Item 1. Financial Statements
Our
financial statements included in this Form 10-Q are as follows:
SocialPlay USA, Inc. (formerly Artesanias
Corp.)
Condensed Balance Sheets
As of June 30, 2016 (unaudited) and December 31, 2015 (audited)
|
|
June 30,
|
|
December 31,
|
|
|
2016
|
|
2015
|
|
|
$
|
|
$
|
|
Current assets
|
|
|
|
|
|
|
|
|
Cash
|
|
340
|
|
|
|
69
|
|
|
Prepaid expenses
|
|
-
|
|
|
|
26,210
|
|
|
Total assets
|
|
340
|
|
|
|
26,279
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
Accounts payable
[note 9]
|
|
341,962
|
|
|
|
279,879
|
|
|
Accrued liabilities
|
|
46,088
|
|
|
|
23,076
|
|
|
Convertible promissory notes
[note 5]
|
|
-
|
|
|
|
58,829
|
|
|
Derivative liabilities
[note 6]
|
|
-
|
|
|
|
178,258
|
|
|
Total Current Liabilities
|
|
388,050
|
|
|
|
540,042
|
|
|
Non-current liabilities
|
|
|
|
|
|
|
|
|
Convertible promissory notes
[note 5]
|
|
54,223
|
|
|
|
-
|
|
|
Derivative Liabilities
[note 6]
|
|
266,628
|
|
|
|
-
|
|
|
Total Liabilities
|
|
708,901
|
|
|
|
540,042
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' deficiency
|
|
|
|
|
|
|
|
|
Preferred stock, $0.001 par value, 100,000,000 shares authorized, no shares issued and outstanding as of June 30, 2016 and December 31, 2015, respectively
[note 7]
|
|
—
|
|
|
|
—
|
|
|
Common stock, $0.001 par value, 200,000,000 shares authorized, 11,820,000 and 11,720,000 shares issued and outstanding as of June 30, 2016 and December 31, 2015
[note 7]
|
|
11,820
|
|
|
|
11,720
|
|
|
Additional paid-in capital
|
|
678,680
|
|
|
|
545,280
|
|
|
Accumulated deficit
|
|
(1,399,061
|
)
|
|
|
(1,070,763
|
)
|
|
Total stockholders' deficiency
|
|
(708,561
|
)
|
|
|
(513,763
|
)
|
|
Total liabilities and stockholders' deficiency
|
|
340
|
|
|
|
26,279
|
|
See accompanying notes
SocialPlay USA, Inc. (formerly Artesanias Corp.)
Condensed Statements of Operations
For the Three and Six Months ended June 30, 2016 and 2015 (unaudited)
|
|
Three months
|
|
Three months
|
|
Six months
|
|
Six months
|
|
|
ended June 30,
|
|
ended June 30,
|
|
ended June 30,
|
|
ended June 30,
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
|
$
|
|
$
|
|
$
|
|
$
|
|
REVENUE
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Legal and professional fees
|
|
13,994
|
|
|
|
23,503
|
|
|
|
27,057
|
|
|
|
45,113
|
|
|
Advertising and promotion
|
|
5,000
|
|
|
|
54,473
|
|
|
|
5,000
|
|
|
|
54,473
|
|
|
Consulting fees - Investor relations
|
|
97,088
|
|
|
|
18,968
|
|
|
|
232,587
|
|
|
|
18,968
|
|
|
Transfer agent fees
|
|
12,265
|
|
|
|
1,750
|
|
|
|
13,755
|
|
|
|
4,390
|
|
|
Directors' fees
|
|
7,500
|
|
|
|
15,000
|
|
|
|
15,000
|
|
|
|
15,775
|
|
|
Other operating expenses
|
|
1,195
|
|
|
|
12,800
|
|
|
|
1,340
|
|
|
|
12,800
|
|
|
Total operating expenses
|
|
137,042
|
|
|
|
126,494
|
|
|
|
294,739
|
|
|
|
151,519
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and bank charges
|
|
17,600
|
|
|
|
7,879
|
|
|
|
37,528
|
|
|
|
8,127
|
|
|
Gain on extinguishment of debt
|
|
-
|
|
|
|
|
|
-
|
|
(11,462)
|
|
|
|
-
|
|
|
Day-one derivative loss
[note 5 and 6]
|
|
-
|
|
|
|
252,683
|
|
|
|
-
|
|
|
|
252,683
|
|
|
Licensing fees
[note 4]
|
|
-
|
|
|
|
630,000
|
|
|
|
-
|
|
|
|
630,000
|
|
|
Change in fair value of derivatives
[note 5 and 6]
|
|
19,591
|
|
|
|
(77,316)
|
|
|
|
7,493
|
|
|
|
(77,316)
|
|
|
Net loss for the year before income taxes
|
|
174,233
|
|
|
|
939,740
|
|
|
|
328,298
|
|
|
|
965,013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Net and comprehensive loss for the period
|
|
(174,233
|
)
|
|
|
(939,740
|
)
|
|
|
(328,298
|
)
|
|
|
(965,013
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share, basic and diluted
|
|
(0.0148
|
)
|
|
|
(0.0815
|
)
|
|
|
(0.0278
|
)
|
|
|
(0.0837
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Number of common shares outstanding
|
|
11,812,222
|
|
|
|
11,520,000
|
|
|
|
11,778,242
|
|
|
|
11,520,000
|
|
See accompanying notes
SocialPlay USA, Inc. (formerly Artesanias Corp.)
Condensed Statements of Cash Flows
For the Six Months ended June 30, 2016 and 2015 (unaudited)
|
|
Six months
|
|
Six months
|
|
|
ended June 30,
|
|
ended June 30,
|
|
|
2016
|
|
2015
|
|
|
$
|
|
$
|
|
OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
Net loss for the period
|
|
(328,298
|
)
|
|
|
(965,013)
|
|
|
Shares issued for services
|
|
133,500
|
|
|
|
-
|
|
|
Interest expense - accretion of convertible notes
|
|
24,783
|
|
|
|
7,025
|
|
|
Day-one derivative loss
|
|
-
|
|
|
|
252,683
|
|
|
Licensing fees
[Note 4]
|
|
-
|
|
|
|
630,000
|
|
|
Change in fair value of derivatives
|
|
7,493
|
|
|
|
(77,316)
|
|
|
Gain on extinguishment of debt
|
|
(11,462)
|
|
|
|
-
|
|
|
Net change in non-cash working capital balances:
|
|
|
|
|
|
|
|
|
Prepaid expenses
|
|
26,210
|
|
|
|
(71,532)
|
|
|
Accounts payable and accrued liabilities
|
|
85,095
|
|
|
|
95,486
|
|
|
Cash used in operating activities
|
|
(62,679
|
)
|
|
|
(128,667
|
)
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Proceeds from issuance of convertible promissory notes
|
|
62,950
|
|
|
|
132,200
|
|
|
Cash provided by financing activities
|
|
62,950
|
|
|
|
132,200
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash during the year
|
|
271
|
|
|
|
(6,467)
|
|
|
Cash, beginning of the period
|
|
69
|
|
|
|
6,544
|
|
|
Cash, end of period
|
|
340
|
|
|
|
77
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure with respect to cash flows:
|
|
|
|
|
|
|
|
|
Cash paid for income taxes
|
|
—
|
|
|
|
—
|
|
|
Cash paid for interest
|
|
—
|
|
|
|
—
|
|
See accompanying notes
SocialPlay USA, Inc. (formerly Artesanias Corp.)
Notes to Condensed Financial Statements
As of June 30, 2016 (unaudited)
Note 1 – History and Organization of the Company
The Company was incorporated on December 31,
2013 (Date of Inception) under the laws of the State of Nevada, as Artesanias Corp. (the “Company”). On June 12, 2015,
the Board of Directors of the Company changed the name from Artesanias Corp. to SocialPlay USA, Inc. to reflect the business focus
of the Company. The Company plans to develop a business that provides marketing, monetization, and support services for the companies
in gaming and mobile application markets.
The Company has limited operations and is considered
to be in the development stage.
Note 2 – Going Concern
The Company’s unaudited condensed financial
statements are prepared using generally accepted accounting principles in the United States of America applicable to a going concern
which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has not
yet established an ongoing source of revenues sufficient to cover its operating costs and allow it to continue as a going concern.
The Company had an accumulated deficit of $1,399,061 and a working capital deficit of $387,710 as of June 30, 2016. The ability
of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating losses until
it becomes profitable. If the Company is unable to obtain adequate capital, it could be forced to cease operations. In order to
continue as a going concern, the Company will need, among other things, additional capital resources. The Company is contemplating
conducting an offering of its debt or equity securities to obtain additional operating capital. The Company is dependent upon its
ability, and will continue to attempt, to secure equity and/or debt financing. There are no assurances that the Company will be
successful and without sufficient financing it would be unlikely for the Company to continue as a going concern.
The ability of the Company to continue as a
going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraph and eventually
secure other sources of financing and attain profitable operations. The accompanying financial statements do not include any adjustments
that might be necessary if the Company is unable to continue as a going concern. These financial statements do not include any
adjustments relating to the recoverability and classification of recorded asset amounts, or amounts and classification of liabilities
that might result from this uncertainty.
Note 3 – Summary of Significant Accounting
Policies
Basis of Presentation
The accompanying unaudited condensed financial
statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US
GAAP”) for interim financial information and the rules and regulations of the SEC and are expressed in US dollars. Accordingly,
the unaudited condensed financial statements do not include all information and footnotes required by US GAAP for complete annual
financial statements. In the opinion of management, the accompanying unaudited condensed financial statements reflect all adjustments,
consisting of only normal recurring adjustments, considered necessary for a fair presentation. Interim operating results are not
necessarily indicative of results that may be expected for the year ending December 31, 2016 or for any other interim period. The
unaudited condensed financial statements should be read in conjunction with the audited financial statements of the Company and
the notes thereto as of and for the year ended December 31, 2015.
Use of Estimates
The preparation of the financial statements
in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting periods. Areas involving significant estimates and assumptions include valuation
of derivatives, valuation allowance for deferred tax assets, accruals and going concern assessment. These estimates are reviewed
periodically, and, as adjustments become necessary, they are reported in earnings in the period in which they become known. Actual
results could materially differ from those estimates
SocialPlay USA, Inc. (formerly Artesanias
Corp.)
Notes to Condensed Financial Statements
As of June 30, 2016 (unaudited)
Reclassification of comparative figures
Certain of the prior period figures have been
reclassified to align with Management’s current view of the Company’s operations.
Recently Issued Accounting Standards
The Company evaluated all recent accounting
pronouncements issued and determined that the adoption of these pronouncements would not have a material effect on the financial
position, results of operations or cash flows of the Company.
Note 4 – Prepaid Licensing Fees
Pursuant to Exclusive License Agreement dated
May 21, 2015 with a third party, the Company acquired an exclusive license to develop, market and sell products and services based
upon any and all intellectual property. The initial term of this Agreement was five years. This Agreement may be renewed for an
additional five year term upon written notice to be given by the Company no later than thirty days prior to the expiration of the
initial term. In consideration for the license granted hereunder, the Company issued to the third party 1,000,000 (200,000 after
reverse split) shares of common stock. In addition, the Company shall issue 1,000,000 (200,000 after reverse split) shares of common
stock on or before each anniversary of this Agreement for so long as it shall remain in effect. The Company also agreed to make
payments totalling $120,000 to the third party through an agreed payment schedule.
As technological feasibility was not yet achieved,
the Company recognized as expense the total consideration due of $630,000, $120,000 being payable in cash and $510,000 in the form
of 1,000,000 (200,000 after reverse split) shares of common stock issued on July 1, 2015, valued at the market price of $0.51 per
share.
Note 5 – Convertible Promissory Notes
The outstanding convertible promissory notes
as at December 31, 2015 represent obligations of the Company to CMGT Inc. (CMGT). The movement in this obligation is as follows:
|
|
$
|
|
Promissory notes issued during 2015
|
|
229,180
|
|
|
Discount recognised due to embedded derivatives
|
|
(217,900
|
)
|
|
Accretion on notes for 2015
|
|
47,549
|
|
|
Accreted value of notes as at December 31, 2015
|
|
58,829
|
|
On January 11, 2016, the Company consolidated
all of its obligations to CMGT under a single Convertible Promissory Note due June 1, 2018 (the “Note”) and recognized
gain on extinguishment of debt amounting to $11,462. The Note bears interest at a rate of ten percent (10%) per year, with all
principal and interest due on or before June 1, 2018. Under the Note, the Company is obligated to pay quarterly payments of interest
only commencing March 31, 2016. The Company may prepay the Note in whole or in part without penalty. The Note is convertible at
a price equal to sixty percent (60%) of the market price for its common stock, which is defined as the average of the lowest three
closing bid prices for the common stock in the ten trading days preceding the conversion. The conversion price of the Note is also
subject to adjustment in the event of certain stock issuances which are lower than the conversion price otherwise in effect at
the time of the conversion. In addition, CMGT’s right to convert is limited such that no conversion can be made which
would result in CMGT or its affiliates owning more than 4.99% of the issued and outstanding common stock of the Company following
the conversion.
SocialPlay USA, Inc. (formerly Artesanias Corp.)
Notes to Condensed Financial Statements
As of March 31, 2016 (unaudited)
Note 5 – Convertible Promissory Notes
(continued)
|
Promissory notes issued during 2015
|
|
229,180
|
|
|
Promissory notes issued during Q1 2016
|
|
19,950
|
|
|
Discount recognised due to embedded derivatives
|
|
(217,959
|
)
|
|
Accretion on notes for Q1 2016
|
|
7,466
|
|
|
Accreted value of notes as at March 31, 2016
|
|
38,637
|
|
|
Promissory notes issued during Q2 2016
|
|
43,000
|
|
|
Discount recognised due to embedded derivatives
|
|
(38,141
|
)
|
|
Accretion on notes for Q2 2016
|
|
10,727
|
|
|
Accreted value of notes as at June 30, 2016
|
|
54,223
|
|
As of June 30, 2016, total principal
due under the Note was $292,130, and accrued interest totaled $23,625 (December 31, 2015: $229,180 and $10,963).
The embedded conversion features and reset
feature in the notes were accounted for as a derivative liability based on FASB guidance (also refer note 5).
Details of the advances under the convertible
promissory note issued are as follows:
|
Advance Date
|
|
Amount
|
|
|
|
$
|
|
June 9, 2015
|
|
|
28,000
|
|
|
June 10, 2015
|
|
|
60,000
|
|
|
June 11, 2015
|
|
|
30,000
|
|
|
June 15, 2015
|
|
|
14,200
|
|
|
July 1, 2015
|
|
|
35,000
|
|
|
July 11, 2015
|
|
|
17,980
|
|
|
August 14, 2015
|
|
|
28,000
|
|
|
December 1, 2015
|
|
|
16,000
|
|
|
February 12, 2016
|
|
|
9,000
|
|
|
February 23, 2016
|
|
|
10,950
|
|
|
May 05, 2016
|
|
|
10,000
|
|
|
June 02, 2016
|
|
|
22,000
|
|
|
June 17, 2016
|
|
|
11,000
|
|
|
|
|
|
292,130
|
|
Interest expense for the quarter ended June
30, 2016 recognized on these convertible promissory notes amounts to $6,554.61 included in interest and bank charges in the statements
of operations. Interest expense for the six month period ended June 30, 2016 amounts to $12,385.61.
Note 6 – Derivative Liabilities
In connection with the issuance of convertible
promissory notes, the Company may sell options or warrants to purchase Company’s common stock. In certain circumstances,
these options or warrants may be classified as derivative liabilities, rather than as equity. Additionally, the debt or equity
instruments may contain embedded derivative instruments, such as embedded derivative features which in certain circumstances may
be required to be bifurcated from the associated host instrument and accounted for separately as a derivative instrument liability.
SocialPlay USA, Inc. (formerly Artesanias
Corp.)
Notes to Condensed Financial Statements
As of March 31, 2016 (unaudited)
Note 6 – Derivative Liabilities
(continued)
The Company's derivative instrument liabilities
are re-valued at amendment and at the end of each reporting period, with changes in the fair value of the derivative liability
recorded as charges or credits to income in the period in which the changes occur. For options, warrants and bifurcated embedded
derivative features that are accounted for as derivative instrument liabilities, the Company estimates fair value using either
quoted market prices of financial instruments with similar characteristics or other valuation techniques. The valuation techniques
require assumptions related to the remaining term of the instruments and risk-free rates of return, our current common stock price
and expected dividend yield, and the expected volatility of our common stock price over the life of the option.
The following table summarizes the movements
in derivative liabilities:
|
|
$
|
|
Face value of convertible promissory notes issued during Q2 2015
|
|
132,200
|
|
|
Day-one derivative loss recognized immediately
|
|
252,683
|
|
|
Derivative liabilities on issuance
|
|
384,883
|
|
|
Change in fair value of derivatives
|
|
(77,316
|
)
|
|
Derivative liabilities as at June 30, 2015
|
|
307,567
|
|
|
Derivative liability on issuance
|
|
73,249
|
|
|
Change in fair value of derivatives
|
|
(217,605
|
)
|
|
Derivative liabilities as at September 30, 2015
|
|
163,211
|
|
|
Derivative liability on issuance
|
|
12,369
|
|
|
Change in fair value of derivatives
|
|
2,678
|
|
|
Derivative liabilities as at December 31, 2015
|
|
178,258
|
|
|
Change due to Debt Extinguishment
|
|
(175,223
|
)
|
|
Change due to Consolidated Debt Re-issuance (note 4)
|
|
217,959
|
|
|
Change in Fair Value
|
|
(12,098
|
)
|
|
Derivative liabilities as at March 31, 2016
|
|
208,896
|
|
|
Derivative liability on issuance
|
|
38,141
|
|
|
Change in fair value of derivatives
|
|
19,591
|
|
|
Fair value as at June 30, 2016
|
|
266,628
|
|
The multinomial lattice model was used to value
the convertible notes and the embedded derivative liabilities at issuance and period end date, using the following assumptions.
|
|
June 30,
|
|
Assumptions
|
2016
|
|
Dividend yield
|
|
0.00
|
%
|
|
Risk-free rate for term
|
|
0.20% - 0.72%
|
|
|
Volatility
|
|
334.0%-361.7
|
%
|
|
Remaining terms (years)
|
|
0-2.07 years
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Stock price ($ per share)
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0.70-1.19
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SocialPlay USA, Inc. (formerly Artesanias
Corp.)
Notes to Condensed Financial Statements
As of March 31, 2016 (unaudited)
Note 7 – Stockholders’ Deficiency
Authorized:
The Company is authorized to issue up to 200,000,000
shares of its $0.001 par value common stock and up to 100,000,000 shares of its $0.001 par value preferred stock.
Issued and outstanding:
On February 25, 2015, the Company executed
a 12 for 1 forward stock split of issued shares of common stock. Further, on July 27, 2015, the Company effectuated a 1 for 5 reverse
stock split. The accompanying condensed financial statements have been retrospectively adjusted for all periods presented to reflect
the effect of the forward and reverse stock split.
On July 1, 2015, the Company issued 1,000,000
(200,000 after reverse split) shares of common stock pursuant to Exclusive License Agreement dated May 21, 2015 as explained in
note 4 to the condensed financial statements.
As at June 30, 2016 and December 31, 2015,
there were 11,820,000 (after stock split) and 11,720,000 (after stock-split) shares of common stock respectively, issued out of
the authorized 200,000,000 common shares.
On February 17, 2016, the Company issued 50,000
shares of common stock to Ten West Holdings, Inc. as consideration for corporate advisory services amounting to $56,000 pursuant
to agreement dated November 16, 2015. All services have been performed as of February 16, 2016.
On April 15, 2016, the Company
issued 50,000 shares of common stock to Ten West Holdings, Inc. as consideration for corporate advisory services amounting to $77,500
pursuant to agreement dated March 9, 2016. All services have been performed as of June 10, 2016.
Note 8 – Commitments
The Company has commitments to issue 1,000,000
(200,000 after reverse split) shares of common stock on or before each anniversary pursuant to Exclusive License Agreement dated
May 21, 2015 as explained in note 4 to the condensed financial statements.
Note 9 – Related Party Transactions
On April 27, 2015, the Company entered into
an Exclusive License Agreement (the “Agreement”) with related party Social Play, Inc. (“Social Play”).
Under the Agreement, the Company has been granted the exclusive rights within the U.S. and Canada to develop, market and sell products
and services based upon Social Play’s patent-pending “SP Cloud Goods” system.
Accounts payable and accrued liabilities include
the following balances owed to related parties:
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June 30, 2016
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June 30, 2015
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Owed to Director Chitan Mistry for Director fees
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$
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72,500
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65,000
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Owed to former Director Lucie Letellier for Director fees last year
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53,750
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53,750
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Owed to shareholder company, Social Play, Inc,
as remaining balance for license agreement
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83,067
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83,067
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Office space and services
are provided without charge by an officer and director of the Company. Such costs are not significant to the condensed financial
statements and, accordingly, have not been reflected therein.
Other than disclosed elsewhere in the condensed
financial statements, the only related party transaction during the six months ended June 30, 2016 and 2015 is directors’
fees of $15,000 and $15,775 respectively. During the three months ended June 30, 2016 and 2015, directors’ fees were $7,500
and $15,000 respectively.
SocialPlay USA, Inc. (formerly Artesanias Corp.)
Notes to Condensed Financial Statements
As of March 31, 2016 (unaudited)
Note 10 – Subsequent Events
The Company’s management has evaluated
subsequent events up to January 13, 2017 the date the unaudited condensed financial statements were issued, pursuant to the requirements
of ASC Topic 855 and has determined the following subsequent events:
On August 22, 2016, the Company entered into
a Severance Agreement and Mutual Release (the “Agreement”) with the former President, CEO, and director Chitan Mistry.
In connection with Mr. Mistry’s resignation, the Company paid him a severance payment in the amount of $10,000 pursuant
to the terms of the Agreement. Under the Agreement, Mr. Mistry and the company also provided mutual general releases of any liability
to one another.
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
Certain statements, other than purely historical
information, including estimates, projections, statements relating to our business plans, objectives, and expected operating results,
and the assumptions upon which those statements are based, are “forward-looking statements.” These forward-looking
statements generally are identified by the words “believes,” “project,” “expects,” “anticipates,”
“estimates,” “intends,” “strategy,” “plan,” “may,” “will,”
“would,” “will be,” “will continue,” “will likely result,” and similar expressions.
Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which
may cause actual results to differ materially from the forward-looking statements. Our ability to predict results or the actual
effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse affect on our operations
and future prospects on a consolidated basis include, but are not limited to: changes in economic conditions, legislative/regulatory
changes, availability of capital, interest rates, competition, and generally accepted accounting principles. These risks and uncertainties
should also be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements.
Management’s Discussion and Analysis
of Financial Condition and Results of Operations
Company Overview
We were incorporated in the State of Nevada
on December 31, 2013 as Artesanias Corp. Our original business plan involved distribution of the arts and crafts of the indigenous
tribes of Panama via the Internet. On January 20, 2015, we underwent a change in control when our former majority shareholder and
sole officer, Jose Soto, sold his controlling interest and resigned after appointing our current CEO and Director, Chitan Mistry,
and our former CFO and Director, Lucie Lettelier. Following the change in control, we are no longer pursuing our original business
plan.
On April 27, 2015, we entered into an Exclusive
License Agreement (the “Agreement”) with Social Play, Inc. (“Social Play”). Under the Agreement, we have
been granted the exclusive rights within the U.S. and Canada to develop, market and sell products and services based upon Social
Play’s patent-pending “SP Cloud Goods” system. SP Cloud Goods is cloud-based game hosting and management system
where video game developers can add and remove virtual goods from the game, manage players, manage virtual store pricing, and view
vital game and player statistics. Using this system, game developers can affect their games in real-time, without the need
to rebuild or republish the game. The SP Cloud Goods intellectual property also includes a system for game developers to collect
payments for virtual goods sold to players in their games, as well as a marketplace component that will allow advertisers and game
developers to choose where, when, and how advertisements are placed in games. The system will also facilitate the transfer of funds
from advertisers to game developers.
The Agreement runs for an initial term of five
(5) years, with an optional extension for an additional five years. In consideration for the license, we agreed to issue Social
Play 1,000,000 (200,000 after reverse split) shares of common stock and an additional 1,000,000 (200,000 after reverse split) shares
on each anniversary of the Agreement for so long as it is in effect. Further, we agreed to make cash payments to Social Play in
the total amount of $120,000, payable in monthly payments of not less than $20,000 until paid in full.
On August 22, 2016, the board of directors
appointed Robert Rosner as our new President, CEO, CFO and Director. Following this appointments, the board accepted the resignation
of Chitan Mistry as our former sole officer and director.
Significant Equipment
We do not intend to purchase any significant
equipment for the next twelve months.
Results of Operations
Balance Sheet – As at June 30,
2016 and December 31, 2015:
Cash
At June 30, 2016 we had cash of $340 compared
to $69 as at December 31, 2015.
Prepaid expenses
At June 30, 2016 we had prepaid expenses
of $nil compared to $26,210 as at December 31, 2015. The amount relates to the unamortized balance of the payments made in
connection with advisory services provided by consultants. The consulting contracts expired on May 26, 2016 and the entire
amount was amortized.
Accounts payable and accrued liabilities
At June 30, 2016 we had $388,050 of accounts
payable and accrued liabilities as compared to $302,955 as at December 31, 2015. The balance primarily represents $126,250 payable
to directors as consideration for their services, $83,067 payable to Social Play Inc. in connection with the license agreement,
$54,000 for advertising services, $20,385 payable to Clark Corporate Law Group for legal services, $46,277 payable to Ten West
Holdings as consideration for consulting services, $2,062 payable to Laxague Law for legal services, $1,290 payable to Globex for
transfer agent services, accrued interest of $23,625 and accrued expenses of $22,463.
Convertible promissory notes and derivative
liabilities
During the previous year, we entered into agreements
with CMGT and issued them convertible promissory notes. As of June 30, 2016, the total principal due was $292,130 ($229,180 as
of December 31, 2015) and interest accrued on these notes during the six month period ending June 30 amounted to $12,385.61 ($10,963
for the year ended December 31, 2015).
On January 11, 2016, the Company consolidated
all of its obligations to CMGT under a single Convertible Promissory Note due June 1, 2018. These amounts were accordingly reclassified
to long-term liabilities.
Statement of Operations - For the three
and six months ended June 30, 2016 and June 30, 2015 respectively:
Expenses
Three months ended June 30, 2016 and
June 30, 2015
We have not earned any revenues since our inception.
During the three months ended June 30, 2016, we incurred operating expenses of $137,042, which consisted of consulting fees for
investor relations of $97,088, legal and professional fees of $13,994, directors’ fees and other charges of $7,500, transfer
agent fees of $12,265, and other expenses of $1,195. We also incurred interest and bank charges of $17,600 and a loss on the change
in fair value of derivatives of $19,591. Our net loss for the three months ended June 30, 2016 was $174,233. By comparison, during
the three months ended June 30, 2015, we incurred operating expenses and a net loss of $939,740. Expenses during the three months
ended June 30, 2015 consisted of day one derivative loss on convertible promissory notes of $252,683, licensing fees of $630,000,
legal and professional fees of $23,503, advertising and promotion of $54,473, consulting fees in connection with investor relations
of $18,968, and directors’ fees of $15,000
Six months ended June 30, 2016 and June
30, 2015
We incurred expenses and a net loss in the
amount of $328,298 for the six months ended June 30, 2016 as compared to expense and net loss in the amount of $965,013 for the
six months ended June 30, 2015. Our expenses during the current six month period mainly consisted of consulting fees for investor
relations of $232,587 (Six months ended June 30, 2015: $18,968), legal and professional fees of $27,057 (Six months ended June
30, 2015: $45,113), directors’ fees and other charges of $15,000 (Six months ended June 30, 2015: $15,775), transfer agent
fees and stock filing charges of $13,755 (Six months ended June 30, 2015: $4,390), advertising and promotion of $5,000 (Six months
ended June 30, 2015: $54,473), and other operating expenses of $1,340 (Six months ended June 30, 2015: $12,800). We also incurred
interest and bank charges of $37,528 (Six months ended June 30, 2015: $8,127), and a loss on the change in fair value of derivatives
of $7,493 (Six months ended June 30, 2015: $77,316).
Our expenses and net loss decreased for the
three and six months ended June 30, 2016 as compared to the same period last year primarily due to day one derivative expense and
write-off of license fees contract. We anticipate our operating expenses will increase as we move toward developing more active
operations in our current line of business.
Liquidity and Capital Resources
As of June 30, 2016, we had cash of $340. Our
current liabilities as of June 30, 2016 were $388,050, consisting of $126,250 payable to directors as consideration for their services,
$83,067 payable to Social Play Inc. in connection with the license agreement, $54,000 for advertising services, $20,385 payable
to Clark Corporate Law Group for legal services, $46,277 payable to Ten West Holdings as consideration for consulting services,
$2,062 payable to Laxague Law for legal services, $1,290 payable to Globex for transfer agent services, accrued interest of $21,920
and accrued expenses of $22,463. Thus, we had a working capital deficit of $387,710 as of June 30, 2016.
Cash Used in Operating Activities
. Operating
Activities used a net $62,679 in cash for the period ended June 30, 2016, as compared to a net $128,667 for the same period last
year.
Cash Flows from Financing Activities
.
During the period ended June 30, 2016, financing activities provided $62,950 in cash, all from the issuance of convertible promissory
note obligations, as compared to $132,200 for the same period last year.
In recent months, we have relied upon financing
in the form of convertible promissory notes from CMGT, Inc. (“CMGT”). On January 11, 2016, we consolidated all of our
obligations to CMGT under a single Convertible Promissory Note due June 1, 2018 (the “Note”). The Note bears interest
at a rate of ten percent (10%) per year, with all principal and interest due on or before June 1, 2018. Under the Note, we are
obligated to pay quarterly payments of interest only commencing March 31, 2016. We may prepay the Note in whole or in part without
penalty. The Note is convertible at a price equal to sixty percent (60%) of the market price for our common stock, which is defined
as the average of the lowest three closing bid prices for our common stock in the ten trading days preceding the conversion. The
conversion price of the Note is also subject to adjustment in the event of certain stock issuances which are lower than the conversion
price otherwise in effect at the time of the conversion. In addition, CMGT’s right to convert is limited such that no conversion
can be made which would result in CMGT or its affiliates owning more than 4.99% of our issued and outstanding common stock following
the conversion. This limit may be waived at CMGT option with 61 days’ prior notice.
As of June 30, 2016, total principal due under
the Note was $292,130, and accrued interest totaled $23,625. The Note has a face value of $500,000, and additional advances to
us up to that maximum amount may be made from time to time in the discretion of CMGT.
Our ability to continue operations and to develop
our planned business will be contingent upon us obtaining additional financing through the issuance of debt or equity. The debt
and/or equity financing arrangements available to us, if any, may be insufficient to fund significant capital expenditures, working
capital, or other cash requirements. We do not have any formal commitments or arrangements for the sales of stock or the advancement
or loan of funds at this time. There can be no assurance that such additional financing will be available to us on acceptable terms,
or at all.
Going Concern
As discussed in the notes to our financial
statements, we have no established source of revenue. This has raised substantial doubt for our auditors about our ability
to continue as a going concern. Without realization of additional capital, it would be unlikely for us to continue as
a going concern.
Our activities to date have been supported
by debt and equity financing. Management continues to seek funding from its shareholders and other qualified investors.
Off Balance Sheet Arrangements
As of June 30, 2016, there were no off balance
sheet arrangements.
Critical Accounting Policies
In December 2001, the SEC requested that all
registrants list their most “critical accounting polices” in the Management Discussion and Analysis. The SEC indicated
that a “critical accounting policy” is one which is both important to the portrayal of a company’s financial
condition and results, and requires management’s most difficult, subjective or complex judgements, often as a result of the
need to make estimates about the effect of matters that are inherently uncertain. Currently, we do not believe that any accounting
policies fit this definition.
Recently Issued Accounting Pronouncements
Accounting standards that have been issued
or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the financial
statements upon adoption.
Item 4. Controls and Procedures
Evaluation of disclosure controls and procedures
.
We recently evaluated the effectiveness of
our disclosure controls and procedures, as required by paragraph (b) of Rule 13a-15 or Rule 15d-15 under the Securities Exchange
Act of 1934, as of the end of the period covered by this report, being June 30, 2016. This evaluation was conducted
with the participation of our principal executive officer and our principal accounting officer.
We maintain disclosure controls and procedures
designed to provide reasonable assurance that material information required to be disclosed by us in the reports we file or submit
under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported within
the time periods specified in the SEC’s rules and forms, and that the information is accumulated and communicated to our
management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding
required disclosure. We performed an evaluation, under the supervision and with the participation of our management, including
our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls
and procedures as of the end of the period covered by this report. Based on their evaluation, our management, including our Chief
Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures were not effective in giving
us reasonable assurance that the information we are required to disclose in the reports we file or submit under the Exchange Act
is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and to ensure
that such information is accumulated and communicated to our management, including our Principal Executive and Principal Financial
Officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. This
conclusion was based on the existence of significant deficiencies in our internal control over financial reporting mainly due to
lack of resources and number of employees.
We do not expect that our disclosure controls
and procedures will prevent all errors and all instances of fraud. Disclosure controls and procedures, no matter how well conceived
and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures
are met. Further, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and
the benefits must be considered relative to their costs. Because of the inherent limitations in all disclosure controls and procedures,
no evaluation of disclosure controls and procedures can provide absolute assurance that we have detected all our control deficiencies
and instances of fraud, if any. The design of disclosure controls and procedures also is based partly on certain assumptions about
the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under
all potential future conditions.
Management Report on internal control over financial reporting
.
Our management is responsible for establishing
and maintaining adequate internal control over our financial reporting as defined in Rule 13a-15(f) under the Exchange Act. Internal
control over financial reporting is a process to provide reasonable assurance regarding the reliability of our financial reporting
for external purposes in accordance with accounting principles generally accepted in the United States. Internal control over financial
reporting includes maintaining records that in reasonable detail accurately and fairly reflect our transactions; providing reasonable
assurance that transactions are recorded as necessary for preparation of our financial statements; providing reasonable assurance
that receipts and expenditures of our assets are made in accordance with management authorization; and providing reasonable assurance
that unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements would
be prevented or detected on a timely basis. Because of its inherent limitations, internal control over financial reporting is not
intended to provide absolute assurance that a misstatement of our financial statements would be prevented or detected.
Management conducted an evaluation of the effectiveness
of our internal control over financial reporting and identified significant deficiencies in internal control over financial reporting.
A material weakness is a deficiency, or combination
of deficiencies, in internal control over the financial reporting, such that there is a reasonable possibility that a material
misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.
A significant deficiency is a deficiency, or
a combination of deficiencies, that is less severe than a material weakness, yet important enough to merit attention by those responsible
for oversight of our financial reporting. We not believe that we have sufficient documentation with our existing financial
processes, risk assessment and internal controls. We plan to work closely with financial advisors to document the existing
financial processes, risk assessment and internal controls systematically as soon as resources are available. To address the need
for more effective internal controls, management has plans to improve the existing controls and implement new controls appropriate
to a business of its size and scale as our financial position and capital availability improves.
Although we have not identified any material
weaknesses with our financial reporting or any other significant deficiencies with our internal controls, no assurances can be
given that there are no such material weaknesses or significant deficiencies existing.
Changes in internal control over financial reporting
.
There have been no changes in our internal controls over financial
reporting that occurred during our last fiscal quarters and have materially affected or are reasonably likely to materially
affect our internal controls over financial reporting.