Attached files
file | filename |
---|---|
EXCEL - IDEA: XBRL DOCUMENT - STRATEGIC INTERNET INVESTMENTS INC | Financial_Report.xls |
EX-31.1 - CERTIFICATION - STRATEGIC INTERNET INVESTMENTS INC | exhibit31-1.htm |
EX-32.1 - CERTIFICATION - STRATEGIC INTERNET INVESTMENTS INC | exhibit32-1.htm |
UNITED
STATES
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
QUARTERLY REPORT PURSUANT TO
SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF
1934
For the Quarterly Period ended September 30, 2013
Commission File Number: 033-28188
STRATEGIC
INTERNET INVESTMENTS, INCORPORATED
(Exact name of registrant as specified in its charter)
Delaware | 84-1116458 |
State of incorporation | IRS Employer Identification |
24 First Avenue East, STE C
P.O. Box 918
Kalispell, Montana 59903
Address of principal executive offices
406-552-1170
Registrant’s telephone number
Indicate by check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months, and (2) has been subject to such filing requirements for the past 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 (s. 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” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] | Accelerated filer [ ] |
Non-accelerated filer [ ] (Do not check if a smaller reporting company) | Smaller reporting company [X] |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes [X] No [ ]
Common shares outstanding as of November 30, 2013: 35,159,391
Part I – Financial Information
Forward Looking Statements.
This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may”, “should”, “expects”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”, “potential” or “continue” or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks in the section entitled “Risk Factors” and the risks set out below, any of which may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.
These risks include, by way of example and not in limitation:
- results of initial feasibility, pre-feasibility and feasibility studies, and the possibility that future real estate development results will not be consistent with our expectations;
- real estate development risks, including risks related to accidents, equipment breakdowns, labour disputes or other unanticipated difficulties or interruptions in development construction;
- the potential for delays in development activities or the completion of feasibility studies;
- risks related to the inherent uncertainty of cost estimates and the potential for unexpected costs and expenses;
- risks related to commodity price fluctuations;
- the uncertainty of profitability based upon our history of losses;
- risks related to failure to obtain adequate financing on a timely basis and on acceptable terms for our planned development projects;
- risks related to environmental regulation and liability;
- risks that the amounts reserved or allocated for environmental compliance, reclamation, control measures, monitoring and on-going maintenance may not be sufficient to cover such costs;
- risks related to tax assessments;
- political and regulatory risks associated with real estate development; and
- other risks and uncertainties related to our prospects, properties and business strategy.
This list is not an exhaustive list of the factors that may affect any of our forward-looking statements. These and other factors should be considered carefully and readers should not place undue reliance on our forward-looking statements.
The Company intends that such forward-looking statements be subject to the Safe Harbors for such statements. Forward looking statements are made based on management’s beliefs, estimates and opinions on the date the statements are made and we undertake no obligation to update forward-looking statements if these beliefs, estimates and opinions or other circumstances should change. 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. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.
Our financial statements are stated in United States dollars (US$) and are prepared in accordance with United States Generally Accepted Accounting Principles.
In this report, unless otherwise specified, all dollar amounts are expressed in United States dollars and all references to “common stock” refer to the common shares in our capital stock. As used in this report, the terms “we”, “us”, “our”, the “Company” and “Strategic” mean Strategic Internet Investments, Incorporated, unless otherwise indicated.
1. Financial Statements
STRATEGIC INTERNET INVESTMENTS, INCORPORATED
(A Development Stage Company)
INTERIM FINANCIAL STATEMENTS
September 30, 2013
(Unaudited)
STRATEGIC INTERNET INVESTMENTS, INCORPORATED
(A Development Stage Company)
INTERIM BALANCE SHEETS
(Unaudited)
September 30,
2013 |
December 31,
2012 |
|||||
ASSETS | ||||||
Current assets: | ||||||
Cash | $ | 539 | $ | 1,937 | ||
TOTAL ASSETS | $ | 539 | $ | 1,937 | ||
LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||
Current liabilities: | ||||||
Accounts payable | $ | 82,220 | $ | 100,631 | ||
Accounts payable- related party | 123,420 | 477,282 | ||||
Accrued interest - related party – Note 2 | 326,355 | 295,644 | ||||
Convertible notes payable - related party – Note 2 | 418,975 | 402,675 | ||||
Loans payable - related party – Note 2 | 397,871 | 320,626 | ||||
TOTAL LIABILITIES | 1,348,841 | 1,596,858 | ||||
Stockholders’ deficit: | ||||||
Capital Stock – Notes 2, 3, and 4 | ||||||
Class A Convertible Preferred stock, $0.001 par value | ||||||
10,000,000 authorized, 198,000 outstanding | 792,000 | 792,000 | ||||
Class B Preferred stock, $0.001 par value | ||||||
10,000,000 authorized, none outstanding | - | - | ||||
Common stock, $0.001 par value | ||||||
100,000,000 authorized | ||||||
35,159,391 issued (2012: 27,610,326 issued) | 35,159 | 27,610 | ||||
Stock to be issued – Note 3 | - | 63,250 | ||||
Additional paid-in capital | 10,835,044 | 8,159,402 | ||||
Deficit accumulated during the development stage | (13,010,505 | ) | (10,637,183 | ) | ||
TOTAL STOCKHOLDERS’ DEFICIT | (1,348,302 | ) | (1,594,921 | ) | ||
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT | $ | 539 | $ | 1,937 |
The accompanying notes are an integral part of the unaudited financial statements.
STRATEGIC INTERNET INVESTMENTS, INCORPORATED
(A Development Stage Company)
INTERIM STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended September 30, |
Nine months ended September 30, |
Cumulative from February 28, 1989 (Date of Inception) to September 30, |
|||||||||||||
2013 | 2012 | 2013 | 2012 | 2013 | |||||||||||
General and Administrative Expenses | |||||||||||||||
Accounting and audit fees | $ | 6,570 | $ | 9,397 | $ | 41,052 | $ | 53,559 | $ | 577,468 | |||||
Amortization | - | - | - | - | 3,616 | ||||||||||
Communications | 131 | 215 | 1,733 | 643 | 109,812 | ||||||||||
Consulting fees – Note 3 | 546,950 | - | 782,150 | - | 4,437,416 | ||||||||||
Interest – Note 2 | 18,581 | 16,823 | 53,812 | 48,893 | 689,693 | ||||||||||
Investor relations | - | - | - | - | 91,385 | ||||||||||
Legal fees | - | 2,975 | 806 | 2,975 | 171,022 | ||||||||||
Management fees – Note 4 | 49,600 | 1,000 | 122,750 | 1,000 | 892,483 | ||||||||||
Office and general | 182 | 108 | 930 | 223 | 146,532 | ||||||||||
Regulatory fees | 2,085 | 4,609 | 11,368 | 11,973 | 77,741 | ||||||||||
Rent | - | - | - | - | 135,615 | ||||||||||
Transfer agent fees | 375 | 375 | 1,525 | 1,125 | 50,533 | ||||||||||
Travel | - | - | - | - | 112,770 | ||||||||||
Loss on disposal of equipment | - | - | - | - | 1,481 | ||||||||||
Write-down of advances to related party | - | - | - | - | 606,337 | ||||||||||
Operating loss | (624,474 | ) | (35,502 | ) | (1,016,126 | ) | (120,391 | ) | (8,103,904 | ) | |||||
Unauthorized distribution | - | - | - | - | (69,116 | ) | |||||||||
Termination fee | - | - | - | - | (792,000 | ) | |||||||||
Gain (loss) on foreign exchange | (4,980 | ) | (9,256 | ) | 7,561 | (10,046 | ) | (32,333 | ) | ||||||
Loss on settlement of payables – Note 3 | - | - | (1,364,757 | ) | - | (1,339,524 | ) | ||||||||
Write-down of deferred investment costs | - | - | - | - | (34,210 | ) | |||||||||
Net loss for the period | $ | (629,454 | ) | $ | (44,758 | ) | $ | (2,373,322 | ) | $ | (130,437 | ) | $ | (10,371,087 | ) |
Basic and diluted loss per share | $ | (0.01 | ) | $ | (0.00 | ) | $ | (0.07 | ) | $ | (0.00 | ) | |||
Weighted average number of common shares outstanding | 35,159,391 | 27,610,326 | 33,671,284 | 27,610,326 |
The accompanying notes are an integral part of the unaudited financial statements.
STRATEGIC INTERNET INVESTMENTS, INCORPORATED
(A Development Stage Company)
INTERIM STATEMENTS OF CASH FLOWS
(Unaudited)
Nine months ended September 30, |
Cumulative from February 28, 1989 (Date of Inception) to September 30, |
||||||||
2013 | 2012 | 2013 | |||||||
Operating Activities | |||||||||
Net loss for the period | $ | (2,373,322 | ) | $ | (130,436 | ) | $ | (10,371,087 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: | |||||||||
Amortization | - | - | 3,616 | ||||||
Beneficial conversion feature on convertible debt | - | - | 239,662 | ||||||
Communications | - | - | 28,000 | ||||||
Consulting fees | - | - | 2,523,404 | ||||||
Loss on settlement of payables | 1,364,757 | - | 1,339,524 | ||||||
Interest accrued on loans | - | 48,893 | 272,541 | ||||||
Legal fees | - | - | 25,000 | ||||||
Loss on disposal of equipment | - | - | 1,481 | ||||||
Management fees | - | - | 25,400 | ||||||
Stock-based compensation | 887,750 | - | 2,017,621 | ||||||
Termination fees | - | - | 792,000 | ||||||
Write-down of deferred costs | - | - | 34,210 | ||||||
Write-down of advances to related party | - | - | 606,337 | ||||||
Changes in non-cash item: | |||||||||
Accrued interest | 53,812 | - | 53,812 | ||||||
Accounts payable - related party | 13,572 | - | 13,572 | ||||||
Accounts payable | (18,411 | ) | 15,188 | 697,449 | |||||
Net cash used in operating activities | (71,842 | ) | (66,355 | ) | (1,697,458 | ) | |||
Investing Activities | |||||||||
Organization costs | - | - | (750 | ) | |||||
Acquisition of equipment | - | - | (4,347 | ) | |||||
Deferred costs | - | - | (34,210 | ) | |||||
Advances to related party | - | - | (606,337 | ) | |||||
Net cash used in investing activities | - | - | (645,644 | ) | |||||
Financing Activities | |||||||||
Loans payable | 102,644 | 67,064 | 1,202,512 | ||||||
Payment on loan payable | (32,200 | ) | - | (32,200 | ) | ||||
Due to related parties | - | - | 15,526 | ||||||
Proceeds from issuance of common stock | - | - | 1,162,631 | ||||||
Payment of offering costs | - | - | (30,270 | ) | |||||
Additional paid-in capital | - | - | 25,442 | ||||||
Net cash provided by financing activities | 70,444 | 67,064 | 2,343,641 | ||||||
Increase (decrease) in cash during the period | (1,398 | ) | 709 | 539 | |||||
Cash, beginning of the period | 1,937 | 161 | - | ||||||
Cash, end of the period | $ | 539 | $ | 870 | $ | 539 | |||
Supplementary disclosure of cash flows: | |||||||||
Cash paid for Interest | $ | - | $ | - | $ | 93,859 | |||
Non-cash financing and investing activities: | |||||||||
Common shares issued for conversion of liabilities | $ | 367,434 | $ | - | $ | 367,434 | |||
The accompanying notes are an integral part of the unaudited financial statements.
STRATEGIC INTERNET INVESTMENTS, INCORPORATED
(A Development Stage Company)
NOTES TO THE INTERIM FINANCIAL STATEMENTS
September 30, 2013
(Unaudited)
1. | Nature of Operations and Ability to Continue as a Going Concern |
The Company is in the development stage and is devoting its efforts to exploring new investment opportunities, including real estate development projects. |
Certain prior year amounts have been reclassified to conform to the current year presentation. |
These financial statements have been prepared in accordance with generally accepted accounting principles applicable to a going concern, which assumes that the Company will be able to meet its obligations and continue its operations for its next fiscal year. Realization values may be substantially different from carrying values as shown and these financial statements do not give effect to adjustments that would be necessary to the carrying values and classification of assets and liabilities should the Company be unable to continue as a going concern. At September 30, 2013, the Company had not yet achieved profitable operations, has an accumulated deficit of $13,010,505 since its inception, has a working capital deficiency of $1,348,302 and expects to incur further losses in the development of its business, all of which casts substantial doubt about the Company’s ability to continue as a going concern. Management anticipates that it requires approximately $85,000 over the twelve months ended September 30, 2014 to continue operations as well as the Company estimates it will accrue interest expenses of $73,000 over the next 12 months on loans due to related parties. In addition to funding the Company’s general, administrative and corporate expenses the Company is obligated to address its current obligations totalling $1,348,841. To the extent that cash needs are not achieved from operating cash flow and existing cash on hand, the Company will be required to raise necessary cash through shareholder loans, equity issuances and/or other debt financing. Amounts raised will be used to continue the development of the Company's investment activities, and for other working capital purposes. |
The Company’s ability to continue as a going concern is dependent upon its ability to generate future profitable operations and/or to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due. Management has no formal plan in place to address this concern but considers that the Company will be able to obtain additional funds by equity financing and/or related party advances; however there is no assurance of additional funding being available. The Company has historically satisfied its capital needs primarily by issuing equity securities. Management plans to continue to provide for its capital needs during the twelve months ended September 30, 2014, by issuing equity securities and/or related party advances. |
The accompanying unaudited interim financial statements have been prepared by the Company pursuant to the rules and regulations of the United States Securities and Exchange Commission. Certain information and disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, all adjustments and disclosures necessary for a fair presentation of these financial statements have been included. Such adjustments consist of normal recurring adjustments. These interim financial statements should be read in conjunction with the annual audited financial statements of the Company for the fiscal year ended December 31, 2012, included in the Company’s 10-K Annual Report as filed with the United States Securities and Exchange Commission. |
The results of operations for the period ended September 30, 2013 are not indicative of the results that may be expected for the full year. |
STRATEGIC INTERNET INVESTMENTS, INCORPORATED
(A Development Stage Company)
NOTES TO THE INTERIM FINANCIAL STATEMENTS
September 30, 2013
(Unaudited)
2. | Loans Payable- Related Party |
September 30, | December 31, | ||||||||
2013 | 2012 | ||||||||
a) | Loan
payable to a company controlled by a director of the Company including
accrued interest of $11,771 (December 31, 2012 - $10,198). The loan is
unsecured, bearing interest at 12% per annum and is repayable on demand. |
$ | 18,572 | $ | 17,000 | ||||
b) | Loans
payable to companies controlled by directors of the Company. The loans are
unsecured, non-interest bearing, and repayable upon demand. |
391,070 | 320,625 | ||||||
c) | Loan
payable to a company controlled by a director of the Company, including
accrued interest payable of $126,520 (December 31, 2012 - $105,848), pursuant
to a Convertible Loan Agreement. The loan is unsecured, bearing interest at
10% per annum and is repayable on demand. The lender may at anytime convert
the principal sum into units of the Company. Each unit will consist of one common
share plus one common share purchase warrant. Each warrant is exercisable for
a period of 2 years from the date of conversion at a price ranging from $0.05
to $0.23. The principal sum of $163,766 may be converted into 2,320,858
units. Conversion of these loans and resulting associated warrants to equity
will be based on the conversion price set at the time the principal amount
was drawn ranging from $0.05 to $0.23.
|
290,286 | 269,614 | ||||||
d) | Loan
payable to a company controlled by a director of the Company, including
accrued interest of $188,064 (December 31, 2012 - $156,497), pursuant to a
Convertible Loan Agreement. The loan is unsecured, bearing interest at 10%
per annum and is repayable on demand. The lender may at anytime convert the
principal sum into units of the Company. Each unit will consist of one
common share plus one common share purchase warrant. Each warrant is
exercisable for a period of 2 years from the date of conversion at a price
ranging from $0.05 to $0.12. The principal sum of $255,209 may be converted
into 4,526,436 units. Conversion of this loan and resulting associated
warrants to equity will be based on the conversion price set at the time the
principal amount was drawn ranging from $0.05 to $0.12. |
443,273 | 411,706 | ||||||
TOTAL LOANS PAYABLE | $ | 1,143,201 | $ | 1,018,945 |
STRATEGIC INTERNET INVESTMENTS, INCORPORATED
(A Development Stage Company)
NOTES TO THE INTERIM FINANCIAL STATEMENTS
September 30, 2013
(Unaudited)
3. | Capital Stock |
During the period ended September 30, 2013, the Company issued common shares as follows: |
a) | On August 21, 2012 the Company entered into a Management Services Agreement with a director (the “Director”) and an arm’s length consultant (the “Consultant”), for a term of 12 months commencing on October 1, 2012. As partial remuneration for the management and consulting services the Company agreed to issue 320,000 restricted common shares to the Director, and 480,000 restricted common shares to the Consultant. The Company recognized share based compensation of $264,000 as of September 30, 2013. |
b) | On August 21, 2012 the Company entered into a Consulting Services Agreement with an arm’s length consultant (the “Consultant”), for a term of 12 months commencing on October 1, 2012. As partial remuneration for the consulting services the Company agreed to issue 300,000 restricted common shares to the Consultant. The Company recognized share based compensation of $99,000 as of September 30, 2013. |
c) | On February 19, 2013 the Company issued a total of 5,249,065 restricted common shares at $0.33 per share as settlement of accounts payable due to a director of the Company, a company controlled by a director of the Company, in respect of unpaid management and consulting fee debts totaling $350,214, plus a $17,220 debt owed to an arm’s length creditor. Of the accounts payable settled, $321,057 was pursuant to two Management Services Agreements with related parties. The settlement of accounts payable totaling $367,434 resulted in a loss on settlement of payables in the amount of $1,364,757. The accounts payable settlement included: $165,019 due to a director of the Company for previous year’s management fees; $185,194 due to a company controlled by a director of the Company for previous year’s management fees, consulting fees, and office expenses, plus a $17,220 debt owed to an arm’s length creditor. |
d) | On March 15, 2013 the Company entered into two Consulting Services Agreement with two arm’s length consultants (the “Consultants”), for a term of 12 months commencing on March 15, 2013. As remuneration for the consulting services the Company agreed to issue 600,000 restricted common shares to each Consultant. These shares were valued on March 15, 2013 at $0.49 per share based on the quoted market price on that date. The Company recognized the full expense of $588,000 on the shares. |
No shares were issued during the period ended September 30, 2012. |
Stock Option Plan |
The Company’s board of directors approved a stock option plan. Under the plan directors, employees and consultants may be granted options to purchase common stock of the Company at a price of not less than 100% of the fair market value of the stock. The total number of options granted must not exceed 15% of the outstanding common stock of the Company. The plan expires on July 1, 2017. |
STRATEGIC INTERNET INVESTMENTS, INCORPORATED
(A Development Stage Company)
NOTES TO THE INTERIM FINANCIAL STATEMENTS
September 30, 2013
(Unaudited)
3. | Capital Stock – (cont’d) |
Stock-based Compensation |
The fair value of each option grant is estimated on the date of the grant using the Black-Scholes option valuation model. The Black-Scholes option valuation model requires the input of highly subjective assumptions including the expected price volatility. Changes in the subjective input assumptions can materially affect the fair value estimate and therefore the Black-Scholes model does not necessarily provide a reliable single measure of the fair value of the Company’s share purchase options. |
On October 15, 2012, the Company granted 4,140,000 share purchase options to directors, employees, and consultants of the Company at $0.10 per share, which was $0.13 lower than the Company’s common stock price on the date of grant. All options have been granted with a term of 5 years, expiring on October 15, 2017. |
Of these 4,140,000 share purchase options granted in fiscal 2012, 2,940,000 share purchase options were subsequently cancelled in November 2012. The cancelled options were originally issued to one arm’s length consultant and two directors. The Company re-issued the 2,940,000 options to the same parties at $0.12 per share on January 16, 2013, being the closing price of the Company’s common stock on that date, with a term of 5 years expiring on January 16, 2018. In accordance with GAAP, these re-issued options were treated as a change in the expiry date and exercise price of the original options granted on October 15, 2012. The modification of these options did not result in any additional charges to compensation expenses. |
During the period ended September 30, 2013, except as noted above, the Company did not grant any stock options to directors, employees, or consultants. No options were granted in the period ended September 30, 2012. |
During the period ended September 30, 2013, the change in share purchase options outstanding are as follows: |
Options |
Weighted Average Exercise Price |
Aggregate Intrinsic Value |
||
Options outstanding at December 31, 2011 | 3,125,000 | $0.15 | $- | |
Granted during the year | 4,140,000 | $0.10 | $- | |
Cancelled during the year | (6,065,000) | $0.15 | $- | |
Options outstanding at December 31, 2012 | 1,200,000 | $0.10 | $- | |
Granted during the period | 2,940,000 | $0.12 | $- | |
Options outstanding at September 30, 2013 | 4,140,000 | $0.11 | $707,100 |
As at September 30, 2013, the Company had share purchase options outstanding as follows: |
Expiry Date | Exercise Price | Number of Options | |
October 15, 2017 | $0.10 | 1,200,000 | |
January 16, 2018 | $0.12 | 2,940,000 | |
Total options outstanding | 4,140,000 |
As at September 30, 2013 and December 31, 2012 all of the outstanding share purchase options were exercisable. |
STRATEGIC INTERNET INVESTMENTS, INCORPORATED
(A Development Stage Company)
NOTES TO THE INTERIM FINANCIAL STATEMENTS
September 30, 2013
(Unaudited)
4. | Related Party Transactions |
At September 30, 2013, accounts payable includes $107,893 (December 31, 2012 - $461,755) due to a director of the Company and a company with a director in common in respect of unpaid management fees and expenses incurred on behalf of the Company. |
At September 30, 2013, accounts payable also includes $15,527 (December 31, 2012 - $15,527) of expenses for operating costs paid on behalf of the Company by companies with directors in common. |
On August 21, 2012 the Company entered into a Management Services Agreement with a director (the “Director”) and an arm’s length consultant (the “Consultant”), for a term of 12 months commencing on October 1, 2012. As partial remuneration for the management services the Company agreed to issue 320,000 restricted common shares to the Director. The Company also agreed to pay the Director $20 per hour for time spent on the affairs of the Company, pursuant to which during the period ended September 30, 2013, the Company has paid or accrued management fees of $1,100 (2012 – $Nil). The shares were valued at $0.33 for a total value of $105,600. |
During the period ended September 30, 2013, the Company paid or accrued management fees of $17,150 (September 30, 2012 - $Nil) to a director, and to a director and officer of the Company. |
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with our unaudited interim financial statements and the related notes that appear elsewhere in this quarterly report. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward looking statements. Factors that could cause or contribute to such differences include those discussed below and elsewhere in this annual report.
Our unaudited interim financial statements are stated in United States dollars and are prepared in accordance with United States generally accepted accounting principles (“GAAP”).
The Company is in the development stage, accordingly certain matters discussed herein are based on potential future circumstances and developments, which the Company anticipates, but which cannot be assured.
Plan of Operation
The Company has been devoting its business efforts to real estate development projects. The Company will continue to explore new investment opportunities, including real estate development projects, during its 2013 fiscal year.
On August 20, 2012, Strategic Internet Investments, Incorporated (“SIII”) signed a Letter of Intent (the "LOI") with G7 Entertainment Limited (“G7”), a private company controlled by Mr. Abbas Salih, a director and officer of SIII. The LOI sets out the terms and conditions that will allow SIII to acquire certain real estate assets located in the United Kingdom (“UK”). The assets are held under contractual rights by G7 as outlined within various Joint Venture Agreements (the "JV Agreements ") between G7 and four UK corporations. The JV Agreements outline the terms and conditions of the formation of a joint venture between G7 and the respective real estate owners whereby G7 intends to facilitate the refinancing of existing mortgages in exchange for a 60% interest in each Joint Venture, which Joint Venture will hold title to the real estate assets.
The LOI outlines the terms and conditions whereby SIII can purchase a 100% interest in the assets at a discounted price (the “SIII Purchase Price”) to the Fair Market Price. The Fair Market Price is to be determined by a mutually acceptable, independent professional real estate evaluator experienced in evaluating the type of assets to be purchased by SIII. The LOI states that the SIII Purchase Price will be equal to the fair market price, as outlined above, minus a discount that will be calculated to be 25% of the total equity contained within the assets (equity Fair Market Price less outstanding mortgage(s) and/or other existing debt of the of the Assets).
The LOI allows for ongoing due diligence which is in process and the completion of a formal purchase agreement between the respective parties.
SIII intends to fund the acquisition of the assets by securing funding by way of equity and or debt financing and cannot predict with any certainty that such funding efforts will be successful and therefore provides a cautionary statement that the success of the contemplated acquisition cannot be assured.
On February 20, 2013, SIII signed a Memorandum of Understanding (the "MOU") with the following parties: Gary Keeley, Anjum Ahmed, Kevin O’Brien, Milton Thompson and G7 Entertainment Limited (“G7”), a non-arms length private British Columbia Corporation majority controlled by Mr. Abbas Salih, a director and officer of SIII. The MOU sets out the terms and conditions that will allow SIII to acquire up to a majority 80% interest in a private company that will be formed as Special Purpose Vehicle (the “SPV”), in return for funding up to USD $4 million of the SPV’s initial business development.
The SPV will acquire the exclusive worldwide intellectual property (IP) licensing rights, permitting it to design, manufacture (outsourced), market and license out secure RFiD (Radio Frequency Identification) patented security authorization systems developed and patented by Mr. Milton Thompson.
SIII intends to fund the SPV’s business development by securing funding by way of equity and or debt financing and cannot predict with any certainty whether such funding efforts will be successful, and therefore provides a cautionary statement that the success of the contemplated acquisition cannot be assured.
Our estimated cash expenses over the next twelve months are as follows:
Accounting, audit, and legal fees | $66,000 | |
General and administrative expenses | 4,000 | |
Regulatory and transfer agent fees | 15,000 | |
$85,000 |
The Company also estimates it will accrue interest expenses of $73,000 over the next 12 months on loans due to related parties. It is not anticipated the interest will be paid in cash during 2013, and therefore interest has been excluded from the above list of cash expenses.
To date we have funded our operations primarily with loans from shareholders and issue new equity. In addition to funding the Company’s general, administrative and corporate expenses the Company is obligated to address its current obligations totalling $1,348,841. To the extent that cash needs are not achieved from operating cash flow and existing cash on hand, the Company will be required to raise necessary cash through shareholder loans, equity issuances and/or other debt financing. Amounts raised will be used to continue the development of the Company's investment activities, and for other working capital purposes, which may be dilutive to existing shareholders. The Company currently has no agreement in place to raise funds for current liabilities and no guarantee can be given that we will be able to raise funds for this purpose on terms acceptable to the company. Failure to raise funds for general, administrative and corporate expenses and current liabilities could result in a severe curtailment of the Company’s operations.
Any advance in the real estate development strategy set-out herein will require additional funds. These funds may be raised through equity financing, debt financing or other sources which may result in further dilution of the shareholders percentage ownership in the company. See “Future Financing” below.
Results of Operations
During the quarter ended September 30, 2013, the Company incurred general and administrative expenses totaling $432,474 compared to $35,502 during the same period of the previous year.
The volume of transactions and business activities has changed little compared to the prior year. The significant changes in our general and administrative expenses for the three month period ended September 30, 2013 when compared to the three month period ended September 30, 2012 was primarily due to:
a) | The 2013 accounting and audit fees are $6,570 compared to $9,397 in the 2012 period. The $2,827 increase in accounting and audit fees from 2013 to 2012 is mainly due to a decrease the fees charged by accountants for the preparation and review of the Company’s quarterly financial statements. |
b) | Consulting fees relate to two consultants engaged in October 2012 to provide corporate development services and two consultants engaged in March 2013 to provide public relations and promotional services. These consultants were remunerated, in whole or in part by, the issuance of restricted common shares and stock options. The consulting fees for the quarter ended September 30, 2013 were $373,350; there were no consulting agreements in the comparative 2012 fiscal period and no fees incurred. |
c) | Management fees relate to a director engaged in October 2012 to provide general management and administrative services. This director was remunerated by the issuance of restricted common shares and stock options, plus a fee of $20 per hour for time spent directly managing the Company’s affairs. In addition, in January 2013, the Company agreed to pay a director/officer a monthly management stipend. The management fees for the period ended September 30, 2013 were $31,200; there were no management agreements in the comparative 2012 fiscal period and no fees incurred. |
d) | Interest on loans increased by $1,758, this is attributed to the compounding effect of the quarterly interest calculation as the Company has not been making any payments on these debts. |
e) | Regulatory fees relate to fees charged by EDGAR/SEDAR regulatory filing service providers for making submissions to the regulatory authorities, as well as fees paid to the regulators themselves. In the quarter ended September 30, 2013 there was a $2,524 decrease in these fees primarily due fewer regulatory filings in the 2013 period compared to the 2012 period. |
Funding for operating and investing activities was provided by both non-interest and interest bearing advances and loans from related parties, including directors of the Company, and companies controlled by these directors.
As of September 30, 2013, the Company had total current assets of $539 and total liabilities of $1,348,841. The Company had cash of $539 and a working capital deficiency of $1,348,302 as of September 30, 2013 compared to cash on hand of $1,937 and a working capital deficiency of $1,594,921, for the year ended December 31, 2012. We anticipate that we will incur approximately $85,000 for cash operating expenses, including professional, legal and accounting expenses associated with our reporting requirements under the Exchange Act during the next twelve months. In addition to funding the Company’s general, administrative and corporate expenses the Company is obligated to address its current obligations totaling $1,348,841. To the extent that cash needs are not achieved from operating cash flow and existing cash on hand, the Company will be required to raise necessary cash through shareholder loans, equity issuances and/or other debt financing. Amounts raised will be used to continue the development of the Company's investment activities, and for other working capital purposes. Accordingly, we will need to obtain additional financing in order to continue our planned business activities.
Cash used in operating activities for the nine months ended September 30, 2013 was $71,698 as compared to cash used by operating activities for the same period in 2012 of $66,355. The increase in cash used in operating activities was primarily due to decreases in accounting and audit fees.
The Company has the following loans outstanding as of September 30, 2013:
A $18,572 loan payable to a company controlled by a director of the Company including accrued interest of $11,771 (December 31, 2012 - $17,000). The loan is unsecured, bearing interest at 12% per annum and is repayable on demand.
Loans payable of $391,070 to companies controlled by directors of the Company. These loans are unsecured, non-interest bearing, and repayable upon demand.
A $290,286 loan payable to a company controlled by a director of the Company, including accrued interest payable of $126,520 (December 31, 2012 - $105,848), pursuant to a Convertible Loan Agreement. The loan is unsecured, bearing interest at 10% per annum and is repayable on demand. The lender may at anytime convert the principal sum into units of the Company. Each unit will consist of one common share plus one common share purchase warrant. The principal sum of $163,766 may be converted into 2,320,858 units. Conversion of these loans and resulting associated warrants to equity will be based on the conversion price set at the time the principal amount was drawn ranging from $0.05 to $0.23.
A $443,273 loan payable to a company controlled by a director of the Company, including accrued interest of $188,064 (December 31, 2012 - $156,497), pursuant to a Convertible Loan Agreement. The loan is unsecured, bearing interest at 10% per annum and is repayable on demand. The lender may at anytime convert the principal sum into units of the Company. Each unit will consist of one common share plus one common share purchase warrant. The principal sum of $255,209 may be converted into 4,526,436 units. Conversion of this loan and resulting associated warrants to equity will be based on the conversion price set at the time the principal amount was drawn ranging from $0.05 to $0.12.
Going Concern
The unaudited financial statements accompanying this report have been prepared on a going concern basis, which implies that our company will continue to realize its assets and discharge its liabilities and commitments in the normal course of business. Our company has not generated revenues since inception and has never paid any cash dividends and is unlikely to pay cash dividends or generate earnings in the immediate or foreseeable future. The continuation of our company as a going concern is dependent upon the continued financial support from related party advances, the ability of our company to obtain necessary equity financing to achieve our operating objectives, and the attainment of profitable operations. As of September 30, 2013, we had cash of $539 and we estimate that we will require approximately $85,000 to fund our business operations over the next twelve months. In addition to funding the Company’s general, administrative and corporate expenses the Company is obligated to address its current obligations totalling $1,348,841. To the extent that cash needs are not achieved from operating cash flow and existing cash on hand, the Company will be required to raise necessary cash through shareholder loans, equity issuances and/or other debt financing. Amounts raised will be used to continue the development of the Company's investment activities, and for other working capital purposes.
Accordingly, we do not have sufficient funds for planned operations and we will be required to raise additional funds for operations.
These circumstances raise substantial doubt about our ability to continue as a going concern, as described in the Note 1 of our September 30, 2013 unaudited financial statements. The financial statements do not include any adjustments that might result from the outcome of that uncertainty. The continuation of our business is dependent upon us raising additional financial support. The issuance of additional equity securities by us could result in a significant dilution in the equity interests of our current stockholders. Obtaining commercial loans, assuming those loans would be available, will increase our liabilities and future cash commitments.
There are no assurances that we will be able to obtain further funds required for our continued operations. We are pursuing various financing alternatives to meet our immediate and long-term financial requirements. There can be no assurance that additional financing will be available to us when needed or, if available, that it can be obtained on commercially reasonable terms. If we are not able to obtain the additional financing on a timely basis, we will be forced to scale down or perhaps even cease the operation of our business.
Future Financings
As of September 30, 2013, we had cash of $539 and we estimate that we will require approximately $85,000 to fund our business operations over the next twelve months. In addition to funding the Company’s general, administrative and corporate expenses the Company is obligated to address its current obligations totaling $1,348,841. Accordingly, we do not have sufficient funds for planned operations and we will be required to raise additional funds for operations. We anticipate continuing to rely on equity sales of our common shares or shareholder loans in order to continue to fund our business operations. Issuances of additional shares will result in dilution to our existing stockholders. There is no assurance that we will achieve any additional sales of our equity securities or arrange for debt or other financing to fund our planned activities.
Off-balance sheet arrangements
As of the date of this Report, the Company does not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the company's financial condition, change in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors. The term "off-balance sheet arrangement" generally means any transaction, agreement, or other contractual arrangement to which an entity unconsolidated with the Company is a party under which the Company has (i) any obligation arising under a guarantee contract, derivative instrument or variable interest; or (ii) a retained or contingent interest in assets transferred to such entity or similar arrangement that serves as credit, liquidity or market risk support for such assets.
3. Quantitative and Qualitative Disclosures About Market Risk
The Company has no market risk sensitive instruments.
4. Controls and Procedures
As required by Rule 13(a)-15 under the Exchange Act, in connection with this quarterly report on Form 10-Q, under the direction of our Chief Executive Officer and Chief Financial Officer, we have evaluated our disclosure controls and procedures as of September 30, 2013, our disclosure controls and procedures were ineffective. As of the date of this filing, we are still in the process of remediating such material weaknesses in our internal controls and procedures. Additionally, we are currently inactive as we seek new business opportunities.
It should be noted that while our management believes our disclosure controls and procedures provide a reasonable level of assurance, they do not expect that our disclosure controls and procedures or internal controls will prevent all error and all fraud. A control system, no matter how well conceived or operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected. These inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of simple error or mistake.
Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of internal control is based in part upon 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. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
There were no changes in our internal control over financial reporting during the period ended September 30, 2013 that have materially affected or are reasonably likely to materially affect, our internal control over financial reporting.
Part II – Other Information
1. Legal Proceedings
On January 24, 2013, a vendor filed a claim against the Company for unpaid filing services invoices in the amount of $5,124.00, plus court costs of $326.00. The Company disputes the charges by the vendor on one of the invoices. The full amount of all the unpaid invoices are included in accounts payable at September 30, 2013.
We know of no other material, active, or pending legal proceeding against our Company, nor are we involved as a plaintiff in any material proceeding or pending litigation where such claim or action involves damages for more than 10% of our current assets. There are no proceedings in which any of our Company’s directors, officers, or affiliates, or any registered or beneficial shareholders, is an adverse party or has a material interest adverse to our company’s interest.
1.A Risk Factors
Not applicable
2. Unregistered Sales of Equity Securities
Sales of Securities Without Registration Under the Securities Act of 1933
On August 10, 2003 the Company entered into a Convertible Loan Facility Agreement with Star Leisure & Entertainment Inc. (“Star Leisure”), a company controlled by a Director and Officer of Strategic, whereby the Company would, from time to time, borrow operating funds from Star Leisure, at an interest rate of 10%, repayable on demand. The lender has the right to convert all or part of the principal sum into units at a conversion rate which is calculated at a discount to the average closing market price for ten days preceding a loan advance. Each unit consists of one common share of the Company and one non-transferable share purchase warrant, expiring 2 years from the conversion date, exercisable at the applicable conversion rate. On August 31, 2008 the Company entered into agreements to transfer previous advances and accrued interest to convertible loans under the Convertible Loan Facility Agreement. At September 30, 2013, the Star Leisure loan principal was $255,209. The loan principal is convertible into 4,526,436 units at conversion price ranging from $0.05 to $0.12 as set at the time the principal was borrowed. Star Leisure has not converted any part of the principal sums advanced into units as of September 30, 2013. This transaction is with an offshore non-U.S. person; accordingly, these securities are exempt from registration pursuant to Regulation S.
On May 5, 2006 the Company entered into a Convertible Loan Facility Agreement with CMB Investments Ltd. (“CMB”), a company controlled by a Director of Strategic, whereby the Company would, from time to time, borrow operating funds from CMB, at an interest rate of 10%, repayable on demand. The lender has the right to convert all or part of the principal sum into units at a conversion rate which is calculated at a discount to the average closing market price for ten days preceding a loan advance. Each unit consists of one common share of the Company and one share purchase warrant, expiring 2 years from the conversion date, exercisable at the applicable conversion rate. At September 30, 2013, the CMB loan principal was $163,766. The loan principal is convertible into 2,320,858 units. Conversion of this loan and associated warrants to equity will be at a price ranging from $0.05 to $0.23. CMB has not converted any part of the principal sums advanced into units as of September 30, 2013. This transaction is with an offshore non-U.S. person; accordingly, these securities are exempt from registration pursuant to Regulation S.
Purchase of Equity Securities by the Issuer and Affiliated Purchasers
We did not purchase any of our shares of common stock or other securities during the period ended September 30, 2013.
3. Defaults Upon Senior Securities
– None
4. Submission of Matters to a Vote of Security Holders
– None
5. Other Information
– None
6. Exhibits
Table of Exhibit Items |
Description | Exhibit |
601-3(i) | Articles of Incorporation | Note 1 |
601-(3)(ii) | Bylaws | Note 1 |
601-(3)(iii) | Certificate of Amendment | Note 1 |
601-(10) | Stock Award Plan | Note 2 |
601-(31) | Rule 13a-14(a)/15d-14(a) Certifications | Exhibit 31.1 |
601-(32) | Section 1350 Certifications | Exhibit 32.1 |
Note 1: | Incorporated by reference to Form 10-KSB Annual Report for the year ending December 31, 2001 | |
Note 2: | Incorporated by reference to Form 10-KSB Annual Report for the year ending December 31, 2002 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Strategic Internet Investments, Incorporated | |||
Date: | December 13, 2013 | /s/ Abbas Salih | |
Abbas Salih, CEO, CFO, Director |