Don't Get Left Holding The Chess Supersite Corp (OTCMKTS:CHZP) Bag

Chess Supersite Corp (OTCMKTS:CHZP) closed out the US session on Monday with a market capitalization just shy of $10 million. The company is up more than 60% since July 12, on far higher than normal volume. We're not sure who is buying stock, but they're taking a massive risk. Take a quick look under the surface of weak press releases and 8Ks, and it's hard to argue that this company is anything but a shell funneling cash to its owners. Here's why.First, the company. It runs a website called chesssupersite.com, which used to be chesscoliseum.com. Essentially, this site is the company's only asset. Take a look at the site. It's a JavaScript application with an interface that looks like it was put together more than a decade ago. It's a website designed to be a place where chess players come together and compete with each other and – more recently – are rewarded for watching and interacting while grandmasters play. Online chess is a saturated space. With mobile device based applications dominating interactive gameplay, web application based play is almost redundant.So it's a $10 million company – there must be something under the hood that suggests growth? No.Revenues are no existent, literally zero, since inception. Net loss for the first quarter of 2016 came in at $428K. Nearly 60% of this derived from $245K in advisory and consultancy fees during the quarter. $75K went to management services payments to two people, Rubin Schindermann and Alexander Starr (strangely, Alexander is also referred to as Sasha Starr in a number of filings. Example here). The former is CEO, the latter, President. The company is listed as having 2 employees only. There's also nearly $470K outstanding payable to – yes, that's right – Schindermann and Starr:

"At March 31, 2016 we had $469,250 of amount payable to related parties as compared to $400,000 as at December 31, 2015. The balance represents management services fee outstanding to the two shareholder/managers of the Company."

And that's not all.There is raft of outstanding promissory notes, issued to two investors as of March 1, 2016, worth a total $300K principal. They are highly dilutive (redeemable at a conversion price equal to 45% of the company's lowest trading price come conversion day) and ultra short term – maturity is September 1.The 8K is here, and doesn’t detail the identity of the investors in question. Who might these unnamed two investors be? It's not unreasonable to assume that, once again, its Starr and Schinderman.In the interest of balance, we must mention that as late, there does seem to be a push towards revenue generation. The company is sponsoring tournaments, has enlisted Kasparov as an advisor (which will presumably draw attention to the site) and picked up a patent for a new type of competitive online play. It's still early days, and techs like this rarely generate any revenues until they are established. Give the site a decade, and it might have made some headway in the space.Right now, however, there's practically nothing to justify the $10 million valuation, and the financing and accounting is suspicious. The gaming system at the core of its operation cost just $21K to build, and it's a two-man operation, with both men standing to gain considerably from a market capitalization boost.Cash on hand is around $200K, and there's no doubt dilutive raises are the order of the day going forward:

"To date we have relied on third parties to provide financing for our operations by way of private placements. The proceeds may not be sufficient to effectively develop our business to the fullest extent to allow us to maximize our revenue potential, in which case, we will need additional capital."

This one could turn sour quickly. Don't get left holding the bag.Stick with us for CHZP updates by subscribing to our newsletter using the box below.Disclosure: We have no position in CHZP and have not been compensated for this article.