UNITED STATES
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March 31, 2020
| Nevada | 86-1005291 | |
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| Emerging growth company |
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March 31, 2020
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| ITEM 1. | FINANCIAL STATEMENTS |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS expenses when incurred. September 30, 2019. On Company had accrued dividends of $1,366. board of directors. its Subsidiaries. 10-K for the fiscal year ended September 30, 2019. Critical Accounting Policies and Estimates section of Management’s Discussion and Analysis of Financial Condition and Results of Operations a change in tax rates is recognized in the results of operations in the period that includes the enactment date. June 30, September 30, 2017 2016 (unaudited) ASSETS CURRENT ASSETS Cash and cash equivalents $ 1,889,468 $ 965,115 Accounts receivable, net of allowance for doubtful accounts of $242,270 and $230,000, respectively 13,323,679 12,353,582 Inventory 332,365 356,875 Prepaid expenses and sundry current assets 314,059 233,716 Total current assets 15,859,571 13,909,288 PROPERTY AND EQUIPMENT, NET 338,218 287,391 OTHER ASSETS Intangible assets, net (Note 3) 12,041,771 12,373,266 Goodwill 9,101,858 8,443,477 Deferred income taxes 587,983 844,977 Security deposits 122,246 99,658 Total other assets 21,853,858 21,761,378 Total assets $ 38,051,647 $ 35,958,057 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Notes payable - banks (Note 4) $ 6,674,311 $ 6,498,403 Note payable - related party, net of imputed interest (Note 5) 492,635 500,000 Accounts payable - trade 11,635,006 9,298,029 Accrued expenses and other current liabilities 1,832,335 1,254,926 Dividends payable 994,945 623,077 Note payable – other - - Current portion of long-term debt 857,148 857,148 Total current liabilities 22,486,380 19,031,583 OTHER LIABILTIES LONG-TERM DEBT – BANK Long-term debt (Note 4) 3,640,179 4,616,540 Long-term debt - related party, net of imputed interest (Note 5) - 471,108 Deferred compensation 78,568 78,568 Total other liabilities 3,718,747 5,166,216 Total liabilities 26,205,127 24,197,799 STOCKHOLDERS' EQUITY Preferred stock, $0.001 par value; 100,000 shares authorized Series A 20,000 shares authorized and 20,000 shares issued and outstanding at both dates 20 20 Series B 5,700 shares authorized and 1,271 shares issued and outstanding at both dates 1 1 Series C 20,000 shares authorized and 14,205 shares issued and outstanding at both dates 15 15 Common stock, $0.001 par value; 4,500,000 shares authorized, 573,951 shares issued and 553,951 and 573,951 shares outstanding, respectively 574 574 Paid-in capital 12,710,441 12,920,416 Treasury stock, at cost 20,000 shares (Note 6) (240,000 ) - Accumulated deficit (1,700,803 ) (2,161,994 ) Total Janel Corporation stockholders' equity 10,770,248 10,759,032 Non-controlling interest 1,076,272 1,001,226 Total stockholders' equity 11,846,520 11,760,258 Total liabilities and stockholders' equity $ 38,051,647 $ 35,958,057 ASSETS Current Assets: Cash 1,928 2,163 Accounts receivable, net of allowance for doubtful accounts 13,677 21,351 Inventory, net 4,178 4,371 Prepaid expenses and other current assets 349 531 Note receivable Total current assets Property and Equipment, net Other Assets: Intangible assets, net 13,112 13,598 Goodwill 13,641 13,525 Operating lease right of use asset 1,599 — Security deposits and other long term assets Total other assets Total assets LIABILITIES AND STOCKHOLDERS’ EQUITY Current Liabilities: Line of credit 7,533 8,391 Accounts payable – trade 15,314 22,061 Accrued expenses and other current liabilities 2,891 2,272 Dividends payable 1,366 1,041 Current portion of operating lease liabilities 479 — Current portion of subordinated promissory note 155 152 Current portion of long-term debt Total current liabilities 28,576 34,745 Other Liabilities: Long-term debt 6,310 6,602 Subordinated promissory notes 465 541 Mandatorily redeemable non-controlling interest 619 619 Deferred income taxes 1,817 2,000 Long term operating lease liabilities 1,142 — Other liabilities Total other liabilities Total liabilities Stockholders’ Equity: Series B 5,700 shares authorized and 631 shares issued and outstanding as of March 31, 2020 and September 30, 2019, respectively — — Series C 20,000 shares authorized and 20,000 shares issued and outstanding at March 31, 2020 and September 30, 2019, liquidation value of $12,867 and $12,541 at March 31, 2020 and September 30, 2019, respectively — — Common stock, $0.001 par value; 4,500,000 shares authorized, 867,652 issued and 847,652 outstanding as of March 31, 2020 and 863,812 issued and 843,812 outstanding as of September 30, 2019 1 1 Paid-in capital 14,891 15,075 Treasury stock, at cost, 20,000 shares (240 (240 Accumulated (deficit) earnings Total stockholders’ equity Total liabilities and stockholders’ equity - 3 - Three months ended
June 30, Nine months ended
June 30, 2017 2016 2017 2016 REVENUES Global Logistics Services $ 17,963,837 $ 15,425,092 $ 49,499,193 $ 53,935,789 Manufacturing 2,283,041 2,080,361 6,444,205 2,792,667 TOTAL REVENUES 20,246,878 17,505,453 55,943,398 56,728,456 COST AND EXPENSES Forwarding expenses 14,455,926 12,157,139 39,810,183 44,171,758 Cost of revenues - manufacturing 989,313 961,587 2,888,458 1,266,878 Selling, general and administrative 4,002,311 3,460,936 11,206,459 9,798,908 Amortization of intangible assets 195,666 203,237 578,997 402,915 TOTAL COSTS AND EXPENSES 19,643,216 16,782,899 54,484,097 55,640,459 INCOME FROM OPERATIONS 603,662 722,554 1,459,301 1,087,997 OTHER ITEMS Interest expense, net of interest income (184,280 ) (199,892 ) (566,807 ) (476,665 ) INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 419,382 522,662 892,494 611,332 Income taxes (129,419 ) (36,604 ) (356,257 ) (75,181 ) NET INCOME FROM CONTINUING OPERATIONS 289,963 486,058 536,237 536,151 Loss from discontinued operations, net of tax - (1,668 ) - (184,845 ) NET INCOME 289,963 484,390 536,237 351,306 Less: net income attributable to non-controlling interests 30,943 35,331 75,046 49,636 NET INCOME ATTRIBUTABLE TO JANEL CORPORATION STOCKHOLDERS 259,020 449,059 461,191 301,670 Preferred stock dividends (127,706 ) (133,819 ) (383,118 ) (262,165 ) NET INCOME AVAILABLE TO COMMON STOCKHOLDERS $ 131,314 $ 315,240 $ 78,073 $ 39,505 Income per share from continuing operations attributable to common stockholders: Basic $ 0.52 $ 0.85 $ 0.95 $ 0.93 Diluted $ 0.42 $ 0.78 $ 0.77 $ 0.87 (Loss) per share from discontinued operations attributable to common stockholders: Basic $ - $ - $ - $ (0.32 ) Diluted $ - $ - $ - $ (0.32 ) Net income (loss) per share attributable to common stockholders: Basic $ 0.24 $ 0.55 $ 0.14 $ 0.07 Diluted $ 0.19 $ 0.51 $ 0.11 $ 0.06 Basic weighted average number of shares outstanding 553,951 573,951 567,309 573,951 Fully-diluted weighted average number of shares outstanding 686,699 622,624 693,332 613,865 Revenue 19,121 20,969 38,942 43,296 Forwarding expenses and cost of revenues Gross profit Cost and Expenses: Selling, general and administrative 6,584 5,692 12,669 11,081 Amortization of intangible assets Total Costs and Expenses (Loss) Income from Operations Other Items: Interest expense net of interest income (Loss) Income Before Income Taxes 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 Net (loss) Income per share Basic Diluted Net (loss) income per share attributable to common stockholders: Basic Diluted Weighted average number of shares outstanding: Basic Diluted - 4 - Common Stock Preferred Stock Paid-in Accumulated Treasury Stock Non-
Controlling Total Shares $ Shares $ Capital Deficit Shares $ TOTAL Interest Equity Balance - September 30, 2016 573,951 $ 574 35,476 $ 36 $ 12,920,416 $ (2,161,994 ) - - $ 10,759,032 $ 1,001,226 $ 11,760,258 Net income - - - - - 461,191 - - 461,191 75,046 $ 536,237 Dividends to preferred stockholders - - - - (383,118 ) - - - (383,118 ) - $ (383,118 ) Stock-based compensation - - - - 173,143 - - - 173,143 - $ 173,143 Treasury stock acquired - - - - - - 20,000 (240,000 ) (240,000 ) - $ (240,000 ) Balance - June 30, 2017 573,951 $ 574 35,476 $ 36 $ 12,710,441 $ (1,700,803 ) 20,000 $ (240,000 ) $ 10,770,248 $ 1,076,272 $ 11,846,520 PREFERRED STOCK COMMON STOCK TREASURY STOCK SHARES $ SHARES $ $ SHARES $ $ $ Balance - September 30, 2019 20,631 $ — 863,812 $ 1 $ 15,075 20,000 $ (240 ) $ 42 $ 14,878 Net Loss Dividends to preferred stockholders Stock-based compensation Stock option exercise Balance - March 31, 2020 20,631 $ — 867,652 $ 1 $ 14,891 20,000 $ (240 ) $ (1,015 ) $ 13,637 PREFERRED STOCK COMMON STOCK TREASURY STOCK SHARES $ SHARES $ $ SHARES $ $ $ Balance -September 30, 2018 21,271 $ — 837,951 $ 1 $ 15,872 20,000 $ (240 ) $ (606 ) $ 15,027 Net Income Cumulative effect of change in accounting principle Dividends to preferred stockholders Vested restricted stock unissued Stock option exercise Stock-based compensation Balance - March 31, 2019 21,271 $ — 839,451 $ 1 $ 15,543 20,000 $ (240 ) $ 145 $ 15,449 Cash Flows From Operating Activities: Net (loss) income (1,057 719 Adjustments to reconcile net (loss) income to net cash provided by operating activities: Provision for uncollectible accounts 164 330 Depreciation 92 152 Deferred income tax (183 302 Amortization of intangible assets 486 444 Amortization of acquired inventory valuation 447 129 Amortization of loan costs 14 5 Stock-based compensation 149 236 Changes in operating assets and liabilities, net of effects of acquisitions: Accounts receivable 7,510 (1,002 Inventory (254 (131 Prepaid expenses and other current assets 182 (134 Security deposits and other long term assets (166 (5 Accounts payable and accrued expenses (6,166 171 Lease liability 5 - Other liabilities Net cash provided by operating activities 1,209 1,272 Cash Flows From Investing Activities: Acquisition of property and equipment, net of disposals (131 (253 Acquisitions Net cash used in investing activities (247 ) (2,188 ) Cash Flows From Financing Activities: Repayments of term loan (282 (491 Proceeds from stock option exercise 31 5 Line of credit, proceeds, net (873 2,234 Repayment of subordinated promissory notes Net cash (used in) provided by financing activities Net (decrease) increase in cash (235 796 Cash at beginning of the period Cash at end of period Supplemental Disclosure of Cash Flow Information: Interest Income taxes Non-cash operating activities: Operating lease right of use asset $ 1,900 $ — $ 1,917 $ — Contingent earn-out acquisition Subordinated Promissory notes of Honor Dividends declared to preferred stockholders Vested restricted stock unissued - 5 -CONSOLIDATED STATEMENTS OF CASH FLOWS(Unaudited) Nine months ended June 30, 2017 2016 CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $ 536,237 $ 351,306 Plus (loss) from discontinued operations - 184,845 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Bad debt expense 82,460 341 Depreciation 85,291 62,592 Deferred income tax 256,994 - Amortization of intangible assets 578,997 402,915 Amortization of imputed interest 21,526 41,954 Stock based compensation 173,143 91,492 Changes in operating assets and liabilities: Accounts receivable (753,754 ) 1,942,323 Inventory 24,510 (49,397 ) Prepaid expenses and sundry current assets (87,655 ) (64,279 ) Accounts payable and accrued expenses 1,910,937 (1,924,522 ) NET CASH PROVIDED BY OPERATING ACTIVITIES 2,828,686 1,039,570 NET CASH USED IN DISCONTINUED OPERATIONS - (184,845 ) 2,828,686 854,725 CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of property and equipment (136,118 ) (307,550 ) Cash acquired from acquisition 115,986 - Acquisition of subsidiary (100,000 ) (10,734,663 ) NET CASH USED IN INVESTING ACTIVITIES (120,132 ) (11,042,213 ) CASH FLOWS FROM FINANCING ACTIVITIES: Dividends paid (11,250 ) (11,250 ) Proceeds (payments) from bank loans (1,032,951 ) 5,479,229 Proceeds from sale of preferred series C shares - 4,352,663 Repayment of notes payable - related party (500,000 ) - Treasury stock acquisition (240,000 ) - NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (1,784,201 ) 9,820,642 INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 924,353 (366,846 ) CASH AND CASH EQUIVALENTS, beginning of the period 965,115 942,748 CASH AND CASH EQUIVALENTS, end of period $ 1,889,468 $ 575,901 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period for: Interest $ 545,281 $ 476,665 Income taxes $ 145,470 $ 75,181 Non-cash financing activities: Dividends declared to preferred stockholders $ 371,868 $ 262,165 Acquisition of business: Intangible assets acquired $ 898,381 $ 12,102,838 The accompanying notes are an integral part of these consolidated financial statements.- 6 -JANEL CORPORATION AND SUBSIDIARIES1. BASIS OF PRESENTATION, SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES 108 of Regulation S-X and the instructions to Form 10-Q of the Securities and Exchange Commission. As a result, certain information and footnote disclosures normally included in audited financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. Janel Corporation (together with its subsidiaries, “the Company”(the “Company” or “Janel”) believes that the disclosures made are adequate to make the information presented not misleading. The consolidated financial statements reflect all adjustments which are, in the opinion of management, necessary to a fair statement of the results for the interim periods presented. The results of operations for the periods presented are not necessarily indicative of the results to be expected for a full fiscal year, or any other period. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes included in the Company’s Form 10-K as filed with the Securities and Exchange CommissionCommission.about December 22, 2016.2.ACQUISITIONSINDCO,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.INDCO”Indco”)General. On March 21, 2016,, a majority-owned subsidiary of the Company executedthat manufactures and closeddistributes 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.Stock Purchase Agreement (the “INDCO Purchase Agreement”small life sciences company on July 1, 2019 and the equity interests of PhosphoSolutions, LLC. (“Phospho”) foron September 6, 2019. Both acquisitions were completed primarily to expand our product offerings in Life Sciences. See note 2.purchaseaccounts of the Company and its wholly-owned subsidiaries, as well as Indco, of which Janel owns 91.65%, with a non-controlling interest held by existing Indco management. The Indco non-controlling interest is mandatorily redeemable and is recorded as a liability. All intercompany transactions and balances have been eliminated in consolidation.outstanding common stock (the “INDCO Shares”) of INDCO, which manufactures and distributes industrial mixing equipment. The INDCO Shares represent approximately 91.65%accounts receivable balances, credit quality of the beneficial ownershipCompany’s customers, any specific customer collection issues that have been identified, current economic conditions, and other factors that may affect the customers’ ability to pay. The Company writes off accounts receivable balances that have aged significantly once all collection efforts have been exhausted and the receivables are no longer deemed collectible from the customer. The allowance for doubtful accounts as of INDCO.March 31, 2020 and September 30, 2019 was $654 and $503, respectively.remaining 8.35% ownership was retained by existing INDCO management.UnderCompany maintains an inventory valuation reserve to provide for slow moving and obsolete inventory, inventory not meeting quality control standards and inventory subject to expiration for its Antibodies business. The products of Antibodies require the termsinitial manufacture of multiple batches to determine if quality standards can consistently be met. In addition, the Company will produce larger batches of established products than current sales requirements due to economies of scale. The manufacturing process for these products, therefore, has and will continue to produce quantities in excess of forecasted usage. The Company values acquired manufactured antibody inventory based on a three-year forecast. Inventory quantities in excess of the INDCO Purchase Agreement,forecast are not valued due to uncertainty over salability. Amounts are charged to the purchase pricereserve when the Company scraps or disposes of inventory.INDCO shares was $11,000,000, subject to certain closing adjustments and customary indemnifications, representations and warranties. The purchase price was paid at closing in cash.INDCO comprises the Manufacturing segmentcosts of the Company.Purchase Price Allocation. In accordance with the acquisition method of accounting, the Company allocated the consideration to the net tangible and identifiable intangiblerelated assets based onover their estimated fair values, which were determined by an independent valuation performed by a third party,useful lives on the straight-line and accelerated methods for both financial reporting and income tax purposes.of the effective acquisition date, March 1, 2016. represents the purchase price over the fair value of the underlying net tangible and identifiable intangible assets.The following table summarizesassets acquired in a business combination. Under current authoritative guidance, goodwill is not amortized but is tested for impairment annually (on September 30) as well as when an event or change in circumstance indicates impairment may have occurred. Goodwill is tested for impairment by comparing the fair values assignedvalue of the Company’s individual reporting units to their carrying amount to determine if there is potential goodwill impairment. If the fair value of the reporting unit is less than the carrying value, an impairment loss is recorded to the extent that the implied fair value of the goodwill of the reporting unit is less than its carrying value. If there is a material change in economic conditions, including as a result of continued disruption due to the coronavirus (COVID-19) pandemic, or other circumstances influencing the estimate of future cash flows or significantly affect the fair value of our reporting units, the Company could be required to recognize impairment charges in the future. There were no indicators of impairment of goodwill as of March 21, 2020 and September 30, 2019.acquiredincluding fixed assets and intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. In reviewing for impairment, the carrying value of such assets is compared to the estimated undiscounted future cash flows expected from the use of the assets and their eventual disposition. Service Type Ocean import and export Freight forwarding Customs brokerage Air import and export Total assumed. Fair Value Cash $ 377,653 Accounts receivable, net 620,632 Inventory 372,212 Prepaid expenses and other current assets 109,333 Fixed assets 155,050 Accounts payable and other liabilities (1,690,202 ) Note payable - related party (129,258 ) Customer relationships and other intangibles 7,700,000 Goodwill 4,402,838 Non-controlling interest (918,258 ) Purchase price $ 11,000,000
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. A valuation allowance is provided when it is more likely than not that some portion or all of a deferred tax asset will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income and the reversal of deferred tax liabilities during the period in which related temporary differences become deductible. The benefit of tax positions taken or expected to be taken in the Company’s income tax returns are recognized in the consolidated financial statements if such positions are more likely than not of being sustained.- 7 -W.J. Byrnes & Co. (“Byrnes”)General.AprilOctober 1, 2019, the Company adopted ASU No. 2016-02, Leases (“ASC 842” or “ASU 2016-02”) issued by the FASB in February 2016 which was subsequently supplemented by clarifying guidance intended to improve financial reporting of leasing transactions. The new lease accounting guidance requires lessees to recognize lease liabilities and right-of-use assets on the balance sheet for all leases with initial terms longer than 12 months and provides enhanced disclosures on key information of leasing arrangements. The guidance allows companies to apply the requirements retrospectively, either to all prior periods presented or through a cumulative adjustment in the year of adoption.executedis evaluating the effects that the adoption of this guidance will have on its consolidated financial statements.closedrequires the use of a Stock Purchase Agreement (the “Byrnes Purchase Agreement”)forward-looking expected loss model. Current accounting delays the recognition of credit losses until it is probable a loss has been incurred, while the update will require financial assets to be measured at amortized costs less a reserve and equal to the net amount expected to be collected. This standard is effective for annual periods beginning after December 15, 2019, including interim periods within those fiscal years, with early adoption permitted. The Company is evaluating the effects that the adoption of this guidance will have on its consolidated financial statements.2. ACQUISITIONS byprice of $6,768, net of cash acquired. The Company recorded an aggregate $2,067 in goodwill and $2,165 in other identifiable intangibles. The results of operations of the acquired businesses are included in Janel’s consolidated results of operations since the date of each acquisition. Supplemental pro forma information has not been provided as the acquisitions did not have a material impact on Janel’s consolidated results of operations, individually or in the aggregate.100%Honor on November 20, 2018 in a transaction pursuant to which Honor became a direct wholly-owned subsidiary of Janel Group and an indirect wholly-owned subsidiary of the outstanding common stock (the “Byrnes Shares”)Company. At closing, a subordinated promissory note in the aggregate amount of W.J. Byrnes & Co.,$456 was issued to a former member. The acquisition of Honor was funded with cash provided by normal operations along with a subordinated promissory note. Honor provides global logistics services provider with fivetwo U.S. locations.Under the terms of the Byrnes Purchase Agreement, the purchase price for the Byrnes Shares was $100,000 in cash, paid at the closing, plus the assumption of Byrnes’ net liabilities, subject to certain closing adjustmentslocations and customary indemnifications, representations and warranties.The Byrnes acquisition expands the domestic network of the Company’s Global Logistics Services segment.Purchase Price Allocation. In accordance with The results of operations for Honor are reflected in the acquisition method of accounting,Global Logistics Services reporting segment.allocatedcompleted a business combination whereby we acquired Phospho on September 6, 2019. The aggregate purchase price for Phospho was $4,043, net of $13 of cash received. At closing, $4,000 was paid in cash and $56 was recorded in accrued expenses as preliminary tax gross up due to former owners. Phospho is a manufacturer and distributor of monoclonal and polyclonal antibodies, principally used in neuroscience research. Phospho was founded in 2001 and is headquartered in Aurora, Colorado. The results of operations for Phospho are reflected in the Life Sciences reporting segment. As of March 31, 2020, the Company paid $172 in tax gross up consideration to former owners and recorded an additional $116 of goodwill related to the net tangible and identifiable intangible assets based on their estimated fair values, which were determined by an independent valuation performed byPhospho acquistion.third party, asbusiness combination whereby we acquired substantially all of the effective acquisition date, Aprilassets and certain liabilities of a global logistics services provider with one U.S. location. On July 1, 2017.Goodwill represents2019, we acquired the excessmembership interests of a life sciences company to expand our product offerings in Life Sciences. These acquisitions were funded with cash provided by normal operations. The results of operations for these acquisitions are reported in our Global Logistics Services and Life Sciences segments. The aggregate purchase price for these acquisitions was $430. At closing, $50 was recorded in accrued expenses as a preliminary earnout consideration.3. INVENTORY purchase price overfollowing: Finished Goods Work-in-Process Raw Materials Less - Reserve for Inventory Valuation Inventory Net 4. PROPERTY AND EQUIPMENT fair valueestimated lives used in the computation of depreciation and amortization is as follows: Building and Improvements 15-30 Years Land and Improvements Indefinite Furniture & Fixtures 3-7 Years Computer Equipment 3-5 Years Machinery & Equipment 1,151 973 3-15 Years Leasehold Improvements Shorter of Lease Term or Asset Life 5,338 5,249 Less: Accumulated Depreciation underlying net tangiblesix months ended March 31, 2020 and identifiable intangible assets.The following table summarizes the fair values assigned to the assets acquired2019 was $92 and liabilities assumed. Fair Value Cash $ 115,986 Accounts receivable, net of allowance for doubtful accounts 298,803 Customer relationships and other intangibles 240,000 Goodwill 658,381 Security deposits 15,275 Note payable - bank (224,998 ) Accounts payable - trade (891,169 ) Accrued expenses and other current liabilities (112,278 ) Purchase price $ 100,000 - 8 -3.5.INTANGIBLE ASSETS June 30, September 30, 2017 2016 Life Customer relationships $ 11,690,000 $ 11,450,000 15-20 years Trademarks / names 1,770,000 1,770,000 20 years Other 60,000 60,000 2-5 years 13,520,000 13,280,000 Less: accumulated amortization (1,478,229 ) (906,734 ) $ 12,041,771 $ 12,373,266 Customer Relationships 15-20 Years Trademarks / Names 20 Years Other 2-5 Years 16,991 16,991 Less: Accumulated Amortization 6. 4.GOODWILL Global Logistics Services Manufacturing Life Sciences 7. NOTES PAYABLE –- BANKSPresidential Financial Corporation Borrowing Facility(A) Santander Bank Facility March 27, 2014,October 17, 2017, the Janel Corporation and several of itsGroup subsidiaries within its Global Logistics Services segment (collectively the “Janel Group Borrowers”), with the Company as a guarantor, entered into a Loan and Security Agreement (the “Santander Loan Agreement”) with Presidential Financial CorporationSantander Bank, N.A. (“Presidential”Santander”) with respect to a revolving line of credit facility (the “Presidential“Santander Facility”). As currently amended in March 2018, November 2018 and March 2020, the PresidentialSantander Facility currently provides that the Janel Group Borrowers can borrow up to $10,000,000,$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 and Security Agreement. Interest will accrueaccrues on the Santander Facility at an annual rate equal to, five percent aboveat the greaterJanel Group Borrowers’ option, prime plus 0.50%, or LIBOR (30, 60 or 90 day) plus 2.25% subject to a LIBOR floor of (a) the prime rate of interest quoted in75 basis points. The Wall Street Journal from time to time, or (b) 3.25%. The Janel Group Borrowers’ obligations under the PresidentialSantander Facility are secured by all of the assets of the Janel Borrowers.Group Borrowers, while the Santander Loan Agreement contains customary terms and covenants. The Loan Security Agreement requires, among other things, thatSantander Facility matures on October 17, 2022, unless earlier terminated or renewed. As a result of its terms, the Company,Santander Facility is classified as a current liability on a monthly basis, maintain a “minimum fixed charge covenant ratio” and “tangible net worth,” both as defined. The Presidential Facility will expire onthe consolidated balance sheet.27, 2018, subject to earlier termination as provided in the Loan and Security Agreement, unless renewed.As of June 30, 2017, there were31, 2020, outstanding borrowings of $6,442,500 under the PresidentialSantander Facility were $7,533, representing 90.7%82.33% of the $7,104,942 available thereunder.amount thereunder, and interest was accruing at an effective interest rate of 3.26%. The Janel Group Borrowers arewere in compliance with the covenants defined in the Santander Loan Agreement at March 31, 2020 and Security Agreement.First Merchants Bank Borrowing Facility(B) First Merchants Bank Credit Facility INDCO executedas amended in August 2019, Indco entered into a Credit Agreement (the “First Merchants Credit Agreement”) with First Merchants Bank (“First Merchants”) with respect to a $6,000,000$5,500 term loan and $1,500,000$1,000 (limited to the borrowing base and reserves) revolving loan(together, (together, the “First Merchants Facility”). Interest will accrueaccrues on the term loan at an annual rate equal to the one-month LIBOR plus either 3.75%2.75% (if INDCO’s cash flow leverageIndco’s total funded debt to EBITDA ratio is less than 2:1), or equal3.5% (if Indco’s total funded debt to 2:1) or 4.75% (if INDCO’s cash flow leverageEBITDA ratio is greater than or equal to 2:1). Interest accrues on the revolving loan at an annual rate equal to the one-month LIBOR plus 2.75%. INDCO’sIndco’s obligations under theFirst Merchants Facilityare secured by all of INDCO’sIndco’s assets and are guaranteed by the Company.Company, and the Company’s guarantee of Indco’s obligations is secured by a pledge of the Company’s Indco shares. The First Merchants Credit Agreement requires, among other things, that INDCO, on a monthly basis, not exceed a “maximum total funded debt to EBITDA ratio”contains customary terms and maintain a “minimum fixed charge covenant ratio,” both as defined.covenants. TheFirst Merchants Facilityrequires monthly payments until the expiration date will expire on the fifth anniversary of the loan. The loan is subjectAugust 30, 2024 (subject to earlier termination as provided in the Credit Agreement,Agreement) unless renewed.June 30, 2017,March 31, 2020, there were no outstanding borrowings under the revolving loan and there were outstanding$4,931 of borrowings of $4,533,994 under the term loan. INDCO isloan, with interest accruing on the term loan at an effective interest rate of 5.08%.Agreement.Agreement at March 31, 2020 and September 30, 2019. Less Current Portion * 5.LONG-TERM DEBT – RELATED PARTYLong-term debt - related party consists(C) - 9 -First Northern Bank of Dixon 6.STOCKHOLDERS’ EQUITYOctober 1, 2016,June 21, 2018, AB Merger Sub, Inc., a wholly-owned, indirect subsidiary of the Company, entered into a Business Loan Agreement (the “First Northern Loan Agreement”) with First Northern Bank of Dixon (“First Northern”), with respect to a $2,025 First Northern Term Loan (the “First Northern Term Loan”). The proceeds of the First Northern Term Loan were used to fund a portion of the merger consideration to acquire Antibodies. Interest was to accrue on the First Northern Term Loan at an annual rate based on the five-year Treasury constant maturity (index) plus 2.50% (margin) for years one through five then adjusted and fixed for years six through ten using the same index and margin. The borrower’s and the Company’s obligations to First Northern under the First Northern Loan Agreement are secured by certain real property owned by Antibodies as of the closing of the Antibodies merger. The First Northern Loan Agreement contains customary terms and covenants and matures on June 14, 2028 (subject to earlier termination).grantadjustment in five years. Less Current Portion * 8. SUBORDINATED PROMISSORY NOTES consultant optionswholly-owned subsidiary of the Company, entered into two subordinated promissory notes (“AB HoldCo Subordinated Promissory Notes”) with 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 and are subordinate to purchase 6,053the terms of any credit agreement, loan agreement, indenture, promissory note, guaranty or other 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. Each of the AB HoldCo Subordinated Promissory Notes has a 4% annual interest rate 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 is due on June 22, 2021. Both notes are subject to prepayment in whole or in part, without premium or penalty, 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. As of March 31, 2020, and September 30, 2019, amounts outstanding under the two AB HoldCo Subordinated Promissory Notes was $344 and is included in the long term portion of subordinated promissory notes. March 31,
2020 September 30,
2019 9. STOCKHOLDERS�� EQUITY ($25,000 worth of stock based on the September 30, 2016 closing price of $4.13) at an exercise price of $4.13 per share. The options are exercisable in three installments on each of October 1, 2017, 2018 and 2019.On March 31, 2017,par value $0.001. In addition, the Company acquired 20,000is authorized to issue 100,000 shares of its commonpreferred stock, for an aggregatepar 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 $240,000. This amount was paid in April 2017.On May 12, 2017,directors or a duly authorized committee thereof, without stockholder approval. The board of directors may fix the two executive officers were granted an aggregatenumber of 11,121 options to purchaseshares constituting each series and increase or decrease the number of shares of any series.(A) Preferred Stock under the Company’s 2013 Non-Qualified Stock Option Plan. The options are exercisableat any time on a one-share (of Series B Stock) for ten-shares (of common stock) basis. On September 6, 2019, a period of ten years at an exercise price of $8.01 per share. Eight-thousand options were immediately exercisable, and 3,121 options are exercisable in three equal annual installments commencing on the first anniversaryholder of the grant date.On May 12, 2017, two employees were granted an aggregateSeries B Stock converted 640 shares of 10,000 options to purchaseSeries B Stock into 6,400 shares of the Company’s common stock underCommon Stock.2013 Non-QualifiedSeries C Cumulative Preferred Stock Option Plan. The options(the “Series C Stock”) are exercisable forentitled to receive annual dividends at a periodrate of ten years at an exercise5% per annum of the original issuance price of $8.01 per share.$10, when and if declared by the Company’s board of directors, with such rate 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 shares are exercisable in threedividend rate of the Series C Stock as of March 31, 2020 was 7%. In the event of liquidation, holders of the Series C Stock shall be paid an amount equal annual installments commencingto 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 the Series C Stock was $12,867 as of March 31, 2020.first anniversarySeries C Stock of $326. As of March 31, 2020, the grant date.(B) Equity Incentive Plan Company’s 2017 Equity Incentive Plan (the “Plan”) pursuant to which (i) incentive stock options, (ii)was amended on May 8, 2018 (as amended, the “2017 Plan”). Under the 2017 Plan, non-statutory stock options, (iii) restricted stock awards and (iv) 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 Plan are at the discretion of the Company’s BoardCompensation Committee of Directors in its role as the Compensation Committee.10. STOCK-BASED COMPENSATION May 12, 2017, a non-executive director was granted an aggregateOctober 30, 2013, the board of 6,524directors 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 underfor issuance to directors, officers, employees of and consultants to the Plan. Company and its subsidiaries.(A) Stock Options Risk-free Interest Rate 1.59% Expected Option Term in Years 5.5-6.5 Expected Volatility 101.2% - 101.7% Dividend Yield 0% Weighted Average Grant Date Fair Value
Average Outstanding Balance at September 30, 2019 Granted Exercised Outstanding Balance at March 31, 2020 Exercisable on March 31, 2020 Outstanding Balance at September 30, 2019 Forfeited (15,000 Outstanding Balance at March 31, 2020 Exercisable on March 31, 2020 Risk-free Interest Rate 1.59% Expected Option Term in Years 5.5 - 6.5 Expected Volatility 101.2% - 101.7% Dividend Yield 0% Weighted Average Grant Date Fair Value $8.59 - $9.03
Price
Term (in years) Outstanding Balance at September 30, 2019 Granted 6,880 Outstanding Balance at March 31, 2020 Exercisable on March 31, 2020 exercisableclassified as liabilities, and the underlying shares of Indco’s common stock also contain put options which result in their classification as mandatorily redeemable securities. 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.ten years at an exercise priceless than one year.(B) Restricted Stock $8.01 per share. The shares are exercisable in three equal annual installments commencing on October 1,restricted stock granted. Under the 2017 Plan, each grant of restricted stock vests over a three-year period, and the subsequent anniversaries thereafter.On May 12, 2017,cost to the Company granted 15,000 and 10,000recipient is zero. Restricted Stock Awards tostock compensation expense, which is a non-executive director and a consultant, respectively,non-cash item, is being recognized in the Company’s financial statements over the vesting period of each restricted stock grant.Plan. Each grant vests2017 Plan for the six months ended March 31, 2020: Unvested at September 30, 2019 Vested Unvested at March 31, 2020 Unvested at September 30, 2019 Vested Unvested at March 31, 2020 three equal annual installments commencing on October 1, 2017.accrued expenses and other current liabilities was $159 which represents 18,333 shares of restricted stock that vested but were not issued.11. 7.INCOME PER COMMON SHARE Income: Net income (loss) (937 175 (1,057 719 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 Effect of dilutive securities: Stock options — 51,097 — 54,644 Restricted stock — 20,369 — 19,162 Convertible preferred stock Diluted - weighted average common stock Income per Common Share: Basic - Net income (loss) (1.08 0.21 (1.22 0.85 Preferred stock dividends Net Income (loss) available to common stockholders Diluted - Net income (loss) (1.08 0.18 (1.22 0.77 Preferred stock dividends Net income (loss) available to common stockholders Employee Stock Options Non-employee Stock Options Employee Restricted Stock Non-employee Restricted Stock Convertible Preferred Stock 12. INCOME TAXES Federal taxes at statutory rates Permanent differences Other State and local taxes Income tax benefit (expense) 13. BUSINESS SEGMENT INFORMATION of June 30, 2017,discussed above in note 1, the Company operates in twothree reportable segments,segments: 1) Global Logistics Services, 2) Manufacturing and Manufacturing,3) Life Sciences, supported by a corporate group which conducts activities that are non-segment specific. The following table presentstables present selected financial information about the Company’s reportable segments for the three and ninesix months ended March 31, 2020: Revenue Forwarding expenses and cost of revenues Gross profit Selling, general and administrative Amortization of intangible assets Operating (loss) income Interest expense (income) net Identifiable assets Capital expenditures Revenue Forwarding expenses and cost of revenues Gross profit Selling, general and administrative Amortization of intangible assets Operating (loss) income Interest expense (income) net Identifiable assets Capital expenditures Revenue Forwarding expenses and cost of revenues Gross profit Selling, general and administrative Amortization of intangible assets Operating income (loss) Interest expense (income) net Identifiable assets Capital expenditures — Revenue Forwarding expenses and cost of revenues Gross profit Selling, general and administrative Amortization of intangible assets Operating income (loss) Interest expense (income) net Identifiable assets Capital expenditures 14. RISKS AND UNCERTAINTIES (A) Currency Risks (B) Concentration of Credit Risk
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.(C) Legal Proceedings (D) COVID-19 15. COMMITMENTS AND CONTINGENCIES 20172020.16. LEASES 2016:For the three months ended June 30, 2017 Consolidated Global Logistics Services Manufacturing Corporate Revenues $ 20,246,878 $ 17,963,837 $ 2,283,041 $ - Forwarding expenses and cost of revenues 15,445,239 14,455,926 989,313 - Gross margin 4,801,639 3,507,911 1,293,728 - Selling, general and administrative 4,002,311 2,870,235 635,680 496,396 Amortization of intangible assets 195,666 - 2,500 193,166 Income (loss) from operations 603,662 637,676 655,548 (689,562 ) Interest expense 184,280 116,672 67,608 - Identifiable assets 38,051,647 13,976,503 2,343,533 21,731,611 Capital expenditures 5,510 - 5,510 - Operating lease cost Short-term lease cost Total lease cost 2020 2021 2022 2023 2024 221 Total undiscounted lease payments 1,838 Less: Imputed interest Total lease obligations - 10 -For the three months ended June 30, 2016 Consolidated Global Logistics Services Manufacturing Corporate Revenues $ 17,505,453 $ 15,425,092 $ 2,080,361 $ - Forwarding expenses and cost of revenues 13,118,726 12,157,139 961,587 - Gross margin 4,386,727 3,267,953 1,118,774 - Selling, general and administrative 3,460,936 2,613,697 594,186 253,053 Amortization of intangible assets 203,237 - 2,500 200,737 Income (loss) from operations 722,554 654,256 522,088 (453,790 ) Interest expense 199,892 120,988 78,904 - Identifiable assets 33,761,934 12,338,707 1,744,624 19,678,603 Capital expenditures 19,797 - 19,797 - For the nine months ended June 30, 2017 Consolidated Global Logistics Services Manufacturing Corporate Revenues $ 55,943,398 $ 49,499,193 $ 6,444,205 $ - Forwarding expenses and cost of revenues 42,698,641 39,810,183 2,888,458 - Gross margin 13,244,757 9,689,010 3,555,747 - Selling, general and administrative 11,206,459 8,001,437 1,911,848 1,293,174 Amortization of intangible assets 578,997 - 7,500 571,497 Income (loss) from operations 1,459,301 1,687,573 1,636,399 (1,864,671 ) Interest expense 566,807 356,362 210,445 - Identifiable assets 38,051,647 13,976,503 2,343,533 21,731,611 Capital expenditures 136,118 22,793 113,325 - For the nine months ended June 30, 2016 Consolidated Global Logistics Services Manufacturing Corporate Revenues $ 56,728,456 $ 53,935,789 $ 2,792,667 $ - Forwarding expense and cost of revenues 45,438,636 44,171,758 1,266,878 - Gross margin 11,289,820 9,764,031 1,525,789 - Selling, general and administrative 9,798,908 8,086,749 805,985 906,174 Amortization of intangible assets 402,915 - 3,333 399,582 Income (loss) from operations 1,087,997 1,677,282 716,471 (1,305,756 ) Interest expense 476,665 382,804 93,861 - Identifiable assets 33,761,934 12,338,707 1,744,624 19,678,603 Capital expenditures 307,550 2,905 304,645 - 8.17.SUBSEQUENT EVENTS Company has evaluated events occurring afterCoronavirus Aid, Relief and Economic Security Act, Section 7(a)(36) of the date of these financial statements throughSmall Business Act (the “CARES Act”), which was signed into law in March 2020, established the date that these financial statements were issued. There is no material subsequent events as of that date which would require disclosurePaycheck Protection Program (the “PPP”). The PPP authorizes up to $349 billion in or adjustmentsforgivable loans to small businesses. Loan amounts are forgiven to the financial statements.
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.- 11 -ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS subsidiaries.forward-looking statements reflecting ourthat are, or may deemed to be, “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 and that reflect management’s current expectations with respect to our operations, performance, financial condition, and other developments. These forward-looking statements may generally be identified by the use of the words “may,” “will,” “intends,” “plans,” projects,” “believes,” “should,” “expects,” “predicts,” “anticipates,” “estimates,” and similar expressions.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 uncertainties.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, those risksthe impact of the coronavirus (“COVID-19”) pandemic and related economic effects; our strategy of expanding our business through acquisitions of other businesses; the risk that we may fail to realize the expected benefits or strategic objectives of any acquisition, or that we spend resources exploring acquisitions that are not consummated; litigation; indemnification claims and other unforeseen claims and liabilities that may arise from an acquisition; economic and other conditions in the markets in which we operate; the risk that we may not have sufficient working capital to continue operations; instability in the financial markets; the material weaknesses identified in our internal control over financial reporting; our dependence on key employees; competition from parties who sell their businesses to us and from professionals who cease working for us; terrorist attacks and other acts of violence or war; security breaches or cybersecurity attacks; competition faced by our global logistics services freight carriers with greater financial resources and from companies that operate in areas in which we plan to expand; our dependence on the availability of cargo space from third parties; recessions and other economic developments that reduce freight volumes; other events affecting the volume of international trade and international operations; risks arising from our global logistics services business’ ability to manage staffing needs; competition faced in the freight forwarding, freight brokerage, logistics and supply chain management industry; industry consolidation and our ability to gain sufficient market presence with respect to our global logistics services business; risks arising from our ability to comply with governmental permit and licensing requirements or statutory and regulatory requirements; seasonal trends; competition faced by our manufacturing (Indco) business from competitors with greater financial resources; Indco’s dependence on individual purchase orders to generate revenue; any decrease in the availability, or increase in the cost, of raw materials used by Indco; Indco’s ability to obtain and retain skilled technical personnel; risks associated with product liability claims due to alleged defects in Indco’s products; risks arising from the environmental, health and safety regulations applicable to Indco; the reliance of our Indco and life sciences businesses on a single location to manufacture their products; the ability of our life sciences business to compete effectively; the ability of our life sciences business to introduce new products in a timely manner; product or other liabilities associated with the manufacture and sale of new products and services; changes in governmental regulations applicable to our life sciences business; the ability of our life sciences business to continually produce products that meet high quality standards such as purity, reproducibility and/or absence of cross-reactivity; the controlling influence exerted by our officers and directors and one of our stockholders; our inability to issue dividends in the foreseeable future; and risks related to ownership of our common stock, including volatility and the lack of a guaranteed continued public trading market for our common stock. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual outcomes may vary materially from those projected. You should not place undue reliance on any of our forward-looking statements which speak only as of the date they are made. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. For a more detailed discussion of these factors, see our periodic reports filed with the Securities and Exchange Commission, including our most recent Annual Report on Form 10-K. Corporation is a holding company with subsidiaries in twothree business segments: Global Logistics Services, Manufacturing and Manufacturing.Life Sciences. The Company’s Global Logistics Services segment comprises several wholly-owned subsidiaries, collectively known as “Janel Group.” The Company’s Manufacturing segment comprisescompany strives to create shareholder value primarily through three strategic priorities: supporting its majority-owned INDCO subsidiary, which manufacturesbusinesses’ efforts to make investments and distributes industrial mixing equipment. Janel is a successor to a business originally formed in 1975. Janel is domiciled inbuild long-term profits; allocating Janel’s capital at high risk-adjusted rates of return; and attracting and retaining exceptional talent.state of Nevada. Its corporate headquarters is in Lynbrook, New York. Its website is located at http://www.janelcorp.com.Janel’s managementholding company level (the “corporate group”) focuses on significant capital allocation decisions, corporate governance and support of itssupporting Janel’s subsidiaries where appropriate. The CompanyJanel expects to grow through its subsidiaries’ organic growth and by completing acquisitions. JanelWe plan to either will acquire businesses within itsour existing segments or it will expand itsour portfolio into new strategic segments. Janel’sOur acquisition strategy focuses on reasonably-priced companies with strong and capable management teams, attractive existing business economics and stable and predictable earnings power.In September 2014,Company purchased the equitymembership interest of Alpha International/President Container LinesHonor Worldwide Logistics, LLC (“Alpha/PCL”Honor”), a global logistics services company. Approximatelyprovider with two U.S. locations.year later, it purchased the equityU.S. location.Liberty International,Indco, Inc. (“Liberty”Indco”). In April 2017, it purchased the equity of W.J. Byrnes & Co. (“Byrnes”). These companies, along with the legacy Janel Group, comprise Janel Corporation’s Global Logistics Services segment, which focuses on international transportation and customs clearance. In March 2016, the Company purchased INDCO, Inc. (“INDCO”) in order to diversify cash flow streams. INDCO comprises Janel Corporation’s Manufacturing segment.The Company employs 121 full-time and five part-time people in the United States. None of these employeesIndco is covered by a collective bargaining agreement. We have experienced no work stoppages and consider relations with our employees to be good.- 12 -Results of OperationsGlobal Logistics Services – Three months ended June 30, 2017 and 2016Revenues. Total revenues from continuing operations for the three months ended June 30, 2017 were $17,963,837, as compared to $15,425,092 for the three months ended June 30, 2016. This is an increase of $2,538,745, or 16.5%. The increase is due to revenue of $1,104,742 derived from Byrnes customers and $1,434,003 derived from new and existing non-Byrnes customers.Forwarding Expenses. Total forwarding expenses from continuing operations for the three months ended June 30, 2017 were $14,455,926, as compared to $12,157,139 for the three months ended June 30, 2016. This is an increase of $2,298,787, or 18.9%. The increase is due to forwarding expenses of $691,411 attributable to Byrnes customers and $1,607,376 associated with new and existing non-Byrnes customers.Certain items have been categorized as “corporate” expenses attributable to overall managementmajority-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.non-segment specific activities. These expenses are discussed below under “Corporate Selling, Generalimmunoreagents for biomedical research and Administrative Expenses.” The following discussion of selling, generalprovides antibody manufacturing for academic and administrative expenses inindustry research scientists. Our Life Sciences business also produces products for other life science companies on an original equipment manufacturer (“OEM”) basis.Global Logistics Service segment excludes these “corporate” items.Selling, General and Administrative Expenses. Total selling, general and administrative expenses from continuing operations forCompany acquired the three months ended June 30, 2017 were $2,870,235, as compared to $2,613,697 for the three months ended June 30, 2016. This is an increase of $256,538, or 9.8%. The increase primarily is due to additional selling, general and administrative costs associated with the integration of the Byrnes offices. As a percentage of revenue, selling, general and administrative expenses for the three months ended June 30, 2017 were 16.0%, as compared to 16.9% for the three months ended June 30, 2016.Interest Expense. Total interest expense for the three months ended June 30, 2017 was $116,672, as compared to $120,988 for the three months ended June 30, 2016. This is a decrease of ($4,316), or (3.6%). The decrease was due to an improvement in working capital for the period that lowered average borrowings against the Presidential Borrowing Facility referenced below.Income from Continuing Operations before Income Taxes. As a result of the above, income from continuing operations before income taxes for the three months ended June 30, 2017 was $521,004, as compared to $533,268 for the three months ended June 30, 2016. This is a decrease of ($12,264), or (2.3%).Manufacturing – Three months ended June 30, 2017 and 2016Revenues. Total revenues for the three months ended June 30, 2017 were $2,283,041, as compared to $2,080,361 for the three months ended June 30, 2016. This is an increase of $202,680, or 9.7%. The increase primarily is due to growth in demand for core INDCO manufactured mixer products.Cost of Revenues. Total cost of revenues for the three months ended June 30, 2017 was $989,313 as compared to $961,587 for the three months ended June 30, 2016. This is an increase of $27,726, or 2.9%. The increase primarily is due to costs associated with meeting the growth in demand described above.Gross Margin. Total gross margin for the three months ended June 30, 2017 was $1,293,728, as compared to $1,118,774 for the three months ended June 30, 2016. This is an increase of $174,954, or 15.6%. As a percentage of revenue, gross margin for the three months ended June 30, 2017 was 56.7%, as compared to 53.8% for the three months ended June 30, 2016. The increase primarily is due to growth in sales of relatively higher margin products.Selling, General and Administrative Expenses. Total selling, general and administrative expenses for the three months ended June 30, 2017 were $635,680, as compared to $594,186 for the three months ended June 30, 2016. This is an increase of $41,494 or 7.0%. The increase primarily is due to additional sales expenses associated with the growth of the business.Interest Expense. Total interest expense for the three months ended June 30, 2017 was $67,608 as compared to $78,904 for the three months ended June 30, 2016. This is a decrease of ($11,296), or (14.3%). The decrease is due to paydown of principal on the First Merchants Bank Borrowing Facility referenced below.Income from Continuing Operations before Income Taxes. As a result of the above, income from continuing operations before income taxes for the three months ended June 30, 2017 was $587,940, as compared to $443,184 for the three months ended June 30, 2016. This is an increase of $144,756, or 32.7%.- 13 -Corporate – Three months ended June 30, 2017 and 2016Corporate Selling, General and Administrative Expenses. Total corporate selling, general and administrative expenses from continuing operations for the three months ended June 30, 2017 were $496,396, as compared to $253,053 for the three months ended June 30, 2016. This is an increase of $243,343, or 96.2%. The increase is due to the recategorization of certain costs, previously included in the Global Logistics Services segment, as “corporate” costs. These include primarily the salaries of executives whose responsibilities have shifted from the Global Logistics Service segment to Janel Corporation corporate development.Amortization of Intangible Assets.Total amortization of intangible assets for the three months ended June 30, 2017 was $193,166 as compared to $200,737 for the three months ended June 30, 2016. This is a decrease of ($7,571), or (3.8%). The decrease is due to an amortization adjustment related to INDCO in the first quarter following the INDCO acquisition.Net Loss. As a result of the above, net loss for the three months ended June 30, 2017 was ($689,562), as compared to ($453,790) for the three months ended June 30, 2016. This is a decrease of ($235,772) or (52.0%).Consolidated income taxes – Three months ended June 30, 2017 and 2016The company recorded a net income tax provision for the three months ended June 30, 2017 of $129,419, as compared to $36,604 for the three months ended June 30, 2016.Global Logistics Services – Nine months ended June 30, 2017 and 2016Revenues. Total revenues from continuing operations for the nine months ended June 30, 2017 were $49,499,193, as compared to $53,935,789 for the nine months ended June 30, 2016. This is a decrease of ($4,436,596), or (8.2%). The decrease primarily is due to the lossmembership interests of a low-margin, high-revenue customer, offset by revenues from new customers, includingsmall life sciences company on July 1, 2019 and the equity interests of PhosphoSolutions, LLC. (“Phospho”) on September 6, 2019. Both acquisitions were completed primarily to expand our product offerings in Life Sciences.derived fromthat we believe are both significant and require us to make difficult, subjective or complex judgments, often because we need to estimate the Byrnes acquisition.Forwarding Expenses. Total forwarding expenses from continuing operations for the nine months ended June 30, 2017 were $39,810,183 as compared to $44,171,758 for the nine months ended June 30, 2016. This is a decreaseeffect of ($4,361,575), or (9.9%). The decrease primarily is due to reduction in expenses associated with the loss of the low-margin, high-revenue customer referenced above, offset by additional expenses associated with new customer revenues, including those derived from the Byrnes acquisition.For the current fiscal year, certain items have been categorized as “corporate” expenses attributable to overall management of Janelinherently uncertain matters. These estimates are based on historical experience and other non-segment specific activities. These expenses are discussed below under “Corporate Selling, General and Administrative Expenses.” The following discussion of selling, general and administrative expenses in the Global Logistics Service segment excludes these “corporate” items.Selling, General and Administrative Expenses. Total selling, general and administrative expenses from continuing operations for the nine months ended June 30, 2017 were $8,001,437 as compared to $8,086,749 for the nine months ended June 30, 2016. This is a decrease of ($85,312), or (1.1%). The decrease is due to certain cost reduction initiatives enacted in prior periods. As a percentage of revenue, selling, general and administrative expenses for the nine months ended June 30, 2017 were 16.2%, as compared to 15.0% for the nine months ended June 30, 2016. This is an increase of 1.2%. The increase primarily is due to the reduction in revenues associated with the loss of the low-margin, high-revenue customer referenced above.Interest Expense. Total interest expense for the nine months ended June 30, 2017 was $356,362, as compared to $382,804 for the nine months ended June 30, 2016. This is a decrease of ($26,442), or (6.9%). The decrease was due to an improvement in working capital for the period, which lowered average borrowings against the Presidential Borrowing Facility referenced below.Income from Continuing Operations before Income Taxes. As a result of the above, income from continuing operations before income taxes for the nine months ended June 30, 2017 was $1,331,211, as compared to $1,294,478 for the nine months ended June 30, 2016. This is an increase of $36,733, or 2.8%.Manufacturing – Nine months ended June 30, 2017 and 2016INDCO, which comprises the Company’s Manufacturing segment, was purchased as of March 1, 2016. Therefore, prior period data includes only the results of the four months in that period that the Company owned INDCO.Revenues. Total revenues for the nine months ended June 30, 2017 were $6,444,205 and $2,792,667 for the four months ended June 30, 2016.Cost of Revenues. Total cost of revenues for the nine months ended June 30, 2017 was $2,888,458 and $1,266,878 for the four months ended June 30, 2016.- 14 -Gross Margin. Total gross margin for the nine months ended June 30, 2017 was $3,555,748 and $1,525,789 for the four months ended June 30, 2016.Selling, General and Administrative Expenses. Total selling, general and administrative expenses for the nine months ended June 30, 2017 were $1,911,848 and $805,985 for the four months ended June 30, 2016.Interest Expense. Total interest expense for the nine months ended June 30, 2017 was $210,445 and $93,861 for the four months ended June 30, 2016.Income from Continuing Operations before Income Taxes. Income from continuing operations before income taxes for the nine months ended June 30, 2017 was $1,425,954 and $622,610 for the four months ended June 30, 2016.Corporate – Nine months ended June 30, 2017 and 2016Corporate Selling, General and Administrative Expenses. Total corporate selling, general and administrative expenses from continuing operations for the nine months ended June 30, 2017 were $1,293,174 as compared to $906,174 for the nine months ended June 30, 2016. This is an increase of $387,000, or 42.7%. The increase is due to the recategorization of certain costs, previously included in the Global Logistics Services segment, as “corporate” costs. These include primarily the salaries of executives whose responsibilities have shifted from the Global Logistics Service segment to Janel Corporation corporate development.Amortization of Intangible Assets.Total amortization of intangible assets for the nine months ended June 30, 2017 was $571,497, as compared to $399,582 for the nine months ended June 30, 2016. This is an increase of $171,915, or 43.0%. The increase is due to the full-year impact of goodwill amortization associated with the March 2016 purchase of INDCO and additional goodwill amortization associated with the April 2017 purchase of Byrnes. These amounts do not include amortization associated with the INDCO term loan origination fee.Net Loss. As a result of the above, net loss for the nine months ended June 30, 2017 was ($1,864,671) as compared to ($1,305,756) for the nine months ended June 30, 2016. This is a decrease of ($558,915) or (42.8%).Consolidated income taxes – Nine months ended June 30, 2017 and 2016The company recorded a net income tax provision for the nine months ended June 30, 2017 of $356,257, as compared to $75,181 for the nine months ended June 30, 2016.Liquidity and Capital ResourcesGeneral. Our ability to satisfy our liquidity requirements, which derive from debt obligations, working capital needs, day-to-day operating expenses and capital expenditures, depends upon our future performance, which is subject to general economic conditions, competition andvarious other factors some of which are beyond our control. We depend on our commercial credit facilitiesthat we believe to fund our day-to-day operations, as there is a timing difference between our collection cycles and the timing of our payments to vendors.Janel’s cash flow performance for the nine months ending June 30, 2017 is not necessarily indicative of future cash flow performance.Cash Flows from Operating Activities. Net cash provided by operating activities for the nine months ended June 30, 2017 was $2,828,686, as compared to $1,039,570 for the nine months ended June 30, 2016. This is an increase of $1,789,116, or 172.1%. The increase primarily is due to changes in accounts payable and accrued liabilities, offset by changes in accounts receivable.Cash Flows from Discontinued Operating Activities. Net cash used in discontinued operating activities for the nine months ended June 30, 2017 was $46,878, which amount was reported within continuing operations in 2017, as compared to $184,845 for the nine months ending June 30, 2016. This is a decrease of ($137,967), or (74.6%). The 2016 figure includes the settlement of a lawsuit involving the Company's discontinued food business.Cash Flows from Investing Activities. Net cash used in investing activities for the nine months ended June 30, 2017 was $120,132, as compared to $11,042,213 for the nine months ended June 30, 2016. The decrease reflects the INDCO acquisition in the prior period.Cash Flows from Financing Activities. Net cash (used in) provided by financing activities for the nine months ended June 30, 2017 was ($1,784,201) as compared to $9,820,642 for the nine months ended June 30, 2016. The cash used in financing activities for the nine months ending June 30, 2017 primarily went toward the second of three annual earnout payments associated with the 2014 acquisition of Alpha/PCL and toward repayment of the First Merchants Bank Borrowing Facility associated with the INDCO acquisition. The cash provided by financing activities for the nine months ended June 30, 2016 primarily came from the First Merchants Bank Borrowing Facility and the sale of additional Preferred Series C shares, both associated with the INDCO acquisition.- 15 -Global Logistics ServicesPresidential Financial Corporation Borrowing Facility. On March 27, 2014, Janel Corporation and several of its subsidiaries within its Global Logistics Services segment (collectively, the “Janel Borrowers”), entered into a Loan and Security Agreement with Presidential Financial Corporation (“Presidential”) with respect to a revolving line of credit facility (the “Presidential Facility”). As currently amended, the Presidential Facility provides that the Janel Borrowers can borrow up to $10,000,000, limited to 85% of the Janel Borrowers’ aggregate outstanding eligible accounts receivable, subject to adjustment as set forth in the Loan and Security Agreement. Interest will accrue at an annual rate equal to five percent above the greater of (a) the prime rate of interest quoted in The Wall Street Journal from time to time, or (b) 3.25%. The Janel Borrowers’ obligationsbe appropriate under the Presidential Facility are securedcircumstance. Actual amounts and results could differ from these estimates made by the assets of the Janel Borrowers. The Loan Security Agreement requires, among other things,management. Certain accounting policies that the Company, on a monthly basis, maintain a “minimum fixed charge covenant ratio” and “tangible net worth,” both as defined. The Presidential Facility will expire on March 27, 2018, subject to earlier termination as provided in the Loan and Security Agreement, unless renewed.Working Capital Requirements.Janel Group’s cash needs are currently met by cash flow from operations, the Presidential Facility and cash on hand. As of June 30, 2017, the Company had $662,442 available under its Presidential Facility and $1,232,102 in cash. The Company believes that current financial resources will be sufficient to finance Janel Group operations and obligations (current and long-term liabilities) for the long- and short-terms. However, Janel Group’s actual working capital needs for the long- and short-terms will depend upon numerous factors, including operating results, the cost associated with growing Janel Group either internally or through acquisition, competition, and the availability under the Presidential Facility. None of these factors can be predicted with certainty. If cash flow and available credit are not sufficient to fund working capital, Janel Group’s operations will be materially negatively impacted.ManufacturingFirst Merchants Bank Borrowing Facility.On March 21, 2016, INDCO executed a Credit Agreement with First Merchants Bank (“First Merchants”) with respect to a $6,000,000 term loan and $1,500,000 (limited to the borrowing base and reserves) revolving loan(together, the “First Merchants Facility”). Interest will accrue on the term loan at an annual rate equal to the one-month LIBOR plus either 3.75% (if INDCO’s cash flow leverage ratio is less than or equal to 2:1) or 4.75% (if INDCO’s cash flow leverage ratio is greater than 2:1). Interest accrues on the revolving loan at an annual rate equal to the one-month LIBOR plus 2.75%. INDCO’s obligations under theFirst Merchants Facilityare secured by all of INDCO’s assets,require significant management estimates and are guaranteed by the Company. The Credit Agreement requires, among other things, that INDCO, on a monthly basis, not exceed a “maximum total funded debtdeemed critical to EBITDA ratio” and maintain a “minimum fixed charge covenant ratio,” both as defined. TheFirst Merchants Facilityrequires monthly payments until the expiration date on the fifth anniversary of the loan. The loan is subject to earlier termination as provided in the Credit Agreement, unless renewed.Working Capital Requirements.INDCO’s cash needs are currently met bycash flow from operations, the First Merchants Facility, and cash on hand. As of June 30, 2017, INDCO had $1,500,000 available under its $1,500,000 revolving facility, subject to collateral availability, and $657,366 in cash. The Company believes that the current financial resources will be sufficient to finance INDCO operations and obligations (current and long-term liabilities) for the long- and short-terms. However, actual working capital needs for the long- and short-terms will depend upon numerous factors, including operating results, the cost associated with growing INDCO either internally or through acquisition, competition, and available credit under the revolving credit facility. None of these factors can be predicted with certainty. If cash flow and available credit are not sufficient to fund working capital, INDCO’s operations will be materially negatively impacted.Current OutlookTheour results of operations for both Janel Group and INDCOor financial position are affected bydiscussed in the general economic cycle. Janel Group is particularly influenced by global trade levels, specifically the import and export activities of its current and prospective customers. Historically, Janel Group’s quarterly results of operations have been subject to seasonal trends which have been the result of, or influenced by, numerous factors, including climate, national holidays, consumer demand, economic conditions, the growth and diversification of Janel Group’s international network and service offerings, and other similar and subtle forces.The Company cannot accurately forecast many of these factors, nor can it estimate accurately the relative influence of any factor and, as a result, there can be no assurance that historical patterns, if any, will continue in future periods.Both Janel Group and INDCO are implementing business strategies to grow revenue and profitability for the current fiscal year and beyond. Janel Group’s strategy calls for additional branch offices, introduction of new revenue streams for existing locations, sales force expansion, additional acquisitions, and a continued focus on implementing lean methodologies to contain operating expenses. INDCO’s strategy calls for introductions of new product lines and wider distribution and promotion of its print- and web-based catalog.- 16 -In addition to supporting its subsidiaries’ growth plans, the Company may seek to grow by entering new business segments through acquisition.Certain elements of our profitability and growth strategy, principally proposals for acquisition and accelerating our revenue growth, are contingent upon the availability of adequate financing on terms acceptable to the Company. Without adequate equity and/or debt financing, the implementation of significant aspects of the Company’s strategic growth plan may be deferred beyond the originally anticipated timing, and the Company’s operations will be materially negatively impacted.discussesincluded in Item 7 of our Annual Report on Form 10-K for the fiscal year ended September 30, 2019. which have been prepared in accordance with accounting principles generally accepted in the United States of America.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 differencedifferences 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. 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 management’sNote 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. if any, complex challenges in accounting for operations. Revenue recognition is considered the critical accounting policy.Revenue RecognitionGlobal Logistics ServicesThe Company’s Global Logistics Services segment comprises several wholly-owned subsidiaries, collectively known as “Janel Group.” Janel Group derives its revenues from air freight, ocean freight and customs brokerage services.In its capacity as an air freight and ocean freight service provider, Janel Group acts as an indirect carrier: it does not own any transportation assets. Rather, it purchases transportation services from direct carriers (airlines, steam ship lines, etc.) and resells them to its customers. By consolidating shipments from multiple customers and availing itself of its buying power, Janel Group is able to negotiate favorable rates from direct carriers and offer to its customers better rates than the customers could obtain themselves.Air freight revenues include charges for carrying shipments when Janel Group acts as an air freight consolidator. Ocean freight revenues include charges for carrying shipments when Janel Group acts as a Non-Vessel Operating Common Carrier (“NVOCC”). Janel Group issues a House Airway Bill (“HAWB”) or a House Ocean Bill of Lading (“HOBL”) to customers as the contract of carriage. In turn, when the freight is physically tendered to a direct carrier, Janel Group receives a contract of carriage known as a Master Airway Bill for air freight shipments and a Master Ocean Bill of Lading for ocean freight shipments. At this point, the risk of loss passespolicy due to the carrier; however, in order to claimcomplexity of arranging and managing global logistics and supply-chain management transactions.any such loss, the customer is obligated to pay the freight charges.Based upon the terms of the contract of carriage, Janel Group recognizes air freight and ocean freight revenues when the freight is tendered to the direct carrier. Costs related to the shipments are recognized at the same time.In some cases, Janel Group acts as an agent for the shipper, in which case it does not issue a HAWB or a HOBL. Revenues from these activities include only commission and fees earned for services performed. They are recognized upon completion of services.In its capacity as a customs broker, Janel Group provides multiple services, including preparing documentation necessary for clearing shipments through U.S. customs, calculating and providing for payment of duties and other charges on its customers’ behalves and arranging for required inspections. Revenues derived from these activities are recognized upon completion of the services.- 17 -The movement of freight may require multiple services. In most instances, Janel Group may perform multiple services including destination break bulk and value-added services such as local transportation, distribution services and logistics management. Each of these services has separate fee that is recognized as revenue upon completion of the service.Customers frequently request an all-inclusive rate for a set of services known as “door-to-door services.” In these cases, the customer is billed a single rate for all services from pickup at origin to delivery. The allocation of revenue and expense among the components of services when provided under an all-inclusive rate are done in an objective manner on a fair value basisincome taxes in accordance with Emerging Issues Task Force (EITF) 00-21, “Revenue Arrangements with Multiple Deliverables.Accounting Standards Codification Topic 740, “Income Taxes.”ManufacturingThe Company’s Manufacturing segment comprises its majority-owned INDCO subsidiary, which manufactures and distributes industrial mixing equipment. INDCO derives its revenues from product sales and shipping and handling charges, net of actual product returns and discounts. Since INDCO’s standard shipping terms are FOB shipping point, revenue primarily Under this method, income tax expense is recognized onfor the date productsamount 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 shippedmeasured using enacted tax rates expected to the customer. INDCO recognizes revenues from both e-commerce and traditional channelsapply to taxable income in the same manner. Accounts receivableyears in which those temporary differences are stated at their estimated net realizable value. INDCO makes an allowance for doubtful accounts basedexpected to be recovered or settled. The effect on its analysisdeferred tax assets and liabilities of customer accounts and its historical experience with accounts receivable write-offs.primarily is limited primarily to the following areas that in the aggregate are not a major component of the Company’s consolidated statements of operations:a.accounts receivable valuation;b.the useful lives of long-term assets;c.the accrual of costs related to ancillary services the Company provides;d.accrual of tax expense on an interim basis;e.deferred tax valuation allowance; andf.impairment of intangible assets.non-aggressive in approach and 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.RecentPronouncementsPolicies and Estimates Applicable to the Global Logistics Services SegmentFromhe 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.time, new accounting pronouncements are issuedcustomers 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 thousands) (in thousands) Operating (loss) income Adjusted operating income (1) (2) (3) Accounting Standards BoardResults – Three and Six Months Ended March 31, 2020 and 2019 (in thousands) Revenue: Global Logistics Services Manufacturing Life Sciences Total Revenues Gross Profit: Global Logistics Services Manufacturing Life Sciences Total Gross Profit Income (loss) from Operations: Global Logistics Services Manufacturing Life Sciences Total Income from Operations by Segment Corporate administrative expense Amortization expense Interest expense, net Net (loss) income before taxes 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 (in thousands) Corporate expenses Amortization of intangible assets Stock-based compensation Merger and acquisition expenses Total corporate expenses other standard setting bodies that may have12.9% in the three months ended March 31, 2020 as compared to $977 for the three months ended March 31, 2019. Expenses increased to $2,131 in the six months ended March 31, 2020 as compared to $1,799 in the six months ended March 31, 2019, a $332 or 18.5% increase. The increases in both periods were due primarily to higher accounting-related professional expenses and higher merger and acquisition related expenses partially offset by lower stock-based compensation expense for the quarter.impactincrease of $7, or 3.0%. For the six months ended March 31, 2020 and 2019, corporate amortization expenses were $486 and $444, respectively, an increase of $42, or 9.5%. The increases in both periods were primarily related to acquisitions.accountingSeries C Cumulative Preferred Stock (the “Series C Stock”). For the three months ended March 31, 2020 and reporting.2019, preferred stock dividends were $175 and $148, respectively. For the six months ended March 31, 2020 and 2019, the preferred stock dividends we $326 versus $270, respectively. The increase of $27 for the three-month period and $56 for the six-month period were the result of an increase in the dividend rate as of January 1, 2020 to 7% and a higher outstanding amount of accrued and unpaid dividends. See note 9 to the consolidated financial statements for additional information. (in thousands) Revenue Forwarding expenses Net revenue Gross profit margin Selling, general & administrative (Loss) income from operations (in thousands) Revenue Cost of sales Gross profit Gross profit margin Selling, general & administrative 701 759 1,383 1,467 Income from Operations (in thousands) Revenue Cost of sales Gross profit Gross profit margin Selling, general & administrative 1,071 724 2,051 1,431 Income from Operations belis that such recently issued accounting pronouncementsalso used $131 for the acquisition of property and other authoritative guidanceequipment for which the effective date issix months ended March 31, 2020 compared to $253 for the six months ended March 31, 2019.future either will not have an impactsix months ended March 31, 2020, versus $1,712 provided by financing activities for the six months ended March 31, 2019. Net cash used in financing activities for the six months ended March 31, 2020 was primarily a result of reduced outstanding balances on its accountingour line of credit. Net cash provided by financing activities for the six months ended March 31, 2019 primarily funded our acquisition efforts.reporting or that such impact will not be material to its financial position, results of operations, and cash flows when implemented.obligations.ITEM 4. CONTROLS AND PROCEDURES (asdesigned to ensure that term is definedinformation required to be disclosed in Rules 13a-15(e) and 15d-15(e)reports filed under the Securities Exchange Act of 1934, as amended (“Exchange(the “Exchange Act”)) that are designed to provide reasonable assurance that information, which is required to be disclosed in the reports that it files or submits under the Exchange Act,, is recorded, processed, summarized and reported within the specified time periods, specified in the rules and forms of the Securities and Exchange Commission, andthat 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.a timely manner. TheRules 13a-15(e) and 15d-15(e) of the Exchange Act) as of March 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 evaluatedconcluded that, because 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 system ofQuarterly 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,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.is effective. Theretriggered 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 been implemented as the second quarter of fiscal year 2020.most recent fiscal quarterperiod covered by this Quarterly Report on Form 10-Q that have materially affected, or are 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.- 18 -predicatedpredicted with certainty, management does not believe that the outcome of any of these legal matters will have a material adverse effect on the Company’s financial position orbusiness, results of operations.operations, financial condition or cash flows.ITEM 1A. ITEM 2. ITEM 6. 3.1Articles of Incorporation of Wine Systems Design,Purchase and Sale Agreement dated February 4, 2020 by and between 4040 Earnings Way, LLC, and Indco, Inc. (predecessor name) (incorporated by reference to Exhibit 3A to Wine Systems Design, Inc. (predecessor name) Registration Statement on Form SB-2 filed May 10, 2001, File No. 333-60608)3.2Restated and Amended By-Laws of Janel Corporation (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed November 1, 2013, File No. 333-60608)3.3Certificate of Designation of Series A Convertible Preferred Stock (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed January 17, 2007 File No. 333-60608)3.4Certificate of Designation of Series B Convertible Preferred Stock (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed October 22, 2007, File No. 333-60608)3.5Certificate of Designation of Series C Cumulative Stock (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed August 29, 2014, File No. 333-60608)3.6Certificate of Change pursuant to NRS 78.209 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed April 21, 2015, File No. 333-60608)3.7Amendment to Certificate of Designation After Issuance of Class or Series pursuant to NRS 78.1955 for Series C Cumulative Preferred Stock (incorporated by reference to Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2016, File No. 333-60608)3.8Amendment to Certificate of Designation After Issuance of Class or Series pursuant to NRS 78.1955 for Series C Cumulative Preferred Stock (incorporated by reference to Exhibit 3.7 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2017, File No. 333-60608)3.9Certificate of Amendment to Articles of Incorporation of the Registrant (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed April 21, 2015, File No. 333-60608)10.1Janel World Trade, Ltd. 2013 Non-Qualified Stock Option Plan (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed November 1, 2013, File No. 333-60608)10.2Janel Corporation 2017 Equity Incentive Plan (incorporatedMarch 4, 2020, as amended by reference to Exhibit 10.4 to the Company’s QuarterlyCurrent Report on Form 10-Q for the quarter ended8-K/A filed March 31, 2017, File No. 333-60608)6, 2020)10.3 Third Amendment to Loan and Security Agreement dated March 27, 20144, 2020 by and between Santander Bank, N.A., Janel World Trade, Ltd.Group, Inc., Honor Worldwide Logistics LLC and its subsidiaries, and Presidential Financial Corporation (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed April 2, 2014, File No. 333-60608)10.4First Amendment to the Loan and Security Agreement, dated September 10, 2014 between Janel World Trade, Ltd. and its subsidiaries, and Presidential Financial Corporation (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed September 16, 2014, File No. 333-60608)10.5Second Amendment to the Loan and Security Agreement, dated September 25, 2014 between Janel World Trade, Ltd. and its subsidiaries, and Presidential Financial Corporation (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed September 30, 2014, File No. 333-60608)10.6Third Amendment to the Loan and Security Agreement, dated October 9, 2014 between Janel World Trade, Ltd. and its subsidiaries, and Presidential Financial Corporation (incorporatedMarch 4, 2020, as amended by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K8-K/A filed October 15, 2014, File No. 333-60608)March 6, 2020)10.7 Fourth Amendment to the Loan and Security Agreement dated August 18, 2015, by and among Janel Corporation (formerly, Janel World Trade, Ltd.), Janel Group, Inc. (formerly, the Janel Group of New York), The Janel Group of Illinois, The Janel Group of Georgia, The Janel Group of Los Angeles, Janel Ferrara Logistics, LLC, Alpha International, LP, PCL Transport, LLC and Presidential Financial Corporation (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed August 20, 2015, File No. 333-60608)10.8Amended and Restated Demand Secured Promissory Note made by Janel Corporation (and its subsidiaries) in favor of Presidential Financial Corporation, dated August 18, 2015 (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed August 20, 2015, File No. 333-60608)10.9Credit Agreement, effective as of February 29, 2016,April 19, 2020, by and between INDCO, Inc.Janel Corporation and First MerchantsSantander Bank, (incorporated by reference to Exhibit 10.5 toN.A., together with the Company’s Current Report on Form 8-K filed March 25, 2016, File No. 333-60608)U.S. Small Business Administration Note dated April 19, 2020.10.10Term Loan Promissory Note, effective as of March 16, 2016, made by INDCO, Inc. payable to First Merchants Bank (incorporated by reference to Exhibit 10.6 to the Company’s Current Report on Form 8-K filed March 25, 2016, File No. 333-60608) - 19 -Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer (filed herewith) 10.11Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer (filed herewith) Revolving Loan Promissory Note, effective asSection 1350 Certification of February 29, 2016, made by INDCO, Inc. payable to First Merchants Bank (incorporated by reference to Exhibit 10.7 to the Company’s Current Report on Form 8-K filed March 25, 2016, File No. 333-60608)Principal Executive Officer (filed herewith)10.12 Security Agreement, effective asSection 1350 Certification of February 29, 2016, made by INDCO, Inc and the Company, Inc. for the benefit of First Merchants Bank (incorporated by reference to Exhibit 10.8 to the Company’s Current Report on Form 8-K filed March 25, 2016, File No. 333-60608)Principal Financial Officer (filed herewith)10.13 Continuing Guaranty Agreement, effective as of February 29, 2016, made by Janel Corporation for the benefit of First Merchants Bank (incorporated by reference to Exhibit 10.9 to the Company’s Current Report on Form 8-K filed March 25, 2016, File No. 333-60608)10.14101Agreement of Lease dated January 2, 2015 between 303 Merrick LLC and The Janel Group of New York, Inc. (incorporated by reference to Exhibit 10.4 toDecemberMarch 31, 2014, File No. 333-60608)31.1Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer*31.2Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer*32.1Section 1350 Certifications*101Interactive data files providing financial information from the Registrant’s Quarterly Report on Form 10-Q2020 for the quartersix months ended June 30, 2017March 31, 2020 and 2019 in XBRL (eXtensible(Extensible Business Reporting Language) pursuant to Rule 405 of Regulation S-T: (i) Consolidated Balance Sheets June 30, 2017as of March 31, 2020 and September 30, 2016,2019, (ii) Consolidated Statements of IncomeOperations for the threesix months ended June 30, 2017March 31, 2020 and 2016,2019, (iii) Consolidated Statement of Changes in Stockholders’ Equity for the six months ended March 31, 2020 and 2019, (iv) Consolidated Statements of Cash Flows for the threesix months ended June 30, 2017March 31, 2020 and 2016,2019, and (v) Notes to Unaudited Consolidated Financial Statements**Filed herewithStatements.- 20 -Dated: August 4, 2017May 11, 2020JANEL CORPORATION Registrant /s/ Brendan J. KillackeyDominique Schulte Brendan J. KillackeyDominique Schulte Chairman, President and Chief Executive Officer JANEL CORPORATION Registrant /s/ Carlos PlaVincent A. Verde Carlos PlaVincent A. Verde ChiefPrincipal Financial Officer,(Principal Financial Officer) Treasurer and Secretary- 21 -