On October 17, 2017, the Janel Group subsidiaries (collectively the “Janel Group Borrowers”), with the Company as a guarantor, entered into a Loan and Security Agreement (the “Santander Loan Agreement”) with Santander Bank, N.A. (“Santander”) with respect to a revolving line of credit facility (the “Santander Facility”). As amended in March 2018, November 2018, March 2020, July 2020 and MarchDecember 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.
| * | Note: Long Term DebtUnder the First Merchant Credit Agreement, the term loan is due in monthly installments of $71$65 plus monthly interest, at LIBOR plus 3.75%2.75% to 4.75%3.5% per annum.annum, and the mortgage loan is due in monthly installments of $4, including interest at 4.19%. The noteFirst Merchant Facility is collateralized by all of Indco’s assets and guaranteed by Janel.
|
| (C) | First Northern Bank of Dixon |
On June 21, 2018, AB Merger Sub, Inc.as amended November 2019 and October 2, 2020, Antibodies Incorporated (“Antibodies”), a wholly-owned indirect subsidiary of the Company (by succession), entered into a Business Loan Agreement (the “First Northern Loan Agreement”) with First Northern Bank of Dixon (“First Northern”), with respect to a $2,025 First Northern Term Loan$2,235 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 which bears interest 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 covenants4.00% and matures on JuneNovember 14, 2028 (subject to earlier termination).
On November 18, 2019,2029. In addition, Antibodies modified and refinanced its existinghas a $500 revolving credit facilitiesfacility with First Northern Bank. The existing First Northern Term Loan was increased to $2,235,which currently bears interest at the initial interestannual rate decreased to 4.18%of 4.0%, and the maturity date was extended to November 14, 2029, with all other terms, covenants and conditions substantially unchanged. The existing revolving credit facility was expanded to $500, the interest rate decreased to 6.0%, and the maturity date was extended tomatures on October 1, 2020, with all other terms, covenants and conditions substantially unchanged. Additionally,5, 2021 (the “First Northern Revolving Loan”). Antibodies also entered into a newtwo separate business loan agreement (“Solar Loan”) which provided foragreements with First Northern: a $125 term loan in connection with a potential expansion of solar generation capacity on the Antibodies property. The initialproperty (“First Northern Solar Loan”) bearing interest at the annual rate on the facility isof 4.43%, subject (subject to adjustment in five years.years) and maturing on November 14, 2029; and a $60 term loan in connection with a potential expansion of generator capacity on the Antibodies property (“Generator Loan”) bearing interest at the annual rate of 4.25% and maturing on November 5, 2025. There were no outstanding borrowings under the Generator Loan as March 31, 2021.
As of September 30, 2020, the total amount outstanding under the First Northern Term Loan was $2,192, of which $2,139 is included in long-term debt and $53 is included in current portion of long-term debt, with interest accruing at an effective interest rate of 4.18%.
As of March 31, 2021, the total amount outstanding under the First Northern Term Loan was $2,166, of which $2,112 is included in long-term debt and $54 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%.
As of March 31, 2021, the total amount outstanding under the First Northern Solar Loan was $107, of which $103 is included in long-term debt, and $4 is included in current portion of long-term debt, with interest accruing at an effective interest rate of 4.43%.
As of March 31, 2021, and September 30, 2020, there were no outstanding borrowings under the revolving credit facility and $2,217 of borrowings under the term loan.First Northern Revolving Loan.
| | | | | | | | | | | | | |
Long Term Debt* | | $ | 2,217 | | | $ | 1,975 | | |
| Long-Term Debt * | | | $ | 2,273 | | | $ | 2,273 | |
| Less Current Portion | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| * | Note: Long Term DebtLong-term debt is due in monthly principal and interest installments of $12 plus monthly interest, at an effective interest rate of 4.18% as of March 31, 2020 and 5.28% as of September, 2019, per annum. The note is collateralized by real property owned by Antibodies and guaranteed by Janel.
|
The Company was in compliance with the covenants definedcontained in the First Northern Loan Agreement at March 31, 20202021 and September 30, 2019.2020.
| 8. | SUBORDINATED PROMISSORY NOTES - RELATED PARTY |
On June 22, 2018, in connection withAntibodies is the Antibodies acquisition, AB HoldCo, Inc. (“AB HoldCo”), a wholly-owned subsidiary of the Company, entered intoobligor on two 4% subordinated promissory notes (“AB(together, the “AB HoldCo Subordinated Promissory Notes”) withpayable to certain former shareholders of Antibodies. As the result of the merger of AB HoldCo into Antibodies, Antibodies became the obligor under the AB HoldCo Subordinated Promissory Notes. Both of the AB HoldCo Subordinated Promissory Notes are guaranteed by the Company, are unsecured and are subordinate to the terms of any credit agreement, loan agreement, indenture, promissory note, guaranty or otherthe Company’s debt instrument pursuant to which the obligor or any affiliate of the obligor incurs, borrows, extends, guarantees, renews or refinances any indebtedness for borrowed money or other extensions of credit with any federal or state bank or other institutional lender and are unsecured. Eachlender.
Interest on the AB HoldCo Subordinated Promissory Notes has a 4% annual interest rateis payable in arrears on the last business day of each calendar quarter, commencing on September 30, 2018, and the full outstanding principal balance and accrued, unpaid interest isare due on June 22, 2021. Both notes are subject to prepayment2021 and may be prepaid, in whole or in part, without premium or penalty,penalty. As of the outstanding principal amount of the notes, together with all accrued interest on such principal amount up to the date of prepayment. Any prepayment shall be applied first to accrued but unpaid interest, and then to outstanding principal. Aseach of March 31, 2020,2021 and September 30, 2019, amounts2020, the amount outstanding underon the two AB HoldCo Subordinated Promissory Notes was $344, andwhich is included in the long termcurrent portion of subordinated promissory notes.
On November 20, 2018, in connection with the Honor acquisition, Janel Group is the obligor on a wholly-owned subsidiary of the Company, entered into a6.75% subordinated promissory note (“Janel Group(the “Honor Subordinated Promissory Note”) with a former owner of Honor.Honor Worldwide Logistics LLC (“Honor”). The Janel GroupHonor Subordinated Promissory Note is guaranteed by the Company. The Janel GroupHonor Subordinated Promissory Note is subordinate to and junior in right of payment for principal interest premiums and other amounts payable to the Santander Bank Facility and the First Merchants Bank Credit Facility. The Janel GroupHonor Subordinated Promissory Note has a 6.75% annual interest rate,is payable in twelve equal consecutive quarterly installments of principal and interest of $42 each, on the last day of January, April, July and October beginning in January 2019, and shall be due and payable each in the amount of $42.2019. The outstanding principal and accrued and unpaid interest are payable in a single payment on the three-year anniversary date of November 20, 2021. The note is subject to prepayment2021 and may be repaid, in whole or in part, without premium or penalty, of the outstanding principal amount of the notes, together with all accrued but unpaid interest on such principal amount up to the date of prepayment.penalty. As of March 31, 2020, and September 30, 2019,2021, the amountstotal amount outstanding under the Janel GroupHonor Subordinated Promissory Note was $276$121 which is included in the current portion of subordinated promissory notes. As of September 30, 2020, the total amount outstanding under the Honor Subordinated Promissory Note was $199, of which $160 is included in the current portion of subordinated promissory notes and $349, respectively.$39 is included in long-term portion of subordinated promissory notes.
Aves is the obligor on a 0.5% subordinated promissory note in the amount of $1,850 issued to the former owner of ICT (the “ICT Subordinated Promissory Note”). The ICT Subordinated Promissory Note is payable in sixteen scheduled quarterly installments of principal and interest beginning March 4, 2021, matures on March 21, 2025, and may be prepaid, in whole or in part, without premium or penalty. The ICT Subordinated Promissory Note is guaranteed by the Company and is secured by the membership interests in ICT. The ICT Subordinated Promissory Note is subordinate to and junior in right of payment for principal interest premiums and other amounts payable to the Santander Bank Facility, First Merchants Bank Credit Facility and the First Northern Bank of Dixon. As of March 31, 2021, the amount outstanding under the ICT Subordinated Promissory Note was $1,614, of which $680 is included in the current portion of subordinated promissory notes and $934 is included in the long-term portion of subordinated promissory notes.
| (In thousands) | | | | | | |
| Total Subordinated Promissory Notes-related party | | $ | 2,079 | | | $ | 543 | |
| Less Current Portion of Subordinated Promissory Notes-related party | | | | | | | | |
| Long Term Portion of Subordinated Promissory Notes-related party | | | | | | | | |
| | | March 31,
2020 | | | September 30,
2019 | |
Long term portion of subordinated promissory notes | | $ | 121 | | | $ | 197 | |
Current portion of subordinated promissory note | | | 155 | | | | 152 | |
| | $ | 276 | | | $ | 349 | |
| 9. | STOCKHOLDERS��SBA PAYCHECK PROTECTION PROGRAM LOANS |
On April 19, 2020, the Company received a loan (the “Company PPP Loan”) in the aggregate amount of $2,726 from Santander, pursuant to the Paycheck Protection Program (the “PPP”) offered by the Small Business Administration (“SBA”) under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), Section 7(a)(36) of the Small Business Act, which was enacted March 27, 2020, as amended by the Paycheck Protection Program Flexibility Act of 2020 (“Flexibility Act”). The Company PPP Loan matures on April 19, 2022 and bears interest at a rate of 1.00% per annum. Under the original terms, all principal and interest payments are deferred for six months from the date of the note. The Paycheck Protection Flexibility Act of 2020 P.L. 116-142, extended the deferral period for loan payments to either (1) the date that SBA remits the borrower’s loan forgiveness amount to the lender or (2) if the borrower does not apply for loan forgiveness, ten months after the end of the borrower’s loan forgiveness covered period. To the extent the Company PPP Loan is not forgiven, principal and interest payments in the amount of $153 are due monthly commencing on September 1, 2021. The Company may prepay the note at any time prior to maturity without penalty. The Company may only use funds from the Company PPP Loan for purposes specified in the CARES Act and related PPP rules, which include payroll costs, costs used to continue group health care benefits, rent, utilities and certain mortgage payments (“qualifying expenses”). The loan and accrued interest are forgivable after eight weeks (or an extended 24-week covered period) as long as the borrower uses the loan proceeds for eligible purposes, including payroll, benefits, rent and utilities, and maintains its payroll levels.
In February 2021, the Company applied for forgiveness of the Company PPP Loan in accordance with the terms of the CARES Act. The forgiveness application is subject to approval by the SBA, and the Company PPP Loan may not be forgiven partially or in full. Accordingly, we have recorded the full amount of the Company PPP Loan as debt.
On July 23, 2020, as part of the Atlantic Customs Brokers, Inc. (“ACB”) acquisition, the Company assumed a PPP Loan to ACB in the amount of $135 (the “ACB PPP Loan”). The terms of the ACB PPP Loan are the same as the terms of the Company PPP Loan. In February 2021, the Company was informed that the PPP loan had been forgiven by the SBA. In accounting for the forgiveness of the ACB PPP Loan, the Company is guided by ASC 470 Debt, and ASC 450-30 Gain contingency. Accordingly, the Company derecognized the ACB PPP Loan of $135 and recorded it as Other Income, as Gain on Paycheck Protection Program loan forgiveness.
As of March 31, 2021, and September 30, 2020, the total amount outstanding, including accrued interest, under the Company PPP Loan and ACB PPP Loan was $2,751 and $2,873, respectively of which $1,683 and $960, respectively, is included in long-term debt and $1,068 and $1,913, respectively, is included in current portion of long-term debt.
Janel is authorized to issue 4,500,000 shares of common stock, par value $0.001. In addition, the Company is authorized to issue 100,000 shares of preferred stock, par value $0.001. The preferred stock is issuable in series with such voting rights, if any, designations, powers, preferences and other rights and such qualifications, limitations and restrictions as may be determined by the Company’s board of directors or a duly authorized committee thereof, without stockholder approval. The board of directors may fix the number of shares constituting each series and increase or decrease the number of shares of any series.
Series B Convertible Preferred Stock
Shares of the Company’s Series B Convertible Preferred Stock (the “Series B Stock”) are convertible into shares of the Company’s $0.001 par value common stock at any time on a one-share (of Series B Stock) for ten-shares (of common stock) basis. On September 6, 2019,April 23, 2020, a holder of the Series B Stock converted 640300 shares of Series B Stock into 6,4003,000 shares of the Company’s Common Stock. On September 25, 2020, a holder of Series B Stock converted 300 shares of Series B Stock into 3,000 shares of the Company’s Common Stock. The Company had 31 shares of Series B Stock outstanding as of March 31, 2021.
Series C Cumulative Preferred Stock
Shares of the Company’s Series C Cumulative Preferred Stock (the “Series C Stock”) arewere initially entitled to receive annual dividends at a rate of 5%7% per annum of the original issuance price of $10, when and if declared by the Company’s board of directors, with such rate to increase by 2% annually beginning on the third anniversary of issuance of such Series C Stock to a maximum rate of 13%. By the filing of the Certificate of Amendment on October 17, 2017, the annual dividend rate decreased to 5% per annum of the original issuance price, when and if declared by the Company’s board of directors, and increased by 1% annually beginning on January 1, 2019. Such rate is to increase on each January 1 thereafter for four years to a maximum rate of 9%. The dividend rate of the Series C Stock as of March 31, 2021 and September 30, 2020 was 8% and 7%., respectively. In the event of liquidation, holders of the Series C Stock shall be paid an amount equal to the original issuance price, plus any accrued but unpaid dividends thereon. Shares of the Series C Stock may be redeemed by the Company at any time upon notice and payment of the original issuance price, plus any accrued but unpaid dividends thereon. The liquidation value of Series C Stock was $11,911 and $11,541 as of March 31, 2021 and September 30, 2020, respectively.
On September 13, 2020, the Company purchased 890 shares of the Series C Stock was $12,867from an accredited investor at a purchase price of $500 per share, or an aggregate of $445. On September 29, 2020, the Company sold 650 shares of the Series C Stock to an accredited investor at a purchase price of $500 per share, or an aggregate of $325. Such shares issued on September 29, 2020 were sold in a private placement in reliance upon the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933 and Regulation D promulgated thereunder. The Company had 19,760 shares of Series C Stock outstanding as of March 31, 2020.2021.
For the fiscal year ended September 30, 2020 the Company paid cash dividends of $55 to a holder of Series C Stock. For the six months ended March 31, 2021 and for the fiscal year ended September 30, 2020, the Company declared dividends on the Series C Stock of $326. As of$369 and $675, respectively. At March 31, 2021 and September 30, 2020, the Company had accrued dividends of $1,366.$2,030and $1,661, respectively.
On May 12, 2017, the Company adopted the 2017 Equity Incentive Plan (the “2017 Plan”), which was amended on May 8, 2018 (as amended, the “2017 Plan”).as discussed in more detail in note 11. Under the 2017 Plan, as amended, (i) non-statutory stock options, (ii) restricted stock awards and (iii) stock appreciation rights with respect to shares of the Company’s common stock may be granted to directors, officers, employees of and consultants to the Company. Participants and all terms of any awards under the 2017 Plan are at the discretion of the Company’s Compensation Committee of the board of directors.
10.11. | STOCK-BASED COMPENSATION |
On October 30, 2013, the board of directors of the Company adopted the Company’s 2013 Non-Qualified Stock Option Plan (the “2013 Option Plan”) providing for options to purchase up to 100,000 shares of the Company’s common stock for issuance to directors, officers, employees of and consultants to the Company and its subsidiaries.
On May 12, 2017, the board of directors adopted the Company’s 2017 Plan pursuant to which (i) incentive stock options, (ii) non-statutory stock options, (iii) restricted stock awards and (iv) stock appreciation rights with respect to up to 100,000 shares of the Company’s common stock may be granted to directors, officers, employees of and consultants to the Company.
On May 8, 2018, the board of directors of Janel adopted the Amended 2017 Plan. The provisions and terms of the Amended 2017 Plan are the same as those in the 2017 Plan, except that the Amended 2017 Plan removes the ability of Janel to award incentive stock options and removes the requirement for stockholder approval of the 2017 Plan.
Total stock-based compensation for the six months ended March 31, 20202021 and 20192020 amounted to $149$54 and $236,$149, respectively, and was included in selling, general and administrative expense in the Company’s statements of operations.
The Company uses the Black-Scholes option pricing model to estimate the fair value of our share-based awards. In applying this model, we use the following assumptions:
Risk-free interest rate - We determine the risk-free interest rate by using a weighted average assumption equivalent to the expected term based on the U.S. Treasury constant maturity rate.
Expected term - We estimate the expected term of our options on the average of the vesting date and term of the option.
Expected volatility - We estimate expected volatility using daily historical trading data of a peer group.
| • | Dividend yield - We have never paid dividends on our common stock and currently have no plans to do so; therefore, no dividend yield is applied. |
Dividend yield - We have never paid dividends on our common stock and currently have no plans to do so; therefore, no dividend yield is applied.
20
The fair values of our employee option awards were estimated using the assumptions below, which yielded the following weighted average grant date fair values for the periods presented:
| | | Six Months Ended March 31, 20202021
| |
| Risk-free Interest Rate | | | 1.59%0.46% |
|
| Expected Option Term in Years | | | 5.5-6.5 | |
| Expected Volatility | | | 101.2%103.0% - 101.7%105.4% |
|
| Dividend Yield | | | 0% |
|
| Weighted Average Grant Date Fair Value | |
$ | $7.19 | |
Options for Employees
| | | | | | Weighted Average Exercise Price | | | Weighted
Average
Remaining Contractual Term (in years) | | | Aggregate Intrinsic Value (in thousands) | |
| Outstanding Balance at September 30, 2019 | | | 110,837 | | | $ | 5.05 | | | | 5.98 | | | $ | 438.06 | |
| Granted | | | 7,500 | | | $ | 9.00 | | | | 9.75 | | | $ | — | |
| Exercised | | | | | | $ | 8.17 | | | | — | | | $ | — | |
| Outstanding Balance at March 31, 2020 | | | | | | $ | 5.21 | | | | 5.67 | | | $ | 290.88 | |
| Exercisable on March 31, 2020 | | | | | | $ | 4.62 | | | | 5.15 | | | $ | 290.88 | |
| | | | | | Weighted Average Exercise Price | | | Weighted Average Remaining Contractual Term (in years) | | | Aggregate Intrinsic Value (in thousands) | |
| Outstanding Balance at September 30, 2020 | | | 93,996 | | | $ | 5.76 | | | | 5.24 | | | $ | 304.99 | |
| Granted | | | 7,500 | | | $
| 9.00 | | | | 9.50 | | | $
| — | |
| Exercised | | | (2,502 | ) | | $
| 8.58 | | | | — | | | $
| — | |
| Outstanding Balance at March 31, 2021 | | | | | | $
| 5.93 | | | | 5.04 | | | $
| 1,144.91 | |
| Exercisable on March 31, 2021 | | | | | | $
| 5.42 | | | | 4.36 | | | $
| 1,014.32 | |
The aggregate intrinsic value in the above table was calculated as the difference between the closing price of the Company’s common stock at March 31, 20202021 of $7.50$17.50 per share and the exercise price of the stock options that had strike prices below such closing price.
As of March 31, 2020,2021, there was approximately $51$53 of total unrecognized compensation expense related to the unvested employee stock options which is expected to be recognized over a weighted average period of less than one year.
Options for Non-Employees
There were no non-employee options awarded, exercised or forfeited during the six-month period ended March 31, 2020. During the six-month period ended March 31, 2020, 15,000 non-employee options were forfeited.2021.
| | | | | | Weighted Average Exercise Price | | | Weighted Average Remaining Contractual Term (in years) | | | Aggregate Intrinsic Value (in thousands) | |
| Outstanding Balance at September 30, 2019 | | | 51,053 | | | $ | 7.58 | | | | 7.80 | | | $ | 72.68 | |
| Forfeited | | | (15,000 | ) | | $ | 8.04 | | | | — | | | $ | — | |
| Outstanding Balance at March 31, 2020 | | | | | | $ | 7.38 | | | | 7.26 | | | $ | 20.40 | |
| Exercisable on March 31, 2020 | | | | | | $ | 4.13 | | | | 6.50 | | | $ | 20.40 | |
| | | | | | Weighted Average Exercise Price | | | Weighted Average Remaining Contractual Term (in years) | | | Aggregate Intrinsic Value (in thousands) | |
| Outstanding Balance at September 30, 2020 | | | 6,053 | | | $ | 4.13 | | | | 6.0 | | | $ | 29.48 | |
| Outstanding Balance at March 31, 2021 | | | | | | $
| 4.13 | | | | 5.50 | | | $
| 80.93 | |
| Exercisable on March 31, 2021 | | | | | | $
| 4.13 | | | | 5.50 | | | $
| 80.93 | |
The aggregate intrinsic value in the above table was calculated as the difference between the closing price of our common stock at March 31, 2020,2021, of $7.50$17.50 per share and the exercise price of the stock options that had strike prices below such closing price.
As of March 31, 2020,2021, there was approximately $32 of totalno unrecognized compensation expense related to the unvestedvested stock options, which is expected to be recognized over a weighted average period of less than one year.options.
Liability classified share-based awards
Additionally, duringDuring the six months ended March 31, 2020, 6,8802021, 6,948 options were granted and 7,000 options were exercised with respect to Indco’s common stock. The Company uses the Black-Scholes option pricing model to estimate the fair value of Indco’s share-based awards. In applying this model, the Company used the following assumptions:
| | | Six Months Ended March 31, 20202021
| |
| Risk-free Interest Rate | | | 1.59%0.46% |
|
| Expected Option Term in Years | | | 5.5 - 6.5 | |
| Expected Volatility | | | 101.2%103.0% - 101.7%105.4% |
|
| Dividend Yield | | | 0% |
|
| Weighted Average Grant Date Fair Value | |
$
| $8.599.66 - $9.03$10.00 | |
| | | | | | Weighted Average Exercise
Price | | | Weighted Average Remaining Contractual
Term (in years) | | | Aggregate Intrinsic Value (in thousands) | |
| Outstanding Balance at September 30, 2019 | | | 32,133 | | | $ | 8.85 | | | | 7.34 | | | $ | 85.45 | |
| Granted | | | 6,880 | | | $ | 11.08 | | | | 9.75 | | | $ | — | |
| Outstanding Balance at March 31, 2020 | | | | | | $ | 9.24 | | | | 7.31 | | | $ | 85.45 | |
| Exercisable on March 31, 2020 | | | | | | $ | 7.98 | | | | 6.49 | | | $ | 85.45 | |
| | | | | | Weighted Average Exercise Price | | | Weighted Average Remaining Contractual Term (in years) | | | Aggregate Intrinsic Value (in thousands) | |
| Outstanding Balance at September 30, 2020 | | | 39,013 | | | $ | 9.24 | | | | 6.81 | | | $ | 85.45 | |
| Granted | | | 6,948 | | | $
| 12.29 | | | | 9.50 | | | $
| — | |
| Exercised | | | (7,000 | ) | | $
| 6.48 | | | | — | | | $
| — | |
| Outstanding Balance at March 31, 2021 | | | | | | $
| 10.28 | | | | 7.12 | | | $
| 78.16 | |
| Exercisable on March 31, 2021 | | | | | | $
| 9.16 | | | | 6.17 | | | $
| 71.25 | |
The aggregate intrinsic value in the above table was calculated as the difference between the valuation price of Indco’s common stock at March 31, 20202021 of $11.08$12.29 per share and the exercise price of the stock options that had strike prices below such closing price.
The liability classified awards were measured at fair value at each reporting date until the final measurement date, which was the date of completion of services required to earn the option. The accrued compensation cost related to these options was approximately $302$326 and $172$284 as of March 31, 20202021 and September 30, 2019,2020, respectively, and is included in other liabilities in the consolidated financial statement. The compensation cost related to these options was approximately $32 and $37 for the six-month periods ended March 31, 2021 and 2020, respectively. The cost associated with the options issued on each grant date is being recognized ratably over the period of service required to earn each tranche of options.
Upon vesting, the options continue to be accounted for as a liability in accordance with ASC 480-10-25-8 and are measured in accordance with ASC 480-10-35 at every reporting period until the options are settled.
Changes in the fair value of the vested options are recognized in earnings in the consolidated financial statements.
The options are classified as liabilities, and the underlying shares of Indco’s common stock also contain put options which result in their classification as a mandatorily redeemable securities.security. While their redemption does not occur on a fixed date, there is an unconditional obligation for the Company to repurchase the shares upon death, which is certain to occur at some point in time.
As of March 31, 2020,2021, there was approximately $66$67 of total unrecognized compensation expense related to the unvested Indco stock options. This expense is expected to be recognized over a weighted average period of less than one year.
During the six months ended March 31, 2020,2021, there were no shares of restricted stock granted. Under the 2017 Plan, each grant of restricted stock vests over a three-year period, and the cost to the recipient is zero. Restricted stock compensation expense, which is a non-cash item, is being recognized in the Company’s financial statements over the vesting period of each restricted stock grant.
The following table summarizes the status of our employee unvested restricted stock under the 2017 Plan for the six months ended March 31, 2020:
| | | Restricted Stock (in thousands) | | | Weighted Average Grant Date Fair Value | | | Weighted Average
Remaining Contractual Term (in years) | |
| Unvested at September 30, 2019 | | | 5,000 | | | $ | 8.01 | | | | 0.61 | |
| Vested | | | | | | $ | — | | | | — | |
| Unvested at March 31, 2020 | | | | | | $ | 8.01 | | | | 0.11 | |
As of March 31, 2020,2021, there was approximately $2 of total unrecognized compensation cost related to unvested employee restricted stock. The cost is expected to be recognized over a weighted-average period of approximately 0.11 years.
The following table summarizes the status of our non-employee unvested restricted stock under the 2017 Plan for the six months ended March 31, 2020:
| | | Restricted Stock (in thousands) | | | Weighted Average Grant Date Fair Value | | | Weighted Average Remaining Contractual Term (in years) | |
| Unvested at September 30, 2019 | | | 26,667 | | | $ | 8.04 | | | | 0.88 | |
| Vested | | | | | | $ | — | | | | — | |
| Unvested at March 31, 2020 | | | | | | $ | 8.04 | | | | 0.38 | |
As of March 31, 2020, there was approximately $30 ofno unrecognized compensation cost related to non-employee unvested restricted stock. The cost is expected to be recognized over a weighted-average period of approximately 0.38 years.
As of March 31, 2021, and September 30, 2020, included in accrued expenses and other current liabilities was $159$306 which represents 18,33335,000 shares of restricted stock that vested but were not issued.
11.12. | INCOME PER COMMON SHARE |
The following table provides a reconciliation of the basic and diluted income (loss) per share (“EPS”) computations for the three and six months ended March 31, 20202021 and 20192020 (in thousands, except share and per share data):
| | | For the Three Months Ended March 31, | | | For the Six Months Ended March 31, | | | For the Three Months Ended March 31, | | | For the Six Months Ended March 31, | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Income: | | | | | | | | | | | | | |
| Income (loss): | | | | | | | | | | | | | |
| Net income (loss) | | $ | (937 | ) | | $ | 175 | | | $ | (1,057 | ) | | $ | 719 | | | $ | 596 | | | $ | (937 | ) | | $ | 851 | | | $ | (1,057 | ) |
| Preferred stock dividends | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net Income (loss) available to common stockholders | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Shares: | | | | | | | | | | | | | | | | | | | | | | | | | |
| Basic - weighted average common shares | | 865,985 | | | | 847,784 | | | 865,630 | | | 847,621 | | | 936,154 | | | 865,985 | | | 936,045 | | | 865,630 | |
| Effect of dilutive securities: | | | | | | | | | | | | | | | | | | | | | | | | | |
| Stock options | | — | | | | 51,097 | | | — | | | 54,644 | | | 47,320 | | | — | | | 38,973 | | | — | |
| Restricted stock | | — | | | | 20,369 | | | — | | | 19,162 | | | — | | | — | | | — | | | — | |
| Convertible preferred stock | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Diluted - weighted average common stock | | | | | | | | | | | | | | | | | |
| | | |
| | | |
| | | |
| | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Income per Common Share: | | | | | | | | | | | | | | |
| Income (loss) per Common Share: | | | | | | | | | | | | | |
| Basic - | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net income (loss) | | $ | (1.08 | ) | | $ | 0.21 | | | $ | (1.22 | ) | | $ | 0.85 | | | $ | 0.64 | | | $ | (1.08 | ) | | $ | 0.91 | | | $ | (1.22 | ) |
| Preferred stock dividends | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net Income (loss) available to common stockholders | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Diluted - | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net income (loss) | | $ | (1.08 | ) | | $ | 0.18 | | | $ | (1.22 | ) | | $ | 0.77 | | | $ | 0.61 | | | $ | (1.08 | ) | | $ | 0.87 | | | $ | (1.22 | ) |
| Preferred stock dividends | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net income (loss) available to common stockholders | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
The computation for the diluted number of shares excludes unvested restricted stock and unexercised stock options and unexercised warrants that are anti-dilutive. There were 39,283 dilutive shares for the six-month periods ended March 31, 2021 and no anti-dilutive shares for the six-month periods ended March 31, 2020.2021 and 2020, respectively.
Potentially dilutive securities as of March 31, 20202021 and 20192020 were as follows:
| | | | | | | |
| | | | | | | | | | | | |
| Employee Stock Options | | 114,496 | | | 118,798 | | | 98,994 | | 114,496 | |
| Non-employee Stock Options | | 36,053 | | | 51,053 | | | 6,053 | | 36,053 | |
| Employee Restricted Stock | | 5,000 | | | 5,000 | | | — | | 5,000 | |
| Non-employee Restricted Stock | | 26,667 | | | 26,667 | | | — | | 26,667 | |
| Convertible Preferred Stock | | | 6,310 | | | | 12,710 | | | | 310 | | | 6,310 | |
| | | | 188,526 | | | | 214,228 | | | | 105,357 | | | 188,526 | |
The Company’s estimated fiscal 20202021 and 20192020 blended U.S. federal statutory corporate income tax rate of 10.1%28.4% and 25.2%10.1%, respectively, werewas applied in the computation of the Company’s income tax provision for the six months ended March 31, 2021 and 2020, and 2019.respectively.
The reconciliation of income tax computed at the Federal statutory rate to the (provision) benefit (provision) for income taxes for the six months ended March 31, 2020 is as follows:
| | | | | | | | | For the Six Months Ended March 31, 2021 | | | For the Six Months Ended March 31, 2020 | |
| Federal taxes at statutory rates | | $ | 247 | | | $ | (204 | ) | | $ | (250 | ) | | $ | 247 | |
| Permanent differences | | (28 | ) | | (13 | ) | | 7 | | | (28 | ) |
| Other | | (63 | ) | | - | | | - | | | (63 | ) |
| State and local taxes | | | | | | | | | | | | | | | | |
| Income tax benefit (expense) | | | | | | | | | |
| | | | | | | | | | |
We file income tax returns, including returns for our subsidiaries, with federal, state and local tax jurisdictions. During March 2021, we were informed by the Internal Revenue Service that our income tax return for the 2018 tax year was under examination. The timing of the resolution of tax audits is highly uncertain, as are the amounts, if any, that may ultimately be paid upon such resolution. The Company remains subject to U.S. federal income tax examinations for 2016 and subsequent years. The Company remains subject to state tax examination for 2016 and subsequent years in the applicable states.
13.14. | BUSINESS SEGMENT INFORMATION |
As discussed above in note 1, the Company operates in three reportable segments: 1) Global Logistics Services, 2) Manufacturing and 3) Life Sciences, supported by a corporate group which conducts activities that are non-segment specific. Sciences. The Company’s Chief Executive Officer regularly reviews financial information at the reporting segment level in order to make decisions about resources to be allocated to the segments and to assess their performance.
The following tables presenttable presents selected financial information about the Company’s reportable segments and Corporate for the purpose of reconciling to the consolidated totals for the three and six months ended March 31, 2021:
For the three months ended March 31, 2021 | | | | | | | | | | | | | | | |
| Revenue | | $ | 30,142 | | | $ | 24,373 | | | $ | 2,529 | | | $ | 3,240 | | | $ | — | |
| Forwarding expenses and cost of revenues | | | 22,593 | | | | 20,250 | | | | 1,163 | | | | 1,180 | | | | — | |
| Gross profit | | | 7,549 | | | | 4,123 | | | | 1,366 | | | | 2,060 | | | | — | |
| Selling, general and administrative | | | 6,415 | | | | 3,743 | | | | 683 | | | | 1,213 | | | | 776 | |
| Amortization of intangible assets | | | 293 | | | | — | | | | — | | | | — | | | | 293 | |
| Operating income (loss) | | | 841 | | | | 380 | | | | 683 | | | | 847 | | | | (1,069 | ) |
| Interest expense | | | 158 | | | | 81 | | | | 43 | | | | 27 | | | | 7 | |
| Identifiable assets | | | 70,381 | | | | 23,743 | | | | 4,078 | | | | 10,557 | | | | 32,003 | |
| Capital expenditures | | $
| 30 | | | $ | 24 | | | $ | 3 | | | $ | 3 | | | $ | — | |
For the six months ended March 31, 2021 | | | | | | | | | | | | | | | |
| Revenue | | $ | 56,620 | | | $ | 46,633 | | | $ | 4,398 | | | $ | 5,589 | | | $ | — | |
| Forwarding expenses and cost of revenues | | | 42,622 | | | | 38,645 | | | | 2,041 | | | | 1,936 | | | | — | |
| Gross profit | | | 13,998 | | | | 7,988 | | | | 2,357 | | | | 3,653 | | | | — | |
| Selling, general and administrative | | | 12,124 | | | | 7,117 | | | | 1,325 | | | | 2,189 | | | | 1,493 | |
| Amortization of intangible assets | | | 544 | | | | — | | | | — | | | | — | | | | 544 | |
| Operating income (loss) | | | 1,330 | | | | 871 | | | | 1,032 | | | | 1,464 | | | | (2,037 | ) |
| Interest expense | | | 277 | | | | 118 | | | | 90 | | | | 55 | | | | 14 | |
| Identifiable assets | | | 70,381 | | | | 23,743 | | | | 4,078 | | | | 10,557 | | | | 32,003 | |
| Capital expenditures | | $ | 85 | | | $ | 43 | | | $ | 15 | | | $ | 27 | | | $ | — | |
The following table presents selected financial information about the Company’s reportable segments and Corporate for the purpose of reconciling to the consolidated totals for the three and six months ended March 31, 2020:
For the three months ended March 31, 2020 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Revenue | | $ | 19,121 | | | $ | 15,328 | | | $ | 2,056 | | | $ | 1,737 | | | $ | — | | | $ | 19,121 | | | $ | 15,328 | | | $ | 2,056 | | | $ | 1,737 | | | $ | — | |
| Forwarding expenses and cost of revenues | | 13,125 | | | 11,615 | | | 908 | | | 602 | | | — | | | 13,125 | | | 11,615 | | | 908 | | | 602 | | | — | |
| Gross profit | | 5,996 | | | 3,713 | | | 1,148 | | | 1,135 | | | — | | | 5,996 | | | 3,713 | | | 1,148 | | | 1,135 | | | — | |
| Selling, general and administrative | | 6,584 | | | 3,952 | | | 701 | | | 1,071 | | | 860 | | | 6,584 | | | 3,952 | | | 701 | | | 1,071 | | | 860 | |
| Amortization of intangible assets | | 243 | | | — | | | — | | | — | | | 243 | | | 243 | | | — | | | — | | | — | | | 243 | |
| Operating (loss) income | | (831 | ) | | (239 | ) | | 447 | | | 64 | | | (1,103 | ) | | (831 | ) | | (239 | ) | | 447 | | | 64 | | | (1,103 | ) |
| Interest expense (income) net | | 141 | | | 54 | | | 66 | | | 24 | | | (3 | ) | |
| Interest expense | | | 141 | | | 54 | | | 66 | | | 24 | | | (3 | ) |
| Identifiable assets | | 55,868 | | | 14,012 | | | 2,425 | | | 9,650 | | | 26,781 | | | 52,868 | | | 14,012 | | | 2,425 | | | 9,650 | | | 26,781 | |
| Capital expenditures | | 34 | | | 17 | | | — | | | 17 | | | — | | | $ | 34 | | | $ | 17 | | | $ | — | | | $ | 17 | | | $ | — | |
For the six months ended March 31, 2020 | | | | | | | | | | | | | | | |
| Revenue | | $ | 38,942 | | | $ | 31,407 | | | $ | 3,926 | | | $ | 3,609 | | | $ | — | |
| Forwarding expenses and cost of revenues | | | 26,659 | | | | 23,702 | | | | 1,753 | | | | 1,204 | | | | — | |
| Gross profit | | | 12,283 | | | | 7,705 | | | | 2,173 | | | | 2,405 | | | | — | |
| Selling, general and administrative | | | 12,669 | | | | 7,590 | | | | 1,383 | | | | 2,051 | | | | 1,645 | |
| Amortization of intangible assets | | | 486 | | | | — | | | | — | | | | — | | | | 486 | |
| Operating (loss) income | | | (872 | ) | | | 115 | | | | 790 | | | | 354 | | | | (2,131 | ) |
| Interest expense (income) net | | | 304 | | | | 120 | | | | 138 | | | | 51 | | | | (5 | ) |
| Identifiable assets | | | 52,868 | | | | 14,012 | | | | 2,425 | | | | 9,650 | | | | 26,781 | |
| Capital expenditures | | | 131 | | | | 64 | | | | 23 | | | | 44 | | | | — | |
The following tables present selected financial information about the Company’s reportable segments for the three and six months ended March 31, 2019:
For the three months ended March 31, 2019 | | | | | | | | | | | | | | | |
| Revenue | | $ | 20,969 | | | $ | 16,865 | | | $ | 2,452 | | | $ | 1,652 | | | $ | — | |
| Forwarding expenses and cost of revenues | | | 14,599 | | | | 12,957 | | | | 1,077 | | | | 565 | | | | — | |
| Gross profit | | | 6,370 | | | | 3,908 | | | | 1,375 | | | | 1,087 | | | | — | |
| Selling, general and administrative | | | 5,692 | | | | 3,468 | | | | 759 | | | | 724 | | | | 741 | |
| Amortization of intangible assets | | | 236 | | | | — | | | | — | | | | — | | | | 236 | |
| Operating income (loss) | | | 442 | | | | 440 | | | | 616 | | | | 363 | | | | (977 | ) |
| Interest expense (income) net | | | 198 | | | | 127 | | | | 36 | | | | 37 | | | | (2 | ) |
| Identifiable assets | | | 52,868 | | | | 14,012 | | | | 2,425 | | | | 9,650 | | | | 26,781 | |
| Capital expenditures | | | 71 | | | | 2 | | |
| — | | | | 69 | | | | — | |
For the six months ended March 31, 2019 | | | | | | | | | | | | | | | | |
For the six months ended March 31, 2020 | | | | | | | | | | | | | | | | |
| Revenue | | $ | 43,296 | | | $ | 35,670 | | | $ | 4,533 | | | $ | 3,093 | | | $ | — | | | $ | 38,942 | | | $ | 31,407 | | | $ | 3,926 | | | $ | 3,609 | | | $ | — | |
| Forwarding expenses and cost of revenues | | 30,439 | | | 27,375 | | | 2,010 | | | 1,054 | | | — | | | 26,659 | | | 23,702 | | | 1,753 | | | 1,204 | | | — | |
| Gross profit | | 12,857 | | | 8,295 | | | 2,523 | | | 2,039 | | | — | | | 12,283 | | | 7,705 | | | 2,173 | | | 2,405 | | | — | |
| Selling, general and administrative | | 11,081 | | | 6,828 | | | 1,467 | | | 1,431 | | | 1,355 | | | 12,669 | | | 7,590 | | | 1,383 | | | 2,051 | | | 1,645 | |
| Amortization of intangible assets | | 444 | | | — | | | — | | | — | | | 444 | | | 486 | | | — | | | — | | | — | | | 486 | |
| Operating income (loss) | | 1,332 | | | 1,467 | | | 1,056 | | | 608 | | | (1,799 | ) | |
| Interest expense (income) net | | 360 | | | 225 | | | 76 | | | 64 | | | (5 | ) | |
| Operating (loss) income | | | (872 | ) | | 115 | | | 790 | | | 354 | | | (2,131 | ) |
| Interest expense | | | 304 | | | 120 | | | 138 | | | 51 | | | (5 | ) |
| Identifiable assets | | 55,348 | | | 20,825 | | | 2,418 | | | 6,672 | | | 25,433 | | | 52,868 | | | 14,012 | | | 2,425 | | | 9,650 | | | 26,781 | |
| Capital expenditures | | 253 | | | 16 | | | 41 | | | 196 | | | — | | | $ | 131 | | | $ | 64 | | | $ | 23 | | | $ | 44 | | | $ | — | |
14.15. | RISKS AND UNCERTAINTIES |
The nature of Janel’s operations requires it to deal with currencies other than the U.S. Dollar. As a result, the Company is exposed to the inherent risks of international currency markets and governmental interference. A number of countries where Janel maintains offices or agent relationships have currency control regulations. The Company attempts to compensate for these exposures by accelerating international currency settlements among those agents.
| (B) | Concentration of Credit Risk |
The Company’s assets that are exposed to concentrations of credit risk consist primarily of cash and receivables from customers. The Company places its cash with financial institutions that have high credit ratings. The receivables from clients are spread over many customers. The Company maintains an allowance for uncollectible accounts receivable based on expected collectability and performs ongoing credit evaluations of its customers’ financial condition. We have experiencedcontinued to experience heightened customer credit risk as a result of the negative impact to customers’ financial condition, employment levels and consumer confidence arising from economic disruptions related to the COVID-19 pandemic, and expect that our risk in this area will remain high as long as the disruptions persist.
Janel is occasionally subject to claims and lawsuits which typically arise in the normal course of business. While the outcome of these claims cannot be predicted with certainty, management does not believe that the outcome of any of these legal matters will have a material adverse effect on the Company’s business, results of operations, financial condition or cash flows.
In December 2017, Janel Group received a Notice of Copyright Infringement letter from counsel for Warren Communications News, Inc. (“Warren”), the publisher of the International Trade Today (“ITT”) newsletter. The letter alleges that Janel Group infringed upon Warren’s registered copyrights in its ITT newsletter (the “Warren Matter”). As of March 31, 2020, the Company had a liability for settlement costs related to the Warren Matter, which is included in accrued expenses and other current liabilities. On May 11, 2020, the parties reached a settlement agreement and release to resolve any and all concerns between the parties, voluntarily and without admission of copyright infringement.
| (D) | Concentration of Customers |
No customer accounted for 10% or more of consolidated sales for the six months ended March 31, 2021 and 2020. No customer accounted for 10% or more of consolidated accounts receivable at March 31, 2021 and September 30, 2020.
In March 2020,The worldwide outbreak of COVID-19, which was declared a pandemic by the World Health Organization declaredon March 11, 2020, has impacted and may continue to impact our business operations, including employees, customers, financial condition, liquidity and cash flow for an extended period of time. Federal and state governments have implemented measures in an effort to contain the outbreakvirus, including social distancing, travel restrictions, border closures, limitations on public gatherings, work from home, supply chain logistical changes, and closure of a novel coronavirus (COVID-19) as a pandemic. As a result, public healthnonessential businesses, which measures adversely impacted our business operations in the fiscal year 2020 and may continue to do so in 2021. Although there are effective vaccines for COVID-19 that have been taken by federal, state and local governmentsapproved for use, we are unable to minimize exposure to and containpredict how widely utilized the virus. Measures intended to reducevaccines will be, whether they will be effective in preventing the spread of COVID-19 such as quarantines, travel restrictions(including its variant strains), and other governmental restrictions such as social distancing protocols, have has, and are likely to continue to have, an adverse impact onwhen or if normal economic activity including with respect toand business closures, increasing unemployment levels and financial market instability. The extent or duration ofoperations will resume. As such, the disruption on global, national, and local economies cannot be reasonably estimated at this time. However, shouldfull magnitude that the pandemic and its economic impact continue for an extended period,will have on the Company’s financial condition, liquidity, and future business operations, including its results of operations cash flows and financial position could be significantly affected.
15. | COMMITMENTS AND CONTINGENCIES |
On February 4, 2020, Indco, Inc., a majority-owned subsidiaryremains uncertain. Management is actively monitoring the impact of the Company, entered into a Purchaseglobal situation on its financial condition, liquidity, operations, industry, and Sale Agreement with 4040 Earnings Way, LLC (“Seller”) to acquire from Seller the land and building which serves as the Indco office and manufacturing facility in New Albany, Indiana, for a purchase price of $845. Indco anticipates that the purchase price will be financed with cash from operations and a loan of up to $700 from First Merchants Bank secured by the subject property. Closing is expected to occur during the third quarter of fiscal 2020, ending June 30, 2020.workforce.
The Company has operating leases for office and warehouse space in all districts where it conducts business. As of March 31, 2020,2021, the remaining terms of the Company’s operating leases were between one and 5860 months and certain lease agreements contain provisions for future rent increases. Payments due under the lease contracts include the minimum lease payments that the Company is obligated to make under the non-cancelable initial terms of the leases as the renewal terms are at the Company’s option and the Company is not reasonably certain to exercise those renewal options at lease commencement..commencement.
The components of lease cost for the six-month period ended March 31, 2021 and 2020 are as follows:
| | | Six Months Ended March 31, 2020 | | | Six Months Ended March 31, 2021 | | | Six Months Ended March 31, 2020 | |
| Operating lease cost | | $ | 353 | | | $ | 486 | | | $ | 353 | |
| Short-term lease cost | | | | | | | | | | | | |
| Total lease cost | | | | | | | | | | | | |
Rent expense for the six-month period March 31, 2019 was $372
Operating lease right of use asset,right-of-use assets, the current portion of operating lease liabilities and long-term operating lease liabilities reported in the consolidated balance sheets for operating leases as of March 31, 2021 and September 30, 2020 were $1,599, $479$2,456, $809 and $1,142,$1,671 and $2,621, $720 and $1,924, respectively.
During the threesix months ended March 31, 2020,2021, the Company entered into a new operating leaseleases and recorded an addition $857additional $164 in operating lease right of use asset ofright-of-use assets and corresponding lease liabilities.
As of March 31, 2021, and September 30, 2020, the weighted-average remaining lease term and the weighted-average discount rate related to the Company’s operating leases were 3.94.3 years and 6.58%4.6% and 4.2 years and 4.6%, respectively.
Cash paid for amounts included in the measurement of operating lease obligations were $410 $872 for the six months ended March 31, 2020.2021.
Future minimum lease payments under non-cancelable operating leases as of March 31, 20202021 are as follows:
| 2020 | | $ | 493 | | |
| 2021 | | 469 | | | $ | 809 | |
| 2022 | | 414 | | | 730 | |
| 2023 | | 241 | | | 512 | |
| 2024 | | | 221 | | | 496 | |
2025
| | | | | |
| Total undiscounted lease payments | | | 1,838 | | | | | |
| Less: Imputed interest | | | | | | | | |
| Total lease obligations | | | | | | | | |
CARES Act Loan
The Coronavirus Aid, ReliefCompany has evaluated subsequent events through the filing of this Quarterly Report on Form 10-Q and Economic Security Act, Section 7(a)(36) of the Small Business Act (the “CARES Act”), which was signed into law in March 2020, established the Paycheck Protection Program (the “PPP”). The PPP authorizes up to $349 billion in forgivable loans to small businesses. Loan amounts are forgivenconcluded that there were no subsequent events requiring adjustment or disclosure to the extent proceeds are used to cover documented payroll, mortgage interest, rent and utility costs over an eight-week measurement period following loan funding. Loans have a maturity of two years and bear interest at a rate of 1.00% per annum. Prepayments may be made at any time prior to maturity without penalty.
consolidated financial statements.
On April 19, 2020, the Company entered into a Loan Agreement (the “Loan Agreement”) with Santander and executed a U.S. Small Business Administration Note (the “Note”) pursuant to which the Company borrowed $2,726 (the “Loan”) from Santander pursuant to the PPP under the CARES Act.
The Loan matures on April 19, 2022 and bears interest at a rate of 1.00% per annum, payable monthly commencing on November 19, 2020. The Note may be prepaid by Janel at any time prior to maturity with no prepayment penalties. Funds from the Loan may only be used for payroll costs, costs used to continue group health care benefits, mortgage payments, rent and utilities (collectively, “Qualifying Expenses”). Under the terms of the PPP, certain amounts of the Loan may be forgiven if they are used for Qualifying Expenses as described in the CARES Act. The Company's participation in the PPP subsequent to quarter end should allow the Company to avoid significant staff reductions in the near term.
As discussed in note 14 (C) above, the Company received a letter in December 2017 from legal counsel representing Warren in which Warren made certain allegations against the Company of copyright infringement concerning an electronic newsletter by Warren. On May 11, 2020, the parties reached a settlement agreement and release to resolve any and all concerns between the parties, voluntarily and without admission of copyright infringement. As of March 31, 2020, the Company had a liability for settlement costs related to the Warren Matter, which is included in accrued expenses and other current liabilities.26
| ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
The following discussion and analysis should be read in conjunction with our unaudited interim consolidated financial statements and related notes thereto as of and for the three months and six months ended March 31, 2020,2021, which have been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”). Amounts presented in this section are in thousands, except share and per share data.
As used throughout this Report, “we,” “us”, “our,” “Janel,” “the Company,” “Registrant” and similar words refer to Janel Corporation and its Subsidiaries.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (the “Report”) contains certain statements that are, or may deemed to be, “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 and that reflect management’s current expectations with respect to our operations, performance, financial condition, and other developments. These forward-lookingforward – looking statements may generally be identified by the use of the words “may,” “will,” “intends,” “plans,” projects,” “believes,” “should,” “expects,” “predicts,” “anticipates,” “estimates,” and similar expressions or the negative of these terms or other comparable terminology. These statements are necessarily estimates reflecting management’s best judgment based upon current information and involve a number of risks, uncertainties and assumptions. We caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made, and readers are advised that various factors, including, but not limited to, those set forth elsewhere in this Report, could affect our financial performance and could cause our actual results for future periods to differ materially from those anticipated or projected. While it is impossible to identify all such factors, such factors include, but are not limited to, the impact of the coronavirus (“COVID-19”) pandemicon the worldwide economic conditions and related economic effects;on our businesses, our strategy of expanding our business through acquisitions of other businesses;businesses; the risk that we may fail to realize the expected benefits or strategic objectives of any acquisition, or that we spend resources exploring acquisitions that are not consummated; litigation;consummated; litigation, indemnification claims and other unforeseen claims and liabilities that may arise from an acquisition;acquisition; economic and other conditions in the markets in which we operate;operate; the risk that we may not have sufficient working capital to continue operations;operations; instability in the financial markets;markets; the material weaknesses identified in our internal control over financial reporting;reporting; our dependence on key employees;employees; competition from parties who sell their businesses to us and from professionals who cease working for us;us; terrorist attacks and other acts of violence or war;war; security breaches or cybersecurity attacks;attacks; risks related to our receipt of Paycheck Protection Program funding and forgiveness of such loans by the SBA; competition faced by our global logistics services freight carriers with greater financial resources and from companies that operate in areas in which we plan to expand;expand; our dependence on the availability of cargo space from third parties;parties; recessions and other economic developments that reduce freight volumes;volumes; other events affecting the volume of international trade and international operations;operations; risks arising from our global logistics services business’ ability to manage staffing needs;needs; competition faced in the freight forwarding, freight brokerage, logistics and supply chain management industry;industry; industry consolidation and our ability to gain sufficient market presence with respect to our global logistics services business;business; risks arising from our ability to comply with governmental permit and licensing requirements or statutory and regulatory requirements;requirements; seasonal trends;trends; competition faced by our manufacturing (Indco) business from competitors with greater financial resources;resources; Indco’s dependence on individual purchase orders to generate revenue;revenue; any decrease in the availability, or increase in the cost, of raw materials used by Indco;Indco; Indco’s ability to obtain and retain skilled technical personnel;personnel; risks associated with product liability claims due to alleged defects in Indco’s products;products; risks arising from the environmental, health and safety regulations applicable to Indco;Indco; the reliance of our Indco and life sciences businesses on a single location to manufacture their products;products; the ability of our life sciences business to compete effectively;effectively; the ability of our life sciences business to introduce new products in a timely manner;manner; product or other liabilities associated with the manufacture and sale of new products and services;services; changes in governmental regulations applicable to our life sciences business;business; the ability of our life sciences business to continually produce products that meet high quality standards such as purity, reproducibility and/or absence of cross-reactivity;cross-reactivity; the controlling influence exerted by our officers and directors and one of our stockholders;stockholders; our inability to issue dividends in the foreseeable future;future; and risks related to ownership of our common stock, including volatility and the lack of a guaranteed continued public trading market for our common stock. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual outcomes may vary materially from those projected. You should not place undue reliance on any of our forward-looking statements which speak only as of the date they are made. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. For a more detailed discussion of these factors, see our periodic reports filed with the Securities and Exchange Commission, including our most recent Annual Report on Form 10-K for the fiscal year ended September 30, 2019.
COVID-192020.
The outbreak of COVID-19 has had a significant impact on global trade and our business. 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. Those shutdowns and restrictions in China started to ease in March 2020, and export volumes from China increased throughout the month. 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 decrease in global economic activity during the second quarter of fiscal 2020 and a second steep drop in global import and export trade volumes, which has materially impacted our Global Logistics Services business. Specifically, in the three months ended March 31, 2020, we experienced a decrease of 9.1% in our Global Logistics Services segment revenues as a result of the global trade slowdown due to the COVID- 19 pandemic. We also experienced a significant slowdown in organic growth in both our Manufacturing and Life Sciences segments due to a slowdown in orders and in academic research due to 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 segment 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 financial challenges facing our customers. We are closely monitoring our customers’ payment performance and expect our customer credit risk will remain high as long as economic and trade disruptions persist.
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, we currently expect that our results of operations and financial condition will be even more significantly adversely impacted in the third quarter and fourth quarters of 2020 and subsequent periods than in the quarter ended March 31, 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.
The magnitude of the COVID-19 pandemic, including the extent of any impact on our business, financial position, results of operations or liquidity, which could be material, cannot be reasonably determined at this time due to the rapid development and fluidity of the situation. The effects of the pandemic on our business will depend on its duration and severity, whether business disruptions will continue, the pace of recovery once the pandemic subsides and the overall long-term impact on the global economy.
OVERVIEW
Janel Corporation (“Janel,” the “Company” or the “Registrant”) is a holding company with subsidiaries in three business segments: Global Logistics Services, Manufacturing and Life Sciences. The companyCompany strives to create shareholder value primarily through three strategic priorities: supporting its businesses’ efforts to make investments and to build long-term profits;profits; allocating Janel’sJanel capital at high risk-adjusted rates of return;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.
Global Logistics Services
The Company’s Global Logistics Services segment is comprised of several wholly-owned subsidiaries (collectively, “Janel Group”). Janel Group is a non-asset based, full-service provider of cargo transportation logistics management services, including freight forwarding via air-, ocean- and land-based carriers, customs brokerage services, warehousing and distribution services, and other value-added logistics services.
On November 20, 2018, we completed a business combination whereby we acquired the membership interest of Honor Worldwide Logistics, LLC (“Honor”), a global logistics services provider with two U.S. locations.
On October 17, 2018,December 31, 2020, we completed a business combination whereby we acquired substantially all of the assets and certain liabilities of a global logistics services provider with onetwo U.S. location.locations.
On July 23, 2020, the Company acquired Atlantic Customs Brokers, Inc. (“ACB”), a global logistics services provider with two U.S. locations.
Manufacturing
The Company’s Manufacturing segment is comprised of Indco, Inc. (“Indco”). Indco is a majority-owned subsidiary of the Company that manufactures and distributes mixing equipment and apparatus for specific applications within various industries. Indco’s customer base is comprised of small- to mid-sized businesses as well as other larger customers for which Indco fulfills repetitive production orders.
Life Sciences
The Company’s Life Sciences segment, which is comprised of Aves Labs, Inc. (“Aves”), Antibodies Incorporated (“Antibodies”), IgG, LLC (“IgG”) and PhosphoSolutions, LLC, which areseveral wholly-owned subsidiaries, of the Company.
The Company’s Life Sciences segment manufactures and distributes high-quality monoclonal and polyclonal antibodies, diagnostic reagents and other immunoreagents for biomedical research and provides antibody manufacturing for academic and industry research scientists. Our Life Sciences business also produces products for other life science companies on an original equipment manufacturer (“OEM”) basis.
On December 4, 2020, the Company, through its wholly-owned subsidiary Aves, acquired all of the membership interests of a small life sciences company on July 1, 2019 and the equity interests of PhosphoSolutions, LLC.ImmunoChemistry Technologies, LLC (“Phospho”ICT”) on September 6, 2019. Both acquisitions were completed primarily to expand our product offerings in Life Sciences..
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Critical accounting estimates are those that we believe are both significant and require us to make difficult, subjective, or complex judgments, often because we need to estimate the effect of inherently uncertain matters. These estimates are based on historical experience and various other factors that we believe to be appropriate under the circumstance. Actual amounts and results could differ from these estimates made by management. Certain accounting policies that require significant management estimates and are deemed critical to our results of operations or financial position are discussed in the Critical Accounting Policies and Estimates section of Management’s Discussion and Analysis of Financial Condition and Results of Operations included in Item 7 of our Annual Report on Form 10-K for the fiscal year ended September 30, 2019.2020.
The Company’s consolidated financial statements have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes. Since future events and their effects cannot be determined with absolute certainty, the determination of estimates requires the exercise of judgment. Actual results could differ from those estimates, and such differences may be material to the financial statements. The most significant accounting estimates inherent in the preparation of our financial statements include estimates as to revenue recognition, the appropriate carrying value of certain assets and liabilities which are not readily apparent from other sources, primarily allowance for doubtful accounts, accruals for transportation and other direct costs, accruals for cargo insurance, and deferred income taxes.taxes, potential impairment of goodwill and intangible assets with indefinite lives and 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 a 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;
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 means 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, thethe Company has determined that in general each shipment transaction or service order constitutes a separate contract with the customer. When the Company provides multiple services to a customer, different contracts may be present for different services.
The Company typically satisfies its performance obligations as services are rendered at a point in time. A typical shipment would include services rendered at origin, such as pick-up and delivery to port, freight services from origin to destination port and destination services, such as customs clearance and final delivery. The Company measures the performance of its obligations as services are completed at a point in time during the life of a shipment, including services at origin, freight and destination. The Company fulfills nearly all of its performance obligations within a one-to two-month period.
The Company evaluates whether amounts billed to customers should be reported as gross or net revenue. Generally, revenue is recorded on a gross basis when the Company is primarily responsible for fulfilling the promise to provide the services, when it has discretion in setting the prices for the services to the customers, and the Company has the ability to direct the use of the services provided by the third party. Revenue is recognized on a net basis when we do not have latitude in carrier selection or establish rates with the carrier.
In the Global Logistics Services segment, the Company disaggregates its revenues by its four primary service categories: ocean import and export, freight, forwarding, customsair freight, custom brokerage and air importtrucking and export.other.
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.
NON-GAAP FINANCIAL MEASURES
While we prepare our financial statements in accordance with U.S. GAAP, we also utilize and present certain financial measures, in particular adjusted operating income, which is not based on or included in U.S. GAAP (we refer to these as “non-GAAP financial measures”).
Net Revenue
Net revenue is a non-GAAP measure calculated as total revenue less forwarding expenses attributable to the Company’s Global Logistics Services segment. Our total revenue represents the total dollar value of services and goods we sell to our customers. Forwarding expenses attributable to the Company’s Global Logistics Services segment refer to purchased transportation and related services including contracted air, ocean, rail, motor carrier and other costs. Total revenue can be influenced greatly by changes in transportation rates or other items, such as fuel prices, which we do not control. Management believes that providing net revenue and its related margin is useful to investors as net revenue is the primary indicator of our ability to source, add value and sell services and products that are provided by third parties, and we consider net revenue to be our primary performance measurement. The difference between the rate billed to our customers (the sell rate) and the rate we pay to the carrier (the buy rate) is termed “net revenue”, “yield” or “margin.” As presented, net revenue matches gross margin.
Organic Growth
Our non-GAAP financial measure of organic growth represents revenue growth excluding revenue from acquisitions within the preceding 12 months. The organic growth presentation provides useful period-to-period comparison of revenue results as it excludes revenue from acquisitions that would not be included in the comparable prior period.
Adjusted Operating Income
As a result of our acquisition strategy, our net income includes material non-cash charges relating to the amortization of customer-related intangible assets in the ordinary course of business as well as other intangible assets acquired in our acquisitions. Although these charges may increase as we complete more acquisitions, we believe we will be growing the value of our intangible assets such as customer relationships. Because these charges are not indicative of our operations, we believe that adjusted operating income is a useful financial measure for investors because it eliminates the effect of these non-cash costs and provides an important metric for our business that is more representative of the actual results of our operations.
Adjusted operating income (which excludes the non-cash impact of amortization of intangible assets, stock-based compensation and amortizationcost 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.
Results of Operations – Janel Corporation
Our results of operations and period-over-period changes are discussed in the following section. The tables and discussion should be read in conjunction with the accompanying Consolidated Financial Statements and the notes thereto.
Our condensed consolidated results of operations are as follows:
| | | Three Months Ended March 31, 2021 | | | Three Months Ended March 31, 2020 | | | Six Months Ended March 31, 2021 | | | Six Months Ended March 31, 2020 | |
| Revenues | | $ | 30,142 | | | $ | 19,121 | | | $ | 56,620 | | | $ | 38,942 | |
| Forwarding expenses and cost of revenues | | | 22,593 | | | | 13,125 | | | | 42,622 | | | | 26,659 | |
| Gross profit | | | | | | | | | | | | | | | | |
| Operating expenses | | | 6,708 | | | | 6,827 | | | | 12,668 | | | | 13,155 | |
| Operating income (loss) | | | | | | | | | | | | | | | | |
| Net income (loss) | | | | | | | | | | | | | | | | |
| Adjusted operating income (loss) | | $ | 1,455 | | | $ | (286 | ) | | $ | 2,433 | | | $ | 210 | |
Consolidated revenues for the three months ended March 31, 2021 were $30,142, or 57.6% higher than for the three months ended March 31, 2020 as revenue at all three businesses increased and acquisitions, to a smaller extent, contributed to the increase compared to the prior year period.
The Company’s net income for the three months ended March 31, 2021 totaled approximately $596 or $0.61 per diluted share, compared to a net loss of approximately ($937) or ($1.08) per diluted share for the three months ended March 31, 2020.
Consolidated revenues for the six months ended March 31, 2021 were $56,620, or 45.4% higher than for the six months ended March 31, 2020 as revenue at all three businesses increased and acquisitions, to a smaller extent, contributed to the increase compared to the prior year period.
The Company’s net income for the six months ended March 31, 2021 totaled approximately $851 or $0.87 per diluted share, compared to a net loss of approximately ($1,057) or ($1.22) per diluted share for the six months ended March 31, 2020.
The following table sets forth a reconciliation of operating income to adjusted operating income:income (loss):
| | | Three Months Ended March 31, | | | Six Months Ended March 31, | |
| | | | | | | | | | | | | |
| | | (in thousands) | | | (in thousands) | |
| Operating (loss) income | | $ | (831 | ) | | $ | 442 | | | $ | (872 | ) | | $ | 1,332 | |
Amortization of intangible assets(1) | | | 243 | | | | 236 | | | | 486 | | | | 444 | |
Stock-based compensation(2) | | | 75 | | | | 107 | | | | 149 | | | | 236 | |
Amortization of acquired inventory valuation(3) | | | | | | | | | | | | | | | | |
| Adjusted operating income | | | | | | | | | | | | | | | | |
| (in thousands) | | Three Months Ended March 31, 2021 | | | Three Months Ended March 31, 2020 | | | Six Months Ended March 31, 2021 | | | Six Months Ended March 31, 2020 | |
| Operating income (loss) | | $ | 841 | | | $ | (831 | ) | | $ | 1,330 | | | $ | (872 | ) |
Amortization of intangible assets(1) | | | 293 | | | | 243 | | | | 544 | | | | 486 | |
Stock-based compensation(2) | | | 30 | | | | 75 | | | | 54 | | | | 149 | |
Cost recognized on sale of acquired inventory (3) | | | | | | | | | | | | | | | | |
| Adjusted operating income (loss) | | | | | | | | | | | | | | | | |
| (1) | Amortization of intangible assets represents non-cash amortization expense or impairment expense, if any, attributable to acquisition-related intangible assets, including any portion that is allocated to noncontrolling interests. Management believes that making this adjustment aids in comparing the Company’s operating results with other companies in our industry that have not engaged in acquisitions. |
| (2) | The Company eliminates the impact of stock-based compensation because it does not consider such non-cash expenses to be indicative of the Company’s core operating performance. The exclusion of stock-based compensation expenses also facilitates comparisons of the Company’s underlying operating performance on a period-to-period basis. |
| (3) | The Company has excluded the impact of amortizationcost on the sale of acquired inventory valuation in connection with acquisitions as such adjustments represent non-cash items, are not consistent in amount and frequency and are significantly impacted by the timing and size of the Company’s acquisitions. |
Results of Operations – Segment Financial Results- Global Logistics Services – Three and Six Months Ended March 31, 2021 and 2020
Our Global Logistics Services business helps its clients move and manage freight efficiently to reduce inventories and to increase supply chain speed and reliability. Key services include customs entry filing, arrangement of freight forwarding by air, ocean and ground, warehousing, cargo insurance procurement, logistics planning, product repackaging and online shipment tracking.
Global Logistics Services – Selected Financial Information:
| | | Three Months Ended March 31, | | | Six Months Ended March 31, | |
| | | | | | | | | | | | | |
| | | (in thousands) | |
| Revenue | | $ | 24,373 | | | $ | 15,328 | | | $ | 46,633 | | | $ | 31,407 | |
| Forwarding expenses | | | 20,250 | | | | 11,615 | | | | 38,645 | | | | 23,702 | |
| Net revenue | | | 4,123 | | | | 3,713 | | | | 7,988 | | | | 7,705 | |
| Net revenue margin | | | | | | | | | | | | | | | | |
| Selling, general & administrative | | | 3,743 | | | | 3,952 | | | | 7,117 | | | | 7,590 | |
| Income (loss) from operations | | | | | | | | | | | | | | | | |
Revenue
Total revenue for the three months ended March 31, 2021 was $24,373, as compared to $15,328 for the three months ended March 31, 2020, an increase of $9,045 or 51.0%. Of the $9,045 increase in revenue 85.2% represented growth primarily due to the rise in transportation rates due to capacity issues globally and 201914.8% contributions from two acquisitions. Total revenue for the six months ended March 31, 2021 and 2020 was $46,633 and $31,407 respectively, an increase of $15,226 or 48.9%. Of the $15,226 increase in revenue 88.5% represented organic growth primarily due to the rise in transportation rates due to capacity issues globally and 11.5% represented contributions from two acquisitions.
Forwarding Expenses
Forwarding expenses for the three months ended March 31, 2021 increased by $8,635, or 74.3%, to $20,250 as compared to $11,615 for the three months ended March 31, 2020. Forwarding expenses as a percentage of revenue were 83.1% and 75.8% for the three months ended March 31, 2021 and March 31, 2020, respectively. Similar to the revenue increase, the increase in forwarding expenses and forwarding expense as a percentage of revenue reflected higher transportation rates and increased expenses related to acquisitions.
Forwarding expenses for the six months ended March 31, 2021 increased by $14,943, or 63.1%, to $38,645 as compared to $23,702 for the six months ended March 31, 2020. Forwarding expenses as a percentage of revenue were 82.9% and 75.5% for the six months ended March 31, 2021 and March 31, 2020, respectively. Similar to the revenue increase, the increase in forwarding expenses and forwarding expense as a percentage of revenue reflected higher transportation rates and increased expenses related to acquisitions.
Net Revenue and Net Revenue Margin
Net revenue for the three months ended March 31, 2021 was $4,123, an increase of $410, or 11.1%, as compared to $3,713 for the three months ended March 31, 2020. This increase was mainly the result of increased revenue from two acquisitions partially offset by an approximately mid-single digit organic decline for the quarter in our base business due to a global trade shift due to COVID. Net revenue as a percentage of revenue decreased to 16.9% compared to 24.2% for the prior year period due to the increase in transportation rates versus the prior year period.
Net revenue for the six months ended March 31, 2021 was $7,988, an increase of $283, or 3.7%, as compared to $7,705 for the six months ended March 31, 2020. This increase was mainly the result of two acquisitions partially offset by a high single-digit organic decline in our base business due to COVID-related shifts in global trade. Net revenue as a percentage of revenue decreased to 17.1% compared to 24.5% for the prior year period due to the increase in transportation rates versus the prior year period.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the three months ended March 31, 2021 were $3,743, as compared to $3,952 for the three months ended March 31, 2020. This decrease of $209, or 5.3%, was largely attributed to cost reductions partially offset by the additional expenses from businesses acquired versus the prior year period. As a percentage of revenue, selling, general and administrative expenses were 15.4% and 25.8% of revenue for the three months ended March 31, 2021 and 2020, respectively.
Selling, general and administrative expenses for the six months ended March 31, 2021 were $7,117, as compared to $7,590 for the six months ended March 31, 2020. This decrease of $493, or 6.2%, was largely attributed to cost reductions partially offset by the additional expenses from businesses acquired versus the prior year period. As a percentage of revenue, selling, general and administrative expenses were 15.3% and 24.2% of revenue for the six months ended March 31, 2021 and 2020, respectively.
Income (loss) from Operations
Income from operations increased to $380 for the three months ended March 31, 2021, as compared to a loss of ($239) for the three months ended March 31, 2020, an increase of $619. Income from operations increased during the three months ended March 31, 2021 as a result of cost reductions and, to a lesser extent, the contribution from an acquisition versus the prior year period. Our operating margin as a percentage of net revenue for the three months ended March 31, 2021 was 9.2% compared to (6.4%) in the prior year period.
Income from operations increased to $871 for the six months ended March 31, 2021, as compared to $115 for the six months ended March 31, 2020, an increase of $756, or 657.4%. Income from operations increased during the six months ended March 31, 2021 as a result of cost reductions and, to a lesser extent, the contribution from an acquisition versus the prior year period. Our operating margin as a percentage of net revenue for the six months ended March 31, 2021 was 10.9% compared to 1.5% in the prior year period.
Results of Operations - Manufacturing – Three and Six Months Ended March 31, 2021 and 2020
The following table sets forth ourCompany’s Manufacturing segment financial results:includes its majority-owned Indco subsidiary, which manufactures and distributes industrial mixing equipment.
| | | Three Months Ended March 31, | | | Six Months Ended March 31, | |
| | | | | | | | | | | | | |
| | | (in thousands) | | | | | | | |
| Revenue: | | | | | | | | | | | | |
| Global Logistics Services | | $ | 15,328 | | | $ | 16,865 | | | $ | 31,407 | | | $ | 35,670 | |
| Manufacturing | | | 2,056 | | | | 2,452 | | | | 3,926 | | | | 4,533 | |
| Life Sciences | | | 1,737 | | | | 1,652 | | | | 3,609 | | | | 3,093 | |
| Total Revenues | | | 19,121 | | | | 20,969 | | | | 38,942 | | | | 43,296 | |
| | | | | | | | | | | | | | | | | |
| Gross Profit: | | | | | | | | | | | | | | | | |
| Global Logistics Services | | | 3,713 | | | | 3,908 | | | | 7,705 | | | | 8,295 | |
| Manufacturing | | | 1,148 | | | | 1,375 | | | | 2,173 | | | | 2,523 | |
| Life Sciences | | | 1,135 | | | | 1,087 | | | | 2,405 | | | | 2,039 | |
| Total Gross Profit | | | 5,996 | | | | 6,370 | | | | 12,283 | | | | 12,857 | |
| | | | | | | | | | | | | | | | | |
| Income (loss) from Operations: | | | | | | | | | | | | | | | | |
| Global Logistics Services | | | (239 | ) | | | 440 | | | | 115 | | | | 1,467 | |
| Manufacturing | | | 447 | | | | 616 | | | | 790 | | | | 1,056 | |
| Life Sciences | | | 64 | | | | 363 | | | | 354 | | | | 608 | |
| Total Income from Operations by Segment | | | 272 | | | | 1,419 | | | | 1,259 | | | | 3,131 | |
| | | | | | | | | | | | | | | | | |
| Corporate administrative expense | | | (860 | ) | | | (741 | ) | | | (1,645 | ) | | | (1,355 | ) |
| Amortization expense | | | (243 | ) | | | (236 | ) | | | (486 | ) | | | (444 | ) |
| Interest expense, net | | | (141 | ) | | | (198 | ) | | | (304 | ) | | | (360 | ) |
| Net (loss) income before taxes | | | (972 | ) | | | 244 | | | | (1,176 | ) | | | 972 | |
| Income tax benefit (expense) | | | | | | | | | | | | | | | | |
| Net (loss) income | | $ | (937 | ) | | $ | 175 | | | $ | (1,057 | ) | | $ | 719 | |
| Preferred stock dividends | | | (175 | ) | | | (148 | ) | | | (326 | ) | | | (270 | ) |
| Net (Loss) Income available to Common Stockholders | | | | | | | | | | | | | | | | |
Manufacturing – Selected Financial Information:
| | | Three Months Ended March 31, | | | Six Months Ended March 31, | |
| | | | | | | | | | | | | |
| (in thousands) | | | | | | | | | |
| Revenue | | $ | 2,529 | | | $ | 2,056 | | | $ | 4,398 | | | $ | 3,926 | |
| Cost of sales | | | 1,163 | | | | 908 | | | | 2,041 | | | | 1,753 | |
| Gross profit | | | 1,366 | | | | 1,148 | | | | 2,357 | | | | 2,173 | |
| Gross profit margin | | | | | | | | | | | | | | | | |
| Selling, general and administrative | | | 683 | | | | 701 | | | | 1,325 | | | | 1,383 | |
| Income from Operations | | | | | | | | | | | | | | | | |
Revenue
Total revenue was $2,529 and $2,056 for the three months ended March 31, 2021 and 2020, respectively, an increase of $473, or 23.0%. Total revenue was $4,398 and $3,926 for the six months ended March 31, 2021 and 2020, respectively, an increase of $472, or 12.0%. The revenue increase in both periods reflected a broad increase across the business relative to the COVID-19 related slowdown in the respective prior year periods.
Cost of Sales
Cost of sales was $1,163 and $908 for the three months ended March 31, 2021 and 2020, respectively, an increase of $255, or 28.1%, due to product mix. Cost of sales was $2,041 and $1,753 for the six months ended March 31, 2021 and 2020, respectively, an increase of $288, or 16.4%. The cost of sales increases in both periods was consistent with the revenue increase in both periods and reflected relatively stable product mix.
Gross Profit and Gross Profit Margin
Gross profit was $1,366 and $1,148 for the three months ended March 31, 2021 and 2020, respectively, an increase of $218, or 19.0%. Gross profit margin for the three months ended March 31, 2021 and 2020 was 54.0% and 55.8%, respectively. Gross profit was $2,357 and $2,173 for the six months ended March 31, 2021 and 2020, respectively, an increase of $184, or 8.5%. Gross profit margin for the six months ended March 31, 2021 and 2020 was 53.6% and 55.3%, respectively. The gross profit in both periods increased proportionately with the revenue of the business at relatively stable gross profit margins.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were $683 and $701 for the three months ended March 31, 2021 and 2020, respectively, a decrease of $18 or 5.9%. Selling, general and administrative expenses were $1,325 and $1,383 for the six months ended March 31, 2021 and 2020, respectively, a decrease of $58 or 4.2%. The relatively stable selling, general and administrative expenses in both periods reflect a reduction in rent expenses related to the purchase of Indco’s building.
Income from Operations
Income from operations was $683 for the three months ended March 31, 2021 compared to $447 for the three months ended March 31, 2020, representing a 52.8% increase from the prior year period. Income from operations was $1,032 for the six months ended March 31, 2021 compared to $790 for the six months ended March 31, 2020, representing a 30.6% increase from the prior year period. Operating profit increased in both periods as the business benefited from management’s decision a year ago not to reduce staffing levels which resulted in favorable operating leverage as revenue recovered.
Results of Operations – Janel CorporationLife Sciences – Three and Six Months Ended March 31, 2021 and 2020
The following table sets forth our corporate group expenses:Company’s Life Sciences segment manufactures and distributes high-quality monoclonal and polyclonal antibodies, diagnostic reagents and other immunoreagents for biomedical research and provides antibody manufacturing for academic and industry research scientists. Our Life Sciences business also produces products for other life science companies on an OEM basis.
| | | Three Months Ended March 31, | | | Six Months Ended March 31, | |
| | | | | | | | | | | | | |
| | | (in thousands) | |
| Corporate expenses | | $ | 785 | | | $ | 582 | | | $ | 1,470 | | | $ | 1,045 | |
| Amortization of intangible assets | | | 243 | | | | 236 | | | | 486 | | | | 444 | |
| Stock-based compensation | | | 37 | | | | 142 | | | | 111 | | | | 236 | |
| Merger and acquisition expenses | | | | | | | | | | | | | | | | |
| Total corporate expenses | | | | | | | | | | | | | | | | |
Life Sciences – Selected Financial Information:
| | | Three Months Ended March 31, | | | Six Months Ended March 31, | |
| | | | | | | | | | | | | |
| | | (in thousands) | | | | | | | |
| Revenue | | $ | 3,240 | | | $ | 1,737 | | | $ | 5,589 | | | $ | 3,609 | |
| Cost of sales | | | 889 | | | | 375 | | | | 1,431 | | | | 757 | |
| Cost recognized upon sales of acquired inventory | | | 291 | | | | 227 | | | | 505 | | | | 447 | |
| Gross profit | | | 2,060 | | | | 1,135 | | | | 3,653 | | | | 2,405 | |
| Gross profit margin | | | | | | | | | | | | | | | | |
| Selling, general and administrative | | | 1,213 | | | | 1,071 | | | | 2,189 | | | | 2,051 | |
| Income from Operations | | | | | | | | | | | | | | | | |
Revenue
Total revenue was $3,240 and $1,737 for the three months ended March 31, 2021 and 2020, respectively, an increase of $1,503 or 86.5%. Of the $1,503 increase in revenue 74.9% represented organic growth as the Life Sciences business experienced a recovery from the COVID-led slowdown and 26.1% represented contributions from an acquisition as well as the introduction of new products and services. Total revenue was $5,589 and $3,609 for the six months ended March 31, 2021 and 2020, respectively, an increase of $1,980 or 54.9%. Of the $1,980 increase in revenue 76.7% represented organic growth as the Life Sciences business experienced a recovery from the COVID-led slowdown and 23.3% contributions from an acquisition as well as the introduction of new products and services.
Cost of Sales and Cost Recognized Upon Sale of Acquired Inventory
Cost of sales was $889 and $375 for the three months ended March 31, 2021 and 2020, respectively an increase of $514 or 137.1%, primarily as a result of business growth and, to a smaller degree, increased expenses from an acquisition. Cost recognized upon sale of acquired inventory was $291 and $227 for the three months ended March 31, 2021 and 2020, respectively, an increase of $64 or 28.2%, due to some acquired inventory from an acquisition partially offset by some inventory being fully amortized.
Cost of sales was $1,431 and $757 for the six months ended March 31, 2021 and 2020, respectively, an increase of $674 or 89.0%, primarily as a result of business growth. Cost recognized upon sale of acquired inventory was $505 and $447 for the six months ended March 31, 2021 and 2020, respectively, an increase of $58 or 13.0%, due to acquired inventory from an acquisition partially offset by some inventory being fully amortized.
Gross Profit and Gross Profit Margin
Gross profit was $2,060 and $1,135 for the three months ended March 31, 2021 and 2020, respectively, an increase of $578 or 96.0%. In the three months ended March 31, 2021 and 2020, the Life Sciences segment had a gross profit margin of 63.6% and 65.3%, respectively, as business improved compared to the prior year period; contributions from an acquisition and product mix was consistent period to period.
Gross profit was $3,653 and $2,405 for the six months ended March 31, 2021 and 2020, respectively, an increase of $1,248 or 51.9%. In the six months ended March 31, 2021 and 2020, the Life Sciences segment had a gross profit margin of 65.4% and 66.5%, respectively. Gross profit margin for both periods increased in line with revenue with consistent product mix period to period and contributions from an acquisition.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were $1,213 and $1,071 for the three months ended March 31, 2021 and 2020, respectively, an increase of $142, or 13.3%. Selling, general and administrative expenses were $2,189 and $2,051 for the six months ended March 31, 2021 and 2020, respectively, an increase of $138 or 6.7%. The increased expenses in both periods reflects leverage of fixed costs and some expenses from an acquired business relative to prior year period.
Income from Operations
Income from operations for the three months ended March 31, 2021 and 2020 was $847 and $64, an increase of $783 or 1,223.4%. Income from operations for the six months ended March 31, 2021 and 2020 was $1,464 and $354, an increase of $1,110 or 313.6%. The growth in both periods reflects strong organic growth, favorable operating leverage and, to a smaller extent, contribution from an acquisition.
Results of Operations – Corporate and other – Three and Six Months Ended March 31, 2021 and 2020
Below is a reconciliation of income from operations segments to net (loss) available to common stockholders
| | | Three Months Ended March 31, | | | Six Months Ended March 31, | |
| (in thousands) | | 2021 | | | 2020 | | | 2021 | | | 2020 | |
| Total income from operating segments | | $ | 1,910 | | | $ | 272 | | | $ | 3,367 | | | $ | 1,259 | |
| Administrative expenses | | | (764 | ) | | | (804 | ) | | | (1,471 | ) | | | (1,534 | ) |
| Amortization expense | | | (293 | ) | | | (243 | ) | | | (544 | ) | | | (486 | ) |
| Stock-based compensation | | | | | | | | | | | | | | | | |
| Total Corporate expenses | | | (1,069 | ) | | | (1,103 | ) | | | (2,037 | ) | | | (2,131 | ) |
| Interest expense | | | (158 | ) | | | (141 | ) | | | (277 | ) | | | (304 | ) |
| Gain on Paycheck Protection Program loan forgiveness | | | 135 | | | | — | | | | 135 | | | | — | |
| Net income (loss) before taxes | | | | | | | | | | | | | | | | |
| Income tax (expense) benefit | | | (222 | ) | | | 35 | | | | (337 | ) | | | 119 | |
| Net income (loss) | | | | | | | | | | | | | | | | |
| Preferred stock dividends | | | (195 | ) | | | (175 | ) | | | (369 | ) | | | (326 | ) |
| Net Income (Loss) Available to Common Stockholders | | | | | | | | | | | | | | | | |
Total Corporate Expenses
Total corporate expenses, which include amortization of intangible assets, stock-based compensation and merger and acquisition expenses, increaseddecreased by $126$34, or by 3.1%, to $1,103, or 12.9%$1,069 in the three months ended March 31, 20202021 as compared to $977$1,103 for the three months ended March 31, 2019. Expenses increased2020. The decrease was primarily due to $2,131lower professional expenses and stock-based compensation, partially offset by higher amortization of intangible asset expense related to three acquisitions versus the prior year period.
Total corporate expenses, which include amortization of intangible assets, stock-based compensation and merger and acquisition expenses, decreased by $94, or by 4.4%, to $2,037 in the six months ended March 31, 20202021 as compared to $1,799 in$2,131 for the six months ended March 31, 2019, a $332 or 18.5% increase.2020. The increases in both periods weredecrease was primarily due primarily to higher accounting-relatedlower professional expenses and higher merger and acquisition related expensesstock-based compensation, partially offset by lower stock-based compensationhigher amortization of intangible asset expense forrelated to three acquisitions versus the quarter.prior year period.
Amortization of Intangible Assets37
Interest Expense
ForInterest expense for the consolidated company increased $17, or 12.1%, to $158 for the three months ended March 31, 2021 from $141 for the three months ended March 31, 2020 as a result of a higher debt level due to acquisitions partially offset by lower interest rates versus the prior year period.
Interest expense for the consolidated company decreased $57,$27, or 28.9%8.9%, to $141 from $198$277 for the threesix months ended March 31, 2019. For2021 from $304 for the six months ended March 31, 2020 and 2019, interest expense was $304 and $360, respectively,as a decreaseresult of $56, or 15.5%. The decrease in both periods was primarily due to lower prevailing interest rates and lower rates on the amended revolving line of credit facility, partially offset by average higher debt levels on the senior secured term loan facility.borrowing to support acquisitions.
Income Taxes
On a consolidated basis, the Company recorded an income tax expense of $222 for the three months ended March 31, 2021, as compared to an income tax benefit of $35 for the three months ended March 31, 2020, as compared to an income tax2020. The increase in expense of $69 for the three months ended March 31, 2019. For the six months ended March 31, 2020, the Company recorded an income tax benefit of $119 versus an expense of $253 in the prior year period. The income tax benefit in both periods was primarily due to the increase in pretax loss.income. In 2016, a deferred tax asset was established to reflect a net operating loss carryforward, which the Company has begun using, and is expected to continue to use, through ongoing profitability.
On a consolidated basis, the Company recorded an income tax expense of $337 for the three months ended March 31, 2021, as compared to an income tax benefit of $119 for the three months ended March 31, 2020. The increase in expense was primarily due to the increase in pretax income. In 2016, a deferred tax asset was established to reflect a net operating loss carryforward, which the Company has begun using, and is expected to continue to use, through ongoing profitability.
Preferred Stock Dividends
Preferred stock dividends include any dividends accrued but not paid on the Company’s Series C Cumulative Preferred Stock (the “Series C Stock”). For the three months ended March 31, 20202021 and 2019,2020, preferred stock dividends were $195 and $175, and $148, respectively. respectively, representing an increase of $20, or 11.4%. The increase in preferred stock dividends was the result of the increase in dividend rate as of January 1, 2021 to 8% from 7%, partially offset by a lower number of shares of Series C Stock outstanding. See note 10 to the consolidated financial statements for additional information.
For the six months ended March 31, 20202021 and 2019, the2020, preferred stock dividends wewere $369 and $326, versus $270, respectively.respectively, representing an increase of $43, or 13.2%. The increase of $27 for the three-month period and $56 for the six-month period werein preferred stock dividends was the result of anthe increase in the dividend rate as of January 1, 20202021 to 8% from 7% and, partially offset by a higher outstanding amountlower number of accrued and unpaid dividends.shares of Series C Stock outstanding. See note 910 to the consolidated financial statements for additional information.
Net Income (Loss) Income
Net income was $596, or $0.61 per diluted share, for the three months ended March 31, 2021 compared to net loss wasof ($937), or ($1.08) per diluted share, for the three months ended March 31, 20202020. The increase was primarily due to higher revenues and gross profit and lower selling, general and administrative expenses across our operating segments.
Net income was $851, or $0.87 per diluted share, for the six months ended March 31, 2021 compared to net incomeloss of $175,($1,057), or $0.18($1.22) per diluted share, for the six months ended March 31, 2020. The increase was primarily due to higher revenues and gross profit and lower selling, general and administrative expenses across our operating segments.
Income (Loss) Available to Common Shareholders
Income available to holders of common shares was $401, or $0.41 per diluted share, for the three months ended March 31, 2019. For the six months ended March 31, 2020 net (loss) income totaled ($1,057) or ($1.22) per share compared to $719 or $0.77 per share for the six months ended March 31, 2019. The loss was primarily due to lower revenues and gross profit and higher selling, general and administrative expenses across our businesses in both periods.
(Loss) Income Available to Common Stockholders
Loss available to holders of common shares wasof ($1,112), or ($1.29) per diluted share, for the three months ended March 31, 2020. The increase in income primarily was due to higher gross profit and lower selling, general and administrative expenses across our operating segments.
Income available to holders of common shares was $482, or $0.49 per diluted share, for the six months ended March 31, 2020 compared to incomeloss available to holders of $27,common shares of ($1,383), or $0.03($1.60) per diluted share, for the three months ended March 31, 2019. In the six months ended March 31, 2020 loss available to holders of common shares totaled ($1,383) or ($1.60) per share compared to $449 or $0.48 per share for the six months ended March 31, 2019.2020. The decreaseincrease in income primarily was due to lower revenues andhigher gross profit and higherlower 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%.operating segments.
Results of Operations - Global Logistics Services
Our Global Logistics Services business helps its clients move and manage freight efficiently to reduce inventories and to increase supply chain speed and reliability. Key services include customs entry filing, arrangement of freight forwarding by air, ocean and ground, warehousing, cargo insurance procurement, logistics planning, product repackaging and online shipment tracking.
Global Logistics Services – Selected Financial Information:
| | | Three Months Ended March 31, | | | Six Months Ended March 31, | |
| | | | | | | | | | | | | |
| | | (in thousands) | |
| Revenue | | $ | 15,328 | | | $ | 16,865 | | | $ | 31,407 | | | $ | 35,670 | |
| Forwarding expenses | | | 11,615 | | | | 12,957 | | | | 23,702 | | | | 27,375 | |
| Net revenue | | | 3,713 | | | | 3,908 | | | | 7,705 | | | | 8,295 | |
| Gross profit margin | | | | | | | | | | | | | | | | |
| Selling, general & administrative | | | 3,952 | | | | 3,468 | | | | 7,590 | | | | 6,828 | |
| (Loss) income from operations | | | | | | | | | | | | | | | | |
Revenue
Total revenue decreased 9.1% to $15,328 for the three months ended March 31, 2020, compared to $16,865 in the three months ended March 31, 2019. The decrease in revenue was driven by the global trade slowdown, in particular the steep reductions in global import and export trade volumes, due to the COVID-19 pandemic.
Total revenue for the six months ended March 31, 2020 and 2019 was $31,407 and $35,670 respectively, a decrease of $4,263 or 11.9%. The decrease in revenue was largely due to the impact of the global trade slowdown due to the COVID-19 pandemic and customers in the prior year period moving freight ahead of certain governmental trade policies. Acquired revenue from two acquisitions completed during fiscal 2019 slightly offset some of the revenue decline in the six-month period.
Net Revenue
Net revenue for the three months ended March 31, 2020 and 2019 was $3,713 and $3,908 respectively, a decrease of $195, or 5.0%. The decrease reflected an organic decline for the quarter in our base business due to volume pressures from the COVID-19 pandemic partially offset by improved freight purchase rates. Net revenue as a percentage of gross revenue increased to 24.2% versus 23.2% for the prior year period due to lower freight rates.
Net revenue for the six months ended March 31, 2020 and 2019 was $7,705 and $8,295 respectively, a decrease of $590, or 7.1%, as a result of organic declines due to the COVID-19 pandemic partially offset by contributions from two acquisitions and improved freight purchase rates in the current year period, whereas we benefited in the prior year period from customers moving freight in advance of certain governmental trade policies. Net revenue as a percentage of gross revenue increased in the six-month period to 24.5% versus 23.3% in the prior year period due to lower freight rates.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the three months ended March 31, 2020 were $3,952, as compared to $3,468 for the three months ended March 31, 2019. This increase of $484, or 14.0%, was largely attributable to the reserve for the settlement of threatened litigation and additional expenses from maintaining current staff levels. As a percentage of revenue, selling, general and administrative expenses were 25.8% and 20.6% of revenue for the three months ended March 31, 2020 and 2019, respectively.
Selling, general and administrative expenses for the six months ended March 31, 2020 and 2019 were $7,590 and $6,828 respectively. The increase of $762, or 11.16% reflected the reserve for the settlement of threatened litigation and higher expenses from prior year acquisitions. As a percentage of revenue, selling, general and administrative expenses were 24.2% and 19.1% of revenue for the six months ended March 31, 2019 and 2018, respectively.
(Loss) Income from Operations
For the three months ended March 31, 2020, loss from operations before income taxes was $(239) as compared to income from operations of $440 for the three months ended March 31, 2019, a decrease of $679 or 154.3%. Operating income in the three-month period declined due to the impact of the global trade slowdown associated with the COVID-19 pandemic and the reserve for the settlement of threatened litigation.
For the six months ended March 31, 2020 and 2019, income from operations before income taxes was $115 and $1,467 respectively, a decrease of $1,352 or 92.2%. Income from operations 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 and the reserve for the settlement of threatened litigation, partially offset by contributions from acquisitions experienced during the first quarter. Our operating margin as a percentage of net revenue for the three months ended March 31, 2020 was 6.4%, versus 11.3% in the prior year period.
Results of Operations - Manufacturing
The Company’s Manufacturing segment includes its majority-owned Indco subsidiary, which manufactures and distributes industrial mixing equipment.
Manufacturing – Selected Financial Information:
| | | Three Months Ended March 31, | | | Six Months Ended March 31, | |
| | | | | | | | | | | | | |
| | | (in thousands) | | | | | | | |
| Revenue | | $ | 2,056 | | | $ | 2,452 | | | $ | 3,926 | | | $ | 4,533 | |
| Cost of sales | | | 908 | | | | 1,077 | | | | 1,753 | | | | 2,010 | |
| Gross profit | | | 1,148 | | | | 1,375 | | | | 2,173 | | | | 2,523 | |
| Gross profit margin | | | | | | | | | | | | | | | | |
| Selling, general & administrative | | | 701 | | | | 759 | | | | 1,383 | | | | 1,467 | |
| Income from Operations | | | | | | | | | | | | | | | | |
Revenue
Total revenue decreased 16.1% to $2,056 in the three months ended March 31, 2020, compared to $2,452 for the three months ended March 31, 2019. Total revenue decreased 13.4% to $3,926 in the six months ended March 31, 2019, compared to $4,533 in the six months ended March 31, 2018. The revenue decline in both periods reflected a decline in volume across the business relative to the prior year periods, due to the slowdown late in the quarter related to the COVID-19 pandemic.
Gross Profit
Gross profit decreased 16.5% to $1,148 in the three months ended March 31, 2020, compared to $1,375 for the three months ended March 31, 2019. Gross profit margin for the three-month periods ended March 31, 2020 and 2019 was 55.8% and 56.1%, respectively. Gross profit margin for the six months ended March 31, 2020 decreased to 55.3%, compared to 55.7% for the six months ended March 31, 2019. In both the three- and six-month periods, gross profit margin was relatively flat as the mix of business remained consistent.
Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased 7.6% to $701 in the three months ended March 31, 2020, compared to $759 in the three months ended March 31, 2019. Selling, general and administrative expenses decreased 5.7% to $1,383 in the six months ended March 31, 2020, compared to $1,467 in the six months ended March 31, 2020. The decrease in both periods was related to the decline in revenue, partially offset by management’s decision to maintain operational capabilities.
Income from Operations
Income from operations was $447 for the three months ended March 31, 2020 compared to $616 for the three months ended March 31, 2019, representing a 27.4% decrease from the prior year period. Income from operations of $790 for the six months ended March 31, 2020 decreased 25.2% compared to $1,056 for the six months ended March 31, 2019. Operating profit decreased in both periods due to lower revenue growth without corresponding expense reductions.
Results of Operations – Life Sciences
The Company’s Life Sciences segment manufactures and distributes high-quality monoclonal and polyclonal antibodies, diagnostic reagents and other immunoreagents for biomedical research and provides antibody manufacturing for academic and industry research scientists. Our Life Sciences business also produces products for other life science companies on an OEM basis.
Life Sciences – Selected Financial Information:
| | | Three Months Ended March 31, | | | Six Months Ended March 31, | |
| | | | | | | | | | | | | |
| | | (in thousands) | | | | | | | |
| Revenue | | $ | 1,737 | | | $ | 1,652 | | | $ | 3,609 | | | $ | 3,093 | |
| Cost of sales | | | 602 | | | | 565 | | | | 1,204 | | | | 1,054 | |
| Gross profit | | | 1,135 | | | | 1,087 | | | | 2,405 | | | | 2,039 | |
| Gross profit margin | | | | | | | | | | | | | | | | |
| Selling, general & administrative | | | 1,071 | | | | 724 | | | | 2,051 | | | | 1,431 | |
| Income from Operations | | | | | | | | | | | | | | | | |
Revenue
Total revenue was $1,737 and $1,652 for the three months ended March 31, 2020 and 2019, respectively, an increase of $85 or 5.1%. Total revenue was $3,609 and $3,093 for the six months ended March 31, 2020 and 2019, respectively. Acquisitions accounted all of the increase in both periods, as organic growth declined at a double-digit rate for the quarter and at a mid-single digit rate in the six-month period, each as compared to the prior year period, due to the slowdown in academic research late in the quarter related to the COVID-19 pandemic.
Gross Profit and Gross Profit Margin
Gross profit was $1,135 and $1,087 for the three months ended March 31, 2020 and 2019, respectively, an increase of $48 or 4.4%. Amortization of acquired inventory in the quarter totaled $227 versus $67 in the prior year period due to our two prior year acquisitions. In the three months ended March 31, 2020 and 2019, the Life Sciences segment had gross profit margins of 65.3% and 65.8%, respectively. Gross profit margin decreased in the quarter compared to prior year period due to acquisitions and favorable product mix.
Gross profit was $2,405 and $2,039 for the six months ended March 31, 2020 and 2019, respectively. In the six months ended March 31, 2020 the amortization of acquired inventory totaled $447 versus $129 in the prior year. In the six months ended March 31, 2020, the Life Sciences segment had a gross profit margin of 66.6% compared to 65.9% for the prior year period.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were $1,071 and $724 for the three months ended March 31, 2020 and 2019, respectively, an increase of $347 or 47.9%, largely due to acquired businesses. Selling, general and administrative expenses were $2,051 and $1,431 for the six months ended March 31, 2020 and 2019, respectively. The increase was largely due to acquired businesses.
Income from Operations
Income from operations for the three months ended March 31, 2020 and 2019 was $64 compared to $363, in the prior year. The decline in operating income reflected higher amortization of acquired inventory due to acquisitions and a slowdown in academic research late in the quarter related to the COVID-19 pandemic. Income from operations for the six months ended March 31, 2020 and 2019 was $354 and $608, respectively. The decline reflected higher amortization of acquired inventory due to acquisitions. As a percentage of revenue income from operations in the six months ended March 31, 2020 declined to 9.8% versus 19.7% due to higher amortization of acquired inventory. Absent these non-cash expenses, adjusted operating income increased to $801 versus $736 in the prior year period due to acquisitions, offset by lower organic revenue.
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. Generally, Janel does not make significant capital expenditures.
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 U.S.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 179 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 Notenote pursuant to which we borrowed $2,726 from Santander pursuant to the Paycheck Protection ProgramPPP under The Coronavirus Aid, Relief and Economic Securitythe Cares Act, Section 7(a)(36) of the Small Business Act in order to be able to continue to cover our payroll costs, group health care benefits, mortgage payments, rent and utilities. The duration and magnitude of the pandemic is not reasonably estimable at this point, and if the pandemic persists, our liquidity and capital resources could be further negatively impacted.
Our subsidiaries depend on commercial credit facilities to fund day-to-day operations as there is a difference between the timing of collection cycles and the timing of payments to vendors. Generally, we do not make significant capital expenditures. Janel’s cash flow performance for the 2021 fiscal year is not necessarily indicative of future cash flow performance. As of March 31, 2020,2021, the Company’s cash and working capital deficiency (current assets minus current liabilities) were $1,928$3,509 and $8,302, respectively, as compared to $2,163 and $6,190 as$11,714, respectively. As of September 30, 2019.2020, the Company’s cash and working capital deficiency were $3,349 and $10,372, respectively. Compared with the prior year period, the Company’s cash and cash equivalents increased $160, or 4.8%, and its working capital deficiency increased $1,800, or 17.4%. The decrease in cash and increase in working capital deficiency is considered nominal, representing relatively stable collections from customerswas primarily the result of acquisitions and payments of vendors.
Janel’s cash flow performance for the three and six-months ended March 31, 2020 is not necessarily indicative of future cash flow performance.slower accounts receivables collections.
Cash flows from operating activities
Net cash provided by operating activities for the six months ended March 31, 2021 and 2020 was $714 and 2019 was $1,209, and $1,272, respectively. The decrease in cash provided by operations for the six months ended March 31, 20202021 compared to the prior year period 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 six-month period ended March 31, 2020.payables.
Cash flows from investing activities
Net cash used in investing activities totaled $247$2,959 for the six months ended March 31, 2020,2021, versus $2,188$247 for the prior year period. During the six months ended March 31, 2020, the2020. The Company used $116 for final purchase price adjustments related to an acquisition in the prior year compared to $1,935$2,814 for the six months ended March 31, 2019. The Company also used $131acquisition of two businesses and $85 for the acquisition of property and equipment for the six months ended March 31, 20202021 compared to $253$116 for final purchase price adjustments related to an acquisition and $131 for the acquisition of property and equipment for the six months ended March 31, 2019.2020.
Cash flows from financing activities
Net cash used inprovided by financing activities was ($1,197)$2,405 for the six months ended March 31, 2020,2021, versus $1,712 provided by financing activities for the six months ended March 31, 2019. Net cash($1,197) used in financing activities for the six months ended March 31, 2020 was primarily a result of reduced outstanding balances on our line of credit.2020. Net cash provided by financing activities for the six months ended March 31, 20192021 primarily fundedincluded funds from our acquisition efforts.line of credit partially offset by repayments of term loans.
Off-Balance Sheet Arrangements
As of March 31, 2020,2021, we had no off-balance sheet arrangements or obligations.
| ITEM 4. | CONTROLS AND PROCEDURES |
Evaluation of Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures designed to ensure that information required to be disclosed in reports filed under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the specified time periods, and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.
Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of MarchDecember 31, 2020, the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, because a material weaknesses in the Company’s internal control over financial reporting existed at September 30, 2018 and had not been remediated by the end of the period covered by this Quarterly Report on Form 10-Q, the Company’s disclosure controls and procedures were not effective as of the end of the period covered by this Quarterly Report on Form 10-Q. These material weaknesses in the Company’s internal control over financial reporting and the Company’s remediation efforts are described below.
Material Weaknesses in Internal Control Over Financial Reporting
The Company’s management, including our Chief Executive Officer and Chief Financial Officer, have identified material weaknesses in the Company’s internal control over financial reporting. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.
Life Sciences
In connection with the preparation of the Company’s Annual Report on Form 10-K for fiscal year 2020, management identified the followingcertain material weaknesses as of September 30, 20192020 related to our Life Sciences segment:
Thesegment. In particular, the Company had inadequate controls over the following:
The Life Science Segment had a lack of documentation and/or controls over the following:
(1) recording of sales ordersorder 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”),
(2) recording of journal entries and approvals,
(3) payroll recording and processing of payroll changes,financial close process,
inventory management and creation,valuation of inventory,
(5) documentationinformation technology controls,
accounting manager’s administrative access to financial accounting software and banking portal, roles and responsibilities around significant processes including financial close without independent review or back-up results in segregation of duties issue,
lack of formal evidence pertaining to month-end closing activities (i.e., journal entry review, account reconciliations, closing checklists, budget to actual analysis, review of financial package, inventory account analysis, etc.), and
lack of review of sales orders including pricing, lack of revenue cut off procedures and lack of inventory cycle count results,valuation controls, inventory counts and reconciliation to general ledger.
(6) recording of inventory and updating of standard costing worksheets used in the valuation of inventory.
AIn 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 addition,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, 2019, management identified the following additional deficiency2020 related to the Company’sour Global Logistics Services segment: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
• 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 606.606, and
• during the three months ended June 30, 2020, management identified an additional material weakness related to the prevention and timely detection of funds transfers to an unauthorized account, for which remediation actions have been undertaken as more fully described below.
Based on this assessment andCorporate
In connection with the material weaknesses described above, management concluded thatpreparation of the Company’s internal control over financial reporting was not effectiveAnnual Report on Form 10-K for fiscal year 2020, management identified certain material weaknesses as of September 30, 20192020 related to our Corporate office. In particular, the Company had inadequate controls over a lack of segregation of duties between chief financial officer and had not been remediated by the end of the period covered by this Quarterly Report on Form 10-Q.corporate accountant regarding:
Our management performed analyses, substantive procedures• administrative access to financial accounting software and other post-closing activities with the assistance of consultantsbanking portal and other professional advisors in order to ensure the validity, completeness and accuracy of our income tax provision and accounting for complex and/or non-routine transactions and the related disclosures. Accordingly, our management believes that
• the financial statements included in this Form 10-Q as of March 31, 2020 are fairly presented, in all material respects, and in conformity with U.S. GAAP.close process.
Remediation Plan
We have engaged an external consultant to assist in the development and execution of a plan to remediate the material weaknesses noted related to our Life Sciences segment noted above. This process includes review of our controls and implementation of a new enterprise resource planning system which commenced during the secondfirst quarter of fiscal 20202021 and is ongoing.expected to be fully implemented by the third quarter of fiscal 2021.
In addition, we have developed and are executing on our plan to remediate our material weaknesses in connection with the information technology controls by expandingand 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 20182020 and is ongoing.
WeWith respect to material weaknesses in our Global Logistics Services segment, we have alsoengaged an external consultant to assist in the development and execution of a plan to remediate the material weaknesses noted above related to our Global Logistics Services segment. As part of this plan, we have implemented a new system triggered revenue recognition process for the Global Logistics Services segment based on target dates (e.g., delivery date, file transfer date, etc.) for specific file types. This process has beenThrough 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 as the second quartera new payment processing validation procedure, updated internal firewall protocols related to e-mails and conducted updated training on finance-related internal controls policies.
With respect to material weaknesses noted at Corporate, we have developed a general IT policy which includes access provisioning and deprovisioning and user access reviews that would involve knowing and evaluating which staff have user privileges to mitigate any lack of fiscal year 2020.segregation of duties.
Our management believes that the foregoing efforts will effectively remediate the material weaknesses. That said, the new and enhanced controls have not operated for a sufficient amount of time to conclude that the material weaknesses have been remediated. As we continue to evaluate and work to improve our internal control over financial reporting, our management may decide to take additional measures to address the material weaknesses or modify the remediation plan described above.
Internal control over financial reporting, no matter how well designed, has inherent limitations. Therefore, even those controls determined to be effective may not prevent or detect misstatements and can provide only reasonable assurance with respect to financial statement preparation and presentation.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our executive management team, together with our board of directors, is committed to achieving and maintaining a strong control environment, high ethical standards, and financial reporting integrity.
Based on the nature and interrelationship of the noted deficiencies, management concluded that these additional deficiencies, in the aggregate, resulted in a reasonable possibility that a material misstatement in our interim or annual financial statements would not be prevented or detected on a timely basis, and as such, constituted a material weakness.
Changes in Internal Control over Financial Reporting
As disclosedOther than the ongoing remediation efforts described above, under “Remediation Plan,” there were changeswas no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the period covered by this Quarterly Report on Form 10-Qquarter ended March 31, 2021 that havehas materially affected, or areis reasonably likely to materially affect, our internal control over financial reporting. In addition, as discussed above, during the quarter ended March 31, 2020, the Company implemented changes to its accounting policies, practices and internal controls over financial reporting in connection with its adoption of ASC Topic 606.
PART II - OTHER INFORMATION
Janel is occasionally subject to claims and lawsuits which typically arise in the normal course of business. While the outcome of these claims cannot be predicted with certainty, management does not believe that the outcome of any of these legal matters will have a material adverse effect on the Company’s business, results of operations, financial condition or cash flows.
In December 2017, Janel Group received a Notice of Copyright Infringement letter from counsel for Warren Communications News, Inc. (“Warren”), the publisher of the International Trade Today (“ITT”) newsletter. On May 11, 2020, the parties reached a settlement agreement and release to resolve any and all concerns between the parties, voluntarily and without admission of copyright infringement.
As of March 31, 2020, the Company had a liability for settlement costs related to the Warren Matter, which is included in accrued expenses and other current liabilities.
For a discussion of the Company’s potential risks or uncertainties, please see “Part I—Item 1A—Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended September 30, 2019 filed with the SEC. Other than as described below, there2020. There have been no material changes to the risk factors disclosed in Part I—Item 1A of the Company’s 20192020 Annual Report.
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 will adversely affect our business operations and has, and is likely to continue to, adversely affect our results of operations, cash flows and financial position. COVID-19 has spread to 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, are currently under 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, we currently expect that our results of operations and financial condition will be even more significantly adversely impacted in the third quarter and fourth quarters of 2020 and subsequent periods than in the quarter ended March 31, 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.
Additionally, we have seen a material impact in our Life Sciences business as a result of a slowdown in academic research due to the pandemic. We may also see 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. 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 will 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 for an extended period of time our efforts to have employees work at home and operate reduced workforces at facilities. 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 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.
| ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
There were no unregistered sales of equity securities during the sixthree months ended March 31, 2020.2021. In addition, there were no shares of common stock purchased by us during the sixthree months ended March 31, 2020.2021.
Exhibit No.
| |
| |
| 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) |
| |
| 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) |
| |
| 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. |
| |
| Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer (filed herewith) |
| | |
| Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer (filed herewith) |
| | |
| Section 1350 Certification of Principal Executive Officer (filed herewith) |
| | |
| Section 1350 Certification of Principal Financial Officer (filed herewith) |
| | |
| 101 | Interactive data files providing financial information from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 20202021 for the three and six months ended March 31, 20202021 and 20192020 in XBRL (Extensible Business Reporting Language) pursuant to Rule 405 of Regulation S-T: (i) Consolidated Balance Sheets as of March 31, 20202021 and September 30, 2019,2020, (ii) Consolidated Statements of Operations for the sixthree months ended March 31, 20202021 and 2019,2020, (iii) Consolidated Statement of Changes in Stockholders’ Equity for the six months ended March 31, 20202021 and 2019,2020, (iv) Consolidated Statements of Cash Flows for the six months ended March 31, 20202021 and 2019,2020, and (v) Notes to Consolidated Financial Statements. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Dated: May 11, 202010, 2021 | JANEL CORPORATION |
| | Registrant |
| | |
| | /s/ Dominique Schulte |
| | Dominique Schulte |
| | Chairman, President and Chief Executive Officer |
| | (Principal Executive Officer) |
| |
Dated: May 11,10, 2020021 | JANEL CORPORATION |
| | Registrant |
| | |
| | /s/ Vincent A. Verde |
| | Vincent A. Verde |
| | Principal Financial Officer, Treasurer and Secretary |
44