SPYR, INC. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the Consolidated Financial Statements and supplementary data referred to in this Form 10-K.
This discussion contains forward-looking statements that involve risks and
uncertainties. Such statements, which include statements concerning revenue
sources and concentration, selling, general and administrative expenses and
capital resources, are subject to risks and uncertainties, including, but not
limited to, those discussed elsewhere in this Form 10-K that could cause actual
results to differ materially from those projected. Unless otherwise expressly
indicated, the information set forth in this Form 10-K is as of
8 Plan of Operations
SPYR®, Inc. acts as a holding company to develop a portfolio of profitable subsidiaries, not limited by any particular industry or business.
With our
We will also continue to identify and target acquisitions, which will grow our footprint in the technology industry and expand the products we offer consumers, including companies developing artificial intelligence and smart-technology products.
The Company intends to utilize cash on hand, shareholder loans and other forms of financing such as the sale of additional equity and debt securities, capital leases and other credit facilities to conduct its ongoing business, and to also conduct strategic business development, marketing analysis, due diligence investigations into possible acquisitions, and implementation of our Applied Magix business plans generally. The Company also seeks to diversify, through acquisition or otherwise, in other related and/or unrelated business areas and is exploring opportunities to do so.
Comparison of 2020 To 2019
The consolidated results of continuing operations are as follows:
Applied Magix Corporate Consolidated
For the Years Ended December 31 2020
Revenues $ - $ - $ -
Related party service revenues - 185,000 185,000
Labor and related expenses (945,000 ) (1,085,000 ) (2,030,000 )
Rent - (113,000 ) (113,000 )
Depreciation and amortization (2,000 ) (36,000 ) (38,000 )
Professional fees (6,000 ) (95,000 ) (101,000 )
Research and development (14,000 ) - (14,000 )
Other general and administrative (30,000 ) (180,000 ) (210,000 )
Operating loss (997,000 ) (1,324,000 ) (2,321,000 )
Interest Expense - (247,000 ) (247,000 )
Loss on disposition of assets - (11,000 ) (11,000 )
Bargain purchase gain on acquisition
of subsidiary - 11,000 11,000
SBA EIDL grant - 3,000 3,000
Loss on issuance of long-term
convertible notes payable - (514,000 ) (514,000 )
Change in Value of derivative
liability - 132,000 132,000
Other expense - (626,000 ) (626,000 )
Loss from continuing operations $ (997,000 ) $ (1,950,000 ) $ (2,947,000 )
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Applied Magix Corporate Consolidated
For the Years Ended December 31 2019
Revenues $ - $ - $ -
Related party service revenues - 302,000 302,000
Labor and related expenses - (724,000 ) (724,000 )
Rent - (145,000 ) (145,000 )
Depreciation and amortization - (37,000 ) (37,000 )
Professional fees - (95,000 ) (95,000 )
Other general and administrative - (270,000 ) (270,000 )
Operating loss - (969,000 ) (969,000 )
Interest Expense - (247,000 ) (247,000 )
Litigation settlement costs - (500,000 ) (500,000 )
Unrealized loss on trading securities - (3,000 ) (3,000 )
Other expense - (750,000 ) (750,000 )
Loss from continuing operations $ -
Results of Operations
For the year ended
More detailed explanation of the year ended
Total Revenues - For the years ended
Labor and related expenses include the costs of salaries, wages, leased
employees, contract labor, and the fair value of common stock and options
granted to employees and directors for services. For the year ended
The cost of rent decreased
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Depreciation and amortization expenses increased by
Professional fees increased
Research and development costs during the year ended
Other general and administrative expenses decreased
The Company had interest expense on a related party line of credit, related
party short-term advances, convertible notes payable and accrued expenses of
The Company sold certain office equipment for
The Company recognized a gain on the acquisition of its wholly owned subsidiary
Applied Magix of
The Company received a
The Company recognized a loss on the issuance of long-term convertible notes
payable in the amount of
The Company recognized a gain on the change in value of a derivative liability
related to its long-term convertible notes payable in the amount of
During the year ended
The Company had unrealized losses on trading securities of
As of
11 Discontinued Operations
Through our wholly owned subsidiary, SPYR APPS®, LLC, during the year ended
Through our other wholly owned subsidiary, E.A.J.:
Liquidity and Capital Resources
The accompanying financial statements have been prepared under the assumption that the Company will continue as a going concern. Such assumption contemplates the realization of assets and satisfaction of liabilities in the normal course of business.
The Company has generated a net loss for the year ended
During the year ended
The Company also entered into an Equity Line of Credit pursuant to an Equity
Purchase Agreement with
The Company currently does not have sufficient cash and liquidity to meet its anticipated working capital for the next twelve months. The Company will continue to seek additional capital through the sale of its common stock, debt financing and through expansion of its existing and new products. If these goals do not materialize as planned, we believe that the Company can reduce its operating and product development costs and that would allow us to maintain sufficient cash levels to continue operations. However, if we are not able to achieve profitable operations at some point in the future, we may have insufficient working capital to maintain our operations as we presently intend to conduct them or to fund our expansion, marketing, and product development plans. There can be no assurance that we will be able to obtain such financing on acceptable terms, or at all.
The Company may also decide to expand and/or diversify, through acquisition or otherwise, in other related or unrelated business areas if opportunities present themselves.
Operating Activities - For the year ended
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Investing Activities - During the year ended
Financing Activities - During the year ended
Government Regulations - The Company is subject to all pertinent federal, state, local and international laws governing its business. Each subsidiary is subject to licensing and regulation by a number of authorities in its State or municipality. These may include health, safety, and fire regulations. The Company's operations are also subject to Federal and State minimum wage laws governing such matters as working conditions, overtime and other credits.
Critical Accounting Policies - The preparation of financial statements in
conformity with accounting principles generally accepted in
Revenue Recognition
We determine revenue recognition by: (1) identifying the contract, or contracts, with our customer; (2) identifying the performance obligations in the contract; (3) determining the transaction price; (4) allocating the transaction price to performance obligations in the contract; and (5) recognizing revenue when, or as, we satisfy performance obligations by transferring the promised goods or services.
Our professional services arrangements are either fixed-fee billing or time-and-material billing arrangements. In fixed-fee billing arrangements, we agree to a predetermined fee for a predetermined set of professional services. We set the fee based upon our estimate of the time and costs necessary to complete the engagements. Under time-and-materials billing arrangements, the fee is based on the number of hours worked at the agreed upon billing rates. We recognize service revenue upon completion of the service.
Stock-Based Compensation
The Company periodically issues stock options and warrants to employees and
non-employees in non-capital raising transactions for services and for financing
costs. The Company accounts for stock option and warrant grants issued and
vesting to employees based on the authoritative guidance provided by the
The fair value of the Company's stock option and warrant grants is estimated using the Black-Scholes Option Pricing model, which uses certain assumptions related to risk-free interest rates, expected volatility, expected life of the stock options or warrants, and future dividends. Compensation expense is recorded based upon the value derived from the Black-Scholes Option Pricing model and based on actual experience. The assumptions used in the Black-Scholes Option Pricing model could materially affect compensation expense recorded in future periods.
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The Company also issues restricted shares of its common stock for share-based compensation programs to employees and non-employees. The Company measures the compensation cost with respect to restricted shares to employees based upon the estimated fair value at the date of the grant and is recognized as expense over the period which an employee is required to provide services in exchange for the award. For non-employees, the Company measures the compensation cost with respect to restricted shares based upon the estimated fair value at measurement date which is either a) the date at which a performance commitment is reached, or b) at the date at which the necessary performance to earn the equity instruments is complete.
Derivative Financial Instruments
The Company evaluates all of its agreements to determine if such instruments have derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the statements of operations. For stock-based derivative financial instruments, the Company uses the Black-Scholes Option Pricing model to value the derivative instruments at inception and on subsequent valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date. The Company's only derivative financial instruments were embedded conversion features associated with long-term convertible notes payable which contain certain provisions that allow for a variable number of shares on conversion.
Loss Contingencies
The Company is subject to various loss contingencies arising in the ordinary course of business. The Company considers the likelihood of loss or impairment of an asset or the incurrence of a liability, as well as its ability to reasonably estimate the amount of loss in determining loss contingencies. An estimated loss contingency is accrued when management concludes that it is probable that an asset has been impaired, or a liability has been incurred and the amount of the loss can be reasonably estimated. The Company regularly evaluates current information available to us to determine whether such accruals should be adjusted.
Recent Accounting Pronouncements
See Note 1 of the consolidated financial statements for discussion of recent accounting pronouncements.
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