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UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
Form
10-K/A
(Amendment No. 1)
(Mark
One)
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For
the fiscal year ended:
December 31, 2021
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For
the transition period from _______ to_______
Commission
file number
33-20111
SPYR, INC.
(Exact
Name of registrant as specified in its charter)
Nevada |
|
75-2636283 |
(State
or other jurisdiction of incorporation or organization) |
|
(I.R.S.
Employer Identification No.) |
6700 Woodlands Parkway, Ste.
230, #331 |
|
|
The Woodlands,
TX |
|
77382 |
(Address
of principal executive offices) |
|
(Zip
Code) |
Registrant’s
telephone number, including area code (303) 991-8000
Securities
registered pursuant to Section 12(b) of the Act: None
Securities
Registered Pursuant to Section 12(g) of the Act:
Common
Stock, $.0001 par value
Title
of Class
Indicate
by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. Yes ☐
No ☒
Indicate
by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. Yes ☐
No ☒
Indicate
by check mark whether the issuer (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the past 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes ☒ No ☐
Indicate
by check mark whether the registrant has submitted electronically
every Interactive Data File required to be submitted pursuant to
Rule 405 of Regulations S-T (§232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant
was required to submit such files).
Yes ☒ No ☐
Indicate
by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of “large accelerated
filer,” “accelerated filer” and “smaller reporting company” in Rule
12b-2 of the Exchange Act.
Large
accelerated filer ☐ |
|
Accelerated
filer ☐ |
Non-accelerated filer
☐ |
|
Smaller
reporting company
☒ |
|
|
Emerging
growth company
☐ |
If an
emerging growth company, indicate by check mark if the registrant
has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided
pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant has filed a report on and
attestation to its management’s assessment of the effectiveness of
its internal control over financial reporting under Section 404(b)
of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered
public accounting firm that prepared or issued its audit report.
☐
Indicate
by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Act). Yes ☐
No ☒
The
aggregate market value of the voting and non-voting common equity
held by non-affiliates, as of December 31, 2021, was $7,658,511.
As
of December 31, 2021, there were
245,050,988 shares
of the Registrant’s common stock, par value $0.0001, issued,
107,636 shares of Series A Convertible preferred stock (convertible
to 26,909,028 common shares), par value $0.0001, and 20,000 shares
of Series E Convertible preferred stock (convertible to 145,599
common shares), par value $0.0001.
EXPLANATORY NOTE
SPYR, Inc., referred to in this report as “SPYR,” the “Company,”
“we,” “us,” and “our,” is filing this Amendment No. 1 on Form
10-K/A (the “Amendment”) to its Annual Report on Form 10-K for the
Year ended December 31, 2021, originally filed on April 15, 2022
(the “Original Report”). This Amendment amends and restates Items 7
and 8 Part I and Item 15 of Part II of the Original Report. In Item
8, this Amendment includes our restated consolidated balance sheet,
consolidated statement of operations and consolidated statement of
cash flows for the year ended December 31, 2021 to correct the
errors discussed below.
Management identified multiple errors in its financial statements
which related to the following. The corrections have the effect
of:
|
1. |
Stock-based compensation accounting
for shares to be issued for services rendered to the Company during
the year ended December 31, 2021; |
|
|
|
|
2. |
Stock-based compensation accounting for shares to certain
consultants that were cancelled. |
|
|
|
|
3. |
A write down of accounts receivable
related to the Company’s discontinued operations, and classifying
cash accounts as discontinued operations |
|
|
|
|
4. |
Certain vendor invoices not recognized in the correct
accounting period. |
|
|
|
|
5. |
The fair value estimate as of
December 31, 2021 of the derivative liability related to its
convertible note agreements. |
|
|
|
|
6. |
The Company's Form 10-K failed to
include the audit report and consent from the Company's previous
audit firm Haynie & Co. for the year ended December 31,
2020. |
This Amendment amends and restates Item 7 of Part I, which includes
our revised discussion of operating results to reflect the impact
of the corrections discussed above.
In addition, the Exhibits index in Item 15 of Part II of the
Original Report is hereby amended and restated in its entirety, and
new certifications of the Company’s principal executive officer and
principal financial officer required under Section 302 and Section
906 of the Sarbanes-Oxley Act of 2002, dated as of the filing of
this Amendment, are filed and furnished, as applicable, as exhibits
to this Amendment.
Except as described above, no other changes have been made to the
Original Report. This Amendment continues to speak as of the date
of the Original Report and does not reflect events occurring after
the filing of the Original Report.
DOCUMENTS
INCORPORATED BY REFERENCE
List
hereunder the following documents if incorporated by reference and
the Part of the form 10-K (e.g., Part I, Part II, etc.) into which
the document is incorporated: (1) any annual report to security
holders; (2) any proxy or information statement; and (3) any
prospectus filed pursuant to Rule 424(b) or (c) of the Securities
Act of 1933. The listed documents should be clearly described for
identification purposes (e.g., annual report to security holders
for fiscal year ended December 24, 1980).
None
SPYR,
Inc.
Form
10-K
For
the Fiscal Year Ended December 31, 2021
TABLE
OF CONTENTS
PART I
ITEM 1. BUSINESS
Organization
and Nature of Business
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.
The
Company’s common stock is traded on OTC Markets under the symbol
“SPYR.”
The
primary focus of SPYR, Inc. (the “Company”) is to be a technology
company that through its subsidiary, Applied Magix Inc. (discussed
in more detail below), develops and resells Apple® ecosystem
compatible products with an emphasis on the smart home market,
while at the same time continuing to identify and target
acquisitions, which will grow its footprint in the technology
industry and expand the products it offers consumers, including
companies developing artificial intelligence and smart-technology
products.
The
Company has the following wholly owned subsidiaries:
|
● |
Applied
Magix a Nevada corporation (“Applied Magix”); |
|
● |
SPYR
APPS, LLC a Nevada Limited Liability Company; |
|
● |
E.A.J.:
PHL, Airport Inc. a Pennsylvania corporation; and |
Applied Magix
On
October 20, 2020, we entered into a stock purchase agreement with
Dr. Harald Zink and Richard Kelly Clark, sole shareholders of
Applied Magix, a Nevada corporation, pursuant to which we acquired
all of the issued and outstanding shares of Applied
Magix.
Through
our wholly owned subsidiary Applied Magix we are a registered
Apple® developer, and reseller of Apple ecosystem compatible
products and accessories with an emphasis on the smart home market.
As such, we are in the global “Internet of Things” (IoT) market,
and more specifically, the segment of the market related to the
development, manufacture and sale of devices and accessories
specifically built on Apple’s HomeKit® framework. These products
work within the Apple® HomeKit® ecosystem and are exclusive to the
Apple market and its consumers. Apple® HomeKit® is a system that
lets users control smart home devices, so long as they are
compatible with the HomeKit® ecosystem, giving users control over
smart thermostat, lights, locks and more in multiple rooms,
creating comfortable environments and remote control of other
connected devices.
Apple®
HomeKit® app for iOS lets users securely control, organize and
manage any smart home devices labeled as a "Works with Apple
HomeKit” accessory. In the app, users can organize accessories by
room, manage multiple accessories at the same time, control a home
with Siri, and more.
SPYR APPS, LLC
On
March 24, 2015, the Company organized its wholly owned subsidiary
SPYR APPS®, LLC, a Nevada Limited Liability Company, to
engage in 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.
Historically,
through our wholly owned subsidiary, SPYR APPS®, LLC, we
engaged in the development, publication and co-publication of
mobile electronic games, seeking to generate revenue through those
games by way of advertising and in-app purchases. Contracting with
a third-party developer, we released three games: “Plucky,” “Plucky
Rush” and Rune Guardian in April, May and December 2015,
respectively. Also, in 2015, we entered into a publishing and
marketing agreement with Spectacle Games Publishing, for its
“Massively Multiplayer Online Role Playing Game,” “Pocket
Starships.” In 2016 we obtained an exclusive option to purchase all
assets pertaining to Pocket Starships and on October 23, 2017, we
restructured and exercised the option by entering into a definitive
agreement pursuant to which we acquired all of the game related
assets of Pocket Starships. As a result, we acquired rights to
retain 100% of the revenue generated from the game and owned
outright all of the assets related to the game. The acquisition
included, among other assets, all Pocket Starships related
intellectual property, the userbase, artwork, software, internet
domains, game store accounts (such as App Store, Play Store,
Amazon, and Facebook Gameroom), web portal accounts (Facebook,
VK.com, Kongregate, etc.) and internet domains
(www.pocketstarships.com). In 2017 we signed an agreement with CBS
Consumer Products to incorporate Start Trek intellectual property
into Pocket Starships. Also, in 2017, we entered into an agreement
with Reset Studios, LLC for the development of two new idle tapper
games, the first of which was Steven Universe: Tap Together. As of
December 31, 2019, the Cartoon Network license for the Steven
Universe IP was terminated and the game was removed from the
stores. As of December 31, 2020, all of our games have been removed
from the game stores. Pursuant to current accounting guidelines,
the assets, and liabilities of SPYR APPS LLC as well as the results
of its operations are presented in these financial statements as
discontinued operations. On February 2, 2022, we filed a
Certificate of Dissolution for SPYR APPS, LLC.
E.A.J.: PHL, Airport Inc.
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
E.A.J.: PHL, Airport Inc. as well as the results of its operations
are presented in these financial statements as discontinued
operations.
Operating
Losses
The Company has incurred net loss from operations of $5,961,000 and
$3,057,000 for the years ended December 31, 2021 and 2020,
respectively. Such operating losses reflect developmental and other
administrative costs for 2021 and 2020. The Company expects to
incur losses in the near future until profitability is achieved.
The Company’s operations are subject to numerous risks associated
with establishing any new business, including unforeseen expenses,
delays, and complications. There can be no assurance that the
Company will achieve or sustain profitable operations.
Future
Capital Needs and Uncertainty of Additional Funding
Revenues
are not yet sufficient to support the Company’s operating expenses
and are not expected to reach such levels until the Company
completes its expansion plans in manufacturing, marketing and sales
of Apple® HomeKit® products.
Our
Business and Strategy
Our
primary business operation is focused on the development of our
wholly owned subsidiary Applied Magix Inc., a registered Apple®
developer, and reseller of Apple® ecosystem compatible products and
accessories with an emphasis on the smart home market. As such, we
are in the global “Internet of Things” (IoT) market, and more
specifically, the segment of the market related to the development,
manufacture and sale of devices and accessories specifically built
on Apple’s HomeKit® framework. These products work within the
Apple® HomeKit® ecosystem and are exclusive to the Apple market and
its consumers. Apple® HomeKit® is a system that lets users control
smart home devices, so long as they’re compatible with the HomeKit®
ecosystem, giving users control over smart thermostat, lights,
locks and more in multiple rooms, creating comfortable environments
and remote control of other connected devices. Our strategy is
two-fold. First, we intend to resell, under our Applied Magix
brand, a variety of chargers, cables, cords, charging docks, cases,
cameras, adaptors and other accessories used in the Apple®
ecosystem in various internet marketplaces. Secondly, we are
developing an Applied Magix branded hardware device for use with
the Apple HomeKit® framework, that will allow users to program and
securely control and manage multiple smart home devices labeled as
a "Works with Apple HomeKit” accessory through the Apple® HomeKit®
app for iOS. To date, our strategy is in the development stage. We
have yet to begin sales efforts for our branded Apple® ecosystem
compatible products and accessories, and our Apple HomeKit®
hardware device is in development.
We
will also continue to identify and target acquisitions, which will
grow our footprint in the technology industry and expand the
products we offer consumers, including companies developing
artificial intelligence and smart-technology products.
The
Company intends to utilize cash on hand, shareholder loans and
other forms of financing such as the sale of additional equity and
debt securities, capital leases and other credit facilities to
conduct its ongoing business, and to also conduct strategic
business development, marketing analysis, due diligence
investigations into possible acquisitions, and product development
costs and implementation of our business plans generally. The
Company also seeks to diversify, through acquisition or otherwise,
in other related and/or unrelated business areas and is exploring
opportunities to do so.
Government
Regulation
The
Company is subject to all pertinent federal, state, local, and
international 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.
Competition
The
Apple® HomeKit® market is highly competitive and rapidly changing.
Our ability to compete depends upon many factors within and outside
our control, including the timely development and introduction of
the Apple® HomeKit® products we market and sell, along with the
related enhancements, functionality, performance, reliability,
customer service and support and marketing efforts. We expect
additional competition from other emerging companies. Many of our
existing and potential competitors are substantially larger than us
and have significantly greater financial, technical and marketing
resources that will compete for available Apple® HomeKit® products
and development. As a result, they may be able to respond more
quickly to new or emerging technologies and changes in customer
requirements, or to devote greater resources to the Apple® HomeKit®
market. There can be no assurance that we will be able to compete
successfully against current or future competitors or that
competitive pressure will not have a material adverse effect on our
business, operating results and financial condition.
Employees
As of
the date of this filing, the Company had 3 employees, none of whom
is represented by a labor union.
ITEM 1A. RISK
FACTORS
Not
applicable to smaller reporting companies.
ITEM 1B. UNRESOLVED
STAFF COMMENTS
Not
applicable to smaller reporting companies.
ITEM 2. PROPERTIES
Our
Offices
All
administrative activities of the Company are conducted remotely
given the COVID-19 pandemic. Our mailing address is 6700 Woodlands
Parkway, Ste. 230, #331, The Woodlands, TX 77382.
ITEM 3. 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.
Information about material legal proceedings follows:
Settlements
On
June 18, 2018 the Company was named as a defendant in a case filed
in the United States District Court for the Southern District of
New York: Securities and Exchange Commission vs. Joseph A. Fiore,
Berkshire Capital Management Co., Inc., and Eat at Joe’s, Ltd.
n/k/a SPYR, Inc.(“Defendants”). Joseph A. Fiore was the Chairman of
our Board of Directors and is a significant shareholder. Mr. Fiore
resigned from his positions as Chairman of the Board and as a
Director of the Company effective August 1, 2018. The suit alleged
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 alleged
that Mr. Fiore and the Company unlawfully benefited through the
sales of those securities. The Commission also alleged 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 sought 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.
Pursuant
to a settlement agreement among the parties, on April 14, 2020,
final judgment was entered in the case: Securities and Exchange Commission vs.
Joseph A. Fiore, Berkshire Capital Management, Inc. and Eat at
Joes, Inc., n/k/a SPYR, Inc., case number
7:18-cv-05474-KMK filed in the U.S. District Court for the Southern
District of New York.
On April 23, 2020, Joseph Fiore/Berkshire Capital Management, Inc.
satisfied the Company’s joint and several liability obligations by
paying to the Commission the agreed upon sum of Two Million Dollars
pursuant to a settlement agreement between Joseph Fiore/Berkshire
Capital Management, Inc. and the Company, which settlement
agreement was entered into on April 15, 2020. The Company had until
April 14, 2021 to satisfy its remaining financial obligation to the
Commission, and has since satisfied its payment of the civil
penalty of Five Hundred Thousand Dollars ($500,000).
In
electing to settle with the Commission, the Company neither
admitted nor denied liability to any of the Commission’s
allegations in its complaint, and in consideration for the
Commission discontinuing its action, the Company, along with the
two other defendants Joseph Fiore and Berkshire Capital Management
agreed to be jointly and severally liable for disgorgement of
profits and prejudgment interest in the amount of two million
dollars, and to each be solely liable to pay a civil penalty in the
amount of five hundred thousand dollars.1
Judgments
On or
about January 24, 2019, SPYR APPS, LLC entered into an agreement
with one of its vendors, Shatter Storm Studios, to whom it owed
$84,250 for artwork related to the Steven Universe game. Pursuant
to the terms of that agreement, SPYR APPS, LLC needed to make
payment in the amount of $85,000 to cover the principal owed and
attorneys’ fees together plus 6% interest in that amount by
December 1, 2019. Should SPYR APPS, LLC not make the required
payment on or before December 1, 2019, it consented to entry of
judgment in favor of Shatter Storm Studios for the amount owed.
SPYR APPS, LLC did not make the payment and on January 27, 2020
Shatter Storm Studios initiated Case No. 1:200cv-00217 in the U.S.
District Court for the District of Colorado seeking entry of the
consent judgment against SPYR APPS, LLC. The judgment was not
contested by SPYR APPS, LLC and judgment in the amount of $85,000
plus post judgment interest at the rate of 6% was entered on March
17, 2020. The balance due as of December 31, 2021 and December 31,
2020 was approximately $100,000 and $95,000, respectively, which
includes accrued interest and attorneys’ fees, has been reported as
part of current liabilities of discontinued operations.
ITEM 4. MINE
SAFETY DISCLOSURES
Not
applicable.
|
1 |
In
addition, an injunction was entered against the Company enjoined it
from violating the antifraud, market manipulation, beneficial
ownership reporting, and other provisions of the federal securities
laws charged in the SEC’s complaint. |
PART II
|
ITEM 5. |
MARKET
FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND
ISSUER PURCHASES OF EQUITY SECURITIES |
Market
Information
The Company’s Common Stock is traded on OTC Markets under the
symbol “SPYR.” The following table presents the high and low bid
quotations for the Common Stock as reported by the OTC for each
quarter during the last two years. Such prices reflect inter-dealer
quotations without adjustments for retail markup, markdown or
commission, and do not necessarily represent actual
transactions.
2021 |
|
High |
|
|
Low |
|
First Quarter |
|
$ |
0.20 |
|
|
$ |
0.12 |
|
Second Quarter |
|
$ |
0.16 |
|
|
$ |
0.05 |
|
Third Quarter |
|
$ |
0.07 |
|
|
$ |
0.03 |
|
Fourth Quarter |
|
$ |
0.09 |
|
|
$ |
0.02 |
|
2020 |
|
|
|
|
|
|
|
|
First Quarter |
|
$ |
0.03 |
|
|
$ |
0.01 |
|
Second Quarter |
|
$ |
0.07 |
|
|
$ |
0.01 |
|
Third Quarter |
|
$ |
0.19 |
|
|
$ |
0.04 |
|
Fourth Quarter |
|
$ |
0.22 |
|
|
$ |
0.07 |
|
Dividends
The
Company has never declared or paid any cash dividends. It is the
present policy of the Company to retain earnings to finance the
growth and development of the business and, therefore, the Company
does not anticipate paying dividends on its Common Stock in the
foreseeable future.
Approximate
Number of Equity Security Holders
As of
December 31, 2021, there were 134 direct holders of record of our
Common Stock. Because shares of the Company’s Common Stock are held
by depositaries, brokers and other nominees, the number of
beneficial holders of the Company’s shares is substantially larger
than the number of stockholders of record.
|
ITEM 6. |
SELECTED
FINANCIAL DATA |
Not
applicable to smaller reporting companies.
|
ITEM 7. |
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS |
The
following discussion and analysis of our financial condition and
results of operations should be read in conjunction with the
Consolidated Financial Statements and supplementary data referred
to in this Form 10-K.
This
discussion contains forward-looking statements that involve risks
and uncertainties. Such statements, which include statements
concerning revenue sources and concentration, selling, general and
administrative expenses and capital resources, are subject to risks
and uncertainties, including, but not limited to, those discussed
elsewhere in this Form 10-K that could cause actual results to
differ materially from those projected. Unless otherwise expressly
indicated, the information set forth in this Form 10-K is as of
December 31, 2021, and we undertake no duty to update this
information.
Plan
of Operations
SPYR®,
Inc. acts as a holding company to develop a portfolio of profitable
subsidiaries, not limited by any particular industry or
business.
With
our October 20, 2020, acquisition of Applied Magix, a Nevada
corporation (“Applied Magix”), our business model changed to focus
on the development of our wholly owned subsidiary Applied Magix
Inc., a registered Apple® developer, and reseller of Apple®
ecosystem compatible products and accessories with an emphasis on
the smart home market. As such, we are in the global “Internet of
Things” (IoT) market, and more specifically, the segment of the
market related to the development, manufacture and sale of devices
and accessories specifically built on Apple’s HomeKit® framework.
These products work within the Apple® HomeKit® ecosystem and are
exclusive to the Apple market and its consumers. Apple® HomeKit® is
a system that lets users control smart home devices, so long as
they’re compatible with the HomeKit® ecosystem, giving users
control over smart thermostat, lights, locks and more in multiple
rooms, creating comfortable environments and remote control of
other connected devices. Our strategy is two-fold. First, we intend
to resell, under our Applied Magix brand, a variety of chargers,
cables, cords, charging docks, cases, cameras, adaptors and other
accessories used in the Apple® ecosystem in various internet
marketplaces. Secondly, we are developing an Applied Magix branded
hardware device for use with the Apple HomeKit® framework, that
will allow users to program and securely control and manage
multiple smart home devices labeled as a "Works with Apple HomeKit”
accessory through the Apple® HomeKit® app for iOS. To date, our
strategy is in the development stage. We have yet to begin sales
efforts for our branded Apple® ecosystem compatible products and
accessories, and our Apple HomeKit® hardware device is in
development.
We
will also continue to identify and target acquisitions, which will
grow our footprint in the technology industry and expand the
products we offer consumers, including companies developing
artificial intelligence and smart-technology products.
The
Company intends to utilize cash on hand, shareholder loans and
other forms of financing such as the sale of additional equity and
debt securities, capital leases and other credit facilities to
conduct its ongoing business, and to also conduct strategic
business development, marketing analysis, due diligence
investigations into possible acquisitions, and implementation of
our Applied Magix business plans generally. The Company also seeks
to diversify, through acquisition or otherwise, in other related
and/or unrelated business areas and is exploring opportunities to
do so.
Comparison of 2021 to 2020
The
consolidated results of continuing operations are as
follows:
For the Year Ended December 31,
2021 |
|
Applied Magix |
|
|
Corporate |
|
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
2,000 |
|
|
$ |
- |
|
|
$ |
2,000 |
|
Cost of Goods Sold |
|
|
(61,000 |
) |
|
|
- |
|
|
|
(61,000 |
) |
Labor and related
expenses |
|
|
(401,000 |
) |
|
|
(1,619,000 |
) |
|
|
(2,020,000 |
) |
Rent |
|
|
(10,000 |
) |
|
|
(63,000 |
) |
|
|
(73,000 |
) |
Depreciation and
amortization |
|
|
(7,000 |
) |
|
|
(6,000 |
) |
|
|
(13,000 |
) |
Professional fees |
|
|
(22,000 |
) |
|
|
(310,000 |
) |
|
|
(332,000 |
) |
Research and
development |
|
|
(9,000 |
) |
|
|
- |
|
|
|
(9,000 |
) |
Other general and administrative |
|
|
(216,000 |
) |
|
|
(193,000 |
) |
|
|
(409,000 |
) |
Operating loss |
|
|
(724,000 |
) |
|
|
(2,190,000 |
) |
|
|
(2,915,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense |
|
|
- |
|
|
|
(1,139,000 |
) |
|
|
(1,139,000 |
) |
Gain on disposition of
assets |
|
|
- |
|
|
|
5,000 |
|
|
|
5,000 |
|
Change in Value of derivative
liability |
|
|
- |
|
|
|
(1,586,000 |
) |
|
|
(1,586,000 |
) |
Loss on Conversion of
Debt |
|
|
- |
|
|
|
(335,000 |
) |
|
|
(335,000 |
) |
Gain on Forgiveness of
Debt |
|
|
- |
|
|
|
145,000 |
|
|
|
145,000 |
|
Impairment on Trading
Securities |
|
|
- |
|
|
|
(1,000) |
|
|
|
(1,000) |
|
Loss from continuing operations |
|
$ |
(724,000 |
) |
|
$ |
5,102,000 |
|
|
$ |
(5,826,000 |
) |
For
the Year Ended December 31, 2020 |
|
Applied
Magix |
|
|
Corporate |
|
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
Related party service
revenues |
|
|
- |
|
|
|
185,000 |
|
|
|
185,000 |
|
Labor and related expenses |
|
|
(945,000 |
) |
|
|
(1,085,000 |
) |
|
|
(2,030,000 |
) |
Rent |
|
|
- |
|
|
|
(113,000 |
) |
|
|
(113,000 |
) |
Depreciation and amortization |
|
|
(2,000 |
) |
|
|
(36,000 |
) |
|
|
(38,000 |
) |
Professional fees |
|
|
(6,000 |
) |
|
|
(95,000 |
) |
|
|
(101,000 |
) |
Research and development |
|
|
(14,000 |
) |
|
|
- |
|
|
|
(14,000 |
) |
Other general and
administrative |
|
|
(30,000 |
) |
|
|
(180,000 |
) |
|
|
(210,000 |
) |
Operating
loss |
|
|
(997,000 |
) |
|
|
(1,324,000 |
|
|
|
(2,321,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense |
|
|
- |
|
|
|
(247,000 |
) |
|
|
(247,000 |
) |
Loss on disposition of assets |
|
|
- |
|
|
|
(11,000 |
) |
|
|
(11,000 |
) |
Bargain purchase gain on acquisition
of subsidiary |
|
|
- |
|
|
|
11,000 |
|
|
|
11,000 |
|
SBA EIDL grant |
|
|
- |
|
|
|
3,000 |
|
|
|
3,000 |
|
Loss on issuance of long-term
convertible notes payable |
|
|
- |
|
|
|
(514,000 |
) |
|
|
(514,000 |
) |
Change in Value
of derivative liability |
|
|
- |
|
|
|
132,000 |
) |
|
|
132,000 |
|
Other
expense |
|
|
- |
|
|
|
(626,000 |
) |
|
|
(626,000 |
) |
Loss from
continuing operations |
|
$ |
(997,000 |
) |
|
$ |
(1,950,000 |
) |
|
$ |
(2,947,000 |
) |
Results
of Operations
For the year ended December 31, 2021, the Company had a loss from
continuing operations of $5,820,000 compared to a loss from
continuing operations of $2,947,000 for the year ended December 31,
2020, an increase of $1,769,000. This increase is due primarily to
an increase in professional fees of $231,000, and other general and
administrative costs of $193,000. Other factors contributing to the
increase include an increase in interest expense of $1,139,000 for
2021 as compared $247,000 in 2020, and a loss on the debt
modification $335,000 for 2021 as compared to no loss in 2020.
Additionally, there was a decrease in the change in value of
derivative liability from a gain of $132,000 in 2020 to a loss of
$1,586,000 in 2021, representing a total decrease of
$1,718,000.
More
detailed explanation of the year ended December 31, 2021 and 2020
changes are included in the following discussions.
Revenues - For the years ended December 31, 2021 and 2020, the
Company had non related party revenue of $2,000 and $0,
respectively. The increase was the result of development stage
operations of Applied Magix which began selling it’s Apple
ecosystem products. During the year ended December 31, 2021, the
Company had no related party services revenues, as compared to
$185,000 in revenue for professional services rendered to related
parties in 2020. The Company has not and does not anticipate that
it will provide any further professional services to related
parties. Our current business is focused on the development of our
wholly owned subsidiary, Applied Magix.
Cost of goods sold increased to $61,000 for the year ended December
31, 2021 compared $0 for to the year ended December 31, 2020. This
increase can be attributed to management’s decision to write-off
the inventory asset as of year-end due to obsolescence.
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 and directors for services.
For the year ended December 31, 2021, the company had total labor
and related expenses of $2,020,000 with $350,000 being settled in
cash, $649,000 in accrued salaries and $1,021,000 being paid in
restricted common stock and options recorded at fair value. For the
year ended December 31, 2020, the company had total labor and
related expenses of $2,030,000 with $302,000 being settled in cash,
$393,000 in accrued salaries and $1,335,000 being paid in
restricted common stock and options recorded at fair value.
The cost of rent decreased to $73,000 for the year ended December
31, 2021 from $113,000 for the year ended December 31, 2020 a
decrease of $40,000.
The Company leased approximately 5,169 square feet at 4643 South
Ulster Street, Denver, Colorado pursuant to an amended lease dated
May 21, 2015. Under the lease, the Company paid annual base rent on
an escalating scale ranging from $143,000 to $152,000. In addition
to the minimum basic rent, rent expense also includes approximately
$1,000 per month for other items charged by the landlord in
connection with rent. On May 1, 2020 and July 29, 2020, the Company
entered into amended lease agreements with its landlord. Under the
terms of the amendments, the landlord agreed to waive rent, certain
rent adjustments and parking for the period April 1, 2020 through
August 31, 2020 and extend the term of the lease by five months.
The lease term date, which was December 31, 2020, was changed to
May 31, 2021. On April 1, 2021, the Company entered into a lease
termination and payment agreement with the landlord, pursuant to
which the Company vacated and surrendered the premises to the
landlord and the Company will pay approximately $67,000 over 18
months commencing April 1, 2021. As of November 1, 2021, the
Company was delinquent in its monthly payments and has not made
payments to date pursuant to the settlement agreement and had
approximately $42,000 in unpaid rent which was reported as part of
accounts payable and accrued expenses in the accompanying condensed
consolidated balance sheet as of December 31, 2021.
Effective March 1, 2021, the Company’s wholly owned subsidiary
Applied Magix, entered into a 6-month lease for 2 workspace offices
located at 1230 Rosecrans Ave, Manhattan Beach, California. The
lease automatically renews on a continuing basis for an additional
6 months unless cancelled in writing 60 days prior the lease
termination date. Under the lease, the Company pays monthly rent of
$1,400.
Depreciation
and amortization expenses was $13,000 for the year ended December
31, 2021 compared to $38,000 for the year ended December 31, 2020,
a decrease of $25,000. Depreciation and amortization expenses are
attributable to depreciation of the property and equipment and
amortization of intangible assets in service during respective
periods. We expect depreciation and amortization expenses to
decrease in 2022 commensurate with the sale of additional property,
equipment, and intangible assets in connection with our planned
Applied Magix business operations.
Professional fees increased to $332,000 for the year ended December
31, 2021 from $101,000 for the year ended December 31, 2020, an
increase of $231,000. Professional fees during 2021 included
$83,000 in legal, accounting, and other professional service needs,
$22,000 in consulting services related to our Applied Magix
operations, and $123,000 for public relations. Professional fees
during 2020 included $92,000 in legal, accounting, and other
professional service needs, $6,000 in consulting services related
to our Applied Magix operations and $3,000 for public
relations.
Research
and development costs during the year ended December 31, 2021
included $9,000 in connection with the research and testing of
products for our Applied Magix operations, compared to $14,000
during the year ended December 31, 2020, a decrease of
$5,000.
Other
general and administrative expenses increased to $409,000 for the
year ended December 31, 2021 compared $210,000 for to the year
ended December 31, 2020. The increase can be attributed primarily
to increases in advertising and promotion costs attributable to
Applied Magix.
The Company had interest expense on a line of credit, short-term
advances, convertible notes payable and accrued expenses of
$1,139,000 for the year ended December 31, 2021. The Company had
interest expense on a line of credit, short-term advances,
convertible notes payable and accrued expenses of $247,000 for the
year ended December 31, 2020.
The
Company sold certain office equipment for $10,000 which resulted in
a gain on disposition of assets of $5,000 for the year ended
December 31, 2021. The Company sold office equipment for a total of
$9,000 for the year ended December 31, 2020, which resulted in a
corresponding loss of $11,000.
The
Company recognized no loss on the issuance of long-term convertible
notes payable for the year ended December 31, 2021, compared to
$514,000 for the year ended December 31, 2020.
The Company recognized a loss on the change in value of a
derivative liability related to its long-term convertible notes
payable in the amount of $1,586,000 for the year ended December 31,
2021. The Company recognized a gain for the year ended December 31,
2020 in the amount of $132,000.
During the year ended December 31, 2020, the Company accrued
$500,000 in connection with litigation and legal settlement
liabilities. The $500,000 liability was reported as part of
accounts payable and accrued liabilities on the accompanying
consolidated balance sheets as of December 31, 2020. There were no
such accrued liabilities with litigation and settlement expenses in
2021.
The Company had impairment on trading securities of $1,000 for the
year ended December 31, 2021 compared to no impairment on trading
securities for the year ended December 31, 2020. Unrealized gains
and losses are the result of fluctuations in the quoted market
price of the underlying securities at the respective reporting
dates.
At December 31, 2021, the Company expects to receive deferred tax
assets arising from net operating loss carry-forwards, capital loss
carry-overs, unrealized losses on trading securities, and
deductible temporary differences. As of the date of this filing,
this amount is indeterminable. As of December 31, 2020, the Company
had deferred tax assets arising from net operating loss
carry-forwards, capital loss carry-overs, unrealized losses on
trading securities, and deductible temporary differences of
approximately $25,100,000. During the year ended December 31, 2020,
the Company increased its net operating loss carry-forwards by
approximately $1,200,000, had capital losses carry-forwards of
approximately $2,200,000 expire and increased its other deductible
temporary differences by approximately $600,000. Management
believes it is more likely than not that forecasted income,
together with future reversals of existing taxable temporary
differences, will not be sufficient to fully recover the deferred
tax assets and has established a 100% valuation allowance of
$5,280,000 against these potential future tax benefits. The Company
will continue to evaluate the realizability of deferred tax assets
quarterly.
Discontinued
Operations
Through
our wholly owned subsidiary, SPYR APPS®, LLC, during the
year ended December 31, 2015 through December 31, 2020, we engaged
in the development, publication, and co-publication of mobile
electronic games, seeking to generate revenue through those games
by way of advertising and in-app purchases. During October, 2020
the Company changed its focus away from this line of business. As
of December 31, 2020, all of our games had been removed from the
game stores. Pursuant to current accounting guidelines, the assets,
and liabilities of SPYR APPS LLC as well as the results of its
operations are presented in these financial statements as
discontinued operations. On February 22, 2022, the Company
dissolved SPYR APPS®, LLC. On April 20, 2021, the
Company dissolved Branded Food Concepts, Inc.
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 are presented in the
accompanying financial statements as discontinued
operations.
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 for the year ended December
31, 2021 of $5,961,000 and utilized cash in operations of $974,000.
As of December 31, 2021, the Company had current assets of $82,000,
which included cash and cash equivalents of $32,000, prepaid
expenses of $47,000, and current assets of discontinued operations
of $3,000.
During the year ended December 31, 2021 the Company met its capital
requirements through a combination of collection of receivables,
proceeds from long-term convertible notes payable, proceeds of SBA
PPP note payable and SBA Economic Injury Disaster Loan (“EIDL”),
and through the use of existing cash reserves.
The
Company also entered into an Equity Line of Credit pursuant to an
Equity Purchase Agreement with Brown Stone Capital, LP, dated
September 30, 2020. Pursuant to the Equity Purchase Agreement,
Brown Stone agreed to invest up to $14,000,000 to purchase the
Company’s Common Stock, par value $0.0001 per share. The purchase
price of the common shares is the lesser of the Fixed price or
Market price. The Fixed price is $0.50 per share in years 1 and 2,
after the effectiveness of a registration statement, and $1.00 per
share in years 3, 4 and 5 after the effectiveness of a registration
statement covering the underlying shares. The Market price is 70%
of the three lowest Variable Weighted Average Price (“VWAP”) for
the Company’s common stock during the 10 trading day period
immediately prior to the conversion date. In addition, the Company
and Brown Stone entered into a Registration Rights Agreement,
whereby the Company agreed to provide certain registration rights
under the Securities Act of 1933, as amended, and the rules and
regulations thereunder, and applicable state securities laws, with
respect to the shares of Common Stock issuable for Brown Stone’s
investment pursuant to the Equity Purchase Agreement. The Equity
Purchase Agreement terminates five years after the Effective Date
or conditioned upon the following events: (i) when Brown Stone has
purchased the maximum purchase amount; or (ii) in the event a
voluntary or involuntary bankruptcy petition is filed concerning
the Company; or, (iii) if a Custodian is appointed for the Company
or if the Company makes a general assignment for all or
substantially all of its property for the benefit of its
creditors.
The
Company currently does not have sufficient cash and liquidity to
meet its anticipated working capital for the next twelve months.
The Company will continue to seek additional capital through the
sale of its common stock, debt financing and through expansion of
its existing and new products. If these goals do not materialize as
planned, we believe that the Company can reduce its operating and
product development costs and 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 year ended December 31, 2021
and 2020, the Company used cash for operating activities of
$974,000 and $521,000 respectively. For the year ended
December 31, 2021, net cash used in operating activities from
continuing operations of $974,000 consisted of net loss of
$5,961,000, which included non-cash costs of depreciation and
amortization of $13,000, amortization of debt discounts of
$553,000, loss on discontinued operations of $135,000, common stock
issued for services of $896,000, common stock issued for employee
compensation of $239,000, loss on debt modification of $335,000 and
loss on change of fair value derivative liability of $1,586,000.
Changes in operating assets and liabilities included changes in
accounts payable and accrued liabilities of $802,000, accrued
interest on notes payable of $209,000 and accrued interest and
liquidated damages on convertible notes of $352,000. For
the year ended December 31, 2020, net cash used in operating
activities of $501,000 consisted of net loss of $3,057,000, which
included non-cash costs of depreciation and amortization of
$38,000, amortization of debt discounts of $50,000, loss on
discontinued operations of $110,000, common stock issued for
employee compensation of $1,335,000 and gain on change of fair
value derivative liability of $132,000. Changes in operating assets
and liabilities included changes in accounts payable and accrued
liabilities of $420,000, and accrued interest and liquidated
damages on convertible notes of $59,000.
Investing
Activities – During the year ended December 31, 2021, the
Company sold property and equipment for $10,000. The Company sold
property and equipment for $9,000 during the year ended December
31, 2020 and purchased property and equipment for
$15,000.
Financing Activities – During the year ended December 31,
2021, the Company borrowed $215,000 from long-term notes payable,
$198,000 from short-term notes payable and $73,000 from the U.S.
Small Business Administration pursuant to the Paycheck Protection
Program; During the year ended December 31, 2020, the Company
borrowed $1,000,000 pursuant to long-term convertible notes payable
from a third-party lender, $71,000 from the U.S. Small Business
Administration pursuant to the Paycheck Protection Program and
received a $3,000 EIDL from the U.S. Small Business Administration.
In addition, the Company paid $47,000 in settlement of a short-term
convertible note payable to a third-party lender.
Government
Regulations - The Company is subject to all pertinent federal,
state, local and international 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 other
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
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. The Company’s only revenue stream is currently from
transactions as a registered reseller of Apple® ecosystem
compatible products, accessories and related applications with an
emphasis on the smart home market. The Company has had minimal
sales to date. The Company’s revenue is recognized at a point in
time when the sale of the product is completed. There is no
significant financing component from the Company’s sales.
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.
Derivative Financial Instruments
The Company evaluates all of its agreements to determine if such
instruments have derivatives or contain features that qualify as
embedded derivatives. For derivative financial instruments that are
accounted for as liabilities, the derivative instrument is
initially recorded at its fair value and is then re-valued at each
reporting date, with changes in the fair value reported in the
statements of operations. For stock-based derivative financial
instruments, the Company uses the Binomial Valuation model to value
the derivative instruments at inception and on subsequent valuation
dates. The classification of derivative instruments, including
whether such instruments should be recorded as liabilities or as
equity, is evaluated at the end of each reporting period.
Derivative instrument liabilities are classified in the balance
sheet as current or non-current based on whether or not net-cash
settlement of the derivative instrument could be required within 12
months of the balance sheet date. The Company’s only derivative
financial instruments were embedded conversion features associated
with long-term convertible notes payable which contain certain
provisions that allow for a variable number of shares on
conversion.
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.
ITEM 7A. QUANTITATIVE
AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Not
applicable.
ITEM 8. FINANCIAL
STATEMENTS AND SUPPLEMENTAL DATA
 |
FL Office
7951 SW 6th Street, Suite 216
Plantation, FL 33324
Tel: 954-424-2345
Fax: 954-424-2230
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
To the Board of Directors and Stockholders of
SPYR, Inc. and Its Subsidiaries:
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of
SPYR, Inc. and its subsidiaries (“the Company”) as of December 31,
2021 and the related statements of operations, stockholders’
deficit, cash flows and the related notes to consolidated financial
statements (collectively referred to as the consolidated financial
statements) for the year ended December 31, 2021. In our opinion,
the consolidated financial statements present fairly, in all
material respects, the financial position of the Company at
December 31, 2021, and the results of its operations and its cash
flows for the year then ended, in conformity with accounting
principles generally accepted in the United States of America.
Restatement of 2021 Financial Statements
As discussed in Note 1 to the consolidated financial statements,
the December 31, 2021 consolidated financial statements have been
restated to correct misstatements.
Basis for Opinion
These financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on the
Company’s financial statements based on our audits. We are a public
accounting firm registered with the PCAOB and are required to be
independent with respect to the Company in accordance with the U.S.
federal securities laws and the applicable rules and regulations of
the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the
PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial
statements are free of material misstatement, whether due to error
or fraud. Our audits included performing procedures to assess the
risks of material misstatement of the financial statements, whether
due to error or fraud, and performing procedures that respond to
those risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the financial
statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as
well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis
for our opinion.
The Company’s Ability to Continue as a Going Concern
The accompanying consolidated financial statements have been
prepared assuming that the Company will continue as a going
concern. As discussed in Note 1 to the consolidated financial
statements, the Company has an accumulated deficit, recurring
losses, and expects continuing future losses, These factors raise
substantial doubt about the Company’s ability to continue as a
going concern. Management’s evaluation of the events and conditions
and management’s plans regarding these matters are also described
in Note 1. The consolidated financial statements do not include any
adjustments that might result from the outcome of this
uncertainty.
Critical Audit Matters
The critical audit matters communicated below are matters arising
from the current period audit of the financial statements that were
communicated or required to be communicated to the audit committee
and that: (1) relate to accounts or disclosures that are material
to the financial statements and (2) involved our especially
challenging, subjective, or complex judgments. The communication of
critical audit matters does not alter in any way our opinion on the
financial statements, taken as a whole, and we are not, by
communicating the critical audit matters below, providing separate
opinions on the critical audit matters or on the accounts or
disclosures to which they relate.
Discontinued operations – Restaurant and Digital Media:
As described in Note 16 to the consolidated financial statements,
the Company has determined that its restaurant and digital medial
subsidiaries meet the criteria for discontinued operations in the
consolidated financial statements as of December 31, 2021.
Significant and complex judgements are required in evaluating
discontinued operations recognition particularly when the possible
transaction is approaching or in excess of one year from the
initial accounting recognition as a discontinued operation.
The principal audit procedures related to the evaluation of
discontinued operations classification as of December 31, 2021
included the following:
|
· |
We evaluated and tested the design
and implementation of the Company’s controls related to the
evaluation and approval of complex, significant and usual
transactions, and the related accounting; |
|
· |
Obtained management's discontinued
operations analysis including assessment of the specific facts and
circumstances around legal, regulatory, and economic factors that
were relevant in the Company’s analysis as of December 31,
2021; |
|
· |
Evaluated the basis for
management's conclusions against the framework for evaluating
discontinued operations with a focus on disruptions in the sale of
their insurance subsidiary due to legal, regulatory, and economic
factors; |
|
· |
Obtained supporting documentation
for management's current status and sales efforts related to the
restaurant and digital media. |
|
· |
Evaluated management’s ability and
intent to execute management’s plans based on prior
experience. |
Convertible Notes
As discussed in Note 10 and11 to the consolidated financial
statements, the Company had various debt instruments which included
conversion features requiring bifurcation and separate accounting.
Management evaluated the required accounting, significant
estimates, and judgments around the valuation for these embedded
derivatives. These embedded derivatives were initially measured at
fair value and have subsequently been remeasured to fair value at
each reporting period and at settlement.
There is no current observable market for these types of features
and, as such, the Company determined the fair value of the embedded
derivatives using a binomial option pricing model to measure the
fair value of the bifurcated derivative. As a result, a high degree
of auditor judgment and effort was required in performing audit
procedures to evaluate the conclusions reached by management as
well as the inputs to the Company’s binomial option pricing
model.
Our principal audit procedures performed to address this critical
audit matter included the following:
|
· |
We obtained an understanding of the
controls and processes surrounding the evaluation, initial
measurement and revaluation of the bifurcated derivatives. |
|
· |
We evaluated management’s
assessment and the conclusions reached to ensure these instruments
were recorded in accordance with the relevant accounting
guidance. |
We evaluated the fair value of the bifurcated derivatives that
included testing the valuation models and assumptions utilized by
management. We reviewed and tested the fair value model used,
significant assumptions, and underlying data used in the model.
The firm has served this client since January 2022.
/s/
L&L CPAS, PA
L&L CPAS, PA
Certified Public Accountants
Plantation, FL
The
United States of America
April 15, 2022, except for
the effects of the restatement described in Note 1, as to which the
date is August 30, 2022
454

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of SPYR, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of
SPYR, Inc. (the Company) as of December 31, 2020 and 2019, and the
related consolidated statements of operations, changes in
stockholders’ equity (deficit), and cash flows for each of the
years in the two-year period ended December 31, 2020, and the
related notes (collectively referred to as the financial
statements). In our opinion, the financial statements present
fairly, in all material respects, the financial position of the
Company as of December 31, 2020 and 2019, and the results of its
operations and its cash flows for each of the years in the two-year
period ended December 31, 2020, in conformity with accounting
principles generally accepted in the United States of America.
Consideration of the Company’s Ability to Continue as a Going
Concern
The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in
Note 1 to the financial statements, the Company has recognized
recurring losses, negative cash flows from operations, and
currently has minimal revenue producing activities. This raises
substantial doubt about the Company’s ability to continue as a
going concern. Management’s plans with regard to these matters are
also described in Note 1. The financial statements do not include
any adjustments that might result from the outcome of this
uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on the
Company’s financial statements based on our audits. We are a public
accounting firm registered with the Public Company Accounting
Oversight Board (United States) (PCAOB) and are required to be
independent with respect to the Company in accordance with the U.S.
federal securities laws and the applicable rules and regulations of
the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the
PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial
statements are free of material misstatement, whether due to error
or fraud. The Company is not required to have, nor were we engaged
to perform, an audit of its internal control over financial
reporting. As part of our audits, we are required to obtain an
understanding of internal control over financial reporting, but not
for the purpose of expressing an opinion on the effectiveness of
the Company’s internal control over financial reporting.
Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of
material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those
risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the financial
statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as
well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis
for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising
from the current period audit of the financial statements that were
communicated or required to be communicated to the audit committee
and that: (1) relate to accounts or disclosures that are material
to the financial statements and (2) involved our especially
challenging, subjective, or complex judgments. The communication of
critical audit matters does not alter in any way our opinion on the
financial statements, taken as a whole, and we are not, by
communicating the critical audit matters below, providing separate
opinions on the critical audit matters or on the accounts or
disclosures to which they relate.
Complex Financing Transactions
Description of the
Matter:
As discussed in Note 8 to
the consolidated financial statements, the Company’s financing
transactions include convertible notes which are convertible into a
variable number of shares. As a result, the conversion feature is
bifurcated from the debt host and accounted for as a derivative
liability. Derivative accounting is complex and involves judgement
and estimations.
How We Addressed the Matter in Our
Audit:
We reviewed the underlying
convertible note agreements, evaluated management’s selection of a
valuation method, tested the inputs used in the Black-Scholes
calculation by agreeing terms of the debt agreements and market
information to third-party sites, and recalculated the derivative
liability. We also reviewed the Company’s debt agreements to
determine if there were unidentified derivatives.
Haynie & Company
Salt Lake City, Utah
March 31, 2021
|
|
|
We
have served as the Company’s auditor since 2018. |
SPYR, Inc. and Subsidiaries
Consolidated
Balance Sheets
(Audited)
|
|
December 31, |
|
|
December 31, |
|
|
|
2021 |
|
|
2020 |
|
|
|
(As Restated) |
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
|
Current Assets: |
|
|
|
|
|
|
|
|
Cash and Cash Equivalents |
|
$ |
32,000 |
|
|
$ |
510,000 |
|
Other Receivables |
|
|
- |
|
|
|
4,000 |
|
Prepaid Expenses |
|
|
47,000 |
|
|
|
49,000 |
|
Trading Securities, at Market Value |
|
|
- |
|
|
|
1,000 |
|
Current Assets of Discontinued Operations |
|
|
3,000 |
|
|
|
13,000 |
|
Total Current Assets |
|
|
82,000 |
|
|
|
577,000 |
|
|
|
|
|
|
|
|
|
|
Non-Current Assets: |
|
|
|
|
|
|
|
|
Property and Equipment, net |
|
|
16,000 |
|
|
|
31,000 |
|
Intangible Assets, net |
|
|
- |
|
|
|
3,000 |
|
Operating Lease Right-of-Use Asset |
|
|
- |
|
|
|
28,000 |
|
Other Assets |
|
|
1,000 |
|
|
|
13,000 |
|
Non-Current Assets of Discontinued Operations |
|
|
- |
|
|
|
75,000 |
|
TOTAL ASSETS |
|
$ |
99,000 |
|
|
$ |
727,000 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES & STOCKHOLDERS’ DEFICIT |
|
|
|
|
|
|
|
|
Current Liabilities: |
|
|
|
|
|
|
|
|
Accounts Payable and Accrued Liabilities |
|
$ |
1,825,000 |
|
|
$ |
1,061,000 |
|
Settlement Liability |
|
|
- |
|
|
|
500,000 |
|
Short-Term Advances |
|
|
- |
|
|
|
1,184,000 |
|
Line of Credit |
|
|
- |
|
|
|
1,204,000 |
|
Related Party Notes Payable, current portion |
|
|
524,000 |
|
|
|
- |
|
Notes Payable, current portion |
|
|
38,000 |
|
|
|
- |
|
Short-Term Convertible Notes Payable, net of discount |
|
|
206,000 |
|
|
|
- |
|
SBA PPP Note Payable, current portion |
|
|
- |
|
|
|
51,000 |
|
Operating Lease Liability, current portion |
|
|
- |
|
|
|
54,000 |
|
Current Liabilities of Discontinued Operations |
|
|
815,000 |
|
|
|
767,000 |
|
Total Current Liabilities |
|
|
3,408,000 |
|
|
|
4,821,000 |
|
|
|
|
|
|
|
|
|
|
Other Liabilities: |
|
|
|
|
|
|
|
|
Notes Payable |
|
|
2,534,000 |
|
|
|
- |
|
SBA PPP Note Payable |
|
|
- |
|
|
|
20,000 |
|
Long-Term Convertible Notes Payable, net of discount |
|
|
286,000 |
|
|
|
64,000 |
|
Derivative Liability |
|
|
1,907,000 |
|
|
|
1,382,000 |
|
Total Liabilities |
|
|
8,135,000 |
|
|
|
6,287,000 |
|
|
|
|
|
|
|
|
|
|
Stockholders’ Deficit: |
|
|
|
|
|
|
|
|
Preferred Stock, Class A, $0.0001
par value, 10,000,000
shares authorized; 107,636
shares issued and outstanding as of December 31, 2021 and December
31, 2020, respectively |
|
|
11 |
|
|
|
11 |
|
Preferred Stock, Class E, $0.0001
par value, 10,000,000
shares authorized; 20,000
shares issued and outstanding as of December 31, 2021 and December
31, 2020, respectively |
|
|
2 |
|
|
|
2 |
|
Common
Stock, $0.0001 par
value, 750,000,000
shares authorized; 245,050,988
and 210,137,631
shares issued and outstanding as of December 31, 2021 and December
31, 2020, respectively |
|
|
24,505 |
|
|
|
21,014 |
|
Common stock to be issued |
|
|
425,097 |
|
|
|
- |
|
Additional Paid-In Capital |
|
|
58,448,385 |
|
|
|
55,391,973 |
|
Accumulated Deficit |
|
|
(66,934,000 |
) |
|
|
(60,973,000 |
) |
|
|
|
|
|
|
|
|
|
Total Stockholder’s Deficit |
|
|
(8,036,000 |
) |
|
|
(5,560,000 |
) |
TOTAL LIABILITIES AND STOCKHOLDER’S DEFICIT |
|
$ |
99,000 |
|
|
$ |
727,000 |
|
The
accompanying notes are an integral part of these audited
consolidated financial statements
SPYR, Inc. and Subsidiaries
Consolidated
Statements of Operations
(Audited)
|
|
|
|
|
|
|
|
|
|
|
For The
Years Ended |
|
|
|
December 31, |
|
|
|
2021 |
|
|
2020 |
|
|
|
(As Restated)
|
|
|
|
|
Revenues |
|
$ |
2,000 |
|
|
$ |
- |
|
Related Party Service Revenues |
|
|
- |
|
|
|
185,000 |
|
Cost of Goods Sold |
|
|
(61,000 |
) |
|
|
- |
|
Gross Profit (Loss) |
|
|
(59,000 |
) |
|
|
185,000 |
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
Labor and Related Expenses |
|
|
2,020,000 |
|
|
|
2,030,000 |
|
Rent |
|
|
73,000 |
|
|
|
113,000 |
|
Depreciation and Amortization |
|
|
13,000 |
|
|
|
38,000 |
|
Professional Fees |
|
|
332,000 |
|
|
|
101,000 |
|
Research and Development |
|
|
9,000 |
|
|
|
14,000 |
|
Other General and Administrative |
|
|
409,000 |
|
|
|
210,000 |
|
Total Operating Expenses |
|
|
2,856,000 |
|
|
|
2,506,000 |
|
|
|
|
|
|
|
|
|
|
Operating Loss |
|
|
(2,915,000 |
) |
|
|
(2,321,000 |
) |
|
|
|
|
|
|
|
|
|
Other Income (Expenses) |
|
|
|
|
|
|
|
|
Interest Expense |
|
|
(1,139,000 |
) |
|
|
(247,000 |
) |
Gain (Loss) on Disposition of Assets |
|
|
5,000 |
|
|
|
(11,000 |
) |
Gain on Forgiveness of Debt |
|
|
145,000 |
|
|
|
- |
|
Loss on Debt Modification |
|
|
(335,000 |
) |
|
|
- |
|
Bargain Purchase Gain on Acquisition of Subsidiary |
|
|
- |
|
|
|
11,000 |
|
SBA EIDL Grant |
|
|
- |
|
|
|
3,000 |
|
Loss on Issuance of Long-Term Convertible Notes Payable |
|
|
- |
|
|
|
(514,000 |
) |
Change in Value of Derivative Liability |
|
|
(1,586,000 |
) |
|
|
132,000 |
|
Impairment on Trading Securities |
|
|
(1,000 |
) |
|
|
- |
|
Total Other Income (Expenses) |
|
|
(2,911,000 |
) |
|
|
(626,000 |
) |
|
|
|
|
|
|
|
|
|
Loss from Continuing Operations |
|
|
(5,826,000 |
) |
|
|
(2,947,000 |
) |
Loss from Discontinued Operations |
|
|
(135,000 |
) |
|
|
(110,000 |
) |
Net Loss |
|
$ |
(5,961,000 |
) |
|
$ |
(3,057,000 |
) |
|
|
|
|
|
|
|
|
|
Basic and diluted loss per common share |
|
$ |
(0.03 |
) |
|
$ |
(0.01 |
) |
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding |
|
|
221,315,426 |
|
|
|
203,839,473 |
|
The
accompanying notes are an integral part of these audited
consolidated financial statements
SPYR, Inc. and Subsidiaries
Consolidated
Statements of Stockholders’ Deficit
For
The Years Ended December 31, 2021, 2020, and 2019
(Audited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Stock, Class A |
|
|
Preferred Stock, Class E |
|
|
Common Stock |
|
|
Common Stock
To be |
|
|
Additional
Paid In
Capital |
|
|
Accumulated
Deficit |
|
|
Total |
|
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Issued |
|
|
Amount |
|
|
Amount |
|
|
Amount |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, 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 |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,550,000 |
|
|
|
155 |
|
|
|
- |
|
|
|
142,845 |
|
|
|
- |
|
|
|
143,000 |
|
Fair Value of Common Stock and Warrants Issued for Services |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
25,000 |
|
|
|
3 |
|
|
|
- |
|
|
|
1,997 |
|
|
|
- |
|
|
|
2,000 |
|
Fair Value of Common Stock Issued for Conversion of Notes
Payable |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,000,000 |
|
|
|
100 |
|
|
|
- |
|
|
|
99,900 |
|
|
|
- |
|
|
|
100,000 |
|
Net Loss |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(1,965,000 |
) |
|
|
(1,965,000 |
) |
Balance, December 31, 2019 |
|
|
107,636 |
|
|
$ |
11 |
|
|
|
20,000 |
|
|
$ |
2 |
|
|
|
200,880,131 |
|
|
$ |
20,088 |
|
|
$ |
- |
|
|
$ |
53,509,899 |
|
|
$ |
(57,916,000 |
) |
|
$ |
(4,386,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2019 |
|
|
107,636 |
|
|
$ |
11 |
|
|
|
20,000 |
|
|
$ |
2 |
|
|
|
200,880,131 |
|
|
$ |
20,088 |
|
|
|
- |
|
|
$ |
53,509,899 |
|
|
$ |
(57,916,000 |
) |
|
$ |
(4,386,000 |
) |
Fair Value of Common Stock and Options Issued for Employee and
Director Compensation |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
5,850,000 |
|
|
|
585 |
|
|
|
- |
|
|
|
1,334,415 |
|
|
|
- |
|
|
|
1,335,000 |
|
Fair Value of Common Stock and Warrants Issued for Conversion of
Notes Payable |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
3,407,500 |
|
|
|
341 |
|
|
|
- |
|
|
|
547,659 |
|
|
|
- |
|
|
|
548,000 |
|
Net Loss |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(3,057,000 |
) |
|
|
(3,057,000 |
) |
Balance, December 31, 2020 |
|
|
107,636 |
|
|
$ |
11 |
|
|
|
20,000 |
|
|
$ |
2 |
|
|
|
210,137,631 |
|
|
$ |
21,014 |
|
|
$ |
- |
|
|
$ |
55,391,973 |
|
|
$ |
(60,973,000 |
) |
|
$ |
(5,560,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2020 |
|
|
107,636 |
|
|
$ |
11 |
|
|
|
20,000 |
|
|
$ |
2 |
|
|
|
210,137,631 |
|
|
$ |
21,014 |
|
|
$ |
- |
|
|
$ |
55,391,973 |
|
|
$ |
(60,973,000 |
) |
|
$ |
(5,560,000 |
) |
Fair Value of Restricted Common Stock and Options Issued for
Employee and Director Compensation |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,550,000 |
|
|
|
155 |
|
|
|
- |
|
|
|
238,845 |
|
|
|
- |
|
|
|
239,000 |
|
Fair Value of S-8 Registered Common Stock Issued for Services |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
3,000,000 |
|
|
|
300 |
|
|
|
- |
|
|
|
371,000 |
|
|
|
- |
|
|
|
371,300 |
|
Fair Value of Restricted Common Stock Issued for Services |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,242,854 |
|
|
|
124 |
|
|
|
425,097
|
|
|
|
99,876 |
|
|
|
- |
|
|
|
525,097 |
|
Fair Value of Common Stock Issued for Conversion of Notes
Payable |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
29,120,503 |
|
|
|
2,912 |
|
|
|
- |
|
|
|
1,242,680 |
|
|
|
- |
|
|
|
1,245,592 |
|
Extinguishment of derivative liability from conversion of notes
payable
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,104,011 |
|
|
|
- |
|
|
|
1,104,011 |
|
Net Loss |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(5,961,000 |
) |
|
|
(5,961,000 |
) |
Balance, December 31, 2021 – As Restated |
|
|
107,636 |
|
|
$ |
11 |
|
|
|
20,000 |
|
|
$ |
2 |
|
|
|
245,050,988 |
|
|
$ |
24,505 |
|
|
$ |
425,097 |
|
|
$ |
58,448,385 |
|
|
$ |
(66,934,000 |
) |
|
$ |
(8,036,000 |
) |
The
accompanying notes are an integral part of these audited
consolidated financial statements
SPYR, Inc. and Subsidiaries
Consolidated
Statements of Cash Flows
(Audited)
|
|
|
|
|
|
|
|
|
|
|
For The
Year Ended |
|
|
|
December 31, |
|
|
|
2021 |
|
|
2020 |
|
|
|
|
(As Restated)
|
|
|
|
|
|
Cash Flows From Operating Activities: |
|
|
|
|
|
|
|
|
Net Loss |
|
$ |
(5,961,000 |
) |
|
$ |
(3,057,000 |
) |
Adjustments to Reconcile Net Loss to Net Cash Used in Operating
Activities: |
|
|
|
|
|
|
|
|
Loss on Discontinued Operations |
|
|
135,000 |
|
|
|
110,000 |
|
Depreciation and Amortization |
|
|
13,000 |
|
|
|
38,000 |
|
Common Stock Issued for Employee Compensation |
|
|
239,000 |
|
|
|
1,335,000 |
|
Common Stock Issued for Services |
|
|
896,000 |
|
|
|
- |
|
Amortization of Debt Discounts on Convertible Notes Payable |
|
|
553,000 |
|
|
|
50,000 |
|
Impairment on trading securities |
|
|
1,000 |
|
|
|
- |
|
Loss (Gain) on Disposition of Assets |
|
|
(5,000 |
) |
|
|
11,000 |
|
Bargain Purchase Gain on Acquisition of Subsidiary |
|
|
- |
|
|
|
(11,000 |
) |
Loss on Debt Modification |
|
|
335,000 |
|
|
|
- |
|
Gain on Forgiveness of Debt |
|
|
(145,000 |
) |
|
|
- |
|
SBA EIDL Grant |
|
|
- |
|
|
|
(3,000 |
) |
Loss on Issuance of Long-Term Convertible Notes Payable |
|
|
- |
|
|
|
514,000 |
|
Change in Value of Derivative Liability |
|
|
1,586,000 |
|
|
|
(132,000 |
) |
Changes in Operating Assets and Liabilities: |
|
|
|
|
|
|
|
|
Decrease in Receivable from Related Parties |
|
|
- |
|
|
|
50,000 |
|
Increase in Other Receivables and Other Assets |
|
|
16,000 |
|
|
|
(4,000 |
) |
(Increase) Decrease in Prepaid Expenses |
|
|
2,000 |
|
|
|
(34,000 |
) |
Decrease in Operating Lease Right-of-Use Asset |
|
|
28,000 |
|
|
|
14,000 |
|
Decrease in Operating Lease Right-of-Use Liability |
|
|
(54,000 |
) |
|
|
- |
|
Increase in Accounts Payable and Accrued Liabilities |
|
|
802,000 |
|
|
|
420,000 |
|
Increase in Accrued Interest on Related Party Notes Payable |
|
|
24,000 |
|
|
|
- |
|
Increase in Accrued Interest on Short-Term Advances |
|
|
- |
|
|
|
69,000 |
|
Increase in Accrued Interest on Notes Payable |
|
|
209,000 |
|
|
|
- |
|
Increase in Accrued Interest on Line of Credit |
|
|
- |
|
|
|
70,000 |
|
Increase in Accrued Interest and Liquidated Damages on Convertible
Notes |
|
|
352,000 |
|
|
|
59,000 |
|
Net Cash Used in Operating Activities from Continuing
Operations |
|
|
(974,000 |
) |
|
|
(501,000 |
) |
Net Cash Provided by (Used in) Operating Activities from
Discontinued Operations |
|
|
- |
|
|
|
(20,000 |
) |
Net Cash Used in Operating Activities |
|
|
(974,000 |
) |
|
|
(521,000 |
) |
|
|
|
|
|
|
|
|
|
Cash Flows From Investing Activities: |
|
|
|
|
|
|
|
|
Purchase of Property and Equipment |
|
|
- |
|
|
|
(15,000 |
) |
Sale of Property and Equipment |
|
|
10,000 |
|
|
|
9,000 |
|
Net Cash Provided by (Used in) Investing Activities |
|
|
10,000 |
|
|
|
(6,000 |
) |
|
|
|
|
|
|
|
|
|
Cash Flows From Financing Activities: |
|
|
|
|
|
|
|
|
Proceeds from Long-Term Convertible Notes |
|
|
215,000 |
|
|
|
1,000,000 |
|
Proceeds from Short-Term Convertible Notes Payable |
|
|
198,000 |
|
|
|
- |
|
Proceeds from SBA EIDL Grant |
|
|
- |
|
|
|
3,000 |
|
Proceeds from SBA PPP Note Payable |
|
|
73,000 |
|
|
|
71,000 |
|
Payments on Short-Term Convertible Notes Payable |
|
|
- |
|
|
|
(47,000 |
) |
Net Cash Provided by Financing Activities |
|
|
486,000 |
|
|
|
1,027,000 |
|
|
|
|
|
|
|
|
|
|
Net Change in Cash |
|
|
(478,000 |
) |
|
|
500,000 |
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents at Beginning of Period |
|
|
510,000 |
|
|
|
10,000 |
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents at End of Period |
|
$ |
32,000 |
|
|
$ |
510,000 |
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosure of Interest and Income Taxes Paid: |
|
|
|
|
|
|
|
|
Interest Paid during the Period |
|
$ |
- |
|
|
$ |
1,000 |
|
Income Taxes Paid during the Period |
|
$ |
- |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosure of Non-Cash Investing and Financing
Activities: |
|
|
|
|
|
|
|
|
Debt Discounts on Long-Term Convertible Notes Payable |
|
$ |
- |
|
|
$ |
1,000,000 |
|
Warrants Issued for Debt Settlement |
|
$ |
220,592 |
|
|
$ |
96,000 |
|
Extinguishment of derivative liability from conversion of notes
payable
|
|
$ |
1,104,011 |
|
|
$ |
- |
|
Common stock to be issued for services |
|
$ |
425,097 |
|
|
$ |
- |
|
Common Stock Issued for Debt Conversion |
|
$ |
1,245,592 |
|
|
$ |
452,000 |
|
Notes Payable issued to Settle Accounts Payable |
|
$ |
38,000 |
|
|
$ |
- |
|
The
accompanying notes are an integral part of these audited
consolidated financial statements
SPYR, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDING DECEMBER 31, 2021 AND 2020
NOTE 1 – ORGANIZATION AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES
This
summary of accounting policies for SPYR, Inc. and subsidiaries (the
“Company”) is presented to assist in understanding the Company’s
financial statements. The accounting policies conform to generally
accepted accounting principles and have been consistently applied
in the preparation of the consolidated financial
statements.
Organization
The
Company was incorporated as Conceptualistics, Inc. on January 6,
1988 in Delaware. Subsequent to its incorporation, the Company
changed its name to Eat at Joe’s, Ltd. In February 2015, the
Company changed its name to SPYR, Inc. and adopted a new ticker
symbol “SPYR” effective March 12, 2015.
Nature of Business
The
primary focus of SPYR, Inc. (the “Company”) is to act as a holding
company and develop a portfolio of profitable subsidiaries, not
limited by any particular industry or business.
Through
our wholly owned subsidiary Applied Magix we are a registered
Apple® developer, and reseller of Apple ecosystem compatible
products and accessories with an emphasis on the smart home market.
As such, we are in the global “Internet of Things” (IoT) market,
and more specifically, the segment of the market related to the
development, manufacture and sale of devices and accessories
specifically built on Apple’s HomeKit® framework. These products
work within the Apple® HomeKit® ecosystem and are exclusive to the
Apple market and its consumers. Apple® HomeKit® is a system that
lets users control smart home devices, so long as they are
compatible with the HomeKit® ecosystem, giving users control over
smart thermostat, lights, locks and more in multiple rooms,
creating comfortable environments and remote control of other
connected devices.
Principles of Consolidation
The
consolidated financial statements include the accounts of SPYR,
Inc. and its wholly owned subsidiaries, Applied Magix, a Nevada
corporation, SPYR APPS, LLC, a Nevada Limited Liability Company
(discontinued operations, see Note 12), E.A.J.: PHL, Airport Inc.,
a Pennsylvania corporation (discontinued operations, see Note 12).
Intercompany accounts and transactions have been
eliminated.
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, 2021, the Company recorded a net loss of $5,961,000 and
utilized cash in operations of $974,000.
As of December 31, 2021, our cash balance was $32,000 and
we had prepaid expenses of $47,000. At
December 31, 2021, the Company had a working capital deficit of
$3,326,000.
These issues raise substantial doubt about the Company’s ability to
continue as a going
concern.
The
Company intends to utilize cash on hand, shareholder loans and
other forms of financing such as the sale of additional equity and
debt securities, capital leases and other credit facilities to
conduct its ongoing business, and to also conduct strategic
business development, marketing analysis, due diligence
investigations into possible acquisitions, and implementation of
our Applied Magix business plans generally. The Company also plans
to diversify, through acquisition or otherwise, in other unrelated
business areas and is exploring opportunities to do so.
Historically,
we have financed our operations primarily through sales of our
common stock and debt financing. The Company will continue to seek
additional capital through the sale of its common stock, debt
financing and through expansion of its existing and new products.
If our financing goals for our products do not materialize as
planned and if we are not able to achieve profitable operations at
some point in the future, we may have insufficient working capital
to maintain our operations as we presently intend to conduct them
or to fund our expansion, marketing, and product development
plans.
SPYR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDING DECEMBER 31, 2021 AND 2020
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 2021. However, management cannot
make any assurances that such financing will be secured.
Use of Estimates
The
preparation of financial statements in conformity with generally
accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Estimates and assumptions used by management affected
impairment analysis for trading securities, fixed assets,
intangible assets, capitalized licensing rights, amounts of
potential liabilities, and valuation of issuance of equity
securities. Actual results could differ from those
estimates.
Earnings (Loss) Per Share
The
Company’s computation of earnings (loss) per share (EPS) includes
basic and diluted EPS. Basic EPS is calculated by dividing the
Company’s net income (loss) available to common stockholders by the
weighted average number of common shares during the period. Diluted
EPS reflects the potential dilution, using the treasury stock
method that could occur if securities or other contracts to issue
common stock were exercised or converted into common stock or
resulted in the issuance of common stock that then shared in the
net income (loss) of the Company. In computing diluted EPS, the
treasury stock method assumes that outstanding options and warrants
are exercised, and the proceeds are used to purchase common stock
at the average market price during the period. Shares of restricted
stock are included in the basic weighted average number of common
shares outstanding from the time they vest.
The
basic and fully diluted shares for the year ended December 31, 2021
are the same because the inclusion of the potential shares (Class A
–
26,909,028, Class E –
1,385,042, Options –
4,779,900 and Warrants –
7,200,000) would have had an anti-dilutive effect due to the
Company generating a loss for the year ended December 31,
2021.
The
basic and fully diluted shares for the year ended December 31, 2020
are the same because the inclusion of the potential shares (Class A
–
26,909,028, Class E –
1,200,480, Options –
5,799,900 and Warrants –
11,100,000) would have had an anti-dilutive effect due to
the Company generating a loss for the year ended December 31,
2020.
Product Research and Development Costs
Costs
incurred for product research and development are expensed as
incurred. During the years ended December 31, 2021 and 2020, the
Company incurred $9,000 and $14,000 respectively, in
product development costs paid to independent third
parties.
Revenue Recognition
In
May 2014, the Financial Accounting Standards Board (FASB) issued
Accounting Standards Update (ASU) No. 2014-09, Revenue from
Contracts with Customers. ASU 2014-09 is a comprehensive
revenue recognition standard that superseded nearly all existing
revenue recognition guidance under prior U.S. GAAP and replaced it
with a principles-based approach for determining revenue
recognition. The core principle of the standard is the recognition
of revenue upon the transfer of promised goods or services to
customers in an amount that reflects the consideration to which the
company expects to be entitled in exchange for those goods or
services.
We
adopted this new revenue recognition standard along with is related
amendments on January 1, 2018 and have updated our accounting
policy for revenue recognition. As expected, at our current level
of revenue, the adoption of this new standard did not impact our
financial position or results of operations or operating cash
flows.
We determine revenue recognition by: (1) identifying the contract,
or contracts, with our customer; (2) identifying the performance
obligations in the contract; (3) determining the transaction price;
(4) allocating the transaction price to performance obligations in
the contract; and (5) recognizing revenue when, or as, we satisfy
performance obligations by transferring the promised goods or
services. The Company’s only revenue stream is currently from
transactions as a registered reseller of Apple® ecosystem
compatible products, accessories and related applications with an
emphasis on the smart home market. The Company has had minimal
sales to date. The Company’s revenue is recognized at a point in
time when the sale of the product is completed. There is no
significant financing component from the Company’s sales.
SPYR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDING DECEMBER 31, 2021 AND 2020
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:
Estimated Economic Useful
Lives of Assets |
|
Furniture
and fixtures |
3-7
years |
Computer
equipment |
1-3
years |
Vehicles |
5
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.
SPYR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDING DECEMBER 31, 2021 AND 2020
The
cost of internally developing, maintaining and restoring intangible
assets that are not specifically identifiable, that have
indeterminate lives, or that are inherent in a continuing business
and related to an entity as a whole, are recognized as an expense
when incurred.
An
intangible asset with a definite useful life is amortized; an
intangible asset with an indefinite useful life is not amortized
until its useful life is determined to be no longer indefinite. The
remaining useful lives of intangible assets not being amortized are
evaluated at least annually to determine whether events and
circumstances continue to support an indefinite useful
life.
During the year ended December 31, 2021, the Company recorded
amortization expense of $3,000.
As of December 31, 2021, the intangible asset balance was fully
amortized. As of December 31, 2020, net intangible assets amounted
to $3,000
which consist of website development costs There were no
indications of impairment based on management’s assessment of these
assets as of December 31, 2021. Factors we consider important that
could trigger an impairment review include significant
underperformance relative to historical or projected future
operating results, significant changes in the manner of the use of
our assets or the strategy for our overall business, and
significant negative industry or economic trends. If current
economic conditions worsen causing decreased revenues and increased
costs, we may have to record impairment to our intangible
assets.
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.
Derivative Financial Instruments
The
Company evaluates all of its agreements to determine if such
instruments have derivatives or contain features that qualify as
embedded derivatives. For derivative financial instruments that are
accounted for as liabilities, the derivative instrument is
initially recorded at its fair value and is then re-valued at each
reporting date, with changes in the fair value reported in the
statements of operations. For stock-based derivative financial
instruments, the Company uses the Black-Scholes Option Pricing
model to value the derivative instruments at inception and on
subsequent valuation dates. The classification of derivative
instruments, including whether such instruments should be recorded
as liabilities or as equity, is evaluated at the end of each
reporting period. Derivative instrument liabilities are classified
in the balance sheet as current or non-current based on whether or
not net-cash settlement of the derivative instrument could be
required within 12 months of the balance sheet date. As of December
31, 2021, the Company’s only derivative financial instruments were
embedded conversion features associated with long-term convertible
notes payable which contain certain provisions that allow for a
variable number of shares on conversion.
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.
SPYR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDING DECEMBER 31, 2021 AND 2020
Fair Value of Financial Instruments
The
Company follows paragraph 825-10-50-10 of the FASB Accounting
Standards Codification for disclosures about fair value of its
financial instruments and paragraph 820-10-35-37 of the FASB
Accounting Standards Codification (“Paragraph 820-10-35-37”) to
measure the fair value of its financial instruments. Paragraph
820-10-35-37 establishes a framework for measuring fair value in
accounting principles generally accepted in the United States of
America (U.S. GAAP), and expands disclosures about fair value
measurements. To increase consistency and comparability in fair
value measurements and related disclosures, Paragraph 820-10-35-37
establishes a fair value hierarchy which prioritizes the inputs to
valuation techniques used to measure fair value into three (3)
broad levels. The fair value hierarchy gives the highest priority
to quoted prices (unadjusted) in active markets for identical
assets or liabilities and the lowest priority to unobservable
inputs.
The
three (3) levels of fair value hierarchy defined by Paragraph
820-10-35-37 are described below:
|
Level |
1: |
Quoted
market prices available in active markets for identical assets or
liabilities as of the reporting date. |
|
Level |
2: |
Pricing
inputs other than quoted prices in active markets included in Level
1, which are either directly or indirectly observable as of the
reporting date. |
|
Level |
3: |
Pricing
inputs that are generally observable inputs and not corroborated by
market data. |
The carrying amount of the Company’s financial assets and
liabilities, such as cash and cash equivalents, accounts
receivable, prepaid expenses, accounts payable and accrued
expenses, short-term advances, line of credit and convertible notes
payable approximate their fair value because of the short maturity
of those instruments.
The
Company’s trading securities and money market funds are measured at
fair value using level 3 fair values and derivative liability is a
level 3 fair value.
Advertising Costs
Advertising,
marketing and promotional costs are expensed as incurred and
included in general and administrative expenses.
Advertising,
marketing and promotional expense was $123,000 and
$8,000
for
the years ended December 31, 2021, and 2020, respectively and was
reflected as part of Other General and Administrative Expenses on
the accompanying consolidated statements of operations.
Leases
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. See
Note 9 “Operating Leases” for additional required
disclosures.
Recent Accounting Standards
In
June 2016, the FASB issued Accounting Standards Update (“ASU”)
2016-13, “Financial Instruments – Credit Losses.” This ASU
sets forth a current expected credit loss model which requires the
Company to measure all expected credit losses for financial
instruments held at the reporting date based on historical
experience, current conditions, and reasonable supportable
forecasts. This replaces the existing incurred loss model and is
applicable to the measurement of credit losses on financial assets
measured at amortized cost and applies to some off-balance sheet
credit exposures. In November 2019, the effective date of this ASU
was deferred until fiscal years beginning after December 15, 2022,
including interim periods within those fiscal years, with early
adoption permitted. The Company is in the process of determining
the potential impact of adopting this guidance on its consolidated
financial statements.
In August 2020, the FASB issued ASU 2020-06, “Debt – Debt
with Conversion and Other Options (Subtopic 470-20) and Derivatives
and Hedging – Contracts in Entity’s Own Equity (Subtopic 815 –
40)” (“ASU 2020-06”). ASU 2020-06 simplifies the
accounting for certain financial instruments with characteristics
of liabilities and equity, including convertible instruments and
contracts on an entity’s own equity. The ASU is part of the FASB’s
simplification initiative, which aims to reduce unnecessary
complexity in U.S. GAAP. The ASU’s amendments are effective for
fiscal years beginning after December 15, 2023, and interim periods
within those fiscal years. The Company is currently evaluating the
potential impact of ASU 2020-06 on its financial statements.
SPYR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDING DECEMBER 31, 2021 AND 2020
Restatement
In 2022, the Company identified errors in account balances in the
Form 10K filed for the year ended December 31, 2021. The following
accounts were deemed to contain errors: cash, trading securities,
at market value, current assets of discontinued operations, other
assets, accounts payable, note payable, derivative liability,
common stock, common stock to be issued, additional paid in
capital, operating expenses, gain on forgiveness of debt and loss
on change in derivative liabilities. The errors primarily resulted
from incorrect recognition of stock-based compensation previously
awarded, certain share awards not yet issued and not recognized
during the year ended December 31, 2021, incorrect estimates used
in the fair value of derivative liability and certain adjustments
to discontinued operations.
The tables below summarize previously reported amounts and the
restated presentation of the balance sheet, statement of operations
and statement of cash flows for the affected period:
Schedule of restated presentation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2021 |
|
|
|
As Reported |
|
|
Adjustments |
|
|
As Restated |
|
|
|
|
|
|
|
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents |
|
$ |
35,000 |
|
|
$ |
(3,000 |
) |
|
|
32,000 |
|
Prepaid
Expenses |
|
|
47,000 |
|
|
|
- |
|
|
|
47,000 |
|
Trading
Securities, at Market Value |
|
|
1,000 |
|
|
|
(1,000 |
) |
|
|
- |
|
Current Assets of Discontinued Operations |
|
|
14,000 |
|
|
|
(11,000 |
) |
|
|
3,000 |
|
Total Current
Assets |
|
|
97,000 |
|
|
|
(15,000 |
) |
|
|
82,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Property and
Equipment, net |
|
|
16,000 |
|
|
|
- |
|
|
|
16,000 |
|
Other Assets |
|
|
46,000 |
|
|
|
(45,000 |
) |
|
|
1,000 |
|
TOTAL
ASSETS |
|
$ |
159,000 |
|
|
$ |
(60,000 |
) |
|
$ |
99,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES & STOCKHOLDERS’
DEFICIT |
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
Payable and Accrued Liabilities |
|
$ |
1,818,000 |
|
|
$ |
7,000 |
|
|
|
1,825,000 |
|
Related Party
Notes Payable, current portion |
|
|
524,000 |
|
|
|
- |
|
|
|
524,000 |
|
Notes Payable,
current portion |
|
|
- |
|
|
|
38,000 |
|
|
|
38,000 |
|
Short-Term
Convertible Notes Payable |
|
|
206,000 |
|
|
|
- |
|
|
|
206,000 |
|
SBA PPP Note
Payable, current portion |
|
|
70,000 |
|
|
|
(70,000 |
) |
|
|
- |
|
Current Liabilities of Discontinued Operations |
|
|
803,000 |
|
|
|
12,000 |
|
|
|
815,000 |
|
Total Current
Liabilities |
|
|
3,421,000 |
|
|
|
(13,000 |
) |
|
|
3,408,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Notes
Payable |
|
|
2,534,000 |
|
|
|
- |
|
|
|
2,534,000 |
|
Long-Term
Convertible Notes Payable, net |
|
|
286,000 |
|
|
|
- |
|
|
|
286,000 |
|
Derivative Liability |
|
|
2,621,000 |
|
|
|
(714,000 |
) |
|
|
1,907,000 |
|
Total
Liabilities |
|
|
8,862,000 |
|
|
|
(727,000 |
) |
|
|
8,135,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ Deficit: |
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
Stock, Class A, $0.0001 par value, 10,000,000 shares authorized;
107,636 shares issued and outstanding as of December 31, 2021 |
|
|
11 |
|
|
|
- |
|
|
|
11 |
|
Preferred
Stock, Class E, $0.0001 par value, 10,000,000 shares authorized;
20,000 shares issued and outstanding as of December 31, 2021 |
|
|
2 |
|
|
|
- |
|
|
|
2 |
|
Common
Stock, $0.0001 par value, 750,000,000 shares authorized;
245,050,988 and outstanding as of December 31, 2021 and outstanding
as of December 31, 2021 |
|
|
25,205 |
|
|
|
(700 |
) |
|
|
24,505 |
|
Common stock to
be issued |
|
|
- |
|
|
|
425,097 |
|
|
|
425,097 |
|
Additional
Paid-In Capital |
|
|
57,779,303 |
|
|
|
(669,082 |
) |
|
|
58,448,385 |
|
Accumulated Deficit |
|
|
(66,508,521 |
) |
|
|
(425,479 |
) |
|
|
(66,934,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Stockholder’s Deficit |
|
|
(8,704,000 |
) |
|
|
667,000 |
|
|
|
(8,036,000 |
) |
TOTAL
LIABILITIES AND STOCKHOLDER’S DEFICIT |
|
$ |
159,000 |
|
|
$ |
(60,000 |
) |
|
$ |
99,000 |
|
SPYR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDING DECEMBER 31, 2021 AND 2020
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2021 |
|
|
|
As Reported |
|
|
Adjustment |
|
|
As Restated |
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
2,000 |
|
|
$ |
- |
|
|
$ |
2,000 |
|
Cost of
Goods Sold |
|
|
(1,000 |
) |
|
|
(60,000 |
) |
|
|
(61,000 |
) |
Gross
Profit |
|
|
1,000 |
|
|
|
(60,000 |
) |
|
|
(59,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Labor
and Related Expenses |
|
|
1,672,000 |
|
|
|
348,000 |
|
|
|
2,020,000 |
|
Rent |
|
|
61,000 |
|
|
|
12,000 |
|
|
|
73,000 |
|
Depreciation and Amortization |
|
|
13,000 |
|
|
|
- |
|
|
|
13,000 |
|
Professional Fees |
|
|
733,000 |
|
|
|
(401,000 |
) |
|
|
332,000 |
|
Research
and Development |
|
|
9,000 |
|
|
|
- |
|
|
|
9,000 |
|
Impairment of inventory |
|
|
60,000 |
|
|
|
(60,000 |
) |
|
|
- |
|
Other
General and Administrative |
|
|
286,000 |
|
|
|
123,000 |
|
|
|
409,000 |
|
Total
Operating Expenses |
|
|
2,834,000 |
|
|
|
12,000 |
|
|
|
2,856,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Loss |
|
|
(2,833,000 |
) |
|
|
(82,000 |
) |
|
|
(2,915,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Income (Expenses) |
|
|
|
|
|
|
|
|
|
|
|
|
Interest
Expense |
|
|
(1,139,000 |
) |
|
|
- |
|
|
|
(1,139,000 |
) |
Gain
(Loss) on Disposition of Assets |
|
|
5,000 |
|
|
|
- |
|
|
|
5,000 |
|
Loss on
Debt Modification |
|
|
(335,000 |
) |
|
|
- |
|
|
|
(335,000 |
) |
Gain
on Forgiveness of Debt
|
|
|
73,000 |
|
|
|
72,000 |
|
|
|
145,000 |
|
Change in Value of Derivative Liability
|
|
|
(1,196,000 |
) |
|
|
(390,000
|
) |
|
|
(1,586,000 |
) |
Impairment of Trading Securities |
|
|
- |
|
|
|
(1,000 |
) |
|
|
(1,000 |
) |
Unrealized Loss on Trading Securities |
|
|
1,000 |
|
|
|
(1,000
|
) |
|
|
- |
|
Total
Other Income (Expenses) |
|
|
(2,591,000 |
) |
|
|
(320,000 |
) |
|
|
(2,911,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from
Continuing Operations |
|
|
(5,424,000 |
) |
|
|
(402,000 |
) |
|
|
(5,826,000 |
) |
Loss from
Discontinued Operations |
|
|
(110,000 |
) |
|
|
(25,000 |
) |
|
|
(135,000 |
) |
Net
Loss |
|
$ |
(5,534,000 |
) |
|
$ |
(427,000 |
) |
|
$ |
(5,961,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and
diluted loss per common share |
|
$ |
(0.02 |
) |
|
$ |
0.01 |
|
|
$ |
(0.03 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average
common shares outstanding |
|
|
222,792,139 |
|
|
|
(1,476,713 |
) |
|
|
221,315,426 |
|
SPYR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDING DECEMBER 31, 2021 AND 2020
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2021 |
|
|
|
As Reported |
|
|
Adjustment |
|
|
As Restated |
|
|
|
|
|
|
|
|
|
|
|
Cash Flows From Operating Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss |
|
$ |
(5,534,000 |
) |
|
$ |
(427,000 |
) |
|
$ |
(5,961,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to Reconcile Net Loss to Net Cash Used in Operating
Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Loss on
Discontinued Operations |
|
|
110,000 |
|
|
|
25,000 |
|
|
|
135,000 |
|
Adjustment to Deficit for Intercompany Elimination |
|
|
(1,000 |
) |
|
|
1,000 |
|
|
|
|
|
Depreciation and Amortization |
|
|
13,000 |
|
|
|
- |
|
|
|
13,000 |
|
Common
Stock Issued for Employee Compensation |
|
|
239,000 |
|
|
|
- |
|
|
|
239,000 |
|
Common
Stock Issued for Services |
|
|
905,000 |
|
|
|
(9,000 |
) |
|
|
896,000 |
|
Amortization of Debt Discounts on Convertible Notes Payable |
|
|
377,000 |
|
|
|
176,000
|
|
|
|
553,000 |
|
Loss
(Gain) on Disposition of Assets |
|
|
(5,000 |
) |
|
|
- |
|
|
|
(5,000 |
) |
Write
Off of Trading Securities |
|
|
- |
|
|
|
1,000 |
|
|
|
1,000 |
|
Loss on
Debt Modification |
|
|
334,000 |
|
|
|
1,000
|
|
|
|
335,000 |
|
Gain on
Forgiveness of Debt |
|
|
(73,000 |
) |
|
|
(72,000 |
) |
|
|
(145,000 |
) |
Change
in Value of Derivative Liability |
|
|
1,196,000 |
|
|
|
390,000 |
|
|
|
1,586,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in Operating Assets and Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Increase
in Other Receivables and Other Assets |
|
|
(29,000 |
) |
|
|
45,000 |
|
|
|
16,000 |
|
(Increase) Decrease in Prepaid Expenses |
|
|
2,000 |
|
|
|
- |
|
|
|
2,000 |
|
Decrease
in Operating Lease Right-of-Use Asset |
|
|
28,000 |
|
|
|
- |
|
|
|
28,000 |
|
Decrease
in Operating Lease Right-of-Use Liability |
|
|
(54,000 |
) |
|
|
- |
|
|
|
(54,000 |
) |
Increase
in Accounts Payable and Accrued Liabilities |
|
|
257,000 |
|
|
|
545,000 |
|
|
|
802,000 |
|
Increase
in Accrued Interest on Related Party Notes Payable |
|
|
99,000 |
|
|
|
(75,000 |
) |
|
|
24,000 |
|
Increase
in Accrued Interest on Notes Payable |
|
|
6,000 |
|
|
|
- |
|
|
|
209,000 |
|
Increase
in Accrued Interest and Liquidated Damages on Convertible
Notes |
|
|
642,000 |
|
|
|
(290,000 |
) |
|
|
352,000 |
|
Net Cash Used in Operating Activities from Continuing
Operations |
|
|
(1,488,000 |
) |
|
|
514,000 |
|
|
|
(974,000 |
) |
Net Cash Provided by Operating Activities from Discontinued
Operations |
|
|
- |
|
|
|
- |
|
|
|
- |
|
Net Cash Used in Operating Activities |
|
|
(1,488,000 |
) |
|
|
514,000 |
|
|
|
(974,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows From
Financing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from Long-Term Convertible Notes |
|
|
- |
|
|
|
215,000 |
|
|
|
215,000 |
|
Proceeds from Related Party Notes Payable |
|
|
505,000 |
|
|
|
(505,000 |
) |
|
|
- |
|
Proceeds from Long-Term Notes Payable |
|
|
425,000 |
|
|
|
(425,000 |
) |
|
|
- |
|
Proceeds from Short-Term Convertible Notes |
|
|
- |
|
|
|
198,000 |
|
|
|
198,000 |
|
Proceeds from SBA PPP Note Payable |
|
|
73,000 |
|
|
|
- |
|
|
|
73,000 |
|
Net Cash
Provided by Financing Activities |
|
|
1,003,000 |
|
|
|
(517,000 |
) |
|
|
486,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Decrease in Cash |
|
|
(475,000 |
) |
|
|
(3,000 |
) |
|
|
(478,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents at Beginning of Period |
|
|
510,000 |
|
|
|
- |
|
|
|
510,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents at End of Period |
|
$ |
35,000 |
|
|
$ |
(3,000 |
) |
|
$ |
32,000 |
|
SPYR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDING DECEMBER 31, 2021 AND 2020
The
Company accounts for stock-based compensation for employees and
directors in accordance with Accounting Standards Codification 718,
Compensation (“ASC 718”) as issued by the FASB. ASC 718 requires
all share-based payments to employees, including grants of employee
stock options, to be recognized in the statement of operations
based on their fair values. Under the provisions of ASC 718,
stock-based compensation costs are measured at the grant date,
based on the fair value of the award, and are recognized as an
expense over the employee’s requisite service period (generally the
vesting period of the equity grant). The fair value of the
Company’s common stock options are estimated using the Black
Scholes option-pricing model with the following assumptions:
expected volatility, dividend rate, risk free interest rate and the
expected life. The Company expenses stock-based compensation by
using the straight-line method. In accordance with ASC 718 and,
excess tax benefits realized from the exercise of stock-based
awards are classified as cash flows from operating activities. All
excess tax benefits and tax deficiencies (including tax benefits of
dividends on share-based payment awards) are recognized as income
tax expense or benefit in the condensed consolidated statements of
operations. The Company accounts for stock-based compensation
awards issued to non-employees for services, as prescribed by ASC
718-10, at either the fair value of the services rendered or the
instruments issued in exchange for such services, whichever is more
readily determinable, using the measurement date guidelines
enumerated in Accounting Standards Update (“ASU”)
2018-07.
In
February 2016, the FASB issued ASU 2016-02, “Leases” Topic
842, which amends the guidance in former ASC Topic
840, Leases. The new standard increases transparency
and comparability most significantly by requiring the recognition
by lessees of right-of-use assets and lease liabilities on the
balance sheet for all leases longer than 12 months. Under the
standard, disclosures are required to meet the objective of
enabling users of financial statements to assess the amount,
timing, and uncertainty of cash flows arising from leases. For
lessees, leases will be classified as finance or operating, with
classification affecting the pattern and classification of expense
recognition in the income statement. The Company adopted the new
lease guidance effective January 1, 2019. The Company is not a
party to any leases and therefore is not showing any asset or
liability related to leases in the current period or prior
periods.
In
November 2021, the FASB issued ASU 2021-10, Government Assistance
(Topic 832). The amendments within the update require certain
disclosures about transactions with a government that are accounted
for by applying a grant or contribution accounting model by
analogy. The amendments will require disclosure of information
about the nature of the transactions and the related accounting
policy used to account for the transactions, information regarding
the line items within the consolidated financial statements that
are affected by the transactions, and significant terms and
conditions of the transactions. The amendments in the update will
be effective for financial statements issued for annual periods
beginning after December 15, 2021, with early adoption permitted.
The Company does not believe the adoption of this ASU will have a
material impact on the Company’s consolidated financial statements
or results of options.
ASC
740 prescribes a comprehensive model for how companies should
recognize, measure, present, and disclose in their financial
statements uncertain tax positions taken or expected to be taken on
a tax return. Under ASC 740, tax positions must initially be
recognized in the financial statements when it is more likely than
not the position will be sustained upon examination by the tax
authorities. Such tax positions must initially and subsequently be
measured as the largest amount of tax benefit that has a greater
than 50% likelihood of being realized upon ultimate settlement with
the tax authority assuming full knowledge of the position and
relevant facts.
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, 2021 AND 2020
NOTE 2 – TRADING
SECURITIES
Investments
in securities are summarized as follows:
Schedule of Change in
Investment in Securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
Value at Beginning of |
|
|
|
|
|
Proceeds from |
|
|
Write off
|
|
|
Contributed |
|
|
Unrealized |
|
|
Fair
Value at |
|
Year |
|
Year |
|
|
Purchases |
|
|
Sale |
|
|
of Securities |
|
|
Capital |
|
|
Loss |
|
|
December 31, |
|
2021 |
|
$ |
1,000 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
(1,000 |
) |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
2020 |
|
$ |
1,000 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
1,000 |
|
The
following table discloses the assets measured at fair value on a
recurring basis and the methods used to determine fair
value:
Schedule of Fair Value of
Assets Measured on Recurring Basis |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using |
|
|
|
|
|
|
Quoted Prices |
|
|
Significant
Other |
|
|
Significant |
|
|
|
Fair
Value at |
|
|
in
Active |
|
|
Observable |
|
|
Unobservable |
|
|
|
December 31, |
|
|
Markets |
|
|
Inputs |
|
|
Inputs |
|
|
|
2021 |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
Trading securities |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
Money market funds |
|
|
1,000 |
|
|
|
1,000 |
|
|
|
- |
|
|
|
- |
|
Total |
|
$ |
1,000 |
|
|
$ |
1,000 |
|
|
$ |
- |
|
|
$ |
- |
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using |
|
|
|
|
|
|
Quoted Prices |
|
|
Significant Other |
|
|
Significant |
|
|
|
Fair
Value at |
|
|
in
Active |
|
|
Observable |
|
|
Unobservable |
|
|
|
December 31, |
|
|
Markets |
|
|
Inputs |
|
|
Inputs |
|
|
|
2020 |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
Trading securities |
|
$ |
1,000 |
|
|
$ |
1,000 |
|
|
$ |
- |
|
|
$ |
- |
|
Money market funds |
|
|
1,000 |
|
|
|
1,000 |
|
|
|
- |
|
|
|
- |
|
Total |
|
$ |
2,000 |
|
|
$ |
2,000 |
|
|
$ |
- |
|
|
$ |
- |
|
Generally,
for all trading securities and available-for-sale securities, fair
value is determined by reference to quoted market prices (level
1).
NOTE 3 – PREPAID
EXPENSES
At
December 31, 2021, prepaid expenses were $47,000 as compared to $49,000 at December 31, 2020.
Prepaid expenses consist of a down payment on the Magix Button
device development of $33,000 and a retainer for
future video production of $10,000, account set up
costs from Teledirect of $2,000, $1,000 of prepaid insurance
costs, and $1,000 of prepaid product costs
for Applied Magix.
SPYR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDING DECEMBER 31, 2021 AND 2020
NOTE 4 – PROPERTY
AND EQUIPMENT
Property
and equipment consisted of the following:
Schedule of Property and
Equipment |
|
December 31,
2021 |
|
|
December 31,
2020 |
|
|
|
|
|
|
|
|
Computer Equipment |
|
$ |
16,000 |
|
|
$ |
22,000 |
|
Furniture & fixtures |
|
|
17,000 |
|
|
|
33,000 |
|
Vehicles |
|
|
10,000 |
|
|
|
10,000 |
|
Property and Equipment, Gross |
|
|
43,000 |
|
|
|
65,000 |
|
Less: accumulated depreciation |
|
|
(27,000 |
) |
|
|
(34,000 |
) |
Property and Equipment, Net |
|
$ |
16,000 |
|
|
$ |
31,000 |
|
Depreciation
and amortization expense for the years ended December 31, 2021 and
2020 was $10,000
and
$38,000,
respectively.
The
Company sold certain office equipment for $10,000
which resulted in a gain on disposition of assets of $5,000 for the
year ended December 31, 2021. The Company sold office equipment for
a total of $9,000
for the year ended December 31, 2020, which resulted in a
corresponding loss of $11,000.
NOTE 5 – INTANGIBLE ASSETS AND OTHER
ASSETS
Intangible assets at December 31, 2021 and December 31, 2020
consisted of the following:
Schedule of intangible assets |
|
|
|
|
|
|
|
|
|
|
|
|
Useful
Life (yr) |
|
December 31,
2021 |
|
|
December 31,
2020 |
|
Domain Names |
|
7 |
|
$ |
21,000 |
|
|
$ |
21,000 |
|
Less: accumulated amortization |
|
|
|
|
(21,000 |
) |
|
|
(18,000 |
) |
|
|
|
|
$ |
- |
|
|
$ |
3,000 |
|
At
December 31, 2021 and 2020, other assets consisted of $1,000 and $13,000,
respectively, which consist
of security deposits for the Denver corporate office and Premier
Workspaces.
NOTE 6 – RELATED
PARTY ADVANCES AND LINE OF CREDIT
Related Party Advances and Line of Credit consisted of the
following:
Schedule of Related Party Notes Payable |
|
|
|
|
|
|
|
|
December 31,
2021 |
|
|
December 31,
2020 |
|
|
|
|
|
|
|
|
Related Party Notes
Payable, current portion |
|
$ |
501,000 |
|
|
$ |
- |
|
Short Term Advances |
|
|
- |
|
|
|
1,062,000 |
|
Line of credit |
|
|
- |
|
|
|
1,000,000 |
|
Accrued interest |
|
|
19,000 |
|
|
|
326,000
|
|
Other |
|
|
4,000 |
|
|
|
|
|
Current portion |
|
$ |
524,000 |
|
|
$ |
2,388,000 |
|
On
September 5, 2017, the Company obtained a revolving line of credit
from Berkshire Capital Management Co., Inc. which is controlled by
the Company’s former chairman of the board. 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.
The
loan was fully drawn as of February 2018, at which time the Company
had borrowed $1,000,000
and
accrued interest of approximately $16,000.
Repayment on the loan is due December 31, 2021. As of December 31,
2020, the Company has borrowed $1,000,000
and
accrued interest of approximately $204,000.
During
2018 and 2019, the Company has received an additional $1,062,000
in the form of short-term advances from Berkshire Capital
Management Co., Inc. The last advance occurred on September 30,
2019, at which time the Company had borrowed $1,062,000. No further
advances are expected from Berkshire Capital Management Co., Inc.
The Company has accrued interest on these short-term advances at
6% per annum. The short-term advances are due
upon demand. As of December 31, 2020, the Company has
borrowed $1,062,000 and accrued
interest of approximately $122,000.
During the year ended December 31, 2020, no professional services
were rendered to this Limited Liability Company and no revenue was
received therefrom.
SPYR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDING DECEMBER 31, 2021 AND 2020
During the period from January 1 through March 31, 2020, the
Company, received $185,000 in revenue for
professional services rendered to Berkshire Capital Management Co.,
Inc. During the period April 1, 2020 through December 31, 2021, no
professional services were rendered to Berkshire Capital Management
Co., Inc. and no revenue was received therefrom.
On
May 17, 2021, the Company entered into an agreement to borrow funds
from the 481149 Irrevocable Trust that controls all of the
currently outstanding preferred stock of the Company, and whose
trustee is the Chief Executive Officer of the Company and a member
of the board of directors. Pursuant to the agreement, the Company
borrowed approximately $501,000
with
interest at
6% per
annum due and payable on
May 17, 2022. As
of December 31, 2021, the balance due with accrued interest is
approximately $524,000.
The
amounts shown as related party in December 31, 2020 are no longer
considered a related party as of December 31, 2021, in accordance
with FASB ASC 850.
NOTE 7 – NOTES
PAYABLE
Notes Payable consisted of the following:
Schedule of notes payable |
|
|
|
|
|
|
|
|
|
|
December 31, 2021 |
|
|
December 31, 2020 |
|
|
|
|
|
|
|
|
Notes Payable, long-term |
|
$ |
2,454,000 |
|
|
|
- |
|
Accrued interest |
|
|
80,000 |
|
|
|
- |
|
Long-term portion |
|
$ |
2,534,000 |
|
|
$ |
- |
|
On June 17, 2021, the Company consolidated all prior notes payable
with Berkshire Capital Management, resulting in a single
consolidated note payable of $2,454,000. As of consolidation, $80,000 of interest has accrued,
resulting in a net payable at December 31, 2021 of $2,534,000.
On
December 16, 2021, the Company issued a promissory note
to Grupo Rueda in the amount of $38,000 with 8% interest per annum and matures on
December 16, 2022, in exchange for
settlement of accounts payable on behalf of the Company. As of
December 31, 2021, the notes payable was recorded as notes payable,
current portion on the balance sheet.
NOTE 8 – INCOME
TAXES
The
Company did not provide for any Federal and State income tax for
the years ended December 31, 2021 and 2020 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:
Schedule of Reconciliation
of Provision for Income Taxes |
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2021 |
|
|
2020 |
|
Tax provision at US statutory federal income tax rate |
|
$ |
1,016,000 |
|
|
$ |
96,000 |
|
State income tax, net of federal benefit |
|
|
220,000 |
|
|
|
- |
|
Change in valuation allowances |
|
|
(1,236,000 |
) |
|
|
(96,000 |
) |
Provision for Income Taxes |
|
$ |
- |
|
|
$ |
- |
|
The
significant components of the Company’s deferred tax assets
were:
Schedule of Deferred Tax
Assets |
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2021 |
|
|
2020 |
|
Deferred
Tax Assets: |
|
|
|
|
|
|
|
|
Net operating loss carry forward |
|
$ |
5,765,000 |
|
|
$ |
4,969,000 |
|
Capital
loss carry over |
|
|
163,000 |
|
|
|
163,000 |
|
Accrued
expenses |
|
|
205,000 |
|
|
|
151,000 |
|
Depreciation and other |
|
|
(3,000 |
) |
|
|
(3,000 |
) |
Gross
Deferred Tax Asset |
|
|
6,130,000 |
|
|
|
5,280,000 |
|
Less
valuation allowance |
|
|
(6,130,000 |
) |
|
|
(5,280,000 |
) |
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, 2021, the Company recorded a valuation allowance of
$6,130,000
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.
SPYR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDING DECEMBER 31, 2021 AND 2020
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, 2021 and 2020, 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, 2021 was approximately $24,312,000, of which
$18,300,000
and may be offset against future taxable income through 2038 and
$6,012,000 can be carried forward indefinitely. Utilization
of the Company’s net operating losses may be subject to substantial
annual limitation if the Company experiences a 50% change in
ownership, as provided by the Internal Revenue Code and similar
state provisions. Such an ownership change would substantially
increase the possibility of net operating losses expiring before
complete utilization.
In December 2017,
new tax known as Tax Cut and Jobs Act of 2017 was enacted. The new
tax law includes significant changes to the U.S. corporate tax
systems including a rate reduction from 35% to 21% beginning in
January of 2018, a change in the treatment of foreign earnings
going forward, a deemed repatriation transition tax, and changes to
allow net operating losses to be carried forward indefinitely. In
addition, net operating losses arising after December 31, 2017 will
be limited to the lesser of the available net operating loss or 80%
of the pre-net operating loss taxable income.
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 2017. However, as of December 31,
2021, the years subsequent to 2017 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, 2021, the Company had no liability for
unrecognized tax benefits and no accrual
for the payment of related interest and penalties, nor did the
Company recognize any interest or penalties expense related to
unrecognized tax benefits during the years ended December 31, 2021
or 2020.
NOTE 9 – SMALL
BUSINESS ADMINISTRATION DEBT
On
May 12, 2020 the Company received a Paycheck Protection Program
loan from the U.S. Small Business Administration (“SBA”) in the
approximate amount of $70,000.
The loan agreement provides for six months principal and interest
deferral. The interest rate is
1%.
Under the terms of the loan, up to 100% of the loan may be forgiven
conditioned upon meeting certain requirements for the use of funds.
Any amount not forgiven must be repaid in eighteen monthly
consecutive principal and interest payments. During the year ended
December 31, 2021, the Company was notified that the outstanding
principal and accrued interest for the PPP Loan was forgiven in
full by the SBA. As of December 31, 2021, the balance due on this
note was approximately $0.
On
January 21, 2021, the Company received a second Paycheck Protection
Program loan from the U.S. Small Business Administration in the
approximate amount of $73,000.
At December 31, 2021, the balance due on the note was $0,
as the loan was confirmed as forgiven on August 20,
2021.
NOTE 10 – SHORT
TERM CONVERTIBLE NOTES PAYABLE
On
May 27, 2021, the Company issued a promissory note to Ares Capital,
Inc. in the amount of $85,000 with 8%
interest due and payable upon demand. On December 2, 2021, the note
was amended to provide the holder with conversion rights consisting
of a conversion price calculated by a 50% discount to the average
of the lowest three (3) VWAP’s for the Company’s Common Stock
during the twenty (20) Trading Day period ending on the latest
complete trading day prior to the Conversion Date.
SPYR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDING DECEMBER 31, 2021 AND 2020
On
August 11, 2021, the Company issued a promissory note to Ares
Capital, Inc. in the amount of $33,333 with 8%
interest due and payable upon demand. On December 2, 2021, the note
was amended to provide the holder with conversion rights consisting
of a conversion price calculated by a 50% discount to the average
of the lowest three (3) VWAP’s for the Company’s Common Stock
during the twenty (20) Trading Day period ending on the latest
complete trading day prior to the Conversion Date.
On
August 12, 2021, the Company issued a promissory note to Ares
Capital, Inc. in the amount of $40,000 with 8%
interest due and payable upon demand. On December 2, 2021, the note
was amended to provide the holder with conversion rights consisting
of a conversion price calculated by a 50% discount to the average
of the lowest three (3) VWAP’s for the Company’s Common Stock
during the twenty (20) Trading Day period ending on the latest
complete trading day prior to the Conversion Date.
On
September 9, 2021, the Company issued a promissory note to Ares
Capital, Inc. in the amount of $40,000 with 8%
interest due and payable upon demand. On December 2, 2021, the note
was amended to provide the holder with conversion rights consisting
of a conversion price calculated by a 50% discount to the average
of the lowest three (3) VWAP’s for the Company’s Common Stock
during the twenty (20) Trading Day period ending on the latest
complete trading day prior to the Conversion Date.
NOTE 11 – CONVERTIBLE
NOTES
On
April 20, 2018, (modified May 22, 2018) the Company issued a
$165,000 (originally
$158,000) convertible
note with original issue discount (OID) of $15,000 and bearing interest
at 8% per annum. The
amended maturity date of the note was June 1, 2019 and was convertible on or after
October 17, 2018 into the Company’s restricted common stock at
$0.20 per share at the holder’s request. The OID is recorded
as a discount to the debt agreement. The Company determined the
note to contain a beneficial conversion feature valued at
$104,000
based on the intrinsic per share value of the conversion feature.
This beneficial conversion feature was recorded as a discount to
the debt agreement. The noteholder was also granted detachable
3-year warrants to purchase 200,000 shares of the company’s
restricted common stock at an exercise price of $0.375 per share,
200,000 shares of the company’s restricted common stock at an
exercise price of $0.50 per share, and 100,000 shares of the
company’s restricted common stock at an exercise price of $0.625
per share. The warrants were valued at $126,000 using the
Black-Scholes pricing model and were recorded as a discount to the
debt agreement. The noteholder was also issued 116,000
shares of the company’s restricted common stock valued at
$34,000
based upon the closing price of the Company stock on the date of
the modified agreement and recorded as a discount to the debt
agreement. On May 10, 2019, the Company amended the note to extend
the due date to June 1, 2019, provide for a partial conversion of
$25,000
of the outstanding principal balance into common shares of the
Company at a conversion price of $0.10 per share for a total of
250,000
shares, and waive any prior alleged or actual defaults under the
note. On August 25, 2020 the holder converted $101,500
of the outstanding principal balance into common shares of the
Company at a conversion price of $0.20 per share for a
total of 507,500
shares. On September 30, 2020, the Company amended the note to
provide for a conversion of $150,000
of the outstanding principal and interest due into common shares of
the Company at a conversion price of $0.125 per share for
a total of 1,200,000
shares, and amend the warrants by adjusting the exercise price to
$0.25 per share. The Company accrued approximately $120,000 in
interest, liquidated damages and debt settlement costs for this
note through October 22, 2020. On October 22, 2020, the Company
completed the issuance of the 1,200,000 shares and the
note was considered paid in full.
On May 22, 2018, the Company issued a $275,000 convertible note
with original issue discount (OID) of $25,000 and bearing a
one-time interest charge at 8%. The amended
maturity date of the note was December 31, 2019 and was
convertible into the
Company’s restricted common stock at $0.25 per share at the
holder’s request. The OID is recorded as a discount to the
debt agreement. The Company determined the note to contain a
beneficial conversion feature valued as $40,000
based on the intrinsic per share value of the conversion feature.
This beneficial conversion feature was recorded as a discount to
the debt agreement. The noteholder was also granted detachable
5-year warrants to purchase 200,000 shares of
the company’s restricted common stock at an exercise price of $2.00
per share. The warrants were valued at $45,000 using the
Black-Scholes pricing model and were recorded as a discount to the
debt agreement. The noteholder was also issued 200,000
shares of the company’s restricted common stock valued at
$58,000
based upon the closing price of the Company stock on the date of
the agreement and recorded as a discount to the debt agreement. On
May 10, 2019, the Company amended the note to extend the due date
to September 1, 2019, provide for a partial conversion of
$25,000
of the outstanding principal balance into common shares of the
Company at a conversion price of $0.10 per share for a
total of 250,000
shares, and waive any prior alleged or actual defaults under the
note. On October 11, 2019, the Company amended the note to extend
the due date to December 31, 2019, provide for a partial conversion
of $50,000 of the outstanding principal balance into common shares
of the Company at a conversion price of $0.10 per share for a total
of 500,000 shares, and waive any prior alleged or actual defaults
under the note. On August 25, 2020, the Company amended the note to
extend the due date to March 31, 2021, provide for a partial
conversion of $50,000
of the outstanding principal balance into common shares of the
Company at a conversion price of $0.10 per share for a total of
500,000
shares, and waive any prior alleged or actual defaults under the
note. On September 30, 2020, the Company amended the note to
provide for a conversion of $150,000
of the outstanding principal balance into common shares of the
Company at a conversion price of $0.125 per share for
a total of 1,200,000
shares, and amend the warrants by increasing the number of warrant
shares to 1,000,000 at an adjusted
exercise price to $0.25 per share. The
Company accrued approximately $134,000 in interest, liquidated
damages and debt settlement costs for this note through October 21,
2020. On October 21, 2020, the Company
completed the issuance of the 1,200,000 shares and
payment of the $47,000 cash and the note was considered paid in
full.
SPYR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDING DECEMBER 31, 2021 AND 2020
On
September 30, 2020, the Company entered into a Stock Purchase
Agreement with a third-party investor. By virtue of the Stock
Purchase Agreement, in two separate closings, the Company agreed to
sell, in each closing, an 8%
$500,000 Convertible
Promissory Note and Warrant to purchase one million common shares.
Each Convertible Promissory Note bears 8% interest and matures five
year after issuance. Amounts due under the Convertible Promissory
Note are convertible into the Registrant’s common stock at the
lower of $0.25 per
share or 70% of the average of the three lowest Variable Weighted
Average Price (“VWAP”) for the Registrant’s common stock for the
twenty trading days prior to an election to convert. The Warrants
are exercisable for five-years at an exercise price
of 0.25 per
share or, subject to the Registrant filing a registration statement
including the shares of common stock that may be issued upon
exercise of the Warrant, in a cashless exercise. The first closing
occurred October 5, 2020 upon the receipt by the Company of a check
for $500,000.
The Company received two payments in the amount of $250,000 each
on November 20, 2020 and November 24, 2020 in connection with the
second closing. Total proceeds from the issuance of these
convertible notes payable was $1,000,000.
The Company determined that the conversion features of these notes
represented embedded derivatives since the notes are convertible
into a variable number of shares upon conversion. The conversion
features were valued at $1,514,000 at the time of closing and the
Company recognized a derivative liability of $1,514,000 with
corresponding debt discounts of $1,000,000 and
a loss on issuance of long-term convertible notes payable of
$514,000. During May and June of 2021, the Company received
conversion notices received from the lender requesting the
conversion of approximately $204,000 ($160,000 principal
and $44,000 interest)
of the notes to 3,736,237 shares
of the company’s common stock. On July 29, 2021, a convertible note
holder converted $100,000 of
principal debt and $15,000 of
interest at a conversion rate of $0.0324 a
share, into 3,561,830 Common
Stock shares. On August 6, 2021, the company entered into an
Amendment of the existing convertible debt, of which resulted in
the conversion rates changing to 50% of the average of the lowest
VWAP, and the interest on the loan was eliminated, as well as, a
$455,000 increase
in the Derivative Liability portion of the convertible debt, from
$1,382,000 to $1,761,000. The company recorded amortization of
debt discounts, recognized as interest expense, in the amount of
$330,000 and
accrued interest of $47,000 during
the nine months ended September 30, 2021. On December 31, 2021, the
principal balance together with accrued interest is recorded on the
Company’s condensed consolidated balance sheet net of discounts at
$27,000.
On
November 2, 2021, the Company issued a convertible promissory note
to Brown Stone Capital, LP in the amount of $50,000 with 8% interest due on
November 2, 2026. The note is
convertible into Company common stock at a fixed price of
$0.25 (the “Base Conversion Price)
and (2) 50% of the average of the three lowest VWAP (as defined
below) for the Common Stock (or any replacement security pursuant
to Section 1(x)) for a Trading Day (as defined below) on the
Trading Market during the 20 Trading Day period immediately prior
to the Conversion Date (as defined below), provided that if the
VWAP is determined pursuant to Section 1(n) then 50% of such VWAP
as so determined.
On
November 3, 2021, the Company issued a convertible promissory note
to Ares Capital, Inc, in the amount $45,000 with 8% interest due on
November 2, 2026. The note is
convertible into Company common stock at a fixed price of
$0.25 (the “Base Conversion Price)
and (2) 50% of the average of the three lowest VWAP (as defined
below) for the Common Stock (or any replacement security pursuant
to Section 1(x)) for a Trading Day (as defined below) on the
Trading Market during the 20 Trading Day period immediately prior
to the Conversion Date (as defined below), provided that if the
VWAP is determined pursuant to Section 1(n) then 50% of such VWAP
as so determined.
On
December 3, 2021, the Company issued a convertible promissory note
to Brown Stone Capital, LP in the amount of $70,000 with 8% interest due
December 3, 2026. The note
converts into Company common stock at the lesser price of (1)
$0.25 (the “Base Conversion Price)
and (2) 50% of the average of the three lowest VWAP (as defined
below) for the Common Stock (or any replacement security pursuant
to Section 1(w)) for a Trading Day (as defined below) on the
Trading Market (as defined below) during the 20 Trading Day period
immediately prior to the Conversion Date (as defined below),
provided that if the VWAP is determined pursuant to Section 1(m)
then 50% of such VWAP as so determined.
On
December 27, 2021, the Company issued a convertible promissory note
to Brown Stone Capital, LP in the amount of $50,000 with 8% interests due
December 27, 2026. The note
converts into Company common stock at the lesser price of (1)
$0.25 (the “Base Conversion Price)
and (2) 50% of the average of the three lowest VWAP (as defined
below) for the Common Stock (or any replacement security pursuant
to Section 1(w)) for a Trading Day (as defined below) on the
Trading Market (as defined below) during the 20 Trading Day period
immediately prior to the Conversion Date (as defined below),
provided that if the VWAP is determined pursuant to Section 1(m)
then 50% of such VWAP as so determined.
SPYR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDING DECEMBER 31, 2021 AND 2020
The
following table summarized the Company’s convertible notes payable
as of December 31, 2021 and December 31, 2020:
Summary of Convertible Notes |
|
|
|
|
|
|
|
|
|
|
December 31,
2021 |
|
|
December 31,
2020 |
|
Beginning Balance |
|
$ |
64,000 |
|
|
$ |
550,000 |
|
Proceeds from the issuance of convertible notes |
|
|
413,000 |
|
|
|
- |
|
Repayments |
|
|
- |
|
|
|
(47,000 |
) |
Conversion of notes payable into common stock |
|
|
(559,000 |
) |
|
|
(548,000 |
) |
Amortization of
Debt Discounts |
|
|
553,000 |
|
|
|
50,000 |
|
Liquidated damages |
|
|
351,000 |
|
|
|
(53,000 |
) |
New debt discount |
|
|
(43,000 |
) |
|
|
- |
|
Debt settlement costs |
|
|
- |
|
|
|
96,000 |
|
Accrued Interest |
|
|
63,000 |
|
|
|
16,000 |
|
Convertible notes payable, net |
|
$ |
492,000 |
|
|
$ |
64,000 |
|
Principal balance |
|
$ |
198,000 |
|
|
$ |
- |
|
Accrued interest and damages, short term |
|
|
8,000 |
|
|
|
- |
|
Debt discounts, short term |
|
|
- |
|
|
|
- |
|
Short-term convertible notes payable, net |
|
$ |
206,000 |
|
|
$ |
- |
|
Convertible notes, long-term principal |
|
$ |
670,000 |
|
|
$ |
1,000,000 |
|
Accrued interest and damages, long-term |
|
|
56,000 |
|
|
|
14,000 |
|
Debt discounts, long-term |
|
|
(440,000 |
) |
|
|
(950,000 |
) |
Long-term convertible notes payable, net |
|
$ |
286,000 |
|
|
$ |
64,000 |
|
NOTE 12 – DERIVATIVE
LIABILITY
The
Company determined that the conversion features of the long-term
convertible notes payable represented embedded derivatives since
the notes are convertible into a variable number of shares upon
conversion. Accordingly, the notes are not considered to be
conventional debt and the embedded conversion feature is bifurcated
from the debt host and accounted for as a derivative liability.
Accordingly, the fair value of these derivative instruments is
recorded as liabilities on the balance sheet with the corresponding
amount recorded as a discount to each note and any excess of the
fair value of the derivative component over the face amount of the
note recorded as an expense on the date of issuance. Discounts are
amortized from the date of issuance to the maturity dates of the
notes. Fair value of derivative liabilities is evaluated at the end
of each reporting period with any change in value reported in other
income or expenses on the statements of operations for the
period.
SPYR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDING DECEMBER 31, 2021 AND 2020
The
following table represents the Company’s derivative liability
activity for the year ended December 31, 2021:
Schedule of derivative liabilities at fair
value |
|
Year
Ended
December 31, |
|
|
Year
Ended
December 31, |
|
|
|
2021 |
|
|
2020 |
|
Derivative liability balance, December 31,
2020 |
|
|
1,382,000 |
|
|
$ |
- |
|
Issuance of derivative liability
during the period |
|
|
43,000 |
|
|
|
1,514,000 |
|
Increase due to Modification of
Note |
|
|
455,000 |
|
|
|
- |
|
Reclassification to Additional Paid-In
Capital |
|
|
(1,104,000 |
) |
|
|
- |
|
|
|
|
|
|
|
|
|
|
Change in
derivative liability during the period |
|
|
1,131,000 |
|
|
|
(132,000 |
) |
Derivative liability balance,
December 31, 2021 |
|
$ |
1,907,000 |
|
|
$ |
1,382,000 |
|
The
table below represents the average assumptions used in valuing the
derivative liability at December 31, 2021:
Fair value assets and liabilitiesM masured on
recurring and nonrecurring basis valuation techniques |
|
Year
Ended
December 31, |
|
|
Year Ended
December 31, |
|
|
|
2021 |
|
|
2020 |
|
Expected life in
years |
|
|
3.89 |
|
|
|
4.76-4.90 |
|
Stock price volatility |
|
|
182.99% - 198.39 |
% |
|
|
180.45% - 182.99 |
% |
Risk free interest rate |
|
|
0.42 |
% |
|
|
0.17 |
% |
Expected dividends |
|
|
- |
|
|
|
- |
|
Forfeiture rate |
|
|
- |
|
|
|
- |
|
NOTE 13 – COMMITMENTS AND
CONTINGENCIES
Equity Line of Credit
The
Company entered into a five-year Equity Line of Credit pursuant to
an Equity Purchase Agreement with Brown Stone Capital, LP, dated
September 30, 2020. Pursuant to the agreement, Brown Stone agreed
to invest up to $14,000,000 to
purchase the Company’s Common Stock, par value $0.0001 per share.
The purchase price of the common
shares is the lesser of the Fixed price or Market price. The Fixed
price is $0.50 per share in years 1 and 2, after the effectiveness
of a registration statement, and $1.00 per share in years 3, 4 and
5 after the effectiveness of this registration statement. The
Market price is 70% of the three lowest Variable Weighted Average
Price (“VWAP”) for the Company’s common stock during the 10-trading
day period immediately prior to the conversion date. In addition,
the Company and Brown Stone entered into a Registration Rights
Agreement, whereby the Company agreed to provide certain
registration rights under the Securities Act of 1933, as amended,
and the rules and regulations thereunder, and applicable state
securities laws, with respect to the shares of Common Stock
issuable for Brown Stone’s investment pursuant to the Equity
Purchase Agreement. As of December 31, 2021, no shares have been
sold pursuant to this agreement.
Operating Leases
The
Company leased approximately 5,169 square feet at 4643 South Ulster
Street, Denver, Colorado pursuant to an amended lease dated May 21,
2015. Under the lease, the Company paid annual base rent on an
escalating scale ranging from $143,000 to $152,000. In addition to the minimum
basic rent, rent expense also includes approximately $1,000 per month for other items charged
by the landlord in connection with rent. On May 1, 2020 and July
29, 2020, the Company entered into amended
lease agreements with its landlord. Under the terms of the
amendments, the landlord agreed to waive rent, certain rent
adjustments and parking for the period April 1, 2020 through August
31, 2020 and extend the term of the lease by five months. The lease
term date, which was December 31, 2020, was changed to May 31,
2021. On April 1, 2021, the Company entered into a lease
termination and payment agreement with the landlord, pursuant to
which the Company vacated and surrendered the premises to the
landlord and the Company will pay approximately $67,000 over 18
months commencing April 1, 2021. As of November 1, 2021, the
company was delinquent in its monthly payments and has not made
payments to date pursuant to the settlement agreement had
approximately $42,000 in unpaid rent which was
reported as part of accounts payable and accrued expenses in the
accompanying condensed consolidated balance sheet as of December
31, 2021.
Rent
expense for the years ended December 31, 2021 and 2020 was
$61,000 and
$113,000,
respectively. In addition to the minimum basic rent, rent expense
also includes approximately $1,000 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, 2021 AND 2020
Settlement
Payable
During
the year ended December 31, 2020, the Company accrued a contingent
liability for anticipated litigation and legal settlement
liabilities, which has been reported as part of settlement
liability on the accompanying consolidated balance sheet and
litigation settlement costs on the accompanying consolidated
statements of operations in the amount of $500,000,
which was expensed in the year ended December 31, 2019 and settled
during the year ended December 31, 2021.
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.
Information about material legal proceedings follows:
Settlements
On
June 18, 2018 the Company was named as a defendant in a case filed
in the United States District Court for the Southern District of
New York: Securities and Exchange Commission vs. Joseph A. Fiore,
Berkshire Capital Management Co., Inc., and Eat at Joe’s, Ltd.
n/k/a SPYR, Inc.(“Defendants”). Joseph A. Fiore was the Chairman of
our Board of Directors and is a significant shareholder. Mr. Fiore
resigned from his positions as Chairman of the Board and as a
Director of the Company effective August 1, 2018. The suit alleged
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 alleged
that Mr. Fiore and the Company unlawfully benefited through the
sales of those securities. The Commission also alleged 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 sought 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.
Pursuant
to a settlement agreement among the parties, on April 14, 2020,
final judgment was entered in the case: Securities and Exchange Commission vs.
Joseph A. Fiore, Berkshire Capital Management, Inc. and Eat at
Joes, Inc., n/k/a SPYR, Inc., case number
7:18-cv-05474-KMK filed in the U.S. District Court for the Southern
District of New York.
On
April 23, 2020, Joseph Fiore/Berkshire Capital Management, Inc.
satisfied the Company’s joint and several liability obligation by
paying to the Commission the agreed upon sum of Two Million Dollars
pursuant to a settlement agreement between Joseph Fiore/Berkshire
Capital Management, Inc. and the Company, which settlement
agreement was entered into on April 15, 2020. The Company has until
April 14, 2021 to satisfy its remaining financial obligation to the
Commission, an agreed upon civil penalty of $500,000. The
$500,000
liability
is reported as part of accounts payable and accrued liabilities on
the accompanying condensed consolidated balance sheets as of
December 31, 2020.
In
electing to settle with the Commission, the Company neither
admitted nor denied liability to any of the Commission’s
allegations in its complaint, and in consideration for the
Commission discontinuing its action, the Company, along with the
two other defendants Joseph Fiore and Berkshire Capital Management
agreed to be jointly and severally liable for disgorgement of
profits and prejudgment interest in the amount of two million
dollars, and to each be solely liable to pay a civil penalty in the
amount of five hundred thousand dollars.2
Judgments
On or
about January 24, 2019,
SPYR APPS, LLC entered into an agreement with one of its vendors,
Shatter Storm Studios, to whom it owed $84,250 for artwork related
to the Steven Universe game. Pursuant to the terms of that
agreement, SPYR APPS, LLC needed to make payment in the amount of
$85,000 to cover the principal owed and attorneys’ fees together
plus 6% interest in that amount by December 1, 2019. Should SPYR
APPS, LLC not make the required payment on or before December 1,
2019, it consented to entry of judgment in favor of Shatter Storm
Studios for the amount owed. SPYR
APPS, LLC did not make the payment and on January 27, 2020 Shatter
Storm Studios initiated Case No. 1:200cv-00217 in the U.S. District
Court for the District of Colorado seeking entry of the consent
judgment against SPYR APPS, LLC. The judgment was not contested by
SPYR APPS, LLC and judgment in the amount of $85,000 plus post
judgment interest at the rate of 6% was entered on March 17, 2020.
The balance due as of December 31, 2020 was approximately
$95,000,
which includes accrued interest and attorneys’ fees, has been
reported as part of current liabilities of discontinued
operations.
|
2 |
In
addition, an injunction was entered against the Company enjoined it
from violating the antifraud, market manipulation, beneficial
ownership reporting, and other provisions of the federal securities
laws charged in the SEC’s complaint. |
SPYR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDING DECEMBER 31, 2021 AND 2020
Employment Agreements
Pursuant to employment agreements
entered in December 2014 and October 2015, the Company agreed to
compensate three officers with an initial base salary in the
aggregate of $450,000 per year with rolling five-year terms until
terminated. In addition, as part of the employment agreements, the
Company also agreed to grant these officers an aggregate of 1.55
million shares of restricted common stock at the beginning of each
employment year. On September 17, 2021, Barry D. Loveless
resigned as Chief Financial Officer. On December 31, 2021, the
Company and James R. Thompson and Jennifer D. Duettra agreed to
terminate their positions as Chief Executive Officer, President,
General Counsel and Vice-President and Assistant General Counsel,
respectively.
Pursuant to employment agreements
entered in October 2020, the Company agreed to compensate the two
former owners of Applied Magix with an initial base salary in the
aggregate of $300,000 for one year. In addition, as part of the
employment agreements, the Company also agreed to grant these
officers an aggregate of 2 million shares of restricted common
stock as a signing bonus and 5 million options to purchase shares
of restricted common stock.
On
December 31, 2021, the Company terminated its employment agreements
with James R. Thompson and Jennifer D. Duettra.
Covid-19
On
January 30, 2020, the World Health Organization declared the
coronavirus outbreak a “Public Health Emergency of International
Concern” and on March 10, 2020, declared it to be a pandemic.
Actions taken around the world to help mitigate the spread of the
coronavirus include restrictions on travel, and quarantines in
certain areas, and forced closures for certain types of public
places and businesses. The coronavirus and actions taken to
mitigate it have had and are expected to continue to have an
adverse impact on the economies and financial markets of many
countries, including the geographical area in which the Company
operates. While it is unknown how long these conditions will last
and what the complete financial effect will be to the company, the
Company is anticipating potential reductions in revenue, labor and
supply shortages, difficulty meeting debt covenants, delays in
collecting receivables and paying liabilities and changes in the
fair value of assets and liabilities. Our necessity for fund
raising activities make it reasonably possible that we are
vulnerable to the risk of a near-term severe impact.
Additionally,
it is reasonably possible that estimates made in the financial
statements have been, or will be, materially and adversely impacted
in the near term as a result of these conditions, including
potential credit losses on receivables and investments; impairment
losses related to long-lived assets; and contingent
obligations.
NOTE 14 – EQUITY
TRANSACTIONS
Common Stock:
Year Ended December 31, 2020
During
the year ended December 31, the Company issued an aggregate of
5,850,000
shares of restricted common stock to employees and directors with a
total fair value of $1,335,000
for services rendered. The shares issued are non-refundable and
deemed earned upon issuance. As a result, the Company expensed the
entire $1,335,000 upon issuance.
The shares issued were valued at the date earned under the
respective agreement based upon closing market price of the
Company’s common stock.
During
the year ended December 31, 2020, the Company issued an aggregate
of 3,407,500
shares of common stock in conversion of notes payable with a total
fair value of $548,000.
As a result, the Company reduced the balance due on the notes by
$548,000 upon
issuance.
SPYR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDING DECEMBER 31, 2021 AND 2020
Year Ended December 31, 2021
During the year ended December 31, 2021 the Company awarded an
aggregate of 9,115,019 shares
of restricted common stock to employees and directors with a total
fair value of $425,097 for
services rendered. The shares issued are non-refundable and deemed
earned upon issuance. As of December 31, 2021, the shares have not
been issued. As a result, the Company expensed the entire
$425,097 and recorded
common stock to be issued. The shares issued were valued at the
date earned under the respective agreement based upon closing
market price of the Company’s common stock.
During
the year ended December 31, 2021, the Company issued an aggregate
of 1,550,000
shares of restricted common stock to employees and directors with a
total fair value of $239,000 for
services rendered. The shares issued are non-refundable and deemed
earned upon issuance. As a result, the Company expensed the entire
$239,000 upon issuance. The
shares issued were valued at the date earned under the respective
agreement based upon closing market price of the Company’s common
stock.
During
the year ended December 31, 2021, the Company issued an aggregate
of 3,000,000
shares
of registered common stock to third party service providers with a
total fair value of $371,300.
The shares issued are non-refundable and deemed earned upon
issuance. As a result, the Company expensed the entire $371,000 upon
issuance. The shares issued were valued at the date earned under
the respective agreement based upon closing market price of the
Company’s common stock.
During
the year ended December 31, 2021, the Company issued an aggregate
of 1,242,854
shares of restricted common stock to third party service providers
with a total fair value of $100,000. The
shares issued are non-refundable and deemed earned upon issuance.
As a result, the Company expensed the entire $100,000 upon issuance. The
shares issued were valued at the date earned under the respective
agreement based upon closing market price of the Company’s common
stock.
During
the year ended December 31, 2021, the Company issued an aggregate
of
29,120,503 shares of common stock with a total fair value of
$1,245,592
in conversion of notes.
Options:
The
following table summarizes common stock options
activity:
Summary of Common Stock Options
Activity |
|
|
|
|
Weighted |
|
|
|
|
|
|
Average |
|
|
|
|
|
|
Exercise |
|
|
|
Options |
|
|
Price |
|
Outstanding, January 1, 2020 |
|
|
9,299,900 |
|
|
$ |
0.57 |
|
Granted |
|
|
5,000,000 |
|
|
$ |
0.99 |
|
Exercised |
|
|
- |
|
|
|
- |
|
Expired |
|
|
(8,500,000 |
) |
|
|
4.76 |
|
Outstanding, December 31, 2020 |
|
|
5,799,900 |
|
|
$ |
0.88 |
|
Granted |
|
|
- |
|
|
|
- |
|
Exercised |
|
|
- |
|
|
|
- |
|
Expired |
|
|
(1,420,000 |
) |
|
|
0.24 |
|
Outstanding, December 31, 2021 |
|
|
4,379,900 |
|
|
$ |
0.88 |
|
Exercisable, December 31, 2020 |
|
|
5,799,900 |
|
|
$ |
0.88 |
|
Exercisable, December 31, 2021 |
|
|
4,379,900 |
|
|
$ |
0.82 |
|
SPYR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDING DECEMBER 31, 2021 AND 2020
The
weighted average grant date fair value of options granted during
the years ended December 31, 2020, was $0.99.
There were no options granted during the year ended December 31,
2021.
During
the year ended December 31, 2021, the Company granted no stock
options to employees. During the year ended December 31, 2020, the
Company granted stock options to purchase a total of 5,000,000 shares of the
Company’s restricted common stock. The options are fully vested,
exercisable at prices ranging from $0.25 to $1.50 per share and will expire over
2.5 years. The fair values
of the options are recorded at their grant dates computed using the
Black-Scholes Option Pricing Model. During the year ended December
31, 2020, the Company recognized $561,000 in compensation
expense on the issuance of these options.
The
weighted average exercise prices, remaining lives for options
granted, and exercisable as of December 31, 2021, were as
follows:
|
Schedule of Weighted Average Exercise Price
Range |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding Options |
|
|
Exercisable Options |
|
Options |
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
Weighted |
|
Exercise Price |
|
|
|
|
|
Life |
|
|
Average Exercise |
|
|
|
|
|
Average Exercise |
|
Per Share |
|
|
Shares |
|
|
(Years) |
|
|
Price |
|
|
Shares |
|
|
Price |
|
$ |
0.50 |
|
|
|
880,000 |
|
|
|
0.30 |
|
|
$ |
0.50 |
|
|
|
880,000 |
|
|
$ |
0.50 |
|
$ |
1.00 |
|
|
|
2,099,900 |
|
|
|
0.80 |
|
|
$ |
1.00 |
|
|
|
2,099,900 |
|
|
$ |
1.00 |
|
$ |
1.50 |
|
|
|
1,400,000 |
|
|
|
1.30 |
|
|
$ |
1.50 |
|
|
|
1,400,000 |
|
|
$ |
1.50 |
|
|
|
|
|
|
4,379,900 |
|
|
|
|
|
|
$ |
0.88 |
|
|
|
4,379,900 |
|
|
$ |
0.82 |
|
On
December 31, 2020, the Company’s closing stock price was $0.08 per share. As all
outstanding options had an exercise price greater than $0.08 per share,
there was no intrinsic value of the options outstanding as of
December 31, 2020.
Warrants:
The
following table summarizes common stock warrants
activity:
Summary of Common Stock Warrants
Activity |
|
|
|
|
Weighted |
|
|
|
|
|
|
Average |
|
|
|
|
|
|
Exercise |
|
|
|
Warrants |
|
|
Price |
|
Outstanding, January 1,
2020 |
|
|
9,000,000 |
|
|
$ |
0.46 |
|
Granted |
|
|
2,800,000 |
|
|
|
0.25 |
|
Exercised |
|
|
- |
|
|
|
- |
|
Expired |
|
|
(700,000 |
) |
|
|
0.08 |
|
Outstanding, December 31, 2020 |
|
|
11,100,000 |
|
|
$ |
0.46 |
|
|
|
|
|
|
|
|
|
|
Granted |
|
|
- |
|
|
|
0.25 |
|
Exercised |
|
|
- |
|
|
|
- |
|
Expired |
|
|
(3,900,000 |
) |
|
|
0.08 |
|
Outstanding,
December 31, 2021 |
|
|
7,200,000 |
|
|
$ |
0.39 |
|
|
|
|
|
|
|
|
|
|
Exercisable,
December 31, 2020 |
|
|
11,100,000 |
|
|
$ |
0.39 |
|
Exercisable,
December 31, 2021 |
|
|
7,200,000 |
|
|
$ |
0.39 |
|
SPYR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDING DECEMBER 31, 2021 AND 2020
In
April 2018, in combination with a 12-month convertible promissory
note, as amended, the Company granted warrants to purchase a total
of
500,000 shares
of restricted common stock with an exercise price of $0.25 and will
expire
April 20, 2021. The
warrants are fully vested and exercisable upon grant. The proceeds
of the note were allocated between the note and the warrants based
on the relative fair values which resulted in proceeds of
$61,000
allocated
to the warrants and recorded as paid in capital and debt discount.
The debt discount was amortized over the life of the note as
interest expense. During the year ended December 31, 2020, pursuant
to a debt settlement agreement, the Company amended the exercise
price of the warrants and recorded $9,000
in
debt settlement costs, recognized as interest expense.
In
May 2018, in combination with an 8-month convertible promissory
note, as amended, the Company granted warrants to purchase a total
of
1,200,000 shares
of restricted common stock with an exercise price of $0.25 and will
expire
May 22, 2023. The
warrants are fully vested and exercisable upon grant. The proceeds
of the note were allocated between the note and the warrants based
on the relative fair values which resulted in proceeds of
$32,000
allocated
to the warrants and recorded as paid in capital and debt discount.
The debt discount will be amortized over the life of the note as
interest expense. During the year ended December 31, 2020, pursuant
to a debt settlement agreement, the Company increased the number of
warrants amended the exercise price of the warrants and recorded
$87,000
in
debt settlement costs, recognized as interest expense.
In
October 2019, pursuant to advisory services agreement, the Company
granted warrants to purchase a total of 100,000 shares of
restricted common stock with an exercise price of $0.50 and
expiration date of October 30, 2020. The
warrants are fully vested and exercisable upon grant. Total fair
value of the options at grant date amounted to $1,000
computed using the Black-Scholes Option Pricing Model and was fully
recognized on the date of grant.
In
October and November 2020, in combination with a 5-year convertible
promissory note, the Company granted warrants to purchase a total
of
2,000,000 shares
of restricted common stock with an exercise price of $0.25 and will
expire on various dates between October 5, 2025 and November 24,
2025. The warrants are fully vested and exercisable upon grant. The
proceeds of the note were allocated between the note, the warrants,
and the derivative liability which resulted in proceeds of
$0
allocated
to the warrants.
The
weighted average exercise prices, remaining lives for warrants
granted, and exercisable as of December 31, 2021, were as
follows:
Schedule of Warrants Weighted Average Exercise
Price Range |
|
|
|
|
|
|
|
|
|
|
Outstanding and Exercisable Warrants |
|
Warrants |
|
|
|
|
|
|
|
Exercise Price |
|
|
|
|
|
Life |
|
Per Share |
|
|
Shares |
|
|
(Years) |
|
$ |
0.25 |
|
|
|
3,500,000 |
|
|
|
3.9 |
|
$ |
0.40 |
|
|
|
1,200,000 |
|
|
|
0.03 |
|
$ |
0.50 |
|
|
|
2,700,000 |
|
|
|
1.53 |
|
$ |
0.75 |
|
|
|
1,250,000 |
|
|
|
1.53 |
|
$ |
1.00 |
|
|
|
1,250,000 |
|
|
|
0.41 |
|
|
|
|
|
|
7,200,000 |
|
|
|
|
|
At
December 31, 2021, the Company’s closing stock price was $0.05 per share. As all
outstanding warrants had an exercise price greater than $0.05 per share, there was no intrinsic
value of the options outstanding at December 31, 2021.
The
table below represents the average assumptions used in valuing the
stock options and warrants granted in fiscal 2020:
Schedule of Assumptions Used in Valuing the
Stock Options and Warrants |
|
Year
Ended
December 31, |
|
|
|
2020 |
|
Expected life in years |
|
|
1.00 – 5.00 |
|
Stock price
volatility |
|
|
177% - 246 |
% |
Risk free interest rate |
|
|
0.12% - 0.22 |
% |
Expected dividends |
|
|
- |
|
Forfeiture rate |
|
|
- |
|
SPYR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDING DECEMBER 31, 2021 AND 2020
The
table below represents the average assumptions used in valuing the
stock options and warrants granted in fiscal 2021:
|
|
Year
Ended
December 31, |
|
|
|
2021 |
|
Expected life in years |
|
|
1.00 – 5.00 |
|
Stock price
volatility |
|
|
177% - 246 |
% |
Risk free interest rate |
|
|
0.12% - 0.22 |
% |
Expected dividends |
|
|
- |
|
Forfeiture rate |
|
|
- |
|
The
assumptions used in the Black Scholes models referred to above are
based upon the following data: (1) the contractual life of the
underlying non-employee options is the expected life. The expected
life of the employee option is estimated by considering the
contractual term of the option, the vesting period of the option,
the employees’ expected exercise behavior and the post-vesting
employee turnover rate. (2) The expected stock price volatility was
based upon the Company’s historical stock price over the expected
term of the option. (3) The risk-free interest rate is based on
published U.S. Treasury Department interest rates for the expected
terms of the underlying options. (4) The expected dividend yield
was based on the fact that the Company has not paid dividends to
common shareholders in the past and does not expect to pay
dividends to common shareholders in the future. (5) The expected
forfeiture rate is based on historical forfeiture activity and
assumptions regarding future forfeitures based on the composition
of current grantees.
Shares Reserved:
At
December 31, 2021, the Company has reserved 80,000,000
shares of common stock in connection with convertible notes with
detachable warrants, 100,000,000
shares of common stock in connection with shares underlying an
equity line of credit and 3,500,000
shares of common stock underlying warrants issued in connection
with the court approved settlement agreement for a total of
183,500,000
reserved shares of common stock.
NOTE 15 – 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.
SPYR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDING DECEMBER 31, 2021 AND 2020
The
Conversion Ratio of the Class A Preferred Stock shall be adjusted
in certain circumstances, including the payment of a stock dividend
on shares of the Common Stock and combinations and subdivisions of
the Common Stock.
In
the case of any share exchange, capital reorganization,
consolidation, merger or reclassification, whereby the Common Stock
is converted into other securities or property, the Company will
make appropriate provisions so that the holder of each share of
Class A Preferred Stock then outstanding, will have the right
thereafter to convert such share of Class A Preferred Stock into
the kind and amount of shares of stock and other securities and
property receivable upon such consolidation, merger, share
exchange, capital reorganization or reclassification by a holder of
the number of shares of Common Stock into which such shares of
Class A Preferred Stock might have been converted immediately prior
to such consolidation, merger, share exchange, capital
reorganization or reclassification. If the shares of Common Stock
are subdivided or combined into a greater or smaller number of
shares of Common Stock, the Conversion Ratio shall be
proportionately increased in the case of subdivision of shares. If
the shares of Common Stock are combined, consolidated or reverse
split into a smaller number of shares of Common Stock, the
Conversion Ratio shall be proportionally decreased. The kind and
type of Common Shares issuable upon conversion of the Class A
Preferred Stock both before and after combination, consolidation or
reverse split of the Common Shares shall be the same.
The
same transfer restrictions imposed on the Class A Preferred Stock
shall be applicable to the Common Stock into which the Class A
Preferred Stock is converted, although for purposes of Rule 144 as
presently in effect, the holding period requirement may be met by
adding together the period in which the Class A Preferred Stock is
held and the period in which the Common Stock into which the Class
A Preferred Stock is converted, is held.
Other
Provisions
The
shares of Class A Preferred Stock to be issued and any Common
Shares into which it is converted, shall be duly and validly
issued, fully paid and non-assessable. The holders of the Class A
Preferred Stock shall not have pre-emptive rights with respect to
any shares of capital stock of the Company or any other securities
of the Company convertible into Common Stock or rights or options
to purchase any such shares.
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, 2021,
the 20,000 Class E preferred shares were convertible to 1,200,480
common shares. |
* |
Convertible
at the Option of the Company at par value only after repayment of
the shareholder loans fr |