NOTES TO THE FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS THEN ENDED DECEMBER 31, 2017 and
2016
Chess Supersite Corporation, (“the
Company”, formerly River Run Acquisition Corporation) was incorporated on July 9, 2013 under the laws of the state of Delaware
to engage in any lawful corporate undertaking, including, but not limited to, selected mergers and acquisitions.
In May, 2014, the Company effected a change
in control by the redemption of the stock held by its original shareholders, the issuance of shares of its common stock to new
shareholders, the resignation of its original officers and directors and the appointment of new officers and directors.
On July 6, 2015, the Company filed its
form S-1/A, to amend its form S-1 previously filed on January 26, 2015 and December 11, 2014. The prospectus relates to the offer
and sale of 1,500,000 shares of common stock (the “Shares”) of the Company, $0.0001 par value per share, offered by
the holders thereof (the “Selling Shareholder Shares”), who are deemed to be statutory underwriters. The selling shareholders
will offer their shares at a price of $0.50 per share, until the Company’s common stock is listed on a national securities
exchange or is quoted on the OTC Bulletin Board (or a successor); after which, the selling shareholders may sell their shares at
prevailing market or privately negotiated prices, including (without limitation) in one or more transactions that may take place
by ordinary broker’s transactions, privately-negotiated transactions or through sales to one or more dealers for resale.
On September 22, 2015, the Company was
able to secure an OTC Bulletin Board symbol
CHZP
from Financial Industry Regulatory Authority (FINRA).
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.
The Company has minimal revenue since inception
to date and has sustained operating losses during the period ended December 31, 2017. The Company had working capital deficit of
$2,062,258 and an accumulated deficit of $7,194,613 as of December 31, 2017. The Company’s continuation as a going concern
is dependent on its ability to generate sufficient cash flows from operations to meet its obligations and/or obtaining additional
financing from its members or other sources, as may be required.
The accompanying financial statements have
been prepared assuming that the Company will continue as a going concern; however, the above condition raises substantial doubt
about the Company’s ability to do so. The financial statements do not include any adjustments to reflect the possible future
effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result should
the Company be unable to continue as a going concern.
In order to maintain its current level
of operations, the Company will require additional working capital from either cash flow from operations, sale of its equity or
issuance of debt. However, the Company currently has no commitments from any third parties for the purchase of its equity. If the
Company is unable to acquire additional working capital, it will be required to significantly reduce its current level of operations.
|
4.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
|
USE OF ESTIMATES
The preparation of financial statements
in conformity with 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. Actual results could differ from those estimates.
CASH
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, 2017 and 2016.
PREPAID ASSET
As at December 31, 2017 the Company had
a nil balance. While as at December 31, 2016 prepaid asset represents a commitment fee owed by the Company to a certain investor
in respect of a Securities Purchase Agreement entered into by the Company dated October 18, 2016. The Company has issued a convertible
promissory note in respect of the commitment fee. The asset was, however, written off in the statement of operations during the
year ended December 31, 2017 because the benefit associated in form of the equity line of credit no longer exists.
INTANGIBLE ASSETS
The Company operates an online chess site
featuring sophisticated playing zones, game broadcasts with software analyses and top analysts' commentaries, education and other
chess oriented resources. Intangible assets represented the amount incurred by the Company related to the development of the online
chess gaming website.
Under ASC 985-20, there are two main stages
of software development. These stages are defined as:
(A) When the technological feasibility
is established, and
(B) When the product is available for general
release to customers.
Costs incurred by the Company up to stage
A have been expensed while costs incurred to move from stage A to stage B have been capitalized.
The Company evaluates the recoverability
of the infinite-lived intangible assets for possible impairment whenever events or circumstances indicate that the carrying amount
of such assets may not be recoverable. Recoverability of these assets is measured by a comparison of the carrying amounts to the
future undiscounted cash flows the assets are expected to generate. If such review indicates that the carrying amount of intangible
assets is not recoverable, the carrying amount of such assets is reduced to fair value.
During the year ended December 31, 2017,
the intangible asset was written off based on management’s review and evaluation of its recoverability.
REVENUE RECOGNITION
In accordance with ASC 605, revenue is
recognized when persuasive evidence of an arrangement exists, services have been performed, the amount is fixed and determinable,
and collection is reasonably assured.
During the year ended December 31, 2017,
the Company earned revenue of $15,434 which comprises of an amount of $13,882, which we invoiced as consideration for the revenue
earned from ticket sales for 2017 Orlando Sunshine Open and $1,552 as membership fee for the Company’s chess gaming website.
During the year ended December 31, 2016,
the Company earned revenue of $5,918, which comprised an amount of $4,500, as consideration for the arrangement of equipment and
personnel to setup and produce a live streaming internet chess show and $1,418 as membership fee for the Company’s chess
gaming website.
An amount of $13,882 receivable from and
payable to the same party have been offset in the balance sheet.
SOFTWARE DEVELOPMENT COSTS
The costs incurred in the preliminary stages
of development are expensed as incurred. Once an application has reached the development stage, internal and external costs, if
direct and incremental, are capitalized until the application is substantially complete and ready for its intended use. These costs
are amortized using the straight-line method over the estimated economic useful life of 5 years starting from when the application
is substantially complete and ready for its intended use.
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, 2017.
INCOME TAXES
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, 2017, 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
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. Convertible
promissory notes as at December 31, 2017 are likely to be converted into shares, however, due to losses, their effect would be
antidilutive. As of December 31, 2017, convertible notes outstanding could be converted into 14,938,173,465 (14,938,173 –
post reverse split) shares of common stock.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company follows guidance for accounting
for fair value measurements of financial assets and financial liabilities and for fair value measurements of nonfinancial items
that are recognized or disclosed at fair value in the financial statements on a recurring basis. Additionally, the Company adopted
guidance for fair value measurement related to nonfinancial items that are recognized and disclosed at fair value in the financial
statements on a nonrecurring basis. The guidance establishes a fair value hierarchy that prioritizes the inputs to valuation techniques
used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical
assets or liabilities (Level 1 measurements) and the lowest priority to measurements involving significant unobservable inputs
(Level 3 measurements).
The three levels of the fair value hierarchy are as follows:
Level 1 inputs are quoted prices (unadjusted)
in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.
Level 2 inputs are inputs other than quoted
prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.
Level 3 inputs are unobservable inputs
for the asset or liability. The carrying amounts of financial assets such as cash approximate their fair values because of the
short maturity of these instruments.
The estimated fair value of cash, accounts
payable, and accrued liabilities approximate their carrying values due to the short-term maturity of these instruments.
|
5.
|
RECENTLY
ISSUED ACCOUNTING PRONOUNCEMENTS
|
From time to time, new accounting pronouncements
are issued by the Financial Accounting Standards Board (FASB) or other standard setting bodies that are adopted by the Company
as of the specified effective date.
In August 2014, the FASB issued ASU 2014-15,
Presentation
of Financial Statements – Going Concern
, which will require an entity’s management to assess, for each annual and
interim period, whether there is substantial doubt about the entity’s ability to continue as a going concern within one year
of the financial statement issuance date. The definition of substantial doubt within the new standard incorporates a likelihood
threshold of “probable” similar to the use of that term under current GAAP for loss contingencies. Certain disclosures
will be required if conditions give rise to substantial doubt. The guidance will be effective for the Company beginning with fiscal
year 2017. Early adoption is permitted. The Company is currently evaluating the impact that this amended guidance will have on
its financial statements and related disclosures.
The Company adopted the accounting pronouncement
issued by the Financial Accounting Standards Board ("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 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 financial position and/or results of operations.
On April 7, 2015, the FASB issued Accounting
Standards Update (ASU) No. 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance
Costs. The amendments in this ASU require that debt issuance costs related to a recognized debt liability be presented in the balance
sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts and the accounting
for debt issue costs under IFRS. The recognition and measurement guidance for debt issuance costs are not affected by the amendments
in this ASU. The amendments in this Update apply to all companies. They became effective for public business entities in the annual
period ending after December 15, 2015, and interim periods within those fiscal years, with early application permitted.
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 financial position and/or results of operations.
In November 2016, an accounting pronouncement
was issued by the FASB to update the guidance related to the presentation of restricted cash. Under this Update, the amendments
require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts
generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash
and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and
end-of-period total amounts shown on the statement of cash flows. The amendments in this Update do not provide a definition of
restricted cash or restricted cash equivalents. The amendments in this Update are effective for public business entities for fiscal
years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including
adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected
as of the beginning of the fiscal year that includes that interim period. The amendments in this Update should be applied using
a retrospective transition method to each period presented. Management does not expect to have a significant impact of this ASU
on the Company’s financial statements.
In May 2017, the FASB issued Accounting
Standards Update (ASU) No. 2017-09, Compensation – Stock Compensation (Topic 718). The amendments in this ASU require that
the company apply modification accounting when the company changes the terms or conditions of a share-based payment award. The
amendments in this Update apply to all companies. They became effective for public business entities in the annual period ending
after December 15, 2017, and interim periods within those fiscal years, with early application permitted. Management does not expect
to have a significant impact of this ASU on the Company’s financial statements.
In July 2017, the FASB issued Accounting
Standards Update (ASU) No. 2017-11, Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives
and Hedging (Topic 815).
|
I.
|
Accounting for Certain Financial Instruments with Down Round Features
|
|
II.
|
Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain
Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception
|
The amendments in Part I of this Update
change the classification analysis of certain equity-linked financial instruments (or embedded features) with down round features.
When determining whether certain financial instruments should be classified as liabilities or equity instruments, a down round
feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity’s own stock.
The amendments also clarify existing disclosure requirements for equity-classified instruments.
The amendments in Part II of this Update
recharacterize the indefinite deferral of certain provisions of Topic 480 that now are presented as pending content in the Codification,
to a scope exception. Those amendments do not have an accounting effect.
The amendments in this Update apply to
all companies. Part I becomes effective for public business entities in the annual period ending after December 15, 2018, and interim
periods within those fiscal years, with early application permitted. Management does not expect to have a significant impact of
this ASU on the Company’s financial statements. The amendments in Part II of this Update do not require any transition guidance
because those amendments do not have an accounting effect
The Company is continuing software development
and is recognizing costs related to these activities as expenses during the year in which they are incurred. Intangible assets
amounting to $137,611 were capitalized during the year ended and as at December 31, 2016. The Company evaluates the recoverability
of the infinite-lived intangible assets for possible impairment whenever events or circumstances indicate that the carrying amount
of such assets may not be recoverable. During the year ended December 31, 2017, the intangible asset was written off based on management’s
review and evaluation of its recoverability.
|
7.
|
ACCOUNTS
PAYABLE AND ACCRUED LIABILITIES
|
Accounts payable amounting to $102,501
as at December 31, 2017, primarily represents account payable for advertising and promotion amounting to $14,214, accrual for marketing
services amounting to $13,650, and other accruals for professional services. (2016: Accrual for software development fee amounting
to $226,906 and accrual for marketing services amounting to $13,650, and other accruals for professional services.).
|
8.
|
RELATED
PARTY TRANSACTIONS AND BALANCES
|
During the year ended December 31, 2017,
$300,000 (December 31, 2016: $300,000) was recorded as management services fee payable to Rubin Schindermann and Alexander Starr,
who are shareholders in the Company. During the year ended December 31, 2016, they were issued 10,000,000 shares to settle $100,000
of the amount owed. The amount is included in the related party balance as at December 31, 2017.
During the year ended December 31, 2016,
the Company issued 500,000 shares of Series ‘A’ Preferred Stock each, to the two directors, as consideration for their
services.
Advisory and consultancy fee includes $36,000
(December 31, 2016: $30,000) for Rubin Schindermann and Alexander Starr, who are shareholders in the Company. They were issued
12,920,000,000 (12,920,000 – post reverse split) shares (December 31, 2016: 1,000,000 (1,000 – post reverse split))
for these services performed as of and for the year ended December 31, 2017. These were recorded at fair value.
Amounts payable to Rubin Schindermann and
Alexander Starr as at December 31, 2017 were $92,000 and $31,697, respectively (2016: $285,000 and $229,697, respectively).
As disclosed in Note 12, the Company is
party to a lease agreement dated October 1, 2017, with Hard Assets Capital Corp., which is a related entity by virtue of common
directorship.
During the year ended December 31, 2017, Eric Schindermann, who is the son of Rubin Schindermann, became a lender
to the Company by way of assignment of an existing promissory note liability of the Company amounting to $18,000. 465,728 shares
of the Company’s common stock were issued to Eric Schindermann subsequent to the year end, on partial conversion of the
debt.
Shareholder advances represent expenses
paid by the owners from personal funds. The amount is non-interest bearing, unsecured and due on demand. The amount of advance
as at December 31, 2017 and 2016 was $304,322 and $144,474, respectively. The amounts repaid during the years ended December 31,
2017 and 2016 were $48,236 and $174,595, respectively.
|
10.
|
CONVERTIBLE
PROMISSORY NOTES
|
During the year ended December
31, 2017, the Company issued convertible promissory notes, details of which are as follows:
Convertible Redeemable note issued on November
28, 2017, amounting to $33,000 (Note K).
The key terms/features of the convertible
note are as follows:
|
1.
|
The maturity date of the Note is September 10, 2018.
|
|
2.
|
Interest on the unpaid principal balance of this Note shall accrue at the rate of 12 % per annum.
|
|
3.
|
In the event the Note holder exercises the right of conversion, the conversion price will be equal to 58% of the lowest closing bid price of the Company’s common stock for the twenty (15) trading days prior to the date of conversion.
|
|
4.
|
The Company shall not be obligated to accept any conversion request before six months from the date of the note.
|
|
5.
|
Conversion is limited to the holder beneficially holding not more than 4.99% of the Company’s then issued and outstanding common stock after the conversion.
|
Convertible promissory note issued
on May 5, 2017 amounting to $23,000 (Note J).
The key terms/features of the convertible
note are as follows:
|
1.
|
The maturity date of the note is February 20, 2018
|
|
2.
|
Interest on the unpaid principal balance of this note shall accrue at the rate of 12% per annum.
|
|
3.
|
In the event the Note holder exercises the right of conversion, the conversion price will be equal to 58% of the average of the three (3) lowest closing bid price of the Company’s common stock for the fifteen (15) trading days prior to the date of conversion.
|
|
4.
|
The Company shall not be obligated to accept any conversion request before six months from the date of the note.
|
|
5.
|
Conversion is limited to the holder beneficially holding not more than 4.99% of the Company’s then issued and outstanding common stock after the conversion.
|
Convertible promissory note issued
on January 31, 2017 amounting to $33,000 (Note I).
The key terms/features of the convertible
note are as follows:
|
1.
|
The maturity date of the note is November 5, 2017
|
|
2.
|
Interest on the unpaid principal balance of this note shall accrue at the rate of 12% per annum.
|
|
3.
|
In the event the Note holder exercises the right of conversion, the conversion price will be equal to 58% of the average of the three (3) lowest closing bid price of the Company’s common stock for the fifteen (15) trading days prior to the date of conversion.
|
|
4.
|
The Company shall not be obligated to accept any conversion request before six months from the date of the note.
|
|
5.
|
Conversion is limited to the holder beneficially holding not more than 4.99% of the Company’s then issued and outstanding common stock after the conversion.
|
During the year ended December 31, 2016,
the Company issued convertible promissory notes, details of which are as follows:
Convertible Redeemable note issued
on October 18, 2016, amounting to $140,000 (Note H), representing commitment fee owed by the Company pursuant to Securities Purchase
Agreement entered into by the Company dated October 18, 2016. The commitment fee was considered a prepaid asset. During the three
months ended September 30, 2017, the pending S1 registration statement was withdrawn, removing the benefit associated with the
prepaid asset. The amount was therefore written off as commitment fee in the statement of operations.
The key terms/features of the
convertible note are as follows:
|
1.
|
The maturity date of the Note is July 18, 2017.
|
|
2.
|
Interest on the unpaid principal balance of this Note shall accrue at the rate of 7 % per annum.
|
|
3.
|
In the event the Note holder exercises the right of conversion, the conversion price will be equal to 80% of the lowest trading price of the Company’s common stock for the twenty (20) trading days prior to the date of conversion.
|
|
4.
|
As maturity dates have passed, the Company is now obligated to accept all conversion requests on the note.
|
|
5.
|
Conversion is limited to the holder beneficially holding not more than 9.99% of the Company’s then issued and outstanding common stock after the conversion.
|
Convertible Redeemable notes issued on
October 18, 2016, amounting to $100,000 and $25,000 (Notes F and G).
The key terms/features of the convertible
note are as follows:
|
1.
|
The maturity date of the Note is July 18, 2017.
|
|
2.
|
Interest on the unpaid principal balance of this Note shall accrue at the rate of 7 % per annum.
|
|
3.
|
In the event the Note holder exercises the right of conversion, the conversion price will be equal to 57.5% of the lowest trading price of the Company’s common stock for the twenty (20) trading days prior to the date of conversion.
|
|
4.
|
As maturity dates have passed, the Company is now obligated to accept all conversion requests on the note.
|
|
5.
|
Conversion is limited to the holder beneficially holding not more than 9.99% of the Company’s then issued and outstanding common stock after the conversion.
|
Convertible promissory note issued on September
15, 2016, amounting to $30,000 (Note E).
The key terms/features of the convertible
note are as follows:
|
1.
|
The maturity date of the note is September 15, 2017.
|
|
2.
|
Interest on the unpaid principal balance of this note shall accrue at the rate of 8 % per annum.
|
|
3.
|
In the event the Note holder exercises the right of conversion, the conversion price will be equal to 55% of the lowest closing bid price of the Company’s common stock for the twenty (20) trading days prior to the date of conversion. If lowest closing bid price is equal to or less than $0.01, then the conversion price will be 45% of the bid price.
|
|
4.
|
As maturity dates have passed, the Company is now obligated to accept all conversion requests on the note.
|
|
5.
|
Conversion is limited to the holder beneficially holding not more than 4.99% of the Company’s then issued and outstanding common stock after the conversion.
|
Convertible promissory note issued on May
13, 2016, amounting to $75,000 (Note D).
The key terms/features of the convertible
note are as follows:
|
1.
|
The maturity dates of the note was May 13, 2017.
|
|
2.
|
Interest on the unpaid principal balance of this note shall accrue at the rate of 8 % per annum.
|
|
3.
|
In the event the Note holder exercises the right of conversion, the conversion price will be equal to 52% of the lowest closing bid price of the Company’s common stock for the twenty (20) trading days prior to the date of conversion.
|
|
4.
|
As maturity dates have passed, the Company is now obligated to accept all conversion requests on the note.
|
|
5.
|
Conversion is limited to the holder beneficially holding not more than 4.99% of the Company’s then issued and outstanding common stock after the conversion.
|
Convertible promissory notes issued on
March 1, 2016 amounting to $150,000 each to two investors (Notes B and C).
The key terms/features of the convertible
notes are as follows:
|
1.
|
The Holders have the right from six months after the date of issuance, and until any time until the Notes are fully paid, to convert any outstanding and unpaid principal portion of the Notes, into fully paid and non–assessable shares of Common Stock (par value $.0001).
|
|
2.
|
The Notes are convertible at a fixed conversion price of 45% of the lowest trading price of the Common Stock as reported on the OTC Pink maintained by the OTC Markets Group, Inc. upon which the Company’s shares are currently quoted, for the four (4) prior trading days including the day upon which a Notice of Conversion is received by the Company.
|
|
3.
|
Interest on the unpaid principal balance of this Note shall accrue at the rate of twenty-four (24 %) per annum.
|
|
4.
|
Beneficial ownership is limited to 4.99%.
|
|
5.
|
The Notes may be prepaid in whole or in part, at any time during the period beginning on the issue date and ending on the maturity date September 1, 2016, beginning at 100% of the outstanding principal, accrued interest and certain other amounts that may be due and owing under the Notes.
|
Convertible Redeemable note issued on May
19, 2016, amounting to $75,000 (Note A).
The key terms/features of the convertible
note are as follows:
|
1.
|
The maturity date of the Note is May 19, 2017.
|
|
2.
|
Interest on the unpaid principal balance of this Note shall accrue at the rate of 8 % per annum.
|
|
3.
|
In the event the Note holder exercises the right of conversion, the conversion price will be equal to 52% of the lowest closing bid price of the Company’s common stock for the twenty (20) trading days prior to the date of conversion.
|
|
4.
|
As maturity dates have passed, the Company is now obligated to accept all conversion requests on the note.
|
|
5.
|
Conversion is limited to the holder beneficially holding not more than 4.99% of the Company’s then issued and outstanding common stock after the conversion.
|
Interest amounting to $99,195 was accrued
for the year ended December 31, 2017 (2016: $49,336).
All notes maturing prior to the date of
this report are outstanding.
Derivative liability
During the year ended December 31, 2017,
holders of convertible promissory notes converted principal and interest amounting to $46,729 and $254,384, respectively. The Company
recorded and fair valued the derivative liability as follows:
|
|
Derivative liability as at
December 31, 2016
|
|
|
Conversions
during the period
|
|
|
Fair value
adjustment
|
|
|
Derivative
liability as at
December 31, 2017
|
|
Note A
|
|
|
92,963
|
|
|
|
(127,404
|
)
|
|
|
34,441
|
|
|
|
-
|
|
Note B and C
|
|
|
382,409
|
|
|
|
(37,394
|
)
|
|
|
189,199
|
|
|
|
534,214
|
|
Note D and E
|
|
|
-
|
|
|
|
(314,043
|
)
|
|
|
401,864
|
|
|
|
87,821
|
|
Note F
|
|
|
-
|
|
|
|
-
|
|
|
|
98,276
|
|
|
|
98,276
|
|
Note G
|
|
|
-
|
|
|
|
-
|
|
|
|
21,096
|
|
|
|
21,096
|
|
Note H
|
|
|
-
|
|
|
|
-
|
|
|
|
143,985
|
|
|
|
143,985
|
|
Note I
|
|
|
-
|
|
|
|
-
|
|
|
|
39,048
|
|
|
|
39,048
|
|
Note J
|
|
|
-
|
|
|
|
-
|
|
|
|
27,935
|
|
|
|
27,395
|
|
|
|
|
475,372
|
|
|
|
(478,841
|
)
|
|
|
955,305
|
|
|
|
951,836
|
|
|
11.
|
STOCKHOLDERS’
DEFICIT
|
On July 3, 2017, the Company filed an amended
Certificate of Incorporation in Delaware to increase its authorized common stock to 20,000,000,000 shares. The Company’s
authorized preferred stock remained at 20,000,000 shares. 1,000,000 shares of Preferred Stock having a par value of $0.0001 per
share shall be designated as Series A Preferred Stock (“Series A Stock”). Dividends shall be declared and set
aside for any shares of Series A Stock in the same manner and amount as for the Common Stock. Series A Stock, as a class, shall
have voting rights equal to a multiple of 2X the number of shares of Common Stock issued and outstanding that are entitled to vote
on any matter requiring shareholder approval.
The Company, as authorized by its Board
of Directors and stockholders, has approved a Reverse Split whereby record owners of the Company’s Common Stock as of the
Effective Date, shall, after the Effective Date, own one share of Common Stock for every one thousand (1,000) held as of the Effective
Date. As a result, an aggregate of $387,978 was reclassified from common stock to additional paid in capital, see further Note
9. The Effective Date of this amendment was November 1, 2017.
The Company’s authorized capital
stock consists of 20,000,000,000 shares of common stock and 20,000,000 shares of preferred stock. At December 31, 2017, there were
14,973,818,339 (14,973,819 – post reverse split) shares of common stock issued and outstanding (at December 31, 2016: 35,644,874
(35,645 – post reverse split) shares of common stock issued and outstanding).
Capitalization
The Company is authorized to issue 20,000,000,000
shares of common stock, par value $0.0001, of which 14,973,818,339 (14,973,819 – post reverse split) shares are outstanding
as at December 31, 2017. The Company is also authorized to issue 20,000,000 shares of preferred stock, par value $0.0001, of which
1,000,000 shares were outstanding as at December 31, 2017.
Common Stock
Holders of shares of common stock are entitled
to one vote for each share on all matters to be voted on by the stockholders. Holders of common stock do not have cumulative voting
rights.
Subject to preferences that may be applicable
to any outstanding shares of preferred stock, the holders of common stock are entitled to share ratably in dividends, if any, as
may be declared from time to time by the board of directors in its discretion from funds legally available therefor.
Holders of common stock have no pre-emptive
rights to purchase the Company’s common stock. There are no conversion or redemption rights or sinking fund provisions with
respect to the common stock. The Company may issue additional shares of common stock which could dilute its current shareholder's
share value.
During the quarter ended March 31, 2017,
the Company issued 4,000,000 (4,000 – post reverse split) shares of common stock to individuals as consideration for advisory
and consultancy services amounting to $36,000 which were recorded at fair value.
During the quarter ended March 31, 2017,
the Company issued 13,916,741 (13,917 – post reverse split) shares of common stock to individuals on conversion of convertible
promissory notes amounting to $26,126, respectively.
During the quarter ended March 31, 2017,
the Company issued 20,000,000 (20,000 – post reverse split) shares of common stock each to Rubin Schindermann and Alexander
Starr as consideration to settle outstanding management fee in the amount of $50,000 each, which were recorded at fair value.
During the quarter ended June 30, 2017,
the Company issued 234,458,494 (234,458 – post reverse split) shares of common stock to individuals on conversion of convertible
promissory notes amounting to $181,530.
During the quarter ended June 30, 2017,
the Company issued 40,000,000 (40,000 – post reverse split) shares of common stock each to Rubin Schindermann and Alexander
Starr as consideration to settle outstanding management fee in the amount of $108,000 each, which were recorded at fair value.
During the quarter ended September 30,
2017, the Company issued 675,627,230 (675,627 – post reverse split) shares of common stock to individuals on conversion of
convertible promissory notes amounting to $51,729. Of these shares, the Company issued 533,348,384 shares at $30,779 and as a result
of the contractual conversion price adjustments, these shares were issued below par value, with the offsetting balance recorded
as a reduction in additional paid-in capital in the amount of $22,556 during the three months ended September 30, 2017.
During the quarter ended September 30,
2017, the Company issued 1,400,000,000 (1,400,000 – post reverse split) shares of common stock each to Rubin Schindermann
and Alexander Starr as consideration to settle outstanding management fee in the amount of $140,000 each, which were recorded at
fair value.
During the quarter ended December 30, 2017,
the Company issued 5,000,000,000 (5,000,000 – post reverse split) shares of common stock each to Rubin Schindermann and Alexander
Starr as consideration to settle outstanding management fee in the amount of $50,000 each, which were recorded at fair value.
During the year ended December 31, 2017,
533,348,384 shares (533,348 – post reverse split) shares of common stock were issued at a fair value which was lower than
the par value of the shares. This resulted in a reduction in additional paid in capital amounting to $22,556.
Shares to be issued include the following:
80,000 shares of common stock to be issued
as compensation to advisers and consultants. These were recorded at fair value of $52,000, based on the market price of the Company’s
stock on the date of issue.
35,000,000 shares (35,000 – post
reverse split) to be issued as settlement of amount due for website development services amounting to $247,306. The fair value
of the shares on the date of settlement was $21,000, resulting in gain on settlement amounting to $226,306.
Preferred Stock
Shares of preferred stock may be issued
from time to time in one or more series as may be determined by the board of directors. The board of directors may fix the designation,
powers, preferences and rights of the shares of each such series and the qualifications, limitations or restrictions thereof without
any further vote or action by the stockholders of the Company, except that no holder of preferred stock shall have pre-emptive
rights. Any shares of preferred stock so issued would typically have priority over the common stock with respect to dividend or
liquidation rights. The board of directors does not at present intend to seek stockholder approval prior to any issuance of currently
authorized stock, unless otherwise required by law or otherwise.
The Company is party to a lease agreement
dated October 1, 2016, with Hard Assets Capital Corp., for the lease of its office premises. The term of the lease was one year
from the date of the agreement and provides for a base rent of $1,000 per month for the premises. This agreement was renewed on
October 1, 2017 for one year.
Income
taxes
The Tax Cuts and Jobs Act (the “Act”)
enacted on December 22, 2017 reduces the US federal corporate tax rate from 35% to 21% and requires companies to pay a one-time
transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and creates new taxes on certain foreign
sourced earnings. As of December 31, 2017, the Company has not completed the accounting for the tax effects of enactment of the
Act; however, as described below, it has made a reasonable estimate of the effects on existing deferred tax balances. These amounts
are provisional and subject to change.
The provision for income taxes is calculated
at US corporate tax rate of approximately 35% (2016: 35%) as follows:
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Net loss for the year
|
|
$
|
365,963
|
|
|
$
|
820,634
|
|
Tax effect of expenses not deductible for income tax:
|
|
|
|
|
|
|
|
|
Annual effect of book/tax differences
|
|
|
(303,870
|
)
|
|
|
(485,674
|
)
|
|
|
|
|
|
|
|
|
|
Change in valuation allowance
|
|
|
(62,093
|
)
|
|
|
(334,960
|
)
|
|
|
|
-
|
|
|
|
-
|
|
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:
|
|
2017
|
|
|
2016
|
|
Deferred Tax Assets - Non-current:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax effect of NOL Carryover
|
|
$
|
452,343
|
|
|
$
|
390,250
|
|
Cumulative change due to reduced rate
|
|
|
(156,117
|
)
|
|
|
-
|
|
Less valuation allowance
|
|
|
(296,226
|
)
|
|
|
(390,250
|
)
|
Deferred tax assets, net of valuation allowance
|
|
|
-
|
|
|
|
-
|
|
At December 31, 2017, the Company performed
a comprehensive analysis of its tax estimates and revised comparative figures accordingly, which had no net impact on deferred
tax recorded. The Company had net operating loss carryforwards of approximately $1,410,682 (2016: $1,115,000) that may be offset
against future taxable income from the year by 2037. No tax benefit has been reported in the December 31, 2017 financial statements
since the potential tax benefit is offset by a valuation allowance of the same amount. The Company is taxed in the United
States at the Federal level. All tax years since inception are open to examination because no tax returns have been filed.
The Company’s management has evaluated
subsequent events up to March 23, 2018, the date the financial statements were issued, pursuant to the requirements of ASC 855
and has determined the following material subsequent events:
In January 2018, the Company issued a convertible
promissory note amounting to $28,000.
In January and February 2018, the Company
issued 5,456,932 shares of common stock pursuant to conversion notices received from
one of the holders of the convertible promissory notes.
During February and March 2018, the Company
issued 5,529,412 shares of common stock as consideration for management services.