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SPYR, INC.

Date Filed : Nov 14, 2019

10-Q1spyrq32019.htmFORM 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

(Mark One)

 

[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended: September 30,2019

 

or

 

[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d)OF THE EXCHANGE ACT

 

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)   (IRS Employer Identification No.)

 

4643 S. Ulster St., Suite 1510, Denver,CO 80237

(Address of principal executive offices)

 

(303) 991-8000

(Registrant's telephone number)

 

Check whetherthe issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the issuer was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days

Yes ☐ No

 

Indicate bycheck mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every InteractiveData File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during thepreceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes ☐ No

 

Indicate by check mark whether the registrantis a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitionsof "large accelerated filer," "accelerated filer" and" smaller reporting company" in Rule 12b-2 ofthe Exchange Act.

 

Large accelerated filer   Accelerated filer
Non-accelerated filer   Smaller reporting company
Emerging growth company      

  

If an emerging growth company, indicate bycheck mark if the registrant has elected not to use the extended transition period for complying with any new or revised financialaccounting standards provided pursuant to Section 13(a) of the Exchange Act.

 

Indicate by check mark whether theregistrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No

 

APPLICABLE ONLY TO CORPORATE ISSUERS

 

As of November 14, 2019, there were 200,880,131shares of the Registrant's common stock.

 

 1 

 

TABLE OF CONTENTS

 

 

Part 1 Financial Information 3
     
Item 1. Financial Statements (Unaudited) 3
Item 2. Management's Discussion And Analysis Of Financial Condition And Results Of Operation 18
Item 3. Quantitative And Qualitative Disclosures About Market Risk 25
Item 4. Controls And Procedures 25
     
Part II Other Information 26
     
Item 1. Legal Proceedings 26
Item 1a. Risk Factors 27
Item 2. Unregistered Sale Of Equity Securities And Use Of Proceeds 27
Item 3. Defaults Of Senior Securities 27
Item 4. Mine Safety Disclosures 27
Item 5. Other Information 27
Item 6. Exhibits 27
 2 

 

PART I - FINANCIAL INFORMATION

 

ITEM 1.FINANCIAL STATEMENTS

 

SPYR, INC., AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
       
    September 30, 2019    December 31, 2018 
ASSETS        (Restated) 
Current Assets:          
   Cash and cash equivalents  $36,000   $24,000 
   Accounts receivable, net   35,000    62,000 
   Prepaid expenses   19,000    21,000 
   Trading securities, at market value   1,000    4,000 
          Total Current Assets   91,000    111,000 
           
   Property and equipment, net   67,000    94,000 
   Capitalized gaming assets and licensing rights, net   118,000    122,000 
   Intangible assets, net   7,000    9,000 
   Operating lease right-of-use asset   91,000    110,000 
   Other assets   6,000    6,000 
TOTAL ASSETS  $380,000   $452,000 
           
LIABILITIES AND STOCKHOLDERS' (DEFICIT)          
LIABILITIES          
Current Liabilities:          
   Accounts payable and accrued liabilities  $1,206,000   $1,145,000 
   Related party short-term advances   1,099,000    320,000 
  Related party line of credit   1,117,000    1,068,000 
   Convertible note payable, net   542,000    432,000 
   Operating lease liability - current portion   66,000    39,000 
   Current liabilities of discontinued operations   22,000    22,000 
          Total Current Liabilities   4,052,000    3,026,000 
           
   Operating lease liability   39,000    92,000 
         Total Liabilities   4,091,000    3,118,000 
COMMITMENTS AND CONTINGENCIES          
           
STOCKHOLDERS’ (DEFICIT)          
   Preferred stock, $0.0001 par value, 10,000,000 shares authorized          
      107,636 Class A shares issued and outstanding          
        as of September 30, 2019 and December 31, 2018   11    11 
     20,000 Class E shares issued and outstanding          
        as of September 30, 2019 and December 31, 2018   2    2 
   Common Stock, $0.0001 par value, 750,000,000 shares authorized          
        200,055,131 and 198,305,131 shares issued and outstanding          
        as of September 30, 2019 and December 31, 2018   20,005    19,830 
   Additional paid-in capital   53,445,982    53,265,157 
   Accumulated deficit   (57,177,000)   (55,951,000)
          Total Stockholders’ (Deficit)   (3,711,000)   (2,666,000)
TOTAL LIABILITIES AND STOCKHOLDERS’ (DEFICIT)  $380,000   $452,000 
           
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 3 

 

SPYR, INC., AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
                     
    For the Three Months Ended September 30,    For the Nine Months Ended September 30, 
    2019    2018    2019    2018 
                     
Game Revenues  $10,000   $116,000   $44,000   $143,000 
Related Party Service Revenues   8,000    80,000    60,000    80,000 
          Total Revenues   18,000    196,000    104,000    223,000 
                     
Expenses                    
   Labor and related expenses   195,000    191,000    716,000    1,312,000 
   Rent   36,000    37,000    110,000    125,000 
   Depreciation and amortization   11,000    28,000    33,000    85,000 
   Professional fees   15,000    445,000    81,000    3,519,000 
   Research and development   (70,000)   137,000    (44,000)   590,000 
   Other general and administrative   84,000    154,000    248,000    381,000 
          Total Operating Expenses   271,000    992,000    1,144,000    6,012,000 
          Operating Loss   (253,000)   (796,000)   (1,040,000)   (5,789,000)
                     
Other Income (Expense)                    
   Interest Income (Expense)   7,000    (135,000)   (183,000)   (239,000)
   Gain on cancellation of shares   —      5,000    —      118,000 
   Unrealized loss on trading securities   (1,000)   (7,000)   (3,000)   (36,000)
          Total Other Income (Expense)   6,000    (137,000)   (186,000)   (157,000)
                     
Loss from continuing operations   (247,000)   (933,000)   (1,226,000)   (5,946,000)
                     
Loss on discontinued operations   —      —      —      (2,000)
                     
Net Loss  $(247,000)  $(933,000)  $(1,226,000)  $(5,948,000)
                     
Per Share Amounts                    
   Loss from continuing operations                    
      Basic and Diluted loss per share  $—     $—     $(0.01)  $(0.03)
                     
   Loss on discontinued operations                    
      Basic and Diluted loss per share  $—     $—     $—     $—   
                     
   Net Loss                    
      Basic and Diluted loss per share  $—     $—     $(0.01)  $(0.03)
                     
Weighted Average Common Shares                    
      Basic and Diluted   200,055,131    198,811,004    199,624,728    192,273,878 
                     
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 4 

 

 

SPYR, INC., AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
NINE MONTHS ENDED SEPTEMBER 30, 2019
(Unaudited)
    Preferred Stock              Additional           
    Class A    Class E    Common Stock    Paid-in    Accumulated      
    Shares    Amount    Shares    Amount    Shares    Amount    Capital    Deficit    Total 
Balance at December 31, 2018 (Restated)   107,636   $11    20,000   $2    198,305,131   $19,830   $53,265,157   $(55,951,000)  $(2,666,000)
Fair value of common stock issued for employee compensation   —      —      —      —      1,250,000    125    130,875    —      131,000 
Net loss   —      —      —      —      —      —      —      (450,000)   (450,000)
Balance at March 31, 2019   107,636    11    20,000    2    199,555,131    19,955    53,396,032    (56,401,000)   (2,985,000)
Fair value of common stock issued for conversion of notes payable   —      —      —      —      500,000    50    49,950    —      50,000 
Net loss   —      —      —      —      —      —      —      (529,000)   (529,000)
Balance at June 30, 2019   107,636    11    20,000    2    200,055,131    20,005    53,445,982    (56,930,000)   (3,464,000)
Net loss   —      —      —      —      —      —      —      (247,000)   (247,000)
Balance at September 30, 2019   107,636   $11    20,000   $2    200,055,131   $20,005   $53,445,982   $(57,177,000)  $(3,711,000)
                                              
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 

 

 5 

 

SPYR, INC., AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
NINE MONTHS ENDED SEPTEMBER 30, 2018
(Unaudited)
    Preferred Stock              Additional           
    Class A    Class E     Common Stock    Paid-in    Accumulated      
    Shares    Amount    Shares    Amount    Shares    Amount    Capital    Deficit    Total 
Balance at December 31, 2017 (Restated)   107,636   $11    20,000   $2    181,128,950   $18,112   $46,561,875   $(48,842,000)  $(2,262,000)
Common stock issued to related party for cash   —      —      —      —      500,000    50    49,950    —      50,000 
Common stock issued for cash   —      —      —      —      4,200,000    420    554,580    —      555,000 
Fair value of common stock issued for employee compensation   —      —      —      —      1,250,000    125    624,875    —      625,000 
Fair value of common stock, options and warrants issued for services   —      —      —      —      4,441,942    444    1,711,556    —      1,712,000 
Vesting of options and warrants granted for services   —      —      —      —      —      —      674,000    —      674,000 
Net loss   —      —      —      —      —      —      —      (3,951,000)   (3,951,000)
Balance at March 31, 2018 (Restated)   107,636    11    20,000    2    191,520,892    19,151    50,176,836    (52,793,000)   (2,597,000)
Common stock issued for cash   —      —      —      —      2,000,000    200    299,800    —      300,000 
Fair value of common stock, options and warrants issued for services   —      —      —      —      1,145,840    115    400,885    —      401,000 
Vesting of options and warrants granted for services   —      —      —      —      —      —      35,000    —      35,000 
Common stock cancelled on termination of service agreement   —      —      —      —      (625,000)   (62)   (112,938)   —      (113,000)
Debt discount on convertible notes payable   —      —      —      —      —      —      263,000    —      263,000 
Net loss   —      —      —      —      —      —      —      (1,064,000)   (1,064,000)
Balance at June 30, 2018   107,636    11    20,000    2    194,041,732    19,404    51,062,583    (53,857,000)   (2,775,000)
Fair value of common stock, options and warrants issued for services   —      —      —      —      1,020,999    102    236,898    —      237,000 
Vesting of options and warrants granted for services   —      —      —      —      —      —      34,000    —      34,000 
Common stock cancelled on termination of service agreement   —      —      —      —      (17,500)   (2)   (4,998)   —      (5,000)
Fair value of common stock and warrants issued for litigation settlement   —      —      —      —      3,500,000    350    1,982,650    —      1,983,000 
Net loss   —      —      —      —      —      —      —      (933,000)   (933,000)
Balance at September 30, 2018   107,636   $11    20,000   $2    198,545,231   $19,854   $53,311,133   $(54,790,000)  $(1,459,000)
                                              
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 6 

 

 

SPYR, INC., AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
    For the Nine Months Ended September 30, 
    2019    2018 
Cash Flows From Operating Activities:        (Restated) 
Net loss for the period  $(1,226,000)  $(5,948,000)
Adjustments to reconcile net loss to net cash used in operating activities:          
     Loss on discontinued operations   —      2,000 
     Depreciation and amortization   33,000    85,000 
     Common stock issued for employee compensation   131,000    625,000 
     Common stock, options and warrants issued for services   —      2,350,000 
     Vesting of options and warrants granted for services   —      743,000 
     Gain on cancellation of common stock   —      (118,000)
     Amortization of debt discount on convertible notes payable   62,000    147,000 
     Unrealized loss on trading securities   3,000    36,000 
Changes in operating assets and liabilities:          
     Decrease (increase) in accounts receivables   27,000    (79,000)
     Decrease in prepaid expenses   2,000    9,000 
     Decrease in other assets   —      10,000 
     Increase in accounts payable and accrued liabilities   61,000    378,000 
     Decrease in operating lease liability   (7,000)   (5,000)
     Increase in accrued interest on short-term advances - related party   30,000    2,000 
     Increase in accrued interest on line of credit - related party   49,000    45,000 
     Increase in accrued interest on convertible notes payable   20,000    18,000 
     Increase in liquidated damages on convertible notes payable   78,000    —   
Net Cash Used in Operating Activities from Continuing Operations   (737,000)   (1,700,000)
Net Cash Used in Operating Activities from Discontinued Operations   —      (2,000)
Net Cash Used in Operating Activities   (737,000)   (1,702,000)
           
Cash Flows From Investing Activities:          
     Purchase of licensing rights   —      (25,000)
Net Cash Used in Investing Activities   —      (25,000)
           
Cash Flows From Financing Activities:          
     Proceeds from sale of common stock   —      905,000 
     Proceeds from short-term advances - related party   749,000    178,000 
     Proceeds from line of credit - related party   —      200,000 
     Proceeds from convertible notes payable   —      400,000 
Net Cash Provided by Financing Activities   749,000    1,683,000 
           
Net Increase (Decrease) in Cash   12,000    (44,000)
Cash and cash equivalents at beginning of period   24,000    86,000 
Cash and cash equivalents at end of period  $36,000   $42,000 
           
Supplemental Disclosure of Interest and Income Taxes Paid:          
    Interest paid during the period  $—     $—   
   Income taxes paid during the period  $—     $—   
           
Supplemental Disclosure of Non-cash Investing  and Financing Activities:          
   Partial conversion of notes payable to common stock  $50,000   $—   
           
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 7 

 

SPYR, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2019AND 2018

(Unaudited)

 

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTINGPOLICIES

 

Interim Financial Statements

 

The accompanying condensed consolidated financialstatements of SPYR, Inc. and subsidiaries (the “Company”) are unaudited. These unaudited interim condensed consolidatedfinancial 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”) regardinginterim financial reporting. Certain information and note disclosures normally included in the financial statements prepared inaccordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Accordingly, these interim condensedconsolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto containedin the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018 filed with the SEC. The condensedconsolidated balance sheet as of December 31, 2018 included herein was derived from the audited consolidated financial statementsas of that date, but does not include all disclosures, including notes, required by GAAP.

 

In the opinion of management, the accompanyingunaudited condensed consolidated financial statements contain all adjustments necessary to fairly present the Company's financialposition and results of operations for the interim periods reflected. Except as noted, all adjustments contained herein are ofa normal recurring nature. Results of operations for the fiscal periods presented herein are not necessarily indicative of fiscalyear-end results.

 

Principles of Consolidation

 

The consolidated financial statements includethe 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 havebeen prepared under the assumption that the Company will continue as a going concern. Such assumption contemplates the realizationof assets and satisfaction of liabilities in the normal course of business, however, the issues described below raise substantialdoubt about the Company’s ability to do so.

 

As shown in the accompanying financial statements,for the nine months ended September 30, 2019, the Company recorded a net loss from continuing operations of $1,226,000 and utilizedcash in continuing operations of $737,000. As of September 30, 2019, our cash balance was $36,000 and we had trading securitiesof $1,000. These issues raise substantial doubt about the Company’s ability to continue as a going concern.

 

The Company plans to expand its mobile gamesand application development and publishing activities, such as Pocket Starships and Steven Universe: Tap Together, throughacquisition and/or development of its own intellectual property and publishing agreements with developers.

 

Historically, we have financed our operationsprimarily through private sales of our trading securities, through sales of our common stock, and through related party loans.If our sales goals for our products do not materialize as planned, we believe that the Company can reduce its operating and productdevelopment costs that would allow us to maintain sufficient cash levels to continue operations. However, if we are not able toachieve profitable operations at some point in the future, we may have insufficient working capital to maintain our operationsas we presently intend to conduct them or to fund our expansion, marketing, and product development plans.

 

The ability of the Company to continue as agoing concern is dependent upon the success of future capital offerings or alternative financing arrangements and expansion ofits operations. The accompanying financial statements do not include any adjustments that might be necessary should the Companybe unable to continue as a going concern. Management is actively pursuing additional sources of financing sufficient to generateenough cash flow to fund its operations through the next twelve months. However, management cannot make any assurances that suchfinancing will be secured.

 8 

 

SPYR, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2019AND 2018

(Unaudited)

Use of Estimates

 

The preparation of financial statements inconformity with generally accepted accounting principles requires management to make estimates and assumptions that affect thereported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statementsand the reported amounts of revenues and expenses during the reporting period. Estimates and assumptions used by management affectedimpairment analysis for trading securities, fixed assets, intangible assets, capitalized licensing rights, amounts of potentialliabilities, 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 thethree months ended September 30, 2019 are the same because the inclusion of the potential shares (Class A – 26,909,028, ClassE – 1,851,852, Options – 12,449,900, Warrants – 9,000,000) would have had an anti-dilutive effect due to theCompany generating a loss for the three months ended September 30, 2019.

 

The basic and fully diluted shares for thethree months ended September 30, 2018 are the same because the inclusion of the potential shares (Class A – 26,909,028, ClassE – 412,099, Options – 13,740,000, Warrants – 8,800,000) would have had an anti-dilutive effect due to the Companygenerating a loss for the three months ended September 30, 2018.

 

The basic and fully diluted shares for thenine months ended September 30, 2019 are the same because the inclusion of the potential shares (Class A – 26,909,028, ClassE – 1,851,852, Options – 12,449,900, Warrants – 9,000,000) would have had an anti-dilutive effect due to theCompany generating a loss for the nine months ended September 30, 2019.

 

The basic and fully diluted shares for thenine months ended September 30, 2018 are the same because the inclusion of the potential shares (Class A – 26,909,028, ClassE – 412,099, Options – 13,740,000, Warrants – 5,300,000) would have had an anti-dilutive effect due to the Companygenerating a loss for the nine months ended September 30, 2018.

 

Capitalized Gaming Assets and Licensing Rights

 

During the nine months ended September 30,2019 and 2018, the Company recorded amortization expense of $4,000 and $19,000, respectively. As of September 30, 2019 and December31, 2018, the accumulated amortization was $6,000 and $2,000, respectively and the unamortized capitalized gaming assets and licensingrights amounted to $118,000 and $122,000, respectively.

 

Software Development Costs

 

Costs incurred for software development areexpensed as incurred. During the nine months ended September 30, 2019 and 2018, the Company incurred $34,000 and $590,000 in softwaredevelopment costs paid to independent gaming software developers.

 

In addition, during September 2019, the Companyreceived a credit from an independent gaming software developer for previously incurred development costs in the amount of $78,000.The credit was recorded as a reduction to research and development expenses during the nine months ended September 30, 2019 anda reduction to accounts payable as of September 30, 2019.

 

Recent Accounting Standards

 

In February 2016, the FASB issued AccountingStandards Update (ASU) No. 2016-02, Leases. ASU 2016-02 requires a lessee to record a right-of-use asset and a correspondinglease liability on the balance sheet for all leases with terms longer than 12 months. ASU 2016-02 is effective for all interimand annual reporting periods beginning after December 15, 2018. Early adoption is permitted. A modified retrospective transitionapproach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliestcomparative period presented in the financial statements, with certain practical expedients available. The Company adopted ASU2016-02 on January 1, 2019. Pursuant to this new standard, the Company has recorded an operating right-of-use asset and operatinglease liability in the accompanying condensed consolidated balance sheets as of September 30, 2019 and December 31, 2018.

 9 

 

SPYR, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2019AND 2018

(Unaudited)

 

In September 2018, the FASB issued ASU2018-07, “Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting”,which expands the scope of Topic 718 to include all share-based payment transactions for acquiring goods and services from nonemployees.ASU 2018-07 specifies that Topic 718 applies to all share-based payment transactions in which the grantor acquires goods and servicesto be used or consumed in its own operations by issuing share-based payment awards. ASU 2018-07 also clarifies that Topic 718 doesnot apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunctionwith selling goods or services to customers as part of a contract accounted for under ASC 606. The amendments in ASU 2018-07 areeffective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Companyadopted this guidance effective January 1, 2019, and it did not have any impact on the Company’s consolidated financial statements.

 

Other recent accounting pronouncements issuedby the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the Securitiesand Exchange Commission did not or are not believed by management to have a material impact on the Company's present or futureconsolidated financial statements.

 

NOTE 2 - RELATED PARTY TRANSACTIONS

 

During 2017, the Company obtained a revolvingline of credit from Berkshire Capital Management Co., Inc. Berkshire is controlled by Joseph Fiore, majority shareholder and formerchairman of the board of directors of the Company. The line of credit allows the Company to borrow up to $1,000,000 with interestat 6% per annum. The loan is secured by a first lien on all the assets of the Company and its wholly owned subsidiary SPYR APPS,LLC. Repayment on the loan is due December 31, 2019. As of September 30, 2019, the Company has borrowed $1,000,000 and accruedinterest of $117,000.

 

During 2018, the Company issued 500,000 sharesof restricted common stock to the father of an executive officer of the Company for cash of $50,000.

 

During 2018 the Company received $313,000 inthe form of short-term advances from Berkshire Capital Management Co., Inc. The short-term advances are due upon demand. Duringthe nine months ended September 30, 2019, the Company received an additional $749,000 in short-term advances. As of September 30,2019, the Company has received a total of $1,062,000 in short-term advances and accrued interest of $37,000.

 

During the nine months ended September 30,2019, the Company, received $60,000 in revenue for professional services rendered to a related Company whose directors are alsoofficers of SPYR, Inc. and whose majority shareholder is Berkshire Capital Management Co., Inc.

 

NOTE 3 – 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 andbearing interest at 8% per annum. The amended maturity date of the note was June 1, 2019 and was convertible on or afterOctober 17, 2018 into the Company’s restricted common stock at $0.20 per share at the holder’s request. The OIDis recorded as a discount to the debt agreement. The Company determined the note to contain a beneficial conversion featurevalued as $104,000 based on the intrinsic per share value of the conversion feature. This beneficial conversion feature isrecorded as a discount to the debt agreement. The noteholder was also granted detachable 3-year warrants to purchase 200,000shares of the company’s restricted common stock at an exercise price of $0.375 per share, 200,000 shares of thecompany’s restricted common stock at an exercise price of $0.50 per share, and 100,000 shares of the company’srestricted common stock at an exercise price of $0.625 per share. The warrants were valued at $126,000 using theBlack-Scholes pricing model and were recorded as a discount to the debt agreement. The noteholder was also issued 116,000shares of the company’s restricted common stock valued at $34,000 based upon the closing price of the Company stock onthe date of the modified agreement and recorded as a discount to the debt agreement. During the year ended December 31, 2018the Company accrued interest for this note in the amount of $9,000. On May 10, 2019, the Company amended the note to extendthe due date to June 1, 2019, provide for a partial conversion of $25,000 of the outstanding principal balance into commonshares of the Company at a conversion price of $0.10 per share for a total of 250,000 shares, and waive any prior alleged oractual defaults under the note. As of September 30, 2019, the note is in default for late payment. During the nine monthsended September 30, 2019 the Company has accrued interest for this note in the amount of $96,000, which includes $78,000 inliquidated damages and default interest. At September 30, 2019, the principal balance together with total accrued interest isrecorded on the Company’s consolidated balance sheet net of discounts at $245,000.

 10 

 

SPYR, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2019AND 2018

(Unaudited)

 

On May 22, 2018, the Company issued a $275,000convertible note with original issue discount (OID) of $25,000 and bearing a one-time interest charge at 8%. The amended maturitydate of the note is December 31, 2019 and is convertible into the Company’s restricted common stock at $0.25 per share atthe holder’s request. The OID is recorded as a discount to the debt agreement. The Company has determined the note to containa beneficial conversion feature valued as $40,000 based on the intrinsic per share value of the conversion feature. This beneficialconversion feature is recorded as a discount to the debt agreement. The noteholder was also granted detachable 5-year warrantsto purchase 500,000 shares of the company’s restricted common stock at an exercise price of $2.00 per share. The warrantswere valued at $45,000 using the Black-Scholes pricing model and were recorded as a discount to the debt agreement. The noteholderwas also issued 200,000 shares of the company’s restricted common stock valued at $58,000 based upon the closing price ofthe Company stock on the date of the agreement and recorded as a discount to the debt agreement. During the year ended December31, 2018 the Company accrued interest for this note in the amount of $20,000 and liquidated damages of $25,000. 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 outstandingprincipal balance into common shares of the Company at a conversion price of $0.10 per share for a total of 250,000 shares, andwaive any prior alleged or actual defaults under the note. On October 11, 2019, the Company amended the note to extend the duedate to December 31, 2019, provide for a partial conversion of $50,000 of the outstanding principal balance into common sharesof 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 defaultsunder the note. During the nine months ended September 30, 2019 the Company has accrued interest for this note in the amount of$2,000. At September 30, 2019, the principal balance together with total accrued interest and liquidated damages is recorded onthe Company’s consolidated balance sheet net of discounts at $297,000.

 

The following table summarized the Company's convertible notespayable as of September 30, 2019 and December 31, 2018:

   September 30, 2019  December 31, 2018
Beginning Balance  $432,000   $—   
Proceeds from the issuance of convertible notes, net of issuance discounts   —      137,000 
Repayments   —      —   
Conversion of notes payable into common stock   (50,000)   —   
Amortization of discounts   62,000    241,000 
Liquidated damages   78,000    25,000 
Accrued Interest   20,000    29,000 
Ending Balance  $542,000   $432,000 
           
Convertible notes, short term  $390,000   $440,000 
Accrued interest and damages  $152,000   $54,000 
Debt discounts  $—     $62,000 

 

NOTE 4 – COMMITMENTS AND CONTINGENCIES

 

Operating Leases

 

The Company leases approximately 5,169 squarefeet at 4643 South Ulster Street, Denver, Colorado pursuant to an amended lease dated May 21, 2015 and expiring on December 31,2020. Under the lease, the Company pays annual base rent on an escalating scale ranging from $143,000 to $152,000. The Companyadopted ASC 842 for this lease using a modified retrospective transition approach as of the beginning of the January 2018. As aresult of the adoption, prior periods have been restated to include the recorded operating right-of use asset and operating leaseliability in the accompanying condensed consolidated balance sheets as December 31, 2018 and the decrease in operating lease liabilityin the accompanying condensed consolidated statements of cash flows for the nine months ended September 30, 2018.

 

 11 

 

SPYR, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2019AND 2018

(Unaudited)

 

Legal Proceedings

 

We are involved in certain legal proceedingsthat arise from time to time in the ordinary course of our business. Except for income tax contingencies, we record accruals forcontingencies to the extent that our management concludes that the occurrence is probable and that the related amounts of losscan be reasonably estimated. Legal expenses associated with the contingency are expensed as incurred. A material legal proceedingthat is currently pending is as follows:

 

On June 18, 2018 the Company was named as adefendant in a case filed in the United States District Court for the Southern District of New York: Securities and Exchange Commissionvs. 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 positionsas Chairman of the Board and as a Director of the Company effective August 1, 2018. The suit alleges that Mr. Fiore, during 2013and 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 inPlandai Biotechnology, Inc. The Commission alleges that Mr. Fiore and the Company unlawfully benefited through the sales of thosesecurities. The Commission also alleges that from 2013 to 2014, the Company’s primary business was investing and that itfailed to register as an investment company, resulting in an alleged violation of Section 7(a) of the Investment Company Act of1940. The suit seeks to disgorge Joseph A. Fiore, Berkshire Capital Management Co., Inc., and the Company of alleged profits onthe sale of the securities and civil fines related to the Company’s failure to register as an investment company with theCommission.

 

The Company vehemently denies any wrongdoing.The allegations demonstrate a fundamental misunderstanding of existing precedent and a mischaracterization of the facts and transactionsat issue, which were not violative of any securities laws, rules or regulations. Based upon available information at this veryearly stage of litigation, management believes that the Company will obtain a favorable ruling. Accordingly, Management believesthe likelihood of material loss resulting from this lawsuit to be remote.

 

On November 2, 2018, counsel for Defendantsfiled a joint motion to dismiss the SEC’s suit in its entirety, primarily on the basis that the SEC’s complaint failsto allege facts sufficient to state viable causes of action. On September 25, 2019, the Court denied Defendants’ motion.The Court found that when accepting all allegations in the complaint as true and drawing all reasonable inferences in favor ofthe Plaintiff, as the Court is required to do with respect to such a motion, the SEC’s Complaint alleged sufficient factsto survive Defendants’ motion. The Court’s ruling on the motion to dismiss does not mean that the Court has determinedany of the allegations in the complaint to be true or that Defendants have violated any securities laws. The case is now proceedingto the discovery stage and after the close of discovery, Defendants will have the ability to seek summary judgment prior to trial.

 

The Company is being represented by Marc S.Gottlieb, Esq., a partner with the firm of Ortoli Rosenstadt LLP.

 

NOTE 5 – EQUITY TRANSACTIONS

 

Common Stock:

 

Nine Months Ended September 30, 2018

 

During the three months ended March 31, 2018,the Company issued 500,000 shares of restricted common stock to the father of an executive officer of the Company for cash of $50,000.

 12 

 

SPYR, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2019AND 2018

(Unaudited)

 

During the three months ended March 31, 2018,the Company issued an aggregate of 4,200,000 shares of restricted common stock to third parties for cash of $555,000.

 

During the three months ended March 31, 2018,the Company issued an aggregate of 1,250,000 shares of restricted common stock to employees with a total fair value of $625,000for services rendered. The shares issued are non-refundable and deemed earned upon issuance. As a result, the Company expensedthe entire $625,000 upon issuance. The shares issued were valued at the date earned under the respective agreement based upon closingmarket price of the Company’s common stock.

  

During the three months ended March 31, 2018,the Company issued an aggregate of 4,441,942 shares of restricted common stock to consultants with a total fair value of $1,712,000.The shares issued are non-refundable and deemed earned upon issuance. As a result, the Company expensed the entire $1,712,000 uponissuance. The shares issued were valued at the date earned under the respective agreements based upon closing market price of theCompany’s common stock.

 

During the three months ended June 30, 2018,the Company issued an aggregate of 2,000,000 shares of restricted common stock to third parties for cash of $300,000.

 

During the three months ended June 30, 2018,the Company issued an aggregate of 1,145,840 shares of restricted common stock to consultants with a total fair value of $401,000.The shares issued are non-refundable and deemed earned upon issuance. As a result, the Company expensed the entire $401,000 uponissuance. The shares issued were valued at the date earned under the respective agreements based upon closing market price of theCompany’s common stock.

 

During the three months ended June 30, 2018,the Company cancelled an aggregate of 625,000 shares of restricted common stock on termination of a third-party service agreementwith a total fair value on the date of termination of $207,000. The Company recorded a gain on cancellation of $113,000 for theportion of shares (375,000) issued during 2017 and reversed expenses of $94,000 for the portion of shares (250,000) issued during2018. The shares issued were valued at the termination date of the agreement based upon closing market price of the Company’scommon stock.

 

During the three months ended September 30,2018, the Company issued an aggregate of 1,020,999 shares of restricted common stock to consultants with a total fair value of$237,000. The shares issued are non-refundable and deemed earned upon issuance. As a result, the Company expensed the entire $237,000upon issuance. The shares issued were valued at the date earned under the respective agreements based upon closing market priceof the Company’s common stock.

 

During the three months ended September 30,2018, the Company cancelled an aggregate of 17,500 shares of restricted common stock due to the violation of certain gating provisionsof a third-party service agreement. The total fair value on the date of termination was $5,000 based upon the closing market priceof the Company’s common stock. The Company recorded a gain on cancellation of $5,000.

 

During the three months ended September 30,2018, pursuant to a July 12, 2018 court approved settlement agreement, the Company issued 3,500,000 common shares and 3,500,000warrants. The combined fair value of the shares and warrants was $1,983,000. The shares issued were valued at the July 12, 2018court approval date based upon closing market price of the Company’s common stock. The warrants were valued using the Black-ScholesOption Pricing Model. The combined fair value was fully recognized on the issuance date as a $1,983,000 reduction to the litigationsettlement liability.

 

Nine Months Ended September 30, 2019

 

During the three months ended March 31, 2019,the Company issued an aggregate of 1,250,000 shares of restricted common stock to employees with a total fair value of $131,000for services rendered. The shares issued are non-refundable and deemed earned upon issuance. As a result, the Company expensedthe entire $131,000 upon issuance. The shares issued were valued at the date earned under the respective agreement based upon closingmarket price of the Company’s common stock.

 

During the three months ended June 30, 2019,the Company issued an aggregate of 500,000 shares of common stock in conversion of notes payable with a total fair value of $50,000.As a result, the Company reduced the balance due on the notes by $50,000 upon issuance.

 13 

 

SPYR, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2019AND 2018

(Unaudited)

 

Options:

 

The following table summarizes common stockoptions activity:

 

      Weighted
      Average
      Exercise
   Options  Price
 December 31, 2018    12,449,900   $1.64 
 Granted    —      —   
 Exercised    —      —   
 Forfeited    —      —   
 Outstanding, September 30, 2019    12,449,900   $1.64 
 Exercisable, September 30, 2019    12,449,900   $1.64 

 

The weighted average exercise prices, remaininglives for options granted, and exercisable as of September 30, 2019 were as follows:

                     
    Outstanding Options       Exercisable Options
Options           Weighted       Weighted
Exercise Price       Life   Average Exercise       Average Exercise
Per Share   Shares   (Years)   Price   Shares   Price
$0.50   8,000,000   0.92   $0.50   8,000,000   $0.50
$1.00   1,449,900   0.07 – 2.36   $1.00   1,449,900   $1.00
$5.00   3,000,000   0.25   $5.00   3,000,000   $5.00
    12,449,900       $1.64   12,449,900   $1.64

 

At September 30, 2019, the Company’sclosing stock price was $0.06 per share. As all outstanding options had an exercise price greater than $0.06 per share, there wasno intrinsic value of the options outstanding at September 30, 2019.

 

Warrants:

 

The following table summarizes common stockwarrants activity:

 

      Weighted
      Average
      Exercise
   Warrants  Price
 Outstanding, December 31, 2018    9,000,000   $0.46 
 Granted    —      —   
 Exercised    —      —   
 Forfeited    —      —   
 Outstanding, September 30, 2019    9,000,000   $0.46 
 Exercisable, September 30, 2019    9,000,000   $0.46 

 

 14 

 

SPYR, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2019AND 2018

(Unaudited)

 

The weighted average exercise prices, remaininglives for warrants granted, and exercisable as of September 30, 2019, were as follows:

 

    Outstanding and Exercisable Warrants
Warrants        
Exercise Price       Life
Per Share   Shares   (Years)
$0.01   600,000   1.25
$0.15   1,200,000   1.28
$0.25   1,000,000   3.78
$0.375   200,000   1.56
$0.40   1,200,000   1.28
$0.50   3,000,000   0.08 – 3.78
$0.625   100,000   1.56
$0.75   1,250,000   1.66 – 3.78
$1.00   250,000   1.66
$2.00   200,000   3.64
    9,000,000    

 

At September 30, 2019, the Company’sclosing stock price was $0.06 per share. The Company had 600,000 warrants outstanding with exercise prices less than $0.06 withan intrinsic value of $30,000 at September 30, 2019.

 

Shares Reserved:

 

At September 30, 2019, the Company has reserved30,000,000 shares of common stock in connection with 2 convertible notes with detachable warrants and 3,500,000 shares of commonstock in connection with the court approved settlement agreement for a total of 33,500,000 reserved shares of common stock.

 

NOTE 6 – 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 thePhiladelphia International Airport since 1997. Our lease in the Philadelphia Airport expired in April 2017. Concurrent with expirationof the lease the restaurant closed. Pursuant to current accounting guidelines, the restaurant segment is reported as discontinuedoperations.

 

The following table summarizes the assets andliabilities of our discontinued restaurant segment's operations as of September 30, 2019 and December 31, 2018:

 

    September 30, 2019    December 31, 2018 
Assets:          
Total Assets  $—     $—   
           
Liabilities:          
   Accounts payable and accrued liabilities  $22,000   $22,000 
Total Liabilities  $22,000   $22,000 

 

 15 

 

SPYR, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2019AND 2018

(Unaudited)

 

The following table summarizes the resultsof operations of our discontinued restaurant for the nine months ended September 30, 2019 and 2018 and is included in the consolidatedstatements of operations as discontinued operations:

 

   For the Three Months Ended September 30,  For the Nine Months Ended September 30,
   2019  2018  2019  2018
             
Revenues  $—     $—     $—     $—   
Cost of sales   —      —      —      —   
          Gross Margin   —      —      —      —   
Expenses                    
   Labor and related expenses   —      —      —      —   
   Rent   —      —      —      1,000 
   Depreciation and amortization   —      —      —      —   
   Professional fees   —      —      —      —   
   Other general and administrative   —      —      —      1,000 
          Total Operating Expenses   —      —      —      2,000 
          Operating Income (Loss)   —      —      —      (2,000)
Other Income (Expense)                    
   Loss on disposal of assets   —      —      —      —   
Income (Loss) on discontinued operations  $—     $—     $—     $(2,000)

  

NOTE 7 – SUBSEQUENT EVENTS

 

Subsequent to September 30, 2019, the Companyreceived $75,000 in the form of short-term advances from Berkshire Capital Management Co., Inc. The short-term advances are dueupon demand.

 

Subsequent to September 30, 2019, the due dateon Company’s line of credit from Berkshire Capital Management Co., Inc. was extended to December 31, 2019.

 

On October 11, 2019, the Company amended aconvertible note to extend the due date to December 31, 2019, provide for a partial conversion of $50,000 of the outstanding principalbalance into common shares of the Company at a conversion price of $0.10 per share for a total of 500,000 shares.

 

 

 16 

 

SPYR, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2019AND 2018

(Unaudited)

 

Subsequent to September 30, 2018, the Companyissued 25,000 shares of common stock pursuant to a third-party service agreements.

 

On October 16, 2018, the Company issued 300,000restricted common shares as part of the base salary pursuant to an employment contract with one officer of the Company.

 

 

 

 

 

 

 

 17 

 

ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion and analysis of our financial conditionand results of operations should be read in conjunction with the Condensed Consolidated Financial Statements and supplementarydata referred to in this Form 10-Q.

 

This discussion contains forward-looking statementsthat 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-Q that could cause actual results to differ materially from those projected. Unless otherwiseexpressly indicated, the information set forth in this Form 10-Q is as of September 30, 2019, and we undertake no duty to updatethis information.

 

Plan of Operations

 

Through our wholly owned subsidiary SPYR APPS,LLC, d/b/a SPYR GAMES we develop, publish and co-publish mobile games, and then generate revenue through those games by way ofadvertising and in-app purchases. Our primary focus is on the development and expansion of our mobile games and applications.We anticipate we will need to hire additional employees during 2019 to help with the development andmarketing of existing and future games and applications.

 

During the pasttwo years we have invested in the Company’s future by working closely with the development team at Spectacle Games to optimizegame play and expand the availability of our game Pocket Starships to more users through new and existing game portals, socialnetworking sites and app stores throughout the world. During 2017, we signed an agreement with CBS Consumer Products that willallow the incorporation of intellectual property (IP) from various Star Trek television series into future Pocket Starships updatesand expansions, which agreement has since expired and the Company intends to seek a renewal thereof. In Pocket Starships, playerscan build and pilot several ships and forge alliances on their quest for galactic domination. Players can perform or initiatevarious activities ranging from fighting pirates to participating in Faction Alerts. With the future release of an expansion,those playing Pocket Starships will be able to explore new sectors and assuming the CBS license is renewed, engage in excitingbattles with the Borg and will be able to staff their ships with their favorite Star Trek characters from the Star Trek TV seriesfranchise – including Star Trek: The Next Generation, Star Trek: Deep Space Nine, and Star Trek: Voyager,through a trading card expansion.

 

In addition, workingtogether with third-party developers, we have developed. Steven Universe: Tap Together, a new tapper game featuring charactersand storylines from Steven Universe, a popular animated television series on Cartoon Network. Steven Universe: TapTogether was launched globally on the Google Play Store on August 2, 2018 and on the IOS App Store on August 9, 2018. After thelaunch of the game, the original developer the Company was working with went out of business, but the Company executed a new developmentagreement, effective July 23, 2019, with a new developer to continue supporting, updating and expanding the game. Under this newarrangement, Company management believes that the game will begin to realize its potential and generate revenue.

 

Management’s plan for the next 12 monthsis to build upon this foundation and focus our efforts on marketing and optimizing user acquisition and retention. We will alsocontinue to utilize the services of game developers for further development, enhancement and maintenance of the games as neededto meet the needs of the users and maximize revenue into the future. In addition to our plans for Pocket Starships and the StevenUniverse: Tap Together, we will continue to seek additional games and apps to publish as we strive to broaden our range ofproducts and increase revenues and operating cash flows. We expect these marketing, development and expansion plans will be financedthrough existing cash, operating cash flows from game revenues and other forms of financing such as the sale of additional equityand debt securities, capital leases and other credit facilities. The Company may also decide to expand and/or diversify, throughacquisition or otherwise, in other related or unrelated business areas if opportunities present themselves. The Company has alsoidentified an acquisition target, a mobile game, and the Company is currently negotiating with the owner for the purchase of theasset.

 

 18 

 

COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30,2019 TO 2018

 

The consolidated results of continuing operationsfor the nine months ended September 30, 2019 and 2018 are as follows:

 

   Digital Media  Corporate  Consolidated
          
Nine Months Ended September 30, 2019               
Revenues  $44,000    60,000   $104,000 
Labor and related expenses   (147,000)   (569,000)   (716,000)
Rent   (1,000)   (109,000)   (110,000)
Depreciation and amortization   (5,000)   (28,000)   (33,000)
Professional fees   —      (81,000)   (81,000)
Research and development   44,000    —      44,000 
Other general and administrative   (53,000)   (195,000)   (248,000)
Operating loss   (118,000)   (922,000)   (1,040,000)
                
Other expense   (29,000)   (157,000)   (186,000)
Loss from continuing operations  $(147,000)  $(1,079,000)  $(1,226,000)
                

 

Nine Months Ended September 30, 2018         
Revenues  $143,000   $80,000   $223,000 
Labor and related expenses   (218,000)   (1,094,000)   (1,312,000)
Rent   (16,000)   (109,000)   (125,000)
Depreciation and amortization   (54,000)   (31,000)   (85,000)
Professional fees   (280,000)   (3,239,000)   (3,519,000)
Research and development   (590,000)   —      (590,000)
Other general and administrative   (188,000)   (193,000)   (381,000)
Operating loss   (1,203,000)   (4,586,000)   (5,789,000)
                
Other expense   (25,000)   (132,000)   (157,000)
Loss from continuing operations  $(1,228,000)  $(4,718,000)   (5,946,000)

  

 19 

 

Results of Operations

 

For the nine months ended September 30, 2019the Company had a loss from continuing operations of $1,226,000 compared to a loss from continuing operations of approximately$5,946,000 for the nine months ended September 30, 2018. This change is due primarily to decreases in labor and related expensesof $596,000, rent of $15,000, depreciation and amortization of $52,000, professional fees of $3,438,000, research and developmentof $634,000 and other general and administrative costs $133,000 during the nine months ended September 30, 2019 compared to thenine months ended September 30, 2018. Other items contributing to the change included decreased revenue of $119,000. The Companyalso had increased other expense of $29,000.

 

More detailed explanation of the nine monthsended September 30, 2019 and 2018 changes are included in the following discussions.

 

Total Revenues- For the nine months ended September 30, 2019 and 2018, the Company had total revenue of $104,000 and $223,000, respectively,for a decrease of $119,000. This change is primarily due to reduced revenues generated by our games. After the launch of the gameSteven Universe: Tap Together, the original developer the Company was working with went out of business. Steven Universe:Tap Together, which launched on August 2, 2018, contributed to game revenues of $128,000 for the nine months ended months endedSeptember 30, 2018 compared to game revenues $35,000 for the nine months ended September 30, 2019. On July 23, 2019, the Companyexecuted a development agreement with a new developer to continue supporting, updating and expanding the Steven Universe:Tap Together game. Under this new arrangement, Company management believes that the game will begin to realize its potential andgenerate increased revenue. Additionally, during the nine months ended September 30, 2019 and 2018, the Company, received $60,000and $80,000, respectively, in revenue for professional services rendered to a related Limited Liability Company whose mangersare also officers of SPYR, Inc. and whose majority owner is Berkshire Capital Management Co., Inc. Management plans to expandits mobile application and game development and monetization efforts and believes through continued promotion and user acquisitionof Steven Universe: Tap Together, anticipated updates to Pocket Starships, and the acquisition of new games will bringincreased revenues in the coming year.

 

Labor and related expenses include the costsof salaries, wages, leased employees, contract labor, and the fair value of common stock and options granted to employees for services.For the nine months ended September 30, 2019 the company had total labor and related expenses of $716,000 with $377,000 being settledin cash, $208,000 in accrued salaries and $131,000 being paid in restricted stock recorded at fair value. For the nine months endedSeptember 30, 2018 the company had total labor and related expenses of $1,312,000 with $522,000 being settled in cash, $149,000in accrued salaries and $641,000 being paid in restricted stock and vesting of options recorded at fair value. The cost of laboris expected to increase in conjunction with expansion of the digital media operations.

 

The cost of rent decreased $15,000 from $125,000for the nine months ended September 30, 2018 to $110,000 for the nine months ended September 30, 2019. The Company leases approximately5,169 square feet at 4643 South Ulster Street, Denver, Colorado pursuant to an amended lease dated May 21, 2015 and expiring onDecember 31, 2020. Under the lease, the Company pays annual base rent on an escalating scale ranging from $142,000 to $152,000.From July 2017 through March 31, 2018 we leased office space in Berlin, Germany for EUR 3,570 ($4,100) per month. The Berlin officewas used by leased employees hired by the Company for the operation of our Pocket Starships game. From October 17, 2016 to February28, 2019 the Company leased shared office space for one employee in Redmond, Washington on a month to month basis at costs escalatingfrom $225 to $325 per month per desk.

 

Depreciation and amortization expenses decreasedby approximately $52,000 for the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018. Depreciationand amortization expenses are attributable to depreciation of the $247,000 of property and equipment and amortization of gamingassets and capitalized licensing rights in service during respective periods.

 

Professional fees decreased $3,438,000 from$3,519,000 for the nine months ended September 30, 2018 to $81,000 for the nine months ended September 30, 2019. Professional feesduring the nine months ended September 30, 2019 included $72,000 legal, accounting and other professional service needs and $9,000for public relations. Professional fees during the nine months ended September 30, 2018 included $362,000 in legal, accountingand other professional service needs, $65,000 for public relations, and $16,000 in consulting services related to our digital mediaoperations. The remaining amount is due to the granting of 6,608,781 shares of restricted common stock, 420,000 options and 2,900,000warrants to purchase restricted common stock issued to third parties for consulting services, public relations and other professionalfees with a total fair value of $3,076,000.

 

Research and development costs duringthe nine months ended September 30, 2019 included $34,000 in connection with fees paid to game developers for the developmentof its current and soon to be released games, compared to research and development costs of $590,000 during the nine monthsended September 30, 2018. In addition, During September 2019, the Company received a credit for previously incurreddevelopment costs in the amount of $78,000.

 20 

 

Other general and administrative expenses decreased$133,000 for the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018. The decrease can beattributed primarily to reductions in game operating of $63,000, marketing costs of $57,000, travel costs of $30,000, and variousother general and administrative cost reductions of $24,000 offset by increases in insurance costs of $41,000.

 

The Company had interest expense on a relatedparty line of credit, related party short-term advances, convertible notes payable and accrued expenses of $183,000 for the ninemonths ended September 30, 2019. The company had interest expense on a related party line of credit, convertible notes payableand accrued expenses of $239,000 for the nine months ended September 30, 2018.

 

During the nine months ended September 30,2018 the Company cancelled 625,000 shares of restricted common stock on termination of a third-party service agreement and 17,500shares of restricted common stock due to the violation of certain gating provisions of a third-party service agreement. The totalfair value of these cancellations was recorded as a gain on cancellation of shares of $118,000 during the nine months ended September30, 2018. The company did not have a gain on cancellation of shares for the nine months ended September 30, 2019.

 

The Company had unrealized losses on tradingsecurities of $3,000 for the nine months ended September 30, 2019 compared to unrealized losses of $36,000 for the nine monthsended September 30, 2018. Unrealized gains and losses are the result of fluctuations in the quoted market price of the underlyingsecurities at the respective reporting dates.

 

COMPARISON OF THE THREE MONTHS ENDED SEPTEMBER30, 2019 TO 2018

 

The consolidated results of continuing operationsfor the three months ended September 30, 2019 and 2018 are as follows:

 

   Digital Media  Corporate  Consolidated
          
Three Months Ended September 30, 2019               
Revenues  $10,000   $8,000   $18,000 
Labor and related expenses   (49,000)   (146,000)   (195,000)
Rent   —      (36,000)   (36,000)
Depreciation and amortization   (1,000)   (10,000)   (11,000)
Professional fees   —      (15,000)   (15,000)
Research and development   70,000    —      70,000 
Other general and administrative   (18,000)   (66,000)   (84,000)
Operating income (loss)   12,000    (265,000)   (253,000)
                
Other income (expense)   (10,000)   16,000    6,000 
Income (Loss) from continuing operations  $2,000   $(249,000)  $(247,000)

 

Three Months Ended September 30, 2018         
Revenues  $116,000   $80,000   $196,000 
Labor and related expenses   (69,000)   (122,000)   (191,000)
Rent   (1,000)   (36,000)   (37,000)
Depreciation and amortization   (18,000)   (10,000)   (28,000)
Professional fees   (113,000)   (332,000)   (445,000)
Research and development   (137,000)   —      (137,000)
Other general and administrative   (93,000)   (61,000)   (154,000)
Operating loss   (315,000)   (481,000)   (796,000)
                
Other expense   (10,000)   (127,000)   (137,000)
Loss from continuing operations  $(325,000)  $(608,000)  $(933,000)

 

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Results of Operations

 

For the three months ended September 30, 2019the Company had a loss from continuing operations of $247,000 compared to a loss from continuing operations of $933,000 for thethree months ended September 30, 2018. This change is due primarily to decreases in rent of $1,000, depreciation and amortizationof $17,000, professional fees of $430,000, research and development of $207,000 and other general and administrative costs of $70,000during the three months ended September 30, 2019 compared to the three months ended September 30, 2018. Other items contributingto the change included decreases in revenue of $178,000. The Company also had increased labor and related expenses of $4,000 andinterest expense of $142,000.

 

More detailed explanation of the three monthsended September 30, 2019 and 2018 changes are included in the following discussions.

 

Total Revenues - For the three months endedSeptember 30, 2019 and 2018, the Company had total revenue of $18,000 and $196,000, respectively, for a decrease of $178,000. Thischange is primarily due to reduced revenues generated by our games. After the launch of the gameSteven Universe: Tap Together, the original developer the Company was working with went outof business. Steven Universe: Tap Together, which launched on August 2, 2018, contributed to game revenues of $114,000for the three months ended months ended September 30, 2018 compared to game revenues $6,000 for the three months ended September30, 2019. On July 23, 2019, the Company executed a development agreement with a new developer to continuesupporting, updating and expanding the Steven Universe: Tap Together game. Under thisnew arrangement, Company management believes that the game will begin to realize its potential and generate increased revenue.Additionally, during the three months ended September 30, 2019 and 2018, the Company, received $8,000 and $80,000, respectively,in revenue for professional services rendered to a related Limited Liability Company whose managers are also officers of SPYR,Inc. and whose majority owner is Berkshire Capital Management Co., Inc. Management plans to expand its mobile application and gamedevelopment and monetization efforts and believes through continued promotion and user acquisition of Steven Universe: TapTogether, anticipated updates to Pocket Starships, and the acquisition of new games will bring increased revenues in the comingyear.

 

Labor and related expenses include the costsof salaries, wages, leased employees, contract labor, and the fair value of common stock and options granted to employees for services.For the three months ended September 30, 2019 the company had total labor and related expenses of $195,000 with $125,000 beingsettled in cash and $70,000 in accrued salaries. There were no amounts paid in restricted stock during the three month ended September30, 2019. For the three months ended September 30, 2018 the company had total labor and related expenses of $191,000 with $96,000being settled in cash, $90,000 in accrued salaries and $5,000 being paid in restricted stock and vesting of options recorded atfair value. The cost of labor is expected to increase in conjunction with expansion of the digital media operations.

 

The cost of rent decreased $1,000 from $37,000for the three months ended September 30, 2018 to $36,000 for the three months ended September 30, 2019. The Company leases approximately5,169 square feet at 4643 South Ulster Street, Denver, Colorado pursuant to an amended lease dated May 21, 2015 and expiring onDecember 31, 2020. Under the lease, the Company pays annual base rent on an escalating scale ranging from $142,000 to $152,000.

 22 

 

Depreciation and amortization expenses decreasedby approximately $17,000 for the three months ended September 30, 2019 compared to the three months ended September 30, 2018. Depreciationand amortization expenses are attributable to depreciation of the $247,000 of property and equipment and amortization of gamingassets and capitalized licensing rights in service during respective periods.

 

Professional fees decreased $430,000 from $445,000for the three months ended September 30, 2018 to $15,000 for the three months ended September 30, 2019. Professional fees duringthe three months ended September 30, 2019 included $14,000 legal, accounting and other professional service needs and $1,000 forpublic relations. Professional fees during the three months ended September 30, 2018 included $155,000 in legal, accounting andother professional service needs, $19,000 for public relations, and $6,000 in consulting services related to our digital mediaoperations. The remaining amount is due to the granting of 904,999 shares of restricted common stock and 105,000 options to purchaserestricted common stock issued to third parties for consulting services, public relations and other professional fees with a totalfair value of $265,000.

 

Research and development costs during the threemonths ended September 30, 2019 included $8,000 in connection with fees paid to game developers for the development of its currentand soon to be released games, compared to research and development costs of $137,000 during the three months ended September 30,2018. In addition, During September 2019, the Company received a credit for previously incurred development costs in the amountof $78,000.

 

Other general and administrative expenses decreased$70,000 for the three months ended September 30, 2019 compared to the three months ended September 30, 2018. The decrease can beattributed primarily to reductions in marketing costs of $35,000, game operating costs of $45,000, travel costs $2,000 and variousother general and administrative cost reductions of $2,000 offset by increases in insurance costs of $14,000.

 

The Company had interest expense on a relatedparty line of credit, related party short-term advances, convertible notes payable and accrued expenses of $52,000 for the threemonths ended September 30, 2019. The company had interest expense on a related party line of credit, convertible notes payableand accrued expenses of $135,000 for the three months ended September 30, 2018. In addition, pursuant to an amended convertiblenote whereby the note holder agreed to waive any prior alleged or actual defaults under the note, the Company recorded a reversalof previously reported default interest and penalties of $59,000.

 

The Company had unrealized losses on tradingsecurities of $1,000 for the three months ended September 30, 2019 compared to unrealized losses of $7,000 for the three monthsended September 30, 2018. Unrealized gains and losses are the result of fluctuations in the quoted market price of the underlyingsecurities at the respective reporting dates.

 

LIQUIDITY AND CAPITAL RESOURCES

 

The accompanying financial statements havebeen prepared under the assumption that the Company will continue as a going concern. Such assumption contemplates the realizationof assets and satisfaction of liabilities in the normal course of business.

 

The Company has generated a net loss from continuingoperations for the nine months ended September 30, 2019 of $1,226,000. As of September 30, 2019, the Company had current assetsof $91,000, which included cash and cash equivalents of $36,000, accounts receivable of $35,000, prepaid expenses of $19,000 andtrading securities of $1,000.

 

During the nine months ended September 30,2019, the Company has met its capital requirements through a combination of collection of receivables and related party short-termadvances of $749,000.

 

TheCompany currently does not have sufficient cash and liquidity to meet its anticipated working capital for the next twelve months.The Company expects future development and expansion will be financed through cash flows from operations and other formsof financing such as the sale of additional equity and debt securities, capital leases and other credit facilities. Ifour sales goals for our products do not materialize as planned, we believe that the Company can reduce its operating and productdevelopment costs that would allow us to maintain sufficient cash levels to continue operations. However, if we are not able toachieve profitable operations at some point in the future, we may have insufficient working capital to maintain our operationsas we presently intend to conduct them or to fund our expansion, marketing, and product development plans. There can be no assurancethat we will be able to obtain such financing on acceptable terms, or at all.

 

The Company may also decide to expand and/ordiversify, through acquisition or otherwise, in other related or unrelated business areas if opportunities present themselves.

 23 

 

Operating Activities - For the ninemonths ended September 30, 2019, the Company used cash in operating activities from continuing operations of $737,000. For thenine months ended September 30, 2018, the Company used cash in operating activities of $1,702,000. Operating activities consistof corporate overhead and development of our mobile games and applications. Decreases are due to decreases in operating expenses.See the above results of operations discussion for more details.

 

FinancingActivities - During the nine months ended September 30, 2019, the Company borrowed $749,000 from related party short-termadvances. During the nine months ended September 30, 2018,the Company sold 6,700,000 shares of restricted common stock to third parties and one related party for $905,000, borrowed$178,000 from related party short-term advances, borrowed $200,000 from a related party line of credit, and borrowed $400,000 fromconvertible debt from third-party lenders.

 

Government Regulations - The Companyis subject to all pertinent Federal, State, and Local laws governing its business. Each subsidiary is subject to licensing andregulation by a number of authorities in its State or municipality. These may include health, safety, and fire regulations. TheCompany's operations are also subject to Federal and State minimum wage laws governing such matters as working conditions, overtimeand tip credits.

 

Critical Accounting Policies - The preparationof financial statements in conformity with accounting principles generally accepted in the United States of America requires managementto make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assetsand liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reportingperiod. Note 1 to the quarterly and annual Consolidated Financial Statements describes the significant accounting policies andmethods used in the preparation of the Consolidated Financial Statements. Estimates are used for, but not limited to, contingenciesand taxes. Actual results could differ materially from those estimates. The following critical accounting policies are impactedsignificantly by judgments, assumptions, and estimates used in the preparation of the Consolidated Financial Statements.

 

Revenue Recognition

 

We determine revenue recognition by: (1) identifyingthe contract, or contracts, with our customer; (2) identifying the performance obligations in the contract; (3) determining thetransaction price; (4) allocating the transaction price to performance obligations in the contract; and (5) recognizing revenuewhen, or as, we satisfy performance obligations by transferring the promised goods or services.

 

Game Revenues

 

Through our wholly owned subsidiary SPYR APPS,LLC, d/b/a SPYR GAMES, we develop, publish and co-publish mobile games, and then generate revenue through those games by way ofadvertising and in-app purchases. The Company’s dedicated mobile gaming applications can be downloaded through the app storesmaintained by Apple and Google. The Company’s cross platform gaming application, which can be played on personal computers,Facebook and mobile devices, can be downloaded from the internet and Facebook as well as through the app stores maintained by Googleand Amazon.

 

We operate our games as live services thatallow players to play for free. Within these games players can purchase virtual items to enhance their game-playing experience.Our identified performance obligation is to display the virtual items within the game. Payment is required at time of purchaseand the purchase price is a fixed amount.

 

Players can purchase our virtual items throughvarious widely accepted payment methods offered in the games, including Apple iTunes accounts, Google Play accounts, Facebook localcurrency payments, PayPal and credit cards. Payments from players for virtual items are non-refundable and relate to non-cancellablecontracts that specify our obligations.

 

For revenue earned through app stores, playersutilize the app store’s local currency-based payments program to purchase virtual items in our games. For all payment transactionson these app store platforms, the app store remits to us 70% of the price we request to be charged to the player for each transaction,which represents the transaction price. We recognize revenue net of the amounts retained by the app stores for platform and paymentprocessing fees.

 

Service Revenues

 

Our professional services arrangementsare either fixed-fee billing or time-and-material billing arrangements. In fixed-fee billing arrangements, we agree to apredetermined fee for a predetermined set of professional services. We set the fee based upon our estimate of the time andcosts necessary to complete the engagements. Under time-and-materials billing arrangements, the fee is based on the number ofhours worked at the agreed upon billing rates. We recognize service revenue upon completion of the service.

 

 24 

 

Stock-Based Compensation

 

The Company periodically issues stock optionsand warrants to employees and non-employees in non-capital raising transactions for services and for financing costs. The Companyaccounts for stock option and warrant grants issued and vesting to employees based on the authoritative guidance provided by theFinancial Accounting Standards Board (FASB) whereas the value of the award is measured on the date of grant and recognized overthe vesting period. The Company accounts for stock option and warrant grants issued and vesting to non-employees in accordancewith the authoritative guidance of the FASB whereas the value of the stock compensation is based upon the measurement date as determinedat either a) the date at which a performance commitment is reached, or b) at the date at which the necessary performance to earnthe equity instruments is complete. Non-employee stock-based compensation charges generally are amortized over the vesting periodon a straight-line basis. In certain circumstances where there are no future performance requirements by the non-employee, optiongrants 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 optionand warrant grants is estimated using the Black-Scholes Option Pricing model, which uses certain assumptions related to risk-freeinterest rates, expected volatility, expected life of the stock options or warrants, and future dividends. Compensation expenseis recorded based upon the value derived from the Black-Scholes Option Pricing model and based on actual experience. The assumptionsused in the Black-Scholes Option Pricing model could materially affect compensation expense recorded in future periods.

 

The Company also issues restricted shares ofits common stock for share-based compensation programs to employees and non-employees. The Company measures the compensation costwith respect to restricted shares to employees based upon the estimated fair value at the date of the grant and is recognized asexpense over the period which an employee is required to provide services in exchange for the award. For non-employees, the Companymeasures the compensation cost with respect to restricted shares based upon the estimated fair value at measurement date whichis either a) the date at which a performance commitment is reached, or b) at the date at which the necessary performance to earnthe equity instruments is complete.

 

Loss Contingencies

 

The Company is subject to various loss contingenciesarising in the ordinary course of business. The Company considers the likelihood of loss or impairment of an asset or the incurrenceof a liability, as well as its ability to reasonably estimate the amount of loss in determining loss contingencies. An estimatedloss contingency is accrued when management concludes that it is probable that an asset has been impaired or a liability has beenincurred and the amount of the loss can be reasonably estimated. The Company regularly evaluates current information availableto us to determine whether such accruals should be adjusted.

 

Recent Accounting Pronouncements

 

See Note 1 of the consolidated financial statementsfor discussion of recent accounting pronouncements.

 

ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not applicable.

 

ITEM 4.CONTROLS AND PROCEDURES

 

Disclosure Controls and Procedures

 

Management of the Company is responsible formaintaining disclosure controls and procedures that are designed to ensure that financial information required to be disclosedin the reports that the Company files or submits under the Securities Exchange Act of 1934 (the “Exchange Act”) isrecorded, processed, summarized and reported within the timeframes specified in the Securities and Exchange Commission’srules and forms, consistent with Items 307 and 308 of Regulation S-K.

 

 25 

 

In addition, the disclosure controls and proceduresmust ensure that such financial information is accumulated and communicated to the Company’s management, including its ChiefExecutive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required financial and otherrequired disclosures.

 

As of September 30, 2019, an evaluation ofthe effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13(a)-15(e) and 15(d)-15(e) ofthe Securities Exchange Act of 1934 (the “Exchange Act”) was carried out under the supervision and with the participationof our Chief Executive Officer, Chief Financial Officer, and other persons carrying out similar functions for the Company. In makingthis assessment, Management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission(COSO) (Revised 2013) in Internal Control over Financial Reporting - Guidance for Smaller Public Companies. Based on the evaluationof the Company’s disclosure controls and procedures, Management concluded that during the period covered by this report,such disclosure controls and procedures were not effective, due to certain identified material weaknesses. These identified materialweaknesses include, (i) insufficient accounting staff, (ii) inadequate segregation of duties, (iii) limited checks and balancesin processing cash and other transactions, and (iv) the lack of independent directors and independent audit committee.

 

The Company is committed to improving its disclosurecontrols and procedures and the remediation of identified control weaknesses. As capital becomes available, Management plans toincrease the accounting and financial reporting staff, add independent directors to the Board of Directors and establish an independentaudit committee. We cannot provide assurance that these procedures will be successful in identifying material errors that may existin the financial statements, nor can we make assurances that additional material weaknesses in its internal control over financialreporting will not be identified in the future.

 

The Company continues to employ and refinea structure in which critical accounting policies, issues and estimates are identified, and together with other complex areas,are subject to multiple reviews by accounting personnel. In addition, the Company evaluates and assesses its internal controlsand procedures regarding its financial reporting as necessary and on an on-going basis.

 

Because of its inherent limitations, internalcontrol over financial reporting cannot provide absolute assurance of the prevention or detection of misstatements. In addition,projections of any evaluation of effectiveness to future periods are subject to risk that controls may become inadequate becauseof changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

Changes in Internal Controls Over Financial Reporting

 

The Company has no reportable changes to its internal controls overfinancial reporting for the period covered by this report.

 

The Company will continually enhance and testits internal controls over financial reporting on a continuing basis. Additionally, the Company’s management, under the controlof its Chief Executive Officer and Chief Financial Officer, will increase its review of its disclosure controls and procedureson an ongoing basis. Finally, the Company plans to designate, in conjunction with its Chief Financial Officer, individuals responsiblefor identifying reportable developments and the process for resolving compliance issues related to them. The Company believes theseactions will focus necessary attention and resources in its internal accounting functions.

  

PART II - OTHER INFORMATION

 

ITEM 1.LEGAL PROCEEDINGS

 

On September 18, 2018 the Company wasnamed as a defendant in a case filed in the United States District Court for the Southern District of New York: Securitiesand 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. Thesuit alleges that Mr. Fiore, during 2013 and 2014, while he was the Company’s Chief Executive Officer, Chief FinancialOfficer and Chairman of the Board of Directors, engaged in improper conduct on behalf of the defendants named in the caserelated to the Company’s sales of securities in Plandai Biotechnology, Inc. The Commission alleges that Mr. Fiore andthe Company unlawfully benefited through the sales of those securities. The Commission also alleges that from 2013 to 2014,the Company’s primary business was investing and that it failed to register as an investment company, resulting in analleged violation of Section 7(a) of the Investment Company Act of 1940. The suit seeks to disgorge Joseph A. Fiore,Berkshire Capital Management Co., Inc., and the Company of alleged profits on the sale of the securities and civil finesrelated to the Company’s failure to register as an investment company with the Commission.

 

 26 

 

The Company vehemently denies any wrongdoing.The allegations demonstrate a fundamental misunderstanding of existing precedent and a mischaracterization of the facts and transactionsat issue, which were not violative of any securities laws, rules or regulations. The Company will answer these allegations in court.

 

On November 2, 2018, counsel for Defendantsfiled a joint motion to dismiss the SEC’s suit in its entirety, primarily on the basis that the SEC’s complaint failsto allege facts sufficient to state viable causes of action. On September 25, 2019, the Court denied Defendants’ motion.The Court found that when accepting all allegations in the complaint as true and drawing all reasonable inferences in favor ofthe Plaintiff, as the Court is required to do with respect to such a motion, the SEC’s Complaint alleged sufficient factsto survive Defendants’ motion. The Court’s ruling on the motion to dismiss does not mean that the Court has determinedany of the allegations in the complaint to be true or that Defendants have violated any securities laws. The case is now proceedingto the discovery stage and after the close of discovery, Defendants will have the ability to seek summary judgment prior to trial.

 

The Company is being represented by Marc S.Gottlieb, Esq., a partner with the firm of Ortoli Rosenstadt LLP.

 

ITEM 1A.RISK FACTORS

 

Not applicable to smaller reporting companies.

 

ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

None.

 

ITEM 3.DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4.MINE SAFETY DISCLOSURES

 

Not applicable

 

ITEM 5.OTHER INFORMATION

 

None.

 

ITEM 6.EXHIBITS

 

The following exhibits are included as part of this report:

 

Exhibit

Number

Exhibit Description
3.1 Articles of Incorporation (1)
3.2 By-laws (1)
3.3 Amended Articles of Incorporation(1)
10.2 Registration Rights Agreement(1)
14 Code of Ethics (1)
21 Subsidiaries of the Company(1)
31** Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32*** Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS** XBRL Instance Document
101.SCH** XBRL Taxonomy Extension Schema Document
101.CAL** XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF** XBRL Taxonomy Extension Definition Linkbase Document
101.LAB** XBRL Taxonomy Extension Label Linkbase Document
101.PRE** XBRL Taxonomy Extension Presentation Linkbase Document

 **       Filed herewith

***       Furnished Herewith

(1)       Incorporated by reference.

 

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SIGNATURES

 

Pursuant to the requirements of the SecuritiesExchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto dulyauthorized.

 

Dated: November 14, 2019

 

  SPYR, INC.
     
By: /S/ James R. Thompson
    James R. Thompson
    President & Chief Executive Officer
    (Principal Executive Officer)
     
  By: /S/ Barry D. Loveless
    Barry D. Loveless
    Chief Financial Officer
    (Principal Financial and Accounting Officer)

 

 

 

 

 

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