Organization And Summary Of Significant Accounting Policies
|9 Months Ended|
Sep. 30, 2020
|Organization And Summary Of Significant Accounting Policies|
|Organization and Summary of Significant Accounting Policies||
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, 2019 filed with the SEC. The condensed consolidated balance sheet as of December 31, 2019 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'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-owned subsidiaries, SPYR APPS, LLC, a Nevada Limited Liability Company, E.A.J.: PHL, Airport Inc., a Pennsylvania corporation (discontinued operations, see Note 7), and Branded Foods Concepts, Inc., a Nevada corporation. Intercompany accounts and transactions have been eliminated.
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 nine months ended September 30, 2020, the Company recorded a net loss from continuing operations of $862,000 and have current liabilities of $5,129,000. As of September 30, 2020, we had cash of $8,000, and accounts receivable of $14,000. These issues raise substantial doubt about the Company’s ability to continue as a going concern.
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 implementation of our 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 our 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. However, management cannot make any assurances that such financing will be secured.
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, and valuation of issuance of equity securities. Actual results could differ from those estimates.
Earnings (Loss) Per Share
The basic and fully diluted shares for the three months ended September 30, 2020 are the same because the inclusion of the potential shares (Class A – 26,909,028, Class E – 803,213, Options – 849,900, Warrants – 9,800,000) would have had an anti-dilutive effect due to the Company generating a loss for the three months ended September 30, 2020.
The basic and fully diluted shares for the three months ended September 30, 2019 are the same because the inclusion of the potential shares (Class A – 26,909,028, Class E – 1,851,852, Options – 12,449,900, Warrants – 9,000,000) would have had an anti-dilutive effect due to the Company generating a loss for the three months ended September 30, 2019.
The basic and fully diluted shares for the nine months ended September 30, 2020 are the same because the inclusion of the potential shares (Class A – 26,909,028, Class E – 803,213, Options – 849,900, Warrants – 9,800,000) would have had an anti-dilutive effect due to the Company generating a loss for the nine months ended September 30, 2020.
The basic and fully diluted shares for the nine months ended September 30, 2019 are the same because the inclusion of the potential shares (Class A – 26,909,028, Class E – 1,851,852, Options – 12,449,900, Warrants – 9,000,000) would have had an anti-dilutive effect due to the Company generating a loss for the nine months ended September 30, 2019.
Capitalized Gaming Assets and Licensing Rights
As of September 30, 2020, the Company’s capitalized gaming assets consist of Battlewack: Idle Lords which was acquired in 2017 for cash of $100,000 from the game owner and developer. The game requires additional development before it can be released. As such, the Company does not expect amortization expense related to capitalized gaming assets and licensing rights until existing or future gaming assets, through development or acquisition, are placed into service. During September 2020 the Company recognized an impairment loss of $25,000 on this game and recorded as a loss on write down of assets in the consolidated statement of operations for the three and nine months ended September 30, 2020.
Software Development Costs
Costs incurred for software development are expensed as incurred. During the nine months ended September 30, 2020 and 2019, the Company incurred $0 and $34,000 in software development costs paid to independent gaming software developers.
In addition, during September 2019, the Company received a credit from an independent gaming software developer for previously incurred development costs in the amount of $78,000. The credit was recorded as a reduction to research and development expenses during the nine months ended September 30, 2019.
The following is a summary of receivables at September 30, 2020 and December 31, 2019:
Accounts receivable are carried at their estimated collectible amounts and are not subject to any interest or finance charges.
Allowance for Doubtful Accounts
The Company evaluates the collectability of accounts receivable based on a combination of factors. In cases where the Company becomes aware of circumstances that may impair a specific customer's ability to meet its financial obligations subsequent to the original sale, the Company will recognize an allowance against amounts due, and thereby reduce the net recognized receivable to the amount the Company reasonably believes will be collected. For all other customers, the Company recognizes an allowance for doubtful accounts based on the length of time the receivables are past due and consideration of other factors such as industry conditions, the current business environment and the Company's historical payment experience. An allowance for doubtful accounts is established as losses are estimated to have occurred through a provision for bad debts charged to earnings. This evaluation is inherently subjective and requires estimates that are susceptible to significant revisions as more information becomes available.
As of September 30, 2020, management has recorded an allowance for doubtful accounts in the amount of approximately $12,000.
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 the financial institutions.
The Company grants credit to its game revenue and service revenue customers. The Company typically does not require collateral from customers. Credit risk is limited due to the financial strength of the customers comprising the Company’s customer. The Company monitors exposure of credit losses and maintains allowances for anticipated losses considered necessary under the circumstances (See “Allowance for Doubtful Accounts” above).
The Company had two related party customers who comprised 0% and 98% of net revenue during the nine months ended September 30, 2020, and 58% and 0% of net revenue during the nine months ended September 30, 2019. The loss of these customers would adversely impact the business of the Company.
Recent Accounting Standards
The 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's present or future consolidated financial statements.
The entire disclosure for the organization, consolidation and basis of presentation of financial statements disclosure, and significant accounting policies of the reporting entity. May be provided in more than one note to the financial statements, as long as users are provided with an understanding of (1) the significant judgments and assumptions made by an enterprise in determining whether it must consolidate a VIE and/or disclose information about its involvement with a VIE, (2) the nature of restrictions on a consolidated VIE's assets reported by an enterprise in its statement of financial position, including the carrying amounts of such assets, (3) the nature of, and changes in, the risks associated with an enterprise's involvement with the VIE, and (4) how an enterprise's involvement with the VIE affects the enterprise's financial position, financial performance, and cash flows. Describes procedure if disclosures are provided in more than one note to the financial statements.
Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef