UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 2021March 31, 2022
or
☐TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from __________ to __________
Commission file number 33-20111
SPYR, |
(Exact name of registrant as specified in its charter) |
Nevada | 75-2636283 | |
(State or other jurisdiction of | (IRS Employer |
8547 E Arapahoe Rd STE J527, Greenwood Village, CO 801126700 Woodlands Parkway, Ste. 230, #331
The Woodlands, TX77382
(Address of principal executive offices)
(303) (303) 991-8000
(Registrant'sRegistrant’s telephone number)
Check whether the issuer (1) 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 issuer 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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large“large accelerated filer," "accelerated filer" and" smaller” “accelerated filer” and “smaller reporting company"company” in Rule 12b-2 of the Exchange Act.
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 Exchange Act).
☐ Yes ☒No
APPLICABLE ONLY TO CORPORATE ISSUERS
As of August 13, 2021May 16, 2022, there were 223,228,552 shares of the Registrant'sRegistrant’s common stock.stock outstanding.
TABLE OF CONTENTS
I |
| 1 | |
| 1 | ||
| 22 | ||
Quantitative |
| 26 | |
| 26 | ||
| 28 | ||
| 28 | ||
| 28 | ||
Unregistered Sale |
| 29 | |
| 29 | ||
| 29 | ||
| 29 | ||
| 29 |
i
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SPYR, INC. AND SUBSIDIARIES | ||||||||
CONDENSED CONSOLIDATED BALANCE SHEETS | ||||||||
(Unaudited) | ||||||||
|
|
|
|
|
|
| ||
|
| June 30, 2021 |
|
| December 31, 2020 |
| ||
ASSETS |
|
|
|
|
|
| ||
Current Assets: |
|
|
|
|
|
| ||
Cash and cash equivalents |
| $ | 34,000 |
|
| $ | 510,000 |
|
Other receivables |
|
| 0 |
|
|
| 4,000 |
|
Prepaid expenses |
|
| 45,000 |
|
|
| 49,000 |
|
Inventory |
|
| 61,000 |
|
|
| 0 |
|
Trading securities, at market value |
|
| 2,000 |
|
|
| 1,000 |
|
Current assets of discontinued operations |
|
| 13,000 |
|
|
| 13,000 |
|
Total Current Assets |
|
| 155,000 |
|
|
| 577,000 |
|
|
|
|
|
|
|
|
|
|
Property and equipment, net |
|
| 22,000 |
|
|
| 31,000 |
|
Intangible assets, net |
|
| 2,000 |
|
|
| 3,000 |
|
Operating lease right-of-use asset |
|
| 0 |
|
|
| 28,000 |
|
Other assets |
|
| 13,000 |
|
|
| 13,000 |
|
Non-current assets of discontinued operations |
|
| 0 |
|
|
| 75,000 |
|
TOTAL ASSETS |
| $ | 192,000 |
|
| $ | 727,000 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) |
|
|
|
|
|
|
|
|
LIABILITIES |
|
|
|
|
|
|
|
|
Current Liabilities: |
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities |
| $ | 1,285,000 |
|
| $ | 1,561,000 |
|
Related party short-term advances |
|
| 0 |
|
|
| 1,184,000 |
|
Related party line of credit |
|
| 0 |
|
|
| 1,204,000 |
|
Related party notes payable, current portion |
|
| 505,000 |
|
|
| 0 |
|
Short-term notes payable |
|
| 86,000 |
|
|
| 0 |
|
SBA PPP Note Payable, current portion |
|
| 72,000 |
|
|
| 51,000 |
|
Operating lease liability - current portion |
|
| 0 |
|
|
| 54,000 |
|
Current liabilities of discontinued operations |
|
| 791,000 |
|
|
| 767,000 |
|
Total Current Liabilities |
|
| 2,739,000 |
|
|
| 4,821,000 |
|
|
|
|
|
|
|
|
|
|
Related party notes payable |
|
| 2,459,000 |
|
|
| 0 |
|
SBA PPP Note Payable |
|
| 73,000 |
|
|
| 20,000 |
|
Long-term convertible notes payable, net |
|
| 126,000 |
|
|
| 64,000 |
|
Derivative liability |
|
| 1,333,000 |
|
|
| 1,382,000 |
|
Total Liabilities |
|
| 6,730,000 |
|
|
| 6,287,000 |
|
|
|
|
|
|
|
|
|
|
COMMITMENTS AND CONTINGENCIES |
|
| 0 |
|
|
| 0 |
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’ EQUITY (DEFICIT) |
|
|
|
|
|
|
|
|
Preferred stock, $0.0001 par value, 10,000,000 shares authorized |
|
|
|
|
|
|
|
|
107,636 Class A shares issued and outstanding as of June 30, 2021 and December 31, 2020 |
|
| 11 |
|
|
| 11 |
|
20,000 Class E shares issued and outstanding as of June 31, 2021 and December 31, 2020 |
|
| 2 |
|
|
| 2 |
|
Common stock, $0.0001 par value, 750,000,000 shares authorized 219,666,722 and 210,137,631 shares issued and outstanding as of June 31, 2021 and December 31, 2020 |
|
| 21,967 |
|
|
| 21,014 |
|
Additional paid-in capital |
|
| 56,526,020 |
|
|
| 55,391,973 |
|
Accumulated deficit |
|
| (63,086,000 | ) |
|
| (60,973,000 | ) |
Total Stockholders’ Equity (Deficit) |
|
| (6,538,000 | ) |
|
| (5,560,000 | ) |
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) |
| $ | 192,000 |
|
| $ | 727,000 |
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements. |
ITEM 1. | FINANCIAL STATEMENTS |
SPYR, INC. AND SUBSIDIARIES | ||||||||||||||||
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||||||||||
(Unaudited) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
| For the Three Months Ended June 30, |
|
| For the Six Months Ended June 30, |
| ||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Revenues |
| $ | 1,000 |
|
| $ | 0 |
|
| $ | 1,000 |
|
| $ | 0 |
|
Related party service revenues |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 185,000 |
|
Total Revenues |
|
| 1,000 |
|
|
| 0 |
|
|
| 1,000 |
|
|
| 185,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold |
|
| (2,000 | ) |
|
| 0 |
|
|
| (2,000 | ) |
|
| 0 |
|
Gross profit (loss) |
|
| (1,000 | ) |
|
| 0 |
|
|
| (1,000 | ) |
|
| 185,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Labor and related expenses |
|
| 286,000 |
|
|
| 151,000 |
|
|
| 775,000 |
|
|
| 328,000 |
|
Rent |
|
| 20,000 |
|
|
| 28,000 |
|
|
| 48,000 |
|
|
| 65,000 |
|
Depreciation and amortization |
|
| 4,000 |
|
|
| 9,000 |
|
|
| 7,000 |
|
|
| 19,000 |
|
Professional fees |
|
| 134,000 |
|
|
| 11,000 |
|
|
| 563,000 |
|
|
| 53,000 |
|
Research and development |
|
| 5,000 |
|
|
| 0 |
|
|
| 9,000 |
|
|
| 0 |
|
Other general and administrative |
|
| 55,000 |
|
|
| 55,000 |
|
|
| 101,000 |
|
|
| 117,000 |
|
Total Operating Expenses |
|
| 504,000 |
|
|
| 254,000 |
|
|
| 1,503,000 |
|
|
| 582,000 |
|
Operating Loss |
|
| (505,000 | ) |
|
| (254,000 | ) |
|
| (1,504,000 | ) |
|
| (397,000 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income (Expense) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense |
|
| (242,000 | ) |
|
| (44,000 | ) |
|
| (344,000 | ) |
|
| (89,000 | ) |
Gain on disposition of assets |
|
| 0 |
|
|
| 1,000 |
|
|
| 5,000 |
|
|
| 1,000 |
|
SBA EIDL grant |
|
| 0 |
|
|
| 3,000 |
|
|
| 0 |
|
|
| 3,000 |
|
Change in value of derivative liability |
|
| (68,000 | ) |
|
| 0 |
|
|
| (172,000 | ) |
|
| 0 |
|
Unrealized gain on trading securities |
|
| 0 |
|
|
| 2,000 |
|
|
| 1,000 |
|
|
| 1,000 |
|
Total Other Expense |
|
| (310,000 | ) |
|
| (38,000 | ) |
|
| (510,000 | ) |
|
| (84,000 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations |
|
| (815,000 | ) |
|
| (292,000 | ) |
|
| (2,014,000 | ) |
|
| (481,000 | ) |
Loss from discontinued operations |
|
| (87,000 | ) |
|
| (25,000 | ) |
|
| (99,000 | ) |
|
| (63,000 | ) |
Net Loss |
| $ | (902,000 | ) |
| $ | (317,000 | ) |
| $ | (2,113,000 | ) |
| $ | (544,000 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per Share Amounts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted earnings per share |
| $ | (0.00 | ) |
| $ | (0.00 | ) |
| $ | (0.01 | ) |
| $ | (0.00 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted earnings per share |
| $ | (0.00 | ) |
| $ | (0.00 | ) |
| $ | (0.00 | ) |
| $ | (0.00 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted earnings per share |
| $ | (0.00 | ) |
| $ | (0.00 | ) |
| $ | (0.01 | ) |
| $ | (0.00 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Common Shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted |
|
| 215,562,829 |
|
|
| 202,130,131 |
|
|
| 214,416,874 |
|
|
| 201,910,351 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements. |
SPYR, INC. AND SUBSIDIARIES | ||||||||||||||||||||||||||||||||||||
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) | ||||||||||||||||||||||||||||||||||||
For the Six Months Ended June 30, 2021 | ||||||||||||||||||||||||||||||||||||
(Unaudited) | ||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
|
| Preferred Stock |
|
|
|
|
|
| Additional |
|
|
|
|
| ||||||||||||||||||||||
|
| Class A |
|
| Class E |
|
| Common Stock |
|
| Paid-in |
|
| Accumulated |
|
|
| |||||||||||||||||||
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Capital |
|
| Deficit |
|
| Total |
| |||||||||
Balance at December 31, 2020 |
|
| 107,636 |
|
| $ | 11 |
|
|
| 20,000 |
|
| $ | 2 |
|
|
| 210,137,631 |
|
| $ | 21,014 |
|
| $ | 55,391,973 |
|
| $ | (60,973,000 | ) |
| $ | (5,560,000 | ) |
Fair value of restricted common stock and options issued for employee and director compensation |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 0 |
|
|
| 1,400,000 |
|
|
| 140 |
|
|
| 214,860 |
|
|
| 0 |
|
|
| 215,000 |
|
Fair value of S-8 registered common stock issued for services |
|
| - |
|
|
| 0 |
|
|
| - |
|
|
| 0 |
|
|
| 3,000,000 |
|
|
| 300 |
|
|
| 370,700 |
|
|
| 0 |
|
|
| 371,000 |
|
Net loss |
|
| - |
|
|
| 0 |
|
|
| - |
|
|
| 0 |
|
|
| - |
|
|
| 0 |
|
|
| 0 |
|
|
| (1,211,000 | ) |
|
| (1,211,000 | ) |
Balance at March 31, 2021 |
|
| 107,636 |
|
|
| 11 |
|
|
| 20,000 |
|
|
| 2 |
|
|
| 214,537,631 |
|
|
| 21,454 |
|
|
| 55,977,533 |
|
|
| (62,184,000 | ) |
|
| (6,185,000 | ) |
Fair value of restricted common stock and options issued for employee and director compensation |
|
| - |
|
|
| 0 |
|
|
| - |
|
|
| 0 |
|
|
| 150,000 |
|
|
| 15 |
|
|
| 23,985 |
|
|
| 0 |
|
|
| 24,000 |
|
Fair value of restricted common stock issued for services |
|
| - |
|
|
| 0 |
|
|
| - |
|
|
| 0 |
|
|
| 1,242,854 |
|
|
| 124 |
|
|
| 99,876 |
|
|
| 0 |
|
|
| 100,000 |
|
Fair value of common stock issued for conversion of notes payable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 3,736,237 |
|
|
| 374 |
|
|
| 424,626 |
|
|
| 0 |
|
|
| 425,000 |
|
Net loss |
|
| - |
|
|
| 0 |
|
|
| - |
|
|
| 0 |
|
|
| - |
|
|
| 0 |
|
|
| 0 |
|
|
| (902,000 | ) |
|
| (902,000 | ) |
Balance at June 30, 2021 |
|
| 107,636 |
|
| $ | 11 |
|
|
| 20,000 |
|
| $ | 2 |
|
|
| 219,666,722 |
|
| $ | 21,967 |
|
| $ | 56,526,020 |
|
| $ | (63,086,000 | ) |
| $ | (6,538,000 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements. |
SPYR, INC. AND SUBSIDIARIES | ||||||||||||||||||||||||||||||||||||
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) | ||||||||||||||||||||||||||||||||||||
For the Six Months Ended June 30, 2020 | ||||||||||||||||||||||||||||||||||||
(Unaudited) | ||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
|
| Preferred Stock |
|
|
|
|
|
| Additional |
|
|
|
|
| ||||||||||||||||||||||
|
| Class A |
|
| Class E |
|
| Common Stock |
|
| Paid-in |
|
| Accumulated |
|
|
| |||||||||||||||||||
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Capital |
|
| Deficit |
|
| Total |
| |||||||||
Balance at December 31, 2019 |
|
| 107,636 |
|
| $ | 11 |
|
|
| 20,000 |
|
| $ | 2 |
|
|
| 200,880,131 |
|
| $ | 20,088 |
|
| $ | 53,509,899 |
|
| $ | (57,916,000 | ) |
| $ | (4,386,000 | ) |
Fair value of common stock issued for employee compensation |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 1,250,000 |
|
|
| 125 |
|
|
| 24,875 |
|
|
| - |
|
|
| 25,000 |
|
Net loss |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 0 |
|
|
| - |
|
|
| - |
|
|
| 0 |
|
|
| (227,000 | ) |
|
| (227,000 | ) |
Balance at March 31, 2020 |
|
| 107,636 |
|
|
| 11 |
|
|
| 20,000 |
|
|
| 2 |
|
|
| 202,130,131 |
|
|
| 20,213 |
|
|
| 53,534,774 |
|
|
| (58,143,000 | ) |
|
| (4,588,000 | ) |
Net loss |
|
| - |
|
|
| 0 |
|
|
| - |
|
|
| 0 |
|
|
| - |
|
|
| 0 |
|
|
| 0 |
|
|
| (317,000 | ) |
|
| (317,000 | ) |
Balance at June 30, 2020 |
|
| 107,636 |
|
| $ | 11 |
|
|
| 20,000 |
|
| $ | 2 |
|
|
| 202,130,131 |
|
| $ | 20,213 |
|
| $ | 53,534,774 |
|
| $ | (58,460,000 | ) |
| $ | (4,905,000 | ) |
|
|
|
|
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The accompanying notes are an integral part of these condensed consolidated financial statements. |
SPYR, INC. AND SUBSIDIARIES | ||||||||
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||
(Unaudited) | ||||||||
|
|
|
|
|
|
| ||
|
| For the Six Months Ended June 30, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
Cash Flows From Operating Activities: |
|
|
|
|
|
| ||
Net loss |
| $ | (2,113,000 | ) |
| $ | (544,000 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
|
|
Loss on discontinued operations |
|
| 99,000 |
|
|
| 63,000 |
|
Depreciation and amortization |
|
| 7,000 |
|
|
| 19,000 |
|
Common stock issued for employee compensation |
|
| 239,000 |
|
|
| 25,000 |
|
Common stock issued for services |
|
| 471,000 |
|
|
| 0 |
|
Amortization of debt discounts on convertible notes payable |
|
| 226,000 |
|
|
| 0 |
|
Gain on disposition of assets |
|
| (5,000 | ) |
|
| 0 |
|
SBA EIDL grant |
|
| - |
|
|
| (3,000 | ) |
Change in Value of derivative liability |
|
| 172,000 |
|
|
| 0 |
|
Unrealized loss on trading securities |
|
| (1,000 | ) |
|
| (1,000 | ) |
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Decrease in receivable from related parties |
|
| - |
|
|
| 50,000 |
|
Decrease in other receivables |
|
| 4,000 |
|
|
| 0 |
|
Decrease in prepaid expenses |
|
| 4,000 |
|
|
| 13,000 |
|
Increase in inventory |
|
| (61,000 | ) |
|
| 0 |
|
Increase (Decrease) in accounts payable and accrued liabilities |
|
| (276,000 | ) |
|
| 223,000 |
|
Increase (Decrease) in operating lease right-of-use liability |
|
| (26,000 | ) |
|
| 20,000 |
|
Increase in accrued interest on notes payable - related party |
|
| 75,000 |
|
|
| 68,000 |
|
Increase in accrued interest on notes payable |
|
| 2,000 |
|
|
| 0 |
|
Increase in accrued interest on convertible notes |
|
| 40,000 |
|
|
| 20,000 |
|
Net cash used in operating activities from continuing operations |
|
| (1,143,000 | ) |
|
| (47,000 | ) |
Net cash used in by operating activities from discontinued operations |
|
| - |
|
|
| (24,000 | ) |
Net cash used in Operating Activities |
|
| (1,143,000 | ) |
|
| (71,000 | ) |
|
|
|
|
|
|
|
|
|
Cash Flows From Investing Activities: |
|
|
|
|
|
|
|
|
Purchase of property and equipment |
|
| - |
|
|
| (5,000 | ) |
Sale of property and equipment |
|
| 8,000 |
|
|
| 5,000 |
|
Net cash provided by Investing Activities |
|
| 8,000 |
|
|
| 0 |
|
|
|
|
|
|
|
|
|
|
Cash Flows From Financing Activities: |
|
|
|
|
|
|
|
|
Proceeds from related party notes payable |
|
| 501,000 |
|
|
| 0 |
|
Proceeds from long-term notes payable |
|
| 85,000 |
|
|
| 0 |
|
Proceeds from SBA EIDL grant |
|
| - |
|
|
| 3,000 |
|
Proceeds from SBA PPP note payable |
|
| 73,000 |
|
|
| 71,000 |
|
Net cash provided by Financing Activities |
|
| 659,000 |
|
|
| 74,000 |
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in Cash |
|
| (476,000 | ) |
|
| 3,000 |
|
Cash and cash equivalents at beginning of period |
|
| 510,000 |
|
|
| 10,000 |
|
Cash and cash equivalents at end of period |
| $ | 34,000 |
|
| $ | 13,000 |
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosure of Interest and Income Taxes Paid: |
|
|
|
|
|
|
|
|
Interest paid during the period |
| $ | - |
|
| $ | 1,000 |
|
Income taxes paid during the period |
| $ | - |
|
| $ | 0 |
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosure of Non-cash Investing and Financing Activities: |
|
|
|
|
|
|
|
|
Common stock issued for debt conversion |
| $ | 425,000 |
|
| $ | 0 |
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements. |
SPYR, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, 2022 | December 31, 2021 | |||||||
ASSETS | ||||||||
Current Assets: | ||||||||
Cash and cash equivalents | $ | 184,000 | $ | 35,000 | ||||
Other receivables | - | |||||||
Prepaid expenses | 46,000 | 47,000 | ||||||
Trading securities, at market value | 1,000 | 1,000 | ||||||
Current Assets of discontinued operations | 14,000 | 14,000 | ||||||
Total Current Assets | 245,000 | 97,000 | ||||||
Property and equipment, net | 13,000 | 16,000 | ||||||
Other assets | 84,000 | 46,000 | ||||||
TOTAL ASSETS | $ | 342,000 | $ | 159,000 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||
LIABILITIES | ||||||||
Current Liabilities: | ||||||||
Accounts payable and accrued liabilities | $ | 1,872,000 | $ | 1,818,000 | ||||
Related party notes payable, current portion | 528,000 | 524,000 | ||||||
Short term convertible notes payable, (net of debt discount of $0, as of March 31, 2022 and December 31, 2021, respectively) | 210,000 | 206,000 | ||||||
SBA PPP note payable | 72,000 | 70,000 | ||||||
Current liabilities of discontinued operations | 803,000 | 803,000 | ||||||
Total Current Liabilities | 3,485,000 | 3,421,000 | ||||||
Other Liabilities | ||||||||
Related party notes payable | 2,572,000 | 2,534,000 | ||||||
Long term convertible notes payable, (net of debt discount of $354,000 and $397,000, as of March 31, 2022 and December 31, 2021, respectively) | 839,000 | 286,000 | ||||||
Derivative Liability | 380,000 | 2,261,000 | ||||||
Total Liabilities | 7,276,000 | 8,862,000 | ||||||
COMMITMENTS AND CONTINGENCIES | ||||||||
STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||
Preferred stock, $ | par value, shares authorized Class A shares issued and outstanding as of March 31, 2022 and December 31, 202111 | 11 | ||||||
Class E shares issued and outstanding as of March 31, 2022 and December 31, 2021 | 2 | 2 | ||||||
Common stock, $ | par value, shares authorized and shares issued and outstanding as of March 31, 2022 and December 31, 202128,114 | 25,205 | ||||||
Common Stock to be Issued | 1,089 | - | ||||||
Additional paid-in capital | 60,060,421 | 57,779,303 | ||||||
Accumulated deficit | (67,022,521 | ) | (66,508,521 | ) | ||||
Total Stockholders’ Equity (Deficit) | (6,933,000 | ) | (8,704,000 | ) | ||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | $ | 342,000 | $ | 159,000 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
1
SPYR, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Three Months Ended March 31, | ||||||||
2022 | 2021 | |||||||
Revenues | $ | 1,000 | $ | - | ||||
Cost of Goods Sold | - | - | ||||||
Gross Profit | 1,000 | - | ||||||
Expenses | ||||||||
Labor and related expenses | 1,259,000 | 489,000 | ||||||
Rent | 6,000 | 28,000 | ||||||
Depreciation and amortization | 2,000 | 3,000 | ||||||
Professional fees | 891,000 | 429,000 | ||||||
Research and development | - | 4,000 | ||||||
Other general and administrative | 40,000 | 45,000 | ||||||
Total Operating Expenses | 2,198,000 | 998,000 | ||||||
Operating Loss | (2,197,000 | ) | (998,000 | ) | ||||
Other Expense | ||||||||
Interest expense | (49,000 | ) | (102,000 | ) | ||||
Other income | 38,000 | - | ||||||
Amortization of debt discount | (43,000 | ) | - | |||||
Loss on conversion of debt | (54,000 | ) | - | |||||
Gain on disposition of assets | - | 5,000 | ||||||
Settlement expense | (282,000 | ) | - | |||||
Change in value of derivative liability | 2,075,000 | (104,000 | ) | |||||
Unrealized loss on trading securities | - | 1,000 | ||||||
Total Other Expense | 1,685,000 | (200,000 | ) | |||||
Loss from continuing operations | (512,000 | ) | (1,198,000 | ) | ||||
Loss from discontinued operations | (2,000 | ) | (11,000 | ) | ||||
Net Loss | (514,000 | ) | (1,209,000 | ) | ||||
Per Share Amounts | ||||||||
Net Loss | ||||||||
Basic and Diluted earnings per share | $ | (0.00 | ) | $ | (0.01 | ) | ||
Weighted Average Common Shares | ||||||||
Basic and Diluted | 270,939,479 | 213,258,187 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
2
SPYR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
For the Three Months Ended March 31, 2022
(Unaudited)
Preferred Stock | Additional | Common Stock | ||||||||||||||||||||||||||||||||||||||||||
Class A | Class E | Common Stock | Paid-in | to be Issued | Accumulated | |||||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Capital | Shares | Amount | Deficit | Total | ||||||||||||||||||||||||||||||||||
Balance at December 31, 2021 | 107,636 | $ | 11 | 20,000 | $ | 2 | 252,050,988 | $ | 25,205 | $ | 57,779,303 | — | $ | — | (66,508,521 | ) | $ | (8,704,000 | ) | |||||||||||||||||||||||||
Fair value of restricted common stock and options issued for employee and director compensation | — | — | — | — | 12,015,019 | 1,202 | 694,230 | — | — | — | 695,431 | |||||||||||||||||||||||||||||||||
Fair value of S-8 registered common stock issued for services | — | — | — | — | 8,700,000 | 870 | 538,530 | — | — | — | 539,400 | |||||||||||||||||||||||||||||||||
Fair value of common stock issued for settlement | — | — | — | — | 5,015,994 | 502 | 281,474 | — | — | — | 281,976 | |||||||||||||||||||||||||||||||||
Fair value of common stock issued for conversion of notes payable | — | — | — | — | 3,361,289 | 336 | 53,359 | — | — | — | 53,695 | |||||||||||||||||||||||||||||||||
Common stock to be issued for services | — | — | — | — | — | — | 29,811 | 1,886,792 | 189 | — | 30,000 | |||||||||||||||||||||||||||||||||
Common stock to be issued for director compensation | — | — | — | — | — | — | 516,600 | 9,000,000 | 900 | — | 517,500 | |||||||||||||||||||||||||||||||||
Reclassification of derivative liabilities to additional paid-in capital | — | — | — | — | — | — | 166,514 | — | — | — | 166,514 | |||||||||||||||||||||||||||||||||
Net loss | — | — | — | — | — | — | — | — | — | (514,000 | ) | (514,000 | ) | |||||||||||||||||||||||||||||||
Balance at March 31, 2022 | 107,636 | $ | 11 | 20,000 | $ | 2 | 281,143,290 | $ | 28,114 | $ | 60,060,421 | 10,886,792 | $ | 1,089 | (67,022,521 | ) | $ | (6,933,000 | ) |
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
SPYR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
For the Three Months Ended March 31, 2021
(Unaudited)
Preferred Stock | Additional | |||||||||||||||||||||||||||||||||||
Class A | Class E | Common Stock | Paid-in | Accumulated | ||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Total | ||||||||||||||||||||||||||||
Balance at December 31, 2020 | 107,636 | $ | 11 | 20,000 | $ | 2 | 210,137,631 | $ | 21,014 | $ | 53,265,157 | $ | (60,973,000 | ) | $ | (5,560,000 | ) | |||||||||||||||||||
Fair value of common stock issued for employee & director compensation | — | — | — | — | 1,400,000 | 140 | 214,860 | — | 215,000 | |||||||||||||||||||||||||||
Fair value of registered S-8 common stock issued for services | — | — | — | — | 3,000,000 | 300 | 370,700 | — | 371,000 | |||||||||||||||||||||||||||
Net loss | — | — | — | — | — | — | — | (1,209,000 | ) | (1,209,000 | ) | |||||||||||||||||||||||||
Balance at March 31, 2021 | 107,636 | $ | 11 | 20,000 | $ | 2 | 214,537,631 | $ | 21,454 | $ | 55,977,533 | $ | (62,182,000 | ) | $ | (6,183,000 | ) |
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
SPYR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Three Months Ended March 31, | ||||||||
2022 | 2021 | |||||||
Cash Flows From Operating Activities: | ||||||||
Net loss | $ | (514,000 | ) | $ | (1,209,000 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Loss on discontinued operations | 2,000 | 11,000 | ||||||
Reclassification of derivative liabilities to additional paid-in capital | 167,000 | - | ||||||
Depreciation and amortization | 3,000 | 3,000 | ||||||
Common stock issued for director and employee compensation | 696,000 | 215,000 | ||||||
Common stock issued for services | 539,000 | 371,000 | ||||||
Common stock issued for settlement | 282,000 | - | ||||||
Common stock issued for conversion of debt | 54,000 | - | ||||||
Common stock to be issued for services | 30,000 | - | ||||||
Common stock to be issued for director compensation | 518,000 | - | ||||||
Amortization of debt discounts on convertible notes payable | 43,000 | 33,000 | ||||||
Gain on disposition of assets | - | (5,000 | ) | |||||
Unrealized gain on trading securities | - | (1,000 | ) | |||||
Change in value of derivative liability | (2,241,000 | ) | 104,000 | |||||
Changes in operating assets and liabilities: | ||||||||
Increase (Decrease) in prepaid expenses | 1,000 | (29,000 | ) | |||||
Decrease in other receivables | - | 4,000 | ||||||
Increase in inventory | - | (25,000 | ) | |||||
Increase in other assets | - | (1,000 | ) | |||||
Increase in accounts payable and accrued liabilities | 56,000 | 119,000 | ||||||
Decrease in operating lease right-of-use liability | - | (16,000 | ) | |||||
Increase in accrued interest on notes payable – related party | 42,000 | - | ||||||
Increase in accrued interest on notes payable | 4,000 | - | ||||||
Increase in accrued interest on short-term advances - related party | - | 18,000 | ||||||
Increase in accrued interest on SBA PPP notes payable | - | 1,000 | ||||||
Increase in accrued interest on line of credit – related party | - | 18,000 | ||||||
Increase in accrued interest and liquidated damages on convertible notes | - | 20,000 | ||||||
Net Cash Used in Operating Activities from Continuing Operations | (321,000 | ) | (369,000 | ) | ||||
Net Cash Used in Operating Activities from Discontinued Operations | - | - | ||||||
Net Cash Used in Operating Activities | (321,000 | ) | (369,000 | ) | ||||
Cash Flows From Investing Activities: | ||||||||
Sale of property and equipment | - | 8,000 | ||||||
Net Cash Used in Investing Activities | - | 8,000 | ||||||
Cash Flows From Financing Activities: | ||||||||
Proceeds from long-term convertible notes | 510,000 | - | ||||||
Proceeds from SBA PPP note payable | - | 73,000 | ||||||
Funds lent as asset consideration | (40,000 | ) | - | |||||
Net Cash Provided by Financing Activities | 470,000 | 73,000 | ||||||
Net increase (decrease) in Cash | 149,000 | (288,000 | ) | |||||
Cash and cash equivalents at beginning of period | 35,000 | 510,000 | ||||||
Cash and cash equivalents at end of period | $ | 184,000 | $ | 222,000 | ||||
Supplemental Disclosure of Interest and Income Taxes Paid: | ||||||||
Interest paid during the year | $ | - | $ | - | ||||
Income taxes paid during the year | $ | - | $ | - |
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
��
SPYR, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIXTHREE MONTHS ENDED JUNE 30,MARCH 31, 2022 AND 2021 AND 2020
(Unaudited)
NOTE 1 - – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Interim Financial Statements
The accompanying condensed consolidated financial statements of SPYR, Inc. and subsidiaries (the “Company”) are unaudited. These unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Accordingly, these interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 20202021 filed with the SEC. The condensed consolidated balance sheet as of December 31, 20202021 included herein was derived from the audited consolidated financial statements as of that date, but does not include all disclosures, including notes, required by GAAP.
In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments necessary to fairly present the Company'sCompany’s financial position and results of operations for the interim periods reflected. Except as noted, all adjustments contained herein are of a normal recurring nature. Results of operations for the fiscal periods presented herein are not necessarily indicative of fiscal year-end results.
Principles of Consolidation
The consolidated financial statements include the accounts of SPYR, Inc. and its wholly ownedwholly-owned subsidiaries, Applied Magix, a Nevada corporation, SPYR APPS, LLC, a Nevada Limited Liability Company, (discontinued operations, see Note 9), E.A.J.: PHL, Airport Inc., a Pennsylvania corporation (discontinued operations, see Note 9)6), and Branded Foods Concepts, Inc., a Nevada corporation (dissolution pending).corporation. Intercompany accounts and transactions have been eliminated.
Reclassifications
Certain reclassifications have been made in the 2020 financial statements to conform with the 2021 presentation related to the discontinued operations of SPYR APPS, LLC. See Note 9 Discontinued Operations for additional information.
Going Concern
The accompanying financial statements have been prepared under the assumption that the Company will continue as a going concern. Such assumption contemplates the realization of assets and satisfaction of liabilities in the normal course of business, however, the issues described below raise substantial doubt about the Company’s ability to do so.
As shown in the accompanying financial statements, for the Sixthree months ended June 30, 2021,March 31, 2022, the Company recorded a net loss of $2,113,000 and utilized cash infrom continuing operations of 1,143,000.$512,000 and have current liabilities of $3,485,000. As of June 30, 2021,March 31, 2022, our cash balance was $34,000, and we had trading securities valued at $2,000.$184,000. These issues raise substantial doubt about the Company’s ability to continue as a going concern.
SPYR, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2021 AND 2020
(Unaudited)
The Company intends to utilize cash on hand, shareholder loans and other forms of financing such as the sale of additional equity and debt securities, capital leases and other credit facilities to conduct its ongoing business, and to also conduct strategic business development, marketing analysis, due diligence investigations into possible acquisitions, and software development costs and implementation of our Applied Magix business plans generally. The Company also plans to diversify, through acquisition or otherwise, in other unrelated business areas and is exploring opportunities to do so.
Historically, we have financed our operations primarily through sales of our common stock and debt financing. The Company will continue to seek additional capital through the sale of its common stock, debt financing and through expansion of its existing and new products. If our financing goals for our products do not materialize as planned and if we are not able to achieve profitable operations at some point in the future, we may have insufficient working capital to maintain our operations as we presently intend to conduct them or to fund our expansion, marketing, and product development plans.
The ability of the Company to continue as a going concern is dependent upon the success of future capital offerings or alternative financing arrangements and expansion of its operations. The accompanying financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern. Management is actively pursuing additional sources of financing sufficient to generate enough cash flow to fund its operations through calendar year 2021.2022. However, management cannot make any assurances that such financing will be secured.
6
SPYR, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2022 AND 2021
(Unaudited)
Covid-19
On January 30, 2020, the World Health Organization declared the coronavirus outbreak a “Public Health Emergency of International Concern” and on March 10, 2020, declared it to be a pandemic. Actions taken around the world to help mitigate the spread of the coronavirus include restrictions on travel, and quarantines in certain areas, and forced closures for certain types of public places and businesses. The coronavirus and actions taken to mitigate it have had and are expected to continue to have an adverse impact on the economies and financial markets of many countries, including the geographical area in which the Company operates. While it is unknown how long these conditions will last and what the complete financial effect will be to the company, the Company is anticipating potential reductions in revenue, labor and supply shortages, difficulty meeting debt covenants, delays in collecting receivables and paying liabilities and changes in the fair value of assets and liabilities. Our necessity for fund raising activities make it reasonably possible that we are vulnerable to the risk of a near-term severe impact.
Additionally, it is reasonably possible that estimates made in the financial statements have been, or will be, materially and adversely impacted in the near term as a result of these conditions, including potential credit losses on receivables and investments; impairment losses related to long-lived assets; and contingent obligations.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Estimates and assumptions used by management affected impairment analysis for trading securities, fixed assets, intangible assets, capitalized licensing rights, amounts of potential liabilities, derivative liabilities, and valuation of issuance of equity securities. Actual results could differ from those estimates.
The basic and fully diluted shares for the three months ended June 30, 2021March 31, 2022 are the same because the inclusion of the potential shares (Class A – , Class E – , Options – 5,379,900, , Warrants – 7,200,000) ) would have had an anti-dilutive effect due to the Company generating a loss for the three months ended June 30, 2021.March 31, 2022.
The basic and fully diluted shares for the three months ended June 30, 2020March 31, 2021 are the same because the inclusion of the potential shares (Class A – , Class E – 1,852,538, , Options – 8,999,900, , Warrants – 9,000,000) ) would have had an anti-dilutive effect due to the Company generating a loss for the three months ended June 30, 2020.March 31, 2021.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation or amortization. Depreciation is recorded at the time property and equipment is placed in service using the straight-line method over the estimated useful lives of the related assets, which range from three to ten years. Leasehold improvements are amortized over the shorter of the expected useful lives of the related assets or the lease term. The estimated economic useful lives of the related assets as follows:
Estimated Economic Useful Lives of Assets | |
5-10 years | |
Equipment | 5-7 years |
Computer equipment | 3 years |
Vehicles | 5-10 years |
Leasehold improvements | 5-6 years |
Maintenance and repairs are charged to operations; betterments are capitalized. The cost of property sold or otherwise disposed of and the accumulated depreciation and amortization thereon are eliminated from the property and related accumulated depreciation and amortization accounts, and any resulting gain or loss is credited or charged to operations.
7
SPYR, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIXTHREE MONTHS ENDED JUNE 30,MARCH 31, 2022 AND 2021 AND 2020
(Unaudited)
The basic and fully diluted shares for the six months ended June 30, 2021 are the same because the inclusion of the potential shares (Class A – 26,909,028, Class E – 1,385,042, Options – 5,379,900, Warrants – 7,200,000) would have had an anti-dilutive effect due to the Company generating a loss for the six months ended June 30, 2021.
The basic and fully diluted shares for the six months ended June 30, 2020 are the same because the inclusion of the potential shares (Class A – 26,909,028, Class E – 1,852,538, Options – 8,999,900, Warrants – 9,000,000) would have had an anti-dilutive effect due to the Company generating a loss for the six months ended June 30, 2020.
Product Research and Development Costs
Costs incurred for product research and development are expensed as incurred. During the six months ended June 30, 2021 and 2020, the Company incurred $9,000 and $0 in product development costs paid to independent third parties.
Revenue Recognition
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers. ASU 2014-09 is a comprehensive revenue recognition standard that superseded nearly all existing revenue recognition guidance under prior U.S. GAAP and replaced it with a principles-based approach for determining revenue recognition. The core principle of the standard is the recognition of revenue upon the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services.
We adopted this new revenue recognition standard along with is related amendments on January 1, 2018 and have updated our accounting policy for revenue recognition. As expected, at our current level of revenue, the adoption of this new standard did not impact our financial position or results of operations or operating cash flows.
We determine revenue recognition by: (1) identifying the contract, or contracts, with our customer; (2) identifying the performance obligations in the contract; (3) determining the transaction price; (4) allocating the transaction price to performance obligations in the contract; and (5) recognizing revenue when, or as, we satisfy performance obligations by transferring the promised goods or services.
Through our wholly owned subsidiary Applied Magix we are a registered Apple® developer, and reseller of Apple ecosystem compatible products and accessories with an emphasis on the smart home market. The Company’s products are available for sale through its website at https://appliedmagix.com/shop/, as well as the eBay Marketplace, Amazon Marketplace, and Walmart’s online marketplace. Payment is required at time of purchase and the purchase price is a fixed amount.
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents to the extent the funds are not being held for investment purposes.
SPYR, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2021 AND 2020
(Unaudited)
Inventory
The Company's inventory consisting of Apple HomeKit products for resale by the Company, is recorded at the lower of cost (first-in, first-out) or net realizable value. The Company writes down its inventory balances for estimates of excess and obsolete amounts. The Company reduces inventory on hand to its net realizable value on an item-by-item basis when the expected realizable value of a specific inventory item falls below its original cost. Management regularly reviews the Company’s investment in inventories for such declines in value. The write-downs are recognized as a component of cost of sales. During the six months ended June 30, 2021 and 2020, the Company recognized inventory write downs of approximately $1,000. As of June 30, 2021, the inventory was valued at $61,000.
Stock-Based Compensation
The Company periodically issues stock options and warrants to employees and non-employees in non-capital raising transactions for services and for financing costs. The Company accounts for stock option and warrant grants issued and vesting to employees based on the authoritative guidance provided by the Financial Accounting Standards Board (FASB) whereas the value of the award is measured on the date of grant and recognized over the vesting period. The Company accounts for stock option and warrant grants issued and vesting to non-employees in accordance with the authoritative guidance of the FASB whereas the value of the stock compensation is based upon the measurement date as determined at either a) the date at which a performance commitment is reached, or b) at the date at which the necessary performance to earn the equity instruments is complete. Non-employee stock-based compensation charges generally are amortized over the vesting period on a straight-line basis. In certain circumstances where there are no future performance requirements by the non-employee, option grants are immediately vested, and the total stock-based compensation charge is recorded in the period of the measurement date.
The fair value of the Company's stock option and warrant grants is estimated using the Black-Scholes Option Pricing model, which uses certain assumptions related to risk-free interest rates, expected volatility, expected life of the stock options or warrants, and future dividends. Compensation expense is recorded based upon the value derived from the Black-Scholes Option Pricing model and based on actual experience. The assumptions used in the Black-Scholes Option Pricing model could materially affect compensation expense recorded in future periods.
The Company also issues restricted shares of its common stock for share-based compensation programs to employees and non-employees. The Company measures the compensation cost with respect to restricted shares to employees based upon the estimated fair value at the date of the grant and is recognized as expense over the period which an employee is required to provide services in exchange for the award. For non-employees, the Company measures the compensation cost with respect to restricted shares based upon the estimated fair value at measurement date which is either a) the date at which a performance commitment is reached, or b) at the date at which the necessary performance to earn the equity instruments is complete.
SPYR, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2021 AND 2020
(Unaudited)
Derivative Financial Instruments
The Company evaluates all of its agreements to determine if such instruments have derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the statements of operations. For stock-based derivative financial instruments, the Company uses the Black-Scholes Option Pricing model to value the derivative instruments at inception and on subsequent valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date. As of June 30, 2021, the Company's only derivative financial instruments were embedded conversion features associated with long-term convertible notes payable which contain certain provisions that allow for a variable number of shares on conversion.
Concentration of Credit Risk
The Company has no significant off-balance-sheet concentrations of credit risk such as foreign exchange contracts, options contracts, or other foreign hedging arrangements. The Company maintains the majority of its cash balances with financial institutions, in the form of demand deposits. The Company believes that no significant concentration of credit risk exists with respect to these cash balances because of its assessment of the creditworthiness and financial viability of this financial institution.
Advertising Costs
Advertising, marketing, and promotional costs are expensed as incurred and included in general and administrative expenses. Advertising, marketing, and promotional expense was $18,000 and $0 for the six months ended June 30, 2021, and 2020, respectively and was reflected as part of Other General and Administrative Expenses on the accompanying condensed consolidated statements of operations.
Recent Accounting Standards
In June 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-13, “Financial Instruments – Credit Losses.” This ASU sets forth a current expected credit loss model which requires the Company to measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions, and reasonable supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost and applies to some off-balance sheet credit exposures. In November 2019, the effective date of this ASU was deferred until fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, with early adoption permitted. The Company is in the process of determining the potential impact of adopting this guidance on its consolidated financial statements.
Other recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the Securities and Exchange Commission did not or are not believed by management to have a material impact on the Company'sCompany’s present or future consolidated financial statements.
SPYR, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2021 AND 2020
(Unaudited)
NOTE 2 - – RELATED PARTY TRANSACTIONS
On September 5, 2017, the Company obtained a revolving line of credit (LOC) from Berkshire Capital Management Co., Inc. which is controlled by the Company’s former chairman of the board. The line of credit allows the Company to borrow up to $1,000,000$ with interest at 6%% per annum. The loan was fully drawn as of February 2018, at which time the Company had borrowed $1,000,000. $ and accrued interest of approximately $. Repayment on the loan is due December 31, 2021. This not is currently in default.
During 2018 and 2019, the Company has received an additional $1,062,000$ in the form of short-term advances (Advances) from Berkshire Capital Management Co., Inc. The last advance occurred on September 30, 2019;2019, at which time the Company had borrowed $1,062,000.$ . No further advances are expected from Berkshire Capital Management Co., Inc. The Company has accrued interest on these short-term advances at 6% % per annum. The As of December 31, 2020, the Company has borrowed $ and accrued interest of approximately $ .
On June 17, 2021, the Company and Berkshire entered into a debt consolidation agreement to consolidate the LOC and Advances into a single balloon noteconsolidated all prior notes payable with interest at 6% per annum and an extended due date of December 31, 2025, thereby replacing and otherwise cancelling the LOC and Advances. The June 17, 2021 consolidated balance due was approximately $2,454,000. As of June 30, 2021, the consolidated balance due with accrued interest was approximately $2,459,000.
During the three months ended March 31, 2020, the Company, received $185,000 in revenue for professional services rendered to Berkshire Capital Management, Co., Inc. Subsequent toresulting in a single consolidated note payable of $2,454,000. As of consolidation, $118,000 of interest has accrued, resulting in a net payable at March 31, 2020, the Company has not2022 of $2,572,000. As of March 31, 2022 there is outstanding $118,000 in interest and does not anticipate that it will provide any further professional services to related parties.$2,454,000 in principal outstanding.
On May 17, 2021, the Company entered into an agreement to borrow funds from the 481149 Irrevocable Trust, a related party, that controls all of the currently outstanding preferred stock of the Company, and whose trustee is the trusteeChief Executive Officer of which isthe Company and a member of the Company’s board of directors. Pursuant to the agreement, the Company borrowed approximately $501,000$501,000 with interest at 6%6% per annum due andpayable in fulland payable on May 17, 2022. As of June 30, 2021, the balance due withMarch 31, 2022, accrued interest wasis approximately $505,000.$27,000 and the principal balance $501,000.
8
NOTE 3 – SHORT TERM NOTES
On May 17, 2021, the Company entered into an agreement to borrow funds from a third party pursuant to which, the Company borrowed $85,000 with interest at 8% per annum, due and payable in full on or before November 27, 2021. As of June 30, 2021, the balance due with accrued interest was approximately $86,000.
NOTE 4 – SMALL BUSINESS ADMINISTRATION DEBT
On May 12, 2020, the Company received a Paycheck Protection Program loan from the U.S. Small Business Administration (SBA) in the approximate amount of $71,000. The loan agreement provides for six months principal and interest deferral. The interest rate is 1%. Under the terms of the loan, up to 100% of the loan may be forgiven conditioned upon meeting certain requirements for the use of funds. On February 2, 2021, the Company submitted its application to the SBA for forgiveness, which is pending as of the date of this filing. Any amount not forgiven must be repaid in equal monthly payments of principal and interest beginning in October 2021. As of June 30, 2021, the balance due on this note with accrued interest was approximately $72,000.
SPYR, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIXTHREE MONTHS ENDED JUNE 30,MARCH 31, 2022 AND 2021 AND 2020
(Unaudited)
NOTE 3 – SHORT TERM CONVERTIBLE NOTES PAYABLE
On January 21,May 27, 2021, the Company receivedissued a second Paycheck Protection Program loan from the U.S. Small Business Administrationpromissory note to Ares Capital, Inc. in the approximate amount of $73,000. The$85,000 with 8% interest rate is 1%. Underdue and payable upon demand. On December 2, 2021, the termsnote was amended to provide the holder with conversion rights consisting of a conversion price calculated by a 50% discount to the average of the loan, uplowest three (3) VWAP’s for the Company’s Common Stock during the twenty (20) Trading Day period ending on the latest complete trading day prior to 100%the Conversion Date.
On August 11, 2021, the Company issued a promissory note to Ares Capital, Inc. in the amount of $33,333 with 8% interest due and payable upon demand. On December 2, 2021, the note was amended to provide the holder with conversion rights consisting of a conversion price calculated by a 50% discount to the average of the loan may be forgiven conditioned upon meeting certain requirementslowest three (3) VWAP’s for the useCompany’s Common Stock during the twenty (20) Trading Day period ending on the latest complete trading day prior to the Conversion Date.
On August 12, 2021, the Company issued a promissory note to Ares Capital, Inc. in the amount of funds. Any$40,000 with 8% interest due and payable upon demand. On December 2, 2021, the note was amended to provide the holder with conversion rights consisting of a conversion price calculated by a 50% discount to the average of the lowest three (3) VWAP’s for the Company’s Common Stock during the twenty (20) Trading Day period ending on the latest complete trading day prior to the Conversion Date.
On September 9, 2021, the Company issued a promissory note to Ares Capital, Inc. in the amount not forgiven must be repaid in equal monthly paymentsof $40,000 with 8% interest due and payable upon demand. On December 2, 2021, the note was amended to provide the holder with conversion rights consisting of a conversion price calculated by a 50% discount to the average of the lowest three (3) VWAP’s for the Company’s Common Stock during the twenty (20) Trading Day period ending on the latest complete trading day prior to the Conversion Date.
On March 17, 2022, Ares Capital, Inc. converted $1,000 of interest beginning infrom the May 2022.27, 2021 convertible note into 1,498,289 common shares. As of March 31, 2022, there is approximately $12,000 in interest and $198,000 in principal outstanding. of principal and $
9
SPYR, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2022 AND 2021
(Unaudited)
NOTE 4 – CONVERTIBLE NOTES PAYABLE
On April 20, 2018, (modified May 22, 2018) the Company issued a $165,000 (originally $158,000) convertible note with original issue discount (OID) of $15,000 and bearing interest at 8% per annum. The amended maturity date of the note was June 1, 2019 and was convertible on or after October 17, 2018 into the Company’s restricted common stock at $0.20 per share at the holder’s request. The OID is recorded as a discount to the debt agreement. The Company determined the note to contain a beneficial conversion feature valued at $104,000 based on the intrinsic per share value of the conversion feature. This beneficial conversion feature was recorded as a discount to the debt agreement. The warrants were valued at $126,000 using the Black-Scholes pricing model and were recorded as a discount to the debt agreement. The noteholder was also issued shares of the company’s restricted common stock valued at $34,000 based upon the closing price of the Company stock on the date of the modified agreement and recorded as a discount to the debt agreement. On May 10, 2019, the Company amended the note to extend the due date to June 1, 2019, provide for a partial conversion of $25,000 of the outstanding principal balance into common shares of the Company at a conversion price of $0.10 per share for a total of shares, and waive any prior alleged or actual defaults under the note. On August 25, 2020 the holder converted $101,500 of the outstanding principal balance into common shares of the Company at a conversion price of $0.20 per share for a total of shares. On September 30, 2021,2020, the balanceCompany amended the note to provide for a conversion of $150,000 of the outstanding principal and interest due oninto common shares of the Company at a conversion price of $0.125 per share for a total of shares and amend the warrants by adjusting the exercise price to $0.25 per share. The Company accrued approximately $120,000 in interest, liquidated damages and debt settlement costs for this note through October 22, 2020. On October 22, 2020, the Company completed the issuance of the shares and the note was considered paid in full.
On May 22, 2018, the Company issued a $275,000 convertible note with original issue discount (OID) of $25,000 and bearing a one-time interest charge at 8%. The amended maturity date of the note was December 31, 2019 and was convertible into the Company’s restricted common stock at $0.25 per share at the holder’s request. The OID is recorded as a discount to the debt agreement. The Company determined the note to contain a beneficial conversion feature valued as $40,000 based on the intrinsic per share value of the conversion feature. This beneficial conversion feature was recorded as a discount to the debt agreement. The noteholder was also granted detachable 5-year warrants to purchase shares of the company’s restricted common stock at an exercise price of $2.00 per share. The warrants were valued at $45,000 using the Black-Scholes pricing model and were recorded as a discount to the debt agreement. The noteholder was also issued 200,000 shares of the company’s restricted common stock valued at $58,000 based upon the closing price of the Company stock on the date of the agreement and recorded as a discount to the debt agreement. On May 10, 2019, the Company amended the note to extend the due date to September 1, 2019, provide for a partial conversion of $25,000 of the outstanding principal balance into common shares of the Company at a conversion price of $0.10 per share for a total of shares, and waive any prior alleged or actual defaults under the note. On October 11, 2019, the Company amended the note to extend the due date to December 31, 2019, provide for a partial conversion of $50,000 of the outstanding principal balance into common shares of the Company at a conversion price of $0.10 per share for a total of shares, and waive any prior alleged or actual defaults under the note. On August 25, 2020, the Company amended the note to extend the due date to March 31, 2021, provide for a partial conversion of $50,000 of the outstanding principal balance into common shares of the Company at a conversion price of $0.10 per share for a total of 500,000 shares, and waive any prior alleged or actual defaults under the note. On September 30, 2020, the Company amended the note to provide for a conversion of $150,000 of the outstanding principal balance into common shares of the Company at a conversion price of $0.125 per share for a total of shares, and amend the warrants by increasing the number of warrant shares to 1,000,000 at an adjusted exercise price to $0.25 per share. The Company accrued approximately $73,000.$134,000 in interest, liquidated damages and debt settlement costs for this note through October 21, 2020. On October 21, 2020, the Company completed the issuance of the 1,200,000 shares and payment of the $47,000 cash and the note was considered paid in full.
10
NOTE 5 – CONVERTIBLE NOTES
SPYR, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2022 AND 2021
(Unaudited)
On September 30, 2020, the Company entered into a Stock Purchase Agreement with a third-party investor. By virtue of the Stock Purchase Agreement, in two separate closings, the Company agreed to sell, in each closing, an 8% $500,0008% $500,000 Convertible Promissory Note and Warrant to purchase one million common shares. Each Convertible Promissory Note bears 8% interest and matures five year after issuance. Amounts due under the Convertible Promissory Note are convertible into the Registrant’s common stock at the lower of $0.25$ per share or 70% of the average of the three lowest Variable Weighted Average Price (“VWAP”) for the Registrant’s common stock for the twenty trading days prior to an election to convert. The Warrants are exercisable for five-years at an exercise price of per share or, subject to the Registrant filing a registration statement including the shares of common stock that may be issued upon exercise of the Warrant, in a cashless exercise. The first closing occurred October 5, 2020 upon the receipt by the Company of a check for $500,000.$500,000. The Company received two payments in the amount of $250,000$250,000 each on November 20, 2020 and November 24, 2020 in connection with the second closing. Total proceeds from the issuance of these convertible notes payable was $1,000,000.$1,000,000. The Company determined that the conversion features of these notes represented embedded derivatives since the notes are convertible into a variable number of shares upon conversion. The conversion features were valued at $1,514,000 at the time of closing and the Company recognized a derivative liability of $1,514,000$1,514,000 with corresponding debt discounts of $1,000,000$1,000,000 and a loss on issuance of long-term convertible notes payable of $514,000. During May and June of 2021, the Company received conversion notices received from the lender requesting the conversion of approximately $204,000$204,000 ($160,000 principal and $44,000$44,000 interest) of the notes to shares of the company’s common stock. On July 29, 2021, a convertible note holder converted $100,000 of principal debt and $15,000 of interest at a conversion rate of $0.0324 a share, into Common Stock shares. On August 6, 2021, the company entered into an Amendment of the existing convertible debt, of which resulted in the conversion rates changing to 50% of the average of the lowest VWAP, and the interest on the loan was eliminated., as well as, a $455,000 increase in the Derivative Liability portion of the convertible debt, from $1,382,000 to $1,761,000. The company recorded amortization of debt discounts, recognized as interest expense, in the amount of $234,000$330,000 and accrued interest of $40,000$47,000 during the sixnine months ended JuneSeptember 30, 2021. On June 30, 2021,As of March 31, 2022, the principal balance together withof accrued interest is recorded$61,000 and outstanding principal is $407,000.
On November 2, 2021, the Company issued a convertible promissory note to Brown Stone Capital, LP in the amount of $50,000 with 8% interest due on November 2, 2026. The note is convertible into Company common stock at a fixed price of $0.25 (the “Base Conversion Price) and (2) 50% of the average of the three lowest VWAP (as defined below) for the Common Stock (or any replacement security pursuant to Section 1(x)) for a Trading Day (as defined below) on the Company’s condensed consolidated balance sheet netTrading Market during the 20 Trading Day period immediately prior to the Conversion Date (as defined below), provided that if the VWAP is determined pursuant to Section 1(n) then 50% of discountssuch VWAP as so determined. As of March 31, 2022, there is outstanding approximate accrued interest of $2,000 and principal of $50,000.
On November 3, 2021, the Company issued a convertible promissory note to Ares Capital, Inc, in the amount $45,000 with 8% interest due on November 2, 2026. The note is convertible into Company common stock at $126,000.a fixed price of $0.25 (the “Base Conversion Price) and (2) 50% of the average of the three lowest VWAP (as defined below) for the Common Stock (or any replacement security pursuant to Section 1(x)) for a Trading Day (as defined below) on the Trading Market during the 20 Trading Day period immediately prior to the Conversion Date (as defined below), provided that if the VWAP is determined pursuant to Section 1(n) then 50% of such VWAP as so determined. As of March 31, 2022, there is outstanding approximate accrued interest of $1,000 and principal of $23,000
On December 3, 2021, the Company issued a convertible promissory note to Brown Stone Capital, LP in the amount of $70,000 with 8% interest due December 3, 2026. The note converts into Company common stock at the lesser price of (1) $0.25 (the “Base Conversion Price) and (2) 50% of the average of the three lowest VWAP (as defined below) for the Common Stock (or any replacement security pursuant to Section 1(w)) for a Trading Day (as defined below) on the Trading Market (as defined below) during the 20 Trading Day period immediately prior to the Conversion Date (as defined below), provided that if the VWAP is determined pursuant to Section 1(m) then 50% of such VWAP as so determined. As of March 31, 2022, there is outstanding approximate accrued interest of $2,000 and principal of $70,000
On December 27, 2021, the Company issued a convertible promissory note to Brown Stone Capital, LP in the amount of $50,000 with 8% interests due December 27, 2026. The note converts into Company common stock at the lesser price of (1) $0.25 (the “Base Conversion Price) and (2) 50% of the average of the three lowest VWAP (as defined below) for the Common Stock (or any replacement security pursuant to Section 1(w)) for a Trading Day (as defined below) on the Trading Market (as defined below) during the 20 Trading Day period immediately prior to the Conversion Date (as defined below), provided that if the VWAP is determined pursuant to Section 1(m) then 50% of such VWAP as so determined. As of March 31, 2022, there is outstanding approximate accrued interest of $1,000 and principal of $50,000
11
The following table summarized the Company's convertible notes payable as of June 30, 2021 and December 31, 2020:
|
| June 30, 2021 |
|
| December 31, 2020 |
| ||
Beginning Balance |
| $ | 64,000 |
|
| $ | 550,000 |
|
Proceeds from the issuance of convertible notes, net of issuance discounts |
|
| 0 |
|
|
| 0 |
|
Repayments |
|
| 0 |
|
|
| (47,000 | ) |
Conversion of notes payable into common stock |
|
| (204,000 | ) |
|
| (548,000 | ) |
Amortization of discounts |
|
| 226,000 |
|
|
| 50,000 |
|
Liquidated damages |
|
| 0 |
|
|
| (53,000 | ) |
Debt settlement costs |
|
| 0 |
|
|
| 96,000 |
|
Accrued Interest |
|
| 40,000 |
|
|
| 16,000 |
|
Convertible notes payable, net |
| $ | 126,000 |
|
| $ | 64,000 |
|
|
|
|
|
|
|
|
|
|
Convertible notes, long-term |
| $ | 796,000 |
|
| $ | 1,000,000 |
|
Accrued interest and damages, long-term |
|
| 54,000 |
|
|
| 14,000 |
|
Debt discounts, long-term |
|
| (724,000 | ) |
|
| (950,000 | ) |
Long-term convertible notes payable, net |
| $ | 126,000 |
|
| $ | 64,000 |
|
SPYR, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIXTHREE MONTHS ENDED JUNE 30,MARCH 31, 2022 AND 2021
(Unaudited)
On January 10, 2022, the Company issued a convertible promissory note to Brown Stone Capital, LP in the amount of $200,000 with 8% interests due January 10, 2027. The note converts into Company common stock at the lesser price of (1) $0.25 (the “Base Conversion Price) and (2) 50% of the average of the three lowest VWAP (as defined below) for the Common Stock (or any replacement security pursuant to Section 1(w)) for a Trading Day (as defined below) on the Trading Market (as defined below) during the 20 Trading Day period immediately prior to the Conversion Date (as defined below), provided that if the VWAP is determined pursuant to Section 1(m) then 50% of such VWAP as so determined. As of March 31, 2022, there is outstanding approximate accrued interest of $4,000 and principal of $200,000
On January 19, 2022, Mehdi Safavi converted $32,000 of debt into common shares.
On February 3, 2022, the Company issued a convertible promissory note to Brown Stone Capital, LP in the amount of $50,000 with 8% interests due February 3, 2027. The note converts into Company common stock at the lesser price of (1) $0.25 (the “Base Conversion Price) and (2) 50% of the average of the three lowest VWAP (as defined below) for the Common Stock (or any replacement security pursuant to Section 1(w)) for a Trading Day (as defined below) on the Trading Market (as defined below) during the 20 Trading Day period immediately prior to the Conversion Date (as defined below), provided that if the VWAP is determined pursuant to Section 1(m) then 50% of such VWAP as so determined. As of March 31, 2022, there is outstanding approximate accrued interest of $1,000 and principal of $50,000
On February 11, 2022, the Company issued a convertible promissory note to Brown Stone Capital, LP in the amount of $50,000 with 8% interests due February 11, 2027. The note converts into Company common stock at the lesser price of (1) $0.25 (the “Base Conversion Price) and (2) 50% of the average of the three lowest VWAP (as defined below) for the Common Stock (or any replacement security pursuant to Section 1(w)) for a Trading Day (as defined below) on the Trading Market (as defined below) during the 20 Trading Day period immediately prior to the Conversion Date (as defined below), provided that if the VWAP is determined pursuant to Section 1(m) then 50% of such VWAP as so determined. As of March 31, 2022, there is outstanding approximate accrued interest of $1,000 and principal of $50,000
On March 24, 2022, the Company issued a convertible promissory note to Brown Stone Capital, LP in the amount of $210,000 with 8% interests due March 24, 2027. The note converts into Company common stock at the lesser price of (1) $0.25 (the “Base Conversion Price) and (2) 50% of the average of the three lowest VWAP (as defined below) for the Common Stock (or any replacement security pursuant to Section 1(w)) for a Trading Day (as defined below) on the Trading Market (as defined below) during the 20 Trading Day period immediately prior to the Conversion Date (as defined below), provided that if the VWAP is determined pursuant to Section 1(m) then 50% of such VWAP as so determined. As of March 31, 2022, there is outstanding approximate accrued interest of $1,000 and principal of $210,000.
The following table summarized the Company’s convertible notes payable as of March 31, 2022 and December 31, 2021:
Summary of Convertible Notes | ||||||||
March 31, 2022 | December 31, 2021 | |||||||
Beginning Balance | $ | 492,000 | $ | 64,000 | ||||
Proceeds from the issuance of convertible notes, net of issuance discounts | 510,000 | 215,000 | ||||||
Repayments | — | — | ||||||
Conversion of notes payable into common stock | (54,000 | ) | (548,000 | ) | ||||
Amortization of discounts | 43,000 | 1,341,000 | ||||||
Liquidated damages | 54,000 | (641,000 | ) | |||||
Accrued Interest | 4,000 | 61,000 | ||||||
Convertible notes payable, net | $ | 1,049,000 | $ | 492,000 | ||||
Convertible notes, short term | $ | 210,000 | $ | 8,000 | ||||
Accrued interest and damages | $ | 220,000 | $ | 61,000 | ||||
Debt discounts | $ | — | $ | (54,000 | ) |
12
SPYR, INC. AND 2020SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2022 AND 2021
(Unaudited)
NOTE 5 – PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
Schedule of property and equipment | ||||||||
March 31, 2022 | December 31, 2021 | |||||||
Equipment | $ | 16,000 | $ | 16,000 | ||||
Furniture & fixtures | 17,000 | 17,000 | ||||||
Vehicles | 10,000 | 10,000 | ||||||
Property and Equipment, Gross | 43,000 | 43,000 | ||||||
Less: accumulated depreciation | (30,000 | ) | (28,000 | ) | ||||
Property and Equipment, Net | $ | 13,000 | $ | 16,000 |
Depreciation and amortization expense for the three months ended March 31, 2022 and 2021 was $3,000 and $10,000, respectively.
The Company sold certain office equipment for $8,000 which resulted in a gain on disposition of assets of $5,000 for the year ended December 31, 2021.
NOTE 6 - – OTHER ASSETS
At March 31, 2022 and December 31, 2021 other assets consisted of $84,000 and $46,000 respectively. The increase of $38,000 is due to the Company’s receipt of a note payable in the amount of $12,000, for which the Company reverted payment in the amount of $50,000, resulting in a $38,000 receivable due to the Company. Other assets generally consist of security deposits for the Denver corporate office and Premier Workspaces.
NOTE 7 – DERIVATIVE LIABILITY
The Company determined that the conversion features of the long-term convertible notes payable represented embedded derivatives since the notes are convertible into a variable number of shares upon conversion. Accordingly, the notes are not considered to be conventional debt and the embedded conversion feature is bifurcated from the debt host and accounted for as a derivative liability. Accordingly, the fair value of these derivative instruments is recorded as liabilities on the balance sheet with the corresponding amount recorded as a discount to each note and any excess of the fair value of the derivative component over the face amount of the note recorded as an expense on the date of issuance. Discounts are amortized from the date of issuance to the maturity dates of the notes. Fair value of derivative liabilities is evaluated at the end of each reporting period with any change in value reported in other income or expenses on the statements of operations for the period.
The following table represents the Company'sCompany’s derivative liability activity for the sixthree months ended June 30, 2021:March 31, 2022:
Schedule of Derivative Liability Activity | ||||
Quarter Ended March 31, | ||||
2022 | ||||
Derivative liability balance, December 31, 2021 | 2,621,000 | |||
Reclassification to Additional Paid-In Capital | (166,000 | ) | ||
Change in derivative liability during the period | (2,075 | ) | ||
Derivative liability balance, March 31, 2022 | $ | 380,000 |
13
SPYR, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2022 AND 2021
(Unaudited)
|
| Six Months Ended June 30, |
| |
|
| 2021 |
| |
Derivative liability balance, December 31, 2020 |
| $ | 1,382,000 |
|
Conversion into common stock during the period |
|
| (221,000 | ) |
Change in derivative liability during the period |
|
| 172,000 | |
Derivative liability balance, June 30, 2021 |
| $ | 1,333,000 |
|
The table below represents the average assumptions used in valuing the derivative liability on June 30, 2021:at March 31, 2022:
Summary of Average Assumptions Used in Valuing the Derivative Liability |
| |||
March 31, | ||||
2022 | ||||
Expected life in years |
| 3.64 | ||
Stock price volatility |
| 198.39% - | % | |
Risk free interest rate | % | |||
Expected dividends | - | |||
|
- |
NOTE 8 – DISCONTINUED OPERATIONS
Restaurant
Through our other wholly owned subsidiary, E.A.J.: PHL Airport, Inc., we owned and operated the restaurant “Eat at Joe’s®,” which was located in the Philadelphia International Airport since 1997. Our lease in the Philadelphia Airport expired in April 2017. Concurrent with expiration of the lease the restaurant closed. Pursuant to current accounting guidelines, the restaurant segment is reported as discontinued operations.
The assets and liabilities of our discontinued restaurant operations as of March 31, 2022 and December 31, 2021 there were 0 assets and $22,000 in accounts payable and accrued liabilities.
The results of operations of our discontinued restaurant for the three months ended March 31, 2022 and 2021, included in the consolidated statements of operations as discontinued operations, consisted of no operations for the three months ended March 31, 2022 and 2021.
Digital Media
Historically, through our wholly owned subsidiary, SPYR APPS®, LLC, we engaged in the development, publication and co-publication of mobile electronic games, seeking to generate revenue through those games by way of advertising and in-app purchases. As of December 31, 2020, all of our games have been removed from the game stores and the Company decided not to continue this line of business. Pursuant to current accounting guidelines, the assets and liabilities of SPYR APPS LLC as well as the results of its operations were presented in these financial statements as discontinued operations.
The assets and liabilities of our discontinued digital media operations as of March 31, 2022 and December 31, 2021 were as follows:
Summary of Assets and Liabilities of Discontinued Operations | ||||||||
March 31, 2022 | December 31, 2021 | |||||||
Assets: | ||||||||
Accounts receivable, net | $ | 14,000 | $ | 14,000 | ||||
Capitalized gaming assets and licensing rights, net | - | - | ||||||
Total Assets | $ | 14,000 | $ | 14,000 | ||||
Liabilities: | ||||||||
Accounts payable and accrued liabilities | $ | 781,000 | $ | 781,000 | ||||
Total Liabilities | $ | 781,000 | $ | 781,000 |
14
SPYR, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIXTHREE MONTHS ENDED JUNE 30,MARCH 31, 2022 AND 2021 AND 2020
(Unaudited)
The results of operations of our discontinued digital media operations for the three months ended March 31, 2022 and 2021, included in the consolidated statements of operations as discontinued operations, consisted of the following:
Summary of Results of Operations of Discontinued Operations | ||||||||
Quarter ended | Quarter ended | |||||||
March 31, | March 31, | |||||||
2022 | 2021 | |||||||
Revenues: | $ | - | $ | - | ||||
Expenses | ||||||||
Labor and related expenses | - | - | ||||||
Rent | - | - | ||||||
Depreciation and amortization | - | - | ||||||
Professional fees | - | - | ||||||
Research and Development | - | - | ||||||
Other general and administrative | 2,000 | - | ||||||
Total operating expenses | 2,000 | - | ||||||
Operating loss | (2,000 | ) | - | |||||
Other income (expense) | ||||||||
Interest expense | (11,000 | ) | ||||||
Gain on disposition of assets | - | - | ||||||
Write down of assets | ||||||||
Loss on discontinued operations | $ | (2,000 | ) | $ | (11,000 |
SPYR APPS, LLC
On February 2, 2022, the Company filed Articles of dissolution with the Nevada Secretary of State dissolving SPYR APPS, LLC.
NOTE 9 – ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
As of March 31, 2022 and December 31, 2021, the Company had accounts payable and accrued liabilities of $1,872,000 and 1,118,000 respectively. As of March 31, 2022, of the outstanding $1,872,000 consists of $299,000 outstanding and owed to vendors and other professional service providers, and $1,573,000 outstanding as accrued wages and salaries. For the year ended December 31, 2021, $1,818,000 was outstanding consisting of $245,000 outstanding and owed to vendors and other professional service providers, and $1,573,000 outstanding as accrued wages and salaries.
NOTE 10 – DEBT DISCOUNTS
As of March 31, 2022 and December 31, 2021, the Company had debt discounts of $354,000 and $397,000 respectively. For the three months ended March 31, 2022, there was $43,000 in amortization of debt discounts. For the year ended December 31, 2021, there was $132,000 in amortization of debt discounts. As of March 31, 2022 and December 31, 2021, there were outstanding long term convertible notes payable of $1,193,000 and $683,000 respectively, these numbers are netted against their respective debt discounts and are represented as $839,000 and $286,000 as of March 31, 2022 and December 31, 2021, respectively.
15
SPYR, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2022 AND 2021
(Unaudited)
NOTE 711 – COMMITMENTS AND CONTINGENCIES
Equity Line of Credit
The Company entered into a five-year Equity Line of Credit pursuant to an Equity Purchase Agreement with Brown Stone Capital, LP, dated September 30, 2020. Pursuant to the agreement, Brown Stone agreed to invest up to $14,000,000$14,000,000 to purchase the Company’s Common Stock, par value $0.0001 per share. The purchase price of the common shares is the lesser of the Fixed price or Market price. The Fixed price is $0.50 per share in years 1 and 2, after the effectiveness of a registration statement, and $1.00 per share in years 3, 4 and 5 after the effectiveness of this registration statement. The Market price is 70% of the three lowest Variable Weighted Average Price (“VWAP”) for the Company’s common stock during the 10-trading day period immediately prior to the conversion date. In addition, the Company and Brown Stone entered into a Registration Rights Agreement, whereby the Company agreed to provide certain registration rights under the Securities Act of 1933, as amended, and the rules and regulations thereunder, and applicable state securities laws, with respect to the shares of Common Stock issuable for Brown Stone’s investment pursuant to the Equity Purchase Agreement. As of June 30, 2021,March 31, 2022, no shares have been registered or sold pursuant to this agreement.On April 26, 2022, the Registrant and Ares amended the Registration Rights Agreement previously disclosed on Form 8-K filed September 23, 2001. The transaction documents were amended to reflect Ares’ waiver of the requirement that the Registrant file a registration statement concerning the equity purchase agreement within thirty days of September 20, 2021.
Operating Leases
The Company leased approximately 5,169 square feet at 4643 South Ulster Street, Denver, Colorado pursuant to an amended lease dated May 21, 2015. Under the lease, the Company paid annual base rent on an escalating scale ranging from $143,000$143,000 to $152,000.$152,000. In addition to the minimum basic rent, rent expense also includes approximately $1,000$1,000 per month for other items charged by the landlord in connection with rent. On May 1, 2020 and July 29, 2020, the Company entered into amended lease agreements with its landlord. Under the terms of the amendments, the landlord agreed to waive rent, certain rent adjustments and parking for the period April 1, 2020 through August 31, 2020 and extend the term of the lease by five months. The lease term date, which was December 31, 2020, was changed to May 31, 2021. On April 1, 2021, the Company entered into a lease termination and payment agreement with the landlord, pursuant to which the Company vacated and surrendered the premises to the landlord and the Company will pay approximately $67,000$67,000 over 18 months commencing April 1, 2021. As of June 30,November 1, 2021, the company was delinquent in its monthly payments and has not made payments to date pursuant to the settlement agreement had approximately $56,000$42,000 in unpaid rent which was reported as part of accounts payable and accrued expenses in the accompanying condensed consolidated balance sheet as of June 30, 2021.March 31, 2022.
Contingent Liabilities
Effective
During the quarter ended March 1, 2021, the Company’s wholly owned subsidiary Applied Magix, entered into a 6-month lease for 2 workspace offices located at 1230 Rosecrans Ave, Manhattan Beach California. The lease automatically renews on a continuing basis for an additional 6 months unless cancelled in writing 60 days prior the lease termination date. Under the lease,31, 2022, the Company pays monthly rentaccrued a contingent liability for anticipated litigation and legal settlement liabilities, which has been reported as part of $1,400.accounts payable and accrued liabilities on the accompanying consolidated balance sheet and litigation settlement costs on the accompanying consolidated statements of operations in the amount of $500,000 as of March 31, 2022.
Rent expense for the six months ended June 30, 2021 and 2020 was $48,000 and $65,000, respectively.
SPYR, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2021 AND 2020
(Unaudited)
Legal Proceedings
We are involved in certain legal proceedings that arise from time to time in the ordinary course of our business. Except for income tax contingencies, we record accruals for contingencies to the extent that our management concludes that the occurrence is probable and that the related amounts of loss can be reasonably estimated. Legal expenses associated with the contingency are expensed as incurred. Information about material legal proceedings follows:
16
SPYR, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2022 AND 2021
(Unaudited)
Settlements
On June 18, 2018 the Company was named as a defendant in a case filed in the United States District Court for the Southern District of New York: Securities and Exchange Commission vs. Joseph A. Fiore, Berkshire Capital Management Co., Inc., and Eat at Joe’s, Ltd. n/k/a SPYR, Inc.(“Defendants”). Joseph A. Fiore was the Chairman of our Board of Directors and is a significant shareholder. Mr. Fiore resigned from his positions as Chairman of the Board and as a Director of the Company effective August 1, 2018. The suit alleged that Mr. Fiore, during 2013 and 2014, while he was the Company’s Chief Executive Officer, Chief Financial Officer and Chairman of the Board of Directors, engaged in improper conduct on behalf of the defendants named in the case related to the Company’s sales of securities in Plandai Biotechnology, Inc. The Commission alleged that Mr. Fiore and the Company unlawfully benefited through the sales of those securities. The Commission also alleged that from 2013 to 2014, the Company’s primary business was investing and that it failed to register as an investment company, resulting in an alleged violation of Section 7(a) of the Investment Company Act of 1940. The suit sought to disgorge Joseph A. Fiore, Berkshire Capital Management Co., Inc., and the Company of alleged profits on the sale of the securities and civil fines related to the Company’s failure to register as an investment company with the Commission.
Pursuant to a settlement agreement among the parties, on April 14, 2020, final judgment was entered in the case: Securities and Exchange Commission vs. Joseph A. Fiore, Berkshire Capital Management, Inc. and Eat at Joes, Inc., n/k/a SPYR, Inc., case number 7:18-cv-05474-KMK filed in the U.S. District Court for the Southern District of New York.
On April 23, 2020, Joseph Fiore/Berkshire Capital Management, Inc. satisfied the Company’s joint and several liability obligation by paying to the Commission the agreed upon sum of Two Million Dollars pursuant to a settlement agreement between Joseph Fiore/Berkshire Capital Management, Inc. and the Company, which settlement agreement was entered into on April 15, 2020. The Company hadhas until April 14, 2021 to satisfy its remaining financial obligation to the Commission, an agreed upon civil penalty of Five Hundred Thousand Dollars ($500,000). On May 17, 2021,The $500,000 liability is reported as part of accounts payable and accrued liabilities on the Company borrowed approximately $501,000 from a related party to pay its principalaccompanying condensed consolidated balance sheets as of December 31, 2020 and December 31, 2019 and was recorded as litigation settlement liability withcosts on the Securities and Exchange Commission and has done so (See Note 2 – Related Party Transactions). Asconsolidated statements of June 30, 2021,operations for the $500,000 together with accrued interest of approximately $1,000 has been paid to the Securities and Exchange Commission in settlement of this obligation.year ended December 31, 2019.
In electing to settle with the Commission, the Company neither admitted nor denied liability to any of the Commission’s allegations in its complaint, and in consideration for the Commission discontinuing its action, the Company, along with the two other defendants Joseph Fiore and Berkshire Capital Management agreed to be jointly and severally liable for disgorgement of profits and prejudgment interest in the amount of two million dollars, and to each be solely liable to pay a civil penalty in the amount of five hundred thousand dollars. [1]
[1] In addition, an injunction was entered against
On March 15, 2022, the Company enjoined it from violatingand Collier Investments, LLC entered into a Warrant Cancellation Agreement. On May 22, 2018, the antifraud, market manipulation, beneficial ownership reporting,Company issued a five year warrant to Collier to purchase 200,000 shares of common stock, adjustable in price and other provisionsamount for dilutive issuances. The Company and Collier agreed to cancel the warrant in exchange for the Company issuing Collier 2,000,000 shares of the federal securities laws charged in the SEC’s complaint.common stock.
SPYR, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2021 AND 2020
(Unaudited)
Judgments
On or about January 24, 2019, SPYR APPS, LLC entered into an agreement with one of its vendors, Shatter Storm Studios, to whom it owed $84,250 for artwork related to the Steven Universe game. Pursuant to the terms of that agreement, SPYR APPS, LLC needed to make payment in the amount of $85,000 to cover the principal owed and attorneys’ fees together plus 6% interest in that amount by December 1, 2019. Should SPYR APPS, LLC not make the required payment on or before December 1, 2019, it consented to entry of judgment in favor of Shatter Storm Studios for the amount owed. SPYR APPS, LLC did not make the payment and on January 27, 2020 Shatter Storm Studios initiated Case No. 1:200cv-00217 in the U.S. District Court for the District of Colorado seeking entry of the consent judgment against SPYR APPS, LLC. The judgment was not contested by SPYR APPS, LLC and judgment in the amount of $85,000 plus post judgment interest at the rate of 6% was entered on March 17, 2020. The balance due as of June 30, 2021December 31, 2020 and December 31, 20202019 was approximately $97,000$95,000 and $95,000,$90,000, respectively, which includes accrued interest and isattorneys’ fees, has been reported as part of current liabilities of discontinued operations.
17
Covid-19
On January 30, 2020, the World Health Organization declared the coronavirus outbreak a "Public Health Emergency of International Concern" and on March 10, 2020, declared it to be a pandemic. Actions taken around the world to help mitigate the spread of the coronavirus include restrictions on travel, and quarantines in certain areas, and forced closures for certain types of public places and businesses. The coronavirus and actions taken to mitigate it have had and are expected to continue to have an adverse impact on the economies and financial markets of many countries, including the geographical area in which the Company operates. While it is unknown how long these conditions will last and what the complete financial effect will be to the company, the Company is anticipating potential reductions in revenue, labor and supply shortages, difficulty meeting debt covenants, delays in collecting accounts receivable and paying liabilities and changes in the fair value of assets and liabilities. Our necessity for fund raising activities make it reasonably possible that we are vulnerable to the risk of a near-term severe impact.
Additionally, it is reasonably possible that estimates made in the financial statements have been, or will be, materially and adversely impacted in the near term as a result of these conditions, including potential credit losses on receivables and investments; impairment losses related to intangible assets and other long-lived assets; and contingent obligations.
SPYR, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIXTHREE MONTHS ENDED JUNEMARCH 31, 2022 AND 2021
(Unaudited)
Employment Agreements
Pursuant to employment agreements entered in December 2014 and October 2015, the Company agreed to compensate three officers with an initial base salary in the aggregate of $450,000 per year with rolling five-year terms until terminated. In addition, as part of the employment agreements, the Company also agreed to grant these officers an aggregate of 1.55 million shares of restricted common stock at the beginning of each employment year. On September 17, 2021, Barry D. Loveless resigned as Chief Financial Officer. On December 31, 2021, the Company and James R. Thompson and Jennifer D. Duettra agreed to terminate their positions as Chief Executive Officer, President, General Counsel and Vice-President and Assistant General Counsel, respectively.
Pursuant to employment agreements entered in October 2020, the Company agreed to compensate the two former owners of Applied Magix with an initial base salary in the aggregate of $300,000 for one year. In addition, as part of the employment agreements, the Company also agreed to grant these officers an aggregate of 2 million shares of restricted common stock as a signing bonus and 5 million options to purchase shares of restricted common stock.
On December 31, 2021, the Company terminated its employment agreements with James R. Thompson and Jennifer D. Duettra.
Pursuant to termination agreements, the Company is liable for unpaid wages and benefits to Ms. Duettra and Mr. Thompson of $162,458.13 and $3,600, and $910,991.80 and $2,300.02 respectively. The Company also owes Mr. Thompson contractual expense reimbursements in the amount of $52,527.82.
In settlement of constructive termination under Ms. Duettra and Mr. Thompson’s employment agreements, the Company agreed to issue 2,500,000 and 5,000,000 shares of restricted common stock, respectively, and continue payments of medical, dental and vision insurance for each until June 30, 20212022.
On February 7, 2022, the Company entered into settlement agreements with Harald Zink, Richard Kelly Clark, and Misty Seals to settle accrued wages. The Company settled $94,193.75 in accrued wages payable to Mr. Zink by the issuance of 1,546,695 common shares. The Company settled $42,383.42 in accrued wages payable to Ms. Seals by the issuance of 695,951 common shares. The Company settled $94,193.75 in accrued wages payable to Mr. Clark by the issuance of 1,788,367 common shares.
18
SPYR, INC. AND 2020SUBSIDIARIES
(Unaudited)NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2022 AND 2021
(Unaudited)
NOTE 812 – EQUITY TRANSACTIONS
Common Stock:Stock:
SixThree Months Ended June 30,March 31, 2021
During the sixthree months ended June 30,March 31, 2021, the Company issued an aggregate of 1,550,000 shares of restricted common stock to employees and directors with a total fair value of $239,000$ for services rendered. The shares issued are non-refundable and deemed earned upon issuance. As a result, the Company expensed the entire $239,000$ upon issuance. The shares issued were valued at the date earned under the respective agreement based upon closing market price of the Company’s common stock. The Company also issued for outside consulting with a fair value of $ .
Three Months Ended March 31, 2022
During the sixthree months ended June 30, 2021,March 31, 2022, the Company issued an aggregate of 3,000,000 shares of registeredrestricted common stock to third party service providersemployees with a total fair value of $371,000.$ for services rendered. The shares issued are non-refundable and deemed earned upon issuance. As a result, the Company expensed the entire $371,000$ upon issuance. The shares issued were valued at the date earned under the respective agreement based upon closing market price of the Company’s common stock.
During the six months ended June 30, 2021, theThe Company also issued an aggregate of 1,242,854 common shares of restricted common stock to third party service providersfor outside consulting with a total fair value of $100,000. $ .
The Company also issued 282,000. common shares for settlements to Collier Investments, and separately with Richard Kelly Clark, Harald Zink, and Misty Seals with an aggregate fair market value of $
The company also issued are non-refundable common shares in conversion of $54,000 in notes payable.
The Company also has the obligation to issue deemed earned upon issuance. As a result, the Company expensed the entire $100,000 upon issuance. The common shares for consulting services that has not been issued were valued atas of the date earned under the respective agreement based upon closing market price of the Company’s common stock. shares in director compensation, and
During the year ended December 31, 2020, the Company issued an aggregate of 3,736,237 shares of common stock with a totalthis filing. The fair value of $425,000 in conversion of notes. As a result, the Company reduced the balance due on the notesthese issuances are $518,000 and accrued interest by $204,000 and reduced the value of the derivative liability by $221,000 upon issuance.$30,000 respectively.
Six Months Ended June 30, 2020Options:
During the six months ended June 30, 2020, the Company issued an aggregate of 1,250,000 shares of restricted common stock to employees with a total fair value of $25,000 for services rendered. The shares issued are non-refundable and deemed earned upon issuance. As a result, the Company expensed the entire $25,000 upon issuance. The shares issued were valued at the date earned under the respective agreement based upon closing market price of the Company’s common stock.
Options:
The following table summarizes common stock options activity:
Summary of Common Stock Options Activity | ||||||||
Options | Weighted Average Exercise Price | |||||||
December 31, 2021 | 4,379,900 | $ | 0.88 | |||||
Granted | — | — | ||||||
Exercised | — | — | ||||||
Expired | — | — | ||||||
Outstanding, March 31, 2022 | 4,379,900 | $ | 0.88 | |||||
Exercisable, March 31, 2020 | 4,379,900 | $ | 0.88 |
|
|
|
| Weighted |
| |||
|
|
|
| Average |
| |||
|
|
|
| Exercise |
| |||
|
| Options |
|
| Price |
| ||
December 31, 2020 |
|
| 5,799,900 |
|
| $ | 0.88 |
|
Granted |
|
| - |
|
|
| - |
|
Exercised |
|
| - |
|
|
| - |
|
Expired |
|
| (420,000 | ) |
|
| 1.00 |
|
Outstanding, June 30, 2021 |
|
| 5,379,900 |
|
| $ | 0.87 |
|
Exercisable, June 30, 2021 |
|
| 5,379,900 |
|
| $ | 0.87 |
|
19
SPYR, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIXTHREE MONTHS ENDED JUNE 30,MARCH 31, 2022 AND 2021 AND 2020
(Unaudited)
The weighted average exercise prices, remaining lives for options granted, and exercisable as of June 30, 2021March 31, 2022 were as follows:
|
| Outstanding Options |
|
|
| Exercisable Options | ||||
Options |
|
|
|
|
| Weighted |
|
|
| Weighted |
Exercise Price |
|
|
| Life |
| Average Exercise |
|
|
| Average Exercise |
Per Share |
| Shares |
| (Years) |
| Price |
| Shares |
| Price |
$0.25 |
| 1,000,000 |
| 0.31 |
| $0.25 |
| 1,000,000 |
| $0.25 |
$0.50 |
| 1,300,000 |
| 0.81 |
| $0.50 |
| 1,300,000 |
| $0.50 |
$1.00 |
| 1,679,900 |
| 0.61 – 1.31 |
| $1.00 |
| 1,679,900 |
| $1.00 |
$1.50 |
| 1,400,000 |
| 1.81 |
| $1.50 |
| 1,400,000 |
| $1.50 |
|
| 5,379,900 |
|
|
| $0.87 |
| 5,379,900 |
| $0.87 |
Schedule of Weighted Average Exercise Price Range | ||||||||||||||||||
Outstanding Options | Exercisable Options | |||||||||||||||||
Options Exercise Price Per Share | Shares | Life (Years) | Weighted Average Exercise Price | Shares | Weighted Average Exercise Price | |||||||||||||
$0.50 | 8,000,000 | $0.50 | 8,000,000 | $0.50 | ||||||||||||||
$1.00 | 1,149,900 | – | $1.00 | 1,149,900 | $1.00 | |||||||||||||
9,149,900 | $0.56 | 9,149,900 | $0.56 |
On June 30, 2021,At March 31, 2022, the Company’s closing stock price was $0.077$ per share. As all outstanding options had an exercise price greater than $0.077$0.03 per share, there was no intrinsic value of the options outstanding as of June 30, 2021.at March 31, 2022.
Warrants:Warrants:
The following table summarizes common stock warrants activity:
Summary of Common Stock Warrants Activity | ||||||||||||||||
|
|
| Weighted |
| Warrants | Weighted Average Exercise Price | ||||||||||
|
|
| Average |
| ||||||||||||
|
|
| Exercise |
| ||||||||||||
|
| Warrants |
|
| Price |
| ||||||||||
Outstanding, December 31, 2020 |
| 11,100,000 |
| $ | 0.39 |
| ||||||||||
Outstanding, December 31, 2021 | 7,200,000 | $ | 0.39 | |||||||||||||
Granted |
| - |
| - |
| — | — | |||||||||
Exercised |
| - |
| - |
| — | — | |||||||||
Expired |
|
| (3,900,000 | ) |
|
| 0.17 |
| 1,200,000 | |||||||
Outstanding, June 30, 2021 |
|
| 7,200,000 |
|
| $ | 0.40 |
| ||||||||
Exercisable, June 30, 2021 |
|
| 7,200,000 |
|
| $ | 0.40 |
| ||||||||
Cancelled | 200,000 | — | ||||||||||||||
Outstanding, March 31, 2022 | 5,800,000 | $ | 0.33 | |||||||||||||
Exercisable, March 31, 2022 | 5,800,000 | $ | 0.33 |
The weighted average exercise prices, remaining lives for warrants granted, and exercisable as of June 30, 2021,March 31, 2022, were as follows:
|
| Outstanding and Exercisable Warrants |
| ||
Warrants |
|
|
|
|
|
Exercise Price |
|
|
| Life |
|
Per Share |
| Shares |
| (Years) |
|
$0.25 |
| 4,000,000 |
| 1.89 – 4.41 |
|
$0.50 |
| 2,200,000 |
| 1.72 – 2.03 |
|
$0.75 |
| 1,000,000 |
| 2.03 |
|
|
| 7,200,000 |
|
|
|
Schedule of Warrants Weighted Average Exercise Price Range | ||||||||||
Outstanding and Exercisable Warrants | ||||||||||
Warrants Exercise Price Per Share | Shares | Life (Years) | ||||||||
$ | 0.25 | 3,500,000 | ||||||||
$ | 0.50 | 2,300,000 | ||||||||
5,800,000 |
SPYR, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2021 AND 2020
(Unaudited)
On June 30, 2021, the Company’s closing stock price was $0.077 per share. As all outstanding warrants had an exercise price greater than $0.077 per share, there was no intrinsic value of the warrants outstanding as of June 30, 2021.
Shares Reserved:Reserved:
On June 30, 2021,At March 31, 2022, the Company has 80,000,000 shares of common stock in connection with convertible notes with detachable warrants, 100,000,000 shares of common stock in connection with shares underlying an equity line of credit and 3,500,000 shares of common stock underlying warrants issued in connection with the court approved settlement agreement for a total of 183,500,000 reserved shares of common stock.or warrants. reserved
20
NOTE 9 – DISCONTINUED OPERATIONS
Restaurant
Through our other wholly owned subsidiary, E.A.J.: PHL Airport, Inc., we owned and operated the restaurant “Eat at Joe’s®,” which was located in the Philadelphia International Airport since 1997. Our lease in the Philadelphia Airport expired in April 2017. Concurrent with expiration of the lease the restaurant closed. Pursuant to current accounting guidelines, the restaurant segment is reported as discontinued operations.
The assets and liabilities of our discontinued restaurant operations as of June 30, 2021 and December 31, 2020 consisted of $0 assets and $22,000 in accounts payable and accrued liabilities.
There were no operations for our discontinued restaurant during the six months ended June 30, 2021 and 2020.
Digital Media
Historically, through our wholly owned subsidiary, SPYR APPS®, LLC, we engaged in the development, publication, and co-publication of mobile electronic games, seeking to generate revenue through those games by way of advertising and in-app purchases. All of our games had been removed from the game stores and the Company has decided not to continue this line of business. Pursuant to current accounting guidelines, the assets and liabilities of SPYR APPS LLC as well as the results of its operations were presented in these financial statements as discontinued operations.
The assets and liabilities of our discontinued digital media operations as of June 30, 2021 and December 31, 2020 were as follows:
|
| June 30, 2021 |
|
| December 31, 2020 |
| ||
Assets: |
|
|
|
|
|
| ||
Accounts receivable, net |
| $ | 13,000 |
|
| $ | 13,000 |
|
Capitalized gaming assets and licensing rights, net |
|
| 0 |
|
|
| 75,000 |
|
Total Assets |
| $ | 13,000 |
|
| $ | 88,000 |
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities |
| $ | 769,000 |
|
| $ | 745,000 |
|
Total Liabilities |
| $ | 769,000 |
|
| $ | 745,000 |
|
SPYR, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIXTHREE MONTHS ENDED JUNE 30,MARCH 31, 2022 AND 2021 AND 2020
(Unaudited)
NOTE 13 – SUBSEQUENT EVENTS
On May 4, 2022, the Company issued 42,000 in principal and $2,000 in interest at a conversion rate of $0.0186 per share related to a promissory notes dated August 12, and September 9, 2021. shares of common stock issued to Ares Capital, Inc. for $
The results of operations of our discontinued digital media operations forCompany entered into a consulting agreement with a third party vendor requiring the six months ended June 30, 2021 and 2020, included in the consolidated statements of operationsCompany to issue registered common shares on Form S-8, which have been accrued as discontinued operations, consisted of the following:
|
| Six months ended |
|
| Six months ended |
| ||
|
| June 30, |
|
| June 30, |
| ||
|
| 2021 |
|
| 2020 |
| ||
Revenues: |
| $ | 0 |
|
| $ | 3,000 |
|
|
|
|
|
|
|
|
|
|
Expenses |
|
|
|
|
|
|
|
|
Labor and related expenses |
|
| 0 |
|
|
| 8,000 |
|
Other general and administrative |
|
| 0 |
|
|
| 37,000 |
|
Total operating expenses |
|
| 0 |
|
|
| 45,000 |
|
Operating loss |
|
| 0 |
|
|
| (42,000 | ) |
|
|
|
|
|
|
|
|
|
Other income (expense) |
|
|
|
|
|
|
|
|
Interest expense |
|
| (24,000 | ) |
|
| (21,000 | ) |
Write down of assets |
|
| (75,000 | ) |
|
| - |
|
Loss on discontinued operations |
| $ | (99,000 | ) |
| $ | (63,000 | ) |
NOTE 10 – SUBSEQUENT EVENTS
Subsequent to June 30, 2021, the Company’s common shares were up-listed to and began trading on the OTCQB Venture Market under the ticker symbol “SPYR”.
Subsequent to June 30, 2021, the Company received conversion notices received from a lender requesting the conversiondate of approximately $115,000this filing, but not issued. The value of the notes to 3,561,830 shares of the company’s common stock.
Subsequent to June 30, 2021, the Company amended it convertible notes payable to adjust the conversion price to the lower of $0.25is $ per share or 50% of the average of the three lowest Variable Weighted Average Price (“VWAP”) for the Company’s common stock for the twenty trading days prior to an election to convert and to remove the Company’s obligation to pay 8% interest on the outstanding principal amounts due under the notes.as at May 5, 2022.
Subsequent to June 30, 2021,On May 10, 2022, the Company entered into agreements to borrow funds from a third party pursuant to which,convertible promissory note in the Company borrowed $73,000principal amount of $75,000, with 10% interest at 8% per annum, due and payable in full on or before February 11, 2021.with a maturity date of August 10, 2022. The note has a $25,000 original issuance discount.
21
ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the Condensed Consolidated Financial Statements and supplementary data referred to in this Form 10-Q.
This discussion contains forward-looking statements that involve risks and uncertainties. Such statements, which include statements concerning revenue sources and concentration, selling, general and administrative expenses and capital resources, are subject to risks and uncertainties, including, but not limited to, those discussed elsewhere in this Form 10-Q that could cause actual results to differ materially from those projected. Unless otherwise expressly indicated, the information set forth in this Form 10-Q is as of June 30, 2021,March 31, 2020, and we undertake no duty to update this information.
Plan of Operations
ThroughSPYR®, Inc. acts as a holding company to develop a portfolio of profitable subsidiaries, not limited by any particular industry or business.
With our October 20, 2020, acquisition of Applied Magix, a Nevada corporation (“Applied Magix”), our business model changed to focus on the development of our wholly owned subsidiary Applied Magix Inc., acquired October 20, 2020, we are a registered Apple® developer, and reseller of AppleApple® ecosystem compatible products and accessories with an emphasis on the smart home market. As such, we are in the global “Internet of Things” (IoT) market, and more specifically, the segment of the market related to the development, manufacture and sale of devices and accessories specifically built on Apple’s HomeKit® framework. These products work within the Apple® HomeKit® ecosystem and are exclusive to the Apple market and its consumers. ThroughApple® HomeKit® is a system that lets users control smart home devices, so long as they’re compatible with the HomeKit® ecosystem, giving users control over smart thermostat, lights, locks and more in multiple rooms, creating comfortable environments and remote control of other connected devices. Our strategy is two-fold. First, we intend to resell, under our wholly owned subsidiary SPYR APPS, LLC, d/b/Applied Magix brand, a SPYR GAMESvariety of chargers, cables, cords, charging docks, cases, cameras, adaptors and other accessories used in the Apple® ecosystem in various internet marketplaces. Secondly, we develop, publish,are developing an Applied Magix branded hardware device for use with the Apple HomeKit® framework, that will allow users to program and co-publish mobile games,securely control and then generate revenuemanage multiple smart home devices labeled as a “Works with Apple HomeKit” accessory through those games by way of advertising and in-app purchases. Our primary focus moving forwardthe Apple® HomeKit® app for iOS. To date, our strategy is onin the development and expansion ofstage. We have yet to begin sales efforts for our Applebranded Apple® ecosystem compatible products and devices.accessories, and our Apple HomeKit® hardware device is in development.
Management’s plan forWe will also continue to identify and target acquisitions, which will grow our footprint in the next 12 months istechnology industry and expand the products we offer consumers, including companies developing artificial intelligence and smart-technology products.
The Company intends to executeutilize cash on that plan by sourcing, reselling, manufacturing, developing, and selling the foregoing types of products, including our proprietary branded products. We expect these marketing, development and expansion plans will be financed through existing cash, operating cash flows from game revenues,hand, shareholder loans and other forms of financing such as the sale of additional equity and debt securities, capital leases and other credit facilities.facilities to conduct its ongoing business, and to also conduct strategic business development, marketing analysis, due diligence investigations into possible acquisitions, and implementation of our Applied Magix business plans generally. The Company also plansseeks to diversify, through acquisition or otherwise, in other related and/or unrelated business areas and is exploring opportunities to do so.
22
COMPARISON OF THE THREE MONTHS ENDED JUNE 30,MARCH 31, 2022 TO 2021 TO 2020
The consolidated results of continuing operations for the three months ended June 30,March 31, 2022 and 2021 and 2020 are as follows:
Three Months Ended March 31, 2022 | Applied Magix | Corporate | Consolidated | |||||||||
Revenues | $ | 1,000 | $ | — | $ | 1,000 | ||||||
Related party service revenues | — | — | — | |||||||||
Labor and related expenses | — | (1,259,000 | ) | (1,259,000 | ) | |||||||
Rent | (5,000 | ) | (1,000 | ) | (6,000 | ) | ||||||
Depreciation and amortization | (2,000 | ) | — | (2,000 | ) | |||||||
Professional fees | (2,000 | ) | (889,000 | ) | (891,000 | ) | ||||||
Research and Development | — | — | — | |||||||||
Other general and administrative | (5,000 | ) | (35,000 | ) | (40,000 | ) | ||||||
Operating loss | (13,000 | ) | (2,184,000 | ) | (2,197,000 | ) | ||||||
Interest Expense | — | (49,000 | ) | (49,000 | ) | |||||||
Unrealized gain on trading securities | — | 1,000 | 1,000 | |||||||||
Other income | — | 38,000 | 38,000 | |||||||||
Amortization of debt discounts | — | (43,000 | ) | (43,000 | ) | |||||||
Loss on conversion of debt | — | (54,000 | ) | (54,000 | ) | |||||||
Settlement expense | — | (2828,000 | ) | (2828,000 | ) | |||||||
Change in value of derivative liability | — | 2,075,000 | 2,075,000 | |||||||||
Other Income (Expense) | — | (1,685,000 | ) | 1,685,000 | ||||||||
Loss from continuing operations | $ | (13,000 | ) | $ | (499,000 | ) | $ | (512,000 | ) |
For the Three Months Ended March 31, 2021 | Applied Magix | Corporate | Consolidated | |||||||||
Revenues | $ | — | $ | — | $ | — | ||||||
Related party service revenues | — | — | — | |||||||||
Labor and related expenses | (103,000 | ) | (386,000 | ) | (489,000 | ) | ||||||
Rent | (2,000 | ) | (26,000 | ) | (28,000 | ) | ||||||
Depreciation and amortization | (2,000 | ) | (1,000 | ) | (3,000 | ) | ||||||
Professional fees | (7,000 | ) | (422,000 | ) | (429,000 | ) | ||||||
Research and development | (4,000 | ) | — | (4,000 | ) | |||||||
Other general and administrative | (28,000 | ) | (17,000 | ) | (45,000 | ) | ||||||
Operating loss | (146,000 | ) | (852,000 | ) | (998,000 | ) | ||||||
Interest Expense | — | (102,000 | ) | (102,000 | ) | |||||||
Gain on disposition of assets | — | 5,000 | 5,000 | |||||||||
Change in Value of derivative liability | — | (104,000 | ) | (104,000 | ) | |||||||
Unrealized gain (loss) on trading securities | — | 1,000 | 1,000 | |||||||||
Other expense | — | (200,000 | ) | (200,000 | ) | |||||||
Loss from continuing operations | $ | (146,000 | ) | $ | (1,052,000 | ) | $ | (1,198,000 | ) |
23
|
| Applied Magix |
|
| Corporate |
|
| Consolidated |
| |||
|
|
|
|
|
|
|
|
|
| |||
Three Months Ended June 30, 2021 |
|
|
|
|
|
|
|
|
| |||
Revenues |
| $ | 1,000 |
|
| $ | - |
|
| $ | 1,000 |
|
Cost of goods sold |
|
| (2,000 | ) |
|
| - |
|
|
| (2,000 | ) |
Labor and related expenses |
|
| (100,000 | ) |
|
| (186,000 | ) |
|
| (286,000 | ) |
Rent |
|
| (4,000 | ) |
|
| (16,000 | ) |
|
| (20,000 | ) |
Depreciation and amortization |
|
| (2,000 | ) |
|
| (2,000 | ) |
|
| (4,000 | ) |
Professional fees |
|
| (5,000 | ) |
|
| (129,000 | ) |
|
| (134,000 | ) |
Research and development |
|
| (5,000 | ) |
|
| - |
|
|
| (5,000 | ) |
Other general and administrative |
|
| (36,000 | ) |
|
| (19,000 | ) |
|
| (55,000 | ) |
Operating loss |
|
| (153,000 | ) |
|
| (352,000 | ) |
|
| (505,000 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense |
|
| - |
|
|
| (242,000 | ) |
|
| (242,000 | ) |
Change in Value of derivative liability |
|
| - |
|
|
| (68,000 | ) |
|
| (68,000 | ) |
Unrealized gain (loss) on trading securities |
|
| - |
|
|
| - |
|
|
| - |
|
Other expense |
|
| - |
|
|
| (310,000 | ) |
|
| (310,000 | ) |
Loss from continuing operations |
| $ | (153,000 | ) |
| $ | (662,000 | ) |
| $ | (815,000 | ) |
|
| Applied Magix |
|
| Corporate |
|
| Consolidated |
| |||
Three Months Ended June 30, 2020 |
|
|
|
|
|
|
|
|
| |||
Revenues |
| $ | - |
|
| $ | - |
|
| $ | - |
|
Labor and related expenses |
|
| - |
|
|
| (151,000 | ) |
|
| (151,000 | ) |
Rent |
|
| - |
|
|
| (28,000 | ) |
|
| (28,000 | ) |
Depreciation and amortization |
|
| - |
|
|
| (9,000 | ) |
|
| (9,000 | ) |
Professional fees |
|
| - |
|
|
| (11,000 | ) |
|
| (11,000 | ) |
Other general and administrative |
|
| - |
|
|
| (55,000 | ) |
|
| (55,000 | ) |
Operating loss |
|
| - |
|
|
| (254,000 | ) |
|
| (254,000 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense |
|
| - |
|
|
| (44,000 | ) |
|
| (44,000 | ) |
Gain on disposition of assets |
|
| - |
|
|
| 1,000 |
|
|
| 1,000 |
|
SBA EIDL grant |
|
| - |
|
|
| 3,000 |
|
|
| 3,000 |
|
Unrealized loss on trading securities |
|
| - |
|
|
| 2,000 |
|
|
| 2,000 |
|
Other expense |
|
| - |
|
|
| (38,000 | ) |
|
| (38,000 | ) |
Loss from continuing operations |
| $ | - |
|
| $ | (292,000 | ) |
| $ | (292,000 | ) |
Results of Operations
For the three months ended June 30, 2021March 31, 2022 the Company had a loss from continuing operations of $815,000$512,000 compared to a loss from continuing operations of $292,000$1,198,000 for the three months ended June 30, 2020.March 31, 2021. This change is due primarily to increases in labor and related expenses of $135,000,and professional fees of $123,000, research and development of $5,000, partially offset by decreases in rent of $8,000, and depreciation and amortization of $5,000 during the three months ended June 30, 2021 compared to the three months ended June 30, 2020. Other items contributing to the change included increases in interest expense of $198,000 and change in value of derivative liability of $68,000.fees.
More detailed explanation of the three months ended June 30, 2021 and 2020 changes are included in the following discussions.
Total Revenues - For the three months ended June 30,March 31, 2022 and 2021, and 2020, the Company had total revenue of $1,000 and $0, respectively, for an increase of $1,000.respectively. This change is due to our entry into new business operations focused on the developmentCompany’ launch of our wholly owned subsidiary, Applied Magix. The Company received its first order of inventory during late March 2021 consisting of Apple HomeKit products for resale by the Company and our second order of inventory in mid May 2021 consisting of MagiXDrive, our branded Apple CarPlay product for resale by the company. These products are available for sale through its website at https://appliedmagix.com/shop/, as well as the eBay Marketplace, Amazon Marketplace, and Walmart’s online marketplace. In addition, the Company has also paid a down payment in the amount of $32,500 for the development of Applied Magix proprietary products expected to be completed later this year.
Cost of goods sold include the costs of inventory, inbound freight, duty and customs charges for the items soldsales efforts during the period and inventory write downs recognized during the period.quarter.
Labor and related expenses include the costs of salaries, wages, leased employees, contract labor, and the fair value of common stock and options granted to employees and directors for services. For the three months ended June 30, 2021March 31, 2022 the company had total labor and related expenses of $286,000$1,259,000 with $136,000$0 being settled in cash, $126,000$102,000 in accrued salaries, and $24,000$1,157,000 being paid in restricted stock recorded at fair value. For the three months ended June 30, 2020March 31, 2021 the company had total labor and related expenses of $151,000$489,000 with $51,000$214,000 being settled in cash, and $100,000$60,000 in accrued salaries.salaries, and $215,000 being paid in restricted stock recorded at fair value. The cost of labor is expected to increase in conjunction with expansion of operations.
The cost of rent decreased $8,000to $9,000 from $6,000 for the three months ended March 31, 2022 from $28,000 for the three months ended June 30, 2020 to $20,000 for the three months ended June 30,March 31, 2021. The Company leased approximately 5,169 square feet at 4643 South Ulster Street, Denver, Colorado pursuant to an amended lease dated May 21, 2015 and expiring on December 31, 2020. Under the lease, the Company paid annual base rent on an escalating scale ranging from $142,000 to $152,000. On May 1, 2020 and July 29, 2020, the Company entered into amended lease agreements with its landlord. Under the terms of the amendments, the landlord agreed to waive rent, certain rent adjustments and parking for the period April 1, 2020 through August 31, 2020 and extend the term of the lease by five months. The lease term date, which was December 31, 2020, was changed to May 31, 2021. On April 1,Subsequent to March 31, 2021, the Company entered into a lease termination and payment agreement with its landlord, pursuant to which the Company vacated and surrendered the premises to the landlord and the Company will pay approximately $67,000 over 18 months commencing April 1, 2021. As of November 1, 2021, the company was delinquent in its monthly payments and has not made payments to date pursuant to the settlement agreement had approximately $42,000 in unpaid rent which was reported as part of accounts payable and accrued expenses in the accompanying condensed consolidated balance sheet as of March 31, 2022.
The Company In addition, effective March 1, 2021, the Company’s wholly owned subsidiary Applied Magix, entered into a 6-month lease for 2 workspace offices located at 1230 Rosecrans Ave, Manhattan Beach California. Under the lease, the Company pays monthly rent of $1,400.
Depreciation and amortization expenses decreased by approximately $5,000Professional fees were $891,000 for the three months ended June 30, 2021March 31, 2022, compared to the three months ended June 30, 2020. Depreciation and amortization expenses are attributable to depreciation of property and equipment and amortization of intangible assets in service during respective periods. We expect depreciation and amortization expenses to increase in 2021 commensurate with the acquisition of additional property, equipment, and intangible assets in connection with our planned Applied Magix business operations.
Professional fees increased $123,000 from $11,000$429,000 for the three months ended June 30, 2020 to $134,000 for the three months ended June 30,March 31, 2021. Of the $134,000, $34,000$891,000, $213,000 was paid in cash, for legal, accounting,$139,000 was accrued as future payables, and other professional service needs and $100,000$539,000 was paid in restricted stock recorded at fair value. Professional fees during the three months ended June 30, 2020 included $11,000 in legal, accounting, and other professional service needs.
Research and development costs during the three months ended June 30, 2021 were $5,000, compared to research and development costs of $0 during the three months ended June 30, 2020. Research and development costs are expected to increase as we develop our planned proprietary Apple HomeKit products.
Other general and administrative expenses remained level at $55,000 for the three months ended June 30, 2021 compared to the three months ended June 30, 2020.
The Company had interest expense on a related party notes payable, short-term notes payable, convertible notes payable, and U.S. Small Business Administration debt of $242,000 for the three months ended June 30, 2021. The company had interest expense on a related party notes payable and convertible notes payable of $44,000 for the three months ended June 30, 2020.
The Company sold certain office equipment for $5,000 which resulted in a gain on disposition of assets of $1,000 for the three months ended June 30, 2020. The Company did not have a corresponding gain for the three months ended June 30, 2021.
The Company received a $3,000 Economic Injury Disaster Loan (EIDL) grant from the U.S. Small Business Administration during the for the three months ended June 30, 2020. The Company did not have a corresponding grant for the three months ended June 30, 2021.
The Company recognized a loss on the change in value of a derivative liability related to its long-term convertible notes payable in the amount of $68,000 for the three months ended June 30, 2021. The Company did not have a corresponding loss for the three months ended June 30, 2020.
The Company had unrealized gains on trading securities of $0 for the three months ended June 30, 2021 compared to unrealized losses of $2,000 for the three months ended June 30, 2020. Unrealized gains and losses are the result of fluctuations in the quoted market price of the underlying securities at the respective reporting dates.
COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 2021 TO 2020
The consolidated results of continuing operations for the six months ended June 30, 2021 and 2020 are as follows:
|
| Applied Magix |
|
| Corporate |
|
| Consolidated |
| |||
|
|
|
|
|
|
|
|
|
| |||
For the Six Months Ended June 30 2021 |
|
|
|
|
|
|
|
|
| |||
Revenues |
| $ | 1,000 |
|
| $ | - |
|
| $ | 1,000 |
|
Related party service revenues |
|
| - |
|
|
| - |
|
|
| - |
|
Cost of goods sold |
|
| (2,000 | ) |
|
| - |
|
|
| (2,000 | ) |
Labor and related expenses |
|
| (203,000 | ) |
|
| (572,000 | ) |
|
| (775,000 | ) |
Rent |
|
| (6,000 | ) |
|
| (42,000 | ) |
|
| (48,000 | ) |
Depreciation and amortization |
|
| (4,000 | ) |
|
| (3,000 | ) |
|
| (7,000 | ) |
Professional fees |
|
| (12,000 | ) |
|
| (551,000 | ) |
|
| (563,000 | ) |
Research and development |
|
| (9,000 | ) |
|
| - |
|
|
| (9,000 | ) |
Other general and administrative |
|
| (65,000 | ) |
|
| (36,000 | ) |
|
| (101,000 | ) |
Operating loss |
|
| (300,000 | ) |
|
| (1,204,000 | ) |
|
| (1,504,000 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense |
|
| - |
|
|
| (344,000 | ) |
|
| (344,000 | ) |
Gain on disposition of assets |
|
| - |
|
|
| 5,000 |
|
|
| 5,000 |
|
Change in Value of derivative liability |
|
| - |
|
|
| (172,000 | ) |
|
| (172,000 | ) |
Unrealized gain (loss) on trading securities |
|
| - |
|
|
| 1,000 |
|
|
| 1,000 |
|
Other expense |
|
| - |
|
|
| (510,000 | ) |
|
| (510,000 | ) |
Loss from continuing operations |
| $ | (300,000 | ) |
| $ | (1,714,000 | ) |
| $ | (2,014,000 | ) |
|
| Applied Magix |
|
| Corporate |
|
| Consolidated |
| |||
For the Six Months Ended June 30 2020 |
|
|
|
|
|
|
|
|
| |||
Revenues |
| $ | - |
|
| $ | - |
|
| $ | - |
|
Related party service revenues |
|
| - |
|
|
| 185,000 |
|
|
| 185,000 |
|
Labor and related expenses |
|
| - |
|
|
| (328,000 | ) |
|
| (328,000 | ) |
Rent |
|
| - |
|
|
| (65,000 | ) |
|
| (65,000 | ) |
Depreciation and amortization |
|
| - |
|
|
| (19,000 | ) |
|
| (19,000 | ) |
Professional fees |
|
| - |
|
|
| (53,000 | ) |
|
| (53,000 | ) |
Research and Development |
|
| - |
|
|
| - |
|
|
| - |
|
Other general and administrative |
|
| - |
|
|
| (117,000 | ) |
|
| (117,000 | ) |
Operating loss |
|
| - |
|
|
| (397,000 | ) |
|
| (397,000 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense |
|
| - |
|
|
| (89,000 | ) |
|
| (89,000 | ) |
Gain on disposition of assets |
|
| - |
|
|
| 1,000 |
|
|
| 1,000 |
|
SBA EIDL grant |
|
| - |
|
|
| 3,000 |
|
|
| 3,000 |
|
Unrealized loss on trading securities |
|
| - |
|
|
| 1,000 |
|
|
| 1,000 |
|
Other expense |
|
| - |
|
|
| (84,000 | ) |
|
| (84,000 | ) |
Loss from continuing operations |
| $ | - |
|
| $ | (481,000 | ) |
| $ | (481,000 | ) |
Results of Operations
For the six months ended June 30, 2021 the Company had a loss from continuing operations of $2,014,000 compared to a loss from continuing operations of $481,000 for the six months ended June 30, 2020. This change is due primarily to decreases in revenue of $184,000, and increases labor and related expenses of $447,000, professional fees of $510,000, research and development of $9,000, partially offset by decreases in rent of $17,000, depreciation and amortization of $12,000, and other general and administrative costs of $16,000 during the six months ended June 30, 2021 compared to the six months ended June 30, 2020. Other items contributing to the change included increases in interest expense of $255,000, gain on disposition of assets of $4,000, and change in value of derivative liability of $172,000
More detailed explanation of the six months ended June 30, 2021 and 2020 changes are included in the following discussions.
Total Revenues - For the six months ended June 30, 2021 and 2020, the Company had total revenue of $1,000 and $185,000, respectively, for a decrease of $184,000. This change is due to the Company no longer providing professional services to related parties. Since March 31, 2020, the Company has not and does not anticipate that it will provide any further professional services to related parties. Our current business is focused on the development of our wholly owned subsidiary, Applied Magix. The Company received its first order of inventory during late March 2021 consisting of Apple HomeKit products for resale by the and our second order of inventory in mid May 2021 consisting of MagiXDrive, our branded Apple CarPlay product for resale by the company. These products are available for sale through its website at https://appliedmagix.com/shop/, as well as the eBay Marketplace, Amazon Marketplace, and Walmart’s online marketplace. In addition, the Company has also paid a down payment in the amount of $32,500 for the development of Applied Magix proprietary products expected to be completed later this year.
Cost of goods sold include the costs of inventory, inbound freight, duty and customs charges for the items sold during the period and inventory write downs recognized during the period.
Labor and related expenses include the costs of salaries, wages, leased employees, contract labor, and the fair value of common stock and options granted to employees and directors for services. For the six months ended June 30, 2021 the company had total labor and related expenses of $775,000 with $350,000 being settled in cash, $186,000 in accrued salaries, and $239,000 being paid in restricted stock recorded at fair value. For the six months ended June 30, 2020 the company had total labor and related expenses of $328,000 with $117,000 being settled in cash, $186,000 in accrued salaries, and $25,000 being paid in restricted stock recorded at fair value. The cost of labor is expected to increase in conjunction with expansion of operations.
The cost of rent decreased $17,000 from $65,000 for the six months ended June 30, 2020 to $48,000 for the six months ended June 30, 2021. The Company leased approximately 5,169 square feet at 4643 South Ulster Street, Denver, Colorado pursuant to an amended lease dated May 21, 2015 and expiring on December 31, 2020. Under the lease, the Company paid annual base rent on an escalating scale ranging from $142,000 to $152,000. On May 1, 2020 and July 29, 2020, the Company entered into amended lease agreements with its landlord. Under the terms of the amendments, the landlord agreed to waive rent, certain rent adjustments and parking for the period April 1, 2020 through August 31, 2020 and extend the term of the lease by five months. The lease term date, which was December 31, 2020, was changed to May 31, 2021. On April 1, 2021, the Company entered into a lease termination and payment agreement with its landlord, pursuant to which the Company vacated and surrendered the premises to the landlord and the Company will pay approximately $67,000 over 18 months commencing April 1, 2021. In addition, effective March 1, 2021, the Company’s wholly owned subsidiary Applied Magix, entered into a 6-month lease for 2 workspace offices located at 1230 Rosecrans Ave, Manhattan Beach California. Under the lease, the Company pays monthly rent of $1,400.
Depreciation and amortization expenses decreased by approximately $12,000 for the six months ended June 30, 2021 compared to the six months ended June 30, 2020. Depreciation and amortization expenses are attributable to depreciation of property and equipment and amortization of intangible assets in service during respective periods. We expect depreciation and amortization expenses to increase in 2021 commensurate with the acquisition of additional property, equipment, and intangible assets in connection with our planned Applied Magix business operations.
Professional fees increased $510,000 from $53,000 for the six months ended June 30, 2020 to $563,000 for the six months ended June 30, 2021. Of the $563,000, $92,000 was paid in cash for legal, accounting, and other professional service needs and $471,000 was paid in restricted stock recorded at fair value. Professional fees during the six months ended June 30, 2020 included $53,000 in legal, accounting, and other professional service needs.
Research and development costs during the six months ended June 30, 2021 were $9,000, compared to research and development costs of $0 during the six months ended June 30, 2020. Research and development costs are expected to increase as we develop our planned proprietary Apple HomeKit products.
Other general and administrative expenses decreased $16,000 for the six months ended June 30, 2021 compared to the six months ended June 30, 2020. The decrease can be attributed primarily to reductions in costs of insurance of $56,000, partially offset by increases in advertising of $18,000 and various other general and administrative cost $22,000.
The Company had interest expense on a related party notes payable, short-term notes payable, convertible notes payable and U.S. Small Business Administration debt of $344,000 for the six months ended June 30, 2021. The company had interest expense on a related party line of credit, related party short-term advances, convertible notes payable and accrued expenses of $89,000 for the six months ended June 30, 2020.
The Company sold certain office equipment for $8,000 which resulted in a gain on disposition of assets of $5,000 for the six months ended June 30, 2021. The Company sold certain office equipment for $5,000 which resulted in a gain on disposition of assets of $1,000$40,000 for the three months ended June 30, 2020.
The Company received a $3,000 Economic Injury Disaster Loan (EIDL) grant fromMarch 31, 2022 compared $45,000 to the U.S. Small Business Administration during the for the sixthree months ended June 30, 2020. The Company did not have a corresponding grant for the six months ended June 30,March 31, 2021.
The Company recognized a loss on the change in value of a derivative liability related to its long-term convertible notes payable in the amount of $172,000 for the six months ended June 30, 2021. The Company did not have a corresponding loss for the six months ended June 30, 2020.
The Company had unrealized gains on trading securities of $1,000 for the six months ended June 30, 2021 compared to unrealized losses of $1,000 for the six months ended June 30, 2020. Unrealized gains and losses are the result of fluctuations in the quoted market price of the underlying securities at the respective reporting dates.
LIQUIDITY AND CAPITAL RESOURCES
The accompanying financial statements have been prepared under the assumption that the Company will continue as a going concern. Such assumption contemplates the realization of assets and satisfaction of liabilities in the normal course of business.
The Company has generated a net loss for the sixthree months ended June 30, 2021March 31, 2022 of $2,113,000$514,000 and utilized cash in operations of $1,143,000.$321,000. As of June 30, 2021,March 31, 2022, the Company had current assets of $155,000,$245,000, which included cash and cash equivalents of $34,000,$184,000, prepaid expenses of $45,000, inventory of $61,000,$46,000, trading securities of $2,000,$1,000, and current assets of discontinued operations of $13,000.$14,000.
During the sixthree months ended June 30, 2021,March 31, 2022, the Company has met its capital requirements through a combination of proceeds from related party notes payable, proceeds from short-term notes payable, proceeds from SBA PPP note payable, from the saleCompany’s issuance of certain office equipment, and through the use of existing cash reserves.long term convertible notes.
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The Company currently does not have sufficient cash and liquidity to meet its anticipated working capital for the next twelve months. The Company will continue to seek additional capital through the sale of its common stock, debt financing and through expansion of its existing and new products. If these goals do not materialize as planned, we believe that the Company can reduce its operating and product development costs and that would allow us to maintain sufficient cash levels to continue operations. However, if we are not able to achieve profitable operations at some point in the future, we may have insufficient working capital to maintain our operations as we presently intend to conduct them or to fund our expansion, marketing, and product development plans. There can be no assurance that we will be able to obtain such financing on acceptable terms, or at all.
The Company may also plansdecide to expand and/or diversify, through acquisition or otherwise, in other related or unrelated business areas asif opportunities present themselves.
Operating Activities- For the sixthree months ended June 30, 2021,March 31, 2022, the Company used cash in operating activities of $1,143,000.$321,000. For the sixthree months ended June 30, 2020,March 31, 2021, the Company usedprovided cash in operating activities of $71,000.$369,000. Operating activities consist of corporate overhead and development of Applied Magix products. Increases are due to increases in cash-paid operating expenses. See the above results of operations discussion for more details.
Investing Activities - During the three months ended March 31, 2022, the Company received no income from investing activities. During the sixthree months ended June 30,March 31, 2021, the Company purchased property and equipment sold property and equipment for $8,000.
Financing Activities - During the sixthree months ended June 30, 2020,March 31, 2022, the Company purchased propertyborrowed $510,000 from long term convertible notes, and equipment for $5,000 and sold property and equipment for $5,000.
Financing Activities -lent $40,000 as asset consideration. During the sixthree months ended June 30,March 31, 2021, the Company borrowed $501,000 from related parties, $85,000 from third parties andreceived $73,000 from the U.S. Small Business Administration pursuant to the Paycheck Protection Program. During the six months ended June 30, 2020, the Company borrowed $71,000 from the U.S. Small Business Administration pursuant to the Paycheck Protection Program and received a $3,000 Economic Injury Disaster Loan (EIDL) grant from the U.S. Small Business Administration.an SBA loan.
Government Regulations - The Company is subject to all pertinent Federal, State, and Local laws governing its business. Each subsidiary is subject to licensing and regulation by a number of authorities in its State or municipality. These may include health, safety, and fire regulations. The Company'sCompany’s operations are also subject to Federal and State minimum wage laws governing such matters as working conditions, overtime, and tip credits.
Critical Accounting Policies - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Note 1 to the quarterly and annual Consolidated Financial Statements describes the significant accounting policies and methods used in the preparation of the Consolidated Financial Statements. Estimates are used for, but not limited to, contingencies and taxes. Actual results could differ materially from those estimates. The following critical accounting policies are impacted significantly by judgments, assumptions, and estimates used in the preparation of the Consolidated Financial Statements.
Stock-Based Compensation
The Company periodically issues stock options and warrants to employees and non-employees in non-capital raising transactions for services and for financing costs. The Company accounts for stock option and warrant grants issued and vesting to employees based on the authoritative guidance provided by the Financial Accounting Standards Board (FASB) whereas the value of the award is measured on the date of grant and recognized over the vesting period. The Company accounts for stock option and warrant grants issued and vesting to non-employees in accordance with the authoritative guidance of the FASB whereas the value of the stock compensation is based upon the measurement date as determined at either a) the date at which a performance commitment is reached, or b) at the date at which the necessary performance to earn the equity instruments is complete. Non-employee stock-based compensation charges generally are amortized over the vesting period on a straight-line basis. In certain circumstances where there are no future performance requirements by the non-employee, option grants are immediately vested, and the total stock-based compensation charge is recorded in the period of the measurement date.
The fair value of the Company'sCompany’s stock option and warrant grants is estimated using the Black-Scholes Option Pricing model, which uses certain assumptions related to risk-free interest rates, expected volatility, expected life of the stock options or warrants, and future dividends. Compensation expense is recorded based upon the value derived from the Black-Scholes Option Pricing model and based on actual experience. The assumptions used in the Black-Scholes Option Pricing model could materially affect compensation expense recorded in future periods.
25
The Company also issues restricted shares of its common stock for share-based compensation programs to employees and non-employees. The Company measures the compensation cost with respect to restricted shares to employees based upon the estimated fair value at the date of the grant and is recognized as expense over the period which an employee is required to provide services in exchange for the award. For non-employees, the Company measures the compensation cost with respect to restricted shares based upon the estimated fair value at measurement date which is either a) the date at which a performance commitment is reached, or b) at the date at which the necessary performance to earn the equity instruments is complete.
Derivative Financial Instruments
The Company evaluates all of its agreements to determine if such instruments have derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the statements of operations. For stock-based derivative financial instruments, the Company uses the Black-Scholes Option Pricing model to value the derivative instruments at inception and on subsequent valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date. The Company'sCompany’s only derivative financial instruments were embedded conversion features associated with long-term convertible notes payable which contain certain provisions that allow for a variable number of shares on conversion.
Loss Contingencies
The Company is subject to various loss contingencies arising in the ordinary course of business. The Company considers the likelihood of loss or impairment of an asset or the incurrence of a liability, as well as its ability to reasonably estimate the amount of loss in determining loss contingencies. An estimated loss contingency is accrued when management concludes that it is probable that an asset has been impaired or a liability has been incurred and the amount of the loss can be reasonably estimated. The Company regularly evaluates current information available to us to determine whether such accruals should be adjusted.
Recent Accounting Pronouncements
See Note 1 of the consolidated financial statements for discussion of recent accounting pronouncements.
ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKNot applicable.
ITEM 4. | CONTROLS AND PROCEDURES |
Not applicable.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Management of the Company is responsible for maintaining disclosure controls and procedures that are designed to ensure that financial information required to be disclosed in the reports that the Company files or submits under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized, and reported within the timeframes specified in the Securities and Exchange Commission’s rules and forms, consistent with Items 307 and 308 of Regulation S-K.
In addition, the disclosure controls and procedures must ensure that such financial information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required financial and other required disclosures.
26
As of June 30, 2021,March 31, 2022, an evaluation of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13(a)-15(e) and 15(d)-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”) was carried out under the supervision and with the participation of our Chief Executive Officer, Chief Financial Officer, and other persons carrying out similar functions for the Company. In making this assessment, Management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) (Revised 2013) in Internal Control over Financial Reporting - Guidance for Smaller Public Companies. Based on the evaluation of the Company’s disclosure controls and procedures, Management concluded that during the period covered by this report, such disclosure controls and procedures were not effective, due to certain identified material weaknesses. These identified material weaknesses include, (i) insufficient accounting staff, (ii) inadequate segregation of duties, (iii) limited checks and balances in processing cash and other transactions, and (iv) the lack of independent audit committee.
The Company is committed to improving its disclosure controls and procedures and the remediation of identified control weaknesses. As capital becomes available, Management plans to increase the accounting and financial reporting staff, add independent directors to the Board of Directors and establish an independent audit committee. We cannot provide assurance that these procedures will be successful in identifying material errors that may exist in the financial statements, nor can we make assurances that additional material weaknesses in its internal control over financial reporting will not be identified in the future.
The Company continues to employ and refine a structure in which critical accounting policies, issues and estimates are identified, and together with other complex areas, are subject to multiple reviews by accounting personnel. In addition, the Company evaluates and assesses its internal controls and procedures regarding its financial reporting as necessary and on an on-going basis.
Because of its inherent limitations, internal control over financial reporting cannot provide absolute assurance of the prevention or detection of misstatements. In addition, projections of any evaluation of effectiveness to future periods are subject to risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Changes in Internal Controls Over Financial Reporting
The Company has no reportable changes to its internal controls over financial reporting for the period covered by this report.
The Company will continually enhance and test its internal controls over financial reporting on a continuing basis. Additionally, the Company’s management, under the control of its Chief Executive Officer and Chief Financial Officer, will increase its review of its disclosure controls and procedures on an ongoing basis. Finally, the Company plans to designate, in conjunction with its Chief Financial Officer, individuals responsible for identifying reportable developments and the process for resolving compliance issues related to them. The Company believes these actions will focus necessary attention and resources in its internal accounting functions.
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PART II - OTHER INFORMATION
ITEM 1. | LEGAL PROCEEDINGS |
ITEM 1. LEGAL PROCEEDINGS
Settlements
On June 18, 2018 the Company was named as a defendant in a case filed in the United States District Court for the Southern District of New York: Securities and Exchange Commission vs. Joseph A. Fiore, Berkshire Capital Management Co., Inc., and Eat at Joe’s, Ltd. n/k/a SPYR, Inc.(“Defendants”). Joseph A. Fiore was the Chairman of our Board of Directors and is a significant shareholder. Mr. Fiore resigned from his positions as Chairman of the Board and as a Director of the Company effective August 1, 2018. The suit alleged that Mr. Fiore, during 2013 and 2014, while he was the Company’s Chief Executive Officer, Chief Financial Officer and Chairman of the Board of Directors, engaged in improper conduct on behalf of the defendants named in the case related to the Company’s sales of securities in Plandai Biotechnology, Inc. The Commission alleged that Mr. Fiore and the Company unlawfully benefited through the sales of those securities. The Commission also alleged that from 2013 to 2014, the Company’s primary business was investing and that it failed to register as an investment company, resulting in an alleged violation of Section 7(a) of the Investment Company Act of 1940. The suit sought to disgorge Joseph A. Fiore, Berkshire Capital Management Co., Inc., and the Company of alleged profits on the sale of the securities and civil fines related to the Company’s failure to register as an investment company with the Commission.
Pursuant to a settlement agreement among the parties, on April 14, 2020, final judgment was entered in the case: Securities and Exchange Commission vs. Joseph A. Fiore, Berkshire Capital Management, Inc. and Eat at Joes, Inc., n/k/a SPYR, Inc., case number 7:18-cv-05474-KMK filed in the U.S. District Court for the Southern District of New York.
On April 23, 2020, Joseph Fiore/Berkshire Capital Management, Inc. satisfied the Company’s joint and several liability obligation by paying to the Commission the agreed upon sum of Two Million Dollars pursuant to a settlement agreement between Joseph Fiore/Berkshire Capital Management, Inc. and the Company, which settlement agreement was entered into on April 15, 2020. The Company hadhas until April 14, 2021 to satisfy its remaining financial obligation to the Commission, an agreed upon civil penalty of Five Hundred Thousand Dollars ($500,000). On May 17, 2021,The $500,000 liability is reported as part of accounts payable and accrued liabilities on the Company borrowed approximately $501,000 from a related party to pay its principalaccompanying condensed consolidated balance sheets as of March 31, 2020 and December 31, 2019 and was recorded as litigation settlement liability withcosts on the Securities and Exchange Commission and has done so (See Note 2 – Related Party Transactions). Asconsolidated statements of June 30, 2021,operations on the $500,000 together with accrued interest of approximately $1,000 has been paid toCompany’s form 10K for the Securities and Exchange Commission in settlement of this obligation.year ended December 31, 2019.
In electing to settle with the Commission, the Company neither admitted nor denied liability to any of the Commission’s allegations in its complaint, and in consideration for the Commission discontinuing its action, the Company, along with the two other defendants Joseph Fiore and Berkshire Capital Management agreed to be jointly and severally liable for disgorgement of profits and prejudgment interest in the amount of two million dollars, and to each be solely liable to pay a civil penalty in the amount of five hundred thousand dollars.[2]
[2] In addition, an injunction was entered against the Company enjoined it from violating the antifraud, market manipulation, beneficial ownership reporting, and other provisions of the federal securities laws charged in the SEC’s complaint.
Judgments
On or about January 24, 2019, SPYR APPS, LLC entered into an agreement with one of its vendors, Shatter Storm Studios, to whom it owed $84,250 for artwork related to the Steven Universe game. Pursuant to the terms of that agreement, SPYR APPS, LLC needed to make payment in the amount of $85,000 to cover the principal owed and attorneys’ fees together plus 6% interest in that amount by December 1, 2019. Should SPYR APPS, LLC not make the required payment on or before December 1, 2019, it consented to entry of judgment in favor of Shatter Storm Studios for the amount owed. SPYR APPS, LLC did not make the payment and on January 27, 2020 Shatter Storm Studios initiated Case No. 1:200cv-00217 in the U.S. District Court for the District of Colorado seeking entry of the consent judgment against SPYR APPS, LLC. The judgment was not contested by SPYR APPS, LLC and judgment in the amount of $85,000 plus post judgment interest at the rate of 6% was entered on March 17, 2020. The $85,000 plus accrued interest and attorneys’ fees has been reported as part of accounts payable and accrued liabilities. The balance due as of June 30, 2021March 31, 2022 and December 31, 20202021 was approximately $97,000$100,000 and $95,000, respectively and is reported as part of current liabilities of discontinued operations.$96,000, respectively.
ITEM 1A. | RISK FACTORS |
ITEM 1A. RISK FACTORS
Not applicable to smaller reporting companies.
28
ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
None.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
ITEM 3. | DEFAULTS UPON SENIOR SECURITIES |
None.
ITEM 4. | MINE SAFETY DISCLOSURES |
ITEM 3. DEFAULTS UPON SENIOR SECURITIESNot applicable
ITEM 5. | OTHER INFORMATION |
None.
ITEM 6. | EXHIBITS |
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
The following exhibits are included as part of this report:
Exhibit Number | Exhibit Description | |
Articles of Incorporation (1) | ||
By-laws (1) | ||
Amended Articles of Incorporation (1) | ||
10.2 |
| |
| ||
| ||
| ||
14 |
| |
| ||
| ||
Code of Ethics (1) | ||
Subsidiaries of the Company (1) | ||
| Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
| Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
101.INS** | XBRL Instance Document | |
101.SCH** | XBRL Taxonomy Extension Schema Document | |
101.CAL** | XBRL Taxonomy Extension Calculation Linkbase Document | |
101.DEF** | XBRL Taxonomy Extension Definition Linkbase Document | |
101.LAB** | XBRL Taxonomy Extension Label Linkbase Document | |
101.PRE** | XBRL Taxonomy Extension Presentation Linkbase Document | |
|
|
** Filed herewith
*** Furnished Herewith
(1) Incorporated by reference.
SIGNATURES
** | Filed herewith |
*** | Furnished Herewith |
(1) | Incorporated by reference. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: August 16, 2021May 19, 2022
SPYR, INC. | ||
By: | / | |
| ||
President & Chief Executive Officer | ||
(Principal Executive Officer) | ||
By: | / | |
| ||
Chief Financial Officer | ||
(Principal Financial and Accounting Officer) |
30