UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
 
FORM 10-Q
 
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2021
 
OR
 
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____ to ____
 
Commission file number: 333-60608
 
JANEL CORPORATION
(Exact name of registrant as specified in its charter)
 
Nevada
 
86-1005291
(State or other jurisdiction of
incorporation or organization)
  
(I.R.S. Employer
Identification No.)

80 Eighth Avenue    
New York, New York
  
10011
(Address of principal executive offices)
 
(Zip Code)

Registrant’s telephone number, including area code: (212) 373-5895
Former name, former address and former fiscal year, if changed from last report: N/A
Securities registered pursuant to Section 12(b) of the Act:
 
Title of each class
 
Trading symbols(s)
 
Name of each exchange
on which registered
None
 
None
 
None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☒ No ☐
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes ☒ No ☐
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer ☐
Accelerated filer
☐
Non-accelerated filer ☐
Smaller reporting company
☒
 
Emerging growth company
☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes ☐ No ☒
 
The number of shares of Common Stock outstanding as of August 6, 2021 was 907,207.
 
JANEL CORPORATION
 
QUARTERLY REPORT ON FORM 10-Q
For Quarterly Period Ended June 30, 2021
 
TABLE OF CONTENTS
 
     
Page
       
3
       
 
Item 1.
3
       
   
3
       
   
4
       
   
5
       
   
6
       
   
7
       
 
Item 2.
22
       
 
Item 4.
33
       
35
       
 
Item 1.
35
       
 
Item 1A.
36
       
 
Item 2.
36
       
 
Item 6.
36
       
   
37

2
Table of Contents

PART I - FINANCIAL INFORMATION
 
ITEM 1.
FINANCIAL STATEMENTS
 
JANEL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
(Unaudited)
 
   

June 30,
2021
   
September 30,
2020
 
ASSETS
           
Current Assets:
           
Cash
 
$
2,926
   
$
3,349
 
Accounts receivable, net of allowance for doubtful accounts of $415 and $496, respectively
   
27,575
     
20,245
 
Inventory, net
   
3,479
     
3,666
 
Prepaid expenses and other assets
   
638
     
433
 
Total current assets
   
34,618
     
27,693
 
Property and Equipment, net
   
4,917
     
4,977
 
Other Assets:
               
Intangible assets, net
   
14,461
     
13,333
 
Goodwill
   
15,955
     
14,146
 
Operating lease right of use asset
   
2,280
     
2,621
 
Security deposits and other long-term assets
   
263
     
265
 
Total other assets
   
32,959
     
30,365
 
Total assets
 
$
72,494
   
$
63,035
 
LIABILITIES AND STOCKHOLDERS' EQUITY
               
Current Liabilities:
               
Line of credit
 
$
12,986
   
$
8,447
 
Accounts payable – trade
   
23,049
     
20,769
 
Accrued expenses and other current liabilities
   
4,082
     
3,007
 
Dividends payable
   
2,228
     
1,661
 
Current portion of Paycheck Protection Program (PPP) loan
   
1,528
     
1,913
 
Current portion of deferred acquisition payments
   
176
     
178
 
Current portion of subordinated promissory note-related party
   
711
     
504
 
Current portion of long-term debt
   
867
     
866
 
Current portion of operating lease liabilities
   
809
     
720
 
Total current liabilities
   
46,436
     
38,065
 
Other Liabilities:
               
Long-term debt
   
5,084
     
6,432
 
Long-term portion of Paycheck Protection Program (PPP) loan
   
1,232
     
960
 
Subordinated promissory notes-related party
   
809
     
39
 
Long-term portion of deferred acquisition payments
   
374
     
372
 
Mandatorily redeemable non-controlling interest
   
690
     
604
 
Deferred income taxes
   
2,057
     
1,569
 
Long-term operating lease liabilities
   
1,495
     
1,924
 
Other liabilities
   
399
     
388
 
Total other liabilities
   
12,140
     
12,288
 
Total liabilities
   
58,576
     
50,353
 
Stockholders' Equity:
               
Preferred Stock, $0.001 par value; 100,000 shares authorized
               
Series B 5,700 shares authorized, 31 shares issued and outstanding
   
—
     
—
 
Series C 20,000 shares authorized and 20,000 shares issued and 19,760 outstanding at June 30, 2021 and September 30, 2020, liquidation value of $12,108 and $11,541 at June 30, 2021 and September 30, 2020, respectively
   
—
     
—
 
Common stock, $0.001 par value; 4,500,000 shares authorized, 927,207 issued and 907,207 outstanding as of June 30, 2021 and 918,652 issued and 898,652 outstanding as of September 30, 2020
   
1
     
1
 
Paid-in capital
   
14,119
     
14,604
 
Treasury stock, at cost, 20,000 shares
   
(240
)
   
(240
)
Accumulated earnings (deficit)
   
38
   
(1,683
)
Total stockholders' equity
   
13,918
     
12,682
 
Total liabilities and stockholders' equity
 
$
72,494
   
$
63,035
 

The accompanying notes are an integral part of these condensed consolidated financial statements.
 
3
Table of Contents

JANEL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)
(Unaudited)
 
   
Three Months Ended
June 30,
   
Nine Months Ended
June 30,
 
   
2021
   
2020
   
2021
   
2020
 
Revenue
 
$
34,826
   
$
18,498
   
$
91,446
   
$
57,440
 
Forwarding expenses and cost of revenues
   
26,058
     
13,405
     
68,680
     
40,064
 
Gross profit
   
8,768
     
5,093
     
22,766
     
17,376
 
Cost and Expenses:
                               
Selling, general and administrative
   
7,158
     
5,482
     
19,282
     
18,151
 
Amortization of intangible assets
   
288
     
243
     
832
     
729
 
Total Costs and Expenses
   
7,446
     
5,725
     
20,114
     
18,880
 
Income (Loss) from Operations
   
1,322
     
(632
)
   
2,652
     
(1,504
)
Other Items:
                               
Interest expense net of interest income
   
(141
)
   
(108
)
   
(418
)
   
(412
)
Gain on Paycheck Protection Program loan forgiveness
   
—
     
—
     
135
     
—
 
Income (Loss) Before Income Taxes
   
1,181
     
(740
)
   
2,369
     
(1,916
)
Income tax expense
   
(311
)
   
(557
)
   
(648
)
   
(438
)
Net Income (Loss)
   
870
     
(1,297
)
   
1,721
     
(2,354
)
Preferred stock dividends
   
(197
)
   
(174
)
   
(566
)
   
(500
)
Net Income (Loss) Available to Common Stockholders
 
$
673
   
$
(1,471
)
 
$
1,155
   
$
(2,854
)
                                 
Net income (loss) per share
                               
Basic
 
$
0.93
   
$
(1.49
)
 
$
1.84
   
$
(2.71
)
Diluted
 
$
0.88
   
$
(1.49
)
 
$
1.75
   
$
(2.71
)
Net income (loss) per share attributable to common stockholders:
                               
Basic
 
$
0.73
   
$
(1.69
)
 
$
1.24
   
$
(3.29
)
Diluted
 
$
0.68
   
$
(1.69
)
 
$
1.17
   
$
(3.29
)
Weighted average number of shares outstanding:
                               
Basic
   
939,613
     
872,838
     
937,234
     
868,033
 
Diluted
   
994,841
     
872,838
     
981,832
     
868,033
 

The accompanying notes are an integral part of these condensed consolidated financial statements.
 
4
Table of Contents

JANEL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(in thousands, except share and per share data)
(Unaudited)

   
PREFERRED STOCK
   
COMMON STOCK
   
PAID-IN CAPITAL
   
TREASURY STOCK
   
ACCUMULATED EARNINGS (DEFICIT)
   
TOTAL EQUITY
 
   
SHARES
   
$
   
SHARES
   
 $    
 $    
SHARES
   
 $    
 $    
 $  
Balance - September 30, 2020
   
19,791
   

—
     
918,652
   
$
1
   
$
14,604
     
20,000
   
$
(240
)
 
$
(1,683
)
 
$
12,682
 
Net Income
   
—
     
—
     
—
     
—
     
—
     
—
     
—
     
255
     
255
 
Dividends to preferred stockholders
   
—
     
—
     
—
     
—
     
(174
)
   
—
     
—
     
—
     
(174
)
Stock-based compensation
   
—
     
—
     
—
     
—
     
10
     
—
     
—
     
—
     
10
 
Stock option exercise
   
—
     
—
     
2,502
     
—
     
21
     
—
     
—
     
—
     
21
 
Balance - December 31, 2020
   
19,791
   

—
     
921,154
   
$
1
   
$
14,461
     
20,000
   
$
(240
)
 
$
(1,428
)
 
$
12,794
 
Net Income
   
—
     
—
     
—
     
—
     
—
     
—
     
—
     
596
     
596
 
Dividends to preferred stockholders
   
—
     
—
     
—
     
—
     
(195
)
   
—
     
—
     
—
     
(195
)
Stock based compensation
   
—
     
—
     
—
     
—
     
12
     
—
     
—
     
—
     
12
 
Balance - March 31, 2021
   
19,791
   

—
     
921,154
   
$
1
   
$
14,278
     
20,000
   
$
(240
)
 
$
(832
)
 
$
13,207
 
Net Income
    —       —       —       —       —       —       —       870       870  
Dividends to preferred stockholders
    —       —       —       —       (197 )     —       —       —       (197 )
Stock based compensation
    —       —       —       —       13       —       —       —       13  
Stock options exercise
    —       —       6,053       —       25       —       —       —       25  
Balance - June 30, 2021     19,791     $ —       927,207     $ 1     $ 14,119     $ 20,000     $ (240 )   $ 38     $ 13,918  

   
PREFERRED STOCK
   
COMMON STOCK
   
PAID-IN CAPITAL
   
TREASURY STOCK
   
ACCUMULATED EARNINGS (DEFICIT)
   
TOTAL EQUITY
 
   
SHARES
   
 $    
SHARES
   
 $    
 $    
SHARES
   
 $    
 $    
 $  
Balance - September 30, 2019
   
20,631
   

—
     
863,812
   
$
1
   
$
15,075
     
20,000
   
$
(240
)
 
$
42
   
$
14,878
 
Net Loss
   
—
     
—
     
—
     
—
     
—
     
—
     
—
     
(120
)
   
(120
)
Dividends to preferred stockholders
   
—
     
—
     
—
     
—
     
(151
)
   
—
     
—
     
—
     
(151
)
Stock-based compensation
   
—
     
—
     
—
     
—
     
55
     
—
     
—
     
—
     
55
 
Stock option exercise
   
—
     
—
     
3,840
     
—
     
31
     
—
     
—
     
—
     
31
 
Balance - December 31, 2019
   
20,631
   

—
     
867,652
   
$
1
   
$
15,010
     
20,000
   
$
(240
)
 
$
(78
)
 
$
14,693
 
Net Loss
   
—
     
—
     
—
     
—
     
—
     
—
     
—
     
(937
)
   
(937
)
Dividends to preferred stockholders
   
—
     
—
     
—
     
—
     
(175
)
   
—
     
—
     
—
     
(175
)
Stock based compensation
   
—
     
—
     
—
     
—
     
56
     
—
     
—
     
—
     
56
 
Balance - March 31, 2020
   
20,631
   

—
     
867,652
   
$
1
   
$
14,891
     
20,000
   
$
(240
)
 
$
(1,015
)
 
$
13,637
 
Net Loss
    —       —       —       —       —       —       —       (1,297 )     (1,297 )
Dividends to preferred stockholders
    —       —       —       —       (174 )     —       —       —       (174 )
Conversion of Preferred B shares to Common Shares
    (300 )     —       3,000       —       —       —       —       —       —  
Issuance of Restricted Stock
    —       —       5,000       —       (30 )     —       —       —       (30 )
Stock based compensation
    —       —       —       —       52       —       —       —       52  
Balance - June 30, 2020     20,331     $ —       875,652     $ 1     $ 14,739       20,000
    $ (240 )   $ (2,312 )   $ 12,188  

The accompanying notes are an integral part of these condensed consolidated financial statements.
 
5
Table of Contents

JANEL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
 
   
Nine Months Ended
June 30,
 
   
2021
   
2020
 
Cash Flows From Operating Activities:
           
Net income (loss)
 
$
1,721
   
$
(2,354
)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
               
(Recovery of) provision for uncollectible accounts
   
(22
)
   
137
 
Depreciation
   
265
     
198
 
Deferred income tax provision
   
488
     
360
 
Amortization of intangible assets
   
832
     
729
 
Amortization of acquired inventory valuation
   
732
     
597
 
Amortization of loan costs
   
7
     
7
 
Stock-based compensation
   
85
     
217
 
Gain on Paycheck Protection Program loan forgiveness
   
(135
)
   
—
 
Changes in fair value of mandatorily redeemable noncontrolling interest
   
86
     
—
 
Changes in operating assets and liabilities, net of effects of acquisitions:
               
Accounts receivable
   
(6,558
)
   
8,738
 
Inventory
   
(319
)
   
(182
)
Prepaid expenses and other current assets
   
(205
)
   
177
 
Security deposits and other long-term assets
   
6
     
(51
)
Accounts payable and accrued expenses
   
3,144
     
(7,317
)
Other liabilities
   
12
     
7
 
Net cash provided by operating activities
   
139
     
1,263
 
Cash Flows From Investing Activities:
               
Acquisition of property and equipment, net of disposals
   
(127
)
   
(288
)
Acquisitions, net of cash acquired
   
(2,874
)
   
(115
)
Net cash used in investing activities
   
(3,001
)
   
(403
)
Cash Flows From Financing Activities:
               
Repayments of term loan
   
(1,333
)
   
(519
)
Proceeds from stock option exercise
   
46
     
31
 
Line of credit, proceeds, net
   
4,539
     
(2,472
)
Proceeds from PPP loan
    —
      2,727  
Repayment of subordinated promissory notes
   
(813
)
   
(111
)
Net cash provided by (used in) in financing activities
   
2,439
     
(344
)
Net (decrease) increase in cash
   
(423
)
   
516
 
Cash at beginning of the period
   
3,349
     
2,163
 
Cash at end of period
 
$
2,926
   
$
2,679
 
                 
Supplemental Disclosure of Cash Flow Information:
               
Cash paid during the period for:
               
Interest
 
$
361
   
$
420
 
Income taxes
 
$
38
   
$
7
 
Non-cash operating activities:
               
Gain on Paycheck Protection Program loan forgiveness
 
$
135
   
$
—
 
Non-cash investing activities:
               
Due to seller 338 election
 
$
30
   
$
—
 
Subordinated promissory notes of ICT
 
$
1,760
   
$
—
 
Non-cash financing activities:
               
Dividends declared to preferred stockholders
 
$
566
   
$
500
 
Vested restricted stock unissued
  $
—     $
30  

The accompanying notes are an integral part of these condensed consolidated financial statements.
  

6
Table of Contents
JANEL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)

1.
BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

The accompanying interim unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of Article 8 of Regulation S-X and the instructions to Form 10-Q of the Securities and Exchange Commission. As a result, certain information and footnote disclosures normally included in audited financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. Janel Corporation (the “Company” or “Janel”) believes that the disclosures made are adequate to make the information presented not misleading. The condensed consolidated financial statements reflect all adjustments which are, in the opinion of management, necessary to a fair statement of the results for the interim periods presented. The results of operations for the periods presented are not necessarily indicative of the results to be expected for a full fiscal year, or any other period. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes included in the Company’s Form 10-K as filed with the Securities and Exchange Commission.
 
Revenues and revenue recognition
 
The Company recognizes revenues in accordance with ASU 2014-09, Revenue from Contracts with Customers (“ASC Topic 606”).
 
Global Logistics Services
 
Revenue is recognized upon transfer of control of promised services to customers. With respect to its Global Logistics Services segment, the Company has determined that, in general, each shipment transaction or service order constitutes a separate contract with the customer. When the Company provides multiple services to a customer, different contracts may be present for different services.

The Company typically satisfies its performance obligations as services are rendered at a point in time. A typical shipment would include services rendered at origin, such as pick-up and delivery to port, freight services from origin to destination port and destination services, such as customs clearance and final delivery. The Company measures the performance of its obligations as services are completed at a point in time during the life of a shipment, including services at origin, freight and destination. The Company fulfills nearly all of its performance obligations within a one- to two-month period.

The Company evaluates whether amounts billed to customers should be reported as gross or net revenue. Generally, revenue is recorded on a gross basis when the Company is acting as principal and is primarily responsible for fulfilling the promise to provide the services, when it has discretion in setting the prices for the services to the customers, and the Company has the ability to direct the use of the services provided by the third party. Revenue is recognized on a net basis when the Company is acting as agent and we do not have latitude in carrier selection or in establishing rates with the carrier.

In the Global Logistics Services segment, the Company disaggregates its revenues by its four primary service categories: ocean freight, air freight, custom brokerage and trucking and other. A summary of the Company’s revenues disaggregated by major service lines for the three and nine months ended June 30, 2021 and 2020 is as follows:
 
   
Three Months
Ended
June 30,
   
Three Months
Ended
June 30,
   
Nine Months
Ended
June 30,
   
Nine Months
Ended
June 30,
 
Service Type
 
2021
   
2020
   
2021
   
2020
 
Ocean freight
 
$
13,082
   
$
6,376
   
$
33,556
   
$
18,113
 
Air freight
   
7,735
     
3,905
     
18,808
     
11,808
 
Trucking and other
   
5,076
     
2,873
     
14,187
     
9,335
 
Custom brokerage
   
3,476
     
2,411
     
9,451
     
7,716
 
Total
 
$
29,369
   
$
15,565
   
$
76,002
   
$
46,972
 

7
Table of Contents
Manufacturing
 
The Company’s Manufacturing segment is comprised of Indco, Inc. (“Indco”), a majority-owned subsidiary of the Company.  Revenues from Indco are derived from the engineering, manufacture and delivery of specialty mixing equipment and accessories. Indco receives customer product orders via telephone, email, internet or fax. The pricing of each standard product sold is listed in Indco’s print and web-based catalog. Customer specific products are priced by quote. A sales order acknowledgement is sent to every customer for every order to confirm pricing and the specifications of the products ordered. The revenue is recognized at a point in time when the product is shipped to the customer.
 
Life Sciences
 
Revenues from the Life Sciences segment are derived from the sale of high-quality monoclonal and polyclonal antibodies, diagnostic reagents and diagnostic kits and other immunoreagents for biomedical research and antibody manufacturing. Revenues are recognized when products are shipped and risk of loss is transferred to the carrier(s) used.

2.
ACQUISITIONS
 
Fiscal 2021 Acquisitions
 
Life Sciences
 
On December 4, 2020, through its wholly-owned subsidiary Aves Labs, Inc. ("Aves"), the Company completed a business combination whereby it acquired all of the membership interests of ImmunoChemistry Technologies, LLC ("ICT") for an aggregate purchase price of $3,419, net of $105 cash received.  At closing, $1,628 was paid in cash and a promissory note in the amount of $1,850 was issued to the former owner. The Company recorded the present value of $1,760 for the promissory note. The Company recorded an aggregate of $1,438 in goodwill and $1,430 in other identifiable intangibles. Subsequent to closing, the Company recorded an additional $30 purchase price adjustment related to an I.R.S Code Section 338(h)(10) election that was made in connection with the ICT acquisition.  The ICT acquisition will be treated as an asset purchase for income tax purposes, which will allow for the tax deduction of ICT’s goodwill. The acquisition was funded with cash provided by normal operations along with a note to the former owner. The results of operations of the acquired businesses are included in Janel’s condensed consolidated results of operations since the date of the acquisition. Supplemental pro forma information has not been provided as the acquisition did not have a significant impact on Janel’s condensed consolidated results of operations, individually or in aggregate. ICT is a developer and manufacturer of cell viability assay kits, ELISA buffers and fluorescent reagents for use in research and diagnostics.  ICT was founded in 1994 and is headquartered in Bloomington, Minnesota. The acquisition of ICT was completed to expand our product offerings in our Life Sciences segment.

Global Logistics Services
 
On December 31, 2020, through the Company’s Global Logistics Services segment, which is comprised of several wholly-owned subsidiaries and is collectively known as “Janel Group”, the Company completed a business combination whereby it acquired substantially all of the assets and certain liabilities of a global logistics services provider with two U.S. locations. The aggregate purchase price for this acquisition was $1,282. At closing, $1,182 was paid in cash and $100 was placed in escrow for a period of twelve months for the purpose of securing the indemnification obligations of former stockholders. The Company recorded an aggregate of $304 in goodwill and $531 in other identifiable intangibles. The acquisition was funded with cash provided by normal operations, funds availble under the Santander Credit Facility along with a note to the former owner. Supplemental pro forma information has not been provided as the acquisition did not have a significant impact on Janel’s consolidated results of operations, individually or in aggregate. This acquisition was completed to expand our product offerings in our Global Logistics Services segment.
 
8
Table of Contents
Fiscal 2020 Acquisition
 
Effective July 23, 2020, through Janel Group, the Company acquired all of the outstanding common stock of a global logistics services provider with two U.S. locations for $132, net of $853 cash received. At closing, the former stockholder was paid $300 in cash and $194, $193 and $193 is due to the stockholder as deferred acquisition payments on the first, second and third anniversary of the closing date, respectively, and the Company assumed $135 in the form of a Paycheck Protection Program (PPP) loan. In February 2021, the Company was informed that the PPP loan had been forgiven by the U.S. Small Business Administration. Consistent with the terms of the stock purchase arrangement, the Company paid the former owner $68 upon forgiveness of the PPP loan.  The Company recorded an aggregate of $573 in goodwill and $690 in other identifiable intangibles. This acquisition was funded with cash provided by normal operations along with a deferred acquisition payment due to the former stockholder. The results of operations of the acquired businesses are included in the Janel’s consolidated results of operations since the date of the acquisition. Supplemental pro forma information has not been provided as the acquisition did not have a significant impact on Janel’s consolidated results of operations individually or in aggregate.

3.
INVENTORY
 
Inventories consisted of the following:
 
   
June 30,
2021
   
September 30,
2020
 
Finished Goods
 
$
1,372
   
$
1,246
 
Work-in-Process
   
903
     
1,406
 
Raw Materials
   
1,236
     
1,039
 
Gross Inventory
   
3,511
     
3,691
 
Less - Reserve for Inventory Valuation
   
(32
)
   
(25
)
Inventory, Net
 
$
3,479
   
$
3,666
 

4.
PROPERTY AND EQUIPMENT
 
A summary of property and equipment and the estimated lives used in the computation of depreciation and amortization is as follows:
 
   
June 30,
2021
   
September 30,
2020
 
Life
Building and Improvements
 
$
3,134
   
$
3,096
 
15-30 Years
Land and Improvements
   
1,247
     
1,235
 
Indefinite
Furniture & Fixtures
   
286
     
282
 
3-7 Years
Computer Equipment
   
599
     
385
 
3-5 Years
Machinery & Equipment
   
1,154
     
1,288
 
3-15 Years
Leasehold Improvements
   
109
     
115
 
3-5 Years
     
6,529
     
6,401
   
Less: Accumulated Depreciation
   
(1,612
)
   
(1,424
)
 
Property and equipment, net
 
$
4,917
   
$
4,977
   

Depreciation expense for the nine months ended June 30, 2021 and 2020 was $265 and $198, respectively.
 
5.
INTANGIBLE ASSETS
 
A summary of intangible assets and the estimated useful lives used in the computation of amortization is as follows:
 
   
June 30,
2021
   
September 30,
2020
 
Life
Customer Relationships
 
$
16,232
   
$
14,392
 
15-24 Years
Trademarks / Names
   
1,840
     
1,820
 
1-20 Years
Trademarks / Names
   
521
     
451
 
Indefinite
Other
   
1,048
     
1,018
 
2-5 Years
     
19,641
     
17,681
   
Less: Accumulated Amortization
   
(5,180
)
   
(4,348
)
 
Intangible assets, net
 
$
14,461
   
$
13,333
   

9
Table of Contents
   
June 30,
2021
   
September 30,
2020
 
Global Logistics Services
 
$
8,174
   
$
7,643
 
Manufacturing
   
7,700
     
7,700
 
Life Sciences
   
3,767
     
2,338
 
     
19,641
     
17,681
 
Less: Accumulated Amortization
   
(5,180
)
   
(4,348
)
Intangible assets, net
 
$
14,461
   
$
13,333
 

Amortization expense for the nine months ended June 30, 2021 and 2020 was $832 and $729, respectively.
 
6.
GOODWILL
 
The Company’s goodwill carrying amounts relate to the acquisitions in the Global Logistics Services, Manufacturing and Life Sciences businesses.

The composition of the goodwill balance at June 30, 2021 and September 30, 2020 was as follows:

   
June 30,
2021
   
September 30,
2020
 
Global Logistics Services
 
$
6,532
   
$
6,161
 
Manufacturing
   
5,046
     
5,046
 
Life Sciences
   
4,377
     
2,939
 
   
$
15,955
   
$
14,146
 

7.
NOTES PAYABLE – BANKS
 
(A)
Santander Bank Facility
 
On October 17, 2017, the Janel Group subsidiaries (collectively the “Janel Group Borrowers”), with the Company as a guarantor, entered into a Loan and Security Agreement (the “Santander Loan Agreement”) with Santander Bank, N.A. (“Santander”) with respect to a revolving line of credit facility (the “Santander Facility”). As amended in March 2018, November 2018, March 2020, July 2020 and December 2020, the Santander Facility currently provides that the Janel Group Borrowers can borrow up to $17,000 limited to 85% of the Janel Group Borrowers’ aggregate outstanding eligible accounts receivable, subject to adjustment as set forth in the Santander Loan Agreement. Interest accrues on the Santander Facility at an annual rate equal to, at the Janel Group Borrowers’ option, prime plus 0.50%, or LIBOR (30, 60 or 90 day) plus 2.25% subject to a LIBOR floor of 75 basis points. The Janel Group Borrowers’ obligations under the Santander Facility are secured by all of the assets of the Janel Group Borrowers, while the Santander Loan Agreement contains customary terms and covenants. The Santander Facility matures on October 17, 2022, unless earlier terminated or renewed. As a result of its terms, the Santander Facility is classified as a current liability on the consolidated balance sheet.
 
At September 30, 2020, outstanding borrowings under the Santander Facility were $8,447, and interest was accruing at an effective interest rate of 2.4%.

At June 30, 2021, outstanding borrowings under the Santander Facility were $12,986, and interest was accruing at an effective interest rate of 3.1%.
 
The Janel Group Borrowers were in compliance with the covenants contained in the Santander Loan Agreement at June 30, 2021 and September 30, 2020.
 
(B)
First Merchants Bank Credit Facility
 
On March 21, 2016, as amended in August 2019 and July 2020, Indco executed a Credit Agreement (the “First Merchants Credit Agreement”) with First Merchants Bank with respect to a $5,500 term loan, a $1,000 (limited to the borrowing base and reserves) revolving loan and a $680 mortgage loan (together, the “First Merchant Facility”).  Interest accrues on the term loan at an annual rate equal to the one-month LIBOR plus either 2.75% (if Indco’s total funded debt to EBITDA ratio is less than 2:1), or 3.5% (if Indco’s total funded debt to EBITDA ratio is greater than or equal to 2:1). Interest accrues on the revolving loan at an annual rate equal to the one-month LIBOR plus 2.75%. Interest accrues on the mortgage loan at an annual rate of 4.19%. Indco’s obligations under the First Merchants Bank Facility are secured by all of Indco’s real property and other assets, and are guaranteed by Janel. Additionally, Janel’s guarantee of Indco’s obligations is secured by a pledge of Janel’s Indco shares. The term loan and revolving loan portions of the First Merchants Facility will expire on August 30, 2024, and the mortgage loan will mature on July 1, 2025 (subject to earlier termination as provided in the First Merchants Credit Agreement), unless renewed or extended.
 
10
Table of Contents
As of September 30, 2020, there were no outstanding borrowings under the revolving loan, $4,349 of borrowings under the term loan, and $676 of borrowing under the mortgage loan with interest accruing on the term loan and mortgage loan at an effective interest rate of 3.66% and 4.19%, respectively.
 
As of June 30, 2021, there were no outstanding borrowings under the revolving loan, $3,032 of borrowings under the term loan, and $660 of borrowing under the mortgage loan with interest accruing on the term loan and mortgage loan at an effective interest rate of 3.58% and 4.19%, respectively.
 
Indco was in compliance with the covenants contained in the First Merchants Credit Agreement at both June 30, 2021 and September 30, 2020.
 
   
June 30,
2021
   
September 30,
2020
 
Long-Term Debt *
 
$
3,692
   
$
5,025
 
Less Current Portion
   
(808
)
   
(808
)
   
$
2,884
   
$
4,217
 

*
Under the First Merchants Credit Agreement, the term loan is due in monthly installments of $65 plus monthly interest, at LIBOR plus 2.75% to 3.5% per annum, and the mortgage loan is due in monthly installments of $4, including interest at 4.19%. The First Merchant Facility is collateralized by all of Indco’s assets and guaranteed by Janel.
 
(C)
First Northern Bank of Dixon

On June 21, 2018, as amended November 2019 and October 2, 2020, Antibodies Incorporated (“Antibodies”), a wholly-owned subsidiary of the Company (by succession), entered into a Business Loan Agreement (the “First Northern Loan Agreement”) with First Northern Bank of Dixon (“First Northern”), with respect to a $2,235 term loan (the “First Northern Term Loan”) which bears interest at an annual rate of 4.00% and matures on November 14, 2029. In addition, Antibodies has a $500 revolving credit facility with First Northern which currently bears interest at the annual rate of 4.0%, and matures on October 5, 2021 (the “First Northern Revolving Loan”). Antibodies also entered into two separate business loan agreements with First Northern: a $125 term loan in connection with a potential expansion of solar generation capacity on the Antibodies property (“First Northern Solar Loan”) bearing interest at the annual rate of 4.43% (subject to adjustment in five years) and maturing on November 14, 2029; and a $60 term loan in connection with a potential expansion of generator capacity on the Antibodies property (“Generator Loan”) bearing interest at the annual rate of 4.25% and maturing on November 5, 2025. There were no outstanding borrowings under the Generator Loan as June 30, 2021.
 
As of September 30, 2020, the total amount outstanding under the First Northern Term Loan was $2,192, of which $2,139 is included in long-term debt and $53 is included in current portion of long-term debt, with interest accruing at an effective interest rate of 4.18%.
 
As of June 30, 2021, the total amount outstanding under the First Northern Term Loan was $2,153, of which $2,098 is included in long-term debt and $55 is included in current portion of long-term debt, with interest accruing at an effective interest rate of 4.18%.
 
11
Table of Contents
As of September 30, 2020, the total amount outstanding under the First Northern Solar Loan was $81, of which $76 is included in long-term debt and $5 is included in current portion of long-term debt, with interest accruing at an effective interest rate of 4.43%.
 
As of June 30, 2021, the total amount outstanding under the First Northern Solar Loan was $106, of which $102 is included in long-term debt, and $4 is included in current portion of long-term debt, with interest accruing at an effective interest rate of 4.43%.
 
As of June 30, 2021, and September 30, 2020, there were no outstanding borrowings under the First Northern Revolving Loan.
 
   
June 30,
2021
   
September 30,
2020
 
Long-Term Debt *
 
$
2,259
   
$
2,273
 
Less Current Portion
   
(59
)
   
(58
)
   
$
2,200
   
$
2,215
 

*
Long-term debt is due in monthly installments of $12 plus monthly interest, at 4.18% per annum. The note is collateralized by real property owned by Antibodies and guaranteed by Janel.
 
The Company was in compliance with the covenants contained in the First Northern Loan Agreement at June 30, 2021 and September 30, 2020.
 
8.
SUBORDINATED PROMISSORY NOTES - RELATED PARTY
 
Antibodies is the obligor on two 4% subordinated promissory notes (together, the “AB HoldCo Subordinated Promissory Notes”) payable to certain former shareholders of Antibodies.  Both of the AB HoldCo Subordinated Promissory Notes are guaranteed by the Company, are unsecured and are subordinate to the terms of the Company’s debt to any federal or state bank or other institutional lender.
 
Interest on the AB HoldCo Subordinated Promissory Notes is payable in arrears on the last business day of each calendar quarter, the full outstanding principal balance and accrued, unpaid interest is due on June 22, 2021 and may be prepaid, in whole or in part, without premium or penalty. As of  June 30, 2021, the AB HoldCo Subordinated Promissory Notes had been repaid. As of September 30, 2020, the amount outstanding on the two AB HoldCo Subordinated Promissory Notes was $344, which is included in the current portion of subordinated promissory notes.
 
Janel Group is the obligor on a 6.75% subordinated promissory note (the “Honor Subordinated Promissory Note”) with a former owner of Honor Worldwide Logistics LLC, now a direct wholly-owned subsidiary of Janel Group and an indirect wholly-owned subsidiary of the Company (“Honor”). The Honor Subordinated Promissory Note is guaranteed by the Company. The Honor Subordinated Promissory Note is subordinate to and junior in right of payment for principal interest premiums and other amounts payable to the Santander Bank Facility and the First Merchants Bank Credit Facility. The Honor Subordinated Promissory Note is payable in twelve equal consecutive quarterly installments of principal and interest of $42 each, on the last day of January, April, July and October beginning in January 2019. The outstanding principal and accrued and unpaid interest are payable on November 20, 2021 and may be repaid, in whole or in part, without premium or penalty.  As of June 30, 2021, the total amount outstanding under the Honor Subordinated Promissory Note was $81 which is included in the current portion of subordinated promissory notes.  As of September 30, 2020, the total amount outstanding under the Honor Subordinated Promissory Note was $199, of which $160 is included in the current portion of subordinated promissory notes and $39 is included in long-term portion of subordinated promissory notes.
 
Aves is the obligor on a 0.5% subordinated promissory note in the amount of $1,850 issued to the former owner of ICT (the “ICT Subordinated Promissory Note”).  The ICT Subordinated Promissory Note is payable in sixteen scheduled quarterly installments of principal and interest beginning March 4, 2021, matures on March 21, 2025, and may be prepaid, in whole or in part, without premium or penalty.  The ICT Subordinated Promissory Note is guaranteed by the Company and is secured by the membership interests in ICT. The ICT Subordinated Promissory Note is subordinate to and junior in right of payment for principal interest premiums and other amounts payable to the Santander Bank Facility, First Merchants Bank Credit Facility and the First Northern Bank of Dixon. As of June 30, 2021, the amount outstanding under the ICT Subordinated Promissory Note was $1,439, of which $630 is included in the current portion of subordinated promissory notes and $809 is included in the long-term portion of subordinated promissory notes.
 
12
Table of Contents
(In thousands)
 
June 30,
2021
   
September 30,
2020
 
Total Subordinated Promissory Notes-related party
 
$
1,520
   
$
543
 
Less Current Portion of Subordinated Promissory Notes-related party
   
(711
)
   
(504
)
Long Term Portion of Subordinated Promissory Notes-related party
 
$
809
   
$
39
 

9.
SBA PAYCHECK PROTECTION PROGRAM LOANS
 
On April 19, 2020, the Company received a loan (the “Company PPP Loan”) in the aggregate amount of $2,726 from Santander, pursuant to the Paycheck Protection Program (the “PPP”) offered by the Small Business Administration (“SBA”) under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), Section 7(a)(36) of the Small Business Act, which was enacted March 27, 2020, as amended by the Paycheck Protection Program Flexibility Act of 2020 (“Flexibility Act”). The Company PPP Loan matures on April 19, 2022 and bears interest at a rate of 1.00% per annum. Under the original terms, all principal and interest payments are deferred for six months from the date of the note.  The Paycheck Protection Flexibility Act of 2020 P.L. 116-142, extended the deferral period for loan payments to either (1) the date that the SBA remits the borrower’s loan forgiveness amount to the lender or (2) if the borrower does not apply for loan forgiveness, ten months after the end of the borrower’s loan forgiveness covered period. To the extent the Company PPP Loan is not forgiven, principal and interest payments in the amount of $153 are due monthly commencing on September 1, 2021. The Company may prepay the note at any time prior to maturity without penalty. The Company may only use funds from the Company PPP Loan for purposes specified in the CARES Act and related PPP rules, which include payroll costs, costs used to continue group health care benefits, rent, utilities and certain mortgage payments (“qualifying expenses”). The loan and accrued interest are forgivable after eight weeks (or an extended 24-week covered period) as long as the borrower uses the loan proceeds for eligible purposes, including payroll, benefits, rent and utilities, and maintains its payroll levels.
 
In February 2021, the Company applied for forgiveness of the Company PPP Loan in accordance with the terms of the CARES Act.  The forgiveness application is subject to approval by the SBA, and the Company PPP Loan may not be forgiven partially or in full. Accordingly, we recorded the full amount of the Company PPP Loan as debt.

On July 23, 2020, the Company assumed a PPP Loan in connection with an acquisition in the amount of $135 (the “Acquisition PPP Loan”).  The terms of the Acquisition PPP Loan are the same as the terms of the Company PPP Loan. In February 2021, the Company was informed that the Acquisition PPP Loan had been forgiven by the SBA.  In accounting for the forgiveness of the Acquisition PPP Loan, the Company is guided by ASC 470 Debt, and ASC 450-30 Gain contingency. Accordingly, the Company derecognized the Acquisition PPP Loan of $135 and recorded it as a Gain on Paycheck Protection Program loan forgiveness.

As of June 30, 2021, and September 30, 2020, the total amount outstanding, including accrued interest, under the Company PPP Loan and Acquisition PPP Loan collectively was $2,760 and $2,873, respectively of which $1,232 and $960, respectively, was included in long-term debt and $1,526 and $1,913, respectively, was included in current portion of long-term debt.

As discussed in Note 17 – Subsequent Events, on July 22, 2021, the Company received notification from Santander that the SBA had granted full forgiveness of the Company PPP Loan on July 20, 2021 in the amount of $2,726 and interest payable in the amount of $34.
 
10.
STOCKHOLDERS’ EQUITY
 
Janel is authorized to issue 4,500,000 shares of common stock, par value $0.001. In addition, the Company is authorized to issue 100,000 shares of preferred stock, par value $0.001. The preferred stock is issuable in series with such voting rights, if any, designations, powers, preferences and other rights and such qualifications, limitations and restrictions as may be determined by the Company’s board of directors or a duly authorized committee thereof, without stockholder approval. The board of directors may fix the number of shares constituting each series and increase or decrease the number of shares of any series.
 
13
Table of Contents
(A)
Preferred Stock

Series B Convertible Preferred Stock

Shares of the Company’s Series B Convertible Preferred Stock (the “Series B Stock”) are convertible into shares of the Company’s $0.001 par value common stock at any time on a one-share (of Series B Stock) for ten-shares (of common stock) basis. On April 23, 2020, a holder of Series B Stock converted 300 shares of Series B Stock into 3,000 shares of the Company’s Common Stock. On September 25, 2020, a holder of Series B Stock converted 300 shares of Series B Stock into 3,000 shares of the Company’s Common Stock. The Company had 31 shares of Series B Stock outstanding as of June 30, 2021.

Series C Cumulative Preferred Stock

Shares of the Company’s Series C Cumulative Preferred Stock (the “Series C Stock”) were initially entitled to receive annual dividends at a rate of 7% per annum of the original issuance price of $10, when and if declared by the Company’s board of directors, with such rate to increase by 2% annually beginning on the third anniversary of issuance of such Series C Stock to a maximum rate of 13%. By the filing of the Certificate of Amendment on October 17, 2017, the annual dividend rate decreased to 5% per annum of the original issuance price, when and if declared by the Company’s board of directors, and increased by 1% beginning on January 1, 2019. Such rate is to increase on each January 1 thereafter for four years to a maximum rate of 9%. The dividend rate of the Series C Stock as of March 31, 2021 and September 30, 2020 was 8% and 7%, respectively. In the event of liquidation, holders of Series C Stock shall be paid an amount equal to the original issuance price, plus any accrued but unpaid dividends thereon. Shares of Series C Stock may be redeemed by the Company at any time upon notice and payment of the original issuance price, plus any accrued but unpaid dividends thereon. The liquidation value of Series C Stock was $12,108 and $11,541 as of June 30, 2021 and September 30, 2020, respectively.

On September 13, 2020, the Company purchased 890 shares of the Series C Stock from an accredited investor at a purchase price of $500 per share, or an aggregate of $445. On September 29, 2020, the Company sold 650 shares of the Series C Stock to an accredited investor at a purchase price of $500 per share, or an aggregate of $325. Such shares issued on September 29, 2020 were sold in a private placement in reliance upon the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933 and Regulation D promulgated thereunder.  The Company had 19,760 shares of Series C Stock outstanding as of June 30, 2021.

For the fiscal year ended September 30, 2020 the Company paid cash dividends of $55 to a holder of Series C Stock.  For the nine months ended June 30, 2021 and for the fiscal year ended September 30, 2020, the Company declared dividends on Series C Stock of $566 and $675, respectively. At June 30, 2021 and September 30, 2020, the Company had accrued dividends of $2,228 and $1,661, respectively.

(B)
Equity Incentive Plan

On May 12, 2017, the Company adopted the 2017 Equity Incentive Plan (the “2017 Plan”), which was amended on May 8, 2018 as discussed in more detail in note 11. Under the 2017 Plan, as amended, (i) non-statutory stock options, (ii) restricted stock awards and (iii) stock appreciation rights with respect to shares of the Company’s common stock may be granted to directors, officers, employees of and consultants to the Company. Participants and all terms of any awards under the 2017 Plan are at the discretion of the Company’s Compensation Committee of the board of directors.

11.
STOCK-BASED COMPENSATION
 
On October 30, 2013, the board of directors of the Company adopted the Company’s 2013 Non-Qualified Stock Option Plan (the “2013 Option Plan”) providing for options to purchase up to 100,000 shares of common stock for issuance to directors, officers, employees of and consultants to the Company and its subsidiaries.
 
14
Table of Contents
On May 12, 2017, the board of directors adopted the Company’s 2017 Plan pursuant to which (i) incentive stock options, (ii) non-statutory stock options, (iii) restricted stock awards and (iv) stock appreciation rights with respect to up to 100,000 shares of the Company’s common stock may be granted to directors, officers, employees of and consultants to the Company.
 
On May 8, 2018, the board of directors of Janel adopted the Amended 2017 Plan. The provisions and terms of the Amended 2017 Plan are the same as those in the 2017 Plan, except that the Amended 2017 Plan removes the ability of Janel to award incentive stock options and removes the requirement for stockholder approval of the 2017 Plan.
 
(A)
Stock Options
 
The Company uses the Black-Scholes option pricing model to estimate the fair value of our share-based awards. In applying this model, we use the following assumptions:
 
•
Risk-free interest rate - We determine the risk-free interest rate by using a weighted average assumption equivalent to the expected term based on the U.S. Treasury constant maturity rate.
 
•
Expected term - We estimate the expected term of our options on the average of the vesting date and term of the option.
 
•
Expected volatility - We estimate expected volatility using daily historical trading data of a peer group.
 
 •
Dividend yield - We have never paid dividends on our common stock and currently have no plans to do so; therefore, no dividend yield is applied.
 
The fair values of our employee option awards were estimated using the assumptions below, which yielded the following weighted average grant date fair values for the periods presented:
 
   
Nine Months Ended
June 30,
2021
 
Risk-free Interest Rate
 
0.46%
Expected Option Term in Years
 
5.5-6.5
 
Expected Volatility
 
103.0% - 105.4%
Dividend Yield
 
0%
Weighted Average Grant Date Fair Value
 
$6.90 - $7.19
 

   
Number of
Options
   
Weighted
Average Exercise
Price
   
Weighted
Average
Remaining
Contractual
Term (in years)
   
Aggregate
Intrinsic Value
(in thousands)
 
Outstanding Balance at September 30, 2020
   
93,996
   
$
5.76
     
5.24
   
$
304.99
 
Granted
   
7,500
   
9.00
     
9.50
   

—
 
Exercised
   
(2,502
)
 
8.58
     
—
   

—
 
Outstanding Balance at June 30, 2021
   
98,994
   

5.93
     
4.79
   
$
1,194.41
 
Exercisable on June 30, 2021
   
83,998
   
5.42
     
4.11
   
$
1,056.32
 

The aggregate intrinsic value in the above table was calculated as the difference between the closing price of the Company’s common stock at June 30, 2021 of $18.00 per share and the exercise price of the stock options that had strike prices below such closing price.
 
As of June 30, 2021, there was approximately $40 of total unrecognized compensation expense related to the unvested employee stock options which is expected to be recognized over a weighted average period of less than one year.
 
15
Table of Contents
   
Number of
Options
   
Weighted
Average Exercise
Price
   
Weighted
Average
Remaining
Contractual
Term (in years)
   
Aggregate
Intrinsic Value
(in thousands)
 
Outstanding Balance at September 30, 2020
   
6,053
   
$
4.13
     
6.0
   
$
29.48
 
Exercised
    (6,053 )     —
     
—
     
—
 
Outstanding Balance at June 30, 2021
   
—
   
—
     
—
   

—
 
Exercisable on June 30, 2021
   
—
   
—
     
—
   

—
 

The aggregate intrinsic value in the above table was calculated as the difference between the closing price of our common stock at September 30, 2020, of $9.00 per share and the exercise price of the stock options that had strike prices below such closing price.
 
The compensation cost related to these options was approximately $35 and $163 for the nine-month periods ended June 30, 2021 and 2020, respectively and was included in selling, general and administrative expense in the Company’s statements of operations.
As of June 30, 2021, there was no unrecognized compensation expense related to the vested stock options.
 
Liability classified share-based awards
 
During the nine months ended June 30, 2021, 6,948 options were granted and 7,000 options were exercised with respect to Indco’s common stock. The Company uses the Black-Scholes option pricing model to estimate the fair value of Indco’s share-based awards. In applying this model, the Company used the following assumptions:
 
   
Nine Months Ended
June 30,
2021
 
Risk-free Interest Rate
 
0.46%
Expected Option Term in Years
 
5.5 - 6.5
 
Expected Volatility
 
103.0% - 105.4%
Dividend Yield
 
0%
Weighted Average Grant Date Fair Value
 
$9.66 - $10.00
 

   
Number of
Options
   
Weighted
Average Exercise
Price
   
Weighted
Average
Remaining
Contractual
Term (in years)
   
Aggregate
Intrinsic Value
(in thousands)
 
Outstanding Balance at September 30, 2020
   
39,013
   
$
9.24
     
6.81
   
$
85.45
 
Granted
   
6,948
   
12.29
     
9.50
   

—
 
Exercised
   
(7,000
)
 
6.48
     
—
   
—
 
Outstanding Balance at June 30, 2021
   
38,961
   
10.28
     
6.87
   

78.16
 
Exercisable on June 30, 2021
   
25,153
   

9.42
     
5.93
   
72.25
 

The aggregate intrinsic value in the above table was calculated as the difference between the valuation price of Indco’s common stock at June 30, 2021 of $12.29 per share and the exercise price of the stock options that had strike prices below such closing price.
 
The liability classified awards were measured at fair value at each reporting date until the final measurement date, which was the date of completion of services required to earn the option. The accrued compensation cost related to these options was approximately $344 and $284 as of June 30, 2021 and September 30, 2020, respectively, and is included in other liabilities in the condensed consolidated financial statement.  The compensation cost related to these options was approximately $50 and $54 for the nine-month periods ended June 30, 2021 and 2020, respectively and was included in selling, general and administrative expense in the Company’s statements of operations.

The cost associated with the options issued on each grant date is being recognized ratably over the period of service required to earn each tranche of options.
 
16
Table of Contents
Upon vesting, the options continue to be accounted for as a liability in accordance with ASC 480-10-25-8 and are measured in accordance with ASC 480-10-35 at every reporting period until the options are settled.
 
Changes in the fair value of the vested options are recognized in earnings in the condensed consolidated financial statements.
 
The options are classified as liabilities, and the underlying shares of Indco’s common stock also contain put options which result in their classification as a mandatorily redeemable security. While their redemption does not occur on a fixed date, there is an unconditional obligation for the Company to repurchase the shares upon death of the holder.
 
As of June 30, 2021, there was approximately $51 of total unrecognized compensation expense related to the unvested Indco stock options. This expense is expected to be recognized over a weighted average period of less than one year.
 
(B)
Restricted Stock
 
During the nine months ended June 30, 2021, there were no shares of restricted stock granted. Under the Amended 2017 Plan, each grant of restricted stock vests over a three-year period, and the cost to the recipient is zero. Restricted stock compensation expense, which is a non-cash item, is being recognized in the Company’s financial statements over the vesting period of each restricted stock grant.
 
As of June 30, 2021, there was no unrecognized compensation cost related to non-employee unvested restricted stock.
 
As of June 30, 2021, and September 30, 2020, included in accrued expenses and other current liabilities was $306 which represents 35,000 shares of restricted stock that vested but were not issued.
 
12.
INCOME PER COMMON SHARE
 
The following table provides a reconciliation of the basic and diluted income (loss) per share (“EPS”) computations for the three and nine months ended June 30, 2021 and 2020 (in thousands, except share and per share data):
 
   
For the Three Months Ended
June 30,
   
For the Nine Months Ended
June 30,
 
   
2021
   
2020
   
2021
   
2020
 
Income (loss):
                       
Net income (loss)
 
$
870
   
$
(1,297
)
 
$
1,721
   
$
(2,354
)
Preferred stock dividends
   
(197
)
   
(174
)
   
(566
)
   
(500
)
Net Income (loss) available to common stockholders
 
$
673
   
$
(1,471
)
 
$
1,155
   
$
(2,854
)
                                 
Common Shares:
                               
Basic - weighted average common shares
   
939,613
     
872,838
     
937,234
     
868,033
 
Effect of dilutive securities:
                               
Stock options
   
54,918
     
—
     
44,288
     
—
 
Convertible preferred stock
   
310
     
—
     
310
     
—
 
Diluted - weighted average common stock
   
994,841
     
872,838
     
981,832
     
868,033
 
                                 
Income (loss) per Common Share:
                               
Basic -
                               
Net income (loss)
 
$
0.93
   
$
(1.49
)
 
$
1.84
   
$
(2.71
)
Preferred stock dividends
   
(0.20
)
   
(0.20
)
   
(0.60
)
   
(0.58
)
Net Income (loss) available to common stockholders
 
$
0.73
   
$
(1.69
)
 
$
1.24
   
$
(3.29
)
                                 
Diluted -
                               
Net income (loss)
 
$
0.88
   
$
(1.49
)
 
$
1.75
   
$
(2.71
)
Preferred stock dividends
   
(0.20
)
   
(0.20
)
   
(0.58
)
   
(0.58
)
Net income (loss) available to common stockholders
 
$
0.68
   
$
(1.69
)
 
$
1.17
   
$
(3.29
)

 
17
Table of Contents
The computation for the diluted number of shares excludes unvested restricted stock and unexercised stock options that are anti-dilutive. There were 54,918 dilutive shares for the nine-month periods ended June 30, 2021. Potentially dilutive securities as of June 30, 2021 and 2020 were as follows:


   
June 30,
 
   
2021
   
2020
 
Employee Stock Options
   
98,994
     
114,496
 
Non-employee Stock Options
   
—
     
36,053
 
Employee Restricted Stock
   
—
     
5,000
 
Non-employee Restricted Stock
   
—
     
26,667
 
Convertible Preferred Stock
   
310
     
3,310
 
     
99,304
     
185,526
 

13.
INCOME TAXES
 
The Company’s estimated fiscal 2021 and 2020 blended U.S. federal statutory corporate income tax rate of 27.4% and 22.9%, respectively, was applied in the computation of the income tax provision for the nine months ended June 30, 2021 and 2020, respectively.

The reconciliation of income tax computed at the Federal statutory rate to the (provision) benefit for income taxes is as follows:

   
For the Nine Months
Ended June 30,
2021
   
For the Nine Months
Ended June 30,
2020
 
Federal taxes at statutory rates
 
$
(497
)
 
$
402
 
Permanent differences
   
20
     
(332
)
Other
   
—
     
(451
)
State and local taxes
   
(171
)
   
(57
)
   
$
(648
)
 
$
(438)
 

We file income tax returns, including returns for our subsidiaries, with federal, state and local tax jurisdictions. During March 2021, we were informed by the Internal Revenue Service that our income tax return for the 2018 tax year was under examination. The timing of the resolution of tax audits is highly uncertain, as are the amounts, if any, that may ultimately be paid upon such resolution. The Company remains subject to U.S. federal income tax examinations for 2016 and subsequent years. For major U.S. states, with few exceptions, the Company remains subject to examination for 2016 and subsequent years.
 
14.
BUSINESS SEGMENT INFORMATION

The Company operates in three reportable segments: Global Logistics Services, Manufacturing and Life Sciences. The Company’s Chief Executive Officer regularly reviews financial information at the reporting segment level in order to make decisions about resources to be allocated to the segments and to assess their performance.
 
18
Table of Contents
The following table presents selected financial information about the Company’s reportable segments and Corporate for the purpose of reconciling to the consolidated totals for the three and nine months ended June 30, 2021:
 
For the three months ended
June 30, 2021
 
Consolidated
   
Global Logistics
Services
   
Manufacturing
   
Life Sciences
   
Corporate
 
Revenue
 
$
34,826
   
$
29,369
   
$
2,073
   
$
3,384
   
$
—
 
Forwarding expenses and cost of revenues
   
26,058
     
24,173
     
944
     
941
     
—
 
Gross profit
   
8,768
     
5,196
     
1,129
     
2,443
     
—
 
Selling, general and administrative
   
7,158
     
4,523
     
682
     
1,084
     
869
 
Amortization of intangible assets
   
288
     
—
     
—
     
—
     
288
 
Operating income (loss)
   
1,322
     
673
     
447
     
1,359
     
(1,157
)
Interest expense
   
141
     
62
     
39
     
34
     
6
 
Identifiable assets
   
72,494
     
26,903
     
3,644
     
10,366
     
31,581
 
Capital expenditures
 

47
   

33
   

—
   

14
   

—
 

For the nine months ended
June 30, 2021
 
Consolidated
   
Global Logistics
Services
   
Manufacturing
   
Life Sciences
   
Corporate
 
Revenue
 
$
91,446
   
$
76,002
   
$
6,471
   
$
8,973
   
$
—
 
Forwarding expenses and cost of revenues
   
68,680
     
62,818
     
2,985
     
2,877
     
—
 
Gross profit
   
22,766
     
13,184
     
3,486
     
6,096
     
—
 
Selling, general and administrative
   
19,282
     
11,640
     
2,007
     
3,273
     
2,362
 
Amortization of intangible assets
   
832
     
—
     
—
     
—
     
832
 
Operating income (loss)
   
2,652
     
1,544
     
1,479
     
2,823
     
(3,194
)
Interest expense
   
418
     
180
     
129
     
89
     
20
 
Identifiable assets
   
72,494
     
26,903
     
3,644
     
10,366
     
31,581
 
Capital expenditures
 

218
   

76
   

15
   

127
   

—
 

The following table presents selected financial information about the Company’s reportable segments and Corporate for the purpose of reconciling to the consolidated totals for the three and nine months ended June 30, 2020:
 
For the three months ended
June 30, 2020
 
Consolidated
   
Global Logistics
Services
   
Manufacturing
   
Life Sciences
   
Corporate
 
Revenue
 
$
18,498
   
$
15,565
   
$
1,605
   
$
1,328
   
$
—
 
Forwarding expenses and cost of revenues
   
13,405
     
12,194
     
752
     
459
     
—
 
Gross profit
   
5,093
     
3,371
     
853
     
869
     
—
 
Selling, general and administrative
   
5,482
     
3,429
     
482
     
951
     
620
 
Amortization of intangible assets
   
243
     
—
     
—
     
—
     
243
 
Operating (loss) income
   
(632
)
   
(58
)
   
371
     
(82)
     
(863
)
Interest expense
   
108
     
30
     
49
     
25
     
4
Identifiable assets
   
51,794
     
13,173
     
2,472
     
9,776
     
26,373
 
Capital expenditures
 

157
   

28
   

11
   

118
   

—
 

For the nine months ended
June 30, 2020
 
Consolidated
   
Global Logistics
Services
   
Manufacturing
   
Life Sciences
   
Corporate
 
Revenue
 
$
57,440
   
$
46,972
   
$
5,531
   
$
4,937
   
$
—
 
Forwarding expenses and cost of revenues
   
40,064
     
35,896
     
2,505
     
1,663
     
—
 
Gross profit
   
17,376
     
11,076
     
3,026
     
3,274
     
—
 
Selling, general and administrative
   
18,151
     
11,019
     
1,865
     
3,002
     
2,265
 
Amortization of intangible assets
   
729
     
—
     
—
     
—
     
729
 
Operating (loss) income
   
(1,504
)
   
57
     
1,161
     
272
     
(2,994
)
Interest expense
   
412
     
150
     
187
     
76
     
(1
)
Identifiable assets
   
51,794
     
13,173
     
2,472
     
9,776
     
26,373
 
Capital expenditures
   
288
     
92
     
34
     
162
     
—
 

15.
RISKS AND UNCERTAINTIES
 
(A)
Currency Risks
 
The nature of Janel’s operations requires it to deal with currencies other than the U.S. Dollar. As a result, the Company is exposed to the inherent risks of international currency markets and governmental interference. A number of countries where Janel maintains offices or agent relationships have currency control regulations. The Company attempts to compensate for these exposures by accelerating international currency settlements among those agents.
 
19
Table of Contents
(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. We have continued to experience heightened customer credit risk as a result of the negative impact to customers’ financial condition, employment levels and consumer confidence arising from economic disruptions related to the COVID-19 pandemic, and expect that our risk in this area will remain high as long as the disruptions persist.
 
(C)
Legal Proceedings
 
Janel is occasionally subject to claims and lawsuits which typically arise in the normal course of business. While the outcome of these claims cannot be predicted with certainty, management does not believe that the outcome of any of these legal matters will have a material adverse effect on the Company’s business, results of operations, financial condition or cash flows.
 
(D)
Concentration of Customers
 
No customer accounted for 10% or more of consolidated sales for the nine months ended June 30, 2021 and 2020. No customer accounted for 10% or more of consolidated accounts receivable at June 30, 2021 and September 30, 2020.
 
(E)
COVID-19
 
The worldwide outbreak of COVID-19, which was declared a pandemic by the World Health Organization on March 11, 2020, has impacted and may continue to impact our business operations, including employees, customers, financial condition, liquidity and cash flow for an extended period of time. Federal and state governments have implemented measures in an effort to contain the virus, including social distancing, travel restrictions, border closures, limitations on public gatherings, work from home, supply chain logistical changes, and closure of nonessential businesses, which measures adversely impacted our business operations in the fiscal year 2020. Although there are effective vaccines for COVID-19 that have been approved for use, we are unable to predict how widely utilized the vaccines will be, whether they will be effective in preventing the spread of COVID-19 (including its variant strains), and when or if normal economic activity and business operations will resume. As such, the full magnitude that the pandemic will have on the Company’s financial condition, liquidity, and future results of operations remains uncertain. Management continues to actively monitor the impact of the global situation on its financial condition, liquidity, operations, industry, and workforce.
 
16.
LEASES
 
The Company has operating leases for office and warehouse space in all districts where it conducts business. As of June 30, 2021, the remaining terms of the Company’s operating leases were between one and 60 months and certain lease agreements contain provisions for future rent increases. Payments due under the lease contracts include the minimum lease payments that the Company is obligated to make under the non-cancelable initial terms of the leases as the renewal terms are at the Company’s option and the Company is not reasonably certain to exercise those renewal options at lease commencement.
 
20
Table of Contents
The components of lease cost for the nine-month periods ended June 30, 2021 and 2020 are as follows:
 
   
Nine Months
Ended
June 30,
2021
   
Nine Months
Ended
June 30,
2020
 
Operating lease cost
 
$
721
   
$
559
 
Short-term lease cost
   
14
     
103
 
Total lease cost
 
$
735
   
$
662
 

Operating lease right-of-use assets, the current portion of operating lease liabilities and long-term operating lease liabilities reported in the consolidated balance sheets for operating leases as of June 30, 2021 and September 30, 2020 were $2,280, $809 and $1,495 and $2,621, $720 and $1,924, respectively.

During the nine months ended June 30, 2021, the Company entered into new operating leases and recorded an additional $164 in operating lease right-of-use assets and corresponding lease liabilities.

As of June 30, 2021, and September 30, 2020, the weighted-average remaining lease term and the weighted-average discount rate related to the Company’s operating leases were 3.4 years and 4.4% and 4.2 years and 4.6%, respectively.

Cash paid for amounts included in the measurement of operating lease obligations were $735 for the nine months ended June 30, 2021.

Future minimum lease payments under non-cancelable operating leases as of June 30, 2021 are as follows:
 
2021
 
$
809
 
2022   
   
669
 
2023
   
496
 
2024
   
439
 
2025
   
57
 
Total undiscounted lease payments
   
2,470
 
Less: Imputed interest
   
(166
)
Total lease obligations
 
$
2,304
 

17. SUBSEQUENT EVENTS

On July 22, 2021, the Company received notification from Santander that the SBA had granted full forgiveness of the Company’s PPP Loan on July 20, 2021 in the amount of $2,726 and interest payable in the amount of $34.

21
Table of Contents
ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
The following discussion and analysis should be read in conjunction with our unaudited interim condensed consolidated financial statements and related notes thereto as of and for the three months and nine months ended June 30, 2021, which have been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”). Amounts presented in this section are in thousands, except share and per share data.
 
As used throughout this Report, “we,” “us”, “our,” “Janel,” “the Company,” “Registrant” and similar words refer to Janel Corporation and its Subsidiaries.
 
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
 
This Quarterly Report on Form 10-Q (the “Report”) contains certain statements that are, or may deemed to be, “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 and that reflect management’s current expectations with respect to our operations, performance, financial condition, and other developments. These forward – looking statements may generally be identified by the use of the words “may,” “will,” “intends,” “plans,” projects,” “believes,” “should,” “expects,” “predicts,” “anticipates,” “estimates,” and similar expressions or the negative of these terms or other comparable terminology. These statements are necessarily estimates reflecting management’s best judgment based upon current information and involve a number of risks, uncertainties and assumptions. We caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made, and readers are advised that various factors, including, but not limited to, those set forth elsewhere in this Report, could affect our financial performance and could cause our actual results for future periods to differ materially from those anticipated or projected. While it is impossible to identify all such factors, such factors include, but are not limited to, the impact of the coronavirus on the worldwide economic conditions and on our businesses, our strategy of expanding our business through acquisitions of other businesses; the risk that we may fail to realize the expected benefits or strategic objectives of any acquisition, or that we spend resources exploring acquisitions that are not consummated; litigation, indemnification claims and other unforeseen claims and liabilities that may arise from an acquisition; economic and other conditions in the markets in which we operate; the risk that we may not have sufficient working capital to continue operations; instability in the financial markets; the material weaknesses identified in our internal control over financial reporting; our dependence on key employees; competition from parties who sell their businesses to us and from professionals who cease working for us; terrorist attacks and other acts of violence or war; security breaches or cybersecurity attacks; competition faced by our global logistics services freight carriers with greater financial resources and from companies that operate in areas in which we plan to expand; our dependence on the availability of cargo space from third parties; recessions and other economic developments that reduce freight volumes; other events affecting the volume of international trade and international operations; risks arising from our global logistics services business’ ability to manage staffing needs; competition faced in the freight forwarding, freight brokerage, logistics and supply chain management industry; industry consolidation and our ability to gain sufficient market presence with respect to our global logistics services business; risks arising from our ability to comply with governmental permit and licensing requirements or statutory and regulatory requirements; seasonal trends; competition faced by our manufacturing (Indco) business from competitors with greater financial resources; Indco’s dependence on individual purchase orders to generate revenue; any decrease in the availability, or increase in the cost and supply shortages, of raw materials used by Indco; Indco’s ability to obtain and retain skilled technical personnel; risks associated with product liability claims due to alleged defects in Indco’s products; risks arising from the environmental, health and safety regulations applicable to Indco; the reliance of our Indco and life sciences businesses on a single location to manufacture their products; the ability of our life sciences business to compete effectively; the ability of our life sciences business to introduce new products in a timely manner; product or other liabilities associated with the manufacture and sale of new products and services; changes in governmental regulations applicable to our life sciences business; the ability of our life sciences business to continually produce products that meet high quality standards such as purity, reproducibility and/or absence of cross-reactivity; the controlling influence exerted by our officers and directors and one of our stockholders; our inability to issue dividends in the foreseeable future; and risks related to ownership of our common stock, including volatility and the lack of a guaranteed continued public trading market for our common stock. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual outcomes may vary materially from those projected. You should not place undue reliance on any of our forward-looking statements which speak only as of the date they are made. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. For a more detailed discussion of these factors, see our periodic reports filed with the Securities and Exchange Commission, including our most recent Annual Report on Form 10-K for the fiscal year ended September 30, 2020.

OVERVIEW
 
Janel Corporation (“Janel,” the “Company” or the “Registrant”) is a holding company with subsidiaries in three business segments: Global Logistics Services, Manufacturing and Life Sciences. The Company strives to create shareholder value primarily through three strategic priorities: supporting its businesses’ efforts to make investments and to build long-term profits; allocating Janel capital at high risk-adjusted rates of return; and attracting and retaining exceptional talent.

A management group at the holding company level focuses on significant capital allocation decisions, corporate governance and supporting Janel’s subsidiaries where appropriate. Janel expects to grow through its subsidiaries’ organic growth and by completing acquisitions. We plan to either acquire businesses within our existing segments or expand our portfolio into new strategic segments. Our acquisition strategy focuses on reasonably-priced companies with strong and capable management teams, attractive existing business economics and stable and predictable earnings power.

22
Table of Contents
Global Logistics Services
 
The Company’s Global Logistics Services segment is comprised of several wholly-owned subsidiaries (collectively, “Janel Group”). Janel Group is a non-asset based, full-service provider of cargo transportation logistics management services, including freight forwarding via air-, ocean- and land-based carriers, customs brokerage services, warehousing and distribution services, and other value-added logistics services.

On December 31, 2020, we completed a business combination whereby we acquired substantially all of the assets and certain liabilities of a global logistics services provider with two U.S. locations.

On July 23, 2020, the Company acquired a global logistics services provider with two U.S. locations.

Manufacturing
 
The Company’s Manufacturing segment is comprised of Indco, Inc. (“Indco”). Indco is a majority-owned subsidiary of the Company that manufactures and distributes mixing equipment and apparatus for specific applications within various industries. Indco’s customer base is comprised of small- to mid-sized businesses as well as other larger customers for which Indco fulfills repetitive production orders.
 
Life Sciences
 
The Company’s Life Sciences segment, which is comprised of several wholly-owned subsidiaries, manufactures and distributes high-quality monoclonal and polyclonal antibodies, diagnostic reagents and other immunoreagents for biomedical research and provides antibody manufacturing for academic and industry research scientists. Our Life Sciences business also produces products for other life science companies on an original equipment manufacturer (“OEM”) basis.
 
On December 4, 2020, the Company, through its wholly-owned subsidiary Aves, acquired all of the membership interests of ImmunoChemistry Technologies, LLC.
 
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
 
Our Condensed Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles in the United States. These generally accepted accounting principles require management to make estimates and assumptions that affect the reported amounts of assets, liabilities, net sales and expenses during the reporting period.
 
Our senior management has reviewed the critical accounting policies and estimates with the Audit Committee of our Board of Directors. Our significant accounting policies are described in Note 1, “Summary of Business and Significant Accounting Policies,” in the Notes to our Consolidated Financial Statements for the fiscal year ended September 30, 2020, which are included in our Annual Report on Form 10-K filed with the SEC on January 13, 2021. Critical accounting policies are those that are most important to the portrayal of our financial condition, results of operations and cash flows and require management’s most difficult, subjective and complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. If actual results were to differ significantly from estimates made, the reported results could be materially affected. There were no significant changes to our critical accounting policies during the nine months ended June 30, 2021.
 
23
Table of Contents
NON-GAAP FINANCIAL MEASURES
 
While we prepare our financial statements in accordance with U.S. GAAP, we also utilize and present certain financial measures, in particular adjusted operating income, which is not based on or included in U.S. GAAP (we refer to these as “non-GAAP financial measures”).
 
Net Revenue
 
Net revenue is a non-GAAP measure calculated as total revenue less forwarding expenses attributable to the Company’s Global Logistics Services segment. Our total revenue represents the total dollar value of services and goods we sell to our customers. Forwarding expenses attributable to the Company’s Global Logistics Services segment refer to purchased transportation and related services including contracted air, ocean, rail, motor carrier and other costs. Total revenue can be influenced greatly by changes in transportation rates or other items, such as fuel prices, which we do not control. Management believes that providing net revenue and its related margin is useful to investors as net revenue is the primary indicator of our ability to source, add value and sell services and products that are provided by third parties, and we consider net revenue to be our primary performance measurement. The difference between the rate billed to our customers (the sell rate) and the rate we pay to the carrier (the buy rate) is termed “net revenue”, “yield” or “margin.” As presented, net revenue matches gross margin.
 
Organic Growth
 
Our non-GAAP financial measure of organic growth represents revenue growth excluding revenue from acquisitions within the preceding 12 months. The organic growth presentation provides useful period-to-period comparison of revenue results as it excludes revenue from acquisitions that would not be included in the comparable prior period.
 
Adjusted Operating Income
 
As a result of our acquisition strategy, our net income includes material non-cash charges relating to the amortization of customer-related intangible assets in the ordinary course of business as well as other intangible assets acquired in our acquisitions. Although these charges may increase as we complete more acquisitions, we believe we will be growing the value of our intangible assets such as customer relationships. Because these charges are not indicative of our operations, we believe that adjusted operating income is a useful financial measure for investors because it eliminates the effect of these non-cash costs and provides an important metric for our business that is more representative of the actual results of our operations.
 
Adjusted operating income (which excludes the non-cash impact of amortization of intangible assets, stock-based compensation and cost recognized on the sale of acquired inventory valuation) is used by management as a supplemental performance measure to assess our business’s ability to generate cash and economic returns.
 
Adjusted operating income is a non-GAAP measure of income and does not include the effects of preferred stock dividends, interest and taxes.
 
We believe that net revenue, organic growth and adjusted operating income provide useful information in understanding and evaluating our operating results in the same manner as management. However, net revenue, organic growth and adjusted operating income are not financial measures calculated in accordance with U.S. GAAP and should not be considered as a substitute for total revenue, operating income or any other operating performance measures calculated in accordance with U.S. GAAP. Using these non-GAAP financial measures to analyze our business has material limitations because the calculations are based on the subjective determination of management regarding the nature and classification of events and circumstances that users of the financial statements may find significant.
 
In addition, although other companies in our industry may report measures titled net revenue, organic growth, adjusted operating income or similar measures, such non-GAAP financial measures may be calculated differently from how we calculate our non-GAAP financial measures, which reduces their overall usefulness as comparative measures. Because of these limitations, you should consider net revenue, organic growth and adjusted operating income alongside other financial performance measures, including total revenue, operating income and our other financial results presented in accordance with U.S. GAAP.
 
24
Table of Contents
Results of Operations – Janel Corporation
 
Our results of operations and period-over-period changes are discussed in the following section. The tables and discussion should be read in conjunction with the accompanying Condensed Consolidated Financial Statements and the notes thereto.
 
Our consolidated results of operations are as follows:
 
(in thousands)
 
Three Months Ended
June 30,
2021
   
Three Months Ended
June 30,
2020
   
Nine Months Ended
June 30,
2021
   
Nine Months Ended
June 30,
2020
 
Revenues
 
$
34,826
   
$
18,498
   
$
91,446
   
$
57,440
 
Forwarding expenses and cost of revenues
   
26,058
     
13,405
     
68,680
     
40,064
 
Gross profit
   
8,768
     
5,093
     
22,766
     
17,376
 
Operating expenses
   
7,446
     
5,725
     
20,114
     
18,880
 
Operating income (loss)
   
1,322
     
(632
)
   
2,652
     
(1,504
)
Net income (loss)
   
870
     
(1,297
)
   
1,721
     
(2,354
)
Adjusted operating income (loss)
 
$
1,868
   
$
(171
)  
$
4,301
   
$
39
 
 
Consolidated revenues for the three months ended June 30, 2021 were $34,826, or 88.7% higher than for the three months ended June 30, 2020, as a result of increased revenue across all three segments and the impact of acquisitions, to a smaller extent.
 
The Company’s net income for the three months ended June 30, 2021 totaled approximately $870 or $0.88 per diluted share, compared to a net loss of ($1,297) or ($1.49) per diluted share for the three months ended June 30, 2020.
 
Consolidated revenues for the nine months ended June 30, 2021 were $91,446, or 59.2% higher than for the nine months ended June 30, 2020, as a result of increased revenue across all three segments and the impact of acquisitions, to a smaller extent.
 
The Company’s net income for the nine months ended June 30, 2021 totaled approximately $1,721 or $1.75 per diluted share, compared to a net loss of ($2,354) or ($2.71) per diluted share for the nine months ended June 30, 2020.
 
The following table sets forth a reconciliation of operating income (loss) to adjusted operating income (loss):
 
(in thousands)
 
Three Months
Ended June 30,
2021
   
Three Months
Ended June 30,
2020
   
Nine Months
Ended June 30,
2021
   
Nine Months
Ended June 30,
2020
 
Operating income (loss)
 
$
1,322
   
$
(632
)
 
$
2,652
   
$
(1,504
)
Amortization of intangible assets(1)
   
288
     
243
     
832
     
729
 
Stock-based compensation(2)
   
31
     
68
     
85
     
217
 
Cost recognized on sale of acquired inventory (3)
   
227
     
150
     
732
     
597
 
Adjusted operating income (loss)
 
$
1,868
   
$
(171
)
 
$
4,301
   
$
39
 

(1)
Amortization of intangible assets represents non-cash amortization expense or impairment expense, if any, attributable to acquisition-related intangible assets, including any portion that is allocated to noncontrolling interests. Management believes that making this adjustment aids in comparing the Company’s operating results with other companies in our industry that have not engaged in acquisitions.
(2)
The Company eliminates the impact of stock-based compensation because it does not consider such non-cash expenses to be indicative of the Company’s core operating performance. The exclusion of stock-based compensation expenses also facilitates comparisons of the Company’s underlying operating performance on a period-to-period basis.
(3)
The Company has excluded the impact of cost on the sale of acquired inventory in connection with acquisitions as such adjustments represent non-cash items, are not consistent in amount and frequency and are significantly impacted by the timing and size of the Company’s acquisitions.
 
25
Table of Contents
Results of Operations - Global Logistics Services – Three and Nine Months Ended June 30, 2021 and 2020
 
Our Global Logistics Services business helps its clients move and manage freight efficiently to reduce inventories and to increase supply chain speed and reliability. Key services include customs entry filing, arrangement of freight forwarding by air, ocean and ground, warehousing, cargo insurance procurement, logistics planning, product repackaging and online shipment tracking.
 
Global Logistics Services – Selected Financial Information:
 

 
Three Months Ended
June 30,
   
Nine Months Ended
June 301,
 
   
2021
   
2020
   
2021
   
2020
 
(in thousands)  

 
Revenue
 
$
29,369
   
$
15,565
   
$
76,002
   
$
46,972
 
Forwarding expenses
   
24,173
     
12,194
     
62,818
     
35,896
 
Net revenue
   
5,196
     
3,371
     
13,184
     
11,076
 
Net revenue margin
   
17.7
%
   
22.0
%
   
17.3
%
   
23.6
%
Selling, general & administrative
   
4,523
     
3,429
     
11,640
     
11,019
 
Income (loss) from operations
 
$
673
   
$
(58
)
 
$
1,544
   
$
57
 
 
Revenue
 
Total revenue for the three months ended June 30, 2021 was $29,369, as compared to $15,565 for the three months ended June 30, 2020, an increase of $13,804 or 88.7%. Of the increase in revenue, 89.5% represented growth primarily due to the rise in transportation rates as a result of capacity issues globally and a recovery in business compared with the depressed levels in the prior year period, while two acquisitions accounted for the remainder of the growth. Total revenue for the nine months ended June 30, 2021 and 2020 was $76,002 and $46,972, respectively, an increase of $29,030 or 61.8%. Of the increase in revenue, 89% represented organic growth primarily due to the rise in transportation rates due to capacity issues globally and a recovery in business compared with the depressed levels in the prior year period, while two acquisitions accounted for the remainder.
 
Forwarding Expenses
 
Forwarding expenses for the three months ended June 30, 2021 increased by $11,979, or 98.2%, to $24,173 as compared to $12,194 for the three months ended June 30, 2020. Forwarding expenses as a percentage of revenue were 82.3% and 78.3% for the three months ended June 30, 2021 and 2020, respectively. Similar to the revenue increase, the increase in forwarding expenses and forwarding expense as a percentage of revenue reflected higher transportation rates and increased expenses related to acquisitions.
 
Forwarding expenses for the nine months ended June 30, 2021 increased by $26,922, or 75.0%, to $62,818 as compared to $35,896 for the nine months ended June 30, 2020. Forwarding expenses as a percentage of revenue were 82.6% and 76.4% for the nine months ended June 30, 2021 and June 30, 2020, respectively. Similar to the revenue increase, the increase in forwarding expenses and forwarding expense as a percentage of revenue reflected higher transportation rates and increased expenses related to acquisitions.
 
Net Revenue and Net Revenue Margin
 
Net revenue for the three months ended June 30, 2021 was $5,196, an increase of $1,825, or 54.1%, as compared to $3,371 for the three months ended June 30, 2020. This increase was mainly the result of a recovery in business compared with the depressed levels in the prior year period which drove organic growth of 34% as well as increased revenue from two acquisitions, which accounted for the balance of the growth. Net revenue as a percentage of revenue decreased to 17.7% compared to 21.7% for the prior year period due to the increase in transportation rates versus the prior year period.
 
26
Table of Contents
Net revenue for the nine months ended June 30, 2021 was $13,184, an increase of $2,108, or 19.0%, as compared to $11,076 for the nine months ended June 30, 2020. This increase was mainly the result of a recovery in business compared with the depressed levels in the prior year period which drove organic growth of 5% as well as increased revenue from two acquisitions, which accounted for the balance of the growth. Net revenue as a percentage of revenue decreased to 17.3% compared to 23.6% for the prior year period due to the increase in transportation rates versus the prior year period.
 
Selling, General and Administrative Expenses
 
Selling, general and administrative expenses for the three months ended June 30, 2021 were $4,523, as compared to $3,429 for the three months ended June 30, 2020. This increase of $1,094, or 31.9%, was largely attributed to additional expenses from businesses acquired versus the prior year period as well as one-time expenses related to a payment to settle a customer dispute and severance for a senior leadership change. As a percentage of revenue, selling, general and administrative expenses were 15.4% and 22.0% of revenue for the three months ended June 30, 2021 and 2020, respectively.
 
Selling, general and administrative expenses for the nine months ended June 30, 2021 were $11,640, as compared to $11,019 for the nine months ended June 30, 2020. This increase of $621, or 5.6%, was largely attributed to additional expenses from businesses acquired versus the prior year period as well as one-time expenses related to a payment to settle a customer dispute and severance for a senior leadership change. As a percentage of revenue, selling, general and administrative expenses were 15.3% and 23.5% of revenue for the nine months ended June 30, 2021 and 2020, respectively.
 
Income (loss) from Operations
 
Income from operations increased to $673 for the three months ended June 30, 2021, as compared to a loss of ($58) for the three months ended June 30, 2020, an increase of $731. Income from operations increased during the three months ended June 30, 2021 as a result of cost reductions and, to a lesser extent, the contribution from an acquisition versus the prior year period, partially offset by the one-time expenses discussed above. Operating margin as a percentage of net revenue for the three months ended June 30, 2021 was 13.0% compared to (1.72%) in the prior year period.
 
Income from operations increased to $1,544 for the nine months ended June 30, 2021, as compared to $57 for the nine months ended June 30, 2020, an increase of $1,487, or 2,608.7%. Income from operations increased during the nine months ended June 30, 2021 as a result of cost reductions and, to a lesser extent, the contribution from an acquisition versus the prior year period, partially offset by the one-time expense discussed above. Operating margin as a percentage of net revenue for the nine months ended June 30, 2021 was 11.7% compared to 0.51% in the prior year period.
 
Results of Operations - Manufacturing – Three and Nine Months Ended June 30, 2021 and 2020
 
The Company’s Manufacturing segment reflects its majority-owned Indco subsidiary, which manufactures and distributes industrial mixing equipment.
 
Manufacturing – Selected Financial Information:
 
27
Table of Contents
   
Three Months Ended
June 30,
   
Nine Months Ended
June 30,
 
   
2021
   
2020
   
2021
   
2020
 
(in thousands)
                 
Revenue
 
$
2,073
   
$
1,605
   
$
6,471
   
$
5,531
 
Cost of sales
   
944
     
752
     
2,985
     
2,505
 
Gross profit
   
1,129
     
853
     
3,486
     
3,026
 
Gross profit margin
   
54.5
%
   
53.1
%
   
53.9
%
   
54.7
%
Selling, general and administrative
   
682
     
482
     
2,007
     
1,865
 
Income from Operations
 
$
447
   
$
371
   
$
1,479
   
$
1,161
 

Revenue
 
Total revenue was $2,073 and $1,605 for the three months ended June 30, 2021 and 2020, respectively, an increase of $468, or 29.2%. Total revenue was $6,471 and $5,531 for the nine months ended June 30, 2021 and 2020, respectively, an increase of $940, or 17.0%. The revenue increase in both periods reflected a broad increase across the business relative to the COVID-19 related slowdown in the respective prior year periods.
 
Cost of Sales
 
Cost of sales was $944 and $752 for the three months ended June 30, 2021 and 2020, respectively, an increase of $192, or 25.5%. Cost of sales was $2,985 and $2,505 for the nine months ended June 30, 2021 and 2020, respectively, an increase of $480, or 19.2%. The cost of sales increases in both periods was consistent with the revenue increase in both periods and reflected relatively stable product mix.
 
Gross Profit and Gross Profit Margin
 
Gross profit was $1,129 and $853 for the three months ended June 30, 2021 and 2020, respectively, an increase of $276, or 32.4%. Gross profit margin for the three months ended June 30, 2021 and 2020 was 54.5% and 53.1%, respectively. Gross profit was $3,486 and $3,026 for the nine months ended June 30, 2021 and 2020, respectively, an increase of $460, or 15.2%. Gross profit margin for the nine months ended June 30, 2021 and 2020 was 53.9% and 54.7%, respectively. The gross profit in both periods increased proportionately with the increase in revenue of the business as reflected by relatively stable gross profit margins.
 
Selling, General and Administrative Expenses
 
Selling, general and administrative expenses were $682 and $482 for the three months ended June 30, 2021 and 2020, respectively, an increase of $200 or 41.5%. Expenses rose faster than revenue due to higher sales and marketing investments during the quarter compared to the prior year period. Selling, general and administrative expenses were $2,007 and $1,865 for the nine months ended June 30, 2021 and 2020, respectively, an increase of $142 or 7.6%. The relatively stable selling, general and administrative expenses for the nine months ended June 30, 2021 compared to the prior year period reflected cost savings efforts partially offset by investment in sales and marketing efforts.
 
Income from Operations
 
Income from operations was $447 for the three months ended June 30, 2021 compared to $371 for the three months ended June 30, 2020, representing a 20.5% increase from the prior year period. Income from operations was $1,479 for the nine months ended June 30, 2021 compared to $1,161 for the nine months ended June 30, 2020, representing a 27.4% increase from the prior year period.  Operating profit increased in both periods as the business benefited from management’s decision a year ago not to reduce staffing levels which resulted in favorable operating leverage as revenue recovered, partially offset by investment in sales and marketing efforts.
 
28
Table of Contents
Results of Operations – Life Sciences – Three and Nine Months Ended June 30, 2021 and 2020
 
The Company’s Life Sciences segment manufactures and distributes high-quality monoclonal and polyclonal antibodies, diagnostic reagents and other immunoreagents for biomedical research and provides antibody manufacturing for academic and industry research scientists. Our Life Sciences business also produces products for other life science companies on an OEM basis.
 
Life Sciences – Selected Financial Information:
 
   
Three Months Ended
June 30,
   
Nine Months Ended
June 30,
 
   
2021
   
2020
   
2021
   
2020
 
(in thousands)
 

             
Revenue
 
$
3,384
   
$
1,328
   
$
8,973
   
$
4,937
 
Cost of sales
   
714
     
82
     
2,145
     
1,066
 
Cost recognized upon sales of acquired inventory
   
227
     
377
     
732
     
597
 
Gross profit
   
2,443
     
869
     
6,096
     
3,274
 
Gross profit margin
   
72.2
%
   
65.4
%
   
67.9
%
   
66.3
%
Selling, general and administrative
   
1,084
     
951
     
3,273
     
3,002
 
Income (loss) from Operations
 
$
1,359
   
$
(82
)
 
$
2,823
   
$
272
 

Revenue
 
Total revenue was $3,384 and $1,328 for the three months ended June 30, 2021 and 2020, respectively, an increase of $2,056 or 154.8%. Of the $2,056 increase in revenue, 82.1% represented organic growth as the Life Sciences business experienced a recovery from the COVID-led slowdown as well as the introduction of new products and services, with an acquisition accounting for the remainder of the increase. Total revenue was $8,973 and $4,937 for the nine months ended June 30, 2021 and 2020, respectively, an increase of $4,036 or 81.7%. Of the $4,036 increase in revenue, 77.7% represented organic growth as the Life Sciences business experienced a recovery from the COVID-led slowdown as well as the introduction of new products and services, with an acquisition accounting for the remainder of the increase.
 
Cost of Sales and Cost Recognized Upon Sale of Acquired Inventory
 
Cost of sales was $714 and $82 for the three months ended June 30, 2021 and 2020, respectively, an increase of $632 or 770.7%, primarily as a result of business growth and, to a smaller degree, increased expenses from an acquisition.  Cost recognized upon sale of acquired inventory was $227 and $377 for the three months ended June 30, 2021 and 2020, respectively, a decrease of $153 or 40.6%, due to some acquired inventory being fully amortized partially offset by some acquired inventory.
 
Cost of sales was $2,145 and $1,066 for the nine months ended June 30, 2021 and 2020, respectively, an increase of $1,079 or 101.2%, primarily as a result of business growth.  Cost recognized upon sale of acquired inventory was $732 and $597 for the nine months ended June 30, 2021 and 2020, respectively, an increase of $135 or 22.6%, due to acquired inventory from an acquisition partially offset by some inventory being fully amortized.
 
Gross Profit and Gross Profit Margin
 
Gross profit was $2,443 and $869 for the three months ended June 30, 2021 and 2020, respectively, an increase of $1,574 or 181.1%. During the three months ended June 30, 2021 and 2020, the Life Sciences segment had a gross profit margin of 72.2% and 65.4%, respectively.
 
Gross profit was $6,096 and $3,274 for the nine months ended June 30, 2021 and 2020, respectively, an increase of $4,036 or 81.7%. During the nine months ended June 30, 2021 and 2020, the Life Sciences segment had a gross profit margin of 67.9% and 66.3%, respectively. Gross profit margin for both periods increased in line with revenue, including as a result of contributions from an acquisition, with consistent product mix period-to-period.
 
29
Table of Contents
Selling, General and Administrative Expenses
 
Selling, general and administrative expenses were $1,084 and $951 for the three months ended June 30, 2021 and 2020, respectively, an increase of $133, or 14.0%. Selling, general and administrative expenses were $3,273 and $3,002 for the nine months ended June 30, 2021 and 2020, respectively, an increase of $271 or 9.0%. The increased expenses in both periods reflected leverage of fixed costs and increased expenses from an acquired business relative to the prior year periods.
 
Income from Operations
 
Income (loss) from operations for the three months ended June 30, 2021 and 2020 was $1,359 and ($82), an increase of $1,441. Income from operations for the nine months ended June 30, 2021 and 2020 was $2,823 and $272, an increase of $2,551. The growth in both periods reflected strong organic growth, favorable operating leverage and, to a smaller extent, contributions from an acquisition.
 
Results of Operations – Corporate and other – Three and Nine Months Ended June 30, 2021 and 2020
 
Below is a reconciliation of income from operating segments to net income (loss) available to common stockholders.

   
Three Months Ended
June 30,
   
Nine Months Ended
June 30,
 
(in thousands)
 
2021
   
2020
   
2021
   
2020
 
Total income from operating segments
 
$
2,479
   
$
231
   
$
5,846
   
$
1,490
 
Administrative expenses
   
(838
)
   
(514
)
   
(2,277
)
   
(2,048
)
Amortization expense
   
(288
)
   
(243
)
   
(832
)
   
(729
)
Stock-based compensation
   
(31
)
   
(106
)
   
(85
)
   
(217
)
Total Corporate expenses
   
(1,157
)
   
(863
)
   
(3,194
)
   
(2,994
)
Interest expense
   
(141
)
   
(108
)
   
(418
)
   
(412
)
Gain on Paycheck Protection Program loan forgiveness
   
—
     
—
     
135
     
—
 
Net income (loss) before taxes
   
1,181
     
(740
)
   
2,369
     
(1,916
)
Income tax expense
   
(311
)
   
(557
)
   
(648
)
   
(438
)
Net income (loss)
   
870
     
(1,297
)
   
1,721
     
(2,354
)
Preferred stock dividends
   
(197
)
   
(174
)
   
(566
)
   
(500
)
Net Income (Loss) Available to Common Stockholders
 
$
673
   
$
(1,471
)
 
$
1,155
   
$
(2,854
)

Total Corporate Expenses
 
Total corporate expenses, which include amortization of intangible assets, stock-based compensation and merger and acquisition expenses, increased by $294, or by 34.1%, to $1,157 for the three months ended June 30, 2021 as compared to $863 for the three months ended June 30, 2020. The increase was primarily due to higher amortization of intangible asset expense related to acquisitions versus the prior year period, partially offset by lower professional expenses and stock-based compensation.
 
Total corporate expenses increased by $200, or by 6.7%, to $3,194 in the nine months ended June 30, 2021 as compared to $2,994 for the nine months ended June 30, 2020. The increase was primarily due to higher amortization of intangible asset expense related to acquisitions versus the prior year period, partially offset by lower professional expenses and stock-based compensation.
 
Interest Expense
 
Interest expense for the consolidated company increased $33, or 30.6%, to $141 for the three months ended June 30, 2021 from $108 for the three months ended June 30, 2020 as a result of a higher debt level due to acquisitions. Interest expense for the consolidated company for the nine months ended June 30, 2021 increased $6, or 1.5%, to $418, comparable to $412 for the nine months ended June 30, 2020.
 
30
Table of Contents
Income Taxes
 
On a consolidated basis, the Company recorded an income tax expense of $311 for the three months ended June 30, 2021, as compared to an income tax expense of $557 for the three months ended June 30, 2020. The increase in expense was primarily due to the increase in pretax income. In 2016, a deferred tax asset was established to reflect a net operating loss carryforward, which the Company has begun using, and is expected to continue to use, through ongoing profitability.
 
On a consolidated basis, the Company recorded an income tax expense of $648 for the nine months ended June 30, 2021, as compared to an income tax expense of $438 for the nine months ended June 30, 2020. The increase in expense was primarily due to the increase in pretax income. In 2016, a deferred tax asset was established to reflect a net operating loss carryforward, which the Company has begun using, and is expected to continue to use, through ongoing profitability.
 
Preferred Stock Dividends
 
Preferred stock dividends include any dividends accrued but not paid on the Company’s Series C Cumulative Preferred Stock (the “Series C Stock”). For the three months ended June 30, 2021 and 2020, preferred stock dividends were $197 and $174, respectively, representing an increase of $23, or 13.2%.  The increase in preferred stock dividends was the result of the increase in dividend rate as of January 1, 2021 to 8% from 7%, partially offset by a lower number of shares of Series C Stock outstanding. See note 10 to the condensed consolidated financial statements for additional information.
 
For the nine months ended June 30, 2021 and 2020, preferred stock dividends were $566 and $500, respectively, representing an increase of $66, or 13.2%.  The increase in preferred stock dividends was the result of the increase in dividend rate as of January 1, 2021 to 8% from 7%, partially offset by a lower number of shares of Series C Stock outstanding. See note 10 to the condensed consolidated financial statements for additional information.
 
Net Income (Loss)
 
Net income was $870, or $0.88 per diluted share, for the three months ended June 30, 2021 compared to net loss of ($1,297), or ($1.49) per diluted share, for the three months ended June 30, 2020. The increase was primarily due to higher revenues and gross profit and lower selling, general and administrative expenses across our operating segments.
 
Net income was $1,721, or $1.75 per diluted share, for the nine months ended June 30, 2021 compared to net loss of ($2,354), or ($2.71) per diluted share, for the nine months ended June 30, 2020. The increase was primarily due to higher revenues and gross profit and lower selling, general and administrative expenses across our operating segments.
 
Income (Loss) Available to Common Shareholders
 
Income available to holders of common shares was $673, or $0.68 per diluted share, for the three months ended June 30, 2020 compared to loss available to holders of common shares of ($1,471), or ($1.69) per diluted share, for the three months ended June 30, 2020. The increase in income primarily was due to higher gross profit and lower selling, general and administrative expenses across our operating segments.
 
Income available to holders of common shares was $1,155, or $1.17 per diluted share, for the nine months ended June 30, 2020 compared to loss available to holders of common shares of ($2,854), or ($3.29) per diluted share, for the nine months ended June 30, 2020. The increase in income primarily was due to higher gross profit and lower selling, general and administrative expenses across our operating segments.
 
31
Table of Contents
LIQUIDITY AND CAPITAL RESOURCES
 
General
 
Our ability to satisfy liquidity requirements, including satisfying debt obligations and fund working capital, day-to-day operating expenses and capital expenditures, depends upon future performance, which is subject to general economic conditions, competition and other factors, some of which are beyond Janel’s control. Our Global Logistics Services segment depends on commercial credit facilities to fund day-to-day operations as there is a difference between the timing of collection cycles and the timing of payments to vendors.
 
As a customs broker, our Global Logistics Services segment makes significant cash advances for a select group of our credit-worthy customers. These cash advances are for customer obligations such as the payment of duties and taxes to customs authorities primarily in the United States. Increases in duty rates could result in increases in the amounts we advance on behalf of our customers. Cash advances are a “pass through” and are not recorded as a component of revenue and expense. The billings of such advances to customers are accounted for as a direct increase in accounts receivable from the customer and a corresponding increase in accounts payable to governmental customs authorities. These “pass through” billings can influence our traditional credit collection metrics. For customers that meet certain criteria, we have agreed to extend payment terms beyond our customary terms. Management believes that it has established effective credit control procedures and has historically experienced relatively insignificant collection problems.
 
The COVID-19 pandemic has negatively impacted our liquidity and cash flows. As discussed in greater detail in note 9 to the condensed consolidated financial statements, on April 19, 2020, we entered into a loan agreement with Santander and executed a U.S. Small Business Administration note pursuant to which we borrowed $2,726 from Santander pursuant to the PPP under the Cares Act, Section 7(a)(36) of the Small Business Act in order to be able to continue to cover our payroll costs, group health care benefits, mortgage payments, rent and utilities.  On July 22, 2021, the Company received notification from Santander that the SBA had granted full forgiveness of the Company PPP Loan on July 20, 2021 in the amount of $2,726 and interest payable in the amount of $34. The duration and magnitude of the pandemic is not reasonably estimable at this point, and if the pandemic persists, our liquidity and capital resources could be further negatively impacted.

Our subsidiaries depend on commercial credit facilities to fund day-to-day operations as there is a difference between the timing of collection cycles and the timing of payments to vendors. Generally, we do not make significant capital expenditures. Janel’s cash flow performance for the 2021 fiscal year is not necessarily indicative of future cash flow performance. As of June 30, 2021, the Company’s cash and working capital deficiency (current assets minus current liabilities) were $2,926 and $11,818, respectively. As of September 30, 2020, the Company’s cash and working capital deficiency were $3,349 and $10,372, respectively. Compared with the prior year period, the Company’s cash and cash equivalents decreased $432, or 12.6%, and its working capital deficiency increased $1,446, or 13.9%. The decrease in cash and increase in working capital deficiency was primarily the result of acquisitions and slower accounts receivables collections.
 
Cash flows from operating activities
 
Net cash provided by operating activities for the nine months ended June 30, 2021 and 2020 was $139 and $1,263, respectively. The decrease in cash provided by operations for the nine months ended June 30, 2021 compared to the prior year period was driven principally by the timing of cash collections for accounts receivables and cash payments on accounts payables at our Global Logistics Services business.
 
Cash flows from investing activities
 
Net cash used in investing activities totaled $3,001 for the nine months ended June 30, 2021, versus $403 for nine months ended June 30, 2020. The Company used $2,874 for the acquisition of two businesses and $127 for the acquisition of property and equipment for the nine months ended June 30, 2021 compared to $115 for final purchase price adjustments related to an acquisition and $288 for the acquisition of property and equipment for the nine months ended June 30, 2020.
 
32
Table of Contents
Cash flows from financing activities
 
Net cash provided by financing activities was $2,439 for the nine months ended June 30, 2021, versus ($344) used in financing activities for the nine months ended June 30, 2020. Net cash provided by financing activities for the nine months ended June 30, 2021 primarily included funds from our line of credit partially offset by repayments of term loans.
 
Off-Balance Sheet Arrangements
 
As of June 30, 2021, we had no off-balance sheet arrangements or obligations.
 
ITEM 4.
CONTROLS AND PROCEDURES
 
Evaluation of Disclosure Controls and Procedures
 
The Company maintains disclosure controls and procedures designed to ensure that information required to be disclosed in reports filed under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the specified time periods, and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.
 
Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of December 31, 2020, the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, because a material weaknesses in the Company’s internal control over financial reporting existed at September 30, 2018 and had not been remediated by the end of the period covered by this Quarterly Report on Form 10-Q, the Company’s disclosure controls and procedures were not effective as of the end of the period covered by this Quarterly Report on Form 10-Q.  These material weaknesses in the Company’s internal control over financial reporting and the Company’s remediation efforts are described below.
 
Material Weaknesses in Internal Control Over Financial Reporting
 
The Company’s management, including our Chief Executive Officer and Chief Financial Officer, have identified material weaknesses in the Company’s internal control over financial reporting. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.
 
Life Sciences
 
In connection with the preparation of the Company’s Annual Report on Form 10-K for fiscal year 2020, management identified certain material weaknesses as of September 30, 2020 related to our Life Sciences segment. In particular, the Company had inadequate controls over the following:
 
The Life Sciences segment had a lack of documentation and/or controls over the following:
 
•
order entry, invoicing, collections and timeliness of revenue recognition in accordance with ASC Topic 606, Revenue from Contracts with Customers – Principal Agent Consideration (“ASC Topic 606”),

•
financial close process,

•
inventory management and valuation of inventory,

33
Table of Contents
•
information technology controls,

•
accounting manager’s administrative access to financial accounting software and banking portal, roles and responsibilities around significant processes including financial close without independent review or back-up results in segregation of duties issue,

•
lack of formal evidence pertaining to month-end closing activities (i.e., journal entry review, account reconciliations, closing checklists, budget to actual analysis, review of financial package, inventory account analysis, etc.), and

•
lack of review of sales orders including pricing, lack of revenue cut off procedures and lack of inventory valuation controls, inventory counts and reconciliation to general ledger.

In addition, a number of deficiencies were identified related to the design, implementation and effectiveness of certain information technology general controls, including segregation of duties, user access, change management, data back-ups and review of SOC 1 and 2 reports from critical vendors, some of which could have a direct impact on the Company’s financial reporting.
 
Global Logistics Services
 
In connection with the preparation of the Company’s Annual Report on Form 10-K for fiscal year 2020, management identified certain material weaknesses as of September 30, 2020 related to our Global Logistics Services segment. In particular, the Company had inadequate controls over the following:
 
•
no formal management review controls in place to ensure correct revenue file types and charge codes are used for all jobs and are designed specifically to address ASC Topic 606,

•
management did not have an effective process or control in place to perform an assessment of gross versus net revenue recognition criteria in accordance with ASC Topic 606, and

•
during the three months ended June 30, 2020, management identified an additional material weakness related to the prevention and timely detection of funds transfers to an unauthorized account, for which remediation actions have been undertaken as more fully described below.

Corporate
 
In connection with the preparation of the Company’s Annual Report on Form 10-K for fiscal year 2020, management identified certain material weaknesses as of September 30, 2020 related to our Corporate office.  In particular, the Company had inadequate controls over a lack of segregation of duties between chief financial officer and corporate accountant regarding:
 
•
administrative access to financial accounting software and banking portal and

•
the financial close process.

Remediation Plan
 
We have engaged an external consultant to assist in the development and execution of a plan to remediate the material weaknesses noted related to our Life Sciences segment noted above. This process includes review of our controls and implementation of a new enterprise resource planning system which commenced during the first quarter of fiscal 2021 and is expected to be fully implemented by the end of the fourth quarter of fiscal 2021.
 
In addition, we have developed and are executing on our plan to remediate our material weaknesses in connection with the information technology controls and have expanded our in-house expertise on information technology general controls, as well as continuing to consult with external third parties. We have implemented improved information technology general controls, including segregation of duties, user access, change management, data back-ups and review of SOC 1 and 2 reports from critical vendors on a consistent basis. This process commenced during the fourth quarter of fiscal 2020 and is ongoing.
 
34
Table of Contents
With respect to material weaknesses in our Global Logistics Services segment, we have engaged an external consultant to assist in the development and execution of a plan to remediate the material weaknesses noted above related to our Global Logistics Services segment.  As part of this plan, we have implemented a new system triggered revenue recognition process based on target dates (e.g., delivery date, file transfer date, etc.) for specific file types. Through this technology and reporting improvement, we have enhanced our ability to timely monitor revenue recognition in accordance with GAAP. Moreover, in response to the material weakness related to the prevention and timely detection of funds transfers to unauthorized accounts, we have updated company policies and controls to provide for multifactor authentication, implemented a new payment processing validation procedure, updated internal firewall protocols related to e-mails and conducted updated training on finance-related internal controls policies.
 
With respect to material weaknesses noted at Corporate, we have developed a general IT policy which includes access provisioning and deprovisioning and user access reviews that would involve knowing and evaluating which staff have user privileges to mitigate any lack of segregation of duties.
 
Our management believes that the foregoing efforts will effectively remediate the material weaknesses. That said, the new and enhanced controls have not operated for a sufficient amount of time to conclude that the material weaknesses have been remediated. As we continue to evaluate and work to improve our internal control over financial reporting, our management may decide to take additional measures to address the material weaknesses or modify the remediation plan described above.
 
Internal control over financial reporting, no matter how well designed, has inherent limitations. Therefore, even those controls determined to be effective may not prevent or detect misstatements and can provide only reasonable assurance with respect to financial statement preparation and presentation.
 
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
 
Our executive management team, together with our board of directors, is committed to achieving and maintaining a strong control environment, high ethical standards, and financial reporting integrity.
 
Based on the nature and interrelationship of the noted deficiencies, management concluded that these additional deficiencies, in the aggregate, resulted in a reasonable possibility that a material misstatement in our interim or annual financial statements would not be prevented or detected on a timely basis, and as such, constituted a material weakness.
 
Changes in Internal Control over Financial Reporting
 
Other than the ongoing remediation efforts described above, there was no change in our internal control over financial reporting that occurred during the quarter ended June 30, 2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
 
PART II - OTHER INFORMATION
 
ITEM 1.
LEGAL PROCEEDINGS
 
Janel is occasionally subject to claims and lawsuits which typically arise in the normal course of business. While the outcome of these claims cannot be predicted with certainty, management does not believe that the outcome of any of these legal matters will have a material adverse effect on the Company’s business, results of operations, financial condition or cash flows.
 
35
Table of Contents
ITEM 1A.
RISK FACTORS
 
For a discussion of the Company’s potential risks or uncertainties, please see “Part I—Item 1A—Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended September 30, 2020. There have been no material changes to the risk factors disclosed in Part I—Item 1A of the Company’s 2020 Annual Report.
 
ITEM 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 
There were no unregistered sales of equity securities during the three months ended June 30, 2021. In addition, there were no shares of common stock purchased by us during the three months ended June 30, 2021.
 
ITEM 6.
EXHIBIT INDEX
 
Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer (filed herewith)
   
Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer (filed herewith)
   
Section 1350 Certification of Principal Executive Officer (filed herewith)
   
Section 1350 Certification of Principal Financial Officer (filed herewith)
   
101
Interactive data files providing financial information from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2021 for the three and nine months ended June 30, 2021 and 2020 in XBRL (Extensible Business Reporting Language) pursuant to Rule 405 of Regulation S-T: (i) Condensed Consolidated Balance Sheets as of June 30, 2021 and September 30, 2020, (ii) Condensed Consolidated Statements of Operations for the three months ended June 30, 2021 and 2020, (iii) Condensed Consolidated Statement of Changes in Stockholders’ Equity for the nine months ended June 30, 2021 and 2020, (iv) Condensed Consolidated Statements of Cash Flows for the nine months ended June 30, 2021 and 2020, and (v) Notes to Condensed Consolidated Financial Statements.

36
Table of Contents
SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
Dated: August 6, 2021
JANEL CORPORATION
 
Registrant
   
 
/s/ Dominique Schulte
 
Dominique Schulte
 
Chairman, President and Chief Executive Officer
 
(Principal Executive Officer)
   
Dated: August 6, 2021
JANEL CORPORATION
 
Registrant
   
 
/s/ Vincent A. Verde
 
Vincent A. Verde
 
Principal Financial Officer, Treasurer and Secretary


37
Janel (PK) (USOTC:JANL)
Historical Stock Chart
From May 2024 to Jun 2024 Click Here for more Janel (PK) Charts.
Janel (PK) (USOTC:JANL)
Historical Stock Chart
From Jun 2023 to Jun 2024 Click Here for more Janel (PK) Charts.