The Company expects CDFI partners’ need for capital to increase in the future. The extent to which the Company can satisfy that increased demand for capital will be an important factor in its continued revenue growth.
Summary of Critical Accounting Policies
This management’s discussion and analysis of the Company’s financial condition and results of operations is based on its financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenue and expenses during the reported period. In accordance with U.S. GAAP, the Company bases estimates on historical experience and on various other assumptions that the Company believes are reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.
The Company’s significant accounting policies are fully described in Note 2 to the financial statements appearing elsewhere in this filing. The Company believes those accounting policies are critical to the process of making significant judgments and estimates in the preparation of our consolidated financial statements.
Forward-Looking Statements
The following information contains certain forward-looking statements. Forward-looking statements are statements that estimate the happening of future events and are not based on historical fact. Forward-looking statements may be identified by the use of forward-looking terminology, such as “may,” “could,” “expect,” “estimate,” “anticipate,” “plan,” “predict,” “probable,” “possible,” “should,” “continue,” or similar terms, variations of those terms or the negative of those terms. The forward-looking statements specified in the following information have been compiled by our management on the basis of assumptions made by management and considered by management to be reasonable. Our future operating results, however, are impossible to predict and no representation, guaranty, or warranty is to be inferred from those forward-looking statements.
Results of Operations for the Company for the Year Ended December 31, 2017 and the period from inception (April 22, 2016) through December 31, 2016
During 2017, the Company made $4,540,486 in loans to CDFIs generating $55,122 in interest (or revenue) for the Company. The interest rates on the loans ranges from 3.0% to 3.5%. The amount of interest earned in 2016 was nominal.
Cost of revenues during 2017 consists of a combination of $43,169 of interest expense payable to note holders, $10,559 of amortization expense, $41,333 in platform support costs, plus $136,215 in estimated loan loss reserves.
During 2017, sales and marketing expenses increased to $61,606 as compared to 2016 as a result of higher advertising and marketing expenses to promote the launch of the Company’s platform and commencement of services. During 2016, the Company incurred $9,180 in sales and marketing expenses.
Research and development expenses increased to $69,356 in 2017 primarily as a result of development of the Company’s technology platform used for customer interaction. During 2016, the Company incurred $4,811 in research and development expenses.
General and administrative expenses increased to $173,042 in 2017, primarily as a result of higher legal and other professional services fees, required to ramp operations. During 2016, general and administrative expenses were $62,866 representing initial start-up costs in connection with the Company’s formation and initial operation.
Liquidity and Capital Resources
The Company has an accumulated deficit at December 31, 2017 of $540,905. The Company expects to incur substantial expenses and generate continued operating losses until such time that it can generate revenues and gross profits sufficient to cover operating expenses. At December 31, 2017, the Company has cash of $410,276. The Company is currently raising additional funds from accredited investors through SAFEs.
Cash Flows from Operating Activities
Cash used in operating activities was $518,415 for the ended December 31, 2017 consisting of operating losses plus loans made to CDFI investments and proceeds from the Notes sold to investors. During 2016 the Company generated $87,142 in cash flows from operations (mainly funds received from note holders prior to CDFI investment).
Cash Flows from Investing Activities
Cash used in investing activities during 2017 increased to $173,511, as compared $0 in 2016. The cash used represents third party software/platform development costs that have been capitalized.
Cash Flows from Financing Activities
Cash provided by financing activities increased to $825,000 in 2017 versus $190,060 during 2016. The increase was due the issuance of additional SAFEs.
Off-Balance Sheet Arrangements
The Company has no off-balance sheet arrangements, including arrangements that would affect the liquidity, capital resources, market risk support, and credit risk support or other benefits.
Item 3.
|
DIRECTORS AND OFFICERS
|
|
Our executive officers and directors, and ages are as follows:
Name
|
|
Age
|
|
Position
|
|
Term of Office
|
|
|
|
|
|
|
|
Executive officers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Catherine Berman
|
|
42
|
|
President, Chief Executive Officer, Co-founder, Director
|
|
Since June 17, 2016
|
|
|
|
|
|
|
|
Yuliya Tarasava
|
|
34
|
|
Chief Operating Officer, Co-Founder, Treasurer, Secretary, Director
|
|
Since April 22, 2016
|
|
|
|
|
|
|
|
Significant
Employees:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jared Casner
|
|
36
|
|
VP of Engineering
|
|
Since September 25, 2017
|
|
|
|
|
|
|
|
John "Michael"
Ivancie, Jr.
|
|
35
|
|
Director of Marketing
|
|
Since October 2, 2017
|
Catherine Berman
Ms. Berman co-founded CNote and has served as our President and Chief Executive Officer and a member of our Board of Directors since June 2016. Before launching CNote, Ms. Berman served as Managing Director of Charles Schwab, one of America’s leading financial services businesses. At Schwab, Ms. Berman led a strategy division focusing on the future of financial services. Prior to Schwab, Ms. Berman maintained a host of management positions including Senior Vice President of Astia (venture capital), Strategy & Operations Manager at Deloitte Consulting, LLP (management consulting) and Vice President of Evins Communications, LLC. Her international work experience spans from India to Israel with extensive work in Central and South America. Her last startup, Global Brigades, grew into a multi-million dollar firm in less than four years and is now the world’s largest student development firm. Ms. Berman graduated magna cum laude from Boston University and received her MBA from the University of Oxford where she founded the Oxford Women in Business Network.
Yuliya Tarasava
Ms. Tarasava co-founded CNote and has served as our Chief Operating Officer, Treasurer, Secretary and a member of our Board of Directors since the company’s inception. Ms. Tarasava began her career conducting intensive quantitative research on new market opportunities and designing investment solutions across asset classes for AMG Funds—a $75 billion asset firm providing access to boutique investment strategies. Ms. Tarasava then went on to Summit Rock Advisors, a $10 billion OCIO firm, where she developed and implemented the firm’s proprietary analytics and risk management framework. Most recently, she worked with a high-growth financial services company in Kenya where she led both product development and scale strategy efforts working directly with the company’s chief executive officer. Her prior experience also includes creating an investment education portal in Russia and providing pro-bono consulting for non-profits and startups around the world. Ms. Tarasava graduated magna cum laude from Belarusian State University and received her MS in Finance from Fairfield University.
Jared Casner
Mr. Casner is CNote’s VP of Engineering. Prior to joining CNote, Jared ran engineering at Sindeo, a digital mortgage brokerage. Before that, he led the application engineering teams at OpenGov, developing new financial reporting and budgeting tools for city, county, and state level governments. He has served at Numenta, a machine learning research company, participated in an exit at Aprimo, worked in 30 countries in Europe, the Middle East, and Africa, and once held a top-secret security clearance with the US government. Mr. Casner holds a BS in Computer Science from the University of Denver and an MBA from the University of Colorado.
John "Michael" Ivancie, Jr.
Mr. Ivancie is CNote’s Director of Marketing. Prior to CNote, Mike worked as a Staff Attorney at the Department of Homeland Security, which he left to start a niche law practice. After spending three years growing and marketing his practice, he transitioned to a full-time career in marketing. Mike holds a BA in Criminology with a minor in Management from UC Irvine. He received his JD from the University of Arizona in 2009, and he is a licensed California attorney. He is currently an MBA candidate at UC Berkeley's Haas School of Business.
Advisory Board
Jeremy Nowak
Jeremy Nowak is one of America’s leading practitioners and thought leaders in urban development and civil society. He previously founded TRF, a billion dollar CDFI, as well as served as Chair of the Board of the Federal Reserve Bank of Philadelphia.
Suparna Bhasin
Ms. Bhasin is CEO of She Creates Change and a thought leader in change management and executive coaching. She currently runs an international impact investment fund.
Alex Dang
Mr. Dang is Director of Lending for Opportunity Fund, one of the largest micro lending organizations in California. He maintains extensive experience in product development and partnerships.
Anna Fabian
Ms. Fabian is Senior Director of Product at SoFi, a leading financial technology company. Prior to SoFi, Anna had leadership positions at Wells Fargo and Chase Securities. She has deep experience developing and managing products in both large financial institutions and startups.
Emily Jennings
Ms. Jennings is a seasoned finance professional and served previously as Director of Institutional Capital at SoFi and Vice President of Barclays. She is currently Head of Finance at Branch.
Cheryl Traverse
Ms. Traverse is a serial entrepreneur and has been CEO of five successful technology companies. She secured funding, set the strategic direction, delivered market-leading products, built revenue traction and created successful exits for all five companies.
Family Relationships
None.
Conflicts of Interest
We do not believe that we are a party to any transactions that contain or give rise to a conflict of interest between any of our directors, officers and major stockholders on the one hand, and CNote on the other hand. Two co-founders have invested $5,000 each through our platform, but we do not believe these small investments present a conflict of interest.
Involvement in Certain Legal Proceedings
None.
|
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
|
|
The Company has two directors who also serve as executive officers. Their compensation for the 2017 fiscal year was as follows:
Executive
Officers
|
|
Position
|
|
Cash
Compensation
|
|
Other
Compensation
|
|
Total
Compensation
|
Catherine
Berman
|
|
President, Chief Executive Officer, Co-Founder, Director
|
|
$41,367
|
|
$0
|
|
$41,367
|
|
|
|
|
|
|
|
|
|
Yuliya
Tarasava
|
|
Chief Operating Officer, Co-Founder, Treasurer, Secretary, Director
|
|
$41,367
|
|
$0
|
|
$41,367
|
Executive compensation is set annually, based on several factors including company and individual leadership, performance compensation of competitor peer group, and other factors.
Item 4.
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN SECURITYHOLDERS
Name and
Address of
Beneficial
Owner(1)
|
|
Amount and nature of
beneficial ownership as
of December 31, 2017
|
|
Amount and nature of
beneficial ownership
acquirable as of
December 31, 2017
|
|
Percent of
class(6)
|
|
|
|
|
|
|
|
Catherine
Berman
|
|
1,237,500 shares of common stock (2)
|
|
1,375,000 shares of common stock (4)
|
|
52.63%
|
|
|
|
|
|
|
|
Yuliya Tarasava
|
|
1,125,000 shares of common stock (3)
|
|
1,237,500 shares of common stock(5)
|
|
47.37%
|
|
|
|
|
|
|
|
All executive
officers and
directors as a
group (2
persons)
|
|
2,362,500 shares of common stock
|
|
2,612,500 shares of common stock
|
|
100%
|
________________________
|
(1) |
Unless otherwise noted, the address of each executive officer and director is CNote Group, Inc., 2323 Broadway, Oakland, CA 94612.
|
|
(2) |
Does not reflect issuances of an aggregate 3,300,000 shares of common stock, of which 37.5% (or 1,237,500 shares) vested on December 17, 2017 and which will continue to vest in equal monthly installments of 1/48th of such grant thereafter.
|
|
(3) |
Does not reflect issuances of an aggregate 2,700,000 shares of common stock, of which 41.67% (or 1,237,500 shares) vested on December 22, 2017 and which will continue to vest in equal monthly installments of 1/48th of such grant thereafter.
|
|
(4) |
Reflects vesting of two monthly installments of 68,750 shares of common stock (or 137,500 shares total) through on February 28, 2018.
|
|
(5) |
Reflects vesting of two monthly installments of 56,250 shares of common stock (or 112,250 shares total) through February 28, 2018.
|
|
(6) |
Calculated on basis of beneficial ownership acquirable as of December 31, 2017.
|
Item 5.
INTEREST OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS
We do not believe that we are a party to any transactions that contain or give rise to a conflict of interest between any of our directors, officers and major stockholders on the one hand, and CNote on the other hand. Two co-founders Ms. Berman and Ms. Tarasava have invested $5,000 each through our platform, but we do not believe these small investments present a conflict of interest.
Item 6.
|
OTHER INFORMATION
|
|
None.
Item 7.
CNOTE GROUP, INC.
FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2017 AND
THE PERIOD FROM INCEPTION (APRIL 22, 2016) TO DECEMBER 31, 2016
Table of Contents
|
Pages
|
|
|
Independent Auditors’ Report
|
F-2
|
|
|
Balance Sheets
|
F-3
|
|
|
Statements of Operations
|
F-4
|
|
|
Statements of Stockholders’ Deficit
|
F-5
|
|
|
Statements of Cash Flows
|
F-6
|
|
|
Notes to the Financial statements
|
F-7
|
INDEPENDENT AUDITORS’ REPORT
To Board of Directors and Stockholders
CNote Group, Inc.
Report on the Financial Statements
We have audited the accompanying financial statements of CNote Group, Inc. (the “Company”) which comprise the balance sheets as of December 31, 2017 and 2016, and the related statements of operations, stockholders' deficit, and cash flows for the year ended December 31, 2017 and the period from April 22, 2016 (Inception) to December 31, 2016, and the related notes to the financial statements.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of CNote Group, Inc. as of December 31, 2017 and 2016, and the results of its operations and its cash flows for the periods then ended in conformity with accounting principles generally accepted in the United States of America.
Emphasis of Matter Regarding Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, certain conditions including the company not generating significant revenue from principal operations, viability of the Company’s business model, and projected continued losses raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Our opinion is not modified with respect to this matter.
/s/ dbbmckennon
Newport Beach, CA
April 27, 2018
CNOTE GROUP, INC.
BALANCE SHEETS
DECEMBER 31, 2017 AND 2016
|
|
2017
|
|
|
2016
|
|
Assets
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
Cash
|
|
$
|
410,276
|
|
|
$
|
277,202
|
|
Accrued interest receivable
|
|
|
42,647
|
|
|
|
-
|
|
Current portion of loans receivable
|
|
|
1,816,194
|
|
|
|
-
|
|
Total current assets
|
|
|
2,269,117
|
|
|
|
277,202
|
|
|
|
|
|
|
|
|
|
|
Software, net
|
|
|
162,952
|
|
|
|
-
|
|
Loans receivable, net of current portion and loan loss reserve
|
|
|
2,588,077
|
|
|
|
-
|
|
Total assets
|
|
$
|
5,020,146
|
|
|
$
|
277,202
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders' Deficit
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
1,681
|
|
|
$
|
2,500
|
|
Accrued liabilities
|
|
|
15,322
|
|
|
|
46,023
|
|
Interest payable
|
|
|
42,021
|
|
|
|
175
|
|
Current portion of notes payable, net
|
|
|
1,780,585
|
|
|
|
22,000
|
|
Current portion of notes payable - related parties
|
|
|
10,000
|
|
|
|
16,000
|
|
Total current liabilities
|
|
|
1,849,609
|
|
|
|
86,698
|
|
|
|
|
|
|
|
|
|
|
Notes payable, net
|
|
|
2,681,382
|
|
|
|
33,000
|
|
Notes payable - related parties
|
|
|
15,000
|
|
|
|
24,000
|
|
Contingent obligations to issue future equity - SAFE
|
|
|
1,015,000
|
|
|
|
190,000
|
|
Total liabilities
|
|
|
5,560,991
|
|
|
|
333,698
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 5)
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Stockholders' Deficit:
|
|
|
|
|
|
|
|
|
Common stock; par value of $0.00001 per share; 10,000,000 shares authorized; 6,000,000 shares issued and outstanding at December 31, 2017 and 2016, respectively
|
|
|
60
|
|
|
|
60
|
|
Accumulated deficit
|
|
|
(540,905
|
)
|
|
|
(56,556
|
)
|
Total stockholders' deficit
|
|
|
(540,845
|
)
|
|
|
(56,496
|
)
|
Total liabilities and stockholders' deficit
|
|
$
|
5,020,146
|
|
|
$
|
277,202
|
|
The accompanying notes are an integral part of these financial statements.
CNOTE GROUP, INC.
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2017 AND
PERIOD FROM INCEPTION (APRIL 22, 2016) TO DECEMBER 31, 2016
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Revenues - Interest
|
|
$
|
55,122
|
|
|
$
|
600
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
231,276
|
|
|
|
1,454
|
|
|
|
|
|
|
|
|
|
|
Gross loss
|
|
|
(176,154
|
)
|
|
|
(854
|
)
|
|
|
|
|
|
|
|
|
|
Operating Expenses:
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
173,042
|
|
|
|
62,886
|
|
Sales and marketing
|
|
|
61,606
|
|
|
|
9,180
|
|
Research and development
|
|
|
69,356
|
|
|
|
4,811
|
|
Total operating expenses
|
|
|
304,004
|
|
|
|
76,877
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(480,158
|
)
|
|
|
(77,731
|
)
|
|
|
|
|
|
|
|
|
|
Other (income) expense :
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
10,500
|
|
|
|
-
|
|
Other expense
|
|
|
891
|
|
|
|
-
|
|
Other income
|
|
|
(8,000
|
)
|
|
|
(21,200
|
)
|
Total other (income) expense
|
|
|
3,391
|
|
|
|
(21,200
|
)
|
|
|
|
|
|
|
|
|
|
Loss before provision for income taxes
|
|
|
(483,549
|
)
|
|
|
(56,531
|
)
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
|
800
|
|
|
|
25
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(484,349
|
)
|
|
$
|
(56,556
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding - basic and diluted
|
|
|
6,000,000
|
|
|
|
5,269,565
|
|
Basic and diluted net loss per share
|
|
$
|
(0.08
|
)
|
|
$
|
(0.01
|
)
|
The accompanying notes are an integral part of these financial statements.
CNOTE GROUP, INC.
STATEMENTS OF STOCKHOLDERS’ DEFICIT
FOR THE YEAR ENDED DECEMBER 31, 2017 AND
PERIOD FROM INCEPTION (APRIL 22, 2016) TO DECEMBER 31, 2016
|
|
Common Stock
|
|
|
Accumulated |
|
|
Total
Stockholders'
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Deficit
|
|
|
Deficit
|
|
Inception
|
|
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Issuance of common stock
|
|
|
6,000,000
|
|
|
|
60
|
|
|
|
-
|
|
|
|
60
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
(56,556
|
)
|
|
|
(56,556
|
)
|
December 31, 2016
|
|
|
6,000,000
|
|
|
|
60
|
|
|
|
(56,556
|
)
|
|
|
(56,496
|
)
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
(484,349
|
)
|
|
|
(484,349
|
)
|
December 31, 2017
|
|
|
6,000,000
|
|
|
$
|
60
|
|
|
$
|
(540,905
|
)
|
|
$
|
(540,845
|
)
|
The accompanying notes are an integral part of these financial statements.
CNOTE GROUP, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2017 AND
PERIOD FROM INCEPTION (APRIL 22, 2016) TO DECEMBER 31, 2016
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
Net loss
|
|
$
|
(484,349
|
)
|
|
$
|
(56,556
|
)
|
Adjustments to reconcile net loss to net cash
used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
10,559
|
|
|
|
-
|
|
Amortization of offering costs
|
|
|
10,500
|
|
|
|
-
|
|
Provision for loan losses
|
|
|
136,215
|
|
|
|
-
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
-
|
|
Accrued interest receivable
|
|
|
(42,647
|
)
|
|
|
-
|
|
Loans receivable
|
|
|
(4,540,486
|
)
|
|
|
-
|
|
Interest payable
|
|
|
-
|
|
|
|
175
|
|
Accounts payable
|
|
|
(819
|
)
|
|
|
2,500
|
|
Accrued liabilities
|
|
|
(30,701
|
)
|
|
|
46,023
|
|
Notes payable
|
|
|
4,396,467
|
|
|
|
55,000
|
|
Notes payable - related parties
|
|
|
(15,000
|
)
|
|
|
40,000
|
|
Deferred revenue
|
|
|
41,846
|
|
|
|
-
|
|
Net cash provided by (used in) operating activities
|
|
|
(518,415
|
)
|
|
|
87,142
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Software development costs
|
|
|
(173,511
|
)
|
|
|
-
|
|
Net cash used in investing activities
|
|
|
(173,511
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Issuance of common stock
|
|
|
-
|
|
|
|
60
|
|
Issuance of Simple Agreements for Future Equity ("SAFEs")
|
|
|
825,000
|
|
|
|
190,000
|
|
Net cash provided by financing activities
|
|
|
825,000
|
|
|
|
190,060
|
|
|
|
|
|
|
|
|
|
|
Increase in cash and cash equivalents
|
|
|
133,074
|
|
|
|
277,202
|
|
Cash and cash equivalents, beginning of year
|
|
|
277,202
|
|
|
|
-
|
|
Cash and cash equivalents, end of year
|
|
$
|
410,276
|
|
|
$
|
277,202
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
1,326
|
|
|
$
|
-
|
|
Cash paid for income taxes
|
|
$
|
800
|
|
|
$
|
25
|
|
The accompanying notes are an integral part of these financial statements.
NOTE 1 – NATURE OF OPERATIONS
CNote Group, Inc. was incorporated on April 22, 2016 (“Inception”) in the State of Delaware. The Company’s headquarters are located in Oakland, California. The financial statements of CNote Group, Inc. (which may be referred to as "CNote" the "Company," "we," "us," or "our") are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
Through its online platform, CNote provides an opportunity for individuals to invest their money by lending it to CNote, which in turn, lends funds to Community Development Financial Institutions (“CDFIs”) dispersed across the United States. CDFIs are banks, credit unions, loan funds, microloan funds or venture capital providers that focus on providing loans to businesses in economically underdeveloped cities and neighborhoods in the United States and, as such, become qualified as a CDFI by the United States Treasury. Once qualified, CDFIs are eligible to be partially funded by the United States Treasury through the CDFI Fund established in 1994.
The Company intends to offer individuals higher rates of return on their investments than is available to them through more traditional low-risk investment vehicles such as savings accounts, money market accounts, and certificates of deposit. The Company also intends to earn revenues by earning higher rates of return on its loans to CDFIs than the rates it must pay its individual lenders. The difference, or spread, between the rates CNote earns from its borrowers and the rates it pays to its lenders will constitute the primary component of the Company’s gross profits, before other direct costs of revenues such as website costs and customer support costs, and operating expenses.
The Company is still in the very early stages of developing its business. Accordingly, risks associated with startup, early-stage companies apply to the Company. Such risks include, but are not limited to, the need to raise additional funding, the need to generate additional revenues, the need to develop ongoing relationships with additional lenders and borrowers, the need to hire skilled employees, the need to comply with regulatory requirements, and the need to achieve profitability and sustainability.
Management Plans and Going Concern
The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.
To date, the Company has not generated significant revenues from principal operations and has not yet proved the viability of its business model. Because losses will continue until such time that profitable operations can be achieved the Company is reliant on financing to support operations. These factors, among others, raise substantial doubt about the ability of the Company to continue as a going concern within one year after the date that the financial statements are issued.
During the next 12 months, the Company intends to fund its operations through the sale of equity and/or debt securities, as well as additional Simple Agreements for Future Equity (“SAFE”) to third parties and related parties, and increased operating revenues. If the Company cannot raise additional short-term capital, it may consume all of its cash reserved for operations. There are no assurances that management will be able to raise capital on terms acceptable to the Company or increase revenues and margins sufficiently to sustain operations. If the Company is unable to obtain sufficient amounts of additional capital, it may be required to reduce the scope of planned operations, which could harm the business, financial condition and operating results. The financial statements do not include any adjustments that might result from these uncertainties.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities, and the reported amount of revenues and expenses during the reporting period. Actual results could materially differ from these estimates.
Significant estimates include but are not limited to the valuation of SAFEs, loan loss reserves, and the valuation allowance related to deferred tax assets. It is reasonably possible that changes in estimates will occur in the near term.
Cash and Cash Equivalents
The Company maintains its cash with a major financial institution located in the United States of America which it believes to be credit worthy. Balances are insured by the Federal Deposit Insurance Corporation up to $250,000. At times, the Company may maintain balances in excess of the federally insured limits.
Cash equivalents include all highly liquid debt instruments purchased with an original maturity of three months or less.
Fair Value of Financial Instruments
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants as of the measurement date. Applicable accounting guidance provides an established hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in valuing the asset or liability and are developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the factors that market participants would use in valuing the asset or liability. There are three levels of inputs that may be used to measure fair value:
Level 1 – Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2 – Include other inputs that are directly or indirectly observable in the marketplace.
Level 3 – Unobservable inputs which are supported by little or no market activity.
The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
Fair-value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of December 31, 2017 and 2016. The respective carrying value of all financial instruments approximated their fair values. These financial instruments include SAFEs, loans receivable and notes payable and interest receivable and payable.
The SAFEs are considered a level 3 liability as there are no observable direct or indirect inputs. Based on management’s estimates as of December 31, 2017 and 2016, the fair value of these instruments is considered to be the carrying value. Management’s estimates are based on the short duration of the outstanding SAFEs, the fact that market circumstances have not changed materially since the instruments were originated, and the Company has continuously issued additional SAFEs to third parties with materially the same terms and features. Accordingly, there has been no change in valuation during the periods presented.
Loans Receivable and Notes Payable
Management expects that the terms of the Company’s loans receivable and notes payable typically will be 30 months based on the current operating structure. In the normal course of business, the Company expects to hold such instruments to maturity. However, provisions within the terms of these instruments allow for liquidity on demand of 10% per quarter. Accordingly, should the need arise 40% of loans receivable and notes payable can be due on demand within one year, and therefore the Company has classified its loans receivable and notes payable as available for sale with the due on demand portion considered short-term.
Loan Loss Reserve
The Company establishes a reserve of three percent for potential losses to all new loans extended to CDFIs. The amount of the loan loss reserve was determined based on industry norms and trends and will be updated periodically once a history of loan losses sufficient to reasonably modify the estimate of future loan losses has been established.
Reversals to the loan loss reserve will happen only when the loans mature. If no loss has occurred on a particular loan, the loss reserve will be reversed and recognized as other income at maturity of the loan. On the other hand, if any loan becomes completely unrecoverable, the entire amount of the loan will be written off, with a charge to bad debt expense, when and if facts and circumstances indicate that such a write off is necessary.
Deferred Offering Costs
The Company accounts for offering costs in accordance with FASB ASC 340, Other Assets and Deferred Costs. Prior to the completion of an offering, offering costs will be capitalized as deferred offering costs on the balance sheet. The deferred offering costs will be netted against the debt offering proceeds or to expense if the offering is not completed. As of December 31, 2017, $104,995 offering costs were incurred related to the Company’s Regulation A offering. As of December 31, 2017, all deferred offering costs were recorded as a discount to notes payable from the Regulation A offering and are being amortized over the 30 months, which is the life of the initial notes payable under the offering. As of December 31, 2017, $10,500 of the debt discount has been amortized and recorded as interest expense in the accompanying statements of operations and $94,495 remains to be amortized over the next 27 months on a straight-line basis.
Internal Use Software
The Company has incurred software development costs to develop software programs to be used solely to meet its internal needs and cloud-based applications used to deliver services. In accordance with Accounting Standards Codification (“ASC”) 350-40, Internal-Use Software, the Company has capitalized development costs related to these software applications once the preliminary project stage is complete and it is probable that the project will be completed, the software will be used to perform the function intended, and the value will be recoverable. Reengineering costs, minor modifications and enhancements that do not significantly improve the overall functionality of the software are expensed as incurred. During 2017, the Company commenced capitalization of internal software. Software development capitalized totaled $173,511 of which $126,709 was for an initial release of software. The Company is amortizing the initial release of the software based on the in-service date over 36 months on a straight-line basis.
Simple Agreements for Future Equity (“SAFEs”)
The Company has issued several Simple Agreements for Future Equity “SAFEs” in exchange for cash financing. These funds have been classified as long-term liabilities. (See Note 4.)
Under the SAFEs, the funds contributed by the investors will convert to shares of preferred stock in a priced preferred stock financing round, at a conversion price per share equal to the lesser of:
|
a) |
the price per share of the newly issued preferred stock multiplied by the Discount Rate; or
|
|
b) |
the Valuation Cap, as defined by the various agreements and described below, divided by the number of shares and potential shares of Common Stock, on a fully diluted basis, outstanding immediately prior to the preferred stock financing.
|
The Discount Rate varies from 80% to 100% (20% discount to 0% discount), and the Valuation Cap varies from $4,000,000 to $8,000,000 among the various SAFEs. While the SAFEs remain outstanding; each SAFE holder will have the option of receiving his or her cash investment amount returned or receiving the number of shares of Common Stock purchased with his or her SAFE investment amount at the same price at which other shares of Common Stock are sold in a change of control.
If the Company dissolves or ceases operations, the SAFE holders, as a class, will have a preferential right to receive cash, up to the amount of their original investments, to the extent such funds are available to be paid, unless a SAFE holder notifies that the Company that he or she elects to receive shares of Common Stock purchased with his or her SAFE investment amount. Cash payments to SAFE investors in this situation would hold a preferential position to payments to the holders of Common Stock.
For one particular SAFE, if the SAFE has not been converted to shares of Preferred Stock after four years, that SAFE holder shall have the option of converting his SAFE investment into shares of Common Stock by purchasing the number of shares of Common Stock with his SAFE investment amount at a price equal to the Valuation Cap divided by the number of shares of stock and potential shares of stock, on a fully diluted basis, outstanding immediately prior to the conversion.
The Company has accounted for its SAFE investments as liability derivatives under the Financial Accounting Standards Board’s (“FASB’s”) Accounting Standards Classification (“ASC”) section 815-40 and ASC section 815-10. If any changes in the fair value of the SAFEs occur, the Company will record such changes through earnings, under the guidance prescribed by ASC 825-10. As of December 31, 2017 and 2016, the fair values of the SAFEs are equal to their face amounts that are the amounts of initial investment, as evidenced by the SAFE amounts being transacted in arm’s length transactions with unrelated parties. The transactions occurred within a relatively short period of time; and the values of these transactions have been corroborated by additional similar SAFE transactions subsequent to December 31, 2017. (See Note 9.)
Revenue Recognition and Cost of Revenues
CNote uses the money it borrows from individuals to loan money to CDFIs. The Company earns interest on its loans to CDFIs, which are currently the primary source of its revenues. All such loans to CDFIs are governed by signed contracts between the Company and the CDFI borrowers. Interest income is recorded when based on the terms of the master promissory agreement with each CDFI. The interest is accrued monthly. If ninety (90) days pass without the interest being paid in accordance with normal disbursement practices per the agreement, then the Company will cease recording revenue until such time that the interest is collected.
CNote borrows money from individuals through the Company’s online platform. The Company must pay interest on the borrowings to its lenders. All such loans are governed by signed contracts between the Company and individual lenders. The interest, which accrues according to the agreements governing terms of the loans from individual lenders, constitutes direct costs of revenues. Other direct costs of revenues include costs of operating the online platform, provision for loan loss reserves and other costs required to operate the platform and provide services. The Company’s cost of revenues is made up of the following for the years ended December 31:
|
|
2017
|
|
|
2016
|
|
Interest
|
|
$
|
43,169
|
|
|
$
|
775
|
|
Loan loss reserve
|
|
|
136,215
|
|
|
|
-
|
|
Software amortization
|
|
|
10,559
|
|
|
|
-
|
|
Software application fees
|
|
|
18,739
|
|
|
|
679
|
|
Other
|
|
|
22,594
|
|
|
|
-
|
|
Total cost of revenues
|
|
$
|
231,276
|
|
|
$
|
1,454
|
|
Research and Development
The Company incurs research and development costs during the process of researching and developing new technologies and future online offerings. Such costs are expensed as incurred until the resulting product has been completed, tested, and made ready for commercial use.
Income Taxes
The Company applies ASC 740 “Income Taxes” (“ASC 740”). Deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial statement reported amounts at each period end, based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. The provision for income taxes represents the tax expense for the period, if any, and the change during the period in deferred tax assets and liabilities. At December 31, 2017 and 2016, the Company has established a full reserve against all deferred tax assets.
ASC 740 also provides criteria for the recognition, measurement, presentation and disclosure of uncertain tax positions. A tax benefit from an uncertain position is recognized only if it is “more likely than not” that the position is sustainable upon examination by the relevant taxing authority based on its technical merit.
Loss per Common and Common Equivalent Share
The computation of basic earnings per common share is computed using the weighted average number of common shares outstanding during the year. The computation of diluted earnings per common share is based on the weighted average number of shares outstanding during the year plus common stock equivalents which would arise from the exercise of securities outstanding using the treasury stock method and the average market price per share during the year. There are no common stock equivalents included in the diluted earnings per share calculation for the periods ended December 31, 2017 and 2016. In addition, any such common stock equivalents in periods where losses are incurred would be excluded as they are anti-dilutive.
Concentration of Credit Risk
During the early stages of the Company’s development, it is to be expected that the Company will extend loans to a relatively low number of CDFIs. For example, as of December 31, 2017, CNote has extended loans to two CDFI’s. When the Company extends loans to a low number of borrowers, this results in a concentration of credit risk, wherein each CDFI borrower represents a relatively high risk, as compared with the relatively low risk that each individual borrower would constitute if the Company had loans outstanding with many CDFI borrowers.
Recent Accounting Pronouncements
In July 2017, the FASB issued Accounting Standards Update (“ASU”) No. 2017-11, I “Accounting for Certain Financial Instruments with Down Round Features” and II “Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception”. The amendments in Part I of this Update change the classification analysis of certain equity-linked financial instruments (or embedded features) with down round features. As a result, a freestanding equity-linked financial instrument (or embedded conversion option) no longer would be accounted for as a derivative liability at fair value as a result of the existence of a down round feature. The amendments in Part II of this Update recharacterize the indefinite deferral of certain provisions of Topic 480 that now are presented as pending content in the Codification, to a scope exception. Those amendments do not have an accounting effect. The ASU is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted. The Company is currently evaluating the impact of adopting this standard on the financial statements and disclosures.
In May 2017, the FASB issued ASU-2017-09, Compensation-Stock Compensation (Topic 718) –Modification Accounting”, to provide clarity and reduce both (1) diversity in practice and (2) cost and complexity when applying the guidance in Topic 718, Compensation-Stock Compensation, to a change to the terms or conditions of a share-based payment award. The amendments in this ASU are effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted. The Company does not expect this update to materially affect the Company’s financial statements.
In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)”, which significantly changes the accounting for operating leases by lessees. The accounting applied by lessors is largely unchanged from that applied under previous guidance. The new guidance requires lessees to recognize lease assets and lease liabilities in the balance sheet, initially measured at the present value of the lease payments, for leases which were classified as operating leases under previous guidance. Lease cost included in the statement of income will be calculated so that the cost of the lease is allocated over the lease term, generally on a straight-line basis. Lessees may make an accounting policy election to exclude leases with a term of 12 months or less from the requirement to record related assets and liabilities. The new standard is effective for public companies for fiscal years beginning after December 15, 2018. The Company plans to adopted the new standard effective for periods after December 31, 2018. The Company does not expect the adoption of this standard to have a material impact on its results of operations or cash flows; however, the Company has not determined the impact the adoption of this new standard will have on its financial position
In March 2016, the FASB issued ASU No. 2016-08, “Revenue from Contracts with Customers (Topic 606)”, which does not change the core principles of ASU No. 2014-09 discussed below, but rather clarifies the implementation guidance in order to eliminate the potential for diversity in practice arising from inconsistent application of the principal versus agent guidance. Under the new guidance, when an entity determines it is a principal in a transaction, the entity recognizes revenue in the gross amount of consideration; however, in transactions where an entity determines it is an agent, the entity recognizes revenue in the amount of any fee or commission to which it expects to be entitled. The standard is effective for public companies for annual periods beginning after December 15, 2017. The Company adopted the new standard effective January 1, 2018. The Company does not expect the adoption of this new standard to have a material impact on the Company’s financial position, results of operations or cash flows.
In May 2014, the FASB issued Accounting Standards Update ASU No. 2014-09, “Revenue from Contracts with Customers”, which supersedes existing revenue guidance under U.S. GAAP. The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The implementation of this new standard will require companies to use more judgment and to make more estimates than under current guidance and to expand their disclosures to include information regarding contract assets and liabilities as well as a more disaggregated view of revenue. The standard, as amended, is effective for public companies for annual periods beginning after December 15, 2017. The Company does not expect the adoption of the standard to have a material impact on its financial position, results of operations or cash flows.
The Financial Accounting Standards Board issues Accounting Standard Updates to amend the authoritative literature in ASC. There have been a number of ASUs to date that amend the original text of ASC. The Company believes those issued to date either (i) provide supplemental guidance, (ii) are technical corrections, (iii) are not applicable to the Company or (iv) are not expected to have a significant impact on the Company.
NOTE 3 – NOTES AND LOANS RECEIVABLE AND INTEREST RECEIVABLE
Loans receivable represent the principal amounts of outstanding loans the Company has made to CDFIs, less loan loss reserves as described below. Interest receivable represents the outstanding interest due from CDFI borrowers.
As of December 31, 2017, the Company has made Loans to two CDFI borrowers totaling $ 4,540,486. Under terms of the respective master promissory notes the loans earn interest at rates ranging from 3.0% to 3.5% per annum. The loans mature in 30 months and may be prepaid by the borrower at any time without penalty. The Company has the option to request repayment of 10% of the original loan amount on a quarterly basis. These requests are based on the requests of note payable holders disclosed in Note 4. As a result, the Company has classified 40% of the loan amounts as a current asset on its balance sheets.
During the year ended December 31, 2017, the Company was repaid approximately $181,000 on the principal of loans receivable which were used to refund notes payable.
During the period ended December 31, 2016, the Company extended one loan of $75,000 to a CDFI. That loan was repaid prior to the December 31, 2016. Also, during the period ended December 31, 2016, the Company collected $600 of interest related to its CDFI loan. This amount constitutes the Company’s revenues for the period ended December 31, 2016.
As described in Note 2, the Company had recorded a provision for loan losses equal to 3% of the gross loans outstanding, based on management’s estimate following industry standards. As of December 31, 2017, the loan loss reserve totaled $136,215, which has been netted against the long-term portion of loans receivable.
NOTE 4 – NOTES PAYABLE, INTEREST PAYABLE AND LONG-TERM LIABILITIES
Notes Payable
Notes payable represent the principal amounts of outstanding borrowings from individuals. Interest payable represents the outstanding interest the Company owes to the individual note holders. Notes payable from individuals are not a source of financing the Company’s operations; rather, they are part of operating activities and used to fund CDFI loans receivable (Note 3). Accordingly, these notes have been included in cash from operating activities in the accompanying statement of cash flows.
As of December 31, 2017, notes payable totaled $4,581,463. Notes mature in 30 months and earn interest at the rate of 2.5% per annum although the interest rate may be higher (2.75%) in the event a note holder provides stipulated new referral business to the Company. Additionally, the interest rate may be adjusted to the extent rates earned from loans to CDFI’s vary in the future. Notes issued under Regulation D ($3,591,826 at December 31, 2017) may be rolled over for additional 30-month terms at the option of the holder. Notes provide the holder an option to call 10% of the original note balance each quarter. As a result, the Company has classified 40% of notes payable as a current liability on its accompanying balance sheets (even though stated maturities do not begin until 2019). As of December 31, 2017 a total of $25,000 of notes are due from related parties subject to the same terms.
As of December 31, 2016, notes payable totaled $95,000, of which $40,000 was due to related parties. Of the total $38,000 was shown as current due to the provisions described above.
As of December 31, 2017 notes payable mature as follows:
Year Ending December 31,
|
|
2018
|
|
$
|
-
|
|
2019
|
|
|
1,877,206
|
|
2020
|
|
|
2,704,257
|
|
Total
|
|
$
|
4,581,463
|
|
SAFEs
As of December 31, 2017, the Company has raised $1,015,000 via the issuance of SAFEs. The SAFE terms vary (discount rate varies from 80% to 100% (20% discount or 0% discount), and the Valuation Cap varies from $4,000,000 to $8,000,000. As of December 31, 2017, there has not been any priced round of preferred stock financing that would trigger a conversion of the SAFE funds to preferred stock. The SAFEs are marked-to-market each reporting periods as described in Note 2. As of December 31, 2017 and 2016, management has determined that the carrying value is considered the fair value as the Company has continued to sell the SAFEs with consistent terms during 2017 and after (see Note 9).
NOTE 5 – COMMITMENTS AND CONTINGENCIES
Litigation
The Company is not currently involved with, and does not know of any pending or threatening litigation against the Company or any of its officers.
NOTE 6 – INCOME TAXES
The Tax Cuts and Jobs Act, or TCJA, reduced the U.S. federal corporate income tax rate from 35% to 21%. As a result, carryforwards have been recalculated to recognize the effect of future rates on deferred tax assets and liabilities. This resulted in a reduction in the deferred tax asset of approximately $16,000 with a corresponding decrease in the valuation allowance in the same amount, for zero net impact on the financial statements.
The following table presents the current and deferred tax provision for federal and state income taxes for the years ended December 31, 2017, and 2016:
|
|
2017
|
|
|
2016
|
|
Current tax provision
|
|
|
|
|
|
|
Federal
|
|
$
|
-
|
|
|
$
|
-
|
|
State
|
|
|
800
|
|
|
|
25
|
|
Total
|
|
$
|
800
|
|
|
$
|
25
|
|
|
|
|
|
|
|
|
|
|
Deferred tax provision (benefit)
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(85,000
|
)
|
|
$
|
(19,000
|
)
|
State
|
|
|
(41,000
|
)
|
|
|
(3,000
|
)
|
Valuation allowance
|
|
|
126,000
|
|
|
|
22,000
|
|
Total
|
|
|
-
|
|
|
|
-
|
|
Total provision for income taxes
|
|
$
|
800
|
|
|
$
|
25
|
|
In assessing the potential realization of these deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the Company attaining future taxable income during the periods in which those temporary differences become deductible. As of December 31, 2017 and 2016, management was unable to determine if it is more likely than not that the Company’s deferred tax assets will be realized, and has therefore recorded an appropriate valuation allowance against deferred tax assets at such dates.
The components of our deferred tax assets (liabilities) for federal and state income taxes consisted of the following as of December 31, 2017 and 2016:
|
|
2017
|
|
|
2016
|
|
Deferred tax asset attributable to:
|
|
|
|
|
|
|
Net operating loss carryover
|
|
$
|
145,000
|
|
|
$
|
4,000
|
|
Temporary differences
|
|
|
3,000
|
|
|
|
18,000
|
|
Valuation allowance
|
|
|
(148,000
|
)
|
|
|
(22,000
|
)
|
Net deferred tax asset
|
|
$
|
-
|
|
|
$
|
-
|
|
The valuation allowance for deferred tax assets increased to $126,000 and $22,000 during the year ended December 31, 2017 and period ended December 31, 2016.
Based on federal tax returns filed, or to be filed, through December 31, 2017, the Company has available approximately $485,000 in U.S. tax net operating loss carryforwards, pursuant to the Tax Reform Act of 1986, which assesses the utilization of a Company’s net operating loss carryforwards resulting from retaining continuity of its business operations and changes within its ownership structure. Net operating loss carryforwards start to expire 2036 or 20 years for federal income and state tax reporting purposes.
The Company is subject to tax in the United States (“U.S.”) and files tax returns in the U.S. Federal jurisdiction and California state jurisdiction. The Company is subject to U.S. Federal, state and local income tax examinations by tax authorities starting in 2016. The Company currently is not under examination by any tax authority.
NOTE 7 – RELATED PARTY TRANSACTIONS
As of December 31, 2017 and 2016, $25,000 and $40,000 of the individual notes payable are due to the Company’s two cofounders and two close relatives of one of the cofounders, respectively. See Note 4 for terms.
NOTE 8 – STOCKHOLDERS’ EQUITY
Common Stock
The Company is authorized to issue 10,000,000 shares of Common Stock, each having a par value of $0.00001. Upon Inception, and shortly after Inception, 6,000,000 shares of Common Stock were issued to the Company’s two cofounders. As of December 31, 2016 and 2017, 6,000,000 shares of Common Stock are issued and outstanding, all of which are held by the Company two cofounders who remain active in the daily operations of the Company.
NOTE 9 – SUBSEQUENT EVENTS
Subsequent to December 31, 2017, the Company issued several additional SAFEs in exchange for $553,000 of cash financing. Thus, the total amount of cash financing from SAFE investors totals $1,568,000 through the date of these financial statements. The new SAFEs have terms very similar to the ones issued prior to December 31, 2017 as disclosed in Notes 4.
Subsequent to December 31, 2017, the Company signed loan agreements with additional CDFIs. The term and the interest rates for the loans are defined in their respective master promissory notes.
The Company has evaluated subsequent events that occurred after December 31, 2017 through April 27, 2018, the issuance date of these financial statements. There have been no other events or transactions during this time which would have a material effect on these financial statements, other than those disclosed.
Exhibit
Number
|
|
Description
|
Incorporated by Reference
|
2.1
|
|
|
Exhibit 2.1 to Offering Statement filed March 22, 2017 (File no. 024-10686)
|
2.2
|
|
|
Exhibit 2.2 to Offering Statement filed March 22, 2017 (File no. 024-10686)
|
3.1
|
|
|
Exhibit 3.1 to Offering Statement filed March 22, 2017 (File no. 024-10686)
|
3.2
|
|
|
Exhibit 3.2 to Offering Statement filed May 31, 2017 (File no. 024-10686)
|
4.1
|
|
|
Exhibit 4.1 to Offering Statement filed March 22, 2017 (File no. 024-10686)
|
6.1
|
|
|
Exhibit 15.1 to Offering Statement filed March 22, 2017 (File no. 024-10686)
|
10.1
|
|
|
|
Pursuant to the requirements of Regulation A, the issuer has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized authorized in the City of Oakland, State of California, on the 27th day of April, 2018.
|
CNOTE GROUP, INC.
By: /s/ Catherine Berman
Name: Catherine Berman
Title: President and Chief Executive Officer
|
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Catherine Berman and Yuliya Tarasava as his or her true and lawful attorney-in-fact and agent, with full powers of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign this Offering Statement and any and all amendments to this Offering Statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, and generally to do all such things in his or her name and behalf in his or her capacity as officer and/or director to enable the Company to comply with the provisions of the Securities Act of 1933, as amended, and all requirements of the Securities and Exchange Commission, granting unto said attorney-in-fact and agent, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent or his or her substitutes or substitute, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of Regulation A, this report has been signed below by the following persons on behalf of the issuer and in the capacities and on the dates indicated.
Name and Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
/s/ Catherine Berman
|
|
President, Chief Executive Officer,
Co-Founder, Director, Principal Executive Officer
|
|
April 27, 2018
|
Catherine Berman
|
|
|
|
|
|
|
|
|
/s/ Yuliya Tarasava
|
|
Chief Operating Officer, Co-Founder,
Treasurer, Secretary, Director, Principal Financial and
Accounting Officer
|
|
April 27, 2018
|
Yuliya Tarasava
|
|
|
|