Approximate Sqft | Market | | | Stores | Location | Minnesota5,000 | | | | 8 | Dartmouth, Nova Scotia | Ohio18,500 | | | | 4 | Santa Fe Springs, California | Georgia5,900 | | | | 4 | Albuquerque, New Mexico | Texas14,600 | | | | 2 | Minneapolis, Minnesota | Total12,000 | | Indianapolis, Indiana | 19,800 | | 18Franklin, Massachusetts | 7,500 | | Commerce City, Colorado | 12,100 | | Cudahy, Wisconsin | 23,200 | | Pittsburgh, Pennsylvania | 14,300 | | Mechanicsburg, Pennsylvania | 38,000 | | Philadelphia, Pennsylvania | 30,000 | | Syracuse, New York | 12,800 | | Sacramento, California | 14,600 | | Norcross, Georgia | 7,400 | | North Haven, Connecticut | 11,700 | | Jackson, Mississippi | 3,000 | | Baltimore, Maryland | 19,200 | | Grand Rapids, Michigan |
We lease all of our retail store facilities. We generally attempt to negotiate lease terms of five to ten years that include options to renew for our retail stores.
We operate sixteen processing and recycling centers. All of our processing and recycling centers are leased facilities. We operated in Dartmouth, Nova Scotia; Oakville, Ontario; Compton, California; Albuquerque, New Mexico; St. Paul, Minnesota; Decatur, Illinois; Henrico, Virginia; Franklin, Massachusetts; Syracuse, New York; Commerce City, Colorado; Kent, Washington; Cudahy, Wisconsin; Pittsburgh, Pennsylvania; Mechanicsburg, Pennsylvania; and Louisville, Kentucky. Our recycling centers typically range in size from 6,000 to 42,000 square feet. The AAP processing and recycling center located in Philadelphia, Pennsylvania leases an 80,000-square-foot facility.
We believe that we may require additional facilities to respond to future needs of ARCA.
ITEM 3. | ITEM 3. LEGAL PROCEEDINGS |
On March 6, 2015, a complaint was filed in United States District Court for the Central District of California by Jason Feola, individually and as a representative of a putative class consisting of purchasers of the Company’s common stock between March 15, 2012 and February 11, 2015, against Appliance Recycling Centers of America, Inc. and certain current and former officers of the Company. Mr. Feola, pursuant to terms of his retainer agreement with The Rosen Law Firm, certified that he purchased 240 shares of the Company’s common stock for $984 in total consideration. On May 7, 2015, the Company and the individual defendants were served the complaint. In July 2015, the Company and the individual defendants received an amended complaint. The complaint alleges that misstatements and omissions occurred in press releases and filings by the Company with the Securities and Exchange Commission and that these misstatements or omissions constitute violations of Section 20 (a) and Section 10(b) of, and Rule 10b-5 under, the Securities Exchange Act of 1934. In October 2015, the court held a hearing on the Company's motion to dismiss the complaint. On November 24, 2015, the United States District Court for the Central District of California entered an order granting the motion to dismiss the amended complaint. The Court’s order provided that the dismissal was without prejudice and that the plaintiffs could file an amended complaint within 21 days of the issuance of the order. On December 15, 2015, the Company and the individual defendants were served with a second amended complaint. In May 2016, the court held a hearing on the Company’s motion to dismiss the second amended complaint. On October 21, 2016 the court entered a final judgement to dismiss the class action complaint with prejudice.
On November 6, 2015, a complaint was filedThe information in the Minnesota District Court for Hennepin County, Minnesota, by David Grayresponse to this item is included in Note 15, Commitments and Michael Boller, purporting to bring suit derivatively on behalf of the Company against twelve current and former officers and directors of the Company. The complaint alleges that the defendants breached their fiduciary duties based on substantially similar allegations to those asserted in Mr. Feola's putative securities class action complaint, and that the defendants have been unjustly enriched as a result thereof. The complaint seeks damages, disgorgement, an award of attorneys’ fees and other expenses, and an order compelling changesContingencies, to the Company’s corporate governance and internal procedures. This matter has been stayed by the court, pursuant to a stipulation of the parties, until the United States District Court for the Central District of California determines the legal sufficiency of Mr. Feola's complaint or other specified developments occurConsolidated Financial Statements included in that case. This matter has been submitted to our insurance carriers.
Given the uncertainty of litigation and the preliminary stage of these cases, we cannot reasonably estimate the possible loss or range of loss that may result from these actions. The Company maintains liability insurance policies that may reduce the Company’s exposure, if any.
In February 2012, various individuals commenced a class action lawsuit against Whirlpool Corporation (“Whirlpool”) and various distributors of Whirlpool products, including Sears, The Home Depot, Lowe’s and us, alleging certain appliances Whirlpool sold through its distribution chain, which includes us, were improperly designated with the ENERGY STAR® qualification rating established by the U.S. Department of Energy and the Environmental Protection Agency. The claims against us include breach of warranty claims, as well as various state consumer protection claims. The amount of the claim is, as yet, undetermined. Whirlpool has offered to fully indemnify and defend its distributors in this lawsuit, including us, and has engaged legal counsel to defend itself and the distributors. We are monitoring Whirlpool’s defense of the claims and believe the possibility of a material loss is remote.
AMTIM Capital, Inc. (“AMTIM”) acts as our representative to market our recycling services in Canada under an arrangement that pays AMTIM for revenues generated by recycling services in Canada as set forth in the agreement between the parties. A dispute has arisen between AMTIM and us with respect to the calculation of amounts due to AMTIM pursuant to the agreement. In a lawsuit filed in the province of Ontario, AMTIM claims a discrepancy in the calculation of fees due to AMTIM by us of approximately $2.0 million. Although the outcomePart II, Item 8, of this claim is uncertain, we believe that no further amounts are due under the terms of the agreement and that we will continue to defend our position relative to this lawsuit.Form 10-K.
We are party from time to time to other ordinary course disputes that we do not believe to be material.
ITEM 4. | ITEM 4. MINE SAFETY DISCLOSURES |
None. 53
PART II ITEM 5. | MARKET FOR OUR COMMON EQUITY, RELATED SHAREHOLDERITEM 5. MARKET FOR OUR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
Market for Common StockInformation and Dividends Our common stock trades under the symbol “ARCI”“JAN” on the NASDAQ Capital Market. The following table sets forth for the periods indicated the high and low prices for our common stock, as reported by the NASDAQ Capital Market. These quotations reflect the daily close prices. | | High | | | Low | | 2016 | | | | | | | First Quarter | | $ | 1.18 | | | $ | 0.68 | | Second Quarter | | | 1.80 | | | | 0.97 | | Third Quarter | | | 1.53 | | | | 0.95 | | Fourth Quarter | | | 1.19 | | | | 0.84 | | | | | | | | | | | 2015 | | | | | | | | | First Quarter | | $ | 3.03 | | | $ | 1.96 | | Second Quarter | | | 2.14 | | | | 1.74 | | Third Quarter | | | 1.89 | | | | 1.04 | | Fourth Quarter | | | 1.25 | | | | 0.61 | |
On March 29, 2017, the reported sale price of our common stock on the NASDAQ Capital Market was $1.07 per share. As of March 29, 2017,25, 2021, there were 11231 stockholders of record, which excludes stockholders whose shares were held in nominee or street name by brokers.
We have no record of the number of holders of our common stock who hold their shares in “street name” with various brokers. We have not paid dividends on our common stock and do not presently plan to pay dividends on our common stock for the foreseeable future. Our credit agreement prohibits payment of dividends. Information concerning securities authorized for issuance under equity compensation plans is included in Part III, Item 12 of this report. ITEM 6. | SELECTED FINANCIAL DATA |
ITEM 6. SELECTED FINANCIAL DATA Not applicable. Not applicable54
ITEM 7. | ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
The following discussion and analysisFor a description of our financial conditionsignificant accounting policies and resultsan understanding of operationsthe significant factors that influenced our performance during the year ended January 2, 2021, this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (hereafter referred to as “MD&A”) should be read in conjunction with “Item 8. Financialthe consolidated financial statements, including the related notes, appearing in Part II, Item 8 of this Annual Report on Form 10-K (this “Form 10-K”) for the fiscal year ended January 2, 2021.
Amounts are stated in thousands of dollars expect share and per share amounts. Note about Forward-Looking Statements This Form 10-K includes statements that constitute “forward-looking statements.” These forward-looking statements are often characterized by the terms “may,” “believes,” “projects,” “intends,” “plans,” “expects,” or “anticipates,” and Supplementary Data.” Certain informationdo not reflect historical facts. Specific forward-looking statements contained in this portion of the Form 10-K include, but are not limited to: (i) statements relating to our initial product candidate, JAN101, including statements relating to the commencement of Phase 2b clinical trials for the treatment of PAD in 2021 and the results of those trials, (ii) statements that are based on current projections and expectations about the markets in which we operate, (iii) statements relating to the sale of the Company’s Recycling business, (iv) statements about current projections and expectations of general economic conditions, (v) statements about specific industry projections and expectations of economic activity, (vi) statements relating to our future operations and prospects, (vii) statements about future results and future performance, (viii) statements that the cash on hand and additional cash generated from operations together with potential sources of cash through issuance of debt or equity will provide the Company with sufficient liquidity for the next 12 months, and (ix) statements that the outcome of pending legal proceedings will not have a material adverse effect on business, financial position and results of operations, cash flow or liquidity. Forward-looking statements involve risks, uncertainties and other factors, which may cause our actual results, performance or achievements to be materially different from those expressed or implied by such forward-looking statements. Factors and risks that could affect our results, future performance and capital requirements and cause them to materially differ from those contained in the discussion and analysis set forth below and elsewhere in this annual report, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risk and uncertainties. In evaluating such statements, you should specifically consider the various factorsinclude those identified in this annual reportForm 10-K under Item 1A “Risk Factors”, as well as other factors that couldwe are currently unable to identify or quantify, but that may exist in the future. In addition, the foregoing factors may generally affect our business, results of operations and financial position. Forward-looking statements speak only as of the date the statements were made. We do not undertake and specifically decline any obligation to update any forward-looking statements. Any information contained on our website www.janone.com or any other websites referenced in this Form 10-K are not part of this Form 10-K. Our Company JanOne is focused on finding treatments for conditions that cause resultssevere pain and bringing to differ materially from those expressedmarket drugs with non-addictive pain-relieving properties. In addition, through our subsidiaries ARCA Recycling, Inc., Customer Connexx LLC, and ARCA Canada Inc., JanOne is engaged in such forward-looking statements, including matters set forththe business of recycling major household appliances in “Item 1A. Risk Factors.” Overview
We operate two reportable segments:North America by providing turnkey appliance recycling and retail. Our recycling segment includes all income generated from collecting, recycling and installing appliancesreplacement services for utilities and other customerssponsors of energy efficiency programs. In addition, through its GeoTraq Inc. (“GeoTraq”) subsidiary, we are engaged in the development, design and, includes a significant portion of our byproduct revenue, which is primarily generated through the recycling of appliances. Our retail segment is comprised of income generated fromultimately, we expect the sale of appliances through ApplianceSmart® storeswireless transceiver modules with technology that provides LBS directly from global Mobile IoT networks
We operate three reportable segments: Biotechnology: Our biotechnology segment is focused on finding treatments for conditions that cause severe pain and includes a small portion of our byproduct revenues from collected appliances. Our business components are uniquely positioned in the industrybringing to work together to provide a full array of appliance-related services. ApplianceSmart operates eighteen company-owned stores, sells new appliances directly to consumers and provides affordable ENERGY STAR® options for energy efficiency appliance replacement programs. AAP and our fifteen RPCs process appliances at end of life to remove environmentally damaging substances and produce byproducts for sale in North America.market drugs with non-addictive pain-relieving properties.
Revenues and earnings in our recycling segment are impacted by seasonal variances, with the second and third quarters generally having higher levels of revenues and earnings. This seasonality is due primarily to our utility customers supporting more marketing and advertising during the spring and summer months. Our customers tend to promote the recycling programs more aggressively during the warmer months because they believe more people want to clean up their garages and basements during that time of the year.
Recycling: Our recycling segment typically operates three types of programs: 1. | Fees charged for collecting and recycling appliances for utilities and other sponsors of energy efficiency programs. | | | 2. | Fees charged for recycling and replacing old appliances with new ENERGY STAR® appliances for energy efficiency programs sponsored by utilities. | | | 3. | Income generated through the processing of recyclable appliances purchased at our RPCs by selling the raw material separated during the recycling process. |
Our retailis a turnkey appliance recycling program. We receive fees charged for recycling, replacement and additional services for utility energy efficiency programs and have established 18 Regional Processing Centers (“RPCs”) for this segment is similar to many other retailers in that it is seasonal in nature. Historically,throughout the fourth quarterUnited States and Canada
55
Technology: GeoTraq is our weakest quarter in terms of both revenues and earnings. We believe this is primarily because the fourth quarter includes several holidays during which consumers tend to focus less on purchasing major household appliances. We derive revenues from the sale of carbon offsets created by the destruction of ozone-depleting CFCs captured at our ARCA and AAP regional processing centers. We expect to create carbon offsets and derive revenues in the future through California’s market, but cannot predict the amount or frequencyprocess of carbon offset sales. Carbon offset sales are dependent on market conditions, including demanddeveloping technology to enable low cost, location-based products and acceptable market prices. During the year ended December 31, 2016, the combination of ARCA and AAP recognized $3.0 million in carbon offset revenues compared to $0.8 million during the year ended January 2, 2016.services.
We monitor specific economic factors such as retail trends, consumer confidence, manufacturing by the major appliance companies, sales of existing homes and mortgage interest rates as key indicators of industry demand, particularly in our retail segment. Competition in the home appliance industry is intense in the four retail markets we serve. This includes competition not only from independent retailers, but also from such major retailers as Sears, Best Buy, The Home Depot and Lowe’s. We also closely monitor the metals and various other scrap markets because of the type of components recovered in our recycling process. This includes monitoring theAmerican Metal Market and the regions throughout the U.S. where we have our recycling centers.
Reporting Period.Period. We report on a 52- or52-or 53-week fiscal year. Our 20162020 fiscal year (“2016”) ended on December 31, 2016, and included 52 weeks. Our 2015 fiscal year (“2015”) ended on January 2, 2016, and included 52 weeks. Results of Operations
The following table sets forth certain statement of operations items and as a percentage of revenue, for the periods indicated:
| | 52 weeks Ended | | | 52 Weeks Ended | | | | December 31, 2016 | | | January 2, 2016 | | Statement of Operations Data (in Thousands): | | | | | | | | | | | | | Revenue | | $ | 103,589 | | | | 100.0% | | | $ | 111,839 | | | | 100.0% | | Cost of Revenue | | | 74,924 | | | | 72.3% | | | | 86,391 | | | | 77.2% | | Gross Profit | | | 28,665 | | | | 27.7% | | | | 25,448 | | | | 22.8% | | Selling, General and Administrative Expense | | | 29,210 | | | | 28.2% | | | | 29,552 | | | | 26.4% | | Operating Income | | | (545 | ) | | | -0.5% | | | | (4,104 | ) | | | -3.7% | | Interest Expense, Net | | | (1,419 | ) | | | -1.4% | | | | (1,292 | ) | | | -1.2% | | Other Income (Expense) | | | 150 | | | | 0.1% | | | | (250 | ) | | | -0.2% | | Net Loss before Income taxes | | | (1,814 | ) | | | -1.8% | | | | (5,646 | ) | | | -5.0% | | Benefit of Income Taxes | | | (49 | ) | | | 0.0% | | | | (1,714 | ) | | | 1.5% | | Net Loss before Noncontrolling Interest | | | (1,765 | ) | | | -1.7% | | | | (3,932 | ) | | | -3.5% | | Net Loss attributed to Noncontrolling Interest | | | 314 | | | | 0.3% | | | | 1,215 | | | | 1.1% | | Net Loss attributed to ARCA | | $ | (1,451 | ) | | | -1.4% | | | $ | (2,717 | ) | | | -2.4% | |
The following tables set forth revenues for key product and service categories, percentages of total revenue and gross profits earned by key product and service categories and gross profit percent as compared to revenues for each key product category indicated:
| | 52 Weeks Ended | | | 52 Weeks Ended | | | | December 31, 2016 | | | January 2, 2016 | | | | Net | | | Percent | | | Net | | | Percent | | (in the Thousands) | | Revenue | | | of Total | | | Revenue | | | of Total | | Revenue | | | | | | | | | | | | | Retail Boxed | | $ | 40,569 | | | | 39.2% | | | $ | 40,602 | | | | 36.3% | | Retail UnBoxed | | | 17,719 | | | | 17.1% | | | | 21,647 | | | | 19.4% | | Retail Delivery | | | 1,449 | | | | 1.4% | | | | 1,416 | | | | 1.3% | | Retail Service, Parts & Accessories | | | 1,001 | | | | 1.0% | | | | 996 | | | | 0.9% | | Extended Warranties, net | | | 813 | | | | 0.8% | | | | 976 | | | | 0.9% | | Recycling, Byproducts, Carbon Offset | | | 28,541 | | | | 27.6% | | | | 21,650 | | | | 19.4% | | Replacement Appliances | | | 13,497 | | | | 13.0% | | | | 24,552 | | | | 22.0% | | Total Revenue | | $ | 103,589 | | | | 100.0% | | | $ | 111,839 | | | | 100.0% | |
| | 52 Weeks Ended | | | 52 Weeks Ended | | | | December 31, 2016 | | | January 2, 2016 | | | | Gross | | | Gross | | | Gross | | | Gross | | | | Profit | | | Profit % | | | Profit | | | Profit % | | Gross Profit | | | | | | | | | | | | | | | | | Retail Boxed | | $ | 10,946 | | | | 27.0% | | | $ | 11,608 | | | | 28.6% | | Retail UnBoxed | | | 5,646 | | | | 31.9% | | | | 6,908 | | | | 31.9% | | Retail Delivery | | | (1,818 | ) | | | -125.5% | | | | (2,460 | ) | | | -173.7% | | Retail Service, Parts & Accessories | | | 737 | | | | 73.6% | | | | 510 | | | | 51.2% | | Extended Warranties, net | | | 813 | | | | 100.0% | | | | 976 | | | | 100.0% | | Recycling, Byproducts, Carbon Offset | | | 7,811 | | | | 27.4% | | | | 206 | | | | 1.0% | | Replacement Appliances | | | 4,530 | | | | 33.6% | | | | 7,700 | | | | 31.4% | | Total Gross Profit | | $ | 28,665 | | | | 27.7% | | | $ | 25,448 | | | | 22.8% | |
Revenue
Revenue decreased $8,250 or 7.4% for the 52 weeks ended December 31, 2016 as compared to the 52 weeks ended January 2, 2016.
Revenue decreased in the following categories as compared to the prior year period:
Retail Boxed $33 or 0.1%, Retail Unboxed $3,928 or 18.1%, Extended Warranties, net $163 or 16.7% and Replacement Appliances $11,055 or 45.0%
The revenue decreases were partially offset by the following increases in revenue as compared to the prior year period:
Retail Delivery $33 or 2.3%, Retail Service, Parts and Accessories $5 or .5% and Recycling, Byproducts and Carbon offset $6,891 or 31.8%2021 (“fiscal 2020”).
Cost of Revenue
Cost of revenue decreased $11,467, or 13.3% for the 52 weeks ended December 31, 2016 as compared to the 52 weeks ended January 2, 2016, primarily as a result of the change in revenue discussed above as well as the changes in gross profit discussed below.
Gross Profit
Gross profit increased $3,217 or 12.6%, for the 52 weeks ended December 31, 2016 as compared to the 52 weeks ended January 2, 2016.
Gross profit increased in the following categories as compared to the prior year period:
Retail Delivery $642 or 26.1%, Retail Service, Parts and Accessories $227 or 44.5% and Recycling, Byproducts and Carbon Offset $7,605 or 3691.7%.
Gross profit increases were partially offset by the following decreases in gross profit as compared to the prior year period.
Retail Boxed $662 or 5.7%, Retail Unboxed $1,262 or 18.3%, Extended Warranties, net $163 or 16.7%, Replacement Appliances $3,170 or 41.2%.
Gross profit margin as a percentage of sales were flat for Retail Unboxed and Extended warranties, net.
Gross profit margin as a percentage of sales were improved for Retail Service, Parts and Accessories 73.6% vs. 51.2%, Recycling, Byproducts and Carbon Offset 27.4% vs. 1.0%, Replacement Appliances 33.6% vs. 31.4%, and Retail Delivery -125.5% vs. -173.7%.
Gross profit margin as a percentage of sales declined for Retail Boxed 27.0% vs. 28.6%.
Selling, General and Administrative Expense
Selling, general and administrative expense decreased $342 or 1.2%, for the 52 weeks ended December 31, 2016 as compared to the 52 weeks ended January 2, 2016. The decrease in selling, general and administrative expense was primarily attributable to cost saving overhead measures by AAP and the reduction of retail’s advertising and occupancy expense offset by operating new ARCA Recycling centers.
Operating Income
As a result of the factors described above, operating loss of $545 for the 52 weeks ended December 31, 2016, represented an improvement of $3,559 over the comparable prior 52 week period of $4,104.
Interest Expense, net
Interest expense net increased $127 or 9.8%, for the 52 weeks ended December 31, 2016 as compared to the 52 weeks ended January 2, 2016 primarily due to increased rates of interest paid on the PNC bank line of credit.
Other Income and Expense
Other income and expense increased $400 or 160.0%, for the 52 weeks ended December 31, 2016 as compared to the 52 weeks ended January 2, 2016. The increase in other income and expense was primarily the result of the gain on currency.
Benefit of Income Taxes
Benefit of income taxes decreased $1,665 or 97.1%, for the 52 weeks ended December 31, 2016 as compared to the 52 weeks ended January 2, 2016. The decrease in benefit of income taxes is primarily attributable to the decrease in pre-provision for income taxes loss and the application of statutory tax rates.
Net Loss
The factors described above led to a net loss of $1,451 for the 52 weeks ended December 31, 2016, or a 46.6% improvement from a net loss of $2,717 for the 52 weeks ended January 2, 2016.
Segment Performance
We report our business in the following segments: Retail and Recycling. We identified these segments based on a combination of business type, customers serviced and how we divide management responsibility. Our revenues and profits are driven through our physical stores, our recycling centers, e-commerce, individual sales reps and our internet services.
Operating income (loss) by operating segment, is defined as income (loss) before net interest expense, other income and expense, provision for income taxes and income (loss) attributable to non-controlling interest.
| | 52 Weeks Ended December 31, 2016 | | | 52 Weeks Ended January 2, 2016 | | | | Segments in $ | | | Segments - $ | | (in the Thousands) | | Retail | | | Recycling | | | Total | | | Retail | | | Recycling | | | Total | | Revenue | | $ | 61,551 | | | $ | 42,038 | | | $ | 103,589 | | | $ | 65,637 | | | $ | 46,202 | | | $ | 111,839 | | Cost of Revenue | | | 45,227 | | | | 29,697 | | | | 74,924 | | | | 48,095 | | | | 38,296 | | | | 86,391 | | Gross Profit | | | 16,324 | | | | 12,341 | | | | 28,665 | | | | 17,542 | | | | 7,906 | | | | 25,448 | | Selling, General and Administrative Expense | | | 17,970 | | | | 11,240 | | | | 29,210 | | | | 19,283 | | | | 10,269 | | | | 29,552 | | Operating Income (Loss) | | $ | (1,646 | ) | | $ | 1,101 | | | $ | (545 | ) | | $ | (1,741 | ) | | $ | (2,363 | ) | | $ | (4,104 | ) |
| | 52 Weeks Ended December 31, 2016 | | | 52 Weeks Ended January 2, 2016 | | | | Segments in % | | | Segments - % | | | | Retail | | | Recycling | | | Total | | | Retail | | | Recycling | | | Total | | Revenue | | | 100.0% | | | | 100.0% | | | | 100.0% | | | | 100.0% | | | | 100.0% | | | | 100.0% | | Cost of Revenue | | | 73.5% | | | | 70.6% | | | | 72.3% | | | | 73.3% | | | | 82.9% | | | | 77.2% | | Gross Profit | | | 26.5% | | | | 29.4% | | | | 27.7% | | | | 26.7% | | | | 17.1% | | | | 22.8% | | Selling, General and Administrative Expense | | | 29.2% | | | | 26.7% | | | | 28.2% | | | | 29.4% | | | | 22.2% | | | | 26.4% | | Operating Income (Loss) | | | -2.7% | | | | 2.6% | | | | -0.5% | | | | -2.7% | | | | -5.1% | | | | -3.7% | |
Retail Segment
Segment results for Retail include ApplianceSmart. Revenue for the 52 weeks ended December 31, 2016 decreased $4,086, or 6.2%, as compared to the prior year period, as a result of decreases in retail boxed $33 or 0.1%, retailed unboxed $3,928 or 18.1%, Extended warranties net $163 or 16.7%, partially offset by revenue increases in retail delivery $33 or 2.3% and retail services, parts and accessories $5 or 0.5%.
Cost of revenue for the 52 weeks ended December 31, 2016 decreased $2,868 or 6.0%, compared to the prior year period, as a result of cost of revenue decreases for retail unboxed $2,666 or 18.1%, retail delivery $609 or 15.7%, retail service, parts and accessories $222 or 45.7%, partially offset by an increase in retail boxed of $629 or 2.2%.
Operating income for the 52 weeks ended December 31, 2016 increased $95, as compared to the prior year period, as a result of decreased selling, general and administrative expense of $1,313, partially offset by a decrease in gross profit of $1,218.
Recycling Segment
Segment results for ARCA Recycling and AAP. Revenue for the 52 weeks ended December 31, 2016 decreased by $4,164, or 9.0%, as compared to the prior year period, as a result of a decrease in replacement appliance revenue $11,055 or 45.0%, partially offset by an increase in recycling, byproducts and carbon offset of $6,891 or 31.8%.
Cost of revenue for the 52 weeks ended December 31, 2016 decreased $8,599 or 22.5%, as compared to the prior year period; as a result of decreases in cost of revenue of replacement appliances $7,885 or 46.8% and recycling, byproducts, carbon offset $714 or 3.3%.
Operating income for the 52 weeks ended December 31, 2016 increased $3,464, as compared to the prior year period; as a result of increased gross profit of $4,435, partially offset by an increase in selling, general and administrative expense of $971.
Liquidity and Capital Resources
Overview
Based on our current operating plans, we believe that available cash balances, cash generated from our operating activities and funds available under our PNC Bank Revolver Loan - $15 million and or a replacement, an asset-based revolving credit facility will provide sufficient liquidity to fund our operations, our continued investments in store openings and remodeling activities for at least the next 12 months. It is the company’s intention to refinance and replace the PNC Bank Revolver loan facility and not renew it past maturity of May 1, 2017.
As of December 31, 2016, we had total cash on hand of $968 and an additional $3,234 of available borrowing under the PNC Bank Revolver Loan. As we continue to pursue strategic transactions to expand and grow our business, we regularly monitor capital market conditions and may raise additional funds through borrowings or public or private sales of debt or equity securities. The amount, nature and timing of any borrowings or sales of debt or equity securities will depend on our operating performance and other circumstances; our then-current commitments and obligations; the amount, nature and timing of our capital requirements; any limitations imposed by our current credit arrangements; and overall market conditions.
Cash Flows
During the 52 weeks ended December 31, 2016, cash provided by operations was $2,659, compared to cash used in operations of $3,409 during the 52 weeks ended January 2, 2016. The increase in cash provided by operations of $6,068 as compared to the prior period; was primarily due to a decrease in net loss of $2,167, an increase in amortization of deferred financing costs $78, an increase in deferred income taxes $515, an increase in other $20, an increase in changes in current assets and liabilities of $3,365; partially offset by a decrease in share based compensation of $71 and a decrease in depreciation and amortization of $6. An increase in cash provided by changes in current assets and liabilities of $3,365 was provided from a decrease in accounts receivable $1,596, a decrease in inventories $1,062, a decrease in income taxes receivable $1,546 and a decrease in other current assets of $101; partially offset by a decrease in cash provided by accounts payable and accrued expenses of $940.
Cash used in investing activities was $412 and $949 for the 52 weeks ended December 31, 2016 and the 52 weeks ended January 2, 2016, respectively. The $537 decrease in cash used in investing activities, as compared to the prior period, is primarily attributable to a decrease in purchases of property and equipment of $29, a decrease in restricted cash of $500, a decrease in other investing activities $15; partially offset by a decrease in the proceeds from the sale of property and equipment $7.
Cash used by financing activities was $3,224 and provided by financing activities of $3,012 for the 52 weeks ended December 31, 2016 and the 52 weeks ended January 2, 2016, respectively. The $6,236 decrease in cash provided/used by financing activities, as compared to the prior period, was attributable to increased payments on the line of credit $5,766, increased payments on debt obligations $184, decrease in new loan proceeds for debt obligations of $125, increase in debt issuance costs of $148; partially offset by an increase in tax deficiency related to share-based compensation of $11, and a decrease from the proceeds from issuance of common stock of $24.
Sources of Liquidity
We utilize cash on hand and cash generated from operations and have funds available to us under our revolving loan facility with PNC Bank to cover normal and seasonal fluctuations in cash flows and to support our various growth initiatives. Our cash and cash equivalents are carried at cost and consist primarily of demand deposits with commercial banks.
PNC Bank Revolver
ARCA may borrow funds for operations under the PNC Bank Revolver loan subject to availability as described in Note 6. On December 31, 2016 and January 2, 2016 – we had $3,234 and $1,382 of additional borrowing availability on the PNC Bank Revolver, respectively. Maximum borrowing under the PNC Bank Revolver is $15 million. A total of approximately $750 of letters of credit was outstanding at December 31, 2016. The weighted average interest rate for the period of January 2, 2016 through December 31, 2016 was 9.00%. We borrowed $96,900 and repaid $99,235 on the PNC Bank Revolver during the 52 weeks ended December 31, 2016; leaving an outstanding balance on the PNC Revolver of $10,333 and $12,668 at December 31, 2016 and January 2, 2016, respectively. As disclosed by the Company in Item 2.01 of its Current Report on Form 8-K filed on January 31, 2017, the Company sold and leased back its Compton building over an initial lease term of six months which can be terminated with a 30 day notice. The net proceeds from the sale were used to reduce the outstanding balance under our revolving credit agreement to $5,752.
Future Sources of Cash; New Acquisitions, Products and Services
We may require additional debt financing and or capital to finance new acquisitions, refinance existing indebtedness or other strategic investments in our business. Other sources of financing may include stock issuances and additional loans; or other forms of financing. Any financing obtained may further dilute or otherwise impair the ownership interest of our existing stockholders.
Off Balance Sheet Arrangements and Contractual Obligations
Other than operating leases, we do not have any off balance sheet financing. A summary of our operating lease obligations by2019 fiscal year is included in “Note 9. Commitments and Contingencies” of the Notes to Consolidated Financial Statements included in “Item 8. Financial Statements and Supplementary Data.”
ended on December 28, 2019 (“fiscal 2019”). Application of Critical Accounting Policies Our discussion of the financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in conformity with accounting principles generally accepted in the United States. The preparation of our consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosure of any contingent assets and liabilities at the date of the financial statements. Management regularly reviews its estimates and assumptions, which are based on historical factors and other factors believed to be relevant under the circumstances. Actual results may differ from these estimates under different assumptions, estimates or conditions. Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties and potentially result in materially different results under different assumptions and conditions. See Note 2ARCA’s critical accounting policies include intangible impairment under ASC 350, revenue recognition under ASC 606, and going concern under ASC 205. Results of “Notes to Consolidated Financial Statements”Operations The following table sets forth certain statement of operations items from continuing operations and as a percentage of revenue, for additional disclosure of the application of these and other accounting policies.periods indicated: Inventories. Our inventories, consisting principally of appliances, are stated at the lower of cost, determined on a specific identification basis, or market. We provide estimated provisions for the obsolescence of our appliance inventories, including adjustments to market, based on various factors, including the age of such inventory and our management’s assessment of the need for such provisions. We look at historical inventory aging’s and margin analyses in determining our provision estimate. Historically, our actual experience has not differed significantly from our estimates.
Long-Lived Assets.We review our long-lived assets for impairment whenever events or changes in circumstances indicate that our carrying value of long-lived assets may not be recoverable. Long-lived assets are considered not recoverable when the carrying amount of a long-lived asset (asset group) exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset (asset group). If it is determined that a long-lived asset (asset group) is not recoverable, an impairment loss is recorded equal to the excess of the carrying amount of the long-lived asset (asset group) over the long-lived assets (asset group's) fair value. Fair value is the amount at which the long-lived asset (asset group) could be bought or sold in a current transaction between a willing buyer and seller, other than in a forced or liquidation sale.
| | Fiscal Year Ended | | | Fiscal Year Ended | | | | January 2, 2021 | | | December 28, 2019 | | Statement of Operations Data: | | | | | | | | | | | | | | | | | Revenues | | $ | 33,867 | | | | 100.0 | % | | $ | 35,097 | | | | 100.0 | % | Cost of revenues | | | 25,040 | | | | 73.9 | % | | | 27,311 | | | | 77.8 | % | Gross profit | | | 8,827 | | | | 26.1 | % | | | 7,786 | | | | 22.2 | % | Selling, general and administrative expenses | | | 17,823 | | | | 52.6 | % | | | 20,217 | | | | 57.6 | % | Operating loss | | | (8,996 | ) | | | (26.6 | )% | | | (12,431 | ) | | | (35.4 | )% | Interest expense, net | | | (504 | ) | | | (1.5 | )% | | | (1,480 | ) | | | (4.2 | )% | Impairment charges | | | — | | | | — | | | | (2,992 | ) | | | (11.0 | )% | Gain on litigation settlement | | | 418 | | | | 4.7 | % | | | 694 | | | | 8.9 | % | Gain on settlement of vendor advance payments | | | 142 | | | | 0.8 | % | | | — | | | | — | | Other income | | | 15 | | | | 0.0 | % | | | 1,048 | | | | 3.0 | % | Net loss before income taxes | | | (8,925 | ) | | | (26.4 | )% | | | (15,161 | ) | | | (43.2 | )% | Benefit from income taxes | | | 427 | | | | 1.3 | % | | | 3,197 | | | | 9.1 | % | Net loss | | $ | (8,498 | ) | | | (25.1 | )% | | $ | (11,964 | ) | | | (34.1 | )% |
Income Taxes. We account56
The following tables set forth revenues for income taxeskey product and service categories, percentages of total revenue and gross profits earned by key product and service categories and gross profit percent as compared to revenues for each key product category indicated: | | Fiscal Year Ended | | | Fiscal Year Ended | | | | January 2, 2021 | | | December 28, 2019 | | | | Net | | | Percent | | | Net | | | Percent | | | | Revenue | | | of Total | | | Revenue | | | of Total | | Revenue | | | | | | | | | | | | | | | | | Recycling and Byproducts | | $ | 18,262 | | | | 53.9 | % | | $ | 21,445 | | | | 61.1 | % | Replacement Appliances | | | 15,605 | | | | 46.1 | % | | | 13,652 | | | | 38.9 | % | Total Revenue | | $ | 33,867 | | | | 100.0 | % | | $ | 35,097 | | | | 100.0 | % | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Fiscal Year Ended | | | Fiscal Year Ended | | | | January 2, 2021 | | | December 28, 2019 | | | | Gross | | | Gross | | | Gross | | | Gross | | | | Profit | | | Profit % | | | Profit | | | Profit % | | Gross Profit | | | | | | | | | | | | | | | | | Recycling and Byproducts | | $ | 2,005 | | | | 11.0 | % | | $ | 3,890 | | | | 18.1 | % | Replacement Appliances | | | 6,822 | | | | 43.7 | % | | | 3,896 | | | | 28.5 | % | Total Gross Profit | | $ | 8,827 | | | | 26.1 | % | | $ | 7,786 | | | | 22.2 | % |
Revenue Revenue remained relatively constant for the fiscal year ended January 2, 2021 as compared to the fiscal year ended December 28, 2019. Replacement Appliance revenue increased $1,953 or 14.3% due to higher volumes from two customers, offset by a decrease in Recycling and Byproducts revenue of $3,183 or 14.8% due to the temporary closure of our facilities as a result of COVID-19 and decreased volumes from our customers. Cost of Revenue Cost of revenue decreased $2,271, or 8.3% for the fiscal year ended January 2, 2021 as compared to the fiscal year ended December 28, 2019, primarily due to cost cutting efforts and the temporary closure of our facilities due to COVID-19. Selling, General and Administrative Expense Selling, general and administrative expense decreased $2,394 or 11.8%, for the fiscal year ended January 2, 2021 as compared to the fiscal year ended December 28, 2019, primarily due to a temporary reduction in employees, cost cutting measures and other activities related to the closure of our facilities due to COVID-19. Interest Expense, net Interest expense net decreased $976 or 65.9%, for the fiscal year ended January 2, 2021 as compared to the fiscal year ended December 28, 2019 primarily due to the decrease in the related party debt balance. Impairment Charges On December 9, 2019, ApplianceSmart, Inc. (“ApplianceSmart”), a former subsidiary of the Company, filed a voluntary petition in the United States Bankruptcy Court for the Southern District of New York seeking relief under Chapter 11 of Title 11 of the United States Code. As a result, the Company has recorded an impairment charge of $2,992 for the amount owed by ApplianceSmart to the Company as of December 28, 2019. There were no similar impairment charges for the fiscal year ended January 2, 2021. 57
See Note 4 of the Consolidated Financial Statements for a complete discussion of the ApplianceSmart Note. Gain (Loss) on Litigation Settlement As of January 2, 2021, the Company recorded a net gain on litigation settlement of $418 comprised of the $800 gain on settlement of litigation with a former service provider (discussed below), partially offset by a loss on settlement of outstanding payables of $382. On October 4, 2018, the Company initiated litigation against a former professional services provider (“PSP”), in Illinois state court, as well as a private arbitration proceeding that was scheduled to be held in Minneapolis, Minnesota, arising from PSP’s rendering of certain professional services to the Company during the period from 2011 through 2014. PSP filed a counterclaim in the arbitration seeking an award of its legal fees and costs arising from that proceeding. The parties subsequently agreed to consolidate their respective claims into the arbitration. The Company’s arbitration demand, as amended, sought an award of more than $50 and other relief. On March 23, 2020, the parties entered into a settlement agreement, whereby, without any admission of liability, they exchanged mutual releases, agreed to dismiss their respective claims with prejudice, and PSP agreed to pay $800 to the Company to, among other things, assist it with certain of its costs and obligations that related to various issues underlying the arbitration proceeding. On November 15, 2016, the Company served an arbitration demand on Haier US Appliance Solutions, Inc., dba GE Appliances (“GEA”), alleging breach of contract and interference with prospective business advantage. On April 18, 2017, GEA served a counterclaim regarding alleged obligations under the liability method. Deferred tax liabilities are recognized for temporary differences that will resultparties’ recycling agreement. On December 12, 2017, the court stayed GEA’s complaint in taxable amounts in future years. Deferred tax assets are recognized for deductible temporary differences and tax operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured usingfavor of the enacted tax rates expected to apply to taxable income inarbitration. Under the periods in which the deferred tax asset or liability is expected to be realized or settled. We assess the likelihood that our deferred tax assets will be recovered from future taxable income and record a valuation allowance to reduce our deferred tax assets to the amounts we believe to be realizable. We regularly evaluate both positive and negative evidence related to either recording or retaining a valuation allowance against our deferred tax assets. Share-Based Compensation. We recognize compensation expense on a straight-line basis over the vesting period for all share-based awards granted. We use the Black-Scholes option pricing model to determine the fair value of awards at the grant date. We calculate the expected volatility for stock options and awards using historical volatility. We estimate a 0%-5% forfeiture rate for stock options issued to employees and Board of Directors members, but will continue to review these estimates in future periods. The risk-free rates for the expected terms of the stock options are basedCompany’s transaction with Recleim LLC (“Recleim”), Recleim is obligated to pay GEA on the U.S. Treasury yield curve in effect atCompany’s behalf the time of the grant. The expected life represents the period that the stock option awards are expected to be outstanding. The expected dividend yield is zero as we have not paid or declared any cash dividends on our common stock.
Revenue Recognition. We recognize revenue from appliance salesamounts claimed by GEA in the period the consumer purchasesarbitration and pays for the appliance, net of an allowance for estimated returns. We recognize revenue from appliance recycling when we collect and process a unit. We recognize revenue generated from appliance replacement programs when we deliver the new appliance and collect and process the old appliance. The delivery, collection and processing activities under our replacement programs typically occur within one business day and are required to complete the earnings process; there are no other performance obligations. We recognize byproduct revenue upon shipment. We recognize revenue on extended warranties with retained service obligations on a straight-line basis over the period of the warranty. On extended warranty arrangements that we sell but others service for a fixed portion of the warranty sales price, we recognize revenue for the net amount retained at the time of sale of the extended warranty to the consumer. As a result of our recycling processes, we are able to produce carbon offsets from the destruction of certain types of ozone-depleting refrigerants. We record revenue from the sale of carbon offsets in the period when all of the following requirementslawsuit pending in Kentucky. Those amounts have been met: (i) there is persuasive evidence of an arrangement, (ii) the sales price is fixed or determinable, (iii) title, ownership and risk of loss associated with the credits have been transferred to the customer, and (iv) collectability is reasonably assured. These requirements are met upon collection of cash due to the uncertainty around collectability and the involvement of various third parties and partner. We include shipping and handling charges to customers in revenue, which are recognized in the period the consumer purchases and pays for delivery. The application of our revenue recognition policy does not involve significant uncertainties and is not subject to accounting estimates or assumptions having significant sensitivity to change.
Forward-Looking Statements
Statements contained in this annual report regarding our future operations, performance and results, and anticipated liquidity are forward-looking and, therefore, are subject to certain risks and uncertainties, including, but not limited to, those discussed herein. Any forward-looking information regarding our operations will be affected primarily by individual retail store profitability, the volume of appliance sales, the strength of energy conservation recycling and replacement programs and general economic conditions affecting consumer demand for appliances. Any forward-looking information will also be affected by our continued ability to purchase product from our suppliers at acceptable prices, the ability of individual retail stores to meet planned revenue levels, the number of retail stores, costs and expenses being realized at higher-than-expected levels, our ability to secure an adequate supply of special-buy appliances for resale, the ability to secure appliance recycling and replacement contracts with sponsors of energy efficiency programs, the ability of customers to supply units under their recycling contracts with us, the performance of our consolidated variable interest entity, the volatility of the scrap metals and other byproducts prices that we sell, the continued availability of our current line of credit andpaid into escrow pending the outcome of the pendingarbitration. Arbitration proceedings were held in October and November 2019. On March 5, 2020, the arbitrator ruled in part in favor of the Company and in part in favor of GEA, and, as a result, the Company recorded a gain on litigation settlement of $694.
See Note 15 of the Consolidated Financial Statements for a complete litigation discussion. Other Income Other income was $15 for the fiscal year ended January 2, 2021 as compared to $1,048 the fiscal year ended December 28, 2019 primarily due to the discussion below. Sears Holdings Management Corp – Logistics Services On February 18, 2019, the Company informed Sears Holdings Management Corp – Logistics Services (“Sears”) that Sears may have overcharged ARCA Recycling $642 and that it planned on filing a proof of claim with the trustee in the Sears’ bankruptcy against Sears for the overcharged amount. The Company requested that Sears provide contractual written proof to the contrary supporting their claim for invoices submitted in excess of the contractually agreed upon amounts for transportation services. Sears provided transportation services to ARCA Recycling in fiscal years 2013 through 2018. ARCA Recycling recorded $559 as outstanding and un-paid accounts payable as of December 28, 2019. The Company wrote off the overcharged amount of $559 as other income in the consolidated results for the fiscal year ended December 28, 2019. Segment Performance We report our business in the following segments: Biotechnology, Recycling and Technology. We identified these segments based on a combination of business type, customers serviced and how we divide management responsibility. Our revenues and profits are driven through our recycling centers, e-commerce, individual sales reps and use tax examinationour internet services for our recycling and technology segment. We expect revenues and profits for our biotechnology segment to be driven by the development of pharmaceuticals that treat the root cause of pain but are non-opioid painkillers. We include Corporate expenses within the Recycling segment. 58
Operating loss by operating segment, is defined as loss before net interest expense, other income and expense, provision for income taxes. | | Fiscal Year Ended January 2, 2021 | | | Fiscal Year Ended December 28, 2019 | | | | Biotechnology | | | Recycling | | | Technology | | | Total | | | Biotechnology | | | Recycling | | | Technology | | | Total | | Revenue | | $ | — | | | $ | 33,867 | | | $ | — | | | $ | 33,867 | | | $ | — | | | $ | 35,097 | | | $ | — | | | $ | 35,097 | | Cost of revenue | | | — | | | | 25,040 | | | | — | | | | 25,040 | | | | — | | | | 27,311 | | | | — | | | | 27,311 | | Gross profit | | | — | | | | 8,827 | | | | — | | | | 8,827 | | | | — | | | | 7,786 | | | | — | | | | 7,786 | | Selling, general and administrative expense | | | 1,738 | | | | 11,999 | | | | 4,086 | | | | 17,823 | | | | 1,038 | | | | 14,183 | | | | 4,996 | | | | 20,217 | | Operating loss | | $ | (1,738 | ) | | $ | (3,172 | ) | | $ | (4,086 | ) | | $ | (8,996 | ) | | $ | (1,038 | ) | | $ | (6,397 | ) | | $ | (4,996 | ) | | $ | (12,431 | ) |
Biotechnology Segment Our biotechnology segment commenced operations in California.September 2019, and, as a result, incurred expenses of $1,038 and $1,738 related to employee costs and the operating license issued during the fourth quarter of 2019 and fiscal 2020, respectively. Recycling Segment The recycling segment consists of ARCA Recycling, Customer Connexx, and ARCA Canada. Revenue remained relatively flat for the fiscal year ended January 2, 2021 as compared to the fiscal year ended December 28, 2019. Replacement Appliance revenue increased $1,953 or 14.3% due to higher volumes from two customers, offset by a decrease in Recycling and Byproducts revenue of $3,183 or 14.8% due to the temporary closure of our facilities as a result of COVID-19 and decreased volumes from our customers. Cost of revenue decreased $2,271, or 8.3% for the fiscal year ended January 2, 2021 as compared to the fiscal year ended December 28, 2019, primarily due to cost cutting efforts and the temporary closure of our facilities due to COVID-19. Operating loss for the fiscal year ended January 2, 2021, decreased $3,225 or 50.4% as compared to the prior year period. This represents an increase in gross profit of $1,041 and a decrease in selling, general and administrative expense of $2,184. The decrease in selling, general and administrative expense is primarily attributable to due to a temporary reduction in employees, cost cutting measures and other activities related to the closure of our facilities due to COVID-19. Technology Segment The technology segment consists of GeoTraq. Results for the fiscal year ended January 2, 2021 include a loss of $4,086 which approximated the fiscal year ended December 28, 2019 loss of $4,996. The loss represents intangible asset amortization expense and other selling general and administrative expense for each period. Liquidity and Capital Resources Overview As of January 2, 2021, we had total cash on hand of $379. As we continue to prepare to begin late-stage clinical development with our pharmaceutical product, JAN101, and potentially pursue strategic transactions to expand and grow our business, we regularly monitor capital market conditions and may raise additional funds through borrowings or public or private sales of debt or equity securities. The amount, nature and timing of any borrowings or sales of debt or equity securities will depend on our operating performance and other circumstances; our then-current commitments and obligations; the amount, nature and timing of our capital requirements; any limitations imposed by our current credit arrangements; and overall market conditions. 59
In December 2019, the 2019 novel coronavirus (COVID-19) surfaced in Wuhan, China. The World Health Organization declared a global emergency on January 30, 2020, and most countries initiated travel restrictions limiting travel to other countries and lock-downs within their borders. While various vaccines have recently been introduced into the marketplace, the impacts of variant strains of the COVID-19 virus is still unknown. The widespread health crisis has adversely affected the global economy, resulting in an economic downturn that could impact demand for our products. To date, the outbreak had a material adverse impact on our operations. For example, several customers in our appliance recycling and appliance replacement business have previously suspended our ability to pick up and or replace their customers’ appliances resulting in decreased revenues for both recycling and replacement business. The future impact of the outbreak is highly uncertain and cannot be predicted and there is no assurance that the outbreak will not have another material adverse impact on the future results of the Company. The extent of the impact, if any, will depend on future developments, including actions taken to contain the coronavirus. A key task for the Company in 2021 is to begin late-stage clinical development with its pharmaceutical product, JAN101. However, the COVID-19 pandemic significantly impacted clinical trials in 2020, delaying recruitment in most non-COVID-19 clinical trials and even eliminating recruitment in some trials. While clinical sites have largely resumed conducting non-COVID-19 clinical trials, the backlog of subjects may adversely affect our ability to recruit for its trial, leading to longer and more expensive trials. In addition, the unknown effectiveness of the COVID-19 vaccines, particularly concerning variant strains of COVID-19, could lead to clinical sites terminating patient recruitment again during the course of the study. On May 1, 2020, the Company entered into a promissory note (the “Promissory Note”) with Texas Capital Bank, N.A. that provides for a loan in the amount of $1,872 (the “PPP Loan”) pursuant to the Paycheck Protection Program under the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”). The PPP Loan matures on April 27, 2022 and bears interest at a rate of 1.0% per annum. Monthly amortized principal and interest payments are deferred for six months after the date of disbursement. The Promissory Note contains events of default and other provisions customary for a loan of this type. The Paycheck Protection Program provides that the use of PPP Loan amount shall be limited to certain qualifying expenses and may be partially or wholly forgiven in accordance with the requirements set forth in the CARES Act. The Company has applied for forgiveness of a portion of the loan in accordance with the terms of the CARES Act to the extent applicable. As of the period ending September 26, 2020, the Company received advance payments authorized by the California Public Utilities Commission and processed through two California utilities for the purposes of sustaining the workforce during the COVID 19 pandemic shutdown. The use of these funds was limited to labor and labor benefits for impacted employees. Portions of these advances are forgivable if certain conditions are met the specifics which have not been finalized. Advance payments that are not forgiven will need to be paid back in full by December 31, 2021. Total funding received under this program as of September 26, 2020 amounted to $1,168. As of January 2, 2021, $142 was forgiven, leaving a balance remaining of $1,026. On January 29, 2021, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with certain institutional investors (the “Purchasers”) for the sale by the Company in a registered direct offering (the “Offering”) of 571,428 shares of the Company’s common stock, par value $0.001 per share (the “Common Stock”), at a purchase price per share of Common Stock of $10.50. ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
On February 2, 2021, the Offering closed and the Company received gross proceeds of approximately $6,000, before deducting placement agent fees and other offering expenses. The Company is utilizing the net proceeds for general working capital. Based on our current operating plans, we believe that available cash balances, funds available under our factoring agreement with Prestige Capital Finance, LLC (“Prestige Capital”), and or other refinancing of existing indebtedness will provide sufficient liquidity to fund our operations, our continued investments in store openings and remodeling activities for at least the next 12 months. 60
Cash Flows During the fiscal year ended January 2, 2021, cash used in operations was $617, compared to cash used in operations of $3,510 during the fiscal year ended December 28, 2019. The decrease in cash used in operations was primarily due to the decrease in net loss, discussed above, offset by noncash decrease impairment charges of $2,992 and a decrease in deferred income taxes of $3,009. Additionally, changes in working capital accounts affecting operating cash flows were as follows: a decrease in accounts receivable of $3,745 and accounts payable and accrued expenses of $3,023. Cash used in investing activities was $834 for the fiscal year ended January 2, 2021 was attributable to purchases of property and equipment and intangibles. Cash provided by investing activities of $345 for fiscal year ended December 28, 2019 was primarily attributable the net payments received on a note receivable from ApplianceSmart of $845, offset by the purchases of property and equipment of $212 and intangible assets of $288. Cash provided by financing activities was $1,404 for the fiscal year ended January 2, 2021 was related to proceeds from short term debt of $3,469 primarily associated with the Payroll Protection Program and advances from certain customers for future services and payment of $1,500 on its related party note. Cash provided by financing activities was $2,462 for the fiscal year ended December 28, 2019 was primarily related to the $2,500 proceeds on the related party note. Sources of Liquidity We utilize cash on hand and factor on occasion certain accounts receivable invoices to cover normal and seasonal fluctuations in cash flows and to support our various growth initiatives. Our cash and cash equivalents are carried at cost and consist primarily of demand deposits with commercial banks. On March 26, 2018, the Company entered into a purchase and sale agreement with Prestige Capital, whereby from time to time the Company can factor certain accounts receivable to Prestige Capital up to a maximum advance and outstanding balance of $11,000. Discount fees ultimately paid depend upon how long an invoice and related amount is outstanding from ARCA Recycling’s customer. Prestige Capital has been granted a security interest in all ARCA Recycling’s accounts receivable. The current purchase and sale agreement with Prestige Capital automatically renews every six months unless terminated by the parties. We acknowledge that we continue to face a challenging competitive environment as we continue to focus on our overall profitability, including managing expenses. We reported a net loss of $8,498 and $11,964 in 2020 and 2019, respectively. In addition, the Company has total current assets of $6,941 and total current liabilities $20,597 resulting in a net negative working capital of $13,656. In Item 1A. Risk Factors, management has addressed and evaluated the risk factors that could materially and adversely affect the entity’s business, financial condition and results of operations, cash flows and liquidity. The Company has determined the risk factors do not materially affect the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued. Based on the above, management has concluded that the Company is not aware and did not identify any other conditions or events that would cause the Company to not be able to continue business as a going concern for the next twelve months. Future Sources of Cash; New Acquisitions, Products and Services We may require additional debt financing and/or capital to finance new acquisitions, refinance existing indebtedness or consummate other strategic investments in our business. Any financing obtained may further dilute or otherwise impair the ownership interest of our existing stockholders. Off Balance Sheet Arrangements At January 2, 2021, we had no off-balance sheet arrangements, commitments or guarantees that require additional disclosure or measurement. 61
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Market Risk and Impact of Inflation Interest Rate Risk. We do not believe there is any significant risk related to interest rate fluctuations on our short and long-term fixed-ratefixed rate debt. There is interest rate risk on the revolving line of credit, PNC term loan and Susquehanna term loans, since our interest rate floats with prime and LIBOR. The outstanding balance on our floating rate debt as of December 31, 2016, was approximately $14.6 million. Based on average floating rate borrowings of $15.9 million, a hypothetical 100 basis point change in the applicable interest rate would have caused our interest expense to change by approximately $0.2 million for the fiscal year ended December 31, 2016. Foreign Currency Exchange Rate Risk. We currently generate revenues in Canada. The reporting currency for our consolidated financial statements is U.S. dollars. It is not possible to determine the exact impact of foreign currency exchange rate changes; however, the effect on reported revenue and net earnings can be estimated. We estimate that the overall strength of the U.S. dollar against the Canadian dollar had an immaterial impact on the revenues and net income for the fiscal year ended December 31, 2016.January 2, 2021. We do not currently hedge foreign currency fluctuations and do not intend to do so for the foreseeable future. We do not hold any derivative financial instruments;instruments, nor do we hold any securities for trading or speculative purposes. 62
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ITEM 8. Description | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
Description | | Page | | | | | ReportsReport of Independent Registered Public Accounting FirmsFirm
| | | 28 | F-1 | | | | | | Consolidated Balance Sheets as of December 31, 2016 and January 2, 20162021 and December 28, 2019 | | | 29 | F-4 | | | | | | Consolidated Statements of Operations and Comprehensive Income (Loss)Loss for the fiscal years ended
December 31, 2016 and January 2, 20162021 and December 28, 2019 | | | 30 | F-5 | | | | | | Consolidated Statements of Shareholders’ Equity for the fiscal years ended December 31, 2016 and January 2, 20162021 and December 28, 2019 | | | 31 | F-6 | | | | | | Consolidated Statements of Cash Flows for the fiscal years ended December 31, 2016 and January 2, 20162021 and December 28, 2019 | | | 32 | F-7 | | | | | | Notes to Consolidated Financial Statements | | | 34 | F-8 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and Board of Directors and Appliance Recycling CentersStockholders of America,JanOne Inc.
175 Jackson Ave. N. Ste. 102
Minneapolis, Minnesota 55343Las Vegas, Nevada
ReportOpinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheetsheets of Appliance Recycling Centers of America,JanOne Inc. (the “Company”) as of January 2, 2021 and December 31, 2016,28, 2019, and the related consolidated statements of operations and comprehensive loss, changes in stockholders’ equity, and cash flows for each of the year thentwo years in the period ended January 2, 2021, and the related notes (collectively referred to as the consolidated“consolidated financial statements. Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
statements”). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company at January 2, 2021 and December 31, 2016,28, 2019, and the results of itstheir operations and itstheir cash flows for each of the year thentwo years in the period ended January 2, 2021, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion /s/ Anton & Chia, LLP | | | Newport Beach, California | March 31, 2017 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders, Audit Committee and Board of Directors
Appliance Recycling Centers of America, Inc. and Subsidiaries
Minneapolis, Minnesota
We have audited the accompanying consolidated balance sheet of Appliance Recycling Centers of America, Inc. and Subsidiaries as of January 2, 2016 and the related consolidated statements of operations and comprehensive loss, shareholders' equity and cash flows for the year then ended. These consolidated financial statements are the responsibility of the company'sCompany’s management. Our responsibility is to express an opinion on thesethe Company’s consolidated financial statements based on our audit.
audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our auditaudits in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the auditaudits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement.misstatement, whether due to error or fraud. The companyCompany is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included considerationAs part of itsour audits we are required to obtain an understanding of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’sCompany’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supportingregarding the amounts and disclosures in the consolidated financial statements. An auditOur audits also includes assessingincluded evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statement presentation.statements. We believe that our audit providesaudits provide a reasonable basis for our opinion. Critical Audit Matter In our opinion,The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements referredthat was communicated or required to above present fairly,be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in all material respects,any way our opinion on the consolidated financial positionstatements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
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Revenue Recognition As described in Notes 2 and 21 to the consolidated financial statements, the Company’s consolidated revenue balance was $33.8 million for the year ended January 2, 2021. The Company recognizes revenue at the point in time when control is transferred to the end user, when the Company’s performance obligations are satisfied, which typically occurs upon delivery from the Company’s center facility and installation at the end user’s home. We identified revenue recognition as a critical audit matter. Auditing revenue recognition involved especially challenging, subjective or complex auditor judgment due to the nature and extent of Appliance Recycling Centersaudit effort required to address this matter. The primary procedures we performed to address this critical audit matter included: Evaluating the Company’s revenue recognition policy for conformity with accounting principles generally accepted in the United States of America, Inc.America. Inspected executed contracts to identify the relevant performance obligations and Subsidiariesevaluated the accounting treatment for each performance obligation. Testing individual revenue transactions for proper revenue recognition in accordance with the Company’s revenue recognition policy. Assessing the Company’s disclosures related to revenue recognition for conformity with accounting principles generally accepted in the United States of America. Intangible Asset Impairment Assessment As described in Notes 2 and 8 to the consolidated financial statements, the Company’s intangible assets balance was $14 million as of January 2, 20162021. Intangible assets are tested for recoverability annually or whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. The determination of the recoverability of intangible assets requires management to make significant estimates and the resultsassumptions related to forecasts of their operations and theirexpected cash flows to be derived from the asset group for the year then ended,remaining useful life of the asset group’s primary asset. We identified the intangible asset impairment assessment as a critical audit matter based on the materiality of the amounts involved together with the inherent subjectivity related to the principal assumptions, which are dependent on current and future economic factors, including uncertainties arising from the COVID-19 pandemic; hence the assessment of the carrying value of intangible assets is considered to be complex and determined to be a critical audit matter in conformityour current period audit. Auditing management’s judgments regarding forecasts of future cash flows from the intangible assets involved a high degree of subjectivity. The primary procedures we performed to address this critical audit matter included: Obtaining an understanding of management’s process for its impairment assessment and analysis for the intangible assets. Evaluating management’s ability to accurately forecast by comparing actual and budgeted results with U.S. generally accepted accounting principles.historical performance, understanding changes to the Company’s business model, and determining whether assumptions used in the forecast were consistent with evidence obtained in other areas of the audit. Evaluated the appropriateness of judgments applied by management while assessing the future potential impact of the COVID-19 pandemic. Obtaining third-party evidence in support of management’s assumptions used in developing the forecasted cash flows from the intangible assets. F-2
Performing independent sensitivity analysis of key assumptions, including the timing and amount of forecasted cash flows to assess the effect of possible variations on the current estimated value for the intangible assets. /s/ WSRP LLP We have served as the Company's auditor since 2019. Salt Lake City, Utah March 30, 2021 F-3
JANONE INC. CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except per share amounts) /s/ Baker Tilly Virchow Krause, LLP
Minneapolis, Minnesota
April 1, 2016
| | January 2, 2021 | | | December 28, 2019 | | Assets | | | | | | | | | Cash and cash equivalents | | $ | 379 | | | $ | 481 | | Trade and other receivables, net | | | 3,600 | | | | 6,578 | | Income taxes receivable | | | 196 | | | | 76 | | Inventories | | | 1,630 | | | | 1,348 | | Prepaid expenses and other current assets | | | 1,136 | | | | 356 | | Total current assets | | | 6,941 | | | | 8,839 | | Property and equipment, net | | | 732 | | | | 324 | | Right of use asset - operating leases | | | 2,458 | | | | 1,894 | | Intangible assets, net | | | 13,989 | | | | 17,705 | | Deposits and other assets | | | 231 | | | | 272 | | Total assets | | $ | 24,351 | | | $ | 29,034 | | Liabilities and Stockholders' Equity | | | | | | | | | Liabilities: | | | | | | | | | Accounts payable | | $ | 4,701 | | | $ | 4,365 | | Accrued liabilities - other | | | 4,888 | | | | 3,938 | | Accrued liability - California Sales Taxes | | | 5,769 | | | | 5,438 | | Lease obligation short term - operating leases | | | 1,197 | | | | 1,079 | | Short term debt | | | 3,042 | | | | 280 | | Related party note | | | 1,000 | | | | 2,473 | | Total current liabilities | | | 20,597 | | | | 17,573 | | Lease obligation long term - operating leases | | | 1,388 | | | | 850 | | Deferred income taxes, net | | | — | | | | 270 | | Total liabilities | | | 21,985 | | | | 18,693 | | Commitments and Contingencies (Note 15) | | | | | | | | | Stockholders' equity: | | | | | | | | | Preferred stock, series A-1 - par value $0.001 per share 2,000,000 authorized, 259,729 and 259,729 shares issued and outstanding at January 2, 2021 and December 28, 2019, respectively | | | — | | | | — | | Common stock, par value $0.001 per share, 200,000,000 shares authorized, 1,829,982 and 1,919,048 shares issued and outstanding at January 2, 2021 and at December 28, 2019, respectively | | | 2 | | | | 2 | | Additional paid in capital | | | 39,869 | | | | 39,291 | | Accumulated deficit | | | (36,917 | ) | | | (28,419 | ) | Accumulated other comprehensive loss | | | (588 | ) | | | (533 | ) | Total stockholders' equity | | | 2,366 | | | | 10,341 | | Total liabilities and stockholders' equity | | $ | 24,351 | | | $ | 29,034 | |
APPLIANCE RECYCLING CENTERS OF AMERICA,The accompanying notes are an integral part of these consolidated financial statements.
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JANONE INC. CONSOLIDATED BALANCE SHEETS
(In Thousands)
| | December 31, 2016 | | | January 2, 2016 | | ASSETS | | | | | | | | | Current assets: | | | | | | | | | Cash and cash equivalents | | $ | 968 | | | $ | 1,969 | | Accounts receivable, net of allowance of $54 and $73, respectively | | | 10,509 | | | | 11,536 | | Inventories | | | 16,291 | | | | 16,733 | | Income taxes receivable | | | 16 | | | | 1,126 | | Other current assets | | | 761 | | | | 1,350 | | Total current assets | | | 28,545 | | | | 32,714 | | Property and equipment, net | | | 10,116 | | | | 10,985 | | Restricted cash | | | 500 | | | | 500 | | Other assets | | | 614 | | | | 596 | | Deferred income tax assets | | | 2,081 | | | | 1,984 | | Total assets (a) | | $ | 41,856 | | | $ | 46,779 | | | | | | | | | | | LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | | | | | | Current liabilities: | | | | | | | | | Accounts payable | | $ | 6,143 | | | $ | 7,019 | | Accrued expenses | | | 8,888 | | | | 8,934 | | Line of credit | | | 10,333 | | | | 12,668 | | Current maturities of long-term obligations | | | 2,093 | | | | 1,251 | | Total current liabilities | | | 27,457 | | | | 29,872 | | Long-term obligations, less current maturities | | | 2,826 | | | | 4,506 | | Other noncurrent liabilities | | | 364 | | | | 357 | | Total liabilities (a) | | | 30,647 | | | | 34,735 | | | | | | | | | | | Commitments and contingencies | | | | | | | | | | | | | | | | | | Shareholders’ equity: | | | | | | | | | Common Stock, no par value; 50,000 shares authorized, 6,655 shares issued and outstanding at December 31, 2016; 10,000 shares authorized, 5,901 shares issued and outstanding at January 2, 2016 | | | 22,405 | | | | 21,466 | | Accumulated deficit | | | (11,028 | ) | | | (9,577 | ) | Accumulated other comprehensive loss | | | (574 | ) | | | (565 | ) | Total shareholders’ equity | | | 10,803 | | | | 11,324 | | Noncontrolling interest | | | 406 | | | | 720 | | | | | 11,209 | | | | 12,044 | | Total liabilities and shareholders’ equity | | $ | 41,856 | | | $ | 46,779 | |
(a) Assets of AAP, the consolidated variable interest entity, that can only be used to settle obligations of AAP were $7,843 and $8,915 as of December 31, 2016 and January 2, 2016, respectively. Liabilities of AAP, for which creditors do not have recourse to the general credit of ARCA, were $2,180 and $2,838 as of December 31, 2016 and January 2, 2016, respectively.
See Notes to Consolidated Financial Statements.
APPLIANCE RECYCLING CENTERS OF AMERICA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (In Thousands, Except Per Share Amounts)Dollars in thousands, except per share amounts) | | For the fiscal years ended | | | | December 31, 2016 | | | January 2, 2016 | | Revenues: | | | | | | | Retail | | $ | 61,551 | | | $ | 65,637 | | Recycling | | | 31,677 | | | | 35,878 | | Byproduct | | | 10,361 | | | | 10,324 | | Total revenues | | | 103,589 | | | | 111,839 | | Cost of revenues | | | 74,924 | | | | 86,391 | | Gross profit | | | 28,665 | | | | 25,448 | | Selling, general and administrative expenses | | | 29,210 | | | | 29,552 | | Operating loss | | | (545 | ) | | | (4,104 | ) | Other expense: | | | | | | | | | Interest expense, net | | | (1,419 | ) | | | (1,292 | ) | Other expense, net | | | 150 | | | | (250 | ) | Loss before income taxes and noncontrolling interest | | | (1,814 | ) | | | (5,646 | ) | Benefit of income taxes | | | (49 | ) | | | (1,714 | ) | Net loss | | | (1,765 | ) | | | (3,932 | ) | Net loss attributable to noncontrolling interest | | | 314 | | | | 1,215 | | Net loss attributable to controlling interest | | $ | (1,451 | ) | | $ | (2,717 | ) | | | | | | | | | | Loss per common share: | | | | | | | | | Basic | | $ | (0.24 | ) | | $ | (0.47 | ) | Diluted | | $ | (0.23 | ) | | $ | (0.47 | ) | | | | | | | | | | Weighted average common shares outstanding: | | | | | | | | | Basic | | | 6,054 | | | | 5,833 | | Diluted | | | 6,221 | | | | 5,833 | | | | | | | | | | | Net loss | | $ | (1,765 | ) | | $ | (3,932 | ) | Other comprehensive loss, net of tax: | | | | | | | | | Effect of foreign currency translation adjustments | | | (9 | ) | | | 110 | | Total other comprehensive loss, net of tax | | | (9 | ) | | | 110 | | Comprehensive loss | | | (1,774 | ) | | | (3,822 | ) | Comprehensive loss attributable to noncontrolling interest | | | 314 | | | | 1,215 | | Comprehensive loss attributable to controlling interest | | $ | (1,460 | ) | | $ | (2,607 | ) |
See Notes to Consolidated Financial Statements.
| | Fiscal Years Ended | | | | January 2, 2021 | | | December 28, 2019 | | Revenues | | $ | 33,867 | | | $ | 35,097 | | Cost of revenues | | | 25,040 | | | | 27,311 | | Gross profit | | | 8,827 | | | | 7,786 | | Operating expenses: | | | | | | | | | Selling, general and administrative expenses | | | 17,823 | | | | 20,217 | | Operating loss | | | (8,996 | ) | | | (12,431 | ) | Other income (expense): | | | | | | | | | Interest expense, net | | | (504 | ) | | | (1,480 | ) | Impairment charges | | | — | | | | (2,992 | ) | Gain on litigation settlement | | | 418 | | | | 694 | | Gain on settlement of vendor advance payments | | | 142 | | | | — | | Other income | | | 15 | | | | 1,048 | | Total other income (expense), net | | | 71 | | | | (2,730 | ) | Loss before benefit from income taxes | | | (8,925 | ) | | | (15,161 | ) | Income tax benefit | | | 427 | | | | 3,197 | | Net loss | | $ | (8,498 | ) | | $ | (11,964 | ) | Loss per share: | | | | | | | | | Basic loss per share | | $ | (4.59 | ) | | $ | (6.78 | ) | Diluted loss per share | | $ | (4.59 | ) | | $ | (6.78 | ) | Weighted average common shares outstanding: | | | | | | | | | Basic | | | 1,852,147 | | | | 1,763,670 | | Diluted | | | 1,852,147 | | | | 1,763,670 | | | | | | | | | | | Net loss | | $ | (8,498 | ) | | $ | (11,964 | ) | Other comprehensive loss, net of tax | | | | | | | | | Effect of foreign currency translation adjustments | | | (55 | ) | | | — | | Total other comprehensive loss, net of tax | | | (55 | ) | | | — | | Comprehensive loss | | $ | (8,553 | ) | | $ | (11,964 | ) |
APPLIANCE RECYCLING CENTERS OF AMERICA,The accompanying notes are an integral part of these consolidated financial statements.
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JANONE INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In Thousands)
| | | | | | | | Accumulated | | | | | | | | | | | | | | | | | | | Other | | | | | | | | | | | | | Common Stock | | | Comprehensive | | | Accumulated | | | Noncontrolling | | | | | | | Shares | | | Amount | | | Loss | | | Deficit | | | Interest | | | Total | | Balance at January 3, 2015 | | | 5,788 | | | $ | 21,137 | | | $ | (675 | ) | | $ | (6,860 | ) | | $ | 1,935 | | | $ | 15,537 | | Net loss | | | – | | | | – | | | | – | | | | (2,717 | ) | | | (1,215 | ) | | | (3,932 | ) | Other comprehensive loss, net of tax | | | – | | | | – | | | | 110 | | | | – | | | | – | | | | 110 | | Issuance of Common Stock | | | 13 | | | | 24 | | | | – | | | | – | | | | – | | | | 24 | | Tax deficiency related to share-based compensation | | | – | | | | (11 | ) | | | – | | | | – | | | | – | | | | (11 | ) | Share-based compensation | | | 100 | | | | 316 | | | | – | | | | – | | | | – | | | | 316 | | Balance at January 2, 2016 | | | 5,901 | | | | 21,466 | | | | (565 | ) | | | (9,577 | ) | | | 720 | | | | 12,044 | | Net loss | | | – | | | | – | | | | – | | | | (1,451 | ) | | | (314 | ) | | | (1,765 | ) | Other comprehensive loss, net of tax | | | – | | | | – | | | | (9 | ) | | | – | | | | – | | | | (9 | ) | Issuance of Common Stock | | | 704 | | | | 694 | | | | – | | | | – | | | | – | | | | 694 | | Share-based compensation | | | 50 | | | | 245 | | | | – | | | | – | | | | – | | | | 245 | | Balance at December 31, 2016 | | | 6,655 | | | $ | 22,405 | | | $ | (574 | ) | | $ | (11,028 | ) | | $ | 406 | | | $ | 11,209 | |
See Notes to Consolidated Financial Statements.
APPLIANCE RECYCLING CENTERS OF AMERICA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWSCHANGES IN STOCKHOLDERS' EQUITY (In Thousands)Dollars in thousands) | | For the fiscal years ended | | | | December 31, 2016 | | | January 2, 2016 | | Operating activities | | | | | | | | | Net loss | | $ | (1,765 | ) | | $ | (3,932 | ) | Adjustments to reconcile net loss to net cash and cash equivalents provided by operating activities: | | | | | | | | | Depreciation and amortization | | | 1,264 | | | | 1,270 | | Share-based compensation | | | 245 | | | | 316 | | Amortization of deferred financing costs | | | 185 | | | | 107 | | Deferred income taxes | | | (97 | ) | | | (612 | ) | Other | | | 15 | | | | (5 | ) | Changes in assets and liabilities: | | | | | | | | | Accounts receivable | | | 1,012 | | | | (584 | ) | Inventories | | | 442 | | | | (620 | ) | Income taxes receivable | | | 1,132 | | | | (414 | ) | Other current assets | | | 167 | | | | 66 | | Accounts payable and accrued expenses | | | 59 | | | | 999 | | Net cash flows (used in) provided by operating activities | | | 2,659 | | | | (3,409 | ) | | | | | | | | | | Investing activities | | | | | | | | | Purchases of property and equipment | | | (375 | ) | | | (404 | ) | Decrease (increase) in restricted cash | | | – | | | | (500 | ) | Proceeds from sale of property and equipment | | | – | | | | 7 | | Other | | | (37 | ) | | | (52 | ) | Net cash flows used in investing activities | | | (412 | ) | | | (949 | ) | | | | | | | | | | Financing activities | | | | | | | | | Net (payments) borrowings under line of credit | | | (2,335 | ) | | | 3,431 | | Payments on debt obligations | | | (941 | ) | | | (757 | ) | Proceeds from issuance of debt obligations | | | 200 | | | | 325 | | Debt Issuance Costs | | | (148 | ) | | | – | | Tax deficiency related to share-based compensation | | | – | | | | (11 | ) | Proceeds from issuance of common stock | | | – | | | | 24 | | Net cash flows provided by (used in) financing activities | | | (3,224 | ) | | | 3,012 | | | | | | | | | | | Effect of changes in exchange rate on cash and cash equivalents | | | (24 | ) | | | (208 | ) | | | | | | | | | | Decrease in cash and cash equivalents | | | (1,001 | ) | | | (1,554 | ) | Cash and cash equivalents at beginning of year | | | 1,969 | | | | 3,523 | | Cash and cash equivalents at end of year | | $ | 968 | | | $ | 1,969 | |
See Notes to Consolidated Financial Statements.
| | Series A Preferred | | | Common Stock | | | Additional Paid in | | | Accumulated | | | Accumulated Other Comprehensive | | | | | | | | Shares | | | Amount | | | Shares | | | Amount | | | Capital | | | Deficit | | | Deficit | | | Total | | Balance, December 29, 2018 | | | 288,588 | | | $ | — | | | | 1,694,565 | | | $ | 2 | | | $ | 38,660 | | | $ | (16,518 | ) | | $ | (533 | ) | | $ | 21,611 | | Adoption of ASU 842 | | | — | | | | — | | | | — | | | | — | | | | — | | | | 63 | | | | — | | | | 63 | | Share based compensation | | | — | | | | — | | | | 224,483 | | | | — | | | | 631 | | | | — | | | | — | | | | 631 | | Shares cancelled | | | (28,859 | ) | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | Net loss | | | — | | | | — | | | | — | | | | — | | | | — | | | | (11,964 | ) | | | — | | | | (11,964 | ) | Balance, December 28, 2019 | | | 259,729 | | | $ | — | | | | 1,919,048 | | | $ | 2 | | | $ | 39,291 | | | $ | (28,419 | ) | | $ | (533 | ) | | $ | 10,341 | | Effect of foreign currency translation adjustment | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (55 | ) | | | (55 | ) | Share based compensation | | | — | | | | — | | | | 33,191 | | | | — | | | | 578 | | | | — | | | | — | | | | 578 | | Shares cancelled | | | — | | | | — | | | | (122,257 | ) | | | — | | | | — | | | | — | | | | — | | | | — | | Net loss | | | — | | | | — | | | | — | | | | — | | | | — | | | | (8,498 | ) | | | — | | | | (8,498 | ) | Balance, January 2, 2021 | | | 259,729 | | | $ | — | | | | 1,829,982 | | | $ | 2 | | | $ | 39,869 | | | $ | (36,917 | ) | | $ | (588 | ) | | $ | 2,366 | |
APPLIANCE RECYCLING CENTERS OF AMERICA,The accompanying notes are an integral part of these consolidated financial statements.
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JANONE INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands)Dollars in thousands) | | For the fiscal years ended | | | | December 31, 2016 | | | January 2, 2016 | | Supplemental disclosures of cash flow information | | | | | | | Cash payments for interest | | $ | 1,054 | | | $ | 970 | | Cash refunds for income taxes | | $ | (874 | ) | | $ | (694 | ) | | | | | | | | | | Non-cash investing and financing activities | | | | | | | | | Debt issuance costs related to credit agreement renewal | | $ | 63 | | | $ | – | | Debt issuance costs paid through the issuance of common stock | | $ | 694 | | | $ | – | |
| | Fiscal Years Ended | | | | January 2, 2021 | | | December 28, 2019 | | OPERATING ACTIVITIES: | | | | | | | | | Net loss | | $ | (8,498 | ) | | $ | (11,964 | ) | Adjustments to reconcile net loss to net cash used in operating activities: | | | | | | | | | Depreciation and amortization | | | 4,122 | | | | 4,076 | | Amortization of debt issuance costs | | | 27 | | | | 307 | | Stock based compensation expense | | | 578 | | | | 631 | | Gain on settlement of vendor advance payments | | | (142 | ) | | | — | | Impairment charges | | | — | | | | 2,992 | | Gain on litigation settlement | | | (418 | ) | | | (694 | ) | Other | | | 59 | | | | 131 | | Changes in assets and liabilities: | | | | | | | | | Accounts receivable | | | 2,980 | | | | (765 | ) | Prepaid expenses and other current assets | | | (780 | ) | | | 680 | | Change in deferred rent | | | — | | | | (48 | ) | Change in deferred compensation | | | — | | | | (148 | ) | Change in deferred income taxes | | | (270 | ) | | | (3,279 | ) | Income taxes receivable | | | (120 | ) | | | 25 | | Inventories | | | (282 | ) | | | (546 | ) | Right of use assets | | | 165 | | | | (295 | ) | Lease liabilities | | | (73 | ) | | | 329 | | Accounts payable and accrued expenses | | | 2,035 | | | | 5,058 | | Net cash used in operating activities | | | (617 | ) | | | (3,510 | ) | INVESTING ACTIVITIES: | | | | | | | | | Purchases of property and equipment | | | (507 | ) | | | (212 | ) | Purchase of intangible asset | | | (327 | ) | | | (288 | ) | Net payments received from ApplianceSmart Holdings LLC note receivable | | | — | | | | 845 | | Net cash provided by (used in) investing activities | | | (834 | ) | | | 345 | | FINANCING ACTIVITIES: | | | | | | | | | Proceeds from related party note | | | — | | | | 2,500 | | Payment on related party note | | | (1,500 | ) | | | — | | Proceeds from issuance of short term notes payable | | | 3,469 | | | | 471 | | Payments on short term notes payable | | | (565 | ) | | | (509 | ) | Net cash provided by financing activities | | | 1,404 | | | | 2,462 | | Effect of changes in exchange rate on cash and cash equivalents | | | (55 | ) | | | (11 | ) | DECREASE IN CASH AND CASH EQUIVALENTS | | | (102 | ) | | | (714 | ) | CASH AND CASH EQUIVALENTS, beginning of period | | | 481 | | | | 1,195 | | CASH AND CASH EQUIVALENTS, end of period | | $ | 379 | | | $ | 481 | |
| | Fiscal Years Ended | | | | January 2, 2021 | | | December 28, 2019 | | Supplemental cash flow disclosures: | | | | | | | | | Interest paid | | $ | 129 | | | $ | 133 | | Income taxes paid, net | | $ | 30 | | | $ | 263 | |
See Notes to Consolidated Financial Statements.The accompanying notes are an integral part of these consolidated financial statements.
F-7
JANONE INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands except per share amounts) Note 1: | 34 | Background and Basis of Presentation |
APPLIANCE RECYCLING CENTERS OF AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands Except Per Share Amounts)
1. Nature of Business and Basis of Presentation
Nature of business: Appliance Recycling Centers of America, Inc. and subsidiaries (“we,” the “Company” or “ARCA”) are in the business of providing turnkey appliance recycling and replacement services for electric utilities and other sponsors of energy efficiency programs. We also sell new major household appliances through a chain of Company-owned stores under the name ApplianceSmart®. In addition, we have a 50% interest in a joint venture operating under the name ARCA Advanced Processing, LLC (“AAP”), which recycles appliances in the Northeast and Mid-Atlantic regions of the United States.
Principles of consolidation:The accompanying consolidated financial statements include the accounts of JanOne Inc., a Nevada corporation, and its subsidiaries (collectively the “Company” or “JanOne”). On September 10, 2019, Appliance Recycling Centers of America, Inc. changed its name to JanOne Inc.
The Company has three operating segments – Biotechnology, Recycling, and Technology. During September 2019, JanOne, through its biotechnology segment, broadened its business perspectives to become a pharmaceutical company focused on finding treatments for conditions that cause severe pain and bringing to market drugs with non-addictive pain-relieving properties. ARCA Recycling, Inc. (“ARCA Recycling”) provides turnkey recycling services for electric utility energy efficiency programs in the United States. ARCA Canada Inc. (“ARCA Canada”) provides turnkey recycling services for electric utility energy efficiency programs in Canada. Customer Connexx, LLC (“Connexx”) provides call center services for ARCA Recycling and ARCA Canada. GeoTraq Inc. (“GeoTraq”) is engaged in the development, design and, ultimately, we expect the sale, of cellular transceiver modules, also known as Mobile IoT modules, and associated wireless services. We report on a 52- or 53-week fiscal year. Our 2020 fiscal year (“2020”) ended on January 2, 2021, and our fiscal year (“2019”) ended on December 28, 2019. Going concern The Company currently faces a challenging competitive environment and is focused on improving its overall profitability, which includes managing expenses. We reported a net loss of $8,498 and $11,964 for the fiscal years ended January 2, 2021 and December 28, 2019, respectively. In addition, the Company has as of January 2, 2021 total current assets of $6,941 and total current liabilities $20,597 resulting in a net negative working capital of $13,656. The Company has available cash balances and funds available under an accounts receivable factoring program with Prestige Capital Finance, LLC (“Prestige Capital”) to provide sufficient liquidity to fund the entity’s operations, the entity’s continued investments in center openings, and remodeling activities for at least the next twelve months. The Company expects to generate cash from operations for the remainder of fiscal year 2021 given its cost cutting measures in response to the revenue reductions resulting from the Coronavirus. However, depending on the U.S.’ continued restrictions related to the coronavirus public health crisis, the Company cannot be certain its efforts will suffice. The agreement with Prestige Capital allows the Company to get advance funding of 80% of an unpaid customer’s invoice amount within 2 days and the balance less a mutually agreed upon fee upon ultimate collection in cash of the invoice. The Company expects that it will be able to utilize the available funds under the accounts receivable factoring agreement to provide liquidity and to pursue acquisitions and other strategic transactions to expand and grow the business to enhance shareholder value. Management also regularly monitors capital market conditions to ensure no other conditions or events exist that may materially affect the Company’s financial conditions and liquidity and the Company may raise additional funds through borrowings or public or private sales of debt or equity securities, if necessary. On May 1, 2020, the Company entered into a promissory note with Texas Capital Bank, N.A. for $1,872 under the Paycheck Protection Program under the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”). See Note 14 for a complete discussion about this loan. Additionally, the Company has $1,500 of availability under its Revolving Credit Facility (as defined in Note 22). F-8
JANONE INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands except per share amounts) On February 2, 2021, the Offering closed and the Company received gross proceeds of approximately $6,000, before deducting placement agent fees and other offering expenses. The Company is utiizing the net proceeds for general working capital See Note 23 for complete discussion. Based on the above, management has concluded that as of the filing date on this quarterly report, the Company is not aware and did not identify any other conditions or events that would cause the Company to not be able to continue business as a going concern for the next twelve months. Coronavirus In December 2019, the 2019 novel coronavirus (COVID-19) surfaced in Wuhan, China. The World Health Organization declared a global emergency on January 30, 2020, and most countries initiated travel restrictions limiting travel to other countries and lock-downs within their borders. While various vaccines have recently been introduced into the marketplace, the impacts of variant strains of the COVID-19 virus is still unknown. The widespread health crisis has adversely affected the global economy, resulting in an economic downturn that could impact demand for our products. To date, the outbreak had a material adverse impact on our operations. For example, several customers in our appliance recycling and appliance replacement business have previously suspended our ability to pick up and or replace their customers’ appliances resulting in decreased revenues for both recycling and replacement business. The future impact of the outbreak is highly uncertain and cannot be predicted and there is no assurance that the outbreak will not have another material adverse impact on the future results of the Company. The extent of the impact, if any, will depend on future developments, including actions taken to contain the coronavirus. A key task for the Company in 2021 is to begin late-stage clinical development with its pharmaceutical product, JAN101. However, the COVID-19 pandemic significantly impacted clinical trials in 2020, delaying recruitment in most non-COVID-19 clinical trials and even eliminating recruitment in some trials. While clinical sites have largely resumed conducting non-COVID-19 clinical trials, the backlog of subjects may adversely affect our ability to recruit for its trial, leading to longer and more expensive trials. In addition, the unknown effectiveness of the COVID-19 vaccines, particularly concerning variant strains of COVID-19, could lead to clinical sites terminating patient recruitment again during the course of the study. During April 2020, as a result of the COVID-19 pandemic, the Company entered into an amendment to its contract services agreement with certain customers, whereby those customers agreed to advance the Company $1,168 against the provision of future services. The advanced payment may only be utilized for the costs associated with labor and sustaining ARCA Recycling’s workforce. The advance agreement provides for partial loan forgiveness if certain conditions are met. See Note 14 for a complete discussion of these advances. Note 2: | Summary of Significant Accounting Policies |
Principles of Consolidation The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. Use of Estimates ApplianceSmart, Inc., a Minnesota corporation, is a wholly owned subsidiary that was formed through a corporate reorganization in July 2011 to hold our business of selling new major household appliances through a chain of Company-owned retail stores. ARCA Canada Inc., a Canadian corporation, is a wholly owned subsidiary that was formed in September 2006 to provide turnkey recycling services for electric utility energy efficiency programs. ARCA Recycling, Inc., a California corporation, is a wholly owned subsidiary that was formed in November 1991 to provide turnkey recycling services for electric utility efficiency programs. Customer Connexx, LLC, a Nevada limited liability company, is a wholly owned subsidiary formed in October 13, 2016 to provide call center services for electric utility programs. The operating results of our wholly owned subsidiaries are consolidated in our financial statements.
AAP is a joint venture that was formed in October 2009 between ARCA and 4301 Operations, LLC (“4301”). Both ARCA and 4301 have a 50% interest in AAP. AAP established a regional processing center in Philadelphia, Pennsylvania, at which the recyclable appliances are processed. AAP commenced operations in February 2010. The financial position and results of operations of AAP are consolidated in our financial statements based on our conclusion that AAP is a variable interest entity due to our contribution in excess of 50%preparation of the total equity, subordinated debt and other forms of financial support. We have a controlling financial interest in AAP and have provided substantially all of the financial support to fund the operations of AAP since its inception.
Estimates: The preparation ofconsolidated financial statements in conformity with U.S. generally accepted accounting principles generally accepted in the United States of America requires our management to make estimates and assumptionsassumption that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Significant items subject to estimates and assumptions include the valuation allowances for accounts receivable, inventories, deferred tax assets, accrued expenses, and the assumptions we use to value share-based compensation. Actual results could differ from those estimates.
Significant estimates made in connection with the accompanying consolidated financial statements include the estimated reserve for doubtful current and long-term trade and other receivables, the estimated reserve for excess and obsolete inventory, estimated fair value and forfeiture rates for stock-based compensation, fair values in connection with the analysis of other intangibles and long-lived assets for impairment, valuation allowance against deferred tax assets and estimated useful lives for intangible assets and property and equipment. FairF-9
JANONE INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands except per share amounts) Financial Instruments Financial instruments consist primarily of cash equivalents, trade and other receivables, notes receivables, and obligations under accounts payable, accrued expenses and notes payable. The carrying amounts of cash equivalents, trade receivables and other receivables, accounts payable, accrued expenses and short-term notes payable approximate fair value because of financial instruments:the short maturity of these instruments. The following methods and assumptions are used to estimate the fair value of each classthe long-term debt is calculated based on interest rates available for debt with terms and maturities similar to the Company’s existing debt arrangements, unless quoted market prices were available (Level 2 inputs). The carrying amounts of financial instrument:long-term debt at January 2, 2021 and December 28, 2019 approximate fair value. Cash and Cash Equivalents Cash and cash equivalents accounts receivable and accounts payable: Due to their nature and short-term maturities, the carrying amounts approximate fair value. Short- and long-term debt: The fair valueconsist of short- and long-term debt approximates carrying value and has been estimated based on discounted cash flows using interest rates being offered for similar debt having the same or similar remaining maturities and collateral requirements.
No separate comparison of fair values versus carrying values is presented for the aforementioned financial instruments since their fair values are not significantly different than their balance sheet carrying amounts. In addition, the aggregate fair values of the financial instruments would not represent the underlying value of our Company.
Fiscal year: We report on a 52- or 53-week fiscal year. Both our 2016 fiscal year (“2016”) ended on December 31, 2016, and our 2015 fiscal year (“2015”) ended on January 2, 2016, included 52 weeks.
2. Significant Accounting Policies
Cash and cash equivalents: We consider all highly liquid investments purchased with originala maturity dates of three months or less to be cash equivalents. We maintain our cash in bank deposit and money-market accounts, which, at times, exceed federally insured limits. We have determined that the fairtime of purchase. Fair value of the money-market accounts fall within Level 1 of the fair value hierarchy. We have not experienced any losses in such accounts.cash equivalents approximates carrying value.
Trade Receivables and Allowance for Doubtful Accounts Trade receivables:We carry unsecured trade receivables at the original invoice amount less an estimate made for doubtful accounts based on a monthly review of all outstanding amounts. Management determines the allowance for doubtful accounts by regularly evaluating individual customer receivables and considering a customer’s financial condition, credit history and current economic conditions. We write off trade receivables when we deem them uncollectible. We record recoveries of trade receivables previously written off when we receive them. We consider a trade receivable to be past due if any portion of the receivable balance is outstanding for more than ninety days. We do not charge interest on past due receivables. Our management considers the allowance for doubtful accounts of $54nil and $73$29 to be adequate to cover any exposure to loss as of December 31, 2016, and January 2, 2016,2021 and December 28, 2019, respectively.
Inventories Inventories:Inventories, consisting principallyprimarily of appliances, are stated at the lower of cost, determined on a specific identification basis, or market and consist of the following as of December 31, 2016, and January 2, 2016:
| | December 31, 2016 | | | January 2, 2016 | | Appliances held for resale | | $ | 16,146 | | | $ | 16,360 | | Processed metals to be sold from recycled appliances | | | 139 | | | | 367 | | Other | | | 6 | | | | 6 | | Total Inventories | | $ | 16,291 | | | $ | 16,733 | |
net realizable value. We provide estimated provisions for the obsolescence of our appliance inventories, including adjustmentsadjustment to market, based on various factors, including the age of such inventory and our management’s assessment of the need for such provisions. We look at historical inventory aging reports and margin analyses in determining our provision estimate. A revised cost basis is used once a provision for obsolescence is recorded. The Company does not have a reserve for obsolete inventory at January 2, 2021 and December 28, 2019. Property and equipment:Equipment Property and equipmentEquipment are stated at cost. We computecost less accumulated depreciation. Expenditures for repairs and maintenance are charged to expense as incurred and additions and improvements that significantly extend the lives of assets are capitalized. Upon sale or other retirement of depreciable property, the cost and accumulated depreciation are removed from the related accounts and any gain or loss is reflected in operations. Depreciation is computed using the straight-line method over a range of estimated useful lives from 3 to 30 years. We amortize leasehold improvements on a straight-line basis over the shorter of their estimated useful lives or the underlying lease term. Repair and maintenance costs are charged to operations as incurred.
Property and equipment consists of the following as of December 31, 2016 and January 2, 2016:
| | Useful Life (Years) | | | December 31, 2016 | | | January 2, 2016 | | Land | | | – | | | $ | 1,140 | | | $ | 1,140 | | Buildings and improvements | | | 18-30 | | | | 3,780 | | | | 3,714 | | Equipment (including computer software) | | | 3-15 | | | | 19,260 | | | | 19,040 | | Projects under construction | | | – | | | | 204 | | | | 143 | | Property and equipment | | | | | | | 24,384 | | | | 24,037 | | Less accumulated depreciation and amortization | | | | | | | (14,268 | ) | | | (13,052 | ) | Property and equipment, net | | | | | | $ | 10,116 | | | $ | 10,985 | |
Depreciation and amortization expense: Depreciation and amortization expense related to buildings and equipment from our recycling centers is presented in cost of revenues, and depreciation and amortization expense related to buildings and equipment from our ApplianceSmart stores and corporate assets, such as furniture and computers, is presented in selling, general and administrative expenses in the consolidated statements of operations and comprehensive income (loss). Depreciation and amortization expense was $1,264 and $1,270 for fiscal years 2016 and 2015, respectively. Depreciation and amortization included in cost of revenues was $873 and $846 for fiscal years 2016 and 2015, respectively.
Software development costs: We capitalize software developed for internal use and are amortizing such costs over their estimated useful lives of threethe assets. The useful lives of building and improvements are 3 to 30 years, transportation equipment is 3 to 15 years, machinery and equipment are 5 to 10 years, furnishings and fixtures are 3 to 5 years and office and computer equipment are 3 to 5 years. Costs capitalized were $159 and $118 for fiscal years 2016 and 2015, respectively. Amortization expense on software development costs was $129 and $117 for fiscal years 2016 and 2015, respectively. Estimated future amortization expense is as follows:
Fiscal year 2017 | | $ | 118 | | Fiscal year 2018 | | | 73 | | Fiscal year 2019 | | | 24 | | | | $ | 215 | |
Impairment of long-lived assets:We evaluate long-lived assets such asperiodically review our property and equipment when events or changes in circumstances indicate that their carrying amounts may not be recoverable or their depreciation or amortization periods should be accelerated. We assess recoverability based on several factors, including our intention with respect to maintaining our facilities and projected discounted cash flows from operations. An impairment loss would be recognized for the amount by which the carrying amount of the assets exceeds their fair value, as approximated by the present value of their projected discounted cash flows.
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JANONE INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands except per share amounts) Intangible Assets The Company accounts for intangible assets in accordance with ASC 350, Intangibles—Goodwill and Other. Under ASC 350, intangible assets subject to amortization, shall be reviewed for impairment in accordance with the Impairment or Disposal of Long-Lived Assets in ASC 360, Property, Plant, and Equipment. Under ASC 360, long-lived assets are tested for recoverability whenever events or changes in circumstances (‘triggering event’) indicate that the carrying value of an assetamount may not be recoverable. We assessIn making this determination, triggering events that were considered included: A significant decrease in the market price of a long-lived asset (asset group); A significant adverse change in the extent or manner in which a long-lived asset (asset group) is being used or in its physical condition; A significant adverse change in legal factors or in the business climate that could affect the value of a long-lived asset (asset group), including an adverse action or assessment by a regulator; An accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of a long-lived asset (asset group); A current-period operating or cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with the use of a long-lived asset (asset group); and, A current expectation that, more likely than not, a long-lived asset (asset group) will be sold or otherwise disposed of significantly before the end of its previously estimated useful life. The term more likely than not refers to a level of likelihood that is more than 50 percent. If a triggering event has occurred, for purposes of recognition and measurement of an impairment loss, a long-lived asset or assets shall be grouped with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. If after identifying a triggering event it is determined that the asset group’s carrying value may not be recoverable, a recoverability test is performed by forecasting the expected cash flows to be derived from the asset group for the remaining useful life of the asset group’s primary asset compared to its carrying value. The recoverability test relies upon the undiscounted cash flows (excluding interest and taxes) which are derived from the Company’s specific use of those assets (not how a market participant would use those assets); and, are based upon the existing service potential of the current assets (excluding any improvements that would materially enhance the assets). If the expected undiscounted cash flows exceed the carrying value, the assets are considered recoverable. There was no impairment of intangibles as of January 2, 2021 or December 28, 2019 based on the estimated future net undiscounted cash flows expected to result fromannual intangible asset impairment test performed as of those dates. The Company’s intangible assets consist of customer relationship intangibles, trade names, licenses for the use of theinternet domain names, Universal Resource Locators, or URL’s, software, patent USPTO reference No. 10,182,402, and designs and related manufacturing procedures. Upon acquisition, critical estimates are made in valuing acquired intangible assets, includingwhich include but are not limited to: future expected cash flows from disposition. Shouldcustomer contracts, customer lists, and estimating cash flows from projects when completed; tradename and market position, as well as assumptions about the sumperiod of time that customer relationships will continue; and discount rates. Management's estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from the assumptions used in determining the fair values. All intangible assets are capitalized at their original cost and amortized over their estimated useful lives as follows: domain name and marketing – 3 to 20 years; software – 3 to 5 years, technology intangibles – 7 years, customer relationships – 7 to 15 years. Revenue Recognition Biotechnology Revenue We currently are not generating any revenue in our Biotechnology segment. F-11
JANONE INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands except per share amounts) Recycling Revenue We provide replacement appliances and provide appliance pickup and recycling services for consumers (“end users”) of public utilities, our customers. We receive as part of our de-manufacturing and recycling process revenue from scrap dealers for refrigerant, steel, plastic, glass, copper and other residual items. We account for revenue in accordance with Accounting Standards Codification 606 Revenue from Contracts with Customers. Under the revenue standard revenue is recognized as follows: We determine revenue recognition through the following steps: | a. | Identification of the contract, or contracts, with a customer, |
| b. | Identification of the performance obligations in the contract, |
| c. | Determination of the transaction price, |
| d. | Allocation of the transaction price to the performance obligations in the contract, and |
| e. | Recognition of revenue when, or as, we satisfy a performance obligation. |
As part of its assessment of each contract, the Company evaluates certain factors including the customer’s ability to pay, or credit risk. For each contract, the Company considers the promise to transfer products or services, each of which is distinct, to be the identified performance obligations. In determining the transaction price, the price stated on the contract is typically fixed and represents the net consideration to which the Company expects to be entitled per order, and therefore there is no variable consideration. As the Company’s standard payment terms are less than 90 days, the Company has elected, as a practical expedient, to not assess whether a contract has a significant financing component. The Company allocates the transaction price to each distinct product or service based on its relative standalone selling price. The product or service price as specified on the contract is considered the standalone selling price as it is an observable source that depicts the price as if sold to a similar customer in similar circumstances. Replacement Product Revenue We generate revenue by providing replacement appliances. We recognize revenue at the point in time when control over the replacement product is transferred to the end user, when our performance obligations are satisfied, which typically occur upon delivery from our center facility and installation at the end user’s home. Recycling Services Revenue We generate revenue by providing pickup and recycling services. We recognize revenue at the point in time when we have picked up a to be recycled appliance and transfer of ownership has occurred, and therefore our performance obligations are satisfied, which typically occur upon pickup from our end user’s home. Byproduct Revenue We generate other recycling byproduct revenue (the sale of copper, steel, plastic and other recoverable non-refrigerant byproducts) as part of our de-manufacturing process. We recognize byproduct revenue upon delivery and transfer of control of byproduct to a third-party recycling customer, having a mutually agreed upon price per pound and collection reasonably assured. Transfer of control occurs at the time the customer is in possession of the expected futurebyproduct material. Revenue recognized is a function of byproduct weight, type and in some cases volume of the byproduct delivered multiplied by the market rate as quoted. F-12
JANONE INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands except per share amounts) Contract Liability Receivables are recognized in the period we ship the product or provide the service. Payment terms on invoiced amounts are based on contractual terms with each customer. When we receive consideration, or such consideration is unconditionally due, prior to transferring goods or services to the customer under the terms of a sales contract, we record deferred revenue, which represents a contract liability. We recognize a contract liability as net cash flows be less thansales once control of goods and/or services have been transferred to the carrying value, wecustomer and all revenue recognition criteria have been met and any constraints have been resolved. We defer the product costs until recognition of the related revenue occurs. Assets Recognized from Costs to Obtain a Contract with a Customer We recognize an impairment loss atasset for the incremental costs of obtaining a contract with a customer if it expects the benefit of those costs to be longer than one year. We have concluded that time. We measure an impairment loss by comparingno material costs have been incurred to obtain and fulfill our FASB Accounting Standards Codification, or ASC 606 contracts, meet the amount by which the carrying value exceeds the fair value (estimated discounted future cash flows or appraisal of assets) of the long-lived assets. We recognized no impairment charges during fiscal years 2016 and 2015 related to long-lived assets. Restricted cash: Restricted cash consisted of a reserve required by our bankcard processor to cover chargebacks, adjustments, fees and other charges that may be due from us. As of December 31, 2016, we had restricted cash of $500.
Goodwill: We test goodwill annually for impairment. Additionally, goodwill is tested for impairment between annual tests if an event occurs or circumstances change that would more-likely-than-not reduce the fair value of an entity below its carrying value. In assessing the recoverability of goodwill, market values and projections regarding estimated future cash flows and other factors are used to determine the fair value of the respective assets. If these estimates or related projections change in the future, we may be required to record impairment charges for these assets. We allocate goodwill to our two reporting segments, retail and recycling. We compare the fair value of each reporting segment to its carrying amount on an annual basis to determine if there is potential goodwill impairment. If the fair value of a reporting segment is less than its carrying value, an impairment loss is recorded to the extent that the fair value of the goodwill within the reporting unit is less than the carrying value of its goodwill. To determine the fair value of our reporting segments, we generally use a present value technique (discounted cash flow) corroborated by market multiples when availablecapitalization criteria, and as appropriate. The factor most sensitive to change with respect to the discounted cash flow analyses is the estimated future cash flows of each reporting segment, which is, in turn, sensitive to the estimates of future revenue growthsuch, there are no material costs deferred and margins for these businesses. If actual revenue growth and/or margins are lower than expectations, the impairment test results could differ. Fair value for goodwill is determined based on discounted cash flows, market multiples or appraised valuesrecognized as appropriate. As of December 31, 2016 and January 2, 2016, we had goodwill of $38 allocated to our recycling segment which is presented as a component of other assets on the consolidated balance sheets.sheet at January 2, 2021 or December 28, 2019.
Other: | a. | Taxes collected from customers and remitted to government authorities and that are related to sales of our products are excluded from revenues. |
| b. | Sales commissions are expensed when incurred because the amortization period would have been one year or less. These costs are recorded in Selling, General and Administrative expense. |
| c. | We do not disclose the value of unsatisfied performance obligations for (i) contracts with original expected lengths of one year or less or (ii) contracts for which we recognize revenue at the amount to which we have the right to invoice for the services performed. |
Revenue recognized for Company contracts - $31,518 and $32,136 for the years ended January 2, 2021 and December 28, 2019, respectively. Byproduct revenue is non-contract revenue and amounts for Byproduct revenue have been excluded from Revenue recognized for Company contracts for all periods presented. Technology Revenue We currently are not generating any revenue from our Technology segment. Shipping and Handling The Company classifies shipping and handling charged to customers as revenues and classifies costs relating to shipping and handling as cost of revenues. Advertising Expense Advertising expense is charged to operations as incurred. Advertising expense was $379 and $827 for the years ended January 2, 2021 and December 28, 2019, respectively. F-13
JANONE INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands except per share amounts) Accounting for leases: We conduct the majority of our retailFair Value Measurements
ASC Topic 820, “Fair Value Measurements and recycling operations from leased facilities. The majority of our leases require payment of real estate taxes, insurance and common area maintenance in addition to rent. The terms of our lease agreements typically range from five to ten years. MostDisclosures,” requires disclosure of the leases contain renewalfair value of financial instruments held by the Company. ASC Topic 825, “Financial Instruments,” defines fair value, and escalation clauses,establishes a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value measures. The three levels of valuation hierarchy are defined as follows: Level 1 - inputs to the valuation methodology are quoted prices for identical assets or liabilities in active markets. Level 2 – to the valuation methodology include quoted prices for similar assets and certain store leases require contingent rents based on factors such as revenue. For leasesliabilities in active markets, and inputs that contain predetermined fixed escalationsare observable for the asset or liability, either directly or indirectly, for substantially the full term of the minimum rent, we recognize the related rent expense on a straight-line basis from the date we take possession of the propertyfinancial instrument. Level 3 – inputs to the end ofvaluation methodology are unobservable and significant to the initial lease term. We record any difference between straight-line rent amounts and amounts payable under the leases as part of accrued rent in accrued expenses, a portion of which is included in other non-current liabilities. Cash or lease incentives (tenant allowances) received upon entering into certain store leases are recognized on a straight-line basis as a reduction to rent from the date we take possession of the property through the end of the initial lease term.fair value measurement. Income Taxes Product warranty: We provide a warranty for the replacement or repair of certain defective appliances. Our standard warranty policy requires us to repair or replace certain defective units at no cost to our customers. We estimate the costs that may be incurred under our warranty and record an accrual in the amount of such costs at the time we recognize product revenue. Factors that affect our warranty accrual for covered units include the number of units sold, historical and anticipated rates of warranty claims on these units, and the cost of such claims. We periodically assess the adequacy of our recorded warranty accrual and adjust the amounts as necessary.
Changes in our warranty accrual, presented as a component of accrued expenses on the consolidated balance sheets, for the fiscal years ended December 31, 2016 and January 2, 2016 are as follows:
| | For the fiscal years ended | | | | December 31, 2016 | | | January 2, 2016 | | Beginning balance | | $ | 42 | | | $ | 30 | | Standard accrual based on units sold | | | 17 | | | | 45 | | Actual costs incurred | | | (16 | ) | | | (16 | ) | Periodic accrual adjustments | | | (17 | ) | | | (17 | ) | Ending balance | | $ | 26 | | | $ | 42 | |
Income taxes: We accountThe Company accounts for income taxes underusing the asset and liability method. DeferredThe asset and liability method requires recognition of deferred tax assets and liabilities are recognized for expected future tax consequences of temporary differences that will result in taxable amounts in future years.currently exist between tax bases and financial reporting bases of the Company's assets and liabilities. Deferred tax assets are recognized for deductible temporary differences and tax operating loss and tax credit carryforwards. Deferredincome tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the periodsyears in which the deferred tax asset or liability isthese temporary differences are expected to be realizedrecovered or settled. We assess the likelihood that ourThe effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is provided on deferred taxes if it is determined that it is more likely than not that the asset will not be realized. The Company recognizes penalties and interest accrued related to income tax liabilities in the provision for income taxes in its Consolidated Statements of Income.
Significant management judgment is required to determine the amount of benefit to be recognized in relation to an uncertain tax position. The Company uses a two-step process to evaluate tax positions. The first step requires an entity to determine whether it is more likely than not (greater than 50% chance) that the tax position will be recoveredsustained. The second step requires an entity to recognize in the financial statements the benefit of a tax position that meets the more-likely-than-not recognition criterion. The amounts ultimately paid upon resolution of issues raised by taxing authorities may differ materially from future taxable income and record a valuation allowance to reduce our deferred tax assets to the amounts we believeaccrued and may materially impact the financial statements of the Company in future periods. Lease Accounting We account for leases in accordance with ASC 842 - Leases This accounting standard requires all lessees to record the impact of leasing contracts on the balance sheet as a right to use asset and corresponding liability. This is measured by taking the present value of the remaining lease payments over the lease term and recording a right to use asset (“ROU”) and corresponding lease obligation for lease payments. Rent expense is realized on a straight-line basis and the lease obligation is amortized based on the effective interest method. The amounts recognized reflect the present value of remaining lease payments for all leases that have a lease term greater than 12 months. The discount rate used is an estimate of the Company’s incremental borrowing rate based on information available at lease commencement. In considering the lease asset value, the Company considers fixed or variable payment terms, prepayments and options to extend, terminate or purchase. Renewal, termination or purchase options affect the lease term used for determining lease asset value only if the option is reasonably certain to be realizable. exercised. The Company uses an estimate of its incremental borrowing rate based on information available at lease commencement in determining present value of lease payments. We regularly evaluate both positivelease warehouse facilities and negative evidence relatedoffice space. These assets and properties are generally leased under noncancelable agreements that expire at various dates through 2025 with various renewal options for additional periods. The agreements, which have and continue to either recordingbe classified as operating leases, generally provide for base rent and require us to pay all insurance, taxes and other maintenance costs. The Company’s operating leases are exclusively for building space in the different cities we have operations. The lease terms typically last from 2-5 years with some being longer or retaining a valuation allowance against our deferred tax assets.shorter depending on needs of the business and the lease partners. The Company has also engaged in month-to-month leases for parking spaces that the Company has elected to expense as incurred. Our lease F-14
JANONE INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands except per share amounts) Share-based compensation:agreements do not include variable lease payments. Our lessors do offer options to extend lease terms as leases expire and management evaluates against current rental markets and other strategic factors in making the decision to renew. When leases are within 6 months of being renewed, management will estimate probabilities of renewing for an additional term based on market and strategic factors and if the probability is more likely than not that the lease will be renewed, the financials will assume the lease is renewed under the lease renewal option.
The operating leases we have do not contain residual value guarantees and do not contain restrictive covenants. The Company currently has one sublease in Ontario, Canada. Leases accounted under ASC 842 were determined based on analysis of the lease contracts using lease payments and timing as documented in the contract. Non lease contracts were also evaluated to understand if the contract terms provided for an asset that we controlled and provided us with substantially all the economic benefits. We recognize share-based compensation expensedid not observe any contracts with embedded leases. Lease contracts were reviewed, and distinctions made between non lease and lease payments. Only payments related to the lease of the asset were included in lease payment calculations. Management uses an estimation of its incremental borrowing rate at lease commencement over similar terms as the lease contracts in determining the present value of its lease obligations. Stock-Based Compensation The Company from time to time grants stock options to employees, non-employees and Company executives and directors. Such awards are valued based on the grant date fair-value of the instruments, net of estimated forfeitures. The value of each award is amortized on a straight-line basis over the vesting period for all share-based awards granted. We use the Black-Scholes option pricing model to determine the fair value of awards at the grant date. We calculate the expected volatility for stock options and awards using historical volatility. We estimate a 0%-5% forfeiture rate for stock options issued to employees and Board of Directors members, but will continue to review these estimates in future periods. The risk-free rates for the expected terms of the stock options are based on the U.S. Treasury yield curve in effect at the time of the grant. The expected life represents the period that the stock option awards are expected to be outstanding. The expected dividend yield is zero as we have not paid or declared any cash dividends on our common stock.period. Foreign Currency Comprehensive income (loss): Other comprehensive income (loss) refers to revenues, expenses, gains and losses that under generally accepted accounting principles are included in comprehensive income (loss) but are excluded from net income (loss) as these amounts are recorded directly as an adjustment to shareholders’ equity. Our other comprehensive income (loss) is comprised of foreign currency translation adjustments.
Foreign Currency:The financial statements of the Company'sCompany’s non-U.S. subsidiary are translated into U.S. dollars in accordance with ASC 830,Foreign Currency Matters.Matters. Under ASC 830, if the assets and liabilities of the Company are recorded in certain non-U.S. functional currencies other than the U.S. dollar, they are translated at current rates of exchange.exchange at year end. Revenue and expense items are translated at the average monthly exchange rates. The resulting translation adjustments are recorded directly into accumulated other comprehensive income (loss). In addition, due to increases
Earnings Per Share Earnings per share is calculated in the Canadian dollar relative to the U.S. dollar we experienced foreign currency transaction gains included in other expense of approximately $32 in 2016 and foreign currency transaction losses included in other expense of approximately $380 in 2015. Revenue recognition: We recognize revenue from appliance sales in the period the consumer purchases and pays for the appliance, net of an allowance for estimated returns. We recognize revenue from appliance recycling when we collect and process a unit. We recognize revenue generated from appliance replacement programs when we deliver the new appliance and collect and process the old appliance. The delivery, collection and processing activities under our replacement programs typically occur within one business day and are required to complete theaccordance with ASC 260, “Earnings Per Share”. Under ASC 260 basic earnings process; there are no other performance obligations. We recognize byproduct revenue upon shipment. We recognize revenue on extended warranties with retained service obligations on a straight-line basis over the period of the warranty. On extended warranty arrangements that we sell but others service for a fixed portion of the warranty sales price, we recognize revenue for the net amount retained at the time of sale of the extended warranty to the consumer. As a result of our recycling processes, we are able to produce carbon offsets from the destruction of certain types of ozone-depleting refrigerants. We record revenue from the sale of carbon offsets in the period when all of the following requirements have been met: (i) there is persuasive evidence of an arrangement, (ii) the sales price is fixed or determinable, (iii) title, ownership and risk of loss associated with the credits have been transferred to the customer, and (iv) collectability is reasonably assured. These requirements are met upon collection of cash due to the uncertainty around collectability and the involvement of various third parties and partners. We include shipping and handling charges to customers in revenue, which are recognized in the period the consumer purchases and pays for delivery.
Retail segment cost of revenues: Costs of revenues in our retail segment are comprised primarily of the following:
· | Purchase of appliance inventories, including freight to and from our distribution centers. | · | Shipping, receiving and distribution of appliance inventories to our retail stores, including employee compensation and benefits. | · | Delivery and service of appliances, including employee compensation and benefits, after the appliances are sold to the consumer. | · | Early payment discounts and allowances offered by appliance manufacturers. | · | Inventory markdowns. |
Recycling segment cost of revenues: Costs of revenues in our recycling segment are comprised primarily of the following:
· | Transportation costs, including employee compensation and benefits, related to collecting appliances for recycling and delivering appliances under our replacement programs. | · | Purchase of appliance inventories, including freight to our recycling center warehouses, early payment discounts, and warehousing costs for appliances used in our replacement programs. | · | Occupancy costs related to our recycling centers. | · | Processing costs, including employee compensation and benefits, related to recycling and processing appliances. |
Selling, general and administrative expenses: Selling, general and administrative expenses are comprised primarily of the following:
· | Employee compensation and benefits related to management, corporate services, and retail sales; | · | Outside and outsourced corporate service fees including legal expenses and professional service fees; | · | Occupancy costs related to our retail stores and corporate office; | · | Advertising costs; | · | Bank charges and costs associated with credit and debit card interchange fees; and | · | Other administrative costs, such as supplies, travel and lodging. |
Advertising expense: Our policy is to expense advertising costs as incurred. Advertising expense was $1,124 and $1,822 for fiscal years 2016 and 2015, respectively.
Taxes collected from customers: We account for taxes collected from customers on a net basis.
Basic and diluted income (loss) per common share: Basic income (loss) per common share is computed based on the weighted average number of common shares outstanding. Diluted income (loss) per common share is computed based onusing the weighted average number of common shares outstanding adjusted byduring the number of additional sharesperiod except that would have been outstanding had the potentially dilutive common shares been issued. Potentially dilutive shares of Common Stockit does not include unexercisedunvested restricted stock options and warrants. Basicsubject to cancellation. Diluted earnings per share amounts areis computed generally, by dividing net income (loss) byusing the weighted average number of common shares outstanding. Diluted per share amounts assumeand, if dilutive, potential common shares outstanding during the conversion,period. Potential common shares consist of the incremental common shares issuable upon the exercise or issuance of all potential Common Stock instruments unless their effect is anti-dilutive, thereby reducing the loss or increasing the income per common share. In calculating diluted weighted averagewarrants, options, restricted shares and per share amounts, we included stock options with exercise prices below average market prices, for the respective fiscal years in which they wereconvertible preferred stock. The dilutive using the Treasury stock method. We calculated the number of additional shares by assuming that the outstanding stock options were exercised and that the proceeds from such exercises were used to acquire common stock at the average market price during the year. For fiscal year 2016, we excluded options and warrants covering 900 common shares from the diluted weighted average share outstanding calculation as the effect of theseoutstanding restricted shares, options and warrants is anti-dilutive. For fiscal year 2015, we excluded optionsreflected in diluted earnings per share by application of the treasury stock method. Convertible preferred stock is reflected on an if-converted basis.
Segment Reporting ASC Topic 280, “Segment Reporting,” requires use of the “management approach” model for segment reporting. The management approach model is based on the way a Company’s management organizes segments within the Company for making operating decisions and warrants covering 726 common shares from the diluted weighted averageassessing performance. The Company determined it has three reportable segments (See Note 21). F-15
JANONE INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands except per share outstanding calculation as the effect of these options and warrant is anti-dilutive.amounts) Concentration of Credit Risk The Company maintains cash balances at several banks in several states including, California, Minnesota and Nevada. Accounts are insured by the Federal Deposit Insurance Corporation up to $250 per institution. At times, balances may exceed federally insured limits. Recently Issued Accounting Pronouncements A reconciliation of the denominator in the basic and diluted income (loss) per share is as follows:
| | For the fiscal year ended | | | | December 31, 2016 | | | January 2, 2016 | | Numerator: | | | | | | | Net loss attributable to controlling interest | | $ | (1,451 | ) | | $ | (2,717 | ) | Denominator: | | | | | | | | | Weighted average common shares outstanding - basic | | | 6,054 | | | | 5,833 | | Warrants | | | 167 | | | | – | | Weighted average common shares outstanding - diluted | | | 6,221 | | | | 5,833 | | | | | | | | | | | Net loss per common share: | | | | | | | | | Basic | | $ | (0.24 | ) | | $ | (0.47 | ) | Diluted | | $ | (0.23 | ) | | $ | (0.47 | ) |
Recent Accounting Pronouncements- New Accounting Standards Not Yet Effective:
Revenue from Contracts with Customers:In May 2014,June 2016, the Financial Accounting Standards Board (“FASB”) issued guidance creating Accounting Standards Codification (“ASC”) Section 606, “Revenue from ContractsASU No. 2016-13, Measurement of Credit Losses on Financial Instruments, which introduces a new approach to estimate credit losses on certain types of financial instruments based on expected losses instead of incurred losses. It also modifies the impairment model for available-for-sale debt securities and provides a simplified accounting model for purchased financial assets with Customers”. The new section will replace Section 605, “Revenue Recognition” and creates modifications to various other revenue accounting standards for specialized transactions and industries. The section is intended to conform revenue accounting principles with a concurrently issued International Financial Reporting Standards with previously differing treatment between United States practice and those of much of the rest of the world, as well as, to enhance disclosures related to disaggregated revenue information. The updated guidancecredit deterioration since their origination. ASU No. 2016-13 is effective for annualsmaller reporting periods beginning after December 15, 2017, and interim periods within that reporting period. Early application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. The Company will further study the implications of this statement in order to evaluate the expected impact on its consolidated financial statements.
ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs: This standard, which will be effective January 3, 2016 for the Company, requires that debt issuance costs be presented as a direct deduction from the carrying amount of long-term debt on the balance sheet. The new guidance aligns the presentation of debt issuance costs with debt discounts and premiums. The standard is to be applied retrospectively to all prior periods presented. The company has adopted this standard in the fourth quarter of 2016. As of December 31, 2016, and January 2, 2016, we had $779 and $67, respectively, of unamortized debt issuance costs recorded and/or reclassified as a direct deduction from the carrying value of long-term debt on our balance sheets.
In July 2015, the FASB issued ASU 2015-11,Inventory (Topic 330) Related to Simplifying the Measurement of Inventory which applies to all inventory except that which is measured using last-in, first-out (LIFO) or the retail inventory method. Inventory measured using first-in, first-out (FIFO) or average cost is included in the new amendments. Inventory within the scope of the new guidance should be measured at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Subsequent measurement is unchanged for inventory measured using LIFO or the retail inventory method. The amendments will take effect for public business entitiescompanies for fiscal years beginning after December 15, 2016, including2022 and interim periods within those fiscal years. The new guidance should be applied prospectively, and earlier applicationEarly adoption is permitted as of the beginning of an interim or annual reporting period.permitted. We are evaluatingcurrently assessing the impact of theadopting this new accounting standard on the consolidated financial statements.our Consolidated Financial Statements and related disclosures.
In February 2016,In December 2019, the FASB issued ASU No. 2016-02, “Leases.” 2019-12 - Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU No. 2016-02 was issued to increase transparency and comparability among organizations by recognizing all lease transactions (with terms in excess of 12 months) on the balance sheet as a lease liability and a right-of-use asset (as defined)2019-12”). ASU No. 2016-022019-12 is part of the FASB’s overall simplification initiative and seeks to simplify the accounting for income taxes by updating certain guidance and removing certain exceptions. The updated guidance is effective for fiscal years beginning after December 15, 2018, including2020 and interim periods within those fiscal years, with earlier applicationyears. Early adoption is permitted. Upon adoption, the lessee will apply the new standard retrospectively to all periods presented or retrospectively using a cumulative effect adjustment in the year of adoption. The Company is currently assessing the effect that ASU No. 2016-02 will haveimpact of adopting this new accounting standard on its results of operations,consolidated financial positionstatements and cash flows.related disclosures.
In March 2020, the FASB issued ASU No. 2020-04 - Reference Rate Reform (Topic 848), codified as ASC 848 (“ASC 848”). The purpose of ASC 848 is to provide optional guidance to ease the potential effects on financial reporting of the market-wide migration away from Interbank Offered Rates to alternative reference rates. ASC 848 applies only to contracts, hedging relationships, and other transactions that reference a reference rate expected to be discontinued because of reference rate reform. The guidance may be applied upon issuance of ASC 848 through December 31, 2022. The Company is currently assessing the impact of adopting this new accounting standard on its consolidated financial statements and related disclosures. Note 3: Trade and other receivables | | January 2, 2021 | | | December 28, 2019 | | Trade receivables, net | | $ | 4,174 | | | $ | 7,226 | | Factored accounts receivable | | | (891 | ) | | | (2,165 | ) | Prestige Capital reserve receivable | | | 162 | | | | 415 | | Due from Recleim | | | — | | | | 913 | | Other receivables | | | 155 | | | | 189 | | Trade and other receivables, net | | $ | 3,600 | | | $ | 6,578 | | | | | | | | | | | Trade accounts receivable | | $ | 2,698 | | | $ | 5,928 | | Un-billed trade receivables | | | 1,476 | | | | 1,327 | | Accounts receivable reserve | | | — | | | | (29 | ) | Total trade receivables, net | | $ | 4,174 | | | $ | 7,226 | |
F-16
JANONE INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands except per share amounts) 3.Variable Interest Entity
The financial position and results of operations of AAP are consolidated in our financial statements based on our conclusion that AAP is a variable interest entity dueOn December 30, 2017, we signed an agreement to our contribution of 50% of the total equity, subordinated debt and other forms of financial support. We have a controlling financial interest in AAP and have provided substantially all of the financial support to fund the operations of AAP since its inception. The financial position and results of operations for AAP are reported in our recycling segment.
The following table summarizes the assets and liabilities of AAP as of December 31, 2016 and January 2, 2016:
| | December 31, 2016 | | | January 2, 2016 | | Assets | | | | | | | | | Current assets | | $ | 438 | | | $ | 696 | | Property and equipment, net | | | 7,322 | | | | 8,077 | | Other assets | | | 83 | | | | 142 | | Total assets | | $ | 7,843 | | | $ | 8,915 | | Liabilities | | | | | | | | | Accounts payable | | $ | 1,388 | | | $ | 2,342 | | Accrued expenses | | | 523 | | | | 399 | | Current maturities of long-term debt obligations | | | 3,558 | | | | 946 | | Long-term debt obligations, net of current maturities | | | 435 | | | | 3,498 | | Other liabilities (a) | | | 1,126 | | | | 289 | | Total liabilities | | $ | 7,030 | | | $ | 7,474 | |
(a) Other liabilities represent outstanding loans from ARCA and are eliminated in consolidation.
The following table summarizes the operating results of AAP for fiscal years 2016 and 2015:
| | For the fiscal years ended | | | | December 31, 2016 | | | January 2, 2016 | | Revenues | | $ | 6,697 | | | $ | 6,838 | | Gross profit (loss) | | | 1,305 | | | | (280 | ) | Operating loss | | | (363 | ) | | | (2,205 | ) |
4. Other Assets
Other assets as of December 31, 2016 and January 2, 2016, consist of the following:
| | December 31, 2016 | | | January 2, 2016 | | Deposits | | $ | 453 | | | $ | 416 | | Other | | | 104 | | | | 122 | | Recycling contract, net | | | 19 | | | | 20 | | Goodwill | | | 38 | | | | 38 | | Total other assets | | $ | 614 | | | $ | 596 | |
For fiscal years 2016 and 2015, we recorded amortization expense of $21 and $80, respectively, related to our finite intangible assets.
5.Accrued Expenses
Accrued expenses as of December 31, 2016 and January 2, 2016, consist of the following:
| | December 31, 2016 | | | January 2, 2016 | | Sales tax estimates, including interest | | $ | 4,203 | | | $ | 4,804 | | Compensation and benefits | | | 2,431 | | | | 1,446 | | Accrued rebate and incentive checks | | | 358 | | | | 293 | | Accrued rent | | | 263 | | | | 235 | | Warranty | | | 26 | | | | 42 | | Accrued payables | | | 570 | | | | 749 | | Deferred revenue | | | 227 | | | | 413 | | Other | | | 810 | | | | 952 | | Total accrued expenses | | $ | 8,888 | | | $ | 8,934 | |
6. Line of Credit
We have a Revolving Credit, Term Loan and Security Agreement, as amended, (“Revolving Credit Agreement”) with PNC Bank, National Association (“PNC”) that provides us with a $15,000 revolving line of credit. See Note 7 for further discussion regarding the Term Loan entered into with PNC. The Revolving Credit Agreement had a stated maturity date of January 31, 2017, and was amended on January 31, 2017. Our financial covenants were reset in connection with this amendment. The renewed Revolving Credit Agreement has an amended maturity of May 1, 2017. The Revolving Credit Agreement includes a lockbox agreement and a subjective acceleration clause and, as a result, we have classified the revolving line of credit as a current liability. The Revolving Credit Agreement is collateralized by a security interest in substantially alldispose of our assets, and PNC is also secured by an inventory repurchase agreement with Whirlpool Corporation for Whirlpool purchases only. We also issuedretail appliance segment. ApplianceSmart Holdings LLC (the “Purchaser”), a $750 letterwholly owned subsidiary of credit in favor of Whirlpool Corporation. The Revolving Credit Agreement requires, starting with the fiscal quarter ending March 30, 2014, and continuing at the end of each quarter thereafter, that we meet a minimum earnings before interest, taxes, depreciation and amortization and/or a fixed charge coverage ratio of 1.1 to 1.0. The Revolving Credit Agreement limits investments we can purchase, the amount of other debt and leases we can incur, the amount of loans we can issue to our affiliates and the amount we can spend on fixed assets, along with prohibiting the payment of dividends. In the January 31, 2017 amendment, the affiliate loan balance is to be capped at $900 on December 31, 2016, and thereafter. As of December 31, 2016, we were not in compliance with certain covenants of the Revolving Credit Agreement which were subsequently waived with the January 31, 2017 amendment. As of January 2, 2016, we were not in compliance with certain covenants of the Revolving Credit Agreement which were subsequently waived with the January 22, 2016 renewal.
The interest rate on the Revolving Credit Agreement, in our renewal agreement on January 31, 2017, is PNC Base Rate plus 1.75% to 3.25%, or 1-, 2- or 3-month PNC LIBOR Rate plus 2.75% to 4.25%, with the rate being dependent on our level of fixed charge coverage. The PNC Base Rate shall mean, for any day, a fluctuating per annum rate of interest equal to the highest of (i) the interest rate per annum announced from time to time by PNC at its prime rate, (ii) the Federal Funds Open Rate plus 0.5%, and (iii) the one-month LIBOR rate plus 1%. As of December 31, 2016, the weighted average interest rate was 9.00%, which was the PNC Base Rate plus a default rate premium. As of January 2, 2016, the weighted average interest rate was 7.25%, which was the PNC Base Rate plus a default rate premium. As of December 31, 2016, and January 2, 2016, the outstanding balance under the Revolving Credit Agreement was $10,333 and $12,668, respectively. As disclosed by the Company in Item 2.01 of its Current Report on Form 8-K filed on January 31, 2017, the Company sold and leased back its Compton building over an initial lease term of six months which can be terminated with a 30 day notice. The net proceeds from the sale were used to reduce the outstanding balance under our revolving credit agreement to $5,752. The amount of revolving borrowings under the Revolving Credit Agreement is based on a formula using accounts receivable and inventories. We may not have access to the full $15,000 revolving line of credit due to the formula using accounts receivable and inventories, the amount of the letter of credit issued in favor of Whirlpool Corporation and the amount of outstanding loans between PNC and our AAP joint venture. As of December 31, 2016, and January 2, 2016, our available borrowing capacity under the Revolving Credit Agreement was $3,234 and $1,382, respectively.
7. Borrowings
Long-term debt, capital lease and other financing obligations as of December 31, 2016 and January 2, 2016 consist of the following:
| | December 31, 2016 | | | January 2, 2016 | | PNC term loan | | $ | 1,020 | | | $ | 1,275 | | Susquehanna term loans | | | 3,242 | | | | 3,242 | | 8.00% notes | | | 582 | | | | – | | 2.75% note, due in monthly installments of $3, including interest, due October 2024, collateralized by equipment | | | 287 | | | | 319 | | Capital leases and other financing obligations | | | 567 | | | | 988 | | Debt issuance costs, net | | | (779 | ) | | | (67 | ) | Total debt obligations | | | 4,919 | | | | 5,757 | | Less current maturities | | | 2,093 | | | | 1,251 | | Long-term debt obligations, net of current maturities | | $ | 2,826 | | | $ | 4,506 | |
On January 24, 2011, weLive Ventures Incorporated, entered into a $2,550 term loan (“Term Loan”Stock Purchase Agreement (the “Agreement”) with PNC Bank to finance the mortgage on our California facility. The Term Loan is payable as follows, subject to acceleration upon the occurrence of an event of default or terminationCompany and ApplianceSmart, then a subsidiary of the Revolving Credit Agreement: 119 consecutive monthly principal paymentsCompany. ApplianceSmart is a retail chain specializing in new and out-of-the-box appliances. Pursuant to the Agreement, the Purchaser purchased from the Company all the issued and outstanding shares of $21 plus interest commencingcapital stock (the “Stock”) of ApplianceSmart in exchange for $6,500 (the “Purchase Price”). The Purchase Price per the Agreement was due and payable on February 1, 2011,or before March 31, 2018.
Between March 31, 2018 and continuing onApril 24, 2018, the first dayPurchaser and the Company negotiated in good faith the method of each month thereafter followed by a 120th payment of all unpaid principal, interest and fees on February 1, 2021. The Term Loan is collateralized with our California facility located in Compton, California. As disclosed bythe remaining outstanding balance of the Purchase Price. On April 25, 2018, the Purchaser delivered to the Company a promissory note (the “ApplianceSmart Note”) in Item 2.01the original principal amount of its Current Report on Form 8-K filed on January 31, 2017,$3,919 (the “Original Principal Amount”), as such amount may be adjusted per the Company sold and leased back its Compton building over an initial lease term of six months which can be terminated with a 30 day notice. The net proceeds from the sale were used to pay down our term loan with PNC Bank, National Association in full. The Term Loan interest rate is PNC Base Rate plus 2.25% to 3.75%, or 1-, 2- or 3-month PNC LIBOR Rate plus 3.25% to 4.75% with the rate being dependent on our level of fixed charge coverage. The interest rate will be fixed for the first half of 2016 at PNC Base Rate plus 3.75%, or 1-, 2- or 3-month PNC LIBOR Rate plus 4.75%. As of December 31, 2016, the weighted average interest rate was 9.50%, which was the PNC Base Rate plus a default rate premium. As of January 2, 2016, the weighted average interest rate was 7.75%, which was the PNC Base Rate plus a default rate premium. On March 10, 2011, AAP entered into three separate commercial term loans (“Term Loans”) with Susquehanna Bank, pursuant to the guidelinesterms of the U.S. Small Business Administration 7(a) Loan Program.ApplianceSmart Note. The total amountApplianceSmart Note is effective as of the Term Loans is $4,750, split into three separate loans for $2,100, $1,400April 1, 2018 and $1,250. The Term Loans mature in ten years and bear an interest rate of Prime plus 2.75%. As of both December 31, 2016, and January 2, 2016, the interest rate was 6.00%matures on April 1, 2021 (the “Maturity Date”). The total monthlyApplianceSmart Note bears interest at 5% per annum with interest and principal payments are $54 and began on July 1, 2011. Borrowings underpayable at the Term Loans are secured by substantially allMaturity Date. ApplianceSmart provided the Company a guaranty of repayment of the assets of AAP along with liens on the business assets and certain personal assetsApplianceSmart Note. The remaining $2,581 of the ownersPurchase Price was paid in cash by the Purchaser to the Company. The Purchaser may reborrow funds, and pay interest on such re-borrowings, from the Company up to the Original Principal Amount. Subsequent to December 30, 2017, ApplianceSmart assumed $1,901 in liabilities from the Company. For the 52 weeks ended December 29, 2018, the original balance owed to the Company of 4301 Operations, LLC. We are$6,500, increased with new borrowings of $1,819 and decreased with repayments of $2,581 and debt assumed of $1,901 represents a guarantornet amount due from the Purchaser, now in the form of a note receivable.
On December 26, 2018, the Term Loans along with 4301 Operations, LLCApplianceSmart Note was amended and its owners. In connection with these Term Loans, Susquehanna Bank also hasrestated to grant the Company a security interest in the assets of the Company. In MarchPurchaser, ApplianceSmart, and ApplianceSmart Contracting Inc. in exchange for modifying the repayments terms to provide for the payment in full of 2015, an entity controlled by all accrued interest and principal on the noncontrolling interest holders of AAP loaned AAP $325 through the issuance of promissory notes. The notes bear interest at an annual rate of 8%. In May of 2015, oneMaturity Date of the March 2015 notes totaling $125 was repaid in full by AAP. The remaining note totaling $200 was repaid with the revenues expected during the third quarter of 2016 from the disposal of refrigerants through carbon offset programs.
ApplianceSmart Note. On November 8, 2016,March 15, 2019, the Company entered into a securities purchase agreementagreements with Energy Efficiency Investments, LLC,third parties pursuant to which it agreed to subordinate the payment of indebtedness under the ApplianceSmart Note and the Company’s security interest in the assets of ApplianceSmart in exchange for a prepayment of up to $1,200. Additionally, the Company agreed to issue up to $7,732 principal amountadvanced ApplianceSmart $355 during fiscal 2019 under the ApplianceSmart Note. On December 9, 2019, ApplianceSmart filed a voluntary petition in the United States Bankruptcy Court for the Southern District of 3% Original Issue Discount Senior Convertible Promissory NotesNew York seeking relief under Chapter 11 of Title 11 of the Company and related common stock purchase warrants. The notes will be issued from time to time, up to such aggregate principal amount, at the request ofUnited States Code. As a result, the Company subjecthas recorded an impairment charge of $2,992 for the amount owed by ApplianceSmart to certain conditions, or at the option of the Investor. Interest accrues at the rate of eight percent per annum on the principal amount of the notes outstanding from time to time, and is payable at maturity or, if earlier, upon conversion of the notes. The principal amount of notes outstanding at December 31, 2016, was $100. The future annual maturities of borrowings are as follows:
| | ARCA | | | AAP | | | Total | | Fiscal year 2017 | | $ | 748 | | | $ | 1,037 | | | $ | 1,785 | | Fiscal year 2018 | | | 18 | | | | 685 | | | | 703 | | Fiscal year 2019 | | | 9 | | | | 708 | | | | 717 | | Fiscal year 2020 | | | – | | | | 661 | | | | 661 | | Fiscal year 2021 | | | 103 | | | | 503 | | | | 606 | | Total future maturities of borrowings | | $ | 878 | | | $ | 3,594 | | | $ | 4,472 | |
Capital leases and other financing obligations: We acquire certain equipment under capital leases and other financing obligations. The cost of such equipment was approximately $2,601 and $2,606Company as of December 31, 2016, and28, 2019. The outstanding balance of the ApplianceSmart Note at January 2, 2016. Accumulated amortization as of2021 and December 31, 2016,28, 2019 was $2,992 and January 2, 2016, was approximately $1,771 and $1,635, respectively. Depreciation and amortization expense for equipment under capital leases and other financing obligations is included in cost of revenues and selling, general and administrative expenses.
The following schedule by fiscal year is the approximate remaining minimum payments required under the capital leases and other financing obligations, together with the present value as of December 31, 2016:
| | ARCA | | | AAP | | | Total | | Fiscal year 2017 | | $ | 27 | | | $ | 176 | | | $ | 203 | | Fiscal year 2018 | | | 20 | | | | 161 | | | | 181 | | Fiscal year 2019 | | | 11 | | | | 76 | | | | 87 | | Fiscal year 2020 | | | – | | | | – | | | | – | | Total minimum lease and other financing obligation payments | | | 58 | | | | 413 | | | | 471 | | Less amount representing interest | | | 3 | | | | 21 | | | | 24 | | Present value of minimum payments | | | 55 | | | | 392 | | | | 447 | | Less current portion | | | 25 | | | | 283 | | | | 308 | | Capital lease and other financing obligations, net of current portion | | $ | 30 | | | $ | 109 | | | $ | 139 | |
8. Commitments and Contingencies
Operating leases: We lease the majority of our retail stores and recycling centers under noncancelable operating leases. The leases typically require the payment of taxes, maintenance, utilities and insurance.
Minimum future rental commitments under noncancelable operating leases as of December 31, 2016, are as follows:
| | ARCA | | | AAP | | | Total | | Fiscal year 2017 | | $ | 4,618 | | | $ | 464 | | | $ | 5,082 | | Fiscal year 2018 | | | 3,572 | | | | 467 | | | | 4,039 | | Fiscal year 2019 | | | 2,355 | | | | 488 | | | | 2,843 | | Fiscal year 2020 | | | 1,917 | | | | 468 | | | | 2,385 | | Fiscal year 2021 | | | 2,160 | | | | 28 | | | | 2,188 | | Thereafter | | | 1,214 | | | | – | | | | 1,214 | | Total minimum future rental commitments | | $ | 15,836 | | | $ | 1,915 | | | $ | 17,751 | |
Rent expense for fiscal years 2016 and 2015 was $4,841 and $5,300, respectively. We have agreements to receive future sublease payments of $655 through September 2019.
Contracts: We have entered into material contracts with three appliance manufacturers. Under the agreements there are no minimum purchase commitments; however, we have agreed to indemnify the manufacturers for certain claims, allegations or losses with respect to appliances we sell.
Litigation:On March 6, 2015, a complaint was filed in United States District Court for the Central District of California by Jason Feola, individually and as a representative of a putative class consisting of purchasers$2,992, respectively, exclusive of the Company’s common stock between March 15, 2012 and February 11, 2015, against Appliance Recycling Centers of America, Inc. and certain current and former officers of the Company. Mr. Feola, pursuant to terms of his retainer agreement with The Rosen Law Firm, certified that he purchased 240 shares of the Company’s common stock for $984 in total consideration. On May 7, 2015, the Company and the individual defendants were served the complaint. In July 2015, the Company and the individual defendants received an amended complaint. The complaint alleges that misstatements and omissions occurred in press releases and filings by the Company with the Securities and Exchange Commission and that these misstatements or omissions constitute violations of Section 20 (a) and Section 10(b) of, and Rule 10b-5 under, the Securities Exchange Act of 1934. In October 2015, the court held a hearing on the Company's motion to dismiss the complaint. On November 24, 2015, the United States District Court for the Central District of California entered an order granting the motion to dismiss the amended complaint. The Court’s order provided that the dismissal was without prejudice and that the plaintiffs may file an amended complaint within 21 days of the issuance of the order. On December 15, 2015, the Company and the individual defendants were served with a second amended complaint. In May 2016, the court held a hearing on the Company’s motion to dismiss the second amended complaint. On October 21, 2016 the court entered a final judgement to dismiss the class action complaint with prejudice.
impairment charge. On November 6, 2015,Inventories of continuing operations, consisting principally of appliances, are stated at the lower of cost, determined on a complaint was filed in the Minnesota District Court for Hennepin County, Minnesota, by David Grayspecific identification basis, or net realizable value and Michael Boller, purporting to bring suit derivatively and on behalfconsist of the Company against twelve currentfollowing as of January 2, 2021 and former officers and directors of the Company. The complaint alleges that the defendants breached their fiduciary duties based on substantially similar allegations to those asserted in Mr. Feola's putative securities class action complaint, and that the defendants have been unjustly enriched as a result thereof. The complaint seeks damages, disgorgement, an award of attorneys’ fees and other expenses, and an order compelling changes to the Company’s corporate governance and internal procedures. This matter has been stayed by the court, pursuant to a stipulation of the parties, until the United States District Court for the Central District of California determines the legal sufficiency of Mr. Feola's complaint or other specified developments occur in that case. This matter has been submitted to our insurance carriers.December 28, 2019:
Given the uncertainty of litigation and the preliminary stage of these cases, we cannot reasonably estimate the possible loss or range of loss that may result from these actions. The Company maintains liability insurance policies that may reduce the Company’s exposure, if any.
In February 2012, various individuals commenced a class action lawsuit against Whirlpool Corporation (“Whirlpool”) and various distributors of Whirlpool products, including Sears, The Home Depot, Lowe’s and us, alleging certain appliances Whirlpool sold through its distribution chain, which includes us, were improperly designated with the ENERGY STAR® qualification rating established by the U.S. Department of Energy and the Environmental Protection Agency. The claims against us include breach of warranty claims, as well as various state consumer protection claims. The amount of the claim is, as yet, undetermined. Whirlpool has offered to fully indemnify and defend its distributors in this lawsuit, including us, and has engaged legal counsel to defend itself and the distributors. We are monitoring Whirlpool’s defense of the claims and believe the possibility of a material loss is remote.
AMTIM Capital, Inc. (“AMTIM”) acts as our representative to market our recycling services in Canada under an arrangement that pays AMTIM for revenues generated by recycling services in Canada as set forth in the agreements between the parties. A dispute has arisen between AMTIM and us with respect to the calculation of amounts due to AMTIM pursuant to the agreement. In a lawsuit filed in the province of Ontario, AMTIM claims a discrepancy in the calculation of fees due to AMTIM by us of approximately $2.0 million. Although the outcome of this claim is uncertain, we believe that no further amounts are due under the terms of the agreement and that we will continue to defend our position relative to this lawsuit.
| | January 2, 2021 | | | December 28, 2019 | | Appliances held for resale | | $ | 1,430 | | | $ | 1,148 | | Raw material - chips | | | 200 | | | | 200 | | Total inventory | | $ | 1,630 | | | $ | 1,348 | |
We provide estimated provisions for the obsolescence of our appliance inventories, as necessary, including adjustments to net realizable value, based on various factors, including the age of such inventory and our management’s assessment of the need for such provisions. We look at historical inventory aging reports and margin analyses in determining our provision estimate. A revised cost basis is used once a provision for obsolescence is recorded. F-17
JANONE INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands except per share amounts) Note 6: | Prepaids and other current assets |
Prepaids and other current assets as of January 2, 2021 and December 28, 2019 consist of the following: | | January 2, 2021 | | | December 28, 2019 | | Prepaid insurance | | $ | 371 | | | $ | 282 | | Prepaid rent | | | 95 | | | | — | | Prepaid purchase orders | | | 366 | | | | — | | Prepaid other | | | 304 | | | | 74 | | | | $ | 1,136 | | | $ | 356 | |
Note 7: | Property and equipment |
Property and equipment of continuing operations as of January 2, 2021 and December 28, 2019 consist of the following: | | Useful Life (Years) | | January 2, 2021 | | | December 28, 2019 | | Buildings and improvements | | 3-30 | | $ | 75 | | | $ | 69 | | Equipment | | 3-15 | | | 2,528 | | | | 2,314 | | Projects under construction | | | | | 387 | | | | 120 | | Property and equipment | | | | | 2,990 | | | | 2,503 | | Less accumulated depreciation | | | | | (2,258 | ) | | | (2,179 | ) | Property and equipment, net | | | | $ | 732 | | | $ | 324 | |
Depreciation expense was $79 and $99 for fiscal years 2020 and 2019, respectively. Intangible assets as of January 2, 2021 and December 28, 2019 consist of the following: | | January 2, 2021 | | | December 28, 2019 | | Intangible assets GeoTraq | | $ | 26,096 | | | $ | 26,096 | | Patents and domains | | | 23 | | | | 23 | | Computer software | | | 4,494 | | | | 4,167 | | | | | 30,613 | | | | 30,286 | | Less accumulated amortization | | | (16,624 | ) | | | (12,581 | ) | | | $ | 13,989 | | | $ | 17,705 | |
The useful life and amortization period of the GeoTraq intangible acquired is seven years. Intangible amortization expense for continuing operations was $4,043 and $3,977 for fiscal years 2020 and 2019, respectively. Note 9: | Deposits and other assets |
Deposits and other assets as of January 2, 2021 and December 28, 2019 consist of the following: | | January 2, 2021 | | | December 28, 2019 | | Deposits | | $ | 169 | | | $ | 195 | | Other | | | 62 | | | | 77 | | | | $ | 231 | | | $ | 272 | |
Deposits are party from time to time to ordinary course disputes that we do not believe to be material or have merit. We intend to vigorously defend ourselves against these ordinary course disputes.primarily refundable security deposits with landlords the Company leases property from. F-18
JANONE INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands except per share amounts) SalesNote 10: Leases
We account for leases in accordance with ASC 842. The amount recorded is the present value of all remaining lease payments for leases with terms greater than 12 months. The right of use asset is offset by a corresponding liability. The discount rate is based on an estimate of our incremental borrowing rate for terms similar to our lease terms at the time of lease commencement. The asset will be amortized over remaining lease terms. See Lease Accounting in Note 2. Total present value of future lease payments as of January 2, 2021: 2021 | | $ | 1,347 | | 2022 | | | 733 | | 2023 | | | 436 | | 2024 | | | 305 | | 2025 | | | 47 | | Total | | | 2,868 | | Less interest | | | (283 | ) | Present value of payments | | $ | 2,585 | |
During the years ended January 2, 2021 and Use Taxes:December 28, 2019, $1,250 and $1,284, respectively, was included in operating cash flow for amounts paid for operating leases. Additionally, we obtained right-of-use assets in exchange for lease liabilities of approximately $1,367 upon commencement of operating leases during the year ended January 2, 2021. Additionally, we exercised an early termination clause in one our leases which reduces our right of use assets by $234. The weighted average lease term for operating leases is 2.7 years and the weighted average discount rate is 8%. Note 11: Accrued liabilities Accrued liabilities of continuing operations as of January 2, 2021 and December 28, 2019 consist of the following: | | January 2, 2021 | | | December 28, 2019 | | Compensation and benefits | | $ | 604 | | | $ | 809 | | Contract liability | | | 292 | | | | 515 | | Accrued incentive and rebate checks | | | 1,220 | | | | 988 | | Accrued rent | | | — | | | | 228 | | Accrued transportation costs* | | | 662 | | | | — | | Accrued guarantees | | | 767 | | | | 767 | | Accrued purchase orders | | | 177 | | | | — | | Accrued taxes | | | 299 | | | | 297 | | Other | | | 867 | | | | 334 | | | | $ | 4,888 | | | $ | 3,938 | |
*Accrued transportation costs are related to delayed billing from certain vendors. F-19
JANONE INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands except per share amounts) Contract liabilities rollforward The following table summarizes the contract liability activity for the year ended January 2, 2021: Beginning balance, December 28, 2019 | | $ | 515 | | Accrued | | | 649 | | Settled | | | (872 | ) | Ending balance, January 2, 2021 | | $ | 292 | |
Note 12: Accrued liability – California sales tax We operate in twenty-threefourteen states in the U.S. and in various provinces in Canada. From time to time, we are subject to sales and use tax audits that could result in additional taxes, penalties and interest owed to various taxing authorities. As previously disclosed,The California Department of Tax and Fee Administration (formerly known as the California Board of EqualizationEqualization) (“BOE”CDTFA”) is conductingconducted a sales and use tax examination covering theARCA Recycling’s California operations of Appliance Recycling Centers of America, Inc. (the “Company”) for years 2011, 2012 and 2013. The Company believed it was exempt from collecting sales taxes under service agreements with utility customers that included appliance replacement programs. During the fourth quarter of 2014, the Company received communication from the BOECDTFA indicating they arewere not in agreement with the Company’s interpretation of the law. As a result, the Company applied for and, as of February 9, 2015, received approval to participate in the California Board of Equalization’sCDTFA’s Managed Audit Program. The period covered under this program includesincluded years 2011, 2012, 2013 and extendsextended through the nine-month period ended September 30, 2014. At this time, our best estimate of
On April 13, 2017 the Company received the formal CDTFA assessment for sales tax for tax years 2011, 2012 and 2013 in the amount that will be assessed by the BOE covering all periods under audit isof $4,132 plus applicable interest of approximately $4.2 million ($2.6 million net of income tax benefit) in sales tax and interest $500 related to the appliance replacement programs that wethe Company administered on behalf of ourits customers on which weit did not assess, collect or remit sales tax. The Company has been working with outside consultantsappealed this assessment to arrive at our assessment estimate and will continuethe CDTFA Appeals Bureau. The appeal remains in process. Interest continues to engage the services of these sales tax experts throughout the Managed Audit Program process. The sales tax amounts that we will likely be assessed relate to transactions in the period under examination by the BOE. Such assessment, however, will be subject to protest and appeal, and would not need to be fundedaccrue until the matter has been fully resolved. Resolution could take up to two years.is settled. As of January 2, 2021 and December 28, 2019, our accrued liability for California sales tax was $5,769 and $5,438, respectively. 9. Income Taxes
For fiscal year 2016,2020 and 2019, we recorded an income tax benefit of $49. For fiscal year 2015, we recorded an income tax benefit of $1,714. As of December 31, 2016, we maintained a valuation allowance of $1,011 against our net operating loss carryforwards, foreign tax credits$427 and all deferred tax assets in Canada, principally net operating losses. During the second quarter of 2016, we concluded, based upon the assessment of all available evidence that it was more-likely-than-not that we would not be able to realize a portion of our U.S. deferred tax assets in the future. As a result, a valuation allowance of $405 was placed on the overall U.S. net deferred tax asset. The benefit of income taxes for fiscal years 2016 and 2015$3,197, respectively, which consisted of the following:
| | For the fiscal years ended | | | | December 31, 2016 | | | January 2, 2016 | | Current tax expense (benefit): | | | | | | | | | Federal | | $ | 12 | | | $ | (855 | ) | State | | | 36 | | | | (18 | ) | Foreign | | | – | | | | (229 | ) | Current tax expense (benefit) | | $ | 48 | | | $ | (1,102 | ) | Deferred tax expense — domestic | | | (97 | ) | | | (831 | ) | Deferred tax expense — foreign | | | – | | | | 219 | | Benefit of income taxes | | $ | (49 | ) | | $ | (1,714 | ) |
| | Fiscal Years Ended | | | | January 2, 2021 | | | December 28, 2019 | | Current tax expense: | | | | | | | | | State | | $ | (46 | ) | | $ | (80 | ) | Federal | | | 203 | | | | — | | Current tax expense | | $ | 157 | | | $ | (80 | ) | Deferred tax benefit - domestic | | | 270 | | | | 3,277 | | Benefit of income taxes | | $ | 427 | | | $ | 3,197 | |
F-20
JANONE INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands except per share amounts) A reconciliation of our benefit of income taxes with the federal statutory tax rate for fiscal years 20162020 and 20152019 is shown below: | | For the fiscal years ended | | | | December 31, 2016 | | | January 2, 2016 | | Income tax expense at statutory rate | | $ | (617 | ) | | | (1,920 | ) | Portion attributable to noncontrolling interest at statutory rate | | | 107 | | | | 413 | | State tax expense, net of federal tax effect | | | (69 | ) | | | (288 | ) | Permanent differences | | | 20 | | | | 83 | | Change in valuation allowance | | | 414 | | | | (7 | ) | Recognition of tax effect for the cumulative undistributed earnings from Canada | | | – | | | | (16 | ) | Other | | | 95 | | | | 21 | | | | | (49 | ) | | | (1,714 | ) |
| | Fiscal Years Ended | | | | January 2, 2021 | | | December 28, 2019 | | U.S statutory rate | | | 21.0 | % | | | 21.0 | % | State tax rate | | | 7.5 | % | | | 1.8 | % | Foreign rate differential | | | 0.4 | % | | | 0.2 | % | Permanent differences | | | -0.1 | % | | | -0.1 | % | Change in valuation allowance | | | -24.5 | % | | | -0.7 | % | Other | | | 0.6 | % | | | -0.6 | % | | | | 4.9 | % | | | 21.6 | % |
Loss before benefit of income taxes and noncontrolling interest was derived from the following sources for fiscal years 20162020 and 20152019 as shown below: | | For the fiscal years ended | | | Fiscal Years Ended | | | | December 31, 2016 | | | January 2, 2016 | | | January 2, 2021 | | | December 28, 2019 | | United States | | $ | (1,677 | ) | | $ | (5,452 | ) | | $ | (8,270 | ) | | $ | (14,497 | ) | Canada | | | (137 | ) | | | (194 | ) | | | (655 | ) | | | (664 | ) | | | $ | (1,814 | ) | | $ | (5,646 | ) | | $ | (8,925 | ) | | $ | (15,161 | ) |
The components of net deferred tax assets (liabilities) as of December 31, 2016 and January 2, 2016,2021 and December 28, 2019, are as follows: | | December 31, 2016 | | | January 2, 2016 | | Deferred tax assets: | | | | | | | | | Net operating loss carryforwards | | $ | 794 | | | $ | 520 | | Federal and state tax credits | | | 476 | | | | 442 | | Reserves | | | 240 | | | | 218 | | Accrued expenses | | | 2,015 | | | | 1,964 | | Share-based compensation | | | 355 | | | | 352 | | Accumulated other comprehensive loss | | | 361 | | | | 361 | | Property and equipment | | | 8 | | | | 191 | | Unrealized Currency Exchange | | | 238 | | | | – | | Other | | | 161 | | | | 166 | | Total deferred tax assets | | | 4,648 | | | | 4,214 | | Deferred tax liabilities: | | | | | | | | | Prepaid expenses | | | (56 | ) | | | (89 | ) | Property and equipment | | | (162 | ) | | | (138 | ) | Investments | | | (1,269 | ) | | | (1,269 | ) | Other | | | (69 | ) | | | (137 | ) | Total deferred tax liabilities | | | (1,556 | ) | | | (1,633 | ) | Valuation allowance | | | (1,011 | ) | | | (597 | ) | Net deferred tax assets | | $ | 2,081 | | | $ | 1,984 | |
| | January 2, 2021 | | | December 28, 2019 | | Deferred tax assets (liabilities): | | | | | | | | | Allowance for bad debts | | $ | 823 | | | $ | 802 | | Accrued expenses | | | 1,769 | | | | 1,623 | | Accrued compensation | | | 76 | | | | 62 | | Prepaid expenses | | | (304 | ) | | | (93 | ) | Net operating loss | | | 3,477 | | | | 2,045 | | Lease liability | | | 35 | | | | 504 | | Tax credits | | | 290 | | | | 256 | | Share-based compensation | | | 176 | | | | 125 | | Intangibles | | | (3,717 | ) | | | (4,585 | ) | Property and equipment | | | (214 | ) | | | (652 | ) | Unrealized losses (gains) | | | 140 | | | | 141 | | Section 163(j) interest | | | 387 | | | | 288 | | | | | 2,938 | | | | 516 | | Less: valuation allowance | | | (2,938 | ) | | | (786 | ) | Net deferred tax assets (liabilities) | | $ | — | | | $ | (270 | ) |
The deferred tax amounts have been classified in the accompanying consolidated balance sheets as follows:
| | December 31, 2016 | | | January 2, 2016 | | Current assets | | $ | – | | | $ | – | | Non-current assets | | | 2,081 | | | | 1,984 | | Non-current liabilities | | | – | | | | – | | | | $ | 2,081 | | | $ | 1,984 | |
In November 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2015-17, “Income Taxes” which simplifies the balance sheet presentation of deferred income taxes. The Company has adopted the provisions of the standard for its 2016 consolidated financial statements including retroactive reclassifications of the $1,657 current deferred income tax asset asAs of January 2, 2016 to a non-current deferred income tax asset. This reclassification does not have a significant impact on2021, the Company’s consolidated balance sheet andCompany has no effect on the net loss.
Future utilization of net operating loss (“NOL”) and tax credit carryforwards is subject to certain limitations under provisions of Section 382 of the Internal Revenue Code (“IRC”). This section relates to a 50 percent change in control over a three-year period. We believe that the issuance of common stock during 1999 resulted in an “ownership change” under Section 382. Accordingly, our ability to utilize NOL and tax credit carryforwards generated prior to February 1999 is limited to approximately $56 per year.
As of December 31, 2016, we had a foreign tax credit carryforward of $256 and a federal NOL of $209 not subject Section 382 of the IRC. We also had state NOL carryforwards of $425. The state NOL carryforwards areapproximately $10,221 for federal income tax purposes, which will be available to offset future taxable income. Due to recent tax legislation, these net operating losses are eligible for indefinite carryforward, limited by certain taxable income orlimitations. The Company evaluates all available evidence to determine if a valuation allowance is needed to reduce taxes payable through 2030. These state loss carryforwards began expiringits deferred tax assets. Management has concluded that it is more likely than not that its existing tax benefits in 2011. Inthe U.S. and Canada we had federal and provincial NOL carryforwards of $85.will not be realized. Accordingly, the Company has recorded a valuation allowance $2,938 at January 2, 2021 to reduce its deferred tax assets.
F-21
JANONE INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands except per share amounts) We recognize the financial statement benefitThe Company annually conducts an analysis of a tax position only after determining that the relevant tax authority would more-likely-than-not sustain the position. Forits uncertain tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest benefitand has concluded that it has a greater than 50% percent likelihoodno uncertain tax positions as of being realized upon ultimate settlement with the relevant tax authority. As of December 31, 2016 and January 2, 2016, we did not have any material2021. The Company’s policy is to record uncertain tax positions.
It is our practice to recognize interest related to income tax matterspositions as a component of income tax expense.
The Company files U.S. and state income tax returns in jurisdictions with differing statutes of limitations. The 2017 through 2020 tax years remain subject to selection for examination as of January 2, 2021. None of the Company’s income tax returns are currently under audit. Short term debt and other financing obligations as of January 2, 2021 and December 28, 2019, consist of the following: | | January 2, 2021 | | | December 28, 2019 | | AFCO Finance | | $ | 144 | | | $ | 155 | | GE 8% loan agreement (Note 15) | | | — | | | | 125 | | Payroll protection program | | | 1,872 | | | | — | | Vendor advance payments | | | 1,026 | | | | — | | Total short term debt | | $ | 3,042 | | | $ | 280 | |
AFCO Finance Annually, we enter into a financing agreement with AFCO Credit Corporation (“AFCO”) purchased through Marsh Insurance to fund the annual premiums on insurance policies due June 1 of each year. These policies are related to workers’ compensation and various liability policies including, but not limited to, General, Auto, Umbrella, Property, and Directors’ and Officers’ insurance. The total amount of the premiums financed during June 2020 was $429 with an interest expenserate of 3.3%. An initial down payment of $143 was due before July 1, 2020 with additional monthly payments of $48 made beginning July 1, 2020 and penaltiesending June 1, 2021. The outstanding principal due AFCO at January 2, 2021 and December 28, 2019 was $144 and $155, respectively. Payroll Protection Program On May 1, 2020, the Company entered into a promissory note (the “Promissory Note”) with Texas Capital Bank, N.A. that provides for a loan in the amount of $1,872 (the “PPP Loan”) pursuant to the Paycheck Protection Program under the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”). The PPP Loan matures on April 27, 2022 and bears interest at a rate of 1.0% per annum. Monthly amortized principal and interest payments are deferred for six months after the date of disbursement. The Promissory Note contains events of default and other provisions customary for a loan of this type. The Paycheck Protection Program provides that the use of the PPP Loan amount shall be limited to certain qualifying expenses and may be partially or wholly forgiven in accordance with the requirements set forth in the CARES Act. The Company has applied for forgiveness of a portion of the loan in accordance with the terms of the CARES Act to the extent applicable. Customer Advance Payments As of the period ending June 27, 2020, the Company received advance payments authorized by the California Public Utilities Commission and processed through two California utilities for the purposes of sustaining the workforce during the COVID-19 pandemic shutdown. The use of these funds was limited to labor and labor benefits for impacted employees. Portions of these advances are forgivable if certain conditions are met the specifics which have not been finalized. Advance payments that are not forgiven will need to be paid back in full by December 31, 2021. Total funding received under this program as of September 26, 2020 amounted to $1,168. As of January 2, 2021, $142 was forgiven, leaving a balance of $1,026. F-22
JANONE INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands except per share amounts) Note 15: | Commitments and Contingencies |
Litigation On December 29, 2016, the Company served a Minnesota state court complaint for breach of contract on Skybridge Americas, Inc. (“SA”), the Company’s primary call center vendor throughout 2015 and most of 2016. The Company seeks damages in the millions of dollars as a componentresult of selling, generalalleged overcharging by SA and administrative expense.lost client contracts. On January 25, 2017, SA served a counterclaim for unpaid invoices in the amount of approximately $460 plus interest and attorneys’ fees. On March 29, 2017, the Hennepin County district court (the “District Court”) dismissed the Company’s breach of contract claim based on SA’s overuse of its Canadian call center but permitted the Company’s remaining claims to proceed. Following motion practice, on January 8, 2018 the District Court entered judgment in SA’s favor, which was amended as of February 28, 2018, for a total amount of $614, including interest and attorneys’ fees. On March 4, 2019, the Minnesota Court of Appeals (the “Court of Appeals”) ruled and (i) reversed the District Court’s judgment in favor of Skybridge on the call center location claim and remanded the issue back to the District Court for further proceedings, (ii) reversed the District Court’s judgment in favor of Skybridge on the net payment issue and remanded the issue to the District Court for further proceedings, and (iii) affirmed the District Court’s judgment in Skybridge’s favor against the Company’s claim that Skybridge breached the contract when it failed to meet the service level agreements. As a result of the decision by the Court of Appeals, the District Court’s award of interest and attorneys’ fees, etc. was reversed. The Company and SA held a mediation session in July 2020. Trial was held in August 2020 and on February 1, 2021, the District Court awarded damages against the Company in the amount of $715, plus interest, fees, and costs. The Company filed a motion for a new trial and is waiting for the District Court to rule. On November 15, 2016, the Company served an arbitration demand on Haier US Appliance Solutions, Inc., dba GE Appliances (“GEA”), alleging breach of contract and interference with prospective business advantage. The Company seeks over $2,000 in damages. On April 18, 2017, GEA served a counterclaim for approximately $337 in alleged obligations under the parties’ recycling agreement. Simultaneously with serving its counterclaim in the arbitration, which is venued in Chicago, GEA filed a complaint in the United States District Court for the Western District of Kentucky seeking damages of approximately $530 plus interest and attorneys’ fees allegedly owed under a previous agreement between the parties. On December 31, 201612, 2017, the court stayed GEA’s complaint in favor of the arbitration. Under the terms of the Company’s transaction with Recleim LLC (“Recleim”), Recleim is obligated to pay GEA on the Company’s behalf the amounts claimed by GEA in the arbitration and in the lawsuit pending in Kentucky. Those amounts have been paid into escrow pending the outcome of the arbitration. Arbitration proceedings were held in October and November 2019. On March 5, 2020, the arbitrator ruled in part in favor of the Company and in part in favor of GEA, and, as a result, GEA was awarded approximately $125 in damages. AMTIM Capital, Inc. (“AMTIM”) acts as the Company’s representative to market our recycling services in Canada under an arrangement that pays AMTIM for revenues generated by recycling services in Canada as set forth in the agreement between the parties. A dispute has arisen between AMTIM and the Company with respect to the calculation of amounts due to AMTIM pursuant to the agreement. In a lawsuit filed in the province of Ontario, AMTIM claims a discrepancy in the calculation of fees due to AMTIM by the Company of approximately $2,000. Although the outcome of this claim is uncertain, the Company believes that no further amounts are due under the terms of the agreement and that we will continue to defend our position relative to this lawsuit. Trial is currently scheduled for April 2021. On October 4, 2018, the Company initiated litigation against a former professional services provider (“PSP”), in Illinois state court, as well as a private arbitration proceeding that was scheduled to be held in Minneapolis, Minnesota, arising from PSP’s rendering of certain professional services to the Company during the period from 2011 through 2014. PSP filed a counterclaim in the arbitration seeking an award of its legal fees and costs arising from that proceeding. The parties subsequently agreed to consolidate their respective claims into the arbitration. The Company’s arbitration demand, as amended, sought an award of more than $50 and other relief. On March 23, 2020, the parties entered into a settlement agreement, whereby, without any admission of liability, they exchanged mutual releases, agreed to dismiss their respective claims with prejudice, and PSP agreed to pay $800 to the Company to, among other things, assist it with certain of its costs and obligations that related to various issues underlying the arbitration proceeding. F-23
JANONE INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands except per share amounts) Other Commitments As previously disclosed and as discussed in Note 4: Note receivable, on December 30, 2017, the Company disposed of its retail appliance segment and sold ApplianceSmart to the Purchaser. In connection with that sale, as of January 2, 2016, we had2021 the Company has an immaterialaggregate amount of future real property lease payments of $767, which represents amounts guaranteed or which may be owed under certain lease agreements to third party landlords in which the Company either remains the counterparty, is a guarantor, or has agreed to remain contractually liable under the lease (“ApplianceSmart Leases”). The Company evaluated the fair value of its potential obligation under the guidance of ASC 450: Contingencies and ASC 460: Guarantees. As a result, the Company accrued the amount of liability associated with these future guaranteed lease payments. The fair value was calculated based on the amounts reported as part of the bankruptcy proceedings as ApplianceSmart terminated the leases prior to the lease termination date. The fair value was calculated based on the undiscounted lease payments, a discount rate equivalent to current interest rates associated with the leased real estate and penalties.a remote probability weighting of 1%. We are subject to income taxesThe ApplianceSmart Leases either have the Company as the contract tenant only, or in the U.S. federal jurisdiction, foreign jurisdictionscontract reflects a joint tenancy with ApplianceSmart. ApplianceSmart is the occupant of the ApplianceSmart Leases. The Company does not have the right to use the ApplianceSmart lease assets nor is the Company the primary obligor of the lease payments, hence capitalization under ASC 840 is not required. The ApplianceSmart Leases have historically been used by ApplianceSmart for their operations and various state jurisdictions. Tax regulations from each jurisdiction are subjectthe consideration has and is being paid by ApplianceSmart historically and in the future.
Any potential amounts paid out for the Company obligations and or guarantees under ApplianceSmart Leases would be recoverable to the interpretationextent there are assets available from ApplianceSmart. ApplianceSmart Leases are related party transactions. The Company divested itself of the related tax lawsApplianceSmart Leases and regulationsleaseholds with the sale to Purchaser on December 30, 2017. The Company is party from time to time to other ordinary course disputes that we do not believe to be material to our financial condition as of January 2, 2021. Note 16: | Series A-1 Preferred Stock |
On August 18, 2017, the Company acquired GeoTraq by way of merger, resulting in GeoTraq becoming a wholly-owned subsidiary of the Company. In connection with this transaction, the Company tendered to the owners of GeoTraq $200 cash, issued to them an aggregate of 288,588 shares of the Company’s Series A Convertible Preferred Stock (the “Series A Preferred Stock”), and require significant judgment to apply. With few exceptions,entered into one-year unsecured promissory notes in the aggregate principal amount of $800. To accomplish the designation and issuance of the Series A Preferred Stock, we are no longer subject to U.S. federal, foreign, state or local income tax examinations by tax authoritiesfiled a Certificate of Designation with the Secretary of State of the State of Minnesota. On November 9, 2017, we filed a Certificate of Correction with the Minnesota Secretary of State. In connection with the Reincorporation, we filed Articles of Incorporation with the Secretary of State of the State of Nevada on March 12, 2018, and a Certificate of Correction with the Secretary of State of the State of Nevada on August 7, 2018 (collectively, the “Nevada Articles of Incorporation”). On June 21, 2019, we filed a Certificate of Designation of Powers, Preferences, and Rights of Series A-1 Convertible Preferred Stock (the “Series A-1 Preferred Stock”) with the Nevada Secretary of State. On October 1, 2020, we filed an Amended and Restated Certificate of Designation for the years before 2012. Preferences, Rights, and Limitations of the Series A-1 Convertible Preferred Stock (the “Amended and Restated Series A-1 Certificate of Designation”) with the Nevada Secretary of State. The following summary of the Nevada Articles of Incorporation and Amended and Restated Series A-1 Certificate of Designation does not purport to be complete and is qualified in its entirety by reference to the provisions of applicable law and to the Nevada Articles of Incorporation and the Amended and Restated Series A-1 Certificate of Designation, which are filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the SEC on March 13, 2018, as Exhibit 3.1. to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2018, and Exhibit 3.8(a) to the Company’s Current Report on Form 8-K filed with the SEC on October 2, 2020. F-24
JANONE INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands except per share amounts) The Series A-1 Convertible Preferred Stock was designated pursuant to guidance received from Nasdaq and has virtually all of the same rights, characteristics, and attributes as the Company’s Series A Convertible Preferred Stock, except as required by the Listing Qualifications staff of The Nasdaq Stock Market LLC (i.e., Section 3.2.5 in respect of voting rights of the Series A-1 Convertible Preferred Stock and Section 3.2.1(f) in respect of a Triggering Event, as such term is defined therein, and the formula to be applied in connection therewith), with respect to each of which requirements the Company has already been in compliance. The filing of the Series A-1 Certificate of Designation was unanimously approved by the Board of Directors on June 18, 2019. The affirmative approval of a majority of the holders of the Series A Convertible Preferred Stock for the exchange of such shares into shares of Series A-1 Convertible Preferred Stock occurred on or about June 19, 2019. The three holders of our Series A Convertible Preferred Stock were deemed to have exchanged their shares of Series A Convertible Preferred Stock for an equivalent number of shares of Series A-1 Convertible Preferred Stock, or an aggregate of 259,729 shares. Except as described above, the rights, characteristics, and attributes of the Series A-1 Preferred Stock are the same as described below. Except as described above and as set forth below, references below to “Series A Preferred Stock” include and shall be deemed to refer to “Series A-1 Preferred Stock” on and after June 19, 2019. Dividends We cannot declare, pay or set aside any dividends on shares of any other class or series of our capital stock unless (in addition to the obtaining of any consents required by our Articles of Incorporation) the holders of the Series A Preferred Stock then outstanding shall first receive, or simultaneously receive, a dividend in the aggregate amount of $1.00, regardless of the number of then-issued and outstanding shares of Series A Preferred Stock. Any remaining dividends allocated by the Board of Directors shall be distributed in an equal amount per share to the holders of outstanding common stock and Series A Preferred Stock (on an as-if-converted to common stock basis pursuant to the Conversion Ratio as defined below). Conversion The Series A-1 Preferred Stock is not convertible into shares of our common stock or any other debt or equity securities of the Company. Further, the Series A-1 Preferred Stock is not convertible into shares of GeoTraq common stock except as described below. The “Conversion Ratio” per share of the Series A-1 Preferred Stock in connection with any conversion shall be at a ratio of 458.3453:1, meaning every four hundred fifty-eight and 3,453/10,000ths (458.3453) shares of Series A-1 Preferred Stock, if and when converted into shares of GeoTraq common stock, shall convert into one share of GeoTraq common stock. Each holder of Series A-1 Preferred Stock shall have the right, exercisable at any time and from time to time (unless otherwise prohibited by law, rule, or regulation, or as restricted below), to convert any or all of such holder’s shares of Series A-1 Preferred Stock into shares of GeoTraq common stock at the Conversion Ratio. Voting Rights Each holder of a share of Series A Preferred Stock has a number of votes as is determined by multiplying (i) the number of shares of Series A Preferred Stock held by such holder, and (ii) 17. The holders of Series A-1 Preferred Stock vote together with all other classes and series of common and preferred stock of the Company as a single class on all actions to be taken by the common stockholders of the Company, except to the extent that voting as a separate class or series is required by law. Redemption The Series A-1 Preferred Stock has no redemption rights by JanOne, GeoTraq, or any other entity. F-25
JANONE INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands except per share amounts) Preemptive Rights Holders of the Series A-1 Preferred Stock and holders of JanOne common stock are not currently under examinationentitled to any preemptive, subscription, or similar rights in respect of any securities of JanOne or GeoTraq, except as set forth in the Amended and Restated Series A-1 Certificate of Designation or in any other document agreed to by any taxing jurisdiction.JanOne. We had no significant unrecognized tax benefitsProtective Provisions
Without first obtaining the affirmative approval of a majority of the holders of the shares of Series A-1 Preferred Stock, we may not directly or indirectly (i) increase or decrease (other than by redemption or conversion) the total number of authorized shares of Series A-1 Preferred Stock or the total number of authorized or issued and outstanding shares of GeoTraq common stock; (ii) effect an exchange, reclassification, or cancellation of all or a part of the Series A-1 Preferred Stock, but excluding a stock split or reverse stock split or combination of the common stock or preferred stock; (iii) effect an exchange, or create a right of exchange, of all or part of the shares of another class of shares into shares of Series A-1 Preferred Stock; or (iii) alter or change the rights, preferences or privileges of the shares of Series A-1 Preferred Stock so as of December 31, 2016, that would reasonably be expected to affect our effective tax rate duringadversely the next twelve months.shares of such series, including the rights set forth in this Designation; provided, however, that we may, without any vote of the holders of shares of the Series A-1 Preferred Stock, make technical, corrective, administrative or similar changes to the Amended and Restated Series A-1 Certificate of Designation that do not, individually or in the aggregate, materially adversely affect the rights or preferences of the holders of shares of the Series A-1 Preferred Stock. Note 17: | Stockholders’ Equity |
10. Shareholders’ Equity
Common Stock: During fiscal year 2016, 50 Our Articles of Incorporation authorize 200,000,000 shares of common stock were grantedthat may be issued from time to time having such rights, powers, preferences and designations as the 2011 Stock Compensation PlanBoard of Directors may determine. On November 4, 2020, at the Company’s Annual Meeting of Stockholders (the “2011 Plan”“Annual Meeting”), the Company’s stockholders approved an amendment (the “Charter Amendment”) to the Company’s CEO andArticles of Incorporation to increase the corresponding fair valuetotal number of $62 was included in share-based compensation. 85authorized shares of the Company’s common stock were granted from 10,000,000 shares to 200,000,000 shares. Following stockholder approval, the 2011 PlanCharter Amendment was filed with the Nevada Secretary of State on November 5, 2020, at which time the Charter Amendment became effective. The Company’s Board of Directors had previously approved the Charter Amendment, subject to stockholder approval. The description of the Charter Amendment is qualified in its entirety by reference to the complete text of the Charter Amendment, a contractor in lieucopy of professional services. 620which is filed as Exhibit 3.10 to the Company’s Quarterly Report on Form 10-Q for the period ended September 26, 2020 and is incorporated herein by reference. During fiscal year 2020, 104,798 shares of common stock were granted and issued for entering intoin lieu of professional services at a convertible note agreement.fair value of $351. During fiscal year 2015,2019, 224,483 common shares were issued as compensation to employees and consultants with a fair value of $500. Additionally, the Company recognized stock optionscompensation expense of $54 and $131 during the years ended January 2, 2021 and December 31, 2019, respectively, related to purchase 13the amortization of the fair value of shares of its common stock vesting and/or issued for services rendered. As of January 2, 2021, and December 28, 2019, there were 1,829,982 and 1,919,048 shares, respectively, of common stock were exercised that resulted in cash proceeds of $24issued and had an intrinsic value of $10. In 2015, 100 shares of common stock were granted from the 2011 Plan to the Company's then CEO and the corresponding fair value of $114 was included in share-based compensation.outstanding. Stock options: The 2016 Plan, which replaces the 2011 Plan, authorizes the granting of awards in any of the following forms: (i) incentive stock options, (ii) nonqualified stock options, (iii) restricted stock awards, and (iv) restricted stock units, and expires on the earlier of October 28, 2026, or the date that all shares reserved under the 2016 Plan are issued or no longer available. TheOn November 4, 2020, the Company amended the 2016 Plan provides forto increase the issuance of upcommon shares from 400,000 to 2,000 shares800,000. The vesting period is determined by the Board of commonDirectors at the time of the stock pursuant to awards granted under the 2016 Plan. Options granted to employees typically vest over two years, while grants to non-employee directors vest in six months.option grant. As of January 2, 2021 and December 31, 2016, 2028, 2019, 78,000 and 4,000, respectively, options were outstanding under the 2016 Plan. Our 2011 Plan authorizes the granting of awards in any of the following forms: (i) stock options, (ii) stock appreciation rights, and (iii) other share-based awards, including but not limited to, restricted stock, restricted stock F-26
JANONE INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands except per share amounts) units or performance shares, and expires on the earlier of May 12, 2021, or the date that all shares reserved under the 2011 Plan are issued or no longer available. Options granted to employees typically vest over two years, while grants to non-employee directors vest in six months.available. As of January 2, 2021 and December 31, 2016, 48528, 2019, 35,900 and 40,400 options, respectively, were outstanding under the 2011 Plan. No additional awards will be granted under the 2011 Plan after the adoption of the 2016 Plan. Our 2006 Stock Option Plan (the “2006 Plan”) expired on June 30, 2011, but the options outstanding under the 2006 Plan continue to be exercisable in accordance with their terms. As of December 31, 2016, 206 options were outstanding to employees The following table summarizes stock option activity for fiscal 2020 and non-employee directors under the 2006 Plan. We issue new common stock when stock options are exercised. The Company periodically grants stock options that vest based upon the achievement of performance targets. For performance based options, the Company evaluates the likelihood of the targets being met and records the expense over the probable vesting period.2019: | | Options | | | Weighted Average Exercise | | | Aggregate Intrinsic | | | Weighted Average Remaining Contractual | | | | Outstanding | | | Price | | | Value | | | Life | | Outstanding at December 29, 2018 | | | 100,900 | | | $ | 11.07 | | | $ | — | | | | 3.8 | | Cancelled/expired | | | (56,500 | ) | | | 9.30 | | | | | | | | | | Outstanding at December 28, 2019 | | | 44,400 | | | $ | 13.31 | | | $ | — | | | | 3.0 | | Cancelled/expired | | | (4,500 | ) | | | 9.45 | | | | | | | | | | Granted | | | 74,000 | | | | 3.84 | | | | | | | | | | Outstanding at January 2, 2021 | | | 113,900 | | | $ | 11.97 | | | $ | 78 | | | | 7.0 | | Exercisable at January 2, 2021 | | | 65,400 | | | $ | 12.01 | | | $ | 27 | | | | 3.0 | |
The fair value of each option grantexercise price for stock options outstanding and exercisable outstanding at January 2, 2021 is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions for fiscal years 2016 and 2015:as follows: | | For the fiscal years ended | | | | December 31, 2016 | | | January 2, 2016 | | Expected dividend yield | | | – | | | | – | | Expected stock price volatility | | | 85.44% | | | | 84.80% | | Risk-free interest rate | | | 2.16% | | | | 2.16% | | Expected life of options (years) | | | 10.00 | | | | 10.00 | |
Additional information relating to all outstanding options is as follows (in thousands, except per share data):
| | Options Outstanding | | | Weighted Average Exercise Price | | | Aggregate Intrinsic Value | | | Weighted Average Remaining Contractual Life | | Balance at January 3, 2015 | | | 905 | | | $ | 3.25 | | | | | | | | | | Granted | | | 130 | | | | 1.33 | | | | | | | | | | Exercised | | | (12 | ) | | | 1.89 | | | | | | | | | | Cancelled/expired | | | (173 | ) | | | 4.63 | | | | | | | | | | Forfeited | | | (70 | ) | | | 2.67 | | | | | | | | | | Balance at January 2, 2016 | | | 780 | | | | 2.70 | | | $ | – | | | | 5.23 | | Granted | | | 30 | | | | 1.05 | | | | | | | | | | Cancelled/expired | | | (51 | ) | | | 0.88 | | | | | | | | | | Forfeited | | | (49 | ) | | | 2.85 | | | | | | | | | | Balance at December 31, 2016 | | | 710 | | | $ | 2.62 | | | $ | – | | | | 4.66 | | | | | | | | | | | | | | | | | | | Options exercisable at December 31, 2016 | | | 651 | | | $ | 2.67 | | | $ | – | | | | | |
Outstanding | | Exercisable | Number of Options | | | Exercise Price ($) | | Number of Options | | | Exercise Price ($) | | 16,500 | | | $17.35 to $23.45 | | | 16,500 | | | $17.35 to $23.45 | | 5,400 | | | $11.10 to $15.00 | | | 5,400 | | | $11.10 to $15.00 | | 12,000 | | | $5.70 to $9.90 | | | 12,000 | | | $5.70 to $9.90 | | 80,000 | | | $3.54 to $5.25 | | | 31,500 | | | $3.54 to $5.25 | | 113,900 | | | | | | 65,400 | | | |
The weighted average fair value per optionfollowing table summarizes information about the Company’s non-vested shares outstanding as of options granted during fiscal years 2016January 2, 2021 and 2015 was $0.88 and $1.12, respectively. December 28, 2019: Non-vested Shares | | Number of Shares | | | Average Grant-Date Fair Value | | Non-vested at December 29, 2018 | | | — | | | $ | — | | Granted | | | — | | | $ | — | | Vested | | | — | | | $ | — | | Non-vested at December 28, 2019 | | | — | | | $ | — | | Granted | | | 74,000 | | | $ | 3.09 | | Vested | | | (25,500 | ) | | $ | 3.85 | | Non-vested at January 2, 2021 | | | 48,500 | | | $ | 3.83 | |
We recognized share-based compensation expense related to stock options of $245$173 and $316$nil for fiscal years 20162020 and 2015,2019, respectively. The aggregate intrinsic value inAt January 2, 2021, the preceding table representsCompany has $55 of unrecognized compensation expense (net of estimated forfeitures) associated with stock option awards which the total pre-tax intrinsic value, based on our closing stock price of $1.12 oncompany expects to recognize as compensation expense through December 31, 2016, which theoretically could have been received by the option holders had all option holders exercised their options as of that date. 2021. Warrants: As of January 2, 2021 and December 31, 2016,28, 2019, there were no in-the-money options exercisable. Based on the value of options33,363 warrants outstanding as of December 31, 2016, estimated future share-based compensation expense is as follows:
Fiscal year 2017 | | $ | 32 | | Fiscal year 2018 | | | – | | | | $ | 32 | |
The estimate above does not include any expense for additional options that may be granted and vest during 2017.
Warrants:On November 8, 2016, we issued a warrant to Energy Efficiency Investments, LLC (EEI) to purchase 16733,363 shares of common stock at a price of $0.68 per share. The fair value of the warrant issued was $106 and it was exercisable in full at any time during a term of five years. The fair value$3.40 per share of common stock underlyingthat expire in November 2021.
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JANONE INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands except per share amounts) Net loss per share is calculated using the warrant issued to EEI was $0.63 based on our closing stock price of $0.95. The exercise price may be reduced and theweighted average number of shares of common stock that may be purchased underoutstanding during the warrant may be increased if the Company issues or sells additionalapplicable period. Basic weighted average common shares outstanding do not include shares of restricted stock that have not yet vested, although such shares are included as outstanding shares in the Company’s Consolidated Balance Sheet. Diluted net earnings per share is computed using the weighted average number of common stock at a price lower thanshares outstanding and if dilutive, potential common shares outstanding during the then-current warrant exercise price or the then-current market priceperiod. Potential common shares consist of the additional common stock. shares issuable in respect of restricted share awards, stock options and convertible preferred stock. The shares underlyingfollowing table presents the warrant include legal restrictions regardingcomputation of basic and diluted net loss per share: | | Fiscal Years Ended | | | | January 2, 2021 | | | December 28, 2019 | | Net loss | | $ | (8,498 | ) | | $ | (11,964 | ) | Basic and diluted loss per share | | $ | (4.59 | ) | | $ | (6.78 | ) | Weighted average common shares outstanding, basic and diluted | | | 1,852,147 | | | | 1,763,670 | |
Potentially dilutive securities totalling 406,992 and 337,492, respectively, were excluded from the transfer or salecalculation of diluted net loss per share for the years ended January 2, 2021 and December 28, 2019 because the effects were anti-dilutive based on the application of the shares. The fair value of the EEI warrant was recorded as deferred financing costs and is being amortized over the term of the commitment. As of December 31, 2016, we had fully vested warrants outstanding to purchase 24 shares of commontreasury stock at a price of $3.55 per share and expire in May 2020 and 167 share of common stock at a price of $0.68 per share.method.
Note 19: | Major customers and suppliers |
Preferred Stock: Our amended Articles of Incorporation authorize two million shares of preferred stock that may be issued from time to time in one or more series having such rights, powers, preferences and designations as the Board of Directors may determine. To date no such preferred shares have been issued.
11. Major Customers and Suppliers
For the fiscal year ended December 31, 2016, no customerJanuary 2, 2021, two customers represented more than 10%27% of our total revenues. For the fiscal year ended January 2, 2016, noDecember 28, 2019, one customer represented more than 10%13% of our total revenues. As of January 2, 2021, three customers each represented 10% or more of our total trade receivables for a combined total of 37%. As of December 31, 2016, two28, 2019, three customers, each represented more than 10% of our total trade receivables, for a total of 25% of our total trade receivables. As of January 2, 2016, two customers, each represented more than 10% of our total trade receivables, for a total of 39%38% of our total trade receivables. During the two fiscal years ended December 31, 2016 and January 2, 2016, weWe purchased a vast majority of appliances for resale from threefour suppliers. We have and are continuing to secure other vendors from which to purchase appliances. However, the curtailment or loss of one of these suppliers or any appliance supplier could adversely affect our operations.
Note 20: | Defined contribution plan |
We have a defined contribution salary deferral plan covering substantially all employees under Section 401(k) of the Internal Revenue Code of 1986, as amended (the “Code”). We contribute an amount equal to 10 cents for each dollar contributed by each employee up to a maximum of 5% of each employee’s compensation. We recognized expense for contributions to the plans of $20 and $61 for fiscal years 2020 and 2019, respectively. 12. Segment Information
Note 21: | Segment information |
We operate within targeted markets through twothree reportable segments: retailbiotechnology, recycling and recycling. technology. The retailbiotechnology segment commenced operations in September 2019 and is comprisedfocused on development of income generated through our ApplianceSmart stores, which includes appliance salesnew and byproduct revenuesinnovative solutions for ending the opioid epidemic ranging from collected appliances.digital technologies to educational advocacy. The recycling segment includes all fees charged and costs incurred for collecting, recycling and installing appliances for utilities and other customers. The recycling segment also includes byproduct revenue, which is primarily generated through the recycling of appliances and includes all revenues from AAP.appliances. The nature of products, services and customers for both segments varies significantly. As such, the segments are managed separately. Our Chief Executive Officer has been identified as the Chief Operating Decision Maker (“CODM”). The CODM evaluates performance and allocates resources based on sales and income from operations of each segment. Income from operationsOperating loss represents revenues less cost of revenues and operating expenses, including certain allocated selling, general and administrative costs. There are no inter-segmentintersegment sales or transfers.transfers. F-28
JANONE INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands except per share amounts) The decrease in recycling segment revenues for the fiscal year ended December 31, 2016, presented in the following table was the result of a decrease in revenues related to appliance replacement programs, recycling programs and a significant decline in byproduct revenues that resulted from decreases in the prices of the byproducts that we sell.
The following tables present our segment information for fiscal years 20162020 and 2015:2019: | | For the fiscal years ended | | | | December 31, 2016 | | | January 2, 2016 | | Revenues: | | | | | | | Retail | | $ | 61,551 | | | $ | 65,637 | | Recycling | | | 42,038 | | | | 46,202 | | Total revenues | | $ | 103,589 | | | $ | 111,839 | | Operating income (loss): | | | | | | | | | Retail | | $ | (1,646 | ) | | $ | (1,741 | ) | Recycling | | | 1,101 | | | | (2,363 | ) | Total operating income | | $ | (545 | ) | | $ | (4,104 | ) | Cash capital expenditures: | | | | | | | | | Retail | | $ | 33 | | | $ | 121 | | Recycling | | | 342 | | | | 283 | | Total cash capital expenditures | | $ | 375 | | | $ | 404 | | Depreciation and amortization expense: | | | | | | | | | Retail | | $ | 216 | | | $ | 197 | | Recycling | | | 1,048 | | | | 1,073 | | Total depreciation and amortization expense | | $ | 1,264 | | | $ | 1,270 | | | | | | | | | | | Interest expense: | | | | | | | | | Retail | | $ | 251 | | | $ | 437 | | Recycling | | | 1,168 | | | | 855 | | Total interest expense | | $ | 1,419 | | | $ | 1,292 | | | | | | | | | | | | | | December 31, 2016 | | | | January 2, 2016 | | Assets: | | | | | | | | | Retail | | $ | 17,559 | | | $ | 18,088 | | Recycling | | | 24,297 | | | | 28,691 | | Total assets | | $ | 41,856 | | | $ | 46,779 | |
| | Fiscal Years Ended | | | | January 2, 2021 | | | December 28, 2019 | | Revenues | | | | | | | | | Biotechnology | | $ | — | | | $ | — | | Recycling | | | 33,867 | | | | 35,097 | | Technology | | | — | | | | — | | Total Revenues | | $ | 33,867 | | | $ | 35,097 | | Gross profit | | | | | | | | | Biotechnology | | $ | — | | | $ | — | | Recycling | | | 8,827 | | | | 7,786 | | Technology | | | — | | | | — | | Total Gross profit | | $ | 8,827 | | | $ | 7,786 | | Operating loss | | | | | | | | | Biotechnology | | $ | (1,738 | ) | | $ | (1,038 | ) | Recycling | | | (3,172 | ) | | | (6,397 | ) | Technology | | | (4,086 | ) | | | (4,996 | ) | Total Operating loss | | $ | (8,996 | ) | | $ | (12,431 | ) | Depreciation and amortization | | | | | | | | | Biotechnology | | $ | — | | | $ | — | | Recycling | | | 376 | | | | 346 | | Technology | | | 3,746 | | | | 3,730 | | Total Depreciation and amortization | | $ | 4,122 | | | $ | 4,076 | | Interest expense, net | | | | | | | | | Biotechnology | | $ | — | | | $ | — | | Recycling | | | 504 | | | | 1,480 | | Technology | | | — | | | | — | | Total Interest expense | | $ | 504 | | | $ | 1,480 | | Net loss before provision for income taxes | | | | | | | | | Biotechnology | | $ | (1,738 | ) | | $ | (1,038 | ) | Recycling | | | (2,980 | ) | | | (9,008 | ) | Technology | | | (4,207 | ) | | | (5,115 | ) | Total Net loss before provision for income taxes | | $ | (8,925 | ) | | $ | (15,161 | ) |
| | As of | | | As of | | | | January 2, 2021 | | | December 28, 2019 | | Assets | | | | | | | | | Biotechnology | | $ | — | | | $ | — | | Recycling | | | 10,614 | | | | 11,505 | | Technology | | | 13,737 | | | | 17,529 | | Total Assets | | $ | 24,351 | | | $ | 29,034 | | Intangible Assets | | | | | | | | | Biotechnology | | $ | — | | | $ | — | | Recycling | | | 470 | | | | 465 | | Technology | | | 13,519 | | | | 17,240 | | Total Intangible Assets | | $ | 13,989 | | | $ | 17,705 | |
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JANONE INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands except per share amounts) Certain items have been reclassified from prior year for presentation with no effect to net income.
13.Defined Contribution Plan
We have a defined contribution salary deferral plan covering substantially all employees under Section 401(k) of the Internal Revenue Code. We contribute an amount equal to 10 cents for each dollar contributed by each employee up to a maximum of 5% of each employee’s compensation. We recognized expense for contributions to the plans of $62 and $84 for fiscal years 2016 and 2015, respectively.
14.Related Party
Mr.Tony Isaac, the Company’s Chief Executive Officer, is the father toof Jon Isaac, CEOPresident and Chief Executive Officer of Live Ventures Incorporated (“Live Ventures”) and managing member of Isaac Capital Group,ICG, a 9% shareholdergreater than 5% stockholder of the Company. Tony Isaac, Chief Executive Officer, Virland Johnson, Chief Financial Officer, and Richard Butler, Board of Directors member of the Company, are Board of Directors member, Chief Financial Officer, and Board of Directors member, respectively, of Live Ventures. The boardCompany also shares certain executive, accounting and legal services with Live Ventures. The total services shared were $243 and $193 for fiscal years ending January 2, 2021 and December 28, 2019, respectively. Connexx rents approximately 9,900 square feet of directorsoffice space from Live Ventures at its Las Vegas, Nevada office. The total rent and common area expense for Connexx at the Las Vegas, Nevada office were $196 and $177 for fiscal years ending January 2, 2021 and December 28, 2019, respectively.
ApplianceSmart Note On December 30, 2017, Purchaser entered into the Agreement with the Company and ApplianceSmart. Pursuant to the Agreement, the Purchaser purchased from the Company all of the Stock of ApplianceSmart in exchange for the Purchase Price. Effective April 1, 2018, the Purchaser issued the ApplianceSmart Note with a three-year term in the original principal amount of $3,919 for the balance of the purchase price. ApplianceSmart is guaranteeing the repayment of the ApplianceSmart Note. On December 26, 2018, the ApplianceSmart Note was amended and restated to grant the Company a security interest in the assets of the Purchaser, ApplianceSmart, and ApplianceSmart Contracting Inc. in exchange for modifying the repayment terms to provide for the payment in full of all accrued interest and principal on April 1, 2021, the maturity date of the ApplianceSmart Note. On March 15, 2019, the Company entered into subordination agreements with third parties pursuant to which it agreed to subordinate the payment of indebtedness under the ApplianceSmart Note and the Company’s security interest in the assets of ApplianceSmart and other related parties in exchange for up to $1,200 payable within 15 days of the agreement. ApplianceSmart can re-borrow up to the principal amount of the Note, $3,919. Additionally, the Company advanced ApplianceSmart $355 during fiscal 2019 under the ApplianceSmart Note. On December 9, 2019, ApplianceSmart filed a voluntary petition (the “Chapter 11 Case”) in the United States Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”) seeking relief under Chapter 11 of Title 11 of the United States Code (the “Bankruptcy Code”). For discussion related to potential obligations and or guarantees under ApplianceSmart Leases, see Note 15. Related Party Note On August 28, 2019 (amended August 25, 2020), ARCA Recycling entered into and delivered to ICG a secured revolving line of credit promissory note, whereby ICG agreed to provide the ARCA Recycling with a $2,500 revolving credit facility (the “ICG Note”). The Revolving Credit Facility matured on December 31, 2020. On March 30, 2021, ARCA Recycling entered into a Second Amendment and Waiver (the “Second Amendment”) to ICG Note. The Second Amendment extends the maturity date of the ICG Note from December 31, 2020 to August 18, 2021 and waives an event of default that occurred under the ICG Note (see Note 23 for complete discussion). ICG has not exercised its remedies or accelerated the indebtedness. The ICG Note bears interest at 8.75% per annum and provides for the payment of interest, monthly in arrears. ARCA Recycling pays a loan fee of 2.0% on each borrowing made under the ICG Note. In connection with entering into the Revolving Credit Facility, the Borrower also entered into a security agreement in favor of ICG, pursuant to which ARCA Recycling granted a security interest in all of its assets to ICG. The obligations of ARCA Recycling under the ICG Note are guaranteed by the Company. The foregoing transaction did not include the issuance of any shares of the Company’s common stock, warrants, or other derivative securities. ICG is a stockholder of the Company. Jon Isaac is the manager and sole member of ICG, and the son of Tony Isaac, the Chief Executive Officer of the Company and Live Ventures Incorporated have common directors: Tony Isaac, Richard Butler and Dennis Gao. ARCA Recycling sub-leases call center space from Live VenturesRecycling. F-30
JANONE INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in Las Vegas, NV. Total amount of sublease rent was $35 for year ending December 31, 2016. thousands except per share amounts) 15.Subsequent Event
Note 23: | Subsequent events |
The Company evaluated subsequent events through March 30, 2021, noting the following. Equity Offering On January 29, 2021, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with certain institutional investors (the “Purchasers”) for the sale by the Company in a registered direct offering (the “Offering”) of 571,428 shares of the Company’s common stock, par value $0.001 per share (the “Common Stock”), at a purchase price per share of Common Stock of $10.50. On February 2, 2021, the Company closed its registered direct offering (the “Offering”) of an aggregate of 571,428 shares of Common Stock, at a price of $10.50 per share, for gross proceeds to the Company of approximately $6,000, before deducting placement agent fees and other offering expenses. The Company is utilizing the net proceeds for general working capital. The Purchase Agreement contains customary representations, warranties and agreements by the Company and the Purchasers and customary indemnification rights and obligations of the parties. Pursuant to the terms of the Purchase Agreement, the Company has agreed to certain restrictions on the issuance and sale of its shares of Common Stock or Common Stock Equivalents (as defined in the Purchase Agreement) during the 45-day period following the closing of the Offering. A.G.P./Alliance Global Partners acted as the sole placement agent (the “Placement Agent”) for the Company on a “reasonable best efforts” basis in connection with the Offering. The Company entered into a Placement Agency Agreement, dated as of January 29, 2021, by and between the Company and the Placement Agent (the “Placement Agency Agreement”). Pursuant to the Placement Agency Agreement, the Placement Agent will be entitled to a cash fee of 7% of the gross proceeds paid to the Company for the securities, reimbursement for accountable legal expenses incurred by it in connection with the Offering of up to $35. The shares of Common Stock sold in the Offering were offered and leased backsold by the Company pursuant to an effective shelf registration statement on Form S-3 (File No. 333-251645) (the “Registration Statement”), which was initially filed with the Securities and Exchange Commission on December 23, 2020, and was declared effective on December 29, 2020. The representations, warranties and covenants contained in the Purchase Agreement were made solely for the benefit of the parties to the Purchase Agreement. In addition, such representations, warranties, and covenants (i) are intended as a way of allocating the risk between the parties to the Purchase Agreement and not as statements of fact, and (ii) may apply standards of materiality in a way that is different from what may be viewed as material by stockholders of, or other investors in, the Company. Accordingly, the Purchase Agreement is included with this filing only to provide investors with information regarding the terms of the transaction, and not to provide investors with any other factual information regarding the Company. Stockholders should not rely on the representations, warranties, and covenants or any descriptions thereof as characterizations of the actual state of facts or condition of the Company or any of its Compton building oversubsidiaries or affiliates. Moreover, information concerning the subject matter of the representations and warranties may change after the date of the Purchase Agreement, which subsequent information may or may not be fully reflected in public disclosures. The foregoing descriptions of the Purchase Agreement and the Placement Agency Agreement are not complete and are qualified in their entireties by reference to the full text of the Purchase Agreement and the Placement Agency Agreement, a copy of each of which is filed as Exhibit 10.1 and Exhibit 1.1, respectively, to the Company’s Current Report on Form 8-K as field on January 29, 2021 and each is incorporated by reference herein. F-31
JANONE INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands except per share amounts) Sale of ARCA and Connexx On February 19, 2021, the Company, together with its subsidiaries (a) ARCA Recycling, Inc., a California corporation (“ARCA”), and (b) Customer Connexx LLC, a Nevada limited liability company (“Connexx”), entered into an initial lease termAsset Purchase Agreement (the “Purchase Agreement”) with (i) ARCA Affiliated Holdings Corporation, a Delaware corporation, (ii) ARCA Services Inc., a Delaware corporation, and (iii) Connexx Services Inc, a Delaware corporation (collectively, the “Buyers”), pursuant to which the Buyers agreed to acquire substantially all of six months which canthe assets, and assume certain liabilities, of ARCA and Connexx (the “Disposition Transaction”). The principal of the Buyers is Virland A. Johnson, our Chief Financial Officer. The Disposition Transaction is expected to be consummated on or before August 18, 2021. In the event the Disposition Transaction is not closed by such date, the Purchase Agreement may be terminated and, in accordance with its terms, the Buyers may be required to pay to us a 30 day notice.“break fee” of $250. The net proceedsPurchase Agreement and the Disposition Transaction were unanimously approved by our Board of Directors at a meeting during the portion of which the Purchase Agreement and Disposition Transaction were considered and voted on Mr. Johnson was not present. The purchase price that the Buyers have agreed to pay to us in the Disposition Transaction is $25,000, subject to certain adjustments, including a potential increase in the purchase price due to an earnout, the assumption of certain debt of ARCA, Connexx, or us, and potential indemnification claims (collectively, the “Initial Aggregate Consideration”). At closing, $7,500 of the Aggregate Consideration will be paid in immediately available funds, and $17,500 of the Initial Aggregate Consideration will be paid pursuant to the terms of the Buyers’ promissory note in our favor (the “Note”), which Note will bear interest at the rate of 6% per annum on the unpaid balance thereof. The Buyers’ payment obligations under the Note will be subordinated to the Buyers’ obligations to their Disposition Transaction lender(s), with the terms of such subordination to be determined upon Buyers’ identification of their lender(s). The parties have made customary representations, warranties, covenants, and indemnities in connection with the Disposition Transaction. Commencing on February 19, 2021, (i) the Buyers will seek financing for the balance of the Initial Aggregate Consideration and (ii) the parties will prepare and negotiate the terms and conditions of certain ancillary documentation, including, without limitation, disclosure schedules, bills of sale, assignment and assumption agreements, the Note, and any related subordination documentation with Buyers’ Disposition Transaction lender(s). The Purchase Agreement contains certain representations and warranties that the parties made to each other as of the date of the Purchase Agreement or such other date as specifically referenced therein. The representations and warranties were made solely for purposes of the Purchase Agreement and (i) are subject to limitations agreed by the parties in negotiating the terms and conditions thereof, (ii) may not be accurate or complete as of any specified date, (iii) will be qualified by the underlying disclosure schedules, (iv) may be subject to a contractual standard of materiality different from those generally applicable to investors, and (v) may have been used for the purpose of allocating risk among the parties thereto, rather than for establishing any matters as facts. Information concerning the subject matter of the representations and warranties may change after February 19, 2021, which subsequent information may or may not be fully reflected in JanOne’s public disclosures. For the foregoing reasons, the representations and warranties contained in the Purchase Agreement should not be relied upon as statements of factual information. The foregoing descriptions of the Purchase Agreement and the Disposition Transaction do not purport to be complete and are qualified in their entirety by reference to the Purchase Agreement, a copy of which is filed with the Current Report on Form 8‑K as filed on February 25, 2021 as Exhibit 10.1 and is incorporated herein by reference. Equipment Financing Agreement On March 25, 2021, ARCA Recycling entered into a Master Equipment Finance Agreement (collectively, the “Equipment Finance Agreement”) with KLC Financial, Inc. (“KLC”). Under the terms of the Equipment Finance Agreement, KLC has agreed to make loans to ARCA Recycling secured by certain equipment purchased or to be purchased by ARCA Recycling on terms set forth or to be set forth in schedules to the Equipment Finance Agreement. Under the terms of Schedule No. 01 (the “Initial Loan”), KLC has loaned ARCA Recycling approximately $1.6 million secured by existing equipment of and new equipment to be purchased by ARCA F-32
JANONE INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands except per share amounts) Recycling. ARCA Recycling will make monthly payments of $27 over a period of five years from the sale were usedMarch 24, 2021, at which time it is intended that the Initial Loan will be repaid in full. The Initial Loan bears interest at 7.757% % per annum. KLC will have a first priority security interest over, among other things, all equipment identified in the schedules. The Initial Loan is guaranteed by Virland Johnson, the Chief Financial Officer of JanOne and Chief Financial Officer and Secretary of ARCA Recycling. The Equipment Finance Agreement contains customary affirmative and negative covenants, representations and warranties, and events of default for transactions of this nature. The foregoing description of the Equipment Finance Agreement does not purport to pay down our termbe complete and revolving loansis qualified in its entirety by reference to the Equipment Finance Agreement, a copy of which is attached hereto as Exhibit 10.20 and is incorporated herein by reference. Related Party Note On March 30, 2021, ARCA Recycling entered into a Second Amendment and Waiver (the “Second Amendment”) to Secured Revolving Line of Credit Promissory Note (the “ICG Note”) with PNC Bank, National Association.ICG. The Second Amendment extends the maturity date of the ICG Note from December 31, 2020 to August 18, 2021 and waives an event of default that occurred under the ICG Note. ICG is a record and beneficial owner of approximately 16% of the outstanding common stock of the Company. Jon Isaac is the manager and sole member of ICG, and the son of Tony Isaac, the Chief Executive Officer of JanOne and ARCA Recycling. The foregoing description of the Second Amendment does not purport to be complete and is qualified in its entirety by reference to the complete text of the Amendment, a copy of which is attached hereto as Exhibit 10.12 and is incorporated herein by reference. F-33
ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures None. ITEM 9A. | CONTROLS AND PROCEDURES |
Evaluation of Disclosure Controls and Procedures
Evaluation of Disclosure controlscontrol and procedures are defined by Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (the "Exchange Act") as controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submitProcedures. We carried out an evaluation, under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in applicable rules and forms and that such information is accumulated and communicated to management, including our Chief Executive Officer (“CEO”) and Acting Chief Financial Officer (“CFO”), in a manner that allows timely decisions regarding required disclosure. Under the supervision and with the participation of our management, including our Chief Executive Officerprincipal executive officer and Acting Chief Financial Officer, we evaluated the effectivenessprincipal financial officer, of the design and operationeffectiveness of our disclosure controls and procedures (as defined in RuleExchange Act Rules 13a-15(e) and 15d-15(e)). Based upon that evaluation, our principal executive officer and principal financial officer concluded that, as of January 2, 2021, the period covered in this report, our disclosure controls and procedures were not effective to ensure that information required to be disclosed in reports filed under the Securities Exchange Act of 1934 (the “Exchange Act”))is recorded, processed, summarized and reported within the required time periods and is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting. Based uponThere were no changes in the Company’s internal control over financial reporting during the quarter ended January 2, 2021, that evaluation, our CEO and CFO concluded that, as of December 31, 2016, our disclosure controls and procedures were effective.have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. Management’s Report on Internal ControlsControl Over Financial Reporting . Our management is responsible for establishing and maintaining adequate internal control over financial reporting as that term is(as defined in Exchange Act RuleRules 13a-15(f) and 15d-15(f)). OurBecause of its inherent limitations, internal control system was designedover financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to provide reasonable assurancefuture periods are subject to our management and Boardthe risk that controls may become inadequate because of Directors regardingchanges in conditions, or that the preparation and fair presentationdegree of our published consolidated financial statements. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Under the supervision andcompliance with the participation of ourpolicies or procedures may deteriorate.
Our management including our CEO and CFO, we conducted an evaluation ofassessed the effectiveness of our internal control over financial reporting as of December 31, 2016, based uponJanuary 2, 2021. In making this assessment, we used the framework in “2013 Internal Control - Integrated Framework” issuedcriteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). in 2013 regarding Internal Control – Integrated Framework. Based on thisour assessment using those criteria, our management has determinedconcluded that our internal control over financial reporting was not effective as of December 31, 2016.January 2, 2021. ThisManagement noted material weaknesses in internal control when conducting their evaluation of internal control as of January 2, 2021. (1) Insufficient information technology general controls (“ITGC”) and segregation of duties. It was noted that people who were negotiating a contract, were also involved in approving invoices without proper oversight. Additional controls and procedures are necessary and are being implemented to have check and balance on significant transactions and governance with those charged with governance authority. (2) Inadequate control design or lack of sufficient controls over significant accounting processes. The cutoff and reconciliation procedures were not effective with certain accrued and deferred expenses. (3) Insufficient assessment of the impact of potentially significant transactions, and (4) Insufficient processes and procedures related to proper recordkeeping of agreements and contracts. In addition, contract to invoice reconciliation was not effective with certain transportation service providers. As part of its remediation plan, processes and procedures have been implemented to help ensure accruals and invoices are reviewed for accuracy and properly recorded in the appropriate period. These material weaknesses remained outstanding as of the filing date of this annual report does not include an attestation report ofon Form 10-K and management is currently working to remedy these outstanding material weaknesses.
The Company’s management, including the Company’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report wasCEO and CFO, do not subject to attestation byexpect that the Company’s registered public accounting firm pursuant to rules ofdisclosure controls and procedures or the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report. Changes in Internal Control Over Financial Reporting
There have been no changes in ourCompany’s internal control over financial reporting duringwill prevent or detect all error and all fraud. A control system, regardless of how well conceived and operated, can provide only reasonable, not absolute, assurance that the fourth quarterobjectives of the fiscal year ended December 31, 2016,control system will be met. These inherent limitations include the following: judgements in decision-making can be faulty, and control and process breakdowns can occur because of simple errors or mistakes, controls can be circumvented by individuals, acting alone or in collusion with each other, or by management override, the design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.been detected.
ITEM 9B. | OTHER INFORMATION |
ITEM 9B. Other Information None.Item 1.01 Entry into a Material Definitive Agreement.
Related Party Note On March 30, 2021, ARCA Recycling entered into a Second Amendment and Waiver (the “Second Amendment”) to Secured Revolving Line of Credit Promissory Note (the “ICG Note”) with ICG. The Second Amendment extends the maturity date of the ICG Note from December 31, 2020 to August 18, 2021 and waives an event of default that occurred under the ICG Note. ICG is a record and beneficial owner of approximately 16% of the outstanding common stock of the Company. Jon Isaac is the manager and sole member of ICG, and the son of Tony Isaac, the Chief Executive Officer of JanOne and ARCA Recycling. The foregoing description of the Second Amendment does not purport to be complete and is qualified in its entirety by reference to the complete text of the Amendment, a copy of which is attached hereto as Exhibit 10.12 and is incorporated herein by reference. Equipment Financing Agreement On March 25, 2021, ARCA Recycling entered into a Master Equipment Finance Agreement (collectively, the “Equipment Finance Agreement”) with KLC Financial, Inc. (“KLC”). Under the terms of the Equipment Finance Agreement, KLC has agreed to make loans to ARCA Recycling secured by certain equipment purchased or to be purchased by ARCA Recycling on terms set forth or to be set forth in schedules to the Equipment Finance Agreement. Under the terms of Schedule No. 01 (the “Initial Loan”), KLC has loaned ARCA Recycling approximately $1.6 million secured by existing equipment of and new equipment to be purchased by ARCA Recycling. ARCA Recycling will make monthly payments of $27 thousand over a period of five years from the March 24, 2021, at which time it is intended that the Initial Loan will be repaid in full. The Initial Loan bears interest at 7.757% % per annum. KLC will have a first priority security interest over, among other things, all equipment identified in the schedules. The Initial Loan is guaranteed by Virland Johnson, the Chief Financial Officer of JanOne and Chief Financial Officer and Secretary of ARCA Recycling. The Equipment Finance Agreement contains customary affirmative and negative covenants, representations and warranties, and events of default for transactions of this nature. The foregoing description of the Equipment Finance Agreement does not purport to be complete and is qualified in its entirety by reference to the Equipment Finance Agreement, a copy of which is attached hereto as Exhibit 10.20 and is incorporated herein by reference. PART III PART IIIITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE |
Information regardingThe directors and executive officers of the Company is set forth under the headings “Nominees” and “Information Concerning Officers and Key Employees Who Are Not Directors” and “Section 16(a) Beneficial Ownership Reporting Compliance” to be included in our 2017 Proxy Statement, is incorporated herein by reference into this section.their ages as of January 2, 2021, are as follows:
Name | | Position with Company | | Age | Richard D. Butler, Jr. | | Director | | 71 | Nael Hajjar | | Director | | 36 | John Bitar | | Director | | 58 | Tony Isaac | | President and Chief Executive Officer | | 66 | Virland A. Johnson | | Chief Financial Officer | | 60 |
Richard D. Butler, Jr. has been a director of the Company since May 2015. Mr. Butler is the owner of an advisory firm that provides real estate, corporate, and financial advisory services since 1999, and is the co-Founder, Managing Director, and, since 2005, a major stockholder of Ref-Razzer Company, a whistle manufacturing and vending company. Prior to this, Mr. Butler was the Co-Founder and Executive Vice President of Aspen Healthcare, Inc. from 1996 to 1999. From 1993 to 1996, Mr. Butler was a Managing Director at Landmark Financial and from 1989 to 1993 he was a Partner at Cal Ventures Real Estate Investment Group. Prior to this, Mr. Butler has also served as the President and Chief Executive Officer of Mt. Whitney Savings Bank, Chief Executive Officer of First Federal Mortgage Bank, Chief Executive Officer of Trafalgar Mortgage, and Executive Officer and Member of the President’s Advisory Committee at State Savings & Loan Association (peak assets $14 billion) and American Savings & Loan Association (NYSE: FCA; peak assets $34 billion). Mr. Butler has served on the board of directors of Live Ventures (Nasdaq: LIVE) (“Live Ventures”) since August 2006. On December 9, 2019, ApplianceSmart, a subsidiary of Live Ventures, filed a voluntary petition in the United States Bankruptcy Court for the Southern District of New York seeking relief under Chapter 11 of Title 11 of the United States Code. Mr. Butler attended Bowling Green University in Ohio, San Joaquin Delta College in California, and Southern Oregon State College. We believe that Mr. Butler brings to the Board extensive experience in financial management and executive roles, which enable him to provide important expertise in financial, operating and strategic matters that impact our Company. Nael Hajjar has been a director of the Company since August 2018. Mr. Hajjar is currently the Unit Head for the Annual Wholesale Trade Survey in Statistics Canada’s Manufacturing and Wholesale Trade Division. From March 2011 through May 2016, Mr. Hajjar was a Senior Analyst – Economist of Statistics Canada’s Producer Prices Division where he developed Canada’s first ever Investment Banking Services Price Index while leading the development of a variety of Financial Services Price Index development projects. We believe that Mr. Hajjar brings to the Board extensive experience in research and analysis of financial statistics, economics, and business practices in a variety of industries including manufacturing, logging, Wholesale Trade, and financial services. We believe that Mr. Hajjar also has extensive experience in project management, and he holds a Bachelor of Social Science, Honors in Economics, and Bachelor of Commerce, Option in Finance, from the University of Ottawa. John Bitar has been a director of the Company since January 2020. Since 2012, Mr. Bitar has been providing consulting services to companies and clients on business and legal strategies, management, operations, and cost controls. From 2007 to 2012, Mr. Bitar co-founded and was Managing Partner of a worker’s compensation law firm. Mr. Bitar has been an attorney admitted to the California State Bar since 1999. Mr. Bitar graduated from the University of Southern California in 1996 and earned his Juris Doctorate Degree in 1999 from University of the Pacific, McGeorge School of Law. We believe that Mr. Bitar has significant business experience and brings operational expertise to the Board. Tony Isaac has been a director of the Company since May 2015 and Chief Executive Officer of the Company since May 2016. He served as Interim Chief Executive Officer of the Company from February 2016 until May 2016. Mr. Isaac has served as Financial Planning and Strategist/Economist of Live Ventures since July 2012. He is the Chairman and Co-Founder of Isaac Organization, a privately held investment company. Mr. Isaac has invested in various companies, both private and public from 1980 to present. Mr. Isaac’s specialty is negotiation and problem-solving of complex real estate and business transactions. Mr. Isaac has served as a director of Live Ventures since December 2011. On December 9, 2019, ApplianceSmart, Inc. (“ApplianceSmart”), a subsidiary of Live Ventures, filed a voluntary petition in the United States Bankruptcy Court for the Southern District of New York seeking relief under Chapter 11 of Title 11 of the United States Code. Mr. Isaac graduated from Ottawa University in 1981, where he majored in Commerce and Business Administration and Economics. We believe that Mr. Isaac has significant investment and financial expertise and public board experience that he brings to the Board.
Virland A. Johnson was appointed Chief Financial Officer of the Company on August 21, 2017. Mr. Johnson had previously served the Company as a consultant beginning in February 2017. Mr. Johnson also continues to serve as Chief Financial Officer for Live Ventures Incorporated, a holding company of diversified businesses (Nasdaq: LIVE). On December 9, 2019, ApplianceSmart, a subsidiary of Live Ventures, filed a voluntary petition in the United States Bankruptcy Court for the Southern District of New York seeking relief under Chapter 11 of Title 11 of the United States Code. Mr. Johnson is a director and Chief Financial Officer and Secretary of ApplianceSmart. Prior to joining Live Ventures Incorporated, Mr. Johnson was Sr. Director of Revenue for JDA Software from February 2010 to April 2016, where he was responsible for revenue recognition determination, sales and contract support while acting as a subject matter expert. Prior to joining JDA, Mr. Johnson provided leadership and strategic direction while serving in C-Level executive roles in public and privately held companies such as Cultural Experiences Abroad, Inc., Fender Musical Instruments Corp., Triumph Group, Inc., Unitech Industries, Inc. and Younger Brothers Group, Inc. Mr. Johnson’s more than 25 years of experience is primarily in the areas of process improvement, complex debt financings, SEC and financial reporting, turn-arounds, corporate restructuring, global finance, merger and acquisitions and returning companies to profitability and enhancing stockholder value. Mr. Johnson holds a Bachelor’s degree in Accountancy from Arizona State University. Delinquent Section 16(a) Reports Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Company’s officers and directors, and persons who own more than 10% of a registered class of the Company’s equity securities, to file reports of ownership on Form 3 and changes in ownership on Form 4 or Form 5 with the SEC. Such officers, directors and 10% shareholders are also required by SEC rules to furnish the Company with copies of all Section 16(a) forms they file. Based solely on its review of copies of such forms received by it, or written representations from certain reporting persons, the Company believes that, during the fiscal year ended January 2, 2021, except as noted below, all of its officers, directors and 10% stockholders timely complied with all Section 16(a) filing requirements: Form 4 filed late by Virland A. Johnson, the Company’s Chief Financial Officer, on September 3, 2020 with respect to several transactions that occurred in March 2020. Code of Ethics
Our Audit Committee has adopted a code of ethics applicable to our directors and officers (including our Chief Executive Officer and Chief Financial Officer) and other of our senior executives and employees in accordance with applicable rules and regulations of the SEC and The NASDAQNasdaq Stock Market. A copy of the code of ethics may be obtained upon request, without charge, by addressing a request to Investor Relations, ARCA,JanOne Inc., 175 Jackson Avenue North,325 E. Warm Springs Road, Suite 102, Minneapolis, MN 55343.Las Vegas, Nevada 89119. The code of ethics is also posted on our website at www.ArcaInc.comwww.janone.com under “Investor Relations — Corporate Governance.” We intend to satisfy the disclosure requirement under Item 105.05 of Form 8-K regarding the amendment to, or waiver from, a provision of the code of ethics by posting such information on our website at the address and location specified above and, to the extent required by the listing standards of the NASDAQNasdaq Capital Market, by filing a Current Report on Form 8-K with the SEC disclosing such information. Audit Committee The Audit Committee of the Board of Directors is comprised entirely of non-employee directors. In fiscal 2020, the members of the Audit Committee were Mr. Butler (Chair), Mr. Bitar, and Mr. Hajjar. Each of Messrs. Bitar, Butler, and Hajjar was an “independent” director as defined under Nasdaq rules. The Audit Committee is responsible for selecting and approving the Company’s independent auditors, for relations with the independent auditors, for review of internal auditing functions (whether formal or informal) and internal controls, and for review of financial reporting policies to assure full disclosure of financial condition. The Audit Committee operates under a written charter adopted by the Board of Directors, which is posted on the Company’s website at www.janone.com under the caption “Investor Relations - Governance.” The Board has determined that Mr. Butler is an “audit committee financial expert” as defined in SEC rules.
Compensation and Benefits Committee The Compensation Committee of the Board of Directors is comprised entirely of non-employee directors. In fiscal 2020, the members of the Compensation Committee were Mr. Butler (Chair) and Mr. Hajjar, each of whom was also an “independent” director as defined under Nasdaq rules. The Compensation Committee is responsible for review and approval of officer salaries and other compensation and benefits programs and determination of officer bonuses. Annual compensation for the Company’s executive officers, other than the CEO, is recommended by the CEO and approved by the Compensation Committee. The annual compensation for the CEO is recommended by the Compensation Committee and formally approved by the full Board of Directors. In the performance of its duties, the Compensation Committee may select independent compensation consultants to advise the committee when appropriate. In addition, the Compensation Committee may delegate authority to subcommittees where appropriate. The Compensation Committee may separately meet with management if deemed necessary and appropriate. The Compensation Committee operates under a written charter adopted by the Board of Directors in March 2011, which is posted on the Company’s website at www.janone.com under the caption “Investor Relations - Governance.” Governance Committee The Nominating and Corporate Governance Committee (the “Governance Committee”) is comprised entirely of non-employee directors. In fiscal 2020, the members of the Governance Committee were Mr. Butler (Chair) and Mr. Bitar, each of whom was also an “independent” director as defined under NASDAQ rules. The primary purpose of the Governance Committee is to ensure an appropriate and effective role for the Board of Directors in the governance of the Company. The principal recurring duties and responsibilities of the Governance Committee include (i) making recommendations to the Board regarding the size and composition of the Board, (ii) identifying and recommending to the Board of Directors candidates for election as directors, (iii) reviewing the Board’s committee structure, composition and membership and recommending to the Board candidates for appointment as members of the Board’s standing committees, (iv) reviewing and recommending to the Board corporate governance policies and procedures, (v) reviewing the Company’s Code of Business Ethics and Conduct and compliance therewith, and (vi) ensuring that emergency succession planning occurs for the positions of Chief Executive Officer, other key management positions, the Board chairperson and Board members. The Governance Committee operates under a written charter adopted by the Board of Directors in March 2011, which is posted on the Company’s website at www.janone.com under the caption “Investor Relations - Governance.” The Governance Committee will consider director candidates recommended by shareholders. The criteria applied by the Governance Committee in the selection of director candidates is the same whether the candidate was recommended by a Board member, an executive officer, a shareholder or a third party, and accordingly, the Governance Committee has not deemed it necessary to adopt a formal policy regarding consideration of candidates recommended by shareholders. Shareholders wishing to recommend candidates for Board membership should submit the recommendations in writing to the Secretary of the Company. The Governance Committee identifies director candidates primarily by considering recommendations made by directors, management and stockholders. The Governance Committee also has the authority to retain third parties to identify and evaluate director candidates and to approve any associated fees or expenses. Board candidates are evaluated on the basis of a number of factors, including the candidate’s background, skills, judgment, diversity, experience with companies of comparable complexity and size, the interplay of the candidate’s experience with the experience of other Board members, the candidate’s independence or lack of independence, and the candidate’s qualifications for committee membership. The Governance Committee does not assign any particular weighting or priority to any of these factors and considers each director candidate in the context of the current needs of the Board as a whole. Director candidates recommended by shareholders are evaluated in the same manner as candidates recommended by other persons.
ITEM 11.EXECUTIVE COMPENSATION The following table sets forth the cash and non-cash compensation for fiscal years ended January 2, 2021 and December 28, 2019, earned by each person who served as Chief Executive Officer and our other two most highly compensated executive officers who held office as of January 2, 2021 (“named executive officers”): Summary Compensation Table Name and Principal Position (1) | | Year | | Salary ($) | | | Bonus ($) | | | Stock Award ($) | | | | Option Awards ($) | | | All Other Compensation ($) | | | Total ($) | | Tony Isaac | | 2020 | | | 534,471 | | | | — | | | | — | | | | | — | | | | — | | | | 534,471 | | President and Chief Executive Officer | | 2019 | | | 571,427 | | | | — | | | | — | | | | | — | | | | — | | | | 571,427 | | Eric Bolling (2) | | 2020 | | | 301,442 | | | | — | | | | 54,203 | | | | | — | | | | — | | | | 355,645 | | Former President | | 2019 | | | 148,077 | | | | — | | | | 500,000 | | | | | — | | | | — | | | | 648,077 | | Virland A. Johnson | | 2020 | | | 121,731 | | | | — | | | | — | | | | | — | | | | — | | | | 121,731 | | Chief Financial Officer | | 2019 | | | 125,274 | | | | — | | | | — | | | | | — | | | | — | | | | 125,274 | |
ITEM 11.(1) | EXECUTIVE COMPENSATIONThe Company only had two executive officers as of January 2, 2021. |
(2) | On August 9, 2020, we entered into a first amendment to amendment and restated employment agreement (the “Employment Agreement Amendment”) with Eric Bolling. Under the terms of the Employment Agreement Amendment, in exchange for the Company issuing Mr. Bolling 40,000 shares of fully vested, restricted common stock of the Company (the “August 2020 Shares”), Mr. Bolling (i) agreed to continue to provide the services described in his employment agreement, (ii) resigned his position as President of the Company and Chairman of the Board of Directors (the “Board”), provided that Mr. Bolling will continue as a member of the Board and further agreed that it is in the Company’s sole discretion whether Mr. Bolling continues as a member of the Board following the Company’s 2020 Annual Meeting of Stockholders; (iii) agreed to forego his base salary on a going forward basis and further agreed that he is not entitled to any base salary or any further remuneration or compensation from the Company whatsoever (other than the August 2020 Shares) after August 1, 2020, and (iv) forfeited the other 70,607 shares of the Company’s common stock that was owed to him under the terms of the employment agreement prior to the execution and delivery of the Employment Agreement Amendment. This amount reflects the fair value of a stock grant awarded to Mr. Bolling, as discussed. |
Information regarding executive compensation is set forthOutstanding Equity Awards at January 2, 2021
The following table provides a summary of equity awards outstanding for our Named Executive Officers at January 2, 2021: Name | Number of Securities Underlying Unexercised Options (in shares) Exercisable | | | Number of Securities Underlying Unexercised Options (in shares) Unexercisable | | | Option Exercise Price ($) | | | Option Expiration Date | Tony Isaac | | 2,000 | | | | — | | | | 5.25 | | | 05/18/2025 | Eric Bolling (1) | | — | | | | — | | | | — | | | | Virland A. Johnson | | — | | | | — | | | | — | | | |
| (1) | During August 2020, Mr. Bolling resigned his position as President of the Company and Chairman of the Board. |
Stock Option Plans The Company uses stock options to attract and retain executives, directors, consultants and key employees. Stock options are currently outstanding under three stock option plans. The Company’s 2016 Equity Incentive Plan (the
“2016 Plan”) was adopted by the Board of Directors in October 2016 and approved by the shareholders at the 2016 annual meeting of shareholders. Under the 2016 Plan, the Company has reserved an aggregate of 400,000 shares of its common stock for option grants. On November 4, 2020, at the Annual Meeting, the Company’s stockholders approved an amendment (the “Plan Amendment”) to the 2016 Plan to increase the total number of shares of the Company’s common stock reserved for issuance under the heading “Executive Compensation”2016 Plan to from 400,000 shares to 800,000 shares. The Company’s 2011 Stock Compensation Plan (the “2011 Plan”) was adopted by the Board of Directors in March 2011 and approved by the shareholders at the 2011 annual meeting of shareholders. The 2011 Plan expired on December 29, 2016, but options granted under the 2011 Plan before it expired will continue to be includedexercisable in our 2017 Proxy Statement,accordance with their terms. As of January 2, 2021, options to purchase an aggregate of 113,900 shares were outstanding, including options for 78,000 shares under the 2016 Plan and options for 35,900 shares under the 2011 Plan. The Plans are administered by the Compensation Committee or the full Board of Directors acting as the Committee. The 2016 Plan permits the grant of the following types of awards, in the amounts and upon the terms determined by the Administrator: Options. Options may either be incentive stock options (“ISOs”) which are specifically designated as such for purposes of compliance with Section 422 of the Internal Revenue Code or non-qualified stock options (“NSOs”). Options shall vest as determined by the Administrator, subject to certain statutory limitations regarding the maximum term of ISOs and the maximum value of ISOs that may vest in one year. The exercise price of each share subject to an ISO will be equal to or greater than the fair market value of a share on the date of the grant of the ISO, except in the case of an ISO grant to a stockholder who owns more than 10% of the Company’s outstanding shares, in which case the exercise price will be equal to or greater than 110% of the fair market value of a share on the grant date. The exercise price of each share subject to an NSO shall be determined by the Board at the time of grant but will be equal to or greater than the fair market value of a share on the date of grant. Recipients of options have no rights as a stockholder with respect to any shares covered by the award until the award is incorporated hereinexercised and a stock certificate or book entry evidencing such shares is issued or made, respectively. Restricted Stock Awards. Restricted stock awards consist of shares granted to a participant that are subject to one or more risks of forfeiture. Restricted stock awards may be subject to risk of forfeiture based on the passage of time or the satisfaction of other criteria, such as continued employment or Company performance. Recipients of restricted stock awards are entitled to vote and receive dividends attributable to the shares underlying the award beginning on the grant date. Restricted Stock Units. Restricted stock units consist of a right to receive shares (or cash, in the Administrator’s discretion) on one or more vesting dates in the future. The vesting dates may be based on the passage of time or the satisfaction of other criteria, such as continued employment or Company performance. Recipients of restricted stock units have no rights as a stockholder with respect to any shares covered by reference into this section.the award until the date a stock certificate or book entry evidencing such shares is issued or made, respectively.
Compensation of Non-Employee Directors The Company uses cash compensation to attract and retain qualified candidates to serve on the Board of Directors. In setting director compensation, the Company considers the significant amount of time that directors expend fulfilling their duties to the Company as well as the skill level required by the Company of members of the Board. All of the Company’s directors are reimbursed for reasonable travel expenses incurred in attending meetings. The table below presents cash and non-cash compensation paid to non-employee directors during the last fiscal year. Non-Management Director Compensation for Fiscal Year Ended January 2, 2021 Name | | Fees Earned or Paid in Cash ($) | | | Option Awards ($) | | | All Other Compensation ($) | | | Total ($) | | John Bitar | | | 17,758 | | | | — | | | | — | | | | 17,758 | | Richard D. Butler, Jr. | | | 30,000 | | | | — | | | | — | | | | 30,000 | | Nael Hajjar | | | 14,400 | | | | — | | | | — | | | | 14,400 | |
ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS |
Information regarding security ownership of certain beneficial owners and management is set forth under the heading “Common Stock Ownership” to be included in our 2017 Proxy Statement, is incorporated herein by reference into this section.
The following table givessets forth as of March 25, 2021 the beneficial ownership of common stock by each of the Company’s directors, each of the named executive officers, and all directors and executive officers of the Company as a group, as well as information about beneficial owners of 5% or more of the Company’s voting securities. Beneficial ownership includes shares that may be acquired in the next 60 days through the exercise of options or warrants. Beneficial Owner | | Position with Company | | Number of Shares Beneficially Owned (1) | | | Percent of Outstanding Common (2) | | Directors and executive officers: | | | | | | | | | | | Tony Isaac (3) | | President and Chief Executive Officer | | | 94,000 | | | | 3.9 | % | Virland A. Johnson | | Chief Financial Officer | | | 32,933 | | | | 1.4 | % | Richard D. Butler, Jr. (3) | | Director | | | 18,000 | | | * | | John Bitar | | Director | | | 2,000 | | | * | | Nael Hajjar | | Director | | | — | | | * | | All directors and executive officers as a group (6 persons) (3) | | | | | 146,933 | | | | 6.1 | % | Other 5% shareholders: | | | | | | | | | | | Isaac Capital Group, LLC (4) | | | | | 392,941 | | | | 16.3 | % | Altium Capital Management (5) | | | | | 190,476 | | | | 7.9 | % | Ionic Ventures, LLC (6) | | | | | 190,476 | | | | 7.9 | % |
* | Indicates ownership of less than 1% of the outstanding shares |
(1) | Unless otherwise noted, each person or group identified possesses sole voting and investment power with respect to such shares. |
(2) | Applicable percentage of ownership is based on 2,403,410 shares of common stock outstanding as of March 25, 2020 plus, for each shareholder, all shares that such shareholder could purchase within 60 days upon the exercise of existing stock options. |
(3) | Includes shares which could be purchased within 60 days upon the exercise of existing stock options or warrants, as follows: Mr. Isaac, 2,000 shares; Mr. Butler, 4,000 shares and Mr. Bitar 2,000 shares; and all directors and executive officers as a group, 8,000 shares. The address for each individual is 325 E. Warm Springs Road Suite 102, Las Vegas, Nevada, 89119. |
(4) | According to a Schedule 13G filed April 30, 2019, Isaac Capital Group, LLC (“ICG”) beneficially owned 392,941 shares of common stock. ICG has sole dispositive power as to all 392,941 shares and sole voting power as to 392,941 shares. The address for ICG is 505 East Windmill Lane, Suite 1C-295, Las Vegas Nevada 89123. |
(5) | According to a Schedule 13G filed February 8, 2021, Altium Growth Fund, LP (the “Fund”), AltiumCapitalManagement, LP, and Altium Growth GP, LLC (collectively “Altium”), has shared voting power and dispositive power with respect to 190,476 shares of common stock. According to this Schedule 13G, the Fund is the record and direct beneficial owner of the securities covered by this statement. Altium Capital Management, LP is the investment adviser of, and may be deemed to beneficially own securities, owned by, the Fund. Altium Growth GP, LLC is the general partner of, and may be deemed to beneficially own securities owned by, the Fund. The Schedule 13G lists Altium’s principal place of business as 152 West 57 Street, FL 20, New York, NY 10019. |
(6) According to a Schedule 13G filed February 1, 2021, Ionic Ventures LLC (“Ionic Ventures”) beneficially owned 190,476 shares of common stock. Ionic Ventures is controlled by Brendan O’Neil and Keith Coulston and has a principal address of 3053 Fillmore St., Suite 256 San Francisco, CA 94123.
Beneficial Ownership of Series A Preferred Stock The following table sets forth as of March 25, 2021 the beneficial ownership of Series A-1 Preferred Stock by each owner of 5% or more of the Company’s Series A-1 Preferred Stock. No officers or directors of the Company have beneficial ownership of Series A-1 Preferred Stock. There are no options or warrants to purchase shares of Series A-1 Preferred Stock. Beneficial Owner | | Number of Shares Beneficially Owned (1) | | | Percent of Outstanding Series A Preferred (2) | | Gregg Sullivan (3) | | | 28,859 | | | | 11.1 | % | Juan Yunis (4) | | | 216,729 | | | | 83.4 | % | Isaac Capital Group, LLC (5) | | | 14,141 | | | | 5.5 | % |
(1) | Unless otherwise noted, each person or group identified possesses sole voting and investment power with respect to such shares. |
(2) | Applicable percentage of ownership is based on 259,729 shares of Series A-1 Preferred Stock outstanding as of March 25, 2021. |
(3) | The business address for Mr. Sullivan is c/o JanOne Inc., 325 E. Warm Springs Road, Suite 102, Las Vegas, Nevada 89119. On January 16, 2019, GeoTraq terminated the employment of Mr. Sullivan pursuant to the terms of the employment agreement dated August 18, 2017 (the “Employment Agreement”) between GeoTraq and Mr. Sullivan. Under the terms of the Employment Agreement, 28,859 of the shares of the Company’s Series A Preferred Stock owned by Mr. Sullivan immediately prior to the termination are deemed to have been returned to the Company’s treasury for cancellation effective as of January 16, 2019, without the requirement that either Mr. Sullivan or the Company take any further action. |
(4) | The business address for Mr. Yunis solely with respect to the shares of Series A-1 Preferred Stock is c/o JanOne Inc., 325 E. Warm Springs Road, Suite 102, Las Vegas, Nevada 89119. |
(5) | The address for Isaac Capital Group, LLC is 505 East Windmill Lane, Suite 1C-295, Las Vegas Nevada 89123. |
The following table provides aggregate information under our equity compensation plans as of December 31, 2016:January 2, 2021: | | (a) | | | (b) | | | (c) | | | | Number of Securities to be Issued Upon Exercise of Outstanding Options and Warrants | | | Weighted Average Exercise Price of Outstanding Options, Warrants and Rights | | | Number of Securities Available for Future Issuance Under Equity Compensation Plans, Excluding Securities Reflected in Column (a) | | Equity compensation plans approved by shareholders | | | 710,250 | | | $ | 2.62 | | | | 1,980,000 | | Equity compensation plans not approved by shareholders | | | 23,500 | | | $ | 3.55 | | | | – | | Total | | | 733,750 | | | $ | 2.65 | | | | 1,980,000 | |
| | (a) | | | (b) | | | (c) | | | | Number of Securities to be Issued Upon Exercise of Outstanding Options and Warrants | | | Weighted Average Exercise Price of Outstanding Options, Warrants and Rights | | | Number of Securities Available for Future Issuance Under Equity Compensation Plans, Excluding Securities Reflected in Column (a) | | Equity compensation plans approved by stockholders | | | 113,900 | | | $ | 11.97 | | | | 780,000 | | Equity compensation plans not approved by stockholders | | | — | | | | — | | | | — | | Total | | | 113,900 | | | $ | 11.97 | | | | 780,000 | |
ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE |
Information regarding director independence and certain relationships and related transactions is set forth under the headings “Director Independence” and “Review,ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Review, Approval or Ratification of Transactions with Related Persons”Persons There are no family relationships among any of the directors or executive officers of the Company. Of the current directors, each of Messrs. Butler, Bitar, and Hajjar is an “independent” director, as defined under the rules of The Nasdaq Stock Market (“Nasdaq”) and each has been an independent director since each joined the Board. In accordance with its charter, the Audit Committee reviews and recommends for approval all related party transactions (as such term is defined for purposes of Item 404 of Regulation S-K). The Audit Committee participated in the approval of the transactions described above. Related Party Transactions (stated in thousands of dollars) Tony Isaac, the Company’s Chief Executive Officer, is the father of Jon Isaac, President and Chief Executive Officer of Live Ventures and managing member of ICG, a greater than 5% stockholder of the Company. Tony Isaac, Chief Executive Officer, Virland Johnson, Chief Financial Officer, Richard Butler, Board of Directors member, and Dennis Gao, Board of Directors member of the Company, are Board of Directors member, Chief Financial Officer, Board of Directors member, and Board of Directors members, respectively, of Live Ventures. The Company also shares certain executive, accounting and legal services with Live Ventures. The total services shared were $243 and $193 for fiscal years ending January 2, 2021 and December 28, 2019, respectively. Customer Connexx rents approximately 9,900 square feet of office space from Live Ventures at its Las Vegas, NV office. The total rent and common area expense were $196 and $177 for fiscal years ending January 2, 2021 and December 28, 2019, respectively. ApplianceSmart Note On December 30, 2017, Purchaser entered into the Agreement with the Company and ApplianceSmart. Pursuant to be includedthe Agreement, the Purchaser purchased from the Company all of the Stock of ApplianceSmart in our 2017 Proxy Statement,exchange for the Purchase Price. Effective April 1, 2018, the Purchaser issued the ApplianceSmart Note with a three-year term in the original principal amount of $3,919 for the balance of the purchase price. ApplianceSmart is incorporated hereinguaranteeing the repayment of the ApplianceSmart Note. On December 26, 2018, the ApplianceSmart Note was amended and restated to grant the Company a security interest in the assets of the Purchaser, ApplianceSmart, and ApplianceSmart Contracting Inc. in exchange for modifying the repayment terms to provide for the payment in full of all accrued interest and principal on April 1, 2021, the maturity date of the ApplianceSmart Note. On March 15, 2019, the Company entered into subordination agreements with third parties pursuant to which it agreed to subordinate the payment of indebtedness under the ApplianceSmart Note and the Company’s security interest in the assets of ApplianceSmart and other related parties in exchange for up to $1,200 payable within 15 days of the agreement. ApplianceSmart can re-borrow up to the principal amount of the Note of $3,919. Additionally, the Company advanced ApplianceSmart $355 during fiscal 2019 under the ApplianceSmart Note. On December 9, 2019, ApplianceSmart filed a voluntary petition (the “Chapter 11 Case”) in the United States Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”) seeking relief under Chapter 11 of Title 11 of the United States Code (the “Bankruptcy Code”).
Related Party Note On August 28, 2019 (amended August 25, 2020), ARCA Recycling entered into and delivered to ICG a secured revolving line of credit promissory note, whereby the Lender agreed to provide the ARCA Recycling with a $2,500 revolving credit facility (the “ICG Note”). The ICG Note matured on December 31, 2020. On March 30, 2021, ARCA Recycling entered into a Second Amendment and Waiver (the “Second Amendment”) to Secured Revolving Line of Credit Promissory Note (the “ICG Note”) with ICG. The Second Amendment extends the maturity date of the ICG Note from December 31, 2020 to August 18, 2021 and waives an event of default that occurred under the ICG Note. ICG has not exercised its remedies or accelerated the indebtedness. The ICG Note bears interest at 8.75% per annum and provides for the payment of interest, monthly in arrears. ARCA Recycling pays a loan fee of 2.0% on each borrowing made under the ICG Note. In connection with entering into the ICG Note, the Borrower also entered into a security agreement in favor of ICG, pursuant to which ARCA Recycling granted a security interest in all of its assets to ICG. The obligations of ARCA Recycling under the ICG Note are guaranteed by reference into this section.the Company. The foregoing transaction did not include the issuance of any shares of the Company’s common stock, warrants, or other derivative securities. ICG is a stockholder of the Company. Jon Isaac is the manager and sole member of ICG, and the son of Tony Isaac, the Chief Executive Officer of the Company and ARCA Recycling. ITEM 14. | ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES |
Information regarding principalEach year, the Audit Committee approves the annual audit engagement in advance. The Audit Committee also has established procedures to pre-approve all non-audit services provided by the Company’s independent registered public accounting feesfirm. All fiscal 2020 and 2019 non-audit services is set forth underlisted below were pre-approved.
Audit and Audit-Related Fees: This category includes the heading “Independent Registered Public Accounting Firm” to beaudit of our annual financial statements and review of financial statements included in our annual and periodic reports that are filed with the SEC. This category also includes services performed for the preparation of responses to SEC and Nasdaq correspondence, travel expenses for our auditors, on audit and accounting matters that arose during, or as a result of, the audit or the review of interim financial statements, and the preparation of an annual “management letter” on internal control and other matters. Tax Fees: This category consists of professional services rendered by our independent auditors for tax compliance. All Other Fees consist of fees for services other than the services described above. The following fees were billed to us by our independent registered public accounting firm, WSRP, LLC (“WSRP”) for 2020 and WSRP and SingerLewak LLP for 2019. SingerLewak LLP served as the Company’s auditor from fiscal 2017 Proxy Statement, is incorporated herein by reference into this section.through October 2019 and reviewed the Company’s quarterly financial statements for each of the first two fiscal quarters during fiscal 2019. WSRP was appointed the Company’s auditor during October 2019. Description | | January 2, 2021 | | | December 28, 2019 | | Audit fees | | $ | 212,725 | | | $ | 219,549 | | Audit-related fees | | | 11,466 | | | | — | | Tax fees | | | 48,459 | | | | 79,201 | | All other fees | | | — | | | | — | | Total | | $ | 272,650 | | | $ | 298,750 | |
PART IV ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES ITEM 15.(a) | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES |
(a) | | Financial Statements, Financial Statement Schedules and Exhibits |
See Index to Financial Statements under Item 8 of this report. | 2 | | | See Index to Financial Statements under Item 8 of this report. | | | 2 | | | Financial Statement Schedules | | | | | None. | | | 3 | | | Exhibits | | | | | See Index to Exhibits |
None. See Index to Exhibits SIGNATURESITEM 16. FORM 10-K SUMMARY
None. Pursuant to the requirements of Section 13 or Section 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on our behalf by the undersigned, thereunto duly authorized.
March 31, 2017 | APPLIANCE RECYCLING CENTERS OF AMERICA, INC.
(Registrant)
| | | | | By | /s/ Tony Isaac | | | Tony Isaac | | | Chief Executive Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature | | Title | | Date | | | | | | Principal Executive Officer | | | | | /s/ Tony Isaac | | Chief Executive Officer | | March 31, 2017 | Tony Isaac | | | | | | | | | | Principal Financial and Accounting Officer | | | | | /s/ Tony Isaac | | Acting Chief Financial Officer | | March 31, 2017 | Tony Isaac | | | | | | | | | | Directors | | | | | /s/ Tony Isaac | | Director | | March 31, 2017 | Tony Isaac | | | | | | | | | | /s/ Richard Butler | | Director | | March 31, 2017 | Richard Butler | | | | | | | | | | /s/ Dennis Gao | | Director | | March 31, 2017 | Dennis Gao | | | | | | | | | | /s/ Timothy Matula | | Director | | March 31, 2017 | Timothy Matula | | | | |
Index to Exhibits Exhibit No. | | Description | 3.1+2.1 | | Restated Agreement and Plan of Merger dated August 18, 2017, between the Company, Appliance Recycling Acquisition Corp., GeoTraq Inc., and the stockholders of GeoTraq Inc. [filed as Exhibit 10.9 to the Company’s Form 10-Q/A for the quarterly period ended July 1, 2017 (File No. 0-19621) and incorporated herein by reference]. | | | | 2.2 | | Stock Purchase Agreement dated December 30, 2017 [filed as Exhibit 10.28 to the Company’s Form 10-K for the fiscal year ended December 30, 2017 (File No. 0-19621) and incorporated herein by reference]. | | | | 2.3 | | Asset Purchase Agreement among JanOne Inc., ARCA Recycling, Inc., and Customer Connexx LLC, on the one hand, and ARCA Affiliated Holdings Corporation, ARCA Services Inc., and Connexx Services Inc., on the other hand, dated February 19, 2021 [filed as 10.1 to the Company’s Form 8-K filed on February 25, 2021 (File No. 0-19621) and incorporated herein by reference]. | | | | 3.1 | | Articles of Incorporation of Appliance Recycling Centers of America, Inc. [filed as amended January 24, 2017Exhibit 3.3 to the Company’s Form 8-K filed on March 13, 2018 (File No. 0-19621) and incorporated herein by reference]. | 3.2 | | Bylaws | 3.2 | | Articles of Appliance Recycling CentersConversion [filed as Exhibit 3.1 to the Company’s Form 8-K filed on March 13, 2018 (File No. 0-19621) and incorporated herein by reference]. | | | | 3.3 | | Articles of America, Inc. as amended December 26, 2007Conversion [filed as Exhibit 3.2 to the Company’s Form 8-K filed on January 2, 2008March 13, 2018 (File No. 0-19621) and incorporated herein by reference]. | 10.1* | | 2006 Stock Option Plan | 3.4 | | Certificate of Correction to Articles of Incorporation [filed as Exhibit 99.13.1 to the Company’s Registration Statement on Form S-810-Q for the quarterly period ended June 30, 2018 (File No. 333-163804)No 0-19621) and incorporated herein by reference]. | 10.2* | | 2011 Stock Compensation Plan | 3.5 | | Certificate of Change [filed as Exhibit 99.13.1 to the Company’s Registration StatementCurrent Report on Form S-8 (File No. 333-176591) and incorporated herein by reference]. | 10.3*+ | | 2016 Equity Incentive Plan. | 10.4 | | Revolving Credit, Term Loan and Security Agreement dated January 24, 2011, between PNC Bank, National Association and the Company [filed as Exhibit No. 10.11 to the Company’s Form 10-K for the year ended January 1, 20118-K filed on April 22, 2019 (File No. 0-19621) and incorporated herein by reference]. | 10.5 | | Amendment No. 1, dated December 30, 2011, | 3.6 | | Certificate of Correction to Revolving Credit, Term Loan and Security Agreement dated January 24, 2011, between PNC Bank, National Association and the CompanyArticles of Incorporation of Appliance Recycling Centers of Amercia, Inc. [filed as Exhibit No. 10.83.7 to the Company'sCompany’s Current Report on Form 10-K for the year ended December 31, 20118-K filed on June 24, 2019 (File No. 0-19621) and incorporated herein by reference]. | 10.6 | | Amendment No. 2, dated March 22, 2012, to Revolving Credit, Term Loan | 3.7 | | Certificate of Designation of Powers, Preferences, and Security Agreement dated January 24, 2011, between PNC Bank, National Association and the CompanyRights of Series A-1 Convertible Preferred Stock of Appliance Recycling Centers of America, Inc. [filed as Exhibit No. 10.13.8 to the Company'sCompany’s Current Report on Form 10-Q for the quarter ended March 31, 20128-K filed on June 24, 2019 (File No. 0-19621) and incorporated herein by reference]. | 10.7 | | Amendment No. 3, | 3.8 | | Amended and Restated Certificate of Designation of the Preferences, Rights, and Limitations of the Series A-1 Convertible Preferred Stock of JanOne Inc., dated March 14, 2013, to Revolving Credit, Term Loan and Security Agreement dated January 24, 2011, between PNC Bank, National Association and the CompanyOctober 1, 2020 [filed as Exhibit No. 10.103.8(a) to the Company'sCompany’s Current Report on Form 10-K for the year ended December 29, 20128-K filed on October 2, 2020 (File No. 0-19621) and incorporated herein by reference]. | 10.8 | | Amendment No. 4, dated | 3.9 | | Articles of Incorporation of JanOne Inc. (the Name Change Subsidiary), filed with the Secretary of State of the State of Nevada on September 27, 2013, to Revolving Credit, Term Loan and Security Agreement dated January 24, 2011, between PNC Bank, National Association and the Company6, 2019 [filed as Exhibit No. 10.33.9 to the Company'sCompany’s Current Report on Form 10-Q for the quarter ended8-K filed on September 28, 201313, 2019 (File No. 0-19621) and incorporated herein by reference]. | | | | 10.93.10 | | Certificate of Amendment No.to Articles of Incorporation, filed with the Secretary of State for the State of Nevada on November 5, dated January 22, 2016, to Revolving Credit, Term Loan and Security Agreement dated January 24, 2011, between PNC Bank, National Association and the Company. | 10.10+ | | Amendment No. 6, dated January 31, 2017, to Revolving Credit, Term Loan and Security Agreement dated January 24, 2011, between PNC Bank, National Association and the Company. | 10.11 | | Term Loan dated January 24, 2011, between PNC Bank, National Association and ARCA Advanced Processing, LLC2020 [filed as Exhibit No. 10.123.9 to the Company'sCompany’s Quarterly Report on Form 10-K10-Q for the yearquarterly period ended January 1, 2011September 26, 2020 filed on November 10, 2020 (File No. 0-19621) and incorporated herein by reference]. | | | | 10.123.11 | | Term Loan facility dated March 10, 2011, between Susquehanna Bank and ARCA Advanced Processing, LLC, pursuant toArticles of Merger for JanOne Inc. into Appliance Recycling Centers of America, Inc., filed with the guidelinesSecretary of State of the U.S. Small Business Administration 7(a) Loan Program, including $2,100,000 term loan, $1,400,000 term loanState of Nevada on September 9, 2019, and $1,250,000 term loan, guaranties by the Company and others, and security agreementseffective on September 10, 2019 [filed as Exhibit No. 10.133.10 to the Company’s Current Report on Form 10-Q for the quarter ended April 2, 20118-K filed on September 13, 2019 (File No. 0-19621) and incorporated herein by reference]. | 10.13 | | ARCA Advanced Processing, LLC Joint Venture Agreement dated October 20, 2009, between 4301 Operations, LLC and the Company, as amended by Amendment No.1 dated June 3, 2010, and Amendment No. 2 dated February 15, 2011 | 3.12 | | Bylaws of Appliance Recycling Centers of America, Inc. [filed as Exhibit No. 10.163.4 to the Company'sCompany’s Form 10-K for the year ended December 28, 20138-K filed on March 13, 2018 (File No. 0-19621) and incorporated herein by reference]. |
| | 10.143.13 | | First Amendment to Bylaws of Appliance Recycling Centers of America, Inc. [filed as Exhibit 3.1 to the Company’s Form 8-K filed on December 31, 2018 (File No. 0-19621) and incorporated herein by reference]. | | | | 4.1+ | | Description of Our Securities | | | | 4.2 | | Specimen Stock Certificate [filed as Exhibit 4.2 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 26, 2020 filed on November 10, 2020 (File No. 0-19621) and incorporated herein by reference]. | | | | 10.1X | | Patent and Know How License Agreement dated November 19, 2019, by and among JanOne Inc., and UAB Research Foundation, TheraVasc, Inc., and the Board of Supervisors of Louisiana State University and Agricultural and Mechanical College, acting on behalf of LSU Health Sciences Center at Shreveport [filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on November 25, 2019 (File No. 0-19621) and incorporated herein by reference]. | | | | 10.2 X | | Master Agreement for Development, Manufacturing and Supply Services dated February 5, 2020 by and between JanOne Inc. and CoreRx Inc. [filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on February 7, 2020 (File No. 0-19621) and incorporated herein by reference]. | | | | 10.3 | | Promissory Note between JanOne Inc., as the borrower, and Texas Capital Bank, N.A., as lender [filed as Exhibit 10.1 to the Company’s Current Report on Quarterly Report on Form 10-Q filed on August 10, 2020 (File No. 0-19621) and incorporated herein by reference]. | | | | 10.4 | | Amended and Restated Promissory Note, effective April 1, 2018, issued by ApplianceSmart Holdings LLC [filed as Exhibit 10.1 to the Company’s Form 8-K filed on December 31, 2018 (File No. 0-19621) and incorporated herein by reference]. | | | | 10.5 | | Security Agreement dated December 26, 2018 by and between ApplianceSmart Holdings LLC and Appliance Recycling Centers of America, Inc. [filed as Exhibit 10.2 to the Company’s Form 8-K filed on December 31, 2018 (File No. 0-19621) and incorporated herein by reference]. | | | | 10.6 | | Security Agreement dated December 26, 2018 by and between ApplianceSmart, Inc. and Appliance Recycling Centers of America, Inc. [filed as Exhibit 10.3 to the Company’s Form 8-K filed on December 31, 2018 (File No. 0-19621) and incorporated herein by reference]. | | | | 10.7 | | Security Agreement dated December 26, 2018 by and between ApplianceSmart Contracting Inc. and Appliance Recycling Centers of America, Inc. [filed as Exhibit 10.4 to the Company’s Form 8-K filed on December 31, 2018 (File No. 0-19621) and incorporated herein by reference]. | | | | 10.8 | | Subordination Agreement, dated March 15, 2019, from Appliance Recycling Centers of America, Inc. to Crossroads Financing, LLC [filed as Exhibit 10.1 to the Company’s Form 8-K filed on March 21, 2019 (File No. 0-19621) and incorporated herein by reference]. | | | | 10.9 | | Intercreditor and Subordination Agreement, dated March 18, 2019, by and between Appliance Recycling Centers of America, Inc. and Crossroads Financing, LLC [filed as Exhibit 10.2 to the Company’s Form 8-K filed on March 21, 2019 (File No. 0-19621) and incorporated herein by reference]. | | | | 10.10 | | Secured Revolving Line of Credit Promissory Note [filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on August 30, 2019 (File No. 0-19621) and incorporated herein by reference]. | | | | 10.11 | | Amendment to Secured Line of Credit Promissory Note dated August 25, 2020 between ARCA Recycling, Inc. and Isaac Capital Group, LLC [filed as Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q filed on November 10, 2020 (File No. 0-19621) and incorporated herein by reference]. | | | | 10.12+ | | Second Amendment and Waiver to Secured Line of Credit Promissory Note dated March 30, 2021 between ARCA Recycling, Inc. and Isaac Capital Group, LLC | | | | 10.13 | | Securities Purchase Agreement dated November 8, 2016, between Energy Efficiency Investments, LLC and the Company [filed as Exhibit 10.1 to the Company’s Form 10-Q for the quarter ended October 1, 2016 (File No. 0-19621) and incorporated herein by reference]. |
| | | 10.1510.14 | | Termination Agreement by and between Energy Efficiency Investments, LLC and JanOne Inc. [filed as 10.18 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 28, 2019 filed on April 6, 2020 (File No. 0-19621) and incorporated herein by reference] | | | | 10.15 | | Form of 3% Original Issue Discount Senior Convertible Promissory Note issuable under Securities Purchase Agreement dated November 8, 2016, between Energy Efficiency Investments, LLC and the Company [filed as Exhibit 10.2 to the Company’s Form 10-Q for the quarterquarterly period ended October 1, 2016 (File No. 0-19621) and incorporated herein by reference]. | 10.16 | | | | 10.16 | | Form of Common Stock Purchase Warrant issuable under Securities Purchase Agreement dated November 8, 2016, between Energy Efficiency Investments, LLC and the Company [filed as Exhibit 10.3 to the Company’s Form 10-Q for the quarter ended October 1, 2016 (File No. 0-19621) and incorporated herein by reference]. | 10.17+ | | Standard Offer, Agreement and Escrow Instructions for Purchase of Real Estate dated December 12, 2016, between Terreno Acacia LLC and the Company. | 21.1+10.17* | | 2011 Stock Compensation Plan [filed with the Company’s Schedule 14A on March 31, 2011 and incorporated herein by reference]. | | | | 10.18* | | 2016 Equity Incentive Plan [filed as Exhibit 10.3 to the Company’s Form 10-K for the fiscal year ended December 31, 2016 (File No. 0-19621) and incorporated herein by reference] | | | | 10.19* | | First Amendment to the JanOne Inc. 2016 Equity Incentive Plan [filed with the Company’s Schedule 14A on October 2, 2020 and incorporated herein by reference] | | | | 10.20*× | | Master Equipment Finance Agreement dated as of March 25, 2021 between KLC Financial, Inc. and ARCA Recycling, Inc. | | | | 21.1+ | | List of Subsidiaries of Appliance Recycling Centers of America, Inc.the Registrant | 23.1+ | | | 23.1+ | | Consent of Anton & Chia,WSRP LLP, Independent Registered Public Accounting Firm. | 23.2+ | | Consent of Baker Tilly Virchow Krause, LLP, Independent Registered Public Accounting Firm. | 31.1+ | | Certification by Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | 31.2+ | | | 31.2+ | | Certification by Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | 32.1† | | | 32.1† | | Certification by Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | 32.2† | | | 32.2† | | Certification by Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | 101** | | | 101+ | | The following materials from our Annual Report on Form 10-K for the fiscal year ended January 2, 2016,December 29, 2018, formatted in Extensible Business Reporting Language (XBRL): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations and Comprehensive Income, (iii) the Consolidated Statements of Cash Flows, (iv) the Consolidated Statements of Shareholders’ Equity, (v) the Notes to Consolidated Financial Statements, and (vI)(vi) document and entity information. | * | | | * | | Items that are management contracts or compensatory plans or arrangements required to be filed as an exhibit pursuant to Item 14(a)3 of this Form 10-K. | + | | Filed herewith. | †+ | | FurnishedFiled herewith. | ‡ | | | † | | Furnished herewith. | | | | × | | Portions of this exhibit have been omitted pursuant to a request for confidential treatment.redacted in compliance with Regulation S-K Item 601(b)(10)(iv) |
SIGNATURES Pursuant to the requirements of Section 13 or Section 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on our behalf by the undersigned, thereunto duly authorized. March 30, 2021 | JANONE INC. (Registrant) | ** | | Pursuant to Rule 406T of Regulation S-T, the XBRL related information in Exhibit 101 to this Annual Report on Form 10-K shall not be deemed to be “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and shall not be deemed part of a registration statement, prospectus or other document filed under the Securities Act or the Exchange Act, except as shall be expressly set forth by specific reference in such filings. | | By | /s/ Tony Isaac | | | Tony Isaac | | | Chief Executive Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Signature | | Title | | Date | | | | | | Principal Executive Officer | | | | | /s/ Tony Isaac | | Chief Executive Officer | | March 30, 2021 | Tony Isaac | | | | | | | | | | Principal Financial and Accounting Officer | | | | | /s/ Virland A. Johnson | | Chief Financial Officer | | March 30, 2021 | Virland A. Johnson | | | | | | | | | | Directors | | | | | /s/ Tony Isaac | | Director | | March 30, 2021 | Tony Isaac | | | | | | | | | | /s/ Richard Butler | | Director | | March 30, 2021 | Richard Butler | | | | | | | | | | /s/ John Bitar | | Director | | March 30, 2021 | John Bitar | | | | | | | | | | /s/ Nael Hajjar | | Director | | March 30, 2021 | Nael Hajjar | | | | |
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