NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE
MONTHS ENDED MARCH 31, 2022 AND 2021
(Unaudited)
NOTE
1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Interim
Financial Statements
The
accompanying condensed consolidated financial statements of SPYR, Inc. and subsidiaries (the “Company”) are unaudited. These
unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted
in the United States of America (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”)
regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared
in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Accordingly, these interim condensed consolidated
financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s
Annual Report on Form 10-K for the fiscal year ended December 31, 2021 filed with the SEC. The condensed consolidated balance
sheet as of December 31, 2021 included herein was derived from the audited consolidated financial statements as of that date, but
does not include all disclosures, including notes, required by GAAP.
In
the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments necessary to
fairly present the Company’s financial position and results of operations for the interim periods reflected. Except as noted, all
adjustments contained herein are of a normal recurring nature. Results of operations for the fiscal periods presented herein are not
necessarily indicative of fiscal year-end results.
Principles
of Consolidation
The
consolidated financial statements include the accounts of SPYR, Inc. and its wholly-owned subsidiaries, SPYR APPS, LLC, a Nevada Limited
Liability Company, E.A.J.: PHL, Airport Inc., a Pennsylvania corporation (discontinued operations, see Note 6), and Branded Foods Concepts,
Inc., a Nevada corporation. Intercompany accounts and transactions have been eliminated.
Going
Concern
The
accompanying financial statements have been prepared under the assumption that the Company will continue as a going concern. Such assumption
contemplates the realization of assets and satisfaction of liabilities in the normal course of business, however, the issues described
below raise substantial doubt about the Company’s ability to do so.
As
shown in the accompanying financial statements, for the three months ended March 31, 2022, the Company recorded a net loss from
continuing operations of $2,152,000 and have current liabilities of $3,207,000. As of March 31, 2022, our cash balance was $182,000.
These issues raise substantial doubt about the Company’s ability to continue as a going concern.
The
Company intends to utilize cash on hand, shareholder loans and other forms of financing such as the sale of additional equity and debt
securities, capital leases and other credit facilities to conduct its ongoing business, and to also conduct strategic business development,
marketing analysis, due diligence investigations into possible acquisitions, and software development costs and implementation of our
business plans generally. The Company also plans to diversify, through acquisition or otherwise, in other unrelated business areas and
is exploring opportunities to do so.
Historically,
we have financed our operations primarily through sales of our common stock and debt financing. The Company will continue to seek additional
capital through the sale of its common stock, debt financing and through expansion of its existing and new products. If our financing
goals for our products do not materialize as planned and if we are not able to achieve profitable operations at some point in the future,
we may have insufficient working capital to maintain our operations as we presently intend to conduct them or to fund our expansion,
marketing, and product development plans.
The
ability of the Company to continue as a going concern is dependent upon the success of future capital offerings or alternative financing
arrangements and expansion of its operations. The accompanying financial statements do not include any adjustments that might be necessary
should the Company be unable to continue as a going concern. Management is actively pursuing additional sources of financing sufficient
to generate enough cash flow to fund its operations through calendar year 2022. However, management cannot make any assurances that such
financing will be secured.
SPYR, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE
MONTHS ENDED MARCH 31, 2022 AND 2021
(Unaudited)
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.
Use
of Estimates
The
preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Estimates and assumptions
used by management affected impairment analysis for trading securities, fixed assets, intangible assets, capitalized licensing rights,
amounts of potential liabilities, and valuation of issuance of equity securities. Actual results could differ from those estimates.
Earnings
(Loss) Per Share
The
basic and fully diluted shares for the three months ended March 31, 2022 are the same because the inclusion of the potential shares
(Class A – 26,909,028, Class E – 1,385,042, Options – 4,379,900, Warrants – 5,800,000) would have had an anti-dilutive
effect due to the Company generating a loss for the three months ended March 31, 2022.
The
basic and fully diluted shares for the three months ended March 31, 2021 are the same because the inclusion of the potential shares
(Class A – 26,909,028, Class E – 570,190, Options – 5,379,900, Warrants – 8,700,000) would have had an anti-dilutive
effect due to the Company generating a loss for the three months ended March 31, 2021.
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 | |
| 2-7 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.
SPYR, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE
MONTHS ENDED MARCH 31, 2022 AND 2021
(Unaudited)
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.
Recent
Accounting Standards
The
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.
Restatement
In
2022, the Company identified errors in account balances in the Form 10Q filed for the period ended March 31, 2022. 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 period ended March 31,
2022, 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:
SPYR, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE
MONTHS ENDED MARCH 31, 2022 AND 2021
(Unaudited)
| Schedule of restated presentation | |
| | | |
| | | |
| | |
| | |
March 31, 2022 | |
| | |
As Reported | | |
Adjustments | | |
As Restated | |
| ASSETS | |
| | | |
| | | |
| | |
| Current Assets: | |
| | | |
| | | |
| | |
| Cash and Cash Equivalents | |
$ | 184,000 | | |
$ | (2,000 | ) | |
| 182,000 | |
| Prepaid Expenses | |
| 46,000 | | |
| - | | |
| 46,000 | |
| Trading Securities, at Market Value | |
| 1,000 | | |
| (1,000 | ) | |
| - | |
| Current Assets of Discontinued Operations | |
| 14,000 | | |
| (12,000 | ) | |
| 2,000 | |
| Total Current Assets | |
| 245,000 | | |
| (15,000 | ) | |
| 230,000 | |
| | |
| | | |
| | | |
| | |
| Other Assets: | |
| | | |
| | | |
| | |
| Property and Equipment, net | |
| 13,000 | | |
| - | | |
| 13,000 | |
| Other Assets | |
| 84,000 | | |
| (83,000 | ) | |
| 1,000 | |
| TOTAL ASSETS | |
$ | 342,000 | | |
$ | (98,000 | ) | |
$ | 244,000 | |
| | |
| | | |
| | | |
| | |
| LIABILITIES & STOCKHOLDERS’ DEFICIT | |
| | | |
| | | |
| | |
| Current Liabilities: | |
| | | |
| | | |
| | |
| Accounts Payable and Accrued Liabilities | |
$ | 1,872,000 | | |
$ | (217,000 | ) | |
| 1,655,000 | |
| Related Notes Payable, current portion | |
| 528,000 | | |
| - | | |
| 528,000 | |
| Short-Term Convertible Notes Payable | |
| 210,000 | | |
| (1,000 | ) | |
| 209,000 | |
| SBA PPP Note Payable, current portion | |
| 72,000 | | |
| (72,000 | ) | |
| - | |
| Current Liabilities of Discontinued Operations | |
| 803,000 | | |
| 12,000 | | |
| 815,000 | |
| Total Current Liabilities | |
| 3,485,000 | | |
| (278,000 | ) | |
| 3,207,000 | |
| | |
| | | |
| | | |
| | |
| Other Liabilities: | |
| | | |
| | | |
| | |
| Notes Payable | |
| 2,572,000 | | |
| - | | |
| 2,572,000 | |
| Long-Term Convertible Notes Payable, net | |
| 839,000 | | |
| (565,000 | ) | |
| 274,000 | |
| Derivative Liability | |
| 380,000 | | |
| 2,520,000 | | |
| 2,900,000 | |
| Total Liabilities | |
| 7,276,000 | | |
| 1,677,000 | | |
| 8,953,000 | |
| | |
| | | |
| | | |
| | |
| Stockholders’ Deficit: | |
| | | |
| | | |
| | |
| Preferred Stock, Class A, $0.0001 par value, 10,000,000 shares authorized; 107,636 shares issued and outstanding as of March 31, 2022 | |
| 11 | | |
| - | | |
| 11 | |
| Preferred Stock, Class E, $0.0001 par value, 10,000,000 shares authorized; 20,000 shares issued and outstanding as of March 31, 2022 | |
| 2 | | |
| - | | |
| 2 | |
| Common Stock, $0.0001 par value, 750,000,000 shares authorized; 265,030,082 and outstanding as of March 31, 2022 | |
| 28,114 | | |
| (1,611 | ) | |
| 26,503 | |
| Common stock to be issued | |
| 1,089 | | |
| 894,411 | | |
| 895,500 | |
| Additional Paid-In Capital | |
| 60,060,421 | | |
| (603,437 | ) | |
| 59,456,984 | |
| Accumulated Deficit | |
| (67,022,521 | ) | |
| (2,065,479 | ) | |
| (69,088,000 | ) |
| Total Stockholder’s Deficit | |
| (6,934,000 | ) | |
| (1,775,000 | ) | |
| (8,709,000 | ) |
| TOTAL LIABILITIES AND STOCKHOLDER’S DEFICIT | |
$ | 342,000 | | |
$ | (98,000 | ) | |
$ | 244,000 | |
SPYR, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE
MONTHS ENDED MARCH 31, 2022 AND 2021
(Unaudited)
| | |
| | | |
| | | |
| | |
| | |
For the Three Months Ended
March 31, 2022 | |
| | |
As Reported | | |
Adjustment | | |
As Restated | |
| Revenues | |
$ | 1,000 | | |
$ | - | | |
$ | 1,000 | |
| Cost of Goods Sold | |
| - | | |
| - | | |
| - | |
| Gross Profit | |
| 1,000 | | |
| - | | |
| 1,000 | |
| | |
| | | |
| | | |
| | |
| Expenses: | |
| | | |
| | | |
| | |
| Labor and Related Expenses | |
| 1,259,000 | | |
| (696,000 | ) | |
| 563,000 | |
| Rent | |
| 6,000 | | |
| - | | |
| 6,000 | |
| Depreciation and Amortization | |
| 2,000 | | |
| 1,000 | | |
| 3,000 | |
| Professional Fees | |
| 891,000 | | |
| (161,000 | ) | |
| 730,000 | |
| Other General and Administrative | |
| 40,000 | | |
| (40,000 | ) | |
| - | |
| Total Operating Expenses | |
| 2,198,000 | | |
| (896,000 | ) | |
| 1,302,000 | |
| | |
| | | |
| | | |
| | |
| Operating Loss | |
| (2,197,000 | ) | |
| 896,000 | | |
| (1,301,000 | ) |
| | |
| | | |
| | | |
| | |
| Other Income (Expenses) | |
| | | |
| | | |
| | |
| Interest Expense | |
| (49,000 | ) | |
| (1,005,000 | ) | |
| (1,054,000 | ) |
| Other Income | |
| 38,000 | | |
| (38,000 | ) | |
| - | |
| Amortization of Debt Discounts | |
| (43,000 | ) | |
| 10,000 | | |
| (33,000 | ) |
| Loss on Conversion of Debt | |
| (54,000 | ) | |
| 22,000 | | |
| (32,000 | ) |
| Loss on Settlement | |
| - | | |
| (30,000 | ) | |
| (30,000 | ) |
| Loss on Issuance of Common Stock | |
| - | | |
| (16,000 | ) | |
| (16,000 | ) |
| Settlement Expense | |
| (282,000 | ) | |
| 184,000 | | |
| (98,000 | ) |
| Change in Value of Derivative | |
| 2,075,000 | | |
| (1,663,000 | ) | |
| 412,000 | |
| Total Other Income (Expenses) | |
| 1,685,000 | | |
| (2,536,000 | ) | |
| (851,000 | ) |
| | |
| | | |
| | | |
| | |
| Loss from Continuing Operations | |
| (512,000 | ) | |
| (1,640,000 | ) | |
| (2,152,000 | ) |
| Loss from Discontinued Operations | |
| (2,000 | ) | |
| - | | |
| (2,000 | ) |
| Net Loss | |
$ | (514,000 | ) | |
$ | (1,640,000 | ) | |
$ | (2,154,000 | ) |
| | |
| | | |
| | | |
| | |
| Basic and diluted loss per common share | |
$ | (0.00 | ) | |
$ | (0.01 | ) | |
$ | (0.01 | ) |
| | |
| | | |
| | | |
| | |
| Weighted average common shares outstanding | |
| 270,939,479 | | |
| 12,384,109 | | |
| 258,555,370 | |
SPYR, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE
MONTHS ENDED MARCH 31, 2022 AND 2021
(Unaudited)
| | |
| | | |
| | | |
| | |
| | |
For the Three Months Ended
March 31, 2022 | |
| | |
As Reported | | |
Adjustment | | |
As Restated | |
| Cash Flows From Operating Activities: | |
| | | |
| | | |
| | |
| Net Loss | |
$ | (514,000 | ) | |
$ | (1,640,000 | ) | |
$ | (2,154,000 | ) |
| | |
| | | |
| | | |
| | |
| Adjustments to Reconcile Net Loss to Net Cash Used in Operating Activities: | |
| | | |
| | | |
| | |
| Loss on Discontinued Operations | |
| 2,000 | | |
| (1,000 | ) | |
| 1,000 | |
| Reclassifications of Derivative Liabilities to Additional Paid-In Capital | |
| 167,000 | | |
| (167,000 | ) | |
| - | |
| Depreciation and Amortization | |
| 3,000 | | |
| - | | |
| 3,000 | |
| Common Stock Issued and to be issued for Director and Employee Compensation | |
| 1,214,000 | | |
| (696,000 | ) | |
| 518,000 | |
| Common Stock Issued and to be issued for Services | |
| 569,000 | | |
| (108,000 | ) | |
| 461,000 | |
| Common Stock Issued for Settlement | |
| 282,000 | | |
| (184,000 | ) | |
| 98,000 | |
| Common Stock Issued for Conversion of Debt | |
| 54,000 | | |
| (22,000 | ) | |
| 32,000 | |
| Amortization of Debt Discounts on Convertible Notes Payable | |
| 43,000 | | |
| 1,029,000 | | |
| 1,072,000 | |
| Change in Value of Derivative Liability | |
| (2,241,000 | ) | |
| 1,829,000 | | |
| (412,000 | ) |
| | |
| | | |
| | | |
| | |
| Changes in Operating Assets and Liabilities: | |
| | | |
| | | |
| | |
| (Increase) Decrease in Prepaid Expenses | |
| 1,000 | | |
| - | | |
| 1,000 | |
| Increase in Accounts Payable and Accrued Liabilities | |
| 56,000 | | |
| (43,000 | ) | |
| 13,000 | |
| Increase in Accrued Interest on Notes Payable Related Party | |
| 42,000 | | |
| (38,000 | ) | |
| 4,000 | |
| Increase in Accrued Interest on Notes Payable | |
| 4,000 | | |
| 37,000 | | |
| 41,000 | |
| Net Cash Used in Operating Activities from Continuing Operations | |
| (321,000 | ) | |
| (1,000 | ) | |
| (322,000 | ) |
| Net Cash Provided by Operating Activities from Discontinued Operations | |
| - | | |
| - | | |
| - | |
| Net Cash Used in Operating Activities | |
| (321,000 | ) | |
| (1,000 | ) | |
| (322,000 | ) |
| | |
| | | |
| | | |
| | |
| Cash Flows From Financing Activities: | |
| | | |
| | | |
| | |
| Proceeds from Long-Term Convertible Notes | |
| 510,000 | | |
| - | | |
| 510,000 | |
| Funds lent as asset consideration | |
| (40,000 | ) | |
| 40,000 | | |
| - | |
| Repayment of Notes Payables, current portion | |
| - | | |
| (38,000 | ) | |
| (38,000 | ) |
| Net Cash Provided by Financing Activities from Continuing Operations | |
| 470,000 | | |
| 2,000 | | |
| 472,000 | |
| Net Cash Provided by Financing Activities from Discontinued Operations | |
| - | | |
| - | | |
| - | |
| Net Cash Provided by Financing Activities | |
| 470,000 | | |
| 2,000 | | |
| 472,000 | |
| | |
| | | |
| | | |
| | |
| Net Change in Cash | |
| 149,000 | | |
| 1,000 | | |
| 150,000 | |
| Cash and Cash Equivalents at Beginning of Period | |
| 35,000 | | |
| (3,000 | ) | |
| 32,000 | |
| Cash and Cash Equivalents at End of Period | |
$ | 184,000 | | |
$ | (2,000 | ) | |
$ | 182,000 | |
SPYR, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE
MONTHS ENDED MARCH 31, 2022 AND 2021
(Unaudited)
NOTE
2 – NOTES PAYABLE AND RELATED PARTY NOTES PAYABLE
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. This note is currently in default.
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.
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, $118,000 of interest has accrued, resulting in a net payable at March 31, 2022
of $2,572,000. As of March 31, 2022 there is outstanding $118,000 in interest and $2,454,000 in principal outstanding.
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. During the three months ended March 31,2022,
the Company repaid $38,000 on the note payable. As of March 31, 2022, the balance of the note was $0.
Related
Party
On
May 17, 2021, the Company entered into an agreement to borrow funds from the 481149 Irrevocable Trust, a related party, 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 March 31, 2022, accrued interest is approximately $27,000 and the principal balance
$501,000.
NOTE
3 – 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.
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.
SPYR, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE
MONTHS ENDED MARCH 31, 2022 AND 2021
(Unaudited)
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.
On
March 17, 2022, Ares Capital, Inc. converted $21,000 of principal and $1,000 of interest from the May 27, 2021 convertible
note into 1,498,289 common shares. As of March 31, 2022, there is approximately $12,000 in interest and $198,000 in principal outstanding.
NOTE
4 – CONVERTIBLE NOTES PAYABLE
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. As of March 31, 2022, the balance of accrued interest is $61,000 and outstanding
principal is $407,000.
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. As of March 31, 2022, there is outstanding approximate accrued interest of $2,000 and principal of $50,000.
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. As of March 31, 2022, there is outstanding approximate accrued interest of $1,000 and principal of $23,000
SPYR, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE
MONTHS ENDED MARCH 31, 2022 AND 2021
(Unaudited)
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. As of March 31, 2022, there is outstanding approximate accrued interest of $2,000 and principal of $70,000
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. As of March 31, 2022, there is outstanding approximate accrued interest of $1,000 and principal
of $50,000
On
January 10, 2022, the Company issued a convertible promissory note to Brown Stone Capital, LP in the amount of $200,000 with 8%
interests due January 10, 2027. 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. As of March 31, 2022, there is outstanding approximate accrued interest of $4,000 and principal
of $200,000
On
January 19, 2022, Mehdi Safavi converted $32,000 of debt into 1,863,000 common shares.
On
February 3, 2022, the Company issued a convertible promissory note to Brown Stone Capital, LP in the amount of $50,000 with 8% interests
due February 3, 2027. 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. As of March 31, 2022, there is outstanding approximate accrued interest of $1,000 and principal of $50,000
On
February 11, 2022, the Company issued a convertible promissory note to Brown Stone Capital, LP in the amount of $50,000 with 8%
interests due February 11, 2027. 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. As of March 31, 2022, there is outstanding approximate accrued interest of $1,000 and principal
of $50,000
On
March 24, 2022, the Company issued a convertible promissory note to Brown Stone Capital, LP in the amount of $210,000 with 8% interests
due March 24, 2027. 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. As of March 31, 2022, there is outstanding approximate accrued interest of $1,000 and principal of $210,000.
SPYR, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE
MONTHS ENDED MARCH 31, 2022 AND 2021
(Unaudited)
The
following table summarized the Company’s convertible notes payable as of March 31, 2022 and December 31, 2021:
| Summary of Convertible Notes | |
| | | |
| | |
| | |
March 31,
2022 | | |
December 31,
2021 | |
| Beginning Balance | |
$ | 492,000 | | |
$ | 64,000 | |
| Proceeds from the issuance of convertible notes | |
| 510,000 | | |
| 413,000 | |
| Repayments | |
| - | | |
| - | |
| Conversion of notes payable into common stock | |
| (52,000 | ) | |
| (559,000 | ) |
| Amortization of Debt Discounts | |
| 33,000 | | |
| 553,000 | |
| Liquidated damages | |
| - | | |
| 351,000 | |
| New debt discount | |
| (510,000 | ) | |
| (43,000 | ) |
| Debt settlement costs | |
| - | | |
| - | |
| Accrued Interest | |
| 10,000 | | |
| 63,000 | |
| Convertible notes payable, net | |
$ | 483,000 | | |
$ | 492,000 | |
| Principal balance | |
$ | 198,000 | | |
$ | 198,000 | |
| Accrued interest and damages, short term | |
| 11,000 | | |
| 8,000 | |
| Debt discounts, short term | |
| - | | |
| - | |
| Short-term convertible notes payable, net | |
$ | 209,000 | | |
$ | 206,000 | |
| Convertible notes, long-term principal | |
$ | 286,000 | | |
| 670,000 | |
| Accrued interest and damages, long-term | |
| 21,000 | | |
| 56,000 | |
| Debt discounts, long-term | |
| (33,000 | ) | |
| (440,000 | ) |
| Long-term convertible notes payable, net | |
$ | 274,000 | | |
$ | 286,000 | |
NOTE
5 – PROPERTY AND EQUIPMENT
Property
and equipment consisted of the following:
| Schedule of property and equipment | |
| | | |
| | |
| | |
March 31,
2022 | | |
December 31,
2021 | |
| Equipment | |
$ | 16,000 | | |
$ | 16,000 | |
| Furniture & fixtures | |
| 17,000 | | |
| 17,000 | |
| Vehicles | |
| 10,000 | | |
| 10,000 | |
| Property and Equipment, Gross | |
| 43,000 | | |
| 43,000 | |
| Less: accumulated depreciation | |
| (30,000 | ) | |
| (27,000 | ) |
| Property and Equipment, Net | |
$ | 13,000 | | |
$ | 16,000 | |
Depreciation
and amortization expense for the three months ended March 31, 2022 and 2021 was $3,000 and $10,000, respectively.
The
Company sold certain office equipment for $8,000 which resulted in a gain on disposition of assets of $5,000 for the year ended December 31,
2021.
SPYR, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE
MONTHS ENDED MARCH 31, 2022 AND 2021
(Unaudited)
NOTE
6 – INTANGIBLE ASSETS AND OTHER ASSETS
Intangible
assets at March 31, 2022 and December 31, 2021 consisted of the following:
| Schedule of intangible assets | |
| | |
| | | |
| | |
| | |
Useful
Life (yr) | | |
March 31,
2022 | | |
December 31,
2021 | |
| Domain Names | |
7 | | |
$ | 21,000 | | |
$ | 21,000 | |
| Less: accumulated amortization | |
| | |
| (21,000 | ) | |
| (21,000 | ) |
| | |
| | |
$ | - | | |
$ | - | |
At
March 31, 2022 and December 31, 2021 other assets consisted of $1,000. Other assets generally consist of security deposits
for the Premier Workspaces.
NOTE
7 – 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.
The
following table represents the Company’s derivative liability activity for the three months ended March 31, 2022:
| Schedule of Derivative Liability Activity | |
| | |
| | |
Quarter Ended
March 31, | |
| | |
2022 | |
| Derivative liability balance, December 31, 2021 | |
$ | 1,907,000 | |
| Fair value on the date of issuance of new derivatives | |
| 1,572,000 | |
| Reclassification to Additional Paid-In Capital | |
| (167,000 | ) |
| Change in derivative liability during the period | |
| (412,000 | ) |
| Derivative liability balance, March 31, 2022 | |
$ | 2,900,000 | |
The
table below represents the average assumptions used in valuing the derivative liability at March 31, 2022:
| Summary of Average Assumptions Used in Valuing the Derivative Liability | |
| |
| | |
Quarter Ended
March 31, | |
| | |
2022 | |
| Expected life in years | |
0.50 – 4.98 | |
| Stock price volatility | |
187.11%
– 203.78% | |
| Risk free interest rate | |
1.06%
– 2.45% | |
| Expected dividends | |
- | |
| Forfeiture rate | |
- | |
SPYR, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE
MONTHS ENDED MARCH 31, 2022 AND 2021
(Unaudited)
NOTE
8 – DISCONTINUED OPERATIONS
Restaurant
Through
our other wholly owned subsidiary, E.A.J.: PHL Airport, Inc., we owned and operated the restaurant “Eat at Joe’s®,”
which was located in the Philadelphia International Airport since 1997. Our lease in the Philadelphia Airport expired in April 2017.
Concurrent with expiration of the lease the restaurant closed. Pursuant to current accounting guidelines, the restaurant segment is reported
as discontinued operations.
The
assets and liabilities of our discontinued restaurant operations as of March 31, 2022 and December 31, 2021 there were 0 assets
and $22,000 in accounts payable and accrued liabilities.
The
results of operations of our discontinued restaurant for the three months ended March 31, 2022 and 2021, included in the consolidated
statements of operations as discontinued operations, consisted of no operations for the three months ended March 31, 2022 and 2021.
Digital Media
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. As of December 31,
2020, all of our games have been removed from the game stores and the Company decided not to continue this line of business. Pursuant
to current accounting guidelines, the assets and liabilities of SPYR APPS LLC as well as the results of its operations were presented
in these financial statements as discontinued operations.
The
assets and liabilities of our discontinued digital media operations as of March 31, 2022 and December 31, 2021 were as follows:
| Summary of Assets and Liabilities of Discontinued Operations | |
| | | |
| | |
| | |
March 31,
2022 | | |
December 31,
2021 | |
| Assets: | |
| | | |
| | |
| Accounts receivable, net | |
$ | 2,000 | | |
$ | 3,000 | |
| Total Assets | |
$ | 2,000 | | |
$ | 3,000 | |
| Liabilities: | |
| | | |
| | |
| Accounts payable and accrued liabilities | |
$ | 815,000 | | |
$ | 815,000 | |
| Total Liabilities | |
$ | 815,000 | | |
$ | 815,000 | |
The
results of operations of our discontinued digital media operations for the three months ended March 31, 2022 and 2021, included
in the consolidated statements of operations as discontinued operations, consisted of the following:
| Summary of Results of Operations of Discontinued Operations | |
| | | |
| | |
| | |
Quarter | | |
Quarter | |
| | |
ended | | |
ended | |
| | |
March 31, | | |
March 31, | |
| | |
2022 | | |
2021 | |
| Revenues: | |
$ | - | | |
$ | - | |
| Expenses | |
| | | |
| | |
| Other general and administrative | |
| 2,000 | | |
| - | |
| Total operating expenses | |
| 2,000 | | |
| - | |
| Operating loss | |
| (2,000 | ) | |
| - | |
| Other income (expense) | |
| | | |
| | |
| Interest expense | |
| - | | |
| (11,000 | ) |
| Loss on discontinued operations | |
$ | (2,000 | ) | |
$ | (11,000 | |
SPYR
APPS, LLC
On
February 2, 2022, the Company filed Articles of dissolution with the Nevada Secretary of State dissolving SPYR APPS, LLC.
SPYR, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE
MONTHS ENDED MARCH 31, 2022 AND 2021
(Unaudited)
NOTE
9 – ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
As
of March 31, 2022 and December 31, 2021, the Company had accounts payable and accrued liabilities of $1,655,000 and $1,825,000
respectively. As of March 31, 2022, of the outstanding $1,655,000 consists of $234,000 outstanding and owed to vendors and other
professional service providers, and $1,421,000 outstanding as accrued wages and salaries. As of December 31, 2021, $1,825,000 was
outstanding consisting of $221,000 outstanding and owed to vendors and other professional service providers, and $1,604,000 outstanding
as accrued wages and salaries.
NOTE
10 – DEBT DISCOUNTS
As
of March 31, 2022 and December 31, 2021, the Company had debt discounts of $906,000 and $397,000 respectively. For the three
months ended March 31, 2022, there was $33,000 in amortization of debt discounts. For the year ended December 31, 2021, there
was $132,000 in amortization of debt discounts. As of March 31, 2022 and December 31, 2021, there were outstanding long term
convertible notes payable of $1,180,000 and $683,000 respectively, these numbers are netted against their respective debt discounts and
are represented as $274,000 and $286,000 as of March 31, 2022 and December 31, 2021, respectively.
NOTE
11 – 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 March 31,
2022, no shares have been sold pursuant to this agreement. On April 26, 2022, the Registrant and Ares amended the Registration Rights
Agreement previously disclosed on Form 8-K filed September 23, 2001. The transaction documents were amended to reflect Ares’
waiver of the requirement that the Registrant file a registration statement concerning the equity purchase agreement within thirty days
of September 20, 2021.
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 March 31, 2022.
SPYR, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE
MONTHS ENDED MARCH 31, 2022 AND 2021
(Unaudited)
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 Five Hundred Thousand Dollars ($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 and December 31, 2019 and was recorded as litigation settlement costs on the consolidated statements
of operations for the year ended December 31, 2019.
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.
On
March 15, 2022, the Company and Collier Investments, LLC entered into a Warrant Cancellation Agreement. On May 22, 2018, the
Company issued a five year warrant to Collier to purchase 200,000 shares of common stock, adjustable in price and amount for dilutive
issuances. The Company and Collier agreed to cancel the warrant in exchange for the Company issuing Collier 2,000,000 shares of common
stock.
SPYR, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE
MONTHS ENDED MARCH 31, 2022 AND 2021
(Unaudited)
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 March 31, 2022 and December 31, 2021 was approximately $100,000,
respectively, which includes accrued interest and attorneys’ fees, has been reported as part of current liabilities of discontinued
operations.
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.
Pursuant
to termination agreements, the Company is liable for unpaid wages and benefits to Ms. Duettra and Mr. Thompson of $162,458.13 and $3,600,
and $910,991.80 and $2,300.02 respectively. The Company also owes Mr. Thompson contractual expense reimbursements in the amount of $52,527.82.
In
settlement of constructive termination under Ms. Duettra and Mr. Thompson’s employment agreements, the Company agreed to issue
2,500,000 and 5,000,000 shares of restricted common stock, respectively, and continue payments of medical, dental and vision insurance
for each until June 30, 2022.
On
February 7, 2022, the Company entered into settlement agreements with Harald Zink, Richard Kelly Clark, and Misty Seals to settle
accrued wages. The Company settled $94,193.75 in accrued wages payable to Mr. Zink by the issuance of 1,546,695 common shares. The Company
settled $42,383.42 in accrued wages payable to Ms. Seals by the issuance of 695,951 common shares. The Company settled $94,193.75 in
accrued wages payable to Mr. Clark by the issuance of 1,788,367 common shares.
SPYR, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE
MONTHS ENDED MARCH 31, 2022 AND 2021
(Unaudited)
NOTE
12 – EQUITY TRANSACTIONS
Common
Stock:
Three
Months Ended March 31, 2021
During
the three months ended March 31, 2021, the Company issued an aggregate of 1,400,000 shares of restricted common stock to employees
with a total fair value of $215,000 for services rendered. The shares issued are non-refundable and deemed earned upon issuance. As a
result, the Company expensed the entire $215,000 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. The Company also issued 3,000,000 for outside consulting
with a fair value of $371,000.
Three
Months Ended March 31, 2022
During
the three months ended March 31, 2022, the Company issued 1,015,019 shares of restricted common stock to Richard Kelly Clark for
$47,097 in compensation from the previous year, recorded as common stock to be issued as of December 31, 2021.
The
Company also issued 8,700,000 common shares for outside consulting with a fair value of $431,000.
The
Company also issued 5,015,994 common shares for settlements to Collier Investments, and separately with Richard Kelly Clark, Harald Zink,
and Misty Seals with an aggregate fair market value of $282,000. The Company recognized a loss on the issuances of $16,000.
The
company also issued 3,361,289 common shares in conversion of $54,000 in notes payable.
The
Company also has the obligation to issue 9,000,000 shares in director compensation, and 1,886,792 common shares for consulting services
that has not been issued as of the date of this filing. The fair value of these issuances are $518,000 and $30,000 respectively.
Options:
The
following table summarizes common stock options activity:
| Summary of Common Stock Options Activity | |
| | | |
| | |
| | |
Options | | |
Weighted Average Exercise Price | |
| December 31, 2021 | |
| 4,379,900 | | |
$ | 0.88 | |
| Granted | |
| — | | |
| — | |
| Exercised | |
| — | | |
| — | |
| Expired | |
| — | | |
| — | |
| Outstanding, March 31, 2022 | |
| 4,379,900 | | |
$ | 0.88 | |
| Exercisable, March 31, 2022 | |
| 4,379,900 | | |
$ | 0.88 | |
SPYR, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE
MONTHS ENDED MARCH 31, 2022 AND 2021
(Unaudited)
The
weighted average exercise prices, remaining lives for options granted, and exercisable as of March 31, 2022 were as follows:
| Schedule of Weighted Average Exercise Price Range | | |
| | | |
| | |
| | |
| | | |
| |
| | | |
Outstanding Options | | |
Exercisable Options | |
Options Exercise
Price Per Share | | |
Shares | | |
Life
(Years) | | |
Weighted Average
Exercise Price | | |
Shares | | |
Weighted Average
Exercise Price | |
| $0.50 | | |
| 8,000,000 | | |
0.42 | | |
$0.50 | | |
| 8,000,000 | | |
$0.50 | |
| $1.00 | | |
| 1,149,900 | | |
0.07 – 1.85 | | |
$1.00 | | |
| 1,149,900 | | |
$1.00 | |
| | | | |
| 9,149,900 | | |
| | |
$0.56 | | |
| 9,149,900 | | |
$0.56 | |
At
March 31, 2022, the Company’s closing stock price was $0.03 per share. As all outstanding options had an exercise price greater
than $0.03 per share, there was no intrinsic value of the options outstanding at March 31, 2022.
Warrants:
The
following table summarizes common stock warrants activity:
| Summary of Common Stock Warrants Activity | |
| | | |
| | |
| | |
Warrants | | |
Weighted Average Exercise Price | |
| Outstanding, December 31, 2021 | |
| 7,200,000 | | |
$ | 0.39 | |
| Granted | |
| — | | |
| — | |
| Exercised | |
| — | | |
| — | |
| Expired | |
| 1,200,000 | | |
| | |
| Cancelled | |
| 200,000 | | |
| — | |
| Outstanding, March 31, 2022 | |
| 5,800,000 | | |
$ | 0.33 | |
| Exercisable, March 31, 2022 | |
| 5,800,000 | | |
$ | 0.33 | |
The
weighted average exercise prices, remaining lives for warrants granted, and exercisable as of March 31, 2022, were as follows:
| | Schedule of Warrants Weighted Average Exercise Price Range | | |
| | | |
| | |
| | | |
Outstanding and Exercisable Warrants | |
Warrants Exercise
Price Per Share | | |
Shares | | |
Life
(Years) | |
| $ | 0.25 | | |
| 3,500,000 | | |
| 3.65 | |
| $ | 0.50 | | |
| 2,300,000 | | |
| 1.28 | |
| | | | |
| 5,800,000 | | |
| | |
Shares
Reserved:
At
March 31, 2022, the Company has no reserved shares of common stock in connection with convertible notes or warrants.
SPYR, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE
MONTHS ENDED MARCH 31, 2022 AND 2021
(Unaudited)
NOTE
13 – SUBSEQUENT EVENTS
On
April 21, 2022, the Company entered into a securities purchase agreement and convertible promissory note with Brown Stone Capital,
LP in the amount of $175,000. The note carries 8% interest and matures on April 21, 2027.
Subsequent
to March 31, 2022, a total of 9,109,084 shares of common stock were issued pursuant to conversion of $154,294 of principal and $6,218
of accrued interest on the ARES short term convertible notes, and issued 3,720,939 shares of common stock pursuant to the conversion
of $50,000 of principal and $2,093 of accrued interest under long term convertible notes.
The
Company entered into a consulting agreement with a third party vendor and issued 5,000,000
registered common shares on Form S-8, which have been accrued as of the date of this filing, but not issued. The value of the shares
is $0.0396
per share as at May 5, 2022.
On
May 10, 2022, the Company entered into a convertible promissory note in the principal amount of $75,000, with 10% interest per annum,
with a maturity date of August 10, 2022. The note has a $25,000 original issuance discount.
On
June 28, 2022, the Company entered into a securities purchase agreement and convertible promissory note with 1800 Diagonal Lending,
LLC in the amount of $104,250. The note carries 8% interest and matures July 1, 2023.
On August 2, 2022, the Company entered into a securities purchase agreement and convertible promissory note with Amir Mehdi Safavi
in the amount of $150,000. The note carries 8% interest and matures August 2, 2027.
On August 4, 2022, the Company entered into a securities purchase agreement and convertible promissory note with 1800 Diagonal Lending,
LLC in the amount of $64,000. The note carriers 8% interest and matures August 4, 2023.
On
May 24, 2022, the Company entered into a material debitive agreement (“MDA”) not made in the ordinary course of business.
The parties to the MDA are the Company and JanOne, Inc., a Nevada corporation (“JanOne”). There was no material relationship
between the Company and JanOne other than in respect of the material definitive agreement.
Pursuant
to the terms of the MDA, JanOne agreed to sell, and the Company agreed to buy and assume, all legal right, title, and interest to all
of the assets, and none of the liabilities, of JanOne’s wholly owned subsidiary, GeoTraq, Inc. (“GeoTraq”), including
but not limited to, all accounts receivable, inventory, 13,500 work in process inventory chipsets, 170 completed IOT tracker modules,
equipment, machinery, tools, rights under existing warranties, indemnities and insurance benefits, books, records all goodwill and all
intellectual property, including an issued patent associated with GeoTraq.
The
aggregate consideration for the asset purchase consisted of the Company’s issuance of 30,000,000 shares of unregistered restricted
common stock to JanOne, and a convertible promissory note (“Note”) in the amount of $12,600,000. The Note accrues interest
at 8% per annum, which is agreed to be paid in issuances of restricted common stock quarterly while the Note is outstanding, subject
to a beneficial ownership limitation of 9.99% after giving effect to the issuance of restricted common stock. The maturity date is May 24, 2027. There is no prepayment penalty. The shares were issued on June 16, 2022.