1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
summary of accounting policies for SPYR, Inc. and subsidiaries (the “Company”) is presented to assist in understanding the
Company’s financial statements. The accounting policies conform to generally accepted accounting principles and have been consistently
applied in the preparation of the consolidated financial statements.
Company was incorporated as Conceptualistics, Inc. on January 6, 1988 in Delaware. Subsequent to its incorporation, the Company changed
its name to Eat at Joe’s, Ltd. In February 2015, the Company changed its name to SPYR, Inc. and adopted a new ticker symbol “SPYR”
effective March 12, 2015.
primary focus of SPYR, Inc. (the “Company”) is to act as a holding company and develop a portfolio of profitable subsidiaries,
not limited by any particular industry or business.
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. 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. Apple® HomeKit® is a system that lets users control smart home devices, so long as they are
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.
consolidated financial statements include the accounts of SPYR, Inc. and its wholly owned subsidiaries, Applied Magix, a Nevada corporation,
SPYR APPS, LLC, a Nevada Limited Liability Company (discontinued operations, see Note 12), E.A.J.: PHL, Airport Inc., a Pennsylvania
corporation (discontinued operations, see Note 12). Intercompany accounts and transactions have been eliminated.
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.
shown in the accompanying financial statements, for the year ended December 31, 2021, the Company recorded a net loss of $5,534,000 and
utilized cash in operations of $1,488,000. As of December 31, 2021, our cash balance was $35,000, we had prepaid expenses of $47,000
and we had trading securities valued at $1,000. At December 31, 2021, the Company had a working capital deficit of $3,291,000. These
issues raise substantial doubt about the Company’s ability to continue as a going concern.
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.
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.
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.
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.
Company’s computation of earnings (loss) per share (EPS) includes basic and diluted EPS. Basic EPS is calculated by dividing the
Company’s net income (loss) available to common stockholders by the weighted average number of common shares during the period.
Diluted EPS reflects the potential dilution, using the treasury stock method that could occur if securities or other contracts to issue
common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the net income
(loss) of the Company. In computing diluted EPS, the treasury stock method assumes that outstanding options and warrants are exercised,
and the proceeds are used to purchase common stock at the average market price during the period. Shares of restricted stock are included
in the basic weighted average number of common shares outstanding from the time they vest.
basic and fully diluted shares for the year ended December 31, 2021 are the same because the inclusion of the potential shares (Class
A – , Class E – , Options – and Warrants – ) would have had an anti-dilutive
effect due to the Company generating a loss for the year ended December 31, 2021.
basic and fully diluted shares for the year ended December 31, 2020 are the same because the inclusion of the potential shares (Class
A – , Class E – , Options – and Warrants – ) would have had an anti-dilutive
effect due to the Company generating a loss for the year ended December 31, 2020.
Research and Development Costs
incurred for product research and development are expensed as incurred. During the years ended December 31, 2021 and 2020, the Company
incurred $9,000 and $14,000 respectively, in product development costs paid to independent third parties.
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.
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.
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.
professional services arrangements are either fixed-fee billing or time-and-material billing arrangements. In fixed-fee billing arrangements,
we agree to a predetermined fee for a predetermined set of professional services. We set the fee based upon our estimate of the time
and costs necessary to complete the engagements. Under time-and-materials billing arrangements, the fee is based on the number of hours
worked at the agreed upon billing rates. We recognize service revenue upon completion of the service.
Company accounts for income taxes under the provisions of ASC 740 “Accounting for Income Taxes,” which requires a company
to first determine whether it is more likely than not (which is defined as a likelihood of more than fifty percent) that a tax position
will be sustained based on its technical merits as of the reporting date, assuming that taxing authorities will examine the position
and have full knowledge of all relevant information. A tax position that meets this more likely than not threshold is then measured and
recognized at the largest amount of benefit that is greater than fifty percent likely to be realized upon effective settlement with a
income taxes are recognized for the tax consequences related to temporary differences between the carrying amount of assets and liabilities
for financial reporting purposes and the amounts used for tax purposes at each year end, based on enacted tax laws and statutory tax
rates applicable to the periods in which the differences are expected to affect taxable income. A valuation allowance is recognized when,
based on the weight of all available evidence, it is considered more likely than not that all, or some portion, of the deferred tax assets
will not be realized. The Company evaluates its valuation allowance requirements based on projected future operations. When circumstances
change and cause a change in management’s judgment about the recoverability of deferred tax assets, the impact of the change on
the valuation is reflected in current income. Income tax expense is the sum of current income tax plus the change in deferred tax assets
and Cash Equivalents
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.
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
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.
Company accounts for its intangible assets in accordance with the authoritative guidance issued by the ASC Topic 350 – Goodwill
and Other. Intangibles are valued at their fair market value and are amortized taking into account the character of the acquired
intangible asset and the expected period of benefit. The Company evaluates non-amortizing intangible assets whenever events or changes
in circumstances indicate that the carrying value may not be recoverable from its estimated undiscounted future cash flows.
cost of internally developing, maintaining and restoring intangible assets that are not specifically identifiable, that have indeterminate
lives, or that are inherent in a continuing business and related to an entity as a whole, are recognized as an expense when incurred.
intangible asset with a definite useful life is amortized; an intangible asset with an indefinite useful life is not amortized until
its useful life is determined to be no longer indefinite. The remaining useful lives of intangible assets not being amortized are evaluated
at least annually to determine whether events and circumstances continue to support an indefinite useful life.
the year ended December 31, 2021, the Company recorded amortization expense of $3,000. As of December 31, 2020, total intangible assets
amounted to $20,000 which consist of website development costs There were no indications of impairment based on management’s assessment
of these assets as of December 31, 2021. Factors we consider important that could trigger an impairment review include significant underperformance
relative to historical or projected future operating results, significant changes in the manner of the use of our assets or the strategy
for our overall business, and significant negative industry or economic trends. If current economic conditions worsen causing decreased
revenues and increased costs, we may have to record impairment to our intangible assets.
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.
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
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.
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 December 31, 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.
of Credit Risk
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.
Value of Financial Instruments
Company follows paragraph 825-10-50-10 of the FASB Accounting Standards Codification for disclosures about fair value of its financial
instruments and paragraph 820-10-35-37 of the FASB Accounting Standards Codification (“Paragraph 820-10-35-37”) to measure
the fair value of its financial instruments. Paragraph 820-10-35-37 establishes a framework for measuring fair value in accounting principles
generally accepted in the United States of America (U.S. GAAP), and expands disclosures about fair value measurements. To increase consistency
and comparability in fair value measurements and related disclosures, Paragraph 820-10-35-37 establishes a fair value hierarchy which
prioritizes the inputs to valuation techniques used to measure fair value into three (3) broad levels. The fair value hierarchy gives
the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable
three (3) levels of fair value hierarchy defined by Paragraph 820-10-35-37 are described below:
prices available in active markets for identical assets or liabilities as of the reporting date.
other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting
that are generally observable inputs and not corroborated by market data.
carrying amount of the Company’s financial assets and liabilities, such as cash and cash equivalents, accounts receivable, prepaid
expenses, accounts payable and accrued expenses, related party short-term advances, related party line of credit and convertible notes
payable approximate their fair value because of the short maturity of those instruments.
Company’s trading securities and money market funds are measured at fair value using level 1 fair values.
marketing and promotional costs are expensed as incurred and included in general and administrative expenses.
marketing and promotional expense was $118,000 and $8,000 for the years ended December 31, 2021, and 2020, respectively and was reflected
as part of Other General and Administrative Expenses on the accompanying consolidated statements of operations.
litigation settlement costs expected to be incurred in connection with loss contingencies are estimated and included in “Accounts
payable and accrued liabilities” and reported as “Litigation settlement costs”.
February 2016, the FASB issued Accounting Standards Update (ASU) No. 2016-02, “Leases. ASU 2016-02 requires a lessee to record
a right of use asset and a corresponding lease liability on the balance sheet for all leases with terms longer than 12 months. ASU 2016-02
is effective for all interim and annual reporting periods beginning after December 15, 2018. Early adoption is permitted. A modified
retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning
of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company adopted
ASU 2016-02 on January 1, 2019. See Note 9 “Operating Leases” for additional required disclosures.
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.
Company accounts for stock-based compensation for employees and directors in accordance with Accounting Standards Codification 718, Compensation
(“ASC 718”) as issued by the FASB. ASC 718 requires all share-based payments to employees, including grants of employee stock
options, to be recognized in the statement of operations based on their fair values. Under the provisions of ASC 718, stock-based compensation
costs are measured at the grant date, based on the fair value of the award, and are recognized as an expense over the employee’s
requisite service period (generally the vesting period of the equity grant). The fair value of the Company’s common stock options
are estimated using the Black Scholes option-pricing model with the following assumptions: expected volatility, dividend rate, risk free
interest rate and the expected life. The Company expenses stock-based compensation by using the straight-line method. In accordance with
ASC 718 and, excess tax benefits realized from the exercise of stock-based awards are classified as cash flows from operating activities.
All excess tax benefits and tax deficiencies (including tax benefits of dividends on share-based payment awards) are recognized as income
tax expense or benefit in the condensed consolidated statements of operations. The Company accounts for stock-based compensation awards
issued to non-employees for services, as prescribed by ASC 718-10, at either the fair value of the services rendered or the instruments
issued in exchange for such services, whichever is more readily determinable, using the measurement date guidelines enumerated in Accounting
Standards Update (“ASU”) 2018-07.
February 2016, the FASB issued ASU 2016-02, “Leases” Topic 842, which amends the guidance in former ASC Topic 840, Leases.
The new standard increases transparency and comparability most significantly by requiring the recognition by lessees of right-of-use
assets and lease liabilities on the balance sheet for all leases longer than 12 months. Under the standard, disclosures are required
to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from
leases. For lessees, leases will be classified as finance or operating, with classification affecting the pattern and classification
of expense recognition in the income statement. The Company adopted the new lease guidance effective January 1, 2019. The Company
is not a party to any leases and therefore is not showing any asset or liability related to leases in the current period or prior periods.
November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832). The amendments within the update require certain disclosures
about transactions with a government that are accounted for by applying a grant or contribution accounting model by analogy. The amendments
will require disclosure of information about the nature of the transactions and the related accounting policy used to account for the
transactions, information regarding the line items within the consolidated financial statements that are affected by the transactions,
and significant terms and conditions of the transactions. The amendments in the update will be effective for financial statements issued
for annual periods beginning after December 15, 2021, with early adoption permitted. The Company does not believe the adoption of this
ASU will have a material impact on the Company’s consolidated financial statements or results of options.
740 prescribes a comprehensive model for how companies should recognize, measure, present, and disclose in their financial statements
uncertain tax positions taken or expected to be taken on a tax return. Under ASC 740, tax positions must initially be recognized in the
financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities. Such tax
positions must initially and subsequently be measured as the largest amount of tax benefit that has a greater than 50% likelihood of
being realized upon ultimate settlement with the tax authority assuming full knowledge of the position and relevant facts.
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.