JANEL CORP 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with our unaudited interim consolidated financial statements and related notes thereto as of and for the three months and six months ended March 31, 2021, which have been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”). Amounts presented in this section are in thousands, except share and per share data. As used throughout this Report, “we,” “us”, “our,” “Janel,” “the Company,” “Registrant” and similar words refer to Janel Corporation and its Subsidiaries. CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS This Quarterly Report on Form 10-Q (the “Report”) contains certain statements that are, or may 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 and that reflect management’s 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,” “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 and forgiveness of such loans by the SBA; 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. For a more detailed discussion of these factors, see our periodic reports filed with the Securities and Exchange Commission, including our most recent Annual Report on Form 10-K for the fiscal year ended September 30, 2020. 27 Table of Contents OVERVIEW 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 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. 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 December 31, 2020, we 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 July 23, 2020, the Company acquired Atlantic Customs Brokers, Inc. (“ACB”), a global logistics services provider with two U.S. locations. 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, which is comprised of several wholly-owned subsidiaries, 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. 28 Table of Contents On December 4, 2020, the Company, through its wholly-owned subsidiary Aves, acquired all of the membership interests of ImmunoChemistry Technologies, LLC (“ICT”). CRITICAL ACCOUNTING POLICIES AND ESTIMATES Critical accounting estimates are those that we believe are both significant and require us to make difficult, subjective, or complex judgments, often because we need to estimate the effect of inherently uncertain matters. These estimates are based on historical experience and various other factors that we believe to be appropriate under the circumstance. Actual amounts and results could differ from these estimates made by management. Certain accounting policies that require significant management estimates and are deemed critical to our results of operations or financial position are discussed in the Critical Accounting Policies and Estimates section of Management’s Discussion and Analysis of Financial Condition and Results of Operations included in Item 7 of our Annual Report on Form 10-K for the fiscal year ended September 30, 2020. 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, potential impairment of goodwill and intangible assets with indefinite lives and 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; • accrual of tax expense on an interim basis; • inventory valuation; and • potential impairment of goodwill and intangible assets with indefinite lives, long-lived assets impairment. 29 Table of Contents 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 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. 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. 30 Table of Contents 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. 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 and its related margin 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. 31 Table of Contents 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. Results of Operations – Janel Corporation Our results of operations and period-over-period changes 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. Our condensed consolidated results of operations are as follows: Three Months Ended March 31, 2021 Three Months Ended March 31, 2020 Six Months Ended March 31, 2021 Six Months Ended March 31, 2020 Revenues $ 30,142 $ 19,121 $ 56,620 $ 38,942 Forwarding expenses and cost of revenues 22,593 13,125 42,622 26,659 Gross profit 7,549 5,996 13,998 12,283 Operating expenses 6,708 6,827 12,668 13,155 Operating income (loss) 841 (831 ) 1,330 (872 ) Net income (loss) 596 (937 ) 851 (1,057 ) Adjusted operating income (loss) $ 1,455 $ (286 ) $ 2,433 $ 210 Consolidated revenues for the three months ended March 31, 2021 were $30,142, or 57.6% higher than for the three months ended March 31, 2020 as revenue at all three businesses increased and acquisitions, to a smaller extent, contributed to the increase compared to the prior year period. The Company’s net income for the three months ended March 31, 2021 totaled approximately $596 or $0.61 per diluted share, compared to a net loss of approximately ($937) or ($1.08) per diluted share for the three months ended March 31, 2020. Consolidated revenues for the six months ended March 31, 2021 were $56,620, or 45.4% higher than for the six months ended March 31, 2020 as revenue at all three businesses increased and acquisitions, to a smaller extent, contributed to the increase compared to the prior year period. The Company’s net income for the six months ended March 31, 2021 totaled approximately $851 or $0.87 per diluted share, compared to a net loss of approximately ($1,057) or ($1.22) per diluted share for the six months ended March 31, 2020. 32 Table of Contents The following table sets forth a reconciliation of operating income to adjusted operating income (loss): (in thousands) Three Months Ended March 31, 2021 Three Months Ended March 31, 2020 Six Months Ended March 31, 2021 Six Months Ended March 31, 2020 Operating income (loss) $ 841 $ (831 ) $ 1,330 $ (872 ) Amortization of intangible assets (1) 293 243 544 486 Stock-based compensation (2) 30 75 54 149 Cost recognized on sale of acquired inventory (3) 291 227 505 447 Adjusted operating income (loss) $ 1,455 $ (286 ) $ 2,433 $ 210 (1) Amortization of intangible assets represents non-cash amortization expense or impairment expense, if any, attributable to acquisition-related intangible assets, including any portion that is allocated to noncontrolling interests. Management believes that making this adjustment aids in comparing the Company’s operating results with other companies in our industry that have not engaged in acquisitions. (2) The Company eliminates the impact of stock-based compensation because it does not consider such non-cash expenses to be indicative of the Company’s core operating performance. The exclusion of stock-based compensation expenses also facilitates comparisons of the Company’s underlying operating performance on a period-to-period basis. (3) The Company has excluded the impact of cost on the sale of acquired inventory in connection with acquisitions as such adjustments represent non-cash items, are not consistent in amount and frequency and are significantly impacted by the timing and size of the Company’s acquisitions. Results of Operations - Global Logistics Services – Three and Six Months Ended March 31, 2021 and 2020 Our Global Logistics Services business 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. Global Logistics Services – Selected Financial Information: Three Months Ended March 31, Six Months Ended March 31, 2021 2020 2021 2020 (in thousands) Revenue $ 24,373 $ 15,328 $ 46,633 $ 31,407 Forwarding expenses 20,250 11,615 38,645 23,702 Net revenue 4,123 3,713 7,988 7,705 Net revenue margin 16.9 % 24.2 % 17.1 % 24.5 % Selling, general & administrative 3,743 3,952 7,117 7,590 Income (loss) from operations $ 380 $ (239 ) $ 871 $ 115 Revenue Total revenue for the three months ended March 31, 2021 was $24,373, as compared to $15,328 for the three months ended March 31, 2020, an increase of $9,045 or 51.0%. Of the $9,045 increase in revenue 85.2% represented growth primarily due to the rise in transportation rates due to capacity issues globally and 14.8% contributions from two acquisitions. Total revenue for the six months ended March 31, 2021 and 2020 was $46,633 and $31,407 respectively, an increase of $15,226 or 48.9%. Of the $15,226 increase in revenue 88.5% represented organic growth primarily due to the rise in transportation rates due to capacity issues globally and 11.5% represented contributions from two acquisitions. Forwarding Expenses Forwarding expenses for the three months ended March 31, 2021 increased by $8,635, or 74.3%, to $20,250 as compared to $11,615 for the three months ended March 31, 2020. Forwarding expenses as a percentage of revenue were 83.1% and 75.8% for the three months ended March 31, 2021 and March 31, 2020, respectively. Similar to the revenue increase, the increase in forwarding expenses and forwarding expense as a percentage of revenue reflected higher transportation rates and increased expenses related to acquisitions. 33 Table of Contents Forwarding expenses for the six months ended March 31, 2021 increased by $14,943, or 63.1%, to $38,645 as compared to $23,702 for the six months ended March 31, 2020. Forwarding expenses as a percentage of revenue were 82.9% and 75.5% for the six months ended March 31, 2021 and March 31, 2020, respectively. Similar to the revenue increase, the increase in forwarding expenses and forwarding expense as a percentage of revenue reflected higher transportation rates and increased expenses related to acquisitions. Net Revenue and Net Revenue Margin Net revenue for the three months ended March 31, 2021 was $4,123, an increase of $410, or 11.1%, as compared to $3,713 for the three months ended March 31, 2020 . This increase was mainly the result of increased revenue from two acquisitions partially offset by an approximately mid-single digit organic decline for the quarter in our base business due to a global trade shift due to COVID. Net revenue as a percentage of revenue decreased to 16.9% compared to 24.2% for the prior year period due to the increase in transportation rates versus the prior year period. Net revenue for the six months ended March 31, 2021 was $7,988, an increase of $283, or 3.7%, as compared to $7,705 for the six months ended March 31, 2020. This increase was mainly the result of two acquisitions partially offset by a high single-digit organic decline in our base business due to COVID-related shifts in global trade. Net revenue as a percentage of revenue decreased to 17.1% compared to 24.5% for the prior year period due to the increase in transportation rates versus the prior year period. Selling, General and Administrative Expenses Selling, general and administrative expenses for the three months ended March 31, 2021 were $3,743, as compared to $3,952 for the three months ended March 31, 2020. This decrease of $209, or 5.3%, was largely attributed to cost reductions partially offset by the additional expenses from businesses acquired versus the prior year period. As a percentage of revenue, selling, general and administrative expenses were 15.4% and 25.8% of revenue for the three months ended March 31, 2021 and 2020, respectively. Selling, general and administrative expenses for the six months ended March 31, 2021 were $7,117, as compared to $7,590 for the six months ended March 31, 2020. This decrease of $493, or 6.2%, was largely attributed to cost reductions partially offset by the additional expenses from businesses acquired versus the prior year period. As a percentage of revenue, selling, general and administrative expenses were 15.3% and 24.2% of revenue for the six months ended March 31, 2021 and 2020, respectively. Income (loss) from Operations Income from operations increased to $380 for the three months ended March 31, 2021, as compared to a loss of ($239) for the three months ended March 31, 2020, an increase of $619. Income from operations increased during the three months ended March 31, 2021 as a result of cost reductions and, to a lesser extent, the contribution from an acquisition versus the prior year period. Our operating margin as a percentage of net revenue for the three months ended March 31, 2021 was 9.2% compared to (6.4%) in the prior year period. Income from operations increased to $871 for the six months ended March 31, 2021, as compared to $115 for the six months ended March 31, 2020, an increase of $756, or 657.4%. Income from operations increased during the six months ended March 31, 2021 as a result of cost reductions and, to a lesser extent, the contribution from an acquisition versus the prior year period. Our operating margin as a percentage of net revenue for the six months ended March 31, 2021 was 10.9% compared to 1.5% in the prior year period. 34 Table of Contents Results of Operations - Manufacturing – Three and Six Months Ended March 31, 2021 and 2020 The Company’s Manufacturing segment includes its majority-owned Indco subsidiary, which manufactures and distributes industrial mixing equipment. Manufacturing – Selected Financial Information: Three Months Ended March 31, Six Months Ended March 31, 2021 2020 2021 2020 (in thousands) Revenue $ 2,529 $ 2,056 $ 4,398 $ 3,926 Cost of sales 1,163 908 2,041 1,753 Gross profit 1,366 1,148 2,357 2,173 Gross profit margin 54.0 % 55.8 % 53.6 % 55.3 % Selling, general and administrative 683 701 1,325 1,383 Income from Operations $ 683 $ 447 $ 1,032 $ 790 Revenue Total revenue was $2,529 and $2,056 for the three months ended March 31, 2021 and 2020, respectively, an increase of $473, or 23.0%. Total revenue was $4,398 and $3,926 for the six months ended March 31, 2021 and 2020, respectively, an increase of $472, or 12.0%. The revenue increase in both periods reflected a broad increase across the business relative to the COVID-19 related slowdown in the respective prior year periods. Cost of Sales Cost of sales was $1,163 and $908 for the three months ended March 31, 2021 and 2020, respectively, an increase of $255, or 28.1%, due to product mix. Cost of sales was $2,041 and $1,753 for the six months ended March 31, 2021 and 2020, respectively, an increase of $288, or 16.4%. The cost of sales increases in both periods was consistent with the revenue increase in both periods and reflected relatively stable product mix. Gross Profit and Gross Profit Margin Gross profit was $1,366 and $1,148 for the three months ended March 31, 2021 and 2020, respectively, an increase of $218, or 19.0%. Gross profit margin for the three months ended March 31, 2021 and 2020 was 54.0% and 55.8%, respectively. Gross profit was $2,357 and $2,173 for the six months ended March 31, 2021 and 2020, respectively, an increase of $184, or 8.5%. Gross profit margin for the six months ended March 31, 2021 and 2020 was 53.6% and 55.3%, respectively. The gross profit in both periods increased proportionately with the revenue of the business at relatively stable gross profit margins. Selling, General and Administrative Expenses Selling, general and administrative expenses were $683 and $701 for the three months ended March 31, 2021 and 2020, respectively, a decrease of $18 or 5.9%. Selling, general and administrative expenses were $1,325 and $1,383 for the six months ended March 31, 2021 and 2020, respectively, a decrease of $58 or 4.2%. The relatively stable selling, general and administrative expenses in both periods reflect a reduction in rent expenses related to the purchase of Indco’s building. Income from Operations Income from operations was $683 for the three months ended March 31, 2021 compared to $447 for the three months ended March 31, 2020, representing a 52.8% increase from the prior year period. Income from operations was $1,032 for the six months ended March 31, 2021 compared to $790 for the six months ended March 31, 2020, representing a 30.6% increase from the prior year period. Operating profit increased in both periods as the business benefited from management’s decision a year ago not to reduce staffing levels which resulted in favorable operating leverage as revenue recovered. 35 Table of Contents Results of Operations – Life Sciences – Three and Six Months Ended March 31, 2021 and 2020 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 OEM basis. Life Sciences – Selected Financial Information: Three Months Ended March 31, Six Months Ended March 31, 2021 2020 2021 2020 (in thousands) Revenue $ 3,240 $ 1,737 $ 5,589 $ 3,609 Cost of sales 889 375 1,431 757 Cost recognized upon sales of acquired inventory 291 227 505 447 Gross profit 2,060 1,135 3,653 2,405 Gross profit margin 63.6 % 65.3 % 65.4 % 66.6 % Selling, general and administrative 1,213 1,071 2,189 2,051 Income from Operations $ 847 $ 64 $ 1,464 $ 354 Revenue Total revenue was $3,240 and $1,737 for the three months ended March 31, 2021 and 2020, respectively, an increase of $1,503 or 86.5%. Of the $1,503 increase in revenue 74.9% represented organic growth as the Life Sciences business experienced a recovery from the COVID-led slowdown and 26.1% represented contributions from an acquisition as well as the introduction of new products and services. Total revenue was $5,589 and $3,609 for the six months ended March 31, 2021 and 2020, respectively, an increase of $1,980 or 54.9%. Of the $1,980 increase in revenue 76.7% represented organic growth as the Life Sciences business experienced a recovery from the COVID-led slowdown and 23.3% contributions from an acquisition as well as the introduction of new products and services. Cost of Sales and Cost Recognized Upon Sale of Acquired Inventory Cost of sales was $889 and $375 for the three months ended March 31, 2021 and 2020, respectively an increase of $514 or 137.1%, primarily as a result of business growth and, to a smaller degree, increased expenses from an acquisition. Cost recognized upon sale of acquired inventory was $291 and $227 for the three months ended March 31, 2021 and 2020, respectively, an increase of $64 or 28.2%, due to some acquired inventory from an acquisition partially offset by some inventory being fully amortized. Cost of sales was $1,431 and $757 for the six months ended March 31, 2021 and 2020, respectively, an increase of $674 or 89.0%, primarily as a result of business growth. Cost recognized upon sale of acquired inventory was $505 and $447 for the six months ended March 31, 2021 and 2020, respectively, an increase of $58 or 13.0%, due to acquired inventory from an acquisition partially offset by some inventory being fully amortized. Gross Profit and Gross Profit Margin Gross profit was $2,060 and $1,135 for the three months ended March 31, 2021 and 2020, respectively, an increase of $578 or 96.0%. In the three months ended March 31, 2021 and 2020, the Life Sciences segment had a gross profit margin of 63.6% and 65.3%, respectively, as business improved compared to the prior year period; contributions from an acquisition and product mix was consistent period to period. Gross profit was $3,653 and $2,405 for the six months ended March 31, 2021 and 2020 , respectively, an increase of $1,248 or 51.9%. In the six months ended March 31, 2021 and 2020, the Life Sciences segment had a gross profit margin of 65.4% and 66.5%, respectively. Gross profit margin for both periods increased in line with revenue with consistent product mix period to period and contributions from an acquisition. 36 Table of Contents Selling, General and Administrative Expenses Selling, general and administrative expenses were $1,213 and $1,071 for the three months ended March 31, 2021 and 2020, respectively, an increase of $142, or 13.3%. Selling, general and administrative expenses were $2,189 and $2,051 for the six months ended March 31, 2021 and 2020, respectively, an increase of $138 or 6.7%. The increased expenses in both periods reflects leverage of fixed costs and some expenses from an acquired business relative to prior year period. Income from Operations Income from operations for the three months ended March 31, 2021 and 2020 was $847 and $64, an increase of $783 or 1,223.4%. Income from operations for the six months ended March 31, 2021 and 2020 was $1,464 and $354, an increase of $1,110 or 313.6%. The growth in both periods reflects strong organic growth, favorable operating leverage and, to a smaller extent, contribution from an acquisition. Results of Operations – Corporate and other – Three and Six Months Ended March 31, 2021 and 2020 Below is a reconciliation of income from operations segments to net (loss) available to common stockholders Three Months Ended March 31, Six Months Ended March 31, (in thousands) 2021 2020 2021 2020 Total income from operating segments $ 1,910 $ 272 $ 3,367 $ 1,259 Administrative expenses (764 ) (804 ) (1,471 ) (1,534 ) Amortization expense (293 ) (243 ) (544 ) (486 ) Stock-based compensation (12 ) (56 ) (22 ) (111 ) Total Corporate expenses (1,069 ) (1,103 ) (2,037 ) (2,131 ) Interest expense (158 ) (141 ) (277 ) (304 ) Gain on Paycheck Protection Program loan forgiveness 135 — 135 — Net income (loss) before taxes 818 (972 ) 1,188 (1,176 ) Income tax (expense) benefit (222 ) 35 (337 ) 119 Net income (loss) 596 (937 ) 851 (1,057 ) Preferred stock dividends (195 ) (175 ) (369 ) (326 ) Net Income (Loss) Available to Common Stockholders $ 401 $ (1,112 ) $ 482 $ (1,383 ) Total Corporate Expenses Total corporate expenses, which include amortization of intangible assets, stock-based compensation and merger and acquisition expenses, decreased by $34, or by 3.1%, to $1,069 in the three months ended March 31, 2021 as compared to $1,103 for the three months ended March 31, 2020. The decrease was primarily due to lower professional expenses and stock-based compensation, partially offset by higher amortization of intangible asset expense related to three acquisitions versus the prior year period. Total corporate expenses, which include amortization of intangible assets, stock-based compensation and merger and acquisition expenses, decreased by $94, or by 4.4%, to $2,037 in the six months ended March 31, 2021 as compared to $2,131 for the six months ended March 31, 2020. The decrease was primarily due to lower professional expenses and stock-based compensation, partially offset by higher amortization of intangible asset expense related to three acquisitions versus the prior year period. 37 Table of Contents Interest Expense Interest expense for the consolidated company increased $17, or 12.1%, to $158 for the three months ended March 31, 2021 from $141 for the three months ended March 31, 2020 as a result of a higher debt level due to acquisitions partially offset by lower interest rates versus the prior year period. Interest expense for the consolidated company decreased $27, or 8.9%, to $277 for the six months ended March 31, 2021 from $304 for the six months ended March 31, 2020 as a result of lower rates partially offset by higher borrowing to support acquisitions. Income Taxes On a consolidated basis, the Company recorded an income tax expense of $222 for the three months ended March 31, 2021, as compared to an income tax benefit of $35 for the three months ended March 31, 2020. The increase in expense was primarily due to the increase in pretax income. In 2016, a deferred tax asset was established to reflect a net operating loss carryforward, which the Company has begun using, and is expected to continue to use, through ongoing profitability. On a consolidated basis, the Company recorded an income tax expense of $337 for the three months ended March 31, 2021, as compared to an income tax benefit of $119 for the three months ended March 31, 2020. The increase in expense was primarily due to the increase in pretax income. In 2016, a deferred tax asset was established to reflect a net operating loss carryforward, which the Company has begun using, and is expected to continue to use, through ongoing profitability. Preferred Stock Dividends Preferred stock dividends include any dividends accrued but not paid on the Company’s Series C Cumulative Preferred Stock (the “Series C Stock”). For the three months ended March 31, 2021 and 2020, preferred stock dividends were $195 and $175, respectively, representing an increase of $20, or 11.4%. The increase in preferred stock dividends was the result of the increase in dividend rate as of January 1, 2021 to 8% from 7%, partially offset by a lower number of shares of Series C Stock outstanding. See note 10 to the consolidated financial statements for additional information. For the six months ended March 31, 2021 and 2020, preferred stock dividends were $369 and $326, respectively, representing an increase of $43, or 13.2%. The increase in preferred stock dividends was the result of the increase in dividend rate as of January 1, 2021 to 8% from 7%, partially offset by a lower number of shares of Series C Stock outstanding. See note 10 to the consolidated financial statements for additional information. Net Income (Loss) Net income was $596, or $0.61 per diluted share, for the three months ended March 31, 2021 compared to net loss of ($937), or ($1.08) per diluted share, for the three months ended March 31, 2020. The increase was primarily due to higher revenues and gross profit and lower selling, general and administrative expenses across our operating segments. Net income was $851, or $0.87 per diluted share, for the six months ended March 31, 2021 compared to net loss of ($1,057), or ($1.22) per diluted share, for the six months ended March 31, 2020. The increase was primarily due to higher revenues and gross profit and lower selling, general and administrative expenses across our operating segments. Income (Loss) Available to Common Shareholders Income available to holders of common shares was $401, or $0.41 per diluted share, for the three months ended March 31, 2020 compared to loss available to holders of common shares of ($1,112), or ($1.29) per diluted share, for the three months ended March 31, 2020. The increase in income primarily was due to higher gross profit and lower selling, general and administrative expenses across our operating segments. Income available to holders of common shares was $482, or $0.49 per diluted share, for the six months ended March 31, 2020 compared to loss available to holders of common shares of ($1,383), or ($1.60) per diluted share, for the three months ended March 31, 2020. The increase in income primarily was due to higher gross profit and lower selling, general and administrative expenses across our operating segments. 38 Table of Contents 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 Cares 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. Our 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 2021 fiscal year is not necessarily indicative of future cash flow performance. As of March 31, 2021, the Company’s cash and working capital deficiency (current assets minus current liabilities) were $3,509 and $11,714, respectively. As of September 30, 2020, the Company’s cash and working capital deficiency were $3,349 and $10,372, respectively. Compared with the prior year period, the Company’s cash and cash equivalents increased $160, or 4.8%, and its working capital deficiency increased $1,800, or 17.4%. The decrease in cash and increase in working capital deficiency was primarily the result of acquisitions and slower accounts receivables collections. Cash flows from operating activities Net cash provided by operating activities for the six months ended March 31, 2021 and 2020 was $714 and $1,209, respectively. The decrease in cash provided by operations for the six months ended March 31, 2021 compared to the prior year period was driven principally by the timing of cash collections for accounts receivables and cash payments on accounts payables. Cash flows from investing activities Net cash used in investing activities totaled $2,959 for the six months ended March 31, 2021, versus $247 for six months ended March 31, 2020. The Company used $2,814 for the acquisition of two businesses and $85 for the acquisition of property and equipment for the six months ended March 31, 2021 compared to $116 for final purchase price adjustments related to an acquisition and $131 for the acquisition of property and equipment for the six months ended March 31, 2020. 39 Table of Contents Cash flows from financing activities Net cash provided by financing activities was $2,405 for the six months ended March 31, 2021, versus ($1,197) used in financing activities for the six months ended March 31, 2020. Net cash provided by financing activities for the six months ended March 31, 2021 primarily included funds from our line of credit partially offset by repayments of term loans. Off-Balance Sheet Arrangements As of March 31, 2021, we had no off-balance sheet arrangements or obligations.