JanOne (JAN) - 2023 Q3 - Quarterly Report

Company Information Registrant Details 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] - Place of Incorporation: Nevada[2] 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 Item 1. Condensed Consolidated Financial Statements 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 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] - 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] - 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] Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income 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] - 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] - 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] Unaudited Condensed Consolidated Statements of Cash Flows 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] - 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] - 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] Unaudited Condensed Consolidated Statements of Stockholders' Equity 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] - 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][79] - 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][85] Notes to Unaudited Condensed Consolidated Financial Statements Note 1: Background 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] - 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] - 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][24][25][26] Note 2: Summary of Significant Accounting Policies 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] - The company consolidates its wholly-owned subsidiaries and has reclassified amounts related to discontinued operations[28][29] - 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] - 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] Note 3: Discontinued Operations 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] - The company sold substantially all assets of its technology business (GeoTraq Inc.) to SPYR Technologies Inc. on May 24, 2022[35] 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 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 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 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][51][52] - 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][54][55] 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 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] 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 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 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 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] Note 11: Short-Term Debt 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] Note 12: Commitments and Contingencies 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][63][64][65] - 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] - 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][69] - 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][72][73] Note 13: Stockholders' Equity 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] - 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][78] 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] Note 14: Mezzanine Equity 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] - As of September 30, 2023, and December 31, 2022, 100,000 shares of Series S convertible preferred stock remained outstanding[86] Note 15: Earnings Per Share 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] - 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] - 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] Note 16: Segment Information 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] - The Recycling and Technology segments are reported as discontinued operations, with their products, services, and customer base significantly differing from the Biotechnology segment[90] 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 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] - 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] - 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][95] Note 18: Sale of ARCA and Subsidiaries 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] - 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][98] - 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][98] 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 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] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 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 - The company focuses on discovering non-addictive pain medications for severe pain[106][107] - 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][107] - 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] Results of Operations - Thirteen Weeks Ended September 30, 2023 and October 1, 2022 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][110] - Selling, general, and administrative expenses increased by $153 thousand (25%), primarily due to higher amortization costs for Soin intangible assets[111] - 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] Results of Operations - Thirty-Nine Weeks Ended September 30, 2023 and October 1, 2022 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][123] - Selling, general, and administrative expenses increased by $973 thousand (50.0%), primarily due to higher amortization costs for Soin intangible assets[124] - 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] Liquidity and Capital Resources - 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] - 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] 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] Item 3. Quantitative and Qualitative Disclosures About Market Risk 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] - The company does not hold any derivative financial instruments or securities for trading or speculative purposes[137] Item 4. Controls and Procedures 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] - Management assessed the company's internal control over financial reporting as ineffective as of September 30, 2023[142][143] - 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] - Despite material weaknesses, management believes the financial statements and other financial information in this annual report are fairly presented in all material respects[140] PART II. OTHER INFORMATION Item 1. Legal Proceedings 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] Item 1A. Risk Factors 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][153] - 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] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company had no unregistered sales of equity securities during this reporting period - No unregistered sales of equity securities[155] Item 3. Defaults Upon Senior Securities The company had no defaults upon senior securities during this reporting period - No defaults upon senior securities[156] Item 4. Mine Safety Disclosures The company had no mine safety disclosures during this reporting period - No mine safety disclosures[157] Item 5. Other Information The company had no other information to disclose during this reporting period - No other information[158] Item 6. Exhibits 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 Official Signatures 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]