Note 1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Medifirst Solutions, Inc. ("MSI" or the "Company")
was incorporated in Nevada in November 2010. The Company has not generated significant sales to date. The Company intends to have
a diverse product line of consumer products. Since inception, the Company has been engaged in business planning activities, including
researching the industry, identifying target markets for the Company's products, developing the Company's models and financial
forecasts, performing due diligence regarding potential geographic locations most suitable for establishing the Company's offices
and identifying future sources of capital. At the present time, the Company is building products and affiliations in and related
to the cosmetic healthcare industry.
Pursuant to a sale and purchase agreement dated
August 19, 2015 between the Company and the Company's president, the Company acquired 100% of the equity interests in Medical Lasers
Manufacturer, Inc. ("MLM") with the total purchase price of 20,000 shares of the Company's common stock at $0.001 per
share (or $20). The fair value of the acquired entity was $20.
The transaction was considered as a business
acquisition and accordingly the acquisition method of accounting has been applied. MLM had no assets at the date of the business
combination.
The Consolidated financial statements include
the accounts of MSI and its only wholly owned subsidiary, MLM. All material intercompany balances and transactions have been eliminated
in consolidation.
The Company’s activities are subject to significant risks
and uncertainties, including failing to secure additional funding to operationalize the Company’s current technology.
Basis of Presentation
The accompanying condensed consolidated financial
statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP").
In the opinion of management, all adjustments considered necessary for a fair presentation have been included. All such adjustments
are of a normal recurring nature.
The Company has adopted Accounting Standards Update 2014-10, Development
Stage Entities (Topic 915), Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest
Entities Guidance in Topic 810, Consolidation.
Revenue Recognition
In general, the Company records revenue when
persuasive evidence of an arrangement exists, services have been rendered or product delivery has occurred, the sales price to
the customer is fixed or determinable, and collectability is reasonably assured. The following policies reflect specific criteria
for the various revenues streams of the Company:
Revenue is recognized at the time the product is delivered or services
are performed. Provision for sales returns are estimated based on the Company's historical return experience. Revenue is presented
net of returns.
Accounts Receivable
The Company extends credit to its customers
in the normal course of business and performs ongoing credit evaluations of its customers, maintaining an allowance for potential
credit losses. Accounts receivable is reported net of the allowance for doubtful accounts. The allowance is based on management's
estimate of the amount of receivables that will actually be collected.
Inventory
Inventory consists of finished goods and is stated at
the lower of cost (first-in, first-out) or market value.
Note 1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (continued)
Equipment
Equipment, consisting of computer equipment, is stated
at cost less accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives
of the assets, of five years.
Long-Lived Assets
The Company reviews long-lived assets, such as
equipment, for impairment whenever events or changes in circumstances indicate the carrying amount may not be recoverable. Recoverability
of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash
flows expected to be generated by the asset. If the carrying amount of an asset exceeds the estimated future cash flows, an impairment
loss will be recorded by the amount the carrying value exceeds the fair value of the asset.
In August 2015, the Company's wholly-owned subsidiary MLM, acquired
a trademark for $20,000. Due to the uncertainty of future cash flows from the trademark, management has deemed it to be impaired
and recorded an impairment expense of $20,000 in September 2015.
Debt Issues Costs and Debt Discount
The Company may pay debt issue costs,
and record debt discounts in connection with raising funds through the issuance of convertible debt. These costs are amortized
over the life of the debt to interest expense. If a conversion of the underlying debt occurs, a proportionate share of the unamortized
amounts is immediately expensed. For December 31, 2015 and retroactively, the Company has early-adopted ASU 2015-03: Simplifying
the Presentation of Debt Issuance Costs and has reflected the deferred financing costs as a direct reduction of the related debt
(See Note 7 to Consolidated Financial Statements).
Original Issue Discount
For certain convertible debt issued, the
Company provides the debt holder with an original issue discount. The original issue discount is recorded to debt discount, reducing
the face amount of the note and is amortized to interest expense over the life of the debt.
Derivative Liabilities
Fair value accounting requires bifurcation
of embedded derivative instruments such as conversion features in convertible debt or equity instruments, and measurement of their
fair value for accounting purposes. The Company assessed its securities for purposes of determining the proper accounting treatment
and valuation as set forth in the Statement of Financial Accounting Standard ASC 820–10–35–37 Fair Value in Financial
Instruments; Statement of Financial Accounting Standard ASC 815 Accounting for Derivative Instruments and Hedging Activities; and
Emerging Issues Task Force (“EITF”) Issue No. 00–19 and EITF 07–05.
In assessing the convertible debt instruments,
management determines if the convertible debt host instrument is conventional convertible debt and further if there is a beneficial
conversion feature requiring measurement. If the instrument is not considered conventional convertible debt, the Company will continue
its evaluation process of these instruments as derivative financial instruments.
Note 1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (continued)
Once the derivative liabilities are determined, they are adjusted
to reflect fair value at each reporting period end, with any increase or decrease in the fair value being recorded in results of
operations as an adjustment to fair value of derivatives.
Use of Estimates
The preparation of condensed consolidated 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 disclosures of contingent assets and liabilities
at the dates of the condensed consolidated balance sheets and the reported amounts of revenues and expenses during the reporting
periods. Actual results could differ from those estimates.
Financial Instruments
The carrying amounts reported in the balance
sheets for cash, accounts receivable, accounts payable, and other accrued liabilities approximate their fair values.
Segment Information
The Company follows Accounting Standards Codification
("ASC") 280, "Segment Reporting". The Company currently operates in a single segment and will evaluate additional
segment disclosure requirements as it expands its operations.
Net Income (Loss) Per Common Share
The Company calculates net income
(loss) per share based on the authoritative guidance. Basic earnings (loss) per share is calculated by dividing net income (loss)
by the weighted average number of common shares outstanding for the period. Diluted earnings (loss) per share is calculated by
dividing net income (loss) by the weighted average number of common shares and dilutive common stock equivalents outstanding. During
periods in which the Company incurs losses, common stock equivalents, if any, are not considered, as their effect would be anti-dilutive.
Income Taxes
The Company utilizes the accrual method of accounting
for income taxes. Under the accrual method, deferred tax assets and liabilities are determined based on the differences between
the financial reporting basis and the tax basis of the assets and liabilities, and are measured using enacted tax rates and laws
that will be in effect when the differences are expected to reverse. An allowance against deferred tax assets is recognized, when
it is more likely than not, that such tax benefits will not be realized.
Note 1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (continued)
The Company recognizes the financial statement
benefit of an uncertain tax position only after considering the probability that a tax authority would sustain the position in
an examination. For tax positions meeting a “more-likely-than-not” threshold, the amount recognized in the financial
statements is the benefit expected to be realized upon settlement with the tax authority. For tax positions not meeting the threshold,
no financial statement benefit is recognized. The Company recognizes interest and penalties, if any, related to uncertain tax
positions in income tax expense. The Company did not have any unrecognized tax benefits as of December 31, 2015, and does not
expect this to change significantly over the next 12 months.
Stock-Based Compensation
The Company accounts for equity instruments
issued to employees in accordance with ASC 718, Compensation - Stock Compensation. ASC 718 requires all share-based compensation
payments to be recognized in the financial statements based on the fair value on the issuance date.
Equity instruments granted to non-employees are accounted for in
accordance with ASC 505, Equity. The final measurement date for the fair value of equity instruments with performance criteria
is the date that each performance commitment for such equity instrument is satisfied or there is a significant disincentive for
non-performance.
Cash and Cash Equivalents
The Company considers all highly liquid
investments with an original maturity of three months or less to be cash equivalents. At December 31, 2015, the Company had $156,959
in cash equivalents.
Note 1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (continued)
Recent Pronouncements
In May 2014, FASB and IASB issued a
new joint revenue recognition standard that supersedes nearly all GAAP guidance on revenue recognition. The core principle of the
standard is that revenue recognition should depict the transfer of goods and services to customers in an amount that reflects the
consideration to which the entity expects to be entitled in exchange for those goods and services. The new standard is effective
for the Company for the fiscal year beginning June 1, 2017. The Company is currently evaluating the impact of this ASU on the consolidated
financial statements.
On January 05, 2016, the FASB completed its Classification
and Measurement of Financial Instruments project by issuing ASU No. 2016-01, Financial Instruments—Overall (Subtopic
825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The new guidance improves certain aspects of
recognition, measurement, presentation and disclosure of financial instruments. For public business entities, the new guidance
is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company
does not believe the impact of its pending adoption of this ASU on the Company’s consolidated financial statements will be
material. " In November 2015, FASB issued ASU 2015-17 - Income Taxes (Topic 740) Balance Sheet Classification of Deferred
Taxes which simplifies the presentation of deferred income taxes. For public business entities, the amendments in this Update are
effective for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those
annual periods. The Company does not believe the impact of its pending adoption of this ASU on the Company’s consolidated
financial statements will be material.
In February 2015, FASB issued ASU 2015-02 Consolidation (Topic 810)
Amendments to the Consolidation Analysis. The amendments in this Update affect reporting entities that are required to evaluate
whether they should consolidate certain legal entities. All legal entities are subject to reevaluation under the revised consolidation
model. The amendments in this Update are effective for public business entities for fiscal years, and for interim periods within
those fiscal years, beginning after December 15, 2015. The Company does not believe the impact of its pending adoption of this
ASU on the Company’s consolidated financial statements will be material.
Note 2. PROPERTY, PLANT AND EQUIPMENT (NET)
Equipment is recorded at cost and consisted of the following at
December 31, 2015 and 2014:
|
|
December 31,
|
|
|
|
2015
|
|
|
2014
|
|
Computer equipment
|
|
$
|
8,314
|
|
|
$
|
8,314
|
|
Less: accumulated depreciation
|
|
|
(6,155
|
)
|
|
|
(4,492
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,159
|
|
|
$
|
3,822
|
|
Depreciation expense was $1,663 and $3,933 for the years ended
December 31, 2015 and 2014, respectively.
Note 3. DUE TO RELATED PARTY
The Company was indebted to a related
party through common management in the amount of $8,921 at December 31, 2015 and December 31, 2014, respectively. The loan
bears no interest and is payable on demand.
Note 4. LOANS PAYABLE - STOCKHOLDERS
During the periods ended December 31, 2015 and 2014 a stockholder
of the Company advanced the Company $39,355 and $31,665 respectively. The loan had a balance of $20,899 and $42,210 at December
31, 2015 and December 31, 2014, respectively. The loan bears no interest and is payable on demand.
At December 31, 2015 and December 31, 2014, the Company was indebted
to a stockholder in the amount of $1,950 and $5,000, respectively. The loan has an interest rate of 20%. Principal and accrued
interest were due and payable on July 2, 2012.
In December 2012, the Company issued a promissory note to a stockholder
in the amount of $5,000 with interest at 10% per annum. Principal and interest were due and payable on June 2, 2013. In April 2014,
the note was amended to provide the note holder with the option to convert the note to the Company's common stock at $0.0001 per
share. Subsequently, in 2014, in a private transactions, the note holder transferred $2,500 of note principal to third parties
and the new holders converted their holdings into 2,500,000 shares of the Company's common stock. During 2015, the original note
holder transferred an additional $2,400 of note principal to third parties who converted their holdings into 2,400,000 shares of
the Company's common stock. At December 31, 2015 and December 31, 2014, the loan had balance was $100 and $4,000, respectively.
At December 31, 2015 and December 31, 2014, the Company was indebted
to a stockholder in the amount of $1,500 and $1,500, respectively. The loan has an interest rate of 26.7%. Principal and accrued
interest were due and payable on January 1, 2014.
Note 5. 6% CONVERTIBLE NOTES PAYABLE
In March 2011, the Company issued $800 aggregate principal amount
of 6% convertible notes due in January 2012. Interest on the notes accrue at the rate of 6% per annum and are payable when the
notes mature. The notes matured prior to conversion but have not been repaid. Interest continues to accrue at the rate of 6% per
annum.
The holder of one of the notes converted $110 of note principal
into 1,100,000 shares of common stock as follows:
|
|
Principal Amount
|
|
|
Conversion
|
|
|
Shares
|
|
Date of Conversion
|
|
Converted
|
|
|
Rate
|
|
|
Received
|
|
June 2013
|
|
$
|
70
|
|
|
$
|
0.0001
|
|
|
|
700,000
|
|
August 2013
|
|
$
|
40
|
|
|
$
|
0.0001
|
|
|
|
400,000
|
|
In August 2013, in a private transaction, the same note holder transferred
$330 of the remaining note principal plus $55 in accrued interest to a third party.
In August 2013, in a private transaction, the new note holder transferred
$5 of the remaining note principal to a third party who then converted the note into 50,000 shares of common stock.
Note 5. 6% CONVERTIBLE NOTES PAYABLE (continued)
In September 2013, the new note holder converted $100 of note principal
into 1,000,000 shares of common stock.
In September 2013, in a private transaction, the new note holder
transferred $35 of the remaining note principal to a third party who then converted the note into 350,000 shares of common stock.
In November and December 2013, the new note holder converted an
additional $90 of note principal into 900,000 shares of common stock as follows:
Date of Conversion
|
|
Principal Amount Converted
|
|
|
Conversion Rate
|
|
|
Shares Received
|
|
November 2013
|
|
$
|
40
|
|
|
$
|
0.0001
|
|
|
|
400,000
|
|
December 2013
|
|
$
|
50
|
|
|
$
|
0.0001
|
|
|
|
500,000
|
|
In March and April 2014, the new note holder converted an additional
$90 of note principal into 900,000 shares of common stock as follows:
Date of Conversion
|
|
Principal Amount Converted
|
|
|
Conversion Rate
|
|
|
Shares Received
|
|
March 2014
|
|
$
|
50
|
|
|
$
|
0.0001
|
|
|
|
500,000
|
|
April 2014
|
|
$
|
40
|
|
|
$
|
0.0001
|
|
|
|
400,000
|
|
Subsequent to these conversions there remains $125 in note principal.
In July 2013, the holder of the second note converted $240 of note
principal into 400,000 shares of the Company's common stock at $0.0006 per share. At December 31, 2015 and 2014, the note had a
remaining principal balance of $60 and $60, respectively.
At any time on or after the maturity date, the holders of the notes,
have the option of converting any of the unpaid principal and interest into the Company's common stock. The notes plus any accrued
but unpaid interest are convertible at the rate of $0.0001 per share at the time of conversion up to a maximum of 9.99% of the
then issued and outstanding common stock, or 3,506,665 shares at December 31, 2015.
In May 2012, the Company issued a $25,000 6% per annum note that
matured in November 2012. In December 2012 the note was amended to be a convertible note. Interest on the note accrues interest
at 6% per annum and is payable when the note matures.
Note 5. 6% CONVERTIBLE NOTES PAYABLE (continued)
The holder of the $25,000 note had the option of converting it at
any time prior to maturity. The note plus any accrued but unpaid interest were convertible at the rate of $0.001 per share at the
time of conversion up to a maximum of 9.99% of the then issued and outstanding common stock. The holder of the note converted $1,010
of note principal into 1,010,000 shares of common stock as follows:
The holder of the note converted $1,010 of note principal into 1,010,000
shares of common stock as follows:
Date of Conversion
|
|
Principal Amount Converted
|
|
|
Conversion Rate
|
|
|
Shares Received
|
|
December 2012
|
|
$
|
150
|
|
|
$
|
0.001
|
|
|
$
|
150,000
|
|
January 2013
|
|
$
|
660
|
|
|
$
|
0.001
|
|
|
$
|
660,000
|
|
March 2013
|
|
$
|
200
|
|
|
$
|
0.001
|
|
|
$
|
200,000
|
|
In July 2013, the Company retired $14,000 of note principal in payment
for consulting services provided to the note holder.
In July 2013, the note holder converted $300 of note principal into
300,000 shares of the Company's common stock.
In July 2013, in a private transaction, the note holder transferred
the remaining note principal balance of $9,690 to a third party.
In August 2013, in a private transaction, the new note holder transferred
$4,475 of principal to a stockholder of the company.
In October 2013, the note holder converted $400 of note principal
into 400,000 shares of the Company's common stock at $0.001 per share.
In October 2014, the note holder converted $1,100 of note principal
into 1,100,000 of the Company's common stock. At December 31, 2015, the remaining principal on this portion of the note is $3,715.
The note holder has the option of converting the balance at any time with the approval of the Board of Directors. The note plus
any accrued but unpaid interest are convertible at the rate of $0.001 per share at the time of conversion up to a maximum of 9.99%
of the then issued and outstanding common stock, or 3,506,665 shares at December 31, 2015.
In August 2013, the note holder/stockholder converted $700 of note
principal into 700,000 shares of the Company's common stock at $0.001 per share. In October 2013, in a private transaction, this
note holder transferred $1,000 of note principal to a third party of which $700 was converted into 700,000 shares in June 2014.
The remaining principal balance on this portion of the note at September 30, 2015 is $2,075. The note holder has the option of
converting the balance at any time with the approval of the Board of Directors. The note plus any accrued but unpaid interest are
convertible at the rate of $0.001 per share at the time of conversion up to a maximum of 9.99% of the then issued and outstanding
common stock, or 3,506,665 shares at December 31, 2015.
In April 2015, the Company issued a $3,000 8% per annum note that
matures in October 2015. The holder of the note has the right to convert the principal into shares of the Company's common stock
at any time 180 days after the closing date at $0.0001 per share. Interest on the note accrues interest at 8% per annum and is
payable when the note matures.
Note 6. 8% CONVERTIBLE NOTES PAYABLE
In July 2015, the Company issued a convertible note payable in the
principal amount of $59,000. The note matures in March 2016 and bears interest at 8%. Beginning 180 days following the closing
date the note holder shall have the right to convert any or all of the outranking principal balance into shares of the Company's
common stock at the discounted rate of 55% of the average of the three lowest market trading prices during the 10 days immediately
preceding the conversion date.
In August 2015, the Company issued a convertible note payable in
the principal amount of $38,000. The note matures in March 2016 and bears interest at 8%. Beginning 180 days following the closing
date the note holder shall have the right to convert any or all of the outranking principal balance into shares of the Company's
common stock at the discounted rate of 55% of the average of the three lowest market trading prices during the 10 days immediately
preceding the conversion date.
On October 8, 2015,
the Company issued a convertible note payable in the principal amount of $31,000 with an Original Issue Discount of $1,500. The
note matures on October 8, 2016 and bears interest at 8%. The note holder has has the right at any time to convert any part or
all of the outstanding unpaid principal balance into shares of the Company's common stock at the discounted rate of 58% of the
lowest market trading price during the 20 days prior to and including the conversion date.
Note 7. 5% CONVERTIBLE NOTES PAYABLE
In June 2015, the Company issued a convertible note payable in the
principal amount of $100,000. The note matures in December 2015 and bears interest at 5%. Beginning 180 days following the closing
date the note holder shall have the right to convert any or all of the outranking principal balance into shares of the Company's
common stock at the discounted rate of 50% of the average of the three lowest market trading prices during the 3 days immediately
preceding the conversion date.
On October 15, 2015 the Company issued a convertible note payable
in the principal amount of $35,000 with an Original Issue Discount of $5,000. The note matures on October 15, 2016 and bears interest
at 5%. The note holder has has the right at any time on or after the day that is six months from October 15, 2015 to convert any
part or all of the outstanding unpaid principal balance into shares of the Company's common stock at the discounted rate of 55%
of the lowest market trading prices during the 20 days prior to the conversion date.
Note 7. 5% CONVERTIBLE NOTES PAYABLE (continued)
The Company’s convertible notes payable and the related derivative
liabilities, derivative discount, deferred financing costs and original-issue discount are presented in the financial statements
at December 31, 2015 as follows:
Schedule of all Convertible Notes Payable at December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
Original
|
|
|
|
|
|
Deferred
|
|
|
Convertible
|
|
|
|
|
|
|
Face
|
|
|
Issue
|
|
|
Derivative
|
|
|
Financing
|
|
|
Notes
|
|
|
Derivative
|
|
Debt
|
|
Amount
|
|
|
Discount
|
|
|
Discount
|
|
|
Costs
|
|
|
Payable
|
|
|
Liability
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note Payable - BS
|
|
$
|
125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
125
|
|
|
|
|
|
Note Payable - SF
|
|
|
60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60
|
|
|
|
|
|
Note Payable - MC #1
|
|
|
2,075
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,075
|
|
|
|
|
|
Note Payable - NW
|
|
|
3,715
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,715
|
|
|
|
|
|
Note Payable - MC #2
|
|
|
3,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,000
|
|
|
|
|
|
Debenture Payable (5%) - B
|
|
|
100,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100,000
|
|
|
|
35,176
|
|
Convertible Note Payable - CB (5%)
|
|
|
35,000
|
|
|
|
(3,945
|
)
|
|
|
|
|
|
|
(789
|
)
|
|
|
30,266
|
|
|
|
|
|
Convertible Note Payable - LGC (8%)
|
|
|
31,000
|
|
|
|
(1,155
|
)
|
|
|
(26,314
|
)
|
|
|
(3,657
|
)
|
|
|
(126
|
)
|
|
|
56,366
|
|
Convertible Notes Payable- VV (8%) #1
|
|
|
59,000
|
|
|
|
|
|
|
|
(52,321
|
)
|
|
|
(1,729
|
)
|
|
|
4,950
|
|
|
|
66,075
|
|
Convertible Notes Payable- VV (8%) #2
|
|
|
38,000
|
|
|
|
|
|
|
|
|
|
|
|
(1,673
|
)
|
|
|
36,327
|
|
|
|
|
|
|
|
$
|
271,975
|
|
|
$
|
(5,100
|
)
|
|
$
|
(78,635
|
)
|
|
$
|
(7,847
|
)
|
|
$
|
180,393
|
|
|
$
|
157,617
|
|
As of December 31, 2015, the convertible notes payable can be converted
into approximately 86,385,000 shares of common stock.
Note 8. DERIVATIVES AND FAIR VALUE INSTRUMENTS
The Company applied paragraph 815-10-05-4 of the FASB Accounting
Standards Codification to the 5% Convertible Notes Payable issued June 12th 2015 and the 8% Convertible Note payable issued June
25th 2015. Based on the guidance in paragraph 815-10-05-4 of the FASB Accounting Standards Codification the Company concluded these
instruments were required to be accounted for as derivatives on issuance date. The Company records the fair value of the Convertible
Notes Payable and certain warrants that are classified as derivatives on issuance date and the fair value changes on each reporting
date reflected in the consolidated statements of operations as “Gain (loss) on derivative liabilities.” These derivative
instruments are not designated as hedging instruments under paragraph 815-10-05-4 of the FASB Accounting Standards Codification
and are disclosed on the balance sheet under Derivative Liabilities.
The Company follows paragraph 820-10-35-37 of the FASB Accounting
Standards Codification (“Paragraph 820-10-35-37”) to measure the fair value of its financial instruments and paragraph
825-10-50-10 of the FASB Accounting Standards Codification for disclosures about fair value of its fin+A390ancial instruments.
Paragraph 820-10-35-37 establishes a framework for measuring fair value in accounting principles generally accepted in the United
States of America (U.S. GAAP), and expands disclosures about fair value measurements. To increase consistency and comparability
in fair value measurements and related disclosures, Paragraph 820-10-35-37 establishes a fair value hierarchy which prioritizes
the inputs to valuation techniques used to measure fair value into three (3) broad levels. The three (3) levels of fair value hierarchy
defined by Paragraph 820-10-35-37 are described below:
Level 1 Quoted market prices available in active markets for identical
assets or liabilities as of the reporting date.
Level 2 Pricing inputs other than quoted prices in active markets
included in Level 1, which are either directly or indirectly observable as of the reporting date.
Level 3 Pricing inputs that are generally observable inputs and
not corroborated by market data.
Note 8. DERIVATIVES AND FAIR VALUE
INSTRUMENTS (continued)
Financial assets are considered Level 3 when their fair values are
determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption
or input is unobservable.
The fair value hierarchy gives the highest priority to quoted prices
(unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. If the inputs
used to measure the financial assets and liabilities fall within more than one level described above, the categorization is based
on the lowest level input that is significant to the fair value measurement of the instrument.
The carrying amounts of the Company’s financial assets and
liabilities, such as cash, prepayments and other current assets, accounts payable, and accrued expenses, approximate their fair
values because of the short maturity of these instruments.
The Company’s Level 3 financial liabilities consist of the
5% Convertible Notes Payable issued June 12th 2015 and the 8% Convertible Note payable issued June 25th 2015, for which there is
no current market for these securities such that the determination of fair value requires significant judgment or estimation. We
have valued the automatic conditional conversion, re-pricing/down-round, change of control; default and follow-on offering provisions
using a lattice model, with the assistance of a valuation consultant, for which management understands the methodologies. These
models incorporate transaction details such as Company stock price, contractual terms, maturity, risk free rates, as well as assumptions
about future financings, volatility, and holder behavior as of issuance and December 31, 2015. The primary assumptions include:
projected annual volatility of 151.4%-153.3%; the follow-on securities purchase option; the conversion feature as a percentage
of Market; automatic/conditional conversions; market price trigger events.
As of December 31, 2015 the Company’s derivative financial
instruments included:
1) Embedded derivatives associated with certain of the Company’s
unsecured convertible notes payable. The Company’s 5 % convertible notes payable and 8% convertible notes payable issued
to two unrelated investors is a hybrid instrument, which warrants separate accounting as a derivative instrument. The embedded
derivative feature has been bifurcated from the debt host contract, referred to as the Derivative Liability, which resulted in
a reduction of the initial carrying amount (as unamortized discount) of the Convertible Notes Payable. The unamortized discount
is amortized to interest expense using the effective interest method over the life of the Notes. The embedded derivative feature
includes the conversion feature within the notes and an early redemption option. The compound embedded derivatives within the convertible
notes have been recorded at fair value at the date of issuance; and are marked-to-market each reporting period with changes in
fair value recorded to the Company’s statement of operations as Change in fair value of derivative liabilities.
Note 8. DERIVATIVES AND FAIR VALUE
INSTRUMENTS (continued)
The 5% Convertible Note Payable and the 8% Convertible Notes Payable
are valued at 12/31/15. The following assumptions were used for the valuation of the embedded derivative:
- The stock price of $0.010 to $0.0073 in this period (variable
conversion price) would fluctuate with the Company projected volatility;
- An event of default for the Convertible Note would occur 0% of
the time, increasing 1.00% per month to a maximum of 5.0%;
- Alternative financing for the Convertible Note would be initially
available to redeem the note 0% of the time and increase monthly by 1% to a maximum of 10%;
- Capital raising events (a single financing at 1 months from the
valuation date) are a factor for the 5% Convertible Note. The full reset events projected to occur based on future stock issuance
(single event) resulting in a reset exercise price.
- The monthly trading volume would average $258,000 and would increase
at 1% per month
- The variable conversion price of 50% to 55% over 3 to 10 trading
days would have effective rates of 44.12% to 51.14%;
- The Note Holders would automatically convert the notes with variable
conversion prices and full ratchet resets if the registration was effective and not in default;
- The projected annual volatility for each valuation period was
based on the historical volatility of 17 comparable companies:
10/8/2015
|
|
|
154
|
%
|
12/9/2015
|
|
|
153
|
%
|
12/22/2015
|
|
|
152
|
%
|
12/31/2015
|
|
|
151
|
%
|
The foregoing assumptions are reviewed quarterly and are
subject to change based primarily on management’s assessment of the probability of the events described occurring.
Accordingly, changes to these assessments could materially affect the valuation.
Note 8. DERIVATIVES AND FAIR VALUE
INSTRUMENTS (continued)
The Company’s convertible notes
payable and the related derivative liabilities, derivative discount and original-issue discount are presented in the
financial statements at December 31, 2015 as follows:
Convertible Note
|
|
Derivitive Treatment Date
|
|
Maturity Date
|
|
Principal Note Amount
|
|
|
Original
Derivitive
Valuation
|
|
|
Mark to Market
|
|
|
Derivative Value at December 31, 2015
|
|
8 % Convertible Note Payable-issued 10/8/2015
|
|
10/8/15
|
|
10/8/16
|
|
$
|
31,000
|
|
|
$
|
58,779
|
|
|
$
|
(2,413
|
)
|
|
$
|
56,366
|
|
5 % Convertible Note Payable-issued 6/12/15
|
|
12/9/15
|
|
12/12/15
|
|
|
100,000
|
|
|
|
37,827
|
|
|
|
(2,651
|
)
|
|
|
35,176
|
|
8 % Convertible Note Payable-issued 6/25/15
|
|
12/22/15
|
|
3/30/16
|
|
|
59,000
|
|
|
|
56,956
|
|
|
|
9,119
|
|
|
|
66,075
|
|
|
|
|
|
|
|
$
|
190,000
|
|
|
$
|
153,562
|
|
|
$
|
4,055
|
|
|
$
|
157,617
|
|
Note 9. STOCKHOLDERS' EQUITY
The Company has authorized 1,500,000,000 shares of common stock
with a par value of $0.0001 per share. There were 35,101,750 and 22,481,750 shares of common stock issued and outstanding at December
31, 2015 and December 31, 2014, respectively.
The Company has authorized 1,000,000 shares
of Series A preferred stock with a par value of $0.0001 per share. At December 31, 2015 and December 31, 2014, 50,000 shares of
Series A preferred stock were issued and outstanding. The preferred stock has preferential voting rights of 2,000 votes per outstanding
share.
The Company has authorized 50,000 shares of Series B convertible preferred stock with a par value of $0.0001
per share. At December 31, 2015 and December 31, 2014, none of the shares of Series B preferred stock were issued and outstanding.
The Series B preferred stock has no voting rights. The holders of the Series B convertible preferred stock have the right to convert
the same into Common Stock of the Corporation at the ratio of one (1) share of Series B Convertible Preferred for five hundred
(500) shares of Common Stock.
During the quarter ended March 31, 2015, the Company issued 2,000,000
shares of common stock at $0.001 per share as partial conversion of notes.
During the quarter ended March 31, 2015, the Company issued 800,000
shares of common stock at $0.0005 per share as partial conversion of notes.
During the quarter ended March 31, 2015, a stockholder of the Company
returned 500,000 shares of common stock to the Company.
During the quarter ended June 30, 2015, the Company issued 2,300,000
shares of common stock at $0.0005 per share as partial conversion of notes.
During the quarter ended September 30, 2015, the Company issued
3,800,000 shares of common stock at $0.0005 per share as partial conversion of notes.
During the quarter ended September 30, 2015, the Company issued
20,000 shares of common stock at $0.015 per share as to acquire 100% of the outstanding shares of the Company's subsidiary.
Note 9. STOCKHOLDERS' EQUITY (continued)
During the quarter ended September 30, 2015, the Company issued
3,000,000 shares of common stock at $0.01 per share as Officer's compensation.
During the quarter ended September 30, 2015, the Company issued
500,000 shares of common stock at $0.01 per share for services provided to the Company.
During the quarter ended December 31, 2015, the Company issued 500,000
shares of common stock at $0.01 per share for services provided to the Company.
During the quarter ended December 31,
2015, the Company issued 200,000 shares of common stock at $0.01 per share to an investor.
Note 10. COMMITMENTS AND CONTINGENCIES
The Company currently rents its offices on
a month to month basis from the Company's President and stockholder for $525 per month.
Rent expense for the year ended December 31,
2015 and 2014, totaled $6,500 and $5,274, respectively and was respectively, a portion of which was forgiven and converted to
additional paid-in capital.
Note 11. INCOME TAXES
The Company's deferred tax asset consists primarily of carryforward
net operating losses (NOLs). The Company believes that, at this time, it is more likely than not that the benefit of the NOLs will
not be realized and has therefore recorded a full valuation allowance as follows:
|
|
December 31, 2015
|
|
|
December 31, 2014
|
|
Net operating loss carryforward
|
|
$
|
413,000
|
|
|
$
|
268,000
|
|
Valuation allowance
|
|
|
(413,000
|
)
|
|
|
(268,000
|
)
|
Deferred tax asset, net
|
|
$
|
-
|
|
|
$
|
-
|
|
The income tax benefit differs from the amount computed by applying
the statutory federal and state income tax rates to the loss before income taxes. The sources and tax effects of the differences
are as follows:
|
|
December 31, 2015
|
|
|
December 31, 2014
|
|
Statutory federal income tax rate
|
|
|
34
|
%
|
|
|
34
|
%
|
State income taxes, net of federal taxes
|
|
|
9
|
%
|
|
|
9
|
%
|
Valuation allowance
|
|
|
(43
|
)%
|
|
|
(43
|
)%
|
Effective income tax rate
|
|
|
0
|
%
|
|
|
0
|
%
|
As of December 31, 2015, the Company has a net operating loss carryforward
of approximately $961,000 to reduce future federal and state taxable income through 2035.
The Company paid $550 and $800 for state taxes for the year ended
December 31, 2015 and 2014 respectively. These amounts are included in "Other" Expenses in the Consolidated Statement
of Operations.
The Company currently has no federal
or state tax examinations in progress, nor has it had any federal or state examinations since its inception. All of the Company's
open tax years beginning in tax year 2013 are subject to federal and state tax examinations.
Note 12. RELATED PARTY TRANSACTIONS
In August 2015, the Company acquired 100% of the issued and outstanding
common stock of Medical Lasers Manufacturer, Inc. ("MLM") from a stockholder and officer of the Company for 20,000 common
shares which were valued at $0.015 per share. All intercompany transactions were eliminated during consolidation.
As more fully described in Note 4 to the Consolidated Financial
Statements, the Company owed the following amounts to related parties as of December 31:
|
|
2015
|
|
|
2014
|
|
Due to Related Party
|
|
$
|
8,921
|
|
|
$
|
5,937
|
|
Due to Officer/Stockholder
|
|
|
20,898
|
|
|
|
33,210
|
|
Due to other Stockholders
|
|
|
3,550
|
|
|
|
9,000
|
|
Total Related Party Obligations
|
|
$
|
33,369
|
|
|
$
|
48,147
|
|
The company has entered into an employment
agreement with its Chief Executive Officer (CEO) for the five year period beginning January 1, 2012. The agreement provides for
base compensation, annual bonus, benefits, vacation and reimbursements. Under this agreement, the base compensation of the Company's
CEO is $100,000 per annum and has been accrued for the years ended December 13, 2015 and 2014. Accrued compensation in the amount
of $30,000 was converted to shares of common stock during 2015.
In May 2014, in consideration for his services, the Company issued Bruce Schoengood, its Chief Executive Officer,
50,000 shares of its Series A Preferred Stock, which shares provide for a voting right of 2,000 per share, are not convertible
and are not entitled to dividends or liquidation preferences or distributions.
In August 2015, MLM acquired a trademark
from the son of the Company’s President for $20,000 due 90 days from the date of acquisition. As of December 31, 2015, no
payment has been made on this liability. Due to the uncertainty of future cash flows from the trademark management has deemed it
to be impaired and has recorded an impairment expense of $20,000 at September 30, 2015.
In August 2015, subsequent to the date
the Company acquired MLM, MLM purchased $50,000 in inventory from the son of the Company's President. The inventory consisted
of 20 hand-held laser devices. As of December 31, 2015, no payment has been made on this liability.
Note 13. BASIS OF REPORTING – GOING CONCERN
The accompanying financial statements have been prepared assuming
the Company will continue as a going concern, which contemplates the recoverability of assets and the satisfaction of liabilities
in the normal course of business.
The Company has incurred losses from inception of approximately
$964,000, which, among other factors, raises substantial doubt about the Company's ability to continue as a going concern. The
ability of the Company to continue as a going concern is dependent upon management's plans to raise additional capital from the
sale of stock and receive additional loans from related parties. The accompanying financial statements do not include any adjustments
that might be required should the Company be unable to continue as a going concern.
Note 14. SUBSEQUENT EVENTS
On January 7, 2016, the Company entered
into a Securities Purchase Agreement (the “Purchase Agreement”) with an accredited investor (the “Investor”)
for the sale of convertible redeemable notes in aggregate principal amount of $251,803. On January 7, 2016, the Company and the
Investor conducted the first closing under the Purchase Agreement, pursuant to which the Company issued to the Investor (i) a convertible
redeemable note in principal amount of $105,000 containing an original issue discount of $20,000 (the “$105K Note”);
and (ii) a convertible redeemable note in principal amount of $50,000 (the “$50K Note” and together with the $105K
Note, the “Notes”). In consideration for the issuance of the $105K Note, on January 13, 2016, the Company received
net proceeds (after deducting the original issue discount and legal fees) in the amount of $75,696.69. In consideration for the
issuance of the $50K Note, the Investor issued to the Company a $50,000 fully-collateralized secured promissory note (the “Investor
Note”), pursuant to which the Investor agreed to pay the Company $50,000 on or before April 30, 2016. Under the Purchase
Agreement, on March 15, 2016, the Company and the Investor conducted an additional closing for the sale and purchase of additional
notes having the same terms as the Notes in principal amounts equal to $50,000 and $46,803, respectively. In consideration for
the issuance of the $50,000 Note, on March 15, 2016, the Company received gross proceeds of $50,000. In consideration for the issuance
of the $46,803 note, the Investor issued to the Company a $46,803 fully-collateralized secured promissory note, pursuant to which
the Investor agreed to pay the Company $46,803 on or before June 15, 2016. All notes issued pursuant to the Purchase Agreement
bear interest at the rate of 8% per annum. Subject to a beneficial ownership limitation equal to 9.99%, principal and interest
on all the notes issued pursuant to the Purchase Agreement convertible into shares of the Company’s common stock at a conversion
price equal to 55% of the lowest trading price of Common Stock during the 20 trading day period prior to conversion.
On January 7, 2016, the Company issued to the
Investor a convertible redeemable replacement note in principal amount of $61,508.71 (the “$61K Replacement Note”).
The issuance of the $61K Replacement Note was made in connection with the Investor’s purchase of a convertible promissory
note in principal amount of $59,000 that was originally issued by the Company on June 25, 2015 (the “$61K Original Note”).
The $61,508.71 principal amount of the $61K Replacement Note reflected the principal and accrued interest under the $61K Original
Note. The $61K Replacement Note, which is due on January 7, 2017, may not be prepaid but otherwise contains identical provisions
to that of the Notes.
On February 29, 2016, the Company issued to
the Investor a convertible redeemable replacement note in principal amount of $39,557.48 (the “Replacement Note”).
The issuance of the Replacement Note was made in connection with the Investor’s purchase of a convertible promissory note
in principal amount of $38,000 that was originally issued by the Company on August 31, 2015 (the “Original Note”).
The $39,557.48 principal amount of the Replacement Note reflected the principal and accrued interest under the Original Note. The
Replacement Note, which is due on February 28, 2017, may not be prepaid but otherwise contains identical provisions to that of
the Notes.
In February 2016, one shareholder converted
3,400 shares of Series B Preferred Stock into 1,700,000 shares of common stock. The conversion of 3,400 shares of Series B Preferred
Stock was a partial conversion of the 10,000 shares of the Series B Preferred Stock it issued in satisfaction of the obligation
to issue such shares to the seller of $50,000 of inventory the Company purchased in August 2015. Each share of Series B Preferred
Stock is convertible into five hundred (500) shares of common stock.
On March 8, 2016, the Company, through its wholly-owned
subsidiary, Medical Laser Manufacturer, Inc., memorialized in a Product and Know-How License Agreement (the “License Agreement”)
with Medical Lasers Manufacturer, Inc., a Florida corporation doing business as Laser Lab Corp. (“Laser Lab”), an agreement
to license the use of various intellectual property in connection with seeking regulatory approval for and marketing, distributing
and selling The Time Machine Series Lasers (the “TTM Series”). In connection with the Company’s agreement with
Laser Lab, which agreement was memorialized in the License Agreement, on September 24, 2015, the Company filed with the Secretary
of State of the State of Nevada a Certificate of Designation of Rights, Preferences and Privileges (the “Certificate of Designation”),
of the Company’s Series B Convertible Preferred Stock (“Series B Preferred”). Pursuant to the Certificate of
Designation, the Company designated 50,000 shares of Series B Preferred. The Series B Preferred do not hold any rights to receive
dividends or any rights to vote. The Company, at its sole discretion, may redeem at any time, in whole or in part, outstanding
shares of Series B Preferred for a price per share equal to the consideration paid or deemed to have been paid for such shares.
The Series B Preferred may be converted, sixty days after their respective issuance, each share into the Company’s common
stock at a conversion ratio equal to one (1) share of Series B Preferred for five hundred (500) shares of Common Stock.
Pursuant to the License Agreement, the Company
agreed to issue to Laser Lab 25,000 shares of Series B Preferred and a promissory note (the “Promissory Note”) in principal
amount of $150,000 and bearing interest at 10% per annum. The principal and interest due under the Promissory Note is payable 18-months
from the date of issuance. In the event, the Company does not receive, by December 31, 2016, a decision letter from the Food and
Drug Administration informing the Company of the “cleared” 510(k), then the amount of 10,000 shares of Series B Preferred
will be clawed back and forfeited by Laser Lab and the principal amount of the Promissory Note will automatically reduce to $75,000,
as if originally issued in such denomination.
Subsequent to December 31, 2015, the Company
issued 4,787,129 shares of common stock upon conversion of an aggregate of $10,258 of promissory notes of the Company.