August 13, 2019

VIA EDGAR

Ms. Jennifer Thompson

Accounting Branch Chief

United States Securities and Exchange Commission

Division of Corporation Finance

Office of Consumer Products

100 F Street, N.E.

Washington, D.C. 20549

Dear Ms. Thompson:

We have carefully considered each of the comments set forth in the letter dated July 30, 2019 (the “Comment Letter”) from the staff (the “Staff”) of the U.S. Securities and Exchange Commission (the “Commission”) regarding the Staff’s review of Amendment No. 1 to the Form 8-K filed by Janel Corporation (the “Company” or “Janel”) on July 24, 2019 and have responded to such comments below. The numbered paragraphs and headings below correspond to the paragraphs and headings set forth in the Comment Letter.  Each of the Staff’s comments is set forth in bold, followed by the Company’s response to each comment.

 

Consistent with Staff Accounting Bulletin (“SAB”) No. 99, Materiality, and SAB No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements, the Company quantified the impact of the error correction on the revenues of its Global Logistics Services segment and the related forwarding expense for the year ended September 30, 2016 and determined that its previously reported revenues for its Global Logistics Services segment and the related forwarding expense for the year ended September 30, 2016 should have been lower by approximately $20,600,459, representing 27% of our total revenue for the period and 29% of our Global Logistics Services revenue for the period, as previously disclosed in our Annual Report on Form 10-K/A for the year ended September 30, 2016.  Accordingly, the Company revised its previously reported revenues for its Global Logistics Services segment from $70,596,132 to $49,995,673 for the year ended September 30, 2016, which appears under Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Business Performance – Fiscal 2017 compared to Fiscal 2016, as disclosed on page 18 of the Company’s Annual Report on Form 10-K for the year ended September 30, 2018, filed with the Commission on July 26, 2019 (the “2018 Form 10-K”).

 

In accordance with Staff Accounting Bulletin (“SAB”) No. 99, SAB No. 108 and SAB Topics 1:M and 1:N, the Company evaluated the impact of the error correction. Based on an analysis of quantitative and qualitative factors, the Company determined that the impact of the error correction was not quantitatively or qualitatively material to any of the Company’s previously issued financial statements and that the error correction should not be treated as a restatement of the Company’s previously published financial statements.  In particular, the Company considered the following quantitative and qualitative factors in its analysis:

 

Pursuant to SAB Topic 1:M, “the omission or misstatement of an item in a financial report is material if, in the light of surrounding circumstances, the magnitude of the item is such that it is probable that the judgment of a reasonable person relying upon the report would have been changed or influenced by the inclusion or correction of the item.”  The framework provided by SAB Topic 1:M further provides that “an assessment of materiality requires that one views the facts in the context of the ‘surrounding circumstances’, as the accounting literature puts it, or the ‘total mix’ of information, in the words of the Supreme Court. In the context of a misstatement of a financial statement item, while the ‘total mix’ includes the size in numerical or percentage terms of the misstatement, it also includes the factual context in which the user of financial statements would view the financial statement item.”

 

Consistent with the applicable accounting literature, management performed a quantitative analysis of the impact of the error correction on the Company’s consolidated statements of operations using both the “rollover” method and the “iron curtain” method as discussed in SAB Topic 1:N. The rollover method quantifies a misstatement based on the amount of the error originating in the current year income statement, thus, ignoring the effects of correcting the portion of the current year balance sheet misstatement that originated in the prior year. The iron curtain method quantifies a misstatement based on the effects of correcting the misstatement existing in the balance sheet at the end of the current year, irrespective of the misstatement’s year(s) of origination. Management also evaluated the impact on the Company’s consolidated balance sheets and statements of cash flows. In its evaluation, the Company considered the following key metrics: net income, operating income (loss), cash flows, gross profit, earnings per share, net revenue, total assets and total stockholders’ equity.

The following tables present the impact by line item of the correction of the amounts previously reported to the revised amounts for the nine months ended June 30, 2018 and the years ended September 30, 2016 and 2017 on the key metrics discussed above:

Although the Company recognizes and acknowledges that the “roll over” and “iron curtain” framework set forth in SAB 108 governs the consideration of the effects of prior year misstatements in quantifying misstatements in current year financial statements for the purpose of a materiality assessment, the application of these methods does not result in a correction to net income (loss) for any period and does not result in a correction in the balance sheet at the end of each reporting period.  Moreover, the Company believes that a reasonable person relying on the Company’s financial statements would not have been significantly influenced by the inclusion or the correction of the item because, as a pass-through item, the correction would have no impact on the Company’s net income (loss), operating income, cash flows, gross profit, earnings per share or net revenue.  The Company further determined that the error had no effect on total assets, total stockholders’ equity, operating results, cash flows or earnings per share in the consolidated financial statements for the fiscal years ended September 30, 2018, 2017 and 2016, as previously reported.  In addition, the Company considered that the error correction had no effect on the Company’s compliance with its debt covenants.

The only items impacted by the correction were Global Logistics Services revenue and the associated cost and expenses.  Specifically, the Company quantified the impact of the error correction on Global Logistics Services revenues and the related forwarding expense and determined that these line items for the year ended September 30, 2017 and the nine months ended June 30, 2018 should have been lower by approximately $18,840,294 and $13,808,607, respectively.  This reduction represents 27% and 25% of previously reported revenues for Global Logistics Services and 34% and 31% of the related forwarding expense for the year ended September 30, 2017 and the nine months ended June 30, 2018, respectively.

Although the error correction reduced the Company’s total revenue by more than 20% for each of the years ended September 30, 2016 and 2017, as well as the nine months ended June 30, 2018, in concluding that the error correction was quantitatively immaterial, the Company considered that such error had no impact on our net revenue, which is calculated as total revenues less the cost of purchased transportation and related services and the cost of purchased products sourced for resale.  We and others in the logistics industry view net revenue as a more accurate measurement of our performance and our effectiveness in managing our principal services than total revenue because our Global Logistics Services revenue is significantly influenced by the price of transportation services and other items such as fuel prices.  With respect to considering the performance of our Global Logistics Services segment, we believe that net revenues are a better measure than are total revenues when analyzing and discussing our effectiveness in managing our principal services.  As the error correction had no impact on our net revenue for any of the relevant periods, the Company determined that the magnitude of the impact of the error correction on total revenue would unlikely be material to investors.

Further, in assessing the impact of the error on our total revenue, we considered the guidance set forth in SAB Topic 1:M.  According to SAB Topic 1:M, the use of a specified percentage, such as five percent, as a numerical threshold may provide the basis for a preliminary assumption that a deviation of less than such percentage with respect to a particular item on a company’s financial statements is unlikely to be material.  That said, while this analysis may offer an initial step in assessing materiality, pursuant to SAB Topic 1:M, the mere quantification of the magnitude of a misstatement “cannot appropriately be used as a substitute for a full analysis of all relevant considerations.”  As such, although the error correction reduced our total revenue by more than 20% for the years ended September 30, 2016 and 2017, as well as the nine months ended June 30, 2018, the Company concluded, based on an analysis of all relevant factors, including the quantitative factors discussed herein, that the error correction should not be treated as a restatement of the Company’s previously published financial statements.

 

 

In addition to its quantitative analysis, the Company separately considered qualitative factors that could render quantitatively immaterial items to be nonetheless material.  In particular, the Company evaluated the non-exclusive list of qualitative factors set forth in SAB 99 in its analysis and determined that, based on its review of relevant factors, the error was qualitatively immaterial.  Below is a summary of our analysis with respect to these qualitative factors.

Based on the above and in consideration of SAB Topics 1:M and 1:N, the Company determined that the error correction, individually and in aggregate, was both quantitatively and qualitatively immaterial to the current period and all previously reported annual and quarterly periods. As a result of the foregoing analysis, the Company concluded that the appropriate method to report the qualitatively and quantitatively immaterial errors in its previously issued financial statements would be to revise the Company’s statements of operations included in its 2018 Form 10-K.  Accordingly, the Company corrected its statements of operations for the year ended September 30, 2017 and the nine months ended June 30, 2018 and will revise its financial statements accordingly when such periods are included in future filings.  We note also that the effect of the error is further discussed in detail in Note 18. Correction of Error in Prior Period Financial Statements in the notes to consolidated financial statements which appear in the Company’s 2018 Form 10-K.

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Should you have any further questions and/or require additional information please contact the undersigned at (516) 256-8143 or vverde@janelcorp.com. Thank you for your attention to this matter.

Very truly yours,

Vincent A. Verde

Principal Financial Officer

cc:	Joseph Zarkowski, Prager Metis CPAs, LLC
	Karen H. Kelley, Simpson Thacher & Bartlett LLP