Notes
to the Financial Statements
(expressed
in U.S. dollars)
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 over 250 million
e-sports 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 has not generated any substantial revenue to date.
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 minimal 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 December 31, 2017, the Company had a working capital deficiency of $1,649,751 and an accumulated deficit of $4,889,020.
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 for a period of one
year from the issuance of these financial statements. These 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 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 450,000,000 to 2,250,000. A special meeting of the Company’s
shareholders was not required since written consent was obtained by the stockholders who held the majority of the outstanding
voting stock. The Reverse Stock Split became effective on June 14, 2017.
All
references in this Annual Report regarding the 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
|
Use
of Estimates
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.
Certain
reclassifications have been made to prior-year amounts to conform to the current period presentation.
Cash
Equivalents
The
Company considers all highly liquid instruments with maturity of three months or less at the time of issuance to be cash equivalents.
Amounts receivable from credit card processors are also considered cash equivalents because they are both short-term and highly
liquid in nature.
Intangible
Assets
Intangible
assets are carried at the purchased cost less accumulated amortization. Amortization is computed over the estimated useful lives
of the respective assets, generally five years.
2.
|
Summary
of Significant Accounting Policies (continued)
|
|
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 records at is fair value calculated by using an option pricing 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
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. At December 31, 2017, the Company had 8,779,119 (2016 – 90,000,000) potentially
dilutive shares from outstanding convertible debentures.
Potential
benefits of income tax losses are not recognized in the accounts until realization is more likely than not. 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. Unrecognized tax positions, if ever recognized
in the financial statements, are recorded in the statement of operations as part of the income tax provision. Our policy is to
recognize interest and penalties accrued on uncertain tax positions, if any, as part of the income tax provision. The Company
has no liabilities for uncertain tax positions. Unrecognized tax positions, if ever recognized in the financial statements, are
recorded in the statement of operations as part of the income tax provision. The Company’s policy is to recognize interest
and penalties accrued on uncertain tax positions, if any, as part of the income tax provision. The Company has no liabilities
for uncertain tax positions.
On
December 22, 2017, tax reform legislation known as the Tax Cuts and Jobs Act (the “U.S. Tax Reform Act”) was enacted
in the United States. The U.S. Tax Reform Act, among other things, reduced the U.S. corporate income tax rate from 35% to 21%
beginning in 2018. On December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”), which
provides guidance on how to account for the effects of the U.S. Tax Reform Act under ASC 740.
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 is categorized
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:
2.
|
Summary
of Significant Accounting Policies (continued)
|
|
Financial
Instruments (continued)
|
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 December
31, 2017 and 2016 as follows:
Description
|
|
Fair
Value Measurements at December 31, 2017 Using Fair Value Hierarchy
|
|
|
|
|
Total
|
|
|
|
Level
1
|
|
|
|
Level
2
|
|
|
|
Level
3
|
|
Derivative
liability
|
|
$
|
570,643
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
570,643
|
|
Total
|
|
$
|
570,643
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
570,643
|
|
Description
|
|
Fair
Value Measurements at December 31, 2016 Using Fair Value Hierarchy
|
|
|
|
Total
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
Derivative
liability
|
|
$
|
228,605
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
228,605
|
|
Total
|
|
$
|
228,605
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
228,605
|
|
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.
Advertising
Expenses
Advertising
expenses are included in general and administrative expenses in the Statements of Operations and are expensed as incurred. The
Company incurred $117,861 in advertising and promotion expenses in the year ended December 31, 2017.
Revenue
Recognition
The
Company recognizes revenues when there is persuasive evidence of an arrangement, the product or service has been provided to the
customer, the collection of our fees is reasonably assured and the amount of fees to be paid by the customer is fixed or determinable.
Revenues primarily include revenues from microtransactions Microtransaction revenues are derived from the sale of virtual goods
to the Company’s players. Proceeds from the sales of virtual goods directly are recognized as revenues when a player uses
the virtual goods.
Recent
Accounting Pronouncements
In
May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
No. 2014-09, Revenue from Contracts with Customers, which was amended in 2015 and 2016. The new revenue recognition standard relates
to revenue from contracts with customers and will supersede nearly all current U.S. GAAP guidance on this topic and eliminate
industry-specific guidance.
The
underlying principle is to use a five-step analysis of transactions to recognize revenue when promised goods or services are transferred
to customers in an amount that reflects the consideration that is expected to be received for those goods or services. The standard,
as amended, is effective for annual periods beginning December 15, 2017. The Company has evaluated the ASI and have concluded
that the impact of adopting the standard on our financial statements and related disclosure was not material.
The
Company has implemented all other 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
Furniture
and fixtures consisted of the following:
|
|
December
31,
|
|
|
|
2017
|
|
|
2016
|
|
Computers
|
|
$
|
14,992
|
|
|
$
|
13,440
|
|
Accumulated Depreciation
|
|
|
(4,832
|
)
|
|
|
(2,016
|
)
|
|
|
$
|
10,160
|
|
|
$
|
11,424
|
|
Depreciation
expense for the years ended December 31, 2017 and 2016 was $2,816 and $2,016, respectively.
On
February 17, 2016, the Company acquired Good Gaming’s assets including intellectual property, trademarks, software code,
equipment and other from CMG Holdings Group, Inc. The Company valued the software purchased at $1,200,000. The software has a
useful life of 5 years. Amortization for the years ended December 31, 2017 and 2016 was $240,000 and $210,000, respectively. The
software consisted of the following:
|
|
December
31,
|
|
|
|
2017
|
|
|
2016
|
|
Software
|
|
$
|
1,200,000
|
|
|
$
|
1,200,000
|
|
Accumulated Amortization
|
|
|
(450,000
|
)
|
|
|
(210,000
|
)
|
|
|
$
|
750,000
|
|
|
$
|
990,000
|
|
4.
Debt
Convertible
Debentures
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 borrower.
No additional payments have been made as of September 30, 2017. 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 and the company are currently solving disputes regarding this note via litigation.
On
April 1, 2015, we entered into a transaction with Iconic Holdings, LLC (the “Purchaser”), 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 was due April 1, 2016. The initial proceeds of $40,000 was received on April 9,
2015, with $30,000 remitted and delivered to us, $4,000 retained by the Purchaser as an original issue discount, and $6,000 retained
by the Purchaser for legal expenses. On February 17, 2016 as part of a settlement between the lender 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%. The lender is subject to strict lock-up and leak-out provisions. Additionally,
as part of the February 2016 settlement with the lender, the lender funded $100,000 new debentures (the “$100,000 Convertible
Promissory Note”) due August 2018 bearing 0% interest with the lender subject to strict lock-up and leak-out provisions.
On
June 27, 2017, Iconic Holdings’ $100,000 Convertible Promissory Note issued on February 18, 2016 was amended to reflect
an advisement of the conversion price of $.10 cents to $.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.
On August 14, 2017, Iconic Holdings, LLC remitted and delivered to the Company another $9,000. 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 December 31, 2017, the
Company has received a total $18,000 of the $27,000 principal amount.
On
July 5, 2017, Iconic Holdings converted $15,895 of its $100,000 Convertible Promissory Note. On July 25, 2017, Iconic Holdings
converted $18,950 of its $100,000 Convertible Promissory Note.
On
January 23, 2018, Iconic Holdings converted $65,155 of its $100,000 Convertible Promissory Note. Accordingly, the $100,000 Convertible
Promissory Note issued on February 18, 2016 has been fully converted into 1,250,001 shares of common stock.
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 2018. 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
choosing at face value.
4.
|
Derivative
Liabilities
|
The
following inputs and assumptions were used to value the convertible debentures outstanding during the years ended December 31,
2017 and December 31, 2016:
The
projected annual volatility for each valuation period was based on the historic volatility of the Company of 431.5% and 170% at
December 31, 2017 and 2016, respectively. The risk free rate was 1.81% and 0.85% at December 31, 2017 and 2016, respectively.
The expected life was one year and the dividend yield was 0% for each year.
A summary of the activity of the derivative liability is shown
below:
|
|
|
|
|
|
|
|
Balance, December, 2015
|
|
$
|
453,741
|
|
Change in value
|
|
|
(225,136
|
)
|
Balance, December 31, 2016
|
|
|
228,605
|
|
Change in value
|
|
|
342,038
|
|
Balance, December 31, 2017
|
|
$
|
570,643
|
|
Share
Transactions for the Year Ended December 31, 2016:
On August 16, 2016, the Company exchanged 1,150 Series B Preferred Shares with an investor for 179,450 common shares which were retired into treasury. These common shares were pledged to Iconic Holdings, LLC contractually as collateral against a $25,000 convertible debenture that was restructured in February 2016. By agreement, the lender converted a portion of this note into common shares eliminating debt from the Company’s balance sheet. The Company has agreed to deliver an additional 70,050 shares of the Company’s Common Stock to the lender by year-end 2016, which will eliminate the debenture in its entirety. Iconic Holdings has agreed to lock-up a $100,000 convertible debenture for a period of one-year effective June 10, 2016, subject to strict covenants that will protect common shareholders from significant dilution. The net effect of this Agreement is that the common share float of the Company has not been increased and that shareholders will not be negatively impacted by a common stock increase and additional dilution.
On August 31, 2016 Iconic Holdings converted $6,250 of convertible debt into 62,250 shares of the Company’s common stock
On October 5, 2016 Iconic Holdings converted $6,250 of convertible debt into 62,250 shares of the Company’s common stock.
On October 11, 2016 Iconic Holdings converted $5,915 of convertible debt into 59,150 shares of the Company’s common stock.
Share
Transactions for the Year Ended December 31, 2017:
On
January 4, 2017, the Hillwinds Ocean Energy converted 70,000 shares of its common stock to 500 shares of Class B Preferred Stock.
On
January 5, 2017, Iconic Holdings converted $6,585 of convertible debt into 65,585 shares of the Company’s common stock.
On
July 5, 2017, Iconic Holdings converted $15,895 of convertible debt into 198,688 shares of the Company’s common stock.
On
July 13, 2017, a shareholder converted 1,000 Series B Preferred Shares into 200,000 shares of the Company’s common stock.
On
July 25, 2017, Iconic Holdings converted $18,950 of convertible debt into 236,875 shares of the Company’s common stock.
On
August 11, 2017, an investor converted 1,250 Series B Shares into 250,000 shares of the Company’s common stock.
At
December 31, 2017, the Company had 21,891,805 shares of common stock reserved for issuance relating to convertible debentures
and Series D preferred stock.
Our
Articles of Incorporation authorize us to issue up to 2,250,350 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 Hundred Forty Nine thousand Nine Hundred Ninety Nine (249,999), 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 Million (2,000,000),
with a stated par value of $0.001 per share and the total number of shares of Class C Preferred Shares the Corporation shall have
the authority to issue is One (1), with a stated par value of $0.001 per share.. 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 December 31, 2017, we had 7,500 shares of our Class A preferred stock issued and outstanding. As of December 31, 2017, we had
164,781 shares of Class B preferred stock issued and outstanding. As of December 31, 2017, we had 1 shares of Class C Preferred
Stock issued and outstanding. At December 31, 2017, we had 105 shares of Class D 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 Class A Preferred Share. The 164,781 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 Class B Preferred Share. If all of our Class A Preferred Stock
and Class B Preferred Stock are converted into shares of common stock, the number of issued and outstanding shares of our common
stock will increase by 33,106,200
shares.
The
1 issued and outstanding share of Class C Preferred Stock has voting rights equivalent to 51% of all shares entitled to vote and
is held by ViaOne Services LLC, a Company controlled by our CEO.
The
210 issued and outstanding shares of Class D Preferred Stock are convertible into shares of common stock at a rate of 125% of
the conversion amount at a price that is the lower of 110% of the volume weighted average prices (“VWAP”) of the common
stock on the closing date, the VWAP of the common stock on the conversion date or the VWAP of the common stock on the date prior
to the conversion date. for each one Class A Preferred Share. The shares of Class D Preferred Stock are convertible beginning
6 months from the issue date. At December 31, 2017, no shares of Class D Preferred Stock were eligible to be converted to common
stock.
The
210 issued and outstanding shares of Class D Preferred Stock are entitled to cumulative dividends at a rate of 5% of the face
value of shares, or the number of shares multiplied by 1,000. The dividends accrue commencing on the issuance date of the preferred
shares and accrue whether or not declared and whether or not there is sufficient earnings or surplus. The dividends are payable
quarterly, with the first dividend date being December 31, 2017. The dividends are payable in cash or shares of common stock.
At December 31, 2017, the Company has $666 in cumulative unpaid dividends.
The
Class A, Class B, Class C and Class D have a liquidation preference to the common shareholders.
In
connection with the $100,000 convertible debenture issued to HGT Capital, LLC, the Company issued a warrant to purchase 100,000
shares of the Company’s common stock at $1.00 per share. This warrant has not been exercised, is exercisable through April
15, 2020 and has a remaining life of 2.29 years. The intrinsic value of the warrant at December 31, 2017 was zero as the exercise
price exceeded the closing stock price.
|
8.
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. Such 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 issued by the Company to ViaOne. As additional advances were 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 but has subsequently
extended the due date and has increased the funding up to One Million ($1,000,000) dollars. After giving the Company a fifteen
(15) day notice period to cure the default under the Stock Pledge Agreement, dated November 30, 2016, entered by and among the
Company, CMG and ViaOne (“Pledge Agreement”), ViaOne took possession of the Series C Stock, which was subject of the
Pledge Agreement.
The
Note as amended increased from time to time due to additional advances provided to the Company by ViaOne.
On
September 1, 2017, the Company executed an amended Employee Services Agreement with ViaOne which stipulated that ViaOne would
continue providing to the Company services relating to the Company’s human resources, marketing, advertising, accounting
and financing for a monthly management fee of $25,000. This agreement was amended on January 1, 2018 to continue until December
31, 2018. The accrued monthly management fees, $100,000 at December 31, 2017, are convertible by ViaOne into the Company’s
common stock at rate of 125% of the accrued fees at a conversion price of (i) $0.05 per share; or (ii) the volume weighted adjusted
price (“VWAP”) of the common stock on the 14th day of each month if the 14th of that month is a trading day. In the
event the 14th day of a month falls on a Saturday, Sunday, or a trading holiday, the VWAP of the Common Stock will be valued on
the last trading day before the 14th day of the month.
At
December 31, 2017, the total amount owed to ViaOne Services, was $838,796.
The
Company’s Chairman and Chief Executive Officer is the Chairman of ViaOne.
The
amount receivable from an affiliate of $700 was repaid in 2018.
The
Company has a net operating loss carried forward of $573,775 available to offset taxable income in future years which commence
expiring in fiscal 2030.
The
U.S. Tax Reform Act amends the Internal Revenue Code to reduce tax rates and modify policies, credits, and deductions for individuals
and business. For businesses, the Act reduces the corporate tax rate from a maximum of 35% to a flat 21% rate. The rate reduction
is effective on January 1, 2018. As a result of the rate reduction, the Company has reduced the deferred tax asset balance as
of December 31, 2017 by $80,329. As a result of the full valuation allowance on the net deferred tax assets, there was a corresponding
adjustment to the valuation allowance for this same amount. Therefore, there is no impact on the Company’s 2017 earnings
for the law change. In accordance with SAB 118, the Company has determined that there is no deferred tax benefit or expense with
respect to the re-measurement of certain deferred tax assets and liabilities due to the full valuation allowance against net deferred
tax assets. Additional analysis of the law and the impact to the Company will be performed and any impact will be recorded in
the respective quarter in 2018, if applicable
The
significant components of deferred income tax assets and liabilities at December 31, 2017 and 2016 are as follows:
|
|
2017
|
|
|
2016
|
|
Net Operating Loss Carryforward
|
|
$
|
1,607,135
|
|
|
$
|
573,775
|
|
Valuation allowance
|
|
|
(1,607,135
|
)
|
|
$
|
(573,775
|
)
|
Net Deferred
Tax Asset
|
|
$
|
-
|
|
|
$
|
-
|
|
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 21% 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
|
|
$
|
217,006
|
|
|
$
|
200,821
|
|
U.S. Tax Reform Act
|
|
|
(80,329
|
)
|
|
|
-
|
|
Valuation allowance
change
|
|
|
(136,677
|
|
|
$
|
(200,821
|
)
|
Provision for
income taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
10
.
Commitments and Contingencies
HGT
Capital LLC (“HGT”) has filed a lawsuit against the Company, claiming breach of contract due to a default on a $50,000
junior loan made by HGT to HDS International Corp., our predecessor, in 2015. The Company has retained counsel to represent it
on this matter and responded with affirmative defenses in the Supreme Court of New York. HGT’s motion for summary judgment
is scheduled for oral argument on May 31, 2018. The Company intends to vigorously contest such action.
11
.
Subsequent Events
On
January 2, 2018, the Company purchased additional servers for $26,250.
On
January 8, 2018, Silver Linings Management converted 15,000 shares of Preferred B Shares into 3,000,000 Common Shares.
On
January 8, 2018, Britton & Associates converted 5,000 Preferred B Shares in 1,000,000 common shares.
On
January 9, 2018, ViaOne Services converted $200,000 its convertible note into 8,333,333 common shares.
On
January 12, 2018, SSB Trading converted 10,000 Preferred B into 2,000,000 common shares.
On
January 12, 2018, CGM Holdings converted 5,605 Preferred B shares into 1,211,000 common shares.
On
January 18, 2018, CGM Holdings converted 9,000 Preferred B shares into 1,800,000 common shares.
On
January 23, 2018, Iconic converted $65,155 of its converted note into 814,438 shares common shares.
On
January 26, 2018, Michael Tadin converted 5,000 Preferred B shares into 1,000,000 common shares.
On
February 9, 2018, Vik Grover converted 8,665 Preferred B shares into 1,733,000 common shares.
On
March 21, 2018, the Company announced the acquisition of Crypto Strategies Group as it diversifies into the cryptocurrency market.