Item
5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
.
Market for Securities
The Company's common shares are quoted and traded on the US OTC Bulletin Board under the symbol "SIII". The range of
high and low bid quotations for each quarter within the last two fiscal years, as reported by OTC Markets (www.otcmarkets.com),
was as follows:
Year
|
Period
|
High
|
Low
|
|
|
|
|
2017
|
First quarter
|
$0.08
|
$0.03
|
|
Second quarter
|
$0.05
|
$0.03
|
|
Third quarter
|
$0.06
|
$0.03
|
|
Fourth quarter
|
$0.03
|
$0.03
|
|
|
|
|
2016
|
First quarter
|
$0.15
|
$0.07
|
|
Second quarter
|
$0.10
|
$0.04
|
|
Third quarter
|
$0.10
|
$0.03
|
|
Fourth quarter
|
$0.09
|
$0.03
|
These quotations reflect inter-dealer prices, without retail mark-up, mark-down, or commission and may not represent actual transactions.
Holders of our Common Stock
As of December 31, 2017, we have approximately
140 registered stockholders and 40,359,391 shares issued and outstanding.
Dividend Policy
We have not paid any cash dividends
on our common stock and have no present intention of paying any dividends on the shares of our common stock. Our future dividend
policy will be determined from time to time by our board of directors.
Securities authorized for issuance under equity compensation
plans
Equity Compensation Plan Information
|
Plan category
|
Number of securities to be issued upon exercise
of outstanding options, warrants, and rights.
|
Weighted average exercise price of outstanding options, warrants, and rights.
|
Number of securities remaining available for
future issuance.
|
|
|
|
|
Equity compensation plans approved by security holders
|
-
|
-
|
-
|
|
|
|
|
Equity compensation plans not approved by security holders
|
2,940,000
|
$0.12
|
3,113,909
|
|
|
|
|
Total
|
2,940,000
|
$0.12
|
3,113,909
|
2002 Stock Award Plan
In 2002, the Company’s board of directors
approved a stock award plan. The plan provides both for the direct award or sale of shares, and for the grant of options to purchase
shares. Shares may be awarded in consideration of services rendered to the Company. The Company may also grant a 30-day right to
purchase shares at a price of not less than 90% of the fair market value of the shares.
Under the plan directors, employees and consultants
may be granted incentive stock options to purchase common stock of the Company at a price of not less than 100% of the fair market
value of the stock. The total number of shares awarded under the plan must not exceed 15% of the outstanding common stock of the
Company. Certain changes in the capital structure of the Company, such as a stock split or stock dividend, may result in an appropriate
adjustment to the number and/or the price of shares issuable under the plan. The plan expired on July 1, 2017.
Sales of Securities Without Registration
Under the Securities Act of 1933
On August 10, 2003, the Company entered into
a Convertible Loan Facility Agreement with Star Leisure & Entertainment Inc. (“Star Leisure”), a company controlled
by a Director and Officer of Strategic, whereby the Company would, from time to time, borrow operating funds from Star Leisure,
at an interest rate of 10%, repayable on demand. The lender has the right to convert all or part of the principal sum into units
at a conversion rate which is calculated at a discount to the average closing market price for ten days preceding a loan advance.
Each unit consists of one common share of the Company and one non-transferable share purchase warrant, expiring 2 years from the
conversion date, exercisable at the applicable conversion rate. On August 31, 2008 the Company entered into agreements to transfer
previous advances and accrued interest to convertible loans under the Convertible Loan Facility Agreement. At December 31, 2017,
the Star Leisure loan principal was $255,209 and had accrued interest of $419,598. The loan principal is convertible into 4,526,436
units at conversion prices ranging from $0.05 to $0.12 as set at the time the principal was borrowed. At December 31, 2017, Star
Leisure has not converted any part of the principal sums advanced into units. This transaction is with an offshore non-U.S. person;
accordingly, these securities are exempt from registration pursuant to Regulation S.
On May 5, 2006, the Company entered into a
Convertible Loan Facility Agreement with CMB Investments Ltd. (“CMB”), a company controlled by a Director of Strategic,
whereby the Company would, from time to time, borrow operating funds from CMB, at an interest rate of ten percent (10%), repayable
on demand. The lender has the right to convert all or part of the principal sum into units at a conversion rate which is calculated
at a discount to the average closing market price for ten days preceding a loan advance. Each unit consists of one common share
of the Company and one share purchase warrant, expiring 2 years from the conversion date, exercisable at the applicable conversion
rate. At December 31, 2017, the CMB loan principal was $163,766 and had accrued interest of $278,146. The loan principal is convertible
into 2,320,858 units. Conversion of this loan and associated warrants to equity will be at a price ranging from $0.05 to $0.23
as set at the time the principal was borrowed. At December 31, 2017, CMB has not converted any part of the principal sums advanced
into units. This transaction is with an offshore non-U.S. person; accordingly, these securities are exempt from registration pursuant
to Regulation S.
On January 5, 2014, the Company entered into
a Convertible Loan Agreement to borrow $50,000 operating funds, at an interest rate of 10%, repayable at maturity on January 7,
2015 or on demand after that date. At any time, the lender may convert the principle amount of the loan into units of the Company,
each unit consisting of one common share and one non-transferable share purchase warrant, at a conversion rate of $0.20 per unit.
Each share purchase warrant is entitles the holder to purchase one additional common share for at period of two years from the
warrant issue date, at an exercise price of $0.20 during the first year, and $0.35 during the second year. This transaction is
with an offshore non-U.S. person; accordingly, these securities are exempt from registration pursuant to Regulation S.
On June 20, 2014 the Company issued 1,200,000
restricted common shares for $50,000 cash. This transaction is with an offshore non-U.S. person; accordingly, these securities
are exempt from registration pursuant to Regulation S, however they are restricted under Rule 144.
On November 13, 2014 the Company issued 500,000
restricted common shares for $40,000 cash. This transaction is with an offshore non-U.S. person; accordingly, these securities
are exempt from registration pursuant to Regulation S, however they are restricted under Rule 144.
On February 13, 2015 the Company issued 1,500,000
restricted common shares for $80,000 cash. This transaction is with an offshore non-U.S. person; accordingly, these securities
are exempt from registration pursuant to Regulation S, however they are restricted under Rule 144.
On June 25, 2015 the Company issued 2,000,000
restricted common shares for $160,000 cash. This transaction is with an offshore non-U.S. person; accordingly, these securities
are exempt from registration pursuant to Regulation S, however they are restricted under Rule 144.
Purchase of Equity Securities by
the Issuer and Affiliated Purchasers
We did not purchase any of our shares
of common stock or other securities during the year ended December 31, 2017.
Item
7. Management’s Discussion and Analysis OF FINANCIAL CONDITION AND RESULTS OF OPERATION
The following discussion should be read
in conjunction with our audited financial statements and the related notes that appear elsewhere in this annual report. The following
discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially
from those discussed in the forward looking statements. Factors that could cause or contribute to such differences include those
discussed below and elsewhere in this annual report.
Our audited financial statements are
stated in United States dollars and are prepared in accordance with United States generally accepted accounting principles (“GAAP”).
Plan of Operation
The Company has been devoting its business
efforts to real estate development projects located in Europe and the Middle East. The Company will continue to explore new investment
opportunities, including real estate development projects, during its 2017 fiscal year.
Our estimated cash expenses over the
next twelve months are as follows:
Accounting, audit, and legal fees
|
$
|
73,000
|
General and administrative expenses
|
|
1,000
|
Interest
|
|
8,000
|
Regulatory and transfer agent fees
|
|
10,000
|
|
$
|
92,000
|
The Company also estimates it will continue to accrue interest expense
of $119,000 over the next 12 months on loans due to related parties and management fees of $34,000 to related parties. It is not
anticipated the related party interest and management fees will be paid in cash during 2018, and therefore interest has been excluded
from the above list of cash expenses.
To date the Company has funded its operations
primarily with loans from shareholders and issuance of new equity. In addition to funding the Company’s general, administrative
and corporate expenses the Company is obligated to address its current obligations totaling $1,869,229. To the extent that cash
needs are not achieved from operating cash flow and existing cash on hand, the Company will be required to raise necessary cash
through shareholder loans, equity issuances and/or other debt financing. Amounts raised will be used to continue the development
of the Company's investment activities, and for other working capital purposes, which may be dilutive to existing shareholders.
The Company currently has no agreement in place to raise funds for current liabilities and no guarantee can be given that we will
be able to raise funds for this purpose on terms acceptable to the Company. Failure to raise funds for general, administrative
and corporate expenses and current liabilities could result in a severe curtailment of the company operations.
Any advance in the real estate development
strategy set-out herein will require additional funds. These funds may be raised through equity financing, debt financing or other
sources which may result in further dilution of the shareholders percentage ownership in the company. See “Future Financing”
below.
RESULTS OF OPERATIONS
Our operating results for the years ended
December 31, 2017 and 2016 are summarized as follows:
|
Year Ended
December 31, 2017
|
Year Ended
December 31, 2016
|
Percentage Increase
(Decrease)
|
Revenue
|
-
|
-
|
-
|
Expenses
|
$ (146,819)
|
$ (83,264)
|
76%
|
Other Income (Expense)
|
$ (116,537)
|
$ (104,723)
|
11%
|
Net Loss
|
$ (263,356)
|
$ (187,987)
|
40%
|
Revenues
We have had no operating revenues for
the years ended December 31, 2017 and 2016. We anticipate that we will not generate any revenues for so long as we are a development
stage company.
General and Administrative Expenses
The components of our general and administrative expenses for
the years ended December 31 are outlined in the table below:
|
|
2017
|
|
2016
|
Percentage Increase
(Decrease)
|
|
|
|
|
|
|
General and Administrative Expenses
|
|
|
|
|
|
Accounting and audit
|
$
|
26,269
|
$
|
39,412
|
(33%)
|
Communications
|
|
-
|
|
4,740
|
(100%)
|
Legal fees
|
|
44,998
|
|
21,103
|
113%
|
Management fees
|
|
65,000
|
|
4,100
|
1,485%
|
Office and general
|
|
560
|
|
1,452
|
(61%)
|
Regulatory fees
|
|
7,592
|
|
10,507
|
(28%)
|
Transfer agent fees
|
|
2,400
|
|
1,950
|
23%
|
|
|
|
|
|
|
Total Operating Expenses
|
$
|
(146,819)
|
$
|
(83,264)
|
76%
|
During the year ended December 31, 2017, the
Company incurred general and administrative expenses totaling $146,817 compared to $83,264 in the previous year.
The significant changes in our expenses
for the year ended December 31, 2017 when compared to the year ended December 31, 2016 was primarily due to:
|
a)
|
Accounting and audit fees decreased $13,143. This was due to minimal changes in our business activities.
|
|
b)
|
Communications expenses decreased $4,740 in the 2017 period compared
to the 2016 period. This is due to several news releases issued by the Company in 2016, while no news released were issued in 2017.
|
|
c)
|
Legal fees include attorney and para-legal services. In the 2017 year, legal fees increased due to various legal services related
to the Skytower Property, and Marriott agreements as described above.
|
|
d)
|
Management fees relate to a director engaged to provide general management and administrative services. This director was remunerated
for managing the Company’s affairs; he charged the Company $5,000 year ending December 31, 2017 and $3,000 in the comparative
2016 period.
|
In addition, the Company granted another director
a one-time management bonus of $37,500 in recognition of his services to the Company in advancing its business activities. The
Company also agreed to pay the director an
ongoing monthly management fee of $2,500 per month
effective April 1, 2017. There were no similar charges in the comparative 2016 period.
In addition, in January 2013, the Company agreed to pay another director/officer a periodic management stipend. During the period
ended December 31, 2016 this director was paid $1,100; there were no similar payments in the comparative 2017 period.
|
e)
|
Office and general expense relates to administrative costs including bank charges. These expenses decreased $892 in 2017.
|
|
f)
|
Regulatory fees for the 2017 period were $2,915 lower primarily due to the Company no longer having to file financial reports
in Canada, offset by some higher fees charged for regulatory filings in the USA. Also in 2016 the Company incurred a one-time regulatory
fee of $2,500 for obtaining a ISIN securities registration number.
|
|
g)
|
Transfer agent fees increased $450 due to a rate increase by the service provider.
|
Funding for operating and investing
activities was provided by both non-interest and interest bearing advances and loans from related parties, including directors
of the Company, and companies controlled by these directors; plus loans and equity investments from third parties.
LIQUIDITY AND WORKING CAPITAL
As of December 31, 2017, the Company
had total current assets of $74 and total liabilities of $1,869,229. The Company had cash of $74 and a working capital deficiency
of $1,869,155 as of December 31, 2017 compared to cash on hand of $375 and a working capital deficiency of $1,605,799 as of December
31, 2016. We anticipate that we will incur approximately $92,000 for cash operating expenses, including professional, legal and
accounting expenses associated with our reporting requirements under the Exchange Act during the next twelve months. In addition
to funding the Company’s general, administrative and corporate expenses the Company is obligated to address its current obligations
totaling $1,869,229. To the extent that cash needs are not achieved from operating cash flow and existing cash on hand, the Company
will be required to raise necessary cash through shareholder loans, equity issuances and/or other debt financing. Amounts raised
will be used to continue the development of the Company's investment activities, and for other working capital purposes. Accordingly,
we will need to obtain additional financing to continue our planned business activities.
Cash used in operating
activities for the year ended December 31, 2017 was $54,594 compared to cash used by operating activities for the same period in
2016 of $65,843. The decrease in cash used in operating activities was primarily due to decrease in cash expenses for
accounting and audit fees, office, and regulatory fees. These expense decreases were partially offset by an increase in legal fees.
The Company has the following loans outstanding
as of December 31, 2017:
A $6,802 loan is payable to a company
controlled by a director of the Company plus accrued interest of $23,912. This loan is unsecured, bearing interest at 12% per annum
and is repayable on demand.
Loans totaling $326,735 are payable
to a company controlled by a director of the Company. These loans are unsecured, non-interest bearing, and repayable upon demand.
Loans totaling $7,694 are payable to
a company controlled by a former director of the Company. These loans are unsecured, non-interest bearing, and repayable upon demand.
Loans totaling $98,017 are payable to
a director of the Company. These loans are unsecured, non-interest bearing, and repayable upon demand.
A $163,766 loan is payable to a company
controlled by a former director of the Company, plus accrued interest payable of $278,145 pursuant to a Convertible Loan Agreement.
The loan is unsecured, bearing interest at 10% per annum and is repayable on demand. The lender may at any time convert the principal
sum into units of the Company. Each unit will consist of one common share plus one common share purchase warrant. The principal
sum of $163,766 may be converted
into 2,320,858 units. Conversion of
these loans and resulting associated warrants to equity will be based on the conversion price set at the time the principal amount
was drawn ranging from $0.05 to $0.23.
A $255,209 loan is payable to a company
controlled by a director of the Company, plus accrued interest of $419,598 pursuant to a Convertible Loan Agreement. The loan is
unsecured, bearing interest at 10% per annum and is repayable on demand. The lender may at any time convert the principal sum into
units of the Company. Each unit will consist of one common share plus one common share purchase warrant. The principal sum of $255,209
may be converted into 4,526,436 units. Conversion of this loan and resulting associated warrants to equity will be based on the
conversion price set at the time the principal amount was drawn ranging from $0.05 to $0.12.
On
January 5, 2014 Company entered into a Convertible Loan Agreement and issued a convertible note for $50,000. This loan is unsecured,
bearing interest at 10% per annum, and was repayable at maturity on January 7, 2015, or on demand after that date. At any time,
the lender may convert the principle amount of the loan into units of the Company, each unit consisting of one common share and
one non-transferable share purchase warrant, at a conversion rate of $0.20 per unit. Each share purchase warrant entitles the holder
to purchase one additional common share for a period of two years from the warrant issue date, at an exercise price of $0.20 during
the first year, and $0.35 during the second year. As of December 31, 2017, $23,252 was accrued in interest on the note.
Going Concern
The audited financial statements accompanying
this report have been prepared on a going concern basis, which implies that our company will continue to realize its assets and
discharge its liabilities and commitments in the normal course of business. Our company has not generated revenues since inception
and has never paid any cash dividends and is unlikely to pay cash dividends or generate earnings in the immediate or foreseeable
future. The continuation of our company as a going concern is dependent upon the continued financial support from our shareholders,
the ability of our company to obtain necessary equity financing to achieve our operating objectives, and the attainment of profitable
operations. As of December 31, 2017, we had cash of $74 and we estimate that we will require approximately $92,000 to fund our
business operations over the next twelve months. In addition to funding the Company’s general, administrative and corporate
expenses the Company is obligated to address its current obligations totaling $1,869,229. To the extent that cash needs are not
achieved from operating cash flow and existing cash on hand, the Company will be required to raise necessary cash through shareholder
loans, equity issuances and/or other debt financing. Amounts raised will be used to continue the development of the Company's investment
activities, and for other working capital purposes.
Accordingly, we do not have sufficient
funds for planned operations and we will be required to raise additional funds for operations subsequent to the year.
These circumstances raise substantial
doubt about our ability to continue as a going concern, as described in the explanatory paragraph to our independent auditors’
report on the December 31, 2017 and 2016 financial statements which are included with this annual report. The financial statements
do not include any adjustments that might result from the outcome of that uncertainty.
The continuation of our business is
dependent upon us raising additional financial support. The issuance of additional equity securities by us could result in a significant
dilution in the equity interests of our current stockholders. Obtaining commercial loans, assuming those loans would be available,
will increase our liabilities and future cash commitments.
There are no assurances that we will
be able to obtain further funds required for our continued operations. We are pursuing various financing alternatives to meet our
immediate and long-term financial requirements. There can be no assurance that additional financing will be available to us when
needed or, if available, that it can be obtained on commercially reasonable terms. If we are not able to obtain the additional
financing on a timely basis, we will be forced to scale down or perhaps even cease the operation of our business.
Future Financings
As of December 31, 2017, we had cash
of $74 and we estimate that we will require approximately $92,000 to fund our business operations over the next twelve months.
In addition to funding the Company’s general, administrative and corporate expenses the Company is obligated to address its
current obligations totaling $1,869,229. Accordingly, we do not have sufficient funds for planned operations and we will be required
to raise additional funds for operations after that date. We anticipate continuing to rely on equity sales of our common shares
or shareholder loans in order to continue to fund our
business operations. Issuances of additional
shares will result in dilution to our existing stockholders. There is no assurance that we will achieve any additional sales of
our equity securities or arrange for debt or other financing to fund our planned activities.
Off-Balance Sheet Arrangements
We have no significant off-balance sheet
arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial
condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material
to stockholders.
Employees
The Company currently has no employees.
There are no plans to hire additional employees as administrative requirements at are now being adequately met by the efforts of
the directors and consultants. Any land development and construction activities will be conducted through consultants and contractors.
New Accounting Standards
We do not expect the adoption of recently issued accounting pronouncements
to have a significant impact on our results of operations, financial position or cash flow.
Application of Critical Accounting
Estimates
The financial statements of our company
have been prepared in accordance with generally accepted accounting principles in the United States. Because a precise determination
of many assets and liabilities is dependent upon future events, the preparation of financial statements for a period necessarily
involves the use of estimates which have been made using careful judgment. The financial statements have, in management’s
opinion, been properly prepared within reasonable limits of materiality and within the framework of the significant accounting
policies summarized below:
The preparation of our financial statements
requires management to make estimates and assumptions regarding future events. These estimates and assumptions affect the reported
amounts of certain assets and liabilities, and disclosure of contingent liabilities.
Stock-based Compensation
The Company accounts for stock-based compensation
using ASC 718 which requires public companies to recognize the cost of services received in exchange for equity instruments, based
on the grant-date fair value of those instruments. The Company uses the Black-Scholes option valuation model to calculate stock-based
compensation at the date of the grant. Option valuation models require the input of highly subjective assumptions, including the
expected price volatility. Changes in assumptions can materially affect the fair value estimate. Compensation expense for unvested
options to non-employees is revalued at each period end and is being amortized over the vesting period of the options.
Convertible Instruments and Beneficial Conversion
Feature
When the Company issues convertible instruments
with detachable instruments, the proceeds of the issuance are allocated between the convertible instrument and other detachable
instruments based on their relative fair values pursuant to ASC 470-20
“Application of Issue No. 98-5 to Certain Convertible
Instruments
. The resulting discount of the convertible instrument is amortized into the Income Statement as interest expense
over the term of the convertible instrument. As at December 31, 2017 and 2016, there were no convertible instruments with detachable
instruments outstanding.
When the Company issues convertible debt securities
with a non-detachable conversion feature that provides for an effective rate of conversion that is below market value on the commitment
date, it is known as a beneficial conversion feature (“BCF”). The Company first assessed the convertible debt securities
to determine if the embedded conversion feature meets the exemption criteria of paragraph 11(a) of ASC 815 “Accounting for
Derivative Instruments and Hedging Activities”. The convertible debt securities outstanding as at December 31, 2017 and 2016,
the embedded conversion features met the exemption criteria to be classified as equity instruments. Pursuant to ASC 470-20 “Accounting
for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios”, the conversion
feature of the security that has characteristics of an equity instrument is measured at its intrinsic value at the commitment date
and is recorded as additional paid in capital. A portion of the proceeds of the security issued is allocated to the conversion
feature equal to its intrinsic value to a maximum of the amount allocated to the convertible instrument. The
resulting discount of the debt instrument is
amortized into income as interest expense using the effective interest rate over the term of the loan. However, due to demand nature
of the convertible debt securities, the discount of the debt instrument was immediately expensed.
These accounting policies are applied
consistently for all years presented. Our operating results would be affected if other alternatives were used. Information about
the impact on our operating results is included in the notes to our financial statements.
Item
8. Financial Statements AND SUPPLEMENTARY DATA.
STRATEGIC INTERNET INVESTMENTS, INCORPORATED
FINANCIAL STATEMENTS
December 31, 2017 and 2016
(
Expressed in
U.S. Dollars
)
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
To the Board of Directors and
Stockholders of Strategic Internet Investments, Incorporated
Opinion on the Financial Statements
We have audited the accompanying balance
sheets of Strategic Internet Investments, Incorporated (the Company) as of December 31, 2017 and 2016, and the related statements
of income, stockholders’ deficit, and cash flows for each of the years in the two-year period ended December 31, 2017, and
the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly,
in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations
and its cash flows for each of the years in the two-year period ended December 31, 2017, in conformity with accounting principles
generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility
of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based
on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB)
and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with
the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have,
nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required
to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the
effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures
to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures
that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures
in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made
by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a
reasonable basis for our opinion.
As discussed in Note 1 to the financial
statements, the Company’s continued losses from operations raise substantial doubt about its ability to continue as a going
concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
|
LBB & Associates Ltd., LLP
|
|
We have served as the Company's auditor since 2016.
|
|
Houston, Texas
|
April 13, 2018
|
|
|
|
|
|
December 31,
2017
|
|
December 31,
2016
|
ASSETS
|
|
|
|
|
|
|
|
|
|
Current:
|
|
|
|
|
Cash
|
$
|
74
|
$
|
375
|
|
|
|
|
|
TOTAL ASSETS
|
$
|
74
|
$
|
375
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ DEFICIT
|
|
|
|
|
|
|
|
|
|
Current:
|
|
|
|
|
Accounts payable
|
$
|
127,359
|
$
|
97,987
|
Accounts payable - related parties
|
|
28,737
|
|
23,738
|
Accrued liabilities - related party
|
|
60,000
|
|
-
|
Accrued interest
|
|
23,253
|
|
16,363
|
Accrued interest - related parties
|
|
721,657
|
|
613,205
|
Convertible loan payable
|
|
50,000
|
|
50,000
|
Loans payable - related parties
|
|
439,248
|
|
385,906
|
Convertible notes payable - related parties
|
|
418,975
|
|
418,975
|
|
|
|
|
|
TOTAL LIABILITIES
|
|
1,869,229
|
|
1,606,174
|
|
|
|
|
|
Commitments
|
|
|
|
|
|
|
|
|
|
Stockholders’ deficit:
|
|
|
|
|
Capital Stock
|
|
|
|
|
Class A Convertible Preferred stock, $0.001 par value
|
|
|
|
|
10,000,000 authorized, 198,000 outstanding
|
|
198
|
|
198
|
Class B Preferred stock, $0.001 par value
|
|
|
|
|
10,000,000 authorized, none outstanding
|
|
-
|
|
-
|
Common stock, $0.001 par value
|
|
|
|
|
100,000,000 authorized
|
|
|
|
|
40,359,391 (2016: 40,359,391) issued and outstanding
|
|
40,359
|
|
40,359
|
Additional paid-in capital
|
|
12,156,359
|
|
12,156,359
|
Accumulated deficit
|
|
(14,066,071)
|
|
(13,802,715)
|
|
|
|
|
|
TOTAL STOCKHOLDERS’ DEFICIT
|
|
(1,869,155)
|
|
(1,605,799)
|
|
|
|
|
|
TOTAL STOCKHOLDERS’ DEFICIT AND LIABILITIES
|
$
|
74
|
$
|
375
|
|
Years ended
December 31,
|
|
|
2017
|
|
2016
|
|
|
|
|
|
General and Administrative Expenses
|
|
|
|
|
Accounting and audit fees
|
$
|
26,269
|
$
|
39,412
|
Communications
|
|
-
|
|
4,740
|
Legal fees
|
|
44,998
|
|
21,103
|
Management fees
|
|
65,000
|
|
4,100
|
Office and general
|
|
560
|
|
1,452
|
Regulatory fees
|
|
7,592
|
|
10,507
|
Transfer agent fees
|
|
2,400
|
|
1,950
|
|
|
|
|
|
Operating loss
|
|
(146,819)
|
|
(83,264)
|
|
|
|
|
|
Other income and expense
|
|
|
|
|
Interest
|
|
(115,341)
|
|
(104,702)
|
Loss on foreign exchange
|
|
(1,196)
|
|
(21)
|
|
|
|
|
|
Net loss for the year
|
$
|
(263,356)
|
$
|
(187,987)
|
|
|
|
|
|
Basic and diluted loss per share
|
|
$(0.01)
|
|
$(0.00)
|
|
|
|
|
|
Weighted average number of common shares outstanding
|
|
40,359,391
|
|
40,359,391
|
|
Years ended
December 31,
|
|
|
2017
|
|
2016
|
Operating Activities
|
|
|
|
|
Net loss for the year
|
$
|
(263,356)
|
$
|
(187,987)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
Unrealized foreign exchange gain
|
|
952
|
|
567
|
Changes in non-cash item:
|
|
|
|
|
Accounts payable
|
|
29,372
|
|
13,864
|
Accounts payable – related parties
|
|
5,000
|
|
3,011
|
Accrued liability – related party
|
|
60,000
|
|
|
Accrued interest
|
|
6,890
|
|
6,257
|
Accrued interest – related parties
|
|
108,452
|
|
98,445
|
|
|
|
|
|
Net cash used in operating activities
|
|
(54,594)
|
|
(65,843)
|
|
|
|
|
|
Financing Activities
|
|
|
|
|
Proceeds from Loans payable – related parties
|
|
54,293
|
|
51,588
|
|
|
|
|
|
Net cash provided by financing activities
|
|
54,293
|
|
51,588
|
|
|
|
|
|
Decrease in cash during the year
|
|
(301)
|
|
(14,255)
|
|
|
|
|
|
Cash, beginning of the year
|
|
375
|
|
14,630
|
|
|
|
|
|
Cash, end of the year
|
$
|
74
|
$
|
375
|
|
|
|
|
|
Supplementary disclosure of cash flows:
|
|
|
|
|
Cash paid for Interest
|
$
|
-
|
$
|
-
|
Cash paid for Taxes
|
$
|
-
|
$
|
-
|
|
Class A Convertible
|
|
Additional
|
|
|
|
Preferred Stock
|
Common Stock
|
Paid-In
|
Accumulated
|
|
|
Stock
|
Par Value
|
Stock
|
Par Value
|
Capital
|
Deficit
|
Total
|
|
|
|
|
|
|
|
|
Balances, December 31, 2015
|
198,000
|
$ 198
|
40,359,391
|
$ 40,359
|
$ 12,156,359
|
$ (13,614,728)
|
$ (1,417,812)
|
Net loss
|
-
|
-
|
-
|
-
|
-
|
(187,987)
|
(187,987)
|
|
|
|
|
|
|
|
|
Balances, December 31, 2016
|
198,000
|
198
|
40,359,391
|
40,359
|
12,156,359
|
(13,802,715)
|
(1,605,799)
|
Net loss
|
-
|
-
|
-
|
-
|
-
|
(263,356)
|
(263,356)
|
|
|
|
|
|
|
|
|
Balances, December 31, 2017
|
198,000
|
$ 198
|
40,359,391
|
$ 40,359
|
$ 12,156,359
|
$ (14,066,071)
|
$ (1,869,155)
|
|
1.
|
Nature of Operations and Ability to Continue as a Going Concern
|
The Company is devoting its efforts
to exploring new investment opportunities, including real estate development projects.
These financial statements have
been prepared in accordance with generally accepted accounting principles applicable to a going concern, which assumes that the
Company will be able to meet its obligations and continue its operations for its next fiscal year. Realization values may be substantially
different from carrying values as shown and these financial statements do not give effect to adjustments that would be necessary
to the carrying values and classification of assets and liabilities should the Company be unable to continue as a going concern.
At December 31, 2017, the Company had not yet achieved profitable operations, has an accumulated deficit of $14,066,071 since its
inception, has a working capital deficiency of $1,869,155 and expects to incur further losses in the development of its business,
all of which casts substantial doubt about the Company’s ability to continue as a going concern. Management anticipates that
it requires approximately $92,000 over the twelve months ended December 31, 2018 to continue operations and estimates it will accrue
interest expenses of $119,000 and $34,000 over the next 12 months on loans and management fees due to related parties, respectively.
In addition to funding the Company’s general, administrative and corporate expenses the Company is obligated to address its
current obligations totaling $1,869,229. To the extent that cash needs are not achieved from operating cash flow and existing cash
on hand, the Company will be required to raise necessary cash through shareholder loans, equity issuances and/or other debt financing.
Amounts raised will be used to continue the development of the Company's investment activities, and for other working capital purposes,
which may be dilutive to existing shareholders. The Company currently has no agreement in place to raise funds for current liabilities
and no guarantee can be given that we will be able to raise funds for this purpose on terms acceptable to the company. Failure
to raise funds for general, administrative and corporate expenses and current liabilities could result in a severe curtailment
of the company operations. These circumstances raise substantial doubt about our ability to continue as a going concern, as described
in the explanatory paragraph to our independent auditors’ report on the December 31, 2017 and 2016 financial statements which
are included with this annual report. The financial statements do not include any adjustments that might result from the outcome
of that uncertainty.
|
|
The Company’s ability to continue as a going concern is dependent upon its ability to generate
future profitable operations and/or to obtain the necessary financing to meet its obligations and repay its liabilities arising
from normal business operations when they come due. Management has no formal plan in place to address this concern but considers
that the Company will be able to obtain additional funds by equity financing and/or related party advances; however there is no
assurance of additional funding being available. The Company has historically satisfied its capital needs primarily by issuing
equity securities and/or related party advances. Management plans to continue to provide for its capital needs during the year
ended December 31, 2018, by issuing equity securities and/or related party advances.
|
Summary of Significant
Accounting Policies
|
|
The financial statements of the Company have been prepared in accordance with accounting principles
generally accepted in the United States of America. Because a precise determination of many assets and liabilities is dependent
upon future events, the preparation of financial statements for a period necessarily involves the use of estimates, which have
been made using careful judgment. Actual results may differ from those estimates.
|
The financial statements have, in
management’s opinion, been properly prepared within the framework of the significant accounting policies summarized below:
|
|
Cash and Cash Equivalents
|
The Company
classifies all highly liquid instruments with an original maturity of three months or less at the time of purchase as cash equivalents.
Use
of Estimates
The preparation of financial statements
in conformity with accounting principles generally accepted in the United States of America 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. Actual results
could differ from those estimates.
Income Taxes
The Company accounts for income
taxes in accordance with Accounting Standards Codification ("ASC") 740,
Income
Taxes
. There are two major
components of income tax expense, current and deferred. Current income tax expense approximates cash to be paid or refunded for
taxes for the applicable period. Deferred tax assets and liabilities are determined based upon the difference between the financial
statement and tax basis of assets and liabilities as measured by the enacted tax rates, which will be in effect when these differences
reverse. Deferred tax expense or benefit is the result of changes between deferred tax assets and liabilities.
A valuation allowance is established
when, based on an evaluation of objective verifiable evidence, it is more likely than not that some portion or all of deferred
tax assets will not be realized.
|
|
Basic and Diluted Loss Per Share
|
The basic loss per
share is computed by dividing net loss available to common stockholders by the weighted average number of common shares outstanding.
Diluted loss per common share is computed similar to basic loss per share except that the denominator is increased to include the
number of additional shares that would have been outstanding if the potential common shares had been issued and if the additional
common shares were dilutive. In addition, in computing the dilutive effect of convertible securities, the numerator is adjusted
to add back any convertible preferred dividend and the after-tax amount of interest in the period associated with any convertible
debt. The numerator is also adjusted for any other changes in income or loss that would result from the assumed conversion of these
potential common shares. The if-converted method is used in calculating diluted loss per share for the convertible debentures.
The treasury stock method is used in calculating diluted loss per share, which assumes that any proceeds received from the exercise
of in-the-money stock options and share purchase warrants would be used to purchase common shares at the average market price for
the period.
Common share equivalents
represent the dilutive effect of the assumed exercise of the outstanding stock options and warrants, using the treasury stock method,
and the dilutive effect of the assumed conversion of convertible debt and convertible preferred shares, using the if-converted
method, only if the common stock equivalents are considered dilutive based upon the Company’s net loss position at the calculation
date.
Foreign Currency Translation
|
|
Foreign currency transactions are translated into U.S. dollars, the functional and reporting currency,
by the use of the exchange rate in effect at the date of the transaction, in accordance with ASC 830,
Foreign Currency Matters
.
At each balance sheet date, recorded balances that are denominated in a currency other than U.S. dollars are adjusted to reflect
the current exchange rate. Any exchange gains or losses are included in the Statements of Operations.
|
Financial Instruments
The carrying value of cash, accounts
payable, and loans payable approximates fair value because of the demand or short term to maturity of such instruments. Unless
otherwise noted, it is management’s opinion that the Company is not exposed to significant interest, currency or credit risks
arising from these financial instruments.
As a basis for considering market
participant assumptions in fair value measurements, ASC 820-10 establishes a fair value hierarchy that distinguishes between market
participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that
are classified within Levels 1 and 2 of the hierarchy) and the
reporting entity’s own assumptions
about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).
The fair value hierarchy, as defined
by ASC 820-10, contains three levels of inputs that may be used to measure fair value as follows:
▪
|
Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities;
|
▪
|
Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly such as interest rates, foreign exchange rates, and yield curves that are observable at commonly quoted intervals; and
|
▪
|
Level 3 inputs are unobservable inputs for the asset or liability which are typically based on an entity’s own assumptions, as there is little, if any, related market activity.
|
In instances where the determination of the fair value
measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within
which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement
in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its
entirety requires judgment and considers factors specific to the asset or liability.
Certain assets and liabilities are
measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis but
are subject to fair value adjustments only in certain circumstances (for example, when there is evidence of impairment). There
were no assets or liabilities measured at fair value on a nonrecurring basis during the periods ended December 31, 2017 and 2016.
Stock-based Compensation
|
|
The Company accounts for stock-based compensation using ASC 718 which requires public companies
to recognize the cost of services received in exchange for equity instruments, based on the grant-date fair value of those instruments.
The Company uses the Black-Scholes option valuation model to calculate stock-based compensation at the date of the grant. Option
valuation models require the input of highly subjective assumptions, including the expected price volatility. Changes in assumptions
can materially affect the fair value estimate. Compensation expense for unvested options to non-employees is revalued at each period
end and is being amortized over the vesting period of the options.
|
Convertible Instruments and Beneficial
Conversion Feature
When the Company issues convertible
instruments with detachable instruments, the proceeds of the issuance are allocated between the convertible instrument and other
detachable instruments based on their relative fair values. The resulting discount of the convertible instrument is amortized into
income as interest expense over the term of the convertible instrument. As of December 31, 2017 and 2016, there were no convertible
instruments with detachable instruments outstanding.
When the Company issues convertible
debt securities with a non-detachable conversion feature that provides for an effective rate of conversion that is below market
value on the commitment date, it is known as a beneficial conversion feature. For the convertible debt securities outstanding as
at December 31, 2017 and 2016, the embedded conversion features met the exemption criteria to be classified as equity instruments.
The conversion feature of the security that has characteristics of an equity instrument is measured at its intrinsic value at the
commitment date and is recorded as additional paid in capital. A portion of the proceeds of the security issued is allocated to
the conversion feature equal to its intrinsic value to a maximum of the amount allocated to the convertible instrument. The resulting
discount of the debt instrument is amortized into income as interest expense using the effective interest rate over the term of
the loan. However, due to demand nature of the convertible debt securities, the discount of the debt instrument was immediately
expensed.
New Accounting Standards
The Company does not expect the
adoption of recently issued accounting pronouncements to have a significant impact on our results of operations, financial position
or cash flow.
|
2.
|
Convertible loan payable
|
On January 5, 2014 Company entered
into a Convertible Loan Agreement and issued a convertible note for $50,000. This loan is unsecured, bearing interest at 10% per
annum, and was repayable at maturity on January 7, 2015, or on demand after that date. At any time, the lender may convert the
principle amount of the loan into units of the Company, each unit consisting of one common share and one non-transferable share
purchase warrant, at a conversion rate of $0.20 per unit. Each share purchase warrant entitles the holder to purchase one additional
common share for a period of two years from the warrant issue date, at an exercise price of $0.20 during the first year, and $0.35
during the second year. As of December 31, 2017 and 2016, $23,253 and $16,363, respectively, was accrued in interest on the note.
The Company calculated a beneficial
conversion feature on the convertible note of $22,826, and this amount was fully amortized to interest expense during the year
ended December 31, 2014. Upon conversion of this loan, which triggers the issuance of the warrants, the $42,000 fair value of the
warrants will be recognized as an interest expense and credited to additional paid-in capital.
The fair value of the warrants was
estimated at the date the convertible note was issued using the Black-Scholes valuation model. The Black-Scholes valuation model
requires the input of highly subjective assumptions including the expected price volatility.
|
3.
|
Loans payable – related parties
|
|
December 31,
|
December 31,
|
|
2017
|
2016
|
|
|
|
a) Loan payable to a company controlled by a director of the Company plus accrued interest of $23,912 (2016 - $20,488). The loan is unsecured, bearing interest at 12% per annum and is repayable on demand.
|
$ 6,802
|
$ 6,802
|
|
|
|
b) Loans payable to a company controlled by a director of the Company. The loans are unsecured, non-interest bearing, and repayable upon demand.
|
326,735
|
325,521
|
|
|
|
c) Loans payable to a company controlled by a former director of the Company. The loans are unsecured, non-interest bearing, and repayable upon demand.
|
7,694
|
7,295
|
|
|
|
d) Loans payable to a director of the Company. The loans are unsecured, non-interest bearing, and repayable upon demand.
|
98,017
|
46,288
|
|
|
|
Total Loans Payable – related parties
|
$ 439,248
|
$ 385,906
|
|
4.
|
Convertible notes payable – related parties
|
|
December 31,
|
December 31,
|
|
2017
|
2016
|
|
|
|
a) Loan payable to a company controlled by a former director of the Company, plus accrued interest payable of $278,146 (2016 - $236,584), pursuant to a Convertible Loan Agreement. The loan is unsecured, bearing interest at 10% per annum and is repayable on demand. The lender may at any time convert the principal sum into units of the Company. Each unit will consist of one common share plus one common share purchase warrant. Each warrant is exercisable for a period of 2 years from the date of conversion at a price ranging from $0.05 to $0.23. The principal sum of $163,766 may be converted into 2,320,858 units. Upon conversion of this loan, the $73,685 fair value of the warrants, as measured at inception, will be recognized as an interest expense and credited to additional paid-in capital.
|
$ 163,766
|
$ 163,766
|
|
|
|
b) Loan payable to a company controlled by a director of the Company, plus accrued interest of $419,598 (2016 - $356,133), pursuant to a Convertible Loan Agreement. The loan is unsecured, bearing interest at 10% per annum and is repayable on demand. The lender may at any time convert the principal sum into units of the Company. Each unit will consist of one common share plus one common share purchase warrant. Each warrant is exercisable for a period of 2 years from the date of conversion at a price ranging from $0.05 to $0.12. The principal sum of $255,209 may be converted into 4,526,436 units. Upon conversion of this loan, the $113,338 fair value of the warrants, as measured at inception, will be recognized as an interest expense and credited to additional paid-in capital.
|
255,209
|
255,209
|
|
|
|
Total Convertible Notes Payable – related parties
|
$ 418,975
|
$ 418,975
|
Class A Convertible Preferred
Shares
|
|
The Class A convertible preferred shares issued in 2003 have a par value of $0.001 and are convertible
to common shares at $4.00 per share during the first 180 days following issuance, and thereafter at the average of twenty consecutive
days closing prices, but shall not be less than $1.50 per share or greater than $6.00 per share. The Company has the right to redeem
its Class A convertible preferred stock at any time by paying to the holders thereof the sum of $4 per share.
|
The aggregate liquidation value
of the Class A convertible preferred shares is $792,000. A merger or consolidation of the Company that results in the Company’s
stockholders immediately prior to the transaction not holding at least 50% of the voting power of the surviving entity shall be
deemed a liquidation event.
No common shares were
issued during 2017 and 2016.
|
6.
|
Stock-based Compensation
|
Stock Option Plan
|
|
No options were granted and no compensation expense was recorded during 2016 and 2017.
|
As at December 31, 2017, the Company
had share purchase options outstanding as follows:
Expiration Date
|
Exercise Price
|
Remaining Contractual Life
|
Number of Options
|
|
|
|
|
January 16, 2018
|
$0.12
|
0.04 years
|
2,940,000
|
|
|
|
|
Total options outstanding
|
|
0.04 years
|
2,940,000
|
At December 31, 2017 and 2016 all
the outstanding share purchase options were exercisable. The January 16, 2018 share purchase options expired without being exercised.
7.
Related Party Transactions
The Company was charged the following
by stockholders, directors, by companies controlled by directors and/or stockholders of the Company, and by companies with directors
in common:
|
Year ended December 31,
|
|
2017
|
2016
|
|
|
|
Interest
|
$ 108,452
|
$ 98,445
|
Management fees
|
65,000
|
4,100
|
|
|
|
Total related party transactions
|
$ 173,452
|
$ 102,545
|
|
|
At December 31, 2017, accounts payable - related parties includes $73,211 (2016 - $8,211) due to
two directors, a former director, and a company controlled by a director of the Company in respect of unpaid management fees and
expenses incurred on behalf of the Company.
|
|
|
At December 31, 2017, accounts payable - related parties also includes $15,527 (2016 - $15,527)
of expenses for operating costs paid on behalf of the Company by a company with directors in common.
|
|
|
Management fees relate to a director engaged to provide general management and administrative services.
This director was remunerated for managing the Company’s affairs; he charged the Company $5,000 year ending December 31,
2017 and $3,000 in the comparative 2016 period.
|
In addition,
the Company granted another director a one-time management bonus of $37,500 in recognition of his services to the Company in advancing
its business activities. The Company also agreed to pay the director an ongoing monthly management fee of $2,500 per month effective
April 1, 2017. There were no similar charges in the comparative 2016 period.
|
|
The Company agreed to issue 1,680,000 restricted common shares at $0.05 per share, for a total
consideration of $84,000, as partial settlement of debts due to a director of the Company, in respect of unpaid management fees
payable totaling $45,000, plus $39,000 of loans payable. These shares have not yet been issued.
|
|
|
See note 9 for other related party transactions for Skytower and Marriot.
|
|
|
The tax effects of temporary differences that give rise to deferred tax assets at December 31, 2017 and 2016 are presented
below:
|
|
December 31,
|
|
|
2017
|
|
2016
|
|
|
|
|
|
Net tax operating loss carryforwards
|
$
|
1,477,000
|
$
|
2,369,000
|
Valuation allowance for deferred tax asset
|
|
(1,477,000)
|
|
(2,369,000)
|
|
|
|
|
|
|
$
|
-
|
$
|
-
|
The Company evaluates its valuation
allowance requirements based on projected future operations. When circumstances change and this causes a change in management’s
judgment about the recoverability of deferred tax assets, the impact of the change on the valuation allowance is reflected in current
income.
|
|
At December 31, 2017, the Company has estimated accumulated net operating losses of approximately
$7,031,000 (2016 - $6,768,000) which may be carried forward to reduce taxation income in future years. Per IRS Publication 536,
the non-operating losses expire from 2017 to 2037.
|
As of December 31, 2017, the Company
saw a decrease of approximately $892,000 in deferred tax assets from income tax loss carry forwards. The significant decline in
the carry forwards was due the passage of the Tax Cuts and Jobs Act on December 20, 2017 that reduced effective tax rates for future
periods to 21% from 34%. The decline in value of the income tax loss carry forwards has no impact on our statement of operations.
The change due from the rate change was approximately $947,000 offset by the increase in the net operating loss for the net loss
for the year ended December 31, 2017 of $55,000.
On August 9, 2016, SIII entered
into a Securities Purchase Agreement (the “Kayu Agreement”) to acquire 60% of the issued capital stock Kayu Tekstil
Sanayi Ve Ticaret Limited Sirketi (“Kayu”), a Turkish company, from Najibi Investment Trading FZC (hereinafter “Najibi”),
G7 Entertainment Incorporated, (hereinafter “G7”), Royaltun General Trading LLC., (hereinafter “Royaltun”),
and Soha Investment Inc., (hereinafter “Soha) (jointly hereinafter the “Shareholders”). In consideration for
the Kayu shares, the Company agreed to issue convertible debentures in the amount of $30,205,939 to the Shareholders of Kayu. This
is a related party transaction as Mr. Abbas Salih is a Director and Officer, as well as the controlling shareholder, of SIII and
has an ownership interest in and/or control of the Shareholders. Kayu has an agreement to acquire the Skytower Hotel Atayol in
Akcakoca, Turkey (the “Skytower Property”), subject to the successful discharge of a debt on the Skytower Property
and the transfer of title to Kayu.
Upon discharge of the debt on the Skytower Property, the Company will issue convertible debentures in the amount of $12,656,768
to Najibi, a Company that settled the existing debt on the Skytower Property.
Upon transfer of the Skytower Property title to Kayu, the Company will issue convertible debentures in the amount of $20,137,293
to a shareholder of Kayu to acquire the remaining 40% of the capital stock of Kayu. Upon completion of these transactions, SIII
will own 100% of Kayu.
The Company has the right to terminate
the agreements to acquire the issued capital stock of Kayu and cancel the associated convertible debentures if the vendors do not
complete certain closing conditions.
As of the filing date, the closing
conditions in the Kayu agreement have not yet been met, and the convertible debentures have not been issued to the Shareholders.
Marriott:
On October 14, 2016, the Company
and the Shareholders mutually agreed to terminate their agreements and cancel the associated convertible debentures. At the same
time, the Company and the Shareholders entered into new agreements to acquire 50% of the issued capital stock of Par-San. In consideration
for the Par-San shares, the Company agreed to issue convertible debentures in the amount of $47,400,000 to the Shareholders. This
is a related party transaction as Mr. Abbas Salih is a Director and Officer, as well as the controlling shareholder, of SIII and
has an ownership interest in and/or control of the Shareholders.
This is a related party transaction
as Mr. Abbas Salih is a Director and Officer, as well as the controlling shareholder, of SIII and has an ownership interest in
and/or control of the Shareholders.
In October 2017, the Company and
the Shareholders agreed to amend the agreements mentioned above, and entered into a Subscription Agreement whereby they agreed
to the issuance of Convertible Bonds in the principal amount of $60,000,000, as further described below.
On October 25, 2017, Strategic entered
into a Subscription Agreement (the “Subscription Agreement”) with Najibi Investment Trading FZC (“Najibi”),
pursuant to which Najibi agreed to purchase $60 million at 12% interest.. Convertible Bonds due 2022 issued by the Company (the
“Bonds”). The Subscription Agreement was entered into pursuant to the purchase of 50.1% of the stock of Parsan Turizm.
The Subscription Agreement provides
that the Bonds were issued to Najibi on a deferred payment basis. Within 21 business days, Najibi must transfer 50% of the shares
of Parsan Turizm (valued at $20.7 million) to the Company and pay to the Company $39,300,000, of which approximately $23.7 million
will be used to pay the mortgage on the Marriott, and the remaining approximately $15.6 million will be paid to the Company as
working capital.
The Bonds have the following terms:
• 12% interest due on October
25th of each year until maturity
• Principal due October
25, 2022
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•
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Bonds may be converted into common stock of the Company at the rate of $1.00 per share at the election
of the holder
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• Bonds may be redeemed
in whole (but not in part) at any time
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•
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A holder may require the Company to redeem all (but not part) of all of such holder’s Bonds
upon a change of control of the Company
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In preparation for Closing, the
Company has executed the Bonds; however, they are not binding obligations of the Company until all closing conditions are satisfied
or waived by the Company.
Najibi is a related party to our
Chief Executive Officer and Director, Abbas Salih, as a result of Mr. Salih’s ownership interest in and/or control of Najibi.
It is contemplated that Najibi will either transfer part of the Bonds or the sales proceeds therefrom to G7 Entertainment Incorporated,
SOHA Investment & Partners, and Royaltun General Trading L.L.C., pursuant to the Securities Purchase Agreements entered into
on August 30, 2016 among the Company and those parties. G7 Entertainment Incorporated, SOHA Investment & Partners, and Royaltun
General Trading L.L.C. are also related parties to Mr. Salih due to Mr. Salih’s ownership interest in and/or control of these
entities.
The Company also intends to purchase
0.1% of the stock of Parsan Turizm from one or more of Parsan Turizm’s current shareholders.
All of the above mentioned convertible debentures have the following
terms:
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b)
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Mature on December 31, 2021 (the “Maturity Date”).
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c)
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At any time prior to the Maturity Date, the convertible debenture holder may convert the debenture into common stock of the
Company at a price of $1.00 per share.
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d)
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The convertible debenture will automatically convert into common stock upon the closing price of the Company’s common
stock closing above $1.00 per share for 20 consecutive trading days.
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The Company has not yet determined the accounting treatment
for the above mentioned series of transactions.
The Company was advanced $2,435 by a director to pay
certain service providers. The advance is unsecured, non-interest bearing and repayable on demand.
Item 9A. Controls and Procedures.
Disclosure controls and procedures
As required by Rule 13(a)-15 under the
Exchange Act, in connection with this annual report on Form 10-K, under the direction of our Chief Executive Officer and Chief
Financial Officer, we have evaluated our disclosure controls and procedures as of December 31, 2017, including the remedial actions
discussed below, and we have concluded that, as of December 31, 2017, our disclosure controls and procedures were not effective.
It should be noted that while our management
believes our disclosure controls and procedures provide a reasonable level of assurance, they do not expect that our disclosure
controls and procedures or internal controls will prevent all error and all fraud. A control system, no matter how well conceived
or operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the
design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered
relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute
assurance that all control issues and instances of fraud, if any, within our company have been detected. These inherent limitations
include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of simple error or
mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people,
or by management override of the controls. The design of any system of internal control is based in part upon certain assumptions
about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals
under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree
of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control
system, misstatements due to error or fraud may occur and not be detected.
Internal control over financial reporting
Management is responsible for establishing
and maintaining internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Our management
evaluated, under the supervision and with the participation of our Chief Executive Officer, the effectiveness of our internal control
over financial reporting as of December 31, 2017.
Based on its evaluation under the framework
in Internal Control—Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission,
our management concluded that our internal control over financial reporting was not effective as of December 31, 2017, due to the
existence of significant deficiencies constituting material weaknesses, as described in greater detail below. A material weakness
is a control deficiency, or combination of control deficiencies, such that there is a reasonable possibility that a material misstatement
of the annual or interim financial statements will not be prevented or detected on a timely basis.
Limitations on Effectiveness of Controls
Our Chief Executive Officer and Chief
Financial Officer do not expect that our disclosure controls or our internal control over financial reporting will prevent all
errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance
that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are
resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations
in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud,
if any, within our company have been detected. These inherent limitations include the realities that judgments in decision-making
can be faulty, and that breakdowns can occur because of a simple error or mistake. Additional controls can be circumvented by the
individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any
system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance
that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become
inadequate
because of changes in conditions, or
the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective
control system, misstatements due to error or fraud may occur and not be detected.
Material Weaknesses Identified
In connection with the preparation of
our financial statements for the year ended December 31, 2017, certain significant deficiencies in internal control became evident
to management that represents material weaknesses, including:
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a)
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Insufficient segregation of duties in our finance and accounting functions due to limited personnel.
During the year ended December 31, 2017, we had limited personnel that performed nearly all aspects of our financial reporting
process, including, but not limited to, access to the underlying accounting records and systems, the ability to post and record
journal entries and responsibility for the preparation of the financial statements. This creates certain incompatible duties and
a lack of review over the financial reporting process that would likely result in a failure to detect errors in spreadsheets, calculations,
or assumptions used to compile the financial statements and related disclosures as filed with the SEC. These control deficiencies
could result in a material misstatement to our interim or annual financial statements that would not be prevented or detected;
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b)
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Insufficient corporate governance policies. Although we have corporate governance policies which
provides broad guidelines for corporate governance, our corporate governance activities and processes are not always formally documented.
Specifically, decisions made by the board to be carried out by management should be documented and communicated on a timely basis
to reduce the likelihood of any misunderstandings regarding key decisions affecting our operations and management; and
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c)
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Our company’s accounting personnel does not have sufficient technical accounting knowledge
relating to accounting for income taxes and complex US GAAP matters. In consultation with our auditors, management has corrected
material errors, if any, prior to the release of our company’s December 31, 2017 financial statements.
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The Company believes these material
weaknesses are partially mitigated by: the active involvement of senior management and the board of directors in all the affairs
of the Company; open lines of communication within the Company; the present levels of activities and transactions within the Company
being readily transparent; the thorough review of the Company’s financial statements by management, and the board of directors.
However, these mitigating factors will not necessarily prevent the likelihood that a material misstatement will not occur as a
result of the aforesaid weaknesses in the Company’s internal controls over financial reporting. A system of internal controls
over financial reporting, no matter how well conceived or operated, can provide only reasonable, not absolute, assurance that the
objectives of the internal controls over financial reporting are met.
Plan for Remediation of Material Weaknesses
We intend to take appropriate and reasonable
steps to make the necessary improvements to remediate these deficiencies when they are reasonable and cost-effective. We intend
to consider the results of our remediation efforts and related testing as part of our year-end 2018 assessment of the effectiveness
of our internal control over financial reporting.
Subject to receipt of additional financing,
we intend to undertake the below remediation measures to address the material weaknesses described in this annual report. Such
remediation activities include the following:
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·
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We intend to continue to update the documentation of our internal control processes, including
formal risk assessment of our financial reporting processes.
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Changes in Internal Controls over Financial
Reporting
There were no changes in our internal
control over financial reporting during the fourth quarter of our fiscal year ended December 31, 2017 that have materially affected
or are reasonably likely to materially affect, our internal control over financial reporting.