Note 27: GeoTraq

Sale of GeoTraq

On May 24, 2022, the Company entered into an Asset Purchase Agreement with SPYR Technologies Inc., pursuant to which the Company sold to SPYR substantially all the assets and none of the liabilities of its wholly-owned subsidiary GeoTraq Inc. The aggregate purchase price for the GeoTraq Assets was $13.5 million, payable in cash and shares of SPYR’s common stock. As of the closing of the transaction on May 24, 2022, SPYR issued to the Company 30,000,000 shares of its common stock at $0.03 per share, and delivered a five-year Promissory Note in the principal amount of $12.6 million. The Promissory Note bears simple interest at the rate of 8% per annum, provides quarterly interest payments due the first day of each calendar quarter, and may be prepaid at any time without penalty. Quarterly interest payments may be made in cash or in SPYR's restricted common stock. The Promissory Note matures on May 24, 2027.

In connection with the Asset Purchase Agreement, the Company employed an independent third-party firm to assess the fair value of the 30,000,000 shares of SPYR stock and the Promissory Note. The assessment determined that the fair market value of the SPYR common stock was approximately $946,000, or approximately $0.032 per share, which was approximately $46,000 greater than the amount of the shares received at close. The Promissory Note was valued at approximately $11.3 million, which was approximately $1.4 million less than the Note issued. Consequently, the Company recorded the shares of SPYR stock at fair market value of $946,000, and recorded a discount offsetting the Promissory Note in the amount of $1.35 million. The discount will be accreted ratably over the term of the Promissory Note, and recorded as interest income. Additionally, approximately $105,000 in GeoTraq inventory was transferred as part of the sale, and was, thus, derecognized.

As of December 31, 2022, based on declining financial trends at SPYR, the Company reviewed the original valuation of the Promissory Note to determine whether a revision of the estimate of the original 10.5% used to discount the note should occur to account for the additional risk the note would not be repaid. In connection with this review, the Company determined that the discount rate should be revised to 14.5%. Consequently, the Company took an additional $1.85 million charge against income for the 13 and 26 weeks ended July 2, 2022, and will restate its Quarterly Reports on Form 10-Q for the 13 and 26 weeks ended July 2, 2022, and the 13 and 39 weeks ended October 1, 2022 (see Note 28). Additionally, due to the declining financial trends at SPYR, the Company recorded an additional $813,000 charge against income for the year ended December 31, 2022 .

Discontinued Operation

For the year ended, December 31, 2022, the Company determined that the GeoTraq sale qualified for accounting treatment as a discontinued operation under ASC 205 ("Discontinued Operations"). In accordance with ASC 205, the Company has reported the assets and liabilities in the consolidated balance sheets. The assets and liabilities have been reflected in the consolidated balance sheets as of December 31, 2022 and January 1, 2022, and consist of the following:

Depreciation expense was approximately $2,000 and approximately $12,000 for the fiscal years ended December 31, 2022 and January 1, 2022, respectively.

In accordance with the provisions of ASC 205, the Company has not included in the results of continuing operations the results of operations of the discontinued operations in the consolidated statements of operations and comprehensive income (loss). The results of operations for discontinued operations for the years ended December 31, 2022 and January 1, 2022 have been reflected as discontinued operations in the consolidated statements of operations and comprehensive income (loss) for the years ended December 31, 2022 and January 1, 2022, and consist of the following:

In accordance with the provisions of ASC 205, the Company would typically separately reported the cash flow activity of the discontinued operations in the consolidated statements of cash flows. However, due to the immateriality of the impact on cash flows from discontinued operations, the Company has chosen not to breakout these amounts on the consolidated statement of cash flows. The cash flow activity from discontinued operations was $10,000 and $23,000 for the years ended December 31, 2022 and January 1, 2022, respectively.