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 months and six months ended March 31, 2021,2022, 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.
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 – lookingforward-looking statements may generally be identified by the use of the words “may,” “will,” “intends,” “plans,” projects,” “believes,” “should,” “expects,” “predicts,” “anticipates,” “estimates,” and similar expressions or the negative of these terms or other comparable terminology. These statements are necessarily estimates reflecting management’s best judgment based upon current information and involve a number of risks, uncertainties and assumptions. We caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made, and readers are advised that various factors, including, but not limited to, those set forth elsewhere in this Report, could affect our financial performance and could cause our actual results for future periods to differ materially from those anticipated or projected. While it is impossible to identify all such factors, such factors include, but are not limited to, the impact of the coronavirus on the worldwide economic conditions and on our businesses, our strategy of expanding our business through acquisitions of other businesses; the risk that we may fail to realize the expected benefits or strategic objectives of any acquisition, or that we spend resources exploring acquisitions that are not consummated; risks associated with litigation, including contingent auto liability and insurance coverage; indemnification claims and other unforeseen claims and liabilities that may arise from an acquisition; economic and other conditions in the markets in which we operate; the risk that we may not have sufficient working capital to continue operations; instability in the financial markets; the material weaknesses identified in our internal control over financial reporting; our dependence on key employees; impacts from climate change, including the increased focus by third-parties on sustainability issues and our ability to comply therewith; competition from parties who sell their businesses to us and from professionals who cease working for us; terrorist attacks and other acts of violence or war; security breaches or cybersecurity attacks; risks related toattacks; our receipt of Paycheck Protection Program fundingcompliance with applicable privacy, security and forgiveness of such loans by the SBA;data laws; competition faced by our global logistics services freight carriers with greater financial resources and from companies that operate in areas in which we plan to expand; our dependence on the availability of cargo space from third parties; recessions and other economic developments that reduce freight volumes; other events affecting the volume of international trade and international operations; risks arising from our global logistics services business’ ability to manage staffing needs; competition faced in the freight forwarding, freight brokerage, logistics and supply chain management industry; industry consolidation and our ability to gain sufficient market presence with respect to our global logistics services business; risks arising from our ability to comply with governmental permit and licensing requirements or statutory and regulatory requirements; seasonal trends; competition faced by our manufacturing (Indco) business from competitors with greater financial resources; Indco’s dependence on individual purchase orders to generate revenue; any decrease in the availability, or increase in the cost or supply shortages, of raw materials used by Indco; Indco’s ability to obtain and retain skilled technical personnel; risks associated with product liability claims due to alleged defects in Indco’s products; risks arising from the environmental, health and safety regulations applicable to Indco; the reliance of our Indco and life sciencesLife Sciences businesses on a single location to manufacture their products; the ability of our life sciencesLife Sciences business to compete effectively; the ability of our life sciencesLife Sciences business to introduce new products in a timely manner; product or other liabilities associated with the manufacture and sale of new products and services; changes in governmental regulations applicable to our life sciencesLife Sciences business; the ability of our life sciencesLife Sciences business to continually produce products that meet high quality standards such as purity, reproducibility and/or absence of cross-reactivity; the controlling influence exerted by our officers and directors and one of our stockholders; our inability to issue dividends in the foreseeable future; and risks related to ownership of our common stock, including volatility and the lack of a guaranteed continued public trading market for our common stock.stock, the impact of COVID-19 on our operations and financial results; and such other factors that may be identified from time to time in our Securities and Exchange Commission (“SEC”) filings. In addition, the global economic climate and additional or unforeseen effects from the COVID-19 pandemic amplify many of these risks. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual outcomes may vary materially from those projected. You should not place undue reliance on any of our forward-looking statements which speak only as of the date they are made. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. For a more detailed discussion of these factors, see our periodic reports filed with the Securities and Exchange Commission,SEC, including our most recent Annual Report on Form 10-K for the fiscal year ended September 30, 2020.2021.
Manufacturing
The Company’s Manufacturing segment is comprised of Indco, Inc. (“Indco”). Indco is a majority-owned subsidiary of the Company that manufactures and distributes mixing equipment and apparatus for specific applications within various industries. Indco’s customer base is comprised of small- to mid-sized businesses as well as other larger customers for which Indco fulfills repetitive production orders.
Life Sciences
The Company’s Life Sciences segment, which is comprised of several wholly-owned subsidiaries, manufactures and distributes high-quality monoclonal and polyclonal antibodies, diagnostic reagents and other immunoreagents for biomedical research and provides antibody manufacturing for academic and industry research scientists. Our Life Sciences business also produces products for other life science companies on an original equipment manufacturer (“OEM”) basis.
On December 4, 2020, the Company, through its wholly-owned subsidiary Aves, acquired all of the membership interests of ImmunoChemistry Technologies, LLC (“ICT”).
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
CriticalOur Condensed Consolidated Financial Statements have been prepared in accordance with generally accepted accounting estimates are those that we believe are both significant andprinciples in the United States. These generally accepted accounting principles require usmanagement to make difficult, subjective, or complex judgments, often because we need to estimateestimates and assumptions that affect the effectreported amounts of inherently uncertain matters. These estimates are based on historical experienceassets, liabilities, net sales and various other factors that we believe to be appropriate underexpenses during the circumstance. Actual amounts and results could differ from these estimates made by management. Certainreporting period.
Our senior management has reviewed the critical accounting policies that require significant managementand estimates with the Audit Committee of our Board of Directors. For a description of the Company’s critical accounting policies and are deemed criticalestimates, refer to our results of operations or financial position are discussed in the Critical Accounting Policies and Estimates section of “Part II—Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations includedOperations—Critical Accounting Estimates” in Item 7 of our Annual Report on Form 10-K forfiled with the fiscal year ended September 30, 2020.
The Company’s consolidatedSEC on December 27, 2021. Critical accounting policies are those that are most important to the portrayal of our financial statements have been prepared in accordance with U.S. GAAP. The preparationcondition, results of these financial statements requires managementoperations and cash flows and require management’s most difficult, subjective and complex judgments, often as a result of the need to make estimates and assumptions about future eventsthe effect of matters that affectare inherently uncertain. If actual results were to differ significantly from estimates made, the amounts reported in the financial statements and accompanying notes. Since future events and their effects cannot be determined with absolute certainty, the determination of estimates requires the exercise of judgment. Actual results could differ from those estimates, and such differences may be materialmaterially affected. There were no significant changes to the financial statements. The most significant accounting estimates inherent in the preparation of our financial statements include estimates as to revenue recognition, the appropriate carrying value of certain assets and liabilities which are not readily apparent from other sources, primarily allowance for doubtful accounts, accruals for transportation and other direct costs, accruals for cargo insurance, deferred income taxes, potential impairment of goodwill and intangible assets with indefinite lives and long-lived assets impairment. Management bases its estimates on historical experience and on various assumptions which are believed to be reasonable under the circumstances. We reevaluate these significant factors as facts and circumstances change. Historically, actual results have not differed significantly from our estimates. Note 1 of the notes to consolidated financial statements included herein includes a summary of the significantcritical accounting policies and methods used induring the preparation of our consolidated financial statements. The following is a brief discussion of certain accounting policies and estimates.
Management believes that the nature of the Company’s business is such that there are few complex challenges in accounting for operations. Revenue recognition is considered the critical accounting policy due to the complexity of arranging and managing global logistics and supply-chain management transactions.
Income taxessix months ended March 31, 2022.
The Company uses the asset and liability method of accounting for income taxes in accordance with Accounting Standards Codification Topic 740, “Income Taxes.” Under this method, income tax expense is recognized for the amount of: (i) taxes payable or refundable for the current year and (ii) deferred tax consequences of temporary differences resulting from matters that have been recognized in an entity’s financial statements or tax returns. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date.
Estimates
While judgments and estimates are a necessary component of any system of accounting, the Company’s use of estimates is limited primarily to the following areas that in the aggregate are not a major component of the Company’s consolidated statements of operations:
accounts receivable valuation;
the useful lives of long-term assets;
the accrual of costs related to ancillary services the Company provides;
accrual of tax expense on an interim basis;
potential impairment of goodwill and intangible assets with indefinite lives, long-lived assets impairment.
Management believes that the methods utilized in these areas are consistent in application. Management further believes that there are limited, if any, alternative accounting principles or methods which could be applied to the Company’s transactions.
While the use of estimates means that actual future results may be different from those contemplated by the estimates, the Company believes that alternative principles and methods used for making such estimates would not produce materially different results than those reported.
Critical Accounting Policies and Estimates Applicable to the Global Logistics Services Segment
Revenue Recognition
Revenues are derived from customs brokerage services and from freight forwarding services.
Customs brokerage services include activities required for the clearance of shipments through government customs regimes, such as preparing required documentation, calculating and providing for payment of duties and other charges on behalf of customers, arranging required inspections and arranging final delivery.
Freight forwarding may require multiple services, including long-distance shipment via air, ocean or ground assets, destination handling (“break bulk”), warehousing, distribution and other logistics management activities. As an asset-light business, Janel Group owns none of the assets by which it fulfills its customers’ logistics needs. Rather, it purchases the services its customers need from asset owners, such as airlines and steamship lines, and resells them. By consolidating shipments from multiple customers, Janel Group can negotiate terms of service with asset owners that are more favorable than those the customers could negotiate themselves.
Revenue is recognized upon transfer of control of promised services to customers. With respect to its Global Logistics Services segment, the Company has determined that in general each shipment transaction or service order constitutes a separate contract with the customer. When the Company provides multiple services to a customer, different contracts may be present for different services.
The Company typically satisfies its performance obligations as services are rendered at a point in time. A typical shipment would include services rendered at origin, such as pick-up and delivery to port, freight services from origin to destination port and destination services, such as customs clearance and final delivery. The Company measures the performance of its obligations as services are completed at a point in time during the life of a shipment, including services at origin, freight and destination. The Company fulfills nearly all of its performance obligations within a one-to two-month period.
The Company evaluates whether amounts billed to customers should be reported as gross or net revenue. Generally, revenue is recorded on a gross basis when the Company is primarily responsible for fulfilling the promise to provide the services, when it has discretion in setting the prices for the services to the customers, and the Company has the ability to direct the use of the services provided by the third party. Revenue is recognized on a net basis when we do not have latitude in carrier selection or establish rates with the carrier.
In the Global Logistics Services segment, the Company disaggregates its revenues by its four primary service categories: ocean freight, air freight, custom brokerage and trucking and other.
Critical Accounting Policies and Estimates Applicable to the Manufacturing and Life Sciences Segments
Revenue Recognition-Manufacturing
Revenues from Indco are derived from the engineering, manufacture and delivery of specialty mixing equipment and accessories. Indco receives customer product orders via telephone, email, internet or fax. The pricing of each standard product sold is listed in Indco’s print and web-based catalog. Customer specific products are priced by quote. A sales order acknowledgement is sent to every customer for every order to confirm pricing and the specifications of the products ordered. The revenue is recognized at a point in time when the product is shipped to the customer.
Revenue Recognition-Life Sciences
Revenues from the Life Sciences segment are derived from the sale of high-quality monoclonal and polyclonal antibodies, diagnostic reagents and diagnostic kits and other immunoreagents for biomedical research and antibody manufacturing. Revenues are recognized when products are shipped and risk of loss is transferred to the carrier(s) used.
NON-GAAP FINANCIAL MEASURES
While we prepare our financial statements in accordance with U.S. GAAP, we also utilize and present certain financial measures, in particular adjusted operating income, which is not based on or included in U.S. GAAP (we refer to these as “non-GAAP financial measures”).
Net Revenue
Net revenue is a non-GAAP measure calculated as total revenue less forwarding expenses attributable to the Company’s Global Logistics Services segment. Our total revenue represents the total dollar value of services and goods we sell to our customers. Forwarding expenses attributable to the Company’s Global Logistics Services segment refer to purchased transportation and related services including contracted air, ocean, rail, motor carrier and other costs. Total revenue can be influenced greatly by changes in transportation rates or other items, such as fuel prices, which we do not control. Management believes that providing net revenue and its related margin is useful to investors as net revenue is the primary indicator of our ability to source, add value and sell services and products that are provided by third parties, and we consider net revenue to be our primary performance measurement. The difference between the rate billed to our customers (the sell rate) and the rate we pay to the carrier (the buy rate) is termed “net revenue”, “yield” or “margin.” As presented, net revenue matches gross margin.
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Organic Growth
Our non-GAAP financial measure of organic growth represents revenue growth excluding revenue from acquisitions within the preceding 12 months. The organic growth presentation provides useful period-to-period comparison of revenue results as it excludes revenue from acquisitions that would not be included in the comparable prior period.
Adjusted Operating Income
As a result of our acquisition strategy, our net income includes material non-cash charges relating to the amortization of customer-related intangible assets in the ordinary course of business as well as other intangible assets acquired in our acquisitions. Although these charges may increase as we complete more acquisitions, we believe we will be growing the value of our intangible assets such as customer relationships. Because these charges are not indicative of our operations, we believe that adjusted operating income is a useful financial measure for investors because it eliminates the effect of these non-cash costs and provides an important metric for our business that is more representative of the actual results of our operations.
Adjusted operating income (which excludes the non-cash impact of amortization of intangible assets, stock-based compensation and cost recognized on the sale of acquired inventory valuation) is used by management as a supplemental performance measure to assess our business’s ability to generate cash and economic returns.
Adjusted operating income is a non-GAAP measure of income and does not include the effects of preferred stock dividends, interest and taxes.
We believe that net revenue, organic growth and adjusted operating income provide useful information in understanding and evaluating our operating results in the same manner as management. However, net revenue, organic growth and adjusted operating income are not financial measures calculated in accordance with U.S. GAAP and should not be considered as a substitute for total revenue, operating income or any other operating performance measures calculated in accordance with U.S. GAAP. Using these non-GAAP financial measures to analyze our business has material limitations because the calculations are based on the subjective determination of management regarding the nature and classification of events and circumstances that users of the financial statements may find significant.
In addition, although other companies in our industry may report measures titled net revenue, organic growth, adjusted operating income or similar measures, such non-GAAP financial measures may be calculated differently from how we calculate our non-GAAP financial measures, which reduces their overall usefulness as comparative measures. Because of these limitations, you should consider net revenue, organic growth and adjusted operating income alongside other financial performance measures, including total revenue, operating income and our other financial results presented in accordance with U.S. GAAP.
Results of Operations – Janel Corporation
Our results of operations and period-over-period changes are discussed in the following section. The tables and discussion should be read in conjunction with the accompanying Condensed Consolidated Financial Statements and the notes thereto.
Our condensed consolidated results of operations are as follows:
| | | Three Months Ended March 31, 2021 | | | Three Months Ended March 31, 2020 | | | Six Months Ended March 31, 2021 | | | Six Months Ended March 31, 2020 | |
| Revenues | | $ | 30,142 | | | $ | 19,121 | | | $ | 56,620 | | | $ | 38,942 | |
| Forwarding expenses and cost of revenues | | | 22,593 | | | | 13,125 | | | | 42,622 | | | | 26,659 | |
| Gross profit | | | | | | | | | | | | | | | | |
| Operating expenses | | | 6,708 | | | | 6,827 | | | | 12,668 | | | | 13,155 | |
| Operating income (loss) | | | | | | | | | | | | | | | | |
| Net income (loss) | | | | | | | | | | | | | | | | |
| Adjusted operating income (loss) | | $ | 1,455 | | | $ | (286 | ) | | $ | 2,433 | | | $ | 210 | |
| (in thousands) | | Three Months Ended March 31, 2022 | | | Three Months Ended March 31, 2021 | | | Six Months Ended March 31, 2022 | | | Six Months Ended March 31, 2021 | |
| Revenue | | $ | 80,851 | | | $ | 30,142 | | | $ | 164,165 | | | $ | 56,620 | |
| Forwarding expenses and cost of revenues | | | 64,342 | | | | 22,593 | | | | 132,167 | | | | 42,622 | |
| Gross profit | | | | | | | | | | | | | | | | |
| Operating expenses | | | 14,362 | | | | 6,708 | | | | 27,209 | | | | 12,668 | |
| Operating income | | | | | | | | | | | | | | | | |
| Net income | | | | | | | | | | | | | | | | |
| Adjusted operating income | | $ | 3,454 | | | $ | 1,455 | | | $ | 6,816 | | | $ | 2,433 | |
Consolidated revenues for the three months ended March 31, 20212022 were $30,142,$80,851, which is $50,709 or 57.6%168% higher than the prior year period. Revenues increased due to a recovery from the impact of the COVID-19 pandemic experienced in the prior year period as well as an increase in revenue of $25,107 from an acquisition. Consolidated revenues for the threesix months ended March 31, 2020 as revenue at all three businesses increased and acquisitions, to a smaller extent, contributed to the increase compared to2022 were $164,165 or 190% higher than the prior year period. Revenues increased across all three segments due to a recovery from the impact of the COVID-19 pandemic experienced in the prior year period as well as an increase in revenue of $57,050 from acquisitions.
The Company’s netOperating income for the three months ended March 31, 20212022 was $2,147 compared with $841 in the prior year period. Operating income for the six months ended March 31, 2022 was $4,789 compared with $1,330 in the prior year period. The increase for both the three and six months ended March 31, 2022 resulted from the economic recovery experienced across all of our segments as well as an increase in operating income of $971and $1,203, respectively from acquisitions, partially offset by stock-based compensation and higher spending in the Corporate segment.
Net income for the three months ended March 31, 2022 totaled approximately $596$1,273 or $0.61$1.23 per diluted share, compared to a net lossincome of approximately ($937)$596 or ($1.08)$0.61 per diluted share for the three months ended March 31, 2020.
Consolidated revenues for the six months ended March 31, 2021 were $56,620, or 45.4% higher than for the six months ended March 31, 2020 as revenue at all three businesses increased and acquisitions, to a smaller extent, contributed to the increase compared to the prior year period.
The Company’s net2021. Net income for the six months ended March 31, 20212022 totaled approximately $2,961 or $2.89 per diluted share, compared to net income of $851 or $0.87 per diluted share comparedfor the three months ended March 31, 2021.
Adjusted operating income for the three months ended March 31, 2022 increased to a net loss of approximately ($1,057) or ($1.22) per diluted share$3,454 versus $1,455 in the prior year period. Adjusted operating income for the six months ended March 31, 2020.2022 increased to $6,816 versus $2,433 in the prior year period. The increase for both the three and six months ended March 31, 2022 resulted from a recovery in profits from the impact of the COVID-19 pandemic for our segments and the contribution of acquisitions.
The following table sets forth a reconciliation of operating income to adjusted operating income (loss):income:
| (in thousands) | | Three Months Ended March 31, 2021 | | | Three Months Ended March 31, 2020 | | | Six Months Ended March 31, 2021 | | | Six Months Ended March 31, 2020 | | | Three Months Ended March 31, 2022 | | | Three Months Ended March 31, 2021 | | | Six Months Ended March 31, 2022 | | | Six Months Ended March 31, 2021 | |
| Operating income (loss) | | $ | 841 | | | $ | (831 | ) | | $ | 1,330 | | | $ | (872 | ) | |
Operating income | | | $ | 2,147 | | | $ | 841 | | | $ | 4,789 | | | $ | 1,330 | |
Amortization of intangible assets(1) | | 293 | | | 243 | | | 544 | | | 486 | | | 487 | | | 293 | | | 996 | | | 544 | |
Stock-based compensation(2) | | 30 | | | 75 | | | 54 | | | 149 | | | 728 | | | 30 | | | 768 | | | 54 | |
Cost recognized on sale of acquired inventory (3) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Adjusted operating income (loss) | | | | | | | | | | | | | | | | | |
Adjusted operating income | | | | | | | | | | | | | | | | | |
(1) | Amortization of intangible assets represents non-cash amortization expense or impairment expense, if any, attributable to acquisition-related intangible assets, including any portion that is allocated to noncontrolling interests. Management believes that making this adjustment aids in comparing the Company’s operating results with other companies in our industry that have not engaged in acquisitions.
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(2) | The Company eliminates the impact of stock-based compensation because it does not consider such non-cash expenses to be indicative of the Company’s core operating performance. The exclusion of stock-based compensation expenses also facilitates comparisons of the Company’s underlying operating performance on a period-to-period basis.
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(3) | The Company has excluded the impact of cost on the sale of acquired inventory in connection with acquisitions as such adjustments represent non-cash items, are not consistent in amount and frequency and are significantly impacted by the timing and size of the Company’s acquisitions.
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Results of Operations - Global– Logistics Services – Three and Six Months Ended March 31, 20212022 and 20202021
Our Global Logistics Services business helps its clients move and manage freight efficiently to reduce inventories and to increase supply chain speed and reliability. Key services include customs entry filing, arrangement of freight forwarding by air, ocean and ground, customs entry filing, warehousing, cargo insurance procurement, logistics planning, product repackaging and online shipment tracking.
| | Three Months Ended March 31, | | | Six Months Ended March 31, | |
| | | | | | | | | | | | | |
| (in thousands) | | | |
Revenue | | $ | 75,073 | | | $ | 24,373 | | | $ | 152,629 | | | $ | 46,633 | |
| Forwarding expenses | | | 62,281 | | | | 20,250 | | | | 127,891 | | | | 38,645 | |
| Gross Profit | | | 12,792 | | | | 4,123 | | | | 24,738 | | | | 7,988 | |
| Gross profit margin | | | | | | | | | | | | | | | | |
| Selling, general & administrative | | | 10,066 | | | | 3,743 | | | | 19,415 | | | | 7,117 | |
| Income from operations | | | | | | | | | | | | | | | | |
Global Logistics Services – Selected Financial Information:
| | | Three Months Ended March 31, | | | Six Months Ended March 31, | |
| | | | | | | | | | | | | |
| | | (in thousands) | |
| Revenue | | $ | 24,373 | | | $ | 15,328 | | | $ | 46,633 | | | $ | 31,407 | |
| Forwarding expenses | | | 20,250 | | | | 11,615 | | | | 38,645 | | | | 23,702 | |
| Net revenue | | | 4,123 | | | | 3,713 | | | | 7,988 | | | | 7,705 | |
| Net revenue margin | | | | | | | | | | | | | | | | |
| Selling, general & administrative | | | 3,743 | | | | 3,952 | | | | 7,117 | | | | 7,590 | |
| Income (loss) from operations | | | | | | | | | | | | | | | | |
Revenue
Total revenue for the three months ended March 31, 20212022 was $24,373,$75,073 as compared to $15,328$24,373 for the three months ended March 31, 2020,2021, an increase of $9,045$50,700 or 51.0%208%. Of the $9,045 increase in revenue, 85.2% represented growth primarily dueone acquisition accounted for $25,017 of additional revenue compared to the rise in transportation rates due to capacity issues globallyprior year period and 14.8% contributions from two acquisitions. Total revenue for the six months ended March 31, 2021 and 2020 was $46,633 and $31,407 respectively, an increase of $15,226 or 48.9%. Of the $15,226 increase in revenue 88.5%$25,683 represented organic growth primarily due to the rise in transportation rates due toas a result of capacity issues globally and 11.5% represented contributions from two acquisitions.globally.
Forwarding Expenses
Forwarding expensesTotal revenue for the threesix months ended March 31, 2021 increased by $8,635, or 74.3%, to $20,2502022 was $152,629 as compared to $11,615 for the three months ended March 31, 2020. Forwarding expenses as a percentage of revenue were 83.1% and 75.8% for the three months ended March 31, 2021 and March 31, 2020, respectively. Similar to the revenue increase, the increase in forwarding expenses and forwarding expense as a percentage of revenue reflected higher transportation rates and increased expenses related to acquisitions.
Forwarding expenses$46,633 for the six months ended March 31, 2021, increased by $14,943,an increase of $105,996 or 63.1%,227%. Of the increase in revenue, two acquisitions accounted for $49,353 of additional revenue compared to $38,645the prior year period and $56,643 represented organic growth primarily due to the rise in transportation rates as a result of capacity issues globally.
Gross Profit
Gross profit for the three months ended March 31, 2022 was $12,792, an increase of $8,669, or 210%, as compared to $23,702$4,123 for the three months ended March 31, 2021. One acquisition accounted for $6,337 of additional gross profit compared to the prior year period. A recovery in business accounted for the balance of the gross profit increase compared with the depressed levels in the prior fiscal year and drove organic gross profit growth of 57%. Gross margin as a percentage of revenue increased to 17.0% for the three months ended March 31, 2022, compared to 16.9% for the prior year period, due to higher gross profit margins at an acquired business partially offset by lower gross profit margins due to the increase in transportation rates.
Gross profit for the six months ended March 31, 2020. Forwarding expenses2022 was $24,738, an increase of $16,750, or 209.7%, as a percentage of revenue were 82.9% and 75.5%compared to $7,988 for the six months ended March 31, 2021 and March 31, 2020, respectively. Similar to the revenue increase, the increase in forwarding expenses and forwarding expense as a percentage of revenue reflected higher transportation rates and increased expenses related to acquisitions.
Net Revenue and Net Revenue Margin
Net revenue for the three months ended March 31, 2021 was $4,123, an increase of $410, or 11.1%, as compared to $3,713 for the three months ended March 31, 2020.2021. This increase was mainly the result of increased revenue from two acquisitions partially offset by an approximately mid-single digitand organic decline for the quartergrowth in our base business due to a global trade shift due to COVID. Net revenueeconomic recoveryfrom the impact of the COVID-19 pandemic. Gross profit as a percentage of revenue decreased to 16.9%16.2% compared to 24.2%17.1% for the prior year period due to the increase in transportation rates versus the prior year period.
Net revenue for the six months ended March 31, 2021 was $7,988, an increase of $283, or 3.7%, as compared to $7,705 for the six months ended March 31, 2020. This increase was mainly the result of two acquisitionsperiod partially offset by a high single-digit organic decline in our base business due to COVID-related shifts in global trade. Net revenue as a percentagehigher gross profit margins at an acquired business.
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Selling, General and Administrative Expenses
Selling, general and administrative expenses for the three months ended March 31, 20212022 were $3,743,$10,066, as compared to $3,952$3,743 for the three months ended March 31, 2020.2021. This decreaseincrease of $209,$6,323, or 5.3%169%, was largely attributedmainly due to cost reductions partially offset by the additional expenses from businessesan acquired versus the prior year period.business. As a percentage of revenue, selling, general and administrative expenses were 15.4%13.4% and 25.8%15.4% of revenue for the three months ended March 31, 2022 and 2021, respectively. The decline in selling, general and 2020, respectively.administrative expenses as a percentage of revenue largely reflected the rise in transportation rates as a result of capacity issues globally and favorable operating leverage due to strong organic growth.
Selling, general and administrative expenses for the six months ended March 31 2021, 2022 were $7,117,$19,415, as compared to $7,590$7,117 for the six months ended March 31, 2020.2021. This decreaseincrease of $493,$12,298, or 6.2%173%, was largely attributedmainly due to cost reductions partially offset by the additional expenses from businesses acquired versus the prior year period.businesses. As a percentage of revenue, selling, general and administrative expenses were 12.7% and 15.3% and 24.2% of revenue for the six months ended March 31, 2022 and 2021, respectively. The decline in selling, general and 2020, respectively.administrative expenses as a percentage of revenue largely reflected the rise in transportation rates as a result of capacity issues globally and favorable operating leverage due to strong organic growth.
Income (loss) from Operations
Income from operations increased to $2,726 for the three months ended March 31, 2022, as compared to income from operations of $380 for the three months ended March 31, 2021, an increase of $2,346. Income from operations increased as a result of the economic recovery from the impact of the COVID-19 pandemic compared to the prior year period and contributions from an acquisition. Operating margin as a losspercentage of ($239)gross profit for the three months ended March 31, 2020, an increase of $619. 2022 was 21.3% compared to 9.2% in the prior year period largely due to operating leverage from significantly higher gross profit as business recovered compared with the depressed levels in the prior year period.
Income from operations increased duringto $5,323 for the threesix months ended March 31, 20212022, as a result of cost reductions and, to a lesser extent, the contribution from an acquisition versus the prior year period. Our operating margin as a percentage of net revenue for the three months ended March 31, 2021 was 9.2% compared to (6.4%) in the prior year period.
Income from operations increased to $871 for the six months ended March 31, 2021, as compared to $115 for the six months ended March 31, 2020, an increase of $756,$4,452, or 657.4%511%. Income from operations increased during the six months ended March 31, 20212022 as a result of cost reductions and,contributions from two acquisitions relative to a lesser extent, the contribution from an acquisition versus the prior year period. Our operating margin as a percentage of net revenuegross profit for the six months ended March 31, 20212022 was 10.9%21.5% compared to 1.5%10.9% in the prior year period largely due to operating leverage from significantly higher gross profit as business recovered compared with the depressed levels in the prior year period.
Results of Operations - Manufacturing – Three and Six Months Ended March 31, 2021 and 2020
The Company’s Manufacturing segment includes its majority-owned Indco subsidiary, which manufactures and distributes industrial mixing equipment.
Manufacturing – Selected Financial Information:
| | | Three Months Ended March 31, | | | Six Months Ended March 31, | |
| | | | | | | | | | | | | |
| (in thousands) | | | | | | | | | |
| Revenue | | $ | 2,529 | | | $ | 2,056 | | | $ | 4,398 | | | $ | 3,926 | |
| Cost of sales | | | 1,163 | | | | 908 | | | | 2,041 | | | | 1,753 | |
| Gross profit | | | 1,366 | | | | 1,148 | | | | 2,357 | | | | 2,173 | |
| Gross profit margin | | | | | | | | | | | | | | | | |
| Selling, general and administrative | | | 683 | | | | 701 | | | | 1,325 | | | | 1,383 | |
| Income from Operations | | | | | | | | | | | | | | | | |
Revenue
Total revenue was $2,529 and $2,056 for the three months ended March 31, 2021 and 2020, respectively, an increase of $473, or 23.0%. Total revenue was $4,398 and $3,926 for the six months ended March 31, 2021 and 2020, respectively, an increase of $472, or 12.0%. The revenue increase in both periods reflected a broad increase across the business relative to the COVID-19 related slowdown in the respective prior year periods.
Cost of Sales
Cost of sales was $1,163 and $908 for the three months ended March 31, 2021 and 2020, respectively, an increase of $255, or 28.1%, due to product mix. Cost of sales was $2,041 and $1,753 for the six months ended March 31, 2021 and 2020, respectively, an increase of $288, or 16.4%. The cost of sales increases in both periods was consistent with the revenue increase in both periods and reflected relatively stable product mix.
Gross Profit and Gross Profit Margin
Gross profit was $1,366 and $1,148 for the three months ended March 31, 2021 and 2020, respectively, an increase of $218, or 19.0%. Gross profit margin for the three months ended March 31, 2021 and 2020 was 54.0% and 55.8%, respectively. Gross profit was $2,357 and $2,173 for the six months ended March 31, 2021 and 2020, respectively, an increase of $184, or 8.5%. Gross profit margin for the six months ended March 31, 2021 and 2020 was 53.6% and 55.3%, respectively. The gross profit in both periods increased proportionately with the revenue of the business at relatively stable gross profit margins.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were $683 and $701 for the three months ended March 31, 2021 and 2020, respectively, a decrease of $18 or 5.9%. Selling, general and administrative expenses were $1,325 and $1,383 for the six months ended March 31, 2021 and 2020, respectively, a decrease of $58 or 4.2%. The relatively stable selling, general and administrative expenses in both periods reflect a reduction in rent expenses related to the purchase of Indco’s building.
Income from Operations
Income from operations was $683 for the three months ended March 31, 2021 compared to $447 for the three months ended March 31, 2020, representing a 52.8% increase from the prior year period. Income from operations was $1,032 for the six months ended March 31, 2021 compared to $790 for the six months ended March 31, 2020, representing a 30.6% increase from the prior year period. Operating profit increased in both periods as the business benefited from management’s decision a year ago not to reduce staffing levels which resulted in favorable operating leverage as revenue recovered.
Results of Operations – Life Sciences – Three and Six Months Ended March 31, 20212022 and 20202021
The Company’s Life Sciences segment manufactures and distributes high-quality monoclonal and polyclonal antibodies, diagnostic reagents and other immunoreagents for biomedical research and provides antibody manufacturing for academic and industry research scientists. Our Life Sciences business also produces products for other life science companies on an OEM basis.
Life Sciences – Selected Financial Information:
| | | Three Months Ended March 31, | | | Six Months Ended March 31, | | | Three Months Ended March 31, | | | Six Months Ended March 31, | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | (in thousands) | | | | | | | | |
| (in thousands) | | | | | | | | | | |
| Revenue | | $ | 3,240 | | | $ | 1,737 | | | $ | 5,589 | | | $ | 3,609 | | | $ | 3,275 | | | $ | 3,240 | | | $ | 6,519 | | | $ | 5,589 | |
| Cost of sales | | 889 | | | 375 | | | 1,431 | | | 757 | | | 775 | | | 889 | | | 1,605 | | | 1,431 | |
| Cost recognized upon sales of acquired inventory | | | 291 | | | | 227 | | | | 505 | | | | 447 | | | | 92 | | | | 291 | | | | 263 | | | | 505 | |
| Gross profit | | 2,060 | | | 1,135 | | | 3,653 | | | 2,405 | | | 2,408 | | | 2,060 | | | 4,651 | | | 3,653 | |
| Gross profit margin | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Selling, general and administrative | | | 1,213 | | | | 1,071 | | | | 2,189 | | | | 2,051 | | | | 1,283 | | | | 1,213 | | | | 2,533 | | | | 2,189 | |
| Income from Operations | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Revenue
Total revenue was $3,240$3,275 and $1,737$3,240 for the three months ended March 31, 20212022 and 2020,2021, respectively, an increase of $1,503$35 or 86.5%1.1% comparable to prior year. Total revenue was $6,519 and $5,589 for the six months ended March 31, 2022 and 2021, respectively, an increase of $930 or 16.6%. Of the $1,503$930 increase in revenue, 74.9%$523 or 9.3% represented organic growth as the Life Sciences business experienced a recovery from the COVID-led slowdown and 26.1% represented contributionsimpact of the COVID-19 pandemic with the balance of growth from an acquisition, as well as the introduction of new products and services. Total revenue was $5,589 and $3,609 for the six months ended March 31, 2021 and 2020, respectively, an increase of $1,980 or 54.9%. Of the $1,980 increase in revenue 76.7% represented organic growth as the Life Sciences business experienced a recovery from the COVID-led slowdown and 23.3% contributions from an acquisition as well as the introduction of new products and services.
Cost of Sales and Cost Recognized Upon Sale of Acquired Inventory
Gross Profit
Cost of salesGross profit was $889$2,408 and $375$2,060 for the three months ended March 31, 20212022 and 2020,2021, respectively, an increase of $514$348 or 137.1%16.9%. During the three months ended March 31, 2022 and 2021, gross profit margin was 73.5% and 63.6%, primarilyrespectively, as a result of business growth and, to a smaller degree, increased expenses from an acquisition. Costcost recognized upon sale of acquired inventory was $291declined and $227 for the three months ended March 31, 2021 and 2020, respectively, an increase of $64 or 28.2%, due to some acquired inventory from an acquisition partially offset by some inventory being fully amortized.product mix improved.
Cost of salesGross profit was $1,431$4,651 and $757$3,653 for the six months ended March 31, 20212022 and 2020,2021, respectively, an increase of $674$998 or 89.0%, primarily as a result of business growth. Cost recognized upon sale of acquired inventory was $505 and $447 for27.3%. In the six months ended March 31, 20212022 and 2020, respectively, an increase of $58 or 13.0%, due to acquired inventory from an acquisition partially offset by some inventory being fully amortized.
Gross Profit and Gross Profit Margin
Gross profit was $2,060 and $1,135 for the three months ended March 31, 2021, and 2020, respectively, an increase of $578 or 96.0%. In the three months ended March 31, 2021 and 2020, the Life Sciences segment had a gross profit margin of 63.6%71.3% and 65.3%65.4%, respectively, as business improved compared to the prior year period; contributions from an acquisition and product mix was consistent period to period.
Gross profit was $3,653 and $2,405 for the six months ended March 31, 2021 and 2020, respectively, an increase of $1,248 or 51.9%. In the six months ended March 31, 2021 and 2020, the Life Sciences segment had a gross profit margin of 65.4% and 66.5%, respectively. Gross profit margin for both periods increased in line with revenue with consistent product mix period to period and contributions from an acquisition.acquisition and as cost recognized upon the sale of acquired inventory delivered.
Selling, General and Administrative Expenses
36
Selling, general and administrative expenses for the Life Sciences segment were $1,283 and $1,213 for the three months ended March 31, 2022 and 2021, respectively. Selling, general and administrative expenses were $2,533 and $2,189 for the six months ended March 31, 2022 and 2021, respectively. The year-over-year increases for both periods was largely due to an acquired business.
Income from Operations
Income from operations for the three months ended March 31, 2022 and 2021 was $1,125 and $847, respectively, an increase of $278 or 32.8%. Income from operations for the six months ended March 31, 2022 and 2021 was $2,118 and $1,464, respectively, an increase of $654 or 44.7%, largely due to positive operating leverage from the increase in revenue as a result of the recovery from the impact of the COVID-19 pandemic experienced in the prior fiscal year and, lower cost recognized on acquired inventory and to a lesser extent, a contribution from an acquisition.
Results of Operations - Manufacturing – Three and Six Months Ended March 31, 2022 and 2021
The Company’s Manufacturing segment reflects its majority-owned Indco subsidiary, which manufactures and distributes industrial mixing equipment.
Manufacturing – Selected Financial Information:
| | | Three Months Ended March 31, | | | Six Months Ended March 31, | |
| | | | | | | | | | | | | |
| (in thousands) | | | | | | | | | |
| Revenue | | $ | 2,503 | | | $ | 2,529 | | | $ | 5,017 | | | $ | 4,398 | |
| Cost of sales | | | 1,194 | | | | 1,163 | | | | 2,408 | | | | 2,041 | |
| Gross profit | | | 1,309 | | | | 1,366 | | | | 2,609 | | | | 2,357 | |
| Gross profit margin | | | | | | | | | | | | | | | | |
| Selling, general and administrative | | | 765 | | | | 683 | | | | 1,494 | | | | 1,325 | |
| Income from Operations | | | | | | | | | | | | | | | | |
Revenue
Total revenue was $2,503 and $2,529 for the three months ended March 31, 2022 and 2021, respectively, a decrease of $26. Total revenue was $5,017 and $4,398 for the six months ended March 31, 2022 and 2021, respectively, an increase of $619, or 14.1%. The increase in revenue for the six months ended March 31, 2022 reflected a broad increase across the business relative to the COVID-19 related slowdown in the prior year period.
Gross Profit
Gross profit was $1,309 and $1,366 for the three months ended March 31, 2022 and 2021, respectively, a decrease of $57, or 4.2%. Gross profit margin for the three months ended March 31, 2022 and 2021 was 52.3% and 54.0%, respectively. Gross profit was $2,609 and $2,357 for the six months ended March 31, 2022 and 2021, respectively, an increase of $252, or 10.7%. Gross profit margin for the six months ended March 31, 2022 and 2021 was 52.0% and 53.6%, respectively. The year-over-year decrease in gross profit margin was generally due to the mix of business.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were $1,213$765 and $1,071$683 for the three months ended March 31, 2022 and 2021, respectively, an increase of $82 or 12.0%. Selling, general and administrative expenses were $1,494 and $1,325 for the six months ended March 31, 2022 and 2021, respectively, an increase of $169 or 12.8%. The increase in expenses relative to revenue for the three- and six-month periods reflect the mix of business.
Income from Operations
Income from operations was $544 for the three months ended March 31, 2022 compared to $683 for the three months ended March 31, 2021, and 2020, respectively, an increase of $142, or 13.3%. Selling, general and administrative expenses were $2,189 and $2,051representing a 20.4% decrease from the prior year period due to favorable order timing in the prior year period. Income from operations was $1,115 for the six months ended March 31, 2022 compared to $1,032 for the six months ended March 31, 2021, and 2020, respectively,representing an 8% increase of $138 or 6.7%. The increased expenses in both periods reflects leverage of fixed costs and some expenses from an acquired business relative tothe prior year period.
Income from Operations
Income from operations for the three months ended March 31, 2021 and 2020 The increase was $847 and $64, an increase of $783 or 1,223.4%. Income from operations for the six months ended March 31, 2021 and 2020 was $1,464 and $354, an increase of $1,110 or 313.6%. The growth in both periods reflects strong organic growth,due to favorable operating leverage and, to a smaller extent, contributionas revenue recovered from an acquisition.the impact of the COVID-19 pandemic.
Results of Operations – Corporate and otherOther – Three and Six Months Ended March 31, 20212022 and 20202021
Below is a reconciliation of income from operationsoperating segments to net (loss)income available to common stockholdersstockholders.
| | | Three Months Ended March 31, | | | Six Months Ended March 31, | | | Three Months Ended March 31, | | | Six Months Ended March 31, | |
| (in thousands) | | 2021 | | | 2020 | | | 2021 | | | 2020 | | | 2022 | | | 2021 | | | 2022 | | | 2021 | |
| Total income from operating segments | | $ | 1,910 | | | $ | 272 | | | $ | 3,367 | | | $ | 1,259 | | | $ | 4,395 | | | $ | 1,910 | | | $ | 8,556 | | | $ | 3,367 | |
| Administrative expenses | | (764 | ) | | (804 | ) | | (1,471 | ) | | (1,534 | ) | |
Corporate expenses | | | (1,033 | ) | | (764 | ) | | (2,003 | ) | | (1,471 | ) |
| Amortization expense | | (293 | ) | | (243 | ) | | (544 | ) | | (486 | ) | | (487 | ) | | (293 | ) | | (996 | ) | | (544 | ) |
| Stock-based compensation | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total Corporate expenses | | (1,069 | ) | | (1,103 | ) | | (2,037 | ) | | (2,131 | ) | | (2,248 | ) | | (1,069 | ) | | (3,767 | ) | | (2,037 | ) |
| Interest expense | | (158 | ) | | (141 | ) | | (277 | ) | | (304 | ) | | (269 | ) | | (158 | ) | | (548 | ) | | (277 | ) |
| Gain on Paycheck Protection Program loan forgiveness | | | 135 | | | | — | | | | 135 | | | | — | | | | - | | | | 135 | | | | - | | | | 135 | |
| Net income (loss) before taxes | | | | | | | | | | | | | |
| Income tax (expense) benefit | | | (222 | ) | | | 35 | | | | (337 | ) | | | 119 | | |
| Net income (loss) | | | | | | | | | | | | | |
| Net income before taxes | | | | | | | | | | | | | |
Income tax expense | | | | (605 | ) | | | (222 | ) | | | (1,280 | ) | | | (337 | ) |
| Net income | | | | | | | | | | | | | | | | | |
| Preferred stock dividends | | | (195 | ) | | | (175 | ) | | | (369 | ) | | | (326 | ) | | | | | | | | | | | | |
| Net Income (Loss) Available to Common Stockholders | | | | | | | | | | | | | | | | | |
Non-controlling interest dividends | | | | (61 | ) | | | - | | | | (61 | ) | | | - | |
| Net Income Available to Common Stockholders | | | | | | | | | | | | | | | | | |
Total Corporate Expenses
Total corporateCorporate expenses, which include amortization of intangible assets, stock-based compensation and merger and acquisition expenses, decreasedincreased by $34,$1,179 or by 3.1%110%, to $1,069$2,248 in the three months ended March 31, 20212022 as compared to $1,103$1,069 for the three months ended March 31,2021. Total Corporate expenses increased by $1,730 or 84.9%, to $3,767 for the six months ended March 31, 2022 as compared to $2,037 for the six months ended March 31,2021. The increase in both periods was due primarily to stock-based compensation related to restricted stock issuance with immediate vesting, higher accounting related professional expense, increased merger and acquisition expenses and increases in amortization of intangible expenses. We incur merger and acquisition deal-related expenses and intangible amortization at the Corporate level rather than at the segment level.
Interest Expense
Interest expense for the consolidated company increased $111 or 70.3%, to $269 for the three months ended March 31, 2020. The decrease was primarily due to lower professional expenses and stock-based compensation, partially offset by higher amortization of intangible asset expense related to2022 from $158 for the three acquisitions versus the prior year period.
Total corporate expenses, which include amortization of intangible assets, stock-based compensation and merger and acquisition expenses, decreased by $94, or by 4.4%, to $2,037 in the six months ended March 31, 2021 as compared2021. Interest expense for the consolidated company increased by $271 or 97.8%, to $2,131$548 for the six months ended March 31, 2020. The decrease was primarily due to lower professional expenses and stock-based compensation, partially offset by higher amortization of intangible asset expense related to three acquisitions versus the prior year period.
Interest Expense
Interest expense for the consolidated company increased $17, or 12.1%, to $158 for the three months ended March 31, 20212022 from $141 for the three months ended March 31, 2020 as a result of a higher debt level due to acquisitions partially offset by lower interest rates versus the prior year period.
Interest expense for the consolidated company decreased $27, or 8.9%, to $277 for the six months ended March 31, 2021 from $304 for the six months ended March 31, 2020 as a result of lower rates partially offset by2021. The increase in both periods was primarily due to higher borrowingaverage debt balances to support acquisitions.our acquisition efforts and higher working capital within Logistics to support business growth.
Income Taxes Expense
Income Taxes
On a consolidated basis, the Company recorded an income tax expense of $605 for the three months ended March 31, 2022, as compared to an income tax expense of $222 for the three months ended March 31, 2021, as compared to an income tax benefit of $35 for the three months ended March 31, 2020. The increase in expense was primarily due to the increase in pretax income. In 2016, a deferred tax asset was established to reflect a net operating loss carryforward, which the Company has begun using, and is expected to continue to use, through ongoing profitability.
2021. On a consolidated basis, the Company recorded an income tax expense of $337$1,280 for the threesix months ended March 31, 2021,2022, as compared to an income tax benefitexpense of $119$337 for the threesix months ended March 31, 2020.2021. The increase in expense for both periods was primarily due to thean increase in pretax income. In 2016, a deferred tax asset was established to reflect a net operating loss carryforward, which the Company has begun using, and is expected to continue to use, through ongoing profitability.
Preferred Stock Dividends
Preferred stock dividends include any dividends accrued but not paid on the Company’s Series C Cumulative Preferred Stock (the “Series C Stock”). For the three months ended March 31, 20212022 and 2020,2021, preferred stock dividends were $195$233 and $175,$195, respectively, representing an increase of $20,$38, or 11.4%19.5%.
For the six months ended March 31, 2022 and 2021, preferred stock dividends were $444 and $369, respectively, representing an increase of $75, or 20.3%. The increase in preferred stock dividends was the result of thea higher number of shares of Series C Stock outstanding through March 31, 2022 and an increase in dividend rate as of January 1, 2021 2022 to 8% from 7%, partially offset by a lower number of shares9%. The Company purchased $6,000 of Series C Stock outstanding. See note 10on March 31, 2022 and lowered the annual dividend rate from 9% to the consolidated financial statements for additional information.5%.
Net Income
ForNet income was $1,273, or $1.23 per diluted share, for the sixthree months ended March 31, 2021 and 2020, preferred stock dividends were $369 and $326, respectively, representing an increase2022 compared to net income of $43, or 13.2%. The increase in preferred stock dividends was the result of the increase in dividend rate as of January 1, 2021 to 8% from 7%, partially offset by a lower number of shares of Series C Stock outstanding. See note 10 to the consolidated financial statements for additional information.
Net Income (Loss)
Net income was $596 or $0.61 per diluted share, for the three months ended March 31, 2021 compared to net loss of ($937),2021.
Net income was $2,961, or ($1.08)$2.89 per diluted share, for the threesix months ended March 31, 2020. The increase was primarily due2022 compared to higher revenues and gross profit and lower selling, general and administrative expenses across our operating segments.
Netnet income wasof $851, or $0.87 per diluted share, for the six months ended March 31, 2021 compared to net loss of ($1,057), or ($1.22) per diluted share,2021. The increase for the six months ended March 31, 2020. The increaseboth periods was primarily due to higher revenues and gross profit, and lowerpartially offset by higher selling, general and administrative expenses across our operating segments.segments and at Corporate.
Income (Loss) Available to Common ShareholdersStockholders
Income available to holders of common sharesCommon Stock was $979, or $0.95 per diluted share, for the three months ended March 31, 2022 compared to income available to holders of Common Stock of $401, or $0.41 per diluted share, for the three months ended March 31, 2020 compared to loss available to holders of common shares of ($1,112), or ($1.29) per diluted share, for the three months ended March 31, 2020. The increase in income primarily was due to higher gross profit and lower selling, general and administrative expenses across our operating segments.2021.
Income available to holders of common sharesCommon Stock was $2,456, or $2.40 per diluted share, for the six months ended March 31, 2022 compared to income available to holders of Common Stock of $482, or $0.49 per diluted share, for the six months ended March 31, 2020 compared to loss available to holders of common shares of ($1,383), or ($1.60) per diluted share,2021. The increase in net income for the three months ended March 31, 2020. The increase in incomeboth periods was primarily was due to higher gross profit and lowerrevenues, partially offset by higher selling, general and administrative expenses across our operating segments.businesses and Corporate in both periods and an increase in the dividend rate with respect to the Series C Stock as of January 1, 2021 to 8%.
LIQUIDITY AND CAPITAL RESOURCES
General
Our ability to satisfy liquidity requirements, including satisfying debt obligations and fund working capital, day-to-day operating expenses and capital expenditures, depends upon future performance, which is subject to general economic conditions, competition and other factors, some of which are beyond Janel’sour control. Our Global Logistics Services segment depends on commercial credit facilities to fund day-to-day operations as there is a difference between the timing of collection cycles and the timing of payments to vendors.
As a customs broker, our Global Logistics Services segment makes significant cash advances for a select group of our credit-worthy customers. These cash advances are for customer obligations such as the payment of duties and taxes to customs authorities primarily in the United States. Increases in duty rates could result in increases in the amounts we advance on behalf of our customers. Cash advances are a “pass through” and are not recorded as a component of revenue and expense. The billings of such advances to customers are accounted for as a direct increase in accounts receivable from the customer and a corresponding increase in accounts payable to governmental customs authorities. These “pass through” billings can influence our traditional credit collection metrics. For customers that meet certain criteria, we have agreed to extend payment terms beyond our customary terms. Management believes that it has established effective credit control procedures and has historically experienced relatively insignificant collection problems.
The COVID-19 pandemic has negatively impacted our liquidity and cash flows. As discussed in greater detail in note 9 to the consolidated financial statements, onOn April 19, 2020, we entered into a loan agreement with Santander and executed a U.S. Small Business Administration note pursuant to which we borrowed $2,726 from Santander pursuant to the PPPPaycheck Protection Program (“PPP”) under the CaresThe Coronavirus Aid, Relief and Economic Security Act, Section 7(a)(36) of the Small Business Act in order to be able to continue to cover our payroll costs, group health care benefits, mortgage payments, rent and utilities. The duration and magnitude of the pandemic is not reasonably estimable at this point, and if the pandemic persists, our liquidity and capital resources could be further negatively impacted. During fiscal 2021, the Company applied for and received forgiveness for its PPP Loan.
Our subsidiaries depend on commercial credit facilities to fund day-to-day operations as there is a difference between the timing of collection cycles and the timing of payments to vendors. Generally, we do not make significant capital expenditures. Janel’s
Our cash flow performance for the 20212022 fiscal year ismay not necessarily be indicative of future cash flow performance. As of March 31, 2021, the Company’s cash and working capital deficiency (current assets minus current liabilities) were $3,509 and $11,714, respectively. As of September 30, 2020, the Company’s cash and working capital deficiency were $3,349 and $10,372, respectively. Compared with the prior year period, the Company’s cash and cash equivalents increased $160, or 4.8%, and its working capital deficiency increased $1,800, or 17.4%. The decrease in cash and increase in working capital deficiency was primarily the result of acquisitions and slower accounts receivables collections.
Cash flows from operating activities
Net cash provided by operating activities was $5,991 for the six months ended March 31, 2021 and 2020 was2022, versus $714 and $1,209, respectively.provided by operating activities for the six months ended March 31, 2021. The decreaseincrease in cash provided by operations for the six months ended March 31, 20212022 compared to the prior year period was driven principally by the timing of cash collections for accounts receivableshigher profits and cash payments on accounts payables.lower net working capital at our Logistics segment.
Cash flows from investing activities
Net cash used in investing activities totaled $2,959$382 for the six months ended March 31, 2021,2022, versus $247$2,959 for six months ended March 31, 2020. The Company2021. We used $2,814$270 for the acquisition of property and equipment for the six months ended March 31, 2022 compared to $2,874 for the acquisition of two businesses and $85 for the acquisition of property and equipment for the six months ended March 31, 2021 compared to $116 for final purchase price adjustments related to an acquisition and $131 for the acquisition of property and equipment for the six months ended March 31, 2020.2021.
Cash flows from financing activities
Net cash used in financing activities was $8,409 for the six months ended March 31, 2022, versus net cash provided by financing activities wasof $2,405 for the six months ended March 31, 2021, versus ($1,197)2021. Net cash used in financing activities for the six months ended March 31, 2020.2022 primarily included repayment of funds from our line of credit, repurchase of Series C Stock and dividends paid to holders of Series C Stock, repayment of funds from our term loan and notes payable related party, partially offset by proceeds from stock option exercises. Net cash provided by financing activities for the six months ended March 31, 2021 primarily included funds from our line of credit partially offset by repayments of term loans.
Off-Balance Sheet Arrangements
As of March 31, 2021,2022, we had no off-balance sheet arrangements or obligations.
| ITEM 4. | CONTROLS AND PROCEDURES |
Evaluation of Disclosure 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 ChiefPrincipal 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 ChiefPrincipal 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 DecemberMarch 31, 2020,2022, 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 ELFS from its evaluation of the effectiveness of the Company’s disclosure controls and procedures. ELFS, which the Company acquired on September 21, 2021, constituted 16 percent of the Company’s total assets and 41 percent of income before income taxes of the Company as of and for the quarter ended December 31, 2021. Based on this evaluation, the Company’s Chief Executive Officer and ChiefPrincipal Financial Officer have concluded that because a material weaknesses as of the end of such period, the Company’s disclosure controls and procedures were effective.
As referenced above, the Company acquired ELFS on September 21, 2021. The Company is in the process of reviewing the internal control structure of ELFS and, if necessary, will make appropriate changes as it integrates ELFS 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 existed at September 30, 2018(as such term is defined in Rules 13a-15(f) and had not been remediated by15d-15(f) under the end of the period covered by this Quarterly Report on Form 10-Q, the Company’s disclosure controls and procedures were not effective as of the end of the period covered by this Quarterly Report on Form 10-Q. These material weaknesses in the Company’s internal control over financial reporting and the Company’s remediation efforts are described below.
Material Weaknesses in Internal Control Over Financial Reporting
The Company’s management, including our Chief Executive Officer and Chief Financial Officer, have identified material weaknesses in the Company’s internal control over financial reporting. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.
Life Sciences
In connection with the preparation of the Company’s Annual Report on Form 10-K for fiscal year 2020, management identified certain material weaknesses as of September 30, 2020 related to our Life Sciences segment. In particular, the Company had inadequate controls over the following:
The Life Science Segment had a lack of documentation and/or controls over the following:
order entry, invoicing, collections and timeliness of revenue recognition in accordance with ASC Topic 606, Revenue from Contracts with Customers – Principal Agent Consideration (“ASC Topic 606”),
inventory management and valuation of inventory,
information technology controls,
accounting manager’s administrative access to financial accounting software and banking portal, roles and responsibilities around significant processes including financial close without independent review or back-up results in segregation of duties issue,
lack of formal evidence pertaining to month-end closing activities (i.e., journal entry review, account reconciliations, closing checklists, budget to actual analysis, review of financial package, inventory account analysis, etc.), and
lack of review of sales orders including pricing, lack of revenue cut off procedures and lack of inventory valuation controls, inventory counts and reconciliation to general ledger.
In addition, a number of deficiencies were identified related to the design, implementation and effectiveness of certain information technology general controls, including segregation of duties, user access, change management, data back-ups and review of SOC 1 and 2 reports from critical vendors, some of which could have a direct impact on the Company’s financial reporting.
Global Logistics Services
In connection with the preparation of the Company’s Annual Report on Form 10-K for fiscal year 2020, management identified certain material weaknesses as of September 30, 2020 related to our Global Logistics Services segment. In particular, the Company had inadequate controls over the following:
• no formal management review controls in place to ensure correct revenue file types and charge codes are used for all jobs and are designed specifically to address ASC Topic 606,
• management did not have an effective process or control in place to perform an assessment of gross versus net revenue recognition criteria in accordance with ASC Topic 606, and
• during the three months ended June 30, 2020, management identified an additional material weakness related to the prevention and timely detection of funds transfers to an unauthorized account, for which remediation actions have been undertaken as more fully described below.
Corporate
In connection with the preparation of the Company’s Annual Report on Form 10-K for fiscal year 2020, management identified certain material weaknesses as of September 30, 2020 related to our Corporate office. In particular, the Company had inadequate controls over a lack of segregation of duties between chief financial officer and corporate accountant regarding:
• administrative access to financial accounting software and banking portal and
• the financial close process.
Remediation Plan
We have engaged an external consultant to assist in the development and execution of a plan to remediate the material weaknesses noted related to our Life Sciences segment noted above. This process includes review of our controls and implementation of a new enterprise resource planning system which commenced during the first quarter of fiscal 2021 and is expected to be fully implemented by the third quarter of fiscal 2021.
In addition, we have developed and are executing on our plan to remediate our material weaknesses in connection with the information technology controls and have expanded our in-house expertise on information technology general controls, as well as continuing to consult with external third parties. We have implemented improved information technology general controls, including segregation of duties, user access, change management, data back-ups and review of SOC 1 and 2 reports from critical vendors on a consistent basis. This process commenced during the fourth quarter of fiscal 2020 and is ongoing.
With respect to material weaknesses in our Global Logistics Services segment, we have engaged an external consultant to assist in the development and execution of a plan to remediate the material weaknesses noted above related to our Global Logistics Services segment. As part of this plan, we have implemented a new system triggered revenue recognition process based on target dates (e.g., delivery date, file transfer date, etc.) for specific file types. Through this technology and reporting improvement, we have enhanced our ability to timely monitor revenue recognition in accordance with GAAP. Moreover, in response to the material weakness related to the prevention and timely detection of funds transfers to unauthorized accounts, we have updated company policies and controls to provide for multifactor authentication, implemented a new payment processing validation procedure, updated internal firewall protocols related to e-mails and conducted updated training on finance-related internal controls policies.
With respect to material weaknesses noted at Corporate, we have developed a general IT policy which includes access provisioning and deprovisioning and user access reviews that would involve knowing and evaluating which staff have user privileges to mitigate any lack of segregation of duties.
Our management believes that the foregoing efforts will effectively remediate the material weaknesses. That said, the new and enhanced controls have not operated for a sufficient amount of time to conclude that the material weaknesses have been remediated. As we continue to evaluate and work to improve our internal control over financial reporting, our management may decide to take additional measures to address the material weaknesses or modify the remediation plan described above.
Internal control over financial reporting, no matter how well designed, has inherent limitations. Therefore, even those controls determined to be effective may not prevent or detect misstatements and can provide only reasonable assurance with respect to financial statement preparation and presentation.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our executive management team, together with our board of directors, is committed to achieving and maintaining a strong control environment, high ethical standards, and financial reporting integrity.
Based on the nature and interrelationship of the noted deficiencies, management concluded that these additional deficiencies, in the aggregate, resulted in a reasonable possibility that a material misstatement in our interim or annual financial statements would not be prevented or detected on a timely basis, and as such, constituted a material weakness.
Changes in Internal Control over Financial Reporting
Other than the ongoing remediation efforts described above, there was no change in our internal control over financial reportingExchange Act) that occurred during the quarter ended March 31, 20212022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
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.
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, 2020.2021. There have been no material changes to the risk factors disclosed in Part I—Item 1A of the Company’s 20202021 Annual Report.
| ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
There were no unregistered sales of equity securities during the threesix months ended March 31, 2021.2022. In addition, there were no shares of common stockCommon Stock purchased by us during the threesix months ended March 31, 2021.2022.
ITEM 6. | The Company’s Certificate, Amendment or Withdrawal of Designation pursuant to NRS 78.1955 with respect to Series C Cumulative Preferred Stock |
| The Company’s Certificate, Amendment or Withdrawal of Designation pursuant to NRS 78.1955 with respect to Series B Convertible Preferred Stock |
| First Amendment to Amended and Restated Loan and Security Agreement between (filed herewith) | | Form letter purchase agreement, dated March 31, 2022, between the Company and holders of Series C Stock (filed herewith) | | Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer (filed herewith) | | | | Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer (filed herewith) | | | | Section 1350 Certification of Principal Executive Officer (filed herewith) | | | | Section 1350 Certification of Principal Financial Officer (filed herewith) | | | | 101 | Interactive data files providing financial information from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 20212022 for the three and six months ended March 31, 2022 and 2021 and 2020 in Inline XBRL (Extensible(eXtensible Business Reporting Language) pursuant to Rule 405 of Regulation S-T: (i) Condensed Consolidated Balance Sheets as of March 31, 20212022 and September 30, 2020,2021, (ii) Condensed Consolidated Statements of Operations for the three and six months ended March 31, 2022 and 2021, and 2020, (iii) Condensed Consolidated Statement of Changes in Stockholders’ Equity for the three and six months ended March 31, 2022 and 2021, and 2020, (iv) Condensed Consolidated Statements of Cash Flows for the six months ended March 31, 20212022 and 2020,2021, 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) |
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: May 10, 202112, 2022 | JANEL CORPORATION | | | Registrant | | | | | | /s/ Dominique Schulte | | | Dominique Schulte | | | Chairman, President and Chief Executive Officer | | | (Principal Executive Officer) | | | | Dated: May 10, 202112, 2022 | JANEL CORPORATION | | | Registrant | | | | | | /s/ Vincent A. Verde | | | Vincent A. Verde | | | Principal Financial Officer, Treasurer and Secretary |
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