JANEL CORPORATION UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION

Exhibit 99.3

 

▇▇▇▇▇ CORPORATION

 

UNAUDITED PRO FORMA COMBINED

 

FINANCIAL INFORMATION

 

On September 21, 2021, ▇▇▇▇▇ Corporation (the “Company” or “▇▇▇▇▇”), through its wholly owned subsidiary ▇▇▇▇▇ Group, Inc. (“▇▇▇▇▇”), executed a Membership Interest Purchase Agreement (the “Purchase Agreement”) with Expedited Logistics and Freight Services, LLC (“ELFS”), a Texas limited liability company based in Houston which provides non-asset-based logistics services, and the principal members of ELFS (the “Members”) for the purchase by ▇▇▇▇▇ of 100% of the issued and outstanding membership interests of ELFS and ELFS Brokerage LLC, a Texas limited liability company and wholly-owned subsidiary of ELFS (collectively, the “Interests”).  The acquisition was consummated immediately following the execution of the Purchase Agreement.

Under the terms of the Purchase Agreement, the purchase price for the Interests was $19,000,000, subject to certain closing adjustments as set forth in the Purchase Agreement.  Further payments in an amount not anticipated to exceed $4,500,000 will be due to the Members based on the operating profit earned by ELFS.  The transaction closed on September 21, 2021, upon which the former Members of ELFS were paid $13,000,000 in cash and were issued an aggregate amount of $6,000,000 in subordinated promissory notes.  This acquisition was funded with cash provided by normal operations, borrowings under the Amended Loan Agreement dated September 21, 2021, as well as subordinated promissory notes issued to the Members.

The attached unaudited pro forma combined balance sheet assumes that the acquisition was completed on June 30, 2021. The unaudited pro forma combined statements of operation for the fiscal year ended September 30, 2020 and for the nine months ended June 30, 2021 assume the acquisition was completed on October 1, 2019 and reflect the operating results of ▇▇▇▇▇ for its fiscal year 2020 and the operating results of ELFS and its affiliates for their fiscal 2020, derived from the audited financial statements, and the nine months ended June 30, 2021 financial statements, respectively. These operating results for different annual fiscal year periods are being appropriately combined for pro forma purposes since the fiscal year-end periods are within 93 days of each other, in accordance with Securities and Exchange Commission (“SEC”) guidance.

The unaudited pro forma combined financial statements were prepared in accordance with the rules and regulations of the SEC and should not be considered indicative of the financial position or results of operations that would have occurred if the acquisition had been completed on the dates indicated, nor are they indicative of the future financial position or results of operations of ▇▇▇▇▇ and ELFS following completion of the acquisition. In accordance with the rules and regulations of the SEC, the pro forma combined statements of income do not reflect the potential realization of cost savings, or restructuring, or other costs relating to the integration of ELFS, nor do they include any other items not expected to have a continuing impact on the combined results of the two companies. The historical consolidated financial information of ▇▇▇▇▇ and ELFS has been adjusted in the unaudited pro forma combined financial statements to give effect to pro forma events that are (1) directly attributable to the acquisition, (2) factually supportable, and (3) with respect to the statement of income, expected to have a continuing impact on the combined results.

The unaudited pro forma combined financial information should be read in conjunction with the accompanying notes thereto. In addition, the unaudited pro forma combined financial information was based on, and should be read in conjunction with:

▇▇▇▇▇ Corporation

Unaudited Pro forma Combined Statement of Operations

For the Year Ended September 30, 2020

See the accompanying notes to the unaudited pro forma combined financial statements which are an integral part of these financial statements.

▇▇▇▇▇ Corporation

Unaudited Pro forma Combined Statement of Operations

For the Nine Months Ended June 30, 2021

See the accompanying notes to the unaudited pro forma combined financial statements which are an integral part of these financial statements.

▇▇▇▇▇ Corporation

Unaudited Pro forma Combined Balance Sheets

As of June 30, 2021

See the accompanying notes to the unaudited pro forma combined financial statements which are an integral part of these financial statements.

1. Description of Transaction:

 

On September 27, 2021, ▇▇▇▇▇ Corporation (the “Company”) filed a Current Report on Form 8-K (the “Initial Form 8-K”) with the Securities and Exchange Commission (the “SEC”) reporting that, on September 21, 2021, the Company completed the acquisition of all of the membership interests of Expedited Logistics and Freight Services, LLC (“ELFS”) and ELFS Brokerage LLC, a wholly-owned subsidiary of ELFS.  The purchase price for the Interests was $19,000,000, subject to certain closing adjustments as set forth in the purchase agreement.  Further payments in an amount not anticipated to exceed $4,500,000 will be due to the principal members of ELFS based on the operating profit earned by ELFS.  The transaction closed on September 21, 2021, upon which the former Members of ELFS were paid $13,000,000 in cash and were issued an aggregate amount of $6,000,000 in subordinated promissory notes.  This acquisition was funded with cash provided by normal operations, borrowings under an amended loan agreement dated September 21, 2021, as well as subordinated promissory notes issued to the members.

2. Basis of Presentation:

The acquisition will be accounted for under the acquisition method of accounting in accordance with ASC 805-10. The Company is accounting for the acquisition by using the historical information and accounting policies of ▇▇▇▇▇ and adding the assets and liabilities of ELFS, as applied on a pro forma basis as of June 30, 2021, at their respective fair values. Further, and in accordance with ASC 805, the accounting policies of ELFS have been conformed to those of ▇▇▇▇▇ in determining the results of operations and the amounts of assets and liabilities to be fair valued. The assets and liabilities of ELFS have been measured at fair value based on various assumptions that the Company’s management believes are reasonable utilizing information as of the Acquisition Date.

The process for measuring the fair value of identifiable intangible assets, liabilities and certain tangible assets requires the use of significant assumptions, including estimates of future cash flows and appropriate discount rates. The excess of the purchase price (consideration transferred) over the amount of identifiable assets and liabilities of ELFS acquired, on a pro forma basis as of June 30, 2021, was allocated to goodwill in accordance with ASC 805-10.

For purposes of measuring the fair value of the ELFS assets acquired and liabilities assumed, as reflected in the unaudited pro forma combined financial statements, the Company used the guidance in ASC Topic 820, “Fair Value Measurement and Disclosure”, which establishes a framework for measuring fair values. ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). Market participants are buyers and sellers in the principal (most advantageous) market for the asset or liability. Additionally, under ASC 820, fair value measurements for an asset assume the highest and best use of that asset by market participants.

The historical balance sheets of ▇▇▇▇▇ and ELFS were used to create the unaudited pro forma combined balance sheet as of June 30, 2021, the last day of the Janel’s third fiscal quarter. ▇▇▇▇▇ and ELFS have different fiscal year ends with ▇▇▇▇▇ following a fiscal year end ending September 30 and ELFS following a calendar year-end ending on December 31.  Accordingly, the unaudited pro forma combined statement of operations for the year ended September 30, 2020 has been prepared by combining information derived from ▇▇▇▇▇’s audited historical consolidated statement of income for the year ended September 30, 2020 with the unaudited historical combined statement of income of ELFS for the twelve months ended September 30, 2020. The historical combined statement of income of ELFS for the twelve months ended September 30, 2020 was calculated by taking the audited combined statement of income for the twelve months ended December 31, 2020 and removing the results of operations for the three months ended December 31, 2020 interim period and adding the results of operations for the three months ended December 31, 2019 interim period. The interim unaudited pro forma combined statement of operations for the nine months ended June 30, 2021 has been prepared by combining ▇▇▇▇▇’s unaudited historical consolidated statement of income for the nine months ended June 30, 2021, with the unaudited historical combined statement of income of ELFS for the nine months ended June 30, 2021. The unaudited historical combined statement of income of ELFS for the nine months ended June 30, 2021 was calculated by taking the unaudited combined statement of income for the six months ended June 30, 2021 and adding the results of operations for the three months ended December 31, 2020 interim period. In addition, certain line items of the ELFS income statements were combined or reclassified in order to make the information comparable.

The table below summarizes the calculated combined historical statements of ELFS for the twelve months ended September 30, 2020 and nine months ended June 30, 2021:

3. Accounting Policies:

 

The unaudited pro forma combined financial statements reflect adjustments to conform the results of ELFS to ▇▇▇▇▇’s application of generally accepted accounting policies.

These differences resulted in the following income statement line-item reclassifications:

 

4. Consideration Paid:

As noted in Note (1), ▇▇▇▇▇ paid approximately $21,300,000, net of excluded cash of $1,456,000 and excluded debt of $2,056,000, in connection with the ELFS acquisition. This acquisition was funded with cash provided by normal operations, borrowings of $13,000,000 under an amended loan agreement, subordinated promissory notes issued of $6,000,000 to the principal members of ELFS and $4,100,000 in earnout payments to members. The pro forma balance sheet has been adjusted to reflect this financing and ELFS net debt has been removed. accrued expenses and other liabilities includes the current portion of the expected earn-out payment of $1,100,000.  Additionally, included in accrued expenses and other liabilities are transaction cost of $648,000.  Transaction cost of $339,000 have been incurred, however have not been adjusted in the unaudited pro forma combined statement of operations

 

5. Preliminary Allocation of Consideration Transferred to the Net Assets Acquired:

 

The following summarizes the ELFS assets acquired and the liabilities assumed by ▇▇▇▇▇ in the acquisition, assuming the acquisition had been completed by June 30, 2021, reconciled to the consideration paid to acquire ELFS (in thousands):

6. Adjustments to Unaudited Pro Forma Combined Income Statements and Balance Sheet:

 

Adjustments to the unaudited pro forma combined income statements for the nine months ended June 30, 2021 and the fiscal year ended September 30, 2020 for ▇▇▇▇▇ and unaudited pro forma balance sheet as of June 30, 2021 were as follows (in thousands):

a.          Amortization of intangibles: Adjustments to amortization of intangibles are comprised of the following:

 

b.          Interest expense: Adjustments to interest expense are comprised of the following:

 

c.          Income tax benefit (expense): We have reflected the applicable tax provision on the pro forma adjustments presented in the unaudited pro forma combined income statements based on the estimated respective statutory tax rate in the tax jurisdictions of the adjustments. Adjustments to Income tax benefit (expense) are comprised of the following:

 

Adjustments to the unaudited pro forma combined balance sheet as of June 30, 2021, were as follows:

 

d.        Intangibles: Acquired identifiable intangible assets were measured at fair value determined primarily using the “income approach,” which required a forecast of all expected future cash flows either through the use of the relief-from-royalty method or the multi-period excess earnings method. The estimated fair value of the identifiable intangible assets and their weighted-average useful lives are as follows:

The estimated future amortization of these intangible assets is expected to be as follows:

 

e.        Goodwill: The new goodwill recorded of $5,685 was calculated as the difference between the acquisition date fair value of the consideration paid for ELFS in the acquisition and the values assigned to the identifiable ELFS assets acquired and liabilities assumed as if the acquisition was completed on June 30, 2021. Goodwill is not amortized but rather is subject to impairment testing on at least an annual basis.

f.        Leases: Adjustment to conform ELFS accounting for leases to Janel’s application of generally accepted accounting policy under ASU No. 2016-02, Leases, which 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. We have reflected adjustments to increase operating lease right of use asset by $1,156, current portion of operating lease liabilities by $615 and long-term operating lease by $514.

 

g.          Accumulated earnings: Existing equity of $8,435 of ELFS was eliminated.

 

---