10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended April 1, 2023

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

Commission File No. 0-19621

JANONE INC.

(Exact name of registrant as specified in its charter)


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

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

702-997-5968

(Registrant’s telephone number, including area code)

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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.001 par value per share

JAN

The Nasdaq Stock Market LLC
(The Nasdaq Capital Market)

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

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

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


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

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

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

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

JANONE INC.

INDEX TO FORM 10-Q


		Page
PART I. FINANCIAL INFORMATION

Item 1.	Condensed Consolidated Financial Statements	3

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

	Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income for the 13 weeks ended April 1, 2023 and April 2, 2022	4

	Unaudited Condensed Consolidated Statements of Cash Flows for the 13 weeks ended April 1, 2023 and April 2, 2022	5

	Unaudited Condensed Consolidated Statements of Stockholders’ Equity for the 13 weeks ended April 1, 2023 and April 2, 2022	6

	Notes to Unaudited Condensed Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	28

Item 4.	Controls and Procedures	28

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	30

Item 1A.	Risk Factors	30

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	30

Item 3.	Defaults Upon Senior Securities	30

Item 4.	Mine Safety Disclosures	30

Item 5	Other Information	30

Item 6.	Exhibits	31

SIGNATURES		32

PART I. FINANCIAL INFORMATION

ITEM 1. Condensed Consolidated Financial Statements

JANONE INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except per-share amounts)


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

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

JANONE INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(UNAUDITED)

(Dollars in thousands, except per-share)


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

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

JANONE INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(In thousands)


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

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

JANONE INC.

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

(UNAUDITED)

(Dollars in thousands)


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


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

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

Note 1: Background

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

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

Biotechnology

During September 2019, JanOne, through its biotechnology segment, broadened its business perspectives to become a pharmaceutical company focused on finding treatments for conditions that cause severe pain and bringing to market drugs with non-addictive pain-relieving properties. Effective December 28, 2022, the Company acquired Soin Therapeutics LLC, a Delaware limited liability company (“STLLC”), and its product, a patent-pending, novel formulation of low-dose naltrexone, (“JAN123”). The product is being developed for the treatment of Complex Regional Pain Syndrome (CRPS), an indication that causes severe, chronic pain generally affecting the arms or legs. At present, there are no truly effective treatments for CRPS. Because of the relatively small number of patients afflicted with CRPS, the FDA has granted Orphan Drug Designation for any product approved for treatment of CRPS. This designation will provide the Company with tax credits for its clinical trials, exemption of user fees, and the potential of seven years of market exclusivity following approval. In addition, development of orphan drugs currently also involves smaller trials and quicker times to approval, given the limited number of patients available to study. However, there can be no assurance that the product will receive FDA approval or that it will result in material sales.

Recycling

ARCA Recycling was the Company’s Recycling segment and provides turnkey recycling services for electric utility energy efficiency programs in the United States. ARCA Canada Inc. (“ARCA Canada”) provides turnkey recycling services for electric utility energy efficiency programs in Canada. Customer Connexx, LLC (“Connexx”) provides call center services for ARCA Recycling and ARCA Canada. On March 9, 2023, retroactive to March 1, 2023, the Company entered into a Stock Purchase Agreement with VM7 Corporation, a Delaware corporation, under which the Buyer agreed to acquire all of the outstanding equity interests of (a) ARCA Recycling, Inc., a California corporation, (b) Customer Connexx LLC, a Nevada limited liability company, and (c) ARCA Canada Inc., a corporation organized under the laws of Ontario, Canada (“ARCA Canada”; and, together with ARCA and Connexx, the “Subsidiaries”). The principal of the Buyer is Virland A. Johnson, our Chief Financial Officer. The sale of all of the outstanding equity interests of the Subsidiaries to the Buyer under the Purchase Agreement was consummated simultaneously with the execution of the Purchase Agreement (see Note 17). The Company's Board of Directors unanimously approved the Purchase Agreement and the Disposition Transaction. In connection with the disposition of ARCA Recycling, accounts for the Recycling segment have been presented as discontinued operations in the accompanying consolidated financial statements (see Note 3).

Technology

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

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

Going concern

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

The Company currently faces a challenging competitive environment and is focused on improving its overall profitability, which includes managing expenses. The Company reported a net loss from continuing operations of approximately $640,000 for the 13 weeks ended April 1, 2023. Additionally, as of April 1, 2023, the Company has total current assets of approximately $637,000 and total current liabilities of approximately $3.5 million resulting in a net negative working capital of approximately $2.8 million. Cash provided by operations from continuing operations was approximately $128,000. Additionally, stockholders' equity, as of April 1, 2023, is approximately $13.6 million.

The Company intends to fund operations by using cash on hand and monthly receipts in connection with the sale of its Subsidiaries and funds received from approved Employee Retention Credits (“ERC’s”) (see Note 18). The Company has approximately $69,000 in debt recorded in associated with the financing of its insurance policies. The Company intends to raise funds to support future development of JAN 123 and JAN 101 either through capital raises or structured arrangements. However, the success of such funding cannot be assured.

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

Note 2: Summary of Significant Accounting Policies

Basis of Presentation

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

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

Financial Statement Reclassification

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

Use of Estimates

The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumption that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Significant estimates made in connection with the accompanying consolidated financial statements include the fair values in connection with the GeoTraq promissory note, Series S convertible preferred stock issued in the Soin merger, and the receivable in connection with the sale of ARCA, analysis of other intangibles and long-lived assets for impairment, valuation allowance against deferred tax assets, lease terminations, and estimated useful lives for intangible assets and property and equipment.

Financial Instruments

Financial instruments consist primarily of cash equivalents, trade and other receivables, notes receivable, and obligations under accounts payable, accrued expenses and notes payable. The carrying amounts of cash equivalents, trade receivables and other receivables, accounts payable, accrued expenses and short-term notes payable approximate fair value because of the short maturity of these instruments. The fair value of the long-term debt is calculated based on interest rates available for debt with terms and maturities similar to the Company’s existing debt arrangements, unless quoted market prices were available (Level 2 inputs). The carrying amounts of long-term debt at December 31, 2022 approximate fair value. The Company has no long-term debt as of April 1, 2023 due to the disposition of ARCA Recycling (see Note 18).

Recently Issued Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board issued ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments, which introduces a new approach to estimate credit losses on certain types of financial instruments based on expected losses instead of incurred losses. It also modifies the impairment model for available-for-sale debt securities and provides a simplified accounting model for purchased financial assets with credit deterioration since their origination. ASU No. 2016-13 is effective for smaller reporting companies for fiscal years beginning after December 15, 2022 and interim periods within those fiscal years. Early adoption is permitted. The Company has adopted this new accounting standard, however, as of 13 weeks ended April 1, 2023, there is no material impact on our Consolidated Financial Statements and related disclosures.

Note 3: Discontinued Operations

As of April 1, 2023, the Company discontinued operations of its Recycling and Technology segments as follows:

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

On May 24, 2022, the Company entered into an Asset Purchase Agreement with SPYR Technologies Inc., pursuant to which the Company sold to SPYR substantially all the assets and none of the liabilities of its wholly-owned subsidiary GeoTraq Inc. No GeoTraq assets or liabilities were included in discontinued operations at December 31, 2022.

In accordance with the provisions of ASC 205-20, the Company has separately reported the assets and liabilities of the discontinued operations in the consolidated balance sheets. The assets and liabilities have been reflected as discontinued operations in the consolidated balance sheets as of December 31, 2022, and consist of the following:


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

1 The Company's property and equipment consisted of the following:


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

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

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


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

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

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


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

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

The California Department of Tax and Fee Administration (formerly known as the California Board of Equalization) (“CDTFA”) conducted a sales and use tax examination covering ARCA Recycling’s California operations for years 2011, 2012, and 2013. The Company believed it was exempt from collecting sales taxes under service agreements with utility customers that included appliance replacement programs. During the fourth quarter of 2014, the Company received communication from the CDTFA indicating they were not in agreement with the Company’s interpretation of the law. As a result, the Company applied for and, as of February 9, 2015, received approval to participate in the CDTFA’s Managed Audit Program. The period covered under this program included the years 2011, 2012, and 2013 and extended through the nine-month period ended September 30, 2014.

On April 13, 2017 the Company received the formal CDTFA assessment for sales tax for tax years 2011, 2012, and 2013 in the amount of approximately $4.1 million plus applicable interest of $500,000 related to the appliance replacement programs that the Company administered on behalf of its customers on which it did not assess, collect or remit sales tax. The Company has appealed this assessment to the CDTFA Appeals Bureau. The appeal remains in process. Interest has continued to accrue until the matter is settled.

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