IFAN IFAN Financial Inc (CE)

IFAN Financial, Inc.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

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

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

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

IFAN Financial, Inc.

Notes to the consolidated financial statements

(Unaudited)

NOTE 1 – NATURE OF BUSINESS

The Company was incorporated in the State of Nevada on June 11, 2010 and established a fiscal year-end of August 31. The initial business plan was to develop and distribute an organic clothing line designed for children.

On April 2014, the Company abandoned the business plan as an organic children’s clothing company. In June 2014, the Company signed an agreement with MobiCash America, Inc. to develop technology solutions in the mobile payment and social media markets. The Company acquired MobiCash America on October 3, 2014 which consisted primarily of proprietary software code.

The Company and its wholly owned subsidiaries, iPIN Technologies, Inc. and Mobicash America, Inc., design, develop and distribute software that enhances and enable payments. Based in San Diego, the Company has a growing portfolio of solutions including a mobile optimized FDIC insured platform with the ability to facilitate on-demand payments, autopay, proximity payments and marketing, and a proprietary linked debit card. Our Platform additionally has ‘white label’ enterprise capabilities allowing for software licensing opportunities. We will additionally deploy a prepaid card program and facilitate off-platform merchant services we call IFAN FinTech. We are positioned to transact nearly all merchant payment needs including mobile, e-commerce, merchant processing, split-funding, ACH, and EMV.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, MobiCash America, Inc. and iPIN Technologies, Inc. Intercompany balances are eliminated upon consolidation.

Use of Estimates and Assumptions

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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.

Basic and Diluted Net Loss per Share

Basic loss per share is computed by dividing net loss available to common shareholders by the weighted average number of outstanding common shares during the period. Diluted loss per share gives effect to all dilutive potential common shares outstanding during the period. Dilutive loss per share excludes all potential common shares if their effect is anti-dilutive. Because the Company incurred a net loss during the quarters ended May 31, 2016 and 2015, respectively, diluted loss excludes all potential common shares from diluted loss per share. At May 31, 2016 and 2015, the Company had the following potentially issuable shares:

Cash and Cash Equivalents

The Company considers all highly liquid instruments with a maturity of three months or less at the time of issuance to be cash equivalents.

Fixed Assets

Computers and equipment are stated at cost and depreciated using the straight-line method over the two-year estimated useful lives of the assets.

Software

The estimated useful life of software costs capitalized is four years.

Derivative Liabilities

The Company follows Financial Accounting Standards Board, Derivatives and Hedging ASC 815-40, which limits the extent to which the conversion or exercise price of an instrument can be adjusted for subsequent transactions. The Company utilizes a two-step process to determine whether an instrument is indexed to its stock: (a) evaluate the instrument’s contingent exercise provisions, if any and (b) evaluate the instrument’s settlement provisions. If it is determined the instrument is not indexed to the Company’s stock, the instrument is recognized as a derivative at issuance and is measured at fair value at each reporting period and the change is recorded in earnings.

Revenue Recognition

Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable, and collectability is probable.

Stock-Based Compensation

The Company measures stock-based compensation cost at the grant date based on the fair value of the award and recognizes it as expense, over the vesting or service period, as applicable, of the stock award using the straight-line method.

Income Taxes

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. A valuation allowance is provided for significant deferred tax assets when it is more likely than not, that such asset will not be recovered through future operations.

Fair Value Measurements

As defined in FASB ASC Topic No. 820 – 10, fair value is the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. FASB ASC Topic No. 820 – 10 requires disclosure that establishes a framework for measuring fair value and expands disclosure about fair value measurements. The statement requires fair value measurements be classified and disclosed in one of the following categories:

As required by FASB ASC Topic No. 820 – 10, financial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of the fair value of assets and liabilities and their placement within the fair value hierarchy levels.

Subsequent Events

The Company has evaluated all transactions from May 31, 2016 through the financial statement issuance date for disclosure consideration.

Recently Issued Accounting Pronouncements

There were various accounting standards and interpretations issued recently, none of which are expected to a have a material impact on the Company´s consolidated financial position, results of operations or cash flows.

NOTE 3 – GOING CONCERN

The Company’s consolidated financial statements are prepared using generally accepted accounting principles in the United States of America applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has not yet established an ongoing source of revenues sufficient to cover its operating costs and allow it to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating losses until it becomes profitable. If the Company is unable to obtain adequate capital, it could be forced to cease operations.

In order to continue as a going concern, the Company will need, among other things, additional capital resources. Management’s plan is to obtain such resources for the Company by obtaining capital from management and significant shareholders sufficient to meet its operating expenses and seeking equity and/or debt financing. However, management cannot provide any assurances that the Company will be successful in accomplishing any of its plans.

The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraph and eventually secure other sources of financing and attain profitable operations. The accompanying consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

NOTE 4 – ACQUISITION OF MOBICASH

On October 3, 2014, the Company acquired Mobicash America, Inc. (“Mobicash” d/b/a “Quidme”), a company incorporated under the laws of the State of California, through a Share Exchange Agreement whereby the Company issued 61,858 shares of Series A convertible preferred stock convertible into common stock at a conversion ratio of 700 common shares for 1 Series A preferred stock (the “Conversion Ratio”) to the shareholders of Mobicash. The Company determined that the fair value of the Series A convertible preferred stock was $4,330,060 on October 3, 2014.

The acquisition was accounted for as a business combination. Accordingly, the purchase price was allocated to the assets acquired and liabilities assumed at their respective fair values at the date of acquisition. The amounts related to the acquisition were allocated to the assets acquired and the liabilities assumed on the date of acquisition as follows:

The Company evaluated the investment in the software assets acquired in the Mobicash acquisition for recoverability at May 31, 2016 and concluded that no impairment was necessary.

NOTE 5 – NOTE RECEIVABLE

During July 2015, the Company purchased a $100,000 convertible promissory note from a third party (the “Investee”). The note bears interest at 6% per annum. All unpaid interest and principal shall be due and payable to the Company on or after May 29, 2017. In the event the Investee issues or sells shares of its equity securities to investors on or before May 29, 2017 with total proceeds of not less than $2,000,000 (excluding the conversion of notes), then the Company’s $100,000 note receivable and any unpaid accrued interest shall automatically convert into such equity securities of the Investee at a conversion price as defined in the convertible promissory note agreement. During the nine months ended May 31, 2016, the Company recorded interest income of $4,527 on this note receivable.

NOTE 6 – INVESTMENT

During the year ended August 31, 2014, the Company received 1,000,000 shares of common stock in IPIN Debit Network, Inc., which the Company recorded as an investment of $164,521. During the nine months ended May 31, 2015, the Company fully impaired this investment.

The Company recorded depreciation expense of $2,002 and $2,772 during the nine months ending May 31, 2016 and May 31, 2015, respectively.

The Company recorded software amortization and impairment expense of $944,550 and $0 during the nine months ending May 31, 2016 and May 31, 2015, respectively.

NOTE 9 – NOTES PAYABLE

The Company has a $5,000 note payable to an individual due in November 2015. The note bears interest at 10% per annum and is past due.

NOTE 10 – CONVERTIBLE NOTES PAYABLE

Secured Promissory Note Agreement

Issuance in May and July 2015

On May 28, 2015, the Company and SBI Investments, LLC (“SBII”), completed a financing transaction that consisted of a Securities Purchase Agreement (the “SPA”), Two Secured Promissory Notes (the “Notes”), Stock Pledge Agreement (the “Pledge”), and Warrant Agreement, pursuant to which SBII agreed to loan the Company an aggregate of $550,000. The first note for $275,000 was issued by the Company on May 28, 2015 pursuant to the SPA and is due and payable on May 28, 2016 and accrues interest at 10% per annum payable at three, six and nine months from the issuance date. The second note for $275,000 was issued on July 15, 2015 and payable on May 28, 2016, and accrues interest at 10% per annum payable at three, six and nine months from the issuance date. Pursuant to the Pledge, the Company’s CEO and CFO pledged 11,000,000 shares in the aggregate of their restricted common stock to guarantee payment of the Notes issued pursuant to the SPA.

In connection with the issuance of the $550,000 of notes payable, the Company received cash proceeds of $482,500 and recorded a debt discount of $67,500 for the difference between the face value of the note and the cash proceeds. The Company also issued the lender 500,000 warrants in connection with the issuance of this debt with an exercise price of $0.50 per share and a term of 3 years. The Company determined the relative fair value of the warrants as of their issuance date using the following inputs; 3-year term; 141% - 145% volatility; 1% risk free rate; $0 dividends and determined the fair value was $27,680, which the Company recorded as debt discount.

During the nine months ended May 31, 2016, the Company recorded debt discount amortization of $79,121 on these notes payable.

Debt extinguishment and convertible notes

On May 2, 2016, the Company and a lender replaced its existing $275,000 promissory note originally issued during May 2015 with a $275,000 convertible note. The $275,000 convertible note is due on May 28, 2016 and has an interest rate of 8% per annum (the interest rate increases to 22% per annum in the event the convertible note is not repaid by the maturity date). Also, the amended convertible note is convertible at the lower of A) a 43% discount to the lowest trading price during the 20 trading days prior to the conversion or B) a 43% discount to the lowest trading price for the common stock during the 20 days prior to the execution of the convertible note. The conversion price of the convertible note also contains down-round price protection.

On May 2, 2016, the Company and a lender replaced its existing $275,000 promissory note originally issued during July 2015 with a $275,000 convertible note. The $275,000 convertible note is due on May 13, 2016 and has an interest rate of 8% per annum the interest rate increases to 22% per annum in the event the convertible note is not repaid by the maturity date). Also, the amended convertible note is convertible at the lower of A) a 43% discount to the lowest trading price during the 20 trading days prior to the conversion or B) a 43% discount to the lowest trading price for the common stock during the 20 days prior to the execution of the convertible note. The conversion price of the convertible note also contains down-round protection.

The number of shares of common stock to be issued upon conversion shall be determined by dividing the conversion amount by the applicable conversion price. The conversion amount means the principal amount of the convertible note and, at the lender´s option, accrued and unpaid interest, default interest, and any other amounts owed to the lender pursuant to the terms of these convertible notes.

The conversion price of the convertible notes is based on a variable that is not an input to the fair value of a “fixed-for-fixed” option as defined under FASB ASC Topic No. 815 - 40. The fair value of the conversion feature on the convertible notes was recognized as a derivative instrument at issuance and is measured at fair value at each reporting period.

As the fair value of the derivative liabilities exceeded the carrying value of the convertible notes payable, the Company recorded a $550,000 original issue discount on the convertible notes. See Note 11.

During the nine months ended May 31, 2016, the Company recorded debt discount amortization of $550,000 on these convertible notes.

These notes are currently in default for non-payment and are being renegotiated. The default interest rate on these notes is 22%.

The Company determined that there was no gain or loss on the debt extinguishments related to the replaced notes.

October 2015 Notes

During October 2015, the Company entered into an agreement with a third party whereby the Company received net cash proceeds of $243,500 in exchange for issuing two notes including a $165,000 convertible note payable bearing interest at 8% and a $110,000 convertible note payable bearing interest at 8% each due one year from the date of issuance. The notes payable are convertible at a rate of 80% of the average of the lowest 3 trading prices during the 20 trading day period ending on the last complete trading day prior to the conversion. Also, if at any time when the notes are issued and outstanding, the borrower issues or sells any share of common stock for no consideration or for consideration per share which is less than the conversion price in effect on the date of such issuance. The conversion price will be reduced to the amount of the consideration per share received by the borrower in such dilutive issuance.

The number of shares of common stock to be issued upon conversion shall be determined by dividing the conversion amount by the applicable conversion price. The conversion amount means the principal amount of the convertible note and, at the lender´s option, accrued and unpaid interest, default interest, and any other amounts owed to the lender pursuant to the terms of these convertible notes.

The conversion price of the convertible notes is based on a variable that is not an input to the fair value of a “fixed-for-fixed” option as defined under FASB ASC Topic No. 815 - 40. The fair value of the conversion feature on the convertible notes was recognized as a derivative instrument at issuance and is measured at fair value at each reporting period.

As the fair value of the derivative liabilities exceeded the carrying value of the convertible notes payable, the Company recorded a $275,000 original issue discount on the convertible notes. See Note 11.

The Company also issued the lender 250,000 warrants in connection with the issuance of the convertible notes. See Note 12.

During the nine months ended May 31, 2016, the Company recorded debt discount amortization of $159,123 on these notes.

December 2015 Note

During December 2015, the Company entered into an agreement with a third party whereby the Company received net cash proceeds of $98,000 in exchange for issuing a $100,000 convertible note payable bearing interest at 12% due 9 months from the date of issuance. The note payable is convertible at a conversion price: the lower of: A) a 43% discount to the lowest trading price during the previous twenty (20) trading days to the date of a Conversion Notice; or B) a 43% discount to the lowest trading price during the previous twenty (20) trading days before the date that this note was executed. At any time after the Prepayment Date, including prior to, upon, or after the Maturity Date the note is convertible.

The number of shares of common stock to be issued upon conversion shall be determined by dividing the conversion amount by the applicable conversion price. The conversion amount means the principal amount of the convertible note and, at the lender´s option, accrued and unpaid interest, default interest, and any other amounts owed to the lender pursuant to the terms of these convertible notes.

The conversion price of the convertible notes is based on a variable that is not an input to the fair value of a “fixed-for-fixed” option as defined under FASB ASC Topic No. 815 - 40. The fair value of the conversion feature on the convertible notes was recognized as a derivative instrument at issuance and is measured at fair value at each reporting period.

The Company recorded the fair value of the derivative of $94,349 as an original issue discount on the convertible notes. See Note 11.

During the nine months ended May 31, 2016, the Company recorded debt discount amortization of $64,116 on this note.

February 2016 Note

During February 2016, the Company entered into an agreement with a third party whereby the Company received net cash proceeds of $60,000 in exchange for a $66,000 promissory note bearing interest at 12% due two years from the date of issuance. The note payable is convertible at the lesser of $0.093 or 60% of the lowest traded price in the 25 trading days previous to the conversion.

The number of shares of common stock to be issued upon conversion shall be determined by dividing the conversion amount by the applicable conversion price. The conversion amount means the principal amount of the convertible note and, at the lender´s option, accrued and unpaid interest, default interest, and any other amounts owed to the lender pursuant to the terms of these convertible notes.

The conversion price of the convertible notes is based on a variable that is not an input to the fair value of a “fixed-for-fixed” option as defined under FASB ASC Topic No. 815 - 40. The fair value of the conversion feature on the convertible notes was recognized as a derivative instrument at issuance and is measured at fair value at each reporting period.

As the fair value of the derivative liabilities exceeded the carrying value of the convertible note payable, the Company recorded a $66,000 original issue discount on the convertible notes. See Note 11.

During the nine months ended May 31, 2016, the Company recorded debt discount amortization of $3,628 on this note.

See detail summary below for carrying value of convertible notes payable as of May 31, 2016.

NOTE 11 – EMBEDEDDED DERIVATIVE LIABILTIES

The Company determined that the convertible notes contain an embedded derivative instrument as the conversion price is based on a variable that is not an input to the fair value of a “fixed-for-fixed” option as defined under FASB ASC Topic No. 815 - 40. The fair value of the convertible notes were recognized as derivative instruments at issuance and is measured at fair value at each reporting period. The Company determined that the valuation of the derivative liabilities was $474,960 as of May 31, 2016 on the convertible notes.

The Company determined the fair values of the embedded derivatives on the grant dates using a black scholes model with the following assumptions:

Activity for embedded derivative instruments during the nine months ended May 31, 2016 was as follows:

NOTE 12 – EQUITY

Common stock for cash

During the nine months ended May 31, 2016, the Company issued 1,250,000 shares of common stock pursuant to an equity line of credit for $65,000 of cash proceeds. See Equity Line of Credit below.

During the nine months ended May 31, 2015, the Company received $36,600 of cash proceeds pursuant to subscription agreements with third parties to purchase common stock of the Company for $0.25 per share.

During the nine months ended May 31, 2015, the Company issued 128,200 shares of common stock pursuant to these subscription agreements. As of May 31, 2016, the Company has recorded a common stock payable of $4,550 as the Company has an obligation to issue the remaining 18,000 shares of common stock pursuant to the subscription agreements.

During the nine months ended May 31, 2015, the Company received $250,000 of cash proceeds pursuant to a subscription agreement with an investor to purchase common stock of the Company for $0.27 per share and an equal number of warrants. As of May 31, 2016, the Company has recorded a common stock payable of $250,000 related to its obligation to issue 925,926 shares of the Company’s common stock. See Warrants below.

Common stock for services

During the nine months ended May 31, 2016, the Company issued 7,159,471 shares of common stock for services. The Company recorded stock-based compensation expense of $611,170 based on the grant date fair value of the common stock of the Company on the issuance dates.

During the nine months ended May 31, 2016, the Company granted an employee 500,000 shares of common stock for services. The Company recorded stock-based compensation expense of $34,000 based on the grant date fair value of the common stock of the Company on the grant date. As of May 31, 2016, the Company has recorded a common stock payable of $34,000 as the Company has an obligation to issue the 500,000 shares of common stock.

During the nine months ended May 31, 2015, the Company issued 3,398,554 shares of common stock for services. The Company recorded stock-based compensation expense of $1,425,111 based on the grant date fair value of the common stock of the Company on the issuance dates.

During the nine months ended May 31, 2015, the Company issued 1,000,000 shares of the Company’s common stock valued at $164,521 to IPIN which were recorded as common stock payable at August 31, 2014. The 1,000,000 shares were issued in January 2015.

Equity line of credit

During May 2015, the Company entered into a second Securities Purchase Agreement (the “Equity Line Agreement”) with SBII, pursuant to which the Company may issue and sell to SBII $2,000,000 of the Company’s common stock (the “Shares”) subject to a registration rights agreement. The aggregate maximum amount of all purchases that SBII shall be obligated to make under the Equity Line Agreement shall not exceed $2,000,000. The purchase price for the Shares to be paid by SBII shall be eighty percent (80%) of the average of the three (3) lowest closing daily prices of the Company’s common stock during the five (5) consecutive trading days prior to the date of the draw down notice from the Company to SBII or eighty five percent (85%) of the price on the fifth trading day of the draw down pricing period.

Preferred stock

During the nine months ended May 31, 2015, the Company issued 61,858 shares of Series A preferred stock convertible into common stock of the Company as consideration for the acquisition of Mobicash. See Note 4.

Warrants

Pursuant to the issuance of convertible notes during the nine months ended May 31, 2016, the Company issued warrants to the lender to purchase 250,000 shares of the Company’s common stock with a $0.12 per share exercise price. The warrants expire in October 2018. The Company determined the fair value of the warrants as of their measurement date using the following inputs; 3-year term; 160% volatility; 0.9% risk free rate; $0 dividends and determined the fair value was approximately $12,220. The intrinsic value of these warrants as of May 31, 2016 was $9,181.

The following table sets forth a reconciliation of changes in the fair value of financial assets classified as Level 3 in the fair value hierarchy:

NOTE 14 – RELATED PARTY TRANSACTIONS

As of May 31, 2016 and August 31, 2015, the Company had related party notes payable of $383,455 and $282,436, respectively, related to advances provided to the Company that are non-interest bearing with no specific repayment terms. As of May 31, 2016, there were loans payable to two officers for $231,156 and $152,298, respectively. As of August 31, 2015, there were loans payable to two officers for $176,248 and $106,188, respectively.

NOTE 15 – COMMITMENTS AND CONTINGENCIES

In September 2015, the Company began legal proceedings against certain former officers, owners and shareholders of Mobicash, in connection with the acquisition of Mobicash by the Company. It is the Company’s contention that the officers and owners of Mobicash misrepresented the state of the Mobicash assets and products, as well as participated in manipulative and inappropriate accounting procedures. The former management has claimed approximately $379,000 of compensation and other expenses that were not disclosed to the Company as of the date of acquisition. Accordingly, the Company has recorded these claims in the accompanying financial statements as a contingency pending resolution of the dispute. Following is a summary of the claims recorded as accrued liabilities by the Company in the consolidated balance sheet. The status has not changed as of May 31, 2016, and it is not possible at this time to predict the timing or outcome of this dispute.

The Company also assumed a $5,000 note payable in connection with the acquisition of Mobicash, which the Company recorded as short-term notes payable. See Note 9.