UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

X Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended ~~October~~April 1, ~~2022~~2023

 Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File No. 0-19621

JANONE INC.

(Exact name of registrant as specified in its charter)


Nevada (State or other jurisdiction of incorporation or organization)		41-1454591 (I.R.S. Employer Identification No.)

325 E. Warm Springs Road, Suite 102 Las Vegas, Nevada (Address of principal executive offices)		89119 (Zip Code)

702-997-5968

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.001 par value per share

JAN

The Nasdaq Stock Market LLC

(The Nasdaq Capital Market)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes  No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one)


Large accelerated filer		Accelerated filer	
Non-accelerated filer	☒	Smaller reporting company	☒
Emerging growth company	

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes ☒ No

As of ~~November 11, 2022,~~May 19, 2023, there were ~~3,150,230~~3,614,937 outstanding shares of the registrant’s common stock, with a par value of $0.001.

JANONE INC.

INDEX TO FORM 10-Q


		Page
PART I. FINANCIAL INFORMATION

Item 1.	Condensed Consolidated Financial Statements	3

	Unaudited Condensed Consolidated Balance Sheets as of ~~October~~April 1, ~~2022~~2023 and ~~January 1,~~December 31, 2022	3

	Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income ~~(Loss)~~ for the 13 weeks ended April 1, 2023 and ~~39 weeks ended October 1,~~April 2, 2022 ~~and October 2, 2021~~	4

	Unaudited Condensed Consolidated Statements of Cash Flows for the 3913 weeks ended ~~October~~April 1, ~~2022~~2023 and ~~October~~April 2, ~~2021~~2022	5

	Unaudited Condensed Consolidated Statements of Stockholders’ Equity ~~(Deficit)~~ for the 13 weeks ended April 1, 2023 and ~~39 weeks ended October 1,~~April 2, 2022 ~~and October 2, 2021~~	6

	Notes to Unaudited Condensed Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2925

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3628

Item 4.	Controls and Procedures	3628

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	3830

Item 1A.	Risk Factors	3830

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3830

Item 3.	Defaults Upon Senior Securities	3830

Item 4.	Mine Safety Disclosures	3830

Item 5	Other Information	3930

Item 6.	Exhibits	4031

SIGNATURES		4132

PART I. FINANCIAL INFORMATION

ITEM 1. Condensed Consolidated Financial Statements

JANONE INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except per-share amounts)

October 1,
2022

January 1,
2022

(Unaudited)

Assets

Cash and cash equivalents

$
868

$
705

Trade and other receivables, net

6,834

4,220

Inventories

415

1,209

Prepaid expenses and other current assets

1,248

1,423

Total current assets

9,365

7,557

Property and equipment, net

2,656

2,113

Right to use asset - operating leases

5,733

3,671

Intangible assets, net

328

268

Note receivable, net

11,345

—

Marketable securities

300

—

Deposits and other assets

1,577

1,556

Total assets

$
31,304

$
15,165

Liabilities and Stockholders' Equity (Deficit)

Liabilities:

Accounts payable

$
6,065

$
5,266

Accrued liabilities - other

5,575

5,232

Accrued liability - California Sales Taxes

6,202

6,022

Lease obligation short–term - operating leases

1,711

1,304

Short–term debt

3,657

288

Current portion of notes payable

406

261

Current portion of related party note payable

228

1,000

Total current liabilities

23,844

19,373

Lease obligation long term - operating leases

4,179

2,470

Notes payable - long term portion

1,425

1,318

Long-term portion related party note payable

665

—

Other noncurrent liabilities

46

680

Total liabilities

30,159

23,841

Commitments and contingencies (Note 16)

Stockholders' equity (deficit):

Preferred stock, series A - par value $0.001 per share 2,000,000 authorized,
   222,588 and 238,729 shares issued and outstanding at October 1, 2022 and
   January 1, 2022, respectively

—

—

Common stock, par value $0.001 per share, 200,000,000 shares authorized,
   3,150,230 and 2,827,410 shares issued and outstanding at October 1, 2022
   and January 1, 2022, respectively

3

2

Additional paid-in capital

45,747

45,743

Accumulated deficit

(43,988
)

(53,804
)
Accumulated other comprehensive loss

(617
)

(617
)
Total stockholders' equity (deficit)

1,145

(8,676
)
Total liabilities and stockholders' equity (deficit)

$
31,304

$
15,165


	April 1, 2023			December 31, 2022
	(Unaudited)
Assets
Cash and cash equivalents	$	353		$	61
Trade and other receivables, net		15			106
Prepaid expenses and other current assets		269			394
Current assets from discontinued operations		—			8,612
Total current assets		637			9,173
Intangible assets - Soin, net		18,930			19,293
Other intangible assets, net		4			4
Note receivable- SPYR, net		9,175			8,974
Note receivable - VM7, net		6,052			—
Marketable securities		162			315
Deposits and other assets		16			18
Other assets from discontinued operations		—			8,979
Total assets	$	34,976		$	46,756
Liabilities and Stockholders' Equity
Liabilities:
Accounts payable	$	2,664		$	2,276
Accrued liabilities - other		744			1,006
Short–term debt		69			274
Current liabilities from discontinued operations		—			20,382
Total current liabilities		3,477			23,938
Deferred income taxes, net		3,153			—
Other noncurrent liabilities		276			241
Noncurrent liabilities from discontinued operations		—			5,760
Total liabilities		6,906			29,939
Commitments and contingencies (Note 12)
Mezzanine equity
Convertible preferred stock, series S - par value $0.001 per share 200,000 authorized, 100,000 and 100,000 shares issued and outstanding at April 1, 2023 and December 31, 2022, respectively		14,510			14,510
Stockholders' equity:
Preferred stock, series A - par value $0.001 per share 2,000,000 authorized, 222,588 and 222,588 shares issued and outstanding at April 1, 2023 and December 31, 2022, respectively		—			—
Common stock, par value $0.001 per share, 10,000,000 shares authorized, 3,614,937 and 2,827,410 shares issued and outstanding at April 1, 2023 and at December 31, 2022, respectively		3			2
Additional paid-in capital		46,294			45,748
Accumulated deficit		(32,737	)		(42,822	)
Accumulated other comprehensive loss		—			(621	)
Total stockholders' equity		13,560			2,307
Total liabilities and stockholders' equity	$	34,976		$	46,756

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

JANONE INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME ~~(LOSS)~~

(UNAUDITED)

(Dollars in thousands, except per-share)

For the Thirteen Weeks Ended

For the Thirty-Nine Weeks Ended

October 1,
2022

October 2,
2021

October 1,
2022

October 2,
2021

Revenues

$
8,587

$
12,113

$
28,449

$
29,391

Cost of revenues

7,553

9,032

23,913

23,146

Gross profit

1,034

3,081

4,536

6,245

Operating expenses:

Selling, general and administrative expenses

2,858

3,925

8,711

12,050

Gain on sale of GeoTraq

—

—

(12,091
)

—

Operating income (loss)

(1,824
)

(844
)

7,916

(5,805
)
Other income (expense):

Interest income (expense), net

36

(125
)

(254
)

(323
)
Gain on Payroll Protection Program loan forgiveness

—

—

—

1,872

Gain (loss) on litigation settlement, net

—

—

1,835

(1,950
)
Gain on settlement of vendor advance payments

—

11

—

952

Gain on reversal of contingency loss

—

—

637

—

Unrealized loss on marketable securities

(270
)

—

(646
)

—

Other income, net

—

23

359

45

Total other income (expense), net

(234
)

(91
)

1,931

596

Income (loss) from operations before provision for income taxes

(2,058
)

(935
)

9,847

(5,209
)
Provision for income taxes

16

33

23

236

Net income (loss)

$
(2,074
)

$
(968
)

$
9,824

$
(5,445
)
Net income per share:

Basic income per share

$
(0.66
)

$
(0.34
)

$
3.12

$
(2.09
)
Diluted income per share

$
(0.66
)

$
(0.34
)

$
2.81

$
(2.09
)
Weighted average common shares outstanding:

Basic

3,150,230

2,827,410

3,150,230

2,601,827

Diluted

3,150,230

2,827,410

3,496,003

2,601,827

Net income (loss)

$
(2,074
)

$
(968
)

$
9,824

$
(5,445
)
Other comprehensive loss, net of tax:

Effect of foreign currency translation adjustments

—

—

—

(42
)
Total other comprehensive income loss, net of tax

—

—

—

(42
)
Comprehensive income (loss)

$
(2,074
)

$
(968
)

$
9,824

$
(5,487
)


	For the Thirteen Weeks Ended
	April 1, 2023			April 2, 2022
Revenues	$	—		$	—
Cost of revenues		—			—
Gross profit		—			—
Operating expenses:
Selling, general and administrative expenses		1,099			681
Operating loss		(1,099	)		(681	)
Other income (expense):
Interest income (expense), net		475			(2	)
Gain on litigation settlement, net		—			1,950
Unrealized loss on marketable securities		(247	)		—
Gain on reversal of contingency loss		—			637
Other income, net		(18	)		715
Total other income, net		210			3,300
Income (loss) from continuing operations before provision for income taxes		(889	)		2,619
Income tax benefit		(227	)		—
Net income (loss) from continuing operations		(662	)		2,619
Gain (loss) from discontinued operations (including a $15.8 million gain on sale)		13,976			(1,405	)
Income tax provision for discontinued operations		3,229			3
Net income (loss) from discontinued operations		10,747			(1,408	)
Net income	$	10,085		$	1,211
Net income (loss) per share:
Net income (loss) per share from continuing operations, basic	$	(0.21	)	$	0.93
Net income (loss) per share from continuing operations, diluted	$	(0.21	)	$	0.80
Net income (loss) per share from discontinued operations, basic	$	3.36		$	(0.50	)
Net income (loss) per share from discontinued operations, diluted	$	3.36		$	(0.43	)
Net income per share, basic	$	3.15		$	0.43
Net income per share, basic	$	3.15		$	0.37
Weighted average common shares outstanding:
Basic		3,199,061			2,827,410
Diluted		3,199,061			3,274,123

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

JANONE INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(In thousands)

For the Thirty-Nine Weeks Ended

October 1, 2022

October 2, 2021

OPERATING ACTIVITIES:

Net income (loss)

$
9,824

$
(5,445
)
Adjustments to reconcile net income (loss) to net cash used in operating
activities:

Depreciation and amortization

347

3,136

Amortization of debt issuance costs

10

—

Stock based compensation expense

4

274

Accretion of note receivable discount

(95
)

—

Gain on legal settlement

(115
)

—

Gain on Payroll Protection Program loan forgiveness

—

(1,872
)
Gain on settlement of vendor advance payments

—

(952
)
Gain on reversal of contingent liability

(637
)

—

Gain on sale of GeoTraq

(12,091
)

—

Unrealized loss on marketable securities

646

—

Changes in assets and liabilities:

Accounts receivable

(2,614
)

(1,931
)
Income taxes receivable

—

196

Prepaid expenses and other current assets

176

(71
)
Inventories

689

478

Right of use assets

54

(995
)
Lease liability

—

971

Accounts payable and accrued expenses

1,440

2,840

Deposits and other Assets

(29
)

(114
)
Net cash used in operating activities

(2,391
)

(3,485
)
INVESTING ACTIVITIES:

Purchases of property and equipment

(736
)

(1,530
)
Purchases of intangibles

(214
)

(65
)
Net cash used in investing activities

(950
)

(1,595
)
FINANCING ACTIVITIES:

Proceeds from equity financing, net

—

5,544

Proceeds from issuance of short-term notes payable

648

538

Proceeds from stock option exercise

—

27

Proceeds from notes payable

4,052

1,835

Payments on related party notes payable

(107
)

—

Payments on notes payable

—

(58
)
Payments on short-term notes payable

(1,089
)

(323
)
Net cash provided by financing activities

3,504

7,563

Effect of changes in exchange rate on cash and cash equivalents

—

(42
)
INCREASE IN CASH AND CASH EQUIVALENTS

163

2,441

CASH AND CASH EQUIVALENTS, beginning of period

705

379

CASH AND CASH EQUIVALENTS, end of period

$
868

$
2,820

Supplemental cash flow disclosures:

Interest paid

$
235

$
146

Income taxes paid

54

28

Right to use asset - operating leases capitalized

1,902

1,815


	For the Thirteen Weeks Ended
	April 1, 2023			April 2, 2022
OPERATING ACTIVITIES:
Net income (loss) from continuing operations	$	(662	)	$	2,619
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization		364			—
Stock based compensation expense		8			4
Accretion of note receivable discount		(230	)		—
Loss on legal settlement		—			(115	)
Unrealized loss on marketable securities		247			—
Gain on reversal of contingent liability		—			(637	)
Changes in assets and liabilities:
Accounts receivable, net of acquisitions and dispositions		(3	)		130
Prepaid expenses and other current assets, net of dispositions		125			173
Accounts payable and accrued expenses, net of dispositions		256			91
Other Assets		1			(3	)
Operating cash flows provided by (used in) discontinued operations		2,320			(207	)
Net cash provided by operating activities		2,426			2,055
INVESTING ACTIVITIES:
Investing cash flows used in discontinued operations		(156	)		(127	)
Net cash used in investing activities		(156	)		(127	)
FINANCING ACTIVITIES:
Proceeds from equity financing, net		368			—
Payments on short-term notes payable		(205	)		(216	)
Financing cash flows from discontinued operations		(2,212	)		(63	)
Net cash used in financing activities		(2,049	)		(279	)
Effect of changes in exchange rate on cash and cash equivalents		17			(41	)
INCREASE IN CASH AND CASH EQUIVALENTS		238			1,608
CASH AND CASH EQUIVALENTS, beginning of period		115			705
LESS CASH OF DISCONTINUED OPERATIONS, end of period		—			(266	)
CASH AND CASH EQUIVALENTS, end of period	$	353		$	2,047
Supplemental cash flow disclosures:
Interest paid	$	117		$	22
Noncash recognition of new leases		—			323

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

JANONE INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)

(UNAUDITED)

(Dollars in thousands)

Series A Preferred

Common Stock

Additional
Paid-in

Accumulated

Accumulated
Other
Comprehensive

Total
Stockholders'

Shares

Amount

Shares

Amount

Capital

Deficit

Deficit

Equity (Deficit)

Balance, January 1, 2022

238,729

$
—

2,827,410

$
2

$
45,743

$
(53,804
)

$
(617
)

$
(8,676
)
Share based compensation

—

—

—

—

4

—

—

4

Other comprehensive loss

—

—

—

—

—

(8
)

(41
)

(49
)
Net income

—

—

—

—

—

1,211

—

1,211

Balance, April 2, 2022

238,729

—

2,827,410

2

45,747

(52,601
)

(658
)

(7,510
)
Series A-1 preferred converted

(16,141
)

—

322,820

1

—

—

—

1

Other comprehensive income

—

—

—

—

—

—

41

41

Net income

—

—

—

—

—

10,687

—

10,687

Balance, July 2, 2022

222,588

—

3,150,230

3

45,747

(41,914
)

(617
)

3,219

Net income

—

—

—

—

—

(2,074
)

—

(2,074
)
Balance, October 1, 2022

222,588

$
—

3,150,230

$
3

$
45,747

$
(43,988
)

$
(617
)

$
1,145


	Series A Preferred				Common Stock				Additional Paid-in		Accumulated			Accumulated Other Comprehensive			Total Stockholders'
	Shares		Amount		Shares		Amount		Capital		Deficit			Deficit			Equity
Balance, December 31, 2022		222,588	$	—		3,150,230	$	2	$	45,748	$	(42,822	)	$	(621	)	$	2,307
Share based compensation		—		—		—		—		8		—			—			8
Common stock issued for equity financing		—		—		361,000		1		368		—			—			369
Common stock issued for legal settlement						103,707		—		170		—			—			170
Other comprehensive income		—		—		—		—		—		—			621			621
Net income		—		—		—		—		—		10,085			—			10,085
Balance, April 1, 2023		222,588	$	—		3,614,937	$	3	$	46,294	$	(32,737	)	$	—		$	13,560

Series A Preferred

Common Stock

Additional
Paid-in

Accumulated

Accumulated
Other
Comprehensive

Total
Stockholders'

Shares

Amount

Shares

Amount

Capital

Deficit

Deficit

Equity

Balance, January 1, 2021

259,729

$
—

1,829,982

$
2

$
39,869

$
(36,917
)

$
(588
)

$
2,366

Shares issued

—

—

571,428

—

5,544

—

—

5,544

Share based compensation

—

—

—

—

109

—

—

109

Stock option exercise

—

—

2,000

—

11

—

—

11

Other comprehensive loss

—

—

—

—

—

—

(42
)

(42
)
Net income

—

—

—

—

—

502

—

502

Balance, April 3, 2021

259,729

—

2,403,410

2

45,533

(36,415
)

(630
)

8,490

Share based compensation

—

—

—

—

71

—

—

71

Stock option exercise

—

—

4,000

—

16

—

—

16

Series A-1 preferred converted

(21,000
)

—

420,000

—

—

—

—

—

Net loss

—

—

—

—

—

(4,979
)

—

(4,979
)
Balance, July 3, 2021

238,729

—

2,827,410

2

45,620

(41,394
)

(630
)

3,598

Share based compensation

—

—

—

—

94

—

—

94

Net loss

—

—

—

—

—

(968
)

—

(968
)
Balance, October 2, 2021

238,729

$
—

2,827,410

$
2

$
45,714

$
(42,362
)

$
(630
)

$
2,724


	Series A Preferred				Common Stock				Additional Paid-in		Accumulated			Accumulated Other Comprehensive			Total Stockholders'
	Shares		Amount		Shares		Amount		Capital		Deficit			Deficit			Deficit
Balance, January 1, 2022		238,729	$	—		2,827,410	$	2	$	45,743	$	(53,804	)	$	(617	)	$	(8,676	)
Share based compensation		—		—		—		—		4		—			—			4
Other comprehensive income		—		—		—		—		—		(8	)		(41	)		(49	)
Net Income		—		—		—		—		—		1,211			—			1,211
Balance, April 2, 2022		238,729	$	—		2,827,410	$	2	$	45,747	$	(52,601	)	$	(658	)	$	(7,510	)

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

Note 1: Background

The accompanying consolidated financial statements include the accounts of JanOne Inc., a Nevada corporation, and its subsidiaries (collectively the “Company” or “JanOne”).

The Company ~~has~~had three operating segments – Biotechnology, Recycling, and Technology. In connection with the sale of GeoTraq, Inc. (“GeoTraq”) and the sale of ARCA Recycling, Inc. (“ARCA Recycling”) (see Note 18), the accounts for the Recycling and Technology segments have been presented as discontinued operations in the accompanying consolidated financial statements (see Note 3).

Biotechnology

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. Effective December 28, 2022, the Company acquired Soin Therapeutics LLC, a Delaware limited liability company (“STLLC”), and its product, a patent-pending, novel formulation of low-dose naltrexone, (“JAN123”). The product is being developed for the treatment of Complex Regional Pain Syndrome (CRPS), an indication that causes severe, chronic pain generally affecting the arms or legs. At present, there are no truly effective treatments for CRPS. Because of the relatively small number of patients afflicted with CRPS, the FDA has granted Orphan Drug Designation for any product approved for treatment of CRPS. This designation will provide the Company with tax credits for its clinical trials, exemption of user fees, and the potential of seven years of market exclusivity following approval. In addition, development of orphan drugs currently also involves smaller trials and quicker times to approval, given the limited number of patients available to study. However, there can be no assurance that the product will receive FDA approval or that it will result in material sales.

Recycling

ARCA Recycling ~~Inc. (“ARCA Recycling”) is~~was the Company’s Recycling segment and 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. On ~~February 19, 2021,~~March 9, 2023, retroactive to March 1, 2023, the Company entered into ~~an Asset~~a Stock Purchase Agreement ~~(the “Purchase Agreement”)~~ with ~~(i) ARCA Affiliated Holdings~~VM7 Corporation, a Delaware corporation, ~~(ii)~~under which the Buyer agreed to acquire all of the outstanding equity interests of (a) ARCA ~~Services~~Recycling, Inc., a ~~Delaware~~California corporation, (b) Customer Connexx LLC, a Nevada limited liability company, and ~~(iii) Connexx Services Inc,~~(c) ARCA Canada Inc., a ~~Delaware~~ corporation ~~(collectively,~~organized under the ~~“Buyers”), pursuant to which the Buyers agreed to acquire substantially all~~laws of ~~the assets,~~Ontario, Canada (“ARCA Canada”; and, ~~assume certain liabilities, of~~together with ARCA ~~Recycling~~ and Connexx, ~~(the “Disposition Transaction”~~the “Subsidiaries”). The principal of the ~~Buyers~~Buyer is Virland A. Johnson, our Chief Financial Officer. ~~On November 14, 2021,~~The sale of all of the ~~parties entered into an amendment~~outstanding equity interests of the Subsidiaries to the Buyer under the Purchase Agreement ~~which provided for~~was consummated simultaneously with the ~~immediate termination~~execution of the ~~transactions proposed by~~Purchase Agreement (see Note 17). The Company's Board of Directors unanimously approved the Purchase Agreement and ~~for an amendment~~the Disposition Transaction. In connection with the disposition of ARCA Recycling, accounts for the ~~Buyers to pay to us a “break fee.” The break fee was amended to an aggregate of $100,000, payable~~Recycling segment have been presented as discontinued operations in ~~two $50,000~~ ~~installments: (i)~~ the first of which is due to be paid on or around August 12, 2022 (the one-year anniversary of the Recycling Sale Agreement and which at the time of filing has not yet been paid) and (ii) the second of which is due to be paid not later than the last day of our next fiscal year, which is December 31, 2022. However, if, prior to the date on which either installment of the amended break fee is payable, we sell ARCA Recycling, ARCA Canada, and Connexx to an otherwise unaffiliated third party for an aggregate amount less than $accompanying consolidated financial statements (see Note 3).

25 million, then the Buyers will be relieved of their obligation to pay to us any not-yet-then-due installment of the break fee. Additionally, if, prior to the date on which the second installment of the amended break fee is payable, we have not sold ARCA Recycling, ARCA Canada, and Connexx to any third party, then the Buyers will be relieved of their obligation to pay to us the second installment of the break fee. Finally, if, prior to a date on which either installment of the amended break fee is due, we sell ARCA Recycling, ARCA Canada, and Connexx to the Buyers, then, the purchase price therefore will be reduced by an amount equivalent to any break fee that had been previously paid to us by the Buyers and the Buyers shall also be relieved of their obligation to pay to us any not-yet-due installment of the break fee.Technology

GeoTraq Inc. (“GeoTraq”) was the Company’s Technology segment. ~~The Company suspended all operations for GeoTraq during the year ended January 1, 2022.~~ On May 24, 2022, the Company entered into an Asset Purchase Agreement with SPYR Technologies Inc., pursuant to which the Company sold to SPYR substantially all the assets and none of the liabilities of its wholly-owned subsidiary GeoTraq ~~assets (see~~Inc. The aggregate purchase price for the GeoTraq Assets was $13.5 million, payable in cash and shares of SPYR’s common stock. As of the closing of the transaction on May 24, 2022, SPYR issued to the Company 30,000,000 shares of its common stock at $0.03 per share, and delivered a five-year Promissory Note ~~24)~~in the principal amount of $12.6 million. The Promissory Note bears simple interest at the rate of 8% per annum, provides quarterly interest payments due the first day of each calendar quarter, and may be prepaid at any time without penalty. Quarterly interest payments may be made in cash or in SPYR's restricted common stock. The Promissory Note matures on May 23, 2027.

The Company reports on a 52- or 53-week fiscal year. The Company’s ~~2021~~2022 fiscal year (“~~2021”~~2022”) ended on ~~January 1,~~December 31, 2022, and the current fiscal year (“~~2022”~~2023”) will end on December ~~31, 2022.~~30, 2023.

Going concern

The accompanying financial statements have been prepared under the assumption that the Company will continue as a going concern. Such assumption contemplates the realization of assets and satisfaction of liabilities in the normal course of business, however, the issues described below raise substantial doubt about the Company’s ability to do so.

The Company currently faces a challenging competitive environment and is focused on improving its overall profitability, which includes managing expenses. The Company reported a net loss from continuing operations of approximately $~~2.1~~ ~~million and a net loss of approximately $968,000~~640,000 for the 13 weeks ended ~~October~~April 1, ~~2022 and October 2, 2021, respectively, and net income of approximately $9.8~~ ~~million and a net loss of approximately $5.4~~ ~~million for the 39 weeks ended October 1, 2022 and October 2, 2021, respectively. In addition,~~2023. Additionally, as of ~~October~~April 1, ~~2022,~~2023, the Company has total current assets of approximately $~~9.4~~637,000 ~~million~~ and total current liabilities of approximately $~~23.8~~3.5 million resulting in a net negative working capital of approximately $~~14.5~~2.8 million. Cash provided by operations from continuing operations was approximately $128,000. Additionally, stockholders' equity, as of April 1, 2023, is approximately $13.6 million.

The Company ~~has available~~intends to fund operations by using cash ~~balances~~on hand and monthly receipts in connection with the sale of its Subsidiaries and funds ~~available under its credit facility with Gulf Coast Bank and Trust~~received from approved Employee Retention Credits (“~~Gulf Coast”~~ERC’s”) ~~to provide sufficient liquidity to fund the entity’s operations and remodeling activities for at least the next twelve months.~~(see Note 18). The Company ~~expects~~has approximately $69,000 in debt recorded in associated with the financing of its insurance policies. The Company intends to ~~generate cash from operations for the remainder~~raise funds to support future development of ~~fiscal year 2022, given its current cost cutting measures.~~JAN 123 and JAN 101 either through capital raises or structured arrangements. However, the ~~Company~~success of such funding cannot be ~~certain its efforts will suffice.~~ assured.

The ~~agreement with Gulf Coast allows~~ability of the Company to ~~obtain lending in the amount of the lesser of $7.0~~ million or its calculated borrowing base (see Note 15 below). The Company expects that it will be able to utilize the available funds under the credit facility 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.

As of January 1, 2022, the Company had recorded a full impairment of the GeoTraq intangible asset. On May 24, 2022, the Company sold substantially all of the GeoTraq assets, as discussed in Note 24 below.

Based on the above, management has concluded that, as of October 1, 2022, the Company is not aware of, 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~~is dependent upon the ~~next twelve months.~~success of future capital raises or structured settlements to fund the required testing to obtain FDA approval of JAN 123 and JAN 101, as well as to fund its day-to-day operations. Such approval is contingent on several factors and no assurance can be provided that approval will be obtained. The accompanying financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern. While the Company will actively pursue these additional sources of financing, management cannot make any assurances that such financing will be secured or FDA approvals will be obtained.

Note 2: Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the U.S. (“U.S. GAAP”) and with the instructions to Form 10-Q and Article 10 of Regulation S-X for interim financial information. Accordingly, these financial statements do not include all of the information and notes required for complete financial statements prepared in conformity with U.S. GAAP. In our opinion, all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation have been included. However, the Company’s results of operations for the interim periods presented are not necessarily indicative of the results that may be expected for the full year. For further information, refer to the consolidated financial statements and notes thereto included in our Form 10-K for the fiscal year ended ~~January 1,~~December 31, 2022.

~~Reclassifications~~

~~Certain amounts in the prior period have been reclassified to conform to the current period presentation.~~

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.

Financial Statement Reclassification

Certain account balances from prior periods have been reclassified in these consolidated financial statements to conform to current period classifications. The prior year amounts have also been modified in these financial statements to properly report amounts under current operations and discontinued operations (see Note 3).

Use of Estimates

The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumption 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. 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 GeoTraq promissory note, Series S convertible preferred stock issued in the Soin merger, and the receivable in connection with the sale of ARCA, analysis of other intangibles and long-lived assets for impairment, valuation allowance against deferred tax assets, lease terminations, and estimated useful lives for intangible assets and property and equipment.

Financial Instruments

Financial instruments consist primarily of cash equivalents, trade and other receivables, notes receivable, 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 the short maturity of these instruments. The fair value of the 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 ~~short-term~~long-term debt at ~~October 1, 2022 and January 1,~~December 31, 2022 approximate fair value. The Company has no long-term debt as of April 1, 2023 due to the disposition of ARCA Recycling (see Note 18).

~~Cash and Cash Equivalents~~Recently Issued Accounting Pronouncements

~~Cash and cash equivalents consist of highly liquid investments with a maturity of three months or less at the time of purchase. Fair value of cash equivalents approximates carrying value.~~

~~Trade Receivables and Allowance for Doubtful Accounts~~

The Company carries 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. The Company writes off trade receivables when deemed uncollectible. The Company records recoveries of trade receivables previously written off when payment is received. The Company considers a trade receivable to be past due if any portion of the receivable balance

In June 2016, the Financial Accounting Standards Board issued ASU 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 credit deterioration since their origination. ASU No. 2016-13 is ~~outstanding~~effective for ~~more than ninety days. The Company does not charge interest on past due receivables.~~smaller reporting companies for fiscal years beginning after December 15, 2022 and interim periods within those fiscal years. Early adoption is permitted. The Company has no ~~allowance for doubtful accounts~~adopted this new accounting standard, however, as of ~~October~~13 weeks ended April 1, ~~2022 or January 1, 2022.~~2023, there is no material impact on our Consolidated Financial Statements and related disclosures.

~~Inventories~~Note 3: Discontinued Operations

~~Inventories, consisting primarily~~As of ~~appliances, are stated at~~April 1, 2023, the ~~lower~~Company discontinued operations of ~~cost, determined on~~its Recycling and Technology segments as follows:

On March 9, 2023, the Company executed a ~~specific identification basis, or net realizable value. The Company provides estimated provisions for~~Stock Purchase Agreement with VM7 Corporation, a Delaware corporation, under which, as of March 1, 2023, the ~~obsolescence of appliance inventories, including adjustment~~Buyer agreed to ~~market, based on various factors, including the age of such inventory and management’s assessment~~acquire all of the ~~need for such provisions. We look at historical inventory aging reports~~outstanding equity interests of (a) ARCA Recycling, Inc., a California corporation, (b) Customer Connexx LLC, a Nevada limited liability company, and ~~margin analyses in determining our provision estimate. A revised cost basis is used once~~(c) ARCA Canada Inc., a ~~provision for obsolescence is recorded.~~corporation organized under the laws of Ontario, Canada (“ARCA Canada”; and, together with ARCA and Connexx, the “Subsidiaries”). The ~~Company has~~ no ~~reserve for excess or obsolete inventory as of October 1, 2022 or January 1, 2022.~~

~~Property and Equipment~~

Property and Equipment are stated at cost, 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 the estimated useful livesprincipal of the ~~assets.~~Buyer is Virland A. Johnson, our Chief Financial Officer. The ~~useful life~~sale of ~~building and improvements is~~ 3 to 30 ~~years, transportation equipment is~~ 3 to 15 ~~years, machinery and equipment is~~ 5 to 10 ~~years, furnishings and fixtures is~~ 3 to 5 ~~years and office and computer equipment is~~ 3 to 5 ~~years.~~

The Company periodically reviews 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 amountall of the ~~assets exceeds their fair value, as approximated by~~outstanding equity interests of the ~~present value of their projected discounted cash flows.~~

~~Intangible Assets~~

~~The Company accounts for intangible assets in accordance with ASC 350,~~ ~~Intangibles—Goodwill and Other. Under ASC 350, intangible assets subject~~Subsidiaries to ~~amortization, shall be reviewed for impairment in accordance~~the Buyer under the Purchase Agreement was consummated simultaneously with the ~~Impairment or Disposal~~execution of ~~Long-Lived Assets in ASC 360,~~ ~~Property, Plant, and Equipment~~the Purchase Agreement (see Note 18).

Under ASC 360, long-lived assets are tested for recoverability whenever events or changes in circumstances (‘triggering event’) indicate that the carrying amount may not be recoverable. In 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.

The Company’s intangible assets consist of customer relationship intangibles, trade names, licenses for the use of internet domain names, Universal Resource Locators, or URL’s, software, patent USPTO reference No. 10,182,402, and historical know-how, designs and related manufacturing procedures. Upon acquisition, critical estimates are made in valuing acquired intangible assets, which include but are not limited to: future expected cash flows from customer contracts, customer lists, and estimating cash flows from projects when completed; tradename and market position, as well as assumptions about the period 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.~~

~~Based on a qualitative evaluation, for the year ended January 1,~~On May 24, 2022, the Company ~~recorded~~entered into an ~~impairment charge for the full unamortized balance of its GeoTraq intangible, in the amount of $9.8~~ ~~million. The Company has recorded~~ no ~~impairment charges during the 13 weeks and 39 weeks ended October 1, 2022.~~

~~Revenue Recognition~~

~~Biotechnology Revenue~~

~~The Company is currently generating no revenue from its Biotechnology segment.~~

~~Recycling Revenue~~

The Company provides replacement appliances and provides appliance pickup and recycling services for consumers (“end users”) of public utilities, our customers. As part of the Company’s de-manufacturing and recycling process, it receives revenue from scrap dealers for refrigerant, steel, plastic, glass, copper and other residual items.

~~The Company accounts for revenue in accordance~~Asset Purchase Agreement with ~~Accounting Standards Codification 606~~ ~~Revenue from Contracts with Customers~~.

~~Under the revenue standard, the Company determines revenue recognition through the following steps:~~

~~Identification of the contract, or contracts, with a customer,~~

~~Identification of the performance obligations in the contract,~~

~~Determination of the transaction price,~~

~~Allocation of the transaction price to the performance obligations in the contract, and~~

~~Recognition of revenue when, or as, the performance obligation(s) is satisfied.~~

As part of our 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 considerationSPYR Technologies Inc., pursuant to which the Company ~~expects~~sold to ~~be entitled per order,~~SPYR substantially all the assets and ~~therefore there is no variable consideration. As~~none of the ~~Company’s standard payment terms are less than 90 days,~~liabilities of its wholly-owned subsidiary GeoTraq Inc. No GeoTraq assets or liabilities were included in discontinued operations at December 31, 2022.

In accordance with the provisions of ASC 205-20, 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~~

The Company generates revenue by providing replacement appliances. Revenue is recognized at the point in time when control of the replacement product is transferred to the end user and when performance obligations are satisfied, which typically occurs upon delivery from the Company’s center facility and installation at the end user’s home.

~~Recycling Services Revenue~~

The Company generates revenue by providing pickup and recycling services. Revenue is recognized at the point in time when a to-be recycled appliance has been picked up and transfer of ownership has occurred, thereby satisfying the performance obligation.

~~Byproduct Revenue~~

The Company generates other recycling byproduct revenue (the sale of copper, steel, plastic, and other recoverable non-refrigerant byproducts) as part of a de-manufacturing process. The Company recognizes byproduct revenue upon delivery and transfer of control of the byproduct to a third-party recycling customer having mutually agreed upon a price per pound, and that collection is reasonably assured. Transfer of control occurs at the time the customer assumes possession of the byproduct 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.

~~Contract Liability~~

Receivables are recognized in the period the Company ships the product or provides the service. Payment terms on invoiced amounts are based on contractual terms with each customer. When the Company receives consideration, or such consideration is unconditionally due, prior to transferring goods or services to the customer under the terms of a sales contract, they are recorded as deferred revenue, which represents a contract liability. The Company recognizes a contract liability as net sales once control of goods and/or services have been transferred to the customer and all revenue recognition criteria have been met, and any constraints have been resolved. The Company defers product costs until recognition of the related revenue occurs.

~~Assets Recognized from Costs to Obtain a Contract with a Customer~~

The Company recognizes an asset 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. The Company has concluded that no material costs have been incurred to obtain and fulfill our FASB Accounting Standards Codification, or ASC 606 contracts, meet the capitalization criteria, and as such, there are no ~~material costs deferred and recognized as assets on the consolidated balance sheet at October 1, 2022 or January 1, 2022.~~

~~Other:~~

~~Taxes collected from customers and remitted to government authorities and that are related to sales of the Company’s products are excluded from revenues.~~

~~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.~~

The Company does 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.

~~The majority of the Company’s revenue recognized is derived from contracts with customers.~~

~~Technology Revenue~~

~~The Company is currently generating no revenue from its 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. The Company had $~~0 ~~and $6,000~~ ~~in advertising expenses for the 13 weeks and 39 weeks ended October 1, 2022 and October 2, 2021, respectively.~~

~~Fair Value Measurements~~

ASC Topic 820, “Fair Value Measurements and Disclosures,” requires disclosure of the fair value of financial instruments held by the Company. ASC Topic 825, “Financial Instruments,” defines fair value, and 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 liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. Level 3 – inputs to the valuation methodology are unobservable and significant to the fair value measurement.

~~Income Taxes~~

The Company accounts for income taxes using the asset and liability method. The asset and liability method requires recognition of deferred tax assets and liabilities for expected future tax consequences of temporary differences that currently exist between tax bases and financial reporting bases of the Company’s assets and liabilities. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which these temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in 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 Condensed Consolidated Statements of Operations and Other Comprehensive Income (loss).

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 sustained. 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 the amounts accrued and may materially impact the financial statements of the Company in future periods.

~~Lease Accounting~~

~~The Company accounts 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 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.

~~The Company leases warehouse facilities and office 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 be 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 2-3 years with some being longer or shorter depending on needs of the business and the lease partners. The Company has also engages in month-to-month leases for parking spaces that the Company has elected to expense as incurred. Our lease agreements do not include variable lease payments. The Company’s lessors offer options to extend lease terms as leases expire, and management evaluates current rental markets and other strategic factors in making the decision whether to renew. When leases are within ~~six months~~ of renewal, 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 Company's operating leases contain no residual value guarantees or contain restrictive covenants.~~

Lease amounts accounted for 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 determine if the contract terms provided an asset that was controlled by the Company, and provided it with substantially all relevant economic benefits. The Company is not a party to any contracts containing embedded leases. All lease contracts were reviewed, and distinctions made between lease and non-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 awards, restricted stock awards, and options to employees (including executives), non-employees, and members of the Board of 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 recognized over the vesting period.

~~Foreign Currency~~

~~The financial statements of the Company’s non-U.S. subsidiary are translated into U.S. dollars in accordance with ASC 830, Foreign Currency Matters. Under ASC 830, if~~separately reported the assets and liabilities of the ~~Company are recorded~~discontinued operations in ~~certain non-U.S. functional currencies other than~~ the ~~U.S. dollar, they are translated at rates~~consolidated balance sheets. The assets and liabilities have been reflected as discontinued operations in the consolidated balance sheets as of ~~exchange at year end. Revenue~~December 31, 2022, and ~~expense items are translated at the average monthly exchange rates. The resulting translation adjustments are recorded directly into accumulated other comprehensive income.~~

~~Earnings Per Share~~

~~Earnings per share is calculated in accordance with ASC 260, “Earnings Per Share~~”. Under ASC 260 basic earnings per share is computed using the weighted average number of common shares outstanding during the period except that it does not include unvested restricted stock subject to cancellation. Diluted earnings per share is computed using the weighted average number of common shares and, if dilutive, potential common shares outstanding during the period. Potential common shares consist of the ~~incremental common shares issuable upon the exercise of warrants, options, restricted shares~~following:


	December 31, 2022
Assets from discontinued operations
Cash and cash equivalents	$	53
Trade and other receivables, net		7,816
Inventories		366
Prepaid expenses and other current assets		377
Total current assets from discontinued operations		8,612
Property and equipment, net 1		2,705
Right of use asset - operating leases		5,290
Intangible assets, net 2		735
Deposits and other assets		249
Total other assets from discontinued operations		8,979
Total assets from discontinued operations	$	17,591
Liabilities from discontinued operations
Accounts payable	$	4,423
Accrued liabilities - other 3		3,278
Accrued liability - California sales taxes 4		6,264
Lease obligation short-term - operating leases		1,631
Short term debt 5		4,172
Current portion of note payable		381
Related party note		233
Total current liabilities from discontinued operations		20,382
Lease obligation long-term - operating leases		3,816
Notes payable - long-term portion 6		1,339
Long-term portion related party note payable 7		605
Total noncurrent liabilities from discontinued operations		5,760
Total liabilities from discontinued operations	$	26,142

1The Company's property and ~~convertible preferred stock. The dilutive effect of outstanding restricted shares, options and warrants is reflected in diluted earnings per share by application~~equipment consisted of the ~~treasury stock method. Convertible preferred stock is reflected on an if-converted basis.~~following:


	Useful Life (Years)	December 31, 2022
Buildings and improvements	3-30	$	85
Equipment	3-15		3,915
Projects under construction			1,447
Property and equipment			5,447
Less accumulated depreciation			(2,742	)
Total property and equipment, net, from discontinued operations		$	2,705

Depreciation expense was $60,000and $79,000 for the 13 weeks ended April 1, 2023 and April 2, 2022, respectively.

~~Segment Reporting~~2 The Company's intangible assets consisted of the following:


	December 31, 2022
Patent and domains	$	19
Computer software		1,682
Intangible assets		1,701
Less accumulated amortization		(966	)
Total intangible assets	$	735

Amortization expense was $36,000and $54,000 for the 13 weeks ended April 1, 2023 and April 2, 2022, respectively.

3 The Company's accrued liabilities consisted of the following:

~~ASC Topic 280, “~~10


	December 31, 2022
Compensation and benefits	$	685
Contract liability		290
Accrued incentive and rebate checks		2,037
Accrued taxes		219
Other		47
Total accrued expenses	$	3,278

Historically t~~Segment Reporting~~he Company operated its recycling business in fourteen states in the U.S. and in various provinces in Canada. From time to time, the Company is subject to sales and use tax audits that could result in additional taxes, penalties and interest owed to various taxing authorities.

~~,” requires~~The California Department of Tax and Fee Administration (formerly known as the California Board of Equalization) (“CDTFA”) conducted a sales and use tax examination covering ARCA Recycling’s California operations 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 CDTFA indicating they were not in agreement with the Company’s interpretation of the ~~“management approach” model~~law. As a result, the Company applied for ~~segment reporting.~~and, as of February 9, 2015, received approval to participate in the CDTFA’s Managed Audit Program. The ~~management approach model is based~~period covered under this program included the years 2011, 2012, and 2013 and extended through the nine-month period ended September 30, 2014.

On April 13, 2017 the Company received the formal CDTFA assessment for sales tax for tax years 2011, 2012, and 2013 in the amount of approximately $4.1 million plus applicable interest of $500,000 related to the appliance replacement programs that the Company administered on ~~the way a company’s management organizes segments within the company for making operating decisions and assessing performance.~~behalf of its customers on which it did not assess, collect or remit sales tax. The Company has ~~determined it~~appealed this assessment to the CDTFA Appeals Bureau. The appeal remains in process. Interest has continued to accrue until the matter is settled.~~three~~

4 ~~reportable segments.~~The Company's accrual relating to the California sales tax assessment consisted of the following:


	December 31, 2022
Accrued liability - CA sales tax assessment	$	4,132
Accrued liability - interest on CA sales tax assessment		2,132
Total	$	6,264

~~Concentration~~5 The Company's short-term debt consisted of ~~Credit Risk~~the following:


	December 31, 2022
Gulf Coast Bank and Trust Company	$	4,206
Gulf Coast Bank and Trust Company loan origination fees		(34	)
Total	$	4,172

6 The Company's long-term debt consisted of the following:


	December 31, 2022
KLC Financial	$	1,781
KLC Financial loan origination fees		(61	)
Total		1,720
Less current portion		(381	)
Total	$	1,339

Related Party ICG Note

On August 28, 2019, ARCA Recycling entered into and delivered to Isaac Capital Group LLC (“ICG”) a secured revolving line of credit promissory note, whereby ICG agreed to provide ARCA Recycling with a $2.5 million revolving credit facility (the “ICG Note”). The ICG Note originally matured on August 28, 2020. On August 25, 2020, the ICG Note was amended to extend the maturity date to December 31, 2020. On March 30, 2021, ARCA Recycling entered into a Second Amendment and Waiver (the “Second Amendment”) to the ICG Note to further extend the maturity date to August 18, 2021 and waive certain defaults under the ICG Note. The ICG Note bears interest at 8.75% per annum and provides for the payment of interest, monthly in arrears. ARCA Recycling will pay 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 the Lender, pursuant to which ARCA Recycling granted a security interest in all of its assets to the Lender.

The ~~Company maintains cash balances at several banks in several states including, California, Minnesota, and Nevada. Accounts~~obligations of ARCA Recycling under the ICG Note are ~~insured~~guaranteed by the ~~Federal Deposit Insurance Corporation up~~Company. The foregoing transaction did not include the issuance of any shares of the Company’s common stock, warrants, or other derivative securities. As of January 1, 2022, the balance due on ICG Note was $1.0 million. Beginning in April 2022, the revolving credit facility was converted to a term note that amortized ratably through its maturity date of March 2026. The principal amount of the note was $~~250,000~~1.0 million, and was to bear interest at 8.75% per ~~institution~~annum. Monthly payments on this note were approximately $24,767. ICG is a record and beneficial owner of 13.9% 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, previously, ARCA Recycling.

7 The Company's related party debt consisted of the following:


	December 31, 2022
Isaac Capital Group LLC	$	838
Total		838
Less current portion		(233	)
Total	$	605

In accordance with the provisions of ASC 205-20, the Company has not included in the results of continuing operations the results of operations of the discontinued operations in the consolidated statements of operations and comprehensive income (loss). The results of operations for these entities for the 13 weeks ended April 1, 2023 and April 2, 2022 have been reflected as discontinued operations in the consolidated statements of ~~October~~operations and comprehensive income (loss) and consist of the following:


	13 weeks ended
	April 1, 2023			April 2, 2022
Revenues	$	3,795		$	9,324
Cost of revenues		3,992			7,471
Gross profit		(197	)		1,853
Operating expenses from discontinued operations:
Selling, general and administrative expenses	$	(14,355	)	$	2,263
Total operating expenses from discontinued operations		(14,355	)		2,263
Operating loss from discontinued operations		14,158			(410	)
Other income (expense) from discontinued operations
Interest expense, net		(181	)		(190	)
Loss on litigation settlement					(115	)
Other expense, net		(1	)		(690	)
Total other income (loss), net		(182	)		(995	)
Income (loss) before provision for income taxes from discontinued operations		13,976			(1,405	)
Income tax provision		3,229			3
Net income (loss) from discontinued operations	$	10,747		$	(1,408	)

In accordance with the provisions of ASC 205-20, the Company has separately reported the cash flow activity of the discontinued operations in the consolidated statements of cash flows. The cash flow activity from discontinued operations for the 13 weeks ended April 1, ~~2022. At times, balances may exceed federally insured limits.~~2023 and April 2, 2022 have been reflected as discontinued operations in the consolidated statements of cash flows and consist of the following:


	13 weeks ended
	April 1, 2023			April 2, 2022
DISCONTINUED OPERATING ACTIVITIES:
Net income (loss) from discontinued operations		10,747			(1,408	)
Depreciation and amortization		96			133
Amortization of debt issuance costs		11			3
Amortization of right-of-use assets		53			(16	)
Change in deferred taxes		3,229			—
Gain on sale of ARCA, net of cash		(15,967	)		—
Changes in assets and liabilities:
Accounts receivable		2,932			(740	)
Inventories		299			(40	)
Prepaid expenses and other current assets		55			19
Accounts payable and accrued expenses		866			1,802
Other assets		(1	)		40
Net cash provided by (used in) operating activities from discontinued operations	$	2,320		$	(207	)
DISCONTINUED INVESTING ACTIVITIES:
Purchases of property and equipment		(123	)		(127	)
Purchase of intangible assets		(33	)		—
Net cash used in investing activities from discontinued operations	$	(156	)	$	(127	)
DISCONTINUED FINANCING ACTIVITIES:
Proceeds from note payable		5,162			—
Payment on related party note		(38	)		—
Proceeds from issuance of short term notes payable		(7,291	)		—
Payments on notes payable		(45	)		(63	)
Net cash used in financing activities from discontinued operations	$	(2,212	)	$	(63	)
Effect of changes in exchange rate on cash and cash equivalents		(5	)		(41	)
DECREASE IN CASH AND CASH EQUIVALENTS		(53	)		(438	)
CASH AND CASH EQUIVALENTS, beginning of period		53			704
CASH AND CASH EQUIVALENTS, end of period	$	—		$	266

Note 3:4: Trade and other receivables

The Company’s trade and other receivables as of ~~October~~April 1, ~~2022~~2023 and ~~January 1,~~December 31, 2022, respectively, were as follows (in $000’s):

October 1,
2022

January 1,
2022

Trade receivables, net

$
6,315

$
6,105

Factored accounts receivable

—

(2,194
)
Prestige Capital reserve receivable

—

172

Other receivables

519

137

Trade and other receivables, net

$
6,834

$
4,220

Trade accounts receivable

$
4,313

$
4,449

Un–billed trade receivables

2,002

1,656

Total trade receivables, net

$
6,315

$
6,105


	April 1, 2023		December 31, 2022
Trade and other receivables, net, from discontinued operations	$	—	$	7,816
Other receivables		15		106
Trade and other receivables, net	$	15	$	7,922

~~Note 4: Inventory~~

Appliances held for sale are stated at the lower of cost, determined on a specific identification basis, or net realizable value. Inventory raw material – chips, are stated at the lower of average cost or net realizable value. ~~Total inventory consists of the following as of October 1, 2022 and January 1, 2022 (in $000’s):~~

October 1,
2022

January 1,
2022

Appliances held for resale

$
415

$
1,104

Inventory – raw material – chips

—

105

Total inventory

$
415

$
1,209

The Company provides estimated provisions for the obsolescence of inventories, 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. The Company reviews 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. As of October 1, 2022 and January 1, 2022, the Company has recorded no ~~inventory reserve.~~

Note 5: Prepaids and other current assets

Prepaids and other current assets as of ~~October~~April 1, ~~2022~~2023 and ~~January 1,~~December 31, 2022 consist of the following (in $000’s):


	October 1, 2022		January 1, 2022		April 1, 2023		December 31, 2022
Prepaid insurance	$	567	$	493	$	87	$	364
Prepaid rent		—		180
Prepaid other		681		750		182		30
Prepaid expenses from discontinued operations						—		377
Total prepaid expenses and other current assets	$	1,248	$	1,423	$	269	$	771

Note 6: ~~Notes~~Note receivable

~~ApplianceSmart~~

On December 30, 2017, the Company sold its retail appliance segment, ApplianceSmart, Inc. (“ApplianceSmart”) to ApplianceSmart Holdings LLC (the “Purchaser”), a wholly owned subsidiary of Live Ventures Incorporated, pursuant to a Stock Purchase Agreement (the “Agreement”). Pursuant to the Agreement, the Purchaser purchased from the Company all of the issued and outstanding shares of capital stock of ApplianceSmart in exchange for $~~6.5~~ ~~million. On April 25, 2018, the Purchaser delivered to the Company a promissory note (the “ApplianceSmart Note”) in the original principal amount of approximately $3.9~~ ~~million.~~

On December 9, 2019, ApplianceSmart 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. Consequently, the Company recorded an impairment charge of approximately $~~3.0~~ ~~million for the amount owed by ApplianceSmart to the Company as of December 28, 2019.~~

On October 13, 2021, a hearing was held to consider approval of a disclosure statement filed by ApplianceSmart in conjunction with its bankruptcy proceedings. On December 14, 2021, a hearing was held to confirm ApplianceSmart’s plan for reorganization (the “Plan”). On January 10, 2022, ApplianceSmart paid $~~25,000~~ ~~to JanOne in settlement of its debt, as provided for in the confirmed Plan, and the ApplianceSmart~~SPYR Note was reversed. A final decree was issued by the court on February 28, 2022, upon the full satisfaction of the Plan, at which time ApplianceSmart emerged from Chapter 11. The outstanding balance of the ApplianceSmart Note at October 1, 2022 and January 1, 2022 was ~~zero~~ ~~and approximately $3.0~~ ~~million, respectively, exclusive of the impairment charge.~~

~~GeoTraq~~

On May 24, 2022, the Company entered into an Asset Purchase Agreement with SPYR Technologies Inc. (“SPYR”), pursuant to which the Company sold to SPYR substantially all of the assets and none of the specified liabilities of ~~GeoTraq, as discussed in Note 24 below.~~GeoTraq. In connection with the Purchase Agreement, SPYR delivered to the Company a five-year Promissory Note in the initial principal amount of $12.6 million. The Promissory Note bears simple interest at the rate of 8% per annum, provides quarterly interest payments due on the first day of each calendar quarter, and may be prepaid at any time without penalty. Interest payments may be remitted in either restricted shares of common stock of SPYR, or in cash. The Promissory Note matures on May 24, 2027.

As of ~~October~~April 1, ~~2022, no~~2023, the Company has accrued receivables of approximately $249,000 in interest payments had been received in connection with the Asset Purchase Agreement. SPYR is reviewing options to issue shares permitting it to remain in compliance with the Asset Purchase Agreement and not violate rules as set forth by the SEC. Any future shares of SPYR stock issuedincome related to the ~~Company will be restricted.~~Promissory Note.

In connection with the asset sale, the Company engaged a third-party valuation firm to assess the fair value of the consideration received. Based on the valuation, the Promissory Note (“Note”) was initially valued at approximately $11.3 ~~million.~~million, but was revised to be approximately $9.5 million upon review of the original valuation by the Company. The amount of the revised discount amount, or approximately $~~1.3~~3.2 million, ~~has been~~was recorded as an offset to the principal amount of the ~~Promissory~~ Note, and will be accreted ratably to interest income over the term of the Note. No charges against income relating to the value of the Note have been recorded for the 13 weeks ended April 1, 2023. The Company will continue to review SPYR's financial trends going further to determine whether additional charges against income should occur.

The balance appearing on the Company's ~~unaudited Condensed Consolidated Balance Sheets~~consolidated balance sheets represents the principal balance of the Promissory Note, net of the discount balance. During the 13 weeks ended April 1, 2023 and ~~39 weeks ended October 1,~~April 2, 2022, approximately $~~68,000~~201,000 and $~~89,000~~0.00, respectively, of the discount was recorded as interest income. As of ~~October~~April 1, ~~2022,~~2023, the net ~~principal balance on~~carrying value of the Note was approximately $~~11.3~~9.2 million.

VM7 Note

On March 9, 2023, the Company entered into a Stock Purchase Agreement with VM7 Corporation, a Delaware corporation, under which the Buyer agreed to acquire all of the outstanding equity interests of (a) ARCA Recycling, Inc., a California corporation, (b) Customer Connexx LLC, a Nevada limited liability company, and (c) ARCA Canada Inc., a corporation organized under the laws of Ontario, Canada (“ARCA Canada”; and, together with ARCA and Connexx, the “Subsidiaries”). The principal of the Buyer is Virland A. Johnson, our Chief Financial Officer. The sale of all of the outstanding equity interests of the Subsidiaries to the Buyer under the Purchase Agreement was consummated simultaneously with the execution of the Purchase Agreement. The Company's Board of Directors unanimously approved the Purchase Agreement and the Disposition Transaction. The Stock Purchase Agreement is retroactive to March 1, 2023 (see Note 18).

The minimum consideration to be received by the Company from the Disposition Transaction, as discussed above, is $1.6 million per year for 15 years, or $24.0 million in the aggregate, plus cash of $3,000 paid at close. In connection with the Disposition Transaction, the Company used a discount rate of 20% when it valued the aggregate minimum consideration. Management determined that discount rate appropriately addresses any risk that the minimum payments would not be received. The valuation, factoring in that discount rate, yielded a present value of approximately $6.0 million, which, in addition to the $3,000 paid at close, comprises the approximately $6.0 million of net consideration. The amount of the revised discount amount, or approximately $18.0 million, was recorded as an offset to the principal amount of the Note, and will be accreted ratably to interest income over the term of the Note. As of April 1, 2023, the net carrying value of the note was approximately $6.1 million.

~~Note 7: Property and Equipment~~

~~Property and equipment as of October 1, 2022 and January 1, 2022 consist of the following (in $000’s):~~

Useful Life
(Years)

October 1,
2022

January 1,
2022

Buildings and improvements

3-30

$
85

$
80

Equipment

3-15

3,664

3,638

Projects under construction

1,556

851

Property and equipment

5,305

4,569

Less accumulated depreciation and amortization

(2,649
)

(2,456
)
Total property and equipment, net

$
2,656

$
2,113

~~Depreciation expense was approximately $35,000~~ ~~and $53,000~~ ~~for the 13 weeks ended October 1, 2022 and October 2, 2021, respectively, and $193,000~~ ~~and $128,000~~ ~~for the 39 weeks ended October 1, 2022 and October 2, 2021, respectively.~~

Note 8:7: Intangible Assets

Intangible assets as of ~~October~~April 1, ~~2022~~2023 and ~~January 1,~~December 31, 2022 consist of the following (in $000’s):


	October 1, 2022			January 1, 2022			April 1, 2023			December 31, 2022
Patent and domains	$	23		$	23		$	4		$	4
Soin intangibles *							$	19,293		$	19,293
Computer software		4,773			4,559			3,563			3,563
Intangible assets from discontinued operations								—			735
Intangible assets		4,796			4,582			22,860			23,595
Less accumulated amortization		(4,468	)		(4,314	)		(3,926	)		(3,563	)
Total intangible assets	$	328		$	268		$	18,934		$	20,032

*The Soin intangibles acquired by the Company consist of the following:

Three pending patents related to the methods of using low-dose Naltrexone to treat chronic pain;

Final formula for Naltrexone; and

Orphan drug designation as approved by the FDA.

Intangible amortization expense from continuing operations was ~~approximately~~ $~~42,000~~363,000 and $~~998,000~~0 for the 13 weeks ended ~~October~~April 1, ~~2022~~2023 and ~~October~~April 2, ~~2021, respectively, and approximately $154,000~~ ~~and $3.0~~ ~~million for the 39 weeks ended October 1, 2022 and October 2, 2021, respectively.~~2022.

~~Note 9: Marketable Securities~~

~~Marketable securities as of October 1, 2022 and January 1, 2022 consist of the following (in $000’s, except shares):~~

Shares

Amount

Beginning balance, January 1, 2022

—

$
—

Securities received

30,000,000

946

Mark-to-market

—

(646
)
Ending balance, October 1, 2022

30,000,000

$
300

Marketable securities reflect shares of SPYR stock received by the Company in connection with the sale of GeoTraq (see Note 24). Shares held are marked to fair market value as of each balance sheet date, with the resulting change recorded as an unrealized gain or loss. Unrealized loss recorded for the 13 weeks and 39 weeks ended October 1, 2022 was approximately $~~270,000~~ ~~and $646,000, respectively.~~

Note ~~10:~~8: Deposits and other assets

Deposits and other assets as of ~~October~~April 1, ~~2022~~2023 and ~~January 1,~~December 31, 2022 consist of the following (in $000’s):


	October 1, 2022		January 1, 2022		April 1, 2023		December 31, 2022
Deposits	$	1,547	$	1,513
Deposits and other assets from discontinued operations					$	—	$	249
Other		30		43		16		18
Total deposits and other assets	$	1,577	$	1,556	$	16	$	267

~~Deposits are for a refundable “deposit in lieu of bond”, in the amount of $1.3~~ ~~million, relating the Skybridge matter (see Note 15) and for refundable security deposits with landlords from which the Company leases property.~~

~~Note 11: Leases~~

The Company accounts 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 October 1, 2022 (in $000’s):~~

Twelve months ended,

2023

$
594

2024

1,975

2025

1,681

2026

1,158

2027

981

Thereafter

445

Total

6,834

Less Interest

(944
)
Present Value of Payments

$
5,890

~~During the 39 weeks ended October 1, 2022 and October 2, 2021, approximately $1.3~~ ~~million and approximately $1.1~~ ~~million, respectively, were included in operating cash flow for amounts paid for operating leases.~~

~~Additionally, the Company obtained right-of-use assets in exchange for lease liabilities of approximately $1.9~~ ~~million upon commencement of new and renewed operating leases during the 39 weeks ended October 1, 2022. The weighted average lease term for operating leases is~~ ~~3.75~~ ~~years and the weighted average discount rate is~~ ~~8.09~~%.

Note ~~12:~~9: Accrued Liabilities

Accrued liabilities as of ~~October~~April 1, ~~2022~~2023 and ~~January 1,~~December 31, 2022 consist of the following (in $000’s):

October 1,
2022

January 1,
2022

Compensation and benefits

$
948

$
731

Contract liability

678

17

Accrued incentive and rebate checks

1,986

1,427

Accrued transportation costs*

—

904

Accrued guarantees

130

767

Accrued purchase orders

—

23

Accrued taxes

507

543

Accrued litigation settlement

680

680

Other

646

140

Total accrued expenses

$
5,575

$
5,232

~~During the 39 weeks ended October 1, 2022, the Company reversed approximately $637,000~~ ~~in contingent liabilities relating to guarantees of ApplianceSmart leases that no longer exist as a result of ApplianceSmart’s emergence from bankruptcy (see Note 6).~~ No ~~such transactions occurred during the 39 weeks ended October 2, 2021.~~

*Accrued transportation costs are related to delayed billing from certain vendors.

~~Contract liabilities rollforward~~

~~The following table summarizes the contract liability activity for the 39 weeks ended October 1, 2022 (in $000’s):~~

Beginning balance, January 1, 2022

$
17

Accrued

1,906

Settled

(1,245
)
Ending balance, October 1, 2022

$
678


	April 1, 2023		December 31, 2022
Compensation and benefits	$	101	$	81
Accrued guarantees		130		130
Accrued taxes		47		5
Accrued litigation settlement		340		510
Other		126		280
Accrued expenses from discontinued operations		—		3,278
Total accrued expenses	$	744	$	4,284

Note ~~13: Accrued Liability – California Sales Tax~~10: Income Taxes

The Company ~~operates in fourteen states in the U.S. and in various provinces in Canada. From time to time, the Company is subject to sales and use~~recorded an income tax ~~audits that could result in additional taxes, penalties and interest owed to various taxing authorities.~~

The California Department of Tax and Fee Administration (formerly known as the California Board of Equalization) (“CDTFA”) conducted a sales and use tax examination covering ARCA Recycling’s Californiabenefit from continuing operations 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 CDTFA indicating they were 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 CDTFA’s Managed Audit Program. The period covered under this program included the years 2011, 2012, and 2013 and extended through the nine-month period ended September 30, 2014.

~~On April 13, 2017 the Company received the formal CDTFA assessment for sales tax for tax years 2011, 2012, and 2013 in the amount~~ of approximately $~~4.1~~227,000 ~~million plus applicable interest of~~and $~~500,000~~0 ~~related to~~for the ~~appliance replacement programs that the Company administered on behalf~~13 weeks ended April 1, 2023 and April 2, 2022, respectively, and an income tax expense from discontinued operations of its customers on which it did not assess, collect or remit sales tax. The Company has appealed this assessment to the CDTFA Appeals Bureau. The appeal remains in process. Interest continues to accrue until the matter is settled.

~~As of October 1, 2022, and January 1, 2022, the Company’s accrued liability for California sales tax was~~ approximately $~~6.2~~3.2 million and $~~6.0~~3,000 ~~million~~for the 13 weeks ended April 1, 2023 and April 2, 2022, respectively.

~~Note 14: Income Taxes~~

The Company’s overall effective tax rate was ~~0.23~~22.9% and 0.2% for the 3913 weeks ended ~~October~~April 1, 2023 and April 2, 2022, ~~and a tax provision expense of approximately $23,000~~ ~~was recorded against pre-provision income of approximately $9.8~~ ~~million. The Company's overall effective tax rate was~~ ~~4.5% for the 39 weeks ended October 2, 2021, and it had a tax provision expense of approximately $236,000~~ ~~against a pre-provision loss of approximately $5.2~~ ~~million.~~respectively. The effective tax rates and related provisional tax amounts vary from the U.S. federal statutory rate primarily due to state taxes ~~foreign taxes, share-based compensation, valuation allowance,~~ and certain non-deductible expenses.

The Company regularly evaluates both positive and negative evidence related to retaining a valuation allowance against certain deferred tax assets. The realization of deferred tax assets is dependent upon sufficient future taxable income during the periods when deductible temporary differences and carryforwards are expected to be available to reduce taxable income. The Company has concluded, based on the weight of evidence, that a valuation allowance should be maintained against deferred tax assets that are not expected to be utilized in the near future. The Company continues to recognize a full valuation allowance against its Canadian operations.

Note ~~15: Long-Term~~11: Short Term Debt

~~Long-term~~Short term debt and other financing obligations as of ~~October~~April 1, ~~2022~~2023 and ~~January 1,~~December 31, 2022, consist of the following (in $000’s):

October 1,
2022

January 1,
2022

AFCO Finance

$
406

$
288

KLC Financial

1,826

1,654

Gulf Coast Bank and Trust Company

3,372

—

Total debt

5,604

1,942

Less unamortized debt issuance costs

(116
)

(74
)
Net amount

5,488

1,868

Less current portion

(4,063
)

(550
)
Total long-term debt

$
1,425

$
1,318


	April 1, 2023		December 31, 2022
AFCO Finance	$	69	$	274
Total short-term debt	$	69	$	274

AFCO Finance

The Company has entered into a financing agreement with AFCO Credit Corporation (“AFCO”) purchased through Marsh Insurance on an annual basis to fund the annual premiums on insurance policies due July 1 of each year. These policies relate 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 in July 2022 was approximately $~~579,000~~516,000 with an interest rate of ranging from approximately 6.0%-~~7.0~~% over the period. An initial down payment of approximately $129,000 was made on July 21, 2022 with additional monthly payments of approximately $59,000, escalating to approximately $69,000 over the term, being made beginning August 1, 2022 and ending on April 1, 2023. ~~The outstanding principal due AFCO at October 1, 2022 and January 1, 2022 was approximately $406,000~~ ~~and $288,000, respectively.~~

~~KLC Financial~~

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 agreed to loan ARCA Recycling approximately $~~1.8~~ ~~million secured by existing equipment and new equipment to be purchased by ARCA Recycling.~~ ~~ARCA Recycling will make monthly payments of $31,000, inclusive of principal and interest, over a period of five years, at which time it is intended that the Initial Loan will be repaid in full. The Initial Loan bears interest at~~ ~~7.59~~% per annum. KLC will have a first priority security interest over, among other things, all equipment identified in the schedules. The Initial Loan is personally 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. As of October 1, 2022 and January 1, 2022, the outstanding balance due under this agreement was approximately $~~1.8~~ ~~million and $1.7~~ ~~million, respectively.~~

~~Gulf Coast Bank and Trust Company~~

On September 26, 2022, ARCA Recycling, Inc. entered into a series of agreements with Gulf Coast to refinance its existing credit facility with Prestige Capital. The principal limit of the refinanced facility is $~~7.0~~ ~~million, and the borrowing base is the lesser of the principal limit or the sum of the following:~~

85~~% of eligible receivables, plus~~

~~Lesser of~~ 50~~% of eligible unbilled receivables or $750,000, plus~~

~~Lesser of~~ 50~~% of eligible Whirlpool only net inventory or $1.0~~ ~~million, plus~~

~~Lesser of~~ 80~~% of eligible capital expenditures (“CAPEX”) or $2.0~~ ~~million, less~~

~~Reserve of $400,000, less~~

~~Additional reserves as deemed necessary by the Lender~~

~~Advances under the new credit facility will bear interest at the prime rate, as published daily in the Wall Street Journal, plus~~ ~~3.25%, but at no time will be less than~~ ~~8.75%. The refinancing of the Borrower’s existing credit facility improves the availability and liquidity of funds and provides flexibility to borrow against expanded asset categories.~~

~~The facility matures on~~ ~~September 25, 2024~~; and, the facility is automatically extended by succeeding periods of the same duration, unless terminated earlier in accordance with its terms. If the agreement is terminated and the obligation is repaid before the current maturity date, for any reason, the Borrower shall be assessed an early termination fee. The early termination fee is determined by multiplying the minimum amount in effect at the time of termination by the number of calendar months between the termination date and the then-current maturity date. However, no early termination fee shall be assessed if the Borrower repays all obligations after the first anniversary of the agreement and before the then-current maturity date; and repays all obligations with funds borrowed from the Lender. Advances under the new credit facility are secured by a pledge of substantially all of the assets of the Borrower. The Company is a guarantor of the facility. As of October 1, 2022 and January 1, 2022, the outstanding balance due under this agreement was approximately $~~3.4~~ ~~million and $~~0~~, respectively.~~

1815

Note ~~16:~~12: Commitments and Contingencies

Litigation

SEC Complaint

On August 2, 2021, the U.S. Securities and Exchange Commission (“SEC”) filed a civil complaint (the “SEC Complaint”) in the United States District Court for the District of Nevada naming the Company and one of its executive officers, Virland Johnson, the Company's Chief Financial Officer, as defendants (collectively, the “Defendants”).

The SEC Complaint alleges financial, disclosure and reporting violations against the Company and the executive officer under Section 10(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 10b-5. The SEC Complaint also alleges various claims against the executive officer under Sections 13(a), 13(b)(2)(A), 13(b)(2)(B) and 13(b)(5) of the Exchange Act and Rules 12b-20, 13a-1, 13a-13, 13a-14, 13b2-1, and 13b2-2. The SEC seeks permanent injunctions and civil penalties against the Defendants, and an officer-and-director bar against the executive officer. The foregoing is only a general summary of the SEC Complaint, which may be accessed on the SEC’s website at https://www.sec.gov/litigation/litreleases/2021/lr25155.htm.

The Company continues to assert that the SEC’s pursuit of this matter will not result in any benefit to investors and instead will only serve as a distraction from its core business. On October 1, 2021, the Company, filed a motion with the court to dismiss the complaint. The SEC filed its response opposing the motions on November 1, ~~2021. The Defendants filed their reply to the SEC’s opposition on November 15, 2021. On~~2021.On September 7, 2022, the motions to dismiss were denied by the court. Pursuant to the automatic stay of proceedings under the Private Securities Litigation Reform Act, all discovery was stayed pending the motions to dismiss and continues to be stayed pending the June 23, 2023 mediation to which all of the parties have agreed.

The Defendants strongly dispute and deny the allegations and are vigorously defending themselves against the claims.

Skybridge

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~~sought damages in the millions of dollars as a result of alleged overcharging by SA and lost client contracts. On January 25, 2017, SA served a counterclaim for unpaid invoices in the amount of approximately $460,000 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 approximately $614,000, 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 assessed damages against the Company in the amount of approximately $715,000 plus interest, ~~as well as attorney~~fees, and costs and attorneys’ fees of ~~approximately~~ $475,000. ~~The~~In subsequent proceedings, the Appeals Court affirmed the District Court judgment. Of the total amount awarded to SA, less the funds that the Company ~~filed an appeal~~had previously deposited with the District Court, SA remains entitled to approximately $382,000of ~~Appeals. On August 29, 2022, the Court of Appeals affirmed the decision~~statutory interest, which obligation has been assumed by the ~~District Court. The Company is considering an appeal to~~Buyer in connection with the ~~Minnesota Supreme Court.~~

~~AMTIM Capital~~

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 AMTIMARCA 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 $Subsidiaries Disposition transaction (see Note 18).~~2.0~~ million. 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 it will continue to defend its position relative to this lawsuit. Trial commenced in February 2022; but, as of the date of this Quarterly Report, the court has not rendered a judgment.

GeoTraq

On or about April 9, 2021, GeoTraq, Gregg Sullivan, Tony Isaac, and ~~the Company,~~we, among others, resolved all of their claims that related to, among other items, the Company's acquisition of GeoTraq in August 2017, all post-acquisition activities, and Mr. Sullivan’s post-acquisition employment relationship with GeoTraq (all of such claims, the “GeoTraq Matters”). The resolution was effectuated through the parties’ execution and delivery of a Settlement Agreement and Mutual Agreement of Claims (the “GeoTraq Settlement Agreement”).

Under the terms of the Settlement Agreement, the Company, on its own behalf and on behalf of GeoTraq and Mr. Isaac, agreed to tender to Mr. Sullivan an aggregate of $1.95 million (the “GeoTraq Settlement Consideration”) in the following manner: (i) $250,000, which was tendered in cash on or about the date of the Settlement Agreement and (ii) up to 10 quarterly installments of not less than $170,000 each that commenced on June 1, 2021, and shall continue not less frequently than every three months thereafter (the “GeoTraq Installments”). The Company may tender the GeoTraq Installments in cash or in the equivalent value of shares of its common stock (the value of the shares to be determined by a formula set forth in the Settlement Agreement), in either case at the Company's discretion. The Company may also prepay one or more GeoTraq Installments in full or in part at any time or from time to time either in cash or in shares of its common stock (a “GeoTraq Prepayment”). If the Company elects to prepay one or more GeoTraq Installments with shares of its common stock, Mr. Sullivan reserves the right not to consent to a tender thereof in excess of 50% of the value of that specific GeoTraq Prepayment; however, Mr. Sullivan is restricted in the reasons for which he can refuse to provide his written consent. The number of shares of ~~our~~the Company's common stock to be issued upon any GeoTraq Prepayment is determined by a different formula than the one to be utilized for a GeoTraq Installment. On March 17, 2023, the Company issued

103,707 shares of the Company's common stock as payment for its quarterly installment. As of April 1, 2023, two GeoTraq installments remain to be paid: June 30, 2023 and September 30, 2023.

Pursuant to the terms of the Settlement Agreement, Mr. Sullivan provided the Company with his proxy to vote his remaining shares of its Series A-1 Convertible Preferred Stock that the Company had issued to him in connection with its acquisition of GeoTraq in 2017, as well as his proxy for the shares of the Company's common stock into which those shares of preferred stock may be converted. The Company may utilize the proxy in the context of an annual meeting of its stockholders, a special meeting of its stockholders, and a written consent of its stockholders. Subject to the above-described contingent GeoTraq Prepayment tender 50% restriction, Mr. Sullivan provided the Company with the sole ability to determine the time and amount of each conversion of those shares of preferred stock.

The parties to the Settlement Agreement released and forever discharged one another from any and all known and unknown claims that were asserted or could have been asserted arising out of the GeoTraq Litigation Matters. ~~As of October 1, 2022, the~~The accrued liability for payments due to Mr. Sullivan ~~under the settlement agreement was~~is $~~680,000~~340,000. and $510,000 as of April 1, 2023 and December 31, 2022, respectively.

Sieggreen

On March 6, 2023, Sieggreen, Individually and On Behalf of All Others Similarly Situated, Plaintiff, v. Live Ventures Incorporated, Jon Isaac, and Virland A. Johnson, Defendants, the Company was added as a defendant on March 6, 2023, and was served on March 23, 2023. Plaintiff has alleged causes of action against the Company for (i) violation of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder and (ii) violation of Section 10(b) of the Securities Exchange Act of 1934 and Rules

10b-5(a) and 10b-5(c) promulgated thereunder. The Company has not filed a responsive pleading as of the date of these financial statements and strongly disputes and denies all of the allegations contained therein and will vigorously defend itself against the claims.

Main/270

The Company is a defendant in an action filed on April 11, 2022, in the U.S. District Court Southern District of Ohio, Eastern Division, styled, Trustees Main/270, LLC, Plaintiff, vs ApplianceSmart, Inc. and JANONE, Inc., Defendant, Case no.: 2:22-cv-01938-ALM-EPD. The Company was a guarantor of the lease between the Plaintiff and ApplianceSmart, Inc. Plaintiff alleged a cause of action against the Company in respect of the guaranty and seeks approximately $90,000 therefor. Plaintiff also seeks approximately $1,420,000 against ApplianceSmart and the Company on a joint and several basis. The Company does not believe that it is obligated to Plaintiff in that amount and the parties continue to negotiate a potential settlement.

Westerville Square

In an attempt to recover payments due under a lease, in 2019, Westerville Square, Inc., as the landlord, initiated a civil action against the Company, styled Westerville Square, Inc. v. Appliance Recycling Centers Of America, Inc., et al., in the Court of Common Pleas of Franklin County, Ohio, Case No. 19 CV 8627. The case was stayed during the bankruptcy proceedings of ApplianceSmart, Inc., and was reinstated on June 7, 2021. The landlord is currently seeking $120,000, which amount is disputed by the Company. The parties are in the process of attempting to settle the matter.

Other Commitments

~~As previously disclosed and as discussed, on~~On December 30, 2017, the Company disposed of its retail appliance segment and sold ApplianceSmart to ~~the Purchaser (see Note 6).~~Live Ventures Incorporated, a related party. In connection with that sale, as of December 28, 2019, the Company accrued an aggregate amount of future real property lease payments of approximately $767,000 which represented amounts guaranteed or which may have been owed under certain lease agreements to three third party landlords in which the Company either remained the counterparty, was a guarantor, or had agreed to remain contractually liable under the lease (“ApplianceSmart Leases”). A final decree was issued by the court on February 28, 2022, upon the full satisfaction of the Plan, at which time ApplianceSmart emerged from Chapter 11. During the ~~39 weeks~~year ended ~~October 1,~~December 31, 2022, the Company reversed approximately $637,000 of the accrual, as the Company is no longer liable for two of these guarantees upon ~~ApplianceSmart's~~ApplianceSmart’s emergence from ~~bankruptcy (see Note 6).~~bankruptcy. As of ~~October~~April 1, ~~2022,~~2023, a balance of approximately $130,000 remains as an accrued liability due to an ongoing dispute concerning one of the leases.

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 ~~October~~April 1, ~~2022.~~2023.

Note ~~17:~~13: Stockholders’ Equity

Common Stock: Our Articles of Incorporation authorize 200,000,000 shares of common stock that may be issued from time to time having such rights, powers, preferences and designations as the Board of Directors may determine. During the 3913 weeks ended ~~October~~April 1, ~~2022~~2023 and ~~October~~April 2, ~~2021,~~2022, no shares of common stock were issued in lieu of professional services.

~~As of October 1, 2022, and January 1, 2022, there were~~ ~~3,150,230, and~~ ~~2,827,410~~ ~~shares, respectively, of common stock issued and outstanding.~~

~~Equity Offering~~

On ~~January 29, 2021,~~March 22, 2023, 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~~361,000 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~~1.17. The ~~Offering~~offering closed on ~~February 2, 2021 with~~March 24, 2023. The aggregate gross proceeds tofor the ~~Company~~sale of the shares of Common Stock were approximately $~~6.0~~422,000 ~~million~~, before deducting the placement agent fees and ~~other offering~~related expenses. The Company ~~is utilizing~~intends to use the net proceeds for working capital and general ~~working capital.~~corporate purposes.

~~The Purchase Agreement contains customary representations, warranties~~As of April 1, 2023, and ~~agreements by the Company~~December 31, 2022, there were 3,614,937 and ~~the Purchasers~~2,827,410 shares, respectively, of common stock issued and ~~customary indemnification rights and obligations of the parties.~~outstanding.

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 was paid a cash fee of
7~~% of the gross proceeds paid to the Company for the securities or $420,000, and reimbursement for accountable legal expenses incurred by it in connection with the Offering of $35,000~~.

The shares of Common Stock sold in the Offering were offered and sold 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 incorporated by reference in 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 subsidiaries 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 filed on January 29, 2021 and each is incorporated by reference herein.

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. The 2016 Plan provides for the issuance of up to 800,000 shares of common stock pursuant to awards granted under the 2016 Plan. The vesting period is determined by the Board of Directors at the time of the stock option grant. As of ~~October~~April 1, 2023, and December 31, 2022, 100,000and ~~January 1, 2022,~~ 90,000 options were outstanding under the 2016 ~~Plan.~~Plan, respectively.

The Company's 2011 Plan, which has expired, 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 units or performance shares. As of ~~October~~April 1, ~~2022,~~2023, and ~~January 1,~~December 31, 2022, ~~27,500~~20,000 ~~options~~ were outstanding under the 2011 Plan. No additional awards will be granted under the 2011 Plan.

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model. There were No10,000 options ~~were~~ granted during the 13 weeks ~~and 39 weeks~~ ended ~~October~~April 1, ~~2022.~~2023.

Additional information relating to all outstanding options is as follows:

Weighted
Average

Aggregate

Weighted
Average
Remaining

Options
Outstanding

Exercise
Price

Intrinsic
Value

Contractual
Life

Outstanding at January 2, 2021

113,900

$
11.97

$
78

7.0

Granted

38,000

8.16

Cancelled/expired

(28,400
)

9.71

Exercised

(6,000
)

4.32

Outstanding at January 1, 2022

117,500

$
7.16

$
21

7.0

Granted

—

—

Cancelled/expired/forfeited

—

—

Balance at October 1, 2022

117,500

$
7.16

$
—

6.3

Exercisable at October 1, 2022

117,500

$
7.16

$
—

6.3


				Weighted Average		Aggregate		Weighted Average Remaining
	Options Outstanding			Exercise Price		Intrinsic Value		Contractual Life
Outstanding at January 1, 2022		117,500		$	7.16	$	21		7.0
Cancelled/expired		(7,500	)		—
Outstanding at December 31, 2022		110,000		$	6.27	$	—		6.5
Granted		10,000			1.53
Balance at April 1, 2023		120,000		$	5.87	$	—		6.5
Exercisable at April 1, 2023		115,000		$	6.06	$	—		6.4

The Company recognized approximately $08,000 and $~~94,000~~4,000 of share-based compensation expense for the 13 weeks ended ~~October~~April 1, ~~2022~~2023 and ~~October~~April 2, ~~2021, respectively, and approximately $4,000~~ ~~and $274,000~~ ~~of share-based compensation expense for the 39 weeks ended October 1,~~ 2022, ~~and October 2, 2021,~~ respectively.

As of ~~October~~April 1, ~~2022,~~2023, the Company has noapproximately $5,400 of unrecognized share-based compensation expense associated with stock option ~~awards.~~awards which the company expects to recognize as share-based compensation expense through Q3 2023.

Series A-1 Preferred Stock

Shares of Series A-1 Preferred Stock are convertible into the Company’s common shares at a ratio of 1:20. ~~During~~No shares were converted during the 3913 weeks ended ~~October~~April 1, ~~2022,~~ ~~16,141~~ ~~shares of Series A-1 Preferred Stock were converted into~~ ~~322,820~~ ~~shares of the Company's common stock.~~2023. As of ~~October~~April 1, ~~2022~~2023 and ~~January 1,~~December 31, 2022, there were 222,588 ~~and~~ ~~238,729~~shares ~~respectively,~~ of Series A-1 Preferred Stock outstanding.

Note ~~18: Loss~~14: Mezzanine Equity

Series S Preferred Stock

On December 28, 2022 the Company acquired Soin Therapeutics by way of merger. In connection with this transaction, with a potential value of up to $30 million, the Company tendered 100,000 shares of the Company's Series S Convertible Preferred Stock. Shares of Series S Convertible Preferred Stock are convertible into the Company’s common shares at a ratio of 1:1. As of April 1, 2023 and December 31, 2022, there were 100,000 shares of Series S Convertible Preferred Stock outstanding.

Note 15: Earnings Per Share

Net ~~loss~~income (loss) per share is calculated using the weighted average number of shares of common stock outstanding during the applicable 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 ~~loss~~income (loss) per share is computed using the weighted average number of common shares outstanding and if dilutive, potential common shares outstanding during the period. Potential common shares consist of the additional common shares issuable in respect of restricted share awards, stock options and convertible preferred stock. ~~As discussed in Note 17 above,~~

~~16,141~~19

~~shares of Series A-1 Preferred Stock were converted into~~ ~~322,820~~ shares of the Company's common stock. For purposes of determining the weighted average common shares outstanding for the 13 weeks and 39 weeks ended October 1, 2022, respectively, these shares are considered to be outstanding for the entire period.

The following table presents the computation of basic and diluted net ~~loss~~income (loss) per share (in $000’s, except share and per–share data):

For the Thirteen Weeks Ended

For the Thirty-Nine Weeks Ended

October 1, 2022

October 2, 2021

October 1, 2022

October 2, 2021

Net income

$
(2,074
)

$
(968
)

$
9,824

$
(5,445
)
Basic

Basic income (loss) per share

$
(0.66
)

$
(0.34
)

$
3.12

$
(2.09
)
Weighted average common shares outstanding

3,150,230

2,827,410

3,150,230

2,601,827

Diluted

Diluted income (loss) per share

$
(0.66
)

$
(0.34
)

$
2.81

$
(2.09
)
Weighted average common shares outstanding

3,150,230

2,827,410

3,496,003

2,601,827


	For the Thirteen Weeks Ended
	April 1, 2023			April 2, 2022
Continuing Operations
Basic
Net income (loss) from continuing operations	$	(662	)	$	2,619
Weighted average common shares outstanding		3,199,061			2,827,410
Basic income (loss) per share from continuing operations	$	(0.21	)	$	0.93
Diluted
Net income (loss) from continuing operations	$	(662	)	$	2,619
Weighted average common shares outstanding		3,199,061			3,274,123
Diluted income (loss) per share from continuing operations	$	(0.21	)	$	0.80
Discontinued Operations
Basic
Net income (loss) from discontinued operations	$	10,747		$	(1,408	)
Weighted average common shares outstanding		3,199,061			2,827,410
Basic income (loss) per share from discontinued operations	$	3.36		$	(0.50	)
Diluted
Net income (loss) from discontinued operations	$	10,747		$	(1,408	)
Weighted average common shares outstanding		3,199,061			3,274,123
Diluted income (loss) per share from discontinued operations	$	3.36		$	(0.43	)
Total
Basic
Net income	$	10,085		$	1,211
Weighted average common shares outstanding		3,199,061			2,827,410
Basic income per share	$	3.15		$	0.43
Diluted
Net income	$	10,085		$	1,211
Weighted average common shares outstanding		3,199,061			3,274,123
Diluted income per share	$	3.15		$	0.37

Potentially dilutive securities totaling ~~117,500~~120,000 and ~~66,000~~116,500 were excluded from the calculation of diluted earnings per share for the 3913 weeks ended ~~October~~April 1, ~~2022~~2023 and ~~October~~April 2, ~~2021,~~2022, respectively, because the effects were anti-dilutive based on the application of the treasury stock method. Additionally, ~~205,299~~222,588 shares of Series A-1 Preferred Stock, convertible into approximately ~~4,105,979~~4.5 million of the Company’s common shares, and 100,000 shares of Series S Preferred Stock, convertible into 100,000 of the ~~Company’s common~~Company's commons shares, were excluded from the calculation of diluted earnings per share as, by agreement, these shares could not be converted as of ~~October~~April 1, ~~2022.~~2023.

2220

~~Note 19: Major Customers and Suppliers~~

~~For the 13 weeks ended October 1, 2022, one customer represented approximately~~ 14~~% of the Company’s total revenue. For the 13 weeks and 39 weeks ended October 2, 2021, one customer represented approximately~~ 13~~% of the Company's total revenue. For the 39 weeks ended October 1, 2022, four customers represented approximately~~ 33~~% of the Company’s total revenue. For the 39 weeks ended October 2, 2021, two customers represented approximately~~ 32~~% of the Company's total revenue~~

~~As of October 1, 2022, six customers represented five percent or more than of the Company's total trade receivables, and represented a combined~~ 78~~% of the Company’s total trade receivables. As of January 1, 2022, five customers represented five percent or more than of the Company's total trade receivables, and represented~~ 38~~% of the Company's trade receivables in aggregate.~~

During the 39 weeks ended October 1, 2022 and October 2, 2021, the Company purchased appliances for resale from five and four suppliers, respectively. The Company has secured, and is 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 the Company’s operations.

~~Note 20: Defined Contribution Plan~~

The Company has a defined contribution salary deferral plan covering substantially all employees under Section 401(k) of the Internal Revenue Code. The Company contributes an amount equal to 10 cents for each dollar contributed by each employee up to a maximum of 5~~% of each employee’s compensation. The Company recognized expense for contributions to the plans of approximately $9,000~~ ~~and $16,000~~ ~~for the 13 weeks ended October 1, 2022 and October 2, 2021, respectively, and approximately $25,000~~ ~~and $22,000~~ ~~for the 39 weeks ended October 1, 2022 and October 2, 2021, respectively.~~

Note ~~21:~~16: Segment Information

The Company operates ~~within targeted markets~~ through ~~three~~ ~~reportable segments~~its biotechnology segment for continuing ~~operations: biotechnology, recycling, and technology.~~operations. The biotechnology segment commenced operations in September 2019 and is focused on development of new and innovative solutions for ending the opioid epidemic ranging from digital technologies to educational advocacy. The recycling segment ~~includes~~included all fees charged and costs incurred for collecting, recycling and installing appliances for utilities and other customers. The recycling segment also ~~includes~~included byproduct revenue, which iswas primarily generated through the recycling of appliances. The technology segment designed wireless modules to connect devices to the Mobile Internet of Things (“IoT”) which ~~contain~~contained location-based service (“LBS”) capabilities and can interface to external sensors to allow them to communicate both sensor status and position information. The nature of products, services and customers for each segment 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. Operating loss represents revenues less cost of revenues and operating expenses, including certain allocated selling, general and administrative costs. There are no intersegment sales or transfers. As discussed above (see Note 3), the recycling and technology are being presented as discontinued operations for the 13 weeks ended April 1, 2023 and April 2, 2022.

The following tables present our segment information for the 13 weeks ended April 1, 2023 and ~~39 weeks ended October 1,~~April 2, 2022 ~~and October 2, 2021~~ (in $000's):

Thirteen Weeks Ended

Thirty-Nine Weeks Ended

October 1, 2022

October 2, 2021

October 1, 2022

October 2, 2021

Revenues

Biotechnology

$
—

$
—

$
—

$
—

Recycling

8,587

12,113

28,449

29,391

Technology

—

—

—

—

Total Revenues

$
8,587

$
12,113

$
28,449

$
29,391

Gross profit

Biotechnology

$
—

$
—

$
—

$
—

Recycling

1,034

3,081

4,536

6,245

Technology

—

—

—

—

Total Gross profit

$
1,034

$
3,081

$
4,536

$
6,245

Operating Income (loss)

Biotechnology

$
21

$
(182
)

$
(331
)

$
(1,232
)
Recycling

(1,845
)

274

(3,838
)

(1,753
)
Technology

—

(936
)

12,085

(2,820
)
Total Operating income (loss)

$
(1,824
)

$
(844
)

$
7,916

$
(5,805
)
Depreciation and amortization

Biotechnology

$
—

$
—

$
—

$
—

Recycling

77

109

345

327

Technology

—

937

2

2,809

Total Depreciation and amortization

$
77

$
1,046

$
347

$
3,136

Interest (income) expense, net

Biotechnology

$
—

$
—

$
—

$
—

Recycling

(36
)

125

254

323

Technology

—

—

—

—

Total Interest expense, net

$
(36
)

$
125

$
254

$
323

Net income (loss) before benefit from income taxes

Biotechnology

$
21

$
(182
)

$
(331
)

$
(1,232
)
Recycling

(2,079
)

208

(2,053
)

(1,145
)
Technology

—

(961
)

12,231

(2,832
)
Total Net income (loss) before benefit from income taxes

$
(2,058
)

$
(935
)

$
9,847

$
(5,209
)

As of
October 1,
2022

As of
January 1,
2022

Assets

Biotechnology

$
—

$
—

Recycling

31,304

15,165

Technology

—

—

Total Assets

$
31,304

$
15,165

Intangible assets

Biotechnology

$
—

$
—

Recycling

328

268

Technology

—

—

Total Intangible assets

$
328

$
268


	Thirteen Weeks Ended
	April 1, 2023			April 2, 2022
Revenues
Biotechnology	$	—		$	—
Discontinued operations		3,795			9,324
Total Revenues	$	3,795		$	9,324
Gross profit
Biotechnology	$	—		$	—
Discontinued operations		(197	)		1,853
Total Gross profit	$	(197	)	$	1,853
Operating loss
Biotechnology	$	(1,099	)	$	(681	)
Discontinued operations		14,158			(410	)
Total Operating loss	$	13,059		$	(1,091	)
Depreciation and amortization
Biotechnology	$	364		$	—
Discontinued operations		96			133
Total Depreciation and amortization	$	460		$	133
Interest (income) expense, net
Biotechnology	$	(475	)	$	2
Discontinued operations		181			190
Total Interest expense, net	$	(294	)	$	192
Net income (loss) before income taxes
Biotechnology	$	(867	)	$	2,619
Discontinued operations		13,976			(1,405	)
Total Net income before income taxes	$	13,109		$	1,214

Note ~~22:~~17: Related Parties

Shared Services

Tony Isaac, the Company’s Chief Executive Officer, is the father of Jon Isaac, President and Chief Executive Officer of Live Ventures Incorporated (“Live Ventures”) and managing member of Isaac Capital Group LLC (“ICG”), a greater than 5% stockholder of the Company. Tony Isaac, Chief Executive Officer, and Richard Butler, Board of Directors member of the Company, are members of the Board of Directors of Live Ventures. The Company also shares certain executive, accounting and legal services with Live Ventures. The total services shared were approximately $~~74,000~~32,000 and $~~86,000~~72,000 for the 13 weeks ended ~~October~~April 1, ~~2022~~2023 and ~~October~~April 2, ~~2021, respectively, and approximately $221,000and $220,000~~ ~~for the 39 weeks ended October 1,~~ 2022, ~~and October 2, 2021,~~ respectively. Customer Connexx rents approximately 9,900 square feet of office space from Live Ventures in Las Vegas, Nevada. The total rent and common area expense was approximately $~~53,000~~36,000 and $62,000 for the 13 weeks ended ~~October~~April 1, ~~2022~~2023 and ~~October~~April 2, ~~2021, respectively, and approximately $161,000~~ ~~and $168,000~~ ~~for the 39 weeks ended October 1,~~ 2022, ~~and October 2, 2021,~~ respectively.

~~ApplianceSmart Note~~

As stated in Note 6, on December 30, 2017, the Company sold its retail appliance segment, ApplianceSmart, Inc. (“ApplianceSmart”) to ApplianceSmart Holdings LLC (the “Purchaser”), a wholly owned subsidiary of Live Ventures Incorporated, pursuant to a Stock Purchase Agreement (the “Agreement”). Pursuant to the Agreement, the Purchaser purchased from the Company all of the issued and outstanding shares of capital stock of ApplianceSmart in exchange for $~~6.5~~ ~~million. On April 25, 2018, the Purchaser delivered to the Company a promissory note (the “ApplianceSmart Note”) in the original principal amount of approximately $3.9~~ ~~million.~~

On October 13, 2021, a hearing was held to consider approval of a disclosure statement filed by ApplianceSmart in conjunction with its bankruptcy proceedings. On December 14, 2021, a hearing was held to confirm ApplianceSmart’s plan for reorganization (the “Plan”). On January 10, 2022, ApplianceSmart paid $~~25,000~~ to JanOne in settlement of its debt, as provided for in the confirmed Plan, and the ApplianceSmart Note was reversed. A final decree was issued by the court on February 28, 2022, upon the full satisfaction of the Plan, at which time ApplianceSmart emerged from Chapter 11. The outstanding balance of the ApplianceSmart Note at October 1, 2022 and January 1, 2022 was ~~zero~~ ~~and approximately $3.0~~ ~~million, respectively, exclusive of the impairment charge.~~

~~For discussion related to potential obligations and or guarantees under ApplianceSmart Leases, see Note 16.~~

2521

~~Related Party ICG Group Note~~

~~On August 28, 2019, ARCA Recycling entered into and delivered to ICG a secured revolving line of credit promissory note, whereby ICG agreed to provide ARCA Recycling with a $2.5~~ million revolving credit facility (the “ICG Note”). The ICG Note originally matured on August 28, 2020. On August 25, 2020, the ICG Note was amended to extend the maturity date to December 31, 2020. On March 30, 2021, ARCA Recycling entered into a Second Amendment and Waiver (the “Second Amendment”) to the ICG Note to further extend the maturity date to August 18, 2021 and waive certain defaults under the ICG Note. The ICG Note bears interest at ~~8.75% per annum and provides for the payment of interest, monthly in arrears. ARCA Recycling will pay 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 the Lender, pursuant to which ARCA Recycling granted a security interest in all of its assets to the Lender. 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. As of January 1, 2022, the balance due on ICG note was $~~1.0~~ ~~million. Beginning in~~ ~~April 2022, the revolving credit facility was converted to a term note that amortizes ratably through its maturity date of~~ ~~March 2026. The principal amount of the note is $1.0~~ ~~million, and bears interest at~~ ~~8.75% per annum. Monthly payments on this note will be approximately $24,767. ICG is a record and beneficial owner of~~ ~~13.9~~% 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. As of October 1, 2022, the principal balance of the note is approximately $~~893,000~~.

~~ARCA Purchasing Agreement~~

On April 5, 2022, ARCA entered into a Purchasing Agreement with Live Ventures. Pursuant to the agreement, Live agrees to purchase inventory from time to time for ARCA, as set forth in submitted purchase orders. The inventory is owned by Live until which time payment by ARCA is received. All purchases made by the ARCA shall be paid back to Live in full plus an additional five percent surcharge or broker-type fee. The term of the Agreement is one year, and automatically renews if not terminated by either party, as provided for in the Agreement.

~~Note 23.~~ Sale of ARCA and Connexx

On ~~February 19, 2021,~~March 9, 2023, the Company ~~together~~entered into a Stock Purchase Agreement with ~~its subsidiaries~~VM7 Corporation, a Delaware corporation, under which the Buyer agreed to acquire all of the outstanding equity interests of (a) ARCA Recycling, Inc., a California corporation, ~~(“ARCA”), and~~ (b) Customer Connexx LLC, a Nevada limited liability company, ~~(“Connexx”), entered into an Asset Purchase Agreement (the “Purchase Agreement”) with (i)~~and (c) ARCA ~~Affiliated Holdings Corporation, a Delaware corporation, (ii) ARCA Services~~Canada Inc., a ~~Delaware~~ corporation organized under the laws of Ontario, Canada (“ARCA Canada”; and, ~~(iii) Connexx Services Inc, a Delaware corporation (collectively, the “Buyers”), pursuant to which the Buyers agreed to acquire substantially all of the assets, and assume certain liabilities, of~~together with ARCA and Connexx, ~~(the “Disposition Transaction”~~the “Subsidiaries”). The principal of the ~~Buyers~~Buyer is Virland A. Johnson, our Chief Financial Officer. The ~~Disposition Transaction was previously expected~~sale of all of the outstanding equity interests of the Subsidiaries to ~~be consummated on or before August 18, 2021 (the "Outside Date"). On August 12, 2021,~~ the ~~parties entered into Amendment No. One to~~ ~~AssetPurchaseAgreement~~ ~~(the “Recycling Sale Amendment”) to extend the Outside Date to September 30, 2021. In the event the Disposition Transaction is not closed by such date,~~Buyer under the Purchase Agreement ~~may be terminated and, in accordance~~was consummated simultaneously with ~~its terms,~~ the ~~Buyers may be required to pay to us a “break fee” of $250,000. On November 14, 2021, the parties entered into Amendment No. Two to the Asset Purchase Agreement, which provided for the immediate termination~~execution of the ~~transactions proposed by~~Purchase Agreement. The Company's Board of Directors unanimously approved the Purchase Agreement ~~as amended by~~and the ~~Recycling~~Disposition Transaction. The Stock Purchase Agreement is retroactive to March 1, 2023 (see Note 18).

Note 18. Sale ~~Amendment, and for an amendment for the Buyers to pay to us a “break fee.” The break fee was amended to an aggregate~~ of $~~100,000, payable in two $50,000~~ installments: (i) the first of which is due on or around August 12, 2022 (the one-year anniversary of the Recycling Sale Agreement and which at the time of filing has not yet been paid) and (ii) the second of which is due to be paid not later than the last day of our next fiscal year. However, if, prior to the date on which either installment of the amended break fee is payable, we sell ARCA and ~~Connexx to an otherwise unaffiliated third party for an aggregate amount less than $~~25 million, then the Buyers will be relieved of their obligation to pay to us any not-yet-then-due installment of the break fee. Additionally, if, prior to the date on which the second installment of the amended break fee is payable, we have not sold ARCA and Connexx to any third party, then the Buyers will be relieved of their obligation to pay to us the second installment of the break fee. Finally, if, prior to a date on which either installment of the amended break fee is due, we sell ARCA and Connexx to the Buyers, then, the purchase price therefore will be reduced by an amount equivalent to any break fee that had been previously paid to us by the Buyers and the Buyers shall also be relieved of their obligation to pay to us any not-yet-due installment of the break fee.

~~Note 24. Sale of GeoTraq~~Subsidiaries

On ~~May 24, 2022,~~March 9, 2023, the Company entered into ~~an Asset~~a Stock Purchase Agreement with ~~SPYR Technologies~~VM7 Corporation, a Delaware corporation, under which the Buyer agreed to acquire all of the outstanding equity interests of (a) ARCA Recycling, Inc., ~~pursuant~~a California corporation, (b) Customer Connexx LLC, a Nevada limited liability company, and (c) ARCA Canada Inc., a corporation organized under the laws of Ontario, Canada (“ARCA Canada”; and, together with ARCA and Connexx, the “Subsidiaries”). The principal of the Buyer is Virland A. Johnson, our Chief Financial Officer. The sale of all of the outstanding equity interests of the Subsidiaries to ~~which~~the Buyer under the Purchase Agreement was consummated simultaneously with the execution of the Purchase Agreement. The Company's Board of Directors unanimously approved the Purchase Agreement and the Disposition Transaction. The Stock Purchase Agreement is retroactively effective as of March 1, 2023.

The economic aspects of the Disposition Transaction are: (i) the Company ~~sold to SPYR substantially all the assets and none of~~reduced the liabilities ofon its ~~wholly-owned subsidiary GeoTraq Inc. The aggregate purchase price for the GeoTraq Assets was~~consolidated balance sheets by approximately $~~13.5~~17.6 million, ~~payable~~and includes those liabilities related to the California Business Fee and Tax Division; (ii) the Company will receive not less than $24.0 million in ~~cash~~aggregate monthly payments from the Buyer, which payments are subject to potential increase due to the Subsidiaries’ future performance; and ~~shares~~(iii) during the next five years, the Company may request that the Buyer prepay aggregate monthly payments in the aggregate amount of ~~SPYR’s common stock. As~~$1 million. The Company also received one thousand dollars for the equity of each of the ~~closing~~Subsidiaries at the closing. Each monthly payment is to be the greater of (a) $140,000 (or $100,000 for each January and February during the 15-year payment period) or (b) a monthly percentage-based payment, which is an amount calculated as follows: (i) 5% of the ~~transaction~~Subsidiaries’ aggregate gross revenues up to $2,000,000 for the relevant month, plus (ii) 4% of the Subsidiaries’ aggregate gross revenues between $2,000,000 and $3,000,000 for the relevant month, plus (iii) 3% of the Subsidiaries aggregate gross revenues over $3,000,000 for the relevant month. The Buyer will receive credit toward the payment of the first monthly payment (March of 2023) for any payments, distributions, or cash dividends paid by any of the Subsidiaries to the Seller on ~~May 24, 2022, SPYR issued~~or after March 9, 2023. Additionally, upon settlement of the continuing dispute between ARCA and the California Business Fee and Tax Division (as to which settlement, there can be no assurance), ARCA will pay to the Company ~~30,000,000~~50 ~~shares~~% of ~~its common stock at $0.03~~ ~~per share,~~the amount of the reduction between the current assessment and ~~delivered a five-year Promissory Note~~any such settlement. Further, ARCA and Connexx are due to receive from the Internal Revenue Service two payments in the ~~principal~~aggregate amount of approximately $~~12.6~~931,000 ~~million.~~in connection with the Employee Retention Credit provisions of the Coronavirus Aid, Relief, and Economic Security Act and the Taxpayer Certainty and Disaster Tax Relief Act of 2020. ARCA and Connexx have received these two ERC payments and, as of April 1, 2023, have paid $454,000 to the Company. The ~~Promissory Note bears simple interest at~~balance of the ~~rate of~~ 8~~% per annum, provides quarterly interest~~ERC payments due, ~~the first day~~as of ~~each calendar quarter, and may be prepaid at any time without penalty. Quarterly interest payments may be made in cash or in SPYR's restricted common stock. The Promissory Note matures on~~ April 1, 2023, was $~~May 23, 2027~~477,000.

The minimum consideration to be received by the Company from the Disposition Transaction, as discussed above, is $1.6 million per year for 15 years, or $24.0 million in the aggregate, plus cash of $3,000 paid at close.In connection with the ~~Asset Purchase Agreement,~~Disposition Transaction, the Company ~~employed an independent third-party firm to assess~~used a discount rate of 20% when it valued the ~~fair~~aggregate minimum consideration. Management determined that discount rate appropriately addresses any risk that the minimum payments would not be received. The valuation, factoring in that discount rate, yielded a present value of ~~the~~ approximately $~~30,000,000~~6.0 ~~shares~~million, which, in addition to the $3,000 paid at close, comprises the approximately $6.0 million of ~~SPYR stock and~~net consideration. Additionally, the ~~Promissory Note. The assessment determined that the fair market value~~calculation of the ~~SPYR common stock was approximately $946,000~~,gain on disposition includes the book value in excess of assets disposed of, or approximately $~~0.032~~ ~~per share, which was approximately $46,000~~ ~~greater than the amount of the shares received at close. The Promissory Note was valued at approximately $11.3~~ ~~million, which was approximately $1.4~~ ~~million less than the Note issued. Consequently, the Company recorded the shares of SPYR stock at fair market value of $946,000, and recorded a discount offsetting the Promissory Note in the amount of $1.35~~9.8 million. ~~The discount will be accreted ratably over the term of the Promissory Note, and recorded as interest income. Additionally, approximately $105,000~~ ~~in GeoTraq inventory was transferred as part of the sale, and was, thus, derecognized.~~

The following table ~~illustrates~~details the calculation of the gain on sale of ~~GeoTraq,~~ARCA and subsidiaries, as shown on the income statement (in $000's):

Purchase price

$
13,500

Discount on note receivable

(1,350
)
Premium on shares received

46

Derecognition of GeoTraq inventory

(105
)
Gain on sale

$
12,091

2722


Total minimum consideration	$	6,023
Payment from buyer		3
Net consideration	$	6,026
Accounts payable		5,323
Accrued liabilities		3,187
Accrued liabilities - California state sales tax		6,320
Lease liabilities		5,285
Debt		4,530
Accumulated other comprehensive loss		(604	)
Total disposal of liabilities		24,041
Total consideration		30,067
Cash		145
Accounts receivable		4,884
Inventory		67
Property, plant and equipment		2,767
Intangible assets		732
Right-of-use assets		5,075
Other assets		574
Total disposal of assets		14,244
Total gain on sale	$	15,823

Note ~~25.~~19. Subsequent event

The Company has evaluated subsequent events through the filing of this Quarterly Report on Form 10-Q and determined that there have been no events that have occurred that would require adjustments to disclosures in its condensed consolidated financial statements. ~~Other than described below, the Company did not identify any subsequent events that would have required adjustment or disclosure in its financial statements.~~

2824

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to provide a reader of our financial statements with a narrative from the perspective of our management on our financial condition, results of operations, liquidity and certain other factors that may affect our future results. Dollars stated in thousands, except per–share amounts.

Forward-Looking and Cautionary Statements

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the federal securities laws, including Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which involve risks and uncertainties. You can identify forward-looking statements because they contain words such as ‘‘believes,’’ ‘‘expects,’’ ‘‘may,’’ ‘‘will,’’ ‘‘should,’’ ‘‘seeks,’’ ‘‘approximately,’’ ‘‘intends,’’ ‘‘plans,’’ ‘‘estimates’’ or ‘‘anticipates’’ or similar expressions that concern our strategy, plans or intentions. Any statements we make relating to our future operations, performance and results, and anticipated liquidity are forward-looking statements. All forward-looking statements are subject to risks and uncertainties that may change at any time, and, therefore, our actual results may differ materially from those we expected. We derive most of our forward-looking statements from our operating budgets and forecasts, which are based upon many detailed assumptions. While we believe that our assumptions are reasonable, we caution that it is very difficult to predict the impact of known factors, and, of course, it is impossible for us to anticipate all factors that could affect our actual results. Important factors that could cause actual results to differ materially from our expectations, including, without limitation, in conjunction with the forward-looking statements included in this Form 10-Q, are disclosed in “Item 1-Business, Item 1A – Risk Factors” of our Form 10-K and Part II, Item 1A of this Form 10-Q. ~~Some of the factors that we believe could affect our results include:~~

•

~~the continued effect on the U.S. economy of the coronavirus public health crisis;~~

•

~~our ability to secure additional financing to execute our biotechnology business plan;~~

•

~~our ability to obtain the marketing approval for JAN101, our initial drug product candidate;~~

•

~~the effect that the SEC Complainthas on the Company, if any;~~

•

~~the strength of energy conservation recycling programs;~~

•

~~our continued ability to purchase product from our suppliers at acceptable prices;~~

•

~~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 outcome of the sales and use tax examination in California; and~~

•

~~general economic conditions affecting consumer demand for appliances.~~

We caution you that the foregoing list of important factors may not contain all of the material factors that are important to you. In addition, in light of these risks and uncertainties, the matters referred to in the forward-looking statements contained in this Quarterly Report on Form 10-Q may not in fact occur. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law. Our MD&A should be read in conjunction with our Form 10-K (including the information presented therein under the caption Risk Factors), together with our Quarterly Reports on Forms 10-Q and other publicly available information. All amounts herein are unaudited.

Overview

We are focused on finding treatments for conditions that cause severe pain and bringing to market drugs with non-addictive pain-relieving properties. In addition, through our now-sold subsidiaries ARCA Recycling, Connexx, and ARCA Canada, we ~~are~~were engaged in the business of recycling major household appliances in North America by providing turnkey appliance recycling and replacement services for utilities and other sponsors of energy efficiency programs. Also, through our now-sold GeoTraq Inc. subsidiary, we ~~have been~~were engaged in the development, design of wireless transceiver modules with technology that provides LBS directly from global Mobile IoT networks. However, Our GeoTraq subsidiary has not generated any revenue to date, including in the fiscal year ended January 1, 2022. Consequently, during the year ended January 1, 2022, the Company took a full write-down of the unamortized portion of the GeoTraq intangible asset of approximately $9.8 million. Further, as discussed in Note 24 above, on May 24, 2022, we sold substantially all of the GeoTraq assets.

~~We operate~~During the periods disclosed in this Quarterly Report, we operated three reportable segments:

•

Biotechnology: Our biotechnology segment is focused on finding treatments for conditions that cause severe pain and bringing to market drugs with non-addictive pain-relieving properties.

•

Recycling: Our recycling segment is 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 throughout the United States and Canada. On March 9, 2023, we entered into a Stock Purchase Agreement, retroactive to March 1, 2023, with VM7 Corporation, a Delaware corporation, under which the Buyer agreed to acquire all of the outstanding equity interests of our recycling segment. Consequently, the results for this segment are reported as discontinued operations for the 13 weeks ended April 1, 2023 and April 2, 2022.

•

Technology: We ~~have~~ suspended all operations for GeoTraq, and, on May 24, 2022, sold substantially all of its assets. The results for this segment are reported as discontinued operations for the ~~GeoTraq assets.~~13 weeks ended April 1, 2023 and April 2, 2022.

For the ~~13 weeks ended October~~Thirteen Weeks Ended April 1, ~~2022~~2023 and ~~October~~April 2, ~~2021~~2022

Results of Operations

The following table sets forth certain statement of operations items and as a percentage of revenue, for the periods indicated (in $000's):

13 Weeks Ended

13 Weeks Ended

October 1, 2022

October 2, 2021

Statement of Operations Data:

Revenue

$
8,587

100.0
%

$
12,113

100.0
%
Cost of revenue

7,553

88.0
%

9,032

74.6
%
Gross profit

1,034

12.0
%

3,081

25.4
%
Selling, general and administrative expense

2,858

33.3
%

3,925

32.4
%
Gain on sale of GeoTraq

—

0.0
%

—

0.0
%
Operating loss

(1,824
)

-21.2
%

(844
)

-7.0
%
Interest income (expense), net

36

0.4
%

(125
)

-1.0
%
Gain on settlement of vendor advance payments

—

0.0
%

11

0.1
%
Unrealized loss on marketable securities

(270
)

-3.1
%

—

0.0
%
Other income

—

0.0
%

23

0.2
%
Net income loss before income taxes

(2,058
)

-24.0
%

(935
)

-7.7
%
Provision for income taxes

16

0.2
%

33

0.3
%
Net loss

$
(2,074
)

-24.2
%

$
(968
)

-8.0
%


	13 Weeks Ended			13 Weeks Ended
	April 1, 2023			April 2, 2022
Statement of Operations Data:
Revenues	$	—		$	—
Cost of revenues		—			—
Gross profit		—			—
Selling, general and administrative expenses		1,099			681
Operating loss		(1,099	)		(681	)
Interest income (expense), net		475			(2	)
Gain on litigation settlement		—			1,950
Unrealized loss on marketable securities		(247	)		—
Gain on reversal of contingency loss		—			637
Other income, net		(18	)		715
Net income (loss) before provision for income taxes		(889	)		2,619
Income tax benefit		(227	)		—
Net income (loss) from continuing operations		(662	)		2,619
Income (loss) from discontinued operations		13,976			(1,405	)
Income tax provision for discontinued operations		3,229			3
Net income (loss) from discontinued operations		10,747			(1,408	)
Net income	$	10,085		$	1,211

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 (in $000's):


	13 Weeks Ended					13 Weeks Ended					13 Weeks Ended					13 Weeks Ended
	October 1, 2022					October 2, 2021					April 1, 2023					April 2, 2022
	Net		Percent			Net		Percent			Net		Percent			Net		Percent
	Revenue		of Total			Revenue		of Total			Revenue		of Total			Revenue		of Total
Revenue
Recycling and Byproducts	$	6,334		73.8	%	$	6,714		55.4	%
Replacement Appliances		2,253		26.2	%		5,399		44.6	%
Revenue from discontinued operations											$	3,795		100.0	%	$	9,324		100.0	%
Biotechnology												—		0.0	%		—		0.0	%
Total Revenue	$	8,587		100.0	%	$	12,113		100.0	%	$	3,795		100.0	%	$	9,324		100.0	%


	13 Weeks Ended					13 Weeks Ended					13 Weeks Ended						13 Weeks Ended
	October 1, 2022					October 2, 2021					April 1, 2023						April 2, 2022
	Gross		Gross			Gross		Gross			Gross			Gross			Gross		Gross
	Profit		Profit %			Profit		Profit %			Profit			Profit %			Profit		Profit %
Gross Profit
Recycling and Byproducts	$	200		3.2	%	$	1,277		19.0	%
Replacement Appliances		834		37.0	%		1,804		33.4	%
Gross profit from discontinued operations											$	(197	)		-5.2	%	$	1,853		19.9	%
Biotechnology												—			0.0	%		—		0.0	%
Total Gross Profit	$	1,034		12.0	%	$	3,081		25.4	%	$	(197	)		-5.2	%	$	1,853		19.9	%

Revenue

Revenue decreased by approximately ~~$3.5~~$5.5 million, or ~~29.1%~~59.3%, for the 13 weeks ended ~~October~~April 1, ~~2022,~~2023, as compared to the 13 weeks ended ~~October~~April 2, ~~2021.~~2022. The decrease is primarily due to reduced ~~replacement volume due to a lack~~demand and inventory availability during the 13 weeks ended April 1, 2023, as well as the disposition of ~~appliance availability, and weakening commodity markets, partially offset by increased~~our recycling ~~volume.~~segment as of March 1, 2023.

Cost of Revenue

Cost of revenue decreased by approximately ~~$1.5~~$3.5 million ~~or 16.4%,~~ for the 13 weeks ended ~~October~~April 1, ~~2022,~~2023, as compared to the 13 weeks ended ~~October~~April 2, ~~2021,~~2022. The decrease is primarily due to the ~~factors described above.~~disposition of our recycling segment as of March 1, 2023.

Selling, General and Administrative Expense

Selling, general and administrative ~~expense decreased~~expenses increased by approximately ~~$1.1 million,~~$418,000, or ~~27.2%~~61.5%, for the 13 weeks ended ~~October~~April 1, ~~2022,~~2023, as compared to the 13 weeks ended ~~October~~April 2, ~~2021,~~2022, primarily due to increased amortization costs relating to the ~~suspension of operations of GeoTraq, as well decreases in stock-based compensation, professional fees, amortization expense, and legal fees.~~Soin intangibles. This increase relates only to continuing operations.

Interest ~~Expense,~~Income, net

Interest ~~expense,~~income, net ~~decreased~~increased by approximately ~~$161,000~~$477,000 for the 13 weeks ended ~~October~~April 1, ~~2022,~~2023, as compared to the 13 weeks ended ~~October~~April 2, ~~2021~~2022 primarily due to ~~interest income recorded~~the accretion of discount in connection with the ~~sale of GeoTraq.~~promissory note with SPYR and receivable from VM7 (see Note 18), as well as interest recorded on the note with SPYR.

Unrealized Loss on Marketable Securities

For the 13 weeks ended ~~October~~April 1, ~~2022,~~2023, an unrealized loss on marketable securities of approximately ~~$270,000~~$247,000 was recorded to mark to fair value securities received in connection to the sale of GeoTraq. ~~See Note 24 of the unaudited Consolidated Financial Statements.~~ There were no similar transactions for the 13 weeks ended ~~October~~April 2, ~~2021.~~

~~Gain on Settlement of Vendor Advance Payments~~

For the 13 weeks ended October 2, 2021, a portion of the vendor advance payments were settled, which resulted in a gain of approximately $11,000. There were no similar transactions for the 13 weeks ended October 1, 2022.

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 our internet services for our recycling and technology segment.discontinued operations. 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~~Corporate expenses within the Biotechnology segment. As discussed above, we sold our Technology segment, GeoTraq, during the fiscal year ended December 31, 2022, and our Recycling ~~segment.~~segment in March 2023, and detail those results as discontinued operations below.

Operating loss by operating segment, is defined as loss before net interest expense, other income and expense, provision for income taxes ($000’s):.

13 Weeks Ended October 1, 2022

13 Weeks Ended October 2, 2021

Biotechnology

Recycling

Technology

Total

Biotechnology

Recycling

Technology

Total

Revenue

$
—

$
8,587

$
—

$
8,587

$
—

$
12,113

$
—

$
12,113

Cost of revenue

—

7,553

—

7,553

—

9,032

—

9,032

Gross profit

—

1,034

—

1,034

—

3,081

—

3,081

Selling, general and administrative expense

(21
)

2,879

—

2,858

182

2,807

936

3,925

Operating income (loss)

$
21

$
(1,845
)

$
—

$
(1,824
)

$
(182
)

$
274

$
(936
)

$
(844
)


	13 Weeks Ended April 1, 2023									13 Weeks Ended April 2, 2022
	Biotechnology			Discontinued Operations			Total			Biotechnology			Discontinued Operations			Total
Revenue	$	—		$	3,795		$	3,795		$	—		$	9,324		$	9,324
Cost of revenue		—			3,992			3,992			—			7,471			7,471
Gross profit		—			(197	)		(197	)		—			1,853			1,853
Selling, general and administrative expense		1,099			(14,355	)		(13,256	)		681			2,263			2,944
Operating loss (income)	$	(1,099	)	$	14,158		$	13,059		$	(681	)	$	(410	)	$	(1,091	)

Biotechnology Segment

Our biotechnology segment incurred expenses of approximately ~~$124,000, offset by a gain of approximately $145,000 due to an overstatement of segment expenses in Q2 2022 for the 13 weeks ended October 1, 2022,~~$1.1 million and ~~$182,000~~$681,000 related to employee costs and professional services related to research, and corporate services, as well as amortization of the Soin intangibles for the 13 weeks ended ~~October~~April 1, 2023 and the 13 weeks ended April 2, ~~2021.~~2022, respectively.

~~Recycling Segment~~Discontinued Operations

~~The recycling segment~~Discontinued operations consists of ~~ARCA~~our Recycling ~~Customer Connexx,~~segment, which was disposed of effective March 1, 2023, and ~~ARCA Canada.~~our Technology segment, which was disposed of during May 2022. Revenue for the 13 weeks ended ~~October~~April 1, ~~2022,~~2023, decreased by approximately ~~$3.5~~$5.5 million, or 29.1%, as compared to the prior year period. Replacement services revenue decreased by approximately $3.1 million, period over period, primarily due to reduced replacement volume due to a lack of appliance availability. Recycling and Byproducts revenue decreased by approximately $380,000 primarily due to weakening commodity markets.

~~Cost of revenue for the 13 weeks ended October 1, 2022, decreased by approximately $1.5 million, or 16.4%~~59.3%, as compared to the prior year period, ~~for those reasons described above.~~which was primarily due to the disposition of our Recycling segment as of March 1, 2023.

Operating loss for the 13 weeks ended ~~October~~April 1, ~~2022,~~2023, increased by approximately ~~$2.1~~$1.3 million as compared to the prior year period. The increase is ~~due to an decrease in gross profit of approximately $2.0 million, partially offset by an increase in selling, general and administrative expenses of approximately $72,000.~~

~~Technology Segment~~

The technology segment consists of GeoTraq. There was no activity for the Technology Segment for the 13 weeks ended October 1, 2022 due to the sale of GeoTraq during the period ended July 2, 2022. See Note 24 of unaudited Consolidated Financial Statements.

~~For the 39 weeks ended October 1, 2022 and October 2, 2021~~

~~Results of Operations~~

~~The following table sets forth certain statement of operations items and as a percentage of revenue, for the periods indicated (in $000's):~~

39 Weeks Ended

39 Weeks Ended

October 1, 2022

October 2, 2021

Statement of Operations Data:

Revenue

$
28,449

100.0
%

$
29,391

100.0
%
Cost of revenue

23,913

84.1
%

23,146

78.8
%
Gross profit

4,536

15.9
%

6,245

21.2
%
Selling, general and administrative expense

8,711

30.6
%

12,050

41.0
%
Gain on sale of GeoTraq

(12,091
)

-50.6
%

—

0.0
%
Operating income (loss)

7,916

27.8
%

(5,805
)

-19.8
%
Interest expense, net

(254
)

-0.9
%

(323
)

-1.1
%
Gain on Payroll Protection Program loan forgiveness

—

0.0
%

1,872

6.4
%
Gain on settlement of vendor advance payments

—

0.0
%

952

3.2
%
Gain (loss) on litigation settlement, net

1,835

6.5
%

(1,950
)

-6.6
%
Gain on reversal of contingency loss

637

2.2
%

—

0.0
%
Unrealized loss on marketable securities

(646
)

-2.3
%

—

0.0
%
Other income, net

359

1.3
%

45

0.2
%
Net income (loss) before income taxes

9,847

34.6
%

(5,209
)

-17.7
%
Provision for income taxes

23

0.1
%

236

0.8
%
Net income (loss)

$
9,824

34.5
%

$
(5,445
)

-18.5
%

39 Weeks Ended

39 Weeks Ended

October 1, 2022

October 2, 2021

Net

Percent

Net

Percent

Revenue

of Total

Revenue

of Total

Revenue

Recycling and Byproducts

$
15,850

55.7
%

$
15,580

53.0
%
Replacement Appliances

12,599

44.3
%

13,811

47.0
%
Total Revenue

$
28,449

100.0
%

$
29,391

100.0
%

39 Weeks Ended

39 Weeks Ended

October 1, 2022

October 2, 2021

Gross

Gross

Gross

Gross

Profit

Profit %

Profit

Profit %

Gross Profit

Recycling and Byproducts

$
68

0.4
%

$
1,739

11.2
%
Replacement Appliances

4,468

35.5
%

4,506

32.6
%
Total Gross Profit

$
4,536

15.9
%

$
6,245

21.2
%

~~Revenue~~

Revenue decreased by approximately $940,000, or 3.2%, for the 39 weeks ended October 1, 2022, as compared to the 39 weeks ended October 2, 20212. The decrease is primarily due to reduced replacement volume due to a lack of appliance availability, and weakening commodity markets, partially offset by increased recycling volume.

~~Cost of Revenue~~

~~Cost of revenue increased by approximately $765,000, or 3.3%, for the 39 weeks ended October 1, 2022, as compared to the 39 weeks ended October 2, 2021, due to the factors described above.~~

~~Selling, General and Administrative Expense~~

~~Selling, general and administrative expense decreased by approximately $3.3 million, or 27.7%, for the 39 weeks ended October 1, 2022, as compared to the 39 weeks ended October 2, 2021,~~ primarily due to the ~~suspension~~disposition of ~~operations~~our Recycling segment as of ~~GeoTraq, as well decreases in stock-based compensation, professional fees, amortization expense, and legal fees.~~

~~Interest Expense, net~~

~~Interest expense, net, decreased by approximately $69,000 for the 39 weeks ended October~~March 1, ~~2022, as compared to the 39 weeks ended October 2, 2021 primarily due to interest income recorded in connection with the sale of GeoTraq, partially offset by increased interest on notes payable.~~

~~Gain on Sale of GeoTraq~~

~~During the 39 weeks ended October 1, 2022, we recorded a gain on the sale of GeoTraq of approximately $12.1 million. See Note 24 of unaudited Condensed Consolidated Financial Statements.~~

~~Unrealized Loss on Marketable Securities~~

For the 39 weeks ended October 1, 2022, an unrealized loss on marketable securities of approximately $646,000 was recorded to mark to fair value securities received in connection to the sale of GeoTraq. See Note 24 of unaudited Consolidated Financial Statements. There were no similar transactions for the 39 weeks ended October 2, 2021.

~~Gain on Litigation Settlement, net~~

Gain on litigation settlement includes the receipt of a $1.95 million payment from Sompo International Companies (“Sompo”) in exchange for a full release in favor of Sampo from liability for both the GeoTraq and SEC-related matters, partially offset by an accrual of approximately $115,000 to finalize the Blackhawk settlement.

~~Gain on Reversal of Contingency Loss~~

Gain on reversal of continency loss reverses approximately $637,000 in contingent liabilities relating to guarantees of ApplianceSmart leases that no longer exist as a result of ApplianceSmart's emergence from bankruptcy (see Notes 6 and 11 to the unaudited financial statements).

~~Gain on Settlement of Vendor Advance Payments~~

For the 39 weeks ended October 2, 2021, a portion of the vendor advance payments were settled, which resulted in a gain of approximately $952,000. There were no similar transactions for the 39 weeks ended October 1, 2022.

~~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 our 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.

~~Operating loss by operating segment, is defined as loss before net interest expense, other income and expense, provision for income taxes ($000’s):~~

39 Weeks Ended October 1, 2022

39 Weeks Ended October 2, 2021

Biotechnology

Recycling

Technology

Total

Biotechnology

Recycling

Technology

Total

Revenue

$
—

$
28,449

$
—

$
28,449

$
—

$
29,391

$
—

$
29,391

Cost of revenue

—

23,913

—

23,913

—

23,146

—

23,146

Gross profit

—

4,536

—

4,536

—

6,245

—

6,245

Selling, general and administrative expense

331

8,374

6

8,711

1,232

7,998

2,820

12,050

Gain on sale of GeoTraq

—

—

(12,091
)

(12,091
)

—

—

—

—

Operating income (loss)

$
(331
)

$
(3,838
)

$
12,085

$
7,916

$
(1,232
)

$
(1,753
)

$
(2,820
)

$
(5,805
)

~~Biotechnology Segment~~

Our biotechnology segment incurred expenses of approximately $331,000 and $1.2 million related to employee costs and professional services related to research for the 39 weeks ended October 1, 2022 and October 2, 2021, respectively.

~~Recycling Segment~~

The recycling segment consists of ARCA Recycling, Customer Connexx, and ARCA Canada. Revenue for the 39 weeks ended October 1, 2022, decreased by approximately $940,000, or 3.2%, as compared to the prior year period. Replacement services revenue decreased by approximately $1.2 million, period over period, primarily due to reduced replacement volume due to a lack of appliance availability. Recycling and Byproducts revenue increased by approximately $270,000 primarily due to strong consumer demand, partially offset by weakening commodity markets.

~~Cost of revenue for the 39 weeks ended October 1, 2022, increased by approximately $760,000, or 3.3%, as compared to the prior year period, for those reasons described above.~~

Operating loss for the 39 weeks ended October 1, 2022, increased by approximately $2.1 million as compared to the prior year period. The increase is due to an decrease in gross profit of approximately $1.7 million, and an increase in selling, general and administrative expenses of approximately $400,000.

~~Technology Segment~~

The technology segment consists of GeoTraq. Results for the 39 weeks ended October 1, 2022 includes income of approximately $12.1 million, as compared to a loss of approximately $2.8 million for the 39 weeks ended October 2, 2021. The increase is due to income from the sale of GeoTraq.2023.

Liquidity and Capital Resources

Overview

As of ~~October~~April 1, ~~2022, we had total~~2023, our cash on hand ~~of approximately $868. As we continue~~was $353,000. We intend to ~~prepare to~~ ~~begin late-stage clinical development with our pharmaceutical product, JAN101, a~~nd 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 dependfund operations by using cash on ~~our operating performance and other circumstances; our then-current commitments and obligations;~~hand, monthly revenues from the ~~amount, nature and timing~~sale of our Subsidiaries, and funds received from approved ERC’s. We intend to raise funds to support future development of JAN 123 and JAN 101 either through capital ~~requirements; any limitations imposed by our current credit arrangements; and overall market conditions.~~raises or structured arrangements.

~~Based on our current operating plans, we believe that available cash balances, funds available under our credit facility with Gulf Coast,~~Our ability to continue as a going concern is dependent upon the success of future capital raises or structured settlements to fund the required testing to obtain FDA approval of JAN 123 and ~~or other refinancing of existing indebtedness will provide sufficient liquidity~~JAN 101, as well as to fund our ~~operations, our continued investments in store openings and remodeling activities for at least the next 12 months.~~day-to-day operations. The accompanying financial statements do not include any adjustments that might be necessary should we be unable to continue as a going concern. While we will actively pursue these additional sources of financing, management cannot make any assurances that such financing will be secured.

Cash Flows

During the 3913 weeks ended ~~October~~April 1, ~~2022,~~2023, cash ~~used in~~provided by operations was approximately $2.4 million, compared to cash ~~used in~~provided by operations of approximately ~~$3.5~~$2.1 million during the 3913 weeks ended ~~October~~April 2, ~~2021.~~2022. Cash provided by discontinued operations during the 13 weeks ended April 1, 2023 was approximately $2.3 million, while cash provided by continuing operations was approximately $106,000. The increase in cash ~~used in operations~~ was primarily due to results of operations as discussed above.

Cash used in investing activities was approximately ~~$950,000~~$156,000 and ~~$1.6 million,~~$127,000, respectively, for the 3913 weeks ended ~~October~~April 1, ~~2022~~2023 and the 3913 weeks ended ~~October~~April 2, ~~2021, primarily~~2022. Cash used in investing activities for the 13 weeks ended April 1, 2023 was all associated with discontinued operations and was related to purchases of property and equipment. Cash used in investing activities for the 13 weeks ended April 2, 2022 was all associated with discontinued operations and related to purchases of property and equipment and intangibles.

Cash ~~provided by~~used in financing activities was approximately ~~$3.5~~$2.0 million for the 3913 weeks ended ~~October~~April 1, ~~2022,~~2023. Cash used in financing activities from discontinued operations for the 13 weeks ended April 1, 2023 was approximately $2.2 million and was primarily due to the repayment of debt obligations. Cash provided financing activities from continued operations for the 13 weeks ended April 1, 2023 was approximately $163,000 and was related to $368,000 in proceeds from ~~the new credit facility, as discussed~~equity financing, partially offset by $205,000 in ~~Note 15 above.~~debt repayments. Cash ~~provided by~~used in financing activities was approximately ~~$7.6 million~~$279,000 for the 3913 weeks ended ~~October~~April 2, ~~2021~~2022. Cash used in financing activities for the 13 weeks ended April 2, 2022 was approximately $63,000 and $216,000 from discontinued and continuing operations, respectively, and was primarily due to ~~net proceeds received from an equity financing in~~ the ~~amount approximately $5.5 million.~~repayment of debt obligations.

Sources of Liquidity

We utilize cash on hand and factor 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 September 26, 2022, the Company entered into a credit facility with Gulf Coast, whereby the Company can obtain financing up to the lesser of $7.0 million or its calculated borrowing base. Gulf Coast has been granted a security interest in substantially all of ARCA Recycling’s assets. The current purchase and sale agreement with Gulf Coast automatically renews every two years 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~~raising capital and managing expenses. We reported ~~net income of approximately $9.8 million and~~ a net loss of approximately ~~$5.4 million, respectively,~~$662,000 from continuing operations in for the 3913 weeks ended ~~October~~April 1, 2023, and net income from continuing operations of approximately $2.6 million for the 13 weeks ended April 2, 2022 primarily due to a gain on litigation settlement of approximately $2.0 million, gain on reversal of a contingency loss of $637,000, and ~~October 2, 2021. In addition,~~other income, net of $715,0000, partially offset by an operating loss of $681,000. Additionally, the Company has total current assets of approximately ~~$9.4 million~~$637,000 and total current liabilities of approximately ~~$23.8~~$3.5 million resulting in a net negative working capital of approximately ~~$14.5 millionas of October 1, 2022.~~

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$2.8 million. Cash provided by continuing operations was approximately $106,000.

Future Sources of Cash; Phase 2b Trials, New Acquisitions, Products, and Services

We may require additional debt financing and/or capital to finance new acquisitions, ~~refinance existing indebtedness,~~ conduct our Phase IIb clinical trials, or consummate other strategic investments in our business. ~~Any~~No assurance can be given any financing obtained may not further dilute or otherwise impair the ownership interest of our existing stockholders.

Item 3. 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 rate debt.

~~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 January 1, 2022. 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, nor do we hold any securities for trading or speculative purposes.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Evaluation of Disclosure ~~Control~~control and Procedures. We carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer ~~(our CEO)~~ and principal financial officer, ~~(our CFO),~~ of the effectiveness of our disclosure controls and procedures (as defined in Exchange 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 October 1, 2022, 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 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~~Based upon that evaluation, our principal executive officer and principal financial officer concluded that, as of April 1, 2023, the period covered in ~~Internal Control Over Financial Reporting. There~~this report, our disclosure controls and procedures were ~~no changes in~~not effective because of the ~~Company’s~~material weaknesses discussed below.

In light of the conclusion that our internal ~~control over~~disclosure controls are ineffective as of April 1, 2023, we have applied procedures and processes as necessary to ensure the reliability of our financial reporting ~~during~~in regard to this annual report. Accordingly, the ~~quarter ended October 1, 2022, that have materially affected,~~Company believes, based on its knowledge, that: (i) this annual report does not contain any untrue statement of a material fact or ~~are reasonably likely to materially affect,~~omit a material fact; and (ii) the ~~Company’s internal control over~~ financial ~~reporting.~~statements, and other financial information included in this annual report, fairly present in all material respects our financial condition, results of operations and cash flows as of and for the periods presented in this annual report.

Management’s Report on Internal Control Over Financial Reporting. Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)). Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Our management assessed the effectiveness of our internal control over financial reporting as of ~~October~~April 1, ~~2022.~~2023. In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in 2013 regarding Internal Control – Integrated Framework. Based on our assessment using those criteria, our management concluded that our internal control over financial reporting was not effective as of ~~October~~April 1, ~~2022.~~2023.

Management noted material weaknesses in internal control when conducting their evaluation of internal control as of ~~October~~April 1, ~~2022.~~2023. (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~~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.~~processes; (3) ~~Insufficient~~insufficient assessment of the impact of potentially significant ~~transactions,~~transactions; and (4) ~~Insufficient~~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 ~~quarterly report on~~ Form ~~10-Q~~10-K and management is currently working to remedy these outstanding material weaknesses.

The Company’s management, including the Company’s CEO and CFO, do not expect that the Company’s disclosure controls and procedures or the Company’s internal control over financial reporting will 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 objectives of the 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 been detected.

37Changes in Internal Control Over Financial Reporting. There were no changes in the Company’s internal control over financial reporting during the fiscal year ended April 1, 2023 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. Other Information

Item 1. Legal Proceedings

The information in response to this item is included in Note 15, Commitments and Contingencies, to the Consolidated Financial Statements included in Part I, Item 1, of this Form 10-Q.

Item 1A. Risk Factors

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item. However, in light of the SEC Complaint, the Company provides the following additional risk ~~factor,~~factors, which supplements the risk factors previously disclosed by the Company in Part I, Item 1A, Risk Factors, of the 2020 10-K.

We are the subject of an SEC Complaint, which could divert management's focus, result in substantial litigation expenses and have an adverse impact on our business, reputation, financial condition, results of operations or stock price.

We are currently subject to an SEC Complaint. Refer to Note 15 to our Consolidated Financial Statements and Part II, Item 1 of this Quarterly Report for additional information regarding this specific matter. We may be subject to additional investigations, arbitration proceedings, audits, regulatory inquiries and similar actions, including matters related to intellectual property, employment, securities laws, disclosures, tax, accounting, class action and product liability, as well as regulatory and other claims related to our business and our industry, which we refer to collectively as legal proceedings. We cannot predict the outcome of any particular proceeding, or whether ongoing investigations, will be resolved favorably or ultimately result in charges or material damages, fines or other penalties, enforcement actions, bars against serving as an officer or director, or practicing before the SEC, or civil or criminal proceedings against us or members of our senior management.

Legal proceedings in general, and securities and class action litigation and regulatory investigations in particular, can be expensive and disruptive. Our insurance may not cover all claims that may be asserted against us, and we are unable to predict how long the legal proceedings to which we are currently subject will continue. An unfavorable outcome of any legal proceeding may have an adverse impact on our business, financial condition and results of operations or our stock price. Any proceeding could negatively impact our reputation among our stakeholders. Furthermore, publicity surrounding ongoing legal proceedings, even if resolved favorably for us, could result in additional legal proceedings against us, as well as damage our image.

We may not be able to maintain compliance with the continued listing requirements of The Nasdaq ~~Global~~Capital Market.

Our common stock is listed on ~~the~~The Nasdaq Capital Market. In order to maintain that listing, we must satisfy minimum financial and other requirements including, without limitation, a requirement that our closing bid price be at least $1.00 per share. If we fail to continue to meet all applicable continued listing requirements for The Nasdaq Global Market in the future and Nasdaq determines to delist our common stock, the delisting could adversely affect the market liquidity of our common stock, our ability to obtain financing to repay debt, and fund our operations.

On April 13, 2022, we received a notice from The NASDAQ Stock Market (“Nasdaq”) that we did not presently comply with Nasdaq’s Listing Rule 5550(b)(1) (the “Rule”) that requires a Company to maintain a minimum of $2,500,000 in stockholders’ equity for continued listing. The notice did not have any immediate effect on the listing of our common stock on the Nasdaq Capital Market and we had 45 calendar days from the date of the notice to submit a plan to Nasdaq to regain compliance with Nasdaq’s continued listing rules. We submitted such a plan on May 31, 2022, wherein we discussed the GeoTraq sale (see Note 24) and how that placed the Company back into compliance with the Rule. As of the filing date, we have received no further communication on the matter.

Item 2. Unregistered Sales of Equity Securities and Use of funds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

None.

Item 5. Other Information.

None.

3930

Item 6. Exhibits.

Index to Exhibits

Exhibit
Number

Exhibit Description

Form

File
Number

Exhibit
Number

Filing
Date
10.28

Asset Purchase Agreement between JanOne Inc. and SPYR Technologies Inc., dated May 24, 2022

8-K

0-19621

10.28

05/31/22

10.29

Promissory Note of SPYR Technologies Inc. in favor of JanOne Inc., dated May 24, 2022

8-K

0-19621

10.29

05/31/22

10.92

General Credit and Security Agreement, dated as of September 26, 2022, between Gulf Coast Bank and Trust Company and ARCA.

8-K

0-19621

10.92

09/28/22

10.93

Guaranty to Gulf Coast Bank and Trust by JanOne Inc., dated as of September 21, 2022.

8-K

0-19621

10.93

09/28/22

10.94

Debt Subordination Agreement by Isaac Capital Group, dated as of September 21, 2022.

8-K

0-19621

10.94

09/28/22

31.1
*
Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2
*
Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1
*
Certification of the President and Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2
*
Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS
*
Inline XBRL Instance Document

101.SCH
*
Inline XBRL Taxonomy Extension Schema Document

101.CAL
*
Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF
*
Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB
*
Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE
*
Inline XBRL Taxonomy Extension Presentation Linkbase Document

104

Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101)


Exhibit Number		Exhibit Description	Form	File Number	Exhibit Number	Filing Date
10.96		Stock Purchase Agreement between JanOne Inc. and VM7 Corporation, dated as of March 19, 2023 (Filed as Exhibit 10.95)	8-K	0-19621	10.95	3/20/2023

10.97		Stock and Membership Interests Pledge Agreement made by VM7 Corporation and Virland Johnson in favor of JanOne Inc., dated March 19, 2023 (Filed as Exhibit 10.96)	8-K	0-19621	10.96	3/20/2023

10.98		Form of Securities Purchase Agreement dated March 22, 2023.	8-K	0-19621	10.98	3/22/2023

31.1	*	Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2	*	Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1	*	Certification of the President and Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2	*	Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS	*	Inline XBRL Instance Document

101.SCH	*	Inline XBRL Taxonomy Extension Schema Document

101.CAL	*	Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF	*	Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB	*	Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE	*	Inline XBRL Taxonomy Extension Presentation Linkbase Document

104		Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101)

* Filed herewith.

~~† Portions of this exhibit have been redacted in compliance with Regulation S-K Item 601(b)(10)(iv).~~

4031

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.


		JanOne Inc.
		(Registrant)

Date:	~~November 14, 2022~~May 22, 2023	By:	/s/ Tony Isaac
			Tony Isaac
			Chief Executive Officer
			(Principal Executive Officer)


Date:	~~November 14, 2022~~May 22, 2023	By:	/s/ Virland A. Johnson
			Virland A. Johnson
			Chief Financial Officer
			(Principal Financial and Accounting Officer)

4132


	For the Thirteen Weeks Ended						For the Thirty-Nine Weeks Ended
	October 1, 2022			October 2, 2021			October 1, 2022			October 2, 2021
Revenues	$	8,587		$	12,113		$	28,449		$	29,391
Cost of revenues		7,553			9,032			23,913			23,146
Gross profit		1,034			3,081			4,536			6,245
Operating expenses:
Selling, general and administrative expenses		2,858			3,925			8,711			12,050
Gain on sale of GeoTraq		—			—			(12,091	)		—
Operating income (loss)		(1,824	)		(844	)		7,916			(5,805	)
Other income (expense):
Interest income (expense), net		36			(125	)		(254	)		(323	)
Gain on Payroll Protection Program loan forgiveness		—			—			—			1,872
Gain (loss) on litigation settlement, net		—			—			1,835			(1,950	)
Gain on settlement of vendor advance payments		—			11			—			952
Gain on reversal of contingency loss		—			—			637			—
Unrealized loss on marketable securities		(270	)		—			(646	)		—
Other income, net		—			23			359			45
Total other income (expense), net		(234	)		(91	)		1,931			596
Income (loss) from operations before provision for income taxes		(2,058	)		(935	)		9,847			(5,209	)
Provision for income taxes		16			33			23			236
Net income (loss)	$	(2,074	)	$	(968	)	$	9,824		$	(5,445	)
Net income per share:
Basic income per share	$	(0.66	)	$	(0.34	)	$	3.12		$	(2.09	)
Diluted income per share	$	(0.66	)	$	(0.34	)	$	2.81		$	(2.09	)
Weighted average common shares outstanding:
Basic		3,150,230			2,827,410			3,150,230			2,601,827
Diluted		3,150,230			2,827,410			3,496,003			2,601,827
Net income (loss)	$	(2,074	)	$	(968	)	$	9,824		$	(5,445	)
Other comprehensive loss, net of tax:
Effect of foreign currency translation adjustments		—			—			—			(42	)
Total other comprehensive income loss, net of tax		—			—			—			(42	)
Comprehensive income (loss)	$	(2,074	)	$	(968	)	$	9,824		$	(5,487	)


	October 1, 2022		January 1, 2022
Trade receivables, net	$	6,315	$	6,105
Factored accounts receivable		—		(2,194	)
Prestige Capital reserve receivable		—		172
Other receivables		519		137
Trade and other receivables, net	$	6,834	$	4,220

Trade accounts receivable	$	4,313	$	4,449
Un–billed trade receivables		2,002		1,656
Total trade receivables, net	$	6,315	$	6,105


	October 1, 2022		January 1, 2022
Appliances held for resale	$	415	$	1,104
Inventory – raw material – chips		—		105
Total inventory	$	415	$	1,209


	Shares		Amount
Beginning balance, January 1, 2022		—	$	—
Securities received		30,000,000		946
Mark-to-market		—		(646	)
Ending balance, October 1, 2022		30,000,000	$	300


Twelve months ended,
2023	$	594
2024		1,975
2025		1,681
2026		1,158
2027		981
Thereafter		445
Total		6,834
Less Interest		(944	)
Present Value of Payments	$	5,890


Beginning balance, January 1, 2022	$	17
Accrued		1,906
Settled		(1,245	)
Ending balance, October 1, 2022	$	678


	Thirteen Weeks Ended						Thirty-Nine Weeks Ended
	October 1, 2022			October 2, 2021			October 1, 2022			October 2, 2021
Revenues
Biotechnology	$	—		$	—		$	—		$	—
Recycling		8,587			12,113			28,449			29,391
Technology		—			—			—			—
Total Revenues	$	8,587		$	12,113		$	28,449		$	29,391
Gross profit
Biotechnology	$	—		$	—		$	—		$	—
Recycling		1,034			3,081			4,536			6,245
Technology		—			—			—			—
Total Gross profit	$	1,034		$	3,081		$	4,536		$	6,245
Operating Income (loss)
Biotechnology	$	21		$	(182	)	$	(331	)	$	(1,232	)
Recycling		(1,845	)		274			(3,838	)		(1,753	)
Technology		—			(936	)		12,085			(2,820	)
Total Operating income (loss)	$	(1,824	)	$	(844	)	$	7,916		$	(5,805	)
Depreciation and amortization
Biotechnology	$	—		$	—		$	—		$	—
Recycling		77			109			345			327
Technology		—			937			2			2,809
Total Depreciation and amortization	$	77		$	1,046		$	347		$	3,136
Interest (income) expense, net
Biotechnology	$	—		$	—		$	—		$	—
Recycling		(36	)		125			254			323
Technology		—			—			—			—
Total Interest expense, net	$	(36	)	$	125		$	254		$	323
Net income (loss) before benefit from income taxes
Biotechnology	$	21		$	(182	)	$	(331	)	$	(1,232	)
Recycling		(2,079	)		208			(2,053	)		(1,145	)
Technology		—			(961	)		12,231			(2,832	)
Total Net income (loss) before benefit from income taxes	$	(2,058	)	$	(935	)	$	9,847		$	(5,209	)


	As of October 1, 2022		As of January 1, 2022
Assets
Biotechnology	$	—	$	—
Recycling		31,304		15,165
Technology		—		—
Total Assets	$	31,304	$	15,165

Intangible assets
Biotechnology	$	—	$	—
Recycling		328		268
Technology		—		—
Total Intangible assets	$	328	$	268


Purchase price	$	13,500
Discount on note receivable		(1,350	)
Premium on shares received		46
Derecognition of GeoTraq inventory		(105	)
Gain on sale	$	12,091


	13 Weeks Ended October 1, 2022											13 Weeks Ended October 2, 2021
	Biotechnology			Recycling			Technology		Total			Biotechnology			Recycling		Technology			Total
Revenue	$	—		$	8,587		$	—	$	8,587		$	—		$	12,113	$	—		$	12,113
Cost of revenue		—			7,553			—		7,553			—			9,032		—			9,032
Gross profit		—			1,034			—		1,034			—			3,081		—			3,081
Selling, general and administrative expense		(21	)		2,879			—		2,858			182			2,807		936			3,925
Operating income (loss)	$	21		$	(1,845	)	$	—	$	(1,824	)	$	(182	)	$	274	$	(936	)	$	(844	)


	39 Weeks Ended					39 Weeks Ended
	October 1, 2022					October 2, 2021
Statement of Operations Data:
Revenue	$	28,449		100.0	%	$	29,391		100.0	%
Cost of revenue		23,913		84.1	%		23,146		78.8	%
Gross profit		4,536		15.9	%		6,245		21.2	%
Selling, general and administrative expense		8,711		30.6	%		12,050		41.0	%
Gain on sale of GeoTraq		(12,091	)	-50.6	%		—		0.0	%
Operating income (loss)		7,916		27.8	%		(5,805	)	-19.8	%
Interest expense, net		(254	)	-0.9	%		(323	)	-1.1	%
Gain on Payroll Protection Program loan forgiveness		—		0.0	%		1,872		6.4	%
Gain on settlement of vendor advance payments		—		0.0	%		952		3.2	%
Gain (loss) on litigation settlement, net		1,835		6.5	%		(1,950	)	-6.6	%
Gain on reversal of contingency loss		637		2.2	%		—		0.0	%
Unrealized loss on marketable securities		(646	)	-2.3	%		—		0.0	%
Other income, net		359		1.3	%		45		0.2	%
Net income (loss) before income taxes		9,847		34.6	%		(5,209	)	-17.7	%
Provision for income taxes		23		0.1	%		236		0.8	%
Net income (loss)	$	9,824		34.5	%	$	(5,445	)	-18.5	%


	39 Weeks Ended October 1, 2022												39 Weeks Ended October 2, 2021
	Biotechnology			Recycling			Technology			Total			Biotechnology			Recycling			Technology			Total
Revenue	$	—		$	28,449		$	—		$	28,449		$	—		$	29,391		$	—		$	29,391
Cost of revenue		—			23,913			—			23,913			—			23,146			—			23,146
Gross profit		—			4,536			—			4,536			—			6,245			—			6,245
Selling, general and administrative expense		331			8,374			6			8,711			1,232			7,998			2,820			12,050
Gain on sale of GeoTraq		—			—			(12,091	)		(12,091	)		—			—			—			—
Operating income (loss)	$	(331	)	$	(3,838	)	$	12,085		$	7,916		$	(1,232	)	$	(1,753	)	$	(2,820	)	$	(5,805	)