PLFX Pulse Evolution Corporation (CE)

Note 1 – Basis of Presentation

These unaudited interim financial statements as of and for the six months ended December 31, 2013 reflect all adjustments which, in the opinion of management, are necessary to fairly state the Company ’ s financial position and the results of its operations for the periods presented, in accordance with the accounting principles generally accepted in the United States of America and are expressed in US dollars. All adjustments are of a normal recurring nature. These consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, Cloud Data Corporation, a company incorporated in the State of Nevada. All inter-company accounts and transactions have been eliminated. The Company ’ s fiscal year end is June 30.

These unaudited interim financial statements should be read in conjunction with the Company ’ s audited financial statements and notes thereto included in the Company ’ s fiscal year end June 30, 2013 Form 10-K report. The Company assumes that the users of the interim financial information herein have read, or have access to, the audited financial statements for the preceding period, and that the adequacy of additional disclosure needed for a fair presentation may be determined in that context. The results of operations for the six month period ended December 31, 2013 are not necessarily indicative of results for the entire year ending June 30, 2014.

Note 2 – Nature of Operations and Continuance of Business

Microelectronics Technology Company (the “ Company ” ) was incorporated in the State of Nevada on May 18, 2005 under the name Admax Resources Inc., which name was changed on February 9, 2007 to China YouTV Corp. and then to Microelectronics Technology Company on August 31, 2009. From May 18, 2005 to August 26, 2011, the Company ’ s business operations were limited to the acquisition and evaluation of mineral claims and the evaluation of an internet media venture in China.

On August 26, 2011, the Company entered into a Share Exchange Agreement with Cloud Data Corporation ( “ Cloud Data ” ). Pursuant to the agreement, the Company issued 70,000,000 shares of common stock in exchange for all of the issued and outstanding shares of Cloud Data. The acquisition was a capital transaction in substance and therefore has been accounted for as a recapitalization, which is outside the scope of Accounting Standards Codification ( “ ASC ” ) 805, Business Combinations. Under recapitalization accounting, Cloud Data was considered the acquirer for accounting and financial reporting purposes, and acquired the assets and assumed the liabilities of the Company. Assets acquired and liabilities assumed are reported at their historical amounts. These consolidated financial statements include the accounts of the Company since the effective date of the recapitalization and the historical accounts of the business of Cloud Data since inception on April 11, 2011. As a result of the transaction, the Company ’ s business operations have consisted of online marketing and advertising services since August 26, 2011, to the present.

On November 2, 2011 the President, Edward Manetta, resigned. He was replaced by Brett Everett as President, Secretary, Treasurer and a director.

Note 3 - Summary of Significant Accounting Policies

a) Use of Estimates

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The preparation of these financial statements in conformity with US generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The Company regularly evaluates estimates and assumptions related to stock-based compensation and deferred income tax valuations. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company ’ s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.

b) Basic and Diluted Loss Per Share

The Company computes (loss) per share in accordance with ASC 260, Earnings per Share , which requires presentation of both basic and diluted per share (EPS) on the face of the income statement. Basic loss per share is computed by dividing net loss available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all potentially dilutive shares if their effect is anti-dilutive.

c) Cash and Cash Equivalents

The Company considers all highly liquid instruments with maturity of three months or less at the time of issuance to be cash equivalents. The Company has no cash equivalents as of December 31, 2013 and June 30, 2013.

d) Financial Instruments

The Company ’ s financial instruments consist principally of cash, amounts receivable, and accounts payable, due to related parties and due to former related party. Pursuant to ASC 820, Fair Value Measurements and Disclosures, and ASC 825, Financial Instruments the fair value of the Company ’ s cash equivalents is determined based on “ Level 1 ” inputs, which consist of quoted prices in active markets for identical assets. The Company believes that the recorded values of all of the Company ’ s other financial instruments approximate their current fair values because of their nature or respective relatively short maturity dates.

The Company ’ s operations are in Canada, which results in exposure to market risks from changes in foreign currency rates. The financial risk is the risk to the Company ’ s operations that arise from fluctuations in foreign exchange rates and the degree of volatility of these rates. Currently, the Company does not use derivative instruments to reduce its exposure to foreign currency risk.

e) Mineral Property Costs

Mineral property exploration costs are expensed as incurred. Mineral property acquisition costs are initially capitalized. When it has been determined that a mineral property can be economically developed as a result of establishing proven and probable reserves, the costs then incurred to develop such property, are capitalized. Such costs will be amortized using the units-of-production method over the estimated life of the probable reserve. If mineral properties are subsequently abandoned or impaired, any capitalized costs will be charged to operations.

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f) Income Taxes

The Company accounts for income taxes using the asset and liability method in accordance with ASC 740, Income Taxes. The asset and liability method provides that deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities and for operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company records a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized.

Interest and penalties on tax deficiencies recognized in accordance with ASC accounting standards are classified as income taxes in accordance with ASC Topic 740-10-50-19.

g) Foreign Currency Translation

The functional and reporting currency of the Company is the United States dollar. Monetary assets and liabilities denominated in foreign currencies are translated to United States dollars in accordance with ASC 740 Foreign Currency Translation Matters , using the exchange rate prevailing at the balance sheet date. Gains and losses arising on translation or settlement of foreign currency denominated transactions or balances are included in the determination of income. The Company has not, to the date of these financial statements, entered into derivative instruments to offset the impact of foreign currency fluctuations.

To the extent that the Company incurs transactions that are not denominated in its functional currency, they are undertaken in Canadian dollars. The Company has not, to the date of these financials statements, entered into derivative instruments to offset the impact of foreign currency fluctuations.

h) Stock-based Compensation

The Company records stock-based compensation in accordance with ASC 718, Compensation – Stock Based Compensation and ASC 505, Equity Based Payments to Non-Employees , which requires the measurement and recognition of compensation expense based on estimated fair values for all share-based awards made to employees and directors, including stock options.

ASC 718 requires companies to estimate the fair value of share-based awards on the date of grant using an option-pricing model. The Company uses the Black-Scholes option-pricing model as its method of determining fair value. This model is affected by the Company ’ s stock price as well as assumptions regarding a number of subjective variables. These subjective variables include, but are not limited to the Company ’ s expected stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors. The value of the portion of the award that is ultimately expected to vest is recognized as an expense in the statement of operations over the requisite service period.

All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable.

i) Recently Issued Accounting Pronouncements

Recent Developed Accounting Pronouncements

Effective January 2013, we adopted FASB ASU No. 2011-11, Balance Sheet (Topic 210):  Disclosures about Offsetting Assets and Liabilities (ASU 2011-11).  The amendments in ASU 2011-11 require the disclosure of information on offsetting and related arrangements for financial and derivative instruments to enable users of its financial statements to understand the effect of those arrangements on its financial position.  Amendments under ASU 2011-11 will be applied retrospectively for fiscal years, and interim periods within those years, beginning after January 1, 2013.  The adoption of this update did not have a material impact on the con solidated financial statements.

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Effective January 2013, we adopted FASB ASU No. 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive (ASU 2013-02).  This guidance is the culmination of the FASB ’ s deliberation on reporting reclassification adjustments from accumulated other comprehensive income (AOCI).  The amendments in ASU 2013-02 do not change the current requirements for reporting net income or other comprehensive income.  However, the amendments require disclosure of amounts reclassified out of AOCI in its entirety, by component, on the face of the statement of operations or in the notes thereto.  Amounts that are not required to be reclassified in their entirety to net income must be cross-referenced to other disclosures that provide additional detail.  This standard is effective prospectively for annual and interim reporting periods beginning after December 15, 2012.  The adoption of this update did not have a material impact on the consolidated financial statements.

New Accounting Pronouncements Not Yet Adopted

In February 2013, the FASB issued ASU No. 2013-04, Liabilities (Topic 405): Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date. The amendments in ASU 2013-04 provide guidance for the recognition, measurement, and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of this Update is fixed at the reporting date, except for obligations addressed within existing guidance in U.S. GAAP. The guidance requires an entity to measure those obligations as the sum of the amount the reporting entity agreed to pay on the basis of its arrangement among its co-obligors and any additional amount the reporting entity expects to pay on behalf of its co-obligors. The guidance in this Update also requires an entity to disclose the nature and amount of the obligation as well as other information about those obligations.  The amendments in this standard is effective retrospectively for fiscal years, and interim periods within those years, beginning after December 15, 2013. We are evaluating the effect, if any, adoption of ASU No. 2013-04 will have on our consolidated financial statements.

In March 2013, the FASB issued ASU No. 2013-05, Foreign Currency Matters (Topic 830): Parent ’ s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity. The amendments in ASU No. 2013-05 resolve the diversity in practice about whether Subtopic 810-10, Consolidation — Overall, or Subtopic 830-30, Foreign Currency Matters — Translation of Financial Statements, applies to the release of the cumulative translation adjustment into net income when a parent either sells a part or all of its investment ina foreign entity or no longer holds a controlling financial interest in a subsidiary or group of assets that is a nonprofit activity or a business (other than a sale of in substance real estate or conveyance of oil and gas mineral rights) withina foreign entity. In addition, the amendments in this Update resolve the diversity in practice for the treatment of business combinations achieved in stages (sometimes also referred to as step acquisitions) involving a foreign entity. The amendments in this standard is effective prospectively for fiscal years, and interim reporting periods within those years, beginning December 15, 2013. We are evaluating the effect, if any, adoption of ASU No. 2013-05 will have on our consolidated financial statements.

In April 2013, the FASB issued ASU No. 2013-07, Presentation of Financial Statements (Top 205): Liquidation Basis of Accounting. The objective of ASU No. 2013-07 is to clarify when an entity should apply the liquidation basis of accounting and to provide principles for the measurement of assets and liabilities under the liquidation basis of accounting, as well as any required disclosures. The amendments in this standard is effective prospectively for entities that determine liquidation is imminent during annual reporting periods beginning after December 15, 2013, and interim reporting periods therein. We are evaluating the effect, if any, adoption of ASU No. 2013-07 will have on our consolidated financial statements.  

j)  Development Stage Company

The Company is considered a development stage company, with no operating revenues during the periods presented, as defined by FASB Accounting Standards Codification ASC 915. ACS 915 requires companies to report their operations, shareholders ’ deficit and cash flows since inception through the date that revenues are generated from management ’ s intended operations, among other things. Management has defined inception as April 11, 2011. Since inception, the Company

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has incurred an operating loss of $1,151,994. The Company ’ s working capital has been generated through advances from the principal of the Company and solicitation of subscriptions. Management has provided financial data since April 11, 2011 in the financial statements, as a means to provide readers of the Company ’ s financial information to be able to make informed investment decisions.

k)  Going Concern

The Company is in the development stage and has generated $23,790 in revenues and has incurred a net loss of $1,151,994 since inception April 11, 2011. At December 31, 2013, the Company had $4,406in current assets and $649,203 in current liabilities. Further, the Company incurred a loss of $264,452 for the six months ended December 31, 2013. In view of these conditions, the ability of the Company to continue as a going concern is in substantial doubt and dependent upon achieving a profitable level of operations and on the ability of the Company to obtain necessary financing to fund ongoing operations. To meet these objectives, the Company continues to seek other sources of financing in order to support existing operations and expand the range and scope of its business. However, there are no assurances that any such financing can be obtained on acceptable terms, if at all. These financial statements do not give effect to any adjustments which would be necessary should the Company be unable to continue as a going concern.

Note 4 – Reverse Merger Transaction

Pursuant to a Share Exchange Agreement dated August 26, 2011, the Company agreed to acquire all of the issued and outstanding shares of Cloud Data in exchange for the issuance of 70,000,000 shares of the Company ’ s common stock. The share exchange was treated as a reverse acquisition with Cloud Data deemed the accounting acquirer and the Company deemed the accounting acquiree under the purchase method of accounting, with the former shareholders of Cloud Data controlling approximately 52% of the voting rights after the closing of the transaction. The reverse merger is deemed a recapitalization and the consolidated financial statements represent the continuation of the financial statements of Cloud Data (the accounting acquirer/legal subsidiary) except for its capital structure, and the consolidated financial statements reflect the assets and liabilities of Cloud Data recognized and measured at their carrying value before the combination and the assets and liabilities of the Company (the legal acquiree/legal parent). The equity structure reflects the equity structure of the Company, the legal parent, and the equity structure of Cloud Data, the accounting acquirer, as restated using the exchange ratios established in the share exchange agreement to reflect the number of shares of the legal parent.

The allocation of the purchase price and adjustment to stockholders ’ equity is summarized in the table below:

Note 5 – Intangible Asset

On August 25, 2011, the Company acquired the right, title, and interest in software known as Domain Stutter with an estimated fair value of $140,000 in consideration for the issuance of 70,000,000 shares of common stock of the Company. Domain Stutter is a system that can auto-host thousands of domains per server and propagate them with unique content.  The Company expects the initial software to bring value to the Company for the first five years of its service and as such the software is classified as a definitive asset and is amortized over a 5-year period. As of December 31, 2013, the accumulated amortization is $51,724 and the carrying value is $88,276.

Note 6 – Mineral Claims

On April 1, 2009, the Company acquired certain assets of First Light Resources, Inc. ( “ First Light ” ), namely three mineral claims located near Wawa in northern Ontario, Canada. The purchase price for the assets was $114,000, payable in cash and/or Company common stock. No cash was paid to First Light and a total of 55,000 shares of Company common stock were issued to three designated parties of First Light, increasing the issued and outstanding shares of Company ’ s common stock from 30,060 shares to 85,060 shares. The Company also assumed a $10,912 account payable of First Light in connection with this transaction. The total $124,911 purchase consideration in the First Light transaction was allocated to the three mineral claims which represents First Light ’ s represented amount of exploration costs on the properties. Title to the mineral claims is being held in trust, on behalf of the Company, by Dog Lake Exploration Inc. ( “ Dog Lake ” ). Two of the three mineral claims were allowed to lapse in fiscal 2009 and four claims remain in good standing as of December 31, 2013. After completion of the First Light transaction both Dog Lake and First Light are considered related parties with the Company due to significant stockholdings in the Company by a director in common between Dog Lake and First Light.

On April 1, 2010, Auric Mining Company ( “ Auric ” ) entered into an option agreement with the Company to acquire from the Company a fifty-two percent working interest in the mining claims held in trust, on behalf of the Company by Dog Lake Exploration Inc. Auric was to have completed its due diligence prior to the option expiring on September 15, 2011. An extension of the expiration date was granted by the Company pending further negotiations on timing, payment amounts and terms. At the time of the agreement, a director of the Company was also the President of Auric, therefore Auric was considered to be a related party and the option agreement was a related party transaction.

On March 22, 2013 the Company decided to no longer support mineral claims and therefore took an asset impairment charge equal to the amount of the mineral claims of $124,911.

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Note 7 – Related Party Transactions

On August 25, 2011, the Company acquired 100% of the outstanding shares of Cloud Data Corporation in exchange for 70,000,000 common shares of the Company (Note 4). The acquisition was considered a related party transaction as the Company ’ s President and Director was also the President and Director of Cloud Data.

As at December 31, 2013, $77,655is due to related parties.  Included in amounts due to related parties is $10,911 owing to 722868 Ontario Ltd. for the amount payable that was assumed by the Company in the acquisition of the mineral claims from First Light.

The Company is indebted to shareholders for $4,540 as of December 31, 2013, which is unsecured, non-interest bearing and is due on demand.

Note 8 – Due to Former Related Party

As of December 31, 2013, $165,000 is due to Direct Capital Group as of December 31, 2012 as a convertible promissory note. The $190,084 as a promissory note was due to former related party as of August 27, 2009 who was the Company ’ s former President. This note was acquired on October 11, 2013 by Direct Capital, see Note 11 below, and is now a convertible promissory note due to Direct Capital.

Asher Note #2  

On December 12, 2012, the Company executed an Unsecured Promissory Note (the “ Asher Note ” ) to Asher Enterprises, Inc. ( “ Asher ” ).  Under the terms of the Asher Note, the Company has borrowed a total of $32,500 from Asher, which accrues interest at an annual rate of 8% and has a maturity date of September 14, 2013.  The Asher Note also contains customary events of default.   During the six month period ended December 31, 2013, the Company accrued $230 (six month period ended December 31, 2012 - $nil) in interest expense.

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Upon the holder ’ s option to convert becoming active the Company recorded a debt discount and derivative liability of $66,237 being the fair value of the conversion feature which was determined using the Black-Scholes valuation model.  The debt discount is accreted to the statement of operations using the effective interest rate method over the term of the note or to the date of conversion, and the derivative liability is revalued at each reporting date to fair value.  Any change in fair value is credited or charged to the statement of operations in the period.

During the six month period ended December 31, 2013, the Company recorded a gain of $68,008 (six month period ended December 31, 2012 - $nil) due to the change in value of the derivative liability during the period, and debt discount of $16,400 (six month period ended December 31, 2012 - $nil) was accreted to the statement of operations.

During the six month period ended December 31, 2013, the Company issued 12,871,237 common shares upon the conversion of $20,500 of the principal balance and $1,300 interest, and $31,340 of the derivative liability was re-classified as additional paid in capital upon conversion.

As at December 31, 2013, accrued interest of $272 (December 31, 2012 - $nil), debt discount of $nil (December 31, 2012 - $nil) and a derivative liability of $nil (December 31, 2012 - $nil) was recorded.

Asher Note #3

On January 30, 2013, the Company executed an Unsecured Promissory Note (the “ Asher Note ” ) to Asher Enterprises, Inc. ( “ Asher ” ).  Under the terms of the Asher Note, the Company has borrowed a total of $32,500 from Asher, which accrues interest at an annual rate of 8% and has a maturity date of November 1, 2013.  The Asher Note also contains customary events of default.   During the six month period ended December 31, 2013, the Company accrued $1,229 (six month period ended December 31, 2012 - $nil) in interest expense.

Upon the holder ’ s option to convert becoming active the Company recorded a debt discount and derivative liability of $48,237 being the fair value of the conversion feature which was determined using the Black-Scholes valuation model.  The debt discount is accreted to the statement of operations using the effective interest rate method over the term of the note or to the date of conversion, and the derivative liability is revalued at each reporting date to fair value.  Any change in fair value is credited or charged to the statement of operations in the period.

During the six month period ended December 31, 2013, the Company recorded a gain of $19,655 (six month period ended December 31, 2012 - $nil) due to the change in value of the derivative liability during the period, and debt discount of $32,500 (six month period ended December 31, 2012 - $nil) was accreted to the statement of operations.

During the six month period ended December 31, 2013, the Company issued 5,333,333 common shares upon the conversion of $6,400 of the principal balance and $7,040 of the derivative liability was re-classified as additional paid in capital upon conversion.

As at December 31, 2013, accrued interest of $2,305 (December 31, 2012 - $nil), debt discount of $nil (December 31, 2012 - $nil) and a derivative liability of $21,542 (December 31, 2012 - $nil) was recorded.

Asher Note #4

On April 12, 2013, the Company executed an Unsecured Promissory Note (the “ Asher Note ” ) to Asher Enterprises, Inc. ( “ Asher ” ).  Under the terms of the Asher Note, the Company has borrowed a total of $37,500 from Asher, which accrues interest at an annual rate of 8% and has a maturity date of January 16, 2014.  The Asher Note also contains customary events of default.  During the six month period ended December 31, 2013, the Company accrued $1,504 (six month period ended December 31, 2012 - $nil) in interest expense.

Upon the holder ’ s option to convert becoming active the Company recorded a debt discount and derivative liability of $50,735 being the fair value of the conversion feature which was determined using the Black-Scholes valuation model.  The

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debt discount is accreted to the statement of operations using the effective interest rate method over the term of the note or to the date of conversion, and the derivative liability is revalued at each reporting date to fair value.  Any change in fair value is credited or charged to the statement of operations in the period.

During the six month period ended December 31, 2013, the Company recorded a gain of $19,784 (six month period ended December 31, 2012 - $nil) due to the change in value of the derivative liability during the period, and debt discount of $31,378 (six month period ended December 31, 2012 - $nil) was accreted to the statement of operations.

As at December 31, 2013, accrued interest of $2,162 (December 31, 2012 - $nil), debt discount of $6,122 (December 31, 2012 - $nil) and a derivative liability of $30,951 (December 31, 2012 - $nil) was recorded.

Gel Properties, LLC Note #5

On June 28, 2013, the Company issued a convertible promissory note to Gel Properties, LLC.  Under the terms of the note, the Company has borrowed a total of $30,000 from Gel Properties, LLC, which accrues interest at an annual rate of 6% and has a maturity date of June 28, 2014.  The note also contains customary events of default.  During the six month period ended December 31, 2013, the Company accrued $699 (six month period ended December 31, 2012 - $nil) in interest expense.

Upon the holder ’ s option to convert becoming active the Company recorded a debt discount and derivative liability of $45,055  being the fair value of the conversion feature which was determined using the Black-Scholes valuation model.  The debt discount is accreted to the statement of operations using the effective interest rate method over the term of the note or to the date of conversion, and the derivative liability is revalued at each reporting date to fair value.  Any change in fair value is credited or charged to the statement of operations in the period.

During the six month period ended December 31, 2013, the Company recorded a gain of $4,447 (six month period ended December 31, 2012 - $nil) due to the change in value of the derivative liability during the period, and debt discount of $16,083 (six month period ended December 31, 2012 - $nil) was accreted to the statement of operations.

During the six month period ended December 31, 2013, the Company issued 6,800,000 common shares upon the conversion of $13,600 of the principal balance and $27,072 of the derivative liability was re-classified as additional paid in capital upon conversion.

As at December 31, 2013, accrued interest of $709 (December 31, 2012 - $nil), debt discount of $13,917 (December 31, 2012 - $nil) and a derivative liability of $13,536 (December 31, 2012 - $nil) was recorded.

JMJ Financial Note #6

On July 18, 2013, the Company issued a convertible promissory note to JMJ Financial, LLC.  Under the terms of the note, the Company has borrowed a total of $25,000 from JMJ Financial.  In the event the Company does not repay note on or within 90 days of the issue date, a one-time interest charge of 12% will be applied to the principal balance.  The note has a maturity date of July 18, 2014.  The note also contains customary events of default.  During the six month period ended December 31, 2013, the Company accrued $3,000 (six month period ended December 31, 2012 - $nil) in interest expense.

Upon the holder ’ s option to convert becoming active the Company recorded a debt discount and derivative liability of $44,824  being the fair value of the conversion feature which was determined using the Black-Scholes valuation model.  The debt discount is accreted to the statement of operations using the effective interest rate method over the term of the note or to the date of conversion, and the derivative liability is revalued at each reporting date to fair value.  Any change in fair value is credited or charged to the statement of operations in the period.

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During the six month period ended December 31, 2013, the Company recorded a gain of $24,302 (six month period ended December 31, 2012 - $nil) due to the change in value of the derivative liability during the period, and debt discount of $11,370 (six month period ended December 31, 2012 - $nil) was accreted to the statement of operations.

As at December 31, 2013, accrued interest of $3,000 (December 31, 2012 - $nil), debt discount of $13,630 (December 31, 2012 - $nil) and a derivative liability of $20,522 (December 31, 2012 - $nil) was recorded.

Direct Capital Group Note #7

On July 31, 2013 the Company entered into a Convertible Promissory Note with Direct Capital Group in the sum of $11,000.  The promissory note is unsecured, bears interest at 8% per annum, and matures on February 1, 2014.  The Conversion Price shall mean par .00001 multiplied by the number of Common Stock converted at the time.  The transaction was handled as a private sale exempt from registration under Section 4(2) of the Securities Act of 1933.  During the six month period ended December 31, 2013, the Company accrued $366 (December 31, 2012 - $nil) in interest expense.

A portion of the proceeds from issuance of the convertible debt, equal to the intrinsic value, is allocated to additional paid-in capital.  Because the debt is due on demand and is convertible at the date of issuance, the valuation of the beneficial conversion feature is charged to interest expense at the date of issuance.

During the six month period ended December 31, 2013 interest expense relating to the beneficial conversion feature of this convertible note of $11,000 (December 31, 2012 - $nil) was recorded in the financial statements, with a corresponding increase to additional paid in capital and debt discount of $9,097 (six month period ended December 31, 2012 - $nil) was accreted to the statement of operations.

As at December 31, 2013, accrued interest of $366 (December 31, 2012 - $nil) and debt discount of $1,903 (December 31, 2012 - $nil) was recorded.

Direct Capital Group Note #8

On August 31, 2013 the Company entered into a Convertible Promissory Note with Direct Capital Group in the sum of $11,000.  The promissory note is unsecured, bears interest at 8% per annum, and matures on March 1, 2014.  The Conversion Price shall mean par .00001 multiplied by the number of Common Stock converted at the time.  The transaction was handled as a private sale exempt from registration under Section 4(2) of the Securities Act of 1933.  During the six month period ended December 31, 2013, the Company accrued $291 (December 31, 2012 - $nil) in interest expense.

A portion of the proceeds from issuance of the convertible debt, equal to the intrinsic value, is allocated to additional paid-in capital.  Because the debt is due on demand and is convertible at the date of issuance, the valuation of the beneficial conversion feature is charged to interest expense at the date of issuance.

During the six month period ended December 31, 2013 interest expense relating to the beneficial conversion feature of this convertible note of $11,000 (December 31, 2012 - $nil) was recorded in the financial statements, with a corresponding increase to additional paid in capital and debt discount of $7,374 (six month period ended December 31, 2012 - $nil) was accreted to the statement of operations.

As at December 31, 2013, accrued interest of $291 (December 31, 2012 - $nil) and debt discount of $3,626 (December 31, 2012 - $nil) was recorded.

Direct Capital Group Note #9

On September 30, 2013 the Company entered into a Convertible Promissory Note with Direct Capital Group in the sum of $11,000.  The promissory note is unsecured, bears interest at 8% per annum, and matures on April 1, 2014.  The Conversion Price shall mean par .00001 multiplied by the number of Common Stock converted at the time.  The transaction was handled

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as a private sale exempt from registration under Section 4(2) of the Securities Act of 1933.  During the six month period ended December 31, 2013, the Company accrued $219 (December 31, 2012 - $nil) in interest expense.

A portion of the proceeds from issuance of the convertible debt, equal to the intrinsic value, is allocated to additional paid-in capital.  Because the debt is due on demand and is convertible at the date of issuance, the valuation of the beneficial conversion feature is charged to interest expense at the date of issuance.

During the six month period ended December 31, 2013 interest expense relating to the beneficial conversion feature of this convertible note of $11,000 (December 31, 2012 - $nil) was recorded in the financial statements, with a corresponding increase to additional paid in capital and debt discount of $5,530 (six month period ended December 31, 2012 - $nil) was accreted to the statement of operations.

As at December 31, 2013, accrued interest of $219 (December 31, 2012 - $nil) and debt discount of $5,470 (December 31, 2012 - $nil) was recorded.

Direct Capital Group Note #10

On September 30, 2013 the Company entered into a Convertible Promissory Note with Direct Capital Group in the sum of $46,215.  The promissory note is unsecured, bears interest at 8% per annum, and matures on April 1, 2014.  The Conversion Price shall mean par .00001 multiplied by the number of Common Stock converted at the time.  The transaction was handled as a private sale exempt from registration under Section 4(2) of the Securities Act of 1933.  During the six month period ended December 31, 2013, the Company accrued $922 (December 31, 2012 - $nil) in interest expense.

A portion of the proceeds from issuance of the convertible debt, equal to the intrinsic value, is allocated to additional paid-in capital.  Because the debt is due on demand and is convertible at the date of issuance, the valuation of the beneficial conversion feature is charged to interest expense at the date of issuance.

During the six month period ended December 31, 2013 interest expense relating to the beneficial conversion feature of this convertible note of $46,215 (December 31, 2012 - $nil) was recorded in the financial statements, with a corresponding increase to additional paid in capital and debt discount of $23,234 (six month period ended December 31, 2012 - $nil) was accreted to the statement of operations.

As at December 31, 2013, accrued interest of $922 (December 31, 2012 - $nil) and debt discount of $22,981 (December 31, 2012 - $nil) was recorded.

Direct Capital Group Note #11

On October 11, 2013, the Company arranged a debt swap whereas Direct Capital Group acquired the debt from a former related party in the amount $190,084.The promissory note is unsecured, bears interest at 6% per annum.  During the sixmonth period ending December 31, 2013, the Company accrued $2,626 (six month period ended December 31, 2012 - $nil) in interest expense.

Upon the holder ’ s option to convert becoming active the Company recorded a debt discount and derivative liability of $218,091 being the fair value of the conversion feature which was determined using the Black-Scholes valuation model.  The debt discount is accreted to the statement of operations using the effective interest rate method over the term of the note or to the date of conversion, and the derivative liability is revalued at each reporting date to fair value.  Any change in fair value is credited or charged to the statement of operations in the period.

During the six month period ended December 31, 2013, the Company recorded a gain of $55,431 (six month period ended December 31, 2012 - $nil) due to the change in value of the derivative liability during the period, and debt discount of $42,184 (six month period ended December 31, 2012 - $nil) was accreted to the statement of operations.

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During the six month period ended December 31, 2013, the Company issued 9,574,468 common shares upon the conversion of $18,000 of the principal balance and $20,652 of the derivative liability was re-classified as additional paid in capital upon conversion.

As at December 31, 2013, accrued interest of $2,626 (December 31, 2012 - $nil), debt discount of $147,900 (December 31, 2012 - $nil) and a derivative liability of $142,008 (December 31, 2012 - $nil) was recorded.

Direct Capital Group Note #12

On October 31, 2013 the Company entered into a Convertible Promissory Note with Direct Capital Group in the sum of $16,000.  The promissory note is unsecured, bears interest at 8% per annum, and matures on May 1, 2014.  The Conversion Price shall mean par .00001 multiplied by the number of Common Stock converted at the time.  The transaction was handled as a private sale exempt from registration under Section 4(2) of the Securities Act of 1933.  During the six month period ended December 31, 2013, the Company accrued $214 (December 31, 2012 - $nil) in interest expense.

A portion of the proceeds from issuance of the convertible debt, equal to the intrinsic value, is allocated to additional paid-in capital.  Because the debt is due on demand and is convertible at the date of issuance, the valuation of the beneficial conversion feature is charged to interest expense at the date of issuance.

During the six month period ended December 31, 2013 interest expense relating to the beneficial conversion feature of this convertible note of $16,000 (December 31, 2012 - $nil) was recorded in the financial statements, with a corresponding increase to additional paid in capital and debt discount of $5,363 (six month period ended December 31, 2012 - $nil) was accreted to the statement of operations.

As at December 31, 2013, accrued interest of $214 (December 31, 2012 - $nil) and debt discount of $10,637 (December 31, 2012 - $nil) was recorded.

Direct Capital Group Note #13

On November 30, 2013 the Company entered into a Convertible Promissory Note with Direct Capital Group in the sum of $16,000.  The promissory note is unsecured, bears interest at 8% per annum, and matures on June 1, 2014.  The Conversion Price shall mean par .00001 multiplied by the number of Common Stock converted at the time.  The transaction was handled as a private sale exempt from registration under Section 4(2) of the Securities Act of 1933.  During the six month period ended December 31, 2013, the Company accrued $109 (December 31, 2012 - $nil) in interest expense.

A portion of the proceeds from issuance of the convertible debt, equal to the intrinsic value, is allocated to additional paid-in capital.  Because the debt is due on demand and is convertible at the date of issuance, the valuation of the beneficial conversion feature is charged to interest expense at the date of issuance.

During the six month period ended December 31, 2013 interest expense relating to the beneficial conversion feature of this convertible note of $16,000 (December 31, 2012 - $nil) was recorded in the financial statements, with a corresponding increase to additional paid in capital and debt discount of $2,710 (six month period ended December 31, 2012 - $nil) was accreted to the statement of operations.

As at December 31, 2013, accrued interest of $109 (December 31, 2012 - $nil) and debt discount of $13,290 (December 31, 2012 - $nil) was recorded.

Direct Capital Group Note #14

On December 31, 2013 the Company entered into a Convertible Promissory Note with Direct Capital Group in the sum of $16,000.  The promissory note is unsecured, bears interest at 8% per annum, and matures on July 1, 2014.  The Conversion Price shall mean par .00001 multiplied by the number of Common Stock converted at the time.  The transaction was handled

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as a private sale exempt from registration under Section 4(2) of the Securities Act of 1933.  During the six month period ended December 31, 2013, the Company accrued $nil (December 31, 2012 - $nil) in interest expense.

A portion of the proceeds from issuance of the convertible debt, equal to the intrinsic value, is allocated to additional paid-in capital.  Because the debt is due on demand and is convertible at the date of issuance, the valuation of the beneficial conversion feature is charged to interest expense at the date of issuance.

During the six month period ended December 31, 2013 interest expense relating to the beneficial conversion feature of this convertible note of $16,000 (December 31, 2012 - $nil) was recorded in the financial statements, with a corresponding increase to additional paid in capital and debt discount of $nil (six month period ended December 31, 2012 - $nil) was accreted to the statement of operations.

As at December 31, 2013, accrued interest of $nil (December 31, 2012 - $nil) and debt discount of $16,000 (December 31, 2012 - $nil) was recorded.

Note 10 – Derivative Liabilities

The Company issued financial instruments in the form of convertible notes with embedded conversion features.  The convertible notes payable have conversion rates which are indexed to the market value of the Company ’ s commonstock price.

During the six month period ending December 31, 2013, $58,500 of convertible notes payable were converted into common stock of the Company.

These derivative liabilities have been measured in accordance with fair value measurements, as defined by GAAP. The valuation assumptions are classified within Level 3 inputs.

The following table represents the Company ’ s derivative liability activity for the embedded conversion features discussed above :

Note 11 – Common Stock

On August 26, 2011, the Company issued 70,000,000 shares at $0.002 per share pursuant to a Share Exchange Agreement with Cloud Date Corporation. An intangible asset of $140,000 was recorded.

From January 1, 2013 to March 31, 2013, the holders of a convertible notes converted a total of $39,000 of principal and interest into 6,246,397 shares of common stock.

On March 13, 2013, the Company issued 6,000,000 shares of common stock to settle debt of $60.  These shares were then retired on April 23, 2013

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On May 22, 2013, the Company issued 10,000,000 shares of common stock to settle debt of $100.  Of the shares issued, 5,000,000 were retired on June 27, 2013.

From April 1, 2013 to June 30, 2013, the holders of convertible notes converted a total of $12,000 of principal into 3,636,364 shares of common stock.

From July 1, 2013 to December 31, 2013, the holders of convertible notes converted a total of $58,500 of principal into 34,579,038 shares of common stock.

From September 19, 2013 to September 26, 2013, 1 Convertible Preferred share was converted to 45,000,000 shares of common stock.

As ofDecember 31, 2013 the Company has authorized 950,000,000 shares of common stock, of which 196,033,497 shares are issued and outstanding.

Note 12 – Preferred Stock

From September 19, 2013 to September 26, 2013, 1 Convertible Preferred share was converted to 45,000,000 shares of common stock.

As at December 31, 2013, the Company has authorized 200,000,000 shares of preferred stock, of which 110,001 shares are issued and outstanding.

Note 12 – Income Taxes

The Company had no income tax expense during the reported period due to net operating losses.

A reconciliation of income tax expense to the amount computed at the statutory rates is as follows:

The Company has net operating losses carried forward of approximately $1,151,994 for tax purposes which will expire in 2025 if not utilized beforehand.

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