Item 1. Business
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.
Description of Our Company
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 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.
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 these appointments, the board accepted the resignation of Chitan Mistry as our former sole officer and director.
Letter of Intent with Spot and Play, Inc.
On March 11, 2017, we entered into a binding Letter of Intent (the “LOI”) with Spot and Play, Inc. (“Spot and Play”) and its sole shareholder, Karthik Mani. Spot and Play is developing the “Spot and Pay” application, which provides a way to centralize payment or donate money using a unique business code in form of a visual code at location, or using business name if remote. The LOI contemplates our acquisition of up to 100% of Spot and Play for a total purchase price of $1,000,000. Our initial investment will consist of $300,000 in cash, to be paid for a 30% ownership interest in Spot and Play. These funds are to be paid as follows: (i) $50,000 to be paid upon execution of the LOI, (ii) an additional $100,000 to be paid upon certain development milestones for Spot and Play’s business, and no later than 15 days after the execution of a definitive agreement, and (iii) the final $150,000 upon Spot and Play’s achievement of certain additional milestones, and no later than 75 days after the execution of a definitive agreement.
Further, we will be granted the exclusive option to purchase the remaining 70% of Spot and Play to be paid as follows: (i) issuance of shares of our common stock valued at $200,000, no later than 150 days from execution of a definitive agreement, in order to purchase an additional 19% of Spot and Play, and (ii) issuance of shares of our common stock valued at $500,000, no later than 180 days from execution of a definitive agreement, in order to purchase the remaining 51% of Spot and Play. Shares issued as purchase consideration will be valued based on the five-day average trading price of our common stock immediately preceding their issuance. Shares to be issued as consideration for our acquisition of Spot and Play will be subject to a one (1) year lock-up, with certain leak-out restrictions on their re-sale thereafter. Upon our acquisition of 100% of the ownership interests in Spot and Play, Mr. Mani will be granted a royalty based on the gross profits of Spot and Play, with specific royalty terms to be negotiated. The transaction contemplated by the LOI is subject to final negotiation of a definitive agreement, requisite corporate approvals, and other conditions. Under the LOI, we have the exclusive rights, through March 31, 2017, to negotiate and conclude an acquisition agreement for Spot and Play.
Employees
Other than our officer and director, Robert Rosner, we currently have no other employees.
Compliance with Environmental Laws
We have not incurred and do not anticipate incurring any expenses associated with environmental laws.
Itlem 1A. Risk Factors
A smaller reporting company is not required to provide the information required by this Item.
Item 1B.
Item 1B. Unresolved Staff Comments
None.
Item 2.
Item 2. Properties
We do not own or lease any real property. Our sole officer and director provides office space free of charges.
Item 3.
Item 3. Legal Proceedings
We are not currently involved in any legal or administrative proceedings, and we are not aware of any pending or potential legal or administrative actions.
Item 4.
Item 4. Mine Safety Disclosures
Not applicable.
PART II
Item 5.
Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
Our common stock is currently quoted on the OTC - Pink tier of the electronic quotation system operated by OTC Markets Group, Inc. under the symbol “SPLY.”
The following table sets forth the range of high and low bid quotations for our common stock for each of the periods indicated as reported by OTC Markets Group, Inc. These quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.
As of April 13, 2017, the last trading price of our common stock was $0.85 per share
Penny Stock
The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally equity securities with a market price of less than $5.00, other than securities registered on certain national securities exchanges or quoted on the NASDAQ system, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock, to deliver a standardized risk disclosure document prepared by the SEC, that: (a) contains a description of the nature and level of risk in the market for penny stocks in both public offerings and secondary trading; (b) contains a description of the broker's or dealer's duties to the customer and of the rights and remedies available to the customer with respect to a violation of such duties or other requirements of the securities laws; (c) contains a brief, clear, narrative description of a dealer market, including bid and ask prices for penny stocks and the significance of the spread between the bid and ask price; (d) contains a toll-free telephone number for inquiries on disciplinary actions; (e) defines significant terms in the disclosure document or in the conduct of trading in penny stocks; and (f) contains such other information and is in such form, including language, type size and format, as the SEC shall require by rule or regulation. The broker-dealer also must provide, prior to effecting any transaction in a penny stock, the customer with (a) bid and offer quotations for the penny stock; (b) the compensation of the broker-dealer and its salesperson in the transaction; (c) the number of shares to which such bid and ask prices apply, or other comparable information relating to the depth and liquidity of the market for such stock; and (d) a monthly account statement showing the market value of each penny stock held in the customer's account.
In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from those rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written acknowledgment of the receipt of a risk disclosure statement, a written agreement as to transactions involving penny stocks, and a signed and dated copy of a written suitability statement.
These disclosure requirements may have the effect of reducing the trading activity for our common stock. Therefore, stockholders may have difficulty selling our securities.
Outstanding Options, Warrants or Convertible Debt
We have no outstanding options or warrants. For a description of our outstanding convertible debt, please see the discussion under Liquidity and Capital Resources.
Holders of Our Common Stock
As of April 14, 2017 there were 11,870,003 shares of our common stock issued and outstanding held by 11 stockholders of record. Our transfer agent is Globex Transfer, LLC, located at 780 Deltona Blvd., Suite 202, Deltona, FL 32725. Their telephone number is (813) 344-4490.
Dividends
There are no restrictions in our articles of incorporation or bylaws that prevent us from declaring dividends. The Nevada Revised Statutes, however, do prohibit us from declaring dividends where after giving effect to the distribution of the dividend:
1. we would not be able to pay our debts as they become due in the usual course of business, or;
2. our total assets would be less than the sum of our total liabilities plus the amount that would be needed to satisfy the rights of shareholders who have preferential rights superior to those receiving the distribution.
We have not adopted any policy regarding payment of dividends. We did not declare any dividends in the fiscal year ended December 31, 2016, and we do not plan to declare any dividends in the foreseeable future.
Securities Authorized for Issuance under Equity Compensation Plans
We have not established any equity compensation plans authorizing security issuances.
Recent sales of unregistered securities
1. On December 31, 2013, we issued a total of 3,000,000 shares of $0.001 par value common stock to Jose Soto, founder and former sole officer and former sole director, for a total amount of $20,000 in cash.
2. During the last quarter of 2015, we issued 200,000 shares of common stock, valued at $510,000, pursuant to the Exclusive License Agreement (the “Agreement”) with Social Play, Inc. regarding the “SP Cloud Goods” system.
3. On February 17, 2016, we issued 50,000 shares of common stock to Ten West Holding, Inc. as compensation under a Corporate Advisory Services Agreement.
4. On April 15, 2016, we issued 50,000 shares of common stock to Ten West Holding, Inc. as compensation under a Corporate Advisory Services Agreement.
5. On April 4, 2017, we issued 50,000 shares of common stock to Ten West Holding, Inc. as compensation under a Corporate Advisory Services Agreement.
6. As discussed in Liquidity and Capital Resources herein, we have issued a series of Convertible Promissory Notes to CMGT, Inc. (“CMGT”), each of which has been consolidated into a new Convertible Promissory Note issued January 11, 2016.
Each of the issuances set forth above did not involve any public offering of securities and was exempt from registration under Section 4(2) of the Securities Act.
Item 6.
Item 6. Selected Financial Data
As a “smaller reporting company,” as defined in Rule 12b-2 of the Exchange Act, we are not required to provide the information called for by this Item.
Item 7.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Results of Operations for the Years Ended December 31, 2016 and 2015
We have not earned any revenues since our inception. During the fiscal year ended December 31, 2016, we incurred operating expenses of $338,360, which consisted of legal and professional fees of $44,188, advertising and promotion of $5,000, consulting fees for investor relations of $245,087, transfer agent fees of $19,339, directors’ fees and other charges of $15,000, and other operating expenses of $9,746. In addition, we incurred a gain as a result of forgiveness of debt of $62,500, interest and bank charges of $29,170, accretion of discount on convertible notes of $52,512, licensing fee of $228,000, a gain on extinguishment of debt of $11,462, and a loss on change in the fair value of derivatives in the amount of $18,819. Our net loss for the year ended December 31, 2016 was $592,899.
During the fiscal year ended December 31, 2015, we incurred operating expenses of $369,680, which consisted of legal and professional fees of $77,821, advertising and promotion of $56,473, consulting fees for investor relations of $96,690, transfer agent fees of $5,830, directors’ fees and other charges of $111,250, and other operating expenses of $21,616. In addition, we incurred interest and bank charges of $11,526, accretion of discount on convertible notes of $47,549, a day-one derivative loss on convertible notes of $252,683, licensing fees of $630,000, and a gain on change in the fair value of derivatives in the amount of $292,325. Our net loss for the year ended December 31, 2015 was $1,019,113.
Our results of operations for the fiscal year ended December 31, 2016 and December 31, 2015 relate to the development of our current business. 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
At December 31, 2016, we had cash of $2,865. Our total current liabilities as of December 31, 2016, were $322,164, and consisted of accounts payable of $127,956, accrued liabilities of $60,391 and payable to related parties of $133,817. We had negative working capital of $319,299 as of December 31, 2016. Long term liabilities comprised convertible promissory notes net of discount in the amount of $107,629, and derivative liabilities of $318,234.
At December 31, 2015, we had $26,279 in current assets, consisting of cash in the amount of $69 and prepaid expenses of $26,210. Our total current liabilities as of December 31, 2015, were $540,042, and consisted of accounts payable of $85,562 and accrued liabilities of $23,076, payable to related parties of $194,317 convertible promissory notes net of discount in the amount of $58,829, and derivative liabilities of $178,258. We had negative working capital of $513,763 as of December 31, 2015. We had no long term liabilities as of December 31, 2015.
Cash Used in Operating Activities. Operating Activities used $107,654 in cash for the fiscal year ended December 31, 2016. Operating Activities used $235,655 in cash for the fiscal year ended December 31, 2015.
Cash Flows from Financing Activities. During the year ended December 31, 2016, financing activities provided $110,450 in cash, all from the issuance of convertible promissory notes. During the year ended December 31, 2015, financing activities provided $229,180 in cash, all from the issuance of convertible promissory notes.
In 2015, we relied upon financing in the form of Convertible Promissory Notes (the “Notes”) from CMGT, Inc. (“CMGT”). Each of the Notes bears interest at a rate of ten percent (10%) per year, with the principal and accrued interest being due one year from the date of issue. We may prepay the Notes in whole or in part without penalty. The Notes are 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 Notes 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.
On January 11, 2016, we consolidated all of our obligations to CMGT under a single Convertible Promissory Note due June 1, 2018 (the “Consolidated Note”). The Consolidated Note allows conversion of all amounts owed to CMGT under same terms as the original Notes as outlined above. Under the Consolidated Note, we are obligated to pay quarterly payments of interest only commencing March 31, 2016, with all principal and interest due on or before June 1, 2018. Further, the Consolidated 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.
As of April 14, 2017, we had received the advances under from CMGT, each of which is covered by the Consolidated Note. :
Subsequent to the reporting period, on February 17, 2017, the Company entered into a First Amendment to Convertible Promissory Note with CMGT, Inc. Under the Amendment, the Company has 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. All other terms of the original Note remain in full force and effect.
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.
Off Balance Sheet Arrangements
As of December 31, 2016, there were no off balance sheet arrangements.
Going Concern
Our financial statements have been prepared assuming that we will continue as a going concern which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. We have incurred a loss of $592,899 for the fiscal year ended December 31, 2016 and have not yet developed a reliable source of revenue. To date, we have been dependent on funding operations through the sale of debt and equity securities. These conditions raise substantial doubt about our ability to continue as a going concern. The financial statements do not include any adjustment relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should we be unable to continue as a going concern.
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 judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.
At this time, we do not have any accounting policies which we believe meet this definition.
Recently Issued Accounting Pronouncements
In March 2016, the Company adopted the accounting pronouncement issued by the FASB to update guidance on how companies account for certain aspects of share-based payments to employees. This pronouncement is effective for fiscal years beginning after December 15, 2016, and interim periods within those years, with early adoption permitted. This guidance requires all income tax effects of awards to be recognized in the income statement when the awards vest or are settled and changes the presentation of excess tax benefits on the statement of cash flows. The Company adopted these provisions on a prospective basis. In addition, this pronouncement changes guidance on: (a) accounting for forfeitures of share-based awards and (b) employers’ accounting for an employee’s use of shares to satisfy the employer’s statutory income tax withholding obligation. The adoption of this pronouncement did not have a material impact on the Company’s consolidated financial position and/or results of operations.
In February 2016, an accounting pronouncement was issued by the FASB to replace existing lease accounting guidance. This pronouncement is intended to provide enhanced transparency and comparability by requiring lessees to record right-of-use assets and corresponding lease liabilities on the balance sheet for most leases. Expenses associated with leases will continue to be recognized in a manner similar to current accounting guidance. This pronouncement is effective for annual and interim periods beginning after December 15, 2018, with early adoption permitted. The adoption is required to be applied on a modified retrospective basis for each prior reporting period presented. The Company has not yet determined the effect that the adoption of this pronouncement may have on the consolidated financial position and/or results of operations.
On January 1, 2016, the Company adopted the accounting pronouncement issued by the FASB which eliminates the requirement that an acquirer in a business combination account for measurement-period adjustments retrospectively. Instead, an acquirer will recognize a measurement-period adjustment during the period in which it determines the amount of the adjustment. The adoption of this pronouncement did not have a material impact on the consolidated financial position and/or results of operations.
On January 1, 2016, the Company adopted the accounting pronouncement issued by the FASB to update the guidance related to the presentation of debt issuance costs. This guidance requires debt issuance costs, related to a recognized debt liability, be presented in the balance sheet as a direct deduction from the carrying amount of the related debt liability rather than being presented as an asset. The Company adopted this pronouncement on a retrospective basis, and the adoption did not have a material impact on the consolidated financial position and/or results of operations.
In November 2015, an accounting pronouncement was issued by the FASB to simplify the presentation of deferred income taxes within the balance sheet. This pronouncement eliminates the requirement that deferred tax assets and liabilities are presented as current or noncurrent based on the nature of the underlying assets and liabilities. Instead, the pronouncement requires all deferred tax assets and liabilities, including valuation allowances, be classified as noncurrent. This pronouncement is effective for fiscal years beginning after December 15, 2016, with early adoption permitted. The Company intends to adopt this pronouncement on January 1, 2017, and the adoption will not have a material impact on the consolidated financial position and/or results of operations.
Item 7A.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
As a “smaller reporting company,” as defined in Rule 12b-2 of the Exchange Act, we are not required to provide the information called for by this Item.
Item 8.
Item 8. Financial Statements and Supplementary Data
Index to Financial Statements Required by Article 8 of Regulation S-X:
SRCO Professional Corporation
Chartered Professional Accountants
Licensed Public Accountants
Park Place Corporate Centre
Wertheim Court, Suite 409
Richmond Hill, ON L4B 3H7
Tel: 905 882 9500 & 416 671 7292
Fax: 905 882 9580
Email: info@srco.ca
www.srco.ca
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
SocialPlay USA, Inc.
We have audited the accompanying balance sheets of SocialPlay USA, Inc. (the “Company”) as of December 31, 2016 and 2015, and the related statements of operations, stockholders’ deficiency, and cash flows for each of the years in the two-year period ended December 31, 2016. The Company’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatements. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2016 and 2015, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2016, in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the financial statements, the Company has incurred recurring losses from operations and has an accumulated deficit that raise substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Richmond Hill, Canada
April 17, 2017
/s/ SRCO Professional Corporation
CHARTERED PROFESSIONAL ACCOUNTANTS
Authorized to practise public accounting by the
Chartered Professional Accountants of Ontario
SocialPlay USA, Inc.
BALANCE SHEETS
See accompanying notes
SocialPlay USA, Inc.
STATEMENTS OF OPERATIONS
See accompanying notes
SocialPlay USA, Inc.
STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
See accompanying notes
SocialPlay USA, Inc.
STATEMENT OF CASH FLOWS
See accompanying notes
SocialPlay USA, Inc.
Notes to Financial Statements
As of December 31, 2016
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.
The Company has limited operations and is considered to be in the development stage.
2. BASIS OF PRESENTATION
The summary of significant accounting policies presented below is designed to assist in understanding the Company’s financial statements. Such financial statements and accompanying notes are the representations of the Company’s management, who are responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States of America (“GAAP”) in all material respects, and have been consistently applied in preparing the accompanying financial statements.
3. GOING CONCERN
The Company’s financial statements are prepared using GAAP 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 revenue sufficient to cover its operating costs. The Company had an accumulated deficit of $1,663,662 and a working capital deficit of $319,299 as of 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.
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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.
Notes to Financial Statements
As of December 31, 2016
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand and on deposit at banking institutions as well as all highly liquid short-term investments with original maturities of 90 days or less. The Company did not have cash equivalents as of December 31, 2016 and 2015.
Concentration of Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash. The Company places its cash with high quality banking institutions. The Company did not have cash balances in excess of the Federal Deposit Insurance Corporation limit as of December 31, 2016.
Income Taxes
The Company provides for federal and provincial income taxes payable, as well as for those deferred because of the timing differences between reporting income and expenses for financial statement purposes versus tax purposes. Under ASC 740, “Income Taxes,” deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Valuation allowances are established when it is more likely than not that some or all of the deferred tax assets will not be realized. As of December 31, 2016, there were no deferred taxes due to the uncertainty of the realization of net operating loss or carry forward prior to expiration.
Loss Per Common Share
The Company has adopted the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) Topic 260-10 which provides for calculation of “basic” and “diluted” earnings per share. Basic loss per common share excludes dilution and is computed by dividing net loss by the weighted average number of common shares outstanding during the period. Diluted loss per common share reflect the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the loss of the entity. As of December 31, 2016, there are no outstanding dilutive securities.
Convertible Notes Payable and Derivative Instruments
The Company accounts for conversion options embedded in convertible notes in accordance with ASC 815. ASC 815 generally requires companies to bifurcate conversion options embedded in convertible notes from their host instruments and to account for them as free standing derivative financial instruments. ASC 815 provides for an exception to this rule when convertible notes, as host instruments, are deemed to be conventional, as defined by ASC 815-40.
The Company accounts for convertible notes deemed conventional and conversion options embedded in non-conventional convertible notes which qualify as equity under ASC 815, in accordance with the provisions of ASC 470-20, which provides guidance on accounting for convertible securities with beneficial conversion features. Accordingly, the Company records, as a discount to convertible notes, the intrinsic value of such conversion options based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note. Debt discounts under these arrangements are amortized over the term of the related debt.
Valuation of Derivatives
The Company evaluates its convertible instruments to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for under ASC Topic 815, “Derivatives and Hedging.” The result of this accounting treatment is that the fair value of the derivative is marked-to-market each balance sheet date and recorded as a liability. In the event that the fair value is recorded as a liability, the change in fair value is recorded in the statement of operations as other income (expense). Upon conversion or exercise of a derivative instrument, the instrument is marked to fair value at the conversion date and then that fair value is reclassified to equity. Equity instruments that are initially classified as equity that become subject to reclassification under ASC Topic 815 are reclassified to liabilities at the fair value of the instrument on the reclassification date. The Company analyzed the derivative financial instruments (the Convertible Notes), in accordance with ASC 815. The objective is to provide guidance for determining whether an equity-linked financial instrument is indexed to an entity’s own stock. This determination is needed for a scope exception which would enable a derivative instrument to be accounted for under the accrual method. The classification of a non-derivative instrument that falls within the scope of ASC 815-40-05 “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock” also hinges on whether the instrument is indexed to an entity’s own stock. A non-derivative instrument that is not indexed to an entity’s own stock cannot be classified as equity and must be accounted for as a liability. There is a two-step approach in determining whether an instrument or embedded feature is indexed to an entity’s own stock. First, the instrument's contingent exercise provisions, if any, must be evaluated, followed by an evaluation of the instrument's settlement provisions. The Company utilized multinomial lattice models that value the derivative liability within the notes based on a probability weighted discounted cash flow model. The Company utilized the fair value standard set forth by the Financial Accounting Standards Board, defined as the amount at which the assets (or liability) could be bought (or incurred) or sold (or settled) in a current transaction between willing parties, that is, other than in a forced or liquidation sale.
The derivative liabilities result in a reduction of the initial carrying amount (as unamortized discount) of the Convertible Notes. This derivative liability is marked-to-market each quarter with the change in fair value recorded in the income statement. Unamortized discount is amortized to interest expense using the effective interest method over the life of the Convertible Note. If the Note is converted or the warrants are exercised, the derivative liability is released and recorded as additional paid in capital.
SocialPlay USA, Inc.
Notes to Financial Statements
As of December 31, 2016
Fair Value of Financial Instruments
Accounting Standards Codification Topic 820 “Fair Value Measurements and Disclosures” (“ASC 820”) defines fair value, establishes a framework for measuring fair value and expands required disclosure about fair value measurements of assets and liabilities. ASC 820-10 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820-10 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:
Level 1 - Valuation based on quoted market prices in active markets for identical assets or liabilities.
Level 2 - Valuation based on quoted market prices for similar assets and liabilities in active markets.
Level 3 - Valuation based on unobservable inputs that are supported by little or no market activity, therefore requiring management’s best estimate of what market participants would use as fair value.
In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.
Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management. The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values due to the short-term nature of these instruments or interest rates that are comparable to market rates. These financial instruments include cash, accounts payable and accrued liabilities and convertible promissory notes. The Company’s bank accounts are maintained with financial institutions of reputable credit, and therefore, bear minimal credit risk and are carried at amortized costs which approximates the fair value.
Contingencies
The Company is not currently a party to any pending or threatened legal proceedings. Based on information currently available, management is not aware of any matters that would have a material adverse effect on the Company’s financial condition, results of operations or cash flows.
SocialPlay USA, Inc.
Notes to Financial Statements
As of December 31, 2016
5. RECENT ACCOUNTING PRONOUNCEMENTS
Recently Issued Accounting Standards
In March 2016, the Company adopted the accounting pronouncement issued by the FASB to update guidance on how companies account for certain aspects of share-based payments to employees. This pronouncement is effective for fiscal years beginning after December 15, 2016, and interim periods within those years, with early adoption permitted. This guidance requires all income tax effects of awards to be recognized in the income statement when the awards vest or are settled and changes the presentation of excess tax benefits on the statement of cash flows. The Company adopted these provisions on a prospective basis. In addition, this pronouncement changes guidance on: (a) accounting for forfeitures of share-based awards and (b) employers’ accounting for an employee’s use of shares to satisfy the employer’s statutory income tax withholding obligation. The adoption of this pronouncement did not have a material impact on the Company’s consolidated financial position and/or results of operations.
In February 2016, an accounting pronouncement was issued by the FASB to replace existing lease accounting guidance. This pronouncement is intended to provide enhanced transparency and comparability by requiring lessees to record right-of-use assets and corresponding lease liabilities on the balance sheet for most leases. Expenses associated with leases will continue to be recognized in a manner similar to current accounting guidance. This pronouncement is effective for annual and interim periods beginning after December 15, 2018, with early adoption permitted. The adoption is required to be applied on a modified retrospective basis for each prior reporting period presented. The Company has not yet determined the effect that the adoption of this pronouncement may have on the consolidated financial position and/or results of operations.
On January 1, 2016, the Company adopted the accounting pronouncement issued by the FASB which eliminates the requirement that an acquirer in a business combination account for measurement-period adjustments retrospectively. Instead, an acquirer will recognize a measurement-period adjustment during the period in which it determines the amount of the adjustment. The adoption of this pronouncement did not have a material impact on the consolidated financial position and/or results of operations.
On January 1, 2016, the Company adopted the accounting pronouncement issued by the FASB to update the guidance related to the presentation of debt issuance costs. This guidance requires debt issuance costs, related to a recognized debt liability, be presented in the balance sheet as a direct deduction from the carrying amount of the related debt liability rather than being presented as an asset. The Company adopted this pronouncement on a retrospective basis, and the adoption did not have a material impact on the consolidated financial position and/or results of operations.
In November 2015, an accounting pronouncement was issued by the FASB to simplify the presentation of deferred income taxes within the balance sheet. This pronouncement eliminates the requirement that deferred tax assets and liabilities are presented as current or noncurrent based on the nature of the underlying assets and liabilities. Instead, the pronouncement requires all deferred tax assets and liabilities, including valuation allowances, be classified as noncurrent. This pronouncement is effective for fiscal years beginning after December 15, 2016, with early adoption permitted. The Company intends to adopt this pronouncement on January 1, 2017, and the adoption will not have a material impact on the consolidated financial position and/or results of operations.
SocialPlay USA, Inc.
Notes to Financial Statements
As of December 31, 2016
6. 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. 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 totaling $120,000 to the third party through an agreed payment schedule.
As technological feasibility was not achieved, during the year ended December 31, 2015 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.
Further, 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, valued at the market price of $1.14 per share.
7. CONVERTIBLE PROMISSORY NOTES
The outstanding convertible promissory notes as at December 31, 2016 represent obligations of the Company to CMGT Inc. (CMGT). The movement in this obligation is as follows:
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.
Notes to Financial Statements
As of December 31, 2016
7. CONVERTIBLE PROMISSORY NOTES (continued)
The details of the convertible promissory notes issued are as follows:
As of December 31, 2016, total principal due under the Note was $351,497, and accrued interest totaled $28,990 (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 in 2015 are as follows:
Details of the advances under the convertible promissory note issued in 2016 are as follows:
Interest expense for the year ended December 31, 2016 recognized on these convertible promissory notes amounts to $28,990 included in interest and bank charges in the statements of operations ($11,867 - year ended December 31, 2015).
SocialPlay USA, Inc.
Notes to Financial Statements
As of December 31, 2016
8. 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.
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:
SocialPlay USA, Inc.
Notes to Financial Statements
As of December 31, 2016
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.
9. 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:
During the year ended December 31, 2014, the Company sold 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 financial statements have been retrospectively adjusted for all periods presented to reflect the effect of the 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 6 to the 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.
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.
As at December 31, 2016 and December 31, 2015, there were 11,820,003 and 11,720,000 shares of common stock, respectively, issued out of the authorized 200,000,000 common shares.
10. RELATED PARTY TRANSACTIONS
On April 27, 2015, the Company entered into an Exclusive License Agreement (the “License 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.
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.
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:
Office space and services are provided without charge by an officer and director of the Company. Such costs are not significant to the 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 years ended December 31, 2016 and 2015 were fees charged by directors amounting to $15,000 and $111,250, respectively.
SocialPlay USA, Inc.
Notes to Financial Statements
As of December 31, 2016
11. FORGIVENESS OF DEBT
On August 22, 2016, the Company entered into a severance and mutual release agreement with a former President, CEO and Director. The Company made a severance payment in the amount of $10,000 and both the Company and the former President provided mutual general releases of any liability. As a result of the said agreement, the amount of $62,500 owed to the former President was written back.
12. INCOME TAXES
Income taxes
The provision for income taxes differs from that computed at US corporate tax rate of approximately 35% (2014: 35%) as follows:
Deferred tax assets
Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
Net deferred tax assets consist of the following components as of December 31, 2016:
At December 31, 2016, the Company had net operating loss carryforwards of approximately $1,663,662 (2015: $1,070,763) that may be offset against future taxable income from the year 2017 to 2037. No tax benefit has been reported in the December 31, 2016 financial statements since the potential tax benefit is offset by a valuation allowance of the same amount.
SocialPlay USA, Inc.
Notes to Financial Statements
As of December 31, 2016
13. 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 6 to the financial statements.
14. SUBSEQUENT EVENTS
The Company’s management has evaluated subsequent events up to April 17, 2017 the date the financial statements were issued, pursuant to the requirements of ASC Topic 855 and has determined the following subsequent events:
On January 10, 2017, the former majority shareholder sold 7,082,000 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.
On February 17, 2017, the Company entered into a First Amendment to Convertible Promissory Note with CMGT, Inc. Under the Amendment, the Company has 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. All other terms of the original Note remain in full force and effect.
On March 11, 2017, the Company entered into a binding Letter of Intent (the “LOI”) with Spot and Play, Inc. (“Spot and Play”) and its sole shareholder, Karthik Mani. Spot and Play is developing the “Spot and Pay” application, which provides a way to centralize payment or donate money using a unique business code in form of a visual code at location, or using business name if remote. The LOI contemplates the acquisition of up to 100% of Spot and Play for a total purchase price of $1,000,000. The initial investment will consist of $300,000 in cash, to be paid for a 30% ownership interest in Spot and Play.
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.
On April 3, 2017, the Company issued 50,000 shares of common stock to Ten West Holdings, Inc. as consideration for corporate advisory services pursuant to agreement dated February 8, 2017. All services are to be performed by May 7, 2017.
Item 9.
Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure
No events occurred that require disclosure under Item 307 and 308 of Regulation S-K during the fiscal year ending December 31, 2016.
Item 9A.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We conducted 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. The term “disclosure controls and procedures”, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934, as amended (“Exchange Act”), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by the company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures also include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective for the year ended December 31, 2016.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The internal controls for the Company are provided by executive management’s review and approval of all transactions. Our internal control over financial reporting also includes those policies and procedures that:
(1) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;
(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP, and that our receipts and expenditures are being made only in accordance with the authorization of our management; and
(3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management conducted an evaluation of the effectiveness of internal control over financial reporting based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that the Company’s internal control over financial reporting was not effective as of December 31, 2016.
This was due to deficiencies that existed in the design or operation of our internal controls over financial reporting that adversely affected our internal controls and that may be considered to be material weaknesses.
The matters involving internal controls and procedures that our management considered to be material weaknesses under the standards of the Public Company Accounting Oversight Board were: (i) lack of a functioning audit committee due to a lack of a majority of independent members and a lack of a majority of outside directors on our board of directors, resulting in ineffective oversight in the establishment and monitoring of required internal controls and procedures; (ii) inadequate segregation of duties consistent with control objectives; and (iii) ineffective controls over period end financial disclosure and reporting processes. The aforementioned material weaknesses were identified by our President in connection with the review of our financial statements as of December 31, 2016.
Management believes that the lack of a functioning audit committee results in ineffective oversight in the establishment and monitoring of required internal controls and procedures, which could result in a material misstatement in our financial statements in future periods.
There were no changes in our internal control over financial reporting during the year ended December 31, 2016, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to an exemption for non-accelerated filers set forth in Section 989G of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
Item 9B.
Item 9B. Other Information
None.
PART III
Item 10.
Item 10. Directors, Executive Officers and Corporate Governance
The following information sets forth the names, ages, and positions of our current directors and executive officers as of April 14, 2017.
Set forth below is a brief description of the background and business experience of each of our current executive officers and directors.
Robert Rosner was appointed our President, Chief Executive Officer and Director on August 22, 2016. From September 2011 to the present, Mr. Rosner has served as President, CEO and Secretary of Lyynks Inc., a North Hollywood, California based software development firm. From August of 2003 through May of 2011, Mr. Rosner served as President, CEO, and a Director of Watair, Inc., and atmospheric water technology firm. From June of 1996 through March of 2003, he was President and a Director of Fortuna Silver Mines Inc., a precious metals mining company listed on the TSX and NYSE exchanges Mr. Rosner has twenty-three continuous years acting as an officer and/or director of numerous U.S. and Canadian public companies, serving primarily in the reporting compliance, oversight and fiduciary capacities, as well as directing corporate activities. He is proficient with all aspects of SEC and Canadian Securities rules and regulations, including filing and reporting requirements with both EDGAR and SEDAR. His public company executive and management experience spans the software development and social media sectors, natural resources and oil and gas, as well as high tech and consumer goods. Mr. Rosner has authored sales and marketing books, and developed and led sales leadership training programs.
Directors
The Company’s Bylaws provide that our number of directors shall be determined by resolution of the board of directors. We currently have one (1) directors
Family Relationships
There are no family relationships between or among the directors, executive officers or persons nominated or chosen by the Company to become directors or executive officers.
Other Key Personnel
Other than our officers and directors, we currently have no other significant employees.
Involvement in Certain Legal Proceedings
To the best of our knowledge, during the past ten years, none of the following occurred with respect to our present or former director, executive officer, or employee: (1) any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time; (2) any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); (3) being subject to any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his or her involvement in any type of business, securities or banking activities; and (4) being found by a court of competent jurisdiction (in a civil action), the SEC or the Commodities Futures Trading
Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended or vacated.
Term of Office
Our Directors are appointed for a one year term to hold office until the next annual general meeting of our shareholders or until removed from office in accordance with our bylaws. Our officers are appointed by our board of directors and hold office until removed by the board.
Committees of the Board
Audit Committee
We do not have a separately-designated standing audit committee. The entire Board of Directors performs the functions of an audit committee, but no written charter governs the actions of the Board when performing the functions of what would generally be performed by an audit committee. The Board approves the selection of our independent accountants and meets and interacts with the independent accountants to discuss issues related to financial reporting. In addition, the Board reviews the scope and results of the audit with the independent accountants, reviews with management and the independent accountants our annual operating results, considers the adequacy of our internal accounting procedures and considers other auditing and accounting matters including fees to be paid to the independent auditor and the performance of the independent auditor. Our Board of Directors, which performs the functions of an audit committee, does not have a member who would qualify as an “audit committee financial expert” within the definition of Item 407(d)(5)(ii) of Regulation S-K.
Compensation Committee
We do not have a separately-designated standing compensation committee. The entire Board of Directors performs the functions of a compensation committee, but no written charter governs the actions of the Board when performing the functions of what would generally be performed by a compensation committee.
Code of Ethics
As of December 31, 2016, we had not adopted a Code of Ethics for Financial Executives, which would include our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions.
Item 11.
Item 11. Executive Compensation
Compensation Discussion and Analysis
We presently do not have employment or compensation agreements with any of our named executive officers and have not established any overall system of executive compensation or any fixed policies regarding compensation of executive officers. We are currently in the process of developing a compensation system, to include both cash and the issuance of stock, for our executive officers.
The following tables set forth certain information about compensation paid, earned or accrued for services by our President and all other executive officers (collectively, the “Named Executive Officers”) in the fiscal years ended December 31, 2016, and 2015:
Summary Compensation Table
The table below summarizes all compensation awarded to, earned by, or paid to each named executive officer for our last two completed fiscal years ended December 31, 2016 and 2015, for all services rendered to us.
Narrative Disclosure to the Summary Compensation Table
During the fiscal year ended December 31, 2016, our executive officers earned the compensation set forth above. Due to cash constraints, we were unable to pay the salaries earned, and they have been included in our accounts payable and accrued liabilities.
Stock Option Grants
We have not granted any stock options to the executive officers since our inception.
Outstanding Equity Awards at Fiscal Year-End
The table below summarizes all unexercised options, stock that has not vested, and equity incentive plan awards for each named executive officer as of December 31, 2016.
Director Compensation
The table below summarizes all compensation of our directors as of the fiscal year ended December 31, 2016.
Narrative Disclosure to the Director Compensation Table
Our directors do not currently receive any compensation from the Company for their service as members of the Board of Directors of the Company.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The following table lists, as of April 14, 2017, the number of shares of common stock of our Company that are beneficially owned. The percentages below are calculated based on 11,870,003 shares of our common stock issued and outstanding as of April 14, 2017.
(1) As used in this table, "beneficial ownership" means the sole or shared power to vote, or to direct the voting of, a security, or the sole or shared investment power with respect to a security (i.e., the power to dispose of, or to direct the disposition of, a security). In addition, for purposes of this table, a person is deemed, as of any date, to have "beneficial ownership" of any security that such person has the right to acquire within 60 days after such date.
Item 13.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Except as set forth below, none of our directors or executive officers, nor any proposed nominee for election as a director, nor any person who beneficially owns, directly or indirectly, shares carrying more than 5% of the voting rights attached to all of our outstanding shares, nor any members of the immediate family (including spouse, parents, children, siblings, and in-laws) of any of the foregoing persons has any material interest, direct or indirect, in any transaction since our incorporation or in any presently proposed transaction which, in either case, has or will materially affect us.
1. Office space and services are provided without charge by our sole officer and director.
2. During the last quarter of 2015, we issued 200,000 shares of common stock, valued at $510,000, pursuant to the Exclusive License Agreement (the “Agreement”) with Social Play, Inc. regarding the “SP Cloud Goods” system.
3. Our accounts payable and accrued liabilities as of December 31, 2016 include the following balances owed to related parties:
Director Independence
We are not a “listed issuer” within the meaning of Item 407 of Regulation S-K and there are no applicable listing standards for determining the independence of our directors. Applying the definition of independence set forth in Rule 4200(a)(15) of The Nasdaq Stock Market, Inc., we do not believe that we currently have any independent directors.
Item 14.
Item 14. Principal Accounting Fees and Services
Below is the table of Audit Fees (amounts in US$) billed by our auditor in connection with the audit of the Company’s annual financial statements for the years ended:
PART IV
Item 15.
Item 15. Exhibits, Financial Statements Schedules
(a) Financial Statements and Schedules
The following financial statements and schedules listed below are included in this Form 10-K.
Financial Statements (See Item 8)
(b) Exhibits
Exhibit Number Description
3.1 Articles of Incorporation (1)
3.2 Certificate of Amendment to Articles of Incorporation(4)
3.3 Bylaws(1)
3.4 Certificate of Designation for Series A Preferred Stock(6)
10.1 Exclusive License Agreement with Social Play, Inc.(2)
10.2 Investor Relations Consulting Agreement with Robert Farrill(3)
10.3 Investor Relations Consulting Agreement with DMM Enterprise, LLC(3)
10.4 Convertible Promissory Note with CMGT, Inc.(5)
10.5* Corporate Advisory Services Agreement - Ten West Holding Inc.
10.6 Letter of Intent re: Spot and Pay, Inc.(6)
10.7 First Amendment to Convertible Promissory Note with CMGT, Inc.(7)
31.1* Certification of Chief Executive Officer pursuant to Securities Exchange Act Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2* Certification of Chief Financial Officer pursuant to Securities Exchange Act Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1* Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101** Materials from the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 formatted in Extensible Business Reporting Language (XBRL)
(1) Incorporated by reference to Registration Statement on Form S-1 filed February 4, 2014
(2) Incorporated by reference to Current Report on Form 8-K filed May 21, 2015
(3) Incorporated by reference to Current Report on Form 8-K filed June 12, 2015
(4) Incorporated by reference to Current Report on Form 8-K filed July 2, 2015
(5) Incorporated by reference to Current Report on Form 8-K filed April 12, 2016
(6) Incorporated by reference to Quarterly Report on Form 10-Q filed March 31, 2017
(7) Incorporated by reference to Current Report on Form 8-K filed February 27, 2017
* Filed herewith
** These interactive data files are deemed “furnished” and not “filed.”
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SocialPlay USA, Inc.
By: /s/ Robert Rosner
Robert Rosner
Chief Executive Officer, Principal Executive Officer, Chief Financial Officer, Principal Financial Officer, Principal Accounting Officer, and sole Director
Date: April 17, 2017
In accordance with Section 13 or 15(d) of the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
By: /s/ Robert Rosner
Robert Rosner
Chief Executive Officer, Principal Executive Officer, Chief Financial Officer, Principal Financial Officer, Principal Accounting Officer, and sole Director
Date: April 17, 2017