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.