The accompanying notes are an integral part
of these unaudited financial statements.
The accompanying notes are an integral part
of these unaudited financial statements.
The accompanying notes are an integral part
of these unaudited financial statements.
NOTES TO THE FINANCIAL STATEMENTS
June 30, 2017
(
Expressed in U.S. Dollars
)
(
Unaudited
)
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.
|
|
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
)
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
)
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:
|
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
)
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.
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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.
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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.
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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.
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3.
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Quantitative and Qualitative Disclosures About Market Risk
The Company has no market risk sensitive instruments.
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4.
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Controls and Procedures
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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.