JANEL CORP

(in thousands except share and per share data)

Business description

Janel is a holding company with subsidiaries inthree 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.

The Company’s Logistics segment is comprised of several wholly-owned subsidiaries. The Logistics segment is a non-asset based, full-service provider of cargo transportation logistics management services, including freight forwarding via air, ocean and land-based carriers; customs brokerage services; warehousing and distribution services; trucking and other value-added logistics services. In addition to these revenue streams, the Company earns accessorial revenues in connection with its core services. Accessorial revenues include, but are not limited to, fuel service charges, wait time fees, hazardous cargo fees, labor charges, handling, cartage, bonding and additional labor charges.

On June 5, 2024, the Company completed a business combination whereby it acquired a majority ownership position in Airschott, a non-asset-based freight forwarder and customs broker. At closing, the Company purchased 80% of the outstanding stock of Airschott. The Company also agreed to purchase the remaining 20% of Airschott stock inthree years subject to certain closing conditions.

The Company’s Life Sciences segment is comprised of several wholly-owned subsidiaries. The Company’s Life Sciences segment manufactures and distributes antibodies as well as research and diagnostic reagents for, and provides custom services to, academic, non-profit and commercial customers.

On February 1, 2024, the Company completed a business combination whereby it acquired all the outstanding stock of ViraQuest Inc., which we include in our Life Sciences segment.

The Company’s manufacturing segment is comprised of Indco, Inc. (“Indco”), a majority-owned subsidiary of the Company that manufactures and distributes mixing equipment and apparatuses 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.

As of each of September 30, 2023 and September 30, 2024, the Company owned 1,108,000 shares, or approximately 46.6%, of the common stock of Rubicon. Rubicon is an advanced materials provider specializing in monocrystalline sapphire for applications in optical and industrial systems. The purpose of our investment in Rubicon was for Janel to acquire a significant ownership interest in Rubicon, together with representation on Rubicon’s Board, in an attempt to (i) restructure the Rubicon business to achieve profitability and (ii) assist Rubicon in utilizing its net operating loss carry-forward assets.

Basis of consolidation

The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, as well as Indco, of which Janel owns 90.2%, with a non-controlling interest held by existing Indco management. The Indco non-controlling interest is mandatorily redeemable and is recorded as a liability. All intercompany transactions and balances have been eliminated in consolidation.

Uses of estimates in the preparation of financial statements

The preparation of financial statements in conformity with generally accepted accounting principles in the United States (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of financial statements, as well as the reported amounts of revenues and expenses during the reporting period. The most critical estimates made by the Company are those relating to accounts receivables valuation, the useful lives of long-term assets, accrual of cost related to ancillary services the Company provides, accrual of tax expense on an interim basis and potential impairment of goodwill and intangible assets with indefinite lives, long-lived assets impairment.

Cash

The Company maintains cash balances at various financial institutions. Accounts at each institution are insured by the Federal Deposit Insurance Corporation up to $250. The Company’s accounts at these institutions may, at times, exceed the federally insured limits. The Company has not experienced any losses in such accounts.

Restricted Cash

Commencing in the second half of 2024, the Company insures certain risks through a newly formed wholly-owned captive insurance company, Gainesville Insurance Company, Inc. (“Gainesville”). In addition, we also maintain some of our normal, historical insurance policies with third-party insurers. Restricted cash represents deposits held by Gainesville that are required by state insurance regulations to remain in the captive insurance company as cash or cash equivalents. The Company considers all highly liquid investments with an original maturity of three months or less, when purchased, to be cash equivalents.

Accounts receivable and allowance for doubtful accounts receivable

Accounts receivable are recorded at the contractual amount. The Company records its allowance for doubtful accounts based upon its assessment of various factors. The Company considers historical collection experience, the age of the accounts receivable balances, credit quality of the Company’s customers, any specific customer collection issues that have been identified, current economic conditions and other factors that may affect the customers’ ability to pay. The Company writes off accounts receivable balances that have aged significantly once all collection efforts have been exhausted and the receivables are no longer deemed collectible from the customer. The allowance for doubtful accounts as of September 30, 2024 and September 30, 2023 was $582 and $1,255, respectively.

Inventory

Inventory is valued at the lower of cost (using the first-in, first-out method) or net realizable value. The Company maintains an inventory valuation reserve to provide for slow moving and obsolete inventory, inventory not meeting quality control standards and inventory subject to expiration for its Life Sciences business. The products of the Life Sciences business require the initial manufacture of multiple batches to determine if quality standards can consistently be met. In addition, the Company will produce larger batches of established products than current sales requirements due to economies of scale. The manufacturing process for these products, therefore, has and will continue to produce quantities in excess of forecasted usage. The Company values acquired manufactured antibody inventory based on athree-year forecast. Inventory quantities in excess of the forecast are not valued due to uncertainty over salability.

Property and equipment and depreciation policy

Property and equipment are recorded at cost. Property and equipment acquired in business combinations are initially recorded at fair value. Depreciation is provided for in amounts sufficient to amortize the costs of the related assets over their estimated useful lives on the straight-line and accelerated methods for both financial reporting and income tax purposes. Maintenance and repairs are recorded as expenses when incurred.

Goodwill

The Company records as goodwill the excess of purchase price over the fair value of the tangible and identifiable intangible assets acquired in a business combination. Under current authoritative guidance, goodwill is not amortized but is tested for impairment annually as well as when an event or change in circumstance indicates impairment may have occurred. Goodwill is tested for impairment by comparing the fair value of the Company’s individual reporting units to their carrying amount to determine if there is potential goodwill impairment. If the fair value of the reporting unit is less than the carrying value, an impairment loss is recorded to the extent that the implied fair value of the goodwill of the reporting unit is less than its carrying value. If there is a material change in economic conditions, or other circumstances influencing the estimate of future cash flows or significantly affecting the fair value of our reporting units, the Company could be required to recognize impairment charges in the future.

The fair value of our reporting units were in excess of carrying value and goodwill was not deemed to be impaired as of September 30, 2024 and 2023.

Intangibles and long-lived assets

Long-lived assets, including fixed assets and intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. In reviewing for impairment, the carrying value of such assets is compared to the estimated undiscounted future cash flows expected from the use of the assets and their eventual disposition.

If such cash flows are not sufficient to support the asset’s recorded value, an impairment charge is recognized to reduce the carrying value of the long-lived asset to its estimated fair value.

The determination of future cash flows, as well as the estimated fair value of long-lived assets, involves significant estimates on the part of management. If there is a material change in economic conditions, or other circumstances influencing the estimate of future cash flows or fair value, the Company could be required to recognize impairment charges in the future.

The Company concluded that the fair value of intangibles and long-lived assets were not deemed to be impaired as of September 30, 2024 and 2023.

Equity-Method Investments

The Company has determined that its investment in Rubicon is subject to the equity method of accounting, and the Company has elected the fair value option under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 825-10, Financial Instruments (“ASC 825-10”) to account for the equity method investment. In accordance with ASC 825-10, the Company will present its equity method investment in Rubicon at fair value each reporting period with changes in fair value and dividends received from Rubicon recorded to income from investment in unconsolidated affiliate on the Company’s statements of operations.

See Notes 16 and 17 for further information about the Company’s investment in Rubicon’s equity securities accounted for under the fair value option.

Business segment information

The Company operates inthree reportable segments: Logistics, Life Sciences and Manufacturing. The Company’s Chief Executive Officer regularly reviews financial information at the reporting segment level in order to make decisions about resources to be allocated to the segments and to assess their performance.

Revenues and revenue recognition

Revenue Recognition

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 revenues. Generally, revenues are recorded on a gross basis when the Company is acting as principal and is primarily responsible for fulfilling the promise to provide the services, when it has discretion in setting the prices for the services to the customers, and the Company has the ability to direct the use of the services provided by the third party. Revenues is recognized on a net basis when the Company is acting as agent and we do not have latitude in carrier selection or establish rates with the carrier.

In the Logistics segment, the Company disaggregates its revenues by itsfour primary service categories: trucking, ocean freight, air freight, customs brokerage and other. A summary of the Company’s revenues disaggregated by major service lines for the fiscal year ended September 30, 2024 and 2023 was as follows:

Life Sciences and Manufacturing

Revenues from the Life Sciences segment are derived from the sale of high-quality monoclonal and polyclonal antibodies, diagnostic reagents and diagnostic kits and other immunoreagents for biomedical research and antibody manufacturing. Revenues from the Company’s Manufacturing segment, which is comprised of Indco, a majority-owned subsidiary of the Company that manufactures and distributes mixing equipment and apparatus for specific applications within various industries, are derived from the engineering, manufacture and delivery of specialty mixing equipment and accessories. Revenues for Life Sciences and Manufacturing are recognized when products are shipped, and risk of loss is transferred to the carrier(s) used.

Income (loss) per common share

Basic net income (loss) per share is computed by dividing net income (loss) for the period by the weighted average number of common shares outstanding, excluding unvested restricted stock, during the period. Diluted net income (loss) per share reflects the additional dilution from potential issuances of common stock, such as stock issuable pursuant to the exercise of stock options. The treasury stock method is used to calculate the potential dilutive effect of these common stock equivalents. Potentially dilutive shares are excluded from the computation of diluted net income (loss) per share when their effect is anti-dilutive.

Equity classified share-based awards

The Company recognizes compensation expense for stock-based payments granted based on the grant-date fair value estimated in accordance with ASC Topic 718, “Compensation- Stock Compensation.” For employee stock-based awards, we calculate the fair value of the award on the date of grant using the Black-Scholes method for stock options and the quoted price of our common stock for restricted shares; the expense is recognized over the service period for awards expected to vest.

Stock-based compensation to non-employees

Liability classified share-based awards

The Company maintains other share unit compensation grants for shares of Indco, which vest over a period of up tothree years following their grant. The shares contain certain put features where the Company is either required or expects to settle vested awards on a cash basis.

These awards are classified as liability awards, measured at fair value at the date of grant and re-measured at fair value at each reporting date up to and including the settlement date. The determination of the fair value of the share units under these plans is described in Note 10. The fair value of the awards is expensed over the respective vesting period of the individual awards with recognition of a corresponding liability. Changes in fair value after vesting are recognized through compensation expense. Compensation expense reflects estimates of the number of instruments expected to vest. The impact of forfeitures and fair value revisions, if any, are recognized in earnings such that the cumulative expense reflects the revisions, with a corresponding adjustment to the settlement liability. Liability-classified share unit liabilities due within 12 months of the reporting date are presented in trade and other payables while settlements due beyond 12 months of the reporting date are presented in non-current liabilities.

Non-employee share-based awards

The Company grants restricted stock awards, restricted stock units and stock options to certain directors, officers and employees. The Company accounts for share-based compensation as equity awards such that compensation cost is measured at the grant date based on the fair value of the award and is expensed ratably over the vesting period. The fair value of restricted stock is the market price as of the grant date, and the fair value of each stock option grant is estimated as of the grant date using the Black-Scholes option pricing model. Determining the fair value of share-based awards at the grant date requires judgment about, among other things, stock volatility, the expected life of the award and other inputs. The Company accounts for forfeitures as they occur.

The Company issues new shares of common stock to satisfy exercises and vesting of awards granted under its stock plans. Share-based compensation expense is reflected in the consolidated statements of operations as part of selling general and administrative expenses.

Mandatorily Redeemable Non-Controlling Interests

The non-controlling interests that are reflected as mandatorily redeemable non-controlling interests in the consolidated financial statements consist of non-controlling interests related to the Indco acquisition whose owners have certain redemption rights that allow them to require the Company to purchase the non-controlling interests of those owners upon certain events outside the control of the Company, including upon the death of the holders. The Company is required to purchase 20% per year of the mandatorily redeemable non-controlling interest at the option of the holders beginning on the third anniversary of the date of the Indco acquisition, which was March 21, 2019. As of September 30, 2024, the holders had not exercised their redemption rights.

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. On November 30, 2020, a minority owner of Indco exercised 7,000 options to purchase Indco’s common stock at an exercise price of $6.48 for an aggregate purchase price of $45. Indco issued a related party promissory note in the amount of $45, which bears interest at 1% per annum; both interest and principal were payable on the maturity date of December 31, 2023. These notes are included in security deposits and other long-term assets. The fair value of the shares issued of Indco’s common stock was recorded as an increase in mandatorily redeemable non-controlling interest. As a result of the exercise of options to purchase Indco’s stock, the mandatorily redeemable non-controlling interest percentage was 9.8% as of each of September 30, 2024 and 2023.

On the date the Company acquired the controlling interest in a business combination, the fair value of the non-controlling interest is recorded in the long-term liabilities section of the consolidated balance sheet under the caption “Mandatorily redeemable non-controlling interest.” The mandatorily redeemable non-controlling interest is adjusted each reporting period, if required, to its then current redemption value, based on the predetermined formula defined in the respective agreement. The Company reflects any adjustment in the redemption value and any earnings attributable to the mandatorily redeemable non-controlling interest in its consolidated statements of operations by recording the adjustments and earnings to other income and expense in the caption “Other expense.”

Income taxes

The Company uses the asset and liability method of accounting for income taxes in accordance with ASC 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. A valuation allowance is provided when it is more likely than not that some portion or all of a deferred tax asset will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income and the reversal of deferred tax liabilities during the period in which related temporary differences become deductible. The benefit of tax positions taken or expected to be taken in the Company’s income tax returns are recognized in the consolidated financial statements if such positions are more likely than not of being sustained.

Leases

The Company determines if an arrangement is a lease at inception. Assets and obligations related to operating leases are included in operating lease right-of-use (“ROU”) assets; current portion of operating lease liability; and operating lease liability, net of current portion in our consolidated balance sheets. Assets and obligations related to finance leases are included in property, technology and equipment, net; current portion of finance lease liability; and finance lease liability, net of current portion in our consolidated balance sheets.

ROU assets represent our right to use an underlying asset for the lease term, and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of the Company’s leases do not provide an implicit rate, the incremental borrowing rate based on the information available at commencement date is used in determining the present value of lease payments. We use the implicit rate when readily determinable. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option.

The Company’s agreements with lease and non-lease components are all each accounted for as a single lease component.

For leases with an initial term of twelve months or less, the Company elected the exemption from recording right of use assets and lease liabilities for all leases that qualify and records rent expense on a straight-line basis over the lease term. Expenses for these short-term leases for the fiscal year ended September 30, 2024 and 2023 amounted to $348 and 372, respectively.

Contingent Earnout Liabilities

The Company accounts for contingent consideration relating to business combinations as a contingent earnout liability and a decrease (increase) to goodwill at the date of the acquisition and continually remeasures the asset or liability at each balance sheet date by recording changes in the fair value through change in fair value of contingent consideration in the consolidated statements of operations. The ultimate settlement of contingent earnout liabilities relating to business combinations may be for amounts that are materially different from the amounts initially recorded and may cause volatility in the Company’s results of operations.

Recent accounting pronouncements

Recently issued accounting pronouncements not yet adopted

In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)2020-04, Reference Rate Reform (Topic 848). In December 2022, the FASB issued ASU 2022-06 to temporarily ease the potential burden in accounting for reference rate reform. The standards provide optional expedients and exceptions for applying accounting principles generally accepted in the United States to existing contracts, hedging relationships, and other transactions affected by reference rate reform. The standards apply only to contracts and hedging relationships that reference the London Interbank Offered Rate (“LIBOR”) or another reference rate to be discontinued because of reference rate reform. The standards were effective upon issuance and can generally be applied through December 31, 2024. While there has been no material effect to our financial condition, results of operations, or cash flows from reference rate reform as of September 30, 2024, we continue to monitor our contracts and transactions for potential application of these ASUs.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which expands disclosures in an entity’s income tax rate reconciliation table and regarding cash taxes paid both in the U.S. and foreign jurisdictions. The update will be effective for annual periods beginning after December 15, 2024 (fiscal 2026). We are assessing the effect of this update on our consolidated financial statements and related disclosures.

Fiscal 2024 Acquisitions

On June 5, 2024, the Company completed a business combination whereby it acquired a majority ownership position in Airschott, Inc. (“Airschott”), a non-asset-based freight forwarder and customs broker, for an aggregate purchase price of $5,810. At closing, the Company purchased 80% of the outstanding stock of Airschott for $3,600 in cash, a $1,200 floating-rate seller’s note, and net liabilities assumed of $170. The Company also agreed to purchase the remaining 20% of Airschott stock inthree years for deferred consideration of the greater of 20% of 1.25 times the trailing twelve months gross profit of Airschott and $1,200. The acquisition was funded by our existing acquisition draw facility with First Merchants Bank (“First Merchants”) and through our existing asset-backed facility with Santander Bank, N.A. (“Santander”). In connection with the combination, the Company recorded an aggregate of $1,661 in goodwill and $4,320 in other identifiable intangibles. Subsequently, the Company recorded a deferred tax liability related to the acquisition of $977 and increased the goodwill related to the acquisition by the same amount. 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. Airschott was founded in 1977 and is headquartered in Dulles, Virginia. The acquisition of Airschott was completed to expand our service offerings in our Logistics segment.

On February 1, 2024, the Company completed a business combination whereby it acquired all the outstanding stock of ViraQuest, Inc. (“ViraQuest”), for an aggregate purchase price of $635, net of $29 cash received. At closing, $600 was paid in cash and $64 was recorded as a preliminary earnout consideration. The acquisition was funded with cash provided by operating activities, and the results of operations of ViraQuest are included in Janel’s consolidated results of operations since the date of the acquisition. In connection with the combination, the Company recorded an aggregate of $74 in goodwill and $412 in other identifiable intangibles. Supplemental pro forma information has not been provided as the acquisition did not have a significant impact on Janel’s consolidated results of operations, individually or in aggregate. ViraQuest is a biotechnology custom service provider specializing in adenovirus production services. ViraQuest was founded in 2000 and is headquartered in North Liberty, Iowa. The acquisition of ViraQuest was completed to expand our service offerings in our Life Sciences segment.

Fiscal 2023 Acquisitions

On November 1, 2022, the Company completed a business combination whereby it acquired all of the outstanding stock of ImmunoBioScience Corporation (“IBSC”), for an aggregate purchase price of $3,602, net of $153 cash received. At closing, $3,000 was paid in cash, $250 was due to the former stockholder of IBSC as a deferred acquisition payment upon integration, $300 was recorded as a preliminary earnout consideration (not to exceed $750) and $205 was recorded as a preliminary working capital adjustment. The acquisition was funded with cash provided by normal operations, and the results of operations of IBSC are included in Janel’s consolidated results of operations since the date of the acquisition. In connection with the combination, the Company recorded an aggregate of $1,468 in goodwill and $1,680 in other identifiable intangibles. Supplemental pro forma information has not been provided as the acquisition did not have a significant impact on Janel’s consolidated results of operations, individually or in aggregate. IBSC is a developer and manufacturer of high-quality reagents used by research and diagnostic customers. IBSC was founded in 2007 and is headquartered in Mukilteo, Washington. The acquisition of IBSC was completed to expand our product offerings in our Life Sciences segment.

On March 2, 2023, the Company completed a business combination whereby it acquired all of the outstanding stock of Stephen Hall PhD, Ltd. (“SH”) for an aggregate purchase price of $600. At closing, $500 was paid in cash and $100 was due to the former stockholder of SH as a deferred acquisition payment upon integration. The acquisition was funded with cash provided by normal operations, and the results of operations of SH are included in Janel’s consolidated results of operations since the date of the acquisition. In connection with the combination, the Company recorded an aggregate of $181 in goodwill and $202 in other identifiable intangibles. SH is a developer and manufacturer of antibodies and cell culture media for research and diagnostic uses. SH was founded in 2011 and is headquartered in Lafayette, Indiana. The acquisition of SH was completed to expand our product offerings in our Life Sciences segment.

On May 22, 2023, the Company acquired all the rights, title and interests to a royalty agreement for certain antibody products for a purchase price of $500. The Company recorded this acquisition as a royalty asset, which is included in intangible assets in the accompanying consolidated balance sheet (reclassed from Security deposits and other long-term assets in fiscal year 2024) and will be amortized over the estimated life often years.

As of each of September 30, 2023 and September 30, 2024, the Company owned 1,108,000 shares, or approximately 46.6%, of the common stock of Rubicon. Rubicon is an advanced materials provider specializing in monocrystalline sapphire for applications in optical and industrial systems. The purpose of our investment in Rubicon was for Janel to acquire a significant ownership interest in Rubicon, together with representation on Rubicon’s Board, in an attempt to (i) restructure the Rubicon business to achieve profitability and (ii) assist Rubicon in utilizing its net operating loss carry-forward assets.

Inventories consisted of the following (in thousands):

A summary of property and equipment and the estimated lives used in the computation of depreciation and amortization is as follows (in thousands):

Depreciation expense for the fiscal year ended September 30, 2024 and 2023 was $551 and $508, respectively.

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

The composition of the intangible assets balance at September 30, 2024 and 2023 is as follows(in thousands):

Amortization expense of intangible assets for the year ended September 30, 2024 and 2023 was $2,299 and $2,098, respectively.

The future amortization of these intangible assets is expected to be as follows (in thousands):

The Company’s goodwill carrying amounts relate to the acquisitions in the Logistics, Life Sciences and Manufacturing businesses.

The composition of the goodwill balance at September 30, 2024 and 2023 is as follows(in thousands):

The wholly-owned subsidiaries that comprise the Company’s Logistics segment (collectively, the “Janel Group Borrowers”), with the Company as a guarantor, have a Loan and Security Agreement (as amended, the “Santander Loan Agreement”) with Santander with respect to a revolving line of credit facility (the “Santander Facility”).

On January 30, 2023, the Santander Loan Agreement was further amended by the Third Amendment to the Amended and Restated Loan and Security Agreement (the “Third Santander Amendment”). As amended by the terms of the Third Santander Amendment, the percentage of the Borrowers’ eligible accounts receivable used to calculate the borrowing base under the Santander Loan Agreement was increased from 85% to 90% for Domestic Insured Accounts (as defined in the Third Santander Amendment), subject to adjustments set forth in the Santander Loan Agreement.

On April 25, 2023, in connection with an amendment to the Credit Agreement entered into with First Merchants as described further below, we entered into the Fourth Amendment to the Amended and Restated Loan and Security Agreement (the “Fourth Santander Amendment”). The Fourth Santander Amendment (i) included modifications to address the amendments made to the First Merchants Credit Facilities (as defined below) and the consolidation of the debt thereunder and (ii) terminated the subordination agreement relating to the Company’s guarantee of the First Merchants Credit Facilities (as defined below).

On August 22, 2023, we entered into the Fifth Amendment to the Santander Loan Agreement (the “Fifth Santander Amendment”). The Fifth Santander Amendment permitted certain unsecured guaranties by the Company in the ordinary course of business guarantying obligations of subsidiaries in an aggregate amount not to exceed $4,000 and related modifications to certain negative covenants.

On December 1, 2023, in connection with an amendment (the “Purchase Agreement Amendment”) to that certain Membership Interest Purchase Agreement dated as of September 21, 2021 (the “Purchase Agreement”) among Janel Group, Inc. (“Janel Group”), a wholly-owned subsidiary of the Company, Expedited Logistics and Freight Services, LLC (“ELFS”) and former shareholders of ELFS (the “ELFS Sellers”), (i) the Janel Group Borrowers and Santander entered into an Acknowledgment and Consent Agreement pursuant to which Santander consented to the Purchase Agreement Amendment and the effect of the modifications thereunder on the Santander Loan Agreement and (ii) the ELFS Sellers and Santander entered into an Acknowledgment and Consent Agreement pursuant to which Santander consented to the Purchase Agreement Amendment and the effect of the modifications thereunder on the Subordination Agreement (as defined in the Santander Loan Agreement) between Santander and the ELFS Sellers.

On December 21, 2023, we entered into the Sixth Amendment to the Santander Loan Agreement (the “Sixth Santander Amendment”). The Sixth Santander Amendment modified the reporting due date of the monthly borrowing base calculation from the fifth day to the fifteenth day of each month.

On June 5, 2024, we entered into the Seventh Amendment to the Santander Loan Agreement (the “Seventh Santander Amendment”). The Seventh Santander Amendment added Airschott as a loan party obligor and borrower.

The Santander Loan Agreement matures on September 21, 2026. Interest accrues on the Santander Facility at an annual rate equal to theone-month SOFR plus 2.75%. The Janel Group Borrowers’ obligations under the Santander Facility are secured by all of the assets of the Janel Group Borrowers, while the Santander Loan Agreement contains customary terms and covenants. As a result of its terms, the Santander Facility is classified as a current liability on the consolidated balance sheet.

At September 30, 2024, outstanding borrowings under the Santander Facility were $19,313, representing 55.2% of the $35,000 available subject to limitations thereunder, and interest was accruing at an effective interest rate of 7.65%.

At September 30, 2023, outstanding borrowings under the Santander Facility were $18,759, representing 53.6% of the $35,000 available thereunder, and interest was accruing at an effective interest rate of 7.60%.

The Company was in compliance with the financial covenants defined in the Santander Loan Agreement at both September 30, 2024 and September 30, 2023.

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

On April 25, 2023, Indco and certain other Subsidiaries of the Company that are part of the Life Sciences and Manufacturing segments (together with Indco, the “Borrowers” and each, a “Borrower”), entered into a Credit Agreement (the “First Merchants Credit Agreement”) with First Merchants. The First Merchants Credit Agreement constitutes an amendment and restatement of the Prior First Merchants Credit Agreement. The credit facilities provided under the First Merchants Credit Agreement (the “First Merchants Credit Facilities”) consist of a $3,000 revolving loan (limited to the borrowing base and reserves), a $5,000 acquisition loan, a $6,905 Term A loan and a $620 Term B loan as a continuation of the mortgage loan under the Prior First Merchants Credit Agreement. Interest accrues on the outstanding revolving loan, Term A loan and acquisition loan at an annual rate equal toone-month adjusted term SOFR plus either (i)2.75% (if the Borrowers’ total funded debt to EBITDA ratio is less or equal to 1.75:1.00) or (ii)3.50% (if the Borrowers’ total funded debt to EBITDA ratio is greater than to 1.75:1.00). Interest accrues on the Term B loan at an annual rate of 4.19%. The Borrowers’ obligations under the First Merchants Credit Facilities are secured by all of the Borrowers’ real property and other assets, and are guaranteed by the Company, and the Company’s guarantee of the Borrowers’ obligations is secured by a pledge of the Company’s equity interests in certain of the Borrowers. The revolving loan portion will expire on August 1, 2027, the Term A loan portion will mature on April 25, 2033, and the Term B loan portion will mature on July 1, 2025. The acquisition loan will permit multiple draws until October 25, 2024, at which point the outstanding principal amount will amortize, with all remaining amounts of the acquisition loan due at maturity on April 25, 2029.

On January 10, 2024, the First Merchants Credit Facilities were amended to provide for, among other changes, permitted affiliate loans provided availability on its revolving loan both before and after giving effect to any such loan, is not less than $1,000 and maturity of such permitted affiliate loans are not to exceed fourteen days from disbursement.

As of September 30, 2024, there were $3,700 of outstanding borrowings under the acquisition loan, $4,028 of outstanding borrowings under the Term A loan and $585 of outstanding borrowings under the Term B loan, with interest accruing on the acquisition loan and revolving loan at an effective interest rate of 7.82% each, and on the Term A loan and Term B loan at an effective interest rate of 7.82% and 4.19%, respectively.

As of September 30, 2023, there were $500 of outstanding borrowings under the acquisition loan, $450 of outstanding borrowings under the revolving loan, $6,235 of outstanding borrowings under the Term A loan and $610 of outstanding borrowings under the Term B loan, with interest accruing on the acquisition loan and revolving loan at an effective interest rate of 8.18% and on the Term A loan and Term B loan at an effective interest rate of 8.18% and 4.19%, respectively.

The Company was in compliance with the financial covenants defined in the First Merchants Credit Agreement at each of September 30, 2024 and September 30, 2023.

The table below sets forth the total long-term debt, net of capitalized loan fees of $309 for the First Merchants Credit Agreement (in thousands):

These obligations mature as follows (in thousands):

(A) ICT Subordinated Promissory Note

Aves Labs, Inc., a wholly-owned subsidiary of the Company, is the obligor on a fixed 0.5% subordinated promissory note in the amount of $1,850 (the “ICT Subordinated Promissory Note”) issued to the former owner of ImmunoChemistry Technologies, LLC (“ICT”), in connection with a business combination whereby the Company acquired all of the membership interests of ICT. The ICT Subordinated Promissory Note is payable insixteen scheduled quarterly installments of principal and interest beginning March 4, 2021, matures on December 4, 2024, and may be prepaid, in whole or in part, without premium or penalty.

The ICT Subordinated Promissory Note is subordinate to and junior in right of payment for principal interest premiums and other amounts payable to Santander and First Merchants.

As of September 30, 2024, the amount outstanding under the ICT Subordinated Promissory Note was $55, all of which is included in the current portion of subordinated promissory notes.

As of September 30, 2023, the amount outstanding under the ICT Subordinated Promissory Note was $312, of which $288 is included in the current portion of subordinated promissory notes and $24 is included in the long-term portion of subordinated promissory notes.

(B) ELFS Subordinated Promissory Notes

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

On December 1, 2023, in connection with the Purchase Agreement Amendment among Janel Group and the ELFS Sellers, the Company extended the ELFS Subordinated Promissory Notes maturity bytwo years and restored the working capital adjustment (as defined in the Purchase Agreement) by $900 which increased the principal amount of the ELFS Subordinated Promissory Notes to $6,000. The Company evaluated the accounting treatment related to the amendment and determined the agreements are substantially different and extinguished the original subordinated promissory notes and recorded the amended subordinated promissory notes at fair value of $4,654. As a result, the Company recorded a debt discount of approximately $921 and a $21 gain on extinguishment.

As of September 30, 2024, the amount outstanding under the ELFS Subordinated Promissory Notes was $3,918, of which $1,173 is included in the current portion of subordinated promissory notes and $2,745 was included in the long-term portion of subordinated promissory notes.

As of September 30, 2023, the amount outstanding under the ELFS Subordinated Promissory Notes was $5,100, of which $1,700 was included in the current portion of subordinated promissory notes and $3,400 was included in the long-term portion of subordinated promissory notes.

(C) Airschott Subordinated Promissory Note

Janel Group is the obligor on a floating rate (Prime Rate plus 2%) subordinated promissory note (the “Airschott Subordinated Promissory Note”) in the amount of $1,200 issued, to a former owner of Airschott, in connection with the business combination whereby Janel Group acquired Airschott. The note is payable intwelve consecutive quarterly payments, which commenced in July 2024, of $100 together with accrued interest on the outstanding principal balance.

As of September 30, 2024, the amount outstanding under the Airschott Subordinated Promissory Note was $1,100, of which $400 was included in the current portion of subordinated promissory notes and $700 was included in the long-term portion of subordinated promissory notes.

These obligations mature as follows (in thousands):

(in thousands, except share per share data)

Janel is authorized to issue 4,500,000 shares of common stock, par value $0.001. In addition, the Company is authorized to issue 100,000 shares of preferred stock, par value $0.001. The preferred stock is issuable in series with such voting rights, if any, designations, powers, preferences and other rights and such qualifications, limitations and restrictions as may be determined by the Company’s Board of Directors or a duly authorized committee thereof, without stockholder approval. The Board of Directors may fix the number of shares constituting each series and increase or decrease the number of shares of any series.

Series C Cumulative Preferred Stock

Shares of the Company’s Series C Cumulative Preferred Stock (the “Series C Stock”) were initially entitled to receive annual dividends at a rate of 7% per annum of the original issuance price of $500, when and if declared by the Company’s Board of Directors, with such rate to increase by 2% annually beginning on the third anniversary of issuance of such Series C Stock to a maximum rate of 13%. By the filing of the Certificate of Amendment to the Company’s Certificate of Incorporation on March 31, 2022, the annual dividend rate decreased to 5% per annum of the original issuance price, when and if declared by the Company’s Board of Directors, and increased by 1% on January 1, 2024. Such rate is to increase on each January 1 thereafter forfour years to a maximum rate of 9%. The dividend rate of the Series C Stock as of September 30, 2024 and 2023 was 6% and 5%, respectively . In the event of liquidation, holders of Series C Stock shall be paid an amount equal to the original issuance price, plus any accrued dividends thereon. Shares of Series C Stock may be redeemed by the Company at any time upon notice and payment of the original issuance price, plus any accrued dividends thereon. The liquidation value of Series C Stock was $7,957 and $7,713 as of September 30, 2024 and September 30, 2023, respectively.

For the fiscal year ended September 30, 2024 and 2023, the Company declared dividends on Series C Stock of $328 and $284, respectively. At September 30, 2024 and 2023, the Company had accrued dividends of $2,271 and $2,029, respectively.

On May 12, 2017, the Company adopted the 2017 Equity Incentive Plan (the “2017 Plan”) pursuant to which (i) incentive stock options, (ii) non-statutory stock options, (iii) restricted stock awards and (iv) stock appreciation rights with respect to shares of the Company’s common stock may be granted to directors, officers, employees of and consultants to the Company. 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, par value $0.001 per share (“Common Stock”), may be granted to employees, directors and consultants to the Company and its subsidiaries.

The Amended Plan increases 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 adopts certain other non-substantive amendments.

Participants and all terms of any grant under the Amended Plan are in the discretion of the Company’s Compensation Committee.

(in thousands, except share 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 and Restated Plan”), which amended and restated the prior 2017 plan, as previously amended, and pursuant to which non-statutory stock options, restricted stock awards and stock appreciation rights with respect to up to 200,000 shares of the Company’s Common Stock may be granted to directors, officers, employees of and consultants to the Company and its subsidiaries. The Amended and Restated Plan increased the number of shares of Common Stock that may be issued pursuant to the Amended and Restated Plan from 100,000 to 200,000 shares of Common Stock of the Company and adopts certain other non-substantive amendments. Participants and all terms of any grant under the Amended and Restated Plan are in the discretion of the Company’s Compensation Committee.

Total stock-based compensation for the fiscal year ended September 30, 2024 and 2023 amounted to $321 and $231, respectively, and was included in selling, general and administrative expense in the Company’s statements of operations.

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:

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:

Options for Employees

The aggregate intrinsic value in the above table was calculated as the difference between the closing price of the Company’s Common Stock at September 30, 2024 of $40.50 per share and the exercise price of the stock options that had strike prices below such closing price.

As of September 30, 2024, there was approximately $241 of total unrecognized compensation expense related to the unvested employee stock options which is expected to be recognized over the next year.

Liability classified share-based awards

During the fiscal year ended September 30, 2024 and 2023, there wereno options granted andno options were exercised with respect to Indco’s common stock.

The aggregate intrinsic value in the above table was calculated as the difference between the valuation price of Indco’s common stock at September 30, 2024 of $22.75 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 $350 and $334 as of September 30, 2024 and September 30, 2023, respectively, and is included in other liabilities in the consolidated financial statement. The compensation cost related to these options was approximately $16 and $23 for the fiscal years ended September 30, 2024 and September 30, 2023, respectively, and is included in other liabilities in the consolidated financial statement. 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.

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.

As a result of previous option exercise and stock repurchase activity, the mandatorily redeemable non-controlling interest percentage was 9.8% as of each of September 30, 2024 and 2023.

Changes in the fair value of the vested options are recognized in earnings in the 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 September 30, 2024, there wasno unrecognized compensation expense related to the unvested Indco stock options.

The following table provides a reconciliation of the basic and diluted income (loss) per share (“EPS”) computations for the fiscal years ended September 30, 2024 and 2023 (in thousands, except share and per share data):

The computation for the diluted number of shares excludes unexercised stock options that are anti-dilutive. There were 10,000 anti-dilutive shares for the fiscal year ended September 30, 2024 and 10,000 anti-dilutive shares for the fiscal years ended September 30, 2023.

Potentially diluted securities as of September 30, 2024 and 2023 are as follows:

The reconciliation of income tax computed at the Federal statutory rate to the provision for income taxes from operations is as follows (in thousands):

The provisions of income taxes are summarized as follows (in thousands):

The tax effects of temporary differences that gave rise to significant portions of the deferred tax assets and liabilities were as follows (in thousands):

As of September 30, 2024, the Company hadno accrued interest or penalties related to uncertain tax positions andno amounts have been recognized in the Company’s statement of operations. Income tax returns for tax years from 2019 through 2023 remain subject to examination by the taxing jurisdictions.

The Company maintains a qualified retirement plan commonly referred to as a 401(k) Plan covering substantially all full-time employees under each segment.

The Janel Corporation 401(k) allows for employee salary deferrals including Roth 401(k) deferrals, employer matching contributions, employer profit sharing contributions and employee rollovers. The Janel Corporation 401(k) plan provides for participant contributions of up to 50% of annual compensation (not to exceed the IRS limit), as defined by the plan. The Company contributes an amount equal to 50% of the participant’s first 6% of contributions.

The combined expenses charged to operations for contributions made to the plans for the benefit of the employees for the years ended September 30, 2024 and 2023 were $549 and $535, respectively.

The administrative expense charged to operations for the years ended September 30, 2024 and 2023 aggregated $76 and $65, respectively.

As discussed above in Note 1, the Company operates inthree reportable segments: Logistics, Life Sciences and Manufacturing.

The Company’s Chief Executive Officer regularly reviews financial information at the reporting segment level in order to make decisions about resources to be allocated to the segments and to assess their performance.

The following tables presents selected financial information about the Company’s reportable segments and Corporate for the purpose of reconciling to the consolidated totals for the fiscal years ended September 30, 2024 and 2023:

Goodwill and intangible assets are recorded at the Corporate level and are included in identifiable assets.

The Company has operating leases for office and warehouse space in all districts where it conducts business. As of September 30, 2024, the remaining terms of the Company’s operating leases were betweenone and 126 months and certain lease agreements contain provisions for future rent increases. Payments due under the lease contracts include the minimum lease payments that the Company is obligated to make under the non-cancelable initial terms of the leases as the renewal terms are at the Company’s option and the Company is not reasonably certain to exercise those renewal options at lease commencement.

The components of lease cost for the years ended September 30, 2024 and 2023 are as follows:

Rent expense for the year ended September 30, 2024 and 2023 was $2,870 and $2,474, respectively.

Operating lease right of use assets, current portion of operating lease liabilities and long-term operating lease liabilities reported in the consolidated balance sheets for operating leases as of September 30, 2024 were $8,621, $2,419 and $6,585, respectively.

Operating lease right of use assets, current portion of operating lease liabilities and long-term operating lease liabilities reported in the consolidated balance sheets for operating leases as of September 30, 2023 were $7,460, $2,020 and $5,689, respectively.

During the twelve months ended September 30, 2024 and 2023, the Company entered into new operating leases and recorded an additional $313 and $1,759, respectively in operating lease right of use assets and corresponding lease liabilities.

As of September 30, 2024 and 2023, the weighted-average remaining lease term and the weighted-average discount rate related to the Company’s operating leases were 5.3 years and 5.72% and 5.9 years and 4.01% respectively.

Cash paid for amounts included in the measurement of operating lease obligations were $2,395 and $2,012 for the twelve months ended September 30, 2024 and 2023.

Future minimum lease payments under non-cancelable operating leases as of September 30, 2024 are as follows(in thousands):

(in thousands, except per share data)

As of each of September 30, 2023 and September 30, 2024, the Company owned 1,108,000 shares, or approximately 46.6%, of the common stock of Rubicon. Rubicon is an advanced materials provider specializing in monocrystalline sapphire for applications in optical and industrial systems. The purpose of our investment in Rubicon was for Janel to acquire a significant ownership interest in Rubicon, together with representation on Rubicon’s Board, in an attempt to (i) restructure the Rubicon business to achieve profitability and (ii) assist Rubicon in utilizing its net operating loss carry-forward assets.

The Company revalued the investment in Rubicon’s securities on September 30, 2024 and 2023 and recorded a loss of $55 and $798, respectively within other income (loss), net of dividends on the Company’s consolidated. Below is reconciliation for the changes to the investment in Rubicon for the year ended September 30, 2024 and 2023.

Topic 820 established a framework for measuring fair value. That framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). The three levels of the fair value hierarchy under Topic 820 are described below:

This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

Recurring Fair Value Measurements

The following table presents the Company’s assets and liabilities that are measured at fair value on a recurring basis based on the three-level valuation hierarchy (in thousands):

The contingent earnout liability for ELFS was classified as Level 3 as of September 30, 2023. On December 1, 2023, in connection with the Purchase Agreement Amendment among Janel Group and the ELFS Sellers described above, the parties agreed to certain modifications fixing the amount of the remaining earnout payments to ELFS in earnout years three and four to $1,078 each year. As a result, the measurement of the earnout liability became a Level 1 fair value measurement based on the present value of the negotiated payments.

Inputs to the valuation approach for contingent earnout liabilities for Airschott include the Company’s forecasted gross profit for each of the next 3 fiscal years from the acquisition date, estimated volatility measure of 20%, expected term of 3 years, an underlying metric discount rate of 8.9%, and a discount rate on the earnout payments of 8.25%.

Investment in Rubicon at fair value

As of each of September 30, 2024 and September 30, 2023, the Company held 46.6% of the total issued and outstanding shares of Rubicon and reported its investment under the fair value method pursuant to ASC 320. Management determined that it was appropriate to carry its investment in Rubicon at fair value because the investment was traded on the NASDAQ stock exchange through January 2, 2023, began trading on the OTCQB Capital Market on January 3, 2023 and had daily trading activity, the combination of which provide a better indicator of value. The investment in Rubicon is re-measured at the end of each quarter based on the trading price and any change in the value is reported on the income statement as an unrealized gain or loss on marketable securities in other income (expense). Refer to Note 16 to Consolidated Financial Statements for reconciliation of changes to the investment in Rubicon for the years ended September 30, 2024 and 2023.

Contingent earnout liabilities

For the period ending September 30, 2024, these liabilities relate to the estimated fair value of earnout payments to former IBSC,ELFS,ViraQuest and Airschott owners. For the period ending September 30, 2023, these liabilities relate to the estimated fair value of earnout payments to former IBSC and ELFS owners. The current and non-current portions of the fair value of the contingent earnout liability at September 30, 2024 were $1,262 and $2,119, respectively. The current and non-current portions of the fair value of the contingent earnout liability at September 30, 2023 were $592 and $1,738, respectively.

The following table sets forth a summary of the changes in the fair value of the Company’s contingent earnout liabilities, which are measured at fair value on a recurring basis utilizing Level 1 and Level 3 assumptions in their valuation (in thousands):

The Company determined the fair value of the Level 3 contingent earnout liability using forecasted results through the expected earnout periods. The principal inputs to the approach include expectations of the specific business’s revenues in fiscal years 2024 through 2025 using an appropriate discount rate. Given the use of significant inputs that are not observable in the market, the contingent earnout liability is classified within Level 3 of the fair value hierarchy.

Employment Agreements

The Company has various employment agreements, including employment agreements with the previous owners of ELFS and Airschott.

The nature of Janel’s operations requires it to deal with currencies other than the U.S. Dollar. As a result, the Company is exposed to the inherent risks of international currency markets and governmental interference. A number of countries where Janel maintains agent relationships have currency control regulations. The Company attempts to compensate for these exposures by accelerating international currency settlements among those agents.

The Company’s assets that are exposed to concentrations of credit risk consist primarily of cash and receivables from customers. The Company places its cash with financial institutions that have high credit ratings. The receivables from clients are spread over many customers. The Company maintains an allowance for uncollectible accounts receivable based on expected collectability and performs ongoing credit evaluations of its customers’ financial condition. We have continued to experience heightened customer credit risk as a result of the negative impact to customers’ financial condition, employment levels and consumer confidence arising from economic disruptions related to the COVID-19 pandemic, and we expect that our risk in this area will remain high as long as the disruptions persist.

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.

No customer accounts for 10% or more of consolidated sales for the years ended September 30, 2024 and 2023. No customer accounted for 10% or more of consolidated accounts receivable at September 30, 2024 and 2023.

In the ordinary course of our Logistics business, we are a defendant in several legal proceedings arising out of the conduct of our Logistics business. These proceedings include third party claims for property damage or bodily injury incurred in connection with our services. Although there can be no assurance as to the ultimate disposition of these proceedings, we do not believe, based upon the information available at this time, that these property damage or bodily injury claims, in the aggregate, will have a material impact on our consolidated financial statements. Within our Logistics segment, ELFS maintains auto liability for commercial trucking claims of up to $6,000 per occurrence, and general liability with of up to $6,000 per occurrence.

On November 22, 2024, Antibodies Incorporated, Aves Labs, Inc., Indco, Inc., and their wholly-owned subsidiaries, entered into the Second Amendment to the Amended and Restated Credit Agreement and Joinder Agreement dated as of April 25, 2023 and first amended as of January 10, 2024. The Second Amendment increased the borrowing capacity by $6,700.