Our Business
Janel Corporation (“Janel,” the “Company,” or the “Registrant”) is a holding company with subsidiaries in two business segments: Global Logistics Services and Manufacturing. Janel strives to create
shareholder value primarily through three strategic priorities:
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supporting its businesses’ efforts to make investments and to build long-term profits;
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allocating Janel’s capital at high risk-adjusted rates of return; and
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attracting and retaining exceptional talent.
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The Company’s Global Logistics Services segment, comprised of several wholly-owned subsidiaries collectively known as “Janel Group,” provides customs brokerage and non-asset-based transportation
services. The Company’s Manufacturing segment is comprised of two manufacturing businesses in mixing equipment and life sciences. Janel was incorporated on August 31, 2000
and is domiciled in the state of
Nevada. Its corporate headquarters are located in Lynbrook, New York.
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.
Janel and its consolidated subsidiaries employ 172 full-time and four part-time people in the United States. None of these employees is covered by a collective bargaining agreement. Janel and its
subsidiaries have experienced no work stoppages and consider relations with their employees to be good.
Year Ended September 30, 2018 Acquisitions
On June 22, 2018, the Company acquired Antibodies Incorporated (“Antibodies”). Antibodies is a manufacturer and distributor of monoclonal and polyclonal antibodies, diagnostic reagents and
diagnostic kits and a developer and practitioner of immunoassays for academic and industry research scientists.
Antibodies is a life science business within our Manufacturing segment.
On March 5, 2018, the Company acquired all of the outstanding common stock of Aves Labs, Inc. (“Aves”). Aves provides high-quality antibodies and other immunoreagents for biomedical research and
diagnostics.
Aves is a life science business within our Manufacturing segment.
On January 3, 2018, the Company acquired Global Trading Resources, Inc. (“GTRI”). GTRI provides full-service 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. GTRI is part of Janel Group, discussed below, within our Global Logistics Services segment.
Year Ended September 30, 2017 Acquisitions
On April 1, 2017, the Company acquired the equity of W.J. Byrnes & Co., Inc. (“Byrnes”). Byrnes is a Global Logistics Services provider with five U.S. locations. Byrnes is part of Janel Group
within our Global Logistics Services segment.
Year Ended September 30, 2016 Acquisitions
On March 21, 2016, the Company purchased Indco, Inc. (“Indco”), a manufacturer and distributor of mixing equipment, which is included
within our
Manufacturing segment.
Our Business Segments
We have two reportable segments: Global Logistics Services and Manufacturing.
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.
Janel Group helps its clients move and manage freight efficiently to reduce inventories and to increase supply chain speed and reliability. Key services include customs entry filing, arrangement of
freight forwarding by air, ocean and ground, warehousing, cargo insurance procurement, logistics planning, product repackaging and online shipment tracking.
Janel Group earns flat fees for certain services, such as customs entry filing. For brokered services, Janel Group earns the difference between the rate charged by a service provider and the rate
Janel Group charges the customer for the provider’s service. Janel Group’s freight consolidation activities, in addition to on-going volume-based relationships with providers, allows Janel Group to command preferred service rates that can be
passed on profitably to the customer.
Our Global Logistics Services revenue is greatly influenced by the price of transportation services and other items such as fuel prices. We and others in the industry, therefore, tend to track
net revenue calculated as total revenues less the cost of purchased transportation and related services and the cost of purchased products sourced for resale. We consider net revenue to be our primary performance measurement. Accordingly, the
discussion of our results of operations focuses on the changes in our net revenues.
During the fiscal year ended September 30, 2018, Janel Group handled approximately 53,000 individual import and export shipments originating or terminating in the United States, Latin America,
Europe, Asia and Africa. Approximately 38% of the “gross” revenue from these activities related to ocean import/export, 24% to air import/export, 16% to customs brokerage and the remainder to ground and other freight forwarding services. Janel
Group had no customers that accounted for more than 10% of Janel Corporation’s total revenue in fiscal 2018.
Based upon net revenue, our customers are diverse with the largest individual customer accounting for about 3% of net revenue and the top ten customers accounting for 23% of net revenue during
fiscal 2018. For our service offerings by net revenues, during the fiscal year ended September 30, 2018, 49% related to customs brokerage entries, 16% to ocean freight, 15% to air freight and 20% to domestic transportation.
Janel Group operates out of eleven leased, full-service locations in the United States: Lynbrook (New York), New York (headquarters, operations and accounting); Boston, Massachusetts; Pawtucket
(Providence), Rhode Island; Edison (Newark), New Jersey; Essington (Philadelphia), Pennsylvania; Forest Park (Atlanta), Georgia; Elk Grove Village (Chicago), Illinois; Tucson, Arizona; Torrance (Los Angeles), California; Daly City (San
Francisco), California; and Portland, Oregon. Janel Group maintains a network of independent agent relationships in many trading countries, giving it the ability to provide a global service to its clients.
Each office is responsible for its growth and profitability. The Janel Group leadership helps the offices as needed with efforts such as hiring new people, maintaining a common information
technology platform and centralized accounting services. Our growth strategy includes servicing existing customers well and winning more of their business, hiring new people that can grow our company, and adding new companies or services through
acquisitions. Our goal is to maintain a high-quality service network that shares one brand connected with a common information technology platform.
The logistics industry is highly fragmented, with low barriers to entry and intense competition. Janel Group competes against providers ranging in size from “mom-and-pop” businesses to
multi-national firms with hundreds of offices worldwide. Many Janel Group customers utilize more than one logistics provider.
The global forwarding industry requires dealings in currencies other than the U.S. Dollar. As a result, Janel Group is exposed to the inherent risks of international currency markets and
governmental interference. Some countries in which Janel Group maintains agent relationships have currency control regulations that influence Janel Group’s ability to hedge foreign currency exposure. Janel Group tries to manage these exposures by
accelerating international currency settlements among those agents.
Historically, Janel Group’s quarterly operating results have been subject to seasonal trends. The fiscal third and fourth quarters have traditionally been the strongest, and the fiscal second
quarter has traditionally been the weakest. This pattern has been the result of, or influenced by, numerous factors including climate, national holidays, consumer demand, economic conditions and other similar and subtle forces.
A significant portion of Janel Group’s revenues are derived from customers in industries with shipping patterns tied to consumer demand and/or just-in-time production schedules. Many of Janel
Group’s customers may ship a significant portion of their goods at or near the end of a quarter. Therefore, the timing of Janel Group revenues is, to a large degree, affected by factors beyond its control, such as shifting consumer demand for
retail goods and manufacturing production delays. Janel Group cannot accurately forecast many of these factors, nor can it estimate the relative impact of any given factor. Therefore, historical patterns experienced may not continue in the
future.
Interstate and international transportation of freight is highly regulated. Failure to comply with applicable state and federal regulations, or to maintain required permits or licenses, can result
in substantial fines or revocation of operating permits or authorities imposed on both transportation intermediaries and their shipper customers. We cannot give assurance as to the degree or cost of future regulations on our business.
Janel Group is a customs broker licensed and permitted by U.S. Customs and Border Protection (“CBP”). All U.S. customs brokers are required to maintain prescribed records and are subject to periodic
audits by CBP. Janel Group is a registered Ocean Transportation Intermediary (“OTI”) and is licensed as a non-vessel operating common carrier (“NVOCC”) by the Federal Maritime Commission (“FMC”). The FMC has established certain qualifications for
shipping agents, including certain surety bonding requirements. We also operate as a Transportation Security Administration (“TSA”) certified Indirect Air Carrier (“IAC”), providing air freight services, subject to commercial standards set forth
by the International Air Transport Association (“IATA”) and federal regulations issued by the Transportation Security Administration.
Risk Management and Insurance
As a property freight broker, we are not legally liable for loss or damage to our customers’ cargo. In our customer contracts, we may agree to assume cargo liability up to a stated maximum. We
typically do not assume cargo liability above minimum industry standards in our international freight forwarding, ocean transportation or air freight businesses on international or domestic air shipments. With regards to international freight
forwarding, ocean transportation and international domestic air freight shipments, we offer our customers the option to purchase shippers’ interest coverage to insure goods in transit. When we agree to store goods for our customers for longer
terms, we provide limited warehouseman’s coverage to our customers and typically contract for warehousing services from companies that provide us the same degree of coverage.
We maintain a broad cargo liability insurance policy to help protect us against catastrophic losses that may not be recovered from the responsible contracted carrier. We also carry various
liability insurance policies, including automobile and general liability, with an umbrella policy.
The Company’s Manufacturing segment is comprised of Indco, Inc. (“Indco”), Aves and Antibodies. Janel established the Manufacturing segment in 2016 with its acquisition of Indco and expanded the
segment with two manufacturing businesses in 2018 through the acquisitions of Aves and Antibodies.
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 headquarters and
manufacturing operations are located in a single leased facility in New Albany, Indiana.
Indco provides solutions for the mixing needs of customers operating in diverse industries, including chemicals, inks, paints, construction, plastics, adhesives, cosmetics, food and pharmaceuticals.
Solutions include over 2,500 standard product configurations, both manufactured and distributed, available for order from Indco’s website and its print catalog, mailed quarterly. In addition, Indco manufactures custom-designed mixing solutions
that Indco helps specify, design, machine, assemble and distribute. During the fiscal year ended September 30, 2018, Indco made approximately 5,800 individual shipments to customers. In fiscal 2018, approximately 82% of Indco’s revenue came from
manufacturing activity. The remainder of its revenue came from non-manufactured product distribution activity. Indco’s revenue generally is level throughout the year with little seasonality.
Indco relies on a variety of providers of raw materials, mechanical components and other services in order to manufacture its products. These providers include national and multi-national suppliers
for common industrial components such as motors, gear drives, motor controls and many other standard hardware products. Additionally, regional and local suppliers provide Indco-specific parts such as castings and fabricated metal components. Raw
materials, primarily steel bar, plate and shafts are sourced from domestic steel mills through local distributors. Alternative or substantially similar options are available from suppliers other than those Indco currently employs. While custom
cast or fabricated parts are at greater risk for supply interruption, alternative equivalent suppliers are typically available.
Our growth strategy within the industrial mixer business is to expand our reputation as a high-quality manufacturer of often customized products to meet specialized mixing needs. Indco’s products
are often utilized in mission-critical applications, making our high quality and strong service offering highly valuable to our customers. Our growth strategy includes keeping our direct relationship with the customer relevant through our web
presence, introducing new relevant products and expanding our reach into new and existing markets with sales efforts and partners.
The industrial mixer manufacturing industry is highly fragmented with low barriers to entry. Indco competes with companies of all sizes based on a combination of pricing, lead-times, service,
quality and ability to reach customers through internet presence and catalog circulation.
Government regulation directly governing Indco’s industrial mixer product line is minimal. Changing energy efficiency standards, however, as mandated by the Department of Energy, can, over time,
affect electric motor manufacturers whose products are used by Indco. Historically, these changes have resulted in only minor changes to our product line.
Indco is subject to U.S. federal, state and local provisions regulating the discharge of materials into the environment or otherwise for the protection of the environment. Although current
operations have not been significantly affected by compliance with these environmental laws, the Company cannot predict what impact future environmental regulations may have on Indco. Indco does not anticipate making any material capital
expenditures for environmental control purposes during the remainder of the current or succeeding fiscal years.
The Company’s wholly-owned life science subsidiaries consist of Antibodies and Aves. Aves is a manufacturer and distributor of high-quality antibodies and other immunoreagents for biomedical
research and diagnostics. Antibodies is a manufacturer and distributor of monoclonal and polyclonal antibodies, diagnostic reagents and diagnostic kits and a developer and practitioner of immunoassays for academic and industry research
scientists. Through a combined portfolio of approximately 900 products and a range of custom services, Aves and Antibodies
provide the scientific community with high quality tools to support critical
research efforts.
Our life sciences business is based in Davis, California on its
owned 40-acre facility.
Our growth strategy is to place high-quality products in the hands of more researchers to accelerate scientific discovery. Our strategies include:
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Product innovation
: By working with key researchers and scientific organizations, we seek to
develop new products to enhance the range of tools available and thereby expand the capabilities of life science researchers.
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Operational improvement
: We continue to enhance our operational designs and processes to be more
efficient, which supports higher profitability and enables us to devote more resources to investments in growth and innovation.
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Attract and retain exceptional talent
: High quality scientists enable our top-quality products and
services to be offered which are key to our reputation in the market place.
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Acquisitions and investments
: We intend to grow by acquiring new businesses with high quality
reputations that will benefit from our combined innovation and operational strength.
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Customers and distribution methods:
We sell our biotechnology products directly to customers,
principally direct through our website or distributors. Some of our customers utilize our scientific expertise and production capabilities and purchase our products and re-label them. Our reputation for quality products is critical
to our ability to attract new customers for both our products and services.
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Competitors:
A number of companies supply protein-related research and diagnostic reagents.
Customers choose their products based upon product quality, reputation and price. We believe a number of our products have long standing reputations and that our portfolio overall is well regarded, especially amongst the academic,
diagnostic and pharmaceutical research community.
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Manufacturing:
We manufacture our products at one location in Davis, California.
Our
antibodies are produced using a variety of technologies including traditional animal immunization and hybridoma technology as well as recombinant antibody techniques. We are not dependent on key or sole source suppliers for most of
our products as we typically have several outside sources for all critical raw materials necessary for the manufacture of our products.
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The majority of our life science products are shipped within two days of receipt of the customers’ orders. Consequently, we typically do not maintain significant backlog of orders for our life science segment products.
Our life science business is subject to regulation. Antibodies maintains International Organization of Standardization certification for medical devices to support our manufacturing operation.
We also comply with regulations related to the United States Department of Agriculture, National Institutes of Health, Office of Laboratory Animal Welfare and the United States Food and Drug Administration. Many on our customers are regulated and
must verify our compliance with their standards throughout the supply chain which requires us to maintain careful records. The failure to comply with these regulations may impair our ability to compete in the marketplace.
Additional information with respect to Janel’s businesses
Our principal executive offi
ces and corporate headquarters are located at 303 Merrick Road, Suite 400, Lynbrook, New York 11563, and our telephone number is (516)
256-8143.
Janel maintains a website (
http://www.janelcorp.com
) where certain corporate governance documents
and links to its subsidiaries’ websites can be found. Janel’s periodic reports filed with the SEC can be accessed at the SEC’s website (
http://www.sec.gov
)
and indirectly through Janel’s website (
http://www.janelcorp.com
). Th
e information contained or connected to our
website is not incorporated by reference into this Annual Report on Form 10-K and should not be considered part of this report.
The following risk factors should be read carefully in connection with evaluation of the Company’s business and any forward-looking statements made in this Annual Report on Form 10-K and elsewhere.
See the section entitled “forward-looking statements” set forth above. Any of the following risks or others discussed in this Annual Report on Form 10-K or the Company’s other SEC filings could materially adversely affect the Company’s business,
operating results and financial condition.
An investment in Janel’s common stock is subject to risks inherent to the Company’s business. The material risks and uncertainties that management believes affect Janel are described below.
Additional risks and uncertainties that management is not aware of or focused on or that management currently deems immaterial may also impair the Company’s business operations.
Risk Factors Related To Janel’s Growth Strategy
Janel’s strategy of expanding its business through acquisitions of other businesses presents special risks.
Janel expects to grow its businesses in part by completing acquisitions. Janel either will acquire businesses within its existing segments, or it will expand its portfolio into new segments. In
either case:
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Janel’s financial condition may not be sufficient to support the funding needs of an expansion program;
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Janel may not be able to successfully identify suitable investment opportunities;
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acquisitions that Janel undertakes may not be successfully consummated or enhance profitability; or
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expansion opportunities may not be available to Janel upon reasonable terms.
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There may be a limited number of operating companies available for acquisition that Janel deems to be desirable targets. Consequently, there may be a high level of competition among companies
seeking to acquire these targets. Janel may be in competition with entities whose financial resources, technical expertise and managerial capabilities are significantly greater than Janel’s. Therefore, Janel may be at a competitive disadvantage
in negotiating and executing possible acquisitions. Even if Janel is successful in a competitive bidding process for an acquisition, this competition may affect the terms of completed transactions, and, as a result, Janel may pay more or receive
less favorable terms than it expected for potential acquisitions.
In addition, even if Janel is able to successfully compete with these entities, it expects future acquisitions to encounter risks similar to those that past acquisitions have encountered, such as:
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difficulty in assimilating/integrating the operations and personnel of the acquired businesses;
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potential disruption of Janel’s or the target’s ongoing business;
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inability to realize the projected operational and financial benefits from the acquisition or to maximize financial and strategic benefits through the incorporation of acquired personnel and clients;
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difficulty maintaining uniform standards, controls, procedures and policies;
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impairment of relationships with employees and clients resulting from integration of the newly acquired company;
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strain on managerial and operational resources as management tries to oversee larger operations;
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significantly increased need for working capital to operate the acquired companies;
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exposure to unforeseen liabilities of acquired companies; and
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need to incur additional indebtedness, issue stock (which may have rights superior to the rights of Janel’s stockholders and which may have a dilutive effect on Janel’s stockholders), or use cash in
order to complete the acquisition.
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Furthermore, management’s attention may be diverted by acquisition, investment, transition or integration activities. Janel may be required to dedicate additional management and other resources to
newly acquired businesses. Additionally, should Janel acquire a new line of business in which it has no operating history, the success of such new business cannot be assured. If an acquired entity is not efficiently or completely integrated, then
Janel’s business, financial condition and operating results could be materially adversely affected.
Janel might fail to realize the expected benefits or strategic objectives of any acquisition it undertakes, or it may spend resources exploring acquisitions
that are not consummated.
Due to its acquisition strategy, Janel faces a number of risks that could adversely affect Janel’s business, financial condition and operating results. Janel might not achieve its expected return
on investment or may lose money. Janel may be adversely impacted by liabilities that it assumes from an acquired business, including from that business’s known and unknown obligations, intellectual property or other assets, terminated employees,
current or former clients or other third parties. In addition, Janel may fail to identify or adequately assess the magnitude of certain liabilities, shortcomings or other circumstances prior to acquiring, investing in or partnering with a
company, including potential exposure to regulatory sanctions or liabilities resulting from an acquired business’s previous activities, internal controls and security environment. If any of these circumstances occurs, they could result in
unexpected legal or regulatory exposure, unfavorable accounting treatment, unexpected increases in taxes or other adverse effects on Janel’s business.
Litigation, indemnification claims and other unforeseen claims and liabilities may arise from the acquisition or operation of acquired businesses.
Janel may face litigation or other claims as a result of certain terms and conditions of our acquisition agreements, such as earn-out payments or closing net asset adjustments. Alternatively,
shareholder litigation may arise as a result of proposed acquisitions. If Janel is unable to complete the number and kind of acquisitions for which it plans, or if Janel is inefficient or unsuccessful at integrating any acquired businesses into
its operations, Janel may not be able to achieve its planned rates of growth or improve its market share, profitability or competitive position.
Risk Factors Related To Janel’s Business And Industries
(in thousands except per share data)
Economic and other conditions in the markets in which Janel operates can affect demand for services and the Company’s results of operations.
Janel’s future operating results are dependent upon the economic environments of the markets in which it operates. Demand for services could be adversely affected by economic conditions in the
industries of Janel’s customers. Janel expects the demand for its services (and, consequently, results of operations) to continue to be sensitive to domestic and, increasingly, global economic conditions and other factors beyond Janel’s control.
Janel may not have sufficient working capital to continue operations.
Janel’s cash needs are currently met by commercial bank credit facilities, cash on hand and cash generated from current operations. 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, either internally or through acquisition, none of which can be predicted with certainty.
If results of operations and availability under Janel’s bank lines of credit are insufficient to meet cash needs, Janel will be required to obtain additional investment capital or debt funding to continue operations.
Our substantial debt obligations could restrict our operations and financial condition. Additionally, our ability to generate cash to make payments on our indebtedness depends on many factors beyond
our control.
As of September 30, 2018, we had approximately $14,802 of short-term borrowings and long-term debt. We may also incur additional indebtedness in the future. Our debt service obligations will require
us to use a portion of our operating cash flow to pay interest and principal on indebtedness rather than for other corporate purposes, including funding future expansion of our business and ongoing capital expenditures, which could impede our
growth. Our substantial indebtedness could have other adverse consequences, including:
• making it more difficult for us to satisfy our financial obligations;
• increasing our vulnerability to adverse economic, regulatory, and industry conditions, and placing us at a disadvantage compared to our competitors that are less
leveraged;
• limiting our ability to compete and our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;
• limiting our ability to borrow additional funds for working capital, capital expenditures, acquisitions, and general corporate or other purposes; and
• exposing us to greater interest rate risk, including the risk to variable borrowings of a rate increase and the risk to fixed borrowings of a rate decrease.
Our ability to make payments on our indebtedness will depend on our ability to generate cash in the future. Our ability to generate cash is subject to general economic, financial, competitive,
legislative, regulatory, and other factors, many of which are beyond our control. Our business may not generate sufficient cash flow from operations, and future borrowings may not be available to us in an amount sufficient to enable us to pay our
indebtedness when scheduled payments are due or to fund other liquidity needs. In these circumstances, we may need to refinance all or a portion of our indebtedness on or before maturity. Any refinancing of our debt could be at higher interest
rates and may require make-whole payments and compliance with more onerous covenants, which could further restrict our business operations. Our ability to refinance our indebtedness or obtain additional financing would depend on, among other
things, our financial condition at the time, restriction in the agreements governing our indebtedness, and the condition of the financial markets and the industry in which we operate. As a result, we may not be able to refinance any of our
indebtedness on commercially reasonable terms or at all. Without this financing, we may have to seek additional equity or debt financing or restructure our debt, which could harm our long-term business prospects. Our failure to comply with the
terms of any existing or future indebtedness could result in an event of default which, if not cured or waived, could result in the acceleration of the payment of all of our debt.
Instability in the financial markets may adversely affect our business.
Instability in the global financial markets could reduce availability of credit to our business. Although we currently have a revolving credit agreement with Santander Bank, N.A. in place until
October 17, 2020, tightening credit markets could make it more difficult for us to access funds, refinance our existing indebtedness, enter into agreements for new indebtedness, or obtain funding through the issuance of the Company’s securities.
In 2017, the U.K.’s Financial Conduct Authority, which regulates LIBOR, announced its intention to phase out LIBOR by the end of 2021. It is unclear if LIBOR will cease to exist at that time or if new methods of calculating LIBOR will be
established such that it continues to exist after 2021. If LIBOR ceases to exist, we will need to renegotiate our revolving credit facility, as well as Indco’s credit agreement with First Merchants Bank. This could have an adverse effect on our
financing costs.
We have identified material weaknesses in our internal control over financial reporting which could, if not remediated, result in material misstatements in our
financial statements.
As disclosed in Part II--Item 9A, we have identified certain material weaknesses in our internal control over financial reporting. A material weakness is defined as a deficiency, or combination of
deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. As a result of
these material weaknesses, our management concluded that our internal control over financial reporting was not effective as of September 30, 2018, based on criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission
in Internal Control—An Integrated Framework. We are actively engaged in developing a remediation plan designed to address these material weaknesses. If our remediation measures are insufficient to address these material weaknesses, or if
additional material weaknesses in our internal controls are discovered or occur in the future, our consolidated financial statements may contain material misstatements and we could be required to restate our financial results. For more
information see Part II – Item 9A. In addition, if we identify additional deficiencies in our internal control over financial reporting, the disclosure of that fact, even if quickly remedied, could reduce the market’s confidence in our financial
statements and harm our share price. Although we believe that we are taking appropriate action to remediate the control deficiency, if we are unable to effectively remediate these material weaknesses or are otherwise unable to maintain adequate
internal control over financial reporting in the future, we may not be able to prepare reliable financial statements and comply with our reporting obligations on a timely basis under the federal securities laws and our credit facilities. Such
developments could materially adversely affect our business and the market price of our common shares through loss of public and investor confidence, as well as subject us to legal and regulatory action.
Janel’s businesses are dependent upon key employees.
Janel believes that the success of its subsidiaries is highly dependent on the continuing efforts of certain key employees, including technical personnel, particularly experienced engineers and
scientists in our Life Sciences business. Only some of our employees are subject to employment agreements. The competition for experienced engineers and scientists in our Life Sciences business is intense. The loss of the services of key
personnel could have a material adverse effect on Janel’s business.
Janel may face competition from parties who sell their businesses to Janel and from professionals who cease working for Janel.
While we typically enter into non-competition and non-solicitation agreements with parties that sell their businesses to us, one or more of the former owners of an acquired business who do not join
Janel or persons who leave Janel’s employment may compete with Janel or solicit Janel’s employees or clients in the future. Even if ultimately resolved in Janel’s favor, any litigation associated with enforcing non-competition or non-solicitation
agreements could be time consuming, costly and distract management’s focus from Janel’s business.
Moreover, states and foreign jurisdictions may interpret restrictions on competition narrowly and in favor of employees. Therefore, certain restrictions on competition or solicitation may be
unenforceable. In addition, Janel may decide not to pursue legal remedies if it determines that the costs or other factors outweigh the benefits of any possible legal recourse or if the likelihood of success does not justify the costs of pursuing
a legal remedy. Such persons, because they have worked for Janel or an acquired business, may be able to compete more effectively with Janel and may be more successful in soliciting its employees and clients than unaffiliated third-parties.
Terrorist attacks and other acts of violence or war may affect any market on which the Company’s shares trade, the markets in which the Company’s subsidiaries
operate, and the Company’s business operations and profitability.
Terrorist acts or acts of war or armed conflict could negatively affect Janel’s business operations. Any of these acts could result in increased volatility in, or damage to, the United States and
worldwide financial markets and economy, and, in particular, could lead to increased regulatory requirements with respect to the security and safety of freight shipments and transportation. Acts of terrorism or armed conflict, and the uncertainty
caused by such conflicts, could cause a reduction in demand for Janel’s businesses. In particular, this would have a corresponding negative effect on Janel’s Global Logistics Services business.
Security breaches or cybersecurity attacks could adversely affect Janel’s ability to operate, could result in personal information being misappropriated, and
may cause Janel to be held liable or suffer harm to its reputation.
External and internal risks, such as malware, insecure coding, “Acts of God,” data leakage and human error pose a direct threat to Janel’s information technology systems and operations. Janel may be
subject to cybersecurity attacks and other intentional hacking. Any failure to identify and address such defects or errors or prevent a cyber-attack could result in service interruptions, operational difficulties, loss of revenues or market
share, liability to customers or others, diversion of resources, injury to Janel’s reputation and increased service and maintenance costs. Addressing such issues could prove to be impossible or very costly and responding to resulting claims or
liability could similarly involve substantial cost.
In addition, our insurance coverage and/or indemnification arrangements that we enter into, if any, may not be adequate to cover all of the costs related to cybersecurity attacks or disruptions
resulting from such events.
We must also rely on the safeguards put in place by customers, suppliers, vendors or other third parties to minimize the impact of cyber threats, other security threats or business disruptions.
These third parties may have varying levels of cybersecurity expertise and safeguards. In the event of a breach affecting these third parties, our business and financial results could suffer materially. With respect to our commercial
arrangements with these third parties, we have processes designed to require that the third parties and their employees and agents agree to maintain certain standards for the storage, protection and transfer of confidential, personal and
proprietary information. Nevertheless, we remain at risk of a data breach due to the intentional or unintentional non-compliance by a third party’s employee or agent, the breakdown of a third party’s data protection processes or a cyber-attack on
a third party’s information network and systems.
Risk Factors Related To Janel’s Global Logistics Services Business (Janel Group)
Janel Group faces aggressive competition from freight carriers with greater financial resources and from companies that operate in areas in which Janel Group
plans to expand in the future.
Janel Group faces intense competition within the freight industry on a local, regional, national and global basis. Many of Janel Group’s competitors have much larger facilities and far greater
financial resources. In the freight forwarding industry, Janel Group competes with a large and diverse group of freight forwarding concerns, commercial air and ocean carriers and a large number of locally established companies in geographic areas
where Janel Group does business or intends to do business in the future. The loss of customers, agents or employees to competitors could adversely impact Janel Group’s ability to maintain profitability.
In addition, the transport of freight, both domestically and internationally, is highly competitive and price sensitive, and new competitors emerge annually. Changes in the volume of freight
transported, shippers’ preferences as to the timing of deliveries as a means to control shipping costs, economic and political conditions, both in the United States and abroad, work stoppages, U.S. and foreign laws relating to tariffs, trade
restrictions, foreign investments and taxation may all have significant impact on Janel Group’s overall business, growth and profitability.
Janel Group’s ability to serve its customers depends on the availability of cargo space from third parties.
Janel Group’s ability to serve its customers depends on the availability of air and sea cargo space, including space on passenger and cargo airlines and ocean carriers that service the
transportation lanes that Janel Group uses. Shortages of cargo space are most likely to develop around holidays and in especially heavy transportation lanes. In addition, available cargo space could be reduced as a result of decreases in the
number of airlines or ocean carriers serving particular shipment lanes at particular times. These shortages could occur as a result of economic conditions, transportation strikes, regulatory changes and other factors beyond Janel Group’s control.
Janel Group’s future operating results could be adversely affected by significant shortages of suitable cargo space and associated increases in rates charged by airlines or ocean carriers for cargo space. In addition, any determination that Janel
Group’s third-party carriers have violated laws and regulations could seriously damage its reputation and brands, resulting in diminished revenue and profit and increased operating costs.
Recessions and other economic developments that reduce freight volumes could have a material adverse impact on Janel Group’s business.
The transportation industry historically has experienced cyclical fluctuations in financial results due to economic recession, downturns in business cycles of customers like those that Janel Group
services, interest rate fluctuations and other economic factors beyond Janel Group’s control. Deterioration in the economic environment subjects Janel Group’s business to various risks that may have a material impact on its operating results and
cause it, and therefore Janel, to not reach its long-term growth goals, as a result of, for example, the following:
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a reduction in overall freight volumes in the marketplace, reducing Janel Group’s opportunities for growth;
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economic difficulties encountered by some of Janel Group’s customers, who may, therefore, not be able to pay Janel Group in a timely manner or at all, or may go out of business;
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economic difficulties encountered by a significant number of Janel Group’s transportation providers, who may go out of business and, therefore, leave Janel Group unable to secure sufficient equipment or
other transportation services to meet commitments to its customers; and
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the inability of Janel Group to appropriately adjust its expenses to changing market demands.
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In addition, if a downturn in the business cycles of Janel Group’s customers causes a reduction in the volume of freight shipped by those customers, its, and therefore Janel’s, operating results
could be adversely affected.
Other events affecting the volume of international trade and international operations could adversely affect Janel Group’s international operations.
In addition to economic conditions, Janel Group’s international supply chain services are directly related to, and dependent on, the volume of international trade, particularly trade between the
United States and foreign nations. This trade, as well as Janel Group’s international supply chain services, is influenced by many factors, including:
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economic and political conditions in the United States and abroad;
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exchange controls, currency conversion and fluctuations;
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war, other armed conflicts and terrorism; and
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U.S. and foreign laws relating to tariffs, trade restrictions, foreign investment and taxation.
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The foregoing and other events beyond Janel Group’s control, such as a failure of various nations to reach or adopt international trade agreements or an increase in bilateral or multilateral trade
restrictions, could have a material adverse effect on Janel Group’s business.
In particular, changes to major international trade arrangements (e.g., the United States-Mexico-Canada Agreement), and the imposition of tariffs by certain foreign governments, including China, in
response to the imposition of tariffs or modification of trade relationships by the United States, could negatively impact our results of operations.
Janel Group may be unable to manage its staffing needs, which may have an adverse impact on its costs of doing business.
In order to respond to the high variability in Janel Group’s business model, it may be necessary to adjust staffing levels to changing market demands. In periods of rapid change, it is more
difficult to match Janel Group’s staffing levels to its business needs. In addition, Janel Group has other primarily variable expenses that are fixed for a period of time, and it may not be able to adequately adjust them in a period of rapid
change in market demand.
Janel Group faces competition in the freight forwarding, freight brokerage, logistics and supply chain management industry.
The freight forwarding, freight brokerage, logistics and supply chain management industry is intensely competitive and is expected to remain so for the foreseeable future. Janel Group faces
competition from a number of companies, including many that have significantly greater financial, technical and marketing resources. Customers increasingly are turning to competitive bidding processes, in which they solicit bids from a number of
competitors, including competitors that are larger than Janel Group. Increased competition may lead to revenue reductions, reduced profit margins or a loss of market share, any one of which could harm Janel Group’s business. There are many
factors that could impair Janel Group’s profitability, including the following:
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competition with other transportation services companies, some of which have a broader coverage network, a wider range of services, more fully developed information technology systems
and greater capital resources than those of Janel Group;
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reduction by Janel Group’s competitors of their rates to gain business, especially during times of declining growth rates in the economy, which reductions may limit Janel Group’s ability to maintain or
increase rates, maintain its operating margins or maintain significant growth in its business;
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shifts in the business of shippers to asset-based trucking companies that also offer brokerage services in order to secure access to those companies’ trucking capacity, particularly in times of tight
industry-wide capacity;
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solicitation by shippers of bids from multiple transportation providers for their shipping needs and the resulting depression of freight rates or loss of business to competitors; and
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the use by Janel Group’s competitors of cooperative relationships to increase their ability to address shipper needs.
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Janel Group’s industry is consolidating, and if it cannot gain sufficient market presence, Janel Group may not be able to compete successfully against larger companies in its
industry.
There currently is a trend within Janel Group’s industry towards consolidation of the niche players into larger companies that are attempting to increase global operations through the acquisition of
regional and local freight forwarders, brokers and other freight logistics providers. If Janel Group cannot gain sufficient market presence or otherwise establish a successful strategy in its industry, it may not be able to compete successfully
against larger companies in its industry.
Failure to comply with governmental permit and licensing requirements or statutory and regulatory requirements could result in civil and criminal sanctions,
fines or revocation of Janel Group’s operating authorities, and changes in these requirements could adversely affect Janel Group’s business.
Janel Group’s operations are subject to various state, local, federal and foreign statutes and regulations prohibiting various activities that in many instances require permits and licenses. Failure
to maintain compliance with applicable law and regulations, required permits or licenses, or to comply with applicable regulations, could result in substantial fines or revocation of Janel Group’s operating authorities. Moreover, government
deregulation efforts, “modernization” of the regulations governing customs clearance and changes in the international trade and tariff environment could require material expenditures or otherwise adversely affect Janel Group’s business
specifically.
Janel Group’s business is subject to seasonal trends.
Historically, Janel Group’s operating results have been subject to seasonal trends when measured on a quarterly basis. Its second fiscal quarter has traditionally been the weakest, and the third and
fourth fiscal quarters have traditionally been the strongest. As a result, its quarterly operating results are likely to continue to fluctuate. This trend is dependent on numerous factors, including the markets in which Janel Group operates,
holiday seasons, consumer demand, climate, economic conditions and numerous other factors. This historical seasonality has also been influenced by the growth and diversification of Janel Group’s international network and service offerings. A
substantial portion of Janel Group’s revenue is derived from customers in industries whose shipping patterns are tied closely to consumer demand which can sometimes be difficult to predict or are based on just-in-time production schedules.
Therefore, Janel Group’s revenue is, to a large degree, affected by factors that are outside of its control. Janel Group’s historic operating patterns may not continue in future periods as it cannot influence or forecast many of these factors.
Risk Factors Related To Janel’s Manufacturing Business (Indco)
Indco faces aggressive competition from competitors with greater financial resources.
Indco is a producer of industrial mixers and mixing equipment for a variety of industries. The industrial mixer manufacturing industry is highly fragmented with low barriers to entry. This market is
addressed by companies ranging in size from large, publicly held concerns with resources greater than those of Indco to small privately-owned entities. New competitors emerge annually, and many aggressively market through electronic media. Our
competitors may be more innovative than us, and as a result, Indco may be unable to compete effectively.
Because most of Indco’s contracts are individual purchase orders and not long-term agreements, Indco may not be able to generate a similar amount of revenue in
the future.
Indco must bid or negotiate each of its contracts separately, and when it completes a contract, there is generally no continuing source of revenue under that contract. As a result, Indco cannot
assure that it will have a continuing stream of revenue from any contract. Indco’s failure to generate new business on an ongoing basis would materially impair its ability to operate profitably.
Any decrease in the availability, or increase in the cost, of raw materials could materially affect Indco’s revenue and earnings.
The availability of certain critical raw materials is subject to factors that are not within Indco’s control. In some cases, these critical raw materials are purchased from suppliers operating in
countries that may be subject to unstable political and economic conditions. While Indco has historically been able to source its raw materials from an assortment of suppliers, at any given time, Indco may be unable to obtain an adequate supply
of critical raw materials on a timely basis, at prices and other terms acceptable to it, or at all. If suppliers increase the price of critical raw materials or are unwilling or unable to meet Indco’s demand, it may not have alternative sources
of supply. In addition, to the extent that Indco has existing contracts or has quoted prices to customers and accepted customer orders for products prior to purchasing the necessary raw materials, it may be unable to raise the price of products
to cover all or part of the increased cost of the raw materials. If Indco is unable to obtain adequate and timely deliveries of required raw materials, it may be unable to timely manufacture sufficient quantities of products. This could cause
Indco to lose sales, incur additional costs, delay new product introductions or suffer harm to Indco’s reputation.
In addition, costs of certain critical raw materials have been volatile due to factors beyond Indco’s control. Raw material costs are included in Indco’s contracts with customers, but in some cases
Indco is exposed to changes in raw material costs from the time purchase orders are placed to when it purchases the raw materials for production. Changes in business conditions could adversely affect Indco’s ability to recover rapid increases in
raw material costs and may adversely affect Indco’s, and therefore Janel’s, results of operations.
Failure to obtain and retain skilled technical personnel could adversely affect Indco’s operations.
Indco’s production facilities require skilled personnel to operate and provide technical services and support for its business. Competition for the personnel required for Indco’s business
intensifies as activity increases. In periods of high utilization, it may become more difficult to find and retain qualified individuals. This could increase Indco’s costs or have other adverse effects on its operations.
If Indco’s customers successfully assert product liability claims against it due to defects in Indco’s products, its operating results may suffer and its reputation may be harmed.
Indco faces an inherent risk of exposure to claims in the event that the failure, use or misuse of its products results, or is alleged to result, in bodily injury, property damage or economic loss.
While Indco believes that it meets or exceeds existing professional specification standards recognized or required in the industries in which it operates, Indco has been subject to claims in the past, and it may be subject to claims in the
future. A successful product liability claim or series of claims against Indco, or a significant warranty claim or series of claims against it, could materially decrease its liquidity, and therefore Janel’s financial condition.
The extensive environmental, health and safety regulatory regimes applicable to Indco’s operations create potential exposure to significant
liabilities
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The nature of Indco’s manufacturing business subjects its operations to numerous and varied federal, state, local and international laws and regulations relating to pollution, protection of public
health and the environment, natural resource damages and occupational safety and health. Failure to comply with these laws and regulations, or with the permits required for Indco’s operations, could result in fines or civil or criminal sanctions,
third party claims for property damage or personal injury, and investigation and cleanup costs. Potentially significant expenditures could be required in order to comply with new environmental laws or requirements that may be adopted or imposed
in the future.
Indco has used, and currently uses, certain substances that are considered hazardous, extremely hazardous or toxic under worker safety and health laws and regulations. Although Indco implements
controls and procedures designed to reduce continuing risk of adverse impacts and environmental, health, and safety issues, Indco could incur substantial cleanup costs, fines and civil or criminal sanctions, and third-party property damage or
personal injury claims as a result of violations, non-compliance or liabilities under these regulatory regimes. As a manufacturing business, Indco also must comply with federal and state environmental laws and regulations which relate to the
manner in which Indco stores and disposes of materials and the reports that Indco is required to file. Indco cannot ensure that it will not incur additional costs to maintain compliance with environmental laws and regulations or that it will not
incur significant penalties for failure to be in compliance.
Indco relies on a single location to manufacture its products.
Indco’s business operates out of a single location in New Albany, Indiana. Indco employs lean manufacturing techniques and therefore carries little inventory. Indco could experience prolonged
periods of reduced production due to unforeseen catastrophic events occurring in or around its facility in Indiana. As a result, Indco may be unable to shift manufacturing capabilities to alternate locations, accept materials from suppliers, meet
customer shipment needs or address other severe consequences that may be encountered, and Indco may suffer damage to its reputation. Indco’s, and therefore Janel’s, financial condition and results of operations could be materially adversely
affected were such events to occur.
Risk Factors Related To Janel’s Manufacturing Business (Life Sciences)
It may be difficult for Life Sciences to implement its strategies for revenue growth in light of competitive challenges.
Life Sciences faces significant competition across many of its product lines. Competitors include companies ranging from start-up companies, which may be able to more quickly respond to customers’
needs, to large multinational companies, which may have greater financial, marketing, operational, and research and development resources than the Company. In addition, consolidation trends in the pharmaceutical, biotechnology and diagnostics
industries have served to create fewer customer accounts and to concentrate purchasing decisions for some customers. Failure to anticipate and respond to competitors’ actions may impact the future sales and earnings of Life Sciences and therefore
Janel.
If Life Sciences does not compete effectively, its business may be harmed.
Life Sciences encounters aggressive competition from numerous competitors in many areas of its business. It may not be able to compete effectively with all of these competitors. To remain
competitive, Life Sciences must develop new products and periodically enhance its existing products. We anticipate that Life Sciences may also have to adjust the prices of many of its products to stay competitive. In addition, new competitors,
technologies or market trends may emerge to threaten or reduce the value of our product lines.
If Life Sciences does not introduce new products in a timely manner, it may lose market share and be unable to achieve revenue growth targets.
Life Sciences sells many of its products in industries characterized by frequent new product and service introductions and evolving customer needs and industry standards. Many of the businesses
competing with Life Sciences in these industries have significant financial and other resources to invest in new technologies, substantial intellectual property portfolios, significant experience in new product development, regulatory expertise,
manufacturing capabilities and established distribution channels to deliver products to customers. Failure to innovate and develop new products may impact the future sales and earnings of Life Sciences and therefore Janel.
The manufacture and sale of products and services may expose us to product and other liability claims for which we could have substantial liability.
Life Sciences faces an inherent business risk of exposure to product and other liability claims if its products, services or product candidates are alleged or found to have caused injury,
damage or loss. While we retain product liability insurance, we may be unable to obtain insurance with adequate levels of coverage for potential liability on acceptable terms or claims of this nature may be excluded from coverage under the terms
of any insurance policy that we obtain. If we are unable to obtain such insurance or the amounts of any claims successfully brought against us substantially exceed our coverage, then our business could be adversely impacted.
Changes in governmental regulations may reduce demand for our products or increase our expenses.
Life Sciences competes in markets in which it or its customers must comply with federal, state, local and foreign regulations, such as environmental, health and safety, and food and drug
regulations. We develop, configure and market our products to meet customer needs created by these regulations. Any significant change in these regulations could reduce demand for our products or increase our costs of producing these products.
The Life Sciences business operates from a single location, which exposes it to certain risks.
Our Life Sciences business operates out of a single location in Davis, California. Any significant disruption of those operations for any reason, such as strikes or other labor unrest, power
interruptions, fire, earthquakes, or other events beyond our control, could adversely affect our sales and customer relationships and therefore adversely affect our business.
The success of Life Sciences depends on its ability to continually produce products that meet high quality standards such as purity, reproducibility and/or
absence of cross-reactivity.
Product quality and reputation are key purchasing decision factors for our Life Science customers. While our Life Science operations have experienced and qualified personnel, long operating
histories and substantial production systems and protocols in place, failure on our part to meet our customers’ high-quality product expectations (in particular with respect to product purity, reproducibility and specificity) could adversely
impact our business.
Risk Factors Related To Ownership of Janel’s Common Stock
Janel’s officers and directors and one of its stockholders have a controlling influence over Janel.
Janel’s officers and directors control the vote of approximately 78.2% of the outstanding shares of Janel’s common stock, including the options to purchase shares that have been granted to key
employees. As a result, Janel’s officers and directors control the election of Janel’s directors and therefore have the ability to control the affairs of Janel. Furthermore, one particular investor in the Company has the right to appoint 50% of
the members of Janel’s board of directors.
As a result, these officers, directors and stockholders have controlling influence over, among other things, the ability to amend Janel’s certificate of incorporation and bylaws or effect or
preclude fundamental corporate transactions involving Janel, including the acceptance or rejection of any proposals relating to a merger of Janel or an acquisition of Janel by another entity. The interests of these officers, directors and
stockholders may conflict with those of other stockholders. This concentration of ownership may also delay, deter or prevent a change in control of Janel, and some transactions may be more difficult or impossible without the support of these
parties.
It is unlikely that Janel will issue dividends on its common stock in the foreseeable future.
Janel has never declared nor paid cash dividends on its common stock, and it does not intend to pay dividends in the foreseeable future. The payment of dividends in the future will be at the
discretion of Janel’s board of directors.
Janel’s stock price is subject to volatility.
Janel’s common stock trades on the OTC Bulletin Board under the symbol “JANL.” The market price of Janel’s common stock has been subject to significant fluctuations. There is an absence of a true
market for Janel shares and thus a valid valuation is not readily maintained. This result is caused in part by the concentrated holdings of Janel, which has led to abnormal price volatility. Such fluctuations as well as economic conditions
generally may adversely affect the market price of Janel’s common stock.
Janel has no assurance of a continued public trading market.
Janel’s common stock is quoted in the over-the-counter market on the OTC Bulletin Board and, to the extent the market price of our common stock falls below $5.00 per share, may be subject to the
low-priced security or so-called “penny stock” rules that impose additional sales practice requirements on broker-dealers who sell such securities. For any transaction involving a penny stock, the rules require, among other things, the delivery,
prior to the transaction, of a disclosure schedule required by the SEC relating to the penny stock market. The broker-dealer also must disclose the commissions payable to both the broker-dealer and the registered representative and current
quotations for the securities. Finally, monthly statements must be sent disclosing recent price information for the penny stocks held in the customer’s account. These disclosure requirements may have the effect of reducing the level of trading
activity in the secondary market for the stock that is subject to these penny stock rules. Consequently, to the extent we are subject to the penny stock rules, such rules may affect the ability of broker-dealers to trade our securities. As a
result, characterization as a “penny stock” can discourage investor interest in and limit the marketability of our common stock.
Janel incurs significant costs to comply with the laws and regulations affecting public companies which could harm its business and results of operations.
Janel is subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the Sarbanes-Oxley Act of 2002, as amended (the “Sarbanes-Oxley Act”), and
other applicable securities rules and regulations. These rules and regulations have increased and will continue to increase Janel’s legal, accounting and financial compliance costs and have made, and will continue to make, some activities more
time-consuming and costly. For example, these rules and regulations could make it more difficult and more costly for Janel to obtain director and officer liability insurance, and it may be required to accept reduced policy limits and coverage or
to incur substantial costs to maintain the same or similar coverage. These rules and regulations could also make it more difficult for Janel to attract and retain qualified persons to serve on its board of directors or its board committees or as
executive officers. Janel’s management and other personnel devote a substantial amount of time to these compliance initiatives. As a result, management’s attention may be diverted from other business concerns, which could harm Janel’s business
and operating results.
