REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of Pocket Games, Inc.
Opinion on the Financial Statements
We have audited the accompanying
balance sheets of Pocket Games, Inc. (the Company) as of October 31, 2016 and 2015, and the related statements of income, stockholders’
equity, and cash flows for each of the years in the two-year period ended October 31, 2016, and the related notes and schedules
(collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material
respects, the financial position of the Company as of October 31, 2016 and 2015, and the results of its operations and its cash
flows for each of the years in the two-year period ended October 31, 2016, in conformity with accounting principles generally accepted
in the United States of America.
Basis for Opinion
These financial statements
are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial
statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United
States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws
and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in
accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required
to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are
required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion
on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing
procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing
procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and
disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide
a reasonable basis for our opinion.
The accompanying financial statements
have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements,
the Company suffered a net loss from operations and has a net capital deficiency, which raises substantial doubt about its ability
to continue as a going concern. Management's plans regarding those matters are also described in Note 2. The financial statements
do not include any adjustments that might result from the outcome of this uncertainty.
/s/ M&K CPAS, PLLC
We have served as the Company’s
auditor since 2014.
Houston, TX
October 5, 2018
|
POCKET GAMES, INC.
|
|
CONDENSED BALANCE SHEETS
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
October 31,
|
|
October 31,
|
|
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
CURRENT ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
4,141
|
|
|
$
|
24,404
|
|
|
Loan origination costs
|
|
|
—
|
|
|
|
25,675
|
|
|
Other assets
|
|
|
—
|
|
|
|
1,745
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Current Assets
|
|
|
4,141
|
|
|
|
51,824
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed assets, net
|
|
|
—
|
|
|
|
4,420
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
4,141
|
|
|
$
|
56,244
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Judgement payable
|
|
$
|
1,068,339
|
|
|
$
|
—
|
|
|
Accounts payable
|
|
|
30,373
|
|
|
|
49,834
|
|
|
Accrued expenses, related parties
|
|
|
11,983
|
|
|
|
13,224
|
|
|
Accrued expenses
|
|
|
83,469
|
|
|
|
31,762
|
|
|
Accrued compensation
|
|
|
42,000
|
|
|
|
131,923
|
|
|
Loans payable, related parties
|
|
|
64,106
|
|
|
|
14,781
|
|
|
Derivative liability
|
|
|
402,542
|
|
|
|
1,369,662
|
|
|
Convertible debenture, net of discount of
|
|
|
|
|
|
|
|
|
|
$76,133 and $298,497, respectively
|
|
|
756,887
|
|
|
|
240,452
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Current Liabilities
|
|
|
2,459,699
|
|
|
|
1,851,638
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES
|
|
|
2,459,699
|
|
|
|
1,851,638
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS' EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock, $0.0001 par value; 1,000,000,000 shares authorized
|
|
|
|
|
|
|
|
|
|
Preferred stock designated, Series AA, $0.0001 par value, 1,000 and -0-
|
|
|
|
|
|
|
|
|
|
shares issued and outstanding, respectively
|
|
|
—
|
|
|
|
—
|
|
|
Preferred stock designated, Series B, $0.0001 par value, -0- and 320,000
|
|
|
|
|
|
|
|
|
|
shares issued and outstanding, respectively
|
|
|
—
|
|
|
|
—
|
|
|
Preferred stock designated, Series C, $0.0001 par value, -0- and 270,000
|
|
|
|
|
|
|
|
|
|
shares issued and outstanding, respectively
|
|
|
—
|
|
|
|
—
|
|
|
Common stock, $0.0001 par value; 50,000,000,000 shares authorized,
|
|
|
|
|
|
|
|
|
|
816,601,647 and 24,339,929 shares issued and outstanding, respectively
|
|
|
81,660
|
|
|
|
2,434
|
|
|
Additional paid-in capital
|
|
|
4,725,195
|
|
|
|
3,821,210
|
|
|
Subscriptions payable
|
|
|
1,500
|
|
|
|
—
|
|
|
Accumulated deficit
|
|
|
(7,263,913
|
)
|
|
|
(5,618,984
|
)
|
|
Accumulated other comprehensive loss
|
|
|
—
|
|
|
|
(54
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total Stockholders' Equity (Deficit)
|
|
|
(2,455,558
|
)
|
|
|
(1,795,394
|
)
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
|
|
$
|
4,141
|
|
|
$
|
56,244
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
|
|
POCKET GAMES, INC.
|
|
CONDENSED STATEMENTS OF OPERATIONS
|
|
|
|
|
|
For the Years Ended
|
|
|
|
October 31,
|
|
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
REVENUES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues, related parties
|
|
$
|
3,332
|
|
|
$
|
6,608
|
|
|
Revenues
|
|
|
—
|
|
|
|
17,766
|
|
|
Cost of revenues
|
|
|
(10,942
|
)
|
|
|
(32,824
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit (loss)
|
|
|
(7,610
|
)
|
|
|
(8,450
|
)
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
229,465
|
|
|
|
136,065
|
|
|
Officer compensation
|
|
|
145,606
|
|
|
|
281,533
|
|
|
Professional fees
|
|
|
382,284
|
|
|
|
584,230
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Operating Expenses
|
|
|
757,355
|
|
|
|
1,001,828
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS FROM OPERATIONS
|
|
|
(764,965
|
)
|
|
|
(1,010,278
|
)
|
|
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSES)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on deconsolidation
|
|
|
(1,068,339
|
)
|
|
|
—
|
|
|
Other income
|
|
|
—
|
|
|
|
2,070
|
|
|
Gain (Loss) on change in fair value of derivative liability
|
|
|
1,247,736
|
|
|
|
(1,072,689
|
)
|
|
Interest expense
|
|
|
(892,188
|
)
|
|
|
(349,704
|
)
|
|
Loss on settlement of debt
|
|
|
(167,169
|
)
|
|
|
(26,530
|
)
|
|
Loss on foreign currency transactions
|
|
|
—
|
|
|
|
(2,314
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total Other Income (Expenses)
|
|
|
(879,960
|
)
|
|
|
(1,449,167
|
)
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS BEFORE INCOME TAXES
|
|
|
(1,644,925
|
)
|
|
|
(2,459,445
|
)
|
|
|
|
|
|
|
|
|
|
|
|
PROVISION FOR INCOME TAXES
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS
|
|
$
|
(1,644,925
|
)
|
|
$
|
(2,459,445
|
)
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS PER SHARE, BASIC AND FULLY DILUTED
|
|
$
|
(0.00
|
)
|
|
$
|
(0.13
|
)
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE NUMBER OF
|
|
|
|
|
|
|
|
|
|
SHARES OUTSTANDING, BASIC AND FULLY DILUTED
|
|
|
339,540,915
|
|
|
|
19,311,709
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
|
|
POCKET GAMES, INC.
|
|
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
|
|
From November 1, 2014 through October 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
Series A
|
|
|
|
Additional
|
|
|
|
|
|
Other
|
|
Total
|
|
|
|
Preferred Stock
|
|
Common Stock
|
|
Paid-In
|
|
Subscriptions
|
|
Accumulated
|
|
Comprehensive
|
|
Stockholders'
|
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Payable
|
|
Deficit
|
|
Income
|
|
Equity (Deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, November 1, 2014
|
|
|
1,000
|
|
|
|
—
|
|
|
|
15,540,000
|
|
|
|
1,554
|
|
|
|
2,945,426
|
|
|
|
10,878
|
|
|
|
(3,159,539
|
)
|
|
|
—
|
|
|
|
(201,681
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for subscriptions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
payable
|
|
|
—
|
|
|
|
—
|
|
|
|
155,400
|
|
|
|
16
|
|
|
|
10,862
|
|
|
|
(10,878
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for services
|
|
|
—
|
|
|
|
—
|
|
|
|
4,295,000
|
|
|
|
430
|
|
|
|
470,802
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
471,232
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for accrued compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
907,850
|
|
|
|
91
|
|
|
|
67,099
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
67,190
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for cash
|
|
|
—
|
|
|
|
—
|
|
|
|
1,230,000
|
|
|
|
123
|
|
|
|
12,177
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
12,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for conversion of debt
|
|
|
—
|
|
|
|
—
|
|
|
|
2,211,679
|
|
|
|
221
|
|
|
|
49,947
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
50,168
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of stock options
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
16,614
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
16,614
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beneficial conversion feature of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
convertible debenture
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
180,959
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
180,959
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlement of derivative due to conversion
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and repayment of convertible debt
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
66,913
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
66,913
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(54
|
)
|
|
|
(54
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Donated Capital
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
411
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
411
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for the year ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31, 2015
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(2,459,445
|
)
|
|
|
—
|
|
|
|
(2,459,445
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, October 31, 2015
|
|
|
1,000
|
|
|
$
|
—
|
|
|
|
24,339,929
|
|
|
$
|
2,435
|
|
|
$
|
3,821,210
|
|
|
$
|
—
|
|
|
$
|
(5,618,984
|
)
|
|
$
|
(54
|
)
|
|
$
|
(1,795,394
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for services
|
|
|
—
|
|
|
|
—
|
|
|
|
54,400,000
|
|
|
|
5,440
|
|
|
|
310,636
|
|
|
|
1,500
|
|
|
|
—
|
|
|
|
—
|
|
|
|
317,576
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for conversion of debt
|
|
|
—
|
|
|
|
—
|
|
|
|
737,861,718
|
|
|
|
73,786
|
|
|
|
177,646
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
251,432
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on conversion of debt
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
167,169
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
167,169
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlement of derivative liabilities
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
248,534
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
248,534
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(4
|
)
|
|
|
54
|
|
|
|
50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income for the year ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31, 2016
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,644,925
|
)
|
|
|
—
|
|
|
|
(1,644,925
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, October 31, 2016
|
|
|
1,000
|
|
|
$
|
—
|
|
|
|
816,601,647
|
|
|
$
|
81,660
|
|
|
$
|
4,725,195
|
|
|
$
|
1,500
|
|
|
$
|
(7,263,913
|
)
|
|
$
|
—
|
|
|
$
|
(2,455,558
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
|
|
POCKET GAMES, INC.
|
|
CONDENSED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
For the Years Ended
|
|
|
|
October 31,
|
|
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,644,925
|
)
|
|
$
|
(2,459,445
|
)
|
|
Adjustments to reconcile net loss to net cash
|
|
|
|
|
|
|
|
|
|
used by operating activities:
|
|
|
|
|
|
|
|
|
|
Amortization of loan origination costs
|
|
|
39,044
|
|
|
|
—
|
|
|
Amortization of discount on convertible debenture
|
|
|
766,753
|
|
|
|
288,162
|
|
|
Contributed capital, related party
|
|
|
—
|
|
|
|
411
|
|
|
Depreciation expense
|
|
|
—
|
|
|
|
296
|
|
|
Shares issued for services, related parties
|
|
|
—
|
|
|
|
227,490
|
|
|
Shares issued for services
|
|
|
317,576
|
|
|
|
310,483
|
|
|
Interest expense for note derivative
|
|
|
—
|
|
|
|
16,614
|
|
|
Loss on settlement of debt
|
|
|
167,169
|
|
|
|
—
|
|
|
(Gain) Loss on change in fair value of derivative liabilities
|
|
|
(1,247,736
|
)
|
|
|
1,072,689
|
|
|
Loss on deconsolidation
|
|
|
1,068,339
|
|
|
|
—
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
Other current assets
|
|
|
(37,299
|
)
|
|
|
(24,692
|
)
|
|
Accounts payable
|
|
|
(18,659
|
)
|
|
|
22,430
|
|
|
Accrued expenses, related parties
|
|
|
(1,240
|
)
|
|
|
9,153
|
|
|
Accrued expenses
|
|
|
51,708
|
|
|
|
33,667
|
|
|
Accrued officer compensation
|
|
|
(89,923
|
)
|
|
|
(18,756
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Used by Operating Activities
|
|
|
(629,193
|
)
|
|
|
(521,498
|
)
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net affect of unwinding of acquisitions
|
|
|
219,951
|
|
|
|
—
|
|
|
Payments for purchase of fixed assets
|
|
|
—
|
|
|
|
(4,716
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Used by Investing Activities
|
|
|
219,951
|
|
|
|
(4,716
|
)
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments on convertible debt
|
|
|
(27,500
|
)
|
|
|
(134,000
|
)
|
|
Payments on loans payable, related parties
|
|
|
(10,875
|
)
|
|
|
(5,500
|
)
|
|
Proceeds from loans payable, related parties
|
|
|
18,000
|
|
|
|
4,492
|
|
|
Proceeds from sale of common stock
|
|
|
—
|
|
|
|
12,300
|
|
|
Proceeds from convertible debenture
|
|
|
409,300
|
|
|
|
672,950
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided by Financing Activities
|
|
|
388,925
|
|
|
|
550,242
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation
|
|
|
54
|
|
|
|
(54
|
)
|
|
|
|
|
|
|
|
|
|
|
|
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
|
|
(20,263
|
)
|
|
|
23,974
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
|
|
|
24,404
|
|
|
|
430
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS AT END OF PERIOD
|
|
$
|
4,141
|
|
|
$
|
24,404
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Cash paid for income taxes
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative on convertible notes
|
|
$
|
—
|
|
|
$
|
363,886
|
|
|
Stock issued for conversion of debt
|
|
$
|
251,432
|
|
|
$
|
50,167
|
|
|
Settlement of derivative
|
|
$
|
248,534
|
|
|
$
|
66,913
|
|
|
Discount on beneficial conversion feature of
|
|
|
|
|
|
|
|
|
|
convertible debentures
|
|
$
|
—
|
|
|
$
|
180,959
|
|
|
Stock issued for stock payable
|
|
$
|
—
|
|
|
$
|
10,878
|
|
|
Discount due to derivatives
|
|
$
|
529,150
|
|
|
$
|
—
|
|
|
Accounts payable converted to notes payable
|
|
$
|
216,339
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
|
POCKET GAMES, INC.
Notes to the Consolidated Financial Statements
October 31, 2016 and 2015
Note 1 - Nature of Business and Significant
Accounting Policies
Nature of Business
Pocket Games, Inc. (the “Company”)
was incorporated on October 4, 2013 (“Inception”) under the laws of the State of Florida. The Company is engaged in
the development, marketing and sale of interactive games for mobile devices, tablets and computers. The Company has limited customers
and products and revenues to date.
We develop games and provide end-end services
for software and application development. We also have a dedicated division for server support and cloud management. Our clients
rely on us to support their core IT architecture and provide 24/7 support for their business critical infrastructure
The Company has adopted a fiscal year end of
October 31.
JOBS Act
The Company is an “emerging growth company”
as defined in the recently-enacted JOBS Act, and is eligible to take advantage of certain exemptions from various reporting and
disclosure requirements that are applicable to public companies that are not “emerging growth companies.” As an “emerging
growth company” under the JOBS Act, the Company is permitted to, and intends to, rely on exemptions from certain reporting
and disclosure requirements, which may make our future public filings different than that of other public companies.
Section 107 of the JOBS Act provides that an
“emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the
Securities Act for complying with new or revised accounting standards. In other words, an “emerging growth company”
can delay the adoption of certain new accounting standards until those standards would otherwise apply to private companies. The
Company has elected to use the extended transition period for complying with new or revised accounting standards under Section
102(b)(2) of the JOBS Act, that allows the Company to delay the adoption of new or revised accounting standards that have different
effective dates for public and private companies until those standards apply to private companies. As a result of this election,
the Company’s financial statements may not be comparable to companies that comply with public company effective dates.
The Company will remain an “emerging
growth company” until the earliest of: (i) the last day of the fiscal year during which we had total annual gross revenues
of $1 billion or more, (ii) the last day of the fiscal year following the fifth anniversary of the date of the first sale of our
common stock pursuant to an effective registration statement, (iii) the date on which the Company has, during the previous 3-year
period, issued more than $1 billion in non-convertible debt or (iv) the date on which the Company is deemed a “large accelerated
filer” as defined under the federal securities laws.
Use of Estimates
The preparation of financial statements in
conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities, and the disclosure of contingent assets and liabilities at the date
of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could
differ from those estimates.
Segment Reporting
Under FASB ASC 280-10-50, the Company operates
as a single segment and will evaluate additional segment disclosure requirements as it expands its operations.
POCKET GAMES, INC.
Notes to the Consolidated Financial Statements
October 31, 2016 and 2015
Fair Value of Financial Instruments
Under FASB ASC 820-10-05, the Financial Accounting
Standards Board establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures
about fair value measurements. This Statement reaffirms that fair value is the relevant measurement attribute. The adoption of
this standard did not have a material effect on the Company’s financial statements as reflected herein. The carrying amounts
of cash, accounts payable and accrued interest reported on the balance sheet are estimated by management to approximate fair value
primarily due to the short term nature of the instruments. The Company also had debt instruments that required fair value measurement
on a recurring basis.
Foreign Currency Transactions
The Company translates foreign currency transactions
to the Company's functional currency (United States Dollar), at the exchange rate effective on the invoice date. If the exchange
rate changes between the time of purchase and the time actual payment is made, a foreign exchange transaction gain or loss results
which is included in determining net income for the period.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash and
short-term highly liquid investments purchased with original maturities of three months or less. Cash and cash equivalents at October
31, 2016 and 2015 were $4,141 and $24,404, respectively.
Accounts Receivable and Allowance for Doubtful
Accounts
Accounts receivable may result from our product
sales or outsourced application development services. Management must make estimates of the uncollectability of accounts receivables.
Management specifically analyzed customer concentrations, customer credit-worthiness, current economic trends and changes in customer
payment terms when evaluating the adequacy of the allowance for doubtful accounts.
Loan Origination Costs
Loan origination costs consist of legal fees
and the associated costs of debt financing. The costs are being amortized over the life of the debt associated with each cost.
During the year ended October 31, 2016, the Company recorded amortization expense of $39,044 which is included in interest expense
on the statement of operations. As of October 31, 2016, the Company had $9,631 of unamortized loan origination costs.
Revenue Recognition
The Company generates revenue from three sources;
sale of game applications, sale of advertising provided with games, and outsourced application development services. The Company
recognizes revenue using four basic criteria that must be met before revenue can be recognized: (1) persuasive evidence of an arrangement
exists; (2) delivery has occurred; (3) the selling price is fixed and determinable; and (4) collectability is reasonably assured,
which is typically after receipt of payment and delivery, net of any credit card charge-backs and refunds. Determination of criteria
(3) and (4) are based on management’s judgment regarding the fixed nature of the selling prices of the products delivered
and the collectability of those amounts. Provisions for discounts and rebates to customers, estimated returns and allowances, and
other adjustments are provided for in the same period the related sales are recorded. The Company defers any revenue for which
the product has not been delivered or is subject to refund until such time that the Company and the customer jointly determine
that the product has been delivered or no refund will be required. Revenues on advertising are deferred and recognized ratably
over the advertising period.
POCKET GAMES, INC.
Notes to the Consolidated Financial Statements
October 31, 2016 and 2015
Effective November 1, 2018, the Company will
adopt ASC 606 — Revenue from Contracts with Customers. Under ASC 606, the Company recognizes revenue from the commercial
sales of products, licensing agreements and contracts to perform pilot studies by applying the following steps: (1) identify the
contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate
the transaction price to each performance obligation in the contract; and (5) recognize revenue when each performance obligation
is satisfied. For the comparative periods, revenue has not been adjusted and continues to be reported under ASC 605 — Revenue
Recognition. Under ASC 605, revenue is recognized when the following criteria are met: (1) persuasive evidence of an arrangement
exists; (2) the performance of service has been rendered to a customer or delivery has occurred; (3) the amount of fee to be paid
by a customer is fixed and determinable; and (4) the collectability of the fee is reasonably assured.
There was no impact on the Company’s
financial statements as a result of adopting Topic 606 for the years ended October 31, 2016 and 2015.
Concentration of
Revenue
Total revenue recognized was $3,332 and $24,374
for the years ended October 31, 2016 and 2015, respectively. The Company entered into a contract with a related party during the
fiscal year ended October 31, 2015, whereby, the Company will perform testing on games and application. The revenue recognized
as a result of this agreement is $3,332 and $6,608 for the years ended October 31, 2016 and 2015, respectively.
Software Development Costs
Costs incurred in connection with the development
of software products are accounted for in accordance with the Financial Accounting Standards Board Accounting Standards Codification
("ASC") 985
“Costs of Software to Be Sold, Leased or Marketed.”
Costs incurred prior to the establishment
of technological feasibility are charged to research and development expense. Software development costs are capitalized after
a product is determined to be technologically feasible and is in the process of being developed for market but may be expensed
if the Company is in the development stage. Amortization of capitalized software development costs begins upon initial product
shipment. Capitalized software development costs are amortized over the estimated life of the related product (generally thirty-six
months), using the straight-line method. The Company evaluates its software assets for impairment whenever events or change in
circumstances indicate that the carrying amount of such assets may not be recoverable. Recoverability of software assets to be
held and used is measured by a comparison of the carrying amount of the asset to the future net undiscounted cash flows expected
to be generated by the asset. If such software assets are considered to be impaired, the impairment to be recognized is the excess
of the carrying amount over the fair value of the software asset. During the years ended October 31, 2016 and 2015, the Company
did not capitalize any software development costs.
Advertising and Promotion
All costs associated with advertising and promoting
products are expensed as incurred.
Research and Development
Expenditures for research and product development
costs are expensed as incurred. The Company has expensed development costs of $-0- during the years ended October 31, 2016 and
2015, respectively.
Income Taxes
The Company recognizes deferred tax assets
and liabilities based on differences between the financial reporting and tax basis of assets and liabilities using the enacted
tax rates and laws that are expected to be in effect when the differences are expected to be recovered. The Company provides a
valuation allowance for deferred tax assets for which it does not consider realization of such assets to be more likely than not.
POCKET GAMES, INC.
Notes to the Consolidated Financial Statements
October 31, 2016 and 2015
Basic and Diluted
Loss Per Share
The basic net loss per common share is computed
by dividing the net loss by the weighted average number of common shares outstanding. Diluted net loss per common share is computed
by dividing the net loss adjusted on an “as if converted” basis, by the weighted average number of common shares outstanding
plus potential dilutive securities. For the periods presented, there were no outstanding potential common stock equivalents and
therefore basic and diluted earnings per share result in the same figure.
Stock-Based Compensation
The Company adopted FASB guidance on stock
based compensation. Under FASB ASC 718-10-30-2, all share-based payments to employees, including grants of employee stock options,
to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an alternative. The Company
recognized $317,576 and $537,973 for services and compensation for the years ended October 31, 2016 and 2015, respectively.
Derivative
Liability
The Company evaluates its convertible instruments,
options, warrants or other contracts to determine if those contracts or embedded components of those contracts qualify as derivatives
to be separately accounted for under ASC Topic 815, “Derivatives and Hedging.” The result of this accounting treatment
is that the fair value of the derivative is marked-to-market each balance sheet date and recorded as a liability. In the event
that the fair value is recorded as a liability, the change in fair value is recorded in the statement of operations as other income(expense).
Upon conversion or exercise of a derivative instrument, the instrument is marked to fair value at the conversion date and then
that fair value is reclassified to equity. Equity instruments that are initially classified as equity that become subject to reclassification
under ASC Topic 815 are reclassified to liabilities at the fair value of the instrument on the reclassification date. We analyzed
the derivative financial instruments (the Convertible Note and tainted Warrant), in accordance with ASC 815. The objective is to
provide guidance for determining whether an equity-linked financial instrument is indexed to an entity’s own stock. This
determination is needed for a scope exception which would enable a derivative instrument to be accounted for under the accrual
method. The classification of a non-derivative instrument that falls within the scope of ASC 815-40-05 “Accounting for Derivative
Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock” also hinges on whether the instrument
is indexed to an entity’s own stock. A non-derivative instrument that is not indexed to an entity’s own stock cannot
be classified as equity and must be accounted for as a liability. There is a two-step approach in determining whether an instrument
or embedded feature is indexed to an entity’s own stock. First, the instrument's contingent exercise provisions, if any,
must be evaluated, followed by an evaluation of the instrument's settlement provisions. The Company utilized multinomial lattice
models that value the derivative liability within the notes based on a probability weighted discounted cash flow model. The Company
utilized the fair value standard set forth by the Financial Accounting Standards Board, defined as the amount at which the assets
(or liability) could be bought (or incurred) or sold (or settled) in a current transaction between willing parties, that is, other
than in a forced or liquidation sale.
Recent Accounting
Pronouncements
In June 2014, the Financial Accounting Standards
Board (FASB) issued Accounting Standards Update (ASU) No. 2014-12,
Compensation – Stock Compensation (Topic 718): Accounting
for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service
Period
. The new guidance requires that share-based compensation that require a specific performance target to be achieved in
order for employees to become eligible to vest in the awards and that could be achieved after an employee completes the requisite
service period be treated as a performance condition. As such, the performance target should not be reflected in estimating the
grant-date fair value of the award. Compensation costs should be recognized in the period in which it becomes probable that the
performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite
service
POCKET GAMES, INC.
Notes to the Consolidated Financial Statements
October 31, 2016 and 2015
has already been rendered. If the performance
target becomes probable of being achieved before the end of the requisite service period, the remaining unrecognized compensation
cost should be recognized prospectively over the remaining requisite service period. The total amount of compensation cost recognized
during and after the requisite service period should reflect the number of awards that are expected to vest and should be adjusted
to reflect those awards that ultimately vest. The requisite service period ends when the employee can cease rendering service and
still be eligible to vest in the award if the performance target is achieved. This new guidance is effective for fiscal years and
interim periods within those years beginning after December 15, 2015. Early adoption is permitted. Entities may apply the amendments
in this Update either (a) prospectively to all awards granted or modified after the effective date or (b) retrospectively to all
awards with performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial
statements and to all new or modified awards thereafter. The adoption of ASU 2014-12 is not expected to have a material impact
on our financial position or results of operations.
In June 2014, the FASB issued ASU No. 2014-10:
Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable
Interest Entities Guidance in Topic 810, Consolidation
, to improve financial reporting by reducing the cost and complexity
associated with the incremental reporting requirements of development stage entities. The amendments in this update remove all
incremental financial reporting requirements from U.S. GAAP for development stage entities, thereby improving financial reporting
by eliminating the cost and complexity associated with providing that information. The amendments in this Update also eliminate
an exception provided to development stage entities in Topic 810, Consolidation, for determining whether an entity is a variable
interest entity on the basis of the amount of investment equity that is at risk. The amendments to eliminate that exception simplify
U.S. GAAP by reducing avoidable complexity in existing accounting literature and improve the relevance of information provided
to financial statement users by requiring the application ofthe same consolidation guidance by all reporting entities. The elimination
of the exception may change the consolidation analysis, consolidation decision, and disclosure requirements for a reporting entity
that has an interest in an entity in the development stage. The amendments related to the elimination of inception-to-date information
and the other remaining disclosure requirements of Topic 915 should be applied retrospectively except for the clarification to
Topic 275, which shall be applied prospectively. For public companies, those amendments are effective for annual reporting periods
beginning after December 15, 2014, and interim periods therein. The Company has elected to early adopt these amendments and accordingly
have not labeled the financial statements as those of a development stage entity and have not presented inception-to-date information
on the respective financial statements.
Note 2 - Going Concern
As shown in the accompanying financial statements,
the Company has incurred continuous losses from operations, has an accumulated deficit of $7,263,913, has a negative working capital
of $2,455,558 and has cash on hand of $4,141 as of October 31, 2016, and has generated minimal revenues to date. These factors
raise substantial doubt about the Company’s ability to continue as a going concern. Management is currently seeking additional
sources of capital to fund short term operations through debt or equity investments, including loans from Officers and Directors.
The Company, however, is dependent upon its ability to secure equity and/or debt financing and there are no assurances that the
Company will be successful, therefore, without sufficient financing it would be unlikely for the Company to continue as a going
concern.
The financial statements do not include any
adjustments that might result from the outcome of any uncertainty as to the Company’s ability to continue as a going concern.
The financial statements also do not include any adjustments relating to the recoverability and classification of recorded asset
amounts, or amounts and classifications of liabilities that might be necessary should the Company be unable to continue as a going
concern.
POCKET GAMES, INC.
Notes to the Consolidated Financial Statements
October 31, 2016 and 2015
Note 3 - Fair Value of Financial Instruments
Under FASB ASC 820-10-5, fair value is defined
as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants
at the measurement date (an exit price). The standard outlines a valuation framework and creates a fair value hierarchy in order
to increase the consistency and comparability of fair value measurements and the related disclosures. Under GAAP, certain assets
and liabilities must be measured at fair value, and FASB ASC 820-10-50 details the disclosures that are required for items measured
at fair value.
The Company has convertible notes that must
be measured under the new fair value standard. The Company’s financial assets and liabilities are measured using inputs from
the three levels of the fair value hierarchy. The three levels are as follows:
Level 1 - Inputs are unadjusted
quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement
date.
Level 2 - Inputs include quoted
prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets
that are not active, inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates, yield
curves, etc.), and inputs that are derived principally from or corroborated by observable market data by correlation or other means
(market corroborated inputs).
Level 3 - Unobservable inputs that
reflect our assumptions about the assumptions that market participants would use in pricing the asset or liability.
POCKET GAMES, INC.
Notes to the Consolidated Financial Statements
October 31, 2016 and 2015
The following schedule summarizes the valuation
of financial instruments at fair value on a non-recurring basis in the balance sheets as of October 31, 2016 and 2015, respectively:
|
|
|
Fair Value Measurements at October 31, 2016
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
4,141
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Total assets
|
|
|
4,141
|
|
|
|
—
|
|
|
|
—
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans payable, related parties
|
|
|
—
|
|
|
|
64,106
|
|
|
|
—
|
|
|
Convertible debenture, net of discount of $76,133
|
|
|
—
|
|
|
|
—
|
|
|
|
756,887
|
|
|
Derivative liability
|
|
|
—
|
|
|
|
—
|
|
|
|
402,542
|
|
|
Total Liabilities
|
|
|
—
|
|
|
|
(64,106
|
)
|
|
|
(1,159,429
|
)
|
|
|
|
$
|
4,141
|
|
|
$
|
(64,106
|
)
|
|
$
|
(1,159,429
|
)
|
|
|
|
Fair Value Measurements at October 31, 2015
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
24,404
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Total assets
|
|
|
24,404
|
|
|
|
—
|
|
|
|
—
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans payable, related parties
|
|
|
—
|
|
|
|
14,781
|
|
|
|
—
|
|
|
Convertible debenture, net of discount of $298,497
|
|
|
—
|
|
|
|
—
|
|
|
|
240,452
|
|
|
Derivative liability
|
|
|
—
|
|
|
|
—
|
|
|
|
1,369,662
|
|
|
Total liabilities
|
|
|
—
|
|
|
|
(14,781
|
)
|
|
|
(1,610,114
|
)
|
|
|
|
$
|
24,404
|
|
|
$
|
(14,781
|
)
|
|
$
|
(1,610,114
|
)
|
There were no transfers of financial assets
or liabilities between Level 1 and Level 2 inputs for the years ended October 31, 2016 and 2015.
Level 2 liabilities consist of short term unsecured
loans payable to related parties. No fair value adjustment was necessary during the years ended October 31, 2016 and 2015.
Level 3 liabilities consist of a total of $756,887
of convertible debentures and related derivative liability of $402,542 as of October 31, 2016. A discount of $76,133 and $298,497
was recognized at October 31, 2016 and 2015, respectively, on the convertible debts.
Note 4 - Related Party Transactions
Promissory Note
From time to time the Company received unsecured
loans, bearing interest at 12% per annum, maturing on December 31, 2014 (in default) from one of the Company’s Directors
and Treasurer, as disclosed in Note 5.
Stock Issuances
On February 17, 2015, the Company issued 478,850
shares of common stock to an officer of the Company as payment for accrued compensation in lieu of cash. The fair value of the
common stock was $47,885 based on the closing stock price of the Company’s common stock on the date of grant which is the
best evidence of fair value.
POCKET GAMES, INC.
Notes to the Consolidated Financial Statements
October 31, 2016 and 2015
On June 4, 2015, the Company issued 429,000
shares of common stock to an officer of the Company as payment for accrued compensation in lieu of cash. The fair value of the
common stock was $19,305 based on the closing stock price of the Company’s common stock on the date of grant which is the
best evidence of fair value.
On September 9, 2015, the Company issued 300,000
shares to employees of the Company as payment for compensation in lieu of cash. The fair value of the common stock was $50,550
based on closing stock price of the Company’s common stock on the date of grant which is the best evidence of fair value.
On October 20, 2015, the Company issued 1,000,000
shares to employees of the Company as payment for compensation in lieu of cash. The fair value of the common stock was $80,000
based on closing stock price of the Company’s common stock on the date of grant which is the best evidence of fair value.
Revenues
The Company entered into a contract with a
related party during the fiscal year ended October 31, 2015, whereby, the Company will perform testing on games and application.
The total revenue recognized as a result of such agreement is $3,332 which represents 100% of total revenue during the year ended
October 31, 2016. The total revenue recognized as a result of such agreement is $6,608 out of the total $24,374 or 27% of total
revenue during the year ended October 31, 2015.
Employment Contracts
On October 4, 2013, the Company entered into
two employment agreements with the two officers of the Company. Both agreements are for a term of three years and require monthly
payments of $10,000 to each officer. Accrued compensation was $42,000 and $131,923 at October 31, 2016 and 2015, respectively.
Rents
The Company leases office space from a shareholder
and consultant (the “Landlord”). The amounts due to the Landlord were $3,500 and $2,000 as of October 31, 2016 and
2015, respectively. These amounts are included in accrued expenses, related parties on the accompanying balance sheets.
Note 5 - Loans Payable, Related Parties
Loans payable, related parties, consists of
the following at October 31, 2016 and October 31, 2015, respectively:
|
|
|
October 31,
|
|
October 31,
|
|
|
|
2016
|
|
2015
|
|
12% unsecured promissory note, bearing interest at 12% per annum from a related party, one of the Company’s Directors and Treasurer, maturing on December 31, 2014 (in default).
|
|
$
|
9,500
|
|
|
$
|
9,500
|
|
|
Miscellaneous loans, non-interest bearing, due on demand
|
|
|
54,606
|
|
|
|
5,281
|
|
|
|
|
$
|
64,106
|
|
|
$
|
14,781
|
|
The Company recognized interest expense of
$1,604 and $1,343 during the years ended October 31, 2016 and 2015, respectively. No interest has been paid to date.
POCKET GAMES, INC.
Notes to the Consolidated Financial Statements
October 31, 2016 and 2015
Note 6 – Convertible Debenture
Convertible debentures consist of the following at October 31, 2016
and 2015, respectively:
|
|
|
October 31,
|
|
October 31,
|
|
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
Originated June 8, 2015, unsecured $53,000 convertible promissory note, which carries an 8% interest rate and matures on March 8, 2016 (“Vis Vires Note #2”). The principal and interest is convertible into shares of common stock at the discretion of the note holder at a price equal to fifty-eight percent (58%) of the average of the three lowest closing bid prices of the Company’s common stock for the ten (10) trading days prior to the conversion date. In the event of default, the minimum amount due is 150% x (outstanding principal plus unpaid interest), and the debt holder is limited to owning 4.99% of the Company’s issued and outstanding shares. The Company paid total debt issuance cost of $4,000 that is being amortized over the life of the loan on the straight line method, which approximates the effective interest method. (less unamortized discount of $-0- and $22,791, respectively).
|
|
$
|
—
|
|
|
$
|
30,209
|
|
|
|
|
|
|
|
|
|
|
|
|
Originated July 22, 2015, unsecured $38,000 convertible
promissory note, which carries an 8% interest rate and matures on April 22, 2016 (“Vis Vires Note #3”). The
principal and interest is convertible into shares of common stock at the discretion of the note holder at a price equal to
fifty-eight percent (51%) of the average of the three lowest closing bid prices of the Company’s common stock for the
thirty (30) trading days prior to the conversion date. In the event of default, the minimum amount due is 150% x (outstanding
principal plus unpaid interest), and the debt holder is limited to owning 9.99% of the Company’s issued and outstanding
shares. The Company paid total debt issuance cost of $3,000 that is being amortized over the life of the loan on the straight
line method, which approximates the effective interest method. (less unamortized discount of $-0- and $24,873,
respectively).
|
|
|
—
|
|
|
|
13,127
|
|
|
|
|
|
|
|
|
|
|
|
|
Originated August 17, 2015, unsecured $48,000 convertible promissory note, which carries an 8% interest rate and matures on May 20, 2016 (“Vis Vires Note #4”). The principal and interest is convertible into shares of common stock at the discretion of the note holder at a price equal to fifty-eight percent (51%) of the average of the three lowest closing bid prices of the Company’s common stock for the thirty (30) trading days prior to the conversion date. In the event of default, the minimum amount due is 150% x (outstanding principal plus unpaid interest), and the debt holder is limited to owning 9.99% of the Company’s issued and outstanding shares. The Company paid total debt issuance cost of $5,500 that is being amortized over the life of the loan on the straight line method, which approximates the effective interest method. (less unamortized discount of $-0- and $35,003, respectively).
|
|
|
—
|
|
|
|
12,997
|
|
|
|
|
|
|
|
|
|
|
|
|
Originated May 7, 2015, unsecured $10,000 convertible promissory note, which carries an 8% interest rate and matures on February 8, 2016 (“145 Carroll Note #1”). The principal and interest is convertible into shares of common stock at the discretion of the note holder at a price equal to fifty-eight percent (58%) of the average of the three lowest closing bid prices of the Company’s common stock for the ten (10) trading days prior to the conversion date. The note carries a twenty two percent (22%) interest rate in the event of default, and the debt holder is limited to owning 4.99% of the Company’s issued and outstanding shares.(less unamortized discount of $-0- and $2,311, respectively).
|
|
|
10,000
|
|
|
|
7,689
|
|
|
|
|
|
|
|
|
|
|
|
POCKET GAMES, INC.
Notes to the Consolidated Financial Statements
October 31, 2016 and 2015
|
Originated May 8, 2015, unsecured $110,000 convertible promissory note, which carries a 10% interest rate and matures on May 8, 2016 (“JDF Note #1”). The principal and interest is convertible into shares of common stock at the discretion of the note holder at a price equal to fifty-eight percent (58%) of the average of the three lowest closing bid prices of the Company’s common stock for the ten (10) trading days prior to the conversion date. The note carries a twenty two percent (22%) interest rate in the event of default, and the debt holder is limited to owning 4.99% of the Company’s issued and outstanding shares. The Company paid total debt issuance cost of $6,000 that is being amortized over the life of the loan on the straight line method, which approximates the effective interest method. (less unamortized discount due to derivative of $-0- and $62,146, respectively).
|
|
|
—
|
|
|
|
47,854
|
|
|
|
|
|
|
|
|
|
|
|
|
Originated October 9, 2015, unsecured $61,600 convertible promissory note, which carries a 10% interest rate and matures on October 9, 2016 (“JDF Note #2”). The principal and interest is convertible into shares of common stock at the discretion of the note holder at a price equal to fifty-eight percent (58%) of the average of the three lowest reported sales prices of the Company’s common stock for the ten (10) trading days prior to the conversion date. The note carries a twenty two percent (22%) interest rate in the event of default, and the debt holder is limited to owning 4.99% of the Company’s issued and outstanding shares. The Company paid total debt issuance cost of $6,000 that is being amortized over the life of the loan on the straight line method, which approximates the effective interest method. (less unamortized discount due to derivative of $-0- and $57,897, respectively).
|
|
|
26,209
|
|
|
|
3,703
|
|
|
|
|
|
|
|
|
|
|
|
|
Originated August 26, 2015, unsecured $48,400 convertible promissory note, which carries a 10% interest rate and matures on May 8, 2016 (“JDF Note #3”). The principal and interest is convertible into shares of common stock at the discretion of the note holder at a price equal to fifty-eight percent (58%) of the average of the three lowest closing bid prices of the Company’s common stock for the ten (10) trading days prior to the conversion date. The note carries a twenty two percent (22%) interest rate in the event of default, and the debt holder is limited to owning 4.99% of the Company’s issued and outstanding shares. (less unamortized discount due to derivative of $11,127 and $-0-, respectively).
|
|
|
37,273
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Originated January 5, 2016, unsecured $30,800 convertible promissory note ($8,000 received as of January 31, 2016), which carries a 8% interest rate and matures on January 5, 2017 (“JDF Note #4”). The principal and interest is convertible into shares of common stock at the discretion of the note holder at a price equal to fifty-eight percent (58%) of the average of the three lowest reported sales prices of the Company’s common stock for the ten (10) trading days prior to the conversion date. The note carries a twenty two percent (22%) interest rate in the event of default, and the debt holder is limited to owning 4.99% of the Company’s issued and outstanding shares. The Company paid total debt issuance cost of $3,000 that is being amortized over the life of the loan on the straight line method, which approximates the effective interest method. (less unamortized discount due to derivative of $1,977 and $-0-, respectively). In conjunction with this note, the company issued 1,512,500 common stock warrants with an exercise price of $0.011 per share with a term of 5 years.
|
|
|
6,023
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
POCKET GAMES, INC.
Notes to the Consolidated Financial Statements
October 31, 2016 and 2015
|
Originated May 27, 2015, unsecured $74,500 convertible promissory note, which carries an 8% interest rate and matures on November 27, 2015 (“Minerva Note #1”). The principal and interest is convertible into shares of common stock at the discretion of the note holder at a price equal to fifty-eight percent (58%) of the average of the three lowest closing bid prices of the Company’s common stock for the ten (10) trading days prior to the conversion date. The note carries a twenty two percent (22%) interest rate in the event of default, and the debt holder is limited to owning 4.99% of the Company’s issued and outstanding shares. The Company paid total debt issuance cost of $4,500 that is being amortized over the life of the loan on the straight line method, which approximates the effective interest method. (less unamortized discount of $-0- and $3,563, respectively).
|
|
|
74,500
|
|
|
|
70,937
|
|
|
|
|
|
|
|
|
|
|
|
|
Originated June 29, 2015, unsecured $10,000 convertible promissory note, which carries an 8% interest rate and matures on February 28, 2016 (“Minerva Note #2”). The principal and interest is convertible into shares of common stock at the discretion of the note holder at a price equal to fifty-eight percent (58%) of the average of the three lowest closing bid prices of the Company’s common stock for the ten (10) trading days prior to the conversion date. The note carries a twenty two percent (22%) interest rate in the event of default, and the debt holder is limited to owning 4.99% of the Company’s issued and outstanding shares. (less unamortized discount due to derivative of $-0- and $2,974, respectively).
|
|
|
10,000
|
|
|
|
7,026
|
|
|
|
|
|
|
|
|
|
|
|
|
Originated July 9, 2015, unsecured $53,000 convertible promissory note, which carries a 10% interest rate and matures on July 9, 2016 (“Essex Note #1”). The principal and interest is convertible into shares of common stock at the discretion of the note holder at a price equal to fifty-eight percent (58%) of the lowest closing price of the Company’s common stock for the ten (10) trading days prior to the conversion date. The Company paid total debt issuance cost of $3,000 that is being amortized over the life of the loan on the straight line method, which approximates the effective interest method. (less unamortized discount of $-0- and $17,160, respectively).
|
|
|
—
|
|
|
|
35,840
|
|
|
|
|
|
|
|
|
|
|
|
|
Originated August 4, 2015 unsecured $20,350 convertible promissory note, which carries an 8% interest rate and matures on August 6, 2016 (“First Abramowitz Note”). The principal and interest is convertible into shares of common stock at the discretion of the note holder at a price equal to fifty-eight percent (58%) of the average of the (3) lowest closing prices of the Company’s common stock, or $0.00005 per share, for the ten (10) trading days prior to the conversion date. The Company paid total debt issuance cost of $2,000 that is being amortized over the life of the loan on the straight line method, which approximates the effective interest method. (less unamortized discount due to derivative of $-0- and $15,457, respectively). In conjunction with this note, the company issued 203,500 common stock warrants with an exercise price of $0.011 per share with a term of 5 years.
|
|
|
20,350
|
|
|
|
4,893
|
|
|
|
|
|
|
|
|
|
|
|
POCKET GAMES, INC.
Notes to the Consolidated Financial Statements
October 31, 2016 and 2015
|
Originated September 10, 2015, unsecured $30,250
convertible promissory note, which carries an 8% interest rate and matures on September 10, 2016 (“Vigere Capital Note
#1”). The principal and interest is convertible into shares of common stock at the discretion of the note holder at a
price equal to fifty-eight percent (58%) of the average of the (3) lowest closing prices of the Company’s common stock
for the ten (10) trading days prior to the conversion date. The Company paid total debt issuance cost of $2,500 that is being
amortized over the life of the loan on the straight line method, which approximates the effective interest method. (less
unamortized discount due to derivative of $-0- and $26,035, respectively). In conjunction with this note, the
company issued 298,029 common stock warrants (see note 7) with an exercise price of $0.11165 per share with a term of 5
years.
|
|
|
30,250
|
|
|
|
4,215
|
|
|
|
|
|
|
|
|
|
|
|
|
Originated October 15, 2015, unsecured $30,250 convertible promissory note, which carries an8% interest rate and matures on October 15, 2016 (“Vigere Capital Note #2”). The principal and interest is convertible into shares of common stock at the discretion of the note holder at a price equal to fifty-eight percent (58%) of the average of the (3) lowest closing prices of the Company’s common stock for the ten (10) trading days prior to the conversion date. The Company paid total debt issuance cost of $2,500 that is being amortized over the life of the loan on the straight line method, which approximates the effective interest method. (less unamortized discount due to derivative of $-0- and $28,298, respectively). In conjunction with this note, the company issued 263,043 common stock warrants (see note 7) with an exercise price of $0.1265 per share with a term of 5 years.
|
|
|
30,250
|
|
|
|
1,962
|
|
|
|
|
|
|
|
|
|
|
|
|
Originated February 8, 2016, unsecured $17,000 convertible promissory note, which carries a 10% interest rate and matures on February 8, 2017 (“Essex Global Note #2”). The principal and interest is convertible into shares of common stock at the discretion of the note holder at a price equal to forty-two percent (42%) of the lowest closing price of the Company’s common stock for the ten (10) trading days prior to the conversion date.
|
|
|
17,000
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Originated February 8, 2016, unsecured $7,000 convertible promissory note, which carries a 10% interest rate and matures on February 8, 2017 (“Grant Note #1”). The principal and interest is convertible into shares of common stock at the discretion of the note holder at a price equal to forty-two percent (42%) of the lowest closing price of the Company’s common stock for the ten (10) trading days prior to the conversion date. (less unamortized discount due of $1,893 and $-0-, respectively).
|
|
|
5,107
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Originated February 8, 2016, unsecured $17,000 convertible promissory note, which carries a 10% interest rate and matures on February 8, 2017 (“Minerva Note #3”). The principal and interest is convertible into shares of common stock at the discretion of the note holder at a price equal to forty-two percent (42%) of the lowest closing bid prices of the Company’s common stock for the ten (10) trading days prior to the conversion date. The note carries a twenty two percent (22%) interest rate in the event of default, and the debt holder is limited to owning 4.99% of the Company’s issued and outstanding shares.
|
|
|
17,000
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
POCKET GAMES, INC.
Notes to the Consolidated Financial Statements
October 31, 2016 and 2015
|
Originated February 9, 2016, unsecured $143,995 convertible promissory note, which carries an 8% interest rate and is due on demand (“Polatoff Note #1”). The principal and interest is convertible into shares of common stock at the discretion of the note holder at a price equal to forty-two percent (42%) of the lowest closing bid prices of the Company’s common stock for the ten (10) trading days prior to the conversion date. The note carries a twenty two percent (22%) interest rate in the event of default, and the debt holder is limited to owning 4.99% of the Company’s issued and outstanding shares.
|
|
|
143,995
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Originated February 12, 2016, unsecured $130,007 convertible promissory note, which carries an 5% interest rate and matures on August 12, 2016 (“Crown Bridge Note #2”). The principal and interest is convertible into shares of common stock at the discretion of the note holder at a price equal to fifty-one percent (51%) of the lowest trading price of the Company’s common stock for the twenty (20) trading days prior to the conversion date. The note carries a twenty two percent (22%) interest rate in the event of default, and the debt holder is limited to owning 4.99% of the Company’s issued and outstanding shares.
|
|
|
63,442
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Originated February 18, 2016, unsecured $26,500 convertible promissory note, which carries an 8% interest rate and matures on February 18, 2017 (“Crown Bridge Note #1”). The principal and interest is convertible into shares of common stock at the discretion of the note holder at a price equal to fifty-one percent (51%) of the lowest trading price of the Company’s common stock for the twenty (20) trading days prior to the conversion date. The note carries a twenty two percent (22%) interest rate in the event of default, and the debt holder is limited to owning 4.99% of the Company’s issued and outstanding shares.
|
|
|
26,500
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Originated March 24, 2016, unsecured $60,500 convertible promissory note, which carries an 8% interest rate and matures on March 24, 2017 (“Vigere Capital Note #3”). The principal and interest is convertible into shares of common stock at the discretion of the note holder at a price equal to fifty-eight percent (58%) of the average of the (3) lowest closing prices of the Company’s common stock for the ten (10) trading days prior to the conversion date. (less unamortized discount due to derivative of $18,036 and $-0-, respectively).
|
|
|
42,464
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Originated March 17, 2016, unsecured $66,550 convertible promissory note, which carries an 8% interest rate and matures on March 17, 2017 (“Vigere Capital Note #5”). The principal and interest is convertible into shares of common stock at the discretion of the note holder at a price equal to fifty-eight percent (58%) of the average of the (3) lowest closing prices of the Company’s common stock for the ten (10) trading days prior to the conversion date.
|
|
|
45,655
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Originated April 28, 2016, unsecured $10,000 loan, which carries a -0-% interest rate and matures on demand. The conversion feature is yet to be determined.
|
|
|
8,000
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
POCKET GAMES, INC.
Notes to the Consolidated Financial Statements
October 31, 2016 and 2015
|
Originated May 4, 2016, unsecured $30,000 convertible promissory note, which carries a 10% interest rate and matures on May 4, 2017 (“Essex Note #3”). The principal and interest is convertible into shares of common stock at the discretion of the note holder at a price equal to fifty-eight percent (58%) of the lowest closing price of the Company’s common stock for the ten (10) trading days prior to the conversion date. (less unamortized discount due to derivative of $10,574 and $-0-, respectively).
|
|
|
19,426
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Originated May 19, 2016, unsecured $55,000 convertible promissory note, which carries a 10% interest rate and matures on May 19, 2017 (“JDF Note #5”). The principal and interest is convertible into shares of common stock at the discretion of the note holder at a price equal to sixty percent (60%) of the lowest reported sale price of the Company’s common stock for the twenty (20) trading days prior to the conversion date. The note carries a fifteen percent (15%) interest rate in the event of default, and the debt holder is limited to owning 4.99% of the Company’s issued and outstanding shares. The Company paid total debt issuance cost of $6,000 that is being amortized over the life of the loan on the straight line method, which approximates the effective interest method. (less unamortized discount due to derivative of $13,672 and $-0-, respectively).
|
|
|
41,328
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Originated June 13, 2016, unsecured $11,100 convertible promissory note, which carries a 10% interest rate and matures on June 13, 2017 (“Grant Note #2”). The principal and interest is convertible into shares of common stock at the discretion of the note holder at a price equal to forty-two percent (42%) of the lowest closing price of the Company’s common stock for the ten (10) trading days prior to the conversion date. (less unamortized discount of $4,483 and $-0-, respectively).
|
|
|
6,617
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Originated June 24, 2016, unsecured $27,500 convertible promissory note, which carries a 12.5% interest rate and matures on June 24, 2017 (“Essex Note #5”). The principal and interest is convertible into shares of common stock at the discretion of the note holder at a price equal to fifty-eight percent (58%) of the lowest closing price of the Company’s common stock for the ten (10) trading days prior to the conversion date. (less unamortized discount due to derivative of $6,272 and $-0-, respectively).
|
|
|
21,228
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Originated June 30, 2016, unsecured $11,500 convertible promissory note, which carries an 8% interest rate and matures on June 30, 2017 (“Crown Bridge Note #3”). The principal and interest is convertible into shares of common stock at the discretion of the note holder at a price equal to fifty-one percent (51%) of the lowest trading price of the Company’s common stock for the twenty (20) trading days prior to the conversion date. The note carries a twenty two percent (22%) interest rate in the event of default, and the debt holder is limited to owning 4.99% of the Company’s issued and outstanding shares.
|
|
|
11,500
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Originated September 7, 2016, unsecured $60,500 convertible promissory note, which carries an 8% interest rate and matures on September 7, 2017 (“Vigere Capital Note #4”). The principal and interest is convertible into shares of common stock at the discretion of the note holder at a price equal to fifty-eight percent (58%) of the average of the (3) lowest closing prices of the Company’s common stock for the ten (10) trading days prior to the conversion date. (less unamortized discount due to derivative of $17,727 and $-0-, respectively).
|
|
|
42,773
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible debenture, net
|
|
|
|
|
|
|
|
|
|
Less: current maturities of convertible debenture, net
|
|
|
756,887
|
|
|
|
240,452
|
|
|
Long term convertible debenture, net
|
|
|
(756,887
|
)
|
|
|
(240,452
|
)
|
|
|
|
$
|
—
|
|
|
$
|
—
|
|
The Company recognized interest expense in
the amount of $57,495 and $36,523 for the years ended October 31, 2016 and 2015, respectively, related to the convertible debentures
above.
POCKET GAMES, INC.
Notes to the Consolidated Financial Statements
October 31, 2016 and 2015
In addition, a total of $23,000 and $48,000
of debt issuance cost were incurred pursuant to the closings of the convertible debentures during the years ended October 31, 2016
and 2015, respectively, which are being amortized to interest expense over the term of the debentures using the straight line method,
which approximate the effective interest method. The Company recorded a total of $39,044 and $24,692 of interest expense pursuant
to the amortization of the issuance cost during the years ended October 31, 2016 and 2015, respectively.
In accordance with
ASC 815-15, the Company determined that the variable conversion features and shares to be issued represented derivative features,
and these are shown as derivative liabilities on the balance sheet. The Company calculated the fair value of the compound embedded
derivative associated with the convertible debentures utilizing a lattice model.
The aforementioned accounting treatment resulted
in a total ending debt discount equal to $76,133 for the year ended October 31, 2016 and $298,497 for the year ended October 31,
2015. The discount is amortized on a straight line basis, which approximated the effective interest method due to the short term
duration of the note, from the dates of issuance until the stated redemption date of the debts, as noted above. During the years
ended October 31, 2016 and 2015, the Company recorded debt amortization expense in the amount of $397,763 and $263,470, respectively,
attributed to the aforementioned debt discount.
During the year ended
October 31, 2016, the Company converted accrued compensation of $143,995 and warrants of $72,344 into convertible debentures.
During the year ended
October 31, 2016, a total of $251,432 of debt and accrued interest was converted into 737,861,718 shares of the Company’s
common stock. As a result, a loss of $167,170 was recognized.
Note 7 - Derivative
Liability
As discussed in Note 6 under Convertible Debentures,
the Company issued convertible notes payable that provide for the issuance of convertible notes with variable conversion provisions.
The conversion terms of the convertible notes are variable based on certain factors, such as the future price of the Company’s
common stock. The number of shares of common stock to be issued is based on the future price of the Company’s common stock.
The number of shares of common stock issuable upon conversion of the promissory note is indeterminate. Due to the fact that the
number of shares of common stock issuable could exceed the Company’s authorized share limit, the equity environment is tainted
and all additional convertible debentures and warrants are included in the value of the derivative. Pursuant to ASC 815-15 Embedded
Derivatives, the fair values of the variable conversion option and warrants and shares to be issued were recorded as derivative
liabilities on the issuance date.
The fair values of the Company’s derivative
liabilities were estimated at the issuance date and are revalued at each subsequent reporting date, using a lattice model. The
Company recognized current derivative liabilities of $402,542 and $1,369,662 at October 31, 2016 and 2015, respectively. The change
in fair value of the derivative liabilities resulted in a gain of $1,247,736 and a loss of $1,072,689 for the twelve months ended
October 31, 2016 and 2015, respectively, which has been reported as other expense in the statements of operations.
POCKET GAMES, INC.
Notes to the Consolidated Financial Statements
October 31, 2016 and 2015
The following presents the derivative liability
value at October 31, 2016 and 2015, respectively:
|
|
|
October 31,
|
|
October 31,
|
|
|
|
2016
|
|
2015
|
|
Convertible notes
|
|
$
|
282,329
|
|
|
$
|
751,505
|
|
|
Warrants
|
|
|
120,213
|
|
|
|
618,157
|
|
|
|
|
$
|
402,542
|
|
|
$
|
1,369,662
|
|
The following is a summary of changes in the
fair market value of the derivative liability during the year ended October 31, 2016:
|
|
|
Derivative
|
|
|
|
Liability
|
|
|
|
Total
|
|
Balance, October 31, 2015
|
|
$
|
1,369,662
|
|
|
Increase in derivative value due to issuances of convertible notes
|
|
|
175,400
|
|
|
Increase in derivative value due to issuances of warrant
|
|
|
353,750
|
|
|
Decrease due to debt conversion
|
|
|
(248,534
|
)
|
|
Change in fair market value of derivative liabilities due to the mark to market adjustment
|
|
|
1,247,736
|
|
|
Balance, October 31, 2016
|
|
$
|
402,542
|
|
Key inputs and assumptions
used to value the convertible debentures and warrants issued during the year ended October 31, 2016:
Convertible notes derivatives:
|
|
·
|
The stock price would fluctuate with the Company projected volatility.
The stock price decreased in the year ending 10/31/16 from $0.10 to $0.001.
|
|
|
·
|
The projected volatility curve from an annualized analysis for each
valuation period was based on the historical volatility of the Company and the term remaining for each note:
|
|
|
·
|
The derivative Investor Convertible Notes convert after 90-180 days
at the lessor of 51% or 58% of the average 3 lows in 10 or 30 trading days or the fixed exercise price set at issuance subject
to full ratchet reset provisions;
|
|
|
·
|
Capital raising events are a factor for this Notes full reset provisions.
|
|
|
·
|
An event of default at 15% - 24% interest rate would occur 0% of
the time, increasing 1.00%per month to a maximum of 10% with a 150% penalty;
|
|
|
·
|
The company would redeem the notes (with a 120% – 135% –
145% penalty)projected initially at 0% of the time and increase monthly by 10.0% to a maximum of50.0% (from alternative financing
being available for a Redemption event to occur);and
|
|
|
·
|
The Holder would automatically convert the note at the maximum of
2 times the conversion price or the stock price if the registration was effective (assumed after 180 days) and the Company was
not in default with the target conversion price dropping as maturity approaches.
|
POCKET GAMES, INC.
Notes to the Consolidated Financial Statements
October 31, 2016 and 2015
Warrant derivatives:
|
|
·
|
The Warrants exercise prices are fixed and subject to full ratchet
reset provisions;
|
|
|
·
|
The stock price would fluctuate with the Company projected volatility.
The stock price decreased in the year ending 10/31/16 from
$
0.10 to $0.001.
|
|
|
·
|
The projected volatility curve from an annualized analysis for each
valuation period was based on the historical volatility of the Company and the term remaining for each note:
|
|
|
·
|
The Holder would exercise the Warrant as they become exercisable
(effective registration is projected 90 days from issuance and the earliest exercise is projected 180 days from issuance) at target
prices of 2 times the higher of the projected reset price or
stock
price.
|
|
|
·
|
Capital raising events (a single financing at 6 months from the issuance
date) are a factor for these Warrants – full reset events projected to occur based on future stock issuance (quarterly) resulting
in a reset exercise price.
|
|
|
·
|
No Warrants expired nor reset nor exercised in this period ending
10/31/16.
|
Note 8 - Changes in Stockholders’
Equity (Deficit)
Authorized Shares, Common Stock
The Company is authorized to issue 499,000,000
shares of $0.0001 par value common stock. As of October 31, 2016, 816,601,647 shares were issued and outstanding.
Authorized Shares, Preferred Stock
The Company is also authorized to issue
1,000,000,000 shares of its preferred stock. On April 25, 2014, the Company designated (the “Designation”) a series
of our preferred stock as Series A Preferred Stock, (“Series A Preferred Stock”) and issued 1,000 shares of the Series
A Preferred Stock to its chief executive officer and sole director.
As a result of the Designation:
|
|
·
|
The Company is authorized to issue 1,000 shares of Series A Preferred
Stock;
|
|
|
·
|
Holders of the A Preferred Stock will not be entitled to receive
dividends;
|
|
|
·
|
The holders of the Series A Preferred Stock then outstanding shall
not be entitled to receive any distribution of Company assets;
|
|
|
·
|
The Series A Preferred Stock will not be convertible into shares
of the Company’s common stock.
|
|
|
·
|
The holders of the Series A Preferred Stock shall have the following
voting rights:
|
|
|
(i)
|
To vote together with the holders of the Common Stock as a single
class on all matter submitted for a vote of holders of Common Stock;
|
|
|
(ii)
|
Each one (1) share of Series A Preferred Stock shall have voting
rights equal to 50,000 shares of our Common Stock, providing for the holder of the Series A Preferred Stock to have aggregate voting
rights equal to 50,000,000 shares of our Common Stock;
|
|
|
(iii)
|
The holder of the Series A Preferred Stock shall be entitled to receive
notice of any stockholders’ meeting in accordance with the Articles of Incorporation and By-laws of the Company.
|
POCKET GAMES, INC.
Notes to the Consolidated Financial Statements
October 31, 2016 and 2015
|
|
(iv)
|
So long as any shares of Series A Preferred Stock remain outstanding,
we will not, without the written consent or affirmative vote of the holders of 100% of the outstanding shares of the Series A Preferred
Stock, (i) amend, alter, waive or repeal, whether by merger consolidation, combination, reclassification or otherwise, the Articles
of Incorporation, including this Certificate of Designation, or our By-laws or any provisions thereof (including the adoption of
a new provision thereof), (ii) create, authorize or issue any class, series or shares of Preferred Stock or any other class of
capital stock. The vote of the holders of at least one-hundred percent of the outstanding Series A Stock, voting separately as
one class, shall be necessary to adopt any alteration, amendment or repeal of any provisions of this Resolution, in addition to
any other vote of stockholders required by law.
|
Common Stock Issuances, for the Period Ending
October 31, 2015
During the year ended October 31, 2015, the
Company issued 4,295,000 shares of common stock for consulting services. The fair value of the common stock was $471,232 based
on the market price of the Company’s common stock on the date of grant.
During the year ended October 31, 2015, the
Company issued 907,850 shares of common stock for payment of accrued compensation to the president of the Company. The fair value
of the common stock was $67,190 based on the market price of the Company’s common stock on the date of grant.
During the year ended October 31, 2015, the
Company issued 1,230,000 shares of common stock for cash in the amount of $12,300.
During the year ended October 31, 2015, the
Company issued 2,211,679 shares of common stock for the conversion of convertible notes payable in the amount of $50,168. As the
conversions were within the terms of the agreement, no additional gain or loss on the conversion has been recognized.
Stock Options, for the Period Ending October
31, 2015
During the year ended October 31, 2015, the
Company issued 500,000 stock options to a service provider and exercisable over a 4 year term expiring on April 28, 2019. The values
of the options were estimated using a Black-Scholes option pricing model equal to $16,614. The key inputs to the model were the
number of options 500,000, share price on the grant date of $0.04, exercise price of $0.20, terms of 4 years, volatility of 211%
and a discount rate of 0.43%.As the shares are fully vested on the date of agreement, the value of the options of $16,614 was fully
expensed on the date of grant.
POCKET GAMES, INC.
Notes to the Consolidated Financial Statements
October 31, 2016 and 2015
The following table summarizes the changes
in options outstanding as of October 31, 2015 and 2016:
|
|
|
Number of Shares
|
|
Weighted Average
Exercise Price
|
|
|
Outstanding as of November 1, 2014
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
Granted
|
|
|
|
500,000
|
|
|
|
0.20
|
|
|
|
Exercised
|
|
|
|
—
|
|
|
|
—
|
|
|
|
Cancelled
|
|
|
|
—
|
|
|
|
—
|
|
|
|
Outstanding at October 31, 2015
|
|
|
|
500,000
|
|
|
$
|
0.20
|
|
|
|
Granted
|
|
|
|
—
|
|
|
|
—
|
|
|
|
Exercised
|
|
|
|
—
|
|
|
|
—
|
|
|
|
Cancelled
|
|
|
|
—
|
|
|
|
—
|
|
|
|
Outstanding at October 31, 2016
|
|
|
|
500,000
|
|
|
$
|
0.20
|
|
Common Stock Warrants, for the Period Ending
October 31, 2015
The Company issued 6,846,394 warrants on May
8, 2015 with an exercise price of $0.0140 per share and a term of 5 years in conjunction with the convertible debt issuance. The
exercised price of the warrants is updated to the lowest offering price of common stock based on subsequent equity sales. As such,
the number of share of common stock issuable upon exercise of the warrants is indeterminate. Pursuant to ASC 815-15 Embedded Derivatives,
the fair values of the warrants and shares to be exercised were recorded as derivative liabilities on the issuance date.
On August 4, 2015, the Company issued warrants
of 203,500 with an exercise price of $0.011 per share and a term of 5 years in conjunction with the convertible debt issuance.
The exercised price of the warrants is updated to the lowest offering price of common stock based on subsequent equity sales. As
such, the number of share of common stock issuable upon exercise of the warrants is indeterminate. Pursuant to ASC 815-15 Embedded
Derivatives, the fair values of the warrants and shares to be exercised were recorded as derivative liabilities on the issuance
date.
On August 17, 2015, the Company issued warrants
of 486,662 with an exercise price of $0.0580 per share and a term of 5 years in conjunction with the convertible debt issuance.
The exercised price of the warrants is updated to the lowest offering price of common stock based on subsequent equity sales. As
such, the number of share of common stock issuable upon exercise of the warrants is indeterminate. Pursuant to ASC 815-15 Embedded
Derivatives, the fair values of the warrants and shares to be exercised were recorded as derivative liabilities on the issuance
date.
On September 10, 2015, the Company issued warrants
of 573,706 with an exercise price of $0.0580per share and a term of 5 years in conjunction with the convertible debt issuance.
The exercised price of the warrants is updated to the lowest offering price of common stock based on subsequent equity sales. As
such, the number of share of common stock issuable upon exercise of the warrants is indeterminate. Pursuant to ASC 815-15 Embedded
Derivatives, the fair values of the warrants and shares to be exercised were recorded as derivative liabilities on the issuance
date.
POCKET GAMES, INC.
Notes to the Consolidated Financial Statements
October 31, 2016 and 2015
On October 9, 2015, the Company issued warrants
of 560,000 with an exercise price of $0.011 per share and a term of 5 years in conjunction with the convertible debt issuance.
The exercised price of the warrants is updated to the lowest offering price of common stock based on subsequent equity sales. As
such, the number of share of common stock issuable upon exercise of the warrants is indeterminate. Pursuant to ASC 815-15 Embedded
Derivatives, the fair values of the warrants and shares to be exercised were recorded as derivative liabilities on the issuance
date.
On October 15, 2015, the Company issued warrants
of 573,706 with an exercise price of $0.0580per share and a term of 5 years in conjunction with the convertible debt issuance.
The exercised price of the warrants is updated to the lowest offering price of common stock based on subsequent equity sales. As
such, the number of share of common stock issuable upon exercise of the warrants is indeterminate. Pursuant to ASC 815-15 Embedded
Derivatives, the fair values of the warrants and shares to be exercised were recorded as derivative liabilities on the issuance
date.
The following table summarizes the changes
in warrants outstanding as of October 31, 2015 and 2016:
|
|
|
Number of Shares
|
|
Weighted Average
Exercise Price
|
|
|
Outstanding as of November 1, 2014
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
Granted
|
|
|
|
9,243,968
|
|
|
|
0.022
|
|
|
|
Exercised
|
|
|
|
—
|
|
|
|
—
|
|
|
|
Cancelled
|
|
|
|
—
|
|
|
|
—
|
|
|
|
Outstanding at October 31, 2015
|
|
|
|
9,243,968
|
|
|
$
|
0.022
|
|
|
|
Granted
|
|
|
|
4,663,270,612
|
|
|
|
0.002
|
|
|
|
Exercised
|
|
|
|
—
|
|
|
|
—
|
|
|
|
Cancelled
|
|
|
|
—
|
|
|
|
—
|
|
|
|
Outstanding at October 31, 2016
|
|
|
|
4,672,514,580
|
|
|
$
|
0.021
|
|
Subscriptions Payable, for the Period Ending
October 31, 2015
On November 6, 2014, the Company issued 155,400
shares of common stock pursuant to an agreement with a consultant which had previously been recorded as Subscriptions Payable in
the amount of $10,878 in the accompanying balance sheet at October 31, 2014.
Settlement of convertible debt, for the
Period Ending October 31, 2015
During the period, the Company repaid back
convertible debt in the amount of $134,000 and converted $50,168 of debt for 2,211,679 shares of the common stock. As a result
of such conversion and repayment, the Company reduced its derivative liability by $66,913.
Common Stock Issuances, for the Period Ending
October 31, 2016
During the period, the Company granted 54,900,000
and issued 54,400,000 shares of common stock for consulting services. The fair value of the common stock issued was $317,576 based
on the market price of the Company’s common stock on the date of grant. The 500,000 shares authorized but not issued is recorded
as $1,500 (based on the market value on the date of grant) stock payable as of October 31, 2016.
Settlement of convertible debt, for the
Period Ending October 31, 2016
During the period, the Company converted $251,432
of debt for 737,861,718 shares of common stock. Due to excess share issuance, the Company recognized a loss on conversion of $167,179;
the excess shares were valued based on fair market value on the date of conversion.
POCKET GAMES, INC.
Notes to the Consolidated Financial Statements
October 31, 2016 and 2015
Note 9 - Income Taxes
The Company accounts for income taxes
under FASB ASC 740-10, which requires use of the liability method. FASB ASC 740-10-25 provides that deferred tax assets and
liabilities are recorded based on the differences between the tax bases of assets and liabilities and their carrying amounts
for financial reporting purposes, referred to as temporary differences.
For the years ended October 31, 2016 and 2015,
the Company incurred net operating losses and, accordingly, no provision for income taxes has been recorded. In addition, no benefit
for income taxes has been recorded due to the uncertainty of the realization of any tax assets. The net operating loss carry forwards,
if not utilized, will begin to expire in 2028.
|
|
|
October 31,
|
|
October 31,
|
|
Deferred tax assets:
|
|
2016
|
|
2015
|
|
Net operating loss carryforwards
|
|
$
|
2,473,576
|
|
|
$
|
1,896,936
|
|
Net deferred tax assets before
valuation allowance
|
|
|
860,136
|
|
|
|
663,928
|
|
|
Less: Valuation allowance
|
|
|
(860,136
|
)
|
|
|
(663,928
|
)
|
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Based on the available objective evidence,
including the Company’s history of its loss, management believes it is more likely than not that the net deferred tax assets
will not be fully realizable. Accordingly, the Company provided for a full valuation allowance against its net deferred tax assets
at October 31, 2016 and 2015, respectively.
A reconciliation between the amounts of income
tax benefit determined by applying the applicable U.S. and State statutory income tax rate to pre-tax loss is as follows:
|
|
|
October 31,
|
|
October 31,
|
|
|
|
2016
|
|
2015
|
|
Federal and state statutory rate
|
|
|
35
|
%
|
|
|
35
|
%
|
Change in valuation allowance on
deferred tax assets
|
|
|
(35
|
%)
|
|
|
(35
|
%)
|
Note 10 – Subsidiaries
As disclosed in our Form 8-K filed with the
Securities and Exchange Commission, we issued a total of 400,000 shares of our Series B Convertible Preferred Stock in connection
with our acquisition of 80% of the Class A common stock and 100% of the Class B common stock of Social Technology Holdings, Inc.
(“STH”), and reserved an additional 80,000 shares of our Class B voting Convertible Preferred Stock for issuance in
a contemplated merger transaction to acquire the 20% minority interest in the STH Class A common stock. STH is the owner and operator
of “Viximo”, a software platform that allows game providers to access multiple websites from a single source API.”
POCKET GAMES, INC.
Notes to the Consolidated Financial Statements
October 31, 2016 and 2015
As disclosed in our Form 8-K filed with the
Securities and Exchange Commission, we issued a total of 270,000 shares of our Series C Convertible Preferred Stock and a $3,960,000
convertible note due March 31, 2019 in connection with our acquisition of 100% of the outstanding common stock of Kicksend Holdings,
Inc., a Delaware corporation (“Kicksend”). Kicksend is engaged in the business of file storage and sharing in real-time
on digital platforms, including desktop, mobile and webapps, to permit users to organize, download and sent storage files.
Under the terms of these acquisitions, the
Company was to receive full financial disclosure in order to maintain its ‘fully reporting’ status with the SEC.
Subsequent to the closing, neither acquisition target was able to provide full financial disclosure and Pocket Games’ attorney
opined that this was a material breach of the contracts and the acquisitions described above were unwound. This resulted in the
unwinding, return, and cancellation of all items related to the acquisitions. The Company has recorded a loss on deconsolidation
in the amount of $1,068,339 for the year ended October 31, 2016.
Note 11 – Commitments and Contingencies
Intellectual Property Purchase Agreement
On February 12, 2014, the Company entered into
an Intellectual Property Purchase Agreement, whereby the Company purchased from the seller a certain software game application.
Subject to the terms and conditions of this Agreement, the Company issued to the seller 1,500,000 shares of common shares. Additionally,
the Company agreed to pay to the Seller the cost for development and modification of $40,000, of which $20,000 was paid during
the year ended October 31, 2014. The remaining balance of $20,000 shall be paid as the work passes through quality control.
In the case of Venture Lending & Leasing
-vs- Vert Capital Corp, Pocket Games and its recently acquired subsidiary, Kicksend, were named as defendants in court documents
and a judgement filed against Pocket Games as Adam Levin’s company, Vert Capital, put up no defense to the case against them.
The awarded judgement was $963,460, plus interest of $100,465 and court costs of $4,414. The Company has recorded accrued judgement
payable and loss on deconsolidation in the amount of $1,068,339 for the year ended October 31, 2016. Pocket Games is in communication
with Venture Lending & Leasing and, as of August 2018, an agreement in principle is in discussion to resolve the issue.
From time to time, we are also a party to certain
legal proceedings incidental to the normal course of our business including the enforcement of our rights under contracts with
contractors, purchasers and suppliers. While the outcome of these legal proceedings cannot at this time be predicted with certainty,
we do not expect that these proceedings will have a material effect upon our financial condition or results of operations.
Note 12 – Subsequent Events
Subsequent to October
31, 2016, the Company issued a total of 7,050,303,875 shares of common stock all for the conversion of debt and accrued interest.