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Item 4. Controls and Procedures

2020-08-07 compared with 2020-05-12 · 63 added, 43 removed, 18 unchanged (85% of the section changed)

1 unchanged sentence

Evaluation of Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures designed to ensure that information required to be disclosed in reports filed under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is

recorded, processed, summarized and reported within the specified time periods, and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow

timely decisions regarding required disclosure.

The Company maintains disclosure controls and procedures designed to ensure that information required to be disclosed in reports filed under the Securities Exchange Act of 1934, as amended (the

“Exchange Act”), is recorded, processed, summarized and reported within the specified time periods, and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as

appropriate, to allow timely decisions regarding required disclosure.

Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.

Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and

15d-15(e) of the Exchange Act) as of March 31, 2020, the end of the period covered by this Quarterly Report on Form 10-Q.

Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, because

material weaknesses in the Company’s internal control over financial reporting existed at September 30, 2018 and had not been remediated by the end of the period covered by this Quarterly Report on Form 10-Q, the Company’s disclosure controls and

procedures were not effective as of the end of the period covered by this Quarterly Report on Form 10-Q.

These material weaknesses in the Company’s internal control over financial reporting and the Company’s remediation efforts are described

Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules

13a-15(e) and 15d-15(e) of the Exchange Act) as of June 30, 2020, the end of the period covered by this Quarterly Report on Form 10-Q.

Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that

the Company’s disclosure controls and procedures were not effective as of the end of the period covered by this Quarterly Report on Form 10-Q because, in part, material weaknesses in the Company’s internal control over financial reporting existed

at September 30, 2018 and had not been remediated by the end of the period covered by this Quarterly Report on Form 10-Q.

The material weaknesses in the Company’s internal control over financial reporting and the Company’s remediation efforts are

described below.

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.

In connection with the preparation of the Company’s Annual Report on Form 10-K, management identified the following material weaknesses as of September 30, 2019 related to our Life Sciences segment:

The Company had inadequate controls over the following:

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, management identified certain material weaknesses as of September 30, 2019

related to our Life Sciences segment.

In particular, the Company had inadequate controls over the following:

(1) recording of sales orders and timeliness of revenue recognition in accordance with ASC Topic 606, Revenue from Contracts with Customers – Principal Agent Consideration (“ASC Topic 606”),

4 unchanged sentences

(6) recording of inventory and updating of standard costing worksheets used in the valuation of inventory.

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.

In addition, as of September 30, 2019, management identified the following additional deficiency related to the Company’s Global Logistics Services segment:

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.

Based on this assessment and the material weaknesses described above, management concluded that the Company’s internal control over financial reporting was not effective as of September 30, 2019 and had not been

remediated by the end of the period covered by this Quarterly Report on Form 10-Q.

Our management performed analyses, substantive procedures and other post-closing activities with the assistance of consultants and other professional advisors in order to ensure the validity, completeness and

accuracy of our income tax provision and accounting for complex and/or non-routine transactions and the related disclosures.

Accordingly, our management believes that the financial statements included in this Form 10-Q as of March 31, 2020 are

fairly presented, in all material respects, and in conformity with U.S.

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

As of September 30, 2019, management determined that, with respect to the Company’s Global Logistics Services segment, 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.

In addition, during the three months ended June 30, 2020, management identified a 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.

The new controls have not operated for a sufficient time to conclude

the material weakness has been remediated by the end of the period covered by this Quarterly Report on Form 10-Q.

Based on its assessment and the material weaknesses described above, management concluded that the Company’s internal control over financial reporting was not effective as of September 30, 2019

and that the material weaknesses identified as of that date and thereafter had not been remediated by the end of the period covered by this Quarterly Report on Form 10-Q.

Our management performed analyses, substantive procedures and other post-closing activities with the assistance of consultants and other professional advisors in order to ensure the validity,

completeness and accuracy of our income tax provision and accounting for complex and/or non-routine transactions and the related disclosures.

Accordingly, our management believes that the financial statements included in this Form 10-Q as of June

30, 2020 are fairly presented, in all material respects, and in conformity with U.S.

Remediation Plan

We have engaged an external consultant to assist in the development and execution of a plan to remediate the material weaknesses related to our Life Sciences segment noted above.

This process commenced during the

second quarter of fiscal 2020 and is ongoing.

We have developed and are executing on our plan to remediate our material weaknesses in connection with the information technology controls by expanding our in-house expertise on information technology general

controls, as well as continuing to consult with external third parties.

commenced during the second quarter of fiscal 2020 and is ongoing.

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 2018 and is ongoing.

We have also implemented a new system triggered revenue recognition process for the Global Logistics Services segment based on target dates (e.g., delivery date, file transfer date, etc.) for specific file types.

This process has been implemented as the second quarter of fiscal year 2020.

With respect to 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.

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.

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.

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

Changes in Internal Control over Financial Reporting

As disclosed above under “Remediation Plan,” there were changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the period

covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

In addition, as discussed above, during the quarter ended March 31, 2020, the

Company implemented changes to its accounting policies, practices and internal controls over financial reporting in connection with its adoption of ASC Topic 606.

As disclosed above under “Remediation Plan,” there were changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred

during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

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.

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.

For a discussion of the Company’s potential risks or uncertainties, please see “Part I—Item 1A—Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended September 30, 2019.

than as discussed in our Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2020, there have been no material changes to the risk factors disclosed in Part I—Item 1A of the Company’s 2019 Annual Report.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 4. Controls and Procedures