SPYR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDING DECEMBER 31, 2019 AND 2018
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
This 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.
Organization
The 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.
Nature of Business
The 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.
Through our wholly owned subsidiaries, SPYR
APPS, LLC we operate our mobile games and applications business. The focus of the SPYR APPS subsidiary is the development and publication
of electronic games that are downloaded for free by users of mobile devices such as cellular telephones and tablets, including
those using Apple’s iOS and Google’s Android mobile operating systems.
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 assets and liabilities of EAJ as well as the
results of its operations were presented in these financial statements as discontinued operations.
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 10), and Branded Foods Concepts, Inc., a Nevada corporation.
Intercompany accounts and transactions have been eliminated.
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 year ended December 31, 2019, the Company recorded a net loss from continuing operations of $1,965,000 and utilized cash
in operations of $763,000.
SPYR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDING DECEMBER 31, 2019 AND 2018
As of December 31, 2019, our cash balance was
$10,000 and we had trading securities of $1,000. 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 software development costs 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
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 2019. 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 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.
SPYR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDING DECEMBER 31, 2019 AND 2018
The basic and fully diluted shares for the
year ended December 31, 2018 are the same because the inclusion of the potential shares (Class A – 26,909,028, Class E –
1,445,504, Options – 12,449,900 and Warrants – 9,000,000) would have had an anti-dilutive effect due to the Company
generating a loss for the year ended December 31, 2018.
The basic and fully diluted shares for the
year ended December 31, 2019 are the same because the inclusion of the potential shares (Class A – 26,909,028, Class E –
5,096,840, Options – 9,299,900, Warrants – 9,000,000) would have had an anti-dilutive effect due to the Company generating
a loss for the year ended December 31, 2019.
Capitalized Gaming Assets and Licensing
Rights
Capitalized gaming
assets and licensing rights represent costs to acquire trademarks, copyrights, software, technology, music or other intellectual
property or proprietary rights in the development of our products. Depending upon the agreement with the rights holder, we may
obtain the right to use the intellectual property in multiple products over a number of years, or alternatively, for a single product.
Significant management judgments and estimates
are utilized in assessing the recoverability of capitalized costs. In evaluating the recoverability of capitalized costs, the assessment
of expected product performance utilizes forecasted sales amounts and estimates of additional costs to be incurred. If revised
forecasted or actual product sales are less than the originally forecasted amounts utilized in the initial recoverability analysis,
the net realizable value may be lower than originally estimated in any given quarter, which could result in an impairment charge.
Material differences may result in the amount and timing of expenses for any period if management makes different judgments or
utilizes different estimates in evaluating these qualitative factors.
On October 23, 2017, the Company completed
the acquisition of all assets that refer, relate or pertain to the real—time cross-platform MMO game commonly known and referred
to as “Pocket Starships,” including but not limited to all intellectual property, know how, “urls,” websites,
game engines, game store accounts, prior versions, company names and trade names, business plans, financial reports, financial
data, employee data, customer lists, forecasts, strategies, and all other business information; manufacturing or other technical
or scientific know-how, specifications, technical drawings, drawings, artwork, music, diagrams, schematics, technology, processes,
and any other trade secrets, discoveries, ideas, concepts, know-how, techniques, materials, formulae, compositions, information,
data, results, plans, surveys and/or reports of a technical nature; and software programs (including all forms of code), software
documentation, software development kits, game design documents, and formulae related to the current, future and proposed products
and services, including any additions, enhancements or modifications to the foregoing or derivatives thereof after the date hereof.
As consideration for the acquisition, the Company
issued 8,000,000 shares of the Company’s restricted common stock valued at $3,200,000, options to purchase up to 8,000,000
shares of the Company’s restricted common stock valued at $2,452,000 and assumed liabilities of $210,000 for a total purchase
price of $5,862,000. The options are fully vested, exercisable at a price per share of $0.50 and will expire starting August 31,
2020. The acquisition of “Pocket Starships” was reported as part of capitalized gaming assets and licensing rights
valued at $481,000 based upon discounted cash flows as of December 31, 2017. The difference between purchase price and the capitalized
value was recorded as loss on write down on assets of $5,381,000 during the year ended
December 31, 2017. As of December 31, 2018, the unamortized balance of $400,000 was recorded as a loss on write down of assets
during the year ended December 31, 2018.
SPYR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDING DECEMBER 31, 2019 AND 2018
During 2017, the Company capitalized $175,000
pursuant to a licensing agreement for the non-exclusive, limited right to incorporate certain intellectual property (IP) from various
STAR TREK television series into future updates to and expansions of the Pocket Starships game. As of December 31, 2018,
the company had not met certain development milestones, was in default and recognized an impairment loss of $175,000 recorded as
a loss on write down of assets in the consolidated statement of operations for the year ended December 31, 2018.
In addition, during 2017 we also acquired the
game titled Battlewack: Idle Lords for cash of $100,000, pursuant to settlement with the game owner and developer. Battlewack:
Idle Lords requires additional development before it can be released.
During August 2018, the Company capitalized
$25,000 pursuant to a licensing agreement for the non-exclusive, limited right to incorporate certain intellectual property (IP)
from Steven Universe, a popular animated television series on Cartoon Network into our
game Steven Universe: Tap Together. Steven Universe: Tap Together was launched globally on the Google Play Store
on August 2, 2018 and on the IOS App Store in August 9, 2018. The Company amortizes the capitalized cost on a straight-line basis
over an estimated life of 4.42 years, which approximates the term of the license. This license was terminated effective December
31, 2019, the game was removed from the stores, and the unamortized balance was amortized in
full and the license was removed from the accompanying consolidated balance sheet as of December 31, 2019.
During the year ended December 31, 2019, the
Company recorded amortization expense of $22,000. As of December 31, 2019 and December 31, 2018, the accumulated amortization was
$0 and $22,000, respectively and the unamortized capitalized gaming assets and licensing rights amounted to $100,000 and $122,000
respectively.
As of December 31, 2019, the Company’s
only remaining capitalized gaming asset is Battlewack: Idle Lords which requires additional development before it can be released.
As such, the Company does not expect further amortization expense related to capitalized gaming assets and licensing rights until
existing or future gaming assets, through development or acquisition, are placed into service.
Software Development Costs
Costs incurred for software development are
expensed as incurred. During the years ended December 31, 2019 and 2018, the Company incurred $44,000 and $746,000 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 year ended December 31, 2019 and a reduction
to accounts payable as of December 31, 2019.
SPYR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDING DECEMBER 31, 2019 AND 2018
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.
Game Revenues
Through our wholly owned subsidiary SPYR APPS,
LLC, d/b/a SPYR GAMES, we develop, publish and co-publish mobile games, and then generate revenue through those games by way of
advertising and in-app purchases. The Company’s dedicated mobile gaming applications can be downloaded through the app stores
maintained by Apple and Google. The Company’s cross platform gaming application, which can be played on personal computers,
Facebook and mobile devices, can be downloaded from the internet and Facebook as well as through the app stores maintained by Google
and Amazon.
We operate our games as live services that
allow players to play for free. Within these games players can purchase virtual items to enhance their game-playing experience.
Our identified performance obligation is to display the virtual items within the game. Payment is required at time of purchase
and the purchase price is a fixed amount.
Players can purchase our virtual items through
various widely accepted payment methods offered in the games, including Apple iTunes accounts, Google Play accounts, Facebook local
currency payments, PayPal and credit cards. Payments from players for virtual items are non-refundable and relate to non-cancellable
contracts that specify our obligations.
For revenue earned through app stores, players
utilize the app store’s local currency-based payments program to purchase virtual items in our games. For all payment transactions
on these app store platforms, the app store remits to us 70% of the price we request to be charged to the player for each transaction,
which represents the transaction price. We recognize revenue net of the amounts retained by the app stores for platform and payment
processing fees.
SPYR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDING DECEMBER 31, 2019 AND 2018
Service Revenues
Our 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.
Accounts Receivable
The following is a summary of receivables at
December 31, 2019 and 2018:
|
|
December 31, 2019
|
|
December 31, 2018
|
|
|
|
|
|
Game revenue due from in app purchases, net of app store fees
|
|
$
|
27,000
|
|
|
$
|
51,000
|
|
Game revenue due from in app advertising
|
|
|
—
|
|
|
|
10,000
|
|
Related party professional service revenues
|
|
|
50,000
|
|
|
|
—
|
|
Other Receivables
|
|
|
—
|
|
|
|
1,000
|
|
Total Accounts Receivable
|
|
$
|
77,000
|
|
|
$
|
62,000
|
|
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 both December 31, 2019 and 2018, management
has determined that accounts receivable are fully collectible. As such, management has not recorded an allowance for doubtful accounts.
SPYR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDING DECEMBER 31, 2019 AND 2018
Income Taxes
The 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 taxing authority.
Deferred 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 liabilities.
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.
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:
Furniture and fixtures
|
|
|
5-10 years
|
|
Equipment
|
|
|
5-7 years
|
|
Computer equipment
|
|
|
3 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.
SPYR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDING DECEMBER 31, 2019 AND 2018
Intangible Assets
The 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.
The 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.
An 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.
During the year ended December 31, 2019, the
Company recorded amortization expense of $3,000. As of December 31, 2019, 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 at
December 31, 2019. 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.
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.
SPYR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDING DECEMBER 31, 2019 AND 2018
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.
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.
Accounts Receivable
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).
Major Customers
The Company had two related party customers
who comprised 20% and 66% of net revenue during the year ended December 31, 2019, and 34% and 0% of net revenue during the year
ended December 31, 2018. The loss of these customers would adversely impact the business of the Company.
|
|
Net Revenue %
|
|
Gross Accounts Receivable
|
|
|
|
Year Ended December 31,
|
|
|
|
Year Ended December 31,
|
|
|
|
Year Ended December 31,
|
|
|
Year Ended December 31,
|
|
|
|
|
2019
|
|
|
|
2018
|
|
|
|
2019
|
|
|
2018
|
|
Customer A
|
|
|
20
|
%
|
|
|
34
|
%
|
|
$
|
—
|
|
$
|
—
|
|
Customer B
|
|
|
66
|
%
|
|
|
0
|
%
|
|
|
50,000
|
|
|
—
|
|
Total
|
|
|
86
|
%
|
|
|
34
|
%
|
|
$
|
50,000
|
|
$
|
—
|
|
SPYR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDING DECEMBER 31, 2019 AND 2018
Fair Value of Financial Instruments
The 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 inputs.
The three (3) levels of fair value hierarchy
defined by Paragraph 820-10-35-37 are described below:
Level 1: Quoted market
prices available in active markets for identical assets or liabilities as of the reporting date.
Level
2: Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable
as of the reporting date.
Level
3: Pricing inputs that are generally observable inputs and not corroborated by market data.
The 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.
The Company’s trading securities and money market funds are
measured at fair value using level 1 fair values.
Advertising Costs
Advertising, marketing and promotional costs are expensed as incurred
and included in general and administrative expenses.
Advertising, marketing and promotional expense
was $2,000 and $79,000 for the years ended December 31, 2019, and 2018, respectively and was reflected as part of Other General
and Administrative Expenses on the accompanying consolidated statements of operations.
Litigation Settlement Costs
Material 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”.
SPYR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDING DECEMBER 31, 2019 AND 2018
Recent Accounting Standards
In 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. Pursuant to this new standard, the Company has recorded an operating right-of-use asset and operating
lease liability in the accompanying condensed consolidated balance sheets as of December 31, 2019 and December 31, 2018.
In June 2018, the FASB issued ASU 2018-07,
“Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting”, which expands
the scope of Topic 718 to include all share-based payment transactions for acquiring goods and services from nonemployees. ASU
2018-07 specifies that Topic 718 applies to all share-based payment transactions in which the grantor acquires goods and services
to be used or consumed in its own operations by issuing share-based payment awards. ASU 2018-07 also clarifies that Topic 718 does
not apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction
with selling goods or services to customers as part of a contract accounted for under ASC 606. The amendments in ASU 2018-07 are
effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company
adopted this guidance effective January 1, 2019, and it did not have any impact on the Company’s 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.
NOTE 2 - TRADING SECURITIES
Investments in securities are summarized as
follows:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value at
|
|
|
|
Proceeds from
|
|
Loss on
|
|
Contributed
|
|
Unrealized
|
|
Fair Value at
|
Year
|
|
Beginning of Year
|
|
Purchases
|
|
Sale
|
|
Sale
|
|
Capital
|
|
Loss
|
|
December 31,
|
2019
|
|
$ 4,000
|
|
$ -
|
|
$ -
|
|
$ -
|
|
$ -
|
|
$ (3,000)
|
|
$ 1,000
|
2018
|
|
$ 48,000
|
|
$ -
|
|
$ -
|
|
$ -
|
|
$ -
|
|
$(44,000)
|
|
$ 4,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SPYR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDING DECEMBER 31, 2019 AND 2018
The following table discloses the assets measured
at fair value on a recurring basis and the methods used to determine fair value:
|
|
|
|
Fair Value Measurements at Reporting Date Using
|
|
|
|
|
Quoted Prices
|
|
Significant
|
|
Significant
|
|
|
|
|
in Active
|
|
Other
|
|
Unobservable
|
|
|
Fair Value at
|
|
Markets
|
|
Observable Inputs
|
|
Inputs
|
|
|
December 31, 2019
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
Trading securities
|
|
$ 1,000
|
|
$ 1,000
|
|
$ -
|
|
$ -
|
Money market funds
|
|
1,000
|
|
1,000
|
|
-
|
|
-
|
Total
|
|
$ 2,000
|
|
$ 2,000
|
|
$ -
|
|
$ -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using
|
|
|
|
|
Quoted Prices
|
|
Significant
|
|
Significant
|
|
|
|
|
in Active
|
|
Other
|
|
Unobservable
|
|
|
Fair Value at
|
|
Markets
|
|
Observable Inputs
|
|
Inputs
|
|
|
December 31, 2018
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
Trading securities
|
|
$ 4,000
|
|
$ 4,000
|
|
$ -
|
|
$ -
|
Money market funds
|
|
1,000
|
|
1,000
|
|
-
|
|
-
|
Total
|
|
$ 5,000
|
|
$ 5,000
|
|
$ -
|
|
$ -
|
Generally, for all trading securities and available-for-sale
securities, fair value is determined by reference to quoted market prices (level 1).
NOTE 3 – PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
|
|
December 31, 2019
|
|
December 31, 2018
|
|
|
|
|
|
Equipment
|
|
$
|
28,000
|
|
|
$
|
28,000
|
|
Furniture & fixtures
|
|
|
112,000
|
|
|
|
112,000
|
|
Leasehold improvements
|
|
|
107,000
|
|
|
|
107,000
|
|
|
|
|
247,000
|
|
|
|
247,000
|
|
Less: accumulated depreciation
|
|
|
(188,000
|
)
|
|
|
(153,000
|
)
|
Property and Equipment, Net
|
|
$
|
59,000
|
|
|
$
|
94,000
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense for the
years ended December 31, 2019 and 2018 was $35,000 and $40,000, respectively.
SPYR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDING DECEMBER 31, 2019 AND 2018
NOTE 4 - RELATED PARTY TRANSACTIONS
During May 2017, the Company sold 750,000 restricted
common shares to a former officer/employee of the company for cash of $300,000. These shares were recorded at fair value of $510,000
with $210,000 being recorded in the statement of operations and comprehensive income as part of professional fees for the year
ended December 31, 2017.
On September 5, 2017, the Company obtained
a revolving line of credit from Berkshire Capital Management Co., Inc. Berkshire is controlled by Joseph Fiore, majority shareholder
and former chairman of the board of directors of the Company. The line of credit allows the Company to borrow up to $1,000,000
with interest at 6% per annum. The loan is secured by a first lien on all the assets of the Company and its wholly owned subsidiary
SPYR APPS, LLC. Repayment on the loan is due June 30, 2020. As of December 31, 2019, the Company has borrowed $1,000,000 and accrued
interest of $134,000.
During January 2018, the Company issued 500,000
shares of restricted common stock to the father of an executive officer of the Company for cash of $50,000.
During 2018 the Company received $313,000 in
the form of short-term advances from Berkshire Capital Management Co., Inc. The short-term advances are due upon demand. During
the year ended December 31, 2019, the Company received an additional $749,000 in short-term advances. As of December 31, 2019,
the Company has received a total of $1,062,000 in short-term advances and accrued interest of $53,000.
During the year ended December 31, 2018, the
Company, received $130,000 in revenue for professional services rendered to a related Limited Liability Company whose managers
are also officers of SPYR, Inc. and whose majority owner is Berkshire Capital Management Co., Inc. During the year ended December
31, 2019, the Company, received $70,000 in revenue for professional services rendered to this same related Limited Liability Company.
During the year ended December 31, 2019, the
Company, received $232,000 in revenue for professional services rendered to Berkshire Capital Management Co., Inc. As previously
stated, Berkshire is controlled by Joseph Fiore, majority shareholder and former chairman of the board of directors of the Company.
NOTE 5 - INCOME TAXES
The Company did not provide for any Federal and State income tax
for the years ended December 31, 2019 and 2018 due to the Company’s net losses.
A reconciliation of the provision for income taxes computed using
the US statutory federal income tax rate is as follows:
|
|
December 31,
|
|
|
2019
|
|
2018
|
Tax provision at US statutory federal income tax rate
|
|
$
|
(371,000
|
)
|
|
$
|
(558,000
|
)
|
State income tax, net of federal benefit
|
|
|
—
|
|
|
|
—
|
|
Change in valuation allowances
|
|
|
371,000
|
|
|
|
558,000
|
|
Provision for Income Taxes
|
|
$
|
—
|
|
|
$
|
—
|
|
SPYR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDING DECEMBER 31, 2019 AND 2018
The significant components of the Company’s
deferred tax assets were:
|
|
December
31,
|
|
|
2019
|
|
2018
|
Deferred Tax Assets:
|
|
|
|
|
|
|
|
|
Net
operating loss carry forward
|
|
$
|
4,722,000
|
|
|
$
|
4,376,000
|
|
Capital
loss carry over
|
|
|
630,000
|
|
|
|
630,000
|
|
Accrued
expenses
|
|
|
39,000
|
|
|
|
16,000
|
|
Depreciation
and other
|
|
|
(15,000
|
)
|
|
|
(17,000
|
)
|
|
|
|
5,376,000
|
|
|
|
5,005,000
|
|
Less
valuation allowance
|
|
|
(5,376,000
|
)
|
|
|
(5,005,000
|
)
|
Net
Deferred Tax Asset
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets and liabilities reflect
the effects of tax losses, credits and the future income tax effects of temporary differences between the consolidated financial
statement carrying amounts of existing assets and liabilities and their respective tax bases and are measured using enacted tax
rates that apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.
As of December 31, 2019, the Company recorded
a valuation allowance of $5,376,000 for its deferred tax assets. The Company believes that such assets did not meet the more likely
than not criteria to be recoverable through projected future profitable operations in the foreseeable future.
Effective January 1, 2007, the Company adopted
FASB guidance that addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should
be recorded in the financial statements. Under this guidance, the Company may recognize the tax benefit from an uncertain tax position
only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the
technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured
based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. The FASB also provides
guidance on de-recognition, classification, interest and penalties on income taxes, accounting in interim periods and requires
increased disclosures. As of December 31, 2019 and 2018, the Company does not have a liability for unrecognized tax benefits.
The Company’s net operating loss carry
forward for income tax purposes as of December 31, 2019 was approximately $22,000,000, of which $18,300,000 and may be offset against
future taxable income through 2037 and $3,700,000 can be carried forward indefinitely. Utilization of the Company’s net operating
losses may be subject to substantial annual limitation if the Company experiences a 50% change in ownership, as provided by the
Internal Revenue Code and similar state provisions. Such an ownership change would substantially increase the possibility of net
operating losses expiring before complete utilization.
In December 2017, new tax known as Tax Cut
and Jobs Act of 2017 was enacted. The new tax law includes significant changes to the U.S. corporate tax systems including a rate
reduction from 35% to 21% beginning in January of 2018, a change in the treatment of foreign earnings going forward, a deemed repatriation
transition tax, and changes to allow net operating losses to be carried forward indefinitely. In addition, net operating losses arising after
December 31, 2017 will be limited to the lesser of the available net operating loss or 80% of the pre-net operating loss taxable
income.
SPYR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDING DECEMBER 31, 2019 AND 2018
Uncertain Tax Positions
ASC 740 prescribes a recognition threshold
and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken
in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination
by taxing authorities. In many cases the Company’s uncertain tax positions are related to tax years that remain subject to
examination by relevant tax authorities. The Company is generally no longer subject to U.S. federal, state or local income tax
examinations by tax authorities for years before 2016. However, as of December 31, 2019, the years subsequent to 2015 remain open
and could be subject to examination by tax authorities including the U.S. Internal Revenue Service and major state and local tax
jurisdictions in the United States.
Interest costs related to unrecognized tax
benefits are classified as “Interest expense, net” in the accompanying consolidated statements of operations. Penalties,
if any, would be recognized as a component of “General and administrative expenses.”
As of December 31, 2019, the Company had no
liability for unrecognized tax benefits and no accrual for the payment of related interest and penalties, nor did the Company recognize
any interest or penalties expense related to unrecognized tax benefits during the years ended December 31, 2019 or 2018.
NOTE 6 – CONVERTIBLE NOTES
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 as $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 noteholder was also granted detachable 3-year warrants to purchase 200,000 shares of the company’s restricted
common stock at an exercise price of $0.375 per share, 200,000 shares of the company’s restricted common stock at an exercise
price of $0.50 per share, and 100,000 shares of the company’s restricted common stock at an exercise price of $0.625 per
share. 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 116,000 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 250,000 shares, and
waive any prior alleged or actual defaults under the note. As of December 31, 2019, the note is in default for late payment. During
the year ended December 31, 2018 the Company accrued interest for this note in the amount of $9,000. During the year ended December
31, 2019 the Company accrued interest for this note in the amount of $105,000, which includes $99,000 in liquidated damages and
default interest. At December 31, 2019, the principal balance together with total accrued interest
and liquidated damages is recorded on the Company’s consolidated balance sheet net of discounts at $254,000.
SPYR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDING DECEMBER 31, 2019 AND 2018
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 is 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 500,000 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 250,000 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 500,000 shares, and waive any prior alleged or actual defaults under the note.
During the year ended December 31, 2018 the Company accrued interest for this note in the amount of $45,000, which includes $25,000
in liquidated damages. During the year ended December 31, 2019 the Company accrued interest for this note in the amount of $52,000,
which includes $50,000 in liquidated damages. At December 31, 2019, the principal balance together with total accrued interest
and liquidated damages is recorded on the Company’s consolidated balance sheet net of discounts at $297,000.
The following table summarized the Company's
convertible notes payable as of December 31, 2019 and December 31, 2018:
|
|
December 31, 2019
|
|
December 31, 2018
|
Beginning Balance
|
|
$
|
432,000
|
|
|
$
|
—
|
|
Proceeds from the issuance of convertible notes, net of issuance discounts
|
|
|
—
|
|
|
|
137,000
|
|
Repayments
|
|
|
—
|
|
|
|
—
|
|
Conversion of notes payable into common stock
|
|
|
(100,000
|
)
|
|
|
—
|
|
Amortization of discounts
|
|
|
62,000
|
|
|
|
241,000
|
|
Liquidated damages
|
|
|
134,000
|
|
|
|
25,000
|
|
Accrued Interest
|
|
|
22,000
|
|
|
|
29,000
|
|
Convertible notes payable, net
|
|
$
|
550,000
|
|
|
$
|
432,000
|
|
|
|
|
|
|
|
|
|
|
Convertible notes, short term
|
|
$
|
340,000
|
|
|
$
|
440,000
|
|
Accrued interest and damages
|
|
$
|
210,000
|
|
|
$
|
54,000
|
|
Debt discounts
|
|
$
|
—
|
|
|
$
|
62,000
|
|
|
|
|
|
|
|
|
|
|
SPYR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDING DECEMBER 31, 2019 AND 2018
NOTE 7 – COMMITMENTS AND CONTINGENCIES
Rent
The Company leases 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 pays annual base rent on an escalating scale ranging from $143,000 to $152,000.
From July 2017 through March 31, 2018 we leased
office space in Berlin, Germany for EUR 3,570 ($4,100) per month. The Berlin office was used by leased employees hired by the Company
for the operation of our Pocket Starships game.
From October 17, 2016 to February 28, 2019
the Company leased shared office space for one employee in Redmond, Washington on a month to month basis at costs escalating from
$225 to $325 per month per desk.
The minimum future lease payments under these leases for the next
five years are:
Year Ended December 31,
|
|
Amount
|
|
2020
|
|
|
$
|
152,000
|
|
|
2021
|
|
|
|
—
|
|
|
2022
|
|
|
|
—
|
|
|
2023
|
|
|
|
—
|
|
|
2024
|
|
|
|
—
|
|
|
Thereafter
|
|
|
|
—
|
|
|
Total Five Year Minimum Lease Payments
|
|
|
$
|
152,000
|
|
|
|
|
|
|
|
|
Rent expense for the years ended December 31,
2019 and 2018 was $146,000 and $163,000, respectively. In addition to the minimum basic rent, rent expense also includes approximately
$700 per month for other items charged by the landlord in connection with rent. The discount rate implicit in the lease of 7.27%
has been used to calculate the operating lease liability in the accompanying consolidated balance sheet as of December 31, 2019.
Contingent Liabilities
During the year ended December 31, 2019, the
Company accrued a contingent liability for anticipated litigation and legal settlement liabilities, which has been reported as
part of 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 December 31, 2019.
SPYR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDING DECEMBER 31, 2019 AND 2018
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. Material settled and pending
legal proceedings are as follows:
Settlements
On October 14, 2015, the Company was named
as a defendant in a case filed in the United States District Court for the District of Delaware case: Zakeni Limited v. SPYR, Inc.,
f/k/a Eat at Joe’s., Ltd. The suit relates to the Company’s issuance of two convertible debentures in the aggregate
principal amount of $1,500,000 in 1998. On July 12, 2018, the court approved a Joint Motion for Order Approving Settlement Agreement.
Pursuant to the settlement, the Company will issue 3,500,000 common shares valued at $1,050,000, warrants to purchase 1,000,000
common shares at $0.25 per share valued at $276,000, warrants to purchase 1,500,000 common shares at $0.50 per share valued at
$398,000, and warrants to purchase 1,000,000 common shares at $0.75 per share valued at $259,000 for a total value of the settlement,
$1,983,000. During the year ended December 31, 2018, the above described common shares were issued and warrants were granted in
satisfaction of the settlement.
Pending
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 alleges 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 alleges that Mr. Fiore and the Company unlawfully benefited through the sales of those
securities. The Commission also alleges 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 seeks 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.
The Company vehemently denies any wrongdoing.
The allegations demonstrate a fundamental misunderstanding of existing precedent and a mischaracterization of the facts and transactions
at issue, which were not violative of any securities laws, rules or regulations. The Company will answer these allegations in court.
SPYR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDING DECEMBER 31, 2019 AND 2018
On November 2, 2018, counsel for Defendants
filed a joint motion to dismiss the SEC’s suit in its entirety, primarily on the basis that the SEC’s complaint fails
to allege facts sufficient to state viable causes of action. On September 25, 2019, the Court denied Defendants’ motion.
The Court found that when accepting all allegations in the complaint as true and drawing all reasonable inferences in favor of
the Plaintiff, as the Court is required to do with respect to such a motion, the SEC’s Complaint alleged sufficient facts
to survive Defendants’ motion. The Court’s ruling on the motion to dismiss does not mean that the Court has determined
any of the allegations in the complaint to be true or that Defendants have violated any securities laws. The case is now proceeding
to the discovery stage and after the close of discovery, Defendants will have the ability to seek summary judgment prior to trial.
Recently,
the SEC and the Company have entered into a proposed agreement that, if and when approved by the full Commission, as the parties
anticipate it will, resolve all of the issues asserted against the Company by the SEC without any admission of wrongdoing on the
part of the Company. In anticipation of the SEC’s approval of this agreement, the U.S. District Court has agreed to stay
all further proceedings for 90 days in order to afford the parties ample time to effectuate their final agreement, at which time
said litigation will be formally discontinued against the Company with prejudice. The Company has recorded a contingent liability
as of December 31, 2019 for the resulting anticipated $500,000 liability under the proposed settlement.
The Company is being represented by Marc S.
Gottlieb, Esq., a partner with the firm of Ortoli Rosenstadt LLP.
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
is not being contested by SPYR APPS, LLC, but has not yet been entered. 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 December 31, 2019 was approximately
$90,000.
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 common stock at the beginning of each employment year.
SPYR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDING DECEMBER 31, 2019 AND 2018
NOTE 8 – EQUITY TRANSACTIONS
Common Stock:
Year Ended December 31, 2018
During the year ended December 31, 2018, the
Company issued 500,000 shares of restricted common stock to the father of an executive officer of the Company for cash of $50,000.
During the year ended December 31, 2018, the
Company issued an aggregate of 6,200,000 shares of restricted common stock to third parties for cash of $855,000.
During the year ended December 31, 2018, the
Company issued an aggregate of 1,550,000 shares of restricted common stock to employees with a total fair value of $673,000 for
services rendered. The shares issued are non-refundable and deemed earned upon issuance. As a result, the Company expensed the
entire $673,000 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 year ended December 31, 2018, the
Company issued an aggregate of 6,068,681 shares of restricted common stock to consultants with a total fair value of $1,968,000.
The shares issued are non-refundable and deemed earned upon issuance. As a result, the Company expensed the entire $1,968,000 upon
issuance. The shares issued were valued at the date earned under the respective agreements based upon closing market price of the
Company’s common stock.
During the year ended December 31, 2018, the
Company cancelled an aggregate of 625,000 shares of restricted common stock on termination of a third-party service agreement with
a total fair value on the date of termination of $207,000. The Company recorded a gain on cancellation of $113,000 for the portion
of shares (375,000) issued during 2017 and reversed expenses of $94,000 for the portion of shares (250,000) issued during 2018.
The shares issued were valued at the termination date of the agreement based upon closing market price of the Company’s common
stock.
During the year ended December 31, 2018, the
Company cancelled an aggregate of 17,500 shares of restricted common stock due to the violation of certain gating provisions of
a third-party service agreement. The total fair value on the date of termination was $5,000 based upon closing market price of
the Company’s common stock. The Company recorded a gain on cancellation of $5,000.
On July 12, 2018, the court approved a Joint
Motion for Order Approving Settlement Agreement. Pursuant to the settlement, the Company issued 3,500,000 common shares valued
at $1,050,000. The shares issued were valued at the July 12, 2018 court approval date based upon closing market price of the Company’s
common stock. Total fair value of the shares was computed using the Black-Scholes Option Pricing Model and was fully recognized
on the issuance date as a $1,983,000 reduction to the litigation settlement liability on the accompanying consolidated balance
sheets as of December 31, 2018.
SPYR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDING DECEMBER 31, 2019 AND 2018
Year Ended December 31, 2019
During the year ended December 31, 2019, the
Company issued an aggregate of 1,550,000 shares of restricted common stock to employees with a total fair value of $143,000 for
services rendered. The shares issued are non-refundable and deemed earned upon issuance. As a result, the Company expensed the
entire $143,000 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 year ended December 31, 2019, the
Company issued an aggregate of 25,000 shares of restricted common stock to consultants with a total fair value of $2,000. The shares
issued are non-refundable and deemed earned upon issuance. As a result, the Company expensed the entire $2,000 upon issuance. The
shares issued were valued at the date earned under the respective agreements based upon closing market price of the Company’s
common stock.
During the year ended December 31, 2019, the
Company issued an aggregate of 1,000,000 shares of common stock in conversion of notes payable with a total fair value of $100,000.
As a result, the Company reduced the balance due on the notes by $100,000 upon issuance.
Options:
The following table summarizes common stock
options activity:
|
|
|
|
Weighted
|
|
|
|
|
Average
|
|
|
|
|
Exercise
|
|
|
Options
|
|
Price
|
|
Outstanding, January 1, 2018
|
|
|
|
13,320,000
|
|
|
$
|
1.74
|
|
|
Granted
|
|
|
|
420,000
|
|
|
|
1.00
|
|
|
Exercised
|
|
|
|
—
|
|
|
|
—
|
|
|
Expired
|
|
|
|
(1,250,000
|
)
|
|
|
2.50
|
|
|
Forfeited
|
|
|
|
(40,100
|
)
|
|
|
1.00
|
|
|
Outstanding, December 31, 2018
|
|
|
|
12,449,900
|
|
|
$
|
1.64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
—
|
|
|
Exercised
|
|
|
|
—
|
|
|
|
—
|
|
|
Expired
|
|
|
|
(3,150,000
|
)
|
|
|
4.81
|
|
|
Forfeited
|
|
|
|
—
|
|
|
|
—
|
|
|
Outstanding, December 31, 2019
|
|
|
|
9,299,900
|
|
|
$
|
0.57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable, December 31, 2018
|
|
|
|
11,949,900
|
|
|
$
|
1.50
|
|
|
Exercisable, December 31, 2019
|
|
|
|
9,299,900
|
|
|
$
|
0.57
|
|
The weighted average grant date fair value
of options granted during the years ended December 31, 2019 and 2018, was $0.00 and $1.00 respectively.
SPYR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDING DECEMBER 31, 2019 AND 2018
During the year ended December 31, 2018, the
Company granted stock options to consultants to purchase a total of 420,000 shares of common stock. A total of 379,900 options
vested during 2017 while the remaining 40,100 options were forfeited concurrent with the termination of the consulting agreement.
The options are exercisable at $1.00 per share and will expire over 4 years. The fair values of the options are recorded at their
respective grant dates computed using the Black-Scholes Option Pricing Model. During the year ended December 31, 2018, the Company
recognized $104,000 in compensation expense based upon the vesting of outstanding options. As of December 31, 2018, there was no
additional unearned compensation costs to be recorded.
The weighted average exercise prices, remaining
lives for options granted, and exercisable as of December 31, 2019 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding Options
|
|
|
|
Exercisable Options
|
Options
|
|
|
|
|
|
Weighted
|
|
|
|
Weighted
|
Exercise Price
|
|
|
|
Life
|
|
Average Exercise
|
|
|
|
Average Exercise
|
Per Share
|
|
Shares
|
|
(Years)
|
|
Price
|
|
Shares
|
|
Price
|
$0.50
|
|
8,000,000
|
|
0.67
|
|
$0.50
|
|
8,000,000
|
|
$0.50
|
$1.00
|
|
1,299,900
|
|
0.07 – 2.10
|
|
$1.00
|
|
1,299,900
|
|
$1.00
|
|
|
9,299,900
|
|
|
|
$0.57
|
|
9,299,900
|
|
$0.57
|
At December 31, 2019, the Company’s closing
stock price was $0.02 per share. As all outstanding options had an exercise price greater than $0.02 per share, there was no intrinsic
value of the options outstanding at December 31, 2019.
The following table summarizes options granted
with vesting terms activity:
|
|
|
|
|
Weighted
|
|
|
|
|
|
Average
|
|
|
Number of
|
|
|
Grant Date
|
|
|
Shares
|
|
|
Fair Value
|
Non-vested, January 1, 2018
|
70,000
|
|
$
|
—
|
|
Granted
|
420,000
|
|
|
1.00
|
|
Vested
|
(449,900)
|
|
|
1.00
|
|
Forfeited
|
(40,100)
|
|
|
1.00
|
Non-vested, December 31, 2018
|
—
|
|
$
|
—
|
|
Granted
|
—
|
|
|
—
|
|
Vested
|
—
|
|
|
—
|
|
Forfeited
|
—
|
|
|
—
|
Non-vested, December 31, 2019
|
—
|
|
$
|
—
|
SPYR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDING DECEMBER 31, 2019 AND 2018
Warrants:
The following table summarizes common stock
warrants activity:
|
|
|
|
Weighted
|
|
|
|
|
Average
|
|
|
|
|
Exercise
|
|
|
Warrants
|
|
Price
|
|
Outstanding, January 1, 2018
|
|
|
|
1,700,000
|
|
|
$
|
1.06
|
|
|
Granted
|
|
|
|
8,400,000
|
|
|
|
0.49
|
|
|
Exercised
|
|
|
|
—
|
|
|
|
—
|
|
|
Expired
|
|
|
|
(1,100,000
|
)
|
|
|
1.64
|
|
|
Outstanding, December 31, 2018
|
|
|
|
9,000,000
|
|
|
$
|
0.46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
100,000
|
|
|
|
0.50
|
|
|
Exercised
|
|
|
|
—
|
|
|
|
—
|
|
|
Expired
|
|
|
|
(100,000
|
)
|
|
|
0.50
|
|
|
Outstanding, December 31, 2019
|
|
|
|
9,000,000
|
|
|
$
|
0.46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable, December 31, 2018
|
|
|
|
9,000,000
|
|
|
$
|
0.46
|
|
|
Exercisable, December 31, 2019
|
|
|
|
9,000,000
|
|
|
$
|
0.46
|
|
In January 2018, pursuant to a services agreement,
the Company granted warrants to purchase a total of 1,200,000 shares of restricted common stock with an exercise price of $0.40
and will expire 36 months after date of grant. The warrants are fully vested and exercisable upon grant. Total fair value of the
warrants at grant date amounted to $383,000 computed using the Black-Scholes Option Pricing Model and was fully recognized on the
date of grant.
In March 2018, pursuant to a stock purchase
agreement, the Company granted warrants to purchase a total of 700,000 shares of restricted common stock with an exercise price
of $0.50 and will expire March 18, 2023. The warrants are fully vested and exercisable upon grant. Total fair value of the warrants
at grant date amounted to $234,000 computed using the Black-Scholes Option Pricing Model and was fully recognized on the date of
grant.
In April 2018, in combination with a 12-month
convertible promissory note, the Company granted warrants to purchase a total of 500,000 shares of restricted common stock with
exercise prices ranging from $0.375 to $0.625 and will expire April 20, 2021. The warrants are fully vested and exercisable upon
grant. The proceeds of the note were allocated between the note and the warrants based on the relative fair values which resulted
in proceeds of $61,000 allocated to the warrants and recorded as paid in capital and debt discount. The debt discount will be amortized
over the life of the note as interest expense. During the year ended December 31, 2018, the Company recognized $43,000 of debt
discount interest. As of December 31, 2018, the unamortized debt discount was $18,000 which will be recognized over the life of
the note.
SPYR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDING DECEMBER 31, 2019 AND 2018
In May 2018, in combination with an 8-month
convertible promissory note, the Company granted warrants to purchase a total of 200,000 shares of restricted common stock with
an exercise prices of $2.00 and will expire May 22, 2023. The warrants are fully vested and exercisable upon grant. The proceeds
of the note were allocated between the note and the warrants based on the relative fair values which resulted in proceeds of $32,000
allocated to the warrants and recorded as paid in capital and debt discount. The debt discount will be amortized over the life
of the note as interest expense. During the year ended December 31, 2018, the Company recognized $29,000 of debt discount interest.
As of December 31, 2018, the unamortized debt discount was $3,000 which will be recognized over the life of the note.
In May 2018, pursuant to a stock purchase agreement,
the Company granted warrants to purchase a total of 1,000,000 shares of restricted common stock with exercise prices ranging from
$0.50 to $1.00 and will expire May 29, 2021. The warrants are fully vested and exercisable upon grant. Total fair value of the
warrants at grant date amounted to $184,000 computed using the Black-Scholes Option Pricing Model and was fully recognized on the
date of grant.
On July 12, 2018, pursuant to a court approved
Joint Motion for Order Approving Settlement Agreement, the Company issued warrants to purchase a total of 3,500,000 shares of common
stock with exercise prices ranging from $0.25 to $0.75 and will expire July 11, 2023. The warrants are fully vested and exercisable
upon grant. Total fair value of the warrants at grant date amounted to $933,000 computed using the Black-Scholes Option Pricing
Model and was fully recognized on the date of grant as a reduction to the litigation settlement liability on the accompanying consolidated
balance sheets as of December 31, 2018.
In October 2018, pursuant to advisory services
agreement, the Company granted warrants to purchase a total of 100,000 shares of restricted common stock with an exercise price
of $0.50 and an expiration date of October 30, 2019. The warrants are fully vested and exercisable upon grant. Total fair value
of the options at grant date amounted to $4,000 computed using the Black-Scholes Option Pricing Model and was fully recognized
on the date of grant.
In December 2018, pursuant to a services agreement,
the Company granted warrants to purchase a total of 1,200,000 shares of restricted common stock with an exercise price of $0.15
and will expire 36 months after date of grant. The warrants are fully vested and exercisable upon grant. Total fair value of the
warrants at grant date amounted to $58,000 computed using the Black-Scholes Option Pricing Model and was fully recognized on the
date of grant.
In October 2019, pursuant to advisory services
agreement, the Company granted warrants to purchase a total of 100,000 shares of restricted common stock with an exercise price
of $0.50 and expiration date of October 30, 2020. The warrants are fully vested and exercisable upon grant. Total fair value of
the options at grant date amounted to $1,000 computed using the Black-Scholes Option Pricing Model and was fully recognized on
the date of grant.
SPYR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDING DECEMBER 31, 2019 AND 2018
The weighted average exercise prices, remaining
lives for warrants granted, and exercisable as of December 31, 2019, were as follows:
|
|
Outstanding and Exercisable Warrants
|
|
Warrants
|
|
|
|
|
|
Exercise Price
|
|
|
|
Life
|
|
Per Share
|
|
Shares
|
|
(Years)
|
|
$0.01
|
|
600,000
|
|
1.00
|
|
$0.15
|
|
1,200,000
|
|
1.03
|
|
$0.25
|
|
1,000,000
|
|
3.53
|
|
$0.375
|
|
200,000
|
|
1.30
|
|
$0.40
|
|
1,200,000
|
|
1.03
|
|
$0.50
|
|
3,000,000
|
|
0.83 – 3.53
|
|
$0.625
|
|
100,000
|
|
1.30
|
|
$0.75
|
|
1,250,000
|
|
1.41 – 3.53
|
|
$1.00
|
|
250,000
|
|
1.41
|
|
$2.00
|
|
200,000
|
|
3.39
|
|
|
|
9,000,000
|
|
|
|
At December 31, 2019, the Company’s closing
stock price was $0.02 per share. The Company had 600,000 warrants outstanding with exercise prices less than $0.02 with an intrinsic
value of $6,000 at December 31, 2019.
The table below represents the average assumptions
used in valuing the stock options and warrants granted in fiscal 2019:
|
|
Year Ended
December 31,
|
|
|
2019
|
Expected life in years
|
|
|
1.00
|
|
Stock price volatility
|
|
|
215
|
%
|
Risk free interest rate
|
|
|
1.53
|
%
|
Expected dividends
|
|
|
—
|
|
Forfeiture rate
|
|
|
—
|
|
The table below represents the average assumptions
used in valuing the stock options and warrants granted in fiscal 2018:
|
|
|
Year Ended December 31,
|
|
|
|
|
2018
|
|
Expected life in years
|
|
|
1.00 – 5.00
|
|
Stock price volatility
|
|
|
138% - 153%
|
|
Risk free interest rate
|
|
|
2.12 % - 2.90%
|
|
Expected dividends
|
|
|
—
|
|
Forfeiture rate
|
|
|
—
|
|
SPYR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDING DECEMBER 31, 2019 AND 2018
The assumptions used in the Black Scholes models
referred to above are based upon the following data: (1) the contractual life of the underlying non-employee options is the expected
life. The expected life of the employee option is estimated by considering the contractual term of the option, the vesting period
of the option, the employees’ expected exercise behavior and the post-vesting employee turnover rate. (2) The expected stock
price volatility was based upon the Company’s historical stock price over the expected term of the option. (3) The risk-free
interest rate is based on published U.S. Treasury Department interest rates for the expected terms of the underlying options. (4)
The expected dividend yield was based on the fact that the Company has not paid dividends to common shareholders in the past and
does not expect to pay dividends to common shareholders in the future. (5) The expected forfeiture rate is based on historical
forfeiture activity and assumptions regarding future forfeitures based on the composition of current grantees.
Shares Reserved:
At December 31, 2019, the Company has reserved
30,000,000 shares of common stock in connection with 2 convertible notes with detachable warrants and 3,500,000 shares of common
stock underlying warrants issued in connection with the court approved settlement agreement for a total of 33,500,000 reserved
shares of common stock.
NOTE 9 - PREFERRED STOCK
The Class A Preferred Stock carries the
following rights and preferences;
Dividends
The Company shall, in its discretion, determine
when and if dividends will be paid on the Class A Preferred Shares, and whether it will be paid in cash, shares of Common Stock,
or a combination of both. All Class A Preferred Stockholders shall be treated the same with respect to the payment of dividends.
In the event the Company elects to pay a portion or all of the dividends on the Class A Preferred Stock by issuing shares of the
Company's Common Stock, the shares of common stock issued as dividends will be restricted, unregistered shares, and will be subject
to the same transfer restrictions that apply to the shares of Class A Preferred Stock. The dividend is payable as may be determined
by the Board of Directors, out of funds legally available therefor. The Class A Preferred Stock will have priority as to dividends
over the Common Stock.
Voting Rights
The holders of the Class A Preferred Stock
shall vote for the election of directors, and shall have full voting rights, except that each Class A Preferred share shall entitle
the holder to exercise ten thousand (10,000) votes for each one (1) Class A Preferred Share held.
Redemptive Rights
The Class A Preferred Stock shall not be redeemable.
SPYR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDING DECEMBER 31, 2019 AND 2018
Conversion Rights
The holders of the Class A Preferred Stock
will be entitled at any time to convert their shares of Class A Preferred Stock into shares of the Company's Common Stock at the
rate of one (1) share of Class A Preferred Stock be converted into common shares of the Company at an agreed price of forty cents
($0.40) per share (the "Conversion Price"), which, based upon the recorded fair value of the Class A Preferred Stock,
results in a conversion ratio of 1 share of Class A Preferred Stock to approximately 250 shares of common stock. No fractional
shares will be issued.
The Conversion Ratio of the Class A Preferred
Stock shall be adjusted in certain circumstances, including the payment of a stock dividend on shares of the Common Stock and combinations
and subdivisions of the Common Stock.
In the case of any share exchange, capital
reorganization, consolidation, merger or reclassification, whereby the Common Stock is converted into other securities or property,
the Company will make appropriate provisions so that the holder of each share of Class A Preferred Stock then outstanding, will
have the right thereafter to convert such share of Class A Preferred Stock into the kind and amount of shares of stock and other
securities and property receivable upon such consolidation, merger, share exchange, capital reorganization or reclassification
by a holder of the number of shares of Common Stock into which such shares of Class A Preferred Stock might have been converted
immediately prior to such consolidation, merger, share exchange, capital reorganization or reclassification. If the shares of Common
Stock are subdivided or combined into a greater or smaller number of shares of Common Stock, the Conversion Ratio shall be proportionately
increased in the case of subdivision of shares. If the shares of Common Stock are combined, consolidated or reverse split into
a smaller number of shares of Common Stock, the Conversion Ratio shall be proportionally decreased. The kind and type of Common
Shares issuable upon conversion of the Class A Preferred Stock both before and after combination, consolidation or reverse split
of the Common Shares shall be the same.
The same transfer restrictions imposed on the
Class A Preferred Stock shall be applicable to the Common Stock into which the Class A Preferred Stock is converted, although for
purposes of Rule 144 as presently in effect, the holding period requirement may be met by adding together the period in which the
Class A Preferred Stock is held and the period in which the Common Stock into which the Class A Preferred Stock is converted, is
held.
Other Provisions
The shares of Class A Preferred Stock to be
issued and any Common Shares into which it is converted, shall be duly and validly issued, fully paid and non-assessable. The holders
of the Class A Preferred Stock shall not have pre-emptive rights with respect to any shares of capital stock of the Company or
any other securities of the Company convertible into Common Stock or rights or options to purchase any such shares.
SPYR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDING DECEMBER 31, 2019 AND 2018
The Class E Convertible Preferred Stock
carries the following rights and preferences;
*
|
No dividends.
|
*
|
Convertible to common stock based upon proceeds received upon issuance of the shares, divided by the average closing bid price for the Company’s common stock for the 5 trading days prior to the conversion date, and is adjustable to prevent dilution. At December 31, 2019, the 20,000 Class E preferred shares were convertible to 5,096,840 common shares.
|
*
|
Convertible at the Option of the Company at par value only after repayment of the shareholder loans from Joseph Fiore and subject to the holder’s option to convert.
|
*
|
Entitled to vote 1,000 votes per share of Series E Convertible Preferred Shares.
|
*
|
Entitled to liquidation preference at par value.
|
*
|
Is senior to all other share of preferred or common shares issued past, present and future.
|
NOTE 10 – 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 segment's discontinued operations as of December 31, 2019 and December 31, 2018 consisted of $0 assets and $22,000 in
accounts payable and accrued liabilities.
The results of operations of our discontinued
restaurant for the years ended December 31, 2019 and 2018 and is included in the consolidated statements of operations as discontinued
operations consisted of no operations for the year ended December 31, 2019 and $1,000 income on the disposition of assets for the
year ended December 31, 2018.
NOTE 11 – RESTATED FINANCIAL STATEMENTS FOR THE YEAR ENDED
DECEMBER 31, 2018
In 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. Pursuant to this new standard, the Company has restated its consolidated balance sheets as of December
31, 2018 to record an operating right-of-use asset and operating lease liability.
SPYR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDING DECEMBER 31, 2019 AND 2018
NOTE 12 - SUBSEQUENT EVENTS
On February 1, 2020, the Company issued 1.25
million shares of common stock with a fair value of $25,000 pursuant to existing employment and consulting agreements.
On February 21, 2019, the Company amended its
revolving line of credit with Berkshire Capital Management Co., Inc. to extend the repayment date from December 31, 2019 to June
30, 2020.
During the period from January 1 through March
29, 2020, the Company, received $185,000 in revenue for professional services rendered to Berkshire Capital Management Co., Inc.
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 concentrations due to major customers and the 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 capitalized
gaming assets and other long-lived assets; and contingent obligations.