JANEL CORP
10-Ks and 10-Qs
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2021
OR
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____ to ____
Commission file number: 333-60608
(Exact name of registrant as specified in its charter)
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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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(Address of principal executive offices)
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(Zip Code)
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Registrant’s telephone number, including area code: (212 ) 373-5895
Former name, former address and former fiscal year, if changed from last report: N/A
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class
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Trading symbols(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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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.
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).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large
accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer ☐
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Accelerated filer
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☐ |
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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. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes ☐ No ☒
The number of shares of Common Stock outstanding as of February 9, 2022 was 959,707 .
JANEL CORPORATION
QUARTERLY REPORT ON FORM 10-Q
For Quarterly Period Ended December 31, 2021
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Page
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Part I - Financial Information
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3
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Item 1.
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3
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3
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4
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5
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6
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7
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Item 2.
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19
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Item 4.
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28
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Part II - Other Information
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28
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Item 1.
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28
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Item 1A.
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28
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Item 2.
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28
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Item 6.
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29
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30
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PART I - FINANCIAL INFORMATION
| ITEM 1. |
FINANCIAL STATEMENTS
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JANEL CORPORATION AND SUBSIDIARIES
(in thousands, except share and per share data)
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(Unaudited)
December 31, 2021
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September 30,
2021
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ASSETS
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Current Assets:
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Cash
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$
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$
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Accounts receivable, net of allowance for doubtful accounts of $
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Inventory, net
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Prepaid expenses and other current assets
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Total current assets
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Property and Equipment, net
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Other Assets:
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Intangible assets, net
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Goodwill
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Operating lease right of use asset
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Security deposits and other long-term assets
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Total other assets
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Total assets
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$
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$
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LIABILITIES AND STOCKHOLDERS' EQUITY
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Current Liabilities:
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Line of credit
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$
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$
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Accounts payable – trade
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Accrued expenses and other current liabilities
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Dividends payable
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Current portion of earnout
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Current portion of deferred acquisition payments
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Current portion of subordinated promissory note-related party
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Current portion of long-term debt
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Current portion of operating lease liabilities
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Total current liabilities
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Other Liabilities:
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Long-term debt
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Long-term portion of earnout
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Subordinated promissory notes-related party
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Long-term portion of deferred acquisition payments
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Mandatorily redeemable non-controlling interest
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Deferred income taxes
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Long-term operating lease liabilities
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Other liabilities
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Total other liabilities
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Total liabilities
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Stockholders' Equity:
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Preferred Stock, $
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Series B
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Series C
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Common stock, $
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Paid-in capital
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Common Treasury stock, at cost,
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(
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)
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(
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Accumulated earnings
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Total stockholders' equity
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Total liabilities and stockholders' equity
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$
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$
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The accompanying notes are an integral part of these condensed consolidated financial statements.
JANEL CORPORATION AND SUBSIDIARIES
(in thousands, except per share data)
(Unaudited)
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Three Months Ended
December 31,
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2021
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2020
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Revenue
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$
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$
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Forwarding expenses and cost of revenues
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Gross profit
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Cost and Expenses:
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Selling, general and administrative
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Amortization of intangible assets
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Total Costs and Expenses
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Income from Operations
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Other Items:
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Interest expense
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(
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)
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(
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)
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Income Before Income Taxes
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Income tax expense
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(
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)
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(
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)
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Net Income
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Preferred stock dividends
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(
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)
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(
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)
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Net Income Available to Common Stockholders
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$
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$
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Net income per share
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Basic
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$
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$
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Diluted
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$
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$
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Net income per share attributable to common stockholders:
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Basic
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$
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$
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Diluted
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$
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$
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Weighted average number of shares outstanding:
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Basic
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Diluted
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The accompanying notes are an integral part of these condensed consolidated financial statements.
JANEL CORPORATION AND SUBSIDIARIES
(in thousands, except share and per share data)
(Unaudited)
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PREFERRED STOCK
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COMMON
STOCK
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PAID-IN CAPITAL
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COMMON
TREASURY
STOCK
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ACCUMULATED
EARNINGS
(DEFICIT)
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TOTAL EQUITY
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SHARES
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$ |
SHARES
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$ |
$ |
SHARES
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$ |
$ | $ |
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Balance - September 30, 2021
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$
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$
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$
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$
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(
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)
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$
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$
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Net Income
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—
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—
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—
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Dividends to preferred stockholders
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—
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—
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(
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)
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—
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(
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)
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Stock-based compensation
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—
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—
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—
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Stock options exercise
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Balance - December 31, 2021
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$
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$
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$
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$
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(
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)
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$
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$
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| Balance - September 30, 2020 | $ | $ | $ | ( |
) | $ | ( |
) | $ | |||||||||||||||||||||||||||
| Net Income | — | — | — | |||||||||||||||||||||||||||||||||
| Dividends to preferred stockholders | — | — | ( |
) | — | ( |
) | |||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | |||||||||||||||||||||||||||||||||
| Stock options exercise | ||||||||||||||||||||||||||||||||||||
| Balance – December 31, 2020 | $ | $ | $ | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
JANEL CORPORATION AND SUBSIDIARIES
(in thousands)
(Unaudited)
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Three Months Ended
December 31,
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2021
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2020
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Cash Flows From Operating Activities:
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Net income
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$
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$
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Adjustments to reconcile net income (loss) to net cash provided by operating activities:
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Provision for (recovery of) uncollectible accounts
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(
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)
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Depreciation
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Deferred income tax provision
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Amortization of intangible assets
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Amortization of acquired inventory valuation
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Amortization of loan costs
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Stock-based compensation
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Changes in fair value of mandatorily redeemable noncontrolling interest
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Changes in operating assets and liabilities, net of effects of acquisitions:
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Accounts receivable
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(
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)
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(
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)
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Inventory
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(
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)
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(
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)
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||||
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Prepaid expenses and other current assets
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(
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)
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|||||
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Security deposits and other long-term assets
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(
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)
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Accounts payable and accrued expenses
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Other liabilities
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(
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)
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(
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)
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Net cash provided by (used in) operating activities
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(
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)
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|||||
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Cash Flows From Investing Activities:
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||||||||
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Acquisition of property and equipment, net of disposals
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(
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)
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(
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)
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||||
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Acquisitions, net of cash acquired
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(
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)
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|||||
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Net cash used in investing activities
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(
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)
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(
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)
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||||
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Cash Flows From Financing Activities:
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||||||||
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Repayments of term loan
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(
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)
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(
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)
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Proceeds from stock options exercise
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||||||
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Line of credit, (payments) proceeds, net
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(
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)
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|||||
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Repayment of subordinated promissory notes
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(
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)
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(
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)
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||||
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Net cash (used in) provided by financing activities
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(
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)
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|||||
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Net decrease in cash
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(
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)
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(
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)
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||||
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Cash at beginning of the period
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||||||
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Cash at end of period
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$
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$
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||||
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Supplemental Disclosure of Cash Flow Information:
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Cash paid during the period for:
|
||||||||
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Interest
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$
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$
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||||
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Income taxes
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$
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$
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| Non-cash investing activities: | ||||||||
| Subordinated promissory notes of ICT | $ |
$ |
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Non-cash financing activities:
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Dividends declared to preferred stockholders
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$
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$
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The accompanying notes are an integral part of these condensed consolidated financial statements.
JANEL CORPORATION AND SUBSIDIARIES
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1.
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BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
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The accompanying interim unaudited condensed consolidated financial statements
have been prepared pursuant to the rules and regulations of Article 8 of Regulation S-X and the instructions to Form 10-Q of the Securities and Exchange Commission. As a result, certain information and footnote disclosures normally included in
audited financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. Janel Corporation (the “Company” or “Janel”) believes that the disclosures made are adequate to make the
information presented not misleading. The condensed consolidated financial statements reflect all adjustments which are, in the opinion of management, necessary to a fair statement of the results for the interim periods presented. The results
of operations for the periods presented are not necessarily indicative of the results to be expected for a full fiscal year, or any other period. These condensed consolidated financial statements should be read in conjunction with the audited
consolidated financial statements and related notes included in the Company’s Form 10-K as filed with the Securities and Exchange Commission.
Revenue and revenue recognition
Logistics
Revenue is recognized upon transfer of control of promised services to
customers. With respect to its Logistics 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 acting as principal and 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 the Company is acting as agent and we do not have latitude in carrier
selection or in establishing rates with the carrier.
In the Logistics segment, the Company disaggregates its revenues by its five
primary service categories: ocean freight, air freight, trucking, customs brokerage, and other. A summary of the Company’s revenues disaggregated by major service lines for the three months ended December 31, 2021 and 2020 was as follows:
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Three Months
Ended
December 31,
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Three Months
Ended
December 31,
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Service Type
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2021
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2020
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Ocean freight
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$
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$
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| Trucking | ||||||||
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Air freight
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Other
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Customs brokerage
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Total
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$
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$
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Life Sciences
Revenues from the Life Sciences segment 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. Revenues are recognized when products are shipped and risk of loss is
transferred to the carrier(s) used.
Manufacturing
The Company’s
Manufacturing segment is comprised of Indco, Inc. (“Indco”), a majority-owned subsidiary of the Company. Revenues from Indco are derived from the engineering, manufacture and delivery of specialty mixing equipment and accessories. Revenues
are recognized when products are shipped and risk of loss is transferred to the carrier(s) used.
| 2. |
ACQUISITION
|
Fiscal 2021 Acquisition
Logistics
On September 21,
2021, the Company completed the acquisition of all of the membership interests of Expedited Logistics and Freight Services, LLC (“ELFS”) and ELFS Brokerage LLC, a wholly-owned subsidiary of ELFS. The purchase price for the membership
interests was $19,000 , subject to certain closing adjustments as set forth in the related purchase agreement. Further earnout
payments in an amount not anticipated to exceed $4,500 will be due to the former members of ELFS based on the operating profit
earned by ELFS. Upon the closing of the transaction, the former members of ELFS were paid $13,000 in cash and were issued an
aggregate amount of $6,000 in subordinated promissory notes.
The ELFS
acquisition was funded with cash provided by normal operations, borrowings under the Amended Loan and Security Agreement (the “Santander Loan Agreement”) with Santander Bank, N.A. (“Santander”) dated September 21, 2021, as well as
subordinated promissory notes issued to the former members of ELFS. This acquisition was completed to expand our product offerings in our Logistics segment.
The following
table summarizes, on an unaudited pro forma basis, the condensed combined results of operations of the Company for the three months ended December 31, 2020 assuming the acquisition of ELFS was made on October 1, 2020. The pro forma unaudited
condensed consolidated results give effect to, among other things, amortization of intangible assets and interest expense on acquisition-related debt. The pro forma results are not necessarily indicative of the operating results that would
have occurred had the acquisitions been consummated as of the date indicated, nor are they necessarily indicative of future operating results.
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Three
Months Ended
December 31,
2020
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Revenue
|
$
|
|
||
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Income from Operations
|
$
|
|
||
| Net Income |
$ | |||
| Net Income Available to Common Stockholders |
$ | |||
| Net income per share: |
||||
| Basic |
$ | |||
| Diluted |
$ | |||
| Net income per share attributable to common stockholders: |
||||
| Basic |
$ | |||
| Diluted |
$ | |||
The foregoing unaudited pro forma
results are for informational purposes only and are not necessarily indicative of the actual results of operations that might have occurred had the acquisition occurred on October 1, 2019, nor are they necessarily indicative of future
results.
| 3. |
INVENTORY
|
Inventories consisted of the following (in thousands):
|
December 31,
2021
|
September 30,
2021
|
|||||||
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Finished goods
|
$
|
|
$
|
|
||||
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Work-in-process
|
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|
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Raw materials
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Gross inventory
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||||||
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Less – reserve for inventory valuation
|
(
|
)
|
(
|
)
|
||||
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Inventory net
|
$
|
|
$
|
|
||||
| 4. |
INTANGIBLE ASSETS
|
A summary of intangible assets and the estimated useful lives used in the
computation of amortization is as follows (in thousands):
|
December 31,
2021
|
September 30,
2021
|
Life
|
|||||||
|
Customer relationships
|
$
|
|
$
|
|
|
||||
|
Trademarks/names
|
|
|
|
||||||
|
Trademarks/names
|
|
|
Indefinite
|
||||||
|
Other
|
|
|
|
||||||
|
|
|
||||||||
|
Less: Accumulated Amortization
|
(
|
)
|
(
|
)
|
|||||
|
Intangible assets, net
|
$
|
|
$
|
|
|||||
The composition of the intangible assets balance at
December 31, 2021 and September 30, 2021 is as follows (in thousands):
|
December 31,
2021
|
September 30,
2021
|
|||||||
|
Logistics
|
$
|
|
$
|
|
||||
| Life Sciences | ||||||||
|
Manufacturing
|
|
|
||||||
|
|
|
|||||||
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Less: Accumulated Amortization
|
(
|
)
|
(
|
)
|
||||
|
Intangible assets, net
|
$
|
|
$
|
|
||||
Amortization expense for the three months ended December 31, 2021 and 2020 was
$509 and $251 ,
respectively.
| 5. |
GOODWILL
|
The Company’s goodwill carrying amounts relate to the acquisitions in the
Logistics, Life Sciences and Manufacturing businesses.
The composition of the goodwill balance at December 31, 2021 and September 30,
2021 was as follows (in thousands):
|
December 31,
2021
|
September 30,
2021
|
|||||||
|
Logistics
|
$
|
|
$
|
|
||||
| Life Sciences | ||||||||
|
Manufacturing
|
|
|
||||||
| Total |
$
|
|
$
|
|
||||
| 6. |
NOTES PAYABLE – BANKS
|
| (A) |
Santander Bank Facility
|
The wholly-owned subsidiaries which comprise the Company’s Logistics segment
(collectively, the “Janel Group Borrowers”), with the Company as a guarantor, have a Loan and Security Agreement with Santander with respect to a revolving line of credit facility (the “Santander Facility”). As most recently amended in
September 2021, the Santander Facility provides that the Janel Group Borrowers can borrow up to $30,000 limited to 85 % of the borrowers’ eligible accounts receivable, borrowing base and reserves, subject to adjustments set forth in the Santander Loan Agreement.
Interest accrues at an annual rate equal to LIBOR (30, 60 or 90 day ) plus 2.25 % subject to a LIBOR floor of 75 basis points at close, with a
potential LIBOR floor reduction to 25 basis points upon certain conditions. The Company is provided the option of making Series C
preferred payments or distributions if specified conditions are met. The Santander Loan Agreement matures on September 21, 2026 . The Janel Group Borrowers’ obligations under the Santander Facility are secured by all of the assets of the Janel
Group Borrowers, while the Santander Loan Agreement contains customary terms and covenants. As a result of its terms, the Santander Facility is classified as a current liability on the consolidated balance sheet.
At December 31, 2021, outstanding borrowings under the Santander Facility were $23,842 ,
representing 79.47 % of the $30,000
available subject to limitations thereunder, and interest was accruing at an effective interest rate of 3.00 %.
At September 30, 2021, outstanding borrowings under the Santander Facility were $29,637 ,
representing 98.8 % of the $30,000
available subject to limitations thereunder, and interest was accruing at an effective interest rate of 3.00 %.
The Company was in compliance with the covenants defined in the Santander
Loan Agreement at both December 31, 2021 and September 30, 2021.
| (B) |
First Merchants Bank Credit Facility
|
Indco has a Credit Agreement (the “First Merchants Credit Agreement”) with
First Merchants Bank with respect to a $5,500 term loan, a $1,000 (limited to the borrowing base and reserves) revolving loan and a $680
mortgage loan (together, the “First Merchant Facility”). Interest accrues 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 accrues on the revolving loan at an annual rate equal to the one-month LIBOR plus 2.75 %.
Interest accrues on the mortgage loan at an annual rate of 4.19 %. Indco’s obligations under the First Merchants Facility are
secured by all of Indco’s real property and other assets, and are guaranteed by Janel. Additionally, Janel’s guarantee of Indco’s obligations is secured by a pledge of Janel’s Indco shares.
The term loan and revolving loan portions of the First Merchants Facility will expire onAugust 30, 2024 , and the mortgage loan
will mature on July 1, 2025 (subject to earlier termination as provided in the First Merchants Credit Agreement), unless renewed
or extended.
The term loan and revolving loan portions of the First Merchants Facility will expire on
As of December 31, 2021, there were no outstanding borrowings under the revolving loan, $2,519
of borrowings under the term loan, and $649 of borrowing under the mortgage loan with interest accruing on the term loan and
mortgage loan at an effective interest rate of 2.85 % and 4.19 %, respectively.
As of September 30, 2021, there wereno outstanding borrowings under the revolving loan, $2,713 of borrowings under the term loan, and $655 of
borrowing under the mortgage loan with interest accruing on the term loan and mortgage loan at an effective interest rate of 2.83 %
and 4.19 %, respectively.
As of September 30, 2021, there were
Indco was in compliance with the covenants defined in the First Merchants
Credit Agreement at both December 31, 2021 and September 30, 2021.
|
December 31,
2021
|
September 30,
2021
|
|||||||
| (in thousands) | ||||||||
|
Total Debt*
|
$
|
|
$
|
|
||||
|
Less Current Portion
|
(
|
)
|
(
|
)
|
||||
| Long Term Portion |
$
|
|
$
|
|
||||
| * |
|
| (C) |
First Northern Bank of Dixon
|
Antibodies Incorporated (“Antibodies”), a wholly-owned subsidiary of the
Company (by succession), has a loan agreement (the “First Northern Loan Agreement”) with First Northern Bank of Dixon (“First Northern”), with respect to a $2,235 term loan (the “First Northern Term Loan”) which bears interest at an annual rate of Prime plus 325 basis points (currently 4.18 %) and matures on November 14, 2029 . In addition, Antibodies has a $750
revolving credit facility with First Northern which currently bears interest at the annual rate of Prime plus 325 basis points
(currently 4.18 %) and matures on November 5, 2022 (the “First Northern Revolving Loan”). There were no
Antibodies also hastwo separate business loan agreements with First Northern: a $125 term loan in connection with the expansion of solar generation capacity on the Antibodies property (“First Northern Solar Loan”) bearing interest at the annual rate
of 4.43 % (subject to adjustment in five years ) and maturing on November 14, 2029 ; and a $60 term loan in connection with the expansion of generator capacity on the Antibodies property (“Generator Loan”) bearing interest at the annual rate of 4.25 % and maturing on November 5, 2025 .
There were no
Antibodies also has
As of December 31, 2021, the total amount outstanding under the First
Northern Term Loan was $2,126 , of which $2,070 is included in long-term debt and $56 is included in current
portion of long-term debt, with interest accruing at an effective interest rate of 4.18 %.
As of September 30, 2021, the total amount outstanding under the First Northern Term Loan was $
As of December 31, 2021, the total amount outstanding under the First
Northern Solar Loan was $28 , of which $21
is included in long-term debt, and $7 is included in current portion of long-term debt, with interest accruing at an effective
interest rate of 4.43 %.
As of September 30, 2021, the total amount outstanding under the First
Northern Solar Loan was $105 , of which $101 is included in long-term debt and $4 is included in current portion
of long-term debt, with interest accruing at an effective interest rate of 4.43 %.
The Company was in compliance with the covenants defined in the First Northern Loan Agreement at December 31, 2021 and September 30, 2021.
|
December 31,
2021
|
September 30,
2021
|
|||||||
| (in thousands) |
||||||||
|
Total Debt*
|
$
|
|
$
|
|
||||
|
Less Current Portion
|
(
|
)
|
(
|
)
|
||||
| Long Term Portion |
$
|
|
$
|
|
||||
| * |
|
| 7. |
SUBORDINATED PROMISSORY NOTES - RELATED PARTY
|
Aves
Labs, Inc., a wholly-owned subsidiary of the Company, is the obligor on a 0.5 % subordinated promissory note in the amount of $1,850 (the “ICT Subordinated Promissory Note”) issued to the former owner of ImmunoChemistry Technologies, LLC (“ICT”), in connection with a
business combination whereby the Company acquired all of the membership interests of ICT. The ICT Subordinated Promissory Note is payable in sixteen
scheduled quarterly installments of principal and interest beginning March 4, 2021, matures on March 21, 2025 , and may be prepaid, in whole or in part, without premium or penalty. The ICT Subordinated Promissory Note is guaranteed by the
Company and is secured by the membership interests in ICT. The ICT 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, First
Merchants Facility and the First Northern Bank of Dixon.
As of December
31, 2021, the amount outstanding under the ICT Subordinated Promissory Note was $1,066 , of which $500 is included in the current portion of subordinated promissory notes and $566 is included in the long-term portion of subordinated promissory notes.
As of September
30, 2021, the amount outstanding under the ICT Subordinated Promissory Note was $1,237 , of which $550 is included in the current portion of subordinated promissory notes and $687 is included in the long-term portion of subordinated promissory notes.
Janel Group is
the obligor on four 4 %
subordinated promissory notes totaling $6,000 (together, the “ELFS Subordinated Promissory Notes”) payable to certain former
shareholders of ELFS. All of the ELFS Subordinated Promissory Notes are guaranteed by the Company and are 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 Facility. The ELFS Subordinated Promissory Notes are payable in twelve equal consecutive quarterly installments of principal together with accrued interest. Beginning October 15, 2021 and on the same day of the next eight consecutive calendar quarters, thereafter payment of accrued interest and unpaid interest is due to the former shareholders. Beginning
October 15, 2023 and on the same day of the next twelve consecutive calendar quarters, thereafter payment of principal together
with accrued interest and unpaid interest is due to the former shareholders. The ELFS Subordinated Promissory Notes totaling $6,000
were recorded net of working capital adjustment of $1,163 .
As of both of
December 31, 2021 and September 30, 2021, the amount outstanding under the ELFS Subordinated Promissory Notes was $4,838
|
December 31,
2021
|
September 30,
2021
|
|||||||
|
(in thousands)
|
||||||||
|
Total subordinated promissory notes
|
$
|
|
$
|
|
||||
|
Less current portion of subordinated promissory notes
|
(
|
)
|
(
|
)
|
||||
|
Long term portion of subordinated promissory notes
|
$
|
|
$
|
|
||||
| 8. |
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 September 21, 2021, the board of directors of the Company adopted the
Amended and Restated 2017 Janel Corporation Equity Incentive Plan (the “Amended Plan”) pursuant to which non-statutory stock options, restricted stock awards and stock appreciation rights of the Company’s Common Stock, par value $0.001 per share (“Common Stock”), may be granted to employees, directors and consultants to the Company and its subsidiaries. The Amended Plan
increased the number of shares of Common Stock that may be issued pursuant to the Amended Plan from 100,000 to 200,000 shares of Common Stock of the Company and was updated to reflect certain other non-substantive amendments.
Total
stock-based compensation for the three months ended December 31, 2021 and 2020 amounted to $29 and $24 , respectively, and is 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:
|
Three
Months Ended
December 31, 2021
|
|||
|
Risk-free interest rate
|
|
|
|
|
Expected option term in years
|
|
||
|
Expected volatility
|
|
|
|
| Dividend yield |
|
||
|
Weighted average grant date fair value
|
$
|
Options 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, 2021
|
|
$
|
|
|
$
|
|
||||||||||
|
Granted
|
|
$ |
|
|
$
|
|
||||||||||
|
Exercised
|
(
|
)
|
$ |
|
—
|
$
|
—
|
|||||||||
|
Outstanding balance at December 31, 2021
|
|
$
|
|
|
$
|
|
||||||||||
|
Exercisable at December 31, 2021
|
|
$ |
|
|
$
|
|
||||||||||
The aggregate intrinsic value in the above table was calculated as the difference between the closing price of the Company’s common stock at December 31, 2021 of $24 per share and the exercise price of the stock options that had strike prices below such closing price.
As of December 31, 2021, there was approximately $153 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 .
Liability classified share-based awards
During the three months ended December 31, 2021, 7,018 options were granted and 10,372
options were exercised with respect 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:
|
Three
Months Ended
December 31,2021
|
||||
|
Risk-free interest rate
|
|
|
||
|
Expected option term in years
|
|
|||
|
Expected volatility
|
|
|
||
| Dividend yield |
||||
|
Weighted average grant date fair value
|
|
$
|
||
|
Number of
Options
|
Weighted
Average
Exercise
Price
|
Weighted
Average
Remaining
Contractual
Term (in years)
|
Aggregate
Intrinsic
Value
(in thousands)
|
|||||||||||||
|
Outstanding balance at September 30, 2021
|
|
$
|
|
|
$
|
|
||||||||||
|
Granted
|
|
$ |
|
|
$
|
|
||||||||||
|
Exercised
|
(
|
)
|
$ |
|
—
|
$ |
—
|
|||||||||
|
Outstanding balance at December 31, 2021
|
|
$ |
|
|
$
|
|
||||||||||
|
Exercisable at December 31, 2021
|
|
$
|
|
|
$ |
|
||||||||||
The aggregate intrinsic value in the above table was calculated as the
difference between the valuation price of Indco’s common stock at December 31, 2021 of $17.16 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 accrued compensation cost related to these options was approximately $279 and $361 as of December 31, 2021 and September 30,
2021, respectively, and is included in other liabilities in the condensed consolidated financial statement. The compensation cost related to these options was approximately $11 and $15 for the three months ended December 31, 2021 and 2020,
respectively.
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.
On December 13,
2021, minority owners of Indco exercised 7,000 and 3,372 options to purchase Indco’s common stock at an exercise price of $6.48
and $12.07 for an aggregate purchase price of $45 and $41 , respectively. Indco issued related party promissory notes in the amount of $45 and $41 , respectively which
bear interest at 1 December 31, 2024 7,000 and 3,372 shares of
Indco’s common stock was recorded as an increase in mandatorily redeemable non-controlling interest. On December 13, 2021, Indco repurchased 7,000
shares of Indco’s stock at a purchase price of $17.16 per share from a minority owner of Indco for the aggregate purchase price
of $120 . The fair value of the repurchased 7,000 shares of Indco’s common stock was recorded as a decrease in mandatorily redeemable non-controlling interest. As a result of the exercise of 10,372 options and the repurchase of 7,000
shares of Indco’s stock, the mandatorily redeemable non-controlling interest percentage was 9.77 % as of December 31, 2021.
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 December 31, 2021, there was approximately $70 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 .
| 9. |
INCOME PER COMMON SHARE
|
The following table provides a reconciliation of the basic and diluted
income per share (“EPS”) computations for the three months ended December 31, 2021 and 2020 (in thousands, except per share data):
|
For the three Months Ended
December 31,
|
||||||||
|
2021
|
2020
|
|||||||
|
Income:
|
||||||||
|
Net income
|
$
|
|
$
|
|
||||
|
Preferred stock dividends
|
(
|
)
|
(
|
)
|
||||
|
Net income available to common stockholders
|
$
|
|
$
|
|
|
|||
|
Common Shares:
|
||||||||
|
Basic - weighted average common shares
|
|
|
||||||
|
Effect of dilutive securities:
|
||||||||
|
Stock options
|
|
|
||||||
|
Convertible preferred stock
|
|
|
||||||
|
Diluted - weighted average common stock
|
|
|
||||||
|
Income per Common Share:
|
||||||||
|
Basic -
|
||||||||
|
Net income
|
$
|
|
$
|
|
||||
|
Preferred stock dividends
|
(
|
)
|
(
|
)
|
||||
|
Net income attributable to common stockholders
|
$
|
|
$
|
|
|
|||
|
Diluted -
|
||||||||
|
Net income
|
$
|
|
$
|
|
||||
|
Preferred stock dividends
|
(
|
)
|
(
|
)
|
||||
|
Net income available to common stockholders
|
$
|
|
$
|
|
|
|||
The computation for the diluted number of shares excludes unvested restricted stock and unexercised stock options that are anti-dilutive. There were 10 anti-dilutive shares for the three-month period ended December 31, 2021
and no anti-dilutive shares for the three-month period ended December 31, 2020.
Potentially diluted
securities as of December 31, 2021 and 2020 are as follows:
|
December 31,
|
||||||||
|
2021
|
2020
|
|||||||
|
Employee stock options
|
|
|
||||||
|
Non-employee stock options
|
|
|
||||||
|
Convertible preferred stock
|
|
|
||||||
|
|
|
|||||||
| 10. |
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):
|
December 31,
2021
|
December 31,
2020
|
|||||||
|
Federal taxes at statutory rates
|
$
|
|
$
|
|
||||
|
Permanent differences
|
|
|
||||||
|
State and local taxes, net of Federal benefit
|
|
|
||||||
| Total |
$
|
|
$
|
|
||||
| 11. |
BUSINESS SEGMENT INFORMATION
|
As referenced above in note 1, the Company operates in three reportable segments: Logistics (previously known as Global Logistics
Services), Life Sciences and Manufacturing. In the fourth quarter of 2021, our former Global Logistics Services segment was renamed “Logistics”; this change was in name only and had no
impact on the Company’s previously reported historical financial position, results of operations, cash flow or segment level results.
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.
The following tables presents selected financial information about the
Company’s reportable segments and Corporate for the purpose of reconciling to the consolidated totals for the three months ended December 31, 2021 and 2020:
|
For the three months ended December 31,
2021 (in thousands)
|
Consolidated
|
Logistics
|
Life Sciences
|
Manufacturing
|
Corporate
|
|||||||||||||||
|
Revenues
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||
|
Forwarding expenses and cost of revenues
|
|
|
|
|
|
|||||||||||||||
|
Gross margin
|
|
|
|
|
|
|||||||||||||||
|
Selling, general and administrative
|
|
|
|
|
|
|||||||||||||||
|
Amortization of intangible assets
|
|
|
|
|
|
|||||||||||||||
|
Income (loss) from operations
|
|
|
|
|
(
|
)
|
||||||||||||||
|
Interest expense
|
|
|
|
|
|
|||||||||||||||
|
Identifiable assets
|
|
|
|
|
|
|||||||||||||||
|
Capital expenditures
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||||
|
For the three months ended December 31,
2020 (in thousands)
|
Consolidated
|
Logistics
|
Life Sciences
|
Manufacturing
|
Corporate
|
|||||||||||||||
|
Revenues
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||
|
Forwarding expenses and cost of revenues
|
|
|
|
|
|
|||||||||||||||
|
Gross margin
|
|
|
|
|
|
|||||||||||||||
|
Selling, general and administrative
|
|
|
|
|
|
|||||||||||||||
|
Amortization of intangible assets
|
|
|
|
|
|
|||||||||||||||
|
Operating income (loss)
|
|
|
|
|
(
|
)
|
||||||||||||||
|
Interest expense
|
|
|
|
|
|
|||||||||||||||
|
Identifiable assets
|
|
|
|
|
|
|||||||||||||||
|
Capital expenditures
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||||
|
12.
|
FAIR VALUE MEASUREMENTS
|
Recurring Fair Value Measurements
The following table
presents the Company’s liabilities that are measured at fair value on a recurring basis based on the three-level valuation hierarchy (in thousands):
|
Level 3
|
December 31, 2021
|
September 30, 2021
|
||||||
|
Contingent earnout liabilities
|
$
|
|
$
|
|
||||
|
Level 3 Liabilities
|
$
|
|
$
|
|
||||
This liability relates
to the estimated fair value of earnout payments to former ELFS owners for the earnout period ending December 31, 2021 and September 30, 2021. The current and non-current portions of the fair value of the contingent earnout liability at December 31,
2021 and September 30, 2021 are $1,054 2,546
Refer to Note 2 to
Consolidated Financial Statements for ELFS acquisition information. The following table sets forth a summary of the changes in the fair value of the Company’s contingent earnout liabilities, which are measured at fair value on a recurring basis
utilizing Level 3 assumptions in their valuation (in thousands):
|
December 31, 2021
|
September 30, 2021
|
|||||||
|
Balance at beginning of period
|
$
|
|
$
|
|
||||
|
Fair value of contingent consideration recorded in connection with business combinations
|
|
|
||||||
|
Change in fair value of contingent consideration
|
|
|
||||||
|
Balance at end of period
|
$
|
|
$
|
|
||||
| 13. |
LEASES
|
The Company has operating leases for office and warehouse space in all
districts where it conducts business. As of December 31, 2021, the remaining terms of the Company’s operating leases were between
and 60 months, and certain lease agreements contain provisions for future rent increases. Payments due under the lease contracts
include the minimum lease payments that the Company is obligated to make under the non-cancelable initial terms of the leases as the renewal terms are at the Company’s option and the Company is not reasonably certain to exercise those renewal
options at lease commencement.
The components of lease cost for the three-month periods ended December 31,
2021 and 2020 are as follows (in thousands):
|
Three
Months
Ended
December 31, 2021
|
Three
Months
Ended
December 31, 2020
|
|||||||
|
Operating lease cost
|
$
|
|
$
|
|
||||
|
Short-term lease cost
|
|
|
||||||
|
Total lease cost
|
$
|
|
$
|
|
||||
Rent expense for the three months ended December 31, 2021 and 2020 was $632 and $245 , respectively. Operating lease
right of use assets, current portion of operating lease liabilities and long-term operating lease liabilities reported in the condensed consolidated balance sheets for operating leases as of December 31, 2021 were $6,353 , $1,797 and $4,708 , respectively. Operating lease right of use assets, current portion of operating lease liabilities and
long-term operating lease liabilities reported in the condensed consolidated balance sheets for operating leases as of September 30, 2021 were $2,936 , $1,281 and $1,751 , respectively.
During the three months ended December 31, 2021, the Company, through its
wholly owned subsidiary ELFS entered into new operating leases and recorded an additional $3,842 in operating lease right of use
assets and corresponding lease liabilities.
As of December 31,
2021 and September 31, 2021, the weighted-average remaining lease term and the weighted-average discount rate related to the Company’s operating leases were 5.2 years and 3.18 % and 2.9 years and 3.89 %, respectively.
Future minimum lease payments under non-cancelable operating leases as of
December 31, 2021 are as follows (in thousands):
|
Year End
December 31,
2021
|
||||
|
2022
|
$
|
|
||
|
2023
|
|
|||
|
2024
|
|
|||
| 2025 |
|
|||
|
2026
|
|
|||
| Thereafter |
||||
|
Total undiscounted loan payments
|
|
|||
|
Less: Imputed interest
|
(
|
)
|
||
|
Total lease obligation
|
$
|
|
||
The following discussion and analysis should be read in conjunction with our unaudited interim condensed consolidated financial statements and related notes thereto as of and for the three months
ended December 31, 2021, which have been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”). Amounts presented in this section are in thousands, except share and per share data.
As used throughout this Report, “we,” “us”, “our,” “Janel,” “the Company,” “Registrant” and similar words refer to Janel Corporation and its Subsidiaries.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (the “Report”) contains certain statements that are, or may 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 and that reflect management’s current expectations with respect to our operations, performance, financial condition, and other developments. These forward-looking
statements may generally be identified by the use of the words “may,” “will,” “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, the impact of the coronavirus on the
worldwide economic conditions and on our businesses, 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; risks associated with litigation, including contingent auto liability and insurance coverage; 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; our dependence on key employees; impacts from
climate change, including the increased focus by third-parties on sustainability issues and our ability to comply therewith; 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; our compliance with applicable privacy, security and data laws; competition faced by our 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 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 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,
increase in the cost or supply shortages, 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, the impact of COVID-19 on our operations and financial results; and such other factors that may be identified from time to time in our Securities and Exchange Commission (“SEC”) filings. In addition, the global economic climate and
additional or unforeseen effects from the COVID-19 pandemic amplify many of these risks. 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. For a more detailed discussion of these factors, see our periodic reports filed with the SEC, including our most recent Annual Report on Form 10-K for the fiscal
year ended September 30, 2021.
OVERVIEW
Janel Corporation (“Janel,” the “Company” or the “Registrant”) is a holding company with subsidiaries
in three business segments: Logistics (previously known as Global Logistics Services), Life Sciences and Manufacturing. In the fourth quarter of 2021, our former Global Logistics Services
segment was renamed “Logistics”; this change related to the name only and had no impact on the Company’s previously reported historical financial position, results of operations, cash flow or segment level results. 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 high risk-adjusted rates of
return; and attracting and retaining exceptional talent.
Management at the holding company 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.
Logistics
The Company’s Logistics segment is comprised of several wholly-owned subsidiaries. The Company’s Logistics segment 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, trucking, and other value-added logistics services. In addition
to these revenue streams, the Company earns accessorial revenue in connection with its core services. Accessorial revenue includes, but is not limited to, fuel service charges, wait time fees, hazardous cargo fees, labor charges, handling, cartage,
bonding and additional labor charges.
On September 21, 2021, the Company completed a business combination whereby it acquired all of the membership interests of Expedited Logistics and Freight Services, LLC. (“ELFS”) and related
subsidiaries which we include in our Logistics segment.
On December 31, 2020, the Company completed a business combination whereby it acquired substantially all of the assets and certain liabilities of W.R. Zanes & Co. of LA., Inc., (“W.R. Zanes”)
which we include in our Logistics segment.
Life Sciences
The Company’s Life Sciences segment is comprised of several wholly-owned subsidiaries. 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 segment also produces products for other life science companies on
an original equipment manufacturer (OEM) basis.
On December 4, 2020, the Company completed a business combination whereby it acquired all of the membership interests of ImmunoChemistry Technologies, LLC. (“ICT”) which we include in our Life Sciences segment.
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.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our Condensed Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles in the United States. These generally accepted accounting principles require management
to make estimates and assumptions that affect the reported amounts of assets, liabilities, net sales and expenses during the reporting period.
Our senior management has reviewed the critical accounting policies and estimates with the Audit Committee of our Board of Directors. Our significant accounting policies are described in Note 1, “Summary of Business
and Significant Accounting Policies,” in the Notes to our Consolidated Financial Statements for the fiscal year ended September 30, 2021, which are included in our Annual Report on Form 10-K filed with the SEC on December 27, 2021. Critical
accounting policies are those that are most important to the portrayal of our financial condition, results of operations and cash flows and require management’s most difficult, subjective and complex judgments, often as a result of the need to make
estimates about the effect of matters that are inherently uncertain. If actual results were to differ significantly from estimates made, the reported results could be materially affected. There were no significant changes to our critical accounting
policies during the three months ended December 31, 2021.
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”).
Organic Growth
Our non-GAAP financial measure of organic growth represents revenue growth excluding revenue from acquisitions within the preceding 12 months. The organic growth presentation provides useful period-to-period
comparison of revenue results as it excludes revenue from acquisitions that would not be included in the comparable prior period.
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 cost recognized on the sale 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 organic growth and adjusted operating income provide useful information in understanding and evaluating our operating results in the same manner as management. However, organic growth 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 organic growth, 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 organic growth 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.
Results of Operations – Janel Corporation
Our results of operations and period-over-period changes are discussed in the following section. The tables and discussion should be read in conjunction with the accompanying Condensed Consolidated Financial
Statements and the notes thereto.
Our consolidated results of operations are as follows:
|
Three Months
Ended
December 31,
2021
|
Three Months
Ended
December 31,
2020
|
|||||||
|
Revenues
|
$
|
83,314
|
$
|
26,478
|
||||
|
Forwarding expenses and cost of revenues
|
67,825
|
20,029
|
||||||
|
Gross profit
|
15,489
|
6,449
|
||||||
|
Operating expenses
|
12,847
|
5,960
|
||||||
|
Operating income
|
$
|
2,642
|
$
|
489
|
||||
|
Net income
|
$
|
1,688
|
$
|
255
|
||||
|
Adjusted operating income
|
$
|
3,362
|
$
|
978
|
||||
Consolidated revenues for the three months ended December 31, 2021 were $83,314, or 214.7% higher than the prior year period. Revenues increased across all three segments due to a recovery from the impact of the
COVID-19 pandemic experienced in the prior fiscal year as well as the impact of acquisitions, which accounted for $24,840 of additional revenue compared to the prior year. Operating income for the three months ended December 31, 2021 was $2,642
compared with $489 in the prior year period as a result of the economic recovery experienced across all of our segments, partially offset by higher spending in the corporate segment. Adjusted operating income for the three months ended December
31, 2021 increased to $3,362 versus $978 in the prior year period. The Company’s net income for the three months ended December 31, 2021 totaled approximately $1,688 or $1.66 per diluted share, compared to a net income of $255 or $0.26 per diluted
share for the three months ended December 31, 2020.
The following table sets forth a reconciliation of operating income to adjusted operating income:
|
Three Months Ended
December 31,
|
||||||||
|
2021
|
2020
|
|||||||
|
Operating income
|
$
|
2,642
|
$
|
489
|
||||
|
Amortization of intangible assets
|
509
|
251
|
||||||
|
Stock-based compensation
|
40
|
24
|
||||||
|
Cost recognized on sale of acquired inventory
|
171
|
214
|
||||||
|
Adjusted operating income
|
$
|
3,362
|
$
|
978
|
||||
Results of Operations – Logistics – Three Months Ended December 31, 2021 and 2020
Our Logistics business 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.
|
Three Months
Ended
December 31,
|
||||||||
|
2021
|
2020
|
|||||||
|
Revenue
|
$
|
77,556
|
$
|
22,260
|
||||
|
Forwarding expense
|
65,610
|
18,395
|
||||||
|
Gross profit
|
$
|
11,946
|
$
|
3,865
|
||||
|
Gross profit margin
|
15.4
|
%
|
17.4
|
%
|
||||
|
Selling, general and administrative expenses
|
$
|
9,349
|
$
|
3,374
|
||||
|
Income from operations
|
$
|
2,597
|
$
|
491
|
||||
Revenue
Total revenue for the three months ended December 31, 2021 was $77,556 as compared to $22,260 for the three months ended December 31, 2020, an increase of $55,296 or 248.4%. The increase in revenue was primarily
driven by the rise in transportation rates as a result of capacity issues globally and a recovery in business compared with the depressed levels in the prior year period, while two acquisitions accounted for $24,840
of additional revenue compared to the prior year.
Gross Profit
Gross profit for the three months ended December 31, 2021 was $11,946, an increase of $8,081, or 209.1%, as compared to $3,865 for the three months ended December 31, 2020. Two acquisitions accounted for $5,834 of additional gross profit compared to the prior year period. A recovery in business accounted for the balance of the gross profit increase compared with the depressed levels in the prior fiscal year and drove
organic gross profit growth of 58%. Gross margin as a percentage of revenue decreased to 15.4% for the three months ended December 31, 2021 compared to 17.4% for the prior year period due to the increase in transportation rates, partially offset by
higher gross profit margins at an acquired business.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the three months ended December 31, 2021 were $9,349, as compared to $3,374 for the three months ended December 31, 2020. This increase of $5,975, or 177.1%, was
mainly due to additional expenses from acquired businesses. As a percentage of revenue, selling, general and administrative expenses were 12.1% and 15.2% of revenue for the three months ended December 31, 2021 and 2020, respectively. The decline in
selling, general and administrative expenses as a percentage of revenue largely reflected the rise in transportation rates as a result of capacity issues globally.
Income from Operations
Income from operations increased to $2,597 for the three months ended December 31, 2021, as compared to income from operations of $491 for the three months ended December 31, 2020, an increase of $2,106. Income from
operations increased as a result of the economic recovery from the COVID-19 pandemic compared to the prior fiscal year and contributions from two acquisitions. Operating margin as a percentage of gross profit for the three months ended December 31,
2021 was 21.7% compared to 12.7% in the prior year period largely due to operating leverage from significantly higher gross profit as business recovered compared with the depressed levels in the prior year
period.
Results of Operations – Life Sciences – Three Months Ended December 31, 2021 and 2020
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 OEM basis.
Life Sciences – Selected Financial Information:
|
Three Months
Ended
December 31,
|
||||||||
|
2021
|
2020
|
|||||||
|
Revenue
|
$
|
3,244
|
$
|
2,349
|
||||
|
Cost of sales
|
830
|
542
|
||||||
|
Cost recognized upon sale of acquired inventory
|
171
|
214
|
||||||
|
Gross profit
|
$
|
2,243
|
$
|
1,593
|
||||
|
Gross profit margin
|
69.1
|
%
|
67.8
|
%
|
||||
|
Selling, general and administrative expenses
|
$ |
1,250
|
$ |
976
|
||||
|
Income from operations
|
$
|
993
|
$
|
617
|
||||
Revenue
Total revenue was $3,244 and $2,349 for the three months ended December 31, 2021 and 2020, respectively, an increase of $895 or 38.1%. An acquisition accounted for $404 of the revenue increase in the quarter, while
organic growth of 21% accounted for the balance of revenue growth as academic research recovered from the impacts of the COVID-19 pandemic.
Gross Profit
Gross profit was $2,243 and $1,593 for the three months ended December 31, 2021 and 2020, respectively, an increase of $650 or 40.8%. During the three months ended December 31, 2021 and 2020, gross profit margin was
69.1% and 67.8%, respectively, as favorable product mix and lower cost recognized upon sale of acquired inventory benefited gross profit margin.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the Life Sciences segment were $1,250 and $976 for the three months ended December 31, 2021 and 2020, respectively. The year-over-year increase was largely due to an acquired business.
Income from Operations
Income from operations for the three months ended
December 31, 2021 and 2020 was $993 and $617, an increase of $376 or 60.9%, largely due to positive operating leverage from the increase in revenue as a result of the
recovery from the impact of the COVID-19-related shut downs experienced in the prior fiscal year and, to a lesser extent, a contribution from an acquisition.
Results of Operations - Manufacturing – Three Months Ended December 31, 2021 and 2020
The Company’s Manufacturing segment reflects its majority-owned Indco subsidiary, which manufactures and distributes industrial mixing equipment.
Manufacturing – Selected Financial Information:
|
Three Months Ended
December 31,
|
||||||||
|
2021
|
2020
|
|||||||
|
Revenue
|
$
|
2,514
|
$
|
1,869
|
||||
|
Cost of revenues
|
1,214
|
878
|
||||||
|
Gross profit
|
$
|
1,300
|
$
|
991
|
||||
|
Gross profit margin
|
51.7
|
%
|
53.0
|
%
|
||||
|
Selling, general and administrative expenses
|
$ |
729
|
$ |
642
|
||||
|
Income from operations
|
$
|
571
|
$
|
349
|
||||
Revenue
Total revenue was $2,514 and $1,869 for the three months ended December 31, 2021 and 2020, respectively, an increase of $645, or 34.5%. The revenue increase reflected a broad increase across the business relative to
the COVID-19 related slowdown in the prior fiscal year.
Gross Profit
Gross profit was $1,300 and $991 for the three months ended December 31, 2021 and 2020, respectively, an increase of $309, or 31.2%. Gross profit margin for the three months ended December 31, 2021 and 2020 was 51.7%
and 53.0%, respectively. The year-over-year decrease in gross profit margin was generally due to the mix of business.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were $729 and $642 for the three months ended December 31, 2021 and 2020, respectively, an increase of $87 or 13.6%. The increase in expenses relative to revenue reflected
positive operating leverage on higher volumes.
Income from Operations
Income from operations was $571 for the three months ended December 31, 2021 compared to $349 for the three months ended December 31, 2020, representing a 63.6% increase from the prior year period. The increase was due to favorable operating leverage as revenue recovered.
Results of Operations – Corporate and Other – Three Months Ended December 31, 2021 and 2020
Below is a reconciliation of income from operating segments to net income (loss) available to common stockholders.
|
Three Months Ended
December 31,
|
||||||||
|
2021
|
2020
|
|||||||
|
(In thousands)
|
||||||||
|
Total income from operating segments
|
$
|
4,161
|
$
|
1,457
|
||||
|
Administrative expenses
|
(1,000
|
)
|
(707
|
)
|
||||
|
Amortization expense
|
(509
|
)
|
(251
|
)
|
||||
|
Stock-based compensation
|
(10
|
)
|
(10
|
)
|
||||
|
Total Corporate expenses
|
(1,519
|
)
|
(968
|
)
|
||||
|
Interest expense
|
(279
|
)
|
(119
|
)
|
||||
|
Net income before taxes
|
2,363
|
370
|
||||||
|
Income tax expense
|
(675
|
)
|
(115
|
)
|
||||
|
Net income
|
1,688
|
255
|
||||||
|
Preferred stock dividends
|
(211
|
)
|
(174
|
)
|
||||
|
Net income Available to Common Stockholders
|
$
|
1,477
|
$
|
81
|
||||
Total Corporate Expenses
Total corporate expenses, which include amortization of intangible assets, stock-based compensation and merger and acquisition expenses, increased by $551, or 56.9%, to $1,519 for the three months ended December 31,
2021 as compared to $968 for the three months ended December 31, 2020. The increase was due primarily to higher accounting related professional expense, increased merger and acquisition expenses and increases in
amortization of intangible expenses. 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 $160, or 134.5%, to $279 for the three months ended December 31, 2021 from $119 for the three months ended December 31, 2020
primarily due to higher average debt balances to support our acquisition efforts and higher working capital within Logistics to support business growth partially offset by lower interest rates.
Income Taxes Expense
On a consolidated basis, the Company recorded an income tax expense of $675 for the three months ended December 31, 2021, as compared to an income tax expense of $115 for the three months ended December 31, 2020. The increase in expense was primarily due to an increase in pretax income. 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 any dividends accrued but not paid on the Company’s Series C Cumulative Preferred Stock (the “Series C Stock”). For the three months ended December 31, 2021 and 2020, preferred stock
dividends were $211 and $174, respectively, representing an increase of $37, or 21.3%. The increase in preferred stock dividends was the result of a higher number of shares of Series C Stock outstanding and an
increase in dividend rate as of January 1, 2021 to 8%.
Net Income
Net income was $1,688, or $1.66 per diluted share, for the three months ended December 31, 2021 compared to net income of $255, or $0.26 per diluted share, for the three months ended December 31, 2020. The increase
was primarily due to higher revenues and gross profit, partially offset by higher selling, general and administrative expenses across our operating segments and at corporate.
Income Available to Common Shareholders
Income available to holders of common shares was $1,477, or $1.45 per diluted share, for the three months ended December 31, 2021 compared to income available to holders of common shares of $81, or $0.08 per diluted
share, for the three months ended December 31, 2020. The increase in net income was primarily due higher revenues,
partially offset by higher selling, general and administrative expenses across our businesses and corporate in both periods and an increase in the dividend rate with respect to the Series C Stock as of January 1,
2021 to 8%.
LIQUIDITY AND CAPITAL RESOURCES
General
Our ability to satisfy liquidity requirements, including satisfying 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 Janel’s control. Our Logistics segment depends 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.
As a customs broker, our Logistics segment makes significant cash advances for a select group of our credit-worthy customers. These cash advances are for customer obligations such as the payment
of duties and taxes to customs authorities primarily in the United States. Increases in duty rates could result in increases in the amounts we advance on behalf of our customers. Cash advances are a “pass through” and are not recorded as a
component of revenue and expense. The billings of such advances to customers are accounted for as a direct increase in accounts receivable from the customer and a corresponding increase in accounts payable to governmental customs authorities. These
“pass through” billings can influence our traditional credit collection metrics. For customers that meet certain criteria, we have agreed to extend payment terms beyond our customary terms. Management believes that it has established effective
credit control procedures and has historically experienced relatively insignificant collection problems.
The COVID-19 pandemic has negatively impacted our liquidity and cash flows. On April 19, 2020, we
entered into a loan agreement with Santander and executed a U.S. Small Business Administration note pursuant to which we borrowed $2,726 from Santander pursuant to the Paycheck Protection
Program (“PPP”) under The Coronavirus Aid, Relief and Economic Security Act, Section 7(a)(36) of the Small Business Act in order to be able to continue to cover our payroll costs, group health care benefits,
mortgage payments, rent and utilities. The duration and magnitude of the pandemic is not reasonably estimable at this point, and if the pandemic persists, our liquidity and capital resources could be further negatively impacted. During
fiscal 2021, the Company applied for and received forgiveness for its PPP Loan.
Our 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 2022 fiscal year may not necessarily be indicative of future cash flow performance.
As of December 31, 2021, the Company’s cash and working capital deficiency (current assets minus
current liabilities) were $5,186 and $13,444, respectively. As of September 30, 2021, the Company’s cash and working capital deficiency were $6,234
and $14,784. Compared with the prior period, the Company’s cash decreased $1,048, or 17%, and its working capital deficiency (current assets minus current liabilities) decreased $1,340, or 9%. The decrease in cash and working capital deficiency
was primarily the result of an increase in accounts receivables collections offset by decreases in accounts payables and accrued expense payments.
Cash flows from operating activities
Net cash provided by operating activities was $5,291 for the three months ended December 31, 2021, versus ($812) used in operating activities for the three months ended December 31, 2020. The increase in cash
provided by operations for the three months ended December 31, 2021 compared to the prior year period was driven principally by higher profits, timing of cash payments for accounts payables and accrued
expenses, partially offset by the timing of cash collections for accounts receivables.
Cash flows from investing activities
Net cash used in investing activities totaled $169 for the three months ended December 31, 2021, versus $2,861 for three months ended December 31, 2020. The Company used $169 for the acquisition of property and
equipment for the three months ended December 31, 2021 compared to $2,806 for the acquisition of two businesses and $55 for the acquisition of property and equipment for the three months ended December 31, 2020.
Cash flows from financing activities
Net cash used in financing activities was $6,170 for the three months ended December 31, 2021, versus net cash provided by financing activities of $2,156 for the three months ended December 31, 2020. Net cash used in
financing activities for the three months ended December 31, 2021 primarily included repayment of funds from our line of credit partially, term loan and notes payable related party. Net cash provided financing activities for the three months ended
December 31, 2020 primarily included proceeds from our line of credit partially offset by repayments on term loan and notes payable related party.
Off-Balance Sheet Arrangements
As of December 31, 2021, we had no off-balance sheet arrangements or obligations.
The Company maintains disclosure controls and procedures designed to ensure that information required to be disclosed in reports filed under the Securities Exchange Act of 1934, as amended (the
“Exchange Act”), is recorded, processed, summarized and reported within the specified time periods, and that such information is accumulated and communicated to management, including our Chief Executive Officer and Principal Financial Officer, as
appropriate, to allow timely decisions regarding required disclosure. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.
Our management, with the participation of our Chief Executive Officer and our Principal Financial
Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of December 31, 2021, the end of the period covered by this Quarterly Report on Form 10-Q.
Consistent with guidance issued by the SEC that an assessment of internal controls over financial reporting of a recently acquired business may be omitted from management’s evaluation of disclosure controls and procedures, management is
excluding an assessment of such internal controls of ELFS from its evaluation of the effectiveness of the Company’s disclosure controls and procedures. ELFS, which the Company acquired on September 21, 2021, constituted 15 percent of the
Company’s total assets and 34 percent of income before income taxes of the Company as of and for the quarter ended December 31, 2021. Based on this evaluation, the Company’s Chief Executive Officer and Principal Financial Officer have concluded
that as of the end of such period, the Company’s disclosure controls and procedures were effective.
As referenced above, the Company acquired ELFS on September 21, 2021. The Company is in the
process of reviewing the internal control structure of ELFS and, if necessary, will make appropriate changes as it integrates ELFS into the Company’s overall internal control over financial reporting process. Other than as described above,
there have been no changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended December 31, 2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
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.
For a discussion of the Company’s potential risks or uncertainties, please see “Part I—Item 1A—Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended September 30, 2021. There have been no material
changes to the risk factors disclosed in Part I—Item 1A of the Company’s 2021 Annual Report.
There were no unregistered sales of equity securities during the three months ended December 31, 2021. In addition, there were no shares of common stock purchased by us during the three months ended December 31,
2021.
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Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer (filed herewith)
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Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer (filed herewith)
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Section 1350 Certification of Principal Executive Officer (filed herewith)
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Section 1350 Certification of Principal Financial Officer (filed herewith)
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101
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Interactive data files providing financial information from the Company’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2021 for the three months ended December 31, 2021 and 2020 in Inline
XBRL (eXtensible Business Reporting Language) pursuant to Rule 405 of Regulation S-T: (i) Condensed Consolidated Balance Sheets as of December 31, 2021 and September 30, 2021, (ii) Condensed Consolidated Statements of Operations for the
three months ended December 31, 2021 and 2020, (iii) Condensed Consolidated Statement of Changes in Stockholders’ Equity for the three months ended December 31, 2021 and 2020, (iv) Condensed Consolidated Statements of Cash Flows for the
three months ended December 31, 2021 and 2020, and (v) Notes to Condensed Consolidated Financial Statements.
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104
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Cover Page Interactive Data File (formatted as Inline XBRL and contained in the Interactive Data Files submitted as Exhibit 101) (filed herewith)
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Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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Dated: February 9, 2022
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JANEL CORPORATION
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Registrant
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/s/ Dominique Schulte
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Dominique Schulte
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Chairman, President and Chief Executive Officer
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(Principal Executive Officer)
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Dated: February 9, 2022
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JANEL CORPORATION
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Registrant
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/s/ Vincent A. Verde
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Vincent A. Verde
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Principal Financial Officer, Treasurer and Secretary
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TABLE OF CONTENTS
Part I -Item 1. Financial StatementsItem 2. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsItem 4. Controls and ProceduresPart II - Other InformationPart II -Item 1. Legal ProceedingsItem 1A. Risk FactorsItem 2. Unregistered Sales Of Equity Securities and Use Of ProceedsItem 6. Exhibit Index