UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

☒  Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the quarterly period ended: September 30, 2016

 

☐  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: 000-55122

 

SOURCE FINANCIAL, INC.

(Exact name of registrant as specified in its charter)

 

Delaware		80-0142655
(State or other jurisdiction of incorporation or organization)		(I.R.S. employer identification number)

 

604 Arizona Ave.

Santa Monica, CA 90401

(Address of principal executive offices and zip code)

 

(424) 322-2201

(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 ☒    No  ☐

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§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  ☒     No  ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.

 

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☐  (Do not check if a smaller reporting company)	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 ☒

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:  As of November 16, 2016, the Registrant had 7,044,992 shares of common stock, par value $0.001, issued and outstanding. 

 

 

 

SOURCE FINANCIAL, INC.

FORM 10-Q

September 30, 2016

 

TABLE OF CONTENTS

 

		Page No.
PART I - FINANCIAL INFORMATION
Item 1.	Consolidated Financial Statements	1
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	8
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	13
Item 4.	Controls and Procedures	13
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	14
Item 1A.	Risk Factors	14
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	14
Item 3.	Defaults Upon Senior Securities	14
Item 4.	Mine Safety Disclosures	14
Item 5.	Other Information	14
Item 6.	Exhibits
	Signatures	15

 

  

PART I     FINANCIAL INFORMATION

 

Item 1. Consolidated Financial Statements

 

SOURCE FINANCIAL, INC.

CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2016

Table of Contents

(Unaudited)

 

	Page
Consolidated Balance Sheets	2
Consolidated Statements of Operations	3
Consolidated Statements of Cash Flows	4
Notes to the Consolidated Financial Statements	5 - 7

  

 

Source Financial, Inc.

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

 

		September 30, 2016				December 31, 2015
ASSETS
CURRENT ASSETS:
Cash and cash equivalents		$	9,818			$	452
Prepaid			5,000				-
Convertible notes receivable			200,000				-
Total Current Assets			214,818				452
Intangible assets, net of accumulated amortization of $10,007 and $5,365, respectively			29,801				31,169
TOTAL ASSETS		$	244,619			$	31,621
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable and accrued expenses		$	118,611			$	-
Advances from affiliate			8,580				-
Notes payable			8,000				-
Convertible notes payable			250,000				-
Total Current Liabilities			385,191				-
TOTAL LIABILITIES			385,191				-
STOCKHOLDERS’ EQUITY (DEFICIT)
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			45				45
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			5,804				1,660
Additional paid in capital			132,531				140,244
Accumulated deficit			(278,952	)			(110,328	)
Total Stockholders’ Equity (Deficit)			(140,572	)			31,621
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)		$	244,619			$	31,621

 

The accompanying notes are an integral part of these financial statements.

 

 

Source Financial, Inc.

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

 

		For the Three Months Ended September 30, 2016				For the Three Months Ended September 30, 2015				For the Nine Months Ended September 30, 2016				For the Nine Months Ended September 30, 2015
EXPENSES
General Administrative		$	153,692			$	6,087			$	167,987			$	11,475
TOTAL EXPENSES			153,692				6,087				167,987				11,475
Loss from operations			(153,692	)			(6,087	)			(167,987	)			(11,475	)
OTHER EXPENSES
Interest Expense			(307	)			(3,270	)			(637	)			(9,270	)
TOTAL OTHER EXPENSES			(307	)			(3,270	)			(637	)			(9,270	)
NET LOSS		$	(153,999	)		$	(9,357	)		$	(168,624	)		$	(20,745	)
NET LOSS PER SHARE:
BASIC AND DILUTED		$	(0.03	)		$	(0.01	)		$	(0.04	)		$	(0.01	)
WEIGHTED AVERAGE SHARES OUTSTANDING:
BASIC AND DILUTED			5,804,317				1,580,757				3,752,260				1,548,374

 

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)

 

		September 30, 2016				September 30, 2015
CASH FLOWS USED IN OPERATING ACTIVITIES
Net loss		$	(168,624	)		$	(20,745	)
Adjustments to reconcile net loss to cash used in operating activities:
Amortization of intangible assets			4,642				–
Changes in operating assets and liabilities
Prepaid			(5,000	)			–
Accounts payable and accrued expenses			115,024				9,270
Net Cash Used in Operating Activities			(53,958	)			(11,475	)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of intangible assets			(3,256	)			(4,000	)
Convertible note receivable			(200,000	)			–
Net Cash Used in Investing Activities			(203,256	)			(4,000	)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from convertible notes payable			250,000				10,000
Advances from affiliate			8,580				5,080
Proceeds from notes payable			8,000				–
Net Cash Provided by Financing Activities			266,580				15,080
NET CHANGE IN CASH			9,366				(395	)
CASH – BEGINNING			452				518
CASH – ENDING		$	9,818			$	123
Supplemental Cash Flow Information:
Cash paid for:
Interest		$	–			$	–
Income taxes		$	–			$	–
Supplemental disclosures of non-cash transactions:
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:

 

	●	Raise capital to fund operations and provide bridge loans;
	●	Attract high-performing talent; and

 

●

Finance high performance/profile Innovators that grow our brand and bottom-line.

 

We have the following long-term goals for our business operations:

 

	●	Build our brand to become a market leader;
	●	Leverage partners that allow us to provide more value than peers; and

 

●

Continuously innovate to deliver value to our customers.

 

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

 

		September 30, 2016				December 31, 2015
Current Assets		$	214,818			$	452
Current Liabilities			(385,191	)			-
Working Capital (Deficiency)		$	(170,373	)		$	452

 

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

 

		Nine months				Nine months
		Ended				Ended
		September 30, 2016				September 30, 2015
Net Cash Provided by (Used in) Operating Activities		$	(53,958	)		$	(11,475	)
Net Cash Provided by (Used in) Investing Activities			(203,256	)			(4,000	)
Net Cash Provided by (Used in) Financing Activities			266,580				15,080
Net Increase (Decrease) in Cash		$	9,366			$	(395	)

  

 

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.

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

 

We do not hold any derivative instruments and do not engage in any hedging activities.

 

Item 4. Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

Our management, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2016.

 

Disclosure controls and procedures refer to controls and other procedures designed to ensure that information required to be disclosed in the reports we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC 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. In designing and evaluating our 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, and management is required to apply its judgment in evaluating and implementing possible controls and procedures.

 

Management conducted its evaluation of disclosure controls and procedures under the supervision of our Chief Executive Officer and Chief Financial Officer. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, because of the material weakness in internal control over financial reporting, our disclosure controls and procedures were not effective as of September 30, 2016.

 

Changes in Internal Control over Financial Reporting

 

During the nine months ended September 30, 2016, there has been no change in our internal controls over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting. We will continue to monitor the deficiencies identified in internal controls and make changes that our management deems necessary.

 

 

PART II     OTHER INFORMATION

 

Item 1. Legal Proceedings.

 

We are currently not involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our Company or any of our subsidiaries, threatened against or affecting our company, our common stock, any of our subsidiaries or of our companies or our subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.

 

Item 1A. Risk Factors.

 

Not required because we are a smaller reporting company.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

 

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.

 

On September 27, 2016, the Company issued 100,000 shares of common stock to a consultant in connection with a Separation Agreement dated February 11, 2014.

 

The issuance of the above securities was exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

Item 3. Defaults Upon Senior Securities.

 

There has been no default in the payment of principal, interest, sinking or purchase fund installment, or any other material default, with respect to any indebtedness of the Company.

 

Item 4. Mine Safety Disclosures.

 

Not applicable.

 

Item 5. Other Information.

 

There is no other information required to be disclosed under this item which was not previously disclosed. 

 

Exhibit Number		Document
31.1		Certifications of Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certifications of Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1+		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.
32.2+		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 Taxonomy Schema
101.CAL		XBRL Taxonomy Calculation Linkbase
101.DEF		XBRL Taxonomy Definition Linkbase
101.LAB		XBRL Taxonomy Label Linkbase
101.PRE		XBRL Taxonomy Presentation Linkbase

 

+ In accordance with SEC Release 33-8238, Exhibits 32.1 and 32.2 are being furnished and not filed. 

  

 

SIGNATURES

 

In accordance with the requirements of the Exchange Act, the Company caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

	Source Financial, Inc.
November 17, 2016	By:	/s/ Edward C. DeFeudis
		Edward C. DeFeudis Chief Executive Officer and Chief Financial Officer
		(Principal Executive Officer and Principal Accounting Officer)

 

 

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