JANEL CORP - Quarter Report: 2017 June (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly period ended June 30, 2017

OR

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

SECURITIES EXCHANGE ACT OF 1934

Commission file number 333-60608

JANEL CORPORATION

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

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

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

Yes x           No ¨

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

Yes x           No ¨

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

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

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

Yes ¨           No x

The number of shares of Common Stock outstanding as of August 4, 2017 was 553,951.

JANEL CORPORATION

QUARTERLY REPORT ON FORM 10-Q

For Quarterly Period Ended June 30, 2017

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION

JANEL CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

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

JANEL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

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

JANEL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)

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

JANEL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

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

JANEL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The accompanying interim unaudited consolidated financial statements have been prepared pursuant to the rules and regulations of Article 10 of Regulation S-X and instructions to Form 10-Q of the Securities and Exchange Commission. As a result, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. Janel Corporation (together with its subsidiaries, “the Company”) believes that the disclosures made are adequate to make the information presented not misleading. The consolidated financial statements reflect all adjustments which are, in the opinion of management, necessary to a fair statement of the results for the interim periods presented. The results of operations for the periods presented are not necessarily indicative of the results to be expected for a full fiscal year, or any other period. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes included in the Company’s Form 10-K as filed with the Securities and Exchange Commission on or about December 22, 2016.

INDCO, Inc. (“INDCO”)

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

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

INDCO comprises the Manufacturing segment of the Company.

Purchase Price Allocation. In accordance with the acquisition method of accounting, the Company allocated the consideration to the net tangible and identifiable intangible assets based on their estimated fair values, which were determined by an independent valuation performed by a third party, as of the effective acquisition date, March 1, 2016.

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

The following table summarizes the fair values assigned to the assets acquired and liabilities assumed.

W.J. Byrnes & Co. (“Byrnes”)

General. On April 1, 2017, the Company executed and closed a Stock Purchase Agreement (the “Byrnes Purchase Agreement”) for the purchase by the Company of 100% of the outstanding common stock (the “Byrnes Shares”) of W.J. Byrnes & Co., a global logistics services provider with five U.S. locations.

Under the terms of the Byrnes Purchase Agreement, the purchase price for the Byrnes Shares was $100,000 in cash, paid at the closing, plus the assumption of Byrnes’ net liabilities, subject to certain closing adjustments and customary indemnifications, representations and warranties.

The Byrnes acquisition expands the domestic network of the Company’s Global Logistics Services segment.

Purchase Price Allocation. In accordance with the acquisition method of accounting, the Company allocated the consideration to the net tangible and identifiable intangible assets based on their estimated fair values, which were determined by an independent valuation performed by a third party, as of the effective acquisition date, April 1, 2017.

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

The following table summarizes the fair values assigned to the assets acquired and liabilities assumed.

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

Presidential Financial Corporation Borrowing Facility

On March 27, 2014, Janel Corporation and several of its subsidiaries within its Global Logistics Services segment (collectively, the “Janel Borrowers”), entered into a Loan and Security Agreement with Presidential Financial Corporation (“Presidential”) with respect to a revolving line of credit facility (the “Presidential Facility”). As currently amended, the Presidential Facility provides that the Janel Borrowers can borrow up to $10,000,000, limited to 85% of the Janel Borrowers’ aggregate outstanding eligible accounts receivable, subject to adjustment as set forth in the Loan and Security Agreement. Interest will accrue at an annual rate equal to five percent above the greater of (a) the prime rate of interest quoted in The Wall Street Journal from time to time, or (b) 3.25%. The Janel Borrowers’ obligations under the Presidential Facility are secured by the assets of the Janel Borrowers. The Loan Security Agreement requires, among other things, that the Company, on a monthly basis, maintain a “minimum fixed charge covenant ratio” and “tangible net worth,” both as defined. The Presidential Facility will expire on March 27, 2018, subject to earlier termination as provided in the Loan and Security Agreement, unless renewed.

As of June 30, 2017, there were outstanding borrowings of $6,442,500 under the Presidential Facility, representing 90.7% of the $7,104,942 available thereunder. The Janel Borrowers are in compliance with the covenants defined in the Loan and Security Agreement.

First Merchants Bank Borrowing Facility

On March 21, 2016, INDCO executed a Credit Agreement with First Merchants Bank (“First Merchants”) with respect to a $6,000,000 term loan and $1,500,000 (limited to the borrowing base and reserves) revolving loan (together, the “First Merchants Facility”). Interest will accrue on the term loan at an annual rate equal to the one-month LIBOR plus either 3.75% (if INDCO’s cash flow leverage ratio is less than or equal to 2:1) or 4.75% (if INDCO’s cash flow leverage ratio is greater than 2:1). Interest accrues on the revolving loan at an annual rate equal to the one-month LIBOR plus 2.75%. INDCO’s obligations under the First Merchants Facility are secured by all of INDCO’s assets, and are guaranteed by the Company. The Credit Agreement requires, among other things, that INDCO, on a monthly basis, not exceed a “maximum total funded debt to EBITDA ratio” and maintain a “minimum fixed charge covenant ratio,” both as defined. The First Merchants Facility requires monthly payments until the expiration date on the fifth anniversary of the loan. The loan is subject to earlier termination as provided in the Credit Agreement, unless renewed.

As of June 30, 2017, there were no borrowings under the revolving loan, and there were outstanding borrowings of $4,533,994 under the term loan. INDCO is in compliance with the covenants defined in the Credit Agreement.

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

On October 1, 2016, the Company entered into an agreement to grant a consultant options to purchase 6,053 shares of common stock ($25,000 worth of stock based on the September 30, 2016 closing price of $4.13) at an exercise price of $4.13 per share. The options are exercisable in three installments on each of October 1, 2017, 2018 and 2019.

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

On May 12, 2017, the two executive officers were granted an aggregate of 11,121 options to purchase shares of the Company’s common stock under the Company’s 2013 Non-Qualified Stock Option Plan. The options are exercisable for a period of ten years at an exercise price of $8.01 per share. Eight-thousand options were immediately exercisable, and 3,121 options are exercisable in three equal annual installments commencing on the first anniversary of the grant date.

On May 12, 2017, two employees were granted an aggregate of 10,000 options to purchase shares of the Company’s common stock under the Company’s 2013 Non-Qualified Stock Option Plan. The options are exercisable for a period of ten years at an exercise price of $8.01 per share. The shares are exercisable in three equal annual installments commencing on the first anniversary of the grant date.

On May 12, 2017, the Company adopted the Company’s 2017 Equity Incentive Plan (the “Plan”) pursuant to which (i) incentive stock options, (ii) non-statutory stock options, (iii) restricted stock awards, and (iv) stock appreciation rights with respect to shares of the Company’s common stock may be granted to directors, officers, employees of and consultants to the Company. Participants and all terms of any awards under the Plan are at the discretion of the Company’s Board of Directors in its role as the Compensation Committee.

On May 12, 2017, a non-executive director was granted an aggregate of 6,524 options to purchase shares of the Company’s common stock under the Plan. The options are exercisable for a period of ten years at an exercise price of $8.01 per share. The shares are exercisable in three equal annual installments commencing on October 1, 2017 and the subsequent anniversaries thereafter.

On May 12, 2017, the Company granted 15,000 and 10,000 Restricted Stock Awards to a non-executive director and a consultant, respectively, under the Plan. Each grant vests in three equal annual installments commencing on October 1, 2017.

As of June 30, 2017, the Company operates in two reportable segments, Global Logistics Services and Manufacturing, supported by a corporate group which conducts activities that are non-segment specific. The following table presents selected financial information about the Company’s reportable segments for the three and nine months ended June 30, 2017 and 2016:

The Company has evaluated events occurring after the date of these financial statements through the date that these financial statements were issued. There is no material subsequent events as of that date which would require disclosure in or adjustments to the financial statements.

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

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains certain forward-looking statements reflecting our current expectations with respect to our operations, performance, financial condition, and other developments. These forward-looking statements may generally be identified by the use of the words “may,” “will,” “intends,” “plans,” projects,” “believes,” “should,” “expects,” “anticipates,” “estimates,” and similar expressions. These statements are necessarily estimates reflecting management’s best judgment based upon current information and involve a number of risks and uncertainties. We caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made, and readers are advised that various factors could affect our financial performance and could cause our actual results for future periods to differ materially from those anticipated or projected. While it is impossible to identify all such factors, such factors include, but are not limited to, those risks identified in our periodic reports filed with the Securities and Exchange Commission, including our most recent Annual Report on Form 10-K.

OVERVIEW

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

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

In September 2014, the Company purchased the equity of Alpha International/President Container Lines (“Alpha/PCL”), a global logistics services company. Approximately one year later, it purchased the equity of Liberty International, Inc. (“Liberty”). In April 2017, it purchased the equity of W.J. Byrnes & Co. (“Byrnes”). These companies, along with the legacy Janel Group, comprise Janel Corporation’s Global Logistics Services segment, which focuses on international transportation and customs clearance. In March 2016, the Company purchased INDCO, Inc. (“INDCO”) in order to diversify cash flow streams. INDCO comprises Janel Corporation’s Manufacturing segment.

The Company employs 121 full-time and five part-time people in the United States. None of these employees is covered by a collective bargaining agreement. We have experienced no work stoppages and consider relations with our employees to be good.

Results of Operations

Global Logistics Services – Three months ended June 30, 2017 and 2016

Revenues. Total revenues from continuing operations for the three months ended June 30, 2017 were $17,963,837, as compared to $15,425,092 for the three months ended June 30, 2016. This is an increase of $2,538,745, or 16.5%. The increase is due to revenue of $1,104,742 derived from Byrnes customers and $1,434,003 derived from new and existing non-Byrnes customers.

Forwarding Expenses. Total forwarding expenses from continuing operations for the three months ended June 30, 2017 were $14,455,926, as compared to $12,157,139 for the three months ended June 30, 2016. This is an increase of $2,298,787, or 18.9%. The increase is due to forwarding expenses of $691,411 attributable to Byrnes customers and $1,607,376 associated with new and existing non-Byrnes customers.

Certain items have been categorized as “corporate” expenses attributable to overall management of the Company and other non-segment specific activities. These expenses are discussed below under “Corporate Selling, General and Administrative Expenses.” The following discussion of selling, general and administrative expenses in the Global Logistics Service segment excludes these “corporate” items.

Selling, General and Administrative Expenses. Total selling, general and administrative expenses from continuing operations for the three months ended June 30, 2017 were $2,870,235, as compared to $2,613,697 for the three months ended June 30, 2016. This is an increase of $256,538, or 9.8%. The increase primarily is due to additional selling, general and administrative costs associated with the integration of the Byrnes offices. As a percentage of revenue, selling, general and administrative expenses for the three months ended June 30, 2017 were 16.0%, as compared to 16.9% for the three months ended June 30, 2016.

Interest Expense. Total interest expense for the three months ended June 30, 2017 was $116,672, as compared to $120,988 for the three months ended June 30, 2016. This is a decrease of ($4,316), or (3.6%). The decrease was due to an improvement in working capital for the period that lowered average borrowings against the Presidential Borrowing Facility referenced below.

Income from Continuing Operations before Income Taxes. As a result of the above, income from continuing operations before income taxes for the three months ended June 30, 2017 was $521,004, as compared to $533,268 for the three months ended June 30, 2016. This is a decrease of ($12,264), or (2.3%).

Manufacturing – Three months ended June 30, 2017 and 2016

Revenues. Total revenues for the three months ended June 30, 2017 were $2,283,041, as compared to $2,080,361 for the three months ended June 30, 2016. This is an increase of $202,680, or 9.7%. The increase primarily is due to growth in demand for core INDCO manufactured mixer products.

Cost of Revenues. Total cost of revenues for the three months ended June 30, 2017 was $989,313 as compared to $961,587 for the three months ended June 30, 2016. This is an increase of $27,726, or 2.9%. The increase primarily is due to costs associated with meeting the growth in demand described above.

Gross Margin. Total gross margin for the three months ended June 30, 2017 was $1,293,728, as compared to $1,118,774 for the three months ended June 30, 2016. This is an increase of $174,954, or 15.6%. As a percentage of revenue, gross margin for the three months ended June 30, 2017 was 56.7%, as compared to 53.8% for the three months ended June 30, 2016. The increase primarily is due to growth in sales of relatively higher margin products.

Selling, General and Administrative Expenses. Total selling, general and administrative expenses for the three months ended June 30, 2017 were $635,680, as compared to $594,186 for the three months ended June 30, 2016. This is an increase of $41,494 or 7.0%. The increase primarily is due to additional sales expenses associated with the growth of the business.

Interest Expense. Total interest expense for the three months ended June 30, 2017 was $67,608 as compared to $78,904 for the three months ended June 30, 2016. This is a decrease of ($11,296), or (14.3%). The decrease is due to paydown of principal on the First Merchants Bank Borrowing Facility referenced below.

Income from Continuing Operations before Income Taxes. As a result of the above, income from continuing operations before income taxes for the three months ended June 30, 2017 was $587,940, as compared to $443,184 for the three months ended June 30, 2016. This is an increase of $144,756, or 32.7%.

Corporate – Three months ended June 30, 2017 and 2016

Corporate Selling, General and Administrative Expenses. Total corporate selling, general and administrative expenses from continuing operations for the three months ended June 30, 2017 were $496,396, as compared to $253,053 for the three months ended June 30, 2016. This is an increase of $243,343, or 96.2%. The increase is due to the recategorization of certain costs, previously included in the Global Logistics Services segment, as “corporate” costs. These include primarily the salaries of executives whose responsibilities have shifted from the Global Logistics Service segment to Janel Corporation corporate development.

Amortization of Intangible Assets. Total amortization of intangible assets for the three months ended June 30, 2017 was $193,166 as compared to $200,737 for the three months ended June 30, 2016. This is a decrease of ($7,571), or (3.8%). The decrease is due to an amortization adjustment related to INDCO in the first quarter following the INDCO acquisition.

Net Loss. As a result of the above, net loss for the three months ended June 30, 2017 was ($689,562), as compared to ($453,790) for the three months ended June 30, 2016. This is a decrease of ($235,772) or (52.0%).

Consolidated income taxes – Three months ended June 30, 2017 and 2016

The company recorded a net income tax provision for the three months ended June 30, 2017 of $129,419, as compared to $36,604 for the three months ended June 30, 2016.

Global Logistics Services – Nine months ended June 30, 2017 and 2016

Revenues. Total revenues from continuing operations for the nine months ended June 30, 2017 were $49,499,193, as compared to $53,935,789 for the nine months ended June 30, 2016. This is a decrease of ($4,436,596), or (8.2%). The decrease primarily is due to the loss of a low-margin, high-revenue customer, offset by revenues from new customers, including those derived from the Byrnes acquisition.

Forwarding Expenses. Total forwarding expenses from continuing operations for the nine months ended June 30, 2017 were $39,810,183 as compared to $44,171,758 for the nine months ended June 30, 2016. This is a decrease of ($4,361,575), or (9.9%). The decrease primarily is due to reduction in expenses associated with the loss of the low-margin, high-revenue customer referenced above, offset by additional expenses associated with new customer revenues, including those derived from the Byrnes acquisition.

For the current fiscal year, certain items have been categorized as “corporate” expenses attributable to overall management of Janel and other non-segment specific activities. These expenses are discussed below under “Corporate Selling, General and Administrative Expenses.” The following discussion of selling, general and administrative expenses in the Global Logistics Service segment excludes these “corporate” items.

Selling, General and Administrative Expenses. Total selling, general and administrative expenses from continuing operations for the nine months ended June 30, 2017 were $8,001,437 as compared to $8,086,749 for the nine months ended June 30, 2016. This is a decrease of ($85,312), or (1.1%). The decrease is due to certain cost reduction initiatives enacted in prior periods. As a percentage of revenue, selling, general and administrative expenses for the nine months ended June 30, 2017 were 16.2%, as compared to 15.0% for the nine months ended June 30, 2016. This is an increase of 1.2%. The increase primarily is due to the reduction in revenues associated with the loss of the low-margin, high-revenue customer referenced above.

Interest Expense. Total interest expense for the nine months ended June 30, 2017 was $356,362, as compared to $382,804 for the nine months ended June 30, 2016. This is a decrease of ($26,442), or (6.9%). The decrease was due to an improvement in working capital for the period, which lowered average borrowings against the Presidential Borrowing Facility referenced below.

Income from Continuing Operations before Income Taxes. As a result of the above, income from continuing operations before income taxes for the nine months ended June 30, 2017 was $1,331,211, as compared to $1,294,478 for the nine months ended June 30, 2016. This is an increase of $36,733, or 2.8%.

Manufacturing – Nine months ended June 30, 2017 and 2016

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

Revenues. Total revenues for the nine months ended June 30, 2017 were $6,444,205 and $2,792,667 for the four months ended June 30, 2016.

Cost of Revenues. Total cost of revenues for the nine months ended June 30, 2017 was $2,888,458 and $1,266,878 for the four months ended June 30, 2016.

Gross Margin. Total gross margin for the nine months ended June 30, 2017 was $3,555,748 and $1,525,789 for the four months ended June 30, 2016.

Selling, General and Administrative Expenses. Total selling, general and administrative expenses for the nine months ended June 30, 2017 were $1,911,848 and $805,985 for the four months ended June 30, 2016.

Interest Expense. Total interest expense for the nine months ended June 30, 2017 was $210,445 and $93,861 for the four months ended June 30, 2016.

Income from Continuing Operations before Income Taxes. Income from continuing operations before income taxes for the nine months ended June 30, 2017 was $1,425,954 and $622,610 for the four months ended June 30, 2016.

Corporate – Nine months ended June 30, 2017 and 2016

Corporate Selling, General and Administrative Expenses. Total corporate selling, general and administrative expenses from continuing operations for the nine months ended June 30, 2017 were $1,293,174 as compared to $906,174 for the nine months ended June 30, 2016. This is an increase of $387,000, or 42.7%. The increase is due to the recategorization of certain costs, previously included in the Global Logistics Services segment, as “corporate” costs. These include primarily the salaries of executives whose responsibilities have shifted from the Global Logistics Service segment to Janel Corporation corporate development.

Amortization of Intangible Assets. Total amortization of intangible assets for the nine months ended June 30, 2017 was $571,497, as compared to $399,582 for the nine months ended June 30, 2016. This is an increase of $171,915, or 43.0%. The increase is due to the full-year impact of goodwill amortization associated with the March 2016 purchase of INDCO and additional goodwill amortization associated with the April 2017 purchase of Byrnes. These amounts do not include amortization associated with the INDCO term loan origination fee.

Net Loss. As a result of the above, net loss for the nine months ended June 30, 2017 was ($1,864,671) as compared to ($1,305,756) for the nine months ended June 30, 2016. This is a decrease of ($558,915) or (42.8%).

Consolidated income taxes – Nine months ended June 30, 2017 and 2016

The company recorded a net income tax provision for the nine months ended June 30, 2017 of $356,257, as compared to $75,181 for the nine months ended June 30, 2016.

Liquidity and Capital Resources

General. Our ability to satisfy our liquidity requirements, which derive from debt obligations, working capital needs, day-to-day operating expenses and capital expenditures, depends upon our future performance, which is subject to general economic conditions, competition and other factors, some of which are beyond our control. We depend on our commercial credit facilities to fund our day-to-day operations, as there is a timing difference between our collection cycles and the timing of our payments to vendors.

Janel’s cash flow performance for the nine months ending June 30, 2017 is not necessarily indicative of future cash flow performance.

Cash Flows from Operating Activities. Net cash provided by operating activities for the nine months ended June 30, 2017 was $2,828,686, as compared to $1,039,570 for the nine months ended June 30, 2016. This is an increase of $1,789,116, or 172.1%. The increase primarily is due to changes in accounts payable and accrued liabilities, offset by changes in accounts receivable.

Cash Flows from Discontinued Operating Activities. Net cash used in discontinued operating activities for the nine months ended June 30, 2017 was $46,878, which amount was reported within continuing operations in 2017, as compared to $184,845 for the nine months ending June 30, 2016. This is a decrease of ($137,967), or (74.6%). The 2016 figure includes the settlement of a lawsuit involving the Company's discontinued food business.

Cash Flows from Investing Activities. Net cash used in investing activities for the nine months ended June 30, 2017 was $120,132, as compared to $11,042,213 for the nine months ended June 30, 2016. The decrease reflects the INDCO acquisition in the prior period.

Cash Flows from Financing Activities. Net cash (used in) provided by financing activities for the nine months ended June 30, 2017 was ($1,784,201) as compared to $9,820,642 for the nine months ended June 30, 2016. The cash used in financing activities for the nine months ending June 30, 2017 primarily went toward the second of three annual earnout payments associated with the 2014 acquisition of Alpha/PCL and toward repayment of the First Merchants Bank Borrowing Facility associated with the INDCO acquisition. The cash provided by financing activities for the nine months ended June 30, 2016 primarily came from the First Merchants Bank Borrowing Facility and the sale of additional Preferred Series C shares, both associated with the INDCO acquisition.

Global Logistics Services

Presidential Financial Corporation Borrowing Facility. On March 27, 2014, Janel Corporation and several of its subsidiaries within its Global Logistics Services segment (collectively, the “Janel Borrowers”), entered into a Loan and Security Agreement with Presidential Financial Corporation (“Presidential”) with respect to a revolving line of credit facility (the “Presidential Facility”). As currently amended, the Presidential Facility provides that the Janel Borrowers can borrow up to $10,000,000, limited to 85% of the Janel Borrowers’ aggregate outstanding eligible accounts receivable, subject to adjustment as set forth in the Loan and Security Agreement. Interest will accrue at an annual rate equal to five percent above the greater of (a) the prime rate of interest quoted in The Wall Street Journal from time to time, or (b) 3.25%. The Janel Borrowers’ obligations under the Presidential Facility are secured by the assets of the Janel Borrowers. The Loan Security Agreement requires, among other things, that the Company, on a monthly basis, maintain a “minimum fixed charge covenant ratio” and “tangible net worth,” both as defined. The Presidential Facility will expire on March 27, 2018, subject to earlier termination as provided in the Loan and Security Agreement, unless renewed.

Working Capital Requirements. Janel Group’s cash needs are currently met by cash flow from operations, the Presidential Facility and cash on hand. As of June 30, 2017, the Company had $662,442 available under its Presidential Facility and $1,232,102 in cash. The Company believes that current financial resources will be sufficient to finance Janel Group operations and obligations (current and long-term liabilities) for the long- and short-terms. However, Janel Group’s actual working capital needs for the long- and short-terms will depend upon numerous factors, including operating results, the cost associated with growing Janel Group either internally or through acquisition, competition, and the availability under the Presidential Facility. None of these factors can be predicted with certainty. If cash flow and available credit are not sufficient to fund working capital, Janel Group’s operations will be materially negatively impacted.

Manufacturing

First Merchants Bank Borrowing Facility. On March 21, 2016, INDCO executed a Credit Agreement with First Merchants Bank (“First Merchants”) with respect to a $6,000,000 term loan and $1,500,000 (limited to the borrowing base and reserves) revolving loan (together, the “First Merchants Facility”). Interest will accrue on the term loan at an annual rate equal to the one-month LIBOR plus either 3.75% (if INDCO’s cash flow leverage ratio is less than or equal to 2:1) or 4.75% (if INDCO’s cash flow leverage ratio is greater than 2:1). Interest accrues on the revolving loan at an annual rate equal to the one-month LIBOR plus 2.75%. INDCO’s obligations under the First Merchants Facility are secured by all of INDCO’s assets, and are guaranteed by the Company. The Credit Agreement requires, among other things, that INDCO, on a monthly basis, not exceed a “maximum total funded debt to EBITDA ratio” and maintain a “minimum fixed charge covenant ratio,” both as defined. The First Merchants Facility requires monthly payments until the expiration date on the fifth anniversary of the loan. The loan is subject to earlier termination as provided in the Credit Agreement, unless renewed.

Working Capital Requirements. INDCO’s cash needs are currently met by cash flow from operations, the First Merchants Facility, and cash on hand. As of June 30, 2017, INDCO had $1,500,000 available under its $1,500,000 revolving facility, subject to collateral availability, and $657,366 in cash. The Company believes that the current financial resources will be sufficient to finance INDCO operations and obligations (current and long-term liabilities) for the long- and short-terms. However, actual working capital needs for the long- and short-terms will depend upon numerous factors, including operating results, the cost associated with growing INDCO either internally or through acquisition, competition, and available credit under the revolving credit facility. None of these factors can be predicted with certainty. If cash flow and available credit are not sufficient to fund working capital, INDCO’s operations will be materially negatively impacted.

Current Outlook

The results of operations for both Janel Group and INDCO are affected by the general economic cycle. Janel Group is particularly influenced by global trade levels, specifically the import and export activities of its current and prospective customers. Historically, Janel Group’s quarterly results of operations have been subject to seasonal trends which have been the result of, or influenced by, numerous factors, including climate, national holidays, consumer demand, economic conditions, the growth and diversification of Janel Group’s international network and service offerings, and other similar and subtle forces.

The Company cannot accurately forecast many of these factors, nor can it estimate accurately the relative influence of any factor and, as a result, there can be no assurance that historical patterns, if any, will continue in future periods.

Both Janel Group and INDCO are implementing business strategies to grow revenue and profitability for the current fiscal year and beyond. Janel Group’s strategy calls for additional branch offices, introduction of new revenue streams for existing locations, sales force expansion, additional acquisitions, and a continued focus on implementing lean methodologies to contain operating expenses. INDCO’s strategy calls for introductions of new product lines and wider distribution and promotion of its print- and web-based catalog.

In addition to supporting its subsidiaries’ growth plans, the Company may seek to grow by entering new business segments through acquisition.

Certain elements of our profitability and growth strategy, principally proposals for acquisition and accelerating our revenue growth, are contingent upon the availability of adequate financing on terms acceptable to the Company. Without adequate equity and/or debt financing, the implementation of significant aspects of the Company’s strategic growth plan may be deferred beyond the originally anticipated timing, and the Company’s operations will be materially negatively impacted.

Critical Accounting Policies and Estimates

Management’s Discussion and Analysis of Financial Condition and Results of Operations discusses the Company’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes. Since future events and their effects cannot be determined with absolute certainty, the determination of estimates requires the exercise of judgment. Actual results could differ from those estimates, and such difference may be material to the financial statements. The most significant accounting estimates inherent in the preparation of our financial statements include estimates as to revenue recognition, the appropriate carrying value of certain assets and liabilities which are not readily apparent from other sources, primarily allowance for doubtful accounts, accruals for transportation and other direct costs, accruals for cargo insurance, and deferred income taxes. Management bases its estimates on historical experience and on various assumptions which are believed to be reasonable under the circumstances. We reevaluate these significant factors as facts and circumstances change. Historically, actual results have not differed significantly from management’s estimates.

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

Revenue Recognition

Global Logistics Services

The Company’s Global Logistics Services segment comprises several wholly-owned subsidiaries, collectively known as “Janel Group.” Janel Group derives its revenues from air freight, ocean freight and customs brokerage services.

In its capacity as an air freight and ocean freight service provider, Janel Group acts as an indirect carrier: it does not own any transportation assets. Rather, it purchases transportation services from direct carriers (airlines, steam ship lines, etc.) and resells them to its customers. By consolidating shipments from multiple customers and availing itself of its buying power, Janel Group is able to negotiate favorable rates from direct carriers and offer to its customers better rates than the customers could obtain themselves.

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

Based upon the terms of the contract of carriage, Janel Group recognizes air freight and ocean freight revenues when the freight is tendered to the direct carrier. Costs related to the shipments are recognized at the same time.

In some cases, Janel Group acts as an agent for the shipper, in which case it does not issue a HAWB or a HOBL. Revenues from these activities include only commission and fees earned for services performed. They are recognized upon completion of services.

In its capacity as a customs broker, Janel Group provides multiple services, including preparing documentation necessary for clearing shipments through U.S. customs, calculating and providing for payment of duties and other charges on its customers’ behalves and arranging for required inspections. Revenues derived from these activities are recognized upon completion of the services.

The movement of freight may require multiple services. In most instances, Janel Group may perform multiple services including destination break bulk and value-added services such as local transportation, distribution services and logistics management. Each of these services has separate fee that is recognized as revenue upon completion of the service.

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

Manufacturing

The Company’s Manufacturing segment comprises its majority-owned INDCO subsidiary, which manufactures and distributes industrial mixing equipment. INDCO derives its revenues from product sales and shipping and handling charges, net of actual product returns and discounts. Since INDCO’s standard shipping terms are FOB shipping point, revenue primarily is recognized on the date products are shipped to the customer. INDCO recognizes revenues from both e-commerce and traditional channels in the same manner. Accounts receivable are stated at their estimated net realizable value. INDCO makes an allowance for doubtful accounts based on its analysis of customer accounts and its historical experience with accounts receivable write-offs.

Estimates

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

Management believes that the methods utilized in these areas are non-aggressive in approach and consistent in application. Management believes that there are limited, if any, alternative accounting principles or methods which could be applied to the Company’s transactions. While the use of estimates means that actual future results may be different from those contemplated by the estimates, the Company believes that alternative principles and methods used for making such estimates would not produce materially different results than those reported.

Recent Accounting Pronouncements

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

The Company maintains disclosure controls and procedures (as that term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (“Exchange Act”)) that are designed to provide reasonable assurance that information, which is required to be disclosed in the reports that it files or submits under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission, and is accumulated and communicated to management in a timely manner. The Company’s Chief Executive Officer and Chief Financial Officer have evaluated this system of disclosure controls and procedures as of the end of the period covered by this quarterly report, and have concluded that the system is effective. There have been no changes in our internal control over financial reporting during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

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

SIGNATURES

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