JANEL CORP 10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2024 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____ to ____ Commission file number: 333-60608 JANEL CORP ORATION (Exact name of registrant as specified in its charter) Nevada 86-1005291 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) 80 Eighth Avenue New York , New York 10011 (Address of principal executive offices) (Zip Code) Registrant’s telephone number, including area code: ( 212 ) 373-5895 Former name, former address and former fiscal year, if changed from last report: N/A Securities registered pursuant to Section 12(b) of the Act: Title of each class Trading symbols(s) Name of each exchange on which registered None None None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐ Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act. Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☒ Emerging growth company ☐ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒ The number of shares of Common Stock outstanding as of August 2, 2024 was 1,186,354 . JANEL CORPORATION QUARTERLY REPORT ON FORM 10-Q For Quarterly Period Ended June 30, 2024 TABLE OF CONTENTS Page Part I - Financial Information 3 Item 1. Financial Statements 3 Condensed Consolidated Balance Sheets as of June 30, 2024 (unaudited) and September 30, 2023 3 Condensed Consolidated Statements of Operations for the three and nine months ended June 30, 2024 and 2023 (unaudited) 4 Condensed Consolidated Statement of Stockholders’ Equity for the three and nine months ended June 30, 2024 and 2023 (unaudited) 5 Condensed Consolidated Statements of Cash Flows for the nine months ended June 30, 2024 and 2023 (unaudited) 6 Notes to Condensed Consolidated Financial Statements (unaudited) 7 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 19 Item 4. Controls and Procedures 28 Part II - Other Information 29 Item 1. Legal Proceedings 29 Item 1A. Risk Factors 29 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 29 Item 6. Exhibit Index 29 Signatures 30 Table of Contents PART I - FINANCIAL INFORMATION ITEM 1 . FINANCIAL STATEMENTS JANEL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share data) (Unaudited) June 30, 2024 September 30, 2023 ASSETS Current Assets: Cash $ 3,054 $ 2,461 Accounts receivable, net of allowance for doubtful accounts 32,627 27,518 Inventory, net 4,556 4,850 Prepaid expenses and other current assets 4,477 4,459 Total current assets 44,714 39,288 Property and Equipment, net 5,296 4,922 Other Assets: Intangible assets, net 23,830 22,683 Goodwill 23,946 20,317 Restricted cash 250 — Investment in Rubicon at fair value 831 1,573 Operating lease right of use asset 9,113 7,460 Security deposits and other long-term assets 586 591 Total other assets 58,556 52,624 Total assets $ 108,566 $ 96,834 LIABILITIES AND STOCKHOLDERS’ EQUITY Current Liabilities: Lines of credit $ 22,081 $ 19,709 Accounts payable - trade 32,058 25,447 Accrued expenses and other current liabilities 6,973 6,337 Dividends payable 2,271 2,029 Current portion of earnout 1,149 592 Current portion of long-term debt 716 715 Current portion of subordinated promissory notes-related party 1,683 1,988 Current portion of operating lease liabilities 2,445 2,020 Total current liabilities 69,376 58,837 Other Liabilities: Long-term debt 4,282 5,784 Long-term portion of earnout 2,011 1,738 Subordinated promissory notes-related party 3,790 3,424 Mandatorily redeemable non-controlling interest 965 565 Deferred income taxes 1,341 1,341 Long-term operating lease liabilities 7,034 5,689 Other liabilities 529 483 Total other liabilities 19,952 19,024 Total liabilities 89,328 77,861 Stockholders’ Equity: Preferred Stock, $ 0.001 par value; 100,000 shares authorized Series C 30,000 shares authorized and 11,368 shares issued and outstanding at June 30, 2024 and September 30, 2023, liquidation value of $ 7,955 and $ 7,713 at June 30, 2024 and September 30, 2023, respectively — — Common stock, $ 0.001 par value; 4,500,000 shares authorized, 1,206,354 issued and 1,186,354 outstanding as of June 30, 2024 and September 30, 2023, respectively 1 1 Paid-in capital 17,068 17,107 Common treasury stock, at cost, 20,000 shares ( 240 ) ( 240 ) Accumulated earnings 2,409 2,105 Total stockholders’ equity 19,238 18,973 Total liabilities and stockholders’ equity $ 108,566 $ 96,834 The accompanying notes are an integral part of these condensed consolidated financial statements. 3 Table of Contents JANEL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data) (Unaudited) Three Months Ended June 30, Nine Months Ended June 30, 2024 2023 2024 2023 Revenues $ 46,724 $ 42,557 $ 129,881 $ 144,979 Forwarding expenses and cost of revenues 31,633 28,898 86,822 102,654 Gross profit 15,091 13,659 43,059 42,325 Cost and Expenses: Selling, general and administrative 13,358 12,948 38,664 38,261 Amortization of intangible assets 555 524 1,635 1,593 Total Costs and Expenses 13,913 13,472 40,299 39,854 Income from Operations 1,178 187 2,760 2,471 Other Items: Interest expense ( 589 ) ( 528 ) ( 1,663 ) ( 1,476 ) Other expense ( 437 ) ( 269 ) ( 381 ) ( 779 ) Income (Loss) Before Income Taxes 152 ( 610 ) 716 216 Income tax benefit (expense) ( 343 ) 180 ( 412 ) ( 68 ) Net Income (Loss) ( 191 ) ( 430 ) 304 148 Preferred stock dividends ( 85 ) ( 70 ) ( 242 ) ( 212 ) Net Income (Loss) Available to Common Stockholders $ ( 276 ) $ ( 500 ) $ 62 $ ( 64 ) Net income (loss) per share Basic $ ( 0.16 ) $ ( 0.36 ) $ 0.25 $ 0.12 Diluted $ ( 0.16 ) $ ( 0.36 ) $ 0.25 $ 0.12 Net income (loss) per share attributable to common stockholders: Basic $ ( 0.23 ) $ ( 0.42 ) $ 0.05 $ ( 0.05 ) Diluted $ ( 0.23 ) $ ( 0.42 ) $ 0.05 $ ( 0.05 ) Weighted average number of shares outstanding: Basic 1,186.4 1,186.4 1,186.4 1,186.4 Diluted 1,186.4 1,186.4 1,205.9 1,186.4 The accompanying notes are an integral part of these condensed consolidated financial statements. 4 Table of Contents JANEL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (in thousands, except share and per share data) (Unaudited) PREFERRED STOCK COMMON STOCK PAID-IN CAPITAL COMMON TREASURY STOCK ACCUMULATED EARNINGS TOTAL EQUITY SHARES $ SHARES $ $ SHARES $ $ $ Balance - September 30, 2023 11,368 $ — 1,206,354 $ 1 $ 17,107 20,000 $ ( 240 ) $ 2,105 $ 18,973 Net Income — — — — — — — 276 276 Dividends to preferred stockholders — — — — ( 72 ) — — — ( 72 ) Stock-based compensation — — — — 68 — — — 68 Balance - December 31, 2023 11,368 $ — 1,206,354 $ 1 $ 17,103 20,000 $ ( 240 ) $ 2,381 $ 19,245 Net Income — — — — — — — 219 219 Dividends to preferred stockholders — — — — ( 85 ) — — — ( 85 ) Stock based compensation — — — — 68 — — — 68 Balance - March 31, 2024 11,368 $ — 1,206,354 $ 1 $ 17,086 20,000 $ ( 240 ) $ 2,600 $ 19,447 Net Loss — — — — — — — ( 191 ) ( 191 ) Dividends to preferred stockholders — — — — ( 85 ) — — — ( 85 ) Stock based compensation — — — — 67 — — — 67 Balance – June 30, 2024 11,368 $ — 1,206,354 $ 1 $ 17,068 20,000 $ ( 240 ) $ 2,409 $ 19,238 PREFERRED STOCK COMMON STOCK PAID-IN CAPITAL COMMON TREASURY STOCK ACCUMULATED EARNINGS TOTAL EQUITY SHARES $ SHARES $ $ SHARES $ $ $ Balance - September 30, 2022 11,368 $ — 1,206,354 $ 1 $ 17,184 20,000 $ ( 240 ) $ 1,382 $ 18,327 Net Income — — — — — — — 360 360 Dividends to preferred stockholders — — — — ( 72 ) — — — ( 72 ) Stock-based compensation — — — — 51 — — — 51 Balance - December 31, 2022 11,368 $ — 1,206,354 $ 1 $ 17,163 20,000 $ ( 240 ) $ 1,742 $ 18,666 Net Income — — — — — — — 218 218 Dividends to preferred stockholders — — — — ( 70 ) — — — ( 70 ) Stock based compensation — — — — 53 — — — 53 Balance - March 31, 2023 11,368 $ — 1,206,354 $ 1 $ 17,146 20,000 $ ( 240 ) $ 1,960 $ 18,867 Net Loss — — — — — — — ( 430 ) ( 430 ) Dividends to preferred stockholders — — — — ( 70 ) — — — ( 70 ) Stock based compensation — — — — 51 — — — 51 Balance - June 30, 2023 11,368 $ — 1,206,354 $ 1 $ 17,127 20,000 $ ( 240 ) $ 1,530 $ 18,418 The accompanying notes are an integral part of these condensed consolidated financial statements . 5 Table of Contents JANEL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (Unaudited) Nine Months Ended June 30, 2024 2023 Cash flows from operating activities: Net income $ 304 $ 148 Adjustments to reconcile net income to net cash provided by operating activities: Recovery of uncollectible accounts ( 71 ) ( 292 ) Depreciation 404 373 Deferred income tax provision — ( 8 ) Amortization of intangible assets 1,635 1,593 Amortization of acquired inventory valuation 264 320 Amortization of loan costs 72 63 Stock-based compensation 214 185 Unrealized loss on marketable securities 742 779 Change in fair value of mandatorily redeemable noncontrolling interest 400 — Fair value adjustments of contingent earnout liabilitie s 553 — Gain on extinguishment of debt ( 21 ) — Changes in operating assets and liabilities, net of effects of acquisitions: Accounts receivable ( 3,292 ) 27,056 Inventory 38 ( 106 ) Prepaid expenses and other current assets 102 ( 1,151 ) Security deposits and other long-term assets 4 ( 82 ) Accounts payable and accrued expenses 4,844 ( 17,996 ) Other liabilities 162 174 Net cash provided by operating activities 6,354 11,056 Cash flows from investing activities: Acquisition of property and equipment, net of disposals ( 658 ) ( 267 ) Earnout payment ( 740 ) ( 1,693 ) Acquisitions, net of cash acquired ( 3,795 ) ( 4,401 ) Net cash used in investing activities ( 5,193 ) ( 6,361 ) Cash flows from financing activities: Repayments of term loan ( 1,573 ) ( 1,113 ) Proceeds from (Payments to) Lines of credit, net 2,372 ( 7,101 ) Repayment of subordinate promissory notes, net ( 1,117 ) ( 299 ) Net cash used in financing activities ( 318 ) ( 8,513 ) Net increase (decrease) in cash 843 ( 3,818 ) Cash at beginning of the period 2,461 6,591 Cash and restricted cash at end of period 3,304 2,773 Supplemental disclosure of cash flow information: Cash paid during the period for : Interest $ 1,442 $ 1,208 Income taxes $ 556 $ 1,300 Non-cash operating activities: Contingent earnout acquisition $ 64 $ 300 Due to former owners $ 740 $ 455 Non-cash investing activities: Airschott subordinated promissory note $ 1,200 $ — Airschott contingent deferred consideration $ 952 $ — Non-cash financing activities : Dividends declared to preferred stockholders $ 242 $ 212 The accompanying notes are an integral part of these condensed consolidated financial statements. 6 Table of Contents JANEL CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except per share data) (Unaudited) 1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES The accompanying interim unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of Article 8 of Regulation S-X and the instructions to Form 10-Q of the Securities and Exchange Commission. As a result, certain information and footnote disclosures normally included in audited financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. Janel Corporation (the “Company” or “Janel”) believes that the disclosures made are adequate to make the information presented not misleading. The condensed consolidated financial statements reflect all adjustments which are, in the opinion of management, necessary to a fair statement of the results for the interim periods presented. The results of operations for the periods presented are not necessarily indicative of the results to be expected for a full fiscal year, or any other period. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes included in the Company’s Form 10-K as filed with the Securities and Exchange Commission. Business Description Janel 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 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. Restricted Cash Commencing in the second half of 2024, the Company insures certain risks through a newly formed wholly-owned captive insurance company, Gainesville Insurance Company, Inc. (“Gainesville ”). In addition, we also maintain some of our normal, historical insurance policies with third-party insurers. Restricted cash represents deposits held by Gainesville that are required by state insurance regulations to remain in the captive insurance company as cash or cash equivalents. The Company considers all highly liquid investments with an original maturity of three months or less, when purchased, to be cash equivalents. Revenue and revenue recognition Logistics Revenues are recognized upon transfer of control of promised services to customers. With respect to its Logistics segment, the Company has determined that, in general, each shipment transaction or service order constitutes a separate contract with the customer. When the Company provides multiple services to a customer, different contracts may be present for different services. The Company typically satisfies its performance obligations as services are rendered at a point in time. A typical shipment would include services rendered at origin, such as pick-up and delivery to port, freight services from origin to destination port and destination services, such as customs clearance and final delivery. The Company measures the performance of its obligations as services are completed at a point in time during the life of a shipment, including services at origin, freight and destination. The Company fulfills nearly all of its performance obligations within a one- to two-month period. The Company evaluates whether amounts billed to customers should be reported as gross or net revenues. Generally, revenues are recorded on a gross basis when the Company is acting as principal and is primarily responsible for fulfilling the promise to provide the services, when it has discretion in setting the prices for the services to the customers, and the Company has the ability to direct the use of the services provided by the third party. Revenues are recognized on a net basis when the Company is acting as agent, and we do not have latitude in carrier selection or in establishing rates with the carrier. In the Logistics segment, the Company disaggregates its revenue by its four primary service categories: Trucking, Ocean, Air, Customs Brokerage and Other . A summary of the Company’s revenues disaggregated by major service lines for the three and nine months ended June 30, 2024 and 2023 is as follows (in thousands) : 7 Table of Contents Three Months Ended June 30, Nine Months Ended June 30 , 2024 2023 2024 2023 Service Type Trucking $ 18,689 $ 19,314 $ 55,040 $ 61,671 Ocean 10,443 7,502 25,204 34,908 Air 6,733 5,638 19,261 17,096 Customs Brokerage and Other 4,812 5,030 12,486 15,487 Total $ 40,677 $ 37,484 $ 111,991 $ 129,162 Life Sciences and Manufacturing Revenues from the Life Sciences segment are derived from the sale of high-quality monoclonal and polyclonal antibodies, diagnostic reagents and diagnostic kits and other immunoreagents for biomedical research and antibody manufacturing. Revenues from the Company’s Manufacturing segment, which is comprised of Indco, a majority-owned subsidiary of the Company that manufactures and distributes mixing equipment and apparatus for specific applications within various industries (“Indco”), are derived from the engineering, manufacture and delivery of specialty mixing equipment and accessories. Revenues for Life Sciences and Manufacturing are recognized when products are shipped and the risk of loss is transferred to the carrier(s) used. 2. ACQUISITIONS Fiscal 2024 Acquisitions Logistics On June 5, 2024, the Company completed a business combination whereby it acquired a majority ownership position in Airschott, Inc. (“Airschott”), a non-asset-based freight forwarder and customs broker, for an aggregate purchase price of $ 5,900 . At closing, the Company purchased 80 % of the outstanding stock of Airschott for $ 3,600 in cash, a $ 1,200 floating-rate seller’s note, and net liabilities assumed of $ 170 . The Company also agreed to purchase the remaining 20 % of Airschott stock in three years for deferred consideration of the greater of 20 % of 1.25 times the trailing twelve months gross profit of Airschott and $ 1,200 . The acquisition was funded by our existing acquisition draw facility with First Merchants Bank (“First Merchants”) and through our existing asset-backed facility with Santander Bank, N.A. (“Santander”). In connection with the combination, the Company recorded an aggregate of $ 3,500 in goodwill and $ 2,400 in other identifiable intangibles. Supplemental pro forma information has not been provided as the acquisition did not have a significant impact on Janel’s condensed consolidated results of operations, individually or in aggregate. Airschott was founded in 1977 and is headquartered in Dulles, Virginia. The acquisition of Airschott was completed to expand our service offerings in our Logistics segment. The Company is still finalizing the valuation of assets acquired, liabilities assumed, and the deferred consideration for Airschott, and, as such, the fair value amounts are preliminary and subject to change. Primary amounts subject to adjustment include, but are not limited to, intangible assets, fair value of accounts receivable or a change in the goodwill balance. Life Sciences On February 1, 2024, the Company completed a business combination whereby it acquired all of the outstanding stock of ViraQuest, Inc. (“ViraQuest”), for an aggregate purchase price of $ 635 , net of $ 29 cash received. At closing, $ 600 was paid in cash and $ 64 was recorded as a preliminary earnout consideration. The acquisition was funded with cash provided by operating activities, and the results of operations of ViraQuest are included in Janel’s condensed consolidated results of operations since the date of the acquisition. In connection with the combination, the Company recorded an aggregate of $ 74 in goodwill and $ 412 in other identifiable intangibles. Supplemental pro forma information has not been provided as the acquisition did not have a significant impact on Janel’s condensed consolidated results of operations, individually or in aggregate. ViraQuest is a biotechnology custom service provider specializing in adenovirus production services. ViraQuest was founded in 2000 and is headquartered in North Liberty, Iowa. The acquisition of ViraQuest was completed to expand our service offerings in our Life Sciences segment. The Company is still finalizing the valuation of assets acquired and liabilities assumed for ViraQuest, and, as such, the fair value amounts are preliminary and subject to change. Primary amounts subject to adjustment include, but are not limited to, intangible assets, fair value of accounts receivable or a change in the goodwill balance. 8 Table of Contents Fiscal 2023 Acquisitions Life Sciences On November 1, 2022, the Company completed a business combination whereby it acquired all of the outstanding stock of ImmunoBioScience Corporation (“IBS”), for an aggregate purchase price of $ 3,602 , net of $ 153 cash received. At closing, $ 3,000 was paid in cash, $ 250 was due to the former stockholder of IBS as a deferred acquisition payment upon integration, $ 300 was recorded as a preliminary earnout consideration (not to exceed $ 750 ) and $ 205 was recorded as a preliminary working capital adjustment. The acquisition was funded with cash provided by normal operations, and the results of operations of IBS are included in Janel’s condensed consolidated results of operations since the date of the acquisition. In connection with the combination, the Company recorded an aggregate of $ 1,468 in goodwill and $ 1,680 in other identifiable intangibles. Supplemental pro forma information has not been provided as the acquisition did not have a significant impact on Janel’s condensed consolidated results of operations, individually or in aggregate. IBS is a developer and manufacturer of high-quality reagents used by research and diagnostic customers. IBS was founded in 2007 and is headquartered in Mukilteo, Washington. The acquisition of IBS was completed to expand our product offerings 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. (“SH”) for an aggregate purchase price of $ 600 . At closing, $ 500 was paid in cash and $ 100 was due to the former stockholder of SH as a deferred acquisition payment upon integration. The acquisition was funded with cash provided by normal operations, and the results of operations of SH are included in Janel’s condensed consolidated results of operations since the date of the acquisition. In connection with the combination, the Company recorded an aggregate of $ 181 in goodwill and $ 202 in other identifiable intangibles. SH is a developer and manufacturer of antibodies and cell culture media for research and diagnostic uses. SH was founded in 2011 and is headquartered in Lafayette, Indiana. The acquisition of SH was completed to expand our product offerings in our Life Sciences segment. On May 22, 2023, the Company acquired all the rights, title and interests to a royalty agreement for certain antibody products for a purchase price of $ 500 . The Company recorded this acquisition as a royalty asset, which is included in intangible assets in the accompanying condensed consolidated balance sheet (reclassed from Security deposits and other long-term assets in the current period) and will be amortized over the estimated life of ten years. 3. INVENTORY Inventories consisted of the following (in thousands): June 30, 2024 September 30 , 2023 Finished goods $ 1,998 $ 2,095 Work-in-process 800 969 Raw materials 1,789 1,811 Gross inventory 4,587 4,875 Less – reserve for inventory valuation ( 31 ) ( 25 ) Inventory net $ 4,556 $ 4,850 4. INTANGIBLE ASSETS A summary of intangible assets and the estimated useful lives used in the computation of amortization is as follows (in thousands): June 30, 2024 September 30, 2023 Life Customer relationships $ 27,939 $ 25,238 10 - 24 Years Trademarks/names 4,541 4,559 1 - 20 Years Trademarks/names 541 521 Indefinite Other 2,007 1,929 2 - 22 Years 35,028 32,247 Less: Accumulated Amortization ( 11,198 ) ( 9,564 ) Intangible assets, net $ 23,830 $ 22,683 9 Table of Contents The composition of the intangible assets balance at June 30, 2024 and September 30, 2023 is as follows (in thousands) : June 30, 2024 September 30, 2023 Logistics $ 20,543 $ 18,174 Life Sciences 6,785 6,373 Manufacturing 7,700 7,700 35,028 32,247 Less: Accumulated Amortization ( 11,198 ) ( 9,564 ) Intangible assets, net $ 23,830 $ 22,683 Amortization expense for the nine months ended June 30 , 2024 and 2023 was $ 1,635 and $ 1,593 , respectively. 5. GOODWILL The Company’s goodwill carrying amounts relate to acquisitions in the Logistics, Life Sciences and Manufacturing business segments. The composition of the goodwill balance at June 30, 2024 and September 30, 2023 was as follows (in thousands): June 30, 2024 September 30, 2023 Logistics $ 12,729 $ 9,175 Life Sciences 6,171 6,096 Manufacturing 5,046 5,046 Total $ 23,946 $ 20,317 6. NOTES PAYABLE – BANKS (A) Santander Bank Facility The wholly-owned subsidiaries that comprise the Company’s Logistics segment (collectively, the “Janel Group Borrowers”), with the Company as a guarantor, have a Loan and Security Agreement (as amended, the “Santander Loan Agreement”) with Santander with respect to a revolving line of credit facility (the “Santander Facility”). On January 30, 2023, the Santander Loan Agreement was further amended by the Third Amendment to the Amended and Restated Loan and Security Agreement (the “Third Santander Amendment”). As amended by the terms of the Third Santander Amendment, the percentage of the Borrowers’ eligible accounts receivable used to calculate the borrowing base under the Santander Loan Agreement was increased from 85 % to 90 % for Domestic Insured Accounts (as defined in the Third Santander Amendment), subject to adjustments set forth in the Santander Loan Agreement. On April 25, 2023, in connection with an amendment to the Credit Agreement entered into with First Merchants as described further below, we entered into the Fourth Amendment to the Amended and Restated Loan and Security Agreement (the “Fourth Santander Amendment”). The Fourth Santander Amendment (i) included modifications to address the amendments made to the First Merchants Credit Facilities (as defined below) and the consolidation of the debt thereunder and (ii) terminated the subordination agreement relating to the Company’s guarantee of the First Merchants Credit Facilities (as defined below). On August 22, 2023, we entered into the Fifth Amendment to the Santander Loan Agreement (the “Fifth Santander Amendment”). The Fifth Santander Amendment permitted certain unsecured guaranties by the Company in the ordinary course of business guarantying obligations of subsidiaries in an aggregate amount not to exceed $ 4,000 and related modifications to certain negative covenants. On December 1, 2023, in connection with an amendment (the “Purchase Agreement Amendment”) to that certain Membership Interest Purchase Agreement dated as of September 21, 2021 (the “Purchase Agreement”) among Janel Group, Inc. (“Janel Group”), a wholly-owned subsidiary of the Company, Expedited Logistics and Freight Services, LLC (“ ELFS ”) and former shareholders of ELFS (the “ELFS Sellers”), (i) the Janel Group Borrowers and Santander entered into an Acknowledgment and Consent Agreement pursuant to which Santander consented to the Purchase Agreement Amendment and the effect of the modifications thereunder on the Santander Loan Agreement and (ii) the ELFS Sellers and Santander entered into an Acknowledgment and Consent Agreement pursuant to which Santander consented to the Purchase Agreement Amendment and the effect of the modifications thereunder on the Subordination Agreement (as defined in the Santander Loan Agreement) between Santander and the ELFS Sellers. 10 Table of Contents On December 21, 2023, we entered into the Sixth Amendment to the Santander Loan Agreement (the “Sixth Santander Amendment”). The Sixth Santander Amendment modified the reporting due date of the monthly borrowing base calculation from the fifth day to the fifteenth day of each month. On June 5, 2024, we entered into the Seventh Amendment to the Santander Loan Agreement (the “Seventh Santander Amendment”). The Seventh Santander Amendment added Airschott as a loan party obligor and borrower. The Santander Loan Agreement matures on September 21, 2026 . Interest accrues on the Santander Facility at an annual rate equal to the one-month SOFR plus 2.75 %. The Janel Group Borrowers’ obligations under the Santander Facility are secured by all of the assets of the Janel Group Borrowers, while the Santander Loan Agreement contains customary terms and covenants. As a result of its terms, the Santander Facility is classified as a current liability on the consolidated balance sheet. At June 30, 2024, outstanding borrowings under the Santander Facility were $ 18,231 , representing 52.1 % of the $ 35,000 available subject to limitations thereunder, and interest was accruing at an effective interest rate of 7.69 %. At September 30, 2023, outstanding borrowings under the Santander Facility were $ 18,759 , representing 53.6 % of the $ 35,000 available thereunder, and interest was accruing at an effective interest rate of 7.60 %. The Company was in compliance with the financial covenants defined in the Santander Loan Agreement at both June 30, 2024 and September 30, 2023. (B) First Merchants Bank Credit Facility On February 29, 2016, Indco entered into a Credit Agreement (as amended, the “Prior First Merchants Credit Agreement”) with First Merchants. On April 25, 2023, Indco and certain other Subsidiaries of the Company that are part of the Life Sciences and Manufacturing segments (together with Indco, the “Borrowers” and each, a “Borrower”), entered into a Credit Agreement (the “First Merchants Credit Agreement”) with First Merchants. The First Merchants Credit Agreement constitutes an amendment and restatement of the Prior First Merchants Credit Agreement. The credit facilities provided under the First Merchants Credit Agreement (the “First Merchants Credit Facilities”) consist of a $ 3,000 revolving loan (limited to the borrowing base and reserves), a $ 5,000 acquisition loan, a $ 6,905 Term A loan and a $ 620 Term B loan as a continuation of the mortgage loan under the Prior First Merchants Credit Agreement. Interest accrues on the outstanding revolving loan, Term A loan and acquisition loan at an annual rate equal to one-month adjusted term SOFR plus either (i) 2.75 % (if the Borrowers’ total funded debt to EBITDA ratio is less or equal to 1.75 :1.00) or (ii) 3.50 % (if the Borrowers’ total funded debt to EBITDA ratio is greater than to 1.75 :1.00). Interest accrues on the Term B loan at an annual rate of 4.19 %. The Borrowers’ obligations under the First Merchants Credit Facilities are secured by all of the Borrowers’ real property and other assets, and are guaranteed by the Company, and the Company’s guarantee of the Borrowers’ obligations is secured by a pledge of the Company’s equity interests in certain of the Borrowers. The revolving loan portion will expire on August 1, 2027 , the Term A loan portion will mature on April 25, 2033 , and the Term B loan portion will mature on July 1, 2025 . The acquisition loan will permit multiple draws until October 25, 2024, at which point the outstanding principal amount will amortize, with all remaining amounts of the acquisition loan due at maturity on April 25, 2029 . On January 10, 2024, the First Merchants Credit Facilities was amended to provide for, among other changes, permitted affiliate loans provided availability on its revolving loan both before and after giving effect to any such loan, is not less than $ 1,000 and maturity of such permitted affiliate loans are not to exceed fourteen days from disbursement. As of June 30, 2024, there were $ 3,850 of outstanding borrowings under the acquisition loan, $ 4,725 of outstanding borrowings under the Term A loan and $ 591 of outstanding borrowings under the Term B loan, with interest accruing on the acquisition loan and revolving loan at an effective interest rate of 8.20 % each, and on the Term A loan and Term B loan at an effective interest rate of 8.20 % and 4.19 %, respectively. As of September 30, 2023, there were $ 500 of outstanding borrowings under the acquisition loan, $ 450 of outstanding borrowings under the revolving loan, $ 6,235 of outstanding borrowings under the Term A loan and $ 610 of outstanding borrowings under the Term B loan, with interest accruing on the acquisition loan and revolving loan at an effective interest rate of 8.18 % and on the Term A loan and Term B loan at an effective interest rate of 8.18 % and 4.19 %, respectively. The Company was in compliance with the financial covenants defined in the First Merchants Credit Agreement at June 30, 2024 and September 30, 2023. 11 Table of Contents The table below sets forth the total long-term debt, net of capitalized loan fees of $ 319 for the First Merchants Credit Agreement (in thousands): (in thousands) June 30, 2024 September 30, 2023 Total Debt $ 4,998 $ 6,499 Less Current Portion ( 716 ) ( 715 ) Long-term Portion $ 4,282 $ 5,784 7. SUBORDINATED PROMISSORY NOTES - RELATED PARTY (A) ICT Subordinated Promissory Note Aves Labs, Inc., a wholly-owned subsidiary of the Company, is the obligor on a fixed 0.5 % subordinated promissory note in the amount of $ 1,850 (the “ICT Subordinated Promissory Note”) issued to the former owner of ImmunoChemistry Technologies, LLC (“ICT”), in connection with a business combination whereby the Company acquired all of the membership interests of ICT. The ICT Subordinated Promissory Note is payable in sixteen scheduled quarterly installments of principal and interest beginning March 4, 2021, matures on December 4, 2024 , and may be prepaid, in whole or in part, without premium or penalty. The ICT Subordinated Promissory Note is subordinate to and junior in right of payment for principal interest premiums and other amounts payable to Santander and First Merchants. As of June 30, 2024 , the amount outstanding under the ICT Subordinated Promissory Note was $ 110 , net of a $ 28 discount, which is included in the current portion of subordinated promissory notes. As of September 30, 2023, the amount outstanding under the ICT Subordinated Promissory Note was $ 312 , of which $ 288 is included in the current portion of subordinated promissory notes and $ 24 is included in the long-term portion of subordinated promissory notes. (B) ELFS Subordinated Promissory Notes Janel Grou p is t he obligor on four fixed 4 % subordinated promissory notes totaling $ 6,000 in the aggregate (together, the “ELFS Subordinated Promissory Notes”), payable to certain former shareholders of ELFS , in connection with the Company’s business combination whereby it acquired all the membership interest of ELFS and its related subsidiaries. All of the ELFS Subordinated Promissory Notes are guaranteed by the Company and are subordinate to and junior in right of payment for principal, interest, premiums and other amounts payable to the Santander Facility and the First Merchants Credit Facility. The ELFS Subordinated Promissory Notes are payable in twelve equal consecutive quarterly installments of principal together with accrued interest. Beginning October 15, 2021 and on the same day of the next eight consecutive calendar quarters, thereafter payment of accrued interest and unpaid interest is due to the former shareholders. Beginning October 15, 2023, and on the same day of the next twelve consecutive calendar quarters thereafter payment of principal together with accrued interest and unpaid interest is due to the former shareholders. In June 2022, the principal amount of the ELFS Subordinated Promissory Notes was adjusted to $ 5,100 due to a revised working capital adjustment of $ 900 . On December 1, 2023, in connection with the Purchase Agreement Amendment among Janel Group and the ELFS Sellers , t he Company extended the ELFS Subordinated Promissory Notes maturity by two years and restored the working capital adjustment (as defined in the Purchase Agreement) by $ 900 which increased the principal amount of the ELFS Subordinated Promissory Notes to $ 6,000 . The Company evaluated the accounting treatment related to the amendment and determined the agreements are substantially different and extinguished the original subordinated promissory notes and recorded the amended subordinated promissory notes at fair value of $ 4,654 . As a result, the Company recorded a debt discount of approximately $ 921 and a $ 21 gain on extinguishment. As of June 30, 2024, the gross amount outstanding under the ELFS Subordinated Promissory Notes was $ 4,164 , ($ 3,340 net of $ 824 unamortized discount), of which $ 1,174 was included in the current portion of subordinated promissory notes and $ 2,990 was included in the long-term portion of subordinated promissory notes . As of September 30, 2023, the amount outstanding under the ELFS Subordinated Promissory Notes was $ 5,100 , of which $ 1,700 was included in the current portion of subordinated promissory notes and $ 3,400 was included in the long-term portion of subordinated promissory notes. (C) Airschott Subordinated Promissory Note Janel Group is the obligor on a floating rate (Prime Rate plus 2 %) subordinated promissory note in the amount of $ 1,200 issued (the “Airschott Subordinated Promissory Note”), to a former owner of Airschott, in connection with the business combination whereby Janel Group acquired Airschott. The note is payable in twelve consecutive quarterly payments, commencing in July 2024, of $ 100 together with accrued interest on the outstanding principal balance. 12 Table of Contents As of June 30, 2024, the amount outstanding under the Airschott Subordinated Promissory Note was $ 1,200 , $ 400 which is included in the current portion of subordinated promissory notes. The table below sets forth the total long-term portion of subordinated promissory notes (in thousands): (in thousands) June 30, 2024 September 30, 2023 Total subordinated promissory notes $ 5,473 $ 5,412 Less current portion of subordinated promissory notes ( 1,683 ) ( 1,988 ) Long-term portion of subordinated promissory notes $ 3,790 $ 3,424 8. STOCKHOLDERS’ EQUITY (in thousands, except share and per share data) Preferred Stock Series C Cumulative Preferred Stock Shares of the Company’s Series C Cumulative Preferred Stock (the “Series C Stock”) were initially entitled to receive annual dividends at a rate of 7 % per annum of the original issuance price of $ 500 , when and if declared by the Company’s board of directors, with such rate to increase by 2 % annually beginning on the third anniversary of issuance of such Series C Stock to a maximum rate of 13 %. By the filing of the Certificate of Amendment to the Company’s Certificate of Incorporation on March 31, 2022, the annual dividend rate decreased to 5 % per annum of the original issuance price, when and if declared by the Company’s board of directors, and increased by 1 % on January 1, 2024. Such rate is to increase on each January 1 thereafter for four years to a maximum rate of 9 %. The dividend rate of the Series C Stock as of June 30, 2024 and September 30, 2023 was 6 % and 5 %, respectively . 9. STOCK-BASED COMPENSATION (in thousands, except share and per share data) On October 30, 2013, the board of directors of the Company adopted the Company’s 2013 Non-Qualified Stock Option Plan (the “2013 Option Plan”) providing for options to purchase up to 100,000 shares of common stock for issuance to directors, officers, employees of and consultants to the Company and its subsidiaries. On September 21, 2021, the board of directors of the Company adopted the Amended and Restated 2017 Janel Corporation Equity Incentive Plan (the “Amended Plan”) pursuant to which non-statutory stock options, restricted stock awards and stock appreciation rights of the Company’s Common Stock may be granted to employees, directors and consultants to the Company and its subsidiaries. The Amended Plan increased the number of shares of Common Stock that may be issued pursuant to the Amended Plan from 100,000 to 200,000 shares of Common Stock of the Company and was updated to reflect certain other non-substantive amendments. Total stock-based compensation for the nine months ended June 30, 2024 and 2023 amounted to $ 214 and $ 185 , respectively, and is included in selling, general and administrative expense in the Company’s statements of operations. Options Number of Options Weighted Average Exercise Price Weighted Average Remaining Contractual Term (in years) Aggregate Intrinsic Value (in thousands) Outstanding balance at September 30, 2023 40,993 $ 22.53 6.6 $ 962.27 Granted 12,500 $ 28.25 9.3 $ 193.50 Expired ( 3,500 ) $ 3.25 — $ — Outstanding balance at June 30, 2024 49,993 $ 25.31 7.1 $ 1,014.09 Exercisable at June 30, 2024 24,162 $ 12.63 5.5 $ 751.52 The aggregate intrinsic value in the above table was calculated as the difference between the closing price of the Company’s common stock at June 30, 2024 of $ 43.73 per share and the exercise price of the stock options that had strike prices below such closing price. As of June 30, 2024, there was approximately $ 344 of total unrecognized compensation expense related to the unvested employee stock options, which is expected to be recognized over a weighted average period of two years . 13 Table of Contents Liability classified share-based awards During the nine months ended June 30, 2024 and fiscal year ended September 30, 2023, there were no options granted and no options were exercised with respect to Indco’s common stock . 10. INCOME PER COMMON SHARE The following table provides a reconciliation of the basic and diluted earnings per share (“EPS”) computations for the three and nine months ended June 30, 2024 and 2023: Three Months Ended June 30, Nine Months Ended June 30, (in thousands, except per share data) 2024 2023 2024 2023 Income: Net income (loss) $ ( 191 ) $ ( 430 ) $ 304 $ 148 Preferred stock dividends ( 85 ) ( 70 ) ( 242 ) ( 212 ) Net income (loss) available to common stockholders $ ( 276 ) $ ( 500 ) $ 62 $ ( 64 ) Common Shares: Basic - weighted average common shares 1,186.4 1,186.4 1,186.4 1,186.4 Effect of dilutive securities: Stock options — — 19.5 — Diluted - weighted average common stock 1,186.4 1,186.4 1,205.9 1,186.4 Income per Common Share: Basic - Net income (loss) $ ( 0.16 ) $ ( 0.36 ) $ 0.25 $ 0.12 Preferred stock dividends ( 0.07 ) ( 0.06 ) ( 0.20 ) ( 0.17 ) Net income (loss) available to common stockholders $ ( 0.23 ) $ ( 0.42 ) $ 0.05 $ ( 0.05 ) Diluted - Net income (loss) $ ( 0.16 ) $ ( 0.36 ) $ 0.25 $ 0.12 Preferred stock dividends ( 0.07 ) ( 0.06 ) ( 0.20 ) ( 0.17 ) Net income (loss) available to common stockholders $ ( 0.23 ) $ ( 0.42 ) $ 0.05 $ ( 0.05 ) The computation for the diluted number of shares excludes unexercised stock options that are anti-dilutive. There were 10 anti-dilutive shares for each of the three- and nine-month periods ended June 30, 2023. There were 22.5 anti-dilutive shares for each of the three- and nine-month periods ended June 30, 2024. 11. INCOME TAXES The reconciliation of income tax computed at the Federal statutory rate to the provision for income taxes from continuing operations for the three- and nine-month peri ods ended June 30, 2024 and 2023 was as follows (in thousands): Three Months Ended June 30, Nine Months Ended June 30, 2024 2023 2024 2023 Federal taxes at statutory rates $ ( 32 ) $ 129 $ ( 150 ) $ ( 45 ) Permanent differences and other ( 184 ) 31 ( 91 ) ( 5 ) State and local taxes, net of Federal benefit ( 127 ) 20 ( 171 ) ( 18 ) Total $ ( 343 ) $ 180 $ ( 412 ) $ ( 68 ) 12. BUSINESS SEGMENT INFORMATION As referenced above in Note 1, the Company operates in three reportable segments: Logistics, Life Sciences and Manufacturing. The Company’s Chief Executive Officer regularly reviews financial information at the reporting segment level in order to make decisions about resources to be allocated to the segments and to assess their performance. 14 Table of Contents The following tables present selected financial information about the Company’s reportable segments and Corporate for the purpose of reconciling to the consolidated totals for the three and nine months ended June 30, 2024 : For the three months ended June 30, 2024 (in thousands) Consolidated Logistics Life Sciences Manufacturing Corporate Revenues $ 46,724 $ 40,677 $ 3,208 $ 2,839 $ — Forwarding expenses and cost of revenues 31,633 29,725 609 1,299 — Gross profit 15,091 10,952 2,599 1,540 — Selling, general and administrative 13,358 9,444 1,812 793 1,309 Amortization of intangible assets 555 — — — 555 Income (loss) from operations 1,178 1,508 787 747 ( 1,864 ) Interest expense 589 426 97 66 — Identifiable assets 108,566 42,025 12,075 4,374 50,092 Capital expenditures, net of disposals 331 21 302 8 — For the nine months ended June 30, 2024 (in thousands) Consolidated Logistics Life Sciences Manufacturing Corporate Revenues $ 129,881 $ 111,991 $ 10,213 $ 7,677 $ — Forwarding expenses and cost of revenues 86,822 81,232 2,065 3,525 — Gross profit 43,059 30,759 8,148 4,152 — Selling, general and administrative 38,664 27,186 5,307 2,364 3,807 Amortization of intangible assets 1,635 — — — 1,635 Income (loss) from operations 2,760 3,573 2,841 1,788 ( 5,442 ) Interest expense 1,663 1,188 245 230 — Identifiable assets 108,566 42,025 12,075 4,374 50,092 Capital expenditures, net of disposals 658 47 603 8 — The following tables present selected financial information about the Company’s reportable segments and Corporate for the purpose of reconciling to the consolidated totals for the three and nine months ended June 30, 2023 : For the three months ended June 30, 2023 (in thousands) Consolidated Logistics Life Sciences Manufacturing Corporate Revenues $ 42,557 $ 37,484 $ 2,811 $ 2,262 $ — Forwarding expenses and cost of revenues 28,898 27,241 575 1,082 — Gross profit 13,659 10,243 2,236 1,180 — Selling, general and administrative 12,948 9,629 1,512 717 1,090 Amortization of intangible assets 524 — — — 524 Income (loss) from operations 187 614 724 463 ( 1,614 ) Interest expense 528 347 86 95 — Identifiable assets 99,566 38,066 11,025 4,228 46,247 Capital expenditures, net of disposals 89 89 — — — For the nine months ended June 30, 2023 (in thousands) Consolidated Logistics Life Sciences Manufacturing Corporate Revenues $ 144,979 $ 129,162 $ 8,717 $ 7,100 $ — Forwarding expenses and cost of revenues 102,654 97,339 1,930 3,385 — Gross profit 42,325 31,823 6,787 3,715 — Selling, general and administrative 38,261 27,891 4,592 2,267 3,511 Amortization of intangible assets 1,593 — — — 1,593 Income (loss) from operations 2,471 3,932 2,195 1,448 ( 5,104 ) Interest expense 1,476 1,006 165 305 — Identifiable assets 99,566 38,066 11,025 4,228 46,247 Capital expenditures, net of disposals 267 214 51 2 — 15 Table of Contents 13. FAIR VALUE MEASUREMENTS Recurring Fair Value Measurements The following table presents the Company’s assets that are measured at fair value on a recurring basis based on the three-level valuation hierarchy (in thousands): Assets June 30, 2024 September 30, 2023 Level 1 Investment in Rubicon at fair value $ 831 1,573 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. As of each of June 30, 2024 and September 30, 2023, the Company held 46.6 % of the total issued and outstanding shares of Rubicon and reported its investment under the fair value method pursuant to ASC 320. Management determined that it was appropriate to carry its investment in Rubicon at fair value because the investment was traded on the NASDAQ stock exchange through January 2, 2023, began trading on the OTCQB Capital Market on January 3, 2023 and had daily trading activity, the combination of which provide a better indicator of value. The investment in Rubicon is re-measured at the end of each quarter based on the trading price and any change in the value is reported on the income statement as an unrealized gain or loss on marketable securities in other income (expense). On October 4, 2023 , Rubicon announced that it had authorized a cash dividend of $ 1.10 per share of common stock of Rubicon and set October 16, 2023 as the record date for the distribution. On October 23, 2023 , the Company received $ 1,219 in dividends and recorded a fair value adjustment to its investment in Rubicon of $ 709 , which is included in other income and expense. The following table sets forth a summary of the changes in the fair value of the Company’s investment in Rubicon, which is measured at fair value on a recurring basis utilizing Level 1 assumptions in its valuation (in thousands): June 30, 2024 September 30, 2023 Balance beginning of period $ 1,573 $ 2,371 Fair value adjustment to Rubicon investment ( 742 ) ( 798 ) Balance end of period $ 831 $ 1,573 The following table presents the Company’s liabilities that are measured at fair value on a recurring basis based on the three-level valuation hierarchy (in thousands): Contingent earnout liabilities June 30, 2024 September 30, 2023 Level 1 Contingent earnout liabilities $ 2,070 $ — Level 3 Contingent earnout liabilities 1,090 2,330 Total $ 3,160 $ 2,330 These liabilities relate to the estimated fair value of earnout payments to former IBS, ViraQuest, ELFS, and Airschott owners for the periods ending June 30, 2024 and September 30, 2023. On December 1, 2023, in connection with the Purchase Agreement Amendment among Janel Group and the ELFS Sellers described above, the parties agreed to certain modifications fixing the amount of the remaining earnout payments to ELFS in earnout years three and four to $ 1,078 each year. As a result, the measurement of the earnout liability became a Level 1 fair value measurement based on the present value of the negotiated payments . On June 5, 2024, the Company completed a business combination whereby it acquired a majority ownership position in Airschott, a non-asset-based freight forwarder and customs broker. As part of the business combination, the Company agreed to purchase the remaining 20 % of Airschott stock in three years for deferred consideration of the greater of 20 % of 1.25 times the trailing twelve months gross profit of Airschott and $ 1,200 . The current and non-current portions of the fair value of the contingent earnout liabilities at June 30, 2024 were $ 1,149 and $ 2,011 , respectively. The current and non-current portions of the fair value of the contingent earnout liabilities at September 30, 2023 were $ 592 and $ 1,738 , respectively. 16 Table of Contents The following table sets forth a summary of the changes in the fair value of the Company’s contingent earnout liabilities, which are measured at fair value on a recurring basis utilizing Level 1 and Level 3 assumptions in their valuation (in thousands): June 30, 2024 September 30, 2023 Balance beginning of period $ 2,330 $ 4,580 Fair value of contingent consideration recorded in connection with business combinations 1,017 300 Earnout payment ( 740 ) ( 1,693 ) Adjustments to earnout 435 — Fair value adjustment of contingent earnout liabilities 118 ( 857 ) Balance end of period $ 3,160 $ 2,330 The Company determined the fair value of the Level 3 contingent earnout liability using forecasted results through the expected earnout periods. The principal inputs to the approach include expectations of the specific business’s revenues in fiscal years 2024 through 2025 using an appropriate discount rate. Given the use of significant inputs that are not observable in the market, the contingent earnout liability is classified within Level 3 of the fair value hierarchy. 14. LEASES The Company has operating leases for office and warehouse space in certain locations where it conducts business. As of June 30, 2024, the remaining terms of the Company’s operating leases were between one and 116 months, and certain lease agreements contain provisions for future rent increases. Payments due under the lease contracts include the minimum lease payments that the Company is obligated to make under the non-cancelable initial terms of the leases as the renewal terms are at the Company’s option and the Company is not reasonably certain to exercise those renewal options at lease commencement. The components of lease cost for the three- and nine-month periods ended June 30, 2024 and 2023 were as follows (in thousands): Three Months Ended June 30, Nine Months Ended June 30, 2024 2023 2024 2023 Operating lease cost $ 644 $ 523 $ 1,857 $ 1,540 Short-term lease cost 38 150 125 283 Total lease cost $ 682 $ 673 $ 1,982 $ 1,823 Rent expense for the nine months ended June 30, 2024 and 2023 was $ 1,982 and $ 1,823 , respectively. Operating lease right of use assets, current portion of operating lease liabilities and long-term operating lease liabilities reported in the condensed consolidated balance sheets for operating leases as of June 30, 2024 were $ 9,113 , $ 2,445 and $ 7,034 , respectively . Operating lease right of use assets, current portion of operating lease liabilities and long-term operating lease liabilities reported in the condensed consolidated balance sheets for operating leases as of September 30, 2023 were $ 7,460 , $ 2,020 and $ 5,689 , respectively. As of June 30, 2024 and September 30, 2023, the weighted-average remaining lease term and the weighted-average discount rate related to the Company’s operating leases were 5.7 years and 4.46 % and 5.9 years and 4.01 %, respectively. 17 Table of Contents Future minimum lease payments under non-cancelable operating leases as of June 30, 2024 were as follows (in thousands): 2025 $ 2,906 2026 2,543 2027 1,812 2028 1,540 2029 769 Thereafter 1,656 Total undiscounted lease payments 11,226 Less imputed interest ( 1,747 ) Total lease obligation s $ 9,479 18 Table of Contents 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, 2024, 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; 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 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, 2023. 19 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 revenues in connection with its core services. Accessorial revenues include, but are not limited to, fuel service charges, wait time fees, hazardous cargo fees, labor charges, handling, cartage, bonding and additional labor charges. On June 5, 2024, the Company completed a business combination whereby it acquired a majority ownership position in Airschott , a non-asset-based freight forwarder and customs broker. At closing, the Company purchased 80% of the outstanding stock of Airschott. The Company also agreed to purchase the remaining 20% of Airschott stock in three years. Life Sciences The Company’s Life Sciences segment is comprised of several wholly-owned subsidiaries. The Company’s Life Sciences segment manufactures and distributes antibodies, research and diagnostic reagents, and provides custom services, for academic, non-profit and commercial customers. 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 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 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 February 1, 2024, the Company completed a business combination whereby it acquired all of the outstanding stock of ViraQuest Inc., 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. 20 Table of Contents 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 45.0% 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 total issued and outstanding shares of common stock as of June 30, 2024 and September 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 8, 2023. 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, 2024. 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”). Organic Growth Our non-GAAP financial measure of organic growth represents revenue growth excluding revenues from acquisitions within the preceding 12 months. The organic growth presentation provides useful period-to-period comparison of revenue results as it excludes revenues 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. 21 Table of Contents We believe that organic growth and adjusted operating income provide useful information in understanding and evaluating our operating results in the same manner as management. However, organic growth and adjusted operating income are not financial measures calculated in accordance with U.S. GAAP and should not be considered as a substitute for total revenues, 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 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 revenues, 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, 2024 and 2023 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) 2024 2023 2024 2023 Revenues $ 46,724 $ 42,557 $ 129,881 $ 144,979 Forwarding expenses and cost of revenues 31,633 28,898 86,822 102,654 Gross profit 15,091 13,659 43,059 42,325 Total costs and expenses 13,913 13,472 40,299 39,854 Income from operations 1,178 187 2,760 2,471 Net income (loss) (191 ) (430 ) 304 148 Adjusted operating income $ 1,897 $ 876 $ 4,873 $ 4,569 Consolidated revenues for the three months ended June 30, 2024 were $46,724, which was $4,167 or 9.8% higher than the prior year period. Consolidate d revenues for the nine months ended June 30, 2024 were $129,881, which was $15,098 or 10.4% lower than the prior year period. Revenues increased for the three months ended June 30, 2024 primarily due to a recent increase in freight rates and increased project business in the quarter. Revenues decreased for the nine months ended June 30, 2024 primarily due to a reduction in transportation rates over prior year as lower freight demand aligned more closely with global transportation capacity. Income from operations for the three months ended June 30, 2024 was $1,178 compared with $187 in the prior year period. Income from operations for the nine months ended June 30, 2024 was $2,760 compared with $2,471 in the prior year period. The increase for both the three and nine months ended June 30, 2024 resulted from greater revenues in the applicable recently completed period from product demand at Manufacturing as well as product mix improvements at Life Sciences. Net loss for the three months ended June 30, 2024 totaled $191 or ($0.16) per diluted share, compared to net loss of $430 or ($0.36) per diluted share for the three months ended June 30, 2023. Net income for the nine months ended June 30, 2024 totaled $304 or $0.25 per diluted share, compared to net income of $148 or $0.12 per diluted share for the nine months ended June 30, 2023. The change in net income (loss) for the three and nine months ended June 30, 2024 was largely due to greater revenues in the applicable recently completed period from product demand at Manufacturing, and product mix improvements at Life Sciences, which was partially offset by a fair value adjustment to the mandatorily redeemable non-controlling interest . Adjusted operating income for the three months ended June 30, 2024 increased to $1,897 versus $876 in the prior year period. Adjusted operating income for the nine months ended June 30, 2024 increased to $4,873 versus $4,569 in the prior year period. The increase for the three months ended June 30, 2024 was primarily the result of higher revenues and profits across all segments. The increase for the nine months ended June 30, 2024 related to higher revenues and profits in the Life Sciences and Manufacturing segments. 22 Table of Contents 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) 2024 2023 2024 2023 Income from operations $ 1,178 $ 187 $ 2,760 $ 2,471 Amortization of intangible assets 555 524 1,635 1,593 Stock-based compensation 71 62 214 185 Cost recognized on sale of acquired inventory 93 103 264 320 Adjusted operating income $ 1,897 $ 876 $ 4,873 $ 4,569 Results of Operations – Logistics – Three and Nine Months Ended June 30, 2024 and 2023 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, 2024 2023 2024 2023 (in thousands) Revenues $ 40,677 $ 37,484 $ 111,991 $ 129,162 Forwarding expenses 29,725 27,241 81,232 97,339 Gross profit 10,952 10,243 30,759 31,823 Gross profit margin 26.9 % 27.3 % 27.5 % 24.6 % Selling, general and administrative expenses 9,444 9,629 27,186 27,891 Income from operations $ 1,508 $ 614 $ 3,573 $ 3,932 Revenues Total revenues for the three months ended June 30, 2024 was $40,677 as compared to $37,484 for the three months ended June 30, 2023, an increase of $3,193, or 8.5%. Total revenues for the nine months ended June 30, 2024 was $111,991 as compared to $129,162 for the nine months ended June 30, 2023, a decrease of $17,171 or 13.3%. Revenues increased for the three months ended June 30, 2024 primarily due to a recent increase in freight rates and increased project business during the quarter. Revenues decreased for the nine months ended June 30, 2024 primarily due to a reduction in transportation rates over the prior year period as lower freight demand aligned more closely with global transportation capacity. Organic growth for the three months ended June 30, 2024 was similar to the overall growth in the prior year period as the acquisition of Airschott on June 5, 2024 did not contribute a material amount to the quarter. Gross Profit Gross profit for the three months ended June 30, 2024 was $10,952, an increase of $709, or 6.9%, as compared to $10,243 for the three months ended June 30, 2023. Gross profit margin as a percentage of revenues decreased to 26.9% for the three months ended June 30, 2024, compared to 27.3% for the prior year period , primarily due to the impact of increased rate prices on forwarding expenses. Gross profit for the nine months ended June 30, 2024 was $30,759, a decrease of $1,064, or 3.3%, as compared to $31,823 for the nine months ended June 30, 2023. Gross profit margin as a percentage of revenue increased to 27.5% compared to 24.6% for the prior year period, primarily due to the impact of lower freight prices on forwarding expenses. Selling, General and Administrative Expenses Selling, general and administrative expenses for the three months ended June 30, 2024 were $9,444, as compared to $9,629 for the three months ended June 30, 2023. This decrease of $185, or 1.9%, was mainly due to decreases across several selling, general and administrative categories, largely offset by an increase in bad debt expense . Selling, general and administrative expenses as a percentage of revenue were 23.2 % and 25.7% for the three months ended June 30, 2024 and 2023, respectively. The decrease in selling, general and administrative expenses as a percentage of revenue was due to the reduction in costs combined with the increase in revenues. Selling, general and administrative expenses for the nine months ended June 30, 2024 were $27,186, as compared to $27,891 for the nine months ended June 30, 2023. This decrease of $705, or 2.5%, was mainly due to a reduction in various costs including insurance claims and premiums. Selling, general and administrative expenses as a percentage of revenues were 24.3% and 21.6% of revenues for the nine months ended June 30, 2024 and 2023, respectively. The increase in selling, general and administrative expenses as a percentage of revenues for the nine-month period was due to the decrease in revenues for the period. 23 Table of Contents Income from Operations Income from operations increased to $1,508 for the three months ended June 30, 2024, as compared to income from operations of $614 for the three months ended June 30, 2023, an increase of $894, or 145.6%. Operating margin as a percentage of gross profit for the three months ended June 30, 2024 was 13.8% compared to 6.0% in the prior year period. These increases were the result of an increase in revenues and a decrease in selling, general and administrative expenses. Income from operations decreased to $3,573 for the nine months ended June 30, 2024, as compared to $3,932 for the nine months ended June 30, 2023, a decrease of $359, or 9.1%. Operating margin as a percentage of gross profit for the nine months ended June 30, 2024 was 11.6% compared to 12.4% in the prior year. These decreases were a result of lower transportation demand s. Results of Operations – Life Sciences – Three and Nine Months Ended June 30, 2024 and 2023 The Company’s Life Sciences segment manufactures and distributes antibodies, research and diagnostic reagents, and provides custom services, for academic, non-profit and commercial customers. Three Months Ended June 30, Nine Months Ended June 30, 2024 2023 2024 2023 (in thousands) Revenues $ 3,208 $ 2,811 $ 10,213 $ 8,717 Cost of sales 521 472 1,801 1,610 Cost recognized upon sale of acquired inventory 88 103 264 320 Gross profit 2,599 2,236 8,148 6,787 Gross profit margin 81.0 % 79.5 % 79.8 % 77.9 % Selling, general and administrative expenses 1,812 1,512 5,307 4,592 Income from operations $ 787 $ 724 $ 2,841 $ 2,195 Revenues Total revenues were $3,208 and $2,811 for the three months ended June 30, 2024 and 2023, respectively, reflecting an increase of $397, or 14.1%, com pared to the prior year period, primarily due to increased sales of research and diagnostic reagents to commercial customers. Organic growth excluding acquisition revenue increased $324, or 11.5%. Total revenues were $10,213 and $8,717 for the nine months ended June 30, 2024 and 2023, respectively, reflecting an increase of $1,496, or 17.2%, compared to the prior year period, primarily due to increased sales of research and diagnostic reagents to commercial customers. Organic growth excluding acquisition revenue increased $1,209, or 13.9%. Gross Profit Gross profit was $2,599 and $2,236 for the three months ended June 30, 2024 and 2023, respectively , an increase of $363, or 16.2%. During the three months ended June 30, 2024 and 2023, gross profit margin was 81.0% and 79.5%, respectivel y, with higher margins primarily due to product mix improvement. Gross profit was $8,148 and $6,787 for the nine months ended June 30, 2024 and 2023, respectively, an increase of $1,361 or 20.1%. In the nine months ended June 30, 2024 and 2023, gross profit margin was 79.8% and 77.9%, respectively . Gross profit margin increased primarily due to product mix improvement. Selling, General and Administrative Expenses Selling, general and administrative expenses for the Life Sciences segment were $1,812 and $1,512 for the three months ended June 30, 2024 and 2023, respectively. Selling, general and administrative expenses were $5,307 and $4,592 for the nine months ended June 30, 2024 and 2023, respectively. The year-over-year increases for both periods were largely due to additional expenses from acquired businesses and increased expenses supporting organic growth . 24 Table of Contents Income from Operations Incom e from operations for the three months ended June 30, 2024 and 2023 was $787 and $724, respectively, an increase of $63, or 8.7%. Income from operations for the nine months ended June 30, 2024 and 2023 was $2,841 and $2,195, respectively , an increase of $646, or 29.4%. Both the three-month and nine-month periods were impacted by higher sales of research and diagnostic reagents and product mix improvements. Results of Operations - Manufacturing – Three and Nine Months Ended June 30, 2024 and 2023 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, 2024 2023 2024 2023 (in thousands) Revenues $ 2,839 $ 2,262 $ 7,677 $ 7,100 Cost of sales 1,299 1,082 3,525 3,385 Gross profit 1,540 1,180 4,152 3,715 Gross profit margin 54.2 % 52.2 % 54.1 % 52.3 % Selling, general and administrative expenses 793 717 2,364 2,267 Income from operations $ 747 $ 463 $ 1,788 $ 1,448 Revenues Total revenues were $2,839 and $2,262 for the three months ended June 30, 2024 and 2023, respectively, an increase of $577, or 25.5%. Total revenues were $7,677 and $7,100 for the nine months ended June 30, 2024 and 2023, respectively, an increase of $577, or 8.1% . The increase in revenues for the three and nine months ended June 30, 2024 reflected an increase in certain sales categories within the business. Gross Profit Gross profit was $1,540 and $1,180 for the three months ended June 30, 2024 and 2023, respectively, an increase of $360, or 30.5%. Gross profit margin for the three months ended June 30, 2024 and 2023 was 54.2% and 52.2%, respectively. Gross profit was $4,15 2 and $3,715 for the nine months ended June 30, 2024 and 2023, respectively, an increase of $437, or 11.8%. Gross profit margin for the nine months ended June 30, 2024 and 2023 was 54.1% and 52.3 %, respectively. The year-over-year increase in gross profit margin in both periods was generally due to the increase in both sales volume and sales mix of business. Selling, General and Administrative Expenses Selling, general and administrative expenses were $793 and $717 for the three months ended June 30, 2024 and 2023, respectively, an increase of $76, or 10.6%. Sell ing, general and administrative expenses were $2,364 and $2,267 for the nine months ended June 30, 2024 and 2023, respectively, an increase of $97, or 4.3%. The modest increase in expenses in both periods was reflective of the overall increase in sales volume, the mix of sales and general economic cost increases. Income from Operations Income from operations was $747 for the three months ended June 30, 2024 compared to $463 for the three months ended June 30, 2023, representing a 61.3% increase from the prior year period due to increases in sales of certain product categories versus the prior year period combined with effective selling, general and administrative cost management. Income from operations was $1,788 for the nine months ended June 30, 2024 compared to $1,448 for the nine months ended June 30, 2023, representing a 23.5% increase from the prior year period as a result of increased revenues and effective selling, general and administrative cost management. 25 Table of Contents Results of Operations – Corporate and Other – Three and Nine Months Ended June 30, 2024 and 2023 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) 2024 2023 2024 2023 Total income from operations by segment $ 3,042 $ 1,801 $ 8,202 $ 7,575 Corporate expenses (1,238 ) (1,028 ) (3,593 ) (3,326 ) Amortization of intangible assets (555 ) (524 ) (1,635 ) (1,593 ) Stock-based compensation (71 ) (62 ) (214 ) (185 ) Total corporate expenses (1,864 ) (1,614 ) (5,442 ) (5,104 ) Interest expense (589 ) (528 ) (1,663 ) (1,476 ) Fair value adjustments to Rubicon investment (net of dividends) (95 ) (269 ) 481 (779 ) Fair value adjustments of contingent earnout liabilities (88 ) — (483 ) — Gain on extinguishment — — 21 — Change in fair value of mandatorily redeemable non-controlling interest (254 ) — (400 ) — Net income (loss) before taxes 152 (610 ) 716 216 Income tax benefit (expense) (343 ) 180 (412 ) (68 ) Net income (loss) (191 ) (430 ) 304 148 Preferred stock dividends (85 ) (70 ) (242 ) (212 ) Net income (loss) Available to Common Stockholders $ (276 ) $ (500 ) $ 62 $ (64 ) Total Corporate Expenses Total Corporate expenses, which include amortization of intangible assets, stock-based compensation and merger and acquisition expenses , increased by $210 , or 20.4%, to $1,238 in the three months ended June 30, 2024 as compared to $1,028 for the three months ended June 30, 2023. Total Corporate expenses increased by $267, or 8.0%, to $3,593 for the nine months ended June 30, 2024 as compared to $3,326 for the nine months ended June 30, 2023. The increase in both periods was due primarily to higher stock-based compensation related to more issuances of stock options, higher legal-related professional expense, and increased merger and acquisition 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 $61, or 11.6%, to $589 for the three months ended June 30, 2024 from $528 for the three months ended June 30, 2023. Interest expense for the consolidated company increased by $187 , or 12.7%, to $1,663 for the nine months ended June 30, 2024 from $1,476 for the nine months ended June 30, 2023. The increase in both periods was primarily due to higher interest rates partially offset by lower average debt balances. Income Tax Expense On a consolidated basis, the Company recorded an income tax expense of $343 for the three months ended June 30, 2024, as compared to an income tax benefit of $181 for the three months ended June 30, 2023. On a consolidated basis, the Company recorded an income tax expense of $412 for the nine months ended June 30, 2024, as compared to an income tax expense of $68 for the nine months ended June 30, 2023. 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, 2024 and 2023, preferred stock dividends were $85 and $70, respectively, representing an increase of $15, or 21.4%. For the nine mont hs ended June 30, 2024 and 2023, preferred stock dividends were $242 and $212, respectively, representing an increase of $30, or 14.2%. The increase in preferred stock dividends in both periods was the result of the increase in the dividend rate of the Series C Stock by 1% on January 1, 2024. Such rate is set to increase on each January 1 thereafter for four years to a maximum rate of 9%. The dividend rate of the Series C Stock as of each of June 30, 2024 and September 30, 2023 was 6% and 5%, respectively. Net Income (Loss) Net loss was $191 , or ($0.16) per diluted share, for the three months ended June 30, 2024 compared to net loss of $430 or ($0.36) per diluted share, for the three months ended June 30, 2023. The change in net loss for the three months ended June 30, 2024 was largely due to stronger revenues and profits across all segments. 26 Table of Contents Net income was $304 , or 0.25 per diluted share, for the nine months ended June 30, 2024 compared to net income of $148, or $0.12 per diluted share, for the nine months ended June 30, 2023. The increase in net income for the nine months ended June 30, 2024 was largely due to stronger revenues and profits in the Life Sciences and Manufacturing segments. Net Income (Loss) Available to Common Stockholders Net loss available to holders of Common Stock was $276, or ($0.23) per diluted share, for the three months ended June 30, 2024 compared to net loss available to holders of Common Stock of $500, or ($0.42) per diluted share, for the three months ended June 30, 2023. Net income available to holders of Common Stock was $62 , or $0.05 per diluted share, for the nine months ended June 30, 2024 compared to net loss available to holders of Common Stock of $64, or ($0.05) per diluted share, for the nine months ended June 30, 2023. The decrease in net loss available to common stockholders for the three months ended June 30, 2024 was the result of an increase in income across all segments. The increase in net income available to common stockholders for the nine months ended June 30, 2024 was also the result of an increase in income across all segments. 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 revenues and expenses. 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 2024 fiscal year may not necessarily be indicative of future cash flow performance. Cash flows from operating activities Net cash provided by operating activities was $6,354 for the nine months ended June 30, 2024, versus $11,056 provided by operating activities for the nine months ended June 30, 2023. The decrease in cash provided by operations for the nine months ended June 30, 2024 compared to the prior year period was driven principally by a lower net working capital benefit at our Logistics segment. Cash flows from investing activities Net cash used in investing activities totaled $5,193 for the nine months ended June 30, 2024, versus $6,361 for the nine months ended June 30, 2023. We used $3,795 for the acquisition of two businesses, $740 in earnout payments to the former owners of ELFS and IBS, and $658 for the acquisition of property and equipment for the nine months ended June 30, 202 4, compared to $4,401 for the acquisition of two businesses, $1,693 in earnout payment to the former owners of ELFS, and $267 for the acquisition of property and equipment for the nine months ended June 30, 2023 . Cash flows from financing activities Net cash provided by financing activities was $318 for the nine months ended June 30, 2024, versus net cash used in financing activities of $8,513 for the nine months ended June 30, 2023. Net cash provided in financing activities for the nine months ended June 30, 2024 included repayment of funds from our lines of credit, repayment of funds from our term loan and repayment of subordinated promissory notes. Net cash provided financing activities for the nine months ended June 30, 2023 primarily included repayment of funds from our lines of credit and repayment of term loans. 27 Table of Contents Off-Balance Sheet Arrangements As of June 30, 2024, we had no off-balance sheet arrangements or obligations. ITEM 4. CONTROLS AND PROCEDURES The Company maintains disclosure controls and procedures designed to ensure that information required to be disclosed in reports filed under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the specified time periods, and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of June 30, 2024, the end of the period covered by this Quarterly Report on Form 10-Q. Consistent with guidance issued by the SEC that an assessment of internal controls over financial reporting of a recently acquired business may be omitted from management’s evaluation of disclosure controls and procedures, management is excluding an assessment of such internal controls of ViraQuest and Airschott from its evaluation of the effectiveness of the Company’s disclosure controls and procedures. ViraQuest, which the Company acquired on February 1, 2024, constituted approximately 1 percent of the Company’s total assets and 4 percent of income before income taxes of the Company as of and for the quarter ended March 31, 2024. Airschott, which the Company acquired on June 5, 2024, constituted approximately 2 percent of the Logistics segment's total assets and a 4 percent of income before income taxes of the Logistics segment as of and for the quarter ended June 30, 2024. Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that as of the end of such period, the Company’s disclosure controls and procedures were effective. As referenced above, the Company acquired ViraQuest on February 1, 2024 and Airschott on June 5, 2024. The Company is in the process of reviewing the internal control structure of ViraQuest and Airschott and, if necessary, will make appropriate changes as it integrates ViraQuest and Airschott into the Company’s overall internal control over financial reporting process. Other than as described above, there have been no changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended June 30, 2024 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. 28 Table of Contents PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Janel is occasionally subject to claims and lawsuits which typically arise in the normal course of business. While the outcome of these claims cannot be predicted with certainty, management does not believe that the outcome of any of these legal matters will have a material adverse effect on the Company’s business, results of operations, financial condition or cash flows. ITEM 1A. RISK FACTORS For a discussion of the Company’s potential risks or uncertainties, please see “Part I—Item 1A—Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended September 30, 2023. There have been no material changes to the risk factors disclosed in Part I—Item 1A of the Company’s 2023 Annual Report. ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS There were no unregistered sales of equity securities during the nine months ended June 30, 2024. In addition, there were no shares of Common Stock purchased by us during the nine months ended June 30, 2024. ITEM 6. EXHIBIT INDEX 10.1 Consent, Joinder and Seventh Amendment to Amended and Restated Loan and Security Agreement, dated as of June 5, 2024, by and among Santander Bank, N.A., as lender, Janel Group, Inc., Expedited Logistics and Freight Services, LLC, ELFS Brokerage LLC, Janel Corporation, Expedited Logistics and Freight Services, LLC and Airschott, Inc. (filed herewith) 31.1 Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer (filed herewith) 31.2 Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer (filed herewith) 32.1 Section 1350 Certification of Principal Executive Officer (filed herewith) 32.2 Section 1350 Certification of Chief Financial Officer (filed herewith) 101 Interactive data files providing financial information from the Company’s Quarterly Report on Form 10-Q for the three and nine months ended June 30, 2024 and 2023 in Inline XBRL (eXtensible Business Reporting Language) pursuant to Rule 405 of Regulation S-T: (i) Condensed Consolidated Balance Sheets as of June 30, 2024 and September 30, 2023, (ii) Condensed Consolidated Statements of Operations for the three and nine months ended June 30, 2024 and 2023, (iii) Condensed Consolidated Statement of Changes in Stockholders’ Equity for the three and nine months June 30, 2024 and 2023, (iv) Condensed Consolidated Statements of Cash Flows for the nine months ended June 30, 2024 and 2023, and (v) Notes to Condensed Consolidated Financial Statements. 104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in the Interactive Data Files submitted as Exhibit 101) (filed herewith) 29 Table of Contents SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Dated: August 2, 2024 JANEL CORPORATION Registrant /s/ Darren C. Seirer Darren C. Seirer Chairman, President and Chief Executive Officer ( Principal Executive Officer) Dated: August 2, 2024 JANEL CORPORATION Registrant /s/ Joseph R. Ferrara Joseph R. Ferrara Chief Financial Officer, Treasurer and Secretary 30