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Item 7. Management’s Discussion and Analysis

2024-12-06 compared with 2023-12-08 · 308 added, 321 removed, 140 unchanged (82% of the section changed)

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

Our discussions below in this Item 7 should be read along with Janel’s audited financial statements and related notes thereto as of September 30, 2023 and 2022 and for each of the two years in

the period ended September 30, 2023 included in this Annual Report on Form 10-K.

Our discussions below in this Item 7 should be read along with Janel’s audited financial statements and related notes thereto as of September 30, 2024 and 2023 and for each of the two years

in the period ended September 30, 2024 included in this Annual Report on Form 10-K.

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 higher risk-adjusted rates of return and attracting and retaining exceptional talent.

Management at the

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

Janel expects to grow through its subsidiaries’ organic growth and by completing acquisitions.

We plan to either acquire businesses within our

existing segments or expand our portfolio into new strategic segments.

Our acquisition strategy focuses on reasonably-priced companies with strong and capable management teams, attractive existing business economics and stable and predictable

earnings power.

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;

attracting and retaining exceptional talent.

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

Janel expects to grow through its subsidiaries’ organic growth and by

completing acquisitions.

We plan to either acquire businesses within our existing segments or expand our portfolio into new strategic segments.

Our acquisition strategy focuses on reasonably-priced companies with strong and capable

management teams, attractive existing business economics and stable and predictable earnings power.

Year Ended September 30, 2024 Acquisitions

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 subject to

certain closing conditions.

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.

Year Ended September 30, 2023 Acquisitions

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.

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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

Year Ended September 30, 2022 Acquisitions

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

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 issued and outstanding shares of common stock as of September 30, 2023.

As of each of September 30, 2023 and September 30, 2024, the Company owned 1,108,000 shares, or approximately 46.6%, of the common stock of Rubicon Technology, Inc.

is an advanced materials provider specializing in monocrystalline sapphire for applications in optical and industrial systems.

The purpose of our investment in Rubicon was 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.

Results of Operations – Janel Corporation

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Financial Statements and the notes thereto appearing in Item 8.

Refer to Item 7.

“Management Discussion and Analysis of Financial Condition and Results of Operations” in ou r Annual Report on Form 10-K for the year ended September 30, 2022 , filed on December 9, 2022,

for a comparison of fiscal year 2022 results of operation s to the fiscal year 2021 results of operations, which specific discussion is incorporated herein by reference.

Our condensed consolidated results of operations are as follows:

“Management Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K

for the year ended September 30, 2023 , filed on December 8, 2023, for a comparison of fiscal year 2023 results of operations to the fiscal year 2022 results of operations, which specific discussion is incorporated herein by

Our consolidated results of operations are as follows:

Financial Summary

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Income from operations

Net income (loss)

Adjusted operating income (1)

Consolidated revenues for the year ended September 30, 2024 were $183,184, or 1.8% lower than fiscal 2023.

Revenues decreased primarily due to lower freight prices in our Logistics segment as

a result of lower freight demand relative to improved global transportation capacity.

Income from operations for fiscal 2023 was $2,599 compared to income from operations of $9,498 for fiscal 2022, a decrease of $6,899, largely as a result of

lower profits across our business segments, especially at our Logistics segment, which benefited from unusually high demand in the prior fiscal year.

Adjusted operating income for fiscal 2023 decreased to $5,353 versus $12,797 in the prior fiscal

year primarily due to an overall decrease in profits at our business segments.

The Company’s net income for the year ended September 30, 2023 totaled $723 or $0.36 per diluted share, compared to net loss of ($2,138) or ($2.07) per diluted share for the year ended

Revenues decreased primarily due to lower freight prices in our Logistics segment

as a result of lower freight demand relative to improved global transportation capacity.

Income from operations for fiscal 2024 was $3,758 compared to income from operations of $2,599 for fiscal 2023, an increase of $1,159, largely as a

result of increased profits across all of our operating segments.

Adjusted operating income for fiscal 2024 increased to $6,720 versus $5,353 in the prior fiscal year primarily due to an overall increase in profits at our business

The Company’s net income for the year ended September 30, 2024 totaled $551 or $0.45 per diluted share, compared to net income of $723 or $0.60 per diluted share for the year ended

September 30, 2023.

The increase in net income was largely due to a smaller non-cash mark-to-market write down of an equity investment, a change in fair value of an earnout and an income tax benefit, partially offset by lower profits in our

business segments and higher interest expense.

The decrease in net income was largely due to an increase in the fair value of mandatorily redeemable non-controlling interest and higher income tax expense, partially offset by higher profits in our business

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

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

Key services include arrangement of freight forwarding by air,

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

Key services include 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.

Financial Summary

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Fiscal 2024 compared with fiscal 2023

Total revenue in fiscal 2023 was $166,052 as compared to $295,343 in fiscal 2022, a decrease of $129,291 or 43.8%.

Revenues decreased primarily due to lower freight prices as a result of lower

freight demand relative to improved global transportation capacity.

Lower prices for ocean, air and trucking services led to a decrease in both gross revenue and forwarding expenses.

Compared to fiscal 2022, during fiscal 2023, our volume, as

measured in ocean freight by twenty-foot equivalent units, fell 25%, air freight volume as measured by metric tons fell 25% and customs entries fell 16%.

Gross profit in fiscal 2023 was $42,114, a decrease of $10,283, or 19.6%, as compared to $52,397 in fiscal 2022.

Gross profit as a percentage of revenue increased to 25.4% compared to 17.7% for

the prior fiscal year, primarily because gross profit declined at a slower rate compared with gross revenue, which declined more significantly due to lower freight prices.

Total revenues in fiscal 2024 were $159,958 as compared to $166,052 in fiscal 2023, a decrease of $6,094 or 3.7%.

Revenues decreased primarily due to lower freight prices as a result of

lower freight demand relative to improved global transportation capacity.

Lower prices for ocean, air and trucking services led to a decrease in both gross revenues and forwarding expenses.

Compared to fiscal 2023, our volume in

fiscal 2024, as measured in ocean freight by twenty-foot equivalent units, fell 4%, while air freight volume as measured by metric tons fell 5% and customs entries increased 5%.

Organic growth, which represents revenues growth

excluding revenues from acquisitions within the preceding 12 months, decreased in fiscal 2024 by 7.3%.

Gross profit in fiscal 2024 was $42,457, an increase of $343, or 0.8%, as compared to $42,114 in fiscal 2023.

Gross profit as a percentage of revenue increased to 26.5% compared to 25.4%

for the prior fiscal year, primarily due to lower freight prices.

The increase of $343 was the result of $1,562 in gross profit from an acquisition, partially offset by a decrease in gross profit from the remainder of the Logistics

Selling, General and Administrative Expenses

Selling, general and administrative expenses in fiscal 2024 were $37,057 as compared to $37,310 in fiscal 2023.

The decrease of $2,765, or 6.9%, was mainly due to lower personnel expenses and a

recovery of previously expensed bad debt.

The decrease of $253, or 0.7%, was mainly due to lower personnel

expenses and insurance costs.

As a percentage of gross revenue, selling, general and administrative expenses were 23.2% and 22.5% for fiscal 2024 and fiscal 2023, respectively.

The increase in selling, general and administrative

expenses as a percentage of revenue largely reflected the decrease in transportation rates and its impact on revenue.

expenses as a percentage of revenue largely reflected the decrease in transportation rates.

Income from Operations

Income from operations decreased to $4,804 in fiscal 2023 compared to $12,322 in fiscal 2022.

Income from operations decreased as a result of lower transportation volume and prices partially

offset by lower personnel expense.

Operating margin as a percentage of gross profit was 11.4% in fiscal 2023 compared to 23.5% in fiscal 2022, largely due to lower gross profits.

Income from operations increased to $5,400 in fiscal 2024 compared to $4,804 in fiscal 2023.

Income from operations increased as a result of normalization in the market, lower

personnel expense, insurance costs, and the additional profit from an acquisition.

Operating margin as a percentage of gross profit was 12.7% in fiscal 2024 compared to 11.4% in fiscal 2023, largely due to higher gross profits.

Results of Operations - Life Sciences

The Company’s Life Sciences segment manufactures and distributes high-quality monoclonal and polyclonal antibodies, diagnostic reagents and other immunoreagents for biomedical research and provides antibody

manufacturing for academic and industry research scientists.

Our Life Sciences business also produces products for other life science companies on an OEM basis.

The Company’s Life Sciences segment is comprised of several wholly-owned subsidiaries.

The Company’s Life Sciences segment manufactures and distributes antibodies as well as research

and diagnostic reagents for, and provides custom services to academic, non-profit and commercial customers.

Financial Summary

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Fiscal 2024 compared with fiscal 2023

Total revenue was $11,059 in fiscal 2023 compared with $11,625 in fiscal 2022.

Revenue decreased 4.9% or $566 primarily related to lower demand for diagnostic reagents, partially offset by

current year acquisitions.

Organic growth excluding acquisition revenue declined $1,408, or 12.1% as COVID-19 pandemic-related revenue declined in fiscal 2023.

Gross profit was $8,683 and $8,692 for fiscal years 2023 and 2022, respectively, relatively consistent with prior year.

In the fiscal years ended September 30, 2023 and 2022, the Life Sciences

segment had a gross profit margin of 78.5% and 74.8%, respectively.

Total revenues were $13,154 in fiscal 2024 compared with $11,059 in fiscal 2023.

Revenues increased 18.9% or $2,095 primarily related to increased product demand and current year

acquisitions.

Organic growth, which represents revenues growth excluding revenues from acquisitions within the preceding 12 months, increased in fiscal 2024 by 15.6%.

Gross profit was $10,516 and $8,683 for fiscal years 2024 and 2023, respectively, representing a year-over-year increase of $1,833.

In the fiscal years ended September 30, 2024 and

2023, the Life Sciences segment had a gross profit margin of 79.9% and 78.5%, respectively.

The increase in gross profit margin resulted from an improvement in product mix.

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Selling, general and administrative expenses for the Life Sciences segment were $7,216 and $6,149 for fiscal years 2024 and 2023, respectively.

The year-over-year increase was due to additional

expenses from acquired businesses.

The year-over-year increase was due to

additional expenses from acquired businesses.

As a percentage of revenue, selling, general and administrative expenses were 54.9% and 55.6% for fiscal 2024 and fiscal 2023, respectively.

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The Life Sciences business earned $3,300 and $2,534 in income from operations for fiscal 2024 and 2023, respectively.

The decrease in income from operations was primarily due to lower demand

for diagnostic reagents and additional expenses from acquired businesses.

As a result of these factors, income from operations as a percentage of revenue declined from 28.1% in fiscal year 2022 to 22.9% in fiscal year 2023.

The increase in operating income was primarily due to increased

product demand and incremental revenue from acquisitions.

As a result of these factors, income from operations as a percentage of revenue increased from 22.9% in fiscal year 2023 to 25.1% in fiscal year 2024.

Results of Operations - Manufacturing

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

The Company’s Manufacturing segment manufactures and distributes mixing equipment and apparatuses for specific applications within various industries.

The customer base is comprised

of small- to mid-sized businesses as well as other larger customers for which they fulfill repetitive production orders.

Financial Summary

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Fiscal 2024 compared with fiscal 2023

Total revenue was $9,338 in fiscal 2023 compared with $9,895 in fiscal 2022, a decrease of 5.6%.

The revenue decline largely reflected a decrease in volume across the business, offset in part

by higher product pricing.

Total revenues were $10,072 in fiscal 2024 compared with $9,338 in fiscal 2023, an increase of 7.9%.

The increase in revenues largely reflected an increase in manufacturing volume in

the business.

Gross profit was $5,411 and $4,875 for fiscal years 2024 and 2023, respectively.

The year-over-year decline in gross profit reflected a decrease in sales volume.

Gross profit margin for the

Manufacturing segment during fiscal 2023 was 52.2%, as compared to 51.6%, in fiscal 2022.

The increase in gross profit margin was generally due to a favorable product mix shift.

The year-over-year increase in gross profit reflected an increase in sales volume.

margin for the Manufacturing segment during fiscal 2024 was 53.7%, as compared to 52.2%, in fiscal 2023.

The increase in gross profit margin was generally due to the increase in sales volume and economies of scale.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the Manufacturing segment were $2,978 and $3,095 for fiscal years 2023 and 2022, respectively, a decrease of $117, or 3.8%.

As a percentage of

gross revenue, selling, general and administrative expenses were 31.9% and 31.3% for fiscal 2023 and fiscal 2022, respectively, consistent with prior year.

Selling, general and administrative expenses for the Manufacturing segment were $3,129 and $2,978 for fiscal years 2024 and 2023, respectively, an increase of $151, or 5.1%.

percentage of gross revenues, selling, general and administrative expenses were 31.1% and 31.9% for fiscal 2024 and fiscal 2023, respectively.

This decrease in selling, general and administrative expenses as a percentage of gross

revenues was the result of our leverage over overhead expenses due to higher volumes and revenues.

Income from Operations

Income from operations for fiscal 2023 was $1,897 compared to $2,013 in fiscal 2022, representing a 5.8% decrease compared to the prior fiscal year and consistent with the decline in revenue.

Income from operations for fiscal 2024 was $2,282 compared to $1,897 in fiscal 2023, representing a 20.3% increase compared to the prior fiscal year and consistent with the increase

in revenues and gross margin, combined with a proportionally lower increase in selling, general and administrative expenses.

Results of Operations – Corporate and Other

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Amortization expense

Stock-based compensation

Stock-based compensation - Corporate

Total Corporate expenses

Interest expense

Change in fair value of mandatorily redeemable non-controlling interest

Fair value adjustments to Rubicon investment (net of dividends)

Change in fair value of earnout

Other expense

Net income before taxes

Income tax benefit (expense)

Net Income (loss)

Preferred stock dividends

Non-controlling interest dividends

Net income (loss) Available to Common Stockholders

Net Income Available to Common Stockholders

Total Corporate Expenses

Corporate expenses, which include amortization of intangible assets, stock-based compensation and merger and acquisition expenses, decreased by $1,472 to $6,636, or 18.2%, in

fiscal 2023 as compared to fiscal 2022.

The decrease was due primarily to lower stock-based compensation expense and lower accounting and merger and acquisition related professional expense, offset in part by current year increases in

amortization of intangible expenses.

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

Corporate expenses, which include amortization of intangible assets, stock-based compensation and merger and acquisition expenses, increased by $588 to $7,224, or 8.9%, in fiscal

2024 as compared to fiscal 2023.

The increase was primarily due to higher stock-based compensation expense and amortization expense.

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 $320, or 16.0%, to $2,318 in fiscal 2024 from $1,998 in fiscal 2023.

The increase was primarily due to higher interest rates, partially

offset by lower average debt outstanding.

Income Tax Expense

On a consolidated basis, the Company recorded an income tax benefit of $198 in fiscal 2023, as compared to an income tax expense of ($2,190) in fiscal 2022.

The decrease in income tax expense

was primarily due to a decrease in pretax income.

The increase was primarily due to a higher average debt

outstanding and higher interest rates.

Income Tax Benefit (Expense)

On a consolidated basis, the Company recorded an income tax expense of $543 in fiscal 2024, as compared to an income tax benefit of $198 in fiscal 2023.

The increase in income tax

expense was primarily due to an increase in pretax income.

Preferred Stock Dividends

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

Preferred stock dividends include the Company’s Series C Stock dividends accrued or paid.

For the fiscal years ended September 30, 2024 and 2023, preferred stock dividends were

$328 and $284, respectively.

Preferred stock dividends for fiscal 2023 decreased $302, or 51.5%, compared to fiscal 2022 as a result of the Company retiring $6,000 of Series C Preferred Stock on March 31, 2022 and due to a decrease in the annual

dividend rate from 9% to 5%.

Dividends accrued but not paid on the Company’s Series C Stock were $2,029 and $1,745 as of September 30, 2023 and 2022, respectively.

Net Income (loss)

Net income (loss) was $723, or $0.60 per diluted share, for fiscal 2023 and ($2,138), or ($2.07) per diluted share, for fiscal year 2022.

The increase in net income was primarily due to a

smaller non-cash mark-to-market write-down of an equity investment, a change in fair value of an earnout, lower stock-based compensation and an income tax benefit offset by lower profits in our business segments and higher interest expense.

Net income (loss) Available to Common Stockholders

Net income (loss) available to common stockholders was $439 or $0.36 per diluted share for fiscal 2023 and ($3,128) or ($3.03) per diluted share for fiscal 2022.

The increase in net income

available to common stockholders was largely due to a smaller non-cash mark-to-market write-down of an equity investment, a change in fair value of an earnout, lower stock-based compensation and an income tax benefit offset by lower profits in

our business segments and higher interest expense as well as lower preferred stock dividends and the absence of dividends to non-controlling shareholders.

Preferred stock dividends for fiscal 2024 increased by $44, or 15.5%, compared to fiscal 2023.

The increase in preferred stock dividends 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 three years to a maximum rate of 9%.

The dividend rate of the Series C Stock as of each of September 30, 2024 and September

30, 2023 was 6% and 5%, respectively.

Dividends accrued on the Company’s Series C Stock were $2,271 and $2,029 as of September 30, 2024 and 2023, respectively.

Net income was $551, or $0.45 per diluted share, for fiscal 2024 and $723, or $0.60 per diluted share, for fiscal year 2023.

The decrease in net income was primarily due to a

change in fair value of an earnout, higher stock-based compensation and higher income tax expense, partially offset by higher profits in our operating segments.

Net income Available to Common Stockholders

Net income available to common stockholders was $223 or $0.18 per diluted share for fiscal 2024 and $439 or $0.36 per diluted share for fiscal 2023.

The decrease in net income

available to common stockholders was due to the change in net income discussed above and higher preferred stock dividends.

LIQUIDITY AND CAPITAL RESOURCES

Our ability to satisfy liquidity requirements–including satisfying debt obligations and funding working capital, day-to-day operating expenses and capital expenditures–depends

upon future performance , which is subject to general economic conditions, competition and other factors, some of which are beyond Janel’s control.

Our Logistics segment depends on commercial credit

facilities to fund day-to-day operations, as there is a difference between the timing of collection cycles and the timing of payments to vendors.

Our ability to satisfy liquidity requirements–including satisfying debt obligations and funding working capital, day-to-day operating expenses and capital

expenditures–depends upon future performance , which is subject to general economic conditions, competition and other factors, some of which are beyond Janel’s control.

Our Logistics

segment depends on commercial credit facilities to fund day-to-day operations, as there is a difference between the timing of collection cycles and the timing of payments to vendors.

As a customs broker, our Logistics segment makes significant cash advances for a select group of our credit-worthy customers.

These cash advances are for customer obligations, such as the

payment of duties and taxes to customs authorities primarily in the United States.

These cash advances are for customer obligations, such

as the payment of duties and taxes to customs authorities primarily in the United States.

Increases in duty rates could result in increases in the amounts we advance on behalf of our customers.

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

a component of revenue or expense.

The billings of such advances to customers are accounted for as a direct increase in accounts receivable from the customer and a corresponding increase in accounts payable to governmental customs authorities.

Cash advances are a “pass through”

and are not recorded as a component of revenues or expense.

The billings of such advances to customers are accounted for as a direct increase in accounts receivable from the customer and a corresponding increase in accounts

payable to governmental customs authorities.

These “pass through” billings can influence our traditional credit collection metrics.

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.

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.

Janel’s cash flow performance for the 2024 fiscal year may not necessarily be indicative of future cash flow performance.

As of September 30, 2023, and compared with the prior fiscal year, the Company’s cash and cash equivalents decreased by $4,130, or 62.7%, to $2,461 from $6,591 as of September 30, 2022.

the fiscal year ended September 30, 2023, Janel’s net working capital deficiency (current assets less current liabilities) decreased by $6,407, from ($13,143) at September 30, 2022 to ($19,550) at September 30, 2023.

As of September 30, 2024, and compared with the prior fiscal year, the Company’s cash and cash equivalents increased by $371, or 15.1%, to $2,832 from $2,461 as of September 30,

During the fiscal year ended September 30, 2024, Janel’s net working capital deficiency (current assets less current liabilities) increased by $5,855, from ($19,549) at September 30, 2023 to ($25,404) at September 30,

Cash flows from operating activities

Net cash provided by operating activities for fiscal years 2024 and 2023 was $6,832 and $11,388, respectively.

The decrease in cash provided by operations for the year ended September 30, 2023 was driven principally by lower net income, deferred income tax provision, change in fair value of an earnout and an increase in prepaid expenses,

partially offset by the timing of cash collections for accounts receivables and cash payments on accounts payable primarily in our Logistics segment for the year ended September 30, 2023.

Cash flows from investing activities

The decrease in cash provided by operations for the year ended September 30, 2024 was driven principally by reduced net income, unrealized loss on marketable securities, and the timing of cash collections for

accounts receivables primarily in our Logistics segment for the year ended September 30, 2024.

Cash flows used in investing activities

Net cash used in investing activities, mainly for the acquisition of subsidiaries, was $5,636 for fiscal 2024 and $6,500 for fiscal 2023.

Net cash used in investing activities for fiscal 2023

related to the two acquisitions in our Life Sciences segment and earnout payments the former owners of ELFS.

The fiscal 2022 amount was associated with the Rubicon investment (net of dividend) and one Life Sciences acquisition.

The Company also

used $360 for the acquisition of property and equipment for the year ended September 30, 2023 compared to $551 for the year ended September 30, 2022.

Cash flows from financing activities

Net cash used in investing activities for

fiscal 2024 related to two acquisitions;

one in our Life Sciences segment and one in our Logistics segment.

The fiscal 2023 net cash used in investing activities related to the two acquisitions in our Life Sciences segment and

earnout payments to the former owners of ELFS.

The Company also used $1,003 for the acquisition of property and equipment for the year ended September 30, 2024 compared to $360 for the year ended September 30, 2023.

Cash flows used in financing activities

Net cash used in financing activities was $574 for fiscal 2024 and $9,018 for fiscal 2023.

Net cash used in financing activities in fiscal 2023 primarily included repayment of our term

Net cash used in financing activities in fiscal 2024 primarily came from repayments on

our term loan as well as repayment on our subordinated promissory note, partially offset by borrowings from our line of credit.

Net cash used in financing activities in fiscal year 2023 primarily included repayment of our term

loan and line of credit.

Net cash provided by financing activities in fiscal year 2022 primarily included proceeds from an increase in our amended term loan and proceeds from our private placement offering, offset in part by repayments on our

line of credit and repurchase of Series C Preferred Stock.

Credit Facilities

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”).

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

(i) the maximum revolving facility amount available was increased from $30,000 to $31,500 (limited to 85% of the borrowers’ eligible accounts receivable borrowing base and reserves, subject to adjustments set forth in the Santander

Loan Agreement); (ii) the LIBOR basis on which interest under the Santander Loan Agreement was calculated under certain circumstances was changed to the Secured Overnight Financing Rate (“SOFR”) and interest on the Santander Facility accrues at

an annual rate equal to the one-month SOFR plus 2.75%;

(iii) a one-time increase from $1,000 to $3,000 in the amount the Company was permitted to distribute to holders of the Company’s Series C Preferred Stock if specified conditions are met;

and (iv) the amount of indebtedness of the Company’s Antibodies Incorporated subsidiary that the Company was permitted to guaranty was increased from $2,920 to $5,000.

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

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

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

The Bridge Facility was drawn on August 18, 2022 and matured on the earlier to occur of (i) twenty (20) business days following the funding of the Bridge Facility and (ii) the date of funding of the dividend to be paid by Rubicon

in connection with the Rubicon Transaction.

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

The Second Santander Amendment also contained a one-time waiver and consent to (a) the consummation of the Rubicon Transaction, and

(b) a dividend of $2,500 to be paid by Janel Group, Inc., (the “Janel Group”) to the Company.

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”).

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 Loan Agreement was increased from 85% to 90% for Domestic Insured Accounts (as

defined in the Amendment), subject to adjustments set forth in the Loan Agreement.

On April 25, 2023, in connection with an amendment to the Credit Agreement entered into with First Merchants Bank (“First Merchant”) 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 Merchant’s Credit Facilities.

On August 22, 2023, we entered into the Fifth Amendment to the Amended and Restated Loan and Security 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.

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 Bank, N.A.

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

The Santander Loan Agreement provides for the

(i) the maximum revolving facility amount available of $35,000 (limited to 90% of the Janel Group Borrowers’ eligible accounts receivable borrowing base and reserves, subject to adjustments set forth in the

Santander Loan Agreement); (ii) the LIBOR basis on which interest under the Santander Loan Agreement was calculated under certain circumstances was changed to the Secured Overnight Financing Rate (“SOFR”) and interest on the

Santander Facility accrues at an annual rate equal to the one-month SOFR plus 2.75%;

(iii) a one-time increase from $1,000 to $3,000 in the amount the Company was permitted to distribute to holders of the Company’s Series C

Preferred Stock if specified conditions are met; and (iv) the amount of indebtedness of the Company’s Antibodies Incorporated subsidiary that the Company was permitted to guaranty was increased from $2,920 to $5,000.

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 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%.

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

interest rate of 5.79%.

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.

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

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 Loan Agreement was increased from 85% to 90%

for Domestic Insured Accounts (as defined in the Amendment), subject to adjustments set forth in the Loan Agreement.

On April 25, 2023, in connection with an amendment to the Credit Agreement entered into with First Merchants Bank (“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 Merchant’s Credit Facilities.

On August 22, 2023, we entered into the Fifth Amendment to the Amended and Restated Loan and Security 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

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.

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.

At September 30, 2024, outstanding borrowings under the Santander Facility were $19,313, representing 55.2% of the $35,000 available thereunder, and interest was accruing at an

effective interest rate of 7.65%.

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 September 30, 2024 and September 30, 2023.

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Through September 30, 2024, the Logistics segment’s cash needs were met by the Santander Facility and cash on hand.

As of September 30, 2023, the Logistics segment had, subject to collateral

availability, $1,622 available for future borrowings under its $35,000 Santander Facility and $906 in cash.

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

short- and long-term.

As of September 30, 2024, the Logistics segment had, subject to

collateral availability, $5,852 available for future borrowings under its $35,000 Santander Facility and $748 in cash.

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

for the short- and long-term.

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

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

acquisitions;

the costs associated with growing the Logistics segment, either

organically or through acquisitions;

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

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

materially negatively impacted.

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

operations of the Logistics segment will be materially negatively impacted.

Life Sciences and Manufacturing

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

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

Under the revised

terms, the credit facilities consisted of a $5,500 term loan, a $1,000 (limited to the borrowing base and reserves) revolving loan, and the continuation of a mortgage loan in the original principal amount of $680 (collectively, the “Prior First

Merchants Facility”).

Interest accrued on the term loan at an annual rate equal to one-month adjusted term SOFR plus either 2.75% (if Indco’s total funded debt to EBITDA ratio was less than 2:1), or 3.5% (if Indco’s total funded debt to EBITDA

ratio was greater than or equal to 2:1).

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

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

Indco’s obligations under the

Prior First Merchants Credit Facility were secured by all of Indco’s real property and other assets, and are guaranteed by Janel, and Janel’s guarantee of Indco’s obligations was secured by a pledge of Janel’s Indco shares.

On April 25, 2023, Indco and certain other Subsidiaries of the Company that are part of the Life Science and Manufacturing segments (together with Indco, the “Borrowers” and each, a

“Borrower”), entered into a Credit Agreement (the “Credit Agreement”) with First Merchants.

On February 29, 2016, Indco entered into a Credit Agreement (as amended, the “Prior First Merchants Credit Agreement”) with First Merchants Bank (“First Merchants”).

On April 25, 2023, Indco and certain other Subsidiaries of the Company that are part of the Life Science and Manufacturing segments (together with Indco, the “Borrowers” and each,

a “Borrower”), entered into a Credit Agreement (the “Credit Agreement”) with First Merchants.

The Credit Agreement constitutes an amendment and restatement of the Prior First Merchants Credit Agreement.

The credit facilities provided under the

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) or (ii) 3.50% (if the Borrowers’ total funded debt to EBITDA ratio is greater than to 1.75:1).

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, the Term B loan portion will mature on July 1, 2025 and the acquisition loan will

permit multiple draws until October 25, 2024, at which point the outstanding principal amount will amortize, with all remaining amounts due at maturity of the acquisition loan on April 25, 2029;

each of the foregoing maturities, subject to

earlier termination as provided in the Credit Agreement and unless renewed or extended.

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.

As of September 30, 2022, there were no outstanding borrowings under the revolving loan under the Prior First Merchants Credit Agreement, $5,420 of borrowings under the term loan under the

Prior First Merchants Credit Agreement, and $631 of borrowings under the mortgage loan under the Prior First Merchants Credit Agreement with interest accruing on such term loan and mortgage loan at an effective interest rate of 6.63% and 4.19%,

The credit facilities

provided under the 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).

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, the Term B loan portion will mature on July 1, 2025 and the acquisition loan will permit multiple draws until October 25, 2024, at which point the outstanding principal amount will

amortize, with all remaining amounts due at maturity of the acquisition loan on April 25, 2029;

each of the foregoing maturities, subject to earlier termination as provided in the Credit Agreement and unless renewed or extended.

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 September 30, 2024, there were $3,700 of outstanding borrowings under the acquisition loan, $4,028 of outstanding borrowings under the Term A loan and $585 of outstanding

borrowings under the Term B loan, with interest accruing on the acquisition loan and revolving loan at an effective interest rate of 7.82% each, and on the Term A loan and Term B loan at an effective interest rate of 7.82% and

4.19%, respectively.

The Company was in compliance with the financial covenants defined in the First Merchants Credit Agreement at September 30, 2023 and the Prior First Merchants Credit Agreement at September 30,

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 September 30, 2024 and September 30, 2023.

Working Capital Requirements

Life Sciences and Manufacturing’s cash needs are currently met by the Term A loan, Term B loan, revolving loan and acquisition loan under the First Merchants Credit Facilities and cash on hand.

As of September 30, 2023, Life Sciences and Manufacturing had $2,550 available under its $3,000 revolving loan and had $4,500 available under its $5,000 acquisition loan subject to collateral availability and $1,101 and $266 in cash,

respectively.

The Company believes that the current financial resources will be sufficient to finance the Life Sciences and Manufacturing segment’s operations and obligations (current and long-term liabilities) for the long and short- term.

Life Sciences and Manufacturing’s cash needs are currently met by the Term A loan, Term B loan, revolving loan and acquisition loan under the First Merchants Credit Facilities and

cash on hand.

As of September 30, 2024, Life Sciences and Manufacturing had $3,000 available under its $3,000 revolving loan and had $1,300 available under its $5,000 acquisition loan subject to collateral availability and $800

and $1,075 in cash, respectively.

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

liabilities) for the long- and short- term.

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

the cost associated with growing the Life Sciences and Manufacturing segments, either organically or through acquisitions;

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

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

negatively impacted.

Life Sciences

First Northern Bank of Dixon

Antibodies Incorporated (“Antibodies”), a wholly-owned subsidiary of the Company, entered into a Business Loan Agreement (as amended, the “First Northern Loan Agreement”) with First Northern

Bank of Dixon (“First Northern”) on June 21, 2018.

The First Northern Loan Agreement provided for a $2,235 term loan (the “First Northern Term Loan”) and a $750 revolving credit facility (the “First Northern Revolving Loan”).

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

a $125 term loan in connection with a potential expansion of solar generation capacity on the Antibodies

property (the “First Northern Solar Loan”) on November 18, 2019 and a $60 term loan in connection with a potential expansion of generator capacity on the Antibodies property (the “First Northern Generator Loan”) on June 19, 2020.

On April 25, 2023, each of the First Northern Term Loan, the First Northern Revolving Loan, the First Northern Solar Loan and the First Northern Generator Loan was paid in full with the

proceeds provided by the First Merchants Credit Facilities and the First Merchants Loan Agreement.

In connection with the repayment, each business loan agreement governing such First Northern loans was terminated and all liens granted to First

Northern in connection with the First Northern Loan Agreement and such business loan agreements on any property of Antibodies were released.

Antibodies has no further obligations owing to First Northern in connection with the First Northern Loan

Agreement and such business loan agreements.

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

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

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

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

As of September 30, 2022, there were no outstanding borrowings under the First Northern Revolving Loan.

The Company was in compliance with the financial covenants defined in the First Northern Loan Agreement at April 25, 2023.

the cost associated with growing the Life Sciences and Manufacturing segments,

either organically or through acquisitions;

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

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

capital, Life Sciences and Manufacturing’s operations will be materially negatively impacted.

CURRENT OUTLOOK

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

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

Historically, the Company’s annual results of operations have been subject to seasonal trends which have been the result of, or

influenced by, numerous factors including climate, national holidays, consumer demand, economic conditions, the growth and diversification of the segment’s international network and service offerings and other similar and subtle forces.

The Company cannot accurately forecast many of these factors, nor can it estimate accurately the relative influence of any particular factor and, as a result, there can be no assurance that

historical patterns, if any, will continue in future periods.

The Company’s subsidiaries are implementing business strategies to grow revenue and profitability for fiscal 2024 and beyond.

Our Logistics strategy calls for additional branch offices,

introduction of new revenue streams for existing locations, sales force expansion, additional acquisitions and a continued focus on implementing lean methodologies to contain operating expenses.

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

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

Historically, the Company’s annual results of operations have been subject to seasonal trends which have

been the result of, or influenced by, numerous factors including climate, national holidays, consumer demand, economic conditions, the growth and diversification of the segment’s international network and service offerings and

other similar and subtle forces.

The Company cannot accurately forecast many of these factors, nor can it estimate accurately the relative influence of any particular factor and, as a result, there can be no

assurance that historical patterns, if any, will continue in future periods.

The Company’s subsidiaries are implementing business strategies to grow revenues and profitability for fiscal 2025 and beyond.

Our Logistics strategy calls for additional branch

offices, introduction of new revenue streams for existing locations, sales force expansion, additional acquisitions and a continued focus on implementing lean methodologies to contain operating expenses.

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

In addition to supporting

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

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

financing on terms acceptable to the Company.

Without adequate equity and/or debt financing, the implementation of significant aspects of the Company’s strategic growth plan may be deferred beyond the originally anticipated timing, and the

Company’s operations may be materially negatively impacted.

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

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

adequate financing on terms acceptable to the Company.

Without adequate equity and/or debt financing, the implementation of significant aspects of the Company’s strategic growth plan may be deferred beyond the originally anticipated

timing, and the Company’s operations may be materially negatively impacted.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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

in the preparation of our consolidated financial statements.

Our financial statements are prepared in conformity with accounting principles generally accepted in the United States (“GAAP”), which require us to make estimates and assumptions that

affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the year.

Actual results could differ from

those estimates.

We consider the following policies to be the most critical in understanding the judgments that are involved in preparing our financial statements and the uncertainties that could impact our results of operations, financial

condition and cash flows.

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

methods used in the preparation of our consolidated financial statements.

Our financial statements are prepared in conformity with accounting principles generally accepted in the United States (“GAAP”), which require us to make

estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses

during the year.

Actual results could differ from those estimates.

We consider the following policies to be the most critical in understanding the judgments that are involved in preparing our financial statements and the

uncertainties that could impact our results of operations, financial condition and cash flows.

Business Combinations and Related Acquired Intangible Assets and Goodwill .

We record all tangible and intangible assets acquired and liabilities assumed

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

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

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

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

During the measurement period, which shall

not exceed one year from the acquisition date, we may adjust provisional amounts recorded for assets acquired and liabilities assumed to reflect new information that we have subsequently obtained regarding facts and circumstances that existed as

of the acquisition date.

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

We record all tangible and intangible assets acquired and

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

Acquisition date fair value represents the price that

would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as measured on the acquisition date.

The valuations are based on information that existed as of the

acquisition date.

During the measurement period, which shall not exceed one year from the acquisition date, we may adjust provisional amounts recorded for assets acquired and liabilities assumed to reflect new information that

we have subsequently obtained regarding facts and circumstances that existed as of the acquisition date.

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

original estimates.

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

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

Estimated future revenues include assumptions

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

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

Estimated future revenues

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

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

The discount rate focuses on rates of return for equity

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

The discount rate

focuses on rates of return for equity and debt and is calculated using public information from selected guideline companies.

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

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

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

A change in the

estimated risk of the acquired company cash flows would change the discount rate, which in turn could significantly affect the valuation of acquired identifiable intangible assets.

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

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

During the fourth quarter of 2021, we changed

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

When evaluating goodwill for impairment, we may first perform a qualitative assessment

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

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

of a reporting unit exceeds its the fair value, then we perform a quantitative assessment (“step one” of the impairment test) and calculate the estimated fair value of the reporting unit.

If the carrying amount of the reporting unit exceeds the

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

The decision to perform a qualitative impairment assessment in a given year is influenced by a number of factors, including

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

When evaluating goodwill for impairment,

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

If we decide not to perform a qualitative assessment, or if we

determine that it is more likely than not the carrying amount of a reporting unit exceeds its the fair value, then we perform a quantitative assessment (“step one” of the impairment test) and calculate the estimated fair value

of the reporting unit.

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

The decision to perform a

qualitative impairment assessment in a given year is influenced by a number of factors, including the significance of the excess of the reporting units’ estimated fair value over carrying amount at the last quantitative

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

No indicators of impairment were identified from the date of our annual impairment test through September 30, 2024.

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

A quantitative analysis may

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

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

long-lived assets.

A quantitative

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

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

fair value of the intangibles and long-lived assets.

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

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

If the carrying amount of a intangibles and long-lived

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

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

date of our annual impairment test through September 30, 2023.

If the carrying amount of intangibles and

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

No indicators of impairment of our intangibles and long-lived

assets were identified from the date of our annual impairment test through September 30, 2024.

RECENT ACCOUNTING STANDARDS

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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 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 revenue from acquisitions within the preceding 12 months.

The organic growth presentation provides useful

period-to-period comparison of revenue results as it excludes revenue from acquisitions that would not be included in the comparable prior period.

Our non-GAAP financial measure of organic growth represents revenues growth excluding revenues from acquisitions within the preceding 12 months.

The organic growth presentation

provides useful period-to-period comparison of revenues 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.

As a result of our acquisition strategy, our net income includes material non-cash charges relating to the amortization of customer-related intangible assets in the ordinary course

of business as well as other intangible assets acquired in our acquisitions.

Although these charges may increase as we complete more acquisitions, we believe we will be growing the value of our intangible assets such as customer

relationships.

Because these charges are not indicative of our operations, we believe that adjusted operating income is a useful financial measure for investors because it eliminates the effect of these non-cash costs and

provides an important metric for our business that is more representative of the actual results of our operations.

Adjusted operating income (which excludes the non-cash impact of amortization of intangible assets, stock-based compensation and cost recognized on the sale of acquired inventory

valuation) is used by management as a supplemental performance measure to assess our business’s ability to generate cash and economic returns.

Adjusted operating income is a non-GAAP measure of income and does not include the effects of preferred stock dividends, interest and taxes.

We believe that organic 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 revenue, operating income or any other operating performance measures calculated in

accordance with U.S.

Using these non-GAAP financial measures to analyze our business has material limitations because the calculations are based on the subjective determination of management regarding the nature and classification of events

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

In addition, although other companies in our industry may report measures titled organic growth, adjusted operating income or similar measures, such non-GAAP financial measures may be

calculated differently from how we calculate our non-GAAP financial measures, which reduces their overall usefulness as comparative measures.

Because of these limitations, you should consider organic growth and adjusted operating income alongside

other financial performance measures, including total revenue, operating income and our other financial results presented in accordance with U.S.

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.

Using these non-GAAP financial measures to analyze our business has material limitations because the calculations are based on the subjective determination of

management regarding the nature and classification of events and circumstances that users of the financial statements may find significant.

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

QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

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Item 7. Management’s Discussion and Analysis