|
ITEM 1.
|
FINANCIAL STATEMENTS
|
SPYR, INC., AND SUBSIDIARIES
|
CONDENSED CONSOLIDATED BALANCE SHEETS
|
(Unaudited)
|
|
|
|
|
|
|
|
|
March 31,
2019
|
|
|
|
December 31,
2018
|
|
|
|
|
|
|
|
|
(Restated)
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
26,000
|
|
|
$
|
24,000
|
|
Accounts receivable, net
|
|
|
24,000
|
|
|
|
62,000
|
|
Prepaid expenses
|
|
|
19,000
|
|
|
|
21,000
|
|
Trading securities, at market value
|
|
|
2,000
|
|
|
|
4,000
|
|
Total Current Assets
|
|
|
71,000
|
|
|
|
111,000
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
85,000
|
|
|
|
94,000
|
|
Capitalized gaming assets and licensing rights, net
|
|
|
121,000
|
|
|
|
122,000
|
|
Intangible assets, net
|
|
|
8,000
|
|
|
|
9,000
|
|
Operating lease right-of-use asset
|
|
|
105,000
|
|
|
|
110,000
|
|
Other assets
|
|
|
6,000
|
|
|
|
6,000
|
|
TOTAL ASSETS
|
|
$
|
396,000
|
|
|
$
|
452,000
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
$
|
1,126,000
|
|
|
$
|
1,145,000
|
|
Related party short-term advances
|
|
|
534,000
|
|
|
|
320,000
|
|
Related party line of credit
|
|
|
1,084,000
|
|
|
|
1,068,000
|
|
Convertible note payable, net
|
|
|
491,000
|
|
|
|
432,000
|
|
Operating lease liability – Current Portion
|
|
|
32,000
|
|
|
|
39,000
|
|
Current liabilities of discontinued operations
|
|
|
22,000
|
|
|
|
22,000
|
|
Total Current Liabilities
|
|
|
3,289,000
|
|
|
|
3,026,000
|
|
|
|
|
|
|
|
|
|
|
Operating lease liability
|
|
|
92,000
|
|
|
|
92,000
|
|
Total Liabilities
|
|
|
3,381,000
|
|
|
|
3,118,000
|
|
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 March 31, 2019 and December 31, 2018
|
|
|
11
|
|
|
|
11
|
|
20,000 Class E shares issued and outstanding
|
|
|
|
|
|
|
|
|
as of March 31, 2019 and December 31, 2018
|
|
|
2
|
|
|
|
2
|
|
Common Stock, $0.0001 par value, 750,000,000 shares authorized
|
|
|
|
|
|
|
|
|
199,555,131 and 198,305,131 shares issued and outstanding
|
|
|
|
|
|
|
|
|
as of March 31, 2019 and December 31, 2018
|
|
|
19,955
|
|
|
|
19,830
|
|
Additional paid-in capital
|
|
|
53,396,032
|
|
|
|
53,265,157
|
|
Accumulated deficit
|
|
|
(56,401,000
|
)
|
|
|
(55,951,000
|
)
|
Total Stockholders’ (Deficit)
|
|
|
(2,985,000
|
)
|
|
|
(2,666,000
|
)
|
TOTAL LIABILITIES AND STOCKHOLDERS’ (DEFICIT)
|
|
$
|
396,000
|
|
|
$
|
452,000
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
|
SPYR, INC., AND SUBSIDIARIES
|
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
|
(Unaudited)
|
|
|
|
|
|
|
|
For the Three Months Ended
March 31,
|
|
|
2019
|
|
2018
|
|
|
|
|
|
Game Revenues
|
|
$
|
25,000
|
|
|
$
|
6,000
|
|
Related Party Service Revenues
|
|
|
52,000
|
|
|
|
—
|
|
Total Revenues
|
|
|
77,000
|
|
|
|
6,000
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
Labor and related expenses
|
|
|
326,000
|
|
|
|
886,000
|
|
Rent
|
|
|
38,000
|
|
|
|
49,000
|
|
Depreciation and amortization
|
|
|
11,000
|
|
|
|
29,000
|
|
Professional fees
|
|
|
50,000
|
|
|
|
2,556,000
|
|
Research and development
|
|
|
17,000
|
|
|
|
299,000
|
|
Other general and administrative
|
|
|
80,000
|
|
|
|
105,000
|
|
Total Operating Expenses
|
|
|
522,000
|
|
|
|
3,924,000
|
|
Operating Loss
|
|
|
(445,000
|
)
|
|
|
(3,918,000
|
)
|
|
|
|
|
|
|
|
|
|
Other Expense
|
|
|
|
|
|
|
|
|
Interest Expense
|
|
|
(3,000
|
)
|
|
|
(20,000
|
)
|
Unrealized loss on trading securities
|
|
|
(2,000
|
)
|
|
|
(11,000
|
)
|
Total Other Expense
|
|
|
(5,000
|
)
|
|
|
(31,000
|
)
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
|
(450,000
|
)
|
|
|
(3,949,000
|
)
|
|
|
|
|
|
|
|
|
|
Loss on discontinued operations
|
|
|
—
|
|
|
|
(2,000
|
)
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
$
|
(450,000
|
)
|
|
$
|
(3,951,000
|
)
|
|
|
|
|
|
|
|
|
|
Per Share Amounts
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
|
|
|
|
|
|
|
Basic and Diluted loss per share
|
|
$
|
—
|
|
|
$
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
Loss on discontinued operations
|
|
|
|
|
|
|
|
|
Basic and Diluted loss per share
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
|
|
|
|
|
|
|
Basic and Diluted loss per share
|
|
$
|
—
|
|
|
$
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
Weighted Average Common Shares
|
|
|
|
|
|
|
|
|
Basic and Diluted
|
|
|
199,110,687
|
|
|
|
186,355,488
|
|
Diluted
|
|
|
199,110,687
|
|
|
|
186,355,488
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
|
SPYR, INC., AND SUBSIDIARIES
|
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
|
THREE MONTHS ENDED MARCH 31, 2019
|
(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, 2018
|
|
|
107,636
|
|
|
$
|
11
|
|
|
|
20,000
|
|
|
$
|
2
|
|
|
|
198,305,131
|
|
|
$
|
19,830
|
|
|
$
|
53,265,157
|
|
|
$
|
(55,951,000
|
)
|
|
$
|
(2,666,000
|
)
|
Fair value of common stock issued for employee compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,250,000
|
|
|
|
125
|
|
|
|
130,875
|
|
|
|
—
|
|
|
|
131,000
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(450,000
|
)
|
|
|
(450,000
|
)
|
Balance at March 31, 2019
|
|
|
107,636
|
|
|
$
|
11
|
|
|
|
20,000
|
|
|
$
|
2
|
|
|
|
199,555,131
|
|
|
$
|
19,955
|
|
|
$
|
53,396,032
|
|
|
$
|
(56,401,000
|
)
|
|
$
|
(2,985,000
|
)
|
SPYR, INC., AND SUBSIDIARIES
|
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
|
THREE MONTHS ENDED MARCH 31, 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
|
|
|
107,636
|
|
|
$
|
11
|
|
|
|
20,000
|
|
|
$
|
2
|
|
|
|
181,128,950
|
|
|
$
|
18,112
|
|
|
$
|
46,561,875
|
|
|
$
|
(47,209,000
|
)
|
|
$
|
(629,000
|
)
|
Common stock issued to related party for cash
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
500,000
|
|
|
|
50
|
|
|
|
49,950
|
|
|
|
—
|
|
|
|
50,000
|
|
Common stock issued for cash
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,200,000
|
|
|
|
420
|
|
|
|
554,580
|
|
|
|
—
|
|
|
|
555,000
|
|
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
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,441,942
|
|
|
|
444
|
|
|
|
1,711,556
|
|
|
|
—
|
|
|
|
1,712,000
|
|
Vesting of options and warrants granted for services
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
674,000
|
|
|
|
—
|
|
|
|
674,000
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(3,951,000
|
)
|
|
|
(3,951,000
|
)
|
Balance at March 31, 2018
|
|
|
107,636
|
|
|
$
|
11
|
|
|
|
20,000
|
|
|
$
|
2
|
|
|
|
191,520,892
|
|
|
$
|
19,151
|
|
|
$
|
50,176,836
|
|
|
$
|
(51,160,000
|
)
|
|
$
|
(964,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part
of these unaudited condensed consolidated financial statements.
|
SPYR, INC., AND SUBSIDIARIES
|
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
|
(Unaudited)
|
|
|
|
|
|
|
|
For the Three Months Ended March 31,
|
|
|
2019
|
|
2018
|
|
|
|
|
(Restated)
|
Cash Flows From Operating Activities:
|
|
|
|
|
|
|
|
|
Net loss for the period
|
|
$
|
(450,000
|
)
|
|
$
|
(3,951,000
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Loss on discontinued operations
|
|
|
—
|
|
|
|
2,000
|
|
Depreciation and amortization
|
|
|
11,000
|
|
|
|
29,000
|
|
Common stock issued for employee compensation
|
|
|
131,000
|
|
|
|
625,000
|
|
Common stock, options and warrants issued for services
|
|
|
—
|
|
|
|
1,712,000
|
|
Vesting of options and warrants granted for services
|
|
|
—
|
|
|
|
674,000
|
|
Amortization of debt discount on convertible notes payable
|
|
|
53,000
|
|
|
|
—
|
|
Unrealized loss on trading securities
|
|
|
2,000
|
|
|
|
11,000
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Decrease in accounts receivables
|
|
|
38,000
|
|
|
|
1,000
|
|
Decrease in prepaid expenses
|
|
|
2,000
|
|
|
|
16,000
|
|
Increase (decrease) in accounts payable and accrued
liabilities
|
|
|
(19,000
|
)
|
|
|
53,000
|
|
Decrease in operating lease liability
|
|
|
(2,000
|
)
|
|
|
(2,000
|
)
|
Increase in accrued interest on short-term advances - related party
|
|
|
5,000
|
|
|
|
—
|
|
Increase in accrued interest on line of credit - related party
|
|
|
16,000
|
|
|
|
14,000
|
|
Increase in accrued interest on convertible notes payable
|
|
|
6,000
|
|
|
|
—
|
|
Net Cash Used in Operating Activities from Continuing Operations
|
|
|
(207,000
|
)
|
|
|
(816,000
|
)
|
Net Cash Used in Operating Activities from Discontinued Operations
|
|
|
—
|
|
|
|
(2,000
|
)
|
Net Cash Used in Operating Activities
|
|
|
(207,000
|
)
|
|
|
(818,000
|
)
|
|
|
|
|
|
|
|
|
|
Cash Flows From Investing Activities:
|
|
|
|
|
|
|
|
|
Net Cash Used in Investing Activities
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Cash Flows From Financing Activities:
|
|
|
|
|
|
|
|
|
Proceeds from sale of common stock
|
|
|
—
|
|
|
|
605,000
|
|
Proceeds from short-term advances - related party
|
|
|
209,000
|
|
|
|
5,000
|
|
Proceeds from line of credit - related party
|
|
|
—
|
|
|
|
200,000
|
|
Net Cash Provided by Financing Activities
|
|
|
209,000
|
|
|
|
810,000
|
|
|
|
|
|
|
|
|
|
|
Net Increase (Decrease) in Cash
|
|
|
2,000
|
|
|
|
(8,000
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
24,000
|
|
|
|
86,000
|
|
Cash and cash equivalents at end of period
|
|
$
|
26,000
|
|
|
$
|
78,000
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosure of Interest and Income Taxes Paid:
|
|
|
|
|
|
|
|
|
Interest paid during the period
|
|
$
|
—
|
|
|
$
|
—
|
|
Income taxes paid during the period
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
|
SPYR, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2019 AND 2018
(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 for the
fiscal year ended December 31, 2018 filed with the SEC. The condensed consolidated balance sheet as of December 31, 2018 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 subsidiaries, SPYR
APPS, LLC we operate our mobile games and applications business. The focus of the SPYR APPS subsidiary is the development and publication
of electronic games that are downloaded for free by users of mobile devices such as cellular telephones and tablets, including
those using Apple’s iOS and Google’s Android mobile operating systems.
Through our other wholly owned subsidiary,
E.A.J.: PHL Airport, Inc., we owned and operated the restaurant “Eat at Joe’s®,” which was located in the
Philadelphia International Airport since 1997. Our lease in the Philadelphia Airport expired in April 2017. Concurrent with expiration
of the lease the restaurant closed. Pursuant to current accounting guidelines, the assets and liabilities of EAJ as well as the
results of its operations were presented in these financial statements as discontinued operations.
Principles of Consolidation
The consolidated financial statements include
the accounts of SPYR, Inc. and its wholly-owned subsidiaries, SPYR APPS, LLC, a Nevada Limited Liability Company, E.A.J.: PHL,
Airport Inc., a Pennsylvania corporation (discontinued operations, see Note 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.
As shown in the accompanying financial statements,
for the three months ended March 31, 2019, the Company recorded a net loss from continuing operations of $450,000 and utilized
cash in continuing operations of $207,000. As of March 31, 2019, our cash balance was $26,000 and we had trading securities of
$2,000. These issues raise substantial doubt about the Company’s ability to continue as a going concern.
SPYR, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2019 AND 2018
(Unaudited)
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 basic and fully diluted shares for the
three months ended March 31, 2019 are the same because the inclusion of the potential shares (Class A – 26,909,028, Class
E – 1,588,310, Options – 12,449,900, Warrants – 9,000,000) would have had an anti-dilutive effect due to the
Company generating a loss for the three months ended March 31, 2019.
The basic and fully diluted shares for the
three months ended March 31, 2018 are the same because the inclusion of the potential shares (Class A – 26,909,028, Class
E – 253,678, Options – 13,740,000, Warrants – 3,600,000) would have had an anti-dilutive effect due to the Company
generating a loss for the three months ended March 31, 2018.
Capitalized Gaming Assets and Licensing Rights
During the three months
ended March 31, 2019 and 2018, the Company recorded amortization expense of $1,000 and $18,000, respectively. As of March 31, 2019
and December 31, 2018, the accumulated amortization was $3,000 and $2,000, respectively and the unamortized capitalized gaming
assets and licensing rights amounted to $121,000 and $122,000 respectively.
Software Development Costs
Costs incurred for software development are
expensed as incurred. During the three months ended March 31, 2019 and 2018, the Company incurred $17,000 and $299,000 in software
development costs paid to independent gaming software developers.
Revenue Recognition
We account for revenue in accordance with
ASC 606.
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.
SPYR, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2019 AND 2018
(Unaudited)
Recent Accounting Standards
In February 2016, the FASB issued Accounting
Standards Update (ASU) No. 2016-02,
Leases
. ASU 2016-02 requires a lessee to record a right of use asset and a corresponding
lease liability on the balance sheet for all leases with terms longer than 12 months. ASU 2016-02 is effective for all interim
and annual reporting periods beginning after December 15, 2018. Early adoption is permitted. A modified retrospective transition
approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest
comparative period presented in the financial statements, with certain practical expedients available. The Company adopted ASU
2016-02 on January 1, 2019. Pursuant to this new standard, the Company recorded an operating right-of use asset and operating lease
liability in the accompanying condensed consolidated balance sheets as of March 31, 2019 and December 31, 2018.
In June 2018, the FASB issued ASU 2018-07,
“Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting”, which expands
the scope of Topic 718 to include all share-based payment transactions for acquiring goods and services from nonemployees. ASU
2018-07 specifies that Topic 718 applies to all share-based payment transactions in which the grantor acquires goods and services
to be used or consumed in its own operations by issuing share-based payment awards. ASU 2018-07 also clarifies that Topic 718 does
not apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction
with selling goods or services to customers as part of a contract accounted for under ASC 606. The amendments in ASU 2018-07 are
effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company
adopted this guidance effective January 1, 2019, and it did not have any impact on the Company’s consolidated financial statements.
Other recent accounting pronouncements issued
by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the Securities
and Exchange Commission did not or are not believed by management to have a material impact on the Company's present or future
consolidated financial statements.
NOTE 2 – PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
|
|
March 31,
2019
|
|
December 31,
2018
|
|
|
|
|
|
Equipment
|
|
$
|
28,000
|
|
|
$
|
28,000
|
|
Furniture & fixtures
|
|
|
112,000
|
|
|
|
112,000
|
|
Leasehold improvements
|
|
|
107,000
|
|
|
|
107,000
|
|
|
|
|
247,000
|
|
|
|
247,000
|
|
Less: accumulated depreciation and amortization
|
|
|
(162,000
|
)
|
|
|
(153,000
|
)
|
Property and Equipment, Net
|
|
$
|
85,000
|
|
|
$
|
94,000
|
|
Depreciation expense for the three months ended
March 31, 2019 and 2018 was $9,000 and $11,000, respectively.
SPYR, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2019 AND 2018
(Unaudited)
NOTE 3 - RELATED PARTY TRANSACTIONS
During 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 July 1, 2019. As of March 31, 2019, the Company has borrowed $1,000,000 and accrued interest
of $84,000.
During the three months ended March 2018, the
Company issued 500,000 shares of restricted common stock to the father of an executive officer of the Company for cash of $50,000.
During 2018 the Company received $313,000 in
the form of short-term advances from Berkshire Capital Management Co., Inc. The short-term advances are due upon demand. During
the three months ended March 31, 2019, the Company received an additional $209,000 in short-term advances. As of March 31, 2019,
the Company has received a total of $522,000 in short-term advances and accrued interest of $12,000.
During the three months ended March 31, 2019,
the Company, received $52,000 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 4 – CONVERTIBLE NOTES
On April 20, 2018, (modified May 22, 2018)
the Company issued a $165,000 (originally $158,000) convertible note with original issue discount (OID) of $15,000 and bearing
interest at 8% per annum. The amended maturity date of the note is June 1, 2019 and was convertible on or after October 17, 2018
into the Company’s restricted common stock at $0.20 per share at the holder’s request. The OID is recorded as a discount
to the debt agreement. The Company 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 year
ended December 31, 2018 the Company has accrued interest for this note in the amount of $9,000. During the three months ended March
31, 2019 the Company has accrued interest for this note in the amount of $4,000. At March 31, 2019, the principal balance together
with total accrued interest is recorded on the Company’s consolidated balance sheet net of discounts at $169,000. On May
10, 2019, the Company amended the note to extend the due dates to June 1, 2019, provide for a partial conversion of $25,000 of
the outstanding principal balance into common shares of the Company at a conversion price of $0.10 per share for a total of 250,000
shares, and waive any prior alleged or actual defaults under the note.
SPYR, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2019 AND 2018
(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 amended maturity
date of the note is June 1, 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. At March 31, 2019, the principal
balance together with total accrued interest of $22,000 and liquidated damages of $25,000 is recorded on the Company’s consolidated
balance sheet net of discounts at $322,000. On May 10, 2019, the Company amended the note to extend the due dates to June 1, 2019,
provide for a partial conversion of $25,000 of the outstanding principal balance into common shares of the Company at a conversion
price of $0.10 per share for a total of 250,000 shares, and waive any prior alleged or actual defaults under the note.
The following table summarized the Company's
convertible notes payable as of March 31, 2019 and December 31, 2018:
|
|
March 31,
2019
|
|
December 31,
2018
|
Beginning Balance
|
|
$
|
432,000
|
|
|
$
|
—
|
|
Proceeds from the issuance of convertible notes, net of issuance discounts
|
|
|
—
|
|
|
|
137,000
|
|
Repayments
|
|
|
—
|
|
|
|
—
|
|
Conversion of notes payable into common stock
|
|
|
—
|
|
|
|
—
|
|
Amortization of discounts
|
|
|
53,000
|
|
|
|
241,000
|
|
Liquidated damages
|
|
|
—
|
|
|
|
25,000
|
|
Accrued Interest
|
|
|
6,000
|
|
|
|
29,000
|
|
Ending Balance
|
|
$
|
491,000
|
|
|
$
|
432,000
|
|
|
|
|
|
|
|
|
|
|
Convertible notes, short term
|
|
$
|
440,000
|
|
|
$
|
440,000
|
|
|
|
|
|
|
|
|
|
|
Debt discounts
|
|
$
|
9,000
|
|
|
$
|
62,000
|
|
NOTE 5 – COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company
leases approximately 5,169 square feet at 4643 South Ulster Street, Denver, Colorado pursuant to an amended lease dated May 21,
2015 and expiring on December 31, 2020. Under the lease, the Company pays annual base rent on an escalating scale ranging from
$143,000 to $152,000. The Company adopted ASC 842 for this lease using a modified retrospective transition approach as of the
beginning of the January 2018. As a result of the adoption, prior periods have been restated to include the recorded operating
right-of-use asset and operating lease liability in the accompanying condensed consolidated balance sheets as December 31, 2018
and the decrease in operating lease liability in the accompanying condensed consolidated statements of cash flows for the three
months ended March 31, 2018.
Legal Proceedings
We are involved in certain legal proceedings
that arise from time to time in the ordinary course of our business. Except for income tax contingencies, we record accruals for
contingencies to the extent that our management concludes that the occurrence is probable and that the related amounts of loss
can be reasonably estimated. Legal expenses associated with the contingency are expensed as incurred. A material legal proceeding
that is currently pending is as follows:
SPYR, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2019 AND 2018
(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. Based upon available information at this very
early stage of litigation, management believes that the Company will obtain a favorable ruling. Accordingly, Management believes
the likelihood of material loss resulting from this lawsuit to be remote.
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 cannot accurately estimate when it expects a decision on its motion to dismiss, as it has been
fully briefed and pending for more than four months, but expects a ruling within the next several 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.
NOTE 6 – EQUITY TRANSACTIONS
Common Stock:
Three Months Ended March 31, 2018
During the three months ended March 31, 2018,
the Company issued 500,000 shares of restricted common stock to the father of an executive officer of the Company for cash of $50,000.
During the three months ended March 31, 2018,
the Company issued an aggregate of 4,200,000 shares of restricted common stock to third parties for cash of $555,000.
SPYR, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2019 AND 2018
(Unaudited)
During the three months ended March 31, 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 three months ended March 31, 2018,
the Company issued an aggregate of 4,441,942 shares of restricted common stock to consultants with a total fair value of $1,712,000.
The shares issued are non-refundable and deemed earned upon issuance. As a result, the Company expensed the entire $1,712,000 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.
Three Months Ended March 31, 2019
During the three months ended March 31, 2019,
the Company issued an aggregate of 1,250,000 shares of restricted common stock to employees with a total fair value of $131,000
for services rendered. The shares issued are non-refundable and deemed earned upon issuance. As a result, the Company expensed
the entire $131,000 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.
Options:
The following table summarizes common stock
options activity:
|
|
|
|
Weighted
|
|
|
|
|
Average
|
|
|
|
|
Exercise
|
|
|
Options
|
|
Price
|
|
December 31, 2018
|
|
|
|
12,449,900
|
|
|
$
|
1.64
|
|
|
Granted
|
|
|
|
—
|
|
|
|
—
|
|
|
Exercised
|
|
|
|
—
|
|
|
|
—
|
|
|
Forfeited
|
|
|
|
—
|
|
|
|
—
|
|
|
Outstanding, March 31, 2019
|
|
|
|
12,449,900
|
|
|
$
|
1.64
|
|
|
Exercisable, March 31, 2019
|
|
|
|
12,449,900
|
|
|
$
|
1.64
|
|
The weighted average exercise prices, remaining
lives for options granted, and exercisable as of March 31, 2019 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding Options
|
|
|
|
Exercisable Options
|
Options
|
|
|
|
|
|
Weighted
|
|
|
|
Weighted
|
Exercise Price
|
|
|
|
Life
|
|
Average Exercise
|
|
|
|
Average Exercise
|
Per Share
|
|
Shares
|
|
(Years)
|
|
Price
|
|
Shares
|
|
Price
|
$0.50
|
|
8,000,000
|
|
1.42
|
|
$0.50
|
|
8,000,000
|
|
$0.50
|
$1.00
|
|
1,449,900
|
|
0.57 – 2.86
|
|
$1.00
|
|
1,449,900
|
|
$1.00
|
$5.00
|
|
3,000,000
|
|
0.75
|
|
$5.00
|
|
3,000,000
|
|
$5.00
|
|
|
12,449,900
|
|
|
|
$1.64
|
|
12,449,900
|
|
$1.64
|
At March 31, 2019, the Company’s closing
stock price was $0.07 per share. As all outstanding options had an exercise price greater than $0.07 per share, there was no intrinsic
value of the options outstanding at March 31, 2019.
SPYR, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2019 AND 2018
(Unaudited)
Warrants:
The following table summarizes common stock
warrants activity:
|
|
|
|
Weighted
|
|
|
|
|
Average
|
|
|
|
|
Exercise
|
|
|
Warrants
|
|
Price
|
|
Outstanding, December 31, 2018
|
|
|
|
9,000,000
|
|
|
$
|
0.46
|
|
|
Granted
|
|
|
|
—
|
|
|
|
—
|
|
|
Exercised
|
|
|
|
—
|
|
|
|
—
|
|
|
Forfeited
|
|
|
|
—
|
|
|
|
—
|
|
|
Outstanding, March 31, 2019
|
|
|
|
9,000,000
|
|
|
$
|
0.46
|
|
|
Exercisable, March 31, 2019
|
|
|
|
9,000,000
|
|
|
$
|
0.46
|
|
The weighted average exercise prices, remaining lives for warrants
granted, and exercisable as of March 31, 2019, were as follows:
|
|
Outstanding and Exercisable Warrants
|
|
Warrants
|
|
|
|
|
|
Exercise Price
|
|
|
|
Life
|
|
Per Share
|
|
Shares
|
|
(Years)
|
|
$0.01
|
|
600,000
|
|
1.76
|
|
$0.15
|
|
1,200,000
|
|
1.79
|
|
$0.25
|
|
1,000,000
|
|
4.28
|
|
$0.375
|
|
200,000
|
|
2.06
|
|
$0.40
|
|
1,200,000
|
|
1.79
|
|
$0.50
|
|
3,000,000
|
|
0.65 – 4.35
|
|
$0.625
|
|
100,000
|
|
2.06
|
|
$0.75
|
|
1,250,000
|
|
2.23 – 4.35
|
|
$1.00
|
|
250,000
|
|
2.16
|
|
$2.00
|
|
200,000
|
|
4.15
|
|
|
|
9,000,000
|
|
|
|
At March 31, 2019, the Company’s closing
stock price was $0.07 per share. The Company had 600,000 warrants outstanding with exercise prices less than $0.07 with an intrinsic
value of $36,000 at March 31, 2019.
Shares Reserved:
At March 31, 2019, the Company has reserved
30,000,000 shares of common stock in connection with 2 convertible notes with detachable warrants and 3,500,000 shares of common
stock in connection with the court approves settlement agreement for a total of 33,500,000 reserved shares of common stock.
SPYR, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2019 AND 2018
(Unaudited)
NOTE 7 – 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 March 31, 2019 and December 31, 2018:
|
|
March 31,
2019
|
|
December 31,
2018
|
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 months ended March 31, 2019 and 2018 and is included in the consolidated
statements of operations as discontinued operations:
|
|
For the Three Months Ended March 31,
|
|
|
2019
|
|
2018
|
|
|
|
|
|
Revenues
|
|
$
|
—
|
|
|
$
|
—
|
|
Cost of sales
|
|
|
—
|
|
|
|
—
|
|
Gross Margin
|
|
|
—
|
|
|
|
—
|
|
Expenses
|
|
|
|
|
|
|
|
|
Labor and related expenses
|
|
|
—
|
|
|
|
—
|
|
Rent
|
|
|
—
|
|
|
|
1,000
|
|
Depreciation and amortization
|
|
|
—
|
|
|
|
—
|
|
Professional fees
|
|
|
—
|
|
|
|
—
|
|
Other general and administrative
|
|
|
—
|
|
|
|
1,000
|
|
Total Operating Expenses
|
|
|
—
|
|
|
|
2,000
|
|
Operating Income (Loss)
|
|
|
—
|
|
|
|
(2,000
|
)
|
Other Income (Expense)
|
|
|
|
|
|
|
|
|
Loss on disposal of assets
|
|
|
—
|
|
|
|
—
|
|
Income (Loss) on discontinued operations
|
|
$
|
—
|
|
|
$
|
(2,000
|
)
|
SPYR, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2019 AND 2018
(Unaudited)
NOTE 8 – SUBSEQUENT EVENTS
Subsequent to March 31, 2019, the Company received
$145,000 in the form of short-term advances from Berkshire Capital Management Co., Inc. The short-term advances are due upon demand.
On May 10, 2019, the Company amended two convertible
promissory notes to extend the due dates to June 1, 2019, provide for a partial conversion of $50,000 ($25,000 per note) of the
outstanding principal balances into common shares of the Company at a conversion price of $0.10 per share for a total of 500,000
shares (250,000 per note), and waive any prior alleged or actual defaults under the notes.
|
|
Digital Media
|
|
Corporate
|
|
Consolidated
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
25,000
|
|
|
|
52,000
|
|
|
$
|
77,000
|
|
Labor and related expenses
|
|
|
(50,000
|
)
|
|
|
(276,000
|
)
|
|
|
(326,000
|
)
|
Rent
|
|
|
(1,000
|
)
|
|
|
(37,000
|
)
|
|
|
(38,000
|
)
|
Depreciation and amortization
|
|
|
(2,000
|
)
|
|
|
(9,000
|
)
|
|
|
(11,000
|
)
|
Professional fees
|
|
|
—
|
|
|
|
(50,000
|
)
|
|
|
(50,000
|
)
|
Research and development
|
|
|
(17,000
|
)
|
|
|
—
|
|
|
|
(17,000
|
)
|
Other general and administrative
|
|
|
(18,000
|
)
|
|
|
(62,000
|
)
|
|
|
(80,000
|
)
|
Operating loss
|
|
|
(63,000
|
)
|
|
|
(382,000
|
)
|
|
|
(445,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
(9,000
|
)
|
|
|
4,000
|
|
|
|
(5,000
|
)
|
Loss from continuing operations
|
|
$
|
(72,000
|
)
|
|
$
|
(378,000
|
)
|
|
$
|
(450,000
|
)
|
Three Months Ended March 31, 2018
|
|
|
|
|
|
|
Revenues
|
|
$
|
6,000
|
|
|
$
|
—
|
|
|
$
|
6,000
|
|
Labor and related expenses
|
|
|
(81,000
|
)
|
|
|
(805,000
|
)
|
|
|
(886,000
|
)
|
Rent
|
|
|
(13,000
|
)
|
|
|
(36,000
|
)
|
|
|
(49,000
|
)
|
Depreciation and amortization
|
|
|
(18,000
|
)
|
|
|
(11,000
|
)
|
|
|
(29,000
|
)
|
Professional fees
|
|
|
(103,000
|
)
|
|
|
(2,453,000
|
)
|
|
|
(2,556,000
|
)
|
Research and development
|
|
|
(299,000
|
)
|
|
|
—
|
|
|
|
(299,000
|
)
|
Other general and administrative
|
|
|
(46,000
|
)
|
|
|
(59,000
|
)
|
|
|
(105,000
|
)
|
Operating loss
|
|
|
(554,000
|
)
|
|
|
(3,364,000
|
)
|
|
|
(3,918,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expense
|
|
|
(6,000
|
)
|
|
|
(25,000
|
)
|
|
|
(31,000
|
)
|
Loss from continuing operations
|
|
$
|
(560,000
|
)
|
|
$
|
(3,389,000
|
)
|
|
|
(3,949,000
|
)
|
Results of Operations
For the three months ended March 31, 2019 the
Company had a loss from continuing operations of $450,000 compared to a loss from continuing operations of approximately $3,949,000
for the three months ended March 31, 2018. This change is due primarily to decreases in labor and related expenses of $560,000,
rent of $11,000, depreciation and amortization of $18,000, professional fees of $2,506,000, research and development of $282,000
and other general and administrative costs $25,000 during the three months ended March 31, 2019 compared to the three months ended
March 31, 2018. Other items contributing to the change included increases in revenue of $71,000.
More detailed explanation of the three months
ended March 31, 2019 and 2018 changes are included in the following discussions.
Total Revenues - For the three months ended
March 31, 2019 and 2018, the Company had total revenue of $77,000 and $6,000, respectively, for an increase of $71,000. This change
is due to the launch of our new game
Steven Universe
: Tap Together on August 2, 2018 which contributed to game revenues
of $25,000 for the three months ended March 31, 2019 compared to game revenues $6,000 for the three months ended March 31, 2018.
Additionally, during the three months ended March 31, 2019, the Company, received $52,000 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. Management plans to expand its mobile application and game development and monetization efforts and
believes through continued promotion and user acquisition of
Steven Universe
: Tap Together, anticipated updates to Pocket
Starships with
Star Trek
IP, and the acquisition of a new games during 2019 will bring increased revenues in the coming
year.
Labor and related expenses include the costs
of salaries, wages, leased employees, contract labor, and the fair value of common stock and options granted to employees for services.
For the three months ended March 31, 2019 the company had total labor and related expenses of $326,000 with $127,000 being settled
in cash and $131,000 being paid in restricted stock recorded at fair value, and accrued salaries of $68,000. For the three months
ended March 31, 2018 the company had total labor and related expenses of $886,000 with $196,000 being settled in cash and $631,000
being paid in restricted stock and vesting of options recorded at fair value, and accrued salaries of $59,000. The cost of labor
is expected to increase in conjunction with expansion of the digital media operations.
The cost of rent decreased $11,000 from $49,000
for the three months ended March 31, 2018 to $38,000 for the three months ended March 31, 2019. 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.
From July 2017 through March 31, 2018 we leased office space in Berlin, Germany for EUR 3,570 ($4,100) per month. The Berlin office
was used by leased employees hired by the Company for the operation of our Pocket Starships game. From October 17, 2016 to February
28, 2019 the Company leased shared office space for one employee in Redmond, Washington on a month to month basis at costs escalating
from $225 to $325 per month per desk.
Depreciation and amortization expenses decreased
by approximately $18,000 for the three months ended March 31, 2019 compared to the three months ended March 31, 2018. Depreciation
and amortization expenses are attributable to depreciation of the $247,000 of property and equipment and amortization of gaming
assets and capitalized licensing rights in service during respective periods.
Professional fees decreased $2,506,000 from
$2,556,000 for the three months ended March 31, 2018 to $50,000 for the three months ended March 31, 2019. Professional fees during
the three months ended March 31, 2019 included $44,000 legal, accounting and other professional service needs and $6,000 for public
relations. Professional fees during the three months ended March 31, 2018 included $137,000 in legal, accounting and other professional
service needs, $29,000 for public relations, and $9,000 in consulting services related to our digital media operations. The remaining
amount is due to the granting of 4,441,942 shares of restricted common stock, 420,000 option and 1,900,000 warrants to purchase
restricted common stock issued to third parties for consulting services, public relations and other professional fees with a total
fair value of $2,381,000.
Research and development costs during the three
months ended March 31, 2019 included $17,000 in connection with fees paid to game developers for the development of its current
and soon to be released games, compared to research and development costs of $299,000 during the three months ended March 31, 2018.
Other general and administrative expenses decreased
$25,000 for the three months ended March 31, 2019 compared to the three months ended March 31, 2018. The decrease can be attributed
primarily to reductions in travel costs $22,000 and game operating of $8,000 and various other general and administrative cost
reductions of $6,000 offset by increases in insurance costs of $11,000.
The Company had interest expense on a related
party line of credit, related party short-term advances, convertible notes payable and accrued expenses of $90,000 offset by the
reversal of $87,000 contingent default on convertible notes payable for net interest expense of $3,000 for the three months ended
March 31, 2019. The company had interest expense on a related party line of credit and accrued expenses of $20,000 for the three
months ended March 31, 2018.
The Company had unrealized losses on trading
securities of $2,000 for the three months ended March 31, 2019 compared to unrealized losses of $11,000 for the three months ended
March 31, 2018. Unrealized gains and losses are the result of fluctuations in the quoted market price of the underlying securities
at the respective reporting dates.
LIQUIDITY AND CAPITAL RESOURCES
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.
The Company has generated a net loss from continuing
operations for the three months ended March 31, 2019 of $450,000. As of March 31, 2019, the Company had current assets of $71,000,
which included cash and cash equivalents of $26,000, accounts receivable of $24,000, prepaid expenses of $19,000 and trading securities
of $2,000.
During the three months ended March 31, 2019,
the Company has met its capital requirements through a combination of collection of receivables and related party short-term advances
of $209,000.
The
Company currently does not have sufficient cash and liquidity to meet its anticipated working capital for the next twelve months.
The Company expects future development and expansion will be financed through cash flows from operations and other forms
of financing such as the sale of additional equity and debt securities, capital leases and other credit facilities.
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. There can be no assurance
that we will be able to obtain such financing on acceptable terms, or at all.
The Company may also decide to expand and/or
diversify, through acquisition or otherwise, in other related or unrelated business areas if opportunities present themselves.
Operating Activities
- For the three
months ended March 31, 2019, the Company used cash in operating activities from continuing operations of $207,000. For the three
months ended March 31, 2018, the Company used cash in operating activities of $816,000. Operating activities consist of corporate
overhead and development of our mobile games and applications. Decreases are due to increased revenues combined with decreases
operating expenses. See the above results of operations discussion for more details.
Financing
Activities
- During the three months ended
March 31, 2019, the Company borrowed $209,000 from related party short-term
advances.
During the three months ended
March 31, 2018
,
the Company sold 4,700,000 shares of restricted common stock to third parties and one related party for $605,000, borrowed
$5,000 from related party short-term advances and borrowed $200,000 from a related party line of credit.
Government Regulations -
The Company
is subject to all pertinent Federal, State, and Local laws governing its business. Each subsidiary is subject to licensing and
regulation by a number of authorities in its State or municipality. These may include health, safety, and fire regulations. The
Company's operations are also subject to Federal and State minimum wage laws governing such matters as working conditions, overtime
and tip credits.
Critical Accounting Policies
- The
preparation of financial statements in conformity with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities of the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Note 1 to the quarterly and annual Consolidated Financial Statements
describes the significant accounting policies and methods used in the preparation of the Consolidated Financial Statements.
Estimates are used for, but not limited to, contingencies and taxes. Actual results could differ materially from those
estimates. The following critical accounting policies are impacted significantly by judgments, assumptions, and estimates
used in the preparation of the Consolidated Financial Statements.
Revenue Recognition
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.
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
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.
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.
Loss Contingencies
The Company is subject to various loss contingencies
arising in the ordinary course of business. The Company considers the likelihood of loss or impairment of an asset or the incurrence
of a liability, as well as its ability to reasonably estimate the amount of loss in determining loss contingencies. An estimated
loss contingency is accrued when management concludes that it is probable that an asset has been impaired or a liability has been
incurred and the amount of the loss can be reasonably estimated. The Company regularly evaluates current information available
to us to determine whether such accruals should be adjusted.
Recent Accounting Pronouncements
See Note 1 of the consolidated financial statements
for discussion of recent accounting pronouncements.