GOOD GAMING, INC. - Quarter Report: 2014 September (Form 10-Q)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

Commission File Number 000-53949

 

(Exact name of registrant as specified in its charter)

 

Nevada

(State of incorporation)

10 Dorrance Street, Suite 700

Providence, RI   02903

(Address of principal executive offices)

 

(401) 400-0028

(Registrant's telephone number)

Indicate by check mark whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the last 90 days.   YES [X]     NO [   ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (SS 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

YES [X]     NO [   ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of "large accelerated filer, "accelerated filer," "non-accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   YES [   ]     NO [X]

APPLICABLE ONLY TO CORPORATE ISSUERS:

As of November 10, 2014, there were 385,774,504 shares of the registrant's $0.001 par value common stock issued and outstanding.

 

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HDS INTERNATIONAL CORP.

TABLE OF CONTENTS

		Page
PART I.   FINANCIAL INFORMATION
ITEM 1.	FINANCIAL STATEMENTS.	3
	Consolidated Balance Sheets	3
	Consolidated Statements of Operations	4
	Consolidated Statements of Cash Flows	5
	Notes to the Consolidated Financial Statements	6
ITEM 2.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.	14
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.	16
ITEM 4.	CONTROLS AND PROCEDURES.	16
PART II.   OTHER INFORMATION
ITEM 1A.	RISK FACTORS.	16
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.	16
ITEM 5.	OTHER INFORMATION.	16
ITEM 6.	EXHIBITS.	17
Signatures		18
Exhibit Index		19

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PART I - FINANCIAL INFORMATION

HDS International Corp.

(A Development Stage Company)

Consolidated Balance Sheets

(expressed in U.S. dollars)

 

(The accompanying notes are an integral part of these consolidated financial statements)

 

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HDS International Corp.

(A Development Stage Company)

Consolidated Statements of Operations

(expressed in U.S. dollars)

(unaudited)

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HDS International Corp.

(A Development Stage Company)

Consolidated Statements of Cash Flows

(expressed in U.S. dollars)

(unaudited)

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HDS International Corp.

Notes to the Consolidated Financial Statements

(expressed in U.S. dollars)

(unaudited)

HDS International Corp. (the "Company") was incorporated on November 3, 2008 under the laws of the State of Nevada. The Company plans to engage in the business of providing renewable energy and eco-sustainability solutions based on its licensed technologies. A substantial portion of the Company's activities has involved developing a business plan and establishing contacts and visibility in the marketplace and the Company has not generated any revenue to date.  

On June 11, 2012, HDS Energy and Ecosystems NB, Ltd., the Company's wholly owned subsidiary, was incorporated in the Province of New Brunswick, Canada to manage the operations and other business development efforts.

These consolidated financial statements have been prepared on a going concern basis, which implies that the Company will continue to realize its assets and discharge its liabilities in the normal course of business. The Company has generated no revenues to date and has never paid any dividends and is unlikely to pay dividends or generate significant earnings in the immediate or foreseeable future.  As of September 30, 2014, the Company had a working capital deficiency of $1,358,650 and an accumulated deficit of $2,170,014. The continuation of the Company as a going concern is dependent upon the continued financial support from its shareholders, the ability to raise equity or debt financing, and the attainment of profitable operations from the Company's future business. These factors raise substantial doubt regarding the Company's ability to continue as a going concern. These consolidated financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. 

The consolidated financial statements for the periods ending September 30, 2014 and December 31, 2013 include the accounts of the Company, and HDS Energy and Ecosystems NB, Ltd., the Company's wholly owned subsidiary, effective June 11, 2012. All intercompany transactions and balances have been eliminated on consolidation.

These consolidated financial statements and related notes are presented in accordance with accounting principles generally accepted in the United States, and are expressed in US dollars. The Company's fiscal year-end is December 31.

The preparation of financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions related to the fair values of convertible debentures, derivative liability, stock-based compensation, and deferred income tax asset valuation allowances. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company's estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.

These interim unaudited consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements and in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the Company's financial position, results of operations and cash flows for the periods shown. The results of operations for such periods are not necessarily indicative of the results expected for a full year or for any future period.

The Company considers all highly liquid instruments with maturity of three months or less at the time of issuance to be cash equivalents. As of September 30, 2014 and December 31, 2013, the Company had no cash equivalents.

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HDS International Corp.

Notes to the Consolidated Financial Statements

(expressed in U.S. dollars)

(unaudited)

Intangible assets are carried at the purchased cost less accumulated amortization. Amortization is computed over the estimated useful lives of the respective assets, generally from fifteen to twenty years.

Long-lived assets and certain identifiable intangible assets to be held and used are reviewed for impairment whenever events or changes in circumstance indicate that the carrying amount of such assets may not be recoverable. Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition. Measurement of an impairment loss for long-lived assets and certain identifiable intangible assets that management expects to hold and use is based on the fair value of the asset. Long-lived assets and certain identifiable intangible assets to be disposed of are reported at the lower of carrying amount or fair value less costs to sell.

From time to time, the Company may issue convertible notes that may contain an embedded beneficial conversion feature. A beneficial conversion feature exists on the date a convertible note is issued when the fair value of the underlying common stock to which the note is convertible into is in excess of the remaining unallocated proceeds of the note after first considering the allocation of a portion of the note proceeds to the fair value of the warrants, if related warrants have been granted. The intrinsic value of the beneficial conversion feature is recorded as a debt discount with a corresponding amount to additional paid in capital. The debt discount is amortized to interest expense over the life of the note using the effective interest method.

From time to time, the Company may issue equity instruments that may contain an embedded derivative instrument which may result in a derivative liability. A derivative liability exists on the date the equity instrument is issued when there is a contingent exercise provision. The derivative liability is records at is fair value calculated by using an option pricing model such as a multi-nominal lattice model. The fair value of the derivative liability is then calculated on each balance sheet date with the corresponding gains and losses recorded in the consolidated statement of operations.

The Company computes net loss per share in accordance with ASC 260, Earnings Per Share, which requires presentation of both basic and diluted earnings per share (EPS) on the face of the income statement. Basic EPS is computed by dividing net loss available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing Diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive. At September 30, 2014, the Company had 290,909,091 (December 31, 2013 – 51,166,667) potentially dilutive shares from outstanding convertible debentures.

Potential benefits of income tax losses are not recognized in the accounts until realization is more likely than not. The Company has adopted ASC 740, Income Taxes, as of its inception. Pursuant to ASC 740, the Company is required to compute tax asset benefits for net operating losses carried forward. The potential benefits of net operating losses have not been recognized in these financial statements because the Company cannot be assured it is more likely than not it will utilize the net operating losses carried forward in future years.

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HDS International Corp.

Notes to the Consolidated Financial Statements

(expressed in U.S. dollars)

(unaudited)

ASC 220, Comprehensive Income, establishes standards for the reporting and display of comprehensive loss and its components in the financial statements. As at September 30, 2014 and December 31, 2013, the Company has no items that represent comprehensive loss and, therefore, has not included a schedule of comprehensive loss in the financial statements.

ASC 820, "Fair Value Measurements" and ASC 825, Financial Instruments, requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. It establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument's categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. It prioritizes the inputs into three levels that may be used to measure fair value:

Level 1

Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.

Level 2

Level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.

Level 3

Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.

Assets and liabilities measured at fair value on a recurring basis based on level 3 inputs were presented on the Company's balance sheet as at September 30, 2014 and December 31, 2013 as follows:

The carrying values of all of our other financial instruments, which include accounts payable and accrued liabilities, and amounts due to related parties approximate their current fair values because of their nature and respective maturity dates or durations.

The Company has limited operations and is considered to be in the development stage. During the period ended May 31, 2014, the Company has elected to early adopt Accounting Standards Update No. 2014-10, Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements. The adoption of this ASU allows the Company to remove the inception to date information and all references to development stage.

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HDS International Corp.

Notes to the Consolidated Financial Statements

(expressed in U.S. dollars)

(unaudited)

In July 2013, FASB issued ASU No. 2013-11, "Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists." The provisions of ASU No. 2013-11 require an entity to present an unrecognized tax benefit, or portion thereof, in the statement of financial position as a reduction to a deferred tax asset for a net operating loss carryforward or a tax credit carryforward, with certain exceptions related to availability. ASU No. 2013 11 is effective for interim and annual reporting periods beginning after December 15, 2013. The adoption of ASU No. 2013-11 did not have a material impact on the Company's consolidated financial statements.

The amendments apply to all public and private companies that report items of other comprehensive income. Public companies are required to comply with these amendments for all reporting periods (interim and annual). The amendments are effective for reporting periods beginning after December 15, 2012, for public companies. Early adoption is permitted. The adoption of ASU No. 2013-02 did not have a material impact on the Company's consolidated financial statements.

In January 2013, the FASB issued ASU No. 2013-01, Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities, which clarifies which instruments and transactions are subject to the offsetting disclosure requirements originally established by ASU 2011-11. The new ASU addresses preparer concerns that the scope of the disclosure requirements under ASU 2011-11 was overly broad and imposed unintended costs that were not commensurate with estimated benefits to financial statement users. In choosing to narrow the scope of the offsetting disclosures, the Board determined that it could make them more operable and cost effective for preparers while still giving financial statement users sufficient information to analyze the most significant presentation differences between financial statements prepared in accordance with U.S. GAAP and those prepared under IFRSs. Like ASU 2011-11, the amendments in this update will be effective for fiscal periods beginning on, or after January 1, 2013. The adoption of ASU 2013-01 did not have a material impact on the Company's consolidated financial statements.

The Company has implemented all new accounting pronouncements that are in effect.  These pronouncements did not have any material impact on the financial statements unless otherwise disclosed, and the Company does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.

a)

On June 7, 2013, the Company entered into a $32,500 convertible debenture with a non-related party. Under the terms of the debenture, the amount is unsecured, bears interest at 8% per annum, and is due on December 7, 2014. The note is convertible into shares of common stock 180 days after the date of issuance (December 4, 2013) at a conversion rate of 50% of the average of the five lowest closing bid prices of the Company's common stock for the thirty trading days ending one trading day prior to the date the conversion notice is sent by the holder to the Company. As at September 30, 2014, the Company recorded accrued interest of $2,962 (December, 31, 2013 - $1,475), which has been included in accounts payable and accrued liabilities.

In accordance with ASC 470-20, "Debt with Conversion and Other Options", the Company recognized the intrinsic value of the embedded beneficial conversion feature of $32,500 as additional paid-in capital and an equivalent discount which will be charged to operations over the term of the convertible note. On April 9, 2014, the Company issued 8,571,429 common shares for the conversion of $12,000 of this debenture. During the period ended September 30, 2014, the Company had amortized $18,888 (December, 31, 2013 - $4,116) of the debt discount to interest expense. As at September 30, 2014, the carrying value of the debenture was $11,004 (December, 31, 2013 - $4,116).

On December 4, 2013, the note became convertible resulting in the Company recording a derivative liability of $46,532 with a corresponding adjustment to loss on change in fair value of derivative liabilities. As at September 30, 2014, the Company revalued the derivative liability to its fair value resulting in the Company recording $9,956 (December 31, 2013 - $1,011) as a gain on change in fair value of derivative liabilities. As at September 30, 2014, the fair value of the derivative liability was $18,179 (December, 31, 2013 - $45,521). Refer to Note 4.

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HDS International Corp.

Notes to the Consolidated Financial Statements

(expressed in U.S. dollars)

(unaudited)

b)

On July 15, 2013, the Company entered into a $27,500 convertible debenture with a non-related party. Under the terms of the debenture, the amount is unsecured, bears interest at 8% per annum, and is due on January 16, 2015. The note is convertible into shares of common stock 180 days after the date of issuance (January 11, 2014) at a conversion rate of 50% of the average of the five lowest closing bid prices of the Company's common stock for the thirty trading days ending one trading day prior to the date the conversion notice is sent by the holder to the Company. As at September 30, 2014, the Company recorded accrued interest of $2,664 (December, 31, 2013 - $1,019), which has been included in accounts payable and accrued liabilities.

In accordance with ASC 470-20, "Debt with Conversion and Other Options", the Company recognized the intrinsic value of the embedded beneficial conversion feature of $27,500 as additional paid-in capital and an equivalent discount which will be charged to operations over the term of the convertible note. During the period ended September 30, 2014, the Company had amortized $11,352 (December, 31, 2013 - $2,779) of the debt discount to interest expense. As at September 30, 2014, the carrying value of the debenture was $14,131 (December, 31, 2013 - $2,779).

On January 11, 2014, the note became convertible resulting in the Company recording a derivative liability of $36,272 with a corresponding adjustment to loss on change in fair value of derivative liabilities. As at September 30, 2014, the Company revalued the derivative liability to its fair value resulting in the Company recording $12,611 (December 31, 2013 - $nil) as a gain on change in fair value of derivative liabilities. As at September 30, 2014, the fair value of the derivative liability was $23,661 (December, 31, 2013 - $nil). Refer to Note 4.

c)

On October 4, 2013, the Company entered into a $32,500 convertible debenture with a non-related party. Under the terms of the debenture, the amount is unsecured, bears interest at 8% per annum, and is due on July 8, 2015. The note is convertible into shares of common stock 180 days after the date of issuance (April 2, 2014) at a conversion rate of 50% of the average of the five lowest closing bid prices of the Company's common stock for the thirty trading days ending one trading day prior to the date the conversion notice is sent by the holder to the Company. As at September 30, 2014, the Company recorded accrued interest of $2,572 (December, 31, 2013 - $627), which has been included in accounts payable and accrued liabilities.

In accordance with ASC 470-20, "Debt with Conversion and Other Options", the Company recognized the intrinsic value of the embedded beneficial conversion feature of $32,500 as additional paid-in capital and an equivalent discount which will be charged to operations over the term of the convertible note. During the period ended September 30, 2014, the Company had amortized $5,513 (December, 31, 2013 - $1,618) of the debt discount to interest expense. As at September 30, 2014, the carrying value of the debenture was $7,131 (December, 31, 2013 - $1,618).

On April 2, 2014, the note became convertible resulting in the Company recording a derivative liability of $47,794 with a corresponding adjustment to loss on change in fair value of derivative liabilities. As at September 30, 2014, the Company revalued the derivative liability to its fair value resulting in the Company recording $3,447 (December 31, 2013 - $nil) as a gain on change in fair value of derivative liabilities. As at September 30, 2014, the fair value of the derivative liability was $44,347 (December, 31, 2013 - $nil). Refer to Note 4.

d)

On February 18, 2014, the Company entered into a $15,500 convertible debenture with a non-related party. Under the terms of the debenture, the amount is unsecured, bears interest at 8% per annum, and is due on August 20, 2015. The note is convertible into shares of common stock 180 days after the date of issuance (August 17, 2014) at a conversion rate of 50% of the average of the five lowest closing bid prices of the Company's common stock for the thirty trading days ending one trading day prior to the date the conversion notice is sent by the holder to the Company. As at September 30, 2014, the Company recorded accrued interest of $761 (December, 31, 2013 - $nil), which has been included in accounts payable and accrued liabilities.

In accordance with ASC 470-20, "Debt with Conversion and Other Options", the Company recognized the intrinsic value of the embedded beneficial conversion feature of $15,500 as additional paid-in capital and an equivalent discount which will be charged to operations over the term of the convertible note. During the period ended September 30, 2014, the Company had amortized $1,197 (December, 31, 2013 - $nil) of the debt discount to interest expense. As at September 30, 2014, the carrying value of the debenture was $1,197 (December, 31, 2013 - $nil).

On August 17, 2014, the note became convertible resulting in the Company recording a derivative liability of $21,750 with a corresponding adjustment to loss on change in fair value of derivative liabilities. As at September 30, 2014, the Company revalued the derivative liability to its fair value resulting in the Company recording $939 (December 31, 2013 - $nil) as a gain on change in fair value of derivative liabilities. As at September 30, 2014, the fair value of the derivative liability was $20,811 (December, 31, 2013 - $nil). Refer to Note 4.

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HDS International Corp.

Notes to the Consolidated Financial Statements

(expressed in U.S. dollars)

(unaudited)

The Company records the fair value of the of the conversion price of the convertible debentures disclosed in Notes 3(a) and 3(b) in accordance with ASC 815, Derivatives and Hedging. The fair value of the derivative was calculated using a multi-nominal lattice model performed by an independent qualified business valuator. The fair value of the derivative liability is revalued on each balance sheet date with corresponding gains and losses recorded in the consolidated statement of operations. During the period ended September 30, 2014, the Company recorded a loss on the change in fair value of derivative liability of $78,863 (December, 31, 2013 - $45,521). As at September 30, 2014, the Company recorded a derivative liability of $106,998 (December, 31, 2013 - $45,521).

The following inputs and assumptions were used to value the convertible debentures outstanding during the period ended September 30, 2014 and December 31, 2013:

·	The underlying stock price of $0.0014 was used as the fair value of the common stock as at December 31, 2013.

·	The underlying stock price of $0.0013 was used as the fair value of the common stock as at September 30, 2014.

·	The principal of the debenture on the June 7, 2013 date of issuance was $32,500.

·	The balance of the principal and interest of the June 7, 2013 debenture on December 4, 2013, the date the June 7, 2013 debenture became convertible, was $33,775.

·	The balance of the principal and interest of the June 7, 2013 debenture on December 31, 2013 was $33,975.

·	The balance of the principal and interest of the June 7, 2013 debenture on September 30, 2014 was $23,462.

·	The principal of the debenture on the July 15, 2013 date of issuance was $27,500.

·	The balance of the principal and interest of the July 15, 2013 debenture on January 11, 2014, the date the July 15, 2013 debenture became convertible, was $28,579.

·	The balance of the principal and interest of the July 15, 2013 debenture on September 30, 2014 was $30,164.

·	The principal of the debenture on the October 4, 2013 date of issuance was $32,500.

·	The balance of the principal and interest of the October 4, 2013 debenture on April 2, 2014, the date the October 4, 2013 debenture became convertible, was $33,782.

·	The balance of the principal and interest of the October 4, 2013 debenture on September 30, 2014 was $35,072.

·	The principal of the debenture on the February 18, 2014 date of issuance was $15,500.

·	The balance of the principal and interest of the February 18, 2014 debenture on August 17, 2014, the date the February 18, 2014 debenture became convertible, was $16,112.

·	The balance of the principal and interest of the February 18, 2014 debenture on September 30, 2014 was $16,261.

·	Capital raising events are not a factor for the debenture.

·	The Holder would redeem based on availability of alternative financing 0% of the time increasing 1.0% monthly to a maximum of 10%.

·	The Holder would automatically convert the note at maturity if the registration (after 120 days) was effective and the Company is not in default.

·

The projected annual volatility for each valuation period was based on the historic volatility of the Company of 178% as at December 4, 2013, 176% as at December 31, 2013, 175% as at January 11, 2014, 172% as at April 9, 2014, 176% as at June 30, 2014, 176% as at August 17, 2014 and 170% as at September 30, 2014.

·	An event of default would occur 0% of the time, increasing to 1.0% per month to a maximum of 5%. To date, the debenture is not in default nor converted by the Holder.

A summary of the activity of the derivative liability is shown below:

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HDS International Corp.

Notes to the Consolidated Financial Statements

(expressed in U.S. dollars)

(unaudited)

a)

As at September 30, 2014, the Company owes $300,000 (December 31, 2013 - $300,000) to a company controlled by officers and directors of the Company.  The amount owing is unsecured, bears interest at 10% per annum, and is due on demand.  As at September 30, 2014, the Company has recorded accrued interest of $94,658 (December 31, 2013 - $72,219) which has been included in accounts payable and accrued liabilities – related party.

b)

As at September 30, 2014, the Company owes $15,225 (December 31, 2013 - $10,225) to companies under common control by officers and directors of the Company which has been included in accounts payable and accrued liabilities – related parties. The amounts owing are unsecured, non-interest bearing, and due on demand.

c)

During the period ended September 30, 2014, the Company has incurred $90,000 (December 31, 2013 - $45,000) to the President and CEO of the Company for consulting services. As at September 30, 2014, the Company recorded a related party accounts payable of $150,000 (December 31, 2013 - $60,000), which has been included in accounts payable and accrued liabilities – related party. The amounts owing are unsecured, non-interest bearing, and due on demand.

d)

As at September 30, 2014, the Company owes $5,768 (December 31, 2013 – $800) to the President and CEO of the Company for reimbursement of expenses which has been included in accounts payable and accrued liabilities – related parties.  The amount owing is unsecured, non-interest bearing, and due on demand.

a)

On October 12, 2011, the Company entered into a verbal consulting agreement with a non-related party whereby the Company will pay a monthly consulting fee for services provided in the amounts of $3,000. The agreement is for a one month term automatically renewing in each successive month unless earlier terminated. On July 18, 2012, the Board of Directors reviewed the consulting agreement and authorized an increase to the monthly consulting fee from $3,000 to $3,750 per month beginning July 2012. On October 1, 2012, the Board of Directors reviewed the consulting agreement and adjusted the consulting fee from $3,750 to $3,000 per month beginning October 2012. On April 8, 2014, The Board of Directors reviewed the consulting agreement and adjusted the consulting fee from $3,000 to $500 per month effective January 1, 2014.

During the period ended September 30, 2014, the Company incurred $4,500 (December 31, 2013 - $36,000) in consulting fees relating to this agreement, of which $46,500 (December 31, 2013 - $42,000) has been recorded in accounts payable and accrued liabilities as at September 30, 2014.

b)

On October 12, 2011, the Company entered into a consulting agreement with a non-related party whereby the Company will pay a monthly consulting fee for services provided in the amounts of $27,500. The agreement is for a one month term automatically renewing in each successive month unless earlier terminated. On April 8, 2014, The Board of Directors reviewed the consulting agreement and adjusted the consulting fee from $27,500 to $21,500 per month effective January 1, 2014.

During the period ended September 30, 2014, the Company incurred $193,500 (December 31, 2013 - $330,000) in consulting fees relating to this agreement, of which $577,000 (December 31, 2013 - $383,500) has been recorded in accounts payable and accrued liabilities as at September 30, 2014.

c)

On October 12, 2011, the Company entered into a consulting agreement with the President and CEO of the Company whereby the Company will pay a monthly consulting fee for services provided in the amounts of $3,000. The agreement is for a one month term automatically renewing in each successive month unless earlier terminated. On June 10, 2012, the Board of Directors authorized an increase to the monthly consulting fee from $3,000 to $6,000 per month beginning June 2012. On July 18, 2012, the Board of Directors reviewed the consulting agreement and adjusted the monthly consulting fee to $3,750 beginning July 2012. On April 8, 2014, The Board of Directors reviewed the consulting agreement and adjusted the consulting fee from $3,750 to $10,000 per month effective January 1, 2014.

During the year ended September 30, 2014, the Company incurred $90,000 (December 31, 2013 - $45,000) in consulting fees relating to this agreement, of which $150,000 (December 31, 2013 - $60,000) has been recorded in accounts payable and accrued liabilities – related parties as at September 30, 2014.

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HDS International Corp.

Notes to the Consolidated Financial Statements

(expressed in U.S. dollars)

(unaudited)

d)

On January 2, 2013, the Company entered into a consulting agreement with The Holden Group, LLC ("Holden") whereby the Company paid Holden $2,000 and issued 600,000 restricted common shares of the Company upon the execution of the agreement as well as pay $500 on each of the first, second and third month anniversaries of the agreement. These final three payments have been accrued and recorded in accounts payable and accrued liabilities.

On October 21, 2014, the Company issued 38,520,000 common shares for the conversion of $9,630 of the convertible debenture, as noted in Note 3(a).

On October 28, 2014, the Company issued 38,520,000 common shares for the conversion of $9,630 of the convertible debenture, as noted in Note 3(a).

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ITEM 2.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OR PLAN OF OPERATION.

Forward Looking Statements

This Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) contains forward-looking statements that involve known and unknown risks, significant uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed, or implied, by those forward-looking statements.  You can identify forward-looking statements by the use of the words may, will, should, could, expects, plans, anticipates, believes, estimates, predicts, intends, potential, proposed, or continue or the negative of those terms.  These statements are only predictions. In evaluating these statements, you should consider various factors which may cause our actual results to differ materially from any forward-looking statements.  Although we believe that the exceptions reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements.  Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements.  We undertake no obligation to revise or update publicly any forward-looking statements for any reason.

We are considered a start-up corporation.  Our auditors have issued a going concern opinion on the financial statements for the year ended December 31, 2013.

RESULTS OF OPERATIONS

Working Capital

Cash Flows

Operating Revenues

We have not generated any revenues since inception.

Operating Expenses and Net Loss

Operating expenses for the three months ended September 30, 2014 were $101,230 compared with $240,520 for the three months ended September 30, 2013. The decrease in operating expenses was attributed to a decrease in consulting fees of $192,000, professional fees of $21,480, general and administrative fees of $2,686 for day-to-day operating costs, and transfer agent fees of $20. For the nine months ended September 30, 2014 the Company incurred operating expenses of $317,416 compared with $364,600 for the nine months ended September 30, 2013. The decrease in operating expenses was attributed to a decrease in consulting fees of $111,750, professional fees of $16,426, general and administrative fees of $768 for day-to-day operating costs, and transfer agent fees of $240.

During the nine months ended September 30, 2014, the Company recorded a net loss of $467,292 compared with net loss of $395,168 for the nine months ended September 30, 2013. In addition to the above, the Company incurred an increase of $40,445 of interest expense relating to debt balances and $78,863 for loss on the change in fair value of derivatively liabilities.

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Liquidity and Capital Resources

As at September 30, 2014, the Company's cash balance was $163 compared to cash balance of $3,371 as at December 31, 2013. As at September 30, 2014, the Company's total assets were $2,594 compared to total assets of $10,056 as at December 31, 2013. The decrease in the cash balance and total assets was attributed to the use of cash for operations.

As at September 30, 2014, the Company had total liabilities of $1,361,244 compared with total liabilities of $946,300 as at December 31, 2013. The increase in total liabilities is attributed to an increase of account payable and accrued liabilities of $328,517, $206,110 of which pertained to trade accounts payable and $122,407 pertained to related party accounts payable and accrued liabilities as well as an increase in convertible debentures of $24,950 and derivative liabilities of $61,477.

As at September 30, 2014, the Company has a working capital deficit of $1,358,650 compared with working capital deficit of $938,532 at December 31, 2013 with the increase in the working capital deficit attributed to the increases in accounts payable and accrued liabilities, convertible debentures and derivative liabilities during the period as discussed above.

Cashflow from Operating Activities

During the nine months ended September 30, 2014, the Company used $28,176 of cash for operating activities compared to the use of $55,312 of cash for operating activities during the nine months ended September 30, 2013.  The decrease in the level of cash used for operating activities was due to the increase in non-cash accretion of debt discount, amortization and deferred financing costs and loss on change in fair value of derivative liability as well as the change in the level of accounts payable and accrued liabilities – related parties offset by an increase in net loss as well as the change in the level of accounts payable and accrued liabilities.

Cashflow from Financing Activities

During the nine months ended September 30, 2014, the Company received $24,968 of proceeds from financing activities compared to $53,000 during the nine months ended September 30, 2013. The decrease in proceeds from financing activities was due to the Company receiving proceeds of  $15,000 for the issuance of a convertible debenture and $9,968 from a related party compared to the prior year  amount of $53,000 which related to proceeds received from the issuance of convertible debentures.

Subsequent Developments

None

Going Concern

We have not attained profitable operations and are dependent upon the continued financial support from our shareholders, the ability to raise equity or debt financing, and the attainment of profitable operations from our future business. These factors raise substantial doubt regarding our ability to continue as a going concern.

Off-Balance Sheet Arrangements

We have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to stockholders.

Future Financings

We will continue to rely on equity sales of our common shares in order to continue to fund our business operations. Issuances of additional shares will result in dilution to existing stockholders. There is no assurance that we will achieve any additional sales of the equity securities or arrange for debt or other financing to fund our operations and other activities.

 

As long as we obtain loans from convertible debenture agreements, our stock prices are anticipated to depress, based on our historical market illiquidity and the business model of our convertible note holders, which typically involves them selling shares received upon conversion.  Under the terms of the debenture we borrow money, the note is repayable or convertible after a certain period of time.  If we do not repay the money, the holder exercises the conversion privilege and converts the note into our shares of common stock.  The holder seeks financial gain on the transaction, therefore, desires a low share price prior to conversion to obtain as many shares of stock as possible.  The holder may then sell the shares received into the open market.  If the holder has more than one debenture with the company the holder desires the share price to be low on conversion and high on sale.  As long as our company has convertible debenture agreements our stock prices are likely to be depressed.

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We regularly evaluate the accounting policies and estimates that we use to prepare our consolidated financial statements. A complete summary of these policies is included in the notes to our consolidated financial statements. In general, management's estimates are based on historical experience, on information from third party professionals, and on various other assumptions that are believed to be reasonable under the facts and circumstances. Actual results could differ from those estimates made by management.

Recently Issued Accounting Pronouncements

The Company has implemented all new accounting pronouncements that are in effect. These pronouncements did not have any material impact on the financial statements unless otherwise disclosed, and the Company does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.

 

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.

 

Under the supervision and with the participation of our management, including the Principal Executive Officer and Principal Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures as required by Exchange Act Rule 13a-15(b) as of the end of the period covered by this report. Based on that evaluation, the Principal Executive Officer and Principal Financial Officer have concluded that these disclosure controls and procedures are not effective due to the material weaknesses resulting from the Board of Directors not currently having any independent members and no director qualifies as an audit committee financial expert as defined in Item 407(d)(5)(ii) of Regulation S-K, and controls were not designed and in place to ensure that all disclosures required were originally addressed in our financial statements. Please refer to our Annual Report on Form 10-K as filed with the SEC on April 7, 2014, for a complete discussion relating to the foregoing evaluation of Disclosures and Procedures.

There were no changes in our internal control over financial reporting during the quarter ended September 30, 2014 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following person on behalf of the Registrant and in the capacities on this 18^th day of November, 2014.

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EXHIBIT INDEX