EDGAR 10-K Filing

Company CIK: 1133062
Filing Year: 2021
Filename: 1133062_10-K_2021_0001140361-21-001080.json

---

ITEM 1. BUSINESS
ITEM 1
BUSINESS
Our Business
Janel Corporation (“Janel,” the “Company” or the “Registrant”) is a holding company with subsidiaries in three business segments: Global Logistics Services, Manufacturing and Life Sciences. The Company strives to create shareholder value primarily through three strategic priorities: supporting its businesses’ efforts to make investments and to build long-term profits; allocating Janel capital at high risk-adjusted rates of return; and attracting and retaining exceptional talent.
A management group at the holding company level (the “corporate group”) focuses on significant capital allocation decisions, corporate governance and supporting Janel’s subsidiaries where appropriate. Janel expects to grow through its subsidiaries’ organic growth and by completing acquisitions. We plan to either acquire businesses within our existing segments or expand our portfolio into new strategic segments. Our acquisition strategy focuses on reasonably-priced companies with strong and capable management teams, attractive existing business economics and stable and predictable earnings power.
Janel was incorporated on August 31, 2000 and is domiciled in the state of Nevada. Its corporate headquarters are located in New York, New York.
Janel and its consolidated subsidiaries employ 173 full-time people, as of September 30, 2020, in the United States. None of these employees is covered by a collective bargaining agreement. Janel and its subsidiaries have experienced no work stoppages and consider relations with their employees to be good. Successful execution of our strategy is dependent on attracting, developing and retaining key employees and members of our management team. The skills, experience and industry knowledge of our employees significantly benefit our operations and performance. We continuously evaluate, modify, and enhance our internal processes and technologies to increase employee engagement, productivity, and efficiency opportunities, skills, and resources they need to be successful.
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 July 23, 2020, the Company acquired Atlantic Customs Brokers, Inc. (“ACB”), a global logistics services provider with two U.S. locations.
On November 20, 2018, the Company completed a business combination whereby we acquired the membership interest of Honor Worldwide Logistics, LLC (“Honor”), a global logistics services provider with two U.S. locations.
On October 17, 2018, the Company completed a business combination whereby we acquired substantially all of the assets and certain liabilities of a global logistics services provider with one U.S. location.
Manufacturing
The Company’s Manufacturing segment is comprised of Indco, Inc. (“Indco”). Indco is a majority-owned subsidiary of the Company that manufactures and distributes mixing equipment and apparatus for specific applications within various industries. Indco’s customer base is comprised of small- to mid-sized businesses as well as other larger customers for which Indco fulfills repetitive production orders.
Life Sciences
The Company’s Life Sciences segment is comprised of several wholly-owned subsidiaries. The Company’s Life Sciences segment manufactures and distributes high-quality monoclonal and polyclonal antibodies, diagnostic reagents and other immunoreagents for biomedical research and provides antibody manufacturing for academic and industry research scientists. Our Life Sciences business also produces products for other life science companies on an original equipment manufacturer (OEM) basis.
On September 6, 2019, the Company acquired all the equity interests of PhosphoSolutions, LLC and all the stock of PhosphoSolutions, Inc. (together with PhosphoSolutions, LLC, “Phospho).
On July 1, 2019, we acquired the membership interests of a life sciences company to expand our product offerings in Life Sciences.
Our Business Segments
We have three reportable segments: Global Logistics Services, Manufacturing and Life Sciences.
Global Logistics Services
The Company’s Global Logistics Services segment is comprised of several wholly-owned subsidiaries, collectively known as “Janel Group.” Janel Group is a non-asset based, full- service provider of cargo transportation logistics management services, including freight forwarding via air-, ocean- and land-based carriers, customs brokerage services, warehousing and distribution services, and other value-added logistics services.
Janel Group helps its clients move and manage freight efficiently to reduce inventories and to increase supply chain speed and reliability. Key services include customs entry filing, arrangement of freight forwarding by air, ocean and ground, warehousing, cargo insurance procurement, logistics planning, product repackaging and online shipment tracking.
Janel Group earns flat fees for certain services, such as customs entry filing. For brokered services, Janel Group earns the difference between the rate charged by a service provider and the rate Janel Group charges the customer for the provider’s service. Janel Group’s freight consolidation activities, in addition to on-going volume-based relationships with providers, allows Janel Group to command preferred service rates that can be passed on profitably to the customer.
Our Global Logistics Services revenue is greatly influenced by the price of transportation services and other items such as fuel prices. We and others in the industry, therefore, tend to track net revenue, which is a non-GAAP measure calculated as total revenues less forwarding expenses attributable to our Global Logistics Services segment. We consider net revenue to be our primary performance measurement. Accordingly, the discussion of our results of operations focuses on the changes in our net revenues. For further detail, see the section titled “Non-GAAP Financial Measures” in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
During the fiscal year ended September 30, 2020, Janel Group handled approximately 53,000 individual import and export shipments originating or terminating in countries around the world. Approximately 39% of the gross revenue from these activities related to ocean freight, 24% to air freight, 22% to trucking and other and the remainder of 15% to custom brokerage. Janel Group had no customers that accounted for more than 10% of Janel Corporation’s total revenue in fiscal 2020.
Based upon net revenue, our customers are diverse, with the largest individual customer accounting for about 3.4% of net revenues and the top ten customers accounting for 22.7% of net revenues during fiscal 2020. For our service offerings by net revenues, during the fiscal year ended September 30, 2020, 49% related to customs brokerage, 22% to ocean freight, 16% to air freight and 13% to trucking and other.
Janel Group operates out of fifteen full-service locations in the United States: Garden City, New York (headquarters, operations and accounting); Lynnfield (Boston), Massachusetts; Pawtucket (Providence), Rhode Island; Edison (Newark), New Jersey; Essington (Philadelphia), Pennsylvania; Atlanta, Georgia; Denver, Colorado; Elk Grove Village (Chicago), Illinois; Tucson, Arizona; Torrance (Los Angeles), California; Portland, Oregon; Houston, Texas, Doral (Miami), Florida, North Haven, Connecticut, and Windsor Locks (Hartford), Connecticut. Janel Group maintains a network of independent agent relationships in many trading countries, giving it the ability to provide a global service to its clients.
Each office is responsible for its growth and profitability. The Janel Group management helps the offices as needed with efforts such as human resources, maintaining a common information technology platform and centralized accounting services. Our growth strategy includes servicing existing customers well and acquiring more of their business, hiring new people who can grow our company, and adding new companies or services through acquisitions. Our goal is to maintain a high-quality service network that shares one brand connected with a common information technology platform.
The logistics industry is highly fragmented, with low barriers to entry and intense competition. Janel Group competes against providers ranging in size from “mom-and-pop” businesses to multi-national firms with hundreds of offices worldwide. Many Janel Group customers utilize more than one logistics provider.
The global forwarding industry requires dealings in currencies other than the U.S. Dollar. As a result, Janel Group is exposed to the inherent risks of international currency markets and governmental interference. Some countries in which Janel Group maintains agent relationships have currency control regulations that influence Janel Group’s ability to hedge foreign currency exposure. Janel Group tries to manage these exposures by accelerating international currency settlements among those agents.
Historically, Janel Group’s quarterly operating results have been subject to seasonal trends. The fiscal third and fourth quarters have traditionally been the strongest, and the fiscal second quarter has traditionally been the weakest. This pattern has been the result of, or influenced by, numerous factors including climate, national holidays, consumer demand, economic conditions and other similar and subtle forces.
A significant portion of Janel Group’s revenues are derived from customers in industries with shipping patterns tied to consumer demand and/or just-in-time production schedules. Many of Janel Group’s customers may ship a significant portion of their goods at or near the end of a quarter. Therefore, the timing of Janel Group revenues is, to a large degree, affected by factors beyond its control, such as shifting consumer demand for retail goods and manufacturing production delays. Janel Group cannot accurately forecast many of these factors, nor can it estimate the relative impact of any given factor. Therefore, historical patterns experienced may not continue in the future.
Government Regulation
Interstate and international transportation of freight is highly regulated. Failure to comply with applicable state and federal regulations, or to maintain required permits or licenses, can result in substantial fines or revocation of operating permits or authorities imposed on both transportation intermediaries and their shipper customers. We cannot give assurance as to the degree or cost of future regulations on our business.
Janel Group is a customs broker licensed and permitted by U.S. Customs and Border Protection (“CBP”). All U.S. customs brokers are required to maintain prescribed records and are subject to periodic audits by CBP. Janel Group is a registered Ocean Transportation Intermediary (“OTI”) and is licensed as a non-vessel operating common carrier (“NVOCC”) by the Federal Maritime Commission (“FMC”). The FMC has established certain qualifications for shipping agents, including certain surety bonding requirements. We also operate as a Transportation Security Administration (“TSA”) certified Indirect Air Carrier (“IAC”), providing air freight services, subject to commercial standards set forth by the International Air Transport Association (“IATA”) and federal regulations issued by the Transportation Security Administration.
Risk Management and Insurance
As a property freight broker, we are not legally liable for loss or damage to our customers’ cargo. In our customer contracts, we may agree to assume cargo liability up to a stated maximum. We typically do not assume cargo liability above minimum industry standards in our international freight forwarding, ocean transportation or air freight businesses on international or domestic air shipments. With regards to international freight forwarding, ocean transportation and international domestic air freight shipments, we offer our customers the option to purchase shippers’ insurance coverage to insure goods in transit. When we agree to store goods for our customers for longer terms, we provide limited warehouseman’s coverage to our customers and typically contract for warehousing services from companies that provide us the same degree of coverage.
We maintain a broad cargo liability insurance policy to help protect us against catastrophic losses that may not be recovered from the responsible contracted carrier. We also carry various liability insurance policies, including automobile and general liability, with an umbrella policy.
Manufacturing
The Company’s Manufacturing segment is comprised of Indco, Inc. (“Indco”) which is a majority-owned subsidiary of the Company. Indco manufactures and distributes mixing equipment and apparatus for specific applications within various industries.
Indco’s headquarters and manufacturing operations are located in a single owned facility in New Albany, Indiana.
Indco provides solutions for the mixing needs of customers operating in diverse industries, including chemicals, inks, paints, construction, plastics, adhesives, cosmetics, food and pharmaceuticals. Solutions include over 2,500 standard product configurations, both manufactured and distributed, available for order from Indco’s website and its print catalog, mailed quarterly. In addition, Indco manufactures custom-designed mixing solutions that Indco helps specify, design, machine, assemble and distribute. During the fiscal year ended September 30, 2020, Indco made approximately 4,600 individual shipments to customers. In fiscal 2020, approximately 84% of Indco’s revenue came from manufacturing activity. The remainder of its revenue came from non-manufactured product distribution activity. Indco’s revenue generally is level throughout the year with little seasonality.
Indco relies on a variety of providers of raw materials, mechanical components and other services in order to manufacture its products. These providers include national and multi- national suppliers for common industrial components such as motors, gear drives, motor controls and many other standard hardware products. Additionally, regional and local suppliers provide Indco-specific parts such as castings and fabricated metal components. Raw materials, primarily steel bar, plate and shafts, are sourced from domestic steel mills through local distributors. Alternative or substantially similar options are available from suppliers other than those Indco currently employs. While custom cast or fabricated parts are at greater risk for supply interruption, alternative equivalent suppliers are typically available.
Our growth strategy within the industrial mixer business is to expand our reputation as a high-quality manufacturer of often customized products to meet specialized mixing needs. Indco’s products are often utilized in mission-critical applications, making our high quality and strong service offering highly valuable to our customers. Our growth strategy includes keeping our direct relationship with the customer relevant through our web presence, introducing new relevant products and expanding our reach into new and existing markets with sales efforts and partners.
The industrial mixer manufacturing industry is highly fragmented with low barriers to entry. Indco competes with companies of all sizes based on a combination of pricing, lead-times, service, quality and ability to reach customers through internet presence and catalog circulation.
Government regulation directly governing Indco’s industrial mixer product line is minimal. Changing energy efficiency standards, however, as mandated by the Department of Energy, can, over time, affect electric motor manufacturers whose products are used by Indco. Historically, these changes have resulted in only minor changes to our product line.
Indco is subject to U.S. federal, state and local provisions regulating the discharge of materials into the environment or otherwise for the protection of the environment. Although current operations have not been significantly affected by compliance with these environmental laws, the Company cannot predict what impact future environmental regulations may have on Indco. Indco does not anticipate making any material capital expenditures for environmental control purposes during the remainder of the current or succeeding fiscal years.
Life Sciences
The Company’s wholly-owned Life Science segment manufactures and distributes high-quality antibodies monoclonal and polyclonal antibodies, diagnostic reagents and other immunoreagents for biomedical research and provide antibody manufacturing for academic and industry research scientists. Our Life Sciences segment also produces products for life science companies on an original equipment manufacturer (OEM) basis. Through a combined portfolio of approximately 1,200 products and a range of custom services, the Life Sciences segment provides the scientific community with high quality tools to support critical research efforts.
Our Life Science businesses are based in Davis, California on an owned 40-acre facility and a leased facility in Aurora, Colorado. Our growth strategy is to place high-quality products in the hands of more researchers to accelerate scientific discovery.
Our strategies include:
•
Product innovation: By working with key researchers and scientific organizations, we seek to develop new products to enhance the range of tools available and thereby expand the capabilities of life science researchers.
•
Operational improvement: We continue to enhance our operational designs and processes to be more efficient, which supports higher profitability and enables us to devote more resources to investments in growth and innovation.
•
Attract and retain exceptional talent: High quality scientists enable our top-quality products and services to be offered which are key to our reputation in the market place.
•
Acquisitions and investments: We intend to grow by acquiring new businesses with high quality reputations that will benefit from our combined innovation and operational strength.
•
Customers and distribution methods: We sell our biotechnology products directly to customers, principally direct through our website or distributors. Some of our customers utilize our scientific expertise and production capabilities and purchase our products and re-label them. Our reputation for quality products is critical to our ability to attract new customers for both our products and services.
•
Competitors: A number of companies supply protein-related research and diagnostic reagents. Customers choose their products based upon product quality, reputation and price. We believe a number of our products have long-standing reputations and that our portfolio overall is well-regarded, especially amongst the academic, diagnostic and pharmaceutical research community.
•
Manufacturing: We manufacture our products in Davis, California and Aurora, Colorado. Our antibodies are produced using a variety of technologies including traditional animal immunization and hybridoma technology as well as recombinant antibody techniques. We are not dependent on key or sole source suppliers for most of our products as we typically have several outside sources for all critical raw materials necessary for the manufacture of our products.
The majority of our life science products are shipped within two days of receipt of the customers’ orders. Consequently, we typically do not maintain significant backlog of orders for our Life Science segment products.
Our Life Science business is subject to regulation. Antibodies maintains International Organization of Standardization certification for medical devices to support our manufacturing operation. We also comply with regulations related to the United States Department of Agriculture, National Institutes of Health, Office of Laboratory Animal Welfare and the United States Food and Drug Administration. Many of our customers are regulated and must verify our compliance with their standards throughout the supply chain, which requires us to maintain careful records. The failure to comply with these regulations may impair our ability to compete in the marketplace.
Additional information with respect to Janel’s businesses
Our principal executive offices and corporate headquarters are located at 80 Eighth Avenue, New York, New York 10011, and our telephone number is (516) 256-8143.
Janel maintains a website (http://www.janelcorp.com) where certain corporate governance documents and links to its subsidiaries’ websites can be found. Janel’s periodic reports filed with the SEC can be accessed at the SEC’s website (http://www.sec.gov) and indirectly through Janel’s website (http://www.janelcorp.com). The information contained or connected to our website is not incorporated by reference into this Annual Report on Form 10-K and should not be considered part of this Annual Report on Form 10-K.

---

ITEM 1A. RISK FACTORS
ITEM 1A.
RISK FACTORS
The following risk factors should be read carefully in connection with evaluation of the Company’s business and any forward-looking statements made in this Annual Report on Form 10-K and elsewhere. See the section entitled “Cautionary Statement Regarding Forward-Looking Statements” set forth above. Any of the following risks or others discussed in this Annual Report on Form 10-K or the Company’s other SEC filings could materially adversely affect the Company’s business, operating results and financial condition.
An investment in Janel’s common stock is subject to risks inherent to the Company’s business. The material risks and uncertainties that management believes affect Janel are described below. Additional risks and uncertainties that management is not aware of or focused on or that management currently deems immaterial may also impair the Company’s business operations.
Risk Factors Related To The COVID-19 Pandemic
The coronavirus pandemic has significantly impacted worldwide economic conditions and has had, and is likely to continue to have, an adverse effect on our business operations, results of operations, cash flows and financial position.
In December 2019, a novel coronavirus (COVID-19) outbreak was reported in China, and, in March 2020, the World Health Organization declared such outbreak a pandemic. Since that time, the coronavirus has spread throughout the United States and globally, including in the regions and communities in which we operate. We are closely monitoring the impact of the COVID-19 pandemic on all aspects of our business and geographies, including how it has and will continue to impact our customers, suppliers, employees and other business partners. The COVID-19 pandemic has created significant volatility, uncertainty and economic disruption, which has adversely affected our business operations and has adversely affected, and is likely to continue to adversely affect, our results of operations, cash flows and financial position. COVID-19 continues to impact regions that are important to our business in terms of sales, manufacturing, and our supply chain, and many of the affected regions, including the region in which our headquarters are located, have been subject to, and may in the future be subject to, government-imposed ‘stay at home’ orders which may restrict our ability to continue normal business operations. Further, our management is focused on mitigating the effects of COVID-19 on our business operations while protecting the health of our employees, which has required and will continue to require, a significant investment of time and resources across our enterprise.
In our Global Logistics Services segment, customer demand for our services in many parts of our business has been materially and negatively impacted by the mandated closure of our customers’ operations or points of sale, while customer demand for our services in other parts of our business has increased significantly as consumers stockpile goods or switch to e-commerce platforms to make purchases. We are unable to accurately predict the impact that COVID-19 will have on our operations going forward due to uncertainties regarding the severity and duration of the outbreak and additional actions that may be taken by governmental authorities. That said, our results of operations and financial condition were significantly adversely impacted in the fiscal year 2020, as levels of activity in the Company’s business have historically been correlated to broad measures of economic activity, such as gross domestic product, and to measures of industrial economic activity, which have been negatively impacted by the pandemic.
Additionally, we also see an adverse impact on our ability (a) to manufacture, test and ship our products in our Life Sciences and Manufacturing businesses, (b) to get required materials and components to make our products in our Manufacturing and Life Sciences segments, and (c) to staff labor and management for manufacturing, supply chain, research and development and administrative operations. We have seen a material impact in our Life Sciences business as a result of a slowdown in academic research due to the pandemic. Further, we may experience adverse impact with our global supply chain partners and transportation service providers. Any extended pandemic outbreak, such as is occurring with COVID-19, could cause our key third-party suppliers or the Company itself to temporarily close one or more offices or manufacturing facilities. In addition, there has been a significant decline in trade shows worldwide and also a significant decline in our ability to travel to visit current and potential customers, which has adversely affected and will continue to adversely affect our ability to create leads and generate business. Also, in some cases, our customers have suspended operations or limited our ability to come on-site. Furthermore, we may not be able to maintain our efforts to have employees work at home and operate reduced workforces at facilities for an extended period of time. Similarly, we may not be able to mitigate other threats to the business such as developing effective contingency plans for potential supply interruptions. Any of the foregoing events or other unforeseen consequences of public health problems could materially adversely affect our business, result of operations, prospects, and financial condition. The full extent to which the COVID-19 outbreak will impact the Company’s business and operating results will depend on future developments that are highly uncertain and cannot be accurately predicted, including new information that may emerge concerning COVID-19 and actions taken to contain its spread or its impact.
The effects of the COVID-19 pandemic may remain prevalent for a significant period of time and may continue to adversely affect our business, results of operations and financial condition even after the COVID-19 outbreak has subsided. The extent to which the COVID-19 pandemic impacts us will depend on numerous evolving factors and future developments that we are not able to predict, including: the severity and duration of the outbreak; governmental, business and other actions (which could include limitations on our customers’ operations or mandates to provide services in a specified manner); the promotion of social distancing and the adoption of shelter-in-place orders affecting our ability to provide our services; the impact of the pandemic on economic activity; the extent and duration of the effect on consumer confidence and spending, customer demand and buying patterns; the health of and the effect on our workforce and our ability to meet staffing needs, particularly if members of our workforce, including key members of management, are quarantined as a result of exposure; any impairment in value of our tangible or intangible assets which could be recorded as a result of a weaker economic conditions; and the potential effects on our internal controls including those over financial reporting as a result of changes in working environments such as shelter-in-place and similar orders that are applicable to our employees and business partners, among others. Further, provisions for bad debt expense may increase given the financial difficulty faced by our business partners, which could, among other things, impact our ability to borrow under our credit facility. In addition, if the pandemic continues to create disruptions or turmoil in the credit or financial markets, it could adversely affect our ability to continue to meet our liquidity needs, all of which are highly uncertain and cannot be predicted.
Risk Factors Related To Janel’s Growth Strategy
Janel’s strategy of expanding its business through acquisitions of other businesses presents special risks.
Janel expects to grow its businesses in part by completing acquisitions. Janel either will acquire businesses within its existing segments, or it will expand its portfolio into new segments. In either case:
•
Janel’s financial condition may not be sufficient to support the funding needs of an expansion program;
•
Janel may not be able to successfully identify suitable investment opportunities;
•
acquisitions that Janel undertakes may not be successfully consummated or enhance profitability; or
•
expansion opportunities may not be available to Janel upon reasonable terms.
There may be a limited number of operating companies available for acquisition that Janel deems to be desirable targets. Consequently, there may be a high level of competition among companies seeking to acquire these targets. Janel may be in competition with entities whose financial resources, technical expertise and managerial capabilities are significantly greater than Janel’s. Therefore, Janel may be at a competitive disadvantage in negotiating and executing possible acquisitions. Even if Janel is successful in a competitive bidding process for an acquisition, this competition may affect the terms of completed transactions, and, as a result, Janel may pay more or receive less favorable terms than it expected for potential acquisitions.
In addition, even if Janel is able to successfully compete with these entities, it expects future acquisitions to encounter risks similar to those that past acquisitions have encountered, such as:
•
difficulty in assimilating/integrating the operations and personnel of the acquired businesses;
•
potential disruption of Janel’s or the target’s ongoing business;
•
inability to realize the projected operational and financial benefits from the acquisition or to maximize financial and strategic benefits through the incorporation of acquired personnel and clients;
•
difficulty maintaining uniform standards, controls, procedures and policies;
•
impairment of relationships with employees and clients resulting from integration of the newly acquired company;
•
strain on managerial and operational resources as management tries to oversee larger operations;
•
significantly increased need for working capital to operate the acquired companies;
•
exposure to unforeseen liabilities of acquired companies; and
•
need to incur additional indebtedness, issue stock (which may have rights superior to the rights of Janel’s stockholders and which may have a dilutive effect on Janel’s stockholders), or use cash in order to complete the acquisition.
Furthermore, management’s attention may be diverted by acquisition, investment, transition or integration activities. Janel may be required to dedicate additional management and other resources to newly acquired businesses. Additionally, should Janel acquire a new line of business in which it has no operating history, the success of such new business cannot be assured. If an acquired entity is not efficiently or completely integrated, then Janel’s business, financial condition and operating results could be materially adversely affected.
Janel might fail to realize the expected benefits or strategic objectives of any acquisition it undertakes, or it may spend resources exploring acquisitions that are not consummated.
Due to its acquisition strategy, Janel faces a number of risks that could adversely affect Janel’s business, financial condition and operating results. Janel might not achieve its expected return on investment or may lose money. Janel may be adversely impacted by liabilities that it assumes from an acquired business, including from that business’s known and unknown obligations, intellectual property or other assets, terminated employees, current or former clients or other third parties.
In addition, Janel may fail to identify or adequately assess the magnitude of certain liabilities, shortcomings or other circumstances prior to acquiring, investing in or partnering with a company, including potential exposure to regulatory sanctions or liabilities resulting from an acquired business’s previous activities, internal controls and security environment. If any of these circumstances occurs, they could result in unexpected legal or regulatory exposure, unfavorable accounting treatment, unexpected increases in taxes or other adverse effects on Janel’s business.
Litigation, indemnification claims and other unforeseen claims and liabilities may arise from the acquisition or operation of acquired businesses.
Janel may face litigation or other claims as a result of certain terms and conditions of our acquisition agreements, such as earn-out payments or closing net asset adjustments. Alternatively, shareholder litigation may arise as a result of proposed acquisitions. If Janel is unable to complete the number and kind of acquisitions for which it plans, or if Janel is inefficient or unsuccessful at integrating any acquired businesses into its operations, Janel may not be able to achieve its planned rates of growth or improve its market share, profitability or competitive position.
Risk Factors Related To Janel’s Business And Industries
(in thousands except per share data)
Economic and other conditions in the markets in which Janel operates can affect demand for services and the Company’s results of operations.
Janel’s future operating results are dependent upon the economic environments of the markets in which it operates. Demand for services could be adversely affected by economic conditions in the industries of Janel’s customers. Janel expects the demand for its services (and, consequently, results of operations) to continue to be sensitive to domestic and, increasingly, global economic conditions and other factors beyond Janel’s control.
Janel may not have sufficient working capital to continue operations.
Janel’s cash needs are currently met by commercial bank credit facilities, cash on hand and cash generated from current operations. Actual working capital needs for the short and long terms will depend upon numerous factors, including operating results, the availability of a revolving line of credit, competition, and the cost associated with growing, either internally or through acquisition, none of which can be predicted with certainty. If results of operations and availability under Janel’s bank lines of credit are insufficient to meet cash needs, Janel will be required to obtain additional investment capital or debt funding to continue operations.
Our substantial debt obligations could restrict our operations and financial condition. Additionally, our ability to generate cash to make payments on our indebtedness depends on many factors beyond our control.
As of September 30, 2020, we had approximately $19,161 of short-term borrowings and long-term debt. We may also incur additional indebtedness in the future. Our debt service obligations will require us to use a portion of our operating cash flow to pay interest and principal on indebtedness rather than for other corporate purposes, including funding future expansion of our business and ongoing capital expenditures, which could impede our growth. Our substantial indebtedness could have other adverse consequences, including:
•
making it more difficult for us to satisfy our financial obligations;
•
increasing our vulnerability to adverse economic, regulatory, and industry conditions, and placing us at a disadvantage compared to our competitors that are less leveraged;
•
limiting our ability to compete and our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;
•
limiting our ability to borrow additional funds for working capital, capital expenditures, acquisitions, and general corporate or other purposes; and
•
exposing us to greater interest rate risk, including the risk to variable borrowings of a rate increase and the risk to fixed borrowings of a rate decrease.
Our ability to make payments on our indebtedness will depend on our ability to generate cash in the future. Our ability to generate cash is subject to general economic, financial, competitive, legislative, regulatory, and other factors, many of which are beyond our control.
Our business may not generate sufficient cash flow from operations, and future borrowings may not be available to us in an amount sufficient to enable us to pay our indebtedness when scheduled payments are due or to fund other liquidity needs. In these circumstances, we may need to refinance all or a portion of our indebtedness on or before maturity. Any refinancing of our debt could be at higher interest rates and may require make-whole payments and compliance with more onerous covenants, which could further restrict our business operations. Our ability to refinance our indebtedness or obtain additional financing would depend on, among other things, our financial condition at the time, restriction in the agreements governing our indebtedness, and the condition of the financial markets and the industry in which we operate. As a result, we may not be able to refinance any of our indebtedness on commercially reasonable terms or at all. Without this financing, we may have to seek additional equity or debt financing or restructure our debt, which could harm our long-term business prospects. Our failure to comply with the terms of any existing or future indebtedness could result in an event of default which, if not cured or waived, could result in the acceleration of the payment of all of our debt.
Instability in the financial markets may adversely affect our business.
Instability in the global financial markets could reduce availability of credit to our business. Although we currently have a revolving credit agreement with Santander Bank, N.A. in place until October 17, 2022, tightening credit markets could make it more difficult for us to access funds, refinance our existing indebtedness, enter into agreements for new indebtedness, or obtain funding through the issuance of the Company’s securities. In 2017, the U.K.’s Financial Conduct Authority, which regulates LIBOR, announced its intention to phase out LIBOR by the end of 2021. It is unclear if LIBOR will cease to exist at that time or if new methods of calculating LIBOR will be established such that it continues to exist after 2021. If LIBOR ceases to exist, we may need to renegotiate our revolving credit facility, as well as Indco’s credit agreement with First Merchants Bank. This could have an adverse effect on our financing costs by increasing the cost of our variable rate indebtedness.
We have identified material weaknesses in our internal control over financial reporting which could, if not remediated, result in material misstatements in our financial statements.
As disclosed in Part II--Item 9A, we have identified certain material weaknesses in our internal control over financial reporting. A material weakness is defined as a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. As a result of these material weaknesses, our management concluded that our internal control over financial reporting was not effective as of September 30, 2020, based on criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-An Integrated Framework. We have developed and are actively engaged in executing a remediation plan designed to address these material weaknesses. If our remediation measures are insufficient to address these material weaknesses, or if additional material weaknesses in our internal controls are discovered or occur in the future, our consolidated financial statements may contain material misstatements and we could be required to restate our financial results. For more information see Part II - Item 9A. In addition, if we identify additional deficiencies in our internal control over financial reporting, the disclosure of that fact, even if quickly remedied, could reduce the market’s confidence in our financial statements and harm our share price. Although we believe that we are taking appropriate action to remediate the control deficiency, if we are unable to effectively remediate these material weaknesses or are otherwise unable to maintain adequate internal control over financial reporting in the future, we may not be able to prepare reliable financial statements and comply with our reporting obligations on a timely basis under the federal securities laws and our credit facilities. Such developments could materially adversely affect our business and the market price of our common shares through loss of public and investor confidence, as well as subject us to legal and regulatory action.
Janel’s businesses are dependent upon key employees.
Janel believes that the success of its subsidiaries is highly dependent on the continuing efforts of certain key employees, including technical personnel, particularly experienced engineers and scientists in our Life Sciences business. Only some of our employees are subject to employment agreements. The competition for experienced engineers and scientists in our Life Sciences business is intense. The loss of the services of key personnel could have a material adverse effect on Janel’s business.
Janel may face competition from parties who sell their businesses to Janel and from professionals who cease working for Janel.
While we typically enter into non-competition and non-solicitation agreements with parties that sell their businesses to us, one or more of the former owners of an acquired business who cease working for Janel or persons who leave Janel’s employment may compete with Janel or solicit Janel’s employees or clients in the future. Even if ultimately resolved in Janel’s favor, any litigation associated with enforcing non-competition or non-solicitation agreements could be time consuming, costly and distract management’s focus from Janel’s business.
Moreover, states and foreign jurisdictions may interpret restrictions on competition narrowly and in favor of employees. Therefore, certain restrictions on competition or solicitation may be unenforceable. In addition, Janel may decide not to pursue legal remedies if it determines that the costs or other factors outweigh the benefits of any possible legal recourse or if the likelihood of success does not justify the costs of pursuing a legal remedy. Such persons, because they have worked for Janel or an acquired business, may be able to compete more effectively with Janel and may be more successful in soliciting its employees and clients than unaffiliated third parties.
Terrorist attacks and other acts of violence or war may affect any market on which the Company’s shares trade, the markets in which the Company’s subsidiaries operate, and the Company’s business operations and profitability.
Terrorist acts or acts of war or armed conflict could negatively affect Janel’s business operations. Any of these acts could result in increased volatility in, or damage to, the United States and worldwide financial markets and economy, and, in particular, could lead to increased regulatory requirements with respect to the security and safety of freight shipments and transportation. Acts of terrorism or armed conflict, and the uncertainty caused by such conflicts, could cause a reduction in demand for Janel’s businesses. In particular, this would have a corresponding negative effect on Janel’s Global Logistics Services business.
Security breaches or cybersecurity attacks could adversely affect Janel’s ability to operate, could result in personal information being misappropriated, and may cause Janel to be held liable or suffer harm to its reputation.
We are dependent on information technology systems and infrastructures to carry out important operational activities and to maintain our business records. In addition, we rely on the systems of third parties. As part of our normal business operations, we connect and store certain personal identifying and confidential information relating to our customers, vendors, employees and suppliers. External and internal risks, such as malware, insecure coding, “Acts of God,” data leakage and human error pose a direct threat to our information technology systems and operations. Our third parties and we may be subject to cybersecurity attacks and other intentional hacking. Any failure to identify and address such defects or errors or prevent a cyber-attack could result in service interruptions, operational difficulties, loss of revenues or market share, liability to customers or others, diversion of resources, injury to our reputation and increased service and maintenance costs. Addressing such issues could prove to be impossible or very costly and responding to resulting claims or liability could similarly involve substantial cost.
In addition, our insurance coverage and/or indemnification arrangements that we enter into, if any, may not be adequate to cover all of the costs related to cybersecurity attacks or disruptions resulting from such events.
We must also rely on the safeguards put in place by customers, suppliers, vendors or other third parties to minimize the impact of cyber threats, other security threats or business disruptions. These third parties may have varying levels of cybersecurity expertise and safeguards. In the event of a breach affecting these third parties, our business and financial results could suffer materially. With respect to our commercial arrangements with these third parties, we have processes designed to require that the third parties and their employees and agents agree to maintain certain standards for the storage, protection and transfer of confidential, personal and proprietary information. While, to date, we have not had a significant cyber-attack or breach that has had a material impact on our business or results of operations, we remain at risk of a data breach due to the intentional or unintentional non-compliance by a third party’s employee or agent, the breakdown of a third party’s data protection processes or a cyber-attack on a third party’s information network and systems.
Risks related to our receipt of Paycheck Protection Program funding.
In response to the COVID-19 pandemic and the resulting impact on our current and future operations we applied for funds under the Paycheck Protection Program (the “PPP”). In April 2020 we were approved for the amount of $2.7 million, which we received in April 2020 and on July 23, 2020, as part of the ACB acquisition, the Company assumed a PPP Loan in the amount of $135 thousand. The PPP loan application required us to certify, among other things, that the current economic uncertainty made the PPP loan request necessary to support our ongoing operations. While we made this certification in good faith, the certification does not contain any objective criteria and is subject to interpretation. In early 2020, the Small Business Administration provided guidance that it would be unlikely that a public company with substantial market value and access to capital markets would be able to make the required certification in good faith, and such company should be prepared to demonstrate to the Small Business Administration, upon request, the basis for its certification. Further, the Secretary of the Treasury and the Small Business Administration Administrator announced that the government will conduct a full audit of all PPP loans of more than $2 million for which the borrower applies for forgiveness. While we believe we have satisfied all eligibility requirements for the PPP loans, there is a risk that we may be deemed ineligible to have received the PPP loans or in violation of any of the laws or governmental regulations that apply to us in connection with the PPP loans. In such event, we may be required to repay the PPP loans in their entirety and we could be subject to additional penalties.
Risk Factors Related To Janel’s Global Logistics Services Business (Janel Group)
Janel Group faces aggressive competition from freight carriers with greater financial resources and from companies that operate in areas in which Janel Group plans to expand in the future.
Janel Group faces intense competition within the freight industry on a local, regional, national and global basis. Many of Janel Group’s competitors have much larger facilities and far greater financial resources. In the freight forwarding industry, Janel Group competes with a large and diverse group of freight forwarding concerns, commercial air and ocean carriers and a large number of locally established companies in geographic areas where Janel Group does business or intends to do business in the future. The loss of customers, agents or employees to competitors could adversely impact Janel Group’s ability to maintain profitability. In addition, the transport of freight, both domestically and internationally, is highly competitive and price sensitive, and new competitors emerge annually. Changes in the volume of freight transported, shippers’ preferences as to the timing of deliveries as a means to control shipping costs, economic and political conditions, both in the United States and abroad, work stoppages, U.S. and foreign laws relating to tariffs, trade restrictions, foreign investments and taxation may all have significant impact on Janel Group’s overall business, growth and profitability.
Janel Group’s ability to serve its customers depends on the availability of cargo space from third parties.
Janel Group’s ability to serve its customers depends on the availability of air and sea cargo space, including space on passenger and cargo airlines and ocean carriers that service the transportation lanes that Janel Group uses. Shortages of cargo space are most likely to develop around holidays and in especially heavy transportation lanes. In addition, available cargo space could be reduced as a result of decreases in the number of airlines or ocean carriers serving particular shipment lanes at particular times. These shortages could occur as a result of economic conditions, transportation strikes, regulatory changes and other factors beyond Janel Group’s control. Janel Group’s future operating results could be adversely affected by significant shortages of suitable cargo space and associated increases in rates charged by airlines or ocean carriers for cargo space. In addition, any determination that Janel Group’s third-party carriers have violated laws and regulations could seriously damage its reputation and brands, resulting in diminished revenue and profit and increased operating costs.
Recessions and other economic developments that reduce freight volumes could have a material adverse impact on Janel Group’s business.
The transportation industry historically has experienced cyclical fluctuations in financial results due to economic recession, downturns in business cycles of customers like those that Janel Group services, interest rate fluctuations and other economic factors beyond Janel Group’s control. Deterioration in the economic environment subjects Janel Group’s business to various risks that may have a material impact on its operating results and cause it, and therefore Janel, to not reach its long-term growth goals, as a result of, for example, the following:
•
a reduction in overall freight volumes in the marketplace, reducing Janel Group’s opportunities for growth;
•
economic difficulties encountered by some of Janel Group’s customers, who may, therefore, not be able to pay Janel Group in a timely manner or at all, or may go out of business;
•
economic difficulties encountered by a significant number of Janel Group’s transportation providers, who may go out of business and, therefore, leave Janel Group unable to secure sufficient equipment or other transportation services to meet commitments to its customers; and
•
the inability of Janel Group to appropriately adjust its expenses to changing market demands.
In addition, if a downturn in the business cycles of Janel Group’s customers causes a reduction in the volume of freight shipped by those customers, its, and therefore Janel’s, operating results could be adversely affected.
Other events affecting the volume of international trade and international operations could adversely affect Janel Group’s international operations.
In addition to economic conditions, Janel Group’s international supply chain services are directly related to, and dependent on, the volume of international trade, particularly trade between the United States and foreign nations. This trade, as well as Janel Group’s international supply chain services, is influenced by many factors, including:
•
economic and political conditions in the United States and abroad;
•
major work stoppages;
•
exchange controls, currency conversion and fluctuations;
•
war, other armed conflicts and terrorism; and
•
U.S. and foreign laws relating to tariffs, trade restrictions, foreign investment and taxation.
The foregoing and other events beyond Janel Group’s control, such as a failure of various nations to reach or adopt international trade agreements or an increase in bilateral or multilateral trade restrictions, could have a material adverse effect on Janel Group’s business.
In particular, changes to major international trade arrangements (e.g., the United States-Mexico-Canada Agreement), and the imposition of tariffs by certain foreign governments, including China, in response to the imposition of tariffs or modification of trade relationships by the United States, could negatively impact our results of operations. Recently, the Trump Administration imposed tariffs on a broad range of products imported into the United States. In response to the tariffs imposed by the United States, the European Union, Canada, Mexico and China have announced tariffs on U.S. goods and services. The new tariffs, along with any additional tariffs or trade restrictions that may be implemented by the United States or retaliatory trade measures or tariffs implemented by other countries, could result in reduced economic activity, increased costs in operating our business, reduced demand and changes in purchasing behaviors, limits on trade with the United States or other potentially adverse economic outcomes. While tariffs and other retaliatory trade measures imposed by other countries on U.S. goods have not yet had a significant impact on our business or results of operations, we cannot predict further developments, and such existing or future tariffs could have a material adverse effect on our financial condition, results of operations and liquidity.
Janel Group may be unable to manage its staffing needs, which may have an adverse impact on its costs of doing business.
In order to respond to the high variability in Janel Group’s business model, it may be necessary to adjust staffing levels to changing market demands. In periods of rapid change, it is more difficult to match Janel Group’s staffing levels to its business needs. In addition, Janel Group has other primarily variable expenses that are fixed for a period of time, and it may not be able to adequately adjust them in a period of rapid change in market demand.
Janel Group faces competition in the freight forwarding, freight brokerage, logistics and supply chain management industry.
The freight forwarding, freight brokerage, logistics and supply chain management industry is intensely competitive and is expected to remain so for the foreseeable future. Janel Group faces competition from a number of companies, including many that have significantly greater financial, technical and marketing resources. Customers increasingly are turning to competitive bidding processes, in which they solicit bids from a number of competitors, including competitors that are larger than Janel Group. Increased competition may lead to revenue reductions, reduced profit margins or a loss of market share, any one of which could harm Janel Group’s business. There are many factors that could impair Janel Group’s profitability, including the following:
•
competition with other transportation services companies, some of which have a broader coverage network, a wider range of services, more fully developed information technology systems and greater capital resources than those of Janel Group;
•
reduction by Janel Group’s competitors of their rates to gain business, especially during times of declining growth rates in the economy, which reductions may limit Janel Group’s ability to maintain or increase rates, maintain its operating margins or maintain significant growth in its business;
•
shifts in the business of shippers to asset-based trucking companies that also offer brokerage services in order to secure access to those companies’ trucking capacity, particularly in times of tight industry-wide capacity;
•
solicitation by shippers of bids from multiple transportation providers for their shipping needs and the resulting depression of freight rates or loss of business to competitors; and
•
the use by Janel Group’s competitors of cooperative relationships to increase their ability to address shipper needs.
Janel Group’s industry is consolidating, and if it cannot gain sufficient market presence, Janel Group may not be able to compete successfully against larger companies in its industry.
There currently is a trend within Janel Group’s industry towards consolidation of the niche players into larger companies that are attempting to increase global operations through the acquisition of regional and local freight forwarders, brokers and other freight logistics providers. If Janel Group cannot gain sufficient market presence or otherwise establish a successful strategy in its industry, it may not be able to compete successfully against larger companies in its industry.
Failure to comply with governmental permit and licensing requirements or statutory and regulatory requirements could result in civil and criminal sanctions, fines or revocation of Janel Group’s operating authorities, and changes in these requirements could adversely affect Janel Group’s business.
Janel Group’s operations are subject to various state, local, federal and foreign statutes and regulations prohibiting various activities that in many instances require permits and licenses. Failure to maintain compliance with applicable law and regulations, required permits or licenses, or to comply with applicable regulations, could result in substantial fines or revocation of Janel Group’s operating authorities. Moreover, government deregulation efforts, “modernization” of the regulations governing customs clearance and changes in the international trade and tariff environment could require material expenditures or otherwise adversely affect Janel Group’s business specifically.
Janel Group’s business is subject to seasonal trends.
Historically, Janel Group’s operating results have been subject to seasonal trends when measured on a quarterly basis. Its second fiscal quarter has traditionally been the weakest, and the third and fourth fiscal quarters have traditionally been the strongest. As a result, its quarterly operating results are likely to continue to fluctuate. This trend is dependent on numerous factors, including the markets in which Janel Group operates, holiday seasons, consumer demand, climate, economic conditions and numerous other factors. This historical seasonality has also been influenced by the growth and diversification of Janel Group’s international network and service offerings. A substantial portion of Janel Group’s revenue is derived from customers in industries whose shipping patterns are tied closely to consumer demand which can sometimes be difficult to predict or are based on just-in-time production schedules. Therefore, Janel Group’s revenue is, to a large degree, affected by factors that are outside of its control. Janel Group’s historic operating patterns may not continue in future periods as it cannot influence or forecast many of these factors.
Risk Factors Related To Janel’s Manufacturing Business
Indco faces aggressive competition from competitors with greater financial resources.
Indco is a producer of industrial mixers and mixing equipment for a variety of industries. The industrial mixer manufacturing industry is highly fragmented with low barriers to entry. This market is addressed by companies ranging in size from large, publicly held concerns with resources greater than those of Indco to small privately-owned entities. New competitors emerge annually, and many aggressively market through electronic media. Our competitors may be more innovative than us, and as a result, Indco may be unable to compete effectively.
Because most of Indco’s contracts are individual purchase orders and not long-term agreements, Indco may not be able to generate a similar amount of revenue in the future.
Indco must bid or negotiate each of its contracts separately, and when it completes a contract, there is generally no continuing source of revenue under that contract. As a result, Indco cannot assure that it will have a continuing stream of revenue from any contract. Indco’s failure to generate new business on an ongoing basis would materially impair its ability to operate profitably.
Any decrease in the availability, or increase in the cost, of raw materials could materially affect Indco’s revenue and earnings.
The availability of certain critical raw materials is subject to factors that are not within Indco’s control. In some cases, these critical raw materials are purchased from suppliers operating in countries that may be subject to unstable political and economic conditions. While Indco has historically been able to source its raw materials from an assortment of suppliers, at any given time, Indco may be unable to obtain an adequate supply of critical raw materials on a timely basis, at prices and other terms acceptable to it, or at all. If Indco is unable to obtain adequate and timely deliveries of required raw materials, it may be unable to timely manufacture sufficient quantities of products. This could cause Indco to lose sales, incur additional costs, delay new product introductions or suffer harm to Indco’s reputation.
If suppliers increase the price of critical raw materials or are unwilling or unable to meet Indco’s demand, it may not have alternative sources of supply. In addition, costs of certain critical raw materials have been volatile due to factors beyond Indco’s control. Raw material costs are included in Indco’s contracts with customers, but in some cases Indco is exposed to changes in raw material costs from the time purchase orders are placed to when it purchases the raw materials for production. Changes in business conditions could adversely affect Indco’s ability to recover rapid increases in raw material costs and may adversely affect Indco’s, and therefore Janel’s, results of operations.
Failure to obtain and retain skilled technical personnel could adversely affect Indco’s operations.
Indco’s production facilities require skilled personnel to operate and provide technical services and support for its business. Competition for the personnel required for Indco’s business intensifies as activity increases. In periods of high utilization, it may become more difficult to find and retain qualified individuals. This could increase Indco’s costs or have other adverse effects on its operations.
If Indco’s customers successfully assert product liability claims against it due to defects in Indco’s products, its operating results may suffer and its reputation may be harmed.
Indco faces an inherent risk of exposure to claims in the event that the failure, use or misuse of its products results, or is alleged to result, in bodily injury, property damage or economic loss. While Indco believes that it meets or exceeds existing professional specification standards recognized or required in the industries in which it operates, Indco has been subject to claims in the past, and it may be subject to claims in the future. A successful product liability claims or series of claims against Indco, or a significant warranty claim or series of claims against it, could materially decrease its liquidity, and therefore Janel’s financial condition.
The extensive environmental, health and safety regulatory regimes applicable to Indco’s operations create potential exposure to significant liabilities.
The nature of Indco’s manufacturing business subjects its operations to numerous and varied federal, state, local and international laws and regulations relating to pollution, protection of public health and the environment, natural resource damages and occupational safety and health.
Failure to comply with these laws and regulations, or with the permits required for Indco’s operations, could result in fines or civil or criminal sanctions, third party claims for property damage or personal injury, and investigation and cleanup costs. Potentially significant expenditures could be required in order to comply with new environmental laws or requirements that may be adopted or imposed in the future.
Indco has used, and currently uses, certain substances that are considered hazardous, extremely hazardous or toxic under worker safety and health laws and regulations. Although Indco implements controls and procedures designed to reduce continuing risk of adverse impacts and environmental, health, and safety issues, Indco could incur substantial cleanup costs, fines and civil or criminal sanctions, and third-party property damage or personal injury claims as a result of violations, non-compliance or liabilities under these regulatory regimes. As a manufacturing business, Indco also must comply with federal and state environmental laws and regulations which relate to the manner in which Indco stores and disposes of materials and the reports that Indco is required to file. Indco cannot ensure that it will not incur additional costs to maintain compliance with environmental laws and regulations or that it will not incur significant penalties for failure to be in compliance.
Indco relies on a single location to manufacture its products.
Indco’s business operates out of a single location in New Albany, Indiana. Indco employs lean manufacturing techniques and therefore carries little inventory. Indco could experience prolonged periods of reduced production due to unforeseen catastrophic events occurring in or around its facility in Indiana. As a result, Indco may be unable to shift manufacturing capabilities to alternate locations, accept materials from suppliers, meet customer shipment needs or address other severe consequences that may be encountered, and Indco may suffer damage to its reputation. Indco’s, and therefore Janel’s, financial condition and results of operations could be materially adversely affected were such events to occur.
Risk Factors Related To Janel’s Life Sciences Business
It may be difficult for Life Sciences to implement its strategies for revenue growth in light of competitive challenges.
Life Sciences faces significant competition across many of its product lines. Competitors include companies ranging from start-up companies, which may be able to more quickly respond to customers’ needs, to large multinational companies, which may have greater financial, marketing, operational, and research and development resources than the Company.
In addition, consolidation trends in the pharmaceutical, biotechnology and diagnostics industries have served to create fewer customer accounts and to concentrate purchasing decisions for some customers. Failure to anticipate and respond to competitors’ actions may impact the future sales and earnings of Life Sciences and therefore Janel.
If Life Sciences does not compete effectively, its business may be harmed.
Life Sciences encounters aggressive competition from numerous competitors in many areas of its business. It may not be able to compete effectively with all of these competitors. To remain competitive, Life Sciences must develop new products and periodically enhance its existing products. We anticipate that Life Sciences may also have to adjust the prices of many of its products to stay competitive. In addition, new competitors, technologies or market trends may emerge to threaten or reduce the value of our product lines.
If Life Sciences does not introduce new products in a timely manner, it may lose market share and be unable to achieve revenue growth targets.
Life Sciences sells many of its products in industries characterized by frequent new product and service introductions and evolving customer needs and industry standards. Many of the businesses competing with Life Sciences in these industries have significant financial and other resources to invest in new technologies, substantial intellectual property portfolios, significant experience in new product development, regulatory expertise, manufacturing capabilities and established distribution channels to deliver products to customers. Failure to innovate and develop new products may impact the future sales and earnings of Life Sciences and therefore Janel.
The manufacture and sale of products and services may expose us to product and other liability claims for which we could have substantial liability.
Life Sciences faces an inherent business risk of exposure to product and other liability claims if its products, services or product candidates are alleged or found to have caused injury, damage or loss. While we retain product liability insurance, we may be unable to obtain insurance with adequate levels of coverage for potential liability on acceptable terms or claims of this nature may be excluded from coverage under the terms of any insurance policy that we obtain. If we are unable to obtain such insurance or the amounts of any claims successfully brought against us substantially exceed our coverage, then our business could be adversely impacted.
Changes in governmental regulations may reduce demand for our products or increase our expenses.
Life Sciences competes in markets in which it or its customers must comply with federal, state, local and foreign regulations, such as environmental, health and safety, and food and drug regulations. We develop, configure and market our products to meet customer needs created by these regulations. Any significant change in these regulations could reduce demand for our products or increase our costs of producing these products.
The Life Sciences business operates from two locations, which exposes it to certain risks.
Our Life Sciences business operates out of two locations in Davis, California and Aurora, Colorado. Any significant disruption of those operations for any reason, such as strikes or other labor unrest, power interruptions, fire, earthquakes, or other events beyond our control, could adversely affect our sales and customer relationships and therefore adversely affect our business.
The success of Life Sciences depends on its ability to continually produce products that meet high quality standards such as purity, reproducibility and/or absence of cross- reactivity.
Product quality and reputation are key purchasing decision factors for our Life Science customers. While our Life Science operations have experienced and qualified personnel, long operating histories and substantial production systems and protocols in place, failure on our part to meet our customers’ high-quality product expectations (in particular with respect to product purity, reproducibility and specificity) could adversely impact our business.
Risk Factors Related To Ownership of Janel’s Common Stock
Janel’s officers and directors and one of its stockholders have a controlling influence over Janel.
Janel’s officers and directors control the vote of approximately 71.6% of the outstanding shares of Janel’s common stock as of September 30, 2020, which includes Janel common stock such persons can acquire through the exercise of vested options granted to them. As a result, Janel’s officers and directors control the election of Janel’s directors and therefore have the ability to control the affairs of Janel. Furthermore, one particular investor in the Company has the right to appoint 50% of the members of Janel’s board of directors.
As a result, these officers, directors and stockholders have controlling influence over, among other things, the ability to amend Janel’s certificate of incorporation and bylaws or effect or preclude fundamental corporate transactions involving Janel, including the acceptance or rejection of any proposals relating to a merger of Janel or an acquisition of Janel by another entity. The interests of these officers, directors and stockholders may conflict with those of other stockholders. This concentration of ownership may also delay, deter or prevent a change in control of Janel, and some transactions may be more difficult or impossible without the support of these parties.
It is unlikely that Janel will issue dividends on its common stock in the foreseeable future.
Janel has never declared nor paid cash dividends on its common stock, and it does not intend to pay dividends in the foreseeable future. The payment of dividends in the future will be at the discretion of Janel’s board of directors.
Janel’s stock price is subject to volatility.
Janel’s common stock trades on the Pink tier of the OTC market under the symbol “JANL.” The market price of Janel’s common stock has been subject to significant fluctuations. There is an absence of a true market for Janel shares and thus a valid valuation is not readily maintained. This result is caused in part by the concentrated holdings of Janel, which has led to abnormal price volatility. Such fluctuations as well as economic conditions generally may adversely affect the market price of Janel’s common stock.
Janel has no assurance of a continued public trading market.
Janel’s common stock is quoted in the over-the-counter market on the Pink tier of the OTC market and, to the extent the market price of our common stock falls below $5.00 per share, may be subject to the low-priced security or so-called “penny stock” rules that impose additional sales practice requirements on broker-dealers who sell such securities. For any transaction involving a penny stock, the rules require, among other things, the delivery, prior to the transaction, of a disclosure schedule required by the SEC relating to the penny stock market. The broker-dealer also must disclose the commissions payable to both the broker-dealer and the registered representative and current quotations for the securities. Finally, monthly statements must be sent disclosing recent price information for the penny stocks held in the customer’s account. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for the stock that is subject to these penny stock rules. Consequently, to the extent we are subject to the penny stock rules, such rules may affect the ability of broker-dealers to trade our securities. As a result, characterization as a “penny stock” can discourage investor interest in and limit the marketability of our common stock.
Janel incurs significant costs to comply with the laws and regulations affecting public companies which could harm its business and results of operations.
Janel is subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the Sarbanes-Oxley Act of 2002, as amended (the “Sarbanes- Oxley Act”), and other applicable securities rules and regulations. These rules and regulations have increased and will continue to increase Janel’s legal, accounting and financial compliance costs and have made, and will continue to make, some activities more time-consuming and costly. For example, these rules and regulations could make it more difficult and more costly for Janel to obtain director and officer liability insurance, and it may be required to accept reduced policy limits and coverage or to incur substantial costs to maintain the same or similar coverage. These rules and regulations could also make it more difficult for Janel to attract and retain qualified persons to serve on its board of directors or its board committees or as executive officers. Janel’s management and other personnel devote a substantial amount of time to these compliance initiatives. As a result, management’s attention may be diverted from other business concerns, which could harm Janel’s business and operating results.

---

ITEM 1B. UNRESOLVED STAFF COMMENTS
ITEM 1B.
UNRESOLVED STAFF COMMENTS
Not applicable.

---

ITEM 2. PROPERTIES
ITEM 2
PROPERTIES
Janel’s executive offices are located in approximately 3,300 square feet of leased space in New York, New York. The lease term ends September 1, 2025.
On November 15, 2019, Janel Group entered into a new lease agreement for 6,900 square feet of space in Garden City, New York. This new location will serve as Janel Group’s executive offices. The lease agreement expires on March 31, 2025.
As of September 30, 2020, Janel Group leased office space, some of which are on a month-to-month basis, in fifteen cities located in the United States, Lease terms for these locations expire at various dates through March 31, 2025.
As of September 30, 2020, Indco owned an approximately 12,600 square feet of manufacturing facility on 1.2-acre parcel of land facility in New Albany, Indiana.
As of September 30, 2020, Life Sciences owned an approximately 25,000 square feet of manufacturing facility on 40-acre facility in Davis, California.
As of September 30, 2020, Life Sciences leased office and manufacturing space in a single facility in Aurora, Colorado. The lease is on a month-to-month basis.
The Company believes the owned and leased properties are adequate to meet its occupancy needs in the foreseeable future.

---

ITEM 3. LEGAL PROCEEDINGS
ITEM 3
LEGAL PROCEEDINGS
Janel is occasionally subject to claims and lawsuits which typically arise in the normal course of business. While the outcome of these claims cannot be predicted with certainty, management does not believe that the outcome of any of these legal matters will have a material adverse effect on the Company’s business, results of operations, financial condition or cash flows. The information otherwise called for by this item is incorporated herein by reference to Note 18, Risks and Uncertainties, in the notes to the consolidated financial statements included in Part II, Item 8 of this Form 10-K.

---

ITEM 4. MINE SAFETY DISCLOSURE
ITEM 4
MINE SAFETY DISCLOSURES
Not applicable.
PART II

---

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
ITEM 5
MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
(in thousands, except share and per share data)
Janel Corporation’s common stock is traded on the Pink tier of the OTC market under the symbol “JANL.”
The following table sets forth the high and low bid prices for the common stock for each full quarterly period during the fiscal years indicated. The prices reflect the high and low bid prices as available through the Pink tier of the OTC market and represent prices between dealers. They do not reflect retailer markups, markdowns or commissions and may not represent actual transactions.
Fiscal Year 2020
Fiscal Year 2019
Fiscal Quarter
High
Low
High
Low
First Quarter, ended December 31,
$
8.57
$
5.97
$
9.35
$
6.03
Second Quarter, ended March 31,
$
8.50
$
5.97
$
9.25
$
5.01
Third Quarter, ended June 30,
$
8.05
$
3.00
$
9.00
$
5.01
Fourth Quarter, ended September 30,
$
10.00
$
3.00
$
10.17
$
7.01
On September 30, 2020, the Company had 60 holders of its shares of common stock. This amount does not include “street name” holders or beneficial holders of our common stock, whose holders of record are banks, brokers and other financial institutions.
The closing price of the common stock on that date was $9.00 per share.
Common Stock Dividends
We have not declared, and currently do not plan to declare in the foreseeable future, dividends on our common stock.
Series B Convertible Preferred Stock (“Series B Stock”)
During fiscal 2020, holders of 600 shares of Series B Stock converted such shares into 6,000 shares of common stock. The Company has 31 shares of Series B Stock outstanding as of September 30, 2020.
Series C Cumulative Preferred Stock (“Series C Stock”)
On September 15, 2020, the Company repurchased 890 shares of Series C Stock at a purchase price of $500 per share. On September 29, 2020, the Company sold 650 shares of Series C Stock to an accredited investor at a purchase price of $500 per share, or an aggregate of $325. The Company has 19,760 shares of Series C Stock outstanding as of September 30, 2020.

---

ITEM 6. SELECTED FINANCIAL DATA
ITEM 6
SELECTED FINANCIAL DATA
Consistent with the rules applicable to “smaller reporting companies”, we have omitted the information required by Item 6.

---

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
ITEM 7
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Our discussions below in this Item 7 should be read along with Janel’s audited financial statements and related notes thereto as of September 30, 2020 and 2019 and for each of the two years in the period ended September 30, 2020 included in this Annual Report on Form 10-K.
INTRODUCTION
Janel is a holding company with subsidiaries in three business segments: Global Logistics Services, Manufacturing and Life Sciences. The Company strives to create shareholder value primarily through three strategic priorities: supporting its businesses’ efforts to make investments and to build long-term profits; allocating Janel’s capital at higher risk-adjusted rates of return; and attracting and retaining exceptional talent. A management group at the holding company level (the “corporate group”) focuses on significant capital allocation decisions and corporate governance. 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.
COVID-19
The outbreak of COVID-19 has had a significant impact on global trade and on our business during the fiscal year ended September 30, 2020. In late January 2020, China implemented extensive business shutdowns and work restrictions to control the outbreak, which resulted in a steep drop in exports from China. As those shutdowns and restrictions in China started to ease, export volumes from China began to increase, in March 2020. The spread of COVID-19 to other parts of the world, and the strong actions taken by many countries to reduce exposure to the virus, however, have led to a sharp decline in global economic activity that persisted during fiscal 2020 and resulted in a second steep decline in global import and export trade volumes, which has materially impacted our Global Logistics Services business. Specifically, in the fiscal year ended September 30, 2020, we experienced a year-over-year decrease of 7.6% in our Global Logistics Services net revenues and a decrease of 19.1% in our Manufacturing segment revenues as a result of the global trade slowdown arising from the COVID- 19 pandemic.
We also experienced a significant slowdown in organic growth in our Life Sciences segment due to a slowdown in orders and in academic research as a result of the pandemic. Please see our results of operations discussion below for additional information. We expect demand for our products and services across all of our reporting segments, and in particular our Global Logistics Services and Manufacturing segments, to be adversely impacted for as long as global economic activity and trade volumes remain weak. A prolonged slowdown in trade volumes due to the pandemic could also significantly increase the longer-term financial challenges facing our customers. We are closely monitoring our customers’ payment performance and expect our customer credit risk will remain heightened as long as economic and trade disruptions persist.
In our Global Logistics Services and Manufacturing segments, customer demand for our services and products in many parts of our business has been materially and negatively impacted by the mandated closure of our customers’ operations or points of sale, while customer demand for our services in other parts of our business has increased significantly as consumers stockpile goods or switch to e-commerce platforms to make purchases.
We are unable to accurately predict the impact that COVID-19 will have on our business, financial position, results of operations or liquidity going forward due to uncertainties regarding the severity and duration of the outbreak, additional actions that may be taken by governmental authorities in response to a potential resurgence of the virus, the pace of recovery once the pandemic subsides and the overall long-term impact on the global economy. That said, our results of operations and financial condition were significantly adversely impacted in the fiscal year ended September 30, 2020, as levels of activity in the Company’s business have historically been positively correlated to broad measures of economic activity, such as gross domestic product, and to measures of industrial economic activity, which have been negatively impacted by the pandemic.
Year Ended September 30, 2020 Acquisitions
On July 23, 2020, the Company acquired Atlantic Customs Brokers, Inc. (ACB) which we include in our Global Logistics Services segment.
Year Ended September 30, 2019 Acquisitions
On September 6, 2019, the Company acquired Phospho, which we include in our Life Sciences segment.
On July 1, 2019, we acquired the membership interests of a life sciences company to expand our product offerings, which we include in our Life Sciences segment.
On November 20, 2018, the Company acquired Honor, which we include in our Global Logistics Services segment.
On October 17, 2018, we completed a business combination whereby we acquired substantially all of the assets and certain liabilities of a global logistics services provider, which we include in our Global Logistics Services segment.
Results of Operations - Janel Corporation
Our results of operations and period-over-period change are discussed in the following section. The tables and discussion should be read in conjunction with the accompanying Consolidated Financial Statements and the notes thereto appearing in Item 8.
Refer to Item 7. “Management Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended September 30, 2019, filed on January 28, 2020, for a comparison of fiscal year 2019 results of operations to the fiscal year 2018 results of operations, which specific discussion is incorporated herein by reference
Our condensed consolidated results of operations are as follows:
Financial Summary
in thousands
(Fiscal years ended September 30,)
Revenues
$
82,429
$
84,354
$
67,521
Forwarding expenses and cost of revenues
58,908
59,248
47,209
Gross profit
23,521
25,106
20,312
Operating expenses
25,245
23,527
19,425
Operating (loss) income
$
(1,724
)
$
1,579
$
Net (loss) income
$
(1,725
)
$
$
Adjusted operating income
$
$
3,040
$
2,562
Consolidated revenues for the year ended September 30, 2020 were $82,429, or 2.3% lower than fiscal 2019. Revenues for our Global Logistics Services and Manufacturing segments decreased mostly due to slowdown related to the COVID-19 pandemic. Revenues for our Life Sciences segment increased largely due to acquisitions.
The Company’s net loss for the year ended September 30, 2020 totaled approximately ($1,725) or ($2.75) per diluted share, compared to net income of approximately $616 or $0.72 per diluted share for the year ended September 30, 2019. Net income declined as a result of the impact of the COVID-19 pandemic, a shift in volume experienced during the first quarter of fiscal 2019 that did not recur, a reserve for the settlement of threatened litigation and severance expenses, partially offset by contributions from acquisitions experienced during the first quarter. These expenses impacted our overall operating results and our adjusted operating profits for fiscal 2020 relative to prior years.
The following table sets forth a reconciliation of operating income to adjusted operating income:
Adjusted Operating Income
in thousands
(Fiscal years ended September 30,)
(Loss) income from operations
$
(1,724
)
$
1,579
$
Amortization of intangible assets
Stock-based compensation
Cost recognized on sale of acquired inventory
Adjusted operating income
$
$
3,040
$
2,562
BUSINESS PERFORMANCE
Results of Operations - Global Logistics Services
Financial Summary in thousands
(Fiscal years ended September 30,)
Revenue
$
68,492
$
69,655
Forwarding expense
53,397
53,319
Net revenue
$
15,095
$
16,336
Net revenue yield
22.0
%
23.5
%
Selling, general and administrative expenses
$
14,992
$
13,856
Income from operations
$
$
2,480
Fiscal 2020 compared with fiscal 2019
Revenue
Total revenue in fiscal 2020 was $68,492 as compared to $69,655 in fiscal 2019, a decrease of $1,163 or 1.7%. The decrease in revenue was largely due to the impact of the continued global trade slowdown, in particular the steep reduction in global import and export trade volumes due to the COVID-19 pandemic partially offset by an increase in transportation rates due to COVID related transportation capacity reductions. Acquired revenue from two acquisitions completed during fiscal 2019 and one in fiscal 2020 also slightly offset a portion of the revenue decline in the twelve-month period. Our volume as measured by twenty-foot equivalent units (“TEUs”) grew 30%, metric tons and custom entries decreased 24% and 10%, respectively.
Net Revenue
Net revenue in fiscal 2020 was $15,095, a decrease of $1,241, or 7.6%, as compared to $16,336 in fiscal 2019. The decrease reflected a low-double digit organic decline for the year due to volume pressures from the COVID-19 pandemic and customers in the prior year period moving freight in advance of certain governmental trade policies, partially offset by acquisition contributions. Our net revenue yield (net revenue divided by gross revenues) declined to 22.0% in fiscal 2020 compared to 23.5% in fiscal 2019 largely due to an increase in transportation rates.
Selling, General and Administrative Expenses
Selling, general and administrative expenses from continuing operations in fiscal 2020 were $14,992, as compared to $13,856 in fiscal 2019. The increase of $1,136, or 8.2%, was mainly due to additional expenses from acquired businesses, severance expenses related to leadership changes, and settlement of threatened litigation. As a percentage of gross revenue, selling, general and administrative expenses were 21.8% and 19.9% for fiscal 2020 and fiscal 2019, respectively.
Income from Operations
Operating income decreased to $103 in fiscal 2020 compared to $2,480 in fiscal 2019, a decrease of 95.8%. Income from operations declined as a result of the impact of the COVID-19 pandemic and management’s decision to maintain staffing and operational capabilities, a shift in volume experienced during the first quarter of fiscal 2019 that did not recur and the settlement of threatened litigation, partially offset by contributions from acquisitions. Our operating margin as a percentage of net revenue was 0.7% in fiscal 2020 compared to 15.2% in fiscal 2019.
Results of Operations - Manufacturing
Financial Summary
in thousands
(Fiscal years ended September 30,)
Revenue
$
7,319
$
9,042
Cost of revenues
$
3,329
$
4,020
Gross profit
$
3,990
$
5,022
Gross profit margin
54.5
%
55.5
%
Selling, general and administrative expenses
$
2,505
$
3,113
Income from operations
$
1,485
$
1,909
Fiscal 2020 compared with fiscal 2019
Revenue
Total revenue was $7,319 in fiscal 2020 compared with $9,042 in fiscal 2019, a decrease of 19%. The revenue decline reflected a decline in volumes across the business relative to the prior year period due to the slowdown related to the COVID-19 pandemic.
Gross Profit
Gross profit was $3,990 and $5,022 for fiscal years 2020 and 2019, respectively. Gross profit margin for the Manufacturing segment in the full-year period of fiscal 2020 was 54.5%, as compared to 55.5%, in fiscal 2019. Gross profit margin overall for the Manufacturing segment decreased slightly due to mix of business.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the Manufacturing segment were $2,505 and $3,113 for fiscal years 2020 and 2019, respectively. As a percentage of gross revenue, selling, general and administrative expenses were 34.2% and 34.4% for fiscal 2020 and fiscal 2019, respectively. The decrease in expenses related to the decline in revenue, lower stock-based compensation items related to our debt refinancing and related dividend actions, partially offset by management’s decision to maintain staffing and operational capabilities.
Income from Operations
Operating income for fiscal 2020 was $1,485 compared to $1,909 in fiscal 2019. Indco’s operating income decreased 22.2% versus the prior year due to lower revenue without corresponding expense reductions.
Results of Operations - Life Sciences
Financial Summary
in thousands
(Fiscal years ended September 30,)
Revenue
$
6,618
$
5,657
Cost of revenues
1,306
1,659
Cost recognized upon sale of acquired inventory
Gross profit
$
4,436
$
3,748
Gross profit margin
67.0
%
66.3
%
Selling, general and administrative expenses
$
3,870
$
2,907
Income from operations
$
$
Fiscal 2020 compared with fiscal 2019
Revenue
Total revenue was $6,618 in fiscal 2020 compared with $5,657 in fiscal 2019. The increase in sales was entirely due to acquisitions. Revenue declined at a mid-single digit rate on an organic basis due to the slowdown in academic research related to the COVID-19 pandemic.
Gross Profit
Gross profit was $4,436 and $3,748 for fiscal years 2020 and 2019, respectively. The gross profit margin of 67.0% in fiscal 2020 remained comparable to 66.3% in the prior fiscal year. Gross profit was negatively impacted as a result of purchase accounting related to inventory in fiscal 2020 and 2019. Under purchase accounting, inventory is valued at fair value less expected selling and marketing costs, resulting in reduced margins in future periods as the inventory is sold. The gross profit margin was impacted by the amortization of non-cash acquired inventory expenses of $876 and $250 for fiscal 2020 and 2019, respectively.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the Life Sciences segment were $3,870 and $2,907 for fiscal years 2020 and 2019, respectively. The increase in both periods was largely due to acquired businesses. As a percentage of gross revenue, selling, general and administrative expenses were 58.5% and 51.4% for fiscal 2020 and fiscal 2019, respectively. Expenses rose faster than revenue due to mix of business from acquisitions.
Income from Operations
The Life Sciences business earned $566 and $841 in income from operations for fiscal 2020 and 2019, respectively. The decline in operating income reflected higher cost recognized on sale of acquired inventory due to acquisitions partially offset by the profit contribution from acquisitions. The difference in operating margin of 8.6% in fiscal 2020 compared with 14.9% in fiscal 2019 was largely due to higher amortization of acquired inventory from our acquisitions.
Results of Operations - Corporate and Other
Below is a reconciliation of income from operations segments to net (loss) available to common stockholders
Years Ended September 30,
(In thousands)
Total income from operating segments
$
2,154
$
5,230
Administrative expenses
(2,724
)
(2,533
)
Amortization expense
(955
)
(915
)
Stock-based compensation
(199
)
(203
)
Total Corporate expenses
(3,878
)
(3,651
)
Interest expense
(521
)
(694
)
Change in fair value of mandatorily redeemable non-controlling interest
Net (loss) income before taxes
(2,230
)
Income tax (benefit) expense
(330
)
Net (loss) income
(1,725
)
Preferred stock dividends
(675
)
(571
)
Non-controlling interest dividends
-
(342
)
Net (Loss) Available to Common Stockholders
$
(2,400
)
$
(297
)
Total Corporate Expenses
Corporate expenses increased by $227 to $3,878, or 6.2%, in fiscal 2020 as compared to fiscal 2019. The dollar increase was due primarily to higher accounting related professional expense and increases in amortization of intangible expenses partially offset by lower stock-based compensation and merger and acquisition expenses. We incur merger and acquisition deal-related expenses and intangible amortization at the corporate level rather than at the segment level.
Interest Expense
Interest expense for the consolidated company decreased $173, or 24.9%, to $521 in fiscal 2020 from approximately $694 in fiscal 2019. The decrease was primarily due to more favorable debt refinancing terms and lower interest rates partially offset by higher average debt balances to support our acquisition efforts.
Income Tax Expense
On a consolidated basis, the Company recorded an income tax benefit of $505 in fiscal 2020, as compared to an income tax expense of $330 in fiscal 2019. The decrease was primarily due to a decrease in pretax income and by the estimated deductible expense related to the expected loan forgiveness amount under the Paycheck Protection Program (“PPP”) loan received in the third quarter. In 2016, a deferred tax asset was established to reflect a net operating loss carryforward, which the Company has begun using, and expects to continue to use, through ongoing profitability.
Preferred Stock Dividends
Preferred stock dividends include the Company’s Series C Stock and dividends accrued but not paid. For the year ended September 30, 2020 and 2019, preferred stock dividends were $675 and $571, respectively. The increase of $104, or 18.2%, was the result of a higher number of shares of Series C Stock outstanding and an increase in dividend rate as of January 1, 2020 to 7%.
Dividends accrued but not paid on the Company’s Series C Stock were $1,661 and $1,041 as of September 30, 2020 and 2019, respectively.
Net (Loss) Available to Common Shareholders
Net (loss) available to common shareholders was ($2,400), or ($2.75) per diluted share, for fiscal 2020 and ($297), or ($0.35) per diluted share, for fiscal 2019. The increase in net loss was primarily due to lower revenues and gross profit and higher selling, general and administrative expenses across our businesses in both periods and an increase in the dividend rate with respect to the Series C Stock as of January 1, 2020 to 7%.
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 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 Coronavirus Aid, Relief and Economic Security Act, Section 7(a)(36) of the Small Business Act in order to be able to continue to cover our payroll costs, group health care benefits, mortgage payments, rent and utilities. The duration and magnitude of the pandemic is not reasonably estimable at this point, and if the pandemic persists, our liquidity and capital resources could be further negatively impacted.
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 2020 fiscal year is not necessarily indicative of future cash flow performance. As of September 30, 2020, and compared with the prior fiscal year, the Company’s cash and cash equivalents increased by $1,186, or 55%, to $3,349 from $2,163 as of September 30, 2020. During the fiscal year ended September 30, 2020, Janel’s net working capital deficiency (current assets less current liabilities) increased by $4,182, from ($6,190) at September 30, 2019 to ($10,372) at September 30, 2020.
Cash flows from continuing operating activities
Net cash (used in) provided by continuing operating activities for fiscal years 2020 and 2019 was ($554) and $7,203, respectively. The decrease in cash provided by operations for the year ended September, 2020 was driven principally by the higher net loss, partially offset by timing of cash collections for accounts receivables and cash payments on accounts payables for the year ended September 30, 2020.
Cash flows from investing activities
Net cash used for investing activities, mainly for the acquisition of subsidiaries, was $1,544 for fiscal 2020 and $6,600 for fiscal 2019. The fiscal 2020 amount was associated with a logistics acquisition, and the fiscal 2019 amount was associated with the two logistics and two Life Sciences acquisitions. The Company also used $1,297 for the acquisition of property and equipment for the year ended September 30, 2020 compared to $421 for the year ended September 30, 2019.
Cash flows from financing activities
Net cash provided by financing activities was $3,284 for fiscal 2020 and $975 for fiscal 2019. Net cash provided by financing activities in fiscal 2020 primarily included proceeds from our PPP loan, deferred payments for the ACB acquisition and proceeds from stock option exercises, proceeds from sale of Series C Preferred, offset by repurchase of Series C Preferred, and in fiscal 2019 primarily included repayments from a line of credit and proceeds from a senior secured term loan.
Credit Facilities
Global Logistics Services
Santander Bank Facility
On October 17, 2017, the Janel Group subsidiaries (collectively the “Janel Group Borrowers”), with 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 and July 22, 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.
On March 21, 2018, the Janel Group Borrowers, the Company and Aves entered into an amendment with Santander (the “Santander Amendment”) with respect to the Santander Loan Agreement. Pursuant to the Santander Amendment, among other changes Aves was added as a loan party obligor (but not a Janel Group Borrower) under the Santander Loan Agreement, the maximum amount available under the Santander Loan Agreement was increased from $10,000 to $11,000 (subject to 85% of eligible receivables), the foreign account sublimit was increased from $1,500 to $2,000, a one-time waiver was granted until May 31, 2018 for the stated event of default related to the delivery of the quarterly financial statements for the fiscal quarter ended December 31, 2017, and a one-time waiver, retroactive to March 5, 2018, of the provision that prohibits the Company from using proceeds of the revolving loan to finance acquisitions was granted for the purpose of partially funding the acquisition of Aves.
On November 20, 2018, the Company and its wholly-owned subsidiaries entered into the Limited Waiver, Joinder and Second Amendment (“Amendment No. 2”) to the Santander Loan Agreement (as amended by the Santander Amendment), with Santander Bank, N.A. Pursuant to, and among other changes affected by, Amendment No. 2: (1) Honor Worldwide Logistics LLC, HWL Brokerage LLC and Global Trading Resources Inc. were added as new borrowers under the Santander Loan Agreement; (2) Aves was released as a loan party obligor under the Santander Loan Agreement; (3) the maximum revolving facility amount available was increased from $11,000 to $17,000 (limited to 85% of the borrowers’ eligible accounts receivable borrowing base and reserves); (4) the foreign account sublimit was increased from $2,000 to $2,500; (5) the letter of credit limit was increased from $500 to $1,000; (6) the definitions of “Debt Service Coverage Ratio,” “Debt Service Coverage Ratio (Borrower Group)” and “Loan Party” were restated; (7) the permitted acquisition debt basket was increased from $2,500 to $4,000; and (8) the permitted indebtedness basket was increased from $500 to $1,000.
As of May 1, 2019, Santander had granted the Janel Group Borrowers a one-time waiver until July 31, 2019 for an event of default related to the delivery of the audited financial statements for the fiscal year ended September 30, 2018. Other than as specifically referenced above, the Janel Group Borrowers were in compliance with the covenants defined in the Santander Loan Agreement as of September 30, 2019.
On March 4, 2020, the Company and its wholly-owned subsidiaries, entered into the Third Amendment to Loan and Security Agreement (“Amendment No. 3”) to the Loan and Security Agreement, dated October 17, 2017 by and between the Company, certain of its subsidiaries, and Santander Bank, N.A. (as amended by the Limited Waiver, Joinder and First Amendment dated as of March 21, 2018, and the Limited Waiver, Joinder and Second Amendment dated November 20, 2018 (collectively, the “Loan Agreement”). Pursuant to, and among other changes effected by, Amendment No. 3: (1) the Maturity date of the Loan evidenced by the Loan Agreement was extended to October 17, 2022; (2) the LIBOR rate margin was reduced from 2.50% to 2.25%; (3) the monthly Collateral Monitor Fee was reduced from $1 to $0.5; (4) the definition of EBITDA was revised to allow addback of up to $500 annually for merger and acquisition costs; and (5) the Company’s subsidiaries were permitted to pay up to $500 in aggregate dividends to the Company for fiscal 2020 if certain conditions were met.
On July 22, 2020, Janel Group and Atlantic Customs Brokers, Inc. (“Atlantic”) as borrowers, and the Company as loan party obligor, entered into the Consent, Joinder and Fourth Amendment (the “Fourth Amendment”) to the Loan and Security Agreement, dated October 17, 2017 (as heretofore amended, the “Loan Agreement”), with Santander Bank, N.A., in its capacity as Lender. Pursuant to, and among other changes effected by, the Fourth Amendment, (i) Atlantic was added as a new borrower under the Loan Agreement, (ii) acquisition seller financing of up to $1,500 outstanding at any time was added as permitted indebtedness, and (iii) the Company was permitted to guaranty certain indebtedness of its Antibodies subsidiary up to $2,920 outstanding at any time.
At September 30, 2020, outstanding borrowings under the Santander Facility were $8,447, representing 49.7% of the $17,000 available thereunder, and interest was accruing at an effective interest rate of 2.40%.
The Company was in compliance with the covenants defined in the Santander Loan Agreement at September 30, 2020 and September 30, 2019.
Working Capital Requirements
Through September 30, 2020, Janel Group’s cash needs were met by the Santander Facility and cash on hand. As of September 30, 2020, the Janel Group had, subject to collateral availability, $5,421 available for future borrowings under its $17,000 Santander Facility and $56 in cash.
The Company believes that its current financial resources will be sufficient to finance Janel Group’s operations and obligations (current and long-term liabilities) for the long and short term. However, Janel Group’s actual working capital needs will depend upon numerous factors, including operating results, the costs associated with growing Janel Group, either organically or through acquisitions, competition and availability under the Santander Facility, none of which can be predicted with certainty. If cash flow and available credit are not sufficient to fund working capital, Janel Group’s operations will be materially negatively impacted.
Manufacturing
First Merchants Bank Credit Facility
On March 21, 2016, Indco executed a Credit Agreement (the “First Merchants Credit Agreement”) with First Merchants Bank with respect to a term loan, revolving loan and mortgage loan (together, the “First Merchant Facility”), as amended in August 2019 and July 2020. On February 4, 2020, Indco entered into a Purchase and Sale Agreement to acquire the land and building which serves as the Indco office and manufacturing facility in New Albany, Indiana. This transaction closed on July 1, 2020.
On July 1, 2020, Indco and First Merchants Bank entered into Amendment No. 2 to the First Merchants Credit Agreement, modifying the terms of Indco’s credit facilities. Under the revised terms, the credit facilities consist of a $5,500 term loan, a $1,000 (limited to the borrowing base and reserves) revolving loan and a $680 mortgage loan. Interest will accrue on the Term Loan at an annual rate equal to the one-month LIBOR plus either 2.75% (if Indco’s total funded debt to EBITDA ratio is less than 2:1), or 3.5% (if Indco’s total funded debt to EBITDA ratio is greater than or equal to 2:1). Interest will accrue on the Revolving Loan at an annual rate equal to the one-month LIBOR plus 2.75%. Interest will accrue on the Mortgage Loan at an annual rate of 4.19%. Indco’s obligations under the First Merchants Bank credit facilities 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 credit facilities 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.
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.
The Company was in compliance with the covenants defined in the First Merchants Credit Agreement at September 30, 2020 and September 30, 2019.
Working Capital Requirements
Manufacturing’s cash needs are currently met by the term loan and revolving credit facility under the First Merchants Credit Agreement and cash on hand. As of September 30, 2020, Manufacturing had $1,000 available under its $1,000 revolving facility subject to collateral availability and $582 in cash. The Company believes that the current financial resources will be sufficient to finance Manufacturing operations and obligations (current and long-term liabilities) for the long and short term. However, actual working capital needs will depend upon numerous factors, including operating results, the cost associated with growing Manufacturing either organically or through acquisitions, competition and availability under the revolving credit facility, none of which can be predicted with certainty. If cash flow and available credit are not sufficient to fund working capital, Manufacturing’s operations will be materially negatively impacted.
Life Sciences
First Northern Bank of Dixon
On June 21, 2018, AB Merger Sub, Inc., a wholly-owned, indirect subsidiary of the Company, entered into a Business Loan Agreement (the “First Northern Loan Agreement”) with First Northern Bank of Dixon (“First Northern”), with respect to a $2,025 First Northern Term Loan (the “First Northern Term Loan”). The proceeds of the First Northern Term Loan were used to fund a portion of the merger consideration to acquire Antibodies. Interest was to accrue on the First Northern Term Loan at an annual rate based on the five-year Treasury constant maturity (index) plus 2.50% (margin) for years one through five then adjusted and fixed for years six through ten using the same index and margin. The borrower’s and the Company’s obligations to First Northern under the First Northern Loan Agreement are secured by certain real property owned by Antibodies as of the closing of the Antibodies merger. The First Northern Loan Agreement contains customary terms and covenants and matures on June 14, 2028 (subject to earlier termination).
On November 18, 2019, Antibodies modified and refinanced its existing credit facilities with First Northern Bank. The existing First Northern Term Loan was increased to $2,235, the initial interest rate decreased to 4.18%, and the maturity date was extended to November 14, 2029, with all other terms, covenants and conditions substantially unchanged. The existing revolving credit facility was expanded to $500, the interest rate decreased from 6.0% to 4.0%, and the maturity date was extended to October 1, 2020, with all other terms, covenants and conditions substantially unchanged. Additionally, Antibodies entered into a new business loan agreement (“Solar Loan”) which provided for a $125 term loan in connection with a potential expansion of solar generation capacity on the Antibodies property. The initial interest rate on the facility is 4.43%, subject to adjustment in five years.
On June 19, 2020, First Northern extended the draw period on the Solar Loan from May 14, 2020 to August 14, 2020, with all other terms, covenants and conditions substantially unchanged. Additionally, on June 19, 2020, we entered into a new business loan agreement (“Generator Loan”) which provided for a $60 term loan in connection with a potential expansion of generator capacity on the Antibodies property. The draw period for the Generator Loan expires in November 5, 2020. The interest rate for the Generator Loan is 4.25%, and the loan matures on November 5, 2025. There were no outstanding borrowings under the Generator Loan.
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 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%.
The Company was in compliance with the covenants defined in the First Northern Loan Agreement at September 30, 2020 and September 30, 2019.
Working Capital Requirements
Life Sciences cash needs are currently met by the First Northern Loan Agreement and cash on hand of $2,582. The Company believes that the current financial resources will be sufficient to finance Life Sciences operations and obligations (current and long-term liabilities) for the long and short term. However, actual working capital needs will depend upon numerous factors, including operating results, the cost associated with growing Life Sciences either organically or through acquisitions, competition and availability under the revolving credit facility, none of which can be predicted with certainty. If cash flow and available credit are not sufficient to fund working capital, Life Sciences operations will be materially negatively impacted.
CURRENT OUTLOOK
The results of operations in the Global Logistics Services, Manufacturing and Life Sciences segments are affected by the general economic cycle, particularly as it influences global trade levels and specifically the import and export activities of our Janel Group business’s various current and prospective customers. The effects of the COVID-19 pandemic may remain prevalent for a significant period of time and may continue to adversely affect our business, results of operations and financial condition even after the COVID-19 outbreak has subsided. Historically, the Company’s annual results of operations have been subject to seasonal trends which have been the result of, or influenced by, numerous factors including climate, national holidays, consumer demand, economic conditions, the growth and diversification of Janel Group’s international network and service offerings, and other similar and subtle forces. The Company cannot accurately forecast many of these factors, nor can it estimate accurately the relative influence of any particular factor and, as a result, there can be no assurance that historical patterns, if any, will continue in future periods.
The Company’s subsidiaries are implementing business strategies to grow revenue and profitability for fiscal 2021 and beyond. Janel Group’s strategy calls for additional branch offices, introduction of new revenue streams for existing locations, sales force expansion, additional acquisitions, and a continued focus on implementing lean methodologies to contain operating expenses.
Our Manufacturing and Life Sciences segments expect to introduce new product lines and wider distribution and promotion of its products with internet sales efforts. In addition to supporting its subsidiaries’ growth plans, the Company may seek to grow Janel by entering new business segments through acquisition.
Certain elements of the Company’s profitability and growth strategy, including proposals for acquisition and accelerating revenue growth, are contingent upon the availability of adequate financing on terms acceptable to the Company.
Without adequate equity and/or debt financing, the implementation of significant aspects of the Company’s strategic growth plan may be deferred beyond the originally anticipated timing, and the Company’s operations will be materially negatively impacted.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The Company’s consolidated financial statements have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes. Since future events and their effects cannot be determined with absolute certainty, the determination of estimates requires the exercise of judgment. Actual results could differ from those estimates, and such differences may be material to the financial statements. The most significant accounting estimates inherent in the preparation of our financial statements include estimates as to revenue recognition, the appropriate carrying value of certain assets and liabilities which are not readily apparent from other sources, primarily allowance for doubtful accounts, accruals for transportation and other direct costs, accruals for cargo insurance, deferred income taxes and potential impairment of goodwill and intangible assets with indefinite lives, long-lived assets impairment. Management bases its estimates on historical experience and on various assumptions which are believed to be reasonable under the circumstances. We reevaluate these significant factors as facts and circumstances change. Historically, actual results have not differed significantly from our estimates. Note 1 of the notes to consolidated financial statements included herein includes a summary of the significant accounting policies and methods used in the preparation of our consolidated financial statements. The following is a brief discussion of certain accounting policies and estimates.
Management believes that the nature of the Company’s business is such that there are few complex challenges in accounting for operations. Revenue recognition is considered the critical accounting policy due to the complexity of arranging and managing global logistics and supply-chain management transactions.
Income taxes
The Company uses the asset and liability method of accounting for income taxes in accordance with Accounting Standards Codification Topic 740, “Income Taxes.” Under this method, income tax expense is recognized for the amount of: (i) taxes payable or refundable for the current year and (ii) deferred tax consequences of temporary differences resulting from matters that have been recognized in an entity’s financial statements or tax returns. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date.
Estimates
While judgments and estimates are a necessary component of any system of accounting, the Company’s use of estimates is limited primarily to the following areas that in the aggregate are not a major component of the Company’s consolidated statements of operations:
•
accounts receivable valuation;
•
the useful lives of long-term assets;
•
the accrual of costs related to ancillary services the Company provides; and
•
accrual of tax expense on an interim basis.
•
inventory valuation
•
potential impairment of goodwill and intangible assets with indefinite lives, long-lived assets impairment
Management believes that the methods utilized in these areas are consistent in application. Management further believes that there are limited, if any, alternative accounting principles or methods which could be applied to the Company’s transactions.
While the use of estimates mean that actual future results may be different from those contemplated by the estimates, the Company believes that alternative principles and methods used for making such estimates would not produce materially different results than those reported.
Critical Accounting Policies and Estimates Applicable to the Global Logistics Services Segment
Revenue Recognition
Revenues are derived from customs brokerage services and from freight forwarding services.
Customs brokerage services include activities required for the clearance of shipments through government customs regimes, such as preparing required documentation, calculating and providing for payment of duties and other charges on behalf of customers, arranging required inspections and arranging final delivery.
Freight forwarding may require multiple services, including long-distance shipment via air, ocean or ground assets, destination handling (“break bulk”), warehousing, distribution and other logistics management activities. As an asset-light business, Janel Group owns none of the assets by which it fulfills its customers’ logistics needs. Rather, it purchases the services its customers need from asset owners, such as airlines and steamship lines, and resells them. By consolidating shipments from multiple customers, Janel Group can negotiate terms of service with asset owners that are more favorable than those the customers could negotiate themselves.
Revenue is recognized upon transfer of control of promised services to customers. With respect to its Global Logistics Services segment, the Company has determined that in general each shipment transaction or service order constitutes a separate contract with the customer. When the Company provides multiple services to a customer, different contracts may be present for different services.
The Company typically satisfies its performance obligations as services are rendered at a point in time. A typical shipment would include services rendered at origin, such as pick-up and delivery to port, freight services from origin to destination port and destination services, such as customs clearance and final delivery. The Company measures the performance of its obligations as services are completed at a point in time during the life of a shipment, including services at origin, freight and destination. The Company fulfills nearly all of its performance obligations within a one-to two-month period.
The Company evaluates whether amounts billed to customers should be reported as gross or net revenue. Generally, revenue is recorded on a gross basis when the Company is primarily responsible for fulfilling the promise to provide the services, when it has discretion in setting the prices for the services to the customers, and the Company has the ability to direct the use of the services provided by the third party. Revenue is recognized on a net basis when we do not have latitude in carrier selection or establish rates with the carrier.
In the Global Logistics Services segment, the Company disaggregates its revenues by its four primary service categories: ocean freight, air freight, custom brokerage and trucking and other.
Net Revenue
Our total revenues represent the total dollar value of services and goods we sell to our customers. Our net revenue is calculated as Revenue - Global Logistics Services less Cost and Expenses - Forwarding Expenses, as presented on our consolidated statement of operations, which are purchased transportation and related services, including contracted air, ocean, rail, motor carrier and other costs. Total revenues can be influenced greatly by changes in transportation rates or other items, such as fuel prices, which we do not control. Our net revenue, however, is the primary indicator of our ability to source, add value, and sell services and products that are provided by third parties; therefore, we consider net revenue to be our primary performance measurement. Accordingly, the discussion of our results of operations focuses on the changes in our net revenue. The difference between the rate billed to our customers (the sell rate) and the rate we pay to the carrier (the buy rate) is termed “net revenue”, “yield” or “margin.”
Critical Accounting Policies and Estimates Applicable to the Manufacturing and Life Sciences Segments
Revenue Recognition Manufacturing
Revenues from Indco are derived from the engineering, manufacture and delivery of specialty mixing equipment and accessories. Indco receives customer product orders via 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.
Revenue Recognition 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.
NEW ACCOUNTING STANDARDS
On October 1, 2019, the Company adopted ASU No. 2016-02, Leases (“ASC 842” or “ASU 2016-02”), issued by the FASB in February 2016 which was subsequently supplemented by clarifying guidance intended to improve financial reporting of leasing transactions. The new lease accounting guidance requires lessees to recognize lease liabilities and right-of-use assets on the balance sheet for all leases with initial terms longer than 12 months and provides enhanced disclosures on key information of leasing arrangements. The guidance allows companies to apply the requirements retrospectively, either to all prior periods presented or through a cumulative adjustment in the year of adoption.
The Company adopted the new standard effective October 1, 2019 using the modified retrospective transition method. The Company elected to use the package of practical expedients which allowed the Company to (i) not reassess whether an arrangement contains a lease, (ii) carry forward its lease classification as operating or capital leases and (iii) not reassess its previously-recorded initial direct costs. For all existing operating leases as of October 1, 2019, the Company recorded operating lease right of use assets of $1,043 and corresponding lease liabilities of $1,060, with an offset to other liabilities of $17 to eliminate deferred rent on the consolidated balance sheets.
Operating lease expense is recognized on a straight-line basis over the lease term. At each balance sheet date, operating lease liabilities represent the present value of the future minimum payments related to non-cancelable periods.
Leases with an initial term of 12 months or less (short-term leases) are not recognized in the balance sheet, and the related lease payments are recognized as incurred over the lease term.
All significant lease arrangements after October 1, 2019 are recognized as right-of-use assets and lease liabilities at lease commencement. Right-of-use assets represent the Company’s right to use an underlying asset for the lease term, and lease liabilities represent its obligation to make lease payments arising from the lease. Right-of-use assets and liabilities are recognized at the commencement date based on the present value of the future lease payments using the Company’s incremental borrowing rate.
The adoption of the new lease accounting standard did not have a material impact on the Company’s results of operations or cash flows.
In June 2018, the FASB issued ASU 2018-07, Compensation - Stock Compensation, which expands the scope of Topic 718 to include all share-based payment transactions for acquiring goods and services from nonemployees. The amendments in this update are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with early adoption permitted. The Company’s current share-based payment awards to non-employees consist only of grants made to its non-employee directors as compensation solely relates to each individual’s role as a non-employee director. As such, in accordance with ASC 718, the Company accounts for these share-based payment awards to its non- employee directors in the same manner as share-based payment awards for its employees. The Company adopted this standard on October 1, 2019, and the amendments in this guidance had no material effect on either the accounting for its share-based payment awards to its non-employee directors, or the Company’s consolidated financial statements.
NON-GAAP FINANCIAL MEASURES
While we prepare our financial statements in accordance with U.S. GAAP, we also utilize and present certain financial measures, in particular adjusted operating income, which is not based on or included in U.S. GAAP (we refer to these as “non-GAAP financial measures”).
Net Revenue
Net revenue is a non-GAAP measure calculated as total revenue less forwarding expenses attributable to the Company’s Global Logistics Services segment. Our total revenue represents the total dollar value of services and goods we sell to our customers. Forwarding expenses attributable to the Company’s Global Logistics Services segment refer to purchased transportation and related services including contracted air, ocean, rail, motor carrier and other costs. Total revenue can be influenced greatly by changes in transportation rates or other items, such as fuel prices, which we do not control. Management believes that providing net revenue is useful to investors as net revenue is the primary indicator of our ability to source, add value and sell services and products that are provided by third parties, and we consider net revenue to be our primary performance measurement. The difference between the rate billed to our customers (the sell rate) and the rate we pay to the carrier (the buy rate) is termed “net revenue”, “yield” or “margin.” As presented, net revenue matches gross margin.
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.

---

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Consistent with the rules applicable to “smaller reporting companies”, we have omitted the information required by Item 7A.

---

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 8
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data required by this Item 8 are included in the Company’s Consolidated Financial Statements and set forth in the pages indicated in Item 15(a) of this Annual Report and are incorporated herein by reference.

---

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ITEM 9
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
On February 22, 2019, upon the recommendation and approval of the Audit Committee of the Board of Directors (the “Audit Committee”) of the Company, which action was ratified by the Board of Directors, the Company dismissed Crowe LLP (“Crowe”) as its principal independent registered public accounting firm, as the Company and Crowe could not reach mutually acceptable financial terms of engagement for the 2018 fiscal year-end audit work as a result of the need to significantly increase the scope of Crowe’s audit procedures due to the internal control matters noted below.
On January 4, 2018, Crowe was appointed as the Company’s principal independent registered public accounting firm for the fiscal year ended September 30, 2018. As Crowe had not completed its audit of the Company’s financial statements for the fiscal year ended September 30, 2018 as of the date of its dismissal, Crowe did not issue any report on the Company’s financial statements that contained any adverse opinion or disclaimer of opinion, or was qualified or modified as to uncertainty, audit scope, or accounting principles. During the fiscal year ended September 30, 2018 and the subsequent interim period through February 22, 2019, there have been no disagreements with Crowe on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of Crowe, would have caused it to make reference to the subject matter of the disagreements in connection with its report on the financial statements for such year. Otherwise, there were no “reportable events” within the meaning of Item 304(a)(1)(v) of Regulation S-K during the fiscal year ended September 30, 2018, other than the need to significantly increase the scope of Crowe’s audit procedures, as referenced above, and certain material weaknesses in the Company’s internal control over financial reporting. Crowe indicated that while it had not completed its audit, based on its observations and procedures performed to date, the Company did not maintain effective internal controls related to the following:
•
Management did not have a process or control in place to perform an assessment of gross vs. net revenue recognition criteria in accordance with ASC Topic 605-45 Revenue Recognition - Principal Agent Consideration (“ASC Topic 605-45”) with respect to the Company’s logistics segment.
•
Management did not have a process or control in place to perform an assessment of timing of revenue recognition criteria in accordance with ASC Topic 605 with respect to the Company’s logistics segment.
•
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 and change management.
•
The Company had inadequate controls over a) journal entries and approvals, b) cash disbursements and application of cash receipts, c) payroll changes and d) vendor set-up and creation, credit policies and infrequent transactions.
On February 22, 2019, the Audit Committee recommended and approved the appointment of Prager Metis CPAs, LLC (“Prager”) as the Company’s principal independent registered public accounting firm for the fiscal years ending September 30, 2018 and 2019, which action was ratified by the Board of Directors. During the Company’s fiscal years ended September 30, 2018 and 2017 and the subsequent interim period through February 22, 2019, neither the Company, nor anyone acting on its behalf, consulted with Prager regarding (i) the application of accounting principles to a specified transaction, either completed or proposed; (ii) the type of audit opinion that might be rendered on the Company’s financial statements, and neither a written report nor oral advice was provided to the Company that Prager concluded was an important factor considered by the Company in reaching a decision as to the accounting, auditing or financial reporting issue; (iii) any matter that was the subject of a disagreement within the meaning of Item 304(a)(1)(iv) and the related instructions of Regulation S-K; or (iv) any “reportable event” within the meaning of Item 304(a)(1)(v) of Regulation S-K.
In connection with the engagement of Prager, the Company authorized Crowe to respond fully to inquires of Prager concerning the matters referenced above.

---

ITEM 9A. CONTROLS AND PROCEDURES
ITEM 9A.
CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Janel maintains a system of disclosure controls and procedures that is designed to provide reasonable assurance that information, which is required to be disclosed in the reports that it files or submits under the Securities Exchange Act of 1934, as amended (“Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission (“SEC”) and is accumulated and communicated to management, including its Chief Executive Officer and Principal Financial Officer, to allow timely decisions regarding required disclosures. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. The Company’s management, with the participation of the Chief Executive Officer and Principal Financial Officer, has evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of September 30, 2020, and based on their evaluation, has concluded that our disclosure controls and procedures were not effective as of such date because of the discovered material weaknesses in our internal control over financial reporting described below.
While the material weaknesses described below did not result in a material misstatement to the Company’s consolidated financial statements for any period in the two-year period ended September 30, 2020, it did represent a material weakness as of September 30, 2020, since there existed a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements would not have been prevented or detected on a timely basis. Notwithstanding the identified material weaknesses, management, including our Chief Executive Officer and Principal Financial Officer, believes the consolidated financial statements included in this Form 10-K fairly represent in all material respects our financial condition, results of operations and cash flows as of and for the periods presented in accordance with U.S. GAAP. In addition, as discussed below, the Company has taken steps to remediate the material weaknesses.
Evaluation of Disclosure Controls and Procedures
Janel maintains a system of disclosure controls and procedures that is designed to provide reasonable assurance that information, which is required to be disclosed in the reports that it files or submits under the Securities Exchange Act of 1934, as amended (“Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission (“SEC”) and is accumulated and communicated to management, including its Chief Executive Officer and Principal Financial Officer, to allow timely decisions regarding required disclosures. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. The Company’s management, with the participation of the Chief Executive Officer and Principal Financial Officer, has evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of September 30, 2020, and based on their evaluation, has concluded that our disclosure controls and procedures were not effective as of such date because of the discovered material weaknesses in our internal control over financial reporting described below.
While the material weaknesses described below did not result in a material misstatement to the Company’s consolidated financial statements for any period in the two-year period ended September 30, 2020, it did represent a material weakness as of September 30, 2020, since there existed a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements would not have been prevented or detected on a timely basis. Notwithstanding the identified material weaknesses, management, including our Chief Executive Officer and Principal Financial Officer, believes the consolidated financial statements included in this Form 10-K fairly represent in all material respects our financial condition, results of operations and cash flows as of and for the periods presented in accordance with U.S. GAAP. In addition, as discussed below, the Company has taken steps to remediate the material weaknesses.
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Exchange Act, as amended, as a process designed by, or under the supervision of, our Chief Executive Officer and Principal Financial Officer and effected by our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP and includes those policies and procedures that: (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP, and that the Company’s receipts and expenditures are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies or procedures may deteriorate.
Under the supervision and with the participation of our management, including our Chief Executive Officer and Principal Financial Officer, we have performed an evaluation of the effectiveness of our internal control over financial reporting under the framework in Internal Control-Integrated Framework (2013), issued by the Committee of Sponsoring Organizations of the Commission. Based on this assessment, management, including our Chief Executive Officer and Principal Financial Officer, has concluded that our internal control over financial reporting was not effective as of September 30, 2020 due to material weaknesses in our internal control over financial reporting, which is disclosed below. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.
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:
Life Science Segment (Phospho Solutions) 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, and
•
information technology controls.
The Life Science Segment (Aves and Antibodies) had inadequate controls over the following:
•
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.
•
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.
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 in both fiscal year ended 2020, 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 second quarter of fiscal 2021.
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.
With respect to material weaknesses in our Global Logistics Services segment, 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. In addition, we have engaged an external consultant to assist in the development and execution of a plan to remediate the material weaknesses noted in fiscal year ended 2020, related to our Global Logistics Services segment and our Corporate office as noted above.
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.
This Annual Report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to the exemption provided to issuers that are neither “large accelerated filers” nor “accelerated filers” under the Dodd-Frank Wall Street Reform and Consumer Protection Act.
Changes in Internal Control Over Financial Reporting
Other than the ongoing remediation efforts described above, there was no change in our internal control over financial reporting that occurred during the quarter ended September 30, 2020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitation on the Effectiveness of Internal Controls
The effectiveness of any system of internal control over financial reporting is subject to inherent limitations, including the exercise of judgment in designing, implementing, operating, and evaluating the controls and procedures, and the inability to eliminate misconduct completely. Accordingly, any system of internal control over financial reporting can only provide reasonable, not absolute, assurances. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. We intend to continue to monitor and upgrade our internal controls as necessary or appropriate for our business, but cannot assure that such improvements will be sufficient to provide us with effective internal control over financial reporting.

---

ITEM 9B. OTHER INFORMATION
ITEM 9B.
OTHER INFORMATION
None.
PART III

---

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
ITEM 10
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Directors and Executive Officers
The executive officers and directors of the Company are as follows:
Name
Age
Position
Dominique Schulte
Chairman, President and Chief Executive Officer
Brendan J. Killackey
Director, Chief Information Officer
Gerard van Kesteren
Director, Chair of Audit Committee
John J. Gonzalez, II
Director, Senior Advisor for Mergers and Acquisitions and Chair of Compensation Committee
Gregory J. Melsen
Director, Chair of Nominating and Governance Committee
Vincent A. Verde
Principal Financial Officer, Treasurer and Secretary
Dominique Schulte has served as a Director of Janel since November 2015 and as Chairman of the Board since May 8, 2018. Since October 1, 2018, Ms. Schulte has served as the Company’s President and Chief Executive Officer. Ms. Schulte practiced law at Simpson Thacher & Bartlett LLP in New York, from 1999 through 2009, where she specialized in corporate and securities law and oversaw a number of successful securities transactions. Ms. Schulte is the managing member of Oaxaca Group, LLC (“Oaxaca”), which is the Company’s largest individual shareholder. Pursuant to the terms of the Securities Purchase Agreement dated October 6, 2013, entered into between the Company and Oaxaca (the “Securities Purchase Agreement”), the Company agreed to appoint up to two candidates nominated by Oaxaca to become members of the Company’s Board of Directors. Ms. Schulte was appointed to the Company’s board of directors in accordance with the terms of the Securities Purchase Agreement. Ms. Schulte is well-qualified to serve as a member of the Company’s board of directors based on her extensive experience in the practice of corporate and securities law.
Brendan J. Killackey was elected to the Company’s board of directors in September 2014 and served as Chief Executive Officer from February 2015 through September 2018. Since October 1, 2018, Mr. Killackey has served as the Company’s Chief Information Officer. Mr. Killackey previously owned Progressive Technology Partners, LLC, a technology consultancy firm, which he founded in 2001. Given Janel’s and its subsidiaries’ reliance on technology, Mr. Killackey’s background and experience are valuable to the Company, and, therefore, he is well-qualified to serve as a member of the Company’s board of directors.
Gerard van Kesteren has served as a Director of Janel since November 2015. From 1999 until 2014, Mr. van Kesteren served as the Chief Financial Officer of Kuehne + Nagel Group, an international freight forwarder and leading global provider of innovative and fully integrated supply chain solutions. Mr. van Kesteren has served as a director of Gategroup Holding AG since April 2015. Mr. van Kesteren is well-qualified to serve as a member of the Company’s board of directors based on his extensive experience in the freight forwarding and logistics industry. Mr. van Kesteren serves as the chair of the Audit Committee.
John J. Gonzalez, II has served as a Director of Janel since June 2016. Prior to that, he was a Senior Managing Director of Janel Group, following the August 2014 purchase by the Company of Alpha International and President Container Lines (“Alpha/PCL”), which he co-founded in 1979. Mr. Gonzalez has been involved in the transportation business since 1969. Mr. Gonzalez is well-qualified to serve as a member of the Company’s board of directors based on his extensive experience in the freight forwarding and logistics industry. Mr. Gonzalez serves as chair of the Compensation Committee.
Gregory J. Melsen has served as a Director of Janel since January 2018. Prior to that, he was Chief Financial Officer and Vice President of Human Resources for Healthsense, Inc., a leading provider of passive remote monitors for seniors from 2014 to 2015; and was Vice President-Finance, Treasurer and Chief Financial Officer of Techne Corporation (now Bio-Techne Corporation), a holding company for biotechnology and clinic diagnostic brands.
He also served as Interim Chief Executive Officer of Techne Corporation from December 2012 through March 2013. Mr. Melsen has over 40 years of business experience, primarily in the accounting and finance areas. He has served as Chief Financial Officer at a number of companies and has 19 years of public accounting experience, including nine years as partner at Deloitte. Mr. Melsen is well-qualified to serve as a member of the Company’s board of directors based on his extensive experience in accounting and finance. Mr. Melsen serves as Chair of the Nominating and Governance Committee.
Mr. Vincent A. Verde is Principal Financial Officer, Treasurer and Secretary of the Company and has served in such capacities since May 2018. From February 2018 to May 2018, Mr. Verde served as Controller of the Company. From January 2018 to February 2018, Mr. Verde served as a consultant for the Company. Prior to joining the Company, from December 2016 to February 2017, Mr. Verde served as a consultant for Xylem Inc., a publicly traded manufacturer and servicer of engineered solutions. Mr. Verde served from November 2014 to November 2016 as Subsidiary Controller for Teledyne Bolt, Inc., a developer, manufacturer and distributor of marine seismic data acquisition equipment and underwater remotely operated robotic vehicles and subsidiary of Teledyne Technologies Inc. (“Teledyne”). From January 2012 to November 2014, Mr. Verde served as Vice President and Corporate Controller for Bolt Technology Corporation, a then-publicly traded manufacturer and distributor of geophysical equipment and industrial clutches, which was acquired by Teledyne in November 2014. Mr. Verde has 17 years of public accounting experience, including eight years as Audit manager at Deloitte.
Directors hold office for a one-year term until they are re-elected or their successors have been duly elected and qualified. The executive officers are elected by the board of directors on an annual basis and serve under the direction of the Board. Executive officers devote all of their business time to the Company’s affairs.
Board of Directors
During the fiscal year ended September 30, 2020, the board of directors met sixteen times. No incumbent directors attended fewer than 75% of the aggregate of the total number of meetings of the board of directors of the Company and the total number of meetings held by all board committees in which that director served.
Committees.
The Company’s board of directors has established an audit committee, a compensation committee and a nominating and corporate governance committee. Each committee operates under a charter that has been approved by the Company’s board of directors and is available on its website located at www.janelcorp.com.
Audit Committee.
The Company’s audit committee (“Audit Committee”) oversees its corporate accounting and financial reporting process. The Audit Committee consists of Mr. van Kesteren as the chair; Mr. Gonzalez and Mr. Melsen. The Audit Committee met five times during fiscal 2020. The Audit Committee has the following responsibilities, among others, as set forth in the audit committee charter:
•
reviewing and assessing the effectiveness of external auditors, their independence from Janel and any additional assignments they may be given, as well as reviewing their appointment, termination, and remuneration;
•
reviewing and assessing the scope and plan of the audit, the examination process, audit results and reports, as well as whether auditor recommendations have been implemented by management;
•
recommending the approval of the annual internal audit concept and report, including the responses of management thereto;
•
assessing management’s established risk assessment and any proposed measures to reduce risk;
•
assessing the Company’s efforts and policies of compliance with relevant laws and regulations;
•
reviewing, in tandem with external auditors, as well as the Chief Executive Officer and the Principal Financial Officer, whether accounting principles and the financial control mechanisms of Janel and its subsidiaries are appropriate in view of Janel’s size and complexity; and
•
reviewing annual and interim statutory and consolidated financial statements intended for publication and recommending such financial statements to the board of directors.
The Company’s board of directors designated Gerard van Kesteren as an audit committee financial expert considering his experience as Chief Financial Officer of Kuehne + Nagel Group. In addition, the Company’s board of directors has determined that Mr. Melsen’s extensive experience as a partner with Deloitte and his experience as Chief Financial Officer of Healthsense, Inc. and Techne Corporation qualifies him as an audit committee financial expert. The board of directors of the Company has determined that Messrs. Gonzalez, Melsen and van Kesteren meet the definition of independent directors under the Company’s criteria. The board of directors of the Company has determined that Mr. Melsen is independent based on the Company’s independence criteria for audit committee membership. Furthermore, the board of directors of the Company has determined that Mr. van Kesteren is not “independent” based on the Company’s independence criteria for audit committee membership, as he receives an annual $20,000 consulting fee for services rendered to the Company’s Global Logistics Services segment.
Compensation Committee
The Company’s compensation committee (the “Compensation Committee”) formulates, reviews and recommends compensation policies that are consistent with Janel’s established compensation philosophy and that will enable it to attract and retain high-quality leadership. The compensation committee met four times during fiscal 2020. The Compensation Committee has the following responsibilities, among others, as set forth in the Compensation Committee’s charter:
•
reviewing and approving the Company’s general compensation philosophy and objectives;
•
reviewing and approving the corporate goals and individual objectives relevant to the compensation of the Company’s Chief Executive Officer and evaluating the performance of the Chief Executive Officer considering these objectives;
•
approving base salary amounts, incentive and bonus compensation amounts and individual stock and/or option grants and awards for the Chief Executive Officer and, based on the recommendation of the Chief Executive Officer, all corporate officers at or above the Vice President level;
•
reviewing all forms of compensation for the Company’s senior management, including the form and amount of current salary, deferred salary, cash and non-cash benefits, and all compensation plans;
•
reviewing the Company’s severance or similar termination payments and administering the Company’s stock option and other incentive compensation plans and programs;
•
amending or modifying, where appropriate, the provisions of any compensation or benefit plan that does not require stockholder approval;
•
preparing and approving reports to stockholders on compensation matters which are required by the SEC and other government bodies;
•
performing an annual performance appraisal for members of the Company’s senior management designated by the board of directors;
•
establishing levels of director compensation to include marketplace reviews of retainers, meeting fees, stock plans and other similar components of compensation; and
•
annually reviewing succession plans for key positions within the Company.
The Company’s Compensation Committee consists of Messrs. Gonzalez, Melsen and van Kesteren. Mr. Gonzalez serves as the chair of the Compensation Committee. The Company’s board of directors has determined that Messrs. Gonzalez, Melsen and van Kesteren are independent members of the Compensation Committee.
Nominating and Corporate Governance Committee
The Company’s nominating and corporate governance committee (the “Nominating and Corporate Governance Committee”) is responsible for developing and implementing policies and procedures that are intended to assure that Janel’s board of directors and the boards of directors (or equivalent) of its subsidiaries will be appropriately constituted and organized to meet its fiduciary obligations to the Company and its stockholders on an ongoing basis. The Nominating and Corporate Governance Committee met four times during fiscal 2020. Among other matters, the Nominating and Corporate Governance Committee is responsible for the following, as set forth in the Nominating and Corporate Governance Committee’s charter:
•
making recommendations to Janel’s board of directors regarding matters and practices concerning the board, its committees and individual directors, as well as matters and practices of the boards, committees and individual directors of each of Janel’s subsidiaries;
•
periodically evaluating the size, composition and governance structure of Janel’s board of directors and its committees and the boards and committees of Janel’s subsidiaries and determining the future requirements of each such body;
•
periodically making recommendations concerning the qualifications, criteria, compensation and retirement age of members of Janel’s board of directors and the boards of its subsidiaries, which recommendations, upon approval by Janel’s board of directors, shall be incorporated in Janel’s Corporate Governance Guidelines;
•
recommending nominees for election to Janel’s board of directors and the boards of its subsidiaries and establishing and administering a board evaluation process; and
•
reviewing timely nominations by stockholders for the election of individuals to Janel’s board of directors, and ensure that such stockholders are advised of any action taken by the board of directors with respect thereto.
The Company’s Nominating and Corporate Governance Committee consists of the Company’s full board of directors. Mr. Melsen serves as the chair of the Nominating and Corporate Governance Committee.
Independence of Directors
The Company is not currently subject to listing requirements of any national securities exchange or inter-dealer quotation system which has requirements that a majority of the board of directors be “independent” and, as a result, is not at this time required to (and does not) have a board of directors comprised of a majority of independent directors. Pursuant to Item 407(a) of Regulation S-K, however, Janel must disclose each director that is independent under the independence standards of either the New York Stock Exchange or Nasdaq, as selected by Janel. The Company has elected to use the independence standards prescribed under Nasdaq Rule 5605(2), which defines an “independent director” as a person who does not have any relationship with the Company which, in the opinion of the Company’s board of directors would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. Based on the applicable criteria, the Company’s board of directors has determined that Mr. Killackey is not independent, as he is an employee of the Company. Ms. Schulte is not independent by virtue of the fact that she is an Executive Officer of the Company. The board of directors has determined that Messrs. Gonzalez, Melsen and van Kesteren are independent directors.
Director Compensation
During the Company’s fiscal year ended September 30, 2020, Mr. Killackey, the Company’s Chief Information Officer, did not receive any additional compensation for serving as a director. Ms. Schulte waived any board compensation during fiscal 2020. The following table summarizes the compensation paid to the other directors for their services during the Company’s fiscal year ended September 30, 2020 (actual dollar amounts):
Name
Fees Earned or
Paid in Cash(1)
Option
Awards(2)
All Other
Compensation
Total
Gerard van Kesteren
$
40,000
$
17,886
$
20,000
(3)
$
77,886
John J. Gonzalez
$
40,000
$
17,886
$
109,000
(4)
$
166,886
Gregory J. Melsen
$
40,000
$
17,886
$
-
$
57,886
(1)
Compensation is paid on a monthly basis.
(2)
The aggregate number of options outstanding as of September 30, 2020 for each director is as follows: Gerard van Kesteren - 5,000, John J. Gonzalez II - 45,000, and Gregory J. Melsen - 6,875.
(3)
Represents compensation paid to Mr. van Kesteren in connection with his consulting agreement.
(4)
Represents compensation paid to Mr. Gonzalez in connection with his consulting agreement.
Pursuant to the Company’s non-employee director compensation policy, non-employee directors receive a retainer at an annual rate of $30,000, payable on a monthly basis, and 2,500 options, pursuant to the Amended and Restated Janel Corporation 2017 Equity Incentive Plan or such other equity plan that the Company may adopt from time to time.
Committee chairs receive an additional retainer at an annual rate of $10,000. According to the non-employee director compensation policy, non-employee directors will be reimbursed for their reasonable travel and other expenses incurred to attend board of directors or board committee meetings.
Employment Arrangements
(actual dollar amounts)
On February 26, 2017, the Company entered into an agreement with Mr. Gonzalez to serve as a Director and Senior Advisor for mergers and acquisitions for the Company, effective October 1, 2017. The current term of the agreement ends on September 30, 2021, and thereafter will renew automatically for an additional two-year term unless either party provides notice that it does not wish to renew. Under the terms of the agreement, the Company pays Mr. Gonzalez an annual retainer of $40,000 for his service as a director and chair of the Compensation Committee, an annual consulting fee of $90,000 and cost of health insurance of $19,000.
Code of Business Conduct and Ethics
The Company has adopted a code of business conduct and ethics, including a whistleblower policy that applies to all of its employees, including executive officers and directors. The code of business conduct and ethics, including our whistleblower policy is available on the Company’s website at www.janelcorp.com. The Company intends to disclose, if required, any future amendments to, or waivers from, the code of business conduct and ethics within four business days of the waiver or amendment through a website posting or by filing a Current Report on Form 8-K with the SEC.
Corporate Governance Guidelines
The Company’s board of directors has adopted corporate governance guidelines that serve as a flexible framework within which its board of directors and its committees operate. These guidelines cover a number of areas, including the size and composition of the board of directors, director selection criteria and qualifications, the agenda for board meetings, board member access to management and independent advisors, director compensation, director orientation and continuing education and annual board and committee self-evaluations. A copy of the corporate governance guidelines is available on the Company’s website at www.janelcorp.com.
Communications with the Board
Any stockholder desiring to contact the board, or any specific director(s), may send written communications to: Board of Directors (Attention: (Name(s) of director(s), as applicable)), c/o the Company’s Secretary, 80 Eighth Avenue, New York, New York 10011. Any proper communication so received will be processed by the Secretary. If it is unclear from the communication received whether it was intended or appropriate for the board, the Secretary will (subject to any applicable regulatory requirements) use his or her judgment to determine whether such communication should be conveyed to the board or, as appropriate, to the member(s) of the board named in the communication.
Leadership Structure and Risk Oversight
While the board believes that there are various structures which can provide successful leadership to the Company, the Company’s executive functions are carried out by Ms. Schulte, the Company’s President and Chief Executive Officer, who also serves as chairman of the Company’s board of directors and, together with the other directors, brings experience, oversight and expertise to the management of the Company.
The board believes that, due to the small size of the Company, this leadership structure best serves the Company and its stockholders. Management is responsible for the day-to-day management of risks the Company faces, while the board has collective responsibility for the oversight of risk management. In its risk oversight role, the board has the responsibility to satisfy itself that the risk management processes designed and implemented by management are adequate and functioning as designed. To do this, management discusses with the board the risks facing the Company and its strategy for managing them.

---

ITEM 11. EXECUTIVE COMPENSATION
ITEM 11
EXECUTIVE COMPENSATION
Introduction
(actual dollar amounts)
The following table provides summary information concerning compensation paid or accrued by us to our Chief Executive Officer and President, our Chief Information Officer and our Principal Financial Officer, Treasurer and Secretary. We refer to these individuals collectively as the “named executive officers”.
Summary Compensation Table
The following table sets forth information regarding the total compensation paid or earned by the named executive officers as compensation for their services in all capacities during the fiscal years ended September 30, 2020 and 2019 (actual dollar amounts):
Name and Principal Position Year
Base
Salary ($)
Bonus ($)
All Other
Comp. ($)
Total ($)
Dominique Schulte, Chief Executive Officer and President
37,311
-
9,625
(1)
46,936
-
-
-
-
Brendan J. Killackey, Chief Information Officer
155,000
20,000
11,362
(2)
186,362
150,000
71,734
12,915
234,649
Vincent A. Verde, Principal Financial Officer,
Treasurer and Secretary
200,000
30,000
15,168
(3)
245,168
175,000
25,000
18,089
218,089
(1)
Dominique Schulte was appointed as the Company’s President and Chief Executive Officer on October 1, 2018. Annual base salary beginning in 2020 is $50,000 and is prorated. Amounts reported under all other compensation for the fiscal year ended September 30, 2020 include $8,874 of medical insurance premiums and $751 of retirement contributions paid for the fiscal year ended 2020.
(2)
Includes $6,691 of medical insurance premiums and $4,671 of 401(k) contributions paid on behalf of Mr. Killackey for the fiscal year ended 2020.
(3)
Annual base salary for Mr. Verde is $200,000. Amounts reported under all other compensation for the fiscal year ended September 30, 2020 include $12,915 of medical insurance premiums and $2,253 of 401(k) contributions paid on behalf of Mr. Verde for the fiscal year ended 2020.
Long-Term Incentive Plan Awards
While the Company has adopted the Amended and Restated 2017 Equity Incentive Plan, pursuant to which certain stock awards may be granted to the Company’s directors, officers, employees and consultants, our current intent is to utilize this plan to only make annual equity awards to the Company’s non-employee directors.
Savings and Stock Option Plans
401(k) and Profit-Sharing Plan
(actual dollar amounts)
The Company maintains a qualified retirement plan, commonly referred to as a 401(k) plan; covering substantially all full-time employees under each segment.
Prior to July 2019, the Company maintained separate contributory 401(k) plans covering substantially all full-time employees under each segment. Beginning in March 2019 through July 2019, the Company combined all plans into the Janel Corporation 401(k) Plan.
The Janel Corporation 401(k) Plan allows for employee salary deferrals including Roth 401(k) deferrals, employer matching contributions, employer profit sharing contributions and employee rollovers. The Janel Corporation 401(k) Plan provides for participant contributions of up to 50% of annual compensation (not to exceed the IRS limit), as defined by the plan. The Company contributes an amount equal to 50% of the participant’s first 6% of contributions.
The combined expenses charged to operations for contributions made to the plans for the benefit of the employees for the fiscal years ended September 30, 2020 and 2019 were approximately $196,000 and $214,000, respectively.
The administrative expense charged to operations for the fiscal years ended September 30, 2020 and 2019 aggregated approximately $57,000 and $26,000, respectively.
Stock Option Plans
On October 30, 2013, the board of directors adopted Janel’s 2013 Non-Qualified Stock Option Plan (the “2013 Option Plan”) providing for options to purchase up to 100,000 shares of common stock for issuance to directors, officers, employees of and consultants to the Company and its subsidiaries.
The exercise price and other terms of any nonqualified option granted under the 2013 Option Plan is determined by the Compensation Committee of the board of directors.
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.
Outstanding Equity Awards at September 30, 2020
The following table provides information with respect to the option awards held by our named executive officers at September 30, 2020. None of our named executive officers had any outstanding stock awards at September 30, 2020.
Option Awards
Name
Number of securities
underlying
unexercised options (#)
exercisable
Number of securities
underlying
unexercised options (#)
un exercisable
Equity incentive plan
awards: Number of
securities underlying
un exercised
unearned
options (#)
Option
Exercise
Price
Option
Expiration
Date
Brendan J. Killackey
5,000
-
-
$
4.50
12/29/2024
8,000
-
-
$
8.01
5/12/2027

---

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
ITEM 12
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following tables set forth information concerning beneficial ownership of shares of common stock outstanding as of September 30, 2020. For purposes of calculating beneficial ownership, Rule 13d-3 of the Exchange Act requires inclusion of shares of common stock that may be acquired within sixty days of the stated date. Unless otherwise indicated in the footnotes to a table, beneficial ownership of shares represents sole voting and investment power with respect to those shares.
Certain Beneficial Owners
The following table reflects the names and addresses of the only persons known to the Company to be the beneficial owners of 5% or more of the outstanding shares of the Company’s common stock as of September 30, 2020.
Name and address of Beneficial Owner (1)
Shares
Beneficially
Owned
Percent
of Class
Oaxaca Group L.L.C.
447,647
49.8
%
John J. Gonzalez, II (2)
102,501
10.9
%
John Eidinger
89,499
9.6
%
Brendan J. Killackey
56,000
6.1
%
(1)
The address of each person included in this table is 80 Eighth Avenue, New York, NY 10011
(2)
Includes 40,000 shares of common stock issuable upon the exercise of stock options that may be exercised within 60 days of September 30, 2020.
Management
The following table sets forth information with respect to the beneficial ownership of the shares of common stock as of September 30, 2020 by each “named executive officer”, each current director and each nominee for election as a director and all directors and executive officers of the Company as a group. An asterisk (*) indicates ownership of less than 1%.
Name of Beneficial Owner
Shares
Beneficially
Owned
Percent
of Class
Dominique Schulte(1)
447,647
49.8
%
John J. Gonzalez, II(2)
102,501
10.9
%
Brendan J. Killackey(4)
56,000
6.1
%
Gerard van Kesteren(3)
39,302
4.4
%
Gregory J. Melsen(5)
4,376
*
Vincent A. Verde
-
-
Total
649,826
71.6
%
(1)
These shares are held by Oaxaca Group L.L.C. Ms. Schulte is the sole member of Oaxaca Group L.L.C. and, therefore, shares beneficial ownership of the shares.
(2)
Includes 42,501 shares of common stock issuable upon the exercise of stock options that may be exercised within 60 days of September 30, 2020.
(3)
Includes 2,501 shares of common stock issuable upon the exercise of stock options that may be exercised within 60 days of September 30, 2020.
(4)
Includes 13,000 shares of common stock issuable upon the exercise of stock options that may be exercised within 60 days of September 30, 2020.
(5)
Includes 4,376 shares of common stock issuable upon the exercise of stock options that may be exercised within 60 days of September 30, 2020.
Equity Compensation Plan Information
The following table provides information, as of September 30, 2020, with respect to all compensation arrangements maintained by the Company under which shares of common stock may be issued:
Column A
Column B
Column C
Plan Category: Equity Compensation plans not approved by security holders:
Number of securities
to be issued,
upon exercise
of outstanding
options,
warrants and rights
Weighted-average
exercise price
of outstanding
options, warrants
and rights
Number of securities
remaining available
for future issuance
under equity
compensation plans
2013 Stock Option Plan (1)
37,121
$
6.13
33,379
Amended and Restated 2017 Equity Incentive Plan (2)
61,875
$
2.33
11,323
John Joseph Gonzalez, II - Options
40,000
$
4.25
-
Brendan J. Killackey - Options
5,715
$
-
-
Consultant - Options
6,053
$
4.13
-
Total
150,764
$
3.76
44,702
(1)
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. The exercise price and other terms of any nonqualified option granted under the 2013 Option Plan is determined by the Compensation Committee (the “Committee”) of the board of directors or, if the board does not create the Committee, by the board which shall function as the Committee.
(2)
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.

---

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ITEM 13
CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
(actual dollar amounts)
Related Party Transactions
We are not aware of any transactions since October 1, 2018 or any proposed transactions in which the Company was a party where the amount involved exceeded the lesser of 1% of the average of the Company’s total assets at year-end for the last two completed fiscal years and $120,000, and in which a director, executive officer, holder of more than 5% of our common stock or any member of the immediate family of any of the foregoing persons, had or will have a direct or indirect material interest.

---

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
ITEM 14
PRINCIPAL ACCOUNTING FEES AND SERVICES
The firm of Prager Metis CPAs, LLC served as the Company’s sole independent public accountants for the fiscal years ended September 30, 2020 and 2019.
Audit Fees
Audit fees include fees paid and accrued by the Company to the Auditors in connection with the annual audit of the Company’s consolidated financial statements, and review of the Company’s interim financial statements. Audit fees also include fees for services performed by the Auditors that are closely related to the audit and in many cases could only be provided by the Auditors. Such services include consents related to SEC and other regulatory filings.
The aggregate fees billed to the Company by the Auditors, as applicable, for audit services rendered to the Company totaled $289,500 for the year ended September 30, 2020 and $277,000 for the year ended September 30, 2019.
Audit Related Fees
Audit related services include agreed upon procedures attestation. The aggregate fees billed and accrued to the Company by Prager Metis CPAs, LLC for audit related fees rendered to the Company for the fiscal year ended September 30, 2020 and 2019 totaled $12,000 and $10,000, respectively.
Tax Fees
Tax fees include corporate tax compliance, counsel and advisory services. The aggregate fees billed to the Company by the Auditors, as applicable, for the tax related services rendered to the Company for the fiscal years ended September 30, 2020 and 2019 totaled $20,875 and $23,250, respectively.
All Other Fees
The Auditors did not bill other fees to the Company for fiscal years ended September 30, 2020 and 2019.
Approval of Independent Auditor Services and Fees
The Audit Committee reviews all fees charged by the Company’s independent auditors and actively monitors the relationship between audit and non-audit services provided. The Audit Committee must pre-approve all audit and non-audit services provided by the Company’s independent auditors and fees charged.
PART IV

---

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
ITEM 15
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)
Documents filed as part of this report
(1)
Financial Statements.
The Consolidated Financial Statements filed as part of this report are listed on the Table of Contents to Consolidated Financial Statements.
All other schedules are omitted because they are not applicable, are not required, or because the required information is included in the consolidated financial statements or notes thereto.
(b)
Exhibits
Exhibit
No.
Description
2.1
Agreement and Plan of Merger, dated May 8, 2018, by and among Antibodies Incorporated, AB HoldCo, Inc., AB Merger Sub, Inc., Richard Krogsrud, as Representative of the Stockholders, and the Rollover Stockholders signatory thereto (incorporated by reference to Exhibit 2.1 of the Company’s Current Report on Form 8-K filed May 11, 2018)
3.1
Articles of Incorporation of Wine Systems Design, Inc. (predecessor name) (incorporated by reference to Exhibit 3A to Wine Systems Design, Inc. (predecessor name) Registration Statement on Form SB-2 filed May 10, 2001)
3.2
Amended and Restated By-Laws of Janel Corporation (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed November 1, 2013)
Exhibit
No.
Description
3.3
Certificate of Designations of Series B Convertible Stock (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed October 22, 2007)
3.4
Certificate of Designations of Series C Cumulative Preferred Stock (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed August 29, 2014)
3.5
Certificate of Change filed Pursuant to NRS 78.209 for Registrant (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed April 21, 2015)
3.6
Certificate of Amendment to Articles of Incorporation of the Registrant (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed April 21, 2015)
3.7
Amendment to Certificate of Designation After Issuance of Class or Series pursuant to NRS 78.1955 for Series C Cumulative Preferred Stock (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed March 25, 2016)
3.8
Amendment to Certificate of Designation After Issuance of Class or Series pursuant to NRS 78.1955 for Series C Cumulative Preferred Stock (incorporated by reference to Exhibit 3.7 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2017)
3.9
Amendment to Certificate of Designation After Issuance of Class or Series pursuant to NRS 78.1955 for Series C Cumulative Preferred Stock (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K/A filed October 17, 2017)
4.1
Description of Registrants Securities (filed herewith)
† 10.1
Janel World Trade, Ltd. 2013 Non-Qualified Stock Option Plan (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed November 1, 2013)
10.2
Loan and Security Agreement dated March 27, 2014 between Janel World Trade, Ltd. and its subsidiaries, and Presidential Financial Corporation (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed April 2, 2014)
10.3
First Amendment to the Loan and Security Agreement, dated September 10, 2014 between Janel World Trade, Ltd. and its subsidiaries, and Presidential Financial Corporation (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed September 16, 2014)
10.4
Second Amendment to the Loan and Security Agreement, dated September 25, 2014 between Janel World Trade, Ltd. and its subsidiaries, and Presidential Financial Corporation (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed September 30, 2014)
10.5
Third Amendment to the Loan and Security Agreement, dated October 9, 2014 between Janel World Trade, Ltd. and its subsidiaries, and Presidential Financial Corporation (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed October 15, 2014)
10.6
Fourth Amendment to the Loan and Security Agreement and Demand Secured Promissory Note, dated August 18, 2015, by and among Janel Corporation (formerly, Janel World Trade, Ltd.), Janel Group, Inc. (formerly, the Janel Group of New York), The Janel Group of Illinois, The Janel Group of Georgia, The Janel Group of Los Angeles, Janel Ferrara Logistics, LLC, Alpha International, LP, PCL Transport, LLC and Presidential Financial Corporation (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed August 20, 2015)
Exhibit
No.
Description
10.7
Amended and Restated Demand Secured Promissory Note made by Janel Corporation (and its subsidiaries) in favor of Presidential Financial Corporation, dated August 18, 2015 (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed August 20, 2015)
10.8
Credit Agreement, effective as of February 29, 2016, by and between Indco, Inc. and First Merchants Bank (incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed March 25, 2016)
10.9
Term Loan Promissory Note, effective as of February 29, 2016, made by Indco, Inc. payable to First Merchants Bank (incorporated by reference to Exhibit 10.6 to the Company’s Current Report on Form 8-K filed March 25, 2016)
10.10
Revolving Loan Promissory Note, effective as of February 29, 2016, made by Indco, Inc. payable to First Merchants Bank (incorporated by reference to Exhibit 10.7 to the Company’s Current Report on Form 8-K filed March 25, 2016)
10.11
Security Agreement, effective as of February 29, 2016, made by Indco and the Company, Inc. for the benefit of First Merchants Bank (incorporated by reference to Exhibit 10.8 to the Company’s Current Report on Form 8-K filed March 25, 2016)
10.12
Continuing Guaranty Agreement, effective as of February 29, 2016, made by Janel Corporation for the benefit of First Merchants Bank (incorporated by reference to Exhibit 10.9 to the Company’s Current Report on Form 8-K filed March 25, 2016)
10.13
Agreement of Lease dated January 2, 2015 between 303 Merrick LLC and The Janel Group of New York, Inc. (incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2014)
† 10.14
Janel Corporation 2017 Amended and Restated Equity Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company’s current Report on Form 8-K filed May 11, 2018)
† 10.15
Restricted Stock Award Agreement between Janel Corporation and Gerard van Kesteren dated May 12, 2017 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed September 5, 2017)
10.16
Loan and Security Agreement, effective as of October 17, 2017, by and between Janel Corporation, Janel Group, Inc., PCL Transport, LLC, Janel Alpha GP, LLC, W.J. Byrnes & Co., Liberty International, Inc., and The Janel Group of Georgia, Inc., and Santander Bank, N.A. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed October 17, 2017)
10.17
Revolving Credit Note, effective as of October 17, 2017 payable to Santander Bank, N.A. (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed October 17, 2017)
10.18
First Amendment to the Loan and Security Agreement, dated March 21, 2018, by and among Janel Group, Inc., PCL Transport, LLC, Janel Alpha GP, LLC, W.J. Byrnes & Co., Inc., Liberty International, Inc., The Janel Group Georgia, Inc., Aves Labs, Inc., Janel Corporation and Santander Bank, N.A. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report in Form 8-K filed March 23, 2018)
10.19
Limited Waiver, Joiner and Second Amendment, dated November 20, 2018, to the Loan and Security Agreement, by and among Janel Group, Inc., The Janel Group of Georgia, Inc., Aves Labs, Inc., Honor Worldwide Logistics LLC, HWL Brokerage LLC, Global Trading Resources, Inc., Janel Corporation and Santander Bank, N.A. (incorporated by reference to Exhibit 10.1 to Company’s Current Report on Form 8-K filed November 26, 2018)
Exhibit
No.
Description
10.20
Redemption Agreement, dated September 24, 2018, among the Company and the holders of all of the issued and outstanding shares of the Company’s Series A Convertible Preferred Stock (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed September 28, 2018)
10.21
Business Loan Agreement, dated June 14, 2018, by and between AB Merger Sub, Inc. and First Northern Bank of Dixon (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed June 27, 2018)
10.22
Promissory Note, dated June 14, 2018, made by AB Merger Sub, Inc. payable to First Northern Bank of Dixon (incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K filed June 27, 2018)
10.23
Deed of Trust, dated June 14, 2018, by Antibodies Incorporated, as Trustor (incorporated by reference to Exhibit 10.3 of the Company’s Current Report on Form 8-K filed June 27, 2018)
10.24
Commercial Guaranty, dated June 14, 2018, from Janel Corporation (as Guarantor) to First Northern Bank of Dixon (incorporated by reference to Exhibit 10.4 of the Company’s Current Report on Form 8-K filed June 27, 2018)
10.25
Commercial Guaranty, dated June 14, 2018, from AB HoldCo, Inc. (as Guarantor) to First Northern Bank of Dixon (incorporated by reference to Exhibit 10.5 of the Company’s Current Report on Form 8-K filed June 27, 2018)
10.26
Note Purchase Agreement, dated June 22, 2018, by and between AB HoldCo, Inc. and Richard Krogsrud (incorporated by reference to Exhibit 10.6 of the Company’s Current Report on Form 8-K filed June 27, 2018)
10.27
Note Purchase Agreement, dated June 22, 2018, by and between AB HoldCo, Inc. and the Michael L. Smith and Ardyce F. Smith 1994 Revocable Trust (incorporated by reference to Exhibit 10.7 of the Company’s Current Report on Form 8-K filed June 27, 2018)
10.28
Subordinated Promissory Note, dated June 22, 2018, made by AB HoldCo, Inc. payable to Richard Krogsrud (incorporated by reference to Exhibit 10.8 of the Company’s Current Report on Form 8-K filed June 27, 2018)
10.29
Subordinated Promissory Note, dated June 22, 2018, made by AB HoldCo, Inc. payable to the Michael L. Smith and Ardyce F. Smith 1994 Revocable Trust (incorporated by reference to Exhibit 10.9 of the Company’s Current Report on Form 8-K filed June 27, 2018)
10.30
Amendment No. 1 to Credit Agreement, effective as of August 30, 2019, by and between Indco, Inc. and First Merchants Bank (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed on September 6, 2019)
10.31
Term Loan Promissory Note, effective as of August 30, 2019, made by Indco, Inc. payable to First Merchants Bank (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on September 6, 2019).
Exhibit
No.
Description
10.32
Revolving Loan Promissory Note, effective as of August 30, 2019 made by Indco, Inc. payable to First Merchant Bank (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on September 6, 2019).
10.33
Pledge Agreement, effective as of August 30, 2019, by Janel Corporation to First Merchant Bank (incorporated by reference to Exhibit 10.4 of the Company’s Current Report on Form 8-K filed on September 6, 2019)
† 10.34
Consulting Agreement, dated February 26, 2017, between Janel Corporation and John J. Gonzalez, II (incorporated by reference to Exhibit 10.30 of the Company’s Form 10-K for the year ended September 30, 2018 filed on July 26, 2019).
† 10.35
Consulting Agreement, dated September 28, 2016, between Janel Corporation and Gerard van Kesteren ((incorporated by reference to Exhibit 10.31 of the Company’s Form 10-K for the year ended September 30, 2018 filed on July 26, 2019).
10.36
Purchase and Sale Agreement dated February 4, 2020 by and between 4040 Earnings Way, LLC, and Indco, Inc. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed March 4, 2020, as amended by the Company’s Current Report on Form 8-K/A filed March 6, 2020)
10.37
Third Amendment to Loan and Security Agreement dated March 4, 2020 by and between Santander Bank, N.A., Janel Group, Inc., Honor Worldwide Logistics LLC and Janel Corporation (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed March 4, 2020, as amended by the Company’s Current Report on Form 8-K/A filed March 6, 2020)
10.38
Loan Agreement dated April 19, 2020, by and between Janel Corporation and Santander Bank, N.A., together with the U.S. Small Business Administration Note dated April 19, 2020 (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2020).
10.39
Amendment No. 2 to Credit Agreement effective as of July 1, 2020, by and between Indco Inc. and First Merchants Bank (filed herewith)
10.40
Consent, Joinder and Fourth Amendment to the Loan and Security Agreement dated as of July 22, 2020 by and among Janel Group, Inc., Atlantic Customs Brokers, Inc., Janel Corporation and Santander Bank, N.A. (filed herewith)
10.41
Subscription Agreement for sale of Series C Preferred Stock dated as of September 29, 2020 between Janel Corporation and Oaxaca Group LLC (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed October 2, 2020)
16.1
Letter from Crowe LLP to the Securities and Exchange Commission, dated February 22, 2019 (incorporated by reference to Exhibit 16.1 to the Company’s Current Report on Form 8-K filed on February 22, 2019).
Subsidiaries of the Registrant (filed herewith)
23.1
Consent of Prager Metis CPAs, LLC (filed herewith)
Exhibit
No.
Description
31.1
Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer (filed herewith)
31.2
Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer (filed herewith)
32.1
Section 1350 Certification of Principal Executive Officer (furnished herewith)
32.2
Section 1350 Certification of Principal Executive Officer (furnished herewith)
Interactive data files providing financial information from the Registrant’s Annual Report on Form 10-K for the fiscal year ended September 30, 2020 in XBRL (eXtensible Business Reporting Language) pursuant to Rule 405 of Regulation S-T: (i) Consolidated Balance Sheets as of September 30, 2020 and September 30, 2019, (ii) Consolidated Statements of Operations for the years ended September 30, 2020 and 2019, (iii) Consolidated Statements of Stockholders’ Equity for the years ended September 30, 2020 and 2019 (iv) Consolidated Statements of Cash Flows for the years ended September 30, 2020 and 2019, and (v) Notes to Consolidated Financial Statements
†
Represents management contract, compensatory plan or arrangement in which directors and/or executive officers are entitled to participate.
The agreements and other documents filed as exhibits to this report are not intended to provide factual information or other disclosure other than with respect to the terms of the agreements or other documents themselves, and you should not rely on them for that purpose. In particular, any representations and warranties made by us in these agreements or other documents were made solely within the specific context of the relevant agreement or document and may not describe the actual state of affairs as of the date they were made or at any other time.