GOOD GAMING, INC. - FORM 10-Q - June 10, 2016
EX-32.1 - SARBANES-OXLEY 906 CERTIFICATION - GOOD GAMING, INC. hdsi10qx32-1.htm
EX-10.2 - CONVERTIBLE PROMISSORY NOTE - GOOD GAMING, INC. hdsi10qx10-2.htm
EX-10.1 - SETTLEMENT AGREEMENT AND MUTUAL RELEASE - GOOD GAMING, INC. hdsi10qx10-1.htm
Washington, D. C. 20549
[X] QUARTERLY REPORT UNDER TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2016
For the transition period from _____ to _____
HDS International Corp.
Nevada 26-3988293
(State or other jurisdiction of incorporation) (IRS Employer Identification Number)
2130 N. Lincoln Park West, Suite 8N
(Address of principal executive offices and Zip Code) (Zip Code)
(Registrant's telephone number, including area code)
Indicate by check mark whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act 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 last 90 days. YES [X] NO [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (SS 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
YES [X] NO [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer, "accelerated filer," "non-accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated Filer
Accelerated Filer
Non-accelerated Filer
Smaller Reporting Company
(Do not check if 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 [ ] NO [X]
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of March 31, 2016, there were 1,995,290,000 shares of the registrant's $0.001 par value common stock issued and outstanding.
For the Fiscal Quarter Ended March 31, 2016
Item 1 Financial Statements 3
Item 2 Management Discussion and Analysis of Financial Condition and Results of Operations 14
Item 3 Quantitave and Qualitative Disclosures About Market Risk 18
Item 4 Controls and Procedures 18
Item 1 Legal Proceedings 19
Item 1A Risk Factors 19
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds 19
Item 3 Defaults Upon Senior Securities 20
Item 4 Mine Safety Disclosures 20
Item 5 Other Information 20
Item 6 Exhibits 21
PART I - FINANCIAL INFORMATION
Item 1 Financial Statements
Balance Sheets (unaudited) F-1
Statements of Operations (unaudited) F-2
Statements of Cash Flows (unaudited) F-3
Notes to the Financial Statements (unaudited) F-4
HDS International Corp
(Expressed in U. S. Dollars
$ 1,013 $ -
Due from affiliate
351,829 -
1,170,000 -
Total Other Assets
$ 1,522,842 $ -
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Accountspayable and accrued liabilities
$ 104,501 $ 96,141
Accountspayable and accrued liabilities - related party
Convertible debentures, net of unamortized discount of $0 and $36,088, respectively
Derivative liability
Toital Current Liabilities
Convertible debentures, long-term
Stockholders' Deficit
Class A Preferred Stock
Authorized: 25,000,000 preferred shares, with a par value of $0.001 per share Issued and outstanding: 7,500,000 shares
Class B Preferred Stock
Authorized: 25,000,000 preferred shares, with a par value of $0.001 per share Issued and outstanding: 21,698,873 and 15,839,300 shares, respectively
Authorized: 2,000,000,000 common shares, with a par value of $0.001 per share Issued and outstanding: 1,995,290,000 and 1,995,290,000 shares, respectively
Stock subscriptions payable
(3,245,293 ) (3,018,073 )
Total Stockholders' equity (deficit)
399,043 (689,852 )
Total liabilities and stockholders' equity (deficit)
The accompanying notes are an integral part of these consolidated financial statements
For the Three Months Ended
$ - $ -
Stock compensation
41,921 -
Net Loss Before Other Expenses
(160,802 ) (81,494 )
Other Income (Expenses)
Debt Restructure
Loss on Change in fair value of derivative liability
Total Other Income (Expenses)
$ (417,221 ) $ (129,713 )
Net Loss Per Share, Basic and Diluted
Weighted Average Shares Outstanding
1,995,290,000 406,443,367
Expressed in U. S. Dollars
Adjustment to reconcile net loss to
Accretion of debt discount
Amortization of software 30,000
Amortization of deferred financing costs
- 25,389
(58,300 )
Changes in operating assets and liabilities
Accounts payable and accrued liabilities-related parties
Net Cash Provided by (Used in) Operating Activities
(710 ) (73 )
Proceeds from purchase of Good Gaming
1,723 -
Proceeds from related parties
Net Cash Provided by (Used in) Financing activities
Change in Cash
1,013 (73 )
Cash, Beginning of Period
Cash, End of period
Non-cash investing and financing activities
Adjustment to Derivative liability
$ - $ 53,911
Common shares issued for conversion of debt
Common shares issued for payment of related party payable
Debt Discount due to beneficial conversion feature
Notes to the Consolidated Financial Statements
(expressed in U.S. dollars)
Nature of Operations and Continuance of Business
HDS International Corp. (the "Company") was incorporated on November 3, 2008 under the laws of the State of Nevada. The Company is a leading tournament gaming platform and online destination targeting the over 205 million eSports players and participants worldwide that want to compete at the high school or college level. A substantial portion of the Company's activities has involved developing a business plan and establishing contacts and visibility in the marketplace and the Company has not generated any revenue to date.
On February 18, 2016, the Company acquired Good Gaming, Inc. from CMG Holdings Group, Inc. (OTCQB: CMGO).
These financial statements have been prepared on a going concern basis, which implies that the Company will continue to realize its assets and discharge its liabilities in the normal course of business. The Company has generated no revenues to date and has never paid any dividends and is unlikely to pay dividends or generate significant earnings in the immediate or foreseeable future. As of March 31, 2016, the Company had a working capital deficiency of $591,759 and an accumulated deficit of $3,215,293. The continuation of the Company as a going concern is dependent upon the continued financial support from its shareholders, the ability to raise equity or debt financing, and the attainment of profitable operations from the Company's future business. These factors raise substantial doubt regarding the Company's ability to continue as a going concern. These consolidated financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
Basis of Presentation and Principles of Consolidation
The financial statements for the periods ending March 31, 2016 include the accounts of the Company. These financial statements and related notes are presented in accordance with accounting principles generally accepted in the United States, and are expressed in US dollars. The Company's fiscal year-end is December 31.
These financial statements and related notes are presented in accordance with accounting principles generally accepted in the United States, and are expressed in US dollars. The Company's fiscal year-end is December 31.
The preparation of financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions related to the fair values of convertible debentures, derivative liability, stock-based compensation, and deferred income tax asset valuation allowances. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company's estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.
The Company considers all highly liquid instruments with maturity of three months or less at the time of issuance to be cash equivalents. As of March 31, 2016 and 2015, the Company had no cash equivalents.
Intangible assets are carried at the purchased cost less accumulated amortization. Amortization is computed over the estimated useful lives of the respective assets, generally from fifteen to twenty years.
Summary of Significant Accounting Policies (continued)
Long-lived assets and certain identifiable intangible assets to be held and used are reviewed for impairment whenever events or changes in circumstance indicate that the carrying amount of such assets may not be recoverable. Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition. Measurement of an impairment loss for long-lived assets and certain identifiable intangible assets that management expects to hold and use is based on the fair value of the asset. Long-lived assets and certain identifiable intangible assets to be disposed of are reported at the lower of carrying amount or fair value less costs to sell.
Beneficial Conversion Features
From time to time, the Company may issue convertible notes that may contain an imbedded beneficial conversion feature. A beneficial conversion feature exists on the date a convertible note is issued when the fair value of the underlying common stock to which the note is convertible into is in excess of the remaining unallocated proceeds of the note after first considering the allocation of a portion of the note proceeds to the fair value of the warrants, if related warrants have been granted. The intrinsic value of the beneficial conversion feature is recorded as a debt discount with a corresponding amount to additional paid in capital. The debt discount is amortized to interest expense over the life of the note using the effective interest method.
From time to time, the Company may issue equity instruments that may contain an embedded derivative instrument which may result in a derivative liability. A derivative liability exists on the date the equity instrument is issued when there is a contingent exercise provision. The derivative liability is records at is fair value calculated by using an option pricing model such as a multi-nominal lattice model. The fair value of the derivative liability is then calculated on each balance sheet date with the corresponding gains and losses recorded in the consolidated statement of operations.
Basic and Diluted Net Loss Per Share
The Company computes net loss per share in accordance with ASC 260, Earnings Per Share, which requires presentation of both basic and diluted earnings per share (EPS) on the face of the income statement. Basic EPS is computed by dividing net loss available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing Diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive. At March 31, 2016, the Company had 90,000,000 potentially dilutive shares from outstanding convertible debentures.
Potential benefits of income tax losses are not recognized in the accounts until realization is more likely than not. The Company has adopted ASC 740, Income Taxes, as of its inception. Pursuant to ASC 740, the Company is required to compute tax asset benefits for net operating losses carried forward. The potential benefits of net operating losses have not been recognized in these financial statements because the Company cannot be assured it is more likely than not it will utilize the net operating losses carried forward in future years.
ASC 220, Comprehensive Income , establishes standards for the reporting and display of comprehensive loss and its components in the financial statements. As at March 31, 2016 and 2015, the Company has no items that represent comprehensive loss and, therefore, has not included a schedule of comprehensive loss in the financial statements.
ASC 820, "Fair Value Measurements" and ASC 825, Financial Instruments, requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. It establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument's categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. It prioritizes the inputs into three levels that may be used to measure fair value:
Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
Level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.
Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.
Assets and liabilities measured at fair value on a recurring basis were presented on the Company's balance sheet as at December 31, 2015 and 2014 as follows:
Changes in Fair Values
Balance, March 31, 2016
The carrying values of all of our other financial instruments, which include accounts payable and accrued liabilities, and amounts due to related parties approximate their current fair values because of their nature and respective maturity dates or durations.
The Company has limited operations and is considered to be in the development stage. During the year ended December 31, 2015, the Company has elected to early adopt Accounting Standards Update No. 2014-10, Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements . The adoption of this ASU allows the Company to remove the inception to date information and all references to development stage.
The Company has implemented all new accounting pronouncements that are in effect. These pronouncements did not have any material impact on the financial statements unless otherwise disclosed, and the Company does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.
The Company valued the software purchased at $1,200,000 at purchase date February 18, 2018. The software has a useful life of 5 years. Amortization expense is calculated with straight line method at mid-month convesion for the period ending March 31, 2016 as $30,000.
Convertible Debentures
On April 15, 2015, the Company entered into a $100,000 convertible debenture with a non-related party. During the quarter ended June 30, 2015 The Company received the first $50,000 payment. The remaining $50,000 payment will be made at the request of the borrower. No additional payments have been made as of March 31, 2016. Under the terms of the debenture, the amount is unsecured, bears interest at 10% per annum, and is due on October 16, 2016. The note is convertible into shares of common stock any time after the maturity date at a conversion rate of 50% of the average of the five lowest closing bid prices of the Company's common stock for the thirty trading days ending one trading day prior to the date the conversion notice is sent by the holder to the Company. As of March 31, 2016, the Company recorded accrued interest of $1,260 (December, 31, 2015 $3,894), which has been included in accounts payable and accrued liabilities. The lender has agreed to sell this investment to the Company or to an investor of the Company's choosing at face value plus interest.
Convertible Debentures (continued)
On April 1, 2015, we entered into a transaction with Iconic Holdings, LLC (the "Purchaser"), whereby Iconic Holdings agreed to provide up to $600,000 through a structured convertible promissory note (the "Note"), with funds to be received in tranches. The note bears interest of 10% and is due April 1, 2016. The initial proceeds of $40,000 was received on April 9, 2015, with $30,000 remitted and delivered to us, $4,000 retained by the Purchaser as an original issue discount, and $6,000 retained by the Purchaser for legal expenses. In February 2016 as part of a settlement between the lender and the Company, the note along with a remaining balance of $8300 from former JABRO-Asher notes were restructured to a principle amount of $25,000 with a due date of June 18, 2017 and a 0% interest rate. The lender is subject to strict lock-up and leak-out provisions. Additionally, as part of the February 2016 settlement with the lender, the lender funded $100,000 new debentures due August 2018 bearing 0% interest with the lender subject to strict lock-up and leak-out provisions. The Company is currently negotiating the lock-up of these debentures from conversion into common stock for a period of one-year.
As part of the asset purchase agreement between HDS International Corp. and CMG Holdings Group, Inc., SirenGPS was issued a $60,000 0% interest convertible debenture that matures in August 2018. The debentures are convertible into common stock at a 20% discount to the 20-day moving average of the Company's common stock after a period of seven months. The debt is subject to strict lock-up and leak-out provisions. SirenGPS has agreed to sell this security to the Company or to an investor of the Company's choosing at face value.
The Company did not allocate to equity any increase in note value due to the fact that the conversion value was lower than the par value. Thereby creating a zero or negative value.
Derivative Liabilities
The following inputs and assumptions were used to value the convertible debentures outstanding during the period ended March 31, 2016 and December 31, 2015 :
The projected annual volatility for each valuation period was based on the historic volatility of the Company of 165% as at December 31, 2015, 167% as at February 6, 2016, 167% as at February 10, 2016, 168% as at February 13, 2016, 168% as at February 18, 2016, 168% as at February 23, 2016, 169% as at March 2, 2016, 170% as at March 3, 2016, 170% as at March 16, 2016, 170% as at March 17, 2016, 170% as at March 19, 2016, 170% as at March 24, 2016171% as at March 25, 2016, and 171% as at March 31, 2016.
An event of default would occur 0% of the time, increasing to 1.0% per month to a maximum of 5%.
A summary of the activity of the derivative liability is shown below:
Balance December 31, 2014
Adjustment for Conversion
Mark to market adjustment at December 31, 2015
Mark to market adjustment at March 31, 2016
Balance March 31, 2016
Share Transactions for the Quarter Ended March 31, 2016:
Our Articles of Incorporation authorize us to issue up to 50,000,000 shares of preferred stock, $0.001 par value. Of the 50,000,000 authorized shares of preferred stock, the total number of shares of Class A Preferred Shares the Corporation shall have the authority to issue is Twenty Five Million (25,000,000), with a stated par value of $0.001 per share, and the total number of shares of Class B Preferred Shares the Corporation shall have the authority to issue is Twenty Five Million (25,000,000), with a stated par value of $0.001 per share. Our Board of Directors is authorized, without further action by the shareholders, to issue shares of preferred stock and to fix the designations, number, rights, preferences, privileges and restrictions thereof, including dividend rights, conversion rights, voting rights, terms of redemption, liquidation preferences and sinking fund terms. We believe that the Board of Directors' power to set the terms of, and our ability to issue, preferred stock will provide flexibility in connection with possible financing or acquisition transactions in the future. The issuance of preferred stock, however, could adversely affect the voting power of holders of common stock and decrease the amount of any liquidation distribution to such holders. The presence of outstanding preferred stock could also have the effect of delaying, deterring or preventing a change in control of our company.
As of March 31, 2016, we had 7,500,000 shares of our Class A preferred stock issued and outstanding. As of March 31, 2016, we had 21,698,873 shares of Class B preferred stock issued and outstanding.
The 7,500,000 issued and outstanding shares of Class A Preferred Stock are convertible into shares of common stock at a rate of 20 common shares for each one Class A Preferred Share. The 21,698,873 issued and outstanding shares of Class B Preferred Stock are convertible into shares of common stock at a rate of 200 common shares for each one Class B Preferred Share. If all of our Class A Preferred Stock and Class B Preferred Stock was converted into shares of common stock, the number of issued and outstanding shares of our common stock will increase by 4,489,774,600 shares.
Share Sales – Series B Preferred Stock
On or around February 18, 2016, as part of the closing of the Good Gaming asset sale by CMG Holdings Group to HDS International Corp., CMG Holdings is due an additional 85,600,000 Series B Preferred Shares. These shares due are currently in the form of a subscription payable by HDS International to CMG Holdings Group.
On or around February 18, 2016, our CEO Vikram Grover was issued 859,073 Series B Preferred shares in lieu of compensation due for services rendered to SirenGPS in 2015.
On or around February 23, 2016, Andrew Albrecht was issued 2,000,000 Series B Preferred shares as consideration for an investment in the Company.
On or around February 26, 2016, William Schultz funded monies to the Company and had a subscription receivable for 2,500,000 Series B Preferred shares as consideration for an investment in the Company.
Preferred Stock (continued)
On or around February 26, 2016, Paul Rauner was issued 800,000 Series B Preferred shares as consideration for the strategic change of control transaction with CMG Holdings Group, Inc.
On or around February 26, 2016, Galina Berkovich was issued 800,000 Series B Preferred shares as consideration for the strategic change of control transaction with CMG Holdings Group, Inc.
On or around February 26, 2016, Bernard Mangold was issued 400,000 Series B Preferred shares as consideration for the strategic change of control transaction with CMG Holdings Group, Inc.
On or around March 7, 2016, Silver Lining Management, an entity controlled by David Dorwart, our Director, funded monies to the Company and had a subscription receivable for 5,000,000 Series B Preferred shares as consideration for an investment in the Company.
On or around March 15, 2016, Brett Nesland was issued 1,000,000 Series B Preferred shares as consideration for an investment in the Company.
The vast majority of the Series B Preferred stock investors have agreed to lock-up their investments for a period of one year as of May 2016.
As at March 31,2016, the Company owes $0 (December 31, 2015 – $570) to the previous President and CEO of the Company for reimbursement of expenses which has been included in accounts payable and accrued liabilities – related parties. The amount owing is unsecured, non-interest bearing, and due on demand.
As at March 31, 2016, the Company owes $0 (December 31, 2015 – $6,100) to the previous President and CEO of the Company for reimbursement of expenses which has been included in accounts payable and accrued liabilities – related parties. The amount owing is unsecured, non-interest bearing, and due on demand.
The Company has a net operating loss carried forward of $3,245,293 available to offset taxable income in future years which commence expiring in fiscal 2030.
The income tax benefit has been computed by applying the weighted average income tax rates of Canada (federal and provincial statutory rates) and of the United States (federal and state rates) of 27% and 27%, respectively, to the net loss before income taxes calculated for each jurisdiction. The tax effect of the significant temporary differences, which comprise future tax assets and liabilities, are as follows:
Income tax recovery at statutory rate
$ 22,077 $ 195,612
Valuation allowance change
$ (22,077 ) $ (195,612 )
The Significant components of deferred income tax assets and liabilities at March 312, 2016 and December 31, 2015 are as follows:
Net operating loss carried forward
$ 3,245.293 $ 3,018,073
$ (3,245,293 ) $ (3,018,073 )
Net deferred income tax asset
Due to the change in ownership provisions of the Tax Reform Act of 1986, net operating loss carry forwards for Federal income tax reporting purposes are subject to annual limitations. When a change in ownership occurs, net operating loss carry forwards may be limited.
On or around April 5, 2016, Pecan Bluff Investments LLC, funded monies to the Company and had a subscription receivable for 2,500,000 Series B Preferred shares as consideration for an investment in the Company.
On or around April 5, 2016, Fly Faster LLC, funded monies to the Company and had a subscription receivable for 2,500,000 Series B Preferred shares as consideration for an investment in the Company.
On or around April 5, 2016, Independent Drug Distributors LLC, funded monies to the Company and had a subscription receivable for 5,000,000 Series B Preferred shares as consideration for an investment in the Company.
On or around April 7, 2016, Silver Linings Management, LLC funded the Company $13,439.50 in the form of convertible debentures secured by certain high-powered gaming machines purchased from XIDAX. The notes bear interest at a rate of 10% per annum payable in cash or kind at the option of the Company, mature April 1, 2018, and are convertible into Series B Preferred shares at the option of the holder at any time.
On or around April 14, 2016, the Company formed and advisory Board and engaged Syndicate Studios, LLC for consulting services and issuing the Syndicate Studios 100,000,000 warrants with a two-year expiration and a strike price of $0.0002. The warrants do not vest for one year and are subject to mutually agreed to performance criteria. Sean Stalzer, owner of The Syndicate, has already been instrumental in introducing the Company to games publishers, members of the media, and gamers who have been vetting the Good Gaming 2.0 platform for the past few months.
On or around April 8, 2016, David Dorwart, our Director, funded monies to the Company and has a subscription receivable for 5,000,000 Series B Preferred shares as consideration for an investment in the Company.
On or around April 22, 2016, William Crusoe was issued 1,000,000 Series B Preferred shares as consideration for an investment in the Company. The investor has since agreed to lockup his shares for a period of one year.
On or around April 22, 2016, Francesca Dorwart was issued 1,000,000 Series B Preferred shares as consideration for an investment in the Company.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OR PLAN OF OPERATION.
This section and other parts of this Form 10-Q quarterly report includes "forward-looking statements", that involves risks and uncertainties. All statements other than statements of historical facts, included in this Form 10-Q that address activities, events, or developments that we expect or anticipate will or may occur in the future, including such things as future capital expenditures (including the amount and nature thereof), business strategy and measures to implement strategy, competitive strength, goals, expansion and growth of our business and operations, plans, references to future success, reference to intentions as to future matters, and other such matters are forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as "may," "will," "should," "expects," "plans," "anticipates," "believes," "estimates," "predicts," "potential," or "continue," or the negative of such terms or other comparable terminology. These statements are only predictions. Actual events or results may differ materially. These statements are based upon certain assumptions and analyses made by us in light of our experience and our perception of historical trends, current conditions and expected future developments as well as other factors that we believe are appropriate in the circumstances. However, whether actual results and developments will conform to our expectations and predictions is subject to a number of risks, uncertainties, and other factors, many of which are beyond our control.
Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. Moreover, we do not assume responsibility for the accuracy and completeness of such forward-looking statements. We are under no duty to update any of the forward-looking statements after the date of this report to conform such statements to actual results.
HDS International, Inc. (the "Company", "we", or "us") was incorporated November 3, 2008 under the laws of the State of Nevada, to engage in providing certain business services.
On February 18, 2016, the Company acquired Good Gaming, Inc. from CMG Holdings Group, Inc. (OTCQB: CMGO). On that date, the Company's former CEO, Paul Rauner, resigned. And the Company appointed Vik Grover to the positions of CEO and Director. Vik Grover is a former Wall Street analyst and investment banker with 20 years' experience in telecommunications, media and technology. In addition, Barbara Laken and David Dorwart were elected by the majority shareholders to the Company's Board of Directors. Ms. Laken is a former teacher, with experience creating specialized formats for advanced placement and special needs programs, with emphasis on systems management and curriculum development. A published novelist and co-author of an optioned screenplay. Mr. Dorwart is the Co-Founder and Chairman of Assist Wireless, Inc., a provider of lifeline wireless services to tens of thousands of subscribers primarily in the Midwest.
On May 4, 2016 the Company announced that it has completed its first closed public beta testing of their 2.0 tournament platform to determine the functionality, speed, ease of use, and accuracy of the system and are preparing to enter into full-blown production.
The Good Gaming platform was established in early 2014 by the founding members who had recognized the need that hundreds of millions of gamers worldwide have a desire to play games at a competitive level. The founders recognized that while professional eSports was quickly establishing itself, there were no structure or organizations on a large scale for amateur gamers.
Good Gaming is effectively building the equivalent infrastructure of High School and College Athletics for the rapidly growing eSports industry. Good Gaming is designed to be the gateway for amateur eSports athletes to compete at the semi-professional level, improve their gaming skills, and interact with veteran gamers globally in a destination site and social networking framework.
Good Gaming differs from the professional level of eSports industries by focusing on the 205 million plus gamers that fall below the professional level and above the casual gamer, classified as "amateurs". Good Gaming also differs from other direct and indirect competitors by being the first to offer multi-game, multi-console services at the amateur eSports level. The Company is not exclusive to any one vendor of hardware or software titles.
Good Gaming held one of the largest pay-to-play online tournaments in history in December 2014 based on Activision Blizzard's title Hearthstone: Heroes of Warcraft. The tournament attracted 300,000 unique visitors, over 1,250+ paying members and increased overall memberships in Good Gaming from 1,000 to over 15,000 members. In 2015, the Company spent an entire year refining its platform and preparing for a more sustainable business plan that could infinitely scale. In 2016, the Company completed its 2.0 tournament platform and, as a result, has run dozens of robotic internal test tournaments and held numerous free-to-play tournaments of increasing size with its partner, The Syndicate, the owner of the world's longest running online gaming guild with 1,200 members worldwide. Good Gaming also conducted two closed public beta tournaments of hundreds of participants in May 2016 in order to fully vet the system. After making roughly 100 fixes and changes to the system, it now runs flawlessly. The system is designed to scale to 512,000 concurrent competitors.
With Good Gaming's proprietary technology platform, which is based on the infinitely scalable and stress tested Yii framework geared for Web 2.0 development, Good Gaming will be able to offer publishers and vendors an innovative approach to gaming interactions. Currently there is no way for gamers to barter their skills and labor on the open market in a non-fragmented and less cumbersome process. As competitive gaming reaches critical mass, how gamers interact and barter their skills and labor will become critical if not the most economically lucrative endeavor. The "gamers" economy it expected to grow from tens of millions of dollars every year to multiple billions of dollars and the Good Gaming founders believe that we are rapidly approaching that time.
Good Gaming's platform is modular and allows for easy integration of third party applications as well as tight integration into other existing systems. This framework allows for clans/teams/guilds to add functionality over time to include running their own tournaments leveraging the viral nature of the online communities. The Company is offering social networking functionality so gamers can interact, track each other, and communicate. Good Gaming also is completing a content suite to offer videos, blogs, and forums. Additionally, the Company intends to host multiple games online that subscribers to the site can play for free or for fees depending on their Good Gaming status/player level.
Good Gaming has one patent filed for an online currency barter system (Mercenary System) that allows gamers across multiple games and multiple consoles the ability to trade items and labor in an efficient manner. The Company intends to file a patent for its 2.0 framework later this year, as it is based on proprietary coding that can handle more scope and scale than the legacy 1.0 patent filing. The market for these transactions will grow from a few hundred million dollars in 2014 to tens of billions of dollars by 2018.
The Company intends to complete the 2.0 site during spring 2016, which will then allow it to go live offering pay-to-play and free-to-play tournaments for cash and prizes and offer gamers the premiere destination site for amateur eSports worldwide. In 2016, the Company intends to perfect is B2C model targeting gamers directly. In 2017, Good Gaming intends to launch a B2B program so other groups, including colleges, restaurants, bars et al. can offer their own tournaments using its platform. The Company also intends to work on a 3.0 system that will integrate with mobile networks and offer additional features to its customers.
Our goal is to become a leading tournament gaming platform and online destination targeting the over 205 million eSports players and participants worldwide that want to compete at the high school or college level. We are a developmental stage business, have not generated any revenues to date and have a history of operating losses.
Certain statements contained below are forward-looking statements (rather than historical facts) that are subject to risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements.
We are considered a start-up corporation. Our auditors have issued a going concern opinion in the financial statements for the year ended December 31, 2015.
March 31, December 31,
Current Assets $ 55,528 $ -
Working Capital (Deficit) (632,654 ) (639,872 )
Cash Flows from (used in) Operating Activities $ (710 ) $ (73 )
Cash Flows from (used in) Financing Activities 1,723 -
Net Increase (decrease) in Cash During Period 1,013 (73 )
We have not generated any revenues since inception.
Operating Expenses and Net Loss
Operating expenses for the three months ended March 31, 2016 were $160,803 compared with $81,494 for the three months ended March 31, 2015. The increase in operating expenses was attributed to a decrease in consulting fees of $63,835, and an increase in professional fees of $1,750, an increase in general and administrative fees of $99,472 for day-to-day operating costs and stock compensation of $41,921.
During the three months ended March 31, 2016, the Company recorded a net loss of $417,221 compared with net loss of $33,275 for the three months ended March 31, 2015. In addition to the above, the Company incurred $3,360 of interest expense relating to debt balances, $311,359 for loss on the change in fair value of derivatively liabilities and $58,300 income from restructure of debentures.
As at March 31, 2016, the Company's cash balance was $1,013 compared to cash balance of $0 as at December 31, 2015. As of March 31, 2016, the Company's total assets were $1,522,842 compared to total assets of $0 as at December 31, 2015. The increase in the cash balance and total assets was attributed to the purchase of Good Gaming assets. It was made up of cash $1,013, monies due from affiliates of $351,829 and gaming software of $1,170,000. The Company expects to convert the monies due from affiliate to cash as needed for operation. These funds were raised by the Company to relaunch its 2.0 platform and are currently held in bank accounts of our majority shareholder, CMG Holdings Group, Inc.
As of March 31, 2016, the Company had total liabilities of $1,094,601 compared with total liabilities of $689,859 as at December 31, 2015. The increase in total liabilities is attributed to an increase of account payable and accrued liabilities of $8,360, which pertained to trade accounts payable as well as convertible debentures of $101,700 and an increase in derivative liabilities of $311,359.
As of March 31, 2016, the Company has a working capital deficit of $591,759 compared with working capital deficit of $639,852 at December 31, 2014 with the increase in the working capital deficit attributed to the increases in accounts payable and accrued liabilities, convertible debentures and derivative liabilities during the period as discussed above also an increase due from affiliate.
Cashflow from Operating Activities
During the three months ended March 31, 2016 the Company used $710 of cash for operating activities compared to the use of $73 of cash for operating activities during the three months ended March 31, 2015. The increase in cash used in operations was a result of accretion of debt discount, stock compensation, Debt reduction, due from affiliate and accounts payable accrued liabilities.
Cashflow from Financing Activities
During the three months ended March 31, 2016, the Company received $1,723 in cash from the purchase of Good Gaming assets. compared to $0 during the three months ended March 31, 2015.
We have not attained profitable operations and are dependent upon the continued financial support from our shareholders, the ability to raise equity or debt financing, and the attainment of profitable operations from our future business. These factors raise substantial doubt regarding our ability to continue as a going concern.
We have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to stockholders.
Future Financings
We will continue to rely on equity sales of our common shares in order to continue to fund our business operations. Issuances of additional shares will result in dilution to existing stockholders. There is no assurance that we will achieve any additional sales of the equity securities or arrange for debt or other financing to fund our operations and other activities.
Our consolidated financial statements and accompanying notes have been prepared in accordance with United States generally accepted accounting principles applied on a consistent basis. The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods.
We regularly evaluate the accounting policies and estimates that we use to prepare our consolidated financial statements. A complete summary of these policies is included in the notes to our consolidated financial statements. In general, management's estimates are based on historical experience, on information from third party professionals, and on various other assumptions that are believed to be reasonable under the facts and circumstances. Actual results could differ from those estimates made by management.
Recently Issued Accounting Pronouncements
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Market risk is the risk of loss from adverse changes in market prices and rates. The Company's market risk arises primarily from the fact that the area in which we do business is highly competitive and constantly evolving. The market in which we do business is highly competitive and constantly evolving. We face competition from the larger and more established companies, from companies that have greater resources, including but not limited to, more money, and greater ability to expand their markets also cut into our potential customers. Many of our competitors have longer operating histories, significantly greater financial strength, nationwide advertising coverage and other resources that we do not have.
Based on their evaluation of our disclosure controls and procedures(as defined in Rule 13a-15e under the Securities Exchange Act of 1934 the "Exchange Act"), our principal executive officer and principal financial officer have concluded that as of the end of the period covered by this quarterly report on Form 10-Q such disclosure controls and procedures were not effective due to the lack of segregation of duties and lack of a formal review process that includes multiple levels of review to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms because of the identification of a material weakness in our internal control over financial reporting which we view as an integral part of our disclosure controls and procedures. The material weakness relates to the lack of segregation of duties in financial reporting, as our financial reporting and all accounting functions are performed by an external consultant with no oversight by a professional with accounting expertise. Our CEO/CFO does not possess accounting expertise and our company does not have an audit committee. This weakness is due to the company's lack of working capital to hire additional staff. To remedy this material weakness, we intend to engage another accountant to assist with financial reporting as soon as our finances will allow.
Except as noted above, there have been no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that occurred during our first quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Share Sales – Series B Preferred Shares
On or around February 18, 2016, Vikram Grover was issued 859,073 Series B Preferred shares in lieu of compensation due for services rendered to SirenGPS in 2015.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
ITEM 4. MINE SAFETY DISCLOSURE.
ITEM 5. OTHER INFORMATION.
The vast majority of the Series B preferred stock investors have agreed to lock-up their investments for a period of one year. The vast majority of the convertible note holders have agreed to lock-up their investments for a period of one year. The balance have agreed to sell their positions to the Company or to investors of the Company's choosing
Exhibit Incorporated by reference Filed
Number Form Date Number herewith
3.1 Articles of Incorporation. S-1 3/24/09 3.1
Bylaws.
Amended and Restated Articles of Incorporation.
10.1 Exchange Note Purchase Agreement between Jabro Funding Corp. and Iconic Holdings, LLC dated March 31, 2015. 10-K 4/15/15 10.1
10.2 Exchange Note Purchase Agreement with Iconic Holdings, LLC dated April 1,2015. 10-K 4/15/15 10.2
10.3 Convertible Promissory Note with Iconic Holdings, LLC dated April 1, 2015. 10-K 4/15/15 10.3
10.4 Investment Agreement (ELOC) and Registration Rights Agreement with Iconic Holdings, LLC dated April 2, 2015. 10-K 4/15/15 10.4
10.5 Common Stock Purchase Warrant with Iconic Holdings, LLC dated April 6, 2015. 10-K 4/15/15 10.5
10.6 Stock Conversion and Subscription Agreement with Hillwinds Ocean Energy, LLC dated April 3, 2015. 10-K 4/15/15 10.6
10.7 Stock Conversion and Subscription Agreement with SirenGPS, Inc. dated April 3, 2015. 10-K 4/15/15 10.7
Promissory Note issued to HGT Capital LLC. dated April 15, 2015
10.9 Settlement Agreement and Mutual Release dated February 17, 2016 10.1 X
10.10 Convertible Promissory Note dated February 17, 2016 10.2 X
Code of Ethics.
Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS XBRL Instance Document. X
101.SCH XBRL Taxonomy Extension – Schema. X
101.CAL XBRL Taxonomy Extension – Calculations. X
101.LAB XBRL Taxonomy Extension – Labels. X
101.PRE XBRL Taxonomy Extension – Presentation. X
101.DEF XBRL Taxonomy Extension – Definition. X
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following person on behalf of the Registrant and in the capacities on this 10th of June 2016.
(the "Registrant")
BY: VIKRAM GROVE
Vikram Grover
President, Principal Executive Officer,
Principal Financial Officer and Principal Accounting Officer
GOOD GAMING, INC. Page
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