UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2014

o TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT OF 1934

For the transition period from ______ to _______

Commission File Number 333-180653

CODESMART HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

Florida		45-4523372
(State of incorporation)		(I.R.S. Employer Identification No.)

1330 Avenue of the Americas

Suite 23A

New York, NY 10019

(Address of principal executive offices)

212-653-0659

(Registrant’s telephone number)

Indicate by check mark whether the issuer (1) 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	¨
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 o No x

APPLICABLE ONLY TO CORPORATE ISSUERS

As of October 8, 2014, the registrant had 110,369,422 shares of common stock, par value $.0001 per share issued and outstanding.

Special Note Regarding Forward-Looking Statements

Information included in this Form 10-Q contains forward-looking statements. This information may involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of CodeSmart Holdings, Inc. (the “Company”), to be materially different from future results, performance or achievements expressed or implied by any forward-looking statements. Forward-looking statements, which involve assumptions and describe future plans, strategies and expectations of the Company, are generally identifiable by use of the words “may,” “will,” “should,” “expect,” “anticipate,” “estimate,” “believe,” “intend,” or “project” or the negative of these words or other variations on these words or comparable terminology. These forward-looking statements are based on assumptions that may be incorrect, and there can be no assurance that the projections included in these forward-looking statements will come to pass. Actual results of the Company could differ materially from those expressed or implied by the forward-looking statements as a result of various factors, including, but not limited to, the civil and criminal actions commenced against the Company’s former Chairman and Chief Executive Officer described under “Recent Developments” in Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. Except as required by applicable laws, the Company has no obligation to update publicly any forward-looking statements for any reason, even if new information becomes available or other events occur in the future.

*Please note that throughout this Quarterly Report, and unless otherwise noted, the words "we," "our," "us," the "Company," or "CodeSmart" refers to: (i) CodeSmart Holdings, Inc., a Florida corporation, (ii) The CodeSmart Group, Inc., a Nevada corporation, and (iii) American Coding Quality Association, LLC, a Delaware limited liability company.

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CodeSmart Holdings, Inc.

Consolidated Balance Sheets

	June 30, 2014			December 31, 2013
	(Unaudited)

Assets:
Cash	$	36,977		$	153,834
Accounts receivable		38,605			37,597
Prepaid and other current assets		147,419			171,260
Total current assets		223,001			362,691

Property and equipment, net		3,056			3,889

Total assets	$	226,057		$	366,580

Liabilities and Stockholders' Equity (Deficit)

Liabilities:
Accounts payable and accrued expenses	$	479,084		$	591,378
Loans payable		167,450
Secured convertible notes payable - net		444,414			65,382
Deferred revenue		241,404			150,470
Securities payable		-			16,500
Derivative liabilities - convertible notes		4,740,865			991,148
Derivative liabilities - warrants		9,466			145,838
Total current liabilities		6,082,683			1,960,716

Total liabilities		6,082,683			1,960,716

Stockholders' Equity (Deficit)
Preferred stock, $0.0001 par value; 100,000,000 shares authorized; no shares issued and outstanding		-			-
Common stock, $0.0001 par value; 500,000,000 shares authorized; 27,522,626 and 21,103,430 shares issued and outstanding		2,752			2,110
Additional paid in capital		22,271,576			20,772,983
Accumulated deficit		(28,130,954	)		(22,369,229	)

Total Stockholders' Equity (Deficit)		(5,856,626	)		(1,594,136	)

Total Liabilities and Stockholders' Equity (Deficit)	$	226,057		$	366,580

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

CodeSmart Holdings, Inc.

Consolidated Statements of Operations

(unaudited)

	For the three months ended			For the three months ended			For the six months ended			For the six months ended
	June 30, 2014			June 30, 2013			June 30, 2014			June 30, 2013
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)

Revenue	$	515,294		$	24,157		$	679,964		$	31,757
Cost of sales		94,087			16,521			184,522			19,698
Gross profit		421,207			7,636			495,442			12,059

Operating expenses:
Compensation		370,343			2,566,866			932,045			2,595,276
Professional fees		344,255			824,050			531,248			871,550
Research and development		29,082			24,836			100,007			24,836
Advertising and promotions		85,952			114,056			190,312			119,685
Other general and administrative expenses		30,483			43,138			238,680			45,777
Total operating expenses		860,115			3,572,946			1,992,292			3,657,124

Loss from operations		(438,908	)		(3,565,310	)		(1,496,850	)		(3,645,065	)

Other income (expenses)
Interest expense		(396,748	)		(82,431	)		(693,179	)		(82,431	)
Loss on investment		(711,350	)		-			(711,350	)		-
Change in fair value of derivative liability - convertible notes		(2,698,218	)		(1,489,187	)		(2,298,334	)		(1,489,187	)
Change in fair value of derivative liability - warrants		130,894			-			154,789			-
Derivative expense		(65,894	)		-			(635,990	)		-
Loss from extinguishment of debt		(80,811	)		-			(80,811	)		0
Total other income (expense)		(3,822,127	)		(1,571,618	)		(4,264,875	)		(1,571,618	)

Net loss	$	(4,261,035	)	$	(5,136,928	)	$	(5,761,725	)	$	(5,216,683	)

Net loss per common share - basic and diluted	$	(0.18)		$	(0.50	)	$	(0.26)		$	(0.89	)

Weighted average common shares outstanding -basic and diluted		23,370,041			10,235,695			22,257,014			5,856,250

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

CODESMART HOLDINGS, INC.

CONSOLIDATED STATEMENT OF CASH FLOWS

	For the six months ended			For the six months ended
	June 30, 2014			June 30, 2013
	(Unaudited)			(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(5,761,725	)	$	(5,216,683	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation		833			278
Interest expense including debt issue costs and OID costs		631,057			76,740
Share based compensation		169,620			3,001,334
Derivative expense		635,990			-
Change in fair value of derivative liability		2,143,545			1,489,187
Loss on extinguishment of debt		80,811			-
Loss on investment in Jasper		711,350			-
Changes in operating assets and liabilities:
Increase in accounts receivable		(1,008	)		(1,797	)
Decrease (increase) in prepaids and other current assets		23,841			(1,605	)
Increase in deferred revenue		90,934			-
(Decrease) increase in accounts payable and accrued expenses		(116,677	)		74,564
Net Cash Used in Operating Activities		(1,391,429	)		(577,982	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for equipment		-			(5,000	)
Net Cash Used in Investing Activities		-			(5,000	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock		213,047			819,500
Proceeds from the issuance of convertible notes (net of issuance costs)		971,500			250,000
Cash paid for the repayment of notes		(50,000	)		-
Proceeds of loan payable		140,025			-
Cash paid to cancel shares (through recapitalization)		-			(231,000	)
Net Cash Provided By Financing Activities		1,274,572			838,500

Net Increase (Decrease) in Cash		(116,857	)		255,518

Cash - Beginning of Period		153,834			6,074

Cash - End of Period	$	36,977		$	261,592

SUPPLEMENTARY CASH FLOW INFORMATION:
Cash Paid During the Period for:
Income taxes		-			-
Interest		55,588			-

SUPPLEMENTARY DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES

Investment in Jasper Group Holdings, Inc.		711,350			-
Debt discounts on convertible notes		-			84,063
Conversion of convertible notes and interest into common stock		159,769			111,537
Reclassification of derivative liability to additional paid in capital		222,649			519,750

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

CodeSmart Holdings, Inc. and Subsidiaries

Fka First Independence Corp.

Notes to Condensed Consolidated Financial Statements

Note 1 Nature of Operations

CodeSmart Holdings, Inc. (the “Company”) a Florida corporation was incorporated in the State of Florida on February 10, 2012 under the name “First Independence Corp.” On June 14, 2013, the Company amended its Articles of Incorporation to change its name to “CodeSmart Holdings, Inc.” The Company has two wholly-owned subsidiaries - The CodeSmart Group, Inc., a Nevada corporation (“CodeSmart NV”) and American Coding Quality Association, LLC, a Delaware limited liability company (“ACQA”). References to “CODESMART™,” “we,” “us,” or “our,” are references to the combined business of CodeSmart Holdings, CodeSmart NV and ACQA.

On May 3, 2013, the Company and the stockholders of The CodeSmart Group, Inc., a Nevada corporation incorporated on October 3, 2012, ( “CodeSmart NV”) who collectively owned 68.06% of the outstanding shares of CodeSmart NV (the “CodeSmart Stockholders”) completed a reverse acquisition transaction through a Share Exchange Agreement (the “Share Exchange Agreement,” such transaction referred to as the “Share Exchange Transaction”), whereby the Company issued to the CodeSmart Stockholders an aggregate of 6,125,000 shares of its common stock in exchange for the 68.06% of the equity interests of CodeSmart NV held by the CodeSmart Stockholders. As a result of the Share Exchange Transaction, CodeSmart NV became a subsidiary of the Company.

The Share Exchange Transaction was treated as a reverse acquisition for accounting purposes, with CodeSmart NV as the acquirer and the Company as the acquired party. Unless the context suggests otherwise, references in this report to business and financial information for periods prior to the consummation of the reverse acquisition refer to the business and financial information of CodeSmart NV and its predecessors. For accounting purposes, the acquisition of the Company has been treated as a recapitalization with no adjustment to the historical book and tax basis of the Company’s assets and liabilities.

Upon completion of the Share Exchange Transaction, the Company changed its name from First Independence Corp. to CodeSmart Holdings, Inc., changed its fiscal year end from February 28 to a calendar year ending December 31 and commenced trading under the symbol “ITEN” on the OTC QB. The OTC QB market tier of the OTC market helps investors identify companies that are current in their reporting obligations with the SEC. OTC QB securities are quoted on OTC Markets Group's quotation and trading system.

On May 7, 2013, International Alliance Solutions LLC (“IAS”) transferred and assigned the trademark “CODESMART™” to CodeSmart NV. In addition, on July 11, 2013, CodeSmart NV entered into an Assignment Agreement with IAS, whereby IAS agreed to transfer to CodeSmart NV its remaining assets, including but not limited to IAS's rights in any agreements to which it is a party.

On June 3, 2013, the Company entered into a Contribution Agreement with American Coding Quality Association, LLC, a Delaware limited liability company organized on June 3, 2013, (“ACQA”), whereby the sole owner of ACQA contributed 100% of the membership interests of ACQA to the Company and immediately after the effectiveness of the Contribution Agreement, ACQA became a wholly-owned subsidiary of the Company.

On August 20, 2013, the Company and Marc Kovens, who owned the 31.94% shares of the Common Stock of CodeSmart NV that did not participate in the reverse acquisition, entered into and consummated transactions pursuant to a Share Exchange Agreement whereby (i) the Company issued to Kovens an aggregate of 2,808,000 shares of the Company’s common stock and (ii) the Company paid Kovens cash in the amount of $1,350,000, in exchange for the 31.94% of the equity interests in CodeSmart NV owned by Kovens. As a result of the Share Exchange Transaction, CodeSmart NV became a wholly-owned subsidiary of the Company and a non-controlling interest in CodeSmart NV is no longer presented.

The Company was originally formed to private label pourable food products for start-ups, local and national supermarket chains and specialty stores. Since the acquisitions of CodeSmart NV and ACQA, the Company has changed its business direction and is currently engaged in providing training, consulting and other relevant services for ICD-10 preparation, education and implementation. ICD-10 is the 10th revision of the International Statistical Classification of Diseases and Related Health Problems, a medical classification list by the World Health Organization. In 2009, the United States Department of Health and Human Services mandated the transition from ICD-9, the existing coding system, to ICD-10, effective October 1, 2011. The implementation date has since been delayed numerous times and is now scheduled to take effect on October 1, 2015. The Company, through CODESMART™ UNIVERSITY, its online education solutions provider, offers training programs and consulting services to participants in the healthcare industry that need to transition their coding systems to ICD-10.

Note 2 Summary of Significant Accounting Policies

Basis of presentation

We prepare our consolidated financial statements in conformity with accounting principles generally accepted in the United States of America. These principles require management to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, together with amounts disclosed in the related notes to the financial statements. Actual results and outcomes may differ from management’s estimates, judgments and assumptions. Significant estimates, judgments and assumptions used in these financial statements include, but are not limited to, those related to revenues, accounts receivable and related allowances, contingencies, useful lives and recovery of long-term assets, income taxes, and the fair value of stock-based compensation and derivative financial instrument liabilities. These estimates, judgments, and assumptions are reviewed periodically and the effects of material revisions in estimates are reflected in the consolidated financial statements prospectively from the date of the change in estimate.

In the opinion of management, the accompanying consolidated financial statements reflect all adjustments (consisting of normal recurring accruals) necessary to present fairly the Company’s financial position as of June 30, 2014, and the results of its operations, and cash flows for the three months ended and six months ended June 30, 2014. Although management believes that the disclosures in these consolidated financial statements are adequate to make the information presented not misleading, certain information and footnote disclosures normally included in financial statements that have been prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission.

The results of operations for the three months ended and six months June 30, 2014 are not necessarily indicative of the results that may be expected for the full year ended December 31, 2014. The accompanying consolidated financial statements should be read in conjunction with the more detailed financial statements, and the related footnotes thereto, filed with the Company’s Annual Report on Amendment No. 1 to Form 10K for the year ended December 31, 2013, filed on June 20, 2014.

Going Concern

As reflected in the accompanying consolidated financial statements, the Company had a net loss of $5,761,725 and $5,216,683 for the six months ended June 30, 2014 and 2013, respectively. As of June 30, 2014 and December 31, 2013, the Company had accumulated deficits of $28,130,954 and $22,369,229, respectively. Our consolidated financial statements are prepared using accounting principles generally accepted in the United States of America applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. We have incurred losses from operations and have a significant accumulated deficit, as well as significant outstanding accounts payable and accrued expenses at June 30, 2014. On March 31, 2014, the United States Department of Health and Human Services once again delayed the implementation of ICD-10. The implementation date has now been scheduled to take effect on October 1, 2015. This delay will cause a significant delay in our ability to generate significant revenues. We currently do not have adequate resources, including cash on hand and expected revenues to meet our operating requirements. Management will look to secure additional funding through the sale of additional convertible Notes or Common Stock. However, there can be no guarantee that we will be successful in obtaining additional debt facilities or raising equity on favorable terms. On April 24, 2014 we announced a plan of restructuring as a result of the Company being unable to fund our operations. In the event that we are unable to fund the Company by additional borrowings or raising equity capital, we may be forced to reduce our expenses further. Our consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should we be unable to continue as a going concern.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, The CodeSmart Group, Inc. (CodeSmart NV), and American Coding Quality Association, LLC (ACQA), (collectively, the “Company” or “we”, “our” or “us”). All intercompany transactions and balances have been eliminated in consolidation.

Risks and Uncertainties

The Company’s operations are subject to significant risk and uncertainties including financial, operational, technological, and regulatory risks including the potential risk of business failure.

Cash

The Company considers all highly liquid instruments purchased with a maturity of three months or less to be cash equivalents. The Company held no cash equivalents at June 30, 2014 and December 31, 2013.

The Company seeks to minimize its credit risk associated with cash by periodically evaluating the credit quality of its primary financial institution. The balance at times may exceed federally insured limits.

Financial Instruments and Concentration of Credit Risk

We believe the carrying values of our financial instruments consisting of cash, accounts receivable, accounts payable, accrued expenses, and other current liabilities approximate their fair values due to their short-term nature or because they are carried at fair value. For our convertible notes and debentures, the underlying instruments are carried at amortized cost and the embedded conversion feature is accounted for separately at fair value in accordance with FASB Accounting Standards Codification (“ASC”) 815 – Derivatives and Hedging.

Our cash balances in the United States periodically exceed federally insured limits. We have not experienced any losses in such accounts.

Fair Value of Financial Instruments

The Company follows the guidance of FASB ASC 825-10-50-10 for disclosures about the fair value of its financial instruments and FASB ASC 820-10-35-37 to measure the fair value of its financial instruments. FASB ASC 820-10-35-37 establishes a framework for measuring fair value and expands disclosures about fair value measurements.

The carrying amount of the Company’s financial assets and liabilities, such as cash, accounts receivable, prepaid expenses, accounts payable and accrued expenses, approximate their fair value because of the short maturity of those instruments. The Company’s secured convertible notes approximate the fair value of such instruments based upon management’s best estimate of interest rates that would be available to the Company for similar financial arrangements at June 30, 2014 and December 31, 2013.

The Company’s derivative financial instruments, including warrants and the embedded conversion feature of our convertible notes and debentures, are carried at fair value. FASB ASC 820-10-35-37 establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The Company uses Level 3 of the fair value hierarchy to measure the fair value of its derivative liabilities and revalues the derivative liabilities each reporting period and recognizes gains or losses attributable to the change in the fair value of the derivative liabilities in the consolidated statement of operations.

Carrying Value, Recoverability and Impairment of Long-Lived Assets

The Company follows the guidance of FASB ASC 360-10-35-17 for its long-lived assets. The Company’s long-lived assets, which include property and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

The Company assesses the recoverability of its long-lived assets by comparing the projected undiscounted net cash flows associated with the related long-lived asset or group of long-lived assets over their remaining estimated useful lives against their respective carrying amounts. Impairment, if any, is based on the excess of the carrying amount over the fair value of those assets. Fair value is generally determined using the asset’s expected future discounted cash flows or market value, if readily determinable. If long-lived assets are determined to be recoverable, but the newly determined remaining estimated useful lives are shorter than originally estimated, the net book values of the long-lived assets are depreciated over the newly determined remaining estimated useful lives.

The impairment charges, if any, are included in operating expenses in the accompanying statements of operations.

Property and Equipment

Property and equipment are recorded at cost. Expenditures for major additions and betterments are capitalized. Maintenance and repairs are charged to operations as incurred. Depreciation is computed by the straight-line method (after taking into account their respective estimated residual values) over the assets estimated useful life of three years. Upon sale or retirement of property and equipment, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in the statements of operations.

Derivative Instruments

We generally do not use derivative financial instruments to hedge exposures to cash-flow risks or market-risks. However, certain financial instruments, such as warrants and the embedded conversion features of our convertible promissory notes and debentures, which are indexed to our common stock, are classified as liabilities when either (a) the holder possesses rights to net-cash settlement or (b) physical or net-share settlement is not within our control. In such instances, net-cash settlement is assumed for financial accounting and reporting purposes, even when the terms of the underlying contracts do not provide for net-cash settlement. Derivative financial instruments are initially recorded, and continuously carried, at fair value.

Determining the fair value of these complex derivative financial instruments involves judgment and the use of certain relevant assumptions including, but not limited to, interest rates, volatility and conversion and redemption privileges. The use of different assumptions could have a material effect on the estimated fair value amounts.

Research and Development

Research and development is expensed as incurred. Research and development expenses for the six months ended June 30, 2014 and 2013 were $100,007 and $24,836, respectively.

Revenue Recognition and Deferred Revenue

Revenues consist primarily of tuition and fees derived from online courses taught by CODESMART™ UNIVERSITY as well as from related educational resources that the University provides to its students, such as access to our online materials and learning management system. The Company provides online access to its students for a period of 12 to 18 months subsequent to enrollment in online courses. Therefore, the Company has established such period as the amortization period of deferred revenues recorded for the enrollment of online courses. Accordingly, tuition revenue and most fees from related educational resources are recorded as deferred revenue and amortized into revenue over a 12 to 18 month period. The University maintains an institutional tuition refund policy, which provides for a full refund within stated refund periods. Certain states in which students reside impose separate, mandatory refund policies, which override the University’s policy to the extent in conflict. If a student withdraws within the University’s allotted refund period, then in accordance with its revenue recognition policy, the University will immediately derecognize as revenue the tuition that was originally recorded.

Segment Information

ASC 280-10, “Disclosures about Segments of an Enterprise and Related Information,” establishes standards for the manner in which public companies report information about operating segments in annual and interim financial statements. It also establishes standards for related disclosures about products and services, geographic areas, and major customers. The method for determining what information to report is based on the way management organizes the operating segments within the Company for making operating decisions and assessing financial performance. The Company’s chief operating decision-maker is considered to be the Company’s chief executive officer (“CEO”). The CEO reviews financial information presented on an entity level basis accompanied by disaggregated information about revenues by product type and certain information about geographic regions for purposes of making operating decisions and assessing financial performance. The entity level financial information is identical to the information presented in the accompanying consolidated statements of operations. Currently Management believes that the business operations are all contained in one segment and Management will continue to evaluate their reporting in the future.

Exit from Development Stage

The Company was in the development stage as defined by ASC 915 “Development Stage Entities.” A development stage enterprise is one in which planned and principal operations have not commenced or, if its operations have commenced, there has been no significant revenue there from. The Company exited the development stage on May 3, 2013.

Stock-Based Employee Compensation

On December 9, 2013, the Board of Directors of the Company adopted the 2013 Stock Incentive Plan. However, no equity compensation has yet been granted under the Plan. When granted, the Company will follow the guidance of FASB ASC 718 Compensation – Stock Compensation to account for options issued under the Plan. The Company’s policy is to recognize compensation cost for awards with only service conditions and a graded vesting schedule on a straight-line basis over the requisite service period for the entire award.

Equity Instruments Issued to Parties Other Than Employees for Acquiring Goods or Services

The Company accounts for equity instruments issued to parties other than employees for acquiring goods or services in accordance with the guidance of FASB ASC 505-50-30. Transactions in which there is issuance of equity instruments for goods or services are accounted for based on the fair value of the consideration received for the fair value of the equity instrument issued, or whichever is more reliably measurable. The measurement date used to determine the fair value of the equity instrument issued is the earlier of the date on which the performance is complete or the date on which it is probable that performance will occur.

Loss Per Share

We compute loss per share in accordance with FASB ASC 260: Earnings Per Share. Basic loss per share is computed by dividing net loss available to common stockholders by the weighted average number of shares of common stock outstanding during each period. Diluted loss per share is computed by dividing net income (loss), adjusted for changes in loss that resulted from the assumed conversion or exercise of potentially dilutive securities, by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during the period. Potentially dilutive securities consist of shares potentially issuable pursuant to stock options and warrants as well as shares that would result from full conversion of all outstanding convertible notes and debentures. During periods of net loss per share, these potentially dilutive securities are excluded from diluted net loss per share calculations because they are anti-dilutive. As a result, basic and diluted net loss per share are equivalent.

As of June 30, 2014 and December 31, 2013, our convertible notes and debentures were convertible into 149,612,893 and 2,004,816 shares of common stock, respectively. On June 30, 2014 and December 31, 2014 we had 222,499 and 204,999 common stock warrants outstanding, all of which have been excluded from the computation of diluted loss per share because their effect is anti-dilutive.

Income Taxes

The Company accounts for income taxes in accordance with FASB ASC 740 - Income Taxes. Deferred income tax assets and liabilities are determined based upon differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the assets will not be realized. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the statements of operations in the period that includes the enactment date.

The Company follows the guidance of FASB ASC 740-10-25 to determine whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. The Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the consolidated financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. The Company did not take any uncertain tax positions and had no adjustments to its income tax liabilities or benefits for the six months ended June 30, 2014 and the year ended December 31, 2013.

The estimated future tax effects of temporary differences between the tax basis of assets and liabilities are reported in the accompanying consolidated balance sheets, as well as tax credit carry-backs and carry-forwards. The Company periodically reviews the recoverability of deferred tax assets recorded on its consolidated balance sheets and provides valuation allowances as management deems necessary.

Management makes judgments as to the interpretation of the tax laws that might be challenged upon an audit and cause changes to previous estimates of tax liability. In addition, the Company operates within multiple taxing jurisdictions and is subject to audit in these jurisdictions. In management’s opinion, adequate provisions for income taxes have been made for all years. If actual taxable income by tax jurisdiction varies from estimates, additional allowances or reversals of reserves may be necessary.

The Company has yet to prepare or file their income tax returns for the years ended December 31, 2013 and December 31, 2012. The returns are still subject to review by the Internal Revenue Service and New York State Department of Taxation and Finance.

Recently Issued Accounting Pronouncements

The FASB has recently issued the following Accounting Standards Updates:

Update No. 2014-07—Consolidation (Topic 810): Applying Variable Interest Entities Guidance to Common Control Leasing Arrangements (a consensus of the Private Company Council)

Update No. 2014-06—Technical Corrections and Improvements Related to Glossary Terms

Update No. 2014-05—Service Concession Arrangements (Topic 853) (a consensus of the FASB Emerging Issues Task Force)

Update No. 2014-04—Receivables—Troubled Debt Restructurings by Creditors (Subtopic 310-40): Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure (a consensus of the FASB Emerging Issues Task Force)

Update No. 2014-03—Derivatives and Hedging (Topic 815): Accounting for Certain Receive-Variable, Pay-Fixed Interest Rate Swaps—Simplified Hedge Accounting Approach (a consensus of the Private Company Council)

Update No. 2014-02—Intangibles—Goodwill and Other (Topic 350): Accounting for Goodwill (a consensus of the Private Company Council)

Update No. 2014-01—Investments—Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Qualified Affordable Housing Projects (a consensus of the FASB Emerging Issues Task Force)

We have reviewed the above pronouncements, as well all other recently issued standards, and have determined that they will not have a material impact on our consolidated financial statements, or do not apply to our operations.

Note 3 Property and Equipment

Property and equipment is stated at cost, less accumulated depreciation:

	March 31, 2014			December 31, 2013
	(Unaudited)
Computer equipment	$	5,000		$	5,000
Less: Accumulated depreciation and amortization		(1,944	)		(1,111	)
	$	3,056		$	3,889

Depreciation expense, which is recognized over the estimated useful life of the equipment of three years, was $833 and $278 for the six months ended June 30, 2014 and 2013, respectively.

Note 5 Secured Convertible Promissory Notes and Warrants

From time to time during 2013, and continuing in 2014, the Company has sold secured convertible promissory notes or debentures (the “Notes”) in private placements to various investors. These Notes are convertible, at the holder's option, into shares of our common stock, generally at variable conversion prices based on a percentage of recent market prices for our common stock. The Notes bear interest at stated rates, have specific due dates and contain customary events of default and provide for increased interest rates in the event of default. Certain of the Notes also include down-round anti-dilution adjustments, whereby if we sell common stock or common share indexed financial instruments below the stated or variable conversion price of the Note, the conversion price adjusts to that lower amount. In connection with these financings, we have paid placement agent and other fees and certain Notes were issued with original issue discount. In certain instances, we have also issued warrants, exercisable for our common stock, to the investors or the placement agents. None of the Notes that we have issued require us to register the shares of our common stock underlying their conversion or the exercise of any warrants, except for certain Notes that have piggy-back registration rights in the event we otherwise file a registration statement.

The terms of the embedded conversion options in these Notes, as well as the terms of the warrants, do not meet all of the established criteria for equity classification in FASB ASC 815-40, Derivatives and Hedging - Contracts in Entity's Own Equity. Accordingly, the embedded derivative instruments in the Notes, consisting primarily of the conversion option, are accounted for separately from the host contract, and are recorded at fair value. The warrants are initially recorded at fair value and, together with the embedded derivative instruments that have been separated from the Notes, are re-valued each reporting period, with any changes in their fair values recognized as a gain or loss in our income statement.

The allocation of the proceeds received for the Notes issued in 2014 and 2013 is summarized below:

	June 30, 2014			December 31, 2013
	(Unaudited)
Total principal amounts	$	1,380,319		$	1,072,944
Less: OID & lender fees recorded as interest		(88,569	)		(44,444	)
Less: 3rd party fees paid (legal and issuance costs recorded as interest)		(91,500	)		(64,000	)
Less: non-cash investor and third party fees paid: (stock and warrants)		(18,417	)		(83,375	)
Net proceeds		1,181,833			881,125
Less: embedded derivative recognized		(1,787,180	)		(1,009,894	)
Derivative expense		635,990			331,093
Initial carrying amounts	$	30,643		$	202,324

In circumstances where the fair values of the separated embedded derivative instrument recognized and/or the warrants issued, exceeded the net proceeds received, a derivative expense is recognized. The initial carrying amounts of the Notes are then accreted to their redemption values, including accrued interest thereon at the stated rate, using an effective interest method.

We issued Notes on April 15, 2013 and April 24, 2013 which bore interest at 10% per annum. On July 10, 2013 and June 14, 2013 the total amounts due for the Notes including accrued interest were converted by the holders into 179,180 and 139,448 shares of our common stock, respectively.

A Note issued to Gerald Hickson on November 26, 2013, included above, was repaid with payments of $50,000 on December 19, 2013 and January 13, 2014. On January 9, 2014, the Company issued 25,000 shares of its common stock which represented interest due as of December 26, 2013.

We issued Notes on December 13, 2013 and January 10, 2014. The fees deducted and OID included above consists of $11,838 and $47,358 for the fair value of 17,499 and 17,499 common stock warrants issued to the placement agent, respectively.

On April 29, 2014, the Company, Group 10 Holdings, LLC (“Group 10”), Magna Group, LLC (“Magna”) entered into an Assignment Agreement (the “Assignment Agreement”), where Group 10 sold and assigned to Magna the convertible debenture (the “Original Debenture”) that it originally acquired on August 29, 2013. Pursuant to the Assignment Agreement, the Company agreed to issue a new form of note (the “Assignment Note”) in replacement of the Original Debenture. The Assignment Note is of the principal amount of $228,750.41 which is the sum of the original principal amount, prepayment penalty and accrued interest of the Original Debenture. The Assignment Note accrues interest at 12% per annual and will be due on April 22, 2015. Magna will have the right to convert the Assignment Note at the conversion price which equals to 62% of the volume-weighted average price for the Common Stock during the three (3) trading day period prior to conversion.

From May 6, 2014 to June 30, 2014, the Company issued 4,576,171 shares to various investors. The investors converted a total of $159,769, which represented partial amounts of principal due on convertible debentures sold to them by the Company. The conversions were exercised at $0.011 per share to $0.1802 per share.

The Notes outstanding at June 30, 2014, their interest rates, accrued interest and carrying amounts were as follows:

Issued	Due Date	Outstanding Principal Amount		Accrued Interest Due		Effective Interest Recognized		Carrying Amount		Stated Interest Rate			Default Interest Rate

December 13, 2013	December 12, 2014		130,434		19,444		64,010		-		10	%		18	%

December 19, 2013	September 19, 2014		225,000		12,619		27,649		27,649		10	%		22	%

December 19, 2013	September 20, 2014		126,500		6,349		45,096		54,484		8	%		22	%

January 10, 2014	July 10, 2014		194,444		19,444		101,904		101,904		10	%		18	%

January 10, 2014	January 10, 2015		110,000		5,184		42,976		42,976		10	%		20	%

January 23, 2014	January 23, 2016		168,000		20,160		38,609		38,609		10	%		24	%

February 3, 2014	October 30, 2014		105,263		3,945		32,165		45,381		9	%		24	%

February 6, 2014	February 6, 2015		55,000		2,622		18,654		18,654		12	%		18	%

February 19, 2014	February 19, 2015		55,556		2,411		18,903		18,903		12	%		24	%

February 20, 2014	November 18, 2014		110,000		4,738		50,840		50,840		12	%		24	%

March 5, 2014	March 5, 2015		55,556		1,437		16,426		16,426		8	%		22	%

March 21, 2014	December 17, 2014		63,000		1,408		10,179		10,179		8	%		22	%

April 14, 2014	January 14, 2015		52,750		902		2,009		2,009		8	%		22	%

April 29, 2014	April 29, 2015		159,992		3,666		58,475		-		12	%		24	%

April 29, 2014	April 29, 2015		102,000		2,113		2,311		2,311		12	%		24	%

May 12, 2014	February 12, 2015		37,500		403		4,005		4,005		8	%		22	%

June 20, 2014	March 20, 2014		42,500		93		2,943		10,084		8	%		22	%

								$	444,414

The Notes outstanding at December 31, 2013, their interest rates, accrued interest and carrying amounts were as follows:

Issued	Due Date	Face Amount		Accrued Interest Due		Effective Interest Recognized		Carrying Amount		Stated Interest Rate			Default Interest Rate

August 29, 2013	August 29, 2014	$	150,000	$	4,110	$	7,471	$	7,471		8	%		18	%

November 26, 2013	February 24, 2014		50,000		1,616		80,736		14,236		20	%		20	%

December 13, 2013	December 12, 2014		194,444		19,444		2,521		2,521		10	%		18	%

December 19, 2013	September 19, 2014		225,000		789		2,678		2,678		10	%		22	%

December 19, 2013	September 20, 2014		153,500		437		2,089		38,476		8	%		22	%

								$	65,382

As of June 30, 2014, the fair value of the embedded derivative instrument in each Note, the effective conversion price of each Note and the number of common shares into which each Note, including accrued interest, was convertible were as follows:

Issued	Due Date	Outstanding Principal Amount		Embedded Derivative		Conversion Price		Conversion Shares

December 13, 2013	December 12, 2014		130,434		412,485	$	0.0117		12,810,101

December 19, 2013	September 19, 2014		225,000		609,279	$	0.0117		20,308,288

December 19, 2013	September 20, 2014		126,500		340,639	$	0.0117		11,354,647

January 10, 2014	July 10, 2014		194,444		517,355	$	0.0117		18,281,097

January 10, 2014	January 10, 2015		110,000		323,892	$	0.0117		9,844,749

January 23, 2014	January 23, 2016		168,000		556,898	$	0.0117		16,082,051

February 3, 2014	October 30, 2014		105,263		198,539	$	0.0158		6,776,089

February 6, 2014	February 6, 2015		55,000		139,794	$	0.0135		4,261,976

February 19, 2014	February 19, 2015		55,556		167,955	$	0.0117		4,954,403

February 20, 2014	November 18, 2014		110,000		312,832	$	0.0117		9,806,627

March 5, 2014	March 5, 2015		55,556		166,108	$	0.0117		4,871,183

March 21, 2014	December 17, 2014		63,000		146,535	$	0.0138		4,666,715

April 14, 2014	January 14, 2015		52,750		143,188	$	0.0123		4,378,846

April 29, 2014	April 29, 2015		102,000		199,766	$	0.0174		5,981,019

April 29, 2014	April 29, 2015		159,992		312,139	$	0.0174		9,401,772

May 12, 2014	February 12, 2015		37,500		90,077	$	0.0138		2,746,244

June 20, 2014	March 20, 2015		42,500		103,384	$	0.0138		3,086,087

				$	4,740,865				149,612,893

In connection with the issuance of the Notes, we also issued common stock warrants to investors or to the placement agents, as follows:

Financing Date	Warrants Issued To	Number of Warrants		Expiration Date	Fair Value at Issuance		Fair Value at June 30, 2014		Exercise Price

December 13, 2013	Placement agent		17,499	December 13, 2016	$	11,838	$	555	$	1.00

December 19, 2013	Investors		187,500	December 31, 2018		124,357		7,463		0.40

January 10, 2014	Placement agent		17,499	January 10, 2017		18,417		1,448		0.40
					$	154,792	$	9,466

The warrants are exercisable for one share of common stock. The warrants include down-round anti-dilution adjustments, whereby if we sell common stock or common share indexed financial instruments below the initial exercise price of the warrants, the exercise price adjusts to that lower amount. For the placement agent warrants, the down-round anti-dilution protection applies only to subsequent issuances occurring more than one year after the warrants were issued. For the investor warrants, which had an initial exercise price of $1.20, our subsequent sale of common stock at a lower price has reduced the exercise price to $0.40.

The embedded conversion options in the Notes, which are accounted for separately as derivative instruments, and the warrants are valued using a binomial lattice model because that model embodies all of the significant relevant assumptions that address the features underlying these instruments. Significant assumptions used in the model as of the dates the Notes and warrants were issued and as of June 30, 2014 and December 31, 2013 included an expected life equal to the remaining term of the Notes or warrants, an expected dividend yield of zero, estimated volatility ranging from 127% to 143%, and risk-free rates of return of 0.05% to 0.72%. For the risk-free rates of return, we use the published yields on zero-coupon Treasury Securities with maturities consistent with the remaining term of the Notes or warrants. Volatility is based upon our expected common stock price volatility over the remaining term of the Notes or warrants. The volatility used for the Notes is based on the Company’s 100-day volatility, which is considered a reasonable surrogate for the volatility to be expected over the life of the Notes. That volatility has generally ranged from 120% to 140%. As a result of the anti-dilution provisions, the fixed exercise price of the warrants has been reset equal to the lowest price of any subsequently issued common share indexed instruments with a conversion price below the previously stated exercise price of the warrant.

Reconciliation of changes in fair value – FASB ASC 825 Fair Value Measurements and Disclosures establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The fair value hierarchy gives the highest priority to Level 1 - quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to Level 3 - unobservable inputs. Assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to their fair value measurement. Our derivative financial instruments that are measured at fair value on a recurring basis are all measured at fair value using Level 3 inputs. Level 3 inputs are unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The following represents a reconciliation of the changes in fair value of financial instruments measured at fair value using Level 3 inputs during the year ended December 31, 2013 and the six months ended June 30, 2014:

	Compound Embedded Derivatives			Warrant Derivatives

Balance – December 31, 2012	$	-		$	-

Issuances:
April 15, 2013		47,075
April 24, 2013		36,988
August 29, 2013		290,994
November 26, 2013		118,558
December 13, 2013		185,037			11,838
December 19, 2013		217,628			124,536
December 19, 2013		113,613

Fair value adjustments:
Compound embedded derivatives		1,556,255
Warrant derivatives					9,464

Conversions:
April 15, 2013 financing		(519,750	)
April 24, 2013 financing		(1,055,250	)

Balance – December 31, 2013		991,148			145,838

Issuances:
Compound embedded derivatives		1,787,180			-
Warrant derivatives		-			18,417

Fair value adjustments:
Compound embedded derivatives		2,298,334			-
Warrant derivatives		-			(154,789	)

Conversions:
December 13, 2013 financing		(78,737	)
December 23, 2013 financing		(35,590	)
April 29, 2013 financing		(108,321	)

Extinguishment of debt:
August 29, 2013 financing		(113,149	)

Balance – June 30, 2014	$	4,740,865		$	9,466

Note 6 Capital Stock

Common Stock - We are authorized to issue 500 million shares of common stock, par value $0.001 per share. Holders of common stock are entitled to one vote for each share held of record on each matter submitted to a vote of shareholders. Holders of our common stock do not have a cumulative voting right, which means that the holders of more than one half of our outstanding shares of common stock, subject to the rights of the holders of preferred stock, can elect all of our directors, if they choose to do so. In this event, the holders of the remaining shares of common stock would not be able to elect any directors. Subject to the prior rights of any class or series of preferred stock which may from time to time be outstanding, if any, holders of common stock are entitled to receive ratably, dividends when, as, and if declared by our Board of Directors out of funds legally available for that purpose and, upon our liquidation, dissolution, or winding up, are entitled to share ratably in all assets remaining after payment of liabilities and payment of accrued dividends and liquidation preferences on the preferred stock, if any. Holders of common stock have no preemptive rights and have no rights to convert their common stock into any other securities. The outstanding common stock is duly authorized and validly issued, fully-paid, and non-assessable. Except as otherwise required by Florida law, and subject to the rights of the holders of preferred stock, all stockholder action is taken by the vote of a majority of the outstanding shares of common stock present at a meeting of shareholders at which a quorum consisting of a majority of the outstanding shares of common stock is present in person or by proxy. Shares repurchased are held as treasury shares and used for general corporate purposes including, but not limited to, satisfying obligations under our employee benefit plans.

Preferred Stock - We are authorized to issue 100 million shares of preferred stock, par value $0.001 per share. We may issue preferred stock in one or more series and having the rights, privileges, and limitations, including voting rights, conversion rights, liquidation preferences, dividend rights and preferences and redemption rights, as may from time to time be determined by our Board of Directors. Preferred stock may be issued in the future in connection with acquisitions, financings, or other matters, as our Board of Directors deems appropriate. In the event that we determine to issue any shares of preferred stock, a certificate of designation containing the rights, privileges, and limitations of this series of preferred stock will be filed with the Secretary of State of the State of Florida. The effect of this preferred stock designation power is that our Board of Directors alone, subject to Federal securities laws, applicable blue sky laws, and Florida law, may be able to authorize the issuance of preferred stock which could have the effect of delaying, deferring, or preventing a change in control of our company without further action by our shareholders, and may adversely affect the voting and other rights of the holders of our common stock. The issuance of preferred stock with voting and conversion rights may also adversely affect the voting power of the holders of our common stock, including the loss of voting control to others.

Series A Preferred Stock - The Company’s authorized Series A Preferred Stock consists of 1 share and has the following powers, designations, preferences and other special rights;

●

The holder(s) of the Series A Preferred Stock shall not be entitled to dividends, except that in the event that a dividend is declared on the Company’s Common Stock, the holder(s) of the Series A Preferred Stock shall receive the dividends that would be payable if all then outstanding shares were converted into Common Stock immediately prior to the declaration of the dividend.

●

No liquidation preference.

●

The Series A Preferred Stock has a super voting right in that it votes together with the common stock and any other class of stock entitled to vote with the common stock all as a single class, with the total number of issued and outstanding shares of Series A Preferred Stock entitled to 60% of all votes to be cast on any matter;

●

Conversion upon Class Consent – All outstanding shares of Series A Preferred Stock may be converted into Common Stock at the election of the holder(s) of all the Series A Preferred Stock. Automatic Conversion of all of the outstanding shares of Series A Preferred Stock shall take place in the event of a Change in Control of the Company.

●

Additional Rights – the Company shall not, without obtaining written approval from the holders of the Series A Preferred Stock, alter of change the powers, preferences, privileges, or rights of the Series A Preferred Stock.

Note 7 Stockholders’ Equity

During the period from January 2014 to March 2014, the Company sold a total of 512,130 shares of Common Stock to various investors for prices ranging from $0.40 per share to $0.4825 per share for $213,047.

On January 9, 2014, the Company issued 25,000 shares of its common stock which represented interest due as of December 26, 2013.

On April 2, 2014, the Company issued 51,000 shares of the Company’s common stock pursuant to an agreement with ECPC Capital LLC. The Company recorded a charge to stock financing expense of $31,620 or $0.62 per share for the placement agent fees in connection with the private placement to raise $153,000 in cash in March 2014.

On April 8, 2014, the Company issued 994,895 shares of its common stock to Jasper Group Holdings, Inc.(“Jasper”) which represented the number of true-up shares due in connection with the Share Exchange Agreement entered into by the Company and Jasper (See Note 9).

On April 10, 2014, the Company issued 100,000 shares of the Company's common stock to Lyon’s Capital LLC pursuant to a consulting agreement. The shares were valued at a total of $36,000 or $0.36 per share.

On April 22, 2014, the Company issued 150,000 shares of the Company’s common stock to David Patterson pursuant to an advisory agreement with Mr. Patterson. The shares were valued at a total of $54,000 or $0.36 per share.

On April 29, 2014, the Company issued 10,000 shares of the Company’s common stock to WHC Capital LLC (“WHC”). The shares were issued pursuant to a Convertible Note sold by the Company to WHC on March 5, 2014. The Company will record a charge to interest in the amount of $3,100 or $0.31 per share.

Note 8 Commitments and Contingencies

Litigations, Claims and Assessments

From time to time, the Company may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. The Company is currently not aware of any such legal proceedings or claims that we believe will have, individually or in the aggregate, a material adverse effect on our business, financial condition or operating results.

On July 18, 2014, the Company's then Chief Executive Officer was indicted by the U.S. Attorney on 10 counts of securities fraud. The Securities and Exchange Commission filed a civil action on the same date against the Company’s then Chief Executive Officer. The Company was not named in either action and to date has not been implicated in the case.

On September 2, 2014, the Company was notified by a letter from counsel representing ICD Capital LLC and certain individual investors (collectively the “Investors”) who purchased securities from the Company pursuant to a private placement in June, 2013 of their intent to commence a legal action against the Company and certain of its officers and directors. The letter alleges a series of improper actions by the Company and its directors and officers which led the Investors to invest and which are alleged to constitute common law and federal securities law violations. Upon the receipt of adequate funding, of which there can be no assurance, the Company intends to respond to the letter, as well as any lawsuit which may be filed and served.

Operating Lease

The Company currently does not have any long term arrangement to lease or rent office space. The Company leases office space on a month to month basis. Rent expense for the six months ended June 30, 2014 and 2013 was a total of $17,935 and $0, respectively.

Note 9 Investment in Jasper Group Holdings, Inc.

On October 31, 2013, the Company consummated and closed a Share Exchange Agreement with Jasper Group Holdings, Inc. (“Jasper”) pursuant to a Share Exchange Agreement originally dated October 7, 2013 and amended as of October 31, 2013, whereby the Company received 1,106,678 shares of Jasper’s common stock, which constituted 10% of the outstanding shares of Jasper on a fully-diluted basis and, as consideration for the Jasper common stock, the Company issued to Jasper a total of 400,000 shares of the Company’s common stock, subject to potential adjustments as described below.

Pursuant to the Share Exchange Agreement, on the 120th day following the closing date of the Share Exchange Transaction (that is, on February 28, 2014, the Measurement Date), the aggregate value of the 400,000 shares of the Company’s common stock issued to Jasper will be determined, based on the volume weighted average trading price of the common stock during the preceding 10 trading days. If that aggregate value exceeds $1,250,000, then Jasper will return to the Company a number of the shares so that the aggregate value of the remaining shares retained by Jasper as of the Measurement Date will be $1,000,000. However, if on the Measurement Date the aggregate value is less than $750,000, then the Company will be obligated to issue additional shares of common stock to Jasper so that the aggregate value of the 400,000 shares of the Company’s common stock held by Jasper, together with the additional shares to be issued to Jasper, will be $1,000,000.

Due to the decline in the Company’s stock price between October 31, 2013 and February 28, 2014, the Company is obligated to issue additional shares to Jasper. As of December 31, 2013, the aggregate value of the 400,000 shares issued to Jasper had declined to $312,000, obligating the Company to issue additional shares valued at $688,000. As of February 28, 2014, the aggregate value of the 400,000 shares issued to Jasper further deceased in value to $288,000, increasing the Company’s obligation to issue additional shares to Jasper to $712,000. The Company had been attempting to re-negotiate its agreement with Jasper but was not successful. The additional shares due to Jasper, valued at $712,000 on the Measurement Date, were issued on April 11, 2014.

The Company’s initial investment in Jasper was valued at $1,000,000, based on the estimated fair value of $2.50 per share for the 400,000 shares of common stock originally issued to Jasper. To date, the Company has not received any value from its investment in Jasper. Jasper is a private company and therefore, since it is not publically traded, there is no active trading market for the 1,106,678 shares received from Jasper. Due to Jaspers position as a development stage company, the future of its financial condition is uncertain. Due to the uncertainty of the Company’s ability to realize any value from its investment or the ability to realize value from the underlying assets of Jasper, as of December 31, 2013, the Company has written off its cost-based investment in Jasper of $1,000,000.

Pursuant to the Share Exchange Agreement and based on the calculation for the obligation at the measurement date above, the Company is liable to issue to Jasper additional shares of the Company’s common stock, valued at $712,000. These shares have not been accrued at March 31, 2014 due to the write off of the investment but will be expensed as of the date of issuance. On April 11, 2014, the Company issued Jasper 994,895 shares of its Common Stock, with a value of $0.715 per share, to satisfy its obligation pursuant to the Share Exchange Agreement. The Company recorded a charge in the amount of $711,350 related to this transaction.

On September 16, 2014, the Company and Jasper entered discussions to cancel the Share Exchange Agreement. The Company anticipates returning 1,106,678 shares of Jasper’s common stock to Jasper in exchange for 1,394,895 shares to be returned by Jasper to the Company, of the Company’s common stock. Subsequent to the cancelation of the agreement, the Company anticipates canceling the shares returned by Jasper.

Note 10 Standby Equity Securities Purchase Agreement

On December 9, 2013, the Company and Seaside 88, LP (“Seaside”) entered into a Securities Purchase Agreement, (the “Seaside SPA”). The Seaside SPA provides the Company with the ability to effect, at our option, monthly volume of our Common Stock until the earlier of December 9, 2014 or such time as an aggregate 3,000,000 shares of the Company’s Common Stock (the “Cap”) have been purchased by Seaside. For each closing, the per share purchase price for the Common Stock is an amount equal to the average of the high and low trading prices (measured in hundredths of cents) of the Common Stock on the OTCQB during normal trading hours for the five consecutive business days immediately prior to a closing date, multiplied by 50%. The per share purchase price is subject to a floor of $0.40 and if such floor is not met with respect to any particular closing, such closing will not occur. The failure to hold a closing as a result of not meeting the floor will not impact any subsequent closing. For each closing, the number of shares of Common Stock to be purchased by Seaside is equal to 10% of the total number of shares of Common Stock traded during normal trading hours during the 20 business days immediately preceding such closing. In no event will Seaside purchase shares in excess of the Cap, or if such purchase will cause Seaside’s beneficial ownership of shares to exceed 9.9% of the Company’s outstanding shares of Common Stock immediately subsequent to a closing. The Company may terminate the Agreement upon prior written notice to Seaside at any time.

Note 11 Stock Incentive Plan

On December 9, 2013, the Board of Directors of the Company adopted the 2013 Stock Incentive Plan to enhance the profitability and value of the Company for the benefit of its shareholders by enabling the Company to offer certain eligible employees, consultants and non-employee directors cash and stock-based incentives in the Company to attract, retain and reward such individuals and strengthen the mutuality of interests between such individuals and the Company’s shareholders.

The aggregate number of shares of our common stock that may be issued under the Plan is 3,100,000 shares, which may be increased at the end of each fiscal year of the Company in the same proportion as the issued and outstanding stock of the Company during such fiscal year subject to a maximum of 15%. Currently, no equity compensation has been granted under the Plan.

Note 12 Subsequent Events

From July 1, 2014 to October 7, 2014, the Company issued 82,846,796 shares to various investors. The investors converted a total of $189,992, which represented $183,852 of principal due and $6,140 of interest on convertible debentures sold to them by the Company. The conversions were exercised at $0.0011 per share to $0.014 per share.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENTS

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

The Company plans to implement operations and reaching their goals and objectives by hiring qualified personnel to play key roles throughout the organization. The Company utilizes a hiring process with a long term successful track record. It has a philosophy in hiring the most qualified personnel along with a strong branding and marketing campaign. The marketing campaign will be multifaceted and include a very aggressive direct marketing campaign along with building strong distribution partnerships as it has already begun to do. The majority of the funds received in offerings of the Company's securities will be put into marketing, branding, and sales activities along with operational support activities. The success of the Company is directly related to marketing and sales campaigns and support. Building a national brand and creating market awareness will be critical. Supporting sales and customers will also be important from an operational perspective.

Recent Developments

Criminal and Civil Actions

On July 17, 2014, the SEC filed a civil action against our then Chief Executive Officer and Chairman of the Board, Ira Shapiro, and on July 18, 2014 Mr. Shapiro was indicted on 10 counts of securities fraud. The Company was not charged and is not a defendant in either the criminal or civil matter, however, it is our understanding that investigations are ongoing and there can be no assurance that the Company will not be made a party to either action or a new criminal or civil action.

In the event that the Company is made a party to a criminal or civil action, there can be no assurance that the Company will have sufficient funds to be able to defend any such action which is likely to result in a loss of any shareholder’s investment.

Other Developments

On March 31, 2014, the United States Department of Health and Human Services announced that the implementation date of ICD-10 was delayed until October 1, 2015. The Company anticipates that the further delay of the implementation of ICD-10 will delay the Company’s ability to generate significant revenues.

On April 24, 2014, the Company announced a restructuring plan. The Company reduced the number of employees from 25 to 14. Since then the Company has further restructured and additional employees have resigned and/or been terminated. As of today, the Company has 5 full-time employees including 2 executive officers.

On August 1, 2014, the Company accepted the resignation of its then Chief Executive Officer and Chairman of the Board, Ira Shapiro. The Company appointed Diego E. Roca, the Company’s former Chief Financial Officer, as its Chief Restructuring Officer.

On September 16, 2014, the Company appointed Ruth Patterson, the Company’s President, to the Board of Directors.

On September 17, 2014, the Company accepted the resignation of Sharon Franey, the Company’s Chief Operating Officer and Director, from all positions and offices held. On the same date, the Company appointed Ruth Patterson as its Chief Operating Officer.

The Company plans on executing its business plan of participating as a provider in the ICD-10 training market.

Current Status of the Company

The Company currently has five employees, which are its CRO, sole director and other necessary management employees. As of the date of filing of this Quarterly Report, none of the employees is receiving compensation due to a lack of available funds. The Company is negotiating funding arrangements from several existing investors.

Results of Operations for the six months ended June 30, 2014

Revenue and Gross Profit

During the six months ended June 30, 2014, the Company earned $679,964 in instructional revenue as compared to $31,757 for the six months ended June 30, 2013. The increase of $648,207 was due to the Company’s ICD-10 training program enrollments increasing as the deadline for the implementation of ICD-10 approached. The Company incurred $184,522 in costs associated with earning the revenue during the six months ended June 30, 2014 as compared to $19,698 for the six months ended June 30, 2013. The increase of $164,824 was due to the increase of revenue.

Operating Expenses

During the six months ended June 30, 2014, the Company incurred total operating expenses in the amount of $1,992,292 as compared to $3,657,124 for the six months ended June 30, 2013. The decrease of $1,664,832 was due to the decrease of compensation and benefits expenses and professional fees in the amount of $1,663,231 and $340,302, respectively, offset by the increase of research and development expenses in the amount of $75,171, advertising and promotions of $70,627 and other general and administrative expenses in the amount of $192,903.

Loss from Operations

Loss from operations for the six months ended June 30, 2014 was $1,496,850 as compared to $3,645,065 for the six months ended June 30, 2013. The decrease of $2,148,215 was due to the decrease of general and administrative expenses and increase of instructional revenue as detailed above.

Net Loss

Net loss for the six months ended June 30, 2014 was $5,761,725 as compared to $5,216,683 for the six months ended June 30, 2013. The increase in net loss was attributable to the decrease in loss of operations as detailed above offset by the derivative expense incurred by the Company and the write-off of investment in the amount of $711,350 in Jasper Group Holdings, Inc., by the Company. During the six months ended June 30, 2014, the Company sold several convertible debentures for the aggregate net proceeds of $971,500. The convertible debentures contained embedded features that the Company had to bifurcate and account for at fair value. On the dates of issuance, the Company recorded derivative expenses of $635,990 in total. As of June 30, 2014, the Company re-valued all derivative instruments, including those sold prior to the three months ended June 30, 2014 and recorded a loss of $2,143,545. Inflation did not have a material impact on the Company’s operations for the period. On March 31, 2014, the implementation of ICD-10 was once again delayed until October 1, 2015. The Company anticipates that the delay of the implementation date will delay the Company’s ability to generate significant revenues and will have a material impact on the Company’s results of operations. Other than the foregoing, management knows of no trends, demands, or uncertainties that are reasonably likely to have a material impact on the Company’s results of operations.

Results of Operations for the three months ended June 30, 2014

Revenue and Gross Profit

During the three months ended June 30, 2014, the Company earned $515,294 in instructional revenue as compared to $24,157 for the three months ended June 30, 2013. The increase of $491,137 was due to the Company’s ICD-10 training program enrollments increasing as the deadline for the implementation of ICD-10 approached. The Company incurred $94,087 in costs associated with earning the revenue during the three months ended June 30, 2014 as compared to $16,521 for the three months ended June 30, 2013. The increase of $77,566 was due to the increase of revenue.

Operating Expenses

During the three months ended June 30, 2014, the Company incurred total operating expenses in the amount of $860,115 as compared to $3,572,946 for the three months ended June 30, 2013. The decrease of $2,712,831 was primarily due to the decrease of compensation and benefits expenses and professional fees in the amount of $2,196,523 and $479,795, respectively.

Loss from Operations

Loss from operations for the three months ended June 30, 2014 was $438,908 as compared to $3,565,310 for the three months ended June 30, 2013. The decrease of $3,126,402 was due to the decrease of general and administrative expenses and increase of instructional revenue as detailed above.

Net Loss

Net loss for the three months ended June 30, 2014 was $4,261,035 as compared to $5,136,928 for the three months ended June 30, 2013. The decrease in net loss was attributable to the increase in revenues generated, decrease in operating expenses as detailed above and the write-off of investment in the amount of $711,350, in Jasper Group Holdings, Inc. In addition, since August 30, 2013 through June 30, 2014, the Company sold several convertible debentures for the aggregate net proceeds of $1,686,000. The convertible debentures contained embedded features that the Company had to bifurcate and account for at fair value. For the three months ended June 30, 2014, the Company sold 6 convertible debentures for the aggregate net proceeds of $250,000. On the dates of issuance, the Company recorded derivative expenses of $65,894 in total. As of June 30, 2014, the Company re-valued all derivative instruments, including those sold prior to the three months ended June 30, 2014 and recorded a loss of $2,567,322 for the three months ended June 30, 2014. Inflation did not have a material impact on the Company’s operations for the period. On March 31, 2014, the implementation of ICD-10 was once again delayed until October 1, 2015. The Company anticipates that the delay of the implementation date will delay the Company’s ability to generate significant revenues and will have a material impact on the Company’s results of operations. Other than the foregoing, management knows of no trends, demands, or uncertainties that are reasonably likely to have a material impact on the Company’s results of operations.

Liquidity and Capital Resources

At June 30, 2014, we had a working capital deficit of $5,859,682. The Company recorded $679,964 of earned revenue for the six months ended June 30, 2014. Net cash used for operating activities for the six months ended June 30, 2014 was $1,391,429 as compared to $577,982 during the six months ended June 30, 2013. The increase was due to (i) derivative expense, interest expense and net change in fair market value of derivative liabilities of $635,990, $631,057 and $2,143,545, respectively, directly related to the various Notes sold by the Company from August 31, 2013 to June 30, 2014 as compared to $1,489,187 for any Note related transactions during the six months ended June 30, 2013; (ii) increases in accounts receivable, decrease in prepaid expenses and increase in deferred revenue of $1,008, $23,841 and $90,934, respectively during the six months ended June 30, 2014 as compared to the increase in accounts receivable of $1,797, increase in prepaid expenses of $1,605 and net change of deferred revenue of $0 during the six months ended June 30, 2013; (iii) the decrease of accounts payable and accrued expenses of $116,677 during the three months ended June 30, 2014 as compared to the increase of $74,564 during the six months ended June 30, 2013; and (iv) the net loss for the six months ended June 30, 2014 was $5,761,725 as compared to $5,216,683 for the six months ended June 30, 2013. Cash used in operating activities was primarily for compensation, professional fees and marketing and advertising. Net cash provided by financing activities for the six months ended June 30, 2014 was $1,274,572 as compared to $838,500 during the six months ended June 30, 2013. This increase was primarily due to $213,047 in proceeds from the sale and issuance of common stock during the six months ended June 30, 2014 as compared to $819,500 during the six months ended June 30, 2013, net proceeds of $971,500 in sale and issuance of secured convertible notes offset by a $50,000 payment to repay an outstanding convertible note as compared to $250,000 in sale and issuances of convertible Notes related transactions during the six months ended June 30, 2013 and proceeds from loans payable in the amount of $140,025 during the six months ended June 30, 2014 as compared to $0 during the six months ended June 30, 2013.

The Company anticipates that it will need approximately $1,250,000 to fund operations over the next 12 months. The Company will attempt to raise the required capital by the sale of promissory notes to existing investors. In addition, the Company anticipates that revenue generated will fund a portion of such cash requirements. There is no assurance that the Company will be successful in raising the amounts required to fund operations or generate sufficient revenue to fund its operation. In the event that the Company is unable to fund the operation it will not be able to continue as a going concern.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

ITEM 6. EXHIBITS

Exhibit Number	Description of Exhibit	Filing Reference

31.01	Certification of Chief Restructuring Officer Pursuant to Rule 13a-14.	Filed herewith.

32.01	Chief Restructuring Officer Certification Pursuant to Section 906 of the Sarbanes-Oxley Act.	Filed herewith.

101.INS	XBRL Instance Document.

101.SCH	XBRL Taxonomy Extension Schema Document.

101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF	XBRL Taxonomy Extension Definition Linkbase Document

101.LAB	XBRL Taxonomy Extension Label Linkbase Document.

101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

* The XBRL-related information in Exhibits 101 to this Quarterly Report on Form 10-Q shall not be deemed “filed” or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, and is not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of those sections.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	CODESMART HOLDINGS, INC.

Dated: October 15, 2014	/s/ Diego E. Roca
	By: Diego E. Roca
	Title: Chief Restructuring Officer

CODESMART HOLDINGS, INC. 10-Q