UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For
the quarterly period ended:
or
For the transition period from __________ to __________
Commission
file number
| (Exact name of registrant as specified in its charter) |
(State or other jurisdiction of incorporation or organization) |
(IRS Employer Identification No.) |
(Address of principal executive offices)
(Registrant’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 ☒
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). ☒
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 accelerated filer,” “accelerated filer” and” smaller reporting company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | 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 ☒
APPLICABLE ONLY TO CORPORATE ISSUERS
As of November 22, 2021 there were shares of the Registrant’s common stock.
TABLE OF CONTENTS
i
PART I - FINANCIAL INFORMATION
| ITEM 1. | FINANCIAL STATEMENTS |
SPYR, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
| September 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash and Cash Equivalents | $ | $ | ||||||
| Other Receivables | ||||||||
| Prepaid Expenses | ||||||||
| Inventory | ||||||||
| Trading Securities, at Market Value | ||||||||
| Current Assets of Discontinued Operations | ||||||||
| Total Current Assets | ||||||||
| Other Assets: | ||||||||
| Property and Equipment, net | ||||||||
| Intangible Assets, net | ||||||||
| Operating Lease Right-of-Use Asset | ||||||||
| Other Assets | ||||||||
| Non-Current Assets of Discontinued Operations | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES & STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||
| Current Liabilities: | ||||||||
| Accounts Payable and Accrued Liabilities | $ | $ | ||||||
| Related Party Short-Term Advances | ||||||||
| Related Party Line of Credit | ||||||||
| Related Party Notes Payable, current portion | ||||||||
| Short-Term Notes Payable | ||||||||
| SBA PPP Note Payable, current portion | ||||||||
| Operating Lease Liability, current portion | ||||||||
| Current Liabilities of Discontinued Operations | ||||||||
| Total Current Liabilities | ||||||||
| COMMITMENTS AND CONTINGENCIES | ||||||||
| Long-Term Liabilities: | ||||||||
| Related Party Notes Payable | ||||||||
| SBA PPP Note Payable | ||||||||
| Long-Term Convertible Notes Payable, net | ||||||||
| Derivative Liability | ||||||||
| Total Liabilities | ||||||||
| Stockholders’ Equity (Deficit): | ||||||||
| Preferred Stock, Class A, $ par value, shares authorized; shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively | ||||||||
| Preferred Stock, Class E, $ par value, shares authorized; shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively | ||||||||
| Common Stock, $ par value, shares authorized; and shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively | ||||||||
| Additional Paid-In Capital | ||||||||
| Accumulated Deficit | ( | ) | ( | ) | ||||
| Total Stockholder’s Equity (Deficit) | ( | ) | ( | ) | ||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements
1
SPYR, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
| For The Three Months Ended | For The Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Revenues | $ | $ | $ | $ | ||||||||||||
| Related Party Service Revenues | ||||||||||||||||
| Cost of Goods Sold | ( | ) | ||||||||||||||
| Gross Margin | ( | ) | ||||||||||||||
| Expenses: | ||||||||||||||||
| Labor and Related Expenses | ||||||||||||||||
| Rent | ||||||||||||||||
| Depreciation and Amortization | ||||||||||||||||
| Professional Fees | ||||||||||||||||
| Research and Development | ||||||||||||||||
| Other General and Administrative | ||||||||||||||||
| Total Operating Expenses | ||||||||||||||||
| Operating Loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other Income (Expenses) | ||||||||||||||||
| Interest Expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Gain (Loss) on Disposition of Assets | ( | ) | ||||||||||||||
| Gain on Settlement of Debt | ||||||||||||||||
| Loss on Issuance of Convertible Debt | ( | ) | ( | ) | ||||||||||||
| Gain on Forgiveness of Debt | ||||||||||||||||
| Write-Down of Assets | ( | ) | ( | ) | ||||||||||||
| SBA EIDL Grant | ||||||||||||||||
| Change in Value of Derivative Liability | ( | ) | ( | ) | ||||||||||||
| Unrealized Gain (Loss) on Trading Securities | ( | ) | ||||||||||||||
| Total Other Income (Expenses) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Loss from Continuing Operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Loss from Discontinued Operations | ( | ) | ( | ) | ||||||||||||
| Net Loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Basic and diluted loss per common share | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted average common shares outstanding | ||||||||||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements
2
SPYR, Inc. and Subsidiaries
Condensed Consolidated Statements of Stockholders’ Equity
For The Nine Months Ended September 30, 2021
(Unaudited)
| Preferred
Stock, Class A | Preferred
Stock, Class E | Common Stock | Additional Paid In Capital | Accumulated Deficit | Total | |||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Amount | Amount | Amount | ||||||||||||||||||||||||||||
| Balance, December 31, 2020 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||
| Fair Value of Restricted Common Stock and Options Issued for Employee and Director Compensation | - | - | ||||||||||||||||||||||||||||||||||
| Fair Value of S-8 Registered Common Stock Issued for Services | - | - | ||||||||||||||||||||||||||||||||||
| Net Loss | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Balance, March 31, 2021 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||
| Balance, March 31, 2021 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||
| Fair Value of Restricted Common Stock and Options Issued for Employee and Director Compensation | - | - | ||||||||||||||||||||||||||||||||||
| Fair Value of Restricted Common Stock Issued for Services | - | - | ||||||||||||||||||||||||||||||||||
| Fair Value of Common Stock Issued for Conversion of Notes Payable | - | - | ||||||||||||||||||||||||||||||||||
| Net Loss | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Balance, June 30, 2021 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||
| Balance, June 30, 2021 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||
| Fair Value of Common Stock Issued for Conversion of Notes Payable | - | - | ||||||||||||||||||||||||||||||||||
| Net Loss | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Balance, September 30, 2021 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements
3
SPYR, Inc. and Subsidiaries
Condensed Consolidated Statements of Stockholders’ Equity
For The Nine Months Ended September 30, 2020
(Unaudited)
| Preferred
Stock, Class A | Preferred
Stock, Class E | Common Stock | Additional Paid In Capital | Accumulated Deficit | Total | |||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Amount | Amount | Amount | ||||||||||||||||||||||||||||
| Balance, December 31, 2019 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||
| Fair Value of Common Stock issued for Employee Compensation | - | - | ||||||||||||||||||||||||||||||||||
| Net Loss | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Balance, March 31, 2020 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||
| Balance, March 31, 2020 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||
| Net Loss | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Balance, June 30, 2020 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||
| Balance, June 30, 2020 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||
| Fair Value of Common Stock Issued for Conversion of Notes Payable | - | - | ||||||||||||||||||||||||||||||||||
| Fair Value of Warrants Issued to settle Convertible Notes Payable | - | - | - | |||||||||||||||||||||||||||||||||
| Net Loss | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Balance, September 30, 2020 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements
4
SPYR, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| For The Nine Months Ended | ||||||||
| September 30, | ||||||||
| 2021 | 2020 | |||||||
| Cash Flows From Operating Activities: | ||||||||
| Net Loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to Reconcile Net Loss to Net Cash Used in Operating Activities: | ||||||||
| Loss on Discontinued Operations | ||||||||
| Depreciation and Amortization | ||||||||
| Common Stock Issued for Employee Compensation | ||||||||
| Common Stock Issued for Services | ||||||||
| Amortization of Debt Discounts on Convertible Notes Payable | ||||||||
| (Gain) on Disposition of Assets | ( | ) | ( | ) | ||||
| Loss on Write-Down of Assets | ||||||||
| (Gain) on Settlement of Debt | ( | ) | ||||||
| Loss on Conversion of Debt | ||||||||
| (Gain) on Forgiveness of Debt | ( | ) | ||||||
| SBA EIDL Grant | ( | ) | ||||||
| Change in Value of Derivative Liability | ||||||||
| Unrealized (Gain) on Trading Securities | ( | ) | ||||||
| Changes in Operating Assets and Liabilities: | ||||||||
| Decrease in Accounts Receivable | ||||||||
| Decrease in Prepaid Expenses | ||||||||
| Increase in Inventory | ( | ) | ||||||
| Decrease in Operating Lease Right-of-Use Asset | ||||||||
| Increase in Operating Lease Right-of-Use Liability | ( | ) | ||||||
| Increase in Accounts Payable and Accrued Liabilities | ||||||||
| Increase in Accrued Interest on Notes Payable - Related Party | ||||||||
| Increase in Accrued Interest on Short-Term Advances - Related Party | ||||||||
| Increase in Accrued Interest on Notes Payable | ||||||||
| Increase in Accrued Interest on Line of Credit - Related Party | ||||||||
| Increase in Accrued Interest and Liquidated Damages on Convertible Notes | ||||||||
| Net Cash Used in Operating Activities | ( | ) | ( | ) | ||||
| Net Cash Used in Discontinued Operating Activities | ( | ) | - | |||||
| Cash Flows From Investing Activities: | ||||||||
| Purchase of Property and Equipment | ( | ) | ||||||
| Sale of Property and Equipment | ||||||||
| Net Cash Provided by Investing Activities | ||||||||
| Cash Flows From Financing Activities: | ||||||||
| Proceeds from Related Party Notes Payable | ||||||||
| Proceeds from Long-Term Notes Payable | ||||||||
| Proceeds from SBA EIDL Grant | ||||||||
| Proceeds from SBA PPP Note Payable | ||||||||
| Net Cash Provided by Financing Activities | ||||||||
| Net Increase (Decrease) in Cash | ( | ) | ( | ) | ||||
| Cash and Cash Equivalents at Beginning of Period | ||||||||
| Cash and Cash Equivalents at End of Period | $ | $ | ||||||
| Supplemental Disclosure of Interest and Income Taxes Paid: | ||||||||
| Interest Paid during the Period | $ | $ | ||||||
| Income Taxes Paid during the Period | $ | $ | ||||||
| Supplemental Disclosure of Non-Cash Investing and Financing Activities: | ||||||||
| Warrants Issued to Settle Convertible Notes Payable | $ | $ | ||||||
| FV partial conversion embedded conversion option | $ | | $ | |||||
| Common Stock Issued for Debt Conversion | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements
5
SPYR, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 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, 2020 filed with the SEC. The condensed consolidated balance sheet as of December 31, 2020 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, Applied Magix, Inc., 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), and Branded Foods Concepts, Inc., a Nevada corporation (dissolution pending). 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 Nine months ended September 30, 2021, the Company recorded a net loss of $
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 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.
6
SPYR, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020
(Unaudited)
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. 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, 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 September 30, 2021 are the same because the inclusion of the potential shares (Class A – , Class E – , Options – , Warrants – ) would have had an anti-dilutive effect due to the Company generating a loss for the three months ended September 30, 2021.
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 – , Class E – , Options – , Warrants – ) 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 nine months ended September 30, 2021 are the same because the inclusion of the potential shares (Class A – , Class E – , Options – , Warrants – ) would have had an anti-dilutive effect due to the Company generating a loss for the nine months ended September 30, 2021.
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 – , Class E – , Options – , Warrants – ) would have had an anti-dilutive effect due to the Company generating a loss for the nine months ended September 30, 2020.
Product Research and Development Costs
Costs
incurred for product research and development are expensed as incurred. During the nine months ended September 30, 2021 and 2020, the
Company incurred $
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.
7
SPYR, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020
(Unaudited)
We adopted this new revenue recognition standard along with its 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 and Amazon 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.
Inventory
The
Company’s inventory consisting of Magix Drive units and Apple HomeKit compatible 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 nine months ended September 30, 2021 and 2020, the Company recognized inventory write downs of approximately
$
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.
8
SPYR, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020
(Unaudited)
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. As of September 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 $
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’s present or future consolidated financial statements.
9
SPYR, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 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
% per annum.
The loan was fully drawn as of February 2018, at which time the Company had borrowed $. During 2018 and 2019, the Company has
received an additional $ in the form of short-term advances (Advances) from Berkshire Capital Management Co., Inc. The last
advance occurred on September 30, 2019; at which time the Company had borrowed $. No further advances are expected from Berkshire
Capital Management Co., Inc. The Company has accrued interest on these short-term advances at
During
the three months ended March 31, 2020, the Company, received $
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 the trustee of which is a member of the Company’s board of
directors. Pursuant to the agreement, the Company borrowed approximately $
NOTE 3 – SHORT TERM NOTES
On May 27, 2021, the Company entered into an agreement
to borrow funds from a third party pursuant to which, the Company borrowed $
On
August 12, 2021, the Company entered into an agreement to borrow funds from a third party pursuant to which, the Company borrowed $
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 $
On
January 21, 2021, the Company received a second Paycheck Protection Program loan from the U.S. Small Business Administration in the
approximate amount of $
10
SPYR, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020
(Unaudited)
NOTE 5 – CONVERTIBLE NOTES
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
The following table summarized the Company’s convertible notes payable as of September 30, 2021 and December 31, 2020:
| September 30, 2021 | December 31, 2020 | |||||||
| Beginning Balance | $ | $ | ||||||
| Proceeds from the issuance of convertible notes, net of issuance discounts | ||||||||
| Repayments | ( | ) | ||||||
| Conversion of notes payable and accrued interest into common stock | ( | ) | ( | ) | ||||
| Amortization of discounts | ||||||||
| Extinguishment of Debt | ( | ) | ||||||
| Liquidated damages | ( | ) | ||||||
| Debt settlement costs | ||||||||
| Accrued Interest | ||||||||
| Convertible notes payable, net | $ | $ | ||||||
| Convertible notes, long-term | $ | $ | ||||||
| Accrued interest and damages, long-term | ||||||||
| Debt discounts, long-term | ( | ) | ( | ) | ||||
| Long-term convertible notes payable, net | $ | $ | ||||||
11
SPYR, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020
(Unaudited)
NOTE 6 – 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’s derivative liability activity for the nine months ended September 30, 2021:
| Nine Months Ended September 30, | ||||
| 2021 | ||||
| Derivative liability balance, December 31, 2020 | $ | |||
| Decrease due to conversion of the underlying note | ( | ) | ||
| Increase due to modifications of underlying notes | ||||
| Change in derivative liability during the period | ||||
| Derivative liability balance, September 30, 2021 | $ | |||
The table below represents the average assumptions used in valuing the derivative liability on September 30, 2021:
| Nine Months Ended September 30, | ||||
| 2021 | ||||
| Expected life in years | ||||
| Stock price volatility | % | |||
| Risk free interest rate | % | |||
| Expected dividends | ||||
| Forfeiture rate | ||||
12
SPYR, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020
(Unaudited)
NOTE 7 – 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 $
Operating Leases
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. 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, the Company pays monthly rent of $
Rent
expense for the nine months ended September 30, 2021 and 2020 was $
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:
13
SPYR, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020
(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 had until April
14, 2021 to satisfy its remaining financial obligation to the Commission, an agreed upon civil penalty of Five Hundred Thousand Dollars
($
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]
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 $
| [1] | 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. |
14
SPYR, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020
(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 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.
NOTE 8 – EQUITY TRANSACTIONS
Common Stock:
Nine Months Ended September 30, 2021
During the nine months
ended September 30, 2021, the Company committed an aggregate of shares of restricted common stock to directors with a total fair
value of $
During
the nine months ended September 30, 2021, the Company issued an aggregate of shares of restricted common stock to employees
and directors with a total fair value of $
During
the nine months ended September 30, 2021, the Company issued an aggregate of shares of registered common stock to third party
service providers with a total fair value of $
During
the nine months ended September 30, 2021, the Company issued an aggregate of shares of restricted common stock to third party
service providers with a total fair value of $
During
the year ended December 31, 2020, the Company issued an aggregate of shares of common stock with a total fair value of $
Nine Months Ended September 30, 2020
During
the nine months ended September 30, 2020, the Company issued an aggregate of shares of restricted common stock to employees
with a total fair value of $
During
the nine months ended September 30, 2020, the Company issued an aggregate of shares of common stock in conversion of notes
payable with a total fair value of $
15
SPYR, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020
(Unaudited)
Options:
The following table summarizes common stock options activity:
| Weighted | ||||||||
| Average | ||||||||
| Exercise | ||||||||
| Options | Price | |||||||
| December 31, 2020 | $ | |||||||
| Granted | ||||||||
| Exercised | ||||||||
| Expired | ( | ) | ||||||
| Outstanding, September 30, 2021 | $ | |||||||
| Exercisable, September 30, 2021 | $ | |||||||
The weighted average exercise prices, remaining lives for options granted, and exercisable as of September 30, 2021 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 | $ | $ | ||||||||||||||||
| $0.50 | $ | $ | ||||||||||||||||
| $1.00 | – | $ | ||||||||||||||||