Feed to the latest filings at the SEC
Date Filed : Nov 22, 2021
SECURITIESAND EXCHANGE COMMISSION
☒QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Forthe quarterly period ended: September 30, 2021
☐TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
Forthe transition period from __________ to __________
Commissionfile number 33-20111
(State or other jurisdiction of
incorporation or organization)
8547 E Arapahoe Rd STE J527, Greenwood Village, CO 80112
(Addressof principal executive offices)
Checkwhether the 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 to suchfiling requirements for the past 90 days ☒ Yes ☐ No
Indicateby check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive DataFile required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding12 months (or for such shorter period that the registrant was required to submit and post such files). ☒ Yes ☐No
Indicateby check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reportingcompany. See the definitions of “large accelerated filer,” “accelerated filer” and” smaller reporting company”in Rule 12b-2 of the Exchange Act.
Ifan emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complyingwith any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicateby check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒No
APPLICABLEONLY TO CORPORATE ISSUERS
Asof November 22, 2021 there were 223,228,552 shares of the Registrant’s common stock.
PARTI - FINANCIAL INFORMATION
SPYR,Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
Theaccompanying notes are an integral part of these unaudited consolidated financial statements
CondensedConsolidated Statements of Operations
CondensedConsolidated Statements of Stockholders’ Equity
ForThe Nine Months Ended September 30, 2021
ForThe Nine Months Ended September 30, 2020
CondensedConsolidated Statements of Cash Flows
SPYR,INC. AND SUBSIDIARIES
NOTESTO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINEMONTHS ENDED SEPTEMBER 30, 2021 AND 2020
NOTE1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Theaccompanying condensed consolidated financial statements of SPYR, Inc. and subsidiaries (the “Company”) are unaudited. Theseunaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally acceptedin 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 preparedin accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Accordingly, these interim condensed consolidatedfinancial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’sAnnual Report on Form 10-K for the fiscal year ended December 31, 2020 filed with the SEC. The condensed consolidated balance sheet asof December 31, 2020 included herein was derived from the audited consolidated financial statements as of that date, but does not includeall disclosures, including notes, required by GAAP.
Inthe opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments necessary tofairly present the Company’s financial position and results of operations for the interim periods reflected. Except as noted, alladjustments contained herein are of a normal recurring nature. Results of operations for the fiscal periods presented herein are notnecessarily indicative of fiscal year-end results.
Theconsolidated financial statements include the accounts of SPYR, Inc. and its wholly owned subsidiaries, Applied Magix, Inc., aNevada corporation, SPYR APPS, LLC, a Nevada Limited Liability Company (discontinued operations, see Note 9), E.A.J.: PHL, AirportInc., a Pennsylvania corporation (discontinued operations, see Note 9), and Branded Foods Concepts, Inc., a Nevada corporation(dissolution pending). Intercompany accounts and transactions have been eliminated.
Certainreclassifications have been made in the 2020 financial statements to conform with the 2021 presentation related to the discontinued operationsof SPYR APPS, LLC. See Note 9 Discontinued Operations for additional information.
Theaccompanying financial statements have been prepared under the assumption that the Company will continue as a going concern. Such assumptioncontemplates the realization of assets and satisfaction of liabilities in the normal course of business, however, the issues describedbelow raise substantial doubt about the Company’s ability to do so.
Asshown in the accompanying financial statements, for the Nine months ended September 30, 2021, the Company recorded a net loss of $3,176,000and utilized cash in operations of $1,260,000. As of September 30, 2021, our cash balance was $30,000, and we had trading securitiesvalued at $2,000. 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 andother forms of financing such as the sale of additional equity and debt securities, capital leases and other credit facilities to conductits ongoing business, and to also conduct strategic business development, marketing analysis, due diligence investigations into possibleacquisitions, and implementation of our Applied Magix business plans generally. The Company also plans to diversify, through acquisitionor 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 additionalcapital through the sale of its common stock, debt financing and through expansion of its existing and new products. If our financinggoals 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.
Theability of the Company to continue as a going concern is dependent upon the success of future capital offerings or alternative financingarrangements and expansion of its operations. The accompanying financial statements do not include any adjustments that might be necessaryshould the Company be unable to continue as a going concern. Management is actively pursuing additional sources of financing sufficientto generate enough cash flow to fund its operations through calendar year 2021. However, management cannot make any assurances that suchfinancing will be secured.
Thepreparation of financial statements in conformity with generally accepted accounting principles requires management to make estimatesand assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at thedate of the financial statements and the reported amounts of revenues and expenses during the reporting period. Estimates and assumptionsused by management affected impairment analysis for trading securities, fixed assets, intangible assets, capitalized licensing rights,amounts of potential liabilities, derivative liabilities, and valuation of issuance of equity securities. Actual results could differfrom those estimates.
Earnings(Loss) Per Share
Thebasic and fully diluted shares for the three months ended September 30, 2021 are the same because the inclusion of the potential shares(Class A – 26,909,028, Class E – 1,385,042, Options – 5,379,900, Warrants – 7,200,000) would have had an anti-dilutiveeffect due to the Company generating a loss for the three months ended September 30, 2021.
The basicand fully diluted shares for the three months ended September 30, 2020 arethe same because the inclusion of the potential shares (Class A – 26,909,028, Class E – 803,213,Options – 849,900, Warrants – 9,800,000)would have had an anti-dilutive effect due to the Company generating a loss for the three months ended September 30,2020.
The basic and fully diluted shares for the nine monthsended September 30, 2021 are the same because the inclusion of the potential shares (ClassA – 26,909,028, Class E – 1,385,042, Options – 5,379,900, Warrants – 7,200,000) would have had an anti-dilutiveeffect due to the Company generating a loss for the nine months ended September 30,2021.
Thebasic and fully diluted shares for the nine months ended September 30, 2020 are the same because the inclusion of the potential shares (ClassA – 26,909,028, Class E – 803,213, Options – 849,900, Warrants – 9,800,000) would have had an anti-dilutiveeffect due to the Company generating a loss for the nine months ended September 30, 2020.
ProductResearch and Development Costs
Costsincurred for product research and development are expensed as incurred. During the nine months ended September 30, 2021 and 2020, theCompany incurred $9,000 and $0 in product development costs paid to independent third parties.
InMay 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contractswith Customers. ASU 2014-09 is a comprehensive revenue recognition standard that superseded nearly all existing revenue recognitionguidance under prior U.S. GAAP and replaced it with a principles-based approach for determining revenue recognition. The core principleof the standard is the recognition of revenue upon the transfer of promised goods or services to customers in an amount that reflectsthe consideration to which the company expects to be entitled in exchange for those goods or services.
Weadopted this new revenue recognition standard along with its related amendments on January 1, 2018 and have updated our accounting policyfor revenue recognition. As expected, at our current level of revenue, the adoption of this new standard did not impact our financialposition or results of operations or operating cash flows.
Wedetermine revenue recognition by: (1) identifying the contract, or contracts, with our customer; (2) identifying the performance obligationsin the contract; (3) determining the transaction price; (4) allocating the transaction price to performance obligations in the contract;and (5) recognizing revenue when, or as, we satisfy performance obligations by transferring the promised goods or services.
Throughour wholly owned subsidiary Applied Magix we are a registered Apple® developer, and reseller of Apple ecosystem compatibleproducts and accessories with an emphasis on the smart home market. The Company’s products are available for sale through itswebsite at https://appliedmagix.com/shop/, as well as the eBay Marketplace and Amazon Marketplace. Payment is required at time of purchase and the purchase price is a fixed amount.
Cashand Cash Equivalents
TheCompany considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents to theextent the funds are not being held for investment purposes.
TheCompany’s inventory consisting of Magix Drive units and Apple HomeKit compatible products for resale by the Company, isrecorded at the lower of cost (first-in, first-out) or net realizable value. The Company writes down its inventory balances forestimates of excess and obsolete amounts. The Company reduces inventory on hand to its net realizable value on an item-by-item basiswhen the expected realizable value of a specific inventory item falls below its original cost. Management regularly reviews theCompany’s investment in inventories for such declines in value. The write-downs are recognized as a component of cost ofsales. During the nine months ended September 30, 2021 and 2020, the Company recognized inventory write downs of approximately$1,000.As of September 30, 2021, the inventory was valued at $60,000. As of December 31, 2020, the company held no inventory.
TheCompany periodically issues stock options and warrants to employees and non-employees in non-capital raising transactions for servicesand for financing costs. The Company accounts for stock option and warrant grants issued and vesting to employees based on the authoritativeguidance provided by the Financial Accounting Standards Board (FASB) whereas the value of the award is measured on the date of grantand recognized over the vesting period.
The Company accounts for stock option and warrantgrants issued and vesting to non-employees in accordance with the authoritative guidance of the FASB whereas the value of the stock compensationis based upon the measurement date as determined at either a) the date at which a performance commitment is reached, or b) at the dateat which the necessary performance to earn the equity instruments is complete. Non-employee stock-based compensation charges generallyare amortized over the vesting period on a straight-line basis. In certain circumstances where there are no future performance requirementsby the non-employee, option grants are immediately vested, and the total stock-based compensation charge is recorded in the period ofthe measurement date.
Thefair value of the Company’s stock option and warrant grants is estimated using the Black-Scholes Option Pricing model, which usescertain assumptions related to risk-free interest rates, expected volatility, expected life of the stock options or warrants, and futuredividends. Compensation expense is recorded based upon the value derived from the Black-Scholes Option Pricing model and based on actualexperience. The assumptions used in the Black-Scholes Option Pricing model could materially affect compensation expense recorded in futureperiods.
TheCompany also issues restricted shares of its common stock for share-based compensation programs to employees and non-employees. The Companymeasures the compensation cost with respect to restricted shares to employees based upon the estimated fair value at the date of thegrant and is recognized as expense over the period which an employee is required to provide services in exchange for the award. For non-employees,the Company measures the compensation cost with respect to restricted shares based upon the estimated fair value at measurement datewhich is 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.
TheCompany evaluates all of its agreements to determine if such instruments have derivatives or contain features that qualify as embeddedderivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recordedat its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the statements of operations.For stock-based derivative financial instruments, the Company uses the Black-Scholes Option Pricing model to value the derivative instrumentsat inception and on subsequent valuation dates. The classification of derivative instruments, including whether such instruments shouldbe recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classifiedin the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be requiredwithin 12 months of the balance sheet date. As of September 30, 2021, the Company’s only derivative financial instruments wereembedded conversion features associated with long-term convertible notes payable which contain certain provisions that allow for a variablenumber of shares on conversion.
Concentrationof Credit Risk
TheCompany has no significant off-balance-sheet concentrations of credit risk such as foreign exchange contracts, options contracts, orother foreign hedging arrangements. The Company maintains the majority of its cash balances with financial institutions, in the formof demand deposits. The Company believes that no significant concentration of credit risk exists with respect to these cash balancesbecause of its assessment of the creditworthiness and financial viability of this financial institution.
Advertising,marketing, and promotional costs are expensed as incurred and included in general and administrative expenses. Advertising, marketing,and promotional expense was $118,000 and $0 for the nine months ended September 30, 2021, and 2020, respectively and was reflected aspart of Other General and Administrative Expenses on the accompanying condensed consolidated statements of operations.
InJune 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-13, “Financial Instruments – Credit Losses.”This ASU sets forth a current expected credit loss model which requires the Company to measure all expected credit losses for financialinstruments held at the reporting date based on historical experience, current conditions, and reasonable supportable forecasts. Thisreplaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortizedcost and applies to some off-balance sheet credit exposures. In November 2019, the effective date of this ASU was deferred until fiscalyears beginning after December 15, 2022, including interim periods within those fiscal years, with early adoption permitted. The Companyis in the process of determining the potential impact of adopting this guidance on its consolidated financial statements.
Otherrecent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified PublicAccountants, and the Securities and Exchange Commission did not or are not believed by management to have a material impact on the Company’spresent or future consolidated financial statements.
NOTE2 – RELATED PARTY TRANSACTIONS
OnSeptember 5, 2017, the Company obtained a revolving line of credit (LOC) from Berkshire Capital Management Co., Inc. which is controlledby the Company’s former chairman of the board. The line of credit allows the Company to borrow up to $1,000,000 with interest at6% 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. During 2018 and 2019, the Company hasreceived an additional $1,062,000 in the form of short-term advances (Advances) from Berkshire Capital Management Co., Inc. The lastadvance occurred on September 30, 2019; at which time the Company had borrowed $1,062,000. No further advances are expected from BerkshireCapital Management Co., Inc. The Company has accrued interest on these short-term advances at 6% per annum. On June 17, 2021, the Companyand Berkshire entered into a debt consolidation agreement to consolidate the LOC and Advances into a single balloon note with interestat 6% per annum and an extended due date of December 31, 2025, thereby replacing and otherwise cancelling the LOC and Advances. The June17, 2021 consolidated balance due was approximately $2,454,000. As of September 30, 2021, the consolidated balance due with accrued interestwas approximately $2,496,000.
Duringthe three months ended March 31, 2020, the Company, received $185,000 in revenue for professional services rendered to Berkshire CapitalManagement Co., Inc. Subsequent to March 31, 2020, the Company has not and does not anticipate that it will provide any further professionalservices to related parties.
OnMay 17, 2021, the Company entered into an agreement to borrow funds from the 481149 Irrevocable Trust, a related party, that controlsall of the currently outstanding preferred stock of the Company and the trustee of which is a member of the Company’s board ofdirectors. Pursuant to the agreement, the Company borrowed approximately $501,000 with interest at 6% per annum, due and payable in fullon May 17, 2022. As of September 30, 2021, the balance due with accrued interest was approximately $512,000.
NOTE3 – SHORT TERM NOTES
On May 27, 2021, the Company entered into an agreementto borrow funds from a third party pursuant to which, the Company borrowed $85,000 with interest at 8% per annum, due and payable in fullon or before November 27, 2021. On August 11, 2021, the Company entered into an agreement to borrow funds from a third party pursuantto which, the Company borrowed $33,333 with interest at 8% per annum, due and payable in full on or before February 11, 2022.
OnAugust 12, 2021, the Company entered into an agreement to borrow funds from a third party pursuant to which, the Company borrowed $40,000with interest at 8% per annum, due and payable in full on or before February 12, 2022. On September 9, 2021, the Company entered intoan agreement to borrow funds from a third party pursuant to which, the Company borrowed $40,000 with interest at 8% per annum, due andpayable in full on or before March 9, 2022. As of September 30, 2021, the balance due with accrued interest was approximately $202,000.
NOTE4 – SMALL BUSINESS ADMINISTRATION DEBT
OnMay 12, 2020, the Company received a Paycheck Protection Program loan from the U.S. Small Business Administration (SBA) in the approximateamount of $71,000. The loan agreement provides for six months principal and interest deferral. The interest rate is 1%. Under the termsof the loan, up to 100% of the loan may be forgiven conditioned upon meeting certain requirements for the use of funds. As of September 30, 2021, the balance due on this note with accrued interest was $72,000.
OnJanuary 21, 2021, the Company received a second Paycheck Protection Program loan from the U.S. Small Business Administration in theapproximate amount of $73,000.The interest rate is 1%. Underthe terms of the loan, up to 100%of the loan may be forgiven conditioned upon meeting certain requirements for the use of funds. Any amount not forgiven must berepaid in equal monthly payments of principal and interest beginning in May 2022. On February 2, 2021, theCompany submitted its application to the SBA for forgiveness, which was correspondingly confirmed forgiven as of August 20, 2021. Asof September 30, 2021, the balance due on this note was approximately $0.
NOTE5 – CONVERTIBLE NOTES
OnSeptember 30, 2020, the Company entered into a Stock Purchase Agreement with a third-party investor. By virtue of the Stock PurchaseAgreement, in two separate closings, the Company agreed to sell, in each closing, an 8% $500,000 Convertible Promissory Note and Warrantto purchase one million common shares. Each Convertible Promissory Note bears 8% interest and matures five year after issuance. Amountsdue under the Convertible Promissory Note are convertible into the Registrant’s common stock at the lower of $0.25 per share or70% of the average of the three lowest Variable Weighted Average Price (“VWAP”) for the Registrant’s common stock forthe twenty trading days prior to an election to convert. The Warrants are exercisable for five-years at an exercise price of 0.25 pershare or, subject to the Registrant filing a registration statement including the shares of common stock that may be issued upon exerciseof 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 secondclosing. Total proceeds from the issuance of these convertible notes payable was $1,000,000. The Company determined that the conversionfeatures 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 $1,514,000with corresponding debt discounts of $1,000,000 and a loss on issuance of long-term convertible notes payable of $514,000. During Mayand 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 aconversion rate of $0.0324 a share, into 3,561,830 Common Stock shares. On August 6, 2021, the company entered into an Amendment of theexisting convertible debt, of which resulted in the conversionrates changing to 50% of the average of the lowest VWAP, and the interest on the loan was eliminated., as well as, a $455,000 increasein the Derivative Liability portion of the convertible debt, from $1,382,000 to $1,761,000. The company recordedamortization of debt discounts, recognized as interest expense, in the amount of $330,000 and accrued interest of $47,000 during thenine months ended September 30, 2021. On September 30, 2021, the principal balance together with accrued interest is recorded on theCompany’s condensed consolidated balance sheet net of discounts at $27,000.
Thefollowing table summarized the Company’s convertible notes payable as of September 30, 2021 and December 31, 2020:
NOTE6 – DERIVATIVE LIABILITY
TheCompany determined that the conversion features of the long-term convertible notes payable represented embedded derivatives since thenotes are convertible into a variable number of shares upon conversion. Accordingly, the notes are not considered to be conventionaldebt and the embedded conversion feature is bifurcated from the debt host and accounted for as a derivative liability. Accordingly, thefair value of these derivative instruments is recorded as liabilities on the balance sheet with the corresponding amount recorded asa discount to each note and any excess of the fair value of the derivative component over the face amount of the note recorded as anexpense on the date of issuance. Discounts are amortized from the date of issuance to the maturity dates of the notes. Fair value ofderivative liabilities is evaluated at the end of each reporting period with any change in value reported in other income or expenseson the statements of operations for the period.
Thefollowing table represents the Company’s derivative liability activity for the nine months ended September 30, 2021:
Thetable below represents the average assumptions used in valuing the derivative liability on September 30, 2021:
NOTE7 – COMMITMENTS AND CONTINGENCIES
EquityLine of Credit
TheCompany entered into a five-year Equity Line of Credit pursuant to an Equity Purchase Agreement with Brown Stone Capital, LP, dated September30, 2020. Pursuant to the agreement, Brown Stone agreed to invest up to $14,000,000 to purchase the Company’s Common Stock, parvalue $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 afterthe 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 Companyand Brown Stone entered into a Registration Rights Agreement, whereby the Company agreed to provide certain registration rights underthe Securities Act of 1933, as amended, and the rules and regulations thereunder, and applicable state securities laws, with respectto the shares of Common Stock issuable for Brown Stone’s investment pursuant to the Equity Purchase Agreement. On or about September 20, 2021, this agreement was cancelled and replaced with a similar Equity Line of Creditto Ares Capital. As of September30, 2021, no shares have been registered or sold pursuant to this agreement.
TheCompany 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 theminimum basic rent, rent expense also includes approximately $1,000 per month for other items charged by the landlord in connection withrent. 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 extendthe 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 surrenderedthe premises to the landlord and the Company will pay approximately $67,000 over 18 months commencing April 1, 2021. As of September30, 2021, the company had approximately $45,000 in unpaid rent which was reported as part of accounts payable and accrued expenses inthe accompanying condensed consolidated balance sheet as of September 30, 2021.
EffectiveMarch 1, 2021, the Company’s wholly owned subsidiary Applied Magix, entered into a 6-month lease for 2 workspace offices locatedat 1230 Rosecrans Ave, Manhattan Beach California. The lease automatically renews on a continuing basis for an additional 6 months unlesscancelled in writing 60 days prior the lease termination date. Under the lease, the Company pays monthly rent of $1,400.
Rentexpense for the nine months ended September 30, 2021 and 2020 was $53,000 and $88,000, respectively.
Weare involved in certain legal proceedings that arise from time to time in the ordinary course of our business. Except for income taxcontingencies, we record accruals for contingencies to the extent that our management concludes that the occurrence is probable and thatthe related amounts of loss can be reasonably estimated. Legal expenses associated with the contingency are expensed as incurred. Informationabout material legal proceedings follows:
OnJune 18, 2018, the Company was named as a defendant in a case filed in the United States District Court for the Southern District ofNew 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 allegedthat Mr. Fiore, during 2013 and 2014, while he was the Company’s Chief Executive Officer, Chief Financial Officer and Chairmanof the Board of Directors, engaged in improper conduct on behalf of the defendants named in the case related to the Company’s salesof securities in Plandai Biotechnology, Inc. The Commission alleged that Mr. Fiore and the Company unlawfully benefited through the salesof those securities. The Commission also alleged that from 2013 to 2014, the Company’s primary business was investing and thatit 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 ofthe securities and civil fines related to the Company’s failure to register as an investment company with the Commission.
Pursuantto a settlement agreement among the parties, on April 14, 2020, final judgment was entered in the case: Securities and ExchangeCommission vs. Joseph A. Fiore, Berkshire Capital Management, Inc. and Eat at Joes, Inc., n/k/a SPYR, Inc., case number 7:18-cv-05474-KMKfiled in the U.S. District Court for the Southern District of New York.
OnApril 23, 2020, Joseph Fiore/Berkshire Capital Management, Inc. satisfied the Company’s joint and several liability obligationby paying to the Commission the agreed upon sum of Two Million Dollars pursuant to a settlement agreement between Joseph Fiore/BerkshireCapital Management, Inc. and the Company, which settlement agreement was entered into on April 15, 2020. The Company had until April14, 2021 to satisfy its remaining financial obligation to the Commission, an agreed upon civil penalty of Five Hundred Thousand Dollars($500,000). On May 17, 2021, the Company borrowed approximately $501,000 from a related party to pay its principal settlement liabilitywith the Securities and Exchange Commission and has done so (See Note 2 – Related Party Transactions). As of September 30, 2021,the $500,000 together with accrued interest of approximately $1,000 has been paid to the Securities and Exchange Commission in settlementof this obligation.
Inelecting to settle with the Commission, the Company neither admitted nor denied liability to any of the Commission’s allegationsin its complaint, and in consideration for the Commission discontinuing its action, the Company, along with the two other defendantsJoseph Fiore and Berkshire Capital Management agreed to be jointly and severally liable for disgorgement of profits and prejudgment interestin 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.
Onor about January 24, 2019, SPYR APPS, LLC entered into an agreement with one of its vendors, Shatter Storm Studios, to whom it owed $84,250for artwork related to the Steven Universe game. Pursuant to the terms of that agreement, SPYR APPS, LLC needed to make payment in theamount 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 ShatterStorm Studios for the amount owed. SPYR APPS, LLC did not make the payment and on January 27, 2020 Shatter Storm Studios initiated CaseNo. 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 September 30, 2021 and December 31, 2020 was approximately $98,000 and $95,000,respectively and is reported as part of current liabilities of discontinued operations.
OnJanuary 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 includerestrictions on travel, and quarantines in certain areas, and forced closures for certain types of public places and businesses. Thecoronavirus and actions taken to mitigate it have had and are expected to continue to have an adverse impact on the economies and financialmarkets of many countries, including the geographical area in which the Company operates. While it is unknown how long these conditionswill 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 accounts receivable and paying liabilities and changesin the fair value of assets and liabilities. Our necessity for fund raising activities make it reasonably possible that we are vulnerableto 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 inthe near term as a result of these conditions, including potential credit losses on receivables and investments; impairment losses relatedto intangible assets and other long-lived assets; and contingent obligations.
NOTE8 – EQUITY TRANSACTIONS
NineMonths Ended September 30, 2021
During the nine monthsended September 30, 2021, the Company committed an aggregate of 150,000 shares of restricted common stock to directors with a total fairvalue of $7,000 for services rendered. The shares, once issued, are non-refundable and deemed earned upon issuance. As a result, theCompany accrued the entire $7,000 as of September 30, 2021. The shares agreed upon were valued as of September 30, 2021, based upon closingmarket price of the Company’s common stock.
Duringthe nine months ended September 30, 2021, the Company issued an aggregate of 1,550,000 shares of restricted common stock to employeesand directors with a total fair value of $239,000 for services rendered. The shares issued are non-refundable and deemed earned uponissuance. As a result, the Company expensed the entire $239,000 upon issuance. The shares issued were valued at the date earned underthe respective agreement based upon closing market price of the Company’s common stock.
Duringthe nine months ended September 30, 2021, the Company issued an aggregate of 3,000,000 shares of registered common stock to third partyservice providers with a total fair value of $371,000. The shares issued are non-refundable and deemed earned upon issuance. As a result,the Company expensed the entire $371,000 upon issuance. The shares issued were valued at the date earned under the respective agreementbased upon closing market price of the Company’s common stock.
Duringthe nine months ended September 30, 2021, the Company issued an aggregate of 1,242,854 shares of restricted common stock to third partyservice providers with a total fair value of $100,000. The shares issued are non-refundable and deemed earned upon issuance. As a result,the Company expensed the entire $100,000 upon issuance. The shares issued were valued at the date earned under the respective agreementbased upon closing market price of the Company’s common stock.
Duringthe year ended December 31, 2020, the Company issued an aggregate of 3,736,237 shares of common stock with a total fair value of $425,000in conversion of notes. As a result, the Company reduced the balance due on the notes and accrued interest by $204,000 and reduced thevalue of the derivative liability by $221,000 upon issuance.
NineMonths Ended September 30, 2020
Duringthe nine months ended September 30, 2020, the Company issued an aggregate of 1,250,000 shares of restricted common stock to employeeswith a total fair value of $25,000 for services rendered. The shares issued are non-refundable and deemed earned upon issuance. As aresult, the Company expensed the entire $25,000 upon issuance. The shares issued were valued at the date earned under the respectiveagreement based upon closing market price of the Company’s common stock.
Duringthe nine months ended September 30, 2020, the Company issued an aggregate of 1,007,500 shares of common stock in conversion of notespayable with a total fair value of $152,000. As a result, the Company reduced the balance due on the notes by $152,000 upon issuance.
Thefollowing table summarizes common stock options activity:
Theweighted average exercise prices, remaining lives for options granted, and exercisable as of September 30, 2021 were as follows: