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 ~~September~~ June 30, ~~2013~~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.)

~~275~~1330 ~~Seventh~~ Avenue, ~~7th~~of ~~Floor~~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 ~~o Smaller reporting company x~~

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 ~~November~~October 258, ~~2013~~2014, the registrant had 20110,~~782~~369,~~930~~422 shares of common stock, par value $.0001 per share issued and outstanding.

CODESMART HOLDINGS, INC.

TABLE OF CONTENTS

		Page
PART I. FINANCIAL INFORMATION
ITEM 1.	FINANCIAL STATEMENTS	1
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	2
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	9
ITEM 4.	CONTROLS AND PROCEDURES	9
PART II. OTHER INFORMATION
ITEM 1.	LEGAL PROCEEDINGS	10
ITEM 1A.	RISK FACTORS	10
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	10
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	10
ITEM 4.	MINE SAFETY DISCLOSURE	10
ITEM 5.	OTHER INFORMATION	10
ITEM 6.	EXHIBITS	10

Special Note Regarding Forward-Looking Statements

Information included in this Form 10-Q contains forward-looking statements ~~within the meaning of Section 27A of the Securities Act of 1933, as amended (“Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (“Exchange Act”)~~. 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 ~~these~~ 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 FINANCIAL STATEMENTS

SEPTEMBER 30, 2013

CodeSmart Holdings, Inc.

September 30, 2013

Index to Consolidated Financial Statements

		Page(s)
Consolidated Balance Sheets as of September 30, 2013 (unaudited) and December 31, 2012		F-1
Consolidated Statements of Operations for the Three and Nine Months ended September 30, 2013 (unaudited)		F-2
Consolidated Statement of Cash Flows for the Nine Months ended September 30, 2013 (unaudited)		F-3
Notes to Consolidated Financial Statements (unaudited)		F-4

CodeSmart Holdings, Inc.

Consolidated Balance Sheets

	September 30, 2013			December 31, 2012
	(Unaudited)
Assets:
Cash	$	654,498		$	6,074
Accounts receivable		145,368			-
Prepaid and other current assets		66,447			-
Debt issuance costs, net		10,948			-
Total current assets		877,261			6,074
Property and equipment, net		4,306			-
Total assets	$	881,567		$	6,074
Liabilities and Stockholders' Equity (Deficit)
Liabilities:
Accounts payable and accrued expenses	$	109,904		$	2,125
Deferred revenue		62,859			-
Secured convertible notes payable – net of discount of $136,850 and $-		13,150			-
Derivative liabilities		211,685			-
Total current liabilities		397,598			2,125
Total liabilities		397,598			2,125
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; 19,183,098 and 5,856,250 shares issued and outstanding		1,918			2,343
Additional paid in capital		14,332,204			24,992
Accumulated deficit		(13,850,153	)		(23,386	)
Total Stockholders' Equity (Deficit)		483,969			3,949
Total Liabilities and Stockholders' Equity (Deficit)	$	881,567		$	6,074

The accompany notes are an integral part of the financial statements

F-1

CodeSmart Holdings, Inc.

Consolidated Statements of Operations

(Unaudited)

	For the three months ended			For the nine months ended
	September 30, 2013			September 30, 2013
Revenue	$	219,618		$	251,375
Cost of revenue		113,852			133,550
Gross profit		105,766			117,825
Operating expenses:
Compensation		429,582			3,024,858
Professional fees		1,676,216			2,547,766
Research and development		71,646			96,482
Advertising and promotions		101,618			221,303
Other general and administrative expenses		143,919			189,696
Total operating expenses		2,422,981			6,080,105
Loss from operations		(2,317,215	)		(5,962,280	)
Other income (expenses)
Interest expense		(21,719	)		(104,150	)
Interest income		125			125
Derivative expense		(242,425	)		(242,425	)
Change in fair value of derivative liabilities		178,990			(1,310,197	)
Total other income (expense)		(85,029	)		(1,656,647	)
Net loss	$	(2,402,244	)	$	(7,618,927	)
Net loss per common share - basic and diluted	$	(0.14	)	$	(0.77	)
Weighted average common shares outstanding - basic and diluted		16,899,771			9,920,121

The accompany notes are an integral part of the financial statements

F-2

CodeSmart Holdings, Inc.

Consolidated Statement of Cash Flows

(Unaudited)

	For the nine months ended
	September 30, 2013
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(7,618,927	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation		694
Accretion of debt discount		97,213
Amortization of debt issue costs		1,052
Share-based compensation		4,386,046
Derivative expense		242,425
Loss due to change in fair value of derivative liabilities		1,310,197
Changes in operating assets and liabilities:
Increase in accounts receivable		(145,368	)
Increase in prepaids and other current assets		(66,447	)
Increase in accounts payable and accrued expenses		112,378
Increase in deferred revenue		62,859
Net Cash Used in Operating Activities		(1,617,878	)
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		3,464,302
Proceeds from the issuance of convertible notes		400,000
Debt issuance costs paid in cash		(12,000	)
Cash paid for dividends		(1,350,000	)
Cash paid to cancel shares		(231,000	)
Net Cash Provided By Financing Activities		2,271,302
Net Increase in Cash		648,424
Cash - Beginning of Period		6,074
Cash - End of Period	$	654,498
SUPPLEMENTARY CASH FLOW INFORMATION:
Cash Paid During the Period for:
Income taxes	$	-
Interest	$	-
SUPPLEMENTARY DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Debt discounts recorded on convertible notes	$	234,063
Conversion of convertible note and interest into common stock	$	254,599
Reclassification of derivative liability to additional paid in capital	$	1,575,000
Dividend paid in stock to non-controlling interest	$	4,857,840

The accompany notes are an integral part of the financial statements

F-3

CodeSmart Holdings, Inc.

Notes to Consolidated Financial Statements

(Unaudited)

Note 1 Nature of Operations

CodeSmart Holdings, Inc. (formerly known as First Independence Corp.) (“Holdings”), a Florida corporation, was formed to private label pourable food products for start-ups, local and national supermarket chains and specialty stores. Holdings was incorporated on February 10, 2012 (Date of Inception) with its corporate headquarters located in Osprey, Florida and its year-end as February 28th, which was subsequently changed to December 31st.

On May 3, 2013, Holdings and the stockholders of The CodeSmart Group, Inc. (the “Company” or “CodeSmart”) who collectively own 68.06% of the outstanding shares of the Company (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 (i) Holdings issued to the CodeSmart Stockholders an aggregate of 3,062,500 shares of its common stock, par value $.0001 (“Common Stock”), in exchange for 68.06% of equity interests of CodeSmart held by the CodeSmart Stockholders. After the Share Exchange Transaction, Holdings implemented a 2-for-1 forward stock split of its Common Stock. All equity disclosures have been retrospectively restated to present both the transaction and the 2-1 forward split. As a result of the Share Exchange Transaction, CodeSmart became a subsidiary of Holdings.

The share exchange transaction was treated as a reverse acquisition for accounting purposes, with CodeSmart as the acquirer and Holdings 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 and its predecessors. For accounting purposes, the acquisition of CodeSmart 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. 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 August 20, 2013, the Company and Marc Kovens (“Kovens”), who owned the 31.94% shares of the Common Stock of the Company 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, par value $.0001 and (ii) the Company paid Kovens in cash $1,350,000, in exchange for the 31.94% of equity interests. As a result of the Share Exchange Transaction, the subsidiary is now 100% fully owned and a non-controlling interest is no longer presented.

The Company provides on-line education for medical coding and billing to healthcare professionals and also educates new healthcare professionals coming into the field. The Company will also support provider organizations by offering outsourced medical coding services and transitional consulting.

F-4

CodeSmart Holdings, Inc.

Notes to Consolidated Financial Statements

(Unaudited)

Note 2 Summary of Significant Accounting Policies

Basis of presentation

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial information. In the opinion of the Company’s management, the accompanying condensed consolidation financial statements reflect all adjustments, consisting of normal, recurring adjustments, considered necessary for a fair presentation of the results for the three and nine months ended September 30, 2013. Although management believes that the disclosures in these unaudited condensed 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 GAAP have been condensed or omitted pursuant to the rules and regulations of the SEC. The results for the three and nine months ended September 30, 2013 are not necessarily indicative of the results to be expected for the year ending December 31, 2013.

The financial statements have been prepared on the going concern basis, which assumes the realization of assets and the liquidation of liabilities in the normal course of operations. If the Company were not to continue as a going concern, it would likely not be able to realize its assets at values comparable to the carrying value or the fair value estimates reflected in the financial statements. There can be no assurances that the Company will be successful in generating additional cash from equity or other sources to be used for operations. The financial statements do not include any adjustments relating to the recoverability of assets and classification of assets and liabilities that might be necessary should the Company be unable to continue as a going concern.

Principles of Consolidation

The Company applies the guidance of Topic 810 “Consolidation” of the FASB Accounting Standards Codification to determine whether and how to consolidate another entity. Pursuant to ASC Paragraph 810-10-15-10 all majority-owned subsidiaries—all entities in which a parent has a controlling financial interest—shall be consolidated except (1) when control does not rest with the parent, the majority owner; (2) if the parent is a broker-dealer within the scope of Topic 940 and control is likely to be temporary; (3) consolidation by an investment company within the scope of Topic 946 of a non-investment-company investee. Pursuant to ASC Paragraph 810-10-15-8, the usual condition for a controlling financial interest is ownership of a majority voting interest, and, therefore, as a general rule ownership by one reporting entity, directly or indirectly, of more than 50 percent of the outstanding voting shares of another entity is a condition pointing toward consolidation. The power to control may also exist with a lesser percentage of ownership, for example, by contract, lease, agreement with other stockholders, or by court decree. The Company consolidates all less-than-majority-owned subsidiaries, if any, in which the parent’s power to control exists.

The consolidated financial statements include all accounts of the entities at September 30, 2013 as follows:

Name of consolidated subsidiary or entity	State or other jurisdiction of incorporation or organization	Date of incorporation or formation (date of acquisition, if applicable)	Attributable interest at September 30, 2013
The CodeSmart Group, Inc.	The State of Nevada, U.S.A.	October 3, 2012	100%

All inter-company balances and transactions have been eliminated.

Going Concern Matters

The financial statements have been prepared on the going concern basis, which assumes the realization of assets and liquidation of liabilities in the normal course of operations. The ability of the Company to continue its operations is dependent on Management’s plans, which include the raising of capital through debt and/or equity markets with some additional funding from other traditional financing sources, including term notes, until such time that funds provided by operations are sufficient to fund working capital requirements. The Company may need to incur additional liabilities with certain related parties to sustain the Company’s existence. If the Company were not to continue as a going concern, it would likely not be able to realize its assets at values comparable to the carrying value or the fair value estimates reflected in the financial statements. There can be no assurances that the Company will be successful in generating additional cash from equity or other sources to be used for operations. The financial statements do not include any adjustments relating to the recoverability of assets and classification of assets and liabilities that might be necessary should the Company be unable to continue as a going concern.

F-5

CodeSmart Holdings, Inc.

Notes to Consolidated Financial Statements

(Unaudited)

As reflected in the accompanying financial statements, the Company has a net loss and net cash used in operations of $(7,618,927) and $(1,617,878), respectively, for the nine months ended September 30, 2013. In addition, the Company has an accumulated deficit of $13,850,153 as of September 30, 2013.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

The Company’s significant estimates and assumptions include the fair value of financial instruments; allowance for doubtful accounts; the carrying value, recoverability and impairment, if any, of long-lived assets, including the values assigned to property and equipment; expected term of share options and similar instruments, expected volatility of the entity’s common shares and the method used to estimate it, expected annual rate of quarterly dividends, and risk free rate(s); revenue recognized or recognizable, sales returns and allowances; income tax rate, income tax provision, deferred tax assets and valuation allowance of deferred tax assets and the assumption that the Company will continue as a going concern. Those significant accounting estimates or assumptions bear the risk of change due to the fact that there are uncertainties attached to those estimates or assumptions, and certain estimates or assumptions are difficult to measure or value.

Management bases its estimates on historical experience and on various assumptions that are believed to be reasonable in relation to the financial statements taken as a whole under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

Management regularly evaluates the key factors and assumptions used to develop the estimates utilizing currently available information, changes in facts and circumstances, historical experience and reasonable assumptions. After such evaluations, if deemed appropriate, those estimates are adjusted accordingly.

Actual results could differ from those estimates.

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 September 30, 2013 and December 31, 2012.

F-6

CodeSmart Holdings, Inc.

Notes to Consolidated Financial Statements

(Unaudited)

The Company minimizes 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.

Fair Value of Financial Instruments

The Company follows paragraph 825-10-50-10 of the FASB Accounting Standards Codification for disclosures about fair value of its financial instruments and paragraph 820-10-35-37 of the FASB Accounting Standards Codification (“Paragraph 820-10-35-37”) to measure the fair value of its financial instruments. Paragraph 820-10-35-37 establishes a framework for measuring fair value in accounting principles generally accepted in the United States of America (U.S. GAAP), and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, Paragraph 820-10-35-37 establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three (3) broad levels. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The three (3) levels of fair value hierarchy defined by Paragraph 820-10-35-37 are described below:

Level 1		Quoted market prices available in active markets for identical assets or liabilities as of the reporting date.
Level 2		Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date.
Level 3		Pricing inputs that are generally observable inputs and not corroborated by market data.

Financial assets are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable.

The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. If the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.

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 September 30, 2013 and December 31, 2012. The Company did not have any secured convertible notes issued as of December 31, 2012.

The Company uses Level 3 of the fair value hierarchy to measure the fair value of the derivative liabilities and revalues its derivative liability at every reporting period and recognizes gains or losses in the consolidated statements of operations that are attributable to the change in the fair value of the derivative liability.

Transactions involving related parties cannot be presumed to be carried out on an arm's-length basis, as the requisite conditions of competitive, free-market dealings may not exist. Representations about transactions with related parties, if made, shall not imply that the related party transactions were consummated on terms equivalent to those that prevail in arm's-length transactions unless such representations can be substantiated.

It is not, however, practical to determine the fair value of advances from significant stockholder, if any, due to their related party nature.

Fair Value of Financial Assets and Liabilities Measured on a Recurring Basis

Level 3 Financial Liabilities – Derivative conversion features

Financial assets and liabilities measured at fair value on a recurring basis are summarized below and disclosed on the consolidated balance sheets as of September 30, 2013:

			Fair Value Measurement
	Carrying Value		Level 1		Level 2		Level 3		Total
Derivative conversion features	$	211,685	$	-	$	-	$	211,685	$	211,685

F-7

CodeSmart Holdings, Inc.

Notes to Consolidated Financial Statements

(Unaudited)

There were no financial assets and liabilities measured at fair value on the consolidated balance sheets as of December 31, 2012.

The table below provides a summary of the changes in fair value, including net transfers in and/or out, of all financial assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the nine months ended September 30, 2013:

	Derivative Liabilities				Total
Balance, December 31, 2012	$	-		$	-
Total (gains) or losses (realized/unrealized) included in consolidated statements of operations		1,310,197			1,310,197
Purchases, issuances and settlements		476,488			476,488
Transfers in and/or out of Level 3		(1,575,000	)		(1,575,000	)
Balance, September 30, 2013	$	211,685		$	211,685

Carrying Value, Recoverability and Impairment of Long-Lived Assets

The Company has adopted paragraph 360-10-35-17 of the FASB Accounting Standards Codification 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 Company considers the following to be some examples of important indicators that may trigger an impairment review: (i) significant under-performance or losses of assets relative to expected historical or projected future operating results; (ii) significant changes in the manner or use of assets or in the Company’s overall strategy with respect to the manner or use of the acquired assets or changes in the Company’s overall business strategy; (iii) significant negative industry or economic trends; (iv) increased competitive pressures; and (v) regulatory changes. The Company evaluates acquired assets for potential impairment indicators at least annually and more frequently upon the occurrence of such events.

The key assumptions used in management’s estimates of projected cash flow deal largely with forecasts of revenue levels, gross margins, and operating costs of the manufacturing facilities. These forecasts are typically based on historical trends and take into account recent developments as well as management’s plans and intentions. Other factors, such as increased competition or a decrease in the desirability of the Company’s services, could lead to lower projected revenue levels, which would adversely impact cash flows. A significant change in cash flows in the future could result in an impairment of long lived assets.

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

F-8

CodeSmart Holdings, Inc.

Notes to Consolidated Financial Statements

(Unaudited)

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 (3) 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 statements of operations.

Derivative Instruments

The Company evaluates its convertible debt to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for in accordance with Paragraph 810-10-05-4 of the Codification and Paragraph 815-40-25 of the Codification. The result of this accounting treatment is that the fair value of the embedded derivative is marked-to-market each balance sheet date and recorded as a liability. In the event that the fair value is recorded as a liability, the change in fair value is recorded in the consolidated statements of operations as other income or expense. Upon conversion or exercise of a derivative instrument, the instrument is marked to fair value at the conversion date and then that fair value is reclassified to equity.

In circumstances where the embedded conversion option in a convertible instrument is required to be bifurcated and there are also other embedded derivative instruments in the convertible instrument that are required to be bifurcated, the bifurcated derivative instruments are accounted for as a single, compound derivative instrument.

The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period. Equity instruments that are initially classified as equity that become subject to reclassification are reclassified to liability at the fair value of the instrument on the reclassification date. Derivative instrument liabilities will be classified in the consolidated balance sheet as current or non-current based on whether or not the net-cash settlement of the derivative instrument is expected within 12 months of the balance sheet date.

The Company utilizes the Lattice model that values the liability of the derivative features based on a probability weighted discounted cash flow model with the assistance of a third party valuation firm. The reason the Company picks the Lattice model is that in many cases there may be multiple embedded features or the features of the bifurcated derivatives may be so complex that a Black-Scholes valuation does not consider all of the terms of the instrument. Therefore, the fair value may not be appropriately captured by simple models. In other words, simple models such as Black-Scholes may not be appropriate in many situations given complex features and terms of conversion option (e.g., combined embedded derivatives). The Lattice model is based on future projections of the various potential outcomes. The features that were analyzed and incorporated into the model included the exercise and full reset features. Based on these features, there are two primary events that can occur; the holder converts the secured convertible notes or the notes are held to expiration. The Lattice model analyzed the underlying economic factors that influenced which of these events would occur, when they were likely to occur, and the specific terms that would be in effect at the time (i.e. stock price, exercise price, volatility, etc.). Projections were then made on the underlying factors which led to potential scenarios. Probabilities were assigned to each scenario based on management projections. This led to a cash flow projection and a probability associated with that cash flow. A discounted weighted average cash flow over the various scenarios was completed to determine the value of the derivative liability.

Research and Development

Research and development is expensed as incurred. Research and development expenses for the three and nine months ended September 30, 2013 was $71,646 and $96,482, respectively.

F-9

CodeSmart Holdings, Inc.

Notes to Consolidated Financial Statements

(Unaudited)

Revenue Recognition and Deferred Revenue

Revenues consist primarily of tuition and fees derived from courses taught by the University online 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. Tuition revenue and most fees from related educational resources are recognized pro-rata over the applicable period of instruction. The University maintains an institutional tuition refund policy, which provides for all or a portion of tuition to be refunded if a student withdraws during stated refund periods. Certain states in which students reside impose separate, mandatory refund policies, which overrides the University’s policy to the extent in conflict. If a student withdraws at a time when a portion or none of the tuition is refundable, then in accordance with its revenue recognition policy, the University will immediately recognize as revenue the tuition that was not refunded. Since the University will recognize revenue pro-rata over the term of the course and because, under its institutional refund policy, the amount subject to refund is never greater than the amount of the revenue that has been deferred, under the University’s accounting policies revenue is not recognized with respect to amounts that could potentially be refunded. The University also charges students annual fees for library, technology and other services, which are deferred and recognized over the related service period. Deferred revenue and student deposits in any period represent the excess of tuition, fees, and other student payments received as compared to amounts recognized as revenue and are reflected as current liabilities in the accompanying balance sheets. The University’s educational programs have starting and ending dates that differ from its fiscal quarters. Therefore, at the end of each fiscal quarter, a portion of revenue from these programs is not yet earned. Other revenues may be recognized as sales occur or services are performed. The Company recognized $62,859 and $0 of deferred revenue, respectively, at September 30, 2013 and December 31, 2012.

Instructional Costs and Services

Instructional costs and services consist primarily of costs related to the administration and delivery of the Company’s educational programs. This expense category includes compensation for faculty and administrative personnel, costs associated with online faculty, curriculum and new program development costs, bad debt expense related to accounts receivable, financial aid processing costs, technology license costs and costs associated with other support groups that provide services directly to the students.

The Company recognized $113,852 and $133,550, respectively in instructional/service income related costs for the three and nine months ended September 30, 2013.

Advertising and Promotions

Advertising and promotional costs include compensation of personnel engaged in marketing and recruitment, as well as costs associated with purchasing leads, producing marketing materials, and advertising. Such costs are generally affected by the cost of advertising media and leads, the efficiency of the Company’s marketing and recruiting efforts, compensation for the Company’s enrollment personnel and expenditures on advertising initiatives for new and existing academic programs. Advertising costs consist primarily of marketing leads and other branding and promotional activities. Non-direct response advertising activities are expensed as incurred, or the first time the advertising takes place, depending on the type of advertising activity.

The Company incurred $101,618 and $221,303 in advertising and promotional costs for the three and nine months ended September 30, 2013, respectively.

General and Administrative

General and administrative expenses include compensation of employees engaged in corporate management, finance, human resources, information technology, compliance and other corporate functions. General and administrative expenses also include professional services fees, travel and entertainment expenses and facility costs.

F-10

CodeSmart Holdings, Inc.

Notes to Consolidated Financial Statements

(Unaudited)

Stock-Based Compensation for Obtaining Employee Services

The Company accounts for its stock based compensation in which the Company obtains employee services in share-based payment transactions under the recognition and measurement principles of the fair value recognition provisions of section 718-10-30 of the FASB Accounting Standards Codification. Pursuant to paragraph 718-10-30-6 of the FASB Accounting Standards Codification, all transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, 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. If shares of the Company are thinly traded the use of share prices established in the Company’s most recent private placement memorandum (“PPM”), or weekly or monthly price observations would generally be more appropriate than the use of daily price observations as such shares could be artificially inflated due to a larger spread between the bid and asked quotes and lack of consistent trading in the market.

The fair value of share options and similar instruments is estimated on the date of grant using a Black-Scholes option-pricing valuation model. The ranges of assumptions for inputs are as follows:

● Expected term of share options and similar instruments: The expected life of options and similar instruments represents the period of time the option and/or warrant are expected to be outstanding. Pursuant to Paragraph 718-10-50-2(f)(2)(i) of the FASB Accounting Standards Codification, the expected term of share options and similar instruments represents the period of time the options and similar instruments are expected to be outstanding taking into consideration the contractual term of the instruments and employees’ expected exercise and post-vesting employment termination behavior into the fair value (or calculated value) of the instruments. Pursuant to paragraph 718-10-S99-1, it may be appropriate to use the simplified method, i.e., expected term = ((vesting term + original contractual term) / 2), if (i) A company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term due to the limited period of time its equity shares have been publicly traded; (ii) A company significantly changes the terms of its share option grants or the types of employees that receive share option grants such that its historical exercise data may no longer provide a reasonable basis upon which to estimate expected term; or (iii) A company has or expects to have significant structural changes in its business such that its historical exercise data may no longer provide a reasonable basis upon which to estimate expected term. The Company uses the simplified method to calculate expected term of share options and similar instruments as the company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term.

● Expected volatility of the entity’s shares and the method used to estimate it. Pursuant to ASC Paragraph 718-10-50-2(f)(2)(ii), a thinly-traded or nonpublic entity that uses the calculated value method shall disclose the reasons why it is not practicable for the Company to estimate the expected volatility of its share price, the appropriate industry sector index that it has selected, the reasons for selecting that particular index, and how it has calculated historical volatility using that index. The Company uses the average historical volatility of the comparable companies over the expected contractual life of the share options or similar instruments as its expected volatility. If shares of a company are thinly traded the use of weekly or monthly price observations would generally be more appropriate than the use of daily price observations as the volatility calculation using daily observations for such shares could be artificially inflated due to a larger spread between the bid and asked quotes and lack of consistent trading in the market.

● Expected annual rate of quarterly dividends. An entity that uses a method that employs different dividend rates during the contractual term shall disclose the range of expected dividends used and the weighted-average expected dividends. The expected dividend yield is based on the Company’s current dividend yield as the best estimate of projected dividend yield for periods within the expected term of the share options and similar instruments.

● Risk-free rate(s). An entity that uses a method that employs different risk-free rates shall disclose the range of risk-free rates used. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods within the expected term of the share options and similar instruments.

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 under guidance of Sub-topic 505-50 of the FASB Accounting Standards Codification (“Sub-topic 505-50”).

F-11

CodeSmart Holdings, Inc.

Notes to Consolidated Financial Statements

(Unaudited)

Pursuant to ASC Section 505-50-30, all transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, 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. If shares of the Company are thinly traded the use of share prices established in the Company’s most recent PPM, or weekly or monthly price observations would generally be more appropriate than the use of daily price observations as such shares could be artificially inflated due to a larger spread between the bid and asked quotes and lack of consistent trading in the market.

The fair value of share options and similar instruments is estimated on the date of grant using a Black-Scholes option-pricing valuation model. The ranges of assumptions for inputs are as follows:

● Expected term of share options and similar instruments: Pursuant to Paragraph 718-10-50-2(f)(2)(i) of the FASB Accounting Standards Codification, the expected term of share options and similar instruments represents the period of time the options and similar instruments are expected to be outstanding taking into consideration of the contractual term of the instruments and holder’s expected exercise behavior into the fair value (or calculated value) of the instruments. The Company uses historical data to estimate holder’s expected exercise behavior. If the Company is a newly formed corporation or shares of the Company are thinly traded the contractual term of the share options and similar instruments is used as the expected term of share options and similar instruments as the Company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term.

Pursuant to ASC paragraph 505-50-25-7, if fully vested, non-forfeitable equity instruments are issued at the date the grantor and grantee enter into an agreement for goods or services (no specific performance is required by the grantee to retain those equity instruments), then, because of the elimination of any obligation on the part of the counterparty to earn the equity instruments, a measurement date has been reached. A grantor shall recognize the equity instruments when they are issued (in most cases, when the agreement is entered into). Whether the corresponding cost is an immediate expense or a prepaid asset (or whether the debit should be characterized as contra-equity under the requirements of paragraph 505-50-45-1) depends on the specific facts and circumstances. Pursuant to ASC paragraph 505-50-45-1, a grantor may conclude that an asset (other than a note or a receivable) has been received in return for fully vested, non-forfeitable equity instruments that are issued at the date the grantor and grantee enter into an agreement for goods or services (and no specific performance is required by the grantee in order to retain those equity instruments). Such an asset shall not be displayed as contra-equity by the grantor of the equity instruments. The transferability (or lack thereof) of the equity instruments shall not affect the balance sheet display of the asset. This guidance is limited to transactions in which equity instruments are transferred to other than employees in exchange for goods or services. Section 505-50-30 provides guidance on the determination of the measurement date for transactions that are within the scope of this Subtopic.

F-12

CodeSmart Holdings, Inc.

Notes to Consolidated Financial Statements

(Unaudited)

Pursuant to Paragraphs 505-50-25-8 and 505-50-25-9, an entity may grant fully vested, non-forfeitable equity instruments that are exercisable by the grantee only after a specified period of time if the terms of the agreement provide for earlier exercisability if the grantee achieves specified performance conditions. Any measured cost of the transaction shall be recognized in the same period(s) and in the same manner as if the entity had paid cash for the goods or services or used cash rebates as a sales discount instead of paying with, or using, the equity instruments. A recognized asset, expense, or sales discount shall not be reversed if a stock option that the counterparty has the right to exercise expires unexercised.

Pursuant to ASC paragraph 505-50-30-S99-1, if the Company receives a right to receive future services in exchange for unvested, forfeitable equity instruments, those equity instruments are treated as unissued for accounting purposes until the future services are received (that is, the instruments are not considered issued until they vest). Consequently, there would be no recognition at the measurement date and no entry should be recorded.

The Company accounts for stock-based compensation in accordance with ASC Topic 718, “Accounting for Stock-Based Compensation” established financial accounting and reporting standards for stock-based employee compensation. It defines a fair value based method of accounting for an employee stock option or similar equity instrument. The Company accounts for compensation cost for stock option plans in accordance with ASC 718. The Company accounts for share based payments to non-employees in accordance with ASC 505-50 “Accounting for Equity Instruments Issued to Non-Employees for Acquiring, or in Conjunction with Selling, Goods or Services”.

The Company recognizes all forms of share-based payments, including stock option grants, warrants and restricted stock grants, at their fair value on the grant date, which are based on the estimated number of awards that are ultimately expected to vest.

Earnings (Loss) Per Share

Basic earnings (loss) per share is computed by dividing net income (loss) by weighted average number of shares of common stock outstanding during each period. Diluted earnings (loss) per share is computed by dividing net income (loss), adjusted for changes in income or loss that resulted from the assumed conversion of convertible shares, by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during the period.

The Company had 106,509 shares of common stock equivalents at September 30, 2013 (a $150,000 convertible note at a conversion price that is the lesser of (i) 65% of the average of the three lowest closing bid prices of the Common Stock during a period of 15 trading days prior to the conversion or (ii) $5.00 – at September 30, 2013, the rate was calculated to be $1.4083).

Income Taxes

The Company accounts for income taxes under Section 740-10-30 of the FASB Accounting Standards Codification. 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. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. 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.

F-13

CodeSmart Holdings, Inc.

Notes to Consolidated Financial Statements

(Unaudited)

The Company adopted section 740-10-25 of the FASB Accounting Standards Codification (“Section 740-10-25”). Section 740-10-25 addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under Section 740-10-25, 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 financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent (50%) likelihood of being realized upon ultimate settlement. Section 740-10-25 also provides guidance on de-recognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures.

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 did not take any uncertain tax positions and had no adjustments to its income tax liabilities or benefits pursuant to the provisions of Section 740-10-25 for the interim period ended September 30, 2013.

Cash Flows Reporting

The Company adopted paragraph 230-10-45-24 of the FASB Accounting Standards Codification for cash flows reporting, which classifies cash receipts and payments according to whether they stem from operating, investing, or financing activities and provides definitions of each category, and uses the indirect or reconciliation method (the “Indirect Method”) as defined by paragraph 230-10-45-25 of the FASB Accounting Standards Codification to report net cash flow from operating activities by adjusting net income to reconcile it to net cash flow from operating activities by removing the effects of (a) all deferrals of past operating cash receipts and payments and all accruals of expected future operating cash receipts and payments and (b) all items that are included in net income that do not affect operating cash receipts and payments.

Recently Issued Accounting Pronouncements

In March 2013, the Financial Accounting Standards Board issued Accounting Standards Update No. 2013-05, Foreign Currency Matters (Topic 830), Parent’s Accounting for the Cumulative Translation Adjustment Upon Derecognition of Certain Subsidiaries or Groups of Assets Within a Foreign Entity or of an Investment in a Foreign Entity (“ASU 2013-05”). ASU 2013-05 resolves diversity in practice related to financial reporting involving a parent entity’s accounting for the cumulative translation adjustment of foreign currency into net income upon derecognition of a foreign subsidiary or group of assets. ASU 2013-05 clarifies that the sale of an investment in a foreign entity includes, (i) events that result in the loss of a controlling financial interest in a foreign entity and (ii) events that result in an acquirer’s obtaining control of an acquiree in which it held an equity interest immediately before the acquisition date, otherwise known as a step acquisition. Upon the occurrence of these events, the cumulative translation adjustment should be released into net income. ASU 2013-05 is effective for fiscal years and interim periods beginning after December 15, 2014. The Partnership does not expect the adoption of ASU 2013-05 to impact its financial position or its results of operations.

F-14

CodeSmart Holdings, Inc.

Notes to Consolidated Financial Statements

(Unaudited)

In March 2013, the FASB issued ASU 2013-07, “Presentation of Financial Statements (Topic 205): Liquidation Basis of Accounting.” The amendments require an entity to prepare its financial statements using the liquidation basis of accounting when liquidation is imminent. Liquidation is imminent when the likelihood is remote that the entity will return from liquidation and either (a) a plan for liquidation is approved by the person or persons with the authority to make such a plan effective and the likelihood is remote that the execution of the plan will be blocked by other parties or (b) a plan for liquidation is being imposed by other forces (for example, involuntary bankruptcy). If a plan for liquidation was specified in the entity’s governing documents from the entity’s inception (for example, limited-life entities), the entity should apply the liquidation basis of accounting only if the approved plan for liquidation differs from the plan for liquidation that was specified at the entity’s inception. The amendments require financial statements prepared using the liquidation basis of accounting to present relevant information about an entity’s expected resources in liquidation by measuring and presenting assets at the amount of the expected cash proceeds from liquidation. The entity should include in its presentation of assets any items it had not previously recognized under U.S.GAAP but that it expects to either sell in liquidation or use in settling liabilities (for example, trademarks). The amendments are effective for entities that determine liquidation is imminent during annual reporting periods beginning after December 15, 2013, and interim reporting periods therein. Entities should apply the requirements prospectively from the day that liquidation becomes imminent. Early adoption is permitted.

Management does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying consolidated financial statements.

Note 3 Property and Equipment

Property and equipment stated at cost, less accumulated depreciation and amortization, consisted of the following:

	September 30, 2013			Estimated Useful Life
Computer equipment	$	5,000		3 years
		5,000
Less: Accumulated depreciation and amortization		(694	)
	$	4,306

Depreciation expense for the three and nine months ended September 30, 2013 was $416 and $694, respectively.

Note 4 Secured Convertible Promissory Notes

On April 15, 2013, CodeSmart sold and issued a secured convertible promissory note (the “Note”) in the amount of $140,000. The note bore interest of 10% and was due 90 days from the issuance date. The note and accrued interest were convertible at the option of the holder into shares of the common stock of the Company or the entity with which the Company consummates a merger or business combination at the conversion price of 100% of the per share price of the first private placement of the securities of the Acquirer, subject to potential ratchet adjustments. The Company evaluated the ratchet provision and concluded that derivative accounting applied.

On July 10, 2013, the holder of this note elected to convert all of the outstanding principal and accrued interest of this note into 179,180 shares of Common Stock of the Company.

On April 24, 2013, CodeSmart sold and issued a secured convertible promissory note in the amount of $110,000. The note bore interest of 10% and was due 90 days from the issuance date. The note and accrued interest were convertible at the option of the holder into shares of the common stock of the Acquirer at the conversion price of 100% of the per share price of the first private placement of the securities of the Company, subject to potential ratchet adjustments. The Company evaluated the ratchet provision and concluded that derivative accounting applied.

F-15

CodeSmart Holdings, Inc.

Notes to Consolidated Financial Statements

(Unaudited)

On June 14, 2013, the holder of this note elected to convert all of the outstanding principal and accrued interest of this note into 139,448 shares of Common Stock of the Company.

On August 29, 2013, the Company consummated a private placement of a convertible debenture (the “Debenture”) in the principal amount of $150,000. The Debenture is for a term of one year and accrues interest at an annual rate of 8%. The Debenture may be converted, at the option of the holder, into shares of the Company’s common stock, par value $.0001 (“Common Stock”) at a conversion price that is the lesser of (i) 65% of the average of the three lowest closing bid prices of the Common Stock during a period of 15 trading days prior to the conversion or (ii) $5.00. The Company paid $12,000 or 8% of the raise as an issuance cost. The issuance cost is being amortized over the life of debenture. For the three and nine months ended September 30, 2013, the Company expensed $1,052 as interest expense, respectively.

Note 5 Stockholders’ Equity

(A) Common Stock Transactions

The following were Common Stock issuances during the period January 1, 2013 through September 30, 2013:

On May 3, 2013, the Company issued two founders of the Company 2,887,500 shares of the Company’s Common Stock. The Company valued these shares at $0.80 per share or $2,310,000. The Company concluded that $0.80 per share was the best indicator of fair value because the Company sold shares at $0.80 per share through a private placement of public equity (“PIPE”) on May 3, 2013.

On May 3, 2013, the Company issued employees and key consultants 864,168 shares of the Company’s Common Stock. The Company recorded a charge of $691,334 or $0.80 per share. The Company concluded that $0.80 per share was the best indicator of fair value because the Company sold shares at $0.80 per share through a private placement of public equity (“PIPE”) on May 3, 2013.

As part of the reverse merger, the legal acquirer maintained 6,000,000 shares of the Company’s Common Stock. For the purchase price of $231,000, the outstanding restricted block of the Company’s Common Stock acquired from the previous controlling shareholder was cancelled.

During the nine months ended September 30, 2013, the Company sold a total 2,469,121 shares of Common Stock to various investors for prices ranging from $0.80 per share to $1.50 per share.

On June 14, 2013, a secured convertible note issued by CodeSmart NV with principal and interest of $111,537 was converted into 139,448 shares of the Company’s Common Stock.

On July 10, 2013, the holder of a secured promissory note issued by CodeSmart elected to convert all of the outstanding principal and accrued interest of such note into 179,180 shares of Common Stock of the Company.

During the nine months ended September 30, 2013, the Company issued 434,467 shares of the Company’s Common Stock for issuance fees in association with the Company’s capital raises. The Company recorded $1,357,260 in stock issuance costs. The shares were valued using the Company’s closing share price on the Over the Counter Bulletin Board. The values per share ranged from $2.53 to $3.17.

During the nine months ended September 30, 2013, the Company issued 44,964 shares of the Company’s Common Stock to a consultant of the Company for services rendered. The Company recorded a charge of $297,212. The shares were valued using the Company’s closing share price on the Over the Counter Bulletin Board. The value per share was $6.61.

During the three months ended September 30, 2013, the Company issued 375,000 shares of the Company’s Common Stock to a consultant of the Company for services rendered. The Company recorded a charge of $1,087,500. The shares were valued using the Company’s closing share price on the Over the Counter Bulletin Board. The value per share was $2.90.

F-16

CodeSmart Holdings, Inc.

Notes to Consolidated Financial Statements

(Unaudited)

Note 6 Non-controlling Interest and Dividend Paid

In connection with the reverse acquisition disclosed in Note 1, one shareholder who owned 31.94% of the CodeSmart common shareholders did not participate in the exchange of their shares of CodeSmart Common Stock for shares of Common Stock of the Company as disclosed in Note 1. That shareholder was recognized as a non-controlling interest in the Company’s condensed consolidated financial statements in accordance with FASB ACS 805-40-25-2.

On August 20, 2013, the Company entered into and consummated a transaction 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, par value $.0001 and (ii) the Company paid Kovens a cash dividend of $1,350,000 in exchange for the 31.94% of equity interests in the Company. As a result of the Share Exchange Transaction, the subsidiary is now 100% fully owned and a non-controlling interest is no longer presented.

The assets, liabilities and operations underlying the shares of CodeSmart and the Company were identical. However, the shares representing ownership of the Company reflected the combination of current Company shares and former non-controlling interest shares of CodeSmart.

In accordance with ASC 810-10, the Company recorded a dividend in the amount of $6,207,840 which comprised of $4,857,840, (representing the change in fair value for the 2,808,000 shares of the Company Common Stock from May 3, 2013, date of reverse merger, to August 20, 2013, date of the issuance), and a cash payment of $1,350,000.

Below is a detailed calculation of the total value of the dividend:

Cash paid for non-controlling interest			$	1,350,000
Fair value of the 2,808,000 common shares issued for non-controlling interest on August 20, 2013 at a value of $2.53 per share, the closing share price on the Over the Counter Bulletin Board	$	7,104,240
Fair value of the 2,808,000 common shares issued for non-controlling interest on May 3, 2013 at a value of $0.80 per share, the per share value on the date of the reverse merger	$	2,246,400
Excess fair market value of common stock issued on August 20, 2013 as compared to the non-controlling interest value on May 3, 2013				4,857,840
Total dividend			$	6,207,840

F-17

CodeSmart Holdings, Inc.

Notes to Consolidated Financial Statements

(Unaudited)

Note 7 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 its business. The Company is currently not aware of any such legal proceedings or claims that they believe will have, individually or in the aggregate, a material adverse effect on its business, financial condition or operating results.

Note 8 Subsequent Event

On October 31, 2013, the Company consummated and closed a share exchange transaction with Jasper Group Holdings, Inc. (“Jasper”) pursuant to a Share Exchange Agreement dated October 7, 2013 and amended as of October 31, 2013 (the “Jasper Share Exchange Agreement,” such transaction referred to as the “Jasper Share Exchange Transaction”), whereby (i) the Company received 1,106,678 shares of Jasper’s common stock, par value $0.001 (“Jasper Common Stock”), which will constitute 10% of the outstanding shares of Jasper on a fully-diluted basis; and (ii) in consideration of 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. The Company intends to account for its investment under the equity method and will record its proportionate share of net income as gain or loss. The Company valued the investment at approximately $940,000 (400,000 shares at $2.35 per share on October 31, 2013). On October 18, 2013, BC Eagle LLC (“BC Eagle”) received a total of 25,000 shares of Common Stock in consideration for its digital brand management services to the Company pursuant to a letter proposal dated October 11, 2013.

On October 18, 2013, BC Eagle LLC (“BC Eagle”) received a total of 25,000 shares of Common Stock in consideration for its digital brand management services to the Company pursuant to a letter proposal dated October 11, 2013.

On October 18, 2013, Sonoma Med Leasing, LP (“Sonoma”) received a total of 750,000 shares of Common Stock in consideration for Sonoma’s investor relations consulting and advisory services to the Company pursuant to an IR Consulting Agreement entered between the Company and Sonoma, dated October 17, 2013.

On October 18, 2013, Max Kahn received a total of 67,500 shares of Common Stock in consideration for Mr. Kahn’s business development consulting and advisory services to the Company pursuant to a Business Development Consulting Agreement entered between the Company and Max Kahn, dated October 18, 2013.

On October 29, 2013, the Company issued to a total of 30,000 shares of Common Stock to Lucosky Brookman, LLP and its designees as compensation for its past legal services to the Company pursuant to an engagement agreement between CodeSmart NV and Lucosky Brookman, LLP dated March 12, 2013.

On November 18, 2013, the Company entered into a Common Stock Financing Term Sheet with AGA III Capital LLC (“AGA”). The Company agreed to issue and sell up to 1,200,000 shares of the Company’s Common Stock at $1.25 per share for proceeds of up to $1,500,000 in tranches with first tranche of $300,000 expected to close on or before November 22, 2013, a second tranche of $300,000 on or before December 1, 2013, and an additional $900,000 on or before December 30, 2013. On November 25, 2013, both parties agreed to terminate the term sheet.

F-18

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OR PLAN OF OPERATION

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.

Plan of Operations

The Company plans to implement operations and reaching their goals and objectives by hiring talented people 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 best talent 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 the money to be spent on 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.

Results of Operations for the three months ended September 30, 2013

Revenue and Gross Profit

During the three months ended September 30, 2013, the Company earned $137,804 in "instructional" revenue. The Company incurred $113,852 in costs associated with earning the revenue. In addition, the Company earned $81,814 in consulting revenue for ICD-10 implementation and analysis.

Operating Expenses

Operating expenses for the three months ended September 30, 2013 consisted primarily of compensation and benefits in the amount of $429,582, professional fees totaling $1,676,216 (which included share-based compensation of $1,384,712), as well as advertising and promotion of $101,618.

Loss from Operations

Loss from operations for the three months ended September 30, 2013 was $2,317,215. The loss was primarily attributable to the general and administrative expenses as detailed above.

Net Loss

Net loss from operations for the three months ended September 30, 2013 was $2,402,244. The net loss was primarily attributable to the operating expenses as detailed above offset by gross profits earned from tuition and consulting revenue.

During the three months ended September 30, 2013, the Company issued to a non-controlling interest holder of CodeSmart NV a dividend of $6,207,840, including a cash portion of $1,350,000, to convert his non-controlling interest in CodeSmart NV into shares of the Company’s common stock, enabling the Company to own 100% of the operating subsidiary, CodeSmart NV. In addition, the Company sold a convertible debenture for $150,000 during the three months ended September 30, 2013. The convertible debenture contained embedded features that the Company had to bifurcate and account for at fair value. On the date of issuance, the Company recorded a derivative expense of $242,425. As of September 30, 2013, the Company re-valued all derivative instruments and recorded a gain of $178,990.

Inflation did not have a material impact on the Company’s operations for the period. 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~~PART ofI ~~Operations~~- ~~for the nine months ended September 30, 2013~~FINANCIAL INFORMATION

~~Revenue~~ITEM ~~and~~1. ~~Gross~~FINANCIAL ~~Profit~~STATEMENTS

~~During the nine months ended September 30~~CodeSmart Holdings, ~~2013, the Company earned $169,561 in "instructional" revenue~~Inc. ~~The Company incurred $133,550 in costs associated with earning the revenue. In addition, the Company earned $81,814 in consulting revenue for ICD-10 implementation and analysis.~~

~~Operating~~Consolidated Balance ~~Expenses~~Sheets

Operating expenses for the nine months ended September 30, 2013 consisted primarily of compensation and benefits in the amount of $3,024,858, professional fees totaling $2,547,766 (which includes share-based compensation of $4,386,046), as well as advertising and promotion of $221,303.

	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

~~Loss~~The ~~from~~accompanying ~~Operations~~notes are an integral part of these condensed consolidated financial statements

Loss from operations for the nine months ended September 30, 2013 was $5,962,280. The loss was primarily attributable to the general and administrative expenses as detailed above offset by gross profits earned from tuition and consulting revenue.3

~~Net~~CodeSmart Holdings, ~~Loss~~Inc.

~~Net~~Consolidated Statements ~~loss~~of ~~from operations for the nine months ended September 30, 2013 was $7,618,927. The net loss was primarily attributable to the operating expenses as detailed above offset by minimal tuition revenue.~~Operations

During the nine months ended September 30, 2013, the Company issued the non-controlling interest holder of CodeSmart NV a dividend of $6,207,840, including a cash portion of $1,350,000, to convert his non-controlling interest in CodeSmart NV into shares of the Company’s Common Stock, enabling the Company to own 100% of the operating subsidiary, CodeSmart NV. In addition, the Company sold a convertible debenture for $150,000 during the nine months ended September 30, 2013 and CodeSmart NV sold two convertible notes for $250,000 during the nine months ended September 30, 2013, all of which were converted into a total of 318,628 shares of the Company’s Common Stock in July 2013. The outstanding convertible debenture of the Company contained embedded features that the Company had to bifurcate and account for at fair value. On the date of issuance, the Company recorded a derivative expense of $242,425. During the nine months ended September 30, 2013, the Company re-valued all derivative instruments and recorded a loss of $1,310,197.(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

~~Capital~~The ~~Resources~~accompanying ~~and~~notes ~~Liquidity~~are an integral part of these condensed consolidated financial statements

~~The following table summarizes total current assets, liabilities and working capital at September 30, 2013.~~4

	September 30, 2013
Current Assets	$	877,261
Current Liabilities	$	397,598
Working Capital Deficit Surplus	$	479,663

CODESMART HOLDINGS, INC.

AtCONSOLIDATED STATEMENT ~~September~~OF ~~30,~~CASH 2013, we had a working capital surplus of $479,663. The Company has recently commenced commercialization of its products, and recorded $251,375 and $219,618, respectively of earned revenue for the three and nine months ended September 30, 2013.FLOWS

Net cash used for operating activities for the nine months ended September 30, 2013 was $1,617,878. The net loss for the nine months ended September 30, 2013 was $7,618,927. Cash used in operating activities was primarily for compensation, professional fees and marketing and advertising.

	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

~~Net~~The ~~cash~~accompanying obtained through all financing activities for the nine months ended September 30, 2013 was $2,271,302. This consisted of $3,464,302 in proceeds from the sale and issuance of common stock, $400,000 in sale and issuance of secured convertible notes ~~and~~are ~~offset~~an byintegral part ~~a $231,000 payment to cancel the outstanding shares~~ of ~~the~~these ~~predecessor’s~~condensed ~~restricted~~consolidated ~~block~~financial of common stock outstanding. An additional offset to the above, the Company issued the non-controlling interest holder a dividend of $6,207,840, including a cash portion of $1,350,000, to convert his non-controlling interest in the Company’s Subsidiary into shares of the Company’s common stock, enabling the Company to own 100% of the operating subsidiary.statements

~~Financings~~5

~~On April 15, 2013,~~ CodeSmart ~~NV sold and issued a secured convertible promissory note with principal in the amount of $140~~Holdings,~~000. The~~ ~~note bears interest of 10% and is due 90 days from the issuance date~~Inc. On ~~July 10, 2013, the note~~ and accrued interest was converted at the option of the holder into 179,180 shares of the Common Stock of the Company at the conversion price of $0.80 per share price. The Company evaluated the ratchet provision and concluded that derivative accounting applies.Subsidiaries

OnFka ~~April~~First ~~24,~~Independence ~~2013, CodeSmart NV sold and issued a secured convertible promissory note with principal in the amount of $110,000~~Corp. The note bears interest of 10% and is due 90 days from the issuance date. On June 14, 2013, the note and accrued interest was converted at the option of the holder into 139,448 shares of Common Stock of the Company at the conversion price of $0.80 per share. The Company evaluated the ratchet provision and concluded that derivative accounting applies.

OnNotes August 29, 2013, the Company consummated a private placement of its convertible debenture (the “Debenture”) in the principal amount of $150,000. The Debenture is of a term of one year and will accrue at an annual interest rate of 8%. The Debenture may be converted, at the option of the holder, into shares of the Company’s common stock, par value $.0001 (“Common Stock”) at a conversion price that is the lesser of (i) 65% of the average of the three lowest closing bid prices of the Common Stock during a period of 15 trading days prior to ~~the~~Condensed ~~conversion~~Consolidated or (ii) $5.00. The Company paid $12,000 or 8% of the raise to a finder as an issuance cost. The issuance cost is being amortized over the life of debenture. For the three and nine months ended September 30, 2013, the Company expensed $1,052 to interest expense, respectively.Financial Statements

3Note 1 Nature of Operations

OnCodeSmart ~~January~~Holdings, 13Inc. (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 NVHoldings, ~~sold~~Inc.” 18The Company has two wholly-owned subsidiaries - The CodeSmart Group,~~750~~ ~~shares~~Inc., ofa Nevada corporation (“CodeSmart NV”) ~~common~~and ~~stock~~American Coding ~~for~~Quality ~~proceeds~~Association, ofLLC, ~~$25~~a Delaware limited liability company (“ACQA”). References to “CODESMART™,~~000~~” “we,” “us,” ator $1“our,” are references to the combined business of CodeSmart Holdings, CodeSmart NV and ACQA.~~33/share.~~

~~During~~On May 3, 2013, the ~~nine~~Company ~~months~~and ~~ended~~the ~~September~~stockholders 30of The CodeSmart Group, ~~2013~~Inc., ~~the~~a ~~Company~~Nevada ~~sold~~corporation aincorporated ~~total~~on 2October 3,~~469~~ 2012,~~121~~ ( “CodeSmart NV”) who collectively owned 68.06% of the outstanding shares of ~~Common~~CodeSmart ~~Stock~~NV (the “CodeSmart Stockholders”) completed a reverse acquisition transaction through a Share Exchange Agreement (the “Share Exchange Agreement,” such transaction referred to ~~various~~as ~~investors~~the ~~for~~“Share Exchange ~~prices~~Transaction”), ~~ranging~~whereby ~~from~~the $0Company issued to the CodeSmart Stockholders an aggregate of 6,125,000 shares of its common stock in exchange for the 68.8006% ~~per~~of ~~share~~the toequity $1interests of CodeSmart NV held by the CodeSmart Stockholders.50 ~~per~~As ~~share~~a result of the Share Exchange Transaction, CodeSmart NV became a subsidiary of the Company.

~~Going~~The ~~Concern~~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.

~~The~~Upon ~~financial~~completion ~~statements~~of ~~have been prepared on~~ the ~~going~~Share ~~concern~~Exchange ~~basis~~Transaction, ~~which assumes~~ the ~~realization of assets and liquidation of liabilities in the normal course of operations. The ability of the~~ Company changed ~~to continue~~ its ~~operations~~name ~~is dependent on Management’s plans, which include the raising of capital through debt and/or equity markets with some additional funding~~ from ~~other~~First ~~traditional~~Independence ~~financing~~Corp. ~~sources,~~to ~~including~~CodeSmart ~~term notes~~Holdings, ~~until such time that funds provided by operations are sufficient to fund working capital requirements~~Inc., ~~The~~changed ~~Company~~its ~~may~~fiscal ~~need~~year toend ~~incur~~from ~~additional~~February ~~liabilities~~28 ~~with certain related parties~~ to ~~sustain the Company’s existence. If the Company were not to continue as~~ a ~~going~~calendar year ~~concern,~~ending itDecember ~~would~~31 ~~likely~~and ~~not~~commenced betrading ~~able~~under ~~to realize on its assets at values comparable to~~ the ~~carrying~~symbol ~~value~~“ITEN” oron the ~~fair~~OTC ~~value~~QB. ~~estimates~~The ~~reflected~~OTC inQB ~~the~~market ~~balances~~tier ~~set out in the preparation~~ of the OTC ~~financial~~market ~~statements.~~helps ~~There~~investors ~~can~~identify becompanies ~~no assurances~~ that ~~the~~are ~~Company~~current ~~will be successful~~ in ~~generating~~their ~~additional~~reporting ~~cash~~obligations ~~from~~with ~~equity~~the ~~or other sources to be used for operations~~SEC. ~~The~~OTC ~~financial~~QB ~~statements~~securities doare quoted ~~not~~on ~~include~~OTC ~~any~~Markets ~~adjustments~~Group's ~~relating~~quotation ~~to the recoverability of assets~~ and ~~classification~~trading ~~of assets and liabilities that might be necessary should the Company be unable to continue as a going concern~~system.

AsOn ~~reflected~~May in7, ~~the~~2013, ~~accompanying~~International ~~financial~~Alliance ~~statements,~~Solutions ~~the~~LLC ~~Company~~(“IAS”) transferred ~~has~~and aassigned ~~net~~the ~~loss~~trademark ~~and~~“CODESMART™” ~~net~~to ~~cash~~CodeSmart ~~used~~NV. inIn ~~operations~~addition, ofon ~~$(7~~July 11,~~618~~ 2013,~~927)~~ ~~and~~CodeSmart NV ~~$(1,617,878),~~entered ~~respectively~~into an Assignment Agreement with IAS, ~~for~~whereby ~~the~~IAS ~~nine~~agreed ~~months~~to ~~ended~~transfer ~~September~~to ~~30,~~CodeSmart ~~2013. In~~NV ~~addition~~its remaining assets, ~~the~~including but ~~Company~~not ~~has~~limited anto ~~accumulated~~IAS's ~~deficit~~rights ofin ~~$13,850,153~~any asagreements ofto ~~September~~which ~~30,~~it ~~2013~~is a party.

~~The~~On ~~ability~~June of3, 2013, the Company toentered ~~continue~~into ~~its~~a ~~operations~~Contribution Agreement iswith ~~dependent~~American onCoding ~~Management's~~Quality ~~plans~~Association, ~~which~~LLC, ~~include~~a ~~the~~Delaware ~~raising~~limited ofliability ~~capital~~company ~~through~~organized ~~debt~~on ~~and/or~~June ~~equity~~3, ~~markets~~2013, ~~with some additional funding from other traditional financing sources~~(“ACQA”), whereby ~~including~~the ~~term~~sole ~~notes,~~owner ~~until~~of ~~such~~ACQA ~~time~~contributed ~~that~~100% ~~funds~~of ~~provided~~the bymembership ~~operations~~interests ~~are~~of ~~sufficient~~ACQA to ~~fund~~the ~~working~~Company ~~capital~~and ~~requirements. The~~immediately ~~Company~~after ~~may~~the ~~need~~effectiveness of tothe ~~incur~~Contribution ~~additional~~Agreement, ~~liabilities~~ACQA ~~with~~became ~~certain~~a ~~related~~wholly-owned ~~parties~~subsidiary toof ~~sustain~~ the Company~~’s existence~~.

~~The~~On ~~Company~~August ~~may require~~20, ~~additional~~2013, ~~funding~~the toCompany ~~finance~~and Marc Kovens, who owned the ~~growth~~31.94% shares of ~~its~~the ~~current~~Common ~~and~~Stock ~~expected~~of ~~future~~CodeSmart ~~operations~~NV asthat ~~well~~did asnot toparticipate ~~achieve~~in ~~its~~the ~~strategic~~reverse ~~objectives. The~~acquisition, ~~Company~~entered ~~believes~~into ~~its~~and ~~current~~consummated transactions ~~available~~pursuant ~~cash~~to ~~along~~a ~~with~~Share ~~anticipated~~Exchange ~~revenues~~Agreement ~~may~~whereby be(i) ~~insufficient~~the toCompany ~~meet~~issued ~~its~~to ~~cash~~Kovens ~~needs~~an ~~for~~aggregate ~~the~~of ~~near~~2,808,000 ~~future~~shares ifof the itCompany’s ~~does~~common ~~not~~stock ~~receive~~and (ii) the ~~anticipated~~Company ~~additional~~paid ~~funding. There~~Kovens ~~can~~cash bein nothe ~~assurance~~amount ~~that~~of ~~financing~~$1,350,000, ~~will~~in beexchange ~~available~~for inthe ~~amounts~~31.94% of orthe ~~terms~~equity ~~acceptable~~interests toin ~~the~~CodeSmart ~~Company,~~NV ifowned atby ~~all~~Kovens. InAs ~~that~~a ~~event,~~result of the ~~Company~~Share ~~would~~Exchange beTransaction, ~~required~~CodeSmart toNV ~~change~~became ~~its growth~~a ~~strategy~~wholly-owned subsidiary of the Company and ~~seek~~a ~~funding~~non-controlling oninterest ~~that~~in ~~basis,~~CodeSmart ifNV atis ~~all~~no longer presented.

The ~~accompanying~~Company ~~financial~~was ~~statements~~originally ~~have~~formed ~~been~~to ~~prepared~~private onlabel apourable food ~~going~~products ~~concern~~for ~~basis~~start-ups, ~~which~~local ~~contemplates~~and national supermarket chains and specialty stores. Since the ~~realization~~acquisitions of ~~assets~~CodeSmart NV and ACQA, the ~~satisfaction~~Company ofhas ~~liabilities~~changed its business direction and is currently engaged in ~~the~~providing ~~normal~~training, ~~course~~consulting ofand ~~business. These~~other ~~financial~~relevant services ~~statements~~for doICD-10 ~~not~~preparation, ~~include~~education ~~any~~and ~~adjustments~~implementation. ~~relating~~ICD-10 tois the ~~recovery~~10th revision of the ~~recorded~~International ~~assets~~Statistical orClassification of ~~the~~Diseases and Related Health Problems, a medical classification oflist by the ~~liabilities~~World ~~that~~Health ~~might~~Organization. beIn ~~necessary~~2009, ~~should~~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, bethrough ~~unable~~CODESMART™ UNIVERSITY, its online education solutions provider, offers training programs and consulting services to ~~continue~~participants asin athe ~~going~~healthcare ~~concern~~industry that need to transition their coding systems to ICD-10.

~~In response to the above, management will:~~6

●Note ~~seek~~2 ~~additional~~Summary ~~third~~of ~~party~~Significant ~~debt~~Accounting ~~and/or equity financing;~~Policies

●Basis ~~continue with the implementation~~ of ~~the business plan;~~presentation

●We ~~increase~~prepare ~~revenue~~our ~~commercialization~~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 ~~technology~~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.

ToIn ~~date~~the ~~all~~opinion of ~~our~~management, ~~funding~~the ~~has~~accompanying ~~been~~consolidated financial ~~generated~~statements ~~from~~reflect ~~private~~all ~~investments.~~adjustments ~~During~~(consisting ~~the~~of ~~next~~normal ~~twelve~~recurring ~~months~~accruals) wenecessary ~~anticipate~~to ~~raising~~present ~~funding~~fairly tothe ~~continue~~Company’s financial ~~expansion;~~position ~~however~~ as of ~~the~~June ~~date~~30, of2014, ~~this~~and ~~Report~~the weresults ~~only~~of ~~have~~its ~~sufficient~~operations, ~~funds~~and tocash ~~proceed~~flows ~~with~~for ~~basic~~the ~~company~~three ~~operations~~months ~~only.~~ended Weand dosix ~~not~~months ended ~~have~~June ~~sufficient~~30, ~~funds~~2014. Although tomanagement ~~fully~~believes ~~implement~~that ~~our~~the ~~business~~disclosures ~~plan~~in ~~until~~these ~~such~~consolidated ~~time~~financial ~~that we~~ statements are ~~able~~adequate to ~~raise~~make ~~additional~~the ~~funds~~information presented not misleading, tocertain ~~which~~information ~~there~~and isfootnote nodisclosures ~~guarantee.~~normally Ifincluded wein financial dostatements ~~not~~that ~~obtain~~have ~~the~~been ~~funds~~prepared ~~necessary~~in ~~for~~accordance uswith toaccounting ~~continue~~principles ~~our~~generally ~~business~~accepted ~~activities~~in wethe ~~may~~United ~~need~~States toof America ~~curtail~~have been condensed or ~~cease~~omitted ~~our~~pursuant ~~operations~~to ~~until~~the ~~such~~rules ~~time~~and asregulations weof ~~have~~the ~~sufficient~~Securities ~~funds~~and Exchange Commission.

~~Material~~The ~~Recent~~results ~~Events~~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.

OnGoing October 31, 2013, the Company consummated and closed a share exchange transaction with Jasper Group Holdings, Inc. (“Jasper”) pursuant to a Share Exchange Agreement dated October 7, 2013 and amended as of October 31, 2013 (the “Jasper Share Exchange Agreement,” such transaction referred to as the “ Jasper Share Exchange Transaction”), whereby (i) the Company received 1,106,678 shares of Jasper’s common stock, par value $0.001 (“Jasper Common Stock”), which will constitute 10% of the outstanding shares of Jasper on a fully-diluted basis; and (ii) in consideration of 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. The Company intends to account for its investment under the equity method and will record its proportionate share of net income as gain or loss. The Company valued the investment at approximately $940,000 (400,000 shares at $2.35 per share on October 31, 2013),Concern

4As 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.

~~Recent Accounting Pronouncements~~7

~~There~~Principles ~~are~~of ~~no recent accounting pronouncements that are expected to have an effect on the Company’s financial statements.~~ Consolidation

~~Critical~~The ~~Accounting~~accompanying ~~Policies~~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.

~~Our~~Risks ~~financial statements~~ and related public financial information are based on the application of accounting principles generally accepted in the United States (“GAAP”). GAAP requires the use of estimates; assumptions, judgments and subjective interpretations of accounting principles that have an impact on the assets, liabilities, revenues and expense amounts reported. These estimates can also affect supplemental information contained in our external disclosures including information regarding contingencies, risk and financial condition. We believe our use of estimates and underlying accounting assumptions adhere to GAAP and are consistently and conservatively applied. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ materially from these estimates under different assumptions or conditions. We continue to monitor significant estimates made during the preparation of our financial statements. Uncertainties

~~Our~~The ~~significant~~Company’s ~~accounting~~operations ~~policies~~ are ~~summarized~~subject into ~~Note 2 of our financial statements. While all these~~ significant risk ~~accounting policies impact our financial condition~~ and ~~results~~uncertainties ofincluding ~~operations~~financial, we view certain of these policies as critical. Policies determined to be critical are those policies that have the most significant impact on our financial statements and require management to use a greater degree of judgment and estimates. Actual results may differ from those estimates. Our management believes that given current facts and circumstancesoperational, ~~it is unlikely that applying any other reasonable judgments or estimate methodologies would cause effect on our consolidated results of operations~~technological, ~~financial~~and ~~position~~regulatory orrisks ~~liquidity~~including ~~for~~ the ~~periods~~potential ~~presented~~risk inof ~~this report~~business failure.

We believe the following critical accounting policies and procedures, among others, affect our more significant judgments and estimates used in the preparation of our consolidated financial statements:Cash

~~Revenue~~The ~~Recognition~~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 ~~Deferred~~December 31, ~~Revenue~~2013.

Revenues will consist primarily of tuition and fees derived from courses taught by the University online 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. Tuition revenue and most fees from related educational resources will be recognized pro-rata over the applicable period of instruction. The ~~University~~Company ~~will~~seeks ~~maintain an institutional tuition refund policy, which provides for all or a portion of tuition~~ to beminimize ~~refunded~~its ifcredit arisk student withdraws during 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 at a time when a portion or none of the tuition is refundable, then in accordance associated with ~~its~~cash ~~revenue~~by ~~recognition~~periodically ~~policy,~~evaluating the ~~University~~credit ~~will~~quality ~~immediately recognize as revenue the tuition that was not refunded. Since the University will recognize revenue pro-rata over the term~~ of ~~the course and because, under~~ its ~~institutional~~primary ~~refund~~financial policy, the amount subject to refund is never greater than the amount of the revenue that has been deferred, under the University’s accounting policies revenue will not be recognized with respect to amounts that could potentially be refundedinstitution. The University will also charge students annual fees for library, technology and other services, which will be deferred and recognized over the related service period. Deferred revenue and student deposits in any period will represent the excess of tuition, fees, and other student payments received as compared to amounts recognized as revenue and will be reflected as current liabilities in the accompanying consolidated balance ~~sheets. The University’s educational programs have starting and ending dates that differ from its fiscal quarters. Therefore,~~ at ~~the~~times ~~end of each fiscal quarter, a portion of deferred revenue from these programs is not yet earned. Other revenues~~ may beexceed ~~recognized~~federally insured ~~as sales occur or services are performed~~limits. ~~The Company recognized no deferred revenue for the three and nine months ended September 30, 2013.~~

~~Instructional~~Financial ~~Costs~~Instruments and ~~Services~~Concentration of Credit Risk

~~Instructional~~We ~~costs~~believe ~~and~~the ~~services~~carrying ~~will~~values ~~consist~~of ~~primarily~~our financial instruments consisting of ~~costs~~cash, ~~related~~accounts toreceivable, ~~the~~accounts ~~administration~~payable, ~~and~~accrued ~~delivery~~expenses, ofand ~~the~~other ~~Company’s~~current ~~educational~~liabilities ~~programs.~~approximate ~~This~~their ~~expense~~fair values ~~category~~due ~~will~~to ~~include~~their ~~compensation~~short-term ~~for~~nature ~~faculty~~or ~~and~~because ~~administrative~~they ~~personnel,~~are ~~costs~~carried ~~associated~~at ~~with~~fair ~~online~~value. For ~~faculty,~~our ~~curriculum~~convertible notes and ~~new~~debentures, ~~program~~the ~~development~~underlying ~~costs,~~instruments ~~bad~~are ~~debt~~carried ~~expense~~at ~~related~~amortized tocost ~~accounts~~and ~~receivable,~~the ~~financial~~embedded ~~aid~~conversion ~~processing~~feature ~~costs,~~is ~~technology~~accounted ~~license~~for ~~costs~~separately at ~~and~~fair ~~costs~~value ~~associated~~in accordance with ~~other~~FASB ~~support~~Accounting ~~groups~~Standards ~~that~~Codification ~~provide~~(“ASC”) ~~services~~815 ~~directly~~– toDerivatives ~~the~~and ~~students~~Hedging.

~~The~~Our ~~Company~~cash ~~recognized~~balances ~~$113,852~~in ~~and~~the ~~$133,550~~United inStates ~~instructional~~periodically ~~costs~~exceed federally ~~for~~insured ~~the~~limits. ~~three~~We ~~and~~have ~~nine~~not ~~months~~experienced ~~ended~~any ~~September~~losses ~~30,~~in ~~2013~~such accounts.

~~Advertising~~Fair ~~and~~Value ~~Promotional~~of ~~Costs~~Financial Instruments

~~Advertising~~The ~~and~~Company ~~promotional~~follows ~~costs~~the ~~will~~guidance ~~include compensation~~ of ~~personnel~~FASB ~~engaged~~ASC in825-10-50-10 for ~~marketing~~disclosures ~~and~~about ~~recruitment,~~the asfair ~~well~~value asof ~~costs~~its ~~associated~~financial ~~with~~instruments ~~purchasing leads, producing marketing materials,~~ and ~~advertising.~~FASB ~~Such~~ASC ~~costs~~820-10-35-37 ~~are~~to ~~generally~~measure ~~affected by~~ the ~~cost~~fair ofvalue ~~advertising media and leads, the efficiency~~ of ~~the~~its ~~Company’s~~financial instruments. ~~marketing~~FASB ~~and~~ASC ~~recruiting~~820-10-35-37 ~~efforts,~~establishes ~~compensation~~a ~~for~~framework ~~the Company’s enrollment personnel and expenditures on advertising initiatives~~ for ~~new~~measuring ~~and~~fair ~~existing~~value ~~academic programs. Advertising costs will consist primarily of marketing leads~~ and ~~other~~expands ~~branding~~disclosures ~~and~~about ~~promotional~~fair ~~activities.~~value ~~Non-direct response advertising activities are expensed as incurred, or the first time the advertising takes place, depending on the type of advertising activity~~measurements.

The carrying amount of the Company’s ~~incurred~~financial ~~$101~~assets and liabilities,~~618~~ ~~and~~such ~~$221~~as cash,~~303~~ inaccounts ~~advertising~~receivable, prepaid expenses, accounts payable and ~~promotional~~accrued ~~costs~~expenses, ~~for~~approximate their fair value because of the ~~three~~short ~~and~~maturity ~~nine~~of ~~months~~those ~~ended~~instruments. The ~~September~~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, ~~2013~~2014 and December 31, ~~respectively~~2013.

5The 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.

~~Stock-based Compensation~~8

~~The~~Carrying Company accounts for its stock based compensation in which the Company obtains employee services in share-based payment transactions under the recognition and measurement principles of the fair value recognition provisions of section 718-10-30 of the FASB Accounting Standards Codification. Pursuant to paragraph 718-10-30-6 of the FASB Accounting Standards CodificationValue, ~~all~~Recoverability transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, 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. If shares of the Company are thinly traded the use of share prices established in the Company’s most recent private placement memorandum (“PPM”), or weekly or monthly price observations would generally be more appropriate than the use of daily price observations as such shares could be artificially inflated due to a larger spread between the bid and ~~asked~~Impairment ~~quotes and lack~~ of ~~consistent trading in the market.~~Long-Lived Assets

The ~~fair~~Company ~~value~~follows the guidance of ~~share~~FASB ~~options~~ASC ~~and~~360-10-35-17 for ~~similar~~its ~~instruments~~long-lived isassets. ~~estimated~~The onCompany’s ~~the~~long-lived ~~date~~assets, ofwhich ~~grant~~include ~~using~~property aand ~~Black-Scholes~~equipment, ~~option-pricing~~are ~~valuation~~reviewed ~~model. The~~for ~~ranges~~impairment whenever events or changes in circumstances indicate that the carrying amount of ~~assumptions~~an ~~for~~asset ~~inputs~~may ~~are~~not asbe ~~follows:~~recoverable.

~~● Expected term of share options and similar instruments:~~ The ~~expected~~Company ~~life~~assesses ~~of options and similar instruments represents~~ the ~~period~~recoverability of ~~time~~its ~~the~~long-lived assets ~~option~~by ~~and/or~~comparing ~~warrant~~the ~~are~~projected ~~expected~~undiscounted tonet becash ~~outstanding.~~flows ~~Pursuant~~associated towith ~~Paragraph 718-10-50-2(f)(2)(i) of~~ the ~~FASB~~related ~~Accounting~~long-lived ~~Standards~~asset ~~Codification,~~or ~~the~~group ~~expected term~~ of ~~share~~long-lived assets ~~options~~over ~~and~~their ~~similar~~remaining ~~instruments~~estimated ~~represents~~useful ~~the~~lives ~~period~~against oftheir ~~time~~respective ~~the~~carrying ~~options~~amounts. ~~and~~Impairment, ~~similar~~if ~~instruments~~any, ~~are~~is ~~expected~~based toon ~~be outstanding taking into consideration of~~ the excess ~~contractual term~~ of the ~~instruments~~carrying ~~and~~amount ~~employees’~~over ~~expected exercise and post-vesting employment termination behavior into~~ the fair value ~~(or calculated value)~~ of ~~the~~those ~~instruments~~assets. Fair ~~Pursuant~~value tois ~~paragraph~~generally ~~718-10-S99-1,~~determined ~~it may be appropriate to use~~ using the ~~simplified~~asset’s ~~method, i.e.,~~ expected ~~term~~future =discounted ~~((vesting~~cash ~~term~~flows +or ~~original~~market ~~contractual term) / 2)~~value, if ~~(i)~~readily Adeterminable. If ~~company~~long-lived assets ~~does~~are ~~not~~determined ~~have sufficient historical exercise data~~ to ~~provide~~be arecoverable, ~~reasonable~~but ~~basis upon which to estimate expected term due to~~ the ~~limited~~newly ~~period~~determined ofremaining ~~time~~estimated ~~its~~useful ~~equity~~lives ~~shares~~are ~~have~~shorter ~~been~~than ~~publicly~~originally estimated, ~~traded; (ii) A company significantly changes~~ the ~~terms~~net ofbook ~~its~~values ~~share option grants or the types~~ of employees that receive share option grants such that its historical exercise data may no longer provide a reasonable basis upon which to estimate expected term; or (iii) A company has or expects to have significant structural changes in its business such that its historical exercise data may no longer provide a reasonable basis upon which to estimate expected term. The Company uses the ~~simplified~~long-lived ~~method~~assets toare ~~calculate~~depreciated ~~expected~~over ~~term of share options and similar instruments as~~ the ~~company~~newly ~~does~~determined ~~not~~remaining ~~have~~estimated ~~sufficient~~useful ~~historical exercise data to provide a reasonable basis upon which to estimate expected term~~lives.

●The ~~Expected~~impairment ~~volatility of the entity’s shares and the method used to estimate it. Pursuant to ASC Paragraph 718-10-50-2(f)(2)(ii)~~charges, aif ~~thinly-traded or nonpublic entity that uses the calculated value method shall disclose the reasons why it is not practicable for the Company to estimate the expected volatility of its share price~~any, the appropriate industry sector index that it has selected, the reasons for selecting that particular index, and how it has calculated historical volatility using that index. The Company uses the average historical volatility of the comparable companies over the expected contractual life of the share options or similar instruments as its expected volatility. If shares of a company are ~~thinly~~included ~~traded~~in ~~the~~operating expenses ~~use~~in ~~of weekly or monthly price observations would generally be more appropriate than~~ the ~~use~~accompanying ofstatements ~~daily price observations as the volatility calculation using daily observations for such shares could be artificially inflated due to a larger spread between the bid and asked quotes and lack~~ of ~~consistent trading in the market~~operations.

●Property ~~Expected annual rate of quarterly dividends. An entity that uses a method that employs different dividend rates during the contractual term shall disclose the range of expected dividends used~~ and the weighted-average expected dividends. The expected dividend yield is based on the Company’s current dividend yield as the best estimate of projected dividend yield for periods within the expected term of the share options and similar instruments.Equipment

●Property ~~Risk-free~~and ~~rate(s)~~equipment are recorded at cost. AnExpenditures for ~~entity~~major ~~that~~additions ~~uses~~and abetterments ~~method~~are ~~that~~capitalized. Maintenance ~~employs~~and ~~different~~repairs ~~risk-free~~are ~~rates~~charged ~~shall~~to ~~disclose~~operations ~~the~~as incurred. ~~range~~Depreciation ofis ~~risk~~computed by the straight-~~free~~line ~~rates~~method ~~used.~~(after ~~The~~taking ~~risk-free~~into ~~interest~~account ~~rate~~their isrespective ~~based~~estimated onresidual values) over the Uassets estimated useful life of three years.S. Upon ~~Treasury~~sale ~~yield~~or ~~curve~~retirement inof ~~effect~~property atand equipment, the ~~time~~related ofcost ~~grant~~and ~~for~~accumulated ~~periods~~depreciation ~~within~~are removed from the ~~expected~~accounts ~~term~~and ofany ~~the~~gain ~~share~~or ~~options~~loss ~~and~~is ~~similar~~reflected ~~instruments~~in the statements of operations.

~~The~~Derivative 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.Instruments

~~Equity~~We ~~Instruments~~generally ~~Issued~~do not use derivative financial instruments to ~~Parties~~hedge ~~Other~~exposures ~~Than~~to ~~Employees~~cash-flow ~~for~~risks ~~Acquiring~~or ~~Goods~~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 ~~Services~~(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.

~~The~~Determining ~~Company~~the ~~accounts~~fair ~~for~~value ~~equity~~of these complex derivative financial instruments ~~issued~~involves tojudgment ~~parties~~and ~~other~~the ~~than~~use ~~employees~~of ~~for~~certain ~~acquiring~~relevant ~~goods~~assumptions orincluding, ~~services~~but ~~under~~not ~~guidance~~limited ofto, ~~Sub-topic~~interest ~~505-50~~rates, volatility and conversion and redemption privileges. The use of ~~the~~different ~~FASB~~assumptions ~~Accounting~~could ~~Standards~~have ~~Codification~~a ~~(“Sub-topic~~material ~~505-50”)~~effect on the estimated fair value amounts.

~~Pursuant~~Research to ASC Section 505-50-30, all transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, 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. If shares of the Company are thinly traded the use of share prices established in the Company’s most recent PPM, or weekly or monthly price observations would generally be more appropriate than the use of daily price observations as such shares could be artificially inflated due to a larger spread between the bid and ~~asked quotes and lack of consistent trading in the market.~~Development

6Research 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.

~~The~~Revenue ~~fair~~Recognition ~~value of share options~~ and ~~similar~~Deferred ~~instruments is estimated on the date of grant using a Black-Scholes option-pricing valuation model. The ranges of assumptions for inputs are as follows:~~Revenue

●Revenues ~~Expected~~consist ~~term~~primarily of ~~share~~tuition ~~options~~ and ~~similar~~fees ~~instruments:~~derived ~~Pursuant~~from toonline courses ~~Paragraph~~taught ~~718-10-50-2(f)(2)(i)~~by ofCODESMART™ UNIVERSITY as well as from related educational resources that the ~~FASB~~University ~~Accounting~~provides ~~Standards~~to ~~Codification~~its students, ~~the~~such ~~expected~~as ~~term~~access ofto ~~share~~our ~~options~~online materials and ~~similar~~learning ~~instruments~~management ~~represents~~system. ~~the~~The Company provides online access to its students for a period of ~~time~~12 ~~the~~to ~~options~~18 ~~and~~months ~~similar~~subsequent ~~instruments~~to ~~are~~enrollment ~~expected~~in toonline becourses. Therefore, ~~outstanding~~the ~~taking~~Company ~~into~~has ~~consideration~~established such ofperiod as the ~~contractual~~amortization ~~term~~period of deferred revenues recorded for the ~~instruments~~enrollment ~~and~~of ~~holder’s~~online ~~expected~~courses. Accordingly, tuition ~~exercise~~revenue ~~behavior~~and ~~into~~most ~~the~~fees ~~fair~~from ~~value~~related ~~(or~~educational ~~calculated~~resources ~~value)~~are ofrecorded ~~the~~as ~~instruments.~~deferred ~~The~~revenue ~~Company~~and ~~uses~~amortized ~~historical~~into ~~data~~revenue toover a ~~estimate~~12 ~~holder’s~~to ~~expected~~18 ~~exercise~~month ~~behavior~~period. IfThe ~~the~~University ~~Company~~maintains isan ainstitutional ~~newly~~tuition ~~formed~~refund ~~corporation~~policy, orwhich ~~shares~~provides offor ~~the~~a ~~Company~~full ~~are~~refund ~~thinly~~within stated ~~traded~~refund ~~the~~periods. ~~contractual~~Certain ~~term~~states ofin ~~the~~which ~~share~~students ~~options~~reside ~~and~~impose ~~similar~~separate, ~~instruments~~mandatory isrefund ~~used~~policies, aswhich override the ~~expected~~University’s policy ~~term~~to ofthe ~~share~~extent ~~options~~in ~~and~~conflict. ~~similar~~If ~~instruments~~a asstudent withdraws within the ~~Company~~University’s ~~does~~allotted ~~not~~refund ~~have~~period, ~~sufficient~~then ~~historical~~in ~~exercise~~accordance with ~~data~~its torevenue ~~provide~~recognition apolicy, ~~reasonable~~the ~~basis~~University ~~upon~~will ~~which~~immediately toderecognize ~~estimate~~as ~~expected~~revenue ~~term~~the tuition that was originally recorded.

●Segment Expected annual rate of quarterly dividends. An entity that uses a method that employs different dividend rates during the contractual term shall disclose the range of expected dividends used and the weighted-average expected dividends. The expected dividend yield is based on the Company’s current dividend yield as the best estimate of projected dividend yield for periods within the expected term of the share options and similar instruments.Information

●ASC ~~Risk~~280-~~free~~10, ~~rate(s).~~“Disclosures Anabout ~~entity~~Segments ~~that~~of ~~uses~~an aEnterprise and ~~method~~Related ~~that~~Information,” ~~employs~~establishes ~~different~~standards ~~risk-free~~for ~~rates~~the ~~shall~~manner ~~disclose~~in ~~the~~which ~~range~~public ofcompanies ~~risk-free~~report ~~rates~~information ~~used~~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 ~~risk-free~~method ~~interest~~for ~~rate~~determining what information to report is based on the Uway management organizes the operating segments within the Company for making operating decisions and assessing financial performance.S. The ~~Treasury~~Company’s ~~yield~~chief ~~curve~~operating indecision-maker ~~effect~~is atconsidered to be the ~~time~~Company’s chief ofexecutive ~~grant~~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 ~~periods~~purposes ~~within~~of making operating decisions and assessing financial performance. The entity level financial information is identical to the ~~expected~~information ~~term~~presented in the accompanying consolidated statements of operations. Currently Management believes that the business ~~share~~operations ~~options~~are all contained in one segment and ~~similar~~Management ~~instruments~~will continue to evaluate their reporting in the future.

~~Pursuant~~Exit tofrom ~~ASC~~Development paragraph 505-50-25-7, if fully vested, non-forfeitable equity instruments are issued at the date the grantor and grantee enter into an agreement for goods or services (no specific performance is required by the grantee to retain those equity instruments), then, because of the elimination of any obligation on the part of the counterparty to earn the equity instruments, a measurement date has been reached. A grantor shall recognize the equity instruments when they are issued (in most cases, when the agreement is entered into). Whether the corresponding cost is an immediate expense or a prepaid asset (or whether the debit should be characterized as contra-equity under the requirements of paragraph 505-50-45-1) depends on the specific facts and circumstances. Pursuant to ASC paragraph 505-50-45-1, a grantor may conclude that an asset (other than a note or a receivable) has been received in return for fully vested, non-forfeitable equity instruments that are issued at the date the grantor and grantee enter into an agreement for goods or services (and no specific performance is required by the grantee in order to retain those equity instruments). Such an asset shall not be displayed as contra-equity by the grantor of the equity instruments. The transferability (or lack thereof) of the equity instruments shall not affect the balance sheet display of the asset. This guidance is limited to transactions in which equity instruments are transferred to other than employees in exchange for goods or services. Section 505-50-30 provides guidance on the determination of the measurement date for transactions that are within the scope of this Subtopic.Stage

~~Pursuant~~The toCompany ~~Paragraphs~~was in ~~505-50-25-8~~the ~~and~~development ~~505-50-25-9,~~stage anas ~~entity may grant fully vested, non-forfeitable equity instruments that are exercisable~~ defined by ~~the~~ASC ~~grantee~~915 ~~only~~“Development ~~after~~Stage ~~a specified period of time if the terms of the agreement provide for earlier exercisability if the grantee achieves specified performance conditions~~Entities.” ~~Any~~A ~~measured~~development ~~cost~~stage ofenterprise ~~the~~is ~~transaction~~one ~~shall be recognized~~ in ~~the~~which ~~same~~planned ~~period(s)~~ and inprincipal ~~the~~operations have ~~same~~not ~~manner~~commenced ~~as if the entity had paid cash for the goods~~ or ~~services or used cash rebates as a sales discount instead of paying with~~, orif ~~using,~~its ~~the~~operations ~~equity~~have ~~instruments. A recognized asset~~commenced, ~~expense,~~there orhas ~~sales~~been ~~discount~~no ~~shall~~significant ~~not~~revenue bethere ~~reversed~~from. ifThe aCompany ~~stock~~exited ~~option that~~ the development ~~counterparty~~stage ~~has~~on ~~the~~May ~~right~~3, ~~to exercise expires unexercised~~2013.

~~Pursuant to ASC paragraph 505~~Stock-~~50-30-S99-1,~~Based ifEmployee the Company receives a right to receive future services in exchange for unvested, forfeitable equity instruments, those equity instruments are treated as unissued for accounting purposes until the future services are received (that is, the instruments are not considered issued until they vest). Consequently, there would be no recognition at the measurement date and no entry should be recorded.Compensation

7On 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.

The Company accounts for stock-based compensation in accordance with ASC Topic 718, “Accounting for Stock-Based Compensation” established financial accounting and reporting standards for stock-based employee compensation. It defines a fair value based method of accounting for an employee stock option or similar equity instrument. The Company accounts for compensation cost for stock option plans in accordance with ASC 718. The Company accounts for share based payments to non-employees in accordance with ASC 505-50 “Accounting for Equity Instruments Issued to ~~Non-Employees~~Parties Other Than Employees for Acquiring, ~~or in Conjunction with Selling,~~ Goods or Services”.

The Company ~~recognizes~~accounts ~~all~~for ~~forms~~equity instruments issued to parties other than employees for acquiring goods or services in accordance with the guidance of ~~share~~FASB ASC 505-50-30. Transactions in which there is issuance of equity instruments for goods or services are accounted for based ~~payments,~~on ~~including~~the ~~stock~~fair ~~option~~value ~~grants,~~of ~~warrants~~the ~~and~~consideration ~~restricted~~received for ~~stock~~the ~~grants~~fair value of the equity instrument issued, ator ~~their~~whichever is more reliably measurable. The measurement date used to determine the fair value onof the ~~grant~~equity instrument issued is the earlier of the date, on which ~~are~~the ~~based~~performance onis complete or the ~~estimated~~date ~~number~~on ofwhich ~~awards~~it ~~that~~is ~~are~~probable ~~ultimately~~that ~~expected~~performance towill ~~vest~~occur.

~~Off~~Loss ~~Balance~~Per ~~Sheet Arrangements:~~Share

We docompute ~~not~~loss ~~have~~per ~~any~~share ~~off-balance~~in ~~sheet~~accordance ~~arrangements,~~with ~~financings~~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), oradjusted ~~other~~for ~~relationships~~changes ~~with~~in ~~unconsolidated~~loss ~~entities~~that resulted from the assumed conversion or ~~other~~exercise ~~persons~~of potentially dilutive securities, by ~~also~~the ~~known~~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 ~~“special~~well ~~purpose~~as ~~entities”~~shares ~~(SPEs)~~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.

810

~~ITEM~~As 3of 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. ~~QUANTITATIVE~~On June ~~AND~~30, ~~QUALITATIVE~~2014 ~~DISCLOSURES~~and ~~ABOUT~~December ~~MARKET~~31, ~~RISK~~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.

WeIncome ~~are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.~~Taxes

~~ITEM~~The 4Company accounts for income taxes in accordance with FASB ASC 740 - Income Taxes. ~~CONTROLS~~Deferred ~~AND~~income ~~PROCEDURES~~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.

~~Evaluation~~The Company follows the guidance of ~~Disclosure~~FASB ~~Controls~~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 ~~Procedures~~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.

~~Our~~The ~~management~~estimated isfuture ~~responsible~~tax ~~for~~effects ~~establishing~~of ~~and~~temporary ~~maintaining~~differences between ~~adequate~~the ~~internal~~tax ~~control~~basis ~~over~~of ~~financial~~assets ~~reporting.~~and ~~Internal~~liabilities ~~control~~are ~~over~~reported ~~financial reporting is defined~~ in ~~Rule 13a-15(f) or 15d-15(f) promulgated under~~ the ~~Securities~~accompanying ~~Exchange~~consolidated ~~Act~~balance ofsheets, ~~1934~~ as awell ~~process~~as ~~designed~~tax ~~by,~~credit carry-backs ~~or under the supervision of, the Company’s principal executive~~ and ~~principal~~carry-forwards. ~~financial~~The ~~officers and effected by the~~ Company’s ~~board~~periodically ofreviews ~~directors, management and other personnel, to provide reasonable assurance regarding~~ the ~~reliability~~recoverability of ~~financial~~deferred ~~reporting~~tax ~~and~~assets ~~the~~recorded ~~preparation~~on ofits ~~financial~~consolidated balance ~~statements~~sheets ~~for external purposes in accordance with accounting principles generally accepted in the United States of America~~ and ~~includes~~provides ~~those~~valuation ~~policies~~allowances ~~and~~as ~~procedures~~management ~~that:~~deems necessary.

●Management ~~Pertain~~makes judgments as to the ~~maintenance~~interpretation of ~~records~~the tax laws that inmight ~~reasonable~~be ~~detail~~challenged ~~accurately~~upon an audit and ~~fairly~~cause ~~reflect~~changes to previous estimates of tax liability. In addition, the ~~transactions~~Company operates within multiple taxing jurisdictions and ~~dispositions~~is ofsubject ~~the~~to ~~assets~~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 ~~the~~reserves ~~Company;~~may be necessary.

●The ~~Provide~~Company ~~reasonable~~has ~~assurance~~yet ~~that transactions are recorded as necessary~~ to ~~permit~~prepare ~~preparation~~or offile ~~financial~~their ~~statements~~income intax ~~accordance~~returns for ~~with accounting principles generally accepted in~~ the ~~United~~years ~~States~~ended ofDecember ~~America~~31, 2013 and ~~that~~December ~~receipts~~31, ~~and~~2012. ~~expenditures~~The ofreturns ~~the~~are ~~company~~still ~~are~~subject ~~being~~to ~~made~~review ~~only~~by inthe ~~accordance~~Internal ~~with~~Revenue ~~authorizations~~Service and ofNew ~~management~~York ~~and~~State ~~directors~~Department of ~~the~~Taxation ~~company;~~ and Finance.

●Recently ~~Provide~~Issued ~~reasonable~~Accounting ~~assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.~~Pronouncements

~~Because~~The ofFASB ~~its~~has ~~inherent~~recently ~~limitations,~~issued ~~internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to~~ the ~~risk~~following ~~that~~Accounting controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Because of the inherent limitations of internal control, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.Standards Updates:

AsUpdate ofNo. ~~September~~2014-07—Consolidation ~~30,~~(Topic ~~2013,~~810): ~~management~~Applying Variable ~~assessed~~Interest ~~the~~Entities ~~effectiveness~~Guidance ofto ~~our~~Common ~~internal control over financial reporting based on the criteria for effective internal control over financial reporting established in Internal~~ Control~~--Integrated~~ ~~Framework~~Leasing ~~issued~~Arrangements ~~by the Committee of Sponsoring Organizations of the Treadway Commission~~ (~~“COSO”)~~a ~~and~~consensus SEC guidance on conducting such assessments. Based on that evaluation, they concluded that, during the period covered by this report, such internal controls and procedures were not effective to detect the inappropriate application of ~~US GAAP rules as more fully described below. This was due to deficiencies that existed in~~ the ~~design~~Private orCompany ~~operation of our internal controls over financial reporting that adversely affected our internal controls and that may be considered to be material weaknesses.~~Council)

~~The~~Update ~~matters~~No. ~~involving~~2014-06—Technical ~~internal~~Corrections ~~controls~~ and ~~procedures~~Improvements Related ~~that our management considered~~ to beGlossary material weaknesses under the standards of the Public Company Accounting Oversight Board were: (1) lack of a functioning audit committee due to a lack of a majority of independent members and a lack of a majority of outside directors on our board of directors, resulting in ineffective oversight in the establishment and monitoring of required internal controls and procedures; (2) inadequate segregation of duties consistent with control objectives; and (3) ineffective controls over period end financial disclosure and reporting processes. The aforementioned material weaknesses were identified by our Chief Executive Officer in connection with the review of our financial statements as of September 30, 2013.Terms

~~Management~~Update ~~believes~~No. ~~that~~2014-05—Service ~~the~~Concession ~~material weaknesses set forth in items~~ Arrangements (2)Topic ~~and (3~~853) ~~above did not have an effect on our financial results. However, management believes that the lack of~~ (a ~~functioning~~consensus ~~audit committee and the lack~~ of ~~a majority of outside directors on our board of directors results in ineffective oversight in~~ the ~~establishment~~FASB ~~and~~Emerging ~~monitoring~~Issues ofTask ~~required internal controls and procedures, which could result in a material misstatement in our financial statements in future periods.~~Force)

~~Management’s~~Update ~~Remediation~~No. ~~Initiatives~~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)

InUpdate anNo. ~~effort~~2014-03—Derivatives ~~to remediate the identified material weaknesses~~ and ~~other~~Hedging ~~deficiencies~~(Topic ~~and~~815): Accounting ~~enhance~~for ~~our~~Certain ~~internal controls~~Receive-Variable, wePay-Fixed ~~have~~Interest ~~initiated,~~Rate Swaps—Simplified orHedge ~~plan~~Accounting toApproach ~~initiate,~~(a consensus of the ~~following~~Private ~~series~~Company ~~of measures:~~Council)

We will create a position to segregate duties consistent with control objectives and will increase our personnel resources and technical accounting expertise within the accounting function when funds are available to us. And, we plan to appoint one or more outside directors to our board of directors who shall be appointed to an audit committee resulting in a fully functioning audit committee who will undertake the oversight in the establishment and monitoring of required internal controls and procedures such as reviewing and approving estimates and assumptions made by management when funds are available to us.11

~~Changes~~Update inNo. ~~Internal~~2014-02—Intangibles—Goodwill ~~Control~~and ~~over~~Other (Topic ~~Financial~~350): ~~Reporting~~Accounting for Goodwill (a consensus of the Private Company Council)

~~Our~~Update ~~management~~No. ~~has~~2014-01—Investments—Equity ~~also~~Method and ~~evaluated~~Joint ~~our~~Ventures ~~internal~~(Topic ~~control~~323): ~~over~~Accounting ~~financial reporting, and except~~ for ~~below,~~Investments ~~there have been no significant changes~~ in ~~our~~Qualified ~~internal~~Affordable ~~controls~~Housing orProjects in(a ~~other~~consensus ~~factors that could significantly affect those controls subsequent to the date~~ of ~~our last evaluation. On October 31, 2013,~~ the ~~board~~FASB ofEmerging Issues ~~directors~~Task ~~of the Company appointed Mr. Diego E. Roca as its interim Chief Financial Officer.~~Force)

~~The~~We ~~Company~~have isreviewed ~~not~~the ~~required~~above bypronouncements, ~~current~~as ~~SEC~~well ~~rules~~all toother recently ~~include~~issued standards, and ~~does~~have ~~not~~determined ~~include,~~that anthey ~~auditor's~~will ~~attestation~~not ~~report.~~have ~~The~~a ~~Company's~~material ~~registered~~impact ~~public~~on ~~accounting~~our ~~firm~~consolidated ~~has~~financial statements, or do not ~~attested~~apply to ~~Management's~~our ~~reports on the Company's internal control over financial reporting~~operations.

9Note 3 Property and Equipment

~~PART~~Property IIand -equipment ~~OTHER~~is ~~INFORMATION~~stated at cost, less accumulated depreciation:

ITEM 1. LEGAL PROCEEDINGS

	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

WeDepreciation ~~know of no material~~expense, ~~existing~~which oris ~~pending~~recognized ~~legal~~over ~~proceedings~~the ~~against~~estimated ~~our~~useful life ~~company,~~of ~~nor~~the ~~are~~equipment weof ~~involved~~three asyears, awas ~~plaintiff~~$833 inand ~~any~~$278 ~~material~~for ~~proceeding~~the orsix ~~pending~~months ~~litigation.~~ended ~~There~~June ~~are no proceedings in which our director~~30, ~~officer~~2014 orand ~~any affiliates~~2013, ~~or any registered or beneficial shareholder, is an adverse party or has a material interest adverse to our interest~~respectively.

~~ITEM~~Note 5 ~~1A.~~Secured ~~RISK~~Convertible ~~FACTORS~~Promissory Notes and Warrants

WeFrom 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 ~~smaller~~percentage ~~reporting~~of ~~company~~recent asmarket ~~defined~~prices byfor ~~Rule~~our ~~12b-2~~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 ~~Securities~~event ~~Exchange~~of ~~Act~~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 ~~1934~~the Note, the conversion price adjusts to that lower amount. In connection with these financings, we have paid placement agent and ~~are~~other ~~not~~fees ~~required~~and certain Notes were issued with original issue discount. In certain instances, we have also issued warrants, exercisable for our common stock, to ~~provide~~the investors or the ~~information~~placement ~~under~~agents. ~~this~~None ~~item~~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.

~~ITEM~~The 2terms 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, ~~UNREGISTERED~~the ~~SALES~~embedded OFderivative ~~EQUITY~~instruments in ~~SECURITIES~~the ~~AND~~Notes, ~~USE~~consisting OFprimarily ~~PROCEEDS~~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.

~~On August 20, 2013, M1 Capital Advisors received a total of 31,250 shares of Common Stock as compensation for its services delivered in the Third PIPE.~~12

OnThe ~~August~~allocation ~~20,~~of ~~2013,~~the ~~Axiom~~proceeds ~~Capital Management, Inc. (“Axiom”)~~ received afor ~~total 44,964 shares of Common Stock pursuant to a Settlement Agreement among~~ the ~~Company,~~Notes ~~CodeSmart~~issued in NV2014 and ~~Axiom,~~2013 ~~dated~~is ~~July~~summarized ~~3, 2013.~~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

OnIn ~~October~~circumstances ~~18,~~where ~~2013,~~the ~~Sonoma~~fair ~~Med~~values ~~Leasing,~~of LPthe ~~(“Sonoma”)~~separated ~~received~~embedded derivative ainstrument ~~total~~recognized ofand/or ~~750,000~~the ~~shares~~warrants ofissued, ~~Common~~exceeded ~~Stock~~the innet ~~consideration~~proceeds ~~for~~received, ~~Sonoma’s~~a ~~investor~~derivative ~~relations~~expense ~~consulting~~is ~~and~~recognized. The initial ~~advisory~~carrying ~~services~~amounts toof the ~~Company~~Notes ~~pursuant~~are then accreted to antheir IRredemption ~~Consulting~~values, ~~Agreement~~including ~~entered~~accrued ~~between~~interest ~~the~~thereon ~~Company~~at ~~and~~the ~~Sonoma~~stated rate, ~~dated~~using ~~October~~an ~~17,~~effective ~~2013~~interest method.

OnWe ~~October~~issued ~~18,~~Notes ~~2013,~~on ~~Max~~April ~~Kahn~~15, ~~received~~2013 aand ~~total~~April ~~of 67~~24,~~500~~ ~~shares~~2013 ofwhich bore ~~Common~~interest ~~Stock~~at in10% ~~consideration~~per ~~for Mr~~annum. On ~~Kahn’s~~July ~~business~~10, ~~development~~2013 ~~consulting~~ and ~~advisory~~June ~~services~~14, to2013 the ~~Company~~total ~~pursuant~~amounts todue afor ~~Business~~the ~~Development~~Notes ~~Consulting~~including accrued ~~Agreement~~interest ~~entered~~were ~~between~~converted by the ~~Company~~holders ~~and~~into ~~Max~~179,180 ~~Kahn~~and 139,448 ~~dated~~shares ~~October~~of 18our common stock, ~~2013~~respectively.

OnA ~~October~~Note 29issued to Gerald Hickson on November 26, 2013, ~~the~~included above, ~~Company~~was ~~issued~~repaid towith apayments ~~total~~ of 30$50,000 ~~shares~~on ofDecember ~~Common Stock to Lucosky Brookman~~19, ~~LLP~~2013 and ~~its~~January ~~designees~~13, as2014. ~~compensation~~On ~~for~~January ~~its~~9, ~~past~~2014, ~~legal services to~~ the Company ~~pursuant~~issued to25,000 shares anof ~~engagement~~its ~~agreement~~common ~~between~~stock ~~CodeSmart~~which NVrepresented ~~and~~interest ~~Lucosky~~due ~~Brookman,~~as ~~LLP~~of ~~dated~~December ~~March 12~~26, 2013.

~~All~~We ofissued ~~the~~Notes ~~above~~on ~~issuances~~December of13, ~~shares~~2013 ofand ~~our~~January ~~Common~~10, ~~Stock~~2014. The ~~were~~fees ~~conducted~~deducted inand ~~accordance~~OID ~~with~~included anabove ~~exemption~~consists ~~from~~of ~~the~~$11,838 ~~registration~~and ~~requirements~~$47,358 offor the ~~Securities~~fair ~~Act~~value of ~~1933~~17,499 asand ~~amended~~17,499 ~~under~~common ~~Section~~stock ~~4(2)~~warrants issued byto ~~virtue of compliance with~~ the ~~provisions~~placement ofagent, ~~Regulation D under the Securities Act~~respectively.

~~ITEM~~On 3April 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. ~~DEFAULTS~~Pursuant ~~UPON~~to ~~SENIOR~~the ~~SECURITIES~~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.

~~None~~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.

~~ITEM 4. MINE SAFETY DISCLOSURE~~13

~~Not~~The ~~applicable.~~Notes outstanding at June 30, 2014, their interest rates, accrued interest and carrying amounts were as follows:

ITEM 5. OTHER INFORMATION

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

~~None.~~14

~~ITEM~~The ~~6. EXHIBITS~~Notes outstanding at December 31, 2013, their interest rates, accrued interest and carrying amounts were as follows:

Exhibit Number	Description of Exhibit	Filing Reference
Issued	Due Date	Face Amount		Accrued Interest Due		Effective Interest Recognized		Carrying Amount		Stated Interest Rate			Default Interest Rate
31.01	Certification of Principal Executive Officer Pursuant to Rule 13a-14.	Filed herewith.
August 29, 2013	August 29, 2014	$	150,000	$	4,110	$	7,471	$	7,471		8	%		18	%
31.02	Certification of Principal Financial Officer Pursuant to Rule 13a-14.	Filed herewith.
November 26, 2013	February 24, 2014		50,000		1,616		80,736		14,236		20	%		20	%
32.01	CEO and CFO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act.	Filed herewith.
December 13, 2013	December 12, 2014		194,444		19,444		2,521		2,521		10	%		18	%
101.INS	XBRL Instance Document.
December 19, 2013	September 19, 2014		225,000		789		2,678		2,678		10	%		22	%
101.SCH	XBRL Taxonomy Extension Schema Document.
December 19, 2013	September 20, 2014		153,500		437		2,089		38,476		8	%		22	%
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document.
								$	65,382
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document.
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

*As ~~The XBRL-related information in Exhibits 101 to this Quarterly Report on Form 10-Q shall not be deemed “filed” or a part~~ of aJune ~~registration~~30, ~~statement~~2014, orthe ~~prospectus~~fair ~~for~~value ~~purposes~~ of ~~Sections 11 or 12 of~~ the ~~Securities~~embedded ~~Act~~derivative instrument ofin ~~1933,~~each ~~as amended~~Note, ~~and~~the iseffective ~~not~~conversion ~~filed~~price ~~for purposes~~ of ~~Section~~each 18Note ofand the ~~Securities~~number ~~Exchange Act~~ of ~~1934,~~common asshares ~~amended,~~into orwhich ~~otherwise~~each ~~subject~~Note, toincluding accrued ~~the~~interest, ~~liabilities~~was ofconvertible ~~those~~were ~~sections.~~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

~~SIGNATURES~~15

~~Pursuant~~In toconnection with the ~~requirements~~issuance of ~~Section 13 or 15(d) of~~ the ~~Securities Exchange Act of 1934~~Notes, ~~the~~we ~~Registrant~~also ~~caused~~issued common ~~this~~stock ~~report~~warrants to beinvestors ~~signed~~or onto ~~its behalf by~~ the ~~undersigned~~placement agents, ~~thereunto~~as ~~duly authorized.~~follows:

	CODESMART HOLDINGS, INC.
Financing Date		Warrants Issued To	Number of Warrants		Expiration Date	Fair Value at Issuance		Fair Value at June 30, 2014		Exercise Price
Dated: November 26, 2013	/s/ Ira Shapiro
December 13, 2013		Placement agent		17,499	December 13, 2016	$	11,838	$	555	$	1.00
	By: Ira Shapiro
December 19, 2013		Investors		187,500	December 31, 2018		124,357		7,463		0.40
	Title: Chief Executive Officer
January 10, 2014		Placement agent		17,499	January 10, 2017		18,417		1,448		0.40
						$	154,792	$	9,466

11The 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.

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.

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

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

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.

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

Filing Compare · CODESMART HOLDINGS, INC.