JanOne (US:JAN)2024-04-08 20:21PART I Business Overview JanOne Inc. transitioned to a clinical-stage biopharmaceutical company, divesting its recycling and technology businesses to focus on non-addictive pain treatments - JanOne is a clinical-stage biopharmaceutical company focused on non-opioid, non-addictive therapies for pain and addiction24 - The company acquired Soin Therapeutics and its LDN product, now known as JAN123, on December 28, 202219 - JanOne divested its legacy recycling businesses (ARCA Recycling, ARCA Canada, and Customer Connexx) on March 9, 2023, to focus on its biopharmaceutical activities21188 Biotechnology Segment Focuses on developing novel, non-opioid therapies for pain and addiction, with key candidates JAN101 for PAD and JAN123 for CRPS - JanOne is a clinical-stage biopharmaceutical company focused on non-opioid, non-addictive therapies for pain and addiction24 - JAN101 (formerly TV1001SR) is a potential treatment for Peripheral Artery Disease (PAD), with Phase IIb/III clinical trials expected to commence in 202524 - JAN123 is a novel biphasic formulation of low-dose naltrexone (LDN) for Complex Regional Pain Syndrome (CRPS), which has received Orphan Drug Designation1988105 JAN101 (Peripheral Artery Disease) JAN101 is a patented oral, sustained-release sodium nitrite for improving blood flow and treating pain in conditions like PAD - JAN101 is a patented oral, sustained-release pharmaceutical composition of sodium nitrite targeting poor blood flow and pain in extremities, designed to prevent headaches25 - Preclinical studies show sodium nitrite promotes angiogenesis, stimulates wound healing, and prevents tissue necrosis, acting specifically in damaged, ischemic tissue3649 - A bridging study in diabetic neuropathy subjects showed JAN101 prevented headaches/dizziness and subjects reported less pain, with improvements in nerve function25 Peripheral Artery Disease (PAD) and Chronic Pain Chronic pain and PAD represent significant public health issues with limited effective, non-addictive treatment options, which JAN101 aims to address - Chronic pain affects 100 million individuals in the United States and over 1.5 billion worldwide, costing society between $560 billion and $635 billion annually5062 - Peripheral Artery Disease (PAD) affects 8 to 12 million people in the United States, with over 24% of patients at risk of high opioid use5052 - Current non-drug treatments for PAD include lifestyle changes, exercise, angioplasty, and bypass surgery, while prescription drugs include cholesterol-lowering agents, antiplatelet medications, and antihypertensives. No drugs are specifically indicated for PAD-associated pain5556 Company Strategy JanOne's strategy is to develop and commercialize non-opioid, non-addictive chronic pain therapies, advancing JAN101 and building a multi-asset portfolio - Focus on developing and commercializing novel, non-opioid, and non-addictive therapies for chronic pain58 - Advance JAN101 for PAD treatment and explore expansion into new indications58 - Intends to retain all commercial rights to JAN101 in the United States and selectively partner outside of the United States60 Limitations of Current Chronic Pain Therapies Existing chronic pain therapies like NSAIDs, corticosteroids, and opioids have significant side effects and addiction risks, creating an unmet need - NSAIDs have significant side effects including gastrointestinal bleeding, high blood pressure, and heart problems66 - Corticosteroids have numerous serious side effects such as increased infection risk, diabetes, hypertension, and bone density loss67 - Opioids, despite being widely prescribed, lead to significant side effects, reduced effectiveness with long-term use, and a high propensity for abuse and addiction, contributing to a national public health emergency68 Soin Therapeutics (JAN123) JanOne acquired JAN123, a novel biphasic low-dose naltrexone formulation for CRPS, which has Orphan Drug Designation and no FDA-approved treatments - JanOne acquired Soin Therapeutics in 2022, obtaining JAN123, a novel biphasic formulation of 2.0 mg low-dose naltrexone (LDN)8889 - JAN123's biphasic release is designed to eliminate vivid and lucid unpleasant dreams associated with rapid LDN release89 - CRPS is a rare, chronic neurologic condition affecting approximately 200,000 patients annually in the US, with no currently approved treatments, and JAN123 has Orphan Drug Designation8897101 Government Regulation and Market Access The biotechnology industry faces extensive FDA regulation, and market access depends on third-party payor coverage and reimbursement decisions - The FDA and comparable foreign regulatory authorities impose substantial requirements on drug development, manufacture, marketing, and distribution123 - JAN101 and JAN123 are pursuing the 505(b)(2) regulatory pathway, which leverages existing drug approvals to expedite development79106155 - Market exclusivity provisions (e.g., 5-year for new chemical entities, 3-year for new indications, 7-year for Orphan Drug Designation) can delay generic competition160 - Sales depend on adequate coverage and reimbursement from third-party payors, who increasingly challenge prices and require pharmacoeconomic studies161162 Recycling Business Disposition JanOne sold its legacy recycling business to VM7 Corporation in March 2023, but subsequently impaired the $5.3 million carrying value due to VM7 ceasing operations - The company operated a recycling business since 1976, providing turnkey appliance recycling and replacement services for utilities in North America176177 - On March 9, 2023, JanOne sold its Recycling Subsidiaries to VM7 Corporation, an entity whose principal is JanOne's Chief Financial Officer179383 - VM7 subsequently ceased operations in Q4 2023 due to inability to obtain financing, leading JanOne to fully impair the $5.3 million carrying value of the disposition188425 Technology Business Disposition (GeoTraq) JanOne sold its GeoTraq subsidiary to SPYR Technologies for $13.5 million in May 2022, later impairing the $9.8 million promissory note due to SPYR's financial decline - On May 24, 2022, JanOne sold substantially all assets of its GeoTraq Inc. subsidiary to SPYR Technologies Inc. for an aggregate purchase price of $13.5 million189390 - The consideration included 30,000,000 shares of SPYR common stock and a five-year promissory note in the principal amount of $12.6 million189390 - Due to SPYR's probable inability to repay, JanOne fully impaired the $9.8 million carrying value of the SPYR promissory note in fiscal 2023189394421 Risk Factors JanOne faces risks including biopharmaceutical strategy failure, internal control weaknesses, stock volatility, and biotechnology-specific challenges like regulatory approval uncertainty - Failure to successfully implement the biopharmaceutical business strategy or remediate material weaknesses in internal controls could materially and adversely affect financial performance192193196 - The biotechnology business has a limited operating history and is entirely dependent on obtaining regulatory approval and successfully commercializing product candidates like JAN101 and JAN123, which is uncertain and costly197214220 - The company is completely dependent on third parties for manufacturing JAN101 and JAN123, posing risks of delays, quality issues, and supply interruptions, and faces challenges in protecting its intellectual property rights against competition and off-label use199203240246 Properties JanOne Inc. significantly reduced its leased office space in Las Vegas, Nevada, to approximately 800 square feet, effective August 2023 - Reduced leased office space in Las Vegas, Nevada, from 11,000 square feet to approximately 800 square feet252 - The reduction was effective August 2023, due to the winding down of operations of the Recycling Subsidiaries252 Legal Proceedings Information on legal proceedings is detailed in Note 19, Commitments and Contingencies, to the Consolidated Financial Statements - Information on legal proceedings is included in Note 19, Commitments and Contingencies, to the Consolidated Financial Statements253 Mine Safety Disclosures JanOne Inc. has no disclosures related to mine safety - No mine safety disclosures254 PART II Market for Common Equity and Shareholder Matters JanOne's common stock trades on Nasdaq under 'JAN', with approximately 50 stockholders, and the company does not plan to pay dividends - Common stock trades under the symbol 'JAN' on The Nasdaq Capital Market257 - Approximately 50 stockholders of record as of April 8, 2024257 - The company has not paid dividends on its common stock and does not presently plan to pay dividends for the foreseeable future258 Selected Financial Data This item is not applicable for JanOne Inc - Not applicable259 Management's Discussion and Analysis (MD&A) The MD&A reviews JanOne's financial condition, highlighting its biopharmaceutical transition, net loss, and going concern doubt due to negative working capital - JanOne is focused on finding treatments for conditions that cause severe pain and bringing to market drugs with non-addictive pain-relieving properties, having sold its Recycling and GeoTraq segments265 - The company reported a net loss from continuing operations of approximately $17.1 million for fiscal year ended December 30, 2023, compared to net income of approximately $8.0 million for fiscal year ended December 31, 2022270343 - As of December 30, 2023, the company had cash on hand of approximately $5,000 and a net negative working capital of approximately $5.2 million, raising substantial doubt about its ability to continue as a going concern289294343 Results of Operations Summary Fiscal 2023 saw a net loss from continuing operations due to impairment charges and increased SG&A, partially offset by net income from discontinued operations Statement of Operations Data (in $000's) | Statement of Operations Data: | Fiscal Year Ended Dec 30, 2023 | Fiscal Year Ended Dec 31, 2022 | | :---------------------------------------- | :----------------------------- | :----------------------------- | | Revenues | $— | $— | | Cost of revenues | — | — | | Gross profit | — | — | | Selling, general and administrative expenses | 4,746 | 3,149 | | Impairment charges | 15,100 | — | | Operating loss | (19,846) | (3,149) | | Interest income, net | 2,250 | 468 | | Gain on litigation settlement | — | 1,950 | | Unrealized loss on marketable securities | (926) | (631) | | Gain on reversal of contingency loss | — | 637 | | Other income, net | 998 | 2,124 | | Net (loss) income before provision for income taxes | (17,524) | 1,399 | | Income tax benefit | (429) | (6,621) | | Net (loss) income from continuing operations | (17,095) | 8,020 | | Income from discontinued operations | 10,254 | 5,081 | | Income tax provision for discontinued operations | 971 | 2,109 | | Net income from discontinued operations | 9,283 | 2,972 | | Net (loss) income | $(7,812) | $10,992 | Liquidity and Capital Resources JanOne faces severe liquidity constraints with minimal cash and negative working capital, requiring future capital raises to continue operations - As of December 30, 2023, cash on hand was approximately $5,000289 - The company has total current assets of approximately $350,000 and total current liabilities of approximately $5.6 million, resulting in a net negative working capital of approximately $5.2 million294 - The ability to continue as a going concern is dependent upon the success of future capital raises or structured settlements to fund required testing for FDA approval of JAN123 and day-to-day operations290344345 Quantitative and Qualitative Disclosures About Market Risk As of December 30, 2023, JanOne Inc. did not engage in market risk-sensitive commodity instruments and is not materially exposed to other market risks - As of December 30, 2023, JanOne Inc. did not participate in any market risk-sensitive commodity instruments299 - The company believes it is not subject in any material way to other forms of market risk, such as foreign currency exchange risk or commodity price risk299 Financial Statements and Supplementary Data This section presents JanOne's audited financial statements for 2023 and 2022, with auditors noting substantial doubt about going concern - The section includes the Consolidated Balance Sheets, Consolidated Statements of Operations and Comprehensive Income (Loss), Consolidated Statements of Changes in Stockholders' Equity (Deficit), and Consolidated Statements of Cash Flows302 - Independent auditors issued unqualified opinions on the financial statements for both 2023 and 2022, but noted substantial doubt about the company's ability to continue as a going concern304305312313 - Critical audit matters for 2022 included the valuation of the SPYR promissory note and the purchase price consideration for Soin Therapeutics318321 Consolidated Balance Sheets The balance sheet shows a significant decrease in total assets and a shift to a stockholders' equity deficit in 2023, driven by dispositions and impairments Consolidated Balance Sheets (Key Figures, in $000's) | | December 30, 2023 | December 31, 2022 | | :---------------------------------------- | :---------------- | :---------------- | | Cash and cash equivalents | $5 | $61 | | Total current assets | $346 | $9,173 | | Intangible assets-Soin, net | $17,842 | $19,293 | | Note receivable - SPYR, net | $— | $8,974 | | Total assets | $18,487 | $46,756 | | Total current liabilities | $5,905 | $23,938 | | Total liabilities | $7,285 | $29,939 | | Convertible preferred stock, series S | $14,510 | $14,510 | | Total stockholders' equity (deficit) | $(3,308) | $2,307 | Consolidated Statements of Operations and Comprehensive Income (Loss) The company reported a net loss of $7.812 million in fiscal 2023, a substantial decline from net income in 2022, primarily from continuing operations Consolidated Statements of Operations (Key Figures, in $000's) | | Fiscal Years Ended Dec 30, 2023 | Fiscal Years Ended Dec 31, 2022 | | :------------------------------------------------ | :------------------------------ | :------------------------------ | | Revenues | $— | $— | | Gross profit | $— | $— | | Operating loss | $(19,846) | $(3,149) | | Total other income, net | $2,322 | $4,548 | | Net (loss) income from continuing operations | $(17,095) | $8,020 | | Net income from discontinued operations | $9,283 | $2,972 | | Net (loss) income | $(7,812) | $10,992 | | Net (loss) income per share, basic and diluted | $(1.95) | $3.49 | Consolidated Statements of Cash Flows Fiscal 2023 saw net cash provided by operating activities, but overall a decrease in cash and cash equivalents due to investing and financing activities Consolidated Statements of Cash Flows (Summary, in $000's) | | Fiscal Years Ended Dec 30, 2023 | Fiscal Years Ended Dec 31, 2022 | | :------------------------------------------------ | :------------------------------ | :------------------------------ | | Net cash provided by (used in) operating activities | $1,463 | $(3,057) | | Net cash used in investing activities | $(155) | $(1,509) | | Net cash (used in) provided by financing activities | $(1,435) | $3,979 | | Decrease in cash and cash equivalents | $(110) | $(591) | | Cash and cash equivalents, beginning of period | $115 | $705 | | Cash and cash equivalents, end of period | $5 | $61 | Notes to Consolidated Financial Statements Notes detail financial context, including going concern uncertainty, impairment of notes receivable, related party transactions, and subsequent events - Substantial doubt exists about the company's ability to continue as a going concern due to negative working capital and operating losses, requiring future capital raises343344345 - The company fully impaired the $9.8 million SPYR promissory note and the $5.3 million VM7 note receivable in fiscal 2023 due to repayment uncertainties following the cessation of operations by the respective counterparties394421425 - Related party transactions include shared services with Live Ventures and a guaranteed ICG Note, with liabilities for these reverting to JanOne following the disposition of the Recycling Subsidiaries473475477 - Subsequent events include a warrant purchase agreement, an amendment to the Soin acquisition agreement to convert a tranche to cash payments, amendments to related party promissory obligations to add convertibility, new promissory notes, unit purchase agreements for equity financing, and a consulting agreement with Jon Isaac505506507508509510 Changes in and Disagreements with Accountants JanOne Inc. reported no changes in or disagreements with accountants on accounting and financial disclosure matters - None516 Controls and Procedures Management concluded disclosure controls were ineffective as of December 30, 2023, due to material weaknesses, but financial statements are fairly presented, with remediation underway - Disclosure controls and procedures were not effective as of December 30, 2023517 - Material weaknesses identified include insufficient written documentation of internal control policies and procedures and inadequate resources for segregation of duties521 - Management concluded that the consolidated financial statements present fairly, in all material respects, the financial position, results of operations and cash flows518 - Remediation plans include improving documentation and developing an internal testing plan, expected to be completed during fiscal year 2024521 Other Information JanOne Inc. reported no other information required under this item - None525 Disclosure Regarding Foreign Jurisdictions that Prevent Inspections JanOne Inc. has no disclosures regarding foreign jurisdictions that prevent inspections - None526 PART III Directors, Executive Officers, and Corporate Governance This section outlines JanOne's Board and executive officers, including their backgrounds, and details the company's corporate governance framework - Key executive officers include Tony Isaac (President and CEO) and Virland A. Johnson (Chief Financial Officer)529 - Virland A. Johnson, the Chief Financial Officer, filed for protection under Chapter 7 of the U.S. Bankruptcy Code in January 2024534 - The company has a Code of Ethics and three key committees (Audit, Compensation, Governance) comprised entirely of independent directors, with Richard D. Butler, Jr. serving as Chair for both Audit and Compensation Committees and identified as an 'audit committee financial expert'537538539541 Executive Compensation This section details compensation for JanOne's named executive officers and non-employee directors for fiscal years 2023 and 2022 Summary Compensation Table (Named Executive Officers) | Name and Principal Position | Year | Salary ($) | Bonus ($) | Stock Award ($) | Option Award ($) | All Other Compensation ($) | Total ($) | | :-------------------------- | :--- | :--------- | :-------- | :-------------- | :--------------- | :------------------------- | :-------- | | Tony Isaac | 2023 | 617,709 | — | 200,000 | — | — | 817,709 | | President, Chief Executive Officer, and Secretary | 2022 | 550,324 | 75,000 | — | — | — | 625,324 | | Virland A. Johnson | 2023 | 224,346 | — | 125,000 | — | — | 349,346 | | Chief Financial Officer | 2022 | 250,324 | — | — | — | — | 250,324 | - The company uses stock options, restricted stock awards, and restricted stock units under its 2011, 2016, and 2023 Equity Incentive Plans to attract and retain executives, directors, consultants, and key employees546 Non-Management Director Compensation for Fiscal Year Ended December 30, 2023 | Name | Fees Earned or Paid in Cash ($) | Option Awards ($) | All Other Compensation ($) | Total ($) | | :-------------------- | :------------------------------ | :---------------- | :------------------------- | :-------- | | John Bitar | 18,000 | — | — | 18,000 | | Richard D. Butler, Jr. | 30,000 | — | — | 30,000 | | Nael Hajjar | 14,400 | — | — | 14,400 | Security Ownership This section details beneficial ownership of JanOne's common and preferred stock by directors, executive officers, and significant shareholders Beneficial Ownership of Common Stock (as of April 8, 2024) | Beneficial Owner | Position with Company | Number of Shares Beneficially Owned | Percent of Outstanding Common | | :---------------- | :-------------------- | :---------------------------------- | :---------------------------- | | Tony Isaac | President, CEO, Secretary | 94,000 | 1.1% | | Virland A. Johnson | CFO | — | * | | Richard D. Butler, Jr. | Director | 18,000 | * | | John Bitar | Director | 2,000 | * | | Nael Hajjar | Director | — | * | | All Executive Officers and Directors as a group (5 persons) | — | 114,000 | 1.3% | | Michael Bigger | — | 361,000 | 4.2% | Beneficial Ownership of Series A-1 Convertible Preferred Stock (as of April 8, 2024) | Name of Beneficial Owner | Number of Shares Beneficially Owned | Percentage Outstanding Series A Preferred | | :----------------------- | :---------------------------------- | :-------------------------------------- | | Greenfield Investments, LTD. | 137,730 | 100% | Beneficial Ownership of Series S Preferred Stock (as of April 8, 2024) | Name of Beneficial Owner | Amount and Nature of Beneficial Ownership | Outstanding Series S Preferred | | :----------------------- | :---------------------------------------- | :----------------------------- | | Amol Soin, MD | 100,000 | 100% | Related Party Transactions and Director Independence This section details JanOne's related party transactions, primarily with Live Ventures and Isaac Capital Group, and the Audit Committee's oversight - JanOne shares executive, accounting, and legal services with Live Ventures, totaling approximately $203,000 in fiscal year 2023558 - The ICG Note, a secured revolving line of credit from Isaac Capital Group (managed by CEO Tony Isaac's son), is guaranteed by JanOne, with an outstanding balance of approximately $706,000 as of December 30, 2023562 - Due to the winding down of the Recycling Subsidiaries, outstanding liabilities for shared rent and services ($258,000) and the ICG Note ($690,000 principal) reverted to JanOne561562 - The Audit Committee reviews and recommends for approval all related party transactions557 Principal Accounting Fees and Services This section provides a breakdown of fees billed by JanOne's independent registered public accounting firms for audit and other services Accounting Fees and Services (in $) | Description | December 30, 2023 | December 31, 2022 | | :---------------- | :---------------- | :---------------- | | Audit fees | 295,508 | 353,500 | | Audit-related Fees | — | — | | Tax fees | — | 40,800 | | All other fees | — | 4,000 | | Total | 295,508 | 398,300 | - All non-audit services provided by the independent registered public accounting firm were pre-approved by the Audit Committee568 PART IV Exhibits and Financial Statement Schedules This section lists financial statements, indicates no schedules, and provides a comprehensive index of exhibits filed with the Form 10-K - The item includes Financial Statements (as per Item 8) and a comprehensive Index to Exhibits576577 - No financial statement schedules are included576 Form 10-K Summary JanOne Inc. has not provided a summary for its Form 10-K - None575 Signatures The Form 10-K report is officially signed by JanOne Inc.'s CEO, CFO, and Board of Directors on April 8, 2024 - The report is signed by Tony Isaac (Chief Executive Officer) and Virland A. Johnson (Chief Financial Officer)591592 - Additional signatures include directors Tony Isaac, Richard Butler, John Bitar, and Nael Hajjar592 - The report was signed on April 8, 2024591