[Company Information](index=1&type=section&id=Company%20Information) [Registrant Details](index=1&type=section&id=Registrant%20Details) JanOne Inc., a Nevada corporation, is listed on the Nasdaq Capital Market under the ticker JAN, classified as a non-accelerated filer and smaller reporting company, with 4,957,647 common shares outstanding as of November 11, 2023 - Company Name: **JANONE INC.**[2](index=2&type=chunk) - Place of Incorporation: **Nevada**[2](index=2&type=chunk) Registrant Details | Metric | Detail | | :--- | :--- | | Ticker Symbol | JAN | | Registered Exchange | Nasdaq Capital Market | | Filing Status | Non-accelerated Filer, Smaller Reporting Company | | Shares Outstanding (As of Nov 11, 2023) | 4,957,647 shares | [PART I. FINANCIAL INFORMATION](index=4&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) [Item 1. Condensed Consolidated Financial Statements](index=4&type=section&id=Item%201.%20Condensed%20Consolidated%20Financial%20Statements) This section presents JanOne Inc.'s unaudited condensed consolidated financial statements, including balance sheets, statements of operations and comprehensive income, cash flows, and changes in stockholders' equity, along with detailed notes covering company background, accounting policies, discontinued operations, notes receivable, intangible assets, liabilities, income taxes, commitments and contingencies, stockholders' equity, earnings per share, segment information, and related party transactions [Unaudited Condensed Consolidated Balance Sheets](index=4&type=section&id=Unaudited%20Condensed%20Consolidated%20Balance%20Sheets) Condensed Consolidated Balance Sheets (As of September 30, 2023 and December 31, 2022) | Metric (in thousands) | September 30, 2023 (Unaudited) | December 31, 2022 | | :--- | :--- | :--- | | **Assets:** | | | | Cash and cash equivalents | 413 | 61 | | Trade and other receivables, net | 19 | 106 | | Prepaids and other current assets | 85 | 394 | | Current assets of discontinued operations | — | 8,612 | | **Total current assets** | **517** | **9,173** | | Intangible assets - Soin, net | 18,204 | 19,293 | | Other intangible assets, net | 4 | 4 | | Notes receivable - SPYR, net | 9,578 | 8,974 | | Notes receivable - VM7, net | 5,600 | — | | Marketable securities | 222 | 315 | | Deposits and other assets | 364 | 18 | | Other assets of discontinued operations | — | 8,979 | | **Total assets** | **34,489** | **46,756** | | **Liabilities and Stockholders' Equity:** | | | | Accounts payable | 2,261 | 2,276 | | Accrued liabilities - other | 243 | 1,006 | | Short-term debt | — | 274 | | Current liabilities of discontinued operations | — | 20,382 | | **Total current liabilities** | **2,504** | **23,938** | | Deferred income taxes, net | 2,942 | — | | Other non-current liabilities | 35 | 241 | | Non-current liabilities of discontinued operations | — | 5,760 | | **Total liabilities** | **5,481** | **29,939** | | Mezzanine Equity: | | | | Convertible preferred stock, Series S | 14,510 | 14,510 | | Stockholders' Equity: | | | | Common stock | 3 | 2 | | Additional paid-in capital | 47,323 | 45,748 | | Accumulated deficit | (32,828) | (42,822) | | Accumulated other comprehensive loss | — | (621) | | **Total stockholders' equity** | **14,498** | **2,307** | | **Total liabilities and stockholders' equity** | **34,489** | **46,756** | - As of September 30, 2023, total assets were **$34,489 thousand**, a **26.2% decrease** from **$46,756 thousand** on December 31, 2022, primarily due to reduced current and other assets from discontinued operations[9](index=9&type=chunk) - Total liabilities significantly decreased by **81.7%** to **$5,481 thousand** as of September 30, 2023, from **$29,939 thousand** on December 31, 2022, mainly due to the divestiture of current and non-current liabilities from discontinued operations[9](index=9&type=chunk) - Stockholders' equity increased by **528.4%** to **$14,498 thousand** as of September 30, 2023, from **$2,307 thousand** on December 31, 2022, driven by a reduction in accumulated deficit and an increase in additional paid-in capital[9](index=9&type=chunk) [Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income](index=5&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Income) Condensed Consolidated Statements of Operations and Comprehensive Income (For the 13 and 39 Weeks Ended September 30, 2023 and October 1, 2022) | Metric (in thousands) | 13 Weeks Ended Sep 30, 2023 | 13 Weeks Ended Oct 1, 2022 | 39 Weeks Ended Sep 30, 2023 | 39 Weeks Ended Oct 1, 2022 | | :--- | :--- | :--- | :--- | :--- | | Revenue | — | — | — | — | | Selling, general and administrative expenses | 764 | 611 | 2,923 | 1,950 | | Operating loss | (764) | (611) | (2,923) | (1,950) | | Net interest income | 758 | 410 | 1,598 | 575 | | Unrealized loss on marketable securities | (267) | (270) | (514) | (646) | | Other income, net | 6 | 688 | 745 | 2,043 | | Income (loss) from continuing operations before income taxes | (267) | 217 | (1,094) | 2,609 | | Income tax benefit | (25) | — | (269) | — | | Net income (loss) from continuing operations | (242) | 217 | (825) | 2,609 | | Income (loss) from discontinued operations | — | (2,182) | 13,976 | 5,518 | | Income tax provision (benefit) from discontinued operations | (28) | 16 | 3,158 | 23 | | Net income (loss) from discontinued operations | 28 | (2,198) | 10,818 | 5,495 | | **Net income (loss)** | **(214)** | **(1,981)** | **9,993** | **8,104** | | **Net income (loss) per share (Basic):** | | | | | | Continuing operations | (0.06) | 0.07 | (0.22) | 0.83 | | Discontinued operations | 0.01 | (0.70) | 2.93 | 1.74 | | **Total** | **(0.05)** | **(0.63)** | **2.71** | **2.57** | | **Net income (loss) per share (Diluted):** | | | | | | Continuing operations | (0.06) | 0.07 | (0.22) | 0.75 | | Discontinued operations | 0.01 | (0.70) | 2.93 | 1.57 | | **Total** | **(0.05)** | **(0.63)** | **2.71** | **2.32** | - For the 13 weeks ended September 30, 2023, the company's net loss significantly narrowed to **$214 thousand** from a **$1,981 thousand** loss in the prior-year period, primarily due to a shift in net income from discontinued operations from a **$2,198 thousand** loss to a **$28 thousand** gain[10](index=10&type=chunk) - For the 39 weeks ended September 30, 2023, the company achieved a net income of **$9,993 thousand**, a **23.3% increase** from **$8,104 thousand** in the prior-year period, mainly driven by a substantial increase in net income from discontinued operations from **$5,495 thousand** to **$10,818 thousand**[10](index=10&type=chunk) - Operating loss from continuing operations expanded for both the 13-week and 39-week periods, increasing from **$611 thousand** to **$764 thousand** and from **$1,950 thousand** to **$2,923 thousand**, respectively, primarily due to higher selling, general, and administrative expenses[10](index=10&type=chunk) [Unaudited Condensed Consolidated Statements of Cash Flows](index=6&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Condensed Consolidated Statements of Cash Flows (For the 39 Weeks Ended September 30, 2023 and October 1, 2022) | Cash Flow Activities (in thousands) | 39 Weeks Ended Sep 30, 2023 | 39 Weeks Ended Oct 1, 2022 | | :--- | :--- | :--- | | Net income (loss) from continuing operations | (825) | 2,609 | | Operating cash flow from discontinued operations | 2,320 | (2,707) | | **Net cash provided by (used in) operating activities** | **1,872** | **(2,391)** | | Cash flow used in investing activities from discontinued operations | (156) | (950) | | **Net cash used in investing activities** | **(156)** | **(950)** | | Net proceeds from equity financing | 792 | — | | Exercise of warrants | 259 | — | | Financing cash flow from discontinued operations | (2,212) | 3,386 | | **Net cash provided by (used in) financing activities** | **(1,435)** | **3,504** | | Increase in cash and cash equivalents | 298 | 163 | | Cash and cash equivalents at beginning of period | 115 | 705 | | Cash and cash equivalents at end of period | 413 | 434 | - For the 39 weeks ended September 30, 2023, operating activities provided **$1,872 thousand** in cash, compared to using **$2,391 thousand** in the prior-year period, primarily due to **$2,320 thousand** in cash flow from discontinued operations[12](index=12&type=chunk) - Cash outflow from investing activities decreased from **$950 thousand** in the prior-year period to **$156 thousand** for the 39 weeks ended September 30, 2023, mainly related to reduced asset purchases by discontinued operations[12](index=12&type=chunk) - Financing activities shifted from providing **$3,504 thousand** in the prior-year period to using **$1,435 thousand**, primarily due to debt repayment by discontinued operations, partially offset by proceeds from equity financing and warrant exercises[12](index=12&type=chunk) [Unaudited Condensed Consolidated Statements of Stockholders' Equity](index=7&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity) Condensed Consolidated Statements of Stockholders' Equity (As of September 30, 2023 and October 1, 2022) | Metric (in thousands) | Balance as of Dec 31, 2022 | Balance as of Sep 30, 2023 | | :--- | :--- | :--- | | Series A-1 Preferred Stock shares | 222,588 | 193,730 | | Common Stock shares | 3,150,230 | 4,957,647 | | Common Stock amount | 2 | 3 | | Additional Paid-in Capital | 45,748 | 47,323 | | Accumulated Deficit | (42,822) | (32,828) | | Accumulated Other Comprehensive Loss | (621) | — | | **Total Stockholders' Equity** | **2,307** | **14,498** | | Metric (in thousands) | Balance as of Jan 1, 2022 | Balance as of Oct 1, 2022 | | :--- | :--- | :--- | | Series A-1 Preferred Stock shares | 238,729 | 222,588 | | Common Stock shares | 2,827,410 | 3,150,230 | | Common Stock amount | 2 | 3 | | Additional Paid-in Capital | 45,743 | 45,747 | | Accumulated Deficit | (53,804) | (45,708) | | Accumulated Other Comprehensive Loss | (617) | (617) | | **Total Stockholders' Equity** | **(8,676)** | **(575)** | - As of September 30, 2023, total stockholders' equity increased significantly to **$14,498 thousand** from **$2,307 thousand** on December 31, 2022, primarily due to a reduction in accumulated deficit from **($42,822) thousand** to **($32,828) thousand** and an increase in additional paid-in capital[13](index=13&type=chunk) - Outstanding common shares increased to **4,957,647** as of September 30, 2023, from **2,827,410** on December 31, 2022, mainly due to common stock issued through equity financing and warrant exercises[13](index=13&type=chunk)[79](index=79&type=chunk) - A-1 Series Preferred Stock shares decreased from **222,588** on December 31, 2022, to **193,730** on September 30, 2023, primarily due to conversions and forfeitures related to legal settlements[13](index=13&type=chunk)[85](index=85&type=chunk) [Notes to Unaudited Condensed Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) [Note 1: Background](index=9&type=section&id=Note%201:%20Background) JanOne Inc. has shifted its business focus to biotechnology, developing non-addictive pain medications, particularly JAN123 for Complex Regional Pain Syndrome (CRPS), having divested its recycling and technology business segments which are now reported as discontinued operations, and faces substantial doubt about its ability to continue as a going concern, relying on future financing and FDA approvals to support operations and product development - The company currently operates in three segments: Biotechnology, Recycling, and Technology, with the Recycling and Technology segments reported as discontinued operations[18](index=18&type=chunk) - The Biotechnology segment focuses on developing non-addictive drugs for severe pain, acquiring Soin Therapeutics LLC and its product JAN123 for CRPS, which received FDA orphan drug designation, on December 28, 2022[19](index=19&type=chunk) - The company faces substantial doubt about its ability to continue as a going concern, with a net loss from continuing operations of approximately **$754 thousand** and a working capital deficit of **$1.9 million** as of September 30, 2023, planning to fund operations and JAN123/JAN101 development through existing cash, subsidiary sale proceeds, Employee Retention Credits (ERC), and future financing[23](index=23&type=chunk)[24](index=24&type=chunk)[25](index=25&type=chunk)[26](index=26&type=chunk) [Note 2: Summary of Significant Accounting Policies](index=10&type=section&id=Note%202:%20Summary%20of%20Significant%20Accounting%20Policies) This note outlines the basis of the company's financial statement preparation, adhering to U.S. GAAP and Form 10-Q requirements, consolidating wholly-owned subsidiaries, reclassifying prior period balances, and involving management estimates, with the adoption of ASU No. 2016-13 having no material impact to date - Financial statements are prepared in accordance with U.S. GAAP and Form 10-Q instructions, including normal recurring adjustments deemed necessary by management[27](index=27&type=chunk) - The company consolidates its wholly-owned subsidiaries and has reclassified amounts related to discontinued operations[28](index=28&type=chunk)[29](index=29&type=chunk) - Significant estimates include the fair value of the GeoTraq note, Series S convertible preferred stock issued in the Soin merger, receivables related to the ARCA sale, and impairment analysis of intangible and long-lived assets[31](index=31&type=chunk) - The company adopted ASU No. 2016-13 (Financial Instruments – Credit Losses), which had no material impact on the consolidated financial statements as of September 30, 2023[33](index=33&type=chunk) [Note 3: Discontinued Operations](index=11&type=section&id=Note%203:%20Discontinued%20Operations) The company sold its recycling business (ARCA Recycling and subsidiaries) to VM7 Corporation on March 9, 2023 (retroactive to March 1, 2023), and its technology business (GeoTraq) to SPYR Technologies Inc. on May 24, 2022, with the assets, liabilities, operating results, and cash flows of these businesses separately presented as discontinued operations in the financial statements - The company sold its recycling business (ARCA Recycling, Customer Connexx LLC, and ARCA Canada Inc.) to VM7 Corporation on March 9, 2023, retroactive to March 1, 2023[34](index=34&type=chunk) - The company sold substantially all assets of its technology business (GeoTraq Inc.) to SPYR Technologies Inc. on May 24, 2022[35](index=35&type=chunk) Assets and Liabilities of Discontinued Operations (As of December 31, 2022) | Metric (in thousands) | December 31, 2022 | | :--- | :--- | | **Assets of Discontinued Operations:** | | | Cash and cash equivalents | 53 | | Trade and other receivables, net | 7,816 | | Inventory | 366 | | Prepaids and other current assets | 377 | | **Total current assets of discontinued operations** | **8,612** | | Property and equipment, net | 2,705 | | Right-of-use assets - operating leases | 5,290 | | Intangible assets, net | 735 | | Deposits and other assets | 249 | | **Total other assets of discontinued operations** | **8,979** | | **Total assets of discontinued operations** | **17,591** | | **Liabilities of Discontinued Operations:** | | | Accounts payable | 4,423 | | Accrued liabilities - other | 3,278 | | Accrued liabilities - California sales tax | 6,264 | | Lease liabilities short-term - operating leases | 1,631 | | Short-term debt | 4,172 | | Current portion of notes payable | 381 | | Related party notes | 233 | | **Total current liabilities of discontinued operations** | **20,382** | | Lease liabilities long-term - operating leases | 3,816 | | Notes payable - long-term portion | 1,339 | | Long-term portion of related party notes payable | 605 | | **Total non-current liabilities of discontinued operations** | **5,760** | | **Total liabilities of discontinued operations** | **26,142** | Operating Results of Discontinued Operations (For the 13 and 39 Weeks Ended September 30, 2023 and October 1, 2022) | Metric (in thousands) | 13 Weeks Ended Sep 30, 2023 | 13 Weeks Ended Oct 1, 2022 | 39 Weeks Ended Sep 30, 2023 | 39 Weeks Ended Oct 1, 2022 | | :--- | :--- | :--- | :--- | :--- | | Revenue | — | 8,587 | 3,795 | 28,449 | | Selling, general and administrative expenses | — | 2,248 | 1,469 | 6,761 | | Gain on sale of GeoTraq | — | — | (15,824) | (10,241) | | Operating income (loss) | — | (1,214) | 14,158 | 8,016 | | Income (loss) before income taxes | — | (2,182) | 13,976 | 5,518 | | Income tax provision (benefit) | (28) | 16 | 3,158 | 23 | | **Net income (loss) from discontinued operations** | **28** | **(2,198)** | **10,818** | **5,495** | Cash Flows of Discontinued Operations (For the 39 Weeks Ended September 30, 2023 and October 1, 2022) | Cash Flow Activities (in thousands) | 39 Weeks Ended Sep 30, 2023 | 39 Weeks Ended Oct 1, 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | 2,320 | (2,707) | | Net cash used in investing activities | (156) | (950) | | Net cash used in financing activities | (2,212) | 3,386 | | Cash and cash equivalents at end of period | — | 433 | [Note 4: Trade and other receivables](index=16&type=section&id=Note%204:%20Trade%20and%20other%20receivables) As of September 30, 2023, the company's net trade and other receivables were **$19 thousand**, a significant decrease from **$7,922 thousand** on December 31, 2022, primarily because receivables from discontinued operations are no longer reported Trade and Other Receivables (in thousands) | Metric | September 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Trade and other receivables from discontinued operations, net | — | 7,816 | | Other receivables | 19 | 106 | | **Trade and other receivables, net** | **19** | **7,922** | [Note 5: Prepaids and other current assets](index=17&type=section&id=Note%205:%20Prepaids%20and%20other%20current%20assets) As of September 30, 2023, the company's prepaids and other current assets totaled **$85 thousand**, a notable reduction from **$771 thousand** on December 31, 2022, mainly due to the exclusion of prepaid expenses from discontinued operations Prepaids and Other Current Assets (in thousands) | Metric | September 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Prepaid insurance | — | 364 | | Other prepaids | 85 | 30 | | Prepaids from discontinued operations | — | 377 | | **Total prepaids and other current assets** | **85** | **771** | [Note 6: Notes receivable](index=17&type=section&id=Note%206:%20Notes%20receivable) The company holds two notes receivable from SPYR and VM7; the SPYR note, with an initial principal of **$12.6 million**, had a net discounted value of **$9.5 million** and a net carrying value of approximately **$9.6 million** as of September 30, 2023, while the VM7 note, from the sale of ARCA Recycling and subsidiaries with a minimum total consideration of **$24.0 million**, was valued at a present value of **$6.0 million** using a 20% discount rate and had a net carrying value of approximately **$5.6 million** as of September 30, 2023, with discount amortization for both notes recognized as interest income - The SPYR note, originating from the GeoTraq asset sale on May 24, 2022, has an initial principal of **$12.6 million**, an 8% annual interest rate, and matures on May 24, 2027; initially valued at **$9.5 million**, the approximately **$3.2 million** discount is amortized into interest income, with a net carrying value of approximately **$9.6 million** as of September 30, 2023[50](index=50&type=chunk)[51](index=51&type=chunk)[52](index=52&type=chunk) - The VM7 note, from the sale of ARCA Recycling and subsidiaries on March 9, 2023, has a minimum total consideration of **$24.0 million** (annual payments of **$1.6 million** over 15 years); the company valued it at a present value of approximately **$6.0 million** using a 20% discount rate, with the approximately **$18.0 million** discount amortized into interest income, and a net carrying value of approximately **$5.6 million** as of September 30, 2023[53](index=53&type=chunk)[54](index=54&type=chunk)[55](index=55&type=chunk) Notes Receivable Discount Amortization Recognized as Interest Income (in thousands) | Note Source | 13 Weeks Ended Sep 30, 2023 | 13 Weeks Ended Oct 1, 2022 | 39 Weeks Ended Sep 30, 2023 | 39 Weeks Ended Oct 1, 2022 | | :--- | :--- | :--- | :--- | :--- | | SPYR Note Discount Amortization | 201 | 65 | 604 | 65 | | VM7 Note Discount Amortization | 303 | 0 | 417 | 0 | [Note 7: Intangible Assets](index=18&type=section&id=Note%207:%20Intangible%20Assets) As of September 30, 2023, the company's total intangible assets were **$18,208 thousand**, primarily comprising intangible assets acquired in the Soin acquisition, with discontinued operations' intangible assets no longer reported, and amortization expenses for continuing operations significantly increasing in the first three quarters of 2023 Intangible Assets (in thousands) | Metric | September 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Patents and domain names | 4 | 4 | | Soin intangible assets | 19,293 | 19,293 | | Computer software | — | 3,563 | | Intangible assets of discontinued operations | — | 735 | | **Total intangible assets** | **19,297** | **23,595** | | Less: Accumulated amortization | (1,089) | (3,563) | | **Total intangible assets, net** | **18,208** | **20,032** | - Soin intangible assets include three pending patents related to methods of treating chronic pain with low-dose naltrexone, the final naltrexone formulation, and FDA orphan drug designation[58](index=58&type=chunk) Amortization Expense for Intangible Assets from Continuing Operations (in thousands) | Period | Amortization Expense | | :--- | :--- | | 13 Weeks Ended Sep 30, 2023 | 363 | | 13 Weeks Ended Oct 1, 2022 | 0 | | 39 Weeks Ended Sep 30, 2023 | 1,100 | | 39 Weeks Ended Oct 1, 2022 | 0 | [Note 8: Deposits and other assets](index=18&type=section&id=Note%208:%20Deposits%20and%20other%20assets) As of September 30, 2023, the company's deposits and other assets increased to **$364 thousand** from **$267 thousand** on December 31, 2022, primarily due to an increase in other assets Deposits and Other Assets (in thousands) | Metric | September 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Deposits and other assets of discontinued operations | — | 249 | | Other | 364 | 18 | | **Total deposits and other assets** | **364** | **267** | [Note 9: Accrued Liabilities](index=18&type=section&id=Note%209:%20Accrued%20Liabilities) As of September 30, 2023, the company's accrued liabilities significantly decreased to **$243 thousand** from **$4,284 thousand** on December 31, 2022, mainly due to the exclusion of accrued expenses from discontinued operations and a reduction in accrued litigation settlements Accrued Liabilities (in thousands) | Metric | September 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Compensation and benefits | 51 | 81 | | Accrued warranty | — | 130 | | Accrued taxes | 146 | 5 | | Accrued litigation settlement | — | 510 | | Other | 46 | 280 | | Accrued expenses of discontinued operations | — | 3,278 | | **Total accrued expenses** | **243** | **4,284** | [Note 10: Income Taxes](index=19&type=section&id=Note%2010:%20Income%20Taxes) The company recorded an income tax benefit from continuing operations of **$269 thousand** for the first three quarters of 2023, compared to zero in the prior-year period, while discontinued operations recorded an income tax expense of **$3.2 million** for the same period, resulting in an overall effective tax rate of **30.3%** for the first three quarters of 2023 Income Tax Benefit/Expense (in thousands) | Period | Income Tax Benefit from Continuing Operations | Income Tax Benefit/Expense from Discontinued Operations | | :--- | :--- | :--- | | 13 Weeks Ended Sep 30, 2023 | 25 | 28 | | 13 Weeks Ended Oct 1, 2022 | — | (16) | | 39 Weeks Ended Sep 30, 2023 | 269 | (3,158) | | 39 Weeks Ended Oct 1, 2022 | — | (23) | - The company's overall effective tax rate for the first three quarters of 2023 was **30.3%**, compared to **0.23%** in the prior-year period[59](index=59&type=chunk) [Note 11: Short-Term Debt](index=19&type=section&id=Note%2011:%20Short-Term%20Debt) As of September 30, 2023, the company had no short-term debt, a decrease from **$274 thousand** on December 31, 2022, primarily because the AFCO Finance agreement matured in fiscal year 2023 and was not renewed Short-Term Debt (in thousands) | Metric | September 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | AFCO Finance | — | 274 | | **Total short-term debt** | **—** | **274** | - The company entered into a financing agreement with AFCO Credit Corporation in July 2022 to fund insurance premiums totaling approximately **$516 thousand** at an interest rate of approximately **6.0%**, which concluded on April 1, 2023, with no such financing agreements entered into during fiscal year 2023[61](index=61&type=chunk) [Note 12: Commitments and Contingencies](index=19&type=section&id=Note%2012:%20Commitments%20and%20Contingencies) The company faces multiple legal proceedings and commitments, including an SEC complaint, a contract dispute with Skybridge Americas Inc., a GeoTraq-related settlement agreement, the Sieggreen class action lawsuit, Main/270 lease guarantee disputes, and Westerville Square lease disputes, with the GeoTraq settlement agreement fully repaid as of September 30, 2023 - The company and its CFO, Virland Johnson, are defendants in an SEC complaint alleging securities law violations; the company strongly denies the allegations and is actively defending itself, though a motion to dismiss was denied and discovery has resumed[62](index=62&type=chunk)[63](index=63&type=chunk)[64](index=64&type=chunk)[65](index=65&type=chunk) - A contract dispute with Skybridge Americas Inc. resulted in a judgment against the company for approximately **$715 thousand** plus **$475 thousand** in attorney fees, with approximately **$382 thousand** of the statutory interest obligation assumed by the buyer in the ARCA and subsidiaries disposition transaction[66](index=66&type=chunk) - The GeoTraq-related settlement agreement, totaling **$1.95 million**, was fully repaid as of September 30, 2023, through cash and conversion of Series A-1 Preferred Stock into common stock[68](index=68&type=chunk)[69](index=69&type=chunk) - The company is a defendant in the Sieggreen class action lawsuit alleging securities exchange act violations, for which a motion to dismiss has been filed, and also faces lease guarantee disputes for Main/270 and Westerville Square, with the Westerville Square dispute settled for **$110 thousand** on June 4, 2023[71](index=71&type=chunk)[72](index=72&type=chunk)[73](index=73&type=chunk) [Note 13: Stockholders' Equity](index=21&type=section&id=Note%2013:%20Stockholders'%20Equity) This note details changes in the company's common stock, stock options, and Series A-1 Preferred Stock; as of September 30, 2023, common shares outstanding increased to **4,957,647** primarily through registered direct offerings and warrant exercises, **114,000** options are outstanding under the stock option plan, and Series A-1 Preferred Stock decreased due to conversions related to legal settlements - As of September 30, 2023, the company had **4,957,647** common shares outstanding, an increase from **2,827,410** on December 31, 2022[79](index=79&type=chunk) - In the first three quarters of 2023, the company raised approximately **$1.212 million** (before fees) through two registered direct offerings and issued warrants to purchase **899,348** common shares[77](index=77&type=chunk)[78](index=78&type=chunk) Stock Option Activity | Metric | January 1, 2022 | December 31, 2022 | September 30, 2023 | | :--- | :--- | :--- | :--- | | Number of options outstanding | 117,500 | 110,000 | 114,000 | | Weighted average exercise price | $7.16 | $6.27 | $5.68 | | Number of options granted | — | — | 10,000 | | Number of options canceled/expired | (7,500) | — | (6,000) | - As of September 30, 2023, Series A-1 Preferred Stock outstanding decreased to **193,730** shares from **222,588** on December 31, 2022, primarily due to conversions into common stock for legal settlements[85](index=85&type=chunk) [Note 14: Mezzanine Equity](index=23&type=section&id=Note%2014:%20Mezzanine%20Equity) As part of the consideration for acquiring Soin Therapeutics through a merger on December 28, 2022, the company issued **100,000** shares of Series S convertible preferred stock, each convertible into common stock on a 1:1 basis, with **100,000** shares remaining outstanding as of September 30, 2023 - The company issued **100,000** shares of Series S convertible preferred stock, convertible into common stock on a 1:1 basis, for the acquisition of Soin Therapeutics[86](index=86&type=chunk) - As of September 30, 2023, and December 31, 2022, **100,000** shares of Series S convertible preferred stock remained outstanding[86](index=86&type=chunk) [Note 15: Earnings Per Share](index=23&type=section&id=Note%2015:%20Earnings%20Per%20Share) This note provides basic and diluted earnings per share calculations, separately presenting EPS for continuing and discontinued operations; for the 39 weeks ended September 30, 2023, both basic and diluted EPS were **$2.71**, primarily driven by the positive impact of income from discontinued operations Basic and Diluted Earnings Per Share (in thousands, except per share data) | Metric | 13 Weeks Ended Sep 30, 2023 | 13 Weeks Ended Oct 1, 2022 | 39 Weeks Ended Sep 30, 2023 | 39 Weeks Ended Oct 1, 2022 | | :--- | :--- | :--- | :--- | :--- | | **EPS from Continuing Operations (Basic):** | (0.06) | 0.07 | (0.22) | 0.83 | | **EPS from Continuing Operations (Diluted):** | (0.06) | 0.07 | (0.22) | 0.75 | | **EPS from Discontinued Operations (Basic):** | 0.01 | (0.70) | 2.93 | 1.74 | | **EPS from Discontinued Operations (Diluted):** | 0.01 | (0.70) | 2.93 | 1.57 | | **Total EPS (Basic):** | (0.05) | (0.63) | 2.71 | 2.57 | | **Total EPS (Diluted):** | (0.05) | (0.63) | 2.71 | 2.32 | | **Weighted Average Common Shares Outstanding (Basic):** | 4,198,940 | 3,150,230 | 3,687,896 | 3,150,230 | | **Weighted Average Common Shares Outstanding (Diluted):** | 4,198,940 | 3,150,230 | 3,687,896 | 3,496,003 | - For the 39 weeks ended September 30, 2023, continuing operations reported a loss per share of **$0.22** (basic and diluted), compared to earnings per share of **$0.83** (basic) and **$0.75** (diluted) in the prior-year period[88](index=88&type=chunk) - For the 39 weeks ended September 30, 2023, discontinued operations reported earnings per share of **$2.93** (basic and diluted), a significant increase from **$1.74** (basic) and **$1.57** (diluted) in the prior-year period[88](index=88&type=chunk) - As of September 30, 2023, **114,000** potentially dilutive securities and **193,730** shares of Series A-1 Preferred Stock (convertible into approximately **3.9 million** common shares), along with **100,000** shares of Series S Preferred Stock (convertible into **100,000** common shares), were excluded from diluted EPS calculations due to their anti-dilutive effect or contractual restrictions[89](index=89&type=chunk) [Note 16: Segment Information](index=24&type=section&id=Note%2016:%20Segment%20Information) The company currently conducts continuing operations through its Biotechnology segment, focused on developing non-opioid pain medications, while the Recycling and Technology segments are reported as discontinued operations, with the chief operating decision maker assessing performance and allocating resources based on each segment's sales and operating income - The company's continuing operations are currently conducted through its Biotechnology segment, which began operations in September 2019 and focuses on developing novel solutions for pain treatment[90](index=90&type=chunk) - The Recycling and Technology segments are reported as discontinued operations, with their products, services, and customer base significantly differing from the Biotechnology segment[90](index=90&type=chunk) Segment Operating Income/Loss (in thousands) | Metric | 13 Weeks Ended Sep 30, 2023 | 13 Weeks Ended Oct 1, 2022 | 39 Weeks Ended Sep 30, 2023 | 39 Weeks Ended Oct 1, 2022 | | :--- | :--- | :--- | :--- | :--- | | **Biotechnology Segment:** | | | | | | Revenue | — | — | — | — | | Operating income (loss) | (764) | (611) | (2,923) | (1,950) | | Depreciation and amortization | 363 | — | 1,090 | — | | Net interest income (expense) | (758) | (410) | (1,598) | (575) | | Net income (loss) before income taxes | (267) | 217 | (1,094) | 2,609 | | **Discontinued Operations:** | | | | | | Revenue | — | 8,587 | 3,795 | 28,449 | | Operating income (loss) | — | (1,214) | 14,158 | 8,016 | | Depreciation and amortization | — | 77 | 96 | 347 | | Net interest income (expense) | — | 280 | 181 | 698 | | Net income (loss) before income taxes | — | (2,182) | 13,976 | 5,518 | [Note 17: Related Parties](index=25&type=section&id=Note%2017:%20Related%20Parties) The company has related party relationships with Live Ventures Incorporated and its subsidiaries, including shared executives, accounting, and legal services, and on March 9, 2023, sold ARCA Recycling and its subsidiaries to VM7 Corporation, whose principal is the company's Chief Financial Officer, Virland A. Johnson - Company CEO Tony Isaac is the father of Jon Isaac, President and CEO of Live Ventures Incorporated, and both Tony Isaac and Richard Butler (company director) serve on Live Ventures' board of directors[93](index=93&type=chunk) - The company shares administrative, accounting, and legal services with Live Ventures, incurring shared service fees of **$28 thousand** and **$121 thousand** for the 13 and 39 weeks ended September 30, 2023, respectively[93](index=93&type=chunk) - On March 9, 2023, the company entered into a stock purchase agreement with VM7 Corporation to sell ARCA Recycling and its subsidiaries, with VM7 Corporation's principal being the company's Chief Financial Officer, Virland A. Johnson[94](index=94&type=chunk)[95](index=95&type=chunk) [Note 18: Sale of ARCA and Subsidiaries](index=26&type=section&id=Note%2018:%20Sale%20of%20ARCA%20and%20Subsidiaries) On March 9, 2023 (retroactive to March 1, 2023), the company sold ARCA Recycling and its subsidiaries to VM7 Corporation, a transaction that reduced consolidated balance sheet liabilities by approximately **$17.6 million** and will generate at least **$24.0 million** in monthly payments from the buyer over 15 years, with the company recognizing a gain on sale of **$15.823 million** - The company sold ARCA Recycling and its subsidiaries to VM7 Corporation on March 9, 2023, retroactive to March 1, 2023[96](index=96&type=chunk) - This disposition reduced the company's liabilities by approximately **$17.6 million** and will result in monthly payments from the buyer totaling at least **$24.0 million** (or **$1.6 million** annually) over 15 years[97](index=97&type=chunk)[98](index=98&type=chunk) - The company valued the minimum consideration using a 20% discount rate, resulting in a present value of approximately **$6.0 million**, and also received **$500 thousand** in Employee Retention Credit (ERC) funds, with **$477 thousand** still outstanding[97](index=97&type=chunk)[98](index=98&type=chunk) Gain on Sale of ARCA and Subsidiaries Calculation (in thousands) | Item | Amount | | :--- | :--- | | Minimum total consideration | 6,023 | | Buyer payments | 3 | | **Net consideration** | **6,026** | | Total liabilities disposed | 24,041 | | **Total consideration** | **30,067** | | Total assets disposed | 14,244 | | **Total gain on sale** | **15,823** | [Note 19: Subsequent event](index=27&type=section&id=Note%2019:%20Subsequent%20event) The company has evaluated subsequent events up to the filing date of this quarterly report and found no material events requiring adjustment or disclosure - The company evaluated subsequent events and found no material events requiring adjustment or disclosure[101](index=101&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=28&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's analysis of the company's financial condition, results of operations, and liquidity, highlighting the business shift to biotechnology and the divestiture of recycling and technology segments, discussing operating results for the 13 and 39 weeks ended September 30, 2023, and the company's liquidity and capital resources, emphasizing going concern challenges and financing needs [Overview](index=28&type=section&id=Overview) - The company focuses on discovering non-addictive pain medications for severe pain[106](index=106&type=chunk)[107](index=107&type=chunk) - Divested subsidiaries ARCA Recycling, Connexx, and ARCA Canada previously engaged in major home appliance recycling in North America, while GeoTraq Inc. developed and designed mobile Internet of Things (IoT) wireless transceiver modules[106](index=106&type=chunk)[107](index=107&type=chunk) - The Recycling segment was sold on March 1, 2023, and the Technology segment was sold in May 2022, with both results reported as discontinued operations[107](index=107&type=chunk) [Results of Operations - Thirteen Weeks Ended September 30, 2023 and October 1, 2022](index=29&type=section&id=Results%20of%20Operations%20-%20Thirteen%20Weeks%20Ended%20September%2030,%202023%20and%20October%201,%202022) Summary of Operating Results (For the 13 Weeks Ended September 30, 2023 and October 1, 2022, in thousands) | Metric | Sep 30, 2023 | Oct 1, 2022 | Change Amount | Change % | | :--- | :--- | :--- | :--- | :--- | | Revenue | — | — | — | — | | Selling, general and administrative expenses | 764 | 611 | 153 | 25.0% | | Operating loss | (764) | (611) | (153) | 25.0% | | Net interest income | 758 | 410 | 348 | 84.9% | | Unrealized loss on marketable securities | (267) | (270) | 3 | -1.1% | | Net income (loss) from continuing operations | (242) | 217 | (459) | -211.5% | | Net income (loss) from discontinued operations | 28 | (2,198) | 2,226 | -101.3% | | **Net income (loss)** | **(214)** | **(1,981)** | **1,767** | **-89.2%** | - Revenue and cost of sales both decreased by approximately **$8.6 million** and **$7.6 million**, respectively, for the 13 weeks ended September 30, 2023, due to the disposition of the recycling segment[109](index=109&type=chunk)[110](index=110&type=chunk) - Selling, general, and administrative expenses increased by **$153 thousand** (**25%**), primarily due to higher amortization costs for Soin intangible assets[111](index=111&type=chunk) - Net interest income increased by **$348 thousand**, mainly due to discount amortization on the SPYR note and VM7 receivables, as well as interest income from the SPYR note[112](index=112&type=chunk) [Results of Operations - Thirty-Nine Weeks Ended September 30, 2023 and October 1, 2022](index=31&type=section&id=Results%20of%20Operations%20-%20Thirty-Nine%20Weeks%20Ended%20September%2030,%202023%20and%20October%201,%202022) Summary of Operating Results (For the 39 Weeks Ended September 30, 2023 and October 1, 2022, in thousands) | Metric | Sep 30, 2023 | Oct 1, 2022 | Change Amount | Change % | | :--- | :--- | :--- | :--- | :--- | | Revenue | — | — | — | — | | Selling, general and administrative expenses | 2,923 | 1,950 | 973 | 50.0% | | Operating loss | (2,923) | (1,950) | (973) | 50.0% | | Net interest income | 1,598 | 575 | 1,023 | 177.9% | | Unrealized loss on marketable securities | (514) | (646) | 132 | -20.4% | | Net income (loss) from continuing operations | (825) | 2,609 | (3,434) | -131.6% | | Net income (loss) from discontinued operations | 10,818 | 5,495 | 5,323 | 96.9% | | **Net income (loss)** | **9,993** | **8,104** | **1,889** | **23.3%** | - Revenue decreased by approximately **$25.0 million** (**86.7%**) and cost of sales decreased by approximately **$19.9 million** for the 39 weeks ended September 30, 2023, due to the disposition of the recycling segment[122](index=122&type=chunk)[123](index=123&type=chunk) - Selling, general, and administrative expenses increased by **$973 thousand** (**50.0%**), primarily due to higher amortization costs for Soin intangible assets[124](index=124&type=chunk) - Net interest income increased by **$1.0 million**, mainly due to discount amortization on the SPYR note and VM7 receivables, as well as interest income from the SPYR note[125](index=125&type=chunk) [Liquidity and Capital Resources](index=33&type=section&id=Liquidity%20and%20Capital%20Resources) - As of September 30, 2023, the company had **$413 thousand** in cash on hand and plans to fund operations through existing cash, monthly proceeds from subsidiary sales, and approved Employee Retention Credits (ERC)[130](index=130&type=chunk) - The company's ability to continue as a going concern depends on successful future financing or structural arrangements to fund the necessary testing for JAN123 and JAN101 to obtain FDA approval, as well as ongoing daily operations[131](index=131&type=chunk) Summary of Cash Flows (For the 39 Weeks Ended September 30, 2023 and October 1, 2022, in thousands) | Cash Flow Activities | Sep 30, 2023 | Oct 1, 2022 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | 1,872 | (2,391) | | Net cash used in investing activities | (156) | (950) | | Net cash provided by (used in) financing activities | (1,435) | 3,504 | - As of September 30, 2023, the company reported a net loss from continuing operations of approximately **$825 thousand** and a working capital deficit of **$2.0 million**[135](index=135&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=34&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company believes it is not exposed to significant interest rate fluctuation risk on its short-term and long-term fixed-rate debt, and it does not hold any derivative financial instruments or securities for trading or speculative purposes - The company believes it is not exposed to significant interest rate fluctuation risk on its short-term and long-term fixed-rate debt[137](index=137&type=chunk) - The company does not hold any derivative financial instruments or securities for trading or speculative purposes[137](index=137&type=chunk) [Item 4. Controls and Procedures](index=34&type=section&id=Item%204.%20Controls%20and%20Procedures) As of September 30, 2023, company management assessed its disclosure controls and procedures and internal control over financial reporting as ineffective due to material weaknesses, including inadequate information technology general controls and segregation of duties, insufficient design or adequacy of controls over significant accounting processes, inadequate assessment of the impact of potentially material transactions, and insufficient procedures for recording agreements and contracts; nevertheless, management believes the financial statements and other financial information in this report are fairly presented in all material respects - As of September 30, 2023, the company's disclosure controls and procedures were deemed ineffective[139](index=139&type=chunk) - Management assessed the company's internal control over financial reporting as ineffective as of September 30, 2023[142](index=142&type=chunk)[143](index=143&type=chunk) - Identified material weaknesses include inadequate information technology general controls and segregation of duties; insufficient design or adequacy of controls over significant accounting processes; inadequate assessment of the impact of potentially material transactions; and insufficient procedures for recording agreements and contracts[144](index=144&type=chunk) - Despite material weaknesses, management believes the financial statements and other financial information in this annual report are fairly presented in all material respects[140](index=140&type=chunk) [PART II. OTHER INFORMATION](index=36&type=section&id=PART%20II.%20OTHER%20INFORMATION) [Item 1. Legal Proceedings](index=36&type=section&id=Item%201.%20Legal%20Proceedings) Detailed information for this item is included in Note 12, 'Commitments and Contingencies,' to the financial statements - Legal proceedings information can be found in Note 12, Commitments and Contingencies, to the financial statements[150](index=150&type=chunk) [Item 1A. Risk Factors](index=36&type=section&id=Item%201A.%20Risk%20Factors) As a smaller reporting company, the company is not required to provide this item's information but has included additional risk factors due to an SEC complaint, which may divert management's attention, incur substantial litigation expenses, and adversely affect its business, reputation, financial condition, or stock price, and the company may also fail to maintain Nasdaq Capital Market listing requirements - The company is subject to an SEC complaint, which may divert management's attention, result in substantial litigation expenses, and adversely affect its business, reputation, financial condition, results of operations, or stock price[152](index=152&type=chunk)[153](index=153&type=chunk) - The company may be unable to maintain compliance with Nasdaq Capital Market's continued listing requirements, such as a minimum closing bid price of **$1.00** per share, which could negatively impact common stock market liquidity, financing capabilities, and operations[154](index=154&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=36&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company had no unregistered sales of equity securities during this reporting period - No unregistered sales of equity securities[155](index=155&type=chunk) [Item 3. Defaults Upon Senior Securities](index=36&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) The company had no defaults upon senior securities during this reporting period - No defaults upon senior securities[156](index=156&type=chunk) [Item 4. Mine Safety Disclosures](index=36&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) The company had no mine safety disclosures during this reporting period - No mine safety disclosures[157](index=157&type=chunk) [Item 5. Other Information](index=36&type=section&id=Item%205.%20Other%20Information) The company had no other information to disclose during this reporting period - No other information[158](index=158&type=chunk) [Item 6. Exhibits](index=37&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q report, including stock purchase agreements, pledge agreements, securities purchase agreements, and certifications from the Chief Executive Officer and Chief Financial Officer Exhibit Index | Exhibit No. | Exhibit Description | Filing Form | File No. | Exhibit No. | Filing Date | | :--- | :--- | :--- | :--- | :--- | :--- | | 10.96 | Stock Purchase Agreement by and between JanOne Inc. and VM7 Corporation dated March 19, 2023 | 8-K | 0-19621 | 10.95 | 3/20/2023 | | 10.97 | Stock and Membership Interest Pledge Agreement by VM7 Corporation and Virland Johnson for the benefit of JanOne Inc. dated March 19, 2023 | 8-K | 0-19621 | 10.96 | 3/20/2023 | | 10.98 | Form of Securities Purchase Agreement dated March 22, 2023 | 8-K | 0-19621 | 10.98 | 3/22/2023 | | 10.99 | Form of Securities Purchase Agreement dated August 18, 2023 | 8-K | 0-19621 | 10.99 | 8/23/2023 | | 31.1 | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | | | | | | 31.2 | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | | | | | | 32.1 | Certification of President and Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | | | | | | 32.2 | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | | | | | | 101.INS | Inline XBRL Instance Document | | | | | | 101.SCH | Inline XBRL Taxonomy Extension Schema Document | | | | | | 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | | | | | | 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | | | | | | 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | | | | | | 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | | | | | | 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | | | | | [SIGNATURES](index=38&type=section&id=SIGNATURES) [Official Signatures](index=38&type=section&id=Official%20Signatures) This report was officially signed by Tony Isaac, Chief Executive Officer, and Virland A. Johnson, Chief Financial Officer of JanOne Inc., on November 14, 2023 - Chief Executive Officer Tony Isaac and Chief Financial Officer Virland A. Johnson signed this report on November 14, 2023[162](index=162&type=chunk)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ☒ Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended December 31, 2022 or ☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission File No. 000-19621 JANONE INC. (Exact name of registrant as specified in its charter) (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: 702- ...

Revenue Performance - Total revenue for the fiscal year ended January 2, 2021, was $33,867,000, a decrease of 3.5% from $35,097,000 for the fiscal year ended December 28, 2019[286] - Revenue from Replacement Appliances increased by $1,953,000 or 14.3%, while Recycling and Byproducts revenue decreased by $3,183,000 or 14.8% due to COVID-19 related facility closures[288] - Total revenue for the fiscal year ended January 2, 2021, was $33,867, a decrease of 3.5% from $35,097 for the fiscal year ended December 28, 2019[1] Cost and Expenses - Cost of revenue decreased by $2,271,000 or 8.3% for the fiscal year ended January 2, 2021, primarily due to cost-cutting efforts and temporary facility closures[289] - Selling, general and administrative expenses decreased by $2,394,000 or 11.8% for the fiscal year ended January 2, 2021, attributed to a temporary reduction in employees and cost-cutting measures[290] - Interest expense net decreased by $976,000 or 65.9% for the fiscal year ended January 2, 2021, primarily due to a decrease in related party debt balance[291] Profitability - Gross profit for the fiscal year ended January 2, 2021, was $8,827,000, representing a gross profit margin of 26.1%, compared to $7,786,000 and 22.2% for the fiscal year ended December 28, 2019[286] - Gross profit increased to $8,827 for the fiscal year ended January 2, 2021, compared to $7,786 in the prior year, reflecting a gross profit margin improvement[1] - Operating loss decreased by $3,225 or 50.4% to $8,996 for the fiscal year ended January 2, 2021, compared to $12,431 in the previous year[1] - The company reported a net loss of $8,498 for the fiscal year ended January 2, 2021, compared to a net loss of $11,964 in the prior year, showing improved financial performance[20] Biotechnology Segment - The biotechnology segment is focused on developing non-addictive pain-relieving drugs, while the recycling segment operates 18 Regional Processing Centers in North America[282] - The company expects future revenues and profits in the biotechnology segment to be driven by the development of non-opioid painkillers[300] - The biotechnology segment incurred expenses of $1,738 for the fiscal year ended January 2, 2021, up from $1,038 in the prior year, due to increased operational costs[3] Cash Flow and Liquidity - Cash used in operations decreased to $617 for the fiscal year ended January 2, 2021, compared to $3,510 in the previous year, primarily due to a reduction in net loss[16] - Total cash on hand as of January 2, 2021, was $379, indicating liquidity challenges as the company prepares for late-stage clinical development of its pharmaceutical product, JAN101[8] - Cash provided by financing activities was $1,404 for the fiscal year ended January 2, 2021, primarily from short-term debt related to the Payroll Protection Program[18] Strategic Plans - The company recorded a net gain on litigation settlement of $418,000 as of January 2, 2021, which included an $800 gain from a settlement with a former service provider[294] - The company has no impairment charges for the fiscal year ended January 2, 2021, compared to an impairment charge of $2,992,000 in the previous fiscal year[292] - The company plans to pursue strategic transactions to expand and grow its business, indicating potential future acquisitions or investments[23]

Summary of JanOne Inc. Telebriefing and Corporate Update Call Company Overview - **Company**: JanOne Inc. (NASDAQ: JAN) - **Transition**: JanOne transitioned from a recycling business to a biopharma business, acquiring exclusive licenses for over 30 patents related to peripheral artery disease (PAD) and pain management using sodium nitrite, now known as JAN101 [5][6] Core Product and Development - **Lead Product**: JAN101, a sustained release formulation of sodium nitrite, aims to treat PAD and associated pain, targeting approximately 8.5 million Americans suffering from PAD [8][12] - **Clinical Trials**: Three human clinical trials have shown significant pain reduction and improvement in nerve conduction velocity in diabetic neuropathic pain patients [9][10] - **Opioid Alternative**: JAN101 is positioned as a non-addictive, non-sedating alternative to opioids for pain management, addressing the opioid crisis [10][11] COVID-19 Applications - **Potential Use**: JanOne is exploring the use of JAN101 for treating COVID-19 patients, as COVID-19 has been identified as a vascular disease affecting endothelial function [7][13] - **IND Application**: The company plans to submit an Investigational New Drug (IND) application for COVID-19 treatment in the coming weeks [7][16] Clinical Trial Plans - **Phase 2b Study for PAD**: Scheduled for early 2021, focusing on diabetic patients with PAD, evaluating two doses (40 mg and 80 mg) in a placebo-controlled study with 300 participants [20][23] - **Endpoints**: Primary endpoint is the ability to walk without pain; secondary endpoints include pain reduction, improved sensory nerve function, and quality of life [20] Safety and Efficacy - **Safety Profile**: Previous trials indicated that sodium nitrite is safe, with only mild side effects (headaches and dizziness) reported [27][30] - **Methemoglobinemia Risk**: No significant risk of methemoglobinemia was observed in trials, with levels remaining below 2% [30] Market Opportunity - **Market Size**: The PAD market is estimated to be between $16 billion and $24 billion, with a significant number of patients lacking effective treatment options [48] - **Reimbursement Potential**: The company anticipates reasonable reimbursement rates due to the lack of existing treatments and the high costs associated with surgical interventions [49] Competitive Landscape - **Current Competitors**: Limited competition in the oral formulation of sodium nitrite for PAD; existing products focus on other indications or are injectable [46][47] Conclusion - **Strategic Focus**: JanOne is advancing its biotechnology asset, targeting PAD and COVID-19 as key treatment areas, with a strong emphasis on the vascular implications of COVID-19 [21][22] - **Investor Recognition**: The company believes its intellectual property and clinical advancements will attract continued interest from investors and the medical community [23]

PART I [Item 1. Business](index=3&type=section&id=Item%201.%20Business) JanOne Inc. shifted to a pharmaceutical focus on non-addictive pain treatments for PAD, retaining recycling and IoT, facing competition and regulations [General Business Overview](index=3&type=section&id=General) JanOne Inc. shifted to a pharmaceutical focus in 2019, while retaining ARCA Recycling and GeoTraq IoT, and addressing ApplianceSmart's bankruptcy - JanOne Inc. (formerly Appliance Recycling Centers of America, Inc.) shifted its primary focus to a pharmaceutical company on September 10, 2019, aiming to treat severe pain conditions with **non-addictive drugs**[15](index=15&type=chunk) - The company retains its ARCA Recycling segment, offering appliance recycling and replacement services, and GeoTraq Inc., developing cellular IoT transceiver modules[15](index=15&type=chunk) - ApplianceSmart, a former subsidiary, filed for Chapter 11 bankruptcy on December 9, 2019, leading to a **$2.9 million valuation allowance** for indebtedness owed to JanOne[16](index=16&type=chunk) [Biotechnology Segment](index=3&type=section&id=Biotechnology) The biotechnology segment, established in 2019, focuses on developing TV1001SR for PAD, with Phase 2b clinical trials planned - JanOne Inc. changed its name from Appliance Recycling Centers of America, Inc. on September 10, 2019, to reflect its new strategic commitment to combating the opioid epidemic through innovative solutions, including revolutionary painkilling drugs[18](index=18&type=chunk) - In November 2019, JanOne secured a worldwide, exclusive license for TV1001SR, a treatment for Peripheral Artery Disease (PAD), which affects over **8.5 million people** in the U.S. and has a market value of **$3.47 billion by 2023**[20](index=20&type=chunk)[21](index=21&type=chunk) - The company plans to initiate Phase 2b clinical trials for TV1001SR by the second half of 2020, targeting PAD and PAD-associated pain, and intends to pursue the **FDA 505(b)(2) pathway** for new drug approval[20](index=20&type=chunk) - A manufacturing agreement for TV1001SR was executed with CoreRx Inc. in February 2020[22](index=22&type=chunk) [Recycling Segment](index=4&type=section&id=Recycling) The recycling segment provides environmentally sound appliance disposal services to utilities across North America, operating 13 EPA RAD-compliant centers - ARCA Recycling began in 1976, evolving from a used appliance retailer to providing environmentally sound appliance disposal services by the late 1980s due to stricter environmental regulations[24](index=24&type=chunk) - Since 1989, the company has contracted with approximately **400 utilities** across North America to offer turnkey appliance recycling services, currently holding contracts with about **180 utilities**[25](index=25&type=chunk)[26](index=26&type=chunk) - ARCA operates **13 recycling centers** in the U.S. and Canada, using **EPA RAD-compliant methods** to remove and manage hazardous components like CFC refrigerants and mercury[29](index=29&type=chunk)[34](index=34&type=chunk) [Technology Segment](index=6&type=section&id=Technology) GeoTraq Inc. develops patented cellular IoT modules for location-based services, acquired in 2017 to diversify the company's offerings - GeoTraq Inc. was acquired on August 18, 2017, to diversify the company's offerings, becoming a wholly-owned subsidiary[39](index=39&type=chunk) - GeoTraq is a Mobile Internet of Things (IoT) technology company designing wireless modules for Location Based Services (LBS) and external sensor connectivity, aiming to address underserved markets with lower costs, extended battery life, and smaller form factors[41](index=41&type=chunk)[44](index=44&type=chunk) - GeoTraq holds Patent No. **10,182,402**, covering various operational aspects of its Mobile IoT wireless modules, including interval timers, power control, SMS packetizers, geo-locators, and RF communicators[42](index=42&type=chunk) [Recent Developments](index=8&type=section&id=Recent%20Developments) Recent developments include significant operational disruptions and layoffs due to the COVID-19 outbreak, impacting recycling and rent payments - As of the Form 10-K filing date, JanOne temporarily closed its corporate office and call center, idled all recycling processing centers, and laid off **112 of 208 employees** since January 1, 2020, due to the COVID-19 outbreak[46](index=46&type=chunk) - The company plans to withhold April 2020 rent payments and will evaluate future rent based on the evolving COVID-19 situation and government assistance[46](index=46&type=chunk) - Recycling operations continue on a scaled-down basis with on-curb pickup where permitted, while all appliance replacement programs are temporarily suspended[46](index=46&type=chunk) [Customers and Source of Supply](index=8&type=section&id=Customers%20and%20Source%20of%20Supply) Supply chain relies on third-party API for biotech, utility contracts for recycling, and a single supplier for GeoTraq, which currently has no customers - The Biotechnology segment sources its active pharmaceutical ingredient (API) from a third-party pharmaceutical company[47](index=47&type=chunk) - The Recycling segment contracts with utility companies for appliance recycling and replacement services, with contracts typically lasting one to three years and prohibiting the resale of collected appliances or parts[48](index=48&type=chunk)[49](index=49&type=chunk) - GeoTraq currently has no customers and relies on a single supplier for its cellular transceiver modules, sourcing raw materials from various third parties[51](index=51&type=chunk) [Principal Products and Services](index=9&type=section&id=Principal%20Products%20and%20Services) Revenue is primarily from recycling and byproduct sales, with biotechnology and technology segments not yet generating customer revenue - As of December 28, 2019, JanOne generated revenue from recycling (fees for collecting/recycling appliances and selling ENERGY STAR® appliances) and byproduct sales (scrap materials like metal and plastics)[52](index=52&type=chunk) - The company operated three reportable segments in fiscal year 2019: biotechnology, recycling, and technology. In fiscal year 2018, it operated two: recycling and technology[53](index=53&type=chunk) - Neither the biotechnology nor technology segments had any customers or generated revenue as of December 28, 2019[55](index=55&type=chunk) [Seasonality](index=9&type=section&id=Seasonality) The recycling business experiences seasonal fluctuations, with higher customer demand and promotional activities in the second and third quarters - The recycling business experiences seasonal fluctuations, with higher customer demand and business surges during the second and third calendar quarters due to promotional activities, which then decline through the fourth and first quarters[54](index=54&type=chunk) [Competition](index=9&type=section&id=Competition) The company faces intense competition across all segments, from existing drug treatments in biotech to various recycling and IoT technology providers - In biotechnology, JanOne's TV1001SR for PAD-associated pain faces competition from existing treatments like pentoxifylline, ibuprofen, and opioids, though no drugs are specifically indicated for PAD-associated pain[56](index=56&type=chunk) - The recycling segment competes with other recycling businesses, energy services management companies, new-appliance retailers, and small hauling/recycling companies, many of which may not properly process hazardous materials[57](index=57&type=chunk)[58](index=58&type=chunk) - GeoTraq operates in a highly competitive Mobile IoT industry, facing numerous competing technologies and constantly changing market dynamics from carriers, manufacturers, and solution providers[59](index=59&type=chunk) [Government Regulation](index=10&type=section&id=Government%20Regulation) Operations are subject to extensive government regulations, including FDA for pharmaceuticals, environmental for recycling, and FCC for IoT technology - Pharmaceutical companies are subject to extensive regulation by agencies like the FDA, requiring data on safety, efficacy, and cGMP compliance for manufacturing, distribution, marketing, and sale[60](index=60&type=chunk) - The FDA approval process involves pre-clinical testing, IND application, three phases of human clinical trials, NDA submission, and post-marketing surveillance[63](index=63&type=chunk)[64](index=64&type=chunk)[70](index=70&type=chunk) - The recycling business is regulated by federal, state, and local governments concerning appliance collection, recycling, and hazardous waste management, including Clean Air Act amendments prohibiting refrigerant venting[84](index=84&type=chunk)[85](index=85&type=chunk) - GeoTraq's Mobile IoT modules are subject to FCC regulations (Parts 15, 20, 22, 24, 27) for RF energy emissions and may require international approvals[88](index=88&type=chunk) [Employees](index=16&type=section&id=Employees) As of December 28, 2019, JanOne Inc. had 208 employees, with the majority (199) being full-time - As of December 28, 2019, JanOne had **208 employees**, with **199 being full-time**[89](index=89&type=chunk) - JanOne Inc. broadened its business perspective to become a pharmaceutical company focused on **non-addictive pain treatments**, specifically for Peripheral Arterial Disease (PAD), as of September 10, 2019[15](index=15&type=chunk) - The company continues to operate its legacy businesses: ARCA Recycling, which provides turnkey appliance recycling and replacement services, and GeoTraq Inc., which develops cellular transceiver modules and associated wireless services[15](index=15&type=chunk) - JanOne acquired a worldwide, exclusive license for TV1001SR, a PAD treatment, in November 2019, and plans to commence Phase 2b clinical trials by the second half of 2020, pursuing the **FDA 505(b)(2) pathway**[20](index=20&type=chunk) - The Biotechnology and Technology segments have not generated any revenue to date, including in the fiscal year ended December 28, 2019[23](index=23&type=chunk)[45](index=45&type=chunk) [Item 1A. Risk Factors](index=16&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant risks across all segments, including COVID-19 impacts, biotech development uncertainties, commodity price volatility, and principal shareholder control [Risks Relating to Our Business Generally](index=16&type=section&id=Risks%20Relating%20to%20Our%20Business%20Generally) General business risks include adverse impacts from COVID-19, potential asset impairment, cost management challenges, and cybersecurity incidents - The COVID-19 outbreak has negatively impacted operations, causing customers to suspend appliance pickup/replacement services and decreasing revenues, with future impacts being **highly uncertain**[93](index=93&type=chunk) - The company's long-lived assets (approximately **$20 million as of December 28, 2019**) are subject to impairment testing, and failure to achieve sufficient cash flow could result in significant non-cash impairment charges[95](index=95&type=chunk) - Failure to effectively manage costs, particularly fixed cost elements, could materially adversely affect profitability, especially given industry competitiveness and price pressures[101](index=101&type=chunk) - Cybersecurity incidents, including data breaches or system disruptions, could lead to business disruption, negative publicity, loss of customers, and significant financial liabilities[98](index=98&type=chunk)[100](index=100&type=chunk) [Risks Relating to Our Biotechnology Segment](index=19&type=section&id=Risks%20Relating%20to%20Our%20Biotechnology%20Segment) Biotechnology risks stem from limited operating history, significant financing needs, uncertain FDA approval, and reliance on licensed patent rights - The biotechnology business has a **limited operating history** and has not generated revenue, making it difficult for investors to evaluate its technology or prospective operations[110](index=110&type=chunk) - The company will require **significant additional financing** to fund the development of its initial product candidate, SR TV1001, through Phase IIb/IIIa studies and marketing approval[113](index=113&type=chunk) - Commercialization success is entirely dependent on obtaining marketing approval from the FDA and foreign regulatory authorities, a process that is expensive, lengthy, and uncertain[130](index=130&type=chunk)[133](index=133&type=chunk) - The business model relies entirely on licensed patent rights for SR TV1001, and the loss of these rights would likely cause the business to fail[114](index=114&type=chunk) [Risks Relating to Our Recycling Business](index=33&type=section&id=Risks%20Relating%20to%20Our%20Recycling%20Business) Recycling business risks include commodity price volatility, reliance on third-party manufacturers, competition, and dependence on utility contracts - Recycling revenues, earnings, and cash flows are subject to significant fluctuations based on **commodity prices** (steel, aluminum, copper) and demand, particularly from China and Turkey[176](index=176&type=chunk) - The company's reliance on third-party manufacturers for replacement appliances, many of which are in China, exposes it to international trade conditions, tariffs, and supply chain disruptions[178](index=178&type=chunk)[179](index=179&type=chunk) - Sales and profitability can fluctuate significantly due to changes in competition, commodity prices, utility program changes, general economic conditions, and weather[182](index=182&type=chunk) - The business is highly dependent on obtaining and continuing recycling and appliance replacement contracts with utility companies, which typically have short terms and early termination clauses[190](index=190&type=chunk) [Risks Relating to Our Technology Business](index=37&type=section&id=Risks%20Relating%20to%20Our%20Technology%20Business) Technology segment risks involve significant operating losses, early development challenges, reliance on third-party manufacturers, and cellular service dependency - GeoTraq has incurred **significant operating losses** since inception and expects them to continue, with limited financial resources and dependence on external funding to avoid suspending or ceasing operations[199](index=199&type=chunk)[201](index=201&type=chunk) - The company relies on third-party developers and contract manufacturers for its technology and products, exposing it to risks of operational difficulties, quality control issues, and supply chain disruptions[202](index=202&type=chunk)[203](index=203&type=chunk) - GeoTraq's success depends on increasing customer adoption of its technology for asset tracking and theft recovery, which is tied to module sales and recurring subscription fees[206](index=206&type=chunk) - The technology is dependent on cellular service providers, and changes in terms of use or network access could impair GeoTraq's customer base and revenue[207](index=207&type=chunk)[208](index=208&type=chunk) [Risks Relating to Our Common Stock](index=41&type=section&id=Risks%20Relating%20to%20Our%20Common%20Stock) Common stock risks include control by principal shareholders, potential dilution from future sales, stock price volatility, and no planned dividends - Principal shareholders, Isaac Capital Group, LLC (**19.7%**) and Timothy Matula (**5.7%**), control a large percentage of voting stock, potentially influencing corporate decisions, including director elections[223](index=223&type=chunk)[224](index=224&type=chunk) - Future sales of common stock and conversion of Series A Convertible Preferred Stock could negatively affect the stock price and liquidity due to dilution and increased shares outstanding[225](index=225&type=chunk) - The company's stock price may be volatile due to variations in financial results, changes in accounting standards, substantial stock sales by existing shareholders, and general economic conditions[228](index=228&type=chunk) - The company does not intend to declare dividends on its common stock in the foreseeable future, retaining earnings for business operations and expansion[230](index=230&type=chunk) - The COVID-19 outbreak has already materially impacted operations, leading to suspended appliance pickup/replacement services and decreased revenues, with future impacts **highly uncertain**[93](index=93&type=chunk) - The biotechnology business has a limited operating history, no revenue, and requires **significant additional financing** to fund product development and obtain marketing approval[110](index=110&type=chunk)[113](index=113&type=chunk) - The recycling business is exposed to **commodity price fluctuations** (steel, aluminum, copper), which can negatively affect operating income and cash flows[176](index=176&type=chunk) - GeoTraq has incurred **significant operating losses** since inception, is in early development stages, and lacks sufficient funds to complete its proposed plan of operation without external financing[199](index=199&type=chunk)[200](index=200&type=chunk)[201](index=201&type=chunk) - Principal shareholders, Isaac Capital Group, LLC (**19.7%**) and Timothy Matula (**5.7%**), hold significant voting power, potentially influencing corporate decisions[223](index=223&type=chunk)[224](index=224&type=chunk) [Item 2. Properties](index=43&type=section&id=Item%202.%20Properties) JanOne Inc. leases its executive offices in Las Vegas, Nevada, and operates fifteen leased recycling centers across the U.S. and Canada - JanOne's executive offices are located in a leased **11,000 square foot facility** in Las Vegas, Nevada[236](index=236&type=chunk) - The company leases a total of **fifteen recycling center facilities** in the U.S. and Canada, with locations including Dartmouth, Santa Fe Springs, Minneapolis, Indianapolis, Franklin, Commerce City, Cudahy, Pittsburgh, Mechanicsburg, Philadelphia, Syracuse, Sacramento, and Norcross[237](index=237&type=chunk)[238](index=238&type=chunk)[239](index=239&type=chunk) [Item 3. Legal Proceedings](index=44&type=section&id=Item%203.%20Legal%20Proceedings) The company is involved in multiple legal proceedings, including a breach of contract lawsuit, an arbitration award, disputed fees, and a $5.4 million California sales tax assessment - The company is involved in a breach of contract lawsuit against Skybridge Americas, Inc. (SA) for alleged overcharging and lost client contracts, with a counterclaim from SA for unpaid invoices. A trial is scheduled for **May 2020**[240](index=240&type=chunk) - In an arbitration with Haier US Appliance Solutions, Inc. (GEA), the arbitrator ruled partially in favor of GEA, awarding them approximately **$125,000 in damages**[241](index=241&type=chunk) - AMTIM Capital, Inc. claims a discrepancy of approximately **$2.0 million** in fees due for recycling services in Canada, which the company disputes[242](index=242&type=chunk) - JanOne faces a formal assessment from the California Department of Tax and Fee Administration (CDTFA) for **$4.1 million in sales tax plus $0.5 million in interest** (totaling **$5.4 million as of December 28, 2019**) related to appliance replacement programs, which is under appeal[244](index=244&type=chunk) [Item 4. Mine Safety Disclosures](index=45&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) The company has no mine safety disclosures to report PART II [Item 5. Market for Our Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities](index=46&type=section&id=Item%205.%20Market%20for%20Our%20Common%20Equity%2C%20Related%20Shareholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) JanOne Inc.'s common stock trades on the NASDAQ Capital Market under the symbol 'JAN'. As of March 19, 2020, there were 37 stockholders of record. The company has not paid and does not plan to pay cash dividends on its common stock in the foreseeable future - JanOne Inc. common stock trades on the NASDAQ Capital Market under the symbol '**JAN**'[249](index=249&type=chunk) - As of March 19, 2020, there were **37 stockholders of record**[249](index=249&type=chunk) - The company has not paid and does not plan to pay cash dividends on its common stock for the foreseeable future, intending to retain earnings for business operations and expansion[230](index=230&type=chunk)[249](index=249&type=chunk) [Item 6. Selected Financial Data](index=46&type=section&id=Item%206.%20Selected%20Financial%20Data) This section is marked as 'Not applicable' in the report, indicating no selected financial data is provided [Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=47&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) MD&A covers JanOne's strategic shift, 2019 revenue decrease, increased net loss, impairment charges, and liquidity challenges, including COVID-19 impacts [Note about Forward-Looking Statements](index=47&type=section&id=Note%20about%20Forward-Looking%20Statements) This section contains forward-looking statements subject to risks and uncertainties, with no obligation for the company to update them - This section contains forward-looking statements characterized by terms like 'may,' 'believes,' 'projects,' 'intends,' 'plans,' 'expects,' or 'anticipates,' which do not reflect historical facts[254](index=254&type=chunk) - These statements involve risks, uncertainties, and other factors that may cause actual results to differ materially from those expressed or implied, as detailed in Item 1A 'Risk Factors'[255](index=255&type=chunk) - The company does not undertake any obligation to update forward-looking statements[256](index=256&type=chunk) [Our Company](index=47&type=section&id=Our%20Company) JanOne focuses on biotechnology solutions for the opioid epidemic, alongside its ARCA Recycling and GeoTraq Mobile IoT technology segments - JanOne is focused on developing new solutions for the opioid epidemic through its biotechnology segment, including digital technologies and educational advocacy[257](index=257&type=chunk) - The company's Recycling segment (ARCA Recycling, ARCA Canada Inc.) provides turnkey appliance recycling and replacement services for utilities in North America[257](index=257&type=chunk)[258](index=258&type=chunk) - The Technology segment (GeoTraq Inc.) is developing wireless transceiver modules for low-cost, location-based products and services using global Mobile IoT networks[257](index=257&type=chunk)[258](index=258&type=chunk) [Reporting Period](index=48&type=section&id=Reporting%20Period) The company operates on a 52- or 53-week fiscal year, with both 2019 and 2018 periods comprising 52 weeks - The company reports on a 52- or 53-week fiscal year. Fiscal year 2019 ended on December 28, 2019, and fiscal year 2018 ended on December 29, 2018, both being **52 weeks**[259](index=259&type=chunk) [Application of Critical Accounting Policies](index=48&type=section&id=Application%20of%20Critical%20Accounting%20Policies) Financial statements adhere to U.S. GAAP, relying on management estimates and critical policies for intangible impairment, revenue, and going concern - The consolidated financial statements are prepared in conformity with U.S. GAAP, requiring management to make estimates and assumptions that affect reported amounts[260](index=260&type=chunk) - Critical accounting policies include intangible impairment under ASC 350, revenue recognition under ASC 606, and going concern under ASC 205[261](index=261&type=chunk) [Results of Operations](index=48&type=section&id=Results%20of%20Operations) Analysis of 2019 vs. 2018 operations shows a revenue decrease, significant increase in net loss, and changes in gross profit by segment Statement of Operations Data (2019 vs. 2018) | Statement of Operations Data: | December 28, 2019 (in thousands) | % of Revenue | December 29, 2018 (in thousands) | % of Revenue | | :---------------------------------- | :------------------------------- | :----------- | :------------------------------- | :----------- | | Revenues | $35,097 | 100.0% | $36,794 | 100.0% | | Cost of revenues | $27,311 | 77.8% | $25,741 | 70.0% | | Gross profit | $7,786 | 22.2% | $11,053 | 30.0% | | Selling, general and administrative expenses | $20,217 | 57.6% | $17,150 | 46.6% | | Operating loss | $(12,431) | (35.4)% | $(6,097) | (16.6)% | | Interest expense, net | $(1,480) | (4.2)% | $(668) | (1.8)% | | Impairment charges | $(2,992) | (8.5)% | $0 | 0.0% | | Gain on litigation settlement | $694 | 8.9% | $0 | 0.0% | | Other income | $1,048 | 3.0% | $430 | 1.2% | | Net income (loss) before income taxes | $(15,161) | (43.2)% | $(6,335) | (17.2)% | | Benefit from income taxes | $3,197 | 9.1% | $727 | 2.0% | | Net loss | $(11,964) | (34.1)% | $(5,608) | (15.2)% | Revenue and Gross Profit by Segment (2019 vs. 2018) | Category | 2019 Net Revenue (in thousands) | 2019 % of Total | 2018 Net Revenue (in thousands) | 2018 % of Total | | :---------------------- | :------------------------------ | :-------------- | :------------------------------ | :-------------- | | Recycling and Byproducts | $21,445 | 61.1% | $24,742 | 67.2% | | Replacement Appliances | $13,652 | 38.9% | $12,052 | 32.8% | | **Total Revenue** | **$35,097** | **100.0%** | **$36,794** | **100.0%** | | | | | | | | Category | 2019 Gross Profit (in thousands) | 2019 Gross Profit % | 2018 Gross Profit (in thousands) | 2018 Gross Profit % | | :---------------------- | :------------------------------- | :------------------ | :------------------------------- | :------------------ | | Recycling and Byproducts | $3,890 | 18.1% | $7,675 | 31.0% | | Replacement Appliances | $3,896 | 28.5% | $3,378 | 28.0% | | **Total Gross Profit** | **$7,786** | **22.2%** | **$11,053** | **30.0%** | - Net loss increased by **$6,356 thousand (113.3%)** from $5,608 thousand in 2018 to $11,964 thousand in 2019[280](index=280&type=chunk) [Segment Performance](index=51&type=section&id=Segment%20Performance) Segment performance reveals increased operating losses in recycling and technology, with biotechnology incurring initial expenses in 2019 Operating Loss by Segment (2019 vs. 2018) | Segment | 2019 Operating Loss (in thousands) | 2018 Operating Loss (in thousands) | | :---------------- | :------------------------------- | :------------------------------- | | Recycling | $(6,397) | $(1,051) | | Biotechnology | $(1,038) | $0 | | Technology | $(4,996) | $(5,046) | | **Total Operating Loss** | **$(12,431)** | **$(6,097)** | - Recycling segment revenue decreased by **$1,697 thousand (4.6%)** in 2019, driven by a **$3,297 thousand decrease** in Recycling and Byproducts revenue (due to lower refrigerant sales and scrap metal prices), partially offset by a **$1,600 thousand increase** in Replacement Appliance revenue[284](index=284&type=chunk) - The Recycling segment's operating loss increased by **$5,118 thousand** in 2019, primarily due to decreased gross profit and increased selling, general, and administrative expenses[285](index=285&type=chunk) - The Biotechnology segment, started in September 2019, incurred **$1,038 thousand in expenses** related to employee costs and operating licenses[288](index=288&type=chunk) [Liquidity and Capital Resources](index=52&type=section&id=Liquidity%20and%20Capital%20Resources) The company faces negative working capital but expects sufficient liquidity for 12 months through cash and factoring, despite COVID-19 impacts - As of December 28, 2019, the company had **$481 thousand in cash and cash equivalents** and **negative working capital of $8,734 thousand**[290](index=290&type=chunk)[298](index=298&type=chunk) - Cash used in operations was **$3,510 thousand in 2019**, a decrease from **$4,145 thousand provided by operations in 2018**, primarily due to increased net loss[293](index=293&type=chunk) - The company utilizes a factoring agreement with Prestige Capital Corporation, allowing it to factor accounts receivable up to **$11,000 thousand**, which terminates in **October 2020**[297](index=297&type=chunk) - Management believes available cash, factoring, and potential refinancing will provide sufficient liquidity for the next 12 months, despite the adverse impact of the COVID-19 outbreak on operations[289](index=289&type=chunk)[292](index=292&type=chunk)[300](index=300&type=chunk) - JanOne Inc. is engaged in developing solutions for the opioid epidemic through its biotechnology segment, while also operating ARCA Recycling and GeoTraq Inc. for appliance recycling and Mobile IoT technology, respectively[257](index=257&type=chunk)[258](index=258&type=chunk) Key Financial Performance (2019 vs. 2018) | Metric | 2019 (in thousands) | 2018 (in thousands) | Change (%) | | :---------------------------------- | :------------------ | :------------------ | :--------- | | Revenues | $35,097 | $36,794 | -4.6% | | Cost of revenues | $27,311 | $25,741 | +6.1% | | Gross profit | $7,786 | $11,053 | -29.6% | | Selling, general and administrative expenses | $20,217 | $17,150 | +17.9% | | Operating loss | $(12,431) | $(6,097) | +103.9% | | Interest expense, net | $(1,480) | $(668) | +121.6% | | Impairment charges | $(2,992) | $0 | N/A | | Gain on litigation settlement | $694 | $0 | N/A | | Other income | $1,048 | $430 | +143.7% | | Net loss before income taxes | $(15,161) | $(6,335) | +139.3% | | Benefit from income taxes | $3,197 | $727 | +340.0% | | Net loss | $(11,964) | $(5,608) | +113.3% | - The company recorded an impairment charge of **$2,992 thousand** in 2019 due to the ApplianceSmart bankruptcy, with no similar charge in 2018[271](index=271&type=chunk) - As of December 28, 2019, the company had **negative working capital of $8,734 thousand**, but management believes available cash and factoring arrangements will provide sufficient liquidity for the next 12 months[298](index=298&type=chunk)[299](index=299&type=chunk) [Item 7A. Quantitative and Qualitative Disclosures About Market Risk](index=53&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) JanOne Inc. assesses its market risks, noting no significant interest rate risk on its fixed-rate debt. While generating revenues in Canada, the impact of foreign currency exchange rate changes (U.S. dollar vs. Canadian dollar) was immaterial in 2019, and the company does not currently hedge these fluctuations. The company holds no derivative financial instruments or securities for trading/speculative purposes - The company believes there is no significant interest rate risk related to its short and long-term fixed rate debt[303](index=303&type=chunk) - Foreign currency exchange rate changes, specifically the U.S. dollar against the Canadian dollar, had an **immaterial impact** on revenues and net income for fiscal year 2019[304](index=304&type=chunk) - JanOne does not currently hedge foreign currency fluctuations and does not intend to do so in the foreseeable future[304](index=304&type=chunk) - The company does not hold any derivative financial instruments or securities for trading or speculative purposes[305](index=305&type=chunk) [Item 8. Financial Statements and Supplementary Data](index=54&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) Audited consolidated financial statements for 2019 and 2018 show increased net loss, negative working capital, and the impact of ASC 842 lease adoption [Report of Independent Registered Public Accounting Firm (WSRP, LLC)](index=55&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm%20%28WSRP%2C%20LLC%29) WSRP, LLC issued an unqualified opinion on 2019 financial statements, noting the adoption of ASC 842, Leases, as a change in accounting principle - WSRP, LLC audited JanOne Inc.'s consolidated financial statements for the year ended December 28, 2019, and issued an unqualified opinion, stating they present fairly, in all material respects, the financial position and results of operations[309](index=309&type=chunk) - The audit noted a change in accounting principle in 2019 due to the adoption of **Accounting Standards Update No. 2016-02, Leases (Topic 842)**[310](index=310&type=chunk) [Report of Independent Registered Public Accounting Firm (SingerLewak LLP)](index=56&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm%20%28SingerLewak%20LLP%29) SingerLewak LLP issued an unqualified opinion on 2018 financial statements, which were restated to correct lease obligation disclosures - SingerLewak LLP audited JanOne Inc.'s consolidated financial statements for the year ended December 29, 2018, and issued an unqualified opinion[315](index=315&type=chunk) - The financial statements for 2018 were restated to correct an error regarding the non-disclosure of potential obligations arising from lease contracts, as detailed in **Note 1 and Note 15**[316](index=316&type=chunk) [Consolidated Balance Sheets](index=57&type=section&id=Consolidated%20Balance%20Sheets) Consolidated balance sheets show a decrease in total assets and a significant increase in total current liabilities from 2018 to 2019 Consolidated Balance Sheet Highlights (in thousands) | Asset/Liability Category | December 28, 2019 | December 29, 2018 | | :--------------------------------------- | :---------------- | :---------------- | | Cash and cash equivalents | $481 | $1,195 | | Total current assets | $8,839 | $8,937 | | Total assets | $29,034 | $35,040 | | Total current liabilities | $17,573 | $9,684 | | Total liabilities | $18,693 | $13,429 | | Total stockholders' equity | $10,341 | $21,611 | - The company's total assets decreased from **$35,040 thousand in 2018 to $29,034 thousand in 2019**[322](index=322&type=chunk) - Total current liabilities significantly increased from **$9,684 thousand in 2018 to $17,573 thousand in 2019**, contributing to a negative working capital[322](index=322&type=chunk) [Consolidated Statements of Operations and Comprehensive Loss](index=58&type=section&id=Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Loss) Statements of operations show a **4.6% revenue decrease** and a more than doubling of net loss from 2018 to 2019 Consolidated Statements of Operations and Comprehensive Loss (in thousands) | Metric | December 28, 2019 | December 29, 2018 | | :---------------------------------- | :---------------- | :---------------- | | Revenues | $35,097 | $36,794 | | Gross profit | $7,786 | $11,053 | | Operating loss | $(12,431) | $(6,097) | | Net loss | $(11,964) | $(5,608) | | Basic loss per share | $(6.78) | $(3.75) | | Diluted loss per share | $(6.78) | $(3.75) | | Comprehensive loss | $(11,964) | $(5,648) | - Revenues decreased by **$1,697 thousand (4.6%)** from $36,794 thousand in 2018 to $35,097 thousand in 2019[324](index=324&type=chunk) - Net loss more than doubled, increasing from **$5,608 thousand in 2018 to $11,964 thousand in 2019**[324](index=324&type=chunk) [Consolidated Statements of Changes in Stockholders' Equity](index=59&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Stockholders%27%20Equity) Stockholders' equity significantly decreased in 2019 due to net loss, increasing the accumulated deficit, with share-based compensation adding to capital Changes in Stockholders' Equity (in thousands) | Item | December 29, 2018 Balance | Adoption of ASU 842 | Share-based compensation | Shares cancelled | Net loss | December 28, 2019 Balance | | :-------------------------- | :------------------------ | :------------------ | :----------------------- | :--------------- | :------- | :------------------------ | | Common Stock Amount | $2 | $0 | $0 | $0 | $0 | $2 | | Additional Paid in Capital | $38,660 | $0 | $631 | $0 | $0 | $39,291 | | Accumulated Deficit | $(16,518) | $63 | $0 | $0 | $(11,964) | $(28,419) | | Total Stockholders' Equity | $21,611 | $63 | $631 | $0 | $(11,964) | $10,341 | - Total stockholders' equity decreased significantly from **$21,611 thousand in 2018 to $10,341 thousand in 2019**[326](index=326&type=chunk) - The accumulated deficit increased from **$(16,518) thousand in 2018 to $(28,419) thousand in 2019**, primarily due to the net loss[326](index=326&type=chunk) - Share-based compensation added **$631 thousand** to additional paid-in capital in 2019[326](index=326&type=chunk) [Consolidated Statements of Cash Flows](index=60&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Cash flow statements indicate a shift to cash used in operations in 2019, with financing activities providing cash, leading to an overall cash decrease Consolidated Statements of Cash Flows (in thousands) | Activity | December 28, 2019 | December 29, 2018 | | :--------------------------------------- | :---------------- | :---------------- | | Net cash provided by (used in) operating activities | $(3,510) | $4,145 | | Net cash provided by (used in) investing activities | $345 | $(172) | | Net cash provided by (used in) financing activities | $2,462 | $(6,109) | | Decrease in cash and cash equivalents | $(714) | $(2,118) | | Cash and cash equivalents, end of period | $481 | $1,195 | - Cash used in operating activities was **$3,510 thousand in 2019**, a significant shift from **$4,145 thousand provided in 2018**[329](index=329&type=chunk) - Cash provided by financing activities was **$2,462 thousand in 2019**, primarily from a related party note, contrasting with **$6,109 thousand used in 2018**[329](index=329&type=chunk) - Cash and cash equivalents decreased by **$714 thousand in 2019**, ending the period at **$481 thousand**[329](index=329&type=chunk) [Notes to Consolidated Financial Statements](index=61&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) These notes provide detailed disclosures on accounting policies, financial instrument balances, and significant events impacting the consolidated financial statements [Note 1: Background and Basis of Presentation](index=61&type=section&id=Note%201%3A%20Background%20and%20Basis%20of%20Presentation) This note covers JanOne's reincorporation, ongoing net losses, negative working capital, going concern assessment, and the restatement of 2018 financials - JanOne Inc. reincorporated from Minnesota to Nevada on March 12, 2018, which did not affect material contracts, headquarters, business, or management[337](index=337&type=chunk)[338](index=338&type=chunk) - The company reported net losses of **$11,964 thousand in 2019** and **$5,608 thousand in 2018**, with a **negative working capital of $8,734 thousand** as of December 28, 2019[340](index=340&type=chunk) - Management concluded that the company can continue as a going concern for the next twelve months, relying on available cash and an accounts receivable factoring program[342](index=342&type=chunk)[343](index=343&type=chunk) - The 2018 financial statements were restated to disclose potential obligations from lease guarantees related to the ApplianceSmart sale, which were previously deemed **immaterial**[344](index=344&type=chunk)[346](index=346&type=chunk) [Note 2: Summary of Significant Accounting Policies](index=62&type=section&id=Note%202%3A%20Summary%20of%20Significant%20Accounting%20Policies) This note outlines significant accounting policies, including consolidation, ASC 842 lease adoption, intangible asset amortization, and ASC 606 revenue recognition - The consolidated financial statements include JanOne Inc. and its wholly-owned subsidiaries, with all significant intercompany accounts and transactions eliminated[349](index=349&type=chunk) - The company adopted ASC 842, Leases, at the beginning of fiscal year 2019, recognizing a Right of Use asset and corresponding liability for operating leases, which had **minimal impact on net earnings or cash flows**[383](index=383&type=chunk)[389](index=389&type=chunk) - Intangible assets, including customer relationships, trade names, licenses, software, and patents, are capitalized at cost and amortized over their estimated useful lives (3-20 years)[365](index=365&type=chunk) - Revenue is recognized in accordance with ASC 606, identifying performance obligations and allocating transaction prices based on standalone selling prices, with revenue recognized upon transfer of control[367](index=367&type=chunk)[368](index=368&type=chunk) [Note 3: Trade and other receivables](index=70&type=section&id=Note%203%3A%20Trade%20and%20other%20receivables) Trade and other receivables, net, increased in 2019, primarily driven by a significant rise in factored accounts receivable Trade and Other Receivables (in thousands) | Category | December 28, 2019 | December 29, 2018 | | :-------------------------- | :---------------- | :---------------- | | Trade receivables, net | $7,226 | $5,064 | | Factored accounts receivable | $(2,165) | $(582) | | Prestige Capital reserve receivable | $415 | $106 | | Due from Recleim | $913 | $819 | | Other receivables | $189 | $397 | | **Total trade and other receivables, net** | **$6,578** | **$5,804** | - Total trade and other receivables, net, increased from **$5,804 thousand in 2018 to $6,578 thousand in 2019**[398](index=398&type=chunk) - Factored accounts receivable significantly increased from **$(582) thousand in 2018 to $(2,165) thousand in 2019**[398](index=398&type=chunk) [Note 4: Note receivable](index=70&type=section&id=Note%204%3A%20Note%20receivable) This note details the ApplianceSmart Note, its amendment, and the **$2.992 million impairment charge** due to ApplianceSmart's Chapter 11 bankruptcy - On December 30, 2017, the company sold its retail appliance segment, ApplianceSmart, for **$6,500 thousand**, with a promissory note (ApplianceSmart Note) of **$3,919 thousand** issued on April 1, 2018, maturing **April 1, 2021**[399](index=399&type=chunk)[400](index=400&type=chunk) - The ApplianceSmart Note was amended on December 26, 2018, to grant JanOne a security interest in ApplianceSmart's assets[402](index=402&type=chunk) - ApplianceSmart filed for Chapter 11 bankruptcy on December 9, 2019, leading to JanOne recording a **$2,992 thousand impairment charge** for the outstanding indebtedness[404](index=404&type=chunk) [Note 5: Inventory](index=71&type=section&id=Note%205%3A%20Inventory) Total inventory increased in 2019, primarily due to appliances held for resale and raw material chips, valued at the lower of cost or net realizable value Inventory Composition (in thousands) | Category | December 28, 2019 | December 29, 2018 | | :---------------------- | :---------------- | :---------------- | | Appliances held for resale | $1,148 | $801 | | Raw material - chips | $200 | $0 | | **Total inventory** | **$1,348** | **$801** | - Total inventory increased from **$801 thousand in 2018 to $1,348 thousand in 2019**, primarily due to an increase in appliances held for resale and the addition of raw material chips[405](index=405&type=chunk) - Inventories are stated at the lower of cost or net realizable value, with estimated provisions for obsolescence based on age and management assessment[405](index=405&type=chunk) [Note 6: Prepaids and other current assets](index=71&type=section&id=Note%206%3A%20Prepaids%20and%20other%20current%20assets) Prepaids and other current assets decreased in 2019, mainly due to the full amortization of debt issuance costs related to a terminated agreement Prepaids and Other Current Assets (in thousands) | Category | December 28, 2019 | December 29, 2018 | | :---------------------- | :---------------- | :---------------- | | Prepaid insurance | $282 | $271 | | Prepaid consulting fees | $0 | $265 | | Prepaid other | $74 | $81 | | Debt issuance costs, net | $0 | $419 | | **Total** | **$356** | **$1,036** | - Total prepaids and other current assets decreased from **$1,036 thousand in 2018 to $356 thousand in 2019**, mainly due to the full amortization of debt issuance costs[406](index=406&type=chunk) - Debt issuance costs of **$419 thousand** related to an agreement with Energy Efficiency Investments, LLC (EEI) were fully amortized during fiscal year 2019 following the termination of the agreement[407](index=407&type=chunk) [Note 7: Property and equipment](index=72&type=section&id=Note%207%3A%20Property%20and%20equipment) Net property and equipment increased in 2019, with depreciation expense decreasing compared to the prior year Property and Equipment, Net (in thousands) | Category | December 28, 2019 | December 29, 2018 | | :-------------------------- | :---------------- | :---------------- | | Buildings and improvements | $69 | $67 | | Equipment | $2,314 | $2,166 | | Projects under construction | $120 | $58 | | Less accumulated depreciation | $(2,179) | $(2,080) | | **Property and equipment, net** | **$324** | **$211** | - Net property and equipment increased from **$211 thousand in 2018 to $324 thousand in 2019**[408](index=408&type=chunk) - Depreciation expense was **$99 thousand in 2019**, down from **$268 thousand in 2018**[408](index=408&type=chunk) [Note 8: Intangible assets](index=72&type=section&id=Note%208%3A%20Intangible%20assets) Net intangible assets decreased in 2019 due to amortization, with GeoTraq acquisition assets valued at **$26.097 million** Intangible Assets (in thousands) | Category | December 28, 2019 | December 29, 2018 | | :-------------------------- | :---------------- | :---------------- | | Intangible assets GeoTraq | $26,096 | $26,096 | | Patents and domains | $23 | $19 | | Computer software | $4,167 | $3,883 | | Less accumulated amortization | $(12,581) | $(8,604) | | **Total intangible assets, net** | **$17,705** | **$21,394** | - Net intangible assets decreased from **$21,394 thousand in 2018 to $17,705 thousand in 2019**[409](index=409&type=chunk) - Intangible amortization expense was **$3,977 thousand in 2019**, compared to **$3,730 thousand in 2018**[409](index=409&type=chunk) - The GeoTraq acquisition included a U.S. patent and intellectual property valued at **$26,097 thousand**, with a **seven-year useful life**, and an associated deferred income tax liability of **$10,134 thousand**[410](index=410&type=chunk) [Note 9: Deposits and other assets](index=73&type=section&id=Note%209%3A%20Deposits%20and%20other%20assets) Total deposits and other assets decreased in 2019, primarily reflecting a reduction in refundable security deposits with landlords Deposits and Other Assets (in thousands) | Category | December 28, 2019 | December 29, 2018 | | :---------------- | :---------------- | :---------------- | | Deposits | $195 | $561 | | Other | $77 | $100 | | **Total** | **$272** | **$661** | - Total deposits and other assets decreased from **$661 thousand in 2018 to $272 thousand in 2019**, primarily due to a reduction in deposits[412](index=412&type=chunk) - Deposits primarily consist of refundable security deposits with landlords[412](index=412&type=chunk) [Note 10: Leases](index=73&type=section&id=Note%2010%3A%20Leases) The company adopted ASC 842, recognizing **$1.6 million** in Right of Use assets and liabilities for operating leases with a **24-month weighted average term** - The company adopted ASC 842, Leases, recognizing **$1,600 thousand in Right of Use Assets** and corresponding liabilities for operating leases with terms greater than 12 months[413](index=413&type=chunk)[414](index=414&type=chunk) Present Value of Lease Payments (in thousands) | Year | Amount | | :--- | :----- | | 2020 | $1,161 | | 2021 | $705 | | 2022 | $162 | | 2023 | $50 | | **Total** | **$2,078** | | Less interest | $(149) | | **Present value of payments** | **$1,929** | - The weighted average lease term for operating leases is **24 months**, with a weighted average discount rate of **8%**[390](index=390&type=chunk) [Note 11: Accrued liabilities](index=74&type=section&id=Note%2011%3A%20Accrued%20liabilities) Total accrued liabilities significantly increased in 2019, driven by higher contract liabilities, incentive checks, and accrued guarantees Accrued Liabilities (in thousands) | Category | December 28, 2019 | December 29, 2018 | | :-------------------------- | :---------------- | :---------------- | | Compensation and benefits | $809 | $567 | | Contract liability | $515 | $0 | | Accrued incentive and rebate checks | $988 | $316 | | Accrued rent | $228 | $16 | | Accrued guarantees | $767 | $0 | | Other | $631 | $219 | | **Total** | **$3,938** | **$1,118** | - Total accrued liabilities significantly increased from **$1,118 thousand in 2018 to $3,938 thousand in 2019**, driven by increases in contract liability, accrued incentive/rebate checks, and accrued guarantees[418](index=418&type=chunk) [Note 12: Accrued liability – California sales tax](index=74&type=section&id=Note%2012%3A%20Accrued%20liability%20%E2%80%93%20California%20sales%20tax) The accrued California sales tax liability increased to **$5.438 million** in 2019, stemming from a CDTFA assessment currently under appeal - The accrued liability for California sales tax increased from **$4,722 thousand in 2018 to $5,438 thousand in 2019**[422](index=422&type=chunk) - This liability stems from a CDTFA assessment for sales tax (2011-2013) on appliance replacement programs, totaling **$4,132 thousand plus approximately $500 thousand in interest** (totaling **$5.4 million as of December 28, 2019**) related to appliance replacement programs, which is under appeal[244](index=244&type=chunk)[421](index=421&type=chunk) [Note 13: Income taxes](index=74&type=section&id=Note%2013%3A%20Income%20taxes) The income tax benefit significantly increased in 2019 due to higher net loss, with federal net operating loss carryforwards available indefinitely Income Tax Benefit (in thousands) | Category | December 28, 2019 | December 29, 2018 | | :-------------------------- | :---------------- | :---------------- | | Current tax expense | $(80) | $(519) | | Deferred tax benefit - domestic | $3,277 | $1,246 | | **Benefit of income taxes** | **$3,197** | **$727** | - The company recorded an income tax benefit of **$3,197 thousand in 2019**, a significant increase from **$727 thousand in 2018**, primarily due to the increased net loss before taxes[279](index=279&type=chunk)[423](index=423&type=chunk) - As of December 28, 2019, the company had federal net operating loss carryforwards of approximately **$6,600 thousand**, eligible for **indefinite carryforward** with certain limitations[424](index=424&type=chunk) - Net deferred tax assets (liabilities) shifted from **$(3,549) thousand in 2018 to $(270) thousand in 2019**, with a valuation allowance of **$(786) thousand in 2019**[424](index=424&type=chunk) [Note 14: Short term debt](index=76&type=section&id=Note%2014%3A%20Short%20term%20debt) Total short-term debt decreased in 2019, following the termination of the MidCap Revolver and an escrow arrangement for the GE loan Short Term Debt (in thousands) | Category | December 28, 2019 | December 29, 2018 | | :---------------- | :---------------- | :---------------- | | AFCO Finance | $155 | $193 | | GE 8% loan agreement | $125 | $482 | | **Total short term debt** | **$280** | **$675** | - Total short term debt decreased from **$675 thousand in 2018 to $280 thousand in 2019**[427](index=427&type=chunk) - The MidCap Revolver, a **$12,000 thousand revolving line of credit**, was terminated and paid in full on **March 22, 2018**[428](index=428&type=chunk)[429](index=429&type=chunk) - The GE 8% loan agreement balance of **$125 thousand** is subject to an escrow arrangement with Recleim LLC, pending the outcome of arbitration[433](index=433&type=chunk)[434](index=434&type=chunk) [Note 15: Commitments and Contingencies](index=77&type=section&id=Note%2015%3A%20Commitments%20and%20Contingencies) This note details ongoing legal commitments and contingencies, including lawsuits, arbitration awards, disputed fees, and lease guarantees - The company is involved in a breach of contract lawsuit with Skybridge Americas, Inc., with a trial expected after further proceedings[435](index=435&type=chunk) - In an arbitration with GE Appliances, GEA was awarded approximately **$125 thousand in damages**[436](index=436&type=chunk) - AMTIM Capital, Inc. claims approximately **$2,000 thousand** in disputed fees for Canadian recycling services[437](index=437&type=chunk) - As of December 28, 2019, the company had an accrued liability of **$767 thousand** for future real property lease payments under ApplianceSmart Leases, which were guaranteed by JanOne[440](index=440&type=chunk)[441](index=441&type=chunk) [Note 16: Series A Preferred Stock](index=79&type=section&id=Note%2016%3A%20Series%20A%20Preferred%20Stock) Details on Series A Convertible Preferred Stock issued during the GeoTraq acquisition, including its conversion ratio and shareholder approval - The company issued **288,588 shares of Series A Convertible Preferred Stock** (later Series A-1 Preferred Stock) as part of the GeoTraq acquisition on **August 18, 2017**[448](index=448&type=chunk)[450](index=450&type=chunk) - Series A-1 Preferred Stock holders have a conversion ratio of **1:20** (1 preferred share to 20 common shares), subject to Nasdaq shareholder approval requirements[454](index=454&type=chunk) - Shareholders approved the conversion rights of Series A-1 Preferred Stock into common stock on **October 23, 2018**[454](index=454&type=chunk) [Note 17: Shareholders' Equity](index=80&type=section&id=Note%2017%3A%20Shareholders%27%20Equity) Shareholders' equity details include common shares outstanding, stock options, share-based compensation expense, and outstanding warrants - As of December 28, 2019, there were **1,919,048 shares of common stock issued and outstanding**, with **224,483 shares issued as compensation in 2019**[455](index=455&type=chunk) - Total outstanding stock options were **44,400** as of December 28, 2019, with a weighted average exercise price of **$13.31** and a remaining contractual life of **3.00 years**[460](index=460&type=chunk) - Share-based compensation expense was **$631 thousand in 2019** and **$656 thousand in 2018**[460](index=460&type=chunk) - As of December 28, 2019, there were **33,363 warrants outstanding** to purchase common stock at **$3.40 per share**, expiring in **May 2020**[461](index=461&type=chunk) [Note 18: Loss per share](index=81&type=section&id=Note%2018%3A%20Loss%20per%20share) Basic and diluted loss per share increased in 2019, with potentially dilutive securities excluded due to their anti-dilutive effect Loss Per Share (2019 vs. 2018) | Metric | December 28, 2019 | December 29, 2018 | | :--------------------------------------- | :---------------- | :---------------- | | Net loss | $(11,964) | $(5,608) | | Basic loss per share | $(6.78) | $(3.75) | | Diluted loss per share | $(6.78) | $(3.75) | | Weighted average common shares outstanding, basic and diluted | 1,763,670 | 1,494,941 | - Basic and diluted loss per share increased from **$(3.75) in 2018 to $(6.78) in 2019**[463](index=463&type=chunk) - Potentially dilutive securities (**337,492 in 2019** and **422,851 in 2018**) were excluded from diluted EPS calculation as their effect was anti-dilutive[463](index=463&type=chunk) [Note 19: Major customers and suppliers](index=81&type=section&id=Note%2019%3A%20Major%20customers%20and%20suppliers) The company has customer concentration risks, with one customer accounting for **13% of revenues**, and relies on a few key suppliers - In 2019, one customer accounted for **13% of total revenues**, down from **19% in 2018**[464](index=464&type=chunk) - As of December 28, 2019, three customers collectively represented **49% of total trade receivables**, compared to **38% from three customers in 2018**[464](index=464&type=chunk) - The company purchased appliances for resale from three suppliers in both 2018 and 2019, and the loss of any major supplier could adversely affect operations[465](index=465&type=chunk) [Note 20: Defined contribution plan](index=82&type=section&id=Note%2020%3A%20Defined%20contribution%20plan) The company operates a 401(k) defined contribution plan, with contributions and associated expenses increasing in 2019 - The company has a 401(k) defined contribution plan, contributing **10 cents for each dollar** contributed by employees up to **5% of compensation**[466](index=466&type=chunk) - Expense for contributions to the plan was **$61 thousand in 2019**, up from **$40 thousand in 2018**[466](index=466&type=chunk) [Note 21: Segment information](index=82&type=section&id=Note%2021%3A%20Segment%20information) Segment information details performance across Biotechnology, Recycling, and Technology, highlighting increased operating losses in recycling and consistent losses in technology - JanOne operates three reportable segments: Biotechnology (started Sept 2019), Recycling, and Technology, managed separately based on business type, customers, and management responsibility[467](index=467&type=chunk) Segment Performance (2019 vs. 2018, in thousands) | Metric | Recycling 2019 | Biotechnology 2019 | Technology 2019 | Total 2019 | Recycling 2018 | Biotechnology 2018 | Technology 2018 | Total 2018 | | :--------------------------------------- | :------------- | :----------------- | :-------------- | :--------- | :------------- | :----------------- | :-------------- | :--------- | | Revenues | $35,097 | $0 | $0 | $35,097 | $36,794 | $0 | $0 | $36,794 | | Gross profit | $7,786 | $0 | $0 | $7,786 | $11,053 | $0 | $0 | $11,053 | | Operating loss | $(6,397) | $(1,038) | $(4,996) | $(12,431) | $(1,051) | $0 | $(5,046) | $(6,097) | | Total Assets | $11,505 | $0 | $17,529 | $29,034 | $13,985 | $0 | $21,055 | $35,040 | | Total Intangible Assets | $465 | $0 | $17,240 | $17,705 | $425 | $0 | $20,969 | $21,394 | - The Recycling segment's operating loss increased significantly from **$(1,051) thousand in 2018 to $(6,397) thousand in 2019**[469](index=469&type=chunk) - The Technology segment consistently reported operating losses of approximately **$(5,000) thousand** in both 2019 and 2018[469](index=469&type=chunk) [Note 22: Related parties](index=84&type=section&id=Note%2022%3A%20Related%20parties) Related party transactions include shared services with Live Ventures, an impairment charge on the ApplianceSmart note, and a revolving credit line with Isaac Capital Group - Tony Isaac (CEO) is the father of Jon Isaac (CEO of Live Ventures Incorporated and managing member of Isaac Capital Group LLC, a >5% stockholder). Several JanOne directors and officers also serve on Live Ventures' board[470](index=470&type=chunk) - JanOne shares executive, accounting, and legal services with Live Ventures, totaling **$193 thousand in 2019** and **$211 thousand in 2018**[470](index=470&type=chunk) - ARCA Recycling entered into a **$2,500 thousand secured revolving line of credit** with Isaac Capital Group, LLC on **August 28, 2019**, bearing **8.75% interest** and guaranteed by JanOne[476](index=476&type=chunk) - The ApplianceSmart Note, owed by a subsidiary of Live Ventures, resulted in a **$2,992 thousand impairment charge** due to ApplianceSmart's bankruptcy filing[474](index=474&type=chunk) [Note 23: Subsequent events](index=85&type=section&id=Note%2023%3A%20Subsequent%20events) Subsequent events include the material operational impact of the COVID-19 outbreak and a litigation settlement for **$800 thousand** - The global COVID-19 outbreak in March 2020 has **materially impacted operations**, leading to suspended appliance pickup/replacement services and decreased revenues, with future impacts **highly uncertain**[479](index=479&type=chunk) - On March 23, 2020, the company settled litigation with a former professional services provider, receiving **$800 thousand** and exchanging mutual releases[480](index=480&type=chunk) - The consolidated financial statements include the accounts of JanOne Inc. and its wholly-owned subsidiaries, with three operating segments in 2019 (Biotechnology, Recycling, Technology) and two in 2018 (Recycling, Technology)[331](index=331&type=chunk) - The company reported a net loss of **$11,964 thousand for fiscal year 2019**, an increase from **$5,608 thousand in 2018**[324](index=324&type=chunk)[340](index=340&type=chunk) - As of December 28, 2019, total current assets were **$8,839 thousand** and total current liabilities were **$17,573 thousand**, resulting in a **net negative working capital of $8,734 thousand**[322](index=322&type=chunk)[340](index=340&type=chunk) - The company adopted ASC 842, Leases, at the beginning of fiscal year 2019, recognizing a **$1,600 thousand Right of Use asset** and corresponding liability, with a **$63 thousand adjustment to retained earnings**[310](index=310&type=chunk)[383](index=383&type=chunk)[413](index=413&type=chunk)[414](index=414&type=chunk) [Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures](index=86&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosures) There were no changes in or disagreements with accountants on accounting and financial disclosures to report [Item 9A. Controls and Procedures](index=86&type=section&id=Item%209A.%20Controls%20and%20Procedures) As of December 28, 2019, JanOne Inc.'s management concluded that its disclosure controls and procedures and internal control over financial reporting were not effective. Material weaknesses identified include insufficient IT general controls and segregation of duties, inadequate control design over significant accounting processes (e.g., cutoff and reconciliation of accrued/deferred expenses), insufficient assessment of significant transactions, and inadequate recordkeeping for agreements and contracts. The company is implementing remediation plans to address these weaknesses - As of December 28, 2019, the company's disclosure controls and procedures were **not effective**[482](index=482&type=chunk) - Management concluded that internal control over financial reporting was **not effective** as of December 28, 2019, based on the COSO 2013 framework[485](index=485&type=chunk) - Material weaknesses include **insufficient IT general controls and segregation of duties**, **inadequate control design** over significant accounting processes (e.g., cutoff and reconciliation of accrued/deferred expenses), **insufficient assessment of significant transactions**, and **inadequate recordkeeping** for agreements and contracts[486](index=486&type=chunk) - The company is implementing remediation plans to ensure accruals and invoices are reviewed for accuracy and properly recorded[486](index=486&type=chunk) [Item 9B. Other Information](index=87&type=section&id=Item%209B.%20Other%20Information) In response to the COVID-19 pandemic, JanOne Inc. temporarily closed its corporate office and call center, idled all recycling processing centers, and laid off 112 of its 208 employees since January 1, 2020. The company intends to inform landlords of non-payment of April 2020 rent and will evaluate future rent payments based on the evolving situation. Recycling operations continue on a scaled-down basis, while replacement programs are suspended - Due to the COVID-19 virus, JanOne temporarily closed its corporate office and call center, and idled all recycling processing centers in the U.S. and Canada[490](index=490&type=chunk) - Since January 1, 2020, the company has laid off **112 of its 208 employees**[490](index=490&type=chunk) - The company plans to inform landlords of non-payment of April 2020 rent and will assess future rent payments based on the evolving COVID-19 situation and government actions[490](index=490&type=chunk) - Recycling operations continue on a scaled-down basis with on-curb pickup where legally allowed, but all replacement programs are temporarily suspended[490](index=490&type=chunk) PART III [Item 10. Directors, Executive Officers, and Corporate Governance](index=88&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%2C%20and%20Corporate%20Governance) JanOne Inc.'s leadership includes directors Richard D. Butler, Jr., Nael Hajjar, Eric Bolling (President), Tony Isaac (CEO), and Virland A. Johnson (CFO). Dennis (De) Gao resigned as a director in January 2020 and was replaced by John Bitar. The Board has an Audit Committee, Compensation Committee, and Governance Committee, all primarily composed of independent non-employee directors. The company maintains a Code of Ethics applicable to its directors, officers, and senior executives Directors and Executive Officers as of December 28, 2019 | Name | Positi

Business Segments - In fiscal year 2018, the company operated two reportable segments: recycling and technology, down from three segments in 2017 due to the sale of the retail segment[59]. - GeoTraq had no sales during 2018 and had no customers as of December 29, 2018[62][64]. Seasonality and Demand - The company experienced seasonality in business, with higher customer demand during the second and third calendar quarters[63]. Environmental Practices - Approximately thirty clients participate in the EPA's voluntary RAD program, committing to best environmental practices in appliance disposal[74]. Employment - The company had 154 full-time employees and 5 part-time employees as of December 29, 2018[77]. Currency and Financial Instruments - The overall strength of the U.S. dollar against the Canadian dollar had an immaterial impact on revenues and net income for the fiscal year ended December 29, 2018[209]. - The company does not currently hedge foreign currency fluctuations and does not intend to do so for the foreseeable future[209]. - The company does not hold any derivative financial instruments or securities for trading or speculative purposes[210]. Technology Development - The technology segment is focused on developing Mobile IoT modules utilizing LTE CAT-M and NB-IoT protocols[67]. Competition - The company competes with various entities, including existing recycling companies and new-appliance retailers, in the appliance recycling and replacement market[65][66].