SocialPlay USA 10Q 2017 Q2 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 endedJune 30, 2017

[ ]	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, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

[ ] Large accelerated filer

[ ] Non-accelerated filer

[ ] Accelerated filer

[X] Smaller reporting company
[ ] Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

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: 11,870,003 common shares as of November 22, 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

	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	7
Item 4:	Controls and Procedures	7

PART II – OTHER INFORMATION

Item 1:	Legal Proceedings	9
Item 1A:	Risk Factors	9
Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds	9
Item 3:	Defaults Upon Senior Securities	9
Item 4:	Mine Safety Disclosures	9
Item 5:	Other Information	9
Item 6:	Exhibits	9

Table of Contents

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 June 30, 2017 (unaudited) and December 31, 2016 (audited);
F-2	Condensed Statements of Operations for the Three and Six months ended June 30, 2017 and 2016 (unaudited);
F-3	Condensed Statements of Cash Flows for the Six Months ended June 30, 2017 and 2016 (unaudited);
F-4	Notes to Condensed Financial Statements.

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SocialPlay USA, Inc.

Condensed Balance Sheets

As of June 30, 2017 (unaudited) and December 31, 2016 (audited)

	June 30,			December 31,
	2017			2016
	$			$
Current assets
Cash		31			2,865
Deposits for investments(note 5)		100,000			—
Total assets		100,031			2,865

LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities
Accounts payable		149,647			127,956
Accrued liabilities		26,451			60,391
Payable to related parties[note 9]		133,817			133,817
Total Current Liabilities		309,915			322,164
Convertible promissory notes[note 6]		7,079			107,629
Derivative Liabilities[note 6]		—			318,234
Total Liabilities		316,994			748,027

Stockholders' deficiency
Preferred stock, $0.001 par value, 100,000,000 shares authorized, no shares issued and outstanding as of June 30, 2017 and December 31, 2016[note 7]		—			—
Common stock, $0.001 par value, 200,000,000 shares authorized, 11,870,003 and 11,820,003 shares issued and outstanding as of June 30, 2017 and December 31, 2016[note 7]		11,870			11,820
Additional paid-in capital		1,261,271			678,680
Shares to be issued[note 4 and 7]		348,000			228,000
Accumulated deficit		(1,838,104	)		(1,663,662	)
Total stockholders' deficiency		(216,963	)		(745,162	)
Total liabilities and stockholders' deficiency		100,031			2,865

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SocialPlay USA, Inc.

Condensed Statements of Operations

For the Three and Six Months ended June 30, 2017 and 2016 (unaudited)

	Three months		Three months			Six months			Six months
	ended June 30,		ended June 30,			ended June 30,			ended June 30,
	2017		2016			2017			2016
	$		$			$			$
REVENUE		—		—			—			—

EXPENSES
Legal and professional fees		14,388		13,994			23,984			27,057
Advertising and promotion		998		5,000			998			5,000
Consulting fees - Investor relations		17,329		97,088			47,958			232,587
Transfer agent fees		8,665		12,265			12,255			13,755
Directors' fees		—		7,500			—			15,000
Other operating expenses		14,294		1,195			24,672			1,340
Total operating expenses		55,674		137,042			109,867			294,739

Interest and bank charges		3,473		17,600			11,962			12,745
Licensing Fee[note 4]		120,000		—			120,000			—
Accretion expense		10,860		—			29,088			24,783
Gain on extinguishment of debt		(667,665)		—			(550,962)			(11,462)
Day-one derivative loss[note 6 and 7]		17,093		—			30,579			—
Change in fair value of derivatives[note 6 and 7]		291,521		19,591			423,908			7,493
Net (gain) loss for the year before income taxes		(169,044)		174,233			174,442			328,298
Income taxes		—		—			—			—
Net and comprehensive (gain) loss for the period		(169,044)		174,233			174,442			328,298
Gain (Loss) per share, basic and diluted		0.0143		(0.0148	)		(0.0148	)		(0.0279	)
Weighted Average Number of common shares outstanding		11,868,889		11,812,222			11,844,676			11,778,242

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SocialPlay USA, Inc.

Condensed Statements of Cash Flows

For the Three and Six Months ended June 30, 2017 and 2016 (unaudited)

	Six months			Six months
	ended June 30,			ended June 30,
	2017			2016
	$			$
OPERATING ACTIVITIES
Net loss for the period			(174,442		)	(328,298	)
Shares issued for services			24,000			133,500
Interest expense - accretion of convertible notes			29,088			24,783
Day-one derivative loss			30,579			—
Licensing fees[note 4]			120,000			—
Change in fair value of derivatives			423,908			7,493
Gain on extinguishment of debt			(550,962		)	(11,462)
Net change in non-cash working capital balances:
Prepaid expenses			—			26,210
Accounts payable and accrued liabilities			20,495			85,095
Cash used in operating activities			(77,334		)	(62,679	)

INVESTING ACTIVITIES
Deposits made for investments[note 5]			(100,000		)	—
Cash used in investing activities			(100,000		)	—

FINANCING ACTIVITIES
Proceeds from issuance of convertible promissory notes			174,500			62,950
Proceeds for stock receivable			—			—
Cash provided by financing activities			174,500			62,950

Net increase (decrease) in cash during the year			(2,834)			271
Cash, beginning of the period			2,865			69
Cash, end of period			31			340

Supplemental disclosure with respect to cash flows:
Cash paid for income taxes		—			—
Cash paid for interest		—			—

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SocialPlay USA, Inc.

Notes to Condensed Financial Statements

As of June 30, 2017 (unaudited)

Note 1 – Nature of Operations

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. On January 10, 2017, the former majority shareholder sold 7,082,000 restricted shares of common stock to the Company’s current President and CEO, Robert Rosner, in a private transaction. As result of this transaction, a change in control of the company occurred.

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

Note 2 – Going Concern

The Company’s unaudited interim 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 has an accumulated deficit of $1,838,104 and a working capital deficit of $209,884 as of June 30, 2017 ($1,663,662 and $319,299 respectively, as at December 31, 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, 2017 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, 2016.

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SocialPlay USA, Inc.

Notes to Condensed Financial Statements

As of June 30, 2017 (unaudited)

Note 3 – Summary of Significant Accounting Policies (continued)

Use of Estimates

The preparation of the interim condensed 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.

Recently Issued Accounting Standards

On May 28, 2015, the FASB issued a new financial accounting standard on revenue from contracts with customers, ASU 2015-09, “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 2016, the FASB voted to approve a one-year deferral of the effective date of ASU 2015-09, 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.

On April 7, 2016, the FASB issued ASU No. 2016-03, “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, 2016, 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.

In July, 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2017-11 (“ASU 2017-11”), which addressed accounting for (I) certain financial instruments with down round features and (II) replacement of the indefinite deferral for mandatorily redeemable financial instruments of certain nonpublic entities and certain mandatorily redeemable non-controlling interests with a scope exception. The main provisions of Part I of ASU 2017-11 is to “change the classification analysis of certain equity-linked financial instruments (or embedded features) with down round features. When determining whether certain financial instruments should be classified as liabilities or equity instruments, a down round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity’s own stock. The amendments also clarify existing disclosure requirements for equity-classified instruments. As a result, a freestanding equity-linked financial instrument (or embedded conversion option) no longer would be accounted for as a derivative liability at fair value as a result of the existence of a down round feature. For freestanding equity classified financial instruments, the amendments require entities that present earnings per share (EPS) to recognize the effect of the down round feature when it is triggered. That effect is treated as a dividend and as a reduction of income available to common shareholders in basic EPS.” Under previous US GAAP, warrants with a down round feature are not being considered indexed to the entity’s own stock, which results in classification of the warrant as a derivative liability. Under ASU 2017-11, the down round feature qualifies for a scope exception from derivative treatment. ASU 2017-11 is effective for public companies as of December 15, 2018 and interim periods within that fiscal year. Early adoption is permitted, including adoption in an interim period, with adjustments reflected as of the beginning of the fiscal year. The Company does not have any outstanding financial instruments with down round features as of June 30, 2017.

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SocialPlay USA, Inc.

Notes to Condensed Financial Statements

As of June 30, 2017 (unaudited)

Note 4 – Licensing Fees

Pursuant to Exclusive License Agreement dated May 21, 2015 with a related 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. On May 21, 2015, in consideration for the license granted hereunder, the Company issued 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 through an agreed payment schedule.

As technological feasibility has not been achieved, the Company recognizes expense at the end of each anniversary (triggering event) for the shares to be issued, the fair value of which to be determined based on the market price of the share on anniversary day as further explained in note 7 to the financial statements.

The Company has recorded 400,000 common shares to be issued and the related license fee expense as explained in Note 7.

Note 5 – Deposit for Investment

On March 11, 2017, the Company entered into a binding Letter of Intent (LOI) with a certain company. The LOI contemplates provision of an option to the Company, to purchase 100% equity of such company. The Company has made a deposit of $50,000 as the first stage in the acquisition, however, no formal and definitive acquisition agreement has been entered into yet.

On May 30, 2017, the Company entered into a binding LOI with a certain corporation. The LOI contemplates acquisition of a 33% ownership interest in the corporation for an agreed total purchase price. The Company has made a deposit of $50,000 as the first stage in the acquisition, however, no formal and definitive acquisition agreement has been entered into yet.

When the Company signs definitive acquisition agreements, the above two deposits will be treated as investments under the guidance available in US GAAP.

Note 6 – Convertible Promissory Notes and Derivative Liabilities

The outstanding convertible promissory notes as at June 30, 2017 represent obligations of the Company to CMGT Inc. (CMGT).

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. 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.

Effective February 17, 2017, the Company entered into a First Amendment to Convertible Promissory Note (the “Amendment”) with CMGT. Under the Amendment, the Company 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. The amendment resulted in the extinguishing of the old notes and re-issuance according to the new terms and discounts.

On April 28, 2017 the Company made an amendment on all its outstanding notes having face value of $436,141, removing all dilutive and reset provisions from these notes, therefore ending derivative treatment. The notes issued subsequent to amendment did not require derivative valuations.

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SocialPlay USA, Inc.

Notes to Condensed Financial Statements

As of June 30, 2017 (unaudited)

Note 6 – Convertible Promissory Notes and Derivative Liabilities(continued)

Post amendment, the Company carried out beneficial conversion feature analysis of all the notes and concluded that based on the intrinsic value of these notes, 100% face value of the above notes of $558,641 were transferred to additional paid-in-capital and these notes are being amortized using an effective interest rate over the term of these notes.

The movement in convertible notes principal amount, accreted value of notes and derivative liabilities are detailed below:

	Face value of notes		Accreted value of notes			Derivative liabilities
		$		$			$
Balances as at December 31, 2016		351,397		107,629			318,234
Issuance of notes during Q1 2017		37,000		2,247			34,753
Conversion of accrued interest		32,744		32,744			—
Day-one derivative losses		—		—			13,486
Adjustment of unamortized discount on extinguishment		—		(148,697	)		148,697
Loss on extinguishment of debt		—		—			116,703
Accretion expense		—		18,228			—
Change in fair value of derivatives		—		—			132,387
Balances as at March 31, 2017		421,141		12,151			764,260
Pre-Amendment (End of Derivatives)
Issuance of note		15,000		—			—
Full discount recognized on the note		—		—			15,000
Day-one derivative loss on the note		—		—			17,093
Change in fair value of derivatives		—		—			291,521
Accretion expense		—		3,781			—
Balance, pre-amendment		436,141		15,932			1,087,874
Transfer due to end of derivatives		—		420,209			(420,209	)
Gain on extinguishment		—		—			(667,665	)
Balance, post-amendment		436,141		436,141			—
Issuances of notes after amendment		122,500		122,500			—
Beneficial conversion features – Transferred to equity		—		(558,641	)		—
Accretion expense		—		7,079			—
Balances as at June 30, 2017		558,641		7,079			—

The Company recognized interest expense of $3,473 during the quarter ended June 30, 2017 (June 30, 2016: $17,600). As of June 30, 2017, accrued interest was $4,736 (December 31, 2016: $27,805).

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SocialPlay USA, Inc.

Notes to Condensed Financial Statements

As of June 30, 2017 (unaudited)

Note 6 – Convertible Promissory Notes and Derivative Liabilities(continued)

Prior to the amendment on April 28, 2017, 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:

Assumptions
Dividend yield	0.00	%
Risk-free rate for term	1.01% - 1.07	%
Volatility	284.6% - 285.4	%
Remaining terms (years)	1.09 to 1.11
Stock price ($ per share)	0.60-0.75

Effective April 28, 2017, the Company entered into a second amendment of Convertible Promissory Note. As a result of the amendment, derivative treatment has ended

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.

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, ranks pari 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.

Issued and outstanding:

During the year ended December 31, 2014, the Company issued 21,600,000 (4,320,000 after reverse split) shares of its $0.001 par value common stock in a registered public offering for total cash proceeds of $27,000.

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 interim condensed financial statements.

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.

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SocialPlay USA, Inc.

Notes to Condensed Financial Statements

As of June 30, 2017 (unaudited)

Note 7 – Stockholders’ Deficiency (continued)

Issued and outstanding (continued):

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.

On February 8, 2017, the Company agreed to issue 50,000 shares of common stock to Ten West Holdings, Inc. as consideration for corporate advisory services pursuant to agreement dated February 8, 2017 for a term of three months. The fair value of the shares amounting to $24,000 was determined based on the market price of $0.48 per share on the date of agreement. The Company recognized the entire amount as consulting expense during the period. The shares were issued on April 3, 2017.

As at June 30, 2017 and December 31, 2016, there were 11,870,003 (7,333,000 restricted shares) and 11,820,003 (7,383,000 restricted shares) (after stock split) shares of common stock respectively, issued out of the authorized 200,000,000 common shares.

Shares to be issued:

As at June 30, 2017, shares to be issued amounting to $348,000 (400,000 shares) comprise of:

During the year ended December 31, 2016, the Company recognized as expense licensing fee of $228,000 representing the fair value of additional 1,000,000 (200,000 after reverse split) shares to be issued under the agreement (as explained in Note 4) , valued at the market price of $1.14 per share.

During the period ended June 30, 2017, the Company recognized as expense licensing fee of $120,000 representing the fair value of additional 200,000 shares to be issued under the agreement (as explained in Note 4) , valued at the market price of $0.6 per share on May 19, 2017.

Note 8 – Commitment

The Company has commitment to issue 200,000 (after stock 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

Other than disclosed elsewhere in the condensed financial statements, the only related party transaction during the six months ended June 30, 2017 and 2016 is directors’ fees of $nil and $15,000 respectively. Director fees of $15,000 relate to a former director, who resigned in the previous year.

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:

	June 30		December 31
	2017		2016
Owed to a former director for director fees		50,750		50,750
Owed to a related party for license agreement[Note 4]		83,067		83,067
		133,817		133,817

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SocialPlay USA, Inc.

Notes to Condensed Financial Statements

As of June 30, 2017 (unaudited)

Note 10 – Subsequent Events

The Company’s management has evaluated subsequent events up to November 22, 2017 the date the unaudited condensed financial statements were issued, pursuant to the requirements of ASC Topic 855 and has determined that there are no material subsequent events to report.

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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 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.

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.

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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 June 30, 2017, to negotiate and conclude an acquisition agreement for Spot and Play.

Letter of Intent with Friendship Socks, Inc.

On May 30, 2017, we entered into a binding Letter of Intent (the “LOI”) with Friendship Socks, Inc., a British Columbia corporation (“Friendship Socks”). Friendship Socks is a company that manufactures a line of unique designer socks in the USA and markets its products online. The company leverages social media to connect people through the gifting of a pair of socks. The LOI contemplates our acquisition of a 33% ownership interest in Friendship Socks for a total purchase price of $150,000. Our initial investment will consist of $50,000 in cash to be delivered immediately for an 11% ownership interest in Friendship Socks. Upon the parties’ execution of a definitive acquisition agreement, we have agreed to acquire an additional 11% interest in exchange for an additional $50,000 upon Friendship Socks achievement of certain business milestones within 30 days of the execution of the definitive agreement. The final 11% ownership interest will be acquired for a final $50,000 upon Friendship Socks achievement of certain additional business milestones within 60 days of the execution of the definitive agreement. Upon completion of all payments as set forth above, Friendship Socks shall immediately issue sufficient shares of its capital in the name of the Company equal to 33% of its issued and outstanding stock. Should the definitive acquisition agreement not be entered into, we shall receive 11% equity interest in Friendship Socks as a result of the initial $50,000 Investment. In the event that the definitive agreement is executed but Friendship Socks does not achieve the specified milestones, we will have the option to waive the milestones and proceed with acquisition of the additional 22% ownership interest or, in the alternative, to terminate the agreement without penalty. Finally, the LOI specifies that will have the right of first refusal with regard to any additional equity investment, loan, or other financing for Friendship Socks.

Significant Equipment

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

Results of Operations

Balance Sheet – As at June 30, 2017 and December 31, 2016:

Cash

At June 30, 2017 we had cash of $31 compared to $2,865 as at December 31, 2016.

Deposits for investments

At June 30, 2017, we had made deposits in the amount of $100,000 to two companies under LOIs signed with the companies.

Accounts payable, accrued liabilities and payable to related parties

At June 30, 2017 we had $309,915 of accounts payable, accrued liabilities and payable to related parties as compared to $322,164 as at December 31, 2016. The balance primarily represents $54,000 for advertising services, $20,385 payable to Clark Corporate Law Group for legal services, $56,277 payable to Ten West Holdings as consideration for consulting services, $5,524 payable to Laxague Law for legal services and $1,910 payable to Globex for transfer agent services. At December 31, 2016, the balance primarily represents $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, $1,544 payable to Laxague Law for legal services and $450 payable to Globex for transfer agent services

Accrued liabilities comprise accrued interest of $8,014 (2016: $39,671) and accrued expenses of $18,437 (2016: $20,720).

Payable to related parties represents $50,750 (2016: $50,750) payable to a former director as consideration for director fee services, $83,067 (2016: $83,067) payable to Social Play Inc. in connection with the license agreement.

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Convertible promissory notes and derivative liabilities

During the previous year, we entered into agreements with CMGT and issued them convertible promissory notes. As of June 30, 2017, the total principal due was $558,641 ($351,397 as of December 31, 2016) and interest accrued on these notes as at June 30, 2017 amounted to $3,278 ($28,497 as at December 31, 2016).

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.

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. On April 28, 2017, we entered into a Second Amendment to the CMGT Note to remove certain anti-dilution features of the Note. All other terms of the original Note remain in full force and effect.

Effective April 28, 2017, the Company entered into an agreement with CMGT for the second amendment in convertible promissory notes dated January 11, 2016 (first amendment date) relating to certain warranties and covenants included in the convertible promissory notes as explained in note 7 to the interim condensed financial statements.

Statement of Operations - For the three and six months ended June 30, 2017 and 2016 respectively:

Expenses

Three months ended June 30, 2017 and June 30, 2016

We have not earned any revenues since our inception. During the three months ended June 30, 2017, we incurred operating expenses of $55,674, which consisted of consulting fees for investor relations of $17,329, legal and professional fees of $14,388, transfer agent fees of $8,665, and other expenses of $14,294.

We also incurred accretion expense of $10,860, day-one derivative losses of $17,093, interest and bank charges of $3,473, licensing fee of $120,000, a loss on the change in fair value of derivatives of $291,521 and a gain on extinguishment of debt amounting to $667,665. We had a net gain for the three months ended June 30, 2017 of $169,044.

By comparison, during the three months ended June 30, 2016, we had net loss of $174,233. Our expenses during the three months ended June 30, 2016 mainly consisted of directors fees and other charges of $7,500, consulting fees in connection with investor relations of $97,088, legal and professional fees of $13,994, transfer agent fees of $12,265, and other expenses of $1,195. We also incurred interest and bank charges of $17,600, and a loss on the change in fair value of derivatives of $19,591.

Our expenses and net loss decreased for the three months ended June 30, 2017 as compared to the same period last year primarily due to decreased expenses for investor relations consulting fees, a decreased expense for directors fees, a decrease in interest and bank charges and due to gain in extinguishment of debt. We anticipate our operating expenses will increase as we move toward developing more active operations in our current line of business.

Six months ended June 30, 2017 and June 30, 2016

We incurred expenses and a net loss in the amount of $174,442 for the six months ended June 30, 2017 as compared to expenses and net loss in the amount of $328,298 for the six months ended June 30, 2016. Our expenses during the current six month period mainly consisted of consulting fees for investor relations of $47,958 (Six months ended June 30, 2016: $232,587), legal and professional fees of $23,984 (Six months ended June 30, 2016: $27,057), directors’ fees and other charges of $nil (Six months ended June 30, 2016: $15,000), transfer agent fees and stock filing charges of $12,255 (Six months ended June 30, 2016: $13,755), advertising and promotion of $998 (Six months ended June 30, 2016: $5,000), and other operating expenses of $24,672 (Six months ended June 30, 2016: $1,340).

We also incurred interest and bank charges of $11,962 (Six months ended June 30, 2016: $37,528), licensing fee of $120,000 (Six months ended June 30, 2016: $nil), accretion expense of $29,088 (Six months ended June 30, 2016: $nil), a gain on extinguishment of debt amounting to $550,962 (Six months ended June 30, 2016: $11,462), a Day-one derivative loss of $30,579 (Six months ended June 30, 2016: $nil), and a loss on the change in fair value of derivatives of $423,908 (Six months ended June 30, 2016: $7,493).

Our expenses and net loss decreased for the six months ended June 30, 2017 as compared to the same period last year primarily due to gain on extinguishment of debt, partially offset by the accretion expense, day one derivative expense, and loss on the change in fair value of derivatives. 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 June 30, 2017, we had cash of $31 and deposits of $100,000. Our current liabilities as of June 30, 2017 were $309,915. Thus, we had a working capital deficit of $209,884, as of June 30, 2017.

Cash Used in Operating Activities.

Net cash used in operating activities was $77,334 for the period ended June 30, 2017 as compared to $62,679 for the period ended June 30, 2016.

Cash Used in Investing Activities.

Deposits made for investments amounted to $100,000.

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Cash Flows from Financing Activities.

During the period ended June 30, 2017, the Company raised $174,500 from convertible promissory notes as compared to $62,950 during the period ended June 30, 2016.

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 June 30, 2017, 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

Recently issued accounting pronouncements have been disclosed in note 3 to the interim condensed financial statements.

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 June 30, 2017. 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.

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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.

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.

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 June 30, 2017, to negotiate and conclude an acquisition agreement for Spot and Play.

Letter of Intent with Friendship Socks, Inc.

Item 6. Exhibits

Exhibit Number	Description of Exhibit
10.1	Second Amendment to Convertible Promissory Note
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:	November 22, 2017

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

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SocialPlay USA (SPLY) 10-Q2017 Q2 Quarterly report

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