Washington, D.C. 20549
Indicate by check mark whether the registrant
has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted
and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter
period that the registrant was required to submit and post such files).
Indicate by check mark if the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of
“large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2
of the Exchange Act.
The number of shares of Common Stock outstanding
as of December 18, 2016 was 573,951.
PART I
Janel Corporation (“Janel,”
“Company,” or “Registrant”) is a holding company with subsidiaries in two business segments: Global Logistics
Services and Manufacturing. The Company’s Global Logistics Services segment comprises several wholly-owned subsidiaries,
collectively known as “Janel Group.” The Company’s Manufacturing segment comprises its majority-owned INDCO subsidiary,
which manufactures and distributes industrial mixing equipment. Janel is a successor to a business originally formed in 1975. Janel
is domiciled in the state of Nevada. Its corporate headquarters is in Lynbrook, New York. Its website is located at http://www.janelcorp.com.
Janel’s management
focuses on significant capital allocation decisions, corporate governance and supporting its subsidiaries where appropriate. The
Company expects to grow through its subsidiaries’ organic growth and by completing acquisitions. Janel either will acquire
businesses within its existing segments, or it will expand its portfolio into new segments. Janel’s acquisition strategy
focuses on reasonably-priced companies with strong and capable management teams, attractive existing business economics and stable
and predictable earnings power.
In September 2014,
the Company purchased the equity of Alpha International / President Container Lines (“Alpha/PCL”), a global logistics
services company. Approximately one year later, it purchased the equity of Liberty International, Inc. (“Liberty”).
These companies, along with the legacy Janel Group, comprise Janel Corporation’s global logistics services segment, which
focuses on international transportation and customs clearance. In March 2016, the Company purchased INDCO, Inc. (“INDCO”)
in order to diversify cash flow streams. INDCO comprises Janel Corporation’s manufacturing segment.
Janel and its consolidated
subsidiaries employ 108 full-time and five part-time people in the United States. None of these employees is covered by a collective
bargaining agreement. Janel and its subsidiaries have experienced no work stoppages and consider relations with their employees
to be good.
Global Logistics Services
The Company’s
Global Logistics Services segment comprises several wholly-owned subsidiaries, collectively known as “Janel Group.”
We acquired Alpha/PCL in September 2014 and Liberty in August 2015 in order to add markets and specialties to Janel Group’s
logistics offerings.
Janel Group operates
out of eight leased, full-service locations in the United States: Lynbrook (New York), New York (headquarters, operations and accounting);
Edison (Newark), New Jersey; Essington (Philadelphia), Pennsylvania; Elk Grove Village (Chicago), Illinois; Forest Park (Atlanta),
Georgia; Torrance (Los Angeles), California; Pawtucket (Providence), Rhode Island; and Boston, Massachusetts. Janel Group maintains
a network of independent agent relationships in many trading countries, giving it the ability to provide a global service to its
clients.
Janel Group helps its clients move and manage freight efficiently to reduce inventories and to increase
supply chain speed and reliability. Key services include customs entry filing, arrangement of freight forwarding by air, ocean
and ground, warehousing, cargo insurance procurement, logistics planning, product repackaging and online shipment tracking. During
the fiscal year ended September 30, 2016, Janel Group handled over 50,000 individual import and export shipments originating or
terminating in the United States, Europe and
Asia. Approximately
70% of the revenue from this activity related to imports, 12% to exports, and 18% to break-bulk, forwarding and other services.
Janel Group has one customer that accounts for approximately 10.4% of Janel Corporation’s total revenues in fiscal 2016.
Janel Group earns flat
fees for certain services, such as customs entry filing. For brokered services, Janel Group earns the difference between the rate
charged by a service provider and the rate Janel Group charges the customer for the provider’s service. Janel Group’s
freight consolidation activities, in addition to on-going volume-based relationships with providers, allows Janel Group to command
preferred service rates that can be passed on profitably to the customer.
The logistics industry
is highly fragmented, with low barriers to entry and intense competition. Janel Group competes against providers ranging in size
from “mom-and-pop” businesses to multi-billion dollar, multi-national firms with hundreds of offices worldwide. Many
Janel Group customers utilize more than one logistics provider.
The
global forwarding industry requires dealings in currencies other than the U.S. Dollar. As a result, Janel Group is exposed to the
inherent risks of international currency markets and governmental interference. Some countries in which Janel Group maintains agent
relationships have currency control regulations that influence Janel Group’s ability to hedge foreign currency exposure.
Janel Group tries to compensate for these exposures by accelerating international currency settlements among those agents.
Historically, Janel Group’s
quarterly operating results have been subject to seasonal trends. The fiscal second quarter has traditionally been the weakest
and the fiscal third and fourth quarters have traditionally been the strongest. This pattern has been the result of, or influenced
by, numerous factors including climate, national holidays, consumer demand, economic conditions and other similar and subtle forces.
This historical seasonality has also been influenced by the growth and diversification of Janel Group’s international network
and service offerings.
A significant portion
of Janel Group’s revenues are derived from customers in industries with shipping patterns tied to consumer demand and/or
just-in-time production schedules. Many of Janel Group’s customers may ship a significant portion of their goods at or near
the end of a quarter. Therefore, the timing of Janel Group revenues is, to a large degree, affected by factors beyond its control,
such as shifting consumer demand for retail goods and manufacturing production delays. Janel Group cannot accurately forecast many
of these factors, nor can it estimate the relative impact of any given factor. Therefore, there is no assurance that historical
patterns will continue in the future.
Interstate and international
transportation of freight is highly regulated. Failure to comply with applicable state and federal regulations, or to maintain
required permits or licenses, can result in substantial fines or revocation of operating permits or authorities imposed on both
transportation intermediaries and their shipper customers. We cannot give assurance as to the degree or cost of future regulations
on our business. Some of the regulations affecting our current and prospective operations are described below.
Janel Group’s
activities in the air transportation industry in the United States are subject to regulation by the Department of Transportation
as an indirect air carrier. Janel Group’s overseas offices and agents are licensed as freight forwarders in their respective
countries of operation, and each of Janel Group’s offices is licensed as a freight forwarder by the International Air Transport
Association (“IATA”). IATA is a voluntary association of airlines which prescribes certain operating procedures for
freight forwarders acting as agents of its members. Most of Janel Group’s freight forwarding business is conducted with airlines
that are IATA members.
Each Janel Group company
that engages in customs brokerage is licensed as a customs broker by the Department of Homeland Security Customs and Border Service.
All U.S. Customs brokers are required to maintain prescribed records and are subject to periodic audits by the Customs Service.
In other jurisdictions in which Janel Group companies perform clearance services, the relevant company is licensed by the appropriate
governmental authority.
Each Janel Group company
that engages in ocean freight is registered as an Ocean Transportation Intermediary and licensed as a non-vessel operating common
carrier (“NVOCC”) by the Federal Maritime Commission. The FMC has established certain qualifications for shipping agents,
including certain surety bonding requirements.
When acting as an airfreight
consolidator, Janel Group assumes a carrier’s liability for lost or damaged shipments. This legal liability is typically
limited by contract to the lower of the transaction value or the released value ($9.07 per pound unless the customer declares a
higher value and pays a surcharge), excepted for loss or damages caused by willful misconduct in the absence of an appropriate
airway bill. The airline that Janel Group utilizes to make the actual shipment is generally liable to Janel Group in the same manner
and to the same extent. When acting solely as the agent of an airline or shipper, Janel Group does not assume any contractual liability
for loss or damage to shipments tendered to the airline.
When acting as an ocean
freight consolidator, Janel Group assumes a carrier’s liability for lost or damaged shipments. This liability is strictly
limited by contract to the lower of a transaction value or the released value ($500 for package or customary freight unit unless
the customer declares a higher value and pays a surcharge). The steamship line which Janel Group utilizes to make the actual shipment
is generally liable to Janel Group in the same manner and to the same extent. In its ocean freight forwarding and customs clearance
operations, Janel Group does not assume cargo liability.
When providing warehouse
and distribution services, Janel Group limits its legal liability by contract to an amount generally equal to the lower of fair
value or $.50 per pound with a maximum of $50 per “lot,” defined as the smallest unit that the warehouse is required
to track. Upon payment of a surcharge for warehouse and distribution services, Janel Group would assume additional liability.
Janel Group maintains
marine cargo insurance covering claims for losses attributable to missing or damaged shipments for which it is legally liable.
Janel Group also maintains insurance coverage for the property of others stored in company warehouse facilities.
Janel Group is subject to U.S. federal,
state and local provisions regulating the discharge of materials into the environment or otherwise for the protection of the environment.
Similar laws apply in many foreign jurisdictions in which Janel Group operates. Although current operations have not been significantly
affected by compliance with these environmental laws, the Company cannot predict what impact future environmental regulations may
have on Janel Group. Janel Group does not anticipate making any material capital expenditures for environmental control purposes
during the remainder of the current or succeeding fiscal years.
Manufacturing
Purchased in March 2016,
the Company’s Manufacturing segment comprises its majority-owned INDCO subsidiary, which manufactures and distributes industrial
mixing equipment. INDCO’s headquarters and manufacturing operations are located in a single leased facility in New Albany,
Indiana.
INDCO provides solutions
for the mixing needs of customers operating in diverse industries, including chemicals, inks, paints, construction, plastics, adhesives,
cosmetics, food and pharmaceuticals. Solutions include over 2,500 standard product configurations, both manufactured and distributed,
available for order from INDCO’s website and its print catalog, mailed quarterly. In addition, INDCO manufactures custom-designed
mixing solutions that INDCO helps specify, design, machine, assemble and distribute. During the fiscal year ended September 30,
2016, INDCO made approximately 6,000 individual shipments to customers. INDCO generated gross revenue of approximately $7.6 million
in fiscal 2016 and $7.3 million in fiscal 2015. In fiscal 2016, approximately 81% of INDCO’s revenue came from manufacturing
activity. The remainder came from distribution activity.
The industrial mixer
manufacturing industry is highly fragmented with low barriers to entry. INDCO competes with companies of all sizes based on a combination
of pricing, lead-times, service, quality and ability to reach customers through internet presence and catalog circulation.
Government regulation
directly governing INDCO’s industrial mixer product line is minimal. Changing energy efficiency standards, however, as mandated
by the Department of Energy, can, over time, affect electric motor manufacturers whose products are used by INDCO. Historically,
these changes have resulted in only minor changes to the product line.
INDCO is subject
to U.S. federal, state and local provisions regulating the discharge of materials into the environment or otherwise for the
protection of the environment. Although current operations have not been significantly affected by compliance with these
environmental laws, the Company cannot predict what impact future environmental regulations may have on INDCO. INDCO does not
anticipate making any material capital expenditures for environmental control purposes during the remainder of the current or
succeeding fiscal years.
An investment in Janel’s Common
Stock is subject to risks inherent to the Company’s business. The material risks and uncertainties that management believes
affect Janel are described below. Additional risks and uncertainties that management is not aware of or focused on or that management
currently deems immaterial may also impair the Company’s business operations.
Janel intends to continue expansion through
acquisition.
Janel
expects to grow its businesses in part by completing acquisitions. Janel either will acquire businesses within its existing segments,
or it will expand its portfolio into new segments. In either case, there can be no assurance
:
|
·
|
that Janel’s financial condition
will be sufficient to support the funding needs of an expansion program;
|
|
·
|
that acquisitions will be successfully
consummated or will enhance profitability; or
|
|
·
|
that any expansion opportunities will
be available upon reasonable terms.
|
Janel expects future acquisitions to encounter risks similar to those that past acquisitions have encountered, such as:
|
·
|
difficulty in assimilating the operations
and personnel of the acquired businesses;
|
|
·
|
potential disruption of ongoing business;
|
|
·
|
the inability of management to realize
the projected operational and financial benefits from the acquisition or to maximize financial and strategic benefits through the
incorporation of acquired personnel and clients;
|
|
·
|
the maintenance of uniform standards,
controls, procedures and policies; and
|
|
·
|
the impairment of relationships with employees
and clients resulting from integration of new management.
|
Janel expects that any
future acquisitions could provide for consideration to be paid in cash, stock or a combination of cash and stock. There can be
no assurance that any of these acquisitions will be completed. If an acquired entity is not efficiently or completely integrated,
then Janel’s business, financial condition and operating results could be materially adversely affected.
Janel may not have sufficient working
capital to continue operations.
Janel’s cash needs
are currently met by commercial bank credit facilities and cash on hand. Actual working capital needs for the short and long terms
will depend upon numerous factors, including operating results, the availability of a revolving line of credit, competition, and
the cost associated with growing, either internally or through acquisition, none of which can be predicted with certainty. If results
of operations and availability under our bank lines of credit are insufficient to meet cash needs, Janel will be required to obtain
additional investment capital or debt funding to continue operations.
Janel’s businesses are dependent
upon key employees.
Janel believes that the
success of its subsidiaries is highly dependent on the continuing efforts of certain key employees, some of whom are subject to
employment agreements. The loss of the services of any of these key personnel could have a material adverse effect on business.
Janel’s officers and directors
control the Company.
The officers and directors
of the Company control the vote of approximately 53.6% of the outstanding shares of Common Stock, including the options to purchase
shares that have been granted to key employees of the Company. As a result, the officers and directors of the Company control the
election of the Company’s directors and will have the ability to control the affairs of the Company. Furthermore, an investor
in the Company has the right to appoint 50% of the members of the Company’s Board of Directors. As a result, these officers,
directors and shareholders have controlling influence over, among other things, the ability to amend the Company’s Certificate
of Incorporation and By-Laws or effect or preclude fundamental corporate transactions involving the Company, including the acceptance
or rejection of any proposals relating to a merger of the Company or an acquisition of the Company by another entity.
Terrorist attacks and other acts of violence
or war may affect any market on which the Company’s shares trade, the markets in which the Company’s subsidiaries operate,
and the Company’s business operations and profitability.
Terrorist acts or acts
of war or armed conflict could negatively affect Janel’s business operations. Any of these acts could result in increased
volatility in, or damage to, the U.S. and worldwide financial markets and economy, and could lead to increased regulatory requirements
with respect to the security and safety of freight shipments and transportation. They could also result in a continuation of the
current economic uncertainty in the United States and abroad. Acts of terrorism or armed conflict, and the uncertainty caused by
such conflicts, could cause a reduction in demand for our businesses. This would have a corresponding negative effect on our Janel
Group’s operations. Also, terrorist activities like those experienced on September 11, 2001 could result in another halt
of trading of securities, which could also have an adverse effect on the trading price of Janel Corporation shares and overall
market capitalization.
Economic and other conditions in the
markets in which Janel operates can affect demand for services and results of operations.
Janel’s future
operating results are dependent upon the economic environments of the markets in which it operates. Demand for services could be
adversely affected by economic conditions in the industries of Janel’s customers. We expect the demand for Janel’s
services (and, consequently, results of operations) to continue to be sensitive to domestic and, increasingly, global economic
conditions and other factors beyond Janel’s control.
Risk
Factors Unique to our businesses
Janel Group faces aggressive competition
from freight carriers with greater financial resources and with companies that operate in areas that Janel Group plans on expanding
to in the future.
Janel Group faces intense
competition within the freight industry on a local, regional, national and global basis. Many of Janel Group’s competitors
have much larger facilities and far greater financial resources. In the freight forwarding industry, Janel Group competes with
a large and diverse group of freight forwarding concerns, commercial air and ocean carriers and a large number of locally established
companies in geographic areas where Janel Group does business or intends to do business in the future. The loss of customers, agents
or employees to competitors could adversely impact Janel Group’s ability to maintain profitability.
In addition, the transport
of freight, both domestically and internationally, is highly competitive and price sensitive and new competitors emerge annually.
Changes in the volume of freight transported, shippers’ preferences as to the timing of deliveries as a means to control shipping
costs, economic and political conditions, both in the United States and abroad, work stoppages, United States and foreign laws
relating to tariffs, trade restrictions, foreign investments and taxation may all have significant impact on Janel Group’s
overall business, growth and profitability.
Janel Group’s ability to serve
its customers depends on the availability of cargo space from third parties.
Janel Group’s
ability to serve its customers depends on the availability of air and sea cargo space, including space on passenger and cargo airlines
and ocean carriers that service the transportation lanes that Janel Group uses. Shortages of cargo space are most likely to develop
around holidays and in especially heavy transportation lanes. In addition, available cargo space could be reduced as a result of
decreases in the number of passenger airlines or ocean carriers serving particular shipment lanes at particular times. This could
occur as a result of economic conditions, transportation strikes, regulatory changes and other factors beyond Janel Group’s
control. Janel Group’s future operating results could be adversely affected by significant shortages of suitable cargo space
and associated increases in rates charged by passenger airlines or ocean carriers for cargo space.
Events affecting the volume of international
trade and international operations could adversely affect Janel Group’s international operations.
Janel Group’s
international operations are directly related to, and dependent on, the volume of international trade, particularly trade between
the United States and foreign nations. This trade, as well as Janel Group’s international operations, is influenced by many
factors, including:
|
·
|
economic and political conditions in the United States and abroad;
|
|
·
|
major work stoppages;
|
|
·
|
exchange controls, currency conversion and fluctuations;
|
|
·
|
war, other armed conflicts and terrorism; and
|
|
·
|
United States and foreign laws relating to tariffs, trade restrictions, foreign investment and taxation.
|
Trade-related events beyond Janel Group’s
control, such as a failure of various nations to reach or adopt international trade agreements or an increase in bilateral or multilateral
trade restrictions, could have a material adverse effect on international operations. Operations also depend on the availability
of independent carriers that provide cargo space for international operations.
Failure to comply with governmental
permit and licensing requirements or statutory and regulatory requirements could result in civil and criminal sanctions, fines
or revocation of Janel Group’s operating authorities, and changes in these requirements could adversely affect Janel Group’s
businesses.
Janel Group’s
operations are subject to various state, local, federal and foreign statutes and regulations prohibiting various activities that
in many instances require permits and licenses. Failure to maintain compliance with applicable law and regulations, required permits
or licenses, or to comply with applicable regulations, could result in substantial fines or revocation of Janel Group’s operating
authorities. Moreover, government deregulation efforts, “modernization” of the regulations governing customs clearance
and changes in the international trade and tariff environment could require material expenditures or otherwise adversely affect
Janel Group’s business specifically.
INDCO faces aggressive competition
from competitors with greater financial resources.
INDCO is a producer
of industrial mixers and mixing equipment for a variety of industries. This market is addressed by companies ranging in size
from large, publicly held concerns with resources greater than those of INDCO to small privately-owned entities. New competitors
emerge annually, particularly in the online marketing space.
INDCO relies on a single location
to manufacture its products.
INDCO’s business operates out of
a single location in New Albany, Indiana. The company employs lean manufacturing techniques and therefore carries little inventory.
Should the location be disrupted for any reason, INDCO’s ability to manufacture its products and to service its customers
could be impaired.
Risk
Factors Relating to the Company’s Articles of Incorporation and our Stock
The liability of our directors is
limited.
Janel’s Articles
of Incorporation limit the liability of directors to the maximum extent permitted by Nevada law.
It is unlikely that the Company will
issue dividends on its Common Stock in the foreseeable future.
Janel has never declared
nor paid cash dividends on its Common Stock, and it does not intend to pay dividends in the foreseeable future. The payment of
dividends in the future will be at the discretion of the board of directors.
The Company’s stock price is
subject to volatility.
Janel Common Stock
trades on the OTC Bulletin Board under the symbol “JANL”. The market price of Janel Common Stock has been subject to
significant fluctuations. Such fluctuations, as well as economic conditions generally, may adversely affect the market price of
Janel securities.
The Company has no assurance of a
continued public trading market.
Janel’s Common
Stock is quoted in the over-the-counter market on the OTC Bulletin Board and is subject to the low-priced security or so-called
“penny stock” rules that impose additional sales practice requirements on broker-dealers who sell such securities.
For any transaction involving a penny stock, the rules require, among other things, the delivery, prior to the transaction, of
a disclosure schedule required by the SEC relating to the penny stock market. The broker-dealer also must disclose the commissions
payable to both the broker-dealer and the registered representative and current quotations for the securities. Finally, monthly
statements must be sent disclosing recent price information for the penny stocks held in the customer’s account. As a result,
characterization as a “penny stock” can adversely affect the market liquidity for the securities.
|
ITEM 1B.
|
UNRESOLVED STAFF COMMENTS
|
Not applicable.
Janel’s executive
offices are located in approximately 6,800 square feet of leased space in Lynbrook, New York. The lease term ends January 31, 2020.
Annual base rent is $172,886 for 2017, and rent may increase annually by approximately 3.5%.
As of September 30,
2016, Janel Group leased office space in eight cities located in the United States.
As of
September 30, 2016, INDCO leased office and manufacturing space in a single facility in New Albany, Indiana. The lease term
ends July 31, 2020. Annual rent is $68,760. There is an option to renew for five years, subject to a Consumer Price Inflation
increase from July 1, 2015 to renewal date.
|
ITEM 3.
|
LEGAL PROCEEDINGS
|
Janel is occasionally
subject to claims and lawsuits which typically arise in the normal course of business. While the outcome of these claims cannot
be predicted with certainty, management does not believe that the outcome of any of these legal matters will have a material adverse
effect on the Company’s financial position or results of operations.
|
ITEM 4.
|
MINE
SAFETY DISCLOSURES
|
None.
PART III
|
ITEM 10.
|
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
|
Directors and Executive Officers
The executive officers and directors of
the Company are as follows:
Name
|
Age
|
Position
|
|
|
|
Brendan J. Killackey
|
42
|
President, Chief Executive Officer and Director
|
|
|
|
Brian Aronson
|
47
|
Chief Financial Officer
|
|
|
|
Dominique Schulte
|
43
|
Director
|
|
|
|
Gerard van Kesteren
|
67
|
Director
|
|
|
|
John J. Gonzalez, II
|
66
|
Director
|
Brendan J. Killackey
was elected to the Board in September 2014 and appointed CEO in February 2015. Mr. Killackey previously owned Progressive Technology
Partners, LLC, a technology consultancy, which he founded in 2001. Given Janel’s and its subsidiaries’ reliance on
technology, Mr. Killackey’s background and experience are valuable to the Company, and, therefore, he is well-qualified to
serve as a member of the Company’s Board.
Brian Aronson
has served as Chief Financial Officer since September 2015. Since February 2011, Mr. Aronson has been Principal of Brian Aronson,
LLC, a financial advisory and consulting firm specializing in change management and continuous improvement. From 2006 until 2011,
Mr. Aronson was a Director of Capstone Advisory Group. Mr. Aronson’s experience spans 24 years in various financial and operational
management functions. Mr. Aronson has advised the Company since March 2015.
Dominique Schulte
has served as a Director of Janel since November 2015. From 1999 through 2009, Ms. Schulte practiced law at Simpson Thacher &
Bartlett LLP in New York, where she specialized in corporate and securities law. Ms. Schulte is the managing member of Oaxaca Group,
LLC (“Oaxaca”). Pursuant to the terms of the Securities Purchase Agreement dated October 6, 2013, entered into between
the Company and Oaxaca (the “Securities Purchase Agreement”), the Company agreed to appoint up to two candidates nominated
by Oaxaca to become members of the Company’s Board of Directors. Ms. Schulte was appointed to the Board in accordance with
the terms of the Securities Purchase Agreement. Ms. Schulte is well-qualified to serve as a member of the Company’s Board
based on her extensive experience.
Gerard van Kesteren
has served as a Director of Janel since November 2015. From 1999 until 2014, Mr. van Kesteren served as the Chief Financial Officer
of Kuehne + Nagel Group, an international freight forwarder and leading global provider of innovative and fully integrated supply
chain solutions. Mr. van Kesteren has served as a director of Gategroup Holding AG since April 2015. Mr. van Kesteren is well-qualified
to serve as a member of the Company’s Board based on his extensive experience in the freight forwarding and logistics industry.
John J. Gonzalez,
II
has served as a Director of Janel since June 2016. Prior to that, he was a Senior Managing Director of Janel Group, following
the August 2014 purchase by the Company of Alpha International and President Container Lines (“Alpha/PCL”), which he
co-founded in 1979. Mr. Gonzalez has been involved in the transportation business since 1969. Mr. Gonzalez is well-qualified to
serve as a member of the Company’s Board based on his extensive experience in the freight forwarding and logistics industry.
Directors hold office
until the next annual meeting of shareholders and thereafter until their successors have been duly elected and qualified. The executive
officers are elected by the Board of Directors on an annual basis and serve under the direction of the Board. Executive officers
devote all of their business time to the Company’s affairs.
Board of Directors
Board of Directors
.
During the fiscal year ended September 30, 2016, the Board of Directors met ten times. No incumbent director attended fewer than
75% of the total number of meetings of the Board of Directors of the Company held during the year.
Committees
.
Our Board of Directors has not established any committees. There is no Audit Committee, Compensation Committee, or Nominating Committee,
or any committee performing similar functions, and no charters have been adopted with respect to these functions. The functions
which would have been assigned to those committees are undertaken by the entire board as a whole.
Audit Function
.
In its audit function, the Board oversees the Company’s accounting, financial reporting and internal control functions and
the audit of the Company’s financial statements. The audit responsibilities include, among others, direct responsibility
for hiring, firing, overseeing the work of and determining the compensation for the Company’s independent auditors. The Board
does not include an “audit committee financial expert” (as defined in applicable Securities and Exchange Commission
(SEC) rules), because the Board believes that the benefits provided by the addition to the Board of an individual who meets the
SEC criteria at this time do not justify the cost of retaining such an individual.
Nominating Function.
The Company’s full Board of Directors acts as a nominating committee for the annual selection of its nominees for election
as directors. The Board believes that the interests of the Company’s stockholders are served by relegating the nominations
process to the full Board. While the Board of Directors will consider nominees recommended by stockholders, it has not actively
solicited recommendations from the Company’s stockholders for nominees, nor established any procedures for this purpose.
In considering prospective nominees, the Board of Directors will consider the prospect’s relevant financial and business
experience, familiarity with and participation in the Company’s industry and market area, the integrity and dedication of
the prospect and other factors the Board deems relevant. The Board of Directors will apply the same criteria to nominees recommended
by stockholders as those recommended by the full Board.
Compensation Function
.
The Company’s full Board of Directors acts as a compensation committee for the Company. The Board believes that, due to the
size of the Company and its management team, the interests of the Company’s stockholders are served by relegating the compensation
process to the full Board.
The primary objective
of our compensation and benefits program is to attract, motivate and retain our quality executive talent, and support our business
goals within the limits arising out of the Company’s revenue and profitability. Our executive compensation structure is comprised
of and limited to a small group of individuals, and the amount of their compensation is principally based on the available
funds and the achievement of our goals for growth and profitability.
Our Board of Directors reviews and approves executive compensation, bonus, and benefits policies on a case-by-case
basis, often based on the recommendation of our Chief Executive Officer’s subjective assessment of the funding reasonably
available for executive compensation.
Director Compensation
During the Company’s
fiscal year ended September 30, 2016, neither Mr. Killackey, the Company’s President and Chief Executive Officer, nor Mr.
Gonzalez, the Vice President of Mergers and Acquisitions at Janel Group, received additional compensation for serving as a director.
All Board members are reimbursed for their reasonable expenses as members of the Board of Directors. The following table summarizes
the compensation paid to outside directors for their services during the Company’s fiscal year ended September 30, 2016:
Name
(a)
|
|
Fees Earned or
Paid
in Cash
(b)
|
|
|
Option
Awards
(d)
|
|
|
Total
(h)
|
|
Gerard van Kesteren
|
|
$
|
52,500
|
|
|
$
|
0
|
|
|
$
|
52,500
|
|
The compensation reflected
in the above table is paid on a quarterly basis over a two year agreement term. For the Company’s fiscal year ended September
30, 2016, Ms. Schulte did not receive any compensation for her services.
Code of Ethics
Due to its small size, the Company has not yet adopted a code of ethics.
Communications with the Board
Any
shareholder desiring to contact the Board, or any specific director(s), may send written communications to: Board of
Directors (Attention: (Name(s) of director(s), as applicable)), c/o the Company’s Secretary, 303 Merrick Road, Suite
400, Lynbrook, New York 11563. Any proper communication so received will be processed by the Secretary. If it is unclear from
the communication received whether it was intended or appropriate for the Board, the Secretary will (subject to any
applicable regulatory requirements) use his or her judgment to determine whether such communication should be conveyed to the
Board or, as appropriate, to the member(s) of the Board named in the communication.
Leadership Structure and Risk Oversight
While the Board believes
that there are various structures which can provide successful leadership to the Company, the Company’s executive functions
are carried out by the Company’s President and Chief Executive Officer, who serves on the Company’s Board of Directors
and, together with the other directors, brings experience, oversight and expertise to the management of the Company. The Board
believes that, due to the small size of the Company, this leadership structure best serves the Company and its stockholders.
Management is responsible
for the day-to-day management of risks the Company faces, while the Board has collective responsibility for the oversight of risk
management. In its risk oversight role, the Board has the responsibility to satisfy itself that the risk management processes designed
and implemented by management are adequate and functioning as designed. To do this, management discusses with the Board the risks
facing the Company and its strategy for managing them.
Compliance with Section 16(a) of the
Exchange Act
Section 16(a) of the
Securities Exchange Act, as amended, requires that the Company’s directors and executive officers and each person who owns
more than 10% of the Company’s Common Stock, file with the Securities and Exchange Commission in a timely manner an initial
report of beneficial ownership and subsequent reports of changes in beneficial ownership of the Shares. To the Company’s
knowledge, all reports are up to date.
Audit Committee Report
The Board of Directors
in its audit function has reviewed and discussed with management the annual audited financial statements of the Company and its
subsidiaries.
The Board of Directors
in its audit function has discussed with Paritz & Company, P.A., the independent auditors for the Company for the fiscal year
ended September 30, 2016, the matters required to be discussed by Statement on Auditing Standards 61, as amended, as adopted by
the Public Company Accounting Oversight Board in Rule 3200T. The Board has received the written disclosures and the letter from
the independent auditors required by Rule 3526, Communication with Audit Committees Concerning Independence, as adopted by the
Public Company Accounting Oversight Board and has discussed with the independent auditors the independent auditors’ independence.
Based on the foregoing
review and discussions, the Board of Directors approved the inclusion of the audited financial statements in the Company’s
Annual Report on Form 10-K for the fiscal year ended September 30, 2016 for filing with the Securities and Exchange Commission.
|
The Board of Directors
|
|
Brendan J. Killackey
|
|
John J. Gonzalez, II
|
|
Dominique Schulte
|
|
Gerard van Kesteren
|
|
ITEM 11.
|
EXECUTIVE COMPENSATION
|
Introduction
The individuals who
served as the Company’s principal executive officers during the fiscal year ended September 30, 2016, two individuals (other
than principal executive officers) who were the Company’s most highly compensated executive officers as of September 30,
2016, and up to two additional individuals who were the Company’s most highly compensated employees whose total compensation
during the fiscal year exceeded $100,000 (listed in the Summary Compensation Table below), are referred to in the following discussion
as the “named executive officers.” The following executive compensation tables and related narrative describe the compensation
awarded to, earned by or paid to the named executive officers for services provided to the Company during the fiscal years ended
September 30, 2016 and 2015.
Employment Agreements
On September 10, 2014,
in connection with the acquisition of Alpha/PCL, the Company entered into an employment agreement with John Joseph Gonzalez II to serve
as a Senior Managing Director of the Janel Group’s Northeast Region. The initial term of the employment agreement ends on
September 10, 2017, and thereafter will renew for 1-year terms unless either party provides notice that it does not wish to renew.
The Company will pay Mr. Gonzalez an annual salary of $200,000. The employment agreement also provides that Mr. Gonzalez is entitled
to typical employee benefits and contains customary restrictive covenants.
Long-Term Incentive Plan Awards
We do not have any
long-term incentive plans that provide compensation intended to serve as incentive for performance.
The
Company maintains two contributory 401(k) plans covering substantially all full-time employees. The 401(k) plans provide for participant
contributions of up to, 40% and 50% of annual compensation (not to exceed the IRS limit), as defined by the plan. The Company contributes
an amount equal to, 40% and 50% of the participant’s first, 4% and 6% of contributions.
The
Company’s contributions to the plan on behalf of named executive officers are included in the “All Other Compensation”
column in the “Summary Compensation Table” below.
Summary Compensation Table
The following table
sets forth information regarding the total compensation paid or earned by the named executive officers as compensation for their
services in all capacities during the fiscal years ended September 30, 2016 and 2015.
Name and
Principal Position
(a)
|
|
Year
(b)
|
|
Base Salary
$
(c)
|
|
|
Bonus
$
(d)
|
|
|
Stock
Awards
$
(e)
|
|
|
Option
Awards
$
(f)
|
|
|
All Other
Compensation
$
(i)
|
|
|
Total
$
(j)
|
|
Brendan J. Killackey
|
|
2016
|
|
|
100,000
|
|
|
|
0
|
|
|
|
0
|
|
|
|
7,500
|
|
|
|
4,431
|
(1)
|
|
|
107,500
|
|
President and CEO
|
|
2015
|
|
|
8,333
|
|
|
|
0
|
|
|
|
20,000
|
|
|
|
15,450
|
|
|
|
0
|
|
|
|
43,783
|
|
Brian Aronson
|
|
2016
|
|
|
298,495
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
298,495
|
|
Chief Financial Officer
|
|
2015
|
|
|
49,175
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
74,438
|
|
John J. Gonzalez, II
|
|
2016
|
|
|
204,711
|
|
|
|
0
|
|
|
|
0
|
|
|
|
56,600
|
|
|
|
41,368
|
(2)
|
|
|
302,679
|
|
Director, VP of M&A
|
|
2015
|
|
|
201,795
|
|
|
|
0
|
|
|
|
0
|
|
|
|
51,489
|
|
|
|
35,288
|
(2)
|
|
|
289,172
|
|
|
(1)
|
Includes $2,930 of medical insurance premiums paid on behalf of such individual for fiscal year
ended 2016, and $1,501 of 401k paid on behalf of such individual for the fiscal year ended 2016.
|
|
(2)
|
Includes $9,951 and $9,036 of medical insurance premiums paid on behalf of such individual for
the fiscal year ended 2016 and 2015, respectively, and $25,516 and $24,753 for automobile and automobile-related costs, including
insurance, incurred on behalf of such individual, for the fiscal year ended 2016 and 2015, respectively, and $5,900 and $2,500
of 401(k) paid on behalf of such individual for the fiscal year ended 2016 and 2015 respectively.
|
Savings and Stock Option Plans
401(k) and Profit-Sharing
Plan
The Company maintains
separate non-contributory profit sharing plans and contributory 401(k) plans covering substantially all full-time employees under
each segment.
The Janel Group 401(k)
plans provide for participant contributions of up to 50% of annual compensation (not to exceed the IRS limit), as defined by the
plan. Janel Group contributes an amount equal to 50% of the participant’s first 6% of contributions. The expenses charged
to operations for the years ended September 30, 2016 and 2015 are approximately $82,000 and $53,000, respectively.
INDCO’s 401(k) plan, as amended, provides
that employees who have reached the age of 21 are eligible to participate in the plan after one year of service. Under the plan,
eligible employees may elect to defer their compensation within plan guidelines. INDCO contributions to the plan may be made up
of the following:
|
·
|
a matching contribution of up to 4% for the employee’s elective
deferral;
|
|
·
|
a discretionary profit sharing contribution to the plan; and
|
|
·
|
a qualified non-elective contribution to the plan. The amount of the
qualified non-elective contribution is 3% of the employees pay for the portion of the plan year they are active participants.
|
The amount of the qualified non-elective contribution is 3%
of the employees pay for the portion of the plan year they are active participants.
Stock Option
Plans
On
October 30, 2013, the Board of Directors adopted Janel’s. 2013 Non-Qualified Stock Option Plan (the “2013 Option Plan”)
providing for options to purchase up to 100,000 shares of Common Stock for issuance to directors, officers, employees of and consultants
to the Company and its subsidiaries. To date, all options have been granted under the 2013 Option Plan.
The exercise price
and other terms of any nonqualified option granted under the 2013 Plan is determined by the Compensation Committee (the “Committee”)
of the Board of Directors or, if the Board does not create the Committee, by the Board which shall function as the Committee.
On September 10, 2014,
pursuant to the employment agreement with John Joseph Gonzalez II, the principal of Alpha/PCL, and in consideration of his acceptance
of employment with the Company, the Company granted to Mr. Gonzalez the option to purchase 40,000 shares of the Company’s
common stock at a purchase price of $3.25 per share. The option vests in three installments: On each of September 10, 2015 and
2016, the option became exercisable with respect to 26,667shares and on September 10, 2017, the option becomes exercisable with
respect to the remaining 13,334 shares. Upon termination of Mr. Gonzalez’s employment, all unvested options terminate immediately
and all unexercised options may be exercised for 90 days thereafter, except that if Mr. Gonzalez is terminated for cause as defined
in the employment agreement or if Mr. Gonzalez accepts employment with a competitor of the Company without the Company’s
consent, then all unexercised options terminate immediately.
In December 2014,
the Company granted Brendan Killackey the option to purchase 5,000 shares of the Company’s common stock at a purchase price
of $4.50 per share. The options become exercisable in three annual installments, contingent upon Mr. Killackey’s continued
employment.
In
February 2016, the Company granted Karen Kenney the option to purchase 16,000 shares of the Company’s common stock at
a purchase price of $2.50 per share. The options become exercisable in three annual installments, contingent upon Ms. Kenney’s
continued employment.
|
ITEM 12.
|
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
|
The following tables
set forth information concerning beneficial ownership of shares of Common Stock outstanding as of September 30, 2016. For purposes
of calculating beneficial ownership, Rule 13d-3 of the Securities Exchange Act requires inclusion of shares of Common Stock that
may be acquired within sixty days of the stated date. Unless otherwise indicated in the footnotes to a table, beneficial ownership
of shares represents sole voting and investment power with respect to those shares.
Certain
Beneficial Owners
The following table
reflects the names and addresses of the only persons known to the Company to be the beneficial owners of 5% or more of the Shares
outstanding as September 30, 2016.
Name and Address
of Beneficial Owner
|
|
Shares
Beneficially Owned
|
|
|
Percent
of Class
|
|
Oaxaca Group LLC
68 Bank Street
New York, NY 10014
|
|
|
403,846
|
(1)
|
|
|
42.5
|
%
|
James N. Jannello
303 Merrick Road, Suite 400
Lynbrook, New York 11563
|
|
|
110,000
|
(2)
|
|
|
11.6
|
%
|
John J. Gonzalez II
303 Merrick Road, Suite 400
Lynbrook, New York 11563
|
|
|
86,667
|
(3)
|
|
|
9.1
|
%
|
|
(1)
|
Includes 153,846 shares that are owned of record by Oaxaca Group, LLC and warrants to purchase
250,000 shares of common stock owned by Oaxaca Group, LLC.
|
|
(2)
|
All of these shares are owned of record.
|
|
(3)
|
Includes 60,000 shares that are owned of record and options to purchase 26,667 shares of common.
|
Management
The
following table
sets forth information with respect to the
beneficial ownership of the shares of Common Stock as of December 18, 2016 by (i) each executive officer of the Company named
in the Summary Compensation Table included elsewhere in this Annual Report, (ii) each current director and each nominee for election
as a director and (iii) all directors and executive officers of the Company as a group. An asterisk (*) indicates ownership of
less than 1%.
Name of
Beneficial Owner
|
|
Shares
Beneficially Owned
|
|
|
Percent
of Class
|
|
Dominique Schulte
|
|
|
403,846
|
(1)
|
|
|
42.5
|
%
|
John J. Gonzalez II
|
|
|
86,667
|
(2)
|
|
|
9.1
|
%
|
Brendan J. Killackey
|
|
|
17,796
|
(3)
|
|
|
1.9
|
%
|
Brian Aronson
|
|
|
2,200
|
(4)
|
|
|
*
|
|
All directors and executive officers as a group (4 persons)
|
|
|
510,509
|
|
|
|
53.6
|
%
|
|
(1)
|
Includes 153,846 shares that are owned of record by Oaxaca Group, LLC and warrants to purchase
250,000 shares of common stock owned by Oaxaca Group, LLC.
|
|
(2)
|
Includes 60,000 shares that are owned of record and options to purchase 26,667 shares of common
stock.
|
|
(3)
|
Includes 16,129 shares that are owned of record and options to purchase 1,667 shares of common
stock.
|
|
(4)
|
Includes 2,200 shares that are owned of record
|
Equity Compensation Plan Information
The following table provides information,
as of September 30, 2016, with respect to all compensation arrangements maintained by the Company under which shares of Common
Stock may be issued:
Plan Category
|
|
Number of securities
to be issued upon
exercise of
outstanding options,
warrants and rights
|
|
|
Weighted-average
exercise price of
outstanding options,
warrants and rights
|
|
|
Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected in
column (a)
|
|
|
|
(a)
|
|
|
(b)
|
|
|
(c)
|
|
Equity compensation plans not approved by security holders:
|
|
|
|
|
|
|
|
|
|
|
|
|
2013 Stock Option Plan
|
|
|
70,000
|
|
|
$
|
3.15
|
|
|
|
0
|
|
John Joseph Gonzalez II - Options
|
|
|
40,000
|
|
|
$
|
3.25
|
|
|
|
0
|
|
Oaxaca Group LLC - Warrants
|
|
|
250,000
|
|
|
$
|
4.00
|
|
|
|
0
|
|
Total
|
|
|
360,000
|
|
|
$
|
3.75
|
|
|
|
0
|
|
|
ITEM 13.
|
CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE
|
The Company is not
currently subject to listing requirements of any national securities exchange or inter-dealer quotation system which has requirements
that a majority of the board of directors be “independent” and, as a result, is not at this time required to (and does
not) have a Board of Directors comprised of a majority of “Independent Directors.” The Board of Directors has considered
the independence of its directors in reference to the definition of “independent director” established by the NASDAQ
Marketplace Rule 5605(a)(2). In doing so, the Board of Directors has reviewed all commercial and other relationships of each director
in making its determination as to the independence of its directors. After such review, the Board of Directors has determined that
Gerard van Kesteren qualifies as independent under the requirements of the NASDAQ listing standards.
|
ITEM 14.
|
PRINCIPAL ACCOUNTANT FEES AND SERVICES
|
The firm of Paritz
& Company, P.A. (the “Auditor”) has served as the Company’s independent public accountants since 2002. The
following is a description of the fees billed to the Company by the Auditor during the fiscal years ended September 30, 2016 and
2015:
Audit Fees
Audit
fees include fees paid by the Company to the Auditor in connection with the annual audit of the Company’s consolidated financial
statements, and review of the Company’s interim financial statements. Audit fees also include fees for services performed
by the Auditor that are closely related to the audit and in many cases could only be provided by the Auditor. Such services include
consents related to SEC and other regulatory filings. The aggregate fees billed to the Company by the Auditor for audit services
rendered to the Company for the years ended September 30, 2016 and 2015 totaled $133,000 and $98,000, respectively.
Audit Related Fees
Audit related services
include due diligence services related to accounting consultations, internal control reviews, and employee benefit plan audits.
The Auditor did not bill any fees for audit related services rendered to the Company for 2016 and 2015.
Tax Fees
Tax fees include corporate
tax compliance, counsel and advisory services. The aggregate fees billed to the Company by the Auditor for the tax related services
rendered to the Company for the years ended September 30, 2016 and 2015 totaled $10,000 and $6,500, respectively.
All Other Fees
The aggregate fees
billed to the Company by the Auditor for all other fees for the year ended September 30, 2016 and 2015 totaled $28,000 and $25,000,
respectively. The “other fees” were for services related to the acquisition of INDCO for 2016 and Liberty for 2015.
Approval of Independent Auditor Services
and Fees
The Company’s
Chief Executive Officer and Chief Financial Officer review all fees charged by the Company’s independent auditors, and actively
monitor the relationship between audit and non-audit services provided. The Chief Executive Officer must pre-approve all audit
and non-audit services provided by the Company’s independent auditors and fees charged.
The accompanying notes are an
integral part of these consolidated financial statements
The accompanying notes are an
integral part of these consolidated financial statements
The accompanying notes are an
integral part of these consolidated financial statements
The accompanying notes are an
integral part of these consolidated financial statements
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
|
1
|
SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
|
Business description
Janel Corporation and Subsidiaries
(“the Company” or “Janel”) operates its business as two distinct segments: Global Logistics Services and
Manufacturing.
The Company’s Global Logistics
Services segment comprises several wholly-owned subsidiaries, collectively known as “Janel Group.” Janel Group provides
full-service cargo transportation logistics management services, including freight forwarding via air, ocean and land-based carriers,
customs brokerage services, warehousing and distribution services, and other value-added logistics services. On April 15, 2015
a Certificate of Amendment to the Articles of Organization was filed changing the Company’s name from Janel World Trade Ltd.
to Janel Corporation.
In September 2014, the Company
purchased the equity of Alpha International/President Container Lines (“Alpha/PCL”), a global logistics services company.
Approximately one year later, it purchased the equity of Liberty International, Inc. (“Liberty”). These companies,
along with the legacy Janel Group, comprise Janel Corporation’s Global Logistics Services segment.
On March 21, 2016, the
Company purchased INDCO, Inc. (“INDCO”). INDCO comprises the Company’s Manufacturing business segment.
INDCO manufactures and distributes custom-designed industrial mixing equipment and apparatus for specific applications within
various industries. The customer base comprises small- to mid-sized businesses as well as repetitive production orders for
other larger customers. The Company acquired INDCO in order to diversify cash flow streams.
Basis of consolidation
The accompanying consolidated
financial statements include the accounts of the Company and its wholly-owned subsidiaries, as well as INDCO, which is majority
91.65% owned with a non-controlling interest held by existing INDCO management. All intercompany transactions and balances have
been eliminated in consolidation.
Uses of estimates in the
preparation of financial statements
The preparation of financial
statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of net revenue and expenses during each reporting period. Actual results could differ from
those estimates.
Cash and cash equivalents
Cash and cash equivalents consist
of cash and highly liquid investments with remaining maturities of less than ninety days at the date of purchase.
The Company maintains cash balances
at various financial institutions. Accounts at each institution are insured by the Federal Deposit Insurance Corporation up to
$250,000. The Company’s accounts at these institutions may, at times, exceed the federally insured limits. The Company has
not experienced any losses in such accounts.
Accounts receivable and
allowance for doubtful accounts receivable
The Company has a policy of reserving
for uncollectible accounts based on its best estimate of the amount of probable credit losses in its existing accounts receivable.
The Company extends credit to its customers based on an evaluation of their financial condition and other factors. The Company
generally does not require collateral or other security to support accounts receivable. The Company performs ongoing credit evaluations
of its customers and maintains an allowance for potential bad debts if required.
The Company determines whether
an allowance for doubtful accounts is required by evaluating specific accounts where information indicates the customers may have
an inability to meet financial obligations. In these cases, the Company uses assumptions and judgment, based on the best available
facts and circumstances, to record a specific allowance for those customers against amounts due to reduce the receivable to the
amount expected to be collected. These specific allowances are re-evaluated and adjusted as additional information is received.
The amounts calculated are analyzed to determine the total amount of the allowance. The Company may also record a general allowance
as necessary.
Direct write-offs are taken in
the period when the Company has exhausted its efforts to collect overdue and unpaid receivables or otherwise evaluate other circumstances
that indicate that the Company should abandon such efforts.
Inventory
Inventory is stated at the lower of cost (first-in, first-out method) or market. Market is determined
by net realizable value. Finished goods are shipped upon completion of assembly. Therefore, no finished goods were on hand as of
September 30, 2016.
Property and equipment
and depreciation policy
Property and equipment are recorded
at cost. Depreciation is provided for in amounts sufficient to amortize the costs of the related assets over their estimated useful
lives on the straight-line and accelerated methods for both financial reporting and income tax purposes.
Maintenance, repairs and minor
renewals are charged to expense when incurred. Replacements and major renewals are capitalized.
Business segment
information
The Company operates as two reportable
segments: Global Logistics Services and Manufacturing.
Revenues and revenue recognition
Global Logistics Services
Revenues are derived from airfreight,
ocean freight and custom brokerage services. The Company is a non-asset based carrier and accordingly, does not own transportation
assets. The Company generates the major portion of its air and ocean freight revenues by purchasing transportation services from
direct carriers (airlines, steam ship lines, etc.) and reselling those services to its customers. By consolidating shipments from
multiple customers and availing itself of its buying power, the Company is able to negotiate favorable rates from the direct carriers,
while offering to its customers lower rates than the customers could obtain themselves.
Airfreight revenues include the
charges to the Company for carrying the shipments when the Company acts as a freight consolidator. Ocean freight revenues include
the charges to the Company for carrying the shipments when the Company acts as a Non-Vessel Operating Common Carrier (NVOCC). In
each case, the Company is acting as an indirect carrier. When acting as an indirect carrier, the Company will issue a House Airway
Bill (HAWB) or a house Ocean Bill of Lading (HOBL) to customers as the contract of carriage. In turn, when the freight is physically
tendered to a direct carrier, the Company receives a contract of carriage known as a Master Airway Bill for airfreight shipments
and a Master Ocean Bill of Lading for ocean shipments. At this point the risk of loss passes to the carrier, however, in order
to claim for any such loss, the customer is first obligated to pay the freight charges.
Based upon the terms in the contract
of carriage, revenues related to shipments where the Company issues a HAWB or a HOBL are recognized at the time the freight is
tendered to the direct carrier. Costs related to the shipments are recognized at the same time.
Revenues realized when the Company
acts as an agent for the shipper and does not issue a HAWB or a HOBL include only the commission and fees earned for the services
performed. These revenues are recognized upon completion of the services.
Customs brokerage and other services
involves providing multiple services at destination, including clearing shipments through customs by preparing required documentation,
calculating and providing for payment of duties and other charges on behalf of the customers arranging for any required inspections,
and arranging for final delivery. These revenues are recognized upon completion of the services.
The movement of freight may require
multiple services. In most instances, the Company may perform multiple services including destination breakbulk and value added
services such as local transportation, distribution services and logistics management. Each of these services has a separate fee
which is recognized as revenue upon completion of the service.
Customers will frequently request
an all-inclusive rate for a set of services, which is known in the industry as “door-to-door services”. In these cases,
the customer is billed a single rate for all services from pickup at origin to delivery. The allocation of revenue and expense
among the components of service when provided under an all-inclusive rate are done in an objective manner on a fair value basis.
Manufacturing
Revenues are derived from the engineering, manufacture, and delivery of specialty mixing equipment. Payments
are made by either credit card acceptance or invoice billing by the company. A significant portion of sales comes from its print-
and web-based catalogue and specification features. Such online sales are generally credit card purchases. Revenue is recognized
when its products are delivered and risk of loss transfers to the carrier(s) used.
Income per common share
Basic net income per common share
is calculated by dividing net income available to common shareholders by the weighted average of common shares outstanding during
the period. Diluted net income per common share is calculated using the weighted average of common shares outstanding adjusted
to include the potentially dilutive effect of stock options and warrants.
Share based compensation
The Company recognizes compensation
expense for stock-based compensation in accordance with ASC Topic 718. For employee stock-based awards, we calculate the fair value
of the award on the date of grant using the Black-Scholes method for stock options and the quoted price of our common stock for
unrestricted shares; the expense is recognized over the service period for awards expected to vest.
Comprehensive income
Comprehensive income encompasses
all changes in stockholders’ equity other than those arising from stockholders, and generally consists of net income and
unrealized gains and losses on unrestricted available-for-sale marketable equity securities. As of September 30, 2016 and 2015,
there was no accumulated other comprehensive income.
Income taxes
The Company uses the asset and
liability method of accounting for income taxes in accordance with ASC Topic 740, “Income Taxes.” Under this method,
income tax expense is recognized for the amount of: (i) taxes payable or refundable for the current year and (ii) deferred tax
consequences of temporary differences resulting from matters that have been recognized in an entity’s financial statements
or tax returns. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in
the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities
of a change in tax rates is recognized in the results of operations in the period that includes the enactment date. The Company
has no material uncertain tax positions for any of the reporting periods presented. The tax years September 30, 2013 through 2016
are still open for potential audit.
ASC Topic 740.10.30 clarifies
the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition
threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected
to be taken in a tax return. ASC Topic 740.10.40 provides guidance on recognition, classification, interest and penalties, accounting
in interim periods, disclosure, and transition. We have no material uncertain tax positions for any of the reporting periods presented.
Goodwill, other intangibles
and long-lived assets
The Company records as goodwill
the excess of purchase price over the fair value of the tangible and identifiable intangible assets acquired in a business combination.
Under current authoritative guidance goodwill is not amortized but is tested for impairment annually as well as when an event or
change in circumstance indicates impairment may have occurred. Goodwill is tested for impairment by comparing the fair value of
the Company’s individual reporting units to their carrying amount to determine if there is potential goodwill impairment.
If the fair value of the reporting unit is less than its carrying value, an impairment loss is recorded to the extent that the
implied fair value of the goodwill of the reporting unit is less than its carrying value.
Long-lived assets, including
fixed assets and intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying
value may not be recoverable. In reviewing for impairment, the carrying value of such assets is compared to the estimated undiscounted
future cash flows expected from the use of the assets and their eventual disposition. If such cash flows are not sufficient to
support the asset’s recorded value, an impairment charge is recognized to reduce the carrying value of the long-lived asset
to its estimated fair value. The determination of future cash flows, as well as the estimated fair value of long-lived assets,
involves significant estimates on the part of management. In order to estimate the fair value of a long-lived asset, the Company
may engage a third-party to assist with the valuation. If there is a material change in economic conditions or other circumstances
influencing the estimate of future cash flows or fair value, the Company could be required to recognize impairment charges in the
future.
Fair value measurements
The Company adopted the provisions
of ASC Topic 820, “Fair Value Measurements and Disclosures”, which defines fair value as used in numerous
accounting pronouncements, establishes a framework for measuring fair value and expands disclosure of fair value measurements.
The estimated fair value of certain
financial instruments, including cash and cash equivalents, prepaid expenses, and accounts payable and accrued expenses are carried
at historical cost basis, which approximates their fair values because of the short-term nature of these instruments.
ASC 820 defines fair value as
the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most
advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC
820 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the
use of unobservable inputs when measuring fair value. ASC 820 describes three levels of inputs that may be used to measure fair
value:
Level 1 —
quoted prices in active markets for identical assets or liabilities
Level 2 — quoted prices
for similar assets and liabilities in active markets or inputs that are observable
Level 3 —
inputs that are unobservable (for example cash flow modeling inputs based on assumptions)
The Company
has no financial instruments measured at fair value as of September 30, 2016 and 2015.
Deferred compensation
Deferred compensation of $78,568
represents compensation due to an employee of the Company upon termination, retirement or death. This amount has not changed since
1992 and was accrued during the years 1984 through 1992.
Rental expense
Rental expense is accounted for
on the straight-line method.
Deferred rent payable as of September
30, 2016 amounted to $15,911 and represents the excess of recognized rent expense over scheduled lease payments and is included
in accrued expenses and other current liabilities. Deferred rent payable as of September 30, 2015 was $7,887.
Recent accounting pronouncements
From time to time, new accounting
pronouncements are issued by the Financial Accounting Standards Board or other standard setting bodies that may have an impact
on the Company’s accounting and reporting. The Company believes that such recently issued accounting pronouncements and other
authoritative guidance for which the effective date is in the future either will not have an impact on its accounting or reporting
or that such impact will not be material to its financial position, results of operations, and cash flows when implemented.
Reverse stock split
On April 15,
2015, the Company filed with the Nevada Secretary of State: a Certificate of Change providing for a one-for-fifty reverse stock
split (“Reverse Stock Split”), effective on April 21, 2015. The Company issued one share of Common Stock for every
fifty shares of Common Stock held as of the close of business on April 20, 2015. To avoid the issuance of fractional shares in
connection with the Reverse Stock Split, if a shareholder would be entitled to receive a fractional share, such shareholder instead
receive a whole share in lieu of such fractional share.
As a result of the above, all
relevant information relating to the number of shares, options and per share information have been retrospectively adjusted within
these consolidated financial statements to reflect the Reverse Stock Split for all periods presented.
Reclassifications
Certain amounts included in the
2015 financial statements have been reclassified to conform to 2016 presentation.
|
(A)
|
ALPHA INTERNATIONAL, LP. AND PCL TRANSPORT, LLC.
|
On August
18, 2014, the Company entered into an Equity Interest Purchase Agreement (“EIPA”) by and among the Company, its wholly
owned subsidiaries, and the principal owners of AILP and PCL. On September 10, 2014, the Company completed the acquisition of
all of the equity interests of AILP and PCL pursuant to the terms of the EIPA. As consideration for the equity interests, the
Company paid $4,358,773 to the former owners of AILP and PCL at closing. The former owners of AILP and PCL may receive additional
consideration over the next three years for their equity interests as follows: (i) $500,000 to be paid following the first anniversary
of the closing provided that the former owner is still employed by the Company (or pro rata if the employment was terminated prior
to that date); (ii) $500,000, plus an amount equal to 40% of the amount by which the Company’s EBITDA exceeds $1.0 million
to be paid following the second anniversary of the closing, provided that the former owner is still employed by the Company (or
pro rata if the employment was terminated prior to that date) and the Company’s EBITDA for the year then ended is more than
$1.0 million; and $500,000, plus an amount equal to 40% of the amount by which such the Company’s EBITDA exceeds $1.0 million
to be paid following the third anniversary of the closing, provided that Mr. Gonzalez is still employed by the Company (or pro
rata if the employment was terminated prior to that date) and the Company’s EBITDA for the year then ended is more than
$1.0 million.
The purchase
price for the acquired assets was $5,691,245 consisting of $4,358,773 of cash, $1,332,472 of future cash to be paid (described
above), net of imputed interest of $167,528.
In addition,
the Company entered into an employment agreement with the former owner. Pursuant to the terms of the employment agreement, the
former owner was (i) employed by the Company at an annual salary of $200,000 plus typical employee benefits for an initial term
of three years ending September 10, 2017 and thereafter will renew for 1-year terms unless either party provides notice that it
does not wish to renew, and (ii) granted option to purchase 40,000 shares of the Company’s common stock at a purchase price
of $3.25 per share (refer to Note 8C, below). The employment agreement also contains customary restrictive covenants.
Purchase price allocation
In accordance
with the acquisition method of accounting, the Company allocated the consideration to the net tangible and identifiable intangible
assets based on their estimated fair values which were determined by an independent valuation performed by a third party.
Goodwill represents
the excess of the purchase price over the fair value of the underlying net tangible and identifiable intangible assets. The factors
that contributed to the recognition of goodwill included securing buyer-specific synergies that increase revenue and profits and
are not otherwise available to a marketplace participant.
The assets acquired
and liabilities assumed as part of our acquisition were recognized at their fair values as of the acquisition date, September 10,
2014. The following table summarizes the fair values assigned to the assets acquired and liabilities assumed:
|
|
Fair Value
|
|
|
|
|
|
Accounts receivable, net
|
|
$
|
2,987,487
|
|
Security deposits
|
|
|
19,150
|
|
Prepaid expenses and other current assets
|
|
|
654
|
|
Fixed assets
|
|
|
1,446
|
|
Accounts payable and other liabilities
|
|
|
(4,501,561
|
)
|
Customer relationships
|
|
|
4,480,000
|
|
Goodwill
|
|
|
2,704,069
|
|
Purchase price
|
|
$
|
5,691,245
|
|
|
(B)
|
LIBERTY
INTERNATIONAL, INC.
|
On August 14,
2015 the Company entered into an Equity Interest Purchase Agreement (“EIPA”) by and among the Company, its wholly owned
subsidiaries and the principal owners of Liberty International Inc. (“Liberty”) and its principal Owners. The Company
completed the acquisition of all of the equity interests of Liberty pursuant to the terms of the EIPA on that day. As consideration
for the equity interests, the Company paid $2,494,642 in cash to the former owners of Liberty at closing.
In addition,
the Company entered into an employment agreement with Mr. Cioe and Mr. Charnley. Pursuant to the terms of the employment agreement,
they were) employed by the Company at an annual salary of $30,000 each for an initial term of two years ending August 13, 2017.
Purchase price allocation
In accordance
with the acquisition method of accounting, the Company allocated the consideration to the net tangible and identifiable intangible
assets based on their estimated fair values which were determined by an independent valuation performed by a third party.
Goodwill represents
the excess of the purchase price over the fair value of the underlying net tangible and identifiable intangible assets.
The assets acquired
and liabilities assumed as part of our acquisition were recognized at their fair values as of the acquisition date, August 14,
2015. The following table summarizes the fair values assigned to the assets acquired and liabilities assumed:
|
|
Fair Value
|
|
|
|
|
|
Cash
|
|
$
|
133,077
|
|
Accounts receivable, net
|
|
|
2,677,492
|
|
Prepaid expenses and other current assets
|
|
|
48,308
|
|
Fixed assets
|
|
|
33,585
|
|
Accounts payable and other liabilities
|
|
|
(2,834,390
|
)
|
Trademarks
|
|
|
320,000
|
|
Customer relationships
|
|
|
780,000
|
|
Goodwill
|
|
|
1,336,570
|
|
Purchase price
|
|
$
|
2,494,642
|
|
On March 21,
2016, the Company executed and closed a Stock Purchase Agreement (the “Purchase Agreement”) for the purchase by the
Company of the outstanding common stock of INDCO (the “INDCO Shares”), representing approximately 91.65% of the beneficial
ownership of INDCO. The remaining 8.35% ownership of INDCO was retained by existing INDCO management.
Under the
terms of the Purchase Agreement, the purchase price for the INDCO Shares was $11,000,000, subject to certain closing adjustments
and customary indemnifications, representations and warranties which amount was paid at closing in cash.
INDCO operates as a new business segment for the Company.
Purchase price allocation
In accordance
with the acquisition method of accounting, the Company allocated the consideration to the net tangible and identifiable intangible
assets based on their estimated fair values which were determined by an independent valuation performed by a third party.
Goodwill represents
the excess of the purchase price over the fair value of the underlying net tangible and identifiable intangible assets.
The assets acquired
and liabilities assumed as part of our acquisition were recognized at their fair values as of the effective acquisition date, March
1, 2016, based upon an appraisal from a third party. The following table summarizes the fair values assigned to the assets acquired
and liabilities assumed.
|
|
Fair Value
|
|
|
|
|
|
Cash
|
|
$
|
377,653
|
|
Accounts receivable, net
|
|
|
620,632
|
|
Inventory
|
|
|
372,212
|
|
Prepaid expenses and other current assets
|
|
|
109,333
|
|
Fixed assets
|
|
|
155,050
|
|
Accounts payable and other liabilities
|
|
|
(1,690,202
|
)
|
Note Payable (Related Party)
|
|
|
(129,258
|
)
|
Customer relationships & other intangibles
|
|
|
7,700,000
|
|
Goodwill
|
|
|
4,402,838
|
|
Non-controlling Interest
|
|
|
(918,258
|
)
|
Purchase price
|
|
$
|
11,000,000
|
|
The following table
provides unaudited pro forma results of operations for the fiscal years ended September 30, 2016 and 2015 as if the acquisitions
had been consummated as of the beginning of each period presented. The pro forma results include the effect of certain purchase
accounting adjustments, such as the estimated changes in depreciation and amortization expense on the acquired intangible assets.
However, pro forma results do not include any anticipated cost savings or other effects of the planned integration of the companies.
Accordingly, such amounts are not necessarily indicative of the results if the acquisition has occurred on the dates indicated,
or which may occur in the future.
|
|
(Unaudited)
|
|
|
|
Pro Forma Results
|
|
|
|
Year ended September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
78,217,844
|
|
|
$
|
108,586,742
|
|
Income before income taxes
|
|
$
|
1,563,460
|
|
|
$
|
2,260,497
|
|
|
|
|
|
|
|
|
|
|
Fully diluted earnings per share
|
|
$
|
2.50
|
|
|
$
|
3.82
|
|
A summary of property and equipment
and the estimated lives used in the computation of depreciation and amortization is as follows:
|
|
September 30
|
|
|
September 30
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
Life
|
Furniture and Fixture
|
|
$
|
149,550
|
|
|
$
|
131,112
|
|
|
3-7 years
|
Computer Equipment
|
|
|
239,234
|
|
|
$
|
61,594
|
|
|
3-5 years
|
Machinery & Equipment
|
|
|
559,400
|
|
|
|
36,609
|
|
|
3-15 years
|
Leasehold Improvements
|
|
|
71,960
|
|
|
|
13,718
|
|
|
3-5 years
|
|
|
|
1,020,144
|
|
|
|
243,033
|
|
|
|
Less Accumulated Depreciation
|
|
|
732,753
|
|
|
|
(165,541
|
)
|
|
|
|
|
$
|
287,391
|
|
|
$
|
77,492
|
|
|
|
A summary of
intangible assets and the estimated useful lives used in the computation of amortization is as follows:
|
|
September 30,
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
Life
|
Customer Relationships
|
|
$
|
11,450,000
|
|
|
$
|
5,260,000
|
|
|
15-20 years
|
Trademarks/Names
|
|
|
1,770,000
|
|
|
|
320,000
|
|
|
20 years
|
Other
|
|
|
60,000
|
|
|
|
-
|
|
|
2-5 years
|
|
|
|
13,280,000
|
|
|
|
5,580,000
|
|
|
|
Less: Accumulated amortization
|
|
|
(906,734
|
)
|
|
|
(317,986
|
)
|
|
|
|
|
|
12,373,266
|
|
|
|
5,262,014
|
|
|
|
|
(A)
|
Presidential Financial Corporation
|
On March 27,
2014, the Company and its wholly-owned subsidiaries, entered into a Loan and Security Agreement with a financial institution with
respect to a three year $3.5 million (limited to the borrowing base and reserves) revolving line of credit facility which replaces
Janel Group Inc.’s previous line of credit agreement with a bank. On March 31, 2014, $1,282,673 of the Facility was used
to repay the outstanding balances under the existing line of credit facility.
On August 18,
2015, a Fourth Amendment was executed pursuant to which the Company can borrow up to $10.0 million limited to 85% of the aggregate
outstanding eligible accounts receivable, as set forth in the Loan and Security Agreement. Interest will accrue at an annual rate
equal to 3.25 percent above the greater of (a) the prime rate of interest quoted in The Wall Street Journal from time to time,
or (b) 3.25%. The obligations under the Presidential facility are secured on a first lien basis by all of the Janel Group assets,
including AILP, PCL and Liberty. Janel also guarantees the obligations. The Presidential Facility will expire on March 27, 2018
(subject to earlier termination as provided in the Loan and Security Agreement) unless renewed. As of September 30, 2016, there
were outstanding borrowings of $6,498,403 under the Presidential Facility (which represented 65.0% of the amount available thereunder)
out of a total amount available for borrowing under the Presidential Facility of $10,000,000.
The agreement
requires, among other things, that the Company, on a monthly basis, maintain a “minimum fixed charge covenant ratio”
and “tangible net worth,” both as defined.
|
(B)
|
First Merchants Bank Credit Facility
|
On March 21,
2016, INDCO executed a Credit Agreement with a bank with respect to a $6 million Term Loan and $1.5 million (limited to the borrowing
base and reserves) Revolving Loan. Interest will accrue on the Term Loan at an annual rate equal to the one month LIBOR plus either
3.75% (if INDCO’s cash flow leverage ratio is less than or equal to 2:1) or 4.75% (if INDCO’s cash flow leverage ratio
is greater than 2:1). Interest will accrue on the Revolving Loan at an annual rate equal to the one month LIBOR plus 2.75%. INDCO’s
obligations under the First Merchants credit facilities are secured by all of INDCO’s assets, and are guaranteed by the Company.
These credit facilities will expire on the fifth anniversary of the loans (subject to earlier termination as provided in the Credit
Agreement) unless renewed. There were no borrowings under the revolving loan as of September 30, 2016.
|
|
September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
Long
term debt. Bank is due in monthly installments of $71,429 plus monthly interest , at LIBOR 3.75% - 4.75% per annum.
The note is collateralized by all of Indco's assets and guaranteed by Janel.
|
|
$
|
5,473,688
|
|
|
$
|
-
|
|
Less current portion
|
|
|
(857,148
|
)
|
|
|
-
|
|
|
|
$
|
4,616,540
|
|
|
$
|
0
|
|
These obligations mature as follows:
2017
|
|
|
857,148
|
|
2018
|
|
|
857,148
|
|
2019
|
|
|
857,148
|
|
2020
|
|
|
857,148
|
|
Thereafter
|
|
|
2,045,096
|
|
|
|
$
|
5,473,688
|
|
|
6
|
LONG-TERM DEBT – RELATED PARTY
|
Long-term debt - related party consists
of the following:
|
|
September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Non-interest bearing note payable to a related party, net of imputed interest due when earned (see Note 2A regarding the earn-out period).
|
|
$
|
971,108
|
|
|
$
|
1,414,799
|
|
|
|
|
|
|
|
|
|
|
Less current portion
|
|
|
(500,000
|
)
|
|
|
(495,960
|
)
|
|
|
$
|
471,108
|
|
|
$
|
918,839
|
|
These obligations mature as follows:
2016
|
|
|
500,000
|
|
2017
|
|
|
471,108
|
|
|
|
$
|
971,108
|
|
|
7
|
DISCONTINUED OPERATIONS
|
In 2012, the Company elected to
discontinue the operations of the New Jersey warehousing business and the operations of the food sales segment. The operations
associated with the New Jersey warehousing business and the food sales segment are summarized below.
|
|
2016
|
|
|
2015
|
|
FOOD SALES DISCONTINUED OPERATIONS:
|
|
|
|
|
|
|
REVENUES
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
COSTS AND EXPENSES:
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
-
|
|
|
|
-
|
|
Selling, general and administrative expenses
|
|
|
202,340
|
|
|
|
244,039
|
|
Depreciation and amortization
|
|
|
-
|
|
|
|
-
|
|
TOTAL COSTS AND EXPENSES
|
|
|
202,340
|
|
|
|
244,039
|
|
|
|
|
|
|
|
|
|
|
LOSS FROM DISCONTINUED OPERATIONS
|
|
|
(202,340
|
)
|
|
|
(244,039
|
)
|
Janel is authorized
to issue 4,500,000 shares of common stock, par value $.001. In addition, the Company is authorized to issue 100,000 shares of preferred
stock, par value $.001. The preferred stock is issuable in series with such voting rights, if any, designations, powers, preferences
and other rights and such qualifications, limitations and restrictions as may be determined by the Company’s board of directors
or a duly authorized committee thereof, without stockholder approval. The board may fix the number of shares constituting each
series and increase or decrease the number of shares of any series.
Series A Convertible Preferred
Stock
On January 10,
2007, the Company sold 20,000 shares of its $0.001 par value 3% Series A Convertible Preferred Stock (the “Series A Stock”)
for a total of $500,000. The shares are convertible into shares of the Company’s $0.001 par value common stock at any time
on a one-share for one-share basis. The Series A Stock pays a cumulative cash dividend at a rate of $15,000 per year payable quarterly.
Series B Convertible
Preferred Stock
On October 18,
2007, the Company issued 5,700 shares of its $0.001 par value Series B Convertible Preferred Stock (the “Series B Stock”)
in connection with the acquisition of Order Logistics, Inc. (a discontinued operation). The shares are convertible into shares
of the Company’s $0.001 par value common stock at any time after October 18, 2009 on a one-share (of Series B Stock) for
ten-shares (of common stock) basis.
Series C Cumulative Preferred
Stock
On August 25,
2014, the Company filed with the Nevada Secretary of State a Certificate of Designation for 7,000 shares of Series C Cumulative
Preferred Stock, par value $0.001 per share (the “Series C Stock”) which was increased to 20,000 shares by a Certificate
of Amendment to Certificate of Designation filed with the Nevada Secretary of State on March 23, 2016. On September 10, 2014 the
Company sold 5,000 shares of Series C Cumulative Stock for $2,500,000. On September 24, 2014 the Company sold an additional 500
shares of the Series C Stock for $250,000, and on March 23, 2016 the Company sold an additional 8,705.33 shares for $4,352,663.
Prior to March 23, 2016, holders of Series C Stock (“Series C Holders”) were entitled to receive annual dividends at
a rate of 8.25% per annum of the original Series C Stock issuance price, or $10.00 per share subject to adjustment upon certain
events (the “Original Issuance Price”), when, as and if declared by the Company’s Board of Directors, such rate
to increase by 2% annually beginning on the third anniversary of issuance of such Series C Preferred Stock to a maximum rate of
14.25%. By the filing of the Certificate of Amendment on March 23, 2016, the annual dividend rate was decreased to 7.00% per annum
of the Original Issuance Price, when, as and if declared by the Company’s Board of Directors, such rate to increase by 2%
annually beginning on the third anniversary of issuance of such Series C Preferred Stock to a maximum rate of 13.0%. In the event
of liquidation, Series C Holders shall be paid an amount equal to the Original Issuance Price, plus any accrued but unpaid dividends
thereon. Shares of Series C Preferred Stock may be redeemed (1) by the Company at any time upon notice and payment of the Original
Issuance Price, plus any accrued but unpaid dividends thereon (“Redemption Price”) or (2) by the Series C Holders at
their option beginning on the fourth anniversary of the issuance of the Series C Preferred Stock for an amount equal to the Redemption
Price.
On February 27,
2015, the Company’s Board of Directors appointed Brendan Killackey, a Director of the Company, as Chief Executive Officer.
On March 2, 2015 Mr. Killackey was issued 5,715 shares of the Company’s Common Stock with an aggregate value of $20,000,
or $3.50 per share (the closing price per share on February 27, 2015), for his services through August 31, 2015, all of which was
charged to expense in the year ended September 30, 2015.
On August 13,
2015, the former Chief Financial Officer of Janel exercised options to purchase 14,000 shares of common stock at $3.25 per share.
The total exercise price was $45,500.
On September
10, 2014, in connection with the employment agreement with the former owner of Alpha/PCL, options to purchase 40,000 shares of
common stock at an exercise price of $3.25 per share were granted to the previous owner. The option vests in three equal annual
installments from September 10, 2015 through September 10, 2017. Upon termination of his employment, all unvested options terminate
immediately and all unexercised options may be exercised for 90 days thereafter, except that if he is terminated for cause as
defined in the employment agreement or if he accepts employment with a competitor of the Company without the Company’s consent,
then all unexercised options terminate immediately. The fair value of the options was determined by using a Black-Scholes Option
Pricing Model was $169,800 and since the options vest over a period of three years resulted in a $56,600 reduction of net income
for the years ended September 30 2016 and 2015.
On December 29,
2014, options to purchase 5,000 shares of common stock at an exercise price of $4.50 per share were granted to an officer and director.
The option vests in three installments: On each of December 29, 2015 and 2016, the option becomes exercisable with respect to 1,667
shares and on December 29, 2017, the option becomes exercisable with respect to the remaining 1,666 shares. The fair value of the
options, as determined by using a Black-Scholes Option Pricing Model, was $22,500 and since the options vest over a period of three
years resulted in a $7,500 and $5.625 reduction to net income for the years ended September 30 2016 and 2015.
On February
22, 2016, options to purchase 16,000 shares of common stock at an exercise price of $2.50 per share were granted to a key management
member, the remaining executive managing Liberty. The options are exercisable in three installments on each of February 2, 2017,
2018 and 2019. The fair value of the options, as determined by using a Black-Scholes Option Pricing Model, was $33,665 and since
the options are granted immediately with restrictions regarding exercise in conjunction with the Stock Option Plan, $33,665 has
been expensed and results in a reduction to net income for the year ended September 30, 2016.
Significant assumptions
used in calculating fair value of stock options are as follows
|
|
|
|
|
|
Risk free
|
|
Expected
|
|
|
|
Expected
|
|
|
Expected
|
|
|
Rate of
|
|
term
|
|
Exercise
|
|
Dividend
|
|
|
Volatility
|
|
|
Return
|
|
(year)
|
|
Price
|
|
|
0.00
|
%
|
|
|
172.67
|
%
|
|
.51% - .87%
|
|
1 - 3 years
|
|
$
|
2.50
|
|
In November 2015,
an agreement to grant Director stock options worth $50,000 at the end of 24 months Board of Director service was made. $21,875
has been expensed and results in a reduction of net income for the year ended September 30, 2016.
In April 2016,
a key member of the INDCO management team was granted options to purchase INDCO stock over a 3-year period. These options are
valued using Black-Scholes methodology at $74,753 and are being expensed at a rate of $2,076 straight line per month over the vesting
period. $12,456 has been expensed and results in a reduction of net income for the year ended September 30, 2016.
Significant assumptions
used in calculating fair value of stock options are as follows
|
|
|
|
|
Risk free
|
|
Expected
|
|
|
|
Expected
|
|
|
Expected
|
|
Rate of
|
|
term
|
|
Exercise
|
|
Dividend
|
|
|
Volatility
|
|
Return
|
|
(year)
|
|
Price
|
|
|
0.00
|
%
|
|
69.26% - 70.35%
|
|
1.24% - 1.56%
|
|
1 - 3 years
|
|
$
|
6.48
|
|
In connection
with the October 6, 2013 Securities Purchase Agreement with Oaxaca Group, LLC (refer to Note 9(a), above), the Company issued warrants,
all of which are currently outstanding, to purchase an aggregate 250,000 shares of common stock at $4 per share. The warrants expire
on October 5, 2018. The Company has no other stock warrants outstanding.
The reconciliation
of income tax computed at the Federal statutory rate to the provision for income taxes from continuing operations is as follows:
|
|
Year Ended September 30,
|
|
|
|
2016
|
|
|
2015
|
|
Federal taxes (credits) at statutory rates
|
|
$
|
398,000
|
|
|
$
|
217,000
|
|
Permanent differences
|
|
|
23,000
|
|
|
|
17,000
|
|
State and local taxes, net of Federal benefit
|
|
|
65,340
|
|
|
|
24,000
|
|
Prior Year Under accrual
|
|
|
|
|
|
|
81,000
|
|
Reversal/Change in valuation allowance
|
|
|
(2,595,000
|
)
|
|
|
(189,000
|
)
|
|
|
$
|
(2,108,660
|
)
|
|
$
|
150,000
|
|
|
|
September 30,
|
|
|
|
2016
|
|
|
2015
|
|
Deferred Tax Assets;
|
|
|
|
|
|
|
|
|
Net Operating Loss Carryforwards
|
|
|
2,200,940
|
|
|
|
2,800,000
|
|
Total Deferred Tax Assets
|
|
|
2,200,940
|
|
|
|
2,800,000
|
|
Valuation allowance
|
|
|
-
|
|
|
|
(2,725,000
|
)
|
|
|
|
|
|
|
|
|
|
Total Deferred Tax Assets net of Valuation allowance
|
|
|
2,200,940
|
|
|
|
75,000
|
|
Deferred Tax Liabilities;
|
|
|
|
|
|
|
|
|
Depreciation and Amortization
|
|
|
1,355,963
|
|
|
|
75,000
|
|
Total Deferred Tax Liabilities
|
|
|
1,355,963
|
|
|
|
75,000
|
|
|
|
|
|
|
|
|
|
|
Net Deferred Tax Assets
|
|
|
844,977
|
|
|
|
-
|
|
During the year
ended September 30, 2015 The Company had recorded a 100% valuation allowance against its deferred tax assets which resulted primarily
from net operating loss carryforwards. As of September 30, 2016, the Company assessed the likelihood that the deferred tax assets
would be recovered from future taxable income would be more likely than not based on all available evidence, both positive and
negative. As a result, the Company reversed the valuation allowance, and recorded a deferred tax asset of $2,595,000 at September
30, 2016,
The Company
has net operating loss carryforwards for income tax purposes that expire as follows:
2032
|
|
$
|
165,000
|
|
2033
|
|
|
5,605,000
|
|
2034
|
|
|
624,000
|
|
|
|
$
|
6,394,000
|
|
|
10
|
PROFIT SHARING AND 401(k) PLANS
|
The Company maintains
separate non-contributory profit sharing plans and contributory 401(k) plans covering substantially all full-time employees under
each segment.
The JGI 401(k)
plans provide for participant contributions of up to 50% of annual compensation (not to exceed the IRS limit), as defined by the
plan. The Company contributes an amount equal to 50% of the participant’s first 6% of contributions. The expense charged
to operations for the years ended September 30, 2016 and 2015 aggregated approximately $82,000 and $53,000, respectively.
INDCO’s 401(k) plan, as amended, provides that employees
who have reached the age of 21 are eligible to participate in the plan after 1 year of service. Under the plan, eligible employees
may elect to defer their compensation within plan guidelines. INDCO contributions to the plan may be made up of the following:
INDCO may make a matching contribution of up to 4% for
the employee’s elective deferral.
INDCO may make a discretionary profit sharing contribution
to the plan.
INDCO may make a qualified non-elective contribution to
the plan. The amount of the qualified non-elective contribution is 3% of the employees pay for the portion of the plan year they
are active participants.
The expense charged to operations for the seven months
years ended September 30, 2016 aggregated $26,000.
|
11
|
BUSINESS SEGMENT INFORMATION
|
As of March
2016, the Company operates in two reportable segments (Global Logistics Services and Manufacturing) supported by a corporate
group which conducts activities that are non-segment specific. The following table presents selected financial information
about the Company’s reportable segments for the year ended September 30, 2016. The figures presented for the
manufacturing segment are reflective of seven months’ operating activity and ownership by Janel:
Year Ended
|
|
|
|
|
Global
|
|
|
|
|
|
Janel
|
|
September 30 2016
|
|
Consolidated
|
|
|
Logistics Services
|
|
|
Manufacturing
|
|
|
Corporation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
75,336,803
|
|
|
|
70,596,132
|
|
|
|
4,740,671
|
|
|
|
-
|
|
Gross Margin
|
|
|
15,797,660
|
|
|
|
13,149,015
|
|
|
|
2,648,645
|
|
|
|
-
|
|
Selling, General & Administration
|
|
|
13,156,087
|
|
|
|
10,747,590
|
|
|
|
1,432,788
|
|
|
|
975,709
|
|
Operating Income
|
|
|
2,046,992
|
|
|
|
2,401,425
|
|
|
|
1,210,024
|
|
|
|
(1,564,457
|
)
|
Identifiable Assets
|
|
|
35,958,057
|
|
|
|
12,555,942
|
|
|
|
1,740,395
|
|
|
|
21,661,720
|
|
Capital Expenditures
|
|
|
139,467
|
|
|
|
2,905
|
|
|
|
136,562
|
|
|
|
-
|
|
Amortization of intangibles
|
|
|
594,581
|
|
|
|
-
|
|
|
|
5,833
|
|
|
|
588,748
|
|
During the year
ended September 30 2015, the company operated in just the transportation and logistics segment.
|
12
|
COMMITMENTS AND CONTINGENCIES
|
The Company conducts
its operations from leased premises. Rental expense on operating leases for the years ended September 30, 2016 and 2015 was approximately
$573,000 and $518,000, respectively.
Future minimum lease
commitments (excluding renewal options) under non-cancellable leases are as follows:
|
|
|
|
|
Year Ending September 30,
|
|
|
|
|
|
|
Combined
|
|
Year ended September 30,
|
|
|
2017
|
|
|
|
494,000
|
|
|
|
|
2018
|
|
|
|
390,000
|
|
|
|
|
2019
|
|
|
|
398,000
|
|
|
|
|
2020
|
|
|
|
165,000
|
|
|
(b)
|
Employment Agreements
|
The Company has various employment
agreements, including the employment agreement with the previous owner of Alpha/PCL, discussed in Note 2A, and previous owners
of Liberty discussed in Note 2B and key management members of INDCO discussed in Note 2C, with certain employees expiring at various
times through September 30, 2017.
|
13
|
RISKS AND UNCERTAINTIES
|
The nature of Janel’s
operations requires it to deal with currencies other than the U.S. Dollar. This results in the Company being exposed to the inherent
risks of international currency markets and governmental interference. A number of countries where Janel maintains offices or agent
relationships have currency control regulations that influence its ability to hedge foreign currency exposure. The Company tries
to compensate for these exposures by accelerating international currency settlements among those agents.
|
(b)
|
Concentration of credit risk
|
The Company’s
assets that are exposed to concentrations of credit risk consist primarily of cash and receivables from customers. The Company
places its cash with financial institutions that have high credit ratings. The receivables from clients are spread over many customers.
The Company maintains an allowance for uncollectible accounts receivable based on expected collectability and performs ongoing
credit evaluations of its customers’ financial condition.
(1) Janel is occasionally
subject to claims and lawsuits which typically arise in the normal course of business. While the outcome of these claims cannot
be predicated with certainty, management does not believe that the outcome of any of these legal matters will have a material adverse
effect on the Company’s financial position or results of operations.
|
(d)
|
Concentration of customers
|
Sales to one major
customer were approximately 10.4% for the year ended September 30, 2016 and sales to two major customers were approximately 39.2%
of consolidated sales from continuing operations for the year ended September 30, 2015. Amounts due from these customers aggregated
approximately $813,000 and $946,000 at September 30, 2016 and 2015, respectively.
Management has evaluated events occurring
after the date of these financial statements through the date that these financial statements were issued. There have been no events
that would require adjustment to or disclosure in the financial statements.