Company Quick10K Filing
Appliance Recycling Centers of America
Price4.26 EPS-4
Shares2 P/E-1
MCap8 P/FCF-2
Net Debt-1 EBIT-8
TEV8 TEV/EBIT-1
TTM 2019-09-28, in MM, except price, ratios
10-Q 2020-03-28 Filed 2020-05-12
10-K 2019-12-28 Filed 2020-04-06
10-Q 2019-09-28 Filed 2019-11-19
10-Q 2019-06-29 Filed 2019-08-19
10-Q 2019-03-30 Filed 2019-05-14
10-K 2018-12-29 Filed 2019-03-29
10-Q 2018-06-30 Filed 2018-08-14
10-Q 2018-03-31 Filed 2018-07-02
10-K 2017-12-30 Filed 2018-06-12
10-Q 2017-09-30 Filed 2018-11-13
10-Q 2017-09-30 Filed 2017-11-14
10-Q 2017-07-01 Filed 2017-08-21
10-Q 2017-04-01 Filed 2017-05-16
10-K 2016-12-31 Filed 2017-03-31
10-Q 2016-10-01 Filed 2016-11-15
10-Q 2016-07-02 Filed 2016-08-16
10-Q 2016-04-02 Filed 2016-05-17
10-K 2016-01-02 Filed 2016-04-04
10-Q 2015-10-03 Filed 2015-11-19
10-Q 2015-07-04 Filed 2015-08-12
10-Q 2015-04-04 Filed 2015-05-27
10-K 2015-01-03 Filed 2015-03-30
10-Q 2014-09-27 Filed 2014-11-07
10-Q 2014-06-28 Filed 2014-08-11
10-Q 2014-03-29 Filed 2014-05-09
10-K 2013-12-28 Filed 2014-03-14
10-Q 2013-09-28 Filed 2013-11-07
10-Q 2013-06-29 Filed 2013-08-08
10-Q 2013-03-30 Filed 2013-05-09
10-K 2012-12-29 Filed 2013-03-22
10-Q 2012-09-29 Filed 2012-11-09
10-Q 2012-06-30 Filed 2012-08-10
10-Q 2012-03-31 Filed 2012-05-10
10-K 2011-12-31 Filed 2012-03-15
10-Q 2011-10-01 Filed 2011-11-10
10-Q 2011-07-02 Filed 2011-08-15
10-Q 2011-04-02 Filed 2011-05-13
10-K 2011-01-01 Filed 2011-03-17
10-Q 2010-10-02 Filed 2010-11-15
10-Q 2010-07-03 Filed 2010-08-16
10-Q 2010-04-03 Filed 2010-05-18
10-K 2010-01-02 Filed 2010-03-18
8-K 2020-05-01 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2020-04-16 Officers
8-K 2020-02-05 Enter Agreement, Exhibits
8-K 2020-01-06 Officers
8-K 2019-12-03 Other Events, Exhibits
8-K 2019-11-19 Enter Agreement, Regulation FD, Exhibits
8-K 2019-11-11 Amendment
8-K 2019-11-04 Shareholder Vote
8-K 2019-10-14 Accountant, Exhibits
8-K 2019-09-09 Officers, Amend Bylaw, Exhibits
8-K 2019-08-28 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2019-06-27 Other Events
8-K 2019-06-25 Other Events, Exhibits
8-K 2019-06-21 Amend Bylaw, Exhibits
8-K 2019-05-20 Other Events, Exhibits
8-K 2019-05-07 Other Events, Exhibits
8-K 2019-04-25 Other Events, Exhibits
8-K 2019-04-19 Amend Bylaw, Exhibits
8-K 2019-03-15 Enter Agreement, Exhibits
8-K 2019-01-16 Other Events, Exhibits
8-K 2019-01-16 Other Events, Exhibits
8-K 2019-01-15 Other Events
8-K 2018-12-26 Enter Agreement, Amend Bylaw, Exhibits
8-K 2018-10-23 Shareholder Vote
8-K 2018-09-18
8-K 2018-08-23 Other Events
8-K 2018-07-05 Other Events, Exhibits
8-K 2018-05-22 Exhibits
8-K 2018-04-25 Enter Agreement, Exhibits
8-K 2018-04-18 Exhibits
8-K 2018-03-22 Leave Agreement
8-K 2018-03-22 Accountant, Exhibits
8-K 2018-03-12 Shareholder Rights, Exhibits
8-K 2018-03-05 Accountant, Exhibits
8-K 2017-12-30

ARCI 10Q Quarterly Report

Part I. Financial Information
Item 1. Condensed Consolidated Financial Statements
Note 1: Background
Note 2: Summary of Significant Accounting Policies
Note 3: Trade and Other Receivables
Note 4: Inventory
Note 5: Prepaids and Other Current Assets
Note 6: Note Receivable
Note 7: Property and Equipment
Note 9: Deposits and Other Assets
Note 10: Leases
Note 11: Accrued Liabilities
Note 12: Accrued Liability - California Sales Tax
Note 13: Income Taxes
Note 14: Short Term Debt
Note 15: Commitments and Contingencies
Note 16: Shareholders' Equity
Note 17: Loss per Share
Note 18: Major Customers and Suppliers
Note 19: Defined Contribution Plan
Note 20: Segment Information
Note 21: Related Parties
Note 22. Subsequent Event
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Funds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information.
Item 6. Exhibits.
EX-31.1 jan-ex311_6.htm
EX-31.2 jan-ex312_8.htm
EX-32.1 jan-ex321_9.htm
EX-32.2 jan-ex322_7.htm

Appliance Recycling Centers of America Earnings 2020-03-28

Balance SheetIncome StatementCash Flow
504030201002012201420172020
Assets, Equity
35217-7-21-352012201420172020
Rev, G Profit, Net Income
10.06.02.0-2.0-6.0-10.02012201420172020
Ops, Inv, Fin

10-Q 1 jan-10q_20200328.htm 10-Q jan-10q_20200328.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended March 28, 2020

or

Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File No. 0-19621

JANONE INC.

(Exact name of registrant as specified in its charter)

 

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)

 

702-997-5968

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

 

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)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.   Yes   No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   Yes   No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one)

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

 

Smaller reporting company

Emerging growth company

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).   Yes   No

As of May 8, 2020, there were 1,993,578 outstanding shares of the registrant’s common stock, with a par value of $0.001.

 

 

 


JANONE INC.

 

INDEX TO FORM 10-Q

 

 

 

Page

PART I.  FINANCIAL INFORMATION

 

 

 

 

Item 1.

Condensed Consolidated Financial Statements

3

 

 

 

 

Unaudited Condensed Consolidated Balance Sheets as of March 28, 2020 and December 28, 2019

3

 

 

 

 

Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income for the 13 weeks ended March 28, 2020 and March 30, 2019

4

 

 

 

 

Unaudited Condensed Consolidated Statements of Cash Flows for the 13 weeks ended March 28, 2020 and March 30, 2019

5

 

 

 

 

Unaudited Condensed Consolidated Statements of Stockholders’ Equity for the 13 weeks ended March 28, 2020 and March 30, 2019

6

 

 

 

 

Notes to Unaudited Condensed Consolidated Financial Statements

7

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

23

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

27

 

 

 

Item 4.

Controls and Procedures

27

 

 

 

PART II.  OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

29

 

 

 

Item 1A.

Risk Factors

30

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

30

 

 

 

Item 3.

Defaults Upon Senior Securities

30

 

 

 

Item 4.

Mine Safety Disclosures

30

 

 

 

Item 5

Other Information

30

 

 

 

Item 6.

Exhibits

31

 

 

 

SIGNATURES

32

 

2


 

PART I. FINANCIAL INFORMATION

 

ITEM 1. Condensed Consolidated Financial Statements

 

JANONE INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except per share amounts)

 

 

 

March 28,

2020

 

 

December 28,

2019

 

 

 

(Unaudited)

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

837

 

 

$

481

 

Trade and other receivables, net

 

 

3,951

 

 

 

6,578

 

Income taxes receivable

 

 

11

 

 

 

76

 

Inventories

 

 

1,313

 

 

 

1,348

 

Prepaid expenses and other current assets

 

 

315

 

 

 

356

 

Total current assets

 

 

6,427

 

 

 

8,839

 

Property and equipment, net

 

 

313

 

 

 

324

 

Right to use asset - operating leases

 

 

2,526

 

 

 

1,894

 

Intangible assets, net

 

 

16,763

 

 

 

17,705

 

Deposits and other assets

 

 

243

 

 

 

272

 

Deferred income taxes, net

 

 

203

 

 

 

 

Total assets

 

$

26,475

 

 

$

29,034

 

Liabilities and Stockholders' Equity

 

 

Liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

4,136

 

 

$

4,365

 

Accrued liabilities - other

 

 

3,335

 

 

 

3,938

 

Accrued liability - California Sales Taxes

 

 

5,521

 

 

 

5,438

 

Lease obligation short term - operating leases

 

 

1,247

 

 

 

1,079

 

Short term debt

 

 

 

 

 

280

 

Related party note

 

 

2,483

 

 

 

2,473

 

Total current liabilities

 

 

16,722

 

 

 

17,573

 

Lease obligation long term - operating leases

 

 

1,313

 

 

 

850

 

Deferred income taxes, net

 

 

 

 

 

270

 

Total liabilities

 

 

18,035

 

 

 

18,693

 

Commitments and contingencies (Note 15)

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

 

Preferred stock, series A - par value $0.001 per share 2,000,000 authorized,

   259,729  shares issued and outstanding at March 28, 2020 and

   December 28, 2019, respectively

 

 

 

 

 

 

Common stock, par value $0.001 per share, 10,000,000 shares authorized,

   1,993,578 and 1,919,048 shares issued and outstanding at March 28, 2020

   and at December 28, 2019, respectively

 

 

2

 

 

 

2

 

Additional paid in capital

 

 

39,667

 

 

 

39,291

 

Accumulated other comprehensive loss

 

 

(527

)

 

 

(533

)

Accumulated deficit

 

 

(30,702

)

 

 

(28,419

)

Total stockholders' equity

 

 

8,440

 

 

 

10,341

 

Total liabilities and stockholders' equity

 

$

26,475

 

 

$

29,034

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

3


 

JANONE INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(UNAUDITED)

(Dollars in thousands, except per share)

 

 

 

For the Thirteen Weeks Ended

 

 

 

March 28,

2020

 

 

March 30,

2019

 

Revenues

 

$

8,450

 

 

$

6,293

 

Cost of revenues

 

 

6,976

 

 

 

5,144

 

Gross profit

 

 

1,474

 

 

 

1,149

 

Operating expenses:

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

 

4,873

 

 

 

4,024

 

Operating loss

 

 

(3,399

)

 

 

(2,875

)

Other income (expense):

 

 

 

 

 

 

 

 

Interest income (expense), net

 

 

(113

)

 

 

8

 

Other income, net

 

 

818

 

 

 

139

 

Total other income (expense), net

 

 

705

 

 

 

147

 

Loss from operations before benefit from income taxes

 

 

(2,694

)

 

 

(2,728

)

Income tax benefit

 

 

411

 

 

 

700

 

Net loss

 

$

(2,283

)

 

$

(2,028

)

 

 

 

 

 

 

 

 

 

Dividends declared - Series A-1 preferred stock

 

$

 

 

$

 

Dividends declared - Common stock

 

$

 

 

$

 

 

 

 

 

 

 

 

 

 

Loss per share:

 

 

 

 

 

 

 

 

Basic loss per share

 

$

(1.33

)

 

$

(1.20

)

Diluted loss per share

 

$

(1.33

)

 

$

(1.20

)

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

Basic

 

 

1,711,883

 

 

 

1,694,565

 

Diluted

 

 

1,711,883

 

 

 

1,694,565

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(2,283

)

 

$

(2,028

)

Other comprehensive income, net of tax:

 

 

 

 

 

 

 

 

Effect of foreign currency translation adjustments

 

 

6

 

 

 

4

 

Total other comprehensive income, net of tax

 

 

6

 

 

 

4

 

Comprehensive loss

 

$

(2,277

)

 

$

(2,024

)

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

4


 

JANONE INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(In thousands)

 

 

 

For the Thirteen Weeks Ended

 

 

 

March 28, 2020

 

 

March 30, 2019

 

OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

Net loss

 

$

(2,283

)

 

$

(2,028

)

Adjustments to reconcile net loss to net cash provided by (used in) operating

   activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

1,017

 

 

 

1,013

 

Amortization of debt issuance costs

 

 

10

 

 

 

37

 

Stock based compensation expense

 

 

376

 

 

 

60

 

Change in deferred rent

 

 

 

 

 

(5

)

Change in deferred compensation

 

 

 

 

 

(147

)

Change in deferred income taxes

 

 

(473

)

 

 

(701

)

Other

 

 

28

 

 

 

41

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

2,629

 

 

 

1,192

 

Income taxes receivable

 

 

65

 

 

 

 

Prepaid expenses and other current assets

 

 

41

 

 

 

(56

)

Inventories

 

 

35

 

 

 

(172

)

Accounts payable and accrued expenses

 

 

(749

)

 

 

520

 

Net cash provided by (used in) operating activities

 

 

696

 

 

 

(246

)

INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(8

)

 

 

(163

)

Purchases of intangibles

 

 

(56

)

 

 

 

Net payments received from Live Ventures Incorporated note receivable

 

 

 

 

 

53

 

Net cash used in investing activities

 

 

(64

)

 

 

(110

)

FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Payments on debt obligations

 

 

(280

)

 

 

(193

)

Net cash used in financing activities

 

 

(280

)

 

 

(193

)

Effect of changes in exchange rate on cash and cash equivalents

 

 

4

 

 

 

6

 

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

 

 

356

 

 

 

(543

)

CASH AND CASH EQUIVALENTS, beginning of period

 

 

481

 

 

 

1,195

 

CASH AND CASH EQUIVALENTS, end of period

 

$

837

 

 

$

652

 

Supplemental cash flow disclosures:

 

 

 

 

 

 

 

 

Interest paid

 

$

56

 

 

$

3

 

Income taxes paid

 

 

 

 

 

3

 

Right to use asset - operating leases capitalized

 

 

930

 

 

 

1,907

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

5


 

JANONE INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

(UNAUDITED)

(Dollars in thousands)

 

 

 

 

 

Series A Preferred

 

 

Common Stock

 

 

Additional

Paid in

 

 

Accumulated

Other

Comprehensive

 

 

Accumulated

 

 

Total

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Deficit

 

 

Equity

 

Balance, December 28, 2019

 

 

259,729

 

 

$

 

 

 

1,919,048

 

 

$

2

 

 

$

39,291

 

 

$

(533

)

 

$

(28,419

)

 

$

10,341

 

Share based compensation

 

 

 

 

 

 

 

 

74,530

 

 

 

 

 

 

376

 

 

 

 

 

 

 

 

 

376

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6

 

 

 

 

 

 

6

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,283

)

 

 

(2,283

)

Balance, March 28, 2020

 

 

259,729

 

 

$

 

 

 

1,993,578

 

 

$

2

 

 

$

39,667

 

 

$

(527

)

 

$

(30,702

)

 

$

8,440

 

 

 

 

 

Common Stock

 

 

Series A Preferred

 

 

Additional

Paid in

 

 

Accumulated

Other

Comprehensive

 

 

Accumulated

 

 

Total

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Deficit

 

 

Equity

 

Balance, December 30, 2018

 

 

1,694,565

 

 

$

2

 

 

 

288,588

 

 

$

 

 

$

38,660

 

 

$

(533

)

 

$

(16,518

)

 

$

21,611

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4

 

 

 

 

 

 

4

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,028

)

 

 

(2,028

)

Balance, March 30, 2019

 

 

1,694,565

 

 

$

2

 

 

 

288,588

 

 

$

 

 

$

38,660

 

 

$

(529

)

 

$

(18,546

)

 

$

19,587

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

6


 

Note 1: Background

The accompanying consolidated financial statements include the accounts of JanOne Inc., a Nevada corporation, and its subsidiaries (collectively the “Company” or “JanOne”). On September 10, 2019, Appliance Recycling Centers of America, Inc. changed its name to JanOne Inc.

 

The Company has three operating segments – Biotechnology, Recycling, and Technology.

During September 2019, JanOne, through its biotechnology segment, broadened its business perspectives to become a pharmaceutical company focused on finding treatments for conditions that cause severe pain and bringing to market drugs with non-addictive pain-relieving properties.

ARCA Recycling, Inc. (“ARCA Recycling”) provides turnkey recycling services for electric utility energy efficiency programs in the United States. ARCA Canada Inc. (“ARCA Canada”) provides turnkey recycling services for electric utility energy efficiency programs in Canada. Customer Connexx, LLC provides call center services for ARCA Recycling and ARCA Canada.

GeoTraq Inc. (“GeoTraq”) is engaged in the development, design and, ultimately, we expect the sale, of cellular transceiver modules, also known as Mobile IoT modules, and associated wireless services.

We report on a 52- or 53-week fiscal year. Our 2020 fiscal year (“2020”) will end on December 26, 2020, and our fiscal year (“2019”) ended on December 28, 2019, each fiscal year is 52 weeks in length.

Going concern

We currently face a challenging competitive environment and are focused on improving our overall profitability, which includes managing expenses. We reported a net loss of $2,283 and $2,028 in for the 13 weeks ended March 28, 2020 and March 30, 2019, respectively. In addition, as of March 28, 2020 the Company has total current assets of $6,427 and total current liabilities $16,722 resulting in a net negative working capital of $10,295.

The Company has available cash balances and funds available under an accounts receivable factoring program with Prestige Capital Finance, LLC (“Prestige Capital”) to provide sufficient liquidity to fund the entity’s operations, the entity’s continued investments in center openings, and remodeling activities for at least the next twelve months. The Company expects to generate cash from operations for the remainder of fiscal year 2020 given its cost cutting measures in response to the revenue reductions resulting from the Coronavirus. However, depending on the U.S.’s continued restrictions related to the coronavirus public health crisis, the Company cannot be certain its efforts will suffice. The agreement with Prestige Capital allows the Company to get advance funding of 80% of an unpaid customer’s invoice amount within 2 days and the balance less a mutually agreed upon fee upon ultimate collection in cash of the invoice. The Company expects that it will be able to utilize the available funds under the accounts receivable factoring agreement to provide liquidity and to pursue acquisitions and other strategic transactions to expand and grow the business to enhance shareholder value. Management also regularly monitors capital market conditions to ensure no other conditions or events exist that may materially affect the Company’s financial conditions and liquidity and the Company may raise additional funds through borrowings or public or private sales of debt or equity securities, if necessary.

In March 2020, there was a global outbreak of COVID-19 (Coronavirus) that has resulted in changes in global supply of certain products.  These changes, including a potential economic downturn, and any potential resulting direct and indirect negative impact to the Company cannot be determined but may have a material prospective impact to the Company’s operations, cash flows, financial condition, and liquidity.  Beginning in March 2020, the outbreak has started to have a material adverse impact on our operations. For example, several customers in our appliance recycling and appliance replacement business have suspended our ability to pick up and or replace their customers’ appliances resulting in decreased revenues for both recycling and replacement businessDuring April 2020, and in response to the impacts of the COVID-19 virus and public health crisis, in an effort to manage its financial position and further preserve financial flexibility and longevity, the Company temporarily closed its corporate office and call center, and idled all of its recycling processing centers in the United States and Canada. The future impact of the outbreak is highly uncertain and cannot be predicted and there is no assurance that the outbreak will not have a material adverse impact on the future results of the Company. The extent of the impact, if any, will depend on future developments, including actions taken to contain the coronavirus.

On May 1, 2020, the Company entered into a promissory note with Texas Capital Bank, N.A. for $1,872 under Paycheck Protection Program under the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”). See Note 22 for a complete discussion about this loan.

Based on the above, management has concluded that at March 28, 2020 the Company is not aware and did not identify any other conditions or events that would cause the Company to not be able to continue business as a going concern for the next twelve months.  

 

 

Note 2: Summary of Significant Accounting Policies

 

Basis of Presentation

 

7


 

The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the U.S. (“U.S. GAAP”) and with the instructions to Form 10-Q and Article 10 of Regulation S-X for interim financial information. Accordingly, these financial statements do not include all of the information and notes required for complete financial statements prepared in conformity with U.S. GAAP. In our opinion, all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation have been included. However, our results of operations for the interim periods presented are not necessarily indicative of the results that may be expected for the full year. For further information, refer to the consolidated financial statements and notes thereto included in our Form 10-K for the fiscal year ended December 28, 2019.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

Reclassifications

Certain amounts in the prior year consolidated financial statements have been reclassified to conform to the current year presentation. These reclassifications had no effect on the previously reported net income (loss) or stockholders’ equity.

Use of Estimates

The preparation of the consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumption that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Significant estimates made in connection with the accompanying consolidated financial statements include the estimated reserve for doubtful current and long-term trade and other receivables, the estimated reserve for excess and obsolete inventory, estimated fair value and forfeiture rates for stock-based compensation, fair values in connection with the analysis of other intangibles and long-lived assets for impairment, valuation allowance against deferred tax assets and estimated useful lives for intangible assets and property and equipment.

Financial Instruments

Financial instruments consist primarily of cash equivalents, trade and other receivables, notes receivables, and obligations under accounts payable, accrued expenses and notes payable. The carrying amounts of cash equivalents, trade receivables and other receivables, accounts payable, accrued expenses and short-term notes payable approximate fair value because of the short maturity of these instruments. The fair value of the long-term debt is calculated based on interest rates available for debt with terms and maturities similar to the Company’s existing debt arrangements, unless quoted market prices were available (Level 2 inputs). The carrying amounts of short-term debt at March 28, 2020 and December 28, 2019 approximate fair value.

Cash and Cash Equivalents

Cash and cash equivalents consist of highly liquid investments with a maturity of three months or less at the time of purchase. Fair value of cash equivalents approximates carrying value.

Trade Receivables and Allowance for Doubtful Accounts

We carry unsecured trade receivables at the original invoice amount less an estimate made for doubtful accounts based on a monthly review of all outstanding amounts. Management determines the allowance for doubtful accounts by regularly evaluating individual customer receivables and considering a customer’s financial condition, credit history and current economic conditions. We write off trade receivables when we deem them uncollectible. We record recoveries of trade receivables previously written off when we receive them. We consider a trade receivable to be past due if any portion of the receivable balance is outstanding for more than ninety days. We do not charge interest on past due receivables.  Our management considers the allowance for doubtful accounts of $29 and $29 to be adequate to cover any exposure to loss as of March 28, 2020, and December 28, 2019, respectively.

 

 

8


 

Inventories

Inventories, consisting primarily of appliances, are stated at the lower of cost, determined on a specific identification basis, or net realizable value. We provide estimated provisions for the obsolescence of our appliance inventories, including adjustment to market, based on various factors, including the age of such inventory and our management’s assessment of the need for such provisions. We look at historical inventory aging reports and margin analyses in determining our provision estimate. A revised cost basis is used once a provision for obsolescence is recorded. The Company does not have a reserve for excess or obsolete inventory at March 28, 2020 and December 28, 2019.

Property and Equipment

Property and Equipment are stated at cost less accumulated depreciation. Expenditures for repairs and maintenance are charged to expense as incurred and additions and improvements that significantly extend the lives of assets are capitalized. Upon sale or other retirement of depreciable property, the cost and accumulated depreciation are removed from the related accounts and any gain or loss is reflected in operations. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. The useful life of building and improvements is 3 to 30 years, transportation equipment is 3 to 15 years, machinery and equipment is 5 to 10 years, furnishings and fixtures is 3 to 5 years and office and computer equipment is 3 to 5 years.

We periodically review our property and equipment when events or changes in circumstances indicate that their carrying amounts may not be recoverable or their depreciation or amortization periods should be accelerated. We assess recoverability based on several factors, including our intention with respect to maintaining our facilities and projected discounted cash flows from operations. An impairment loss would be recognized for the amount by which the carrying amount of the assets exceeds their fair value, as approximated by the present value of their projected discounted cash flows.

Intangible Assets

The Company accounts for intangible assets in accordance with ASC 350, Intangibles—Goodwill and Other. Under ASC 350, intangible assets subject to amortization, shall be reviewed for impairment in accordance with the Impairment or Disposal of Long-Lived Assets in ASC 360, Property, Plant, and Equipment.

Under ASC 360, long-lived assets are tested for recoverability whenever events or changes in circumstances (‘triggering event’) indicate that the carrying amount may not be recoverable. In making this determination, triggering events that were considered included:

 

A significant decrease in the market price of a long-lived asset (asset group);

 

A significant adverse change in the extent or manner in which a long-lived asset (asset group) is being used or in its physical condition;

 

A significant adverse change in legal factors or in the business climate that could affect the value of a long-lived asset (asset group), including an adverse action or assessment by a regulator;

 

An accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of a long-lived asset (asset group);

 

A current-period operating or cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with the use of a long-lived asset (asset group); and,

 

A current expectation that, more likely than not, a long-lived asset (asset group) will be sold or otherwise disposed of significantly before the end of its previously estimated useful life. The term more likely than not refers to a level of likelihood that is more than 50 percent.

If a triggering event has occurred, for purposes of recognition and measurement of an impairment loss, a long-lived asset or assets shall be grouped with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. After the asset group determination is completed, a two-step testing is performed. If after identifying a triggering event it is determined that the asset group’s carrying value may not be recoverable, a recoverability test must then be performed. The recoverability test is performed by forecasting the expected cash flows to be derived from the asset group for the remaining useful life of the asset group’s primary asset compared to their carrying value. The recoverability test relies upon the undiscounted cash flows (excluding interest and taxes) which are derived from the company’s specific use of those assets (not how a market participant would use those assets); and, are based upon the existing service potential of the current assets (excluding any improvements that would materially enhance the assets). If the expected undiscounted cash flows exceed the carrying value, the assets are considered recoverable. If the recoverability test is failed a second fair market value test is required to calculate the amount of the impairment (if any). This second test calculates the fair value of the asset or asset group, with the impairment being the amount by which the carrying value exceeds the asset or asset group’s fair value. Under this test, the financial projections have been created using market participant assumptions and fair value concepts.

There was no impairment of intangibles as of March 28, 2020 or December 28, 2019 based on the intangible asset impairment review performed as of those dates.

 

9


 

The Company’s intangible assets consist of customer relationship intangibles, trade names, licenses for the use of internet domain names, Universal Resource Locators, or URL’s, software, patent USPTO reference No. 10,182,402, and historical know-how, designs and related manufacturing procedures. Upon acquisition, critical estimates are made in valuing acquired intangible assets, which include but are not limited to: future expected cash flows from customer contracts, customer lists, and estimating cash flows from projects when completed; tradename and market position, as well as assumptions about the period of time that customer relationships will continue; and discount rates. Management's estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from the assumptions used in determining the fair values. All intangible assets are capitalized at their original cost and amortized over their estimated useful lives as follows: domain name and marketing – 3 to 20 years; software – 3 to 5 years, technology intangibles – 7 years, customer relationships – 7 to 15 years.

Revenue Recognition

We provide replacement appliances and provide appliance pickup and recycling services for consumers (“end users”) of public utilities, our customers. We receive as part of our de-manufacturing and recycling process revenue from scrap dealers for refrigerant, steel, plastic, glass, copper and other residual items.

We account for revenue in accordance with Accounting Standards Update, or ASU, No. 2014-09, Revenue from Contracts with Customers (Topic 606) and related ASU No. 2016-08, ASU No. 2016-10, ASU No. 2016-12 and ASU No. 2016-20, which provide supplementary guidance, and clarifications.

Under the revenue standard we determine revenue recognition through the following steps:

 

a.

Identification of the contract, or contracts, with a customer,

 

b.

Identification of the performance obligations in the contract,

 

c.

Determination of the transaction price,

 

d.

Allocation of the transaction price to the performance obligations in the contract, and

 

e.

Recognition of revenue when, or as, we satisfy a performance obligation.

As part of its assessment of each contract, the Company evaluates certain factors including the customer’s ability to pay, or credit risk. For each contract, the Company considers the promise to transfer products or services, each of which is distinct, to be the identified performance obligations. In determining the transaction price, the price stated on the contract is typically fixed and represents the net consideration to which the Company expects to be entitled per order, and therefore there is no variable consideration. As the Company’s standard payment terms are less than 90 days, the Company has elected, as a practical expedient, to not assess whether a contract has a significant financing component. The Company allocates the transaction price to each distinct product or service based on its relative standalone selling price. The product or service price as specified on the contract is considered the standalone selling price as it is an observable source that depicts the price as if sold to a similar customer in similar circumstances.

Replacement Product Revenue

We generate revenue by providing replacement appliances. We recognize revenue at the point in time when control over the replacement product is transferred to the end user, when our performance obligations are satisfied, which typically occur upon delivery from our center facility and installation at the end user’s home.

Recycling Services Revenue

We generate revenue by providing pickup and recycling services. We recognize revenue at the point in time when we have picked up a to be recycled appliance and transfer of ownership has occurred, and therefore our performance obligations are satisfied, which typically occur upon pickup from our end user’s home.

Byproduct Revenue

We generate other recycling byproduct revenue (the sale of copper, steel, plastic, and other recoverable non-refrigerant byproducts) as part of our de-manufacturing process. We recognize byproduct revenue upon delivery and transfer of control of byproduct to a third-party recycling customer, having a mutually agreed upon price per pound and collection reasonably assured. Transfer of control occurs at the time the customer is in possession of the byproduct material. Revenue recognized is a function of byproduct weight, type and in some cases volume of the byproduct delivered multiplied by the market rate as quoted.

Technology Revenue

We currently are not generating any revenue from our Technology segment.

 

 

10


 

Biotechnology Revenue

We currently are not generating any revenue from our Biotechnology segment.

Contract Liability

Receivables are recognized in the period we ship the product or provide the service. Payment terms on invoiced amounts are based on contractual terms with each customer. When we receive consideration, or such consideration is unconditionally due, prior to transferring goods or services to the customer under the terms of a sales contract, we record deferred revenue, which represents a contract liability. We recognize a contract liability as net sales once control of goods and/or services have been transferred to the customer and all revenue recognition criteria have been met and any constraints have been resolved. We defer the product costs until recognition of the related revenue occurs.

Assets Recognized from Costs to Obtain a Contract with a Customer

We recognize an asset for the incremental costs of obtaining a contract with a customer if it expects the benefit of those costs to be longer than one year. We have concluded that no material costs have been incurred to obtain and fulfill our FASB Accounting Standards Codification, or ASC 606 contracts, meet the capitalization criteria, and as such, there are no material costs deferred and recognized as assets on the consolidated balance sheet at March 28, 2020 or December 28, 2019.

Other:

 

a.

Taxes collected from customers and remitted to government authorities and that are related to sales of our products are excluded from revenues.

 

b.

Sales commissions are expensed when incurred because the amortization period would have been one year or less. These costs are recorded in Selling, General and Administrative expense.

 

c.

We do not disclose the value of unsatisfied performance obligations for (i) contracts with original expected lengths of one year or less or (ii) contracts for which we recognize revenue at the amount to which we have the right to invoice for the services performed.

Revenue recognized for Company contracts - $8,013 and $5,674 for the 13 weeks ended March 28, 2020 and March 30, 2019, respectively. Byproduct revenue is non-contract revenue and amounts for Byproduct revenue have been excluded from Revenue recognized for Company contracts for all periods presented.

Shipping and Handling

The Company classifies shipping and handling charged to customers as revenues and classifies costs relating to shipping and handling as cost of revenues.

Advertising Expense

Advertising expense is charged to operations as incurred. Advertising expense totaled $91 and $110 for the 13 weeks ended March 28, 2020 and March 30, 2019, respectively.

Fair Value Measurements

ASC Topic 820, “Fair Value Measurements and Disclosures,” requires disclosure of the fair value of financial instruments held by the Company. ASC Topic 825, “Financial Instruments,” defines fair value, and establishes a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value measures. The three levels of valuation hierarchy are defined as follows: Level 1 - inputs to the valuation methodology are quoted prices for identical assets or liabilities in active markets. Level 2 – to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. Level 3 – inputs to the valuation methodology are unobservable and significant to the fair value measurement.

Income Taxes

The Company accounts for income taxes using the asset and liability method. The asset and liability method requires recognition of deferred tax assets and liabilities for expected future tax consequences of temporary differences that currently exist between tax bases and financial reporting bases of the Company's assets and liabilities. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which these temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is provided on deferred taxes if it is determined that it is more likely than not that the asset will not be realized. The Company recognizes penalties and interest accrued related to income tax liabilities in the provision for income taxes in its Consolidated Statements of Income.

 

11


 

Significant management judgment is required to determine the amount of benefit to be recognized in relation to an uncertain tax position. The Company uses a two-step process to evaluate tax positions. The first step requires an entity to determine whether it is more likely than not (greater than 50% chance) that the tax position will be sustained. The second step requires an entity to recognize in the financial statements the benefit of a tax position that meets the more-likely-than-not recognition criterion. The amounts ultimately paid upon resolution of issues raised by taxing authorities may differ materially from the amounts accrued and may materially impact the financial statements of the Company in future periods.

Lease Accounting

We account for leases in accordance with Accounting Standards Update No. 2016-02, Leases (Topic 842). This accounting standard requires all lessees to record the impact of leasing contracts on the balance sheet as a right to use asset and corresponding liability. This is measured by taking the present value of the remaining lease payments over the lease term and recording a right to use asset (“ROU”) and corresponding lease obligation for lease payments. Rent expense is realized on a straight-line basis and the lease obligation is amortized based on the effective interest method.  The amounts recognized reflect the present value of remaining lease payments for all leases that have a lease term greater than 12 months. The discount rate used is an estimate of the Company’s incremental borrowing rate based on information available at lease commencement. In considering the lease asset value, the Company considers fixed and variable payment terms, prepayments and options to extend, terminate or purchase. Renewal, termination or purchase options affect the lease term used for determining lease asset value only if the option is reasonably certain to be exercised

In considering the lease asset value, the Company considers fixed or variable payment terms, prepayments and options to extend, terminate or purchase. Renewal, termination or purchase options affect the lease term used for determining lease asset value only if the option is reasonably certain to be exercised. The Company uses an estimate of its incremental borrowing rate based on information available at lease commencement in determining present value of lease payments.

We lease warehouse facilities and office space. These assets and properties are generally leased under noncancelable agreements that expire at various dates through 2023 with various renewal options for additional periods. The agreements, which have and continue to be classified as operating leases, generally provide for base rent and require us to pay all insurance, taxes and other maintenance costs. The Company’s operating leases are exclusively for building space in the different cities we have operations. The lease terms typically last from 2-3 years with some being longer or shorter depending on needs of the business and the lease partners. The Company has also engaged in month to month leases for parking spaces that the Company has elected to expense as incurred. Our lease agreements do not include variable lease payments. Our lessors do offer options to extend lease terms as leases expire and management evaluates against current rental markets and other strategic factors in making the decision to renew. When leases are within 6 months of being renewed, management will estimate probabilities of renewing for an additional term based on market and strategic factors and if the probability is more likely than not that the lease will be renewed, the financials will assume the lease is renewed under the lease renewal option.

The operating leases we have do not contain residual value guarantees and do not contain restrictive covenants. The Company currently has one sublease in Ontario, Canada.

Leases accounted under ASC 842 were determined based on analysis of the lease contracts using lease payments and timing as documented in the contract. Non lease contracts were also evaluated to understand if the contract terms provided for an asset that we controlled and provided us with substantially all the economic benefits. We did not observe any contracts with embedded leases. Lease contracts were reviewed, and distinctions made between non lease and lease payments. Only payments related to the lease of the asset were included in lease payment calculations. Management uses an estimation of its incremental borrowing rate at lease commencement over similar terms as the lease contracts in determining the present value of its lease obligations.

The weighted average lease term for operating leases is 24 months and the weighted average discount rate is 8%.

Stock-Based Compensation

The Company from time to time grants restricted stock awards and options to employees (including executives), non-employees, and members of the Board of Directors. Such awards are valued based on the grant date fair-value of the instruments, net of estimated forfeitures. The value of each award is amortized on a straight-line basis over the vesting period.

Foreign Currency

The financial statements of the Company’s non-U.S. subsidiary are translated into U.S. dollars in accordance with ASC 830, Foreign Currency Matters. Under ASC 830, if the assets and liabilities of the Company are recorded in certain non-U.S. functional currencies other than the U.S. dollar, they are translated at rates of exchange at year end. Revenue and expense items are translated at the average monthly exchange rates. The resulting translation adjustments are recorded directly into accumulated other comprehensive income (loss).

 

 

12


 

Earnings Per Share

Earnings per share is calculated in accordance with ASC 260, “Earnings Per Share”. Under ASC 260 basic earnings per share is computed using the weighted average number of common shares outstanding during the period except that it does not include unvested restricted stock subject to cancellation. Diluted earnings per share is computed using the weighted average number of common shares and, if dilutive, potential common shares outstanding during the period. Potential common shares consist of the incremental common shares issuable upon the exercise of warrants, options, restricted shares and convertible preferred stock. The dilutive effect of outstanding restricted shares, options and warrants is reflected in diluted earnings per share by application of the treasury stock method. Convertible preferred stock is reflected on an if-converted basis.

Segment Reporting

ASC Topic 280, “Segment Reporting,” requires use of the “management approach” model for segment reporting. The management approach model is based on the way a Company’s management organizes segments within the Company for making operating decisions and assessing performance. The Company determined it has three reportable segments.

Concentration of Credit Risk

The Company maintains cash balances at several banks in several states including, Minnesota, California, and Nevada. Accounts are insured by the Federal Deposit Insurance Corporation up to $250 per institution as of March 28, 2020. At times, balances may exceed federally insured limits.

Note 3: Trade and other receivables

 

 

 

March 28,

2020

 

 

December 28,

2019

 

Trade receivables, net

 

$

4,685

 

 

$

7,226

 

Factored accounts receivable

 

 

(2,167

)

 

 

(2,165

)

Prestige Capital reserve receivable

 

 

407

 

 

 

415

 

Due from Recleim

 

 

 

 

 

913

 

Other receivables

 

 

1,026

 

 

 

189

 

Trade and other receivables, net

 

$

3,951

 

 

$

6,578

 

 

 

 

 

 

 

 

 

 

Trade accounts receivable

 

$

4,112

 

 

$

5,928

 

Un-billed trade receivables

 

 

602

 

 

 

1,327

 

A/R Reserve

 

 

(29

)

 

 

(29

)

Total trade receivables, net

 

$

4,685

 

 

$

7,226

 

 

Note 4: Inventory

Appliances held for sale are stated at the lower of cost, determined on a specific identification basis, or net realizable value. Inventory raw material - chips, are stated at the lower of average cost or net realizable value. Total inventory consists of the following as of March 28, 2020 and December 28, 2019:

 

 

 

March 28,

2020

 

 

December 28,

2019

 

Appliances held for resale

 

$

1,113

 

 

$

1,148

 

Inventory - raw material - chips

 

 

200

 

 

 

200

 

Total inventory

 

$

1,313

 

 

$

1,348

 

 

We provide estimated provisions for the obsolescence of inventories, including adjustments to net realizable value, based on various factors, including the age of such inventory and our management’s assessment of the need for such provisions. We review historical inventory aging reports and margin analyses in determining our provision estimate. A revised cost basis is used once a provision for obsolescence is recorded. At March 28, 2020 and December 28, 2019, we do not have an inventory reserve.

 

 

13


 

Note 5: Prepaids and other current assets

Prepaids and other current assets as of March 28, 2020 and December 28, 2019 consist of the following:

 

 

 

March 28,

2020

 

 

December 28,

2019

 

Prepaid insurance

 

$

132

 

 

$

282

 

Prepaid other

 

 

183

 

 

 

74

 

Total prepaid expenses and other current assets

 

$

315

 

 

$

356

 

 

Note 6: Note receivable

On December 30, 2017, we sold our retail appliance segment, ApplianceSmart, Inc. (“ApplianceSmart”) to ApplianceSmart Holdings LLC (the “Purchaser”), a wholly owned subsidiary of Live Ventures Incorporated, pursuant to a Stock Purchase Agreement (the “Agreement”). Pursuant to the Agreement, the Purchaser purchased from the Company all the issued and outstanding shares of capital stock (the “Stock”) of ApplianceSmart in exchange for $6,500 (the “Purchase Price”). Per the Agreement, the Purchase Price was due and payable on or before March 31, 2018.

Between March 31, 2018 and April 24, 2018, the Purchaser and the Company negotiated in good faith the method of payment of the remaining outstanding balance of the Purchase Price. On April 25, 2018, the Purchaser delivered to the Company a promissory note (the “ApplianceSmart Note”) in the original principal amount of $3,919 (the “Original Principal Amount”), as such amount may be adjusted per the terms of the ApplianceSmart Note. The ApplianceSmart Note is effective as of April 1, 2018 and matures on April 1, 2021 (the “Maturity Date”). The ApplianceSmart Note bears interest at 5% per annum with interest and principal payable at the Maturity Date. ApplianceSmart provided the Company a guaranty of repayment of the ApplianceSmart Note. The remaining $2,581 of the Purchase Price was paid in cash by the Purchaser to the Company. The Purchaser may reborrow funds, and pay interest on such re-borrowings, from the Company up to the Original Principal Amount.

On December 26, 2018, the ApplianceSmart Note was amended and restated to grant the Company a security interest in the assets of the Purchaser, ApplianceSmart, and ApplianceSmart Contracting Inc. in exchange for modifying the repayments terms to provide for the payment in full of all accrued interest and principal on April 1, 2021, the maturity date of the ApplianceSmart Note.

On March 15, 2019, the Company entered into agreements with third parties pursuant to which it agreed to subordinate the payment of indebtedness under the ApplianceSmart Note and the Company’s security interest in the assets of ApplianceSmart in exchange for a prepayment of up to $1,200.

On December 9, 2019, ApplianceSmart filed a voluntary petition in the United States Bankruptcy Court for the Southern District of New York seeking relief under Chapter 11 of Title 11 of the United States Code.  As a result, the Company has recorded an impairment charge of $2,992 for the amount owed by ApplianceSmart to the Company as of December 28, 2019.  The Company continues to record interest income on the ApplianceSmart Note and a corresponding impairment charge. The outstanding balance of the ApplianceSmart Note at March 28, 2020 and December 28, 2019 was $3,027 and $2,992, respectively, exclusive of the impairment charges.

Note 7: Property and Equipment

Property and equipment as of March 28, 2020 and December 28, 2019 consist of the following:

 

 

 

Useful Life

(Years)

 

March 28,

2020

 

 

December 28,

2019

 

Buildings and improvements

 

3-30

 

$

69

 

 

$

69

 

Equipment

 

3-15

 

 

2,322

 

 

 

2,314

 

Projects under construction

 

 

 

 

120

 

 

 

120

 

Property and equipment

 

 

 

 

2,511

 

 

 

2,503

 

Less accumulated depreciation and amortization

 

 

 

 

(2,198

)

 

 

(2,179

)

Total property and equipment, net

 

 

 

$

313

 

 

$

324

 

 

Depreciation expense was $19 and $20 for the 13 weeks ended March 28, 2020 and March 30, 2019, respectively.

 

 

14


 

Note 8: Intangible Assets

Intangible assets as of March 28, 2020 and December 28, 2019 consist of the following:

 

 

 

March 28,

2020

 

 

December 28,

2019

 

Intangible assets GeoTraq, net

 

$

26,096

 

 

$

26,096

 

Patent and domains

 

 

23

 

 

 

23

 

Computer software

 

 

4,223

 

 

 

4,167

 

Intangible assets

 

 

30,342

 

 

 

30,286

 

Less accumulated amortization

 

 

(13,579

)

 

 

(12,581

)

Total intangible assets

 

$

16,763

 

 

$

17,705

 

 

The useful life and amortization period of the GeoTraq intangible acquired is seven years from the acquisition date of August 18, 2017. Intangible amortization expense was $998 and $933 for the 13 weeks ended March 28, 2020 and March 30, 2019, respectively.

Note 9: Deposits and other assets

Deposits and other assets as of March 28, 2020 and December 28, 2019 consist of the following:

 

 

 

March 28,

2020

 

 

December 28,

2019

 

Deposits

 

$

168

 

 

$

195

 

Other

 

 

75

 

 

 

77

 

Total deposits and other assets

 

$

243

 

 

$

272

 

 

Deposits are primarily refundable security deposits with landlords the Company leases property from.

Note 10: Leases

We account for leases in accordance with ASC 842. The amount recorded is the present value of all remaining lease payments for leases with terms greater than 12 months. The right of use asset is offset by a corresponding liability. The discount rate is based on an estimate of our incremental borrowing rate for terms similar to our lease terms at the time of lease commencement. The asset will be amortized over remaining lease terms. See Lease Accounting in Note 2.

Total present value of lease payments as of March 28, 2019:

 

Remainder 2020

 

$

1,018

 

2021

 

 

1,002

 

2022

 

 

462

 

2023

 

 

340

 

2024

 

 

 

2025

 

 

 

Total

 

 

2,822

 

Less Interest

 

 

(262

)

Present Value of Payments

 

$

2,560

 

 

During the 13 weeks ended March 28, 2020 and March 30, 2019, $344 and $251, respectively, was included in operating cash flow for amounts paid for operating leases.

Additionally, we obtained right-of-use assets in exchange for lease liabilities of approximately $930 upon commencement of operating leases during the 13 weeks ended March 28, 2020.

 

 

15


 

Note 11: Accrued Liabilities

Accrued liabilities as of March 28, 2020 and December 28, 2019 consist of the following:

 

 

 

March 28,

2020

 

 

December 28,

2019

 

Compensation and benefits

 

$

1,240

 

 

$

809

 

Contract liability

 

 

473

 

 

 

515

 

Accrued incentive and rebate checks

 

 

660

 

 

 

988

 

Accrued rent

 

 

 

 

 

228

 

Accrued guarantees

 

 

767

 

 

 

767

 

Other

 

 

195

 

 

 

631

 

Total accrued expenses

 

$

3,335

 

 

$

3,938

 

 

Note 12: Accrued Liability – California Sales Tax

 

We operate in fourteen states in the U.S. and in various provinces in Canada. From time to time, we are subject to sales and use tax audits that could result in additional taxes, penalties and interest owed to various taxing authorities.

The California Department of Tax and Fee Administration (formerly known as the California Board of Equalization) (“CDTFA”) conducted a sales and use tax examination covering ARCA Recycling’s California operations for years 2011, 2012 and 2013. The Company believed it was exempt from collecting sales taxes under service agreements with utility customers that included appliance replacement programs. During the fourth quarter of 2014, the Company received communication from the CDTFA indicating they were not in agreement with the Company’s interpretation of the law. As a result, the Company applied for and, as of February 9, 2015, received approval to participate in the CDTFA’s Managed Audit Program. The period covered under this program included years 2011, 2012, 2013 and extended through the nine-month period ended September 30, 2014.

On April 13, 2017 the Company received the formal CDTFA assessment for sales tax for tax years 2011, 2012 and 2013 in the amount of $4,132 plus applicable interest of $500 related to the appliance replacement programs that the Company administered on behalf of its customers on which it did not assess, collect or remit sales tax. The Company has appealed this assessment to the CDTFA Appeals Bureau.  The appeal remains in process. Interest continues to accrue until the matter is settled.

As of March 28, 2020, and December 28, 2019, our accrued liability for California sales tax was $5,521 and $5,438, respectively.

Note 13: Income Taxes

Our overall effective tax rate was 15.3% for the 13 weeks ended March 28, 2020, and we recorded a tax provision benefit of $411 against a pre-provision loss of $2,694. Our overall effective tax rate was 25.7% for the 13 weeks ended March 30, 2019, and we had a tax benefit of $700 against a pre-provision loss of $2,728. The effective tax rates and related provisional tax amounts vary from the U.S. federal statutory rate due to state taxes, foreign taxes, share-based compensation, valuation allowance, and certain non-deductible expenses.

We regularly evaluate both positive and negative evidence related to retaining a valuation allowance against certain deferred tax assets. The realization of deferred tax assets is dependent upon sufficient future taxable income during the periods when deductible temporary differences and carryforwards are expected to be available to reduce taxable income. We have concluded based on the weight of evidence that a valuation allowance should be maintained against certain deferred tax assets that we do not expect to utilize in the near future. The Company continues to have a full valuation allowance against its Canadian operations.

Note 14: Short Term Debt

Short term debt and other financing obligations as of March 28, 2020 and December 28, 2019, consist of the following:

 

 

 

March 28,

2020

 

 

December 28,

2019

 

AFCO Finance

 

$

 

 

$

155

 

GE 8% loan agreement

 

 

 

 

 

125

 

Total short term debt

 

$

 

 

$