UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
| x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE YEAR ENDED DECEMBER 31, 2017
OR
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ________ to ________
Commission file number 000-55066
CHESS SUPERSITE CORPORATION
(Exact name of registrant as specified in its charter)
| Delaware | 46-3621499 | |
|
(State or Other Jurisdiction of Incorporation or Organization) |
(IRS Employer Identification No.) |
|
1131A Leslie Street, Suite 101, Toronto, Ontario, Canada |
M3C 3L8 | |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code +1 647-927-4644
Securities registered under Section 12(b) of the Act:
None
Securities registered under Section 12(g) of the Act:
Common Stock, Par Value $0.0001
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x
Indicate by check mark whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the last 90 days.
Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes x No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer, non-accelerated filer, and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer ¨
Accelerated filer ¨
Non-accelerated filer ¨
Smaller reporting company x
Emerging growth company x
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act x
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter was $163,208 as of June 30, 2017.
State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: As of March 23, 2018, the registrant has 25,960,163 shares of Common Stock issued and outstanding.
TABLE OF CONTENTS
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CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS
This Annual Report on Form 10-K contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements discuss matters that are not historical facts. Because they discuss future events or conditions, forward-looking statements may include words such as “anticipate,” “believe,” “estimate,” “intend,” “could,” “should,” “would,” “may,” “seek,” “plan,” “might,” “will,” “expect,” “anticipate,” “predict,” “project,” “forecast,” “potential,” “continue” negatives thereof or similar expressions. Forward-looking statements speak only as of the date they are made, are based on various underlying assumptions and current expectations about the future and are not guarantees. Such statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, level of activity, performance or achievement to be materially different from the results of operations or plans expressed or implied by such forward-looking statements.
We cannot predict all of the risks and uncertainties. Accordingly, such information should not be regarded as representations that the results or conditions described in such statements or that our objectives and plans will be achieved and we do not assume any responsibility for the accuracy or completeness of any of these forward-looking statements. These forward-looking statements are found at various places throughout this Annual Report on Form 10-K and include information concerning possible or assumed future results of our operations, including statements about potential acquisition or merger targets; business strategies; future cash flows; financing plans; plans and objectives of management; any other statements regarding future acquisitions, future cash needs, future operations, business plans and future financial results, and any other statements that are not historical facts.
These forward-looking statements represent our intentions, plans, expectations, assumptions and beliefs about future events and are subject to risks, uncertainties and other factors. Many of those factors are outside of our control and could cause actual results to differ materially from the results expressed or implied by those forward-looking statements. In light of these risks, uncertainties and assumptions, the events described in the forward-looking statements might not occur or might occur to a different extent or at a different time than we have described. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of the Annual Report on Form 10-K. All subsequent written and oral forward-looking statements concerning other matters addressed in this Annual Report on Form 10-K and attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this Annual Report on Form 10-K.
Except to the extent required by law, we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, a change in events, conditions, circumstances or assumptions underlying such statements, or otherwise.
USE OF CERTAIN DEFINED TERMS
Except as otherwise indicated by the context, references in this report to “we,” “us,” “our,” the “Company,” or “Chess Supersite” are to Chess Supersite Corporation.
In addition, unless the context otherwise requires and for the purposes of this report only:
| · | “Exchange Act” refers to the Securities Exchange Act of 1934, as amended; | |
| · | “SEC” refers to the United States Securities and Exchange Commission; | |
| · | “Securities Act” refers to the Securities Act of 1933, as amended; |
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History
We were incorporated in the State of Delaware on July 2, 2013, under our original name of River Run Acquisition Corporation. On May 5, 2014, we issued 500,000 shares of common stock to Rubin Schindermann and 500,000 shares of Common Stock to Alexander Starr. With the issuance of these shares and the redemption of 19,500,000 shares of common stock issued to our original officers, directors and shareholders, we effected a change of control. Mr. Schindermann and Mr. Starr became our new officers and directors. They accepted the resignations of our original founding officers and directors. Effective May 13, 2014, the Company changed its name to Chess Supersite Corporation.
On July 23, 2014, we acquired certain assets (“Acquisition”) of Chess Supersite, Inc., a corporation existing under the laws of Ontario, Canada (“Chess Canada”). The Acquisition was consummated pursuant to the terms of the Asset Purchase Agreement and the issuance of 5,000,000 shares of our common stock to Chess Canada. In the Acquisition, we acquired all right, title and interest in and to the properties, assets, interests and rights of Chess Canada, including the contracts and intellectual property which are related to the business of developing, operating and maintaining a website focused on the game of chess. Chess Supersite, Inc. is under the common control of Rubin Schindermann and Alexander Starr.
Overview
The Company operates an online chess site featuring sophisticated playing zones, game broadcasts with software analyses and top analysts' commentaries, education and other chess oriented resources. We believe that chess players have two major needs: (i) to play against each other and (ii) to watch chess matches between to players including Grandmasters. To meet that need , we have developed “Chess Stars” as an interactive and educational website that allows chess players to play online, watch broadcasted chess tournaments, learn to play and improve their skills and to participate in our patent-pending “Choose Your Moves and Win” contests. Utilizing advanced two-tier architecture, “Chess Stars” can support virtually an unlimited range of content and services designed to attract viewers. With a model similar to that of TV poker, viewers are able to see an odds matrix for any position on the chess board. Percentage of success for each move is based on statistics, computer analysis and our proprietary value calculations. The viewing of chess games is particularly adaptable to the Internet to allow for real time or archival viewing while enjoying the comments, announcements and analyses of top chess experts. We anticipate we will be able to deliver high quality viewing and game-playing experiences featuring broadcasts of top worldwide games, education, interactivity, playing and other services and facilitate the emergence of chess as a mainstream sport.
In October 2016, we started our Chess Stars Club Membership Program. Club members enjoy free entry to all events, including our cash prize events. Club membership costs $12.95 per month or $99.00 per year. At the present time, we have sold 93 Club memberships. We have derived our revenues at date from the sale of Club memberships and our live events such as Chess Stars Camps, live chess tournaments and Chess Festivals with attendees paying on the average of $50.00 per person.
We have spent approximately $470,000 on software development and have issued shares fair valued at approximately $1.9mn to consultants and advisors. These expenses have been partially capitalized as Intangible Assets and the remaining part has been reported by us on the statement of operations as website development, software development and advisory and consulting expenses, and represent a major value to the Company and its investors.
Effective March 1, 2016, the Company issued its Non-Negotiable Convertible Promissory Notes (“Notes”) to two private investors in the aggregate principal amount of $300,000. Each of the Notes was in the principal amount of $150,000 with a maturity date of September 1, 2016 (“Maturity Date”), at which time the outstanding principal and interest balance was due and payable. Each of the Notes is convertible into Common Stock of the Company at a conversion price equal to 45% of the lowest trading price of the Common Stock as reported on the OTC Markets Group’s OTC Pink quotation service. The Notes provide that the holders cannot exercise their respective rights of conversion prior to the Maturity Date and that any such conversion is limited to the holders beneficially holding not more than 4.99% of the Company’s then issued and outstanding Common Stock after conversion.
Effective May 19, 2016, the Company completed a private funding transaction with a private institutional investor under the terms of the Company’s 8% Convertible Redeemable Note (“Note”) in the principal amount of $75,000.00 dated May 19, 2016. The maturity date of the Note was May 19, 2017 (“Maturity Date”), at which time the outstanding principal and interest balance was due and payable. The Note provides, among other things, that in the event the Note holder exercises the right of conversion, the conversion price was equal to 52% of the lowest closing bid price of the Company’s common stock for the twenty (20) trading days prior to the date of conversion. The Note further provides that such conversion was limited to the holder beneficially holding not more than 4.99% of the Company’s then issued and outstanding common stock after the conversion. The proceeds of the Note were used by the Company for general working capital purposes.
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On September 15, 2016, we issued a Convertible Promissory Note (“Crown Bridge Note”) to Crown Bridge Partners, LLC (“Crown Bridge”) in the principal amount of $30,000 pursuant to a Securities Purchase Agreement of the same date. Under the Crown Bridge Note, Crown Bridge has the right to convert all or any a part of the outstanding principal amount and accrued and unpaid interest into shares of our Common Stock at the conversion price equal to a 45% discount of the market price of our Common Stock. The Crown Bridge Note contains a provision limiting the number of shares issuable upon conversion to not more than 4.99% of the issued and outstanding common stock of the Company at the time of conversion. In addition, Crown Bridge has “piggy-back” registration rights covering our Common Stock issued upon conversion of the Crown Bridge Note in the event we file a registration statement for any other of our securities.
On October 18, 2016, we entered into a Securities Purchase Agreement (“Blackbridge Purchase Agreement”) with Blackbridge Capital Growth Fund, LLC (“Blackbridge Capital”). Pursuant to the Blackbridge Purchase Agreement, the maximum draw down amount allowed is equal to the lesser of (i) $125,000 or (ii) 200% of the average daily trading volume of our Common Stock for the ten (10) trading days immediately preceding the draw down notice. Pursuant to the Blackbridge Purchase Agreement, we issued our Convertible Promissory Note in the principal amount of $140,000 in payment of the commitment fee payable to Blackbridge. During the year ended December 31, 2017, the pending S1 registration statement was withdrawn, removing the benefit associated with the prepaid asset. The amount was therefore written off as commitment fee in the statement of operations.
On January 31, 2017, we issued a Convertible Promissory Note to an investor in the principal amount of $33,000 with a maturity date of May 5, 2018 (“Maturity Date”), at which time the outstanding principal and interest balance is due and payable. Each of the Notes is convertible into Common Stock of the Company at a conversion price equal to 58% of the lowest trading price of the Common Stock as reported on the OTC Markets Group’s OTC Pink quotation service. The Notes provide that the holders cannot exercise their respective rights of conversion prior to the Maturity Date and that any such conversion is limited to the holders beneficially holding not more than 4.99% of the Company’s then issued and outstanding Common Stock after conversion.
On May 5, 2017, we issued a Convertible Promissory Note to an investor in the principal amount of $23,000 with a maturity date of August 20, 2018 (“Maturity Date”), at which time the outstanding principal and interest balance is due and payable. Each of the Notes is convertible into Common Stock of the Company at a conversion price equal to 58% of the lowest trading price of the Common Stock as reported on the OTC Markets Group’s OTC Pink quotation service. The Notes provide that the holders cannot exercise their respective rights of conversion prior to the Maturity Date and that any such conversion is limited to the holders beneficially holding not more than 4.99% of the Company’s then issued and outstanding Common Stock after conversion.
On November 28, 2017, we issued a Convertible Promissory Note to an investor in the principal amount of $33,000 with a maturity date of September 10, 2018 (“Maturity Date”), at which time the outstanding principal and interest balance is due and payable. Each of the Notes is convertible into Common Stock of the Company at a conversion price equal to 58% of the lowest trading price of the Common Stock as reported on the OTC Markets Group’s OTC Pink quotation service. The Notes provide that the holders cannot exercise their respective rights of conversion prior to the Maturity Date and that any such conversion is limited to the holders beneficially holding not more than 4.99% of the Company’s then issued and outstanding Common Stock after conversion.
Employees
We currently have two employees, Rubin Schindermann, our CEO, and Alexander Starr, our President. We have contracted with a number of independent contractors and consultants to provide a range of information technology and marketing services who do not receive cash compensation but receive shares of our common stock as compensation. This mitigates any need for full or part-time employees for these services.
Intellectual Property Protection
On July 8, 2016, we submitted an International Patent Application with the Canadian Intellectual Property Office for an “Interactive Expectation-Based System and Method” for our online chess competition entitled “Choose Your Moves and Win”. Patent application is pending as of March 23, 2018.
Competition
We compete with companies that develop games for networks, on both web and mobile, vary in size and include companies such as DeNA Co. Ltd. (Japan), Electronic Arts Inc., Gameloft SA, GREE International, Inc., Glu Mobile Inc., King.com Inc., Zynga, Inc., Rovio Mobile Ltd., Supercell Inc., GungHo Online Entertainment, Inc., Kabam and The Walt Disney Company. Furthermore, we expect new competitors to continuously enter the market and existing competitors to allocate more resources to develop and market competing games and applications. At the present time, we have identified a number of chess online sites which could be considered competitors, such as Chess.com; InstantChess; SparkChess and Chess24, among others. We are committed to establishing and maintaining the highest quality interactive chess playing and learning site.
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Advisory Board
We have established an Advisory Board that presently consists of three (3) members; Garry Kasparov, Michael Khodarkovsky and Nava Starr. Mr. Kasparov is a Russian Chess Grandmaster, former World Chess Champion, writer and political activist. Mr. Khodarkovsky is a Chess Master. He is the President of the Kasparov Chess Foundation and World Chess Federation Senior Trainer and Chair of the International Affairs Committee of the United States Chess Federation. Nava Starr holds the title of Woman International Master. She is an eight-time Canadian Ladies Champion and has represented Canada in the Women’s Chess Olympiad and Women’s World Championship. She is married to our President Alexander Starr. The Advisory Board was established to advise and make non-binding recommendations to the Board of Directors with respect to matters within the area of expertise of the Advisory Board. The Advisory Board operates under an Advisory Board Charter. Advisory Board members do not receive cash compensation but, in the discretion of the Board of Directors, may receive stock options or stock grants.
Corporate Facilities
The Company does not own any properties at this time and has no agreements to acquire any properties. The Company leases its administrative and executive offices at a monthly rent of $1,000 per month from Hard Asset Capital Corp., a private company owned by our CEO, Rubin Schindermann, located at 1131 Leslie Street, Suite 101, Toronto, Ontario, Canada.
Emerging Growth Company
We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act 0f 2012 (“JOBS Act”) and may take advantage of certain exemptions from certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” included but not limited to, not being required to comply with auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act and exemptions from the requirements of holding a nonbinding advisory vote of shareholders on executive compensation and any golden parachute payments not previously approved.
We will remain an “emerging growth company” until the earliest of (i) the last day of the fiscal year during which our revenues exceed $1 billion; (ii) the date on which we issue more than $1 billion of non-convertible debt in a three year period; (iii) the last day of the fiscal year following the fifth anniversary of the date of our first sale of our common equity securities pursuant to an effective registration statement filed pursuant to the Securities Act of 1933,as amended; or (iv) when the market value of our common stock that is held by non-affiliated exceeds $700 million as of the last business day of our most recently completed second fiscal quarter.
To the extent we continue to qualify as a “smaller reporting company”, as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended, after we cease to qualify as an “emerging growth company”, certain of the exemptions available to us as an “emerging growth company” may continue to be available to us as “smaller reporting company” including (i) not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act; and (ii) scaled executive compensation disclosures; and (iii) the requirement to provide only two years of audited financial statements instead of three.
The Company currently does not own any properties and at this time has no agreements to acquire any properties. Effective October 1, 2017, the Company leases its administrative and executive offices at a monthly rent of $1,000 from Hard Asset Capital Corp., a private company controlled by Rubin Schindermann.
There is no litigation pending or threatened by or against the Company.
Item 4. Mine Safety Disclosures.
Not applicable.
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Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Our common stock is currently quoted on the OTC under the symbol “ CHZP” . At the present time, there is very limited trading volume of our common stock.
Our common stock is subject to Rule 15g-9 of the Exchange Act, known as the Penny Stock Rule which imposes requirements on broker/dealers who sell securities subject to the rule to persons other than established customers and accredited investors. For transactions covered by the rule, brokers/dealers must make a special suitability determination for purchasers of the securities and receive the purchaser’s written agreement to the transaction prior to sale. The SEC also has rules that regulate broker/dealer practices in connection with transactions in “penny stocks.” Penny stocks generally are equity securities with a price of less than $5.00, other than securities registered on certain national securities exchanges or quoted on the NASDAQ system, provided that current price and volume information with respect to transactions in that security is provided by the exchange or system. The Penny Stock Rules requires a broker/dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document prepared by the SEC that provides information about penny stocks and the nature and level of risks in the penny stock market. The broker/dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker/dealer and its salesperson in the transaction, and monthly account statements showing the market value of each penny stock held in the customer’s account. The bid and offer quotations, and the broker/dealer and salesperson compensation information, must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customer’s confirmation. These disclosure requirements have the effect of reducing the level of trading activity in the secondary market for our common stock. As a result of these rules, investors may find it difficult to sell their shares.
As of the date of this report, we have 25,960,163 shares of common stock issued and outstanding held by 52 stockholders of record.
Dividend Policy
To date, we have not declared or paid any dividends on our common stock. We currently do not anticipate paying any cash dividends in the foreseeable future on our common stock. It is anticipated that our future earnings will be retained to finance our continuing development. Although we intend to retain our earnings, if any, to finance the exploration and growth of our business, our Board of Directors has the discretion to declare and pay dividends in the future. Payment of dividends in the future will depend upon our earnings, capital requirements, and any other factors that our Board of Directors deems relevant.
Recent Sales of Unregistered Securities
During the prior three years, we sold the following securities without registration under the Securities Act of 1933, as amended:
| DATE | NAME | NUMBER OF SHARES | CONSIDERATION | |||||||
| May 5, 2014 | Rubin Schindermann (1) | 500,000 | $ | 50 | ||||||
| May 5, 2014 | Alexander Starr (1) | 500,000 | $ | 50 | ||||||
| July 7, 2014 | Various (2 ) | 900,000 | $ | 10,088 | ||||||
| July 23, 2014 | Chess Supersite Inc.(3) | 5,000,000 | $ | 70,000 | ||||||
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| (1) | On May 5, 2014, 500,000 shares of common stock were issued to each of Rubin Schindermann and Alexander (Sasha) Starr, respectively, pursuant to a change of control transaction. The aggregate consideration paid for these shares was $100. |
| (2) | From July 7, 2014 to August 8, 2014, we issued 900,000 shares of common stock as follows: |
| Shareholder Name | Number of Shares | Consideration | ||||||
| 2339222 Ontario Limited | 20,000 | $ | 2.00 | |||||
| Dorothy Arsenaul | 10,000 | $ | 1.00 | |||||
| Michael Barron | 10,000 | $ | 1.00 | |||||
| Irina Barron | 10,000 | $ | 1.00 | |||||
| Boris Barron | 10,000 | $ | 1.00 | |||||
| Tony Bisogno | 20,000 | $ | 2.00 | |||||
| Bisogno Jewellers North | 20,000 | $ | 2.00 | |||||
| Ariel Cohen | 40,000 | $ | 4.00 | |||||
| Diane Collins | 20,000 | $ | 2.00 | |||||
| Michael Danso | 10,000 | $ | 1.00 | |||||
| Syrel Danso | 10,000 | $ | 1.00 | |||||
| Mosolova Darya | 30,000 | $ | 3.00 | |||||
| Maxim Dlugy | 30,000 | $ | 3.00 | |||||
| Inna Dlugy | 30,000 | $ | 3.00 | |||||
| Robert Hamilton | 10,000 | $ | 1.00 | |||||
| Maryna Havorka | 40,000 | $ | 4.00 | |||||
| Svetlana Kaplin | 30,000 | $ | 3.00 | |||||
| Tony Kassabian | 20,000 | $ | 10,000.00 | |||||
| Galina Kossitsina | 30,000 | $ | 3.00 | |||||
| Edward Kotler | 10,000 | $ | 1.00 | |||||
| Sandor Molnar | 10,000 | $ | 1.00 | |||||
| Borys Mykhaylets | 10,000 | $ | 1.00 | |||||
| Saul Niddam | 20,000 | $ | 2.00 | |||||
| Norlandam | 30,000 | $ | 3.00 | |||||
| Piter Platis | 40,000 | $ | 4.00 | |||||
| Svyatoslav Polyakov | 10,000 | $ | 1.00 | |||||
| Felix Rosenwasser | 40,000 | $ | 4.00 | |||||
| Eric Schindermann | 40,000 | $ | 4.00 | |||||
| Bruce Schoengood | 20,000 | $ | 2.00 | |||||
| Eric Segal | 20,000 | $ | 2.00 | |||||
| Khachaturov Sergei | 30,000 | $ | 3.00 | |||||
| Jacob Shinderman | 40,000 | $ | 4.00 | |||||
| Inna Sirota | 20,000 | $ | 2.00 | |||||
| Vladimir Sirota | 20,000 | $ | 2.00 | |||||
| Vakulenkova Svitlana | 40,000 | $ | 4.00 | |||||
| Marselle Taub | 10,000 | $ | 1.00 | |||||
| Regina Varnovitsky | 40,000 | $ | 4.00 | |||||
| Mark Varnovitsly | 20,000 | $ | 2.00 | |||||
| Elena Vinogradova | 30,000 | $ | 3.00 | |||||
| (3) | On July 23, 2014, we issued 5,000,000 shares of common stock to Chess Supersite, Inc. pursuant to the Asset Purchase Agreement dated July 23, 2014 by and between the Company and Chess Supersite, Inc. |
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The foregoing issuances of unregistered securities were undertaken in reliance on the exemption from registration at section 4(a)(2) of the Securities Act of 1933, as amended, for transactions not involving a public offering and in some instances in reliance on Regulation S under the Securities Act of 1933,as amended, for transactions with non-US residents residing abroad.
Item 6. Selected Financial Data.
There is no selected financial data required to be filed for a smaller reporting company.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
As of December 31, 2017, the Company had not generated significant revenues and had no income or cash flows from operations since inception. At December 31, 2017, the Company had sustained net loss of $1,742,682, and had an accumulated deficit of $7,194,613.
The Company’s independent auditors have issued a report raising substantial doubt about the Company’s ability to continue as a going concern. At present, the Company has no operations and the continuation of the Company as a going concern is dependent upon financial support from its stockholders, its ability to obtain necessary equity financing to continue operations and/or to successfully locate and negotiate with a business entity for the combination of the target company with the Company.
Management will pay all expenses incurred by the Company and there is no expectation of repayment for such expenses.
Balance sheet as at December 31, 2017 and 2016
Cash
At December 31, 2017 we had cash of $56 compared to $16,262 as at December 31, 2016. The decrease is due to payment of software development and consulting expenses and professional and legal expenses offset by funds contributed by investors and shareholders during the year.
Prepaid asset
Prepaid asset amounting to $140,000 represented commitment fee owed by us to a certain investor in respect of a drawdown facility which is not yet active. The asset was written off in the statement of operations during the year ended December 31, 2017 because the benefit associated in form of the equity line of credit no longer exists.
Intangible assets
Intangible assets represent the amount incurred by the Company related to the development of the online chess gaming website. During the year ended December 31, 2017, after the management’s review and evaluation of its recoverability, the intangible asset was written off.
Accounts payable and accrued liabilities
Accounts payable amounting to $109,741 as at December 31, 2017, represents account payable for advertising and promotion amounting to $14,214, accrual for marketing services amounting to $13,650, and other accruals for professional services.
Accounts payable amounting to $277,518 as at December 31, 2016, primarily represents accrual for software development fee amounting to $226,906, accrual for marketing services amounting to $13,650, and other accruals for professional services.
Payable to related parties
At December 31, 2017 we had $123,697 of amount payable to related parties as compared to $514,697 as at December 31, 2016. The balance represents management services fee outstanding to the two shareholder/managers of the Company.
Shareholder advances
Shareholder advances represents expenses paid by the owners from their personal funds. The amount of advance as at December 31, 2017 and 2016 was $304,322 and $144,474, respectively. The amounts repaid during the years ended December 31, 2017 and 2016 were $48,236 and $174,595, respectively.
Income statement for the years ended December 31, 2017 and 2016
Revenues for the years ended December 31, 2017 and 2016
Revenue of $15,434 during the year ended December 31, 2017 comprises an amount of $13,882, which we invoiced as consideration for the revenue earned from ticket sales for 2017 Orlando Sunshine Open and $1,552 as membership fee for the Company’s chess gaming website.
Revenue of $5,918 during the year ended December 31, 2016 comprises an amount of $4,500, which we invoiced and received as consideration for the arrangement of equipment and personnel to setup and produce a live streaming internet chess show from Marshall Chess Club and $1,418 as membership fee for the Company’s chess gaming website.
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Expenses for the years ended December 31, 2017 and 2016
Expenses amounting to $1,758,116 for the year ended December 31, 2017 are primarily comprised of a commitment fee of $140,000, advisory and consultancy fee of $36,000, management services fee of $300,000 to related parties, legal and professional fee of $109,739, software development expense of $86,088, impairment of intangible asset amounting to $124,357, website development and marketing expenses of $87,307 and rent of $12,000 together with the fair valuation impact of convertible notes amounting to $955,305 of the convertible promissory notes.
Expenses amounting to $2,350,586 for the year ended December 31, 2016 are primarily comprised of advisory and consultancy fee of $954,289, management services fee of $300,000 to related parties, legal and professional fee of $103,085, software development expense of $79,977, website development and marketing expenses of $114,044 and rent of $12,000 together the fair valuation impact of convertible notes amounting to $572,728 of the convertible promissory notes.
Liquidity and Capital Resources
At December 31, 2017, the Company had a working capital deficit of $2,062,258 and an accumulated deficit of $7,194,613 (2016: Working capital deficit of $1,957,318 and an accumulated deficit of $5,451,931). The Company is actively seeking various financing operations to meet the working capital requirements.
We have relied on equity financing and personal funds for our operations. The proceeds may not be sufficient to effectively develop our business to the fullest extent to allow us to maximize our revenue potential, in which case, we will need additional capital.
We will need capital to allow us to invest in development. The Company anticipates that its future operations will generate positive cash flows starting in 2019 provided that it is successful in obtaining additional financing in the foreseeable future.
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Item 8. Financial Statements and Supplementary Data
CHESS SUPERSITE CORPORATION
FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2017 and 2016
| F- 1 |
802 N Washington
Spokane, WA 99201
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Chess Supersite Corporation
Opinion on the Financial Statements
We have audited the accompanying balance sheets of Chess Supersite Corporation as of December 31, 2017 and 2016 and the related statements of operations, changes in stockholders’ equity, and cash flows for the years then ended, 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 Chess Supersite Corporation as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the two years then ended, 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 we 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.
Consideration of the Company’s Ability to Continue as a Going Concern
The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 3 to the financial statements, the Company has had nominal revenue since inceptions and has sustained cumulative operating losses, and its viability is dependent upon its ability to meet future financing requirements. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 3 of the financial statements. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
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Fruci & Associates II, PLLC
We have served as the Company’s auditor since 2017.
Spokane, WA
March 28, 2018
| F- 2 |
BALANCE SHEETS
| December 31, | December 31, | |||||||
| 2017 | 2016 | |||||||
| $ | $ | |||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash | 56 | 16,262 | ||||||
| Prepaid asset [Note 10] | — | 140,000 | ||||||
| 56 | 156,262 | |||||||
| Long term assets | ||||||||
| Intangible assets [Note 6] | — | 137,611 | ||||||
| Total long term assets | — | 137,611 | ||||||
| Total assets | 56 | 293,873 | ||||||
| LIABILITIES AND STOCKHOLDERS' DEFICIT | ||||||||
| Current liabilities | ||||||||
| Accounts payable and accrued liabilities [Note 7] | 109,741 | 277,518 | ||||||
| Payable to related parties [Note 8] | 123,697 | 514,697 | ||||||
| Shareholder advances [Note 9] | 304,322 | 144,474 | ||||||
| Convertible Promissory notes, net [Note 10] | 572,718 | 701,519 | ||||||
| Derivative liability [Note 10] | 951,836 | 475,372 | ||||||
| Total current liabilities | 2,062,314 | 2,113,580 | ||||||
| Total liabilities | 2,062,314 | 2,113,580 | ||||||
| Contingencies and commitments | — | — | ||||||
| Stockholders' deficit | ||||||||
| Preferred stock, $0.0001 par value, 20,000,000 shares authorized; 1,000,000 shares issued and outstanding as at December 31, 2017 (1,000,000 shares outstanding as at December 31, 2016) [Note 11] | 100 | 100 | ||||||
| Common stock, $0.0001 par value, 20,000,000,000 shares authorized, 14,973,819 common shares outstanding as at December 31, 2017 (35,645 common shares outstanding as at December 31, 2016) [Note 11] | 1,497 | 4 | ||||||
| Shares to be issued [Note 11] | 73,000 | 52,000 | ||||||
| Additional paid-in capital | 5,057,758 | 3,580,120 | ||||||
| Accumulated deficit | (7,194,613 | ) | (5,451,931 | ) | ||||
| Total stockholders' deficit | (2,062,258 | ) | (1,819,707 | ) | ||||
| Total liabilities and stockholders' deficit | 56 | 293,873 | ||||||
The accompanying notes are an integral part of these financial statements.
| F- 3 |
STATEMENTS OF OPERATIONS
| For the | For the | |||||||
| year ended | year ended | |||||||
| December 31, 2017 | December 31, 2016 | |||||||
| $ | $ | |||||||
| REVENUE | 15,434 | 5,918 | ||||||
| OPERATING EXPENSES | ||||||||
| Commitment Fee | 140,000 | — | ||||||
| Advisory and consultancy fee [Note 8] | 36,000 | 954,289 | ||||||
| Management services fee to related parties [Note 8] | 300,000 | 300,000 | ||||||
| Legal and professional fees | 109,739 | 103,085 | ||||||
| Software development expense | 86,088 | 79,977 | ||||||
| Donation | — | 45,000 | ||||||
| Website development and marketing expenses | 87,307 | 114,044 | ||||||
| Impairment of intangible asset | 124,357 | — | ||||||
| Rent and Utilities | 14,849 | 21,878 | ||||||
| Travel expenses | 11,874 | 39,216 | ||||||
| Amortization on intangibles | 13,254 | — | ||||||
| Office and general | 1,273 | 14,606 | ||||||
| Total operating expenses | 924,741 | 1,672,095 | ||||||
| OTHER INCOME AND EXPENSES | ||||||||
| Change in fair value of derivative liability | 955,305 | 572,728 | ||||||
| Net gain on settlement of liability | (226,306 | ) | 34,290 | |||||
| Interest and bank charges | 104,372 | 65,008 | ||||||
| Exchange loss | 4 | 6,465 | ||||||
| Net loss before income taxes | (1,742,682 | ) | (2,344,668 | ) | ||||
| Income taxes | — | — | ||||||
| Net loss | (1,742,682 | ) | (2,344,668 | ) | ||||
| Loss per share, basic and diluted | (0.722 | ) | (85.835 | ) | ||||
| Weighted average shares - basic and diluted | 2,413,677 | 27,316 | ||||||
The accompanying notes are an integral part of these financial statements.
| F- 4 |
STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2017 and 2016
| Additional | ||||||||||||||||||||||||||||||||
| Preferred stock | Common stock | Shares to be | paid-in | Accumulated | ||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | issued | capital | deficit | Total | |||||||||||||||||||||||||
| $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| As at December 31, 2015 | 20,650 | 2 | 2,019,244 | (3,107,263 | ) | (1,088,017 | ) | |||||||||||||||||||||||||
| Preferred stock issued as consideration for management services | 1,000,000 | 100 | - | - | - | - | - | 100 | ||||||||||||||||||||||||
| Shares to be issued as compensation to advisors and consultant [Note 11] | - | - | - | - | 52,000 | - | - | 52,000 | ||||||||||||||||||||||||
| Shares issued as consideration for management services [Note 8] | - | - | 10,000 | 1 | - | 99,999 | - | 100,000 | ||||||||||||||||||||||||
| Shares issued as consideration for advisory and other services [Note 8] | - | - | 2,845 | 1 | - | 1,287,539 | - | 1,287,540 | ||||||||||||||||||||||||
| Shares issued on conversion of convertible promissory notes [Note 11] | - | - | 2,085 | - | - | 140,837 | - | 140,837 | ||||||||||||||||||||||||
| Shares issued as consideration for cash | - | - | 65 | - | - | 32,501 | - | 32,501 | ||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | (2,344,668 | ) | (2,344,668 | ) | ||||||||||||||||||||||
| As at December 31, 2016 | 1,000,000 | 100 | 35,645 | 4 | 52,000 | 3,580,120 | (5,451,931 | ) | (1,819,707 | ) | ||||||||||||||||||||||
| Shares to be issued as settlement for website development services [Note 11] | - | - | - | - | 21,000 | - | - | 21,000 | ||||||||||||||||||||||||
| Shares issued as consideration for management services [Note 8] | - | - | 12,920,000 | 1,292 | - | 694,708 | - | 696,000 | ||||||||||||||||||||||||
| Shares issued as consideration for advisory and other services [Note 8] | - | - | 96,079 | 8 | - | 42,992 | - | 43,000 | ||||||||||||||||||||||||
| Shares issued on conversion of convertible promissory notes [Note 11] | - | - | 1,922,094 | 193 | - | 261,099 | - | 261,300 | ||||||||||||||||||||||||
| Change due to extinguishment of derivative liability on debt conversion | - | - | - | - | - | 478,841 | - | 478,841 | ||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | (1,742,682 | ) | (1,742,682 | ) | ||||||||||||||||||||||
| As at December 31, 2017 | 1,000,000 | 100 | 14,973,818 | 1,497 | 73,000 | 5,057,758 | (7,194,613 | ) | (2,062,258 | ) | ||||||||||||||||||||||
The accompanying notes are an integral part of these financial statements.
| F- 5 |
STATEMENT OF CASH FLOWS
| For the | For the | |||||||
| year ended | year ended | |||||||
| December 31, 2017 | December 31, 2016 | |||||||
| $ | $ | |||||||
| OPERATING ACTIVITIES | ||||||||
| Net loss for the period | (1,742,682 | ) | (2,344,668 | ) | ||||
| Adjustment for non cash items | ||||||||
| Net gain on settlement of liability | (226,306 | ) | — | |||||
| Change in fair value of derivative | 955,305 | 572,728 | ||||||
| Loss on settlement of liability | — | 34,290 | ||||||
| Amortization on intangibles | 13,254 | |||||||
| Impairment on intangibles | 124,357 | — | ||||||
| Shares issued/to be issued for advisory and other services | 739,000 | 1,390,500 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Change in accounts payable and accrued liabilities | (264,982 | ) | 66,146 | |||||
| Change in prepaid asset | 140,000 | (140,000 | ) | |||||
| Net cash used in operating activities | (262,054 | ) | (421,004 | ) | ||||
| INVESTING ACTIVITIES | ||||||||
| Amount invested on software development | — | (137,611 | ) | |||||
| Net cash used in operating activities | — | (137,611 | ) | |||||
| FINANCING ACTIVITIES | ||||||||
| Repayment of shareholder advances | (48,236 | ) | (174,595 | ) | ||||
| Shareholder advances | 208,084 | 123,634 | ||||||
| Proceeds from issuance of promissory notes | 86,000 | 605,000 | ||||||
| Proceeds from issuance of common stock | — | 20,000 | ||||||
| Net cash provided by financing activities | 245,848 | 574,039 | ||||||
| Net increase (decrease) in cash during the period | (16,206 | ) | 15,424 | |||||
| Cash, beginning of period | 16,262 | 838 | ||||||
| Cash, end of period | 56 | 16,262 | ||||||
| NON CASH INVESTING AND FINANCING ACTIVITIES | ||||||||
| Shares issued on conversion of debt | 261,300 | 43,481 | ||||||
| Derivative liability extinguished on conversion | 478,841 | — | ||||||
| Shares issued as consideration for acquisition of intangible | — | — | ||||||
| Cash paid for interest | — | 36,000 | ||||||
| Cash paid for taxes | — | — | ||||||
The accompanying notes are an integral part of these financial statements.
| F- 6 |
NOTES TO THE FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS THEN ENDED DECEMBER 31, 2017 and 2016
| 1. | NATURE OF OPERATIONS |
Chess Supersite Corporation, (“the Company”, formerly River Run Acquisition Corporation) was incorporated on July 9, 2013 under the laws of the state of Delaware to engage in any lawful corporate undertaking, including, but not limited to, selected mergers and acquisitions.
In May, 2014, the Company effected a change in control by the redemption of the stock held by its original shareholders, the issuance of shares of its common stock to new shareholders, the resignation of its original officers and directors and the appointment of new officers and directors.
On July 6, 2015, the Company filed its form S-1/A, to amend its form S-1 previously filed on January 26, 2015 and December 11, 2014. The prospectus relates to the offer and sale of 1,500,000 shares of common stock (the “Shares”) of the Company, $0.0001 par value per share, offered by the holders thereof (the “Selling Shareholder Shares”), who are deemed to be statutory underwriters. The selling shareholders will offer their shares at a price of $0.50 per share, until the Company’s common stock is listed on a national securities exchange or is quoted on the OTC Bulletin Board (or a successor); after which, the selling shareholders may sell their shares at prevailing market or privately negotiated prices, including (without limitation) in one or more transactions that may take place by ordinary broker’s transactions, privately-negotiated transactions or through sales to one or more dealers for resale.
On September 22, 2015, the Company was able to secure an OTC Bulletin Board symbol CHZP from Financial Industry Regulatory Authority (FINRA).
| 2. | BASIS OF PRESENTATION |
The summary of significant accounting policies presented below is designed to assist in understanding the Company’s financial statements. Such financial statements and accompanying notes are the representations of the Company’s management, who are responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States of America (“GAAP”) in all material respects, and have been consistently applied in preparing the accompanying financial statements.
| 3. | GOING CONCERN |
The Company has minimal revenue since inception to date and has sustained operating losses during the period ended December 31, 2017. The Company had working capital deficit of $2,062,258 and an accumulated deficit of $7,194,613 as of December 31, 2017. The Company’s continuation as a going concern is dependent on its ability to generate sufficient cash flows from operations to meet its obligations and/or obtaining additional financing from its members or other sources, as may be required.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern; however, the above condition raises substantial doubt about the Company’s ability to do so. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result should the Company be unable to continue as a going concern.
In order to maintain its current level of operations, the Company will require additional working capital from either cash flow from operations, sale of its equity or issuance of debt. However, the Company currently has no commitments from any third parties for the purchase of its equity. If the Company is unable to acquire additional working capital, it will be required to significantly reduce its current level of operations.
| 4. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
USE OF ESTIMATES
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
| F- 7 |
CASH
Cash and cash equivalents include cash on hand and on deposit at banking institutions as well as all highly liquid short-term investments with original maturities of 90 days or less. The Company did not have cash equivalents as of December 31, 2017 and 2016.
PREPAID ASSET
As at December 31, 2017 the Company had a nil balance. While as at December 31, 2016 prepaid asset represents a commitment fee owed by the Company to a certain investor in respect of a Securities Purchase Agreement entered into by the Company dated October 18, 2016. The Company has issued a convertible promissory note in respect of the commitment fee. The asset was, however, written off in the statement of operations during the year ended December 31, 2017 because the benefit associated in form of the equity line of credit no longer exists.
INTANGIBLE ASSETS
The Company operates an online chess site featuring sophisticated playing zones, game broadcasts with software analyses and top analysts' commentaries, education and other chess oriented resources. Intangible assets represented the amount incurred by the Company related to the development of the online chess gaming website.
Under ASC 985-20, there are two main stages of software development. These stages are defined as:
(A) When the technological feasibility is established, and
(B) When the product is available for general release to customers.
Costs incurred by the Company up to stage A have been expensed while costs incurred to move from stage A to stage B have been capitalized.
The Company evaluates the recoverability of the infinite-lived intangible assets for possible impairment whenever events or circumstances indicate that the carrying amount of such assets may not be recoverable. Recoverability of these assets is measured by a comparison of the carrying amounts to the future undiscounted cash flows the assets are expected to generate. If such review indicates that the carrying amount of intangible assets is not recoverable, the carrying amount of such assets is reduced to fair value.
During the year ended December 31, 2017, the intangible asset was written off based on management’s review and evaluation of its recoverability.
REVENUE RECOGNITION
In accordance with ASC 605, revenue is recognized when persuasive evidence of an arrangement exists, services have been performed, the amount is fixed and determinable, and collection is reasonably assured.
During the year ended December 31, 2017, the Company earned revenue of $15,434 which comprises of an amount of $13,882, which we invoiced as consideration for the revenue earned from ticket sales for 2017 Orlando Sunshine Open and $1,552 as membership fee for the Company’s chess gaming website.
During the year ended December 31, 2016, the Company earned revenue of $5,918, which comprised an amount of $4,500, as consideration for the arrangement of equipment and personnel to setup and produce a live streaming internet chess show and $1,418 as membership fee for the Company’s chess gaming website.
An amount of $13,882 receivable from and payable to the same party have been offset in the balance sheet.
SOFTWARE DEVELOPMENT COSTS
The costs incurred in the preliminary stages of development are expensed as incurred. Once an application has reached the development stage, internal and external costs, if direct and incremental, are capitalized until the application is substantially complete and ready for its intended use. These costs are amortized using the straight-line method over the estimated economic useful life of 5 years starting from when the application is substantially complete and ready for its intended use.
CONCENTRATION OF RISK
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash. The Company places its cash with high quality banking institutions. The Company did not have cash balances in excess of the Federal Deposit Insurance Corporation limit as of December 31, 2017.
INCOME TAXES
Under ASC 740, “Income Taxes,” deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Valuation allowances are established when it is more likely than not that some or all of the deferred tax assets will not be realized. As of December 31, 2017, there were no deferred taxes due to the uncertainty of the realization of net operating loss or carry forward prior to expiration.
LOSS PER COMMON SHARE
Basic loss per common share excludes dilution and is computed by dividing net loss by the weighted average number of common shares outstanding during the period. Diluted loss per common share reflect the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the loss of the entity. Convertible promissory notes as at December 31, 2017 are likely to be converted into shares, however, due to losses, their effect would be antidilutive. As of December 31, 2017, convertible notes outstanding could be converted into 14,938,173,465 (14,938,173 – post reverse split) shares of common stock.
| F- 8 |
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company follows guidance for accounting for fair value measurements of financial assets and financial liabilities and for fair value measurements of nonfinancial items that are recognized or disclosed at fair value in the financial statements on a recurring basis. Additionally, the Company adopted guidance for fair value measurement related to nonfinancial items that are recognized and disclosed at fair value in the financial statements on a nonrecurring basis. The guidance establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to measurements involving significant unobservable inputs (Level 3 measurements).
The three levels of the fair value hierarchy are as follows:
Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.
Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.
Level 3 inputs are unobservable inputs for the asset or liability. The carrying amounts of financial assets such as cash approximate their fair values because of the short maturity of these instruments.
The estimated fair value of cash, accounts payable, and accrued liabilities approximate their carrying values due to the short-term maturity of these instruments.
| 5. | RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS |
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (FASB) or other standard setting bodies that are adopted by the Company as of the specified effective date.
In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements – Going Concern, which will require an entity’s management to assess, for each annual and interim period, whether there is substantial doubt about the entity’s ability to continue as a going concern within one year of the financial statement issuance date. The definition of substantial doubt within the new standard incorporates a likelihood threshold of “probable” similar to the use of that term under current GAAP for loss contingencies. Certain disclosures will be required if conditions give rise to substantial doubt. The guidance will be effective for the Company beginning with fiscal year 2017. Early adoption is permitted. The Company is currently evaluating the impact that this amended guidance will have on its financial statements and related disclosures.
The Company adopted the accounting pronouncement issued by the Financial Accounting Standards Board ("FASB") to update guidance on how companies account for certain aspects of share-based payments to employees. This pronouncement is effective for fiscal years beginning after December 15, 2016, and interim periods within those years, with early adoption permitted. This guidance requires all income tax effects of awards to be recognized in the income statement when the awards vest or are settled and changes the presentation of excess tax benefits on the statement of cash flows.
The Company adopted these provisions on a prospective basis. In addition, this pronouncement changes guidance on: (a) accounting for forfeitures of share-based awards and (b) employers’ accounting for an employee’s use of shares to satisfy the employer’s statutory income tax withholding obligation. The adoption of this pronouncement did not have a material impact on the financial position and/or results of operations.
On January 1, 2016, the Company adopted the accounting pronouncement issued by the FASB to update the guidance related to the presentation of debt issuance costs. This guidance requires debt issuance costs, related to a recognized debt liability, be presented in the balance sheet as a direct deduction from the carrying amount of the related debt liability rather than being presented as an asset. The Company adopted this pronouncement on a retrospective basis, and the adoption did not have a material impact on the financial position and/or results of operations.
On April 7, 2015, the FASB issued Accounting Standards Update (ASU) No. 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. The amendments in this ASU require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts and the accounting for debt issue costs under IFRS. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this ASU. The amendments in this Update apply to all companies. They became effective for public business entities in the annual period ending after December 15, 2015, and interim periods within those fiscal years, with early application permitted.
In November 2015, an accounting pronouncement was issued by the FASB to simplify the presentation of deferred income taxes within the balance sheet. This pronouncement eliminates the requirement that deferred tax assets and liabilities are presented as current or noncurrent based on the nature of the underlying assets and liabilities. Instead, the pronouncement requires all deferred tax assets and liabilities, including valuation allowances, be classified as noncurrent. This pronouncement is effective for fiscal years beginning after December 15, 2016, with early adoption permitted. The Company intends to adopt this pronouncement on January 1, 2017, and the adoption will not have a material impact on the financial position and/or results of operations.
In November 2016, an accounting pronouncement was issued by the FASB to update the guidance related to the presentation of restricted cash. Under this Update, the amendments require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The amendments in this Update do not provide a definition of restricted cash or restricted cash equivalents. The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The amendments in this Update should be applied using a retrospective transition method to each period presented. Management does not expect to have a significant impact of this ASU on the Company’s financial statements.
In May 2017, the FASB issued Accounting Standards Update (ASU) No. 2017-09, Compensation – Stock Compensation (Topic 718). The amendments in this ASU require that the company apply modification accounting when the company changes the terms or conditions of a share-based payment award. The amendments in this Update apply to all companies. They became effective for public business entities in the annual period ending after December 15, 2017, and interim periods within those fiscal years, with early application permitted. Management does not expect to have a significant impact of this ASU on the Company’s financial statements.
In July 2017, the FASB issued Accounting Standards Update (ASU) No. 2017-11, Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815).
| I. | Accounting for Certain Financial Instruments with Down Round Features |
| II. | Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception |
The amendments in Part I of this Update change the classification analysis of certain equity-linked financial instruments (or embedded features) with down round features. When determining whether certain financial instruments should be classified as liabilities or equity instruments, a down round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity’s own stock. The amendments also clarify existing disclosure requirements for equity-classified instruments.
The amendments in Part II of this Update recharacterize the indefinite deferral of certain provisions of Topic 480 that now are presented as pending content in the Codification, to a scope exception. Those amendments do not have an accounting effect.
The amendments in this Update apply to all companies. Part I becomes effective for public business entities in the annual period ending after December 15, 2018, and interim periods within those fiscal years, with early application permitted. Management does not expect to have a significant impact of this ASU on the Company’s financial statements. The amendments in Part II of this Update do not require any transition guidance because those amendments do not have an accounting effect
| F- 9 |
| 6. | INTANGIBLE ASSETS |
The Company is continuing software development and is recognizing costs related to these activities as expenses during the year in which they are incurred. Intangible assets amounting to $137,611 were capitalized during the year ended and as at December 31, 2016. The Company evaluates the recoverability of the infinite-lived intangible assets for possible impairment whenever events or circumstances indicate that the carrying amount of such assets may not be recoverable. During the year ended December 31, 2017, the intangible asset was written off based on management’s review and evaluation of its recoverability.
| 7. | ACCOUNTS PAYABLE AND ACCRUED LIABILITIES |
Accounts payable amounting to $102,501 as at December 31, 2017, primarily represents account payable for advertising and promotion amounting to $14,214, accrual for marketing services amounting to $13,650, and other accruals for professional services. (2016: Accrual for software development fee amounting to $226,906 and accrual for marketing services amounting to $13,650, and other accruals for professional services.).
| 8. | RELATED PARTY TRANSACTIONS AND BALANCES |
During the year ended December 31, 2017, $300,000 (December 31, 2016: $300,000) was recorded as management services fee payable to Rubin Schindermann and Alexander Starr, who are shareholders in the Company. During the year ended December 31, 2016, they were issued 10,000,000 shares to settle $100,000 of the amount owed. The amount is included in the related party balance as at December 31, 2017.
During the year ended December 31, 2016, the Company issued 500,000 shares of Series ‘A’ Preferred Stock each, to the two directors, as consideration for their services.
Advisory and consultancy fee includes $36,000 (December 31, 2016: $30,000) for Rubin Schindermann and Alexander Starr, who are shareholders in the Company. They were issued 12,920,000,000 (12,920,000 – post reverse split) shares (December 31, 2016: 1,000,000 (1,000 – post reverse split)) for these services performed as of and for the year ended December 31, 2017. These were recorded at fair value.
Amounts payable to Rubin Schindermann and Alexander Starr as at December 31, 2017 were $92,000 and $31,697, respectively (2016: $285,000 and $229,697, respectively).
As disclosed in Note 12, the Company is party to a lease agreement dated October 1, 2017, with Hard Assets Capital Corp., which is a related entity by virtue of common directorship.
During the year ended December 31, 2017, Eric Schindermann, who is the son of Rubin Schindermann, became a lender to the Company by way of assignment of an existing promissory note liability of the Company amounting to $18,000. 465,728 shares of the Company’s common stock were issued to Eric Schindermann subsequent to the year end, on partial conversion of the debt.
| 9. | SHAREHOLDER ADVANCES |
Shareholder advances represent expenses paid by the owners from personal funds. The amount is non-interest bearing, unsecured and due on demand. The amount of advance as at December 31, 2017 and 2016 was $304,322 and $144,474, respectively. The amounts repaid during the years ended December 31, 2017 and 2016 were $48,236 and $174,595, respectively.
| 10. | CONVERTIBLE PROMISSORY NOTES |
During the year ended December 31, 2017, the Company issued convertible promissory notes, details of which are as follows:
Convertible Redeemable note issued on November 28, 2017, amounting to $33,000 (Note K).
The key terms/features of the convertible note are as follows:
| 1. | The maturity date of the Note is September 10, 2018. | |
| 2. | Interest on the unpaid principal balance of this Note shall accrue at the rate of 12 % per annum. | |
| 3. | In the event the Note holder exercises the right of conversion, the conversion price will be equal to 58% of the lowest closing bid price of the Company’s common stock for the twenty (15) trading days prior to the date of conversion. | |
| 4. | The Company shall not be obligated to accept any conversion request before six months from the date of the note. | |
| 5. | Conversion is limited to the holder beneficially holding not more than 4.99% of the Company’s then issued and outstanding common stock after the conversion. |
Convertible promissory note issued on May 5, 2017 amounting to $23,000 (Note J).
| F- 10 |
The key terms/features of the convertible note are as follows:
| 1. | The maturity date of the note is February 20, 2018 | |
| 2. | Interest on the unpaid principal balance of this note shall accrue at the rate of 12% per annum. | |
| 3. | In the event the Note holder exercises the right of conversion, the conversion price will be equal to 58% of the average of the three (3) lowest closing bid price of the Company’s common stock for the fifteen (15) trading days prior to the date of conversion. | |
| 4. | The Company shall not be obligated to accept any conversion request before six months from the date of the note. | |
| 5. | Conversion is limited to the holder beneficially holding not more than 4.99% of the Company’s then issued and outstanding common stock after the conversion. |
Convertible promissory note issued on January 31, 2017 amounting to $33,000 (Note I).
The key terms/features of the convertible note are as follows:
| 1. | The maturity date of the note is November 5, 2017 | |
| 2. | Interest on the unpaid principal balance of this note shall accrue at the rate of 12% per annum. | |
| 3. | In the event the Note holder exercises the right of conversion, the conversion price will be equal to 58% of the average of the three (3) lowest closing bid price of the Company’s common stock for the fifteen (15) trading days prior to the date of conversion. | |
| 4. | The Company shall not be obligated to accept any conversion request before six months from the date of the note. | |
| 5. | Conversion is limited to the holder beneficially holding not more than 4.99% of the Company’s then issued and outstanding common stock after the conversion. |
During the year ended December 31, 2016, the Company issued convertible promissory notes, details of which are as follows:
Convertible Redeemable note issued on October 18, 2016, amounting to $140,000 (Note H), representing commitment fee owed by the Company pursuant to Securities Purchase Agreement entered into by the Company dated October 18, 2016. The commitment fee was considered a prepaid asset. During the three months ended September 30, 2017, the pending S1 registration statement was withdrawn, removing the benefit associated with the prepaid asset. The amount was therefore written off as commitment fee in the statement of operations.
The key terms/features of the convertible note are as follows:
| 1. | The maturity date of the Note is July 18, 2017. | |
| 2. | Interest on the unpaid principal balance of this Note shall accrue at the rate of 7 % per annum. | |
| 3. | In the event the Note holder exercises the right of conversion, the conversion price will be equal to 80% of the lowest trading price of the Company’s common stock for the twenty (20) trading days prior to the date of conversion. | |
| 4. | As maturity dates have passed, the Company is now obligated to accept all conversion requests on the note. | |
| 5. | Conversion is limited to the holder beneficially holding not more than 9.99% of the Company’s then issued and outstanding common stock after the conversion. |
Convertible Redeemable notes issued on October 18, 2016, amounting to $100,000 and $25,000 (Notes F and G).
The key terms/features of the convertible note are as follows:
| 1. | The maturity date of the Note is July 18, 2017. | |
| 2. | Interest on the unpaid principal balance of this Note shall accrue at the rate of 7 % per annum. | |
| 3. | In the event the Note holder exercises the right of conversion, the conversion price will be equal to 57.5% of the lowest trading price of the Company’s common stock for the twenty (20) trading days prior to the date of conversion. | |
| 4. | As maturity dates have passed, the Company is now obligated to accept all conversion requests on the note. | |
| 5. | Conversion is limited to the holder beneficially holding not more than 9.99% of the Company’s then issued and outstanding common stock after the conversion. |
Convertible promissory note issued on September 15, 2016, amounting to $30,000 (Note E).
The key terms/features of the convertible note are as follows:
| 1. | The maturity date of the note is September 15, 2017. | |
| 2. | Interest on the unpaid principal balance of this note shall accrue at the rate of 8 % per annum. | |
| 3. | In the event the Note holder exercises the right of conversion, the conversion price will be equal to 55% of the lowest closing bid price of the Company’s common stock for the twenty (20) trading days prior to the date of conversion. If lowest closing bid price is equal to or less than $0.01, then the conversion price will be 45% of the bid price. | |
| 4. | As maturity dates have passed, the Company is now obligated to accept all conversion requests on the note. | |
| 5. | Conversion is limited to the holder beneficially holding not more than 4.99% of the Company’s then issued and outstanding common stock after the conversion. |
| F- 11 |
Convertible promissory note issued on May 13, 2016, amounting to $75,000 (Note D).
The key terms/features of the convertible note are as follows:
| 1. | The maturity dates of the note was May 13, 2017. | |
| 2. | Interest on the unpaid principal balance of this note shall accrue at the rate of 8 % per annum. | |
| 3. | In the event the Note holder exercises the right of conversion, the conversion price will be equal to 52% of the lowest closing bid price of the Company’s common stock for the twenty (20) trading days prior to the date of conversion. | |
| 4. | As maturity dates have passed, the Company is now obligated to accept all conversion requests on the note. | |
| 5. | Conversion is limited to the holder beneficially holding not more than 4.99% of the Company’s then issued and outstanding common stock after the conversion. |
Convertible promissory notes issued on March 1, 2016 amounting to $150,000 each to two investors (Notes B and C).
The key terms/features of the convertible notes are as follows:
| 1. | The Holders have the right from six months after the date of issuance, and until any time until the Notes are fully paid, to convert any outstanding and unpaid principal portion of the Notes, into fully paid and non–assessable shares of Common Stock (par value $.0001). | |
| 2. | The Notes are convertible at a fixed conversion price of 45% of the lowest trading price of the Common Stock as reported on the OTC Pink maintained by the OTC Markets Group, Inc. upon which the Company’s shares are currently quoted, for the four (4) prior trading days including the day upon which a Notice of Conversion is received by the Company. | |
| 3. | Interest on the unpaid principal balance of this Note shall accrue at the rate of twenty-four (24 %) per annum. | |
| 4. | Beneficial ownership is limited to 4.99%. | |
| 5. | The Notes may be prepaid in whole or in part, at any time during the period beginning on the issue date and ending on the maturity date September 1, 2016, beginning at 100% of the outstanding principal, accrued interest and certain other amounts that may be due and owing under the Notes. |
Convertible Redeemable note issued on May 19, 2016, amounting to $75,000 (Note A).
The key terms/features of the convertible note are as follows:
| 1. | The maturity date of the Note is May 19, 2017. | |
| 2. | Interest on the unpaid principal balance of this Note shall accrue at the rate of 8 % per annum. | |
| 3. | In the event the Note holder exercises the right of conversion, the conversion price will be equal to 52% of the lowest closing bid price of the Company’s common stock for the twenty (20) trading days prior to the date of conversion. | |
| 4. | As maturity dates have passed, the Company is now obligated to accept all conversion requests on the note. | |
| 5. | Conversion is limited to the holder beneficially holding not more than 4.99% of the Company’s then issued and outstanding common stock after the conversion. |
Interest amounting to $99,195 was accrued for the year ended December 31, 2017 (2016: $49,336).
All notes maturing prior to the date of this report are outstanding.
Derivative liability
During the year ended December 31, 2017, holders of convertible promissory notes converted principal and interest amounting to $46,729 and $254,384, respectively. The Company recorded and fair valued the derivative liability as follows:
| Derivative liability as at December 31, 2016 | Conversions during the period | Fair value adjustment | Derivative liability as at December 31, 2017 | |||||||||||||
| Note A | 92,963 | (127,404 | ) | 34,441 | - | |||||||||||
| Note B and C | 382,409 | (37,394 | ) | 189,199 | 534,214 | |||||||||||
| Note D and E | - | (314,043 | ) | 401,864 | 87,821 | |||||||||||
| Note F | - | - | 98,276 | 98,276 | ||||||||||||
| Note G | - | - | 21,096 | 21,096 | ||||||||||||
| Note H | - | - | 143,985 | 143,985 | ||||||||||||
| Note I | - | - | 39,048 | 39,048 | ||||||||||||
| Note J | - | - | 27,935 | 27,395 | ||||||||||||
| 475,372 | (478,841 | ) | 955,305 | 951,836 | ||||||||||||
| F- 12 |
| 11. | STOCKHOLDERS’ DEFICIT |
On July 3, 2017, the Company filed an amended Certificate of Incorporation in Delaware to increase its authorized common stock to 20,000,000,000 shares. The Company’s authorized preferred stock remained at 20,000,000 shares. 1,000,000 shares of Preferred Stock having a par value of $0.0001 per share shall be designated as Series A Preferred Stock (“Series A Stock”). Dividends shall be declared and set aside for any shares of Series A Stock in the same manner and amount as for the Common Stock. Series A Stock, as a class, shall have voting rights equal to a multiple of 2X the number of shares of Common Stock issued and outstanding that are entitled to vote on any matter requiring shareholder approval.
The Company, as authorized by its Board of Directors and stockholders, has approved a Reverse Split whereby record owners of the Company’s Common Stock as of the Effective Date, shall, after the Effective Date, own one share of Common Stock for every one thousand (1,000) held as of the Effective Date. As a result, an aggregate of $387,978 was reclassified from common stock to additional paid in capital, see further Note 9. The Effective Date of this amendment was November 1, 2017.
The Company’s authorized capital stock consists of 20,000,000,000 shares of common stock and 20,000,000 shares of preferred stock. At December 31, 2017, there were 14,973,818,339 (14,973,819 – post reverse split) shares of common stock issued and outstanding (at December 31, 2016: 35,644,874 (35,645 – post reverse split) shares of common stock issued and outstanding).
Capitalization
The Company is authorized to issue 20,000,000,000 shares of common stock, par value $0.0001, of which 14,973,818,339 (14,973,819 – post reverse split) shares are outstanding as at December 31, 2017. The Company is also authorized to issue 20,000,000 shares of preferred stock, par value $0.0001, of which 1,000,000 shares were outstanding as at December 31, 2017.
Common Stock
Holders of shares of common stock are entitled to one vote for each share on all matters to be voted on by the stockholders. Holders of common stock do not have cumulative voting rights.
Subject to preferences that may be applicable to any outstanding shares of preferred stock, the holders of common stock are entitled to share ratably in dividends, if any, as may be declared from time to time by the board of directors in its discretion from funds legally available therefor.
Holders of common stock have no pre-emptive rights to purchase the Company’s common stock. There are no conversion or redemption rights or sinking fund provisions with respect to the common stock. The Company may issue additional shares of common stock which could dilute its current shareholder's share value.
During the quarter ended March 31, 2017, the Company issued 4,000,000 (4,000 – post reverse split) shares of common stock to individuals as consideration for advisory and consultancy services amounting to $36,000 which were recorded at fair value.
During the quarter ended March 31, 2017, the Company issued 13,916,741 (13,917 – post reverse split) shares of common stock to individuals on conversion of convertible promissory notes amounting to $26,126, respectively.
During the quarter ended March 31, 2017, the Company issued 20,000,000 (20,000 – post reverse split) shares of common stock each to Rubin Schindermann and Alexander Starr as consideration to settle outstanding management fee in the amount of $50,000 each, which were recorded at fair value.
During the quarter ended June 30, 2017, the Company issued 234,458,494 (234,458 – post reverse split) shares of common stock to individuals on conversion of convertible promissory notes amounting to $181,530.
| F- 13 |
During the quarter ended June 30, 2017, the Company issued 40,000,000 (40,000 – post reverse split) shares of common stock each to Rubin Schindermann and Alexander Starr as consideration to settle outstanding management fee in the amount of $108,000 each, which were recorded at fair value.
During the quarter ended September 30, 2017, the Company issued 675,627,230 (675,627 – post reverse split) shares of common stock to individuals on conversion of convertible promissory notes amounting to $51,729. Of these shares, the Company issued 533,348,384 shares at $30,779 and as a result of the contractual conversion price adjustments, these shares were issued below par value, with the offsetting balance recorded as a reduction in additional paid-in capital in the amount of $22,556 during the three months ended September 30, 2017.
During the quarter ended September 30, 2017, the Company issued 1,400,000,000 (1,400,000 – post reverse split) shares of common stock each to Rubin Schindermann and Alexander Starr as consideration to settle outstanding management fee in the amount of $140,000 each, which were recorded at fair value.
During the quarter ended December 30, 2017, the Company issued 5,000,000,000 (5,000,000 – post reverse split) shares of common stock each to Rubin Schindermann and Alexander Starr as consideration to settle outstanding management fee in the amount of $50,000 each, which were recorded at fair value.
During the year ended December 31, 2017, 533,348,384 shares (533,348 – post reverse split) shares of common stock were issued at a fair value which was lower than the par value of the shares. This resulted in a reduction in additional paid in capital amounting to $22,556.
Shares to be issued include the following:
80,000 shares of common stock to be issued as compensation to advisers and consultants. These were recorded at fair value of $52,000, based on the market price of the Company’s stock on the date of issue.
35,000,000 shares (35,000 – post reverse split) to be issued as settlement of amount due for website development services amounting to $247,306. The fair value of the shares on the date of settlement was $21,000, resulting in gain on settlement amounting to $226,306.
Preferred Stock
Shares of preferred stock may be issued from time to time in one or more series as may be determined by the board of directors. The board of directors may fix the designation, powers, preferences and rights of the shares of each such series and the qualifications, limitations or restrictions thereof without any further vote or action by the stockholders of the Company, except that no holder of preferred stock shall have pre-emptive rights. Any shares of preferred stock so issued would typically have priority over the common stock with respect to dividend or liquidation rights. The board of directors does not at present intend to seek stockholder approval prior to any issuance of currently authorized stock, unless otherwise required by law or otherwise.
| 12. | LEASE AGREEMENT |
The Company is party to a lease agreement dated October 1, 2016, with Hard Assets Capital Corp., for the lease of its office premises. The term of the lease was one year from the date of the agreement and provides for a base rent of $1,000 per month for the premises. This agreement was renewed on October 1, 2017 for one year.
| F- 14 |
| 13. | INCOME TAXES |
Income taxes
The Tax Cuts and Jobs Act (the “Act”) enacted on December 22, 2017 reduces the US federal corporate tax rate from 35% to 21% and requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and creates new taxes on certain foreign sourced earnings. As of December 31, 2017, the Company has not completed the accounting for the tax effects of enactment of the Act; however, as described below, it has made a reasonable estimate of the effects on existing deferred tax balances. These amounts are provisional and subject to change.
The provision for income taxes is calculated at US corporate tax rate of approximately 35% (2016: 35%) as follows:
| 2017 | 2016 | |||||||
| Net loss for the year | $ | 365,963 | $ | 820,634 | ||||
| Tax effect of expenses not deductible for income tax: | ||||||||
| Annual effect of book/tax differences | (303,870 | ) | (485,674 | ) | ||||
| Change in valuation allowance | (62,093 | ) | (334,960 | ) | ||||
| - | - | |||||||
Deferred tax assets
Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
Net deferred tax assets consist of the following components as of December 31:
| 2017 | 2016 | |||||||
| Deferred Tax Assets - Non-current: | ||||||||
| Tax effect of NOL Carryover | $ | 452,343 | $ | 390,250 | ||||
| Cumulative change due to reduced rate | (156,117 | ) | - | |||||
| Less valuation allowance | (296,226 | ) | (390,250 | ) | ||||
| Deferred tax assets, net of valuation allowance | - | - | ||||||
At December 31, 2017, the Company performed a comprehensive analysis of its tax estimates and revised comparative figures accordingly, which had no net impact on deferred tax recorded. The Company had net operating loss carryforwards of approximately $1,410,682 (2016: $1,115,000) that may be offset against future taxable income from the year by 2037. No tax benefit has been reported in the December 31, 2017 financial statements since the potential tax benefit is offset by a valuation allowance of the same amount. The Company is taxed in the United States at the Federal level. All tax years since inception are open to examination because no tax returns have been filed.
| 14. | SUBSEQUENT EVENTS |
The Company’s management has evaluated subsequent events up to March 23, 2018, the date the financial statements were issued, pursuant to the requirements of ASC 855 and has determined the following material subsequent events:
In January 2018, the Company issued a convertible promissory note amounting to $28,000.
In January and February 2018, the Company issued 5,456,932 shares of common stock pursuant to conversion notices received from one of the holders of the convertible promissory notes.
During February and March 2018, the Company issued 5,529,412 shares of common stock as consideration for management services.
| F- 15 |
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
There were no changes in or disagreements with accountants on accounting and financial disclosure for the period covered by this report.
Item 9A. Controls and Procedures
Management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 COSO Framework or COSO). Based on this evaluation, management has concluded that our internal control over financial reporting was not effective as of December 31, 2017. Management identified segregation of duties & maintenance of current accounting records as material weaknesses in internal control over financial reporting.
Management is in the continuous process of improving the internal control over financial reporting by engaging a Certified Public Accountant as a consultant to mitigate some of the identified weaknesses. The Company is still in its development stage and intends on bringing in necessary resources to address the weaknesses once full operations have commenced. Management concludes that internal control over financial reporting is ineffective at December 31, 2017.
Management’s Report of Internal Control over Financial Reporting
Our management carried out an evaluation of the effectiveness of our “disclosure controls and procedures” (as defined in the Securities Exchange Act of 1934 (the “Exchange Act”) Rules 13a-15(e) and 15-d-15(e)) as of the end of the period covered by this report (the “Evaluation Date”). Based upon that evaluation, our chief executive officer and chief financial officer each concluded that as of the Evaluation Date, our disclosure controls and procedures are ineffective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act (i) is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and (ii) is accumulated and communicated to our management, including our chief executive officer and our chief financial officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There have been no changes in the Company’s internal controls over financial reporting during its fourth fiscal quarter that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.
Not applicable.
| 11 |
Item 10. Directors, Executive Officers, and Corporate Governance;
The Directors and Officers of the Company are as follows:
| NAME | AGE | POSITIONS AND OFFICES HELD | ||
| Rubin Schindermann | 66 | Chief Executive Officer, Chief Financial Officer and Director | ||
| Alexander Starr | 66 | President and Director |
Management of Chess Supersite Corporation
Set forth below are the names of the directors and officers of the Company, all positions and offices with the Company held, the period during which they have served as such, and the business experience during at least the last five years:
Rubin Schindermann
Rubin Schindermann serves as the Chief Executive Officer and a director of the Company. Mr. Schindermann has been in the business community for over 30 years. In 2002 he established Rubin and Associates Financial Services where he provided services to several private and public companies while providing corporate governance and management direction to ensure complete transparency for shareholders. Since 2011, Mr. Schindermann has served as president and director of Hard Asset Capital Corp. Mr. Schindermann holds a Bachelor of Arts degree in science. Mr. Schindermann holds a BA from the University Of Saratov USSR and a Degree in Accountancy from the University of Tel-Aviv.
Alexander Starr
Alexander (Sasha) Starr serves as President and a director of the Company. Mr. Starr has many years’ experience in the business community and brings an established record in business development, marketing and management. From 2009 to 2013, Mr. Starr was president of Oxford Capital Partners, a division of a 1520814 Ontario Inc. company, responsible for day-to-day operations of the company, consulting with client companies to establish and develop business ventures. From 2013 to the present, Mr. Starr has served as president of Chess Supersite Inc., overseeing the operations and development of the supersite and promoting chess issues. Mr. Starr is a Master of Chess and a voting member of the Canadian Federation of Chess. Mr. Starr received his BA from Gorki State University, Russia.
Term of Office
Our director is appointed for a one-year term to hold office until the next annual general meeting of our stockholders or until removed from office in accordance with our bylaws. Our officers, if any, are appointed by our board of directors and hold office until removed by the board. All officers and directors listed above will remain in office until the next annual meeting of our stockholders, and until their successors have been duly elected and qualified. There are no agreements with respect to the election of Directors. We have not compensated our Directors for service on our Board of Directors, any committee thereof, or reimbursed for expenses incurred for attendance at meetings of our Board of Directors and/or any committee of our Board of Directors. Officers are appointed annually by our Board of Directors and each Executive Officer serves at the discretion of our Board of Directors. We do not have any standing committees. Our Board of Directors may in the future determine to pay Directors’ fees and reimburse Directors for expenses related to their activities.
None of our Officers and/or Directors have filed any bankruptcy petition, been convicted of or been the subject of any criminal proceedings or the subject of any order, judgment or decree involving the violation of any state or federal securities laws within the past five (5) years.
Audit Committee
At the present time, we do not have a standing audit committee of the Board of Directors. Management has determined not to establish an audit committee at present because of our limited resources and limited operating activities do not warrant the formation of an audit committee or the expense of doing so. We do not have a financial expert serving on the Board of Directors or employed as an officer based on management’s belief that the cost of obtaining the services of a person who meets the criteria for a financial expert under Item 401(e) of Regulation S-B is beyond its limited financial resources and the financial skills of such an expert are simply not required or necessary for us to maintain effective internal controls and procedures for financial reporting in light of the limited scope and simplicity of accounting issues raised in its consolidated financial statements at this stage of its development. We have not formed a Compensation Committee, Nominating and Corporate Governance Committee or any other Board Committee as of the filing of this Annual Report.
| 12 |
Certain Legal Proceedings
No director, nominee for director, or executive officer of the Company has appeared as a party in any legal proceeding material to an evaluation of his ability or integrity during the past five years.
Compliance with Section 16(A) of the Exchange Act
Our common stock is registered pursuant to Section 12 of the Securities Exchange Act of 1934, as amended, (“Exchange Act”). Our officers, directors and persons who beneficially hold more than 10% of our issued and outstanding equity securities are required to file reports of ownership and changes in ownership with the Securities and Exchange Commission. As of the date of this report, all persons required to file report pursuant to Section 16 of the Exchange have filed the required reports.
Code of Ethics
We have adopted a Code of Business Conduct and Ethics (“Code”) that applies to our officers, directors and employees including our Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer. A copy of the Code will be provided to any person upon request, without charge. A request for a copy of the Code should be addressed in writing to the Company at 1131A Leslie Street, Suite 101, Toronto, Ontario, Canada M3C 3L8.
Advisory Board
Our Board of Directors has established an Advisory Board whose initial members are Garry Kasparov, Michael Khodorkovsky and Nava Starr. Mr. Kasparov is a chess Grandmaster and Chairman of the Kasparov Chess Foundation. Mr. Khodorkovsky is an International Chess Master and the President of the Kasparov Chess Foundation. Ms. Starr is a Women’s International Master and legendary Canadian chess champion. She is also the wife of Sasha Starr.
The purpose and function of the Advisory Board is to advise and make non-binding recommendations and provide guidance to the Board of Directors with respect to matters within the areas of expertise of the members of the Advisory Board. The Board of Directors has adopted an Advisory Board Charter (“Charter”) and each member of the Advisory Board has signed an Advisory Board Agreement. Under the Charter, Advisory Board members will receive compensation for their services in discretion of the Board of Directors. Such compensation may consist of stock option and/or stock grants. No cash compensation will be paid. As of the date of this report, the following common stock grants were issued to the members of the Advisory Board.
| Garry Kasparov | 150,000 shares | |||
| Michael Khodarkovsky | 50,000 shares | |||
| Nava Starr | 50,000 shares |
Item 11. Executive Compensation
The Company has not to date paid any compensation to any officer or director. The Company intends to pay annual salaries to all its officers and will pay an annual stipend to its directors when, and if, it completes a primary public offering for the sale of securities and/or the Company reaches profitability, experiences positive cash flow and/or obtains additional funding. At such time, the Company anticipates offering cash and non-cash compensation to officers and directors. In addition, although not presently offered, the Company anticipates that its officers and directors will be provided with a group health, vision and dental insurance program at subsidizes rates, or at the sole expense of the Company, as may be determined on a case-by-case basis by the Company in its sole discretion. In addition, the Company plans to offer 401(k) matching funds as a retirement benefit, paid vacation days and paid holidays.
Currently, the Company accrues management fee amounting to $75,000 each for its two executives. During the year ended December 31, 2017, the Company issued 6,460,000,000 (6,469,000 – post reverse split) shares of common stock each to Rubin Schindermann and Alexander Starr as consideration to settle outstanding management fee in the amount of $348,000 each.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The following table sets forth certain information as of March 23, 2018 regarding the beneficial ownership of our Common Stock by (i) our named executive officer, and (ii) each of our directors, (iii) each person we know to beneficially own more than 5% of our outstanding Common Stock. All shares of our Common Stock shown in the table reflect sole voting and investment power.
| 13 |
| Name and Address of Beneficial Owner |
Position | Common shares beneficially owned |
Percent of Common shares beneficially owned (1) |
||||
| Rubin Schindermann Address: 1131A Leslie Street, Suite 201, Toronto, Ontario, Canada |
CEO, Director |
8,936,206,000 (8,936,206 – post reverse split) |
(2) | 34% | |||
| Alexander Starr Address: 1131A Leslie Street, Suite 201, Toronto, Ontario, Canada |
President, Director | 8,936,706,000 (8,936,706 – post reverse split) |
(2) | 34% | |||
| Total owned by officers and directors | 17,872,912,000 (17,872,912 – post reverse split) |
68% |
| (1) | Based on 25,960,339 (25,960,163 – post reverse split) shares outstanding as of the date of this Report | |
| (2) | Includes 2,000,000 shares held by Chess Supersite, Inc., a corporation organized under the laws of Ontario, Canada. Mr. Schindermann and Mr. Starr are executives and directors of the entity, and they may be deemed the beneficial owners of the shares held by such entity. |
Item 13. Certain Relationships and Related Transactions and Director Independence
Mr. Schindermann and Mr. Starr, who are respectively the Chief Executive Officer and President of the Company, as well as directors, are also executives and directors of Chess Supersite, Inc. and were officers and directors of Chess Supersite, Inc. prior to the Acquisition. Mr. Schindermann was the Chief Executive Officer and Chief Financial Officer of Chess Supersite, Inc. from November 2011 to present. Mr. Starr was a founder and President of Chess Supersite, Inc. As of the date of this Report, Mr. Schindermann and Mr. Starr own directly and beneficially 8,936,206,000 (8,936,206 – post reverse split) and 8,936,706,000 (8,936,706 – post reverse split) shares respectively of the Company’s 25,960,162,339 (25,960,163 – post reverse split) outstanding shares of Common Stock.
Item 14. Principal Accounting Fees and Services.
Audit Fees
We were billed $17,000 and $7,000 for years ended December 31, 2017 and 2016 respectively for professional services rendered for the audit of our financial statements.
Audit Related Fees
Other audit related fee for years ended December 31, 2017 and 2016 was $2,500 and nil, respectively.
Tax Fees
There was no Tax Fees for years ended December 31, 2017 and 2016.
All Other Fees
There was no other fees for years ended December 31, 2017 and 2016.
| 14 |
Item 15. Exhibits, Financial Statement Schedules
The following documents are filed as part of this Annual Report on Form 10-K
| (a) | Financial Statements |
| Page | ||
| Report of Independent Registered Public Accounting Firm | F-1 | |
| Financial Statements for the years ended December 31, 2017 and 2016 | ||
| Balance Sheets | F-2 | |
| Statements of Operations | F-3 | |
| Statement of Stockholders’ Equity (Deficit) | F-4 | |
| Statements of Cash Flows | F-5 | |
| Notes to Financial Statements | F-6 |
| (b) | Exhibits |
EXHIBIT INDEX
| * | Filed herewith |
| 15 |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Date: March 26, 2018 | CHESS SUPERSITE CORPORATION | |
| By: | /s/ Rubin Schindermann | |
| Rubin Schindermann | ||
| Chief Executive Officer and Chief Financial Officer | ||
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| Name | Title | Date | ||
| /s/ Rubin Schindermann | Director | March 26, 2018 | ||
| Rubin Schindermann | ||||
| /s/ Alexander Starr | Director | March 26, 2018 | ||
| Alexander Starr |
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