INFORMATION
STATEMENT
To
the Shareholders of Source Financial, Inc.:
Source
Financial, Inc. (“SFI”) has entered into an agreement and plan of merger with CSES Group, Inc. (“CSES”),
under which CSES will be merged with our subsidiary, CSES Acquisition, Inc. In the merger, each outstanding share of common stock
of CSES will be converted into 10.65375 shares of our common stock (the “Exchange Ratio”) and each outstanding warrant
and option to purchase CSES shares will be cancelled in exchange for a warrant or option to purchase shares of our common stock
based on the Exchange Ratio. As a result of the merger, the former stockholders of CSES will own approximately 76.60% of the shares
of our common stock to be outstanding immediately following the merger. Our current stockholders will own approximately 23.40%
of our outstanding shares. These percentages do not give effect to any outstanding warrants, options or a convertible note.
The
agreement and plan of merger with CSES was first approved by Edward DeFeudis, our sole director, on January 24, 2017. Under Delaware
law, our stockholders need not approve the agreement.
In
order to facilitate the merger, on January 24, 2017, Mr. DeFeudis, who owns 63.12% of our voting power, approved an amendment
to our certificate of incorporation to be effected concurrently with the completion of the merger. The amendment will:
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increase
the authorized number of shares of our common stock from 12,000,000 to 500,000,000 shares
and the number of shares of our preferred stock from 10,000 to 10,000,000 shares; and
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change
our corporate name from Source Financial, Inc. to Alltemp, Inc.
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No
further stockholder approval is required.
This
Information Statement is being mailed to our stockholders on February __, 2017. In accordance with applicable Securities and Exchange
Commission regulations, the amendment to our certificate of incorporation will not be effected until at least 20 calendar days
after this Information Statement is sent or given to stockholders. The amendment will not be effected if the merger with CSES
fails to occur for any reason.
We
are delivering only one copy of this Information Statement to stockholders sharing an address unless we have received contrary
instructions from one or more of the stockholders. If you share an address with another stockholder and wish to receive a separate
copy of this Information Statement, please write to Edward DeFeudis, our Chairman of the Board and Chief Executive Officer, at
our address above, and we will promptly send you a separate copy. Shareholders sharing an address also can request either a single
copy or multiple copies of all future annual reports, proxy statements and information statements by contacting Mr. DeFeudis.
WE
ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY.
February
__, 2017
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Sincerely,
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Edward
DeFeudis
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Chief
Executive Officer
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TABLE
OF CONTENTS
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Page
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SUMMARY
TERM SHEET
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1
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MERGER
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6
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OTHER
CONSIDERATIONS
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10
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MARKET
PRICE AND DIVIDEND INFORMATION
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15
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INFORMATION
REGARDING SOURCE FINANCIAL, INC
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15
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HISTORY
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16
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BUSINESS
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16
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MARKET
OVERVIEW
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16
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MARKET
OPPORTUNITY
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17
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THE
COMPETITIVE ENVIRONMENT
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18
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SALES
AND DISTRIBUTION STRATEGY
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19
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MANUFACTURING,
RESEARCH AND DEVELOPMENT FACILITIES
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19
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INTELLECTUAL
PROPERTY
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19
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CSES
MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
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20
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SFI
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
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23
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SFI
MANAGEMENT
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23
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CSES
MANAGEMENT
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24
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SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
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26
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DESCRIPTION
OF THE AMENDMENT
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27
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UNAUDITED
PRO FORMA COMBINED FINANCIAL STATEMENTS
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29
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EXPERTS
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29
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WHERE
YOU CAN FIND MORE INFORMATION
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29
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PRO
FORMA FINANCIAL STATEMENTS
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F-1
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CSES
FINANCIAL STATEMENTS
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F-7
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APPENDIX
A - Agreement and Plan of Merger
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A-1
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APPENDIX
B - Certificate of Amendment to Certificate of Incorporation
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B-1
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SUMMARY
TERM SHEET
The
following summary highlights, in question and answer format, the principal terms and provisions of the merger with CSES and other
selected matters that are discussed more fully elsewhere in this Information Statement. This summary does not contain all of the
information that may be important to you. You should read in their entirety this Information Statement and the other documents
included or referred to in this Information Statement in order to fully understand the merger with CSES and the other matters
discussed in this Information Statement.
The
Parties
Q: WHO
ARE THE PARTIES TO THE MERGER?
A: The
parties to the agreement and plan of merger, dated as of January 19, 2017 are SFI, CSES and CSES Acquisition, Inc.
SFI
is a corporation organized under the laws of Delaware. Our principal executive offices are located at 604 Arizona Avenue, Santa
Monica, California 90401, and our telephone number is (424) 322-2201. Quotations for our common stock are available on the OTCQX
under the symbol “SRCF,” but historically there has been limited trading volume in our common stock.
CSES
Group, Inc. is a privately held corporation organized under the laws of Nevada. CSES has developed a proprietary refrigerant technology
that management believes is a replacement for many refrigerants that have detrimentally affected the global environment. CSES’s
principal executive office is located at 441 Nandy Drive, Roseburg, Oregon 97471, and its telephone number is (855) 687-4267.
CSES
Acquisition, Inc. is a corporation organized under the laws of Nevada. It is a wholly owned subsidiary of SFI formed solely for
purposes of facilitating the merger with CSES. It has no significant assets and is not engaged in any business or operations apart
from its participation in the merger. It shares the principal executive offices and telephone number with those of SFI.
References
in this Information Statement to “we,” “our” and “us” refer to SFI and its subsidiary.
The
Information Statement
Q: WHY
AM I RECEIVING THIS INFORMATION STATEMENT?
A. It
is for your information only. The amendment to our certificate of incorporation was approved on January 24, 2017 by written consent
of Edward DeFeudis, the holder of 63.12% of our voting power. In order to avoid costs, we did not solicit consents from all our
stockholders in connection with the approval of the amendment. Under these circumstances, federal securities laws require us to
furnish you with this Information Statement at least 20 calendar days before effecting the amendment.
Q: WHY
WAS THE AMENDMENT ADOPTED?
A: The
amendment to our certificate of incorporation was adopted for the principal purpose of facilitating the merger of our company
with CSES, and will be effected concurrently with the completion of the merger. If the merger does not occur, the amendment will
be void.
Q: WHAT
WILL THE AMENDMENT DO?
A: We
currently have 12,000,000 shares of common stock authorized for issuance, of which 10,748,884 shares are outstanding and the remaining
1,251,116 shares are available for issuance. We also have authorized 10,000 shares of Preferred Stock of which 2,082 shares are
outstanding. In the merger, we will issue a maximum of approximately 127,045,969 shares of our common stock to the current shareholders
of CSES and reserve a maximum of approximately 50,903,617 additional shares for issuance upon the exercise of warrants, stock
options and a convertible note that we will issue in the merger in exchange for outstanding warrants, options and the convertible
note to purchase shares of CSES common stock. We also are required to issue an additional 7,653,464 shares in connection with
the conversion of our outstanding preferred shares and notes and 20,404,987 shares in connection with a consulting agreement.
At present, therefore, we do not have sufficient available authorized shares to complete the merger. The principal purpose of
the amendment to our certificate of incorporation is to increase our authorized shares (to 500,000,000 shares) for this purpose.
We also will increase the authorized shares of preferred stock from 10,000 to 10,000,000. We have no present commitment to issue
any shares of common or preferred stock other than in connection with the merger. We also plan to adopt a new stock option plan.
It is likely that we will issue additional shares of common stock and/or preferred stock in the future in connection with financings,
strategic transactions and for compensatory purposes.
The
amendment to our certificate of incorporation also will change our corporate name to “Alltemp, Inc.” to reflect that,
as a result of the merger, we will succeed to the business and operations of CSES.
Q: AM
I BEING ASKED TO APPROVE THE AMENDMENT?
A: No.
The amendment has been approved by the holders of a majority of our outstanding voting power. No further stockholder approval
of the amendment is required.
The
Merger
Q: WHY
IS THE MERGER DESCRIBED AT LENGTH?
A: The
federal securities laws require that we distribute this Information Statement to our stockholders in connection with the adoption
of the amendment to our certificate of incorporation. Since the amendment was adopted principally to facilitate the merger, in
order to understand the amendment, it is important for you to be fully informed about the merger.
Q: WHAT
IS THE MERGER?
A: We
have agreed to a merger in which the shares of CSES common stock held by its shareholders will be converted into shares of our
common stock. The merger will be accomplished as a merger of CSES with CSES Acquisition, Inc., a new wholly owned subsidiary of
SFI formed for this purpose, in which CSES will be the surviving corporation. As a result of the merger, CSES will become our
wholly owned subsidiary, we will change our name to “Alltemp, Inc.” and we will succeed to the business, assets and
liabilities of CSES and own and operate its business and assets following the merger.
Q: AM
I BEING ASKED TO APPROVE THE MERGER?
A: No.
Under Delaware law, stockholder approval of the merger is not required.
Q: WHAT
WILL CSES STOCKHOLDERS RECEIVE IN THE MERGER?
A: In
the merger, each outstanding share of common stock of CSES will be converted into 10.65375 shares of our common stock.
Q: HOW
WILL CSES WARRANTS AND OPTIONS BE TREATED IN THE MERGER?
A: As
part of the merger, all of the outstanding stock purchase warrants and stock options of CSES will be cancelled in exchange for
warrants and options to purchase a number of shares of our common stock and at the exercise prices based on the Exchange Ratio
and otherwise on the same terms as the CSES warrants and options. We also issue a new note for an existing CSES convertible note,
convertible into shares of our common stock based on the Exchange Ratio.
Q: WILL
THE EXCHANGE RATIO CHANGE?
A: No.
There is no provision in the merger agreement for changing the exchange ratio of 10.65375 shares of our common stock (or warrant
or option) for each share of CSES common stock (or CSES warrant or option).
Q: WHAT
PERCENTAGE OF OUR COMMON STOCK WILL BE ACQUIRED BY CSES STOCKHOLDERS IN THE MERGER?
A: Based
upon 38,807,335 shares of our common stock to be outstanding prior to the merger (after the conversion of our outstanding preferred
stock and issuance of shares for consulting services), and assuming that 11,925,000 shares of common stock of CSES will be outstanding,
the stockholders of CSES will receive in the merger 127,045,969 shares of our common stock (exclusive of derivative securities),
representing approximately 76.60% of our common stock outstanding immediately following the merger.
Q: DOES
THIS PERCENTAGE GIVE EFFECT TO WARRANTS AND OPTIONS?
A: No.
CSES currently has outstanding warrants to purchase an aggregate of approximately 1,728,000 shares of CSES common stock at a weighted-average
exercise price of approximately $7.13 per share and options to purchase an additional 2,815,910 shares of CSES common stock at
a weighted-average exercise price of approximately $2.15 per share.
As
part of the merger, the outstanding stock purchase warrants and stock options of CSES (and a convertible note) will be cancelled
in exchange for warrants and options (and a note to purchase shares of our common stock) with the number thereof and the date
exercise/conversion prices based on the Exchange Ratio and otherwise on the same terms as the CSES warrants and options (and note).
Q: HOW
WILL OUR SHARES BE TREATED IN THE MERGER?
A: Our
outstanding shares of common stock will remain outstanding after the merger and will not be directly affected by it; however,
the percentage ownership of our current stockholders will be substantially diluted as described above. Since we will carry on
CSES’s business following the merger, our current stockholders will have an ownership interest in CSES’s business
following the merger.
Q: WHO
WILL BE OUR DIRECTORS AND EXECUTIVE OFFICERS AFTER THE MERGER?
A: Edward
DeFeudis, our sole director and executive officer, has agreed to resign as a director and executive officer upon completion of
the merger, and to appoint the current directors and executive officers of CSES to serve as our directors and executive officers.
See “MANAGEMENT - CSES; Directors and Executive Officers” for information regarding CSES’s directors and executive
officers.
Q: ARE
THERE CONDITIONS TO THE MERGER?
A: Yes.
The completion of the merger is subject to several conditions, the most significant of which is that this Amendment be effective.
This and the other conditions to the merger are described under the caption “THE MERGER - Conditions to the Merger”.
Q: CAN
THE CONDITIONS TO THE MERGER BE WAIVED?
A: Yes.
Q: WHEN
WILL THE MERGER BE COMPLETED?
A: We
expect the merger to be completed on or about February __,2017, assuming the conditions to the merger have been satisfied or waived.
It is possible, however, that one or more conditions to the merger will not be satisfied and that it will not be completed. This
and other considerations are described under the caption “FURTHER CONSIDERATIONS”.
Q: WHY
IS THE MERGER BEING UNDERTAKEN?
A: Our
sole director, Edward DeFeudis, approved the merger with CSES because our plan was to acquire several early stage companies with
attractive growth potential, find financing for them and then sell them at a profit. However, we were introduced to CSES which
we believe to have a strong management team, promising technology and a net worth to obtain financing and new business. By merging
with CSES, our stockholders will be able to participate in CSES’s emerging refrigerant business.
CSES
agreed to the merger in order to acquire our status as a reporting company under the federal securities laws, which CSES believes
may facilitate raising the capital necessary to fund its ongoing product development activities and other operations. CSES also
believes that becoming a public company may assist in attracting and retaining additional qualified executives and other professional
personnel as its business expands.
Q: ARE
CSES’S BUSINESS, PROSPECTS AND FINANCIAL CONDITION RELEVANT TO A CONSIDERATION OF THE MERGER?
A: Yes.
In determining to approve the merger, our sole director and executive officer considered CSES’s business, prospects and
financial condition. We may discontinue or transfer out our current app development business after the merger. Following the merger,
we will carry on CSES’s business and our stockholders will continue to hold their shares of our common stock, so CSES’s
business, prospects and financial condition also are relevant to your understanding of the merger.
Q: HOW
WERE THE MERGER TERMS DETERMINED?
A: The
terms of the merger were determined by arm’s-length negotiations between CSES and us.
Q: WAS
AN OPINION OBTAINED FROM A FINANCIAL ADVISER?
A: No.
Neither we nor CSES obtained an opinion from a financial adviser regarding the terms of the merger.
Q: AM
I ENTITLED TO DISSENTERS’ OR APPRAISAL RIGHTS?
A: No.
Under Delaware law, no dissenters’ or appraisal rights are available in connection with the merger or the amendment to our
certificate of incorporation.
Q: ARE
THERE OTHER CONSIDERATIONS?
A: Yes.
There are a number of other considerations relating to the merger and to CSES that are relevant to your understanding of the merger,
since we will succeed to CSES’s business, assets and liabilities as a result of the merger and after the merger our stockholders
will have an ownership interest in CSES’s business:
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The
percentage ownership of our existing stockholders will be reduced to approximately 23.40%
as a result of our issuance of shares in the merger, without giving effect to any outstanding
warrants or options.
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Following
the merger, our stockholders will be subject to all of the risks inherent in CSES’s
business, which is in the development stage.
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There
may be no active trading market for our common stock, and our common stock will continue
to be subject to risks associated with a low-priced stock of an early stage company.
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Q: ARE
THERE TAX CONSEQUENCES TO ME OF THE MERGER?
A: No.
Q: HOW
WILL THE MERGER BE ACCOUNTED FOR?
A: We
will account for the merger as a reverse acquisition. For financial accounting purposes, therefore, CSES will be considered the
acquiring corporation. For unaudited pro forma financial information that gives effect to the merger, see “UNAUDITED PRO
FORMA FINANCIAL INFORMATION”.
Q: ARE
REGULATORY APPROVALS REQUIRED?
A: No.
Other than the filing with the Securities and Exchange Commission and distribution to our stockholders of this Information Statement,
the filing of a certificate of merger with the Nevada Secretary of State and the filing of the amendment to our certificate of
incorporation with the Delaware Secretary of State, there are no filings, consents or approvals of any regulatory agencies or
authorities or other regulatory requirements in connection with the merger.
Q: DO
I NEED TO DO ANYTHING IN RESPONSE TO THIS INFORMATION STATEMENT?
A: No.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY.
Q: WHOM
CAN I CALL WITH QUESTIONS REGARDING THIS INFORMATION STATEMENT?
A: You
may call Edward DeFeudis, our Chairman of the Board and Chief Executive Officer, at (424) 322-2201.
MERGER
Terms
of the Merger
In
the merger, each outstanding share of common stock of CSES will be converted into 10.65375 (the “Exchange Ratio”)
shares of our common stock and each outstanding warrant and option (and a convertible note) to purchase CSES common stock will
be canceled in exchange for a warrant or option to purchase the number of shares of our common stock and at an exercise/conversion
price based on the exchange ratio 10.653.75. A more detailed description of the terms of the merger is set forth below in this
section of the Information Statement under “The Agreement and Plan of Reorganization.”
Reasons
for the Merger and the Fairness of the Merger
Edward
DeFeudis, our sole director, determined that we should undertake the merger with CSES pursuant to the agreement and plan of reorganization,
and believes that the terms of the merger are fair to our stockholders, for the following reasons:
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Because
of our lack of significant business or operations, and because there is little or no
trading volume in our common stock on the OTCQX, our stockholders have little potential
to realize appreciation in the market price of their common stock.
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Mr. DeFeudis
and our prior directors have devoted considerable time and attention to identifying one
or more attractive businesses or companies to acquire or merge with, and have concluded
that a merger with CSES provides the best opportunity for our company.
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CSES
owns or has exclusive rights to a number of technologies relating to the refrigerant
business, and is actively engaged in the development of new products based upon its technology.
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CSES
has in place an experienced management team and board of directors who are willing to
become our directors and management and to continue to manage CSES’s business following
the merger.
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Based
upon the factors described above, we believe that the agreement and plan of merger provide a fair and reasonable opportunity for
our stockholders to participate in CSES’s business and to realize potential appreciation in the value of their common stock
following the merger. Our sole director did not assign any particular weight to these factors in determining to approve the agreement
and plan of reorganization.
In
approving the agreement and plan of merger, our sole director did not seek or obtain any fairness opinion in connection with the
merger.
The
agreement and plan of merger does not require the approval of our stockholders under Delaware law, and we will not seek stockholder
approval of the merger.
Effects
of the Merger
The
percentage ownership of our stockholders will be diluted by more than 76% as a result of the merger. We expect our common stock
to continue to be traded on the OTCQX immediately after the merger.
CSES
will become our wholly owned subsidiary at the effective time of the merger. CSES Acquisition, Inc. will cease to exist at the
effective time of the merger. At the effective time of the merger, we will succeed to all of CSES’s business, assets, liabilities
and operations, which will constitute our only business and operations and substantially all of our assets and liabilities. We
intend to continue to operate CSES’s business following the merger substantially as CSES has operated it. CSES’s current
directors and management will become our directors and management upon completion of the merger, and those directors and management
may evaluate CSES’s post-merger business operations from time to time and make or engage in whatever changes that they then
determine are appropriate and in the best interests of our stockholders.
Prior
to the effective time of the merger, we will file with the Delaware Secretary of State the amendment to our certificate of incorporation
to increase our authorized shares of common stock and preferred stock, and change our name to “Alltemp, Inc.” For
more information regarding the amendment, see the discussion under “DESCRIPTION OF THE AMENDMENT” on page ___ of this
Information Statement
Expenses
Attributable to the Merger
We
estimate that the aggregate expenses to be incurred in connection with the merger will be approximately $65,000, consisting of
approximately $50,000 in legal fees payable to our counsel and counsel to CSES, approximately $10,000 in accounting fees payable
to our accountants and the accountants for CSES, $2,000 for the printing and mailing of this Information Statement and approximately
$3,000 of miscellaneous expenses.
Regulatory
Requirements
We
are not aware of any state or federal regulatory requirements that must be complied with in connection with the merger other than
the filing with the Securities and Exchange Commission and distribution to our stockholders of this Information Statement, the
filing of a certificate of merger with the Nevada Secretary of State and the filing of the amendment to our certificate of incorporation
with the Delaware Secretary of State.
The
Agreement and Plan of Merger
The
full text of the agreement and plan of merger is attached to this Information Statement as Appendix A. The following is a
summary of the principal terms of the agreement and plan of reorganization.
The
Merger and Merger Consideration
The
parties to the agreement and plan of reorganization are Source Financial, Inc., CSES Group, Inc. and CSES Acquisition, Inc., which
is a wholly-owned subsidiary of Source Financial, Inc.
We
anticipate that the merger will be completed prior to February __, 2017. The merger will become effective at the time a certificate
of merger is filed with the Nevada Secretary of State. At the effective time of the merger, CSES Acquisition, Inc. will merge
into CSES, and CSES will continue as the surviving corporation.
As
soon as the certificate of merger is filed with the Nevada Secretary of State, each outstanding share of common stock of CSES
will be converted into 10.65375 shares of our common stock. Immediately prior to the closing of the merger, it is expected that
CSES will have outstanding approximately 10,325,000 shares of common stock so that SFI will issue to the shareholders of CSES
127,045,969 in connection with the merger based on the Exchange Ratio.
Our
outstanding shares of common stock will remain outstanding following the merger and will not be directly affected by it. The outstanding
shares of common stock of CSES Acquisition, Inc. (all of which are held by us) will be converted into shares of CSES’s common
stock on a one-for-one basis on the effective date of the merger. CSES will become our wholly owned subsidiary once the certificate
of merger is filed with the Nevada Secretary of State.
As
part of the merger, the outstanding stock purchase warrants and stock options (and a convertible note) of CSES will be cancelled
in exchange for warrants and options (and a convertible note) to purchase shares of our common stock with the number of and exercise/conversion
prices based on the Exchange Ratio and otherwise on the same terms as the CSES warrants and options (and convertible note).
CSES
currently has outstanding warrants to purchase approximately 1,728,000 shares of CSES common stock at a weighted-average exercise
price of approximately $7.13 per share and options to purchase an additional approximately 2,815,910 shares of CSES common stock
at a weighted-average exercise price of approximately $2.15 per share. CSES also has issued a convertible note, convertible into
50,281 shares of CSES’s common stock. All of these numbers are prior to applying the Exchange Ratio.
Restrictions
on Sales of Shares by Affiliates
We
will issue the shares of our common stock in the merger in a private transaction under Section 4(2) and Rule 506 under the Securities
Act of 1933. As a result, the shares will constitute “restricted” shares within the meaning of Rule 144 under the
Securities Act of 1933. In general, under Rule 144 as currently in effect, a person (or persons whose shares are aggregated) who
has beneficially owned restricted shares for at least one year, including persons who may be deemed to be our “affiliates”
after the merger, would be entitled to sell within any three-month period a number of shares that does not exceed the greater
of 1% of our then-outstanding shares (approximately 1,270,460 shares) or the average weekly trading volume of our shares during
the four calendar weeks preceding such sale. Sales under Rule 144 are also subject to manner-of-sale provisions, notice requirements
and the availability of current public information about us. A person who has not been an affiliate of ours at any time during
the three months preceding a sale, and who has beneficially owned shares for at least six months, would be entitled under Rule
144 to sell such shares without regard to any volume limitations under Rule 144 subject to the Company being current in its filings.
Representations
and Warranties
We
make customary representations and warranties to CSES in the agreement and plan of reorganization regarding such matters as our
corporate power and authority, capitalization, business, assets, liabilities and other matters. CSES also makes similar representations
and warranties to us in the agreement and plan of reorganization.
The
agreement and plan of reorganization contain mutual indemnification obligations in the event any party breaches its representations
and warranties made in the agreement.
Closing
Conditions
CSES’s
obligations under the agreement and plan of reorganization to complete the merger with us are subject to satisfaction of certain
conditions, including the following:
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The
representations and warranties by SFI contained in the agreement and plan of merger shall
be true at and as of the closing and the effective time of the merger as though such
representations and warranties were made at and as of such time.
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SFI
shall have performed and complied with all covenants, agreements and conditions and shall
have executed and delivered all documents required by the agreement and plan of merger
to be performed or complied with or executed and delivered by them prior to the closing.
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All
of the directors and officers of SFI shall have resigned in writing from their positions
as directors and officers effective upon the election and appointment of the CSES nominees,
and the directors of SFI shall take such action as may be necessary or desirable regarding
such election and appointment of CSES’s nominees.
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All
derivative securities of SFI shall have been cancelled or converted so that as of the
closing SFI shall have no more than 38,807,335 shares of common stock outstanding.
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SFI
shall have no liabilities of any nature in an amount in excess of $25,000.
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SFI
shall have taken all corporate action necessary to approve the amendment to our certificate
of incorporation, and the amendment shall have been filed with the Secretary of State
of the State of Delaware.
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All
agreements relating to employment or retention of employees or consultants of SFI shall
have been terminated without liability to SFI.
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Our
obligations under the agreement and plan of reorganization to complete the merger are subject to satisfaction of the following
conditions:
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The
representations and warranties by CSES contained in the agreement and plan of merger
shall be true at and as of the closing and the effective time of this merger as though
such representations and warranties were made at and as of such times.
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CSES
shall have performed and complied with, in all material respects, all covenants, agreements,
and conditions required by the agreement and plan of reorganization to be performed or
complied with by it prior to or at the closing.
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Waiver
of Conditions
We
or CSES may, in our discretion, waive any condition to our respective obligations under the agreement and plan of reorganization.
Termination
of the Agreement and Plan of Reorganization
The
agreement and plan of reorganization may be terminated at any time and the merger abandoned prior to the effective time of the
merger:
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By
our mutual agreement.
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By
either us or CSES if the merger is not consummated by February 25, 2017(unless that date
is extended by mutual agreement).
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By
either us or CSES in the event of a material breach by the other of its representations
and warranties made in the agreement and plan of merger.
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In
the event of the termination of the agreement and plan of reorganization, all obligations of the parties will terminate, except
for each party’s obligation to bear its own costs and expenses. The termination also will not relieve any party from liability
for any breach of the agreement and plan of merger.
Other
Agreements
Other
than as described in this Information Statement, there are no agreements relating to the agreement and plan of merger or the merger.
Director
and Shareholder Approval
Edward
DeFeudis, in his capacity as our sole director, approved the agreement and plan of merger on January 24, 2017. No further approvals
by our directors or stockholders are required under Delaware law.
Tax
Consequences
There
are no tax consequences of the merger to us or to our stockholders. The merger is expected to qualify as a tax-free reorganization
as to CSES and its stockholders.
Dissenters’
Rights
Under
Delaware law, there are no dissenters’ or appraisal rights available in connection with the merger.
CSES’s
Reasons for the Merger and Merger Negotiations
CSES’s
principal reason for entering into the agreement and plan of merger was to facilitate raising needed capital to fund its product
development activities and other business activities. The management of CSES believes that acquiring our status as a public company
also may assist in attracting and retaining additional qualified executive officers and other professional personnel as CSES’s
business and operations expand.
OTHER
CONSIDERATIONS
This
section describes other considerations that are important to your understanding of the merger and the other information in this
Information Statement.
Cautionary
Statement Concerning Forward-looking Statements
THIS
INFORMATION STATEMENT CONTAINS FORWARD-LOOKING STATEMENTS RELATING TO FUTURE ACTIONS AND EVENTS, AND ACTUAL ACTIONS AND EVENTS
MAY DIFFER MATERIALLY FROM THE FORWARD-LOOKING STATEMENTS.
This
Information Statement contains forward-looking statements regarding, among other things, the planned product development activities
relating to CSES’s technologies and our other actions following completion of our merger with CSES. Such statements are
generally accompanied by words such as “intend,” “anticipate,” “believe,” “estimate,”
“expect” or similar terms.
Although
we believe that the assumptions underlying the forward-looking statements in this Information Statement are reasonable, any of
the assumptions could prove to be inaccurate and, therefore, there cannot be any assurance that any of the results contemplated
in the forward-looking statements will be realized. The inclusion of forward-looking information should not be regarded as a representation
by us, CSES or any other person that the future actions, events or results contemplated by us or CSES will be achieved. Except
for our ongoing obligations to disclose material information as required by the federal securities laws, we undertake no obligation
to release publicly any revisions to any forward-looking statements to reflect events or circumstances after the date of this
Information Statement or to reflect the occurrence of unanticipated events.
Considerations
Relating to the Merger
OUR
SHAREHOLDERS WILL EXPERIENCE SUBSTANTIAL DILUTION AS A RESULT OF THE ISSUANCE OF OUR SHARES IN THE MERGER.
Immediately
after the merger our current stockholders will hold approximately 23.40% of our outstanding common stock and the former stockholders
of CSES will own approximately 76.60%. These percentages do not give effect to any outstanding warrants or options shares issuable
upon conversion of a promissory note.
FOLLOWING
THE MERGER, OUR SHAREHOLDERS WILL BE SUBJECT TO THE RISKS INHERENT IN CSES’S BUSINESS.
We
will succeed to CSES’s business, operations, assets and liabilities as a result of the merger, and our stockholders will
be subject to the significant risks inherent in a development-stage business. The risks that we believe are the most important
are discussed below.
Considerations
Relating to CSES’s Business
WE
HAVE A HISTORY OF OPERATING LOSSES AND WILL NEED TO GENERATE SIGNIFICANT REVENUES TO ACHIEVE OR MAINTAIN OUR PROFITABILITY.
Since
inception, we have been engaged in start-up activities relating to the development and commercialization of our proprietary refrigerant
alltemp®
which require substantial capital and other expenditures. As a result, we have not sustained profitability,
and may continue to incur losses in the future. We expect our cash needs to increase significantly for the next several years
as we:
|
●
|
Protect
the proprietary nature and further develop
alltemp®
;
|
|
●
|
increase
awareness of our products;
|
|
●
|
plan
and launch commercial sales and marketing of
alltemp®
;
|
|
●
|
expand
our customer support and service operations;
|
|
●
|
hire
additional manufacturing, marketing and administrative personnel; and
|
|
●
|
implement
new and upgraded operational and financial systems, procedures and controls.
|
As
a result of these continuing expenses, we need to generate significant revenues to achieve and maintain profitability. If we do
not continue to increase our revenues, our business, results of operations and financial condition could be materially and adversely
affected.
THE
LOSS OF KEY PERSONNEL OR DAMAGE TO THEIR REPUTATIONS COULD ADVERSELY AFFECT OUR PRODUCT OFFERING, WHICH WOULD ADVERSELY AFFECT
OUR BUSINESS.
Our
success depends upon the continued services of our senior management and other key employees, in particular Bob Davis, our Chairman
of the Board, and the inventor of
alltemp®
. We would expect that the loss of the services of one or more of our key
employees, particularly Bob Davis, would have an adverse effect on our operations. We would also expect that any damage to the
reputation of our senior managers, including Bob Davis, would adversely affect our business. We do not maintain any
“
key
person
”
life insurance on any of our employees, including Bob Davis.
THE
COMMERCIAL REFRIGERANT INDUSTRY IS HIGHLY COMPETITIVE AND SUCH COMPETITION IS LIKELY TO INCREASE, WHICH MAY ADVERSELY INFLUENCE
OUR OFFERING PRICES TO CUSTOMERS AND DISTRIBUTORS, AND AS A RESULT, OUR PROFIT MARGINS.
The
commercial refrigerant market is highly competitive and dominated by well capitalized, global entities such as DuPont, Honeywell
and Arkema. The level of competition has increased in recent years, and other providers of commercial refrigerants have established
a sizable market share and distribution channels. Most of our competitors have substantially greater capital and technological,
management and marketing resources than we have. This competition may influence the prices we can charge and requires us to control
costs aggressively in order to maintain acceptable profit margins.
WE
FACE UNCERTAINTY ABOUT ADDITIONAL FINANCING FOR OUR FUTURE CAPITAL NEEDS, WHICH MAY PREVENT US FROM GROWING OUR BUSINESS.
To
achieve our business objectives we will require financing for working capital and capital expenditures that we may raise through
public or private sales of our debt and equity securities, joint ventures and strategic partnerships. No assurance can be given
that such additional funds will be available to us on acceptable terms, if at all. When we raise additional funds by issuing equity
securities, dilution to our existing stockholders will result. If adequate additional funds are not available to us, we may be
required to significantly curtail the development of one or more of our projects and our projections and results of operations
would be materially and adversely affected.
WE
CURRENTLY RELY IN PART ON PATENT, TRADEMARK AND COMMON LAW TO PROTECT OUR INTELLECTUAL PROPERTY; AS WE SEEK ADDITIONAL PROTECTION
IN THE FUTURE, WE MAY FAIL TO SUCCESSFULLY QUALIFY FOR ADDITIONAL PATENT PROTECTION OR REGISTRATION OF OUR TRADEMARKS AND TRADE
NAMES, CAUSING US TO POTENTIALLY LOSE OUR RIGHTS TO THESE INTELLECTUAL PROPERTIES AND MARKS.
Currently,
the
alltemp®
technology is the subject of several United States and international patent applications for a universal
refrigerant and manufacturing process, and we intend to file additional applications. No assurance can be given that all or any
of the pending or future applications will ultimately be prosecuted to patented status. We also rely on common law rights to protect
our technology, marks and logos. We intend to rely heavily on the recognition of our marks to obtain and maintain business. We
intend to apply for trademark registration for additional marks. However, we cannot assure you that any such applications will
be approved. Even if they are approved, these trademarks may be successfully challenged by others or invalidated. If our trademark
registrations are not approved because third parties own these trademarks, our use of these trademarks will be restricted or completely
prohibited unless we enter into agreements with these parties which may not be available on commercially reasonable terms, or
at all.
Third
parties may assert claims to our technology or assert that the Company
’
s technology somehow infringes existing technology
that is the intellectual property of others; if the Company were forced to defend the proprietary nature of its technology and
intellectual property rights it would be a time consuming, expensive and have a materially adverse effect on our business. Further,
no assurance can be given that we would have the financial resources to adequately defend any protracted dispute over technology
rights.
NEW
AND POTENTIAL GOVERNMENTAL REGULATIONS DESIGNED TO PROTECT THE ENVIRONMENT OR LIMIT THE USE OF CERTAIN REFRIGERANTS AND OTHER
CHEMICAL MATERIALS COULD ADVERSELY AFFECT OUR ABILITY TO MARKET OUR PRODUCTS.
Due
to the increasing public concern over the environmental impact of the use of certain refrigerants governmental bodies in the United
States and abroad have adopted, and are considering adopting additional laws and regulations restricting the use of certain refrigerants.
Most notable are global initiatives like The Montreal Protocol and The Kyoto Protocol. In the United States the Environmental
Protection Agency is responsible for implementation and oversight of the Clean Air Act which imposes many rules and regulations
with respect to the use of refrigerants. Limitations on our ability to manufacture, market or sell our
alltemp®
product
as a result of any environmental legislation or regulation would adversely affect our ability to provide the products we offer
to our customers and would substantially impair the value of our business.
WE
DO NOT INTEND TO PAY CASH DIVIDENDS ON OUR COMMON STOCK IN THE FORESEEABLE FUTURE.
We
currently anticipate that we will retain all future earnings, if any, to finance the growth and development of our business and
do not anticipate paying cash dividends on our common stock in the foreseeable future. Any payment of cash dividends will depend
upon our financial condition, capital requirements, earnings and other factors deemed relevant by our board of directors.
Risks
Relating to Acquisitions
We
intend to acquire commercial refrigerant distribution channels or other providers of commercial refrigerant products. These acquisitions
entail risks in addition to those incidental to the normal conduct of our business.
REVENUES
GENERATED BY ACQUIRED BUSINESSES MAY BE LESS THAN ANTICIPATED, RESULTING IN LOSSES OR A DECLINE IN PROFITS, AS WELL AS POTENTIAL
IMPAIRMENT CHARGES. WE MAY FAIL TO UNCOVER ALL LIABILITIES OF ACQUISITION TARGETS THROUGH THE DUE DILIGENCE PROCESS PRIOR TO AN
ACQUISITION, EXPOSING US TO POTENTIALLY LARGE, UNANTICIPATED COSTS. SPECIAL NON-RECURRING AND INTEGRATION COSTS ASSOCIATED WITH
ACQUISITIONS COULD ADVERSELY AFFECT OUR OPERATING RESULTS IN THE PERIODS FOLLOWING THESE ACQUISITIONS.
In
connection with some acquisitions, we may incur non-recurring severance expenses, restructuring charges and change of control
payments. These expenses, charges and payments, as well as the initial costs of integrating the personnel and facilities of an
acquired business with those of our existing operations, may adversely affect our operating results during the initial financial
periods following an acquisition. In addition, the integration of newly acquired companies may lead to diversion of management
attention from other ongoing business concerns.
OUR
FACILITIES, PERSONNEL AND FINANCIAL AND MANAGEMENT SYSTEMS MAY NOT BE ADEQUATE TO EFFECTIVELY MANAGE THE FUTURE EXPANSION WE BELIEVE
NECESSARY TO INCREASE OUR REVENUES AND REMAIN COMPETITIVE.
We
anticipate that future expansion will be necessary in order to increase our revenues. In order to effectively manage our expansion,
we may need to attract and hire additional manufacturing, sales, administrative, operations and management personnel. We cannot
assure you that our facilities, personnel and financial and management systems and controls will be adequate to support the expansion
of our operations, and provide adequate levels of service to our customers. If we fail to effectively manage our growth, our business
could be harmed.
Considerations
Related to Our Common Stock
THERE
IS NO ASSURANCE THAT THERE WILL BE A LIQUID PUBLIC MARKET FOR OUR STOCK.
Although
we expect our common stock to continue to be eligible for quotation on the OTCQX, there may not be an active trading market in
such stock. In addition, there can be no assurance that a regular and established market will be developed and maintained. There
can also be no assurance as to the level of liquidity of any market for our common stock or the prices at which our stockholders
may be able to sell their shares.
OUR
STOCK MAY BE SUBJECT TO CERTAIN RISKS ASSOCIATED WITH LOW-PRICED STOCKS.
Following
the merger, our common stock is expected to continue to trade on the OTCQX. CSES is a development-stage company with no present
revenues, so the trading price of our common stock may remain below $5.00. So long as our common stock trades below $5.00 per
share, the stock will be treated as a “penny stock.” Broker-dealers who sell penny stocks to their established customers
must deliver a disclosure schedule explaining the penny stock market and the risks associated with investing in penny stocks prior
to any transaction. Additional restrictions apply to broker-dealers who sell penny stocks to persons other than established customers
and accredited investors (generally defined as an investor with a net worth in excess of $1,000,000 or annual income exceeding
$200,000 individually or $300,000 together with a spouse). For these types of transactions, the broker-dealer must make a special
suitability determination for the purchaser and have received the purchaser’s written consent to the transaction prior to
the sale. The broker-dealer also must disclose the commissions payable to the broker-dealer, current bid and offer quotations
for the penny stock and, if the broker-dealer is the sole market-maker, the broker-dealer must disclose this fact and the broker-dealer’s
presumed control over the market. Such information must be provided by the broker-dealer to the customer orally or in writing
before or with the written confirmation of trade sent to the customer. Monthly statements must be sent disclosing recent price
information for the penny stock held in the account and information on the limited market in penny stocks. Broker-dealers may
be discouraged from dealing with our common stock if they have to bear these additional burdens, which could severely limit the
market liquidity of the common stock and the ability of our stockholders to sell their shares.
OUR
STOCK PRICE IS LIKELY TO BE VOLATILE.
The
market prices for our common stock will be influenced by many factors and will be subject to significant fluctuations in response
to variations in our operating results and other factors such as investor perceptions of the prospects for CSES’s products,
supply and demand, interest rates, general economic conditions and those specific to the industry, developments with regard to
our activities, our future financial condition and changes in our management.
THERE
WILL BE A SUBSTANTIAL NUMBER OF SHARES ELIGIBLE FOR FUTURE SALE FOLLOWING THE MERGER.
We
will issue a maximum of approximately 127,045,969 shares of our common stock in the merger, all of which will constitute “restricted
shares” within the meaning of Rule 144 under the Securities Act of 1933. All of these shares will become eligible for resale
under Rule 144 commencing on the six-month anniversary of the closing of the merger. We will also issue in the merger warrants
to purchase 18,409,680 shares of our common stock at exercise prices ranging from $2.50 to $7.50 per share in exchange for the
outstanding warrants of CSES and options to purchase 31,961,250 shares at exercise prices ranging from $2.00 to $2.22 per share.
We also will issue a convertible promissory note convertible into 532,689 shares.
The
sale, or availability for sale, for the foregoing shares could adversely affect the market price of our common stock or impair
our ability to raise capital through future sales of our common stock.
MARKET
PRICE AND DIVIDEND INFORMATION
Market
Price
Our
common stock is traded on the OTCQX under the symbol “SRCF.” The table below sets forth for the periods indicated
the high and low bid prices of our common stock as reported on the OTCQX. The prices shown below reflect inter-dealer prices,
without retail mark-up, mark-down or commission and may not represent actual transactions. There has been very limited trading
of our common stock during the periods described below. The reported prices below may not be indicative of the intrinsic value
of our common stock.
|
|
High
|
|
|
Low
|
|
2015
|
|
|
|
|
|
|
First Quarter
|
|
$
|
0.33
|
|
|
$
|
0.26
|
|
Second Quarter
|
|
|
1.24
|
|
|
|
0.22
|
|
Third Quarter
|
|
|
0.6
|
|
|
|
0.27
|
|
Fourth Quarter
|
|
|
0.56
|
|
|
|
0.12
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
0.28
|
|
|
$
|
0.07
|
|
Second Quarter
|
|
|
0.17
|
|
|
|
0.05
|
|
Third Quarter
|
|
|
0.21
|
|
|
|
0.06
|
|
Fourth Quarter
|
|
|
0.9
|
|
|
|
0.13
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
|
|
|
|
|
|
First Quarter through January 31, 2017
|
|
$
|
0.88
|
|
|
$
|
0.61
|
|
On
January 31, 2017, the low and high bid prices of our common stock as reported on the OTCQX were both $.81.
CSES
is privately held, and there is no established trading market for its common stock.
Dividends
We
have never declared a dividend on our common stock, and do not intend to do so following the merger.
CSES
also has never paid a dividend on its common stock.
INFORMATION
REGARDING SOURCE FINANCIAL, INC.
General
In
the agreement and plan of merger, we have agreed to a merger of CSES Acquisition, Inc. Upon completion of the merger, CSES will
become our wholly-owned subsidiary, we will succeed to CSES’s business, assets and liabilities and will plan to discontinue
or transfer out our limited app development and deployment business.
We
intend to continue to operate CSES’s business following the merger substantially as it has been operated by CSES, although
we reserve the right to evaluate CSES’s post-merger business operations and to make or engage in whatever changes that our
new board of directors and management determine are appropriate.
In
connection with the merger, we will file with the Delaware Secretary of State the amendment to our certificate of incorporation
to increase our authorized shares of common stock and preferred stock and change our name to “Alltemp, Inc.” For more
information regarding the amendment, see the discussion under “DESCRIPTION OF THE AMENDMENT”.
Accompanying
this Information Statement is a copy of our Annual Report on Form 10-K, as amended, for the year ended June 30, 2015 and our Quarterly
Report on Form 10-Q for the quarter ended September 30, 2016 as filed with the Securities and Exchange Commission. These
reports contain important business and financial information about us, and you are urged to read them in conjunction with this
Information Statement. To learn how to obtain other information regarding us, see “WHERE YOU CAN FIND MORE INFORMATION”.
There
are no recent material developments at SFI that are not described in our Annual Report on Form 10-K, as amended, or our Quarterly
Report on Form 10-Q for the quarter ended September 30, 2016, except as it pertains to the merger.
HISTORY
CSES
is a privately held company that was incorporated in the State of Nevada in June, 2015 for the purpose of commercializing a proprietary
refrigerant known as
alltemp®
.
BUSINESS
CSES
has developed a proprietary refrigerant technology after years of research and development.
alltemp®
is a proven replacement
for many worldwide refrigerants that have detrimentally affected the global environment. CSES
’ alltemp®
refrigerants
are environmentally friendly, sustainable and cost-efficient energy solutions for the residential and commercial marketplace.
alltemp®
refrigerants have broad applications ranging from Heating Ventilation and Air Conditioning (
“
HVAC
”
),
refrigeration, and foam insulation to industrial solvents.
alltemp®
is a proven solution for replacement of HCFC-22,
better known as R-22, which is one of the world
’
s most commonly used refrigerants, R-134a and R-404a. R-22 is rapidly
being phased out in all developed countries due to environmental concerns over its strong effect on the depletion of the Earth
’
s
ozone layer. The continuing reduction of R-22 has created a critical shortage of replacement refrigerants for a multibillion dollar
base of existing refrigeration and HVAC equipment. Refrigeration is the backbone of the world
’
s food supply with
70% of America
’
s food refrigerated at some point between farm and table. Additionally, air conditioning has become
an expected norm in most developed countries with more than 81 million units sold annually. In emerging markets, the trend is
even more pronounced and accelerating. A recent industry report stated that the global refrigerant market is projected to reach
$21 billion at a compound annual growth rate (
“
CAGR
”
) of 6% from 2015 to 2020.
MARKET
OVERVIEW
A
world without heating, cooling and refrigeration is difficult to envision. Temperature control is a vital component to daily operations
in some industries such as hospitals, laboratories, and cold chain for food products, computer equipment, and medical applications.
However, the impact of human lifestyle on the environment must be weighed when considering an alternative refrigerant solution.
The greenhouse effect largely determines the Earth
’
s climate while increasing emissions of greenhouse gases associated
with human activities further jeopardizes the current climate balance. The burning of fossil fuels such as coal, oil and natural
gas, produces carbon dioxide (CO2), the main gas responsible for global warming. The world
’
s ever growing energy
demand has led to a rapid increase in CO2 emissions in the atmosphere. Heating, air conditioning and refrigeration contribute
significantly to this increase. According to Stan Cox, the author of
“
Losing Our Cool,
”
we use about
as much electricity to cool our homes and offices today as we did for everything in 1955. In large cities, air conditioning can
account for one-third of electricity used during the hottest summer months. In recent decades, the impact of refrigerants on the
environment has exploded into a major issue. Indeed, the presence of large leaks in the cooling system, the responsibility of
these fluids in the destruction of the ozone layer and increasing the greenhouse effect are well established. Spurred on by the
scientific community and international organizations, the race is on to find acceptable alternative refrigerants.
Replacement
of Hydro Chlorofluorocarbons (
“
HCFC
”
) and Chlorofluorocarbons (
“
CFC
”
) by hydrofluorocarbons
(
“
HFC
”
) has improved the environment by significantly reducing the concentration of chlorine in the
atmosphere. Chlorine is a potent greenhouse gas that is responsible for the destruction of stratospheric ozone and thus contributes
directly to global warming. Moreover, HVAC and refrigeration systems consume electricity that contributes indirectly to the emission
of large amounts of CO2. Therefore, improving the energy efficiency of HVAC and refrigeration systems and the use of refrigerants
with low global warming potential (GWP) have become a critical global priority and a substantial business opportunity.
Unfortunately,
refrigerants used historically for air conditioning and refrigeration predominately relied on CFC
’
s such as R-12
branded
“
Freon,
”
which has proven to significantly deplete the Earth
’
s ozone layer and
therefore considerably contribute to global warming. As a result, international initiatives such as The Montreal Protocol established
in 1987, provide guidelines for the phase out of chlorine-containing refrigerants. Over 196 nations have become party to the Montreal
Protocol including the United States.
By
the end of 1995, developed countries stopped producing CFC
’
s and they are no longer used in new equipment today.
In connection with the elimination of CFC
’
s, the refrigeration and air conditioning industry turned predominately
to the use of HCFC refrigerants such as R-22 and R-123 which were less damaging to the ozone layer than their CFC counterpart.
By 1992, R-22 had emerged as the dominant choice for CFC replacement, representing an estimated 1.2 million tons or 85% of the
worldwide refrigerants stocks in existing unitary air conditioning alone.
The
American Society of Heating, Refrigerating and Air-Conditioning Engineers (
“
ASHRAE
”
) Journal noted
“
Since
its initial recognition in 1928 and commercialization in 1936, R-22 has been applied in systems ranging from the smallest window
air conditioners to the largest chillers and heat pumps, including those for district cooling and heating. Individual equipment
using this versatile refrigerant ranges from 2 kW to 33 MW (1/2 to 9,500 tons) in cooling capacity. No other refrigerant has achieved
such a wide range of commercial capacities or applications.
”
Although
R-22 is less damaging to the environment than R-12, it still possesses a high Ozone Depletion Potential (
“
ODP
”
)
and Global Warming Potential (
“
GWP
”
) which prompted an amendment of the Montreal Protocol in 1992 to
incorporate an HCFC phase out for developed countries, beginning in 2004. In the words of the U.S. Environmental Protection Agency
(
“
EPA
”
),
“
R-22 has been the refrigerant of choice for residential heat pump and air-conditioning
systems for more than four decades. Unfortunately for the environment, releases of R-22, such as those from leaks, contribute
to ozone depletion. In addition, R-22 is a greenhouse gas and the manufacture of R-22 results in a by-product (HFC-23) that contributes
significantly to global warming.
”
In compliance with the Montreal Protocol, as amended, the EPA began to phase out
R-22 in the United States in 2004.
MARKET
OPPORTUNITY
As
of January 1, 2010, production and import for new equipment containing R-22 was prohibited. However, a controversial exception
allowed Original Equipment Manufacturers
“
OEM
’
s
”
to continue to manufacture and ship R-22
equipment as long as it was not pre-charged, loaded, with R-22 refrigerant at the manufacturer
’
s facility. This so
called
“
loop-hole
”
, greatly contributed to further increase demand for R-22. Commencing January 1, 2020,
no
“
virgin
”
R-22 may be produced or imported and equipment owners will be forced to rely solely on reclaimed
or recycled R-22 for their ongoing servicing needs. The consequences of the EPA legislation has led to volatile price swings for
R-22 as it continues to become more expensive and has left equipment owners and servicers seeking the limited sources of R-22,
or reliable alternatives, for ongoing equipment servicing needs.
CSES’
alltemp®
refrigerant fills a critical industry void by delivering an environmentally compliant R-22 replacement at
a time when market demand is significantly on the rise.
The
market potential for
alltemp®
is global as an R-22 replacement and as a replacement for many other commonly used refrigerants.
alltemp®
effectively meets the needs of developed countries in satisfying initiatives like the Montreal Protocol as
well as offering developing countries a more efficient and environmentally sustainable alternative. This is noteworthy given the
historic-worldwide adoption and use of R-22 as the predominant refrigerant. In the United Kingdom and European Union, implementation
of the Montreal Protocol has been even more aggressive than in the United States and Canada in phasing out R-22. Between 2000
-2004, the European Union prohibited the production and import of new equipment containing R-22. Even further, beginning January
1, 2010, only recycled and reclaimed R-22 could be used to service existing equipment; culminating in an absolute ban on use of
R-22 for ongoing service needs on January 1, 2015.
As
the global phase out of R-22 accelerates, individuals and business are increasingly confronted with an uncomfortable decision
that must be addressed; replace the entire R-22 plant with a new system or retrofit it by removing R-22 from plant, and replacing
it with an alternative refrigerant not subject to legislative controls. The breadth of this decision is universal, affecting everyone
from the homeowner who must replace a faulty air conditioner in Miami or London to the global corporation with operations across
all continents and millions of dollars in equipment investment that is dependent on R-22. The first alternative may not even be
feasible for a large scale plant and is also the most expensive. This is especially true when existing infrastructure may have
several more working years of useful life remaining. The second option is the economically preferred choice when a viable R-22
alternative is available and can match current system performance, or in many cases given the gravity of the decision at least
have minimum degradation.
THE
alltemp® SOLUTION
alltemp®
provides an optimal replacement solution across multiple HVAC and refrigeration platforms and represents an improvement over
R-22 in terms of environmental impact.
alltemp®
is a superior environmental alternative in all instances with an environmentally
better ODP and GWP than R-22.
CSES
is uniquely positioned to capitalize on the continued demand for R-22 with its proprietary
alltemp®
product while also
satisfying the global mandate for an environmentally sustainable alternative. Moreover,
alltemp®
has a significant
additional competitive advantage. It can also be utilized as a superior replacement for many other refrigerants in new equipment
designed and marketed to replace R-22 equipment.
THE
COMPETITIVE ENVIRONMENT
There
are few R-22 alternative refrigerants available. The limited refrigerants marketed as R-22 replacements have many disadvantages
that
alltemp®
does not. These range from an immediate loss of capacity and efficiency, to extensive modification of
existing R-22 equipment in order to operate using synthetic oils, and replacement of elastomer seals. The few R-22 replacements
on the market are a mixed
“
blend
”
of HFC
’
s and not a single compound like
alltemp®
.
This is significant for a few reasons. When a blend is used, the resulting refrigerant has numerous different boiling points creating
“
glide
”
. Refrigerants with glide are less efficient than single component refrigerants without glide.
Higher glides cause a system to work harder and therefore use more energy.
alltemp®
has zero glide. Since all HVAC
equipment leaks to some extent, the chemical composition of blend refrigerants retained in the equipment actually changes over
time. This change results in a reduction of the performance level of the original blend. When recharging is required to replace
the refrigerant lost to leakage, the introduction of the original blend does not replace the lost elements in the required ratio
to maintain the original composition of the blend. Unlike
alltemp®
and single compound refrigerants which can be recharged
without replacing the entire depleted stock. More simply, a refrigerant blend changes its concentration of
“
active
”
ingredients over time due to its ingredients evaporating at different speeds due to leakage. Servicing guidelines of blended
refrigerants recommend replacement over
“
topping off
”
because of the unknown level of each ingredients
concentration when leakage occurs.
alltemp®
can be topped off because when leakage occurs, the evaporation process
leaves the same
“
active
”
ingredient concentration because it is a single compound. The existing inventory
and reclamation stocks of R-22 are limited and declining. The manufacture and production of virgin R-22 is banned or rapidly being
eliminated in all developed and developing countries. It is simply not practicable to meet ongoing R-22 servicing requirements
for existing plant and equipment without utilizing an R-22 replacement alternative. Global environmental legislation mandates
the use of such alternatives or the replacement of existing R-22 plant and equipment.
SALES
AND DISTRIBUTION STRATEGY
CSES
chose a multi-prong approach to optimize revenue, increase brand awareness, enhance ROI and swiftly capture market share. CSES
believes that
alltemp®
is a superior solution for replacement of R-22 and many other emerging HFC refrigerant blends
like R-410a. The performance and efficiency attributes of
alltemp®
exceed existing R-22 alternatives in the market
today. It is also clear that
alltemp®
is a solid environmental solution.
The
biggest marketing challenge faced by CSES is creating broad industry awareness of the
alltemp®
product. Secondly, CSES
must establish an efficient distribution chain to reach OEM
’
s, wholesalers, contractors and service personnel responsible
for selection of a particular refrigerant for a given application; or requiring a refrigerant to service existing plant and equipment.
CSES has reached the point in its development where it now has entered the market with
alltemp®
on a commercial scale.
Beta site installations and key discussions with service technicians and distributors have already begun throughout the United
States. Case studies have been documented proving the efficacy of
alltemp®
under CSES’ Early Adopter Program.
MANUFACTURING,
RESEARCH AND DEVELOPMENT FACILITIES
Our
principal executive offices are located at 441 Nandy Drive, Roseburg, Oregon 97471. Our telephone number at that address is (855)
687-4867. CSES has approximately 6,000 square feet of office, research and development and manufacturing space.
CSES
’
s
current facilities are sufficient for the initial commercialization of
alltemp®
. CSES is also currently expanding its
Roseburg, Oregon facility and is near completion of an additional manufacturing line that will increase
alltemp®
production
capacity to in excess of 4 million pounds per month. As growth occurs CSES will continue to expand its production facilities to
accommodate higher demand at both the Roseburg, Oregon facility and with new production facilities in other regions.
INTELLECTUAL
PROPERTY
CSES
has invented, developed and owns proprietary technology. CSES or its affiliates has filed domestic and international patent applications
in the past and will continue to file additional United States and international patent applications for universal refrigerant
and manufacturing processes in the future. In addition, the Company relies on trade secret and other common law rights in connection
with its intellectual property.
CSES
MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The
following discussion and analysis of the results of operations and financial condition of CSES Group, Inc. (“CSES”)
for the period from June 12, 2015 (inception) through December 31, 2015 and for the nine months ended September 30, 2016 should
be read in conjunction with CSES’ financial statements, and the notes to those financial statements that are included elsewhere
in this Information Statement.
The
following discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties,
such as CSES’ plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially
from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth under
the Other Considerations, Cautionary Statement Concerning Forward-Looking Statements, and Business and other sections in this
Information Statement.
Overview
CSES
was incorporated on June 12, 2015 in the State of Nevada and is a development stage company that currently has a portfolio of
products or potential products that are in various early stages of development. Since its inception, CSES has been primarily engaged
in developing its products and has recently begun production of product for sale. As a result, CSES has incurred significant losses
since its inception, and as of September 30, 2016, had a deficit accumulated during the development stage of $788,880. CSES expects
to continue to incur significant research, development and administrative expenses before achieving sustainable revenues and profit
from operations.
On
January 24, 2017, CSES entered into an Agreement and Plan of Merger (“Agreement”) with Source Financial, Inc. (“SF”)
and CSES Acquisition Inc., a wholly owned subsidiary of SF. Under the terms and conditions of the Agreement, SF will issue to
the stockholders of CSES an aggregate 127,045,969 shares of common stock of SF constituting approximately 76.60% of the common
stock of SF in exchange for all the shares of common stock of CSES at a ratio of 10.65375 shares of SF common stock for 1 share
of CSES’ common stock. Upon closing, CSES will become a wholly-owned subsidiary of SF.
As
a result of the controlling financial interest of the former stockholders of CSES, for financial statement reporting purposes,
the merger between SF and CSES will be treated as a reverse acquisition, with CSES deemed the accounting acquirer and SF deemed
the accounting acquiree under the acquisition method of accounting in accordance with the Section 805-10-55 of the FASB Accounting
Standards Codification. Accordingly, CSES’ assets, liabilities and results of operations will become the historical financial
statements of the registrant. No step-up in basis or intangible assets or goodwill will be recorded in this transaction.
Results
of Operations of CSES
The
following is a summary of certain financial information of CSES since its inception. It should be read in conjunction with CSES’s
financial statements included elsewhere in this Information Statement.
Nine
Months Ended September 30, 2016
Revenues
:
CSES did not earn revenues for the nine months ended September 30, 2016.
Research
and Development
: Research and development costs totaled $293,337 for the nine months ended September 30, 2016. Research and
development expenses are expensed as incurred and mainly represented engineering and design consulting fees incurred in the development
of new products and processes, including significant improvements and refinements to existing products and processes.
General
and Administrative
: General and administrative expenses were $176,039 for the nine months ended September 30, 2016. General
and administrative expenses mainly comprised of occupancy costs of CSES’ plant facility along with insurance, freight and
delivery and other office support costs.
Depreciation
Expense
: Depreciation expense was $18,670 for the nine months ended September 30, 2016. Depreciation expense primarily comprised
of depreciation of plant equipment to be used in the production of products for sale.
Interest
Expense
: Interest expense was $18,894 for the nine months ended September 30, 2016. Interest expense comprised of interest
incurred on loans outstanding along with non-cash interest related to the amortization of the convertible debt discount related
to a convertible note.
The
Period from June 12, 2056 (Inception) through December 31, 2015
Revenue
:
CSES did not earn revenues for the period from June 12, 2015 (Inception) through December 31, 2015.
Research
and Development
: Research and development expenses were $146,172 for the period from June 12, 2015 (inception) to December
31, 2015. Research and development expenses are expensed as incurred and mainly represented engineering and design consulting
fees incurred in the development of new products and processes, including significant improvements and refinements to existing
products and processes.
General
and Administrative
: General and administrative expenses were $133,930 for the period from June 12, 2015 (inception) to December
31, 2015. General and administrative expenses mainly comprised of occupancy costs of CSES’ production facility along with
insurance, freight and delivery, supplies and other office support costs.
Depreciation
Expense
: Depreciation expense was $1,838 for the period from June 12, 2015 (inception) to December 31, 2015. Depreciation
expense primarily comprised of depreciation of plant equipment to be used in the production of products for sale.
Liquidity
and Capital Resources
Since
inception, CSES’ principal activities have related to research and development of its products and has recently begun production
of product for sale. As reflected in the financial statements contained elsewhere is this Information Statement, CSES had cash
on hand as of September 30, 2016 of $173,061 and had incurred net losses of $506,940 and $281,940 and utilized cash of $369,193
and $297,635 in operations during the nine months ended September 30, 2016 and period from June 12, 2015 (inception) to December
31, 2015, respectively, and had not incurred revenues for the periods reported. These and other factors raise substantial doubt
about CSES’ ability to continue as a going concern. Further, CSES’ independent auditors in their audit report for
the period from June 12, 2015 (inception) to December 31 2015 expressed substantial doubt about CSES’ ability to continue
as a going concern. CSES’ statements do not include any adjustments that might be necessary should CSES be unable to continue
as a going concern.
CSES’
ability to continue as a going concern is dependent upon its ability to raise additional capital and to ultimately achieve sustainable
revenues and profit from operations. To this end, from October to December 2016, CSES entered into Subscription Agreements with
individual accredited investors (the “Subscribers”) pursuant to which the Subscribers purchased an aggregate 1,472,000
units at a price of $2.50 per unit. Total cash proceeds received were $3,680,000. Based upon its planned level of expenditures,
CSES anticipates having sufficient cash resources available to maintain its contemplated operations over the next twelve months.
However, to continue and to complete the development activities for its various products and to maintain and expand the scope
of its operations beyond the next twelve months, CSES will need to raise substantial additional capital. As of the date of the
filing of this Information Statement, CSES did not have any commitments from any third parties to provide this capital, and there
can be no assurance that any additional funds will be available to CSES. Even if CSES is able to obtain additional financing,
it may contain undue restrictions and covenants on its operations, in the case of debt financing or cause substantial dilution
for stockholders in the case of convertible debt and equity financing.
Summary
of Significant Accounting Policies
Use
of Estimates
Financial
statements prepared in accordance with accounting principles generally accepted in the United States require management to make
estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period. Among other things, management estimates include the
recoverability of property and equipment, assumptions used to calculate derivative liabilities, and equity instruments issued
for financing and compensation. Actual results could differ from those estimates.
Property
and Equipment
Property
and equipment are stated at historical cost less accumulated depreciation and amortization. Depreciation and amortization of property
and equipment is computed using the straight-line method over the estimated useful life, ranging from 3 to 5 years. Maintenance
and repairs that do not improve or extend the useful life of the respective assets are expensed.
CSES
regularly reviews property, equipment and other long-lived assets for possible impairment. This review occurs annually or more
frequently if events or changes in circumstances indicate the carrying amount of the asset may not be recoverable. Based upon
CSES’ annual assessment, there were no indicators of impairment of CSES’ property and equipment and other long-lived
assets as of September 30, 2016, or December 31, 2015.
Fair
Value of Financial Instruments
CSES
follows 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 and paragraph 825-10-50-10 of the FASB Accounting Standards Codification for disclosures
about 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 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 amounts of the CSES’ financial liabilities, such as accounts payable, approximate their fair values because of
the short maturity of these instruments.
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.
Recent
Accounting Pronouncements
See
CSES’ discussion of recent accounting policies in Footnote 2 to the financial statements contained elsewhere in this Information
Statement.
SFI
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
Copies
of our Annual Report on Form 10-K, as amended, for the fiscal year ended June 30, 2015 and of our Quarterly Report on Form
10-Q for the quarter ended September 30, 2015 are included with this Information Statement. Our Annual Report and Quarterly Report
contain our “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” which discussion
is incorporated by reference.
SFI
MANAGEMENT
Director
and Officer of SFI
Edward
DeFeudis
. Our sole director and executive officer is Edward DeFeudis, age 43. Mr. DeFeudis is a serial entrepreneur and
venture investor, with 20-plus years of experience. Since 1995, he has helped launch numerous private and public companies primarily
focused in high-tech, biotech and fin-tech. He has received major financing commitments to help fund early-stage companies and
product launches. Throughout his career, Mr. DeFeudis has primarily been engaged in the development of strategic partnerships
and financial strategies, and his involvement has led to multiple high-return exits. Early in his career, he worked at Merrill
Lynch in New York City and Oppenheimer Securities in Boston.
Since
Mr. DeFeudis was our sole director throughout our most recent fiscal year, there were no meetings, as such, of the board
of directors. We also currently have no standing audit, nominating or compensation committees of the board of directors, or any
committee performing similar functions. Following the merger with CSES, we anticipate establishing an audit committee and one
or more other standing committees of the board of directors as appropriate.
At
present, Mr. DeFeudis, as our sole director, determines any nominees to our board of directors. We currently have no policy
with respect to the consideration of any director candidates recommended by our stockholders, but anticipate establishing such
a policy following the merger with CSES. We have agreed in the agreement and plan of reorganization that the current directors
of CSES will be appointed to serve as our directors following the merger.
We
also have no process in place for our stockholders to send communications to our board of directors.
Section
16(a) Beneficial Ownership Preparation Compliance
Based
solely on our review of Forms 3, 4 and 5 and amendments furnished to us under Rule 16a-3(e) under the Securities Exchange Act
of 1934 during our most fiscal year, we believe that no director or officer failed to file on a timely basis any report required
by Section 16(a) under the Act.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The
table below sets forth as of December 31, 2016, information with respect to beneficial ownership of our common stock by:
|
●
|
Edward
DeFeudis, who is currently our sole director and executive officer and is the only individual
to have served as our Chief Executive Officer during 2016.
|
|
●
|
Each
other person known to us to own beneficially more than 5% of our outstanding common stock,
either before or immediately after the merger.
|
|
●
|
Each
of the current directors of CSES, who will serve as our directors following the merger.
|
|
●
|
All
of our directors and executive officers as a group, both before and immediately after
the merger.
|
Beneficial
ownership is determined in accordance with the rules of the Securities and Exchange Commission. Shares of common stock subject
to any warrants or options that are presently exercisable or exercisable within 60 days of December 31, 2016, are deemed outstanding
for the purpose of computing the percentage ownership of the person holding the warrants or options, but are not treated as outstanding
for the purpose of computing the percentage ownership of any other person. The numbers reflected in the percentage ownership columns
are based on 38,807,335 shares of our common stock and 11,925,000 shares of CSES common stock outstanding as of December 31, 2016,
and on the assumption that 165,853,304 shares of our common stock will be outstanding after the merger. Unless otherwise indicated
below, the persons named in the table have sole voting and sole investment power with respect to all shares beneficially owned,
subject to community property laws where applicable. An asterisk denotes beneficial ownership of less than 1%.
|
|
Number of Shares
|
|
|
Percent
|
|
|
|
Before the
|
|
|
After the
|
|
|
Before the
|
|
|
After the
|
|
Name of Beneficial Owner
|
|
Merger
|
|
|
Merger
|
|
|
Merger
|
|
|
Merger
|
|
Edward DeFeudis(1)
|
|
|
8,797,824
|
(3)
|
|
|
8,797,824
|
|
|
|
63.12
|
%
|
|
|
5.30
|
|
Robert Davis(2)
|
|
|
-
|
|
|
|
31,961,250
|
|
|
|
-
|
|
|
|
19.27
|
|
William Lopshire(2)
|
|
|
-
|
|
|
|
15,004,028
|
(4)
|
|
|
-
|
|
|
|
9.04
|
|
Kjell Nesen(2)
|
|
|
-
|
|
|
|
11,807,913
|
(5)
|
|
|
-
|
|
|
|
7.11
|
|
Steve Antebi
|
|
|
17,117,000
|
|
|
|
17,117,000
|
|
|
|
43.80
|
|
|
|
10.25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All directors and executive officers as a group (one
person, Mr. DeFeudis, before the merger and three persons after the merger)
|
|
|
8,797,824
|
|
|
|
58,773,191
|
|
|
|
63.12
|
%
|
|
|
35.06
|
%
|
(1) The
address of each of the persons shown is 604 Arizona Avenue, Santa Monica, California 90401
(2) The
address of each of the persons shown is 441 Nandy Drive, Roseburg, Oregon 97471
(3) Includes
shares issuable pursuant to the conversion of SFI’s Series C Preferred Stock and shares owned by Spider Investments, LLC,
of which Mr. DeFeudis is the Managing Member
(4) Includes
1,500,000 shares issuable upon the exercise of vested options.
(5) Includes
250,000 shares issuable upon the exercise of vested options.
DESCRIPTION
OF THE AMENDMENT
This
section describes the amendment to our certificate of incorporation that was adopted in order to facilitate the merger with CSES.
A copy of the amendment is attached as Appendix C to this Information Statement.
General
On
January 24, 2017, Edward DeFeudis, our sole director, approved the amendment to our certificate of incorporation to be effected
concurrently with the completion of the merger. On January 24, 2017, Mr. Feudis, who owns approximately 63.12% of our outstanding
voting power, approved the amendment by written consent. No further stockholder approval of the amendment is required under Delaware
law.
The
amendment will:
|
●
|
Increase
the authorized number of shares of our common stock from 12,000,000 shares to 500,000,000
shares and of our preferred stock from 10,000 shares to 10,000,000 shares.
|
|
●
|
Change
our corporate name from Source Financial Inc. to Alltemp, Inc.
|
Purpose
of the Amendment
We
currently have authorized 12,000,000 shares of common stock, of which 10,748,884 shares are currently outstanding; and 7,653,464
shares to be issued upon conversion of our Preferred Stock and 20,404,987 shares to be issued in connection with a consulting
agreement, all of which will be issued upon filing the amendment. As part of the merger we will issue 127,045,969 shares of our
common stock to the current stockholders of CSES and reserve a maximum of 50,370,930 additional shares for issuance upon the exercise
of warrants and options that we will issue in the merger in exchange for outstanding warrants and options to purchase shares of
CSES common stock. We also have a convertible note convertible into shares of CSES with respect to which we will reserve 532,687
shares. At present, therefore, we do not have sufficient available authorized shares to complete the merger. The principal purpose
of the amendment to our certificate of incorporation is to increase our authorized shares (to 500,000,000 shares) for this purpose.
We have no present plan or intention to issue any shares of common stock other than in connection with the merger.
The
amendment to our certificate of incorporation also will change our corporate name to “Alltemp, Inc.” to reflect that,
as a result of the merger, we will succeed to the business and operations of CSES.
Vote
Required
Under
Delaware law, approval of the amendment to our certificate of incorporation required the affirmative vote of the holders of a
majority of our outstanding common stock.
On
January 24, 2017, Edward DeFeudis executed a written consent approving the amendment. Since Mr. DeFeudis owns 63.12% of our outstanding
voting power, his consent was sufficient under Delaware Law to approve the amendment, and no further stockholder approval is required.
To avoid expenses, we did not solicit consents of all our stockholders in connection with the approval of the amendment.
Effects
of the Name Change
Changing
our name will not have any effect on our corporate status, the rights of stockholders or the transferability of outstanding stock
certificates. Outstanding stock certificates bearing the name “SFI” will continue to be valid and to represent our
shares following the name change. In the future, new stock certificates will be issued bearing our new name, but this will in
no way affect the validity of your current stock certificates.
Effect
of the Increase of Authorized Shares
The
increase in our authorized common and preferred stock will not have any immediate effect on the rights of our existing stockholders.
Our board of directors will have the authority to issue the additional authorized shares of common stock and preferred stock in
the future without stockholder approval, except as may be required by applicable law. To the extent that additional authorized
shares are issued in the future, they will decrease the existing stockholders’ percentage equity ownership and, depending
on the price at which they are issued, could be dilutive to the existing stockholders.
The
increase in the authorized number of shares of common stock and preferred stock and the subsequent issuance of such shares could
have the effect of delaying or preventing a change in control of our company without further action by our stockholders. Shares
of authorized and unissued common stock and/or preferred stock could, within the limits imposed by applicable law, be issued in
one or more transactions which would make a change in control more difficult, and therefore less likely. Any such issuance of
additional stock could have the effect of diluting the earnings per share and book value per share of outstanding shares of common
stock, and such additional shares could be used to dilute the stock ownership or voting rights of a person seeking to obtain control
of our company.
With
regard to the preferred stock, our board of directors would have the authority to issue up to 10,000,000 shares of such preferred
stock in one or more series, with such voting powers, preferences or other rights as the board of directors may determine from
time to time without further stockholder approval.
The
primary objective of our board of directors in establishing a class of “blank check” preferred stock is to provide
maximum flexibility with respect to future financing transactions. “Blank check” preferred stock is commonly authorized
by publicly traded companies and is frequently used as a preferred means of raising capital and making acquisitions. In particular,
in recent years, smaller companies have been required to utilize senior classes of securities to raise capital, with the terms
of those securities being highly negotiated and tailored to meet the needs of both investors and the issuing companies. Such senior
securities typically include liquidation and dividend preferences, voting rights, conversion privileges and other rights not found
in common stock. As we presently have the authority to issue 10,000 shares of preferred stock, presently lack the authority and
substantial number of shares of preferred stock and, as a result, are limited to issuing common stock or debt securities to raise
capital. By authorizing a class of “blank check” preferred stock, we would increase our flexibility in structuring
transactions. Our board of directors would have discretion to establish series of preferred stock and the rights and privileges
of each series so established and the holders of our common stock would have no input or right to approve the terms of any such
series. The issuance of preferred stock, while providing flexibility in connection with possible financings and other corporate
purposes, could, among other things, have the effect of delaying, deferring or preventing a change in control and may adversely
affect the market price of our common stock and the voting and other rights of holders of our common stock. We have no present
intention to issue additional shares of preferred stock.
We
are not aware of any attempt to take us over or acquire us. While it may be deemed to have potential anti-takeover effects, the
increase in our outstanding shares is intended solely to facilitate the merger and is not prompted by any effort or takeover threat
perceived by management.
Effective
Date
Under
applicable federal securities laws, the amendment to our certificate of incorporation cannot be effected until at least 20 calendar
days after this Information Statement is sent to our stockholders. The amendment will become effective upon filing with the Secretary
of State of Delaware. It is anticipated that the amendment will be filed just prior to the effective time of the merger. The amendment
will be abandoned if the merger fails to occur for any reason.
UNAUDITED
PRO FORMA COMBINED FINANCIAL STATEMENTS
The
unaudited pro forma combined balance sheet aggregates the unaudited balance sheet of SFI (a Delaware corporation and development
stage enterprise) (the “Parent”) as of September 30, 2016 and the unaudited balance sheet of CSES (a Delaware corporation
and development stage enterprise) (the “Subsidiary”) as of September 30, 2016. The unaudited pro forma combined statements
of operations aggregate the statement of operations of the Parent for the nine months ended September 30, 2016 (unaudited) and
the year ended December 31, 2015, and the statements of operations of the Subsidiary for the nine months ended September 30, 2016
(unaudited) and the year ended December 31, 2015.
The
unaudited pro forma combined balance sheet and statements of operations were prepared giving effect to the merger described in
this Information Statement wherein the Parent will acquire the Subsidiary as a wholly-owned subsidiary. This business combination
is treated as a reverse acquisition and as a recapitalization of the Subsidiary. The Parent will issue shares of its common stock
in exchange for all of the issued and outstanding shares of the Subsidiary. The unaudited pro forma balance sheet and statements
of operations were prepared using the assumptions as described in the notes and the historical financial information available
at September 30, 2016 and December 31, 2015. The financial statements of both the Parent and the Subsidiary at September 30, 2016
are unaudited.
The
unaudited pro forma combined balance sheet and statements of operations should be read in conjunction with the separate financial
statements and related notes thereto of the Parent and the Subsidiary. The unaudited pro forma combined balance sheet and statements
of operations are not necessarily indicative of the combined balance sheet and statement of operations which might have existed
for the periods indicated or the results of operations as they may appear now or in the future.
EXPERTS
The
financial statements and the related financial statement schedule of SFI incorporated in this Information Statement by reference
from our annual report on Form 10-K for the years ended June 30, 2015 and 2014, respectively, have been audited by Lichter, Yu
and Associates, Inc., independent auditors, as stated in their report, which is incorporated herein by reference, and have been
so incorporated in reliance upon the report of such firm given upon their authority as experts in accounting and auditing.
The
financial statements of CSES as of December 31, 2015 and for the period from June 12, 2015 to December 31, 2015 contained in
this Information Statement have been audited by Weinberg & Company, P.A., independent auditors, as stated in their
report thereon, and have been so included in reliance upon the report of such firm given upon their authority as experts
in accounting and auditing.
WHERE
YOU CAN FIND MORE INFORMATION
The
Securities and Exchange Commission allows us to incorporate by reference information into this Information Statement, which means
that we can disclose important information by referring you to another document filed separately by us with the Securities and
Exchange Commission. The following document previously filed by us with the Securities and Exchange Commission is incorporated
by reference in this Information Statement and is deemed to be a part of this Information Statement:
|
●
|
Our
Annual Report on Form 10-K for the year ended June 30, 2015, as amended.
|
|
●
|
Our
Quarterly Report on Form 10-Q for the quarter ended September 30, 2016.
|
Copies
of the foregoing reports accompany this Information Statement. Any statement contained in a document incorporated by reference
in this Information Statement shall be deemed to be modified or superseded for all purposes to the extent that a statement contained
in this Information Statement modifies or replaces the statement. Any statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute part of this Information Statement.
We
undertake to send by first class mail, without charge and within one business day after receipt of any written or oral request,
to any person to whom a copy of this Information Statement has been delivered, a copy of any or all of the documents referred
to above which have been incorporated by reference in this Information Statement, other than exhibits to the documents unless
the exhibits are specifically incorporated by reference herein. Requests for copies should be directed to our Chairman of the
Board and Chief Executive Officer by writing to him at 604 Arizona Avenue, Santa Monica, California 90401, or telephoning him
at (424) 322-2201.
We
file annual, quarterly and current reports and other information with the Securities and Exchange Commission under the Securities
Exchange Act of 1934. You may read and copy any reports and other information that we file at the Security and Exchange Commission’s
public reference room at 450 Fifth Street, N.W., Washington, D.C. 20549, and you may also obtain copies of those documents from
the Security and Exchange Commission upon payment of the prescribed fee. Information about the operation of the public reference
room may be obtained by calling the Securities and Exchange Commission at 1-800-SEC-0330. The reports and other information that
we file with the Securities and Exchange Commission are also available through the Securities and Exchange Commission’s
web site at http://www.sec.gov.
By
Order of the Board of Directors
/s/
EDWARD DEFEUDIS
Edward
DeFeudis
Chairman
of the Board and Chief Executive Officer
SOURCE
FINANCIAL, INC. AND CSES GROUP, INC.
PRO FORMA COMBINED FINANCIAL STATEMENTS
(unaudited)
Description
|
|
Page (s)
|
Notes to Unaudited Pro Forma Combined Financial Statements
|
|
F-2
|
Unaudited Pro Forma Combined Balance Sheet as of September 30, 2016
|
|
F-4
|
Unaudited Pro Forma Combined Statement of Operations for the nine months ended September 30, 2016
|
|
F-5
|
Unaudited Pro Forma Combined Statement of Operations for the year ended December 31, 2015
|
|
F-6
|
SOURCE
FINANCIAL, INC. AND CSES GROUP, INC.
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2016
(unaudited)
Note
1 - Basis of Presentation
The
following unaudited pro forma combined financial statements give effect to the Agreement and Plan of Merger (“Agreement”)
between Source Financial, Inc. (the “Company”), CSES Acquisition Inc., a wholly owned subsidiary of the Company and
CSES Group, Inc. (“CSES”). Under the terms and conditions of the Agreement, the Company will issue 127,045,969 shares
of common stock constituting approximately 76% of the common stock of the Company in exchange for all the shares of common stock
of CSES at a ratio of 10.65375 shares of the Company’s common stock for 1 share of the CSES’ common stock. Upon closing,
CSES will become a wholly-owned subsidiary of the Company.
CSES
was incorporated in the State of Nevada on June 12, 2015. CSES develops, markets and sells commercial refrigerants that are interchangeable
between R-22, R-134a, R-404, R-407 and R-410a refrigerant equipment. These refrigerants are used in heating, ventilation and air
conditioning (“HVAC”) equipment and are marketed under the name alltemp™. The businesses of CSES will become
the Company’s principal business.
The
Merger will be accounted for as a “reverse merger” immediately following the completion of the transaction. For accounting
purposes, the Company will be deemed to be the accounting acquirer in the transaction and, consequently, the transaction will
be treated as a recapitalization of the Company. Accordingly, CSES’s assets, liabilities and results of operations will
become the historical financial statements of the registrant. No step-up in basis or intangible assets or goodwill will be recorded
in this transaction.
The
unaudited pro forma balance sheet as of September 30, 2016, and the unaudited combined statement of operations for the nine months
ended September 30, 2016 and year ended December 31, 2015, presented herein give effect to the reverse merger as if the transaction
had occurred at the beginning of such period and includes certain adjustments that are directly attributable to the transaction,
which are expected to have a continuing impact on the Company and are factually supportable, as summarized in the accompanying
notes.
The
unaudited pro forma combined financial information is provided for illustrative purposes only. The unaudited pro forma combined
financial information presented herein is based on management’s estimate of the effects of the reverse merger, had such
transaction occurred on the dates indicated herein, based on currently available information and certain assumptions and estimates
that the Company believes are reasonable under the circumstances. The unaudited pro forma combined financial information is not
necessarily indicative of the results of operations or financial position that actually would have been achieved had the reverse
merger been consummated on the dates indicated, or that may be achieved in the future.
The
unaudited pro forma combined financial information presented herein should be read in conjunction with the financial statements
contained elsewhere in this Current Report on Schedule 14c, as filed with the Securities and Exchange Commission.
The
following are the unaudited pro forma adjustments that were made to the combined financial statements:
A. The
pro forma combined balance sheet as of September 30, 2016 has been adjusted to reflect the cancellation of a $200,000 convertible
note that was previously issued by CSES to the Company. Under the terms of the Agreement, CSES will issue 268,182 shares of CSES’
common stock in exchange for cancellation of this convertible note.
The
pro forma combined statement of operations for the nine months ended September 30, 2016 has been adjusted to remove the expense
of $17,094 related to the amortization of debt discount previously recorded by CSES in conjunction with the issuance of the convertible
note by CSES to the Company.
B. The
pro forma combined balance sheet has been adjusted to reflect the conversion of the Company’s $250,000 convertible notes
payable to shares of common stock to be issued in accordance with the Agreement.
C. The
pro forma combined balance sheet has been adjusted to reflect the issuance of 109,999,969 shares of the Company’s common
stock to the stockholders of CSES in exchange for cancellation of all of CSES’s common stock.
D. The
pro forma combined balance sheet has been adjusted to reflect CSES’ sale of 1,472,000 units at a price of $2.50 per unit.
Each unit consisted of one restricted share of CSES’ common stock and a warrant to purchase one share of CSES’ common
stock at an exercise price of $7.50 per share. Total proceeds received were $3,680,000 in cash. In addition, the Company issued
to its placement agent as a private placement fee 128,000 shares of common stock and a warrant to purchase 128,000 shares of the
Company’s common stock at an exercise price of $0.25 per share. The Warrants are fully vested when issued and expire three
years after the date of issuance.
The
unaudited pro forma combined financial statements do not include any adjustment for non-recurring costs incurred or to be incurred
after September 30, 2016, by the Company to consummate the merger, except as noted above. Merger costs include fees payable for
investment banking services, legal fees and accounting fees. Such costs will be expensed as incurred.
Source
Financial, Inc. and CSES Group, Inc.
Pro Forma Combined Balance Sheet
As of September 30, 2016
(unaudited)
|
|
Source Financial, Inc. (1)
|
|
|
CSES Group, Inc. (2)
|
|
|
|
|
|
|
|
|
|
September 30, 2016
|
|
|
September 30, 2016
|
|
|
Pro Forma Adjustments
|
|
|
Pro Forma Combined
|
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
ASSETS
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
9,818
|
|
|
$
|
173,061
|
|
|
$
|
3,680,000
|
(D)
|
|
$
|
3,862,879
|
|
Convertible notes receivable
|
|
|
200,000
|
|
|
|
-
|
|
|
|
(200,000
|
)(A)
|
|
|
-
|
|
Prepaid expense
|
|
|
5,000
|
|
|
|
7,000
|
|
|
|
|
|
|
|
12,000
|
|
Total Current Assets
|
|
|
214,818
|
|
|
|
180,061
|
|
|
|
3,480,000
|
|
|
|
3,874,879
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
-
|
|
|
|
119,603
|
|
|
|
|
|
|
|
119,603
|
|
Intangible assets
|
|
|
29,801
|
|
|
|
-
|
|
|
|
|
|
|
|
29,801
|
|
TOTAL ASSETS
|
|
$
|
244,619
|
|
|
$
|
299,664
|
|
|
$
|
3,480,000
|
|
|
$
|
4,024,283
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
118,611
|
|
|
$
|
116,650
|
|
|
$
|
|
|
|
$
|
235,261
|
|
Due to related party
|
|
|
8,580
|
|
|
|
3,000
|
|
|
|
|
|
|
|
11,580
|
|
Notes payable
|
|
|
8,000
|
|
|
|
-
|
|
|
|
|
|
|
|
8,000
|
|
Convertible notes payable
|
|
|
250,000
|
|
|
|
117,094
|
|
|
|
(17,094
|
)(A)
|
|
|
100,000
|
|
|
|
|
|
|
|
|
|
|
|
|
(250,000
|
)(B)
|
|
|
|
|
Accrued interest
|
|
|
-
|
|
|
|
1,800
|
|
|
|
(556
|
)(A)
|
|
|
1,244
|
|
Total Current Liabilities
|
|
|
385,191
|
|
|
|
238,544
|
|
|
|
(267,650
|
)
|
|
|
356,085
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
385,191
|
|
|
|
238,544
|
|
|
|
(267,650
|
)
|
|
|
356,085
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock
|
|
|
45
|
|
|
|
-
|
|
|
|
(45
|
)(C)
|
|
|
-
|
|
Common stock
|
|
|
5,804
|
|
|
|
1,033
|
|
|
|
268
|
(A)
|
|
|
143,979
|
|
|
|
|
|
|
|
|
|
|
|
|
135,274
|
(C)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,600
|
(D)
|
|
|
|
|
Additional paid-in capital
|
|
|
132,531
|
|
|
|
848,967
|
|
|
|
(200,268
|
)(A)
|
|
|
4,574,401
|
|
|
|
|
|
|
|
|
|
|
|
|
250,000
|
(B)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(135,229
|
)(C)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,678,400
|
(D)
|
|
|
|
|
Accumulated deficit
|
|
|
(278,952
|
)
|
|
|
(788,880
|
)
|
|
|
17,650
|
(A)
|
|
|
(1,050,182
|
)
|
Total Stockholders’ (Deficit) Equity
|
|
|
(140,572
|
)
|
|
|
61,120
|
|
|
|
3,747,650
|
|
|
|
3,668,198
|
|
TOTAL LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY
|
|
$
|
244,619
|
|
|
$
|
299,664
|
|
|
$
|
3,480,000
|
|
|
$
|
4,024,283
|
|
(1)
Source: unaudited financial statements of Source Financial, Inc. as of September 30, 2016
(2)
Source: unaudited financial statements of CSES Group, Inc. included elsewhere in this Schedule 14c
See
accompanying notes to unaudited pro forma combined financial statement
Source
Financial, Inc. and CSES Group, Inc.
Pro Forma Combined Statement of Operations
For the Nine Months Ended September 30, 2016
(unaudited)
|
|
Source Financial, Inc. (1)
|
|
|
CSES Group, Inc. (2)
|
|
|
|
|
|
|
|
|
|
September 30, 2016
|
|
|
September 30, 2016
|
|
|
Pro Forma Adjustments
|
|
|
Pro Forma Combined
|
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REVENUE
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
$
|
-
|
|
|
$
|
293,337
|
|
|
$
|
|
|
|
$
|
293,337
|
|
General and administrative
|
|
|
153,692
|
|
|
|
176,039
|
|
|
|
|
|
|
|
329,731
|
|
Depreciation
|
|
|
-
|
|
|
|
18,670
|
|
|
|
|
|
|
|
18,670
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL OPERATING EXPENSES
|
|
|
153,692
|
|
|
|
488,046
|
|
|
|
-
|
|
|
|
641,738
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS FROM OPERATIONS
|
|
|
(153,692
|
)
|
|
|
(488,046
|
)
|
|
|
-
|
|
|
|
(641,738
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(307
|
)
|
|
|
(18,894
|
)
|
|
|
17,650
|
(A)
|
|
|
(1,551
|
)
|
NET LOSS
|
|
$
|
(153,999
|
)
|
|
$
|
(506,940
|
)
|
|
$
|
(17,650
|
)
|
|
$
|
(643,289
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS PER COMMON SHARE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(0.00
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE SHARES OUTSTANDING - BASIC AND FULLY
DILUTED
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
168,453,304
|
|
(1)
Source: unaudited financial statements of Source Financial, Inc. as of September 30, 2016
(2)
Source: unaudited financial statements of CSES Group, Inc. included elsewhere in this Schedule 14c
See
accompanying notes to unaudited pro forma combined financial statement
Source
Financial, Inc. and CSES Group, Inc.
Pro Forma Combined Statement of Operations
For the Year Ended December 31, 2015
(unaudited)
|
|
|
|
|
For the period from
|
|
|
|
|
|
|
|
|
|
Source Financial, Inc.
|
|
|
Inception (June 12, 2015)
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
December 31, 2015
|
|
|
Pro Forma Adjustments
|
|
|
Pro Forma Combined
|
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REVENUE
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
$
|
-
|
|
|
$
|
146,172
|
|
|
$
|
|
|
|
$
|
146,172
|
|
General and administrative
|
|
|
10,740
|
|
|
|
133,930
|
|
|
|
|
|
|
|
144,670
|
|
Depreciation
|
|
|
-
|
|
|
|
1,838
|
|
|
|
|
|
|
|
1,838
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL OPERATING EXPENSES
|
|
|
10,740
|
|
|
|
281,940
|
|
|
|
-
|
|
|
|
292,680
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS FROM OPERATIONS
|
|
|
(10,740
|
)
|
|
|
(281,940
|
)
|
|
|
-
|
|
|
|
(292,680
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(7,798
|
)
|
|
|
-
|
|
|
|
|
|
|
|
(7,798
|
)
|
NET LOSS
|
|
$
|
(18,538
|
)
|
|
$
|
(281,940
|
)
|
|
$
|
-
|
|
|
$
|
(300,478
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS PER COMMON SHARE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(0.00
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE SHARES OUTSTANDING - BASIC AND FULLY
DILUTED
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
168,453,304
|
|
(1)
Source: audited financial statements of Source Financial, Inc. as of December 31, 2015
(2)
Source: audited financial statements of CSES Group, Inc. included elsewhere in this Schedule 14c
See
accompanying notes to unaudited pro forma combined financial statement
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Board of Directors
CSES
Group, Inc.
We
have audited the accompanying balance sheet of CSES Group, Inc. (the “Company”) as of December 31, 2015 and the related
statements of operations, stockholders’ equity and cash flows for the period from June 12, 2015 (inception) to December
31, 2015. These financial statements are the responsibility of the Company’s management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We
conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial
reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures
that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s
internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides
a reasonable basis for our opinion.
In
our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the
Company as of December 31, 2015 and the results of its operations and its cash flows for the year then ended in conformity with
accounting principles generally accepted in the United States of America.
The
financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to
the financial statements, the Company has no recurring source of revenue and during the year ended December 31, 2015, the Company
incurred a net loss and utilized cash flows in operations. These conditions raise substantial doubt about the Company’s ability
to continue as a going concern. Management’s plans in regards to these matters are also described in Note 1. The financial statements
do not include any adjustments that might result from the outcome of this uncertainty.
Weinberg
and Company, P.A
Los
Angeles, California
February
2, 2017
CSES
Group, Inc.
Balance Sheets
|
|
September 30, 2016
|
|
|
December 31, 2015
|
|
|
|
(unaudited)
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
173,061
|
|
|
$
|
166,128
|
|
Receivable from related party
|
|
|
-
|
|
|
|
30,000
|
|
Prepaid expense
|
|
|
7,000
|
|
|
|
|
|
Total Current Assets
|
|
|
180,061
|
|
|
|
196,128
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
119,603
|
|
|
|
84,399
|
|
TOTAL ASSETS
|
|
$
|
299,664
|
|
|
$
|
280,527
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
Accounts Payable and Accrued Expenses
|
|
$
|
116,650
|
|
|
$
|
12,467
|
|
Due to Related Party
|
|
|
3,000
|
|
|
|
-
|
|
Convertible notes payable, net of debt discount of $182,906
|
|
|
117,094
|
|
|
|
-
|
|
Accrued interest
|
|
|
1,800
|
|
|
|
-
|
|
Total Current Liabilities
|
|
|
238,544
|
|
|
|
12,467
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ Equity
|
|
|
|
|
|
|
|
|
Preferred stock; $0.0001 par value; 10,000,000 shares authorized; none
issued and outstanding as of September 30, 2016 (unaudited) and December 31, 2015
|
|
|
-
|
|
|
|
-
|
|
Common stock; $0.0001 par value; 50,000,000 shares authorized as of
September 30, 2016 (unaudited) and December 31, 2015; 10,325,000 and 10,275,000 issued and outstanding at September 30, 2016
(unaudited) and December 31, 2015, respectively
|
|
|
1,033
|
|
|
|
1,028
|
|
Additional paid-in capital
|
|
|
848,967
|
|
|
|
548,972
|
|
Accumulated deficit
|
|
|
(788,880
|
)
|
|
|
(281,940
|
)
|
Total Stockholders’ Equity
|
|
|
61,120
|
|
|
|
268,060
|
|
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
$
|
299,664
|
|
|
$
|
280,527
|
|
See
accompanying notes to unaudited pro forma combined financial statement
CSES
Group, Inc.
Statements of Operations
|
|
Nine months
|
|
|
Period from inception (June 12,
|
|
|
|
ended
|
|
|
2015) to
|
|
|
|
September 30, 2016
|
|
|
December 31, 2015
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REVENUE
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
293,337
|
|
|
|
146,172
|
|
General and administrative (including rent paid to
a related party of $108,000 and $72,000, respectively)
|
|
|
176,039
|
|
|
|
133,930
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
18,670
|
|
|
|
1,838
|
|
|
|
|
|
|
|
|
|
|
TOTAL OPERATING EXPENSES
|
|
|
488,046
|
|
|
|
281,940
|
|
|
|
|
|
|
|
|
|
|
LOSS FROM OPERATIONS
|
|
|
(488,046
|
)
|
|
|
(281,940
|
)
|
|
|
|
|
|
|
|
|
|
OTHER EXPENSES
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(18,894
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
NET LOSS
|
|
$
|
(506,940
|
)
|
|
$
|
(281,940
|
)
|
See
accompanying notes to unaudited pro forma combined financial statement
CSES
Group, Inc.
Statement of Stockholders’ Equity
For the Period from June 12, 2015 (Inception) to December
31, 2015 and
For the Nine Months Ended September 30, 2016
(Unaudited)
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
Common
Stock $0.0001 Par
|
|
|
Paid-In
|
|
|
Accumulated
|
|
|
Stockholders’
|
|
|
|
Number
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Equity
|
|
Balance,June 12, 2015 (inception)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Shares issued to founders
|
|
|
10,000,000
|
|
|
|
1,000
|
|
|
|
(1,000
|
)
|
|
|
|
|
|
|
-
|
|
Issuance of common stock for cash
|
|
|
275,000
|
|
|
|
28
|
|
|
|
549,972
|
|
|
|
|
|
|
|
550,000
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(281,940
|
)
|
|
|
(281,940
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2015
|
|
|
10,275,000
|
|
|
|
1,028
|
|
|
|
548,972
|
|
|
|
(281,940
|
)
|
|
|
268,060
|
|
Issuance of common stock for cash
|
|
|
50,000
|
|
|
|
5
|
|
|
|
99,995
|
|
|
|
|
|
|
|
100,000
|
|
Beneficial conversion
feature associated with convertible debt financing
|
|
|
|
|
|
|
|
|
|
|
200,000
|
|
|
|
|
|
|
|
200,000
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(506,940
|
)
|
|
|
(506,940
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2016 (unaudited)
|
|
|
10,325,000
|
|
|
$
|
1,033
|
|
|
$
|
848,967
|
|
|
$
|
(788,880
|
)
|
|
$
|
61,120
|
|
See
accompanying notes to unaudited pro forma combined financial statement
CSES
Group, Inc.
Statements of Cash Flows
|
|
Nine months
|
|
|
Period from inception (June 12,
|
|
|
|
ended
|
|
|
2015) to
|
|
|
|
September 30,
2016
|
|
|
December 31,
2015
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS USED IN OPERATING ACTIVITIES
|
|
|
|
|
|
|
Net loss for the period
|
|
$
|
(506,940
|
)
|
|
$
|
(281,940
|
)
|
Adjustments to reconcile net loss to
net cash used in operating activities
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
18,670
|
|
|
|
1,838
|
|
Amortization of discount on convertible
note
|
|
|
17,094
|
|
|
|
-
|
|
Changes in working capital:
|
|
|
|
|
|
|
|
|
Change in prepaid expense
|
|
|
(7,000
|
)
|
|
|
|
|
Change in accounts payable
|
|
|
104,183
|
|
|
|
12,467
|
|
Change in due to related party
|
|
|
3,000
|
|
|
|
|
|
Change in accrued interest
|
|
|
1,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used
in operating activities
|
|
|
(369,193
|
)
|
|
|
(297,635
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS USED IN INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
Change in due from related party
|
|
|
30,000
|
|
|
|
-
|
|
Purchase of property
and equipment
|
|
|
(53,874
|
)
|
|
|
(86,237
|
)
|
Net cash used
in investing activities
|
|
|
(23,874
|
)
|
|
|
(86,237
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOW FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock
|
|
|
100,000
|
|
|
|
550,000
|
|
Proceeds from
issuance of convertible notes
|
|
|
300,000
|
|
|
|
-
|
|
Net cash provided
by financing activities
|
|
|
400,000
|
|
|
|
550,000
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE IN CASH
|
|
|
6,933
|
|
|
|
166,128
|
|
CASH, BEGINNING OF PERIOD
|
|
|
166,128
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
CASH, END OF PERIOD
|
|
$
|
173,061
|
|
|
$
|
166,128
|
|
|
|
|
|
|
|
|
|
|
NON CASH INVESTMENT AND FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Beneficial conversion
feature recorded as valuation discount
|
|
$
|
200,000
|
|
|
$
|
-
|
|
See
accompanying notes to unaudited pro forma combined financial statement
CSES
Group, Inc.
Notes to Financial Statements
For the Period from June 12, 2015 (Inception) to December
31, 2015 and
For the Nine Months Ended September 30, 2016
(Unaudited)
NOTE
1 – ORGANIZATION AND BASIS OF PRESENTATION
Description
of the Company
CSES
Group, Inc. (the “Company”) was incorporated in the State of Nevada on June 12, 2015. The Company develops, markets
and sells commercial refrigerants that are interchangeable between R-22, R-134a, R-404, R-407 and R-410a refrigerant equipment.
These refrigerants are used in heating, ventilation and air conditioning (“HVAC”) equipment and are marketed under
the name alltemp™.
Basis
of Presentation of Unaudited Financial Information
The
unaudited financial statements of the Company for the nine months ended September 30, 2016 have been prepared in accordance with
accounting principles generally accepted in the United States of America (“GAAP”), have been prepared pursuant to
the rules and regulations of the SEC and, in the opinion of management, reflect all normal and recurring adjustments necessary
to fairly present the interim periods of unaudited financial results of operations and cash flows of the company for the periods
presented. Operating results for interim periods are not necessarily indicative of operating results for the entire fiscal year
or any other future periods.
Going
Concern
These
financial statements have been prepared on a going concern basis which assumes the Company will be able to realize its assets
and discharge its liabilities in the normal course of business for the foreseeable future. Since inception, the Company’s
principal activities have related to research and development of its products and has recently begun production of product for
sale. As reflected in the financial statements, the Company incurred net losses of $506,940 and $281,940 and utilized cash of
$369,193 and $297,635 in operations during the nine months ended September 30, 2016 and period ended December 31, 2015, respectively,
and had not incurred revenues for the periods reported. These and other factors raise substantial doubt about the Company’s ability
to continue as a going concern. The financial statements do not include any adjustments that might be necessary should the Company
be unable to continue as a going concern.
The
Company’s ability to continue as a going concern is dependent upon its ability to raise additional capital and to ultimately
achieve sustainable revenues and profit from operations. To this end, the Company issued a $200,000 convertible promissory note
(see Note 5) and subsequent to September 30, 2016 issued 4 million shares of common stock for total proceeds of $3,680,000 (see
Note 8). However, the Company will need and is currently working on obtaining additional funds to operate its business through
2017 and beyond. There can be no assurance that such financing will be available to the Company. Even if the Company is able to
obtain additional financing, it may contain undue restrictions and covenants on its operations, in the case of debt financing
or cause substantial dilution for its stockholders in the case of convertible debt and equity financing.
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use
of Estimates and Assumptions
Preparation
of the financial statements in conformity with generally accepted accounting principles requires management to make estimates
and assumptions that affect certain 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 period. Accordingly, actual
results could differ from those estimates.
Fair
Value of Financial Instruments
The
Company follows 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 and paragraph 825-10-50-10 of the FASB Accounting Standards Codification for
disclosures about 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 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 amounts of the Company’s financial liabilities, such as accounts payable, approximate their fair values because
of the short maturity of these instruments.
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.
Revenue
The
Company will recognize revenue from the sale of its products when there is persuasive evidence that an arrangement exists, delivery
of the product has occurred and title has passed, the selling price is both fixed and determinable, and collectability is reasonably
assured, all of which will occur upon shipment of the Company’s product or delivery of the product to the destination specified
by the customer.
Property
and Equipment
Property
and equipment are stated at historical cost less accumulated depreciation and amortization. Depreciation and amortization of property
and equipment is computed using the straight-line method over the estimated useful life, ranging from 3 to 5 years. Maintenance
and repairs that do not improve or extend the useful life of the respective assets are expensed.
Management
regularly reviews property, equipment and other long-lived assets for possible impairment. This review occurs annually or more
frequently if events or changes in circumstances indicate the carrying amount of the asset may not be recoverable. Based upon
management’s annual assessment, there were no indicators of impairment of the Company’s property and equipment and
other long-lived assets as of September 30, 2016, or December 31, 2015.
Research
and Development Costs
Research
and development costs consist of expenditures for the research and development of new products and technology and are expensed
as incurred. Research and development costs were $293,337 and $146,172 during the nine months ended September 30, 2016 and for
the period from inception (June 12, 2015) to December 31, 2015, respectively.
Income
Taxes
The
Company follows the liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax balances and tax loss carry-forwards. Deferred tax assets and liabilities are
measured using enacted or substantially enacted tax rates expected to apply to the taxable income in the years in which those
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 income in the period that includes the date of enactment or substantive enactment.
Recent
Accounting Pronouncements
In
August 2014, the FASB issued Accounting Standards Update No. 2014-15, Disclosure of Uncertainties about an Entity’s Ability
to Continue as a Going Concern, which provides guidance on determining when and how to disclose going-concern uncertainties in
the financial statements. ASU 2014-15 requires management to perform interim and annual assessments of an entity’s ability
to continue as a going concern within one year of the date the financial statements are issued. An entity must provide certain
disclosures if conditions or events raise substantial doubt about the entity’s ability to continue as a going concern. ASU
2014-15 is effective for annual periods ending after December 15, 2016, and interim periods thereafter. Early adoption is permitted.
The Company is currently evaluating the impact the adoption of ASU 2014-15 on the Company’s financial statements and disclosures.
In
May 2014, the FASB issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers. ASU 2014-09 is
a comprehensive revenue recognition standard that will supersede nearly all existing revenue recognition guidance under current
GAAP and replace it with a principle based approach for determining revenue recognition. ASU 2014-09 will require that companies
recognize revenue based on the value of transferred goods or services as they occur in the contract. The ASU also will require
additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts,
including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract.
ASU 2014-09 is effective for interim and annual periods beginning after December 15, 2017. Early adoption is permitted only in
annual reporting periods beginning after December 15, 2016, including interim periods therein. Entities will be able to transition
to the standard either retrospectively or as a cumulative-effect adjustment as of the date of adoption. The Company is in the
process of evaluating the impact of ASU 2014-09 on the Company’s financial statements and disclosures.
In
February 2016, the FASB issued Accounting Standards Update (ASU) No. 2016-02, Leases. ASU 2016-02 requires a lessee to record
a right of use asset and a corresponding lease liability on the balance sheet for all leases with terms longer than 12 months.
ASU 2016-02 is effective for all interim and annual reporting periods beginning after December 15, 2018. Early adoption is permitted.
A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered
into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients
available. The Company is currently evaluating the expected impact that the standard could have on its financial statements and
related disclosures.
Other
recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified
Public Accountants, and the Securities and Exchange Commission did not or are not believed by management to have a material impact
on the Company’s present or future consolidated financial statements.
NOTE
3 – PROPERTY AND EQUIPMENT
Property
and equipment consist of the following:
|
|
As of
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Plant equipment
|
|
$
|
140,111
|
|
|
$
|
86,237
|
|
Less accumulated depreciation
|
|
|
(20,508
|
)
|
|
|
(1,838
|
)
|
|
|
|
|
|
|
|
|
|
Total property and equipment
|
|
$
|
119,603
|
|
|
$
|
84,399
|
|
Total
depreciation expense was $18,670 and $1,838 for the nine months ended September 30, 2016 and for the period from inception (June
12, 2015) to December 31, 2015, respectively.
NOTE
4 – RELATED PARTY TRANSACTIONS
In
December 2015, the Company loaned $30,000 to an officer which was outstanding at December 31, 2015. The loan was repaid in full
in June 2016. The amounts due from related party was unsecured, non-interest bearing and was due on demand.
Since
July 2015, the Company’s research and development, manufacturing and distribution facility is being leased from a shareholder
and chairman of the Company under a Commercial Sublease Agreement (“Lease”). The term of the Lease is for one year
with automatic renewal periods of one year unless either party provides written notice of its intent not to renew. In July 2016,
the Company extended the lease for an additional year. The Company is required to pay $12,000 per month. During the nine months
ended September 30, 2016 (unaudited) and twelve months ended December 31, 2015, the Company paid $115,000 and $72,000, respectively,
in rent to the Shareholder and Chairman.
In
July 2016, the Company received a loan from its Chief Operating Officer in the amount of $3,000 which remained outstanding as
of September 30, 2016. The loan is unsecured, non-interest bearing and is due on demand.
NOTE
5 – CONVERTIBLE NOTES
Convertible
Notes Payable consist of the following:
|
|
As of
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
8 % Convertible Note Payable to Investor
|
|
$
|
100,000
|
|
|
$
|
-
|
|
10% Convertible Note Payable to Source Financial Inc.
|
|
|
200,000
|
|
|
|
-
|
|
Total Convertible Notes
|
|
|
300,000
|
|
|
|
|
|
Less Valuation discount
|
|
|
(182,906
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Net
|
|
$
|
117,094
|
|
|
$
|
-
|
|
8%
Convertible Promissory Note
In
August 2016, the Company issued an unsecured 8% Convertible Promissory Note (“8% Note”), having a total principal
amount of $100,000, to an accredited investor. The 8% Note is due and payable in full, including interest less amount previously
converted, in August 2017. The 8% Note is convertible at any time into shares of the Company’s common stock at a price per
share of $2.00. The price per share of $2.00 is not subject to subsequent adjustment.
10%
Convertible Promissory Note
On
September 20, 2016, the Company entered into a Binding Memorandum of Understanding (“MOU”) with Source Financial,
Inc. (“SF” or together the “Parties”) whereby the Company and SF have agreed to cause a merger of the
Company with SF and SF has agreed to provide certain financial accommodations and services to the Company. Pursuant to the terms
of the MOU, the Company entered into an unsecured 10% Demand Convertible Promissory Note (“10% Note”) with SF having
a total principal amount of $250,000 of which the Company received $200,000 as of September 30, 2016. The 10% Note accrues interest
at a rate of 10% per annum, which is payable quarterly in cash with the first payment being due and payable on January 15, 2017.
Upon completion of the merger discussed in Note 8, the 10% Note will automatically convert into shares of SF’s Class A common
stock at an issue price of $0.07 per share.
As
the conversion price of $0.07 reflected a price discount below the fair market value of the Company’s common stock as of
the date of the Note, there was deemed a beneficial conversion feature associated with the 10% Note. As such, the Company recorded
$200,000 representing the fair value of the beneficial conversion feature at the date of the 10% Note as additional paid-in capital.
The value of the beneficial conversion feature was recorded as a beneficial conversion feature and is being amortized as interest
expense over the term of the 10% Note and totaled $17,094 for the nine months ended September 30, 2016. The remaining balance
of the valuation discount was $182,906 at September 30, 2016
In
the event the merger is not consummated by January 15, 2017, or in the event that the MOU is terminated by the SF pursuant to
the terms as stated therein, the Company has agreed to issue common stock upon SF’s request equal to 5% of the Company’s
then issued and outstanding common stock on a fully diluted basis. Upon exercise of this right, the Bridge Loans shall be canceled.
NOTE
6 – EQUITY
Authorized
shares
The
Company has authorized 50 million shares of common at a par value of $0.0001 and 10 million shares of Preferred Stock at a par
value of $0.0001. The Company has not issued Preferred Stock and the Company does not have any designated class of Preferred Stock.
Issuance
of founder shares
In
June 2015, the Company issued 10 million shares of its common stock to founders for $1,000 at a price equal to par value.
Stock
Subscriptions
From
June 2015 to August 2015 and again in February 2016, the Company issued 275,000 and 50,000, respectively, shares of common stock
at a price of $2.00 per share for total proceeds of $550,000 and $100,000, respectively.
NOTE
7 – COMMITMENTS
In
January 2016, the Company entered into a two-year consulting agreement requiring monthly payments of $15,000 that extends through
December 2017. During the nine months ended September 30, 2019, the Company paid the consultant $60,000 and $75,000 was included
in accounts payable as of September 30, 2016.
NOTE
8 – SUBSEQUENT EVENTS
Agreement
and Plan of Merger
On
January 24, 2017, the Company entered into an Agreement and Plan of Merger (“Agreement”) with SF and CSES Acquisition
Inc., a wholly owned subsidiary of SF. Under the terms and conditions of the Agreement, SF will issue to the stockholders of the
Company an aggregate 127,045,969 shares of common stock of SF constituting approximately 76% of the common stock of SF in exchange
for all the shares of common stock of the Company at a ratio of 10.65375 shares of SF common stock for 1 share of the Company’s
common stock. Upon closing, the Company will become a wholly-owned subsidiary of SF.
Sale
of common shares to investors
From
October to December 2016, the Company entered into Subscription Agreements with individual accredited investors (the “Subscribers”)
pursuant to which the Subscribers purchased an aggregate of 1,472,000 units at a price of $2.50 per unit. Each unit consisted
of one restricted share of the Company’s common stock and Common Stock Purchase Warrants (“Warrants”) to purchase
one share of the Company’s common stock at an exercise price of $7.50 per share. Total proceeds received were $3,680,000
in cash. In addition, the Company issued to its placement agent as a private placement fee 128,000 shares of common stock and
a warrant to purchase 128,000 shares of the Company’s common stock at an exercise price of $2.50 per share. The Warrants
are fully vested when issued and expire three years after the date of issuance.
Appendix
A
AGREEMENT
AND PLAN OF MERGER
by
and among
Source
Financial, Inc.
(a
Delaware corporation),
CSES
Group, Inc.
(a
Nevada corporation)
And
CSES
Acquisition, Inc.
(a
Nevada corporation)
Dated
as of January 24, 2017
AGREEMENT
AND PLAN OF MERGER
THIS
AGREEMENT AND PLAN OF MERGER (hereinafter referred to as this “
Agreement
”) is entered into as of January 24,
2017, by and among Source Financial, Inc., a Delaware corporation (“
Source
”), CSES Group, Inc., a Nevada corporation
(the “
Company
”), and CSES Acquisition, Inc., a Nevada corporation, and a wholly owned subsidiary of Source
(“
CSES Merger Sub
”), upon the following premises:
Preliminary
Statement
Source
is a publicly traded corporation quoted on OTCQX (the “
OTCQX
).
The
parties have determined that it would be advisable and in the best interests of their respective companies and security holders
that CSES Merger Sub be merged with and into the Company (the “
Merger
”) with the Company becoming a wholly
owned subsidiary of Source.
Pursuant
to the Merger, Source will issue to the stockholders of CSES (the “
Stockholders
”) an aggregate of 127,045,969
shares of the Common Stock of Source constituting approximately 76.60% of the total shares of Common Stock of Source to be outstanding
upon consummation of the Merger contemplated hereby. On the Closing Date (as defined in
Section 1.02
), the Company will
become a wholly-owned subsidiary of Source.
Agreement
NOW
THEREFORE
, on the stated premises and for and in consideration of the mutual covenants and agreements hereinafter set forth
and the mutual benefits to the parties to be derived here from, and intending to be legally bound hereby, it is hereby agreed
as follows:
ARTICLE
I
THE MERGER
1.01 The
Merger. Upon the terms and subject to the conditions set forth in this Agreement, and in accordance with the Nevada Revised Statutes
(“
NRS
”) at the Effective Time as defined below: (a) CSES Merger Sub will merge with and into the Company,
and (b) the separate corporate existence of CSES Merger Sub will cease and the Company will continue its corporate existence
under the NRS as the surviving corporation in the Merger (sometimes referred to herein as the “
Surviving
Corporation
1.02
Closing
.
(a) Upon
the terms and subject to the conditions set forth herein, the closing of the Merger (the “
Closing
”)
will take place as soon as practicable (but in any event within five (5) business days after satisfaction or waiver of each of
the conditions set forth in
Article VI
and
Article VII
hereof), unless another time or date is agreed
to in writing by the parties hereto. The Closing may be held by the remote exchange of documents, and the actual date of the Closing
is hereinafter referred to as the “
Closing Date
.
”
(b) Subject
to the provisions of this Agreement, at the Closing, the Company, Source and CSES Merger Sub, as the case may be, will cause articles
of merger (the “
Articles of Merger
”) to be executed, acknowledged
and filed with the Secretary of State of the State of Nevada in accordance with the relevant provisions of the NRS and shall make
all other filings or recordings required under the NRS. The Merger will become effective at such time as the Articles of Merger
have been duly filed with the Secretary of State of the State of Nevada or at such later date or time as may be agreed by the
Company and Source in writing and specified in the Articles of Merger in accordance with the NRS (the effective time of the Merger
being hereinafter referred to as the “
Effective Time
”).
1.03
Effect
of the Merger
. The Merger shall have the effect set forth herein and in the applicable provisions of the NRS. Without limiting
the generality of the foregoing, and subject thereto, from and after the Effective Time all property, rights, privileges, immunities,
powers, franchises, licenses and authority of the Company and CSES Merger Sub shall vest in the Surviving Corporation, and all
debts, liabilities, obligations, restrictions and duties of each of the Company and CSES Merger Sub shall become the debts, liabilities,
obligations, restrictions and duties of the Surviving Corporation.
1.04
Directors
and Officers
. The directors and officers of CSES Merger Sub immediately prior to the Effective Time shall, from and after
the Effective Time, be the directors and officers, respectively, of the Surviving Corporation until their successors have been
duly elected or appointed and qualified or until their earlier death, resignation or removal in accordance with the articles of
incorporation and by-laws of the Surviving Corporation.
ARTICLE
II
EFFECT OF THE MERGER ON THE
SECURITIES OF THE COMPANY AND CSES MERGER SUB
2.01
Effect
on Capital Stock of the Company
. As of the Effective Time, by virtue of the Merger and without any action on the part of CSES
Merger Sub, the Company or the holders of: (i) any shares of the Common Stock of the Company, or (ii) any shares of
common stock of CSES Merger Sub, the following shall occur:
(a)
Cancellation
of Certain Capital Stock of the Company
. Each share of Common Stock of the Company that is owned by Source, CSES Merger Sub
or the Company (as treasury stock or otherwise) or any of their respective direct or indirect wholly-owned subsidiaries will automatically
be cancelled and retired and will cease to exist, and no consideration will be delivered in exchange therefor.
(b)
Conversion
of the Stock of the Company
. All shares of the Company Common Stock issued and outstanding immediately prior to the Effective
Time (other than dissenting securities, and shares to be cancelled and retired in accordance with
Section 2.1(a)
) will
be converted into the Merger Consideration (as defined below) which Merger Consideration shall be distributed to the Stockholders
as more particularly set forth in the Merger Consideration Schedule attached as Schedule 2.01(b) (the “
Merger Consideration
Schedule
”), but in any event subject to
Sections 2.02
and
2.03
. The Merger Consideration is based
on (a) an Exchange ratio of 10.65375 shares of Source Common Stock for each outstanding share of Common Stock of the Company (the
“
Exchange Ratio
”), (b) the conversion of all outstanding derivative securities of Source, and (c) a private
placement of the Company’s securities of $4,000,000 (the “
Private Placement
”) which includes shares of
the Company’s Common Stock. The Merger Consideration also includes options and warrants to purchase shares of Source Common
Stock (the “
New Derivative Securities
”) to be issued to holders of options (the “
Company Options
”)
and warrants (the “
Company Warrants
”) to purchase Common Stock of the Company (collectively, the “
Old
Derivative Securities
”) which are to be exchanged pursuant to Section 2.03 below. The post-Merger Capitalization Table
and the pro forma capitalization table are set forth in Schedule 2.01(b).
(c)
Cancellation
of Shares
. At the Effective Time, all shares of Common Stock of the Company and all Old Derivative Securities will no longer
be outstanding and all shares of the Company’s Common Stock and all Old Derivative Securities will be cancelled and retired
and will cease to exist, and each holder of a certificate or other document formerly representing any such shares of Common Stock
of the Company or Old Derivative Securities will cease to have any rights with respect thereto, except the right to receive the
Merger Consideration, if any.
(d)
Conversion
of CSES Merger Sub Capital Stock
. Each share of common stock of CSES Merger Sub issued and outstanding immediately prior to
the Effective Time shall be converted into and become one newly issued, fully paid and non-assessable share of common stock of
the Surviving Corporation.
2.02
Payment
of Merger Consideration
. At the Effective Time: (i) Source shall issue cerificates in the name of the Stockholders representing
the Merger Consideration in accordance with the Merger Consideration Schedule and (ii) the Stockholders shall deliver to
Source certificates representing all of the issued and outstanding shares of Common Stock of the Company. Upon surrender of such
certificates for cancellation to Source, the holders of such certificates shall be entitled to receive in exchange therefor, and
Source shall cause the transfer agent to deliver the Merger Consideration (or evidence of such Consideration in book-entry form)
into which the securities formerly represented by such certificates shall have been converted pursuant to the terms of this
Article II
,
and the certificates so surrendered shall forthwith be cancelled. All Merger Consideration paid upon the surrender or exchange
of certificates shall be deemed to have been paid in full satisfaction of all rights pertaining to the shares of Common Stock
of the Company previously represented by such certificates, and at the Effective Time the transfer books of the Company shall
be closed and there shall be no further registration of transfers on the stock transfer books of the shares of the Company Common
Stock that were outstanding immediately prior to the Effective Time.
2.03
Treatment
of Old Derivative Securities
.
(a) At
the Effective Time, each Company Option under the Company’s Equity Compensation Plan, each Company Warrant and the Convertible
Note referred to Schedule 3.07 (the “
Note
”) outstanding immediately before the Effective Time shall, automatically
and without any required action on any part of any holder or beneficiary thereof, be assumed by Source and converted into an option,
warrant or note (as the case may be) to purchase shares of Source Common Stock (each, a “
Converted Security
”).
Each Converted Security shall continue to have and be subject to substantially the same terms and conditions as were applicable
to such Converted Security immediately before the Effective Time (including expiration date and exercise provisions), except that
(i) each Converted Security shall be exercisable or convertible for that number of shares of Source Common Stock equal to the
product (rounded down to the nearest whole number) of (A) the number of shares of Company Stock subject to the Converted Security
immediately before the Effective Time and (B) the Exchange Ratio; and (ii) the per share exercise or conversion price for each
share of Source Common Stock issuable upon exercise of the Converted Security shall be equal to the quotient (rounded up to the
nearest whole cent) obtained by dividing (A) the exercise or conversion price per share of Company Common Stock of such Converted
Security immediately before the Effective Time by (B) the Exchange Ratio; provided, however, that as to the Company Options, the
exercise price and the number of shares of Source Common Common Stock purchasable under each such Converted Security shall be
determined in a manner consistent with the requirements of Section 409A of the Code and the applicable regulations promulgated
thereunder; provided, further, that in the case of any Company Option to which Section 422 of the Code applies, the exercise price
and the number of shares of Source Common Stock purchasable under such Converted Security shall be determineed in accordance with
the foregoing in a manner that satisfies the requirements of Section 424(a) of the Code.
(b) Before
the Effective Time, the Company shall deliver to the holders of the Converted Securities notices, in a form reasonably acceptable
to Source, setting forth the effect of the Merger on such holders’ rights and describing the treatment of such awards in
accordance with this Article II.
(c) Source
will (a) reserve for issuance the number of shares of Source Common Stock that will become subject to the Converted Securities
and (b) issue or cause to be issued the appropriate number of shares of Source Common Stock, upon the exercise of the Converted
Securities.
2.04
No
Fractional Shares
. No certificates or scrip representing fractional shares of Source Common Stock shall be issued and any
fractions shall be rounded up or down to the nearest whole share.
2.05
Lost,
Stolen or Destroyed Certificate
. If any certificate evidencing Common Stock of the Company shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming such certificate to be lost, stolen or destroyed
and, if required by Source, the posting by such person of a bond, in such reasonable amount as Source may direct, as indemnity
against any claim that may be made against it with respect to such certificate, Source will issue, in exchange for such lost,
stolen or destroyed certificate, the applicable Merger Consideration and cash in lieu of any fractional shares of Source Common
Stock to which such holder would be entitled in each case pursuant to this Agreement.
2.06
Withholding
Taxes
. Source shall be entitled to deduct and withhold from that portion of the Merger Consideration otherwise payable pursuant
to this Agreement such amounts as Source is required to deduct and withhold with respect to the making of such payment under any
provision of federal, state, local, provincial or foreign tax law. To the extent that amounts are so withheld and remitted to
the appropriate governmental body, such withheld amounts shall be treated for all purposes of this Agreement as having been paid
to the holder of such securities in respect of which such deduction and withholding was made by Source.
2.07
Appraisal
Rights
. Notwithstanding anything in this Agreement to the contrary, shares of Common Stock of the Company that are issued
and outstanding immediately prior to the Effective Time and which are held by a Stockholder who did not vote in favor of the Merger
(or consent thereto in writing) and who is entitled to demand and properly demands appraisal of Common Stock of the Company pursuant
to, and who complies in all respects with, the provisions of the NRS (the “
Dissenting Holders
”), shall not
be converted into or be exchangeable for the right to receive the applicable Merger Consideration, but instead such Holder shall
be entitled to payment of the fair value of such Common Stock (the “
Dissenting Securities
”) in accordance with
the provisions of Section 92A.380 of the NRS (and at the Effective Time, such Dissenting Securities shall no longer be outstanding
and shall automatically be canceled and shall cease to exist, and such holder shall cease to have any rights with respect thereto,
except the right to receive the fair value of such Dissenting Securities in accordance with the provisions of the NRS, unless
and until such holder shall have failed to perfect or shall have effectively withdrawn or lost rights to appraisal under the NRS).
If any Dissenting Holder shall have failed to perfect or shall have effectively withdrawn or lost such right, such Holder’s
shares of Common Stock of the Company shall thereupon be treated as if they had been converted into and become exchangeable for
the right to receive, as of the Effective Time, the applicable Merger Consideration for such Stock without any interest thereon.
The Company shall give Source: (i) prompt notice of any written demands for attempted withdrawals of such demands and any other
instruments served pursuant to the NRS, and (ii) the opportunity to participate in all negotiations and proceedings with respect
to demands for appraisal under the NRS. The Company, except with the prior written consent of Source, shall not voluntarily make
any payment with respect to, or settle, or offer or agree to settle, any such demand for payment.
ARTICLE
III
REPRESENTATIONS, COVENANTS, AND WARRANTIES OF THE COMPANY
As
an inducement to Source to consummate the Merger, the Company represents and warrants that except as set forth in the schedules
of exceptions to the representations of the Company annexed hereto (the “
Company Schedules
”) the following
statements will be true and correct as of the Closing Date (as hereinafter defined):
3.01
Organization
.
The Company is duly incorporated, validly existing, and in good standing under the laws of Nevada and has the corporate power
and is duly authorized under all applicable laws, regulations, ordinances and orders of public authorities, to carry on its business
in all material respects as it is now being conducted. Prior to the Closing Date (as hereinafter defined) the Company will deliver
to Source complete and correct copies of the articles of incorporation and by-laws of the Company as in effect on the date hereof.
The execution and delivery of this Agreement does not, and the consummation of the transactions contemplated hereby will not,
violate any provision of Company’s articles of incorporation or by-laws. The Company has taken all actions required by law,
its articles of incorporation or by-laws, or otherwise to authorize the execution and delivery of this Agreement. The Company
has full power, authority, and legal capacity and prior to the Closing Date will have taken all action required by law, its articles
of incorporation or by-laws, and otherwise to consummate the transactions herein contemplated.
3.02
Power
and Authority
. The Company has all requisite corporate power and authority to execute, deliver and perform its obligations
under this Agreement and the Merger and to consummate the transactions contemplated hereby; which authority consists of the consent
of the Company shareholders, including the new shareholders of the Company by virtue of the private placement completed in December
2016 (“
Shareholder Approval
”) and the unanimous consent of the directors.
3.03
Authorization
of Agreement; Due Execution and Delivery; Binding Agreement.
The execution, delivery and performance of this Agreement by
the Company, and the consummation of the transactions contemplated hereby, have been duly authorized by the Board of Directors
of the Company, and the Board of Directors has recommended that the Stockholders accept the Exchange. This Agreement has been
duly executed and delivered on behalf of the Company. This Agreement constitutes a valid and binding obligation of the Company,
enforceable in accordance with its terms, except that such enforcement may be limited by bankruptcy, insolvency or other similar
laws affecting the enforcement of creditors, rights generally, and subject to the qualification that the availability of equitable
remedies is subject to the discretion of the court before which any proceeding therefore may be brought.
3.04
No
Conflict
. The execution of this Agreement and the consummation of the transactions contemplated by this Agreement (i) will
not violate any provision of the articles of incorporation or by-laws of the Company; (ii) will not, with or without the giving
or notice and the lapse of time, or both, result in the breach of any term or provision of, constitute a default under, or terminate,
accelerate or modify the terms of any indenture, mortgage, deed of trust, or other material agreement, or instrument to which
the Company is a party or to which any of its assets, properties or operations are subject; (iii) violate any provision of law,
statute, rule, regulation or executive order to which the Company is subject; or (iv) violate any judgment, order, writ or decree
of any court applicable to the Company.
3.05
Issued
and Outstanding Shares
. The issued and outstanding shares of common stock of the Company are validly issued, fully paid, and
non-assessable and not issued in violation of the preemptive or other rights of any person.
3.06
Options
or Warrants
. Other than the Company’s recent placement of its Units consisting of shares of Common Stock and Common
Stock Purchase Warrants, through its Placement Agent T.R. Winston & Company, and the Company’s 2015 Stock Option Plan,
there are no existing options, warrants, calls, or commitments of any character relating to the authorized and unissued stock
of the Company.
3.07
Financial
Statements
.
(a) Prior
to the Closing Date, the Company will deliver to Source audited financial statements of the Company from inception through the
year ended December 31, 2015 , together with the opinion with respect thereto of a recognized independent certified public accountant,
together with the unaudited interim financial statements as of September 30, 2016 and for the nine month period then ended (the
“
Financial Statements
”). All such Financial Statements will have been prepared in accordance with generally
accepted accounting principles consistently applied throughout the periods involved, and will fairly present in all material respects
the financial position, results of operations, cash flows and changes in stockholders’ equity of the Company as of the dates
and for the periods presented therein.
(b) The
Company has duly and punctually paid all governmental fees and taxes which it has become liable to pay and has duly allowed for
all taxes reasonably foreseeable and is under no liability to pay any penalty or interest in connection with any claim for governmental
fees or taxation and the Company has made any and all proper declarations and returns for taxation purposes and all information
contained in such declarations and returns is true and complete and full provision or reserves have been made in its financial
statements for all governmental fees and taxation.
(c) The
books and records, financial and otherwise, of the Company are in all material respects complete and correct and have been maintained
in accordance with generally accepted accounting principles consistently applied throughout the periods involved.
(d) The
Company will have no liabilities (whether absolute, accrued, contingent, known or unknown or otherwise), claims, obligations or
other liens, except as disclosed on the balance sheets included in the Financial Statements or incurred in the ordinary course
of business subsequent to the date of the last Financial Statements.
Schedule 3.07
sets forth, separately, (a) a true,
correct and complete list of all outstanding loans, lines of credit and other indebtedness incurred by the Company, inclusive
of any outstanding loans, lines of credit and other indebtedness incurred by the Company, the repayment obligations for which
are secured by any of the Company’s assets and (b) with respect to each loan described in the foregoing clause, the amounts
due thereunder as of the date hereof.
3.08
Absence
of Certain Changes or Events. Prior to the Closing Date
:
(a) There
will not have been any material adverse change in the business, operations, properties, assets, or condition (financial or otherwise)
of the Company since the date of the most recent balance sheet included in the Financial Statements;
(b) Except
as otherwise contemplated herein, subsequent to the date hereof, the Company will not (i) amend its articles of incorporation;
(ii) declare or make, or agree to declare or make, any payment of dividends or distributions of any assets of any kind whatsoever
to stockholders or purchase or redeem, or agree to purchase or redeem, any of its shares; (iii) make any material change in its
method of management, operation or accounting, (iv) enter into any other material transaction other than sales in the ordinary
course of its business; or (v) make any increase in or adoption of any profit sharing, bonus, deferred compensation, insurance,
pension, retirement, or other employee benefit plan, payment, or arrangement made to, for, or with its officers, directors, or
employees; and
(c) The
Company will not (i) grant or agree to grant any options, warrants or other rights for its stocks, bonds or other corporate securities
calling for the issuance thereof except as disclosed herein, (ii) borrow or agree to borrow any funds or incur, or become subject
to, any material obligation or liability (absolute or contingent) except as disclosed herein and except liabilities incurred in
the ordinary course of business; (iii) sell or transfer, or agree to sell or transfer, any of its assets, properties, or rights
or cancel, or agree to cancel, any debts or claims; or (iv) issue, deliver, or agree to issue or deliver any stock, bonds or other
corporate securities including debentures (whether authorized and unissued or held as treasury stock) except as disclosed herein
or in connection with this Agreement.
3.09
Litigation
and Proceedings
. There are no actions, suits, proceedings, or investigations pending or, to the best of its knowledge, threatened
by or against the Company or affecting the Company or its properties, at law or in equity, before any court or other governmental
agency or instrumentality, domestic or foreign, or before any arbitrator of any kind. The Company does not have any knowledge
of any material default on its part with respect to any judgment, order, injunction, decree, award, rule, or regulation of any
court, arbitrator, or governmental agency or instrumentality or of any circumstances which, after reasonable investigation, would
result in the discovery of such a default.
3.10
Compliance
With Laws and Regulations.
To the best of its knowledge, the Company has complied with all statutes and regulations applicable
to its business, except to the extent that noncompliance would not materially and adversely affect the business, operations, properties,
assets, or condition of the Company or except to the extent that noncompliance would not result in the occurrence of any material
liability for the Company.
3.11
Contracts
.
(a) All
“material” contracts, agreements, franchises, license agreements, debt instruments or other commitments to which the
Company is a party or by which it or any of its assets, products, technology, or properties are bound other than those incurred
in the ordinary course of business have been disclosed to Source prior to the date hereof. A “material” contract,
agreement, franchise, license agreement, debt instrument or commitment is one which (i) will remain in effect for more than six
(6) months after the date of this Agreement, (ii) involves aggregate obligations of at least twenty-five thousand dollars ($25,000)
and which cannot be terminated by the Company on notice of no more than thirty days at a cost of no more than $10,000;
(b) All
contracts, agreements, franchises, license agreements, and other commitments to which the Company is a party or by which its properties
are bound and which are material to the operations of the Company taken as a whole are valid and enforceable by the Company in
all respects, except as limited by bankruptcy and insolvency laws and by other laws affecting the rights of creditors generally;
and
(c) Except
as included or described in the
Schedule 3.11
or reflected in the most recent Company balance sheet included in the Financial
Statements, the Company is not a party to any oral or written (i) contract for the employment of any officer or employee; (ii)
profit sharing, bonus, deferred compensation, stock option, severance pay, pension benefit or retirement plan, (iii) agreement,
contract, or indenture relating to the borrowing of money, (iv) guaranty of any obligation; (vi) collective bargaining agreement;
or (vii) agreement with any present or former officer or director of the Company, which, in each case cannot be terminated by
the Company on notice of no more than thirty days at a cost of no more than $10,000.
3.12
Taxes
.
The Company has: (i) timely filed or will file with the appropriate taxing authorities all tax returns required to be filed by
or with respect to its business, or is properly on extension and all such duly filed tax returns are true, correct and complete
in all material respects; and (ii) timely paid in full or made adequate provisions for on its balance sheet (in accordance with
GAAP) all taxes shown to be due on such tax returns. There are no liens for taxes upon the assets of the Company except for statutory
liens for current taxes not yet due and payable or which may thereafter be paid without penalty or are being contested in good
faith. The Company has not received any notice of audit, is not undergoing any audit of its tax returns, and has not received
any notice of deficiency or assessment from any taxing authority with respect to liability for taxes which has not been fully
paid or finally settled. There have been no waivers of statutes of limitations by the Company with respect to any tax returns.
The Company has not filed a request with any taxing authority for changes in accounting methods within the last three years which
change would affect the accounting for tax purposes, directly or indirectly, of its business. The Company has not executed an
extension or waiver of any statute of limitations on the assessment or collection of any taxes due that is currently in effect.
3.13
No
Disagreements with Accountants and Lawyers.
There are no disagreements of any kind presently existing, or reasonably anticipated
by the Company to arise, between the accountants, and lawyers formerly or presently employed by the Company and the Company is
current with respect to any fees owed to its accountants and lawyers.
3.14
No
Brokers
. The Company has not retained any broker or finder in connection with any of the transactions contemplated by this
Agreement, and has not incurred or agreed to pay, or taken any other action that would entitle any person to receive, any brokerage
fee, finder’s fee or other similar fee or commission with respect to any of the transactions contemplated by this Agreement.
3.15
Disclosure
.
To the best of the Company’s knowledge, all disclosure provided to Source regarding the Company, its business and the transactions
contemplated hereby, including the Company Disclosure Schedules to this Agreement, furnished by or on behalf of the Company with
respect to the representations and warranties made herein are true and correct with respect to such representations and warranties
and do not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements
made therein, in light of the circumstances under which they were made, not misleading. The Company acknowledges and agrees that
Source has not made, nor is Source making, any representations or warranties with respect to the transactions contemplated hereby
other than those specifically set forth herein. In the event that the Company Disclosure Schedules are not delivered contemporaneously
with the execution of this Agreement, they shall be delivered as soon as practicable prior to the Closing Date.
ARTICLE
IV
REPRESENTATIONS, COVENANTS, AND WARRANTIES OF SOURCE
As
an inducement to, and to obtain the reliance of the Company, except as set forth in the schedules of exceptions to the representations
of Source annexed hereto (the “
Source Schedules
”), Source represents and warrants, as of the date hereof and
as of the Closing Date, as follows:
4.01
Organization
.
Source is a corporation duly incorporated, validly existing, and in good standing under the laws of Delaware and has the corporate
power and is duly authorized under all applicable laws, regulations, ordinances, and orders of public authorities to carry on
its business in all material respects as it is now being conducted. Source has made available to the Company or there has been
available on EDGAR complete and correct copies of the certificate of incorporation and bylaws of Source as in effect on the date
hereof. The execution and delivery of this Agreement does not, and the consummation of the transactions contemplated hereby will
not, violate any provision of Source’s certificate of incorporation or by-laws. Source has taken all action required by
law, its certificate of incorporation and by-laws, or otherwise to authorize the execution and delivery of this Agreement, and
Source has full power, authority, and legal right and has taken all action required by law, its certificate of incorporation and
by-laws, or otherwise to consummate the transactions herein contemplated.
4.02
Capitalization
.
(a) As
of the date hereof, Source’s authorized capitalization consists of 12,000,000 shares of common stock, par value $0.001 per
share, of which 10,748,884 shares are issued and outstanding, and 10,000 shares of preferred stock, of which 5,000 are designated
as Series C Preferred Stock, par value $0.01 per share, 2,082 shares of which are issued and outstanding, Source’s capitalization
immediately before and after Closing is set forth in
Schedule 4.02
hereof. All issued and outstanding shares are legally
issued, fully paid, and non-assessable and not issued in violation of the preemptive or other rights of any person. Except as
contemplated herein, as of the date hereof and the Closing Date, no shares of Source’s common stock are or will be reserved
for issuance upon the exercise of outstanding options to purchase the common stock; no shares of common stock are or will be reserved
for issuance upon the exercise of outstanding warrants to purchase shares of Source common stock; and no shares of Source’s
common stock will be reserved for issuance for any other instrument which by its terms would require the issuance of Source common
stock. All outstanding shares of Source common stock have been issued and granted in compliance with (i) all applicable securities
laws and (in all material respects) other applicable laws and regulations, and (ii) all requirements set forth in any applicable
Contracts.
(b) There
are no equity securities, partnership interests or similar ownership interests of any class of any equity security of Source,
or any securities exchangeable or convertible into or exercisable for such equity securities, partnership interests or similar
ownership interests, issued, reserved for issuance or outstanding. Except as contemplated by this Agreement or as set forth in
Schedule 4.02
, there are no subscriptions, options, warrants, equity securities, partnership interests or similar ownership
interests, calls, rights (including preemptive rights), commitments or agreements of any character to which Source is a party
or by which it is bound obligating Source to issue, deliver or sell, or cause to be issued, delivered or sold, or repurchase,
redeem or otherwise acquire, or cause the repurchase, redemption or acquisition of, any shares of capital stock, partnership interests
or similar ownership interests of Source or obligating Source to grant, extend, accelerate the vesting of or enter into any such
subscription, option, warrant, equity security, call, right, commitment or agreement. There is no plan or arrangement to issue
shares of Source common stock, except as set forth in this Agreement.
Except
as contemplated by this Agreement and except as set forth in
Schedule 4.02
hereto, there are no registration rights, and
there is no voting trust, proxy, rights plan, anti-takeover plan or other agreement or understanding to which Source is a party
or by which it is bound with respect to any equity security of any class of Source, and there are no agreements to which Source
is a party, or which Source has knowledge of, which conflict with this Agreement or the transactions contemplated herein or otherwise
prohibit the consummation of the transactions contemplated hereunder.
4.03
Subsidiaries
and Predecessor Corporations
. Except as disclosed in the SEC Reports, Source does not have any predecessor corporation(s)
or subsidiaries, and does not own, beneficially or of record, any equity interests of any other corporation or entity.
4.04
SEC
Filings; Financial Statements
.
(a) Source
has made available to the Company and the Stockholders, or there has been available on EDGAR, correct and complete copies of each
report, registration statement and definitive proxy statement filed by Source with the SEC since December 30, 2013 (the “
SEC
Reports
”). As of their respective dates, the Source SEC Reports: (i) were prepared in accordance and complied in all
material respects with the requirements of the Securities Act or the Exchange Act, as the case may be, and the rules and regulations
of the SEC thereunder applicable to such Source SEC Reports, and (ii) did not at the time they were filed (and if amended or superseded
by a filing prior to the date of this Agreement then on the date of such filing and as so amended or superseded) contain any untrue
statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made, not misleading.
(b) Included
in the SEC Reports are the (i) audited consolidated balance sheets of Source as of December 31, 2015 and the related audited consolidated
statements of operations, stockholders’ equity and cash flows for December 31, 2015, together with the notes to such statements
and the opinion of its independent certified public accountants, with respect thereto; and (ii) the unaudited consolidated balance
sheets of Source as of September 30, 2016 and 2015 and the related unaudited consolidated statements of operations and cash flows
for the nine months ended September 30, 2016 and 2015, together with the notes to such statements.
(c) Each
set of financial statements (including, in each case, any related notes thereto) contained in the SEC Reports comply as to form
in all material respects with the published rules and regulations of the SEC with respect thereto, were prepared in accordance
with U.S. GAAP applied on a consistent basis throughout the periods involved (except as may be indicated in the notes thereto)
and each fairly presents in all material respects the financial position of Source at the respective dates thereof and the results
of its operations and cash flows for the periods indicated, except that the unaudited interim financial statements were or are
subject to normal adjustments which were not or are not expected to have a material adverse effect upon the business, prospects,
management, properties, operations, condition (financial or otherwise) or results of operations of Source, taken as a whole (“
Material
Adverse Effect
”).
(d) The
Source balance sheets are true and accurate and present fairly as of their respective dates the financial condition of Source.
As of the date of such balance sheets, except as and to the extent reflected or reserved against therein, Source had no liabilities
or obligations (absolute or contingent) which should be reflected in the balance sheets or the notes thereto prepared in accordance
with generally accepted accounting principles, and all assets reflected therein are properly reported and present fairly the value
of the assets of Source, in accordance with generally accepted accounting principles. The statements of operations, stockholders’
equity and cash flows reflect fairly the information required to be set forth therein by generally accepted accounting principles.
All of Source’s assets are reflected on its financial statements, and, except as set forth in the Source Schedules or the
financial statements of Source or the notes thereto, Source has no material liabilities, direct or indirect, matured or unmatured,
contingent or otherwise;
(e) Source
has no liabilities with respect to the payment of any federal, state, county, local or other taxes (including any deficiencies,
interest or penalties), except for taxes accrued but not yet due and payable; and
(f) The
books and records, financial and otherwise, of Source are in all material aspects complete and correct and have been maintained
in accordance with generally accepted accounting principles consistently applied throughout the periods involved.
4.05
Taxes
.
Source has: (i) timely filed with the appropriate taxing authorities all tax returns required to be filed by or with respect to
its business, or are properly on extension and all such duly filed tax returns are true, correct and complete in all material
respects; and (ii) timely paid in full or made adequate provisions for on its balance sheet (in accordance with GAAP) all Taxes
shown to be due on such tax returns. There are no liens for taxes upon the assets of Source except for statutory liens for current
taxes not yet due and payable or which may thereafter be paid without penalty or are being contested in good faith. Source has
not received any notice of audit, is not undergoing any audit of its tax returns, and has not received any notice of deficiency
or assessment from any taxing authority with respect to liability for taxes which has not been fully paid or finally settled.
There have been no waivers of statutes of limitations by Source with respect to any tax returns. Source has not filed a request
with the Internal Revenue Service for changes in accounting methods within the last three years which change would affect the
accounting for tax purposes, directly or indirectly, of its business. Source has not executed an extension or waiver of any statute
of limitations on the assessment or collection of any taxes due (excluding such statutes that relate to years currently under
examination by the Internal Revenue Service or other applicable taxing authorities) that is currently in effect.
4.06
No
Disagreements with Accountants and Lawyers.
There are no disagreements of any kind presently existing, or reasonably anticipated
by Source to arise, between the accountants, and lawyers formerly or presently employed by Source and Source is current with respect
to any fees owed to its accountants and lawyers.
4.07
Options
or Warrants.
Except as set forth in the SEC Reports, there are no existing options, warrants, calls, or commitments of any
character relating to the authorized and unissued stock of Source.
4.08
Absence
of Certain Changes or Events.
Since September 30, 2016:
(a) there
has not been (i) any material adverse change in the business, operations, properties, assets or condition of Source or (ii) any
damage, destruction or loss to Source (whether or not covered by insurance) materially and adversely affecting the business, operations,
properties, assets or condition of Source;
(b) Source
has not (i) amended its certificate of incorporation or by-laws, except as required by this Agreement; (ii) declared or made,
or agreed to declare or make any payment of dividends or distributions of any assets of any kind whatsoever to stockholders or
purchased or redeemed, or agreed to purchase or redeem, any of its capital stock; (iii) waived any rights of value which in the
aggregate are outside of the ordinary course of business or material considering the business of Source; (iv) made any material
change in its method of management, operation, or accounting; (v) entered into any transactions or agreements other than in the
ordinary course of business; (vi) made any accrual or arrangement for or payment of bonuses or special compensation of any kind
or any severance or termination pay to any present or former officer or employee; (vii) increased the rate of compensation payable
or to become payable by it to any of its officers or directors or any of its salaried employees whose monthly compensation exceed
$1,000; or (viii) made any increase in any profit sharing, bonus, deferred compensation, insurance, pension, retirement, or other
employee benefit plan, payment, or arrangement, made to, for or with its officers, directors, or employees;
(c) Source
has not (i) granted or agreed to grant any options, warrants, or other rights for its stock, bonds, or other corporate securities
calling for the issuance thereof; (ii) borrowed or agreed to borrow any funds or incurred, or become subject to, any material
obligation or liability (absolute or contingent) except liabilities incurred in the ordinary course of business; (iii) paid or
agreed to pay any material obligations or liabilities (absolute or contingent) other than current liabilities reflected in or
shown on the most recent Source balance sheet and current liabilities incurred since that date in the ordinary course of business
and professional and other fees and expenses in connection with the preparation of this Agreement and the consummation of the
transaction contemplated hereby; (iv) sold or transferred, or agreed to sell or transfer, any of its assets, properties, or rights
(except assets, properties, or rights not used or useful in its business which, in the aggregate have a value of less than $1,000),
or canceled, or agreed to cancel, any debts or claims (except debts or claims which in the aggregate are of a value less than
$1,000); (v) made or permitted any amendment or termination of any contract, agreement, or license to which it is a party if such
amendment or termination is material, considering the business of Source; or (vi) issued, delivered or agreed to issue or deliver,
any stock, bonds or other corporate securities including debentures (whether authorized and unissued or held as treasury stock),
except in connection with this Agreement; and
(d) Source
has not become subject to any law or regulation which materially and adversely affects, or in the future, may adversely affect,
the business, operations, properties, assets or condition of Source.
4.09
Litigation
and Proceedings.
There are no actions, suits, proceedings or investigations pending or, to the knowledge of Source, threatened
against Source, or affecting Source or its properties, at law or in equity, before any court or other governmental agency or instrumentality,
domestic or foreign, or before any arbitrator of any kind. Source is not in default with respect to any judgment, order, writ,
injunction, decree, award, rule or regulation of any court, arbitrator, or governmental agency or instrumentality.
4.10
Contracts
.
(a) Source
is not a party to, and its assets, products, technology and properties are not bound by, any contract, franchise, license agreement,
agreement, debt instrument or other commitments whether such agreement is in writing or oral;
(b) Source
is not a party to or bound by, and the properties of Source are not subject to any contract, agreement, other commitment or instrument;
any charter or other corporate restriction; or any judgment, order, writ, injunction, decree, or award; and
(c) Source
is not a party to any oral or written (i) contract for the employment of any officer or employee; (ii) profit sharing, bonus,
deferred compensation, stock option, severance pay, pension benefit or retirement plan, (iii) agreement, contract, or indenture
relating to the borrowing of money, (iv) guaranty of any obligation, (vi) collective bargaining agreement; or (vii) agreement
with any present or former officer or director of Source.
4.11
No
Conflict With Other Instruments.
The execution of this Agreement and the consummation of the transactions contemplated by
this Agreement will not result in the breach of any term or provision of, constitute a default under, or terminate, accelerate
or modify the terms of, any indenture, mortgage, deed of trust, or other material agreement or instrument to which Source is a
party or to which any of its assets, properties or operations are subject.
4.12
Compliance
With Laws and Regulations.
Source has complied with all applicable statutes and regulations of any federal, state, or other
applicable governmental entity or agency thereof. This compliance includes, but is not limited to, the filing of all reports to
date with federal and state securities authorities.
4.13
Approval
of Agreement.
The Board of Directors of Source has authorized the execution and delivery of this Agreement by Source and has
approved this Agreement and the transactions contemplated hereby.
4.14
Material
Transactions or Affiliations.
Except as set forth in
Schedule 4.14
hereto and in the SEC Reports, there exists no contract,
agreement or arrangement between Source and any predecessor and any person who was at the time of such contract, agreement or
arrangement an officer, director, or person owning of record or known by Source to own beneficially, 5% or more of the issued
and outstanding common shares of Source and which is to be performed in whole or in part after the date hereof. Neither any officer,
director, nor 5% Shareholders of Source has, or has had since inception of Source, any known interest, direct or indirect, in
any such transaction with Source which was material to the business of Source. Source has no commitment, whether written or oral,
to lend any funds to, borrow any money from, or enter into any other transaction with, any such affiliated person.
4.15
Bank
Accounts; Power of Attorney.
Set forth in
Schedule 4.15
is a true and complete list of (a) all accounts with banks,
money market mutual funds or securities or other financial institutions maintained by Source within the past twelve (12) months,
the account numbers thereof, and all persons authorized to sign or act on behalf of Source, (b) all safe deposit boxes and other
similar custodial arrangements maintained by Source within the past twelve (12) months, (c) the check ledger for the last 12 months,
and (d) the names of all persons holding powers of attorney from Source or who are otherwise authorized to act on behalf of Source
with respect to any matter, other than its officers and directors, and a summary of the terms of such powers or authorizations.
4.16
Valid
Obligation
. This Agreement and all agreements and other documents executed by Source in connection herewith constitute the
valid and binding obligation of Source, enforceable in accordance with its or their terms, except as may be limited by bankruptcy,
insolvency, moratorium or other similar laws affecting the enforcement of creditors’ rights generally and subject to the
qualification that the availability of equitable remedies is subject to the discretion of the court before which any proceeding
therefore may be brought.
4.17
Exchange
Act Compliance
. Source is in compliance with, and current in, all of the reporting, filing and other requirements under the
Exchange Act, the Source common stock has been registered under Section 12(g) of the Exchange Act, and Source is in compliance
with all of the requirements under, and imposed by, Section 12(g) of the Exchange Act, except where a failure to so comply is
not reasonably likely to have a Material Adverse Effect on Source.
4.18
No
Brokers
. Source has not retained any broker or finder in connection with any of the transactions contemplated by this Agreement,
and Source has not incurred or agreed to pay, or taken any other action that would entitle any person to receive, any brokerage
fee, finder’s fee or other similar fee or commission with respect to any of the transactions contemplated by this Agreement.
4.19
Disclosure
.
All disclosure provided to the Stockholders regarding Source, its business and the transactions contemplated hereby, including
the Source Disclosure Schedules to this Agreement, furnished by or on behalf of Source with respect to the representations and
warranties made herein are true and correct and do not contain any untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading.
Source acknowledges and agrees that the Stockholders have not made, nor are the Stockholders making, any representations or warranties
with respect to the transactions contemplated hereby other than those specifically set forth herein. In the event that the Source
Disclosure Schedules are not delivered contemporaneously with the execution of this Agreement, they shall be delivered as soon
as practicable prior to the Closing Date.
ARTICLE
V
COVENANTS OF THE PARTIES
The
parties hereby agree that:
5.01
Public
Status; Schedule 14f-1
. Source shall make any and all required filings under the Exchange Act so that (a) it remains a reporting
company under the Exchange Act, (b) its Common Stock continues to be a publicly-traded security for a period of at least 24 months
from the Closing Date and (c) the Company may file with the Delaware Secretary of State an amendment to its Certificate of
Incorporation (i) increasing the authorized shares of its Common Stock to 500,000,000 and the authorized shares of its Preferred
Stock to 10,000,000 and (ii) changing its corporate name to Alltemp, Inc. or other name as may be designated by the Company
(the “
Certificate Amendment
”). Source shall, to the best of its ability, take all action necessary to insure
that its Common Stock continues to be quoted on the OTCQX or a substantially equivalent electronic trading system. No later than
ten days prior to the Closing Date Source shall file with the SEC the Schedule 14f-1.
5.02
Public
Announcements
. Except as required by applicable law, Source, the Company and the Stockholders shall consult with each other
before issuing any press release or making any public statement with respect to this Agreement or the transactions contemplated
hereby and will not issue any such press release or make any such public statement prior to such consultation and without the
consent of the other parties.
5.03
Notices
of Certain Events
. In addition to any other notice required to be given by the terms of this Agreement, each of the parties
shall promptly notify the other party hereto of:
(a) any
notice or other communication from any person alleging that the consent of such person is or may be required in connection with
any of the transactions contemplated by this Agreement;
(b) any
notice or other communication from any governmental or regulatory agency or authority in connection with the transactions contemplated
by this Agreement; and
(c) any
actions, suits, claims, investigations or proceedings commenced or, to its knowledge threatened against, relating to or involving
or otherwise affecting such party that, if pending on the date of this Agreement, would have been required to have been disclosed
pursuant hereto or that relate to the consummation of the transactions contemplated by this Agreement.
5.04
Access
to Information.
Following the date hereof, until consummation of all transactions contemplated hereby, Source shall give to
the Company, its counsel, financial adviser, auditor and other authorized representatives reasonable access to the offices, properties,
books and records, financial and other data and information of Source as the Company and their representatives may reasonably
request. Likewise, following the date hereof, until consummation of all transactions contemplated hereby, the Company shall give
to Source, its counsel, financial advisers, auditors and other authorized representatives reasonable access to the offices, properties,
books and records, financial and other data and information of the Company as Source and its representatives may reasonably request.
5.05
Source’
Business and the Company’s Business.
Except for transactions contemplated by this Agreement, neither Source nor the
Company will, without the prior written consent of the other, (i) make any material change in the type or nature of its business,
or in the nature of its operations, (ii) create or suffer to exist any debt, other than that currently in existence or undertaken
to complete projects ongoing or to meet short term working capital needs, (iii) issue any capital stock or (iv) enter into any
new agreements of any kind or undertake any new obligations or liabilities likely to have a material impact on its business.
5.06
Consents
of Third Parties.
Each of the parties will give any notices to third parties and will use its reasonable best efforts to obtain
any third party consents that the other parties reasonably may request in connection with this Agreement. Each of the parties
will give any notices to, make any filings with, and use its reasonable best efforts to obtain any authorizations, consents, and
approvals of governments and governmental agencies in connection with the matters in this Agreement.
5.07
No
Solicitations
. Except as contemplated herein, from and after the date of this Agreement until the later of the Closing, sixty
days after the date hereof or termination of this Agreement pursuant to Section 8.01, except as it pertains to the Private Placement,
the Company will not, nor will it permit any of its officers, directors or agents acting on its behalf to: (a) take any action
to solicit, initiate, encourage or assist the submission of any proposal, negotiation or offer from any person or entity other
than Source, and other person(s) or entities for purposes of soliciting their participation as investors or co-investors with
the Company, relating to the acquisition, sale or transfer of any of the capital stock of the Company or any material part of
the assets of the Company; (b) offer to sell or transfer any of the capital stock of the Company or any material part of the assets
of the Company to any person other than Source and/or other person(s) or entities who participate as investors or co-investors
with Source; or (c) disclose financial or other information relating to the company other than in the ordinary course of business
to any person or entity other than Source, Source’ agents and representatives, and other person(s) or entities for purposes
of soliciting their participation as investors or co-investors with Source, except with the written consent of Source. The Company
acknowledges and agrees that the legal remedies available to Source in the event the Company violates any of the foregoing covenants
would be inadequate and that Source shall be entitled to specific performance, injunctive relief and other equitable remedies
in the event of any such violation. The Company will immediately notify Source regarding any contact between the Company, any
of its directors, officers, employees, agents or representatives and any other person regarding any offer, proposal or inquiry
during this exclusivity period.
5.08
Shareholder
Approval
. The Company shall take all necessary steps to present the ratification of this Agreement and Merger, if necessary,
so that the Company obtains shareholder consent/approval to consummate the Agreement and authorization and consummation of the
Merger by the Stockholders (the “
Shareholder Approval
”).
ARTICLE
VI
CONDITIONS PRECEDENT TO OBLIGATIONS OF SOURCE
The
obligations of Source under this Agreement are subject to the satisfaction, at or before the Closing Date, of the following conditions:
6.01
Accuracy
of Representations and Performance of Covenants.
Each of the representations and warranties made by the Company shall be true
and correct in all material respects as of the Closing Date as if made on such date, including any ratification of the Shareholder
Approval as may be necessary pursuant to Section 5.08. The Company and each Stockholder shall have performed or complied with
all covenants and conditions required by this Agreement to be performed or complied with by it prior to or at the Closing. Source
shall be furnished with a certificate, signed by a duly authorized executive officer of the Company and dated the Closing Date,
confirming (i) the statements made in the two preceding sentences and (ii) that there has been no material adverse change in the
business, affairs, prospects, operations, properties, assets or conditions of the Company since the date of this Agreement.
6.02
No
Governmental Prohibition.
No order, statute, rule, regulation, executive order, injunction, stay, decree, judgment or restraining
order shall have been enacted, entered, promulgated or enforced by any court or governmental or regulatory authority or instrumentality
which prohibits the consummation of the transactions contemplated hereby.
6.03
Consents.
All consents, approvals, waivers or amendments pursuant to all contracts, licenses, permits, trademarks and other intangibles
in connection with the transactions contemplated herein, or for the continued operation of the Company after the Closing Date
on the basis as presently operated shall have been obtained.
6.04
Other
Items.
Source shall have received such further documents, certificates or instruments relating to the transactions contemplated
hereby as Source may reasonably request, including executed copies of the Shareholder Approval (as supplemented pursuant to Section
5.08) and board of director resolutions.
6.05
Absence
of Litigation
. There shall be no actions, suits, proceedings or governmental investigations or inquiries pending or threatened
against the Company which would prevent the consummation of the transaction contemplated hereby.
6.06
Schedules
and Other Information
. The Company shall have delivered to Source the Financial Statements of the Company contemplated by
Section 3.07, the Company Disclosure Schedules required hereunder, and other books and records reasonably requested in connection
with Source’s due diligence investigation of the Company, and there shall have been no disclosure in any financial statements
or any schedule delivered after the date of execution and delivery of this Agreement, or the documents described therein, or in
any disclosure provided in connection with such due diligence investigation, which in the reasonable opinion of Source does or
may have a materially adverse effect on the value of the business of the Company or on its assets, properties or goodwill.
ARTICLE
VII
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY
The
obligations of the Company under this Agreement are subject to the satisfaction, at or before the Closing Date, of the following
conditions:
7.01
Accuracy
of Representations and Performance of Covenants
. Each of the representations and warranties made by Source shall be true and
correct in all material respects as of the Closing Date as if made on such date. Source shall have performed or complied with
all covenants and conditions required by this Agreement to be performed or complied with by it prior to or at the Closing. The
Company shall be furnished with a certificate, signed by a duly authorized executive officer of Source and dated the Closing Date,
confirming (i) the statements made in the two preceding sentences and (ii) that there has been no material adverse change in the
business, affairs, prospects, operations, properties, assets or conditions of Source since the date of this Agreement.
7.02
No
Governmental Prohibition
. No order, statute, rule, regulation, executive order, injunction, stay, decree, judgment or restraining
order shall have been enacted, entered, promulgated or enforced by any court or governmental or regulatory authority or instrumentality
which prohibits the consummation of the transactions contemplated hereby.
7.03
Consents
.
All consents, approvals, waivers or amendments pursuant to all contracts, licenses, permits, trademarks and other intangibles
in connection with the transactions contemplated herein, or for the continued operation of Source after the Closing Date shall
have been obtained.
7.04
Absence
of Litigation
. There shall be no actions, suits, proceedings or governmental investigations or inquiries pending or threatened
against Source which would prevent the consummation of the transactions contemplated hereby.
7.05
Good
Standing Certificate
. Source shall have delivered to the Company a certificate of good standing issued by the Secretary of
the State of the State of Delaware, dated as of a date within ten (10) days prior to the Closing Date, certifying that Source
is in good standing as a corporation in the State of Delaware and has filed all tax returns required to have been filed by it
with the State of Delaware to date and has paid all taxes reported as due thereon.
7.06
Board
of Directors Resolutions
. Source shall have delivered to the Company a certificate signed by an officer of Source certifying
to the adoption by its Board of Directors of resolutions approving this Agreement and the transactions contemplated herein.
7.07
Officers
and Directors
. The officers and directors of Source shall have resigned from such positions effective immediately prior to
Closing and the Company’s designees for such positions shall have been duly appointed.
7.08
The
Certificate Amendment
. The Company shall have filed with the Delaware Secretary of State the Certificate Amendment.
7.09
No
Liabilities
. As of the Closing Date, Source shall have no liabilities of any nature, contingent or otherwise, in an amount
in excess of $25,000.
7.10
Termination
of Employment Contracts
. All agreements relating to the employment or retention of employees or consultants of Source shall
have been terminated without liability to the Source.
7.11
Change
of Fiscal Year
. Source shall have made all filings necessary to and shall have changed its fiscal year to December 31.
7.12
Cancellation
of Derivative Securities; Outstanding Securities
. All derivative securities of Source shall have been cancelled or converted
so that as of the Closing Date Source shall have no more than 38,807,335 shares outstanding on a fully diluted basis.
7.13
Shareholder
Approval
. The Shareholder Approval shall have been obtained.
7.14
Other
Items
. The Company shall have received further documents, certificates, or instruments relating to the transactions contemplated
hereby as the Company may reasonably request.
7.15
Schedules
and Other Information
. Source shall have delivered to the Company the Source Disclosure Schedules required hereunder, and
other books and records reasonably requested in connection with the Company’s due diligence investigation of Source, and
there shall have been no disclosure in any schedule delivered after the date of execution and delivery of this Agreement, or the
documents described therein, or in any disclosure provided in connection with such due diligence investigation, which in the reasonable
opinion of the Company does or may have a materially adverse effect on the value of the business of Source or on its assets, properties
or goodwill.
ARTICLE
VIII
TERMINATION AND INDEMNIFICATION
8.01
Termination.
This Agreement may be terminated at any time prior to the Closing:
(a) by
mutual written consent of Source and the Company;
(b) by
either the Company or Source if the Closing shall not have occurred on or before such date which is thirty (30) days from the
date of the execution of this Agreement (unless the failure to consummate the transactions by such date shall be due to the action
or failure to act of the party seeking to terminate this Agreement which, in the case of the Company would include the failure
of any Stockholder);
(c) by
Source if: (i) the Company shall have failed to timely comply in any material respect with any of the other covenants, conditions,
terms or agreements contained in this Agreement to be complied with or performed by it, which breach is not cured within ten (10)
days if capable of cure; or (ii) any representations and warranties of the Company or the Stockholders contained in this Agreement
shall have been materially false when made or on and as of the Closing Date; or
(d) by
the Company if: (i) Source shall have failed to timely comply in any material respect with any of the covenants, conditions, terms
or agreements contained in this Agreement to be complied with or performed by it, which breach is not cured within ten (10) days
if capable of cure; or (ii) any representations and warranties of Source contained in this Agreement shall have been materially
false when made or on and as of the Closing Date.
8.02
Effect
of Termination
. In the event of the termination of this Agreement pursuant to this Article 8, all further obligations of the
parties under this Agreement shall forthwith be terminated without any further liability of any party to the other parties; provided,
however, that nothing contained in this Section 8.02 shall relieve any party from liability for any breach of this Agreement.
Upon termination of this Agreement for any reason, each of the parties shall promptly cause to be returned to the other all documents
and information obtained in connection with this Agreement and the transactions contemplated by this Agreement and all documents
and information obtained in connection with the investigation of the other party’s business, operations and legal affairs,
including any copies made of any such documents or information.
8.03
Indemnification
(a) The
Company shall indemnify and hold Source harmless, and shall reimburse Source for, any loss, liability, claim, damage, expense,
including, but not limited to, reasonable cost of investigation and defense and reasonable attorneys’ fees (collectively,
“
Damages
”), arising from or in connection with: (i) any inaccuracy in any of the representations and warranties
of the Company and Stockholders contained herein or in any certificate delivered by the Company or a Stockholder pursuant to this
Agreement, or any actions, omissions or states of facts inconsistent with any such representation or warranty; or (ii) any failure
by the Company to perform or comply with any provision of this Agreement.
(b) Source
shall indemnify and hold the Company and the Stockholders harmless, and shall reimburse the Stockholders for any Damages arising
from: (i) any inaccuracy in any of the representations and warranties of Source in this Agreement or in any certificate delivered
by Source pursuant to this Agreement, or any actions, omissions or states of facts inconsistent with any such representation or
warranty; or (ii) any failure by Source to perform or comply with any provision of this Agreement.
8.04
Procedure
for Indemnification
. Promptly after receipt by an indemnified party of notice of the commencement of any action, such indemnified
party shall, if a claim in respect thereof is to be made against an indemnifying party, give notice to the indemnifying party
of the commencement thereof, but the failure so to notify the indemnifying party shall not relieve it of any liability that it
may have to any indemnified party except to the extent the defense of such action by the indemnifying party is prejudiced thereby.
In case any such action shall be brought against an indemnified party and it shall give notice to the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate therein and, to the extent that it shall wish, to
assume the defense thereof with counsel reasonable satisfactory to such indemnified party and, after notice from the indemnifying
party to such indemnified party of its election so to assume the defense thereof, the indemnifying party shall not be liable to
such indemnified party under such section for any fees of other counsel or any other expenses, in each case subsequently incurred
by such indemnified party in connection with the defense thereof, other than reasonable costs of investigation, If an indemnifying
party assume the defense of such an action: (a) no compromise or settlement thereof may be effected by the indemnifying party
without the indemnified party’s consent (which shall not be unreasonable withheld) unless: (i) there is no finding or admission
of any violation of law or any violation of the rights of any person which is not fully remedied by the payment referred to in
clause; (ii) no adverse effect on any other claims that may be made against the indemnified party; and (ii) the sole relief provided
is monetary damages that are paid in full by the indemnifying party; (b) the indemnifying party shall have no liability with respect
to any compromise or settlement thereof effected without its consent (which shall not be reasonably withheld); and (c) the indemnified
party will reasonably cooperate with the indemnifying party in the defense of such action. If notice is given to an indemnifying
party of the commencement of any action and it does not, within fifteen days after the indemnified party’s notice is given,
give notice to the indemnified party of its election to assume the defense thereof, the indemnifying party shall be bound by any
determination made in such action or any compromise or settlement thereof effected by the indemnified party. Notwithstanding the
foregoing, if an indemnified party determined in good faith that there is a reasonable probability that an action may materially
and adversely affect it or its affiliated other than as a result of monetary damages, such indemnified party may, by notice to
the indemnifying party, assume the exclusive right to defend, compromise or settle such action, but the indemnifying party shall
not be bound by any determination of an action so defended or any compromise or settlement thereof effected without its consent
(which shall not be unreasonably withheld).
ARTICLE
IX
MISCELLANEOUS
9.01
Governing
Law
. This Agreement shall be governed by, enforced, and construed under and in accordance with the laws of the State of California,
without giving effect to principles of conflicts of law thereunder. Venue for all matters shall be in Los Angeles, CA. Each of
the parties (a) irrevocably consents and agrees that any legal or equitable action or proceedings arising under or in connection
with this Agreement shall be brought exclusively in the District Court of the United States located in Los Angeles County. By
execution and delivery of this Agreement, each party hereto irrevocably submits to and accepts, with respect to any such action
or proceeding, generally and unconditionally, the jurisdiction of the aforesaid court, and irrevocably waives any and all rights
such party may now or hereafter have to object to such jurisdiction.
9.02
Notices
.
Any notice or other communications required or permitted hereunder shall be in writing and shall be sufficiently given if personally
delivered to it or sent by overnight courier or registered mail or certified mail, postage prepaid, or electronic mail, addressed
as follows:
|
If
to the Company or any Stockholder:
|
|
|
|
CSES
Group, Inc.
|
|
441
Nandy Drive
|
|
Roseburg,
OR 97471
|
|
Attn:
William Lopshire, Chief Executive Officer
|
|
|
|
If
to Source:
|
|
|
|
Source
Financial, Inc.
|
|
604
Arizona Avenue
|
|
Santa
Monica, CA 90401
|
|
Attn:
Edward C. DeFeudis, Chief Executive Officer
|
or
such other addresses as shall be furnished in writing by any party in the manner for giving notices hereunder, and any such notice
or communication shall be deemed to have been given (i) upon receipt, if personally delivered or sent by electronic mail, (ii)
on the day after dispatch, if sent by overnight courier, and (iii) three (3) days after mailing, if sent by registered or certified
mail.
9.03
Attorney’s
Fees
. In the event that either party institutes any action or suit to enforce this Agreement or to secure relief from any
default hereunder or breach hereof, the prevailing party shall be reimbursed by the losing party for all costs, including reasonable
attorney’s fees, incurred in connection therewith and in enforcing or collecting any judgment rendered therein.
9.04
Confidentiality
.
Each party hereto agrees with the other that, unless and until the transactions contemplated by this Agreement have been consummated,
it and its representatives will hold in strict confidence all data and information obtained with respect to another party or any
subsidiary thereof from any representative, officer, director or employee, or from any books or records or from personal inspection,
of such other party, and shall not use such data or information or disclose the same to others, except (i) to the extent such
data or information is published, is a matter of public knowledge, or is required by law to be published; or (ii) to the extent
that such data or information must be used or disclosed in order to consummate the transactions contemplated by this Agreement.
In the event of the termination of this Agreement, each party shall return to the other party all documents and other materials
obtained by it or on its behalf and shall destroy all copies, digests, work papers, abstracts or other materials relating thereto,
and each party will continue to comply with the confidentiality provisions set forth herein.
9.05
Public
Announcements and Filings
. Unless required by applicable law or regulatory authority, none of the parties will issue any report,
statement or press release to the general public, to the trade, to the general trade or trade press, or to any third party (other
than its advisors and representatives in connection with the transactions contemplated hereby) or file any document relating to
this Agreement and the transactions contemplated hereby except as may be mutually agreed by the parties. Copies of any such filings,
public announcements or disclosures, including any announcements or disclosures mandated by law or regulatory authorities, shall
be delivered to each party at least one (1) business day prior to the release thereof.
9.06
Schedules;
Knowledge
. Each party is presumed to have full knowledge of all information set forth in the other party’s schedules
delivered pursuant to this Agreement.
9.07
Third
Party Beneficiaries.
This contract is strictly between Source and the Company, and, except as specifically provided, no director,
officer, stockholder (other than the Stockholders), employee, agent, independent contractor or any other person or entity shall
be deemed to be a third party beneficiary of this Agreement.
9.08
Expenses
.
Whether or not the Exchange is consummated, each of Source and the Company will bear their own respective expenses, including
legal, accounting and professional fees incurred in connection with the Exchange or any of the other transactions contemplated
hereby.
9.09
Entire
Agreement.
This Agreement represents the entire agreement between the parties relating to the subject matter thereof and supersedes
all prior agreements, understandings and negotiations, written or oral, with respect to such subject matter.
9.10
Amendment
or Waiver.
Every right and remedy provided herein shall be cumulative with every other right and remedy, whether conferred
herein, at law, or in equity, and may be enforced concurrently herewith, and no waiver by any party of the performance of any
obligation by the other shall be construed as a waiver of the same or any other default then, theretofore, or thereafter occurring
or existing. This Agreement may by amended only by a writing signed by all parties hereto.
9.11
Survival;
Termination.
The representations, warranties, and covenants of the respective parties shall survive the Closing Date and the
consummation of the transactions herein contemplated for a period of one year except that the representation and warranty of the
Stockholders in Section 2.01 as to the ownership of the Company Shares shall survive for the period equal to the applicable statute
of limitations relating to said matter.
9.12
Best
Efforts
. Subject to the terms and conditions herein provided, each party shall use its best efforts to perform or fulfill
all conditions and obligations to be performed or fulfilled by it under this Agreement so that the transactions contemplated hereby
shall be consummated as soon as practicable. Each party also agrees that it shall use its best efforts to take, or cause to be
taken, all actions and to do, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations
to consummate and make effective this Agreement and the transactions contemplated herein.
9.13
Counterparts
.
This Agreement may be executed in multiple counterparts, each of which shall be deemed an original and all of which taken together
shall be but a single instrument.
[Signature
Page Follow]
IN
WITNESS WHEREOF
, the parties hereto have executed this Agreement as of the date first-above written.
|
Source
Financial, Inc.
|
|
|
|
|
|
By:
|
|
|
|
Name:
|
Edward
C. DeFeudis
|
|
|
Title:
|
Chief
Executive Officer
|
|
|
|
|
|
CSES
Group, Inc.
|
|
|
|
|
|
By:
|
|
|
|
Name:
|
William
Lopshire
|
|
|
Title:
|
Chief
Executive Officer
|
|
|
|
|
|
CSES
Acquisition, Inc.
|
|
|
|
|
|
By:
|
|
|
|
Name:
|
|
|
|
Title:
|
|
SCHEDULE
2.01(b)
PRO FORMA CAPITALIZATION TABLE
Source Financial, Inc.
|
|
38,807,335 shares
|
(1)
|
CSES Group
|
|
|
|
|
private placement shares
|
|
|
17,046,000 shares
|
(2)
|
outstanding shares
|
|
|
109,999,969 shares
|
(3)
|
Total CSES Group
|
|
|
127,045,969
shares
|
(4)
|
|
|
|
|
|
Total combined company
|
|
|
165,853,304
|
|
|
(1)
|
includes
shares issued in connection with the conversion/exercise of SFI derivative securities
and pursuant to a consulting agreement
|
|
(2)
|
assumes
placement of $4,000,000
|
|
(3)
|
excluding
options to purchase up to 31,961,250 shares, warrants to purchase up to 18,409,680 shares
and potential conversion of a promissory note for 532,687 shares
|
|
(4)
|
based
on an exchange ratio of 10.65375
|
SCHEDULE
2.01(b)
MERGER CONSIDERATION SCHEDULE
Stockholder
|
|
Number of Source Shares*
|
|
Number of Source Warrants*
|
Bob Davis
|
|
3,000,000
|
|
-0-
|
William Lopshire
|
|
1,408,333
|
|
-0-
|
Kjell Nesen
|
|
1,108,334
|
|
-0-
|
Donna Anfinson
|
|
500,000
|
|
-0-
|
John R. Jones
|
|
250,000
|
|
-0-
|
Vaswani Family Trust
|
|
150,000
|
|
-0-
|
Farbridge LLC
|
|
100,000
|
|
-0-
|
Elliott Family Trust
|
|
75,000
|
|
-0-
|
“Equity Trust Co. Custodian
|
|
75,000
|
|
-0-
|
FBO Brigid Kettenburg IRA”
|
|
25,000
|
|
-0-
|
Rouse Family Trust
|
|
25,000
|
|
-0-
|
Ohare Investment Group Inc
|
|
25,000
|
|
-0-
|
Robert Brown
|
|
50,000
|
|
-0-
|
Vaswani Family Trust
|
|
50,000
|
|
-0-
|
“Equity Trust Co. Custodian
|
|
42,083
|
|
-0-
|
FBO Brigid Kettenburg IRA”
|
|
37,500
|
|
-0-
|
Rouse Family Trust
|
|
167,614
|
|
-0-
|
Ben Itkin
|
|
167,614
|
|
-0-
|
Bryan Ezralow
|
|
25,000
|
|
-0-
|
Tyler Runnels
|
|
195,189
|
|
-0-
|
Robert Brown
|
|
15,000
|
|
-0-
|
Linda Khoenle
|
|
25,000
|
|
-0-
|
Stephanie Ann Koors
|
|
700,000
|
|
-0-
|
Gregg Bernstein
|
|
25,000
|
|
-0-
|
Kawasaki Consulting Inc
|
|
25,000
|
|
-0-
|
Robert Khoenle
|
|
700,000
|
|
-0-
|
Suzan Toth
|
|
250,000
|
|
-0-
|
William Lopshire Family Trust
|
|
366,000
|
|
-0-
|
John F. Dwight III
|
|
50,000
|
|
-0-
|
Nicole Van Parys Trust U/T/D 11/29/2005
|
|
200,000
|
|
-0-
|
Nicholas Van Parys Irrevocable Trust U/T/D 08.29.2005
|
|
170,000
|
|
170,000
|
LEVP Irrevocable Trust
|
|
40,000
|
|
40,000
|
Anil V. Shah
|
|
30,000
|
|
30,000
|
Elevado Investment Company, LLC
|
|
240,000
|
|
240,000
|
Jonathan R. Bloch
|
|
30,000
|
|
30,000
|
Pacific Capital Mgmt LLC
|
|
20,000
|
|
20,000
|
SPA Trust U/T/D 09.13.2004
|
|
10,000
|
|
10,000
|
Emerson Partners
|
|
120,000
|
|
120,000
|
David Leff Family Trust U/T/D 02.03.1988
|
|
200,000
|
|
200,000
|
Arkell Capital Venture I, LLC
|
|
40,000
|
|
40,000
|
T.C. Mosby Investments, LLC
|
|
10,000
|
|
10,000
|
EMSE, LLC
|
|
10,000
|
|
10,000
|
Freedman 2006 Irrevocable Trust U/T/D 02.27.2006
|
|
10,000
|
|
10,000
|
Freedman Family Trust U/T/D 05/25/1982
|
|
10,000
|
|
10,000
|
C and R Irrevocable Trust U/T/D 11/05/2007
|
|
40,000
|
|
40,000
|
Marc Ezralow Irrevocable Trust U/T/D 06.01.2004
|
|
140,000
|
|
140,000
|
Marc Ezralow 1997 Trust U/T/D 11.26.1997
|
|
80,000
|
|
80,000
|
J. Steven Emerson IRA R/O II Pershing LLC as Custodian
|
|
200,000
|
|
200,000
|
J. Steven Emerson Roth IRA Pershing LLC as Custodian
|
|
72,000
|
|
72,000
|
Bryan Ezralow 1994 Trust U/T/D 12.22.1994
|
|
476,333
|
|
-0-
|
G. Tyler Runnels and Jasmine N. Runnels TTEES The Runnels Family Trust DTD 1-11-2000
|
|
16,000
|
|
-0-
|
Van Parys Cornejo Family Trust
|
|
128,000
|
|
128,000
|
Anthony Balestrieri
|
|
-0-
|
|
8,960
|
T.R. Winston & Company, LLC
|
|
-0-
|
|
10,240
|
Russell Steward
|
|
-0-
|
|
51,200
|
Karen Kang
|
|
-0-
|
|
57,600
|
T.R. Winston & Company, LLC
|
|
|
|
|
G. Tyler Runnels and Jasmine N. Runnels TTEES The Runnels Family Trust DTD 1-11-2000
|
|
|
|
|
*Times the Exchange Ratio of 10.65375
|
|
|
|
|
SCHEDULE
3.07
8%
- $100,000 CSES Group, Inc. Convertible Promissory Note: Convertible at the election of the Holder (Equity Trust Company Custodian
FBO Brigid Kettenburg IRA) at any time prior to maturity at the rate of $2.00 per share.
SCHEDULE
3.11
Employment
Agreement – Bob Davis
Employment
Agreement – William Lopshire
Employment
Agreement – Kjell Nesen
Employment
Agreement – Michael Van Parys
Advisory
Agreement – Steven Antebi
Consulting
Agreement – Kawasaki Consulting, Inc.
SCHEDULE
4.02
Pre-closing:
10,748,884
Common
2,082
Series C Convertible Preferred
Post-closing:
165,853,304
Common
|
●
|
10,748,884
Current Outstanding
|
|
|
|
|
●
|
7,653,464
Common (Derivative Security Conversions: Spider: 3,189,208 and Thomas: 4,464,256)
|
|
|
|
|
●
|
20,404,987
(SSA Consulting Agreement)
|
|
|
|
|
●
|
17,046,000
(Private Placement Shares)
|
|
|
|
|
●
|
109,999,969
(CSES Group, Inc.)
|
18,409,680
Warrants
31,961,250
Options
532,687
shares from a convertible note
SCHEDULE
4.14
SSA
Consulting Agreement dated September 16, 2016 and Amendment November 22, 2016, for 20,404,987 Common shares.
SCHEDULE
4.15
Source
Financial, Inc. owns two bank accounts, and Edward C. DeFeudis is the only authorized signer of each.
|
●
|
Source
Financial, Inc. account number 127322708 at City National Bank.
|
|
|
|
|
●
|
Songstress,
Inc. account number 385017909385 at Bank of America.
|
|
|
|
|
●
|
All
Bank statements are available in DropBox folders.
|
APPENDIX
B
CERTIFICATE
OF AMENDMENT OF
CERTIFICATE OF INCORPORATION OF
SOURCE FINANCIAL, INC.
The
corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware does hereby certify:
FIRST
:
That at a meeting of the Board of Directors of Source Financial, Inc., resolutions were duly adopted setting forth proposed amendments
of the Certificate of Incorporation of said corporation, declaring said amendments to be advisable and calling a meeting of the
stockholders of said corporation for consideration thereof. The resolutions setting forth the proposed amendments are as follows:
RESOLVED
,
that the Certificate of Incorporation be amended by changing the Article thereof numbered “FIRST” so that, as amended,
said Article shall be and read as follows:
“
FIRST
:
The name of the corporation is Alltemp, Inc.”
RESOLVED
,
that the Certificate of Incorporation of this corporation be amended by changing the Article thereof numbered “FOURTH“
so that, as amended, said Article shall be and read as follows:
“
FOURTH
:
The Corporation shall have the authority to issue up to 10,000,000 shares of Preferred Stock, par value $0.01 per share (the “Preferred
Stock”) and up to 500,000,000 shares of common stock, par value $0.001 per share (the “Common Stock”). The board
of directors is hereby expressly authorized to provide, out of the unissued shares of Preferred Stock, for one or more series
of Preferred Stock and, with respect to each such series, to fix the number of shares constituting such series and the designation
of such series, the voting powers, if any, of the shares of such series, and the preferences and relative, participating, optional
or other special rights, if any, and any qualifications, limitations or restrictions thereof, of the shares of such series. The
powers, preferences and relative, participating, optional and other special rights of each series of preferred stock, and the
qualifications, limitations or restrictions thereof, if any, may differ from those of any and all other series at any time outstanding.”
SECOND
:
That thereafter, pursuant to resolution of its Board of Directors, said amendments were approved by written consent of the holder
of a majority of the outstanding voting shares of the Corporation entitled to vote upon said amendments in Lieu of a Special Meeting
of the Stockholders of said Corporation in accordance with Section 228 of the General Corporation Law of the State of Delaware.”
THIRD
:
That said amendments were duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the
State of Delaware.
IN
WITNESS WHEREOF
, said corporation has caused this certificate to be signed this ______ day of February 2017.
|
/s/
Edward C. DeFeudis
|
|
Edward
C. DeFeudis
|
|
President
and Chief Executive Officer
|
B-1