UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

☒
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended September 30, 2020
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from ________ to _________.
 
Commission file number: 333-60608
 
JANEL CORPORATION
(Exact name of registrant as specified in its charter)

Nevada
 
86-1005291
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
     
80 Eighth Avenue
New York, New York
 
 10011
(Address of principal executive offices)
 
(Zip Code)
     
Registrant’s telephone number, including area code
 
(212) 373-5895

Securities registered pursuant to Section 12(b) of the Act:
 
Title of Each Class
Trading Symbol(s)
Name of Each Exchange on Which Registered
None
None
None

Securities registered pursuant to Section 12(g) of the Act:
Title of Class
Common Stock, $0.001 par value
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Act. Yes ☐ No ☒
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐ No ☒
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
 
Indicate by check mark if the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
 
Large Accelerated Filer ☐ Accelerated Filer ☐ Non-Accelerated Filer ☐ Smaller Reporting Company ☒
 
Emerging Growth Company ☐
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.☐
 
Indicate by checkmark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.☐
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
 
The aggregate market value of the registrant’s common stock, $0.001 par value (“Common Stock”), held by non-affiliates of the registrant based on the closing sales price of the Common Stock on the Pink tier of the OTC market on March 31, 2020, was $1,960,238.
 
The number of shares of the registrant’s Common Stock outstanding as of January 13, 2021 was 901,154.
 
DOCUMENTS INCORPORATED BY REFERENCE
 
None.

TABLE OF CONTENTS
 
     
Page
PART I
 
2
 
ITEM 1
2
 
ITEM 1A
7
 
ITEM 1B
20
 
ITEM 2
20
 
ITEM 3
20
 
ITEM 4
20
PART II
 
20
 
ITEM 5
20
 
ITEM 6 
SELECTED FINANCIAL DATA
21
 
ITEM 7
 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
21
 
ITEM 7A
QUANTITATIVE AND QUALITATIVE DISCLOSRE ABOUT MARKET RISK
37
 
ITEM 8
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
37
 
ITEM 9
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES  
37
 
ITEM 9A
CONTROLS AND PROEDURES
38
 
ITEM 9B
OTHER INFORMATION
42
PART III
 
42
 
ITEM 10
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
42
 
ITEM 11
EXECUTIVE COMPENSATION
48
 
ITEM 12
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
49
 
ITEM 13
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
51
 
ITEM 14
PRINCIPAL ACCOUNTING FEES AND SERVICES
51
PART IV
 
52
 
ITEM 15
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
52
 
ITEM 16
FORM 10-K SUMMARY
57
58

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
 
This Annual Report on Form 10-K contains certain statements that are, or may be deemed to be, “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward – looking statements may generally be identified by the use of the words “may,” “will,” “intends,” “plans,” projects,” “believes,” “should,” “expects,” “predicts,” “anticipates,” “estimates,” and similar expressions or the negative of these terms or other comparable terminology. These statements are necessarily estimates reflecting management’s best judgment based upon current information and involve a number of risks, uncertainties and assumptions. We caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made, and readers are advised that various factors, including, but not limited to, those set forth elsewhere in this Report, could affect our financial performance and could cause our actual results for future periods to differ materially from those anticipated or projected. While it is impossible to identify all such factors, such factors include, but are not limited to, the impact of the coronavirus on the worldwide economic conditions and on our businesses, our strategy of expanding our business through acquisitions of other businesses; the risk that we may fail to realize the expected benefits or strategic objectives of any acquisition, or that we spend resources exploring acquisitions that are not consummated; litigation, indemnification claims and other unforeseen claims and liabilities that may arise from an acquisition; economic and other conditions in the markets in which we operate; the risk that we may not have sufficient working capital to continue operations; instability in the financial markets; the material weaknesses identified in our internal control over financial reporting; our dependence on key employees; competition from parties who sell their businesses to us and from professionals who cease working for us; terrorist attacks and other acts of violence or war; security breaches or cybersecurity attacks; risks related to our receipt of Paycheck Protection Program funding; competition faced by our global logistics services freight carriers with greater financial resources and from companies that operate in areas in which we plan to expand; our dependence on the availability of cargo space from third parties; recessions and other economic developments that reduce freight volumes; other events affecting the volume of international trade and international operations; risks arising from our global logistics services business’ ability to manage staffing needs; competition faced in the freight forwarding, freight brokerage, logistics and supply chain management industry; industry consolidation and our ability to gain sufficient market presence with respect to our global logistics services business; risks arising from our ability to comply with governmental permit and licensing requirements or statutory and regulatory requirements; seasonal trends; competition faced by our manufacturing (Indco) business from competitors with greater financial resources; Indco’s dependence on individual purchase orders to generate revenue; any decrease in the availability, or increase in the cost, of raw materials used by Indco; Indco’s ability to obtain and retain skilled technical personnel; risks associated with product liability claims due to alleged defects in Indco’s products; risks arising from the environmental, health and safety regulations applicable to Indco; the reliance of our Indco and life sciences businesses on a single location to manufacture their products; the ability of our life sciences business to compete effectively; the ability of our life sciences business to introduce new products in a timely manner; product or other liabilities associated with the manufacture and sale of new products and services; changes in governmental regulations applicable to our life sciences business; the ability of our life sciences business to continually produce products that meet high quality standards such as purity, reproducibility and/or absence of cross-reactivity; the controlling influence exerted by our officers and directors and one of our stockholders; our inability to issue dividends in the foreseeable future; and risks related to ownership of our common stock, including volatility and the lack of a guaranteed continued public trading market for our common stock. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual outcomes may vary materially from those projected. You should not place undue reliance on any of our forward-looking statements which speak only as of the date they are made. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

PART I
 
ITEM 1
BUSINESS
 
Our Business
 
Janel Corporation (“Janel,” the “Company” or the “Registrant”) is a holding company with subsidiaries in three business segments: Global Logistics Services, Manufacturing and Life Sciences. The Company strives to create shareholder value primarily through three strategic priorities: supporting its businesses’ efforts to make investments and to build long-term profits; allocating Janel capital at high risk-adjusted rates of return; and attracting and retaining exceptional talent.
 
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 was incorporated on August 31, 2000 and is domiciled in the state of Nevada. Its corporate headquarters are located in New York, New York.
 
Janel and its consolidated subsidiaries employ 173 full-time people, as of September 30, 2020, 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. Successful execution of our strategy is dependent on attracting, developing and retaining key employees and members of our management team. The skills, experience and industry knowledge of our employees significantly benefit our operations and performance. We continuously evaluate, modify, and enhance our internal processes and technologies to increase employee engagement, productivity, and efficiency opportunities, skills, and resources they need to be successful.
 
Global Logistics Services
 
The Company’s Global Logistics Services segment is comprised of several wholly-owned subsidiaries (collectively “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 July 23, 2020, the Company acquired Atlantic Customs Brokers, Inc. (“ACB”), a global logistics services provider with two U.S. locations.
 
On November 20, 2018, the Company 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.
 
On October 17, 2018, the Company completed a business combination whereby we acquired substantially all of the assets and certain liabilities of a global logistics services provider with one U.S. location.
 
Manufacturing
 
The Company’s Manufacturing segment is comprised of Indco, Inc. (“Indco”). Indco is a majority-owned subsidiary of the Company that manufactures and distributes mixing equipment and apparatus for specific applications within various industries. Indco’s customer base is comprised of small- to mid-sized businesses as well as other larger customers for which Indco fulfills repetitive production orders.
 
Life Sciences
 
The Company’s Life Sciences segment is comprised of several wholly-owned subsidiaries. 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 September 6, 2019, the Company acquired all the equity interests of PhosphoSolutions, LLC and all the stock of PhosphoSolutions, Inc. (together with PhosphoSolutions, LLC, “Phospho).
 
On July 1, 2019, we acquired the membership interests of a life sciences company to expand our product offerings in Life Sciences.
 
Our Business Segments
 
We have three reportable segments: Global Logistics Services, Manufacturing and Life Sciences.
 
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, which is a non-GAAP measure calculated as total revenues less forwarding expenses attributable to our Global Logistics Services segment. 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. For further detail, see the section titled “Non-GAAP Financial Measures” in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
 
During the fiscal year ended September 30, 2020, Janel Group handled approximately 53,000 individual import and export shipments originating or terminating in countries around the world. Approximately 39% of the gross revenue from these activities related to ocean freight, 24% to air freight, 22% to trucking and other and the remainder of 15% to custom brokerage. Janel Group had no customers that accounted for more than 10% of Janel Corporation’s total revenue in fiscal 2020.
 
Based upon net revenue, our customers are diverse, with the largest individual customer accounting for about 3.4% of net revenues and the top ten customers accounting for 22.7% of net revenues during fiscal 2020. For our service offerings by net revenues, during the fiscal year ended September 30, 2020, 49% related to customs brokerage, 22% to ocean freight, 16% to air freight and 13% to trucking and other.
 
Janel Group operates out of fifteen full-service locations in the United States: Garden City, New York (headquarters, operations and accounting); Lynnfield (Boston), Massachusetts; Pawtucket (Providence), Rhode Island; Edison (Newark), New Jersey; Essington (Philadelphia), Pennsylvania; Atlanta, Georgia; Denver, Colorado; Elk Grove Village (Chicago), Illinois; Tucson, Arizona; Torrance (Los Angeles), California; Portland, Oregon; Houston, Texas, Doral (Miami), Florida, North Haven, Connecticut, and Windsor Locks (Hartford), Connecticut. 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 management helps the offices as needed with efforts such as human resources, maintaining a common information technology platform and centralized accounting services. Our growth strategy includes servicing existing customers well and acquiring more of their business, hiring new people who 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.
 
Government Regulation
 
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’ insurance 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.
 
Manufacturing
 
The Company’s Manufacturing segment is comprised of Indco, Inc. (“Indco”) which is a majority-owned subsidiary of the Company. Indco manufactures and distributes mixing equipment and apparatus for specific applications within various industries.
 
Indco’s headquarters and manufacturing operations are located in a single owned 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, 2020, Indco made approximately 4,600 individual shipments to customers. In fiscal 2020, approximately 84% 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.
 
Life Sciences
 
The Company’s wholly-owned Life Science segment manufactures and distributes high-quality antibodies monoclonal and polyclonal antibodies, diagnostic reagents and other immunoreagents for biomedical research and provide antibody manufacturing for academic and industry research scientists. Our Life Sciences segment also produces products for life science companies on an original equipment manufacturer (OEM) basis. Through a combined portfolio of approximately 1,200 products and a range of custom services, the Life Sciences segment provides the scientific community with high quality tools to support critical research efforts.
 
Our Life Science businesses are based in Davis, California on an owned 40-acre facility and a leased facility in Aurora, Colorado. Our growth strategy is to place high-quality products in the hands of more researchers to accelerate scientific discovery.
 
Our strategies include:
 

•
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.
 

•
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.
 

•
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.
 

•
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.
 

•
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.
 

•
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.
 

•
Manufacturing: We manufacture our products in Davis, California and Aurora, Colorado. 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.
 
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 of 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 offices and corporate headquarters are located at 80 Eighth Avenue, New York, New York 10011, 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). The 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 Annual Report on Form 10-K.
 
ITEM 1A.
RISK FACTORS
 
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 “Cautionary Statement Regarding 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 The COVID-19 Pandemic
 
The coronavirus pandemic has significantly impacted worldwide economic conditions and has had, and is likely to continue to have, an adverse effect on our business operations, results of operations, cash flows and financial position.

In December 2019, a novel coronavirus (COVID-19) outbreak was reported in China, and, in March 2020, the World Health Organization declared such outbreak a pandemic. Since that time, the coronavirus has spread throughout the United States and globally, including in the regions and communities in which we operate. We are closely monitoring the impact of the COVID-19 pandemic on all aspects of our business and geographies, including how it has and will continue to impact our customers, suppliers, employees and other business partners. The COVID-19 pandemic has created significant volatility, uncertainty and economic disruption, which has adversely affected our business operations and has adversely affected, and is likely to continue to adversely affect, our results of operations, cash flows and financial position.  COVID-19 continues to impact regions that are important to our business in terms of sales, manufacturing, and our supply chain, and many of the affected regions, including the region in which our headquarters are located, have been subject to, and may in the future be subject to, government-imposed ‘stay at home’ orders which may restrict our ability to continue normal business operations.  Further, our management is focused on mitigating the effects of COVID-19 on our business operations while protecting the health of our employees, which has required and will continue to require, a significant investment of time and resources across our enterprise.

In our Global Logistics Services segment, customer demand for our services in many parts of our business has been materially and negatively impacted by the mandated closure of our customers’ operations or points of sale, while customer demand for our services in other parts of our business has increased significantly as consumers stockpile goods or switch to e-commerce platforms to make purchases. We are unable to accurately predict the impact that COVID-19 will have on our operations going forward due to uncertainties regarding the severity and duration of the outbreak and additional actions that may be taken by governmental authorities. That said, our results of operations and financial condition were significantly adversely impacted in the fiscal year 2020, as levels of activity in the Company’s business have historically been correlated to broad measures of economic activity, such as gross domestic product, and to measures of industrial economic activity, which have been negatively impacted by the pandemic.

Additionally, we also see an adverse impact on our ability (a) to manufacture, test and ship our products in our Life Sciences and Manufacturing businesses, (b) to get required materials and components to make our products in our Manufacturing and Life Sciences segments, and (c) to staff labor and management for manufacturing, supply chain, research and development and administrative operations.  We have seen a material impact in our Life Sciences business as a result of a slowdown in academic research due to the pandemic. Further, we may experience adverse impact with our global supply chain partners and transportation service providers.  Any extended pandemic outbreak, such as is occurring with COVID-19, could cause our key third-party suppliers or the Company itself to temporarily close one or more offices or manufacturing facilities. In addition, there has been a significant decline in trade shows worldwide and also a significant decline in our ability to travel to visit current and potential customers, which has adversely affected and will continue to adversely affect our ability to create leads and generate business. Also, in some cases, our customers have suspended operations or limited our ability to come on-site. Furthermore, we may not be able to maintain our efforts to have employees work at home and operate reduced workforces at facilities for an extended period of time. Similarly, we may not be able to mitigate other threats to the business such as developing effective contingency plans for potential supply interruptions. Any of the foregoing events or other unforeseen consequences of public health problems could materially adversely affect our business, result of operations, prospects, and financial condition. The full extent to which the COVID-19 outbreak will impact the Company’s business and operating results will depend on future developments that are highly uncertain and cannot be accurately predicted, including new information that may emerge concerning COVID-19 and actions taken to contain its spread or its impact.

The effects of the COVID-19 pandemic may remain prevalent for a significant period of time and may continue to adversely affect our business, results of operations and financial condition even after the COVID-19 outbreak has subsided. The extent to which the COVID-19 pandemic impacts us will depend on numerous evolving factors and future developments that we are not able to predict, including: the severity and duration of the outbreak; governmental, business and other actions (which could include limitations on our customers’ operations or mandates to provide services in a specified manner); the promotion of social distancing and the adoption of shelter-in-place orders affecting our ability to provide our services; the impact of the pandemic on economic activity; the extent and duration of the effect on consumer confidence and spending, customer demand and buying patterns; the health of and the effect on our workforce and our ability to meet staffing needs, particularly if members of our workforce, including key members of management, are quarantined as a result of exposure; any impairment in value of our tangible or intangible assets which could be recorded as a result of a weaker economic conditions; and the potential effects on our internal controls including those over financial reporting as a result of changes in working environments such as shelter-in-place and similar orders that are applicable to our employees and business partners, among others. Further, provisions for bad debt expense may increase given the financial difficulty faced by our business partners, which could, among other things, impact our ability to borrow under our credit facility. In addition, if the pandemic continues to create disruptions or turmoil in the credit or financial markets, it could adversely affect our ability to continue to meet our liquidity needs, all of which are highly uncertain and cannot be predicted.
 
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:
 

•
Janel’s financial condition may not be sufficient to support the funding needs of an expansion program;
 

•
Janel may not be able to successfully identify suitable investment opportunities;
 

•
acquisitions that Janel undertakes may not be successfully consummated or enhance profitability; or
 

•
expansion opportunities may not be available to Janel upon reasonable terms.
 
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.
 
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, 2020, we had approximately $19,161 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:
 

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making it more difficult for us to satisfy our financial obligations;
 

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increasing our vulnerability to adverse economic, regulatory, and industry conditions, and placing us at a disadvantage compared to our competitors that are less leveraged;
 

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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;
 

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limiting our ability to borrow additional funds for working capital, capital expenditures, acquisitions, and general corporate or other purposes; and
 

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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, 2022, 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 may 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 by increasing the cost of our variable rate indebtedness.
 
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, 2020, based on criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control—An Integrated Framework. We have developed and are actively engaged in executing 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 cease working for 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.
 
We are dependent on information technology systems and infrastructures to carry out important operational activities and to maintain our business records. In addition, we rely on the systems of third parties. As part of our normal business operations, we connect and store certain personal identifying and confidential information relating to our customers, vendors, employees and suppliers. External and internal risks, such as malware, insecure coding, “Acts of God,” data leakage and human error pose a direct threat to our information technology systems and operations. Our third parties and we 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 our 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. While, to date, we have not had a significant cyber-attack or breach that has had a material impact on our business or results of operations, 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.
 
Risks related to our receipt of Paycheck Protection Program funding.
 
In response to the COVID-19 pandemic and the resulting impact on our current and future operations we applied for funds under the Paycheck Protection Program (the “PPP”). In April 2020 we were approved for the amount of $2.7 million, which we received in April 2020 and on July 23, 2020, as part of the ACB acquisition, the Company assumed a PPP Loan in the amount of $135 thousand. The PPP loan application required us to certify, among other things, that the current economic uncertainty made the PPP loan request necessary to support our ongoing operations. While we made this certification in good faith, the certification does not contain any objective criteria and is subject to interpretation. In early 2020, the Small Business Administration provided guidance that it would be unlikely that a public company with substantial market value and access to capital markets would be able to make the required certification in good faith, and such company should be prepared to demonstrate to the Small Business Administration, upon request, the basis for its certification. Further, the Secretary of the Treasury and the Small Business Administration Administrator announced that the government will conduct a full audit of all PPP loans of more than $2 million for which the borrower applies for forgiveness. While we believe we have satisfied all eligibility requirements for the PPP loans, there is a risk that we may be deemed ineligible to have received the PPP loans or in violation of any of the laws or governmental regulations that apply to us in connection with the PPP loans. In such event, we may be required to repay the PPP loans in their entirety and we could be subject to additional penalties.
 
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.
 
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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major work stoppages;
 

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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.
 
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. Recently, the Trump Administration imposed tariffs on a broad range of products imported into the United States. In response to the tariffs imposed by the United States, the European Union, Canada, Mexico and China have announced tariffs on U.S. goods and services. The new tariffs, along with any additional tariffs or trade restrictions that may be implemented by the United States or retaliatory trade measures or tariffs implemented by other countries, could result in reduced economic activity, increased costs in operating our business, reduced demand and changes in purchasing behaviors, limits on trade with the United States or other potentially adverse economic outcomes. While tariffs and other retaliatory trade measures imposed by other countries on U.S. goods have not yet had a significant impact on our business or results of operations, we cannot predict further developments, and such existing or future tariffs could have a material adverse effect on our financial condition, results of operations and liquidity.
 
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.
 
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 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 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.
 
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, 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 claims 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.
 
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 Life Sciences Business
 
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 two locations, which exposes it to certain risks.
 
Our Life Sciences business operates out of two locations in Davis, California and Aurora, Colorado. 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 71.6% of the outstanding shares of Janel’s common stock as of September 30, 2020, which includes Janel common stock such persons can acquire through the exercise of vested options granted to them. 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 Pink tier of the OTC market 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 Pink tier of the OTC market 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.
 
ITEM 1B.
UNRESOLVED STAFF COMMENTS
 
Not applicable.
 
ITEM 2
PROPERTIES
 
Janel’s executive offices are located in approximately 3,300 square feet of leased space in New York, New York. The lease term ends September 1, 2025.
 
On November 15, 2019, Janel Group entered into a new lease agreement for 6,900 square feet of space in Garden City, New York. This new location will serve as Janel Group’s executive offices. The lease agreement expires on March 31, 2025.
 
As of September 30, 2020, Janel Group leased office space, some of which are on a month-to-month basis, in fifteen cities located in the United States, Lease terms for these locations expire at various dates through March 31, 2025.
 
As of September 30, 2020, Indco owned an approximately 12,600 square feet of manufacturing facility on 1.2-acre parcel of land facility in New Albany, Indiana.
 
As of September 30, 2020, Life Sciences owned an approximately 25,000 square feet of manufacturing facility on 40-acre facility in Davis, California.
 
As of September 30, 2020, Life Sciences leased office and manufacturing space in a single facility in Aurora, Colorado. The lease is on a month-to-month basis.
 
The Company believes the owned and leased properties are adequate to meet its occupancy needs in the foreseeable future.
 
ITEM 3
LEGAL PROCEEDINGS
 
Janel is occasionally subject to claims and lawsuits which typically arise in the normal course of business. While the outcome of these claims cannot be 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. The information otherwise called for by this item is incorporated herein by reference to Note 18, Risks and Uncertainties, in the notes to the consolidated financial statements included in Part II, Item 8 of this Form 10-K.
 
ITEM 4
MINE SAFETY DISCLOSURES
 
Not applicable.
 
PART II
 
ITEM 5
MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
 
(in thousands, except share and per share data)
 
Janel Corporation’s common stock is traded on the Pink tier of the OTC market under the symbol “JANL.”
 
The following table sets forth the high and low bid prices for the common stock for each full quarterly period during the fiscal years indicated. The prices reflect the high and low bid prices as available through the Pink tier of the OTC market and represent prices between dealers. They do not reflect retailer markups, markdowns or commissions and may not represent actual transactions.
 
   
Fiscal Year 2020
   
Fiscal Year 2019
 
Fiscal Quarter
 
High
   
Low
   
High
   
Low
 
First Quarter, ended December 31,
 
$
8.57
   
$
5.97
   
$
9.35
   
$
6.03
 
                                 
Second Quarter, ended March 31,
 
$
8.50
   
$
5.97
   
$
9.25
   
$
5.01
 
                                 
Third Quarter, ended June 30,
 
$
8.05
   
$
3.00
   
$
9.00
   
$
5.01
 
                                 
Fourth Quarter, ended September 30,
 
$
10.00
   
$
3.00
   
$
10.17
   
$
7.01
 

On September 30, 2020, the Company had 60 holders of its shares of common stock. This amount does not include “street name” holders or beneficial holders of our common stock, whose holders of record are banks, brokers and other financial institutions.
 
The closing price of the common stock on that date was $9.00 per share.
 
Common Stock Dividends
 
We have not declared, and currently do not plan to declare in the foreseeable future, dividends on our common stock.
 
Series B Convertible Preferred Stock (“Series B Stock”)
 
During fiscal 2020, holders of 600 shares of Series B Stock converted such shares into 6,000 shares of common stock. The Company has 31 shares of Series B Stock outstanding as of September 30, 2020.
 
Series C Cumulative Preferred Stock (“Series C Stock”)
 
On September 15, 2020, the Company repurchased 890 shares of Series C Stock at a purchase price of $500 per share. On September 29, 2020, the Company sold 650 shares of Series C Stock to an accredited investor at a purchase price of $500 per share, or an aggregate of $325. The Company has 19,760 shares of Series C Stock outstanding as of September 30, 2020.
 
ITEM 6
SELECTED FINANCIAL DATA
 
Consistent with the rules applicable to “smaller reporting companies”, we have omitted the information required by Item 6.
 
ITEM 7
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
Our discussions below in this Item 7 should be read along with Janel’s audited financial statements and related notes thereto as of September 30, 2020 and 2019 and for each of the two years in the period ended September 30, 2020 included in this Annual Report on Form 10-K.
 
INTRODUCTION
 
Janel is a holding company with subsidiaries in three business segments: Global Logistics Services, Manufacturing and Life Sciences. The Company strives to create shareholder value primarily through three strategic priorities: supporting its businesses’ efforts to make investments and to build long-term profits; allocating Janel’s capital at higher risk-adjusted rates of return; and attracting and retaining exceptional talent. A management group at the holding company level (the “corporate group”) focuses on significant capital allocation decisions and corporate governance. 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.
 
COVID-19
 
The outbreak of COVID-19 has had a significant impact on global trade and on our business during the fiscal year ended September 30, 2020. In late January 2020, China implemented extensive business shutdowns and work restrictions to control the outbreak, which resulted in a steep drop in exports from China. As those shutdowns and restrictions in China started to ease, export volumes from China began to increase, in March 2020. The spread of COVID-19 to other parts of the world, and the strong actions taken by many countries to reduce exposure to the virus, however, have led to a sharp decline in global economic activity that persisted during fiscal 2020 and resulted in a second steep decline in global import and export trade volumes, which has materially impacted our Global Logistics Services business. Specifically, in the fiscal year ended September 30, 2020, we experienced a year-over-year decrease of 7.6% in our Global Logistics Services net revenues and a decrease of 19.1% in our Manufacturing segment revenues as a result of the global trade slowdown arising from the COVID- 19 pandemic.
 
We also experienced a significant slowdown in organic growth in our Life Sciences segment due to a slowdown in orders and in academic research as a result of the pandemic. Please see our results of operations discussion below for additional information. We expect demand for our products and services across all of our reporting segments, and in particular our Global Logistics Services and Manufacturing segments, to be adversely impacted for as long as global economic activity and trade volumes remain weak. A prolonged slowdown in trade volumes due to the pandemic could also significantly increase the longer-term financial challenges facing our customers. We are closely monitoring our customers’ payment performance and expect our customer credit risk will remain heightened as long as economic and trade disruptions persist.
 
In our Global Logistics Services and Manufacturing segments, customer demand for our services and products in many parts of our business has been materially and negatively impacted by the mandated closure of our customers’ operations or points of sale, while customer demand for our services in other parts of our business has increased significantly as consumers stockpile goods or switch to e-commerce platforms to make purchases.
 
We are unable to accurately predict the impact that COVID-19 will have on our business, financial position, results of operations or liquidity going forward due to uncertainties regarding the severity and duration of the outbreak, additional actions that may be taken by governmental authorities in response to a potential resurgence of the virus, the pace of recovery once the pandemic subsides and the overall long-term impact on the global economy. That said, our results of operations and financial condition were significantly adversely impacted in the fiscal year ended September 30, 2020, as levels of activity in the Company’s business have historically been positively correlated to broad measures of economic activity, such as gross domestic product, and to measures of industrial economic activity, which have been negatively impacted by the pandemic.
 
Year Ended September 30, 2020 Acquisitions
 
On July 23, 2020, the Company acquired Atlantic Customs Brokers, Inc. (ACB) which we include in our Global Logistics Services segment.
 
Year Ended September 30, 2019 Acquisitions
 
On September 6, 2019, the Company acquired Phospho, which we include in our Life Sciences segment.
 
On July 1, 2019, we acquired the membership interests of a life sciences company to expand our product offerings, which we include in our Life Sciences segment.
 
On November 20, 2018, the Company acquired Honor, which we include in our Global Logistics Services segment.
 
On October 17, 2018, we completed a business combination whereby we acquired substantially all of the assets and certain liabilities of a global logistics services provider, which we include in our Global Logistics Services segment.
 
Results of Operations – Janel Corporation
 
Our results of operations and period-over-period change are discussed in the following section. The tables and discussion should be read in conjunction with the accompanying Consolidated Financial Statements and the notes thereto appearing in Item 8.
 
Refer to Item 7. “Management Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended September 30, 2019, filed on January 28, 2020, for a comparison of fiscal year 2019 results of operations to the fiscal year 2018 results of operations, which specific discussion is incorporated herein by reference
 
Our condensed consolidated results of operations are as follows:
 
Financial Summary
in thousands
(Fiscal years ended September 30,)

   
2020
   
2019
   
2018
 
Revenues
 
$
82,429
   
$
84,354
   
$
67,521
 
Forwarding expenses and cost of revenues
   
58,908
     
59,248
     
47,209
 
Gross profit
   
23,521
     
25,106
     
20,312
 
Operating expenses
   
25,245
     
23,527
     
19,425
 
Operating (loss) income
 
$
(1,724
)
 
$
1,579
   
$
887
 
Net (loss) income
 
$
(1,725
)
 
$
616
   
$
248
 
                         
Adjusted operating income
 
$
376
   
$
3,040
   
$
2,562
 

Consolidated revenues for the year ended September 30, 2020 were $82,429, or 2.3% lower than fiscal 2019. Revenues for our Global Logistics Services and Manufacturing segments decreased mostly due to slowdown related to the COVID-19 pandemic. Revenues for our Life Sciences segment increased largely due to acquisitions.
 
The Company’s net loss for the year ended September 30, 2020 totaled approximately ($1,725) or ($2.75) per diluted share, compared to net income of approximately $616 or $0.72 per diluted share for the year ended September 30, 2019. Net income declined as a result of the impact of the COVID-19 pandemic, a shift in volume experienced during the first quarter of fiscal 2019 that did not recur, a reserve for the settlement of threatened litigation and severance expenses, partially offset by contributions from acquisitions experienced during the first quarter. These expenses impacted our overall operating results and our adjusted operating profits for fiscal 2020 relative to prior years.

The following table sets forth a reconciliation of operating income to adjusted operating income:

Adjusted Operating Income
in thousands
(Fiscal years ended September 30,)

   
2020
   
2019
   
2018
 
(Loss) income from operations
 
$
(1,724
)
 
$
1,579
   
$
887
 
Amortization of intangible assets
   
955
     
915
     
807
 
Stock-based compensation
   
269
     
296
     
678
 
Cost recognized on sale of acquired inventory
   
876
     
250
     
190
 
Adjusted operating income
 
$
376
   
$
3,040
   
$
2,562
 

BUSINESS PERFORMANCE
 
Results of Operations – Global Logistics Services
 
   
Financial Summary in thousands
 
   
(Fiscal years ended September 30,)
 
   
2020
   
2019
 
Revenue
 
$
68,492
   
$
69,655
 
Forwarding expense
   
53,397
     
53,319
 
Net revenue
 
$
15,095
   
$
16,336
 
Net revenue yield
   
22.0
%
   
23.5
%
Selling, general and administrative expenses
 
$
14,992
   
$
13,856
 
Income from operations
 
$
103
   
$
2,480
 

Fiscal 2020 compared with fiscal 2019
 
Revenue
 
Total revenue in fiscal 2020 was $68,492 as compared to $69,655 in fiscal 2019, a decrease of $1,163 or 1.7%. The decrease in revenue was largely due to the impact of the continued global trade slowdown, in particular the steep reduction in global import and export trade volumes due to the COVID-19 pandemic partially offset by an increase in transportation rates due to COVID related transportation capacity reductions. Acquired revenue from two acquisitions completed during fiscal 2019 and one in fiscal 2020 also slightly offset a portion of the revenue decline in the twelve-month period. Our volume as measured by twenty-foot equivalent units (“TEUs”) grew 30%, metric tons and custom entries decreased 24% and 10%, respectively.
 
Net Revenue
 
Net revenue in fiscal 2020 was $15,095, a decrease of $1,241, or 7.6%, as compared to $16,336 in fiscal 2019. The decrease reflected a low-double digit organic decline for the year due to volume pressures from the COVID-19 pandemic and customers in the prior year period moving freight in advance of certain governmental trade policies, partially offset by acquisition contributions. Our net revenue yield (net revenue divided by gross revenues) declined to 22.0% in fiscal 2020 compared to 23.5% in fiscal 2019 largely due to an increase in transportation rates.
 
Selling, General and Administrative Expenses

Selling, general and administrative expenses from continuing operations in fiscal 2020 were $14,992, as compared to $13,856 in fiscal 2019. The increase of $1,136, or 8.2%, was mainly due to additional expenses from acquired businesses, severance expenses related to leadership changes, and settlement of threatened litigation. As a percentage of gross revenue, selling, general and administrative expenses were 21.8% and 19.9% for fiscal 2020 and fiscal 2019, respectively.

Income from Operations
 
Operating income decreased to $103 in fiscal 2020 compared to $2,480 in fiscal 2019, a decrease of 95.8%. Income from operations declined as a result of the impact of the COVID-19 pandemic and management’s decision to maintain staffing and operational capabilities, a shift in volume experienced during the first quarter of fiscal 2019 that did not recur and the settlement of threatened litigation, partially offset by contributions from acquisitions. Our operating margin as a percentage of net revenue was 0.7% in fiscal 2020 compared to 15.2% in fiscal 2019.
 
Results of Operations - Manufacturing
Financial Summary
in thousands
(Fiscal years ended September 30,)
 
   
2020
   
2019
 
Revenue
 
$
7,319
   
$
9,042
 
Cost of revenues
 
$
3,329
   
$
4,020
 
Gross profit
 
$
3,990
   
$
5,022
 
Gross profit margin
   
54.5
%
   
55.5
%
Selling, general and administrative expenses
 
$
2,505
   
$
3,113
 
Income from operations
 
$
1,485
   
$
1,909
 

Fiscal 2020 compared with fiscal 2019
 
Revenue
 
Total revenue was $7,319 in fiscal 2020 compared with $9,042 in fiscal 2019, a decrease of 19%. The revenue decline reflected a decline in volumes across the business relative to the prior year period due to the slowdown related to the COVID-19 pandemic.
 
Gross Profit
 
Gross profit was $3,990 and $5,022 for fiscal years 2020 and 2019, respectively. Gross profit margin for the Manufacturing segment in the full-year period of fiscal 2020 was 54.5%, as compared to 55.5%, in fiscal 2019. Gross profit margin overall for the Manufacturing segment decreased slightly due to mix of business.
 
Selling, General and Administrative Expenses
 
Selling, general and administrative expenses for the Manufacturing segment were $2,505 and $3,113 for fiscal years 2020 and 2019, respectively. As a percentage of gross revenue, selling, general and administrative expenses were 34.2% and 34.4% for fiscal 2020 and fiscal 2019, respectively. The decrease in expenses related to the decline in revenue, lower stock-based compensation items related to our debt refinancing and related dividend actions, partially offset by management’s decision to maintain staffing and operational capabilities.
 
Income from Operations
 
Operating income for fiscal 2020 was $1,485 compared to $1,909 in fiscal 2019. Indco’s operating income decreased 22.2% versus the prior year due to lower revenue without corresponding expense reductions.
 
Results of Operations - Life Sciences
 
Financial Summary
in thousands
(Fiscal years ended September 30,)
 
   
2020
   
2019
 
Revenue
 
$
6,618
   
$
5,657
 
Cost of revenues
   
1,306
     
1,659
 
Cost recognized upon sale of acquired inventory
   
876
     
250
 
Gross profit
 
$
4,436
   
$
3,748
 
Gross profit margin
   
67.0
%
   
66.3
%
Selling, general and administrative expenses
 
$
3,870
   
$
2,907
 
Income from operations
 
$
566
   
$
841
 

Fiscal 2020 compared with fiscal 2019
 
Revenue
 
Total revenue was $6,618 in fiscal 2020 compared with $5,657 in fiscal 2019. The increase in sales was entirely due to acquisitions. Revenue declined at a mid-single digit rate on an organic basis due to the slowdown in academic research related to the COVID-19 pandemic.
 
Gross Profit
 
Gross profit was $4,436 and $3,748 for fiscal years 2020 and 2019, respectively. The gross profit margin of 67.0% in fiscal 2020 remained comparable to 66.3% in the prior fiscal year. Gross profit was negatively impacted as a result of purchase accounting related to inventory in fiscal 2020 and 2019. Under purchase accounting, inventory is valued at fair value less expected selling and marketing costs, resulting in reduced margins in future periods as the inventory is sold. The gross profit margin was impacted by the amortization of non-cash acquired inventory expenses of $876 and $250 for fiscal 2020 and 2019, respectively.
 
Selling, General and Administrative Expenses
 
Selling, general and administrative expenses for the Life Sciences segment were $3,870 and $2,907 for fiscal years 2020 and 2019, respectively. The increase in both periods was largely due to acquired businesses. As a percentage of gross revenue, selling, general and administrative expenses were 58.5% and 51.4% for fiscal 2020 and fiscal 2019, respectively. Expenses rose faster than revenue due to mix of business from acquisitions.

Income from Operations
 
The Life Sciences business earned $566 and $841 in income from operations for fiscal 2020 and 2019, respectively. The decline in operating income reflected higher cost recognized on sale of acquired inventory due to acquisitions partially offset by the profit contribution from acquisitions. The difference in operating margin of 8.6% in fiscal 2020 compared with 14.9% in fiscal 2019 was largely due to higher amortization of acquired inventory from our acquisitions.

Results of Operations – Corporate and Other
 
Below is a reconciliation of income from operations segments to net (loss) available to common stockholders

   
Years Ended September 30,
 
   
2020
   
2019
 
   
(In thousands)
 
Total income from operating segments
 
$
2,154
   
$
5,230
 
Administrative expenses
   
(2,724
)
   
(2,533
)
Amortization expense
   
(955
)
   
(915
)
Stock-based compensation
   
(199
)
   
(203
)
Total Corporate expenses
   
(3,878
)
   
(3,651
)
Interest expense
   
(521
)
   
(694
)
Change in fair value of mandatorily redeemable non-controlling interest
   
15
     
61
 
Net (loss) income before taxes
   
(2,230
)
   
946
 
Income tax (benefit) expense
   
505
     
(330
)
Net (loss) income
   
(1,725
)
   
616
 
Preferred stock dividends
   
(675
)
   
(571
)
Non-controlling interest dividends
   
—
     
(342
)
Net (Loss) Available to Common Stockholders
 
$
(2,400
)
 
$
(297
)

Total Corporate Expenses
 
Corporate expenses increased by $227 to $3,878, or 6.2%, in fiscal 2020 as compared to fiscal 2019. The dollar increase was due primarily to higher accounting related professional expense and increases in amortization of intangible expenses partially offset by lower stock-based compensation and merger and acquisition expenses. We incur merger and acquisition deal-related expenses and intangible amortization at the corporate level rather than at the segment level.
 
Interest Expense
 
Interest expense for the consolidated company decreased $173, or 24.9%, to $521 in fiscal 2020 from approximately $694 in fiscal 2019. The decrease was primarily due to more favorable debt refinancing terms and lower interest rates partially offset by higher average debt balances to support our acquisition efforts.
 
Income Tax Expense
 
On a consolidated basis, the Company recorded an income tax benefit of $505 in fiscal 2020, as compared to an income tax expense of $330 in fiscal 2019. The decrease was primarily due to a decrease in pretax income and by the estimated deductible expense related to the expected loan forgiveness amount under the Paycheck Protection Program (“PPP”) loan received in the third quarter. In 2016, a deferred tax asset was established to reflect a net operating loss carryforward, which the Company has begun using, and expects to continue to use, through ongoing profitability.

Preferred Stock Dividends
 
Preferred stock dividends include the Company’s Series C Stock and dividends accrued but not paid. For the year ended September 30, 2020 and 2019, preferred stock dividends were $675 and $571, respectively. The increase of $104, or 18.2%, was the result of a higher number of shares of Series C Stock outstanding and an increase in dividend rate as of January 1, 2020 to 7%.
 
Dividends accrued but not paid on the Company’s Series C Stock were $1,661 and $1,041 as of September 30, 2020 and 2019, respectively.
 
Net (Loss) Available to Common Shareholders
 
Net (loss) available to common shareholders was ($2,400), or ($2.75) per diluted share, for fiscal 2020 and ($297), or ($0.35) per diluted share, for fiscal 2019. The increase in net loss was primarily due to lower revenues and gross profit and higher selling, general and administrative expenses across our businesses in both periods and an increase in the dividend rate with respect to the Series C Stock as of January 1, 2020 to 7%.

LIQUIDITY AND CAPITAL RESOURCES
 
General
 
Our ability to satisfy liquidity requirements, including satisfying debt obligations and fund working capital, day-to-day operating expenses and capital expenditures, depends upon future performance, which is subject to general economic conditions, competition and other factors, some of which are beyond Janel’s control. Our Global Logistics Services segment depends on commercial credit facilities to fund day-to-day operations as there is a difference between the timing of collection cycles and the timing of payments to vendors.
 
As a customs broker, our Global Logistics Services segment makes significant cash advances for a select group of our credit-worthy customers. These cash advances are for customer obligations such as the payment of duties and taxes to customs authorities primarily in the United States. Increases in duty rates could result in increases in the amounts we advance on behalf of our customers. Cash advances are a “pass through” and are not recorded as a component of revenue and expense. The billings of such advances to customers are accounted for as a direct increase in accounts receivable from the customer and a corresponding increase in accounts payable to governmental customs authorities. These “pass through” billings can influence our traditional credit collection metrics. For customers that meet certain criteria, we have agreed to extend payment terms beyond our customary terms. Management believes that it has established effective credit control procedures and has historically experienced relatively insignificant collection problems.
 
The COVID-19 pandemic has negatively impacted our liquidity and cash flows. As discussed in greater detail in note 9 to the consolidated financial statements, on April 19, 2020, we entered into a loan agreement with Santander and executed a U.S. Small Business Administration  note pursuant to which we borrowed $2,726 from Santander pursuant to the PPP under The Coronavirus Aid, Relief and Economic Security Act, Section 7(a)(36) of the Small Business Act in order to be able to continue to cover our payroll costs, group health care benefits, mortgage payments, rent and utilities. The duration and magnitude of the pandemic is not reasonably estimable at this point, and if the pandemic persists, our liquidity and capital resources could be further negatively impacted.
 
Subsidiaries depend on commercial credit facilities to fund day-to-day operations as there is a difference between the timing of collection cycles and the timing of payments to vendors. Generally, we do not make significant capital expenditures. Janel’s cash flow performance for the 2020 fiscal year is not necessarily indicative of future cash flow performance. As of September 30, 2020, and compared with the prior fiscal year, the Company’s cash and cash equivalents increased by $1,186, or 55%, to $3,349 from $2,163 as of September 30, 2020.  During the fiscal year ended September 30, 2020, Janel’s net working capital deficiency (current assets less current liabilities) increased by $4,182, from ($6,190) at September 30, 2019 to ($10,372) at September 30, 2020.
 
Cash flows from continuing operating activities
 
Net cash (used in) provided by continuing operating activities for fiscal years 2020 and 2019 was ($554) and $7,203, respectively. The decrease in cash provided by operations for the year ended September, 2020 was driven principally by the higher net loss, partially offset by timing of cash collections for accounts receivables and cash payments on accounts payables for the year ended September 30, 2020.
 
Cash flows from investing activities
 
Net cash used for investing activities, mainly for the acquisition of subsidiaries, was $1,544 for fiscal 2020 and $6,600 for fiscal 2019. The fiscal 2020 amount was associated with a logistics acquisition, and the fiscal 2019 amount was associated with the two logistics and two Life Sciences acquisitions. The Company also used $1,297 for the acquisition of property and equipment for the year ended September 30, 2020 compared to $421 for the year ended September 30, 2019.

Cash flows from financing activities
 
Net cash provided by financing activities was $3,284 for fiscal 2020 and $975 for fiscal 2019. Net cash provided by financing activities in fiscal 2020 primarily included proceeds from our PPP loan, deferred payments for the ACB acquisition and proceeds from stock option exercises, proceeds from sale of Series C Preferred, offset by repurchase of Series C Preferred, and in fiscal 2019 primarily included repayments from a line of credit and proceeds from a senior secured term loan.
 
Credit Facilities
 
Global Logistics Services
 
Santander Bank Facility
 
On October 17, 2017, the Janel Group subsidiaries (collectively the “Janel Group Borrowers”), with Company 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”). As amended in March 2018, November 2018, March 2020 and July 22, 2020, the Santander Facility currently provides that the Janel Group Borrowers can borrow up to $17,000 limited to 85% of the Janel Group Borrowers’ aggregate outstanding eligible accounts receivable, subject to adjustment as set forth in the Santander Loan 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 2.25% 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, while the Santander Loan Agreement contains customary terms and covenants.
 
The Santander Facility matures on October 17, 2022, unless earlier terminated or renewed. As a result of its terms, the Santander Facility 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.
 
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 September 30, 2019.
 
On March 4, 2020, the Company and its wholly-owned subsidiaries, entered into the Third Amendment to Loan and Security Agreement (“Amendment No. 3”) to the Loan and Security Agreement, dated October 17, 2017 by and between the Company, certain of its subsidiaries, and Santander Bank, N.A. (as amended by the Limited Waiver, Joinder and First Amendment dated as of March 21, 2018, and the Limited Waiver, Joinder and Second Amendment dated November 20, 2018 (collectively, the “Loan Agreement”). Pursuant to, and among other changes effected by, Amendment No. 3: (1) the Maturity date of the Loan evidenced by the Loan Agreement was extended to October 17, 2022; (2) the LIBOR rate margin was reduced from 2.50% to 2.25%; (3) the monthly Collateral Monitor Fee was reduced from $1 to $0.5; (4) the definition of EBITDA was revised to allow addback of up to $500 annually for merger and acquisition costs; and (5) the Company’s subsidiaries were permitted to pay up to $500 in aggregate dividends to the Company for fiscal 2020 if certain conditions were met.
 
On July 22, 2020, Janel Group and Atlantic Customs Brokers, Inc. (“Atlantic”) as borrowers, and the Company as loan party obligor, entered into the Consent, Joinder and Fourth Amendment (the “Fourth Amendment”) to the Loan and Security Agreement, dated October 17, 2017 (as heretofore amended, the “Loan Agreement”), with Santander Bank, N.A., in its capacity as Lender. Pursuant to, and among other changes effected by, the Fourth Amendment, (i) Atlantic was added as a new borrower under the Loan Agreement, (ii) acquisition seller financing of up to $1,500 outstanding at any time was added as permitted indebtedness, and (iii) the Company was permitted to guaranty certain indebtedness of its Antibodies subsidiary up to $2,920 outstanding at any time.
 
At September 30, 2020, outstanding borrowings under the Santander Facility were $8,447, representing 49.7% of the $17,000 available thereunder, and interest was accruing at an effective interest rate of 2.40%.
 
The Company was in compliance with the covenants defined in the Santander Loan Agreement at September 30, 2020 and September 30, 2019.
 
Working Capital Requirements
 
Through September 30, 2020, Janel Group’s cash needs were met by the Santander Facility and cash on hand. As of September 30, 2020, the Janel Group had, subject to collateral availability, $5,421 available for future borrowings under its $17,000 Santander Facility and $56 in cash.
 
The Company believes that its current financial resources will be sufficient to finance Janel Group’s operations and obligations (current and long-term liabilities) for the long and short term. However, Janel Group’s actual working capital needs will depend upon numerous factors, including operating results, the costs associated with growing Janel Group, either organically or through acquisitions, competition and availability under the Santander Facility, none of which can be predicted with certainty. If cash flow and available credit are not sufficient to fund working capital, Janel Group’s operations will be materially negatively impacted.
 
Manufacturing
 
First Merchants Bank Credit Facility
 
On March 21, 2016, Indco executed a Credit Agreement (the “First Merchants Credit Agreement”) with First Merchants Bank with respect to a term loan, revolving loan and mortgage loan (together, the “First Merchant Facility”), as amended in August 2019 and July 2020.  On February 4, 2020, Indco entered into a Purchase and Sale Agreement to acquire the land and building which serves as the Indco office and manufacturing facility in New Albany, Indiana. This transaction closed on July 1, 2020.
 
On July 1, 2020, Indco and First Merchants Bank entered into Amendment No. 2 to the First Merchants Credit Agreement, modifying the terms of Indco’s credit facilities. Under the revised terms, the credit facilities consist of a $5,500 term loan, a $1,000 (limited to the borrowing base and reserves) revolving loan and a $680 mortgage 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%. Interest will accrue on the Mortgage Loan at an annual rate of 4.19%. Indco’s obligations under the First Merchants Bank credit facilities are secured by all of Indco’s real property and other assets, and are guaranteed by Janel. Additionally, Janel’s guarantee of Indco’s obligations is secured by a pledge of Janel’s Indco shares. The term loan and revolving loan portions of the First Merchants credit facilities will expire on August 30, 2024, and the mortgage loan will mature on July 1, 2025 (subject to earlier termination as provided in the First Merchants Credit Agreement), unless renewed or extended.
 
As of September 30, 2020, there were no outstanding borrowings under the revolving loan, $4,349 of borrowings under the term loan, and $676 of borrowing under the mortgage loan with interest accruing on the term loan and mortgage loan at an effective interest rate of 3.66% and 4.19%, respectively.
 
The Company was in compliance with the covenants defined in the First Merchants Credit Agreement at September 30, 2020 and September 30, 2019.

Working Capital Requirements
 
Manufacturing’s cash needs are currently met by the term loan and revolving credit facility under the First Merchants Credit Agreement and cash on hand. As of September 30, 2020, Manufacturing had $1,000 available under its $1,000 revolving facility subject to collateral availability and $582 in cash. The Company believes that the current financial resources will be sufficient to finance Manufacturing operations and obligations (current and long-term liabilities) for the long and short term. However, actual working capital needs will depend upon numerous factors, including operating results, the cost associated with growing Manufacturing either organically or through acquisitions, competition and availability under the revolving credit facility, none of which can be predicted with certainty. If cash flow and available credit are not sufficient to fund working capital, Manufacturing’s operations will be materially negatively impacted.
 
Life Sciences
 
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”) with First Northern Bank of Dixon (“First Northern”), with respect to a $2,025 First Northern Term Loan (the “First Northern Term Loan”). The proceeds of the First Northern Term Loan were used to fund a portion of the merger consideration to acquire Antibodies. Interest was to accrue on the First Northern Term Loan at an annual rate based on the five-year Treasury constant maturity (index) plus 2.50% (margin) for years one through five then adjusted and fixed for years six through ten using the same index and margin. The borrower’s and the Company’s obligations to First Northern under the First Northern Loan Agreement are secured by certain real property owned by Antibodies as of the closing of the Antibodies merger. The First Northern Loan Agreement contains customary terms and covenants and matures on June 14, 2028 (subject to earlier termination).
 
On November 18, 2019, Antibodies modified and refinanced its existing credit facilities with First Northern Bank. The existing First Northern Term Loan was increased to $2,235, the initial interest rate decreased to 4.18%, and the maturity date was extended to November 14, 2029, with all other terms, covenants and conditions substantially unchanged. The existing revolving credit facility was expanded to $500, the interest rate decreased from 6.0% to 4.0%, and the maturity date was extended to October 1, 2020, with all other terms, covenants and conditions substantially unchanged. Additionally, Antibodies entered into a new business loan agreement (“Solar Loan”) which provided for a $125 term loan in connection with a potential expansion of solar generation capacity on the Antibodies property. The initial interest rate on the facility is 4.43%, subject to adjustment in five years.
 
On June 19, 2020, First Northern extended the draw period on the Solar Loan from May 14, 2020 to August 14, 2020, with all other terms, covenants and conditions substantially unchanged. Additionally, on June 19, 2020, we entered into a new business loan agreement (“Generator Loan”) which provided for a $60 term loan in connection with a potential expansion of generator capacity on the Antibodies property. The draw period for the Generator Loan expires in November 5, 2020. The interest rate for the Generator Loan is 4.25%, and the loan matures on November 5, 2025. There were no outstanding borrowings under the Generator Loan.
 
As of September 30, 2020, the total amount outstanding under the First Northern Term Loan was $2,192, of which $2,139 is included in long-term debt and $53 is included in current portion of long-term debt, with interest accruing at an effective interest rate of 4.18%.
 
As of September 30, 2020, the total amount outstanding under the First Northern Solar Loan was $81, of which $76 is included in long-term debt and $5 is included in current portion of long-term debt, with interest accruing at an effective interest rate of 4.43%.
 
The Company was in compliance with the covenants defined in the First Northern Loan Agreement at September 30, 2020 and September 30, 2019.
 
Working Capital Requirements
 
Life Sciences cash needs are currently met by the First Northern Loan Agreement and cash on hand of $2,582. The Company believes that the current financial resources will be sufficient to finance Life Sciences operations and obligations (current and long-term liabilities) for the long and short term. However, actual working capital needs will depend upon numerous factors, including operating results, the cost associated with growing Life Sciences either organically or through acquisitions, competition and availability under the revolving credit facility, none of which can be predicted with certainty. If cash flow and available credit are not sufficient to fund working capital, Life Sciences operations will be materially negatively impacted.
 
CURRENT OUTLOOK
 
The results of operations in the Global Logistics Services, Manufacturing and Life Sciences segments are affected by the general economic cycle, particularly as it influences global trade levels and specifically the import and export activities of our Janel Group business’s various current and prospective customers. The effects of the COVID-19 pandemic may remain prevalent for a significant period of time and may continue to adversely affect our business, results of operations and financial condition even after the COVID-19 outbreak has subsided. Historically, the Company’s annual results of operations have been subject to seasonal trends which have been the result of, or influenced by, numerous factors including climate, national holidays, consumer demand, economic conditions, the growth and diversification of Janel Group’s international network and service offerings, and other similar and subtle forces. The Company cannot accurately forecast many of these factors, nor can it estimate accurately the relative influence of any particular factor and, as a result, there can be no assurance that historical patterns, if any, will continue in future periods.
 
The Company’s subsidiaries are implementing business strategies to grow revenue and profitability for fiscal 2021 and beyond. Janel Group’s strategy calls for additional branch offices, introduction of new revenue streams for existing locations, sales force expansion, additional acquisitions, and a continued focus on implementing lean methodologies to contain operating expenses.
 
Our Manufacturing and Life Sciences segments expect to introduce new product lines and wider distribution and promotion of its products with internet sales efforts. In addition to supporting its subsidiaries’ growth plans, the Company may seek to grow Janel by entering new business segments through acquisition.
 
Certain elements of the Company’s profitability and growth strategy, including proposals for acquisition and accelerating revenue growth, are contingent upon the availability of adequate financing on terms acceptable to the Company.
 
Without adequate equity and/or debt financing, the implementation of significant aspects of the Company’s strategic growth plan may be deferred beyond the originally anticipated timing, and the Company’s operations will be materially negatively impacted.
 
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
 
The Company’s consolidated financial statements have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes. Since future events and their effects cannot be determined with absolute certainty, the determination of estimates requires the exercise of judgment. Actual results could differ from those estimates, and such differences may be material to the financial statements. The most significant accounting estimates inherent in the preparation of our financial statements include estimates as to revenue recognition, the appropriate carrying value of certain assets and liabilities which are not readily apparent from other sources, primarily allowance for doubtful accounts, accruals for transportation and other direct costs, accruals for cargo insurance, deferred income taxes and potential impairment of goodwill and intangible assets with indefinite lives, long-lived assets impairment. Management bases its estimates on historical experience and on various assumptions which are believed to be reasonable under the circumstances. We reevaluate these significant factors as facts and circumstances change. Historically, actual results have not differed significantly from our estimates. Note 1 of the notes to consolidated financial statements included herein includes a summary of the significant accounting policies and methods used in the preparation of our consolidated financial statements. The following is a brief discussion of certain accounting policies and estimates.
 
Management believes that the nature of the Company’s business is such that there are few complex challenges in accounting for operations. Revenue recognition is considered the critical accounting policy due to the complexity of arranging and managing global logistics and supply-chain management transactions.
 
Income taxes
 
The Company uses the asset and liability method of accounting for income taxes in accordance with Accounting Standards Codification 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.
 
Estimates
 
While judgments and estimates are a necessary component of any system of accounting, the Company’s use of estimates is limited primarily to the following areas that in the aggregate are not a major component of the Company’s consolidated statements of operations:
 

•
accounts receivable valuation;
 

•
the useful lives of long-term assets;
 

•
the accrual of costs related to ancillary services the Company provides; and
 

•
accrual of tax expense on an interim basis.
 

•
inventory valuation
 

•
potential impairment of goodwill and intangible assets with indefinite lives, long-lived assets impairment
 
Management believes that the methods utilized in these areas are consistent in application. Management further believes that there are limited, if any, alternative accounting principles or methods which could be applied to the Company’s transactions.
 
While the use of estimates mean that actual future results may be different from those contemplated by the estimates, the Company believes that alternative principles and methods used for making such estimates would not produce materially different results than those reported.
 
Critical Accounting Policies and Estimates Applicable to the Global Logistics Services Segment
 
Revenue Recognition
 
Revenues are derived from customs brokerage services and from freight forwarding services.
 
Customs brokerage services include activities required for the clearance of shipments through government customs regimes, such as preparing required documentation, calculating and providing for payment of duties and other charges on behalf of customers, arranging required inspections and arranging final delivery.
 
Freight forwarding may require multiple services, including long-distance shipment via air, ocean or ground assets, destination handling (“break bulk”), warehousing, distribution and other logistics management activities. As an asset-light business, Janel Group owns none of the assets by which it fulfills its customers’ logistics needs. Rather, it purchases the services its customers need from asset owners, such as airlines and steamship lines, and resells them. By consolidating shipments from multiple customers, Janel Group can negotiate terms of service with asset owners that are more favorable than those the customers could negotiate themselves.
 
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.
 
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 freight, air freight, custom brokerage and trucking and other.
 
Net Revenue
 
Our total revenues represent the total dollar value of services and goods we sell to our customers. Our net revenue is calculated as Revenue – Global Logistics Services less Cost and Expenses – Forwarding Expenses, as presented on our consolidated statement of operations, which are purchased transportation and related services, including contracted air, ocean, rail, motor carrier and other costs. Total revenues can be influenced greatly by changes in transportation rates or other items, such as fuel prices, which we do not control. Our net revenue, however, is the primary indicator of our ability to source, add value, and sell services and products that are provided by third parties; therefore, 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 revenue. The difference between the rate billed to our customers (the sell rate) and the rate we pay to the carrier (the buy rate) is termed “net revenue”, “yield” or “margin.”
 
Critical Accounting Policies and Estimates Applicable to the Manufacturing and Life Sciences Segments
 
Revenue Recognition Manufacturing
 
Revenues from Indco are derived from the engineering, manufacture and delivery of specialty mixing equipment and accessories. Indco receives customer product orders via telephone, email, internet or fax. The pricing of each standard product sold is listed in Indco’s print and web-based catalog. Customer specific products are priced by quote. A sales order acknowledgement is sent to every customer for every order to confirm pricing and the specifications of the products ordered. The revenue is recognized at a point in time when the product is shipped to the customer.
 
Revenue Recognition Life Sciences
 
Revenues from the Life Sciences segment are derived from the sale of high-quality monoclonal and polyclonal antibodies, diagnostic reagents and diagnostic kits and other immunoreagents for biomedical research and antibody manufacturing. Revenues are recognized when products are shipped and risk of loss is transferred to the carrier(s) used.
 
NEW ACCOUNTING STANDARDS
 
On October 1, 2019, the Company adopted ASU No. 2016-02, Leases (“ASC 842” or “ASU 2016-02”), issued by the FASB in February 2016 which was subsequently supplemented by clarifying guidance intended to improve financial reporting of leasing transactions. The new lease accounting guidance requires lessees to recognize lease liabilities and right-of-use assets on the balance sheet for all leases with initial terms longer than 12 months and provides enhanced disclosures on key information of leasing arrangements. The guidance allows companies to apply the requirements retrospectively, either to all prior periods presented or through a cumulative adjustment in the year of adoption.
 
The Company adopted the new standard effective October 1, 2019 using the modified retrospective transition method. The Company elected to use the package of practical expedients which allowed the Company to (i) not reassess whether an arrangement contains a lease, (ii) carry forward its lease classification as operating or capital leases and (iii) not reassess its previously-recorded initial direct costs. For all existing operating leases as of October 1, 2019, the Company recorded operating lease right of use assets of $1,043 and corresponding lease liabilities of $1,060, with an offset to other liabilities of $17 to eliminate deferred rent on the consolidated balance sheets.
 
Operating lease expense is recognized on a straight-line basis over the lease term. At each balance sheet date, operating lease liabilities represent the present value of the future minimum payments related to non-cancelable periods.
 
Leases with an initial term of 12 months or less (short-term leases) are not recognized in the balance sheet, and the related lease payments are recognized as incurred over the lease term.
 
All significant lease arrangements after October 1, 2019 are recognized as right-of-use assets and lease liabilities at lease commencement. Right-of-use assets represent the Company’s right to use an underlying asset for the lease term, and lease liabilities represent its obligation to make lease payments arising from the lease. Right-of-use assets and liabilities are recognized at the commencement date based on the present value of the future lease payments using the Company’s incremental borrowing rate.
 
The adoption of the new lease accounting standard did not have a material impact on the Company’s results of operations or cash flows.
 
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 are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with early adoption permitted. The Company’s current share-based payment awards to non-employees consist only of grants made to its non-employee directors as compensation solely relates to each individual’s role as a non-employee director. As such, in accordance with ASC 718, the Company accounts for these share-based payment awards to its non- employee directors in the same manner as share-based payment awards for its employees. The Company adopted this standard on October 1, 2019, and the amendments in this guidance had no material effect on either the accounting for its share-based payment awards to its non-employee directors, or the Company’s consolidated financial statements.
 
NON-GAAP FINANCIAL MEASURES
 
While we prepare our financial statements in accordance with U.S. GAAP, we also utilize and present certain financial measures, in particular adjusted operating income, which is not based on or included in U.S. GAAP (we refer to these as “non-GAAP financial measures”).
 
Net Revenue
 
Net revenue is a non-GAAP measure calculated as total revenue less forwarding expenses attributable to the Company’s Global Logistics Services segment. Our total revenue represents the total dollar value of services and goods we sell to our customers. Forwarding expenses attributable to the Company’s Global Logistics Services segment refer to purchased transportation and related services including contracted air, ocean, rail, motor carrier and other costs. Total revenue can be influenced greatly by changes in transportation rates or other items, such as fuel prices, which we do not control. Management believes that providing net revenue is useful to investors as net revenue is the primary indicator of our ability to source, add value and sell services and products that are provided by third parties, and we consider net revenue to be our primary performance measurement. The difference between the rate billed to our customers (the sell rate) and the rate we pay to the carrier (the buy rate) is termed “net revenue”, “yield” or “margin.” As presented, net revenue matches gross margin.
 
Organic Growth
 
Our non-GAAP financial measure of organic growth represents revenue growth excluding revenue from acquisitions within the preceding 12 months. The organic growth presentation provides useful period-to-period comparison of revenue results as it excludes revenue from acquisitions that would not be included in the comparable prior period.
 
Adjusted Operating Income
 
As a result of our acquisition strategy, our net income includes material non-cash charges relating to the amortization of customer-related intangible assets in the ordinary course of business as well as other intangible assets acquired in our acquisitions. Although these charges may increase as we complete more acquisitions, we believe we will be growing the value of our intangible assets such as customer relationships. Because these charges are not indicative of our operations, we believe that adjusted operating income is a useful financial measure for investors because it eliminates the effect of these non-cash costs and provides an important metric for our business that is more representative of the actual results of our operations.
 
Adjusted operating income (which excludes the non-cash impact of amortization of intangible assets, stock-based compensation and cost recognized on the sale of acquired inventory valuation) is used by management as a supplemental performance measure to assess our business’s ability to generate cash and economic returns.
 
Adjusted operating income is a non-GAAP measure of income and does not include the effects of preferred stock dividends, interest and taxes.
 
We believe that net revenue, organic growth and adjusted operating income provide useful information in understanding and evaluating our operating results in the same manner as management. However, net revenue, organic growth and adjusted operating income are not financial measures calculated in accordance with U.S. GAAP and should not be considered as a substitute for total revenue, operating income or any other operating performance measures calculated in accordance with U.S. GAAP. Using these non-GAAP financial measures to analyze our business has material limitations because the calculations are based on the subjective determination of management regarding the nature and classification of events and circumstances that users of the financial statements may find significant.
 
In addition, although other companies in our industry may report measures titled net revenue, organic growth, adjusted operating income or similar measures, such non-GAAP financial measures may be calculated differently from how we calculate our non-GAAP financial measures, which reduces their overall usefulness as comparative measures. Because of these limitations, you should consider net revenue, organic growth and adjusted operating income alongside other financial performance measures, including total revenue, operating income and our other financial results presented in accordance with U.S. GAAP.
 
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
 
Consistent with the rules applicable to “smaller reporting companies”, we have omitted the information required by Item 7A.
 
ITEM 8
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
The financial statements and supplementary data required by this Item 8 are included in the Company’s Consolidated Financial Statements and set forth in the pages indicated in Item 15(a) of this Annual Report and are incorporated herein by reference.
 
ITEM 9
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
 
On February 22, 2019, upon the recommendation and approval of the Audit Committee of the Board of Directors (the “Audit Committee”) of the Company, which action was ratified by the Board of Directors, the Company dismissed Crowe LLP (“Crowe”) as its principal independent registered public accounting firm, as the Company and Crowe could not reach mutually acceptable financial terms of engagement for the 2018 fiscal year-end audit work as a result of the need to significantly increase the scope of Crowe’s audit procedures due to the internal control matters noted below.
 
On January 4, 2018, Crowe was appointed as the Company’s principal independent registered public accounting firm for the fiscal year ended September 30, 2018. As Crowe had not completed its audit of the Company’s financial statements for the fiscal year ended September 30, 2018 as of the date of its dismissal, Crowe did not issue any report on the Company’s financial statements that contained any adverse opinion or disclaimer of opinion, or was qualified or modified as to uncertainty, audit scope, or accounting principles. During the fiscal year ended September 30, 2018 and the subsequent interim period through February 22, 2019, there have been no disagreements with Crowe on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of Crowe, would have caused it to make reference to the subject matter of the disagreements in connection with its report on the financial statements for such year. Otherwise, there were no “reportable events” within the meaning of Item 304(a)(1)(v) of Regulation S-K during the fiscal year ended September 30, 2018, other than the need to significantly increase the scope of Crowe’s audit procedures, as referenced above, and certain material weaknesses in the Company’s internal control over financial reporting.  Crowe indicated that while it had not completed its audit, based on its observations and procedures performed to date, the Company did not maintain effective internal controls related to the following:
 

•
Management did not have a process or control in place to perform an assessment of gross vs. net revenue recognition criteria in accordance with ASC Topic 605-45 Revenue Recognition – Principal Agent Consideration (“ASC Topic 605-45”) with respect to the Company’s logistics segment.
 

•
Management did not have a process or control in place to perform an assessment of timing of revenue recognition criteria in accordance with ASC Topic 605 with respect to the Company’s logistics segment.
 

•
A number of deficiencies were identified related to the design, implementation and effectiveness of certain information technology general controls, including segregation of duties, user access and change management.
 

•
The Company had inadequate controls over a) journal entries and approvals, b) cash disbursements and application of cash receipts, c) payroll changes and d) vendor set-up and creation, credit policies and infrequent transactions.
 
On February 22, 2019, the Audit Committee recommended and approved the appointment of Prager Metis CPAs, LLC (“Prager”) as the Company’s principal independent registered public accounting firm for the fiscal years ending September 30, 2018 and 2019, which action was ratified by the Board of Directors. During the Company’s fiscal years ended September 30, 2018 and 2017 and the subsequent interim period through February 22, 2019, neither the Company, nor anyone acting on its behalf, consulted with Prager regarding (i) the application of accounting principles to a specified transaction, either completed or proposed; (ii) the type of audit opinion that might be rendered on the Company’s financial statements, and neither a written report nor oral advice was provided to the Company that Prager concluded was an important factor considered by the Company in reaching a decision as to the accounting, auditing or financial reporting issue; (iii) any matter that was the subject of a disagreement within the meaning of Item 304(a)(1)(iv) and the related instructions of Regulation S-K; or (iv) any “reportable event” within the meaning of Item 304(a)(1)(v) of Regulation S-K.
 
In connection with the engagement of Prager, the Company authorized Crowe to respond fully to inquires of Prager concerning the matters referenced above.

ITEM 9A.
CONTROLS AND PROCEDURES
 
Evaluation of Disclosure Controls and Procedures
 
Janel maintains a system of disclosure controls and procedures that is designed to provide reasonable assurance that information, which is required to be disclosed in the reports that it files or submits under the Securities Exchange Act of 1934, as amended (“Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission (“SEC”) and is accumulated and communicated to management, including its Chief Executive Officer and Principal Financial Officer, to allow timely decisions regarding required disclosures. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. The Company’s management, with the participation of the Chief Executive Officer and Principal Financial Officer, has evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of September 30, 2020, and based on their evaluation, has concluded that our disclosure controls and procedures were not effective as of such date because of the discovered material weaknesses in our internal control over financial reporting described below.
 
While the material weaknesses described below did not result in a material misstatement to the Company’s consolidated financial statements for any period in the two-year period ended September 30, 2020, it did represent a material weakness as of September 30, 2020, since there existed a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements would not have been prevented or detected on a timely basis. Notwithstanding the identified material weaknesses, management, including our Chief Executive Officer and Principal Financial Officer, believes the consolidated financial statements included in this Form 10-K fairly represent in all material respects our financial condition, results of operations and cash flows as of and for the periods presented in accordance with U.S. GAAP. In addition, as discussed below, the Company has taken steps to remediate the material weaknesses.
 
Evaluation of Disclosure Controls and Procedures
 
Janel maintains a system of disclosure controls and procedures that is designed to provide reasonable assurance that information, which is required to be disclosed in the reports that it files or submits under the Securities Exchange Act of 1934, as amended (“Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission (“SEC”) and is accumulated and communicated to management, including its Chief Executive Officer and Principal Financial Officer, to allow timely decisions regarding required disclosures. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. The Company’s management, with the participation of the Chief Executive Officer and Principal Financial Officer, has evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of September 30, 2020, and based on their evaluation, has concluded that our disclosure controls and procedures were not effective as of such date because of the discovered material weaknesses in our internal control over financial reporting described below.
 
While the material weaknesses described below did not result in a material misstatement to the Company’s consolidated financial statements for any period in the two-year period ended September 30, 2020, it did represent a material weakness as of September 30, 2020, since there existed a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements would not have been prevented or detected on a timely basis. Notwithstanding the identified material weaknesses, management, including our Chief Executive Officer and Principal Financial Officer, believes the consolidated financial statements included in this Form 10-K fairly represent in all material respects our financial condition, results of operations and cash flows as of and for the periods presented in accordance with U.S. GAAP. In addition, as discussed below, the Company has taken steps to remediate the material weaknesses.
 
Management’s Annual Report on Internal Control over Financial Reporting
 
Our management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Exchange Act, as amended, as a process designed by, or under the supervision of, our Chief Executive Officer and Principal Financial Officer and effected by our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP and includes those policies and procedures that: (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP, and that the Company’s receipts and expenditures are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or   that the degree of compliance with policies or procedures may deteriorate.
 
Under the supervision and with the participation of our management, including our Chief Executive Officer and Principal Financial Officer, we have performed an evaluation of the effectiveness of our internal control over financial reporting under the framework in Internal Control-Integrated Framework (2013), issued by the Committee of Sponsoring Organizations of the Commission. Based on this assessment, management, including our Chief Executive Officer and Principal Financial Officer, has concluded that our internal control over financial reporting was not effective as of September 30, 2020 due to material weaknesses in our internal control over financial reporting, which is disclosed below. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.
 
Material Weaknesses in Internal Control Over Financial Reporting
 
The Company’s management, including our Chief Executive Officer and Chief Financial Officer, have identified material weaknesses in the Company’s internal control over financial reporting. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.

Life Sciences
 
In connection with the preparation of the Company’s Annual Report on Form 10-K for fiscal year 2020, management identified certain material weaknesses as of September 30, 2020 related to our Life Sciences segment. In particular, the Company had inadequate controls over the following:

Life Science Segment (Phospho Solutions) had a lack of documentation and/or controls over the following:


•
order entry, invoicing, collections and timeliness of revenue recognition in accordance with ASC Topic 606, Revenue from Contracts with Customers – Principal Agent Consideration (“ASC Topic 606”)


•
financial close process,


•
inventory management and valuation of inventory, and


•
information technology controls.

The Life Science Segment (Aves and Antibodies) had inadequate controls over the following:


•
accounting manager’s administrative access to financial accounting software and banking portal, roles and responsibilities around significant processes including financial close without independent review or back-up results in segregation of duties issue,


•
lack of formal evidence pertaining to month-end closing activities (i.e. journal entry review, account reconciliations, closing checklists, budget to actual analysis, review of financial package, inventory account analysis, etc.), and


•
lack of review of sales orders including pricing, lack of revenue cut off procedures and lack of inventory valuation controls, inventory counts and reconciliation to general ledger.
 
In addition, a number of deficiencies were identified related to the design, implementation and effectiveness of certain information technology general controls, including segregation of duties, user access, change management, data back-ups and review of SOC 1 and 2 reports from critical vendors, some of which could have a direct impact on the Company’s financial reporting.
 
Global Logistics Services
 
In connection with the preparation of the Company’s Annual Report on Form 10-K for fiscal year 2020, management identified certain material weaknesses as of September 30, 2020 related to our Global Logistics Services segment. In particular, the Company had inadequate controls over the following:


•
no formal management review controls in place to ensure correct revenue file types and charge codes are used for all jobs and are designed specifically to address ASC Topic 606.


•
management did not have an effective process or control in place to perform an assessment of gross versus net revenue recognition criteria in accordance with ASC Topic 606.


•
during the three months ended June 30, 2020, management identified an additional material weakness related to the prevention and timely detection of funds transfers to an unauthorized account, for which remediation actions have been undertaken as more fully described below.

In connection with the preparation of the Company’s Annual Report on Form 10-K for fiscal year 2020, management identified certain material weaknesses as of September 30, 2020 related to our Corporate office.  In particular, the Company had inadequate controls over a lack of segregation of duties between chief financial officer and corporate accountant regarding:


•
administrative access to financial accounting software and banking portal and the


•
financial close process.
 
Remediation Plan
 
We have engaged an external consultant to assist in the development and execution of a plan to remediate the material weaknesses noted in both fiscal year ended 2020, related to our Life Sciences segment noted above. This process includes review of our controls and implementation of a new enterprise resource planning system which commenced during the first quarter of fiscal 2021 and is expected to be fully implemented by the second quarter of fiscal 2021.
 
We have developed and are executing on our plan to remediate our material weaknesses in connection with the information technology controls and have expanded our in-house expertise on information technology general controls, as well as continuing to consult with external third parties. We have implemented improved information technology general controls, including segregation of duties, user access, change management, data back-ups and review of SOC 1 and 2 reports from critical vendors on a consistent basis. This process commenced during the fourth quarter of fiscal 2020 and is ongoing.
 
With respect to material weaknesses in our Global Logistics Services segment, we have implemented a new system triggered revenue recognition process based on target dates (e.g., delivery date, file transfer date, etc.) for specific file types. Through this technology and reporting improvement, we have enhanced our ability to timely monitor revenue recognition in accordance with GAAP. Moreover, in response to the material weakness related to the prevention and timely detection of funds transfers to unauthorized accounts, we have updated company policies and controls to provide for multifactor authentication, implemented a new payment processing validation procedure, updated internal firewall protocols related to e-mails and conducted updated training on finance-related internal controls policies. In addition, we have engaged an external consultant to assist in the development and execution of a plan to remediate the material weaknesses noted in fiscal year ended 2020, related to our Global Logistics Services segment and our Corporate office as noted above.
 
Our management believes that the foregoing efforts will effectively remediate the material weaknesses. That said, the new and enhanced controls have not operated for a sufficient amount of time to conclude that the material weaknesses have been remediated. As we continue to evaluate and work to improve our internal control over financial reporting, our management may decide to take additional measures to address the material weaknesses or modify the remediation plan described above.
 
Internal control over financial reporting, no matter how well designed, has inherent limitations. Therefore, even those controls determined to be effective may not prevent or detect misstatements and can provide only reasonable assurance with respect to financial statement preparation and presentation.
 
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
 
Our executive management team, together with our board of directors, is committed to achieving and maintaining a strong control environment, high ethical standards, and financial reporting integrity.

Based on the nature and interrelationship of the noted deficiencies, management concluded that these additional deficiencies, in the aggregate, resulted in a reasonable possibility that a material misstatement in our interim or annual financial statements would not be prevented or detected on a timely basis, and as such, constituted a material weakness.
 
This Annual Report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to the exemption provided to issuers that are neither “large accelerated filers” nor “accelerated filers” under the Dodd-Frank Wall Street Reform and Consumer Protection Act.
 
Changes in Internal Control Over Financial Reporting
 
Other than the ongoing remediation efforts described above, there was no change in our internal control over financial reporting that occurred during the quarter ended September 30, 2020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
 
Inherent Limitation on the Effectiveness of Internal Controls
 
The effectiveness of any system of internal control over financial reporting is subject to inherent limitations, including the exercise of judgment in designing, implementing, operating, and evaluating the controls and procedures, and the inability to eliminate misconduct completely. Accordingly, any system of internal control over financial reporting can only provide reasonable, not absolute, assurances. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. We intend to continue to monitor and upgrade our internal controls as necessary or appropriate for our business, but cannot assure that such improvements will be sufficient to provide us with effective internal control over financial reporting.
 
ITEM 9B.
OTHER INFORMATION
 
None.
 
PART III
 
ITEM 10
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
 
Directors and Executive Officers
 
The executive officers and directors of the Company are as follows:
 
Name
 
Age
 
Position
Dominique Schulte
 
47
 
Chairman, President and Chief Executive Officer
Brendan J. Killackey
 
46
 
Director, Chief Information Officer
Gerard van Kesteren
 
71
 
Director, Chair of Audit Committee
John J. Gonzalez, II
 
70
 
Director, Senior Advisor for Mergers and Acquisitions and Chair of Compensation Committee
Gregory J. Melsen
 
68
 
Director, Chair of Nominating and Governance Committee
Vincent A. Verde
 
58
 
Principal Financial Officer, Treasurer and Secretary

Dominique Schulte has served as a Director of Janel since November 2015 and as Chairman of the Board since May 8, 2018. Since October 1, 2018, Ms. Schulte has served as the Company’s President and Chief Executive Officer. Ms. Schulte practiced law at Simpson Thacher & Bartlett LLP in New York, from 1999 through 2009, where she specialized in corporate and securities law and oversaw a number of successful securities transactions. Ms. Schulte is the managing member of Oaxaca Group, LLC (“Oaxaca”), which is the Company’s largest individual shareholder. Pursuant to the terms of the Securities Purchase Agreement dated October 6, 2013, entered into between the Company and Oaxaca (the “Securities Purchase Agreement”), the Company agreed to appoint up to two candidates nominated by Oaxaca to become members of the Company’s Board of Directors. Ms. Schulte was appointed to the Company’s board of directors in accordance with the terms of the Securities Purchase Agreement. Ms. Schulte is well-qualified to serve as a member of the Company’s board of directors based on her extensive experience in the practice of corporate and securities law.
 
Brendan J. Killackey was elected to the Company’s board of directors in September 2014 and served as Chief Executive Officer from February 2015 through September 2018. Since October 1, 2018, Mr. Killackey has served as the Company’s Chief Information Officer. Mr. Killackey previously owned Progressive Technology Partners, LLC, a technology consultancy firm, which he founded in 2001. Given Janel’s and its subsidiaries’ reliance on technology, Mr. Killackey’s background and experience are valuable to the Company, and, therefore, he is well-qualified to serve as a member of the Company’s board of directors.
 
Gerard van Kesteren has served as a Director of Janel since November 2015. From 1999 until 2014, Mr. van Kesteren served as the Chief Financial Officer of Kuehne + Nagel Group, an international freight forwarder and leading global provider of innovative and fully integrated supply chain solutions. Mr. van Kesteren has served as a director of Gategroup Holding AG since April 2015. Mr. van Kesteren is well-qualified to serve as a member of the Company’s board of directors based on his extensive experience in the freight forwarding and logistics industry. Mr. van Kesteren serves as the chair of the Audit Committee.
 
John J. Gonzalez, II has served as a Director of Janel since June 2016. Prior to that, he was a Senior Managing Director of Janel Group, following the August 2014 purchase by the Company of Alpha International and President Container Lines (“Alpha/PCL”), which he co-founded in 1979. Mr. Gonzalez has been involved in the transportation business since 1969. Mr. Gonzalez is well-qualified to serve as a member of the Company’s board of directors based on his extensive experience in the freight forwarding and logistics industry. Mr. Gonzalez serves as chair of the Compensation Committee.
 
Gregory J. Melsen has served as a Director of Janel since January 2018. Prior to that, he was Chief Financial Officer and Vice President of Human Resources for Healthsense, Inc., a leading provider of passive remote monitors for seniors from 2014 to 2015; and was Vice President-Finance, Treasurer and Chief Financial Officer of Techne Corporation (now Bio-Techne Corporation), a holding company for biotechnology and clinic diagnostic brands.
 
He also served as Interim Chief Executive Officer of Techne Corporation from December 2012 through March 2013. Mr. Melsen has over 40 years of business experience, primarily in the accounting and finance areas. He has served as Chief Financial Officer at a number of companies and has 19 years of public accounting experience, including nine years as partner at Deloitte. Mr. Melsen is well-qualified to serve as a member of the Company’s board of directors based on his extensive experience in accounting and finance. Mr. Melsen serves as Chair of the Nominating and Governance Committee.
 
Mr. Vincent A. Verde is Principal Financial Officer, Treasurer and Secretary of the Company and has served in such capacities since May 2018. From February 2018 to May 2018, Mr. Verde served as Controller of the Company. From January 2018 to February 2018, Mr. Verde served as a consultant for the Company. Prior to joining the Company, from December 2016 to February 2017, Mr. Verde served as a consultant for Xylem Inc., a publicly traded manufacturer and servicer of engineered solutions. Mr. Verde served from November 2014 to November 2016 as Subsidiary Controller for Teledyne Bolt, Inc., a developer, manufacturer and distributor of marine seismic data acquisition equipment and underwater remotely operated robotic vehicles and subsidiary of Teledyne Technologies Inc. (“Teledyne”). From January 2012 to November 2014, Mr. Verde served as Vice President and Corporate Controller for Bolt Technology Corporation, a then-publicly traded manufacturer and distributor of geophysical equipment and industrial clutches, which was acquired by Teledyne in November 2014. Mr. Verde has 17 years of public accounting experience, including eight years as Audit manager at Deloitte.
 
Directors hold office for a one-year term until they are re-elected or their successors have been duly elected and qualified. The executive officers are elected by the board of directors on an annual basis and serve under the direction of the Board. Executive officers devote all of their business time to the Company’s affairs.
 
Board of Directors
 
During the fiscal year ended September 30, 2020, the board of directors met sixteen times. No incumbent directors attended fewer than 75% of the aggregate of the total number of meetings of the board of directors of the Company and the total number of meetings held by all board committees in which that director served.
 
Committees.
 
The Company’s board of directors has established an audit committee, a compensation committee and a nominating and corporate governance committee. Each committee operates under a charter that has been approved by the Company’s board of directors and is available on its website located at www.janelcorp.com.
 
Audit Committee.
 
The Company’s audit committee (“Audit Committee”) oversees its corporate accounting and financial reporting process. The Audit Committee consists of Mr. van Kesteren as the chair; Mr. Gonzalez and Mr. Melsen. The Audit Committee met five times during fiscal 2020. The Audit Committee has the following responsibilities, among others, as set forth in the audit committee charter:
 

•
reviewing and assessing the effectiveness of external auditors, their independence from Janel and any additional assignments they may be given, as well as reviewing their appointment, termination, and remuneration;
 

•
reviewing and assessing the scope and plan of the audit, the examination process, audit results and reports, as well as whether auditor recommendations have been implemented by management;
 

•
recommending the approval of the annual internal audit concept and report, including the responses of management thereto;
 

•
assessing management’s established risk assessment and any proposed measures to reduce risk;
 

•
assessing the Company’s efforts and policies of compliance with relevant laws and regulations;
 

•
reviewing, in tandem with external auditors, as well as the Chief Executive Officer and the Principal Financial Officer, whether accounting principles and the financial control mechanisms of Janel and its subsidiaries are appropriate in view of Janel’s size and complexity; and
 

•
reviewing annual and interim statutory and consolidated financial statements intended for publication and recommending such financial statements to the board of directors.
 
The Company’s board of directors designated Gerard van Kesteren as an audit committee financial expert considering his experience as Chief Financial Officer of Kuehne + Nagel Group. In addition, the Company’s board of directors has determined that Mr. Melsen’s extensive experience as a partner with Deloitte and his experience as Chief Financial Officer of Healthsense, Inc. and Techne Corporation qualifies him as an audit committee financial expert. The board of directors of the Company has determined that Messrs. Gonzalez, Melsen and van Kesteren meet the definition of independent directors under the Company’s criteria. The board of directors of the Company has determined that Mr. Melsen is independent based on the Company’s independence criteria for audit committee membership. Furthermore, the board of directors of the Company has determined that Mr. van Kesteren is not “independent” based on the Company’s independence criteria for audit committee membership, as he receives an annual $20,000 consulting fee for services rendered to the Company’s Global Logistics Services segment.
 
Compensation Committee
 
The Company’s compensation committee (the “Compensation Committee”) formulates, reviews and recommends compensation policies that are consistent with Janel’s established compensation philosophy and that will enable it to attract and retain high-quality leadership. The compensation committee met four times during fiscal 2020. The Compensation Committee has the following responsibilities, among others, as set forth in the Compensation Committee’s charter:
 

•
reviewing and approving the Company’s general compensation philosophy and objectives;
 

•
reviewing and approving the corporate goals and individual objectives relevant to the compensation of the Company’s Chief Executive Officer and evaluating the performance of the Chief Executive Officer considering these objectives;
 

•
approving base salary amounts, incentive and bonus compensation amounts and individual stock and/or option grants and awards for the Chief Executive Officer and, based on the recommendation of the Chief Executive Officer, all corporate officers at or above the Vice President level;
 

•
reviewing all forms of compensation for the Company’s senior management, including the form and amount of current salary, deferred salary, cash and non-cash benefits, and all compensation plans;
 

•
reviewing the Company’s severance or similar termination payments and administering the Company’s stock option and other incentive compensation plans and programs;
 

•
amending or modifying, where appropriate, the provisions of any compensation or benefit plan that does not require stockholder approval;
 

•
preparing and approving reports to stockholders on compensation matters which are required by the SEC and other government bodies;
 

•
performing an annual performance appraisal for members of the Company’s senior management designated by the board of directors;
 

•
establishing levels of director compensation to include marketplace reviews of retainers, meeting fees, stock plans and other similar components of compensation; and
 

•
annually reviewing succession plans for key positions within the Company.
 
The Company’s Compensation Committee consists of Messrs. Gonzalez, Melsen and van Kesteren. Mr. Gonzalez serves as the chair of the Compensation Committee. The Company’s board of directors has determined that Messrs. Gonzalez, Melsen and van Kesteren are independent members of the Compensation Committee.
 
Nominating and Corporate Governance Committee
 
The Company’s nominating and corporate governance committee (the “Nominating and Corporate Governance Committee”) is responsible for developing and implementing policies and procedures that are intended to assure that Janel’s board of directors and the boards of directors (or equivalent) of its subsidiaries will be appropriately constituted and organized to meet its fiduciary obligations to the Company and its stockholders on an ongoing basis. The Nominating and Corporate Governance Committee met four times during fiscal 2020. Among other matters, the Nominating and Corporate Governance Committee is responsible for the following, as set forth in the Nominating and Corporate Governance Committee’s charter:
 

•
making recommendations to Janel’s board of directors regarding matters and practices concerning the board, its committees and individual directors, as well as matters and practices of the boards, committees and individual directors of each of Janel’s subsidiaries;
 

•
periodically evaluating the size, composition and governance structure of Janel’s board of directors and its committees and the boards and committees of Janel’s subsidiaries and determining the future requirements of each such body;
 

•
periodically making recommendations concerning the qualifications, criteria, compensation and retirement age of members of Janel’s board of directors and the boards of its subsidiaries, which recommendations, upon approval by Janel’s board of directors, shall be incorporated in Janel’s Corporate Governance Guidelines;
 

•
recommending nominees for election to Janel’s board of directors and the boards of its subsidiaries and establishing and administering a board evaluation process; and
 

•
reviewing timely nominations by stockholders for the election of individuals to Janel’s board of directors, and ensure that such stockholders are advised of any action taken by the board of directors with respect thereto.
 
The Company’s Nominating and Corporate Governance Committee consists of the Company’s full board of directors. Mr. Melsen serves as the chair of the Nominating and Corporate Governance Committee.
 
Independence of Directors
 
The Company is not currently subject to listing requirements of any national securities exchange or inter-dealer quotation system which has requirements that a majority of the board of directors be “independent” and, as a result, is not at this time required to (and does not) have a board of directors comprised of a majority of independent directors. Pursuant to Item 407(a) of Regulation S-K, however, Janel must disclose each director that is independent under the independence standards of either the New York Stock Exchange or Nasdaq, as selected by Janel. The Company has elected to use the independence standards prescribed under Nasdaq Rule 5605(2), which defines an “independent director” as a person who does not have any relationship with the Company which, in the opinion of the Company’s board of directors would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. Based on the applicable criteria, the Company’s board of directors has determined that Mr. Killackey is not independent, as he is an employee of the Company. Ms. Schulte is not independent by virtue of the fact that she is an Executive Officer of the Company. The board of directors has determined that Messrs. Gonzalez, Melsen and van Kesteren are independent directors.
 
Director Compensation
 
During the Company’s fiscal year ended September 30, 2020, Mr. Killackey, the Company’s Chief Information Officer, did not receive any additional compensation for serving as a director. Ms. Schulte waived any board compensation during fiscal 2020. The following table summarizes the compensation paid to the other directors for their services during the Company’s fiscal year ended September 30, 2020 (actual dollar amounts):
 
Name
 
Fees Earned or
Paid in Cash(1)
   
Option
Awards(2)
   
All Other
Compensation
   
Total
 
Gerard van Kesteren
 
$
40,000
   
$
17,886
   
$
20,000
(3) 
 
$
77,886
 
John J. Gonzalez
 
$
40,000
   
$
17,886
   
$
109,000
(4) 
 
$
166,886
 
Gregory J. Melsen
 
$
40,000
   
$
17,886
   
$
—
   
$
57,886
 

(1)
Compensation is paid on a monthly basis.
(2)
The aggregate number of options outstanding as of September 30, 2020 for each director is as follows: Gerard van Kesteren – 5,000, John J. Gonzalez II – 45,000, and Gregory J. Melsen – 6,875.
(3)
Represents compensation paid to Mr. van Kesteren in connection with his consulting agreement.
(4)
Represents compensation paid to Mr. Gonzalez in connection with his consulting agreement.
 
Pursuant to the Company’s non-employee director compensation policy, non-employee directors receive a retainer at an annual rate of $30,000, payable on a monthly basis, and 2,500 options, pursuant to the Amended and Restated Janel Corporation 2017 Equity Incentive Plan or such other equity plan that the Company may adopt from time to time.
 
Committee chairs receive an additional retainer at an annual rate of $10,000. According to the non-employee director compensation policy, non-employee directors will be reimbursed for their reasonable travel and other expenses incurred to attend board of directors or board committee meetings.
 
Employment Arrangements
(actual dollar amounts)
 
On February 26, 2017, the Company entered into an agreement with Mr. Gonzalez to serve as a Director and Senior Advisor for mergers and acquisitions for the Company, effective October 1, 2017. The current term of the agreement ends on September 30, 2021, and thereafter will renew automatically for an additional two-year term unless either party provides notice that it does not wish to renew. Under the terms of the agreement, the Company pays Mr. Gonzalez an annual retainer of $40,000 for his service as a director and chair of the Compensation Committee, an annual consulting fee of $90,000 and cost of health insurance of $19,000.
 
Code of Business Conduct and Ethics
 
The Company has adopted a code of business conduct and ethics, including a whistleblower policy that applies to all of its employees, including executive officers and directors. The code of business conduct and ethics, including our whistleblower policy is available on the Company’s website at www.janelcorp.com. The Company intends to disclose, if required, any future amendments to, or waivers from, the code of business conduct and ethics within four business days of the waiver or amendment through a website posting or by filing a Current Report on Form 8-K with the SEC.
 
Corporate Governance Guidelines
 
The Company’s board of directors has adopted corporate governance guidelines that serve as a flexible framework within which its board of directors and its committees operate. These guidelines cover a number of areas, including the size and composition of the board of directors, director selection criteria and qualifications, the agenda for board meetings, board member access to management and independent advisors, director compensation, director orientation and continuing education and annual board and committee self-evaluations. A copy of the corporate governance guidelines is available on the Company’s website at www.janelcorp.com.
 
Communications with the Board
 
Any stockholder desiring to contact the board, or any specific director(s), may send written communications to: Board of Directors (Attention: (Name(s) of director(s), as applicable)), c/o the Company’s Secretary, 80 Eighth Avenue, New York, New York 10011. Any proper communication so received will be processed by the Secretary. If it is unclear from the communication received whether it was intended or appropriate for the board, the Secretary will (subject to any applicable regulatory requirements) use his or her judgment to determine whether such communication should be conveyed to the board or, as appropriate, to the member(s) of the board named in the communication.
 
Leadership Structure and Risk Oversight
 
While the board believes that there are various structures which can provide successful leadership to the Company, the Company’s executive functions are carried out by Ms. Schulte, the Company’s President and Chief Executive Officer, who also serves as chairman of the Company’s board of directors and, together with the other directors, brings experience, oversight and expertise to the management of the Company.
 
The board believes that, due to the small size of the Company, this leadership structure best serves the Company and its stockholders. Management is responsible for the day-to-day management of risks the Company faces, while the board has collective responsibility for the oversight of risk management. In its risk oversight role, the board has the responsibility to satisfy itself that the risk management processes designed and implemented by management are adequate and functioning as designed. To do this, management discusses with the board the risks facing the Company and its strategy for managing them.
 
ITEM 11
EXECUTIVE COMPENSATION
 
Introduction
(actual dollar amounts)
 
The following table provides summary information concerning compensation paid or accrued by us to our Chief Executive Officer and President, our Chief Information Officer and our Principal Financial Officer, Treasurer and Secretary. We refer to these individuals collectively as the “named executive officers”.
 
Summary Compensation Table
 
The following table sets forth information regarding the total compensation paid or earned by the named executive officers as compensation for their services in all capacities during the fiscal years ended September 30, 2020 and 2019 (actual dollar amounts):

Name and Principal Position Year
Base
Salary ($)
Bonus ($)
All Other
Comp. ($)
Total ($)
Dominique Schulte, Chief Executive Officer and President
2020
37,311
—
9,625
(1)
46,936
 
2019
—
—
—
 
—
Brendan J. Killackey, Chief Information Officer
2020
155,000
20,000
11,362
(2)
186,362
 
2019
150,000
71,734
12,915
 
234,649
Vincent A. Verde, Principal Financial Officer,
Treasurer and Secretary
2020
200,000
30,000
15,168

(3)
245,168
 
2019
175,000
25,000
18,089
 
218,089
 
(1)
Dominique Schulte was appointed as the Company’s President and Chief Executive Officer on October 1, 2018. Annual base salary beginning in 2020 is $50,000 and is prorated. Amounts reported under all other compensation for the fiscal year ended September 30, 2020 include $8,874 of medical insurance premiums and $751 of retirement contributions paid for the fiscal year ended 2020.
(2)
Includes $6,691 of medical insurance premiums and $4,671 of 401(k) contributions paid on behalf of Mr. Killackey for the fiscal year ended 2020.
(3)
Annual base salary for Mr. Verde is $200,000. Amounts reported under all other compensation for the fiscal year ended September 30, 2020 include $12,915 of medical insurance premiums and $2,253 of 401(k) contributions paid on behalf of Mr. Verde for the fiscal year ended 2020.
 
Long-Term Incentive Plan Awards
 
While the Company has adopted the Amended and Restated 2017 Equity Incentive Plan, pursuant to which certain stock awards may be granted to the Company’s directors, officers, employees and consultants, our current intent is to utilize this plan to only make annual equity awards to the Company’s non-employee directors.
 
Savings and Stock Option Plans
 
401(k) and Profit-Sharing Plan
 
(actual dollar amounts)
 
The Company maintains a qualified retirement plan, commonly referred to as a 401(k) plan; covering substantially all full-time employees under each segment.
 
Prior to July 2019, the Company maintained separate contributory 401(k) plans covering substantially all full-time employees under each segment. Beginning in March 2019 through July 2019, the Company combined all plans into the Janel Corporation 401(k) Plan.
 
The Janel Corporation 401(k) Plan allows for employee salary deferrals including Roth 401(k) deferrals, employer matching contributions, employer profit sharing contributions and employee rollovers. The Janel Corporation 401(k) Plan provides for participant contributions of up to 50% of annual compensation (not to exceed the IRS limit), as defined by the plan. The Company contributes an amount equal to 50% of the participant’s first 6% of contributions.
 
The combined expenses charged to operations for contributions made to the plans for the benefit of the employees for the fiscal years ended September 30, 2020 and 2019 were approximately $196,000 and $214,000, respectively.
 
The administrative expense charged to operations for the fiscal years ended September 30, 2020 and 2019 aggregated approximately $57,000 and $26,000, respectively.
 
Stock Option Plans
 
On October 30, 2013, the board of directors adopted Janel’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.
 
The exercise price and other terms of any nonqualified option granted under the 2013 Option Plan is determined by the Compensation Committee of the board of directors.
 
On May 12, 2017, the board of directors adopted the Company’s 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 adopted 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.
 
Outstanding Equity Awards at September 30, 2020
 
The following table provides information with respect to the option awards held by our named executive officers at September 30, 2020. None of our named executive officers had any outstanding stock awards at September 30, 2020.
 
   
Option Awards
Name
 
Number of securities
underlying
unexercised options (#)
exercisable
   
Number of securities
underlying
unexercised options (#)
un exercisable
   
Equity incentive plan
awards: Number of
securities underlying
un exercised
unearned
options (#)
   
Option
Exercise
Price
 
Option
Expiration
Date
Brendan J. Killackey
   
5,000
     
—
     
—
   
$
4.50
 
12/29/2024
     
8,000
     
—
     
—
   
$
8.01
 
5/12/2027

ITEM 12
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
 
The following tables set forth information concerning beneficial ownership of shares of common stock outstanding as of September 30, 2020. For purposes of calculating beneficial ownership, Rule 13d-3 of the Exchange Act requires inclusion of shares of common stock that may be acquired within sixty days of the stated date. Unless otherwise indicated in the footnotes to a table, beneficial ownership of shares represents sole voting and investment power with respect to those shares.
 
Certain Beneficial Owners
 
The following table reflects the names and addresses of the only persons known to the Company to be the beneficial owners of 5% or more of the outstanding shares of the Company’s common stock as of September 30, 2020.
 
Name and address of Beneficial Owner (1)
 
Shares
Beneficially
Owned
   
Percent
of Class
 
Oaxaca Group L.L.C.
   
447,647
     
49.8
%
John J. Gonzalez, II (2)
   
102,501
     
10.9
%
John Eidinger
   
89,499
     
9.6
%
Brendan J. Killackey
   
56,000
     
6.1
%

(1)
The address of each person included in this table is 80 Eighth Avenue, New York, NY 10011
(2)
Includes 40,000 shares of common stock issuable upon the exercise of stock options that may be exercised within 60 days of September 30, 2020.
 
Management
 
The following table sets forth information with respect to the beneficial ownership of the shares of common stock as of September 30, 2020 by each “named executive officer”, each current director and each nominee for election as a director and all directors and executive officers of the Company as a group. An asterisk (*) indicates ownership of less than 1%.
 
Name of Beneficial Owner
 
Shares
Beneficially
Owned
   
Percent
of Class
 
Dominique Schulte(1)
   
447,647
     
49.8
%
John J. Gonzalez, II(2)
   
102,501
     
10.9
%
Brendan J. Killackey(4)
   
56,000
     
6.1
%
Gerard van Kesteren(3)
   
39,302
     
4.4
%
Gregory J. Melsen(5)
   
4,376
     
*
 
Vincent A. Verde
   
—
     
—
 
Total
   
649,826
     
71.6
%

(1)
These shares are held by Oaxaca Group L.L.C. Ms. Schulte is the sole member of Oaxaca Group L.L.C. and, therefore, shares beneficial ownership of the shares.
(2)
Includes 42,501 shares of common stock issuable upon the exercise of stock options that may be exercised within 60 days of September 30, 2020.
(3)
Includes 2,501 shares of common stock issuable upon the exercise of stock options that may be exercised within 60 days of September 30, 2020.
(4)
Includes 13,000 shares of common stock issuable upon the exercise of stock options that may be exercised within 60 days of September 30, 2020.
(5)
Includes 4,376 shares of common stock issuable upon the exercise of stock options that may be exercised within 60 days of September 30, 2020.
 
Equity Compensation Plan Information
 
The following table provides information, as of September 30, 2020, with respect to all compensation arrangements maintained by the Company under which shares of common stock may be issued:
 
   
Column A
   
Column B
   
Column C
 
Plan Category: Equity Compensation plans not approved by security holders:
 
Number of securities
to be issued,
upon exercise
of outstanding
options,
warrants and rights
   
Weighted-average
exercise price
of outstanding
options, warrants
and rights
   
Number of securities
remaining available
for future issuance
under equity
compensation plans
 
2013 Stock Option Plan (1)
   
37,121
   
$
6.13
     
33,379
 
Amended and Restated 2017 Equity Incentive Plan (2)
   
61,875
   
$
2.33
     
11,323
 
John Joseph Gonzalez, II - Options
   
40,000
   
$
4.25
     
—
 
Brendan J. Killackey - Options
   
5,715
   
$
-
     
—
 
Consultant - Options
   
6,053
   
$
4.13
     
—
 
Total
   
150,764
   
$
3.76
     
44,702
 
 

(1)
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. The exercise price and other terms of any nonqualified option granted under the 2013 Option Plan is determined by the Compensation Committee (the “Committee”) of the board of directors or, if the board does not create the Committee, by the board which shall function as the Committee.

(2)
On May 12, 2017, the board of directors adopted the Company’s 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 adopted 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.
 
ITEM 13
CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
(actual dollar amounts)
 
Related Party Transactions
 
We are not aware of any transactions since October 1, 2018 or any proposed transactions in which the Company was a party where the amount involved exceeded the lesser of 1% of the average of the Company’s total assets at year-end for the last two completed fiscal years and $120,000, and in which a director, executive officer, holder of more than 5% of our common stock or any member of the immediate family of any of the foregoing persons, had or will have a direct or indirect material interest.
 
ITEM 14
PRINCIPAL ACCOUNTING FEES AND SERVICES
 
The firm of Prager Metis CPAs, LLC served as the Company’s sole independent public accountants for the fiscal years ended September 30, 2020 and 2019.
 
Audit Fees
 
Audit fees include fees paid and accrued by the Company to the Auditors in connection with the annual audit of the Company’s consolidated financial statements, and review of the Company’s interim financial statements. Audit fees also include fees for services performed by the Auditors that are closely related to the audit and in many cases could only be provided by the Auditors. Such services include consents related to SEC and other regulatory filings.
 
The aggregate fees billed to the Company by the Auditors, as applicable, for audit services rendered to the Company totaled $289,500 for the year ended September 30, 2020 and $277,000 for the year ended September 30, 2019.
 
Audit Related Fees
 
Audit related services include agreed upon procedures attestation. The aggregate fees billed and accrued to the Company by Prager Metis CPAs, LLC for audit related fees rendered to the Company for the fiscal year ended September 30, 2020 and 2019 totaled $12,000 and $10,000, respectively.
 
Tax Fees
 
Tax fees include corporate tax compliance, counsel and advisory services. The aggregate fees billed to the Company by the Auditors, as applicable, for the tax related services rendered to the Company for the fiscal years ended September 30, 2020 and 2019 totaled $20,875 and $23,250, respectively.
 
All Other Fees
 
The Auditors did not bill other fees to the Company for fiscal years ended September 30, 2020 and 2019.
 
Approval of Independent Auditor Services and Fees
 
The Audit Committee reviews all fees charged by the Company’s independent auditors and actively monitors the relationship between audit and non-audit services provided. The Audit Committee must pre-approve all audit and non-audit services provided by the Company’s independent auditors and fees charged.
 
PART IV
 
ITEM 15
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
 

(a)
Documents filed as part of this report
 

(1)
Financial Statements.
 
The Consolidated Financial Statements filed as part of this report are listed on the Table of Contents to Consolidated Financial Statements.
 
All other schedules are omitted because they are not applicable, are not required, or because the required information is included in the consolidated financial statements or notes thereto.
 

(b)
Exhibits
 
Exhibit
No.
 
Description
2.1
 
Agreement and Plan of Merger, dated May 8, 2018, by and among Antibodies Incorporated, AB HoldCo, Inc., AB Merger Sub, Inc., Richard Krogsrud, as Representative of the Stockholders, and the Rollover Stockholders signatory thereto (incorporated by reference to Exhibit 2.1 of the Company’s Current Report on Form 8-K filed May 11, 2018)
3.1
 
Articles of Incorporation of Wine Systems Design, Inc. (predecessor name) (incorporated by reference to Exhibit 3A to Wine Systems Design, Inc. (predecessor name) Registration Statement on Form SB-2 filed May 10, 2001)
3.2   Amended and Restated By-Laws of Janel Corporation (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed November 1, 2013)

Exhibit
No.
  Description
3.3
 
Certificate of Designations of Series B Convertible Stock (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed October 22, 2007)
3.4
 
Certificate of Designations of Series C Cumulative Preferred Stock (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed August 29, 2014)
3.5
 
Certificate of Change filed Pursuant to NRS 78.209 for Registrant (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed April 21, 2015)
3.6
 
Certificate of Amendment to Articles of Incorporation of the Registrant (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed April 21, 2015)
3.7
 
Amendment to Certificate of Designation After Issuance of Class or Series pursuant to NRS 78.1955 for Series C Cumulative Preferred Stock (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed March 25, 2016)
3.8
 
Amendment to Certificate of Designation After Issuance of Class or Series pursuant to NRS 78.1955 for Series C Cumulative Preferred Stock (incorporated by reference to Exhibit 3.7 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2017)
3.9
 
Amendment to Certificate of Designation After Issuance of Class or Series pursuant to NRS 78.1955 for Series C Cumulative Preferred Stock (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K/A filed October 17, 2017)
4.1
 
Description of Registrants Securities (filed herewith)
 
Janel World Trade, Ltd. 2013 Non-Qualified Stock Option Plan (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed November 1, 2013)
 
Loan and Security Agreement dated March 27, 2014 between Janel World Trade, Ltd. and its subsidiaries, and Presidential Financial Corporation (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed April 2, 2014)
 
First Amendment to the Loan and Security Agreement, dated September 10, 2014 between Janel World Trade, Ltd. and its subsidiaries, and Presidential Financial Corporation (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed September 16, 2014)
 
Second Amendment to the Loan and Security Agreement, dated September 25, 2014 between Janel World Trade, Ltd. and its subsidiaries, and Presidential Financial Corporation (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed September 30, 2014)
 
Third Amendment to the Loan and Security Agreement, dated October 9, 2014 between Janel World Trade, Ltd. and its subsidiaries, and Presidential Financial Corporation (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed October 15, 2014)
 
Fourth Amendment to the Loan and Security Agreement and Demand Secured Promissory Note, dated August 18, 2015, by and among Janel Corporation (formerly, Janel World Trade, Ltd.), Janel Group, Inc. (formerly, the Janel Group of New York), The Janel Group of Illinois, The Janel Group of Georgia, The Janel Group of Los Angeles, Janel Ferrara Logistics, LLC, Alpha International, LP, PCL Transport, LLC and Presidential Financial Corporation (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed August 20, 2015)

Exhibit
No.
 
Description
 
Amended and Restated Demand Secured Promissory Note made by Janel Corporation (and its subsidiaries) in favor of Presidential Financial Corporation, dated August 18, 2015 (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed August 20, 2015)
 
Credit Agreement, effective as of February 29, 2016, by and between Indco, Inc. and First Merchants Bank (incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed March 25, 2016)
 
Term Loan Promissory Note, effective as of February 29, 2016, made by Indco, Inc. payable to First Merchants Bank (incorporated by reference to Exhibit 10.6 to the Company’s Current Report on Form 8-K filed March 25, 2016)
 
Revolving Loan Promissory Note, effective as of February 29, 2016, made by Indco, Inc. payable to First Merchants Bank (incorporated by reference to Exhibit 10.7 to the Company’s Current Report on Form 8-K filed March 25, 2016)
 
Security Agreement, effective as of February 29, 2016, made by Indco and the Company, Inc. for the benefit of First Merchants Bank (incorporated by reference to Exhibit 10.8 to the Company’s Current Report on Form 8-K filed March 25, 2016)
 
Continuing Guaranty Agreement, effective as of February 29, 2016, made by Janel Corporation for the benefit of First Merchants Bank (incorporated by reference to Exhibit 10.9 to the Company’s Current Report on Form 8-K filed March 25, 2016)
 
Agreement of Lease dated January 2, 2015 between 303 Merrick LLC and The Janel Group of New York, Inc. (incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2014)
 
Janel Corporation 2017 Amended and Restated Equity Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company’s current Report on Form 8-K filed May 11, 2018)
 
Restricted Stock Award Agreement between Janel Corporation and Gerard van Kesteren dated May 12, 2017 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed September 5, 2017)
 
Loan and Security Agreement, effective as of October 17, 2017, by and between Janel Corporation, Janel Group, Inc., PCL Transport, LLC, Janel Alpha GP, LLC, W.J. Byrnes & Co., Liberty International, Inc., and The Janel Group of Georgia, Inc., and Santander Bank, N.A. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed October 17, 2017)
 
Revolving Credit Note, effective as of October 17, 2017 payable to Santander Bank, N.A. (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed October 17, 2017)
 
First Amendment to the Loan and Security Agreement, dated March 21, 2018, by and among Janel Group, Inc., PCL Transport, LLC, Janel Alpha GP, LLC, W.J. Byrnes & Co., Inc., Liberty International, Inc., The Janel Group Georgia, Inc., Aves Labs, Inc., Janel Corporation and Santander Bank, N.A. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report in Form 8-K filed March 23, 2018)
10.19   Limited Waiver, Joiner and Second Amendment, dated November 20, 2018, to the Loan and Security Agreement, by and among Janel Group, Inc., The Janel Group of Georgia, Inc., Aves Labs, Inc., Honor Worldwide Logistics LLC, HWL Brokerage LLC, Global Trading Resources, Inc., Janel Corporation and Santander Bank, N.A. (incorporated by reference to Exhibit 10.1 to Company’s Current Report on Form 8-K filed November 26, 2018)

Exhibit
No.
 
Description
 
Redemption Agreement, dated September 24, 2018, among the Company and the holders of all of the issued and outstanding shares of the Company’s Series A Convertible Preferred Stock (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed September 28, 2018)
 
Business Loan Agreement, dated June 14, 2018, by and between AB Merger Sub, Inc. and First Northern Bank of Dixon (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed June 27, 2018)
 
Promissory Note, dated June 14, 2018, made by AB Merger Sub, Inc. payable to First Northern Bank of Dixon (incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K filed June 27, 2018)
 
Deed of Trust, dated June 14, 2018, by Antibodies Incorporated, as Trustor (incorporated by reference to Exhibit 10.3 of the Company’s Current Report on Form 8-K filed June 27, 2018)
 
Commercial Guaranty, dated June 14, 2018, from Janel Corporation (as Guarantor) to First Northern Bank of Dixon (incorporated by reference to Exhibit 10.4 of the Company’s Current Report on Form 8-K filed June 27, 2018)
 
Commercial Guaranty, dated June 14, 2018, from AB HoldCo, Inc. (as Guarantor) to First Northern Bank of Dixon (incorporated by reference to Exhibit 10.5 of the Company’s Current Report on Form 8-K filed June 27, 2018)
 
Note Purchase Agreement, dated June 22, 2018, by and between AB HoldCo, Inc. and Richard Krogsrud (incorporated by reference to Exhibit 10.6 of the Company’s Current Report on Form 8-K filed June 27, 2018)
 
Note Purchase Agreement, dated June 22, 2018, by and between AB HoldCo, Inc. and the Michael L. Smith and Ardyce F. Smith 1994 Revocable Trust (incorporated by reference to Exhibit 10.7 of the Company’s Current Report on Form 8-K filed June 27, 2018)
 
Subordinated Promissory Note, dated June 22, 2018, made by AB HoldCo, Inc. payable to Richard Krogsrud (incorporated by reference to Exhibit 10.8 of the Company’s Current Report on Form 8-K filed June 27, 2018)
 
Subordinated Promissory Note, dated June 22, 2018, made by AB HoldCo, Inc. payable to the Michael L. Smith and Ardyce F. Smith 1994 Revocable Trust (incorporated by reference to Exhibit 10.9 of the Company’s Current Report on Form 8-K filed June 27, 2018)
 
Amendment No. 1 to Credit Agreement, effective as of August 30, 2019, by and between Indco, Inc. and First Merchants Bank (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed on September 6, 2019)
 
Term Loan Promissory Note, effective as of August 30, 2019, made by Indco, Inc. payable to First Merchants Bank (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on September 6, 2019).

Exhibit
No.
 
Description
 
Revolving Loan Promissory Note, effective as of August 30, 2019 made by Indco, Inc. payable to First Merchant Bank (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on September 6, 2019).
 
Pledge Agreement, effective as of August 30, 2019, by Janel Corporation to First Merchant Bank (incorporated by reference to Exhibit 10.4 of the Company’s Current Report on Form 8-K filed on September 6, 2019)
 
Consulting Agreement, dated February 26, 2017, between Janel Corporation and John J. Gonzalez, II (incorporated by reference to Exhibit 10.30 of the Company’s Form 10-K for the year ended September 30, 2018 filed on July 26, 2019).
 
Consulting Agreement, dated September 28, 2016, between Janel Corporation and Gerard van Kesteren ((incorporated by reference to Exhibit 10.31 of the Company’s Form 10-K for the year ended September 30, 2018 filed on July 26, 2019).
 
Purchase and Sale Agreement dated February 4, 2020 by and between 4040 Earnings Way, LLC, and Indco, Inc. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed March 4, 2020, as amended by the Company’s Current Report on Form 8-K/A filed March 6, 2020)
 
Third Amendment to Loan and Security Agreement dated March 4, 2020 by and between Santander Bank, N.A., Janel Group, Inc., Honor Worldwide Logistics LLC and Janel Corporation (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed March 4, 2020, as amended by the Company’s Current Report on Form 8-K/A filed March 6, 2020)
 
Loan Agreement dated April 19, 2020, by and between Janel Corporation and Santander Bank, N.A., together with the U.S. Small Business Administration Note dated April 19, 2020 (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2020).
 
Amendment No. 2 to Credit Agreement effective as of July 1, 2020, by and between Indco Inc. and First Merchants Bank (filed herewith)
 
Consent, Joinder and Fourth Amendment to the Loan and Security Agreement dated as of July 22, 2020 by and among Janel Group, Inc., Atlantic Customs Brokers, Inc., Janel Corporation and Santander Bank, N.A. (filed herewith)
 
Subscription Agreement for sale of Series C Preferred Stock dated as of September 29, 2020 between Janel Corporation and Oaxaca Group LLC (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed October 2, 2020)
 
Letter from Crowe LLP to the Securities and Exchange Commission, dated February 22, 2019 (incorporated by reference to Exhibit 16.1 to the Company’s Current Report on Form 8-K filed on February 22, 2019).
21
 
Subsidiaries of the Registrant (filed herewith)
 
Consent of Prager Metis CPAs, LLC (filed herewith)

Exhibit
No.
  Description
 
Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer (filed herewith)
 
Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer (filed herewith)
 
Section 1350 Certification of Principal Executive Officer (furnished herewith)
 
Section 1350 Certification of Principal Executive Officer (furnished herewith)
101
 
Interactive data files providing financial information from the Registrant’s Annual Report on Form 10-K for the fiscal year ended September 30, 2020 in XBRL (eXtensible Business Reporting Language) pursuant to Rule 405 of Regulation S-T: (i) Consolidated Balance Sheets as of September 30, 2020 and September 30, 2019, (ii) Consolidated Statements of Operations for the years ended September 30, 2020 and 2019, (iii) Consolidated Statements of Stockholders’ Equity for the years ended September 30, 2020 and 2019 (iv) Consolidated Statements of Cash Flows for the years ended September 30, 2020 and 2019, and (v) Notes to Consolidated Financial Statements

†
Represents management contract, compensatory plan or arrangement in which directors and/or executive officers are entitled to participate.
 
The agreements and other documents filed as exhibits to this report are not intended to provide factual information or other disclosure other than with respect to the terms of the agreements or other documents themselves, and you should not rely on them for that purpose. In particular, any representations and warranties made by us in these agreements or other documents were made solely within the specific context of the relevant agreement or document and may not describe the actual state of affairs as of the date they were made or at any other time.
 
ITEM 16
FORM 10-K SUMMARY
 
None.
 
SIGNATURES
 
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Janel Corporation has duly caused this report to be signed on its behalf by the undersigned, thereto duly authorized.
 
 
JANEL CORPORATION
(Registrant)
     
Date: January 13, 2021
By:
/s/ Dominique Schulte
 
Dominique Schulte
     
 
Director, Chairman, President and Chief Executive Officer (Principal Executive Officer)
     
Date: January 13, 2021
By:
/s/ Vincent A. Verde
 
Vincent A. Verde
     
 
Principal Financial Officer, Treasurer and Secretary

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
 
Signature
 
Title
 
Date
         
/s/John J. Gonzalez, II
 
Director
 
January 13, 2021
John J. Gonzalez, II
       
         
/s/Brendan J. Killackey
 
Director
 
January 13, 2021
Brendan J. Killackey
       
         
/s/Gregory J. Melsen
 
Director
 
January 13, 2021
Gregory J. Melsen
       
         
/s/Gerard van Kesteren
 
Director
 
January 13, 2021
Gerard van Kesteren
       

F-2
   
F-3
   
F-4
   
F-5
   
F-6
   
F-7

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
To the Stockholders and the Board of
Directors of Janel Corporation and Subsidiaries
 
Opinion on the Financial Statements
 
We have audited the accompanying consolidated balance sheets of Janel Corporation and Subsidiaries (the “Company”) as of September 30, 2020 and 2019, and the related consolidated statements of operations, changes in stockholders’ equity and cash flows for the years ended September 30, 2020 and 2019, and the related notes to the consolidated financial statements (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of September 30, 2020 and 2019, and the results of its operations, stockholders’ equity and its cash flows for the years ended September 30, 2020 and 2019, in conformity with accounting principles generally accepted in the United States of America.
 
Basis for Opinion
 
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulation of the Securities and Exchange Commission and the PCAOB.
 
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
 
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion.
 
/s/ Prager Metis CPAs, LLC
 
We have served as the Company’s auditor since 2019
Basking Ridge, New Jersey
January 13, 2021
 
JANEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
 
   
September 30,
 
   
2020
   
2019
 
ASSETS
           
Current Assets:
           
Cash
 
$
3,349
   
$
2,163
 
Accounts receivable, net of allowance for doubtful accounts
   
20,245
     
21,351
 
Inventory, net
   
3,666
     
4,371
 
Prepaid expenses and other current assets
   
433
     
670
 
Total current assets
   
27,693
     
28,555
 
Property and Equipment, net
   
4,977
     
3,954
 
Other Assets:
               
Intangible assets, net
   
13,333
     
13,598
 
Goodwill
   
14,146
     
13,525
 
Operating lease right of use asset
   
2,621
     
—
 
Security deposits and other long-term assets
   
265
     
87
 
Total other assets
   
30,365
     
27,210
 
Total assets
 
$
63,035
   
$
59,719
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
Current Liabilities:
               
Line of credit
 
$
8,447
   
$
8,391
 
Accounts payable - trade
   
20,769
     
22,061
 
Accrued expenses and other current liabilities
   
3,007
     
2,272
 
Dividends payable
   
1,661
     
1,041
 
Current portion of Paycheck Protection Program (PPP) loan
   
1,913
     
—
 
Current portion of deferred acquisition payments
   
178
     
—
 
Current portion of subordinated promissory note – related party
   
504
     
152
 
Current portion of long-term debt
   
866
     
828
 
Current portion of operating lease liabilities
   
720
     
—
 
Total current liabilities
   
38,065
     
34,745
 
Other Liabilities:
               
Long-term debt
   
6,432
     
6,602
 
Long-term portion of Paycheck Protection Program (PPP) loan
   
960
     
—
 
Subordinated promissory notes – related party
   
39
     
541
 
Long-term portion of deferred acquisition payments
   
372
     
—
 
Mandatorily redeemable non-controlling interest
   
604
     
619
 
Deferred income taxes
   
1,569
     
2,000
 
Long-term operating lease liabilities
   
1,924
     
—
 
Other liabilities
   
388
     
334
 
Total other liabilities
   
12,288
     
10,096
 
Total liabilities
   
50,353
     
44,841
 
Stockholders’ Equity:
               
Preferred Stock, $0.001 par value; 100,000 shares authorized
               
Series B 5,700 shares authorized, and 31 and 631 shares issued and outstanding as of September 30, 2020 and 2019, respectively
           
—
 
Series C 20,000 shares authorized, and 20,000 shares issued and 19,760 outstanding at September 30, 2020 and 20,000 issued and outstanding at September 30, 2019, liquidation value of $11,541 and $11,041 at September 30, 2020 and September 30, 2019, respectively
           
—
 
Common stock, $0.001 par value; 4,500,000 shares authorized, 918,652 issued and 898,652 outstanding as of September 30, 2020 and 863,812 issued and 843,812 outstanding as of September 30, 2019
   
1
     
1
 
Paid-in capital
   
14,604
     
15,075
 
Common treasury stock, at cost, 20,000 shares
   
(240
)
   
(240
)
Accumulated (deficit) earnings
   
(1,683
)
   
42
 
Total stockholders’ equity
   
12,682
     
14,878
 
Total liabilities and stockholders’ equity
 
$
63,035
   
$
59,719
 

The accompanying notes are an integral part of these consolidated financial statements.
 
JANEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)

   
Year Ended September 30,
 
   
2020
   
2019
 
Revenue
 
$
82,429
   
$
84,354
 
Forwarding expenses and cost of revenues
   
58,908
     
59,248
 
Gross profit
   
23,521
     
25,106
 
Cost and Expenses:
               
Selling, general and administrative
   
24,290
     
22,612
 
Amortization of intangible assets
   
955
     
915
 
Total Costs and Expenses
   
25,245
     
23,527
 
(Loss) income from operations
   
(1,724
)
   
1,579
 
Other Items:
               
Interest expense net of interest income
   
(521
)
   
(694
)
Change in fair value of mandatorily redeemable non-controlling interest
   
15
     
61
 
(Loss) Income Before Income Taxes
   
(2,230
)
   
946
 
Income tax benefit (expense)
   
505
     
(330
)
Net (Loss) Income
   
(1,725
)
   
616
 
Preferred stock dividends
   
(675
)
   
(571
)
Non-controlling interest dividends
   
—
     
(342
)
Net (Loss) Available to Common Stockholders
 
$
(2,400
)
 
$
(297
)
Net (Loss) Income per share
               
Basic
 
$
(1.98
)
 
$
0.72
 
Diluted
 
$
(1.98
)
 
$
0.72
 
Net (loss) per share attributable to common stockholders:
               
Basic
 
$
(2.75
)
 
$
(0.35
)
Diluted
 
$
(2.75
)
 
$
(0.35
)
Weighted average number of shares outstanding:
               
Basic
   
872,122
     
851,234
 
Diluted
   
872,122
     
851,234
 

The accompanying notes are an integral part of these consolidated financial statements.
 
 JANEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(in thousands, except share and per share data)

   
PREFERRED
STOCK
   
COMMON
STOCK
   
PAID-IN CAPITAL
   
COMMON
TREASURY
STOCK
   
ACCUMULATED
EARNING
(DEFICIT)
   
TOTAL
EQUITY
 
   
Shares
    $    
Shares
    $     $    
Shares
    $     $     $  
Balance - September 30, 2018
   
21,271
   
$
—
     
837,951
   
$
1
   
$
15,872
     
20,000
   
$
(240
)
 
$
(606
)
 
$
15,027
 
Net Income
   
—
     
—
     
—
     
—
     
—
     
—
     
—
     
616
     
616
 
Cumulative effect of change in accounting principle
   
—
     
—
     
—
     
—
     
—
     
—
     
—
     
32
     
32
 
Dividends to preferred stockholders
   
—
     
—
     
—
     
—
     
(571
)
   
—
     
—
     
—
     
(571
)
Dividend to non-controlling interest
   
—
     
—
     
—
     
—
     
(342
)
   
—
     
—
     
—
     
(342
)
Preferred B shares converted
   
(640
)
   
—
     
6,400
     
—
     
—
     
—
     
—
     
—
     
—
 
Restricted stock issued
   
—
     
—
     
10,000
     
—
     
—
     
—
     
—
     
—
     
—
 
Vested restricted stock unissued.
   
—
     
—
     
—
     
—
     
(159
)
   
—
     
—
     
—
     
(159
)
Stock based compensation
   
—
     
—
     
—
     
—
     
203
     
—
     
—
     
—
     
203
 
Stock option exercise
   
—
     
—
     
9,461
     
—
     
72
     
—
     
—
     
—
     
72
 
Balance - September 30, 2019
   
20,631
   
$
—
     
863,812
   
$
1
   
$
15,075
     
20,000
   
$
(240
)
 
$
42
   
$
14,878
 
Net (Loss)
   
—
     
—
     
—
     
—
     
—
     
—
     
—
     
(1,725
)
   
(1,725
)
Dividends to preferred stockholders
   
—
     
—
     
—
     
—
     
(675
)
   
—
     
—
     
—
     
(675
)
Preferred C shares purchased
   
(890
)
   
—
     
—
     
—
     
(445
)
   
—
     
—
     
—
     
(445
)
Preferred C shares sold
   
650
     
—
     
—
     
—
     
325
     
—
     
—
     
—
     
325
 
Preferred B shares converted
   
(600
)
   
—
     
6,000
     
—
     
—
     
—
     
—
     
—
     
—
 
Restricted stock issued
   
—
     
—
     
15,000
     
—
     
—
     
—
     
—
     
—
     
—
 
Vested restricted stock unissued.
   
—
     
—
     
—
     
—
     
(147
)
   
—
     
—
     
—
     
(147
)
Stock based compensation
   
—
     
—
     
—
     
—
     
199
     
—
     
—
     
—
     
199
 
Stock option exercise
   
—
     
—
     
33,840
     
—
     
272
     
—
     
—
     
—
     
272
 
Balance - September 30, 2020
   
19,791
   
$
—
     
918,652
   
$
1
   
$
14,604
     
20,000
   
$
(240
)
 
$
(1,683
)
 
$
12,682
 

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

JANEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
 
   
Year Ended September 30,
 
   
2020
   
2019
 
Cash Flows From Operating Activities:
           
Net (loss) income
 
$
(1,725
)
 
$
616
 
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
               
Provision for uncollectible accounts, net of recoveries
   
133
     
385
 
Depreciation and amortization
   
274
     
282
 
Deferred income tax
   
(610
)
   
267
 
Amortization of intangible assets
   
955
     
915
 
Cost recognized on the sale of acquired inventory
   
876
     
250
 
Amortization of loan costs
   
9
     
10
 
Stock based compensation
   
269
     
296
 
Change in fair value of mandatorily redeemable noncontrolling interest
   
(15
)
   
(61
)
Changes in operating assets and liabilities, net of effects of acquisitions:
               
Accounts receivable
   
2,494
     
(365
)
Inventory
   
(171
)
   
(67
)
Prepaid expenses and other current assets
   
99
     
(152
)
Security deposits and other long-term assets
   
(31
)
   
50
 
Accounts payable and accrued expenses
   
(3,188
)
   
4,697
 
Operating lease liability
   
6
         
Other liabilities
   
71
     
80
 
Net cash (used in) provided by operating activities
   
(554
)
   
7,203
 
Cash Flows From Investing Activities:
               
Acquisition of property and equipment, net of $138 (2020) and $49 (2019) in disposals
   
(1,297
)
   
(421
)
Acquisitions
   
(247
)
   
(6,179
)
Net cash used in investing activities
   
(1,544
)
   
(6,600
)
Cash Flows From Financing Activities:
               
Dividends paid to preferred stockholders
   
(55
)
   
—
 
Dividends paid to minority shareholders
   
—
     
(342
)
Borrowings under term loan
   
6
     
2,701
 
Proceeds from Paycheck Protection Program (PPP) loan
   
2,726
     
—
 
Proceeds from stock option exercise
   
272
     
72
 
Line of credit, borrowing (repayment), net
   
55
     
(1,348
)
Repurchase of Series C Preferred Stock
   
(445
)
   
—
 
Proceeds from sale of Series C Preferred Stock
   
325
     
—
 
Repayment of notes payable - related party
   
(150
)
   
(108
)
Deferred acquisition payments
   
550
     
—
 
Net cash provided by financing activities
   
3,284
     
975
 
Net increase in cash
   
1,186
     
1,578
 
Cash at beginning of the period
   
2,163
     
585
 
Cash at end of period
 
$
3,349
   
$
2,163
 
Supplemental Disclosure of Cash Flow Information:
               
Cash paid during the period for:
               
Interest
 
$
511
   
$
649
 
Income taxes
 
$
115
   
$
146
 
Non-cash investing activities:
               
Contingent earn-out acquisition
 
$
—
   
$
50
 
Deferred payment on acquisition
 
$
550
   
$
—
 
Non-cash financing activities:
               
Dividends declared to preferred stockholders
 
$
675
   
$
571
 
Vested restricted stock unissued
 
$
147
   
$
159
 
Paycheck Protection Program (PPP) loan assumed on acquisition
 
$
135
   
$
—
 
Subordinated Promissory notes of Honor
  $  —
    $  456
 

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
SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
 
Business description
 
Janel is a holding company with subsidiaries in three business segments: Global Logistics Services, Manufacturing and Life Sciences. A management group at the holding company level (the “corporate group”) focuses on significant capital allocation decisions and 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 July 23, 2020, we completed a business combination whereby we acquired substantially all of the outstanding common stock of a global logistics services provider with two U.S. location. See note 2.
 
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 a global logistics services provider with one U.S. location. See note 2.
 
Manufacturing
 
The Company’s manufacturing segment is comprised of Indco, Inc. (“Indco”), a majority-owned subsidiary of the Company that manufactures and distributes mixing equipment and apparatus for specific applications within various industries. Indco’s customer base is comprised of small- to mid-sized businesses as well as other larger customers for which Indco fulfills repetitive production orders.
 
Life Sciences
 
The Company’s Life Sciences segment is comprised of several wholly-owned subsidiaries. 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 September 6, 2019, the Company, through its wholly owned subsidiary Aves, acquired all of the equity interests of PhosphoSolutions, LLC and all of the stock of PhosphoSolutions, Inc, (collectively “Phospho”).
 
On July 1, 2019, we acquired the membership interests of a life sciences company. See note 2.
 
Basis of consolidation
 
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 accounts receivables valuation, the useful lives of long-term assets, accrual of cost related to ancillary services the Company provides, accrual of tax expense on an interim basis and potential impairment of goodwill and intangible assets with indefinite lives, long-lived assets impairment.
 
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 September 30, 2020 and September 30, 2019 was $496 and $503, respectively.
 
Inventory
 
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 Life Science business. The products of the Life Science business 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.
 
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, 2020 and 2019.
 
If there is a material change in economic conditions, or other circumstances influencing the estimate of future cash flows or significantly affecting the fair value of our reporting units, the Company could be required to recognize impairment charges in the future.
 
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.
 
During the fourth quarter ended September 30, 2020, we consider the COVID-19 pandemic as a triggering event in the assessment of recoverability of the indefinite-lived intangibles, and long-lived assets. We performed an impairment test as of September 30, 2020 and concluded that the fair value of intangibles and long-lived assets were not deemed to be impaired as of September 30, 2020.
 
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.
 
Revenue 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 fiscal year ended September 30, 2019 was a decrease of $443 and $403, 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.

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 acting as principal and 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 the Company is acting as agent and 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 freight, air freight, custom brokerage and trucking and other. A summary of the Company’s revenues disaggregated by major service lines for the fiscal year ended September 30, 2020 and 2019 was as follows:
 
Service Type
 
Year Ended
September 30,
2020
   
Year Ended
September 30,
2019
 
Ocean freight
 
$
26,740
   
$
30,878
 
Trucking and other
   
14,848
     
16,545
 
Customs brokerage
   
10,274
     
8,504
 
Air freight
   
16,630
     
13,728
 
Total
 
$
68,492
   
$
69,655
 

Manufacturing
 
Revenues from Indco are derived from the engineering, manufacture and delivery of specialty mixing equipment and accessories. Indco receives customer product orders via phone call, email, internet, or fax. The pricing of each standard product sold is listed in Indco’s print and web-based catalog. Customer specific products are priced by quote. A sales order acknowledgement is sent to every customer for every order to confirm pricing and the specifications of the products ordered. The revenue is recognized at a point in time when the product is shipped to the customer.
 
Life Sciences
 
Revenues from the Life Sciences segment are derived from the sale of high-quality monoclonal and polyclonal antibodies, diagnostic reagents and diagnostic kits and other immunoreagents for biomedical research and antibody manufacturing. Revenues are recognized when products are shipped and risk of loss is transferred 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.
 
Stock-based compensation to non-employees
 
Liability classified share-based awards
 
The Company maintains other share unit compensation grants for shares of Indco, 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 11. 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
 
In prior periods up to September 30, 2019, the Company accounted 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.
 
In June 2018, the FASB issued ASU No. 2018-07, Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. The guidance was issued to simplify the accounting for share-based transactions by expanding the scope of Topic 718 from only being applicable to share-based payments to employees to also include share-based payment transactions for acquiring goods and services from nonemployees. As a result, nonemployee share-based transactions will be measured by estimating the fair value of the equity instruments at the grant date, taking into consideration the probability of satisfying performance conditions.
 
The Company adopted ASU 2018-07 on October 1, 2019. The adoption of the standard did not have a material impact on our financial statements for the year ended September 30, 2020.
 
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 is required to purchase 20% per year 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 was March 21, 2019. As of September 30, 2020, the holder did not exercise the redemption rights.
 
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.”
 
Note receivable
 
On March 2, 2018 the Company issued a convertible promissory note in the amount of $125 with a potential non related party acquisition target (the Borrower). The note bears interest on the outstanding principal amount at a rate of 10% per annum and both principal and interest was payable on the maturity date of April 2, 2020. The convertible note, at the election of the Company, can be converted into common stock of the acquisition target. On September 24, 2020, the outstanding principal and interest was paid in full. As of September 30, 2019, amounts outstanding including accrued interest was $139 and is included in prepaid expenses and other current assets.
 
Income taxes
 
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.
 
Recent accounting pronouncements
 
Recently adopted accounting pronouncements
 
On October 1, 2019, the Company adopted ASU No. 2016-02, Leases (“ASC 842” or “ASU 2016-02”), issued by the FASB in February 2016 which was subsequently supplemented by clarifying guidance intended to improve financial reporting of leasing transactions. The new lease accounting guidance requires lessees to recognize lease liabilities and right-of-use assets on the balance sheet for all leases with initial terms longer than 12 months and provides enhanced disclosures on key information of leasing arrangements. The guidance allows companies to apply the requirements retrospectively, either to all prior periods presented or through a cumulative adjustment in the year of adoption.
 
The Company adopted the new standards as of the beginning of the period of adoption, or effective October 1, 2019 using the modified retrospective transition method. The Company elected to use the package of practical expedients which allowed the Company to (i) not reassess whether an arrangement contains a lease, (ii) carry forward its lease classification as operating or capital leases and (iii) not reassess its previously-recorded initial direct costs. For all existing operating leases as of October 1, 2019, the Company recorded operating lease right of use assets of $1,043 and corresponding lease liabilities of $1,060, with an offset to other liabilities of $17 to eliminate deferred rent on the consolidated balance sheets.
 
Operating lease expense is recognized on a straight-line basis over the lease term. At each balance sheet date, operating lease liabilities represent the present value of the future minimum payments related to non-cancelable periods.
 
Leases with an initial term of 12 months or less (short-term leases) are not recognized in the balance sheet, and the related lease payments are recognized as incurred over the lease term.
 
All significant lease arrangements after October 1, 2019 are recognized as right-of-use assets and lease liabilities at lease commencement. Right-of-use assets represent the Company’s right to use an underlying asset for the lease term, and lease liabilities represent its obligation to make lease payments arising from the lease. Right-of-use assets and liabilities are recognized at the commencement date based on the present value of the future lease payments using the Company’s incremental borrowing rate.
 
The adoption of the new lease accounting standard did not have a material impact on the Company’s results of operations or cash flows.
 
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 are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with early adoption permitted. The Company’s current share-based payment awards to non-employees consist only of grants made to its non-employee directors as compensation solely relates to each individual’s role as a non-employee director. As such, in accordance with ASC 718, the Company accounts for these share-based payment awards to its non- employee directors in the same manner as share-based payment awards for its employees. The Company adopted this standard on October 1, 2019, and the amendments in this guidance had no material effect on either the accounting for its share-based payment awards to its non-employee directors, or the Company’s consolidated financial statements.
 
Recently issued accounting pronouncements not yet adopted
 
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement, which modifies the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement. This new accounting standard is 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 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 standard will be effective for us in the first quarter 2023. Early adoption of the new standard is permitted; however, we have not elected to early adopt the standard. The new standard is required to be applied using a cumulative-effect transition method. We are currently evaluating the effect that the new standard will have on our financial position, results of operations and related disclosures. The Company is evaluating the effects that the adoption of this guidance will have on its consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), which replaces the incurred loss methodology previously employed to measure credit losses for most financial assets and requires the use of a forward-looking expected loss model. Current accounting delays the recognition of credit losses until it is probable a loss has been incurred, while the update will require financial assets to be measured at amortized costs less a reserve and equal to the net amount expected to be collected. This standard will be effective for us in the first quarter 2023. Early adoption of the new standard is permitted; however, we have not elected to early adopt the standard. The new standard is required to be applied using a cumulative-effect transition method. We are currently evaluating the effect that the new standard will have on our financial position, results of operations and related disclosures. The Company is evaluating the effects that the adoption of this guidance will have on its consolidated financial statements.
 
In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes, as part of its Simplification Initiative to reduce the cost and complexity in accounting for income taxes. This standard removes certain exceptions related to the approach for intra period tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. It also amends other aspects of the guidance to help simplify and promote consistent application of GAAP. The guidance is effective for interim and annual periods beginning after December 15, 2020, with early adoption permitted. The Company is evaluating the effects that the adoption of this guidance will have its consolidated financial statements.
 
Reclassifications
 
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.
 
2
ACQUISITIONS
 
2020 Acquisition
 
Effective July 23, 2020, through its wholly-owned subsidiary, Janel Group, Inc. (“Janel Group”) the Company acquired all of the outstanding common stock of a global logistics services provider with two U.S. locations for $132, net of $853 cash received. At closing the former stockholder was paid $300 in cash and $194, $193 and $193 is due to the stockholder as deferred acquisition payments on the first, second and third anniversary of the closing date and the Company assumed $135 in the form of a Paycheck Protection Program (PPP) loan. The Company recorded an aggregate of $506 in goodwill and $690 in other identifiable intangibles. This acquisition was funded with cash provided by normal operations along with a deferred acquisition payment due to the former stockholder. The results of operations of the acquired businesses are included in the Janel’s consolidated results of operations since the date of the acquisition. Supplemental pro forma information has not been provided as the acquisitions did not have a significant impact on Janel’s consolidated results of operations individually or in aggregate.

2019 Acquisitions
 
The Company completed four business acquisitions in the fiscal year ended September 30, 2019, with an aggregate purchase price of $6,768, net of cash acquired. The Company recorded an aggregate of $2,067 in goodwill and $2,165 in other identifiable intangibles. The results of operations of the acquired businesses are included in the Janel’s consolidated results of operations since the date of each acquisition. Supplemental pro forma information has not been provided as the acquisitions did not have a significant impact on Janel’s consolidated results of operations individually or in aggregate.
 
Honor Worldwide Logistics, LLC
 
Through its wholly-owned subsidiary, Janel Group, Inc. (“Janel Group”), the Company acquired the membership interests of Honor for $2,212, net of $70 of cash received 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. At closing, the former owners of Honor were paid $1,826 in cash and a subordinated promissory note in the aggregate amount of $456 was issued to a former member. The acquisition of Honor was funded with cash provided by normal operations along with a subordinated promissory note. Honor provides global logistics services with two U.S. locations and expanded the domestic network of the Company’s Global Logistics Services segment. Acquisition expenses associated with the Honor acquisition amounted to $69 for the twelve months ended September 30, 2019 and are included in selling, general and administrative expenses. Honor’s results for the period from the acquisition through September 30, 2019 are included in the results of operations for the twelve months ended September 30, 2019. This includes revenues, forwarding expense, selling, general and administrative expense, interest expense and net income from operations of Honor, which amounted to $4,533, $3,467, $830, $19 and $216, respectively.
 
Purchase price allocation
 
In accordance with the acquisition method of accounting, the Company allocated the consideration paid for Honor to the net tangible and identifiable intangible assets based on their estimated fair values. The Company finalized the valuation of assets acquired and liabilities assumed, and, the fair value amounts noted are in the table below. Goodwill represents the excess of the purchase price over the fair value of the underlying net tangible and identifiable intangible assets (in thousands).
 
   
Fair Value
 
Accounts receivable
 
$
1,267
 
Prepaids and other current assets
   
14
 
Property & equipment, net
   
1
 
Intangibles - customer relationships
   
910
 
Intangibles - trademark
   
20
 
Intangibles - non-compete
   
30
 
Goodwill
   
529
 
Security deposits
   
2
 
Accounts payable
   
(557
)
Accrued expenses
   
(4
)
Purchase price, net of cash received
 
$
2,212
 
 
PhosphoSolutions
 
Through Aves, the Company completed a business combination whereby we acquired all of the membership interests of Phospho on September 6, 2019. The aggregate purchase price for Phospho was $4,043, net of $13 of cash received. At closing, $4,000 was paid in cash and $56 was recorded in accrued expenses as preliminary tax gross up due to former owners. Phospho is a manufacturer and distributor of monoclonal and polyclonal antibodies, principally used in neuroscience research. As of September 30, 2020, the Company paid $172 in tax gross up consideration to the former owners and recorded an additional $116 of goodwill related to the Phospho acquisition. Phospho was founded in 2001 and is headquartered in Aurora Colorado. The results of operations for Phospho are reported in our Life Sciences segment. Acquisition expenses associated with Phospho acquisition amounted to $34 for the twelve months ended September 30, 2019 and are included in selling, general and administrative expenses. Phospho results for the period from acquisition through September 30, 2019 are included in the results of operations for the twelve months ended September 30, 2019. This includes revenues, cost of goods sold, selling, general and administrative expense and net income from operations of Antibodies, which amounted to $96, $19, $65 and $14, respectively.
 
Purchase price allocation
 
In accordance with the acquisition method of accounting, the Company allocated the consideration paid for Phospho to the net tangible and identifiable intangible assets based on their estimated fair values. The Company finalized the valuation of assets acquired and liabilities assumed, and, the fair value amounts noted are in the table below. Goodwill represents the excess of the purchase price over the fair value of the underlying net tangible and identifiable intangible assets (in thousands).

   
Fair Value
 
Accounts receivable
 
$
123
 
Inventory
   
1,965
 
Prepaids and other current assets
   
49
 
Property & equipment, net
   
13
 
Intangibles - customer relationships
   
730
 
Intangibles - trademark
   
110
 
Intangibles - other
   
270
 
Goodwill
   
1,465
 
Security deposits
   
11
 
Accounts payable
   
(5
)
Accrued expenses
   
(55
)
Deferred income taxes
   
(633
)
Purchase price, net of cash received
 
$
4,043
 

Other Acquisitions
 
On October 17, 2018, we completed a business combination whereby we acquired substantially all of the assets and certain liabilities of a global logistics services provider with one U.S. location. On July 1, 2019, we acquired the membership interests of a life sciences company to expand our product offerings in Life Sciences. These acquisitions were funded with cash provided by normal operations. The results of operations for these acquisitions are reported in our Global Logistics Services and Life Sciences segments. The aggregate purchase price for these acquisitions was $430. At closing, $50 was recorded in accrued expenses as a preliminary earnout consideration, which was subsequently reversed.
 
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 (in thousands):
 
   
September 30,
2020
   
September 30,
2019
 
Life
Building and improvements
 
$
3,096
   
$
2,577
 
15-30 years
Land and improvements
   
1,235
     
835
 
Indefinite
Furniture and Fixture
   
282
     
218
 
3-7 years
Computer Equipment
   
385
     
465
 
3-5 years
Machinery & Equipment
   
1,288
     
973
 
3-15 years
Leasehold Improvements
   
115
     
181
 
3-5 years
     
6,401
     
5,249
   
Less Accumulated Depreciation
   
(1,424
)
   
(1,295
)
 
   
$
4,977
   
$
3,954
   
 
On February 4, 2020, Indco entered into a Purchase and Sale Agreement to acquire the land and building which serves as the Indco office and manufacturing facility in New Albany, Indiana for a total purchase price of $884. This transaction closed on July 1, 2020.
 
Depreciation expense for the fiscal year ended September 30, 2020 and 2019 was $274 and $282, respectively.
 
4
INVENTORY
 
Inventories consisted of the following (in thousands):
 
   
Year End September 30,
 
   
2020
   
2019
 
Finished goods
 
$
1,246
   
$
2,988
 
Work-in-process
   
1,406
     
461
 
Raw materials
   
1,039
     
946
 
Gross inventory
   
3,691
     
4,395
 
Less – reserve for inventory valuation
   
(25
)
   
(24
)
Inventory net
 
$
3,666
   
$
4,371
 

5
INTANGIBLE ASSETS
 
A summary of intangible assets and the estimated useful lives used in the computation of amortization is as follows (in thousands):
 
   
September 30,
2020
   
September 30,
2019
 
Life
Customer relationships
 
$
14,392
   
$
13,762
 
15-24 Years
Trademarks/names
   
1,820
     
1,800
 
  1-20 Years
Trademarks/names
   
451
     
451
 
    Indefinite
Other
   
1,018
     
978
 
  2-22 Years
     
17,681
     
16,991
   
Less: Accumulated Amortization
   
(4,348
)
   
(3,393
)
 
   
$
13,333
   
$
13,598
   

The composition of the intangible assets balance at September 30, 2020 and 2019 is as follows:


 
September 30,
2020
   
September 30,
2019
 
Global Logistics Services
 
$
7.643
   
$
6,953
 
Manufacturing
 
7,700
     
7,700
 
Life Sciences
   
2,338
     
2,338
 
   
17,681
     
16,991
 
Less: Accumulated Amortization
 
(4,348
)
   
(3,393
)
   
$
13,333
   
$
13,598
 

Amortization expense of intangible assets for the year ended September 30, 2020 and 2019 was $955 and $915, respectively.
 
The future amortization of these intangible assets is expected to be as follows (in thousands):
 
Fiscal Year 2021
 
$
990
 
Fiscal Year 2022
   
967
 
Fiscal Year 2023
   
965
 
Fiscal Year 2024
   
949
 
Fiscal Year 2025
   
949
 
Thereafter
   
8,513
 

 
$
13,333
 

6
GOODWILL
 
The Company’s goodwill carrying amounts relate to the acquisitions in the Global Logistics Services, Manufacturing and Life Sciences businesses. During the year ended September 30, 2020, with respect to the Phospho acquisition, the Company paid $172 in tax gross up consideration to the former owners and recorded an additional $116 of goodwill.
 
The composition of the goodwill balance at September 30, 2020 and 2019 is as follows:
 
   
September 30,
2020
   
September 30,
2019
 
Global Logistics Services
 
$
6,161
   
$
5,655
 
Manufacturing
   
5,046
     
5,046
 
Life Sciences
   
2,939
     
2,824
 
Total
 
$
14,146
   
$
13,525
 

7
NOTES PAYABLE - BANKS
 
(A)
Santander Bank Facility
 
On October 17, 2017, the Janel Group subsidiaries (collectively the “Janel Group Borrowers”), with Company 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”). As amended in March 2018, November 2018, March 2020 and July 2020, the Santander Facility currently provides that the Janel Group Borrowers can borrow up to $17,000 limited to 85% of the Janel Group Borrowers’ aggregate outstanding eligible accounts receivable, subject to adjustment as set forth in the Santander Loan 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 2.25% 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, while the Santander Loan Agreement contains customary terms and covenants.
 
The Santander Facility matures on October 17, 2022, unless earlier terminated or renewed. As a result of its terms, the Santander Facility 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.
 
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 September 30, 2019.
 
On March 4, 2020, the Company and its wholly-owned subsidiaries, entered into the Third Amendment to Loan and Security Agreement (“Amendment No. 3”) to the Loan and Security Agreement, dated October 17, 2017 by and between the Company, certain of its subsidiaries, and Santander Bank, N.A. (as amended by the Limited Waiver, Joinder and First Amendment dated as of March 21, 2018, and the Limited Waiver, Joinder and Second Amendment dated November 20, 2018 (collectively, the “Loan Agreement”). Pursuant to, and among other changes effected by, Amendment No. 3: (1) the Maturity date of the Loan evidenced by the Loan Agreement was extended to October 17, 2022; (2) the LIBOR rate margin was reduced from 2.50% to 2.25%; (3) the monthly Collateral Monitor Fee was reduced from $1 to $0.5; (4) the definition of EBITDA was revised to allow addback of up to $500 annually for merger and acquisition costs; and (5) the Company’s subsidiaries were permitted to pay up to $500 in aggregate dividends to the Company for fiscal 2020 if certain conditions were met.
 
On July 22, 2020, Janel Group, Inc., a wholly-owned subsidiary of Janel Corporation, and, Atlantic Customs Brokers, Inc. (“Atlantic”) as borrowers, and the Company as loan party obligor, entered into the Consent, Joinder and Fourth Amendment (the “Amendment”) to the Loan and Security Agreement, dated October 17, 2017 (as heretofore amended, the “Loan Agreement”), with Santander Bank, N.A., in its capacity as Lender. Pursuant to, and among other changes effected by, the Amendment, (i) Atlantic was added as a new borrower under the Loan Agreement, (ii) acquisition seller financing of up to $1,500 outstanding at any time was added as permitted indebtedness, and (iii) the Company was permitted to guaranty certain indebtedness of its Antibodies Incorporated subsidiary up to $2,920 outstanding at any time.
 
At September 30, 2020, outstanding borrowings under the Santander Facility were $8,447, representing 49.7% of the $17,000 available thereunder, and interest was accruing at an effective interest rate of 2.40%.
 
At September 30, 2019, outstanding borrowings under the Santander Facility were $8,391, representing 49.4% of the $17,000 available thereunder, and interest was accruing at an effective interest rate of 5.50%.
 
(B)
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 term loan, revolving loan and mortgage loan (together, the “First Merchant Facility”), as amended in August 2019 and July 2020.  On February 4, 2020, Indco entered into a Purchase and Sale Agreement to acquire the land and building which serves as the Indco office and manufacturing facility in New Albany, Indiana. This transaction closed on July 1, 2020.
 
On August 30, 2019, Indco and First Merchants entered into Amendment No. 1 to Credit Agreement modifying the terms of Indco’s credit facilities with First Merchants and extending the maturity date of the credit facilities. Under the revised terms, the credit facilities will consist of a $5,500 Term Loan and $1,000 (limited to the borrowing base and reserves) Revolving Loan. Interest will accrue on the Term Loan at an annual rate equal to the one-month LIBOR plus either 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.
 
On July 1, 2020, Indco and First Merchants Bank entered into Amendment No. 2 to the First Merchants Credit Agreement, modifying the terms of Indco’s credit facilities. Under the revised terms, the credit facilities consist of a $5,500 term loan, a $1,000 (limited to the borrowing base and reserves) revolving loan and a $680 mortgage 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%. Interest will accrue on the Mortgage Loan at an annual rate of 4.19%. Indco’s obligations under the First Merchants Bank credit facilities are secured by all of Indco’s real property and other assets, and are guaranteed by Janel. Additionally, Janel’s guarantee of Indco’s obligations is secured by a pledge of Janel’s Indco shares. The term loan and revolving loan portions of the First Merchants credit facilities will expire on August 30, 2024, and the mortgage loan will mature on July 1, 2025 (subject to earlier termination as provided in the First Merchants Credit Agreement), unless renewed or extended.
 
As of September 30, 2020, there were no outstanding borrowings under the revolving loan, $4,349 of borrowings under the term loan, and $676 of borrowing under the mortgage loan with interest accruing on the term loan and mortgage loan at an effective interest rate of 3.66% and 4.19%, respectively.
 
As of September 30, 2019, there were no outstanding borrowings under the revolving loan and $5,455 of borrowings under the term loan, with interest accruing on the term loan at an effective interest rate of 5.85%.
 
Indco was in compliance with the covenants defined in the First Merchants Credit Agreement at both September 30, 2020 and September 30, 2019.
 

 
September 30,
2020
   
September 30,
2019
 
Total Debt*
 
$
5,025
   
$
5,455
 
Less Current Portion
   
(808
)
   
(786
)
Long Term Portion
 
$
4,217
   
$
4,669
 

*
Note: Term Loan is due in monthly installments of $65 plus monthly interest, at LIBOR plus 2.75% to 3.5% per annum, mortgage loan is due in monthly installments of $4, including interest at 4.19%. The credit facilities are collateralized by all of Indco’s assets and guaranteed by Janel.
 
These obligations mature as follows (in thousands):
 
Fiscal Year 2021
 
$
808
 
Fiscal Year 2022
   
808
 
Fiscal Year 2023
   
810
 
Fiscal Year 2024
   
810
 
Fiscal Year 2025
   
1,232
 
Thereafter
   
557
 
   
$
5,025
 

(C)
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”) with First Northern Bank of Dixon (“First Northern”), with respect to a $2,025 First Northern Term Loan (the “First Northern Term Loan”). The proceeds of the First Northern Term Loan were used to fund a portion of the merger consideration to acquire Antibodies. Interest was to accrue on the First Northern Term Loan at an annual rate based on the five-year Treasury constant maturity (index) plus 2.50% (margin) for years one through five then adjusted and fixed for years six through ten using the same index and margin. The borrower’s and the Company’s obligations to First Northern under the First Northern Loan Agreement are secured by certain real property owned by Antibodies as of the closing of the Antibodies merger. The First Northern Loan Agreement contains customary terms and covenants and matures on June 14, 2028 (subject to earlier termination).

On November 18, 2019, Antibodies modified and refinanced its existing credit facilities with First Northern Bank. The existing First Northern Term Loan was increased to $2,235, the initial interest rate decreased to 4.18%, and the maturity date was extended to November 14, 2029, with all other terms, covenants and conditions substantially unchanged. The existing revolving credit facility was expanded to $500, the interest rate decreased to 6.0%, and the maturity date was extended to October 1, 2020, with all other terms, covenants and conditions substantially unchanged. Additionally, Antibodies entered into a new business loan agreement (“Solar Loan”) which provided for a $125 term loan in connection with a potential expansion of solar generation capacity on the Antibodies property. The initial interest rate on the facility is 4.43%, subject to adjustment in five years.
 
On June 19, 2020, First Northern extended the draw period on the Solar Loan from May 14, 2020 to August 14, 2020, with all other terms, covenants and conditions substantially unchanged. Additionally, on June 19, 2020, we entered into a new business loan agreement (“Generator Loan”) which provided for a $60 term loan in connection with a potential expansion of generator capacity on the Antibodies property. The draw period for the Generator Loan expires in November 5, 2020. The interest rate for the Generator Loan is 4.25%, and the loan matures on November 5, 2025. There were no outstanding borrowings under the Generator Loan.
 
As of September 30, 2020, the total amount outstanding under the First Northern Term Loan was $2,192, of which $2,139 is included in long-term debt and $53 is included in current portion of long-term debt, with interest accruing at an effective interest rate of 4.18%.
 
As of September 30, 2020, the total amount outstanding under the First Northern Solar Loan was $81, of which $76 is included in long-term debt and $5 is included in current portion of long-term debt, with interest accruing at an effective interest rate of 4.43%.
 
As of September 30, 2019, the total amount outstanding under the Senior Secured Term Loan was $1,975, of which $1,933 is included in long-term debt and $42 is included in current portion of long-term debt, with interest accruing at an effective interest rate of 5.28%.
 
   
September 30,
2020
   
September 30,
2019
 

 
(in thousands)
 
Total Debt*
 
$
2,273
   
$
1,975
 
Less Current Portion
   
(58
)
   
(42
)
Long Term Portion
 
$
2,215
   
$
1,933
 

*
Long term debt is due in monthly installments of $12 plus monthly interest, at 4.18% per annum. The note is collateralized by real property owned by Antibodies and guaranteed by Janel.
 
These obligations mature as follows (in thousands):
 
Fiscal Year 2021
 
$
58
 
Fiscal Year 2022
   
61
 
Fiscal Year 2023
   
64
 
Fiscal Year 2024
   
66
 
Fiscal Year 2025
   
69
 
Thereafter
   
1,955
 
   
$
2,273
 
 
The Company was in compliance with the covenants defined in the First Northern Loan Agreement at September 30, 2020 and September 30, 2019.

8.
SUBORDINATED PROMISSORY NOTES – RELATED PARTY

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. As the result of the merger of AB HoldCo into Antibodies, Antibodies became the obligor under the AB HoldCo Subordinated Promissory Notes.  Both of the AB HoldCo Subordinated Promissory Notes are guaranteed by the Company and are subordinate to the terms of any credit agreement, loan agreement, indenture, promissory note, guaranty or other debt instrument pursuant to which the obligor or any affiliate of the obligor incurs, borrows, extends, guarantees, renews or refinances any indebtedness for borrowed money or other extensions of credit with any federal or state bank or other institutional lender and are unsecured.

Each of the AB HoldCo Subordinated Promissory Notes has a 4% annual interest rate payable in arrears on the last business day of each calendar quarter, commencing on September 30, 2018, and the full outstanding principal balance and accrued, unpaid interest is due on June 22, 2021. Both notes are subject to prepayment in whole or in part, without premium or penalty, of the outstanding principal amount of the notes, together with all accrued interest on such principal amount up to the date of prepayment.  Any prepayment shall be applied first to accrued but unpaid interest, and then to outstanding principal. As of each of September 30, 2020, and September 30, 2019, the amount outstanding under the two AB HoldCo Subordinated Promissory Notes was $344, which is included in the current portion of subordinated promissory notes.

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 principal 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, on the last day of January, April, July and October beginning in January 2019, and shall be due and payable 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, of the outstanding principal amount of the notes, together with all accrued but unpaid interest on such principal amount up to the date of prepayment.  As of September 30, 2020, and 2019, the amounts outstanding under the Janel Group Subordinated Promissory Notes were $199 and $349, respectively.

   
September 30,
2020
   
September 30,
2019
 
   
(in thousands)
 
Total subordinated promissory notes
 
$
543
   
$
693
 
Less current portion of subordinated promissory notes
   
(504
)
   
(152
)
Long term portion of subordinated promissory notes
 
$
39
   
$
541
 

9.
SBA PAYCHECK PROTECTION PROGRAM LOANS
 
On April 19, 2020, the Company received a loan (the “PPP Loan 1”) in the aggregate amount of $2,726 from Santander, pursuant to the Paycheck Protection Program (the “PPP”) offered by the Small Business Administration (“SBA”) under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), Section 7(a)(36) of the Small Business Act, which was enacted March 27, 2020, as amended by the Paycheck Protection Program Flexibility Act of 2020 (“Flexibility Act”). The PPP Loan 1, which was in the form of a note dated April 19, 2020 issued by the Company, matures on April 19, 2022 and bears interest at a rate of 1.00% per annum. All principal and interest payments are deferred for six months from the date of the note.  To the extent the PPP Loan is not forgiven, principal and interest payments in the amount of $153 are due monthly commencing on November 1, 2020. The Company may prepay the note at any time prior to maturity with no prepayment penalties. The Company may only use funds from the PPP Loan 1 for purposes specified in the CARES Act and related PPP rules, which include payroll costs, costs used to continue group health care benefits, rent, utilities and certain mortgage payments (“qualifying expenses”). The loan and accrued interest are forgivable after eight weeks (or an extended 24-week covered period) as long as the borrower uses the loan proceeds for eligible purposes, including payroll, benefits, rent and utilities, and maintains its payroll levels. While the Company currently believes that its use of the loan proceeds will meet the conditions for forgiveness of the loan and intends to file for loan forgiveness before the end of the fiscal quarter ending March 31, 2021, the full amount of the loan may not be forgiven. Accordingly, we have recorded the full amount of the PPP Loan as debt. As of September 30, 2020, the amount outstanding, including accrued interest, under the PPP Loan 1 was $2,738.

On July 23, 2020, as part of the ACB acquisition, the Company assumed a PPP Loan in the amount of $135.  On April 19, 2020 ACB received a loan (the “PPP Loan 2”) in the aggregate amount of $135 from Citizens Bank, N.A., pursuant to the PPP offered by the SBA under the CARES Act. The PPP Loan 2, which was in the form of a note dated April 19, 2020 issued by the ACB, matures on April 19, 2022 and bears interest at a rate of 1.00% per annum. All principal and interest payments are deferred for six months from the date of the note.  To the extent the PPP Loan 2 is not forgiven, principal and interest payments in the amount of $153 are due monthly commencing on November 1, 2020. The Company may prepay the note at any time prior to maturity with no prepayment penalties. ACB may only use funds from the PPP Loan 2 for purposes specified in the CARES Act and related PPP rules, which include qualifying expenses. The loan and accrued interest are forgivable after eight weeks (or an extended 24-week covered period) as long as the borrower uses the loan proceeds for eligible purposes, including payroll, benefits, rent and utilities, and maintains its payroll levels. While the Company currently believes that its use of the loan proceeds will meet the conditions for forgiveness of the loan and intends to file for loan forgiveness before the end of the fiscal quarter ending March 31, 2021, the full amount of the loan may not be forgiven. Accordingly, we have recorded the full amount of the PPP Loan as debt. As of September 30, 2020, the amount outstanding, including accrued interest, under the PPP Loan 2 was $135.

As of September 30, 2020, the total amount outstanding under the PPP Loan 1 and PPP Loan 2 was $2,873, of which $960 is included in long-term debt and $1,913 is included in current portion of long-term debt.
 
10.
STOCKHOLDERS’ EQUITY
 
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.

(A)
Preferred Stock
 
Series B Convertible Preferred Stock
 
Shares of the Company’s Series B Convertible Preferred Stock (the “Series B Stock”) 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. On September 6, 2019 a holder of the Series B Stock converted 640 shares of Series B Stock into 6,400 shares of the Company’s Common Stock. On April 23, 2020, a holder of Series B Stock converted 300 shares of Series B Stock into 3,000 shares of the Company’s Common Stock. On September 25, 2020, a holder of Series B Stock converted 300 shares of Series B Stock into 3,000 shares of the Company’s Common Stock. The Company has 31 shares of Series B Stock outstanding as of September 30, 2020.
 
Series C Cumulative Preferred Stock
 
Shares of the Company’s Series C Cumulative Preferred Stock (the “Series C 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, and increased by 1% beginning on January 1, 2019. Such rate is to increase on each January 1 thereafter for four years to a maximum rate of 9%. The dividend rate of the Series C Stock as of September 30, 2020 and 2019 was 7% and 6%, respectively. 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 $11,541 and $11,041 as of September 30, 2020 and September 30, 2019, respectively.
 
On September 13, 2020, the Company purchased 890 shares of the Series C Stock from an accredited investor at a purchase price of $500 per share, or an aggregate of $445. On September 29, 2020, the Company sold 650 shares of the Series C Stock to an accredited investor at a purchase price of $500 per share, or an aggregate of $325. Such shares issued on September 29, 2020, 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 fiscal year ended September 30, 2020 the Company paid cash dividends of $55 to a holder of Series C Stock.  For the fiscal year ended September 30, 2020 and 2019, the Company declared dividends on Series C Stock of $675 and $571, respectively. At September 30, 2020 and 2019, the Company had accrued dividends of $1,661 and $1,041, 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 2017 Plan are at the discretion of the Company’s Compensation Committee of the board of directors. The 2017 Plan was amended and restated on May 8, 2018, as discussed in more detail in note 11.
 
(C)
Indco Dividend
 
On August 29, 2019, the board of directors of Indco, a majority-owned subsidiary of the Company, declared a $6.25 dividend for each share of Indco’s common stock, outstanding, and payable to stockholders of record payable on August 30, 2019. During the year ended September 30, 2019, the total dividend paid to the majority owner and minority owners of Indco, was $3,757 and $342, respectively.
 
11.
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 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 adopted 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 fiscal year ended September 30, 2020 and 2019 amounted to $269 and $296, respectively, and was included in selling, general and administrative expense in the Company’s statements of operations.

(A)
Stock Options
 
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:
 
 
2020
 
2019
Risk-free interest rate
1.59%
 
3.04%
Expected option term in years
5.5-6.5
 
5.5 - 6.5
Expected volatility
101.2%-101.7%
 
95.4% -98.8%
Dividend yield
—%
 
—%
Weighted average grant date fair value
$6.97 - $7.33
 
$5.87 - $6.29

Option for Employees
 
   
Number of
Options
   
Weighted
Average
Exercise Price
   
Weighted
Average
Remaining
Contractual
Term (in years)
   
Aggregate
Intrinsic
Value
(in thousands)
 
Outstanding balance at September 30, 2019
   
110,837
   
$
5.05
     
6.0
   
$
438.06
 
Granted
   
7,500
   
$
9.00
     
9.0
   
$
—
 
Exercised
   
(3,841
)
 
$
8.17
     
—
   
$
—
 
Forfeited
   
(20,500
)
 
$
2.66
     
—
   
$
—
 
Outstanding balance at September 30, 2020
   
93,996
   
$
5.76
     
5.2
   
$
304.99
 
Exercisable at September 30, 2020
   
80,664
   
$
5.30
     
4.7
   
$
298.74
 

The aggregate intrinsic value in the above table was calculated as the difference between the closing price of the Company’s common stock at September 30, 2020 of $9.00 per share and the exercise price of the stock options that had strike prices below such closing price.
 
As of September 30, 2020, there was approximately $26 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.
 
Options for Non-Employees
 
There were no non-employee options awarded during the fiscal years ended September 30, 2020 and 2019, respectively.
 

 
Number of
Options
   
Weighted
Average
Exercise
Price
   
Weighted
Average
Remaining
Contractual
Term (in years)
   
Aggregate
Intrinsic
Value
(in thousands)
 
Outstanding balance at September 30, 2019
   
51,053
   
$
7.58
     
7.80
   
$
72.68
 
Exercised
   
(30,000
)
 
$
8.04
     
—
   
$
—
 
Forfeited
   
(15,000
)
 
$
8.04
     
—
   
$
—
 
Outstanding balance at September 30, 2020
   
6,053
   
$
4.13
     
6.0
   
$
29.48
 
Exercisable at September 30, 2020
   
6,053
   
$
4.13
     
6.0
   
$
29.48
 

The aggregate intrinsic value in the above table was calculated as the difference between the closing price of our common stock at September 30, 2020, of $9.00 per share and the exercise price of the stock options that had strike prices below such closing price. As of September 30, 2020, there was no unrecognized compensation expense related to the unvested stock options.
 
Liability classified share-based awards
 
Additionally, during the fiscal year ended September 30, 2020, 6,880 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:
 
 
2020
 
2019
Risk-free interest rate
1.59%
 
3.04%
Expected option term in years
5.5-6.5
 
5.5 - 6.5
Expected volatility
101.2%-101.7%
 
  95.4% - 98.8%
Dividend yield
—%
 
—%
Grant date fair value
$8.59 - $9.03
 
$9.19 - $9.85

   
Number of
Options
   
Weighted
Average
Exercise
Price
   
Weighted
Average
Remaining
Contractual
Term (in
years)
   
Aggregate
Intrinsic
Value (in
thousands)
 
Outstanding balance at September 30, 2019
   
32,133
   
$
8.85
     
7.34
   
$
105.36
 
Granted
   
6,880
   
$
11.08
     
9.0
   
$
—
 
Outstanding balance at September 30, 2020
   
39,013
   
$
9.24
     
6.8
   
$
85.45
 
Exercisable at September 30, 2020
 

25,343
   
$
7.98
     
6.0
   
$
85.45
 

The aggregate intrinsic value in the above table was calculated as the difference between the valuation price of Indco’s common stock at September 30, 2020 of $11.08 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 $70 and $93 for the fiscal years ended September 30, 2020 and fiscal year ended September 30, 2019, 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.
 
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 September 30, 2020, there was approximately $35 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.
 
(B)
Restricted Stock
 
During the fiscal year ended September 30, 2020, 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 fiscal year ended September 30, 2020:
 
   
Restricted
Stock
   
Weighted
Average
Exercise
Price
   
Weighted
Average
Remaining
Contractual
Term (in
years)
 
Unvested at September 30, 2019
   
5,000
   
$
8.01
     
0.61
 
Vested
   
(5,000
)
 
$
8.01
     
—
 
Unvested at September 30, 2020
   
—
   
$
—
     
—
 

As of September 30, 2020, there was no unrecognized compensation cost related to unvested employee restricted stock.
 
The following table summarizes the status of our non-employee unvested restricted stock under the Amended 2017 Plan for the fiscal year ended September 30, 2020:
 

 
Restricted
Stock
   
Weighted
Average
Exercise
Price
   
Weighted
Average
Remaining
Contractual
Term (in
years)
 
Unvested at September 30, 2019
   
26,667
   
$
8.04
   
$
0.88
 
Vested
   
(26,667
)
 
$
—
   
$
—
 
Unvested at September 30, 2020
   
—
   
$
—
   
$
—
 

As of September 30, 2020, there was no unrecognized compensation cost related to non-employee unvested restricted stock.
 
As of September 30, 2020, included in accrued expenses and other current liabilities was $306 which represents 35,000 shares of restricted stock that vested but were not issued.
 
12.
INCOME PER COMMON SHARE
 
The following table provides a reconciliation of the basic and diluted income (loss) per share (“EPS”) computations for the fiscal years ended September 30, 2020 and 2019 (in thousands, except share and per share data):
 
   
Year Ended September 30,
 
   
2020
   
2019
 
(Loss) Income:
           
Net (loss) income
 
$
(1,725
)
 
$
616
 
Preferred stock dividends
   
(675
)
   
(571
)
Non-controlling interest dividends
   
—
     
(342
)
Net (loss) available to common stockholders
 
$
(2,400
)
 
$
(297
)
                 
Common Shares:
               
Basic - weighted average common shares
   
872,122
     
851,234
 
Effect of dilutive securities:
               
Stock options
   
—
     
—
 
Restricted stock
   
—
     
—
 
Warrants
   
—
     
—
 
Convertible preferred stock
   
—
     
—
 
Diluted - weighted average common stock
   
872,122
     
851,234
 
(Loss) Income per Common Share:
               
Basic -
               
Net (loss) income
 
$
(1.98
)
 
$
0.72
 
Preferred stock dividends
   
(0.77
)
   
(0.67
)
Non-controlling interest dividends
   
—
     
(0.40
)
Net (loss) attributable to common stockholders
 
$
(2.75
)
 
$
(0.35
)
Diluted -
               
Net (loss) income
 
$
(1.98
)
 
$
0.72
 
Preferred stock dividends
   
(0.77
)
   
(0.67
)
Non-controlling interest dividends
   
—
     
(0.40
)
Net (loss) available to common stockholders
 
$
(2.75
)
 
$
(0.35
)

The computation for the diluted number of shares excludes unvested restricted stock, unexercised stock options and unexercised warrants that are anti-dilutive. There were no anti-dilutive shares for the fiscal years ended September 30, 2020 and 2019, respectively.
 
Potentially diluted securities as of September 30, 2020 and 2019 are as follows:
 
   
September 30,
 
   
2020
   
2019
 
Employee stock options (Note 11)
   
93,996
     
110,837
 
Non-employee stock options (Note 11)
   
6,053
     
51,053
 
Employee restricted stock (Note 11)
   
—
     
8,333
 
Non-employee restricted stock (Note 11)
   
—
     
23,334
 
Convertible preferred stock
   
310
     
6,310
 
     
100,359
     
199,867
 

13.
INCOME TAXES

The reconciliation of income tax computed at the Federal statutory rate to the (benefit) provision for income taxes from continuing operations is as follows (in thousands):
 
   
2020
   
2019
 
Federal taxes at statutory rates
 
$
(468
)
 
$
199
 
Permanent differences
   
13
     
44
 
State and local taxes, net of Federal benefit
   
(65
)
   
69
 
Other
   
15
     
18
 
   
$
(505
)
 
$
330
 

 The (benefit) provisions of income taxes are summarized as follows (in thousands):
 
   
Year Ended September 30,
 
   
2020
   
2019
 
Current
 
$
68
   
$
106
 
Deferred
   
(573
)
   
224
 
Total
 
$
(505
)
 
$
330
 

The tax effects of temporary differences that gave rise to significant portions of the deferred tax assets and liabilities were as follows (in thousands):
 
   
2020
   
2019
 
Deferred tax assets - net operating loss carryforwards
 
$
1,218
   
$
1,000
 
Lease liability
   
684
     
—
 
Credits
   
—
     
42
 
Other
   
71
     
(350
)
Stock based compensation
   
339
     
369
 
Total deferred tax assets
   
2,312
     
1,061
 
Valuation allowance
   
—
     
—
 
Total deferred tax assets net of valuation allowance
   
2,312
     
1,061
 
Deferred tax liabilities - depreciation and amortization
   
3,151
     
2,991
 
Prepaid expenses
   
52
     
70
 
Right of use asset
   
678
     
—
 
Total deferred tax liabilities
   
3,881
     
3,061
 
Net deferred tax liability
 
$
(1,569
)
 
$
(2,000
)
 
In assessing the need for a valuation allowance, management must determine that there will be sufficient taxable income to allow for the realization of deferred tax assets. Based upon the historical and anticipated future income, management has determined that the deferred tax assets meet the more-likely-than-not threshold for realizability. Accordingly, a no valuation allowance has been recorded against the Company’s deferred tax assets as of September 30, 2020.
 
The Company has net operating loss carryforwards for income tax purposes that expire as follows (in thousands):
 
2033
 
$
5,050
 
2034
   
2,420
 

 
$
7,470
 

The Company has federal net operating loss of $5,000 and state net operating loss carryforwards of approximately $2,400 as of September 30, 2020. If unused, the net operating loss carryforwards will begin to expire 2033 and 2024 for federal and state purposes, respectively.
 
The Company will recognize interest and penalties related to uncertain tax positions as a component of income tax expense.
 
As of September 30, 2020, the Company had no accrued interest or penalties related to uncertain tax positions and no amounts have been recognized in the Company’s statement of operations. Due to net operating losses and tax credit carry forwards that remain unutilized, income tax returns for tax years from 2013 through 2018 remain subject to examination by the taxing jurisdictions. The net operating loss carryforwards remain subject to review until utilized.
 
14.
PROFIT SHARING AND 401(K) PLANS

The Company maintains a qualified retirement plan commonly referred to as a 401(k) Plan covering substantially all full-time employees under each segment.
 
Prior to July 2019, the Company maintained separate contributory 401(k) plans covering substantially all full-time employees under each segment. Beginning in March 2019 through July 2019, the Company combined all plans into the Janel Corporation 401(k) Plan.
 
The Janel Corporation 401(k) allows for employee salary deferrals including Roth 401(k) deferrals, employer matching contributions, employer profit sharing contributions and employee rollovers. The Janel Corporation 401(k) plan provides for participant contributions of up to 50% of annual compensation (not to exceed the IRS limit), as defined by the plan. The Company contributes an amount equal to 50% of the participant’s first 6% of contributions.
 
The combined expenses charged to operations for contributions made to the plans for the benefit of the employees for the years ended September 30, 2020 and 2019 were approximately $196 and $214, respectively.
 
The administrative expense charged to operations for the years ended September 30, 2020 and 2019 aggregated approximately $57 and $26, respectively.
 
15.
BUSINESS SEGMENT INFORMATION

As discussed above in note 1, 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.
 
The following tables presents selected financial information about the Company’s reportable segments and Corporate for the purpose of reconciling to the consolidated totals for the fiscal years ended September 30, 2020 and 2019:
 
For the year ended September 30, 2020 (in thousands)
 
Consolidated
   
Global
Logistics
Services
   
Manufacturing
   
Life
Sciences
   
Corporate
 
Revenues
 
$
82,429
   
$
68,492
   
$
7,319
   
$
6,618
   
$
—
 
Forwarding expenses and cost of revenues
   
58,908
     
53,397
     
3,329
     
2,182
     
—
 
Gross margin
   
23,521
     
15,095
     
3,990
     
4,436
     
—
 
Selling, general and administrative
   
24,290
     
14,992
     
2,505
     
3,870
     
2,923
 
Amortization of intangible assets
   
955
     
—
     
—
     
—
     
955
 
Income (loss) from operations
   
(1,724
)
   
103
     
1,485
     
566
     
(3,878
)
Interest expense
   
521
     
177
     
236
     
103
     
5
 
Identifiable assets
   
63,035
     
20,378
     
3,313
     
10,725
     
28,619
 
Capital expenditures
 
$
1,297
   
$
106
   
$
917
   
$
274
   
$
—
 

For the year ended September 30, 2019 (in thousands)
 
Consolidated
   
Global
Logistics
Services
   
Manufacturing
   
Life
Sciences
   
Corporate
 
Revenues
 
$
84,354
   
$
69,655
   
$
9,042
   
$
5,657
   
$
—
 
Forwarding expenses and cost of revenues
   
59,248
     
53,319
     
4,020
     
1,909
     
—
 
Gross margin
   
25,106
     
16,336
     
5,022
     
3,748
     
—
 
Selling, general and administrative
   
22,612
     
13,856
     
3,113
     
2,907
     
2,736
 
Amortization of intangible assets
   
915
     
—
     
—
     
—
     
915
 
Income (loss) from operations
   
1,579
     
2,480
     
1,909
     
841
     
(3,651
)
Interest expense(income)
   
694
     
432
     
150
     
122
     
(10
)
Identifiable assets
   
59,719
     
21,307
     
2,357
     
8,591
     
27,464
 
Capital expenditures
 
$
421
   
$
18
   
$
158
   
$
245
   
$
—
 

Goodwill and intangible assets are recorded at the Corporate level and are included in identifiable assets.

16.
LEASES

The Company has operating leases for office and warehouse space in all districts where it conducts business. As of September, 2020, the remaining terms of the Company’s operating leases were between one and 60 months and certain lease agreements contain provisions for future rent increases. Payments due under the lease contracts include the minimum lease payments that the Company is obligated to make under the non-cancelable initial terms of the leases as the renewal terms are at the Company’s option and the Company is not reasonably certain to exercise those renewal options at lease commencement.
 
The components of lease cost for the year ended September 30, 2020 are as follows:


 
Year End
September 30,
2020

Operating lease cost
 
$
725
 
Short-term lease cost
   
141
 
Total lease cost
 
$
866
 

Rent expense for the year ended September 30, 2020 and 2019 was $866 and $818, respectively.

Operating lease right of use assets, current portion of operating lease liabilities and long-term operating lease liabilities reported in the consolidated balance sheets for operating leases as of September 30, 2020 were $2,621, $720 and $1,924, respectively.
 
During the twelve months ended September 30, 2020, the Company entered into new operating leases and recorded an additional $2,103 in operating lease right of use assets and corresponding lease liabilities.
 
As of September 30, 2020, the weighted-average remaining lease term and the weighted-average discount rate related to the Company’s operating leases were 4.2 years and 4.6%, respectively.
 
Cash paid for amounts included in the measurement of operating lease obligations were $872 for the twelve months ended September 30, 2020.

Future minimum lease payments under non-cancelable operating leases as of September 30, 2020 are as follows:

    
Year End
September 30,
2020
 
2021
 
$
720
 
2022
   
723
 
2023
   
582
 
2024
   
493
 
2025
   
372
 
Thereafter
   
—
 
Total undiscounted Loan payments
   
2,890
 
Less Imputed Interest
   
(246
)
Total lease Obligation
 
$
2,644
 

17
COMMITMENTS AND CONTINGENCIES
 
(A)
Leases
 
The Company conducts its operations from leased premises. Rental expense on operating leases for the years ended September 30, 2020 and 2019 was approximately $866 and $818, respectively.
 
Future minimum lease commitments (excluding renewal options) under non-cancellable leases are as follows (in thousands):
 
Year Ended September 30,
 
Min. Lease
Commitments
 
2021
 
$
720
 
2022
   
723
 
2023
   
582
 
2024
   
493
 
2025
   
372
 
Total
 
$
2,890
 
 
(B)
Employment Agreements
 
The Company has various employment agreements, including employment agreements with the previous owners of Honor and Phospho.
 
18.
RISK AND UNCERTAINTIES

(A)
Currency Risks
 
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. We have continued to experience heightened customer credit risk as a result of the negative impact to customers’ financial condition, employment levels and consumer confidence arising from economic disruptions related to the COVID-19 pandemic, and expect that our risk in this area will remain high as long as the disruptions persist.
 
(C)
Legal Proceedings
 
Janel is occasionally subject to claims and lawsuits which typically arise in the normal course of business. While the outcome of these claims cannot be 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 “Warren Matter”). On May 11, 2020, the parties reached a settlement agreement and release to resolve any and all concerns between the parties, voluntarily and without admission of copyright infringement.
 
(D)
Concentration of Customers
 
No customer accounts for 10% or more of consolidated sales for the years ended September 30, 2020 and 2019. No customer accounted for 10% or more of consolidated accounts receivable at September 30, 2020 and 2019.
 
(E)
COVID-19
 
The worldwide outbreak of COVID-19 (coronavirus), which was declared a pandemic by the World Health Organization on March 11, 2020, has impacted and may continue to impact our business operations, including employees, customers, financial condition, liquidity and cash flow for an extended period of time. In particular, we have experienced significant changes in demand among our various customers depending on their industry. Federal and state governments have implemented measures in an effort to contain the virus, including social distancing, travel restrictions, border closures, limitations on public gatherings, work from home, supply chain logistical changes, and closure of nonessential businesses, which measures have adversely impacted our business operations in the fiscal year 2020. Specifically, for the fiscal year ended September 30, 2020, we experienced a decrease of 7.6% in our Global Logistics Services net revenues and a decrease of 19.1% in our Manufacturing segment revenues as a result of the global trade slowdown arising from the COVID-19 pandemic. We also experienced a significant slowdown in organic growth in our Life Sciences segment due to a slowdown in orders and in academic research as a result of the pandemic. Although some of the states and foreign markets in which we operate have begun to reopen on a phased basis, the United States and other countries continue to struggle with rolling outbreaks of the virus.
 
The full impact of the COVID-19 outbreak continues to evolve as of the date of this filing. As such, it is uncertain as to the full magnitude that the pandemic will have on the Company’s financial condition, liquidity, and future results of operations. Management is actively monitoring the impact of the global situation on its financial condition, liquidity, operations, industry, and workforce.

19.
SUBSEQUENT EVENTS

On October 2, 2020, the interest rate for the First Northern Bank existing revolving credit facility decreased to 4.0%, and the maturity date was extended to October 5, 2021, with all other terms, covenants and conditions substantially unchanged.
 
On October 7, 2020, the SBA released guidance clarifying that lenders must recognize the previously established extended deferral period for payments on the principal, interest, and fees on all PPP loans, even if the executed promissory note indicates only a six-month deferral. The guidance means that lenders must immediately comply with the extended deferral period and notify borrowers of the change. The Paycheck Protection Flexibility Act of 2020 P.L. 116-142, extended the deferral period for loan payments to either (1) the date that SBA remits the borrower’s loan forgiveness amount to the lender or (2) if the borrower does not apply for loan forgiveness, ten months after the end of the borrower’s loan forgiveness covered period.
 
On December 4, 2020, Janel Group, Inc., a wholly-owned subsidiary of Janel Corporation, and Janel Group’s wholly-owned subsidiary, Atlantic Customs Brokers, Inc. as borrowers, the Company as loan party obligor, entered into the Consent and Fifth Amendment (the “Amendment”) to the Loan and Security Agreement, dated October 17, 2017 (as heretofore amended, the “Loan Agreement”), with Santander Bank, N.A., in its capacity as Lender. Pursuant to, and among other changes effected by, the Amendment, (i) the amount of acquisition seller financing which would be permitted indebtedness under the Loan Agreement was increased from $1,500 to $3,000 outstanding at any time, and (ii) the Company was permitted to guaranty $1,850 indebtedness of Aves.
 
Through Aves, the Company completed a business combination whereby we acquired all of the membership interests of ImmunoChemistry Technologies, LLC, (“ICT”) on December 4, 2020 for the aggregate purchase price of $3,400.  At closing, $1,550 was paid in cash and a promissory note in the amount of $1,850 was issued to the former owner.  ICT is a developer and manufacturer of cell viability assay kits, ELISA buffers and fluorescent reagents for use in research and diagnostics.  ICT was founded in 1994 and is headquartered in Bloomington, Minnesota. The acquisition of ICT was completed to expand our product offering in our Life Sciences segment.
 
Through Janel Group, the Company completed a business combination whereby we acquired substantially all of the assets and certain liabilities of a global logistics services provider with two U.S. locations on December 31, 2020. The aggregate purchase price for this acquisition was $1,282.  At closing, $1,182 was paid in cash and $100 was placed in escrow for a period of twelve months for the purpose if securing the indemnification obligations of former stockholders. This acquisition was completed to expand our product offering in our Global Logistics Services segment.
 
On December 27, 2020, the President signed into law the Consolidated Appropriations Act of 2021 (“the Act”). The Act contains various forms of relief for individuals, businesses and sectors of the U.S. economy severely impacted by the coronavirus pandemic. Among the tax highlights of the Act is a clarification of the deductibility of expenses paid with Paycheck Protection Program (PPP) loans that are eligible for forgiveness.  As a result of the Act, the Company reflected the deductibility of expenses paid with PPP loan funds in the current income tax provision for the year ended September 30, 2020.


F-34
EXHIBIT 4.1
 
DESCRIPTION OF REGISTRANT’S SECURITIES
 
As of September 30, 2020, Janel Corporation (the “Company”) had one class of securities registered under Section 12 of the Securities Exchange Act of 1934, as amended: common stock, par value $0.001 per shares.
 
Common Stock

Janel Corporation (the “Company”) is authorized to issue up to 4,500,000 shares of common stock, par value $0.001 per share, of which 898,652 shares were issued and outstanding as of September 30, 2020. The holders of common stock are entitled to one vote for each share held of record on all matters to be voted on by shareholders. There is no cumulative voting with respect to the election of directors, with the result that the holders of more than 50% of the shares of common stock can elect all of the directors. The Company’s principal officers and directors, Dominique Schulte, John J. Gonzalez II, Gerard van Kesteren, Brendan J. Killackey, Gregory J. Melsen and Vincent A. Verde, collectively own 71.6% of the issued and outstanding common stock and therefore can elect all of the directors. The holders of common stock are entitled to receive dividends when and if declared by the board of directors of the Company out of funds legally available therefore. In the event of liquidation, dissolution or winding up of the company, the owners of common stock are entitled to share all assets remaining available for distribution after the payment of liabilities and after provision has been made for each class stock, if any, having a preference over the common stock as such. The common stock has no conversion, preemptive or other subscription rights, and there are no redemption provisions applicable to the common stock.

Preferred Stock

The board of directors of the Company is authorized to issue up to 100,000 shares of preferred stock, par value $0.001 per share, in one or more series and to fix the rights, preferences, privileges and restrictions thereof, including the dividend rights, dividend rate, conversion rights, voting rights, terms of redemption (including sinking fund provisions), redemption price or prices, liquidations preferences and the number of shares constituting any series or the designations of such series, without any further vote or action by the stockholders. It is possible for the board of directors to issue shares of such preferred stock in a manner which would make acquisition of control of the company, other than as approved by the board of directors of the Company, exceedingly difficult.

Series B Convertible Preferred Stock

As of September 30, 2020, the Company had outstanding 31 shares of Series B Convertible Preferred Stock, each of which is convertible into ten shares of the Company’s common stock at any time. The holders of the Series B Convertible Preferred Stock have no voting rights or powers to vote upon the election of directors, except the holders shall have voting rights and powers to vote upon any matter regarding the Series B Convertible Preferred Stock rights and preferences. The conversion price shall be subject to adjustment upon the happening of certain events such as stock splits of its common stock, combinations, certain dividends and distributions and reclassification, merger, consolidation or sale of assets. The Series B Convertible Preferred Stock does not carry any dividend rights. In connection with any organic change, the holders of Series B Convertible Preferred Stock will have the right to acquire and receive in lieu or in addition to the shares of common stock receivable upon conversion of the preferred stock, such shares of stock, securities or assets that would have been issued in connection with such organic change with respect to or in exchange for the number of shares of common stock that would have been receivable upon the conversion of the holder’s preferred shares into common stock prior to such organic change. In the event of liquidation, dissolution or winding up of the Company, the holder of the Series B Convertible Preferred Stock are entitled to share all assets remaining available for distribution after the payment of liabilities on a pari passu basis with the holders of the common stock of the Company.

Series C Cumulative Preferred Stock

As of September 30, 2020, the Company had outstanding 19,760 shares of Series C Cumulative Preferred Stock.

Holders of Series C Cumulative Preferred Stock do not have the right to vote on actions taken by stockholders of the Company, except that the vote of the holders of a majority of the then-outstanding Series C Cumulative Preferred Stock is required (a) to adopt amendments to the Company’s Amended and Restated Articles of Incorporation or bylaws which amendments would adversely affect the Series C Cumulative Preferred Stock or (b) to effect a liquidation, dissolution or winding up of the Company. In the event of liquidation, Series C Holders shall be paid an amount equal to the Original Issuance Price, plus any accrued but unpaid dividends thereon. Shares of Series C Cumulative Preferred Stock may be redeemed (1) by the Company at any time upon notice and payment of the Original Issuance Price, plus any accrued but unpaid dividends thereon (“Redemption Price”) or (2) by the Series C Holders at their option beginning on the fourth anniversary of the issuance of the Series C Cumulative Preferred Stock for an amount equal to the Redemption Price.

The holders of the Series C Cumulative Preferred Stock shall be entitled to receive, out of funds legally available therefor, annual dividends when, as and if declared by the Board, at the rates heretofore set forth from time to time in the Certificate of Designation for the Series C Cumulative Preferred Stock, and commencing on October 17, 2017, at the annual rate of five percent (5.0%) with a one percent (1%) increase on each January 1st beginning January 1, 2019 and on each January 1 thereafter for four years, such that: (a) as of January 1, 2019 the annual dividend shall be at the rate of six percent (6.0%), (b) as of January 1, 2020 the annual dividend shall be at the rate of seven percent (7.0%), (c) as of January 1, 2021 the annual dividend shall be at the rate of eight percent (8.0%) and (d) as of January 1, 2022, and for every year thereafter, the annual dividend shall be at the rate of nine percent (9.0%). Such dividends are (i) prior and in preference to any declaration or payment of any dividend or other distribution on Common Stock (other than a dividend payable in shares of Common Stock) or on any other class or series of capital stock ranking junior to the Series C Cumulative Preferred Stock with respect to dividends, (ii) pari passu with any other shares of Preferred Stock entitled to participate pari passu with the Series C Cumulative Preferred Stock with respect to dividends and (iii) subject to the rights of any series of Preferred Stock that ranks, with respect to dividends, senior to the Series C Cumulative Preferred Stock. Such dividends shall accrue on each share of Series C Cumulative Preferred Stock on a daily basis from the Original Issuance Date whether or not earned or declared and whether or not there shall be net assets or profits of the corporation legally available for the payment of such dividends. Such dividends shall be cumulative, so that if such dividends with respect to any previous or current dividend period at the rate provided for herein have not been paid on all shares of Series C Cumulative Preferred Stock at the time outstanding, the deficiency shall be fully paid on such shares before any distribution shall be paid on, or declared and set apart for, Common Stock or any other class or series of capital stock ranking junior to the Series C Cumulative Preferred Stock with respect to dividends.
 
Anti-Takeover Effects of the Company’s Articles of Incorporation and By-Laws
 
None
 
Transfer Agent
 
The Company’s transfer agent for shares of its Common Stock is Broadridge Corporate Issuer Solutions.
 
Market for the Company’s Common Stock
 
The Company’s common stock is traded on the Pink tier of the OTC market under the symbol “JANL.”


Exhibit 10.39

AMENDMENT NO. 2 TO CREDIT AGREEMENT

This Amendment No. 2 to Credit Agreement (“Amendment No. 2”) dated effective as of July 1, 2020, entered into by and among INDCO, INC., a Tennessee corporation (“Borrower), and FIRST MERCHANTS BANK, an Indiana state banking institution, f/k/a First Merchants Bank, National Association (the “Lender”).
 
W I T N E S S E T H :

WHEREAS, the Borrower and the Lender are parties to that certain Credit Agreement dated as of February 29, 2016, as amended by that certain Amendment No. 1 to Credit Agreement dated August 30, 2019 (hereinafter referred to as “Agreement”); and

WHEREAS, the Lender and the Borrower desire to amend the financial accommodations previously extended by the Lender on the terms and subject to the conditions as set forth in this Amendment No. 2.

NOW, THEREFORE, in consideration of the premises, the mutual covenants hereinafter contained, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:

Section 1.   Effect of this Amendment No. 2.  This Amendment No. 2 shall not change, modify, amend or revise the terms, conditions and provisions of the Agreement, the terms and provisions of which are incorporated herein by reference, except as expressly provided herein and agreed upon by the parties hereto.  This Amendment No. 2 is not intended to be nor shall it constitute a novation or accord and satisfaction of the outstanding instruments by and between the parties hereto.  Borrower and Lender agree that, except as expressly provided herein, all terms and conditions of the Agreement shall remain and continue in full force and effect.  The Borrower acknowledges and agrees that the indebtedness under the Agreement remains outstanding and is not extinguished, paid, or retired by this Amendment No. 2, or any other agreements between the parties hereto prior to the date hereof, and that Borrower is and continues to be fully liable for all obligations to the Lender contemplated by or arising out of the Agreement.  Except as expressly provided otherwise by this Amendment No. 2, the credit facilities contemplated by this Amendment No. 2 shall be made according to and pursuant to all conditions, covenants, representations and warranties contained in the Agreement.

Section 2.   Definitions.  Terms defined in the Agreement which are used herein shall have the same meaning as set forth in the Agreement unless otherwise specified herein.

Section 3.   Amendments of Agreement.  Subject to the satisfaction of the conditions precedent set forth in Section 5 herein, the Agreement is amended as follows:

(a)          The following terms appearing at Subsection 1.1 of the Agreement are added, or amended and replaced with the following:

Collateral Documents  means, collectively, the Security Agreement, the Mortgage, the Environmental Indemnity, any Collateral Access Agreement, Pledge Agreement, each control agreement and any other agreement or instrument pursuant to which the Borrower, any Subsidiary or any other Person grants or purports to grant collateral to the Lender or otherwise relates to such collateral.

1
EBITDAR means, for any period, net income for such period, plus (a) without duplication and to the extent deducted in determining net income for such period, the sum of (i) Interest Expense for such period, (ii) income tax expense for such period, (iii) all amounts attributable to depreciation, depletion and amortization expense for such period, (iv) rent expense, (v) any extraordinary charges for such period including reasonable costs associated with the acquisition of the borrower, and (vi) any other non-cash charges for such period (but, excluding any non-cash charge in respect of an item that was included in net income in a prior period), minus (b) without duplication and to the extent included in net income, any extraordinary gains and any non-cash items of income for such period, all calculated in accordance with GAAP.
 
Fixed Charge Coverage Ratio means, with respect to any Fiscal Quarter measured on a rolling four quarter basis, a ratio, the numerator of which is Borrower’s EBITDAR minus taxes and distributions paid, and the denominator of which is (i) payments made or scheduled to be made with respect to amortization payments of the principal portion and interest expense of the Term Loan and amortization payments of the principal portion and interest expense of all other indebtedness for borrowed money of the Borrower, and (ii) unfinanced capital expenditures. The Fixed Charge Coverage Ratio shall exclude the one-time dividend and bonus-in-lieu-of dividend made to the owners from loan funds and cash on hand at or around August 29, 2019 (the “One-Time Dividend”).

Loan or Loans means, as the context may require, the Revolving Loans, the Term Loan, and Mortgage Loan, together with all renewals and substitutions thereof.
 
Mortgage means that certain Mortgage, Security Agreement, Assignment of Leases and Rents and Fixture Filing dated July 1, 2020, executed by Borrower for the benefit of Lender.
 
Mortgage Loan – see Section 2.01(d).
 
Mortgage Loan Commitment means $680,000.00.
 
Mortgage Loan Maturity Date means July 1, 2025.
 
Real Estate means that certain real estate located at 4040 Earnings Way, New Albany, Indiana, as more particularly described in Exhibit A to the Mortgage.
 
Total Funded Debt to EBITDAR Ratio means, with respect to any Fiscal Quarter measured on a rolling four quarter basis, a ratio, the numerator of which is Borrower’s total interest-bearing Debt, and the denominator of which is EBITDAR.
 
(b)          Subsection 2.01(d) is hereby added to the Agreement as follows:
 
(d)          Mortgage Loan Commitment.  The Lender agrees to make a loan to the Borrower (the “Mortgage Loan”) on July 1, 2020, in the amount of the Mortgage Loan Commitment.  The Commitment of the Lender to make the Mortgage Loan shall expire concurrently with the making of the Mortgage Loan.  The entire unpaid balance of the Mortgage Loan shall be immediately due and payable in full in immediately available funds on the Mortgage Loan Maturity Date if not sooner paid in full.
 
(c)          Subsection 2.03(c) is hereby added to the Agreement as follows:
 
(c)          Mortgage Loan.  The proceeds of the Mortgage Loan will be used to finance the acquisition of the Real Estate.
 
(d)          Subsection 4.01(iii) is hereby added to the Agreement as follows:
 
2

(iii)
at all times while the Mortgage Loan is outstanding, the Mortgage Loan shall accrue interest at a fixed rate per annum equal to four and 19/100 percent (4.19%).
 
(e)          Subsection 4.02(d) is hereby added to the Agreement as follows:
 
(d)          Regarding the Mortgage Loan, commencing on August 1, 2020, Borrower shall make equal monthly payments of principal (based on a twenty-year amortization) and interest in the amount of Four Thousand One Hundred Eighty-Nine and 06/100 Dollars ($4,189.06), and thereafter on the first business day of each month. Upon the Mortgage Loan Maturity Date, all unpaid principal, accrued but unpaid interest, and reimbursable expenses shall be due and payable in full.
 
After maturity, and at any time an Event of Default exists, accrued interest on all Loans shall be payable on demand.
 
(f)          Subsection 6.02(a) is hereby amended and restated with the following:
 

(a)
Voluntary Prepayments.  The Borrower may from time to time prepay the Loans in whole or in part; provided that the Borrower shall give the Lender notice thereof not later than 11:00 A.M., Indianapolis time, on the day of such prepayment (which shall be a Business Day), specifying the Loans to be prepaid and the date and amount of prepayment, and in the case of the Mortgage Loan, accompany the prepayment (other than any prepayment due to the application of insurance proceeds or condemnation awards as the Mortgage requires) with a prepayment premium of two percent (2%) multiplied by the principal amount paid (“Prepayment Premium”). If Borrower makes a partial prepayment, the amount prepaid will be applied to installments of principal in the inverse order of maturity.
 
(g)          Subsection 11.14(a) of the Agreement is amended and restated with the following:
 
 
(a)
Maximum Total Funded Debt to EBITDAR Ratio.  Not permit the Total Funded Debt to EBITDAR Ratio, tested quarterly, to be greater than the amounts for the Fiscal Quarters ending as indicated below:

Fiscal Quarter ending
Maximum Total Funded Debt to EBITDA Ratio
3/31/20 – 12/31/21
3.25 to 1.0
3/31/22 – 6/30/22
2.75 to 1.0
9/30/22 and thereafter
2.50 to 1.0






Section 4.  Commitment Fee; Reimbursement of Expenses and Legal Fees.  The Borrower agrees to pay to the Lender a commitment fee associated with the Mortgage Loan Commitment in the amount of $1,000.00 as of the execution of this Amendment No. 2, which amount shall not be refundable, in whole or in part, for any reason.  Additionally, all out-of-pocket expenses of the Lender, including without limitation, filing fees, recording fees and reasonable legal fees and disbursements, associated with the preparation of this Amendment No. 2 and all other related Loan Documents are to be paid by Borrower promptly upon demand therefor.

Section 5.   Conditions Precedent.  This Amendment No. 2 shall become and be deemed effective in accordance with its terms immediately upon the Lender receiving:

(a)          Two (2) copies of this Amendment No. 2 duly executed by an authorized officer or other representative of the Borrower and the Lender.

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(b)          One (1) copy of the Note evidencing the Mortgage Loan duly executed by an authorized officer or other representative of the Borrower.

(c)          Two (2) copies of the Consent and Confirmation of Guaranty executed by Guarantor.

(d)          Two (2) copies of the Mortgage duly executed by an authorized officer or other representative of the Borrower.

(e)          Two (2) copies of the Mortgagor’s Affidavit duly executed by an authorized officer or other representative of the Borrower.

(f)          Two (2) copies of the Environmental Indemnity duly executed by an authorized officer or other representative of the Borrower and Guarantor.

(g)          Receipt of an appraisal of the Real Estate acceptable to Lender.

(h)          Receipt of a title commitment related to the Real Estate acceptable to Lender.

(i)           Receipt of a survey related to the Real Estate acceptable to Lender.

(j)           Receipt of an Environmental Phase I related to the Real Estate acceptable to Lender.

(k)          Receipt of a flood certification related to the Real Estate acceptable to Lender.

(l)           Evidence of insurance related to the Real Estate acceptable to Lender.

(m)         Payment of the fees and expenses as set forth in Section 4 hereof.

(n)          Such other documents and items as the Lender may reasonably request.

Section 6.   Representations and Warranties of the Borrower.  The Borrower hereby represents and warrants, in addition to any other representations and warranties contained herein, in the Agreement, the Loan Documents (as defined in the Agreement) or any other document, writing or statement delivered or mailed to the Lender or its agent by the Borrower, as follows:

(a)        This Amendment No. 2 constitutes a legal, valid and binding obligation of the Borrower enforceable in accordance with its terms, subject to bankruptcy, insolvency, reorganization, moratorium and other laws affecting the rights of creditors generally as well as the exercise of judicial discretion in accordance with general principles of equity.  The Borrower has taken all necessary and appropriate action for the approval of this Amendment No. 2 and the authorization of the execution, delivery and performance thereof.

(b)          As of the date hereof, there is no Event of Default under the Agreement, the Amendment No. 2 or the Loan Documents.

(c)          The Borrower hereby specifically confirms and ratifies its obligations, waivers and consents under each of the Loan Documents.

(d)         Except as specifically amended herein, all representations, warranties and other assertions of fact contained in the Agreement and the Loan Documents continue to be true, accurate and complete in all material respects.

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(e)          There have been no changes to the organizational documents or the identities of the officers or managers of the Borrower since execution of the Agreement.

(f)           Borrower acknowledges that the definition “Loan Documents” shall include this Amendment No. 2 and all the documents executed contemporaneously herewith.

Section 7.  Affirmative Covenants.  By entering into this Amendment No. 2, Borrower further specifically undertakes to comply with the obligations, terms and covenants as contained in the Agreement and agrees to comply therewith as such relate to the amended credit facilities and accommodations as provided to the Borrower pursuant to the terms of this Amendment No. 2.

Section 8.  Governing Law.  This Amendment No. 2 has been executed and delivered and is intended to be performed in the State of Indiana and shall be governed, construed and enforced in all respects in accordance with the substantive laws of the State of Indiana.

Section 9.   Headings.  The section headings used in this Amendment No. 2 are for convenience only and shall not be read or construed as limiting the substance or generality of this Amendment No. 2.

Section 10. Survival.  All representations, warranties, and covenants of the Borrower herein or any certificate, agreement or other instrument delivered by or on its behalf under this Amendment No. 2 shall be considered to have been relied upon by the Lender and shall survive the making of and amendments to the Loans.  All statements and any such certificate or other instrument shall constitute warranties and representations hereunder by the Borrower, as the case may be.

Section 11.  Counterparts.  This Amendment No. 2 may be signed in one or more counterparts, each of which shall be considered an original, with the same effect as if the signatures were upon the same instrument.

Section 12.  Modification.  This Amendment No. 2 may be amended, modified, renewed or extended only by written instrument executed in the manner of its original execution.

Section 13. Waiver of Certain Rights.  The Borrower waives acceptance or notice of acceptance hereof and agrees that the Agreement, this Amendment No. 2 and all of the other Loan Documents shall be fully valid, binding, effective and enforceable as of the date hereof, even though this Amendment No. 2 and any one or more of the other Loan Documents which require the signature of the Lender, may be executed by and on behalf of the Lender on other than the date hereof.

Section 14. Waiver of Defenses and Claims.  In consideration of the financial accommodations provided to the Borrower by the Lender as contemplated by this Amendment No. 2, Borrower hereby waives, releases and forever discharges the Lender from and against any and all rights, claims or causes of action against the Lender arising under the Lender’s actions or inactions with respect to the Loan Documents or any security interest, lien or collateral in connection therewith as well as any and all rights of set off, defenses, claims, causes of action and any other bar to the enforcement of the Loan Documents which exist as of the date hereof.

IN WITNESS WHEREOF, the parties have caused this Amendment No. 2 to Credit Agreement to be executed by their respective duly authorized officers or other representatives as of the date and year first written above.
 
[REMAINDER OF PAGE INTENTIONALLY BLANK – SIGNATURE PAGE FOLLOWS]
 
5
SIGNATURE PAGE – AMENDMENT NO. 2 TO CREDIT AGREEMENT
 
 
INDCO, INC.,
 
 
a Tennessee corporation
 
       
 
By:
/s/ Mark Hennis
 
   
C. Mark Hennis, President
 

STATE OF
)
 
 
 
)
SS:  
COUNTY OF
)
   

Before me, a Notary Public in and for said County and State, personally appeared C. Mark Hennis, the President of INDCO, Inc., a Tennessee corporation, who, having been duly sworn, acknowledged the execution of the foregoing instrument for and on behalf of such company as such officer.

WITNESS, my hand and Notarial Seal this ____ day of _____________, 2020.

My Commission Expires:
   
 /s/ Kristina Wilberding
 
   
Notary Public
 

       
         
My County of Residence:
   
/s/ Kristina Wilberding
 
   
Printed
 

       

6
 SIGNATURE PAGE – LENDER – CREDIT AGREEMENT
 
 
FIRST MERCHANTS BANK,
 
an Indiana state banking institution
       
 
By:
 
/s/ Jeff Pangburn
   
Jeff Pangburn, Vice President


7
Exhibit 10.40

Execution Version

CONSENT, JOINDER AND FOURTH AMENDMENT TO LOAN AND SECURITY AGREEMENT

This Consent, Joinder and Fourth Amendment to Loan and Security Agreement (the “Fourth Amendment”) is made as of this 22 day of July, 2020, by and among:

SANTANDER BANK, N.A., a national bank having a place of business at 28 State Street, Boston, Massachusetts 02109 (the “Lender”);

JANEL GROUP, INC., a New York corporation (hereinafter referred to as “Janel” or “Existing Borrower”, and together with the New Borrower (defined below), individually and collectively, and jointly and severally referred to herein as “Borrower”);

JANEL CORPORATION, a Nevada corporation (“Parent”), as a Loan Party Obligor,
and

ATLANTIC CUSTOMS BROKERS, INC., a Connecticut corporation (the “New Borrower”),

in consideration of the mutual covenants herein contained and benefits to be derived herefrom.

W I T N E S S E T H:

WHEREAS, Janel, the Parent, certain other Subsidiaries of the Parent, and the Lender entered into that certain Loan and Security Agreement dated as of October 17, 2017, as amended pursuant to that certain Limited Waiver, Joinder and First Amendment to Loan and Security Agreement, dated as of March 21, 2018, that certain Limited Waiver, Joinder and Second Amendment to Loan and Security Agreement, dated as of November 20, 2018, and that certain Third Amendment to Loan and Security Agreement dated March 4, 2020 (together with any further modifications, amendments, and restatements thereof, the “Agreement”);

WHEREAS, the Loan Parties have requested that the Lender modify and amend certain terms and conditions of the Agreement; and

WHEREAS, in connection therewith, among other things, the New Borrower desires to become a party to and to be bound by the terms of the Agreement and the other Loan Documents and to become a Loan Party Obligor (as a Borrower) in the same capacity and to the same extent as the existing Loan Party Obligors thereunder and, in connection therewith, the parties desire to amend the Agreement as set forth herein; and

WHEREAS, the Lender has agreed to modify and amend certain terms and conditions of the Agreement, all as provided for herein.

NOW, THEREFORE, it is hereby agreed among the parties hereto as follows:

1.
Capitalized Terms. All capitalized terms used herein and not otherwise defined shall have the same meaning herein as in the Agreement.

2.
Amendments to Agreement.


a.
Schedule B of the Agreement (Definitions) is hereby amended as follows:


i.
By inserting the following new definitions in their correct alphabetical order:


A)
“ACH Expense” means the one-time expense of $110,000 incurred in connection with certain ACH matters.”


B)
“Acquisition Seller Financing” means any unsecured Indebtedness incurred in connection with an acquisition made by the Parent, or any wholly-owned Subsidiary of the Parent, and subordinated on terms and conditions satisfactory to the Lender; provided, however, that the aggregate outstanding principal amount of such Indebtedness shall not exceed $1,500,000 at any time. For the avoidance of doubt, the aggregate amount of Acquisition Seller Financing as of the Fourth Amendment Effective Date (for avoidance of doubt, after giving effect to the Atlantic Acquisition) is $1,162,000


C)
“Atlantic” means Atlantic Customs Brokers, Inc., a Connecticut corporation.


D)
“Atlantic Acquisition” means the acquisition by the Janel of the Atlantic Shares in accordance with the provisions of this Agreement and the Atlantic Acquisition Documentation.


E)
“Atlantic Acquisition Documentation” means that certain Stock Purchase Agreement dated as of July 22, 2020 by and among the Janel, as purchaser and Peter Schlesinger as “Seller” together with any other documents executed and delivered in connection therewith.


F)
“Atlantic Deferred Purchase Price Payment” means any of the scheduled payments in connection with the Atlantic Acquisition required to be made in accordance with the provisions of Section 3.1.3, 3.1.4, and 3.1.5 of the Stock Purchase Agreement referred to in the definition of Atlantic Acquisition Documents.


G)
“Atlantic Shares” has the same meaning as the term “Shares” as defined in the Atlantic Acquisition Documentation.


H)
“Fourth Amendment” means that certain Consent, Joinder and Fourth Amendment to Loan and Security Agreement dated as of the Fourth Amendment Effective Date by and among the Lender and the Borrower, Atlantic, and the Parent.

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I)
“Fourth Amendment Effective Date” means July 22, 2020.


J)
“INDCO Dividend” means the dividend paid by Parent to INDCO in the amount of $342,000 on or about August 2019.


K)
“Warren Settlement Payment” means the one-time $200,000 payment made in connection with the settlement agreement dated on or about May 11, 2020 with Warren Communications News, Inc.


ii.
The following definitions are hereby amended as follows:


A)
The definition of “Antibodies Guaranty” is hereby deleted in its entirety and the following substituted in its stead:

“Antibodies Guaranty” means, collectively, (i) that certain Commercial Guaranty dated as of November 1, 2019 pursuant to which Parent has guaranteed Indebtedness (as defined therein) of Antibodies to First Northern Bank of Dixon as evidenced by that certain Promissory Note of the same date in the principal amount of $500,000, (ii) that certain Commercial Guaranty dated as of November 18, 2019 pursuant to which Parent has guaranteed Indebtedness (as defined therein) of Antibodies to First Northern Bank of Dixon as evidenced by that certain Promissory Note of the same date in the principal amount of $2,235,000, (iii) that certain Commercial Guaranty dated as of November 18, 2019 pursuant to which Parent has guaranteed Indebtedness (as defined therein) of Antibodies to First Northern Bank of Dixon as evidenced by that certain Promissory Note of the same date in the principal amount of $125,400, and (iv) that certain Commercial Guaranty dated as of June 19, 2020 pursuant to which Parent has guaranteed Indebtedness (as defined therein) of Antibodies to First Northern Bank of Dixon as evidenced by that certain Promissory Note of the same date in the principal amount of $60,000; provided, however, that the aggregate outstanding principal amount of such guaranteed indebtedness shall not exceed $2,920,400 at any time.


B)
The definition of “EBITDA” is hereby amended by adding the following new subclauses in their correct alphabetical order:

“plus (h) the Warren Settlement Payment to the extent that it was deducted from the calculation of Net Income, plus (i) the ACH Expense to the extent that it was deducted from the calculation of Net Income, plus (j) the INDCO Dividend to the extent that it was deducted from the calculation of Net Income.”
 

b.
Section 5.27 of the Agreement (Negative Covenants) is hereby amended as follows:

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i.
Subclause (f) is hereby deleted in its entirety and the following substituted in its stead:

“incur any Indebtedness other than (i) the Obligations, (ii) Permitted Indebtedness, (iii) Acquisition Seller Financing, and (iv) other Indebtedness which is unsecured and does not exceed $250,000 in the aggregate at any one time;”


ii.
Subclause (q) is hereby deleted in its entirety and the following substituted in its stead:

“agree, consent, permit or otherwise undertake to amend or otherwise modify any of the terms or provisions of (i) any Loan Party Obligor’s Organic Documents, (ii) the Honor WW Acquisition Documentation relating to the Honor Earn-Out, (iii) Sea Cargo Acquisition Documentation relating to the Sea Cargo Earn-Out, (iv) the Onor Closing Note, or (v) the Atlantic Acquisition Documentation, except, in each instance, for such amendments or other modifications required by applicable law or that are not adverse to Lender, and then, only to the extent such amendments or other modifications are fully disclosed in writing to Lender no less than five (5) Business Days prior to being effectuated;”
 

iii.
Subclause (t) is hereby deleted in its entirety and the following substituted in its stead:

“(t)      make any payment on account of the Honor Earn-Out, the Sea Cargo Earn-Out, the Onor Closing Note, or the Atlantic Deferred Purchase Price Payments, unless, in each instance, the Restricted Payment Conditions are satisfied.”


c.
The Disclosure Schedule is hereby amended and restated by the Disclosure Schedule attached hereto.


d.
The Schedule A attached to the Third Amendment is incorrect and was attached in error, and for avoidance of doubt that Schedule A is hereby deleted in its entirety and replaced with Schedule A attached hereto.


e.
Additional Representations, Warranties and Covenants Regarding Atlantic Acquisition.

In addition to the representations, warranties and covenants set forth in Article 5 of the Agreement, the Loan Party Obligors make the following representations, warranties and covenants as of the Fourth Amendment Effective Date with respect to the Atlantic Acquisition, which representations, warranties and covenants are made on the terms and conditions set forth in the preamble paragraph of Article 5:

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 (i)          Loan Party Obligors have delivered to Lender a complete and correct copy of the Atlantic Acquisition Documents, including all schedules and exhibits thereto. The execution, delivery and performance of each of the Atlantic Acquisition Documents has been duly authorized by all necessary action on the part of Janel and the Parent. Each Atlantic Acquisition Document is the legal, valid and binding obligation of Janel and the Parent, enforceable against such Person in accordance with its terms, in each case, except (i) as may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to or affecting generally the enforcement of creditors’ rights and (ii) the availability of the remedy of specific performance or injunctive or other equitable relief is subject to the discretion of the court before which any proceeding therefor may be brought. Neither Janel nor the Parent is in default in the performance or compliance with any provisions thereof. All representations and warranties made by Janel and Parent in the Atlantic Acquisition Documents and in the certificates delivered in connection therewith are true and correct in all material respects. To the knowledge of Janel and the Parent, none of the Seller’s representations or warranties in the Atlantic Acquisition Documents contain any untrue statement of a material fact or omit any fact necessary to make the statements therein not misleading, in any case that could reasonably be expected to result in a Material Adverse Effect.

(ii)          No Default or Event of Default exists as of the Fourth Amendment Effective Date or would arise from the consummation of such Atlantic Acquisition;

(iii)          The business acquired in connection with such Atlantic Acquisition is (A) located in the United States, (B) organized under the laws of any state of the United States or the District of Columbia, and (C) Atlantic is engaged in the business of non-asset based transportation logistics;

(iv)          After giving effect to the Atlantic Acquisition and this Fourth Amendment, Janel will own, directly, 100% of the equity interests Atlantic and shall control all of the voting interests or shall otherwise control the governance of Atlantic, will have good title to the assets acquired pursuant to the Atlantic Acquisition Agreement, free and clear of all Liens other than Permitted Liens, and Lender shall have a first priority Lien in all of the assets of Atlantic, subject to Permitted Liens;

(v)          Such Atlantic Acquisition has been approved by the board of directors of Atlantic and such board of directors has not announced that it will oppose such Atlantic Acquisition or has not commenced any action which alleges that such Atlantic Acquisition shall violate applicable law;

(vi)          The Loan Party Obligors have furnished the Lender with historic financial statements of Atlantic, pro forma projected financial statements of Atlantic for 2020, and such other information as the Lender may reasonably require, all of which shall be reasonably satisfactory to the Agent.

- 5 -
(vii)          The Atlantic Acquisition has been consummated in all material respects, in accordance with all applicable laws and this Agreement and all requisite approvals by Governmental Authorities having jurisdiction over Janel, the Parent and Atlantic and, to Janel’s knowledge, the Seller, with respect to the Atlantic Acquisition, have been obtained (including filings or approvals required under the Hart-Scott-Rodino Antitrust Improvements Act), except for any approval the failure to obtain could not reasonably be expected to be material to the interests of the Lender.

3.
Consents. The Loan Party Obligors have requested that the Lender provide the following consents related to the Atlantic Acquisition (the “Consents”), and the Lender has agreed to provide such Consents, but only on the terms and conditions set forth herein:


a.
Pursuant to Section 5.27(f) of the Agreement, unless the Lender has given prior written consent, the Loan Party Obligors are prohibited from incurring any Indebtedness other than the Indebtedness described in said Section 5.27(f). The Loan Parties have advised the Lender that Atlantic has incurred unsecured indebtedness from Citizens Bank, N.A. in the principal amount of $135,000 (hereinafter, the “CARES Indebtedness”) pursuant to Title I of the Coronavirus Aid, Relief and Economic Security Act (hereinafter, as amended and in effect, and together with any regulations promulgated pursuant thereto, collectively the “CARES Act”), and such CARES Indebtedness shall survive the Atlantic Acquisition. Accordingly, the Loan Party Obligors have requested that the Lender consent to such CARES Indebtedness. Upon the effectiveness of this Fourth Amendment, the Lender hereby consents to such CARES Indebtedness and such CARES Indebtedness shall be added to the Disclosure Schedule. The consent to the foregoing is only in connection with such CARES Indebtedness, and shall not be deemed to constitute an agreement by the Lender to consent to the incurrence by any Loan Party Obligor of any other Indebtedness in violation of Section 5.27(f) or waive the provisions of Section 5.27(f) (or any other provision of the Agreement) in the future. Further, Borrower:

(i)          shall provide Lender, within in three (3) Business Days upon Lender’s request, a reasonably detailed written estimate of the amount of CARES Indebtedness that Borrower reasonably anticipate will be subject to forgiveness pursuant to the provisions of the CARES Act.

(ii)          shall (x) maintain all records required to be submitted in connection with the forgiveness of the CARES Indebtedness, and (y) timely (and, in any event, not later than thirty (30) days (or such longer period as may be agreed by Lender) after the earliest date in which the Borrower may apply for forgiveness under the CARES Act) submit all applications and required documentation necessary or desirable for the Lender and/or the Small Business Administration to make a determination regarding the amount of the CARES Indebtedness that is eligible to be forgiven (the date of such determination hereinafter referred to as the “Forgiveness Date”).

- 6 -
 (iii)          shall, promptly (and in any event within three (3) Business Days) upon Lender’s request, provide Lender with copies of all material documents, applications and correspondence with the applicable lender or any governmental authority relating to CARES Indebtedness, including with respect to loan forgiveness.

(iv)          shall use the proceeds of the CARES Indebtedness solely for those purposes permitted by the CARES Act in order to maximize forgiveness of the CARES Indebtedness.

(v)          On the Forgiveness Date, Borrower shall deliver to Lender a certificate of an authorized officer of Borrower certifying as to the amount of the CARES Indebtedness that will be forgiven pursuant to the provisions of the CARES Act, together with reasonably detailed description thereof, all in form satisfactory to Lender


b.
Pursuant to Section 5.27(h) of the Agreement, unless the Lender has given prior written consent, the Loan Party Obligors are prohibited from guarantying or otherwise becoming liable with respect to the obligations of another Person other than as described in said Section 5.27(h). Pursuant to the Atlantic Acquisition Documents, the Parent will guaranty the payment of the Atlantic Deferred Purchase Price Payments which, absent the consent of the Lender, would be in violation of Section 5.27(h) of the Agreement. The Loan Party Obligators have requested that the Lender consent to the Parent’s guaranty of the Atlantic Deferred Purchase Price Payments. Upon the effectiveness of this Fourth Amendment, the Lender hereby consents to the guaranty of the Atlantic Deferred Purchase Price Payments by the Parent under the Atlantic Acquisition Documents. The consent to the foregoing is only in connection with the Atlantic Deferred Purchase Price Payments, and shall not be deemed to constitute an agreement by the Lender to consent to any other action in violation of Section 5.27(h) or waive the provisions of Section 5.27(h) (or any other provision of the Agreement) in the future.

4.
Joinder and Assumption of Obligations. As of the Fourth Amendment Effective Date, the New Borrower hereby acknowledges that it has received and reviewed a copy of the Agreement and the other Loan Documents, and hereby:


a.
joins in the execution of, and becomes a party to, the Agreement and the other Loan Documents as a Loan Party Obligor thereunder as indicated with its signature below;


b.
covenants and agrees to be bound by all covenants, agreements, liabilities and acknowledgments of a Loan Party Obligor under the Agreement and the other Loan Documents as of the date hereof (other than covenants, agreements, liabilities and acknowledgments that relate solely to an earlier date), in each case, with the same force and effect as if such New Borrower was a signatory to the Agreement and the other Loan Documents and was expressly named as a Loan Party Obligor therein;

- 7 -

c.
makes all representations, warranties, and other statements of a Loan Party Obligor under the Agreement and the other Loan Documents, as of the date hereof (other than representations, warranties and other statements that relate solely to an earlier date), in each case, with the same force and effect as if such New Borrower was a signatory to the Agreement and the other Loan Documents and was expressly named as a Loan Party Obligor therein;


d.
assumes and agrees to perform all applicable duties and Obligations of a Loan Party Obligor under the Agreement and the other Loan Documents; and


e.
without limiting the provisions of subparagraph (a) above, New Borrower hereby agrees as follows:

To secure the full payment and performance of all of the Obligations, New Borrower hereby assigns to Lender and grants to Lender a continuing security interest in all property of such New Borrower, whether tangible or intangible, real or personal, now or hereafter owned, existing, acquired or arising and wherever now or hereafter located, and whether or not eligible for lending purposes, including: (i) all Accounts (whether or not Eligible Accounts) and all Goods whose sale, lease or other disposition by such New Borrower has given rise to Accounts and have been returned to, or repossessed or stopped in transit by, such New Borrower; (ii) all Chattel Paper (including Electronic Chattel Paper), Instruments, Documents, and General Intangibles (including all patents, patent applications, trademarks, trademark applications, trade names, trade secrets, goodwill, copyrights, copyright applications, registrations, licenses, software, franchises, customer lists, tax refund claims, claims against carriers and shippers, guarantee claims, contracts rights, payment intangibles, security interests, security deposits and rights to indemnification); (iii) all Inventory; (iv) all Goods (other than Inventory), including Equipment, Farm Products, Health-Care-Insurance Receivables, vehicles, and Fixtures; (v) all Investment Property, including all rights, privileges, authority, and powers of such New Borrower as an owner or as a holder of Pledged Equity, including all economic rights, all control rights, authority and powers, and all status rights of such New Borrower as a member, equity holder or shareholder, as applicable, of each Issuer; (vi) all Deposit Accounts, bank accounts, deposits and cash; (vii) all Letter-of-Credit Rights; (viii) all Commercial Tort Claims; (ix) all Supporting Obligations; (x) any other property of such New Borrower now or hereafter in the possession, custody or control of Lender or any agent or any parent, Affiliate or Subsidiary of Lender or any Participant with Lender in the Loans, for any purpose (whether for safekeeping, deposit, collection, custody, pledge, transmission or otherwise); and (xi) all additions and accessions to, substitutions for, and replacements, products and Proceeds of the foregoing property, including proceeds of all insurance policies insuring the foregoing property, and all of such New Borrower’s books and records relating to any of the foregoing and to such New Borrower’s business.

- 8 -
5.
Acknowledgement of Merger of Certain Borrowers. The Loan Parties hereby warrant and represent to the Lender that on or about June 2020 (i) Honor WW merged with Janel (the “Honor WW Merger”), with the surviving company being Janel, as permitted by Section 5.27(a)(i) of the Agreement, (ii) such Honor WW Merger has been completed in compliance with all applicable laws, and (iii) the Loan Parties have provided the Lender with true and complete copies of the documents evidencing such mergers, including such documents filed with the applicable Governmental Authorities.

6.
Ratification of Loan Documents/Waiver. Except as provided for herein, all terms and conditions of the Agreement or the other Loan Documents remain in full force and effect. Each Loan Party Obligor each hereby ratifies, confirms, and reaffirms all representations, warranties, and covenants contained therein and acknowledges and agrees that the Obligations, as amended hereby, are and continue to be secured by the Collateral. Each Loan Party Obligor acknowledges and agrees that each such Loan Party Obligor does not have any offsets, defenses, or counterclaims against the Lender arising out of the Agreement or the other Loan Documents, and to the extent that any such offsets, defenses, or counterclaims arising out of the Agreement or the other Loan Documents may exist, each such Loan Party Obligor hereby WAIVES and RELEASES the Lender therefrom.

7.
Amendment Fee. In consideration of Lender’s agreement to enter into this Fourth Amendment, the Borrowers hereby acknowledge that the Lender has earned an amendment fee in the amount of $4,000 (the “Amendment Fee”). The Amendment Fee shall be fully earned as of the Fourth Amendment Effective Date hereof and shall not be subject to refund or rebate under any circumstances.

8.
Conditions to Effectiveness. This Fourth Amendment shall not be effective until each of the following conditions precedent have been fulfilled to the satisfaction of the Lender:


a.
This Fourth Amendment shall have been duly executed and delivered by the respective parties hereto and, shall be in full force and effect and shall be in form and substance satisfactory to the Lender.


b.
New Borrower and the other Loan Party Obligors shall have executed and delivered such documents and agreements set forth on the Closing Checklist as required by Lender.


c.
The Borrower shall have paid to the Lender all other fees and expenses then due and owing pursuant to the Agreement and this Fourth Amendment.


d.
The Atlantic Acquisition shall occur contemporaneously with the execution and delivery of this Fourth Amendment.

9.
Conditions Subsequent to Effectiveness. The Loan Parties agree that, in addition to all other terms, conditions and provisions set forth in this Agreement and the other Loan Documents, including, without limitation, those conditions set forth in Paragraph 8, the Loan Parties shall satisfy each of the conditions subsequent set forth below on or before the date applicable thereto:

- 9 -

a.
Within 60 days after the Fourth Amendment Effective Date (or such longer period of time as may be agreed in writing by the Lender in its sole discretion), the Loan Parties shall either close or move to Santander Bank, N.A. the following accounts:


i.
Citizens Bank Account No.


ii.
Citizens Bank Account No.


iii.
Citizens Bank Account No.


b.
Within 30 days of the Fourth Amendment Effective date (or such longer period of time as may be agreed in writing by the Lender in its sole discretion), the Loan Parties shall comply with the Insurance requirements as described in Section 5.14, as such requirements pertain to Atlantic.


c.
Within 30 days after the Fourth Amendment Effective Date (or such longer period of time as may be agreed in writing by the Lender in its sole discretion), the Loan Parties shall use commercially reasonable efforts to deliver to the Lender a duly executed landlord waiver, in form and substance reasonably satisfactory to the Lender, executed by each landlord with respect to each of the Leases at the Loan Parties leased locations as set forth below. For the avoidance of doubt, failure to obtain such collateral access agreements shall not constitute an Event of Default.


i.
154 State Street, North Haven, CT 06473


ii.
Air Exchange Building, 334 Ella Grasso Turnpike, Windsor Locks, CT 06096

10.
Miscellaneous.


a.
This Fourth Amendment may be executed in several counterparts and by each party on a separate counterpart, each of which when so executed and delivered shall be an original, and all of which together shall constitute one instrument.


b.
The provisions of Section 10.15 (Governing Law) and 10.16 (Consent to Jurisdiction; Waiver of Jury Trial) are specifically incorporated herein by reference.


c.
This Fourth Amendment expresses the entire understanding of the parties with respect to the transactions contemplated hereby. No prior negotiations or discussions shall limit, modify, or otherwise affect the provisions hereof.


d.
Any determination that any provision of this Fourth Amendment or any application hereof is invalid, illegal or unenforceable in any respect and in any instance shall not affect the validity, legality, or enforceability of such provision in any other instance, or the validity, legality or enforceability of any other provisions of this Fourth Amendment.

- 10 -

e.
The Borrower shall pay on demand all costs and expenses of the Lender, including, without limitation, reasonable attorneys’ fees in connection with the preparation, negotiation, execution and delivery of this Fourth Amendment.


f.
The Loan Party Obligors each warrants and represents that such Person has consulted with independent legal counsel of such Person’s selection in connection with this Fourth Amendment and is not relying on any representations or warranties of the Lender or its counsel in entering into this Fourth Amendment.

[remainder of page left intentionally blank]

- 11 -
IN WITNESS WHEREOF, the parties have hereunto caused this Fourth Amendment to be executed and their seals to be hereto affixed as of the date first above written.

     
LENDER
     
SANTANDER BANK, N.A.
         
     
By:
/s/ John Nuzzo
         
     
Name:
John P. Nuzzo
     
Its:
SVP
         
 

BORROWER
 
       
Witnessed by:
   
JANEL GROUP, INC., a New York corporation
         
         
         
Print Name:
   
By:
/s/ Karen Kenney
         
     
Name:
Karen Kenney
Print Name:
   
Its:
President


LOAN PARTY OBLIGORS
Witnessed by:


 
JANEL CORPORATION, a Nevada corporation
   
By:
/s/ Dominique Schulte
Print Name:
   
   
Name:
Dominique Schulte Its: President
Print Name:
     
   
Witnessed by:
ATLANTIC CUSTOMS BROKERS, INC., a Connecticut corporation, as the “New Borrower ”
     
Print Name:
By:
/s/ Karen Kenney
 
Name:
Karen Kenney
 
Its:
President
     
Print Na me:
   

[Signature Page to Consent, Joinder, and Fourth Amendment to Loan and Security Agreement]
Disclosure Schedule

Section 1.

(a)
Jurisdictions of Formation; Foreign Business Qualifications:

LOAN PARTY
JURISDICTION OF
FORMATION
FOREIGN
BUSINESS
QUALIFICATIONS
     
     
     

(b)
Names:

LOAN PARTY OBLIGOR LEGAL NAME
PRIOR LEGAL NAMES
EXISTING TRADE NAMES
PRIOR TRADE NAMES
       
       

Disclosure Schedule - 1
(c)
Collateral Locations1:

LOAN PARTY OBLIGOR
COLLATERAL DESCRIPTION
COLLATERAL LOCATION
OR PLACE OF BUSINESS
(INCLUDING CHIEF EXECUTIVE
OFFICE)
OWNER/LESSOR (IF LEASED)
       
       

(d)
Collateral in Possession of Lessor, Bailee, Consignee, or Warehouseman:
 
1 Limit representation to chief executive office and offices where there is equipment valued in the aggregate at more than $25,000

Disclosure Schedule - 2
(e)
Litigation:
 
(f)
Capitalization of Loan Parties:

Loan Party
Equity-holder
Equity Description
Percentage of
Outstanding
Equity Issued by
Loan Party
Certificate (Indicate No.)
         
         
         

(g)
Other Investment Property

(h)
Material Contracts

(i)
Employment Agreements

(ii)
Collective Bargaining:

(iii)
Managerial or Consulting Agreements:

(iv)
Agreement regarding assets or operations:

(v)
Patent, Trademark, Copyright Licenses:

(vi)
Distribution or Supply Agreements:

(vii)
Customer agreements:

(viii)
LLC Agreements:

(ix)
Real Estate Leases:

(x)
Agreements which breach of such agreement could result in a Material Adverse Effect:

Disclosure Schedule - 3
Section 2.          Commercial Tort Claims

Section 3.          Deposit Accounts / Other accounts

Loan Party Obligor
Name of Financial Institution
Account Number
 
(* indicates account is approved for funding of loan proceeds)
Purpose of
Account
Is the Account a “Restricted Account” as defined in
Schedule B (Yes or No?)
         
         
         

Section 4.          Intellectual Property

(a)          Patents and Patent Licenses:

(b)          Trademarks and Trademark Licenses:

(c)          Copyrights and Copyright Licenses:

Disclosure Schedule - 4
5.
Insurance

Type of Insurance
Issuer
Insured Entities
Deductible
       
       
       

Section 6.          Permitted Indebtedness

•

Section 7.          Permitted Liens

Disclosure Schedule - 5
Execution Version

Schedule A

Description of Certain Terms

1.          Loan Limits for Revolving Loans and Letters of Credit:
 
(a)
Maximum Revolving Facility Amount:
$17,000,0001
(b)
Accounts Advance Rate:
85%
(c)
Foreign Accounts Sublimit:
$2,500,0002
(d)
Letter of Credit Limit:
$1,000,0003
2.          Interest Rates:
 
(a)
Base Rate Loans:
Base Rate (for avoidance of doubt, the applicable margin is found in the definition of “Base Rate”).4
(b)
LIBOR Rate Loans:
LIBOR Rate plus LIBOR Rate Margin
3.          Maximum Days re Eligible Accounts:
 
(a)
Maximum days:
More than ninety (90) days from invoice date and sixty (60) days from due date
   
4.          Maturity Date:
October 17, 20225
 
2619966.9
 
1Deleted in its entirety and replaced per First Amendment; deleted and replaced per Second Amendment
2Deleted in its entirety and replaced per First Amendment; deleted and replaced per Second Amendment
3 Item number corrected from (e) to (d) and dollar amount deleted and replaced per Second Amendment
4 Deleted and replaced per Third Amendment
5 Deleted and replaced per Third Amendment

 
Schedule A – 1

Disclosure Schedule - 6
EXHIBIT 21
 
SUBSIDIARIES OF JANEL CORPORATION
 
Name
State of
Incorporation
Janel Group, Inc.
New York
Indco, Inc.
Tennessee
Aves Labs Inc.
Oregon
Antibodies Inc.
California
PhosphoSolutions, LLC
Nevada
Atlantic Customs Brokerage, Inc.
Connecticut


Exhibit 23.1
 

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM’S CONSENT
 
To the Board of Directors and Stockholders of
Janel Corporation and Subsidiaries

We consent to the incorporation by reference in Registration Statement No. 333-222791 of Janel Corporation on Form S-8 of our report dated January 13, 2021 with respect to our audit of the consolidated financial statements of Janel Corporation and Subsidiaries appearing in this Annual Report on Form 10-K of Janel Corporation as of and for the year ended September 30, 2020.

/s/Prager Metis CPAs, LLC
 
Prager Metis CPAs, LLC Basking Ridge, New Jersey January 13, 2021




EXHIBIT 31.1
 
CERTIFICATION
 
I, Dominique Schulte, certify that:
 
1.          I have reviewed this Annual Report on Form 10-K of Janel Corporation (the Registrant) ;
 
2.          Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3.          Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;
 
4.          The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a- 15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:
 

(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 

(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 

(c)
Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 

(d)
Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
 
5.          The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent function):
 

(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and
 

(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.
 
Date: January 13, 2021
/s/ Dominique Schulte
 
Dominique Schulte
 
Chairman, President and Chief Executive Officer
 
(Principal Executive Officer)


EXHIBIT 31.2
 
I, Vincent A. Verde, certify that:
 
1.          I have reviewed this Annual Report on Form 10-K of Janel Corporation (the Registrant) ;
 
2.          Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3.          Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
4.          The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a- 15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:
 

(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 

(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 

(c)
Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 

(d)
Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and
 
5.          The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent function):
 

(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and
 

(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.
 
Date: January 13, 2021
/s/ Vincent A. Verde
 
Vincent A. Verde
 
Principal Financial Officer, Treasurer and Secretary


EXHIBIT 32.1
 
CERTIFICATION
PURSUANT TO 18 U.S.C. §1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
 
In connection with the report on Form 10-K of Janel Corporation for the fiscal year ended September 30, 2020, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I Dominique Schulte, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
 
1.          The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
 
2.          The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
 
Date: January 13, 2021
/s/ Dominique Schulte
 
Dominique Schulte
 
Chairman, President and Chief Executive Officer
 
(Principal Executive Officer)

The foregoing certification is being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Section 1350 of Chapter 63 of Title 18 of the United States Code) and is not being filed as part of the Report or as a separate disclosure document.
 

EXHIBIT 32.2
 
CERTIFICATION
PURSUANT TO 18 U.S.C. §1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
 
In connection with the report on Form 10-K of Janel Corporation for the fiscal year ended September 30, 2020, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I Vincent A. Verde, Principal Financial Officer, Treasurer and Secretary of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
 
1.          The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
 
2.          The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
 
Date: January 13, 2021
/s/ Vincent A. Verde
 
Vincent A. Verde
 
Principal Financial Officer, Treasurer and Secretary

The foregoing certification is being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Section 1350 of Chapter 63 of Title 18 of the United States Code) and is not being filed as part of the Report or as a separate disclosure document.