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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended September 30, 2013

or

¨ 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period from _________ to _________

Commission file number: 333-153381

FRESH START PRIVATE MANAGEMENT, INC.
(Exact name of registrant as specified in its charter)

Nevada
 
26-1972677
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
601 North Parkcenter Drive, Suite 103
Santa Ana, California 92705
 (Address of principal executive offices) (zip code)

(714) 462-4880
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 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 past 90 days. Yes x No o
 
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 (§ 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 o
 
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,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act
 
Large accelerated filer
o
Accelerated filer
o
Non-accelerated filer
o
Smaller reporting company
x
(Do not check if a smaller reporting company)    
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
 
As of November 14, 2013, there were 117,868,501 shares of registrant’s common stock outstanding.
 


 
 
 
 
FRESH START PRIVATE MANAGEMENT, INC.
 
INDEX
 
       
PART I. FINANCIAL INFORMATION      
         
ITEM 1
Financial Statements
   
3
 
           
 
Condensed consolidated balance sheets as of September 30, 2013 (unaudited) and December 31, 2012
   
3
 
           
 
Condensed consolidated statements of operations for the three and nine months ended September 30, 2013 and 2012 (unaudited)
   
4
 
           
 
Condensed consolidated statement of stockholders' equity for the nine months ended September 30, 2013 (unaudited)
   
5
 
           
 
Condensed consolidated statements of cash flows for the nine months ended September 30, 2013 and 2012 (unaudited)
   
6
 
           
 
Notes to condensed consolidated financial statements (unaudited)
   
7-18
 
           
ITEM 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
   
19-24
 
           
ITEM 3.
Quantitative and Qualitative Disclosures about Market Risk
   
24
 
           
ITEM 4.
Controls and Procedures
   
24
 
           
PART II. OTHER INFORMATION        
           
ITEM 1.
Legal Proceedings
   
26
 
           
ITEM 1A.
Risk Factors
   
26
 
           
ITEM 2.
Unregistered Sales of Equity Securities and Use of Proceeds
   
26
 
           
ITEM 3.
Defaults Upon Senior Securities
   
26
 
           
ITEM 4.
Mine Safety Disclosures
   
26
 
           
ITEM 5.
Other Information
   
26
 
           
ITEM 6.
Exhibits
   
27
 
           
SIGNATURES
   
28
 
 
 
2

 

PART I – FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

FRESH START PRIVATE MANAGEMENT, INC.
 CONDENSED CONSOLIDATED BALANCE SHEETS
 
   
September 30,
   
December 31,
 
   
2013
   
2012
 
   
(unaudited)
       
ASSETS
Current assets:
           
Cash
  $ 1,766     $ 6,002  
Accounts receivable, net
    1,826,399       1,074,552  
Prepaid expenses
    112,944       24,317  
Total current assets
    1,941,109       1,104,871  
                 
Property and equipment, net
    9,680       5,342  
                 
Other assets:
               
Licensing agreement
    3,970,575       3,970,575  
Deposits
    5,334       2,278  
                 
Total assets
  $ 5,926,698     $ 5,083,066  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
               
Accounts payable and accrued expenses
  $ 971,060       615,304  
Due to factor
    -       154,990  
Income tax payable
    -       1,600  
Deferred revenue
    591,500       262,938  
Advances from lenders
    485,000       885,000  
Convertible note payable, related party, net of debt discount
    353,650       5,708  
Notes payable, net of debt discount
    301,534       95,736  
Notes payable, related party
    123,562       144,815  
Warrant liability
    10,468       -  
Derivative liability
    217,869       80,039  
Total current liabilities
    3,054,643       2,246,130  
                 
Stockholders' equity:
               
Common stock, $0.001 par value; 200,000,000 shares authorized, 117,868,501 and 100,768,501 shares issued and outstanding as of September 30, 2013 and December 31, 2012, respectively
    117,869       100,769  
Common stock subscribed
    100,000       100,000  
Additional paid in capital
    4,591,393       4,234,758  
Deficit
    (1,937,207 )     (1,598,591 )
Total stockholders' equity
    2,872,055       2,836,936  
                 
Total liabilities and stockholders' equity
  $ 5,926,698     $ 5,083,066  
 
See the accompanying notes to the unaudited condensed consolidated financial statements
 
 
3

 
 
FRESH START PRIVATE MANAGEMENT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
 
   
Three months ended September 30,
   
Nine months ended September 30,
 
   
2013
   
2012
   
2013
   
2012
 
Sales, net
  $ 277,410     $ 63,973     $ 1,164,570     $ 504,065  
Cost of sales
    -       83,855       149,366       367,362  
                                 
Gross profit (loss)
    277,410       (19,882 )     1,015,204       136,703  
                                 
Operating expenses:
                               
Selling, general and administrative
    454,844       100,396       1,054,883       646,806  
Depreciation and amortization
    836       487       2,327       1,461  
Total operating expenses
    455,680       100,883       1,057,210       648,267  
                                 
Net income (loss) from operations
    (178,270 )     (120,765 )     (42,006 )     (511,564 )
                                 
Other income (expenses):
                               
Gain on settlement of debt
    -       -       17,800       -  
Interest expense
    (62,003 )     (40,209 )     (232,438 )     (106,788 )
Gain (loss) on change in fair value of derivative liability
    111,237       -       (81,972 )     -  
                                 
Net loss before income taxes
    (129,036 )     (160,974 )     (338,616 )     (618,352 )
                                 
Income taxes (benefit)
    -       -       -       -  
                                 
Net loss
  $ (129,036 )   $ (160,974 )   $ (338,616 )   $ (618,352 )
                                 
Net loss per common share, basic and diluted
  $ (0.00 )   $ (0.00 )   $ (0.00 )   $ (0.01 )
                                 
Weighted average number of common shares outstanding, basic and diluted
    117,848,121       100,882,784       116,231,963       107,961,752  
 
See the accompanying notes to the unaudited condensed consolidated financial statements
 
 
4

 
 
FRESH START PRIVATE MANAGEMENT, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2013
(unaudited)
 
                     
Additional
   
Retained
       
   
Common stock
   
Common stock
   
Paid in
   
Earnings
       
   
Shares
   
Amount
   
Subscribed
   
Capital
   
(deficit)
   
Total
 
Balance, December 31, 2012
    100,768,501     $ 100,769     $ 100,000     $ 4,234,758     $ (1,598,591 )   $ 2,836,936  
Common stock issued for services rendered
    15,625,000       15,625       -       203,972       -       219,597  
Common stock issued in legal settlement
    100,000       100       -       2,900       -       3,000  
Common stock issued in connection with notes payable
    1,375,000       1,375               20,004       -       21,379  
Common stock issuable in connection with note payable
    -       -       -       15,650       -       15,650  
Fair value of vested employee options
    -       -       -       114,109       -       114,109  
Net loss
    -       -       -       -       (338,616 )     (338,616 )
Balance, September 30, 2013
    117,868,501     $ 117,869     $ 100,000     $ 4,591,393     $ (1,937,207 )   $ 2,872,055  
 
See the accompanying notes to the unaudited condensed consolidated financial statements
 
 
5

 
 
FRESH START PRIVATE MANAGEMENT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
 
   
Nine months ended September 30,
 
   
2013
   
2012
 
CASH FLOWS FROM OPERATING ACTIVITIES:
           
Net loss
  $ (338,616 )   $ (618,352 )
Adjustments to reconcile net income (loss) to cash flows used in operating activities:
               
Depreciation and amortization
    2,327       1,461  
Amortization of debt discount
    78,875       18,052  
Gain on settlement of debt
    (17,800 )     -  
Stock based compensation
    253,107       114,332  
Common stock issued in settlement of interest
    -       11,820  
Loss on change of fair value of derivative liability
    81,972       -  
Changes in operating assets and liabilities:
               
Accounts receivable
    (751,847 )     (406,179 )
Prepaid expenses
    (8,028 )     2,523  
Accounts payable and accrued expenses
    376,556       (60,480 )
Income taxes payable
    (1,600 )     -  
Due to factor
    (154,990 )     (120,000 )
Deferred revenue
    328,562       259,562  
Net cash used in operating activities
    (151,482 )     (797,261 )
                 
CASH FLOWS FROM INVESTING ACTIVITIES:
               
Acquisition and cancelation of treasury shares
    -       (75,000 )
Payment of long term deposits
    (3,056 )     -  
Purchase of equipment
    (6,665 )     -  
Net cash used in investing activities
    (9,721 )     (75,000 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES:
               
Proceeds from notes payable
    328,480       106,326  
Proceeds from lender advances
    -       810,000  
Repayments of notes payable
    (150,260 )     -  
Net repayments of notes payable, related party
    (21,253 )     (36,077 )
Net cash provided by financing activities
    156,967       880,249  
                 
Net (decrease) increase in cash
    (4,236 )     7,988  
Cash, beginning of the period
    6,002       1,657  
                 
Cash, end of period
  $ 1,766     $ 9,645  
                 
Supplemental disclosures of cash flow information:
               
Interest paid
  $ 119,648     $ -  
Taxes paid
  $ -     $ -  
                 
Non cash financing activities:
               
Common stock issued in settlement of notes payable
  $ -     $ 37,100  
Common stock issued in settlement of interest
  $ -     $ 11,820  
Common stock issued in settlement of outstanding accounts payable
  $ 3,000     $ -  
 
See the accompanying notes to the unaudited condensed consolidated financial statements
 
 
6

 
 
FRESH START PRIVATE MANAGEMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2013
(unaudited)

NOTE 1 - BUSINESS AND RECAPITALIZATION
 
Fresh Start Private Management, Inc. through its wholly owned subsidiary Fresh Start Private, Inc. ("we", "us", "our", "the Company") provides an innovative alcohol treatment program that empowers patients to succeed in their overall recovery. We offer a unique treatment philosophy that combines medical intervention, a singular focus and a comprehensive approach, and a focus on family and friends.
 
On October 31, 2011 (the “Closing Date”), the Company entered into a Share Exchange Agreement (the “Exchange Agreement”) by and among (i) Fresh Start Private Management, Inc. (the “Company”), (ii) our former principal stockholder, (iii) Fresh Start Private, Inc. (“FSP”), and (iv) the former shareholders of FSP. Pursuant to the terms of the Exchange Agreement, each of the former shareholders of FSP transferred to us all of their shares of FSP in exchange for the issuance of 37,000,000 shares of our common stock, which represented approximately 31.3% of our total shares outstanding immediately following the closing of the transaction (such transaction, the “Share Exchange”). As a result of the Share Exchange, FSP became our wholly-owned subsidiary. We are now a holding company, which through FSP, is now engaged in alcohol treatment. Upon completion of the Share Exchange, Fresh Start Private, Inc. became Fresh Start Private Management, Inc.'s wholly-owned subsidiary. As the owners and management of Fresh Start Private, Inc. obtained voting and operating control of Fresh Start Private Management, Inc. after the Share Exchange and Fresh Start Private Management, Inc. was non-operating, had no assets or liabilities and did not meet the definition of a business, the transaction has been accounted for as a recapitalization of Fresh Start Private, Inc., accompanied by the issuance of its common stock for outstanding common stock of Fresh Start Management, Inc., which was recorded at a nominal value. The accompanying financial statements and related notes give retroactive effect to the recapitalization as if it had occurred on July 8, 2009 (inception date) and accordingly all share and per share amounts have been adjusted.
 
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
 
Interim Financial Statements
 
The following (a) condensed consolidated balance sheet as of December 31, 2012, which has been derived from audited financial statements, and (b) the unaudited condensed consolidated interim financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and the instructions to Form 10-Q and Rule 8-03 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete 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 three and nine months ended September 30, 2013 are not necessarily indicative of results that may be expected for the year ending December 31, 2013. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2012 included in the Company’s Annual Report on Form 10-K, filed with the Securities and Exchange Commission (“SEC”) on April 15, 2013.
 
Basis of Presentation:
 
The condensed consolidated financial statements include the accounts of Fresh Start Private Management, Inc. and its wholly owned subsidiary, Fresh Start Private, Inc. (hereafter referred to as the “Company” or “Fresh Start”). All significant intercompany balances and transactions have been eliminated in consolidation.
 
Reclassifications
 
Certain reclassifications have been made in the prior year’s financial statements to conform to classifications used in the current year.
 
 
7

 
 
FRESH START PRIVATE MANAGEMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2013
(unaudited)
 
Revenue Recognition
 
The Company generates revenue from services and product sales. Revenue is recognized in accordance with Accounting Standards Codification subtopic 605-10, Revenue Recognition (“ASC 605-10”) which requires that four basic criteria must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services have been rendered; (3) the selling price is fixed and determinable; and (4) collectability is reasonably assured. Determination of criteria (3) and (4) are based on management's judgments regarding the fixed nature of the selling prices of the services delivered and the collectability of those amounts. Provisions for discounts and rebates to customers, estimated returns and allowances, and other adjustments are provided for in the same period the related revenue are recorded. The Company defers any revenue for which the services has not been performed or is subject to refund until such time that the Company and the customer jointly determine that the services has been performed or no refund will be required.
 
Use of Estimates
 
The preparation of condensed consolidated financial statements in conformity with generally accepted accounting principles 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 revenue and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include assumptions used in the fair value of stock-based compensation and the fair value of other equity and debt instruments.
 
Accounts Receivable
 
Accounts receivable are recorded at original invoice amount less an allowance for uncollectible accounts that management believes will be adequate to absorb estimated losses on existing balances. Management estimates the allowance based on collectability of accounts receivable and prior bad debt experience. Accounts receivable balances are written off upon management's determination that such accounts are uncollectible. Recoveries of accounts receivable previously written off are recorded when received. Management believes that credit risks on accounts receivable will not be material to the financial position of the Company or results of operations. The allowance for doubtful accounts was $886,752 and $866,315 as of September 30, 2013 and December 31, 2012, respectively.
 
Fair Value Of Financial Instruments
 
Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of September 30, 2013 and December 31, 2012. The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values. These financial instruments include cash and accounts payable. Fair values were assumed to approximate carrying values for cash and payables because they are short term in nature and their carrying amounts approximate fair values or they are payable on demand. See Footnote 8 and 9 for derivative liabilities.
 
Segment Information
 
Accounting Standards Codification subtopic Segment Reporting 280-10 (“ASC 280-10”) establishes standards for reporting information regarding operating segments in annual financial statements and requires selected information for those segments to be presented in interim financial reports issued to stockholders. ASC 280-10 also establishes standards for related disclosures about products and services and geographic areas. Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker, or decision-making group, in making decisions how to allocate resources and assess performance. The information disclosed herein materially represents all of the financial information related to the Company’s principal operating segment.
 
 
8

 
 
FRESH START PRIVATE MANAGEMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2013
(unaudited)
 
Property and Equipment
 
Property and equipment are stated at cost, less accumulated depreciation. Depreciation is calculated using the straight-line method over the asset's estimated useful life, which is five years for furniture and all other equipment. Expenditures for maintenance and repairs are expensed as incurred.
 
Long-Lived Assets
 
The Company follows FASB ASC 360-10-15-3, “Impairment or Disposal of Long-lived Assets,” which established a “primary asset” approach to determine the cash flow estimation period for a group of assets and liabilities that represents the unit of accounting for a long-lived asset to be held and used. Long-lived assets to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The carrying amount of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value less cost to sell.
 
Net Loss Per Share
 
The Company accounts for net loss per share in accordance with Accounting Standards Codification subtopic 260-10, Earnings Per Share (“ASC 260-10”), which requires presentation of basic and diluted earnings per share (“EPS”) on the face of the statement of operations for all entities with complex capital structures and requires a reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS.
 
Basic net loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during each period. It excludes the dilutive effects of any potentially issuable common shares. Diluted net loss share is calculated by including any potentially dilutive share issuances in the denominator. As of September 30, 2013, potentially dilutive shares issuances were comprised of convertible notes payable and vested employee stock options. As of September 30, 2012, the Company did not have any potentially issuable common shares.
 
Concentrations of Credit Risk
 
The Company’s financial instrument that is exposed to a concentration of credit risk is cash and cash equivalents. Generally, the Company’s cash in interest-bearing accounts does not exceed FDIC insurance limits. The financial stability of these institutions is periodically reviewed by senior management.
 
Derivative Financial Instruments
 
Accounting Standards Codification subtopic 815-40, Derivatives and Hedging, Contracts in Entity’s own Equity (“ASC 815-40”) became effective for the Company on October 1, 2009. The Company’s convertible debt and reset warrants have variable conversion  rates to the exercise price, which prohibit the Company from determining the number of shares needed to settle the conversion of the debt.
 
Advertising
 
The Company follows the policy of charging the costs of advertising to expense as incurred. The Company charged to operations $4,310 and $14,660 as advertising costs for the three and nine months ended September 30, 2013, respectively; and $8,750 and $100,629 for the three and nine months ended September 30, 2012, respectively.

 
9

 
 
FRESH START PRIVATE MANAGEMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2013
(unaudited)
 
Guarantor-Factoring Agreement
 
August 1, 2011, Start Fresh Alcohol Recovery Clinic Inc. (the “Clinic”) entered into an agreement with a factoring company to provide a debt facility secured against the approved insurance clients of the Company. The agreement is for one year, for a maximum facility of $500,000. The facility bears a Funding fee equal to the greater of (i) the prime rate of interest plus 6.5% multiplied by the outstanding facility position, calculated monthly and (ii) $4,500 and a Collateral Management Fee equal to 1% of the factored accounts receivable. If both fees are less than $6,000 per month, then the combined fee is $6,000. Up to October 31, 2011, the aforementioned fees are capped at 50% of the greater amount. Additionally the Company is responsible for monthly maintenance fees of $350 per month and an origination fee of 3% of the facility cap or $15,000. The Company is guarantor for this facility. The security for the facility has been provided by way of a security interest against the receivables of the Clinic, a general security assignment over all of the assets of the Clinic and the Company and personal guarantees of two of the Company’s directors. $-0- and $154,990 was due to factor as of September 30, 2013 and December 31, 2012, respectively.
 
On February 26, 2013 Fresh Start Private Management, Inc. (The Company) entered into an agreement with the factoring company to repay the outstanding sum of $140,000 no later than August 30, 2013.
 
On August 30, 2013, the Company paid off the above described guarantor-factoring agreement including accrued interest.
  
Stock Based Compensation
 
Share-based compensation issued to employees is measured at the grant date, based on the fair value of the award, and is recognized as an expense over the requisite service period. The Company measures the fair value of the share-based compensation issued to non-employees using the stock price observed in the arms-length private placement transaction nearest the measurement date (for stock transactions) or the fair value of the award (for non-stock transactions), which were considered to be more reliably determinable measures of fair value than the value of the services being rendered. The measurement date is the earlier of (1) the date at which commitment for performance by the counterparty to earn the equity instruments is reached, or (2) the date at which the counterparty’s performance is complete.
 
As of September 30, 2013 and December 31, 2012, 15,000,000 employee stock options were outstanding with 12,000,000 shares vested and exercisable and 9,000,000 employee stock options were outstanding with 9,000,000 shares vested and exercisable, respectively.
 
Income Taxes
 
Income tax provisions or benefits for interim periods are computed based on the Company’s estimated annual effective tax rate. Based on the Company's historical losses and its expectation of continuation of losses for the foreseeable future, the Company has determined that it is not more likely than not that deferred tax assets will be realized and, accordingly, has provided a full valuation allowance. As the Company anticipates or anticipated that its net deferred tax assets at December 31, 2013 and 2012 would be fully offset by a valuation allowance, there is no federal or state income tax benefit for the three and nine months ended September 30, 2013 and 2012 related to losses incurred during such periods.
 
Recent Accounting Pronouncements
 
There were various updates recently issued, most of which represented technical corrections to the accounting literature or application to specific industries and are not expected to a have a material impact on the Company's consolidated financial position, results of operations or cash flows.
 
 
10

 
 
FRESH START PRIVATE MANAGEMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2013
(unaudited)
 
NOTE 3 - GOING CONCERN MATTERS
 
The Company’s consolidated financial statements are prepared using generally accepted accounting principles applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has incurred significant recurring losses which have resulted in an accumulated deficit of $1,937,207, working capital deficiency of $1,113,534 at September 30, 2013 and negative cash flows from operations of $151,482 for the nine months ended September 30, 2013 which raises substantial doubt about the Company’s ability to continue as a going concern.
 
Continuation as a going concern is dependent upon obtaining additional capital and upon the Company’s attaining profitable operations. The Company will require a substantial amount of additional funds to build a sales and marketing organization, and to fund additional losses which the Company expects to incur over the next few years. The Company recognizes that, if it is unable to raise additional capital, it may find it necessary to substantially reduce or cease operations. The accompanying consolidated financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result from the outcome of this uncertainty.
 
NOTE 4 - PROPERTY AND EQUIPMENT
 
The Company’s property and equipment at September 30, 2013 and December 31, 2012 :
 
   
September 30,
2013
   
December 31,
2012
 
Office equipment
 
$
14,649
   
$
10,049
 
Computer equipment
   
2,574
     
509
 
Leasehold improvements
   
20,014
     
20,014
 
     
37,237
     
30,572
 
Less accumulated depreciation
   
(27,557
)
   
(25,230
)
   
$
9,680
   
$
5,342
 
 
Depreciation expense charged to operations amounted to $836 and $2,327, respectively, for the three and nine months ended September 30, 2013 and $487 and $1,461, respectively, for the three and nine months ended September 30, 2012.
 
NOTE 5 - LICENSING RIGHTS
 
On October 28, 2010, the Company acquired an exclusive product license, which included the right to use the Naltrexone Implant and any procedures related to the licensed product. The Company paid a onetime license fee of 7.5% of the total common shares outstanding on the date of the agreement, or 5,672,250 common shares at the market value of $0.70 per share as of the date of the agreement. Total value of the license is recorded as $3,970,575. Additionally, the Company will pay $600 for each prescription request of the licensed product. The agreement will remain in force for so long as the Company continues to use the Licensed Product.
 
For the purposes of the Asset Purchase Agreement, “Assets” shall mean those assets that are related to the Trademark and the Intellectual Property that are or were used or created by Licensor in its conduct of business, including all assets, rights, interests, and properties of Licensor of whatever nature, tangible or intangible, real or personal, fixed or contingent, except for the Trademark and the Intellectual Property. For all assets received, the Company paid $10 in cash.

 
11

 
 
FRESH START PRIVATE MANAGEMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2013
(unaudited)
 
At December 31, 2012, the Company management performed an evaluation of its intangible assets (licensing rights) for purposes of determining the implied fair value of the assets at December 31, 2012. The test indicated that the recorded book value of its licensing rights did not exceed its fair value for the year ended December 31, 2012 as determined by discounted future cash flows. Considerable management judgment is necessary to estimate the fair value. Accordingly, actual results could vary significantly from management’s estimates.

NOTE 6 - DEFERRED REVENUE
 
On January 27, 2012, the Company granted licensing rights for five years in the state of Florida for $300,000 payable as the licensee performs procedures. The licensing fees are amortized to income over the term on the license agreement. The remaining unrecognized balance as of September 30, 2013 and December 31, 2012 was $199,586 and $244,438, respectively.

On August 2, 2013, the Company granted licensing rights perpetually for the 48 most northern counties  in the state of California for  an aggregate of $305,000. The licensing fees are amortized to income over the estimated expected useful life of five years. The remaining unrecognized balance as of September 30, 2013was $391,914.

In addition, the Company received $18,500 in advance licensing fees as of December 31, 2012.

NOTE 7 - ADVANCE FROM LENDERS
 
During the year ended December 31, 2012, the Company received an aggregate of $885,000 net proceeds in connection with the expected issuance of convertible debt. As of September 30, 2013, $485,000 of the notes have yet to be executed and finalized, however, the Company accrued $93,680 and $66,916 as estimated interest as of September 30, 2013 and December 31, 2012, respectively.

NOTE 8 - CONVERTIBLE NOTES PAYABLE
 
Asher Note

On December 11, 2012, the Company entered into a Securities Purchase Agreement with Asher Enterprises, Inc. ("Asher"), for the sale of an 8% convertible note in the principal amount of $58,000 (the "Note"). The financing closed on December 11, 2012. .
 
The Note bears interest at the rate of 8% per annum. All interest and principal must be repaid on September 13, 2013. The Note is convertible into common stock, at Asher’s option, at a 42% discount to the average of the three lowest closing bid prices of the common stock during the 10 trading day period prior to conversion. In the event the Company prepays the Note in full, the Company is required to pay off all principal, interest and any other amounts owing multiplied by (i) 115% if prepaid during the period commencing on the closing date through 30 days thereafter, (ii) 120% if prepaid 31 days following the closing through 60 days following the closing, (iii) 125% if prepaid 61 days following the closing through 90 days following the closing and (iv) 130% if prepaid 91 days following the closing through 120 days following the closing. (v) 135% if prepaid 121 days following the closing through 150 days following the closing, (vi) 150% if prepaid 151 days following the closing through 180 days following the closing. After the expiration of 180 days following the date of the Note, the Company has no right of prepayment.
 
The Company has identified the embedded derivatives related to the above described Note. This embedded derivative included variable conversion features. The accounting treatment of derivative financial instruments requires that the Company record fair value of the derivative as of the inception date of the Note and to fair value as of each subsequent reporting date.

 
12

 
 
FRESH START PRIVATE MANAGEMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2013
(unaudited)
 
At the inception of the Note, the Company determined the aggregate fair value of $78,770 of embedded derivatives. The fair value of the embedded derivatives was determined using the Binomial Option Pricing Model based on the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 258.65%, (3) weighted average risk-free interest rate of 0.16%, (4) expected life of 0.76 years, and (5) estimated fair value of the Company’s common stock of $0.011 per share.

The determined fair value of the embedded derivative of $78,770 was charged as a debt discount up to the net proceeds of the note with the remainder, $20,770, charged to current period operations as non-cash interest expense.

On May 10, 2013, the Company paid off the above described note including accrued interest.

Convertible debenture issued on April 5, 2013, related party

On April 5, 2013, the Company issued a convertible debenture for an aggregate of $425,000 comprised of $400,000 previous advances (see note 7 above) and $25,000 additional proceeds. The financing closed on April 5, 2013. .
 
The Note bears interest at the rate of 15% per annum. Interest is payable quarterly on April 15, July 15, October 15 and January 15 for the prior quarter and principal must be repaid on April 5, 2016. The Note is convertible into common stock, at holder’s option, at a $0.50 per share with certain conversion adjustments in the event the Company issues additional shares of its common stock or securities convertible into the Company’s common stock at a price per share less than the conversion price in effect or without consideration, then the conversion price upon each issuance shall be adjusted to the price equal to the consideration per share paid for such additional shares of the Company’s common stock.

In connection with the issuance of the convertible debenture, the Company issued an aggregate of 1,275,000 shares of its common stock and detachable warrants granting the holder the right to acquire an aggregate of 425,000 shares of the Company’s common stock at an initial exercise price of $1.00 per share for five years.  The warrant contains exercise price adjustments in the event the Company issues additional shares of its common stock or securities convertible into the Company’s common stock at a price per share less than the exercise price in effect or without consideration, then the exercise price upon each issuance shall be adjusted to the price equal to the consideration per share paid for such additional shares of the Company’s common stock.

The Company has identified the embedded derivatives related to the above described debenture and warrants. This embedded derivative included variable conversion or exercise features. The accounting treatment of derivative financial instruments requires that the Company record fair value of the derivatives as of the inception date of the debenture and to fair value as of each subsequent reporting date.

The Company allocated proceeds based on the relative fair values of the debt, common stock and warrants, measured at an aggregate of $85,185, to the warrant and debt conversion provision liabilities (debt and warrants) and equity (common stock) to discount to convertible debenture. The fair values of the embedded derivatives were determined using the Binominal Option Pricing Model with the following assumptions: contractual terms of 3 to 5 years, an average risk free interest rate of 0.33% to 0.68%, a dividend yield of 0%, and volatility of 256.18%.

At September 30, 2013, the Company marked to market the fair value of the embedded derivative and determined a fair value of $217,869. The Company recorded a loss from change in fair value of derivative liability of $81,972 for the nine months ended September 30, 2013. The fair value of the embedded derivatives was determined using Binomial Option Pricing Model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 239.48%, (3) weighted average risk-free interest rate of 0.33%, (4) expected life of 2.51 years, and (5) estimated fair value of the Company’s common stock of $0.025 per share.
 
The charge of the amortization of debt discounts and costs for the nine months ended September 30, 2013 was $13,835, which was accounted for as interest expense.
 
 
13

 
 
FRESH START PRIVATE MANAGEMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2013
(unaudited)
 
NOTE 9 – WARRANT LIABILITY

The Company issued warrants in conjunction with the issuance of convertible debentures.  These warrants contain certain reset provisions. Therefore, in accordance with ASC 815-40, the Company reclassified the fair value of the warrant from equity to a liability at the date of issuance.  Subsequent to the initial issuance date, the Company is required to adjust to fair value the warrant as an adjustment to current period operations.
 
The Company recorded a gain on change in fair value of warrant liability of $12,523 for the nine months ended September 30, 2013.

At September 30, 2013, the fair value of the 425,000 warrants containing certain reset provisions were determined using the Binomial Option Pricing Model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 239.48%, (3) weighted average risk-free interest rate of 0.63%, (4) expected life of 4.51 years, and (5) estimated fair value of the Company’s common stock of $0.025 per share.

NOTE 10 - NOTES PAYABLE
 
On April 3, 2012, the Company issued a unsecured promissory note payable for $150,000 due April 3, 2013 with a stated interest rate of 20% per annum, with fixed interest of $30,000 due upon maturity. In connection with the issuance of the above described promissory note, the Company issued 1,000,000 of its common stock. During the nine months ended September 30, 2013, the Company repaid an aggregate of $142,260 of the unsecured promissory note.
 
The Company recorded a debt discount of $25,100 based on the fair value of the Company's common stock at the issuance date of the promissory note. The discount is amortized ratably over the term on the notes.
 
On January 22, 2013, the Company issued a unsecured promissory note payable for $200,000 due January 1, 2018, 2013 with a stated interest rate of 12% per annum beginning three months from issuance; payable monthly. Principal payments are due starting February 1, 2015 at $6,650 per month. The lender has an option to convert the note to licensing rights for the State of Oregon.
 
In connection with the issuance of the above described promissory note, the Company is obligated to issue 750,000 of its common stock.
 
The Company recorded a debt discount of $11,250 based on the fair value of the Company's common stock at the issuance date of the promissory note. The discount is amortized ratably over the term on the notes.
 
On May 9, 2013, the Company issued a unsecured promissory note for $75,000, due July 8, 2013 at 0.0% interest.

In connection with the issuance of the above described promissory note, the Company is obligated to issue 100,000 of its common stock.

The Company recorded a debt discount of $4,400 based on the fair value of the Company's common stock at the issuance date of the promissory note. The discount is charged to amortized ratably over the term on the notes.

During the nine months ended September 30, 2013, the Company received advances and issued notes in aggregate of $28,480, due on demand through July 14, 2014, non-interest bearing.

 
14

 
 
FRESH START PRIVATE MANAGEMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2013
(unaudited)
 
NOTE 11 - NOTES PAYABLE-RELATED PARTY
 
As of September 30, 2013 and December 31, 2012, we have received an advance from Jorge Andrade, director, and Neil Muller, President as loans from related parties. The loans are payable on demand and without interest

NOTE 12 - STOCKHOLDERS' EQUITY
 
Common stock
 
The Company is authorized to issue 200,000,000 shares of common stock with par value $.001 per share. As of September 30, 2013 and December 31, 2012, the Company had 117,868,501 shares and 100,768,501 shares of common stock issued and outstanding.
 
In January 2013, the Company issued an aggregate of 14,500,000 shares of its common stock for services valued at $170,347, net of prior year accretion. The fair value of the common stock issued is amortized to operations over the underlying contractual period.
 
In February 2013, the Company issued 100,000 shares of its common stock in settlement of a past services previously accrued at December 31, 2012.

In April 2013, the Company issued an aggregate of 1,275,000 shares of its common stock in connection with an issued convertible debenture.

In June 2013, the Company issued 100,000 shares of its common stock in settlement of interest relating to an issued notes payable.

In June 2013, the Company issued 1,000,000 shares of its common stock in payment of legal fees incurred valued at $45,000. 

In July 2013, the Company issued 125,000 shares of its common stock for services rendered.

NOTE 13 - STOCK OPTIONS AND WARRANTS

Options

On December 13, 2012, the Company ratified, confirmed and approved the granting of 2012 stock options in aggregate of 9,000,000 to Jorge Andrade, Neil Muller and Lourdes Felix, officers and directors of the Company under the Company’s 2012 Stock Option Plan. The issued options are exercisable immediately at $0.015 per share for five years.

On September 13, 2013, the Company ratified, confirmed and approved the granting of 2012 stock options in aggregate of 6,000,000 to Kent Emry, newly appointed CEO of the Company under the Company’s 2012 Stock Option Plan. The issued options are exercisable 50% immediately and 50% December 13, 2013 at $0.015 per share for five years.
 
 
15

 

FRESH START PRIVATE MANAGEMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2013
(unaudited)
 
The following table summarizes the changes in options outstanding and the related prices for the shares of the Company’s common stock issued to employees of the Company under the 2012 Stock Option Plan:
 
Options Outstanding
   
Options Exercisable
 
Exercise
Prices
   
Number
Outstanding
   
Weighted Average
Remaining Contractual
Life (Years)
   
Weighted Average
Exercise Price
   
Number
Exercisable
   
Weighted
Average
Exercise Price
 
                                             
$
0.015
     
15,000,000
     
4.40
   
$
0.015
     
12,000,000
   
$
0.015
 
 
Transactions involving stock options issued to employees are summarized as follows:

   
Number of
Shares
   
Weighted
Average
Exercise
Price Per Share
 
Outstanding at January 1, 2012
   
-
   
$
-
 
Granted
   
9,000,000
     
0.015
 
Exercised
   
-
     
-
 
Cancelled or expired
   
-
     
-
 
Outstanding at December 31, 2012
   
9,000,000
   
$
0.015
 
Granted
   
6,000,000
     
0.015
 
Exercised
   
-
     
-
 
Expired
   
-
     
-
 
Outstanding at September 30, 2013
   
15,000,000
   
$
0.015
 
 
As described above, on September 13, 2013, the Company granted  6,000,000 options to purchase the Company’s common stock at an exercise price of $0.015 per share for five years to the CEO with 50% immediate vesting and 50% on December 13, 2013.  The fair value of options was determined using the Black Scholes Option Pricing Model with the following assumptions: dividend yield $-0-, volatility of 240.38% and risk free rate of 1.39%.
 
The Company recorded $114,109 and nil as stock compensation expense for the nine months ended September 30, 2013 and 2012, respectively. 
 
Warrants:

The following table summarizes the changes in warrants outstanding and the related prices for the shares of the Company’s common stock:
 
Warrants Outstanding
   
Options Exercisable
 
Exercise
Prices
   
Number
Outstanding
   
Weighted Average
Remaining Contractual
Life (Years)
   
Weighted Average
Exercise Price
   
Number
Exercisable
   
Weighted
Average
Exercise Price
 
                                             
$
1.00
     
425,000
     
4.51
   
$
1.00
     
425,000
   
$
1.00
 
 
 
16

 
 
FRESH START PRIVATE MANAGEMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2013
(unaudited)
 
Transactions involving warrants are summarized as follows:
 
   
Number of
Shares
   
Weighted Average
Exercise Price
Per Share
 
Outstanding at January 1, 2012
   
-
   
$
-
 
Issued
   
-
     
-
 
Exercised
   
-
     
-
 
Cancelled or expired
   
-
     
-
 
Outstanding at December 31, 2012
   
-
   
$
-
 
Issued
   
425,000
     
1.00
 
Exercised
   
-
     
-
 
Expired
   
-
     
-
 
Outstanding at September 30, 2013
   
425,000
   
$
1.00
 

As described in Note 8, above,  the Company issued detachable warrants granting the holder the right to acquire an aggregate of 425,000 shares of the Company’s common stock at an initial exercise price of $1.00 per share for five years.  The warrant contains exercise price adjustments in the event the Company issues additional shares of its common stock or securities convertible into the Company’s common stock at a price per share less than the exercise price in effect or without consideration, then the exercise price upon each issuance shall be adjusted to the price equal to the consideration per share paid for such additional shares of the Company’s common stock.

NOTE 14 - RELATED PARTY TRANSACTIONS
 
The Company has a consulting agreement with Terranautical Global Investments (“TGI”). TGI is a company controlled by Jorge Andrade that provides consulting services to the Company. There is no formal agreement between the parties and is on a month to month basis. The remuneration ranges between $5,000 and $10,000 per month depending on the services provided. During the three and nine months ended September 30, 2013, the Company incurred $50,000 and $146,667 as consulting fees. During the nine months ended September 30, 2012, TGI was paid $50,000 as consulting fees. As of September 30, 2013, there was an unpaid balance of $187,282.
 
The Company has a consulting agreement with Premier Aftercare Recovery Service, (“PARS”). PARS is a Company controlled by Neil Muller that provides consulting services to the Company. There is no formal agreement between the parties and the amount of remuneration depends on the services provided and ranges between $5,000 and $10,000 per month. During the three and nine months ended September 30, 2013, the Company incurred $50,000 and $146,667 as consulting fees and expense reimbursements. During the nine months ended September 30, 2012, the Company paid $71,614 as consulting fees and expense reimbursements.  As of September 30, 2013, there was an unpaid balance of $166,890.
 
The Company has a consulting contract with Felix Financial Enterprises (“FFE”). FFE is a Company controlled by Lourdes Felix that provides consulting services to the Company.  There is no formal agreement between the parties and the amount of remuneration depends on services provided.  During the three and nine months ended September 30, 201, $37,500 and $87,500 consulting fees were incurred, respectively.  During the three and nine months ended September 30, 2012, $-0- and $62,500 consulting fees were incurred, respectively As of September 30, 2013, there was an unpaid balance of $87,500.
 
West Coast Health Consulting, Inc. is a company controlled by Neil Muller that previously provided consulting services to the Company. During the nine months ended September 30, 2012, the Company paid $2,026  as consulting fees. As of September 30, 2013, there was an unpaid balance of $nil.

 
17

 
 
FRESH START PRIVATE MANAGEMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2013
(unaudited)
 
NOTE 15 – COMMITMENTS AND CONTINGENCIES

On June 13, 2013, a complaint (the "Complaint") was filed in the Circuit Court of the Twentieth Judicial Circuit in and for Collier County, Florida, Civil Action No. 13-CA 1850, by Fresh Start Private Florida LLC, a limited liability company organized under the laws of the State of Florida ("FSPF") against the Company. The Company had previously entered into that certain license agreement with FSWPF dated January 27, 2012 (the "License Agreement"), pursuant to which the Company granted an exclusive license to FSPF to receive, implant, use, sell and otherwise commercialize the Naltrexone implant product (the "Naltrexone Implant") and the Fresh Start Alcohol Rehabilitation Program throughout the State of Florida.
 
The Complaint alleges breach of the License Agreement by the Company. The License Agreement required the Company to:
 
(a) provide access to the private alcohol rehabilitation program, all documentation relating to billing and processing of insurance claims, training of insurance processors, supplying all of the life coaching documentation and training of the life coaches, all medical procedure documentation, a list of medical supplies needed to perform the implant procedure, all patient documentation, complete medical training by the Company's doctors as to how to perform the insertion of the implant, relevant marketing materials and documentation within five days of the receipt of payment in the amount of $100,000;
 
(b) provide support and training for efficient clinic operations, all forms, documents and procedural support for patient requirements, surgical procedures, billing, claims and other operational documentation, known compliance requirements of insurers and Medicare, insurance claim pre-authorizations, billing, procedures, documents and support, patient forms, acceptance and testing requirements, implant procedures, training, documentation and support, requirements for hiring, training and supporting Fresh Start Private Life coaching counselors, and insurance requirements for malpractice and other medical necessities;
 
(c) provide all other operational documentation, training and support in order to effect the maximum efficiency of FSPF's operations; and
 
(d) provide the items above via a personnel visit by the Company to FSPF's place of business in Collier County, Florida, within five days of the effective date of the License Agreement.
 
FSPF alleges in the Complaint that the Company breached the License Agreement by failing to provide the required documentation and to make a personal visit. The Complaint further alleges that the Company made inaccurate and misleading statements to FSPF regarding the Naltrexone Implant and that such misrepresentations has damaged FSPF.
 
On July 29, 2013, the Company filed its response to the Complaint in the Circuit Court. The Company adamantly denies that it breached the License Agreement and denies the allegations in the Complaint. The Company intends to file a counterclaim and aggressively defend itself and believes the claims are frivolous.
 
NOTE 16 - SUBSEQUENT EVENTS
 
On November 4, 2013 the Board of Directors of the Company authorized the execution of a binding letter of intent with JPL, LLC, a Delaware limited liability company ("JPL"). In accordance with the terms and provisions of the Letter of Intent: (i) The Company shall grant to JPL for the territory of Connecticut (the "Territory") the right to use and distribute certain therapeutic programs and products including the Naltrexone implant (the "Products"); (ii) JPL shall pay to the Company a one time, up-front royalty fee; and (iii) JPL shall further pay to the Company an on-going royalty relating to the Naltrexone implant in an amount still to be determined.
 
The Company entered into the Letter of Intent for the purpose of securing a binding understanding between the Company and JPL and to further serve as a basis for negotiating a further written agreement. It is intended to specify some of the proposed terms and conditions of the agreement between the Company and JPL.
 
 
18

 
 
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
This Management's Discussion and Analysis of Financial Condition and Results of Operations includes a number of forward-looking statements that reflect Management's current views with respect to future events and financial performance. You can identify these statements by forward-looking words such as “may,” “will,” “expect,” “anticipate,” “believe,” “estimate” and “continue,” or similar words. Those statements include statements regarding the intent, belief or current expectations of us and members of our management team as well as the assumptions on which such statements are based. Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risk and uncertainties, and that actual results may differ materially from those contemplated by such forward-looking statements.
 
Readers are urged to carefully review and consider the various disclosures made by us in this report and in our other reports filed with the Securities and Exchange Commission. Important factors currently known to Management could cause actual results to differ materially from those in forward-looking statements. We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes in the future operating results over time. We believe that our assumptions are based upon reasonable data derived from and known about our business and operations. No assurances are made that actual results of operations or the results of our future activities will not differ materially from our assumptions. Factors that could cause differences include, but are not limited to, expected market demand for our products, fluctuations in pricing for materials, and competition.
 
Business Overview
 
Through our wholly owned subsidiary, we are an alcohol rehabilitation and treatment company headquartered in Santa Ana, California. We were established in January 2010 and currently operating in Santa Ana, California. Our alcohol rehabilitation program consists of a Naltrexone implant that is placed under the skin in the lower abdomen coupled with life counseling sessions from specialized life coaches.
 
We operate within the Specialty Hospitals, Expert Psychiatric industry, specifically within the industry subsets of Alcoholism Rehabilitation Hospital. The clinic offers a unique treatment program and, to date, the clinic has experienced a high rate of success with very few of their patients starting to drink during the first year after the implant is inserted. The Fresh Start program gives the alcoholic a 12 month window of sobriety. Statistics are still being compiled for after the 12 month period, as the program has been in place over two years.
 
Results of Operations
 
The following table summarizes changes in selected operating indicators of the Company, illustrating the relationship of various income and expense items to net sales for the respective periods presented (components may not add or subtract to totals due to rounding):
 
Three months ended September 30,
 
   
2013
   
2012
 
Revenue
 
$
277,410
   
$
63,973
 
Cost of Revenue
   
-
     
83,855
 
Gross Profit
   
277,410
     
(19,882
Total SG&A Expenses
   
(455,680
)
   
(100,883
)
Gain On Change In Derivative
   
111,237
     
-
 
Interest Expense
   
(62,003
)
   
(40,209
)
Net Loss
 
$
(129,036
)
 
$
(160,974
)

 
19

 
 
Three months ended September 30, 2013 Compared with Three months ended September 30, 2012
 
Revenue
 
Revenues for the three months ended September 30, 2013 were $277,410, compared with $63,973 for the three months ended September 30, 2012, reflecting an increase of 334%. The increase in revenues is primarily attributable increased business activities in the current period as compared to the same period, last year.
 
Cost of Revenue
 
Cost of revenue for the three months ended September 30, 2013 was $-0- compared with $83,855 for the three months ended September 30, 2012, reflecting a decrease of 100%. The decrease in cost of revenue is directly related to the decrease in costs associated with revenue earned for this period. See explanation under Gross Profit.
 
Gross Profit
 
Gross profit percentage for the three months ended September 30, 2013 was 100% compared to (31.1)% for the three months ended September 30, 2012. The gross profit percentage increase reflects the shift from cash paying customers that were given discounts to promote the Company to insured patients acquired having a higher patient fee while incurring the same medical and therapist costs.
 
Total Operating Expenses
 
Total expenses for the three months ended September 30, 2013 and 2012 were $454,844 and $100,396 reflecting an increase of 353%. Specifically, comparing the three months ended September 30, 2013 to September 30, 2012, consulting fees increased from $150,531 to $353,181, accounting fees increased from $8,750 to $24,875, advertising decreased from $43,393 to $4,310, and rent increased from $9,968 to $17,255. The increases were due to the support of the activity executing our business plan.
 
Interest Expense
 
Interest expense for the three months ended September 30, 2013 and 2012 were $62,003 and $40,209, respectively, reflecting additional costs incurred from our 2012 and 2013 borrowings.
 
Loss on change in Fair Value of Derivative Liability
 
As of September 30, 2013, we had outstanding a convertible debenture and warrants with variable conversion provisions that had the possibility of exceeding our common shares authorized when considering the number of possible shares that may be issuable to satisfy settlement provision of this note. As such, we are required to determine the fair value of this derivative and mark to market each reporting period. For the three months ended September 30, 2013, we incurred a $111,237 gain on change in fair value of our derivative liabilities compared to nil the same period, last year.
 
Net loss
 
For the three months ended September 30, 2013, the Company experienced a loss of $129,037 compared with a net loss of $160,974 for the three months ended September 30, 2012.

 
20

 

Nine months ended September 30,
 
   
2013
   
2012
 
Revenue
 
$
1,164,570
   
$
504,065
 
Cost of Revenue
   
149,366
     
367,362
 
Gross Profit
   
1,015,204
     
136,703
 
Total Expenses
   
(1,057,210
)
   
(648,267
)
Gain On Settlement of Debt
   
17,800
     
-
 
Loss On Change In Derivative
   
(81,972
)
   
-
 
Interest Expense
   
(232,438
)
   
(106,788
)
Net Loss
 
$
(338,616
)
 
$
(618,352
)

Nine months ended September 30, 2013 Compared with Nine months ended September 30, 2012
 
Revenue
 
Revenues for the nine months ended September 30, 2013 were $1,164,570, compared with $504,065 for the nine months ended September 30, 2012, reflecting an increase of 131%. The increase in revenues is primarily attributable increased business activities in the current period as compared to the same period, last year.
 
Cost of Revenue
 
Cost of revenue for the nine months ended September 30, 2013 was $149,366 compared with $367,362 for the nine months ended September 30, 2012, reflecting a decrease of 59%. The decrease in cost of revenue is directly related to the decrease in costs associated with revenue earned for this period. See explanation under Gross Profit.
 
Gross Profit
 
Gross profit percentage for the nine months ended September 30, 2013 was 87.2% compared to 27.1% for the nine months ended September 30, 2012. The gross profit percentage increase reflects the shift from cash paying customers that were given discounts to promote the Company to insured patients acquired having a higher patient fee while incurring the same medical and therapist costs.
 
Total Operating Expenses
 
Total expenses for the nine months ended September 30, 2013 and 2012 were $1,057,210 and $648,267 reflecting an increase of 63%. Specifically, comparing the nine months ended September 30, 2013 to September 30, 2012, consulting fees increased from $367,475 to $544,350, accounting fees increased from $25,294 to $56,562, advertising decreased from $100,629 to $14,660, and rent decreased from $31,085 to $25,874. The increases were due to the support of the activity executing our business plan.
 
Gain on settlement of Debt
 
During the nine months ended September 30, 2013, we settled accounts payable in aggregate of $21,800 for $4,000, with a gain of settlement of debt of $17,800, as compared to nil the same period, last year.
 
 
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Loss on change in Fair Value of Derivative Liability
 
As of September 30, 2013, we had outstanding a convertible debenture and warrants with variable conversion provisions that had the possibility of exceeding our common shares authorized when considering the number of possible shares that may be issuable to satisfy settlement provision of this note. As such, we are required to determine the fair value of this derivative and mark to market each reporting period. For the nine months ended September 30, 2013, we incurred a $81,972 loss on change in fair value of our derivative liabilities compared to nil the same period, last year.
 
Interest Expense
 
Interest expense for the nine months ended September 30, 2013 and 2012 were $232,438 and $106,788, respectively, reflecting additional costs incurred from our 2012 and 2013 borrowings.

Net loss
 
For the nine months ended September 30, 2013, the Company experienced a loss of $338,616 compared with a net loss of $618,352 for the nine months ended September 30, 2012.

Liquidity and Capital Resources
 
As of September 30, 2013, we had cash and cash equivalents of approximately $1,766. The following table provides a summary of our net cash flows from operating, investing, and financing activities.
 
Nine months ended September 30,
 
   
2013
 
2012
Net cash used in operating activities
 
$
(151,482
)
 
$
(797,261
)
Net cash used in investing activities
   
(9,721
)
   
(75,000
Net cash provided by financing activities
   
156,967
     
880,249
 
Net (decrease) increase in cash and cash equivalents
   
(4,236
   
7,988
 
Cash and cash equivalents, beginning of period
   
6,002
     
1,657
 
Cash and cash equivalents, end of period
 
$
1,766
   
$
9,645
 
 
Currently we have no material commitments for capital expenditures as of the end of the period ending September 30, 2013. We historically sought and continue to seek financing from private sources to move our business plan forward. In order to satisfy the financial commitments, we had relied upon private party financing that has inherent risks in terms of availability and adequacy of funding.
 
For the next twelve months, we anticipate that our revenues will be adequate to provide the minimum operating cash requirements to continue as a going concern. In 2011, the company started accepting insurance payments for patient services. To accelerate cash flows, we have initially factored some receivables as collection from insurance can take extended periods of time. We believe that by factoring the receivables from the insurance companies that sufficient cash flows can be maintained while the Company grows its revenue base. New patients acquired through the advertising contract are expected to provide sufficient revenues to maintain the operations of the Company.
 
We may require additional capital investments or borrowed funds to meet cash flow projections and carry forward our business objectives. There can be no guarantee or assurance that we can raise adequate capital from outside sources. If we are unable to raise funds when required or on acceptable terms, we may have to significantly scale back, or discontinue, our operations.
 
 
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Net cash flow from operating activities
 
Net Cash used in operating activities was $151,482 for the nine months ended September 30, 2013 compared to $797,261 for the same period in 2012 due to the Company expanding operations and sales.
 
Net cash flow from investing activities
 
Net cash used in investing activities was by $9,721 for the nine months ended September 30, 2013 compared to $75,000 for the same period in 2012 due to purchase of furniture and equipment and payment of long term deposit in 2013.
 
Net cash flow from financing activities
 
Net cash provided by financing activities was $156,967 for the nine months ended September 30, 2013 compared to $880,249 for the same period in 2012.  In 2013, we received proceeds of $328,480 from issuance of notes payable, net of repayments of $150,260 and repayments of related party notes payable of $21,253.
 
Going Concern
 
The Company’s financial statements are prepared in accordance with generally accepted accounting principles applicable to a going concern. This contemplates the realization of assets and the liquidation of liabilities in the normal course of business. As of September 30, 2013 and December 31, 2012, the Company has a working capital deficit of $1,113,534 and $1,141,259, and an accumulated deficit of $1,937,207 and $1,598,591. The Company has increased revenues in the past through an advertising contract and feels it will be able to meet its obligation. If the current expansion is not sustained, we will be dependent upon the raising of additional capital through placement of our common stock in order to implement our business plan or by using outside financing. There can be no assurance that the Company will be successful in these situations in order to continue as a going concern. The Company is funding its operations through normal operating activities and additional debt issuances.
 
Off Balance Sheet Arrangements
 
We do not have any 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, sales or expenses, results of operations, liquidity or capital expenditures, or capital resources that are material to an investment in our securities.
 
Critical Accounting Policies
 
Revenue Recognition
 
The Company generates revenue from services. Revenue is recognized in accordance with Accounting Standards Codification subtopic 605-10, Revenue Recognition (“ASC 605-10”) which requires that four basic criteria must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services have been rendered; (3) the selling price is fixed and determinable; and (4) collectability is reasonably assured. Determination of criteria (3) and (4) are based on management's judgments regarding the fixed nature of the selling prices of the services delivered and the collectability of those amounts. Provisions for discounts and rebates to customers, estimated returns and allowances, and other adjustments are provided for in the same period the related revenue are recorded. The Company defers any revenue for which the services has not been performed or is subject to refund until such time that the Company and the customer jointly determine that the services has been performed or no refund will be required.
 
 
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Use of Estimates
 
The preparation of consolidated financial statements in conformity with generally accepted accounting principles 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 revenue and expenses during the reporting period. Actual results could differ from those estimates.

Derivative Financial Instruments
 
Accounting Standards Codification subtopic 815-40, Derivatives and Hedging, Contracts in Entity’s own Equity (“ASC 815-40”) became effective for the Company on October 1, 2009. The Company’s convertible debt has variable conversion rates to the exercise price, which prohibit the Company from determining the number of shares needed to settle the conversion of the debt.

Stock Based Compensation
 
Share-based compensation issued to employees is measured at the grant date, based on the fair value of the award, and is recognized as an expense over the requisite service period. The Company measures the fair value of the share-based compensation issued to non-employees using the stock price observed in the arms-length private placement transaction nearest the measurement date (for stock transactions) or the fair value of the award (for non-stock transactions), which were considered to be more reliably determinable measures of fair value than the value of the services being rendered. The measurement date is the earlier of (1) the date at which commitment for performance by the counterparty to earn the equity instruments is reached, or (2) the date at which the counterparty’s performance is complete.
 
Recent Accounting Pronouncements
 
There were various updates recently issued, most of which represented technical corrections to the accounting literature or application to specific industries and are not expected to a have a material impact on the Company's consolidated financial position, results of operations or cash flows.
 
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
Not required under Regulation S-K for “smaller reporting companies.”
 
ITEM 4 - CONTROLS AND PROCEDURES
 
(a) Evaluation of disclosure controls and procedures.
 
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 under the Exchange Act. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.
 
 
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Based on management’s evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as a result of the material weaknesses described below, as of September 30, 2013, our disclosure controls and procedures are not designed at a reasonable assurance level and are ineffective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. The material weaknesses, which relate to internal control over financial reporting, that were identified are:
 
a)
We did not have sufficient personnel in our accounting and financial reporting functions. As a result we were not able to achieve adequate segregation of duties and were not able to provide for adequate reviewing of the financial statements. This control deficiency, which is pervasive in nature, results in a reasonable possibility that material misstatements of the financial statements will not be prevented or detected on a timely basis; and

b)
We did not maintain sufficient personnel with an appropriate level of technical accounting knowledge, experience, and training in the application of U.S. GAAP commensurate with our complexity and our financial accounting and reporting requirements. This control deficiency is pervasive in nature. Further, there is a reasonable possibility that material misstatements of the financial statements including disclosures will not be prevented or detected on a timely basis as a result.

We are committed to improving our accounting and financial reporting functions. As part of this commitment, we appointed Lourdes Felix as our Chief Financial Officer to appropriately address non-routine or complex accounting matters. In addition, we have engaged an outside accounting consultant to provide additional knowledgeable personnel with technical accounting expertise to further support the current accounting personnel at the Company.
 
Management believes that hiring additional knowledgeable personnel with technical accounting expertise will remedy the following material weaknesses: (A) lack of sufficient personnel in our accounting and financial reporting functions to achieve adequate segregation of duties; and (B) insufficient personnel with an appropriate level of technical accounting knowledge, experience, and training in the application of U.S. GAAP commensurate with our complexity and our financial accounting and reporting requirements.
 
Management believes that the hiring of additional personnel who have the technical expertise and knowledge with the non-routine or technical issues we have encountered in the past will result in both proper recording of these transactions and a much more knowledgeable finance department as a whole. Due to the fact that our accounting staff consists of a Chief Financial Officer and a bookkeeper, additional personnel will also ensure the proper segregation of duties and provide more checks and balances within the department. Additional personnel will also provide the cross training needed to support us if personnel turnover issues within the department occur. We believe this will eliminate or greatly decrease any control and procedure issues we may encounter in the future.
 
We will continue to monitor and evaluate the effectiveness of our disclosure controls and procedures and our internal controls over financial reporting on an ongoing basis and are committed to taking further action and implementing additional enhancements or improvements, as necessary and as funds allow.
 
(b) Changes in internal control over financial reporting.
 
There were no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rule 13a-15 or 15d-15 under the Exchange Act that occurred during the quarter ended September 30, 2013 that have materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
 
 
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PART II - OTHER INFORMATION
 
Item 1. Legal Proceedings
 
We are currently not a party to any material legal proceedings or claims not previously disclosed on Form 8-K.
 
Item 1A. Risk Factors
 
Not required under Regulation S-K for “smaller reporting companies.”
 
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
 
None
 
Item 3. Defaults Upon Senior Securities
 
None.

Item 4. Mine Safety Disclosures.
 
Not applicable.
 
Item 5. Other Information.
 
On February 29, 2012 one member of the Board of Directors, Jorge Andrade Jr., filed for bankruptcy protection in the United States Bankruptcy Court for the Central District of California under Chapter 7 of the United State Bankruptcy Code, as amended, case no. 8:12-bk-12653-TA (“Chapter 7 Bankruptcy”). Under the Chapter 7 Bankruptcy, Dr. Andrade was seeking discharge of most of his debts. On June 18, 2012, the U.S. Bankruptcy court issued a Discharge of Debtor Order declaring that Dr. Andrade was granted a discharge under Section 727 of Title 11 of the U.S. Bankruptcy Code.
 
 
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Item 6. Exhibits
 
31.01
 
Certification of Chief Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
     
31.02   Certification of Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
     
32.01   Certifications of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
     
    Certifications of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
     
101 INS   XBRL Instance Document*
     
101 SCH   XBRL Schema Document*
     
101 CAL   XBRL Calculation Linkbase Document*
     
101 LAB   XBRL Labels Linkbase Document*
     
101 PRE   XBRL Presentation Linkbase Document*
     
101 DEF   XBRL Definition Linkbase Document*
 
*
The XBRL related information in Exhibit 101 shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability of that section and shall not be incorporated by reference into any filing or other document pursuant to the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing or document.
 
 
27

 
 
SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
 
FRESH START PRIVATE MANAGEMENT, INC.
 
       
Date: November 14, 2013
By:
/s/ Kent Emry
 
   
Kent Emry
 
   
Chief Executive Officer
 
       
       
Date: November 14, 2013
By:
/s/ Lourdes Felix
 
   
Lourdes Felix
 
   
Chief Financial Officer and Director
 


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