SPLY Socialplay USA Inc (CE)

Notes to Condensed Financial Statements

As of June 30, 2017 (unaudited)

Note 1 – Nature of Operations

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. On January 10, 2017, the former majority shareholder sold 7,082,000 restricted shares of common stock to the Company’s current President and CEO, Robert Rosner, in a private transaction. As result of this transaction, a change in control of the company occurred.

The Company has limited operations and is considered to be in the development stage.

Note 2 – Going Concern

The Company’s unaudited interim 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 has an accumulated deficit of $1,838,104 and a working capital deficit of $209,884 as of June 30, 2017 ($1,663,662 and $319,299 respectively, as at December 31, 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, 2017 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, 2016.

SocialPlay USA, Inc.

Notes to Condensed Financial Statements

As of June 30, 2017 (unaudited)

Note 3 – Summary of Significant Accounting Policies (continued)

Use of Estimates

The preparation of the interim condensed 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.

Recently Issued Accounting Standards

On May 28, 2015, the FASB issued a new financial accounting standard on revenue from contracts with customers, ASU 2015-09, “Revenue from Contracts with Customers (Topic 606)”. The standard outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance. In July 2016, the FASB voted to approve a one-year deferral of the effective date of ASU 2015-09, which will be effective for the Company in the first quarter of fiscal year 2018 and may be applied on a full retrospective or modified retrospective approach. This ASU will have no impact on the Company until it begins to generate revenue.

On April 7, 2016, the FASB issued ASU No. 2016-03, “Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs”. The amendments in this ASU require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts and the accounting for debt issue costs under IFRS. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this ASU. The amendments apply to all companies and are effective for public business entities in annual periods ending after December 15, 2016, and interim periods within those fiscal years, with early application permitted. The Company is currently evaluating the impact of this accounting standard on its financial statements.  

In July, 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2017-11 (“ASU 2017-11”), which addressed accounting for (I) certain financial instruments with down round features and (II) replacement of the indefinite deferral for mandatorily redeemable financial instruments of certain nonpublic entities and certain mandatorily redeemable non-controlling interests with a scope exception. The main provisions of Part I of ASU 2017-11 is to “change the classification analysis of certain equity-linked financial instruments (or embedded features) with down round features. When determining whether certain financial instruments should be classified as liabilities or equity instruments, a down round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity’s own stock. The amendments also clarify existing disclosure requirements for equity-classified instruments. As a result, a freestanding equity-linked financial instrument (or embedded conversion option) no longer would be accounted for as a derivative liability at fair value as a result of the existence of a down round feature. For freestanding equity classified financial instruments, the amendments require entities that present earnings per share (EPS) to recognize the effect of the down round feature when it is triggered. That effect is treated as a dividend and as a reduction of income available to common shareholders in basic EPS.” Under previous US GAAP, warrants with a down round feature are not being considered indexed to the entity’s own stock, which results in classification of the warrant as a derivative liability. Under ASU 2017-11, the down round feature qualifies for a scope exception from derivative treatment. ASU 2017-11 is effective for public companies as of December 15, 2018 and interim periods within that fiscal year. Early adoption is permitted, including adoption in an interim period, with adjustments reflected as of the beginning of the fiscal year. The Company does not have any outstanding financial instruments with down round features as of June 30, 2017.

SocialPlay USA, Inc.

Notes to Condensed Financial Statements

As of June 30, 2017 (unaudited)

Note 4 – Licensing Fees

Pursuant to Exclusive License Agreement dated May 21, 2015 with a related 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. On May 21, 2015, in consideration for the license granted hereunder, the Company issued 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 totaling $120,000 through an agreed payment schedule.

As technological feasibility has not been achieved, the Company recognizes expense at the end of each anniversary (triggering event) for the shares to be issued, the fair value of which to be determined based on the market price of the share on anniversary day as further explained in note 7 to the financial statements.

The Company has recorded 400,000 common shares to be issued and the related license fee expense as explained in Note 7.

Note 5 – Deposit for Investment

On March 11, 2017, the Company entered into a binding Letter of Intent (LOI) with a certain company. The LOI contemplates provision of an option to the Company, to purchase 100% equity of such company. The Company has made a deposit of $50,000 as the first stage in the acquisition, however, no formal and definitive acquisition agreement has been entered into yet.

On May 30, 2017, the Company entered into a binding LOI with a certain corporation. The LOI contemplates acquisition of a 33% ownership interest in the corporation for an agreed total purchase price. The Company has made a deposit of $50,000 as the first stage in the acquisition, however, no formal and definitive acquisition agreement has been entered into yet.

When the Company signs definitive acquisition agreements, the above two deposits will be treated as investments under the guidance available in US GAAP.

Note 6 – Convertible Promissory Notes and Derivative Liabilities

The outstanding convertible promissory notes as at June 30, 2017 represent obligations of the Company to CMGT Inc. (CMGT).

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. 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.

Effective February 17, 2017, the Company entered into a First Amendment to Convertible Promissory Note (the “Amendment”) with CMGT. Under the Amendment, the Company modified the conversion feature of the Note so that the conversion price for all amounts owing thereunder is now $0.10 per share of common stock. In addition, the Amendment waives the Company’s prior defaults in payment of interest under the Note in the amount of $44,289, and adds such sum to the principal balance of the Note. The Company is now required to make quarterly interest payments commencing September 30, 2017. The amendment resulted in the extinguishing of the old notes and re-issuance according to the new terms and discounts.

On April 28, 2017 the Company made an amendment on all its outstanding notes having face value of $436,141, removing all dilutive and reset provisions from these notes, therefore ending derivative treatment. The notes issued subsequent to amendment did not require derivative valuations.

SocialPlay USA, Inc.

Notes to Condensed Financial Statements

As of June 30, 2017 (unaudited) 

Note 6 – Convertible Promissory Notes and Derivative Liabilities (continued) 

Post amendment, the Company carried out beneficial conversion feature analysis of all the notes and concluded that based on the intrinsic value of these notes, 100% face value of the above notes of $558,641 were transferred to additional paid-in-capital and these notes are being amortized using an effective interest rate over the term of these notes.

The movement in convertible notes principal amount, accreted value of notes and derivative liabilities are detailed below:

The Company recognized interest expense of $3,473 during the quarter ended June 30, 2017 (June 30, 2016: $17,600). As of June 30, 2017, accrued interest was $4,736 (December 31, 2016: $27,805).

SocialPlay USA, Inc.

Notes to Condensed Financial Statements

As of June 30, 2017 (unaudited)

Effective April 28, 2017, the Company entered into a second amendment of Convertible Promissory Note. As a result of the amendment, derivative treatment has ended

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.

On March 15, 2017, the Company designated a new class of Series A Preferred Stock. Series A Preferred Stock consists of 10,000,000 shares, par value $0.001 per share. Series A Preferred stock has no stated value, ranks pari passu with our common stock upon liquidation, and has no special dividend rights. Shares of Series A Preferred Stock are convertible to common stock, at the option of the holder, at a rate of 20 shares of common stock for each share of preferred stock. Shares of Series A Preferred Stock may be voted on an as-of-converted basis on all matters submitted to the vote or consent of the holders of our common stock. The Company has not issued any shares of Series A Preferred Stock at this time.

Issued and outstanding:

During the year ended December 31, 2014, the Company issued 21,600,000 (4,320,000 after reverse split) shares of its $0.001 par value common stock in a registered public offering for total cash proceeds of $27,000.

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 interim condensed financial statements.

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.

SocialPlay USA, Inc.

Notes to Condensed Financial Statements

As of June 30, 2017 (unaudited)

Note 7 – Stockholders’ Deficiency (continued)

Issued and outstanding (continued):

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. 

On February 8, 2017, the Company agreed to issue 50,000 shares of common stock to Ten West Holdings, Inc. as consideration for corporate advisory services pursuant to agreement dated February 8, 2017 for a term of three months. The fair value of the shares amounting to $24,000 was determined based on the market price of $0.48 per share on the date of agreement. The Company recognized the entire amount as consulting expense during the period. The shares were issued on April 3, 2017.

As at June 30, 2017 and December 31, 2016, there were 11,870,003 (7,333,000 restricted shares) and 11,820,003 (7,383,000 restricted shares) (after stock split) shares of common stock respectively, issued out of the authorized 200,000,000 common shares.

Shares to be issued:

As at June 30, 2017, shares to be issued amounting to $348,000 (400,000 shares) comprise of:

During the year ended December 31, 2016, the Company recognized as expense licensing fee of $228,000 representing the fair value of additional 1,000,000 (200,000 after reverse split) shares to be issued under the agreement (as explained in Note 4) , valued at the market price of $1.14 per share.

During the period ended June 30, 2017, the Company recognized as expense licensing fee of $120,000 representing the fair value of additional 200,000 shares to be issued under the agreement (as explained in Note 4) , valued at the market price of $0.6 per share on May 19, 2017.

Note 8 – Commitment

The Company has commitment to issue 200,000 (after stock 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

Other than disclosed elsewhere in the condensed financial statements, the only related party transaction during the six months ended June 30, 2017 and 2016 is directors’ fees of $nil and $15,000 respectively. Director fees of $15,000 relate to a former director, who resigned in the previous year.

Accounts payable and accrued liabilities include the following balances, which are unsecured, non-interest bearing and have no set repayment term, owed to related parties:

SocialPlay USA, Inc.

Notes to Condensed Financial Statements

As of June 30, 2017 (unaudited)