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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(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 May 19, 2023, 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 April 1, 2023 and December 31, 2022 |
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5 |
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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 |
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Item 3. |
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Item 4. |
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Item 1. |
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Item 1A. |
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Item 2. |
30 |
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Item 3. |
30 |
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Item 4. |
30 |
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Item 5 |
30 |
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Item 6. |
31 |
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32 |
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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April 1, |
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December 31, |
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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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Prepaid expenses and other current assets |
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Current assets from discontinued operations |
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Total current assets |
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Intangible assets - Soin, net |
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Other intangible assets, net |
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Note receivable- SPYR, net |
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Note receivable - VM7, net |
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Marketable securities |
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Deposits and other assets |
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Other assets from discontinued operations |
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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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Short–term debt |
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Current liabilities from discontinued operations |
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Total current liabilities |
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Deferred income taxes, net |
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Other noncurrent liabilities |
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Noncurrent liabilities from discontinued operations |
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Total liabilities |
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Mezzanine equity |
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Convertible preferred stock, series S - par value $ |
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Stockholders' equity: |
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Preferred stock, series A - par value $ |
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Common stock, par value $ |
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Additional paid-in capital |
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Accumulated deficit |
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( |
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( |
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Accumulated other comprehensive loss |
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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 INCOME
(UNAUDITED)
(Dollars in thousands, except per-share)
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For the Thirteen Weeks Ended |
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April 1, |
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April 2, |
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Revenues |
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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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Other income (expense): |
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Interest income (expense), net |
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( |
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Gain on litigation settlement, net |
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Unrealized loss on marketable securities |
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Gain on reversal of contingency loss |
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Other income, net |
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( |
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Total other income, net |
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Income (loss) from continuing operations before provision for income taxes |
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( |
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Income tax benefit |
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( | ) |
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Net income (loss) from continuing operations |
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( |
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Gain (loss) from discontinued operations (including a $ |
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( |
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Income tax provision for discontinued operations |
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Net income (loss) from discontinued operations |
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( |
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Net income |
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$ |
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$ |
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Net income (loss) per share: |
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Net income (loss) per share from continuing operations, basic |
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$ |
( |
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$ |
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Net income (loss) per share from continuing operations, diluted |
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$ |
( |
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$ |
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Net income (loss) per share from discontinued operations, basic |
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$ |
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$ |
( |
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Net income (loss) per share from discontinued operations, diluted |
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$ |
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$ |
( |
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Net income per share, basic |
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$ |
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$ |
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Net income per share, basic |
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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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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 Thirteen Weeks Ended |
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April 1, 2023 |
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April 2, 2022 |
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OPERATING ACTIVITIES: |
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Net income (loss) from continuing operations |
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$ |
( |
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$ |
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Adjustments to reconcile net income (loss) to net cash provided by (used in) operating |
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Depreciation and amortization |
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Stock based compensation expense |
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Accretion of note receivable discount |
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( |
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Loss on legal settlement |
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( |
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Unrealized loss on marketable securities |
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Gain on reversal of contingent liability |
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( |
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Changes in assets and liabilities: |
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Accounts receivable, net of acquisitions and dispositions |
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( |
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Prepaid expenses and other current assets, net of dispositions |
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Accounts payable and accrued expenses, net of dispositions |
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Other Assets |
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( |
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Operating cash flows provided by (used in) discontinued operations |
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( |
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Net cash provided by operating activities |
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INVESTING ACTIVITIES: |
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Investing cash flows used in discontinued operations |
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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 equity financing, net |
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Payments on short-term notes payable |
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( |
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( |
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Financing cash flows from discontinued operations |
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( |
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( |
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Net cash used in financing activities |
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( |
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( |
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Effect of changes in exchange rate on cash and cash equivalents |
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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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LESS CASH OF DISCONTINUED OPERATIONS, end of period |
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( |
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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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Noncash recognition of new leases |
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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 (DEFICIT)
(UNAUDITED)
(Dollars in thousands)
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Series A 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 31, 2022 |
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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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— |
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Common stock issued for equity financing |
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— |
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— |
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— |
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— |
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Common stock issued for legal settlement |
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— |
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— |
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— |
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Other comprehensive income |
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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 income |
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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, April 1, 2023 |
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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 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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Deficit |
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Balance, January 1, 2022 |
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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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— |
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Other comprehensive income |
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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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Net Income |
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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, April 2, 2022 |
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$ |
— |
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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.
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”).
The Company had
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 $
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.
7
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 $
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 $
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.
8
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.
9
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December 31, 2022 |
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Assets from discontinued operations |
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Cash and cash equivalents |
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$ |
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Trade and other receivables, net |
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Inventories |
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Prepaid expenses and other current assets |
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Total current assets from discontinued operations |
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Property and equipment, net 1 |
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Right of use asset - operating leases |
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Intangible assets, net 2 |
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Deposits and other assets |
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Total other assets from discontinued operations |
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Total assets from discontinued operations |
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$ |
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Liabilities from discontinued operations |
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Accounts payable |
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$ |
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Accrued liabilities - other 3 |
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Accrued liability - California sales taxes 4 |
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Lease obligation short-term - operating leases |
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Short term debt 5 |
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Current portion of note payable |
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Related party note |
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Total current liabilities from discontinued operations |
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Lease obligation long-term - operating leases |
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Notes payable - long-term portion 6 |
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Long-term portion related party note payable 7 |
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Total noncurrent liabilities from discontinued operations |
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Total liabilities from discontinued operations |
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$ |
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1 The Company's property and equipment consisted of the following:
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Useful Life |
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December 31, 2022 |
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Buildings and improvements |
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$ |
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Equipment |
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Projects under construction |
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Property and equipment |
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Less accumulated depreciation |
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( |
) |
Total property and equipment, net, from discontinued operations |
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$ |
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Depreciation expense was $
2 The Company's intangible assets consisted of the following:
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December 31, |
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Patent and domains |
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$ |
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Computer software |
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Intangible assets |
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Less accumulated amortization |
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( |
) |
Total intangible assets |
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$ |
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Amortization expense was $
3 The Company's accrued liabilities consisted of the following:
10
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December 31, |
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Compensation and benefits |
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$ |
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Contract liability |
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Accrued incentive and rebate checks |
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Accrued taxes |
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Other |
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Total accrued expenses |
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$ |
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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 The Company's accrual relating to the California sales tax assessment consisted of the following: