UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period ended
or
Commission File No.
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification No.) |
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(Address of principal executive offices) |
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(Zip Code) |
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
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Trading Symbol(s) |
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Name of each exchange on which registered |
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(The NASDAQ Capital Market) |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. ☒
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one)
Large accelerated filer |
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Accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
As of November 12, 2021, there were
JANONE INC.
INDEX TO FORM 10-Q
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Item 1. |
3 |
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Unaudited Condensed Consolidated Balance Sheets as of October 2, 2021 and January 2, 2021 |
3 |
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4 |
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5 |
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6 |
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Notes to Unaudited Condensed Consolidated Financial Statements |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
28 |
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Item 3. |
35 |
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Item 4. |
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Item 1. |
37 |
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Item 1A. |
37 |
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Item 2. |
37 |
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Item 3. |
37 |
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Item 4. |
37 |
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Item 5 |
37 |
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Item 6. |
39 |
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41 |
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2
PART I. FINANCIAL INFORMATION
ITEM 1. Condensed Consolidated Financial Statements
JANONE INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
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October 2, |
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January 2, |
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(Unaudited) |
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Assets |
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Cash and cash equivalents |
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$ |
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$ |
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Trade and other receivables, net |
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Income taxes receivable |
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Inventories |
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Prepaid expenses and other current assets |
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Total current assets |
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Property and equipment, net |
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Right of use asset - operating leases |
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Intangible assets, net |
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Deposits and other assets |
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Total assets |
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$ |
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$ |
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Liabilities and Stockholders' Equity |
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Liabilities: |
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Accounts payable |
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$ |
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$ |
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Accrued liabilities - other |
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Accrued liability - California Sales Taxes |
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Lease obligation short term - operating leases |
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Short term debt |
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Current portion of note payable |
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Related party note |
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Total current liabilities |
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Lease obligation long term - operating leases |
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Note payable |
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Other noncurrent liabilities |
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Total liabilities |
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Stockholders' equity: |
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Preferred stock, series A-1 - par value $ |
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Common stock, par value $ |
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Additional paid in capital |
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Accumulated other comprehensive loss |
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( |
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( |
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Accumulated deficit |
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( |
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( |
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Total stockholders' equity |
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Total liabilities and stockholders' equity |
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$ |
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$ |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
JANONE INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(UNAUDITED)
(Dollars in thousands, except per share)
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For the Thirteen Weeks Ended |
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For the Thirty-Nine Weeks Ended |
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October 2, |
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September 26, |
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October 2, |
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September 26, |
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Revenues |
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$ |
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$ |
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$ |
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$ |
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Cost of revenues |
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Gross profit |
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Operating expenses: |
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Selling, general and administrative expenses |
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Operating loss |
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( |
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( |
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( |
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( |
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Other income (expense): |
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Interest expense, net |
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( |
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( |
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( |
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( |
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Gain on Payroll Protection Program loan forgiveness |
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Gain on settlement of vendor advance payments |
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Loss on litigation settlement |
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( |
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Other income, net |
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Total other income (expense), net |
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( |
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( |
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Loss from operations before benefit from income taxes |
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( |
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( |
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( |
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( |
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Income tax benefit (expense) |
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( |
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( |
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Net loss |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
( |
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Dividends declared - Series A-1 preferred stock |
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$ |
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$ |
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$ |
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$ |
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Dividends declared - Common stock |
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$ |
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$ |
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$ |
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$ |
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Loss per share: |
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Basic loss per share |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
( |
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Diluted loss per share |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
( |
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Weighted average common shares outstanding: |
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Basic |
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Diluted |
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Net loss |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
( |
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Other comprehensive loss, net of tax: |
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Effect of foreign currency translation adjustments |
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( |
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( |
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( |
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Total other comprehensive loss, net of tax |
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( |
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( |
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( |
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Comprehensive income loss |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
( |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
JANONE INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
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For the Thirty-Nine Weeks Ended |
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October 2, 2021 |
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September 26, 2020 |
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OPERATING ACTIVITIES: |
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Net loss |
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$ |
( |
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$ |
( |
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Adjustments to reconcile net loss to net cash used in operating activities: |
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Depreciation and amortization |
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Amortization of debt issuance costs |
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Stock based compensation expense |
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Noncash lease expense |
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Gain on Payroll Protection Program loan forgiveness |
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( |
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Gain on settlement of vendor advance payments |
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( |
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Change in deferred income taxes |
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( |
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Other |
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( |
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Changes in assets and liabilities: |
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Accounts receivable |
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( |
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Income taxes receivable |
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( |
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Prepaid expenses and other current assets |
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( |
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( |
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Inventories |
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Right of use assets |
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( |
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Lease liability |
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Accounts payable and accrued expenses |
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( |
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Net cash used in operating activities |
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( |
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( |
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INVESTING ACTIVITIES: |
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Purchases of property and equipment |
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( |
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( |
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Purchases of intangibles |
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( |
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( |
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Net cash used in investing activities |
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( |
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( |
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FINANCING ACTIVITIES: |
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Proceeds from issuance of short term debt |
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Payment on short term debt |
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( |
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( |
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Proceeds from equity financing, net |
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Proceeds from stock option exercise |
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Proceeds from note payable |
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Payment on note payable |
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( |
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Payment on related party note |
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( |
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Payments on short term notes payable |
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( |
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Net cash provided by financing activities |
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Effect of changes in exchange rate on cash and cash equivalents |
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( |
) |
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( |
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INCREASE IN CASH AND CASH EQUIVALENTS |
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CASH AND CASH EQUIVALENTS, beginning of period |
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CASH AND CASH EQUIVALENTS, end of period |
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$ |
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$ |
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Supplemental cash flow disclosures: |
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Interest paid |
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$ |
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$ |
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Income taxes paid |
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Right of use asset - operating leases capitalized |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5
JANONE INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
(Dollars in thousands)
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Series A-1 Preferred |
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Common Stock |
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Additional |
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Accumulated |
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Accumulated |
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Total |
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Shares |
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Amount |
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Shares |
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Amount |
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Capital |
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Deficit |
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Deficit |
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Equity |
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Balance, January 2, 2021 |
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$ |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
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$ |
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Shares issued |
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— |
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— |
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— |
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— |
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— |
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Share based compensation |
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— |
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— |
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— |
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— |
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— |
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— |
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Stock option exercise |
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— |
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— |
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— |
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— |
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— |
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Series A-1 preferred converted |
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( |
) |
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— |
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— |
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— |
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— |
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— |
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— |
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Other comprehensive loss |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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( |
) |
Net loss |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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— |
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( |
) |
Balance, October 2, 2021 |
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$ |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
) |
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$ |
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Series A-1 Preferred |
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Common Stock |
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Additional |
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Accumulated |
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Accumulated |
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Total |
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Shares |
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Amount |
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Shares |
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Amount |
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Capital |
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Deficit |
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Deficit |
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Equity |
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Balance, December 28, 2019 |
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$ |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
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$ |
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Shares cancelled |
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— |
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— |
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( |
) |
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— |
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— |
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— |
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— |
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— |
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Share based compensation |
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— |
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— |
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— |
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— |
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— |
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Effect of foreign currency translation adjustments |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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( |
) |
Net loss |
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— |
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— |
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— |
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— |
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— |
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( |
) |
|
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— |
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( |
) |
Balance, September 26, 2020 |
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$ |
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$ |
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$ |
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$ |
( |
) |
|
$ |
( |
) |
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$ |
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||||||
|
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Series A-1 Preferred |
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Common Stock |
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Additional |
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Accumulated |
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Accumulated |
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Total |
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Shares |
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Amount |
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Shares |
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Amount |
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Capital |
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Deficit |
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Deficit |
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Equity |
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||||||||
Balance, July 3, 2021 |
|
|
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$ |
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$ |
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$ |
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$ |
( |
) |
|
$ |
( |
) |
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$ |
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||||||
Share based compensation |
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— |
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— |
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— |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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— |
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— |
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( |
) |
|
|
— |
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|
( |
) |
Balance, October 2, 2021 |
|
|
|
|
$ |
|
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$ |
|
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$ |
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|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
||||||
|
|
Series A-1 Preferred |
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Common Stock |
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Additional |
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Accumulated |
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Accumulated |
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Total |
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Shares |
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Amount |
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Shares |
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Amount |
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Capital |
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Deficit |
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Deficit |
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Equity |
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||||||||
Balance, June 27, 2020 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
||||||
Share based compensation |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Effect of foreign currency translation adjustments |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Balance, September 26, 2020 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
6
Note 1: Background
The accompanying consolidated financial statements include the accounts of JanOne Inc., a Nevada corporation, and its subsidiaries (collectively the “Company” or “JanOne”). On September 10, 2019, Appliance Recycling Centers of America, Inc. changed its name to JanOne Inc.
The Company has
During September 2019, JanOne, through its biotechnology segment, broadened its business perspectives to become a pharmaceutical company focused on finding treatments for conditions that cause severe pain and bringing to market drugs with non-addictive pain-relieving properties.
ARCA Recycling, Inc. (“ARCA Recycling”) provides turnkey recycling services for electric utility energy efficiency programs in the United States. ARCA Canada Inc. (“ARCA Canada”) provides turnkey recycling services for electric utility energy efficiency programs in Canada. Customer Connexx, LLC (“Connexx”) provides call center services for ARCA Recycling and ARCA Canada. On February 19, 2021, the Company entered into an Asset Purchase Agreement (the “Purchase Agreement”) with (i) ARCA Affiliated Holdings Corporation, a Delaware corporation, (ii) ARCA Services Inc., a Delaware corporation, and (iii) Connexx Services Inc, a Delaware corporation (collectively, the “Buyers”), pursuant to which the Buyers agreed to acquire substantially all of the assets, and assume certain liabilities, of ARCA Recycling and Connexx (the “Disposition Transaction”). The principal of the Buyers is Virland A. Johnson, our Chief Financial Officer. The Disposition Transaction is expected to be consummated no later than July 15, 2022.
GeoTraq Inc. (“GeoTraq”) is engaged in the development, design and, ultimately, the Company expects, the sale of cellular transceiver modules, also known as Mobile IoT modules, and associated wireless services.
The Company reports on a 52- or 53-week fiscal year. The Company's 2020 fiscal year (“2020”) ended on January 2, 2021, and the current fiscal year (“2021”) will end on January 1, 2022.
Going concern
The Company currently faces a challenging competitive environment and is focused on improving its overall profitability, which includes managing expenses. The Company reported a net loss of approximately $
The Company has available cash balances and funds available under an accounts receivable factoring program with Prestige Capital Finance, LLC (“Prestige Capital”) to provide sufficient liquidity to fund the entity’s operations and remodeling activities for at least the next twelve months. The Company expects to generate cash from operations for the remainder of fiscal year 2021 given its cost cutting measures in response to the revenue reductions resulting from the Coronavirus. However, depending on continued U.S. restrictions related to the coronavirus public health crisis, the Company cannot be certain its efforts will suffice. The agreement with Prestige Capital allows the Company to obtain advanced funding of
Based on the above, management has concluded that at October 2, 2021 the Company is not aware of, and did not identify, any other conditions or events that would cause the Company to not be able to continue business as a going concern for the next twelve months.
Coronavirus
In December 2019, the 2019 novel coronavirus (COVID-19) surfaced in Wuhan, China. The World Health Organization declared a global emergency on January 30, 2020, and most countries have initiated travel restrictions limiting travel to other countries and lock-downs within their borders. While various vaccines have recently been introduced into the marketplace, the impacts of variant strains of the COVID-19 virus 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 our ability to
7
pick up and or replace their customers’ appliances resulting in decreased revenues for both recycling and replacement business. The future impact of the outbreak is highly uncertain and cannot be predicted and there is no assurance that the outbreak will not have another material adverse impact on the future results of the Company. The extent of the impact, if any, will depend on future developments, including actions taken to contain the coronavirus. A key task for the Company in 2021 is to begin late-stage clinical development with its pharmaceutical product, JAN101. However, the COVID-19 pandemic significantly impacted clinical trials in 2020 and 2021, delaying recruitment in most non-COVID-19 clinical trials and even eliminating recruitment in some trials. While clinical sites have largely resumed conducting non-COVID-19 clinical trials, the backlog of subjects may adversely affect our ability to recruit for its trial, leading to longer and more expensive trials. In addition, the unknown effectiveness of the COVID-19 vaccines, particularly concerning variant strains of COVID-19, could lead to clinical sites terminating patient recruitment again during the course of the study.
During April 2020, as a result of the COVID-19 pandemic, the Company entered into an amendment to its contract services agreement with certain customers, whereby those customers agreed to advance the Company approximately $
Note 2: Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the U.S. (“U.S. GAAP”) and with the instructions to Form 10-Q and Article 10 of Regulation S-X for interim financial information. Accordingly, these financial statements do not include all of the information and notes required for complete financial statements prepared in conformity with U.S. GAAP. In our opinion, all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation have been included. However, the Company's results of operations for the interim periods presented are not necessarily indicative of the results that may be expected for the full year. For further information, refer to the consolidated financial statements and notes thereto included in our Form 10-K for the fiscal year ended January 2, 2021.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.
Reclassifications
Certain amounts in the prior year consolidated financial statements have been reclassified to conform to the current year presentation. These reclassifications had no effect on the previously reported net loss or stockholders’ equity.
Use of Estimates
The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumption that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Significant estimates made in connection with the accompanying consolidated financial statements include the estimated reserve for doubtful current and long-term trade and other receivables, the estimated reserve for excess and obsolete inventory, estimated fair value and forfeiture rates for stock-based compensation, fair values in connection with the analysis of other intangibles and long-lived assets for impairment, valuation allowance against deferred tax assets and estimated useful lives for intangible assets and property and equipment.
Financial Instruments
Financial instruments consist primarily of cash equivalents, trade and other receivables, notes receivable, and obligations under accounts payable, accrued expenses and notes payable. The carrying amounts of cash equivalents, trade receivables and other receivables, accounts payable, accrued expenses and short-term notes payable approximate fair value because of the short maturity of these instruments. The fair value of the long-term debt is calculated based on interest rates available for debt with terms and maturities similar to the Company’s existing debt arrangements, unless quoted market prices were available (Level 2 inputs). The carrying amounts of short-term debt at October 2, 2021 and January 2, 2021 approximate fair value.
8
Cash and Cash Equivalents
Cash and cash equivalents consist of highly liquid investments with a maturity of three months or less at the time of purchase. Fair value of cash equivalents approximates carrying value.
Trade Receivables and Allowance for Doubtful Accounts
The Company carries unsecured trade receivables at the original invoice amount less an estimate made for doubtful accounts based on a monthly review of all outstanding amounts. Management determines the allowance for doubtful accounts by regularly evaluating individual customer receivables and considering a customer’s financial condition, credit history and current economic conditions. The Company writes off trade receivables when deemed uncollectible. The Company records recoveries of trade receivables previously written off when payment is received. The Company considers a trade receivable to be past due if any portion of the receivable balance is outstanding for more than ninety days. The Company does not charge interest on past due receivables. The Company has
Inventories
Inventories, consisting primarily of appliances, are stated at the lower 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, based on various factors, including the age of such inventory and management’s assessment of the need for such provisions. We look at historical inventory aging reports and margin analyses in determining our provision estimate. A revised cost basis is used once a provision for obsolescence is recorded. The Company has
Property and Equipment
Property and Equipment are stated at cost less accumulated depreciation. Expenditures for repairs and maintenance are charged to expense as incurred and additions and improvements that significantly extend the lives of assets are capitalized. Upon sale or other retirement of depreciable property, the cost and accumulated depreciation are removed from the related accounts and any gain or loss is reflected in operations. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. The useful life of building and improvements is
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 amount of the assets exceeds their fair value, as approximated by the present value of their projected discounted cash flows.
Intangible Assets
The Company accounts for intangible assets in accordance with ASC 350, Intangibles—Goodwill and Other. Under ASC 350, intangible assets subject to amortization, shall be reviewed for impairment in accordance with the Impairment or Disposal of Long-Lived Assets in ASC 360, Property, Plant, and Equipment.
Under ASC 360, long-lived assets are tested for recoverability whenever events or changes in circumstances (‘triggering event’) indicate that the carrying amount may not be recoverable. In making this determination, triggering events that were considered included:
9
If a triggering event has occurred, for purposes of recognition and measurement of an impairment loss, a long-lived asset or assets shall be grouped with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. If after identifying a triggering event it is determined that the asset group’s carrying value may not be recoverable, a recoverability test is performed by forecasting the expected cash flows to be derived from the asset group for the remaining useful life of the asset group’s primary asset compared to its carrying value. The recoverability test relies upon the undiscounted cash flows (excluding interest and taxes) which are derived from the Company’s specific use of those assets (not how a market participant would use those assets); and are based upon the existing service potential of the current assets (excluding any improvements that would materially enhance the assets). If the expected undiscounted cash flows exceed the carrying value, the assets are considered recoverable.
There was
Revenue Recognition
Biotechnology Revenue
The Company is currently generating no revenue from its Biotechnology segment.
Recycling Revenue
The Company provides replacement appliances and provides appliance pickup and recycling services for consumers (“end users”) of public utilities, our customers. As part of the Company's de-manufacturing and recycling process, it receives revenue from scrap dealers for refrigerant, steel, plastic, glass, copper and other residual items.
The Company accounts for revenue in accordance with Accounting Standards Codification 606 Revenue from Contracts with Customers.
Under the revenue standard, the Company determines revenue recognition through the following steps:
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 consideration to which the Company expects to be entitled per order, and therefore there is no variable consideration. As the Company’s standard payment terms are less than 90 days, the Company has elected, as a practical expedient, to not assess whether a contract has a significant financing component. The Company allocates the transaction price to each distinct product or service based on its relative standalone selling price. The product or service price, as specified on the contract, is considered the standalone selling price as it is an observable source that depicts the price as if sold to a similar customer in similar circumstances.
10
Replacement Product Revenue
The Company generates revenue by providing replacement appliances. Revenue is recognized at the point in time when control of the replacement product is transferred to the end user and when performance obligations are satisfied, which typically occurs upon delivery from the Company's center facility and installation at the end user’s home.
Recycling Services Revenue
The Company generates revenue by providing pickup and recycling services. Revenue is recognized at the point in time when a to-be recycled appliance has been picked up and transfer of ownership has occurred, thereby satisfying the performance obligation.
Byproduct Revenue
The Company generates other recycling byproduct revenue (the sale of copper, steel, plastic, and other recoverable non-refrigerant byproducts) as part of a de-manufacturing process. The Company recognizes byproduct revenue upon delivery and transfer of control of the byproduct to a third-party recycling customer having mutually agreed upon a price per pound, and that collection is reasonably assured. Transfer of control occurs at the time the customer assumes possession of the byproduct material. Revenue recognized is a function of byproduct weight, type and, in some cases, volume of the byproduct delivered multiplied by the market rate as quoted.
Contract Liability
Receivables are recognized in the period the Company ships the product or provides the service. Payment terms on invoiced amounts are based on contractual terms with each customer. When the Company receives consideration, or such consideration is unconditionally due, prior to transferring goods or services to the customer under the terms of a sales contract, they are recorded as deferred revenue, which represents a contract liability. The Company recognizes a contract liability as net sales once control of goods and/or services have been transferred to the customer and all revenue recognition criteria have been met, and any constraints have been resolved. The Company defers product costs until recognition of the related revenue occurs.
Assets Recognized from Costs to Obtain a Contract with a Customer
The Company recognizes an asset for the incremental costs of obtaining a contract with a customer if it expects the benefit of those costs to be longer than one year. The Company has concluded that no material costs have been incurred to obtain and fulfill our FASB Accounting Standards Codification, or ASC 606 contracts, meet the capitalization criteria, and as such, there are
Other:
The majority of the Company's revenue recognized is derived from contracts with customers.
Technology Revenue
The Company is currently generating no revenue from its Technology segment.
11
Shipping and Handling
The Company classifies shipping and handling charged to customers as revenues and classifies costs relating to shipping and handling as cost of revenues.
Advertising Expense
Advertising expense is charged to operations as incurred. Advertising expense totaled approximately $
Fair Value Measurements
ASC Topic 820, “Fair Value Measurements and Disclosures,” requires disclosure of the fair value of financial instruments held by the Company. ASC Topic 825, “Financial Instruments,” defines fair value, and establishes a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value measures. The three levels of valuation hierarchy are defined as follows: Level 1 - inputs to the valuation methodology are quoted prices for identical assets or liabilities in active markets. Level 2 – to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. Level 3 – inputs to the valuation methodology are unobservable and significant to the fair value measurement.
Income Taxes
The Company accounts for income taxes using the asset and liability method. The asset and liability method requires recognition of deferred tax assets and liabilities for expected future tax consequences of temporary differences that currently exist between tax bases and financial reporting bases of the Company's assets and liabilities. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which these temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is provided on deferred taxes if it is determined that it is more likely than not that the asset will not be realized. The Company recognizes penalties and interest accrued related to income tax liabilities in the provision for income taxes in its Condensed Consolidated Statements of Operations and Other Comprehensive Loss.
Significant management judgment is required to determine the amount of benefit to be recognized in relation to an uncertain tax position. The Company uses a two-step process to evaluate tax positions. The first step requires an entity to determine whether it is more likely than not (greater than 50% chance) that the tax position will be sustained. The second step requires an entity to recognize in the financial statements the benefit of a tax position that meets the more-likely-than-not recognition criterion. The amounts ultimately paid upon resolution of issues raised by taxing authorities may differ materially from the amounts accrued and may materially impact the financial statements of the Company in future periods.
Lease Accounting
The Company accounts for leases in accordance with ASC 842 - Leases. This accounting standard requires all lessees to record the impact of leasing contracts on the balance sheet as a right to use asset and corresponding liability. This is measured by taking the present value of the remaining lease payments over the lease term and recording a right to use asset (“ROU”) and corresponding lease obligation for lease payments. Rent expense is realized on a straight-line basis and the lease obligation is amortized based on the effective interest method. The amounts recognized reflect the present value of remaining lease payments for all leases that have a lease term greater than 12 months. The discount rate used is an estimate of the Company’s incremental borrowing rate based on information available at lease commencement.
In considering the lease asset value, the Company considers fixed or variable payment terms, prepayments and options to extend, terminate or purchase. Renewal, termination or purchase options affect the lease term used for determining lease asset value only if the option is reasonably certain to be exercised. The Company uses an estimate of its incremental borrowing rate based on information available at lease commencement in determining present value of lease payments.
The Company leases warehouse facilities and office space. These assets and properties are generally leased under noncancelable agreements that expire at various dates through
12
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
The Company's operating leases contain no residual value guarantees or contain restrictive covenants.
Lease amounts accounted for under ASC 842 were determined based on analysis of the lease contracts using lease payments and timing as documented in the contract. Non-lease contracts were also evaluated to determine if the contract terms provided an asset that was controlled by the Company, and provided it with substantially all relevant economic benefits. The Company is not a party to any contracts containing embedded leases. All lease contracts were reviewed, and distinctions made between lease and non-lease payments. Only payments related to the lease of the asset were included in lease payment calculations. Management uses an estimation of its incremental borrowing rate at lease commencement over similar terms as the lease contracts in determining the present value of its lease obligations.
Stock-Based Compensation
The Company from time to time grants stock awards, restricted stock awards, and options to employees (including executives), non-employees, and members of the Board of Directors. Such awards are valued based on the grant date fair-value of the instruments, net of estimated forfeitures. The value of each award is recognized over the vesting period.
Foreign Currency
The financial statements of the Company’s non-U.S. subsidiary are translated into U.S. dollars in accordance with ASC 830, Foreign Currency Matters. Under ASC 830, if the assets and liabilities of the Company are recorded in certain non-U.S. functional currencies other than the U.S. dollar, they are translated at rates of exchange at year end. Revenue and expense items are translated at the average monthly exchange rates. The resulting translation adjustments are recorded directly into accumulated other comprehensive loss.
Earnings Per Share
Earnings per share is calculated in accordance with ASC 260, “Earnings Per Share”. Under ASC 260 basic earnings per share is computed using the weighted average number of common shares outstanding during the period except that it does not include unvested restricted stock subject to cancellation. Diluted earnings per share is computed using the weighted average number of common shares and, if dilutive, potential common shares outstanding during the period. Potential common shares consist of the incremental common shares issuable upon the exercise of warrants, options, restricted shares and convertible preferred stock. The dilutive effect of outstanding restricted shares, options and warrants is reflected in diluted earnings per share by application of the treasury stock method. Convertible preferred stock is reflected on an if-converted basis.
Segment Reporting
ASC Topic 280, “Segment Reporting,” requires use of the “management approach” model for segment reporting. The management approach model is based on the way a company’s management organizes segments within the company for making operating decisions and assessing performance. The Company has determined it has
Concentration of Credit Risk
The Company maintains cash balances at several banks in several states including, California, Minnesota, and Nevada. Accounts are insured by the Federal Deposit Insurance Corporation up to $
13
Note 3: Trade and other receivables
|
|
October 2, |
|
|
January 2, |
|
||
Trade receivables, net |
|
$ |
|
|
$ |
|
||
Factored accounts receivable |
|
|
( |
) |
|
|
( |
) |
Prestige Capital reserve receivable |
|
|
|
|
|
|
||
Other receivables |
|
|
|
|
|
|
||
Trade and other receivables, net |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Trade accounts receivable |
|
$ |
|
|
$ |
|
||
Un-billed trade receivables |
|
|
|
|
|
|
||
Total trade receivables, net |
|
$ |
|
|
$ |
|
||
Note 4: Inventory
Appliances held for sale are stated at the lower of cost, determined on a specific identification basis, or net realizable value. Inventory raw material - chips, are stated at the lower of average cost or net realizable value.
|
|
October 2, |
|
|
January 2, |
|
||
Appliances held for resale |
|
$ |
|
|
$ |
|
||
Inventory - raw material - chips |
|
|
|
|
|
|
||
Total inventory |
|
$ |
|
|
$ |
|
||
The Company provides estimated provisions for the obsolescence of inventories, including adjustments to net realizable value, based on various factors, including the age of such inventory and our management’s assessment of the need for such provisions. The Company reviews historical inventory aging reports and margin analyses in determining our provision estimate. A revised cost basis is used once a provision for obsolescence is recorded. As of October 2, 2021 and January 2, 2021, the Company has recorded
Note 5: Prepaids and other current assets
Prepaids and other current assets as of October 2, 2021 and January 2, 2021 consist of the following:
|
|
October 2, |
|
|
January 2, |
|
||
Prepaid insurance |
|
$ |
|
|
$ |
|
||
Prepaid rent |
|
|
|
|
|
|
||
Prepaid purchase orders |
|
|
|
|
|
|
||
Prepaid other |
|
|
|
|
|
|
||
Total prepaid expenses and other current assets |
|
$ |
|
|
$ |
|
||
Note 6: Note receivable
On December 30, 2017, the Company sold its retail appliance segment, ApplianceSmart, Inc. (“ApplianceSmart”) to ApplianceSmart Holdings LLC (the “Purchaser”), a wholly owned subsidiary of Live Ventures Incorporated, pursuant to a Stock Purchase Agreement (the “Agreement”). Pursuant to the Agreement, the Purchaser purchased from the Company all of the issued and outstanding shares of capital stock (the “Stock”) of ApplianceSmart in exchange for $
Between March 31, 2018 and April 24, 2018, the Purchaser and the Company negotiated in good faith the method of payment of the remaining outstanding balance of the Purchase Price. On April 25, 2018, the Purchaser delivered to the Company a promissory note (the “ApplianceSmart Note”) in the original principal amount of approximately $
14
remaining approximately $
On December 26, 2018, the ApplianceSmart Note was amended and restated to grant the Company a security interest in the assets of the Purchaser, ApplianceSmart, and ApplianceSmart Contracting Inc. in exchange for modifying the repayment terms to provide for payment in full of all principal and accrued interest on April 1, 2021, the maturity date of the ApplianceSmart Note.
On March 15, 2019, the Company entered into agreements with third parties pursuant to which it agreed to subordinate the payment of indebtedness under the ApplianceSmart Note and the Company’s security interest in the assets of ApplianceSmart in exchange for a prepayment of up to $
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. As a result, the Company has recorded an impairment charge of approximately $
On October 13, 2021, a hearing was held to consider approval of the Disclosure Statement filed by ApplianceSmart in conjunction with its bankruptcy proceedings. The Disclosure Statement was approved by the court, subject to minor amendment, and a directive issued that an order for a final confirmation hearing be drafted and scheduled in the foreseeable future.
Note 7: Property and Equipment
Property and equipment as of October 2, 2021 and January 2, 2021 consist of the following:
|
|
Useful Life |
|
October 2, |
|
|
January 2, |
|
||
Buildings and improvements |
|
|
$ |
|
|
$ |
|
|||
Equipment |
|
|
|
|
|
|
|
|||
Projects under construction |
|
|
|
|
|
|
|
|
||
Property and equipment |
|
|
|
|
|
|
|
|
||
Less accumulated depreciation and amortization |
|
|
|
|
( |
) |
|
|
( |
) |
Total property and equipment, net |
|
|
|
$ |
|
|
$ |
|
||
Depreciation expense was approximately $
Equipment Financing Agreement
15
Note 8: Intangible Assets
Intangible assets as of October 2, 2021 and January 2, 2021 consist of the following:
|
|
October 2, |
|
|
January 2, |
|
||
Intangible assets GeoTraq |
|
$ |
|
|
$ |
|
||
Patent and domains |
|
|
|
|
|
|
||
Computer software |
|
|
|
|
|
|
||
Intangible assets |
|
|
|
|
|
|
||
Less accumulated amortization |
|
|
( |
) |
|
|
( |
) |
Total intangible assets |
|
$ |
|
|
$ |
|
||
The useful life and amortization period of the GeoTraq intangible acquired is
Note 9: Deposits and other assets
Deposits and other assets as of October 2, 2021 and January 2, 2021 consist of the following:
|
|
October 2, |
|
|
January 2, |
|
||
Deposits |
|
$ |
|
|
$ |
|
||
Other |
|
|
|
|
|
|
||
Total deposits and other assets |
|
$ |
|
|
$ |
|
||
Deposits are primarily refundable security deposits incurred as a result of property leases.
Note 10: Leases
The Company accounts for leases in accordance with ASC 842. The amount recorded is the present value of all remaining lease payments for leases with terms greater than 12 months. The right of use asset is offset by a corresponding liability. The discount rate is based on an estimate of our incremental borrowing rate for terms similar to our lease terms at the time of lease commencement. The asset will be amortized over remaining lease terms. See Lease Accounting in Note 2.
Total present value of lease payments as of October 2, 2021:
Remainder 2021 |
|
$ |
|
|
2022 |
|
|
|
|
2023 |
|
|
|
|
2024 |
|
|
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
Total |
|
|
|
|
Less Interest |
|
|
( |
) |
Present Value of Payments |
|
$ |
|
During the 39 weeks ended October 2, 2021 and September 26, 2020, approximately $
Additionally, the Company obtained right-of-use assets in exchange for lease liabilities of approximately $
16
Note 11: Accrued Liabilities
Accrued liabilities as of October 2, 2021 and January 2, 2021 consist of the following:
|
|
October 2, |
|
|
January 2, |
|
||
Compensation and benefits |
|
$ |
|
|
$ |
|
||
Contract liability |
|
|
|
|
|
|
||
Accrued incentive and rebate checks |
|
|
|
|
|
|
||
Accrued transportation costs* |
|
|
|
|
|
|
||
Accrued guarantees |
|
|
|
|
|
|
||
Accrued purchase orders |
|
|
|
|
|
|
||
Accrued taxes |
|
|
|
|
|
|
||
Accrued litigation settlement |
|
|
|
|
|
|
||
Other |
|
|
|
|
|
|
||
Total accrued expenses |
|
$ |
|
|
$ |
|
||
Contract liabilities rollforward
The following table summarizes the contract liability activity for the 13 weeks ended October 2, 2021:
Beginning balance, January 2, 2021 |
|
$ |
|
|
Accrued |
|
|
|
|
Settled |
|
|
( |
) |
Ending balance, October 2, 2021 |
|
$ |
|
Note 12: Accrued Liability – California Sales Tax
The Company operates in fourteen states in the U.S. and in various provinces in Canada. From time to time, the Company is subject to sales and use 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, 2013 and extended through the nine-month period ended September 30, 2014.
On April 13, 2017 the Company received the formal CDTFA assessment for sales tax for tax years 2011, 2012 and 2013 in the amount of approximately $
As of October 2, 2021, and January 2, 2021, the Company's accrued liability for California sales tax was approximately $
Note 13: Income Taxes
The Company's overall effective tax rate was
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
17
temporary differences and carryforwards are expected to be available to reduce taxable income. The Company has concluded, based on the weight of evidence, that a valuation allowance should be maintained against deferred tax assets that are not expected to be utilized in the near future. The Company continues to recognize a full valuation allowance against its Canadian operations.
Note 14: Short Term Debt
Short term debt and other financing obligations as of October 2, 2021 and January 2, 2021, consist of the following:
|
|
October 2, |
|
|
January 2, |
|
||
AFCO Finance |
|
$ |
|
|
$ |
|
||
Payroll protection program |
|
|
|
|
|
|
||
Vendor advance payments |
|
|
|
|
|
|
||
Total short term debt |
|
$ |
|
|
$ |
|
||
AFCO Finance
The Company has entered into a financing agreement with AFCO Credit Corporation (“AFCO”) purchased through Marsh Insurance on an annual basis to fund the annual premiums on insurance policies due July 1 of each year. These policies relate to workers’ compensation and various liability policies including, but not limited to, General, Auto, Umbrella, Property, and Directors’ and Officers’ insurance. The total amount of the premiums financed during July 2021 was approximately $
The outstanding principal due AFCO at October 2, 2021 and January 2, 2021 was approximately $
Payroll Protection Program
On May 1, 2020, the Company entered into a promissory note (the “Promissory Note”) with Texas Capital Bank, N.A. that provides for a loan in the amount of approximately $
Customer Advance Payments
As of the period ending June 27, 2020, the Company received advance payments authorized by the California Public Utilities Commission and processed through two California utilities for the purposes of sustaining the workforce during the COVID-19 pandemic shutdown. The use of these funds was limited to labor and labor benefits for impacted employees. Portions of these advances are forgivable if certain conditions are met, the specifics which have not yet been finalized. Advance payments that are not forgiven will need to be paid back in full by
Note 15: Commitments and Contingencies
Litigation
SEC Complaint
On August 2, 2021, the U.S. Securities and Exchange Commission (“SEC”) filed a civil complaint (the “SEC Complaint”) in the United States District Court for the District of Nevada naming the Company and one of its executive officers, Virland Johnson, the Company's Chief Financial Officer, as defendants (collectively, the "Defendants").
The SEC Complaint alleges financial, disclosure and reporting violations against the Company and the executive officer under Section 10(b) of the Securities Exchange Act of 1934 (the "Exchange Act") and Rule 10b-5. The SEC Complaint also alleges various claims against the executive officer under Sections 13(a), 13(b)(2)(A), 13(b)(2)(B) and 13(b)(5) of the Exchange Act and Rules 12b-20,
18
13a-1, 13a-13, 13a-14, 13b2-1, and 13b2-2. The SEC seeks permanent injunctions and civil penalties against the Defendants, and an officer-and-director bar against the executive officer. The foregoing is only a general summary of the SEC Complaint, which may be accessed on the SEC’s website at https://www.sec.gov/litigation/litreleases/2021/lr25155.htm.
The Company continues to assert that the SEC’s pursuit of this matter will not result in any benefit to investors and instead will only serve as a distraction from core business. Live Ventures enlisted the representation of highly experienced and respected attorney John Hueston of the law firm Hueston Hennigan; on October 1, 2021, Mr. Hueston, on behalf of the Company, filed a motion with the court to dismiss the complaint.
The Defendants strongly dispute and deny the allegations and are vigorously defending themselves against the claims.
Skybridge
On December 29, 2016, the Company served a Minnesota state court complaint for breach of contract on Skybridge Americas, Inc. (“SA”), the Company’s primary call center vendor throughout 2015 and most of 2016. The Company seeks 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 $
AMTIM Capital
AMTIM Capital, Inc. (“AMTIM”) acts as the Company’s representative to market our recycling services in Canada under an arrangement that pays AMTIM for revenues generated by recycling services in Canada as set forth in the agreement between the parties. A dispute has arisen between AMTIM and the Company with respect to the calculation of amounts due to AMTIM pursuant to the agreement. In a lawsuit filed in the province of Ontario, AMTIM claims a discrepancy in the calculation of fees due to AMTIM by the Company of approximately $
GeoTraq
On or about April 9, 2021, GeoTraq, Gregg Sullivan, Tony Isaac, and we, among others, resolved all of their claims that related to, among other items, the Company's acquisition of GeoTraq in August 2017, all post-acquisition activities, and Mr. Sullivan’s post-acquisition employment relationship with GeoTraq (all of such claims, the “GeoTraq Matters”). The resolution was effectuated through the parties’ execution and delivery of a Settlement Agreement and Mutual Agreement of Claims (the “GeoTraq Settlement Agreement”).
Under the terms of the Settlement Agreement, the Company, on its own behalf and on behalf of GeoTraq and Mr. Isaac, agreed to tender to Mr. Sullivan an aggregate of $
19
Pursuant to the terms of the Settlement Agreement, Mr. Sullivan provided the Company with his proxy to vote his remaining shares of its Series A-1 Preferred Stock that the Company had issued to him in connection with its acquisition of GeoTraq in 2017, as well as his proxy for the shares of the Company's common stock into which those shares of preferred stock may be converted. The Company may utilize the proxy in the context of an annual meeting of its stockholders, a special meeting of its stockholders, and a written consent of its stockholders. Subject to the above-described contingent GeoTraq Prepayment tender
The parties to the Settlement Agreement released and forever discharged one another from any and all known and unknown claims that were asserted or could have been asserted arising out of the GeoTraq Litigation Matters.
Other Commitments
As previously disclosed and as discussed in Note 6: Note receivable, on December 30, 2017, the Company disposed of its retail appliance segment and sold ApplianceSmart to the Purchaser. In connection with that sale, as of December 28, 2019 the Company has an aggregate amount of future real property lease payments of approximately $
The Company evaluated the fair value of its potential obligation under the guidance of ASC 450: Contingencies and ASC 460: Guarantees. As a result, the Company accrued the amount of liability associated with these future guaranteed lease payments. The fair value was calculated based on the amounts reported as part of the bankruptcy proceedings as ApplianceSmart terminated the leases prior to the lease termination date. The fair value was calculated based on the undiscounted lease payments, a discount rate equivalent to current interest rates associated with the leased real estate and a remote probability weighting of 1%.
The ApplianceSmart Leases either have the Company as the contract tenant only, or in the contract reflects a joint tenancy with ApplianceSmart. ApplianceSmart is the occupant of the ApplianceSmart Leases. The Company does not have the right to use the ApplianceSmart lease assets nor is the Company the primary obligor of the lease payments, hence capitalization under ASC 840 is not required. The ApplianceSmart Leases have historically been used by ApplianceSmart for their operations and the consideration has and is being paid by ApplianceSmart historically and in the future.
Any potential amounts paid out for the Company obligations and or guarantees under ApplianceSmart Leases would be recoverable to the extent there are assets available from ApplianceSmart. ApplianceSmart Leases are related party transactions. The Company divested itself of the ApplianceSmart Leases and leaseholds with the sale to Purchaser on December 30, 2017.
The Company is party from time to time to other ordinary course disputes that we do not believe to be material to our financial condition as of October 2, 2021.
Note 16: Shareholders’ Equity
Common Stock: Our Articles of Incorporation authorize
As of October 2, 2021, and January 2, 2021, there were
Equity Offering
On January 29, 2021, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with certain institutional investors (the “Purchasers”) for the sale by the Company in a registered direct offering (the “Offering”) of
20
The Purchase Agreement contains customary representations, warranties and agreements by the Company and the Purchasers and customary indemnification rights and obligations of the 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 Agency Agreement, dated as of January 29, 2021, by and between the Company and the Placement Agent (the “Placement Agency Agreement”). Pursuant to the Placement Agency Agreement, the Placement Agent was paid a cash fee of
The shares of Common Stock sold in the Offering were offered and sold by the Company pursuant to an effective shelf registration statement on Form S-3 (File No. 333-251645) (the “Registration Statement”), which was initially filed with the Securities and Exchange Commission on December 23, 2020 and was declared effective on December 29, 2020.
The representations, warranties and covenants contained in the Purchase Agreement were made solely for the benefit of the parties to the Purchase Agreement. In addition, such representations, warranties, and covenants (i) are intended as a way of allocating the risk between the parties to the Purchase Agreement and not as statements of fact, and (ii) may apply standards of materiality in a way that is different from what may be viewed as material by stockholders of, or other investors in, the Company. Accordingly, the Purchase Agreement incorporated by reference in this filing only to provide investors with information regarding the terms of the transaction, and not to provide investors with any other factual information regarding the Company. Stockholders should not rely on the representations, warranties, and covenants or any descriptions thereof as characterizations of the actual state of facts or condition of the Company or any of its subsidiaries or affiliates. Moreover, information concerning the subject matter of the representations and warranties may change after the date of the Purchase Agreement, which subsequent information may or may not be fully reflected in public disclosures.
The foregoing descriptions of the Purchase Agreement and the Placement Agency Agreement are not complete and are qualified in their entireties by reference to the full text of the Purchase Agreement and the Placement Agency Agreement, a copy of each of which is filed as Exhibit 10.1 and Exhibit 1.1, respectively, to the Company’s Current Report on Form 8-K as field on January 29, 2021 and each is incorporated by reference herein.
Stock options: The 2016 Plan, which replaces the 2011 Plan, authorizes the granting of awards in any of the following forms: (i) incentive stock options, (ii) nonqualified stock options, (iii) restricted stock awards, and (iv) restricted stock units, and expires on the earlier of
The Company's 2011 Plan authorizes the granting of awards in any of the following forms: (i) stock options, (ii) stock appreciation rights, and (iii) other share-based awards, including but not limited to, restricted stock, restricted stock units or performance shares, and expires on the earlier of
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model.
Additional information relating to all outstanding options is as follows:
|
|
|
|
|
Weighted |
|
|
Aggregate |
|
|
Weighted |
|
||||
|
|
Options |
|
|
Exercise |
|
|
Intrinsic |
|
|
Contractual |
|
||||
Outstanding at December 28, 2019 |
|
|
|
|
$ |
|
|
$ |
|
|
|
|
||||
Granted |
|
|
|
|
|
|
|
|
|
|
|
|||||
Cancelled/expired |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|||
Outstanding at January 2, 2021 |
|
|
|
|
$ |
|
|
$ |
|
|
|
|
||||
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Exercised |
|
|
( |
) |
|
|
|
|
|
|
|
|
||||
Cancelled/expired/forfeited |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|||
Balance at October 2, 2021 |
|
|
|
|
$ |
|
|
$ |
|
|
|
|
||||
21
The Company recognized approximately $
As of October 2, 2021 the Company has approximately $
Series A-1 Preferred Stock:
During April 2021,
Warrants:
As of October 2, 2021, and January 2, 2021, there were
Note 17: Loss Per Share
Net loss per share is calculated using the weighted average number of shares of common stock outstanding during the applicable period. Basic weighted average common shares outstanding do not include shares of restricted stock that have not yet vested, although such shares are included as outstanding shares in the Company’s Consolidated Balance Sheet. Diluted net loss 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.
The following table presents the computation of basic and diluted net loss per share:
|
|
For the Thirteen Weeks Ended |
|
|
For the Thirty-Nine Weeks Ended |
|
||||||||||
|
|
October 2, 2021 |
|
|
September 26, 2020 |
|
|
October 2, 2021 |
|
|
September 26, 2020 |
|
||||
Net loss |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Basic |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic loss per share |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Weighted average common shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Diluted |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Diluted loss per share |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Weighted average common shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Note 18: Major Customers and Suppliers
For the 13 weeks ended October 2, 2021, one customer represented approximately
As of October 2, 2021, three customers represented a combined
During the 13 weeks and 39 weeks ended October 2, 2021 and September 26, 2020, the Company purchased appliances for resale from four suppliers. 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 our operations.
22
Note 19: Defined Contribution Plan
The Company has a defined contribution salary deferral plan covering substantially all employees under Section 401(k) of the Internal Revenue Code. The Company contributes an amount equal to 10 cents for each dollar contributed by each employee up to a maximum of
Note 20: Segment Information
The Company operates within targeted markets through
The following tables present our segment information for the 13 weeks ended October 2, 2021 and September 26, 2020 and the 39 weeks ended October 2, 2021 and September 26, 2020:
|
|
Thirteen Weeks Ended |
|
|
Thirty-Nine Weeks Ended |
|
||||||||||
|
|
October 2, 2021 |
|
|
September 26, 2020 |
|
|
October 2, 2021 |
|
|
September 26, 2020 |
|
||||
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Biotechnology |
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|||
Recycling |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Technology |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
Total Revenues |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Gross profit |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Biotechnology |
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|||
Recycling |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Technology |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
Total Gross profit |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Operating loss |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Biotechnology |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Recycling |
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
||
Technology |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Total Operating loss |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Biotechnology |
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|||
Recycling |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Technology |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total Depreciation and amortization |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Interest expense, net |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Biotechnology |
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|||
Recycling |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Technology |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
Total Interest expense, net |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Net loss before benefit from income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Biotechnology |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Recycling |
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
||
Technology |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Total Net loss before benefit from income taxes |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
23
|
|
As of |
|
|
As of |
|
||
Assets |
|
|
|
|
|
|
||
Biotechnology |
|
$ |
— |
|
|
$ |
— |
|
Recycling |
|
|
|
|
|
|
||
Technology |
|
|
|
|
|
|
||
Total Assets |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Intangible assets |
|
|
|
|
|
|
||
Biotechnology |
|
$ |
— |
|
|
$ |
— |
|
Recycling |
|
|
|
|
|
|
||
Technology |
|
|
|
|
|
|
||
Total Intangible assets |
|
$ |
|
|
$ |
|
||
Note 21: Related Parties
Shared Services
Tony Isaac, the Company’s Chief Executive Officer, is the father of Jon Isaac, President and Chief Executive Officer of Live Ventures Incorporated (“Live Ventures”) and managing member of ICG, a greater than
ApplianceSmart Note
On December 30, 2017, Purchaser entered into the Agreement and purchased from the Company all of the Stock of ApplianceSmart in exchange for the Purchase Price. Effective April 1, 2018, the
On December 30, 2017, Purchaser entered into the Agreement with the Company and ApplianceSmart. Pursuant to the Agreement, the Purchaser purchased from the Company all of the Stock of ApplianceSmart in exchange for the Purchase Price. Effective April 1, 2018, the
On March 15, 2019, the Company entered into subordination agreements with third parties pursuant to which it agreed to subordinate the payment of indebtedness under the ApplianceSmart Note and the Company’s security interest in the assets of ApplianceSmart and other related parties in exchange for up to $
On December 9, 2019, ApplianceSmart filed a voluntary petition (the “Chapter 11 Case”) in the United States Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”) seeking relief under Chapter 11 of Title 11 of the United States Code (the “Bankruptcy Code”). ApplianceSmart is seeking to confirm a plan of reorganization under which it would pay the Company $
24
On October 13, 2021, a hearing was held to consider approval of the Disclosure Statement filed by ApplianceSmart in conjunction with its bankruptcy proceedings. The Disclosure Statement was approved by the court, subject to minor amendment, and a directive issued that an order for a final confirmation hearing be drafted and scheduled in the foreseeable future.
For discussion related to potential obligations and or guarantees under ApplianceSmart Leases, see Note 15.
Related Party ICG Group Note
On
Note 22. Sale of ARCA and Connexx
On February 19, 2021, the Company, together with its subsidiaries (a) ARCA Recycling, Inc., a California corporation (“ARCA”), and (b) Customer Connexx LLC, a Nevada limited liability company (“Connexx”), entered into an Asset Purchase Agreement (the “Purchase Agreement”) with (i) ARCA Affiliated Holdings Corporation, a Delaware corporation, (ii) ARCA Services Inc., a Delaware corporation, and (iii) Connexx Services Inc, a Delaware corporation (collectively, the “Buyers”), pursuant to which the Buyers agreed to acquire substantially all of the assets, and assume certain liabilities, of ARCA and Connexx (the “Disposition Transaction”). The principal of the Buyers is Virland A. Johnson, our Chief Financial Officer. The Disposition Transaction was previously expected to be consummated on or before August 18, 2021 (the "Outside Date"). On August 12, 2021, the parties entered into an Amendment No. One to Asset Purchase Agreement (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, the Purchase Agreement may be terminated and, in accordance with its terms, the Buyers may be required to pay to us a “break fee” of $
The Purchase Agreement and the Disposition Transaction were unanimously approved by our Board of Directors at a meeting during the portion of which the Purchase Agreement and Disposition Transaction were considered and voted on Mr. Johnson was not present.
The purchase price that the Buyers have agreed to pay to us in the Disposition Transaction is $
Commencing on February 19, 2021, (i) the Buyers will seek financing for the balance of the Initial Aggregate Consideration and (ii) the parties will prepare and negotiate the terms and conditions of certain ancillary documentation, including, without limitation, disclosure
25
schedules, bills of sale, assignment and assumption agreements, the Note, and any related subordination documentation with Buyers’ Disposition Transaction lender(s).
The Purchase Agreement contains certain representations and warranties that the parties made to each other as of the date of the Purchase Agreement or such other date as specifically referenced therein. The representations and warranties were made solely for purposes of the Purchase Agreement and (i) are subject to limitations agreed by the parties in negotiating the terms and conditions thereof, (ii) may not be accurate or complete as of any specified date, (iii) will be qualified by the underlying disclosure schedules, (iv) may be subject to a contractual standard of materiality different from those generally applicable to investors, and (v) may have been used for the purpose of allocating risk among the parties thereto, rather than for establishing any matters as facts. Information concerning the subject matter of the representations and warranties may change after July 15, 2022, which subsequent information may or may not be fully reflected in JanOne’s public disclosures. For the foregoing reasons, the representations and warranties contained in the Purchase Agreement should not be relied upon as statements of factual information.
The foregoing descriptions of the Purchase Agreement, as amended, and the Disposition Transaction do not purport to be complete and are qualified in their entirety by reference to the Purchase Agreement, a copy of which is filed with the Current Report on Form 8‑K as filed on February 25, 2021 as Exhibit 10.1, and the Amendment, a copy of which is filed as Exhibit 10.4 to this Form 10-Q, and each of which is incorporated herein by reference.
See Note 15 for additional information.
26
Note 23. Subsequent event
Amendment to Terms of Sale of Recycling Business
As previously disclosed, on February 19, 2021, the Company together with its subsidiaries (a) ARCA Recycling, Inc., a California corporation (“ARCA”), and (b) Customer Connexx LLC, a Nevada limited liability company (“Connexx”), entered into an Asset Purchase Agreement (the “Recycling Sale Purchase Agreement”) with (i) ARCA Affiliated Holdings Corporation, a Delaware corporation, (ii) ARCA Services Inc., a Delaware corporation, and (iii) Connexx Services Inc, a Delaware corporation (collectively, the “Buyers”), pursuant to which the Buyers agreed to acquire substantially all of the assets, and assume certain liabilities, of ARCA and Connexx (the “Disposition Transaction”). The principal of the Buyers is Virland A. Johnson, our Chief Financial Officer. The Disposition Transaction was previously expected to be consummated on or before August 18, 2021 (the "Outside Date"). On August 12, 2021, the parties entered into an Amendment No. One to Asset Purchase Agreement (the “Recycling Sale Amendment”) to extend the Outside Date to September 30, 2021. Except as amended by the Recycling Sale Amendment, the terms and conditions of the Recycling Sale Purchase Agreement remain unchanged. On November 14, 2021, the parties entered into an Amendment No. Two to the Asset Purchase Agreement, which provided for the immediate termination of the transactions proposed by the Purchase Agreement, as amended by the Recycling Sale Amendment, and for an amendment to the Buyers’ requirement to pay to us a “break fee.” The break fee was amended to an aggregate of $
The foregoing description of the Recycling Sale Amendment is not complete and is qualified in its entirety by reference to the full text of the Amendment, a copy of which is filed as Exhibit 10.4 to this Form 10-Q and is incorporated herein by reference.
ApplianceSmart Note
On October 13, 2021, a hearing was held to consider approval of the Disclosure Statement filed by ApplianceSmart in conjunction with its bankruptcy proceedings. The Disclosure Statement was approved by the court, subject to minor amendment, and a directive issued that an order for a final confirmation hearing be drafted and scheduled in the foreseeable future. For discussion related to potential obligations and or guarantees under ApplianceSmart Leases, see Note 15.
SEC Complaint
The SEC filed its complaint against the Defendants on August 2, 2021. The Defendants strongly dispute and deny the allegations and are vigorously defending themselves against the claims. To that end, the Defendants filed a motion to dismiss the SEC’s complaint on October 1, 2021 in the Federal District Court of Nevada, see Note 15.
27
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to provide a reader of our financial statements with a narrative from the perspective of our management on our financial condition, results of operations, liquidity and certain other factors that may affect our future results. Dollars stated in thousands, except per share amounts.
Forward-Looking and Cautionary Statements
This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the federal securities laws, including Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which involve risks and uncertainties. You can identify forward-looking statements because they contain words such as ‘‘believes,’’ ‘‘expects,’’ ‘‘may,’’ ‘‘will,’’ ‘‘should,’’ ‘‘seeks,’’ ‘‘approximately,’’ ‘‘intends,’’ ‘‘plans,’’ ‘‘estimates’’ or ‘‘anticipates’’ or similar expressions that concern our strategy, plans or intentions. Any statements we make relating to our future operations, performance and results, and anticipated liquidity are forward-looking statements. All forward-looking statements are subject to risks and uncertainties that may change at any time, and, therefore, our actual results may differ materially from those we expected. We derive most of our forward-looking statements from our operating budgets and forecasts, which are based upon many detailed assumptions. While we believe that our assumptions are reasonable, we caution that it is very difficult to predict the impact of known factors, and, of course, it is impossible for us to anticipate all factors that could affect our actual results. Important factors that could cause actual results to differ materially from our expectations, including, without limitation, in conjunction with the forward-looking statements included in this Form 10-Q, are disclosed in “Item 1-Business, Item 1A – Risk Factors” of our Form 10-K and Part II, Item 1A of this Form 10-Q. Some of the factors that we believe could affect our results include:
We caution you that the foregoing list of important factors may not contain all of the material factors that are important to you. In addition, in light of these risks and uncertainties, the matters referred to in the forward-looking statements contained in this Quarterly Report on Form 10-Q may not in fact occur. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law. Our MD&A should be read in conjunction with our Form 10-K (including the information presented therein under the caption Risk Factors), together with our Quarterly Reports on Forms 10-Q and other publicly available information. All amounts herein are unaudited.
Overview
JanOne is focused on finding treatments for conditions that cause severe pain and bringing to market drugs with non-addictive pain-relieving properties. In addition, through our subsidiaries ARCA Recycling, Inc., Customer Connexx LLC, and ARCA Canada Inc., JanOne is 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. In addition, through its GeoTraq Inc. (“GeoTraq”) subsidiary, we are engaged in the development, design and, ultimately, we expect the sale of wireless transceiver modules with technology that provides LBS directly from global Mobile IoT networks.
We operate three reportable segments:
28
For the Thirteen Weeks Ended October 2, 2021 and September 26, 2020
Results of Operations
The following table sets forth certain statement of operations items and as a percentage of revenue, for the periods indicated:
|
|
13 Weeks Ended |
|
|
13 Weeks Ended |
|
||||||||||
|
|
October 2, 2021 |
|
|
September 26, 2020 |
|
||||||||||
Statement of Operations Data: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Revenue |
|
$ |
12,113 |
|
|
|
100.0 |
% |
|
$ |
12,266 |
|
|
|
100.0 |
% |
Cost of revenue |
|
|
9,032 |
|
|
|
74.6 |
% |
|
|
8,549 |
|
|
|
69.7 |
% |
Gross profit |
|
|
3,081 |
|
|
|
25.4 |
% |
|
|
3,717 |
|
|
|
30.3 |
% |
Selling, general and administrative expense |
|
|
3,925 |
|
|
|
32.4 |
% |
|
|
4,540 |
|
|
|
37.0 |
% |
Operating loss |
|
|
(844 |
) |
|
|
-7.0 |
% |
|
|
(823 |
) |
|
|
-6.7 |
% |
Interest expense, net |
|
|
(125 |
) |
|
|
-1.0 |
% |
|
|
(88 |
) |
|
|
-0.7 |
% |
Gain on settlement of vendor advance payments |
|
|
11 |
|
|
|
0.1 |
% |
|
|
— |
|
|
|
0.0 |
% |
Loss on litigation settlement |
|
|
— |
|
|
|
0.0 |
% |
|
|
— |
|
|
|
0.0 |
% |
Other income (expense) |
|
|
23 |
|
|
|
0.2 |
% |
|
|
2 |
|
|
|
0.0 |
% |
Net loss before income taxes |
|
|
(935 |
) |
|
|
-7.7 |
% |
|
|
(909 |
) |
|
|
-7.4 |
% |
Benefit of income taxes |
|
|
(33 |
) |
|
|
-0.3 |
% |
|
|
99 |
|
|
|
0.8 |
% |
Net loss |
|
$ |
(968 |
) |
|
|
-8.0 |
% |
|
$ |
(810 |
) |
|
|
-6.6 |
% |
The following tables set forth revenues for key product and service categories, percentages of total revenue and gross profits earned by key product and service categories and gross profit percent as compared to revenues for each key product category indicated:
|
|
13 Weeks Ended |
|
|
13 Weeks Ended |
|
||||||||||
|
|
October 2, 2021 |
|
|
September 26, 2020 |
|
||||||||||
|
|
Net |
|
|
Percent |
|
|
Net |
|
|
Percent |
|
||||
|
|
Revenue |
|
|
of Total |
|
|
Revenue |
|
|
of Total |
|
||||
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Recycling and Byproducts |
|
$ |
6,714 |
|
|
|
55.4 |
% |
|
$ |
6,005 |
|
|
|
49.0 |
% |
Replacement Appliances |
|
|
5,399 |
|
|
|
44.6 |
% |
|
|
6,261 |
|
|
|
51.0 |
% |
Total Revenue |
|
$ |
12,113 |
|
|
|
100.0 |
% |
|
$ |
12,266 |
|
|
|
100.0 |
% |
|
|
13 Weeks Ended |
|
|
13 Weeks Ended |
|
||||||||||
|
|
October 2, 2021 |
|
|
September 26, 2020 |
|
||||||||||
|
|
Gross |
|
|
Gross |
|
|
Gross |
|
|
Gross |
|
||||
|
|
Profit |
|
|
Profit % |
|
|
Profit |
|
|
Profit % |
|
||||
Gross Profit |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Recycling and Byproducts |
|
$ |
1,277 |
|
|
|
19.0 |
% |
|
$ |
444 |
|
|
|
7.4 |
% |
Replacement Appliances |
|
|
1,804 |
|
|
|
33.4 |
% |
|
|
3,273 |
|
|
|
52.3 |
% |
Total Gross Profit |
|
$ |
3,081 |
|
|
|
25.4 |
% |
|
$ |
3,717 |
|
|
|
30.3 |
% |
Revenue
Revenue decreased by approximately $153,000, or 1%, for the 13 weeks ended October 2, 2021, as compared to the 13 weeks ended September 26, 2020. Replacement Appliance revenue decreased by approximately $862,000, or 14%, due to the completion of a project for New York City producing higher volumes and greater margins during 2020. Recycling and Byproducts revenue increased by approximately $709,000, or 12%, due to higher volumes from customers and an increase in commodity prices. The Company experienced lower volumes overall during 2020 due to COVID-19 closures.
29
Cost of Revenue
Cost of revenue increased by approximately $483,000, or $6%, for the 13 weeks ended October 2, 2021, as compared to the 13 weeks ended September 26, 2020, due to the factors described above.
Selling, General and Administrative Expense
Selling, general and administrative expense decreased by approximately $615,000, or 14%, for the 13 weeks ended October 2, 2021, as compared to the 13 weeks ended September 26, 2020, due to decreases in stock-based compensation and other corporate expenses.
Interest Expense, net
Interest expense, net increased by approximately $37,000 for the 13 weeks ended October 2, 2021, as compared to the 13 weeks ended September 26, 2020 primarily due to an increase in related party debt and notes payable.
Gain on Settlement of Vendor Advance Payments
During the third quarter of fiscal 2021, a portion of the vendor advance payments were settled which resulted in a gain of approximately $11,000. There were no similar transactions during the second quarter of fiscal 2020.
Segment Performance
We report our business in the following segments: Biotechnology, Recycling, and Technology. We identified these segments based on a combination of business type, customers serviced and how we divide management responsibility. Our revenues and profits are driven through our recycling centers, e-commerce, individual sales reps and our internet services for our recycling and technology segment. We expect revenues and profits for our biotechnology segment to be driven by the development of pharmaceuticals that treat the root cause of pain but are non-opioid painkillers. We include Corporate expenses within the Recycling segment.
Operating loss by operating segment, is defined as loss before net interest expense, other income and expense, provision for income taxes.
|
|
13 Weeks Ended October 2, 2021 |
|
|
13 Weeks Ended September 26, 2020 |
|
||||||||||||||||||||||||||
|
|
Biotechnology |
|
|
Recycling |
|
|
Technology |
|
|
Total |
|
|
Biotechnology |
|
|
Recycling |
|
|
Technology |
|
|
Total |
|
||||||||
Revenue |
|
$ |
— |
|
|
$ |
12,113 |
|
|
$ |
— |
|
|
$ |
12,113 |
|
|
$ |
— |
|
|
$ |
12,266 |
|
|
$ |
— |
|
|
$ |
12,266 |
|
Cost of revenue |
|
|
— |
|
|
|
9,032 |
|
|
|
— |
|
|
|
9,032 |
|
|
|
— |
|
|
|
8,549 |
|
|
|
— |
|
|
|
8,549 |
|
Gross profit |
|
|
— |
|
|
|
3,081 |
|
|
|
— |
|
|
|
3,081 |
|
|
|
— |
|
|
|
3,717 |
|
|
|
— |
|
|
|
3,717 |
|
Selling, general and administrative |
|
|
182 |
|
|
|
2,807 |
|
|
|
936 |
|
|
|
3,925 |
|
|
|
845 |
|
|
|
2,468 |
|
|
|
1,227 |
|
|
|
4,540 |
|
Operating loss |
|
$ |
(182 |
) |
|
$ |
274 |
|
|
$ |
(936 |
) |
|
$ |
(844 |
) |
|
$ |
(845 |
) |
|
$ |
1,249 |
|
|
$ |
(1,227 |
) |
|
$ |
(823 |
) |
Biotechnology Segment
Our biotechnology segment incurred expenses of approximately $182,000 and $845,000 related to employee costs and professional services related to research for the 13 weeks ended October 2, 2021 and September 26, 2020, respectively.
Recycling Segment
The recycling segment consists of ARCA Recycling, Customer Connexx, and ARCA Canada. Revenue for the 13 weeks ended October 2, 2021, decreased by approximately $153,000, or 1%, as compared to the prior year period. Replacement Appliance revenue decreased by approximately $862,000, or 14%, due to the completion of a project for New York City producing higher volumes and greater margins during 2020. Recycling and Byproducts revenue increased by approximately $709,000, or 12%, due to higher volumes from customers.
Cost of revenue for the 13 weeks ended October 2, 2021, increased by approximately $483,000, or 6%, as compared to the prior year period, due to the factors described above.
Operating profit for the 13 weeks ended October 2, 2021, decreased by approximately $975,000, or 78%, as compared to the prior year period. This this is due to a decrease in gross profit of approximately $636,000 and an increase in selling, general and administrative expenses of approximately $339,000.
30
Technology Segment
The technology segment consists of GeoTraq. Results for the 13 weeks ended October 2, 2021 include a loss of approximately $936,000 which represents a decrease of approximately $291,000 compared to the 13 weeks ended September 26, 2020 loss of approximately $1.2 million. The loss represents intangible asset amortization expense and other selling general and administrative expense for each period.
For the Twenty-Six Weeks Ended October 2, 2021 and September 26, 2020
Results of Operations
The following table sets forth certain statement of operations items and as a percentage of revenue, for the periods indicated:
|
|
39 Weeks Ended |
|
|
39 Weeks Ended |
|
||||||||||
|
|
October 2, 2021 |
|
|
September 26, 2020 |
|
||||||||||
Statement of Operations Data: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Revenue |
|
$ |
29,391 |
|
|
|
100.0 |
% |
|
$ |
24,723 |
|
|
|
100.0 |
% |
Cost of revenue |
|
|
23,146 |
|
|
|
78.8 |
% |
|
|
18,487 |
|
|
|
74.8 |
% |
Gross profit |
|
|
6,245 |
|
|
|
21.2 |
% |
|
|
6,236 |
|
|
|
25.2 |
% |
Selling, general and administrative expense |
|
|
12,050 |
|
|
|
41.0 |
% |
|
|
12,776 |
|
|
|
51.7 |
% |
Operating loss |
|
|
(5,805 |
) |
|
|
-19.8 |
% |
|
|
(6,540 |
) |
|
|
-26.5 |
% |
Interest expense, net |
|
|
(323 |
) |
|
|
-1.1 |
% |
|
|
(255 |
) |
|
|
-1.0 |
% |
Gain on Payroll Protection Program loan forgiveness |
|
|
1,872 |
|
|
|
6.4 |
% |
|
|
— |
|
|
|
— |
|
Gain on settlement of vendor advance payments |
|
|
952 |
|
|
|
3.2 |
% |
|
|
— |
|
|
|
— |
|
Loss on litigation settlement |
|
|
(1,950 |
) |
|
|
-6.6 |
% |
|
|
— |
|
|
|
— |
|
Other income |
|
|
45 |
|
|
|
0.2 |
% |
|
|
812 |
|
|
|
3.3 |
% |
Net loss before income taxes |
|
|
(5,209 |
) |
|
|
-17.7 |
% |
|
|
(5,983 |
) |
|
|
-24.2 |
% |
Income tax benefit (expense) |
|
|
(236 |
) |
|
|
-0.8 |
% |
|
|
448 |
|
|
|
1.8 |
% |
Net loss |
|
$ |
(5,445 |
) |
|
|
-18.5 |
% |
|
$ |
(5,535 |
) |
|
|
-22.4 |
% |
The following tables set forth revenues for key product and service categories, percentages of total revenue and gross profits earned by key product and service categories and gross profit percent as compared to revenues for each key product category indicated:
|
|
39 Weeks Ended |
|
|
39 Weeks Ended |
|
||||||||||
|
|
October 2, 2021 |
|
|
September 26, 2020 |
|
||||||||||
|
|
Net |
|
|
Percent |
|
|
Net |
|
|
Percent |
|
||||
|
|
Revenue |
|
|
of Total |
|
|
Revenue |
|
|
of Total |
|
||||
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Recycling and Byproducts |
|
$ |
15,580 |
|
|
|
53.0 |
% |
|
$ |
12,445 |
|
|
|
50.3 |
% |
Replacement Appliances |
|
|
13,811 |
|
|
|
47.0 |
% |
|
|
12,278 |
|
|
|
49.7 |
% |
Total Revenue |
|
$ |
29,391 |
|
|
|
100.0 |
% |
|
$ |
24,723 |
|
|
|
100.0 |
% |
|
|
39 Weeks Ended |
|
|
39 Weeks Ended |
|
||||||||||
|
|
October 2, 2021 |
|
|
September 26, 2020 |
|
||||||||||
|
|
Gross |
|
|
Gross |
|
|
Gross |
|
|
Gross |
|
||||
|
|
Profit |
|
|
Profit % |
|
|
Profit |
|
|
Profit % |
|
||||
Gross Profit |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Recycling and Byproducts |
|
|
1,739 |
|
|
|
11.2 |
% |
|
|
588 |
|
|
|
4.7 |
% |
Replacement Appliances |
|
|
4,506 |
|
|
|
32.6 |
% |
|
|
5,648 |
|
|
|
46.0 |
% |
Total Gross Profit |
|
$ |
6,245 |
|
|
|
21.2 |
% |
|
$ |
6,236 |
|
|
|
25.2 |
% |
Revenue
Revenue increased by approximately $4.7 million, or 19%, for the 39 weeks ended October 2, 2021, as compared to the 39 weeks ended September 26, 2020. Replacement Appliance revenue increased by approximately $1.5 million, or 12%, due to higher volumes from customers. Recycling and Byproducts revenue also increased by approximately $3.1 million, or 25%, due to higher volumes from customers and an increase in commodity prices. The Company experienced lower volumes during 2020 due to COVID-19 closures.
31
Cost of Revenue
Cost of revenue increased by approximately $4.7 million, or 25%, for the 39 weeks ended October 2, 2021, as compared to the 39 weeks ended September 26, 2020, with the increase in revenue described above.
Selling, General and Administrative Expense
Selling, general and administrative expense remained relatively constant for the 39 weeks ended October 2, 2021, as compared to the 39 weeks ended September 26, 2020.
Interest Expense, net
Interest expense, net increased slightly for the 39 weeks ended October 2, 2021, as compared to the 39 weeks ended September 26, 2020 primarily due to the increase in related party debt and the note payable.
Gain on Payroll Protection Program Loan Forgiveness
During the 39 weeks ended October 2, 2021, the PPP Loan was forgiven which resulted in a gain of $1,872. There were no similar transactions during the 39 weeks ended September 26, 2020.
Gain on Settlement of Vendor Advance Payments
During the 39 weeks ended October 2, 2021, a portion of the vendor advance payments were settled which resulted in a gain of approximately $952,000. There were no similar transactions during the 39 weeks ended September 26, 2020.
Loss on litigation settlement
During the second quarter of fiscal 2021, the Company recorded a loss on ligation settlement of $1,950 related to litigation with a former employee. There were no similar transactions during the second quarter of fiscal 2020.
Other Income
Other income of approximately $810,000 for the 39 weeks ended September 26, 2020, was primarily attributable to an increase in gains on the litigation settlement received. There were no similar transactions for the 39 weeks ended October 2, 2021.
Segment Performance
We report our business in the following segments: Biotechnology, Recycling and Technology. We identified these segments based on a combination of business type, customers serviced and how we divide management responsibility. Our revenues and profits are driven through our recycling centers, e-commerce, individual sales reps and our internet services for our recycling and technology segment. We expect revenues and profits for our biotechnology segment to be driven by the development of pharmaceuticals that treat the root cause of pain but are non-opioid painkillers. We include Corporate expenses within the Recycling segment.
Operating loss by operating segment, is defined as loss before net interest expense, other income and expense, provision for income taxes.
|
|
39 Weeks Ended October 2, 2021 |
|
|
39 Weeks Ended September 26, 2020 |
|
||||||||||||||||||||||||||
|
|
Biotechnology |
|
|
Recycling |
|
|
Technology |
|
|
Total |
|
|
Biotechnology |
|
|
Recycling |
|
|
Technology |
|
|
Total |
|
||||||||
Revenue |
|
$ |
— |
|
|
$ |
29,391 |
|
|
$ |
— |
|
|
$ |
29,391 |
|
|
$ |
— |
|
|
$ |
24,723 |
|
|
$ |
— |
|
|
$ |
24,723 |
|
Cost of revenue |
|
|
— |
|
|
|
23,146 |
|
|
|
— |
|
|
|
23,146 |
|
|
|
— |
|
|
|
18,487 |
|
|
|
— |
|
|
|
18,487 |
|
Gross profit |
|
|
— |
|
|
|
6,245 |
|
|
|
— |
|
|
|
6,245 |
|
|
|
— |
|
|
|
6,236 |
|
|
|
— |
|
|
|
6,236 |
|
Selling, general and administrative |
|
|
1,232 |
|
|
|
7,998 |
|
|
|
2,820 |
|
|
|
12,050 |
|
|
|
1,652 |
|
|
|
7,762 |
|
|
|
3,362 |
|
|
|
12,776 |
|
Operating loss |
|
$ |
(1,232 |
) |
|
$ |
(1,753 |
) |
|
$ |
(2,820 |
) |
|
$ |
(5,805 |
) |
|
$ |
(1,652 |
) |
|
$ |
(1,526 |
) |
|
$ |
(3,362 |
) |
|
$ |
(6,540 |
) |
Biotechnology Segment
Our biotechnology segment incurred expenses of approximately $1.2 million and $1.7 million, respectively, related to employee costs and professional services related to research for the 39 weeks ended October 2, 2021 and September 26, 2020.
32
Recycling Segment
The recycling segment consists of ARCA Recycling, Customer Connexx, and ARCA Canada. Revenue for the 39 weeks ended October 2, 2021, increased by approximately $4.7 million, or 19%, as compared to the prior year period. Replacement Appliance revenue increased by approximately $1.5 million, or 12%, due to higher volumes from customers. Recycling and Byproducts revenue also increased by approximately $3.1 million, or 25%, due to higher volumes from customers.
Cost of revenue for the 39 weeks ended October 2, 2021, increased by approximately $4.7 million, or 25%, as compared to the prior year period, with revenue as described above.
Operating loss for the 39 weeks ended October 2, 2021, increased by approximately $227,000, or 15%, as compared to the prior year period based on the discussion above and an increase in selling, general and administrative expense of approximately $236,000.
Technology Segment
The technology segment consists of GeoTraq. Results for the 39 weeks ended October 2, 2021 include a loss of approximately $2.8 million, which represents a decrease of approximately $542,000 compared to the 39 weeks ended September 26, 2020 loss of approximately $3.4 million. The loss represents intangible asset amortization expense and other selling general and administrative expense for each period.
Liquidity and Capital Resources
Overview
As of October 2, 2021, we had total cash on hand of approximately $2.8 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 monitor capital market conditions and may raise additional funds through borrowings or public or private sales of debt or equity securities. The amount, nature and timing of any borrowings or sales of debt or equity securities will depend on our operating performance and other circumstances; our then-current commitments and obligations; the amount, nature and timing of our capital requirements; any limitations imposed by our current credit arrangements; and overall market conditions.
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 and lock-downs within their borders. While various vaccines have recently been introduced into the marketplace, the impacts of variant strains of the COVID-19 virus 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 our ability to pick up and or replace their customers’ appliances resulting in decreased revenues for both recycling and replacement business. The future impact of the outbreak is highly uncertain and cannot be predicted and there is no assurance that the outbreak will not have another material adverse impact on the future results of the Company. The extent of the impact, if any, will depend on future developments, including actions taken to contain the coronavirus. A key task for the Company in 2021 is to begin late-stage clinical development with its pharmaceutical product, JAN101. However, the COVID-19 pandemic significantly impacted clinical trials in 2020, delaying recruitment in most non-COVID-19 clinical trials and even eliminating recruitment in some trials. While clinical sites have largely resumed conducting non-COVID-19 clinical trials, the backlog of subjects may adversely affect our ability to recruit for its trial, leading to longer and more expensive trials. In addition, the unknown effectiveness of the COVID-19 vaccines, particularly concerning variant strains of COVID-19, could lead to clinical sites terminating patient recruitment again during the course of the study.
On May 1, 2020, the Company entered into a promissory note (the “Promissory Note”) with Texas Capital Bank, N.A. that provides for a loan in the amount of approximately $1.9 million (the “PPP Loan”) pursuant to the Paycheck Protection Program under the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”). The PPP Loan matures on April 27, 2022 and bears interest at a rate of 1.0% per annum. Monthly amortized principal and interest payments are deferred for six months after the date of disbursement. The Promissory Note contains events of default and other provisions customary for a loan of this type. The Paycheck Protection Program provides that the use of PPP Loan amount shall be limited to certain qualifying expenses and may be partially or wholly forgiven in accordance with the requirements set forth in the CARES Act. The PPP Loan was forgiven during the first fiscal quarter of 2021.
As of the period ending September 26, 2020, the Company received advance payments authorized by the California Public Utilities Commission and processed through two California utilities for the purposes of sustaining the workforce during the COVID 19 pandemic shutdown. The use of these funds was limited to labor and labor benefits for impacted employees. Portions of these advances are forgivable if certain conditions are met the specifics which have not been finalized. Advance payments that are not forgiven will need to be paid back in full by December 31, 2021. Total funding received under this program as of September 26, 2020 amounted to
33
approximately $1.2 million. As of October 2, 2021, approximately $1.1 million was settled, leaving a balance remaining of approximately $75,000.
On January 29, 2021, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with certain institutional investors (the “Purchasers”) for the sale by the Company in a registered direct offering (the “Offering”) of 571,428 shares of the Company’s common stock, par value $0.001 per share (the “Common Stock”), at a purchase price per share of Common Stock of $10.50.
On February 2, 2021, the Offering closed and the Company received gross proceeds of approximately $6.0 million before deducting placement agent fees and other offering expenses. The Company is utilizing the net proceeds for general working capital.
Based on our current operating plans, we believe that available cash balances, funds available under our factoring agreement with Prestige Capital Finance, LLC (“Prestige Capital”), and or other refinancing of existing indebtedness will provide sufficient liquidity to fund our operations, our continued investments in store openings and remodeling activities for at least the next 12 months.
Cash Flows
During the 39 weeks ended October 2, 2021, cash used in operations was approximately $3.5 million, compared to cash used in operations of approximately $1.0 million during the 39 weeks ended September 26, 2020. The increase in cash used in operations was primarily due to results of operations, as discussed above.
Cash used in investing activities was approximately $1.6 million and $293,000, respectively, for the 39 weeks ended October 2, 2021 and the 39 weeks ended September 26, 2020, primarily related to purchases of property and equipment and intangibles.
Cash provided by financing activities was approximately $7.6 million for the 39 weeks ended October 2, 2021, and was primarily due to net proceeds of approximately $5.5 million from an equity financing and approximately $1.8 million in proceeds from notes payable. Cash provided by financing activities was approximately $1.5 million for the 39 weeks ended September 26, 2020. During fiscal 2020, the Company received proceeds from short term debt of $3,469 primarily associated with the Payroll Protection Program and advances from certain customers for future services and paid $1.5 million on its related party note
Sources of Liquidity
We utilize cash on hand and factor certain accounts receivable invoices to cover normal and seasonal fluctuations in cash flows and to support our various growth initiatives. Our cash and cash equivalents are carried at cost and consist primarily of demand deposits with commercial banks. On 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, including managing expenses. We reported a net loss of approximately $5.4 million and $5.5 million, respectively, for the 39 weeks ended October 2, 2021 and September 26, 2020. In addition, the Company has total current assets of approximately $10.7 million and total current liabilities of approximately $20.6 million resulting in a net negative working capital of approximately $9.9 million as of October 2, 2021.
Based on the above, management has concluded that the Company is not aware and did not identify any other conditions or events that would cause the Company to not be able to continue business as a going concern for the next twelve months
Future Sources of Cash; Phase 2b Trials, New Acquisitions, Products, and Services
We may require additional debt financing and/or capital to finance new acquisitions, refinance existing indebtedness, conduct our Phase 2b clinical trials, or consummate other strategic investments in our business. Any financing obtained may further dilute or otherwise impair the ownership interest of our existing stockholders.
34
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Market Risk and Impact of Inflation
Interest Rate Risk. We do not believe there is any significant risk related to interest rate fluctuations on our short and long-term fixed rate debt.
Foreign Currency Exchange Rate Risk. We currently generate revenues in Canada. The reporting currency for our consolidated financial statements is U.S. dollars. It is not possible to determine the exact impact of foreign currency exchange rate changes; however, the effect on reported revenue and net earnings can be estimated. We estimate that the overall strength of the U.S. dollar against the Canadian dollar had an immaterial impact on the revenues and net income for the fiscal year ended January 2, 2021. We do not currently hedge foreign currency fluctuations and do not intend to do so for the foreseeable future.
We do not hold any derivative financial instruments, nor do we hold any securities for trading or speculative purposes.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Evaluation of Disclosure control and Procedures. We carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)). Based upon that evaluation, our principal executive officer and principal financial officer concluded that, as of October 2, 2021, the period covered in this report, our disclosure controls and procedures were not effective to ensure that information required to be disclosed in reports filed under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the required time periods and is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting. There were no changes in the Company’s internal control over financial reporting during the quarter ended October 2, 2021, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Management’s Report on Internal Control Over Financial Reporting. Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)). Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our management assessed the effectiveness of our internal control over financial reporting as of April 3, 2021. In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in 2013 regarding Internal Control – Integrated Framework. Based on our assessment using those criteria, our management concluded that our internal control over financial reporting was not effective as of October 2, 2021.
Management noted material weaknesses in internal control when conducting their evaluation of internal control as of January 2, 2021. (1) Insufficient information technology general controls (“ITGC”) and segregation of duties. It was noted that people who were negotiating a contract, were also involved in approving invoices without proper oversight. Additional controls and procedures are necessary and are being implemented to have check and balance on significant transactions and governance with those charged with governance authority. (2) Inadequate control design or lack of sufficient controls over significant accounting processes. The cutoff and reconciliation procedures were not effective with certain accrued and deferred expenses. (3) Insufficient assessment of the impact of potentially significant transactions, and (4) Insufficient processes and procedures related to proper recordkeeping of agreements and contracts. In addition, contract to invoice reconciliation was not effective with certain transportation service providers. As part of its remediation plan, processes and procedures have been implemented to help ensure accruals and invoices are reviewed for accuracy and properly recorded in the appropriate period. These material weaknesses remained outstanding as of the filing date of this quarterly report on Form 10-Q and management is currently working to remedy these outstanding material weaknesses.
The Company’s management, including the Company’s CEO and CFO, do not expect that the Company’s disclosure controls and procedures or the Company’s internal control over financial reporting will prevent or detect all error and all fraud. A control system, regardless of how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system will be met. These inherent limitations include the following: judgements in decision-making can be faulty, and control and process breakdowns can occur because of simple errors or mistakes, controls can be circumvented by individuals, acting alone or in collusion with each other, or by management override, the design of any system of controls is based in part on certain assumptions about
35
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.
36
PART II. Other Information
Item 1. Legal Proceedings
The information in response to this item is included in Note 15, Commitments and Contingencies, to the Consolidated Financial Statements included in Part I, Item 1, of this Form 10-Q.
Item 1A. Risk Factors
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item. However, in light of the SEC Complaint, the Company provides the following additional risk factor, which supplements the risk factors previously disclosed by the Company in Part I, Item 1A, Risk Factors, of the 2020 10-K.
We are the subject of an SEC Complaint, which could divert management's focus, result in substantial litigation expenses and have an adverse impact on our business, reputation, financial condition, results of operations or stock price.
We are currently subject to an SEC Complaint. Refer to Note 15 to our Consolidated Financial Statements and Part II, Item 1 of this Quarterly Report for additional information regarding this specific matter. We may be subject to additional investigations, arbitration proceedings, audits, regulatory inquiries and similar actions, including matters related to intellectual property, employment, securities laws, disclosures, tax, accounting, class action and product liability, as well as regulatory and other claims related to our business and our industry, which we refer to collectively as legal proceedings. We cannot predict the outcome of any particular proceeding, or whether ongoing investigations, will be resolved favorably or ultimately result in charges or material damages, fines or other penalties, enforcement actions, bars against serving as an officer or director, or practicing before the SEC, or civil or criminal proceedings against us or members of our senior management.
Legal proceedings in general, and securities and class action litigation and regulatory investigations in particular, can be expensive and disruptive. Our insurance may not cover all claims that may be asserted against us, and we are unable to predict how long the legal proceedings to which we are currently subject will continue. An unfavorable outcome of any legal proceeding may have an adverse impact on our business, financial condition and results of operations or our stock price. Any proceeding could negatively impact our reputation among our stakeholders. Furthermore, publicity surrounding ongoing legal proceedings, even if resolved favorably for us, could result in additional legal proceedings against us, as well as damage our image.
Item 2. Unregistered Sales of Equity Securities and Use of funds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
None.
Item 5. Other Information.
Item 1.01 Entry into a Material Definitive Agreement.
Amendment to Terms of Sale of Recycling Business
As previously disclosed, on February 19, 2021, the Company together with its subsidiaries (a) ARCA Recycling, Inc., a California corporation (“ARCA”), and (b) Customer Connexx LLC, a Nevada limited liability company (“Connexx”), entered into an Asset Purchase Agreement (the “Recycling Sale Purchase Agreement”) with (i) ARCA Affiliated Holdings Corporation, a Delaware corporation, (ii) ARCA Services Inc., a Delaware corporation, and (iii) Connexx Services Inc, a Delaware corporation (collectively, the “Buyers”), pursuant to which the Buyers agreed to acquire substantially all of the assets, and assume certain liabilities, of ARCA and Connexx (the “Disposition Transaction”). The principal of the Buyers is Virland A. Johnson, our Chief Financial Officer. The Disposition Transaction was previously expected to be consummated on or before August 18, 2021 (the "Outside Date"). On August 12, 2021, the parties entered into an Amendment No. One to Asset Purchase Agreement (the “Recycling Sale Amendment”) to extend the Outside Date to September 30, 2021. Except as amended by the Recycling Sale Amendment, the terms and conditions of the Recycling Sale Purchase Agreement remain unchanged. On November 14, 2021, the parties entered into an Amendment No. Two to the
37
Asset Purchase Agreement, which provided for the immediate termination of the transactions proposed by the Purchase Agreement, as amended by the Recycling Sale Amendment, and for an amendment to the Buyers’ requirement 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 to be paid not later than August 12, 2022 (the one-year anniversary of the Recycling Sale Agreement) 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 therefor 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 foregoing description of the Recycling Sale Amendment is not complete and is qualified in its entirety by reference to the full text of the Amendment, a copy of which is filed as Exhibit 10.4 to this Form 10-Q and is incorporated herein by reference.
38
Item 6. Exhibits.
Index to Exhibits
Exhibit Number |
|
Exhibit Description |
|
Form |
|
File Number |
|
Exhibit Number |
|
Filing Date |
3.1 |
|
Articles of Incorporation of Appliance Recycling Centers of America, Inc. |
|
8-K |
|
0-19621 |
|
3.3 |
|
03/13/2018 |
|
|
|
|
|
|
|
|
|
|
|
3.2 |
|
|
8-K |
|
0-19621 |
|
3.1 |
|
03/13/2018 |
|
|
|
|
|
|
|
|
|
|
|
|
3.3 |
|
|
8-K |
|
0-19621 |
|
3.2 |
|
03/13/2018 |
|
|
|
|
|
|
|
|
|
|
|
|
3.4 |
|
|
10-Q |
|
0-19621 |
|
3.1 |
|
08/14/2018 |
|
|
|
|
|
|
|
|
|
|
|
|
3.5 |
|
|
8-K |
|
0-19621 |
|
3.1 |
|
04/22/2019 |
|
|
|
|
|
|
|
|
|
|
|
|
3.6 |
|
|
8-K |
|
0-19621 |
|
3.7 |
|
06/24/2019 |
|
|
|
|
|
|
|
|
|
|
|
|
3.7 |
|
|
8-K |
|
0-19621 |
|
3.8 |
|
06/24/2019 |
|
|
|
|
|
|
|
|
|
|
|
|
3.8 |
|
|
8-K |
|
0-19621 |
|
3.8(a) |
|
10/02/2020 |
|
|
|
|
|
|
|
|
|
|
|
|
3.9 |
|
|
|
8-K |
|
0-19621 |
|
3.8(b) |
|
04/16/2021 |
|
|
|
|
|
|
|
|
|
|
|
3.10 |
|
|
8-K |
|
0-19621 |
|
3.10 |
|
09/13/2019 |
|
3.10 |
|
|
8-K |
|
0-19621 |
|
3.4 |
|
03/13/2018 |
|
|
|
|
|
|
|
|
|
|
|
|
3.11 |
|
First Amendment to Bylaws of Appliance Recycling Centers of America, Inc. |
|
8-K |
|
0-19621 |
|
3.1 |
|
12/31/2018 |
|
|
|
|
|
|
|
|
|
|
|
10.1 |
|
|
10-Q |
|
0-19621 |
|
10.2 |
|
05/17/2021 |
|
|
|
|
|
|
|
|
|
|
|
|
10.2 |
† |
|
10-Q |
|
0-19621 |
|
10.2 |
|
08/16/2021 |
|
|
|
|
|
|
|
|
|
|
|
|
10.3 |
|
|
10-Q |
|
0-19621 |
|
10.3 |
|
08/16/2021 |
|
|
|
|
|
|
|
|
|
|
|
|
31.1 |
* |
|
|
|
|
|
|
|
|
39
|
|
|
|
|
|
|
|
|
|
|
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) |
|
|
|
|
|
|
|
|
* Filed herewith.
† Portions of this exhibit have been redacted in compliance with Regulation S-K Item 601(b)(10)(iv).
40
SIGNATURES
Pursuant to the requirements of Section 13 or Section 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on our behalf by the undersigned, thereunto duly authorized.
|
|
JanOne Inc. |
|
|
|
(Registrant) |
|
|
|
|
|
Date: |
November 16, 2021 |
By: |
/s/ Tony Isaac |
|
|
|
Tony Isaac |
|
|
|
Chief Executive Officer |
|
|
|
(Principal Executive Officer) |
Date: |
November 16, 2021 |
By: |
/s/ Virland A. Johnson |
|
|
|
Virland A. Johnson |
|
|
|
Chief Financial Officer |
|
|
|
(Principal Financial and Accounting Officer) |
41