10-Q/A

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

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

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)

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 November 11, 2022, there were 3,150,230 outstanding shares of the registrant’s common stock, with a par value of $0.001.

On April 17, 2023, the Company’s management and the Audit Committee of the Company’s Board of Directors (the “Audit Committee”) reached a determination that the Company’s previously issued unaudited consolidated financial statements and related disclosures for each of the quarterly periods ended July 2, 2022 and October 1, 2022, should no longer be relied upon because of a material misstatement contained in those two quarterly unaudited condensed consolidated financial statements. The Company’s management and the Audit Committee discussed the matters with Frazier & Deeter, LLC, the Company’s independent registered public accounting firm for the 2022 fiscal year, and with WSRP, LLC, the Company’s independent registered public accounting firm during the second and third quarters in the 2022 fiscal year and prior fiscal periods since 2019, and determined to restate the Company’s unaudited condensed consolidated financial statements for the second and third fiscal quarters ended July 2, 2022, and October 1, 2022.

In connection with the Company’s preparation of its unaudited condensed consolidated financial statements and related disclosures for its second quarter, the Company’s management and Audit Committee relied upon the report issued by a third-party valuation firm to determine the carrying value of the promissory note the Company had received from SPYR Technologies, Inc. (the “SPYR Note”), in connection with the Company’s sale of the assets of its GeoTraq, Inc. subsidiary to SPYR Technologies, Inc. in the second quarter of the Company’s 2022 fiscal year. The accounting treatment for the SPYR Note had financial statement implications to (i) two line items in the Company’s Condensed Consolidated Balance Sheets (specifically, Note receivable, net and Accumulated deficit), (ii) two line items in the Company’s Condensed Consolidated Statements of Operations And Comprehensive Income (Loss) (specifically, Gain on sale of GeoTraq, and Interest expense, net), resulting in a decrease in net income of approximately $1.8 million and a decrease in net loss of approximately $93,000 for the 13 weeks ended July 2, 2022 and October 1, 2022, respectively, and (iii) two line items in the Company’s Condensed Consolidated Statements of Cash Flows (specifically, Gain on sale of GeoTraq and Accretion of note receivable discount), resulting in decrease in net income of approximately $1.8 million for the 26 weeks ended July 2, 2022, and $1.7 million for the 39 weeks ended October 1, 2022. Further, in connection with the preparation of the Company’s Quarterly Report on Form 10-Q for this quarterly period, the Company also received guidance from an additional third-party source in connection with the review of those unaudited condensed consolidated financial statements and related disclosures. However, in connection with the Company’s 2022 fiscal year-end audit and the preparation of its consolidated financial statements and related disclosures for that fiscal year, the Company’s management and the Audit Committee concluded that the carrying value of the SPYR Note, as set forth in the aforementioned Quarterly Reports, should be restated. The initial carrying value of $11.2 million should be restated to be $9.4 million and reflect carrying value of $9.6 million as of October 1, 2022. This quarterly restatement has an impact on net income (loss), but not on operating cash flows for any period.

Restatement of Previously Issued Unaudited Condensed Consolidated Financial Statements

This amended Quarterly Report on Form 10-Q includes unaudited consolidated financial statements for the quarters ended October 1, 2022 and October 2, 2021, as well as relevant unaudited interim pro forma financial information for the quarterly periods ended October 1, 2022 and October 2, 2021.

See Note 3 Restatements and Reclassifications; Note 7 Notes Receivable; Note 19 Loss Per Share; Note 22 Segment Information; and Note 25 Sale of GeoTraq in Part I. Financial Information Item 1. Condensed Consolidated Financial Statements for such restated information on the quarterly unaudited condensed consolidated financial statements for this second quarter of the Company’s 2022 fiscal year. Further, the gain associated with the GeoTraq disposition (Technology segment) has been restated and presented as discontinued operations for the periods ending October 1, 2022. As such, the results of the Technology segment have been reclassified and presented as discontinued operations for the periods ending October 2, 2021.

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


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)


		Page
PART I. FINANCIAL INFORMATION

Item 1.	Condensed Consolidated Financial Statements	4

	Unaudited (Restated) Condensed Consolidated Balance Sheets as of October 1, 2022 and January 1, 2022	4

	Unaudited (Restated) Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the 13 weeks and 39 weeks ended October 1, 2022 and October 2, 2021	5

	Unaudited (Restated) Condensed Consolidated Statements of Cash Flows for the 39 weeks ended October 1, 2022 and October 2, 2021	6

	Unaudited (Restated) Condensed Consolidated Statements of Stockholders’ Equity (Deficit) for the 13 weeks and 39 weeks ended October 1, 2022 and October 2, 2021	7

	Notes to Unaudited Condensed Consolidated Financial Statements (Restated)	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations (Restated)	33

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	40

Item 4.	Controls and Procedures	40

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	42

Item 1A.	Risk Factors	42

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	42

Item 3.	Defaults Upon Senior Securities	42

Item 4.	Mine Safety Disclosures	42

Item 5	Other Information	43

Item 6.	Exhibits	44

SIGNATURES		45


	October 1, 2022			January 1, 2022
	(As restated)
	(Unaudited)
Assets
Cash and cash equivalents	$	868		$	705
Trade and other receivables, net		6,834			4,220
Inventories		415			1,104
Prepaid expenses and other current assets		1,248			1,423
Current assets from discontinued operations		—			105
Total current assets		9,365			7,557
Property and equipment, net		2,656			2,113
Right to use asset - operating leases		5,733			3,671
Intangible assets, net		328			268
Note receivable, net		9,625			—
Marketable securities		300			—
Deposits and other assets		1,577			1,556
Total assets	$	29,584		$	15,165
Liabilities and Stockholders' Equity (Deficit)
Liabilities:
Accounts payable	$	6,065		$	5,071
Accrued liabilities - other		5,575			5,232
Accrued liability - California Sales Taxes		6,202			6,022
Lease obligation short–term - operating leases		1,711			1,304
Short–term debt		3,657			288
Current portion of notes payable		406			261
Current portion of related party note payable		228			1,000
Current liabilities from discontinued operations		—			195
Total current liabilities		23,844			19,373
Lease obligation long term - operating leases		4,179			2,470
Notes payable - long term portion		1,425			1,318
Long-term portion related party note payable		665			—
Other noncurrent liabilities		46			680
Total liabilities		30,159			23,841
Commitments and contingencies (Note 17)
Stockholders' equity (deficit):
Preferred stock, series A - par value $0.001 per share 2,000,000 authorized, 222,588 and 238,729 shares issued and outstanding at October 1, 2022 and January 1, 2022, respectively		—			—
Common stock, par value $0.001 per share, 200,000,000 shares authorized, 3,150,230 and 2,827,410 shares issued and outstanding at October 1, 2022 and January 1, 2022, respectively		3			2
Additional paid-in capital		45,747			45,743
Accumulated deficit		(45,708	)		(53,804	)
Accumulated other comprehensive loss		(617	)		(617	)
Total stockholders' equity (deficit)		(575	)		(8,676	)
Total liabilities and stockholders' equity (deficit)	$	29,584		$	15,165


	For the Thirteen Weeks Ended						For the Thirty-Nine Weeks Ended
	October 1, 2022			October 2, 2021			October 1, 2022			October 2, 2021
	(As restated)						(As restated)
Revenues	$	8,587		$	12,113		$	28,449		$	29,391
Cost of revenues		7,553			9,032			23,913			23,146
Gross profit		1,034			3,081			4,536			6,245
Operating expenses:
Selling, general and administrative expenses		2,858			2,989			8,705			9,230
Gain on sale of GeoTraq		—			—			—			—
Operating income (loss)		(1,824	)		92			(4,169	)		(2,985	)
Other income (expense):
Interest income (expense), net		130			(125	)		(123	)		(323	)
Gain on Payroll Protection Program loan forgiveness		—			—			—			1,872
Gain (loss) on litigation settlement, net		—			—			1,835			(1,950	)
Gain on settlement of vendor advance payments		—			11			—			952
Gain on reversal of contingency loss		—			—			637			—
Unrealized loss on marketable securities		(270	)		—			(646	)		—
Other income, net		—			23			359			45
Total other income (expense), net		(140	)		(91	)		2,062			596
Income (loss) from continuing operations before provision for income taxes		(1,964	)		1			(2,107	)		(2,389	)
Provision for income taxes		16			33			23			236
Net income (loss) from continuing operations		(1,980	)		(32	)		(2,130	)		(2,625	)
Net income from discontinued operations, net of tax		(1	)		(936	)		10,234			(2,820	)
Net income (loss)	$	(1,981	)	$	(968	)	$	8,104		$	(5,445	)
Net income (loss) per share:
Basic and diluted loss per share from continuing operations	$	(0.63	)	$	(0.01	)	$	(0.68	)	$	(1.01	)
Basic income (loss) per share from discontinued operations	$	(0.00	)	$	(0.33	)	$	3.25		$	(1.08	)
Diluted income (loss) per share from discontinued operations	$	(0.00	)	$	(0.33	)	$	2.93		$	(1.08	)
Basic income (loss) per share	$	(0.63	)	$	(0.34	)	$	2.57		$	(2.09	)
Diluted income (loss) per share	$	(0.63	)	$	(0.34	)	$	2.32		$	(2.09	)
Weighted average common shares outstanding:
Basic		3,150,230			2,827,410			3,150,230			2,601,827
Diluted		3,150,230			2,827,410			3,496,003			2,601,827
Net income (loss)	$	(1,981	)	$	(968	)	$	8,104		$	(5,445	)
Other comprehensive loss, net of tax:
Effect of foreign currency translation adjustments		—			—			—			(42	)
Total other comprehensive income loss, net of tax		—			—			—			(42	)
Comprehensive income (loss)	$	(1,981	)	$	(968	)	$	8,104		$	(5,487	)


	For the Thirty-Nine Weeks Ended
	October 1, 2022			October 2, 2021
	As restated
OPERATING ACTIVITIES:
Net income (loss)	$	8,104		$	(5,445	)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization		347			3,136
Amortization of debt issuance costs		10			—
Stock based compensation expense		4			274
Accretion of note receivable discount		(225	)		—
Gain on legal settlement		(115	)		—
Gain on Payroll Protection Program loan forgiveness		—			(1,872	)
Gain on settlement of vendor advance payments		—			(952	)
Gain on reversal of contingent liability		(637	)		—
Gain on sale of GeoTraq		(10,241	)		—
Unrealized loss on marketable securities		646			—
Changes in assets and liabilities:
Accounts receivable		(2,614	)		(1,931	)
Income taxes receivable		—			196
Prepaid expenses and other current assets		176			(71	)
Inventories		689			478
Right of use assets		54			(995	)
Lease liability		—			971
Accounts payable and accrued expenses		1,440			2,840
Deposits and other Assets		(29	)		(114	)
Net cash used in operating activities		(2,391	)		(3,485	)
INVESTING ACTIVITIES:
Purchases of property and equipment		(736	)		(1,530	)
Purchases of intangibles		(214	)		(65	)
Net cash used in investing activities		(950	)		(1,595	)
FINANCING ACTIVITIES:
Proceeds from equity financing, net		—			5,544
Proceeds from issuance of short-term notes payable		648			538
Proceeds from stock option exercise		—			27
Proceeds from notes payable		4,052			1,835
Payments on related party notes payable		(107	)		—
Payments on notes payable		—			(58	)
Payments on short-term notes payable		(1,089	)		(323	)
Net cash provided by financing activities		3,504			7,563
Effect of changes in exchange rate on cash and cash equivalents		—			(42	)
INCREASE IN CASH AND CASH EQUIVALENTS		163			2,441
CASH AND CASH EQUIVALENTS, beginning of period		705			379
CASH AND CASH EQUIVALENTS, end of period	$	868		$	2,820
Supplemental cash flow disclosures:
Interest paid	$	235		$	146
Income taxes paid		54			28
Right to use asset - operating leases capitalized		1,902			1,815


Large accelerated filer		Accelerated filer	
Non-accelerated filer	☒	Smaller reporting company	☒
Emerging growth company	


	Series A Preferred				Common Stock				Additional Paid-in		Accumulated			Accumulated Other Comprehensive			Total Stockholders'
	Shares		Amount		Shares		Amount		Capital		Deficit			Deficit			Equity (Deficit)
																	(As restated)
Balance, January 1, 2022		238,729	$	—		2,827,410	$	2	$	45,743	$	(53,804	)	$	(617	)	$	(8,676	)
Share based compensation		—		—		—		—		4		—			—			4
Other comprehensive loss		—		—		—		—		—		(8	)		(41	)		(49	)
Net income		—		—		—		—		—