Amendment No. 1
X Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
or
o Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Nevada (State or other jurisdiction of incorporation or organization) | 41-1454591 (I.R.S. Employer Identification No.) | |||||||
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702-997-5968
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||||||||
Common Stock, $0.001 par value per share | JAN |
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Large accelerated filer |
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Emerging growth company |
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JANONE INC.
INDEX TO FORM 10-Q
EXPLANATORY NOTE
Restatement Background
On April 17, 2023, the Company’s management and the Audit Committee of the Company’s Board of Directors (the “Audit Committee”) reached a determination that the Company’s previously issued unaudited consolidated financial statements and related disclosures for each of the quarterly periods ended July 2, 2022 and October 1, 2022, should no longer be relied upon because of a material misstatement contained in those two quarterly unaudited condensed consolidated financial statements. The Company’s management and the Audit Committee discussed the matters with Frazier & Deeter, LLC, the Company’s independent registered public accounting firm for the 2022 fiscal year, and with WSRP, LLC, the Company’s independent registered public accounting firm during the second and third quarters in the 2022 fiscal year and prior fiscal periods since 2019, and determined to restate the Company’s unaudited condensed consolidated financial statements for the second and third fiscal quarters ended July 2, 2022, and October 1, 2022.
In connection with the Company’s preparation of its unaudited condensed consolidated financial statements and related disclosures for its second quarter, the Company’s management and Audit Committee relied upon the report issued by a third-party valuation firm to determine the carrying value of the promissory note the Company had received from SPYR Technologies, Inc. (the “SPYR Note”), in connection with the Company’s sale of the assets of its GeoTraq, Inc. subsidiary to SPYR Technologies, Inc. in the second quarter of the Company’s 2022 fiscal year. The accounting treatment for the SPYR Note had financial statement implications to (i) two line items in the Company’s Condensed Consolidated Balance Sheets (specifically, Note receivable, net and Accumulated deficit), (ii) two line items in the Company’s Condensed Consolidated Statements of Operations And Comprehensive Income (Loss) (specifically, Gain on sale of GeoTraq, and Interest expense, net), resulting in a decrease in net income of approximately $1.8 million and a decrease in net loss of approximately $93,000 for the 13 weeks ended July 2, 2022 and October 1, 2022, respectively, and (iii) two line items in the Company’s Condensed Consolidated Statements of Cash Flows (specifically, Gain on sale of GeoTraq and Accretion of note receivable discount), resulting in decrease in net income of approximately $1.8 million for the 26 weeks ended July 2, 2022, and $1.7 million for the 39 weeks ended October 1, 2022. Further, in connection with the preparation of the Company’s Quarterly Report on Form 10-Q for this quarterly period, the Company also received guidance from an additional third-party source in connection with the review of those unaudited condensed consolidated financial statements and related disclosures. However, in connection with the Company’s 2022 fiscal year-end audit and the preparation of its consolidated financial statements and related disclosures for that fiscal year, the Company’s management and the Audit Committee concluded that the carrying value of the SPYR Note, as set forth in the aforementioned Quarterly Reports, should be restated. The initial carrying value of $11.2 million should be restated to be $9.4 million and reflect carrying value of $9.5 million as of July 2, 2022. This quarterly restatement has an impact on net income (loss), but not on operating cash flows for any period.
Restatement of Previously Issued Unaudited Condensed Consolidated Financial Statements
This amended Quarterly Report on Form 10-Q includes unaudited consolidated financial statements for the quarters ended July 2, 2022 and July 3, 2021, as well as relevant unaudited interim pro forma financial information for the quarterly periods ended July 2, 2022 and July 3, 2021. The Company will also file an amended Quarterly Report on From 10-Q for its third fiscal quarter ended October 1, 2022.
See Note 3 Restatements and Reclassifications; Note 7 Notes Receivable; Note 19 Loss Per Share; Note 22 Segment Information; and Note 25 Sale of GeoTraq in Part I. Financial Information Item 1. Condensed Consolidated Financial Statements for such restated information on the quarterly unaudited condensed consolidated financial statements for this second quarter of the Company’s 2022 fiscal year. Further, the gain associated with the GeoTraq disposition (Technology segment) has been restated and presented as discontinued operations for the periods ending July 2, 2022. As such, the results of the Technology segment have been reclassified and presented as discontinued operations for the periods ending July 3, 2021.
2
JANONE INC.
INDEX TO FORM 10-Q
July 2, January 1, (As restated) (Unaudited) Assets Cash and cash equivalents $ 1,181 $ 705 Trade and other receivables, net 4,273 4,220 Income taxes receivable 12 — Inventories 494 1,104 Prepaid expenses and other current assets 869 1,423 Current assets from discontinued operations — 105 Total current assets 6,829 7,557 Property and equipment, net 2,676 2,113 Right to use asset - operating leases 4,268 3,671 Intangible assets, net 345 268 Note receivable, net 9,464 — Marketable securities 570 — Deposits and other assets 1,554 1,556 Total assets $ 25,706 $ 15,165 Liabilities and Stockholders' Equity (Deficit) Liabilities: Accounts payable $ 5,839 $ 5,071 Accrued liabilities - other 4,963 5,232 Accrued liability - California Sales Taxes 6,140 6,022 Lease obligation short–term - operating leases 1,405 1,304 Short–term debt — 288 Current portion of notes payable 315 261 Current portion of related party note payable 223 1,000 Current liabilities from discontinued operations — 195 Total current liabilities 18,885 19,373 Lease obligation long term - operating leases 2,964 2,470 Long–term portion of notes payable 1,509 1,318 Long-term portion related party note payable 724 — Other noncurrent liabilities 219 680 Total liabilities 24,301 23,841 Commitments and contingencies (Note 17) Stockholders' equity (deficit): Preferred stock, series A - par value $0.001 per share 2,000,000 authorized, — — Common stock, par value $0.001 per share, 10,000,000 shares authorized, 2 2 Additional paid-in capital 45,747 45,743 Accumulated deficit (43,727 ) (53,804 ) Accumulated other comprehensive loss (617 ) (617 ) Total stockholders' equity (deficit) 1,405 (8,676 ) Total liabilities and stockholders' equity (deficit) $ 25,706 $ 15,165 For the Thirteen Weeks Ended For the Twenty Six Weeks Ended July 2, July 3, July 2, July 3, (As restated) (As restated) Revenues $ 10,538 $ 8,606 $ 19,862 $ 17,278 Cost of revenues 8,889 6,863 16,360 14,114 Gross profit 1,649 1,743 3,502 3,164 Operating expenses: Selling, general and administrative expenses 2,906 3,650 5,847 6,241 Operating income (loss) (1,257 ) (1,907 ) (2,345 ) (3,077 ) Other income (expense): Interest expense, net (61 ) (125 ) (253 ) (198 ) Gain on Payroll Protection Program loan forgiveness — — — 1,872 Gain (loss) on litigation settlement, net — (1,950 ) 1,835 (1,950 ) Gain on settlement of vendor advance payments — 131 — 941 Gain on reversal of contingency loss — — 637 — Unrealized loss on marketable securities (376 ) — (376 ) — Other income, net 333 22 359 22 Total other income (expense), net (104 ) (1,922 ) 2,202 687 Income (loss) from operations before provision for income taxes (1,361 ) (3,829 ) (143 ) (2,390 ) Provision (benefit) for income taxes 4 205 7 203 Net income (loss) from continuing operations (1,365 ) (4,034 ) (150 ) (2,593 ) Net income from discontinued operations, net of tax 10,239 (945 ) 10,235 (1,884 ) Net income (loss) $ 8,874 $ (4,979 ) $ 10,085 $ (4,477 ) Net income (loss) per share: Basic and diluted loss per share from continuing operations $ (0.43 ) $ (1.68 ) $ (0.05 ) $ (1.12 ) Basic income (loss) per share from discontinued operations $ 3.25 $ (0.39 ) $ 3.25 $ (0.81 ) Diluted income (loss) per share from discontinued operations $ 2.93 $ (0.39 ) $ 2.93 $ (0.81 ) Basic income (loss) per share $ 2.82 $ (2.07 ) $ 3.20 $ (1.94 ) Diluted income (loss) per share $ 2.54 $ (2.07 ) $ 2.88 $ (1.94 ) Weighted average common shares outstanding: Basic 3,150,230 2,405,410 3,150,230 2,312,024 Diluted 3,496,250 2,405,410 3,496,250 2,312,024 Net income (loss) $ 8,874 $ (4,979 ) $ 10,085 $ (4,477 ) Other comprehensive income (loss), net of tax: Effect of foreign currency translation adjustments — — — (42 ) Total other comprehensive income (loss), net of tax — — — (42 ) Comprehensive income (loss) $ 8,874 $ (4,979 ) $ 10,085 $ (4,519 ) For the Twenty Six Weeks Ended July 2, 2022 July 3, 2021 (As restated) OPERATING ACTIVITIES: Net income (loss) $ 10,085 $ (4,477 ) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating Depreciation and amortization 270 2,090 Amortization of debt issuance costs 7 — Stock based compensation expense 4 180 Accretion of note receivable discount (64 ) — Gain on legal settlement (115 ) — Gain on Payroll Protection Program loan forgiveness — (1,872 ) Gain on settlement of vendor advance payments — (941 ) Gain on reversal of contingent liability (637 ) — Gain on sale of GeoTraq (10,241 ) — Unrealized loss on marketable securities 376 — Changes in assets and liabilities: Accounts receivable (53 ) (204 ) Income taxes receivable (12 ) 173 Prepaid expenses and other current assets 554 110 Inventories 610 303 Right of use assets (597 ) (681 ) Lease liability 595 650 Accounts payable and accrued expenses 713 2,485 Deposits and other Assets (6 ) (123 ) Net cash provided by (used in) operating activities 1,489 (2,307 ) INVESTING ACTIVITIES: Purchases of property and equipment (721 ) (1,458 ) Purchases of intangibles (189 ) (65 ) Net cash used in investing activities (910 ) (1,523 ) FINANCING ACTIVITIES: Proceeds from equity financing, net — 5,544 Proceeds from stock option exercise — 27 Proceeds from notes payable 366 1,835 Payments on related party notes payable (53 ) — Payments on notes payable (128 ) (59 ) Payments on short-term notes payable (288 ) (144 ) Net cash provided by (used in) financing activities (103 ) 7,203 Effect of changes in exchange rate on cash and cash equivalents — (42 ) INCREASE IN CASH AND CASH EQUIVALENTS 476 3,331 CASH AND CASH EQUIVALENTS, beginning of period 705 379 CASH AND CASH EQUIVALENTS, end of period $ 1,181 $ 3,710 Supplemental cash flow disclosures: Interest paid $ 120 $ 84 Income taxes paid 54 28 Right to use asset - operating leases capitalized 1,451 1,244 (DEFICIT) Series A Preferred Common Stock Additional Accumulated Accumulated Total Shares Amount Shares Amount Capital Deficit Deficit Equity (Deficit) (As restated) 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 — — — — — Other comprehensive income — — — — — — 41 41 Net income, as restated — — — — — 8,874 — 8,874 Balance, July 2, 2022 222,588 $ — 3,150,230 $ 2 $ 45,747 $ (43,727 ) $ (617 ) $ 1,405 Series A Preferred Common Stock Additional Accumulated Accumulated Total 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 Net loss — — — — — (4,979 ) — (4,979 ) Balance, July 3, 2021 259,729 $ — 2,407,410 $ 2 $ 45,620 $ (41,394 ) $ (630 ) $ 3,598 statements (see Note 3). 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. accompanying consolidated financial statements (see Note 3). 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. Cash used in operations from continuing operations was approximately $500,000. Additionally, stockholders’ equity, as of September 30, 2023, is approximately $14.5 million. Basis of Presentation Principles of Consolidation Financial Statement Reclassification Financial Instruments The July 2, (Unaudited) (Unaudited) Previously Reported Effect of Restatement (As restated) Consolidated balance sheets as of July 2, 2022 Note receivable, net 11,277 (1,813 ) 9,464 Total assets $ 27,519 $ (1,813 ) $ 25,706 Total liabilities 24,301 — 24,301 Accumulated deficit (41,914 ) (1,813 ) (43,727 ) Total stockholders' equity (deficit) 3,218 (1,813 ) 1,405 Total liabilities and stockholders' equity (deficit) $ 27,519 $ (1,813 ) $ 25,706 For the Thirteen Weeks Ended For the Twenty Six Weeks Ended July 2, July 2, Previously Reported Effect of Restatement (As restated) Previously Reported Effect of Restatement (As restated) Selling, general and administrative expenses 2,908 (2 ) 2,906 5,853 (6 ) 5,847 Gain on sale of GeoTraq (12,091 ) 12,091 — (12,091 ) 12,091 — Operating income (loss) 10,832 (12,089 ) (1,257 ) 9,740 (12,085 ) (2,345 ) Interest expense, net (98 ) 37 (61 ) (290 ) 37 (253 ) Total other income (expense), net (141 ) 37 (104 ) 2,165 37 2,202 Income (loss) from operations before provision for income taxes 10,691 (12,052 ) (1,361 ) 11,905 (12,048 ) (143 ) Net income (loss) from continuing operations 10,687 (12,052 ) (1,365 ) 11,898 (12,048 ) (150 ) Net income from discontinued operations, net of tax — $ 10,239 $ 10,239 — 10,235 10,235 Net income (loss) $ 10,687 $ (1,813 ) $ 8,874 $ 11,898 $ (1,813 ) $ 10,085 Net income (loss) per share: Basic and diluted income (loss) per share from continuing operations $ 3.39 $ (3.83 ) $ (0.43 ) $ 3.78 $ (3.82 ) $ (0.05 ) Basic income per share from discontinued operations $ — $ 3.25 $ 3.25 $ — $ 3.25 $ 3.25 Diluted income per share from discontinued operations $ — $ 2.93 $ 2.93 $ — $ 2.93 $ 2.93 Basic income (loss) per share $ 3.39 $ (0.58 ) $ 2.82 $ 3.78 $ (0.58 ) $ 3.20 Diluted income (loss) per share $ 3.06 $ (0.52 ) $ 2.54 $ 3.40 $ (0.52 ) $ 2.88 For the Twenty Six Weeks Ended July 2, 2022 Previously Reported Effect of Restatement (As restated) OPERATING ACTIVITIES: Net income (loss) $ 11,898 $ (1,813 ) $ 10,085 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating Accretion of note receivable discount (27 ) (37 ) (64 ) Gain on sale of GeoTraq (12,091 ) 1,850 (10,241 ) Net cash provided by (used in) operating activities 1,489 — 1,489 The Company’s trade and other receivables as of July 2, January 1, Trade receivables, net $ 5,443 $ 6,105 Factored accounts receivable (1,718 ) (2,194 ) Prestige Capital reserve receivable 297 172 Other receivables 251 137 Trade and other receivables, net $ 4,273 $ 4,220 Trade accounts receivable $ 3,739 $ 4,449 Un–billed trade receivables 1,704 1,656 Total trade receivables, net $ 5,443 $ 6,105 July 2, January 1, Appliances held for resale $ 494 $ 1,104 Discontinued operations — 105 Total inventory $ 494 $ 1,209 Prepaids and other current assets as of July 2, January 1, Prepaid insurance $ 91 $ 493 Prepaid rent 155 180 Prepaid other 623 750 Total prepaid expenses and other current assets $ 869 $ 1,423 The Company has received restricted shares of Series G Convertible Preferred Stock of SPYR equivalent to approximately 414,000,000 shares of its common stock during the 39 weeks ended September 30, 2023, and 30,000,000 shares of SPYR's common stock during the 39 weeks ended October 1, 2022. As of September 30, 2023, the Company has accrued receivables of approximately $254,000 in interest income related to the Promissory Note. approximately VM7 Note Useful Life July 2, January 1, Buildings and improvements 3-30 $ 80 $ 80 Equipment 3-15 3,646 3,638 Projects under construction 1,522 851 Property and equipment 5,248 4,569 Less accumulated depreciation and amortization (2,572 ) (2,456 ) Total property and equipment, net $ 2,676 $ 2,113 Intangible assets as of The Soin intangibles acquired by the Company consist of the following: July 2, January 1, Patent and domains $ 23 $ 23 Computer software 4,733 4,559 Intangible assets 4,756 4,582 Less accumulated amortization (4,411 ) (4,314 ) Total intangible assets $ 345 $ 268 Three pending patents related to the methods of using low-dose Naltrexone to treat chronic pain; Shares Amount Beginning balance, January 1, 2022 — $ — Securities received 30,000,000 946 Mark-to-market — (376 ) Ending balance, July 2, 2022 30,000,000 $ 570 Deposits and other assets as of July 2, January 1, Deposits $ 1,524 $ 1,513 Other 30 43 Total deposits and other assets $ 1,554 $ 1,556 Twelve months ended, 2023 $ 920 2024 1,483 2025 1,235 2026 705 2027 522 Thereafter 155 Total 5,020 Less Interest (651 ) Present Value of Payments $ 4,369 Accrued liabilities as of July 2, January 1, Compensation and benefits $ 752 $ 731 Contract liability 331 17 Accrued incentive and rebate checks 1,357 1,427 Accrued transportation costs* — 904 Accrued guarantees 130 767 Accrued purchase orders — 23 Accrued taxes 511 543 Accrued litigation settlement 680 680 Other 1,202 140 Total accrued expenses $ 4,963 $ 5,232 Beginning balance, January 1, 2022 $ 17 Accrued 1,260 Settled (946 ) Ending balance, July 2, 2022 $ 331 The Company’s overall effective tax rate was July 2, January 1, AFCO Finance $ — $ 288 Total short term debt $ — $ 288 As of the date of these financial statements, discovery has recommenced as the mediation did not result in a settlement and the motions to dismiss were denied. Settlement Agreement had been repaid. corporate purposes. outstanding. Additional information relating to all outstanding options is as follows: Weighted Aggregate Weighted Options Exercise Intrinsic Contractual 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 July 2, 2022 117,500 $ 7.16 $ — 6.5 Exercisable at July 2, 2022 117,500 $ 7.16 $ — 6.5 The following table presents the computation of basic and diluted net For the Thirteen Weeks Ended For the Twenty Six Weeks Ended July 2, 2022 July 3, 2021 July 2, 2022 July 3, 2021 (as restated) (as restated) Continuing Operations Net loss $ (1,365 ) $ (4,034 ) $ (150 ) $ (2,593 ) Basic and diluted Basic and diluted loss per share $ (0.43 ) $ (1.68 ) $ (0.05 ) $ (1.12 ) Weighted average common shares outstanding 3,150,230 2,405,410 3,150,230 2,312,024 Discontinued Operations Net income (loss) 10,239 (945 ) 10,235 (1,884 ) Basic Basic income (loss) per share $ 3.25 $ (0.39 ) $ 3.25 $ (0.81 ) Weighted average common shares outstanding 3,150,230 2,405,410 3,150,230 2,312,024 Diluted Diluted income (loss) per share $ 2.93 $ (0.39 ) $ 2.93 $ (0.81 ) Weighted average common shares outstanding 3,496,250 2,405,410 3,496,250 2,312,024 Total Net income (loss) 8,874 (4,979 ) 10,085 (4,477 ) Basic Basic income (loss) per share $ 2.82 $ (2.07 ) $ 3.20 $ (1.94 ) Weighted average common shares outstanding 3,150,230 2,405,410 3,150,230 2,312,024 Diluted Diluted income (loss) per share $ 2.54 $ (2.07 ) $ 2.88 $ (1.94 ) Weighted average common shares outstanding 3,496,250 2,405,410 3,496,250 2,312,024 The following tables present our segment information for the Thirteen Weeks Ended Twenty Six Weeks Ended July 2, 2022 July 3, 2021 July 2, 2022 July 3, 2021 (as restated) (as restated) Revenues Biotechnology $ — $ — $ — $ — Recycling 10,538 8,606 19,862 17,278 Discontinued operations — — — — Total Revenues $ 10,538 $ 8,606 $ 19,862 $ 17,278 Gross profit Biotechnology $ — $ — $ — $ — Recycling 1,649 1,743 3,502 3,164 Discontinued operations — — — — Total Gross profit $ 1,649 $ 1,743 $ 3,502 $ 3,164 Operating Income (loss) Biotechnology $ (110 ) $ (808 ) $ (352 ) $ (1,050 ) Recycling (1,147 ) (1,099 ) (1,993 ) (2,027 ) Operating loss from continuing operations (1,257 ) (1,907 ) (2,345 ) (3,077 ) Discontinued operations 10,239 (945 ) 10,235 (1,884 ) Total Operating income (loss) $ 8,982 $ (2,852 ) $ 7,890 $ (4,961 ) Depreciation and amortization Biotechnology $ — $ — $ — $ — Recycling 137 110 268 218 Depreciation and amortization from continuing operations 137 110 268 218 Discontinued operations — 935 2 1,872 Total Depreciation and amortization $ 137 $ 1,045 $ 270 $ 2,090 Interest expense, net Biotechnology $ — $ — $ — $ — Recycling 61 125 253 198 Discontinued operations — — — — Total Interest expense, net $ 61 $ 125 $ 253 $ 198 Net income (loss) before benefit from income taxes Biotechnology $ (110 ) $ (808 ) $ (352 ) $ (1,050 ) Recycling (1,363 ) (2,992 ) 127 (1,353 ) Net loss before benefit from income taxes (1,473 ) (3,800 ) (225 ) (2,403 ) Discontinued operations 10,351 (974 ) 10,317 (1,871 ) Total Net income (loss) before benefit from income taxes $ 8,878 $ (4,774 ) $ 10,092 $ (4,274 ) As of As of Assets Biotechnology $ — $ — Recycling 25,706 15,058 Discontinued operations — 107 Total Assets $ 25,706 $ 15,165 Intangible assets Biotechnology $ — $ — Recycling 345 268 Discontinued operations — — Total Intangible assets $ 345 $ 268 Purchase price $ 13,500 Discount on note receivable (3,200 ) Premium on shares received 46 Derecognition of GeoTraq inventory (105 ) Gain on sale $ 10,241 On March The Stock Purchase Agreement is retroactively effective as of March 1, 2023. 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 13 Weeks Ended 13 Weeks Ended July 2, 2022 July 3, 2021 (As restated) Statement of Operations Data: Revenue $ 10,538 100.0 % $ 8,606 100.0 % Cost of revenues 8,889 84.4 % 6,863 79.7 % Gross profit 1,649 15.6 % 1,743 20.3 % Selling, general and administrative expense 2,906 27.6 % 3,650 42.4 % Operating income (loss) (1,257 ) -11.9 % (1,907 ) -22.2 % Interest expense, net (61 ) -0.6 % (125 ) -1.5 % Gain on settlement of vendor advance payments — 0.0 % 131 1.5 % Loss on litigation settlement — 0.0 % (1,950 ) -22.7 % Unrealized loss on marketable securities (376 ) -3.6 % — 0.0 % Other income 333 3.2 % 22 0.3 % Net loss from continuing operations before provision for income taxes (1,361 ) -12.9 % (3,829 ) -44.5 % Provision for income taxes 4 0.0 % 205 2.4 % Net loss from continuing operations (1,365 ) -13.0 % (4,034 ) -46.9 % Income (loss) from discontinued operations, net of tax 10,239 97.2 % (945 ) -11.0 % Net income (loss) $ 8,874 84.2 % $ (4,979 ) -57.9 % 13 Weeks Ended 13 Weeks Ended July 2, 2022 July 3, 2021 Net Percent Net Percent Revenue of Total Revenue of Total Revenue Recycling and Byproducts $ 5,139 48.8 % $ 4,888 73.3 % Replacement Appliances 5,399 51.2 % 3,718 26.7 % Total Revenue $ 10,538 100.0 % $ 8,606 100.0 % 13 Weeks Ended 13 Weeks Ended July 2, 2022 July 3, 2021 Gross Gross Gross Gross Profit Profit % Profit Profit % Gross Profit Recycling and Byproducts $ (107 ) -2.1 % $ 519 10.6 % Replacement Appliances 1,756 0.0 % 1,224 32.9 % Total Gross Profit $ 1,649 15.6 % $ 1,743 20.3 % the disposition of our recycling segment as of March 1, 2023. increased amortization costs relating to the Soin intangibles. This increase relates only to continuing operations. segment in March 2023, and detail those results as discontinued operations below. 13 Weeks Ended July 2, 2022 (As restated) 13 Weeks Ended July 3, 2021 Biotechnology Recycling Continuing Operations Discontinued Operations Total Biotechnology Recycling Continuing Operations Discontinued Operations Total Revenue $ — $ 10,538 $ 10,538 $ — $ 10,538 $ — $ 8,606 $ 8,606 $ — $ 8,606 Cost of revenue — 8,889 $ 8,889 — 8,889 — 6,863 6,863 — 6,863 Gross profit — 1,649 1,649 — 1,649 — 1,743 1,743 — 1,743 Selling, general and administrative expense 110 2,796 2,906 (10,239 ) (7,333 ) 808 2,842 3,650 945 4,595 Operating income (loss) $ (110 ) $ (1,147 ) $ (1,257 ) $ 10,239 $ 8,982 $ (808 ) $ (1,099 ) $ (1,907 ) $ (945 ) $ (2,852 ) . March 1, 2023. 26 Weeks Ended 26 Weeks Ended July 2, 2022 July 3, 2021 (As restated) Statement of Operations Data: Revenue $ 19,862 100.0 % $ 17,278 100.0 % Cost of revenue 16,360 82.4 % 14,114 81.7 % Gross profit 3,502 17.6 % 3,164 18.3 % Selling, general and administrative expense 5,847 29.4 % 6,241 36.1 % Operating income (loss) (2,345 ) -11.8 % (3,077 ) -17.8 % Interest expense, net (253 ) -1.3 % (198 ) -1.1 % Gain on Payroll Protection Program loan forgiveness — 0.0 % 1,872 10.8 % Gain on settlement of vendor advance payments — 0.0 % 941 5.4 % Gain (loss) on litigation settlement, net 1,835 9.2 % (1,950 ) -11.3 % Gain on reversal of contingency loss 637 3.2 % - 0.0 % Unrealized loss on marketable securities (376 ) -1.9 % - 0.0 % Other income, net 359 1.8 % 22 0.1 % Net loss before provision for income taxes (143 ) -0.7 % (2,390 ) -13.8 % Provision for income taxes 7 0.0 % 203 1.2 % Net loss from continuing operations (150 ) -0.8 % (2,593 ) -15.0 % Income (loss) from discontinued operations, net of tax 10,235 51.5 % (1,884 ) -10.9 % Net income (loss) $ 10,085 50.8 % $ (4,477 ) -25.9 % 26 Weeks Ended 26 Weeks Ended July 2, 2022 July 3, 2021 Net Percent Net Percent Revenue of Total Revenue of Total Revenue Recycling and Byproducts $ 9,516 47.9 % $ 8,866 51.3 % Replacement Appliances 10,346 52.1 % 8,412 48.7 % Total Revenue $ 19,862 100.0 % $ 17,278 100.0 % 26 Weeks Ended 26 Weeks Ended July 2, 2022 July 3, 2021 Gross Gross Gross Gross Profit Profit % Profit Profit % Gross Profit Recycling and Byproducts $ (132 ) -1.4 % $ 462 5.2 % Replacement Appliances 3,634 35.1 % 2,702 32.1 % Total Gross Profit $ 3,502 17.6 % $ 3,164 18.3 % 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 segment in March 2023, and detail those results as discontinued operations below. 26 Weeks Ended July 2, 2022 (As restated) 26 Weeks Ended July 3, 2021 Biotechnology Recycling Continuing Operations Discontinued Operations Total Biotechnology Recycling Continuing Operations Discontinued Operations Total Revenue $ — $ 19,862 $ 19,862 $ — $ 19,862 $ — $ 17,278 $ 17,278 $ — $ 17,278 Cost of revenue — 16,360 $ 16,360 — 16,360 — 14,114 $ 14,114 — 14,114 Gross profit — 3,502 3,502 — 3,502 — 3,164 3,164 — 3,164 Selling, general and administrative expense 352 5,495 5,847 (10,235 ) (4,388 ) 1,050 5,191 6,241 1,884 8,125 Operating income (loss) $ (352 ) $ (1,993 ) $ (2,345 ) $ 10,235 $ 7,890 $ (1,050 ) $ (2,027 ) $ (3,077 ) $ (1,884 ) $ (4,961 ) 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. $2.0 million. Cash provided by continuing operations was approximately $329,000. 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. September 30, 2023. 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. There were no changes in the Company’s internal control over financial reporting during the 39 weeks ended September 30, 2023 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. 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 5/31/22 10.29 Promissory Note of SPYR Technologies Inc. in favor of JanOne Inc., dated May 24, 2022 8-K 0-19621 10.29 5/31/22 31.1 * 31.2 * 32.1 * 32.2 * 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) Date: By: /s/ Tony Isaac Tony Isaac Chief Executive Officer (Principal Executive Officer) Date: By: /s/ Virland A. Johnson Virland A. Johnson Chief Financial Officer (Principal Financial and Accounting Officer)
2022
2022
222,588 and 238,729 shares issued and outstanding at July 2, 2022 and
January 1, 2022, respectively
3,150,230 and 2,827,410 shares issued and outstanding at July 2, 2022
and January 1, 2022, respectivelySeptember 30,
2023December 31,
2022(Unaudited) Assets Cash and cash equivalents $ 413 $ 61 Trade and other receivables, net 19 106 Prepaid expenses and other current assets 85 394 Current assets from discontinued operations — 8,612 Total current assets 517 9,173 Intangible assets - Soin, net 18,204 19,293 Other intangible assets, net 4 4 Note receivable - SPYR, net 9,578 8,974 Note receivable - VM7, net 5,600 — Marketable securities 222 315 Deposits and other assets 364 18 Other assets from discontinued operations — 8,979 Total assets $ 34,489 $ 46,756 Liabilities and Stockholders' Equity Liabilities: Accounts payable $ 2,261 $ 2,276 Accrued liabilities - other 243 1,006 Short-term debt — 274 Current liabilities from discontinued operations — 20,382 Total current liabilities 2,504 23,938 Deferred income taxes, net 2,942 — Other noncurrent liabilities 35 241 Noncurrent liabilities from discontinued operations — 5,760 Total liabilities 5,481 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 September 30, 2023 and December 31, 2022, respectively 14,510 14,510 Stockholders' equity: Preferred stock, series A-1 - par value $0.001 per share, 2,000,000 authorized, 193,730 and 222,588 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively — — Common stock, par value $0.001 per share, 200,000,000 shares authorized, 4,957,647 and 2,827,410 shares issued and outstanding at September 30, 2023 and at December 31, 2022, respectively 3 2 Additional paid-in capital 47,323 45,748 Accumulated deficit (32,828) (42,822) Accumulated other comprehensive loss — (621) Total stockholders' equity 14,498 2,307 Total liabilities and stockholders' equity $ 34,489 $ 46,756 (LOSS)
2022
2021
2022
2021For the Thirteen Weeks Ended For the Thirty-Nine Weeks Ended September 30,
2023October 1,
2022September 30,
2023October 1,
2022Revenues $ — $ — $ — $ — Cost of revenues — — — — Gross profit — — — — Operating expenses: Selling, general and administrative expenses 764 611 2,923 1,950 Operating loss (764) (611) (2,923) (1,950) Other income: Interest income, net 758 410 1,598 575 Gain on litigation settlement, net — — — 1,950 Unrealized loss on marketable securities (267) (270) (514) (646) Gain on reversal of contingency loss — — — 637 Other income, net 6 688 745 2,043 Total other income, net 497 828 1,829 4,559 Income (loss) from continuing operations before provision for income taxes (267) 217 (1,094) 2,609 Income tax benefit (25) — (269) — Net income (loss) from continuing operations (242) 217 (825) 2,609 Gain (loss) from discontinued operations — (2,182) 13,976 5,518 Income tax provision (benefit) for discontinued operations (28) 16 3,158 23 Net income (loss) from discontinued operations 28 (2,198) 10,818 5,495 Net income (loss) $ (214) $ (1,981) $ 9,993 $ 8,104 Net income (loss) per share: Net income (loss) per share from continuing operations, basic $ (0.06) $ 0.07 $ (0.22) $ 0.83 Net income (loss) per share from continuing operations, diluted $ (0.06) $ 0.07 $ (0.22) $ 0.75 Net income (loss) per share from discontinued operations, basic $ 0.01 $ (0.70) $ 2.93 $ 1.74 Net income (loss) per share from discontinued operations, diluted $ 0.01 $ (0.70) $ 2.93 $ 1.57 Net income (loss) per share, basic $ (0.05) $ (0.63) $ 2.71 $ 2.57 Net income (loss) per share, diluted $ (0.05) $ (0.63) $ 2.71 $ 2.32 Weighted average common shares outstanding: Basic 4,198,940 3,150,230 3,687,896 3,150,230 Diluted 4,198,940 3,150,230 3,687,896 3,496,003
activities:For the Thirty-Nine Weeks Ended September 30, 2023 October 1, 2022 OPERATING ACTIVITIES: Net (loss) income from continuing operations $ (825) $ 2,609 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 1,090 2 Stock based compensation expense 14 4 Accretion of note receivable discount (1,021) (225) Gain on legal settlement — (115) Unrealized loss on marketable securities 514 646 Gain on reversal of contingent liability — (637) Changes in assets and liabilities: Accounts receivable, net of acquisitions and dispositions 506 (1,449) Prepaid expenses and other current assets, net of dispositions 309 (72) Inventories — (210) Accounts payable and accrued expenses, net of dispositions (689) (252) Other Assets (346) 15 Operating cash flows provided by discontinued operations 2,320 (2,707) Net cash provided by (used in) operating activities 1,872 (2,391) INVESTING ACTIVITIES: Investing cash flows used in discontinued operations (156) (950) Net cash used in investing activities (156) (950) FINANCING ACTIVITIES: Proceeds from equity financing, net 792 — Proceeds from notes payable — 648 Warrants exercised 259 — Payments on notes payable — (530) Payments on short-term notes payable (274) — Financing cash flows from discontinued operations (2,212) 3,386 Net cash (used in) provided by financing activities (1,435) 3,504 Effect of changes in exchange rate on cash and cash equivalents 17 — INCREASE IN CASH AND CASH EQUIVALENTS 298 163 CASH AND CASH EQUIVALENTS, beginning of period 115 705 LESS CASH OF DISCONTINUED OPERATIONS, end of period — (434) CASH AND CASH EQUIVALENTS, end of period $ 413 $ 434 Supplemental cash flow disclosures: Interest paid $ 118 $ 235 Income taxes paid — 54 Noncash recognition of new leases — 1,902 Series A-1 Preferred Common Stock Additional
Paid-in
CapitalAccumulated
DeficitAccumulated
Other
Comprehensive
DeficitTotal
Stockholders'
EquityShares Amount Shares Amount 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 Series A-1 Preferred converted for legal settlement (5,185) — 103,707 — 170 — — 170 Other comprehensive income — — — — — — 621 621 Net income — — — — — 10,085 — 10,085 Balance, April 1, 2023 217,403 — 3,614,937 3 46,294 (32,737) — 13,560 Share based compensation — — — — 5 — — 5 Net income — — — — — 123 — 123 Balance, July 1, 2023 217,403 $ — 3,614,937 $ 3 $ 46,299 $ (32,614) $ — $ 13,688 Share based compensation — — — — 1 — — 1 Series A-1 Preferred converted for legal settlement (22,168) — 443,362 — 340 — — 340 Series A-1 Preferred forfeited (1,505) — — — — — — — Warrants exercised — — 481,348 — 259 — — 259 Common stock issued for equity financing — — 418,000 — 424 — — 424 Net income — — — — — (214) — (214) Balance, September 30, 2023 193,730 193730 $ — 4,957,647 $ 3 $ 47,323 $ (32,828) $ — $ 14,498
Paid-in
Other
Comprehensive
Stockholders'
Paid-in
Other
Comprehensive
Stockholders'Series A-1 Preferred Common Stock Additional
Paid-in
CapitalAccumulated
DeficitAccumulated
Other
Comprehensive
DeficitTotal
Stockholders'
DeficitShares Amount Shares Amount 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) Series A-1 preferred converted (16,141) $ — 322,820 $ 1 $ — $ — $ — 1 Other comprehensive income — $ — — $ — $ — $ — $ 41 41 Net income — $ — — $ — $ — $ 8,874 $ — 8,874 Balance, July 1, 2022 222,588 — 3,150,230 3 45,747 (43,727) (617) 1,406 Net loss $ (1,981) (1,981) Balance, October 1, 2022 222,588 222588 $ — 0 3,150,230 $ 3 $ 45,747 $ (45,708) $ (617) $ (575) 7has 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 25)18), the accounts for the Recycling and Technology segmentsegments have been presented as discontinued operations in the accompanying consolidated financial statements.Inc. (“ARCA Recycling”) iswas 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 Asseta Stock Purchase Agreement (the “Purchase Agreement”) with (i) ARCA Affiliated HoldingsVM7 Corporation, a Delaware corporation, (ii)under which the Buyer agreed to acquire all of the outstanding equity interests of (a) ARCA ServicesRecycling, Inc., a DelawareCalifornia 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 alllaws of the assets,Ontario, Canada (“ARCA Canada”; and, assume certain liabilities, oftogether with ARCA Recycling and Connexx, (the “Disposition Transaction”the “Subsidiaries”). The principal of the BuyersBuyer is Virland A. Johnson, our Chief Financial Officer. On November 14, 2021,The sale of all of the parties entered into an amendmentoutstanding equity interests of the Subsidiaries to the Buyer under the Purchase Agreement which provided forwas consummated simultaneously with the immediate terminationexecution of the transactions proposed byPurchase Agreement (see Note 17). The Company’s Board of Directors unanimously approved the Purchase Agreement and for an amendmentthe 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, payableRecycling 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 $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.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 (seeInc. 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 25).20212022 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. (Restated)net income of approximately $8.9 million and a net loss from continuing operations of approximately $5.0 million$754,000 for the 1339 weeks ended July 2, 2022 and July 3, 2021, respectively, and net income of approximately $10.1 million and a net loss of approximately $4.5 million for the 26 weeks ended July 2, 2022 and July 3, 2021, respectively. In addition,September 30, 2023. Additionally, as of July 2, 2022,September 30, 2023, the Company has total current assets of approximately $6.8 million$517,000 and total current liabilities of approximately $18.9$2.5 million resulting in a net negative working capital of approximately $12.1$1.9 million.has availableintends to fund operations by using cash balanceson hand and monthly receipts in connection with the sale of its Subsidiaries (see Note 18) and funds available under an accounts receivable factoring program with Prestige Capital Finance, LLCreceived from approved Employee Retention Credits (“Prestige Capital”ERC’s”). The Company intends to provide sufficient liquidityraise funds to fundsupport future development of JAN 123 and JAN 101 either through capital raises or structured arrangements. However, the entity’s operations and remodeling activities for at least the next twelve months. However, depending on continued U.S. restrictions related to the coronavirus public health crisis, the Companyavailability of such funding cannot be certain its efforts will suffice. assured.agreement with Prestige Capital allowsability of the Company to obtain advanced funding of 80% of an unpaid customer’s invoice amount within two days and the balance, less a mutually agreed upon fee, upon ultimate collection in cash of the invoice. The Company expects that it will be able to utilize the available funds under the accounts receivable factoring agreement to provide liquidity and to pursue acquisitions and other strategic transactions to expand and grow the business to enhance shareholder value. Management also regularly monitors capital market conditions to ensure no other conditions or events exist that may materially affect the Company’s financial conditions and liquidity and the Company may raise additional funds through borrowings or public or private sales of debt or equity securities, if necessary.8As 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 25 below.Based on the above, management has concluded that, as of July 2, 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 foris dependent upon the next twelve months.CoronavirusIn December 2019,success of future capital raises or structured settlements to fund the 2019 novel coronavirus (COVID-19) surfaced in Wuhan, China. The World Health Organization declared a global emergencyrequired 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 January 30, 2020,several factors and most countries initiated travel restrictions limiting travel to other countries and lock-downs within their borders. While various vaccines have been introduced into the marketplace, the impacts of variant strains of the COVID-19 virus is still unknown. The widespread health crisis has adversely affected the global economy, resulting in an economic downturn that could impact demand for our products. To date, the outbreak had a material adverse impact on our operations. For example, several customers in our appliance recycling and appliance replacement business have previously suspended our ability to pick up and or replace their customers’ appliances,resulting in decreased revenues for both recycling and replacement business. The future impact of the outbreak is highly uncertain and cannot be predicted and there is no assurance can be provided that the outbreakapproval will be obtained. The accompanying financial statements do not have another material adverse impact on the future results of the Company. The extent of the impact, ifinclude any will depend on future developments, including actions taken to contain the coronavirus. A key task foradjustments that might be necessary should the Company in 2022 isbe unable to begin late-stage clinical development with its pharmaceutical product, JAN101. However,continue as a going concern. While the COVID-19 pandemic has significantly impacted clinical trials, delaying recruitment in most non-COVID-19 clinical trials and even eliminating recruitment in some trials. While clinical sites have largely resumed conducting non-COVID-19 clinical trials, the backlogCompany will actively pursue these additional sources of subjects may adversely affect our ability to recruit for its trial, leading to longer and more expensive trials. In addition, the unknown effectiveness of the COVID-19 vaccines, particularly concerning variant strains of COVID-19, could lead to clinical sites terminating patient recruitment again during the course of the study.January 1,December 31, 2022.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.short-termlong-term debt at July 2, 2022 and January 1,December 31, 2022 approximate fair value.Cash and Cash EquivalentsCash 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 AccountsThe 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 is outstanding for more than ninety days. The Company does not charge interest on past due receivables. The Company has no allowance for doubtful accounts long-term debt as of July 2, 2022 or January 1, 2022.InventoriesInventories, consisting primarilyRecently Issued Accounting Pronouncementsappliances, are stated at the lowerCredit Losses on Financial Instruments, which introduces a new approach to estimate credit losses on certain types of cost, determined on a specific identification basis, or net realizable value. The Company provides estimated provisions for the obsolescence of appliance inventories, including adjustment to market,financial instruments based on various factors, includingexpected losses instead of incurred losses. It also modifies the age of such inventoryimpairment model for available-for-sale debt securities and management’s assessment of the needprovides a simplified accounting model for such provisions. We look at historical inventory aging reportspurchased financial assets with credit deterioration since their origination. ASU No. 2016-13 is effective for smaller reporting companies for fiscal years beginning after December 15, 2022 and margin analyses in determining our provision estimate. A revised cost basisinterim periods within those fiscal years. Early adoption is used once a provision for obsolescence is recorded.permitted. The Company has no reserve for excess or obsolete inventoryadopted this new accounting standard, however, as of July 2, 2022 or Januarythe 13 and 39 weeks ended September 30, 2023, there is no material impact on our Consolidated Financial Statements and related disclosures.2022.Property and EquipmentProperty and Equipment are stated at cost, less accumulated depreciation. Expenditures for repairs and maintenance are charged2023, the Buyer agreed 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 livesacquire all of the assets.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 useful life 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 amountprincipal of the assets exceeds their fair value, as approximated byBuyer is Virland A. Johnson, our Chief Financial Officer. The sale of all of the present valueoutstanding equity interests of their projected discounted cash flows.10Intangible AssetsThe Company accounts for intangible assets in accordance with ASC 350, Intangibles—Goodwill and Other. Under ASC 350, intangible assets subjectthe Subsidiaries to amortization, shall be reviewed for impairment in accordancethe Buyer under the Purchase Agreement was consummated simultaneously with the Impairment or Disposal of Long-Lived Assets in ASC 360, Property, Plant, and Equipment.Under ASC 360, long-lived assets are tested for recoverability whenever events or changes in circumstances (‘triggering event’) indicate that the carrying 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 excessexecution 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 recordedentered 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 26 weeks ended July 2, 2022.Revenue RecognitionBiotechnology RevenueThe Company is currently generating no revenue from its Biotechnology segment.Recycling RevenueThe 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 accordanceAsset Purchase Agreement with Accounting Standards Codification 606 Revenue from Contracts with Customers.11Under the revenue standard, the Company determines revenue recognition through the following steps:a.Identification of the contract, or contracts, with a customer,b.Identification of the performance obligations in the contract,c.Determination of the transaction price,d.Allocation of the transaction price to the performance obligations in the contract, ande.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 expectssold to be entitled per order,SPYR substantially all the assets and therefore there is no variable consideration. Asnone 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.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 RevenueThe 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 RevenueThe 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 RevenueThe 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 LiabilityReceivables 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 CustomerThe 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 July 2, 2022 or January 1, 2022.12Other:a.Taxes collected from customers and remitted to government authorities and that are related to sales of the Company’s products are excluded from revenues.b.Sales commissions are expensed when incurred because the amortization period would have been one year or less. These costs are recorded in Selling, General and Administrative expense.c.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 RevenueThe Company is currently generating no revenue from its Technology segment.Shipping and HandlingThe Company classifies shipping and handling charged to customers as revenues and classifies costs relating to shipping and handling as cost of revenues.Advertising ExpenseAdvertising expense is charged to operations as incurred. The Company had no advertising expenses for the 26 weeks ended July 2, 2022 and July 3, 2021, respectively.Fair Value MeasurementsASC 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 TaxesThe 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.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.13Lease AccountingThe 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 CompensationThe 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 CurrencyThe 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, ifseparately reported the assets and liabilities of the Company are recordeddiscontinued operations in certain non-U.S. functional currencies other than the U.S. dollar, they are translated at ratesconsolidated balance sheets. The assets and liabilities have been reflected as discontinued operations in the consolidated balance sheets as of exchange at year end. RevenueDecember 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 ShareEarnings 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 sharesfollowing: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 2,705 Right of use asset - operating leases 5,290 735 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 3,278 6,264 Lease obligation short-term - operating leases 1,631 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 1,339 605 Total noncurrent liabilities from discontinued operations 5,760 Total liabilities from discontinued operations $ 26,142 convertible preferred stock. The dilutive effect of outstanding restricted shares, options and warrants is reflected in diluted earnings per share by applicationequipment consisted of the treasury stock method. Convertible preferred stock is reflected on an if-converted basis.following:14Segment ReportingASC Topic 280, “Segment Reporting,” requires use ofUseful 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 “management approach” model for segment reporting. The management approach model is based on the way a company’s management organizes segments within the company for making operating decisions and assessing performance. The Company has determined it has three reportable segments.Concentration of Credit RiskThe Company maintains cash balances at several banks in several states including, California, Minnesota, and Nevada. Accounts are insured by the Federal Deposit Insurance Corporation up to $250,000 per institution as of July 2, 2022. At times, balances may exceed federally insured limits.Note 3: Restatements and ReclassificationsOn April 17,13 weeks ended September 30, 2023 the Company’s management and the Audit Committee of the Company’s Board of Directors (the “Audit Committee”) reached a determination that the Company’s previously issued unaudited consolidated financial statements and related disclosures for each of the quarterly periods ended July 2, 2022 and October 1, 2022, should no longer be relied upon becauserespectively, and $60,000 and $193,000 for the 39 weeks ended September 30, 2023 and October 1, 2022, respectively.December 31,
2022Patent and domains $ 19 Computer software 1,682 Intangible assets 1,701 Less accumulated amortization (966) Total intangible assets $ 735 December 31,
2022Compensation and benefits $ 685 Contract liability 290 Accrued incentive and rebate checks 2,037 Accrued taxes 219 Other 47 Total accrued expenses $ 3,278 material misstatement containedsales 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 those two quarterly unaudited condensed consolidated financial statements.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.December 31,
2022Accrued liability - CA sales tax assessment $ 4,132 Accrued liability - interest on CA sales tax assessment 2,132 Total $ 6,264 December 31,
2022Gulf Coast Bank and Trust Company $ 4,206 Gulf Coast Bank and Trust Company loan origination fees (34) Total $ 4,172 December 31,
2022KLC Financial $ 1,781 KLC Financial loan origination fees (61) Total 1,720 Less current portion (381) Total $ 1,339 Company’s preparationICG 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 unaudited condensed consolidated financial statements and related disclosures for eachassets to the Lender.two referenced periods,ICG Note are guaranteed by the Company’s management and Audit Committee relied uponCompany. The foregoing transaction did not include the report issued by a third-party valuation firm to determine the carrying valueissuance of the promissory note the Company had received from SPYR Technologies, Inc. (the “SPYR Note”), in connection with the Company’s sale of the assets of its GeoTraq, Inc. subsidiary to SPYR Technologies, Inc. in the second quarterany shares of the Company’s 2022 fiscal year. At December 31,common stock, warrants, or other derivative securities. As of January 1, 2022, the Company reviewedbalance due on ICG Note was $1.0 million. Beginning in April 2022, the original valuationrevolving credit facility was converted to a term note that amortized ratably through its maturity date of March 2026. The principal amount of the Promissory Notenote was $1.0 million, and was to determine ifbear interest at 8.75% per annum. Monthly payments on this note were approximately $24,767. ICG is a record and beneficial owner of 13.6% of the originaloutstanding 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.10.5% used to discountThe Company’s related party debt consisted of the Note was appropriate. following:December 31,
2022Isaac Capital Group LLC $ 838 Total 838 Less current portion (233) Total $ 605 connectionaccordance with this review,the provisions of ASC 205-20, the Company determined thathas not included in the discount rate should be revised to 14.5%results of continuing operations the results of operations of the discontinued operations in the consolidated statements of operations and comprehensive income (loss).Company’s management and the Audit Committee discussed the matters with Frazier & Deeter, LLC, the Company’s independent registered public accounting firmresults of operations for these entities for the 2022 fiscal year,13 and with WSRP, LLC, the Company’s independent registered public accounting firm during the second and third quarters in the 2022 fiscal year and prior fiscal periods since 2019, and determined to restate the Company’s unaudited condensed consolidated financial statements for the second and third fiscal quarters39 weeks ended July 2, 2022,September 30, 2023 and October 1, 2022. Further,2022, respectively, have been reflected as discontinued operations in the gain associatedconsolidated statements of operations and comprehensive income (loss) and consist of the following:13 Weeks Ended 39 Weeks Ended September 30, 2023 October 1, 2022 September 30, 2023 October 1, 2022 Revenues $ — $ 8,587 $ 3,795 $ 28,449 Cost of revenues — 7,553 3,992 23,913 Gross profit — 1,034 (197) 4,536 Operating expenses from discontinued operations: Selling, general and administrative expenses $ — $ 2,248 1,469 6,761 Gain on sale of GeoTraq — — (15,824) (10,241) Total operating expenses from discontinued operations — 2,248 (14,355) (3,480) Operating income from discontinued operations — (1,214) 14,158 8,016 Other income (expense) from discontinued operations Interest expense, net — (280) (181) (698) Loss on litigation settlement — — — (115) Other income (expense), net — (688) (1) (1,685) Total other income (loss), net — (968) $ (182) $ (2,498) Income before provision for income taxes from discontinued operations — (2,182) 13,976 5,518 Income tax provision (benefit) (28) 16 3,158 23 Net income from discontinued operations $ 28 $ (2,198) $ 10,818 $ 5,495 GeoTraq disposition (Technology segment)provisions of ASC 205-20, the Company has been restated and presented asseparately 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 periods ending July 2, 2022. As such, the results of the Technology segment39 weeks ended September 30, 2023 and October 1, 2022 have been reclassified and presentedreflected as discontinued operations forin the periods ending July 3, 2021. The Company will also file an amended Quarterly Report on Form 10-Q for its third fiscal quarter ended October 1, 2022.consolidated statements of cash flows and consist of the following:
202239 weeks ended September 30, 2023 October 1, 2022 DISCONTINUED OPERATING ACTIVITIES: Net income (loss) from discontinued operations 10,818 5,495 Depreciation and amortization 96 344 Amortization of debt issuance costs 11 10 Amortization of right-of-use assets 53 54 Change in deferred taxes 3,157 — Gain on sale of ARCA, net of cash (15,967) — Gain on sale of GeoTraq — (10,241) Changes in assets and liabilities: Accounts receivable 2,932 (1,165) Inventories 299 899 Prepaid expenses and other current assets 55 248 Accounts payable and accrued expenses 866 1,692 Other assets — (43) Net cash provided by operating activities from discontinued operations $ 2,320 $ (2,707) DISCONTINUED INVESTING ACTIVITIES: Purchases of property and equipment (123) (736) Purchase of intangible assets (33) (214) Net cash used in investing activities from discontinued operations $ (156) $ (950) DISCONTINUED FINANCING ACTIVITIES: Proceeds from note payable 5,162 4,052 Payment on related party note (38) (107) Proceeds from issuance of short-term notes payable (7,291) — Payments on notes payable (45) (559) Net cash used in financing activities from discontinued operations $ (2,212) $ 3,386 Effect of changes in exchange rate on cash and cash equivalents (5) — DECREASE IN CASH AND CASH EQUIVALENTS (53) (271) CASH AND CASH EQUIVALENTS, beginning of period 53 704 CASH AND CASH EQUIVALENTS, end of period $ — $ 433 15
2022
2022
activities:July 2, 2022September 30, 2023 and January 1,December 31, 2022, respectively, were as follows (in $000’s):
2022
2022September 30,
2023December 31,
2022Trade and other receivables, net, from discontinued operations $ — $ 7,816 Other receivables 19 106 Trade and other receivables, net $ 19 $ 7,922 16Note 5: InventoryAppliances held for sale are stated at the lowerTable 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.Contents Total inventory consists of the following as of July 2, 2022 and January 1, 2022 (in $000’s):
2022
2022The 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 July 2, 2022 and January 1, 2022, the Company has recorded no inventory reserve.6:5: Prepaids and other current assetsJuly 2, 2022September 30, 2023 and January 1,December 31, 2022 consist of the following (in $000’s):
2022
2022September 30,
2023December 31,
2022Prepaid insurance $ — $ 364 Prepaid other 85 30 Prepaid expenses from discontinued operations — 377 Total prepaid expenses and other current assets $ 85 $ 771 7:6: Notes ReceivableApplianceSmartOn 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 ApplianceSmartreceivable 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 July 2, 2022 and January 1, 2022 was zero and approximately $3.0 million, respectively, exclusive of the impairment charge.GeoTraq (Restated)GeoTraq, as discussed in Note 25 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$12.6 million. The Promissory Note bears simple interest at the rate of 8%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 or restricted shares of Series G Convertible Preferred Stock of SPYR, or in cash. The Promissory Note matures on May 24, 2027.$11.3 million.$11.3 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, or17$1.3$3.2 million, has beenwas 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. At December 31, 2022,No charges against income relating to the value of the Note have been recorded for the 13 and 39 weeks ended September 30, 2023. The Company reviewedwill continue to review SPYR's financial trends going further to determine whether additional charges against income should occur.original valuationCompany's consolidated balance sheets represents the principal balance of the Promissory Note, to determine if the original 10.5% used to discount the Note was appropriate. In connection with this review, the Company determined thatnet of the discount rate should be revised to 14.5%. Consequently, the Company took a $1.85 million charge against income in its restatement of the 13 and 26 weeks ended July 2, 2022, as discussed previously.balance. During the 13 weeks ended July 2,September 30, 2023 and October 1, 2022, approximately $65,000$201,000 and $65,000, respectively, of the discount was recorded as interest income, and during the 39 weeks ended September 30, 2023 and October 1, 2022, approximately $604,000 and $65,000, respectively, of the discount was recorded as interest income. As of July 2, 2022,September 30, 2023, the net principal balance oncarrying value of the Note was approximately $9.59.6 million. 8: Property and EquipmentProperty and equipment as of July 2, 2022 and January 1, 2022 consistOn 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 following (in $000’s):
(Years)
2022
2022Depreciation expenseoutstanding 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).$$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 the78,000$41,000 forwill be accreted ratably to interest income over the term of the Note. During the 13 weeks ended July 2,September 30, 2023 and October 1, 2022, approximately $303,000 and July 3, 2021,$0, respectively, of the discount was recorded as interest income, and $158,000 and $79,000 forduring the 2639 weeks ended July 2,September 30, 2023 and October 1, 2022, approximately $417,000 and July 3, 2021, respectively.Equipment Financing AgreementOn 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$0, respectively, 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 anddiscount was recorded as 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.income. As of July 2, 2022 and January 1, 2022,September 30, 2023, the outstanding balance due under this agreementnet carrying value of the note was approximately $1.8 million and $1.6 million, respectively.9:7: Intangible AssetsJuly 2, 2022September 30, 2023 and January 1,December 31, 2022 consist of the following (in $000’s):September 30,
2023December 31,
2022Patent and domains $ 4 $ 4 Soin intangibles * $ 19,293 $ 19,293 Computer software — 3,563 Intangible assets from discontinued operations — 735 Intangible assets 19,297 23,595 Less accumulated amortization (1,089) (3,563) Total intangible assets $ 18,208 $ 20,032
2022
2022approximately $58,000$363,000 and $1.0 million$0 for the 13 weeks ended July 2,September 30, 2023 and October 1, 2022 and July 3, 2021, respectively,$1.1 million and approximately $112,000 and approximately $2.0 million$0 for the 2639 weeks ended July 2, 2022September 30, 2023 and July 3, 2021, respectively.18Note 10: Marketable SecuritiesMarketable securities as of July 2, 2022 and JanuaryOctober 1, 2022 consist of the following (in $000’s):Marketable securities reflect shares of SPYR stock received by the Company in connection with the sale of GeoTraq (see Note 25). 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 26 weeks ended July 2, 2022 was approximately $376,000.11:8: Deposits and other assetsJuly 2, 2022September 30, 2023 and January 1,December 31, 2022 consist of the following (in $000’s):
2022
2022Deposits are for a refundable “deposit in lieu of bond”, in the amount of $1.3 million, relating the Skybridge matter (see Note 17) and for refundable security deposits with landlords from which the Company leases property.Note 12: LeasesThe 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.September 30,
2023December 31,
2022Deposits and other assets from discontinued operations $ — $ 249 Other 364 18 Total deposits and other assets $ 364 $ 267 Total present value of future lease payments as of July 2, 2022 (in $000’s):During the 26 weeks ended July 2, 2022 and July 3, 2021, approximately $882,000 and $650,000, 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 26 weeks ended July 2, 2022. The weighted average lease term for operating leases is 2.31 years and the weighted average discount rate is 8.29%.1913:9: Accrued LiabilitiesJuly 2, 2022September 30, 2023 and January 1,December 31, 2022 consist of the following (in $000’s):September 30,
2023December 31,
2022Compensation and benefits $ 51 $ 81 Accrued guarantees — 130 Accrued taxes 146 5 Accrued litigation settlement — 510 Other 46 280 Accrued expenses from discontinued operations — 3,278 Total accrued expenses $ 243 $ 4,284
2022
2022During the 26 weeks ended July 2, 2022, thereversedrecorded an income tax benefit from continuing operations of 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 7). No such transactions occurred during the 26 weeks ended July 3, 2021.*Accrued transportation costs are related to delayed billing from certain vendors.Contract liabilities rollforwardThe following table summarizes the contract liability activity$25,000 and $0 for the 2613 weeks ended July 2, 2022 (in $000’s):Note 14: Accrued Liability – California Sales TaxThe 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 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 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 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 sales2023 and October 1, 2022, respectively, and an income tax for tax years 2011, 2012, and 2013 in the amountbenefit from discontinued operations of approximately $4.1 million plus applicable interest of $500,000 related to$28,000 and $0 for the appliance replacement programs that the Company administered on behalf of its customers on which it did not assess, collect or remit sales tax.13 weeks ended September 30, 2023 and October 1, 2022, respectively. The Company has appealed this assessment torecorded an income tax benefit from continuing operations of approximately $269,000 and $0 for the CDTFA Appeals Bureau. The appeal remains in process. Interest continues to accrue until the matter is settled.As of July 2, 2022,39 weeks ended September 30, 2023 and JanuaryOctober 1, 2022, the Company’s accrued liability for California salesrespectively, and an income tax wasexpense from discontinued operations of approximately $6.1$3.2 million and $6.0 million$0 for the 39 weeks ended September 30, 2023 and October 1, 2022, respectively.Note 15: Income Taxes0.05%30.3% and 0.23% for the 2639 weeks ended July 2,September 30, 2023 and October 1, 2022, and a tax provision expense of $6,500 was recorded against pre-provision income of approximately $11.9 million. The Company's overall effective tax rate was 4.7% for the 26 weeks ended July 3, 2021, and it had a tax provision expense of approximately $203,000 against a pre-provision loss of approximately20$4.3 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.16: Short Term11: Short-Term DebtShort termShort-term debt and other financing obligations as of July 2, 2022September 30, 2023 and January 1,December 31, 2022, consist of the following (in $000’s):
2022
2022September 30,
2023December 31,
2022AFCO Finance $ — $ 274 Total short-term debt $ — $ 274 20212022 was approximately $538,000$516,000 with an interest rate of 3.3%.ranging from approximately 6.0% over the period. An initial down payment of approximately $134,000$129,000 was made on July 1, 202121, 2022 with additional monthly payments of approximately $72,000$59,000, escalating to approximately $69,000 over the term, being made beginning August 1, 20212022 and ending on April 1, 2022.The outstanding principal due AFCO at July 2, 2022 and January 1, 2022 was approximately $0 and $288,000, respectively.2117:12: Commitments and Contingenciescontinues to be stayed pending the June 23, 2023 mediation to which all of the parties have agreed.are vigorouslycontinue to defending themselves vigorously against the claims.seekssought 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$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$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$715,000 plus interest, fees, and costs and attorneys’ fees of $475,000.$475,000. In subsequent proceedings, the Appeals Court affirmed the District Court judgment. Of the total amount awarded to SA, less the funds that the Company had previously deposited with the District Court, SA remains entitled to approximately $382,000$382,000 of statutory interest, which obligation has beenSA continues to attempt to collect from the Company, although that obligation was assumed by the Buyer in connection with the ARCA and Subsidiaries Disposition transaction (see Note 26)18).AMTIM CapitalAMTIM Capital, Inc. (“AMTIM”) acts as the Company’s representative to market our recycling services in Canada under an arrangement that pays AMTIM for revenues generated by recycling services in Canada as set forth in the agreement between the parties. A dispute has arisen between AMTIM and the Company with respect to the calculation of amounts due to AMTIM pursuant to the agreement. In a lawsuit filed by AMTIM in the province of Ontario, AMTIM claims a discrepancy in the calculation of fees due to AMTIM by the Company of approximately $2.0 million. Trial commenced in February 2022, and, on December 12, 2022, a decree was issued by the court dismissing the case.22$1.95$1.95 million (the “GeoTraq Settlement Consideration”) in the following manner: (i) $250,000,$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$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 the Company'sCompany’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.Pursuant to the terms of the Settlement Agreement, Mr. Sullivan provided On March 17, 2023, the Company with his proxy to vote his remaining sharesconverted 5,185 of itsMr. Sullivan’s Series A-1 Convertible Preferred Stock that the Company hadshares and issued to him in connection with its acquisition of GeoTraq in 2017, as well as his proxy for the103,707 shares of the Company's common stock as payment for its quarterly installment. On June 1, 2023, the Company converted 7,697 of Mr. Sullivan’s Series A-1 Preferred shares into which those153,941 shares of preferredthe Company’s common stock may be converted. The Company may utilize the proxy in the context of an annual meetingpayment of its stockholders, a special meetingJune 30, 2023 quarterly installment. On September 1, 2023, the Company converted 14,471 of Mr. Sullivan’s Series A-1 Preferred shares into 289,421 shares of the Company’s common stock in payment of its stockholders, and a written consentSeptember 30, 2023 quarterly installment. (see Note 13). As of its stockholders. Subject toSeptember 30, 2023, the above-described contingent GeoTraq Prepayment tender 50% restriction, Mr. Sullivan providedfull balance due under the Company with the sole ability to determine the time and amount of each conversion of those shares of preferred stock.$850,000$0 and $1.2 million$510,000 as of July 2,September 30, 2023 and December 31, 2022, and January 1, 2022, respectively.Alixpartners, LLCOn October 19, 2022, Alixpartners, LLC filed a complaint in the Supreme CourtTable of the State of New York, County of New York, styled ContentsAlixpartners, LLC, plaintiff/petitioner, against JanOne Inc., Index No. 653877/2022. Plaintiff alleged the breach of an agreement and sought damages in the amount of approximately $345,000. The Company denied that obligation. After extensive negotiations, the parties reached a settlement, pursuant to which the Company agreed to pay to Alixpartners the sum of $125,000 in two tranches and to provide a confession of judgment in its favor in the amount of approximately $450,000, which represented the amount sought in the complaint plus interest thereon. The confession of judgment will be null and void and the complaint will be dismissed with prejudice upon the Company tendering both tranches timely.TheIn June 2023 the Company has not filed a responsive pleadingMotion to Dismiss, regarding which, as of the date of these financial statements, andthe Court has not ruled.The Company strongly disputes and denies all of the allegations contained therein and will vigorouslycontinue to defend itself vigorously against the claims.$90,000$90,000 therefor. Plaintiff also seeks approximately $1,420,000$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.is currently seeking $120,000,sought $120,000, which amount iswas disputed by the Company. TheEffective June 4, 2023, the parties are insettled the processmatter, pursuant to which settlement the Company tendered the sum of attempting$110,000 to settle the matter.landlord, the parties entered into a Settlement Agreement and Release, and the case was dismissed with prejudice.23As previously disclosed and as discussed, onthe Purchaser (see Note 25).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$767,000 which represented amounts guaranteed or which may have been owed under certain lease agreements to three third partythird-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 year ended December 31, 2022, the Company reversed approximately $637,000$637,000 of the accrual, as the Company is no longer liable for two of these guarantees upon ApplianceSmart'sApplianceSmart’s emergence from bankruptcy (see Note 23).bankruptcy. As of July 2, 2022,September 30, 2023, a balance of approximately $130,000$130,000 remains as an accrued liability due to an ongoing dispute concerning one of the leases.July 2, 2022.September 30, 2023.18:13: Stockholders’ Equity2613 weeks ended July 2,September 30, 2023 and October 1, 2022, and July 3, 2021, no shares of common stock were issued in lieu of professional services.As of July 2, 2022, and January 1, 2022, there were 3,150,230, and 2,827,410 shares, respectively, of common stock issued and outstanding.Equity OfferingJanuary 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 571,428361,000 shares of the Company’s common stock, par value $0.001$0.001 per share, (the “Common Stock”), at a purchase price per share of Common Stock of $10.50.$1.17. The Offeringoffering closed on February 2, 2021 withMarch 24, 2023. The aggregate gross proceeds tofor the Companysale of the shares of Common Stock were approximately $6.0 million$422,000, before deducting the placement agent fees and other offeringrelated expenses. The Company is utilizingintends to use the net proceeds for working capital and general working capital.The Purchase Agreement contains customary representations, warranties and agreements by the Company and the Purchasers and customary indemnification rights and obligationsTable of Contents parties.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 AgencySecurities Purchase Agreement dated as of January 29, 2021,with a certain institutional investor for the sale by and between the Company and the Placement Agent (the “Placement Agency Agreement”). Pursuant to the Placement Agency Agreement, the Placement Agent was paidin a cash fee of 7%registered direct offering of: (i) 418,000 shares of the gross proceeds paidCompany’s common stock, par value $0.001 per share, at an offering price of $0.8811 per share and (ii) pre-funded warrants exercisable for up 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.The481,348 shares of Common Stock sold into the OfferingInvestor at an offering price equal to $0.8801 per pre-funded Warrant. The aggregate gross proceeds from the offering were offeredapproximately $790,000, before deducting the placement agent fees and sold byrelated expenses. The Company intends to use the net proceeds for working capital and general corporate purposes. On August 31, 2023, 481,348 of the pre-funded warrants were exercised. In a concurrent private placement, the Company pursuantalso granted warrants to purchase up to 899,348 shares of Common Stock. Each warrant is exercisable immediately following issuance at an effective shelf registration statement on Form S-3 (File No. 333-251645) (the “Registration Statement”), which was initially filed with the Securitiesexercise price of $0.7561 per share and Exchange Commission on December 23, 2020 and was declared effective on December 29, 2020.The representations, warranties and covenants contained in the Purchase Agreementexpires August 31, 2028. As of September 30, 2023, there were made solely for the benefit899,348 of the parties to the Purchase Agreement. In addition, such representations, warranties,private placement warrants outstanding.covenants (i) are intended as a wayDecember 31, 2022, there were 4,957,647 and 2,827,410 shares, respectively, of allocating the risk between the parties to the Purchase Agreementcommon stock issued 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.24, 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 July 2,September 30, 2023, and December 31, 2022, 100,000 and January 1, 2022, 90,000 options were outstanding under the 2016 Plan.Plan, respectively.Company'sCompany’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 July 2,September 30, 2023, and December 31, 2022, 14,000 and January 1, 2022, 27,500 options20,000 were outstanding under the 2011 Plan. Plan, respectively. No additional awards will be granted under the 2011 Plan.NoThere were 10,000 options were granted during the 1339 weeks ended July 2, 2022.September 30, 2023.
Average
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Price
Value
LifeOptions
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Contractual
LifeOutstanding 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 Cancelled/expired (6,000) $ 9.45 Balance at September 30, 2023 114,000 $ 5.68 $ — 6.4 Exercisable at September 30, 2023 114,000 $ 5.68 $ — 6.4 $1,000$1,000 and $71,000$4,000 of share-based compensation expense for the 13 weeks ended July 2,September 30, 2023 and October 1, 2022, and July 3, 2021, respectively, and $4,000approximately $14,000 and $180,000$4,000 of share-based compensation expense for the 2639 weeks ended July 2,September 30, 2023 and October 1, 2022, and July 3, 2021, respectively.July 2, 2022, September 30, 2023, the Company has no unrecognized share-based compensation expense associated with stock option awards.20. During20. 27,353 shares were converted during the 2639 weeks ended July 2,September 30, 2023, and 1,505 shares were forfeited. As of September 30, 2023 and December 31, 2022, 16,141there were 193,730 and 222,588 shares of Series A-1 Preferred Stock were converted into outstanding, respectively.322,820Company'sCompany’s Series S Convertible Preferred Stock. Shares of Series S Convertible Preferred Stock are convertible into the Company’s common stock.shares at a ratio of 1:1. As of July 2, 2022September 30, 2023 and January 1,December 31, 2022, there were 222,588 and 238,729100,000 shares respectively, of Series A-1S Convertible Preferred Stock outstanding.19: Loss15: Earnings Per Share (Restated)lossincome (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 lossincome (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 18 above, 16,141 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 26 weeks ended July 2, 2022, respectively, these shares are considered to be outstanding for the entire period.25lossincome (loss) per share (in $000’s, except share and per–share data):For the Thirteen Weeks Ended For the Thirty-Nine Weeks Ended September 30, 2023 October 1, 2022 September 30, 2023 October 1, 2022 Continuing Operations Basic Net income (loss) from continuing operations $ (242) $ 217 $ (825) $ 2,609 Weighted average common shares outstanding 4,198,940 3,150,230 3,687,896 3,150,230 Basic income (loss) per share from continuing operations $ (0.06) $ 0.07 $ (0.22) $ 0.83 Diluted Net income (loss) from continuing operations $ (242) $ 217 $ (825) $ 2,609 Weighted average common shares outstanding 4,198,940 3,150,230 3,687,896 3,496,003 Diluted income (loss) per share from continuing operations $ (0.06) $ 0.07 $ (0.22) $ 0.75 Discontinued Operations Basic Net income (loss) from discontinued operations $ 28 $ (2,198) $ 10,818 $ 5,495 Weighted average common shares outstanding 4,198,940 3,150,230 3,687,896 3,150,230 Basic income (loss) per share from discontinued operations $ 0.01 $ (0.70) $ 2.93 $ 1.74 Diluted Net income (loss) from discontinued operations $ 28 $ (2,198) $ 10,818 $ 5,495 Weighted average common shares outstanding 4,198,940 3,150,230 3,687,896 3,496,003 Diluted income (loss) per share from discontinued operations $ 0.01 $ (0.70) $ 2.93 $ 1.57 Total Basic Net income (loss) $ (214) $ (1,981) $ 9,993 $ 8,104 Weighted average common shares outstanding 4,198,940 3,150,230 3,687,896 3,150,230 Basic income (loss) per share $ (0.05) $ (0.63) $ 2.71 $ 2.57 Diluted Net income (loss) $ (214) $ (1,981) $ 9,993 $ 8,104 Weighted average common shares outstanding 4,198,940 3,150,230 3,687,896 3,496,003 Diluted income (loss) per share $ (0.05) $ (0.63) $ 2.71 $ 2.32 117,500114,000 and 78,000117,500 were excluded from the calculation of diluted earnings per share for the 2639 weeks ended July 2,September 30, 2023 and October 1, 2022, and July 3, 2021, respectively, because the effects were anti-dilutive based on the application of the treasury stock method. Additionally, 205,287193,730 shares of Series A-1 Preferred Stock, convertible into 4,105,732approximately 3.9 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 shares, were excluded from the calculation of diluted earnings per share as, by agreement, these shares could not be converted as of July 2, 2022.September 30, 2023.20: Major Customers and SuppliersFor the 13 weeks ended July 2, 2022, eight customers represented approximately 50% of the Company’s total revenue. For the 13 weeks and 26 weeks ended July 3, 2021, one customer represented approximately 14% of the Company's total revenue. For the 26 weeks ended July 2, 2022, four customers represented approximately 33% of the Company’s total revenue. For the 26 weeks ended July 3, 2021, one customer represented approximately 17% of the Company's total revenueAs of July 2, 2022, four customers represented a combined 39% 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 26 weeks ended July 2, 2022 and July 3, 2021, the Company purchased appliances for resale from five and four suppliers, respectively. The Company has, 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 21: Defined Contribution PlanThe 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 $6,000 for the 13 weeks ended July 2, 2022 and July 3, 2021, respectively, and approximately $16,000 and $6,000 for the 26 weeks ended July 2, 2022 and July 3, 2021, respectively.26Note 22:16: Segment Information (Restated)within targeted markets through three reportable segmentsits 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 includesincluded all fees charged and costs incurred for collecting, recycling and installing appliances for utilities and other customers. The recycling segment also includesincluded 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 containcontained location-based service (“LBS”) capabilities and can interface to external sensors to allow them to communicate both sensor status and position information. Further, the gain associated with the GeoTraq disposition (Technology segment) has been restated and presented as discontinued operations for the periods ending July 2, 2022. As such, the results of the Technology segment have been reclassified and presented as discontinued operations for the periods ending July 3, 2021. 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 segments are being presented as discontinued operations for the 13 and 39 weeks ended September 30, 2023 and October 1, 2022. respectively.2613 and 39 weeks ended July 2,September 30, 2023 and October 1, 2022 and July 3, 2021 (in $000's)$000’s):27
July 2,
2022
January 1,
2022Thirteen Weeks Ended Thirty-Nine Weeks Ended September 30, 2023 October 1, 2022 September 30, 2023 October 1, 2022 Revenues Biotechnology $ — $ — $ — $ — Discontinued operations — 8,587 3,795 28,449 Total Revenues $ — $ 8,587 $ 3,795 $ 28,449 Gross profit Biotechnology $ — $ — $ — $ — Discontinued operations — 1,034 (197) 4,536 Total Gross profit $ — $ 1,034 $ (197) $ 4,536 Operating income (loss) Biotechnology $ (764) $ (611) $ (2,923) $ (1,950) Discontinued operations — (1,214) 14,158 8,016 Total Operating income (loss) $ (764) $ (1,825) $ 11,235 $ 6,066 Depreciation and amortization Biotechnology $ 363 $ — $ 1,090 $ — Discontinued operations — 77 96 347 Total Depreciation and amortization $ 363 $ 77 $ 1,186 $ 347 Interest (income) expense, net Biotechnology $ (758) $ (410) $ (1,598) $ (575) Discontinued operations — 280 181 698 Total Interest expense, net $ (758) $ (130) $ (1,417) $ 123 Net income (loss) before income taxes Biotechnology $ (267) $ 217 $ (1,094) $ 2,609 Discontinued operations — (2,182) 13,976 5,518 Total Net income before income taxes $ (267) $ (1,965) $ 12,882 $ 8,127 23:17: Related Parties, 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 $92,000$28,000 and $69,000$74,000 for the 13 weeks ended July 2,September 30, 2023 and October 1, 2022, and July 3, 2021, respectively, and approximately $167,000$121,000 and $133,000$220,000 for the 2639 weeks ended July 2,September 30, 2023 and October 1, 2022, and July 3, 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 $52,000$0 and $55,000$53,000 for the 13 weeks ended July 2,September 30, 2023 and October 1, 2022, and July 3, 2021, respectively, and approximately $108,000$103,000 and $106,000$161,000 for the 2639 weeks ended July 2,September 30, 2023 and October 1, 2022, respectively.July 3, 2021, respectively.ApplianceSmart NoteAs stated in Note 7, on December 30, 2017,Connexxsold its retail appliance segment, ApplianceSmart, Inc. (“ApplianceSmart”) to ApplianceSmart Holdings LLC (the “Purchaser”), a wholly owned subsidiary of Live Ventures Incorporated, pursuant toentered into a Stock Purchase Agreement (the “Agreement”). Pursuantwith VM7 Corporation, a Delaware corporation, under which the Buyer agreed to the Agreement, the Purchaser purchased from the Companyacquire all of the issued and outstanding sharesequity interests 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 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 July 2, 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 17.28Related Party ICG Group NoteOn 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 will convert 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 July 2, 2022, the principal balance of the note is approximately $947,000.ARCA Purchasing AgreementOn 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 24. Sale of ARCA and ConnexxOn February 19, 2021, the Company, together with its subsidiaries (a) ARCA Recycling, Inc., a California corporation, (“ARCA”), and (b) Customer Connexx LLC, a Nevada limited liability company, (“Connexx”), entered into an Asset Purchase Agreement (the “Purchase Agreement”) with (i)and (c) ARCA Affiliated Holdings Corporation, a Delaware corporation, (ii) ARCA ServicesCanada 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, oftogether with ARCA and Connexx, (the “Disposition Transaction”the “Subsidiaries”). The principal of the BuyersBuyer is Virland A. Johnson, our Chief Financial Officer. The Disposition Transaction was previously expectedsale of all of thebe 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 accordancewas 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 terminationexecution of the transactions proposed byPurchase Agreement. The Company's Board of Directors unanimously approved the Purchase Agreement and the Disposition Transaction. The Stock Purchase Agreement is retroactively effective as amended by the Recyclingof March 1, 2023 (see Note 18).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.SubsidiariesNote 25. Sale of GeoTraq (Restated)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 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 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, 2027.29In connection with the Asset Purchase Agreement, the Company employed an independent third-party firm to assess the fair value of the 30,000,000 shares of SPYR stock and the Promissory Note. The assessment determined that the fair market value of the SPYR common stock was approximately $946,000, 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 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.On April 17, 2023, the Company’s management and the Audit Committee of the Company’s Board of Directors (the “Audit Committee”) reached a determination that the Company’s previously issued unaudited consolidated financial statements and related disclosures for each of the quarterly periods ended July 2, 2022 and October 1, 2022, should no longer be relied upon because of a material misstatement contained in those two quarterly unaudited condensed consolidated financial statements. In connection with the Company’s preparation of its unaudited condensed consolidated financial statements and related disclosures for each of the two referenced periods, the Company’s management and Audit Committee relied upon the report issued by a third-party valuation firm to determine the carrying value of the promissory note the Company had received from SPYR Technologies, Inc. (the “SPYR Note”), in connection with the Company’s sale of the assets of its GeoTraq, Inc. subsidiary to SPYR Technologies, Inc. in the second quarter of the Company’s 2022 fiscal year. At December 31, 2022, the Company reviewed the original valuation of the Promissory Note to determine if the original 10.5% used to discount the Note was appropriate. In connection with this review, the Company determined that the discount rate should be revised to 14.5%. Further, the gain associated with the GeoTraq disposition (Technology segment) has been restated and presented as discontinued operations for the periods ending July 2, 2022. As such, the results of the Technology segment have been reclassified and presented as discontinued operations for the periods ending July 3, 2021.The following table illustrates the calculation of the gain on sale of GeoTraq, as shown on the income statement (in $000's):30Note 26. Subsequent eventThe Company has evaluated subsequent events through the filing of this Quarterly Report on Form 10-Q/A 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 as described below:Securities Purchase Agreement22, 2023, the Company entered into a Securities Purchase Agreement with certain institutional investors for the sale by the Company in a registered direct offering of 361,000 shares of the Company’s common stock, par value $0.001 per share, at a purchase price per share of Common Stock of $1.17. The offering closed on March 24, 2023. The aggregate gross proceeds for the sale of the shares of Common Stock were approximately $422,000, before deducting the placement agent fees and related expenses. The Company intends to use the net proceeds for working capital and general corporate purposes.ARCA and Subsidiaries DispositionOn March 19,9, 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'sCompany’s Board of Directors unanimously approved the Purchase Agreement and the Disposition Transaction.$17.6$17.6 million, excludingand includes those liabilities related to the California Business Fee and Tax Division; (ii) the Company will receive not less than $24.0$24.0 million in aggregate monthly payments from the Buyer, which payments are subject to potential increase due to the Subsidiaries’ future performance; and (iii) during the next five years, the Company may request that the Buyer prepay aggregate monthly payments in the aggregate amount of $1$1 million. The Company also received one thousand dollars for the equity of each of the 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 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.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 or after March 19,9, 2023.Soin MergerEffective as of 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. 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 Additionally, upon settlement 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,continuing dispute between ARCA and the potential of seven years of market exclusivity following approval. In addition, development of orphan drugs currently also involves smaller trialsCalifornia Business Fee and quicker timesTax Division (as to approval, given the limited number of patients available to study. However,which settlement, there can be no assurance thatassurance), ARCA will pay to the product will receive FDA approval or that it will result in material sales.In anticipationCompany 50% of the closingamount of the merger,reduction between the Company formed a merger subsidiary known as STI Merger Sub, Inc., a Delaware corporation (our “Merger Sub”),current assessment and designated a series of 200,000 shares of its preferred stock, stated value of $300.00 per share (the “Series S Convertible Preferred Stock” or the “Series S Stock”) (see Note 19). The acquisition was memorialized by an Agreementany such settlement. Further, ARCA and Plan of Merger, dated as of December 28, 2022 (the “Merger Agreement”), by and among STLLC, Amol Soin, M.D., the sole stockholder of STLLC (“Dr. Soin”), the Company's Merger Sub, and us.For not less than six months after the closing and potentially upConnexx are due to approximately one yearreceive from the closing, Dr. Soin will remainInternal Revenue Service two payments in the Company's Chief Medical Officer.31At the closingaggregate amount of the merger, (i) our Merger Sub merged with and into STLLC with STLLC as the surviving entity and (ii) the Company issued 100,000 shares of its Series S Stock to Dr. Soin. This all-stock transaction has an initial value of $13,000,000, potentially increasing by an additional $17,000,000 to up to a total value of $30,000,000, depending on revenues generated by the STLLC product. Dr. Soin agreed to certain restrictions on the maximum number of shares of Series S Stock that he may ultimately keep or that he may convert into shares of our common stock or sell into the public markets at any given time: (i) Dr. Soin may not convert shares of Series S Stock into shares of the Company's common stock in an amount such that, upon any such conversion, he beneficially own shares of the Company's common stock in excess of 4.99% of the Company's then-outstanding common stock and (ii) during the five-year period that commences on the date that Dr. Soin is first eligible to convert any shares of Series S Stock into shares of the Company's common stock, he will not dispose of any of such shares into the public markets in an amount that exceeds five percent of the daily trading volume of the Company's common stock during any trading day.Dr. Soin may convert up to three million dollars of value of the Series S Stock into shares of the Company's common stock commencing one year from the closing and may convert up to an additional $10 million of value of the Series S Stock into shares of the Company's common stock from and after the sooner of (y) the issuance by the FDA of New Drug Approval for low-dose naltrexone for treating pain or (z) 10 years from the closing. Further, during the 10-year period following the closing, Dr. Soin may convert up to an additional $17 million of value at a rate of five percent of the gross revenues that the Company receivesapproximately $977,000 in connection with sales or license revenuethe 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 September 30, 2023, have paid $500,000 to the Company. The balance of the ERC payments due, as of September 30, 2023, was $477,000.product.merger,Disposition Transaction, the Company employed an independent third-party firm to assessused a discount rate of 20% when it valued the fairaggregate 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 100,000 shares$3,000 paid at close, comprises the approximately $6.0 million of Series S Stock issued. net consideration. Additionally, the calculation of the gain on disposition includes the book value in excess of assets disposed of, or approximately $9.8 million.assessmentfollowing table details the calculation of the gain on sale of ARCA and subsidiaries, as shown on the income statement (in $000's):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 the fair market valuethere have been no events that have occurred that would require adjustments to disclosures in its condensed consolidated financial statements.the Series S Stock was approximately $Contents14.5 million, which was allocated to the intellectual property acquired.32 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.33arewere 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 beenwere engaged in the development and 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, the gain associated with the GeoTraq disposition (Technology segment) has been restated and presented as discontinued operations forending July 2, 2022. As such, the results of the Technology segment have been reclassified and presented as discontinued operations for the periods ending July 3, 2021.We operatedisclosed in this Quarterly Report, we operated three reportable segments: have suspended all operations for GeoTraq, and, on May 24, 2022, sold substantially all of the GeoTraqits assets. Further, the gain associated with the GeoTraq disposition (Technology segment) has been restated and presentedThe results for this segment are reported as discontinued operations for the periods ending July 2,13 and 39 weeks ended September 30, 2023 and October 1, 2022. As such, the results13 weeks ended July 2,Thirteen Weeks Ended September 30, 2023 and October 1, 2022 and July 3, 2021 (Restated)from continuing and discontinued operations and as a percentage of revenue, as restated, for the periods indicated (in $000's)$000’s):3413 Weeks Ended 13 Weeks Ended September 30, 2023 October 1, 2022 Statement of Operations Data: Revenues $ — $ — Cost of revenues — — Gross profit — — Selling, general and administrative expenses 764 611 Operating loss (764) (611) Interest income, net 758 410 Unrealized loss on marketable securities (267) (270) Other income, net 6 688 Net income (loss) before provision of income taxes (267) 217 Income tax benefit (25) — Net income (loss) from continuing operations (242) 217 Income from discontinued operations — (2,182) Income tax provision (benefit) for discontinued operations (28) 16 Net income (loss) from discontinued operations 28 (2,198) Net loss $ (214) $ (1,981) $000's)$000’s):13 Weeks Ended 13 Weeks Ended September 30, 2023 October 1, 2022 Net Revenue Percent of Total Net Revenue Percent of Total Revenue Revenue from discontinued operations $ — — % $ 8,587 100.0 % Biotechnology — — % — — % Total revenue $ — — % $ 8,587 100.0 % 13 Weeks Ended 13 Weeks Ended September 30, 2023 October 1, 2022 Gross Profit Gross Profit Percentage Gross Profit Gross Profit Percentage Gross Profit Gross profit from discontinued operations $ — — % $ 1,034 12.0 % Biotechnology — — % — — % Total gross profit $ — — % $ 1,034 12.0 % increaseddecreased by approximately $1.9$8.6 million or 22.4%, for the 13 weeks ended July 2, 2022,September 30, 2023, as compared to the 13 weeks ended July 3, 2021.October 1, 2022. The increasedecrease is primarily due to increased customer demand, and strong commodity markets.the disposition of our recycling segment as of March 1, 2023.increaseddecreased by approximately $2.0$7.6 million or 29.5%, for the 13 weeks ended July 2, 2022,September 30, 2023, as compared to the 13 weeks ended July 3, 2021,October 1, 2022. The decrease is due to increased sales volume. (Restated)decreasedincreased by approximately $742,000,$153,000, or 20.3%25%, for the 13 weeks ended July 2, 2022,September 30, 2023, as compared to the 13 weeks ended July 3, 2021,October 1, 2022, primarily due to decreases in stock-based compensation and professional fees, offset by increases in labor costs.Expense,Income, net (Restated)expense,income, net, decreasedincreased by approximately $63,000$348,000 for the 13 weeks ended July 2, 2022,September 30, 2023, as compared to the 13 weeks ended July 3, 2021October 1, 2022 primarily due to interest income recordedthe accretion of discount in connection with the sale of GeoTraq.35Gainpromissory note with SPYR and receivable from VM7 (see Note 18), as well as interest recorded on Sale of GeoTraq (Restated)Duringthe note with SPYR.July 2, 2022, we recorded a gain on the sale of GeoTraq of approximately $10.2 million. See Note 25 of unaudited Condensed Consolidated Financial Statements. Further, the gain associated with the GeoTraq disposition (Technology segment) has been restated and presentedSeptember 30, 2023, as discontinued operations for the periods ending July 2, 2022. As such, the results of the Technology segment have been reclassified and presented as discontinued operations for the periods ending July 3, 2021.Unrealized Loss on Marketable SecuritiesForcompared to the 13 weeks ended July 2, 2022, anOctober 1, 2022. An unrealized gain or loss on marketable securities of approximately $376,000 wasis recorded to mark to fair value securities received in connection to the sale of GeoTraq. See Note 25 of unaudited Consolidated Financial Statements. There were no similar transactions for the 13 weeks ended July 3, 2021.Gain on Settlement of Vendor Advance PaymentsFor the 13 weeks ended July 3, 2021, a portion of the vendor advance payments were settled, which resulted in a gain of approximately $131,000. There were no similar transactions for the 13 weeks ended July 2, 2022.Recycling, and discontinued operations. 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 corporateCorporate 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.:13 Weeks Ended September 30, 2023 13 Weeks Ended October 1, 2022 Biotechnology Discontinued Operations Total Biotechnology Discontinued Operations Total Revenue $ — $ — $ — $ — $ 8,587 $ 8,587 Cost of revenue — — — — 7,553 7,553 Gross profit — — — — 1,034 1,034 Selling, general and administrative expense 764 — 764 611 2,248 2,859 Operating loss $ (764) $ — $ (764) $ (611) $ (1,214) $ (1,825) $110,000$764,000 and $808,000$611,000 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 July 2,September 30, 2023 and the 13 weeks ended October 1, 2022, and July 3, 2021, respectively.Recycling SegmentThe recycling segmentARCAour 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 July 2, 2022, increasedSeptember 30, 2023, decreased by approximately $1.9, or 22.4%, as compared to the prior year period. Replacement services were up by approximately $1.7, period over period, primarily due to strong consumer demand. Recycling services increased by approximately $144,000 primarily due to by strong consumer demand. Byproducts increased by approximately $76,400 primarily due to strong commodity markets. Marketing services increased by approximately $28,400 primarily due to high demand from utility customers recycling services programs.Cost of revenue for the 13 weeks ended July 2, 2022, increased by approximately $2.0, or 29.5%,$8.6 million as compared to the prior year period, which was due to increased sales volumes.the disposition of our Recycling segment as of March 1, 2023.July 2, 2022, increasedSeptember 30, 2023, decreased by approximately $48,000, or 5.9%,$1.2 million as compared to the prior year period. The increase is due to an increase in gross profitthe disposition of approximately $432,000, offset by an increase in selling, general and administrative expensesour Recycling segment as of approximately $592,000.36Discontinued Operations (Restated)The discontinued operations consists of GeoTraq. Results for the 13 weeks ended July 2, 2022 includes income of approximately $10.2 million, as compared to a loss of $945,000 for the 13 weeks ended July 3, 2021. The increase is due to income from the sale of GeoTraq. See Note 25 of the unaudited Consolidated Financial Statements. Further, the gain associated with the GeoTraq disposition (Technology segment) has been restated and presented as discontinued operations for the periods ending July 2, 2022. As such, the results of the Technology segment have been reclassified and presented as discontinued operations for the periods ending July 3, 2021.26 weeks ended July 2,Thirty-Nine Weeks Ended September 30, 2023 and October 1, 2022 and July 3, 2021 continuing and discontinued operations items and as a percentage of revenue, for the periods indicated (in $000's)$000’s):39 Weeks Ended 39 Weeks Ended September 30, 2023 October 1, 2022 Statement of Operations Data: Revenues $ — $ — Cost of revenues — — Gross profit — — Selling, general and administrative expenses 2,923 1,950 Operating loss (2,923) (1,950) Interest income, net 1,598 575 Gain on litigation settlement — 1,950 Unrealized loss on marketable securities (514) (646) Gain on reversal of contingency loss — 637 Other income, net 745 2,043 Net income (loss) before provision of income taxes (1,094) 2,609 Income tax benefit (269) — Net income (loss) from continuing operations (825) 2,609 Income from discontinued operations 13,976 5,518 Income tax provision for discontinued operations 3,158 23 Net income from discontinued operations 10,818 5,495 Net income $ 9,993 $ 8,104 $000's)$000’s):39 Weeks Ended 39 Weeks Ended September 30, 2023 October 1, 2022 Net Revenue Percent of Total Net Revenue Percent of Total Revenue Revenue from discontinued operations $ 3,795 100.0 % $ 28,449 100.0 % Biotechnology — — % — — % Total revenue $ 3,795 100.0 % $ 28,449 100.0 % 3739 Weeks Ended 39 Weeks Ended September 30, 2023 October 1, 2022 Gross Profit Gross Profit Percentage Gross Profit Gross Profit Percentage Gross Profit Gross profit from discontinued operations $ (197) -5.2 % $ 4,536 15.9 % Biotechnology — — % — — % Total gross profit $ (197) -5.2 % $ 4,536 15.9 % increaseddecreased by approximately $2.6$25.0 million, or 15%86.7%, for the 2639 weeks ended July 2, 2022,September 30, 2023, as compared to the 2639 weeks ended July 3, 20212.October 1, 2022. The increasedecrease is due to the disposition of our recycling segment as of March 1, 2023.customer demand, and strong commodity markets.Cost of RevenueCost of revenueamortization costs relating to the Soin intangibles. This increase relates only to continuing operations.$2.2$1.0 million or 15.9%, for the 2639 weeks ended July 2, 2022,September 30, 2023, as compared to the 2639 weeks ended July 3, 2021,October 1, 2022 primarily due to increased sales volume.Selling, Generalthe accretion of discount in connection with the promissory note with SPYR and Administrative Expense (Restated)Selling, general and administrative expensereceivable from continuing operationsVM7 (see Note 18), as well as interest recorded on the note with SPYR.$726,000, or 23.6%,$132,000 for the 2639 weeks ended July 2, 2022,September 30, 2023, as compared to the 2639 weeks ended July 3, 2021, primarily due to decreases in stock-based compensation and other corporate expenses and professional fees, offset by increases in labor costs.Interest Expense, net (Restated)Interest expense, net increased by approximately $54,000 for the 26 weeks ended July 2, 2022, as compared to the 26 weeks ended July 3, 2021 primarily due to interest on notes payable, partially offset by interest income recorded in connection with the sale of GeoTraq.Gain on Sale of GeoTraq (Restated)During the 26 weeks ended July 2, 2022, we recorded aOctober 1, 2022. An unrealized gain on the sale of GeoTraq of approximately $10.2 million. See Note 25 of unaudited Condensed Consolidated Financial Statements. Further, the gain associated with the GeoTraq disposition (Technology segment) has been restated and presented as discontinued operations for the periods ending July 2, 2022. As such, the results of the Technology segment have been reclassified and presented as discontinued operations for the periods ending July 3, 2021.Unrealized Loss on Marketable SecuritiesFor the 26 weeks ended July 2, 2022, an unrealizedor loss on marketable securities of approximately $376,000 wasis recorded to mark to fair value securities received in connection to the sale of GeoTraq. See Note 25 of unaudited Consolidated Financial Statements. There were no similar transactions for the 26 weeks ended July 3, 2021.Gain on Litigation Settlement, netGain 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 LossGain 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 7 and 17 to the unaudited financial statements).Gain on Settlement of Vendor Advance PaymentsFor the 26 weeks ended July 3, 2021, a portion of the vendor advance payments were settled, which resulted in a gain of approximately $941,000. There were no similar transactions for the 26 weeks ended July 2, 2022.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.38corporateCorporate expenses within the Biotechnology segment. As discussed above, wesegment.:Biotechnology SegmentOur biotechnology segment incurred expenses.39 Weeks Ended September 30, 2023 39 Weeks Ended October 1, 2022 Biotechnology Discontinued Operations Total Biotechnology Discontinued Operations Total Revenue $ — $ 3,795 $ 3,795 $ — $ 28,449 $ 28,449 Cost of revenue — 3,992 3,992 — 23,913 23,913 Gross profit — (197) (197) — 4,536 4,536 Selling, general and administrative expense 2,923 1,469 4,392 1,950 6,761 8,711 Gain on sale of GeoTraq — (15,824) (15,824) — (10,241) (10,241) Operating (loss) income $ (2,923) $ 14,158 $ 11,235 $ (1,950) $ 8,016 $ 6,066 approximately $352,000 and $1.1 million relatedSeptember 30, 2023, our cash on hand was $413,000. We intend to employee costs and professional services related to research for the 26 weeks ended July 2, 2022 and July 3, 2021, respectively.Recycling SegmentThe recycling segment consists of ARCA Recycling, Customer Connexx, and ARCA Canada. Revenue for the 26 weeks ended July 2, 2022, increasedfund operations by approximately $2.6 million, or 15%, as compared to the prior year period. Replacement services were up by approximately $1.9, period over period, primarily due to strong consumer demand. Recycling services increased by approximately $359,000 primarily due to by strong consumer demand. Byproducts increased by approximately $179,000 primarily due to strong commodity markets. Marketing services increased by approximately $109,000 primarily due to high demand from utility customers recycling services programs.Cost of revenue for the 26 weeks ended July 2, 2022, increased by approximately $2.2 million, or 15.9%, as compared to the prior year period, due to increased sales volumes.Operating loss for the 26 weeks ended July 2, 2022, decreased by approximately $34,000, or 1.7%, as compared to the prior year period. The increase is due to an increase in gross profit of approximately $432,000, offset by an increase in selling, general and administrative expenses of approximately $592,000.Discontinued OperationsDiscontinued operations consists of GeoTraq. Results for the 26 weeks ended July 2, 2022 includes income of approximately $10.2 million, as compared to a loss of approximately $1.9 million for the 26 weeks ended July 3, 2021. The increase is due to incomeusing cash on hand, monthly revenues from the sale of GeoTraq. Further, the gain associated with the GeoTraq disposition (Technology segment) has been restatedour Subsidiaries, and presented as discontinued operations for the periods ending July 2, 2022. As such, the resultsfunds received from approved ERC’s. We intend to raise funds to support future development of the Technology segment have been reclassifiedJAN 123 and presented as discontinued operations for the periods ending July 3, 2021.Liquidity and Capital ResourcesOverviewAs of July 2, 2022, we had total cash on hand of approximately $1.2 million. As we continue to prepare to begin late-stage clinical development with our pharmaceutical product, JAN101, and potentially pursue strategic transactions to expand and grow our business, we regularly monitorJAN 101 either through capital market conditions and may raise additional funds through borrowingsraises or public or private sales of debt or equity securities. The amount, nature and timing of any borrowings or sales of debt or equity securities will depend on our operating performance and other circumstances; our then-current commitments and obligations; the amount, nature and timing of our capital requirements; any limitations imposed by our current credit arrangements; and overall market conditions.In December 2019, the 2019 novel coronavirus (COVID-19) surfaced in Wuhan, China. The World Health Organization declared a global emergency on January 30, 2020, and most countries have initiated travel restrictions limiting travel to other countries and39lock-downs within their borders. While various vaccines have recently been introduced into the marketplace, the impacts of variant strains of the COVID-19 virus are still unknown. The widespread health crisis has adversely affected the global economy, resulting in an economic downturn that could impact demand for our products. To date, the outbreak had a material adverse impact on our operations. For example, several customers in our appliance recycling and appliance replacement business have previously suspended ourstructured arrangements.pick upcontinue 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 replace their customers’ appliances resulting in decreased revenues for both recycling and replacement business. The future impact of the outbreak is highly uncertain and cannot be predicted and there is no assurance that the outbreak will not have another material adverse impact on the future results of the Company. The extent of the impact, if any, will depend on future developments, including actions taken to contain the coronavirus. A key task for the Company in 2021 is to begin late-stage clinical development with its pharmaceutical product, JAN101. However, the COVID-19 pandemic significantly impacted clinical trials in 2020, delaying recruitment in most non-COVID-19 clinical trials and even eliminating recruitment in some trials. While clinical sites have largely resumed conducting non-COVID-19 clinical trials, the backlog of subjects may adversely affect our ability to recruit for its trial, leading to longer and more expensive trials. In addition, the unknown effectiveness of the COVID-19 vaccines, particularly concerning variant strains of COVID-19, could lead to clinical sites terminating patient recruitment again during the course of the study.Based on our current operating plans, we believe that available cash balances, funds available under our factoring agreement with Prestige Capital Finance, LLC (“Prestige Capital”), and or other refinancing of existing indebtedness will provide sufficient liquidityJAN 101, as well as to fund our operations, our continued investments in store openings and remodeling activities for at least the next 12 months.2639 weeks ended July 2, 2022,September 30, 2023, cash provided by operations was approximately $1.5$1.9 million, compared to cash used in operations of approximately $2.3$2.4 million during the 2639 weeks ended July 3, 2021.October 1, 2022. Cash provided by discontinued operations during the 39 weeks ended September 30, 2023 was approximately $2.3 million, while cash used in continuing operations was approximately $2.7 million. The increase in cash used in operations was primarily due to results of operations as discussed above.$910,000$156,000 and $1.5 million,$950,000, respectively, for the 2639 weeks ended July 2, 2022September 30, 2023 and the 2639 weeks ended July 3, 2021, primarilyOctober 1, 2022. Cash used in investing activities for the 39 weeks ended September 30, 2023 was all associated with discontinued operations and was related to purchases of property and equipment. Cash used in investing activities for the 39 weeks ended October 1, 2022 was all associated with discontinued operations and related to purchases of property and equipment and intangibles.$103,000$1.4 million for the 2639 weeks ended July 2, 2022,September 30, 2023. Cash used in financing activities from discontinued operations for the 39 weeks ended September 30, 2023 was approximately $2.2 million and was primarily due to the repayment of debt obligations. Cash provided by financing activities from continued operations for the 39 weeks ended September 30, 2023 was approximately $7.2$777,000 and was related to $792,000 in proceeds from equity financing and $259,000 from warrants issued, partially offset by $274,000 in debt repayments. Cash used in financing activities was approximately $3.5 million for the 2639 weeks ended July 3, 2021October 1, 2022. Cash provided by financing activities from discontinued operations for the 39 weeks ended October 1, 2022 was approximately $3.4 million, and was primarily due to net proceeds received from an equitythe issuance of debt. Cash provided by financing activities from continuing operations for the 39 weeks ended October 1, 2022 was $118,000 and was due to $648,000 in the amount approximately $5.5 million.proceeds from issuing notes payable, partially offset by $530,000 in repayment of debt obligations. 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 March 26, 2018, the Company entered into a purchase and sale agreement with Prestige Capital, whereby from time to time the Company can factor certain accounts receivable to Prestige Capital up to a maximum advance and outstanding balance of $11 million. Discount fees ultimately paid depend upon how long an invoice and related amount is outstanding from ARCA Recycling’s customer. Prestige Capital has been granted a security interest in all ARCA Recycling’s accounts receivable. The current purchase and sale agreement with Prestige Capital automatically renews every six months unless terminated by the parties.We acknowledge that we continue to face a challenging competitive environment as we continue to focus on our overall profitability, includingraising capital and managing expenses. We reported net income of approximately $10.1 million and a net loss of approximately $4.5 million, respectively,$825,000 from continuing operations in for the 2639 weeks ended July 2,September 30, 2023, and net income from continuing operations of approximately $2.6 million for the 39 weeks ended October 1, 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 July 3, 2021. In addition,other income, net of approximately $2.0 million and interest income, net, of approximately $575,000, partially offset by an operating loss of $2.0 million and an unrealized loss on marketable securities of $646,000. Additionally, the Company has total current assets of approximately $6.8 million$517,000 and total current liabilities of approximately $18.9$2.5 million resulting in a net negative working capital of approximately $12.1 millionas of July 2, 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 refinance existing indebtedness, conduct our Phase IIb clinical trials, or consummate other strategic investments in our business. AnyNo assurance can be given any financing obtained may not further dilute or otherwise impair the ownership interest of our existing stockholders.40Foreign 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.Controlcontrol 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 July 2, 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.ChangesInternal Control Over Financial Reporting. Therethis report, our disclosure controls and procedures were no changes innot effective because of the Company’smaterial weaknesses discussed below.control overdisclosure controls are ineffective as of September 30, 2023, we have applied procedures and processes as necessary to ensure the reliability of our financial reporting duringin regard to this annual report. Accordingly, the quarter ended July 2, 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.July 2, 2022.September 30, 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 thoseJuly 2, 2022.July 2, 2022.September 30, 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.duties; (2) Inadequateinadequate 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) Insufficientinsufficient assessment of the impact of potentially significant transactions,transactions; and (4) Insufficientinsufficient 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. quarterly report on Form 10-Q and management is currently working to remedy these outstanding material weaknesses.414217,12, Commitments and Contingencies, to the Consolidated Financial Statements included in Part I, Item 1, of this Form 10-Q/A.10-Q.factor,factors, which supplements the risk factors previously disclosed by the Company in Part I, Item 1A, Risk Factors, of the 20202022 10-K.management'smanagement’s focus, result in substantial litigation expenses, and have an adverseadverse impact on our business, reputation, financial condition, results of operations or stock price.Complaint. Complaint. Refer to Note 1715 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.GlobalCapital Market.theThe 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 25) 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.43Exhibit
NumberExhibit Description Form File
NumberExhibit
NumberFiling
Date10.96 8-K 0-19621 10.95 3/20/2023 10.97 8-K 0-19621 10.96 3/20/2023 10.98 8-K 0-19621 10.98 3/22/2023 10.99 8-K 0-19621 10.99 8/23/2023 31.1 * 31.2 * 32.1 * 32.2 * 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) JanOne Inc. (Registrant) JanOne Inc.(Registrant)April 25,November 14, 2023April 25,November 14, 202346