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 condensed consolidated financial statements and related notes thereto as of and for the three and nine months ended June 30, 2023, 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 using 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 several 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, our strategy of expanding our business through acquisitions of other businesses; we may be required to record a significant charge to earnings related to the impairment of acquired assets; 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; risks associated with litigation, including contingent auto liability and insurance coverage, and indemnification claims and other unforeseen claims and liabilities that may arise from an acquisition; changes in tax rates, laws or regulations and our acquired companies and subsidiaries’ ability to utilize anticipated tax benefits; the impact of inflation and rising interest rates on our investments, business and operations; conflicts of interest with the minority shareholders of our business; economic and other conditions in the markets in which we operate; we may not have sufficient working capital to continue operations; we may lose customers who are not obligated to long-term contracts to transact with us; instability in the financial markets, including in the banking sector; changes or developments in U.S. laws or policies; competition from companies with greater financial resources and from companies that operate in areas in which we plan to expand; our dependence on technically skilled employees; impacts from climate change, including the increased focus by third-parties on sustainability issues and our ability to comply therewith; the impact of increases in shipping costs, long lead times, supply shortages and supply changes; 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; the level of our insurance coverage, including related to product and other liability risks; our compliance with applicable privacy, security and data laws; risks related to the diverse platforms and geographies which host our management information and financial reporting systems; our dependence on the availability of cargo space from third parties; the impact of claims arising from transportation of freight by the carriers with which we contract, including an increase in premium costs; risks related to the classification of owner-operators in the transportation industry; recessions and other economic developments that reduce freight volumes; other events affecting the volume of international trade and international operations; risks arising from our ability to comply with governmental permit and licensing requirements or statutory and regulatory requirements; the impact of seasonal trends, impact of lower global volumes due to weak economic conditions and other factors beyond our control on our Logistics business; 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 ability of our Life Sciences business to maintain, determine the scope of and defend its and its competitors’ intellectual property rights; the impact of pressures in the life sciences industry to increase the predictability of or reduce healthcare costs; any decrease in the availability, or increase in the cost or supply shortages, of raw materials used by Indco; risks arising from the environmental, health and safety regulations applicable to Indco; the reliance of our Indco business on a single location to manufacture their products; the controlling influence exerted by our officers and directors and one of our stockholders; the unlikelihood that we will issue dividends in the foreseeable future; and risks related to ownership of our common stock, including share price volatility, the lack of a guaranteed continued public trading market for our common stock, our ability to issue shares of preferred stock with greater rights than our common stock and costs related to maintaining our status as a public company; and such other factors that may be identified from time to time in our Securities and Exchange Commission (“SEC”) filings. 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 SEC, including our most recent Annual Report on Form 10-K for the fiscal year ended September 30, 2022. 20 Table of Contents OVERVIEW Janel Corporation ("Janel," the "Company," or the "Registrant") is a holding company with subsidiaries in three business segments: Logistics, Life Sciences and Manufacturing. 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 high risk-adjusted rates of return; and attracting and retaining exceptional talent. Management at the Janel holding company 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. Logistics The Company’s Logistics segment is comprised of several wholly-owned subsidiaries. The Logistics segment 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; trucking and other value-added logistics services. In addition to these revenue streams, the Company earns accessorial revenue in connection with its core services. Accessorial revenue includes, but is not limited to, fuel service charges, wait time fees, hazardous cargo fees, labor charges, handling, cartage, bonding and additional labor charges. 21 Table of Contents Life Sciences The Company’s Life Sciences segment is comprised of several wholly-owned subsidiaries. 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 segment also produces products for other life science companies on an original equipment manufacturer (OEM) basis. On May 22, 2023, the Company acquired all the rights, title and interests to a royalty agreement for certain antibody products, which we include in our Life Sciences segment. On March 2, 2023, the Company completed a business combination whereby it acquired all of the outstanding stock of Stephen Hall, PhD Ltd., which we include in our Life Sciences segment. On November 1, 2022, the Company completed a business combination whereby it acquired all of the outstanding stock of ImmunoBioScience Corporation, which we include in our Life Sciences segment. On August 15, 2022, the Company completed a business combination whereby it acquired all the membership interests of ECM Biosciences LLC, which we include in our Life Sciences segment. 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. Investment in Marketable Securities - Rubicon 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 Company owned approximately 46.6% of Rubicon's issued and outstanding shares of common stock as of June 30, 2023. Rubicon is an advanced materials provider specializing in monocrystalline sapphire for applications in optical and industrial systems. 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 net operating loss carry-forward assets. Although we are optimistic about our investment in Rubicon, our investment involves risks and uncertainties that are beyond our control. CRITICAL ACCOUNTING POLICIES AND ESTIMATES Our Condensed Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles in the United States. These generally accepted accounting principles require management to make estimates and assumptions that affect the reported amounts of assets, liabilities, net sales and expenses during the reporting period. Our senior management has reviewed the critical accounting policies and estimates with the Audit Committee of our Board of Directors. For a description of the Company’s critical accounting policies and estimates, refer to “Part II—Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Estimates” in our Annual Report on Form 10-K filed with the SEC on December 9, 2022. Critical accounting policies are those that are most important to the portrayal of our financial condition, results of operations and cash flows and require management’s most difficult, subjective and complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. If actual results were to differ significantly from estimates made, the reported results could be materially affected. There were no significant changes to our critical accounting policies during the nine months ended June 30, 2023. 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”). 22 Table of Contents Organic Revenue Our non-GAAP financial measure of organic revenue represents revenue growth excluding revenue from acquisitions within the preceding 12 months. The organic revenue 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. We believe that organic revenue and adjusted operating income provide useful information in understanding and evaluating our operating results in the same manner as management. However, organic revenue 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 may report measures titled organic revenue, 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 revenue 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 - Three and Nine Months Ended June 30, 2023 and 2022 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 Condensed Consolidated Financial Statements and the notes thereto. Our consolidated results of operations are as follows: Three Months Ended June 30, Nine Months Ended June 30, (in thousands) 2023 2022 2023 2022 Revenue $ 42,557 $ 78,984 $ 144,979 $ 243,149 Forwarding expenses and cost of revenue 28,898 61,819 102,654 193,986 Gross profit 13,659 17,165 42,325 49,163 Operating expenses 13,472 13,994 39,854 41,203 Income from operations 187 3,171 2,471 7,960 Net (loss) income (430 ) 2,158 148 5,119 Adjusted operating income $ 876 $ 3,822 $ 4,569 $ 10,638 Consolidated revenue for the three months ended June 30, 2023 was $42,557, which was $36,427 or 46.1% lower than the prior year period. Consolidated revenue for the nine months ended June 30, 2023 was $144,979, which was $98,170 or 40.4% lower than the prior year period. Revenue for both the three and nine months ended June 30, 2023 decreased primarily due to lower freight prices in our Logistics segment as a result of lower freight demand relative to improved global transportation capacity. 23 Table of Contents Income from operations for the three months ended June 30, 2023 was $187 compared with $3,171 in the prior year period. Income from operations for the nine months ended June 30, 2023 was $2,471 compared with $7,960 in the prior year period. The decrease for both the three and nine months ended June 30, 2023 resulted from lower profits across our business segments, especially at our Logistics segment, which benefited from unusually high demand in the prior year periods. Net loss for the three months ended June 30, 2023 totaled ($430) or ($0.36) per diluted share, compared to net income of $2,158 or $1.93 per diluted share for the three months ended June 30, 2022. Net income for the nine months ended June 30, 2023 totaled $148 or $0.12 per diluted share, compared to net income of $5,119 or $4.85 per diluted share for the nine months ended June 30, 2022. The decline in net income was largely due to lower profits in our business segments, higher interest expense and a non-cash mark-to-market write-down of an equity investment. Adjusted operating income for the three months ended June 30, 2023 decreased to $876 versus $3,822 in the prior year period. Adjusted operating income for the nine months ended June 30, 2023 decreased to $4,569 versus $10,638 in the prior year period. The decrease for both the three and nine months ended June 30, 2023 resulted from an overall decrease in profits at our business segments. The following table sets forth a reconciliation of operating income to adjusted operating income: Three Months Ended June 30, Nine Months Ended June 30, (in thousands) 2023 2022 2023 2022 Income from operations $ 187 $ 3,171 $ 2,471 $ 7,960 Amortization of intangible assets 524 489 1,593 1,485 Stock-based compensation 62 32 185 800 Cost recognized on sale of acquired inventory 103 130 320 393 Adjusted operating income $ 876 $ 3,822 $ 4,569 $ 10,638 Results of Operations – Logistics – Three and Nine Months Ended June 30, 2023 and 2022 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 repackaging and online shipment tracking. Three Months Ended June 30, Nine Months Ended June 30, 2023 2022 2023 2022 (in thousands) Revenue $ 37,484 $ 73,684 $ 129,162 $ 226,313 Forwarding expense 27,241 59,889 97,339 187,780 Gross profit 10,243 13,795 31,823 38,533 Gross profit margin 27.3 % 18.7 % 25.7 % 17.0 % Selling, general and administrative expenses 9,629 10,387 27,891 29,802 Income from operations $ 614 $ 3,408 $ 3,932 $ 8,731 Revenue Total revenue for the three months ended June 30, 2023 was $37,484 as compared to $73,684 for the three months ended June 30, 2022, a decrease of $36,200, or 49.1%. Total revenue for the nine months ended June 30, 2023 was $129,162 as compared to $226,313 for the nine months ended June 30, 2022, a decrease of $97,151 or 42.9%. Revenue decreased for both the three and nine months ended June 30, 2023 primarily due to lower freight prices as a result of lower freight demand relative to improved global transportation capacity. Gross Profit Gross profit for the three months ended June 30, 2023 was $10,243, a decrease of $3,552, or 25.7%, as compared to $13,795 for the three months ended June 30, 2022. Gross profit margin as a percentage of revenue increased to 27.3% for the three months ended June 30, 2023, compared to 18.7% for the prior year period, primarily because gross profit declined at a slower rate as compared to gross revenue, which declined more significantly due to lower freight prices. Gross profit for the nine months ended June 30, 2023 was $31,823, a decrease of $6,710, or 17.4%, as compared to $38,533 for the nine months ended June 30, 2022. Gross profit margin as a percentage of revenue increased to 25.7% compared to 17.0% for the prior year period, primarily because gross profit declined at a slower rate compared with gross revenue, which declined more significantly due to lower freight prices. 24 Table of Contents Selling, General and Administrative Expenses Selling, general and administrative expenses for the three months ended June 30, 2023 were $9,629, as compared to $10,387 for the three months ended June 30, 2022. This decrease of $758, or 7.3%, was mainly due to lower personnel expenses and bad debt expense. Selling, general and administrative expenses as a percentage of revenue were 25.7% and 14.1% for the three months ended June 30, 2023 and 2022, respectively. The increase in selling, general and administrative expenses as a percentage of revenue largely reflected the reduction in transportation rates. Selling, general and administrative expenses for the nine months ended June 30, 2023 were $27,891, as compared to $29,802 for the nine months ended June 30, 2022. This decrease of $1,911, or 6.4%, was mainly due to lower personnel expenses and recovery of bad debt expense. Selling, general and administrative expenses as a percentage of revenue were 21.6% and 13.2% of revenue for the nine months ended June 30, 2023 and 2022, respectively. The increase in selling, general and administrative expenses as a percentage of revenue largely reflected the decrease in transportation rates. Income from Operations Income from operations decreased to $614 for the three months ended June 30, 2023, as compared to income from operations of $3,408 for the three months ended June 30, 2022, a decrease of $2,794, or 81.9%. Income from operations decreased as a result of lower transportation demand. Operating margin as a percentage of gross profit for the three months ended June 30, 2023 was 6.0% compared to 24.7% in the prior year period due to lower gross profits. Income from operations decreased to $3,932 for the nine months ended June 30, 2023, as compared to $8,731 for the nine months ended June 30, 2022, a decrease of $4,799, or 55.0%. Income from operations decreased during the nine months ended June 30, 2023 as a result of lower transportation demand. Our operating margin as a percentage of gross profit for the nine months ended June 30, 2023 was 12.4% compared to 22.7% in the prior year period largely due to lower gross profits. Results of Operations – Life Sciences – Three and Nine Months Ended June 30, 2023 and 2022 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. Three Months Ended June 30, Nine Months Ended June 30, 2023 2022 2023 2022 (in thousands) Revenue $ 2,811 $ 2,738 $ 8,717 $ 9,257 Cost of sales 472 518 1,610 2,123 Cost recognized upon sale of acquired inventory 103 130 320 393 Gross profit 2,236 2,090 6,787 6,741 Gross profit margin 79.5 % 76.3 % 77.9 % 72.8 % Selling, general and administrative 1,512 1,225 4,592 3,758 Income from operations $ 724 $ 865 $ 2,195 $ 2,983 Revenue Total revenue was $2,811 and $2,738 for the three months ended June 30, 2023 and 2022, respectively, reflecting a slight increase of $73, or 2.7%, compared to the prior year period primarily due to current year acquistions, partially offset by lower demand for diagnostic reagents. Organic revenue excluding acquisition revenue declined $251, or 9.2%. Total revenue was $8,717 and $9,257 for the nine months ended June 30, 2023 and 2022, respectively, reflecting a decrease of $540, or 5.8%, compared to the prior year period due to lower demand for diagnostic reagents, partially offset by current year acquisitions. Organic revenue excluding acquisition revenue declined $1,239, or 13.8%. 25 Table of Contents Gross Profit Gross profit was $2,236 and $2,090 for the three months ended June 30, 2023 and 2022, respectively, an increase of $146, or 7.0%. During the three months ended June 30, 2023 and 2022, gross profit margin was 79.5% and 76.3%, respectively, as product mix improved. Gross profit was $6,787 and $6,741 for the nine months ended June 30, 2023 and 2022, respectively, an increase of $46 or 0.7%. During the nine months ended June 30, 2023 and 2022, the Life Sciences segment had gross profit margin of 77.9% and 72.8%, respectively. The increase in gross profit margin resulted from an improvement in product mix. Selling, General and Administrative Expenses Selling, general and administrative expenses for the Life Sciences segment were $1,512 and $1,225 for the three months ended June 30, 2023 and 2022, respectively. Selling, general and administrative expenses were $4,592 and $3,758 for the nine months ended June 30, 2023 and 2022, respectively. The year-over-year increases for both periods were largely due to additional expenses from acquired businesses. Income from Operations Income from operations for the three months ended June 30, 2023 and 2022 was $724 and $865, respectively, a decrease of $141, or 16.3%. Income from operations for the nine months ended June 30, 2023 and 2022 was $2,195 and $2,983, respectively, a decrease of $788, or 26.4%. Both the three-month and nine-month periods were impacted by lower demand for diagnostic reagents and additional expenses from acquired businesses. Results of Operations - Manufacturing – Three and Nine Months Ended June 30, 2023 and 2022 The Company’s Manufacturing segment reflects its majority-owned Indco subsidiary, which manufactures and distributes industrial mixing equipment. Three Months Ended June 30, Nine Months Ended June 30, 2023 2022 2023 2022 (in thousands) Revenue $ 2,262 $ 2,562 $ 7,100 $ 7,579 Cost of sales 1,082 1,282 3,385 3,690 Gross profit 1,180 1,280 3,715 3,889 Gross profit margin 52.2 % 50.0 % 52.3 % 51.3 % Selling, general and administrative expenses 717 676 2,267 2,170 Income from operations $ 463 $ 604 $ 1,448 $ 1,719 Revenue Total revenue was $2,262 and $2,562 for the three months ended June 30, 2023 and 2022, respectively, a decrease of $300, or 11.7%. Total revenue was $7,100 and $7,579 for the nine months ended June 30, 2023 and 2022, respectively, a decrease of $479, or 6.3%. The decrease in revenue for both the three and nine months ended June 30, 2023 reflected a decrease in volume across the business, offset in part by higher product pricing. Gross Profit Gross profit was $1,180 and $1,280 for the three months ended June 30, 2023 and 2022, respectively, a decrease of $100, or 7.8%. Gross profit margin for the three months ended June 30, 2023 and 2022 was 52.2% and 50.0%, respectively. Gross profit was $3,715 and $3,889 for the nine months ended June 30, 2023 and 2022, respectively, a decrease of $174, or 4.5%. Gross profit margin for the nine months ended June 30, 2023 and 2022 was 52.3% and 51.3%, respectively. The gross profit and gross profit margin for both the three- and nine-month periods remained relatively unchanged. Selling, General and Administrative Expenses Selling, general and administrative expenses were $717 and $676 for the three months ended June 30, 2023 and 2022, respectively, an increase of $41, or 6.1%. Selling, general and administrative expenses were $2,267 and $2,170 for the nine months ended June 30, 2023 and 2022, respectively, an increase of $97, or 4.5%. The increase in expenses relative to revenue for the three- and nine-month periods reflected the mix of business. 26 Table of Contents Income from Operations Income from operations was $463 for the three months ended June 30, 2023 compared to $604 for the three months ended June 30, 2022, representing a 23.3% decrease from the prior year period due to unfavorable order timing versus the prior year period. Income from operations was $1,448 for the nine months ended June 30, 2023 compared to $1,719 for the nine months ended June 30, 2022, representing a 15.8% decrease from the prior year period due to unfavorable order timing versus the prior year period. Results of Operations – Corporate and Other – Three and Nine Months Ended June 30, 2023 and 2022 Below is a reconciliation of income from operating segments to net income available to common stockholders. Three Months Ended June 30, Nine Months Ended June 30, (in thousands) 2023 2022 2023 2022 Total income from operations by segment $ 1,801 $ 4,877 $ 7,575 $ 13,433 Corporate expenses (1,028 ) (1,185 ) (3,326 ) (3,188 ) Amortization of intangible assets (524 ) (489 ) (1,593 ) (1,485 ) Stock-based compensation (62 ) (32 ) (185 ) (800 ) Total corporate expenses (1,614 ) (1,706 ) (5,104 ) (5,473 ) Interest expense (528 ) (299 ) (1,476 ) (847 ) Fair value adjustments to Rubicon investment (269 ) — (779 ) — Net (loss) income before taxes (610 ) 2,872 216 7,113 Income tax benefit (expense) 180 (714 ) (68 ) (1,994 ) Net (loss) Income (430 ) 2,158 148 5,119 Preferred stock dividends (70 ) (71 ) (212 ) (515 ) Non-controlling interest dividend — — — (61 ) Net (loss) Income Available to Common Stockholders $ (500 ) $ 2,087 $ (64 ) $ 4,543 Total Corporate Expenses Total Corporate expenses, which include amortization of intangible assets, stock-based compensation and merger and acquisition expenses, decreased by $92, or 5.4%, to $1,614 in the three months ended June 30, 2023 as compared to $1,706 for the three months ended June 30, 2022. Total Corporate expenses decreased by $369, or 6.7%, to $5,104 for the nine months ended June 30, 2023 as compared to $5,473 for the nine months ended June 30, 2022. The decrease in both periods was due primarily to higher stock-based compensation related to restricted stock issuance with immediate vesting, higher accounting-related professional expense, and increased merger and acquisition expenses in the prior year periods partially offset by current year 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 $229, or 76.6%, to $528 for the three months ended June 30, 2023 from $299 for the three months ended June 30, 2022. Interest expense for the consolidated company increased by $629, or 74.3%, to $1,476 for the nine months ended June 30, 2023 from $847 for the nine months ended June 30, 2022. The increase in both periods was primarily due to higher interest rates, partially off-set by lower average debt outstanding. Income Tax Expense On a consolidated basis, the Company recorded an income tax benefit of $180, an effective tax rate of 29.5% for the three months ended June 30, 2023, as compared to an income tax expense of $714, an effective tax rate of 24.9% for the three months ended June 30, 2022. On a consolidated basis, the Company recorded an income tax expense of $68, an effective tax rate of 31.5% for the nine months ended June 30, 2023, as compared to an income tax expense of $1,994, an effective tax rate of 28.0% for the nine months ended June 30, 2022. The rate was higher than the statutory rate of 21% in both periods due to non-deductible expenses and state income taxes. The decrease in expense for both periods was primarily due to a decrease in pretax income. 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 Preferred Stock”). For the three months ended June 30, 2023 and 2022, preferred stock dividends were $70 and $71, respectively, representing a decrease of $1, or 1.4%. For the nine months ended June 30, 2023 and 2022, preferred stock dividends were $212 and $515, respectively, representing a decrease of $303, or 58.8%. The decrease in preferred stock dividends in both periods was the result of the Company retiring $6,000 of Series C Preferred Stock on March 31, 2022 and the change in the annual dividend rate from 9% to 5% at that time. 27 Table of Contents Net (Loss) Income Net loss was ($430), or ($0.36) per diluted share, for the three months ended June 30, 2023 compared to net income of $2,158 or $1.93 per diluted share, for the three months ended June 30, 2022. Net income was $148, or $0.12 per diluted share, for the nine months ended June 30, 2023 compared to net income of $5,119, or $4.85 per diluted share, for the nine months ended June 30, 2022. The decline in net income in both periods was largely due to lower profits in our business segments, higher interest expenses and a non-cash mark-to-market write-down of an equity investment. Net (Loss) Income Available to Common Stockholders Net (loss) available to holders of Common Stock was ($500), or ($0.42) per diluted share, for the three months ended June 30, 2023 compared to net income available to holders of Common Stock of $2,087, or $1.87 per diluted share, for the three months ended June 30, 2022. Net (loss) available to holders of Common Stock was ($64), or ($0.05) per diluted share, for the nine months ended June 30, 2023 compared to income available to holders of Common Stock of $4,543, or $4.31 per diluted share, for the nine months ended June 30, 2022. The decrease in net income available to common stockholders for both periods reflected lower net income and a decrease in the dividend rate with respect to the Series C Preferred Stock as of March 31, 2022 from 9% to 5%. LIQUIDITY AND CAPITAL RESOURCES General Our ability to satisfy liquidity requirements—including meeting 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 our 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. 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. 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. Our cash flow performance for the 2023 fiscal year may not necessarily be indicative of future cash flow performance. Cash flows from operating activities Net cash provided by operating activities was $11,056 for the nine months ended June 30, 2023, versus $8,678 provided by operating activities for the nine months ended June 30, 2022. The increase in cash provided by operations for the nine months ended June 30, 2023 compared to the prior year period was driven principally by lower net working capital at our Logistics segment, partially offset by a decline in net income. Cash flows from investing activities Net cash used in investing activities totaled $6,361 for the nine months ended June 30, 2023, versus $589 for the nine months ended June 30, 2022. We used $267 for the acquisition of property and equipment, $1,693 in earnout payment to the former owners of ELFS and $4,401 for the acquisition of two business for the nine months ended June 30, 2023, compared to $477 for the acquisition of property and equipment for the nine months ended June 30, 2022. Cash flows from financing activities Net cash used in financing activities was $8,513 for the nine months ended June 30, 2023, versus net cash used in financing activities of $10,487 for the nine months ended June 30, 2022. Net cash used in financing activities for the nine months ended June 30, 2023 primarily included repayment of funds from our line of credit, and repayment of funds from our term loan. Net cash used in financing activities for the nine months ended June 30, 2022 primarily included repayment of funds from our line of credit and repayments of term loans. 28 Table of Contents Off-Balance Sheet Arrangements As of June 30, 2023, we had no off-balance sheet arrangements or obligations.