Notes Receivable |
12 Months Ended |
|---|---|
Dec. 30, 2023 | |
| Receivables [Abstract] | |
| Notes Receivables |
Note 8: Notes receivable
SPYR Note
On May 24, 2022, the Company entered into an Asset Purchase Agreement with SPYR Technologies Inc. (“SPYR”), pursuant to which the Company sold to SPYR substantially all of the assets and none of the specified liabilities of GeoTraq, as discussed in Note 5. In connection with the Purchase Agreement, SPYR delivered to the Company a five-year
Promissory Note in the initial principal amount of $12.6 million. The Promissory Note bears simple interest at the rate of 8.0% per annum, provides quarterly interest payments due on the first day of each calendar quarter, and may be prepaid at any time without penalty. Interest payments may be remitted in either restricted shares of common stock or restricted shares of Series G Convertible Preferred Stock of SPYR, or in cash. The Promissory Note matures on May 24, 2027. The Company has received restricted shares of Series G Convertible Preferred Stock of SPYR equivalent to approximately 922,442,000 shares of its common stock during the year ended December 30, 2023, and 30,000,000 shares of SPYR's common stock during the year ended December 31, 2022. As of December 30, 2023, the Company has accrued receivables of approximately $254,000 in interest income related to the Promissory Note.
In connection with the asset sale, the Company engaged a third-party valuation firm to assess the fair value of the consideration received. Based on the valuation, the Promissory Note (“Note”) was valued at approximately $11.3 million. The amount of the discount, or approximately $1.3 million, has been recorded as an offset to the principal amount of the Note, and will be accreted ratably to interest income over the term of the Note. At December 31, 2022, the Company reviewed the original valuation of the Promissory Note to determine if the original 10.5% used to discount the Note was appropriate. In connection with this review, the Company determined that the discount rate should be revised to 14.5%. Consequently, the Company took a $1.85 million charge against income, and restated the 13 and 26 weeks ended July 2, 2022, as discussed previously. Further, the Company recorded an additional $813,000 charge against income for the year ended December 31, 2022 due to SPYR's declining financial trends.
At December 30, 2023, the Company performed a qualitative analysis of the SPYR note receivable and concluded that, due to a number of triggering factors, it was probable that SPYR would be unable to fulfill its obligation to repay the principal amount under the promissory note on or before the maturity date. Consequently, the Company recorded an impairment charge of approximately $9.8 million for the fiscal year ended December 30, 2023.
During the fiscal years ended December 30, 2023 and December 31, 2022, approximately $806,000 and $387,000, respectively, of the discount was recorded as interest income. As of December 30, 2023 and December 31, 2022, the net principal balance on the Note was approximately $0 and $9.0 million, respectively.
VM7 Note
On March 9, 2023, the Company entered into a Stock Purchase Agreement (the “Recycling Purchase Agreement”) with VM7 Corporation, a Delaware corporation (“VM7”), under which it agreed to acquire all of the outstanding equity interests of the Recycling Subsidiaries, consisting of: (a) ARCA Recycling, (b) ARCA Canada, and (c) Connexx. The principal of VM7 is Virland A. Johnson, our Chief Financial Officer. The sale of all of the outstanding equity interests of the Recycling Subsidiaries to VM7 under the Recycling Purchase Agreement was consummated simultaneously with the execution of the Recycling Purchase Agreement. The Company’s Board of Directors unanimously approved the Recycling Purchase Agreement and the Disposition Transaction. The Recycling Purchase Agreement is retroactive to March 1, 2023. See Note 4.
The minimum consideration to be received by the Company from the Disposition Transaction, as discussed above, is $1.6 million per year for 15 years, or $24.0 million in the aggregate, plus cash of $3,000 paid at close. In connection with the Disposition Transaction, the Company used a discount rate of 20.0% when it valued the aggregate minimum consideration. Management determined that discount rate appropriately addresses any risk that the minimum payments would not be received. The valuation, factoring in that discount rate, yielded a present value of approximately $6.0 million, which, in addition to the $3,000 paid at close, comprises the approximately 6.0 million of net consideration. The amount of the revised discount amount, or approximately $18.0 million, was recorded as an offset to the principal amount of the Note, and will be accreted ratably to interest income over the term of the Note. During the year ended December 30, 2023, approximately $720,000 of the discount was recorded as interest income.
During the fourth quarter of fiscal 2023, VM7 determined that, after expending significant amounts of time and resources, it was unable to obtain sufficient equity or debt financing to continue the operations of the Recycling Subsidiaries. Accordingly, the Company was advised that the operations of the Recycling Subsidiaries were wound down and, ultimately, ceased. Because the Company did not receive all of the economic benefits of the Disposition Transaction and understand that it will not receive any future benefits of the Disposition Transaction, the Company determined to fully impair the $5.3 million carrying value of the Disposition Transaction on our balance sheet. The Company also determined not to exercise any of its remedies under the Recycling Purchase Agreement so that the Company could maintain its focus on its clinical-stage biopharmaceutical activities.
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