UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

 

For the Quarterly period ended March 31, 2017

 

OR

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

 

Commission file number 333-60608

 

JANEL CORPORATION

 

Nevada		86-1005291
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization		Identification No.)

 

303 Merrick Road – Suite 400
Lynbrook, New York		11563
(Address of principal executive offices)		(Zip Code)

 

Registrant’s telephone number, including area code: (516) 256-8143

 

(Former name, former address and former fiscal year if changed from last report.)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x

No ¨

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes x

No ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer	¨	Smaller reporting company	x
(Do not check if a smaller reporting company)		Emerging growth company	¨

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ¨

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).

Yes ¨

No x

 

The number of shares of Common Stock outstanding as of May 12, 2017 was 553,951.

 

 

 

JANEL CORPORATION

 

TABLE OF CONTENTS

 

Part I - Financial Information			Page
	Item 1.	Financial Statements:
		Consolidated Balance Sheets as of	3
		March 31, 2017 (unaudited) and September 30, 2016
		Consolidated Statements of Operations	4
		for the Three and Six Months Ended March 31, 2017 and 2016
		(unaudited)
		Consolidated Statements of Changes in Stockholders’ Equity	5
		for the Six Months Ended March 31, 2017 (unaudited)
		Consolidated Statements of Cash Flows	6
		for the Six Months Ended March 31, 2017 and 2016 (unaudited)
		Notes to Consolidated Financial Statements (unaudited)	7
	Item 2.	Management’s Discussion and Analysis of	11
		Financial Condition and Results of Operations
	Item 4.	Controls and Procedures	18
Part II - Other Information
	Item 1.	Legal Proceedings	18
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	19
	Item 5.	Other Information	19
	Item 6.	Exhibits	19
		Signatures	21

 

 

PART I - FINANCIAL INFORMATION

 

ITEM 1.

FINANCIAL STATEMENTS

 

JANEL CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

		March 31, 2017				September 30, 2016
		(unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents		$	764,559			$	965,115
Accounts receivable, net of allowance for doubtful accounts of
$230,000 and $230,000, respectively			11,654,157				12,353,582
Inventory			376,191				356,875
Prepaid expenses and sundry current assets			288,462				233,716
Total current assets			13,083,369				13,909,288
PROPERTY AND EQUIPMENT, NET			361,039				287,391
OTHER ASSETS
Intangible assets, net (Note 3)			11,994,930				12,373,266
Goodwill			8,443,477				8,443,477
Deferred income taxes			685,887				844,977
Security deposits			106,971				99,658
Total other assets			21,231,265				21,761,378
Total assets		$	34,675,673			$	35,958,057
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Note payable - bank (Note 4)		$	6,457,296			$	6,498,403
Note payable - related party (Note 5)			485,365				500,000
Accounts payable - trade			8,901,430				9,298,029
Accrued expenses and other current liabilities			1,326,868				1,254,926
Dividends payable			870,989				623,077
Current portion of long-term debt			857,148				857,148
Total current liabilities			18,899,096				19,031,583
OTHER LIABILITIES
Long-term debt - bank (Note 4)			4,126,966				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			4,205,534				5,166,216
Total liabilities			23,104,630				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			20				20
Series B 5,700 shares authorized and 1,271 shares issued and outstanding			1				1
Series C 20,000 shares authorized and 14,205 shares issued and outstanding			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			12,724,927				12,920,416
Treasury stock, at cost (Note 6)			(240,000	)			-
Accumulated deficit			(1,959,823	)			(2,161,994	)
Total Janel Corporation stockholders' equity			10,525,714				10,759,032
Non-controlling interest			1,045,329				1,001,226
Total stockholders' equity			11,571,043				11,760,258
Total liabilities and stockholders' equity		$	34,675,673			$	35,958,057

 

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

 

 

JANEL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

						Three months ended								Six months ended
						March 31,								March 31,
						2017				2016				2017				2016
REVENUES
Global Logistics Services						$	15,482,185			$	15,937,072			$	31,535,356			$	38,510,697
Manufacturing							2,358,838				712,306				4,161,164				712,306
TOTAL REVENUES							17,841,023				16,649,378				35,696,520				39,223,003
COSTS AND EXPENSES:
Forwarding expenses							12,415,154				12,835,126				25,354,257				32,014,619
Cost of revenues - manufacturing							1,086,218				305,291				1,899,145				305,291
Selling, general and administrative							3,583,874				3,303,040				7,204,148				6,310,306
Amortization of intangible assets							191,665				128,802				383,331				227,344
TOTAL COSTS AND EXPENSES							17,276,911				16,572,259				34,840,881				38,857,560
INCOME FROM OPERATIONS							564,112				77,119				855,639				365,443
OTHER ITEMS:
Interest expense, net of interest income							(192,222	)			(139,702	)			(382,527	)			(276,773	)
NET INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES							371,890				(62,583	)			473,112				88,670
Income taxes							(164,389	)			(23,390	)			(226,838	)			(38,577	)
NET INCOME (LOSS) FROM CONTINUING OPERATIONS							207,501				(85,973	)			246,274				50,093
Loss from discontinued operations, net of tax											(159,239	)							(183,177	)
NET INCOME (LOSS)							207,501				(245,212	)			246,274				(133,084	)
Less: net income attributable to non-controlling interests							28,243				14,305				44,103				14,305
NET INCOME (LOSS) ATTRIBUTABLE TO JANEL
CORPORATION SHAREHOLDERS							179,258				(259,517	)			202,171				(147,389	)
Preferred stock dividends							(126,344	)			(67,411	)			(255,412	)			(128,346	)
NET INCOME (LOSS) AVAILABLE TO
COMMON SHAREHOLDERS						$	52,914			$	(326,928	)		$	(53,241	)		$	(275,735	)
Income (Loss) per share from continuing operations attributable to common shareholders:			Basic			$	0.36			$	(0.15	)		$	0.43			$	0.09
			Diluted			$	0.31			$	(0.14	)		$	0.35			$	0.08
(Loss) per share from discontinued operations attributable to common shareholders:			Basic			$	-			$	(0.28	)		$	-			$	(0.32	)
			Diluted			$	-			$	(0.26	)		$	-			$	(0.30	)
Net income (loss) per share attributable to common shareholders:			Basic			$	0.09			$	(0.57	)		$	(0.09	)		$	(0.48	)
			Diluted			$	0.08			$	(0.54	)		$	0.08			$	(0.45	)
Basic weighted average number of shares outstanding							573,951				573,951				573,951				573,951
Fully-diluted weighted average number of shares outstanding							679,377				606,624				696,630				616,998

 

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

 

 

JANEL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)

 

		Common Stock								Preferred Stock								Paid-in				Accumulated				Treasury Stock												Non-Controlling				Total
		Shares				$				Shares				$				Capital				Deficit				Shares				$				Total				Interests				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			-				-				-				-				-				202,171				-				-				202,171				44,103			$	246,274
Dividends to preferred shareholders			-				-				-				-				(255,412	)			-				-				-				(255,412	)			-			$	(255,412	)
Stock options issued			-				-				-				-				59,923				-				-				-				59,923				-			$	59,923
Treasury stock acquired											-				-								-				20,000				(240,000	)			(240,000	)			-			$	(240,000	)
Balance – March 31, 2017			573,951			$	574				35,476			$	36			$	12,724,927			$	(1,959,823	)			20,000				(240,000	)		$	10,525,714			$	1,045,329			$	11,571,043

  

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

 

 

JANEL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

		Six months ended March 31,
		2017				2016
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)		$	246,274			$	(133,084	)
Plus (loss) from discontinued operations			-				183,177
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Bad debt expense			60,403				1,372
Depreciation			56,959				27,666
Deferred income tax			159,090				-
Amortization of intangible assets			383,331				198,844
Amortization of imputed interest			14,257				27,786
Stock based compensation			59,923				32,050
Changes in operating assets and liabilities:
Accounts receivable			639,022				2,775,071
Inventory			(19,316	)			10,740
Prepaid expenses and sundry current assets			(62,059	)			(48,292	)
Accounts payable and accrued expenses			(564,652	)			(1,473,209	)
NET CASH PROVIDED BY OPERATING ACTIVITIES			973,232				1,602,121
NET CASH USED IN DISCONTINUED OPERATIONS			-				(183,177	)
			973,232				1,418,944
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment			(130,608	)			(271,528	)
Acquisition of INDCO							(10,734,663	)
NET CASH USED IN INVESTING ACTIVITIES			(130,608	)			(11,006,191	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid			(7,500	)			(7,500	)
Proceeds (Payments) from bank loans			(535,680	)			5,787,473
Proceeds from sale of additional Preferred Series C			-				4,352,663
Proceeds, net of payments, from related party note			-				129,258
(Repayment) of notes payable - related party			(500,000	)			(500,000	)
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES			(1,043,180	)			9,761,894
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS			(200,556	)			174,647
CASH AND CASH EQUIVALENTS, beginning of the period			965,115				942,748
CASH AND CASH EQUIVALENTS, end of period		$	764,559			$	1,117,395
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest		$	368,270			$	261,816
Income taxes		$	75,485			$	38,577
Non-cash financing activities:
Dividends declared to preferred stockholders		$	247,912			$	128,346
Intangible assets acquired						$	12,102,838
Acquisition of treasury stock		$	(240,000	)		$	-

 

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

 

 

JANEL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

1.

BASIS OF PRESENTATION

 

The attached unaudited consolidated financial statements have been prepared pursuant to the rules and regulations of Article 10 of regulation S-X and instructions to Form 10-Q of the Securities and Exchange Commission. As a result, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. The Company 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 Commission on or about December 22, 2016.

 

2.

ACQUISITIONS

 

INDCO, INC.

 

On March 21, 2016, the Company executed and closed a Stock Purchase Agreement (the “Purchase Agreement”) for the purchase by the Company of the outstanding common stock of INDCO (the “INDCO Shares”), representing approximately 91.65% of the beneficial ownership of INDCO. The remaining 8.35% ownership of INCDO was retained by existing INDCO management.

 

Under the terms of the Purchase Agreement, the purchase price for the INDCO shares was $11,000,000, subject to certain closing adjustments and customary indemnifications, representations and warranties which amount was paid at closing in cash.

 

INDCO comprises the Manufacturing segment 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 intangible assets based on their estimated fair values which were determined by an independent valuation performed by a third party.

 

Goodwill represents the excess of the purchase price over the fair value of the underlying net tangible and identifiable intangible assets.

 

The assets acquired and liabilities assumed as part of our acquisition were recognized at their fair values as of the effective acquisition date, March 1, 2016, based upon an appraisal from a third party. The following table summarizes the fair values assigned to the assets acquired and liabilities assumed.

 

		Fair Value
Cash		$	377,653
Accounts receivable, net			620,632
Inventory			372,212
Prepaid expenses and other current assets			109,333
Fixed assets			155,050
Accounts payable and other liabilities			(1,690,202	)
Note payable - related party			(129,258	)
Customer relationships and other intangibles			7,700,000
Goodwill			4,402,838
Non-controlling interest			(918,258	)
Purchase price		$	11,000,000

 

 

3.

INTANGIBLE ASSETS

 

A summary of intangible assets and the estimated useful lives used in the computation of amortization is as follows:

 

		March 31,				September 30,
		2017				2016				Life
Customer relationships		$	11,450,000			$	11,450,000			15-20 years
Trademarks / names			1,770,000				1,770,000			20 years
Other			60,000				60,000			2-5 years
			13,280,000				13,280,000
Less: Accumulated amortization			(1,285,070	)			(906,734	)
		$	11,994,930			$	12,373,266

 

4.

NOTE PAYABLE – BANK

 

(A)

Presidential Financial Corporation Borrowing Facility

 

On March 27, 2014, Janel Corporation and several of its Janel Group subsidiaries (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’ obligations under the Presidential Facility are secured by the assets of the Janel Borrowers. The agreement requires, among other things, that the Company, on a monthly basis, maintain a “minimum fixed charge covenant ratio” and “tangible net worth,” both as defined. The Presidential Facility will expire on March 27, 2018, subject to earlier termination as provided in the Loan and Security Agreement, unless renewed.

 

As of March 31, 2017, there were outstanding borrowings of $6,457,296 under the Presidential Facility, representing 64.57% of the $10,000,000 available thereunder.

 

(B)

First 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. 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 the First Merchants credit facilities are secured by all of INDCO’s assets, and are guaranteed by the Company. The First Merchants credit facilities will expire on the fifth anniversary of the loans, subject to earlier termination as provided in the Credit Agreement, unless renewed.

 

As of March 31, 2017, there were no borrowings under the revolving loan, and there were outstanding borrowings of $5,023,281 under the term loan.

 

 

5.

LONG-TERM DEBT – RELATED PARTY

 

Long-term debt - related party consists of the following:

 

		March 31,				September 30,
		2017				2016
Non-interest bearing note payable to a related party, net of imputed interest due when earned		$	485,365			$	971,108
Less current portion			(485,365	)			(500,000	)
		$	-			$	471,108

 

6.

STOCKHOLDERS’ EQUITY

 

(a)

On October 1, 2016, the Company entered into an agreement to grant a consultant options to purchase 6,053 shares of common stock ($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. The Company will expense $2,083 per fiscal quarter during the vesting period, commencing with the fiscal quarter ended December 31, 2016.

 

(b)

On March 31, 2017, the Company acquired 20,000 shares of its common stock for an aggregate of $240,000, which amount was paid in April 2017.

 

7.

BUSINESS SEGMENT INFORMATION

 

As of March 31, 2017, the Company operates in two reportable segments, Global Logistics Services and Manufacturing, supported by a corporate group which conducts activities that are non-segment specific. The following table presents selected financial information about the Company’s reportable segments for the three and six months ended March 31, 2017:

 

Three months ended March 31, 2017

 

		Consolidated				Global Logistics Services				Manufacturing				Corporate
Revenues			17,841,023				15,482,185				2,358,838				-
Forwarding expenses and cost of revenues			13,501,372				12,415,154				1,086,218				-
Gross margin			4,339,651				3,067,031				1,272,620				-
Selling, general and administrative			3,583,874				2,486,391				663,034				434,449
Amortization of intangible assets			191,665				-				2,501				189,164
Income (Loss) from operations			564,112				580,640				607,085				(623,613	)
Interest expense			192,222				121,757				70,464				-
Identifiable assets			34,675,673				11,340,803				2,210,576				21,124,294
Capital expenditures			12,075				-				12,075				-

 

Six months ended March 31, 2017

 

		Consolidated				Global Logistics Services				Manufacturing				Corporate
Revenues			35,696,520				31,535,356				4,161,164				-
Forwarding expenses and cost of revenues			27,253,402				25,354,257				1,899,145				-
Gross margin			8,443,118				6,181,099				2,262,019				-
Selling, general and administrative			7,204,148				5,145,458				1,276,168				782,522
Amortization of intangible assets			383,331				-				5,000				378,331
Income (Loss) from operations			855,639				1,035,641				980,851				(1,160,853	)
Interest expense			382,527				239,689				142,837				-
Identifiable assets			34,675,673				11,340,803				2,210,576				21,124,294
Capital expenditures			130,608				22,793				107,814				-

 

 

8.

SUBSEQUENT EVENTS

 

The Company has evaluated events occurring after the date of these financial statements through the date that these financial statements were issued. Other than as discussed below, there were no material subsequent events as of that date which would require disclosure in or adjustments to the financial statements.

 

In April 2017, after the close of the period covered by this Report, the Company acquired 100% of the outstanding equity of W.J. Byrnes & Co., a California corporation engaged in global logistics services with several stations in the United States. This acquisition will expand the domestic network of the Company’s Global Logistics Services segment.

 

On May 12, 2017, Janel adopted the Company’s 2017 Equity Incentive Plan (the “Plan”) pursuant to which (i) incentive stock Options, (ii) non-statutory stock options, (iii) restricted stock awards, and (iv) stock appreciation rights with respect to shares of the Company’s common stock may be granted to directors, officers, employees of and consultants to the Company and its subsidiaries. Participants and all terms of any awards under the Plan are in the discretion of the Company’s Compensation Committee (or the full Board if no Compensation Committee is appointed).

 

On May 12, 2017, the following named executive officers were granted options under the Company’s 2013 Non-Qualified Stock Option Plan exercisable for a period of ten years to purchase the following number of shares of the Company’s common stock at $8.01 per share:

 

Name	Number of Shares
Brendan J. Killackey	8,000
Carlos Pla	3,121

 

 

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

As used throughout this Report, “we,” “our,” “Janel,” “the Company,” “Registrant” and similar words refer to Janel Corporation and subsidiaries.

 

FORWARD-LOOKING STATEMENTS

 

This Quarterly Report on Form 10-Q contains certain forward-looking statements reflecting our 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”, “believes”, “should”, “expects”, “anticipates”, “estimates”, and similar expressions. These statements are necessarily estimates reflecting management’s best judgment based upon current information and involve a number of risks and uncertainties. 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 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 risks identified in our periodic reports filed with the Securities and Exchange Commission, including our most recent Annual Report on Form 10-K.

 

OVERVIEW

 

Janel Corporation is a holding company with subsidiaries in two business segments: Global Logistics Services and Manufacturing. The Company’s Global Logistics Services segment comprises several wholly-owned subsidiaries, collectively known as “Janel Group.” The Company’s Manufacturing segment comprises its majority-owned INDCO subsidiary, which manufactures and distributes industrial mixing equipment. Janel is a successor to a business originally formed in 1975. Janel is domiciled in the state of Nevada. Its corporate headquarters is in Lynbrook, New York. Its website is located at http://www.janelcorp.com.

 

Janel’s management focuses on significant capital allocation decisions, corporate governance and supporting its subsidiaries where appropriate. The Company expects to grow through its subsidiaries’ organic growth and by completing acquisitions. Janel either will acquire businesses within its existing segments, or it will expand its portfolio into new segments. Janel’s acquisition strategy focuses on reasonably-priced companies with strong and capable management teams, attractive existing business economics and stable and predictable earnings power.

 

In September 2014, the Company purchased the equity of Alpha International/President Container Lines (“Alpha/PCL”), a global logistics services company. Approximately one year later, it purchased the equity of Liberty International, Inc. (“Liberty”). These companies, along with the legacy Janel Group, comprise Janel Corporation’s Global Logistics Services segment, which focuses on international transportation and customs clearance. In March 2016, the Company purchased INDCO, Inc. (“INDCO”) in order to diversify cash flow streams. INDCO comprises Janel Corporation’s Manufacturing segment.

 

In April 2017, after the close of the period covered by this Report, the Company acquired 100% of the outstanding equity of W.J. Byrnes & Co., a California corporation engaged in global logistics services with several stations in the United States. This acquisition will expand the domestic network of the Company’s Global Logistics Services segment.

 

Janel and its consolidated subsidiaries employ 108 full-time and five part-time people in the United States. None of these employees is covered by a collective bargaining agreement. Janel and its subsidiaries have experienced no work stoppages and consider relations with their employees to be good.

 

 

Results of Operations

 

The following discussion and analysis addresses the results of operations for our business segments, Global Logistics Services and Manufacturing, as well as for the Company's corporate group and the consolidated Company, for the three and six months ended March 31, 2017. Comparisons to results for the three and six months ended March 31, 2016 include data from the Global Logistics Services segment and the corporate group for the full period, and only one month of results for the Manufacturing segment, which was purchased on March 1, 2016. The discussion and analysis then addresses liquidity and the financial condition of the segments and consolidated Company as well as other matters.

 

Global Logistics Services – Three months ended March 31, 2017 and 2016

 

Revenues. Total revenues from continuing operations for the three months ended March 31, 2017 were $15,482,185 as compared to $15,937,072 for the three months ended March 31, 2016. This is a decrease of ($454,887), or (2.9%). The decrease primarily is due to the loss of a low-margin, high-revenue customer, previously reported.

 

Forwarding Expenses. Total forwarding expenses from continuing operations for the three months ended March 31, 2017 were $12,415,154 as compared to $12,835,126 for the three months ended March 31, 2016. This is a decrease of ($419,972), or (3.3%). The decrease primarily is due to reduction in expenses associated with the loss of the low-margin, high-revenue customer referenced above.

 

Certain items have been categorized as “corporate” expenses attributable to overall management of the Company 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 three months ended March 31, 2017 were $2,486,391 as compared to $2,668,508 for the three months ended March 31, 2016. This is a decrease of ($182,117), or (6.8%). 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 three months ended March 31, 2017 were 16.1%, as compared to 16.7% for the three months ended March 31, 2016. The decrease primarily was due to the loss of the low-margin, high-revenue customer referenced above.

 

Interest Expense. Total interest expense for the three months ended March 31, 2017 was $121,757, as compared to $124,745 for the three months ended March 31, 2016. This is a decrease of ($2,988), or (2.4%).

 

Income from Continuing Operations before Income Taxes. As a result of the above, income from continuing operations for the three months ended March 31, 2017 was $458,883, as compared to $308,694 for the three months ended March 31, 2016. This is an increase of $150,189, or 48.7%.

 

Manufacturing – Three months ended March 31, 2017 and 2016

 

INDCO, which comprises the Company’s Manufacturing segment, was purchased as of March 1, 2016. Therefore, prior year period data includes only the results of the one month in that period that the Company owned INDCO.

 

Revenues. Total revenues for the three months ended March 31, 2017 were $2,358,838 and $712,306, for the one month ended March 31, 2016.

 

Cost of Revenues. Total cost of revenues for the three months ended March 31, 2017 was $1,086,218 and $305,291 for the one month ended March 31, 2016.

 

Gross Margin. Total gross margin for the three months ended March 31, 2017 was $1,272,620 and $407,015 for the one month ended March 31, 2016.

 

Selling, General and Administrative Expenses. Total selling, general and administrative expenses for the three months ended March 31, 2017 were $663,034 and $211,797 for the one month ended March 31, 2016.

 

 

Interest Expense. Total interest expense for the three months ended March 31, 2017 was $70,464, and $14,957 for the one month ended March 31, 2016.

 

Income from Continuing Operations before Income Taxes. Income before income taxes for the three months ended March 31, 2017 was $536,621 and $179,427 for the one month ended March 31, 2016.

 

Corporate – Three months ended March 31, 2017 and 2016

 

Corporate Selling, General and Administrative Expenses. Total corporate selling, general and administrative expenses from continuing operations for the three months ended March 31, 2017 were $434,449, as compared to $422,735 for the three months ended March 31, 2016.

 

Amortization of Intangible Assets. Total amortization of intangible assets for the three months ended March 31, 2017 was $189,164, as compared to $127,969 for the three months ended March 31, 2016. This is an increase of $61,195, or 47.8%. The increase is due to the additional amortization associated with the March 2016 purchase of INDCO. These amounts do not include amortization associated with the INDCO term loan origination fee.

 

Net Loss. Net loss for the three months ended March 31, 2017 was ($623,613), as compared to ($550,704) for the three months ended March 31, 2016. This is a decrease of ($72,909) or (13.2%). The decrease primarily is due to the significant increase in amortization of intangible assets.

 

Consolidated income taxes – Three months ended March 31, 2017 and 2016

 

The company recorded a net income tax provision for the three months ended March 31, 2017 of $164,389, as compared to $23,390 for the three months ended March 31, 2016.

 

Global Logistics Services – Six months ended March 31, 2017 and 2016

 

Revenues. Total revenues from continuing operations for the six months ended March 31, 2017 were $31,535,356, as compared to $38,510,697 for the six months ended March 31, 2016. This is a decrease of ($6,975,341), or (18.1%). The decrease primarily is due to the loss of a low-margin, high-revenue customer, previously reported.

 

Forwarding Expenses. Total forwarding expenses from continuing operations for the six months ended March 31, 2017 were $25,354,257 as compared to $32,014,619 for the six months ended March 31, 2016. This is a decrease of ($6,660,362), or (20.8%). The decrease primarily is due to reduction in expenses associated with the loss of the low-margin, high-revenue customer referenced above.

 

For the current fiscal year, certain items have been categorized as “corporate” expenses attributable to overall management of Janel 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 six months ended March 31, 2017 were $5,145,458 as compared to $5,442,278 for the six months ended March 31, 2016. This is a decrease of ($296,820), or (5.5%). 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 six months ended March 31, 2017 were 16.3%, as compared to 14.1% for the six months ended March 31, 2016. The increase primarily was due to the loss of the low-margin, high-revenue customer referenced above.

 

Interest Expense. Total interest expense for the six months ended March 31, 2017 was $239,689, as compared to $261,816 for the six months ended March 31, 2016. This is a decrease of ($22,127), or (8.5%). The decrease is due to a reduction in the average balance of our revolving loan as compared to the prior year period, the result of positive cash flow and repayment of the principal balance.

 

 

Income from Continuing Operations before Income Taxes. As a result of the above, income from continuing operations for the six months ended March 31, 2017 was $795,952, as compared to $791,984 for the six months ended March 31, 2016. This is an increase of $3,968, or 0.5%.

 

Manufacturing – Six months ended March 31, 2016

 

INDCO, which comprises the Company’s Manufacturing segment, was purchased as of March 1, 2016. Therefore, prior year period data includes only the results of the one month in that period that the Company owned INDCO.

 

Revenues. Total revenues for the six months ended March 31, 2017 were $4,161,164 and $712,306 for the one month ended March 31, 2016.

 

Cost of Revenues. Total cost of revenues for the six months ended March 31, 2017 was $1,899,145 and $305,291 for the one month ended March 31, 2016.

 

Gross Margin. Total gross margin for the six months ended March 31, 2017 was $2,262,019 and $407,015 for the one month ended March 31, 2016.

 

Selling, General and Administrative Expenses. Total selling, general and administrative expenses for the six months ended March 31, 2017 were $1,276,168 and $199,297 for the one month ended March 31, 2016.

 

Interest Expense. Total interest expense for the six months ended March 31, 2017 was $142,837 and $14,957 for the one month ended March 31, 2016.

 

Income from Continuing Operations before Income Taxes. Income from continuing operations before income taxes for the six months ended March 31, 2017 was $838,014 and $179,427 for the one month ended March 31, 2016.

 

Corporate – Six months ended March 31, 2017 and 2016

 

Corporate Selling, General and Administrative Expenses. Total corporate selling, general and administrative expenses from continuing operations for the six months ended March 31, 2017 were $782,522, as compared to $656,230 for the six months ended March 31, 2016. This is an increase of $126,292, or 19.2%. 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 intangibles for the six months ended March 31, 2017 was $378,331, as compared to $226,511 for the six months ended March 31, 2016. This is an increase of $151,820, or 67%. The increase is due to the addition of goodwill amortization associated with the March 2016 purchase of INDCO. These amounts do not include amortization associated with the INDCO term loan origination fee.

 

Net Loss. Net loss for the six months ended March 31, 2017 was ($1,160,853) as compared to ($882,741) for the six months ended March 31, 2016. This is a decrease of ($278,112) or (31.5%). The decrease primarily is due to the significant increase in professional fees related to acquisition activity.

 

Consolidated income taxes – Six months ended March 31, 2017 and 2016

 

The company recorded a net income tax provision for the six months ended March 31, 2017 of $226,838, as compared to $38,577 for the six months ended March 31, 2016.

 

Liquidity and Capital Resources

 

General. 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 and other factors, some of which are beyond our control. We depend on our commercial credit facilities 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 six months ending March 31, 2017 is not necessarily indicative of future cash flow performance.

  

Cash and cash equivalents for the six months ended March 31, 2017 decreased from $965,115 at the beginning of the period to $764,559 at the end of the period. This is a decrease of $200,556, or 20.8%. Net working capital (current assets minus current liabilities) for the six months ended March 31, 2017 decreased from ($5,122,295) at the beginning of the period to ($5,815,727) at the end of the period. This is a decrease of ($453,430). This decrease is primarily due to the reduction of revenues for the period.

 

Cash Flows from Continuing Operating Activities. Net cash provided by continuing operating activities for the six months ended March 31, 2017 was $973,232, as compared to $1,602,121 for the six months ended March 31, 2016. The change was driven by a decrease in accounts receivable, partially offset by a decrease in accounts payable and accrued expenses.

 

Cash Flows from Discontinued Operating Activities. Net cash used in discontinued operating activities for the six months ended March 31, 2017 was $37,547 reported within continuing operations in 2017, as compared to $183,177 for the six months ending March 31, 2016. 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 six months ended March 31, 2017 was $130,608, as compared to $11,006,191 for the six months ended March 31, 2016. The decrease is due to the presence of the INDCO acquisition in the prior period.

 

Cash Flows from Financing Activities. Net cash (used in) provided by financing activities for the six months ended March 31, 2017 was ($1,043,180) as compared to $9,761,894 for the six months ended March 31, 2016. The cash used in financing activities for the six months ending March 31, 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 credit facility associated with the INDCO acquisition. The cash provided by financing activities for the six months ended March 31, 2016 primarily came from the First Merchants credit facility and the sale of additional Preferred Series C shares, both associated with the INDCO acquisition.

 

Global Logistics Services

 

Presidential Financial Corporation Borrowing Facility. On March 27, 2014, Janel Corporation and several of its Janel Group subsidiaries (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 now 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’ obligations under the Presidential Facility are secured by the assets of the Janel Borrowers. The agreement requires, among other things, that the Company, on a monthly basis, maintain a “minimum fixed charge covenant ratio” and “tangible net worth,” both as defined. 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 the Presidential Facility and cash on hand. As of March 31, 2017, the Company had $3,542,704 available under its $10,000,000 Presidential Facility and $317,300 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.

 

 

Manufacturing

 

First Merchants Bank Borrowing Facility. On March 21, 2016, INDCO executed a Credit Agreement with First Merchants Bank with respect to a $6,000,000 term loan and $1,500,000 (limited to the borrowing base and reserves) revolving loan. Interest will accrue on the term loan at an annual rate equal to the one month LIBOR plus either 3.75% (if INDCO’s cash flow leverage ratio is less than or equal to 2:1) or 4.75% (if INDCO’s cash flow leverage ratio is greater than 2:1). Interest will accrue on the revolving loan at an annual rate equal to the one month LIBOR plus 2.75%. INDCO’s obligations under the First Merchants credit facilities are secured by all of INDCO’s assets, and are guaranteed by the Company. The First Merchants credit facilities will expire on the fifth anniversary of the loans, subject to earlier termination as provided in the Credit Agreement, unless renewed.

 

Working Capital Requirements. INDCO’s cash needs are currently met by the First Merchant’s Bank term loan and revolving credit facility and cash on hand. As of March 31, 2017, INDCO had $1,500,000 available under its $1,500,000 revolving facility, subject to collateral availability, and $447,259 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 Outlook

 

The results of operations in both the Global Logistics Services and Manufacturing segments are affected by the general economic cycle, particularly as it influences global trade levels and, specifically, the import and export activities of our Janel Group business’s various current and prospective customers. Historically, the Company’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.

 

The Company’s subsidiaries 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.

 

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.

 

Critical Accounting Policies and Estimates

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations discusses the Company’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. 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 difference 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 our estimates.

 

 

Management believes that the nature of the Company’s business is such that there are few, if any, complex challenges in accounting for operations. Revenue recognition is considered the critical accounting policy.

 

Revenue Recognition

 

Global Logistics Services

 

Revenues are derived from airfreight, ocean freight and custom brokerage services. The Company’s Janel Group business is a non-asset-based carrier and accordingly does not own transportation assets. Janel Group generates the major portion of its air and ocean freight revenues by purchasing transportation services from direct carriers (airlines, steam ship lines, etc.) and reselling those services to its customers. By consolidating shipments from multiple customers and availing itself of its buying power, Janel Group is able to negotiate favorable rates from the direct carriers, while offering to its customer’s lower rates than the customers could obtain themselves.

 

Airfreight revenues include the charges for carrying the shipments when Janel Group acts as a freight consolidator. Ocean freight revenues include the charges for carrying the shipments when Janel Group acts as a Non-Vessel Operating Common Carrier (NVOCC). In each case, Janel Group is acting as an indirect carrier. When acting as an indirect carrier, Janel Group will issue a House Airway Bill (HAWB) or a House Ocean Bill of Lading (HOBL) to customers as the contract of carriage. In turn, when the freight is physically tendered to a direct carrier, Janel Group receives a contract of carriage known as a Master Airway Bill for airfreight shipments and a Master Ocean Bill of Lading for ocean shipments. At this point the risk of loss passes to the carrier, however, in order to claim for any such loss, the customer is first obligated to pay the freight charges.

 

Based upon the terms in the contract of carriage, revenues related to shipments where Janel Group issues a HAWB or a HOBL are recognized at the time the freight is tendered to the direct carrier. Costs related to the shipments are recognized at the same time.

 

Revenues realized when Janel Group acts as an agent for the shipper and does not issue a HAWB or a HOBL include only the commission and fees earned for the services performed. These revenues are recognized upon completion of the services.

 

Customs brokerage and other services involves provide multiple services at destination including clearing shipments through customs by preparing required documentation, calculating and providing for payment of duties and other charges on behalf of the customers, arranging for any required inspections, and arranging for final delivery. These revenues are recognized upon completion of the services.

 

The movement of freight may require multiple services. In most instances, 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 will frequently request an all-inclusive rate for a set of services that is known in the industry as “door-to-door services.” In these cases, the customer is billed a single rate for all services from pickup at origin to delivery. The allocation of revenue and expense among the components of services when provided under an all-inclusive rate are done in an objective manner on a fair value basis in accordance with Emerging Issues Task Force (EITF) 00-21, “Revenue Arrangements with Multiple Deliverables.”

 

 

Manufacturing

 

Revenues are derived from the engineering, manufacture, and delivery of specialty mixing equipment. Payments are made by either credit card acceptance or invoice billing by INDCO. A significant portion of sales comes from its web-based catalog. Such online sales are generally credit card purchases. Revenue is recognized when products are delivered and risk of loss transfers to the carrier(s) used.

 

Estimates

 

While judgments and estimates are a necessary component of any system of accounting, the Company’s use of estimates is limited primarily to the following areas that in the aggregate are not a major component of the Company’s consolidated statements of operations:

 

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; and

 

f.

impairment of intangible assets.

 

Management believes that the methods utilized in these areas are non-aggressive in approach and consistent in application. Management 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.

 

Recent Accounting Pronouncements

 

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board or other standard setting bodies that may have an impact on the Company’s accounting and reporting. The Company believes that such recently issued accounting pronouncements and other authoritative guidance for which the effective date is in the future either will not have an impact on its accounting or reporting or that such impact will not be material to its financial position, results of operations, and cash flows when implemented.

 

ITEM 4.

CONTROLS AND PROCEDURES

 

Janel maintains a system of disclosure controls and procedures that is designed to provide reasonable assurance that information, which is required to be disclosed in the reports that it files or submits under the Securities and Exchange Act of 1934, as amended (“Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission, and is accumulated and communicated to management in a timely manner. The Company’s Chief Executive Officer and Chief Financial Officer have evaluated this system of disclosure controls and procedures as of the end of the period covered by this quarterly report, and have concluded that the system is effective. There have been no changes in our internal control over financial reporting during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

PART II - OTHER INFORMATION

 

ITEM 1.

LEGAL PROCEEDINGS

 

Janel is occasionally subject to claims and lawsuits which typically arise in the normal course of business. While the outcome of these claims cannot be predicated with certainty, management does not believe that the outcome of any of these legal matters will have a material adverse effect on the Company’s financial position or results of operations.

 

 

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

The following table sets forth information with respect to purchases of common stock by the Company or any affiliated purchasers during the three months ended March 31, 2017:

 

Period		Total Number of Shares Purchased				Average Price Paid Per Share				Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs				Maximum Number of Shares that May Yet be Purchased Under the Plans or Programs
January 2017			0				0				0				0
February 2017			0				0				0				0
March 2017			100,000			$	12.00				0				0
Total			100,000			$	12.00				0				0

 

On March 31, 2017, the Company entered into an Agreement and Release with James N. Jannello, the founder and former president of the Company, pursuant to which Mr. Jannello released the Company from all future obligations in connection with Mr. Jannello’s retirement from the Company in 2013, the Company and Mr. Jannello released each other from all claims, and the Company and affiliated purchasers purchased 20,000 and 80,000 shares, respectively, of Mr. Jannello’s 110,000 shares of the Company’s Common Stock. The aggregate payment to Mr. Jannello by all purchasers was $1,200,000.

 

ITEM 5.

OTHER INFORMATION

 

On May 12, 2017, the Company submitted for filing to the Nevada Secretary of State an Amendment to Certificate of Designation After Issuance of Class or Series eliminating redemption rights of holders of the Company’s Series C Cumulative Preferred Stock, par value $0.001 per share.

 

On May 12, 2017, Janel adopted the Company’s 2017 Equity Incentive Plan (the “Plan”) pursuant to which (i) incentive stock options, (ii) non-statutory stock options, (iii) restricted stock awards, and (iv) stock appreciation rights with respect to shares of the Company’s common stock may be granted to directors, officers, employees of and consultants to the Company and its subsidiaries. Participants and all terms of any awards under the Plan are in the discretion of the Company’s Compensation Committee (or the full Board if no Compensation Committee is appointed). The full text of the Plan is filed as Exhibit 10.2 hereto and incorporated herein by this reference. 

 

On May 12, 2017, the following named executive officers were granted options under the Company’s 2013 Non-Qualified Stock Option Plan exercisable for a period of ten years to purchase the following number of shares of the Company’s common stock at $8.01 per share:

 

Name	Number of Shares
Brendan J. Killackey	8,000
Carlos Pla	3,121

 

The options granted to Mr. Killackey are immediately exercisable, and the options granted to Mr. Pla are exercisable in three equal installments on the first, second and third anniversaries of the grant date and were in satisfaction of the grant previously reported as having been made as part of his employment by the Company.

 

ITEM 6.

EXHIBITS

 

Exhibit No.

	3.1	Articles of Incorporation of Wine Systems Design, Inc. (predecessor name) (incorporated by reference to Exhibit 3A to Wine Systems Design, Inc. (predecessor name) Registration Statement on Form SB-2 filed May 10, 2001, File No. 333-60608)
	3.2	Restated 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)
	3.3	Certificate 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)
	3.4	Certificate of Designations of Series B Convertible Stock (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed October 22, 2007, File No. 333-60608)
	3.5	Certificate of Designations 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)
	3.6	Amendment to Certificate of Designation After Issuance of Class or Series pursuant to NRS 78.1955 for Series C Cumulative Preferred Stock (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed April 21, 2015, File No. 333-60608)
	3.7	Amendment to Certificate of Designation After Issuance of Class or Series pursuant to NRS 78.1955 for Series C Cumulative Preferred Stock*

 

 

	3.8	Certificate of Amendment to Articles of Incorporation of the Registrant (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed April 21, 2015, File No. 333-60608)
	10.1	Janel World Trade, Ltd. 2013 Non-Qualified Stock Option Plan (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed November 1, 2013, File No. 333-60608)
	10.2	Janel Corporation 2017 Equity Incentive Plan*
	10.3	Loan and Security Agreement dated March 27, 2014 between Janel World Trade, Ltd. and its subsidiaries, and Presidential Financial Corporation (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed April 2, 2012, File No. 333-60608)
	10.4	First Amendment to the Loan and Security Agreement, dated September 10, 2014 between Janel World Trade, Ltd. and its subsidiaries, and Presidential Financial Corporation (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed September 16, 2014, File No. 333-60608)
	10.5	Second Amendment to the Loan and Security Agreement, dated September 25, 2014 between Janel World Trade, Ltd. and its subsidiaries, and Presidential Financial Corporation (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed September 30, 2014, File No. 333-60608)
	10.6	Third Amendment to the Loan and Security Agreement, dated October 9, 2014 between Janel World Trade, Ltd. and its subsidiaries, and Presidential Financial Corporation (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed October 14, 2014, File No. 333-60608)
	10.7	Fourth Amendment to the Loan and Security Agreement and Demand Secured Promissory Note, dated August 18, 2015, by and among Janel Corporation (formerly, Janel World Trade, Ltd.), Janel Group, Inc. (formerly, the Janel Group of New York), The Janel Group of Illinois, The Janel Group of Georgia, The Janel Group of Los Angeles, Janel Ferrara Logistics, LLC, Alpha International, LP, PCL Transport, LLC and Presidential Financial Corporation (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed August 20, 2015, File No. 333-60608)
	10.8	Amended and Restated Demand Secured Promissory Note made by Janel Corporation (and its subsidiaries) in favor of Presidential Financial Corporation, dated August 18, 2015 (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed August 20, 2015, File No. 333-60608)
	10.9	Credit Agreement, effective as of February 29, 2016, by and between INDCO, Inc. and First Merchants Bank (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed March 25, 2016, File No. 333-60608)
	10.10	Term Loan Promissory Note, effective as of February 29, 2016, made by INDCO, Inc. payable to First Merchants Bank (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed March 25, 2016, File No. 333-60608)
	10.11	Revolving Loan Promissory Note, effective as of February 29, 2016, made by INDCO, Inc. payable to First Merchants Bank (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed March 25, 2016, File No. 333-60608)
	10.12	Security Agreement, effective as of February 29, 2016, made by INDCO and the Company, Inc. for the benefit of First Merchants Bank (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed March 25, 2016, File No. 333-60608)
	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 3.1 to the Company’s Current Report on Form 8-K filed March 25, 2016, File No. 333-60608)
	10.14	Agreement of Lease dated January 2, 2015 between 303 Merrick LLC and The Janel Group of New York, Inc. (incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2014, File No. 333-60608)
	31.1	Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer*
	31.2	Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer*
	32.1	Section 1350 Certifications*
	101	Interactive data files providing financial information from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2017 in XBRL (eXtensible Business Reporting Language) pursuant to Rule 405 of Regulation S-T: (i) Consolidated Balance Sheets, March 31, 2017 and September 30, 2016, (ii) Consolidated Statements of Income for the three months ended March 31, 2017 and 2016, (iii) Consolidated Statements of Cash Flows for the three months ended March 31, 2017 and 2016, and (v) Notes to Unaudited Consolidated Financial Statements*

 

*

Filed herewith

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

Dated: May 12, 2017	JANEL CORPORATION
	Registrant
	/s/  Brendan J. Killackey
	President and Chief Executive Officer (Principal Executive Officer)
	/s/  Carlos Pla
	Chief Financial Officer (Principal Financial Officer)