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July 1, 2023
APPLIANCE RECYCLING CENTERS OF AMERICA,
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Nevada (State or other jurisdiction of incorporation or organization) | 41-1454591 (I.R.S. Employer Identification No.) | |||||||
325 E. Warm Springs Road, Suite 102 Las Vegas, Nevada (Address of principal executive offices) |
89119 (Zip Code) | |||||||
952-930-9000
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||||||||
| Common Stock, $0.001 par value per share | JAN | The Nasdaq Stock Market LLC (The Nasdaq Capital Market) | ||||||||||||
| Large accelerated filer | o | Accelerated filer | o | ||||||||||||
| Non-accelerated filer | x | Smaller reporting company | x | ||||||||||||
| Emerging growth company | o | ||||||||||||||
APPLIANCE RECYCLING CENTERS OF AMERICA,
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Dollars in thousands, except per-share amounts) September 30, 2017 October 1, 2016 September 30, 2017 October 1, 2016 thousands, except per-share) thousands) CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) 2022. September 30, 2017 October 1, 2016 September 30, 2017 October 1, 2016 September 30, 2017 (b) October 1, 2016 September 30, 2017 (b) October 1, 2016 September 30, 2017 December 31, 2016 Company. The amount of ItemAPPLIANCE RECYCLING CENTERS OF AMERICA,In Thousands) September 30, December 31, 2017 2016 (Unaudited) Assets Cash and cash equivalents $ 1,994 $ 968 Trade and other receivables, net 11,991 10,509 Inventories, net 11,219 16,291 Income tax receivable – 16 Prepaid expenses and other current assets 891 761 Total current assets 26,095 28,545 Property and equipment, net 994 10,116 Restricted cash 1,298 500 Intangible assets, net 15,748 57 Deposits and other assets 751 557 Deferred taxes 1,305 2,081 Total assets $ 46,191 $ 41,856 Liabilities and Stockholders' Equity Liabilities: Accounts payable $ 2,592 $ 6,143 Accrued liabilities 6,227 8,888 Line of credit PNC bank – 10,333 Notes payable - short term 800 – Accrued income taxes 1,581 – Current portion of long term maturities 3,846 2,093 Total current liabilities 15,046 27,457 Long term obligations, less current maturities – 2,826 Other noncurrent liabilities 307 364 Total liabilities 15,353 30,647 Stockholders' equity: Preferred stock, series A, 288,588 shares authorized, issued and outstanding at September 30, 2017 14,963 – Common stock, no par value, 50,000 shares authorized, 6,655 shares issued and outstanding at September 30, 2017 and December 31, 2016 22,437 22,405 Accumulated deficit (5,987 ) (11,028 ) Accumulated other comprehensive loss (575 ) (574 ) Total stockholders' equity 30,838 10,803 Non controlling interest – 406 Total liabilities and equity $ 46,191 $ 41,856 July 1,
2023December 31,
2022(Unaudited) Assets Cash and cash equivalents $ 169 $ 61 Trade and other receivables, net 15 106 Prepaid expenses and other current assets 102 394 Current assets from discontinued operations — 8,612 Total current assets 286 9,173 Intangible assets - Soin, net 18,567 19,293 Other intangible assets, net 4 4 Note receivable - SPYR, net 9,377 8,974 Note receivable - VM7, net 5,718 — Marketable securities 237 315 Deposits and other assets 17 18 Other assets from discontinued operations — 8,979 Total assets $ 34,206 $ 46,756 Liabilities and Stockholders' Equity Liabilities: Accounts payable $ 2,402 $ 2,276 Accrued liabilities - other 495 1,006 Short-term debt — 274 Current liabilities from discontinued operations — 20,382 Total current liabilities 2,897 23,938 Deferred income taxes, net 3,041 — Other noncurrent liabilities 70 241 Noncurrent liabilities from discontinued operations — 5,760 Total liabilities 6,008 29,939 Commitments and contingencies (Note 12) Mezzanine equity Convertible preferred stock, series S - par value $0.001 per share, 200,000 authorized, 100,000 and 100,000 shares issued and outstanding at July 1, 2023 and December 31, 2022, respectively 14,510 14,510 Stockholders' equity: Preferred stock, series A-1 - par value $0.001 per share, 2,000,000 authorized, 209,706 and 222,588 shares issued and outstanding at July 1, 2023 and December 31, 2022, respectively — — Common stock, par value $0.001 per share, 10,000,000 shares authorized, 3,768,878 and 2,827,410 shares issued and outstanding at July 1, 2023 and at December 31, 2022, respectively 3 2 Additional paid-in capital 46,299 45,748 Accumulated deficit (32,614) (42,822) Accumulated other comprehensive loss — (621) Total stockholders' equity 13,688 2,307 Total liabilities and stockholders' equity $ 34,206 $ 46,756 2APPLIANCE RECYCLING CENTERS OF AMERICA,
AND COMPREHENSIVE INCOME (LOSS)Thousands) 13 Weeks Ended 39 Weeks Ended Revenues $ 25,484 $ 27,356 $ 74,505 $ 77,457 Cost of revenues 17,055 18,905 51,334 56,379 Gross profit 8,429 8,451 23,171 21,078 Operating expenses: Selling, general and administrative expenses 7,301 7,036 21,167 21,543 Operating income (loss) 1,128 1,415 2,004 (465 ) Other income (expense): Gain on the sale of Compton Facility – – 5,163 – Gain on the sale of AAP equity interest 81 – 81 – Interest expense, net (207 ) (341 ) (636 ) (928 ) Other income (expense) 248 61 315 155 Total other income (expense), net 122 (280 ) 4,923 (773 ) Income (loss) before provision for income taxes 1,250 1,135 6,927 (1,238 ) Total provision (benefit) for income taxes 563 – 2,382 438 Net income (loss) 687 1,135 4,545 (1,676 ) Net loss attributed to noncontrolling interest 83 (12 ) 496 245 Net income (loss) attributed to shareholders' of the parent $ 770 $ 1,123 $ 5,041 $ (1,431 ) Earnings (loss) per share: Basic $ 0.12 $ 0.19 $ 0.76 $ (0.24 ) Diluted $ 0.11 $ 0.19 $ 0.75 $ (0.24 ) Weighted average common shares outstanding: Basic 6,655 5,991 6,655 5,940 Diluted 6,705 5,991 6,705 5,940 Net income (loss) $ 687 $ 1,135 $ 4,545 $ (1,676 ) Other comprehensive income (loss), net of tax Effect of foreign currency translation adjustments (37 ) (29 ) (1 ) 14 Total other comprehensive income (loss), net of tax (37 ) (29 ) (1 ) 14 Comprehensive income (loss) 650 1,106 4,544 (1,662 ) Comprehensive loss attributable to noncontrolling interest 83 (12 ) 496 245 Comprehensive income (loss) attributable to shareholders' of the parent $ 733 $ 1,094 $ 5,040 $ (1,417 ) For the Thirteen Weeks Ended For the Twenty-Six Weeks Ended July 1,
2023July 2,
2022July 1,
2023July 2,
2022Revenues $ — $ — $ — $ — Cost of revenues — — — — Gross profit — — — — Operating expenses: Selling, general and administrative expenses 1,060 658 2,159 1,339 Operating loss (1,060) (658) (2,159) (1,339) Other income (expense): Interest income (expense), net 365 167 840 165 Gain on litigation settlement, net — — — 1,950 Unrealized loss on marketable securities — (376) (247) (376) Gain on reversal of contingency loss — — — 637 Other income, net 757 640 739 1,355 Total other income, net 1,122 431 1,332 3,731 Income (loss) from continuing operations before provision for income taxes 62 (227) (827) 2,392 Income tax benefit (17) — (244) — Net income (loss) from continuing operations 79 (227) (583) 2,392 Gain from discontinued operations 1 9,105 13,976 7,700 Income tax provision (benefit) for discontinued operations (43) 4 3,186 7 Net income from discontinued operations 44 9,101 10,790 7,693 Net income $ 123 $ 8,874 $ 10,207 $ 10,085 Net income (loss) per share: Net income (loss) per share from continuing operations, basic $ 0.02 $ (0.07) $ (0.17) $ 0.76 Net income (loss) per share from continuing operations, diluted $ 0.02 $ (0.06) $ (0.17) $ 0.68 Net income per share from discontinued operations, basic $ 0.01 $ 2.89 $ 3.14 $ 2.44 Net income per share from discontinued operations, diluted $ 0.01 $ 2.60 $ 3.14 $ 2.20 Net income per share, basic $ 0.03 $ 2.82 $ 2.97 $ 3.20 Net income per share, diluted $ 0.03 $ 2.54 $ 2.97 $ 2.88 Weighted average common shares outstanding: Basic 3,665,887 3,150,230 3,432,374 3,150,230 Diluted 3,665,887 3,496,250 3,432,374 3,496,250 3APPLIANCE RECYCLING CENTERS OF AMERICA,Thousands) 39 Weeks Ended September 30, 2017 October 1, 2016 OPERATING ACTIVITIES: Net income (loss) $ 4,545 $ (1,676 ) Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 1,054 936 Amortization of debt issuance costs 262 136 Stock based compensation expense 32 264 Gain on sale of property (5,163 ) – Gain on sale and deconsolidation of variable interest entity AAP (81 ) – Change in reserve for uncollectible accounts 7 – Change in reserve for inventory obsolescence (124 ) – Change in deferred income taxes 776 439 Other 679 (37 ) Changes in assets and liabilities: Accounts receivable (1,531 ) 2,004 Prepaid expenses and other current assets (254 ) 108 Inventories 5,073 385 Accounts payable and accrued expenses (4,509 ) 301 Income tax payable 1,597 859 Net cash provided by operating activities 2,363 3,719 INVESTING ACTIVITIES: Purchases of property and equipment (107 ) (244 ) Proceeds from sale of property and equipment, net 6,785 – Purchase of intangible asset, GeoTraq Inc, net of debt and Series A preferred stock issued (200 ) – Proceeds from sale of equity in AAP less cash retained by AAP as a result of deconsolidation 643 – Increase in restricted cash (798 ) – Other – (22 ) Net cash provided by (used) in investing activities 6,323 (266 ) FINANCING ACTIVITIES: Net payments under line of credit - PNC Bank (10,333 ) (2,859 ) Net borrowing under the line of credit - MidCap Financial Trust 3,616 – Proceeds from issuance of debt obligations 1,070 100 Payment of debt issuance costs (484 ) (125 ) Payments on debt obligations (1,544 ) (821 ) Net cash used in financing activities (7,675 ) (3,705 ) Effect of changes in exchange rate on cash and cash equivalents 15 (8 ) (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS 1,026 (260 ) CASH AND CASH EQUIVALENTS, beginning of period 968 1,969 CASH AND CASH EQUIVALENTS, end of period $ 1,994 $ 1,709 Supplemental cash flow disclosures: Interest paid $ 386 $ 1,033 Income taxes refunded (paid) $ 48 $ 860 Noncash financing and investing activities: Notes payable issued to sellers of GeoTraq, Inc. (See Note 5) $ 800 $ – Series A convertible preferred stock issued for the acquisition of GeoTraq, Inc. (See Note 5) $ 14,963 $ – Debt issuance costs related to credit agreement renewal $ – $ 63 For the Twenty-Six Weeks Ended July 1, 2023 July 2, 2022 OPERATING ACTIVITIES: Net income (loss) from continuing operations $ (583) $ 2,392 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 727 2 Stock based compensation expense 12 4 Accretion of note receivable discount (518) (64) Gain on legal settlement — (115) Unrealized loss on marketable securities 247 376 Gain on reversal of contingent liability — (637) Changes in assets and liabilities: Accounts receivable, net of acquisitions and dispositions 342 (753) Income taxes receivable — (12) Prepaid expenses and other current assets, net of dispositions 292 355 Inventories — (210) Accounts payable and accrued expenses, net of dispositions (529) (108) Other Assets 1 6 Operating cash flows provided by discontinued operations 2,320 253 Net cash provided by operating activities 2,311 1,489 INVESTING ACTIVITIES: Purchases of property and equipment — (721) Purchases of intangibles — (189) Investing cash flows used in discontinued operations (156) — Net cash used in investing activities (156) (910) FINANCING ACTIVITIES: Proceeds from equity financing, net 368 — Payments on short-term notes payable (274) (288) Financing cash flows from discontinued operations (2,212) 185 Net cash used in financing activities (2,118) (103) Effect of changes in exchange rate on cash and cash equivalents 17 — INCREASE IN CASH AND CASH EQUIVALENTS 54 476 CASH AND CASH EQUIVALENTS, beginning of period 115 705 LESS CASH OF DISCONTINUED OPERATIONS, end of period — (233) CASH AND CASH EQUIVALENTS, end of period $ 169 $ 948 Supplemental cash flow disclosures: Interest paid $ 118 $ 120 Income taxes paid — 54 Noncash recognition of new leases — 1,451 4APPLIANCE RECYCLING CENTERSAMERICA, INC.NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTSInDollars in thousands)1. NatureSeries A-1 Preferred Common Stock Additional
Paid-in
CapitalAccumulated
DeficitAccumulated
Other
Comprehensive
DeficitTotal
Stockholders'
EquityShares Amount Shares Amount Balance, December 31, 2022 222,588 $ — 3,150,230 $ 2 $ 45,748 $ (42,822) $ (621) $ 2,307 Share based compensation — — — — 8 — — 8 Common stock issued for equity financing — — 361,000 1 368 — — 369 Series A-1 Preferred converted for legal settlement (5,185) — 103,707 — 170 — — 170 Other comprehensive income — — — — — — 621 621 Net income — — — — — 10,085 — 10,085 Balance, April 1, 2023 217,403 — 3,614,937 3 46,294 (32,737) — 13,560 Share based compensation — — — — 5 — — 5 Net income — — — — — 123 — 123 Balance, July 1, 2023 217,403 $ — 3,614,937 $ 3 $ 46,299 $ (32,614) $ — $ 13,688 Series A-1 Preferred Common Stock Additional
Paid-in
CapitalAccumulated
DeficitAccumulated
Other
Comprehensive
DeficitTotal
Stockholders'
DeficitShares Amount Shares Amount Balance, January 1, 2022 238,729 $ — 2,827,410 $ 2 $ 45,743 $ (53,804) $ (617) $ (8,676) Share based compensation — — — — 4 — — 4 Other comprehensive income — — — — — (8) (41) (49) Net Income — — — — — 1,211 — 1,211 Balance, April 2, 2022 238,729 — 2,827,410 2 45,747 (52,601) (658) (7,510) Series A-1 preferred converted (16,141) $ — 322,820 $ — $ — $ — $ — — Other comprehensive income — $ — — $ — $ — $ — $ 41 41 Net Income — $ — — $ — $ — $ 8,874 $ — 8,874 Balance, July 2, 2022 222,588 $ — 3,150,230 $ 2 $ 45,747 $ (43,727) $ (617) $ 1,405 Businessthese unaudited condensed consolidated financial statements.Basis of PresentationAppliance Recycling Centers of America, Inc. andits subsidiaries (“we,”(collectively the “Company” or “ARCA”“JanOne”) are in.businesssale of providing turnkey appliance recycling and replacement services for electric utilities and other sponsors of energy efficiency programs. We also sell new major household appliances through a chain of Company-owned stores under the name ApplianceSmart®. Through our GeoTraq, Inc. (“GeoTraq”) subsidiary, a development stage company, we are engaged in the development, design and ultimately, we expect the sale of cellular transceiver modules, also knownARCA Recycling, Inc. (“ARCA Recycling”) (see Note 18), the accounts for the Recycling and Technology segments have been presented as Cell-ID modules. GeoTraq is part of a new reporting segment for our Company – Technology. On August 15, 2017, we sold our 50% interest in a joint venture operating under the name ARCA Advanced Processing, LLC (AAP”), which recycles appliances from twelve statesdiscontinued operations in the Northeast and Mid-Atlantic regions of the United States.The accompanying balance sheet as of December 31, 2016 which has been derived from the audited consolidated financial statements (see Note 3).by the Company in accordanceconformity with accounting principles generally accepted accounting principles (“GAAP”) in the United StatesU.S. (“U.S. GAAP”) and with the instructions to Form 10-Q and Article 10 of AmericaRegulation S-X for interim financial information and Article 8 of Regulation S-X promulgated by the United States Securities and Exchange Commission (the “SEC”).information. Accordingly, theythese financial statements do not include all of the information and notes required by GAAP for complete financial statements.statements prepared in conformity with U.S. GAAP. In theour opinion, all adjustments, consisting of management, normal and recurring adjustments, and accruals considered necessary for a fair presentation for the periods indicated have been included. Operating results forHowever, the 13 Week and 39 Week periods ended September 30, 2017 and October 1, 2016, are presented in lieu of three month and nine month periods, respectively. The Company reports results on a 52-week fiscal basis. TheCompany’s results of operations for anythe interim periodperiods presented are not necessarily indicative of the results that may be expected for the full year.In preparation of the Company’s condensed consolidated financial statements, management is required For further information, refer to make estimates and assumptions that affect reported amounts of assets and liabilities and related revenues and expenses during the reporting periods. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates.These condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and related notes thereto included in our Form 10-K for the fiscal year ended December 31, 2016, included in the Company’s Annual Report on Form 10-K, as amended, initially filed with the SEC on March 31, 2017.consolidation:ConsolidationAppliance Recycling Centers of America, Inc.the Company and ourits wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.ApplianceSmart, Inc.,Minnesotanew approach to estimate credit losses on certain types of financial instruments based on expected losses instead of incurred losses. It also modifies the impairment model for available-for-sale debt securities and provides a simplified accounting model for purchased financial assets with credit deterioration since their origination. ASU No. 2016-13 is effective for smaller reporting companies for fiscal years beginning after December 15, 2022 and interim periods within those fiscal years. Early adoption is permitted. The Company has adopted this new accounting standard, however, as of the 13 and 26 weeks ended July 1, 2023, there is no material impact on our Consolidated Financial Statements and related disclosures.is a wholly owned subsidiary that was formed through a corporate reorganization in July 2011under which, as of March 1, 2023, the Buyer agreed to hold our businessacquire all of selling new major household appliances through a chainthe outstanding equity interests of Company-owned retail stores. ARCA Canada Inc., a Canadian corporation, is a wholly owned subsidiary that was formed in September 2006 to provide turnkey recycling services for electric utility energy efficiency programs.(a) ARCA Recycling, Inc., a California corporation, is(b) Customer Connexx LLC, a wholly owned subsidiary that was formed in November 1991 to provide turnkey recycling services for electric utility energy efficiency programs. The operating resultsNevada limited liability company, and (c) ARCA Canada Inc., a corporation organized under the laws of our wholly owned subsidiaries are consolidated in our financial statements.AAP is a joint venture that was formed in October 2009 betweenOntario, Canada (“ARCA Canada”; and, together with ARCA and 4301 Operations, LLC (“4301”Connexx, the “Subsidiaries”). ARCA and 4301 owned a 50% interest in AAP through August 15, 2017, on which date ARCA sold its 50% interest in AAP. AAP established a regional processing center in Philadelphia, Pennsylvania at which recyclable appliances are processed. The financial position and results of operations of AAP are consolidated in our financial statements through August 15, 2017, based on our conclusion that AAP is a variable interest entity due to our contribution in excess of 50%principal of the totalBuyer is Virland A. Johnson, our Chief Financial Officer. The sale of all of the outstanding equity subordinated debtinterests of the Subsidiaries to the Buyer under the Purchase Agreement was consummated simultaneously with the execution of the Purchase Agreement (see Note 18).other formsnone of financial support. We had a controlling financial interestthe liabilities of its wholly-owned subsidiary GeoTraq Inc. No GeoTraq assets or liabilities were included in AAPdiscontinued operations at December 31, 2022.weliabilities of the discontinued operations in the consolidated balance sheets. The assets and liabilities have provided substantial financial support to fundbeen reflected as discontinued operations in the operations of AAP since its inception. On August 15, 2017, ARCA sold it’s 50% interest in AAP and is no longer consolidating the results of AAP in its consolidated financial statementsbalance sheets as of that date. Note 6 – SaleDecember 31, 2022, and deconsolidationconsist of variable interest entity AAP to these condensed consolidated financial statements.the following:5December 31, 2022 Assets from discontinued operations Cash and cash equivalents $ 53 Trade and other receivables, net 7,816 Inventories 366 Prepaid expenses and other current assets 377 Total current assets from discontinued operations 8,612 2,705 Right of use asset - operating leases 5,290 735 Deposits and other assets 249 Total other assets from discontinued operations 8,979 Total assets from discontinued operations $ 17,591 Liabilities from discontinued operations Accounts payable $ 4,423 3,278 6,264 Lease obligation short-term - operating leases 1,631 4,172 Current portion of note payable 381 Related party note 233 Total current liabilities from discontinued operations 20,382 Lease obligation long-term - operating leases 3,816 1,339 605 Total noncurrent liabilities from discontinued operations 5,760 Total liabilities from discontinued operations $ 26,142 On August 18, 2017, we acquired GeoTraq. GeoTraq is a development stage company that is engaged in the development, design,1 The Company’s property and ultimately, we expect, sale of cellular transceiver modules, also known as Cell-ID modules. GeoTraq has created a dedicated Cell-ID transceiver module that we believe can enable the design of extremely small, inexpensive products that can operate for years on a single charge, powered by standardly available batteries of diminutive size without the need of recharge. Accordingly, and utilizing Cell-ID technology exclusively, we believe that GeoTraq will provide an exclusive, low-cost solution and service life that will enable new global markets for location-based services (LBS) that could utilize technology similar to the technology that emergency 911 location systems currently utilize.As a result of this transaction, GeoTraq became a wholly-owned subsidiary and, therefore, the results of GeoTraq are included in our consolidated results as of August 18, 2017.2. InventoriesInventories, consisting principally of appliances, are stated at the lower of cost, determined on a specific identification basis, or net realizable value and consist of: September 30, 2017 December 31, 2016 Appliances held for resale $ 11,219 $ 16,146 Processed metals from recycled appliances held for resale – 139 Other – 6 $ 11,219 $ 16,291 We provide estimated provisions for the obsolescence of our appliance inventories, including adjustments to net realizable value, based on various factors, including the age of such inventory and our management’s assessmentequipment consisted of the need for such provisions. We look at historical inventory aging’s and margin analysis in determining our provision estimate. A revised cost basis is used once a provision for obsolescence is recorded.3. Earnings per shareBasic income per common share is computed based on the weighted average number of common shares outstanding. Diluted income per common share is computed based on the weighted average number of shares of common stock outstanding adjusted by the number of additional shares that would have been outstanding had the potentially dilutive shares of common stock been issued. Potentially dilutive shares of common stock include unexercised stock options and warrants. Basic per share amounts are computed, generally, by dividing net income attributable to shareholders’ of the parent by the weighted average number of shares of common stock outstanding. Diluted per share amounts assume the conversion, exercise or issuance of all potential common stock instruments unless their effect is anti-dilutive, thereby reducing the loss or increasing the income per common share. In calculating diluted weighted average shares and per share amounts, we included stock options and warrants with exercise prices below average market prices, for the respective reporting periods in which they were dilutive, using the treasury stock method. We calculated the number of additional shares by assuming the outstanding stock options were exercised and that the proceeds from such exercises were used to acquire shares of common stock at the average market price during the quarter. For the 13 weeks and 39 weeks ended September 30, 2017 and October 1, 2016, we excluded options and warrants to purchase 651 and 651 shares of common stock from the diluted weighted average shares outstanding calculation as the effect of these options were anti-dilutive.6Useful Life
(Years)December 31, 2022 Buildings and improvements 3-30 $ 85 Equipment 3-15 3,915 Projects under construction 1,447 Property and equipment 5,447 Less accumulated depreciation (2,742) Total property and equipment, net, from discontinued operations $ 2,705 13 Weeks Ended 39 Weeks Ended Basic Net income (loss) attributed to shareholders’ of parent $ 770 $ 1,123 $ 5,041 $ (1,431 ) Weighted average common shares outstanding 6,655 5,991 6,655 5,940 Basic earnings (loss) per share $ 0.12 $ 0.19 $ 0.76 $ (0.24 ) Diluted Net income (loss) applicable to diluted earnings (loss) per share $ 770 $ 1,123 $ 5,041 $ (1,431 ) Weighted average common shares outstanding 6,655 5,991 6,655 5,940 Add: options – – – – Add: common stock warrants 50 – 50 – Assumed diluted weighted average common shares outstanding 6,705 5,991 6,705 5,940 Diluted earnings (loss) per share $ 0.11 $ 0.19 $ 0.75 $ (0.24 ) 4. Share-based compensationWe recognized share-based compensationDepreciation expense ofwas $0 and $123$78,000 for the 13 weeks ended September 30, 2017,July 1, 2023 and October 1, 2016 respectively. We recognized share-based compensation expense of $32July 2, 2022, respectively, and $264$60,000 and $158,000 for the 3926 weeks ended September 30, 2017July 1, 2023 and October 1, 2016,July 2, 2022, respectively. There is no estimated future share-based compensation expense asassets and capital stock of GeoTraq by way of merger. GeoTraq is a development stage company that is engaged in the development, design, and, ultimately, the sale of cellular transceiver modules, also known as Cell-ID modules. As of August 18, 2017, GeoTraq became a wholly-owned subsidiary of the Company.The final fair value of the single identifiable intangible asset acquired in the GeoTraq acquisition is a U.S. patent application USPTO reference No. 14724039 titled “Locator Device with Low Power Consumption” together with the assignment of intellectual property that included historical know-how, designs and related manufacturing procedures is $15,963. Total consideration paid for GeoTraq included cash $200, unsecured promissory notes bearing interest at the annual rate of 1.29%, and maturing on August 18, 2017 in the aggregate principal of $800, and 288,588 shares of newly created convertible series A preferred stock with a final fair value of $14,963. See Note 16 – Series A Preferred Stock to these condensed consolidated financial statements. There were no other assets acquired or liabilities assumed.7December 31,
2022Patent and domains $ 19 Computer software 1,682 Intangible assets 1,701 Less accumulated amortization (966) Total intangible assets $ 735 At the time of the acquisition of GeoTraq, GeoTraq was a shell company with no business operations, one intangible asset and historical know-how andesigns. GeoTraq is in the development stage and has yet to begin operations. The Company has elected to early adopt ASU 2017-01, which clarifies the definition of a business for purposes of applying ASC 805. The Company has determined that GeoTraq is a single or group of related assets, not a business as clarified by ASU 2017-01 at the time of acquisition.6. Sale and deconsolidation of variable interest entity - AAPThe financial position and results of operations of AAP have been consolidated in our financial statements since AAP’s inception based on our conclusion that AAP is a variable interest entity that we controlled due to our contribution in excess of 50% of the total equity, subordinated debt and other forms of financial support. Since inception we provided substantial financial support to fund the operations of AAP. The financial position and results of operations for AAP are reported in our recycling segment. On August 15, 2017, we sold our 50% interest in AAP, and therefore, as of August 15, 2017, no longer consolidate the results of AAP in our financial statements.The following table summarizes the assets and liabilities of AAP consolidated in our financial position as of December 31, 2016:Assets December 31, 2016 Current assets $ 438 Property and equipment, net 7,322 Other assets 83 Total assets $ 7,843 Liabilities Accounts payable $ 1,388 Accrued expenses 523 Current maturities of long-term debt obligations 3,558 Long-term debt obligations, net of current maturities 435 Other liabilities (a) 1,126 Total liabilities $ 7,030 (a) Other liabilities represent loans and advances between ARCA and AAP that are eliminated in consolidation.The following table summarizes the operating results of AAP consolidated in our financial results for the 13 weeks and 39 weeks ended September 30, 2017, and October 1, 2016, respectively: 13 Weeks Ended Revenues $ 306 $ 2,076 Gross profit 38 492 Operating income (loss) (140 ) 79 Net income (loss) (165 ) 24 39 Weeks Ended Revenues $ 1,433 $ 5,557 Gross profit 24 967 Operating loss (848 ) (285 ) Net loss (991 ) (490 ) (b) Operating results for AAP were consolidated in the Company’s operating results from inception of AAP through August 15, 2017, the date of our 50% equity sale in AAP. We recorded a gain of $81 on the sale and deconsolidation of our 50% equity interest in AAP. Net Cash outflow arising from deconsolidation of AAP was $157. The Company received $800 in cash consideration for its 50% equity interest in AAP.87. Property and equipmentProperty and equipment as of September 30, 2017, and December 31, 2016, consist of the following: Useful Life (Years) Land $ – $ 1,140 Buildings and improvements 18-30 2,122 3,780 Equipment (including computer software) 3-15 7,897 19,260 Projects under construction 73 204 Property and equipment 10,092 24,384 Less accumulated depreciation and amortization (9,098 ) (14,268 ) Property and equipment, net $ 994 $ 10,116 Depreciation and amortizationAmortization expense was $173$0 and $302$58,000 for the 13 weeks ended September 30, 2017July 1, 2023 and October 1, 2016, respectively. DepreciationJuly 2, 2022, respectively, and amortization expense was $782$36,000 and $936$112,000 for the 3926 weeks ended September 30, 2017July 1, 2023 and October 1, 2016,July 2, 2022, respectively.On January 25, 2017, as disclosed byDecember 31,
2022Compensation and benefits $ 685 Contract liability 290 Accrued incentive and rebate checks 2,037 Accrued taxes 219 Other 47 Total accrued expenses $ 3,278 Item 2.01 of its Current Report on Form 8-K filed with the SEC on January 31, 2017, the Company sold its’ Compton, California facility (the “Compton Facility”) for $7,103 to Terreno Acacia, LLC. The proceeds from the sale paid off the PNC term loan in the aggregate principal amount of $1,020 that was secured by the property and costs of sale of $325, with the remaining proceeds of $5,758 paid towards the PNC Revolver (as defined below). The Company recorded a gain on the sale of property of $5,163. The Company rented the Compton Facility back from Terreno Acacia, LLC after the completion of the sale from January 26, 2017 through April 10, 2017.8. Intangible assetsIntangible assets as of September 30, 2017, and December 31, 2016, consist of the following: September 30, 2017 December 31, 2016 Intangible assets GeoTraq, net (See Note 5) $ 15,691 $ – Recycling contract, net 19 19 Goodwill 38 38 $ 15,748 $ 57 For the 13 Week and 39 Week periods ended September 30, 2017, we recorded amortization expense of $272, related to our finite intangible assets. The useful life and amortization period of the GeoTraq intangible acquired is seven years.9. Deposits and other assetsDeposits and other assets as of September 30, 2017, and December 31, 2016, consist of the following: September 30, 2017 December 31, 2016 Deposits $ 600 $ 453 Other 151 104 $ 751 $ 557 Deposits are primarily refundable security deposits with landlords the Company leases property from.910. Accrued liabilitiesAccrued liabilities as of September 30, 2017, and December 31, 2016, consist of the following: September 30, 2017 December 31, 2016 Sales tax estimates, including interest $ 4,610 $ 4,203 Compensation and benefits 741 2,431 Accrued incentive and rebate checks 192 358 Accrued rent 238 263 Warranty 14 26 Accrued payables – 570 Deferred revenue 322 227 Other 110 810 $ 6,227 $ 8,888 Sales and Use Tax AssessmentWe operate in twenty-threefourteen states in the U.S. and in various provinces in Canada. From time to time, we arethe Company is subject to sales and use tax audits that could result in additional taxes, penalties and interest owed to various taxing authorities.As previously disclosed,EqualizationEqualization) (“BOE”CDTFA”) conducted a sales and use tax examination covering the Company’sARCA Recycling’s California operations for years 2011, 2012, and 2013. The Company believed it was exempt from collecting sales taxes under service agreements with utility customers that included appliance replacement programs. During the fourth quarter of 2014, the Company received communication from the BOECDTFA indicating they were not in agreement with the Company’s interpretation of the law. As a result, the Company applied for and, as of February 9, 2015, received approval to participate in the California Board of Equalization’sCDTFA’s Managed Audit Program. The period covered under this program included the years 2011, 2012, and 2013 and extended through the nine-month period ended September 30, 2014.BOECDTFA assessment for sales tax for tax years 2011, 2012, and 2013 in the amount of approximately $4.1 million plus applicable interest of $0.5 million$500,000 related to the appliance replacement programs that wethe Company administered on behalf of ourits customers on which weit did not assess, collect, or remit sales tax. The Company intends to appealhas appealed this assessment and continue to engage the services of our existing retained sales tax experts throughout theCDTFA Appeals Bureau. The appeal remains in process. The BOE tax assessment is subjectInterest has continued to protest and appeal, and would not need to be fundedaccrue until the matter has been fully resolved throughis settled.appeal process. The Company anticipates that resolutionCalifornia sales tax assessment consisted of the BOE assessment could take upfollowing:December 31,
2022Accrued liability - CA sales tax assessment $ 4,132 Accrued liability - interest on CA sales tax assessment 2,132 Total $ 6,264 December 31,
2022Gulf Coast Bank and Trust Company $ 4,206 Gulf Coast Bank and Trust Company loan origination fees (34) Total $ 4,172 December 31,
2022KLC Financial $ 1,781 KLC Financial loan origination fees (61) Total 1,720 Less current portion (381) Total $ 1,339 two years.11. Line of credit - PNC BankWe hadIsaac Capital Group LLC (“ICG”) a Revolving Credit, Term Loan and Security Agreement, as amended, (“PNC Revolver”) with PNC Bank, National Association (“PNC”) that provided us with a $15,000 revolving line of credit. The PNC Revolver loan agreement included a lockbox agreement and a subjective acceleration clause and as a result we have classified thesecured revolving line of credit aspromissory note, whereby ICG agreed to provide ARCA Recycling with a current liability.$2.5 million revolving credit facility (the “ICG Note”). The PNC RevolverICG Note originally matured on August 28, 2020. On August 25, 2020, the ICG Note was collateralized byamended to extend the maturity date to December 31, 2020. On March 30, 2021, ARCA Recycling entered into a Second Amendment and Waiver (the “Second Amendment”) to the ICG Note to further extend the maturity date to August 18, 2021 and waive certain defaults under the ICG Note. The ICG Note bears interest at 8.75% per annum and provides for the payment of interest, monthly in arrears. ARCA Recycling will pay a loan fee of 2.0% on each borrowing made under the ICG Note. In connection with entering into the ICG Note, the Borrower also entered into a security agreement in favor of the Lender, pursuant to which ARCA Recycling granted a security interest in all of its assets to the Lender.December 31,
2022Isaac Capital Group LLC $ 838 Total 838 Less current portion (233) Total $ 605 13 weeks ended 26 Weeks Ended July 1, 2023 July 2, 2022 July 1, 2023 July 2, 2022 Revenues $ — $ 10,538 $ 3,795 $ 19,862 Cost of revenues — 8,889 3,992 16,360 Gross profit — 1,649 (197) 3,502 Operating expenses from discontinued operations: Selling, general and administrative expenses $ — $ 2,251 1,468 4,514 Gain on sale of GeoTraq — (10,241) (15,824) (10,241) Total operating expenses from discontinued operations — (7,990) (14,356) (5,727) Operating income from discontinued operations — 9,639 14,159 9,229 Other income (expense) from discontinued operations Interest expense, net — (807) (181) (418) Loss on litigation settlement — — — (115) Other income (expense), net 1 273 (2) (996) Total other income (loss), net 1 (534) $ (183) $ (1,529) Income before provision for income taxes from discontinued operations 1 9,105 13,976 7,700 Income tax provision (benefit) (43) 4 3,186 7 Net income from discontinued operations $ 44 $ 9,101 $ 10,790 $ 7,693 26 weeks ended July 1, 2023 July 2, 2022 DISCONTINUED OPERATING ACTIVITIES: Net income (loss) from discontinued operations 10,790 7,693 Depreciation and amortization 96 268 Amortization of debt issuance costs 11 7 Amortization of right-of-use assets 53 (2) Change in deferred taxes 3,185 — Gain on sale of ARCA, net of cash (15,967) — Gain on sale of GeoTraq — (10,241) Changes in assets and liabilities: Accounts receivable 2,932 700 Inventories 299 820 Prepaid expenses and other current assets 55 199 Accounts payable and accrued expenses 866 821 Other assets — (12) Net cash provided by operating activities from discontinued operations $ 2,320 $ 253 DISCONTINUED INVESTING ACTIVITIES: Purchases of property and equipment (123) (721) Purchase of intangible assets (33) (189) Net cash used in investing activities from discontinued operations $ (156) $ (910) DISCONTINUED FINANCING ACTIVITIES: Proceeds from note payable 5,162 366 Payment on related party note (38) (53) Proceeds from issuance of short-term notes payable (7,291) — Payments on notes payable (45) (128) Net cash used in financing activities from discontinued operations $ (2,212) $ 185 Effect of changes in exchange rate on cash and cash equivalents (5) — DECREASE IN CASH AND CASH EQUIVALENTS (53) (472) CASH AND CASH EQUIVALENTS, beginning of period 53 704 CASH AND CASH EQUIVALENTS, end of period $ — $ 232 July 1,
2023December 31,
2022Trade and other receivables, net, from discontinued operations $ — $ 7,816 Other receivables 15 106 Trade and other receivables, net $ 15 $ 7,922 July 1,
2023December 31,
2022Prepaid insurance $ — $ 364 Prepaid other 102 30 Prepaid expenses from discontinued operations — 377 Total prepaid expenses and other current assets $ 102 $ 771 ourthe assets and PNC was also secured by an inventory repurchase agreement with Whirlpool Corporation solely with respect to Whirlpool purchases only.none of the specified liabilities of GeoTraq. In addition, we issued a $750 letter of credit in favor of Whirlpool Corporation. The PNC Revolver required, startingconnection with the fiscal quarter ending April 2, 2016, that we meetPurchase Agreement, SPYR delivered to the Company a specified minimum earnings beforefive-year Promissory Note in the initial principal amount of $12.6 million. The Promissory Note bears simple interest taxes, depreciation and amortization, and continuing at the endrate of 8% per annum, provides quarterly interest payments due on the first day of each calendar quarter, thereafter, that we meetand may be prepaid at any time without penalty. Interest payments may be remitted in either restricted shares of common stock of SPYR, or in cash. The Promissory Note matures on May 24, 2027. As of July 1, 2023, the Company has accrued receivables of approximately $251,000 in interest income related to the Promissory Note.minimum fixed charge coverage ratiothird-party valuation firm to assess the fair value of 1.1 to 1.0. The PNC Revolver loan agreement limited investments that we could purchase, the amount of other debt and leases that we could incur, the amount of loans that we could issue to our affiliates and the amount we could spend on fixed assets, along with prohibiting the payment of dividends.The interest rateconsideration received. Based on the PNC Revolver, as stated in our renewal agreement on January 22, 2016,valuation, the Promissory Note (“Note”) was PNC Base Rate (as defined below) plus 1.75%initially valued at approximately $11.3 million, but was revised to 3.25%, or 1-, 2- or 3-month PNC LIBOR Rate plus 2.75% to 4.25%, withbe approximately $9.5 million upon review of the rate being dependent on our level of fixed charge coverage. The PNC Base Rate meant, for any day, a fluctuating per annum rate of interest equal tooriginal valuation by the highest of (i) the interest rate per annum announced from time to time by PNC as its prime rate, (ii) the Federal Funds Open Rate plus 0.5%, and (iii) the one-month LIBOR rate plus 100 basis points (1%).10available revolving borrowings under the PNC Revolverrevised discount amount, or approximately $3.2 million, was based on a formula using accounts receivable and inventories. We did not have accessrecorded as an offset to the full $15,000 revolving line of credit due to such formula, theprincipal amount of the letter of credit issued in favor of Whirlpool CorporationNote, and will be accreted ratably to interest income over the amount of outstanding loans owed to PNC by out AAP joint venture.As discussed above, the Company sold its the Compton Facility building and land for $7,103. The net proceeds from the sale, after costs of sale and payoffterm of the Term Loan (as defined below), were usedNote. No charges against income relating to reduce the outstandingvalue of the Note have been recorded for the 13 and 26 weeks ended July 1, 2023. The Company will continue to review SPYR's financial trends going further to determine whether additional charges against income should occur.under our PNC Revolver.On May 1, 2017, the PNC Revolver loan agreement was amended and the term was extended through June 2, 2017. The amendment, effective May 2, 2017, also reduced the maximum amount of borrowing under the PNC Revolver to $6 million. On May 10, 2017 we repaid in full and terminated our existing Revolving Credit, Term Loan and Security Agreement, as amended, with PNC Bank, National Associationappearing on the same date.The PNC Revolver loan agreement terminated andCompany's consolidated balance sheets represents the PNC Revolver was paid in full on May 10, 2017 with funds from MidCap Financial Trust. A letter of credit to Whirlpool Corporation remains outstanding with PNC backed by restricted cash collateral of $750 as of September 30, 2017. See Note 13, long term obligations, for additional information.12. Notes payable – short termOn August 18, 2017, the Company, as part of its’ acquisition of GeoTraq, issued unsecured promissory notes to the sellers of GeoTraq with interest at the annual rate of interest of 1.29% maturing on August 18, 2018. The outstandingprincipal balance of the notes payable – shortPromissory Note, net of the discount balance. During the 13 weeks ended July 1, 2023 and July 2, 2022, approximately $201,000 and $65,000, respectively, of the discount was recorded as interest income, and during the 26 weeks ended July 1, 2023 and July 2, 2022, approximately $403,000 and $65,000, respectively, of the discount was recorded as interest income. As of July 1, 2023, the net carrying value of the Note was approximately $9.4 million.September 30, 2017 is $800. Interest accrued is included in accruedJuly 1, 2023 and December 31, 2022 consist of the following (in $000’s):July 1,
2023December 31,
2022Patent and domains $ 4 $ 4 Soin intangibles * $ 19,293 $ 19,293 Computer software — 3,563 Intangible assets from discontinued operations — 735 Intangible assets 19,297 23,595 Less accumulated amortization (726) (3,563) Total intangible assets $ 18,571 $ 20,032 July 1,
2023December 31,
2022Deposits and other assets from discontinued operations $ — $ 249 Other 17 18 Total deposits and other assets $ 17 $ 267 July 1,
2023December 31,
2022Compensation and benefits $ 33 $ 81 Accrued guarantees — 130 Accrued taxes 99 5 Accrued litigation settlement 340 510 Other 23 280 Accrued expenses from discontinued operations — 3,278 Total accrued expenses $ 495 $ 4,284 13. Long term obligationsLong term capital lease and other financing obligations as of September 30, 2017,July 1, 2023 and December 31, 2016,2022, consist of the following: September 30, 2017 December 31, 2016 PNC term loan $ – $ 1,020 MidCap financial trust asset based revolving loan 3,616 – AFCO Finance 639 – Susquehanna term loans – 3,242 GE 8% loan agreement 482 482 EEI note 103 103 PIDC 2.75% note, due in month installments of $3, including interest, due October 2024 – 287 Capital leases and other financing obligations 36 564 Debt issuance costs, net (1,030 ) (779 ) Total debt obligations 3,846 4,919 Less current maturities (3,846 ) (2,093 ) Long-term debt obligations, net of current maturities $ – $ 2,826 PNC Term LoanOn January 24, 2011, we entered into a $2,550 Term Loan (“Term Loan”) with the PNC Bank to refinance the mortgage on our Compton Facility. The Term Loan was payable in 119 consecutive monthly principal payments of $21 plus interest commencing on February 1, 2011 and followed by a 120th payment of all unpaid principal, interest and fees on February 1, 2021. The PNC Revolver loan agreement required a balloon payment of $1,020 in principal plus interest and additional fees due on January 31, 2017. The Term Loan was collateralized by the Compton Facility. As disclosed by the Company in Item 2.01 of the Company’s Current Report on Form 8-K filed with the SEC on January 31, 2017, the Term Loan was paid off in full on January 25, 2017 when the Compton Facility was sold.11July 1,
2023December 31,
2022AFCO Finance $ — $ 274 Total short-term debt $ — $ 274
MidCap Financial Trust
On May 10, 2017, we entered into a Credit and Security Agreement (“Credit Agreement”) with MidCap Financial Trust (“MidCap Financial Trust”), as a lender and as agent for itself and other lenders under the Credit Agreement. The Credit Agreement provides us with a $12,000 revolving line of credit, which may be increased to $16,000 under certain terms and conditions (the “MidCap Revolver”). The MidCap Revolver has a stated maturity date of May 10, 2020, if not renewed. The MidCap Revolver is collateralized by a security interest in substantially all of our assets. The lender is also secured by an inventory repurchase agreement with Whirlpool Corporation for Whirlpool purchases only. The Credit Agreement requires that we meet a minimum fixed charge coverage ratio of 1.00:1.00 for the applicable measuring period as of the end of each calendar month. The applicable measuring period is (i) the period commencing May 1, 2017 and ending on the last day of each calendar month from May 31, 2017 through April 30, 2018, and (ii) the twelve-month period ending on the last day of such calendar month thereafter. The Credit Agreement limits the amount of other debt we can incur, the amount we can spend on fixed assets, and the amount of investments we can make, along with prohibiting the payment of dividends.
The amount of revolving borrowings available under the Credit Agreement is based on a formula using receivables and inventories. We may not have access to the full $12,000 revolving line of credit due to the formula using our receivables and inventories and the amount of any outstanding letters of credit issued by the Lender. The interest rate on the revolving line of credit is the one-month LIBOR rate plus four and one-half percent (4.50%).
On September 30, 2017 and December 31, 2016, our available borrowing capacity under the Credit Agreement is $2,416 and $0, respectively. The weighted average interest rate for the period of May 10, 2017 through September 30, 2017 was 5.66%. We borrowed $45,099 and repaid $41,483 on the Credit Agreement during the period of May 10, 2017 through September 30, 2017, leaving an outstanding balance on the Credit Agreement of $3,616 and $0 at September 30, 2017 and December 31, 2016, respectively.
On September 20, 2017, we received a written notice of default, dated September 20, 2017 (the “Notice of Default”), from MidCap Funding X Trust (the “Agent”), asserting that events of default had occurred with respect to the Credit Agreement. The Agent alleges in the Notice of Default that, as a result of the Company’s recent acquisition of GeoTraq, and the issuance of promissory notes to the stockholders of GeoTraq in connection with such acquisition, the Borrowers have failed to comply with certain terms of the Loan Agreement, and that such failure constitutes one or more Events of Default under the Loan Agreement. Specifically, the Notice of Default states that as a result of the acquisition and related issuance of promissory notes, the Borrowers have failed to comply with (i) a covenant not to incur additional indebtedness other than Permitted Debt (as defined in the Loan Agreement), without the Agent’s prior written consent, and a covenant not to make acquisitions or investments other than Permitted Acquisitions or Permitted Investments (as defined in the Credit Agreement). The Notice of Default also states that the Borrowers’ failure to pledge the stock in GeoTraq as collateral under the Credit Agreement and to make GeoTraq a “Borrower “under the Credit Agreement will become an Event of Default if not cured within the applicable cure period. The Agent has reserved the right to avail itself of any other rights and remedies available to it at law or by contract, including the right to (a) withhold funding, increase reserves and suspend making further advances under the Credit Agreement, (b) declare all principal, interest and other sums owing in connection with the Credit Agreement immediately due and payable in full, (c) charge the Default Rate on amounts outstanding under the Credit Agreement, and/or (d) exercise one or more rights and remedies with respect to any and all collateral securing the Credit Agreement. The Agent has not declared the amounts outstanding under the Credit Agreement to be immediately due and payable but has imposed the default rate of interest, which is 5% in excess of the rates otherwise payable under the Loan Agreement), effective as of August 18, 2017 and continuing until the Agent notifies the Borrowers that the specified Events of Default have been waived and no other Events of Default exist.
The Company strongly disagrees with the Lenders that any Event of Default has occurred and is reserving all of its options with respect to the Credit Agreement. The Company and the Agent are in active discussions for forbearance and resolution of the default, however there can be no assurance the Company and the Agent will be able to agree on terms of the forbearance. The Company is classifying the Mid-Cap Revolver as a current liability until forbearance and resolution of the default is cured.
GE
On August 14, 2017 as a part of the sale of the Company’s equity interest in AAP, Recleim LLC, a Delaware limited liability company (“Recleim”), agreed to undertake, pay or assume the Company’s GE obligations consisting of a promissory note (GE 8% loan agreement) and other payables which were incurred after the issuance of such promissory note. Recleim has agreed to indemnify, and hold ARCA harmless from any action to be taken by GE relating to such obligations.
AFCO Finance
On June 16, 2017, we entered into a financing agreement with AFCO Credit Corporation (“AFCO”) purchased through Marsh Insurance on an annual basis to fund the annual premiums on insurance policies purchased through Marsh Insurance.due July 1 of each year. These policies relate to workers’ compensation and various liability policies including, but not limited to, General, Auto, Umbrella, Property, and Directors’ and Officers’. insurance. The total amount of the premiums financed is $1,070in July 2022 was approximately $516,000 with an interest rate of 3.567%.ranging from approximately 6.0% over the period. An initial down payment of $160approximately $129,000 was paidmade on June 16, 2017 and anJuly 21, 2022 with additional 10 monthly payments of $92 will beapproximately $59,000, escalating to approximately $69,000 over the term, being made beginning JulyAugust 1, 20172022 and ending on April 1, 2018. The outstanding principal at the end of September 30, 2017 and December 31, 2016 was $639 and $0, respectively.
Susquehanna Term Loans
On March 10, 2011, AAP entered into three separate commercial term loans (“BB&T Term Loans”) with Branch Banking Trust Company, as successor to Susquehanna Bank, (“BB&T”) pursuant to the guidelines of the U.S. Small Business Administration 7(a) Loan Program. The aggregate principal amount of the BB&T Term Loans was $4,750, divided into three separate loans with principal amounts of $2,100; $1,400; and $1,250, respectively. The BB&T Term Loans matured in ten years and bore an interest rate of prime plus 2.75%. Borrowings under the BB&T Term Loans were secured by substantially all of the assets of AAP along with liens on the business assets and certain personal assets of the owners of 4301 Operations, LLC. We were a guarantor of the BB&T Term Loans along with 4301 Operations, LLC and its members. In connection with the BB&T Term Loans, BB&T had a security interest in the recycling equipment assets of the Company. The BB&T Term Loans entered into by AAP were paid in full on August 15, 2017 and BB&T’s security interest in the recycling equipment assets of the Company was terminated and released.
Energy Efficiency Investments LLC
On November 8, 2016, the Company entered into a securities purchase agreement with Energy Efficiency Investments, LLC, pursuant to which the Company agreed to issue up to $7,732 principal amount of 3% Original Issue Discount Senior Convertible Promissory Notes of the Company and related common stock purchase warrants. These notes will be issued from time to time, up to such aggregate principal amount, at the request of the Company, subject to certain conditions, or at the option of Energy Efficiency Investments, LLC. Interest accrues at the rate of eight percent per annum on the principal amount of the notes outstanding from time to time, and is payable at maturity or, if earlier, upon conversion of these notes. The principal amount of these notes outstanding at September 30, 2017 and December 31, 2016, was $103.
14.2023.
Contracts: We have entered into material contracts with three appliance manufacturers. Under the agreements there are no minimum purchase commitments; however, we have agreed to indemnify the manufacturers for certain claims, allegations or losses with respect to appliances we sell.
Litigation:
In February 2012, various individuals commenced a class action lawsuit against Whirlpool Corporation (“Whirlpool”) and various distributors of Whirlpool products, including Sears, The Home Depot, Lowe’s and us, alleging certain appliances Whirlpool sold through its distribution chain, which includes us, were improperly designated with the ENERGY STAR® qualification rating established by
AMTIM Capital Inc. (“AMTIM”) provided management and sales services in respect of our recycling services in Canada, and was paid pursuant to agreements between AMTIM and us. A dispute arose between AMTIM and us with respect to the calculation of amounts due to AMTIM pursuant to the agreements. In a lawsuit filed in the province of Ontario on March 29, 2011, AMTIM claimed a discrepancy in the calculation of fees due to AMTIM by us in excess of $1.6 million. On December 9, 2011 the United States District Court for the District of Minnesota issuedNevada naming the Company and one of its executive officers, Virland Johnson, the Company's Chief Financial Officer, as defendants (collectively, the “Defendants”).
We are
15. Income Taxes
our financial condition as of July 1, 2023.
| Options Outstanding | Weighted Average Exercise Price | Aggregate Intrinsic Value | Weighted Average Remaining Contractual Life | ||||||||||||||||||||
| Outstanding at January 1, 2022 | 117,500 | $ | 7.16 | $ | 21 | 7.0 | |||||||||||||||||
| Cancelled/expired | (7,500) | — | |||||||||||||||||||||
| Outstanding at December 31, 2022 | 110,000 | $ | 6.27 | $ | — | 6.5 | |||||||||||||||||
| Granted | 10,000 | 1.53 | |||||||||||||||||||||
| Cancelled/expired | (6,000) | $ | 9.45 | ||||||||||||||||||||
| Balance at July 1, 2023 | 114,000 | $ | 5.68 | $ | — | 6.6 | |||||||||||||||||
| Exercisable at July 1, 2023 | 111,000 | $ | 5.79 | $ | — | 6.6 | |||||||||||||||||
We regularly evaluate both positive and negative evidence relatedJuly 2, 2022, respectively.
16. Series AA-1 Preferred Stock
outstanding, respectively.
To accomplish the designation and issuance of the Series A Preferred Stock, we filed a Certificate of Designation with the Secretary of State of the State of Minnesota. On November 9, 2017, we filed a Certificate of Correction with the Minnesota Secretary of State. The following summary of the Series A Preferred Stock and Certificate of Designation does not purport to be complete and is qualified in its entirety by reference to the provisions of applicable law and to the Certificate of Designation and Certificate of Correction, which is filed as Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q, as amended, for the quarterly period endedcommon shares at a
Dividends
We cannot declare, pay or set aside any dividends on shares of any other class or series of our capital stock unless (in addition to the obtaining of any consents required by our Articles of Incorporation) the holders of the Series A Preferred Stock then outstanding shall first receive, or simultaneously receive, a dividend in the aggregate amount of $1.00, regardless of the number of then-issued and outstandingDecember 31, 2022, there were 100,000 shares of Series A Preferred Stock. Any remaining dividends allocated by the Board of Directors shall be distributed in an equal amount per share to the holders of outstanding common stock and Series A Preferred Stock (on an as-if-converted to common stock basis pursuant to the Conversion Ratio as defined below).
Liquidation Rights
Immediately prior to the occurrence of any liquidation, dissolution or winding up of the Company, whether voluntary of involuntary, all shares of Series AS Convertible Preferred Stock automatically convert into shares of our common stock based upon the then-applicable “conversion ratio” (as defined below) and shall participate in the liquidation proceeds in the same manner as other shares of our common stock.
Conversion
The Series A Convertible Preferred Stock is not convertible into shares of our common stock except as described below.
Subject to the third sentence of this paragraph, each holder of a share of Series A Preferred Stock has the right, exercisable at any time and from time to time (unless otherwise prohibited by law, rule or regulation, or as restricted below), to convert any or all of such holder’s shares of Series A Preferred Stock into shares of our common stock at the conversion ratio. The “conversation ratio”
| For the Thirteen Weeks Ended | For the Twenty-Six Weeks Ended | ||||||||||||||||||||||
| July 1, 2023 | July 2, 2022 | July 1, 2023 | July 2, 2022 | ||||||||||||||||||||
| Continuing Operations | |||||||||||||||||||||||
| Basic | |||||||||||||||||||||||
| Net income (loss) from continuing operations | $ | 79 | $ | (227) | $ | (583) | $ | 2,392 | |||||||||||||||
| Weighted average common shares outstanding | 3,665,887 | 3,150,230 | 3,432,374 | 3,150,230 | |||||||||||||||||||
| Basic income (loss) per share from continuing operations | $ | 0.02 | $ | (0.07) | $ | (0.17) | $ | 0.76 | |||||||||||||||
| Diluted | |||||||||||||||||||||||
| Net income (loss) from continuing operations | $ | 79 | $ | (227) | $ | (583) | $ | 2,392 | |||||||||||||||
| Weighted average common shares outstanding | 3,665,887 | 3,496,250 | 3,432,374 | 3,496,250 | |||||||||||||||||||
| Diluted income (loss) per share from continuing operations | $ | 0.02 | $ | (0.06) | $ | (0.17) | $ | 0.68 | |||||||||||||||
| Discontinued Operations | |||||||||||||||||||||||
| Basic | |||||||||||||||||||||||
| Net income from discontinued operations | $ | 44 | $ | 9,101 | $ | 10,790 | $ | 7,693 | |||||||||||||||
| Weighted average common shares outstanding | 3,665,887 | 3,150,230 | 3,432,374 | 3,150,230 | |||||||||||||||||||
| Basic income per share from discontinued operations | $ | 0.01 | $ | 2.89 | $ | 3.14 | $ | 2.44 | |||||||||||||||
| Diluted | |||||||||||||||||||||||
| Net income from discontinued operations | $ | 44 | $ | 9,101 | $ | 10,790 | $ | 7,693 | |||||||||||||||
| Weighted average common shares outstanding | 3,665,887 | 3,496,250 | 3,432,374 | 3,496,250 | |||||||||||||||||||
| Diluted income per share from discontinued operations | $ | 0.01 | $ | 2.60 | $ | 3.14 | $ | 2.20 | |||||||||||||||
| Total | |||||||||||||||||||||||
| Basic | |||||||||||||||||||||||
| Net income | $ | 123 | $ | 8,874 | $ | 10,207 | $ | 10,085 | |||||||||||||||
| Weighted average common shares outstanding | 3,665,887 | 3,150,230 | 3,432,374 | 3,150,230 | |||||||||||||||||||
| Basic income per share | $ | 0.03 | $ | 2.82 | $ | 2.97 | $ | 3.20 | |||||||||||||||
| Diluted | |||||||||||||||||||||||
| Net income | $ | 123 | $ | 8,874 | $ | 10,207 | $ | 10,085 | |||||||||||||||
| Weighted average common shares outstanding | 3,665,887 | 3,496,250 | 3,432,374 | 3,496,250 | |||||||||||||||||||
| Diluted income per share | $ | 0.03 | $ | 2.54 | $ | 2.97 | $ | 2.88 | |||||||||||||||
Redemption
Themethod. Additionally, 217,403 shares of Series AA-1 Preferred Stock, have no redemption rights.
Preemptive Rights
Holdersconvertible into approximately 4.5 million of the Company’s common shares, and 100,000 shares of Series AS Preferred Stock, are not entitled to any preemptive rights in respect to any securitiesconvertible into 100,000 of the Company, exceptCompany’s common shares, were excluded from the calculation of diluted earnings per share as, set forth in the Certificateby agreement, these shares could not be converted as of Designation or any other document agreed to by us.
Voting Rights
Each holderJuly 1, 2023.
As discussed above (see Note 3), the recycling and technology segments are being presented as discontinued operations for the 13 and 26 weeks ended July 1, 2023 and July 2, 2022.
| 13 Weeks Ended | 39 Weeks Ended | |||||||||||||||
| September 30, 2017 | October 1, 2016 | September 30, 2017 | October 1, 2016 | |||||||||||||
| Revenues | ||||||||||||||||
| Retail | $ | 13,678 | $ | 15,102 | $ | 44,334 | $ | 47,769 | ||||||||
| Recycling | 11,806 | 12,254 | 30,171 | 29,688 | ||||||||||||
| Technology | – | – | – | – | ||||||||||||
| Total revenues | $ | 25,484 | $ | 27,356 | $ | 74,505 | $ | 77,457 | ||||||||
| Gross profit | ||||||||||||||||
| Retail | $ | 3,996 | $ | 4,089 | $ | 12,933 | $ | 13,149 | ||||||||
| Recycling | 4,433 | 4,362 | 10,238 | 7,929 | ||||||||||||
| Technology | – | – | – | – | ||||||||||||
| Total gross profit | $ | 8,429 | $ | 8,451 | $ | 23,171 | $ | 21,078 | ||||||||
| Operating income (loss) | ||||||||||||||||
| Retail | $ | 308 | $ | (112 | ) | $ | 2,110 | $ | (549 | ) | ||||||
| Recycling | 1,092 | 1,527 | 166 | 84 | ||||||||||||
| Technology | (272 | ) | – | (272 | ) | – | ||||||||||
| Total operating income (loss) | $ | 1,128 | $ | 1,415 | $ | 2,004 | $ | (465 | ) | |||||||
| Depreciation and amortization | ||||||||||||||||
| Retail | $ | 42 | $ | 46 | $ | 131 | $ | 151 | ||||||||
| Recycling | 131 | 256 | 651 | 785 | ||||||||||||
| Technology | 272 | – | 272 | – | ||||||||||||
| Total depreciation and amortization | $ | 445 | $ | 302 | $ | 1,054 | $ | 936 | ||||||||
| Thirteen Weeks Ended | Twenty-Six Weeks Ended | ||||||||||||||||||||||
| July 1, 2023 | July 2, 2022 | July 1, 2023 | July 2, 2022 | ||||||||||||||||||||
| Revenues | |||||||||||||||||||||||
| Biotechnology | $ | — | $ | — | $ | — | $ | — | |||||||||||||||
| Discontinued operations | — | 10,538 | 3,795 | 19,862 | |||||||||||||||||||
| Total Revenues | $ | — | $ | 10,538 | $ | 3,795 | $ | 19,862 | |||||||||||||||
| Gross profit | |||||||||||||||||||||||
| Biotechnology | $ | — | $ | — | $ | — | $ | — | |||||||||||||||
| Discontinued operations | — | 1,649 | (197) | 3,502 | |||||||||||||||||||
| Total Gross profit | $ | — | $ | 1,649 | $ | (197) | $ | 3,502 | |||||||||||||||
| Operating income (loss) | |||||||||||||||||||||||
| Biotechnology | $ | (1,060) | $ | (658) | $ | (2,159) | $ | (1,339) | |||||||||||||||
| Discontinued operations | — | 9,639 | 14,159 | 9,229 | |||||||||||||||||||
| Total Operating income (loss) | $ | (1,060) | $ | 8,981 | $ | 12,000 | $ | 7,890 | |||||||||||||||
| Depreciation and amortization | |||||||||||||||||||||||
| Biotechnology | $ | 362 | $ | — | $ | 726 | $ | 2 | |||||||||||||||
| Discontinued operations | — | 135 | 96 | 268 | |||||||||||||||||||
| Total Depreciation and amortization | $ | 362 | $ | 135 | $ | 822 | $ | 270 | |||||||||||||||
| Interest (income) expense, net | |||||||||||||||||||||||
| Biotechnology | $ | (365) | $ | (167) | $ | (840) | $ | (165) | |||||||||||||||
| Discontinued operations | — | 807 | 181 | 418 | |||||||||||||||||||
| Total Interest expense, net | $ | (365) | $ | 640 | $ | (659) | $ | 253 | |||||||||||||||
| Net income (loss) before income taxes | |||||||||||||||||||||||
| Biotechnology | $ | 62 | $ | (227) | $ | (827) | $ | 2,392 | |||||||||||||||
| Discontinued operations | 1 | 9,105 | 13,976 | 7,700 | |||||||||||||||||||
| Total Net income before income taxes | $ | 63 | $ | 8,878 | $ | 13,149 | $ | 10,092 | |||||||||||||||
| Total minimum consideration | $ | 6,023 | |||
| Payment from buyer | 3 | ||||
| Net consideration | $ | 6,026 | |||
| Accounts payable | 5,323 | ||||
| Accrued liabilities | 3,187 | ||||
| Accrued liabilities - California state sales tax | 6,320 | ||||
| Lease liabilities | 5,285 | ||||
| Debt | 4,530 | ||||
| Accumulated other comprehensive loss | (604) | ||||
| Total disposal of liabilities | 24,041 | ||||
| Total consideration | 30,067 | ||||
| Cash | 145 | ||||
| Accounts receivable | 4,884 | ||||
| Inventory | 67 | ||||
| Property, plant and equipment | 2,767 | ||||
| Intangible assets | 732 | ||||
| Right-of-use assets | 5,075 | ||||
| Other assets | 574 | ||||
| Total disposal of assets | 14,244 | ||||
| Total gain on sale | $ | 15,823 | |||
September 30, 2017 | December 31, 2016 | |||||||
| Assets | ||||||||
| Retail | $ | 15,285 | $ | 17,559 | ||||
| Recycling | 15,721 | 24,297 | ||||||
| Technology | 15,185 | – | ||||||
| Total assets | $ | 46,191 | $ | 41,856 | ||||
| Intangible assets | ||||||||
| Retail | $ | 2 | $ | – | ||||
| Recycling | 55 | 57 | ||||||
| Technology | 15,691 | – | ||||||
| Total intangible assets | $ | 15,748 | $ | 57 | ||||
18.
None.
Dollars stated in thousands, except per–share amounts. July 2, 2022 indicated (in $000’s): 2022, respectively. July 2, 2022 indicated (in $000’s): 2023. GeoTraq. Recycling segment in March 2023, and detail those results as discontinued operations below. Cash Flows in financing activities was approximately $103,000 for the 26 weeks ended July 2, 2022. Cash approximately $9,000. long-term fixed rate debt. Annual Report on Form 10-K for the fiscal year ended December 31, 2016 and Part II, Item 1A of this Quarterly Report on Form 10-Q. Some of the factors that we believe could affect our results include:·our individual retail stores’ profitability;·the volume of appliance sales;·the strength of energy conservation recycling programs;·our continued ability to purchase product from our suppliers at acceptable prices;·the ability of our individual retail stores to meet planned revenue levels;·the number of retail stores;·costs and expenses being realized at higher than expected levels;·our ability to secure an adequate supply of special-buy appliances for resale;·the ability to secure appliance recycling and replacement contracts with sponsors of energy efficiency programs;·the ability of customers to supply units under their recycling contracts with us;·the continued availability of our current line of credit and the outcome of the pending sales and use tax examination in California; and·general economic conditions affecting consumer demand for appliances.We caution you that the foregoing list of important factors may not contain all of the material factors that are important to you. In addition, in light of these risks and uncertainties, the matters referred to in the forward-looking statements contained in this Quarterly Report on Form 10-Q may not in fact occur. Annual Report on Form 10-K for the fiscal year ended December 31, 2016 (including the information presented therein under the caption Risk Factors), as amended, as well astogether with our Quarterly Reports on Forms 10-Q and other publicly available information. All amounts herein are unaudited.18ApplianceCenters of America, Inc.Connexx, and Subsidiaries (“ARCA Canada, we” the “Company” or “ARCA”) are were engaged in the business of being the bridge between utilities or manufacturers to their customers by recycling replacing, and selling major household appliances in North America. We are committed toAmerica by providing turnkey appliance recycling and replacement services for utilities and other sponsors of energy efficiency programs. Also, through our now-sold GeoTraq Inc. subsidiary, we were engaged in the development and have been a pioneerdesign of wireless transceiver modules with technology that provides LBS directly from global Mobile IoT networks.appliance recycling programs. We expect that our recent acquisition of GeoTraq, a development stage company, will ultimately allow us to market and sell products and services that capitalize on the large under-served portion of the location based services market that is not addressed by existing solutions. RFID and Wi-Fi require close proximity for asset tracking, while GPS is too bulky and power hungry for many needs. GeoTraq addresses the white space in-between by exclusively using Cell-ID technology. GeoTraq’s patented technology allows for a substantially lower cost solution, extended service life, a small form factor and even disposable devices, whichthis Quarterly Report, we believe can significantly reduce return logistics costs.We operateoperated three reportable segments:·Retail: Our retail segment offers the latest in innovative appliances from major manufactures. We generate income from the sale of appliances and related services through 18 ApplianceSmart® stores in four geographic areas. We have an online presence. We have two product lines, new and out-of-the-box that give the large manufacturers a channel to move their product without disrupting their normal distribution channels.·Recycling: Our recycling segment is a turnkey appliance recycling program. We receive fees charged for recycling, replacement and additional services for utility energy efficiency programs and have established 17 Regional Processing Centers (“RPCs”) for this segment throughout the United States and Canada.·Technology: Our technology segment is in the development stage with the recent acquisition of GeoTraq. GeoTraq is in the process of developing technology to enable low cost location based products and services through the use of Cell-ID technology.September 30, 2017July 1, 2023 and October 1, 2016indicated: 13 Weeks Ended 13 Weeks Ended September 30, 2017 October 1, 2016 Statement of Income Data (in Thousands): Revenue $ 25,484 100.0% $ 27,356 100.0% Cost of revenue 17,055 66.9% 18,905 69.1% Gross profit 8,429 33.1% 8,451 30.9% Selling, general and administrative expense 7,301 28.6% 7,036 25.7% Operating income 1,128 4.4% 1,415 5.2% Interest (expense), net (207 ) -0.8% (341 ) -1.2% Other income (expense) 329 1.3% 61 0.2% Net income before income taxes 1,250 4.9% 1,135 4.1% Provision (benefit) for income taxes 563 2.2% – 0.0% Net income before noncontrolling interest 687 2.7% 1,135 4.1% Net income (loss) attributed to noncontrolling interest 83 0.3% (12 ) 0.0% Net income attributed to shareholders' of parent $ 770 3.0% $ 1,123 4.1%
indicated (in $000’s):1913 Weeks Ended 13 Weeks Ended July 1, 2023 July 2, 2022 Statement of Operations Data: Revenues $ — $ — Cost of revenues — — Gross profit — — Selling, general and administrative expenses 1,060 658 Operating loss (1,060) (658) Interest income, net 365 167 Unrealized loss on marketable securities — (376) Other income, net 757 640 Net income (loss) before provision of income taxes 62 (227) Income tax benefit (17) — Net income (loss) from continuing operations 79 (227) Income from discontinued operations 1 9,105 Income tax provision (benefit) for discontinued operations (43) 4 Net income from discontinued operations 44 9,101 Net income $ 123 $ 8,874 indicated: 13 Weeks Ended 13 Weeks Ended September 30, 2017 October 1, 2016 Net Percent Net Percent (in the Thousands) Revenue of Total Revenue of Total Revenue Retail Boxed $ 8,718 34.2% $ 10,236 37.4% Retail UnBoxed 4,288 16.8% 4,102 15.0% Retail Delivery 259 1.0% 21 0.1% Retail Service, Parts & Accessories 195 0.8% 560 2.0% Extended Warranties, net 218 0.9% 183 0.7% Recycling, Byproducts, Carbon Offset 8,608 33.8% 8,501 31.1% Replacement Appliances 3,198 12.5% 3,753 13.7% Total Revenue $ 25,484 100.0% $ 27,356 100.0% 13 Weeks Ended 13 Weeks Ended September 30, 2017 October 1, 2016 Gross Gross Gross Gross Profit Profit % Profit Profit % Gross Profit Retail Boxed $ 1,657 19.0% $ 3,226 31.5% Retail UnBoxed 2,395 55.9% 1,308 31.9% Retail Delivery (283 ) -109.3% (1,651 ) -7861.9% Retail Service, Parts & Accessories (161 ) -82.6% 528 94.3% Extended Warranties, net 218 100.0% 183 100.0% Recycling, Byproducts, Carbon Offset 3,476 40.4% 2,914 34.3% Replacement Appliances 1,127 35.2% 1,943 51.8% Total Gross Profit $ 8,429 33.1% $ 8,451 30.9% 13 Weeks Ended 13 Weeks Ended July 1, 2023 July 2, 2022 Net Revenue Percent of Total Net Revenue Percent of Total Revenue Revenue from discontinued operations $ — — % $ 10,538 100.0 % Biotechnology — — % — — % Total revenue $ — — % $ 10,538 100.0 % 13 Weeks Ended 13 Weeks Ended July 1, 2023 July 2, 2022 Gross Profit Gross Profit Percentage Gross Profit Gross Profit Percentage Gross Profit Gross profit from discontinued operations $ — — % $ 1,649 15.6 % Biotechnology — — % — — % Total gross profit $ — — % $ 1,649 15.6 % $1,872 or 6.8%by approximately $10.5 million for the 13 weeks ended September 30, 2017July 1, 2023, as compared to the 13 weeks ended October 1, 2016. On July 18, 2017 the Company had a fire at its’ Reynoldsburg store in Columbus, OH.2, 2022. The damage caused total loss of inventory of $764. The inventory loss has been received by the Company from our insurance carrier. The Reynoldsburg storedecrease is expected to re-open in November 2017. The inventory loss and resulting business interruption and loss of profit is insured subject to a $10 deductible. Sales were adversely affected during the 13 weeks ended September 30, 2017 due to lackthe disposition of operations at the Reynoldsburg store. In the 13 weeks ended Octoberour recycling segment as of March 1, 2016, the Company recorded a one-time carbon offset sale2023.$1,850, or 9.8%by approximately $8.9 million for the 13 weeks ended September 30, 2017July 1, 2023, as compared to the 13 weeks ended OctoberJuly 2, 2022. The decrease is due the disposition of our recycling segment as of March 1, 2016, primarily as a result of the change in revenue discussed above as well as the changes in gross profit discussed below. The Company has made several vendor changes in the area of delivery2023.transportation to improve scalability, costAdministrative Expensecustomer service. Retail UnBoxed Revenue cost of revenue has decreased and the resulting gross profit percentage hasadministrative expenses increased due to re-negotiated purchase discounts with the Company’s UnBoxed vendors.Gross ProfitGross profit decreased $22by approximately $402,000, or 0.3%61.1%, for the 13 weeks ended September 30, 2017July 1, 2023, as compared to the 13 weeks ended October 1, 2016.Gross profit decreased in the following categories as comparedJuly 2, 2022, primarily due to increased amortization costs relating to the prior year period:Retail Boxed $1,569 or 48.6%, Retail Service, Parts and Accessories $689 or 130.5% and Replacement Appliances $816 or 42.0%.Gross profit decreases were partially offsetSoin intangibles. This increase relates only to continuing operations.the following increases in gross profit as compared to the prior year period.Retail UnBoxed $1,087 or 83.1% and Retail Deliver $1,368, Extended Warranties, net $35 or 19.1% and Recycling, Byproducts, Carbon Offset $562 or 19.3%.Gross profit margin as a percentage of sales were improved for Retail UnBoxed 55.9% vs. 31.9%, while Retail Delivery had less of loss, Recycling, Byproducts, Carbon Offset 40.4% vs. 34.3%.Gross profit margin as a percentage of sales declined for Retail Boxed 19.0% vs. 31.5%, Retail Service, Parts and Accessories (82.6%) vs. 94.3%.Selling, General and Administrative ExpenseSelling, general and administrative expense increased $265 or 3.8%,approximately $198,000 for the 13 weeks ended September 30, 2017July 1, 2023, as compared to the 13 weeks ended October 1, 2016.Operating IncomeAs a result of the factors described above, operating income of $1,128 for the 13 weeks ended September 30, 2017, represented a decrease of $287 over the comparable prior year 13 weeks ended October 1, 2016 of $1,415. We expect to receive the business interruption proceeds from the Reynoldsburg store fire in the last quarter of the Company’s fiscal year.Interest Expense, netInterest expense net decreased $134 or 39.3%, for the 13 weeks ended September 30, 2017 as compared to the 13 weeks ended October 1, 2016July 2, 2022 primarily due to decreased ratesthe accretion of discount in connection with the promissory note with SPYR and amountsreceivable from VM7 (see Note 18), as well as interest recorded on the note with SPYR.paid as a result of decreased borrowing.Other Income and ExpenseOtherexpense, other income and expense, increased $268 for the 13 weeks ended September 30, 2017 as compared to the 13 weeks ended October 1, 2016.21Provision for (benefit from) Income TaxesWe recorded a provision for income taxes ($000’s).13 Weeks Ended July 1, 2023 13 Weeks Ended July 2, 2022 Biotechnology Discontinued Operations Total Biotechnology Discontinued Operations Total Revenue $ — $ — $ — $ — $ 10,538 $ 10,538 Cost of revenue — — — — 8,889 8,889 Gross profit — — — — 1,649 1,649 Selling, general and administrative expense 1,060 — 1,060 658 2,251 2,909 Gain on sale of GeoTraq — $ — — — (10,241) (10,241) Operating (loss) income $ (1,060) $ — $ (1,060) $ (658) $ 9,639 $ 8,981 $563 forapproximately $1.1 million and $658,000 related to employee costs and professional services related to research, and corporate services, as well as amortization of the 13 weeks ended September 30, 2017, compared with a provision of $0 in the same period of 2016. The provision for income taxes for the 13 weeks ended September 30, 2017, increased over the same period of 2016 by $563.Net IncomeThe factors described above led to a net income of $770 for the 13 weeks ended September 30, 2017, a decrease of $353 from a net income of $1,123Soin intangibles for the 13 weeks ended July 1, 2023 and the 13 weeks ended July 2, 2016.Thirty-NineTwenty-Six Weeks Ended September 30, 2017July 1, 2023 and October 1, 2016indicated: 39 Weeks Ended 39 Weeks Ended September 30, 2017 October 1, 2016 Statement of Income Data (in Thousands): Revenue $ 74,505 100.0% $ 77,457 100.0% Cost of revenue 51,334 68.9% 56,379 72.8% Gross profit 23,171 31.1% 21,078 27.2% Selling, general and administrative expense 21,167 28.4% 21,543 27.8% Operating income (loss) 2,004 2.7% (465 ) -0.6% Interest (expense), net (636 ) -0.9% (928 ) -1.2% Other income (expense) 5,559 7.5% 155 0.2% Net income (loss) before income taxes 6,927 9.3% (1,238 ) -1.6% Provision (benefit) for income taxes 2,382 3.2% 438 -0.6% Net income (loss) before noncontrolling interest 4,545 6.1% (1,676 ) -2.2% Net income (loss) attributed to noncontrolling interest 496 0.7% 245 0.3% Net income (loss) attributed to shareholders' of parent $ 5,041 6.8% $ (1,431 ) -1.8% 26 Weeks Ended 26 Weeks Ended July 1, 2023 July 2, 2022 Statement of Operations Data: Revenues $ — $ — Cost of revenues — — Gross profit — — Selling, general and administrative expenses 2,159 1,339 Operating loss (2,159) (1,339) Interest income, net 840 165 Gain on litigation settlement — 1,950 Unrealized loss on marketable securities (247) (376) Gain on reversal of contingency loss — 637 Other income, net 739 1,355 Net income (loss) before provision of income taxes (827) 2,392 Income tax benefit (244) — Net income (loss) from continuing operations (583) 2,392 Income from discontinued operations 13,976 7,700 Income tax provision for discontinued operations 3,186 7 Net income from discontinued operations 10,790 7,693 Net income $ 10,207 $ 10,085 indicated: 39 Weeks Ended 39 Weeks Ended September 30, 2017 October 1, 2016 Net Percent Net Percent (in the Thousands) Revenue of Total Revenue of Total Revenue Retail Boxed $ 28,405 38.1% $ 31,168 40.2% Retail UnBoxed 13,206 17.7% 14,042 18.1% Retail Delivery 959 1.3% 786 1.0% Retail Service, Parts & Accessories 684 0.9% 1,121 1.4% Extended Warranties, net 1,080 1.4% 652 0.8% Recycling, Byproducts, Carbon Offset 20,952 28.1% 19,703 25.4% Replacement Appliances 9,219 12.4% 9,985 12.9% Total Revenue $ 74,505 100.0% $ 77,457 100.0%
indicated (in $000’s):2226 Weeks Ended 26 Weeks Ended July 1, 2023 July 2, 2022 Net Revenue Percent of Total Net Revenue Percent of Total Revenue Revenue from discontinued operations $ 3,795 100.0 % $ 19,862 100.0 % Biotechnology — — % — — % Total revenue $ 3,795 100.0 % $ 19,862 100.0 % 39 Weeks Ended 39 Weeks Ended September 30, 2017 October 1, 2016 Gross Gross Gross Gross Profit Profit % Profit Profit % Gross Profit Retail Boxed $ 5,940 20.9% $ 8,693 27.9% Retail UnBoxed 5,746 43.5% 4,445 31.7% Retail Delivery (63 ) -6.6% (1,643 ) -209.0% Retail Service, Parts & Accessories (266 ) -38.9% 1,000 89.2% Extended Warranties, net 1,080 100.0% 652 100.0% Recycling, Byproducts, Carbon Offset 7,535 36.0% 4,495 22.8% Replacement Appliances 3,199 34.7% 3,436 34.4% Total Gross Profit $ 23,171 31.1% $ 21,078 27.2% 26 Weeks Ended 26 Weeks Ended July 1, 2023 July 2, 2022 Gross Profit Gross Profit Percentage Gross Profit Gross Profit Percentage Gross Profit Gross profit from discontinued operations $ (197) -5.2 % $ 3,502 17.6 % Biotechnology — — % — — % Total gross profit $ (197) -5.2 % $ 3,502 17.6 % $2,952by approximately $16.1 million, or 3.8%80.9%, for the 3926 weeks ended September 30, 2017July 1, 2023, as compared to the 3926 weeks ended OctoberJuly 2, 2022. The decrease is due to the disposition of our recycling segment as of March 1, 2016.inby approximately $7.5 million for the following categories26 weeks ended July 1, 2023, as compared to the prior year period:Retail Boxed $2,76326 weeks ended July 2, 2022. The decrease is primarily due the disposition of our recycling segment as of March 1, 2023.8.9%61.2%, Retail Unboxed $836 or 6.0%, Retail Service, Parts and Accessories $437 or 39.0% and Replacement Appliances $766 or 7.7%.The revenue decreases were partially offset byfor the following increases in revenue26 weeks ended July 1, 2023, as compared to the prior year period:Retail Delivery $173 or 22.0%, Extended Warranties,26 weeks ended July 2, 2022, primarily due to increased amortization costs relating to the Soin intangibles. This increase relates only to continuing operations. $428 or 65.6% and Recycling, Byproducts, Carbon Offset $1,249 or 6.3%.Cost of RevenueCost of revenue decreased $5,045, or 8.9%3926 weeks ended September 30, 2017July 1, 2023, as compared to the 3926 weeks ended October 1, 2016,July 2, 2022 primarily as a resultdue to the accretion of discount in connection with the change in revenue discussed abovepromissory note with SPYR and receivable from VM7 (see Note 18), as well as interest recorded on the changes in gross profit discussed below.Gross ProfitGross profit increased $2,093 or 9.9%,note with SPYR.3926 weeks ended September 30, 2017July 1, 2023, as compared to the 3926 weeks ended October 1, 2016.Gross profit increasedJuly 2, 2022. An unrealized gain or loss on marketable securities is recorded to mark to fair value securities received in the following categories as comparedconnection to the prior year period:Retail UnBoxed $1,301 or 29.3%, Retail Delivery $1,580, Extended Warranties, net $428 or 65.6% and Recycling, Byproducts, Carbon Offset $3,040 or 67.6%.Gross profit increases were partially offset by the following decreases in gross profit as compared to the prior year period.Retail Boxed $2,753 or 31.7%, Retail Service, Parts and Accessories $1,266 or (126.6%), and Replacement Appliances $237 or 6.9%.Gross profit margin as a percentage of sales were improved for Retail UnBoxed 43.5% vs. 31.7%, Retail Delivery (6.6%) vs. -209.0%, Retail Service, Parts and Accessories (38.9%) vs. 89.2%, Recycling, Byproducts and Carbon Offset 36.0% vs. 22.8% and Replacement Appliances 34.7% vs. 34.4%.Gross profit margin as a percentage of sales declined for Retail Boxed 20.9% vs. 27.9% and Retail Service, Parts and Accessories (38.9%) vs. 89.2%.23Selling, General and Administrative ExpenseSelling, general and administrative expense decreased $376 or 1.7%, for the 39 weeks ended September 30, 2017 as compared to the 39 weeks ended October 1, 2016.Operating IncomeAs a result of the factors described above, operating income of $2,004 for the 39 weeks ended September 30, 2017, represented an increase of $2,469 over the comparable prior year 39 week period of $(465).Interest Expense, netInterest expense net decreased $292 or 31.5%, for the 39 weeks ended September 30, 2017 as compared to the 39 weeks ended October 1, 2016 primarily due to decreased rates of interest paid and amounts borrowed.Other Income and ExpenseOther income and expense increased $5,404 for the 39 weeks ended September 30, 2017 as compared to the 39 weeks ended October 1, 2016, primarily due to the gain on sale of property of $5,163.Provision for (benefit from) Income TaxesWe recorded a provision for income taxes of $2,382 for the 39 weeks ended September 30, 2017, compared with a provision of $438 in the same period of 2016. The provision for income taxes for the 39 weeks ended September 30, 2017, increased over the same period of 2016 by $1,944, primarily due to an increase in earnings from the disposition of our Compton California land and building.Net IncomeThe factors described above and the gain from the sale of our Compton California land and building of $5,163 led to a net income of $5,041 for the 39 weeks ended September 30, 2017, an increase of $6,472 from a net loss of $1,431 for the 39 weeks ended October 1, 2016.Retail, RecyclingBiotechnology and Technology.discontinued operations. We identified these segments based on a combination of business type, customers serviced and how we divide management responsibility. Ourexpect revenues and profits for our biotechnology segment to be driven by the development of pharmaceuticals that treat the root cause of pain but are driven throughnon-opioid painkillers. We include Corporate expenses within the Biotechnology segment. As discussed above, we sold our physical stores, our recycling centers, e-commerce, individual sales repsTechnology segment, GeoTraq, during the fiscal year ended December 31, 2022, and our internet services.income (loss)loss by operating segment, is defined as income (loss)loss before net interest expense, other income and expense, provision for income taxes and income (loss) attributable to non-controlling interest. 13 Weeks Ended September 30, 2017 13 Weeks Ended October 1, 2016 Segments in $ Segments in $ (in the thousands) Retail Recycling Technology Total Retail Recycling Technology Total Revenue $ 13,678 $ 11,806 $ – $ 25,484 $ 15,102 $ 12,254 $ – $ 27,356 Cost of revenue 9,852 7,203 – 17,055 11,508 7,397 – 18,905 Gross profit 3,826 4,603 – 8,429 3,594 4,857 – 8,451 Selling, general and administrative expense 3,518 3,511 272 7,301 3,706 3,330 – 7,036 Operating income (loss) $ 308 $ 1,092 $ (272 ) $ 1,128 $ (112 ) $ 1,527 $ – $ 1,415
($000’s).24 13 Weeks Ended September 30, 2017 13 Weeks Ended October 1, 2016 Segments in % Segments in % Retail Recycling Technology Total Retail Recycling Technology Total Revenue 100.0% 100.0% 0.0% 100.0% 100.0% 100.0% 0.0% 100.0% Cost of revenue 72.0% 61.0% 0.0% 66.9% 76.2% 60.4% 0.0% 69.1% Gross profit 28.0% 39.0% 0.0% 33.1% 23.8% 39.6% 0.0% 30.9% Selling, general and administrative expense 25.7% 29.7% 100.0% 28.6% 24.5% 27.2% 0.0% 25.7% Operating income (loss) 2.3% 9.2% -100.0% 4.4% -0.7% 12.5% 0.0% 5.2% Retail SegmentSegment results for Retail include Appliancesmart. Revenue for the 13 weeks ended September 30, 2017 decreased $1,424, or 9.4%, as compared to the prior year period, as a result of decreases in Retail Boxed $1,518 or 14.8%, Retail Service, Parts and Accessories $365 or 65.2%; partially offset by Extended Warranties, net $35 or 19.1%, Retail UnBoxed $186 or 4.5%, and Retail Delivery $238.Cost of revenue for the 13 weeks ended September 30, 2017 decreased $1,656 or 14.4%, as compared to the prior year period, as a result of cost of revenue a decrease in Retail UnBoxed $901 or 32.2% and Retail Delivery $1,130; partially offset by an increase in Retail Service, Parts and Accessories $324, and Retail Boxed $51.Operating income for the 13 weeks ended September 30, 2017 increased $420, as compared to the prior year period, as a result of increased gross profit of $232 and decreased selling, general and administrative expense of $188.Recycling SegmentSegment results for ARCA Recycling, Customer Connexx, ARCA Canada and AAP (through August 15, 2017). Revenue for the 13 weeks ended September 30, 2017 decreased by $448, or 3.7%, as compared to the prior year period, as a result of decreases in Replacement Appliances $555 or 14.8%; partially offset by Recycling, Byproducts, Carbon Offset Revenue of $107 or 1.3%.Cost of revenue for the 13 weeks ended September 30, 2017 decreased $194 or 2.6%, as compared to the prior year period; as a result of an increase in Replacement Appliances $261 or 14.4%; partially offset by a decrease in cost of revenue of Recycling, Byproducts, Carbon Offset $455 or 8.1%.Operating income for the 13 weeks ended September 30, 2017 decreased $435, as compared to the prior year period; as a result of decreased gross profit of $254; offset by increased selling, general and administrative expense of $181.Technology SegmentSegment results for Technology include GeoTraq. Results for the 13 weeks ended September 30, 2017 include intangible asset amortization expense for $272. No prior year period results as this acquisition was completed August 18, 2017. 39 Weeks Ended September 30, 2017 39 Weeks Ended October 1, 2016 Segments in $ Segments in $ (in the thousands) Retail Recycling Technology Total Retail Recycling Technology Total Revenue $ 44,334 $ 30,171 $ – $ 74,505 $ 47,769 $ 29,688 $ – $ 77,457 Cost of revenue 31,897 19,437 – 51,334 34,622 21,757 – 56,379 Gross profit 12,437 10,734 – 23,171 13,149 7,929 – 21,078 Selling, general and administrative expense 10,327 10,568 272 21,167 13,698 7,845 – 21,543 Operating income (loss) $ 2,110 $ 166 $ (272 ) $ 2,004 $ (549 ) $ 84 $ – $ (465 ) 39 Weeks Ended September 30, 2017 39 Weeks Ended October 1, 2016 Segments in % Segments in % Retail Recycling Technology Total Retail Recycling Technology Total Revenue 100.0% 100.0% 0.0% 100.0% 100.0% 100.0% 0.0% 100.0% Cost of revenue 71.9% 64.4% 0.0% 68.9% 72.5% 73.3% 0.0% 72.8% Gross profit 28.1% 35.6% 0.0% 31.1% 27.5% 26.7% 0.0% 27.2% Selling, general and administrative expense 23.3% 35.0% 100.0% 28.4% 28.7% 26.4% 0.0% 27.8% Operating income (loss) 4.8% 0.6% -100.0% 2.7% -1.1% 0.3% 0.0% -0.6% 2526 Weeks Ended July 1, 2023 26 Weeks Ended July 2, 2022 Biotechnology Discontinued Operations Total Biotechnology Discontinued Operations Total Revenue $ — $ 3,795 $ 3,795 $ — $ 19,862 $ 19,862 Cost of revenue — 3,992 3,992 — 16,360 16,360 Gross profit — (197) (197) — 3,502 3,502 Selling, general and administrative expense 2,159 1,468 3,627 1,339 4,514 5,853 Gain on sale of GeoTraq — (15,824) (15,824) — (10,241) (10,241) Operating (loss) income $ (2,159) $ 14,159 $ 12,000 $ (1,339) $ 9,229 $ 7,890 Retail SegmentSegment results for Retail include Appliancesmart. Revenue for the 39 weeks ended September 30, 2017 decreased $3,435, or 7.2%, as compared to the prior year period, as a result of decreases in Retail Boxed $2,763 or 8.9%, Retail UnBoxed $836 or 6.0%, Retail Service, Parts and Accessories $437 or 39.0%; partially offset by Extended Warranties, net $428 or 65.6%, and Retail Delivery $173 or 22.0%.Cost of revenue for the 39 weeks ended September 30, 2017 decreased $2,725 or 7.9%, as compared to the prior year period, as a result of decreases in cost of revenue of Retail Boxed $10, Retail Unboxed $2,137 or 22.3%, Retail Delivery $1,407; partially offset by an increase in Retail Service, Parts and Accessories $829.Operating income for the 39 weeks ended September 30, 2017 increased $2,659, as compared to the prior year period, as a result of decreased selling, general and administrative expense of $3,371 partially offset by a decrease in gross profit of $712.Recycling SegmentSegment results for ARCA Recycling, Customer Connexx, ARCA Canada and AAP (through August 15, 2017). Revenue for the 39 weeks ended September 30, 2017 increased by $483, or 1.6%, as compared to the prior year period, as a result of increases in Recycling, Byproducts, Carbon Offset revenue of $1,249 or 6.3%; partially offset by a decrease in Replacement Appliance revenue $766 or 7.7%.Cost of revenue for the 39 weeks ended September 30, 2017 decreased $2,320 or 10.7%, as compared to the prior year period; as a result of decreases in cost of revenue of Replacement Appliances $529 or 8.1% and Recycling, Byproducts, Carbon Offset $1,791 or 11.8%.Operating income for the 39 weeks ended September 30, 2017 increased $82, as compared to the prior year period; as a result of increased gross profit of $2,805 partially offset by an increase in selling, general and administrative expense of $2,723.Technology SegmentSegment results for Technology include GeoTraq. Results for the 39 weeks ended September 30, 2017 include intangible asset amortization expense for $272. No prior year period results as this acquisition was completed August 18, 2017.Basedcurrent operating plans, we believe that available cash balances, cash generated from our operating activitiesSubsidiaries, and funds available under (“received from approved ERC’s. We intend to raise funds to support future development of JAN 123 and JAN 101 either through capital raises or structured arrangements.MidCap Revolver”), salesuccess of assetsfuture capital raises or structured settlements to fund the required testing to obtain FDA approval of JAN 123 and or other refinancing of existing indebtedness will provide sufficient liquidityJAN 101, as well as to fund our operations, our continued investments in store openings and remodeling activities for at least the next 12 months.day-to-day operations. The Company refinanced and replaced the PNC Bank Revolver loan facility with the MidCap Revolver in Mayaccompanying financial statements do not include any adjustments that might be necessary should we be unable to continue as a going concern. While we will actively pursue these additional sources of 2017.On September 20, 2017 the Company received a written default notice from MidCap Funding Trust X, the Agent representing the Lenders for the MidCap Revolver. The Company strongly disagrees with the Lendersfinancing, management cannot make any assurances that any Event of Default has occurred and is reserving all of its options with respect to the Loan Agreement. The Company and the Agent are in active discussions for forbearance and resolution of the default, however there can be no assurance the Company and the Agentsuch financing will be able to agree on terms of the forbearance. The Company is classifying the Mid-Cap Revolver as a current liability until forbearance and resolution of the default is cured.As of September 30, 2017, we had total cash on hand of $1,994 and an additional $3,616 of available borrowing under the MidCap Revolver. As we continue to pursue strategic transactions to expand and grow our business, we regularly monitor capital market conditions and may raise additional funds through borrowings or public or private sales of debt or equity securities. The amount, nature and timing of any borrowings or sales of debt or equity securities will depend on our operating performance and other circumstances; our then-current commitments and obligations; the amount, nature and timing of our capital requirements; any limitations imposed by our current credit arrangements; and overall market conditions.
secured.263926 weeks ended September 30, 2017,July 1, 2023, cash provided by operations was $2,363,approximately $2.3 million, compared to cash provided by operations of $3,719approximately $1.5 million during the 3926 weeks ended October 1, 2016. The decrease in cashJuly 2, 2022. Cash provided by discontinued operations of $1,356 as compared toduring the prior year period;26 weeks ended July 1, 2023 was approximately $2.3 million, while cash used in continuing operations was approximately $9,000. The increase in cash was primarily due to a decreaseresults of operations as discussed above. cash provided by stock compensation expense of $232, change in reserve for inventory obsolescence of $124, gain on sale of property of $5,163, gain on sale of and deconsolidation of variable interest entity AAP of $81; partially offset by non-cash depreciation and amortization of $118, amortization of debt issuance costs of $126, change in reserve for uncollectible accounts $7, change in deferred income taxes of $337 and change in other of $716. Change in net income represented a positive change in operating cash flow of $6,221 offset by uses of cash in working capital accounts of $3,281.Cash provided by investing activities was $6,323approximately $156,000 and $910,000, respectively, for the 26 weeks ended July 1, 2023 and the 26 weeks ended July 2, 2022. Cash used byin investing activities $266 for the 3926 weeks ended September 30, 2017July 1, 2023 was all associated with discontinued operations and was related to purchases of property and equipment. Cash used in investing activities for the 3926 weeks ended October 1, 2016, respectively. The $6,589 increase in cash provided by investing activities, as comparedJuly 2, 2022 was all associated with discontinued operations and related to the prior period, is primarily attributable to the proceeds from the salepurchases of property and equipment and intangibles.$6,785debt obligations. Cash provided by financing activities from continued operations for the 26 weeks ended July 1, 2023 was approximately $94,000 and a decreasewas related to $368,000 in purchase of property and equipment of $137, proceeds from the sale of our equity investment in AAP of $800 less cash retained by AAP of $157 and other of $22;financing, partially offset by an increase$274,000 in restricted cash of $798, and cash $200debt repayments. Cash used to purchase an intangible asset (GeoTraq) net of debt and Series A preferred stock issued.usedprovided by financing activities was $7,675 and $3,705from discontinued operations for the 3926 weeks ended September 30, 2017July 2, 2022 was approximately $185,000, and the 39 weeks ended October 1, 2016, respectively. The $3,970 increase in cash used, as comparedwas primarily due to the prior period, was attributable to increased payments under the PNC Revolver of $7,474, debt obligations of $723 and debt issuance costs $359; partially offset by an increase in the proceeds from the issuance of debt. Cash used in financing activities from continuing operations for the 26 weeks ended July 2, 2022 was $288,000 and was primarily due to the repayment of debt obligationsobligations.$970Liquidityincreaseunrealized loss on marketable securities of $376,000. Additionally, the Company has total current assets of approximately $286,000 and total current liabilities of approximately $2.9 million resulting in a net borrowing under the MidCap Revolvernegative working capital of $3,616.Sources of LiquidityWe utilize cash on hand and cash generated fromapproximately $2.6 million. Cash provided by continuing operations and have funds available to us under our revolving loan facility with MidCap Financial Trust to cover normal and seasonal fluctuations in cash flows and to support our various growth initiatives. Our cash and cash equivalents are carried at cost and consist primarily of demand deposits with commercial banks.MidCap RevolverOn September 30, 2017 and December 31, 2016, our available borrowing capacity under the Credit Agreement is $2,416 and $0, respectively. The weighted average interest rate for the period of May 10, 2017 through September 30, 2017 was 5.66%. We borrowed $45,099 and repaid $41,483 on the Credit Agreement during the period of May 10, 2017 through September 30, 2017, leaving an outstanding balance on the Credit Agreement of $3,616 and $0 at September 30, 2017 and December 31, 2016, respectively.refinance existing indebtednessconduct our Phase IIb clinical trials, or consummate other strategic investments in our business. Other sources of financing may include stock issuances and additional loans; or other forms of financing. AnyNo assurance can be given any financing obtained may not further dilute or otherwise impair the ownership interest of our existing stockholders.Foreign Currency ExchangeRisk. We currently generate revenues in Canada. The reporting currency for our consolidated financial statements is U.S. dollars. It is not possible to determine the exact impact of foreign currency exchange rate changes; however, the effect on reported revenue and net earnings can be estimated. We estimate that the U.S. dollar against the Canadian dollar had an immaterial impact on revenues and net income for the 13 Week and 39 Week periods ended September 30, 2017.Risk. We do not currently hedge foreign currencybelieve there is any significant risk related to interest rate fluctuations on our short and do not intend to do so for the foreseeable future.27have established disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed by us in the reports we file or submitcarried out an evaluation, under the Exchange Act is recorded, processed, summarizedsupervision and reported withinwith the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated toparticipation of our management, including our Chief Executive Officer (principalprincipal executive officer)officer and Chief Financial Officer (principalprincipal financial officer), to allow timely decisions regarding required disclosure.Our management, including our Chief Executive Officer and Chief Financial Officer, evaluatedofficer, of the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) promulgated) to ensure that information required to be disclosed in reports filed under the Securities Exchange Act), at September 30, 2017. Act of 1934 is recorded, processed, summarized and reported within the required time periods and is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.onupon that evaluation, our Chief Executive Officerprincipal executive officer and Chief Financial Officerprincipal financial officer concluded that, at September 30, 2017,as of April 1, 2023, the period covered in this report, our disclosure controls and procedures were effective.Changesnot effective because of the material weaknesses discussed below.overOver Financial ReportingDuring the secondthird quarters of fiscal 2017, covered by this Quarterly Report on Form 10-Q, we made certain changes to ourmaintaining adequate internal control over financial reporting (as defined in RuleExchange Act Rules 13a-15(f) underand 15d-15(f)). Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the Exchange Act). We have upgraded to a new accounting system and improved our control structure by adding and makingrisk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.staff for each subsidiary company. WeCFO, do not believe this hasexpect that the Company’s disclosure controls and procedures or the Company’s internal control over financial reporting will prevent or detect all error and all fraud. A control system, regardless of how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system will be met. These inherent limitations include the following: judgements in decision-making can be faulty, and control and process breakdowns can occur because of simple errors or mistakes, controls can be circumvented by individuals, acting alone or in collusion with each other, or by management override, the design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected.isare reasonably likely to materially affect, ourthe Company’s internal control over financial reporting.28On November 6, 2015, a complaint was filedthe Minnesota District Court for Hennepin County, Minnesota, by David Grayresponse to this item is included in Note 12, Commitments and Michael Boller, purporting to bring suit derivatively on behalf of the Company against twelve current and former officers and directors of the Company. The complaint alleged that the defendants breached their fiduciary dutiesContingencies, to the Company, and that the defendants have been unjustly enriched as a result thereof. The complaint sought damages, disgorgement, an awardConsolidated Financial Statements included in Part I, Item 1, of attorneys’ fees and other expenses, and an order compelling changes to the Company’s corporate governance and internal procedures. The Company and the other defendants vigorously denied plaintiffs’ allegations, and have not admitted any liability or wrongdoing as part of the settlement. The court made no findings or determinations with respect to the merit of plaintiffs’ claims, and no payment is being made by the Company or the other defendants. The parties have reached a settlement that fully resolves plaintiffs’ claims and provides for the release of all claims asserted in the litigation. On August 2, 2017, the court entered an order granting preliminary approval of the settlement. On September 29, 2017, the court issued an order granting final approval of the settlement. As a condition of the settlement, the Company has agreed to provide certain training to employees in the Company’s accounting department within one year of the settlement. The court also granted an application by plaintiffs’ counsel for attorneys’ fees, to be paid by the Company’s insurance carrier. Other than this award of attorneys’ fees, no payment or other consideration was paid by the Company nor its officers or directors in connection with the settlement.In February 2012, various individuals commenced a class action lawsuit against Whirlpool Corporation (“Whirlpool”) and various distributors of Whirlpool products, including Sears, The Home Depot, Lowe’s and us, alleging certain appliances Whirlpool sold through its distribution chain, which includes us, were improperly designated with the ENERGY STAR® qualification rating established by the U.S. Department of Energy and the Environmental Protection Agency. The claims against us include breach of warranty claims, as well as various state consumer protection claims. The amount of the claim is, as yet, undetermined. Whirlpool has offered to fully indemnify and defend its distributors in this lawsuit, including us, and has engaged legal counsel to defend itself and the distributors. We are monitoring Whirlpool’s defense of the claims and believe the possibility of a material loss is remote.AMTIM Capital Inc. (“AMTIM”) provided management and sales services in respect of our recycling services in Canada, and was paid pursuant to agreements between AMTIM and us. A dispute arose between AMTIM and us with respect to the calculation of amounts due to AMTIM pursuant to the agreements. In a lawsuit filed in the province of Ontario on March 29, 2011, AMTIM claimed a discrepancy in the calculation of fees due to AMTIM by us in excess of $1.6 million. On December 9, 2011 the United States District Court for the District of Minnesota issued a declaratory default judgment to the effect that our method of calculating of the amounts due to AMTIM is correct. Although the Ontario action continues, and its outcome is uncertain, we believe that no further amounts are due under the terms of these agreements and we will continue to defend our position relative to this lawsuit.On December 29, 2016, ARCA served a Minnesota state court complaint for breach of contract on Skybridge Americas, Inc. (“SA”), ARCA’s primary call center vendor throughout 2015 and most of 2016. ARCA seeks damages in the millions of dollars as a result of alleged overcharging by SA and lost client contracts. On January 25, 2017, SA served a counterclaim for unpaid invoices in the amount of approximately $460,000 plus interest and attorneys’ fees. On March 29, 2017, the Hennepin County district court dismissed ARCA’s claim based on the currency differential between the United States and Canada, but permitted ARCA’s remaining claims to proceed. The parties are currently conducting discovery. On October 24, 2017, ARCA filed a motion for partial summary judgment. ARCA intends to vigorously dispute SA’s counterclaims.On November 15, 2016, ARCA served an arbitration demand on Haier US Appliance Solutions, Inc, dba GE Appliances (“GEA”), alleging breach of contract and interference with prospective business advantage. ARCA seeks over $2 million in damages. On April 18, 2017, GEA served a counterclaim for approximately $337,000 in alleged obligation under the parties’ recycling agreement. Simultaneously with serving its counterclaim in the arbitration, which is venued in Chicago, GEA filed a complaint in the United States District Court for the Western District of Kentucky seeking damages of approximately $530,000 plus interest and attorneys’ fees allegedly owed under a previous agreement between the parties. On May 31, 2017, ARCA moved to dismiss or stay the Kentucky lawsuit in favor of the pending arbitration. ARCA’s motions have not been ruled upon. Under the terms of ARCA’s transaction with Recleim LLC, Recleim LLC is obligated to pay GEA on ARCA’s behalf the amounts claimed by GEA in the arbitration and in the lawsuit pending in Kentucky.We are party from time to time to ordinary course disputes that we do not believe to be material or have merit. We intend to vigorously defend ourselves against these ordinary course disputes.
Form 10-Q.29On September 20, 2017, Appliance Recycling CentersAmerica, Inc. (the “Company”) received a written notice of default, dated September 20, 2017 (the “Notice of Default”), from MidCap Funding X Trust (the “Agent”), asserting that events of default had occurred with respect to that certain Credit and Security Agreement dated May 10, 2017 (the “Loan Agreement”), by and among the Agent and certain other Lenders (the “Lenders”), and the Company and certain of its subsidiaries (the “Borrowers”). The Agent alleges in the Notice of Default that, as a result of the Company’s recent acquisition of GeoTraq Inc. (“GeoTraq”), and the issuance of promissory notes to the stockholders of GeoTraq in connection with such acquisition, the Borrowers have failed to comply with certain terms of the Loan Agreement, and that such failure constitutes one or more Events of Default under the Loan Agreement. Specifically, the Notice of Default states that as a result of the acquisition and related issuance of promissory notes, the Borrowers have failed to comply with (i) a covenant not to incur additional indebtedness other than Permitted Debt (as defined in the Loan Agreement), without the Agent’s prior written consent, and a covenant not to make acquisitions or investments other than Permitted Acquisitions or Permitted Investments (as defined in the Loan Agreement). The Notice of Default also states that the Borrowers’ failure to pledge the stock in GeoTraq as collateral under the Loan Agreement and to make GeoTraq a “Borrower “under the Loan Agreement will become an Event of Default if not cured within the applicable cure period. The Agent has reserved the right to avail itself of any other rights and remedies available to it at law or by contract, including the right to (a) withhold funding, increase reserves and suspend making further advances under the Loan Agreement, (b) declare all principal, interest and other sums owing in connection with the Loan Agreement immediately due and payable in full, (c) charge the Default Rate on amounts outstanding under the Loan Agreement, and/or (d) exercise one or more rights and remedies with respect to any and all collateral securing the Loan Agreement. The Agent has not declared the amounts outstanding under the Loan Agreement to be immediately due and payable but has imposed the default rate of interest, which is 5% in excess of the rates otherwise payable under the Loan Agreement), effective as of August 18, 2017 and continuing until the Agent notifies the Borrowers that the specified Events of Default have been waived and no other Events of Default exist.The Company strongly disagrees with the Lenders that any Event of Default has occurred and is reserving all of its options with respect to the Loan Agreement. The Company and the Agent are in active discussions for forbearance and resolution of the default, however there can be no assurance the Company and the Agent will be able to agree on terms of the forbearance.
Contents30Exhibit
NumberExhibit Description Form File
NumberExhibit
NumberFiling
Date10.96 8-K 0-19621 10.95 3/20/2023 10.97 8-K 0-19621 10.96 3/20/2023 10.98 8-K 0-19621 10.98 3/22/2023 31.1 * 31.2 * 32.1 * 32.2 * 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 in Inline XBRL and contained in Exhibit 101) † Furnished herewith.** Pursuant to Rule 406TAppliance Recycling Centers of America, Inc.(Registrant)JanOne Inc.(Registrant) Date:November 14, 2017By:Date: August 15, 2023 By: /s/ Tony Isaac Tony Isaac Chief Executive Officer (Principal Executive Officer) Date:November 14, 2017By:Date: August 15, 2023 By: /s/ Virland AA. JohnsonVirland AA. JohnsonChief Financial Officer (Principal Financial and Accounting Officer) 32