UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





FORM 10-Q/A





AMENDMENT NO. 1 TO FORM 10-Q







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



For the quarterly period ended June
30, 2014



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



For the transition period from ______
to _______



Commission File Number 333-180653



CODESMART HOLDINGS, INC.

(Exact name of registrant as specified
in its charter)



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



1330 Avenue of the Americas

Suite 23A

New York, NY 10019

(Address of principal executive offices)



212-653-0659

(Registrant’s
telephone number)



Indicate
by check mark whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days. YesxNoo



Indicate
by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YesxNoo



Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions
of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2
of the Exchange Act.



|Large accelerated filer                     | o | Accelerated filer         |  ̈
|------------------------------------------- | - | ------------------------- | -
|Non-accelerated filer                       | o | Smaller reporting company | x
|Do not check if a smaller reporting company |   |                          



Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YesoNox



APPLICABLE ONLY TO CORPORATE ISSUERS



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























EXPLANATION
NOTE



This Amendment No. 1 to the Quarterly Report on Form 10-Q/A
of CodeSmart Holdings, Inc. (the “Company”) for the three months ended June 30, 2014 is being filed to include Items
3 and Item 4 in Part I and Items 1A, Item 2, Item 3, Item 4 and Item 5 in Part II, which was omitted from the Company’s
Quarterly Report on Form 10-Q for the three months ended June 30, 2014 which was filed with the Securities and Exchange Commission
(“SEC”) on October 15, 2014 (the “Form 10-Q”).



Except as described above, no other parts of the Form 10-Q are
being amended.







Special Note Regarding Forward-Looking
Statements



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



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





2






PART I - FINANCIAL INFORMATION



ITEM 1.  FINANCIAL STATEMENTS







CodeSmart
Holdings, Inc.

Consolidated
Balance Sheets





|                                                                                                                            |  | June 30,
 2014 |             |   | December 31,
2013 |  
|--------------------------------------------------------------------------------------------------------------------------- |  | -------------- | ----------- | - | ----------------- | -
|                                                                                                                            |  | (Unaudited)    |             |   |                   |  
|                                                                                                                            |  |                |             |   |                   |  
|Assets:                                                                                                                     |  |                |             |   |                   |  
|Cash                                                                                                                        |  | $              | 36,977      |   |                   | $
|Accounts receivable                                                                                                         |  |                | 38,605      |   |                   |  
|Prepaid and other current assets                                                                                            |  |                | 147,419     |   |                   |  
|Total current assets                                                                                                        |  |                | 223,001     |   |                   |  
|                                                                                                                            |  |                |             |   |                   |  
|Property and equipment, net                                                                                                 |  |                | 3,056       |   |                   |  
|                                                                                                                            |  |                |             |   |                   |  
|Total assets                                                                                                                |  | $              | 226,057     |   |                   | $
|                                                                                                                            |  |                |             |   |                   |  
|Liabilities and Stockholders' Equity (Deficit)                                                                              | 
|                                                                                                                            |  |                |             |   |                   |  
|Liabilities:                                                                                                                |  |                |             |   |                   |  
|Accounts payable and accrued expenses                                                                                       |  | $              | 479,084     |   |                   | $
|Loans payable                                                                                                               |  |                | 167,450     |   |                   |  
|Secured convertible notes payable - net                                                                                     |  |                | 444,414     |   |                   |  
|Deferred revenue                                                                                                            |  |                | 241,404     |   |                   |  
|Securities payable                                                                                                          |  |                | -           |   |                   |  
|Derivative liabilities - convertible notes                                                                                  |  |                | 4,740,865   |   |                   |  
|Derivative liabilities - warrants                                                                                           |  |                | 9,466       |   |                   |  
|Total current liabilities                                                                                                   |  |                | 6,082,683   |   |                   |  
|                                                                                                                            |  |                |             |   |                   |  
|Total liabilities                                                                                                           |  |                | 6,082,683   |   |                   |  
|                                                                                                                            |  |                |             |   |                   |  
|Stockholders' Equity (Deficit)                                                                                              |  |                |             |   |                   |  
|Preferred stock, $0.0001 par value; 100,000,000 shares authorized; no shares issued and outstanding                         |  |                | -           |   |                   |  
|Common stock, $0.0001 par value; 500,000,000 shares authorized; 27,522,626 and
    21,103,430 shares issued and outstanding |  |                | 2,752       |   |                   |  
|Additional paid in capital                                                                                                  |  |                | 22,271,576  |   |                   |  
|Accumulated deficit                                                                                                         |  |                | (28,130,954 | ) |                   |  
|                                                                                                                            |  |                |             |   |                   |  
|Total Stockholders' Equity (Deficit)                                                                                        |  |                | (5,856,626  | ) |                   |  
|                                                                                                                            |  |                |             |   |                   |  
|Total Liabilities and Stockholders' Equity (Deficit)                                                                        |  | $              | 226,057     |   |                   | $







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



3






CodeSmart
Holdings, Inc.

Consolidated
Statements of Operations

(unaudited)







|                                                                 |  | For the three months ended |            |   | For the three months ended |   |            | For the six months ended |  |   | For the six months ended |  
|---------------------------------------------------------------- |  | -------------------------- | ---------- | - | -------------------------- | - | ---------- | ------------------------ |  | - | ------------------------ | -
|                                                                 |  | June 30, 2014              |            |   | June 30, 2013              |   |            | June 30, 2014            |  |   | June 30, 2013            |  
|                                                                 |  | (Unaudited)                |            |   | (Unaudited)                |   |            | (Unaudited)              |  |   | (Unaudited)              |  
|                                                                 |  |                            |            |   |                            |   |            |                          |  |   |                          |  
|Revenue                                                          |  | $                          | 515,294    |   |                            | $ | 24,157     |                          |  | $ | 679,964                  |  
|Cost of sales                                                    |  |                            | 94,087     |   |                            |   | 16,521     |                          |  |   | 184,522                  |  
|Gross profit                                                     |  |                            | 421,207    |   |                            |   | 7,636      |                          |  |   | 495,442                  |  
|                                                                 |  |                            |            |   |                            |   |            |                          |  |   |                          |  
|Operating expenses:                                              |  |                            |            |   |                            |   |            |                          |  |   |                          |  
|Compensation                                                     |  |                            | 370,343    |   |                            |   | 2,566,866  |                          |  |   | 932,045                  |  
|Professional fees                                                |  |                            | 344,255    |   |                            |   | 824,050    |                          |  |   | 531,248                  |  
|Research and development                                         |  |                            | 29,082     |   |                            |   | 24,836     |                          |  |   | 100,007                  |  
|Advertising and promotions                                       |  |                            | 85,952     |   |                            |   | 114,056    |                          |  |   | 190,312                  |  
|Other general and administrative expenses                        |  |                            | 30,483     |   |                            |   | 43,138     |                          |  |   | 238,680                  |  
|Total operating expenses                                         |  |                            | 860,115    |   |                            |   | 3,572,946  |                          |  |   | 1,992,292                |  
|                                                                 |  |                            |            |   |                            |   |            |                          |  |   |                          |  
|Loss from operations                                             |  |                            | (438,908   | ) |                            |   | (3,565,310 | )                        |  |   | (1,496,850               | )
|                                                                 |  |                            |            |   |                            |   |            |                          |  |   |                          |  
|Other income (expenses)                                          |  |                            |            |   |                            |   |            |                          |  |   |                          |  
|Interest expense                                                 |  |                            | (396,748   | ) |                            |   | (82,431    | )                        |  |   | (693,179                 | )
|Loss on investment                                               |  |                            | (711,350   | ) |                            |   | -          |                          |  |   | (711,350                 | )
|Change in fair value of derivative liability - convertible notes |  |                            | (2,698,218 | ) |                            |   | (1,489,187 | )                        |  |   | (2,298,334               | )
|Change in fair value of derivative liability - warrants          |  |                            | 130,894    |   |                            |   | -          |                          |  |   | 154,789                  |  
|Derivative expense                                               |  |                            | (65,894    | ) |                            |   | -          |                          |  |   | (635,990                 | )
|Loss from extinguishment of debt                                 |  |                            | (80,811    | ) |                            |   | -          |                          |  |   | (80,811                  | )
|Total other income (expense)                                     |  |                            | (3,822,127 | ) |                            |   | (1,571,618 | )                        |  |   | (4,264,875               | )
|                                                                 |  |                            |            |   |                            |   |            |                          |  |   |                          |  
|Net loss                                                         |  | $                          | (4,261,035 | ) |                            | $ | (5,136,928 | )                        |  | $ | (5,761,725               | )
|                                                                 |  |                            |            |   |                            |   |            |                          |  |   |                          |  
|Net loss per common share - basic and diluted                    |  | $                          | (0.18)     |   |                            | $ | (0.50      | )                        |  | $ | (0.26)                   |  
|                                                                 |  |                            |            |   |                            |   |            |                          |  |   |                          |  
|Weighted average common shares outstanding -basic and diluted    |  |                            | 23,370,041 |   |                            |   | 10,235,695 |                          |  |   | 22,257,014               |  





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



4






CODESMART
HOLDINGS, INC.

CONSOLIDATED
STATEMENT OF CASH FLOWS









|                                                                            |  | For the six months ended |            |   | For the six months ended |  
|--------------------------------------------------------------------------- |  | ------------------------ | ---------- | - | ------------------------ | -
|                                                                            |  | June 30, 2014            |            |   | June 30, 2013            |  
|                                                                            |  | (Unaudited)              |            |   | (Unaudited)              |  
|CASH FLOWS FROM OPERATING ACTIVITIES:                                       |  |                          |            |   |                          |  
|Net loss                                                                    |  | $                        | (5,761,725 | ) |                          | $
|Adjustments to reconcile net loss to net cash used in operating activities: |  |                          |            |   |                          |  
|Depreciation                                                                |  |                          | 833        |   |                          |  
|Interest expense including debt issue costs and OID costs                   |  |                          | 631,057    |   |                          |  
|Share based compensation                                                    |  |                          | 169,620    |   |                          |  
|Derivative expense                                                          |  |                          | 635,990    |   |                          |  
|Change in fair value of derivative liability                                |  |                          | 2,143,545  |   |                          |  
|Loss on extinguishment of debt                                              |  |                          | 80,811     |   |                          |  
|Loss on investment in Jasper                                                |  |                          | 711,350    |   |                          |  
|Changes in operating assets and liabilities:                                |  |                          |            |   |                          |  
|Increase in accounts receivable                                             |  |                          | (1,008     | ) |                          |  
|Decrease (increase) in prepaids and other current assets                    |  |                          | 23,841     |   |                          |  
|Increase in deferred revenue                                                |  |                          | 90,934     |   |                          |  
|(Decrease) increase in accounts payable and accrued expenses                |  |                          | (116,677   | ) |                          |  
|Net Cash Used in Operating Activities                                       |  |                          | (1,391,429 | ) |                          |  
|                                                                            |  |                          |            |   |                          |  
|CASH FLOWS FROM INVESTING ACTIVITIES:                                       |  |                          |            |   |                          |  
|Cash paid for equipment                                                     |  |                          | -          |   |                          |  
|Net Cash Used in Investing Activities                                       |  |                          | -          |   |                          |  
|                                                                            |  |                          |            |   |                          |  
|CASH FLOWS FROM FINANCING ACTIVITIES:                                       |  |                          |            |   |                          |  
|Proceeds from issuance of common stock                                      |  |                          | 213,047    |   |                          |  
|Proceeds from the issuance of convertible notes (net of issuance costs)     |  |                          | 971,500    |   |                          |  
|Cash paid for the repayment of notes                                        |  |                          | (50,000    | ) |                          |  
|Proceeds of loan payable                                                    |  |                          | 140,025    |   |                          |  
|Cash paid to cancel shares (through recapitalization)                       |  |                          | -          |   |                          |  
|Net Cash Provided By Financing Activities                                   |  |                          | 1,274,572  |   |                          |  
|                                                                            |  |                          |            |   |                          |  
|Net Increase (Decrease) in Cash                                             |  |                          | (116,857   | ) |                          |  
|                                                                            |  |                          |            |   |                          |  
|Cash - Beginning of Period                                                  |  |                          | 153,834    |   |                          |  
|                                                                            |  |                          |            |   |                          |  
|Cash - End of Period                                                        |  | $                        | 36,977     |   |                          | $
|                                                                            |  |                          |            |   |                          |  
|SUPPLEMENTARY CASH FLOW INFORMATION:                                        |  |                          |            |   |                          |  
|Cash Paid During the Period for:                                            |  |                          |            |   |                          |  
|Income taxes                                                                |  |                          | -          |   |                          |  
|Interest                                                                    |  |                          | 55,588     |   |                          |  
|                                                                            |  |                          |            |   |                          |  
|SUPPLEMENTARY DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES     |  |                          |            |   |                          |  
|                                                                            |  |                          |            |   |                          |  
|Investment in Jasper Group Holdings, Inc.                                   |  |                          | 711,350    |   |                          |  
|Debt discounts on convertible notes                                         |  |                          | -          |   |                          |  
|Conversion of convertible notes and interest into common stock              |  |                          | 159,769    |   |                          |  
|Reclassification of derivative liability to additional paid in capital      |  |                          | 222,649    |   |                          |  





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





5








CodeSmart Holdings, Inc. and Subsidiaries

Fka First Independence Corp.

Notes to Condensed Consolidated Financial
Statements



Note 1 Nature of Operations



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



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



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



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



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



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





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



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





6








Note 2 Summary of Significant Accounting Policies



Basis of presentation



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



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



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



Going Concern



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





7








Principles of Consolidation



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



Risks and Uncertainties



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



Cash



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



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



Financial Instruments and Concentration of Credit Risk



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



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



Fair Value of Financial Instruments



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



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



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





8






Carrying Value, Recoverability and Impairment of Long-Lived
Assets



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



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



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



Property and Equipment



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



Derivative Instruments



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



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



Research and Development



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



Revenue Recognition and Deferred Revenue



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



9








Segment Information



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



Exit from Development Stage



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



Stock-Based Employee Compensation



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



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



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



Loss Per Share



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





10






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



Income Taxes



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



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



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



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





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





Recently Issued Accounting Pronouncements



The FASB has recently issued the following Accounting Standards
Updates:



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



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



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



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



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





11






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



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



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



Note 3 Property and Equipment



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



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





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





Note 5 Secured Convertible Promissory Notes and Warrants



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



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





12








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



|                                                                          |  | June 30,
2014 |            |   | December 31,
2013 |  
|------------------------------------------------------------------------- |  | ------------- | ---------- | - | ----------------- | -
|                                                                          |  | (Unaudited)   |            |   |                   |  
|Total principal amounts                                                   |  | $             | 1,380,319  |   |                   | $
|Less: OID & lender fees recorded as interest                              |  |               | (88,569    | ) |                   |  
|Less: 3rd party fees paid (legal and issuance costs recorded as interest) |  |               | (91,500    | ) |                   |  
|Less: non-cash investor and third party fees paid: (stock and warrants)   |  |               | (18,417    | ) |                   |  
|Net proceeds                                                              |  |               | 1,181,833  |   |                   |  
|Less: embedded derivative recognized                                      |  |               | (1,787,180 | ) |                   |  
|Derivative expense                                                        |  |               | 635,990    |   |                   |  
|Initial carrying amounts                                                  |  | $             | 30,643     |   |                   | $



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



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



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



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



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

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

13






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



|Issued            |  | Due Date           |  | Outstanding
    Principal Amount |         |  | Accrued Interest Due |  |        | Effective Interest Recognized |  |  | Carrying Amount |  |  | Stated Interest Rate |         |  | Default Interest Rate | 
|----------------- |  | ------------------ |  | -------------------------------- | ------- |  | -------------------- |  | ------ | ----------------------------- |  |  | --------------- |  |  | -------------------- | ------- |  | --------------------- | 
|                  |  |                    |  |                                  |         |  |                      |  |        |                               |  |  |                 |  |  |                      |         |  |                       | 
|December 13, 2013 |  | December 12, 2014  |  |                                  | 130,434 |  |                      |  | 19,444 |                               |  |  | 64,010          |  |  |                      | -       |  |                       | 
|                  |  |                    |  |                                  |         |  |                      |  |        |                               |  |  |                 |  |  |                      |         |  |                       | 
|December 19, 2013 |  | September 19, 2014 |  |                                  | 225,000 |  |                      |  | 12,619 |                               |  |  | 27,649          |  |  |                      | 27,649  |  |                       | 
|                  |  |                    |  |                                  |         |  |                      |  |        |                               |  |  |                 |  |  |                      |         |  |                       | 
|December 19, 2013 |  | September 20, 2014 |  |                                  | 126,500 |  |                      |  | 6,349  |                               |  |  | 45,096          |  |  |                      | 54,484  |  |                       | 
|                  |  |                    |  |                                  |         |  |                      |  |        |                               |  |  |                 |  |  |                      |         |  |                       | 
|January 10, 2014  |  | July 10, 2014      |  |                                  | 194,444 |  |                      |  | 19,444 |                               |  |  | 101,904         |  |  |                      | 101,904 |  |                       | 
|                  |  |                    |  |                                  |         |  |                      |  |        |                               |  |  |                 |  |  |                      |         |  |                       | 
|January 10, 2014  |  | January 10, 2015   |  |                                  | 110,000 |  |                      |  | 5,184  |                               |  |  | 42,976          |  |  |                      | 42,976  |  |                       | 
|                  |  |                    |  |                                  |         |  |                      |  |        |                               |  |  |                 |  |  |                      |         |  |                       | 
|January 23, 2014  |  | January 23, 2016   |  |                                  | 168,000 |  |                      |  | 20,160 |                               |  |  | 38,609          |  |  |                      | 38,609  |  |                       | 
|                  |  |                    |  |                                  |         |  |                      |  |        |                               |  |  |                 |  |  |                      |         |  |                       | 
|February 3, 2014  |  | October 30, 2014   |  |                                  | 105,263 |  |                      |  | 3,945  |                               |  |  | 32,165          |  |  |                      | 45,381  |  |                       | 
|                  |  |                    |  |                                  |         |  |                      |  |        |                               |  |  |                 |  |  |                      |         |  |                       | 
|February 6, 2014  |  | February 6, 2015   |  |                                  | 55,000  |  |                      |  | 2,622  |                               |  |  | 18,654          |  |  |                      | 18,654  |  |                       | 
|                  |  |                    |  |                                  |         |  |                      |  |        |                               |  |  |                 |  |  |                      |         |  |                       | 
|February 19, 2014 |  | February 19, 2015  |  |                                  | 55,556  |  |                      |  | 2,411  |                               |  |  | 18,903          |  |  |                      | 18,903  |  |                       | 
|                  |  |                    |  |                                  |         |  |                      |  |        |                               |  |  |                 |  |  |                      |         |  |                       | 
|February 20, 2014 |  | November 18, 2014  |  |                                  | 110,000 |  |                      |  | 4,738  |                               |  |  | 50,840          |  |  |                      | 50,840  |  |                       | 
|                  |  |                    |  |                                  |         |  |                      |  |        |                               |  |  |                 |  |  |                      |         |  |                       | 
|March 5, 2014     |  | March 5, 2015      |  |                                  | 55,556  |  |                      |  | 1,437  |                               |  |  | 16,426          |  |  |                      | 16,426  |  |                       | 
|                  |  |                    |  |                                  |         |  |                      |  |        |                               |  |  |                 |  |  |                      |         |  |                       | 
|March 21, 2014    |  | December 17, 2014  |  |                                  | 63,000  |  |                      |  | 1,408  |                               |  |  | 10,179          |  |  |                      | 10,179  |  |                       | 
|                  |  |                    |  |                                  |         |  |                      |  |        |                               |  |  |                 |  |  |                      |         |  |                       | 
|April 14, 2014    |  | January 14, 2015   |  |                                  | 52,750  |  |                      |  | 902    |                               |  |  | 2,009           |  |  |                      | 2,009   |  |                       | 
|                  |  |                    |  |                                  |         |  |                      |  |        |                               |  |  |                 |  |  |                      |         |  |                       | 
|April 29, 2014    |  | April 29, 2015     |  |                                  | 159,992 |  |                      |  | 3,666  |                               |  |  | 58,475          |  |  |                      | -       |  |                       | 
|                  |  |                    |  |                                  |         |  |                      |  |        |                               |  |  |                 |  |  |                      |         |  |                       | 
|April 29, 2014    |  | April 29, 2015     |  |                                  | 102,000 |  |                      |  | 2,113  |                               |  |  | 2,311           |  |  |                      | 2,311   |  |                       | 
|                  |  |                    |  |                                  |         |  |                      |  |        |                               |  |  |                 |  |  |                      |         |  |                       | 
|May 12, 2014      |  | February 12, 2015  |  |                                  | 37,500  |  |                      |  | 403    |                               |  |  | 4,005           |  |  |                      | 4,005   |  |                       | 
|                  |  |                    |  |                                  |         |  |                      |  |        |                               |  |  |                 |  |  |                      |         |  |                       | 
|June 20, 2014     |  | March 20, 2014     |  |                                  | 42,500  |  |                      |  | 93     |                               |  |  | 2,943           |  |  |                      | 10,084  |  |                       | 
|                  |  |                    |  |                                  |         |  |                      |  |        |                               |  |  |                 |  |  |                      |         |  |                       | 
|                  |  |                    |  |                                  |         |  |                      |  |        |                               |  |  |                 |  |  | $                    | 444,414 |  |                       | 









14






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



|Issued            |  | Due Date           |  | Face Amount |         |  | Accrued Interest Due |   |        | Effective Interest Recognized |  |   | Carrying Amount |  |  | Stated Interest Rate |        |  | Default Interest Rate | 
|----------------- |  | ------------------ |  | ----------- | ------- |  | -------------------- | - | ------ | ----------------------------- |  | - | --------------- |  |  | -------------------- | ------ |  | --------------------- | 
|                  |  |                    |  |             |         |  |                      |   |        |                               |  |   |                 |  |  |                      |        |  |                       | 
|August 29, 2013   |  | August 29, 2014    |  | $           | 150,000 |  |                      | $ | 4,110  |                               |  | $ | 7,471           |  |  | $                    | 7,471  |  |                       | 
|                  |  |                    |  |             |         |  |                      |   |        |                               |  |   |                 |  |  |                      |        |  |                       | 
|November 26, 2013 |  | February 24, 2014  |  |             | 50,000  |  |                      |   | 1,616  |                               |  |   | 80,736          |  |  |                      | 14,236 |  |                       | 
|                  |  |                    |  |             |         |  |                      |   |        |                               |  |   |                 |  |  |                      |        |  |                       | 
|December 13, 2013 |  | December 12, 2014  |  |             | 194,444 |  |                      |   | 19,444 |                               |  |   | 2,521           |  |  |                      | 2,521  |  |                       | 
|                  |  |                    |  |             |         |  |                      |   |        |                               |  |   |                 |  |  |                      |        |  |                       | 
|December 19, 2013 |  | September 19, 2014 |  |             | 225,000 |  |                      |   | 789    |                               |  |   | 2,678           |  |  |                      | 2,678  |  |                       | 
|                  |  |                    |  |             |         |  |                      |   |        |                               |  |   |                 |  |  |                      |        |  |                       | 
|December 19, 2013 |  | September 20, 2014 |  |             | 153,500 |  |                      |   | 437    |                               |  |   | 2,089           |  |  |                      | 38,476 |  |                       | 
|                  |  |                    |  |             |         |  |                      |   |        |                               |  |   |                 |  |  |                      |        |  |                       | 
|                  |  |                    |  |             |         |  |                      |   |        |                               |  |   |                 |  |  | $                    | 65,382 |  |                       | 



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



|Issued            |  | Due Date           |  | Outstanding
    Principal Amount |         |  | Embedded Derivative |   |           | Conversion Price |  |   | Conversion Shares | 
|----------------- |  | ------------------ |  | -------------------------------- | ------- |  | ------------------- | - | --------- | ---------------- |  | - | ----------------- | 
|                  |  |                    |  |                                  |         |  |                     |   |           |                  |  |   |                   | 
|December 13, 2013 |  | December 12, 2014  |  |                                  | 130,434 |  |                     |   | 412,485   |                  |  | $ | 0.0117            | 
|                  |  |                    |  |                                  |         |  |                     |   |           |                  |  |   |                   | 
|December 19, 2013 |  | September 19, 2014 |  |                                  | 225,000 |  |                     |   | 609,279   |                  |  | $ | 0.0117            | 
|                  |  |                    |  |                                  |         |  |                     |   |           |                  |  |   |                   | 
|December 19, 2013 |  | September 20, 2014 |  |                                  | 126,500 |  |                     |   | 340,639   |                  |  | $ | 0.0117            | 
|                  |  |                    |  |                                  |         |  |                     |   |           |                  |  |   |                   | 
|January 10, 2014  |  | July 10, 2014      |  |                                  | 194,444 |  |                     |   | 517,355   |                  |  | $ | 0.0117            | 
|                  |  |                    |  |                                  |         |  |                     |   |           |                  |  |   |                   | 
|January 10, 2014  |  | January 10, 2015   |  |                                  | 110,000 |  |                     |   | 323,892   |                  |  | $ | 0.0117            | 
|                  |  |                    |  |                                  |         |  |                     |   |           |                  |  |   |                   | 
|January 23, 2014  |  | January 23, 2016   |  |                                  | 168,000 |  |                     |   | 556,898   |                  |  | $ | 0.0117            | 
|                  |  |                    |  |                                  |         |  |                     |   |           |                  |  |   |                   | 
|February 3, 2014  |  | October 30, 2014   |  |                                  | 105,263 |  |                     |   | 198,539   |                  |  | $ | 0.0158            | 
|                  |  |                    |  |                                  |         |  |                     |   |           |                  |  |   |                   | 
|February 6, 2014  |  | February 6, 2015   |  |                                  | 55,000  |  |                     |   | 139,794   |                  |  | $ | 0.0135            | 
|                  |  |                    |  |                                  |         |  |                     |   |           |                  |  |   |                   | 
|February 19, 2014 |  | February 19, 2015  |  |                                  | 55,556  |  |                     |   | 167,955   |                  |  | $ | 0.0117            | 
|                  |  |                    |  |                                  |         |  |                     |   |           |                  |  |   |                   | 
|February 20, 2014 |  | November 18, 2014  |  |                                  | 110,000 |  |                     |   | 312,832   |                  |  | $ | 0.0117            | 
|                  |  |                    |  |                                  |         |  |                     |   |           |                  |  |   |                   | 
|March 5, 2014     |  | March 5, 2015      |  |                                  | 55,556  |  |                     |   | 166,108   |                  |  | $ | 0.0117            | 
|                  |  |                    |  |                                  |         |  |                     |   |           |                  |  |   |                   | 
|March 21, 2014    |  | December 17, 2014  |  |                                  | 63,000  |  |                     |   | 146,535   |                  |  | $ | 0.0138            | 
|                  |  |                    |  |                                  |         |  |                     |   |           |                  |  |   |                   | 
|April 14, 2014    |  | January 14, 2015   |  |                                  | 52,750  |  |                     |   | 143,188   |                  |  | $ | 0.0123            | 
|                  |  |                    |  |                                  |         |  |                     |   |           |                  |  |   |                   | 
|April 29, 2014    |  | April 29, 2015     |  |                                  | 102,000 |  |                     |   | 199,766   |                  |  | $ | 0.0174            | 
|                  |  |                    |  |                                  |         |  |                     |   |           |                  |  |   |                   | 
|April 29, 2014    |  | April 29, 2015     |  |                                  | 159,992 |  |                     |   | 312,139   |                  |  | $ | 0.0174            | 
|                  |  |                    |  |                                  |         |  |                     |   |           |                  |  |   |                   | 
|May 12, 2014      |  | February 12, 2015  |  |                                  | 37,500  |  |                     |   | 90,077    |                  |  | $ | 0.0138            | 
|                  |  |                    |  |                                  |         |  |                     |   |           |                  |  |   |                   | 
|June 20, 2014     |  | March 20, 2015     |  |                                  | 42,500  |  |                     |   | 103,384   |                  |  | $ | 0.0138            | 
|                  |  |                    |  |                                  |         |  |                     |   |           |                  |  |   |                   | 
|                  |  |                    |  |                                  |         |  |                     | $ | 4,740,865 |                  |  |   |                   | 





15








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



|Financing Date    |  | Warrants Issued To |  | Number of Warrants |         |  | Expiration Date |                   | Fair Value at Issuance |   |         | Fair Value at June 30, 2014 |  |   | Exercise Price | 
|----------------- |  | ------------------ |  | ------------------ | ------- |  | --------------- | ----------------- | ---------------------- | - | ------- | --------------------------- |  | - | -------------- | 
|                  |  |                    |  |                    |         |  |                 |                   |                        |   |         |                             |  |   |                | 
|December 13, 2013 |  | Placement agent    |  |                    | 17,499  |  |                 | December 13, 2016 |                        | $ | 11,838  |                             |  | $ | 555            | 
|                  |  |                    |  |                    |         |  |                 |                   |                        |   |         |                             |  |   |                | 
|December 19, 2013 |  | Investors          |  |                    | 187,500 |  |                 | December 31, 2018 |                        |   | 124,357 |                             |  |   | 7,463          | 
|                  |  |                    |  |                    |         |  |                 |                   |                        |   |         |                             |  |   |                | 
|January 10, 2014  |  | Placement agent    |  |                    | 17,499  |  |                 | January 10, 2017  |                        |   | 18,417  |                             |  |   | 1,448          | 
|                  |  |                    |  |                    |         |  |                 |                   |                        | $ | 154,792 |                             |  | $ | 9,466          | 



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



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





16








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



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



|                              |  | Compound Embedded Derivatives |            |   | Warrant Derivatives |  
|----------------------------- |  | ----------------------------- | ---------- | - | ------------------- | -
|                              |  |                               |            |   |                     |  
|Balance – December 31, 2012   |  | $                             | -          |   |                     | $
|                              |  |                               |            |   |                     |  
|Issuances:                    |  |                               |            |   |                     |  
|April 15, 2013                |  |                               | 47,075     |   |                     |  
|April 24, 2013                |  |                               | 36,988     |   |                     |  
|August 29, 2013               |  |                               | 290,994    |   |                     |  
|November 26, 2013             |  |                               | 118,558    |   |                     |  
|December 13, 2013             |  |                               | 185,037    |   |                     |  
|December 19, 2013             |  |                               | 217,628    |   |                     |  
|December 19, 2013             |  |                               | 113,613    |   |                     |  
|                              |  |                               |            |   |                     |  
|Fair value adjustments:       |  |                               |            |   |                     |  
|Compound embedded derivatives |  |                               | 1,556,255  |   |                     |  
|Warrant derivatives           |  |                               |            |   |                     |  
|                              |  |                               |            |   |                     |  
|Conversions:                  |  |                               |            |   |                     |  
|April 15, 2013 financing      |  |                               | (519,750   | ) |                     |  
|April 24, 2013 financing      |  |                               | (1,055,250 | ) |                     |  
|                              |  |                               |            |   |                     |  
|Balance – December 31, 2013   |  |                               | 991,148    |   |                     |  
|                              |  |                               |            |   |                     |  
|Issuances:                    |  |                               |            |   |                     |  
|Compound embedded derivatives |  |                               | 1,787,180  |   |                     |  
|Warrant derivatives           |  |                               | -          |   |                     |  
|                              |  |                               |            |   |                     |  
|Fair value adjustments:       |  |                               |            |   |                     |  
|Compound embedded derivatives |  |                               | 2,298,334  |   |                     |  
|Warrant derivatives           |  |                               | -          |   |                     |  
|                              |  |                               |            |   |                     |  
|Conversions:                  |  |                               |            |   |                     |  
|December 13, 2013 financing   |  |                               | (78,737    | ) |                     |  
|December 23, 2013 financing   |  |                               | (35,590    | ) |                     |  
|April 29, 2013 financing      |  |                               | (108,321   | ) |                     |  
|                              |  |                               |            |   |                     |  
|Extinguishment of debt:       |  |                               |            |   |                     |  
|August 29, 2013 financing     |  |                               | (113,149   | ) |                     |  
|                              |  |                               |            |   |                     |  
|Balance – June 30, 2014       |  | $                             | 4,740,865  |   |                     | $





17








Note 6
 Capital Stock



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



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



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



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



| | ● | No liquidation preference.
| | - | --------------------------



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



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



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





18






Note 7 Stockholders’ Equity



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



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



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



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



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



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



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



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



Note 8 Commitments and Contingencies



Litigations, Claims and Assessments



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



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



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





19






Operating Lease



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



Note 9 Investment in Jasper Group Holdings, Inc.



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



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



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



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





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



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







20






Note 10 Standby Equity Securities Purchase Agreement



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



Note 11 Stock Incentive Plan



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



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



Note 12 Subsequent Events



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



21










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



FORWARD-LOOKING STATEMENTS



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



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



Recent Developments



Criminal and Civil Actions



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



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



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





Other Developments







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



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





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



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



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



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



Current Status of the Company



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



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



Revenue and Gross Profit



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





22






Operating Expenses





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



Loss from Operations



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



Net Loss



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



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



Revenue and Gross Profit



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



Operating Expenses



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



Loss from Operations



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







23






Net Loss





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



Liquidity and Capital Resources



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



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



24








ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK



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



ITEM 4. CONTROLS AND PROCEDURES



Evaluation of Disclosure Controls and Procedures



Our management is responsible for establishing and maintaining
adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) or
15d-15(f) promulgated under the Securities Exchange Act of 1934 as a process designed by, or under the supervision of, the Company’s
principal executive and principal financial officers and effected by the Company’s board of directors, management and other
personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with accounting principles generally accepted in the United States of America and includes
those policies and procedures that:



| | ● | Pertain to the maintenance of
    records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | Provide reasonable assurance that transactions
    are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally
    accepted in the United States of America and that receipts and expenditures of the company are being made only in accordance
    with authorizations of management and directors of the company; and
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



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



As of June 30, 2014, management assessed the effectiveness of
our internal control over financial reporting based on the criteria for effective internal control over financial reporting established
in Internal Control--Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”)
and SEC guidance on conducting such assessments. Based on that evaluation, they concluded that, during the period covered by this
report, such internal controls and procedures were not effective to detect the inappropriate application of US GAAP rules as more
fully described below. This was due to deficiencies that existed in the design or operation of our internal controls over financial
reporting that adversely affected our internal controls and that may be considered to be material weaknesses.



The matters involving internal controls and procedures that
our management considered to be material weaknesses under the standards of the Public Company Accounting Oversight Board were:
(1) lack of a functioning audit committee due to a lack of a majority of independent members and a lack of a majority of outside
directors on our board of directors, resulting in ineffective oversight in the establishment and monitoring of required internal
controls and procedures; (2) inadequate segregation of duties consistent with control objectives; and (3) ineffective controls
over period end financial disclosure and reporting processes. The aforementioned material weaknesses were identified by our Chief
Restructuring Officer in connection with the review of our financial statements as of June 30, 2014.



Management believes that the material weaknesses set forth in
items (2) and (3) above did not have an effect on our financial results. However, management believes that the lack of a functioning
audit committee and the lack of a majority of outside directors on our board of directors results in ineffective oversight in
the establishment and monitoring of required internal controls and procedures, which could result in a material misstatement in
our financial statements in future periods.





25








Management’s Remediation Initiatives



In an effort to remediate the identified material weaknesses
and other deficiencies and enhance our internal controls, we have initiated, or plan to initiate, the following series of measures:



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



Changes in Internal Control over Financial Reporting



Our management has also evaluated our internal control over
financial reporting, and except for below, there have been no significant changes in our internal controls or in other factors
that could significantly affect those controls subsequent to the date of our last evaluation. On August 1, 2014 and September
17, 2014 Mr. Ira Shapiro and Ms. Sharon Franey resigned from all their positions of the Company, including their positions as
its Chief Executive Officer and Chief Operating Officer, respectively.



The Company is not required by current SEC rules to include,
and does not include, an auditor's attestation report. The Company's registered public accounting firm has not attested to Management's
reports on the Company's internal control over financial reporting.









26






PART II - OTHER INFORMATION





ITEM 1. LEGAL PROCEEDINGS



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



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



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





ITEM 1A. RISK FACTORS



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



ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS



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



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



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



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



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



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



ITEM 3. DEFAULTS UPON SENIOR SECURITIES



None.



ITEM 4. MINE SAFETY DISCLOSURE



Not applicable.



ITEM 5. OTHER INFORMATION



None.







27






ITEM 6.  EXHIBITS



|Exhibit
        Number |  | Description of Exhibit                                                                      |  | Filing Reference
|---------------------- |  | ------------------------------------------------------------------------------------------- |  | ----------------
|                       |  |                                                                                             |  |                 
|31.01                  |  | Certification of Chief Restructuring Officer Pursuant to Rule 13a-14.                       |  | Filed herewith. 
|                       |  |                                                                                             |  |                 
|32.01                  |  | Chief Restructuring OfficerCertification Pursuant to Section 906 of the Sarbanes-Oxley Act. |  | Filed herewith. 
|                       |  |                                                                                             |  |                 
|101.INS                |  | XBRL Instance Document.                                                                     | 
|                       |  |                                                                                             |  |                 
|101.SCH                |  | XBRL Taxonomy Extension Schema Document.                                                    |  |                 
|                       |  |                                                                                             |  |                 
|101.CAL                |  | XBRL Taxonomy Extension Calculation Linkbase Document.                                      |  |                 
|                       |  |                                                                                             |  |                 
|101.DEF                |  | XBRL Taxonomy Extension Definition Linkbase Document                                        | 
|                       |  |                                                                                             |  |                 
|101.LAB                |  | XBRL Taxonomy Extension Label Linkbase Document.                                            |  |                 
|                       |  |                                                                                             |  |                 
|101.PRE                |  | XBRL Taxonomy Extension Presentation Linkbase Document                                      |  |                 



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





28






SIGNATURES



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



|                         | CODESMART HOLDINGS, INC.          
|------------------------ | ----------------------------------
|                         |                                   
|Dated:  October 15, 2014 | /s/ Diego E. Roca                 
|                         | By: Diego E. Roca                 
|                         | Title: Chief Restructuring Officer



29



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