--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

EXHIBIT 10.21

 
U-VEND CANADA, INC.
 
INDEX TO FINANCIAL STATEMENTS
 

--------------------------------------------------------------------------------

 
 

 
Page
   
Consolidated Financial Statements:
     
Consolidated Balance Sheets
1
   
Consolidated Statements of Operations
2
   
Consolidated Statement of Stockholders’ Deficiency
3
   
Consolidated Statements of Cash Flows
4
       
Notes to Consolidated Financial Statements
5 - 9

 

 
 

--------------------------------------------------------------------------------

 
U-VEND CANADA, INC.
CONSOLIDATED BALANCE SHEET
(expressed in Canadian dollars)
As of
(Unaudited)

   
August 31,
     
2013
 
ASSETS
             
Current assets:
     
Cash
  $ 11,070  
Prepaid expenses and other assets
    2,273  
Total current assets
    13,343            
Property and equipment
    25,484            
Total assets
  $ 38,827            
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
                 
Current liabilities:
       
Accounts payable
  $ 53,589  
Accrued expenses
    17,466  
Convertible notes payable, net of unamortized discount
    48,067  
Due to officers
    47,975  
Other advances
    22,955  
Total current liabilities
    190,052            
Commitments and contingencies
    -            
Stockholders' deficiency
       
Class A common stock, no par value, unlimited authorized shares;
       
 11,001,070  issued and outstanding
       
Additional paid-in capital
    486,154  
Accumulated deficit
    (637,379 )
Total stockholders' deficiency
    (151,225 )          
Total liabilities and stockholders' deficiency
  $ 38,827  

 
1

--------------------------------------------------------------------------------

 

U-VEND CANADA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(expressed in Canadian dollars)
For the Nine Months Ended
(Unaudited)

   
August 31,
   
August 31,
     
2013
   
2012
               
Revenue
  $ -     $ 4,896                    
Costs of revenue
    -       2,650                    
Gross profit
    -       2,246                    
Operating expenses:
               
Selling, general and administrative
    143,957       106,475                    
Operating loss
    (143,957 )     (104,229 )                  
Other income (expenses):
               
Interest expense
    (14,037 )     (11,387 )
Other
    1,963       (917 )       (12,074 )     (12,304 )                  
Loss before income tax provision
    (156,031 )     (116,533 )                  
Income tax provision
    -       -                    
Net loss
  $ (156,031 )   $ (116,533 )                  
Net loss per share - basic and diluted
  $ (0.01 )   $ (0.01 )                  
Weighted average common shares
               
outstanding - basic and diluted
    10,531,812       10,265,257  

 
2

--------------------------------------------------------------------------------

 

U-VEND CANADA, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIENCY
(expressed in Canadian dollars)
For the Nine Months Ended August 31, 2013
(Unaudited)

   
Common Stock
   
Additional Paid-in
   
Accumulated
   
Total
Stockholders
     
Shares
   
Capital
   
Deficit
   
Deficiency
                           
Balances at November 30, 2012
    10,329,404     $ 307,674     $ (481,348 )   $ (173,674 )                    
             
Sale of common stock and warrants
    321,666       82,000       -       82,000  
Stock based compensation
    99,478       23,875       -       23,875  
Common stock issued to settle accrued expenses
    250,522       60,125       -       60,125  
Warrants and beneficial conversion feature issued with convertible note
    -       12,480       -       12,480  
Net loss
    -       -       (156,031 )     (156,031 )                                  
Balances at August 31, 2013
    11,001,070     $ 486,154     $ (637,379 )   $ (151,225 )

 
3

--------------------------------------------------------------------------------

 
U-VEND CANADA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(expressed in Canadian dollars)
For the Nine Months Ended
(Unaudited)

   
August 31,
   
August 31,
     
2013
   
2012
 
Cash flows from operating activities:
           
Net loss
  $ (156,031 )   $ (116,533 )
Adjustments to reconcile net loss to net
               
  cash used by operating activities:
               
Stock based compensation
    23,875       6,000  
Amortization of debt discount
    5,071       3,231  
Foreign currency exchange gain
    (1,503 )     (133 )
Increase in assets:
               
Prepaid expenses and other assets
    (2,273 )     -  
Increase in liabilities:
               
Accounts payable and accrued expenses
    14,216       33,922  
Net cash used by operating activities
    (116,645 )     (73,513 )                  
Cash flows from financing activities:
               
Proceeds from sale of common stock and warrants
    82,000       24,000  
Proceeds from issuance of convertible notes
    25,000       34,000  
(Repayments to) advances from officers
    (2,299 )     15,543  
Proceeds from other advances
    22,955       -  
Net cash provided by financing activities
    127,656       73,543                    
Net increase in cash
    11,011       30                    
Cash - beginning of period
    59       14                    
Cash - end of period
  $ 11,070     $ 44                    
Cash paid for:
               
Interest
  $ 5,082     $ 7,060  
Income taxes
  $ -     $ -                    
Non-cash investing and financing activities:
               
Issuance of debt discounts on convertible notes
  $ 12,480     $ 9,674  
Common stock issued to settle accrued expenses
  $ 60,125     $ -  
Property and equipment included in accounts payable
  $ 25,484     $ -  

 
4

--------------------------------------------------------------------------------

 

U-VEND CANADA, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(expressed in Canadian dollars)
(Unaudited)

NOTE 1.  NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

U-Vend Canada, Inc. was incorporated pursuant to the laws of the Province of
Ontario in May 2009. The Company and its wholly-owned subsidiary U-Vend USA LLC
(collectively the “Company”) develops, distributes and markets various
“next-generation” self-serve electronic kiosks in a variety of locations ranging
from neighborhood grocery stores, drug stores, mass merchants, malls, and other
retail locations in North America. Through August 31, 2013, the Company’s
revenues consisted of equipment sales. Beginning in the fourth quarter fiscal
2013, the Company owns and operates kiosks with a particular focus on health
food, frozen treats and merchandise vending, and on January 7, 2014, the Company
was acquired by Internet Media Services, Inc. See discussion of merger in
subsequent events (Note 5).

Management's plans

The accompanying consolidated financial statements have been prepared on a going
concern basis. As shown in the accompanying consolidated financial statements,
the Company incurred a loss of $156,031 during the nine months ended August 31,
2013, has incurred accumulated losses totaling $637,379, has a stockholders’
deficiency of $151,225 and has a working capital deficit of $176,709  at August
31, 2013. These factors, among others, indicate that the Company may be unable
to continue as a going concern. The consolidated financial statements do not
include any adjustments that might result from the outcome of this uncertainty.

The Company follows a process of continuous development of its product
offerings.  The Company’s product offerings have evolved to include offerings in
three distinct product areas: 1) healthy vending; 2) brand merchandising; and 3)
frozen treats.   The Company has partnered with numerous national consumer
product companies to deliver new and unique customer retail experiences in an
automated setting. The Company requires significant additional financing to
continue its product development, to fund its marketing and sales efforts, and
satisfy its obligations on timely basis.

Management's plans in this regard include, but are not limited to, its merger
with Internet Media Services, Inc. that would include a cash infusion from third
parties (see Note 5). However, there is no assurance that the Company will be
successful in completing a transaction that will provide sufficient financing.
Should additional financing not be available, the Company will have to negotiate
with its lenders to extend the repayment dates or convert notes payable, and
curtail its product development, marketing and sales efforts. There can be no
assurance, however, that the Company will be able to successfully negotiate with
its note holders in the event it fails to obtain additional financing.

Basis of presentation for Unaudited Interim Financial Information - The
accompanying unaudited consolidated financial statements, expressed in Canadian
dollars, have been prepared in accordance with accounting principles generally
accepted in the United States (“U.S. GAAP”) for interim financial information.
Accordingly, these statements do not include all of the information and
footnotes required by U.S. generally accepted accounting principles for complete
financial statements.

In the opinion of management, the accompanying balance sheets and related
interim statements of operations and cash flows include all adjustments,
consisting only of normal recurring items necessary for their fair presentation
in accordance with U.S. GAAP. All significant intercompany transactions have
been eliminated.

Interim results are not necessarily indicative of results expected for a full
year

 
5

--------------------------------------------------------------------------------

 

Principles of Consolidation - The consolidated financial statements include the
accounts of U-Vend Canada, Inc. and of its wholly-owned subsidiary U-Vend USA
LLC. U-Vend USA LLC is an inactive entity. All intercompany balances and
transactions have been eliminated in consolidation.

Use of Estimates - The preparation of financial statements in conformity with
U.S. GAAP requires management to make estimates and assumptions that affect
amounts reported in the consolidated financial statements and accompanying
notes. Actual results could differ from those estimates and be based on events
different from those assumptions. Future events and their effects cannot be
predicted with certainty; estimating, therefore, requires the exercise of
judgment. Thus, accounting estimates change as new events occur, as more
experience is acquired or as additional information is obtained.

Property and Equipment - During the nine months ended August 31, 2013, the
Company incurred $25,484 to acquire electronic kiosks. These kiosks are
initially used for demonstration purposes with potential customers and the
Company will begin to depreciate the kiosks in January 2014 when they are
expected to be placed in service.

Revenue Recognition - Revenue recognized during the nine months ended August 31,
2013 and 2012 relates to the sale of equipment, which was recognized when title
of the goods transferred to the customer. Revenue is recognized net of sales
taxes collected from customers and subsequently remitted to governmental
authorities.

Earnings Per Common Share - The Company presents basic and diluted earnings per
share. Basic earnings per share reflect the actual weighted average of shares
issued and outstanding during the period. Diluted earnings per share are
computed including the number of additional shares that would have been
outstanding if dilutive potential shares had been issued. In a loss year, the
calculation for basic and diluted earnings per share is considered to be the
same, as the impact of potential common shares is anti-dilutive.
 
As of August 31, 2013, there were 1,171,834 (728,500 at November 30, 2012)
shares potentially issuable under convertible debt agreements and warrants that
could dilute basic earnings per share in the future that were excluded from the
calculation of diluted earnings per share because their inclusion would have
been anti-dilutive due to the Company’s losses during the periods presented.

Fair Value of Financial Instruments - Financial instruments include cash,
accounts payable, accrued expenses, and convertible notes payables. Fair values
were assumed to approximate carrying values for these financial instruments,
since they are short term in nature or at interest rates that approximate the
rates that the Company is currently able to borrow at.

Fair value is defined as the price that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between market
participants at the measurement date. The Fair Value Measurement Topic of the
FASB Accounting Standards Coded (“ASC") 820 establishes a three-tier fair value
hierarchy which prioritizes the inputs used in measuring fair value. The
hierarchy gives the highest priority to unadjusted quoted prices in active
markets for identical assets or liabilities (Level 1 measurements) and the
lowest priority to unobservable inputs (Level 3 measurements). These tiers
include:

·
Level 1, defined as observable inputs such as quoted prices for identical
instruments in active markets;

·
Level 2, defined as inputs other than quoted prices in active markets that are
either directly or indirectly observable such as quoted prices for similar
instruments in active markets or quoted prices for identical or similar
instruments in markets that are not active; and

·
Level 3, defined as unobservable inputs in which little or no market data
exists, therefore requiring an entity to develop its own assumptions, such as
valuations derived from valuation techniques in which one or more significant
inputs or significant value drivers are unobservable.

 
6

--------------------------------------------------------------------------------

 
 
NOTE 2. CONVERTIBLE NOTES PAYABLE

During the year ended November 30, 2012, the Company issued ten (10) Convertible
Promissory Notes (“Notes”) in the aggregate principal amount of $36,000, which
were due on various dates between April 2013 and September 2013.  The Notes,
which are due on various dates between April and September 2013, bear interest
at the rate of 8% per annum, are unsecured and are convertible into 150,000
shares of the Company's common stock at the election of the Company at a
conversion price of $0.24 per share.  In connection with the sale, the Company
issued warrants to certain Note holders to acquire an aggregate of 70,167 shares
of its common stock with an exercise price of $0.24 per share. The warrants
expire on the earlier of four years from the date of issuance or two years from
the date the Company's shares are publicly traded. The Company has not repaid
the Notes on the maturity date and is in discussions with the holders to convert
the debt into equity upon consummation of a transaction as detailed in Note 5.

During the nine months ended August 31, 2013, the Company issued one Convertible
Promissory Notes (“2013 Note”) in the aggregate principal amount of $25,000. The
2013 Note, is due in July 2014, bears interest at the rate of 8% per annum, is
unsecured, and convertible into shares of the Company's common stock at the
election of lender at a conversion price of $0.24 per share. In connection with
the sale, the Company issued warrants to the note holders to acquire an
aggregate of 104,167 shares of its common stock with an exercise price of $0.24
per share. The warrants expire earlier of four years from the date of issuance
or two years from the date the Company's shares are publicly traded

The Company allocated the $25,000 of proceeds received from the Notes to debt
and warrants based on the then computed relative fair values. The warrants
issued were valued using a Black-Scholes option-pricing model with the following
assumptions: (1) common stock fair value of $0.24 per share (2) expected
volatility of 43.55%, (3) risk-free interest rate of 0.79%, (4) life of 2 years
and (5) no dividend, which resulted in a fair value of $8,316 and a relative
fair value of $6,240. Additionally, the resulting relative fair value allocated
to the debt component was used to measure the intrinsic value of the embedded
conversion option of the Notes, which resulted in a beneficial conversion
feature with a fair value of $6,240. The aggregate amounts allocated to the
warrants and beneficial conversion feature, of $12,480 were recorded as a debt
discount and to additional paid- capital. The debt discounts are amortized as
debt discount expense over the originally stated term of the Notes.

    Principal    
Unamortized
debt
discount
    Net                      
Convertible Notes due at various dates  between
                 
 April 2013 and  July 2014
  $ 61,000     $ 12,933     $ 48,067  

During the nine months ended August 31, 2013, $5,071 ($3,231 - 2012) of discount
was accreted and recorded as amortization of debt discounts, included as a
component of interest expense.

Subsequent to August 31, 2013 the Company issued three (3) Convertible
Promissory Notes in the aggregate principal amount of $154,000. The Notes, which
are due on various dates between September 2014 and November 2014, bear interest
at rates ranging between 8% and 18% per annum, are unsecured and are convertible
into 166,667 shares of the Company's common stock. Of the $154,000 Notes issued,
$4,000 is convertible at the option of the Company at a fixed conversion price
of $0.24 per share and $150,000 is convertible at the option of the holder at an
initial conversion price of $1.00 per share, subject to adjustment.  In
connection with the issuance of the Notes, the Company issued warrants to the
Note holders to acquire an aggregate of 633,000 shares of its common stock with
an exercise price of $0.24 per share. The warrants expire on various dates from
two to three years from the date of issuance.

 
7

--------------------------------------------------------------------------------

 

NOTE 3. STOCKHOLDERS’ DEFICIENCY

During the nine months ended August 31, 2013, the Company sold in private sale
an aggregate of 321,666 shares of Class A Common Shares and warrants to acquire
235,000 shares of Class A Common Stock for $82,000. The warrants are exercisable
at a strike price of $0.24 and expire at the earlier of four years from the date
of issuance or two years from the date the Company's stock is publicly traded

During the nine months ended August 31, 2013, the Company entered into
agreements and issued 99,478 shares of Class A common stock as consideration for
the services outlined in the agreements. Accordingly, $23,875, representing the
fair value of the shares issued, was charged to operations for services provided
during the nine months ended August 31, 2013. Further, 250,522 shares of Class A
common stock were issued to satisfy $60,125 of accrued liabilities related to
services performed in previous years.

Subsequent to August 31, 2013, the Company sold in private placements an
aggregate of 12,500 shares of Class A common stock and warrants to acquire
12,500 shares of Class A common stock for $3,000. The warrants are exercisable
at a strike price of $0.24 and expire at the earlier of four years from the date
of issuance or two years from the date the Company's stock is publicly traded.

Subsequent to August 31, 2013, the Company entered into agreements and issued
1,187,500 shares of Class A common stock as consideration for the services
outlined in the agreements. Accordingly, $285,000, representing the fair value
of the shares issued, was charged to operations for services provided subsequent
to August 31, 2013. The Company also issued 83,335 warrants for services with an
exercise price of $0.24, set to expire at the earlier of two years from the date
of issuance or two years from the date the Company's stock is publicly traded.
The warrants had an aggregate fair value of approximately $5,000.
 
 
The following summarizes the outstanding warrants, all with an exercise price of
$0.24:

Warrants outstanding at November 30, 2012
578,500
Warrants issued with private placements
235,000
Warrants issued with convertible notes
104,167
Warrants outstanding at August 31, 2013
917,667

NOTE 4. DUE TO OFFICERS

Two officers of the Company, who are also the two most significant shareholders
of the Company, have provided the Company with lines of credit through use of
personal credit cards. Total amounts due to officers at August 31, 2013 amounted
to $47,975. Included in interest expense for the nine months ended August 31,
2013 is $5,082 ($7,060 - 2012) of interest and charges incurred by the officers
on behalf of the Company through use of their credit cards, which yield interest
rates ranging from 12% to 26%.

NOTE 5.  SUBSEQUENT EVENTS

Proposed Merger - The Company completed a merger with Internet Media Services,
Inc. (IMS), a U.S. based public entity, through exchange of shares and equity
instruments. The transaction results in the Company becoming a subsidiary of
IMS. In advance of the merger, IMS provided cash of approximately $49,000 to the
Company for working capital needs, of which, $22,955 was received as of August
31, 2013. The cash advance is non-interest bearing and does not have a defined
maturity date.

The Company and IMS have jointly entered into a term sheet dated October 15,
2013 with a financing company (“Lessor”) to provide for equipment lease
financing in the aggregate amount of $1 million. The consolidated entity will
use this financing to acquire equipment that will be used in direct income
producing activities.

 
8

--------------------------------------------------------------------------------

 

On about November 1, 2013, the Company and IMS have leased equipment worth
approximately $197,000 pursuant to financing by the Lessor. As per the terms of
the agreement with the Lessor, the consolidated entity will be obligated to pay
$57,202 annually including interest at 9% per annum and also buy the equipment
from the Lessor for approximately $86,790 in November 2016. Accordingly, the
lease will be treated as a capital lease.

Operating Leases - The Company entered into two operating lease agreements, one
to lease warehouse space in the greater Chicago, Illinois region and one to
lease a vehicle. The warehouse lease is for a term of 54 months commencing in
November 2013 and requires a monthly rent of $1,875 with scheduled rent
increases. The vehicle lease is for a term of 48 months commencing in October
2013 and requires a monthly payment of $670.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
9

--------------------------------------------------------------------------------