NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
YEARS ENDING DECEMBER
31, 2017 AND 2016
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.
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 and SPYR APPS, Oy, we operate our mobile games and applications business. The focus of the
SPYR APPS subsidiaries is the development and publication of our own mobile games as well as the publication of games developed
by third-party developers. As of October 5, 2016, SPYR APPS, Oy ceased business activities and completed the dissolution process
on October 18, 2017.
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 9), 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, 2017, the Company recorded a net loss from continuing operations
of $15,643,000 and utilized cash in continuing operations of $4,020,000. As of December 31, 2017, our cash balance was
$86,000 and we had trading securities of $48,000. In addition, the Company’s restaurant, Eat at Joes closed in April 2017,
concurrent with the expiration of the lease. These issues raise substantial doubt about the Company’s ability to continue
as a going concern.
The Company plans
to expand its mobile games and application development and publishing activities, such as Pocket Starships, through acquisition
and/or development of its own intellectual property and publishing agreements with developers.
Historically,
we have financed our operations primarily through private sales of our trading securities or through sales of our common stock.
If our sales goals for our products do not materialize as planned, we believe that the Company can reduce its
operating
and product development costs that would allow us to maintain sufficient cash levels to continue operations. However, if we are
not able to achieve profitable operations at some point in the future, we may have insufficient working capital to maintain our
operations as we presently intend to conduct them or to fund our expansion, marketing, and product development plans.
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 2018. However, management cannot
make any assurances that such financing will be secured.
SPYR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
YEARS ENDING DECEMBER
31, 2017 AND 2016
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.
The basic and fully
diluted shares for the year ended December 31, 2017 are the same because the inclusion of the potential shares (Class A –
26,909,028, Class E – 415,559, Options – 13,320,000, Warrants – 1,700,000) would have had an anti-dilutive effect
due to the Company generating a loss for the year ended December 31, 2017.
The basic and fully
diluted shares for the year ended December 31, 2016 are the same because the inclusion of the potential shares (Non-vested Common
– 20,333, Class A – 26,909,028, Class E – 161,108, Options – 12,900,000 and Warrants – 200,000)
would have had an anti-dilutive effect due to the Company generating a loss for the year ended December 31, 2016.
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.
SPYR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
YEARS ENDING DECEMBER
31, 2017 AND 2016
As consideration
for the acquisition, the Company issued eight million shares of the Company’s restricted common stock valued at $3,200,000,
options to purchase up to eight million 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. The difference between purchase price
and the capitalized value was recorded as loss on write down on assets of $5,381,000. The Company will amortize the capitalized
cost on a straight-line basis over an estimated life of seven to ten years.
Further, the options
previously issued pursuant to a purchase option agreement dated June 25, 2016, which provided for the option to purchase up to
three million, seven hundred and fifty thousand shares of Registrant’s common stock, are fully vested and remain in effect
in accordance with the terms of the purchase option agreement.
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 in to future updates to and expansions of the Pocket
Starships game. The Company estimates that the IP will have an estimated life of 1.6 years, which approximates the term of the
license. In addition, we also acquired the game titled Battlewack: Idle Lords for $100,000, pursuant to settlement with the game
owner and developer. Battlewack: Idle Lords requires additional development before it can be released.
In a prior period,
the Company capitalized $50,000 as a result of the acquisition of licensing rights of one gaming application. The Company estimates
that the gaming application will have an estimated life of five years, which approximates the term of the license.
During the year
ended December 31, 2017, the Company recorded amortization expense of $52,000. As of December, 2017 and December 31, 2016, the
accumulated amortization was $52,000 and $10,000, respectively and the unamortized capitalized gaming assets and licensing rights
amounted to $743,000 and $40,000 respectively.
The expected
annual amortization expense related to capitalized gaming assets and licensing rights as of December 31, 2017, is as follows:
|
2018
|
|
|
$
|
69,000
|
|
|
2019
|
|
|
|
69,000
|
|
|
2020
|
|
|
|
69,000
|
|
|
2021
|
|
|
|
69,000
|
|
|
2022
|
|
|
|
69,000
|
|
|
Thereafter
|
|
|
|
123,000
|
|
|
Total
|
|
|
$
|
468,000
|
|
Software Development Costs
Costs incurred
for software development are expensed as incurred. During the years ended December 31, 2017 and 2016, the Company incurred $1,666,000
and $1,151,000 in software development costs paid to
independent gaming
software developers.
Revenue Recognition
Through our wholly
owned subsidiary SPYR APPS, LLC, we develop, publish and co-publish mobile games, and then generate revenue through those games
by way of advertising and in-app purchases. We recognize revenue when the sale is completed.
Though
our wholly owned subsidiary E.A.J.: PHL, Airport, Inc.
(discontinued operations, see Note 9)
we
generated revenue from the sale of food and beverage products through our restaurant. Revenue from the restaurant was recognized
upon sale to a customer and receipt of payment.
The Company recognizes
revenue using four basic criteria that must be met before revenue can be recognized: (1) persuasive evidence of an arrangement
exists; (2) delivery has occurred; (3) the selling price is fixed and determinable; and (4) collectability is reasonably assured,
which is typically after receipt of payment and delivery.
SPYR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
YEARS ENDING DECEMBER
31, 2017 AND 2016
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
|
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.
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.
SPYR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
YEARS ENDING DECEMBER
31, 2017 AND 2016
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, 2017, the Company recorded amortization expense of $6,000. As of December 31, 2017, 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, 2017. 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.
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.
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.
SPYR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
YEARS ENDING DECEMBER
31, 2017 AND 2016
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, other receivable,
prepaid expenses, and accounts payable and accrued expenses approximate their fair value because of the short maturity of those
instruments.
The Company’s trading securities
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 $195,000 and $350,000 for the years ended December 31, 2017, and 2016, respectively and was reflected
as part of Other General and Administrative Expenses on the accompanying consolidated statements of operations.
Reclassifications
In presenting the
Company’s consolidated statement of operations for the year ended December 31, 2016, certain costs and expenses paid to
third party developers in the amount of $735,000, that were previously reflected as other general and administrative expenses,
have been reclassified and reported as part of research and development.
Recent Accounting Standards
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 will supersede nearly all existing revenue
recognition guidance under current U.S. GAAP and replace it with a principles-based approach for determining revenue recognition.
ASU 2014-09 will require that companies recognize revenue based on the value of transferred goods or services as they occur in
the contract. The ASU also will require additional disclosure about the nature, amount, timing and uncertainty of revenue and
cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from
costs incurred to obtain or fulfill a contract. ASU 2014-09 is effective for interim and annual periods beginning after December
15, 2017. Early adoption is permitted only in annual reporting periods beginning after December 15, 2016, including interim periods
therein. Entities will be able to transition to the standard either retrospectively or as a cumulative-effect adjustment as of
the date of adoption. Our revenue is recognized at the time of sale and we do not expect that the adoption of ASU 2014-09 will
have any significant impact on our operating cash flows.
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 is in the process of evaluating the impact of ASU 2016-02 on the Company’s financial statements and disclosures.
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.
SPYR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
YEARS ENDING DECEMBER
31, 2017 AND 2016
NOTE 2 - TRADING SECURITIES
Trading securities
are purchased with the intent of selling them in the short term. Trading securities are recorded at market value and the difference
between market value and cost of the securities is recorded as an unrealized gain or loss in the statement of operations. Gains
from the sales of such marketable securities will be utilized to fund payment of obligations and to provide working capital for
operations and to finance future growth, including, but not limited to: conducting our ongoing business, conducting strategic
business development, marketing analysis, due diligence investigations into possible acquisitions, and research and development
and implementation of the Company’s business plans generally.
The Company’s
securities investments that are bought and held principally for the purpose of selling them in the near term are classified as
trading securities. Trading securities are recorded at fair value based on quoted market price (level 1) on the balance sheet
in current assets, with the change in fair value during the period included in earnings.
Investments in
securities are summarized as follows:
|
|
Fair Value
at
|
|
|
|
Proceeds
|
|
Loss on
|
|
Contributed
|
|
Unrealized
|
|
Fair Value
at
|
Year
|
|
Beginning
of Year
|
|
Purchases
|
|
from
Sale
|
|
Sale
|
|
Capital
|
|
Loss
|
|
December
31, 2017
|
|
2017
|
|
|
$
|
59,000
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(11,000
|
)
|
|
$
|
48,000
|
|
|
2016
|
|
|
$
|
324,000
|
|
|
$
|
510,000
|
|
|
$
|
(783,000
|
)
|
|
$
|
(95,000
|
)
|
|
$
|
160,000
|
|
|
$
|
(57,000
|
)
|
|
$
|
59,000
|
|
Realized gains
and losses are determined on the basis of specific identification. During the years ended December 31, 2017 and 2016, sales proceeds
and gross realized gains and losses on securities classified as available-for-sale securities and trading securities were:
|
|
December
31, 2017
|
|
December
31, 2016
|
|
|
|
|
|
|
|
|
|
Sales
proceeds
|
|
$
|
—
|
|
|
$
|
783,000
|
|
Gross
realized (losses)
|
|
$
|
—
|
|
|
$
|
(95,000
|
)
|
Gross
realized gains
|
|
|
—
|
|
|
|
—
|
|
Gain
(loss) on sale of trading securities
|
|
$
|
—
|
|
|
$
|
(95,000
|
)
|
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, 2017
|
|
(Level
1)
|
|
(Level
2)
|
|
(Level
3)
|
Trading
securities
|
|
$ 48,000
|
|
$ 48,000
|
|
$ -
|
|
$ -
|
Money
market funds
|
|
36,000
|
|
36,000
|
|
-
|
|
-
|
Total
|
|
$ 84,000
|
|
$ 84,000
|
|
$ -
|
|
$ -
|
SPYR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
YEARS ENDING DECEMBER
31, 2017 AND 2016
|
|
|
|
Fair
Value Measurements at Reporting Date Using
|
|
|
|
|
Quoted
Prices
|
|
Significant
|
|
Significant
|
|
|
|
|
in
Active
|
|
Other
|
|
Unobservable
|
|
|
Fair
Value at
|
|
Markets
|
|
Observable
Inputs
|
|
Inputs
|
|
|
December
31, 2016
|
|
(Level
1)
|
|
(Level
2)
|
|
(Level
3)
|
Trading
securities
|
|
$ 59,000
|
|
$ 59,000
|
|
$ -
|
|
$ -
|
Money
market funds
|
|
36,000
|
|
36,000
|
|
-
|
|
-
|
Total
|
|
$ 95,000
|
|
$ 95,000
|
|
$ -
|
|
$ -
|
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, 2017
|
|
December
31, 2016
|
|
|
|
|
|
Equipment
|
|
$
|
28,000
|
|
|
$
|
28,000
|
|
Furniture
& fixtures
|
|
|
114,000
|
|
|
|
114,000
|
|
Leasehold
improvements
|
|
|
107,000
|
|
|
|
107,000
|
|
|
|
|
249,000
|
|
|
|
249,000
|
|
Less:
accumulated depreciation and amortization
|
|
|
(115,000
|
)
|
|
|
(68,000
|
)
|
Property
and Equipment, Net
|
|
$
|
134,000
|
|
|
$
|
181,000
|
|
Depreciation and
amortization expense for the years ended December 31, 2017 and 2016 was $105,000 and $98,000, respectively.
NOTE 4 - RELATED PARTY TRANSACTIONS
On October 3, 2016,
the Company sold trading securities valued at $340,000 to Berkshire Capital Management Co., Inc. (“Berkshire”) for
$500,000. Berkshire is controlled by Joseph Fiore, majority shareholder and former chairman of the board of directors of
the Company. The Company reported the $160,000 difference between the value of the trading securities and cash sale price as contributed
capital.
On
September 5, 2017, the Company obtained a revolving line of credit from Berkshire
Capital Management
Co., Inc.
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 February 28, 2019. As of December 31, 2017, we have borrowed $800,000.
SPYR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
YEARS ENDING DECEMBER
31, 2017 AND 2016
NOTE 5 - INCOME TAXES
The Company did not provide any Federal
and State income tax for the years ended December 31, 2017 and 2016 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,
|
|
|
2017
|
|
2016
|
Tax
provision at US statutory federal income tax rate
|
|
$
|
(690,000
|
)
|
|
$
|
(2,320,000
|
)
|
State
income tax, net of federal benefit
|
|
|
—
|
|
|
|
—
|
|
Change
in valuation allowances
|
|
|
690,000
|
|
|
|
2,320,000
|
|
Provision
for Income Taxes
|
|
$
|
—
|
|
|
$
|
—
|
|
The significant
components of the Company’s deferred tax assets were:
|
|
December
31,
|
|
|
2017
|
|
2016
|
Deferred
Tax Assets:
|
|
|
|
|
|
|
|
|
Net
operating loss carry forward
|
|
$
|
4,926,000
|
|
|
$
|
3,746,000
|
|
Unrealized
losses on marketable securities
|
|
|
2,000
|
|
|
|
251,000
|
|
Stock
based compensation
|
|
|
—
|
|
|
|
197,000
|
|
Depreciation
and other
|
|
|
(13,000
|
)
|
|
|
31,000
|
|
|
|
|
4,915,000
|
|
|
|
4,225,000
|
|
Less
valuation allowance
|
|
|
(4,915,000
|
)
|
|
|
(4,225,000
|
)
|
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, 2017, the Company recorded a valuation allowance of $4,915,000 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, 2017 and 2016, 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, 2017 was approximately $18,700,000 and may be offset
against future taxable income through 2037. 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.
SPYR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
YEARS ENDING DECEMBER
31, 2017 AND 2016
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.
In accordance
with ASC 740, the impact of a change in tax law is recorded in the period of enactment. During the fourth quarter of 2017, the
Company recorded a non-cash, change in its net deferred tax balances of approximately $2,429,000 related to the tax rate change.
The Company estimates that its deemed repatriation liability will not be material due to its limited international operations.
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 2014. However, as of December 31, 2017, the years subsequent
to 2013 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, 2017, the Company had no liability for unrecognized tax benefits and no accrual for the payment of related interest and penalties,
nor did the Company recognized any interest or penalties expense related to unrecognized tax benefits during the years ended December
31, 2016 or 2015.
NOTE 6 – 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 $142,000
to $152,000.
The Company’s
wholly owned subsidiary leases office shared office space in Berlin Germany pursuant to a lease dated June 29, 2018 and expiring
on March 31, 2018. Under the lease, the Company pays monthly base rent of $4,248 (3,570 Euros).
The minimum future lease payments under
these leases for the next five years are:
Year
Ended December 31,
|
|
Amount
|
|
2018
|
|
|
$
|
161,000
|
|
|
2019
|
|
|
|
150,000
|
|
|
2020
|
|
|
|
152,000
|
|
|
2021
|
|
|
|
—
|
|
|
2022
|
|
|
|
—
|
|
|
Thereafter
|
|
|
|
—
|
|
|
Total
Five Year Minimum Lease Payments
|
|
|
$
|
463,000
|
|
Rent expense for
the years ended December 31, 2017 and 2016 was $186,000 and $146,000, respectively. In addition to the minimum basic rent, rent
expense also includes approximately $200 per month for other items charged by the landlord in connection with rent.
SPYR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
YEARS ENDING DECEMBER
31, 2017 AND 2016
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.
A material legal proceeding that is currently pending is as follows:
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.
The total value of the settlement, $1,983,000 has been recorded as litigation settlement liability on the accompanying consolidated
balance sheets as of December 31, 2017 and 2016, with a corresponding charge to litigation settlement costs on the consolidated
statement of operations for the year ended December 31, 2016,
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. Joseph A. Fiore was the Chairman of our Board of Directors and 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.
The Company is being
represented by Alex Spiro, Esq., a partner with the firm of Quinn Emmanuel, Urquhart & Sullivan, LLP and Marc S. Gottlieb,
Esq., a partner with the firm of Ortoli Rosenstadt LLP.
Employment Agreements
Pursuant to employment
agreements entered in December 2014 and October 2015, the Company agreed to compensate three officers with a base salary in the
aggregate of $450,000 per year through 2020. In addition, as part of the employment agreement, 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.
Game Development
Agreements
The Company is
party to various game development agreements. Payments are contingent upon the developer(s) meeting specified milestones and game
performance. Pursuant to these agreements, the Company has agreed to pay up to $843,000 during the period from January 2018 through
January 2019.
Common Stock
To Be Issued
The Company is
party to various third-party service agreements to be paid through the issuance of the company’s restricted common stock.
Contingent upon the third parties providing the agreed upon services, the Company will issue up to 4,570,000 restricted
common shares at various intervals during the period from January 2018 through February 2019. The shares will be recorded at fair
value on the date earned under the respective agreements.
SPYR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
YEARS ENDING DECEMBER
31, 2017 AND 2016
NOTE 7 – EQUITY TRANSACTIONS
Common Stock:
Year Ended
December 31, 2016:
During the year
ended December 31, 2016, the Company issued an aggregate of 100,000 shares of restricted common stock to consultants for cash
of $15,000.
During the year
ended December 31, 2016, the Company issued an aggregate of 1,843,987 shares of common stock to employees with a total fair value
of $413,000 for services rendered. The shares issued are non-refundable and deemed earned upon issuance. As a result, the Company
expensed the entire $413,000 upon issuance. The shares issued were valued at the date of the respective agreements.
During the year
ended December 31, 2016, the Company issued an aggregate of 4,509,912 shares of restricted common stock to consultants with a
total fair value of $1,951,000. The shares issued are non-refundable and deemed earned upon issuance. As a result, the Company
expensed the entire $1,951,000 upon issuance. The shares issued were valued at the date of the respective agreements.
In April 2016,
the Company cancelled a total of 325,000 shares of common stock issued to an employee pursuant to a settlement and termination
agreement. Pursuant to current accounting guidelines, no further accounting was necessary for the cancellation of the 325,000
shares of common stock other than to remove the par value amounting to $33.00.
Year Ended
December 31, 2017:
During the year
ended December 31, 2017, the Company issued an aggregate of 750,000 shares of restricted common stock to an existing shareholder
and former officer/employee for cash of $300,000. The common shares had a fair value of $510,000 at the date of sale, and as a
result, the Company reflected an additional expense of $210,000 to account the difference between the sale price and the fair
market value of common shares sold.
During the year
ended December 31, 2017, the Company issued an aggregate of 2,050,000 shares of restricted common stock to employees with a total
fair value of $1,109,000 for services rendered. The shares issued are non-refundable and deemed earned upon issuance. As a result,
the Company expensed the entire $1,109,000 upon issuance. The shares issued were valued at the date earned under the respective
agreements.
During year ended
December 31, 2017, the Company issued an aggregate of 12,691,924 shares of restricted common stock to consultants with a total
fair value of $3,758,000. The shares issued are non-refundable and deemed earned upon issuance. As a result, the Company expensed
the entire $3,758,000 upon issuance. The shares issued were valued at the date earned under the respective agreements.
During year ended
December 31, 2017, the Company issued an aggregate of 8,000,000 shares of restricted common stock to third parties with a total
fair value of $3,320,000. The shares issued are non-refundable and deemed earned upon issuance. As a result, the Company expensed
the entire $3,320,000 upon issuance. The shares issued were valued at the date earned under the respective agreements. (See Note
1 “Capitalized Gaming Assets and Licensing Rights”)
SPYR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
YEARS ENDING DECEMBER
31, 2017 AND 2016
Common Stock with Vesting Terms:
The following table
summarizes common stock with vesting terms activity:
|
|
|
|
|
Weighted
|
|
|
|
|
|
Average
|
|
|
Number
of
|
|
|
Grant
Date
|
|
|
Shares
|
|
|
Fair
Value
|
Non-vested, December 31,
2015
|
329,167
|
|
$
|
0.47
|
|
Granted
|
—
|
|
|
—
|
|
Vested
|
(308,334)
|
|
|
0.47
|
|
Forfeited
|
—
|
|
|
—
|
Non-vested, December 31,
2016
|
20,833
|
|
$
|
0.47
|
|
Granted
|
—
|
|
|
—
|
|
Vested
|
(20,833)
|
|
|
0.47
|
|
Forfeited
|
—
|
|
|
—
|
Non-vested, December 31,
2017
|
—
|
|
$
|
—
|
During 2015, the
Company granted and issued 600,000 shares of its restricted common stock to employees and third-party service providers. The 600,000
shares were forfeitable and deemed earned upon completion of service over a period of twelve to twenty-four months. The Company
recognized the fair value of these shares as they vested. As of December 31, 2016, 579,167 of these shares had vested and 20,833
common shares were unvested. During the year ended December 31, 2017, the remaining 20,833 of these shares vested and as a result,
the Company recognized compensation cost of $46,000. As of December 31, 2017, there were no unvested shares and no unearned compensation
costs to be recorded.
When calculating
basic net income (loss) per share, these shares are included in weighted average common shares outstanding from the time they
vest. When calculating diluted net income per share, these shares, if dilutive, are included in weighted average common shares
outstanding as of their grant date.
Options:
The following table
summarizes common stock options activity:
|
|
|
|
Weighted
|
|
|
|
|
Average
|
|
|
|
|
Exercise
|
|
|
Options
|
|
Price
|
|
December 31, 2015
|
|
|
|
—
|
|
|
$
|
—
|
|
|
Granted
|
|
|
|
12,900,000
|
|
|
|
2.94
|
|
|
Exercised
|
|
|
|
—
|
|
|
|
—
|
|
|
Forfeited
|
|
|
|
—
|
|
|
|
—
|
|
|
Outstanding, December 31,
2016
|
|
|
|
12,900,000
|
|
|
$
|
2.94
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
8,920,000
|
|
|
|
0.55
|
|
|
Exercised
|
|
|
|
—
|
|
|
|
—
|
|
|
Forfeited
|
|
|
|
(8,500,000
|
)
|
|
|
3.88
|
|
|
Outstanding, December 31,
2017
|
|
|
|
13,320,000
|
|
|
$
|
1.74
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable, December 31,
2016
|
|
|
|
4,400,000
|
|
|
$
|
2.83
|
|
|
Exercisable, December 31,
2017
|
|
|
|
12,250,000
|
|
|
$
|
1.58
|
|
The weighted average
grant date fair value of options granted during the years ended December 31, 2017 and 2016, was $0.55 and $2.83 respectively.
SPYR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
YEARS ENDING DECEMBER
31, 2017 AND 2016
In June 2016, the
Company granted options to purchase 3.75 million shares of restricted common stock valued at $472,000 pursuant to the planned
acquisition of Pocket Starships (See Note 1 “Capitalized Gaming Assets and Licensing Rights”). The stock options are
fully vested, exercisable at a price per share of $1.00, $2.50, and $5.00 and stated to expire December 31, 2017 through December
31, 2019. During the year ended December 31, 2016, the Company recognized compensation expense of $472,000. On December 31, 2017,
options to purchase 500,000 shares of restricted common stock expired, with the remaining 3.25 million expiring December 31, 2018
through December 31, 2019.
In August 2016,
the Company granted an employee options to purchase a total of 7.5 million shares of common stock with an exercise price per share
of $1.00, $2.50 and $5.00. The options are fully vested upon grant but are only exercisable in three tranches starting in January
2017, 2018 and 2019. Total fair value of the options at grant date amounted to $201,000 computed using the Black-Scholes Option
Pricing Model. The Company determined the appropriate treatment is to recognize the fair value of the options over the service
period, which would be when the options are fully exercisable. The first tranche of 1 million shares became exercisable on January
1, 2017 with a fair value of the options at grant date of $28,000 computed using the Black-Scholes Option Pricing Model. During
the year ended December 31, 2016, the Company recognized compensation expense of $28,000. Subsequent to December 31, 2016, the
employment agreement was terminated, all options cancelled, and no further compensation expense for these options will be recognized.
In October 2016,
the Company granted an employee options to purchase a total of 1.5 million shares of restricted common stock with an exercise
price per share of $1.00, $2.50 and $5.00 and will expire starting December 31, 2017 through December 31, 2019. The options are
fully vested upon grant but are only exercisable in three tranches starting in October 2016 and January 2018 and 2019. Total fair
value of the options at grant date amounted to $145,000 computed using the Black-Scholes Option Pricing Model. The Company determined
the appropriate treatment is to recognize the fair value of the options over the service period, which would be when the options
are fully exercisable. During the year ended December 31, 2016, the Company recognized compensation expense of $62,000. During
the year ended December 31, 2017, the Company recognized compensation expense of $60,000. On December 31, 2017, options to purchase
500,000 shares of restricted common stock at $0.50 per share expired. As of December 31, 2017, future unamortized costs amounted
to approximately $22,000.
In October 2016,
the Company signed an investor relations consulting agreement with a third party granting options to purchase 50,000 shares
of restricted common stock per month beginning October 24, 2016 through October 24, 2017 with an exercise price of $1.00 per share
that will expire 36 months from date of grant. The options are granted monthly and fully vested and exercisable upon grant. As
of December 31, 2016, 150,000 options were granted. Total fair value of the options at their respective grant dates amounted to
$59,000 computed using the Black-Scholes Option Pricing Model. During the year ended December 31, 2016, the Company fully recognized
the $59,000 compensation expense. As of December 31, 2017, 500,000 options were granted. Total fair value of the options at their
respective grant dates amounted to $177,000 computed using the Black-Scholes Option Pricing Model. During the year ended December
31, 2017, the Company fully recognized the $177,000 compensation expense.
During the year
ended December 31, 2017, the Company granted stock options to consultants to purchase a total of 420,000 shares of common stock.
A total of 350,000 options vested during 2017 while the remaining 70,000 options will vest through February 2018 at a rate of
35,000 shares per month. 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, 2017, the Company recognized $210,000 in compensation expense based upon the vesting of outstanding options. As of December
31, 2017, the unamortized compensation expense for unvested options was $42,000 which will be recognized during 2018.
SPYR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
YEARS ENDING DECEMBER
31, 2017 AND 2016
During year ended
December 31, 2017, the Company granted stock options purchase up to eight million shares of the Company’s restricted common
stock to third parties valued at $2,452,000. The options are fully vested, exercisable at a price per share of $0.50 and will
expire starting August 31, 2020. The fair values of the options were computed using the Black-Scholes Option Pricing Model, and
recorded at the date of grant. (See Note 1 “Capitalized Gaming Assets and Licensing Rights”)
The weighted average
exercise prices, remaining lives for options granted, and exercisable as of December 31, 2017 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
|
|
2.67
|
|
$0.50
|
|
8,000,000
|
|
$0.50
|
$1.00
|
|
1,070,000
|
|
1.81 – 3.10
|
|
$1.00
|
|
1,000,000
|
|
$1.00
|
$2.50
|
|
1,250,000
|
|
1
|
|
$2.50
|
|
750,000
|
|
$2.50
|
$5.00
|
|
3,000,000
|
|
2
|
|
$5.00
|
|
2,500,000
|
|
$5.00
|
|
|
13,320,000
|
|
|
|
$3.97
|
|
12,250,000
|
|
$1.58
|
At December 31,
2017, the Company’s closing stock price was $0.265 per share. As all outstanding options had an exercise price greater than
$0.265 per share, there was no intrinsic value of the options outstanding at December 31, 2017.
The following table
summarizes options granted with vesting terms activity:
|
|
|
|
|
Weighted
|
|
|
|
|
|
Average
|
|
|
Number
of
|
|
|
Grant
Date
|
|
|
Shares
|
|
|
Fair
Value
|
Non-vested, December 31,
2015
|
—
|
|
$
|
—
|
|
Granted
|
—
|
|
|
—
|
|
Vested
|
—
|
|
|
—
|
|
Forfeited
|
—
|
|
|
—
|
Non-vested, December 31,
2016
|
—
|
|
$
|
—
|
|
Granted
|
420,000
|
|
|
1.00
|
|
Vested
|
(350,000)
|
|
|
1.00
|
|
Forfeited
|
—
|
|
|
—
|
Non-vested, December 31,
2017
|
70,000
|
|
$
|
1.00
|
Warrants:
The following table
summarizes common stock warrants activity:
|
|
|
|
Weighted
|
|
|
|
|
Average
|
|
|
|
|
Exercise
|
|
|
Warrants
|
|
Price
|
|
December
31, 2015
|
|
|
|
—
|
|
|
$
|
—
|
|
|
Granted
|
|
|
|
200,000
|
|
|
|
0.50
|
|
|
Exercised
|
|
|
|
—
|
|
|
|
—
|
|
|
Forfeited
|
|
|
|
—
|
|
|
|
—
|
|
|
Outstanding, December 31,
2016
|
|
|
|
200,000
|
|
|
$
|
0.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
1,700,000
|
|
|
|
1.06
|
|
|
Exercised
|
|
|
|
—
|
|
|
|
—
|
|
|
Forfeited
|
|
|
|
(200,000
|
)
|
|
|
050
|
|
|
Outstanding, December 31,
2017
|
|
|
|
1,700,000
|
|
|
$
|
1.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable, December 31,
2016
|
|
|
|
200,000
|
|
|
$
|
0.50
|
|
|
Exercisable, December 31,
2017
|
|
|
|
1,700,000
|
|
|
$
|
1.06
|
|
SPYR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
YEARS ENDING DECEMBER
31, 2017 AND 2016
In October and
November 2016, pursuant to advisory services agreement, the Company granted warrants to purchase a total of 200,000 shares of
restricted common stock with an exercise price of $0.50 and will expire 12 months after date of grant. The options are fully vested
and exercisable upon grant. Total fair value of the options at grant date amounted to $50,000 computed using the Black-Scholes
Option Pricing Model and was fully recognized on the date of grant.
In March 2017,
pursuant to an employee separation agreement, the Company granted warrants to purchase a total of 1,000,000 shares of restricted
common stock with an exercise price of $1.50 and $2.00 which will expire December 31, 2018. The warrants are fully vested and
exercisable upon grant. Total fair value of the warrants at grant date amounted to $290,000 computed using the Black-Scholes Option
Pricing Model and was fully recognized on the date of grant.
In October 2017,
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 will expire 12 months after date of grant. The options are fully vested and exercisable
upon grant. Total fair value of the options at grant date amounted to $20,000 computed using the Black-Scholes Option Pricing
Model and was fully recognized on the date of grant.
In October 2017,
pursuant to a services agreement, the Company granted warrants to purchase a total of 600,000 shares of restricted common stock
with an exercise price of $0.01 and will expire December 31, 2020. The options are fully vested and exercisable upon grant. Total
fair value of the options at grant date amounted to $188,000 computed using the Black-Scholes Option Pricing Model and was fully
recognized on the date of grant.
The weighted average
exercise prices, remaining lives for warrants granted, and exercisable as of December 31, 2017, were as follows:
|
|
Outstanding and Exercisable
Warrants
|
|
Warrants
|
|
|
|
|
|
Exercise Price
|
|
|
|
Life
|
|
Per Share
|
|
Shares
|
|
(Years)
|
|
$0.01
|
|
600,000
|
|
3.00
|
|
$0.50
|
|
100,000
|
|
0.83
|
|
$1.50
|
|
500,000
|
|
1.00
|
|
$2.00
|
|
500,000
|
|
1.00
|
|
|
|
1,700,000
|
|
|
|
At December 31,
2017, the Company’s closing stock price was $0.265 per share. As all outstanding warrants had an exercise price greater
than $0.265 per share, there was no intrinsic value of the warrants outstanding at December 31, 2017.
SPYR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
YEARS ENDING DECEMBER
31, 2017 AND 2016
The table below
represents the average assumptions used in valuing the stock options and warrants granted in fiscal 2016:
|
|
|
Year Ended
December 31,
|
|
|
|
|
2016
|
|
Expected life in years
|
|
|
0.61
– 3.0
|
|
Stock price volatility
|
|
|
132%
- 159%
|
|
Risk free interest rate
|
|
|
0.56
% - 1.54%
|
|
Expected dividends
|
|
|
—
|
|
Forfeiture rate
|
|
|
—
|
|
The table below
represents the average assumptions used in valuing the stock options and warrants granted in fiscal 2017:
|
|
|
Year Ended
December 31,
|
|
|
|
|
2017
|
|
Expected life in years
|
|
|
1.00
– 3.19
|
|
Stock price volatility
|
|
|
127% - 157%
|
|
Risk free interest rate
|
|
|
1.26 % - 1.70%
|
|
Expected dividends
|
|
|
—
|
|
Forfeiture rate
|
|
|
—
|
|
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.
NOTE 8 - 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.
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.
SPYR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
YEARS ENDING DECEMBER
31, 2017 AND 2016
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.
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, 2017, the 20,000
Class E preferred shares were convertible to 415,559 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 9 – DISCONTINUED OPERATIONS
Restaurant
Through our other
wholly owned subsidiary, E.A.J.: PHL Airport, Inc., we owned and operated the restaurant “Eat at Joe’s®,”
which was located in the Philadelphia International Airport since 1997. Our lease in the Philadelphia Airport expired in April
2017. Concurrent with expiration of the lease the restaurant closed. Pursuant to current accounting guidelines, the restaurant
segment is reported as discontinued operations.
The following table
summarizes the assets and liabilities of our discontinued restaurant segment's discontinued operations as of December 31, 2017
and December 31, 2016:
|
|
December 31, 2017
|
|
December 31, 2016
|
Assets:
|
|
|
|
|
|
|
|
|
Accounts receivable,
net
|
|
$
|
—
|
|
|
$
|
13,000
|
|
Inventory
|
|
|
—
|
|
|
|
12,000
|
|
Prepaid expenses
|
|
|
—
|
|
|
|
25,000
|
|
Property and equipment, net
|
|
|
—
|
|
|
|
30,000
|
|
Other
assets
|
|
|
—
|
|
|
|
16,000
|
|
Total Assets
|
|
$
|
—
|
|
|
$
|
96,000
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued liabilities
|
|
$
|
22,000
|
|
|
$
|
60,000
|
|
Total Liabilities
|
|
$
|
22,000
|
|
|
$
|
60,000
|
|
SPYR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
YEARS ENDING DECEMBER
31, 2017 AND 2016
The following table
summarizes the results of operations of our discontinued restaurant for the years ended December 31, 2017 and 2016 and is included
in the consolidated statements of operations as discontinued operations:
|
|
For the Year Ended December 31,
|
|
|
2017
|
|
2016
|
|
|
|
|
|
Revenues
|
|
$
|
420,000
|
|
|
$
|
1,413,000
|
|
Cost of sales
|
|
|
133,000
|
|
|
|
421,000
|
|
Gross
Margin
|
|
|
287,000
|
|
|
|
992,000
|
|
Expenses
|
|
|
|
|
|
|
|
|
Labor and related expenses
|
|
|
177,000
|
|
|
|
471,000
|
|
Rent
|
|
|
77,000
|
|
|
|
278,000
|
|
Depreciation and amortization
|
|
|
20,000
|
|
|
|
68,000
|
|
Professional fees
|
|
|
33,000
|
|
|
|
2,000
|
|
Other
general and administrative
|
|
|
102,000
|
|
|
|
198,000
|
|
Total
Operating Expenses
|
|
|
409,000
|
|
|
|
1,017,000
|
|
Operating
Income (Loss)
|
|
|
(122,000
|
)
|
|
|
(25,000
|
)
|
Other Income (Expense)
|
|
|
|
|
|
|
|
|
Loss on
disposal of assets
|
|
|
(10,000
|
)
|
|
|
—
|
|
Income (Loss) on discontinued
operations
|
|
$
|
(132,000
|
)
|
|
$
|
(25,000
|
)
|
Other
During the year
ended December 31, 2016, the Company incurred additional expenses of $4,000 related to the winding-up of its former subsidiary
Franklin Networks, Inc. The following table provides additional detail of these losses which are reflected as a loss on discontinued
operations.
|
|
December 31, 2016
|
Revenues
|
|
$
|
—
|
|
General and
administrative
|
|
|
4,000
|
|
Loss
from discontinued operations
|
|
$
|
(4,000
|
)
|
SPYR,
INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
YEARS ENDING DECEMBER
31, 2017 AND 2016
NOTE 10 – RESTATED FINANCIAL
STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2017 AND 2016
On July 12,
2018, the court approved a Joint Motion for Order Approving Settlement Agreement in the Zakeni Limited v. SPYR, Inc. case. Pursuant
to the settlement, the Company will issue to Zakeni Limited 3,500,000 common shares, warrants to purchase 1,000,000 common shares
at $0.25 per share, warrants to purchase 1,500,000 common shares at $0.50 per share, and warrants to purchase 1,000,000 common
shares at $0.75 per share. The shares and warrants were valued at the date the court signed the settlement agreement. The total
value of the settlements, $1,983,000 has been recorded as litigation settlement liability on the accompanying consolidated balance
sheets as of December 31, 2017 and 2016, with a corresponding charge to litigation settlement costs on the consolidated statement
of operations for the year ended December 31, 2016.
Analysis of the restated
December 31, 2016 and 2017 balance sheets and results of operations for the year then ended is as follows.
1
– The
Company recorded a litigation settlement liability on the 2016 and 2017 consolidated balance sheet in the amount of $1,983,000
(fair value of the 3,500,000 shares and 3,500,000 warrants).
2
– The
Company recorded litigation settlement costs on the 2016 consolidated statement of operations in the amount of $1,983,000 (fair
value of the 3,500,000 shares and 3,500,000 warrants).
3
– The
Company recorded a reduction in accounts payable and accrued liabilities on the 2017 consolidated balance sheet in the amount
of $350,000 (Pre-settlement estimated legal and trial costs).
4
– The
Company recorded a reduction in professional fees on the 2017 consolidated statement of operations in the amount of $350,000 to
remove the pre-settlement estimated legal and trial costs.
SPYR,
INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
YEARS ENDING
DECEMBER 31, 2017 AND 2016
|
|
December
31, 2016
|
ASSETS
|
|
|
As
Reported
|
|
|
|
Adjustment
|
|
|
|
As
Restated
|
|
Current Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
3,204,000
|
|
|
$
|
—
|
|
|
$
|
3,204,000
|
|
Accounts receivable, net
|
|
|
31,000
|
|
|
|
—
|
|
|
|
31,000
|
|
Other receivable
|
|
|
200,000
|
|
|
|
—
|
|
|
|
200,000
|
|
Prepaid expenses
|
|
|
25,000
|
|
|
|
—
|
|
|
|
25,000
|
|
Trading securities, at market value
|
|
|
59,000
|
|
|
|
—
|
|
|
|
59,000
|
|
Current assets of discontinued
operations
|
|
|
50,000
|
|
|
|
—
|
|
|
|
50,000
|
|
Total
Current Assets
|
|
|
3,569,000
|
|
|
|
—
|
|
|
|
3,569,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
181,000
|
|
|
|
—
|
|
|
|
181,000
|
|
Capitalized gaming assets and licensing rights,
net
|
|
|
40,000
|
|
|
|
—
|
|
|
|
40,000
|
|
Intangible assets, net
|
|
|
18,000
|
|
|
|
—
|
|
|
|
18,000
|
|
Other assets
|
|
|
6,000
|
|
|
|
—
|
|
|
|
6,000
|
|
Non-current assets of discontinued
operations
|
|
|
46,000
|
|
|
|
—
|
|
|
|
46,000
|
|
TOTAL ASSETS
|
|
$
|
3,860,000
|
|
|
$
|
—
|
|
|
$
|
3,860,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
$
|
116,000
|
|
|
$
|
—
|
|
|
$
|
116,000
|
|
Litigation Settlement Liability
|
|
|
—
|
|
|
|
1,983,000
|
|
1
|
|
1,983,000
|
|
Current liabilities of discontinued
operations
|
|
|
60,000
|
|
|
|
—
|
|
|
|
60,000
|
|
Total
Current Liabilities
|
|
|
176,000
|
|
|
|
1,983,000
|
|
|
|
2,159,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities
|
|
|
176,000
|
|
|
|
1,983,000
|
|
|
|
2,159,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMMITMENTS AND CONTINGENCIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock, $0.0001 par value, 10,000,000 shares authorized
|
|
|
|
|
|
|
|
|
|
|
|
|
107,636 Class A shares issued
and outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
as of December 31, 2017 and 2016
|
|
|
11
|
|
|
|
—
|
|
|
|
11
|
|
20,000 Class E shares issued and
outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
as of December 31, 2017 and 2016
|
|
|
2
|
|
|
|
—
|
|
|
|
2
|
|
Common Stock, $0.0001 par value, 750,000,000 shares authorized
|
|
|
|
|
|
|
|
|
|
|
|
|
181,128,950 and 157,637,026 shares issued and
outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
as of December 31, 2017 and 2016
|
|
|
15,763
|
|
|
|
—
|
|
|
|
15,763
|
|
Additional paid-in capital
|
|
|
34,752,224
|
|
|
|
—
|
|
|
|
34,752,224
|
|
Accumulated deficit
|
|
|
(31,084,000
|
)
|
|
|
(1,983,000
|
)
|
|
|
(33,067,000
|
)
|
Total
Stockholders’ Equity
|
|
|
3,684,000
|
|
|
|
(1,983,000
|
)
|
|
|
1,701,000
|
|
TOTAL LIABILITIES AND STOCKHOLDERS’
EQUITY
|
|
$
|
3,860,000
|
|
|
$
|
—
|
|
|
$
|
3,860,000
|
|
SPYR, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
YEARS ENDING
DECEMBER 31, 2017 AND 2016
|
|
December
31, 2016
|
|
|
|
As
Reported
|
|
|
|
Adjustment
|
|
|
|
As
Restated
|
|
Revenues
|
|
$
|
139,000
|
|
|
$
|
—
|
|
|
$
|
139,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Labor and related expenses
|
|
|
1,467,000
|
|
|
|
—
|
|
|
|
1,467,000
|
|
Rent
|
|
|
146,000
|
|
|
|
—
|
|
|
|
146,000
|
|
Depreciation and amortization
|
|
|
98,000
|
|
|
|
—
|
|
|
|
98,000
|
|
Professional fees
|
|
|
3,292,000
|
|
|
|
—
|
|
|
|
3,292,000
|
|
Research and development
|
|
|
1,151,000
|
|
|
|
—
|
|
|
|
1,151,000
|
|
Other general and administrative
|
|
|
740,000
|
|
|
|
—
|
|
|
|
740,000
|
|
Cost of acquisition option
|
|
|
472,000
|
|
|
|
—
|
|
|
|
472,000
|
|
Total
Operating Expenses
|
|
|
7,366,000
|
|
|
|
—
|
|
|
|
7,366,000
|
|
Operating
Loss
|
|
|
(7,227,000
|
)
|
|
|
—
|
|
|
|
(7,227,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income (Expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and dividend income
|
|
|
18,000
|
|
|
|
—
|
|
|
|
18,000
|
|
Litigation settlement costs
|
|
|
—
|
|
|
|
(1,983,000
|
)
|
2
|
|
(1,983,000
|
)
|
Unrealized gain (loss) on trading securities
|
|
|
(57,000
|
)
|
|
|
—
|
|
|
|
(57,000
|
)
|
Loss on sale of marketable securities
|
|
|
(95,000
|
)
|
|
|
—
|
|
|
|
(95,000
|
)
|
Total
Other Expense
|
|
|
(134,000
|
)
|
|
|
(1,983,000
|
)
|
|
|
(2,117,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
|
(7,361,000
|
)
|
|
|
(1,983,000
|
)
|
|
|
(9,344,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on discontinued operations
|
|
|
(29,000
|
)
|
|
|
—
|
|
|
|
(29,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
$
|
(7,390,000
|
)
|
|
$
|
(1,983,000
|
)
|
|
$
|
(9,373,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per Share Amounts
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted earnings
per share
|
|
$
|
(0.05
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.06
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted earnings
per share
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted earnings
per share
|
|
$
|
(0.05
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.06
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Common Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and Diluted
|
|
|
154,092,844
|
|
|
|
—
|
|
|
|
154,092,844
|
|
SPYR,
INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
YEARS ENDING
DECEMBER 31, 2017 AND 2016
|
|
December
31, 2017
|
ASSETS
|
|
|
As
Reported
|
|
|
|
Adjustment
|
|
|
|
As
Restated
|
|
Current Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
86,000
|
|
|
$
|
—
|
|
|
$
|
86,000
|
|
Accounts receivable, net
|
|
|
4,000
|
|
|
|
—
|
|
|
|
4,000
|
|
Prepaid expenses
|
|
|
35,000
|
|
|
|
—
|
|
|
|
35,000
|
|
Trading securities, at market
value
|
|
|
48,000
|
|
|
|
—
|
|
|
|
48,000
|
|
Total
Current Assets
|
|
|
173,000
|
|
|
|
—
|
|
|
|
173,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
134,000
|
|
|
|
—
|
|
|
|
134,000
|
|
Capitalized gaming assets and licensing rights,
net
|
|
|
743,000
|
|
|
|
—
|
|
|
|
743,000
|
|
Intangible assets, net
|
|
|
12,000
|
|
|
|
—
|
|
|
|
12,000
|
|
Other assets
|
|
|
16,000
|
|
|
|
—
|
|
|
|
16,000
|
|
TOTAL ASSETS
|
|
$
|
1,078,000
|
|
|
$
|
—
|
|
|
$
|
1,078,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
$
|
878,000
|
|
|
$
|
(350,000
|
)
|
3
|
$
|
528,000
|
|
Litigation Settlement Liability
|
|
|
—
|
|
|
|
1,983,000
|
|
1
|
|
1,983,000
|
|
Current liabilities of discontinued
operations
|
|
|
22,000
|
|
|
|
—
|
|
|
|
22,000
|
|
Total
Current Liabilities
|
|
|
900,000
|
|
|
|
1,633,000
|
|
|
|
2,533,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current related party
line of credit
|
|
|
807,000
|
|
|
|
—
|
|
|
|
807,000
|
|
Total
Liabilities
|
|
|
1,707,000
|
|
|
|
1,633,000
|
|
|
|
3,340,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMMITMENTS AND CONTINGENCIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock, $0.0001 par value, 10,000,000 shares authorized
|
|
|
|
|
|
|
|
|
|
|
|
|
107,636 Class A shares issued
and outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
as of December 31, 2017 and 2016
|
|
|
11
|
|
|
|
—
|
|
|
|
11
|
|
20,000 Class E shares issued and
outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
as of December 31, 2017 and 2016
|
|
|
2
|
|
|
|
—
|
|
|
|
2
|
|
Common Stock, $0.0001 par value, 750,000,000 shares authorized
|
|
|
|
|
|
|
|
|
|
|
|
|
181,128,950 and 157,637,026 shares issued and
outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
as of December 31, 2017 and 2016
|
|
|
18,112
|
|
|
|
—
|
|
|
|
18,112
|
|
Additional paid-in capital
|
|
|
46,561,875
|
|
|
|
—
|
|
|
|
46,561,875
|
|
Accumulated deficit
|
|
|
(47,209,000
|
)
|
|
|
(1,633,000
|
)
|
|
|
(48,842,000
|
)
|
Total
Stockholders’ Equity
|
|
|
(629,000
|
)
|
|
|
(1,633,000
|
)
|
|
|
(2,262,000
|
)
|
TOTAL LIABILITIES AND STOCKHOLDERS’
EQUITY
|
|
$
|
1,078,000
|
|
|
$
|
—
|
|
|
$
|
1,078,000
|
|
SPYR,
INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
YEARS ENDING
DECEMBER 31, 2017 AND 2016
|
|
December
31, 2017
|
|
|
|
As
Reported
|
|
|
|
Adjustment
|
|
|
|
As
Restated
|
|
Revenues
|
|
$
|
128,000
|
|
|
$
|
—
|
|
|
$
|
128,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Labor and related expenses
|
|
|
2,358,000
|
|
|
|
—
|
|
|
|
2,358,000
|
|
Rent
|
|
|
186,000
|
|
|
|
—
|
|
|
|
186,000
|
|
Depreciation and amortization
|
|
|
105,000
|
|
|
|
—
|
|
|
|
105,000
|
|
Professional fees
|
|
|
5,905,000
|
|
|
|
(350,000
|
)
|
4
|
|
5,555,000
|
|
Research and development
|
|
|
1,666,000
|
|
|
|
—
|
|
|
|
1,666,000
|
|
Other general and administrative
|
|
|
502,000
|
|
|
|
—
|
|
|
|
502,000
|
|
Total
Operating Expenses
|
|
|
10,722,000
|
|
|
|
(350,000
|
)
|
|
|
10,372,000
|
|
Operating
Loss
|
|
|
(10,594,000
|
)
|
|
|
350,000
|
|
|
|
(10,244,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income (Expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and dividend income
|
|
|
4,000
|
|
|
|
—
|
|
|
|
4,000
|
|
Interest Expense
|
|
|
(11,000
|
)
|
|
|
—
|
|
|
|
(11,000
|
)
|
Loss on write-down of assets
|
|
|
(5,381,000
|
)
|
|
|
—
|
|
|
|
(5,381,000
|
)
|
Unrealized gain (loss) on
trading securities
|
|
|
(11,000
|
)
|
|
|
—
|
|
|
|
(11,000
|
)
|
Total
Other Expense
|
|
|
(5,399,000
|
)
|
|
|
—
|
|
|
|
(5,399,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
|
(15,993,000
|
)
|
|
|
350,000
|
|
|
|
(15,643,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on discontinued operations
|
|
|
(132,000
|
)
|
|
|
—
|
|
|
|
(132,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
$
|
(16,125,000
|
)
|
|
$
|
350,000
|
|
|
$
|
(15,775,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per Share Amounts
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted earnings
per share
|
|
$
|
(0.10
|
)
|
|
$
|
0.01
|
|
|
$
|
(0.09
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted earnings
per share
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted earnings
per share
|
|
$
|
(0.10
|
)
|
|
$
|
0.01
|
|
|
$
|
(0.09
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Common Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and Diluted
|
|
|
166,443,807
|
|
|
|
—
|
|
|
|
166,443,807
|
|
SPYR,
INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
YEARS ENDING
DECEMBER 31, 2017 AND 2016
NOTE 11 - SUBSEQUENT EVENTS
During period
from January through August 14, 2018, the Company issued 6.7 million shares of common stock for cash of $905,000
pursuant to various private placement agreements.
During period
from January through August 14, 2018, the Company issued 5.9 million shares of common stock pursuant
to various third-party service agreements.
On February 1,
2018, the Company issued 1.25 million shares of common stock with a fair value of $625,000 pursuant to existing employment and
consulting agreements.
On April 20,
2018, the Company signed a convertible promissory note with a third-party lender for up to $475,000 (net of original issue discount
of $25,000). The note is for 12 months with interest at 8% per annum on the unpaid principal amount. The note holder has the right,
at any time on or after 181 calendar days after the date of the note, to convert all or any portion of the outstanding principal
and interest into the Company’s restricted common stock at $0.20 per share. On April 26, 2018 the Company borrowed $150,000
on this note.
On May 22, 2018,
the Company signed a convertible promissory note with a third-party lender for up to $250,000 (net of original issue discount
of $25,000). The note is for 8 months with a one-time interest charge of 8% on the issuance date outstanding balance. The note
holder has the right, at any time on or after the issuance date, to convert all or any portion of the outstanding principal and
interest into the Company’s restricted common stock at $0.25 per share. On May 22, 2018 the Company borrowed $250,000 on
this note.
On May 23, 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.
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. The total value of the settlement, $1,983,000 has been recorded as litigation
settlement liability on the accompanying consolidated balance sheets as of December 31, 2017 and 2016, with a corresponding charge
to litigation settlement costs on the consolidated statement of operations for the year ended December 31, 2016.
Index to Condensed Consolidated Financial Statements (Unaudited)
|
|
Page
|
Condensed Consolidated Balance Sheets as of September 30, 2018 and December 31, 2017
|
|
F-33
|
Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2018 and 2017
|
|
F-34
|
Condensed Consolidated Statements of Stockholders’ Equity for the nine months ended September 30, 2018
|
|
F-35
|
Condensed Consolidated Statements of Cash Flows, for the nine months ended September 30, 2018 and 2017
|
|
F-36
|
Notes to Condensed Consolidated Financial Statements
|
|
F-38
|
SPYR,
INC., AND SUBSIDIARIES
|
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
(Unaudited)
|
|
|
|
|
|
|
|
|
September
30, 2018
|
|
|
|
December
31, 2017
|
|
ASSETS
|
|
|
|
|
|
|
(Restated)
|
|
Current
Assets:
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
42,000
|
|
|
$
|
86,000
|
|
Accounts
receivable, net
|
|
|
83,000
|
|
|
|
4,000
|
|
Prepaid
expenses
|
|
|
26,000
|
|
|
|
35,000
|
|
Trading
securities, at market value
|
|
|
12,000
|
|
|
|
48,000
|
|
Total
Current Assets
|
|
|
163,000
|
|
|
|
173,000
|
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net
|
|
|
103,000
|
|
|
|
134,000
|
|
Capitalized
gaming assets and licensing rights, net
|
|
|
716,000
|
|
|
|
743,000
|
|
Intangible
assets, net
|
|
|
10,000
|
|
|
|
12,000
|
|
Other
assets
|
|
|
6,000
|
|
|
|
16,000
|
|
TOTAL
ASSETS
|
|
$
|
998,000
|
|
|
$
|
1,078,000
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' (DEFICIT)
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued liabilities
|
|
$
|
901,000
|
|
|
$
|
528,000
|
|
Related
party short-term advances
|
|
|
180,000
|
|
|
|
—
|
|
Related
party line of credit
|
|
|
1,052,000
|
|
|
|
—
|
|
Convertible
note payable, net
|
|
|
302,000
|
|
|
|
—
|
|
Litigation
settlement liability
|
|
|
—
|
|
|
|
1,983,000
|
|
Current
liabilities of discontinued operations
|
|
|
22,000
|
|
|
|
22,000
|
|
Total
Current Liabilities
|
|
|
2,457,000
|
|
|
|
2,533,000
|
|
|
|
|
|
|
|
|
|
|
Non-current
related party line of credit
|
|
|
—
|
|
|
|
807,000
|
|
Total
Liabilities
|
|
|
2,457,000
|
|
|
|
3,340,000
|
|
COMMITMENTS
AND CONTINGENCIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’
(DEFICIT)
|
|
|
|
|
|
|
|
|
Preferred
stock, $0.0001 par value, 10,000,000 shares authorized
|
|
|
|
|
|
|
|
|
107,636
Class A shares issued and outstanding
|
|
|
|
|
|
|
|
|
as
of September 30, 2018 and December 31, 2017
|
|
|
11
|
|
|
|
11
|
|
20,000
Class E shares issued and outstanding
|
|
|
|
|
|
|
|
|
as
of September 30, 2018 and December 31, 2017
|
|
|
2
|
|
|
|
2
|
|
Common
Stock, $0.0001 par value, 750,000,000 shares authorized
|
|
|
|
|
|
|
|
|
198,545,231
and 181,128,950 shares issued and outstanding
|
|
|
|
|
|
|
|
|
as
of September 30, 2018 and December 31, 2017
|
|
|
19,854
|
|
|
|
18,112
|
|
Additional
paid-in capital
|
|
|
53,311,133
|
|
|
|
46,561,875
|
|
Accumulated
deficit
|
|
|
(54,790,000
|
)
|
|
|
(48,842,000
|
)
|
Total
Stockholders’ (Deficit)
|
|
|
(1,459,000
|
)
|
|
|
(2,262,000
|
)
|
TOTAL
LIABILITIES AND STOCKHOLDERS’ (DEFICIT)
|
|
$
|
998,000
|
|
|
$
|
1,078,000
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these condensed consolidated financial statements.
|
SPYR,
INC., AND SUBSIDIARIES
|
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the Three Months Ended
September 30,
|
|
|
|
For
the Nine Months Ended
September 30,
|
|
|
|
|
2018
|
|
|
|
2017
|
|
|
|
2018
|
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Game
Revenues
|
|
$
|
116,000
|
|
|
$
|
26,000
|
|
|
$
|
143,000
|
|
|
$
|
110,000
|
|
Related
Party Service Revenues
|
|
|
80,000
|
|
|
|
—
|
|
|
|
80,000
|
|
|
|
—
|
|
Gross
Margin
|
|
|
196,000
|
|
|
|
26,000
|
|
|
|
223,000
|
|
|
|
110,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Labor
and related expenses
|
|
|
191,000
|
|
|
|
387,000
|
|
|
|
1,312,000
|
|
|
|
2,065,000
|
|
Rent
|
|
|
37,000
|
|
|
|
51,000
|
|
|
|
125,000
|
|
|
|
138,000
|
|
Depreciation
and amortization
|
|
|
28,000
|
|
|
|
44,000
|
|
|
|
85,000
|
|
|
|
89,000
|
|
Professional
fees
|
|
|
445,000
|
|
|
|
2,000,000
|
|
|
|
3,519,000
|
|
|
|
4,892,000
|
|
Research
and development
|
|
|
137,000
|
|
|
|
542,000
|
|
|
|
590,000
|
|
|
|
1,202,000
|
|
Other
general and administrative
|
|
|
154,000
|
|
|
|
118,000
|
|
|
|
381,000
|
|
|
|
426,000
|
|
Total
Operating Expenses
|
|
|
992,000
|
|
|
|
3,142,000
|
|
|
|
6,012,000
|
|
|
|
8,812,000
|
|
Operating
Loss
|
|
|
(796,000
|
)
|
|
|
(3,116,000
|
)
|
|
|
(5,789,000
|
)
|
|
|
(8,702,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Income (Expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
and dividend income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,000
|
|
Interest
Expense
|
|
|
(135,000
|
)
|
|
|
—
|
|
|
|
(239,000
|
)
|
|
|
—
|
|
Gain
on cancellation of shares
|
|
|
5,000
|
|
|
|
—
|
|
|
|
118,000
|
|
|
|
—
|
|
Unrealized
loss on trading securities
|
|
|
(7,000
|
)
|
|
|
(10,000
|
)
|
|
|
(36,000
|
)
|
|
|
(37,000
|
)
|
Total
Other Expense
|
|
|
(137,000
|
)
|
|
|
(10,000
|
)
|
|
|
(157,000
|
)
|
|
|
(33,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from continuing operations
|
|
|
(933,000
|
)
|
|
|
(3,126,000
|
)
|
|
|
(5,946,000
|
)
|
|
|
(8,735,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
on discontinued operations
|
|
|
—
|
|
|
|
(28,000
|
)
|
|
|
(2,000
|
)
|
|
|
(132,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
$
|
(933,000
|
)
|
|
$
|
(3,154,000
|
)
|
|
$
|
(5,948,000
|
)
|
|
$
|
(8,867,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per Share Amounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and Diluted earnings per share
|
|
$
|
—
|
|
|
$
|
(0.02
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
(0.05
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
on discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and Diluted earnings per share
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and Diluted earnings per share
|
|
$
|
—
|
|
|
$
|
(0.02
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
(0.05
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Common
Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and Diluted
|
|
|
198,811,004
|
|
|
|
166,052,129
|
|
|
|
192,273,878
|
|
|
|
162,287,753
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these condensed consolidated financial statements.
|
|
SPYR,
INC., AND SUBSIDIARIES
|
CONDENSED
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
|
NINE MONTHS
ENDED SEPTEMBER 30, 2018
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
Stock
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
Class
A
|
|
Class
E
|
|
Common
Stock
|
|
Paid-in
|
|
Accumulated
|
|
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Deficit
|
|
Total
|
Balance
at December 31, 2017 (Restated)
|
|
|
107,636
|
|
|
$
|
11
|
|
|
|
20,000
|
|
|
$
|
2
|
|
|
|
181,128,950
|
|
|
$
|
18,112
|
|
|
$
|
46,561,875
|
|
|
$
|
(48,842,000
|
)
|
|
$
|
(2,262,000
|
)
|
Common
stock issued to related party for cash
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
500,000
|
|
|
|
50
|
|
|
|
49,950
|
|
|
|
—
|
|
|
|
50,000
|
|
Common
stock issued for cash
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
6,200,000
|
|
|
|
620
|
|
|
|
854,380
|
|
|
|
—
|
|
|
|
855,000
|
|
Fair
value of common stock issued for employee compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,250,000
|
|
|
|
125
|
|
|
|
624,875
|
|
|
|
—
|
|
|
|
625,000
|
|
Fair
value of common stock, options and warrants issued for services
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
6,608,781
|
|
|
|
661
|
|
|
|
2,349,339
|
|
|
|
—
|
|
|
|
2,350,000
|
|
Vesting
of options and warrants granted for services
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
743,000
|
|
|
|
—
|
|
|
|
743,000
|
|
Common
stock cancelled on termination of service agreement
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(642,500
|
)
|
|
|
(64
|
)
|
|
|
(117,936
|
)
|
|
|
—
|
|
|
|
(118,000
|
)
|
Fair
value of common stock and warrants issued for litigation settlement
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,500,000
|
|
|
|
350
|
|
|
|
1,982,650
|
|
|
|
—
|
|
|
|
1,983,000
|
|
Debt
discount on convertible notes payable
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
263,000
|
|
|
|
—
|
|
|
|
263,000
|
|
Net
loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(5,948,000
|
)
|
|
|
(5,948,000
|
)
|
Balance
at September 30, 2018
|
|
|
107,636
|
|
|
$
|
11
|
|
|
|
20,000
|
|
|
$
|
2
|
|
|
|
198,545,231
|
|
|
$
|
19,854
|
|
|
$
|
53,311,133
|
|
|
$
|
(54,790,000
|
)
|
|
$
|
(1,459,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these condensed consolidated financial statements.
|
SPYR, INC.,
AND SUBSIDIARIES
|
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
(Unaudited)
|
|
|
|
|
|
|
|
For
the Nine Months Ended
September 30,
|
|
|
2018
|
|
2017
|
Cash
Flows From Operating Activities:
|
|
|
|
|
|
|
|
|
Net
loss for the period
|
|
$
|
(5,948,000
|
)
|
|
$
|
(8,867,000
|
)
|
Adjustments
to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Loss
on discontinued operations
|
|
|
2,000
|
|
|
|
132,000
|
|
Depreciation
and amortization
|
|
|
85,000
|
|
|
|
90,000
|
|
Common
stock issued for employee compensation
|
|
|
625,000
|
|
|
|
999,000
|
|
Common
stock, options and warrants issued for services
|
|
|
2,350,000
|
|
|
|
3,518,000
|
|
Vesting
of options and warrants granted for services
|
|
|
743,000
|
|
|
|
647,000
|
|
Gain
on cancellation of common stock
|
|
|
(118,000
|
)
|
|
|
—
|
|
Vesting
of shares of common stock issued for services
|
|
|
—
|
|
|
|
46,000
|
|
Debt
discount on convertible notes payable
|
|
|
147,000
|
|
|
|
—
|
|
Unrealized
loss on trading securities
|
|
|
36,000
|
|
|
|
37,000
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Decrease
(increase) in accounts receivables
|
|
|
(79,000
|
)
|
|
|
19,000
|
|
Decrease
in other receivables
|
|
|
—
|
|
|
|
100,000
|
|
Decrease
(increase) in prepaid expenses
|
|
|
9,000
|
|
|
|
(31,000
|
)
|
Decrease
(increase) in other assets
|
|
|
10,000
|
|
|
|
(11,000
|
)
|
Increase
in accounts payable and accrued liabilities
|
|
|
373,000
|
|
|
|
68,000
|
|
Increase
in accrued interest on short-term advances - related party
|
|
|
2,000
|
|
|
|
—
|
|
Increase
in accrued interest on line of credit - related party
|
|
|
45,000
|
|
|
|
—
|
|
Increase
in accrued interest on convertible notes payable
|
|
|
18,000
|
|
|
|
—
|
|
Net
Cash Used in Operating Activities from Continuing Operations
|
|
|
(1,700,000
|
)
|
|
|
(3,253,000
|
)
|
Net
Cash Used in Operating Activities from Discontinued Operations
|
|
|
(2,000
|
)
|
|
|
(66,000
|
)
|
Net
Cash Used in Operating Activities
|
|
|
(1,702,000
|
)
|
|
|
(3,319,000
|
)
|
|
|
|
|
|
|
|
|
|
Cash
Flows From Investing Activities:
|
|
|
|
|
|
|
|
|
Purchase
of licensing rights
|
|
|
(25,000
|
)
|
|
|
(100,000
|
)
|
Net
Cash Used in Investing Activities
|
|
|
(25,000
|
)
|
|
|
(100,000
|
)
|
|
|
|
|
|
|
|
|
|
Cash
Flows From Financing Activities:
|
|
|
|
|
|
|
|
|
Proceeds
from sale of common stock
|
|
|
905,000
|
|
|
|
300,000
|
|
Proceeds
from short-term advances - related party
|
|
|
178,000
|
|
|
|
—
|
|
Proceeds
from line of credit - related party
|
|
|
200,000
|
|
|
|
200,000
|
|
Proceeds
from convertible notes payable
|
|
|
400,000
|
|
|
|
—
|
|
Net
Cash Provided by Financing Activities
|
|
|
1,683,000
|
|
|
|
500,000
|
|
|
|
|
|
|
|
|
|
|
Net
Decrease in Cash
|
|
|
(44,000
|
)
|
|
|
(2,919,000
|
)
|
Cash
and cash equivalents at beginning of period
|
|
|
86,000
|
|
|
|
3,204,000
|
|
Cash
and cash equivalents at end of period
|
|
$
|
42,000
|
|
|
$
|
285,000
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these condensed consolidated financial statements.
|
SPYR, INC.,
AND SUBSIDIARIES
|
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
(Unaudited)(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the Nine Months Ended
September 30,
|
|
|
|
|
2018
|
|
|
|
2017
|
|
Supplemental
Disclosure of Interest and Income Taxes Paid:
|
|
|
|
|
|
|
|
|
Interest
paid during the period
|
|
$
|
—
|
|
|
$
|
—
|
|
Income
taxes paid during the period
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Supplemental
Disclosure of Non-cash Investing and Financing Activities:
|
|
|
|
|
|
|
|
|
Reclassification
of other assets to capitalized licensing rights
|
|
$
|
—
|
|
|
$
|
100,000
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these condensed consolidated financial statements.
|
SPYR, INC. AND
SUBSIDIARIES
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
Nine Months Ended
September 30, 2018 and 2017
(Unaudited)
NOTE 1 - ORGANIZATION AND SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
Interim Financial Statements
The accompanying
condensed consolidated financial statements are unaudited. These unaudited interim condensed consolidated financial statements
have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”)
and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial
reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with
GAAP have been condensed or omitted pursuant to such rules and regulations. Accordingly, these interim condensed consolidated
financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the
Company’s Annual Report on Form 10-K/A for the fiscal year ended December 31, 2017 filed with the SEC. The condensed consolidated
balance sheet as of December 31, 2017 included herein was derived from the audited consolidated financial statements as of that
date, but does not include all disclosures, including notes, required by GAAP.
In the opinion
of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments necessary to fairly
present the Company's financial position and results of operations for the interim periods reflected. Except as noted, all adjustments
contained herein are of a normal recurring nature. Results of operations for the fiscal periods presented herein are not necessarily
indicative of fiscal year-end results.
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 subsidiary, SPYR APPS, LLC we operate our mobile games and applications business. The focus of the SPYR APPS subsidiary
is the development and publication of our own mobile games as well as the publication of games developed by third-party developers.
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 7), 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.
SPYR, INC. AND
SUBSIDIARIES
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
Nine Months Ended
September 30, 2018 and 2017
(Unaudited)
As shown in
the accompanying financial statements, for the nine months ended September 30, 2018, the Company recorded a net loss from continuing
operations of $5,946,000 and utilized cash in continuing operations of $1,700,000. As of September 30, 2018, our cash balance
was $42,000 and we had trading securities of $12,000. These issues raise substantial doubt about the Company’s ability to
continue as a going concern.
The Company
plans to expand its mobile games and application development and publishing activities, such as Pocket Starships and
Steven
Universe
: Tap Together, through acquisition and/or development of its own intellectual property and publishing agreements
with developers.
Historically,
we have financed our operations primarily through private sales of our trading securities, through sales of our common stock,
and through related party loans. If our sales goals for our products do not materialize as planned, we believe that the Company
can reduce its operating and product development costs that would allow us to maintain sufficient cash levels to continue operations.
However, if we are not able to achieve profitable operations at some point in the future, we may have insufficient working capital
to maintain our operations as we presently intend to conduct them or to fund our expansion, marketing, and product development
plans.
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 the next twelve months. 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.
The basic and
fully diluted shares for the nine months ended September 30, 2018 are the same because the inclusion of the potential shares (Class
A – 26,909,028, Class E – 412,099, Options – 13,740,000, Warrants – 8,800,000) would have had an anti-dilutive
effect due to the Company generating a loss for the nine months ended September 30, 2018.
The basic and
fully diluted shares for the three months ended September 30, 2018 are the same because the inclusion of the potential shares
(Class A – 26,909,028, Class E – 412.099, Options – 13,740,000, Warrants – 8,800,000) would have had an
anti-dilutive effect due to the Company generating a loss for the three months ended September 30, 2018.
SPYR, INC. AND
SUBSIDIARIES
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
Nine Months Ended
September 30, 2018 and 2017
(Unaudited)
The basic and
fully diluted shares for the nine months ended September 30, 2017 are the same because the inclusion of the potential shares (Class
A – 26,909,028, Class E – 318,654, Options – 6,270,000, Warrants – 1,200,000) would have had an anti-dilutive
effect due to the Company generating a loss for the nine months ended September 30, 2017.
The basic and
fully diluted shares for the three months ended September 30, 2017 are the same because the inclusion of the potential shares
(Class A – 26,909,028, Class E – 318,654, Options – 6,270,000, Warrants – 1,200,000) would have had an
anti-dilutive effect due to the Company generating a loss for the three months ended September 30, 2017.
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 eight million shares of the Company’s restricted common stock valued at $3,200,000,
options to purchase up to eight million 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. The difference between purchase price
and the capitalized value was recorded as loss on write down on assets during 4
th
quarter 2017. The Company amortizes
the capitalized cost on a straight-line basis over an estimated life of seven to ten years.
Further, the
options previously issued pursuant to a purchase option agreement dated June 25, 2016, which provided for the option to purchase
up to three million, seven hundred and fifty thousand shares of Registrant’s common stock, are fully vested and remain in
effect in accordance with the terms of the purchase option agreement.
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 in to future updates to and expansions of the Pocket
Starships game. The Company estimates that the IP will have an estimated life of 1.6 years, which approximates the term of the
license.
During the 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.
SPYR, INC. AND
SUBSIDIARIES
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
Nine Months Ended
September 30, 2018 and 2017
(Unaudited)
In addition,
we also acquired the game titled Battlewack: Idle Lords for $100,000, pursuant to settlement with the game owner and developer.
Battlewack: Idle Lords requires additional development before it can be released.
During the three
and nine months ended September 30, 2018, the Company recorded amortization expense of $19,000 and $53,000, respectively. As of
September 30, 2018 and December 31, 2017, the unamortized capitalized gaming assets and licensing rights amounted to $716,000
and $743,000 respectively.
Software Development Costs
Costs incurred
for software development are expensed as incurred. During the nine months ended September 30, 2018 and 2017, the Company incurred
$590,000 and $1,202,000 in software development costs paid to independent gaming software developers.
During the three
months ended September 30, 2018 and 2017, the Company incurred $137,000 and $542,000 in software development costs paid to independent
gaming software developers.
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 replace 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 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 Apple, 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.
SPYR, INC. AND
SUBSIDIARIES
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
Nine Months Ended
September 30, 2018 and 2017
(Unaudited)
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.
Service
Revenues
We recently
offered professional legal and accounting services to a related Limited Liability Company (see note 4). 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 recognized service revenue upon completion of the service and billing of the
client.
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 is in the process of evaluating the impact of ASU 2016-02 on the Company’s financial statements and
disclosures.
In July 2017,
the FASB issued Accounting Standards Update (ASU) No. 2017-11,
Earnings Per Share (Topic 260); Distinguishing Liabilities from
Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round
Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic
Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception.
(“ASU
2017-11”). ASU 2017-11 allows companies to exclude a down round feature when determining whether a financial instrument
is considered indexed to the entity’s own stock. As a result, financial instruments with down round features are no longer
classified as liabilities and embedded conversion options with down round features are no longer bifurcated. For equity-classified
freestanding financial instruments, such as warrants, an entity will treat the value of the effect of the down round, when triggered,
as a dividend and a reduction of income available to common shareholders in computing basic earnings per share. For convertible
instruments with embedded conversion options that have down round features, an entity will recognize the intrinsic value of the
feature only when the feature becomes beneficial. The guidance in ASU 2017-11 is effective for fiscal years beginning after December
15, 2018, and interim periods within those fiscal years. Early adoption is permitted. We early adopted ASU 2017-11 effective January
1, 2018 without a material impact on our 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.
SPYR, INC. AND
SUBSIDIARIES
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
Nine Months Ended
September 30, 2018 and 2017
(Unaudited)
NOTE 2 - TRADING SECURITIES
Investments
in securities are summarized as follows:
|
|
Fair Value
at
|
|
Gain on
|
|
Unrealized
|
|
Fair Value
at
|
Year
|
|
Beginning
of Year
|
|
Sale
|
|
Loss
|
|
September
30, 2018
|
|
2018
|
|
|
$
|
48,000
|
|
|
$
|
—
|
|
|
$
|
(36,000
|
)
|
|
$
|
12,000
|
|
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
|
|
|
September
30, 2018
|
|
(Level
1)
|
|
(Level
2)
|
|
(Level
3)
|
Trading
securities
|
|
$ 12,000
|
|
$ 12,000
|
|
$ —
|
|
$ —
|
Money
market funds
|
|
1,000
|
|
1,000
|
|
—
|
|
—
|
Total
|
|
$ 13,000
|
|
$ 13,000
|
|
$ —
|
|
$ —
|
|
|
|
|
Fair
Value Measurements at Reporting Date Using
|
|
|
|
|
Quoted
Prices
|
|
Significant
|
|
Significant
|
|
|
|
|
in
Active
|
|
Other
|
|
Unobservable
|
|
|
Fair
Value at
|
|
Markets
|
|
Observable
Inputs
|
|
Inputs
|
|
|
December
31, 2017
|
|
(Level
1)
|
|
(Level
2)
|
|
(Level
3)
|
Trading
securities
|
|
$ 48,000
|
|
$ 48,000
|
|
$ —
|
|
$ —
|
Money
market funds
|
|
36,000
|
|
36,000
|
|
—
|
|
—
|
Total
|
|
$ 84,000
|
|
$ 84,000
|
|
$ —
|
|
$
—
|
Generally, for
all trading securities and available-for-sale securities, fair value is determined by reference to quoted market prices (level
1).
SPYR, INC. AND
SUBSIDIARIES
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
Nine Months Ended
September 30, 2018 and 2017
(Unaudited)
NOTE 3 – PROPERTY AND
EQUIPMENT
Property and
equipment consisted of the following:
|
|
September
30, 2018
|
|
December
31, 2017
|
|
|
|
|
|
Equipment
|
|
$
|
28,000
|
|
|
$
|
28,000
|
|
Furniture
& fixtures
|
|
|
114,000
|
|
|
|
114,000
|
|
Leasehold
improvements
|
|
|
107,000
|
|
|
|
107,000
|
|
|
|
|
249,000
|
|
|
|
249,000
|
|
Less:
accumulated depreciation and amortization
|
|
|
(146,000
|
)
|
|
|
(115,000
|
)
|
Property
and Equipment, Net
|
|
$
|
103,000
|
|
|
$
|
134,000
|
|
Depreciation
expense for the nine months ended September 30, 2018 and 2017 was $31,000 and $35,000, respectively.
NOTE 4 - RELATED PARTY TRANSACTIONS
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 February 28, 2019. As of September 30, 2018,
the Company has borrowed $1,000,000 and accrued interest of $52,000.
During the nine
months ended September 30, 2018, the Company received an additional $180,000 in the form of short-term advances from Berkshire
Capital Management Co., Inc. The $180,000 short-term advances are due upon demand.
During the nine
months ended September 30, 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 nine
months ended September 30, 2018, the Company, received $80,000 in revenue for professional services rendered to a related Limited
Liability Company whose mangers are also officers of SPYR, Inc. and whose majority owner is Berkshire Capital Management Co.,
Inc.
NOTE 5 – 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 note matures on April 20, 2019 and is 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 has 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 is 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. During the nine months ended September 30, 2018 the Company has accrued interest for this note in the amount
of $6,000. At September 30, 2018, the principal balance together with total accrued interest of $6,000 is recorded on the Company’s
consolidated balance sheets net of discounts of $80,000.
SPYR, INC. AND
SUBSIDIARIES
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
Nine Months Ended
September 30, 2018 and 2017
(Unaudited)
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 note matures on January 22, 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 has 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 is 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. During the nine months
ended September 30, 2018 the Company has accrued interest for this note in the amount of $12,000. At September 30, 2018, the principal
balance together with total accrued interest of $12,000 is recorded on the Company’s consolidated balance sheets net of
discounts of $222,000.
The following
table summarized the Company's convertible notes payable as of September 30, 2018 and December 31, 2017:
|
|
September
30, 2018
|
|
December
31, 2017
|
Beginning
Balance
|
|
$
|
—
|
|
|
$
|
—
|
|
Proceeds
from the issuance of convertible notes, net of issuance discounts
|
|
|
137,000
|
|
|
|
—
|
|
Repayments
|
|
|
—
|
|
|
|
—
|
|
Conversion
of notes payable into common stock
|
|
|
—
|
|
|
|
—
|
|
Amortization of discounts
|
|
|
147,000
|
|
|
|
—
|
|
Accrued
Interest
|
|
|
18,000
|
|
|
|
—
|
|
Ending
Balance
|
|
$
|
302,000
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Convertible
notes, short term
|
|
$
|
440,000
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Debt
discounts
|
|
$
|
156,000
|
|
|
$
|
—
|
|
NOTE 6 – COMMITMENTS
AND CONTINGENCIES
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.
A material legal proceeding that is currently pending is as follows:
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.
The total value of the settlement, $1,983,000 was computed using the Black-Scholes Option Pricing Model and was recorded as litigation
settlement liability on the accompanying consolidated balance sheet as of December 31, 2017 and recognized on the settlement date
as a reduction to the litigation settlement liability. There is no further litigation settlement liability on the accompanying
consolidated balance sheets as of September 30, 2018.
SPYR, INC. AND
SUBSIDIARIES
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
Nine Months Ended
September 30, 2018 and 2017
(Unaudited)
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. 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.
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. All three defendants assert that
the SEC has failed to satisfy its heightened pleadings requirement for stating viable claims for market manipulation. All three
Defendants also sought dismissal based upon the expiration of the applicable statute of limitations and based upon the SEC’s
alleged failure to file suit within the statutory deadline for doing so as codified under the Dodd-Frank Act of 2010. This failure,
Defendants argue, deprives the SEC of jurisdiction to pursue its claims against all Defendants. In addition to the foregoing,
the Company further moved for dismissal of the alleged Section 7(a) Investment Company Act violation based upon the SEC’s
failure to establish that the Company fit the statutory definition of an Investment Company, as that term is defined under the
Investment Company Act; i.e., the Company met one of the statutory exceptions to what is and is not an Investment Company for
purposes of having to register as such under the Act. The Company does not expect a decision on its motion to dismiss for at least
two to four months.
The Company
is being represented by Alex Spiro, Esq., a partner with the firm of Quinn Emmanuel, Urquhart & Sullivan, LLP and Marc S.
Gottlieb, Esq., a partner with the firm of Ortoli Rosenstadt LLP.
Employment Agreements
Pursuant to
employment agreements entered in December 2014 and October 2015, the Company agreed to compensate three officers with a base salary
in the aggregate of $450,000 per year through 2020. In addition, as part of the employment agreement, 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.
Game Development
Agreements
The Company
is party to various game development agreements. Payments are contingent upon the developer(s) meeting specified milestones and
game performance. Pursuant to these agreements, the Company has agreed to pay up to $265,000 during the period from October 2018
through March 2019.
Common
Stock To Be Issued
The Company
is party to various third-party service agreements to be paid through the issuance of the company’s restricted common stock.
Contingent upon the third parties providing the agreed upon services, the Company will issue up to 725,000 restricted common shares
and 200,000 common stock warrants at various intervals during the period from October 2018 through October 2019. The shares will
be recorded at fair value on the date earned under the respective agreements.
SPYR, INC. AND
SUBSIDIARIES
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
Nine Months Ended
September 30, 2018 and 2017
(Unaudited)
NOTE 7 – EQUITY TRANSACTIONS
Common
Stock:
Nine Months
Ended September 30, 2018:
During the nine
months ended September 30, 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 nine
months ended September 30, 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 nine
months ended September 30, 2018, the Company issued an aggregate of 1,250,000 shares of restricted common stock to employees with
a total fair value of $625,000 for services rendered. The shares issued are non-refundable and deemed earned upon issuance. As
a result, the Company expensed the entire $625,000 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 nine
months ended September 30, 2018, the Company issued an aggregate of 6,608,781 shares of restricted common stock to consultants
with a total fair value of $2,350,000. The shares issued are non-refundable and deemed earned upon issuance. As a result, the
Company expensed the entire $2,350,000 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 nine
months ended September 30, 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 nine
months ended September 30, 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 reduction to the litigation settlement liability on the
accompanying consolidated balance sheets as of September 30, 2018.
Options:
The following
table summarizes common stock options activity:
|
|
|
|
Weighted
|
|
|
|
|
Average
|
|
|
|
|
Exercise
|
|
|
Options
|
|
Price
|
|
December
31, 2017
|
|
|
|
13,320,000
|
|
|
$
|
1.74
|
|
|
Granted
|
|
|
|
420,000
|
|
|
|
1.00
|
|
|
Exercised
|
|
|
|
—
|
|
|
|
—
|
|
|
Forfeited
|
|
|
|
—
|
|
|
|
—
|
|
|
Outstanding,
September 30, 2018
|
|
|
|
13,740,000
|
|
|
$
|
1.72
|
|
|
Exercisable,
September 30, 2018
|
|
|
|
13,065,000
|
|
|
$
|
1.60
|
|
SPYR, INC. AND
SUBSIDIARIES
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
Nine Months Ended
September 30, 2018 and 2017
(Unaudited)
During the year
ended December 31, 2017, the Company granted stock options to a consultant to purchase a total of 420,000 shares of common stock.
During the nine months ended September 30, 2018, the Company renewed the contract for an additional year and granted the consultant
an additional 420,000 stock options with a total fair value of $115,000. A total of 350,000 vested during 2017, 315,000 options
vested during the nine months ended September 30, 2018 while the remaining 175,000 options will vest through February 2019 at
a rate of 35,000 shares per month. 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
nine months ended September 30, 2018, the Company recognized $109,000 in compensation expense based upon the vesting of outstanding
options. As of September 30, 2018, the unamortized compensation expense for unvested options was $48,000 which will be recognized
over the vesting period.
The weighted
average exercise prices, remaining lives for options granted, and exercisable as of September 30, 2018 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
|
|
1.92
|
|
$0.50
|
|
8,000,000
|
|
$0.50
|
$1.00
|
|
1,490,000
|
|
1.07 – 3.36
|
|
$1.00
|
|
1,315,000
|
|
$1.00
|
$2.50
|
|
1,250,000
|
|
.25
|
|
$2.50
|
|
1,250,000
|
|
$2.50
|
$5.00
|
|
3,000,000
|
|
1.25
|
|
$5.00
|
|
2,500,000
|
|
$5.00
|
|
|
13,740,000
|
|
|
|
$1.72
|
|
13,065,000
|
|
$1.60
|
At September
30, 2018, the Company’s closing stock price was $0.24 per share. As all outstanding options had an exercise price greater
than $0.24 per share, there was no intrinsic value of the options outstanding at September 30, 2018.
The following
table summarizes options granted with vesting terms activity:
|
|
|
|
|
Weighted
|
|
|
|
|
|
Average
|
|
|
Number
of
|
|
|
Grant
Date
|
|
|
Shares
|
|
|
Fair
Value
|
Non-vested,
December 31, 2017
|
70,000
|
|
$
|
1.00
|
|
Granted
|
420,000
|
|
|
1.00
|
|
Vested
|
(315,000)
|
|
|
1.00
|
|
Forfeited
|
—
|
|
|
—
|
Non-vested,
September 30, 2018
|
175,000
|
|
$
|
1.00
|
Warrants:
The following
table summarizes common stock warrants activity:
|
|
|
|
Weighted
|
|
|
|
|
Average
|
|
|
|
|
Exercise
|
|
|
Warrants
|
|
Price
|
|
Outstanding,
December 31, 2017
|
|
|
|
1,700,000
|
|
|
$
|
1.06
|
|
|
Granted
|
|
|
|
7,100,000
|
|
|
|
0.55
|
|
|
Exercised
|
|
|
|
—
|
|
|
|
—
|
|
|
Forfeited
|
|
|
|
—
|
|
|
|
—
|
|
|
Outstanding,
September 30, 2018
|
|
|
|
8,800,000
|
|
|
$
|
0.65
|
|
|
Exercisable,
September 30, 2018
|
|
|
|
8,800,000
|
|
|
$
|
0.65
|
|
SPYR, INC. AND
SUBSIDIARIES
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
Nine Months Ended
September 30, 2018 and 2017
(Unaudited)
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 options 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 nine months ended September
30, 2018, the Company recognized $27,000 of debt discount interest. As of September 30, 2018, the unamortized debt discount was
$34,000 which will be recognized over the life of the note.
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 nine months ended September 30, 2018, the Company
recognized $17,000 of debt discount interest. As of September 30, 2018, the unamortized debt discount was $15,000 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 options 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 options 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 September 30, 2018.
The weighted
average exercise prices, remaining lives for warrants granted, and exercisable as of September 30, 2018, were as follows:
|
|
|
|
|
Outstanding
and Exercisable Warrants
|
|
|
Warrants
|
|
|
|
|
|
|
|
|
|
|
Exercise
Price
|
|
|
|
|
|
|
|
Life
|
|
|
Per
Share
|
|
|
|
Shares
|
|
|
|
(Years)
|
|
$
|
0.01
|
|
|
|
600,000
|
|
|
|
2.25
|
|
$
|
0.25
|
|
|
|
1,000,000
|
|
|
|
4.78
|
|
$
|
0.375
|
|
|
|
200,000
|
|
|
|
2.56
|
|
$
|
0.40
|
|
|
|
1,200,000
|
|
|
|
2.28
|
|
$
|
0.50
|
|
|
|
3,000,000
|
|
|
|
0.08
– 4.78
|
|
$
|
0.625
|
|
|
|
100,000
|
|
|
|
2.56
|
|
$
|
0.75
|
|
|
|
1,250,000
|
|
|
|
2.66
– 4.78
|
|
$
|
1.00
|
|
|
|
250,000
|
|
|
|
2.66
|
|
$
|
1.50
|
|
|
|
500,000
|
|
|
|
0.25
|
|
$
|
2.00
|
|
|
|
700,000
|
|
|
|
0.25
– 4.64
|
|
|
|
|
|
|
8,800,000
|
|
|
|
|
|
SPYR, INC. AND
SUBSIDIARIES
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
Nine Months Ended
September 30, 2018 and 2017
(Unaudited)
At September
30, 2018, the Company’s closing stock price was $0.24 per share. The Company had 600,000 warrants outstanding with exercise
prices less than $0.24 with an intrinsic value of $138,000 at September 30, 2018.
The table below
represents the average assumptions used in valuing the stock options and warrants granted in fiscal 2018:
|
|
|
Nine
Months Ended September 30,
|
|
|
|
|
2018
|
|
Expected
life in years
|
|
|
3.00
– 5.00
|
|
Stock price volatility
|
|
|
138%
- 153%
|
|
Risk free interest rate
|
|
|
2.12
% - 2.9%
|
|
Expected dividends
|
|
|
—
|
|
Forfeiture rate
|
|
|
—
|
|
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 September
30, 2018, 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 in connection with the court approves settlement agreement for a total of 33,500,000 reserved
shares of common stock.
NOTE 8 – DISCONTINUED
OPERATIONS
Restaurant
Through our
other wholly owned subsidiary, E.A.J.: PHL Airport, Inc., we owned and operated the restaurant “Eat at Joe’s®,”
which was located in the Philadelphia International Airport since 1997. Our lease in the Philadelphia Airport expired in April
2017. Concurrent with expiration of the lease the restaurant closed. Pursuant to current accounting guidelines, the restaurant
segment is reported as discontinued operations.
SPYR, INC. AND
SUBSIDIARIES
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
Nine Months Ended
September 30, 2018 and 2017
(Unaudited)
The following
table summarizes the assets and liabilities of our discontinued restaurant segment's discontinued operations as of September 30,
2018 and December 31, 2017:
|
|
September
30, 2018
|
|
December
31, 2017
|
Assets:
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued liabilities
|
|
$
|
22,000
|
|
|
$
|
22,000
|
|
Total
Liabilities
|
|
$
|
22,000
|
|
|
$
|
22,000
|
|
The following
table summarizes the results of operations of our discontinued restaurant for the three and nine months ended September 30, 2018
and 2017 and is included in the consolidated statements of operations as discontinued operations:
|
|
For the
Three Months Ended September 30,
|
|
For the
Nine Months Ended September 30,
|
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
421,000
|
|
Cost
of sales
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
134,000
|
|
Gross
Margin
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
287,000
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Labor
and related expenses
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
178,000
|
|
Rent
|
|
|
—
|
|
|
|
—
|
|
|
|
1,000
|
|
|
|
82,000
|
|
Depreciation
and amortization
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
20,000
|
|
Professional
fees
|
|
|
—
|
|
|
|
23,000
|
|
|
|
—
|
|
|
|
26,000
|
|
Other
general and administrative
|
|
|
—
|
|
|
|
5,000
|
|
|
|
1,000
|
|
|
|
94,000
|
|
Total
Operating Expenses
|
|
|
—
|
|
|
|
28,000
|
|
|
|
2,000
|
|
|
|
400,000
|
|
Operating
Income (Loss)
|
|
|
—
|
|
|
|
(28,000
|
)
|
|
|
(2,000
|
)
|
|
|
(113,000
|
)
|
Other
Income (Expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
on disposal of assets
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(19,000
|
)
|
Income
(Loss) on discontinued operations
|
|
$
|
—
|
|
|
$
|
(28,000
|
)
|
|
$
|
(2,000
|
)
|
|
$
|
(132,000
|
)
|
NOTE 9 – SUBSEQUENT EVENTS
Subsequent to
September 30, 2018, the Company issued 295,000 shares of common stock pursuant to various third-party service agreements.
On October 16,
2018, the Company issued 300,000 restricted common shares as part of the base salary pursuant to an employment contract with one
officer of the Company.