UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 10-Q

 

[X]	Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
	For the quarterly period ended September 30, 2015
[  ]	Transition Report pursuant to 13 or 15(d) of the Securities Exchange Act of 1934
	For the transition period from __________ to __________
	Commission File Number: 333-193736

 

SocialPlay USA, Inc.

(Exact name of registrant as specified in its charter)

 

Nevada	46-4412037
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)
2532 Open Range Dr., Fort Worth TX 76177
(Address of principal executive offices)
(866) 281-1207
(Registrant’s telephone number)
_______________________________________________________________
(Former name, former address and former fiscal year, if changed since last report)

 

Indicated by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 past 90 days [X] Yes [ ] No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.

 

[ ] Large accelerated filer [ ] Non-accelerated filer

[ ] Accelerated filer [X] Smaller reporting company

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). [ ] Yes [X] No

 

State the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 11,720,000 common shares as of December 16, 2015.

 

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 (§ 229.405 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 [  ] No [X]

 

	TABLE OF CONTENTS	Page
PART I – FINANCIAL INFORMATION
Item 1:	Financial Statements	3
Item 2:	Management’s Discussion and Analysis of Financial Condition and Results of Operations	4
Item 3:	Quantitative and Qualitative Disclosures About Market Risk	6
Item 4:	Controls and Procedures	7
PART II – OTHER INFORMATION
Item 1:	Legal Proceedings	8
Item 1A:	Risk Factors	8
Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds	8
Item 3:	Defaults Upon Senior Securities	8
Item 4:	Mine Safety Disclosures	9
Item 5:	Other Information	9
Item 6:	Exhibits	9

 

 

PART I - FINANCIAL INFORMATION 

Item 1. Financial Statements

 

Our financial statements included in this Form 10-Q are as follows:

 

F-1	Condensed Balance Sheets as of September 30, 2015 (unaudited) and December 31, 2014 (audited);
F-2	Condensed Statements of Operations for the Three and Nine Months ended September 30, 2015 and 2014 (unaudited);
F-3	Condensed Statements of Cash Flows for the Nine Months ended September 30, 2015 and 2014 (unaudited);
F-4	Notes to Condensed Financial Statements.

 

SocialPlay USA, Inc. (formerly Artesanias Corp.)

Condensed Balance Sheets

As of September 30, 2015 (unaudited) and December 31, 2014 (audited)

(Expressed in United States Dollars)

	September 30,				December 31,
	2015				2014
	$				$
Current assets
Cash		97				6,544
Prepaid expenses		59,032				—
Total assets		59,129				6,544
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities
Accounts payable and accrued liabilities		254,070				11,194
Convertible promissory notes [note 5]		26,722				—
Derivative liabilities [note 6]		163,211				—
Total liabilities		444,003				11,194
Stockholders' deficiency
Preferred stock, $0.001 par value, 100,000,000 shares authorized, no shares issued and outstanding as of September 30, 2015 and December 31, 2014, respectively [note 7]		—				—
Common stock, $0.001 par value, 200,000,000 shares authorized, 11,720,000 and 11,520,000 common shares issued and outstanding as of September 30, 2015 and December 31, 2014, respectively [note 7]		11,720				11,520
Additional paid-in capital		545,280				35,480
Accumulated deficit		(941,874	)			(51,650	)
Total stockholders' deficiency		(384,874	)			(4,650	)
Total liabilities and stockholders' deficiency		59,129				6,544
Commitments [note 8]

On July 27, 2015, the Company effectuated a 1 for 5 reverse stock split. Shares have been retroactively restated. 

 

See accompanying notes

SocialPlay USA, Inc. (formerly Artesanias Corp.)

Condensed Statements of Operations

For the Three and Nine Months ended September 30, 2015 and 2014 (unaudited)

(Expressed in United States Dollars)

 

	Three months				Three months				Nine months				Nine months
	Ended				Ended				Ended				Ended
	September 30,				September 30,				September 30,				September 30,
	2015				2014				2015				2014
	$				$				$				$
REVENUE		—				—				—				—
EXPENSES
Legal and professional fees		18,585				1,500				63,697				8,884
Advertising and promotion		2,000				—				56,473				—
Consulting fees - Investor relations		34,500				1,500				53,468				5,500
Transfer agent fees		940				1,240				5,330				6,240
Directors' fees and other charges		65,000				—				80,775				—
Other operating expenses		4,497				5,064				17,297				1,593
Total operating expenses		125,522				9,304				277,040				22,217
Interest and bank charges		17,295				—				25,422				—
Day-one derivative loss [note 5 and 6]		—				—				252,683				—
Licensing fees [note 4]		—				—				630,000				—
Change in fair value of derivatives [note 5 and 6]		(217,605	)			—				(294,921	)			—
(Income) loss before income taxes		(74,788	)			9,304				890,224				22,217
Income taxes		—				—				—				—
Net income (loss) for the period		74,788				(9,304	)			(890,224	)			(22,217	)
Earnings (loss) per share, basic and diluted		0.0064				(0.0008	)			(0.0760	)			(0.0024	)
Weighted average number of common shares outstanding		11,720,000				11,520,000				11,720,000				9,104,352

 

See accompanying notes

SocialPlay USA, Inc. (formerly Artesanias Corp.)

Condensed Statements of Cash Flows

For the Nine Months ended September 30, 2015 and 2014 (unaudited)

(Expressed in United States Dollars)

 

	Nine months				Nine months
	Ended				Ended
	September 30,				September 30,
	2015				2014
	$				$
OPERATING ACTIVITIES
Net loss for the period		(890,224	)			(22,217	)
Interest expense - accretion of convertible notes		18,991				—
Day-one derivative loss		252,683				—
License fees		630,000				—
Change in fair value of derivatives		(294,921	)			—
Net change in non-cash working capital balances:
Prepaid expenses		(59,032	)			—
Accounts payable and accrued liabilities		159,809				100
Cash used in operating activities		(182,694	)			(22,117	)
INVESTING ACTIVITIES
Cash paid for license fees		(36,933	)			—
Cash used in investing activities		(36,933	)			—
FINANCING ACTIVITIES
Proceeds from issuance of common stock		—				27,000
Proceeds from stock receivable		—				20,000
Proceeds from issuance of convertible promissory notes		213,180				—
Cash provided by financing activities		213,180				47,000
Net (decrease) increase in cash during the period		(6,447	)			24,883
Cash, beginning of period		6,544				—
Cash, end of period		97				24,883
Supplemental disclosure with respect to cash flows:
Cash paid for income taxes		—				—
Cash paid for interest		—				—

 

See accompanying notes

SocialPlay USA, Inc. (formerly Artesanias Corp.)

Notes to Condensed Financial Statements

As of September 30, 2015 (unaudited)

(Expressed in United States Dollars)

 

Note 1 – History and Organization of the Company

 

The Company was incorporated on December 31, 2013 (Date of Inception) under the laws of the State of Nevada, as Artesanias Corp. (the “ Company”). On June 12, 2015, the Board of Directors of the Company changed the name from Artesanias Corp. to SocialPlay USA, Inc. to reflect the current business focus of the Organization. The Company plans to develop a business that provides marketing, monetization, and support services for the companies in gaming and mobile application markets.

 

The company has limited operations and is considered to be in the development stage.

 

Note 2 – Summary of Significant Accounting Policies

 

Basis of Presentation

The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) for interim financial information and the rules and regulations of the SEC and are expressed in US dollars. Accordingly, the unaudited condensed financial statements do not include all information and footnotes required by US GAAP for complete annual financial statements. In the opinion of management, the accompanying unaudited condensed financial statements reflect all adjustments, consisting of only normal recurring adjustments, considered necessary for a fair presentation. Interim operating results are not necessarily indicative of results that may be expected for the year ending December 31, 2015 or for any other interim period. The unaudited condensed financial statements should be read in conjunction with the audited financial statements of the Company and the notes thereto as of and for the year ended December 31, 2014.

 

Use of Estimates

The preparation of the financial statements in conformity with US 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. Areas involving significant estimates and assumptions include valuation of derivatives, valuation allowance for deferred tax assets, accruals and going concern assessment.  These estimates are reviewed periodically, and, as adjustments become necessary, they are reported in earnings in the period in which they become known. Actual results could materially differ from those estimates.

 

Cash and Cash Equivalents

The Company maintains a cash balance in a non-interest-bearing account that currently does not exceed federally insured limits. For the purpose of the statements of cash flows, all highly liquid investments with an original maturity of three months or less are considered to be cash equivalents. There were no cash equivalents as of September 30, 2015.

 

Loss Per Share

The Company has adopted the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) Topic 260-10 which provides for calculation of “basic” and “diluted” earnings per share. Basic earnings per share includes no dilution and is computed by dividing net income or loss available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflect the potential dilution of securities that could share in the earnings of an entity. Diluted earnings per share exclude all potentially dilutive shares if their effect is anti-dilutive. There were no potentially dilutive shares outstanding as at September 30, 2015.

 

Dividends

The Company has not yet adopted any policy regarding payment of dividends. No dividends have been paid or declared since inception.

SocialPlay USA, Inc. (formerly Artesanias Corp.)

Notes to Condensed Financial Statements

As of September 30, 2015 (unaudited)

(Expressed in United States Dollars)

 

Note 2 – Summary of Significant Accounting Policies (continued)

 

Fair Value of Financial Instruments

Accounting Standards Codification Topic 820 “Fair Value Measurements and Disclosures” (“ASC 820”) defines fair value, establishes a framework for measuring fair value and expands required disclosure about fair value measurements of assets and liabilities. ASC 820-10 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820-10 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

 

Level 1 - Valuation based on quoted market prices in active markets for identical assets or liabilities.

 

Level 2 - Valuation based on quoted market prices for similar assets and liabilities in active markets.

 

Level 3 - Valuation based on unobservable inputs that are supported by little or no market activity, therefore requiring management’s best estimate of what market participants would use as fair value.

 

In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.

 

Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management. The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values due to the short-term nature of these instruments or interest rates that are comparable to market rates. These financial instruments include cash, accounts payable and accrued liabilities and convertible promissory notes. The Company's cash, which is carried at fair value, is classified as a Level 1 financial instruments. Bank accounts are maintained with financial institutions of reputable credit, therefore, bear minimal credit risk.

 

Advertising Costs

The Company expenses all costs of advertising as incurred.

 

Income Taxes

The Company accounts for under ASC Topic 740 Accounting for Income Taxes. The Company provides for federal and provincial income taxes payable, as well as for those deferred because of the timing differences between reporting income and expenses for financial statement purposes versus tax purposes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recoverable or settled. The effect of a change in tax rates is recognized as income or expense in the period of the change. A valuation allowance is established, when necessary, to reduce deferred income tax assets to the amount that is more likely than not to be realized.

 

Contingencies

The Company is not currently a party to any pending or threatened legal proceedings.  Based on information currently available, management is not aware of any matters that would have a material adverse effect on the Company’s financial condition, results of operations or cash flows.

SocialPlay USA, Inc. (formerly Artesanias Corp.)

Notes to Condensed Financial Statements

As of September 30, 2015 (unaudited)

(Expressed in United States Dollars)

 

Note 2 – Summary of Significant Accounting Policies (continued)

 

Valuation of Derivatives

The Company evaluates its convertible instruments, options, warrants or other contracts to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for under ASC Topic 815, “Derivatives and Hedging.” The result of this accounting treatment is that the fair value of the derivative is marked-to-market each balance sheet date and recorded as a liability. In the event that the fair value is recorded as a liability, the change in fair value is recorded in the statement of operations as other income (expense). Upon conversion or exercise of a derivative instrument, the instrument is marked to fair value at the conversion date and then that fair value is reclassified to equity. Equity instruments that are initially classified as equity that become subject to reclassification under ASC Topic 815 are reclassified to liabilities at the fair value of the instrument on the reclassification date. We analyzed the derivative financial instruments (the Convertible Notes), in accordance with ASC 815. The objective is to provide guidance for determining whether an equity-linked financial instrument is indexed to an entity’s own stock. This determination is needed for a scope exception which would enable a derivative instrument to be accounted for under the accrual method. The classification of a non-derivative instrument that falls within the scope of ASC 815-40-05 “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock” also hinges on whether the instrument is indexed to an entity’s own stock. A non-derivative instrument that is not indexed to an entity’s own stock cannot be classified as equity and must be accounted for as a liability. There is a two-step approach in determining whether an instrument or embedded feature is indexed to an entity’s own stock. First, the instrument's contingent exercise provisions, if any, must be evaluated, followed by an evaluation of the instrument's settlement provisions. The Company utilized multinomial lattice models that value the derivative liability within the notes based on a probability weighted discounted cash flow model. The Company utilized the fair value standard set forth by the Financial Accounting Standards Board, defined as the amount at which the assets (or liability) could be bought (or incurred) or sold (or settled) in a current transaction between willing parties, that is, other than in a forced or liquidation sale.

 

The derivative liabilities result in a reduction of the initial carrying amount (as unamortized discount) of the Convertible Notes. This derivative liability is marked-to-market each quarter with the change in fair value recorded in the income statement. Unamortized discount is amortized to interest expense using the effective interest method over the life of the Convertible Note. If the Note is converted or the warrants are exercised, the derivative liability is released and recorded as additional paid in capital.

 

Recent pronouncements

 

In April 2014, the FASB issued Accounting Standards Update (“ASU”) 2014-08, "Presentation of Financial Statements and Property, Plant, and Equipment - Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity'', which revises what qualifies as a discontinued operation, changes the criteria for determining which disposals can be presented as discontinued operations and modifies related disclosure requirements. This ASU will be effective for the Company for applicable transactions occurring after January 1, 2016. The Company will prospectively apply the guidance to applicable transactions and does not expect adoption to have a material impact on the financial statements.

 

On May 28, 2014, the FASB issued a new financial accounting standard on revenue from contracts with customers, ASU 2014-09, “Revenue from Contracts with Customers (Topic 606)”. The standard outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance. In July 2015, the FASB voted to approve a one-year deferral of the effective date of ASU 2014-09, which will be effective for the Company in the first quarter of fiscal year 2018 and may be applied on a full retrospective or modified retrospective approach. This ASU will have no impact on the Company until it begins to generate revenue.

SocialPlay USA, Inc. (formerly Artesanias Corp.)

Notes to Condensed Financial Statements

As of September 30, 2015 (unaudited)

(Expressed in United States Dollars)

 

Note 2 – Summary of Significant Accounting Policies (continued)

 

Recent pronouncements (continued)

 

In June 2014, the FASB issued Accounting Standards Update ASU 2014-10, “Development Stage Entities”. The amendments in this update remove the definition of a development stage entity from the Master Glossary of the ASC thereby removing the financial reporting distinction between development stage entities and other reporting entities from U.S. GAAP.  In addition, the amendments eliminate the requirements for development stage entities to (1) present

inception-to-date information in the statements of income, cash flows, and shareholder equity, (2) label the financial statements as those of a development stage entity, (3) disclose a description of the development stage activities in which the entity is engaged, and (4) disclose in the first year in which the entity is no longer a development stage entity that in prior years it had’ been in the development stage. The amendments in this update are applied retrospectively.

 

On August 27, 2014, the FASB issued a new financial accounting standard on going concern, ASU 2014-15, “Presentation of Financial Statements - Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern”. The standard provides guidance about management’s responsibility to evaluate whether there is substantial doubt about the organization’s ability to continue as a going concern. The amendments apply to all companies and are effective in annual periods ending after December 15, 2016, with early application permitted. The Company is currently evaluating the impact of this accounting standard on its financial statements.

 

On April 7, 2015, the FASB issued 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 apply to all companies and are effective for public business entities in annual periods ending after December 15, 2015, and interim periods within those fiscal years, with early application permitted. The Company is currently evaluating the impact of this accounting standard on its financial statements.  

 

Note 3 - Going Concern

 

The Company’s condensed financial statements are prepared using generally accepted accounting principles in the United States of America applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has not yet established an ongoing source of revenues sufficient to cover its operating costs and allow it to continue as a going concern. The Company had an accumulated deficit of $941,874 and a working capital deficit of $384,874 as of September 30, 2015. The ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating losses until it becomes profitable. If the Company is unable to obtain adequate capital, it could be forced to cease operations. In order to continue as a going concern, the Company will need, among other things, additional capital resources. The Company is contemplating conducting an offering of its debt or equity securities to obtain additional operating capital. The Company is dependent upon its ability, and will continue to attempt, to secure equity and/or debt financing. There are no assurances that the Company will be successful and without sufficient financing it would be unlikely for the Company to continue as a going concern.

 

The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraph and eventually secure other sources of financing and attain profitable operations. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. These financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or amounts and classification of liabilities that might result from this uncertainty.

 

SocialPlay USA, Inc. (formerly Artesanias Corp.)

Notes to Condensed Financial Statements

As of September 30, 2015 (unaudited)

(Expressed in United States Dollars)

 

Note 4 –Licensing Fees

 

Pursuant to Exclusive License Agreement dated May 21, 2015 with a third party, the Company acquired an exclusive license to develop, market and sell products and services based upon any and all intellectual property. The initial term of this Agreement is five years. This Agreement may be renewed for an additional five year term upon written notice to be given by the Company no later than thirty days prior to the expiration of the initial term. In consideration for the license granted hereunder, the Company shall issue to the third party 1,000,000 (200,000 after reverse split) shares of common stock. In addition, the Company shall issue 1,000,000 (200,000 after reverse split) shares of common stock on or before each anniversary of this Agreement for so long as it shall remain in effect. The Company also agreed to make payments totaling $120,000 to the third party under an agreed payment schedule.

 

As technological feasibility has not yet been achieved, the Company has recognized as expense the total consideration due of $630,000, $120,000 being payable in cash and $510,000 in the form of 1,000,000 (200,000 after reverse split) shares of common stock to be issued valued at the market price of $0.51 per share.

 

Note 5 – Convertible Promissory Notes

 

The outstanding convertible promissory notes as at September 30, 2015 are as follows:

 

	$
Promissory notes issued during Q2 2015		132,200
Discount recognised due to embedded derivatives		(132,200	)
Accretion on notes for Q2 2015		7,025
Accreted value of notes as at June 30, 2015		7,025
Promissory notes issued during Q3 2015		80,980
Discount recognised due to embedded derivatives		(73,249	)
Accretion on notes for Q3 2015		11,966
Accreted value of notes as at September 30, 2015		26,722

 

The embedded conversion features and reset feature in the notes were accounted for as a derivative liability based on FASB guidance (also refer note 6).

 

The details of the convertible promissory notes issued are as follows:

 

Issue Date	Maturity Date	Note Amount	Interest Rate	Variable Conversion Rate
		$	Per Annum
June 9, 2015	June 9, 2016	28,000	10%	60% of 3 lows out of 10 trading days
June 10, 2015	June 10, 2016	60,000	10%	60% of 3 lows out of 10 trading days
June 11, 2015	June 11, 2016	30,000	10%	60% of 3 lows out of 10 trading days
June 15, 2015	June 15, 2016	14,200	10%	60% of 3 lows out of 10 trading days
July 1, 2015	July 1, 2016	35,000	10%	60% of 3 lows out of 10 trading days
July 11, 2015	July 11, 2016	17,980	10%	60% of 3 lows out of 10 trading days
August 14, 2015	August 14, 2016	28,000	10%	60% of 3 lows out of 10 trading days
		213,180

 

 

Interest expense for the three and nine months ended September 30, 2015 recognized on these convertible promissory notes amounts to $4,964 and $5,668, respectively, included in interest and bank charges in the statements of operations.

SocialPlay USA, Inc. (formerly Artesanias Corp.)

Notes to Condensed Financial Statements

As of September 30, 2015 (unaudited)

(Expressed in United States Dollars)

 

Note 6 – Derivative Liabilities

 

In connection with the issuance of convertible promissory notes as detailed in note 5 to the condensed financial statements, the Company may sell options or warrants to purchase our common stock. In certain circumstances, these options or warrants may be classified as derivative liabilities, rather than as equity. Additionally, the debt or equity instruments may contain embedded derivative instruments, such as embedded derivative features which in certain circumstances may be required to be bifurcated from the associated host instrument and accounted for separately as a derivative instrument liability.

 

The Company's derivative instrument liabilities are re-valued at the end of each reporting period, with changes in the fair value of the derivative liability recorded as charges or credits to income in the period in which the changes occur. For options, warrants and bifurcated embedded derivative features that are accounted for as derivative instrument liabilities, the Company estimates fair value using either quoted market prices of financial instruments with similar characteristics or other valuation techniques. The valuation techniques require assumptions related to the remaining term of the instruments and risk-free rates of return, our current common stock price and expected dividend yield, and the expected volatility of our common stock price over the life of the option.

 

The following table summarizes the movements in derivative liabilities:

 

	$
Face value of convertible promissory notes issued during Q2 2015		132,200
Day-one derivative loss recognized immediately		252,683
Derivative liabilities on issuance		384,883
Change in fair value of derivatives		(77,316	)
Derivative liabilities as at June 30, 2015		307,567
Derivative liability on issuance		73,249
Change in fair value of derivatives		(217,605	)
Derivative liabilities as at September 30, 2015		163,211

 

The multinomial lattice model was used to value the convertible notes and the embedded derivative liabilities at issuance and period end date, using the following assumptions.

 

	September 30
Assumptions	2015
Dividend yield	0.00%
Risk-free rate for term	0.08% - 0.41%
Volatility	404.2% - 382.1%
Remaining terms (years)	1 - 0.50
Stock price ($ per share)	1.12 - 1.35

SocialPlay USA, Inc. (formerly Artesanias Corp.)

Notes to Condensed Financial Statements

As of September 30, 2015 (unaudited)

(Expressed in United States Dollars)

 

Note 7 – Stockholders’ Deficiency

 

Authorized:

 

The Company is authorized to issue up to 200,000,000 shares of its $0.001 par value common stock and up to 100,000,000 shares of its $0.001 par value preferred stock.

 

Issued and outstanding:

 

On February 25, 2015, the Company executed a 12 for 1 forward stock split of issued shares of common stock. Further, on July 27, 2015, the Company effectuated a 1 for 5 reverse stock split. The accompanying condensed financial statements have been retrospectively adjusted for all periods presented to reflect the effect of the stock split.

 

On July 1, 2015, the Company issued 1,000,000 (200,000 after reverse split) shares of common stock pursuant to Exclusive License Agreement dated May 21, 2015 as explained in note 4 to the condensed financial statements.

 

As at September 30, 2015 and December 31, 2014, there were 11,720,000 and 11,520,000 (after stock split) shares of common stock, respectively, issued out of the authorized 200,000,000 common shares.

 

Note 8 – Commitments

 

The Company has commitments to issue 1,000,000 (200,000 after reverse split) shares of common stock on or before each anniversary pursuant to Exclusive License Agreement dated May 21, 2015 as explained in note 4 to the condensed financial statements.

 

Note 9 – Related Party Transactions

 

Office space and services are provided without charge by an officer and director of the Company. Such costs are not significant to the condensed financial statements and, accordingly, have not been reflected therein.

 

Other than disclosed elsewhere in the condensed financial statements, the only related party transaction during the three and nine months ended September 30, 2015 is directors’ fees and other charges amounting to $65,000 and $80,775 respectively (including $50,000 bonus recognized during quarter ended September 30, 2015).

 

Note 10 – Subsequent Events

 

The Company’s management has evaluated subsequent events up to December 16, 2015, the date the condensed financial statements were issued, pursuant to the requirements of ASC Topic 855 and has determined following subsequent events to report:

 

On November 16, 2015, Lucie Letellier resigned as Chief Financial Officer and as a member of board of directors of the Company.

 

On December 1, 2015, the Company issued a convertible promissory note of $16,000. The note matures on December 1, 2016, carries interest at 10% per annum and is convertible into shares at a price determined based on 60% of 3 lows out of 10 trading days.

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Forward-Looking Statements

 

Certain statements, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements.” These forward-looking statements generally are identified by the words “believes,” “project,” “expects,” “anticipates,” “estimates,” “intends,” “strategy,” “plan,” “may,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse affect on our operations and future prospects on a consolidated basis include, but are not limited to: changes in economic conditions, legislative/regulatory changes, availability of capital, interest rates, competition, and generally accepted accounting principles. These risks and uncertainties should also be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Company Overview

 

We were incorporated in the State of Nevada on December 31, 2013 as Artesanias Corp.  Our original business plan involved distribution of the arts and crafts of the indigenous tribes of Panama via the Internet. On January 20, 2015, we underwent a change in control when our former majority shareholder and sole officer, Jose Soto, sold his controlling interest and resigned after appointing our current CEO and Director, Chitan Mistry, and our former CFO and Director, Lucie Lettelier. Following the change in control, we are no longer pursuing our original business plan. Our new management is currently in the process of reviewing new business opportunities. Going forward, we plan to develop a business that provides marketing, monetization, and support services for the companies in gaming and mobile application markets. Additional disclosures will be made as our plans and intended business operations develop.

 

On April 27, 2015, we entered into an Exclusive License Agreement (the “Agreement”) with Social Play, Inc. (“Social Play”). Under the Agreement, we have been granted the exclusive rights within the U.S. and Canada to develop, market and sell products and services based upon Social Play’s patent-pending “SP Cloud Goods” system. SP Cloud Goods is cloud-based game hosting and management system where video game developers can add and remove virtual goods from the game, manage players, manage virtual store pricing, and view vital game and player statistics.  Using this system, game developers can affect their games in real-time, without the need to rebuild or republish the game. The SP Cloud Goods intellectual property also includes a system for game developers to collect payments for virtual goods sold to players in their games, as well as a marketplace component that will allow advertisers and game developers to choose where, when, and how advertisements are placed in games. The system will also facilitate the transfer of funds from advertisers to game developers.

 

The Agreement runs for an initial term of five (5) years, with an optional extension for an additional five years. In consideration for the license, we agreed to issue Social Play one million (1,000,000) shares of common stock and an additional one million shares on each anniversary of the Agreement for so long as it is in effect. Further, we agreed to make cash payments to Social Play in the total amount of $120,000, payable in monthly payments of not less than $20,000 until paid in full.

 

Significant Equipment

 

We do not intend to purchase any significant equipment for the next twelve months.   

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

 

Results of Operations for the three and nine months ended September 30, 2015 and 2014.

 

We have not earned any revenues since our inception. We had net income of $(74,788) for the three months ended September 30, 2015 as compared to net loss of $9,304 for the three months ended September 30, 2014. The only reason for net income during the current quarter is due to recognition of gain of $217, 605 in respect of change in fair value of derivatives. Our expenses during the current quarter mainly consisted directors fees and other charges of $65,000, which includes bonus of $50,000 recognized during current quarter (Three months ended September 30, 2014: $0), consulting fees in connection with investor relations of $34,500 (Three months ended September 30, 2014: $1,500) legal and professional fees of $18,585 (Three months ended September 30, 2014: $1,500).

 

We had net loss of $890,224 for the nine months ended September 30, 2015 as compared to net loss of $22,217 for the nine months ended September 30, 2014. Our expenses during nine months period ended September 30, 2015 mainly consisted of licensing fees of $630,000 (Nine months ended September 30, 2014: $0) pursuant to an exclusive license agreement to develop and market its products as explained in Company’s overview above, day-one derivative loss of $252,683 recognized as a result of valuation of convertible notes (Nine months ended September 30, 2014: $0) offset by an income in respect of change in fair value of derivatives of $294,921 (Nine months ended September 30, 2014: $0), directors fees and other charges of $80,775, which includes bonus of $50,000 recognized during the current quarter (Nine months ended September 30, 2014: $0), consulting fees in connection with investor relations of $53,468 (Nine months ended September 30, 2014: $5,500), legal and professional fees of $63,697 (Nine months ended September 30, 2014: $8,884), advertising and promotion of $56,473 (Nine months ended September 30, 2014: $0) and interest and bank charges including interest accrual and accretion expense of $25,422 (Nine months ended September 30, 2014: $0).  

 

Our results of operations for the three and nine months ended September 30, 2015 relate to the development of our current business, while the results of operations for the same periods last year relate to our former business which was abandoned in January of 2015. We anticipate our operating expenses will increase as we move toward developing more active operations in our current line of business.

 

Liquidity and Capital Resources

 

As of September 30, 2015, we have current assets of $59,129, consisting of prepaid consulting expenses of $59,032 and cash $97. Our current liabilities as of September 30, 2015 were $444,003, mainly consisting of accounts payable and accrued liabilities of $254,070, convertible promissory notes of $26,722 and derivative liabilities of $163,211. Thus, we had a working capital deficit of $384,874 as of September 30, 2015.

 

In recent months, we have relied upon financing in the form of Convertible Promissory Notes (the “Notes”) from CMGT, Inc. (“CMGT”). Each of the Notes bears interest at a rate of ten percent (10%) per year, with the principal and accrued interest being due one year from the date of issue. We may prepay the Notes in whole or in part without penalty. The Notes are convertible at a price equal to sixty percent (60%) of the market price for our common stock, which is defined as the average of the lowest three closing bid prices for our common stock in the ten trading days preceding the conversion. The conversion price of the Notes is also subject to adjustment in the event of certain stock issuances which are lower than the conversion price otherwise in effect at the time of the conversion. In addition, CMGT’s right to convert is limited such that no conversion can be made which would result in CMGT or its affiliates owning more than 4.99% of our issued and outstanding common stock following the conversion. This limit may be waived at CMGT option with 61 days’ prior notice. 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

 

As of the date of this Quarterly Report, we have the following Notes issued and outstanding to CMGT:

 

Issue Date	Maturity Date	Note Amount	Interest Rate
		$	Per Annum
June 9, 2015	June 9, 2016	28,000	10%
June 10, 2015	June 10, 2016	60,000	10%
June 11, 2015	June 11, 2016	30,000	10%
June 15, 2015	June 15, 2016	14,200	10%
July 1, 2015	July 1, 2016	35,000	10%
July 11, 2015	July 11, 2016	17,980	10%
August 14, 2015	August 14, 2016	28,000	10%
December 1, 2015	December 1, 2016	16,000	10%
		229,180

 

 

Our ability to continue operations and to develop our planned business will be contingent upon us obtaining additional financing through the issuance of debt or equity. The debt and/or equity financing arrangements available to us, if any, may be insufficient to fund significant capital expenditures, working capital, or other cash requirements. We do not have any formal commitments or arrangements for the sales of stock or the advancement or loan of funds at this time. There can be no assurance that such additional financing will be available to us on acceptable terms, or at all. 

 

Going Concern

 

As discussed in the notes to our financial statements, we have no established source of revenue.  This has raised substantial doubt for our auditors about our ability to continue as a going concern.  Without realization of additional capital, it would be unlikely for us to continue as a going concern.

 

Our activities to date have been supported by debt and equity financing.  Management continues to seek funding from its shareholders and other qualified investors. 

 

Off Balance Sheet Arrangements

 

As of September 30, 2015, there were no off balance sheet arrangements.

 

Critical Accounting Policies

 

In December 2001, the SEC requested that all registrants list their most “critical accounting polices” in the Management Discussion and Analysis. The SEC indicated that a “critical accounting policy” is one which is both important to the portrayal of a company’s financial condition and results, and requires management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Currently, we do not believe that any accounting policies fit this definition.

 

Recently Issued Accounting Pronouncements

 

In April 2014, the FASB issued Accounting Standards Update (“ASU”) 2014-08, "Presentation of Financial Statements and Property, Plant, and Equipment - Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity'', which revises what qualifies as a discontinued operation, changes the criteria for determining which disposals can be presented as discontinued operations and modifies related disclosure requirements. This ASU will be effective for the Company for applicable transactions occurring after January 1, 2016. The Company will prospectively apply the guidance to applicable transactions and does not expect adoption to have a material impact on the financial statements.

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

 

On May 28, 2014, the FASB issued a new financial accounting standard on revenue from contracts with customers, ASU 2014-09, “Revenue from Contracts with Customers (Topic 606)”. The standard outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance. In July 2015, the FASB voted to approve a one-year deferral of the effective date of ASU 2014-09, which will be effective for the Company in the first quarter of fiscal year 2018 and may be applied on a full retrospective or modified retrospective approach. This ASU will have no impact on the Company until it begins to generate revenue.

 

In June 2014, the FASB issued Accounting Standards Update ASU 2014-10, “Development Stage Entities”. The amendments in this update remove the definition of a development stage entity from the Master Glossary of the ASC thereby removing the financial reporting distinction between development stage entities and other reporting entities from U.S. GAAP.  In addition, the amendments eliminate the requirements for development stage entities to (1) present

inception-to-date information in the statements of income, cash flows, and shareholder equity, (2) label the financial statements as those of a development stage entity, (3) disclose a description of the development stage activities in which the entity is engaged, and (4) disclose in the first year in which the entity is no longer a development stage entity that in prior years it had’ been in the development stage. The amendments in this update are applied retrospectively.

 

On August 27, 2014, the FASB issued a new financial accounting standard on going concern, ASU 2014-15, “Presentation of Financial Statements - Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern”. The standard provides guidance about management’s responsibility to evaluate whether there is substantial doubt about the organization’s ability to continue as a going concern. The amendments apply to all companies and are effective in annual periods ending after December 15, 2016, with early application permitted. The Company is currently evaluating the impact of this accounting standard on its financial statements.

 

On April 7, 2015, the FASB issued 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 apply to all companies and are effective for public business entities in annual periods ending after December 15, 2015, and interim periods within those fiscal years, with early application permitted. The Company is currently evaluating the impact of this accounting standard on its financial statements.  

 

All other recent pronouncements issued by the FASB or other authoritative standards groups with future effective dates are either not applicable or are not expected to be significant to the condensed financial statements of the Company.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

A smaller reporting company is not required to provide the information required by this Item.

 

Item 4. Controls and Procedures

 

Evaluation of disclosure controls and procedures.

 

We recently evaluated the effectiveness of our disclosure controls and procedures, as required by paragraph (b) of Rule 13a-15 or Rule 15d-15 under the Securities Exchange Act of 1934, as of the end of the period covered by this report, being September 30, 2015.  This evaluation was conducted with the participation of our principal executive officer and our principal accounting officer.

 

Item 4. Controls and Procedures (continued)

 

We maintain disclosure controls and procedures designed to provide reasonable assurance that material information required to be disclosed by us in the reports we file or submit under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that the information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. We performed an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based on their evaluation, our management, including our Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures were not effective in giving us reasonable assurance that the information we are required to disclose in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and to ensure that such information is accumulated and communicated to our management, including our Principal Executive and Principal Financial Officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. This conclusion was based on the existence of significant deficiencies in our internal control over financial reporting mainly due to lack of resources and number of employees.

 

We do not expect that our disclosure controls and procedures will prevent all errors and all instances of fraud. Disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Further, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and the benefits must be considered relative to their costs. Because of the inherent limitations in all disclosure controls and procedures, no evaluation of disclosure controls and procedures can provide absolute assurance that we have detected all our control deficiencies and instances of fraud, if any. The design of disclosure controls and procedures also is based partly on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

 

Management Report on internal control over financial reporting.

 

Our management is responsible for establishing and maintaining adequate internal control over our financial reporting as defined in Rule 13a-15(f) under the Exchange Act. Internal control over financial reporting is a process to provide reasonable assurance regarding the reliability of our financial reporting for external purposes in accordance with accounting principles generally accepted in the United States. Internal control over financial reporting includes maintaining records that in reasonable detail accurately and fairly reflect our transactions; providing reasonable assurance that transactions are recorded as necessary for preparation of our financial statements; providing reasonable assurance that receipts and expenditures of our assets are made in accordance with management authorization; and providing reasonable assurance that unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements would be prevented or detected on a timely basis. Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that a misstatement of our financial statements would be prevented or detected.

 

Management conducted an evaluation of the effectiveness of our internal control over financial reporting and identified significant deficiencies in internal control over financial reporting.

 

A material weakness is a deficiency, or combination of deficiencies, in internal control over the financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. 

 

A significant deficiency is a deficiency, or a combination of deficiencies, that is less severe than a material weakness, yet important enough to merit attention by those responsible for oversight of our financial reporting.  We not believe that we have sufficient documentation with our existing financial processes, risk assessment and internal controls.  We plan to work closely with financial advisors to document the existing financial processes, risk assessment and internal controls systematically as soon as resources are available. To address the need for more effective internal controls, management has plans to improve the existing controls and implement new controls appropriate to a business of its size and scale as our financial position and capital availability improves.  

 

Item 4. Controls and Procedures (continued)

 

Although we have not identified any material weaknesses with our financial reporting or any other significant deficiencies with our internal controls, no assurances can be given that there are no such material weaknesses or significant deficiencies existing.  

 

Changes in internal control over financial reporting.

 

There have been no changes in our internal controls over financial reporting that occurred during our last fiscal quarters and have materially affected or are reasonably likely to materially affect our internal controls over financial reporting.

 

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

 

We are not a party to any pending legal proceeding. We are not aware of any pending legal proceeding to which any of our officers, directors, or any beneficial holders of 5% or more of our voting securities are adverse to us or have a material interest adverse to us.

 

Item 1A: Risk Factors

 

A smaller reporting company is not required to provide the information required by this Item.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

The details of the convertible promissory notes issued and outstanding as at December 16, 2015 are as follows:

 

Issue Date	Maturity Date	Note Amount	Interet Rate	Variable Conversion Rate
		$	Per Annum
June 9, 2015	June 9, 2016	28,000	10%	60% of 3 lows out of 10 trading days
June 10, 2015	June 10, 2016	60,000	10%	60% of 3 lows out of 10 trading days
June 11, 2015	June 11, 2016	30,000	10%	60% of 3 lows out of 10 trading days
June 15, 2015	June 15, 2016	14,200	10%	60% of 3 lows out of 10 trading days
July 1, 2015	July 1, 2016	35,000	10%	60% of 3 lows out of 10 trading days
July 11, 2015	July 11, 2016	17,980	10%	60% of 3 lows out of 10 trading days
August 14, 2015	August 14, 2016	28,000	10%	60% of 3 lows out of 10 trading days
December 1, 2015	December 1, 2016	16,000	10%	60% of 3 lows out of 10 trading days
		229,180

 

Item 3. Defaults upon Senior Securities 

None.

 

Item 4. Mine Safety Disclosures

 

Not applicable.

 

Item 5. Other Information

 

None.

 

Item 6. Exhibits

 

Exhibit Number	Description of Exhibit
31.1	Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

SIGNATURES

 

Pursuant to the requirements 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.

 

	SocialPlay USA, Inc.
Date:	December 16, 2015
By:	/s/ Chitan Mistry Chitan Mistry
Title:	Chief Executive Officer, Chief Financial Officer and Director