10-Q 1 brhc10047295_10q.htm 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
 
FORM 10-Q
 
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2022
 
OR
 
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____ to ____
 
Commission file number: 333-60608
 
JANEL CORPORATION
(Exact name of registrant as specified in its charter)
 
Nevada
  
86-1005291
(State or other jurisdiction of
incorporation or organization)
   
(I.R.S. Employer
Identification No.)

80 Eighth Avenue    
New York, New York
   
10011
(Address of principal executive offices)
  
(Zip Code)

Registrant’s telephone number, including area code: (212) 373-5895
Former name, former address and former fiscal year, if changed from last report: N/A
Securities registered pursuant to Section 12(b) of the Act:
 
Title of each class
  
Trading symbols(s)
  
Name of each exchange
on which registered
None
  
None
  
None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☒ No ☐
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes ☒ No ☐
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer ☐
Accelerated filer
 ☐
Non-accelerated filer ☐
Smaller reporting company
 ☒
 
Emerging growth company
☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes ☐ No ☒
 
The number of shares of Common Stock outstanding as of February 3, 2023 was 1,186,354.
 
JANEL CORPORATION
 
QUARTERLY REPORT ON FORM 10-Q
For Quarterly Period Ended December 31, 2022
 
TABLE OF CONTENTS

     
Page
       
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Item 1.
3
       
   
3
       
   
4
       
   
5
       
   
6
       
   
7
       
 
Item 2.
 19
       
 
Item 4.
 26
       
28
       
 
Item 1.
 28
       
 
Item 1A.
 28
       
 
Item 2.
 28
       

Item 5.
 Other Information 28
       
 
Item 6.
 28
       
    29
PART I - FINANCIAL INFORMATION
 
ITEM 1.
FINANCIAL STATEMENTS
 
JANEL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
(Unaudited)


  
December 31,
2022		    
September 30,
2022
  
ASSETS
            
Current Assets:
            
Cash
  
$
4,155
    
$
6,591
  
Accounts receivable, net of allowance for doubtful accounts
    
42,598
      
57,077
  
Inventory, net
    
4,979
      
4,802
  
Prepaid expenses and other current assets
    
2,800
      
3,423
  
Total current assets
    
54,532
      
71,893
  
Property and Equipment, net
    
5,004
      
5,044
  
Other Assets:
                
Intangible assets, net
    
24,389
      
22,420
  
Goodwill
    
19,576
      
18,622
  
Investment in marketable securities at fair value     1,972       2,371  
Operating lease right of use asset
    
5,600
      
5,660
  
Security deposits and other long-term assets
    
491
      
522
  
Total other assets
    
52,028
      
49,595
  
Total assets
  
$
111,564
    
$
126,532
  
LIABILITIES AND STOCKHOLDERS’ EQUITY
                
Current Liabilities:
                
Lines of credit
  
$
21,320
    
$
26,396
  
Accounts payable - trade
    
35,323
      
44,960
  
Accrued expenses and other current liabilities
    
6,186
      
7,194
  
Dividends payable
    
1,816
      
1,745
  
Current portion of earnout
    
1,892
      
1,664
  
Current portion of long-term debt
    
640
      
639
  
Current portion of deferred acquisition payments
    
440
      
188
  
Current portion of subordinated promissory note-related party
    
825
      
425
  
Current portion of operating lease liabilities
    
1,729
      
1,825
  
Total current liabilities
    
70,171
      
85,036
  
Other Liabilities:
                
Long-term debt
    
7,176
      
7,519
  
Long-term portion of earnout
    
3,288
      
2,916
  
Subordinated promissory notes-related party
    
4,864
      
5,382
  
Mandatorily redeemable non-controlling interest
    
430
      
430
  
Deferred income taxes
    
2,526
      
2,541
  
Long-term operating lease liabilities
    
4,053
      
4,001
  
Other liabilities
    
390
      
380
  
Total other liabilities
    
22,727
      
23,169
  
Total liabilities
    
92,898
      
108,205
  
Stockholders’ Equity:
                
Preferred Stock, $0.001 par value; 100,000 shares authorized
                
Series C 30,000 shares authorized and 11,368 shares issued and outstanding at December 31, 2022 and September 30, 2022, liquidation value of $7,500 and $7,429 at December 31, 2022 and September 30, 2022, respectively
    
—
      
—
  
Common stock, $0.001 par value; 4,500,000 shares authorized, 1,206,354 issued and 1,186,354 outstanding as of  December 31, 2022  and September 30, 2022, respectively
    
1
      
1
  
Paid-in capital
    
17,163
      
17,184
  
Common treasury stock, at cost, 20,000 shares
    
(240
)
    
(240
)
Accumulated earnings
    
1,742
      
1,382
  
Total stockholders’ equity
    
18,666
      
18,327
  
Total liabilities and stockholders’ equity
  
$
111,564
    
$
126,532
  

The accompanying notes are an integral part of these condensed consolidated financial statements.
 
3
JANEL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(Unaudited)
 
   
Three Months Ended
December 31,
  
   
2022
    
2021
  
Revenue
  
$
57,044
    
$
83,314
  
Forwarding expenses and cost of revenue
    
42,127
      
67,825
  
Gross profit
    
14,917
      
15,489
  
Cost and Expenses:
                
Selling, general and administrative
    
13,011
      
12,338
  
Amortization of intangible assets
    
526
      
509
  
Total Costs and Expenses
    
13,537
      
12,847
  
Income from Operations
    
1,380
      
2,642
  
Other Items:
                
Interest expense
    
(474
)
    
(279
)
Unrealized loss on marketable securities
     (399 )     —  
Income Before Income Taxes
    
507
      
2,363
  
Income tax expense
    
(147
)
    
(675
)
Net Income
    
360
      
1,688
  
Preferred stock dividends
    
(72
)
    
(211
)
Net Income Available to Common Stockholders
  
$
288
    
$
1,477
  
Net Income per share
                
Basic
  
$
0.30
    
$
1.76
  
Diluted
  
$
0.30
    
$
1.66
  
Net income per share attributable to common stockholders:
                
Basic
  
$
0.24
    
$
1.54
  
Diluted
  
$
0.24
    
$
1.45
  
Weighted average number of shares outstanding:
                
Basic
    
1,186.3
      
959.1
  
Diluted
    
1,208.2
      
1,018.1
  

The accompanying notes are an integral part of these condensed consolidated financial statements.
 
4
JANEL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(in thousands, except share and per share data)
(Unaudited)

   
PREFERRED STOCK
    
COMMON STOCK
    
PAID-IN CAPITAL
    
COMMON TREASURY
STOCK
    
ACCUMULATED
EARNINGS
    
TOTAL EQUITY
  
   
SHARES
    
$
   
SHARES
    
$
   
$
   
SHARES
    
$
   
$
   
$
 
Balance - September 30, 2022
    
11,368
    
$
—
      
1,206,354
    
$
1
    
$
17,184
      
20,000
    
$
(240
)
  
$
1,382
    
$
18,327
  
Net Income
    
—
      
—
      
—
      
—
      
—
      
—
      
—
      
360
      
360
  
Dividends to preferred stockholders
    
—
      
—
      
—
      
—
      
(72
)
    
—
      
—
      
—
      
(72
)
Stock-based compensation
    
—
      
—
      
—
      
—
      
51
      
—
      
—
      
—
      
51
  
Balance - December 31, 2022
    
11,368
    
$
—
      
1,206,354
    
$
1
    
$
17,163
      
20,000
    
$
(240
)
  
$
1,742
    
$
18,666
  

   
PREFERRED STOCK
    
COMMON STOCK
    
PAID-IN CAPITAL
    
COMMON TREASURY
STOCK
    
ACCUMULATED
EARNINGS
(DEFICIT)
    
TOTAL EQUITY
  
   
SHARES
    
$
   
SHARES
    
$
   
$
   
SHARES
    
$
   
$
   
$
 
Balance - September 30, 2021
    
20,991
    
$
—
      
962,207
    
$
1
    
$
14,838
      
20,000
    
$
(240
)
  
$
3,520
    
$
18,119
  
Net Income
    
—
      
—
      
—
      
—
      
—
      
—
      
—
      
1,688
      
1,688
  
Dividends to preferred stockholders
    
—
      
—
      
—
      
—
      
(211
)
    
—
      
—
      
—
      
(211
)
Stock-based compensation
    
—
      
—
      
—
      
—
      
29
      
—
      
—
      
—
      
29
  
Stock option exercise
     —       —       17,500       —       85       —       —       —       85  
Balance - December 31, 2021
    
20,991
    
$
—
      
979,707
    
$
1
    
$
14,741
      
20,000
    
$
(240
)
  
$
5,208
    
$
19,710
  

The accompanying notes are an integral part of these condensed consolidated financial statements.
 
5
JANEL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
 
   
Three Months Ended
December 31,
  
   
2022
    
2021
  
Cash Flows From Operating Activities:
            
Net income
  
$
360
    
$
1,688
  
Adjustments to reconcile net income to net cash provided by operating activities:
                
(Recovery of) Provision for uncollectible accounts
    
(71
)
    
102
  
Depreciation
    
121
      
107
  
Deferred income provision
    
(15
)
    
133
  
Amortization of intangible assets
    
526
      
509
  
Amortization of acquired inventory valuation
    
90
      
171
  
Amortization of loan costs
    
4
      
2
  
Stock-based compensation
    
61
      
40
  
Unrealized loss on marketable securities
     399       —
  
Change in fair value of mandatorily redeemable noncontrolling interest
    
—
      
58
  
Changes in operating assets and liabilities, net of effects of acquisitions:
                
Accounts receivable
    
14,656
      
(4,952
)
Inventory
    
84
      
(464
)
Prepaid expenses and other current assets
    
623
      
684
  
Security deposits and other long term assets
    
31
      
67
  
Accounts payable and accrued expenses
    
(11,115
)
    
7,172
  
Other liabilities
    
26
      
(26
)
Net cash provided by operating activities
    
5,780
      
5,291
  
Cash Flows From Investing Activities:
                
Acquisition of property and equipment, net of disposals
    
(80
)
    
(169
)
Acquisition
    
(2,847
)
    
—
  
Net cash used in investing activities
    
(2,927
)
    
(169
)
Cash Flows From Financing Activities:
                
Rrepayments of term loan
    
(347
)
    
(292
)
Proceeds from stock option exercise
    
—
      
85
  
Lines of credit payments, net
    
(5,076
)
    
(5,795
)
Issuance (repayment) of subordinated promissory notes
    
134
      
(168
)
Net cash used in financing activities
    
(5,289
)
    
(6,170
)
Net decrease in cash
    
(2,436
)
    
(1,048
)
Cash at beginning of the period
    
6,591
      
6,234
  
Cash at end of period
  
$
4,155
    
$
5,186
  
                 
Supplemental Disclosure of Cash Flow Information:
                
Cash paid during the period for:
                
Interest
  
$
380
    
$
194
  
Income taxes
  
$
9
    
$
10
  
Non-cash investing activities:
                
Contingent earn-out acquisition
   $ 600     $ —
  
Due to former IBS owner
   $
455     $ —
  
Non-cash financing activities:
                
Dividends declared to preferred stockholders
  
$
72
    
$
211
  

The accompanying notes are an integral part of these condensed consolidated financial statements.

6
JANEL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except per share data)

1.
BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

The accompanying interim unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of Article 8 of Regulation S-X and the instructions to Form 10-Q of the Securities and Exchange Commission. As a result, certain information and footnote disclosures normally included in audited financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. Janel Corporation (the “Company” or “Janel”) believes that the disclosures made are adequate to make the information presented not misleading. The condensed consolidated financial statements reflect all adjustments which are, in the opinion of management, necessary to a fair statement of the results for the interim periods presented. The results of operations for the periods presented are not necessarily indicative of the results to be expected for a full fiscal year, or any other period. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes included in the Company’s Form 10-K as filed with the Securities and Exchange Commission.

Business Description

Janel is a holding company with subsidiaries in three business segments: Logistics, Life Sciences and Manufacturing. The Company strives to create shareholder value primarily through three strategic priorities: supporting its businesses’ efforts to make investments and to build long-term profits; allocating Janel’s capital at high risk-adjusted rates of return; and attracting and retaining exceptional talent.

Management at the holding company focuses on significant capital allocation decisions, corporate governance and supporting Janel’s subsidiaries where appropriate. Janel expects to grow through its subsidiaries’ organic growth and by completing acquisitions. We plan to either acquire businesses within our existing segments or expand our portfolio into new strategic segments. Our acquisition strategy focuses on reasonably-priced companies with strong and capable management teams, attractive existing business economics and stable and predictable earnings power.

Revenue and revenue recognition

Logistics

Revenue is recognized upon transfer of control of promised services to customers. With respect to its Logistics segment, the Company has determined that, in general, each shipment transaction or service order constitutes a separate contract with the customer. When the Company provides multiple services to a customer, different contracts may be present for different services.

The Company typically satisfies its performance obligations as services are rendered at a point in time. A typical shipment would include services rendered at origin, such as pick-up and delivery to port, freight services from origin to destination port and destination services, such as customs clearance and final delivery. The Company measures the performance of its obligations as services are completed at a point in time during the life of a shipment, including services at origin, freight and destination. The Company fulfills nearly all of its performance obligations within a one- to two-month period.
  
The Company evaluates whether amounts billed to customers should be reported as gross or net revenue. Generally, revenue is recorded on a gross basis when the Company is acting as principal and is primarily responsible for fulfilling the promise to provide the services, when it has discretion in setting the prices for the services to the customers, and the Company has the ability to direct the use of the services provided by the third party. Revenue is recognized on a net basis when the Company is acting as agent and we do not have latitude in carrier selection or in establishing rates with the carrier.
 
In the Logistics segment, the Company disaggregates its revenue by its five primary service categories: trucking, ocean, air, customs brokerage, and other. A summary of the Company’s revenue disaggregated by major service lines for the three months ended December 31, 2022 and 2021 was as follows (in thousands):
 
   
Three Months Ended
December 31,
  
    2022    
2021
  
Service Type            
Trucking
  $ 22,761     $ 21,810  
Ocean
    
18,166
      
33,895
  
Air
    
6,239
      
14,284
  
Customs brokerage
    
2,434
      
3,755
  
Other
    2,200
       3,812
  
Total
  
$
51,800
    
$
77,556
  

The results for the prior quarter ended December 31,2021 includes an immaterial correction in the classification of service type revenue resulting in a reduction of the Other category of $1,500 and an increase to Ocean and Air of $1,100 and $400, respectively. The correction had no effect on the reported Revenue or results of Operations.
7
Life Sciences and Manufacturing

Revenue 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. Revenue from the Company’s Manufacturing segment, which is comprised of Indco, a majority-owned subsidiary of the Company that manufactures and distributes mixing equipment and apparatus for specific applications within various industries (“Indco”), are derived from the engineering, manufacture and delivery of specialty mixing equipment and accessories. Revenue for Life Sciences and Manufacturing are recognized when products are shipped and risk of loss is transferred to the carrier(s) used.

2.
ACQUISITIONS
 
Fiscal 2023 Acquisition
 
Life Sciences

On November 1, 2022, the Company completed a business combination whereby it acquired all of the outstanding stock of ImmunoBioScience Corporation (“IBS”), for an aggregate purchase price of $4,055, net of $153 cash received.  At closing, $3,000 was paid in cash, $250 is due to the former stockholder of IBS as a deferred acquisition payment upon integration, $600 was recorded as a preliminary earnout consideration (not to exceed $750) and $205 was recorded as a preliminary working capital adjustment. The acquisition was funded with cash provided by normal operations, and the results of operations of IBS are included in Janel’s condensed consolidated results of operations since the date of the acquisition. In connection with the combination, the Company recorded an aggregate of $954 in goodwill and $2,495 in other identifiable intangibles. The Company is still finalizing the valuation of assets acquired and liabilities assumed, and, as such, the fair value amounts are preliminary and subject to change. Primary amounts subject to adjustment include, but are limited to, intangible assets, fair value of accounts receivable or a change in the goodwill balance. Supplemental pro forma information has not been provided as the acquisition did not have a significant impact on Janel’s condensed consolidated results of operations, individually or in aggregate. IBS is a developer and manufacturer of high-quality reagents used by research and diagnostic customers. IBS was founded in 2007 and is headquartered in Mukilteo, Washington. The acquisition of IBS was completed to expand our product offerings in our Life Sciences segment.

Fiscal 2022 Acquisition

Life Sciences

On August 15, 2022, the Company completed a business combination whereby it acquired all of the membership interests of ECM Biosciences LLC (“ECM”) for $850, net of $16 cash received. At closing, the former member of ECM was paid $600 in cash and an additional $250 was due to the former member, which is included in accrued expenses and other current liabilities. In connection with the combination, the Company recorded an aggregate of $24 in goodwill and $222 in other identifiable intangibles. This acquisition was funded with cash provided by normal operations. The results of operations of the acquired businesses are included in Janel’s consolidated results of operations since the date of the acquisition and is included in our Life Sciences segment. The acquisition of ECM was completed to expand our product offerings in our Life Sciences segment. Supplemental pro forma information has not been provided as the acquisition did not have a significant impact on Janel’s consolidated results of operations, individually or in aggregate.

Investment in Marketable Securities - Rubicon

On August 19, 2022, the Company acquired 1,108,000 shares (the “Acquired 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 “Purchase Agreement”). Pursuant to the terms of the Purchase Agreement, the Acquired Shares represented 44.99% of Rubicon’s issued and outstanding shares of common stock as of August 3, 2022, as reported in Rubicon’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2022, filed with the SEC on August 12, 2022.

Rubicon is a vertically integrated, advanced materials provider specializing in monocrystalline sapphire for applications in optical and industrial systems. Rubicon uses proprietary crystal growth technology to produce high-quality sapphire products to meet customers exacting specifications.

8
3.
INVENTORY
 
Inventories consisted of the following (in thousands):

   
December 31,
2022
    
September 30,
2022
  
Finished goods
  
$
1,704
    
$
1,823
  
Work-in-process
    
958
      
763
  
Raw materials
    
2,364
      
2,260
  
Gross inventory
    
5,026
      
4,846
  
Less – reserve for inventory valuation
    
(47
)
    
(44
)
Inventory net
  
$
4,979
    
$
4,802
  

4.
INTANGIBLE ASSETS
 
A summary of intangible assets and the estimated useful lives used in the computation of amortization is as follows (in thousands):

   
December 31,
2022
    
September 30,
2022
  
Life
Customer relationships
  
$
25,653
    
$
23,625
  
12-24 Years
Trademarks/names
    
4,641
      
4,539
  
1-20 Years
Trademarks/names
    
521
      
521
  
Indefinite
Other
    
1,545
      
1,180
  
2-22 Years
     
32,360
      
29,865
    
Less: Accumulated Amortization
    
(7,971
)
    
(7,445
)
  
Intangible assets, net
  
$
24,389
    
$
22,420
    

The composition of the intangible assets balance at December 31, 2022 and September 30, 2022 is as follows  (in thousands):

   
December 31,
2022
    
September 30,
2022
  
Logistics
  
$
18,174
    
$
18,174
  
Life Sciences     6,486       3,991  
Manufacturing
    
7,700
      
7,700
  
     
32,360
      
29,865
  
Less: Accumulated Amortization
    
(7,971
)
    
(7,445
)
Intangible assets, net
  
$
24,389
    
$
22,420
  

Amortization expense for the three months ended December 31, 2022 and 2021 was $526 and $509, respectively.
 
5.
GOODWILL
 
The Company’s goodwill carrying amounts relate to acquisitions in the Logistics, Life Sciences and Manufacturing business segments.

The composition of the goodwill balance at December 31, 2022 and September 30, 2022 was as follows (in thousands):

   
December 31,
2022
    
September 30,
2022
  
Logistics
  
$
9,175
    
$
9,175
  
Life Sciences     5,355       4,401  
Manufacturing
    
5,046
      
5,046
  
Total
  
$
19,576
    
$
18,622
  

9
6.
NOTES PAYABLE – BANKS
 
(A)
Santander Bank Facility

The wholly-owned subsidiaries which comprise the Company’s Logistics segment (collectively, the “Janel Group Borrowers”), with the Company as a guarantor, have a Loan and Security Agreement (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 following: (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 Stock if specified conditions are met; and (iv) the amount of indebtedness of the Company’s Antibodies Incorporated subsidiary which the Company was permitted to guaranty was increased from $2,920 to $5,000.

On July 13, 2022, the Santander Loan Agreement was further amended by 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 by the Company of up to 45% of the outstanding shares of Rubicon Technology, Inc. (“Rubicon”), subject to the satisfaction of certain customary limited conditions (the “Rubicon Transaction”). 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 (as defined herein) to the Company.

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 December 31, 2022, outstanding borrowings under the Santander Facility were $20,920, representing 59.8% of the $35,000 available subject to limitations thereunder, and interest was accruing at an effective interest rate of 5.94%.

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 Company was in compliance with the financial covenants defined in the Santander Loan Agreement at both December 31, 2022 and September 30, 2022.
 
(B)
First Merchants Bank Credit Facility
 
On March 21, 2016, Indco entered into a Credit Agreement (the “First Merchants Credit Agreement”) with First Merchants Bank (“First Merchant”), which was subsequently amended on August 30, 2019 and July 1, 2020.

On August 1, 2022, Indco and First Merchants entered into Amendment No. 3 to the First Merchants Credit Agreement, modifying the terms of Indco’s credit facilities. Under the revised terms, the credit facilities consist of a $5,500 term loan, a $1,000 (limited to the borrowing base and reserves) revolving loan, and the continuation of a mortgage loan in the original principal amount of $680 (collectively, the “First Merchants Facility”).  Interest will accrue on the term loan at an annual rate equal to one-month adjusted term SOFR plus either 2.75% (if Indco’s total funded debt to EBITDA ratio is less than 2:1), or 3.5% (if Indco’s total funded debt to EBITDA ratio is greater than or equal to 2:1). Interest will accrue on the revolving loan at an annual rate equal to one-month adjusted term SOFR plus 2.75%. Interest will accrue on the mortgage loan at an annual rate of 4.19%. Indco’s obligations under the First Merchants Credit Facility are secured by all of Indco’s real property and other assets, and are guaranteed by Janel, and Janel’s  guarantee of Indco’s obligations is secured by a pledge of Janel’s Indco shares. The term loan and revolving loan portions of the First Merchants Credit Facility will expire on August 1, 2027, and the mortgage loan will mature on July 1, 2025 (subject to earlier termination as provided in the First Merchants Credit Agreement), unless renewed or extended.

10
As of December 31, 2022, there were no outstanding borrowings under the revolving loan, $5,099 of borrowings under the term loan, and $626 of borrowings under the mortgage loan with interest accruing on the term loan and mortgage loan at an effective interest rate of 7.97% and 4.19%, respectively.

As of September 30, 2022, there were no outstanding borrowings under the revolving loan, $5,420 of borrowings under the term loan, and $631 of borrowings under the mortgage loan with interest accruing on the term loan and mortgage loan at an effective interest rate of 6.63% and 4.19%, respectively.
 
Indco was in compliance with the financial covenants defined in the First Merchants Credit Agreement at both December 31, 2022 and September 30, 2022.
 
(in thousands)  
December 31,
2022
    
September 30,
2022
  
Total Debt*
  
$
5,725
    
$
6,051
  
Less Current Portion
    
(574
)
    
(574
)
Long-term Portion  
$
5,151
    
$
5,477
  

*
Note: Term Loan principal payments are due in monthly installments of $46 plus monthly interest, at SOFR plus 2.75% to 3.5% per annum, and the mortgage loan is due in monthly installments of $4, including interest at 4.19%. The credit facilities are collateralized by all of Indco’s assets and guaranteed by Janel.

(C)
First Northern Bank of Dixon

Antibodies Incorporated (“Antibodies”), a wholly-owned subsidiary of the Company, entered into a Business Loan Agreement (the “First Northern Loan Agreement”) with First Northern Bank of Dixon (“First Northern”) on June 21, 2018, as amended November 2019 and October 2, 2020. The First Northern Loan Agreement provides for a $2,235 term loan (the “First Northern Term Loan”), which bears interest at an annual rate of  4.00% and matures on November 14, 2029. In addition, Antibodies has a $750 revolving credit facility with First Northern (the “First Northern Revolving Loan”), which bears interest at a variable index rate, currently 7.75% and  matures on November 10, 2023.

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”), which bears interest at an annual rate of 4.43% (subject to adjustment in five years and matures on November 14, 2029; and a $60 term loan in connection with a potential expansion of generator capacity on the Antibodies property (the “First Northern Generator Loan”), which bears interest at an annual rate of 4.25% and matures on November 5, 2025.

There were no outstanding borrowings under the First Northern Generator Loan as of December 31, 2022 or September 30, 2022.
 
As of December 31, 2022, the total amount outstanding under the First Northern Term Loan was $2,070, of which $2,012 is included in long-term debt and $58 is included in current portion of long-term debt, with interest accruing at an effective interest rate of 4.18%.

As of December 31, 2022, the total amount outstanding under the First Northern Solar Loan was $21, of which $13 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 December 31, 2022, the total amount outstanding under the First Northern Revolving Loan was $400, which is included in lines of credit, with interest accruing at an effective interest rate of 8.25%.

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 December 31, 2022 and September 30, 2022.
 
(in thousands)  
December 31,
2022
   
September 30,
2022
  
Total Debt*
  
$
2,091
    
$
2,107
  
Less Current Portion
    
(66
)
    
(65
)
Long-term Portion  
$
2,025
    
$
2,042
  

*
Long-term debt under the First Northern Loan Agreement is due in monthly installments of $12 plus monthly interest, at 4.18% per annum for five years.
 
11
7.
SUBORDINATED PROMISSORY NOTES - RELATED PARTY
 
Aves Labs, Inc., a wholly-owned subsidiary of the Company, is the obligor on a fixed 0.5% subordinated promissory note in the amount of $1,850 (the “ICT Subordinated Promissory Note”) issued to the former owner of ImmunoChemistry Technologies, LLC (“ICT”), in connection with a business combination whereby the Company acquired all of the membership interests of ICT.  The ICT Subordinated Promissory Note is payable in sixteen scheduled quarterly installments of principal and interest beginning March 4, 2021, matures on December 4, 2024, and may be prepaid, in whole or in part, without premium or penalty. 

The ICT Subordinated Promissory Note is guaranteed by the Company and is secured by the Company’s membership interests in ICT. The ICT Subordinated Promissory Note is subordinate to and junior in right of payment for principal interest premiums and other amounts payable to Santander, First Merchants and the First Northern.

As of December 31, 2022, the amount outstanding under the ICT Subordinated Promissory Note was $589, of which $400 is included in the current portion of subordinated promissory notes and $189 is included in the long-term portion of subordinated promissory notes.

As of September 30, 2022, the amount outstanding under the ICT Subordinated Promissory Note was $707, of which $425 is included in the current portion of subordinated promissory notes and $282 is included in the long-term portion of subordinated promissory notes.

Janel Group, Inc. (“Janel Group”), a wholly-owned subsidiary of the Company, is the obligor on four fixed 4% subordinated promissory notes totaling $6,000 in the aggregate (together, the “ELFS Subordinated Promissory Notes”), payable to certain former shareholders of Expedited Logistics and Freight Services, LLC (“ELFS”), in connection with the Company’s business combination whereby it acquired all the membership interest of ELFS and its related subsidiaries.  All of the ELFS Subordinated Promissory Notes are guaranteed by the Company and are subordinate to and junior in right of payment for principal, interest, premiums and other amounts payable to the Santander Bank Facility and the First Merchants Facility. The ELFS Subordinated Promissory Notes are payable in twelve equal consecutive quarterly installments of principal together with accrued interest.  Beginning October 15, 2021 and on the same day of the next eight consecutive calendar quarters, thereafter payment of accrued interest and unpaid interest is due to the former shareholders.  Beginning October 15, 2023 and on the same day of the next twelve consecutive calendar quarters, thereafter payment of principal together with accrued interest and unpaid interest is due to the former shareholders. In June 2022, the principal amount of the ELFS Subordinated Promissory Notes was adjusted to $5,100 due to a revised working capital adjustment of $900.

As of December 31, 2022, the amount outstanding under the ELFS Subordinated Promissory Notes was $5,100, of which $425 was included in the current portion of subordinated promissory notes and $4,675 was included in the long-term portion of subordinated promissory notes.

As of September 30, 2022, the amount outstanding under the ELFS Subordinated Promissory Notes was $5,100 and was included in the long-term portion of subordinated promissory notes.

(in thousands)  
December 31,
2022
    
September 30,
2022
  
Total subordinated promissory notes
  
$
5,689
    
$
5,807
  
Less current portion of subordinated promissory notes
    
(825
)
    
(425
)
Long term portion of subordinated promissory notes
  
$
4,864
    
$
5,382
  
8.
STOCKHOLDERS’ EQUITY

(in thousands, except share and per share data)

(A)
Common Stock

On August 10, 2022, the Company issued 88,888 shares of its common stock, par value $0.001 per share, at a purchase price of $45 per share (the closing sale price per share of common stock on August 9, 2022) as reported on the Pink tier of the OTC market, or an aggregate purchase price of $4,000. The shares were sold to accredited investors in a private placement in reliance upon the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933 and Regulation D promulgated thereunder.

(B)
Preferred Stock

Series C Cumulative Preferred Stock

Shares of the Company’s Series C Cumulative Preferred Stock (the “Series C Stock”) were initially entitled to receive annual dividends at a rate of 7% per annum of the original issuance price of $500, when and if declared by the Company’s Board of Directors, with such rate to increase by 2% annually beginning on the third anniversary of issuance of such Series C Stock to a maximum rate of 13%. By the filing of the Certificate of Amendment to the Company’s Certificate of Incorporation on March 31, 2022, the annual dividend rate decreased to 5% per annum of the original issuance price, when and if declared by the Company’s Board of Directors, and will increase by 1% beginning on January 1, 2024. Such rate is to increase on each January 1 thereafter for four years to a maximum rate of 9%. The dividend rate of the Series C Stock as of December 31, 2022 and September 30, 2022 was 5%.

On March 31, 2022, the Company purchased 4,687 shares of the Series C Stock from two holders at a purchase price of $500 per share plus accrued dividends, or an aggregate of $3,000, and exchanged 4,905 shares of Series C Stock plus accrued dividends from one holder, for the issuance of 65,205 shares of the Company’s Common Stock, par value $0.001 per share valued at $47.00 per share of Common Stock (the closing price for the Common Stock on March 30, 2022), or a total value of $3,065. As a result of these transactions, the number of issued and outstanding shares of Series C Stock was reduced from 20,960 shares to 11,368 shares.

9.
STOCK-BASED COMPENSATION
 
(in thousands, except share and per share data)

On October 30, 2013, the Board of Directors of the Company adopted the Company’s 2013 Non-Qualified Stock Option Plan (the “2013 Option Plan”) providing for options to purchase up to 100,000 shares of common stock for issuance to directors, officers, employees of and consultants to the Company and its subsidiaries.
 
On September 21, 2021, the Board of Directors of the Company adopted the Amended and Restated 2017 Janel Corporation Equity Incentive Plan (the “Amended Plan”) pursuant to which non-statutory stock options, restricted stock awards and stock appreciation rights of the Company’s Common Stock may be granted to employees, directors and consultants to the Company and its subsidiaries. The Amended Plan increased the number of shares of Common Stock that may be issued pursuant to the Amended Plan from 100,000 to 200,000 shares of Common Stock of the Company and was updated to reflect certain other non-substantive amendments.
 
Total stock-based compensation for the three months ended December 31, 2022 and 2021 amounted to $51 and $29, respectively, and is included in selling, general and administrative expense in the Company’s statements of operations.
 
(A)
Stock Options
 
The Company uses the Black-Scholes option pricing model to estimate the fair value of our share-based awards. In applying this model, we use the following assumptions:
 
•
Risk-free interest rate - We determine the risk-free interest rate by using a weighted average assumption equivalent to the expected term based on the U.S. Treasury constant maturity rate.
 
•
Expected term - We estimate the expected term of our options on the average of the vesting date and term of the option.
 
•
Expected volatility - We estimate expected volatility using daily historical trading data of a peer group.
 
 •
Dividend yield - We have never paid dividends on our common stock and currently have no plans to do so; therefore, no dividend yield is applied.
 
The fair values of our employee option awards were estimated using the assumptions below, which yielded the following weighted average grant date fair values for the periods presented:

   
Three Months Ended
December 31, 2022
 
Risk-free interest rate
    
3.98
%
Expected option term in years
    
5.5-6.5
  
Expected volatility
    
93.6
%
Dividend yield
     — %
Weighted average grant date fair value
  
$
30.06 - $41.24
  

13
Options for Employees

   
Number
of Options
    
Weighted
Average
Exercise
Price
    
Weighted
Average
Remaining
Contractual
Term (in years)
    
Aggregate
Intrinsic
Value
(in thousands)
  
Outstanding balance at September 30, 2022
    
30,993
    
$
12.68
      
6.8
    
$
1,251.45
  
Granted
    
10,000
    
$
53.06
      
9.6
    
$
—
  
Outstanding balance at December 31, 2022
    
40,993
    
$
22.53
      
7.3
    
$
812.57
  
Exercisable at December 31, 2022
    
21,831
    
$
9.96
      
5.7
    
$
631.90
  
 
The aggregate intrinsic value in the above table was calculated as the difference between the closing price of the Company’s common stock at December 31, 2022 of $38.90 per share and the exercise price of the stock options that had strike prices below such closing price.
 
As of December 31, 2022, there was approximately $485 of total unrecognized compensation expense related to the unvested employee stock options which is expected to be recognized over a weighted average period of 2.67 years.

Liability classified share-based awards
 
During the three months ended December 31, 2022, 7,018 options were granted with respect to Indco’s common stock. The Company uses the Black-Scholes option pricing model to estimate the fair value of Indco’s share-based awards. In applying this model, the Company used the following assumptions:
 
   
Three Months Ended
December 31, 2022
  
Risk-free interest rate
    
3.98
%
Expected option term in years
    
4.5-5.5
  
Expected volatility
    
44
%
Dividend yield
     — %
Weighted average grant date fair value
  
$
3.96 - $6.68
  

   
Number
of Options
    
Weighted
Average
Exercise
Price
    
Weighted
Average
Remaining
Contractual
Term (in years)
    
Aggregate
Intrinsic
Value
(in thousands)
  
Outstanding balance at September 30, 2022
    
35,607
    
$
12.22
      
6.67
    
$
175.98
  
Granted
    
7,018
    
$
15.20
      
9.75
    
$
—
  
Outstanding balance at December 31, 2022
    
42,625
    
$
12.71
      
7.10
    
$
119.94
  
Exercisable at December 31, 2022
    
28,613
    
$
11.40
      
6.00
    
$
113.20
  

The aggregate intrinsic value in the above table was calculated as the difference between the valuation price of Indco’s common stock at December 31, 2022 of $15.20 per share and the exercise price of the stock options that had strike prices below such closing price.
 
The liability classified awards were measured at fair value at each reporting date until the final measurement date, which was the date of completion of services required to earn the option. The accrued compensation cost related to these options was approximately $320 and $361 as of December 31, 2022 and September 30, 2022, respectively, and is included in other liabilities in the condensed consolidated financial statements. The compensation cost related to these options was approximately $31 and $50 for the three months ended December 31, 2022 and 2021, respectively.

The cost associated with the options issued on each grant date is being recognized ratably over the period of service required to earn each tranche of options.

14
Upon vesting, the options continue to be accounted for as a liability in accordance with ASC 480-10-25-8 and are measured in accordance with ASC 480-10-35 at every reporting period until the options are settled.
 
On December 13, 2021, two minority owners of Indco exercised 7,000 and 3,372 options to purchase Indco’s common stock at an exercise price of $6.48 and $12.07 for an aggregate purchase price of $45 and $41, respectively. Indco issued related party promissory notes in the amount of $45 and $41, respectively, which bear interest at 1% per annum; both interest and principal are payable on the maturity date of December 31, 2024. These notes are included in security deposits and other long-term assets. The fair value of the 7,000 and 3,372 shares of Indco’s common stock was recorded as an increase in mandatorily redeemable non-controlling interest. On December 13, 2021, Indco repurchased 7,000 shares of Indco’s stock at a purchase price of $17.16 per share from a minority owner of Indco for the aggregate purchase price of $120. The fair value of the repurchased 7,000 shares of Indco’s common stock was recorded as a decrease in mandatorily redeemable non-controlling interest. As a result of the exercise of 10,372 options and the repurchase of 7,000 shares of Indco’s stock, the mandatorily redeemable non-controlling interest percentage was 9.77% as of December 31, 2022.

 Changes in the fair value of the vested options are recognized in earnings in the condensed consolidated financial statements.
 
The options are classified as liabilities, and the underlying shares of Indco’s common stock also contain put options which result in their classification as a mandatorily redeemable security. While their redemption does not occur on a fixed date, there is an unconditional obligation for the Company to repurchase the shares upon death.
 
As of December 31, 2022, there was approximately $76 of total unrecognized compensation expense related to the unvested Indco stock options. This expense is expected to be recognized over a weighted average period of less than one year.

10.
INCOME PER COMMON SHARE
 
The following table provides a reconciliation of the basic and diluted earnings per share (“EPS”) computations for the three months ended December 31, 2022 and 2021:
 
   
Three Months Ended
December 31,
  
(in thousands, except per share data)
  
2022
    
2021
  
Income:
            
Net income
  
$
360
    
$
1,688
  
Preferred stock dividends
    
(72
)
    
(211
)
Net income available to common stockholders
  
$
288
    
$
1,477
  
                 
Common Shares:
                
Basic - weighted average common shares
    
1,186.3
      
959.1
  
Effect of dilutive securities:
                
Stock options
    
21.9
      
58.7
  
Convertible preferred stock
    
—
      
0.3
  
Diluted - weighted average common stock
    
1,208.2
      
1,018.1
  
                 
Income per Common Share:
                
Basic -
                
Net income
  
$
0.30
    
$
1.76
  
Preferred stock dividends
    
(0.06
)
    
(0.22
)
Net income attributable to common stockholders
  
$
0.24
    
$
1.54
  
                 
Diluted -
                
Net income
  
$
0.30
    
$
1.66
  
Preferred stock dividends
    
(0.06
)
    
(0.21
)
Net income available to common stockholders
  
$
0.24
    
$
1.45
  

The computation for the diluted number of shares excludes unexercised stock options that are anti-dilutive. There were 10 anti-dilutive shares for each of the three-month period ended December 31, 2022 and December 31, 2021.

Potentially dilutive securities as of December 31, 2022 and 2021 are as follows:

   
Three Months Ended
December 31,
  
   
2022
    
2021
  
Employee stock options (Note 9)
    
22
      
92
  
     
22
      
92
  

15
11.
INCOME TAXES
 
The reconciliation of income tax computed at the Federal statutory rate to the provision for income taxes from continuing operations for the three-month periods ended December 31, 2022 and 2021 is as follows (in thousands):

   
Three Months Ended
December 31,