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Item 7. Management’s Discussion and Analysis

2022-12-09 compared with 2021-12-27 · 327 added, 321 removed, 138 unchanged (82% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Our discussions below in this Item 7 should be read along with Janel’s audited financial statements and related notes thereto as of September 30, 2021 and 2020 and for each of the two years in

the period ended September 30, 2021 included in this Annual Report on Form 10-K.

Our discussions below in this Item 7 should be read along with Janel’s audited financial statements and related notes thereto as of September 30, 2022 and 2021 and for each of the two years in the

period ended September 30, 2022 included in this Annual Report on Form 10-K.

Janel is a holding company with subsidiaries in three business segments:

Logistics (previously known as Global

Logistics Services), Manufacturing and Life Sciences.

In the fourth quarter of 2021, our former Global Logistics Services segment was renamed “Logistics”;

this change related to the name

only and had no impact on the Company’s previously reported historical financial position, results of operations, cash flow or segment level results.

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’s capital at higher risk-adjusted rates of return; and attracting and retaining exceptional talent.

Management at the holding company level focuses on significant capital allocation decisions and corporate governance.

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.

We continue to navigate operating the Company in light of the COVID-19 pandemic, which continues to have widespread implications.

On the one hand, we have seen improvements in the broader economy, and our results

for fiscal 2021 improved significantly compared to the prior fiscal year.

That said, there remains uncertainty regarding how the ongoing nature of the COVID-19 pandemic will impact the overall economy and the Company’s results in particular.

While many countries have begun the process of vaccinating their residents against COVID-19, the large scale and challenging logistics of distributing the vaccines, as well as uncertainty over the efficacy of the vaccines against new variants of

the virus, may hinder any economic recovery as well as our operations in the future.

Even after the COVID-19 pandemic subsides, the effects of the COVID-19 pandemic may last for a significant period of time thereafter and may continue to adversely affect our business, results of operations and

financial condition.

The extent to which the COVID-19 pandemic impacts us will depend on numerous evolving factors and future developments that we are not able to predict, including the duration and scope of the pandemic;

governmental, business,

and individuals’ actions in response to the pandemic;

and the impact on economic activity including the possibility of recession or financial market instability.

These factors may adversely impact consumer, business, and government spending as

well as customers’ ability to pay for our services on an ongoing basis.

This uncertainty also affects management’s accounting estimates and assumptions, which could result in greater variability in a variety of areas that depend on these

estimates and assumptions, including receivables and forward-looking guidance.

Logistics, Life Sciences and Manufacturing.

The Company strives to create shareholder value primarily through three strategic

supporting its businesses’ efforts to make investments and to build long-term profits, allocating Janel’s capital at higher risk-adjusted rates of return and attracting and retaining exceptional talent.

Management at the holding

company level focuses on significant capital allocation decisions and corporate governance.

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

Recent Investment

On August 19, 2022, the Company acquired 1,108,000 shares of the common stock, par value $0.001 per share, of Rubicon Technology, Inc.

("Rubicon"), at a price per share of $20.00, in a cash tender

offer made pursuant to the Stock Purchase and Sale Agreement, dated July 1, 2022, between the Company and Rubicon (the "Rubicon Purchase Agreement").

Pursuant to the terms of the Rubicon Purchase Agreement, the acquired shares represented 44.99%

of Rubicon's issued and outstanding shares of common stock as of August 3, 2022, as reported in Rubicon's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2022, filed with the SEC on August 12, 2022.

The purpose of our

investment in Rubicon is for Janel to acquire a significant ownership interest in Rubicon, together with representation on Rubicon's Board, in an attempt to (i) restructure the Rubicon business to achieve profitability and (ii) assist Rubicon in

utilizing its NOL carry-forward assets.

Year Ended September 30, 2022 Acquisitions

On September 21, 2021, the Company completed a business combination whereby it acquired all of the membership interests of Expedited Logistics and Freight Services, LLC.

(“ELFS”) and related

On August 15, 2022, the Company completed a business combination whereby it acquired all of the membership interests of ECM Biosciences LLC, which we include in our Life Sciences segment.

Year Ended September 30, 2021 Acquisitions

On September 21, 2021, the Company completed a business combination whereby it acquired all of the membership interests of Expedited Logistics and Freight Services, LLC ("ELFS") and related

subsidiaries, which we include in our Logistics segment.

On December 31, 2020, the Company completed a business combination whereby it acquired substantially all of the assets and certain liabilities of W.R.

Zanes”), which we include in our Logistics segment.

On December 4, 2020, the Company completed a business combination whereby it acquired all of the membership interests of ImmunoChemistry Technologies, LLC.

(“ICT”), which we include in our Life Sciences segment.

Year Ended September 30, 2020 Acquisitions

On July 23, 2020, the Company acquired all of the outstanding common stock of Atlantic Customs Brokers, Inc.

(“ACB”), which we include in our Logistics

which we include in our Logistics segment.

On December 4, 2020, the Company completed a business combination whereby it acquired all of the membership interests of ImmunoChemistry Technologies, LLC (“ICT”), which we include in our Life

Sciences segment.

Results of Operations – Janel Corporation

Our results of operations and period-over-period change 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 appearing in Item 8.

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 appearing in Item 8.

Refer to Item 7.

“Management Discussion and Analysis of

Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended September 30, 2020, filed on January 13, 2021, for a comparison of fiscal year 2020 results of operations to

the fiscal year 2019 results of operations, which specific discussion is incorporated herein by reference.

“Management Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended September 30, 2021, filed on December 23,

2021, for a comparison of fiscal year 2021 results of operations to the fiscal year 2020 results of operations, which specific discussion is incorporated herein by reference.

Our condensed consolidated results of operations are as follows:

2 unchanged sentences

(in thousands)

Forwarding expenses and cost of revenues

Forwarding expenses and cost of revenue

Operating expenses

Operating income (loss)

Net income (loss)

Income from operations

Net (loss) income

Adjusted operating income

Consolidated revenues for the year ended September 30, 2021

were $146,419, or 77.6% higher than fiscal 2020.

Revenues increased across all three segments due to a recovery from the impact of the COVID-19 pandemic experienced in the prior fiscal year as well as

acquisitions.

Operating income for fiscal 2021 was $3,951 compared to an operating loss of ($1,724) for fiscal 2020, an increase of $5,675, as a result of the economic recovery experienced across all of our segments, partially offset by

higher spending in the corporate segment.

Adjusted operating income for fiscal 2021 increased to $5,894 versus $376 in the prior fiscal year.

The Company’s net income for the year ended September 30, 2021 totaled $5,203 or $5.26 per diluted share, compared to net loss of approximately ($1,725) or ($1.98) per diluted share for the year ended September 30, 2020.

Net income increased as a result of the recovery

from the impact of the COVID-19 pandemic in the prior fiscal year and the benefit from the forgiveness of our PPP Loan.

The following table sets forth a reconciliation of operating income to adjusted operating income:

Revenue for the year ended September 30, 2022 was $316,863, or 116.4% higher than fiscal 2021.

Revenue increased largely due to our Logistics segment which benefited from acquisitions and higher

freight prices due to tight global shipping capacity relative to the prior fiscal year.

Income from operations for fiscal 2022 was $9,498 compared to an income from operations of $3,951 for fiscal 2021, an increase of $5,547, largely as a result

of our Logistics segment which benefited from acquisitions and strong demand due to tight global shipping capacity, partially offset by higher spending in the corporate segment for stock based compensation and legal fees related to the Rubicon

Adjusted operating income for fiscal 2022 increased to $12,797 versus $5,894 in the prior fiscal year primarily due to the increase in Logistics profits partially offset by higher acquisition expenses at Corporate.

The Company’s net loss for the year ended September 30, 2022 totaled $2,138 or $2.07 per diluted share, compared to net income of approximately $5,203 or $5.26 per diluted share for the year ended

September 30, 2021.

The decline in net income was largely due to a non-cash mark-to-market write-down of our equity investment in Rubicon, higher interest expenses and higher earn-out accruals as profit related to an acquisition were higher than

The following table sets forth a reconciliation of income from operations to adjusted operating income:

Adjusted Operating Income

1 unchanged sentence

(in thousands)

Income (loss) from operations

Income from operations

Amortization of intangible assets

4 unchanged sentences

Results of Operations – Logistics

Our Logistics business helps its clients move and manage freight efficiently to reduce inventories and to increase supply chain speed and reliability.

Key services include arrangement of freight forwarding by air, ocean

and ground, customs entry filing, warehousing, cargo insurance procurement, logistics planning, product repacking and online shipment tracking.

Financial Summary

Fiscal Years Ended

September 30,

Fiscal years ended September 30,

(in thousands)

4 unchanged sentences

Fiscal 2022 compared with fiscal 2021

Total revenue in fiscal 2021 was $125,863 as compared to

$68,492 in fiscal 2020, an increase of $57,371 or 83.7%.

The increase in revenue was primarily driven by the rise in transportation rates as a result of capacity issues globally as well as an increase in volume as a result of a recovery from

the COVID-19 pandemic compared to the prior fiscal year.

Three acquisitions accounted for 15% of the growth.

Our volume as measured by twenty-foot equivalent units (“TEUs”) grew 30%, metric tons and custom entries grew 1% and 28%, respectively .

Total revenue in fiscal 2022 was $295,343 as compared to $125,863 in fiscal 2021, an increase of $169,480 or 134.7%.

Of the increase in revenue, two acquisitions accounted for $102,412 of additional

revenue compared to the prior year and $67,068 represented organic growth.

A rise in transportation rates drove organic growth due to a shortage of transportation capacity globally.

Higher prices for ocean, air and trucking services led to

significant growth in both gross revenue and forwarding expenses.

Our volume, as measured in ocean freight by twenty-foot equivalent units, grew 3%, air freight volume as measured by metric tons increased 17% and customs entries grew 4%.

fiscal 2023, we anticipate both gross revenue and forwarding expenses decreasing as demand is expected to decrease to match the industry's available capacity.

Gross profit in fiscal 2022 was $52,397, an increase of $32,673, or 165.7%, as compared to $19,724 in fiscal 2021.

This increase was mainly the result of a recovery in business compared with the depressed levels in

the prior fiscal year which drove organic gross profit growth.

Three acquisitions accounted for the balance of the growth.

Our gross profit margin declined to 16.0% in fiscal 2021 compared to 22.0% in fiscal

2020 largely due to an increase in transportation rates.

Two acquisitions accounted for $26,170 of additional gross profit, while a 33%

increase in organic gross profit was attributed to volume growth and higher pricing across most of our services—especially air and ocean—resulting in higher adjusted gross profits per transaction.

Gross profit as a percentage of revenue increased

to 17.7% compared to 15.7% for the prior year, due to the higher gross profit margins at an acquired business partially offset by lower gross profit margins due to the increase in transportation rates.

Selling, General and Administrative Expenses

Selling, general and administrative expenses from continuing operations in fiscal 2022 were $40,075 as compared to $16,656 in fiscal 2021.

The increase of $1,664, or 11.1%, was mainly due to additional expe nses from acquired businesses and investment to support business

The increase of $23,419, or 140.6%, was mainly due to

additional expenses from acquired businesses and costs to support business growth.

As a percentage of gross revenue, selling, general and administrative expenses were 13.6% and 13.2% for fiscal 2022 and fiscal 2021, respectively.

Income from Operations

Operating income increased to $3,068 in f iscal 2021 compared to $103 in fiscal 2020.

Income from operations increased as a result of the economic recovery from the COVID-19 pandemic compared to the prior fiscal year and contributions from three acquisitions.

Our operating margin as a percentage of gross profit was 15.5% in fiscal 2021 compared to 0.7% in fiscal 2020.

Results of Operations - Manufacturing

Income from operations increased to $12,322 in fiscal 2022 compared to $3,068 in fiscal 2021.

Income from operations increased as a result of the contribution from acquisitions, favorable industry

pricing and operating leverage from revenue growth.

Our operating margin as a percentage of gross profit was 23.5% in fiscal 2022 compared to 15.6% in fiscal 2021, largely due to operating leverage from significantly higher gross profit due to

elevated industry demand and pricing.

Results of Operations - Life Sciences

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.

Financial Summary

1 unchanged sentence

(in thousands)

Cost of revenues

Cost of sales

Cost recognized upon sale of acquired inventory

Gross profit margin

2 unchanged sentences

Fiscal 2022 compared with fiscal 2021

Total revenue was $8,564 in

fiscal 2021 compared with $7,319 in fiscal 2020, an increase of 17%.

The revenue increase reflected a broad increase across the business relative to the COVID-19 related slowdown in the prior fiscal year .

Gross profit was $4,581 and $3,990 for fiscal years 2021 and

2020, respectively.

Gross profit margin for the Manufacturing segment during fiscal 2021 was 53.5%, as compared to 54.5%, in fiscal 2020.

The year-over-year decrease in gross profit margin was generally due

to mix of business.

Total revenue was $11,625 in fiscal 2022 compared with $11,992 in fiscal 2021.

Revenue decreased 3.0% or $367 primarily related to the timing of orders, in particular for diagnostic reagents.

Gross profit was $8,692 and $8,128 for fiscal years 2022 and 2021, respectively, representing a year-over-year increase of $564 or 6.9%.

In the fiscal years ended September 30, 2022 and 2021, the

Life Sciences segment had a gross profit margin of 74.8% and 67.8%, respectively.

The increase in gross profit and the related margin reflected lower cost recognized upon the sale of acquired inventory and improved product mix.

The gross profit

margin was impacted by the amortization of non-cash acquired inventory expenses of $492 and $708 for fiscal 2022 and 2021, respectively.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the Manufacturing segment were $2,696 and $2,505 for fiscal years 2021 and 2020, respectively.

As a percentage of gross revenue, selling, general and administrative expenses were 31.5% and 34.2% for fiscal 2021 and fiscal 2020, respectively.

The decrease in expenses relative to revenue reflected positive operating leverage on higher volumes.

Selling, general and administrative expenses for the Life Sciences segment were $5,421 and $4,469 for fiscal years 2022 and 2021, respectively.

The year-over-year increase was largely due to

inflation, additional cost in the business to support future growth and expenses from acquired businesses.

As a percentage of revenue, selling, general and administrative expenses were 46.6% and 37.3% for fiscal 2022 and fiscal 2021,

respectively.

Income from Operations

Operating income for fiscal 2021 was $1,885 compared to $1,485 in fiscal 2020, representing a 26.9% increase compared to the prior year.

The increase was due to favorable operating leverage as revenue recovered.

Results of Operations - Life Sciences

The Life Sciences business earned $3,271 and $3,659 in income from operations for fiscal 2022 and 2021, respectively.

The decrease in operating income reflected a decline in revenue and higher

expenses partially offset by favorable mix in the business.

As a result of these factors, the income from operations as a percentage of revenue declined from 30.5% in fiscal year 2021 to 28.1% in fiscal year 2022.

Results of Operations - Manufacturing

The Company's Manufacturing segment reflects its majority-owned Indco subsidiary, which manufactures and distributes industrial mixing equipment.

Financial Summary

Fiscal years ended September 30,

Cost of revenues

Cost recognized upon sale of acquired inventory

(in thousands)

Cost of sales

Gross profit margin

2 unchanged sentences

Fiscal 2022 compared with fiscal 2021

Total revenue was $11,992 in

fiscal 2021 compared with $6,618 in fiscal 2020.

Increase revenue of $5,374 is primarily related to academic research recovery from the impact of the COVID-19 pandemic.

Acquired revenue of $1,290 added the balance of revenue growth.

Total revenue was $9,895 in fiscal 2022 compared with $8,564 in fiscal 2021, an increase of 15.5%.

The revenue increase largely reflected higher product pricing implemented to address an increase in

the cost of sales and an increase in volume as demand remained steady.

Gross profit was $5,108 and $4,581 for fiscal years 2022 and 2021, respectively.

Gross profit margin of 67.0% remained flat between fiscal 2021 and the prior fiscal year.

The gross profit margin was impacted by the

amortization of non-cash acquired inventory expenses of $708 and $876 for fiscal 2021 and 2020, respectively.

Gross profit margin for the Manufacturing segment during fiscal 2022 was 51.6%, as compared to 53.5%, in fiscal 2021.

The year-over-year decrease in gross profit margin was generally due to mix of business.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the Life Sciences segment

were $4,469 and $3,870 for fiscal years 2021 and 2020, respectively.

The year-over-year increase was largely due to acquired businesses.

As a percentage of gross revenue, selling, general and administrative expenses were 37.3% and 58.5% for fiscal 2021 and fiscal 2020, respectively.

Selling, general and administrative expenses for the Manufacturing segment were $3,095 and $2,696 for fiscal years 2022 and 2021, respectively.

As a percentage of gross revenue, selling, general and

administrative expenses were 31.3% and 31.5% for fiscal 2022 and fiscal 2021, respectively, as expenses remained consistent with the growth of the business.

Income from Operations

The Life Sciences business earned $3,659 and $566 in income from operations for fiscal 2021 and 2020, respectively.

The increase in operating income reflected positive operating leverage from the increase in revenue as a result of the recovery from the

impact of the COVID-19-related shut downs experienced in the prior fiscal year and, to a lesser extent, contribution from acquisitions.

The difference in operating margin of 30.5 % in fiscal 2021 compared with 8.6% in fiscal 2020 was largely due to favorable leverage from the business recovery as research labs reopened during fiscal 2021.

Income from operations for fiscal 2022 was $2,013 compared to $1,885 in fiscal 2021, representing a 6.8% increase compared to the prior year and consistent with the growth in the business.

Results of Operations – Corporate and Other

Below is a reconciliation of income from operations segments to net (loss) available to common stockholders:

Years Ended September 30,

Below is a reconciliation of income from operating segments to net (loss) available to common stockholders:

September 30,

(In thousands)

Total income from operating segments

Administrative expenses

Corporate expenses

Amortization expense

3 unchanged sentences

Change in fair value of mandatorily redeemable non-controlling interest

Gain on Paycheck Protection Program (PPP) loan forgiveness

Net income (loss) before taxes

Income tax (expense) benefit

Net income (loss)

Fair value adjustments to Rubicon investment (net of dividends)

Change in fair value of earnout

Gain on Paycheck Protection Program loan forgiveness

Net income before taxes

Income tax expense

Net (loss) Income

Preferred stock dividends

Net income (loss) Available to Common Stockholders

Non-controlling interest dividends

Net (loss) Income Available to Common Stockholders

Total Corporate Expenses

Corporate expenses increased by $783 to $4,661, or 20.2%, in

fiscal 2021 as compared to fiscal 2020.

The increase was due primarily to higher accounting related professional expense, increased merger and acquisition expenses and increases in amortization of intangible

expenses partially offset by lower stock-based compensation.

Corporate expenses, which include amortization of intangible assets, stock-based compensation and merger and acquisition expenses, increased by $3,447 to $8,108, or 74.0%, in fiscal 2022 as compared

to fiscal 2021.

The increase was due primarily to legal and consulting costs related to the Rubicon investment, stock-based compensation related to restricted stock issuance with immediate vesting, higher accounting-related professional expense,

increased merger and acquisition expenses and increases in amortization of intangible expenses.

We incur merger and acquisition deal-related expenses and intangible amortization at the Corporate level rather than at the segment level.

Interest Expense

Interest expense for the consolidated company increased $68,

or 13.1%, to $589 in fiscal 2021 from $521 in fiscal 2020.

The increase was primarily due to higher average debt balances to support our acquisition efforts and higher working capital within Logistics to

support business growth partially offset by lower interest rates.

Interest expense for the consolidated company increased $687, or 116.6%, to $1,276 in fiscal 2022 from $589 in fiscal 2021.

The increase was primarily due to higher average debt balances to support

our acquisition efforts and higher interest rates.

Income Tax Expense

On a consolidated basis, the Company recorded an income tax expense

of $961 in fiscal 2021, as compared to an income tax benefit of $505 in fiscal 2020.

The increase in expense was primarily due to an increase in pretax income and the estimated deductible expense related to

the expected loan forgiveness amount under the Paycheck Protection Program (“PPP”) loan received in the third quarter.

In 2016, a deferred tax asset was established to reflect a net operating loss carryforward, which the Company has begun

using, and expects to continue to use, through ongoing profitability.

On a consolidated basis, the Company recorded an income tax expense of $2,190 in fiscal 2022, as compared to an income tax expense of $961 in fiscal 2021.

The increase in expense was primarily due

to an increase in pretax income and the non-deductible legal consulting expense related to the Rubicon investment and utilization of prior NOL carry forwards.

In 2016, a deferred tax asset was established to reflect a net operating loss

carryforward.

The Company fully utilized its Federal loss carryforwards in fiscal 2022 and still has a small number of state loss carryforwards that could be used in the future with ongoing profitability.

Preferred Stock Dividends

Preferred stock dividends include the Company’s Series C Stock and dividends accrued but not paid.

ended September 30, 2021 and 2020, preferred stock dividends were $766 and $675, respectively.

The increase of $91, or 13.5%, was the result of a higher number of shares of Series C Stock outstanding and an increase in dividend rate as of January 1, 2021 to 8%.

Dividends accrued but not paid on the Company’s Series C Stock were $2,427 and $1,661 as of September 30, 2021 and 2020, respectively.

Net income (loss) Available to Common Shareholders

Net income (loss) available to common shareholders was $4,437

or $4.48 per diluted share for fiscal 2021 and ($2,400) or ($2.75) per diluted share for fiscal 2020.

The increase in net

income was primarily due higher revenues, partially offset by higher selling, general and administrative expenses across our businesses in both periods and an increase in the dividend rate with

respect to the Series C Stock as of January 1, 2021 to 8%.

For the year ended September 30, 2022 and 2021, preferred stock dividends were $586 and $766,

respectively.

The decrease in dividends of $180, or 23.5%, was the result of the Company retiring $6,000 of Series C Preferred Stock on March 31, 2022 and the annual dividend rate change from 9% to 5%.

Dividends accrued but not paid on the

Company’s Series C Stock were $1,745 and $2,427 as of September 30, 2022 and 2021, respectively.

Net (loss) Income

Net (loss) income was ($2,138), or $2.07 per diluted share, for fiscal 2022 and $5,203, or $5.26 per diluted share, for fiscal year 2021.

The decrease in net income was primarily due to an unrealized loss on the Rubicon investment, higher interest expense and the change in

fair value of an earnout, partially offset by higher operating income.

Net (loss) income Available to Common Stockholders

Net (loss) income available to common stockholders was ($3,128) or ($3.03) per diluted share for fiscal 2022 and $4,437 or $4.48 per diluted share for fiscal 2021.

The decrease in net income was

primarily due to unrealized loss on the Rubicon investment, higher interest expense and the change in fair value of an earnout, partially offset by higher operating income and non-controlling interest dividend.

LIQUIDITY AND CAPITAL RESOURCES

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 Logistics 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.

Our ability to satisfy liquidity requirements–including satisfying debt obligations and funding 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 Logistics 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 Logistics 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.

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.

Cash advances are a “pass through” and are not recorded as a component

of revenue or 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.

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 Coronavirus Aid, Relief and Economic Security 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.

During fiscal

2021, the Company applied for and received forgiveness for its PPP Loan.

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.

Management believes that it has established effective credit

control procedures and has historically experienced relatively insignificant collection problems.

Janel’s cash flow performance for the 2022 fiscal year may not necessarily be indicative of future cash flow performance.

As of September 30, 2021, and compared with the prior fiscal year, the Company’s cash and cash equivalents

increased by $2,885, or 86%, to $6,234 from $3,349 as of September 30, 2020.

During the fiscal year ended September 30, 2021, Janel’s net working capital

deficiency (current assets less current liabilities) increased by $4,412, from ($10,372) at September 30, 2020 to ($14,784) at September 30, 2021.

As of September 30, 2022, and compared with the prior fiscal year, the Company’s cash and cash equivalents increased by $357, or 6%, to $6,591 from $6,234 as of September 30, 2021.

During the fiscal

year ended September 30, 2022, Janel’s net working capital deficiency (current assets less current liabilities) decreased by $1,641, from ($14,784) at September 30, 2021 to ($13,143) at September 30, 2022.

Cash flows from continuing operating activities

Net cash used in continuing operating activities for fiscal years 2021 and

2020 was $201 and $554, respectively.

The decrease in cash used in operations for the year ended September, 2021 was driven principally by higher profits,

partially offset by PPP loan forgiveness, timing of cash collections for accounts receivables and cash payments on accounts payables for the year ended September 30, 2021.

Net cash provided by (used in) continuing operating activities for fiscal years 2022 and 2021 was $12,107 and ($201), respectively.

The increase in cash provided by operations for the year ended

September, 2022 was driven principally by higher profits, timing of cash collections for accounts receivables and cash payments on accounts payables primarily in our Logistics segment for the year ended September 30, 2022.

Cash flows from investing activities

Net cash used in investing activities, mainly for the acquisition of subsidiaries, was $11,469 for fiscal 2022 and $16,108 for fiscal 2021.

The fiscal 2021 amount was associated with two Logistics and one Life Sciences acquisition, and the fiscal 2020

amount was associated with one Logistics and two Life Sciences acquisitions.

The Company also used $234 for the acquisition of property and equipment for the year ended September 30, 2021 compared

to $1,297 for the year ended September 30, 2020.

Net cash used in investing activities for fiscal 2022

related to the Rubicon investment (net of dividend) and one Life Sciences acquisition.

The fiscal 2021 amount was associated with two Logistics acquisitions and one Life Sciences acquisition.

The Company also used $551 for the acquisition of

property and equipment for the year ended September 30, 2022 compared to $234 for the year ended September 30, 2021.

Cash flows from financing activities

Net cash provided by financing activities was $19,194 for fiscal 2021 and $3,284 for fiscal 2020.

Net cash provided by financing activities in fiscal 2021 primarily included proceeds from an increase in our line of credit which financed our acquisition of ELFS and

proceeds from the sale of Series C Preferred, partially offset by repayments on our term loan and notes payables to related party.

Net cash provided by financing activities in fiscal 2020 primarily included proceeds from our PPP loan,

deferred payments for the ACB acquisition and proceeds from stock option exercises, proceeds from sale of Series C Preferred, offset by repurchase of Series C Preferred.

Net cash (used in) provided by financing activities was ($281) for fiscal 2022 and $19,194 for fiscal 2021.

Net cash used in financing activities in fiscal 2022 primarily included proceeds from an

increase in our amended term loan, proceeds from our private placement offering, offset by repayments on our line of credit and repurchase of Series C Preferred Stock.

Net cash provided by financing activities in fiscal year 2021 primarily

included proceeds from an increase in our line of credit–which financed our acquisition of ELFS–and proceeds from the sale of Series C Preferred Stock, partially offset by repayments on our term loan and notes payables to related party.

Credit Facilities

Santander Bank Facility

On October 17, 2017, the Janel Group subsidiaries (collectively the “Janel Group Borrowers”), with the Company as a guarantor, entered into a Loan and Security Agreement (the “Santander Loan

Agreement”) with Santander Bank, N.A.

(“Santander”) with respect to a revolving line of credit facility (the “Santander Facility”).

As amended in March 2018, November 2018, March 2020, July 2020 and December 2020, the Santander Facility

provided that the Janel Group Borrowers can borrow up to $17,000 limited to 85% of the Janel Group Borrowers’ aggregate outstanding eligible accounts receivable, subject to adjustment as set forth in the Santander Loan Agreement.

accrued on the Santander Facility at an annual rate equal to, at the Janel Group Borrowers’ option, prime plus 0.50%, or LIBOR (30, 60 or 90 day) plus 2.25% subject to a LIBOR floor of 75 basis points.

The Janel Group Borrowers’ obligations

under the Santander Facility were secured by all of the assets of the Janel Group Borrowers, while the Santander Loan Agreement contained customary terms and covenants.

The Santander Facility was set to mature on October 17, 2022, unless

earlier terminated or renewed.

As a result of its terms, the Santander Facility is classified as a current liability on the consolidated balance sheet.

On September 21, 2021, Janel Group, ELFS and ELFS Brokerage, LLC, each wholly-owned subsidiaries of the Company, jointly and severally, individually and collectively as borrowers (collectively with Janel, the

“Borrowers”), the Company and Expedited Logistics and Freight services, LLC, an Oklahoma limited liability company, as loan party obligors, and Santander Bank, N.A., as lender, entered into an Amended and Restated Loan and Security Agreement (as

amended and restated, the “Loan Agreement”) that amended and restated the Santander Loan Agreement.

The Loan Agreement provides for, among other things, the following modifications to the Santander Loan Agreement:

(1) ELFS and ELFS Brokerage, LLC were added as borrowers;

(2) the maximum revolving facility amount

available was increased from $17.0 million to $30.0 million (limited to 85% of the borrowers’ eligible accounts receivable borrowing base and reserves, subject to adjustments set forth in the Loan Agreement);

(3) the maturity date was extended

from October 12, 2022 to September 21, 2026;

(4) interest accrues at an annual rate equal to LIBOR (30, 60 or 90 day) plus 2.25% subject to a LIBOR floor of 75 basis points at close, with a potential LIBOR floor reduction to 25 basis points upon

certain conditions;

and (5) the Company was provided the option of making Series C preferred payments or distributions if specified conditions are met.

At September 30, 2021, outstanding borrowings under the Santander Facility were $29,637, representing 98.8% of the $30,000 available thereunder, and interest was accruing at an effective interest rate of 3.00%.

At September 30, 2020, outstanding borrowings under the Santander Facility were $8,447, representing 49.7% of the $17,000 available thereunder, and interest was accruing at an effective

interest rate of 2.40%.

The Company was in compliance with the covenants defined in the Santander Loan Agreement at both September 30, 2021 and September 30, 2020.

Working Capital Requirements

Through September 30, 2021, the Logistics segments cash needs were met by the Santander Facility and cash on hand.

As of September 30, 2021, the Logistics segment had, subject to collateral availability , $181 available for future borrowings under its $30,000 Santander Facility and $4,177 in cash .

The Company believes that its current financial resources will be sufficient to finance the operations and obligations (current and long-term liabilities) of the Logistics segment for the

short- and long-term.

However, the actual working capital needs of the Logistics segment will depend upon numerous factors, including operating results, the costs associated with growing the Logistics segment, either organically or through

acquisitions, competition and availability under the Loan Agreement, none of which can be predicted with certainty.

If cash flow and available credit are not sufficient to fund working capital, the operations of the Logistics segment will be

materially negatively impacted.

Manufacturing

First Merchants Bank Credit Facility

On March 21, 2016, as amended in August 2019 and July 2020, Indco executed a Credit Agreement (the “First Merchants Credit Agreement”) with First Merchants Bank with respect to a $5,500 term

loan, a $1,000 (limited to the borrowing base and reserves) revolving loan and a $680 mortgage loan (together, the “First Merchant Facility”).

Interest accrues on the term loan at an annual rate equal to the one-month LIBOR plus either 2.75% (if

Indco’s total funded debt to EBITDA ratio is less than 2:1), or 3.5% (if Indco’s total funded debt to EBITDA ratio is greater than or equal to 2:1).

Interest accrues on the revolving loan at an annual rate equal to the one-month LIBOR plus 2.75%.

Interest accrues on the mortgage loan at an annual rate of 4.19%.

Indco’s obligations under the

First Merchants Bank Facility are secured by all of Indco’s real property and other assets and are guaranteed by Janel.

Additionally, Janel’s guarantee of Indco’s obligations is secured by a pledge of Janel’s Indco shares.

The term loan and

revolving loan portions of the First Merchants Facility will expire on August 30, 2024, and the mortgage loan will mature on July 1, 2025 (subject to earlier termination as provided in the First Merchants Credit Agreement), unless renewed or

As of September 30, 2021, there were no outstanding borrowings under the revolving loan, $2,713 of borrowings under the term loan, and $655 of borrowing under the mortgage loan with interest accruing on

the term loan and mortgage loan at an effective interest rate of 2.83% and 4.19%, respectively .

As of September 30, 2020, there were no outstanding borrowings under the revolving loan, $4,349 of borrowings under the term loan, and $676 of borrowing under the mortgage loan with interest accruing on the term loan and mortgage loan at an effective interest rate of 3.66% and 4.19%,

respectively.

Indco was in compliance with the covenants defined in the First Merchants Credit Agreement at both September 30, 2021 and September 30, 2020.

On October 17, 2017, the Janel Group ("Janel Group"), a wholly-owned subsidiary of the Company, and its subsidiaries, with the Company as a guarantor, entered into a Loan and Security Agreement (the

“Santander Loan Agreement”) with Santander Bank, N.A.

(“Santander”) with respect to a revolving line of credit facility (the “Santander Facility”), as amended.

The borrowers' obligations under the Santander Facility are secured by all of the

assets of the borrowers, and the Santander Loan Agreement contains customary terms and covenants.

On September 21, 2021, the Santander Loan Agreement was amended and restated by the Amended and Restated Loan and Security Agreement by and among

Janel Group and Janel Group's wholly-owned subsidiaries, ELFS and ELFS Brokerage, LLC, as borrowers (the "Borrowers"), the Company and Expedited Logistics and Freight services, LLC, an Oklahoma limited liability company and wholly-owned

subsidiary of Janel Group, as loan party obligors, and Santander.

As amended and restated, the Santander Loan Agreement provided that the maximum revolving facility amount available increased from $17,000 to $30,000 (limited to 85% of the borrowers' eligible

accounts receivable borrowing base and reserves, subject to adjustments set forth in the Loan Agreement), interest accrued at an annual rate equal to LIBOR (30, 60 or 90 day) plus 2.25% subject to a LIBOR floor of 75 basis points at close, with a

potential LIBOR floor reduction to 25 basis points upon certain conditions;

the Company was provided the option of making distributions of up to $1 million annually on its outstanding shares of Series C Cumulative Preferred Stock (the "Series C

Preferred Stock") if specified conditions are met, and the maturity date of the Santander Facility was extended to September 21, 2026.

On March 31, 2022, the Santander Loan Agreement was amended to provide for, among other changes:

(i) the maximum revolving facility amount available was increased from $30,000 to $31,500 (limited to

85% of the Borrowers' eligible accounts receivable borrowing base and reserves, subject to adjustments set forth in the Loan Agreement);

(ii) the LIBOR basis on which interest under the Santander Loan Agreement was calculated was changed to the

Secured Overnight Financing Rate ("SOFR") and interest on the Santander Facility accrues at an annual rate equal to the one-month SOFR plus 2.75%;

(iii) a one-time increase from $1 million to $3 million in the amount the Company was permitted to

distribute to holders of the Company's Series C Preferred Stock if specified conditions are met;

and (iv) the amount of indebtedness of the Company's Antibodies Incorporated subsidiary which the Company was permitted to guaranty was increased

from $2,920 to $5,000.

On July 13, 2022, the Santander Loan Agreement was further amended by the Consent, Waiver and Second Amendment (the "Second Santander Amendment") to (i) increase the maximum revolving facility

amount available to $35,000 (limited to 85% of the Borrowers' eligible accounts receivable borrowing base and reserves, subject to adjustments set forth in the Santander Loan Agreement), and (ii) provided for a new bridge term loan to the Company

in the principal amount of up to $12,000 (the "Bridge Facility") to be funded in connection with the acquisition by the Company of up to 45% of the outstanding shares of Rubicon Technology, Inc., a Delaware corporation (the "Rubicon

Transaction"), subject to the satisfaction of certain customary limited conditions.

The Bridge Facility was drawn on August 18, 2022 and matured on the earlier to occur of (i) twenty (20) business days following the funding of the Bridge Facility

and (ii) the date of funding of the dividend to be paid by Rubicon in connection with the Rubicon Transaction.

The Company repaid the Bridge Facility in full on August 30, 2022.

The Second Santander Amendment also contained a one-time waiver and

consent to (a) the consummation of the Rubicon Transaction, and (b) a dividend of $2,500 to be paid by Janel Group to the Company.

At September 30, 2022, outstanding borrowings under the Santander Facility were $26,396, representing 75.4% of the $35,000 available thereunder, and interest was accruing at an effective interest

rate of 5.79%.

At September 30, 2021, outstanding borrowings under the Santander Facility were $29,637, representing 98.8% of the $30,000 available thereunder, and interest was accruing at an effective interest

rate of 3.00%.

The Company was in compliance with the financial covenants defined in the Santander Loan Agreement at both September 30, 2022 and September 30, 2021.

Working Capital Requirements

Manufacturing’s cash needs are currently met by the term loan and revolving credit facility under the First

Merchants Credit Agreement and cash on hand.

As of September 30, 2021, Manufacturing had $1,000 available under its $1,000 revolving facility subject to

collateral availability and $910 in cash .

The Company believes that the current financial resources will be sufficient to finance Manufacturing operations and obligations (current and long-term

liabilities) for the long and short term.

However, actual working capital needs will depend upon numerous factors, including operating results, the cost associated with growing Manufacturing either organically or through acquisitions,

competition and availability under the revolving credit facility, none of which can be predicted with certainty.

If cash flow and available credit are not sufficient to fund working capital, Manufacturing’s operations will be materially

Through September 30, 2022, the Logistics segment’s cash needs were met by the Santander Facility and cash on hand.

As of September 30, 2022, the Logistics segment had, subject to collateral

availability, $7,400 available for future borrowings under its $35,000 Santander Facility and $1,882 in cash.

The Company believes that its current financial resources will be sufficient to finance the operations and obligations (current and long-term liabilities) of the Logistics segment for the short- and

However, the actual working capital needs of the Logistics segment will depend upon numerous factors, including operating results;

the costs associated with growing the Logistics segment, either organically or through acquisitions;

competition and availability under the Santander Facility, none of which can be predicted with certainty.

If cash flow and available credit are not sufficient to fund working capital, the operations of the Logistics segment will be materially

negatively impacted.

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First Northern Bank of Dixon

On June 21, 2018, Antibodies Incorporated (“Antibodies”), a wholly-owned subsidiary of the Company (by succession), entered into a Business Loan Agreement (the “First Northern Loan

Agreement”), subsequently amended November 2019 and October 2, 2020, with First Northern Bank of Dixon (“First Northern”), with respect to a $2,235 term loan (the “First Northern Term Loan”) which bears interest at an annual rate of 4.00% and

matures on November 14, 2029.

In addition, Antibodies has a $500 revolving credit facility with First Northern which currently bears interest at the annual rate of 4.0%, and matures on October 5, 2021 (the “First Northern Revolving Loan”).

Antibodies also entered into two separate business loan agreements with First Northern:

a $125 term loan in connection with a potential expansion of solar generation capacity on the Antibodies property (“First Northern Solar Loan”) bearing

interest at the annual rate of 4.43% (subject to adjustment in five years) and maturing on November 14, 2029;

and a $60 term loan in connection with a potential expansion of generator capacity on the Antibodies property (“Generator Loan”)

bearing interest at the annual rate of 4.25% and maturing on November 5, 2025.

There were no outstanding borrowings under the Generator Loan as September 30, 2021 and 2020.

As of September 30, 2021, the total amount outstanding under

the First Northern Term Loan was $2,139, of which $2,084 is included in long-term debt and $55 is included in current portion of long-term debt, with interest accruing at an effective interest rate of 4.18%.

As of September 30, 2021, the total amount outstanding under

the First Northern Solar Loan was $105, of which $101 is included in long-term debt and $4 is included in current portion of long-term debt, with interest accruing at an effective interest rate of 4.43%.

As of September 30, 2020, the total amount outstanding under the First Northern Term Loan was $2,192, of which $2,139 is included in long-term debt and $53 is included in current portion of

On June 21, 2018, Antibodies Incorporated (“Antibodies”), a wholly-owned subsidiary of the Company, entered into a Business Loan Agreement (the “First Northern Loan Agreement”) with First Northern

Bank of Dixon (“First Northern”).

As amended, the First Northern Loan Agreement provides for a $2,235 term loan (the “First Northern Term Loan”), which bears interest at an annual rate of 4.00% and matures on November 14, 2029.

Antibodies has a $750 revolving credit facility with First Northern, which currently bears interest at a variable index rate, currently 7.75% and matures on November 10, 2023 (the “First Northern Revolving Loan”).

Antibodies also entered into two

separate business loan agreements with First Northern:

a $125 term loan in connection with a potential expansion of solar generation capacity on the Antibodies property (“First Northern Solar Loan”), bearing interest at the annual rate of 4.43%

(subject to adjustment in five years) and maturing on November 14, 2029;

and a $60 term loan in connection with a potential expansion of generator capacity on the Antibodies property (“Generator Loan”), bearing interest at the annual rate of

4.25% and maturing on November 5, 2025.

There were no outstanding borrowings under the Generator Loan at September 30, 2022 and 2021.

Antibodies' obligations to First Northern are secured by Antibodies' real property and are guaranteed by Janel.

As of September 30, 2022, the total amount outstanding under the First Northern Term Loan was $2,084, of which $2,027 is included in long-term debt and $57 is included in the current portion of

long-term debt, with interest accruing at an effective interest rate of 4.18%.

As of September 30, 2020, the total amount outstanding under the First Northern Solar Loan was $81, of which $76 is included in long-term debt and $5 is included in current portion of long-term

As of September 30, 2022, the total amount outstanding under the First Northern Solar Loan was $23, of which $15 is included in long-term debt and $8 is included in the current portion of long-term

debt, with interest accruing at an effective interest rate of 4.43%.

The Company was in compliance with the covenants defined in the First Northern Loan Agreement at September 30, 2021 and September 30, 2020.

As of September 30, 2021, the total amount outstanding under the First Northern Term Loan was $2,139, of which $2,084 is included in long-term debt and $55 is included in the current portion of

long-term debt, with interest accruing at an effective interest rate of 4.18%.

As of September 30, 2021, the total amount outstanding under the First Northern Solar Loan was $105, of which $101 is included in long-term debt and $4 is included in the current portion of

long-term debt, with interest accruing at an effective interest rate of 4.43%.

The Company was in compliance with the financial covenants defined in the First Northern Loan Agreement at September 30, 2022 and September 30, 2021.

Working Capital Requirements

Life Sciences cash needs are currently met by the First Northern Loan Agreement and cash on hand of $1,147.

The Company believes that the current financial resources will be sufficient to finance Life Sciences operations and obligations (current and long-term

liabilities) for the long and short term.

However, actual working capital needs will depend upon numerous factors, including operating results, the cost associated with growing Life Sciences either organically or through acquisitions,

The Company believes that the current financial resources will be sufficient to finance

Life Sciences operations and obligations (current and long-term liabilities) for the long- and short- term.

However, actual working capital needs will depend upon numerous factors, including operating results;

the cost associated with growing

Life Sciences, either organically or through acquisitions;

competition and availability under the revolving credit facility, none of which can be predicted with certainty.

If cash flow and available credit are not sufficient to fund working capital, Life Sciences operations will be materially

negatively impacted.

If cash flow and available credit are not sufficient to fund working

capital, Life Sciences operations will be materially negatively impacted.

Manufacturing

First Merchants Bank Credit Facility

On March 21, 2016, Indco entered into a Credit Agreement (the "First Merchants Credit Agreement") with First Merchants Bank ("First Merchant"), which has been as amended.

On August 1, 2022, Indco and First Merchants entered into Amendment No.

3 to the First Merchants Credit Agreement, modifying the terms of Indco's credit facilities.

Under the revised terms, the credit facilities consist of a $5,500 term loan, a $1,000 (limited to the borrowing base and reserves) revolving loan and the continuation of a mortgage loan in the

original principal amount of $680 (collectively, the "First Merchants Facility").

Interest will accrue on the term loan at an annual rate equal to one-month adjusted term SOFR plus either 2.75% (if Indco's total funded debt to EBITDA ratio is

less than 2:1), or 3.5% (if Indco's total funded debt to EBITDA ratio is greater than or equal to 2:1).

Interest will accrue on the revolving loan at an annual rate equal to one-month adjusted term SOFR plus 2.75%.

Interest will accrue on the

mortgage loan at a fixed annual rate of 4.19% until July 1, 2023.

Indco's obligations under the First Merchants Credit Facility are secured by all of Indco's real property and other assets, and are guaranteed by Janel, and Janel's guarantee of

Indco's obligations is secured by a pledge of Janel's Indco shares.

The term loan and revolving loan portions of the First Merchants Credit Facility will expire on August 1, 2027, and the mortgage loan will mature on July 1, 2025 (subject to

earlier termination as provided in the First Merchant Credit Agreement), unless renewed or extended.

As of September 30, 2022, there were no outstanding borrowings under the revolving loan, $5,420 of borrowings under the term loan, and $631 of borrowing under the mortgage loan, with interest

accruing on the term loan and mortgage loan at an effective interest rate of 6.63% and 4.19%, respectively.

As of September 30, 2021, there were no outstanding borrowings under the revolving loan, $2,713 of borrowings under the term loan, and $655 of borrowing under the mortgage loan, with interest

accruing on the term loan and mortgage loan at an effective interest rate of 2.83% and 4.19%, respectively.

Indco was in compliance with the financial covenants defined in the First Merchants Credit Agreement at both September 30, 2022 and September 30, 2021.

Working Capital Requirements

Manufacturing’s cash needs are currently met by the term loan and revolving credit facility under the First Merchants Credit Agreement and cash on hand.

As of September 30, 2022, Manufacturing had

$1,000 available under its $1,000 revolving facility subject to collateral availability and $1,221 in cash.

The Company believes that the current financial resources will be sufficient to finance the Manufacturing segment's operations and

obligations (current and long-term liabilities) for the long- and short- term.

However, actual working capital needs will depend upon numerous factors, including operating results;

the cost associated with growing the Manufacturing segment,

either organically or through acquisitions;

and availability under the revolving credit facility, none of which can be predicted with certainty.

If cash flow and available credit are not sufficient to fund working capital,

Manufacturing’s operations will be materially negatively impacted.

CURRENT OUTLOOK

The results of operations in the Logistics, Manufacturing and Life Sciences segments are affected by the general economic cycle, particularly as it influences global trade levels and

specifically the import and export activities of our Logistics segment’s various current and prospective customers.

The effects of the COVID-19 pandemic may remain prevalent for a significant period of time and may continue to adversely affect

our business, results of operations and financial condition even after the COVID-19 pandemic has subsided.

Historically, the Company’s annual 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 the segment’s international network and service offerings, and other similar and subtle forces.

The results of operations in the Logistics, Life Sciences and Manufacturing segments are affected by the general economic cycle, particularly as it influences global trade levels and specifically

the import and export activities of our Logistics segment’s various current and prospective customers.

Historically, the Company’s annual 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 the segment’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 particular factor and, as a result, there can be no assurance that

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The Company’s subsidiaries are implementing business strategies to grow revenue and profitability for fiscal 2023 and beyond.

Our Logistics 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.

Our Manufacturing and Life Sciences segments expect to introduce new product lines and wider distribution and promotion of their products with internet sales efforts.

In addition to supporting

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

Certain elements of the Company’s profitability and growth strategy, including proposals for acquisition and accelerating revenue growth, are contingent upon the availability of adequate

financing on terms acceptable to the Company.

Our Logistics 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.

In fiscal 2023, we anticipate both gross revenue and profit

declines relative to the prior fiscal year as transportation demand moderates to match the industry's available capacity.

Our Life Sciences and Manufacturing segments expect to introduce new product lines and wider distribution and promotion of their products with internet sales efforts.

In addition to supporting its

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

Certain elements of the Company’s profitability and growth strategy, including proposals for acquisition and accelerating 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

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CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our accounting policies are described in Note 1 – Summary of Significant Accounting Policies, included herein includes a summary of the significant accounting policies and methods used in the

Our accounting policies are described in Note 1 – Summary of Significant Accounting Policies, included herein, which contains a summary of the significant accounting policies and methods used in the

preparation of our consolidated financial statements.

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Business Combinations and Related Acquired Intangible Assets and Goodwill .

We record all tangible and intangible assets acquired and liabilities assumed in a business combination at fair value as of the acquisition date in accordance with Accounting Standards Codification

(“ASC”) 805 Business Combinations.

Acquisition date fair value represents the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as measured on the acquisition

We record all tangible and intangible assets acquired and liabilities assumed in a

business combination at fair value as of the acquisition date in accordance with Accounting Standards Codification (“ASC”) 805 Business Combinations.

Acquisition date fair value represents the price that would be received to sell an asset or paid

to transfer a liability in an orderly transaction between market participants as measured on the acquisition date.

The valuations are based on information that existed as of the acquisition date.

During the measurement period, which shall not exceed one year from the acquisition date, we may adjust provisional amounts recorded for assets acquired and

liabilities assumed to reflect new information that we have subsequently obtained regarding facts and circumstances that existed as of the acquisition date.

Such fair value assessments require judgments and estimates, which may cause final

amounts to differ materially from original estimates.

During the measurement period, which shall not

exceed one year from the acquisition date, we may adjust provisional amounts recorded for assets acquired and liabilities assumed to reflect new information that we have subsequently obtained regarding facts and circumstances that existed as of

the acquisition date.

Such fair value assessments require judgments and estimates, which may cause final amounts to differ materially from original estimates.

As part of acquisitions of businesses, we acquired certain identifiable intangible assets, which are valued as of the acquisition date using a discounted cash flow (“DCF”) model.

assumptions in the DCF model include (i) future revenues, (ii) earnings before interest, taxes depreciation and amortization (“EBITDA”) and (iii) the weighted average cost of capital discount rate.

Estimated future revenues include assumptions

about our ability to renew contracts in a competitive bidding process.

Key assumptions in

the DCF model include (i) future revenues, (ii) earnings before interest, taxes depreciation and amortization (“EBITDA”) and (iii) the weighted average cost of capital discount rate.

Estimated future revenues include assumptions about our ability

to renew contracts in a competitive bidding process.

A decrease in revenues or gross and EBITDA margins may adversely affect the value of identifiable intangible assets.

The discount rate focuses on rates of return for equity

and debt and is calculated using public information from selected guideline companies.

The discount rate focuses on rates of return for equity and debt and is

calculated using public information from selected guideline companies.

The magnitude of the discount rate reflects the perceived risk of an investment.

A change in the estimated risk of the acquired company cash flows would change

the discount rate, which in turn could significantly affect the valuation of acquired identifiable intangible assets.

A change in the estimated risk of the acquired company cash flows would change the discount

rate, which in turn could significantly affect the valuation of acquired identifiable intangible assets.

The excess amount of the aggregated purchase consideration paid over the fair value of the net of assets acquired and liabilities assumed is recorded as goodwill.

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impairment annually or more frequently if an event occurs or circumstances change, such as material deterioration in performance that would indicate an impairment may exist.

During the fourth quarter of 2021, we changed the date of our annual

impairment test of goodwill and indefinite-lived intangible assets from September 30 to July 1.

When evaluating goodwill for impairment, we may first perform a qualitative assessment (“step zero” of the impairment test) to determine whether it is

more likely than not that a reporting unit is impaired.

If we decide not to perform a qualitative assessment, or if we determine that it is more likely than not the carrying amount of a reporting unit exceeds its the fair value, then we perform a

quantitative assessment (“step one” of the impairment test) and calculate the estimated fair value of the reporting unit.

If the carrying amount of the reporting unit exceeds the estimated fair value, an impairment charge would be recorded to

reduce the carrying amount to its estimated fair value.

The decision to perform a qualitative impairment assessment in a given year is influenced by a number of factors, including the significance of the excess of the reporting units’ estimated

fair value over carrying amount at the last quantitative assessment date, the amount of time in between quantitative fair value assessments, and the date of our acquisitions.

When evaluating goodwill for impairment, we may first perform a

qualitative assessment (“step zero” of the impairment test) to determine whether it is more likely than not that a reporting unit is impaired.

If we decide not to perform a qualitative assessment, or if we determine that it is more likely than

not the carrying amount of a reporting unit exceeds its the fair value, then we perform a quantitative assessment (“step one” of the impairment test) and calculate the estimated fair value of the reporting unit.

If the carrying amount of the

reporting unit exceeds the estimated fair value, an impairment charge would be recorded to reduce the carrying amount to its estimated fair value.

The decision to perform a qualitative impairment assessment in a given year is influenced by a

number of factors, including the significance of the excess of the reporting units’ estimated fair value over carrying amount at the last quantitative assessment date, the amount of time in between quantitative fair value assessments and the date

of our acquisitions.

No indicators of impairment were identified from the date of our annual impairment test through September 30, 2022.

A qualitative assessment is performed for intangibles and long-lived assets to determine if there are any indicators that the carrying amount might not

be recovered.

A quantitative analysis may be performed in order to test the intangibles and long-lived assets for impairment.

If a quantitative analysis is necessary, an income approach, specifically a relief from royalty method, is used to

estimate the fair value of the intangibles and long-lived assets.

A qualitative assessment is performed for intangibles and long-lived assets to determine if there are any indicators that the carrying amount might not be recovered.

A quantitative analysis may be

performed in order to test the intangibles and long-lived assets for impairment.

If a quantitative analysis is necessary, an income approach, specifically a relief from royalty method, is used to estimate the fair value of the intangibles and

long-lived assets.

Principal factors used in the relief from royalty method that require judgment are projected net sales, discount rates, royalty rates and terminal growth assumptions.

The estimated fair value of each intangible and long-lived assets is compared to its carrying amount to determine if impairment exists.

If the carrying amount of a intangibles and long-lived

assets exceeds the estimated fair value, an impairment charge would be recorded to reduce the carrying amount of the intangibles and long-lived assets.

No indicators of impairment of our intangibles and long-lived assets were identified from the

date of our annual impairment test through September 30, 2021.

If the carrying amount of a intangibles and long-lived assets

exceeds the estimated fair value, an impairment charge would be recorded to reduce the carrying amount of the intangibles and long-lived assets.

No indicators of impairment of our intangibles and long-lived assets were identified from the date of

our annual impairment test through September 30, 2022.

RECENT ACCOUNTING STANDARDS

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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.

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.

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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 (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.

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and circumstances that users of the financial statements may find significant.

In addition, although other companies in our industry may report measures titled 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 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.

In addition, although other companies in our industry may report measures titled 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 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.

QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

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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-K

Item 7. Management’s Discussion and Analysis