SocialPlay USA (SPLY) 10-Q 2016 Q3 Quarterly report

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 endedSeptember 30, 2016
[  ]	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.)
8275 S. Eastern Avenue, Suite 200, Las Vegas NV 89123
(Address of principal executive offices)
(702) 430-2850
(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: 11,820,003 common shares as of March 31, 2017.

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	8
Item 4:	Controls and Procedures	8
PART II – OTHER INFORMATION
Item 1:	Legal Proceedings	10
Item 1A:	Risk Factors	10
Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds	10
Item 3:	Defaults Upon Senior Securities	10
Item 4:	Mine Safety Disclosures	10
Item 5:	Other Information	10
Item 6:	Exhibits	10

2

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, 2016 (unaudited) and December 31, 2015 (audited);
F-2	Condensed Statements of Operations for the Three and Nine Months ended September 30, 2016 and 2015 (unaudited);
F-3	Condensed Statements of Cash Flows for the Nine Months ended September 30, 2016 and 2015 (unaudited);
F-4	Notes to Condensed Financial Statements.

3

SocialPlay USA, Inc.

Condensed Balance Sheets

As of September 30, 2016 (unaudited) and December 31, 2015 (audited)

	September 30,			December 31,
	2016			2015
	$			$
Current assets
Cash		62			69
Prepaid expenses		—			26,210
Total assets		62			26,279
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities
Accounts payable		131,900			85,562
Accrued liabilities		50,006			23,076
Payable to related parties[Note 9]		133,817			194,317
Convertible promissory notes[Note 5]		73,403			58,829
Derivative liabilities[Note 6]		297,792			178,258
Total liabilities		686,918			540,042
Stockholders' deficiency
Preferred stock, $0.001 par value, 100,000,000 shares authorized, no shares issued and outstanding as of September 30, 2016 and December 31, 2015, respectively[Note 7]		—			—
Common stock, $0.001 par value, 200,000,000 shares authorized, 11,820,003 and 11,720,000 common shares issued and outstanding as of September 30, 2016 and December 31, 2015, respectively[Note 7]		11,820			11,720
Additional paid-in capital		678,680			545,280
Shares to be issued		1,140,000			—
Accumulated deficit		(2,517,356	)		(1,070,763	)
Total stockholders' deficiency		(686,856	)		(513,763	)
Total liabilities and stockholders' deficiency		62			26,279

See accompanying notes

F-1

SocialPlay USA, Inc.

Condensed Statements of Operations

For the Three and Nine Months ended September 30, 2016 and 2015 (unaudited) 

	Three months			Three months			Nine months			Nine months
	ended			ended			ended			ended
	September 30,			September 30,			September 30,			September 30,
	2016			2015			2016			2015
	$			$			$			$
REVENUE		—			—			—			—
EXPENSES												��
Legal and professional fees		9,306			18,585			36,363			63,697
Advertising and promotion		—			2,000			5,000			56,473
Consulting fees - Investor relations		1,000			34,500			233,587			53,468
Transfer agent fees		1,254			940			15,009			5,330
Directors' fees and other charges[Note 9]		—			65,000			15,000			80,775
Other operating expenses		148			4,497			1,488			17,297
Total operating expenses		11,708			125,522			306,447			277,040
Forgiveness of debt[Note 10]		(62,500)			—			(62,500)			—
Interest and bank charges		7,744			17,295			34,544			25,422
Accretion of discount on convertible notes		14,900			—			25,627			—
Day-one derivative loss[Note 5 and 6]		—			—			—			252,683
Licensing fees[Note 4]		1,140,000			—			1,140,000			630,000
Gain on extinguishment of debt		—			—			(11,462	)		—
Change in fair value of derivatives[Note 5 and 6]		6,444			(217,605	)		13,937			(294,921	)
Loss (Income) before income taxes		(1,118,296)			(74,788	)		1,446,593			890,224
Income taxes		—			—			—			—
Net income (loss) for the period		(1,118,296	)		74,788			(1,446,593	)		(890,224	)
(Earnings) loss per share, basic and diluted		0.095			0.006			(0.123	)		(0.076	)
Weighted average number of common shares outstanding		11,820,003			11,720,000			11,792,161			11,720,000

See accompanying notes

F-2

SocialPlay USA, Inc.

Condensed Statements of Cash Flows

For the Nine Months ended September 30, 2016 and 2015 (unaudited)

	Nine Months Ended			Nine Months Ended
	September 30,			September 30,
	2016			2015
		$			$
OPERATING ACTIVITIES
Net loss for the period		(1,446,593	)		(890,224	)
Shares issued for services		133,500			—
Interest expense - accretion of convertible notes		39,683			18,991
Day-one derivative loss		—			252,683
License fees		1,140,000			630,000
Change in fair value of derivatives		13,937			(294,921	)
Gain on extinguishment of debt		(11,462	)		—
Net change in non-cash working capital balances:
Prepaid expenses		26,210			(59,032	)
Accounts payable and accrued liabilities		12,768			159,809
Cash used in operating activities		(91,957	)		(182,694	)
INVESTING ACTIVITIES
Cash paid for license fees		—			(36,933	)
Cash used in investing activities		—			(36,933	)
FINANCING ACTIVITIES
Proceeds from issuance of common stock		—			—
Proceeds from stock receivable		—			—
Proceeds from issuance of convertible promissory notes		91,950			213,180
Cash provided by financing activities		91,950			213,180
Net (decrease) increase in cash during the period		(7	)		(6,447	)
Cash, beginning of period		69			6,544
Cash, end of period		62			97
Supplemental disclosure with respect to cash flows:
Cash paid for income taxes		—			—
Cash paid for interest		—			—

See accompanying notes

F-3

SocialPlay USA, Inc.

Notes to Condensed Financial Statements

As of September 30, 2016 (unaudited)

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 business focus of the Company. 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 – Going Concern

The Company’s unaudited 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 $2,517,356 and a working capital deficit of $686,856 as of September 30, 2016. 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.

Note 3 – 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, 2016 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, 2015.

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.

F-4

SocialPlay USA, Inc.

Notes to Condensed Financial Statements

As of September 30, 2016 (unaudited)

Recently Issued Accounting Standards

The Company evaluated all recent accounting pronouncements issued and determined that the adoption of these pronouncements would not have a material effect on the financial position, results of operations or cash flows of the Company.

Note 4 – Prepaid 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 was 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 issued 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 through an agreed payment schedule.

As technological feasibility was not achieved, during the year ended December 31, 2015 the Company 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 issued on July 1, 2015, valued at the market price of $0.51 per share.

Further, during the period ended September 30, 2016, the Company recognized as expense licensing fee of $1,140,000 representing the fair value of additional 1,000,000 shares to be issued under the agreement, valued at the market price of $1.14 per share.

Note 5 – Convertible Promissory Notes

The outstanding convertible promissory notes as at December 31, 2015 represent obligations of the Company to CMGT Inc. (CMGT). The movement in this obligation is as follows:

	$
Promissory notes issued during 2015		229,180
Discount recognized due to embedded derivatives		(217,900	)
Accretion on notes for 2015		47,549
Accreted value of notes as at December 31, 2015		58,829

On January 11, 2016, the Company consolidated all of its obligations to CMGT under a single Convertible Promissory Note due June 1, 2018 (the “Note”) and recognized gain on extinguishment of debt amounting to $11,462. The Note bears interest at a rate of ten percent (10%) per year, with all principal and interest due on or before June 1, 2018. Under the Note, the Company is obligated to pay quarterly payments of interest only commencing March 31, 2016. The Company may prepay the Note in whole or in part without penalty. The Note is convertible at a price equal to sixty percent (60%) of the market price for its common stock, which is defined as the average of the lowest three closing bid prices for the common stock in the ten trading days preceding the conversion. The conversion price of the Note 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 the issued and outstanding common stock of the Company following the conversion.

F-5

SocialPlay USA, Inc.

Notes to Condensed Financial Statements

As of September 30, 2016 (unaudited)

Note 5 – Convertible Promissory Notes(continued)

	$
Promissory notes issued during 2015	229,180
Promissory notes issued during Q1 2016	19,950
Discount recognized due to embedded derivatives	(217,959	)
Accretion on notes for Q1 2016	7,466
Accreted value of notes as at March 31, 2016	38,637
Promissory notes issued during Q2 2016	43,000
Discount recognized due to embedded derivatives	(38,141	)
Accretion on notes for Q2 2016	10,727
Accreted value of notes as at June 30, 2016	54,223
Promissory notes issued during Q3 2016	29,000
Discount recognized due to embedded derivatives	(24,720	)
Accretion on notes for Q3 2016	14,900
Accreted value of notes as at September 30, 2016	73,403

 As of September 30, 2016, total principal due under the Note was $321,130, and accrued interest totaled $31,340 (December 31, 2015: $229,180 and $10,963).

The embedded conversion features and reset feature in the notes were accounted for as a derivative liability based on FASB guidance (also refer note 5). 

Details of the advances under the convertible promissory note issued are as follows:  

Advance Date	Amount
	$
June 9, 2015		28,000
June 10, 2015		60,000
June 11, 2015		30,000
June 15, 2015		14,200
July 1, 2015		35,000
July 11, 2015		17,980
August 14, 2015		28,000
December 1, 2015		16,000
February 12, 2016		9,000
February 23, 2016		10,950
May 05, 2016		10,000
June 02, 2016		22,000
June 17, 2016		11,000
July 5, 2016		4,000
August 15, 2016		15,000
August 19, 2016		5,000
September 7, 2016		5,000
		321,130

Interest expense for the quarter ended September 30, 2016 recognized on these convertible promissory notes amounts to $7,715 included in interest and bank charges in the statements of operations. Interest expense for the nine month period ended September 30, 2015 amounts to $20,166.

Note 6 – Derivative Liabilities

In connection with the issuance of convertible promissory notes, the Company may sell options or warrants to purchase Company’s 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.

F-6

SocialPlay USA, Inc.

Notes to Condensed Financial Statements

As of September 30, 2016 (unaudited)

Note 6 – Derivative Liabilities (continued)

The Company's derivative instrument liabilities are re-valued at amendment and 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
Derivative liability on issuance		12,369
Change in fair value of derivatives		2,678
Derivative liabilities as at December 31, 2015		178,258
Change due to Debt Extinguishment		(175,223	)
Change due to Consolidated Debt Re-issuance (note 4)		217,959
Change in Fair Value		(12,098	)
Derivative liabilities as at March 31, 2016		208,896
Derivative liability on issuance		38,141
Change in fair value of derivatives		19,591
Fair value as at June 30, 2016		266,628
Derivative liability on issuance		24,720
Change in fair value of derivatives		6,444
Fair value as at September 30, 2016		297,792

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	2016
Dividend yield		0.00	%
Risk-free rate for term		0.20% - 0.59%
Volatility		309.4	%
Remaining terms (years)		0.17-1.67 years
Stock price ($ per share)		0.80

F-7

SocialPlay USA, Inc.

Notes to Condensed Financial Statements

As of September 30, 2016 (unaudited)

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 forward and reverse 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, 2016 and December 31, 2015, there were 11,820,003 (after stock split) and 11,720,000 (after stock-split) shares of common stock respectively, issued out of the authorized 200,000,000 common shares.

On February 17, 2016, the Company issued 50,000 shares of common stock to Ten West Holdings, Inc. as consideration for corporate advisory services amounting to $56,000 pursuant to agreement dated November 16, 2015. All services have been performed as of February 16, 2016.

On April 15, 2016, the Company issued 50,000 shares of common stock to Ten West Holdings, Inc. as consideration for corporate advisory services amounting to $77,500 pursuant to agreement dated March 9, 2016. All services have been performed as of June 10, 2016. 

Shares to be issued:

The amount represents fair value of 1,000,000 shares to be issued on each anniversary of the Exclusive License Agreement referred to in Note 4.

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

On April 27, 2015, the Company entered into an Exclusive License Agreement (the “License Agreement”) with related party Social Play, Inc. (“Social Play”). Under the Agreement, the Company has 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.

On August 22, 2016, the Company entered into a Severance Agreement and Mutual Release (the “Agreement”) with the former President, CEO, and director Chitan Mistry. In connection with Mr. Mistry’s resignation, the Company paid him a severance payment in the amount of $10,000 pursuant to the terms of the Agreement. Under the Agreement, Mr. Mistry and the company also provided mutual general releases of any liability to one another.

Accounts payable and accrued liabilities include the following balances, which are unsecured, non-interest bearing and have no set repayment term, owed to related parties:

	September 30, 2016		December 31, 2015
Owed to Director Chitan Mistry for Director fees	$	-		57,500
Owed to former Director Lucie Letellier for Director fees		50,750		53,750
Owed to shareholder company, Social Play, Inc, as remaining balance for license agreement		83,067		83,067

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 nine months ended September 30, 2016 and 2015 is directors’ fees of $15,000 and $15,775 respectively. During the three months ended September 30, 2016 and 2015, directors’ fees were $0 and $15,000 respectively.

F-8

SocialPlay USA, Inc.

Notes to Condensed Financial Statements

As of September 30, 2016 (unaudited)

Note 10 – Forgiveness of debt

On August 22, 2016, the Company entered into a severance and mutual release agreement with a former President, CEO and Director. The Company made a severance payment in the amount of $10,000 and both the Company and the former President provided mutual general releases of any liability. As a result of the said agreement, the amount of $62,500 owed to the former President was written back.

Note 11 – Subsequent Events

The Company’s management has evaluated subsequent events up to March 31, 2017 the date the unaudited condensed financial statements were issued, pursuant to the requirements of ASC Topic 855 and has determined the following subsequent events:

On February 17, 2017, the Company entered into a First Amendment to Convertible Promissory Note with CMGT, Inc. Under the Amendment, the Company has modified the conversion feature of the Note so that the conversion price for all amounts owing thereunder is now $0.10 per share of common stock. In addition, the Amendment waives the Company’s prior defaults in payment of interest under the Note in the amount of $44,289, and adds such sum to the principal balance of the Note. The Company is now required to make quarterly interest payments commencing September 30, 2017. All other terms of the original Note remain in full force and effect.

On March 11, 2017, the Company entered into a binding Letter of Intent (the “LOI”) with Spot and Play, Inc. (“Spot and Play”) and its sole shareholder, Karthik Mani. Spot and Play is developing the “Spot and Pay” application, which provides a way to centralize payment or donate money using a unique business code in form of a visual code at location, or using business name if remote. The LOI contemplates the acquisition of up to 100% of Spot and Play for a total purchase price of $1,000,000. The initial investment will consist of $300,000 in cash, to be paid for a 30% ownership interest in Spot and Play.

On March 15, 2017, the Company designated a new class of Series A Preferred Stock. Series A Preferred Stock consists of 10,000,000 shares, par value $0.001 per share. Series A Preferred stock has no stated value, rankspari passu with our common stock upon liquidation, and has no special dividend rights. Shares of Series A Preferred Stock are convertible to common stock, at the option of the holder, at a rate of 20 shares of common stock for each share of preferred stock. Shares of Series A Preferred Stock may be voted on an as-of-converted basis on all matters submitted to the vote or consent of the holders of our common stock. The Company has not issued any shares of Series A Preferred Stock at this time.

F-9

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.

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 1,000,000 (200,000 after reverse split) shares of common stock and an additional 1,000,000 (200,000 after reverse split) 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.

On August 22, 2016, the board of directors appointed Robert Rosner as our new President, CEO, CFO and Director. Following these appointments, the board accepted the resignation of Chitan Mistry as our former sole officer and director.

Significant Equipment

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

4

Results of Operations

Balance Sheet – As at September 30, 2016 and December 31, 2015:

Cash

At September 30, 2016 we had cash of $62 compared to $69 as at December 31, 2015.

Prepaid expenses

At September 30, 2016 we had prepaid expenses of $nil compared to $26,210 as at December 31, 2015. The amount relates to the unamortized balance of the payments made in connection with advisory services provided by consultants. The consulting contracts expired on May 26, 2016 and the entire amount was amortized.

Accounts payable and accrued liabilities

At September 30, 2016 we had $315,723 of accounts payable and accrued liabilities as compared to $302,955 as at December 31, 2015. The balance primarily represents $50,750 payable to a former director as consideration for services, $83,067 payable to Social Play Inc. in connection with the license agreement, $54,000 for advertising services, $20,385 payable to Clark Corporate Law Group for legal services, $46,277 payable to Ten West Holdings as consideration for consulting services, $215 payable to Laxague Law for legal services, $245 payable to Globex for transfer agent services, accrued interest of $31,340 and accrued expenses of $22,463.

Convertible promissory notes and derivative liabilities

During the previous year, we entered into agreements with CMGT and issued them convertible promissory notes. As of September 30, 2016, the total principal due was $321,130 ($229,180 as of December 31, 2015) and interest accrued on these notes during the nine month period ending September 30 amounted to $20,166 ($10,963 for the year ended December 31, 2015).

On January 11, 2016, the Company consolidated all of its obligations to CMGT under a single Convertible Promissory Note due June 1, 2018. These amounts were accordingly reclassified to long-term liabilities.

Share to be issued

During the period ended September 30, 2016, we recorded licensing fee of $1,140,000 as fair value of the consideration of 1,000,000 shares to be issued per the Exclusive License Agreement dated May 21, 2015.

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Statement of Operations - For the three and nine months ended September 30, 2016 and September 30, 2015 respectively:

Expenses

Three months ended September 30, 2016 and September 30, 2015

We have not earned any revenues since our inception. During the three months ended September 30, 2016, we incurred operating expenses of $11,708, which consisted of consulting fees for investor relations of $1,000, legal and professional fees of $9,306, transfer agent fees of $1,254, and other expenses of $148. We also incurred interest and bank charges of $7,744, licensing fees of $1,140,000 and a loss on the change in fair value of derivatives of $6,444. We had a net loss for the three months ended September 30, 2016 of $1,118,296. By comparison, during the three months ended September 30, 2015, we had net income of $74,788. The only reason for net income during the quarter was due to recognition of gain of $217,605 in respect of change in fair value of derivatives. Our expenses during the three months ended September 30, 2015 mainly consisted of directors fees and other charges of $65,000, which included a bonus of $50,000 recognized during the quarter, consulting fees in connection with investor relations of $34,500, and legal and professional fees of $18,585.

Nine months ended September 30, 2016 and September 30, 2015

We incurred expenses and a net loss in the amount of $1,446,593 for the nine months ended September 30, 2016 as compared to expense and net loss in the amount of $890,224 for the nine months ended September 30, 2015. Our expenses during the current nine month period mainly consisted of consulting fees for investor relations of $233,587 (Nine months ended September 30, 2015: $53,468), legal and professional fees of $36,363 (Nine months ended September 30, 2015: $63,967), directors’ fees and other charges of $15,000 (Nine months ended September 30, 2015: $80,775), transfer agent fees and stock filing charges of $15,009 (Nine months ended September 30, 2015: $5,330), advertising and promotion of $5,000 (Nine months ended September 30, 2015: $56,473), and other operating expenses of $1,488 (Nine months ended September 30, 2015: $17,297). We also incurred interest and bank charges of $34,544 (Nine months ended September 30, 2015: $25,422), licensing fees of $1,140,000 (Nine months ended September 30, 2015: $630,000)and a loss on the change in fair value of derivatives of $13,937 (Nine months ended September 30, 2015: ($294,921)).

Our expenses and net loss increased for the three and nine months ended September 30, 2016 as compared to the same period last year primarily due to day one derivative expense and write-off of license fees contract. 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, 2016, we had cash of $62. Our current liabilities as of September 30, 2016 were $315,723, consisting of $50,750 payable to a former director as consideration for her services, $83,067 payable to Social Play Inc. in connection with the license agreement, $54,000 for advertising services, $20,385 payable to Clark Corporate Law Group for legal services, $46,277 payable to Ten West Holdings as consideration for consulting services, $215 payable to Laxague Law for legal services, $245 payable to Globex for transfer agent services, accrued interest of $31,340 and accrued expenses of $18,667. Thus, we had a working capital deficit of $686,856 as of September 30, 2016.

Cash Used in Operating Activities. Operating Activities used a net $91,957 in cash for the period ended September 30, 2016, as compared to a net $182,694 for the same period last year.

Cash Flows from Financing Activities. During the period ended September 30, 2016, financing activities provided $91,950 in cash, all from the issuance of convertible promissory note obligations, as compared to $213,180 for the same period last year.

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In recent months, we have relied upon financing in the form of convertible promissory notes from CMGT, Inc. (“CMGT”). On January 11, 2016, we consolidated all of our obligations to CMGT under a single Convertible Promissory Note due June 1, 2018 (the “Note”). The Note bears interest at a rate of ten percent (10%) per year, with all principal and interest due on or before June 1, 2018. Under the Note, we are obligated to pay quarterly payments of interest only commencing March 31, 2016. We may prepay the Note in whole or in part without penalty. The Note is 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 Note 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. 

As of September 30, 2016, total principal due under the Note was $321,130, and accrued interest totaled $31,340. The Note has a face value of $500,000, and additional advances to us up to that maximum amount may be made from time to time in the discretion of CMGT. 

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. 

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Off Balance Sheet Arrangements

As of September 30, 2016, 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 judgements, 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

Accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the financial statements upon adoption.

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, 2016.  This evaluation was conducted with the participation of our principal executive officer and our principal accounting officer.

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.

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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.  

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.

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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

None.

Item 3. Defaults upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable. 

Item 5. Other Information

Designation of Series A Preferred Stock

On March 15, 2017, our board of directors designated a new class of Series A Preferred Stock. Our class of Series A Preferred Stock consists of 10,000,000 shares, par value $0.001 per share. Series A Preferred stock has no stated value, rankspari passu with our common stock upon liquidation, and has no special dividend rights. Shares of Series A Preferred Stock are convertible to common stock, at the option of the holder, at a rate of 20 shares of common stock for each share of preferred stock. Shares of Series A Preferred Stock may be voted on an as-of-converted basis on all matters submitted to the vote or consent of the holders of our common stock. We have not issued any shares of Series A Preferred Stock at this time.

Letter of Intent with Spot and Play, Inc.

On March 11, 2017, we entered into a binding Letter of Intent (the “LOI”) with Spot and Play, Inc. (“Spot and Play”) and its sole shareholder, Karthik Mani. Spot and Play is developing the “Spot and Pay” application, which provides a way to centralize payment or donate money using a unique business code in form of a visual code at location, or using business name if remote. The LOI contemplates our acquisition of up to 100% of Spot and Play for a total purchase price of $1,000,000. Our initial investment will consist of $300,000 in cash, to be paid for a 30% ownership interest in Spot and Play. These funds are to be paid as follows: (i) $50,000 to be paid upon execution of the LOI, (ii) an additional $100,000 to be paid upon certain development milestones for Spot and Play’s business, and no later than 15 days after the execution of a definitive agreement, and (iii) the final $150,000 upon Spot and Play’s achievement of certain additional milestones, and no later than 75 days after the execution of a definitive agreement.

Further, we will be granted the exclusive option to purchase the remaining 70% of Spot and Play to be paid as follows: (i) issuance of shares of our common stock valued at $200,000, no later than 150 days from execution of a definitive agreement, in order to purchase an additional 19% of Spot and Play, and (ii) issuance of shares of our common stock valued at $500,000, no later than 180 days from execution of a definitive agreement, in order to purchase the remaining 51% of Spot and Play. Shares issued as purchase consideration will be valued based on the five-day average trading price of our common stock immediately preceding their issuance. Shares to be issued as consideration for our acquisition of Spot and Play will be subject to a one (1) year lock-up, with certain leak-out restrictions on their re-sale thereafter. Upon our acquisition of 100% of the ownership interests in Spot and Play, Mr. Mani will be granted a royalty based on the gross profits of Spot and Play, with specific royalty terms to be negotiated. The transaction contemplated by the LOI is subject to final negotiation of a definitive agreement, requisite corporate approvals, and other conditions. Under the LOI, we have the exclusive rights, through March 31, 2017, to negotiate and conclude an acquisition agreement for Spot and Play.

Item 6. Exhibits

Exhibit Number	Description of Exhibit
3.1	Certificate of Designation
10.1	Letter of Intent
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

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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:	March 31, 2017
By:	/s/ Robert Rosner Robert Rosner
Title:	Chief Executive Officer, Chief Financial Officer and Director

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