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ITEM 2.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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As used throughout
this Report, “we,” “our,” “Janel”, “the Company” and similar words refers 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
which operates in two industries. Its Janel Group operations provide logistics services for importers and exporters worldwide through
its wholly-owned subsidiaries. As of Janel Corporation’s March 2016 acquisition of INDCO Inc., Janel Corporation also manufactures
and sells light industrial mixers. Janel Corporation management focuses on significant capital allocation decisions, corporate
governance and supporting its business units where appropriate.
Janel Corporation is
domiciled in the state of Nevada and its corporate headquarters is located in Lynbrook, New York. The Company’s website is
located at
http://www.janelcorp.com
. The Company makes available through the website its annual report on Form 10-K, quarterly
reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports as soon as reasonably practicable after
such material is electronically filed with or furnished to the Securities and Exchange Commission (SEC).
We expect to grow our
businesses organically and by completing acquisitions. We either will acquire businesses that fit within our existing freight forwarding
and logistics business portfolio, or we will expand our portfolio into new areas. Our acquisition strategy focuses on strong and
capable management teams, attractive existing business economics and businesses with stable and predictable earnings power that
can be purchased at a reasonable price.
Janel Corporation and
its controlled subsidiaries have 119 employees, including two employees in our corporate headquarters.
results
of operations
The following discussion
and analysis addresses the results of operations for the six months ended March 31, 2016, as compared to the results of operations
for the six months ended March 31, 2015. The discussion and analysis then addresses the liquidity and financial condition of the
Company, and other matters. On March 21, 2016 the Company completed the acquisition of INDCO, Inc. Refer to Note 3 to the Consolidated
Financial Statements.
Three months ended March 31, 2016
and 2015
Revenue.
Total revenue from
continuing operations for the three months ended March 31, 2016 was $16,649,378, as compared to $14,798,958 for the three months
ended March 31, 2015, an increase of $1,850,420 or 12.5%. This increase is mainly the result of the acquisitions of Liberty and
one month’s operations of INDCO. Net revenue (revenues minus forwarding expenses and other direct manufacturing costs) from
continuing operations for the three months ended March 31, 2016 was $3,508,961, an increase of $908,417 or 34.9% as compared to
net revenue of $2,600,544 for the three months ended March 31, 2015. This increase was due to increased freight forwarding business
and is mainly the result of the acquisition of Liberty. The acquisition of the INDCO manufacturing operation provided for one month
of additional net revenue of $407,014 and is expected to continue to provide for higher consolidated revenue and margins as compared
to prior periods.
Forwarding Expense
and Direct Manufacturing Costs.
Forwarding expense from continuing operations is primarily comprised of the fees paid
by Janel directly to cargo carriers to handle and transport its actual freight shipments on behalf of its customers between initial
and final terminal points, and includes any trucking and warehousing charges related to the shipments. direct manufacturing costs
from continuing operations is primarily comprised of direct labor, materials and overhead costs applied to the INDCO operation.
For the three months
ended March 31, 2016, forwarding expense and direct costs from continuing operations increased by $942,003, or 7.7%, to $13,140,417
as compared to $12,198,414 for the three months ended March 31, 2015, primarily as a result of higher revenue volume from the Liberty
and INDCO acquisitions, and as a percentage of revenue decreased to 78.9% for the three months ended March 31 2016, from 82.4%
for the three months ending March 31, 2015, a 3.5 percentage point decrease. This percentage decrease is principally the result
of the loss of certain low margin customers who historically carried higher than average forwarding expense as a percentage of
revenue. It is expected that INDCO’s higher margins will contribute to improved consolidated margins as compared to prior
periods..
Selling, General
and Administrative Expense.
For the three months ended March 31, 2016 and 2015, selling, general and administrative
expenses from continuing operations were $3,303,040 and $2,427,627, respectively, an increase of $875,413, or 36.1% when compared
to the prior period. Included in the three months ended March 31, 2016 is an expense in the amount of $16,025 for the issuance
of stock options (refer to Note 8C to the Consolidated Financial Statements). As a percentage of revenue, selling, general and
administrative expenses were 19.8% and 16.4% of revenue for the three months ended March 31, 2016 and 2015, respectively, a 3.4
percentage point increase which is primarily due to certain overhead expenditure additions including acquisition and consolidation
expenses.
Depreciation and
Amortization
. For the three months ended March 31, 2016 and 2015, depreciation and amortization expenses from continuing operations
were $128,802 and $79,852, respectively, an increase of $48,950 or 61.3% and is the result of increased amortization expense associated
with intangible assets in connection with the Liberty and INDCO acquisitions as well as other fixed assets obtained and depreciated
from the Liberty and INDCO acquisitions (refer to Notes 3 and 4 to the Consolidated Financial Statements).
Interest Expense
.
For the three months ended March 31, 2016 and 2015, interest expense from continuing operations was $139,702 and $133,478, respectively,
an increase of $6,224. This increase is primarily the result of higher interest costs due to increased borrowings under bank credit
facilities during the three months ended March 31, 2016 versus 2015 due to additional borrowings under our bank line of credit
which were used as part of the consideration for the acquisition of Liberty, as well as one month’s interest on the First
Merchants’ loans associated with the INDCO acquisition. Included in interest expense for the three months ended March 31,
2016 is imputed interest amortization in the amount of $13,893 in connection with the Alpha acquisition (refer to Note 6 to the
Consolidated Financial Statements).
Loss From Continuing
Operations Before Income Taxes.
For the reasons stated above, the Company had a loss of ($62,583) for the three months
ended March 31, 2016, compared to ($40,413) for the three months ended March 31, 2015.
Income Taxes.
The company recorded a net income tax provision of $23,390 and $4,000 for the three months ended March 31, 2016 and 2015, respectively.
Both fiscal years reflect applicable state income taxes only as we have fully provided for a valuation allowance against the deferred
tax asset.
Loss From Discontinued
Operations.
On August 28, 2013 the Company sold its New Jersey freight forwarding and logistics operations and in June
2012 discontinued its food segment business. As a result, the New Jersey operations and some ongoing expenses associated with the
food segment are included in discontinued operations. Additionally, the remaining lawsuit and expenses associated with it have
been settled as of March 9 2016. It is expected that the settlement and its final legal costs represent the last of discontinued
costs associated with this matter. The three months ended March 31, 2016 and 2015 reflect a loss from discontinued operations of
($159,239) and ($63,244), respectively. Refer to Note 7 to the Consolidated Financial Statements.
Net Income (Loss).
For the three months ended March 31, 2016 the Company recorded a net loss of ($245,212) and for the three months ended March
31, 2015, the Company recorded a net loss of ($107,657). Following payment of dividends on the Company’s Preferred Stock
and reduction of non-controlling interest profits, net loss available to common shareholders for the three months ended March 31,
2016 was ($326,929) or ($0.454) per diluted share and net loss available to common shareholders for the three months ended March
31 2015 was ($167,349) or ($0.28) per diluted share.
Six months ended March 31, 2016 and
2015
Revenue.
Total revenue from continuing operations for the six months ended March 31, 2016 was $39,223,003, as compared to $30,531,273
for the six months ended March 31, 2015, an increase of $8,691,730 or 28.5%. This increase is mainly the result of the acquisition
of Liberty. Net revenue (revenues minus forwarding expenses and other direct manufacturing costs) from continuing operations for
the six months ended March 31, 2016 was $6,903,093, an increase of $1,713,912 or 33.0% as compared to net revenue of $5,189,181
for the six months ended March 31, 2015. This increase was due to increased freight forwarding business and is mainly the result
of the acquisition of Liberty. The acquisition of the INDCO manufacturing operation provided for one month of additional revenue
of $712,306 and is expected to continue to provide for higher consolidated revenue and margins as compared to prior periods.
Forwarding Expense
and Direct Manufacturing Costs.
Forwarding expense from continuing operations is primarily comprised of the fees paid
by Janel directly to cargo carriers to handle and transport its actual freight shipments on behalf of its customers between initial
and final terminal points, and includes any trucking and warehousing charges related to the shipments. direct manufacturing costs
from continuing operations is primarily comprised of direct labor, materials and overhead costs applied to the INDCO operation.
For the six months
ended March 31, 2016, forwarding expense and direct costs from continuing operations increased by $1,713,912, or 33.0%, to $6,903,093
as compared to $5,189,181 for the six months ended March 31, 2015, primarily as a result of higher revenues from the Liberty and
INDCO acquisitions, and as a percentage of revenue decreased to 82.4% for the six months ended March 31 2016, from 83.0% for the
six months ending March 31, 2015, a 0.6 percentage point decrease. This percentage decrease is principally the result of the loss
of certain low margin customers who historically carried higher than average direct costs as a % of revenue. It is expected that
INDCO’s higher margins will contribute to improved consolidated margins as compared to prior periods..
Selling, General
and Administrative Expense.
For the six months ended March 31, 2016 and 2015, selling, general and administrative expenses
from continuing operations were $6,310,306 and $4,778,448, respectively, an increase of $1,531,858, or 32.1% when compared to the
prior year. Included in the six months ended March 31, 2016 is an expense in the amount of $32,050 for the issuance of stock options
(refer to Note 8C to the Consolidated Financial Statements). As a percentage of revenue, selling, general and administrative expenses
were 16.1% and 15.7% of revenue for the six months ended March 31, 2016 and 2015, respectively, a .4 percentage point increase
which is primarily due to certain overhead expenditure additions including acquisition and consolidation expenses.
Depreciation and
Amortization
. For the six months ended March 31, 2016 and 2015, depreciation and amortization expenses from continuing operations
were $227,344 and $157,701, respectively, an increase of $69,643 or 44.2% and is the result of increased amortization expense associated
with intangible assets in connection with the Liberty and INDCO acquisitions as well as other fixed assets obtained and depreciated
from the Liberty acquisition (refer to Notes 3 and 4 to the Consolidated Financial Statements).
Interest Expense
.
For the six months ended March 31, 2016 and 2015, interest expense from continuing operations was $276,773 and $256,675, respectively,
an increase of $20,098. This increase is primarily the result of higher interest costs due to increased borrowings under bank credit
facilities during the six months ended March 31, 2016 versus 2015 due to additional borrowings under our bank line of credit which
were used as part of the consideration for the acquisition of Liberty. Included in interest expense for the six months ended March
31, 2016 is imputed interest amortization in the amount of $27,786 in connection with the Alpha acquisition (refer to Note 6 to
the Consolidated Financial Statements).
Income/(Loss) From Continuing
Operations Before Income Taxes.
For the reasons stated above, the Company had income of $88,670 for the six months ended
March 31, 2016, compared to a loss of ($3,643) for the six months ended March 31, 2015.
Income Taxes.
The company recorded a net income tax provision of $38,577 and $8,000 for the six months ended March 31, 2016 and 2015, respectively.
Both fiscal years reflect applicable state income taxes only as we have fully provided for a valuation allowance against the deferred
tax asset.
Loss From Discontinued
Operations.
On August 28, 2013 the Company sold its New Jersey freight forwarding and logistics operations and in June
2012 discontinued its food segment business. As a result, the New Jersey operations and some ongoing expenses associated with the
food segment are included in discontinued operations. Additionally, the remaining lawsuit and expenses associated with it have
been settled as of March 9 2016. It is expected that the settlement and its final legal costs represent the last of discontinued
costs associated with this matter. The six months ended March 31, 2016 and 2015 reflect a loss from discontinued operations of
($183,177) and ($82,351), respectively. Refer to Note 7 to the Consolidated Financial Statements.
Net Income (Loss).
For the six months ended March 31, 2016 the Company recorded a net loss of ($133,084) and for the six months ended March 31,
2015, the Company recorded a net loss of ($93,994). Following payment of dividends on the Company’s Preferred Stock and reduction
of non-controlling interest profits, net loss available to common shareholders for the six months ended March 31, 2016 was ($275,735)
or ($0.45) per diluted share and net loss available to common shareholders for the six months ended March 31 2015 was ($214,621)
or ($0.36) per diluted share.
Liquidity
and Capital Resources
General.
Our
ability to satisfy our liquidity requirements, which include satisfying our debt obligations and funding working capital, 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.
Generally we do not have a need for significant capital expenditure as we are a non-asset based freight forwarder.
Janel’s cash
flow performance for the six months ending Mar 31, 2016 is not necessarily indicative of future cash flow performance.
As of March 31, 2016,
and compared with the prior fiscal year, the Company’s cash and cash equivalents increased by $174,647, or 18.5%, to $1,117,395
from $942,748. During the six months ended March 31, 2016, Janel’s net working capital (current assets minus current liabilities)
decreased by ($941,061) to a negative ($5,953,352) at March 31, 2016, from a negative ($5,012,291) at September 30, 2015.
This decrease is primarily due to the decrease in Accounts Receivable relative to Accounts Payable.
Cash flows from
continuing operating activities.
Net cash provided by continuing operating activities for the six months ended March 31, 2016
was $1,602,121 and net cash used in continuing operating activities for the six months ended March 31 2015 was ($670,729). The
change was principally driven by an increase in the collection of outstanding accounts receivable, and deferment of Accounts Payable
as well as slightly improved net income for the current period compared to the prior year.
Cash flows from
discontinued operating activities.
Net cash used in discontinued operating activities was $183,177 for the six months ended
March 31, 2016 and $82,351 for the six months ending March 31, 2015.
Cash flows from
investing activities
. Net cash used in investing activities for the six months ended March 31, 2016, primarily due to the acquisition
of INDCO was $11,006,091 as compared to $48,513 for the six months ending March 31, 2015.
Cash flows from
financing activities
. Net cash provided by financing activities was $9,761,894 for the six months ended March 31, 2016 and
net cash provided by financing activities was $327,407 for the six months ended March 31 2015. The cash provided by financing activities
for the six months ending March 31, 2016 was primarily the result of the debt instruments and newly subscribed Preferred Series
C shares used to finance the purchase of INDCO offset by the first of three annual earn out payments due on the 2014 Alpha acquisition.
The cash provided by financing activities for the six months ending March 31, 2015 was primarily due to increased borrowings under
the bank line of credit.
Presidential Financial
Borrowing Facility.
On March 27, 2014, the Company and its wholly-owned subsidiaries entered into a Loan and Security Agreement
with Presidential Financial Corporation (“Presidential”) with respect to a three year $3.5 million (limited to the
borrowing base and reserves) revolving line of credit facility (the “Presidential Facility”).
On September 10, 2014
in conjunction with the acquisition of AILP and PCL, the Company, AILP and PCL entered into a First Amendment to the Presidential
Facility (“Loan Amendment”), with Presidential, which Loan Amendment among other things, (1) added AILP and PCL as
co-borrowers, (2) increased the line of credit available (including AILP and PCL) from $3.5 million to $5.0 million and (3) increased
the advance rate from 70% to 85%. On that date, $1,800,000 of the Presidential Facility was used to acquire AILP and PCL.
On September 25, 2014
Janel entered into a Second Amendment and the Presidential Facility was temporarily increased to $5.5 million. On October 9, 2014
a Third Amendment was executed whereby the Presidential Facility was increased to $7.0 million. On August 18 2015 a Fourth Amendment
was executed and the Company can now borrow up to $10.0 million limited to 85% of the aggregate outstanding eligible accounts receivable,
subject to adjustment as set forth in the Loan and Security Agreement. Interest accrues at an annual rate equal to 3.25 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 obligations
under the Presidential facility are secured by all of the assets of the Company, AILP, PCL and Liberty. 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, 2016, there were outstanding borrowings of $5,438,584 under the Presidential Facility (which represented 59.9% of
the amount available thereunder) out of a total amount available for borrowing under the Presidential Facility of $10,000,000.
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.
First Merchants
Bank Credit Faciliity
. On March 21, 2016, INDCO executed a Credit Agreement with First Merchants Bank (“First Merchants”)
with respect to a $6 million Term Loan and $1.5 million (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.
Our Janel Group business’s cash needs are currently met by commercial bank credit facilities and cash on
hand. Actual working capital needs for the short and long terms will depend upon numerous factors, including operating results,
the availability of a revolving line of credit, competition, and the cost associated with growing Janel Group, either internally
or through acquisition, none of which can be predicted with certainty. If results of operations and availability under our bank
line of credit are insufficient to meet cash needs, Janel Group will be required to obtain additional investment capital or debt
funding to continue operations. Janel Group’s cash needs are currently met by the Presidential Facility and cash on hand.
INDCO’s cash needs are currently met by the First Merchants credit facilities and cash on hand. As of March 31, 2016, the
Company had $971,521 available under its $10.0 million Presidential Facility, $500,000 under its First Merchant’s Revolver
loan and $1,117,395 in cash from operations and cash on hand. On October 30 2013, the Company issued five-year warrants to the
investor for up to an additional $1,000,000 investment upon exercise for additional newly issued shares of the Company’s
common stock at a price of $4.00 per share. We believe that our current financial resources will be sufficient to finance our operations
and obligations (current and long-term liabilities) for the long and short terms. However, our actual working capital needs for
the long and short terms will depend upon numerous factors, including our operating results, the cost associated with growing the
Company either internally or through acquisition, competition, and the availability under our revolving credit facility, none of
which can be predicted with certainty. If our cash flow and available credit are not sufficient to fund our working capital, the
Company’s operations will be materially negatively impacted.
Current
Outlook
Full Service Cargo Transportation
Logistics Management
Our results of operations
are affected by the general economic cycle, particularly as it influences global trade levels and specifically the import and export
activities of Janel’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 its international network and service offerings,
and other similar and subtle forces. We cannot accurately forecast many of these factors nor can we estimate acurately the relative
influence of any particular factor and, as a result, there can be no assurance that historical patterns, if any, will continue
in future periods.
Industrial Mixer Manufacturing
INDCO was purchased
as of March 1 2016 and consequently one month’s results of operations are contained herein. Results of operations are also
largely affected by the general economic cycle, as INDCO has a large and diverse customer base dependent on consumer retail markets
in many industries including paint, food, pharmaceutical, chemical and others. 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
holidays, consumer demand, economic conditions, the growth and diversification of its larger industrial customers and other similar
and subtle forces. We cannot accurately forecast many of these factors nor can we estimate accurately the relative influence of
any particular factor and, as a result, there can be no assurance that historical patterns, if any, will continue in future periods.
Janel is progressing
with the implementation of its business plan and strategy to grow its revenue and profitability for fiscal 2016 and beyond through
several avenues. Janel Corporation expects to continue to grow its businesses in part by completing acquisitions. Either we will
acquire businesses that fit within our existing freight forwarding and logistics business portfolio, or we will expand our portfolio
into new areas. In either case, there can be no assurance:
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that Janel’s financial condition
will be sufficient to support the funding needs of an expansion program;
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that acquisitions will be successfully
consummated or will enhance profitability; or
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that any expansion opportunities will
be available upon reasonable terms.
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We expect future acquisitions to encounter
risks similar to the risks that past acquisitions have had such as:
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difficulty in assimilating the operations
and personnel of the acquired businesses;
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potential disruption of ongoing business;
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the inability of management to realize
the projected operational and financial benefits from the acquisition or to maximize financial and strategic benefits through the
successful incorporation of acquired personnel and clients;
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the maintenance of uniform standards,
controls, procedures and policies; and
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the impairment of relationships with employees
and clients as a result of any integration of new management personnel.
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We expect that any future acquisitions
could provide for consideration to be paid in cash, stock or a combination of cash and stock. There can be no assurance that any
of these acquisitions will be accomplished. If an entity we acquire is not efficiently or completely integrated with us, then our
business, financial condition and operating results could be materially adversely affected.
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 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. These accounting policies
are more fully described in Note 1 of the Notes to the Consolidated Financial Statements.
Revenue recognition is considered the critical
accounting policy due to the complexity of arranging and managing global logistics and supply-chain management transactions.
Revenue Recognition
Full-Service Cargo Transportation
Logistics Management
Revenues are derived from airfreight, ocean
freight and custom brokerage services. The Company’s transportation business, Janel Group Inc (“JGI”)., is a
non-asset-based carrier and accordingly does not own transportation assets. Janel Group Inc. 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, JGI is able to negotiate favorable rates from the direct carriers, while offering to its customers lower rates than the
customers could obtain themselves.
Airfreight revenues include the charges
for carrying the shipments when JGI acts as a freight consolidator. Ocean freight revenues include the charges for carrying the
shipments when JGI acts as a Non-Vessel Operating Common Carrier (NVOCC). In each case, JGI is acting as an indirect carrier. When
acting as an indirect carrier, JGI 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, JGI 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 JGI 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 JGI 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 JGI 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.”
Industrial Mixer Manufacturing
Revenues are derived from the manufacture
and shipment of industrial mixers to commercial customers. Revenue is recognized upon transfer of title to the customer and is
recorded net of estimated provisions for discounts and returns.
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 comprehensive loss:
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a.
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accounts receivable valuation;
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c.
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the useful lives of long-term assets;
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d.
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the accrual of costs related to ancillary services the Company provides;
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e.
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accrual of tax expense on an interim basis; and
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f.
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deferred tax valuation allowance.
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Management believes
that the methods utilized in all of these areas are reasonable 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.