The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
1.
|
BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
|
The accompanying interim unaudited consolidated financial statements have been prepared pursuant to the rules and regulations of Article 8 of Regulation S-X and the instructions to Form 10-Q of the
Securities and Exchange Commission. As a result, certain information and footnote disclosures normally included in audited financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. Janel
Corporation (the “Company” or “Janel”) believes that the disclosures made are adequate to make the information presented not misleading. The consolidated financial statements reflect all adjustments which are, in the opinion of management, necessary
to a fair statement of the results for the interim periods presented. The results of operations for the periods presented are not necessarily indicative of the results to be expected for a full fiscal year, or any other period. These consolidated
financial statements should be read in conjunction with the audited consolidated financial statements and related notes included in the Company’s Form 10-K as filed with the Securities and Exchange Commission.
Janel is a holding company that had the following two reportable segments at September 30, 2018: Global Logistics Services and Manufacturing. Effective October 1, 2018, the Company realigned its Manufacturing segment, which was separated into two
segments named Manufacturing and Life Sciences. Accordingly, the Company’s current structure consists of the following three reportable segments: (1) Global Logistics Services, (2) Manufacturing and (3) Life Sciences. The Company has reported its
segment results for all periods presented under the realigned business segments for the prior year to be consistent with the current presentation, as reflected in Note 12.
A management group at the holding company level (the “corporate group”) focuses on significant capital allocation decisions, corporate governance and supporting Janel’s subsidiaries
where appropriate. Janel expects to grow through its subsidiaries’ organic growth and by completing acquisitions. We plan to either acquire businesses within our existing segments or expand our portfolio into new strategic segments. Our
acquisition strategy focuses on reasonably-priced companies with strong and capable management teams, attractive existing business economics and stable and predictable earnings power.
Global Logistics Services
The Company’s Global Logistics Services segment is comprised of several wholly-owned subsidiaries, collectively known as “Janel Group.” Janel Group is a non-asset based, full-service provider of cargo
transportation logistics management services, including freight forwarding via air-, ocean- and land-based carriers, customs brokerage services, warehousing and distribution services, and other value-added logistics services.
On November 20, 2018, we completed a business combination whereby we acquired the membership interest of Honor Worldwide Logistics, LLC (“Honor”), a global logistics services provider with two U.S. locations. See note 2.
On October 17, 2018, we completed a business combination whereby we acquired substantially all of the assets and certain liabilities of Sea Cargo, Inc. (“Sea Cargo”), a global logistics services provider with one U.S.
location. See note 2.
The Company’s manufacturing segment is comprised of Indco, Inc. (“Indco”), which is a majority-owned subsidiary of the Company manufactures and distributes mixing equipment and apparatus for specific
applications within various industries. Indco’s customer base is comprised of small- to mid-sized businesses as well as repetitive production orders for other larger customers.
JANEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
The Company’s Life Sciences segment is comprised of Aves Labs, Inc. (“Aves”) and Antibodies Incorporated (“Antibodies”), which are wholly-owned subsidiaries of the Company. The Company’s Life Sciences segment manufactures
and distributes high-quality monoclonal and polyclonal antibodies, diagnostic reagents and other immunoreagents for biomedical research and provides antibody manufacturing for academic and industry research scientists. Our Life Sciences business also
produces products for other life science companies on an original equipment manufacturer (“OEM”) basis.
On March 5, 2018, the Company acquired all the outstanding common stock of Aves.
On June 22, 2018, the Company acquired all the outstanding common stock of Antibodies.
The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, as well as Indco, of which Janel owns 91.65%, with a non-controlling interest
held by existing Indco management. The Indco non-controlling interest is mandatorily redeemable and is recorded as a liability. All intercompany transactions and balances have been eliminated in consolidation.
Uses of estimates in the preparation of financial statements
The preparation of financial statements in conformity with generally accepted accounting principles in the United States (“U.S. GAAP”) requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of financial statements, as well as the reported amounts of revenues and expenses during the reporting period. The most critical
estimates made by the Company are those relating to the potential impairment of goodwill and intangible assets with indefinite lives, the impairment of other long-lived assets, the valuation of acquisitions, the valuation of mandatorily redeemable
non-controlling interests, gain on extinguishment of dividends on our Series C Cumulative Preferred Stock and the realization of deferred tax assets. Actual results could differ from those estimates.
Cash
The Company maintains cash balances at various financial institutions. Accounts at each institution are insured by the Federal Deposit Insurance Corporation up to $250. The Company’s accounts at these institutions may, at
times, exceed the federally insured limits. The Company has not experienced any losses in such accounts.
Accounts receivable and allowance for doubtful accounts receivable
Accounts receivable are recorded at the contractual amount. The Company records its allowance for doubtful accounts based upon its assessment of various factors. The Company considers historical
collection experience, the age of the accounts receivable balances, credit quality of the Company’s customers, any specific customer collection issues that have been identified, current economic conditions, and other factors that may affect the
customers’ ability to pay. The Company writes off accounts receivable balances that have aged significantly once all collection efforts have been exhausted and the receivables are no longer deemed collectible from the customer. The allowance for
doubtful accounts as of December 31, 2018 and September 30, 2018 was $411 and $124, respectively.
Inventory is valued at the lower of cost (using the first-in, first-out method) or net realizable value. The Company maintains an inventory valuation reserve to provide for slow moving and obsolete
inventory, inventory not meeting quality control standards and inventory subject to expiration for its Antibodies business. The products of Antibodies require the initial manufacture of multiple batches to determine if quality standards can
consistently be met. In addition, the Company will produce larger batches of established products than current sales requirements due to economies of scale. The manufacturing process for these products, therefore, has and will continue to produce
quantities in excess of forecasted usage. The Company values acquired manufactured antibody inventory based on a three-year forecast. Inventory quantities in excess of the forecast are not valued due to uncertainty over salability. Amounts are
charged to the reserve when the Company scraps or disposes of inventory.
JANEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
Property and equipment and depreciation policy
Property and equipment are recorded at cost. Property and equipment acquired in business combinations are initially recorded at fair value. Depreciation is provided for in amounts sufficient to
amortize the costs of the related assets over their estimated useful lives on the straight-line and accelerated methods for both financial reporting and income tax purposes.
Maintenance and repairs are recorded as expenses when incurred.
Goodwill
The Company records as goodwill the excess of purchase price over the fair value of the tangible and identifiable intangible assets acquired in a business combination. Under current authoritative guidance, goodwill is not
amortized but is tested for impairment annually (on September 30) as well as when an event or change in circumstance indicates impairment may have occurred. Goodwill is tested for impairment by comparing the fair value of the Company’s individual
reporting units to their carrying amount to determine if there is potential goodwill impairment. If the fair value of the reporting unit is less than the carrying value, an impairment loss is recorded to the extent that the implied fair value of the
goodwill of the reporting unit is less than its carrying value. The fair value of our reporting units were in excess of carrying value and goodwill was not deemed to be impaired as of September 30, 2018.
Intangibles and long-lived assets
Long-lived assets, including fixed assets and intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. In
reviewing for impairment, the carrying value of such assets is compared to the estimated undiscounted future cash flows expected from the use of the assets and their eventual disposition. If such cash flows are not sufficient to support the asset’s
recorded value, an impairment charge is recognized to reduce the carrying value of the long-lived asset to its estimated fair value. The determination of future cash flows, as well as the estimated fair value of long-lived assets, involves
significant estimates on the part of management. If there is a material change in economic conditions or other circumstances influencing the estimate of future cash flows or fair value, the Company could be required to recognize impairment charges in
the future. There were no indicators of impairment of long-lived assets during the years ended September 30, 2018 and 2017.
Business segment information
The Company operates in three reportable segments: Global Logistics Services, Manufacturing and Life Sciences. The Company’s Chief Executive Officer regularly reviews financial information at the
reporting segment level in order to make decisions about resources to be allocated to the segments and to assess their performance.
Revenues and revenue recognition
Adoption of ASC Topic 606, “Revenue from Contracts with Customers”
On October 1, 2018, the Company adopted ASU 2014-09, Revenue from Contracts with Customers (“ASC Topic 606”), using the modified retrospective method. Results
for reporting periods beginning on or after October 1, 2018 are presented under ASC Topic 606; however, prior period amounts are not adjusted and continue to be reported in accordance with the accounting standards in effect for those periods.
The Company recorded an increase to the opening balance of retained earnings of $32, net of tax, as of October 1, 2018 due to the cumulative impact of adoption of ASC Topic 606. The impact to revenue and associated cost for the three months ended December 31, 2018 was an increase of $451 and $273, respectively,
as a result of applying ASC Topic 606.
Global Logistics Services
Revenue Recognition
Revenue is recognized upon transfer of control of promised services to customers. With respect to its Global Logistics Services segment, the Company has determined that in general
each shipment transaction or service order constitutes a separate contract with the customer. When the Company provides multiple services to a customer, different contracts may be present for different services.
JANEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
The Company typically satisfies its performance obligations as services are rendered at a point in time. A typical shipment would include services rendered at origin, such as pick-up and delivery to port, freight
services from origin to destination port and destination services, such as customs clearance and final delivery. The Company measures the performance of its obligations as services are completed at a point in time during the life of a shipment,
including services at origin, freight and destination. The Company fulfills nearly all of its performance obligations within a one-to-two month period.
The Company evaluates whether amounts billed to customers should be reported as gross or net revenue. Generally, revenue is recorded on a gross basis when the Company is primarily responsible for fulfilling the promise
to provide the services, when it has discretion in setting the prices for the services to the customers, and the Company has the ability to direct the use of the services provided by the third party. Revenue is recognized on a net basis when we do
not have latitude in carrier selection or establish rates with the carrier.
In the Global Logistics Services segment, the Company disaggregates its revenues by its four primary service categories: ocean import and export, freight
forwarding, customs brokerage and air import and export. A summary of the Company’s revenues disaggregated by major service lines for the three months ended December 31, 2018 was as follows:
|
|
Three Months Ended
December 31,
|
|
Service Type
|
|
2018
|
|
Ocean import and export
|
|
$
|
7,761
|
|
Freight forwarding
|
|
|
4,593
|
|
Custom brokerage
|
|
|
2,289
|
|
Air import and export
|
|
|
4,162
|
|
Total
|
|
$
|
18,805
|
|
Manufacturing and Life Sciences
Revenues from Indco are derived from the engineering, manufacture and delivery of specialty mixing equipment. Revenues from Aves are derived from the sale of antibodies and other immunoreagents for
biomedical research and antibody manufacturing. Revenues from Antibodies are derived from the sale of monoclonal and polyclonal antibodies, diagnostic reagents and diagnostic kits and other immunoreagents for biomedical research and antibody
manufacturing. Payments are received either by credit card or invoice by Indco, Aves and Antibodies. A significant portion of Indco sales comes from print- and web-based catalog and specification features. Such online sales are generally credit
card purchases. Revenues from Indco, Aves and Antibodies are recognized at the point in time when the performance obligation for goods or services is satisfied and products are shipped with control transferring to the customers generally upon the
transfer of title and risk of loss transfers to the carrier(s) used.
Income (loss) per common share
Basic net income (loss) per share is computed by dividing net income (loss) for the period by the weighted average number of common shares outstanding, excluding unvested restricted stock, during the
period. Diluted net income (loss) per share reflects the additional dilution from potential issuances of common stock, such as stock issuable pursuant to the exercise of stock options or warrants or the vesting of restricted stock units. The
treasury stock method is used to calculate the potential dilutive effect of these common stock equivalents. Potentially dilutive shares are excluded from the computation of diluted net income (loss) per share when their effect is anti-dilutive.
Stock-based compensation to employees
Equity classified share-based awards
The Company recognizes compensation expense for stock-based payments granted based on the grant-date fair value estimated in accordance with ASC Topic 718, “Compensation-Stock Compensation.” For
employee stock-based awards, we calculate the fair value of the award on the date of grant using the Black-Scholes method for stock options and the quoted price of our common stock for restricted shares; the expense is recognized over the service
period for awards expected to vest.
JANEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
Stock-based compensation to non-employees
Liability classified share-based awards
The Company maintains other share unit compensation grants for shares of Indco, the Company’s majority owned subsidiary, which vest over a period of up to three years following their grant. The shares
contain certain put features where the Company is either required or expects to settle vested awards on a cash basis.
These awards are classified as liability awards, measured at fair value at the date of grant and re-measured at fair value at each reporting date up to and including the settlement date. The
determination of the fair value of the share units under these plans is described in note 9. The fair value of the awards is expensed over the respective vesting period of the individual awards with recognition of a corresponding liability. Changes
in fair value after vesting are recognized through compensation expense. Compensation expense reflects estimates of the number of instruments expected to vest. The impact of forfeitures and fair value revisions, if any, are recognized in earnings
such that the cumulative expense reflects the revisions, with a corresponding adjustment to the settlement liability. Liability-classified share unit liabilities due within 12 months of the reporting date are presented in trade and other payables
while settlements due beyond 12 months of the reporting date are presented in non-current liabilities.
Non-employee share-based awards
The Company accounts for stock-based compensation to non-employees and consultants in accordance with the provisions of ASC 505-50 “Equity-Based Payments to Non-employees.” Measurement of share-based
payment transactions with non-employees are based on the fair value of whichever is more reliably measurable: (a) the goods or services received; or (b) the equity instruments issued. The fair value of share-based payment transactions is determined
at the earlier of performance commitment date or performance completion date. The Company believes that the fair value of the stock-based award is more reliably measurable than the fair value of the services received. The fair value of the granted
stock-based awards is remeasured at each reporting date and expense is recognized over the vesting period of the award.
Mandatorily Redeemable Non-Controlling Interests
The non-controlling interests that are reflected as mandatorily redeemable non-controlling interests in the consolidated financial statements consist of non-controlling interests related
to the Indco acquisition whose owners have certain redemption rights that allow them to require the Company to purchase the non-controlling interests of those owners upon certain events outside the control of the Company, including upon the death of the holder. The Company will be required to purchase 20% of the 8.35% mandatorily redeemable non-controlling interest at the option of the holder beginning on the third anniversary of the date of the
Indco acquisition, which is March 21, 2019. On the date the Company acquires the controlling interest in a business combination, the fair value of the non-controlling interest is recorded in the long-term
liabilities section of the consolidated balance sheet under the caption “Mandatorily redeemable non-controlling interest.” The mandatorily redeemable
non-controlling interest is adjusted each reporting period, if required, to its then current redemption value, based on the predetermined formula defined in the respective agreement. The Company reflects any adjustment in the redemption value and
any earnings attributable to the mandatorily redeemable non-controlling interest in its consolidated statements of operations by recording the adjustments and earnings to other income and expense in the caption “change in fair value of mandatorily redeemable non-controlling interest.”
The Company uses the asset and liability method of accounting for income taxes in accordance with ASC Topic 740, “Income Taxes.” Under this method, income tax expense is recognized for the amount of:
(i) taxes payable or refundable for the current year and (ii) deferred tax consequences of temporary differences resulting from matters that have been recognized in an entity’s financial statements or tax returns. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is provided when it is more likely than not that some portion or all of a deferred tax asset will not be realized. The ultimate
realization of deferred tax assets is dependent upon the generation of future taxable income and the reversal of deferred tax liabilities during the period in which related temporary differences become deductible. The benefit of tax positions taken
or expected to be taken in the Company’s income tax returns are recognized in the consolidated financial statements if such positions are more likely than not of being sustained.
JANEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
On December 22, 2017, the United States enacted tax reform legislation through the Tax Cuts and Jobs Act (the “Tax Reform Act”), which significantly changed the existing U.S. tax laws, including a
reduction in the corporate tax rate from 34% to 21%, a move from a worldwide tax system to a territorial system, as well as other changes. As a result of the enactment of the Tax Reform Act, the Company recorded an income tax benefit of $28 in
fiscal 2018 related to the re-measurement of certain deferred tax assets, primarily net operating losses and intangibles.
Recent accounting pronouncements
Recently adopted accounting pronouncements
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (“ASC
Topic 606”), to clarify the principles used to recognize revenue for all entities. This new standard requires an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to
which the entity expects to be entitled for those goods or services. In addition, the new standard requires enhanced qualitative and quantitative disclosures related to the nature, amount, timing and uncertainty of revenue and cash flows arising from
contracts with customers.
The Company adopted this standard on October 1, 2018 using the modified retrospective approach. As a result of using this approach, the Company recognized the cumulative effect adjustment
to the opening balance of retained earnings. Comparative prior year information has not been adjusted and continues to be reported under the Company’s historical revenue recognition policies described in Note 1 to the Company’s Form 10-K as
filed on July 26, 2019.
The adoption of this new standard adjusted the revenue recognition timing of the Company’s brokerage and transportation management services performance obligation from point in time to over time on a proportionate
transit time basis within the Company’s Global Logistics Services, which resulted in a cumulative transition adjustment to the opening balance of retained earnings on October 1, 2018, of $32, net of tax, and
an increase of $451 and $273 to revenue and cost for the three months ended December 31, 2018, respectively. While adoption of this standard also affected the corresponding direct costs of revenue, this change
did not have a material impact on the Company’s consolidated financial statements due to the short-term nature of its performance obligations.
As part of the adoption of this standard, the Company implemented changes to its accounting policies, practices and internal controls over financial reporting.
Recently issued accounting pronouncements not yet adopted
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). ASU 2016-02 requires an entity to recognize right-of-use assets and lease liabilities on its
balance sheet and disclose key information about leasing arrangements. Lessees and lessors are required to disclose qualitative and quantitative information about leasing arrangements to enable a user of the financial statements to assess the
amount, timing and uncertainty of cash flows arising from leases. ASU 2016-02 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. The new lease standard will be adopted using a modified
retrospective transition and will be effective for the Company beginning on October 1, 2019.
The Company is currently evaluating its existing lease portfolio, including accumulating all of the necessary information required to properly evaluate and account for the leases under this new
standard. The Company anticipates that the adoption of this standard will materially affect the consolidated balance sheets.
In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other: Simplifying the Test for Goodwill Impairment, to simplify the subsequent measurement of goodwill by eliminating Step 2 from
the goodwill impairment test. This new accounting standard will be effective for annual periods beginning after December 15, 2019. Early adoption is permitted. The Company is evaluating the effects that the adoption of this guidance will have on its
consolidated financial statements.
In June 2018, the FASB issued ASU 2018-07, Compensation - Stock Compensation, which expands the scope of Topic 718 to include all share-based payment transactions for acquiring goods
and services from nonemployees. The amendments in this update will be effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with early adoption permitted. The Company is evaluating the
effects that the adoption of this guidance will have on its consolidated financial statements.
JANEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
Prior year financial statement amounts are reclassified as necessary to conform to the current year presentation. These prior period reclassifications did not affect the Company’s net income, earnings
per share, stockholders’ equity or working capital.
Honor Worldwide Logistics, LLC
Through its wholly-owned subsidiary, Janel Group, Inc. (“Janel Group”), the Company acquired the membership interests of Honor Worldwide Logistics LLC (“Honor”) on November 20, 2018 in a transaction pursuant to which
Honor became a direct wholly-owned subsidiary of Janel Group and an indirect wholly-owned subsidiary of the Company. The acquisition of Honor was funded with cash provided by normal operations along with the subordinated promissory note. Honor
provides global logistics services with two U.S. locations in Charleston and Houston and expands the domestic network of the Company’s Global Logistics Services segment. The results of operations for Honor will be reflected in the Global Logistics
Services reporting segment.
Sea Cargo, Inc.
On October 17, 2018, we completed a business combination whereby we acquired substantially all of the assets and certain liabilities of Sea Cargo, Inc. (“Sea Cargo”), a global logistics services
provider with one U.S. location. The acquisition of Sea Cargo was funded with cash provided by normal operations. This acquisition was completed primarily to expand our services and offerings and was related to our
Global Logistics Services business.
Purchase price allocation
The aggregate purchase price for the Honor and Sea Cargo acquisitions was $2,392, net of $70 of cash received. At closing, $2,006 was paid in cash, a subordinated promissory note in the aggregate
amount of $456 was issued to a former member and $50 was recorded in accrued expenses as a preliminary earnout consideration. In accordance with the acquisition method of accounting, the Company allocated the consideration paid for Honor and Sea
Cargo to the net tangible and identifiable intangible assets based on their estimated fair values. The Company is still finalizing the valuation of assets acquired and liabilities assumed, and, as such, the fair value amounts are preliminary and
subject to change. Primary amounts subject to adjustment include, but are not limited to, intangible assets, fair value of accounts receivable or a change in the goodwill balance. Goodwill represents the excess of the purchase price over the fair
value of the underlying net tangible and identifiable intangible assets.
3.
|
PROPERTY AND EQUIPMENT
|
A summary of property and equipment and the estimated lives used in the computation of depreciation and amortization is as follows:
|
|
December 31,
2018
|
|
|
September 30,
2018
|
|
Life
|
Building and Improvements
|
|
$
|
2,483
|
|
|
$
|
2,366
|
|
15-30 Years
|
Land and Improvements
|
|
|
823
|
|
|
|
823
|
|
Indefinite
|
Furniture & Fixtures
|
|
|
225
|
|
|
|
211
|
|
3-7 Years
|
Computer Equipment
|
|
|
332
|
|
|
|
323
|
|
3-5 Years
|
Machinery & Equipment
|
|
|
809
|
|
|
|
764
|
|
3-15 Years
|
Leasehold Improvements
|
|
|
180
|
|
|
|
181
|
|
Shorter of Lease Term or Asset Life
|
|
|
|
4,852
|
|
|
|
4,668
|
|
|
Less: Accumulated Depreciation
|
|
|
(944
|
)
|
|
|
(881
|
)
|
|
|
|
|
3,908
|
|
|
$
|
3,787
|
|
|
JANEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
Depreciation expense for the three months ended December 31, 2018 and 2017 was $76 and $25, respectively.
Inventories consisted of the following:
|
|
December 31,
2018
|
|
|
September 30,
2018
|
|
Finished Goods
|
|
$
|
1,208
|
|
|
$
|
1,241
|
|
Work-in-Process
|
|
|
285
|
|
|
|
286
|
|
Raw Materials
|
|
|
999
|
|
|
|
888
|
|
Less - Reserve for Inventory Valuation
|
|
|
(27
|
)
|
|
|
(24
|
)
|
Inventory Net
|
|
$
|
2,465
|
|
|
$
|
2,391
|
|
A summary of intangible assets and the estimated useful lives used in the computation of amortization is as follows:
|
|
December 31,
2018
|
|
|
September 30,
2018
|
|
Life
|
Customer Relationships
|
|
$
|
13,032
|
|
|
$
|
12,052
|
|
15-20 Years
|
Trademarks / Names
|
|
|
2,141
|
|
|
|
2,118
|
|
20 Years
|
Other
|
|
|
708
|
|
|
|
656
|
|
2-5 Years
|
|
|
|
15,881
|
|
|
|
14,826
|
|
|
Less: Accumulated Amortization
|
|
|
(2,687
|
)
|
|
|
(2,479
|
)
|
|
|
|
$
|
13,194
|
|
|
$
|
12,347
|
|
|
Amortization expense for the three months ended December 31, 2018 and 2017 was $208 and $193, respectively.
(A)
|
Presidential Financial Corporation 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 (the “Presidential Loan Agreement”)
with Presidential Financial Corporation with respect to a revolving line of credit facility (the “Presidential Facility”). At September 30, 2017, the Presidential Facility provided that the Janel Borrowers could borrow up to $10.0 million, limited
to 85% of the Janel Borrowers’ aggregate outstanding eligible accounts receivable, subject to adjustment as set forth in the Presidential Loan Agreement. Interest accrued at an annual rate equal to 5% 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 were secured by all of the assets of the Janel Borrowers. The Presidential Facility was terminated on
October 17, 2017, and the Company replaced the Presidential Facility with the Santander Bank Facility (see below).
At September 30, 2017, outstanding borrowings under the Presidential Facility were $6,139, representing 80.4% of the $7,643 available thereunder, and interest was accruing at an effective interest
rate of 7.5%. The Janel Borrowers were in compliance with the covenants defined in the Presidential Loan Agreement as of September 30, 2017.
JANEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
(B)
|
Santander Bank Facility
|
On October 17, 2017, the Janel Group subsidiaries (collectively the “Janel Group Borrowers”), with Janel Corporation as a guarantor, entered into a Loan and Security Agreement (the “Santander Loan
Agreement”) with Santander Bank, N.A. (“Santander”) with respect to a revolving line of credit facility (the “Santander Facility”). The Santander Facility provides that the Janel Group Borrowers can borrow up to $10,000, limited to 85% of the Janel
Group Borrowers’ aggregate outstanding eligible accounts receivable, subject to adjustment as set forth in the Santander Loan Agreement. Interest accrues on the Santander Facility at an annual rate equal to, at the Janel Group Borrowers’ option,
Prime plus 0.50%, or LIBOR (30, 60 or 90 day) plus 2.50% subject to a LIBOR floor of 75 basis points. The Janel Group Borrowers’ obligations under the Santander Facility are secured by all of the assets of the Janel Group Borrowers. The Santander
Loan Agreement requires, among other things, that the Janel Group Borrowers, on a quarterly basis, maintain a Minimum Debt Service Coverage ratio, as defined in the Santander Loan Agreement. The loan is subject to earlier termination as provided in
the Santander Loan Agreement and matures on October 17, 2020, unless renewed. The Santander Loan Agreement requires the Company to maintain a lock box with Santander in addition to containing certain subjective acceleration clauses. As a result of
these terms, the loan is classified as a current liability on the consolidated balance sheet.
On March 21, 2018, the Janel Group Borrowers, the Company and Aves entered into an amendment with Santander (the “Santander Amendment”) with respect to the Santander Loan Agreement. Pursuant to the
Santander Amendment, among other changes Aves was added as a loan party obligor (but not a Janel Group Borrower) under the Santander Loan Agreement, the maximum amount available under the Santander Loan Agreement was increased from $10,000 to
$11,000 (subject to 85% of eligible receivables), the foreign account sublimit was increased from $1,500 to $2,000, a one-time waiver was granted until May 31, 2018 for the stated event of default related to the delivery of the quarterly financial
statements for the fiscal quarter ended December 31, 2017, and a one-time waiver, retroactive to March 5, 2018, of the provision that prohibits the Company from using proceeds of the revolving loan to finance acquisitions was granted for the
purpose of partially funding the acquisition of Aves.
On November 20, 2018, the Company and its wholly-owned subsidiaries entered into the Limited Waiver, Joinder and Second Amendment (“Amendment No. 2”) to the Santander Loan Agreement (as amended by the
Santander Amendment), with Santander Bank, N.A. Pursuant to, and among other changes affected by, Amendment No. 2: (1) Honor Worldwide Logistics LLC, HWL Brokerage LLC and Global Trading Resources Inc. were added as new borrowers under the
Santander Loan Agreement; (2) Aves was released as a loan party obligor under the Santander Loan Agreement; (3) the maximum revolving facility amount available was increased from $11,000 to $17,000 (limited to 85% of the borrowers’ eligible
accounts receivable borrowing base and reserves); (4) the foreign account sublimit was increased from $2,000 to $2,500; (5) the letter of credit limit was increased from $500 to $1,000; (6) the definitions of “Debt Service Coverage Ratio,” “Debt
Service Coverage Ratio (Borrower Group)” and “Loan Party” were restated; (7) the permitted acquisition debt basket was increased from $2,500 to $4,000; and (8) the permitted indebtedness basket was increased from $500 to $1,000.
At December 31, 2018, outstanding borrowings under the Santander Facility were $11,338, representing 66.7% of the $17,000 available thereunder, and interest was accruing at an effective interest rate of 5.75%. As of May 1, 2019, Santander had granted the Janel Group Borrowers a one-time waiver until July 31, 2019 for an event of default related to the delivery of the audited financial statements for the fiscal year ended September
30, 2018. Other than as specifically referenced above, the Janel Group Borrowers were in compliance with the covenants defined in the Santander Loan Agreement as of December 31, 2018.
At September 30, 2018, outstanding borrowings under the Santander Facility were $9,730, representing 88.5% of the $11,000 available thereunder, and interest was accruing at an effective interest rate of 5.75%.
(C)
|
First Merchants Bank Credit Facility
|
On March 21, 2016, Indco executed a Credit Agreement (the “First Merchants Credit Agreement”) with First Merchants Bank with respect to a $6,000 term loan and $1,500 (limited to the borrowing base and
reserves) revolving loan (together, the “First Merchants Facility”). Interest accrues 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 Facility are secured by all of Indco’s assets and
are guaranteed by the Company. The First Merchants Credit Agreement requires, among other things, that Indco, on a monthly basis, not exceed a “maximum total funded debt to EBITDA ratio” and maintain a “minimum fixed charge covenant ratio,” both as
defined in the First Merchants Credit Agreement. The First Merchants Facility requires monthly payments until the expiration date on the fifth anniversary of the loan. The loan is subject to earlier termination as provided in the First Merchants
Credit Agreement.
JANEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
As of September 30, 2018, there were no outstanding borrowings under the revolving loan and $2,713 of borrowings under the term loan, with interest accruing on the term loan at an effective interest rate of 5.85%.
As of December 31, 2018, there were no outstanding borrowings under the revolving loan and $2,451 of borrowings under the term loan, with interest accruing on the term loan at an effective interest
rate of 6.01%. Indco was in compliance with the covenants defined in the First Merchants Credit Agreement at both December 31, 2018 and September 30, 2018.
|
|
December 31,
2018
|
|
|
September 30,
2018
|
|
Long Term Debt *
|
|
$
|
2,451
|
|
|
$
|
2,713
|
|
Less Current Portion
|
|
|
(857
|
)
|
|
|
(857
|
)
|
|
|
$
|
1,594
|
|
|
$
|
1,856
|
|
*Note: Long Term Debt is due in monthly installments of $71 plus monthly interest, at LIBOR plus 3.75% to 4.75% per annum. The note is collateralized by all of Indco’s assets and guaranteed by Janel.
|
|
|
|
|
|
|
|
|
(D)
|
First Northern Bank of Dixon
|
On June 21, 2018, AB Merger Sub, Inc., a wholly-owned, indirect subsidiary of the Company, entered into a Business Loan Agreement (the “First Northern Loan Agreement”) and Promissory Note with First
Northern Bank of Dixon (“First Northern”), with respect to a $2,025 senior secured term loan (the “Senior Secured Term Loan”). The First Northern Loan Agreement and Promissory Note are dated and effective as of June 14, 2018. The proceeds of the
Senior Secured Term Loan were used to fund a portion of the merger consideration to acquire Antibodies. Interest will accrue on the Senior Secured Term Loan at an annual rate based on the five-year Treasury constant maturity (index) plus 2.50%
(margin) for years one through five then adjusted and fixed for years six through ten using the same index and margin. The borrower’s and the Company’s obligations to First Northern under the First Northern Loan Agreement are secured by certain
real property owned by Antibodies as of the closing of the Antibodies merger. The Senior Secured Term Loan will mature on June 14, 2028 (subject to earlier termination as provided in the First Northern Loan Agreement). The First Northern Loan
Agreement requires, among other things, that the borrowers maintain certain Minimum Debt Service Coverage, Debt to Tangible Net Worth and Tangible Net Worth ratios as defined in the First Northern Loan Agreement.
As of September 30, 2018, the total amount outstanding under the Senior Secured Term Loan was $2,015, of which $1,975 is included in long-term debt and $40 is included in current portion of long-term
debt, with interest accruing at an effective interest rate of 5.28%.
As of December 31, 2018, the total amount outstanding under the Senior Secured Term Loan was $2,009, of which $1,972 is included in long-term debt and $37 is included in current portion of long-term debt, with
interest accruing at an effective interest rate of 5.28%.
|
|
December 31,
2018
|
|
|
September 30,
2018
|
|
Long Term Debt *
|
|
$
|
2,009
|
|
|
$
|
2,015
|
|
Less Current Portion
|
|
|
(37
|
)
|
|
|
(40
|
)
|
|
|
$
|
1,972
|
|
|
$
|
1,975
|
|
*Note: Long Term Debt is due in monthly installments of $12 plus monthly interest, at 5.28% per annum. The note is collateralized by real property owned by Antibodies and guaranteed by Janel.
|
|
|
|
|
|
|
|
|
The Company was in compliance with the covenants defined in the First Northern Loan Agreement at December 31, 2018 and September 30, 2018.
JANEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
7.
|
SUBORDINATED PROMISSORY NOTES
|
On June 22, 2018, in connection with the Antibodies acquisition, AB HoldCo, Inc. (“AB HoldCo”), a wholly-owned subsidiary of the Company, entered into two subordinated promissory notes (“AB HoldCo
Subordinated Promissory Notes”) with certain former shareholders of Antibodies. Both of the AB HoldCo Subordinated Promissory Notes are guaranteed by the Company and are subordinate to the terms of any credit agreement, loan agreement, indenture,
promissory note, guaranty or other debt instrument pursuant to which AB HoldCo or any affiliate of AB HoldCo incurs, borrows, extends, guarantees, renews or refinances any indebtedness for borrowed money or other extensions of credit with any
federal or state bank or other institutional lender and are unsecured. Each of the AB HoldCo Subordinated Promissory Notes has a 4% annual interest rate payable in arrears on the last business day of each calendar quarter, commencing on September
30, 2018, and has a maturity date of June 22, 2021. The outstanding principal amount of these notes are payable in a single payment on the three-year anniversary date of June 22, 2021. Both notes are subject to prepayment in whole or in part,
without premium or penalty, the outstanding principal amount of the notes, together with all accrued but unpaid interest on such principal amount up to the date of prepayment. Any prepayment shall be applied first to accrued but unpaid interest,
and then to outstanding principal.
As of December 31, 2018 and September 30, 2018, amounts outstanding under the two AB HoldCo Subordinated Promissory Notes were $47 and $297, respectively.
On November 20, 2018, in connection with the Honor acquisition, Janel Group, a wholly-owned subsidiary of the Company, entered into a subordinated promissory note (“Janel Group Subordinated Promissory
Note”) with a former owner of Honor. The Janel Group Subordinated Promissory Note is guaranteed by the Company. The Janel Group Subordinated Promissory Note is subordinate to and junior in right of payment for principle, interest premiums and other
amounts payable to the Santander Bank Facility and the First Merchants Bank Credit Facility. The Janel Group Subordinated Promissory Note has a 6.75% annual interest rate, payable in twelve equal consecutive quarterly installments of principal and
interest and shall be due and payable on the last day of January, April, July and October beginning in January 2019 each in the amount of $42. The outstanding principal and accrued and unpaid interest are payable in a single payment on the
three-year anniversary date of November 20, 2021. The note is subject to prepayment in whole or in part, without premium or penalty, the outstanding principal amount of the notes, together with all accrued but unpaid interest on such principal
amount up to the date of prepayment. Any prepayment shall be applied first to accrued but unpaid interest, and then to outstanding principal.
Janel is authorized to issue 4,500,000 shares of common stock, par value $0.001. In addition, the Company is authorized to issue 100,000 shares of preferred stock, par value $0.001. The preferred
stock is issuable in series with such voting rights, if any, designations, powers, preferences and other rights and such qualifications, limitations and restrictions as may be determined by the Company’s board of directors or a duly authorized
committee thereof, without stockholder approval. The board of directors may fix the number of shares constituting each series and increase or decrease the number of shares of any series.
Series A Convertible Preferred Stock
Series A Convertible Preferred Stock (the “Series A Stock”) shares are convertible into shares of the Company’s $0.001 par value common stock at any time on a one-share for one-share basis. The Series
A Stock pays a cumulative cash dividend at a rate of $15 per year, payable quarterly. On September 24, 2018, the 20,000 shares of Series A Stock then outstanding were repurchased by the Company for $400. On September 27, 2018, all outstanding
shares of the Series A Stock were retired.
Series B Convertible Preferred Stock
Series B Convertible Preferred Stock (the “Series B Stock”) shares are convertible into shares of the Company’s $0.001 par value common stock at any time on a one-share (of Series B Stock) for
ten-shares (of common stock) basis.
JANEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
Series C Cumulative Preferred Stock
Shares of the Company’s Series C Cumulative Preferred Stock were initially entitled to receive annual dividends at a rate of 7% per annum of the original issuance price of $10, when and if declared by the Company’s board
of directors, with such rate to increase by 2% annually beginning on the third anniversary of issuance of such Series C Stock to a maximum rate of 13%. By the filing of the Certificate of Amendment on October 17, 2017, the annual dividend rate
decreased to 5% per annum of the original issuance price, when and if declared by the Company’s board of directors, with such rate to increase by 1% annually beginning on January 1, 2019 and on each January 1 thereafter for four years to a maximum
rate of 9%. The dividend rate of the Series C Stock as of each of December 31, 2018 and September 30, 2018 was 5%. In the event of liquidation, holders of Series C Stock shall be paid an amount equal to the original issuance price, plus any accrued
but unpaid dividends thereon. Shares of Series C Stock may be redeemed by the Company at any time upon notice and payment of the original issuance price, plus any accrued but unpaid dividends thereon. The liquidation value of Series C Stock was
$12,092 and $11,966 as of December 31, 2018 and September 30, 2018, respectively. The change in terms were deemed to be substantial from a quantitative perspective (greater than 10% change in the present value of future cash flows) as well as
qualitatively when considering the change in the form of the security from original issuance through October 17, 2017. The fair value prior to modification was $8,224 and $6,912 after modification, for a change of $1,312. In accordance with
ASC 260, “Earnings Per Share,” this incremental benefit is treated as an adjustment to EPS for common stockholders. The amendment on October 17, 2017 to the annual dividend rate decrease was treated as an extinguishment
for accounting purposes in a manner similar to a dividend.
On March 21, 2018, the Company sold 3,000 shares of the Series C Stock to an accredited investor at a purchase price of $500 per share, or an aggregate of $1,500. On June 22, 2018, the Company sold
2,795 shares of the Series C Stock to an accredited investor at a purchase price of $500 per share, or an aggregate of $1,398. Such shares issued on March 21, 2018 and June 22, 2018 were sold in private placements in reliance upon the exemption
from registration provided by Section 4(a)(2) of the Securities Act of 1933 and Regulation D promulgated thereunder.
For the three months ended December 31, 2018 and 2017, the Company declared dividends on Series C Stock of $122 and $106, respectively.
(B)
|
Equity Incentive Plan
|
On May 12, 2017, the Company adopted the 2017 Equity Incentive Plan (the “2017 Plan”) pursuant to which (i) incentive stock options, (ii) non-statutory stock options, (iii) restricted stock awards and
(iv) stock appreciation rights with respect to shares of the Company’s common stock may be granted to directors, officers, employees of and consultants to the Company. Participants and all terms of any awards under the Plan are at the discretion of
the Company’s board of directors in its role as the Compensation Committee. The 2017 Plan was amended and restated on May 8, 2018, as discussed in more detail in note 9.
9.
|
STOCK-BASED COMPENSATION
|
On October 30, 2013, the board of directors of the Company adopted the Company’s 2013 Non-Qualified Stock Option Plan (the “2013 Option Plan”) providing for options to purchase up to 100,000 shares of
common stock for issuance to directors, officers, employees of and consultants to the Company and its subsidiaries.
On May 12, 2017, the board of directors adopted the Company’s 2017 Equity Incentive Plan (the “2017 Plan”) pursuant to which (i) incentive stock options, (ii) non-statutory stock options, (iii)
restricted stock awards and (iv) stock appreciation rights with respect to up to 100,000 shares of the Company’s common stock may be granted to directors, officers, employees of and consultants to the Company.
On May 8, 2018, the board of directors of Janel amended and restated the 2017 Plan (as amended and restated, the “Amended 2017 Plan”). The provisions and terms of the Amended 2017 Plan are the same as
those in the 2017 Plan, except that the Amended 2017 Plan removes the ability of Janel to award incentive stock options and removes the requirement for stockholder approval of the 2017 Plan.
Total stock-based compensation for the three months ended December 31, 2018 and 2017 amounted to $129 and $171, respectively, and was included in selling, general and administrative expense in the
Company’s statements of operations.
JANEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
The Company uses the Black-Scholes option pricing model to estimate the fair value of our share-based awards. In applying this model, we use the following assumptions:
|
•
|
Risk-free interest rate - We determine the risk-free interest rate by using a weighted average assumption equivalent to the expected term based on the U.S. Treasury constant maturity rate.
|
|
•
|
Expected term - We estimate the expected term of our options on the average of the vesting date and term of the option.
|
|
•
|
Expected volatility - We estimate expected volatility using daily historical trading data of a peer group.
|
|
•
|
Dividend yield - We have never paid dividends on our common stock and currently have no plans to do so; therefore, no dividend yield is applied.
|
The fair values of our employee option awards were estimated using the assumptions below, which yielded the following weighted average grant date fair values for the periods presented:
|
|
Three Months Ended
December 31,
2018
|
|
Risk-free Interest Rate
|
|
|
3.04
|
%
|
Expected Option Term in Years
|
|
|
5.5-6.5
|
|
Expected Volatility
|
|
|
95.4% - 98.8
|
%
|
Dividend Yield
|
|
|
0
|
%
|
Weighted Average Grant Date Fair Value
|
|
$
|
7.75
|
|
|
|
Number of
Options
|
|
|
Weighted Average
Exercise Price
|
|
|
Weighted Average
Remaining Contractual
Term (in years)
|
|
|
Aggregate Intrinsic
Value (in thousands)
|
|
Outstanding Balance at September 30, 2018
|
|
|
112,798
|
|
|
$
|
5.09
|
|
|
|
6.9
|
|
|
$
|
357.10
|
|
Granted
|
|
|
7,500
|
|
|
$
|
7.75
|
|
|
|
9.8
|
|
|
$
|
10.13
|
|
Exercised
|
|
|
(1,500
|
)
|
|
$
|
3.25
|
|
|
|
-
|
|
|
$
|
-
|
|
Outstanding Balance at December 31, 2018
|
|
|
118,798
|
|
|
$
|
5.28
|
|
|
|
6.8
|
|
|
$
|
454.06
|
|
Exercisable on December 31, 2018
|
|
|
91,502
|
|
|
$
|
4.76
|
|
|
|
6.3
|
|
|
$
|
396.66
|
|
The aggregate intrinsic value in the above table was calculated as the difference between the closing price of the Company’s common stock at December 31, 2018 of $9.10 per share and the exercise price
of the stock options that had strike prices below such closing price.
As of December 31, 2018, there was approximately $63 of total unrecognized compensation expense related to the unvested employee stock options which
is expected to be recognized over a weighted average period of less than one year.
The fair values of our non-employee option awards as of December 31, 2018 were estimated using the assumptions below, which yielded the following weighted average grant date fair values for the periods
presented:
|
|
Three Months Ended
December 31,
2018
|
|
Risk-free Interest Rate
|
|
|
2.59% - 3.04
|
%
|
Expected Option Term in Years
|
|
|
8.0-9.0
|
|
Expected Volatility
|
|
|
97.0% - 98.8
|
%
|
Dividend Yield
|
|
|
0
|
%
|
Weighted Average Grant Date Fair Value
|
|
$
|
4.13 - $8.04
|
|
JANEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
|
|
Number of
Options
|
|
|
Weighted Average
Exercise Price
|
|
|
Weighted Average
Remaining Contractual
Term (in years)
|
|
|
Aggregate Intrinsic
Value (in thousands)
|
|
Outstanding Balance at September 30, 2018
|
|
|
51,053
|
|
|
$
|
7.58
|
|
|
|
8.8
|
|
|
$
|
31.84
|
|
Granted
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
Outstanding Balance at December 31, 2018
|
|
|
51,053
|
|
|
$
|
7.58
|
|
|
|
8.6
|
|
|
$
|
77.78
|
|
Exercisable on December 31, 2018
|
|
|
19,036
|
|
|
$
|
7.21
|
|
|
|
8.5
|
|
|
$
|
35.96
|
|
The aggregate intrinsic value in the above table was calculated as the difference between the closing price of our common stock at December 31, 2018, of $9.10 per share and the exercise price of the
stock options that had strike prices below such closing price.
As of December 31, 2018, there was approximately $109 of total unrecognized compensation expense related to the unvested stock options, which is expected to be recognized over a weighted average
period of less than one year.
Liability classified share-based awards
Additionally, during the three months ended December 31, 2018, 6,812 options were granted with respects to Indco’s common stock. The Company uses the Black-Scholes option pricing model to estimate the
fair value of Indco’s share-based awards. In applying this model, the Company used the following assumptions:
|
|
Three Months Ended
December 31,
2018
|
|
Risk-free Interest Rate
|
|
|
3.04
|
%
|
Expected Option Term in Years
|
|
|
5.5-6.5
|
|
Expected Volatility
|
|
|
95.4% - 98.8
|
%
|
Dividend Yield
|
|
|
0
|
%
|
Weighted Average Grant Date Fair Value
|
|
$
|
12.13
|
|
|
|
Number of
Options
|
|
|
Weighted Average
Exercise Price
|
|
|
Weighted Average
Remaining Contractual
Term (in years)
|
|
|
Aggregate Intrinsic
Value (in thousands)
|
|
Outstanding Balance at September 30, 2018
|
|
|
25,321
|
|
|
$
|
7.97
|
|
|
|
7.9
|
|
|
$
|
105.36
|
|
Granted
|
|
|
6,812
|
|
|
$
|
12.13
|
|
|
|
9.8
|
|
|
$
|
-
|
|
Outstanding Balance at December 31, 2018
|
|
|
32,133
|
|
|
$
|
8.85
|
|
|
|
8.1
|
|
|
$
|
105.36
|
|
Exercisable on December 31, 2018
|
|
|
12,384
|
|
|
$
|
6.48
|
|
|
|
7.3
|
|
|
$
|
69.97
|
|
The aggregate intrinsic value in the above table was calculated as the difference between the valuation price of Indco’s common stock at December 31, 2018 of $12.13 per share and the exercise price of
the stock options that had strike prices below such closing price.
The liability classified awards were measured at fair value at each reporting date until the final measurement date, which was the date of completion of services required to earn the option. The
compensation cost related to these options was approximately $35 and $172 for the three months ended December 31, 2018 and fiscal year ended September 30, 2018, respectively and is included in other liabilities in the consolidated financial
statement. The cost associated with the options issued on each grant date is being recognized ratably over the period of service required to earn each tranche of options. Upon vesting, the options continue to be accounted for as a liability in
accordance with ASC 480-10-25-8 and are measured in accordance with ASC 480-10-35 at every reporting period until the options are settled. Changes in the fair value of the vested options are recognized in earnings in the consolidated financial
statements.
JANEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
The options are classified as liabilities, and the underlying shares of Indco’s common stock also contain put options which result in their classification as a mandatorily redeemable security. While
their redemption does not occur on a fixed date, there is an unconditional obligation for the Company to repurchase the shares upon death, which is certain to occur at some point in time.
As of December 31, 2018, there was approximately $99 of total unrecognized compensation expense related to the unvested Indco stock options. This expense is expected to be recognized over a weighted
average period of less than one year.
Restricted Stock
During the three months ended December 31, 2018, there were no shares of restricted stock granted. Under the Amended 2017 Plan, each grant of restricted stock vests over a three-year period and the cost
to the recipient is zero. Restricted stock compensation expense, which is a non-cash item, is being recognized in the Company’s financial statements over the vesting period of each restricted stock grant.
The following table summarizes the status of our employee unvested restricted stock under the Amended 2017 Plan for the three months ended December 31, 2018:
|
|
Restricted Stock
(in thousands)
|
|
|
Weighted Average
Grant Date Fair Value
|
|
Unvested at September 30, 2018
|
|
|
10,000
|
|
|
$
|
8.01
|
|
Vested
|
|
|
(5,000
|
)
|
|
$
|
8.01
|
|
Unvested at December 31, 2018
|
|
|
5,000
|
|
|
$
|
8.01
|
|
As of December 31, 2018, there was approximately $13 of total unrecognized compensation cost related to unvested employee restricted stock. The cost is expected to be recognized over a weighted-average
period of approximately 1.3 years.
The following table summarizes the status of our non-employee unvested restricted stock under the Amended 2017 Plan for the three months ended December 31, 2018:
|
|
Restricted Stock
(in thousands)
|
|
|
Weighted Average
Grant Date Fair Value
|
|
Unvested at September 30, 2018
|
|
|
30,000
|
|
|
$
|
8.03
|
|
Vested
|
|
|
(3,333
|
)
|
|
$
|
8.01
|
|
Unvested at December 31, 2018
|
|
|
26,667
|
|
|
$
|
8.04
|
|
As of December 31, 2018, there was approximately $103 of unrecognized compensation cost related to non-employee unvested restricted stock. The cost is expected to be recognized over a weighted-average period of
approximately 1.6 years.
As of December 31, 2018, included in accrued expenses and other current liabilities is $236, which represents 28,333 shares of restricted stock that vested but not issued.
JANEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
10.
|
INCOME PER COMMON SHARE
|
The following table provides a reconciliation of the basic and diluted income (loss) per share (“EPS”) computations for the three months ended December 31, 2018 and 2017 (in thousands, except share and
per share data):
|
|
For the Three Months Ended
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Income:
|
|
|
|
|
|
|
Net income
|
|
$
|
544
|
|
|
$
|
180
|
|
Gain on extinguishment of Preferred stock Series C dividends
|
|
|
-
|
|
|
|
1,312
|
|
Preferred stock dividends
|
|
|
(122
|
)
|
|
|
(106
|
)
|
Net Income availible to common stockholders
|
|
$
|
422
|
|
|
$
|
1,386
|
|
|
|
|
|
|
|
|
|
|
Common Shares:
|
|
|
|
|
|
|
|
|
Basic - weighted average common shares
|
|
|
847,458
|
|
|
|
562,285
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
58,191
|
|
|
|
70,425
|
|
Restricted stock
|
|
|
17,955
|
|
|
|
8,383
|
|
Warrants
|
|
|
-
|
|
|
|
143,276
|
|
Convertible preferred stock
|
|
|
12,710
|
|
|
|
32,705
|
|
Diluted - weighted average common stock
|
|
|
936,314
|
|
|
|
817,074
|
|
|
|
|
|
|
|
|
|
|
Income per Common Share:
|
|
|
|
|
|
|
|
|
Basic -
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
0.64
|
|
|
$
|
0.32
|
|
Gain on extinguishment of Preferred stock dividends Series C
|
|
|
-
|
|
|
|
2.33
|
|
Preferred stock dividends
|
|
|
(0.14
|
)
|
|
|
(0.19
|
)
|
Net Income availible to common stockholders
|
|
$
|
0.50
|
|
|
$
|
2.46
|
|
|
|
|
|
|
|
|
|
|
Diluted -
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
0.58
|
|
|
$
|
0.22
|
|
Gain on extinguishment of Preferred stock dividends Series C
|
|
|
-
|
|
|
|
1.61
|
|
Preferred stock dividends
|
|
|
(0.13
|
)
|
|
|
(0.13
|
)
|
Net income availible to common stockholders
|
|
$
|
0.45
|
|
|
$
|
1.70
|
|
The computation for the diluted number of shares excludes unvested restricted stock, unexercised stock options and unexercised warrants that are anti-dilutive. There were 1,875 for the three-month
period ended December 31, 2018 and no anti-dilutive shares for the three-month period ended December 31, 2017. Potentially diluted securities as of December 31, 2018 and 2017 are as follows:
JANEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Employee Stock Options
|
|
|
118,798
|
|
|
|
124,923
|
|
Non-employee Stock Options
|
|
|
51,053
|
|
|
|
51,053
|
|
Employee Restricted Stocks
|
|
|
5,000
|
|
|
|
10,000
|
|
Non-employee Restricted Stock
|
|
|
26,667
|
|
|
|
41,666
|
|
Warrants
|
|
|
-
|
|
|
|
250,000
|
|
Convertible Preferred Stock
|
|
|
12,710
|
|
|
|
12,710
|
|
|
|
|
214,228
|
|
|
|
490,352
|
|
On December 22, 2017, the Tax Cut and Jobs Act (“Tax Reform Act”) was signed into law. The Tax Reform Act included significant changes to existing law, including among other items, a reduction to the
U.S. federal statutory corporate tax rate from 34% to 21% effective January 1, 2018. ASC 740, “Income Taxes (“ASC 740”), requires that the effects of changes in tax laws or rates be recognized in the period in which the law is enacted. Those effects,
both current and deferred, are reported as part of the tax provision, regardless of income in which the underlying pretax income (expense) or asset (liability) was or will be reported.
The Company’s estimated fiscal 2019 blended U.S. federal statutory corporate income tax rate of 25.1% was applied in the computation of the income
tax provision for the three months ended December 31, 2018. The blended U.S. federal statutory corporate tax rate of 24.2% represents the weighted average of the pre-enactment U.S. federal statutory corporate
tax rate of 34% prior to the January 1, 2018 effective date and the post-enactment U.S. federal statutory corporate tax rate of 21% thereafter.
12.
|
BUSINESS SEGMENT INFORMATION
|
As discussed above in note 1, the Company had the following two reportable segments at September 30, 2018: Global Logistics Services and Manufacturing. Effective October 1, 2018, the Company realigned
its Manufacturing segment, which was separated into two segments named Manufacturing and Life Sciences. Accordingly, the Company now operates in three reportable segments: 1) Global Logistics Services, 2) Manufacturing and 3) Life Sciences,
supported by a corporate group which conducts activities that are non-segment specific. The following table presents selected financial information about the Company’s reportable segments for the three months ended December 31, 2018:
For the three months ended December 31, 2018
|
|
Consolidated
|
|
|
Global
Logistics
Services
|
|
|
Manufacturing
|
|
|
Life Sciences
|
|
|
Corporate
|
|
Revenues
|
|
$
|
22,327
|
|
|
$
|
18,805
|
|
|
$
|
2,081
|
|
|
$
|
1,441
|
|
|
$
|
-
|
|
Forwarding expenses and cost of revenues
|
|
|
15,840
|
|
|
|
14,418
|
|
|
|
933
|
|
|
|
489
|
|
|
|
-
|
|
Gross profit
|
|
|
6,487
|
|
|
|
4,387
|
|
|
|
1,148
|
|
|
|
952
|
|
|
|
-
|
|
Selling, general and administrative
|
|
|
5,389
|
|
|
|
3,360
|
|
|
|
708
|
|
|
|
707
|
|
|
|
614
|
|
Amortization of intangible assets
|
|
|
208
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
208
|
|
Income from Operations
|
|
|
890
|
|
|
|
1,027
|
|
|
|
440
|
|
|
|
245
|
|
|
|
(822
|
)
|
Interest expense
|
|
|
162
|
|
|
|
98
|
|
|
|
40
|
|
|
|
27
|
|
|
|
(3
|
)
|
Identifiable assets
|
|
|
58,950
|
|
|
|
25,047
|
|
|
|
1,989
|
|
|
|
6,484
|
|
|
|
25,430
|
|
Capital expenditures
|
|
|
182
|
|
|
|
14
|
|
|
|
41
|
|
|
|
127
|
|
|
|
-
|
|
As of December 31, 2017, the Company operated 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 months ended December 31, 2017:
JANEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
For the three months ended December 31, 2017
|
|
Consolidated
|
|
|
Global
Logistics
Services
|
|
|
Manufacturing
|
|
|
Life Sciences
|
|
|
Corporate
|
|
Revenues
|
|
$
|
14,780
|
|
|
$
|
12,855
|
|
|
$
|
1,925
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Forwarding expenses and cost of revenues
|
|
|
10,191
|
|
|
|
9,463
|
|
|
|
728
|
|
|
|
-
|
|
|
|
-
|
|
Gross profit
|
|
|
4,589
|
|
|
|
3,392
|
|
|
|
1,197
|
|
|
|
-
|
|
|
|
-
|
|
Selling, general and administrative
|
|
|
4,098
|
|
|
|
2,756
|
|
|
|
771
|
|
|
|
-
|
|
|
|
571
|
|
Amortization of intangible assets
|
|
|
193
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
193
|
|
Income from operations
|
|
|
298
|
|
|
|
636
|
|
|
|
426
|
|
|
|
-
|
|
|
|
(764
|
)
|
Interest expense
|
|
|
117
|
|
|
|
67
|
|
|
|
50
|
|
|
|
-
|
|
|
|
-
|
|
Identifiable assets
|
|
|
35,739
|
|
|
|
8,482
|
|
|
|
1,943
|
|
|
|
-
|
|
|
|
25,314
|
|
Capital expenditures
|
|
|
37
|
|
|
|
-
|
|
|
|
37
|
|
|
|
-
|
|
|
|
-
|
|
13.
|
RISKS AND UNCERTAINTIES
|
The nature of Janel’s operations requires it to deal with currencies other than the U.S. Dollar. As a result, the Company is exposed to the inherent risks of international currency markets and
governmental interference. A number of countries where Janel maintains offices or agent relationships have currency control regulations. The Company attempts to compensate for these exposures by accelerating international currency settlements among
those agents.
|
(B)
|
Concentration of Credit Risk
|
The Company’s assets that are exposed to concentrations of credit risk consist primarily of cash and receivables from customers. The Company places its cash with financial institutions that have high
credit ratings. The receivables from clients are spread over many customers. The Company maintains an allowance for uncollectible accounts receivable based on expected collectability and performs ongoing credit evaluations of its customers’ financial
condition.
Janel is occasionally subject to claims and lawsuits which typically arise in the normal course of business. While the outcome of these claims cannot be predicted with certainty, management does not
believe that the outcome of any of these legal matters will have a material adverse effect on the Company’s business, results of operations, financial condition or cash flows.
In December 2017, Janel Group received a Notice of Copyright Infringement letter from counsel for Warren Communications News, Inc. (“Warren”), the publisher of the International Trade Today (“ITT”)
newsletter. The letter alleges that Janel Group infringed upon Warren’s registered copyrights in its ITT newsletter. The Company believes it has meritorious defenses to the allegations. The Company is not presently able to reasonably estimate
potential losses, if any, related to the allegations.
As of May 1, 2019, Santander had granted the Janel Group Borrowers a one-time waiver until July 31, 2019 for an event of default related to the delivery of the annual audited financial statements for
the year ended September 30, 2018 under the Santander Loan Agreement. Such event of default was subsequently remedied. The Janel Group Borrowers were in compliance with the covenants defined in the Santander Loan Agreement as of December 31, 2018.
On August 30, 2019, Indco and First Merchants entered into Amendment No. 1 to the First Merchants Credit Agreement modifying the terms of Indco’s credit facilities with First Merchants and extending the maturity date of the First Merchants credit
facilities. Under the revised terms, the First Merchants credit facilities will consist of a $5,500 Term Loan and $1,000 (limited to the borrowing base and reserves) and a Revolving Loan. Interest will accrue on the Term Loan at an annual rate equal
to the one-month LIBOR plus either 2.75% (if Indco’s total funded debt to EBITDA ratio is less than 2:1), or 3.5% (if Indco’s total funded debt to EBITDA ratio is greater than or equal to 2:1). Interest will accrue on the Revolving Loan at an annual
rate equal to the one-month LIBOR plus 2.75%. Indco’s obligations under the First Merchants credit facilities are secured by all of Indco’s assets and are guaranteed by Janel, and Janel’s guarantee of Indco’s obligations is secured by a pledge of
Janel’s Indco shares. The First Merchants credit facilities will expire on August 30, 2024 (subject to earlier termination as provided in the Credit Agreement) unless renewed.
JANEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
Through its wholly-owned subsidiary, Aves Lab, Inc. (“Aves”), the Company acquired the membership interests of IgG, LLC (“IgG”) on July 1, 2019 in a transaction pursuant to which IgG became a direct wholly-owned subsidiary of Aves and an indirect
wholly-owned subsidiary of the Company.
On September 6, 2019, the Company completed a business combination whereby we acquired all of the equity interests of PhosphoSolutions, LLC and all of the stock of PhosphoSolutions, Inc, collectively (“Phospho”). The acquisition of Phospho was
funded with cash provided by normal operations.
Both the IgG and Phospho acquisitions were completed primarily to expand our product offerings in Life Sciences.