acquired substantially all of the assets and certain liabilities of a global logistics services provider with one U.S. location.
See note 2.
On January 3, 2018, the Company acquired Global Trading Resources, Inc. (“GTRI”), a full-service cargo transportation logistics management service provider. See note 2.
Manufacturing
The Company’s manufacturing segment is comprised of Indco, Inc. (“Indco”), a majority-owned subsidiary of the Company that manufactures and distributes mixing equipment and apparatus for specific
applications within various industries. Indco’s customer base is comprised of small- to mid-sized businesses as well as other larger customers for which Indco fulfills repetitive production orders.
Life Sciences
The Company’s Life Sciences segment is comprised of Aves Labs, Inc. (“Aves”), Antibodies Incorporated (“Antibodies”), IgG, LLC (IgG”) and PhosphoSolutions, LLC, which are wholly-owned subsidiaries of
the Company. The Company’s Life Sciences segment manufactures and distributes high-quality monoclonal and polyclonal antibodies, diagnostic reagents and other immunoreagents for biomedical research and provides antibody manufacturing for academic
and industry research scientists. Our Life Sciences business also produces products for other life science companies on an original equipment manufacturer (“OEM”) basis.
On September 6, 2019, the Company, through its wholly owned subsidiary Aves, acquired
all of the equity interests of PhosphoSolutions, LLC and all of the stock of PhosphoSolutions, Inc,
(collectively “Phospho”).
On July 1, 2019, we acquired the
membership interests of a life sciences company. See note 2.
On June 22, 2018, the Company acquired all the outstanding common stock of Antibodies. See note 2
On March 5, 2018, the Company acquired all the outstanding common stock of Aves. See note 2
Basis of consolidation
The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, as well as Indco, of which Janel owns 91.65%, with a non-controlling
interest held by existing Indco management. The Indco non-controlling interest is mandatorily redeemable and is recorded as a liability. 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 in the United States (“U.S. GAAP”) 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 financial statements, as well as the reported amounts of revenues and expenses during the reporting period. The most critical
estimates made by the Company are those relating to accounts receivables valuation, the useful lives of long-term assets, accrual of cost related to ancillary services the Company provides and accrual of tax expense on an interim basis.
Cash
The Company maintains cash balances at various financial institutions. Accounts at each institution are insured by the Federal Deposit Insurance Corporation up to $250. 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.
Accounts receivable and allowance for doubtful accounts receivable
Accounts receivable are recorded at the contractual amount. The Company records its allowance for doubtful accounts based upon its assessment of various factors. The Company considers historical
collection experience, the age of the accounts receivable balances, credit quality of the Company’s customers, any specific customer collection issues that have been identified, current economic conditions, and other factors that may affect the
customers’ ability to pay. The Company writes off accounts receivable balances that have aged significantly once all collection efforts have been exhausted and the receivables are no longer deemed collectible from the customer. The allowance for
doubtful accounts as of September 30, 2019 and September 30, 2018 was $503 and $124, respectively.
Inventory
Inventory is valued at the lower of cost (using the first-in, first-out method) or net realizable value. The Company maintains an inventory valuation reserve to provide for slow moving and obsolete
inventory, inventory not meeting quality control standards and inventory subject to expiration for its Antibodies business. The products of Antibodies require the initial manufacture of multiple batches to determine if quality standards can
consistently be met. In addition, the Company will produce larger batches of established products than current sales requirements due to economies of scale. The manufacturing process for these products, therefore, has and will continue to produce
quantities in excess of forecasted usage. The Company values acquired manufactured antibody inventory based on a three-year forecast. Inventory quantities in excess of the forecast are not valued due to uncertainty over salability. Amounts are
charged to the reserve when the Company scraps or disposes of inventory.
Property and equipment and depreciation policy
Property and equipment are recorded at cost. Property and equipment acquired in business combinations are initially recorded at fair value. 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 and repairs are recorded as expenses when incurred.
Goodwill
The Company records as goodwill the excess of purchase price over the fair value of the tangible and identifiable intangible assets acquired in a business combination. Under current authoritative
guidance, goodwill is not amortized but is tested for impairment annually (on September 30) as well as when an event or change in circumstance indicates impairment may have occurred. Goodwill is tested for impairment by comparing the fair value of
the Company’s individual reporting units to their carrying amount to determine if there is potential goodwill impairment. If the fair value of the reporting unit is less than the carrying value, an impairment loss is recorded to the extent that the
implied fair value of the goodwill of the reporting unit is less than its carrying value.
The fair value of our reporting units were in excess of carrying value and goodwill was not deemed to be impaired as of September 30, 2019 and 2018.
Intangibles and long-lived assets
Long-lived assets, including fixed assets and intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. In
reviewing for impairment, the carrying value of such assets is compared to the estimated undiscounted future cash flows expected from the use of the assets and their eventual disposition.
If such cash flows are not sufficient to support the asset’s recorded value, an impairment charge is recognized to reduce the carrying value of the long-lived asset to its estimated fair value. The
determination of future cash flows, as well as the estimated fair value of long-lived assets, involves significant estimates on the part of management. If there is a material change in economic conditions or other circumstances influencing the
estimate of future cash flows or fair value, the Company could be required to recognize impairment charges in the future. There were no indicators of impairment of long-lived assets during the year ended September 30, 2019 and 2018.
Business segment information
The Company operates in three reportable segments: Global Logistics Services, Manufacturing and Life Sciences. The Company’s Chief Executive Officer regularly reviews financial information at the
reporting segment level in order to make decisions about resources to be allocated to the segments and to assess their performance.
Revenues and revenue recognition
Adoption of ASC Topic 606, “Revenue from Contracts with Customers”
On October 1, 2018, the Company adopted ASU 2014-09,
Revenue from Contracts with Customers
(“ASC Topic 606”), using the modified retrospective method. Results
for reporting periods beginning on or after October 1, 2018 are presented under ASC Topic 606; however, prior period amounts are not adjusted and continue to be reported in accordance with the accounting standards in effect for those periods.
The Company recorded an
increase
to the opening balance of retained earnings of
$32
, net of tax, as of October 1, 2018 due to the cumulative impact of adoption of ASC Topic 606. The impact to revenue and associated cost for the fiscal year ended September 30, 2019 was
a decrease of $443 and $403, respectively,
as a result of applying ASC Topic 606.
Global Logistics Services
Revenue Recognition
Revenue is recognized upon transfer of control of promised services to customers.
With respect to its Global Logistics Services segment, t
he Company has determined that in
general each shipment transaction or service order constitutes a separate contract with the customer. When the Company provides multiple services to a customer, different contracts may be present for different services.
The Company typically satisfies its performance obligations as services are rendered at a point in time. A typical shipment would include services rendered at origin, such as pick-up and delivery to port, freight
services from origin to destination port and destination services, such as customs clearance and final delivery. The Company measures the performance of its obligations as services are completed at a point in time during the life of a shipment,
including services at origin, freight and destination. The Company fulfills nearly all of its performance obligations within a one to two-month period.
The Company evaluates whether amounts billed to customers should be reported as gross or net revenue. Generally, revenue is recorded on a gross basis when the Company is primarily responsible for fulfilling the
promise to provide the services, when it has discretion in setting the prices for the services to the customers, and the Company has the ability to direct the use of the services provided by the third party. Revenue is recognized on a net basis
when we do not have latitude in carrier selection or establish rates with the carrier.
In the Global Logistics Services
segment, the Company disaggregates its revenues by its
four primary service categories: ocean import and export, freight forwarding, customs brokerage and air import and export.
A summary of the Company’s revenues disaggregated by major service lines for the fiscal year ended September 30,
2019 was as follows:
|
Year Ended
|
||||
|
Service Type
|
September 30, 2019
|
|||
|
Ocean import and export
|
$
|
30,878
|
||
|
Freight forwarding
|
16,545
|
|||
|
Customs brokerage
|
8,504
|
|||
|
Air import and export
|
13,728
|
|||
|
Total
|
$
|
69,655
|
||
Manufacturing
Revenues from Indco are derived from the engineering, manufacture and delivery of specialty mixing equipment and accessories. Indco receives customer product orders via phone call, email, internet, or fax. The
pricing of each standard product sold is listed in Indco's print and web-based catalog. Customer specific products are priced by quote. A sales order acknowledgement is sent to every customer for every order to confirm pricing and the
specifications of the products ordered. The revenue is recognized at a point in time when the product is shipped to the customer.
Life Sciences
Revenues from Aves, Antibodies, IgG and Phospho are derived from the sale of high-quality monoclonal and polyclonal antibodies, diagnostic reagents and diagnostic kits and other immunoreagents for
biomedical research and antibody manufacturing. Payments are received either by credit card or invoice by Aves, Antibodies, IgG and Phospho. Revenues from Aves, Antibodies, IgG and Phospho are recognized when products are shipped and risk of loss
is transferred to the carrier(s) used.
Income (loss) per common share
Basic net income (loss) per share is computed by dividing net income (loss) for the period by the weighted average number of common shares outstanding, excluding unvested restricted stock, during
the period. Diluted net income (loss) per share reflects the additional dilution from potential issuances of common stock, such as stock issuable pursuant to the exercise of stock options or warrants or the vesting of restricted stock units. The
treasury stock method is used to calculate the potential dilutive effect of these common stock equivalents. Potentially dilutive shares are excluded from the computation of diluted net income (loss) per share when their effect is anti-dilutive.
Stock-based compensation to employees
Equity classified share-based awards
The Company recognizes compensation expense for stock-based payments granted based on the grant-date fair value estimated in accordance with ASC Topic 718, “Compensation-Stock Compensation.” For
employee stock-based awards, we calculate the fair value of the award on the date of grant using the Black-Scholes method for stock options and the quoted price of our common stock for restricted shares; the expense is recognized over the service
period for awards expected to vest.
Stock-based compensation to non-employees
Liability classified share-based awards
The Company maintains other share unit compensation grants for shares of Indco, the Company’s majority owned subsidiary, which vest over a period of up to three years following their grant. The
shares contain certain put features where the Company is either required or expects to settle vested awards on a cash basis.
These awards are classified as liability awards, measured at fair value at the date of grant and re-measured at fair value at each reporting date up to and including the settlement date. The
determination of the fair value of the share units under these plans is described in note 9. The fair value of the awards is expensed over the respective vesting period of the individual awards with recognition of a corresponding liability.
Changes in fair value after vesting are recognized through compensation expense. Compensation expense reflects estimates of the number of instruments expected to vest. The impact of forfeitures and fair value revisions, if any, are recognized in
earnings such that the cumulative expense reflects the revisions, with a corresponding adjustment to the settlement liability. Liability-classified share unit liabilities due within 12 months of the reporting date are presented in trade and other
payables while settlements due beyond 12 months of the reporting date are presented in non-current liabilities.
Non-employee share-based awards
The Company accounts for stock-based compensation to non-employees and consultants in accordance with the provisions of ASC 505-50, “Equity-Based Payments to Non-employees.” Measurement of
share-based payment transactions with non-employees are based on the fair value of whichever is more reliably measurable: (a) the goods or services received; or (b) the equity instruments issued. The fair value of share-based payment transactions
is determined at the earlier of performance commitment date or performance completion date. The Company believes that the fair value of the stock-based award is more reliably measurable than the fair value of the services received. The fair value
of the granted stock-based awards is remeasured at each reporting date and expense is recognized over the vesting period of the award.
Mandatorily Redeemable Non-Controlling Interests
The non-controlling interests that are reflected as mandatorily redeemable non-controlling interests in the consolidated financial statements consist of non-controlling interests
related to the Indco acquisition whose owners have certain redemption rights that allow them to require the Company to purchase the non-controlling interests of those owners upon certain events outside the control of the Company, including
upon the death of the holder. The Company is required to purchase 20% of the 8.35% mandatorily redeemable non-controlling interest at the option of the holder beginning on the third anniversary of the date of the Indco
acquisition, which was March 21, 2019.
On the date the Company acquires the controlling interest in a business combination, the fair value of the non-controlling interest is recorded in the long-term
liabilities section of the consolidated balance sheet under the caption “
Mandatorily redeemable non-controlling interest
.” As of September 30, 2019,
the holder did not exercise the redemption rights. The mandatorily redeemable non-controlling interest is adjusted each reporting period, if required, to its then current redemption value, based on the predetermined formula defined in the
respective agreement. The Company reflects any adjustment in the redemption value and any earnings attributable to the mandatorily redeemable non-controlling interest in its consolidated statements of operations by recording the adjustments and
earnings to other income and expense in the caption “
change in fair value of mandatorily redeemable non-controlling interest
.”
Note receivable
On March 2, 2018 the Company issued a convertible promissory note in the amount of $125 with a potential non related party acquisition target. The note bears interest on the outstanding principal amount at a rate of
10% per annum and both principal and interest is payable on the maturity date of April 2, 2020. The convertible note, at the election of the Company, can be converted into common stock of the acquisition target. As of September 30, 2019, and 2018
amounts outstanding including accrued interest was $139 and $129, respectively. As of September 30, 2019, the Company is no longer pursuing this potential acquisition target.
Income taxes
The Company uses the asset and liability method of accounting for income taxes in accordance with ASC Topic 740, “Income Taxes.” Under this method, income tax expense is recognized for the amount
of: (i) taxes payable or refundable for the current year and (ii) deferred tax consequences of temporary differences resulting from matters that have been recognized in an entity’s financial statements or tax returns. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is provided when it is more likely than not that some portion or all of a deferred tax asset will not be realized. The ultimate
realization of deferred tax assets is dependent upon the generation of future taxable income and the reversal of deferred tax liabilities during the period in which related temporary differences become deductible. The benefit of tax positions
taken or expected to be taken in the Company’s income tax returns are recognized in the consolidated financial statements if such positions are more likely than not of being sustained.
The recently enacted Tax Cuts and Jobs Act (the “Tax Act”) significantly revised U.S. corporate income tax law by, among other things, reducing the corporate income tax rate to 21%.
Recent accounting pronouncements
Recently adopted accounting pronouncements
In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASC Topic 606 to clarify the principles used to recognize revenue for all entities. This new standard requires an entity to
recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled for those goods or services. In addition, the new standard requires enhanced
qualitative and quantitative disclosures related to the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers.
The Company adopted this standard on October 1, 2018 using the modified retrospective approach. As a result of using this approach, the Company recognized the cumulative effect
adjustment to the opening balance of retained earnings.
Comparative prior year information has not been adjusted and continues to be reported under the Company’s historical revenue recognition policies described in note 1 to the Company’s
Form 10-K for the fiscal year ended September 30, 2018 filed with the SEC on July 26, 2019.
The adoption of this new standard adjusted the revenue recognition timing of the Company’s brokerage and transportation management services performance obligation from point in time to
over time on a proportionate transit time basis within the Company’s Global Logistics Services, which resulted in a cumulative transition adjustment to the opening balance of retained earnings on October 1, 2018, of
$32,
net of tax, and a decrease of
$443 and $403 to
revenue and cost for the fiscal year ended September 30, 2019, respectively. While adoption of this standard also affected the
corresponding direct costs of revenue, this change did not have a material impact on the Company’s consolidated financial statements due to the short-term nature of its performance obligations.
As part of the adoption of this standard, the Company implemented changes to its accounting policies, practices and internal controls over financial reporting.
Recently issued accounting pronouncements not yet adopted
In February 2016, the FASB issued ASU 2016-02,
Leases,
requiring a lessee to record, on the balance sheet, the assets and liabilities for the right-of-use
assets and lease obligations created by leases with lease terms of more than 12 months. This new accounting standard will be effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with
early adoption permitted. The original guidance required application on a modified retrospective basis with respect to the earliest period presented. During March 2018, the FASB approved amendments to create an optional transition method that will
provide an option to use the effective date of ASC 842,
Leases
, as of the date of initial application of the transition. The Company adopted this optional transition standard on October 1, 2019. Upon
adoption, the Company plans to use the package of practical expedients that allows it to (i) not reassess whether an arrangement contains a lease, (ii) carry forward its lease classification as operating or capital leases and (iii) not reassess its
previously recorded initial direct costs. Adoption will also require enhanced qualitative and quantitative disclosures. The Company anticipates that the adoption of this standard will materially affect its consolidated balance sheets, resulting in
a lease asset of approximately $1,043 and a lease liability of $1,060, respectively, as of October 1, 2019. The Company’s previous liability for deferred rent of $17 will be offset against the right of use asset upon adoption of the new standard.
In January 2017, the FASB issued ASU 2017-04,
Intangibles – Goodwill and Other: Simplifying the Test for Goodwill Impairment
, to simplify the subsequent measurement of
goodwill by eliminating Step 2 from the goodwill impairment test. This new accounting standard will be effective for annual periods beginning after December 15, 2019. Early adoption is permitted. The Company is evaluating the effects that the
adoption of this guidance will have on its consolidated financial statements.
In June 2018, the FASB issued ASU 2018-07,
Compensation – Stock Compensation
, which expands the scope of Topic 718 to include all share-based payment
transactions for acquiring goods and services from nonemployees. The amendments in this update will be effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with early adoption permitted.
The Company is evaluating the effects that the adoption of this guidance will have on its consolidated financial statements.
In June 2016, the FASB issued ASU 2016-13,
Financial Instruments – Credit Losses (Topic 326)
, which replaces the incurred loss methodology previously employed to measure
credit losses for most financial assets and requires the use of a forward-looking expected loss model. Current accounting delays the recognition of credit losses until it is probable a loss has been incurred, while the update will require financial
assets to be measured at amortized costs less a reserve and equal to the net amount expected to be collected. This standard will be effective for annual periods beginning after December 15, 2019, including interim periods within those fiscal years,
with early adoption permitted. The Company is evaluating the effects that the adoption of this guidance will have on its consolidated financial statements.
Reclassifications
Prior year financial statement amounts are reclassified as necessary to conform to the current year presentation. These prior period reclassifications did not affect the Company’s net income,
earnings per share, stockholders’ equity or working capital.
| 2 |
ACQUISITIONS
|
2018 Acquisitions
Global Trading Resources, Inc
The Company acquired all of the outstanding common stock of GTRI effective as of January 3, 2018 for $528, net of $110 received in cash. An I.R.S Code Section 338(h)(10) election was made in connection with the GTRI
acquisition, and the acquisition will be treated as an asset purchase for income tax purposes, which will allow for the tax deduction of GTRI’s goodwill. The acquisition of GTRI was funded with cash provided by normal operations. GTRI provides
full-service cargo transportation logistics management services, including freight forwarding via air, ocean and land-based carriers, customs brokerage services, warehousing and distribution services, and other value-added logistics services. GTRI
was established in 1994 and is headquartered in Portland, Oregon. The results of operations for GTRI will be in the Global Logistics Service reporting segment. GTRI results for the period from acquisition through September 30, 2018 are included in
the results of operations for the twelve-month period ended September 30, 2018. Acquisition expenses associated with GTRI acquisition amounted to $26 for the year ended September 30, 2018 and is included in selling, general and administrative
expenses.
Purchase price allocation
In accordance with the acquisition method of accounting, the Company allocated the consideration paid for GTRI to the net tangible and identifiable intangible assets based on their estimated fair values. The Company
finalized the valuation of assets acquired and liabilities assumed, and the fair value amounts noted are in the table below. Goodwill represents the excess of the purchase price over the fair value of the underlying net tangible and identifiable
intangible assets (in thousands).
|
Fair Value
|
||||
|
Accounts receivable
|
$
|
308
|
||
|
Other assets
|
8
|
|||
|
Intangibles - customer relationships
|
32
|
|||
|
Intangibles - trademark
|
7
|
|||
|
Intangibles - non-compete
|
39
|
|||
|
Goodwill
|
353
|
|||
|
Accounts payable
|
(266
|
)
|
||
|
Accrued expenses
|
(63
|
)
|
||
|
Purchase price, net of cash received
|
$
|
418
|
||
Aves Labs, Inc.
The Company acquired all of the outstanding common stock of Aves effective March 5, 2018 for $2,433, net of $72 received in cash. At closing, $1,975 was paid in cash and $497 was recorded in accrued expenses as a
preliminary earnout consideration. If Aves manufactures certain products set forth in the purchase agreement, the earnout consideration is payable no later than thirty days following the determination that the applicable earnout condition has been
satisfied. For the earnout consideration to be payable, the earnout condition must be satisfied no later than one hundred eighty days following closing, or September 1, 2018. As of September 30, 2018, the Company paid earnout consideration in the
amount of $500 and recorded an additional $33 working capital adjustment. An I.R.S Code Section 338(h)(10) election was made in connection with the Aves acquisition, and this acquisition will be treated as an asset purchase for income tax purposes,
which will allow for the tax deduction of Aves goodwill. Aves provides high quality antibodies and other immunoreagents for biomedical research and antibody manufacturing. The results of operations for Aves are reported in our Life Sciences
segment. Acquisition expenses associated with the Aves acquisition amounted to $77 for the twelve months ended September 30, 2018 and is included in selling, general and administrative expenses. Aves results for the period from acquisition through
September 30, 2018 are included in the results of operations for the twelve months ended September 30, 2018. This includes revenues, cost of goods sold, selling, general and administrative expense and net income from operations of Aves amounted to
$636, $215, $231 and $190, respectively.
Purchase price allocation
In accordance with the acquisition method of accounting, the Company allocated the consideration paid for Aves to the net tangible and identifiable intangible assets based on their estimated fair values. The Company
finalized the valuation of assets acquired and liabilities assumed, and, the fair value amounts noted are in the table below. Goodwill represents the excess of the purchase price over the fair value of the underlying net tangible and identifiable
intangible assets (in thousands).
|
Fair Value
|
||||
|
Accounts receivable
|
$
|
111
|
||
|
Inventory
|
1,057
|
|||
|
Property & equipment, net
|
31
|
|||
|
Intangibles - customer relationships.
|
330
|
|||
|
Intangibles - - trademark
|
40
|
|||
|
Intangibles - other
|
180
|
|||
|
Goodwill
|
684
|
|||
|
Purchase price, net of cash received
|
$
|
2,433
|
||
Antibodies Incorporated
The Company acquired Antibodies via a merger that closed effective June 22, 2018 for $4,879, net of $56 of cash received. At closing, the former stockholders of Antibodies were paid $4,535 in cash and certain former
stockholders were issued an aggregate amount of $344 in subordinated promissory notes. The acquisition of Antibodies was funded with cash provided by normal operations in the amount of $1,169, the sale of Series C Preferred Stock in the amount of
$1,399, a senior secured term loan in the amount of $2,025, and $344 in subordinated promissory notes to certain former shareholders of Antibodies. Antibodies is a manufacturer and distributor of monoclonal and polyclonal antibodies, diagnostic
reagents and diagnostic kits and a developer and practitioner of immunoassays for academic and industry research scientists. Antibodies was founded in 1960 and is headquartered in Davis, California. The results of operations for Antibodies are
reported in our Life Sciences segment. Acquisition expenses associated with Antibodies acquisition amounted to $263 for the twelve months ended September 30, 2018 and are included in selling, general and administrative expenses. Antibodies results
for the period from acquisition through September 30, 2018 are included in the results of operations for the twelve months ended September 30, 2018. This includes revenues, cost of goods sold, selling, general and administrative expense, interest
expense and net income from operations of Antibodies amounted to $1,348, $512, $658, $40 and $138, respectively.
Purchase price allocation
In accordance with the acquisition method of accounting, the Company allocated the consideration paid for Antibodies to the net tangible and identifiable intangible assets based on their estimated fair values. The
Company finalized the valuation of assets acquired and liabilities assumed, and, the fair value amounts noted are in the table below. Goodwill represents the excess of the purchase price over the fair value of the underlying net tangible and
identifiable intangible assets (in thousands).
|
Fair Value
|
||||
|
Accounts receivable
|
$
|
411
|
||
|
Inventory
|
1,102
|
|||
|
Prepaids
|
43
|
|||
|
Property & equipment, net
|
3,373
|
|||
|
Intangibles - - trademark
|
301
|
|||
|
Intangibles - other
|
377
|
|||
|
Goodwill
|
675
|
|||
|
Accounts payable
|
(363
|
)
|
||
|
Accrued expenses
|
(235
|
)
|
||
|
Deferred income taxes
|
(805
|
)
|
||
|
Purchase price, net of cash received
|
$
|
4,879
|
||
2019 Acquisitions
The Company completed four business acquisitions in the fiscal year ended September 30, 2019, with an aggregate purchase price of $6,768, net of cash acquired.
The Company
recorded an aggregate $2,067 in goodwill and $2,165 in other identifiable intangibles. The results of operations of the acquired businesses are included in the Janel’s consolidated results of operations since the date of each acquisition.
Supplemental pro forma information has not been provided as the acquisitions did not have a significant impact on Janel’s consolidated results of operations individually or in aggregate.
Honor Worldwide Logistics, LLC
Through its wholly-owned subsidiary, Janel Group, Inc. (“Janel Group”), the Company acquired the membership interests of Honor for $2,212, net of $70 of cash received on November 20, 2018 in a transaction pursuant to
which Honor became a direct wholly-owned subsidiary of Janel Group and an indirect wholly-owned subsidiary of the Company.
At closing, the former owners of Honor were paid $1,826 in cash and a subordinated promissory
note in the aggregate amount of $456 was issued to a former member.
The acquisition of Honor was funded with cash provided by normal operations along with a subordinated promissory note. Honor provides global logistics services with two
U.S. locations and expands the domestic network of the Company’s Global Logistics Services segment. Acquisition expenses associated with the Honor acquisition amounted to $69 for the twelve months ended September 30, 2019 and are included in
selling, general and administrative expenses. Honor results for the period from acquisition through September 30, 2019 are included in the results of operations for the twelve months ended September 30, 2019. This includes revenues, forwarding
expense, selling, general and administrative expense, interest expense and net income from operations of Honor amounted to $4,533, $3,467, $830, $19 and $216, respectively.
Purchase price allocation
In accordance with the acquisition method of accounting, the Company allocated the consideration paid for Honor to the net tangible and identifiable intangible assets based on their estimated fair values. The Company
finalized the valuation of assets acquired and liabilities assumed, and, the fair value amounts noted are in the table below. Goodwill represents the excess of the purchase price over the fair value of the underlying net tangible and identifiable
intangible assets (in thousands).
|
Fair Value
|
||||
|
Accounts receivable
|
$
|
1,267
|
||
|
Prepaids and other current assets
|
14
|
|||
|
Property & equipment, net
|
1
|
|||
|
Intangibles - customer relationships
|
910
|
|||
|
Intangibles - trademark
|
20
|
|||
|
Intangibles - non-compete
|
30
|
|||
|
Goodwill
|
529
|
|||
|
Security deposits
|
2
|
|||
|
Accounts payable
|
(557
|
)
|
||
|
Accrued expenses
|
(4
|
)
|
||
|
Purchase price, net of cash received
|
$
|
2,212
|
||
PhosphoSolutions
Through Aves, the Company completed a business combination whereby we acquired all of the membership interests of Phospho on September 6, 2019. The aggregate purchase price for Phospho
was $4,043, net of $13 of cash received. At closing, $4,000 was paid in cash and $56 was recorded in accrued expenses as preliminary tax gross up due to former owners. Phospho
is a manufacturer and distributor of monoclonal and polyclonal
antibodies, principally used in neuroscience research. Phospho was founded in 2001 and is headquartered in Aurora Colorado.
The results of operations for Phospho are reported in our Life
Sciences segment.
Acquisition expenses associated with Phospho acquisition amounted to $34 for the twelve months ended September 30, 2019 and are included in selling, general and administrative expenses. Phospho results for the period
from acquisition through September 30, 2019 are included in the results of operations for the twelve months ended September 30, 2019. This includes revenues, cost of goods sold, selling, general and administrative expense and net income from
operations of Antibodies amounted to $96, $19, $65 and $14, respectively.
Purchase price allocation
In accordance with the acquisition method of accounting, the Company allocated the consideration paid for Phospho to the net tangible and identifiable intangible assets based on their estimated fair values. The
Company finalized the valuation of assets acquired and liabilities assumed, and, the fair value amounts noted are in the table below. Goodwill represents the excess of the purchase price over the fair value of the underlying net tangible and
identifiable intangible assets (in thousands).
|
Fair Value
|
||||
|
Accounts receivable
|
$
|
123
|
||
|
Inventory
|
1,965
|
|||
|
Prepaids and other current assets
|
49
|
|||
|
Property & equipment, net
|
13
|
|||
|
Intangibles - customer relationships
|
730
|
|||
|
Intangibles - trademark
|
110
|
|||
|
Intangibles - other
|
270
|
|||
|
Goodwill
|
1,465
|
|||
|
Security deposits
|
11
|
|||
|
Accounts payable
|
(5
|
)
|
||
|
Accrued expenses
|
(55
|
)
|
||
|
Deferred income taxes
|
(633
|
)
|
||
|
Purchase price, net of cash received
|
$
|
4,043
|
||
Other Acquisitions
On October 17, 2018, we completed a business combination whereby we acquired substantially all of the assets and certain liabilities of a global logistics services provider with one U.S. location. On July 1, 2019, we
acquired the
membership interests of a life sciences company
to expand our product offerings in Life Sciences.
These acquisitions were funded
with cash provided by normal operations.
The results of operations for these acquisitions are reported in our Global Logistics Services and Life Sciences segments.
The aggregate purchase price for these acquisitions was $430. At closing, $50 was recorded in accrued expenses as a preliminary earnout consideration.
| 3 |
PROPERTY AND EQUIPMENT
|
A summary of property and equipment and the estimated lives used in the computation of depreciation and amortization is as follows (in thousands):
|
September 30,
|
September 30,
|
||||||||
|
2019
|
2018
|
Life
|
|||||||
|
Building and improvements
|
$
|
2,577
|
$
|
2,366
|
15-30 years
|
||||
|
Land and improvements
|
835
|
823
|
Indefinite
|
||||||
|
Furniture and Fixture
|
218
|
211
|
3-7 years
|
||||||
|
Computer Equipment
|
465
|
323
|
3-5 years
|
||||||
|
Machinery & Equipment
|
973
|
942
|
3-15 years
|
||||||
|
Leasehold Improvements
|
181
|
181
|
3-5 years
|
||||||
|
5,249
|
4,846
|
||||||||
|
Less Accumulated Depreciation
|
(1,295
|
)
|
(1,059
|
)
|
|||||
|
$
|
3,954
|
$
|
3,787
|
||||||
Depreciation expense for the fiscal year ended September 30, 2019 and 2018 was $282 and $100, respectively.
| 4 |
INVENTORY
|
Inventories consisted of the following (in thousands):
|
Year End September 30,
|
||||||||
|
2019
|
2018
|
|||||||
|
Finished goods
|
$
|
2,988
|
$
|
1,241
|
||||
|
Work-in-process
|
461
|
286
|
||||||
|
Raw materials
|
946
|
888
|
||||||
|
Gross inventory
|
4,395
|
2,415
|
||||||
|
Less – reserve for inventory valuation
|
(24
|
)
|
(24
|
)
|
||||
|
Inventory net
|
$
|
4,371
|
$
|
2,391
|
||||
| 5 |
INTANGIBLE ASSETS
|
A summary of intangible assets and the estimated useful lives used in the computation of amortization is as follows (in thousands):
|
September 30,
|
September 30,
|
||||||||
|
2019
|
2018
|
Life
|
|||||||
|
Customer relationships
|
$
|
13,762
|
$
|
12,052
|
15-20 Years
|
||||
|
Trademarks/names
|
2,251
|
2,118
|
20 Years
|
||||||
|
Other
|
978
|
656
|
2-5 Years
|
||||||
|
16,991
|
14,826
|
||||||||
|
Less: Accumulated Depreciation
|
(3,393
|
)
|
(2,479
|
)
|
|||||
|
$
|
13,598
|
$
|
12,347
|
||||||
The future amortization of these intangible assets is expected to be as follows (in thousands):
|
Fiscal Year 2020
|
$
|
944
|
||
|
Fiscal Year 2021
|
915
|
|||
|
Fiscal Year 2022
|
908
|
|||
|
Fiscal Year 2023
|
908
|
|||
|
Fiscal Year 2024
|
905
|
|||
|
Thereafter
|
9,018
|
|||
|
$
|
13,598
|
| 6 |
GOODWILL
|
The Company’s goodwill carrying amounts relate to the acquisitions in the Global Logistics Services, Manufacturing and Life Sciences businesses.
The composition of the goodwill balance at September 30, 2019 and 2018 is as follows:
|
September 30,
|
September 30,
|
|||||||
|
2019
|
2018
|
|||||||
|
Global Logistics Services
|
$
|
5,655
|
$
|
5,052
|
||||
|
Manufacturing
|
5,046
|
5,046
|
||||||
|
Life Sciences
|
2,824
|
1,360
|
||||||
|
Total
|
$
|
13,525
|
$
|
11,458
|
||||
| 7 |
NOTES PAYABLE - BANKS
|
| (A) |
Presidential Financial Corporation Facility
|
On March 27, 2014, Janel Corporation and several of its Janel Group subsidiaries (collectively, the "Janel Borrowers") entered into a Loan and Security Agreement (the "Presidential Loan Agreement")
with Presidential Financial Corporation with respect to a revolving line of credit facility (the "Presidential Facility"). At September 30, 2017, the Presidential Facility provided that the Janel Borrowers could borrow up to $10.0 million,
limited to 85% of the Janel Borrowers' aggregate outstanding eligible accounts receivable, subject to adjustment as set forth in the Presidential Loan Agreement. Interest accrued at an annual rate equal to 5% above the greater of (a) the prime
rate of interest quoted in The Wall Street Journal from time to time, or (b) 3.25%. The Janel Borrowers' obligations under the Presidential Facility were secured by all of the assets of the Janel Borrowers. The Presidential Facility was
terminated on October 17, 2017, and the Company replaced the Presidential Facility with the Santander Bank Facility (see below).
| (B) |
Santander Bank Facility
|
On October 17, 2017, the Janel Group subsidiaries (collectively the "Janel Group Borrowers"), with Janel Corporation as a guarantor, entered into a Loan and Security Agreement (the "Santander Loan
Agreement") with Santander Bank, N.A. ("Santander") with respect to a revolving line of credit facility (the "Santander Facility"). The Santander Facility provides that the Janel Group Borrowers can borrow up to $10,000, limited to 85% of the
Janel Group Borrowers' aggregate outstanding eligible accounts receivable, subject to adjustment as set forth in the Santander Loan Agreement. Interest accrues on the Santander Facility at an annual rate equal to, at the Janel Group Borrowers'
option, Prime plus 0.50%, or LIBOR (30, 60 or 90 day) plus 2.50% subject to a LIBOR floor of 75 basis points. The Janel Group Borrowers' obligations under the Santander Facility are secured by all of the assets of the Janel Group Borrowers. The
Santander Loan Agreement requires, among other things, that the Janel Group Borrowers, on a quarterly basis, maintain a Minimum Debt Service Coverage ratio, as defined in the Santander Loan Agreement. The loan is subject to earlier termination as
provided in the Santander Loan Agreement and matures on October 17, 2020, unless renewed. The Santander Loan Agreement requires the Company to maintain a lock box with Santander in addition to containing certain subjective acceleration clauses.
As a result of these terms, the loan is classified as a current liability on the consolidated balance sheet.
On March 21, 2018, the Janel Group Borrowers, the Company and Aves entered into an amendment with Santander (the "Santander Amendment") with respect to the Santander Loan Agreement. Pursuant to the
Santander Amendment, among other changes Aves was added as a loan party obligor (but not a Janel Group Borrower) under the Santander Loan Agreement, the maximum amount available under the Santander Loan Agreement was increased from $10,000 to
$11,000 (subject to 85% of eligible receivables), the foreign account sublimit was increased from $1,500 to $2,000, a one-time waiver was granted until May 31, 2018 for the stated event of default related to the delivery of the quarterly
financial statements for the fiscal quarter ended December 31, 2017, and a one-time waiver, retroactive to March 5, 2018, of the provision that prohibits the Company from using proceeds of the revolving loan to finance acquisitions was granted
for the purpose of partially funding the acquisition of Aves.
On November 20, 2018, the Company and its wholly-owned subsidiaries entered into the Limited Waiver, Joinder and Second Amendment (“Amendment No. 2”) to the Santander Loan Agreement (as amended by
the Santander Amendment), with Santander Bank, N.A. Pursuant to, and among other changes affected by, Amendment No. 2: (1) Honor Worldwide Logistics LLC, HWL Brokerage LLC and Global Trading Resources Inc. were added as new borrowers under the
Santander Loan Agreement; (2) Aves was released as a loan party obligor under the Santander Loan Agreement; (3) the maximum revolving facility amount available was increased from $11,000 to $17,000 (limited to 85% of the borrowers’ eligible
accounts receivable borrowing base and reserves); (4) the foreign account sublimit was increased from $2,000 to $2,500; (5) the letter of credit limit was increased from $500 to $1,000; (6) the definitions of “Debt Service Coverage Ratio,” “Debt
Service Coverage Ratio (Borrower Group)” and “Loan Party” were restated; (7) the permitted acquisition debt basket was increased from $2,500 to $4,000; and (8) the permitted indebtedness basket was increased from $500 to $1,000.
As of May 1, 2019, Santander had granted the Janel Group Borrowers a one-time waiver until July 31, 2019 for an event of default related to the delivery of the audited financial statements for the
fiscal year ended September 30, 2018. Other than as specifically referenced above, the Janel Group Borrowers were in compliance with the covenants defined in the Santander Loan Agreement as of September 30, 2019.
At September 30, 2019, outstanding borrowings under the Santander Facility were $8,391, representing 49.4% of the $17,000 available thereunder, and interest was accruing at an effective interest rate of 5.50%.
At September 30, 2018, outstanding borrowings under the Santander Facility were $9,730, representing 88.5% of the $11,000 available thereunder, and interest was accruing at an effective interest rate of 5.75%.
| (C) |
First Merchants Bank Credit Facility
|
On March 21, 2016, Indco executed a Credit Agreement (the "First Merchants Credit Agreement") with First Merchants Bank with respect to a $6,000 term loan and $1,500 (limited to the borrowing base
and reserves) revolving loan (together, the "First Merchants Facility"). Interest accrues on the term loan at an annual rate equal to the one-month LIBOR plus either 3.75% (if Indco's cash flow leverage ratio is less than or equal to 2:1) or
4.75% (if Indco's cash flow leverage ratio is greater than 2:1). Interest accrues on the revolving loan at an annual rate equal to the one-month LIBOR plus 2.75%. Indco's obligations under the First Merchants Facility are secured by all of
Indco's assets and are guaranteed by the Company. The First Merchants Credit Agreement requires, among other things, that Indco, on a monthly basis, not exceed a "maximum total funded debt to EBITDA ratio" and maintain a "minimum fixed charge
covenant ratio," both as defined in the First Merchants Credit Agreement. The First Merchants Facility requires monthly payments until the expiration date on the fifth anniversary of the loan. The loan is subject to earlier termination as
provided in the First Merchants Credit Agreement.
On August 30, 2019, Indco and First Merchants entered into Amendment No. 1 to Credit Agreement modifying the terms of Indco’s credit facilities with First Merchants and extending the maturity date of
the credit facilities. Under the revised terms, the credit facilities will consist of a $5,500 Term Loan and $1,000 (limited to the borrowing base and reserves) Revolving Loan. Interest will accrue on the Term Loan at an annual rate equal to the
one-month LIBOR plus either 2.75% (if Indco’s total funded debt to EBITDA ratio is less than 2:1), or 3.5% (if Indco’s total funded debt to EBITDA ratio is greater than or equal to 2:1). Interest will accrue on the Revolving Loan at an annual rate
equal to the one-month LIBOR plus 2.75%. Indco’s obligations under the First Merchants credit facilities are secured by all of Indco’s assets and are guaranteed by Janel, and Janel’s guarantee of Indco’s obligations is secured by a pledge of
Janel’s Indco shares. The First Merchants credit facilities will expire on August 30, 2024 (subject to earlier termination as provided in the Credit Agreement) unless renewed.
As of September 30, 2019, there were no outstanding borrowings under the revolving loan and $5,455 of borrowings under the term loan, with interest accruing on the term loan at an effective interest
rate of 5.85%.
As of September 30, 2018, there were no outstanding borrowings under the revolving loan and $2,713 of borrowings under the term loan, with interest accruing on the term loan at an effective interest rate of 5.85%.
Indco was in compliance with the covenants defined in the First Merchants Credit Agreement at both September 30, 2019 and September 30, 2018.
|
September 30,
|
September 30,
|
|||||||
|
2019
|
2018
|
|||||||
|
Long Term Debt *
|
$
|
5,455
|
$
|
2,713
|
||||
|
Less Current Portion
|
(786
|
)
|
(857
|
)
|
||||
|
$
|
4,669
|
$
|
1,856
|
|||||
|
*Note: Long Term Debt is due in monthly installments of $71 plus monthly interest, at LIBOR plus 3.75% to 4.75% per annum. The note is collateralized by all of Indco’s assets and
guaranteed by Janel.
|
||||||||
These obligations mature as follows (in thousands):
|
2020
|
$
|
786
|
||
|
2021
|
786
|
|||
|
2022
|
786
|
|||
|
2023
|
786
|
|||
|
2024
|
786
|
|||
|
Thereafter
|
1,525
|
|||
|
$
|
5,455
|
| (D) |
First Northern Bank of Dixon
|
On June 21, 2018, AB Merger Sub, Inc., a wholly-owned, indirect subsidiary of the Company, entered into a Business Loan Agreement (the "First Northern Loan Agreement") and Promissory Note with First
Northern Bank of Dixon ("First Northern"), with respect to a $2,025 senior secured term loan (the "Senior Secured Term Loan"). The First Northern Loan Agreement and Promissory Note are dated and effective as of June 14, 2018. The proceeds of the
Senior Secured Term Loan were used to fund a portion of the merger consideration to acquire Antibodies. Interest will accrue on the Senior Secured Term Loan at an annual rate based on the five-year Treasury constant maturity (index) plus 2.50%
(margin) for years one through five then adjusted and fixed for years six through ten using the same index and margin. The borrower's and the Company's obligations to First Northern under the First Northern Loan Agreement are secured by certain
real property owned by Antibodies as of the closing of the Antibodies merger. The Senior Secured Term Loan will mature on June 14, 2028 (subject to earlier termination as provided in the First Northern Loan Agreement). The First Northern Loan
Agreement requires, among other things, that the borrowers maintain certain Minimum Debt Service Coverage, Debt to Tangible Net Worth and Tangible Net Worth ratios as defined in the First Northern Loan Agreement.
On November 18, 2019, Antibodies modified and refinanced its existing credit facilities with First Northern Bank. The existing Senior Secured Term loan was increased to $2,235, the initial interest rate decreased to 4.18%, and the maturity
date was extended to November 14, 2029, with all other terms, covenants and conditions substantially unchanged. The existing Revolving Credit Facility was expanded to $500, the interest rate decreased to 6.0%, and the maturity date was extended
to October 1, 2020, with all other terms, covenants and conditions substantially unchanged. Additionally, Antibodies entered into a new Business Loan Agreement ("Solar Loan") provided for a $125 term loan in connection with a potential expansion
of solar generation capacity on the Antibodies property. The initial interest rate on the facility is 4.43%, subject to adjustment in five years.
As of September 30, 2019, the total amount outstanding under the Senior Secured Term Loan was $1,975, of which $1,933 is included in long-term debt and $42 is included in current portion of long-term debt, with
interest accruing at an effective interest rate of 5.28%.
As of September 30, 2018, the total amount outstanding under the Senior Secured Term Loan was $2,015, of which $1,975 is included in long-term debt and $40 is included in current portion of long-term debt, with interest accruing at an
effective interest rate of 5.28%.
|
September 30,
|
September 30,
|
|||||||
|
(in thousands)
|
2019
|
2018
|
||||||
|
Long Term Debt *
|
$
|
1,975
|
$
|
2,015
|
||||
|
Less Current Portion
|
(42
|
)
|
(40
|
)
|
||||
|
$
|
1,933
|
$
|
1,975
|
|||||
|
*Long term debt is due in monthly installments of $12 plus monthly interest, at 5.28% per annum. The note is collateralized by real property owned by Antibodies
and guaranteed by Janel.
|
||||||||
These obligations mature as follows (in thousands):
|
2020
|
$
|
42
|
||
|
2021
|
45
|
|||
|
2022
|
47
|
|||
|
2023
|
50
|
|||
|
2024
|
52
|
|||
|
Thereafter
|
1,739
|
|||
|
$
|
1,975
|
The Company was in compliance with the covenants defined in the First Northern Loan Agreement at September 30, 2019 and September 30, 2018.
| 8 |
SUBORDINATED PROMISSORY NOTES
|
On June 22, 2018, in connection with the Antibodies acquisition, AB HoldCo, Inc. ("AB HoldCo"), a wholly-owned subsidiary of the Company, entered into two subordinated promissory notes ("AB HoldCo
Subordinated Promissory Notes") with certain former shareholders of Antibodies. Both of the AB HoldCo Subordinated Promissory Notes are guaranteed by the Company and are subordinate to the terms of any credit agreement, loan agreement, indenture,
promissory note, guaranty or other debt instrument pursuant to which AB HoldCo or any affiliate of AB HoldCo incurs, borrows, extends, guarantees, renews or refinances any indebtedness for borrowed money or other extensions of credit with any
federal or state bank or other institutional lender and are unsecured. Each of the AB HoldCo Subordinated Promissory Notes has a 4% annual interest rate payable in arrears on the last business day of each calendar quarter, commencing on September
30, 2018, and has a maturity date of June 22, 2021. The outstanding principal amount of these notes is payable in a single payment on the three-year anniversary date of June 22, 2021. Both notes are subject to prepayment in whole or in part,
without premium or penalty, of the outstanding principal amount of the notes, together with all accrued but unpaid interest on such principal amount up to the date of prepayment. Any prepayment shall be applied first to accrued but unpaid
interest, and then to outstanding principal.
As of September, 2019, and September 30, 2018, amounts outstanding under the two AB HoldCo Subordinated Promissory Notes were $47 and $297, respectively.
On November 20, 2018, in connection with the Honor acquisition, Janel Group, a wholly-owned subsidiary of the Company, entered into a subordinated promissory note ("Janel Group Subordinated
Promissory Note") with a former owner of Honor. The Janel Group Subordinated Promissory Note is guaranteed by the Company. The Janel Group Subordinated Promissory Note is subordinate to and junior in right of payment for principal interest
premiums and other amounts payable to the Santander Bank Facility and the First Merchants Bank Credit Facility. The Janel Group Subordinated Promissory Note, has a 6.75% annual interest rate, payable in twelve equal consecutive quarterly
installments of principal and interest, and shall be due and payable on the last day of January, April, July and October beginning in January 2019 each in the amount of $42. The outstanding principal and accrued and unpaid interest are payable in
a single payment on the three-year anniversary date of November 20, 2021. The note is subject to prepayment in whole or in part, without premium or penalty, of the outstanding principal amount of the notes, together with all accrued but unpaid
interest on such principal amount up to the date of prepayment. Any prepayment shall be applied first to accrued but unpaid interest, and then to outstanding principal.
| 9 |
STOCKHOLDERS’ EQUITY
|
Janel is authorized to issue 4,500,000 shares of common stock, par value $0.001. In addition, the Company is authorized to issue 100,000 shares of preferred stock, par value $0.001. The preferred
stock is issuable in series with such voting rights, if any, designations, powers, preferences and other rights and such qualifications, limitations and restrictions as may be determined by the Company's board of directors or a duly authorized
committee thereof, without stockholder approval. The board of directors may fix the number of shares constituting each series and increase or decrease the number of shares of any series.
| (A) |
Preferred Stock
|
Series A Convertible Preferred Stock
Shares of the Company’s Series A Convertible Preferred Stock (the “Series A Stock”) are convertible into shares of the Company’s $0.001 par value common stock at any time on a one-share for
one-share basis. The Series A Stock pays a cumulative cash dividend at a rate of $15 per year, payable quarterly. On September 24, 2018, the 20,000 shares of Series A Stock then outstanding were repurchased by the Company for $400. On September
27, 2018, all outstanding shares of the Series A Stock were retired.
Series B Convertible Preferred Stock
Shares of the Company’s Series B Convertible Preferred Stock (the "Series B Stock") are convertible into shares of the Company's $0.001 par value common stock at any time on a one-share (of Series B Stock) for ten-shares (of common stock) basis.
On September 6, 2019 a holder of the Series B Stock converted 640 shares of Series B Stock into 6,400 shares of the Company’s Common Stock.
Series C Cumulative Preferred Stock
Shares of the Company’s Series C Cumulative Preferred Stock (the “Series C Stock”) were initially entitled to receive annual dividends at a rate of 7% per annum of the original issuance price of
$10, when and if declared by the Company’s board of directors, with such rate to increase by 2% annually beginning on the third anniversary of issuance of such Series C Stock to a maximum rate of 13%. By the filing of the Certificate of Amendment
on October 17, 2017, the annual dividend rate decreased to 5% per annum of the original issuance price, when and if declared by the Company’s board of directors, and increased by 1% beginning on January 1, 2019. Such rate is to increase on each
January 1 thereafter for four years to a maximum rate of 9%. The dividend rate of the Series C Stock as of September 30, 2019 and 2018 was 6% and 5%, respectively. In the event of liquidation, holders of Series C Stock shall be paid an amount
equal to the original issuance price, plus any accrued but unpaid dividends thereon. Shares of Series C Stock may be redeemed by the Company at any time upon notice and payment of the original issuance price, plus any accrued but unpaid dividends
thereon. The liquidation value of Series C Stock was $12,541 and $11,966 as of September 30, 2019 and September 30, 2018, respectively. The change in terms were deemed to be substantial from a quantitative perspective (greater than 10% change in
the present value of future cash flows) as well as qualitatively when considering the change in the form of the security from original issuance through October 17, 2017. The fair value prior to modification was $8,224 and $6,912 after
modification, for a change of $1,312. In accordance with FASB’s Topic ASC 260, “Earnings Per Share,” this incremental benefit is treated as an adjustment to EPS for common stockholders for the fiscal year ended September 30, 2018. The amendment
on October 17, 2017 to the annual dividend rate decrease was treated as an extinguishment for accounting purposes in a manner similar to a dividend for the fiscal year ended September 30, 2018.
On March 21, 2018, the Company sold 3,000 shares of the Series C Stock to an accredited investor at a purchase price of $500 per share, or an aggregate of $1,500. On June 22, 2018, the Company sold
2,795 shares of the Series C Stock to an accredited investor at a purchase price of $500 per share, or an aggregate of $1,398. Such shares issued on March 21, 2018 and June 22, 2018 were sold in private placements in reliance upon the exemption
from registration provided by Section 4(a)(2) of the Securities Act of 1933 and Regulation D promulgated thereunder.
For the fiscal year ended September 30, 2019 and 2018, the Company declared dividends on Series C Stock of $571 and $438, respectively. At September 30, 2019 and 2018, the Company had accrued
dividends of $1,041 and $470, respectively.
| (B) |
Treasury Stock
|
On March 31, 2017, the Company acquired 20,000 shares of its common stock for an aggregate of $240. This amount was paid in April 2017.
| (C) |
Equity Incentive Plan
|
On May 12, 2017, the Company adopted the 2017 Equity Incentive Plan (the "2017 Plan") pursuant to which (i) incentive stock options, (ii) non-statutory stock options, (iii) restricted stock awards
and (iv) stock appreciation rights with respect to shares of the Company's common stock may be granted to directors, officers, employees of and consultants to the Company. Participants and all terms of any awards under the Plan are at the
discretion of the Company's Compensation Committee of the board of directors. The 2017 Plan was amended and restated on May 8, 2018, as discussed in more detail in note 9.
| (D) |
Stock Warrants
|
In connection with the October 6, 2013 Securities Purchase Agreement with Oaxaca Group, LLC, (“Oaxaca”) the Company issued warrants to Oaxaca to purchase an aggregate of 250,000 shares of common stock
at $4.00 per share. The warrants expired on October 5, 2018. On September 27, 2018, the warrants to purchase 250,000 shares of common stock at $4.00 were exercised by Oaxaca. The Company has no other stock warrants outstanding.
| (E) |
Indco Dividend
|
On August 29, 2019, the board of directors of Indco, a majority-owned subsidiary of the Company, declared a $6.25 dividend for each share of Indco’s common stock, outstanding, and payable to
stockholders of record payable on August 30, 2019. The total dividend paid to the majority owner and minority owners of Indco, was $3,757 and $342, respectively.
| 10 |
STOCK-BASED COMPENSATION
|
On October 30, 2013, the board of directors of the Company adopted the Company’s 2013 Non-Qualified Stock Option Plan (the "2013 Option Plan") providing for options to purchase up to 100,000 shares
of common stock for issuance to directors, officers, employees of and consultants to the Company and its subsidiaries.
On May 12, 2017, the board of directors adopted the Company's 2017 Plan pursuant to which (i) incentive stock options, (ii) non-statutory stock options, (iii) restricted stock awards and (iv) stock
appreciation rights with respect to up to 100,000 shares of the Company's common stock may be granted to directors, officers, employees of and consultants to the Company.
On May 8, 2018, the board of directors of Janel adopted the Amended 2017 Plan. The provisions and terms of the Amended 2017 Plan are the same as those in the 2017 Plan, except that the Amended 2017
Plan removes the ability of Janel to award incentive stock options and removes the requirement for stockholder approval of the 2017 Plan.
Total stock-based compensation for the fiscal year ended September 30, 2019 and 2018 amounted to $296 and $678, respectively, and was included in selling, general and administrative expense in the
Company's statements of operations.
| (A) |
Stock Options
|
The Company uses the Black-Scholes option pricing model to estimate the fair value of our share-based awards. In applying this model, we use the following assumptions:
|
|
• |
Risk-free interest rate - We determine the risk-free interest rate by using a weighted average assumption equivalent to the expected term based on the U.S. Treasury constant maturity rate.
|
|
|
• |
Expected term - We estimate the expected term of our options on the average of the vesting date and term of the option.
|
|
|
• |
Expected volatility - We estimate expected volatility using daily historical trading data of a peer group.
|
|
|
• |
Dividend yield - We have never paid dividends on our common stock and currently have no plans to do so; therefore, no dividend yield is applied.
|
The fair values of our employee option awards were estimated using the assumptions below, which yielded the following weighted average grant date fair values for the periods presented:
|
2019
|
2018
|
|||
|
Risk-free interest rate
|
3.04%
|
1.92 - 2.70%
|
||
|
Expected option term in years
|
5.5 - 6.5
|
5.00 - 6.50
|
||
|
Expected volatility
|
95.4% - 98.8%
|
91.94 - 99.13%
|
||
|
Dividend yield
|
-%
|
-%
|
||
|
Weighted average grant date fair value
|
$5.87 - $6.29
|
$ 6.23 - 6.85
|
Option for Employees
|
Number of Options
|
Weighted Average
Exercise Price
|
Weighted Average
Remaining Contractual
Term (in years)
|
Aggregate Intrinsic
Value (in thousands)
|
|||||||||||||
|
Outstanding balance at September 30, 2018
|
112,798
|
$
|
5.09
|
6.88
|
$
|
357.10
|
||||||||||
|
Granted
|
7,500
|
$
|
7.75
|
9.00
|
$
|
9.38
|
||||||||||
|
Exercised
|
(9,461
|
)
|
$
|
7.63
|
-
|
$
|
-
|
|||||||||
|
Outstanding balance at September 30, 2019
|
110,837
|
$
|
5.05
|
5.98
|
$
|
438.06
|
||||||||||
|
Exercisable at September 30, 2019
|
95,124
|
$
|
4.57
|
5.59
|
$
|
422.21
|
||||||||||
The aggregate intrinsic value in the above table was calculated as the difference between the closing price of the Company's common stock at September 30, 2019 of $9.00 per share and the exercise
price of the stock options that had strike prices below such closing price.
As of September 30, 2019, there was approximately $26 of total unrecognized compensation expense related to the unvested employee stock options
which
is expected to be recognized over a weighted average period of less than one year
.
There were no non-employee options awarded during the fiscal years ended September 30, 2019 and 2018, respectively.
|
Number of Options
|
Weighted Average
Exercise Price
|
Weighted Average
Remaining Contractual
Term (in years)
|
Aggregate Intrinsic
Value (in thousands)
|
|||||||||||||
|
Outstanding balance at September 30, 2018
|
51,053
|
$
|
7.58
|
8.80
|
$
|
31.84
|
||||||||||
|
Outstanding balance at September 30, 2019
|
51,053
|
$
|
7.58
|
7.80
|
$
|
72.68
|
||||||||||
|
Exercisable at September 30, 2019
|
19,036
|
$
|
7.21
|
7.72
|
$
|
34.06
|
||||||||||
The aggregate intrinsic value in the above table was calculated as the difference between the closing price of our common stock at September 30, 2019, of $9.00 per share and the exercise price of
the stock options that had strike prices below such closing price. As of September 30, 2019, there was approximately $71 of total unrecognized compensation expense related to the unvested stock options, which is expected to be recognized over a
weighted average period of less than one year.
Liability classified share-based awards
Additionally, during the
fiscal year
ended September 30, 2019, 6,812 options were granted with respects to Indco's common stock. The Company uses the Black-Scholes option pricing model to estimate the fair
value of Indco's share-based awards. In applying this model, the Company used the following assumptions:
|
2019
|
2018
|
|||
|
Risk-free interest rate
|
3.04%
|
2.65% - 2.78%
|
||
|
Expected option term in years
|
5.5 - 6.5
|
4.02 - 6.27
|
||
|
Expected volatility
|
95.4% - 98.8%
|
98.52% - 102.90%
|
||
|
Dividend yield
|
-%
|
-%
|
||
|
Grant date fair value
|
$9.19 - $9.85
|
$9.40 - $9.83
|
|
Number of Options
|
Weighted Average
Exercise Price
|
Weighted Average
Remaining Contractual
Term (in years)
|
Aggregate Intrinsic
Value (in thousands)
|
|||||||||||||
|
Outstanding balance at September 30, 2018
|
25,321
|
$
|
7.97
|
7.90
|
$
|
105.36
|
||||||||||
|
Granted
|
6,812
|
$
|
12.13
|
9.00
|
$
|
-
|
||||||||||
|
Outstanding balance at September 30, 2019
|
32,133
|
$
|
8.85
|
7.34
|
$
|
105.36
|
||||||||||
|
Exercisable at September 30, 2019
|
$
|
20,825
|
$
|
7.08
|
6.66
|
$
|
105.09
|
|||||||||
The aggregate intrinsic value in the above table was calculated as the difference between the valuation price of Indco's common stock at September 30, 2019 of $12.13 per share and the exercise price
of the stock options that had strike prices below such closing price.
The liability classified awards were measured at fair value at each reporting date until the final measurement date, which was the date of completion of services required to earn the option. The
compensation cost related to these options was approximately $93 and $172 for the fiscal years ended September 30, 2019 and fiscal year ended September 30, 2018, respectively, and is included in other liabilities in the consolidated financial
statement. The cost associated with the options issued on each grant date is being recognized ratably over the period of service required to earn each tranche of options.
Upon vesting, the options continue to be accounted for as a liability in accordance with ASC 480-10-25-8 and are measured in accordance with ASC 480-10-35 at every reporting period until the options
are settled.
Changes in the fair value of the vested options are recognized in earnings in the consolidated financial statements.
The options are classified as liabilities, and the underlying shares of Indco's common stock also contain put options which result in their classification as a mandatorily redeemable security. While
their redemption does not occur on a fixed date, there is an unconditional obligation for the Company to repurchase the shares upon death, which is certain to occur at some point in time.
As of September 30, 2019, there was approximately $42 of total unrecognized compensation expense related to the unvested Indco stock options. This expense is expected to be recognized over a
weighted average period of less than one year.
| (B) |
Restricted Stock
|
During the fiscal year ended September 30, 2019, there were no shares of restricted stock granted. Under the Amended 2017 Plan, each grant of restricted stock vests over a three-year period and the
cost to the recipient is zero. Restricted stock compensation expense, which is a non-cash item, is being recognized in the Company's financial statements over the vesting period of each restricted stock grant.
The following table summarizes the status of our employee unvested restricted stock under the Amended 2017 Plan for the fiscal year ended September 30, 2019:
|
Restricted Stock
|
Weighted Average
Exercise Price
|
Weighted Average
Remaining Contractual
Term (in years)
|
||||||||||
|
Unvested at September 30, 2018
|
10,000
|
$
|
8.01
|
1.11
|
||||||||
|
Vested
|
(5,000
|
)
|
$
|
8.01
|
-
|
|||||||
|
Unvested at September 30, 2019
|
5,000
|
$
|
8.01
|
0.61
|
||||||||
As of September 30, 2019, there was approximately $8 of total unrecognized compensation cost related to unvested employee restricted stock. The cost is expected to be recognized over a
weighted-average period of approximately 1.1 years.
The following table summarizes the status of our non-employee unvested restricted stock under the Amended 2017 Plan for the fiscal year ended September 30, 2019:
|
Restricted Stock
|
Weighted Average
Exercise Price
|
Weighted Average
Remaining Contractual
Term (in years)
|
||||||||||
|
Unvested at September 30, 2018
|
30,000
|
$
|
8.03
|
$
|
1.74
|
|||||||
|
Vested
|
(3,333
|
)
|
$
|
8.01
|
$
|
-
|
||||||
|
Unvested at September 30, 2019
|
26,667
|
$
|
8.04
|
$
|
0.88
|
|||||||
As of September 30, 2019, there was approximately $175 of unrecognized compensation cost related to non-employee unvested restricted stock. The cost is expected to be recognized over a
weighted-average period of approximately 1.3 years.
As of September 30, 2019, included in accrued expenses and other current liabilities was $159 which represents 28,333 shares of restricted stock that vested but were not issued.
| 11 |
INCOME PER COMMON SHARE
|
The following table provides a reconciliation of the basic and diluted income (loss) per share ("EPS") computations for the fiscal years ended September 30, 2019 and 2018 (in thousands, except share
and per share data):
|
Year Ended September 30,
|
||||||||
|
2019
|
2018
|
|||||||
|
Income:
|
||||||||
|
Net income
|
$
|
616
|
$
|
248
|
||||
|
Preferred stock dividends
|
(571
|
)
|
(438
|
)
|
||||
|
Non-controlling interest dividends
|
(342
|
)
|
(50
|
)
|
||||
|
Gain on extinguishment of Preferred stock dividends Series C
|
-
|
1,312
|
||||||
|
Net income (loss) available to common stockholders
|
$
|
(297
|
)
|
$
|
1,072
|
|||
|
Common Shares:
|
||||||||
|
Basic - weighted average common shares
|
851,234
|
574,721
|
||||||
|
Effect of dilutive securities:
|
||||||||
|
Stock options
|
-
|
58,433
|
||||||
|
Restricted stock
|
-
|
34,243
|
||||||
|
Warrants
|
-
|
134,767
|
||||||
|
Convertible preferred stock
|
-
|
32,321
|
||||||
|
Diluted - weighted average common stock
|
851,234
|
834,485
|
||||||
|
Year Ended September 30,
|
||||||||
|
Income per Common Share:
|
2019
|
2018
|
||||||
|
Basic -
|
||||||||
|
Net income
|
$
|
0.72
|
$
|
0.43
|
||||
|
Preferred stock dividends
|
(0.67
|
)
|
(0.76
|
)
|
||||
|
Non-controlling interest dividends
|
(0.40
|
)
|
(0.09
|
)
|
||||
|
Gain on extinguishment of Preferred stock dividends Series C
|
-
|
2.28
|
||||||
|
Net income (loss) attributable to common stockholders
|
$
|
(0.35
|
)
|
$
|
1.86
|
|||
|
Diluted -
|
||||||||
|
Net income
|
$
|
0.72
|
$
|
0.30
|
||||
|
Preferred stock dividends
|
(0.67
|
)
|
(0.53
|
)
|
||||
|
Non-controlling interest dividends
|
(0.40
|
)
|
(0.06
|
)
|
||||
|
Gain on extinguishment of Preferred stock dividends Series C
|
-
|
1.57
|
||||||
|
Net income (loss) available to common stockholders
|
$
|
(0.35
|
)
|
$
|
1.28
|
|||
The computation for the diluted number of shares excludes unvested restricted stock, unexercised stock options and unexercised warrants that are anti-dilutive. There were no anti-dilutive shares for
the fiscal years ended September 30, 2019 and 2018.
Potentially diluted securities as of September 30, 2019 and 2018 are as follows:
|
September 30,
|
||||||||
|
2019
|
2018
|
|||||||
|
Employee stock options (Note 9)
|
110,837
|
112,798
|
||||||
|
Non-employee stock options (Note 9)
|
51,053
|
51,053
|
||||||
|
Employee restricted stock (Note 9)
|
8,333
|
10,000
|
||||||
|
Non-employee restricted stock (Note 9)
|
23,334
|
30,000
|
||||||
|
Convertible preferred stock
|
6,310
|
12,710
|
||||||
|
199,867
|
216,561
|
|||||||
| 12 |
INCOME TAXES
|
The reconciliation of income tax computed at the Federal statutory rate to the provision for income taxes from continuing operations is as follows (in thousands):
|
2019
|
2018
|
|||||||
|
Federal taxes at statutory rates
|
$
|
199
|
$
|
91
|
||||
|
Permanent differences
|
44
|
7
|
||||||
|
State and local taxes, net of Federal benefit
|
69
|
60
|
||||||
|
Federal rate change
|
-
|
(28
|
)
|
|||||
|
Other
|
18
|
-
|
||||||
|
$
|
330
|
$
|
130
|
|||||
The provisions of income taxes are summarized as follows (in thousands):
|
Year Ended September 30,
|
||||||||
|
2019
|
2018
|
|||||||
|
Current
|
$
|
106
|
$
|
55
|
||||
|
Deferred
|
224
|
75
|
||||||
|
Total
|
$
|
330
|
$
|
130
|
||||
The tax effects of temporary differences that gave rise to significant portions of the deferred tax assets and liabilities were as follows (in thousands):
|
2019
|
2018
|
|||||||
|
Deferred tax assets - net operating loss carryforwards
|
$
|
1,000
|
$
|
1,117
|
||||
|
Credits
|
42
|
42
|
||||||
|
Other
|
(350
|
)
|
36
|
|||||
|
Stock based compensation
|
369
|
293
|
||||||
|
Total deferred tax assets
|
1,061
|
1,488
|
||||||
|
Valuation allowance
|
-
|
-
|
||||||
|
Total deferred tax assets net of valuation allowance
|
$
|
1,061
|
$
|
1,488
|
||||
|
Deferred tax liabilities - depreciation and amortization
|
$
|
2,991
|
$
|
2,578
|
||||
|
Prepaid expenses
|
70
|
41
|
||||||
|
Total deferred tax liabilities
|
$
|
3,061
|
$
|
2,619
|
||||
|
Net deferred tax liability
|
$
|
(2,000
|
)
|
$
|
(1,131
|
)
|
||
In assessing the need for a valuation allowance, management must determine that there will be sufficient taxable income to allow for the realization of deferred tax assets. Based upon the historical
and anticipated future income, management has determined that the deferred tax assets meet the more-likely-than-not threshold for realizability. Accordingly, a no valuation allowance has been recorded against the Company’s deferred tax assets as of
September 30, 2019.
The Company has net operating loss carryforwards for income tax purposes that expire as follows (in thousands):
|
2033
|
$
|
4,330
|
||
|
2034
|
618
|
|||
|
$
|
4,948
|
The Company will recognize interest and penalties related to uncertain tax positions as a component of income tax expense.
As of September 30, 2019, the Company had no accrued interest or penalties related to uncertain tax positions and no amounts have been recognized in the Company’s statement of operations. Due to net
operating losses and tax credit carry forwards that remain unutilized, income tax returns for tax years from 2013 through 2018 remain subject to examination by the taxing jurisdictions. The net operating loss carryforwards remain subject to review
until utilized.
| 13 |
PROFIT SHARING AND 401(k) PLANS
|
The Company maintains a qualified retirement plan commonly referred to as a 401(k) Plan covering substantially all full-time employees under each segment.
Prior to July 2019, the Company maintained separate contributory 401(k) plans covering substantially all full-time employees under each segment. Beginning in March 2019 through July 2019, the Company
combined all plans into the Janel Corporation 401(k) Plan.
The Janel Corporation 401(k) allows for employee salary deferrals including Roth 401(k) deferrals, employer matching contributions, employer profit sharing contributions and employee rollovers. The
Janel Corporation 401(k) plan provides for participant contributions of up to 50% of annual compensation (not to exceed the IRS limit), as defined by the plan. The Company contributes an amount equal to 50% of the participant’s first 6% of
contributions.
The combined expenses charged to operations for contributions made to the plans for the benefit of the employees for the years ended September 30, 2019 and 2018 were approximately $214 and $138, respectively.
The administrative expense charged to operations for the years ended September 30, 2019 and 2018 aggregated approximately $26 and $11, respectively.
| 14 |
BUSINESS SEGMENT INFORMATION
|
As discussed above in note 1, the Company had the following two reportable segments at September 30, 2018: Global Logistics Services and Manufacturing. Effective October 1, 2018, the Company realigned
its Manufacturing segment, which was separated into two segments named Manufacturing and Life Sciences. Accordingly, the Company now operates in three reportable segments: 1) Global Logistics Services, 2) Manufacturing and 3) Life Sciences,
supported by a corporate group which conducts activities that are non-segment specific. The following tables presents selected financial information about the Company's reportable segments for the fiscal years ended September 30, 2019 and 2018:
|
For the year ended September 30, 2019
|
Global Logistics
|
|||||||||||||||||||
|
(in thousands)
|
Consolidated
|
Services
|
Manufacturing
|
Life Sciences
|
Corporate
|
|||||||||||||||
|
Revenues
|
$
|
84,354
|
$
|
69,655
|
$
|
9,042
|
$
|
5,657
|
$
|
-
|
||||||||||
|
Forwarding expenses and cost of revenues
|
59,248 | 53,319 |
4,020
|
1,909
|
-
|
|||||||||||||||
|
Gross margin
|
25,106
|
16,336
|
5,022
|
3,748
|
-
|
|||||||||||||||
|
Selling, general and administrative
|
22,612
|
13,856
|
3,113
|
2,907
|
2,736
|
|||||||||||||||
|
Amortization of intangible assets
|
915
|
-
|
-
|
-
|
915
|
|||||||||||||||
|
Income (loss) from operations
|
1,579
|
2,480
|
1,909
|
841
|
(3,651
|
)
|
||||||||||||||
|
Interest expense
|
694
|
432
|
150
|
122
|
(10
|
)
|
||||||||||||||
|
Identifiable assets
|
59,719
|
21,571
|
2,357
|
8,591
|
27,200
|
|||||||||||||||
|
Capital expenditures
|
421
|
18
|
158
|
245 |
-
|
|||||||||||||||
|
For the year ended September 30, 2018
|
Global Logistics
|
|||||||||||||||||||
|
(in thousands)
|
Consolidated
|
Services
|
Manufacturing
|
Life Sciences
|
Corporate
|
|||||||||||||||
|
Revenues
|
$
|
67,521
|
$
|
57,200
|
$
|
8,337
|
$
|
1,984
|
$
|
-
|
||||||||||
|
Forwarding expenses and cost of revenues
|
47,209
|
42,685
|
3,797
|
727
|
-
|
|||||||||||||||
|
Gross margin
|
20,312
|
14,515
|
4,540
|
1,257
|
-
|
|||||||||||||||
|
Selling, general and administrative
|
18,618
|
11,836
|
2,830
|
889
|
3,063
|
|||||||||||||||
|
Amortization of intangible assets
|
807
|
-
|
-
|
-
|
807
|
|||||||||||||||
|
Income (loss) from operations
|
887
|
2,679
|
1,710
|
368
|
(3,870
|
)
|
||||||||||||||
|
Interest expense
|
499
|
283
|
182
|
38
|
(4
|
)
|
||||||||||||||
|
Identifiable assets
|
50,911
|
18,812
|
1,898
|
6,165
|
24,036
|
|||||||||||||||
|
Capital expenditures
|
89
|
38
|
51
|
-
|
-
|
|||||||||||||||
| 15 |
COMMITMENTS AND CONTINGENCIES
|
| (A) |
Leases
|
The Company conducts its operations from leased premises. Rental expense on operating leases for the years ended September 30, 2019 and 2018 was approximately $818 and $703, respectively.
Future minimum lease commitments (excluding renewal options) under non-cancellable leases are as follows (in thousands):
|
Year Ended September 30,
|
Min. Lease Commitments
|
|||
|
2020
|
$
|
653
|
||
|
2021
|
$
|
267
|
||
|
2022
|
$
|
255
|
||
|
2023
|
$
|
88
|
||
|
(B)
|
Employment Agreements
|
The Company has various employment agreements, including employment agreements with the previous owner of Honor and Phospho.
| 16 |
RISKS AND UNCERTAINTIES
|
|
|
(A) |
Currency Risks
|
The nature of Janel's operations requires it to deal with currencies other than the U.S. Dollar. As a result, the Company is 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. The Company attempts to compensate for these exposures by accelerating international currency settlements among
those agents.
|
|
(B) |
Concentration of Credit Risk
|
The Company's assets that are exposed to concentrations of credit risk consist primarily of cash and receivables from customers. The Company places its cash with financial institutions that have high
credit ratings. The receivables from clients are spread over many customers. The Company maintains an allowance for uncollectible accounts receivable based on expected collectability and performs ongoing credit evaluations of its customers'
financial condition.
|
|
(C) |
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 business, results of operations, financial condition or cash flows.
In December 2017, Janel Group received a Notice of Copyright Infringement letter from counsel for Warren Communications News, Inc. (“Warren”), the publisher of the International Trade Today (“ITT”)
newsletter. The letter alleges that Janel Group infringed upon Warren’s registered copyrights in its ITT newsletter. The Company believes it has meritorious defenses to the allegations. The Company is not presently able to reasonably estimate
potential losses, if any, related to the allegations.
|
|
(D) |
Concentration of Customers
|
No customer accounts for 10% or more of consolidated sales for the years ended September 30, 2019 and 2018. No customer accounted for 10% or more of consolidated accounts receivable at September 30,
2019 and 2018.
|
17
|
SUBSEQUENT EVENTS
|
The Company has determined that there are no events or transactions occurring subsequent to September 30, 2019 that would have a material impact on the Company’s results of operations or financial condition as of
September 30, 2019.
F-28
TABLE OF CONTENTS
Part IItem 1. BusinessItem 1A. Risk FactorsItem 1B. Unresolved Staff CommentsItem 2. PropertiesItem 3. Legal ProceedingsItem 4. Mine Safety DisclosuresPart IIItem 5. Market For The Registrant S Common Equity, Related Stockholder Matters and Issuer Purchases Of Equity SecuritiesItem 6. Selected Financial DataItem 7. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsItem 7A. Quantitative and Qualitative Disclosure About Market RiskItem 8. Financial Statements and Supplementary DataItem 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosuresItem 9A. Controls and ProceduresItem 9B. Other InformationPart IIIItem 10. Directors, Executive Officers and Corporate GovernanceItem 11. Executive CompensationItem 12. Security Ownership Of Certain Beneficial Owners and Management and Related Stockholder MattersItem 13. Certain Relationships, Related Transactions and Director IndependenceItem 14. Principal Accounting Fees and ServicesPart IVItem 15. Exhibits and Financial Statement SchedulesItem 16. Form 10-k Summary