Item 1. Consolidated Financial Statements
SOURCE FINANCIAL, INC.
CONSOLIDATED FINANCIAL
STATEMENTS
September 30, 2016
Table of Contents
(Unaudited)
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Page
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Consolidated
Balance Sheets
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2
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Consolidated
Statements of Operations
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3
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Consolidated
Statements of Cash Flows
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4
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Notes
to the Consolidated Financial Statements
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5
- 7
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Source Financial, Inc.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
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September 30,
2016
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December 31,
2015
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ASSETS
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CURRENT ASSETS:
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Cash and cash equivalents
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$
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9,818
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$
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452
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Prepaid
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5,000
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-
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Convertible notes receivable
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200,000
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-
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Total Current Assets
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214,818
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452
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Intangible assets, net of accumulated amortization of $10,007 and $5,365, respectively
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29,801
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31,169
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TOTAL ASSETS
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$
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244,619
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$
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31,621
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LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
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CURRENT LIABILITIES:
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Accounts payable and accrued expenses
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$
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118,611
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$
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-
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Advances from affiliate
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8,580
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-
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Notes payable
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8,000
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-
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Convertible notes payable
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250,000
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-
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Total Current Liabilities
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385,191
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-
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TOTAL LIABILITIES
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385,191
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-
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STOCKHOLDERS’ EQUITY (DEFICIT)
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Preferred stock, $0.01 par value, 10,000 shares authorized, designated as Series C Preferred stock, 4,500 issued and outstanding as of September 30, 2016 and December 31, 2015, respectively
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45
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45
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Common stock, $0.001 par value, 12,000,000 shares authorized, 5,804,317 and 1,659,574 shares issued and outstanding as of September 30, 2016 and December 31, 2015, respectively
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5,804
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1,660
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Additional paid in capital
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132,531
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140,244
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Accumulated deficit
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(278,952
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)
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(110,328
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)
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Total Stockholders’ Equity (Deficit)
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(140,572
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)
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31,621
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TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
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$
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244,619
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$
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31,621
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The accompanying notes are an
integral part of these financial statements.
Source Financial,
Inc.
CONSOLIDATED
STATEMENTS OF OPERATIONS
(UNAUDITED)
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For the
Three Months Ended
September 30,
2016
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For the
Three Months Ended
September 30,
2015
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For the
Nine Months Ended
September 30,
2016
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For the
Nine Months Ended
September 30,
2015
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EXPENSES
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General Administrative
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$
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153,692
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$
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6,087
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$
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167,987
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|
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$
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11,475
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TOTAL EXPENSES
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153,692
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6,087
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167,987
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11,475
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Loss from operations
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(153,692
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)
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(6,087
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)
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(167,987
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)
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|
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(11,475
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)
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|
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|
|
|
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OTHER EXPENSES
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Interest Expense
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(307
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)
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(3,270
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)
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(637
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)
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(9,270
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)
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TOTAL OTHER EXPENSES
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(307
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)
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(3,270
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)
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(637
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)
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(9,270
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)
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|
|
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NET LOSS
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$
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(153,999
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)
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$
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(9,357
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)
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$
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(168,624
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)
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$
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(20,745
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)
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NET LOSS PER SHARE:
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BASIC AND DILUTED
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$
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(0.03
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)
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$
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(0.01
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)
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$
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(0.04
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)
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$
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(0.01
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)
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WEIGHTED AVERAGE SHARES OUTSTANDING:
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BASIC AND DILUTED
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5,804,317
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1,580,757
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3,752,260
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1,548,374
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The accompanying notes are an
integral part of these financial statements
Source Financial, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 2016
and 2015
(UNAUDITED)
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September 30,
2016
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September 30,
2015
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CASH FLOWS USED IN OPERATING ACTIVITIES
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Net loss
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$
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(168,624
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)
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$
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(20,745
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)
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Adjustments to reconcile net loss to cash used in operating activities:
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Amortization of intangible assets
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4,642
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|
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|
–
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Changes in operating assets and liabilities
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Prepaid
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(5,000
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)
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–
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Accounts payable and accrued expenses
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115,024
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9,270
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Net Cash Used in Operating Activities
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(53,958
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)
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(11,475
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)
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CASH FLOWS FROM INVESTING ACTIVITIES
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|
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Purchase of intangible assets
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(3,256
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)
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(4,000
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)
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Convertible note receivable
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(200,000
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)
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|
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–
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Net Cash Used in Investing Activities
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|
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(203,256
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)
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(4,000
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)
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CASH FLOWS FROM FINANCING ACTIVITIES
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|
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Proceeds from convertible notes payable
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250,000
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10,000
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Advances from affiliate
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8,580
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5,080
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Proceeds from notes payable
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|
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8,000
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|
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–
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Net Cash Provided by Financing Activities
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266,580
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15,080
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NET CHANGE IN CASH
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|
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9,366
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(395
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)
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CASH – BEGINNING
|
|
|
452
|
|
|
|
518
|
|
CASH – ENDING
|
|
$
|
9,818
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|
|
$
|
123
|
|
Supplemental Cash Flow Information:
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|
|
|
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Cash paid for:
|
|
|
|
|
|
|
|
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Interest
|
|
$
|
–
|
|
|
$
|
–
|
|
Income taxes
|
|
$
|
–
|
|
|
$
|
–
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of non-cash transactions:
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|
|
|
|
|
|
|
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Common stock for advances
|
|
$
|
–
|
|
|
$
|
110,000
|
|
Common stock for intangible assets
|
|
$
|
18
|
|
|
$
|
–
|
|
Net liabilities assumed in connection with recapitalization
|
|
$
|
3,587
|
|
|
$
|
–
|
|
The accompanying notes are an
integral part of these financial statements
Source Financial, Inc.
Notes to the Consolidated Financial Statements
September 30, 2016
(UNAUDITED)
Note 1 - Organization, Description of Business, and Basis of
Accounting
Business Organization
On June 30, 2016, Source Financial, Inc. (“Source
Financial” or “the Company”) entered into a Share Exchange Agreement with Venture Track. Pursuant to the Share
Exchange Agreement, Venture Track agreed to exchange 100% of its outstanding common stock for 3,089,360 shares of common stock
and 4,500 shares of Series C Convertible Preferred Stock, par value $0.01 per share (the “Series C Preferred Stock”),
of Source Financial. The 4,500 shares of Series C Preferred Stock are convertible into 6,893,100 shares of the Company’s
common stock, at the rate of 1,531.80 per share. The share exchange is accounted for as a reverse merger with Venture Track being
the accounting acquirer as it retained control of Source Financial after the exchange. Source Financial is the legal parent company;
the share exchange was treated as a recapitalization of Venture Track.
Venture Track, Inc. was originally incorporated
in the state of Delaware in February 2014 as Songstress, Inc. On May 13, 2015, the Company changed its name to Scoocher, Inc. and
then to Venture Track, Inc. in February 2016.
The Company is a development stage company that
launched a proprietary Content Monetization Engine that provides the music industry with a safe, simple and reliable platform to
monetize new and existing content on the Internet.
Basis of Presentation
The accompanying unaudited interim consolidated
financial statements have been prepared in accordance with United States generally accepted accounting principles for interim financial
information. However, except as disclosed herein, there has been no material changes in the information disclosed in the notes
to the financial statements for the year ended December 31, 2015. These interim unaudited consolidated financial statements should
be read in conjunction with those financial statements. In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included. Operating results for the nine-month period ended September
30, 2016, are not necessarily indicative of the results that may be expected for the year ended December 31, 2016.
The accompanying consolidated financial statements include the accounts
of Source Financial, Inc. and its wholly owned subsidiary Venture Track, Inc. and have been prepared in accordance with accounting
principles generally accepted in the United States. All significant intercompany transactions and balances have been eliminated
in consolidation.
Note 2 - Going Concern
The accompanying consolidated financial statements
have been prepared assuming the Company will continue as a going concern, which contemplates the realization of assets and the
liquidation of liabilities in the normal course of business. At September 30, 2016, the Company had accumulated losses of $278,952. These
conditions raise substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial
statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amount
of liabilities that might be necessary should the Company be unable to continue as a going concern. The Company’s continued
existence is dependent upon its ability to generate sufficient cash flows from operations to support its daily operations as well
as provide sufficient resources to retire existing liabilities and obligations on a timely basis. It is the intent of management
and significant stockholders to provide sufficient working capital necessary to support and preserve the integrity of the corporate
entity. However, no formal commitments or arrangements to advance or loan funds to the Company or repay any such advances
or loans exist.
Note 3 - Convertible Note Receivable
On September 20, 2016, the Company entered into a Binding Memorandum
of Understanding (“MOU”) agreement with CSES Group, Inc. In connection with the MOU the Company will provide a minimum
of $250,000 in bridge loans to CSES Group, Inc., bearing interest at the rate of 10% per annum. The Company plans to adopt and
execute a Share Exchange of the two corporate entities. Upon completion of the merger, the $250,000 notes shall be automatically
converted into shares of SFII (new company) class A common stock at an issue price of $0.07.
In the event the merger is not consummated by the date the first
quarterly payment is due (January 15, 2017), or in the event that the MOU is terminated by the Company pursuant to the terms as
stated therein, CSES Group, Inc. has agreed to issue common stock to the Company equal to five percent (5%) of their then issued
and outstanding common stock on a fully diluted basis at the time of exercise. Upon exercise of this right by the Company, the
Note shall be canceled. As of September 30, 2016, the Company has advanced CSES Group, Inc. $200,000.
Note 4 - Related Party Transactions
The Company receives advances from an affiliate of the Company for
operation expenses. These advances, which are due on demand, have an interest rate of 12% per annum and have no collateral. As
of September 30, 2016, the Company has advances outstanding of $8,580.
Note 5 - Notes Payable
On March 21, 2016, the Company entered into a 6-month promissory
note agreement of $3,000. The note payable, which was due on September 21, 2016, has an interest rate of 12% per annum and is unsecured.
On September 21, 2016, the note was amended to a 1-year promissory note and is now due on March 21, 2017. As of September 30, 2016,
the Company has an outstanding balance of $3,000.
On March 23, 2016, the Company entered into a 6-month promissory
note agreement of $5,000. The note payable, which was due on September 23, 2016, has an interest rate of 12% per annum and is unsecured.
On September 23, 2016, the note was amended to a 1-year promissory note and is now due on March 23, 2017. As of September 30, 2016,
the Company has an outstanding balance of $5,000.
Note 6 - Convertible Notes Payable
On September 14, 2016, the Company entered into a demand convertible
promissory note agreement of $250,000. The note payable, which has quarterly interest only payments, has an interest rate of 5%
per annum, no maturity date and is unsecured. As of September 30, 2016, the Company has an outstanding balance of $250,000. The
noteholder is entitled, at its option, to convert, at any time and from time to time, until payment in full, all or any part of
the principal amount, into a total of 4,464,256 shares (or fraction thereof in the event of a partial conversion or conversions)
of the Company’s common stock.
Note 7 – Stockholders’ Equity
Preferred Stock
The Company has 10,000 shares of Preferred Stock authorized, each
having a par value of $0.01 per share, of which 5,000 shares are designated as Series C Preferred Stock. At September 30, 2016
and December 31, 2015, there were 4,500 Series C Preferred Stock issued and outstanding.
Effective June 30, 2016, we completed a reverse merger, as agreed
in the definitive Share Exchange Agreement, of 100% of the outstanding equity interests of Venture Track, Inc. Venture Track shareholders
received 3,089,360 shares of common stock and 4,500 shares of Series C Convertible preferred stock for approximately 80% equity
interest in the Company. The Company assumed $3,587 in liabilities at the time of closing.
Common Stock
The Company has 12,000,000 common shares authorized at a par value
of $0.001. At September 30, 2016 and December 31, 2015, there were 5,804,317 and 1,659,574 shares issued and outstanding, respectively.
On February 9, 2016, the Company purchased from a shareholder of
the Company, all rights, title and interest in and to the development of the apps and the business plan of Spider Investments,
LLC in exchange for the issuance of 1,429,786 shares of Common Stock for a total value of $18, the intangibles original basis.
On June 30, 2016, prior to the merger with Venture Track, Inc.,
Source Financial, Inc. entered into a Share Exchange Agreement (the “Moneytech Agreement”) with Moneytech Group Pty
Ltd. and certain shareholders of Source Financial, Inc. Pursuant to the terms of the Moneytech Agreement, an aggregate of 6,076,679
shares of Source Financial’s common stock and 5,000 shares of Series B Preferred Stock were to be cancelled, and a total
of 2,714,957 shares of Source Financial’s common stock were still outstanding. Source Financial was only able to cancel 6,053,004
shares of their common stock and 5,000 shares of Series B Preferred Stock. Source Financial was unable to cancel 23,675 shares
of common stock in accordance with the Moneytech Share Exchange Agreement.
On June 30, 2016, Source Financial, Inc. (“Source Financial”)
entered into a Share Exchange Agreement with Venture Track. Pursuant to the Share Exchange Agreement, Venture Track agreed to exchange
100% of its outstanding common stock for 3,089,360 shares of common stock and 4,500 shares of Series C Convertible Preferred Stock,
par value $0.01 per share (the “Series C Preferred Stock”), of Source Financial. The 4,500 shares of Series C Preferred
Stock are convertible into 6,893,100 shares of the Company’s common stock, at the rate of 1,531.80 per share. The share exchange
is accounted for as a reverse merger with Venture Track being the accounting acquirer as it retained control of Source Financial,
Inc. after the exchange. Source Financial is the legal parent company; the share exchange was treated as a recapitalization of
Venture Track.
On September 27, 2016, the Company issued 100,000 shares of common
stock in connection with a Separation Agreement dated February 11, 2014.
Note 8 – Stock Options
On August 22, 2013, the Company granted 25,000 Stock Options to
a contractor. These Stock Options are exercisable at an exercise price of $1.30 per share. The options vested and became exercisable
immediately upon granting and expired on August 22, 2016. The stock options were valued based on the value of his services. On
August 22, 2016, the stock options were not exercised and expired.
Note 9 – Litigation
A dispute arose amongst a consultant and the Company regarding $108,000
in payments made by consultant on behalf of the Company in 2014 and 2013. The Parties agreed that all lawsuits, claims and controversies
between them are settled with the Company’s payment of 750,000 shares of common stock to consultant. On October 10, 2016,
the Company issued 750,000 shares of common stock to consultant for settlement. As of September 30, 2016, $108,000 has been accrued.
Note 10 – Subsequent Events
On October 3, 2016, the Company issued a total of 467,000 shares
of common stock to two consultants for consulting services.
On October 10, 2016, the Company issued 750,000 shares of common
stock, as per the settlement agreement.
Item 2. Management’s Discussion and Analysis of Financial
Condition and Results of Operations
This quarterly report on Form 10-Q
and other reports filed by Source Financial, Inc. (“we,” “us,” “our,” or the “Company”)
from time to time with the U.S. Securities and Exchange Commission (the “SEC”) contain or may contain forward-looking
statements (collectively the “Filings”) and information that are based upon beliefs of, and information currently
available to, the Company’s management as well as estimates and assumptions made by Company’s management. Readers
are cautioned not to place undue reliance on these forward-looking statements, which are only predictions and speak only as of
the date hereof. When used in the filings, the words “anticipate,” “believe,” “estimate,”
“expect,” “future,” “intend,” “plan,” or the negative of these terms and similar
expressions as they relate to the Company or the Company’s management identify forward-looking statements. Such statements
reflect the current view of the Company with respect to future events and are subject to risks, uncertainties, assumptions, and
other factors. Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect,
actual results may differ significantly from those anticipated, believed, estimated, expected, intended, or planned.
Although the Company believes that
the expectations reflected in the forward-looking statements are reasonable, the Company cannot guarantee future results, levels
of activity, performance, or achievements. Except as required by applicable law, including the securities laws of the United States,
the Company does not intend to update any of the forward-looking statements to conform these statements to actual results.
Our financial statements are prepared
in accordance with accounting principles generally accepted in the United States (“GAAP”). These accounting principles
require us to make certain estimates, judgments, and assumptions. We believe that the estimates, judgments, and assumptions upon
which we rely are reasonable based upon information available to us at the time that these estimates, judgments, and assumptions
are made. These estimates, judgments, and assumptions can affect the reported amounts of assets and liabilities as of the date
of the financial statements as well as the reported amounts of revenues and expenses during the periods presented. Our financial
statements would be affected to the extent there are material differences between these estimates and actual results. In many
cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not require management’s
judgment in its application. There are also areas in which management’s judgment in selecting any available alternative
would not produce a materially different result. The following discussion should be read in conjunction with our consolidated
financial statements and notes thereto appearing elsewhere in this report.
Our Business
On June 30, 2016, Source Financial, Inc. (“Source
Financial” or “the Company”) entered into a Share Exchange Agreement with Venture Track. Pursuant to the Share
Exchange Agreement, Venture Track agreed to exchange 100% of its outstanding common stock for 3,089,360 shares of common stock
and 4,500 shares of Series C Convertible Preferred Stock, par value $0.01 per share (the “Series C Preferred Stock”),
of Source Financial. The 4,500 shares of Series C Preferred Stock are convertible into 6,893,100 shares of the Company’s
common stock, at the rate of 1,531.80 per share. The share exchange is accounted for as a reverse merger with Venture Track being
the accounting acquirer as it retained control of Source Financial, Inc. after the exchange. Source Financial is the legal parent
company; the share exchange was treated as a recapitalization of Venture Track.
Venture Track, Inc. was originally incorporated
in the state of Delaware in February 2014 as Songstress, Inc. On May 13, 2015, the Company changed its name to Scoocher, Inc. and
then to Venture Track, Inc. in February 2016.
The Company is focused on app development
and deployment and intends to offer an innovation accelerator program (the “Venture Track Program”) designed to provide
early-stage technology companies (the “Innovators”) with bridge loans, support in all areas of business development,
and access to equity crowdfunding as designated under the JOBS Act.
The Company was founded by Edward C.
DeFeudis, a serial entrepreneur and venture investor, with 20-plus years of experience in the financial industry. Since 1995, he
has helped launch numerous private and public companies, including Wiki Technologies, Inc., and has received major financing commitments
to help fund companies, startups and product launches. WikiTechnologies, Inc. is a technology company dedicated to making financial
transactions simple, secure, social and affordable. WikiTechnologies is comprised of (i) WikiPay®, a Money Services Business,
that provides a simple, low-cost alternative to existing mobile and online money transfer and payment solutions; and (ii) WikiLoan®,
a low-cost peer-to-peer lending solution. The apps use industry-leading privacy and payment security systems. Throughout his career,
Mr. DeFeudis has primarily been engaged in the development of strategic partnerships and financial strategies.
Through the Company, Mr. DeFeudis is
leveraging his experience and resources in capital markets and Internet marketing to provide an innovative accelerator program
and crowdfunding platform for early-stage disruptive technology companies.
The Company focuses on financing, developing,
and deploying apps. We own www.scoocher.com, an online content monetization engine, and have an additional app in development.
The Company’s initial focus is to develop and deploy these apps as in-house projects (“Phase 1”).
The Company recognizes the unique opportunity
that exists in today’s app market. There are thousands of apps that have been financed, built and deployed, but the founders
of these apps do not possess the wherewithal to market the apps successfully. In many cases, the apps are available for sale at
a fraction of the development cost. It is the Company’s intention to identify, purchase and deploy select apps with the greatest
market potential (“Phase 2”).
The Venture Track Program first aims
to fund the launch of revenue ready Innovators through bridge loans. Then the Venture Track Program aims to market the apps, determine
the true customer acquisition cost, fine-tune their projections and use of proceeds, and set them on a track for a public offering
facilitated through equity crowdfunding. We intend to provide office space to Innovators with receptionist coverage, mail services,
conference rooms, as well as access to on-site legal and accounting, advertising and marketing services, networking events, investor
presentations, business plan competitions, and more (“Phase 3”).
Spin-Out Transaction
On June 30, 2016 (the “Closing Date”),
prior to the merger with Venture Track, Inc., Source Financial, Inc. entered into that certain Share Exchange Agreement (the “Moneytech
Agreement”) by and among Source Financial, Moneytech Group Pty Ltd., an Australian Corporations (“Moneytech”)
and certain shareholders of Source Financial. Pursuant to the terms of the Moneytech Agreement, Moneytech acquired from Source
Financial all of the outstanding shares and equity interests in Moneytech Limited and mPayments Pty Ltd., as well as its 95% equity
interests in Moneytech POS Pty Ltd. and its 37.5% equity interests in 360 Markets Pty Ltd. (collectively, the “Moneytech
Entities” and the shares and equity interests of the Moneytech Entities are referred to herein as the “Moneytech Interests”),
in exchange for the return to Source Financial 6,076,679 shares of Source Financial’s common stock from certain stockholders
of Source Financial (the “Spin-Out Stockholders”) and 5,000 shares of Series B Preferred Stock of Source Financial.
In connection with the transaction, Moneytech issued to the Spin-Out Stockholders one fully paid ordinary shares in the capital
of Moneytech as consideration for every one share of Source Financial’s common stock returned by the Spin-Out Stockholders.
As a result, the Moneytech Entities become
subsidiaries of Moneytech and Source Financial has no further relationship with the Moneytech Entities. Immediately after the
transaction, an aggregate of 6,076,679 shares of the Company’s common stock and 5,000 shares of Series B Preferred Stock
were cancelled, and a total of 2,714,957 shares of the Company’s common stock were still outstanding. In addition, stock
options to purchase 3,750,000 shares of the Company’s common stock were relinquished immediately prior to closing and after
the closing; the Company has outstanding stock options to purchase 25,000 shares of the Company’s common stock.
In connection with the transaction,
Hugh Evans resigned as the President, Chief Executive Officer and Director of the Company. Brian M. Pullar resigned as Chief Financial
Officer of the Company. Klaus Selinger and John Wolfgang resigned from the director position with the Company. Effective on the
same date, Edward C. DeFeudis was appointed as the President, Chief Executive Officer, Chief Financial Officer and Director of
the Company.
Share Exchange Transaction
On June 30, 2016,
Source Financial entered into a Share Exchange Agreement (the “Share Exchange Agreement”) with Venture Track, Inc.,
a Delaware corporation (“Venture Track”) and the shareholders of Venture Track (the “Venture Track Shareholders”).
Pursuant to the Share Exchange Agreement, Source Financial agreed to exchange the outstanding common stock of Venture Track held
by the Venture Track Shareholders for 3,089,360 shares of common stock and 4,500 shares of Series C Convertible Preferred Stock,
par value $0.01 per share (the “Series C Preferred Stock”), of the Company. The 4,500 shares of Series C Preferred
Stock are convertible into 6,893,100 shares of the Company’s common stock, at the rate of 1,531.80 per share.
The share exchange is accounted for
as a reverse merger with Venture Track being the accounting acquirer as it retained control of Source Financial, Inc. after the
exchange. Although Source Financial is the legal parent company, the share exchange was treated as a recapitalization of Venture
Track. As a result of the Share Exchange Agreement, Venture Track becomes a wholly owned subsidiary of the Company.
Immediately after the transaction, the
Company had 5,804,317 shares of common stock and 4,500 shares of Series C Preferred Stock issued and outstanding. We are now a
holding company engaging in app development and deployment, as well as to provide innovative accelerator program for start-up companies.
Binding Memorandum of Understanding
On September 20, 2016, the Company entered
into a Binding Memorandum of Understanding (the “MOU”) with CSES Group, Inc. (“Alltemp”) and William Lopshire
and Kjell Nesen, solely as officers of Alltemp (collectively, are herein referred to as the “Parties” and each, individually,
is a “Party”).
Pursuant to the terms of the MOU, the
Company will provide a minimum of $250,000 in bridge loans (“Bridge Loans”) to Alltemp. The Bridge Loans shall be evidenced
by a demand convertible promissory note in the principal amount of $250,000 (the “Note”) bearing interest only at a
rate of 10% per annum, interest payable quarterly commencing on January 15, 2016. In the event the merger is not consummated by
the date the first quarterly payment is due (January 15, 2017), or in the event that the MOU is terminated by the Company pursuant
to the terms as stated therein, Alltemp has agreed to issue common stock in Alltemp to the Company upon the Company’s request
equal to five percent (5%) of Alltemp’s then issued and outstanding common stock on a fully diluted basis at the time of
exercise. Upon exercise of this right by the Company, the Note shall be canceled.
The Parties intend to promptly begin negotiating
to reach a written definitive agreement, subject to the approval of each Party’s board of directors, containing comprehensive
representations, warranties, indemnities, conditions and agreements by the Parties. In the event the Parties fail to reach a final
binding written agreement within thirty days of the date of the MOU, the MOU shall remain in effect, except that all further advances
under the Bridge Loan, or otherwise, shall be in the Company’s sole discretion and the Company shall not be obligated to
proceed with the merger, although the Company may elect to do so. The MOU was extended until November 19, 2016 and remains in
effect.
The obligation of the Company to fully
fund the Bridge Loan and to complete other obligations required under the MOU is subject to completion of a due diligence review
of Alltemp, its assets and business. Upon satisfactory completion of the Company’s due diligence investigation, the Parties
will collaboratively act to adopt and execute a Plan of Merger for the two corporate entities.
CSES Group has developed a proprietary
refrigerant technology after years of research and development called alltemp®. alltemp® is a proven replacement for many
worldwide refrigerants that have detrimentally affected the global environment. CSES Group’s alltemp® refrigerants are
environmentally friendly, sustainable and cost-efficient energy solutions for the residential and commercial marketplace. alltemp®
refrigerants have broad applications ranging from Heating Ventilation and Air Conditioning (“HVAC”), refrigeration,
and foam insulation to industrial solvents. alltemp® is the ideal solution for replacement of HCFC-22, better known as R-22,
which is the world’s most commonly used refrigerant, R-410a, R-134a and R-404a. R-22 is rapidly being phased out in all developed
countries due to environmental concerns over its strong effect on the depletion of the Earth’s ozone layer.
Plan of Operation
If the Company does not consummate the
merger with CSES, Inc., we intend to continue to follow the short term business goals:
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Raise capital to fund operations and provide bridge loans;
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Attract high-performing talent; and
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Finance high performance/profile Innovators that grow our brand and bottom-line.
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We have the following long-term goals
for our business operations:
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Build our brand to become a market leader;
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Leverage partners that allow us to provide more value than peers; and
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Continuously innovate to deliver value to our customers.
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We intend to establish a culture recognized
for excellence, attract high performing team members and execution will be the foundation of which we will grow our company.
In order to move forward it is critical
that we raise capital to fund our operations. Raising capital is our primary goal and we are focusing most of our attention to
identify prospective investors and strategic partners.
If we do not obtain additional funding,
we will continue to operate on a reduced budget until such time as more capital is raised.
We are focused on securing $2-6 million
in financing, which would accelerate our business plan and allow us to hire up to 6 to 8 more staff members, increase our office
space and operations, and increase our advertising and marketing budget, all of which would directly affect the performance and
business operation of the company.
Results of Operation
Comparison for the Three Months Ended
September 30, 2016 and 2015
Revenues
The Company did not generate any revenue
for the three months ended September 30, 2016 and 2015.
Operating Expenses
Our expenses during the three months
ended September 30, 2016 and 2015 consisted of general and administrative expenses in the amount of $153,692 and 6,087, respectively.
The increase in general and administrative expenses is attributable to legal and accounting fees and $108,000 loss on settlement.
Net Loss
We are currently operating at a loss
and we have a net loss of $153,999 for the three months ended September 30, 2016 as compared to $9,357 for the three months ended
September 30, 2015. The increase in net loss was primarily due to the $108,000 loss on settlement.
Comparison for the Nine Months Ended
September 30, 2016 and 2015
Revenues
The Company did not generate any revenue
for the nine months ended September 30, 2016 and 2015.
Operating Expenses
Our expenses during the nine months
ended September 30, 2016 and 2015 consisted of general and administrative expenses in the amount of $167,987 and $11,475, respectively.
The increase in general and administrative expenses is attributable to legal and accounting fees and $108,000 loss on settlement.
Net Loss
We are currently operating at a loss
and we have a net loss of $168,624 for the nine months ended September 30, 2016 as compared to $20,745 for the nine months ended
September 30, 2015. The increase in net loss was primarily due to the $108,000 loss on settlement.
Liquidity and Capital Resources
Working Capital
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September 30,
2016
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December 31,
2015
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Current Assets
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$
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214,818
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$
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452
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Current Liabilities
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(385,191
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)
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-
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Working Capital (Deficiency)
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$
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(170,373
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)
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$
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452
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Current assets for the quarter ended
September 30, 2016 increased compared to September 30, 2015 primarily due to convertible note receivable of $200,000.
Current liabilities for the quarter ended September 30, 2016
increased compared to September 30, 2015 primarily due to increased accounts payable and convertible notes of $250,000.
Cash Flows
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Nine months
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Nine months
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Ended
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Ended
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September 30, 2016
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September 30, 2015
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Net Cash Provided by (Used in) Operating Activities
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$
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(53,958
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)
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$
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(11,475
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)
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Net Cash Provided by (Used in) Investing Activities
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(203,256
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)
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(4,000
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)
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Net Cash Provided by (Used in) Financing Activities
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266,580
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15,080
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Net Increase (Decrease) in Cash
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$
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9,366
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$
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(395
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)
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Net Cash Used in Operating Activities
Our cash used in operating activities
for the nine-month period ended September 30, 2016 was $53,958 as compared to $11,475 for the nine-month period ended September
30, 2015. The increase is attributable to legal and accounting fees.
Net Cash Used in Investing Activities
Our cash used in investing activities
for the nine-month period ended September 30, 2016 was $203,256 as compared to $4,000 for the nine-month period ended September
30, 2015. The increase is attributable to convertible notes receivable.
Net Cash Provided by Financing
Activities
Our cash provided by financing activities
for the nine-month period ended September 30, 2016 was $266,580 as compared to $15,080 for the nine-month period ended September
30, 2015. The increase is attributable to convertible notes payable.
Going Concern
At September 30, 2016, we had an accumulated
deficit of $278,952 and incurred a net loss of $168,624 for the nine-month period ended September 30, 2016. We have
generated minimal revenues and have incurred losses since inception. We expect to incur further losses in the development of our
business, all of which casts substantial doubt about our ability to continue as a going concern. Our ability to continue as a going
concern is dependent upon our ability to generate future profitable operations and/or to obtain the necessary financing to meet
our obligations and repay our liabilities arising from normal business operations when they come due.
Off-Balance Sheet Arrangements
As of September 30, 2016, the Company had no off-balance
sheet arrangements.