In this report, unless otherwise specified, all dollar amounts are expressed in United States dollars
and all references to “common stock” refer to the common shares in our capital stock. As used in this report, the terms
“we”, “us”, “our”, the “Company”, “Strategic”, and “SIII”
mean Strategic Internet Investments, Incorporated, unless otherwise indicated.
Our financial statements are stated in United States dollars (US$) and are prepared in accordance
with United States Generally Accepted Accounting Principles.
This report contains forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements relate to future
events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may”,
“should”, “expects”, “plans”, “anticipates”, “believes”, “estimates”,
“predicts”, “potential” or “continue” or the negative of these terms or other comparable terminology.
These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks
in the section entitled “Risk Factors” and the risks set out below, any of which may cause our or our industry’s
actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity,
performance or achievements expressed or implied by these forward-looking statements.
This list is not an exhaustive list of the factors that may affect any of our forward-looking statements.
These and other factors should be considered carefully and readers should not place undue reliance on our forward-looking statements.
The Company intends that such forward-looking statements be subject to the Safe Harbors for such
statements. Forward looking statements are made based on management’s beliefs, estimates and opinions on the date the
statements are made and we undertake no obligation to update forward-looking statements if these beliefs, estimates and opinions
or other circumstances should change. Although we believe that the expectations reflected in the forward-looking statements
are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by
applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements
to conform these statements to actual results.
STRATEGIC INTERNET INVESTMENTS, INCORPORATED
BALANCE SHEETS
(
Expressed in U.S. Dollars
)
(
Unaudited
)
|
|
September 30,
2016
|
|
|
December 31,
2015
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current:
|
|
|
|
|
|
|
Cash
|
$
|
84
|
|
$
|
14,630
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
$
|
84
|
|
$
|
14,630
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ DEFICIT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current:
|
|
|
|
|
|
|
Accounts payable
|
$
|
100,930
|
|
$
|
84,123
|
|
Accounts payable - related parties
|
|
23,737
|
|
|
20,727
|
|
Accrued interest
|
|
14,732
|
|
|
10,106
|
|
Accrued interest - related parties
|
|
587,530
|
|
|
514,760
|
|
Convertible loan payable
|
|
50,000
|
|
|
50,000
|
|
Loans
payable - related parties
|
|
366,084
|
|
|
333,751
|
|
Convertible notes payable - related parties
|
|
418,975
|
|
|
418,975
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES
|
|
1,561,988
|
|
|
1,432,442
|
|
|
|
|
|
|
|
|
Commitments
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
Stockholders’ deficit:
|
|
|
|
|
|
|
Capital Stock
|
|
|
|
|
|
|
Class A Convertible Preferred stock,
$0.001 par value 10,000,000 shares authorized, 198,000 shares issued and outstanding at September 30, 2016 and December 31, 2015
|
|
198
|
|
|
198
|
|
Class B Preferred stock, $0.001 par value
10,000,000 shares authorized, none outstanding
|
|
-
|
|
|
-
|
|
Common stock, $0.001 par value 100,000,000
shares authorized 40,359,391 shares issued and outstanding at September 30, 2016 and December 31, 2015
|
|
40,359
|
|
|
40,359
|
|
Additional paid-in capital
|
|
12,156,359
|
|
|
12,156,359
|
|
Accumulated deficit
|
|
(13,758,820
|
)
|
|
(13,614,728
|
)
|
|
|
|
|
|
|
|
TOTAL STOCKHOLDERS’ DEFICIT
|
|
(1,561,904
|
)
|
|
(1,417,812
|
)
|
|
|
|
|
|
|
|
TOTAL STOCKHOLDERS’ DEFICIT AND LIABILITIES
|
$
|
84
|
|
$
|
14,630
|
|
The accompanying notes are an integral part of these unaudited financial statements.
STRATEGIC INTERNET INVESTMENTS, INCORPORATED
INTERIM STATEMENTS OF OPERATIONS
(
Expressed in U.S. Dollars
)
(
Unaudited
)
|
|
Three months ended
September 30,
|
|
|
Nine months ended
September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and Administrative Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounting and audit fees
|
$
|
6,162
|
|
$
|
5,722
|
|
$
|
31,731
|
|
$
|
32,934
|
|
Communications
|
|
4,740
|
|
|
-
|
|
|
4,740
|
|
|
-
|
|
Consulting fees
|
|
-
|
|
|
25,000
|
|
|
-
|
|
|
34,000
|
|
Legal fees (recovery)
|
|
15,393
|
|
|
(5,761
|
)
|
|
15,866
|
|
|
(5,250
|
)
|
Management fees
|
|
2,100
|
|
|
4,000
|
|
|
4,100
|
|
|
52,000
|
|
Office and general
|
|
786
|
|
|
332
|
|
|
986
|
|
|
6,658
|
|
Regulatory fees
|
|
1,101
|
|
|
2,104
|
|
|
5,562
|
|
|
9,527
|
|
Rent
|
|
-
|
|
|
2,913
|
|
|
-
|
|
|
5,826
|
|
Transfer agent fees
|
|
600
|
|
|
430
|
|
|
1,350
|
|
|
1,515
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
(30,882
|
)
|
|
(34,740
|
)
|
|
(64,335
|
)
|
|
(137,210
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
(26,631
|
)
|
|
(24,106
|
)
|
|
(77,396
|
)
|
|
(69,870
|
)
|
Gain (loss) on foreign exchange
|
|
825
|
|
|
3,271
|
|
|
(2,361
|
)
|
|
11,479
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
$
|
(56,688
|
)
|
$
|
(55,575
|
)
|
$
|
(144,092
|
)
|
$
|
(195,601
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per share
|
$
|
(0.00
|
)
|
$
|
(0.00
|
)
|
$
|
(0.00
|
)
|
$
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding
|
|
40,359,391
|
|
|
40,359,391
|
|
|
40,359,391
|
|
|
38,841,076
|
|
The accompanying notes are an integral part of these unaudited financial statements.
STRATEGIC INTERNET INVESTMENTS, INCORPORATED
INTERIM STATEMENTS OF CASH FLOWS
(
Expressed in U.S. Dollars
)
(
Unaudited
)
|
|
Nine months ended
September 30,
|
|
|
|
2016
|
|
|
2015
|
|
Operating Activities
|
|
|
|
|
|
|
Net loss
|
$
|
(144,092
|
)
|
$
|
(195,601
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
Unrealized foreign exchange loss (gain)
|
|
1,011
|
|
|
(3,749
|
)
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
Accounts payable
|
|
16,807
|
|
|
5,684
|
|
Accounts payable - related party
|
|
3,010
|
|
|
(70,807
|
)
|
Accrued interest
|
|
4,626
|
|
|
4,229
|
|
Accrued interest - related party
|
|
72,770
|
|
|
65,640
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
(45,868
|
)
|
|
(194,604
|
)
|
|
|
|
|
|
|
|
Financing Activities
|
|
|
|
|
|
|
Proceeds from related party
advances
|
|
31,322
|
|
|
-
|
|
Proceeds from issuance of common stock
|
|
-
|
|
|
240,000
|
|
Repayment of loans - related party
|
|
-
|
|
|
(22,945
|
)
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
31,322
|
|
|
217,055
|
|
|
|
|
|
|
|
|
Change in cash during the period
|
|
(14,546
|
)
|
|
22,451
|
|
|
|
|
|
|
|
|
Cash, beginning of the period
|
|
14,630
|
|
|
1,324
|
|
|
|
|
|
|
|
|
Cash, end of the period
|
$
|
84
|
|
$
|
23,775
|
|
|
|
|
|
|
|
|
Supplementary disclosure of cash flows:
|
|
|
|
|
|
|
Cash paid for Interest
|
$
|
-
|
|
$
|
-
|
|
Cash paid for Taxes
|
$
|
-
|
|
$
|
-
|
|
The accompanying notes are an integral part of these unaudited financial statements.
STRATEGIC INTERNET INVESTMENTS, INCORPORATED
NOTES TO THE INTERIM FINANCIAL STATEMENTS
September 30, 2016
(
Expressed in U.S. Dollars
)
(
Unaudited
)
|
The accompanying unaudited interim financial statements have been prepared by the Company pursuant to the rules and regulations of the United States Securities and Exchange Commission. Certain information and disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, all adjustments and disclosures necessary for a fair presentation of these financial statements have been included. Such adjustments consist of normal recurring adjustments. These interim financial statements should be read in conjunction with the annual audited financial statements of the Company for the fiscal year ended December 31, 2015 included in the Company’s 10-K Annual Report as filed with the United States Securities and Exchange Commission.
|
|
The results of operations for the period ended September 30, 2016 are not indicative of the
results that may be expected for the full year.
|
|
These financial statements have been prepared in accordance with generally accepted accounting principles
applicable to a going concern, which assumes that the Company will be able to meet its obligations and continue its operations
for its next fiscal year. Realization values may be substantially different from carrying values as shown and these financial statements
do not give effect to adjustments that would be necessary to the carrying values and classification of assets and liabilities should
the Company be unable to continue as a going concern. At September 30, 2016, the Company had not yet achieved profitable operations,
has an accumulated deficit of $13,758,820 since its inception, has a working capital deficiency of $1,561,904 and expects to incur
further losses in the development of its business, all of which casts substantial doubt about the Company’s ability to continue
as a going concern. Management anticipates that it requires approximately $128,000 over the twelve months ended September 30, 2017
to continue operations as well as the Company estimates it will accrue related interest expenses of $98,000 over the next 12 months
on loans due to related parties. In addition to funding the Company’s general, administrative and corporate expenses the
Company is obligated to address its current obligations totalling $1,561,988. To the extent that cash needs are not achieved from
operating cash flow and existing cash on hand, the Company will be required to raise necessary cash through shareholder loans,
equity issuances and/or other debt financing. Amounts raised will be used to continue the development of the Company's investment
activities, and for other working capital purposes.
|
|
The Company’s ability to continue as a going concern is dependent upon its ability to generate future
profitable operations and/or to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal
business operations when they come due. Management has no formal plan in place to address this concern but considers that the Company
will be able to obtain additional funds by equity financing and/or related party advances; however there is no assurance of additional
funding being available. The Company has historically satisfied its capital needs primarily by issuing equity securities. Management
plans to continue to provide for its capital needs during the twelve months ended September 30, 2017, by issuing equity securities
and/or related party advances.
|
STRATEGIC INTERNET INVESTMENTS, INCORPORATED
NOTES TO THE INTERIM FINANCIAL STATEMENTS
September 30, 2016
(
Expressed in U.S. Dollars
)
(
Unaudited
)
3.
|
Convertible Loan Payable
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
Loan payable, plus accrued interest of $14,732 (2015 - $10,106), pursuant to a Convertible Loan Agreement. The loan is unsecured, bearing interest at 10% per annum and is repayable on demand. At any time, the lender may convert the principle amount of the loan into units of the Company, each unit consisting of one common share and one non-transferable share purchase warrant, at a conversion rate of $0.20 per unit. Each share purchase warrant entitles the holder to purchase one additional common share for a period of two years from the warrant issue date, at an exercise price of $0.20 during the first year, and $0.35 during the second year. Upon conversion of this loan, the $42,000 fair value of the warrants will be recognized as an interest expense and credited to additional paid-in capital.
|
|
$
|
50,000
|
|
$
|
50,000
|
|
STRATEGIC INTERNET INVESTMENTS, INCORPORATED
NOTES TO THE INTERIM FINANCIAL STATEMENTS
September 30, 2016
(
Expressed in U.S. Dollars
)
(
Unaudited
)
4.
|
Loans and Convertible Loans Payable – related parties
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
a)
|
Loan payable to a company controlled by a director of the Company plus accrued interest of $19,686 (2015 - $17,437). The loan is unsecured, bearing interest at 12% per annum and is repayable on demand.
|
|
$
|
6,802
|
|
$
|
6,802
|
|
|
|
|
|
|
|
|
|
|
b)
|
Loans payable to a company controlled by a director of the Company. The loans are unsecured, non-interest bearing, and repayable upon demand.
|
|
|
325,855
|
|
|
325,030
|
|
|
|
|
|
|
|
|
|
|
c)
|
Loans payable to a company controlled by a former director of the Company. The loans are unsecured, non-interest bearing, and repayable upon demand.
|
|
|
7,405
|
|
|
1,919
|
|
|
|
|
|
|
|
|
|
|
d)
|
Loans payable to a director of the Company. The loans are unsecured, non-interest bearing, and repayable upon
demand.
|
|
|
26,022
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total Loans Payable - related parties
|
|
$
|
366,084
|
|
$
|
333,751
|
|
|
|
|
|
|
|
|
|
|
a)
|
Loan payable to a company controlled by a former director of the Company, plus accrued interest payable of
$226,741 (2015 - $198,835), pursuant to a Convertible Loan Agreement. The loan is unsecured, bearing interest at 10% per annum
and is repayable on demand. The lender may at anytime convert the principal sum into units of the Company. Each unit will consist
of one common share plus one common share purchase warrant. Each warrant is exercisable for a period of 2 years from the date of
conversion at a price ranging from $0.05 to $0.23. The principal sum of $163,766 may be converted into 2,320,858 units. Conversion
of these loans and resulting associated warrants to equity will be based on the conversion price set at the time the principal
amount was drawn ranging from $0.05 to $0.23. Upon conversion of this loan, the $73,685 fair value of the warrants will be recognized
as an interest expense and credited to additional paid-in capital.
|
|
$
|
163,766
|
|
$
|
163,766
|
|
|
|
|
|
|
|
|
|
|
b)
|
Loan payable to a company controlled by a director of the Company, plus accrued interest of $341,103 (2015
- $298,488), pursuant to a Convertible Loan Agreement. The loan is unsecured, bearing interest at 10% per annum and is repayable
on demand. The lender may at anytime convert the principal sum into units of the Company. Each unit will consist of one common
share plus one common share purchase warrant. Each warrant is exercisable for a period of 2 years from the date of conversion at
a price ranging from $0.05 to $0.12. The principal sum of $255,209 may be converted into 4,526,436 units. Conversion of this loan
and resulting associated warrants to equity will be based on the conversion price set at the time the principal amount was drawn
ranging from $0.05 to $0.12. Upon conversion of this loan, the $113,338 fair value of the warrants will be recognized as an interest
expense and credited to additional paid-in capital.
|
|
|
255,209
|
|
|
255,209
|
|
|
|
|
|
|
|
|
|
|
Total Convertible Notes Payable - related parties
|
|
$
|
418,975
|
|
$
|
418,975
|
|
STRATEGIC INTERNET INVESTMENTS, INCORPORATED
NOTES TO THE INTERIM FINANCIAL STATEMENTS
September 30, 2016
(
Expressed in U.S. Dollars
)
(
Unaudited
)
|
During the nine months ended September 30, 2016, the Company did not issue any common
shares (2015: issued 3,500,000 common shares for proceeds of $240,000).
|
|
The Company’s board of directors approved a stock option plan. Under the plan directors, employees and consultants may be granted options to purchase common stock of the Company at a price of not less than 100% of the fair market value of the stock. The total number of options granted must not exceed 15% of the outstanding common stock of the Company. The plan expires on July 1, 2017.
|
|
No options were granted and no compensation expense was recorded during the periods ended
September 30, 2016 and 2015.
|
|
The fair value of each option grant was estimated on the date of the grant using the Black-Scholes option valuation model. The Black-Scholes option valuation model requires the input of highly subjective assumptions including the expected price volatility. Changes in the subjective input assumptions can materially affect the fair value estimate and therefore the Black-Scholes model does not necessarily provide a reliable single measure of the fair value of the Company’s share purchase options.
|
|
As at September 30, 2016, the Company had share purchase options outstanding as
follows:
|
|
Expiry Date
|
Exercise Price
|
Remaining Contractual Life
|
Number of Options
|
|
|
|
|
|
|
October 15, 2017
|
$0.10
|
1.04 years
|
1,200,000
|
|
January 16, 2018
|
$0.12
|
1.30 years
|
2,940,000
|
|
|
|
|
|
|
Total options outstanding
|
|
1.22 years
|
4,140,000
|
|
At September 30, 2016, all of the outstanding share purchase options were
exercisable.
|
6.
|
Related Party Transactions
|
|
At September 30, 2016, accounts payable includes $23,737 due to a director, to a former
director, and a company controlled by a director of the Company, in respect of unpaid management fees, expenses incurred on
behalf of the Company, and operating costs paid on behalf of the Company.
|
|
At September 30, 2016, accrued interest includes $587,530 due to companies controlled by a
director and a former director of the Company.
|
|
During the period ended September 30, 2016, the Company paid or accrued, to two directors,
management fees of $4,100.
|
STRATEGIC INTERNET INVESTMENTS, INCORPORATED
NOTES TO THE INTERIM FINANCIAL STATEMENTS
September 30, 2016
(
Expressed in U.S. Dollars
)
(
Unaudited
)
On
August 9, 2016, SIII entered into a Securities Purchase Agreement (the “Kayu Agreement”) to acquire 60% of the issued
capital stock Kayu Tekstil Sanayi Ve Ticaret Limited Sirketi (“Kayu”), a Turkish company, from Najibi Investment Trading
FZC (hereinafter “Najibi”), G7 Entertainment Incorporated, (hereinafter “G7”), Royaltun General Trading
LLC., (hereinafter “Royaltun”), and Soha Investment Inc., (hereinafter “Soha) (jointly hereinafter the “Shareholders”).
In consideration for the Kayu shares, the Company agreed to issue convertible debentures in the amount of $30,205,939 to the Shareholders
of Kayu. This is a non-arm’s length transaction as Mr. Abbas Salih is a Director and Officer, as well as the controlling
shareholder, of SIII and has an ownership interest in and/or control of the Shareholders. Kayu has an agreement to acquire the
Skytower Hotel Atayol in Akcakoca, Turkey (the “Skytower Property”), subject to the successful discharge of a debt
on the Skytower Property and the transfer of title to Kayu.
Upon discharge of the debt on the Skytower Property, the Company will
issue convertible debentures in the amount of $12,656,768 to Najibi, a Company that settled the existing debt on the Skytower Property.
Upon transfer of the Skytower Property title to Kayu, the Company will
issue convertible debentures in the amount of $20,137,293 to a shareholder of Kayu to acquire the remaining 40% of the capital
stock of Kayu. Upon completion of these transactions, SIII will own 100% of Kayu.
The Company has the right to terminate
the agreements to acquire the issued capital stock of Kayu and cancel the associated convertible debentures if the vendors do not
complete certain closing conditions. As of the filing date, the closing conditions in the Kayu agreement have not yet been met,
and the convertible debentures have not been issued to the Shareholders.
The above mentioned convertible debentures have the following
terms:
|
b)
|
Mature on December 31, 2021 (the “Maturity Date”).
|
|
c)
|
At any time prior to the Maturity Date, the convertible debenture holder may convert the debenture into common stock of the
Company at a price of $1.00 per share.
|
|
d)
|
The convertible debenture will automatically convert into common stock upon the closing price of the Company’s common
stock closing above $1.00 per share for 20 consecutive trading days.
|
The Company has not yet determined the accounting treatment
for the above mentioned series of transactions.
|
Subsequent to September 30, 2016:
|
|
|
|
AkCenter
|
|
a)
|
In July 2016, the Company entered into an agreement to acquire 100% of the issued capital
stock of PG Proje Geliştirme Gayrimenkul A.S. (“PG Proje”), a Turkish company that is the owner of
the AkCenter Shopping Center in Ankara, Turkey (the “AkCenter”). In consideration for the PG Proje
shares, the Company will issue convertible debentures in the amount of $66,000,000 to the shareholders of the PG
Proje shares. This is a non-arm’s length transaction as Mr. Abbas Salih is a Director and Officer, as
well as the controlling shareholder, of SIII and indirectly owned a minority interest in PG Proje.
|
|
b)
|
In July 2016, the Company entered into an agreement with Pivotek-Akun-Alpinsaat JV
(“Pivotek”) to complete certain property renovations on the AkCenter. In consideration for the property
renovations, the Company will issue convertible debentures in the amount of $4,400,000 to Pivotek.
|
|
c)
|
In July 2016, the Company entered into an agreement with Retail Square Gayrimenkul
Yatrimlari Ve Danişmanlik S.A. (“Retail Square”) to act as the property manager of the AkCenter. In
consideration for providing the property management services for a period of two years, the Company will issue
convertible debentures in the amount of $1,400,000 to Retail Square.
|
|
d)
|
In November 2016, the Company, PG Proje, Pivotek, and Retail Square,
mutually agreed to terminate their respective agreements and cancel the associated convertible debentures due to the inability
to complete certain closing conditions.
|
|
|
|
|
Marriott:
|
|
|
|
|
|
|
|
a)
|
In August 2016, the Company entered into agreements to acquire 50% of the issued capital stock of Par-San
Turizm A.S. (“Par-San”), a Turkish company that is the owner of a Marriott Renaissance Hotel in Izmir, Turkey (the
“Marriott”). In consideration for the Par-San shares, the Company agreed to issue convertible debentures in the amount
of $44,365,532 to Najibi Investment Trading FZC, G7 Entertainment Incorporated, SOHA Investment & Partners, and Royaltun General
Trading L.L.C. (collectively “Shareholders”), the shareholders of Par-San.
|
|
|
|
|
b)
|
On October 14, 2016, the Company and the Shareholders mutually agreed to terminate their agreements and cancel
the associated convertible debentures. At the same time, the Company and the Shareholders entered into new agreements to acquire
50% of the issued capital stock of Par-San. In consideration for the Par-San shares, the Company agreed to issue convertible debentures
in the amount of $47,400,000 to the Shareholders. This is a non-arm’s length transaction as Mr. Abbas Salih is a Director
and Officer, as well as the controlling shareholder, of SIII and has an ownership interest in and/or control of the Shareholders.
The closing the new agreement is subject to certain conditions, which have not yet been met. The Company has the right to terminate
the new agreements and cancel the associated debentures if the closing conditions are not met in a reasonable amount of time.
|
All of the above mentioned convertible debentures have the following terms:
|
|
b)
|
Mature on December 31, 2021 (the “Maturity Date”).
|
|
c)
|
At any time prior to the Maturity Date, the convertible debenture holder may convert the debenture into common stock of the Company at a price of $1.00 per share.
|
|
d)
|
The convertible debenture will automatically convert into common stock upon the closing price of the Company’s common stock closing above $1.00 per share for 20 consecutive trading days.
|
The Company has not yet determined the accounting treatment for the above mentioned series of transactions.
2. Management’s Discussion and Analysis of Financial Condition
and Results of Operations
The following discussion should be read in conjunction with our unaudited interim financial statements
and the related notes that appear elsewhere in this quarterly report. The following discussion contains forward-looking statements
that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward looking
statements. Factors that could cause or contribute to such differences include those discussed below and elsewhere in this annual
report.
Our unaudited interim financial statements are stated in United States dollars and are prepared
in accordance with United States generally accepted accounting principles (“GAAP”).
The Company is in the development stage, accordingly certain matters discussed herein are based
on potential future circumstances and developments, which the Company anticipates, but which cannot be assured.
Plan of Operation
The Company has been devoting its business efforts to real estate development projects located in
Europe and the Middle East. The Company will continue to explore new investment opportunities, including real estate development
projects, during its 2016 and 2017 fiscal years.
AkCenter Shopping Center
On July 18, 2016 SIII entered into an agreement to acquire 100% of the issued capital stock of
PG Proje Geliştirme Gayrimenkul A.S. (“PG Proje”), a Turkish company that is the owner of the AkCenter Shopping
Center in Ankara, Turkey (the “AkCenter”). In consideration for the PG Proje shares, the Company agreed to issue convertible
debentures in the amount of $66,000,000 to the shareholders of PG Proje. This is a non-arm’s length transaction as Mr. Abbas
Salih is a Director and Officer, as well as the controlling shareholder, of SIII and indirectly owned a minority interest in PG
Proje.
In July 2016, the Company entered
into an agreement with Pivotek-Akun-Alpinsaat JV (“Pivotek”) to complete certain property renovations on the AkCenter.
In consideration for the property renovations, the Company agreed to issue convertible debentures in the amount of $4,400,000 to
Pivotek.
In July 2016, the Company entered
into an agreement with Retail Square Gayrimenkul Yatrimlari Ve Danişmanlik S.A. (“Retail Square”) to act as the
property manager of the AkCenter. In consideration for providing the property management services for a period of two years, the
Company agreed to issue convertible debentures in the amount of $1,400,000 to Retail Square.
In November 2016, the Company, PG
Proje, Pivotek, and Retail Square, mutually agreed to terminate their respective agreements and cancel the associated convertible
debentures due to the inability to complete certain closing conditions.
Skytower Hotel Atayol
On August 9, 2016, SIII entered
into a Securities Purchase Agreement (the “Kayu Agreement”) to acquire 60% of the issued capital stock Kayu Tekstil
Sanayi Ve Ticaret Limited Sirketi (“Kayu”), a Turkish company, from Najibi Investment Trading FZC (hereinafter “Najibi”),
G7 Entertainment Incorporated, (hereinafter “G7”), Royaltun General Trading LLC., (hereinafter “Royaltun”),
and Soha Investment Inc., (hereinafter “Soha) (jointly hereinafter the “Shareholders”). In consideration for
the Kayu shares, the Company agreed to issue convertible debentures in the amount of $30,205,939 to the Shareholders of Kayu. This
is a non-arm’s length transaction as Mr. Abbas Salih is a Director and Officer, as well as the controlling shareholder, of
SIII and has an ownership interest in and/or control of the Shareholders. Kayu has an agreement to acquire the Skytower Hotel Atayol
in Akcakoca, Turkey (the “Skytower Property”), subject to the successful discharge of a debt on the Skytower Property
and the transfer of title to Kayu.
Upon discharge of the debt on the
Skytower Property, the Company will issue convertible debentures in the amount of $12,656,768 to Najibi, a Company that settled
the existing debt on the Skytower Property.
Upon transfer of the Skytower Property
title to Kayu, the Company will issue convertible debentures in the amount of $20,137,293 to a shareholder of Kayu to acquire the
remaining 40% of the capital stock of Kayu. Upon completion of these transactions, SIII will own 100% of Kayu.
The Company has the right to terminate
the agreements to acquire the issued capital stock of Kayu and cancelled the associated debentures if the shareholders do not complete
certain closing conditions. As of the filing date, the closing conditions in the Kayu agreement of not yet been met, and the convertible
debentures have not been issued to the shareholders.
Any additional funding that maybe
required to complete the Skytower Property transaction has not yet been fully secured, there can be no assurances the transactions
will proceed and SIII management cautions investors of this risk.
Marriott Renaissance Izmir Hotel
On August 30, 2016, the Company
entered into Securities Purchase Agreements (“SPAs”) with Najibi Investment Trading FZC, G7 Entertainment Incorporated,
SOHA Investment & Partners, and Royaltun General Trading L.L.C. (the “Investors”). These SPAs were entered into
in connection with the acquisition of 50% of the stock of Par-San Turizm Anonim Sirketi (“Par-San”), which owns the
Marriott Renaissance Izmir Hotel in Izmir, Turkey (the “Marriott”). The Investors are related parties to our Chief
Executive Officer and Director, Abbas Salih, as a result of Mr. Salih’s ownership interest in and/or control of the Investors.
Pursuant to the SPAs, we
will issue convertible debentures (“Debentures”) equal to 50% of the difference between $65 million minus
the approximately $23,731,064 million debt owed to T.C. Ziraat Bankasi A.S. (the “Ziraat Bank Debt”). In exchange
for these Debentures, the Investors will transfer their 50% ownership in Par-San to the Company. In addition, the
Company will issue a Debenture in the amount of $23,731,064 to Najibi Investment Trading FZC in exchange for Najibi
Investment Trading FZC agreeing to pay the Ziraat Bank Debt in full.
On October 14, 2016, the Company
and the Investors entered into a Securities Exchange Agreement whereby they agreed to cancel the original SPAs and the Debentures
and enter into new SPAs (the “New SPAs”) for the issuance of new, amended Debentures (the “New Debentures”)
in the principal amount of $47,400,000.
Under the New SPAs, the Company
and the Investors agreed that the closing of the purchase of 50% of Par-San (the “Closing”) will occur upon the delivery
of certain documents and the occurrence of other events, the most important of which are:
-
Payment in full of the Ziraat Bank Debt
and written confirmation thereof
-
Release of all liens on the Marriott hotel
-
Transfer of 50% of the stock of Par-San
to the Company
-
Payment of $3,000,000 to the Company for
working capital
If the Ziraat Bank Debt is not satisfied
within a reasonable amount of time, as determined by the Company, the Company can cancel the New SPAs.
In preparation for Closing, the
Company has executed the New Debentures; however, they are not binding obligations of the Company until all closing conditions
are satisfied or waived by the Company.
The Company is working diligently
toward Closing and intends to close the above transactions as soon as possible.
Any funding that maybe required to complete the Marriott
hotel transaction has not yet been fully secured, there can be no assurances the transaction will proceed and SIII management cautions
investors of this risk.
Our estimated cash expenses over
the next twelve months are as follows, not including any impact of the prior transactions closing:
|
Accounting, audit, and legal fees
|
$
|
40,000
|
|
|
General and administrative expenses
|
|
7,000
|
|
|
Interest
|
|
6,000
|
|
|
Management fees
|
|
55,000
|
|
|
Regulatory and transfer agent fees
|
|
14,000
|
|
|
Rent
|
|
6,000
|
|
|
|
$
|
128,000
|
|
The Company also estimates it will continue to accrue interest expense of $98,000 over the next
12 months on loans due to related parties. It is not anticipated the related party interest will be paid in cash during 2016, and
therefore related party interest has been excluded from the above list of cash expenses.
The Company has not yet determined
a cash operating budget for the Skytower or Marriott hotel properties.
To date we have funded our operations
primarily with loans from shareholders and issue new equity. In addition to funding the Company’s general, administrative
and corporate expenses the Company is obligated to address its current obligations totalling $1,561,988. To the extent that cash
needs are not achieved from operating cash flow and existing cash on hand, the Company will be required to raise necessary cash
through shareholder loans, equity issuances and/or other debt financing. Amounts raised will be used to continue the development
of the Company's investment activities, and for other working capital purposes, which may be dilutive to existing shareholders.
The Company currently has no agreement in place to raise funds for current liabilities and no guarantee can be given that we will
be able to raise funds for this purpose on terms acceptable to the company. Failure to raise funds for general, administrative
and corporate expenses and current liabilities could result in a severe curtailment of the Company’s operations.
Any progress in the real estate
development strategy set-out herein will require additional funds. These funds may be raised through equity financing, debt financing
or other sources which may result in further dilution of the shareholders percentage ownership in the company. See “Future
Financing” below.
Results of Operations
Three Months ended September 30, 2016 and 2015
During the quarter ended September
30, 2016, the Company incurred general and administrative expenses totaling $30,882 compared to $34,740 during the same period
of the previous year.
The volume of transactions and
business activities has changed little compared to the prior year. The significant changes in our expenses for the three month
period ended September 30, 2016 when compared to the three month period ended September 30, 2015 was primarily due to:
a)
|
Accounting and audit fees increased $440.
|
b)
|
Communications expenses increased $4,740 in the 2016 period compared to the 2015 period. This is due to several
news releases issued by the Company in 2016, while no news released were issued in 2015.
|
c)
|
Consulting fees relate to two agreements entered into in June 2015 with two consultants engaged to provide
the Company with business development services. The fees for the September 30, 2015 period were $25,000; there were no similar
agreements in the comparative 2016 period.
|
d)
|
Legal fees relate primarily to the preparation of agreements and related documents in connection with the
share acquisitions of the above mentioned Turkish based investments during the September 30, 2016 period. There were no similar
transactions in the comparative 2015 period. In the comparative 2015 period, legal fees from a previous year were over-estimated
by $6,000. This charge was reversed in the September 30, 2015 period, resulting in a net recovery of $5,761. Actual legal fees
incurred during the September 30, 2015 period were $239.
|
e)
|
Management fees relate to a director engaged in October 2012 to provide general management and administrative
services. This director was remunerated by fees of $20 per hour for time spent directly managing the Company’s affairs; he
charged the Company $1,000 in the three month period ending September 30, 2016 and $1,000 in the three month period ending September
30, 2015.
|
|
In addition, in January 2013, the Company agreed to pay another director/officer a periodic management stipend.
During the period ended September 30, 2016 this director was paid $1,100 compared to $3,000 in the 2015 period.
|
f)
|
Office and general expense relates to costs in a workplace shared with a related company. These shared costs
include secretarial services, office supplies, printing, photocopier, parking, and telephone expenses. These expenses increased
$454 in 2016 compared to 2015.
|
g)
|
Regulatory fees relate to charges by EDGAR (USA) and SEDAR (Canada) regulatory filing service providers for
making submissions to the regulatory authorities, as well as fees paid to the regulators themselves. Regulatory fees for the 2015
period was $1,003 higher because in 2016 the Company is no longer required to make regulatory filings in Canada.
|
h)
|
Rent is for office space where the Company is sub-letting an office along with a related company. There were
no charges in the 2016 period.
|
i)
|
Interest on loans increased by $2,525; this is attributed to the compounding effect of the quarterly interest
calculation as the Company has not been making any payments on these debts.
|
Nine
Months ended September 30, 2016 and 2015
During the nine months ended September
30, 2016, the Company incurred general and administrative expenses totaling $64,335 compared to $137,210 during the same period
of the previous year.
The significant changes in our
expenses for the nine month period ended September 30, 2016 when compared to the nine month period ended September 30, 2015 was
primarily due to:
a)
|
The 2016 accounting and audit fees decreased $1,203
due
to lower charges by the Company’s auditors for the 2015 year-end audit and 2016 quarterly reviews.
|
b)
|
Communications expenses increased $4,740 in the 2016 period compared to the 2015 period. This is due to several
news releases issued by the Company in 2016, while no news released were issued in 2015.
|
c)
|
Consulting fees relate to two agreements entered into in June 2015 with two consultants engaged to provide
the Company with business development services. The fees for the September 30, 2015 period were $34,000; there were no similar
agreements in the comparative 2016 period.
|
d)
|
Legal fees relate primarily to the preparation of agreements and related documents in connection with the share
acquisitions of the above mentioned Turkish based investments during the September 30, 2016 period. There were no similar transactions
in the comparative 2015 period. In the comparative 2015 period, legal fees from a previous year were over-estimated by $6,000.
This charge was reversed in the September 30, 2015 period, resulting in a net recovery of $5,250. Actual legal fees incurred during
the September 30, 2015 period were $750.
|
e)
|
Management fees relate to a director engaged in October 2012 to provide general management and administrative
services. This director was remunerated by fees of $20 per hour for time spent directly managing the Company’s affairs; he
charged the Company $3,000 in each of the nine month periods ending September 30, 2016 and 2015.
|
|
In addition, in January 2013, the Company agreed to pay another director/officer a periodic management stipend.
During the period ended September 30, 2016, this director was paid $1,100 compared to $49,000 in the 2015 period.
|
f)
|
Office and general expense relates to costs in a workplace shared with a related company. These shared costs
include secretarial services, office supplies, printing, photocopier, parking, and telephone expenses. The related company was
paid $5,670 in 2015; there were no similar agreements in the comparative 2016 period.
|
g)
|
Rent is for office space where the Company is sub-letting an office along with a related company. Rent in
the amount of $5,826 was paid in the September 30, 2015 nine month period. There were no similar charges in the comparative 2016
period.
|
h)
|
Regulatory fees relate to charges by EDGAR (USA) and SEDAR (Canada) regulatory filing service providers for
making submissions to the regulatory authorities, as well as fees paid to the regulators themselves. Regulatory fees for the 2015
period was $3,965 higher because in 2016 the Company is no longer required to make regulatory filings in Canada.
|
i)
|
Interest on loans increased by $7,526; this is attributed to the compounding effect of the quarterly interest calculation as the Company has not been making any payments on these debts.
|
Funding for operating and investing activities was provided by both non-interest and interest bearing
advances and loans from related parties, including directors of the Company, and companies controlled by these directors; plus
loans and equity investments from third parties.
Liquidity and Capital Resources
As of September 30, 2016, the
Company had total current assets of $84 and total liabilities of $1,561,988. The Company had cash of $84 and a working capital
deficiency of $1,561,904 as of September 30, 2016 compared to cash on hand of $14,630 and a working capital deficiency of $1,417,812,
for the year ended December 31, 2015. We anticipate that we will incur approximately $128,000 for cash operating expenses, including
professional, legal and accounting expenses associated with our reporting requirements under the Exchange Act during the next twelve
months. The Company has not yet determined a cash operating budget for the potential transaction for the Marriott and/or the Skytower
properties.
In addition to funding the Company’s
general, administrative and corporate expenses the Company is obligated to address its current obligations totaling $1,561,988.
To the extent that cash needs are not achieved from operating cash flow and existing cash on hand, the Company will be required
to raise necessary cash through shareholder loans, equity issuances and/or other debt financing. Amounts raised will be used to
continue the development of the Company's investment activities, and for other working capital purposes. Accordingly, we will need
to obtain additional financing in order to continue our planned business activities.
Cash used in operating
activities for the period ended September 30, 2016 was $45,868 as compared to cash used by operating activities for the same period
in 2015 of $194,604. The decrease in cash used in operating activities was primarily due to a $70,807 reduction in accounts
payable to related parties in the 2015 period, whereas there was no similar reduction in the 2016 period. Cash used in operating
activities also decreased due to decreases in consulting fees, management fees, office and general expenses, rent, and regulatory
fees.
The Company has the following loans
outstanding as of September 30, 2016:
A $7,405 loan is payable to a company
controlled by a former director of the Company. This loan is unsecured, non-interest, and is repayable on demand.
A $26,022 loan is payable to a director
of the Company. This loan is unsecured, non-interest, and is repayable on demand.
A $163,766 loan is payable to a
company controlled by a former director of the Company, plus accrued interest payable of $226,741 pursuant to a Convertible Loan
Agreement. The loan is unsecured, bearing interest at 10% per annum and is repayable on demand. The lender may at anytime convert
the principal sum into units of the Company. Each unit will consist of one common share plus one common share purchase warrant.
The principal sum of $163,766 may be converted into 2,320,858 units. Conversion of these loans and resulting associated warrants
to equity will be based on the conversion price set at the time the principal amount was drawn ranging from $0.05 to $0.23.
A
$50,000 loan payable, plus accrued interest of $14,732, pursuant to a Convertible Loan Agreement. This loan is unsecured, bearing
interest at 10% per annum, and is repayable on demand. At any time, the lender may convert the principle amount of the loan into
units of the Company, each unit consisting of one common share and one non-transferable share purchase warrant, at a conversion
rate of $0.20 per unit. Each share purchase warrant entitles the holder to purchase one additional common share for a period of
two years from the warrant issue date, at an exercise price of $0.20 during the first year, and $0.35 during the second year.
A $6,802 loan is payable to a company
controlled by a director of the Company plus accrued interest of $19,686. This loan is unsecured, bearing interest at 12% per annum
and is repayable on demand.
Loans totaling $325,855 are payable
to a company controlled by a director of the Company. These loans are unsecured, non-interest bearing, and repayable upon demand.
A
$255,209 loan is payable to a company controlled by a director of the Company, plus accrued interest of $341,103 pursuant to a
Convertible Loan Agreement. The loan is unsecured, bearing interest at 10% per annum and is repayable on demand. The lender may
at anytime convert the principal sum into units of the Company. Each unit will consist of one common share plus one common share
purchase warrant. The principal sum of $255,209 may be converted into 4,526,436 units. Conversion of this loan and resulting associated
warrants to equity will be based on the conversion price set at the time the principal amount was drawn ranging from $0.05 to $0.12.
Going Concern
The unaudited financial statements
accompanying this report have been prepared on a going concern basis, which implies that our company will continue to realize its
assets and discharge its liabilities and commitments in the normal course of business. Our company has not generated revenues since
inception and has never paid any cash dividends and is unlikely to pay cash dividends or generate earnings in the immediate or
foreseeable future. The continuation of our company as a going concern is dependent upon the continued financial support from related
party advances, the ability of our company to obtain necessary equity financing to achieve our operating objectives, and the attainment
of profitable operations. As of September 30, 2016, we had cash of $84 and we estimate that we will require approximately $128,000
to fund our business operations over the next twelve months. In addition to funding the Company’s general, administrative
and corporate expenses the Company is obligated to address its current obligations totalling $1,561,988. To the extent that cash
needs are not achieved from operating cash flow and existing cash on hand, the Company will be required to raise necessary cash
through shareholder loans, equity issuances and/or other debt financing. Amounts raised will be used to continue the development
of the Company's investment activities, and for other working capital purposes.
Accordingly, we do not have sufficient funds for planned
operations and we will be required to raise additional funds for operations.
These circumstances raise substantial
doubt about our ability to continue as a going concern, as described in the Note 2 of our September 30, 2016 unaudited financial
statements. The financial statements do not include any adjustments that might result from the outcome of that uncertainty. The
continuation of our business is dependent upon us raising additional financial support. The issuance of additional equity securities
by us could result in a significant dilution in the equity interests of our current stockholders. Obtaining commercial loans, assuming
those loans would be available, will increase our liabilities and future cash commitments.
There are no assurances that we
will be able to obtain further funds required for our continued operations. We are pursuing various financing alternatives to meet
our immediate and long-term financial requirements. There can be no assurance that additional financing will be available to us
when needed or, if available, that it can be obtained on commercially reasonable terms. If we are not able to obtain the additional
financing on a timely basis, we will be forced to scale down or perhaps even cease the operation of our business.
Future Financings
As of September 30, 2016, we
had cash of $84 and we estimate that we will require approximately $128,000 to fund our business operations over the next twelve
months. The Company has not yet determined a cash operating budget for the Marriott or the Skytower hotel properties. In addition
to funding the Company’s general, administrative and corporate expenses the Company is obligated to address its current obligations
totaling $1,561,988. Accordingly, we do not have sufficient funds for planned operations and we will be required to raise additional
funds for operations. We anticipate continuing to rely on equity sales of our common shares or shareholder loans in order to continue
to fund our business operations. Issuances of additional shares will result in dilution to our existing stockholders. There is
no assurance that we will achieve any additional sales of our equity securities or arrange for debt or other financing to fund
our planned activities.
Off-balance sheet arrangements
As of the date of this Report, the Company has the following off-balance sheet arrangements that have or are reasonably likely
to have a current or future effect on the company's financial condition, change in financial condition, revenues or expenses, results
of operations, liquidity, capital expenditures or capital resources that are material to investors.
|
·
|
Marriott: In exchange for a Debenture
of $23,700,000, Najibi Investments has agreed to pay off the mortgage debt encumbering the Hotel, once the transaction closes.
This Debenture will not become a valid obligation of SIII until the transaction is closed.
|
|
·
|
SkyTower: In exchange for a Debenture
of $12,656,768, Najibi Investments has agreed to pay off the debt encumbering the SkyTower Hotel once the transaction closes. This
Debenture will not become a valid obligation of SIII until the transaction is closed.
|
The term "off-balance sheet
arrangement" generally means any transaction, agreement, or other contractual arrangement to which an entity unconsolidated
with the Company is a party under which the Company has (i) any obligation arising under a guarantee contract, derivative instrument
or variable interest; or (ii) a retained or contingent interest in assets transferred to such entity or similar arrangement that
serves as credit, liquidity or market risk support for such assets.
|
3.
|
Quantitative and Qualitative Disclosures About Market Risk
The Company has no market risk sensitive instruments.
|
|
4.
|
Controls and Procedures
|
As required by Rule 13(a)-15 under
the Exchange Act, in connection with this quarterly report on Form 10-Q, under the direction of our Chief Executive Officer and
Chief Financial Officer, we have evaluated our disclosure controls and procedures as of September 30, 2016, our disclosure controls
and procedures were ineffective. As of the date of this filing, we are still in the process of remediating such material weaknesses
in our internal controls and procedures.
It should be noted that while our
management believes our disclosure controls and procedures provide a reasonable level of assurance, they do not expect that our
disclosure controls and procedures or internal controls will prevent all error and all fraud. A control system, no matter how well
conceived or operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.
Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls
must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls
can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected. These
inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because
of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of
two or more people, or by management override of the controls. The design of any system of internal control is based in part upon
certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving
its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions,
or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective
control system, misstatements due to error or fraud may occur and not be detected.
There were no changes in our internal
control over financial reporting during the period ended September 30, 2016 that have materially affected or are reasonably likely
to materially affect, our internal control over financial reporting.