Notes
to Accompanying Financial Statements
1.
Nature of Operations and Continuance of Business
Good Gaming, Inc. (Formerly
HDS International Corp.) (the “Company”) was incorporated on November 3, 2008 under the laws of the State of Nevada.
The Company is a leading tournament gaming platform and online destination targeting the over 250 million eSports players and
participants worldwide that want to compete at the high school or college level. A substantial portion of the Company’s
activities has involved developing a business plan and establishing contacts and visibility in the marketplace and the Company
generated very limited revenue to date.
On February 17, 2016,
the Company acquired Good Gaming’s assets, including intellectual property, trademarks, software code, equipment
and others from CMG Holdings Group, Inc. (OTCQB: CMGO).
Going
Concern
These
financial statements have been prepared on a going concern basis, which implies that the Company will continue to realize its
assets and discharge its liabilities in the normal course of business. The Company has generated little revenues to date and has
never paid any dividends and is unlikely to pay dividends or generate significant earnings in the immediate or foreseeable future.
As of June 30, 2017, the Company had a working capital deficiency of $1,292,846 and an accumulated deficit of $4,242,260.
The continuation of the Company as a going concern is dependent upon the continued financial support from its shareholders,
the ability to raise equity or debt financing, and the attainment of profitable operations from the Company’s future business.
These factors raise substantial doubt regarding the Company’s ability to continue as a going concern. These consolidated
financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification
of liabilities that might be necessary should the Company be unable to continue as a going concern.
Reverse
Stock Split
On February 17, 2017,
the Board of Directors of the Company approved a reverse split of its common and preferred shares on a 1 for 1,000 basis (the
“Reverse Stock Split”), and the Articles of Incorporation were amended decreasing the authorized common shares
from 2,000,000,000 to 100,000,000 and decreasing the authorized preferred shares from 450,0000,000 to 2,250,000. A special meeting
of the Company’s shareholders was not required as written consent by the majority of the stockholders holding at least the
majority of the outstanding shares of voting stock. The Reverse Stock Split became effective on June 14, 2017.
All
references in this Quarterly Report to number of preferred and common shares, price per share and weighted average shares of common
stock have been adjusted to reflect the Reverse Stock Split on a retroactive basis for all prior periods presented, unless otherwise
noted, including reclassifying an amount equal to the reduction in par value of common and preferred stock to additional paid-in
capital.
2.
Summary of Significant Accounting Policies
The
financial statements for the periods ending June 30, 2017 and 2016 include the accounts of the Company. These financial statements
and related notes are presented in accordance with accounting principles generally accepted in the United States, and are expressed
in U.S. dollars. The Company’s fiscal year-end is December 31.
Certain reclassifications
have been made to the statement of operations and statement of cash flows for the three and six months ended June 30, 2016
to make them consistent with the current presentation.
The
preparation of financial statements in conformity with generally accepted accounting principles in the United States 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
period. The Company regularly evaluates estimates and assumptions related to the fair values of convertible debentures, derivative
liability, stock-based compensation, and deferred income tax asset valuation allowances. The Company bases its estimates and assumptions
on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs
and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially
and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual
results, future results of operations will be affected.
The Company considers
all highly liquid instruments with maturity of three months or less at the time of issuance to be cash equivalents. As of June
30, 2017 and 2016, the Company had cash and cash equivalents of $84,073 and $132,270, respectively.
Intangible
assets are carried at the purchased cost less accumulated amortization. Amortization is computed over the estimated useful lives
of the respective assets, generally from five to twenty years.
●
|
Impairment
of Long-Lived Assets
|
Long-lived
assets and certain identifiable intangible assets to be held and used are reviewed for impairment whenever events or changes in
circumstance indicate that the carrying amount of such assets may not be recoverable. Determination of recoverability is based
on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition. Measurement
of an impairment loss for long-lived assets and certain identifiable intangible assets that management expects to hold and use
is based on the fair value of the asset. Long-lived assets and certain identifiable intangible assets to be disposed of are reported
at the lower of carrying amount or fair value less costs to sell.
●
|
Beneficial
Conversion Features
|
From
time to time, the Company may issue convertible notes that may contain an embedded beneficial conversion feature. A beneficial
conversion feature exists on the date a convertible note is issued when the fair value of the underlying common stock to which
the note is convertible into is in excess of the remaining unallocated proceeds of the note after first considering the allocation
of a portion of the note proceeds to the fair value of the warrants, if related warrants have been granted. The intrinsic value
of the beneficial conversion feature is recorded as a debt discount with a corresponding amount to additional paid in capital.
The debt discount is amortized to interest expense over the life of the note using the effective interest method.
From
time to time, the Company may issue equity instruments that may contain an embedded derivative instrument which may result in
a derivative liability. A derivative liability exists on the date the equity instrument is issued when there is a contingent exercise
provision. The derivative liability is recorded at fair value calculated by using an option pricing model such as a multi-nominal
lattice model. The fair value of the derivative liability is then calculated on each balance sheet date with the corresponding
gains and losses recorded in the consolidated statement of operations.
●
|
Basic
and Diluted Net Loss Per Share
|
The
Company computes net loss per share in accordance with ASC 260, Earnings Per Share, which requires presentation of both basic
and diluted earnings per share (EPS) on the face of the income statement. Basic EPS is computed by dividing net loss available
to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted
EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible
preferred stock using the if-converted method. In computing Diluted EPS, the average stock price for the period is used in determining
the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive
potential shares if their effect is anti-dilutive.
Potential
benefits of income tax losses are not recognized in the accounts until realization is more likely than not. The Company has adopted
ASC 740, Income Taxes, as of its inception. Pursuant to ASC 740, the Company is required to compute tax asset benefits for net
operating losses carried forward. The potential benefits of net operating losses have not been recognized in these financial statements
because the Company cannot be assured it is more likely than not it will utilize the net operating losses carried forward in future
years.
ASC
220, Comprehensive Income , establishes standards for the reporting and display of comprehensive loss and its components in the
financial statements. As at June 30, 2017 and 2016, the Company has no items that represent comprehensive loss and, therefore,
has not included a schedule of comprehensive loss in the financial statements.
ASC
820, “Fair Value Measurements” and ASC 825, Financial Instruments, requires an entity to maximize the use of observable
inputs and minimize the use of unobservable inputs when measuring fair value. It establishes a fair value hierarchy based on the
level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization
within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. It
prioritizes the inputs into three levels that may be used to measure fair value:
Level
1
Level
1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
Level
2
Level
2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability
such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in
markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant
inputs are observable or can be derived principally from, or corroborated by, observable market data.
Level
3
Level
3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to
the measurement of the fair value of the assets or liabilities.
Assets
and liabilities measured at fair value on a recurring basis were presented on the Company’s balance sheet as at June 30,
2017 and 2016 as follows:
The
carrying values of all of our other financial instruments, which include accounts payable and accrued liabilities, and amounts
due to related parties approximate their current fair values because of their nature and respective maturity dates or durations.
Recent
Accounting Pronouncements
The
Company has implemented all new accounting pronouncements that are in effect. These pronouncements did not have any material impact
on the financial statements unless otherwise disclosed, and the Company does not believe that there are any other new accounting
pronouncements that have been issued that might have a material impact on its financial position or results of operations.
3.
Other Assets
The
Company valued the software purchased at $1,200,000. The software has a useful life of 5 years. Amortization for the six months
ending June 30, 2017 is calculated at $120,000.
4.
Debt
On April 15, 2015, the Company entered into a $100,000 convertible debenture with a non-related party. During the quarter
ended June 30, 2015 The Company received the first $50,000 payment. The remaining $50,000 payment will be made at the request
of the Company. No additional payments have been made as of March 31, 2016. Under the terms of the debenture, the amount is
unsecured and was due on October 16, 2016. The note is currently in default and bears interest at 22% per annum. It was
convertible into shares of common stock any time after the maturity date at a conversion rate of 50% of the average of the
five lowest closing bid prices of the Company’s common stock for the thirty trading days ending one trading day prior
to the date the conversion notice is sent by the holder to the Company. HGT, the holder of the debenture, and the Company are
currently in litigation over this note.
On April 1, 2015, we
entered into a transaction with Iconic Holdings, LLC (the “Iconic Holdings”), whereby Iconic Holdings agreed
to provide up to $600,000 through a structured convertible promissory note (the “Note”), with funds to be received
in tranches. The note bears interest of 10% and is due on April 1, 2016. The initial proceeds of $40,000 were received
on April 9, 2015, with $30,000 remitted and delivered to us, $4,000 retained by Iconic Holdings as an original issue discount,
and $6,000 retained by Iconic Holdings for legal expenses. On February 17, 2016, as part of a settlement between Iconic
Holdings and the Company, the Note along with a remaining balance of $8,300 from former JABRO-Asher notes were restructured
to a principal amount of $25,000 with a due date of June 18, 2017 and an interest rate of 0%. Iconic Holdings is subject
to strict lock-up and leak-out provisions. Additionally, as part of the February 2016 settlement, Iconic Holdings funded
$100,000 of new debentures due August 2018 bearing 0% interest with Iconic Holdings subject to strict lock-up and leak-out
provisions.
As
part of the asset purchase agreement between HDS International Corp. and CMG Holdings Group, Inc., SirenGPS was issued a $60,000
0% interest convertible debenture that matures in August 2017. The debentures are convertible into common stock at a 20% discount
to the 20-day moving average of the Company’s common stock after a period of seven months. The debt is subject to strict
lock-up and leak-out provisions. SirenGPS has agreed to sell this security to the Company or to an investor of the Company’s
choice at face value.
●
|
Related
Party Transactions
|
On
or around April 7, 2016, Silver Linings Management, LLC funded the Company $13,439.50 in the form of convertible debentures secured
by certain high-powered gaming machines purchased from XIDAX. The note bears interest at a rate of 10% per annum payable in cash
or kind at the option of the Company, matures on April 1, 2018, and is convertible into Series B Preferred shares at the option
of the holder at any time.
On November 30, 2016,
ViaOne Services, LLC (“ViaOne”) purchased a Secured Promissory Note equal to a maximum initial principal amount of
$150,000 (the “Note”) issued by the Company. As a result of additional advances made by ViaOne to the Company,
the principal amount of the Note was increased to $225,000 and $363,000 by amendments dated January 31, 2017 and March 1,2017,
respectively.
On
May 5, 2017, ViaOne delivered a default notice to the Company pursuant to Section 6 of the Note Purchase Agreement. After giving
the Company a fifteen (15) day notice period to cure the default under the Stock Pledge Agreement entered by and among
the Company, CGM and ViaOne, dated November 30, 2016 (“Pledge Agreement”), ViaOne took possession of the Series C
Stock, which was subject of the Pledge Agreement.
The
Note, as amended, continues to be in default regarding the unpaid amount of $363,000, but is now increased due to additional advances
provided to the Company by ViaOne of $25,000 on May 2, 2017; $25,000 on May 4, 2017, $75,000 on May 31, 2017, and $85,000 on June
30, 2017 (the “Additional Advance”). The Additional Advances increase the total advances made to the Company by ViaOne
to $573,000 as of July 1, 2017.
The
Company’s Chairman and Chief Executive Officer is the Chairman of ViaOne.
The
following inputs and assumptions were used to value the convertible debentures outstanding during the period ended June 30, 2017
and December 31, 2016:
The
projected annual volatility for each valuation period was based on the historic volatility of the Company of 165% as at December
31, 2016 and 173% as June 30, 2017.
An
event of default would occur 0% of the time, increasing to 1.0% per month to a maximum of 5%.
A
summary of the activity of the derivative liability is shown below:
Balance
December 31, 2016
|
|
$
|
288,605
|
|
Mark
to Market Adjustment at March 31, 2017
|
|
|
(134,789
|
)
|
Balance March
31, 2017
|
|
|
153,816
|
|
Mark
to Market Adjustment at June 30, 2017
|
|
|
298,704
|
|
Balance June
30, 2017
|
|
$
|
452,520
|
|
5.
Common Stock
Share
Transactions for the six months ended June 30, 2017:
Our Articles of Incorporation,
which were amended effective April 11, 2017, authorize us to issue up to 2,250,000 shares of preferred stock, $0.001 par value.
Of the 2,250,000 authorized shares of preferred stock, the total number of shares of Class A Preferred Shares the Corporation
shall have the authority to issue is Two Million (2,000,000), with a stated par value of $0.001 per share, the total number of
shares of Class B Preferred Shares the Corporation shall have the authority to issue is Two Hundred Forty Nine Thousand, Nine
Hundred Ninety Nine (249,999), with a stated par value of $0.001 per share, and the total number of newly authorized Class
C Preferred Shares the Corporation shall have the authority to issue is One (1), with One Million Eight Hundred Thousand (1,800,000)
Preferred Shares Undesignated. Our Board of Directors is authorized, without further action by the shareholders, to issue shares
of preferred stock and to fix the designations, number, rights, preferences, privileges and restrictions thereof, including dividend
rights, conversion rights, voting rights, terms of redemption, liquidation preferences and sinking fund terms. We believe that
the Board of Directors’ power to set the terms of, and our ability to issue, preferred stock will provide flexibility in
connection with possible financing or acquisition transactions in the future. The issuance of preferred stock, however, could
adversely affect the voting power of holders of common stock and decrease the amount of any liquidation distribution to such holders.
The presence of outstanding preferred stock could also have the effect of delaying, deterring or preventing a change in control
of our company.
As
of June 30, 2017, we had 7,500 shares of our Class A Preferred Stock issued and outstanding.
The
7,500 issued and outstanding shares of Class A Preferred Stock are convertible into shares of common stock at a rate of 20 common
shares for each one Class A Preferred Share. The 162,029 issued and outstanding shares of Class B Preferred Stock are convertible
into shares of common stock at a rate of 200 common shares for each one Class B Preferred Share. The one issued and outstanding
share of Class C Preferred Stock is not convertible. If all of our Class A Preferred Stock and Class B Preferred Stock were converted
into shares of common stock, the number of issued and outstanding shares of our common stock will increase by 32,555,800 shares.
Share
Sales – Series B Preferred Stock
On
or around February 18, 2016, as part of the closing of the Good Gaming asset sale by CMG Holdings Group to HDS International Corp.,
CMG Holdings is due an additional 85,600 Series B Preferred Shares. These shares due are currently in the form of a subscription
payable by HDS International to CMG Holdings Group.
On or around February
18, 2016, our former CEO Vikram Grover was issued 860 Series B Preferred shares in lieu of compensation due for services
rendered to SirenGPS in 2015.
On
or around February 23, 2016, Andrew Albrecht was issued 2,000 Series B Preferred shares as consideration for an investment in
the Company.
On
or around February 26, 2016, William Schultz funded monies to the Company and had a subscription receivable for 2,500 Series B
Preferred shares as consideration for an investment in the Company.
On
or around February 26, 2016, Paul Rauner was issued 800 Series B Preferred shares as consideration for the strategic change of
control transaction with CMG Holdings Group, Inc.
On
or around February 26, 2016, Galina Berkovich was issued 800 Series B Preferred shares as consideration for the strategic change
of control transaction with CMG Holdings Group, Inc.
On
or around February 26, 2016, Bernard Mangold was issued 400 Series B Preferred shares as consideration for the strategic change
of control transaction with CMG Holdings Group, Inc.
On or around March 7, 2016, Silver Lining Management, an entity controlled by David Dorwart, funded monies
to the Company and had a subscription receivable for 5,000 Series B Preferred shares as consideration for an investment in the
Company.
On
or around March 15, 2016, Brett Nesland was issued 1,000 Series B Preferred shares as consideration for an investment in the Company.
On
or around April 22, 2016, William Crusoe was issued 1,000 Series B Preferred shares as consideration for an investment in the
Company. The investor has since agreed to lockup his shares for a period of one year.
On
or around April 22, 2016, Francesca Dorwart was issued 1,000 Series B Preferred shares as consideration for an investment in the
Company.
On
August 16, 2016, the Company issued 130,300 share of series B preferred stock. 86,650 shares were issued for the purchase of Good
Gaming software, 1,150 shares were issued in exchange for 179,450 shares of common stock and 42,500 shares were issued for stock
subscriptions receivable.
On
August 16, 2016, all of the above shares were issued as noted above.
On
August 31, 2016, the Company issued 1 share of preferred C stock to CMG Holdings Group, Inc. as a result of the purchase of Good
Gaming software.
The
vast majority of the Series B Preferred stock investors agreed to lock up their investments for a period of one year as of May
2016.
On
January 4, 2017, HOEL converted 70,000 shares of Common Stock of the Issuer into 500 shares of Class B Preferred Stock of the
Issuer, pursuant to that certain Stock Conversion Agreement dated December 30, 2016.
As
of June 30, 2017, we had 162,029 shares of Class B Preferred Stock issued and outstanding.
As
of June 30, 2017, we had 1 share of Class C Preferred Stock issued and outstanding.
6.
Income Taxes
The
Company has a net operating loss carried forward of $1,203,424 available to offset taxable income in future years which commence
expiring in fiscal 2037.
The
income tax benefit has been computed by applying the weighted average income tax rates of Canada (federal and provincial statutory
rates) and of the United States (federal and state rates) of 35% and 35%, respectively, to the net loss before income taxes calculated
for each jurisdiction. The tax effect of the significant temporary differences, which comprise future tax assets and liabilities,
are as follows:
|
|
2017
|
|
|
2016
|
|
Income
tax recovery at statutory rate
|
|
$
|
137,581
|
|
|
$
|
235,993
|
|
|
|
|
|
|
|
|
|
|
Valuation
allowance change
|
|
$
|
(137,581
|
)
|
|
$
|
(235,993
|
)
|
|
|
|
|
|
|
|
|
|
Provision
for income taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
The
Significant components of deferred income tax assets and liabilities at June 30, 2017 and December 31, 2016 are as follows:
Net
operating loss carried forward
|
|
$
|
1,203,424
|
|
|
$
|
674,266
|
|
|
|
|
|
|
|
|
|
|
Valuation
allowance
|
|
$
|
(1,203,424
|
)
|
|
$
|
(674,266
|
)
|
|
|
|
|
|
|
|
|
|
Net
deferred income tax asset
|
|
$
|
-
|
|
|
$
|
-
|
|
Due
to the change in ownership provisions of the Tax Reform Act of 1986, net operating loss carryforwards for Federal income tax reporting
purposes are subject to annual limitations. When a change in ownership occurs, net operating loss carryforwards may be limited.
7.
Consulting Agreements
On
or around April 14, 2016, the Company formed an advisory Board and engaged Syndicate Studios, LLC for consulting services and
issued the Syndicate Studios 100,000,000 warrants with a two-year expiration and a strike price of $0.0002 on a pre-reverse-split
basis. The warrants are subject to mutually agreed to performance criteria.
On
July 25, 2016, the Company engaged Kevin Harrington Enterprises (KBHJJ LLC) to provide consulting services, including introductions
to potential investors and sponsors for eSports tournaments, among other things. Mr. Harrington subsequently resigned with no
compensation.
On
February 6, 2017, David Petite was appointed to the advisory board.
8.
Subsequent Events
On
June 27, 2017, Iconic Holdings $100,000 Convertible Promissory Note issued on February 18, 2016 was amended to reflect the conversion
price of 0.10 cents to 0.08 cents per common share.
On
June 29, 2017, Iconic Holdings, LLC entered into a 10% Convertible Promissory Note with the Company in the principal amount of
$27,000 (the “Note”). Upon the execution of this Note, the sum of $9,000 has been remitted and delivered to the Company.
The Company is only required to repay the amount funded and the Company is not required to repay any unfunded portion of this
Note.
On July 5, 2017, Iconic
Holdings converted $15,895 of its $100,000 Convertible Promissory Note issued on February 18, 2016 into 198,688 shares
of common stock of the Company.
On
July 25, 2017, Iconic Holdings converted $18,950 of its $100,000 Convertible Promissory Note issued on February 18, 2016 into
236,875 shares of common stock of the Company.
On
July 10, 2017, the Company’s Board of Directors elected David Dorwart its Chairman and CEO. Vikram Grover resigned as the
Company’s CEO and was appointed the Company’s Treasurer. Additionally, the Board of Directors elected Domenic Fontana
and Jordan Axt to the Company’s Board of Directors.
On
July 13, 2017, a shareholder converted 1,000 Series B Preferred Shares into 200,000 common shares.
On
August 8, 2017, the board of directors (the “Board”) of Good Gaming, Inc. (the “Company”) accepted Vikram
Grover’s resignation as the Treasurer of the Company and as a member of the Board, effective immediately.
On
August 8, 2017, the Board of the Company accepted Barbara Laken’s resignation as the Secretary of the Company and as a member
on the Board, effective immediately.
On
August 8, 2017, the Board of the Company appointed Domenic Fontana, age 36, as the Company’s new Treasurer.
On
August 9, 2017, the Company announced a strategic review of its business prompted improvements to its business model and a reduction
in expenses designed to accelerate its move to free cash flow generation.
On
August 11, 2017, an investor converted 1,250 Series B Shares into 250,000 common shares.
On
August 14, 2017, Iconic Holdings, LLC has remitted and delivered to the Company $9,000 as part of the previous agreement. The
Company is only required to repay the amount funded and the Company is not required to repay any unfunded portion of this Note.
As
of August 15, 2017, ViaOne Services has provided additional funding in the form of a short-term loan of $36,418 to be repaid no
later than May 1, 2018 and the loan bears interest at 12% per annum.