UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period ended June 30, 2017

Commission File No. 033-28188

STRATEGIC INTERNET INVESTMENTS, INCORPORATED
(Exact name of registrant as specified in its charter)

Delaware	84-1116458
State of incorporation	IRS Employer Identification

 

Jood Palace Hotel
36-A Street Off Al Rigga Road, Suite 1058
Deira Dubai P.O. Box 42211
UNITED ARAB EMIRATES 
Address of principal executive offices

(971) 50-420-7360
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 July 31, 2017: 40,359,391

 

 

 

 

Part I – Financial Information

 

Overview

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”, “Strategic”, and “SIII” mean Strategic Internet Investments, Incorporated, unless otherwise indicated.

 

Our financial statements are stated in United States dollars (US$) and are prepared in accordance with United States Generally Accepted Accounting Principles.

 

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.

 

 

 

 

1. Financial Statements

 

 

 

 

 

 

 

 

 

 

 

 

STRATEGIC INTERNET INVESTMENTS, INCORPORATED

FINANCIAL STATEMENTS

 

June 30, 2017

(Expressed in U.S. Dollars)

 

(Unaudited)

 

STRATEGIC INTERNET INVESTMENTS, INCORPORATED

BALANCE SHEETS

(Expressed in U.S. Dollars)

(Unaudited)

 

		June 30, 2017		December 31, 2016
ASSETS
Current:
Cash	$	381	$	375
TOTAL ASSETS	$	381	$	375
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current:
Accounts payable	$	135,183	$	97,987
Accounts payable - related parties		71,737		23,738
Accrued interest		19,695		16,363
Accrued interest - related parties		665,644		613,205
Convertible loan payable		50,000		50,000
Loans payable - related parties		408,866		385,906
Convertible notes payable - related parties		418,975		418,975
TOTAL LIABILITIES		1,770,100		1,606,174
Commitments
Stockholders’ deficit:
Capital Stock
Class A Convertible Preferred stock, $0.001 par value
10,000,000 authorized
198,000 (2016: 198,000) issued and outstanding		198		198
Class B Preferred stock, $0.001 par value
10,000,000 authorized, none outstanding		-		-
Common stock, $0.001 par value
100,000,000 authorized
40,359,391 (2016: 40,359,391) issued and outstanding		40,359		40,359
Additional paid-in capital		12,156,359		12,156,359
Accumulated deficit		(13,966,635)		(13,802,715)
TOTAL STOCKHOLDERS’ DEFICIT		(1,769,719)		(1,605,799)
TOTAL STOCKHOLDERS’ DEFICIT AND LIABILITIES	$	381	$	375

 

The accompanying notes are an integral part of these unaudited financial statements.

 

 

 

 

 

 

 

 

 

STRATEGIC INTERNET INVESTMENTS, INCORPORATED

STATEMENTS OF OPERATIONS

(Expressed in U.S. Dollars)

(Unaudited)

 

 

		Three months ended June 30,				Six months ended June 30,
		2017		2016		2017		2016
General and Administrative Expenses
Accounting and audit fees	$	10,933	$	5,671	$	18,708	$	25,569
Legal fees		36,306		197		36,306		473
Management fees		46,000		1,000		48,000		2,000
Office and general		176		43		236		200
Regulatory fees		3,770		1,732		4,321		4,461
Transfer agent fees		600		375		1,200		750
Operating loss		(97,785)		(9,018)		(108,771)		(33,453)
Other income and expense
Interest expense		(28,380)		(25,697)		(55,770)		(50,765)
Gain (loss) on foreign exchange		2,023		(605)		621		(3,186)
Net loss	$	(124,142)	$	(35,320)	$	(163,920)	$	(87,404)
Basic and diluted loss per share	$	(0.00)	$	(0.00)	$	(0.00)	$	(0.00)
Weighted average number of common shares outstanding		40,359,391		40,359,391		40,359,391		40,359,391

 

The accompanying notes are an integral part of these unaudited financial statements.

 

 

STRATEGIC INTERNET INVESTMENTS, INCORPORATED

STATEMENTS OF CASH FLOWS

(Expressed in U.S. Dollars)

(Unaudited)

 

	Six months ended June 30,
		2017		2016
Operating Activities
Net loss	$	(163,820)	$	(87,404)
Adjustments to reconcile net loss to net cash used in operating activities:
Unrealized foreign exchange (gain) loss		(1,668)		1,303
Changes in operating assets and liabilities:
Accounts payable		37,196		19,274
Accounts payable - related parties		47,999		2,010
Accrued interest		3,332		3,034
Accrued interest - related parties		52,439		47,731
Net cash used in operating activities		(24,622)		(14,052)
Financing Activities
Proceeds from related party advances		24,628		-
Net cash provided by financing activities		24,628		-
Change in cash during the period		6		(14,052)
Cash, beginning of the period		375		14,630
Cash, end of the period	$	381	$	578
Supplementary disclosure of cash flows:
Expenses paid by related party on behalf of the Company	$	-	$	5,300
Cash paid for Interest	$	-	$	-
Cash paid for Taxes	$	-	$	-

 

The accompanying notes are an integral part of these unaudited financial statements.

 

 

STRATEGIC INTERNET INVESTMENTS, INCORPORATED

NOTES TO THE FINANCIAL STATEMENTS

June 30, 2017

(Expressed in U.S. Dollars)

 (Unaudited)

 

1.	Basis of Presentation

 

 

The accompanying unaudited 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, 2016 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 June 30, 2017 are not indicative of the results that may be expected for the full year.

 

2.

Going Concern

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 June 30, 2017, the Company had not yet achieved profitable operations, has an accumulated deficit of $13,966,635 since its inception, has a working capital deficiency of $1,769,719 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 $93,000 over the twelve months ended June 30, 2018 to continue operations as well as the Company estimates it will accrue related interest expenses of $108,000 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 $1,770,100. 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 June 30, 2018, by issuing equity securities and/or related party advances.

 

 

 

STRATEGIC INTERNET INVESTMENTS, INCORPORATED

NOTES TO THE FINANCIAL STATEMENTS

June 30, 2017

(Expressed in U.S. Dollars)

 (Unaudited)

 

3.

Convertible Loan Payable

 

On January 5, 2014 Company entered into a Convertible Loan Agreement and issued a convertible note for $50,000. This loan is unsecured, bearing interest at 10% per annum, and was repayable at maturity on January 7, 2015, or on demand after that date. At any time, the lender may convert the principle amount of the loan into units of the Company, each unit consisting of one common share and one non-transferable share purchase warrant, at a conversion rate of $0.20 per unit. Each share purchase warrant entitles the holder to purchase one additional common share for a period of two years from the warrant issue date, at an exercise price of $0.20 during the first year, and $0.35 during the second year. Accrued in interest on the note at June 30, 2017 was $19,695 (December 31, 2016: $16,363).

 

The Company calculated a beneficial conversion feature on the convertible note of $22,826, and this amount was fully amortized to interest expense during the year ended December 31, 2014. Upon conversion of this loan, which triggers the issuance of the warrants, the $42,000 fair value of the warrants will be recognized as an interest expense and credited to additional paid-in capital. The fair value of the warrants was estimated at the date the convertible note was issued using the Black-Scholes valuation model. The Black-Scholes valuation model requires the input of highly subjective assumptions including the expected price volatility.

 

 

4.

Loans payable – related parties

 

	June 30,	December 31,
	2017	2016
a) Loan payable to a company controlled by a director of the Company plus accrued interest of $22,136 (2016 - $20,488). The loan is unsecured, bearing interest at 12% per annum and is repayable on demand.	$         6,802	$         6,802
b) Loans payable to a company controlled by a director of the Company. The loans are unsecured, non-interest bearing, and repayable upon demand.	326,075	325,521
c) Loans payable to a company controlled by a former director of the Company. The loans are unsecured, non-interest bearing, and repayable upon demand.	7,477	7,295
d) Loans payable to a director of the Company. The loans are unsecured, non-interest bearing, and repayable upon demand.	68,512	46,288
Total Loans Payable – related parties	$      408,866	$      385,906

 

 

5.

Convertible Loans Payable – related parties

 

	June 30,	December 31,
	2017	2016
a) Loan payable to a company controlled by a former director of the Company, plus accrued interest payable of $256,683 (2016 - $236,584), 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 any time 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. Upon conversion of this loan, the $73,685 fair value of the warrants, as measured at inception, will be recognized as an interest expense and credited to additional paid-in capital.	$      163,766	$      163,766
b) Loan payable to a company controlled by a director of the Company, plus accrued interest of $386,825 (2016 - $356,133), 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 any time 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. Upon conversion of this loan, the $113,338 fair value of the warrants, as measured at inception, will be recognized as an interest expense and credited to additional paid-in capital.	255,209	255,209
Total Convertible Notes Payable – related parties	$      418,975	$      418,975

 

 

STRATEGIC INTERNET INVESTMENTS, INCORPORATED

NOTES TO THE FINANCIAL STATEMENTS

June 30, 2017

(Expressed in U.S. Dollars)

 (Unaudited)

 

6.

Equity

 

During the six months ended June 30, 2017, and the year ended December 31, 2016, the Company did not issue any common shares.

 

7.

Stock-based Compensation

 

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 expired on July 1, 2017.

 

No options were granted and no compensation expense was recorded during the periods ended June 30, 2017 and 2016.

 

The fair value of each option grant was 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.

 

As at June 30, 2017, the Company had share purchase options outstanding as follows:

 

Expiry Date	Exercise Price	Remaining Contractual Life	Number of Options
October 15, 2017	$0.10	0.29 years	1,200,000
January 16, 2018	$0.12	0.55 years	2,940,000
Total options outstanding		0.47 years	4,140,000

 

At June 30, 2017, all the outstanding share purchase options were exercisable.

 

 

8.

Related Party Transactions

 

At June 30, 2017, accounts payable includes $71,737 due to a director, to a former director, and a company controlled by a director of the Company, in respect of unpaid management fees, expenses incurred on behalf of the Company, and operating costs paid on behalf of the Company.

 

At June 30, 2017, accrued interest includes $665,644 due to companies controlled by a director and a former director of the Company.

 

During the period ended June 30, 2017, the Company paid or accrued management fees of $48,000 to two directors.

 

STRATEGIC INTERNET INVESTMENTS, INCORPORATED

NOTES TO THE FINANCIAL STATEMENTS

June 30, 2017

(Expressed in U.S. Dollars)

 (Unaudited)

 

9.

Commitments

 

Skytower:

On August 9, 2016, SIII entered into a Securities Purchase Agreement (the “Kayu Agreement”) to acquire 60% of the issued capital stock Kayu Tekstil Sanayi Ve Ticaret Limited Sirketi (“Kayu”), a Turkish company, from Najibi Investment Trading FZC (hereinafter “Najibi”), G7 Entertainment Incorporated, (hereinafter “G7”), Royaltun General Trading LLC., (hereinafter “Royaltun”), and Soha Investment Inc., (hereinafter “Soha) (jointly hereinafter the “Shareholders”). In consideration for the Kayu shares, the Company agreed to issue convertible debentures in the amount of $30,205,939 to the Shareholders of Kayu. This is a related party transaction as Mr. Abbas Salih is a Director and Officer, as well as the controlling shareholder, of SIII and has an ownership interest in and/or control of the Shareholders. Kayu has an agreement to acquire the Skytower Hotel Atayol in Akcakoca, Turkey (the “Skytower Property”), subject to the successful discharge of a debt on the Skytower Property and the transfer of title to Kayu.
Upon discharge of the debt on the Skytower Property, the Company will issue convertible debentures in the amount of $12,656,768 to Najibi, a Company that settled the existing debt on the Skytower Property. Upon transfer of the Skytower Property title to Kayu, the Company will issue convertible debentures in the amount of $20,137,293 to a shareholder of Kayu to acquire the remaining 40% of the capital stock of Kayu. Upon completion of these transactions, SIII will own 100% of Kayu.

The Company has the right to terminate the agreements to acquire the issued capital stock of Kayu and cancel the associated convertible debentures if the vendors do not complete certain closing conditions.

 

As of the filing date, the closing conditions in the Kayu agreement have not yet been met, and the convertible debentures have not been issued to the Shareholders.

 

Marriott:

In August 2016, the Company entered into agreements to acquire 50% of the issued capital stock of Par-San Turizm A.S. (“Par-San”), a Turkish company that is the owner of a Marriott Renaissance Hotel in Izmir, Turkey (the “Marriott”). In consideration for the Par-San shares, the Company agreed to issue convertible debentures in the amount of $44,365,532 to Najibi Investment Trading FZC, G7 Entertainment Incorporated, SOHA Investment & Partners, and Royaltun General Trading L.L.C. (collectively “Shareholders”), the shareholders of Par-San.

On October 14, 2016, the Company and the Shareholders mutually agreed to terminate their agreements and cancel the associated convertible debentures. At the same time, the Company and the Shareholders entered into new agreements to acquire 50% of the issued capital stock of Par-San. In consideration for the Par-San shares, the Company agreed to issue convertible debentures in the amount of $47,400,000 to the Shareholders. This is a related party transaction as Mr. Abbas Salih is a Director and Officer, as well as the controlling shareholder, of SIII and has an ownership interest in and/or control of the Shareholders.

 

The closing of the new agreement is subject to certain conditions, which have not yet been met. The Company has the right to terminate the new agreements and cancel the associated debentures if the closing conditions are not met in a reasonable amount of time.

 

All of the above mentioned convertible debentures have the following terms:

 

a)

Non-interest bearing.

b)

Mature on December 31, 2021 (the “Maturity Date”).

c)

At any time prior to the Maturity Date, the convertible debenture holder may convert the debenture into common stock of the Company at a price of $1.00 per share.

d)

The convertible debenture will automatically convert into common stock upon the closing price of the Company’s common stock closing above $1.00 per share for 20 consecutive trading days.

 

The Company has not yet determined the accounting treatment for the above mentioned series of transactions.

 

STRATEGIC INTERNET INVESTMENTS, INCORPORATED

NOTES TO THE FINANCIAL STATEMENTS

June 30, 2017

(Expressed in U.S. Dollars)

 (Unaudited)

 

10.

Subsequent Events

 

Subsequent to June 30, 2017:

 

a)

The Company was advanced $3,564 by a director to pay certain service providers. The advance is unsecured, non-interest bearing and repayable on demand.

b)

The Company agreed to issue 1,680,000 restricted common shares at $0.05 per share, for a total consideration of $84,000, as partial settlement of debts due to a director of the Company, in respect of unpaid management fees payable totaling $45,000, plus $39,000 of loans payable. These shares have not yet been issued.

2.

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

The following discussion should be read in conjunction with our unaudited 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 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 Operations

The Company has been devoting its business efforts to real estate development projects located in Europe and the Middle East. The Company will continue to explore new investment opportunities, including real estate development projects, during its 2017 and 2018 fiscal years.

 

Skytower Hotel Atayol

 

On August 9, 2016, SIII entered into a Securities Purchase Agreement (the “Kayu Agreement”) to acquire 60% of the issued capital stock Kayu Tekstil Sanayi Ve Ticaret Limited Sirketi (“Kayu”), a Turkish company, from Najibi Investment Trading FZC (hereinafter “Najibi”), G7 Entertainment Incorporated, (hereinafter “G7”), Royaltun General Trading LLC., (hereinafter “Royaltun”), and Soha Investment Inc., (hereinafter “Soha) (jointly hereinafter the “Shareholders”). In consideration for the Kayu shares, the Company agreed to issue convertible debentures in the amount of $30,205,939 to the Shareholders of Kayu. This is a related party transaction as Mr. Abbas Salih is a Director and Officer, as well as the controlling shareholder, of SIII and has an ownership interest in and/or control of the Shareholders. Kayu has an agreement to acquire the Skytower Hotel Atayol in Akcakoca, Turkey (the “Skytower Property”), subject to the successful discharge of a debt on the Skytower Property and the transfer of title to Kayu.

 

Upon discharge of the debt on the Skytower Property, the Company will issue convertible debentures in the amount of $12,656,768 to Najibi, a Company that settled the existing debt on the Skytower Property.

 

Upon transfer of the Skytower Property title to Kayu, the Company will issue convertible debentures in the amount of $20,137,293 to a shareholder of Kayu to acquire the remaining 40% of the capital stock of Kayu. Upon completion of these transactions, SIII will own 100% of Kayu.

 

The Company has the right to terminate the agreements to acquire the issued capital stock of Kayu and cancelled the associated debentures if the shareholders do not complete certain closing conditions. As of the filing date, the closing conditions in the Kayu agreement of not yet been met, and the convertible debentures have not been issued to the shareholders.

 

Any additional funding that maybe required to complete the Skytower Property transaction has not yet been fully secured, there can be no assurances the transactions will proceed and SIII management cautions investors of this risk.

 

Marriott Renaissance Izmir Hotel

 

On August 30, 2016, the Company entered into Securities Purchase Agreements (“SPAs”) with Najibi Investment Trading FZC, G7 Entertainment Incorporated, SOHA Investment & Partners, and Royaltun General Trading L.L.C. (the “Investors”). These SPAs were entered into in connection with the acquisition of 50% of the stock of Par-San Turizm Anonim Sirketi (“Par-San”), which owns the Marriott Renaissance Izmir Hotel in Izmir, Turkey (the “Marriott”). The Investors are related parties to our Chief Executive Officer and Director, Abbas Salih, as a result of Mr. Salih’s ownership interest in and/or control of the Investors.

 

Pursuant to the SPAs, we issued convertible debentures (“Debentures”) equal to 50% of the difference between $65 million minus the approximately $23,731,064 million debt owed to T.C. Ziraat Bankasi A.S. (the “Ziraat Bank Debt”). In exchange for these Debentures, the Investors sold and transferred their 50% ownership in Par-San to the Company. In

addition, the Company issued a Debenture in the amount of $23,731,064 to Najibi Investment Trading FZC in exchange for Najibi Investment Trading FZC agreeing to pay the Ziraat Bank Debt in full.

 

On October 14, 2016, the Company and the Investors entered into a Securities Exchange Agreement whereby they agreed to cancel the original SPAs and the Debentures and enter into new SPAs (the “New SPAs”) for the issuance of new, amended Debentures (the “New Debentures”) in the principal amount of $47,400,000.

 

Under the New SPAs, the Company and the Investors agreed that the closing of the purchase of 50% of Par-San (the “Closing”) will occur upon the delivery of certain documents and the occurrence of other events, the most important of which are:

 

·            Payment in full of the Ziraat Bank Debt and written confirmation thereof

·            Release of all liens on the Marriott hotel

·            Transfer of 50% of the stock of Par-San to the Company

·            Payment of $3,000,000 to the Company for working capital

 

If the Ziraat Bank Debt is not satisfied within a reasonable amount of time, as determined by the Company, the Company can cancel the New SPAs.

 

In preparation for Closing, the Company has executed the New Debentures; however, they are not binding obligations of the Company until all closing conditions are satisfied or waived by the Company.

 

The Company is working diligently toward Closing and intends to close the above transactions as soon as possible.

 

Any funding that maybe required to complete the Marriott hotel transaction has not yet been fully secured, there can be no assurances the transaction will proceed and SIII management cautions investors of this risk.

Our estimated cash expenses over the next twelve months are as follows, not including any impact of the prior transactions closing:

 

 

Accounting, audit, and legal fees	$	63,000
General and administrative expenses		6,000
Interest		7,000
Management fees		4,000
Regulatory and transfer agent fees		13,000
	$	93,000

 

The Company also estimates it will continue to accrue interest expense of $108,000 over the next 12 months on loans due to related parties. It is not anticipated the related party interest will be paid in cash during 2017, and therefore related party interest has been excluded from the above list of cash expenses.

 

The Company has not yet determined a cash operating budget for the Skytower or Marriott hotel properties.

 

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 $1,770,100. 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 progress 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

 

Three Months ended June 30, 2017 and 2016

 

During the quarter ended June 30, 2017, the Company incurred general and administrative expenses totaling $97,785 compared to $9,018 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 expenses for the three month period ended June 30, 2017 when compared to the three month period ended June 30, 2016 was primarily due to:

a)

Accounting fees increased $1,407 and audit fees increased $3,855. This was mainly due to the timing of these expenses compared to the prior 2016 period.

b)

Legal fees increased $36,109 due to accrued legal fees for services rendered in connection with the Marriott hotel transaction. (see above “Plan of Operations”)

c)

Management fees relate to a director engaged in October 2012 to provide general management and administrative services. This director was remunerated by fees of $20 per hour for time spent directly managing the Company’s affairs; he charged the Company $1,000 in both of the three month periods ending June 30, 2017 and 2016. In addition, the Company granted a director a one time management bonus of $37,500 in recognition of his services to the Company in advancing its business activities. The Company also agreed to pay the director an ongoing monthly management fee of $2,500 per month effective April 1, 2017. There were no similar charges in the comparative 2016 period.

d)

Regulatory fees relate to charges by EDGAR (USA) and SEDAR (Canada) regulatory filing service providers for making submissions to the regulatory authorities, as well as fees paid to the regulators themselves. Regulatory fees for the 2016 period was $560 higher because in 2017 the Company is no longer required to make regulatory filings in Canada. And in 2016 the Company’s annual 10-K report was filed, and a $1,739 fee incurred in the 2016 Q1 period, while in 2017 the 10-K was not filed until the Q2 period.

e)

The transfer agent fees increased by $225 due to an increase in the transfer agent’s rates.

f)

Interest on loans increased by $2,683; this is attributed to the compounding effect of the quarterly interest calculation as the Company has not been making any payments on these debts.

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; plus loans and equity investments from third parties.

 

Six Months ended June 30, 2017 and 2016

 

During the quarter ended June 30, 2017, the Company incurred general and administrative expenses totaling $108,771 compared to $33,453 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 expenses for the six month period ended June 30, 2017 when compared to the six month period ended June 30, 2016 was primarily due to:

a)

Accounting and audit fees decreased $6,861. This was due to minimal changes in our business activities.

b)

Legal fees increased $35,833 due to accrued legal fees for services rendered in connection with the Marriott hotel transaction. (see above “Plan of Operations”)

c)

Management fees relate to a director engaged in October 2012 to provide general management and administrative services. This director was remunerated by fees of $20 per hour for time spent directly managing the Company’s affairs; he charged the Company $2,000 in both of the six month periods ending June 30, 2017 and 2016.

In addition, the Company granted a director a one time management bonus of $37,500 in recognition of his services to the Company in advancing its business activities. The Company also agreed to pay the director an ongoing monthly management fee of $2,500 per month effective April 1, 2017. There were no similar charges in the comparative 2016 period.

d)

Regulatory fees relate to charges by EDGAR (USA) and SEDAR (Canada) regulatory filing service providers for making submissions to the regulatory authorities, as well as fees paid to the regulators themselves. Regulatory fees for the 2016 period was $560 higher because in 2017 the Company is no longer required to make regulatory filings in Canada. However a this savings was partially offset by higher EDGAR filing fees in 2017.

e)

The transfer agent fees increased by $450 due to an increase in the transfer agent’s rates.

f)

Interest on loans increased by $5,005; this is attributed to the compounding effect of the quarterly interest calculation as the Company has not been making any payments on these debts.

Liquidity and Capital Resources

As of June 30, 2017, the Company had total current assets of $381 and total liabilities of $1,770,100. The Company had cash of $381 and a working capital deficiency of $1,769,719 as of June 30, 2017 compared to cash on hand of $375 and a working capital deficiency of $1,605,799, for the year ended December 31, 2016. We anticipate that we will incur approximately $93,000 for cash operating expenses, including professional, legal and accounting expenses associated with our reporting requirements under the Exchange Act during the next twelve months. The Company has not yet determined a cash operating budget for the potential transaction for the Marriott and/or the Skytower properties.

In addition to funding the Company’s general, administrative and corporate expenses the Company is obligated to address its current obligations totaling $1,770,100. 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 period ended June 30, 2017 was $24,622 as compared to cash used by operating activities for the same period in 2016 of $14,052.  The increase in cash used in operating activities was primarily due the increase in our net loss.

Subsequent to June 30, 2017, the Company agreed to issue 1,680,000 restricted common shares at $0.05 per share, for a total consideration of $84,000, as partial settlement of debts due to a director of the Company, in respect of unpaid management fees payable totaling $45,000, plus $39,000 of loans payable. These shares have not yet been issued.

 

The Company has the following loans outstanding as of June 30, 2017:

A $6,802 loan is payable to a company controlled by a director of the Company plus accrued interest of $22,136. This loan is unsecured, bearing interest at 12% per annum and is repayable on demand.

Loans totaling $326,075 are payable to a company controlled by a director of the Company. These loans are unsecured, non-interest bearing, and repayable upon demand.

Loans totaling $7,477 are payable to a company controlled by a former director of the Company. These loans are unsecured, non-interest bearing, and repayable upon demand.

Loans totaling $68,512 are payable to a director of the Company. These loans are unsecured, non-interest bearing, and repayable upon demand.

 

A $163,766 loan is payable to a company controlled by a former director of the Company, plus accrued interest payable of $256,683 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 any time 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 $255,209 loan is payable to a company controlled by a director of the Company, plus accrued interest of $386,825 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 any time 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.

On January 5, 2014 Company entered into a Convertible Loan Agreement and issued a convertible note for $50,000. This loan is unsecured, bearing interest at 10% per annum, and was repayable at maturity on January 7, 2015, or on demand after that date. At any time, the lender may convert the principle amount of the loan into units of the Company, each unit consisting of one common share and one non-transferable share purchase warrant, at a conversion rate of $0.20 per unit. Each share purchase warrant entitles the holder to purchase one additional common share for a period of two years from the warrant issue date, at an exercise price of $0.20 during the first year, and $0.35 during the second year. As of June 30, 2017, $19,695 was accrued in interest on the note.

 

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 June 30, 2017, we had cash of $381 and we estimate that we will require approximately $93,000 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 $1,770,100. 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 2 of our June 30, 2017 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 June 30, 2017, we had cash of $381 and we estimate that we will require approximately $93,000 to fund our business operations over the next twelve months. The Company has not yet determined a cash operating budget for the Marriott or the Skytower hotel properties. In addition to funding the Company’s general, administrative and corporate expenses the Company is obligated to address its current obligations totaling $1,770,100. 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 has the following 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.

 

·

Marriott: In exchange for a Debenture of $23,700,000, Najibi Investments has agreed to pay off the mortgage debt encumbering the Hotel, once the transaction closes. This Debenture will not become a valid obligation of SIII until the transaction is closed.

 

·

SkyTower: In exchange for a Debenture of $12,656,768, Najibi Investments has agreed to pay off the debt encumbering the SkyTower Hotel once the transaction closes. This Debenture will not become a valid obligation of SIII until the transaction is closed.

 

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 June 30, 2017, 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.

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 June 30, 2017 that have materially affected or are reasonably likely to materially affect, our internal control over financial reporting.

 

Part II – Other Information

 

1.

Legal Proceedings 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

 

Our Company is a "smaller reporting company" as defined by Rule 12b-2 of the Exchange Act, and as such, is not required to provide the information required under this Item.

 

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 June 30, 2017, 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 June 30, 2017. 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 former 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 June 30, 2017, 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 June 30, 2017. This transaction is with an offshore non-U.S. person; accordingly, these securities are exempt from registration pursuant to Regulation S.

 

On January 5, 2014, the Company entered into a Convertible Loan Agreement to borrow $50,000 operating funds, at an interest rate of 10%, repayable on demand. At any, the lender may convert the principle amount of the loan into units of the Company, each unit consisting of one common share and one non-transferable share purchase warrant, at a conversion rate of $0.20 per unit. Each share purchase warrant is entitles the holder to purchase one additional common share for at period of two years from the warrant issue date, at an exercise price of $0.20 during the first year, and $0.35 during the second year. This transaction is with an offshore non-U.S. person; accordingly, these securities are exempt from registration pursuant to Regulation S.

 

On February 13, 2015, the Company issued 1,500,000 restricted common shares for $80,000 cash. This transaction is with an offshore non-U.S. person; accordingly, these securities are exempt from registration pursuant to Regulation S, however they are restricted under Rule 144.

 

On June 25, 2015, the Company issued 2,000,000 restricted common shares for $160,000 cash. This transaction is with an offshore non-U.S. person; accordingly, these securities are exempt from registration pursuant to Regulation S, however they are restricted under Rule 144.

 

 

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 June 30, 2017.

 

 

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:	August 9, 2017		/s/ Abbas Salih
			Abbas Salih, CEO, CFO, Director