Quarterly Report (10-q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


[X]	Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

	For the quarterly period ended March 31, 2016

[ ]	Transition Report pursuant to 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from __________ to__________

Commission File Number: 000-55373

RX Safes, Inc.

(Exact name of registrant as specified in its charter)


Nevada	27-2928918
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)

170 Green Valley Parkway, Suite 300 Henderson, NV 89012
(Address of principal executive offices)

702-800-4620

(Registrant’s telephone number)

_______________________________________________________

(Former name, former address and former fiscal year, if changed since last report)

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

[X] Yes [ ] No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). [X] Yes [ ] No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.


[ ] Large accelerated filer	[ ] Accelerated filer
[ ] Non-accelerated filer	[X] Smaller reporting company

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

[ ] Yes [X] No

State the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 11,761,102 common shares as of May 18, 2016.

Table of Contents

	TABLE OF CONTENTS	Page
PART I – FINANCIAL INFORMATION
Item 1:	Financial Statements	3
Item 2:	Management’s Discussion and Analysis of Financial Condition and Results of Operations	4
Item 3:	Quantitative and Qualitative Disclosures About Market Risk	14
Item 4:	Controls and Procedures	14
PART II – OTHER INFORMATION
Item 1:	Legal Proceedings	16
Item 1A:	Risk Factors	16
Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds	16
Item 3:	Defaults Upon Senior Securities	17
Item 4:	Mine Safety Disclosure	17
Item 5:	Other Information	17
Item 6:	Exhibits	17

Table of Contents

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

Our financial statements included in this Form 10-Q are as follows:

F-1	Condensed Balance Sheets as of March 31, 2016 (unaudited) and December 31, 2015;
F-2	Condensed Statements of Operations for the three months ended March 31, 2016 and 2015 (unaudited);
F-3	Condensed Statements of Cash Flows for three months ended March 31, 2016 and 2015 (unaudited); and
F-4	Notes to Condensed Unaudited Financial Statements.

These financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and the SEC instructions to Form 10-Q. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating results for the interim period ended March 31, 2016 are not necessarily indicative of the results that can be expected for the full year.

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RX SAFES INC.
CONDENSED BALANCE SHEETS

	March 31, 2016
	Unaudited			December 31, 2015
ASSETS
Current Assets
Cash and cash equivalents	$	194,455		$		25,711
Inventory			7,468			9,136
Accounts Receivable			114			1,146
Prepaid Expenses			2,179			4,358

Total Current Assets		204,216			40,351

Other Assets
Intangible net of amortization of $1,667			98,333			—

Total Assets	$		302,549	$		40,351

LIABILITIES AND STOCKHOLDERS' DEFICIT

Current Liabilities
Accounts Payable and Accrued Expenses	$		309,599	$		178,378
Loans Payable to related party			—			3,150
Convertible notes payable (net of unamortized discounts of $566,138 and $249,467 respectively)			195,112			114,033
Derivative liability			1,223,319			1,428,075
Interest Payable			14,649			10,748
Total Current Liabilities		1,742,679			1,734,384

Long term Liabilities

Convertible notes payable (net of unamortized discounts of $0 and $48,810 respectively)			—			5,690

Total Liabilities		1,742,679			1,740,074

Stockholders' Deficit

Preferred B stock, par value $.001, 50,000,000 authorized Preferred Series B: 1,900 and 2,000 shares issued and outstanding as of March 31, 2016 and December 31, 2015			2			2
Common stock, par value $.001, 500,000,000 authorized 11,729,707 and 1,467,498 shares issued and outstanding as of March 31, 2016 and December 31, 2015			11,730			1,467
Additional paid in capital			30,031,897			6,703,570
Accumulated deficit			(31,483,759)			(8,404,762)
Total Stockholders' Deficit		(1,440,130)			(1,699,723)

Total Liabilities and Stockholders' Deficit	$	302,549		$	40,351

F- 1

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RX SAFES INC.
CONDENSED STATEMENTS OF OPERATIONS
UNAUDITED


	Three Months Ended
	March 31, 2016			March 31, 2015

REVENUES	$	3,063		$	49,920

COST OF GOODS SOLD
PRODUCT SOLD		1,667			25,292

GROSS PROFIT		1,396			24,628

OPERATING EXPENSES
General and Administrative Expense		23,226,390			1,479,641

NET LOSS FROM OPERATIONS		(23,224,994	)		(1,455,013	)

LOSS BEFORE INCOME TAXES		(23,224,994	)		(1,455,013	)

OTHER INCOME (EXPENSES)
Gain (loss ) on revaluation of derivative liability		357,114			16,769
Interest Expense		(211,116	)		(48,634	)

TOTAL OTHER INCOME (EXPENSES)		145,998			(31,865	)

LOSS BEFORE INCOME TAXES		(23,078,996	)		(1,486,878	)

PROVISION FOR INCOME TAX		—			—

NET LOSS	$	(23,078,996	)	$	(1,486,878	)


BASIC AND DILUTED NET LOSS PER SHARE	$	(2.75	)	$	(0.01	)

WEIGHTED AVERAGE SHARES OUTSTANDING FOR BASIC AND DILUTED CALCULATIONS		8,380,084			115,491,472

F- 2

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RX SAFES INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)

	Three Months Ended
	March 31, 2016			March 31, 2015
OPERATING ACTIVITIES
Net loss	$	(23,078,996	)	$	(1,486,878	)

Adjustments to reconcile net loss to net cash used in operations:
Expenses related to issue of stock options		22,826,318			1,403,675
Common stock issued for services		27,581			—
Debt discount-convertible notes		190,695			(94,933	)
Amortization of patent		1,667			—
Gain on Derivative liability		(357,114	)		125,847

Decrease (increase) in assets
Inventory		(1,668	)		25,364
Accounts receivable		(1,032	)		—
Prepaid expenses		(2,179	)		—
Increase (decrease) in liabilities
Accounts payable & accrued expenses		(10,863	)		(14,369	)
Salary payable		142,083			43,750
Other current liabilites		—			—
Interest Payable		3,901			(275	)

Net cash provided by/(used for) operating activities		(259,607	)		2,181


FINANCING ACTIVITIES
Proceeds from issuance of convertible notes		459,000			100,000
Repayment of convertible note		(27,500	)		—
Repayment of related party loan advances		(3,150	)		(40,274	)

Net cash from financing activities		428,350			59,726

NET INCREASE (DECREASE) IN CASH		168,743			61,907

Cash and cash equivalents beginning of period		25,712			13,087

Cash and cash equivalents end of period	$	194,455		$	74,994

Supplemental Disclosure of Cash Flow Information

Cash Paid
Interest	$	15,000		$	1,226
Income Taxes	$	—		$	—


Non-cash financing activities
Debt discount recognized		267,861			—
Conversion of preferred stock to common stock		—			—
Conversion of convertible debt to common stock		88,250			—

F- 3

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RX SAFES INC.

NOTES TO THE FINANCIAL STATEMENTS

March 31, 2016

(UNAUDITED)

NOTE 1.

Nature of Operations :

Rx Safes, Inc. (“the Company”) was incorporated under the laws of the State of Nevada on June 1, 2010. The Company designs, develops, engineers, and markets fingerprint medical devices and security storage solutions for consumers and healthcare professionals to regulate and secure the use of controlled substances at the end user (patient and consumer) level using patented, autonomous fingerprint technology that offers greater security and tighter controls over controlled substances

Interim reporting:

The interim condensed financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in the financial statements prepared in accordance with generally accepted accounting principles (“U.S. GAAP”) have been condensed or omitted pursuant to such rules and regulations, although we believe that the disclosures made are adequate to provide for fair presentation and a reasonable understanding of the information presented. The Interim Condensed Financial Statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in this Form 10-Q should be read in conjunction with the financial statements and the related notes, for the fiscal year ended December 31, 2015, previously filed with the SEC.

In the opinion of management, all adjustments (which include normal recurring adjustments) necessary to present a fair statement of financial position as of March 31, 2016, results of operations for the three months ended March 31, 2016 and 2015, and cash flows for the three months ended March 31, 2016 and 2015, as applicable, have been made. The results of operations for the three months ended March 31, 2016 are not necessarily indicative of the operating results for the full fiscal year or any future periods.

NOTE 2.

Summary of Significant Accounting Policies :

The financial statements of the Company have been prepared using U.S. GAAP that are applicable to a going concern which contemplates that the Company will continue in operation for the foreseeable future and will be able to realize its assets and discharge its liabilities in the normal course of business.

F- 4

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RX SAFES INC.

NOTES TO THE FINANCIAL STATEMENTS

March 31, 2016

(UNAUDITED)

Management’s use of estimates

The preparation of financial statements in conformity with U.S. GAAP 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.

Cash and cash equivalents

Cash and cash equivalents include funds on hand and short-term investments with original maturities of three months or less. Cash deposits are insured in limited amounts by the Federal Deposit Insurance Corporation (FDIC).

Accounts receivable

Customer accounts receivable consist of amounts owed from private individuals or organizations for product delivered. The Company provides an allowance for doubtful collections, which is based upon a review of outstanding receivables, historical collection information, and existing economic conditions. Normal receivable are due 30 days after the issuance of the invoice. Receivables past due more than 120 days are considered delinquent. Delinquent receivables are written off based on individual credit evaluation and specific circumstances of the customer.

Inventories

Inventories consist of safes and brackets. All inventories are valued at lower of average cost or market. The company periodically reviews inventories and items considered obsolete or outdated are reduced to their estimated net realizable value.

The components of inventory as of March 31, 2016 and December 31, 2015 are valued as follows:

	March 31, 2016		December 31, 2015
Safes	$	5,224	$	6,892
Brackets		44		44
Parts		2,200		2,200
Total Inventory	$	7,468	$	9,136

F- 5

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RX SAFES INC.

NOTES TO THE FINANCIAL STATEMENTS

March 31, 2016

(UNAUDITED)

Shipping and Handling Freight Fees and Costs

All amounts billed to a customer in a sales transaction related to shipping and handling represent revenues earned and are reported as revenue. The costs incurred by the Company for shipping and handling are reported as part of cost of goods sold.

Revenue recognition

Revenue is recognized when the four criteria for revenue recognition are met: (1) persuasive evidence of an arrangement exists; (2) shipment or delivery has occurred; (3) the price is fixed or determinable and (4) collectability is reasonably assured. The Company has recognized revenue associated with its mission as stated above in the nature of operations footnote. Sales to customers are recorded when the goods are shipped to the customer. Sales are reported net of allowances for estimated returns and allowances in the accompanying statements of income. Allowances for returns are estimated based on historical customer return rates. The Company has not had any product returns since inception. Customers pre-pay for orders though a website with their credit cards prior to the shipment of the goods, which takes place within a few days after the order is placed.

Advertising expense

The Company expenses advertising costs as incurred. Advertising expense charged to operating expenses was $489 and $2,763 for the three months ended March 31, 2016 and 2015, respectively.

Rent expense

The Company pays rent on a month-to-month basis. Rent expense charged to operating expenses was $1,975 and $2,131 for the three months ended March 31, 2016 and 2015, respectively.

Intangible assets

Intangible assets are stated at cost less accumulated amortization and are amortized over their expected life. Currently the Company owns a patent which it amortizes over its remaining life.

Research and development costs

Research and development costs, consisting primarily of expenditures paid to our manufacturing and development partner in China, are expensed as incurred. Research and development expense charged to operating expenses was $0 for the three months ended March 31, 2016 and 2015, respectively.

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RX SAFES INC.

NOTES TO THE FINANCIAL STATEMENTS

March 31, 2016

(UNAUDITED)

Fair value measurements

U.S. GAAP requires disclosing the fair value of financial instruments to the extent practicable for financial instruments which are recognized or unrecognized in the balance sheet. The fair value of the financial instruments disclosed herein is not necessarily representative of the amount that could be realized or settled, nor does the fair value amount consider the tax consequences of realization or settlement.

In assessing the fair value of financial instruments, the Company uses a variety of methods and assumptions, which are based on estimates of market conditions and risks existing at the time. For certain instruments, including cash and cash equivalents, accounts receivable, accounts payable, and accrued expenses, it was estimated that the carrying amount approximated fair value because of the short maturities of these instruments. All debt is based on current rates at which the Company could borrow funds with similar remaining maturities and approximates fair value.

GAAP establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use on unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The hierarchy is described below:

Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.

Level 2: Observable prices that are based on inputs not quoted on active markets, but corroborated by market data.

Level 3: Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs.

Determining which category an asset or liability falls within the hierarchy requires significant judgment. We evaluate our hierarchy disclosures each quarter

Recent Accounting Pronouncements

On May 1, 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606),” which is the new comprehensive revenue recognition standard that will supersede all existing revenue recognition guidance under GAAP. The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to a customer in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. This ASU is effective for annual and interim periods beginning on or after December 15, 2016, and early adoption is not permitted. Entities will have the option of using either a full retrospective approach or a modified approach to adopt the guidance in the ASU. The Company will continue to assess the impact on its financial statements.

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RX SAFES INC.

NOTES TO THE FINANCIAL STATEMENTS

March 31, 2016

(UNAUDITED)

In June 2014, the FASB issued ASU 2014-12, “Compensation - Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could be Achieved after the Requisite Service Period.” This ASU provides more explicit guidance for treating share-based payment awards that require a specific performance target that affects vesting and that could be achieved after the requisite service period as a performance condition. The new guidance is effective for annual and interim reporting periods beginning after December 15, 2015. The Company does not expect the adoption of this guidance to have a material impact on the financial statements.

On June 10, 2014, the Financial Accounting Standards Board (“FASB”) issued update ASU 2014-10, Development Stage Entities (Topic 915). Amongst other things, the amendments in this update removed the definition of development stage entity from Topic 915, thereby removing the distinction between development stage entities and other reporting entities from US GAAP. In addition, the amendments eliminate the requirements for development stage entities to (1) present inception-to-date information on the statements of income, cash flows and shareholder’s equity, (2) label the financial statements as those of a development stage entity; (3) disclose a description of the development stage activities in which the entity is engaged and (4) disclose in the first year in which the entity is no longer a development stage entity that in prior years it had been in the development stage. The amendments are effective for annual reporting periods beginning after December 31, 2014 and interim reporting periods beginning after December 15, 2015, however entities are permitted to early adopt for any annual or interim reporting period for which the financial statements have yet to be issued. The Company has elected to early adopt these amendments and accordingly have not labeled the financial statements as those of a development stage entity and have not presented inception-to-date information on the respective financial statements.

In August 2014, the FASB issued ASU 2014-15, “Presentation of Financial Statements – Going Concern (Topic 205-40)”, which requires management to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern for each annual and interim reporting period. If substantial doubt exists, additional disclosure is required. This new standard will be effective for the Company for annual and interim periods beginning after December 15, 2016. Early adoption is permitted. The Company expects to adopt this new standard for the fiscal year ending December 31, 2016 and the Company will continue to assess the impact on its financial statements.

Income Taxes

The Company provides for income taxes under the provisions of Accounting Standards Codification (“ASC”) Topic No. 740, “Income Taxes”, which requires that an asset and liability based approach be used in accounting for income taxes. Deferred income tax assets and liabilities are recorded to reflect the tax consequences on future years of the temporary differences of revenue and expense items for financial statement and income tax purposes. Valuation allowances are provided against assets, which are not likely to be realized.

Stock-based Compensation

The Company adopted ASC 718, "Compensation - Stock Compensation" for stock-based compensation. ASC 718 requires that the fair value of the equity instruments (such as stock options) exchanged for services be recognized as an expense in the financial statements as the related services are performed

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RX SAFES INC.

NOTES TO THE FINANCIAL STATEMENTS

March 31, 2016

(UNAUDITED)

Earnings Per Share

Earnings per share ("EPS") has been calculated in accordance with ASC 260, “Earnings Per Share" which requires the presentation of both basic net income per share and net income per common share assuming dilution. Basic earnings per share are computed by dividing income available to common stockholders by the weighted average number of shares outstanding for the year. Diluted earnings per share reflects the potential dilution that could occur upon the exercise of common stock options resulting in the issuance of common stock to stockholders who would then share in the earnings of the Company. ASC 260 precludes the inclusion of any potential common shares in the computation of any diluted per-share amounts when such inclusion is anti-dilutive.

NOTE 3.

License Agreements

Included in the assets purchased from Axius Consulting Group, Inc. was a Patent & Licensing Rights Agreement with bioMETRX. The agreement grants the licensee a royalty based, ($.50 per unit) exclusive license under their Patent License to use, manufacture, have manufactured, license and/or sell licensed intellectual property for any legal purpose with North America within the health care and consumer health markets. The term of the agreement is from the effective date (March 1, 2009) to the full end of the term or terms for which Patent Rights have not expired or, if only Technology Rights are licensed and no Patent Rights are applicable, for a term of 9 years.

On November 11, 2015, the Company entered into a binding letter of intent to purchase all right, title and interest to patent number 7,806,852. The Company will pay to the seller 83,334 shares of the Company’s common stock. The Company shall pay the seller $1.5 per unit on sales of current product as well as $3.00 per unit on sales of new devices incorporating the patented encasement. If the Company sells a majority interest or there is a change in management from the original founders, the seller has the option to continue the royalty agreement or take a one-time $250,000 cash payout and waive future rights. On February 2, 2016 the Company entered into a definitive agreement with Philip Jurson MD and Steven F. Borsand. The agreement memorialized the terms set forth in the binding letter of intent executed on November 11, 2015 for the purchase of USPTO patent number 7,806,852

In the quarter ended March 31, 2016, the Company authorized the issuance of the shares and recorded the Patent as an Intangible Asset in the interim financial information.

On January 11, 2016, the Company entered into an intellectual property license agreement with Talon Brands, LLC. The agreement provides for the Company to license rights related to patent number 6,766,740 to Talon Brands allowing them to sell outlined products in return for a per unit license fee

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RX SAFES INC.

NOTES TO THE FINANCIAL STATEMENTS

March 31, 2016

(UNAUDITED)

NOTE 4.

Income Taxes

As of March 31, 2016, the Company has net operating loss carry forwards of approximately $31,480,000 that may be available to reduce future years’ taxable income in varying amounts through 2031. Future tax benefits which may arise as a result of these losses have not been recognized in these financial statements, as their realization is determined not likely to occur and accordingly, the Company has not recorded a valuation allowance for the deferred tax asset relating to these tax loss carry-forwards.

The Company reviews tax positions taken to determine if it is more likely than not that the position would be sustained upon examination resulting in an uncertain tax position. The Company did not have any material unrecognized tax benefit at March 31, 2016 and December 31, 2015, respectively. The Company recognizes interest accrued and penalties related to unrecognized tax benefits in tax expense. The Company recognized no interest and penalties during the three months ended March 31, 2016 and year ending December 31, 2015, respectively.

The Company files U.S. federal tax returns and a tax return in states where obligated. All tax periods since inception remain open to examination by the taxing jurisdictions to which the Company is subject.

NOTE 5.

Employment Agreements

The President of the Company, Ms. Lorraine Yarde, signed an employment contract effective January 1, 2015 which is effective until termination. The agreement stipulates a base salary of $175,000 plus an annual performance bonus targeted at fifty percent of salary. The agreement entitles Ms. Yarde to annual salary increases of ten percent as well as other customary employee benefits such as paid vacation and eligibility to participate in the Company’s health insurance plan or reimbursement of up to $1,000 per month until a company-health insurance plan is established. The agreement allows Ms. Yarde to convert any unpaid compensation to Company stock at a 50% discount to the then market price, in the form of unregistered securities.

On September 18, 2015, the employment contract was amended to re-price the exercise price on her 12,500 options from $0.25 to $0.001 per share resulting in additional estimated fair value of the stock options of $564,975 recognized as compensation expense (calculated using the Black Scholes option pricing model). In addition, the calculation of the exercise price which was exercisable at 50% of the trading price of the common shares was amended to apply the 50% discount to the lowest trading price of the Company’s common stock as reported on the OTCQB for the ten prior trading days including the day upon which a notice of conversion is received by the Company. Amendment for the ten day period resulted in an increase in the fair value of the options from, $.23 to $.25 applied per exercisable share.

On September 21, 2015 Ms. Yarde converted $87,500 of the unpaid compensation into 265,152 shares of the company stock.

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RX SAFES INC.

NOTES TO THE FINANCIAL STATEMENTS

March 31, 2016

(UNAUDITED)

As of March 31, 2016 unpaid compensation under the agreement totaled $140,000.

Upon the signing of the agreement Ms. Yarde was granted employee stock options to purchase 50,000 shares of the Company’s Common Stock with vesting period and strike price as follows:

(i) 25,000 shares vested immediately with a strike price of $10.00 per share.

(ii) 12,500 shares vest on July 1, 2015 with a strike price of $10.00 per share

(iii) 7,500 shares vest on January 1, 2016 with a strike price of $20.00 per share

(iv) 5,000 shares vest on January 1, 2017 with a strike price of $50.00 per share

On February 1, 2016, the Company and Ms. Yarde entered into an amendment to the employment agreement to increase her salary from $175,000 to $200,000 to be retroactive and amend the strike price on her options to $0.001. In addition, the Board of Directors awarded her a 30% performance bonus for her services.

The amendment of the strike price of the options was treated as a modification of an award according to ASC 718-20-35 and the incremental fair value of the award costs of $12,215 was recorded as compensation expense in the Statement of Operations for the three months ended March 31, 2016 .

On February 1, 2016 the Company executed an employment agreement with Mark Basile a Director of the Company. The employment calls for a base salary of $175,000 per annum. He is also entitled to a performance bonus of 25% of his base salary. In addition the Company will immediately grant to employee an option to purchase 50,000 shares of the Company’s common stock with a vesting and strike price as follows:

(i) 25,000 shares vested immediately with a strike price of $0.001 per share.

(ii) 12,500 shares vest on the six month anniversary of the agreement if employee is still employed to the Company with a strike price of $0.001 per share

(iii) 7,500 shares vest on the first anniversary of the agreement if employee is still employed to the Company with a strike price of $0.001 per share

(iv) 5,000 shares vest on second anniversary of the agreement if employee is still employed to the Company with a strike price of $0.001 per share

On February 1, 2016 the Company executed an employment agreement with William Koch a Director of the Company. The employment calls for a base salary of $150,000 per annum. He is also entitled to a performance bonus of 25% of his base salary. In addition the Company will immediately grant to employee an option to purchase 25,000 shares of the Company’s common stock with a vesting and strike price as follows:

(i) 12,500 shares vested immediately with a strike price of $0.001 per share.

(ii) 6,250 shares vest on the six month anniversary of the agreement if employee is still employed to the Company with a strike price of $0.001 per share

(iii) 3,750 shares vest on the first anniversary of the agreement if employee is still employed to the Company with a strike price of $0.001 per share

(iv) 2,500 shares vest on second anniversary of the agreement if employee is still employed to the Company with a strike price of $0.001 per share

On February 1, 2016 the Company executed an employment agreement with Faruk Ocetin a Director of the Company. The employment calls for a base salary of $125,000 per annum. He is also entitled to a performance bonus of 10% of his base salary. In addition the Company will immediately grant to employee an option to purchase 10,000 shares of the Company’s common stock with a vesting and strike price as follows:

(i) 2,500 shares vested immediately with a strike price of $0.001 per share.

(ii) 2,500 shares vest on the six month anniversary of the agreement if employee is still employed to the Company with a strike price of $0.001 per share

(iii) 2,500 shares vest on the first anniversary of the agreement if employee is still employed to the Company with a strike price of $0.001 per share

(iv) 2,500 shares vest on second anniversary of the agreement if employee is still employed to the Company with a strike price of $0.001 per share

The estimated fair market value of the options granted to the Directors was calculated using the Black Scholes Model amounted to $192,906 of which $113,941 was charged to compensation expenses for the three months ended March 31, 2016.

NOTE 6.

Stock options and warrants

A summary of stock option and warrant activity as of March 31, 2016 is as follows:

Description	Stock Options	Warrants
Outstanding at January 1, 2015	50,000	41,250
Issued January 1, 2015	12,500
Issued January 1, 2015	12,500
Cancelled March 3, 2015	—	(41,250
Issued May 20, 2015	12,500	—
Issued May 28, 2015	—	500
Issued May 28, 2015	—	500
Issued June 2, 2015	—	500
Issued June 2, 2015	—	1,250
Issued June 22, 2015	12,500	—
Issued September 18, 2015	12,500	—
Issued February 1,2016	85,000	—
Outstanding at March 31, 2016	197,500	2,750

Employee stock options totaling 50,000 shares granted to Ms. Yarde on January 1, 2015, and as amended on February 1, 2016, can be exercised at any time, up to and including 24 months after expiration or termination of the agreement. The estimated fair value of the options at February 1, 2016 was $113,465, (calculated using the Black-Scholes option pricing model and the following assumptions: (i) $.001 (adjusted for one for two hundred reverse split,) share price, respectively, exercise price, (iii) term of 3 years (iv) 268% expected volatility, respectively, and (v) 0.81%, risk free interest rate, respectively) will be expensed over the two year vesting period of the options.

Stock options totaling 62,500 were granted during the year of 2015 under the Director Compensation Plan effective January 1, 2015 to five directors in the amounts of 12,500 options to each. The estimated fair value totaled $1,347,926.

On February 1, 2016 stock options totaling 85,000 were granted to certain Directors under the Stock Option Plan. The estimated fair value of the options calculated using the Black Scholes option pricing model at an exercise price of $0.001 with expiration date of up to 2 years totaled $192,906.

Compensation expenses for the three months ended March 31, 2016 totaled $126,320. Total unrecognized cost as of March 31, 2016 amounted to $14,040.

On March 18, 2016, the Company’s board of directors amended the Rx Safes, Inc. 2015 Incentive Plan to increase the shares reserved under the Plan from 250,000 to 2,500,000 shares. There were no other amendments made to the Plan.

NOTE 7.

Equity

Common Stock.

Stock Split

On August 22, 2012 the Company amended its Articles of Incorporation to split its outstanding shares of the company’s common stock at a ratio of 5-for-1. The par value of the common stock was decreased to $.001 and increased the number of authorized shares to issue to 250,000,000. The accompanying financial statements have been adjusted to retroactively reflect the stock split.

Effective August 7, 2015, the aggregate number of shares which the Company shall have authority to issue is five hundred and fifty million (550,000,000) shares, consisting of two classes to be designated, respectively, "Common Stock" and "Preferred Stock," with all of such shares having a par value of $.001 per share. The total number of shares of Common Stock that the Corporation shall have authority to issue is five hundred million (500,000,000) shares. The total number of shares of Preferred Stock that the Corporation shall have authority to issue is fifty million (50,000,000) shares.

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RX SAFES INC.

NOTES TO THE FINANCIAL STATEMENTS

March 31, 2016

(UNAUDITED)

Reverse stock split

On September 28, 2015 the Company authorized a one for two hundred reverse split of the Company’s common stock issued and outstanding. Following this stock split the number of outstanding shares of the Company’s common stock decreased from 263,320,562 to 1,316,603. The accompanying financial statements have been adjusted to retroactively reflect the stock split.

On March 21, 2016, the Company filed a registration statement under Form S-8 to register 2,387,500 shares of common stock, which represents all reserved shares under the Plan not otherwise underlying prior outstanding options.

Preferred Stock.

The company is authorized to issue a second class of 50,000,000 preferred shares. In May 2015, the Company initiated a private offering of units consisting of 240,000 shares of its newly created Series A Preferred Stock and a warrant to purchase our common stock, for $2.50 per unit. The Company sold 22,000 units, consisting of 22,000 shares of our Series A Preferred Stock and warrants to purchase 550,000 shares of our common stock at $.01 per share for total proceeds of $55,000. As of March 31, 2016 all series A shares were converted to common.

Effective September 18, 2015, the Company created, out of the fifty million (50,000,000) shares of preferred stock, par value $0.001 per share, a series of preferred stock consisting of two thousand (2,000) shares and to be called “Series B Preferred Stock.” Each Series B stock is convertible into 100,000 common shares. On September 23, 2015 the company issued all 2,000 shares of Series B stock for compensation of $.001 per share.

On February 1, 2016 100 shares of the Series B preferred stock were converted into 10,000,000 shares of common stock. The compensation expense associated with the conversion is $22,700,000 .

NOTE 8.

Agreements

On January 4, 2016 the Company entered into a website and marketing agreement with IR3Point0 LLC. As compensation for the agreement IR3 will receive $1,000 per month of the contract as well as 2,000 shares of restricted stock.

On January 20, 2016 the Company entered into a consulting agreement with The Ruth Group. The consultant will provide strategic investor relations. As compensation the consultant will be paid a $5,000 per month retainer for the first 3 months and $10,000 per month after.

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RX SAFES INC.

NOTES TO THE FINANCIAL STATEMENTS

March 31, 2016

(UNAUDITED)

On February 2, 2016 the Company entered into a definitive agreement with Philip Jurson MD and Steven F. Borsand. The agreement memorialized the terms set forth in the binding letter of intent executed on November 11, 2015 for the purchase of USPTO patent number 7,806,852.

On February 5, 2016 the Company entered into a non-exclusive investment banking agreement with Ascendiant Capital Markets, LLC. As part of the agreement Ascendiant is compensated on a performance basis to advise the Company with respect to the form and structure of capital transactions, to assist the Company in developing any necessary materials, to identify and make contact with prospective Investors, assist with the successful placement of a Transaction, assist the Company in conducting presentations and due diligence meetings with prospective Investors and provide such other financial advisory and investment banking services as are reasonably necessary to consummate each Transaction. This agreement was a temporary and transitional agreement until the company secured an exclusive investment banker that can provide multiple levels of funding to the company.

NOTE 9.

Fair Value Measurements and Derivative Liability

The Company evaluates all of it financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported as charges or credits to income. For option-based derivative financial instruments, the Company uses the Black-Scholes option-pricing model to value the derivative instruments at inception and subsequent valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period.

Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date.

On May 29, 2015, the Company entered into an agreement with LG Capital Funding to invest $26,500 into the Company in exchange for the issuance of a convertible promissory note. The note bears interest at the rate of 8%. All outstanding interest and principle is due and payable May 29, 2016. The note is convertible by LG into shares of the Company’s common stock at any time on or after the Issuance Date. The conversion price for each share is equal to 65% multiplied by the lowest trading price of the Common Stock on the OTC Market for the 20 prior trading days. This note was purchased by Kodiak Capital and converted into common stock in December 2015 and January 2016. On January 4, 2016 Kodiak Capital Group converted $11,832 of the principal and interest of LG Capital’s convertible promissory note into 22,754 shares of our common stock. The Company has commenced legal action as the company views the assignment to Kodiak Company as fraudulent. The outcome of the action is unknown as of the date of this report.

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RX SAFES INC.

NOTES TO THE FINANCIAL STATEMENTS

March 31, 2016

(UNAUDITED)

On June 16, 2015, the Company entered into an agreement with Auctus Fund LLC to invest $76,750 into the Company in exchange for the issuance of a convertible promissory note. The note bears interest at the rate of 8%. All outstanding interest and principle is due and payable March 16, 2016. The note is convertible by Auctus into shares of the Company’s common stock at any time on or after the Issuance Date. The conversion price for each share is equal to 65% multiplied by the lowest trading price of the Common Stock on the OTC Market for the 20 prior trading days. On December 9, 2015, the note was extended to January 31, 2016. The company paid a penalty of $42,138 for the extension. On January 19, 2016 Auctus Fund LLC converted $13,260 of the principal on its convertible promissory note into a total of 20,000 shares of our common stock, subject to the terms of a leak-out agreement. On February 12, 2016 Auctus Fund LLC converted $13,000 of the principal on its convertible promissory note into a total of 25,000 shares of our common stock, subject to the terms of a leak-out agreement. On March 10, 2016 Auctus Fund LLC converted $50,996 of the principal and interest on its convertible promissory note into a total of 97,991 shares of our common stock, subject to the terms of a leak-out agreement.

On October 6, 2015, the Company entered into an agreement with Auctus Fund LLC to invest $55,250 into the Company in exchange for the issuance of a convertible promissory note. The note bears interest at the rate of 8%. All outstanding interest and principle is due and payable July 6, 2016. The note is convertible by Auctus into shares of the Company’s common stock at any time on or after the Issuance Date. The conversion price for each share is equal to 65% multiplied by the lowest trading price of the Common Stock on the OTC Market for the 20 prior trading days. The Company has the option to repay this note up to 180 days after issuance. On March 31, 2016 the note was bought by EMA Financial LLC for $55,250 plus accrued interest of $2119.18.

On October 6, 2015, the Company issued 1,250 shares of common shares to Auctus Private Equity Fund, LLC in connection a Securities Purchase Agreement.

On October 7, 2015, the Company entered into an agreement Kodiak Capital Group to invest $50,000 into the Company in exchange for the issuance of a $60,000 convertible promissory note which includes OID of $10,000. The note bears interest at the rate of 8%. All outstanding interest and principle is due and payable October 7, 2016. The note is convertible by Kodiak into shares of the Company’s common stock at any time on or after the Issuance Date. The conversion price for each share is equal to 65% multiplied by the average of the three lowest trading prices of the Common Stock on the OTC Market for the 10 prior trading days. The Company has the option to repay this note up to 180 days after issuance.

On October 7, 2015 the Company entered into an Equity Purchase Agreement and Registration Rights Agreement with Kodiak Capital Group to purchase $1,000,000 of the Company’s common stock. As of December 31, 2015 this agreement has been terminated.

On October 26, 2015, the Company entered into an agreement with Adar Bays, LLC to invest a total of $54,000 into the Company in exchange for the issuance of 2 convertible promissory notes, each $27,000. The first $27,000 note is a front end note and was purchased by Adar Bays, LLC on October 28, 2015. The second $27,000 note is a back end note and will be funded in month 8 following the date of the agreement. The Company has the option to cancel the back end note and any obligation thereof by giving 30 days written notice of cancellation no later than the 5 ^th month anniversary of the issuance of the front end note. The notes bear interest at the rate of 8%. All outstanding interest and principle is due and payable October 26, 2017. The note is convertible by Adar Bays into shares of the Company’s common stock at any time on or after the Issuance Date. The conversion price for each share is equal to 65% multiplied by average of the three lowest trading prices of the Common Stock on the OTC Market for the 10 prior trading days. The Company has the option to prepay this note up to 180 days after issuance.

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RX SAFES INC.

NOTES TO THE FINANCIAL STATEMENTS

March 31, 2016

(UNAUDITED)

On November 11, 2015, the Company entered into an agreement EMA Financial LLC to invest $50,000 into the Company in exchange for the issuance of a $50,000 convertible promissory note. The note bears interest at the rate of 8%. All outstanding interest and principle is due and payable November 11, 2016. The note is convertible by EMA Financial into shares of the Company’s common stock at any time on or after the Issuance Date. The conversion price for each share is equal to 65% multiplied by the lowest trading price of the Common Stock on the OTC Market for the 20 prior trading days. The Company has the option to repay this note up to 180 days after issuance.

On December 9, 2015, the Company entered into an agreement JMJ Financial to invest $25,000 into the Company in exchange for the issuance of a $27,500 convertible promissory note and includes OID of $2,500. The note bears interest at the rate of 12%, but is interest free if repaid within 90 days. All outstanding interest and principle is due and payable December 9, 2017. The note is convertible by JMJ into shares of the Company’s common stock at any time on or after the Issuance Date. The conversion price for each share is equal to 65% multiplied by the average of the three lowest trading prices of the Common Stock on the OTC Market for the 25 prior trading days. On March 4, 2016 the Company repaid the balance outstanding on the convertible note to JMJ of $27,788 including the OID and accrued interest.

On December 16, 2015, the Company entered into an agreement Auctus Fund LLC to invest $110,000 into the Company in exchange for the issuance of a convertible promissory note. The note bears interest at the rate of 8%. All outstanding interest and principle is due and payable December 16, 2016. The note is convertible by Auctus into shares of the Company’s common stock at any time on or after the Issuance Date. The conversion price for each share is equal to 65% multiplied by the lowest trading price of the Common Stock on the OTC Market for the 20 prior trading days.

On January 12, 2016, the Company entered into an agreement Crown Bridge Partners LLC to invest $36,000 into the Company in exchange for the issuance of a $40,000 convertible promissory note. The note bears interest at the rate of 8%. All outstanding interest and principle is due and payable January 12, 2017. Unpaid balance bears an interest at the rate of 22%. The note is convertible by Crown Bridge Partners into shares of the Company’s common stock at any time on or after the Issuance Date. The conversion price for each share is equal to 65% of the lowest trading prices of the Common Stock on the OTC Market for the 20 prior trading days. The Company has the option to repay this note up to 180 days after issuance.

On January 20, 2016, the Company entered into an agreement Yoshar Trading LLC to invest $30,000 into the Company in exchange for the issuance of a $31,100 convertible promissory note. The note bears interest at the rate of 8%. All outstanding interest and principle is due and payable January 20, 2017. The note is convertible by Yoshar into shares of the Company’s common stock at any time on or after the Issuance Date. The conversion price for each share is equal to 65% of the lowest trading prices of the Common Stock on the OTC Market for the 20 prior trading days. The Company has the option to repay this note up to 180 days after issuance.

On January 22, 2016, the Company entered into an agreement Auctus Fund LLC to invest $77,750 into the Company in exchange for the issuance of a convertible promissory note. The note bears interest at the rate of 8%. All outstanding interest and principle is due and payable October 22, 2016. The note is convertible by Auctus into shares of the Company’s common stock at any time on or after the Issuance Date. The conversion price for each share is equal to 70% multiplied by the lowest trading price of the Common Stock on the OTC Market for the 20 prior trading days.

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RX SAFES INC.

NOTES TO THE FINANCIAL STATEMENTS

March 31, 2016

(UNAUDITED)

On February 28, 2016, the Company entered into an agreement with APG Capital Holdings, LLC to invest a total of $63,000 into the Company in exchange for the issuance of 2 convertible promissory notes, each $31,500. The first $31,500 note is a front end note and was purchased by APG Capital Holdings, LLC on February 28, 2016. The second $31,500 note is a back end note and will be funded no later than October 29, 2016. The Company has the option to cancel the back end note and any obligation thereof by giving 30 days written notice of cancellation no later than the 5 ^th month anniversary of the issuance of the front end note. The notes bear interest at the rate of 8%. All outstanding interest and principle on the front end note is due and payable February 28, 2017. The note is convertible by APG Capital Holdings, LLC into shares of the Company’s common stock at any time on or after the Issuance Date. The conversion price for each share is equal to 65% multiplied by average of the lowest trading price of the Common Stock on the OTC Market for the 20 prior trading days. The Company has the option to prepay this note up to 180 days after issuance

On February 29, 2016, the Company entered into an agreement Auctus Fund LLC to invest $77,750 into the Company in exchange for the issuance of a convertible promissory note. The note bears interest at the rate of 8%. All outstanding interest and principle is due and payable November 29, 2016. The note is convertible by Auctus into shares of the Company’s common stock at any time on or after the Issuance Date. The conversion price for each share is equal to 70% multiplied by the lowest trading price of the Common Stock on the OTC Market for the 20 prior trading days.

On March 15, 2016, the Company entered into an agreement Crown Bridge Partners LLC to invest $36,000 into the Company in exchange for the issuance of a $40,000 convertible promissory note. The note bears interest at the rate of 8%. All outstanding interest and principle is due and payable March 15, 2017. Unpaid balance bears an interest at the rate of 22%. The note is convertible by Crown Bridge Partners into shares of the Company’s common stock at any time on or after the Issuance Date. The conversion price for each share is equal to 65% of the lowest trading prices of the Common Stock on the OTC Market for the 20 prior trading days. The Company has the option to repay this note up to 180 days after issuance.

On March 29, 2016, the Company entered into an agreement Auctus Fund LLC to invest $108,000 into the Company in exchange for the issuance of a convertible promissory note. The note bears interest at the rate of 8%. All outstanding interest and principle is due and payable December 29, 2016. The note is convertible by Auctus into shares of the Company’s common stock at any time on or after the Issuance Date. The conversion price for each share is equal to 70% multiplied by the lowest trading price of the Common Stock on the OTC Market for the 20 prior trading days.

On March 31, 2016, the Company entered into an agreement EMA Financial LLC to invest $50,000 into the Company in exchange for the issuance of a $50,000 convertible promissory note. The note bears interest at the rate of 8%. All outstanding interest and principle is due and payable March 28, 2017. The note is convertible by EMA Financial into shares of the Company’s common stock at any time on or after the Issuance Date. The conversion price for each share is equal to 65% multiplied by the lowest trading price of the Common Stock on the OTC Market for the 20 prior trading days. The Company has the option to repay this note up to 180 days after issuance

On March 31, 2016 EMA Financial, LLC entered a debt purchase agreement with Auctus Fund LLC to purchase the note dated October 6, 2015 for the amount of $55,250 principal and $2,119.18 of accrued interest. Conversion of this note is subject to a leak-out agreement executed the same date.

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RX SAFES INC.

NOTES TO THE FINANCIAL STATEMENTS

March 31, 2016

(UNAUDITED)

The company identified embedded derivatives related to the EMA, LG Capital, and Auctus Fund LLC, Kodiak, Yoshar, Adar, APG Convertible Promissory Notes. These embedded derivatives included certain conversion features. The accounting treatment of derivative financial instruments requires that the company record the fair value of the derivatives as of the inception date of the Convertible Promissory Note and to adjust the fair value as of each subsequent balance sheet date. Under ASC-815, the conversion options embedded in the notes payable described in Note 8 require derivate liability classification because they do not contain an explicit limit to the number of shares that could be issued upon settlement.

As defined in FASB ASC 820, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Company utilized the market data of similar entities in its industry or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable. The Company classifies fair value balances based on the observability of those inputs. FASB ASC 820 establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurement) and the lowest priority to unobservable inputs (level 3 measurement).

The three levels of the fair value hierarchy are as follows:

Level 1 – Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis. Level 1 primarily consists of financial instruments such as exchange-traded derivatives, marketable securities and listed equities.

Level 2 - Pricing inputs are other than quoted prices in active markets included in level 1, which are either directly or indirectly observable as of the reported date.

Level 3 - Pricing inputs include significant inputs that are generally less observable from objective sources. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value.

Derivative liability — the Company’s derivative liability is classified within Level 3 of the fair value hierarchy.

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RX SAFES INC.

NOTES TO THE FINANCIAL STATEMENTS

March 31, 2016

(UNAUDITED)

The following table sets forth by level within the fair value hierarchy the Company’s financial assets and liabilities that were accounted for at fair value as at March 31, 2016 and December 31, 2015.

Recurring Fair Value Measurements	Level 1		Level 2		Level 3			Total

Liabilities:
Derivative liability – March 31, 2016	$	—	$	—	$	1,223,319		$	1,222,319

Derivative Liability – December 31,2015	$	—	$	—	$		$1,428,075	$	1,428,075

At March 31, 2016, convertible notes payable consisted of:

Date of Note	Noteholder	Interest Rate	Maturity date	Face Value			OID	Proceeds	Unamortized Debt Discount	Net Carrying Amount
3/16/2016	EMA	8%	7/16/2016	55,250	(a)			55,250	19,559	35,691
10/7/2015	Kodiak	8%	10/7/2016	60,000	(b)		10,000	50,000	25,956	34,044
11/11/2015	EMA	8%	11/11/2016	50,000	(a)			50,000	30,738	19,262
12/16/2015	Auctus	8%	9/16/2016	110,000	(a)			110,000	67,600	42,400
10/26/2015	Adar Bays	8%	10/26/2017	27,000	(d)			27,000	21,201	2,438
1/20/2016	Yoshar	8%	1/20/2017	31,500	(a)		1,500	30,000	24,180	7,320
1/12/2016	Crownbridge	8%	1/12/2017	40,000	(a)		4,000	36000	28,230	11,770
1/22/2016	Auctus	8%	10/22/16	77,750	(c)			77,750	58,171	19,579
2/29/2016	Auctus	8%	11/29/2016	77,750	(c)			77,750	68,954	8,796
2/29/2016	APG Securities	8%	2/28/2017	31,500	(a)		1,500	30,000	27,452	4,048
3/15/2016	Crownbridge	8%	3/15/2017	40,000	(a)		4,000	36,000	34,422	1,578
3/28/2016	Auctus	8%	12/30/2016	108,000	(c)			108,000	107,607	393
3/29/2016	EMA	8%	3/28/2017	52,500	(a)			52,500	52,068	432
Totals				761,250		$	21,000	740,250	566,138	195,112

(a) Convertible in shares of common stock 65% of the lowest closing for the twenty days trading immediately preceding the date of conversion.

(b) Convertible in shares of common stock 65% of the lowest closing for the ten days trading immediately preceding the date of conversion.

(c) Convertible in shares of common stock 70% of the lowest closing for the twenty days trading immediately preceding the date of conversion.

(d) Convertible in shares of common stock 65% multiplied by the average of the 3 lowest closing trading prices ten days prior to conversion.

NOTE 10.

Development and Marketing Agreement

On July 30, 2015 the Company entered into a co-operative developing and marketing agreement with Patient Safety Devices (PSD). The agreement relates to co-development, co-marketing and sales of a biometric patient controlled analgesia device. The Company will be responsible for the engineering and prototyping testing and manufacturing of the product as well as contributing its patent license for the use of the biometrics. PSD is responsible for contributing the design specifications and functionality of the product and shall also contribute previously developed intellectual property, assets and relationships. PSD will assign the rights of intellectual property and assets formerly owned by Redesign Company LLC. The Company will be solely responsible for the final sale of the product. The Company will pay PSD a commission of 10% of net sales. The initial term of the agreement is five years, and shall be automatically renewed for successive periods of one year.

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RX SAFES INC.

NOTES TO THE FINANCIAL STATEMENTS

March 31, 2016

(UNAUDITED)

NOTE 11.

Intangible Asset

Intangible asset consists of the following:

March 31, 2016

Patent (subject to amortization) $ 100,000

Less accumulated amortization $ 1,667

Intangible Asset, net of accumulated amortization $ 98,333

Effective February 2, 2016 the Company recorded the purchase of a patent valued at $100,000. The patent had already been in existence for approximately ten years and was assigned to the Company in exchange for stock valued at $100,000. Amortization is calculated over the remaining ten year life of the patent estimated at 20 years.

NOTE 12.

Going Concern

The accompanying financial statements have been prepared in conformity with U.S. GAAP, which contemplate continuation of the Company as a going concern. However, the Company had minimal revenues for the three months ended March 31, 2016 and 2015. The Company currently has limited working capital, and has not completed its efforts to establish a stabilized source of revenues sufficient to cover operating costs over an extended period of time.

Management anticipates that the Company will be dependent, for the near future, on additional investment capital to fund operating expenses. The Company intends to position itself so that it may be able to raise additional funds through the capital markets. In light of management’s efforts, there are no assurances that the Company will be successful in this or any of its endeavors or become financially viable and continue as a going concern

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RX SAFES INC.

NOTES TO THE FINANCIAL STATEMENTS

March 31, 2016

(UNAUDITED)

NOTE 13.

Legal Proceedings

On March 5, 2015 Wall Street Buy Sell Hold filed a lawsuit against the Company in New York alleging breach of a consulting agreement between the parties. On March 10, 2015 the company filed a lawsuit against Wall Street Buy Hold Sell. The suit claims WSBHS engaged in fraud as well as deceptive practices. The case is still in the motion phase. The case the Company filed in Nevada against WSBSH has been staid, pending a decision on a jurisdiction motion we filed in the New York case. The Company has been asked by the judge to try to come to a settlement on the case in New York and has been negotiating back and forth with their attorneys to reach a mutually acceptable settlement.

On February 12, 2016 the company filed a lawsuit in New York against Kodiak Capital Group LLC, Ryan Hodson, BMA Securities, as well as Island Capital Management LLC. Kodiak fraudulently purchased the companies existing convertible note from LG capital. Kodiak then began converting the note into common stock. The suit claims that Ryan Hodson, the principal of Kodiak Capital, engaged in a scheme to defraud the company. Additionally, the suit claims Hodson and BMA Securities engaged in market manipulation causing damage to the company. Island Capital is accused of a breach of fiduciary responsibility, by issuing Kodiak the shares of stock. On May , 2016 a Notice of Dismissal was filed for the New York case and on 2016 May 5, 2016 the company filed a lawsuit against all Kodiak Capital Group et al in the District of California, asserting all of the same allegations as the previously filed New York case. The company re-filed the action in Federal Court in California to include a new state based fraud claim against the defendants that are California residents.

NOTE 14.

Subsequent Events

On April 18, 2016 the company entered into a purchase agreement with U.S. Home Builders Consultants, Inc. The agreement is to purchase up to 5,000 Rx DrugSAFE units over a two year period.

On April 8, 2016 EMA Financial converted $10,010 of convertible note to 15,400 shares of common stock.

On April 26, 2016 EMA Financial converted $10,400 of convertible note into 16,000 shares of common stock.

On April 22, 2016 the Company repaid the balance outstanding on, and retired the convertible note to Adar Bays LLC of $37,512 including the accrued interest.

On April 24, 2016 the Company engaged Mary Ellen Renna to be a spokesperson for the company. The agreement will be in effect for a period of two years, ending April 24, 2018 unless terminated early. Compensation is in the form of 100,000 shares of common stock. 50,000 shares will be issued upon execution of the agreement and 50,000 will be issued April 24, 2017.

On May 6, 2016 Auctus Fund LLC entered a debt purchase agreement with EMA Financial to purchase the note dated November 15, 2015 for the amount of $50,000 principal and $1,940 of accrued interest. Conversion of this note is subject to a leak-out agreement executed the same date

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RX SAFES INC.

NOTES TO THE FINANCIAL STATEMENTS

March 31, 2016

(UNAUDITED)

On May 6, 2016 the Company entered into an agreement Auctus Fund LLC to invest $76,250 into the Company in exchange for the issuance of a convertible promissory note. The note bears interest at the rate of 8%. All outstanding interest and principle is due and payable February 6, 2017. The note is convertible by Auctus into shares of the Company’s common stock at any time on or after the Issuance Date. The conversion price for each share is equal to 70% of the lowest trading prices of the Common Stock on the OTC Market for the 20 prior trading days. The Company has the option to repay this note up to 180 days after issuance.

On May 10, 2016 the Company entered into a consulting agreement for social media services. The consultant will promote the Company through various social media outlets. The initial term of the agreement is for two months. As compensation, the consultant will receive 20,000 shares of company stock.

On May 12, 2016 the Company entered into three agreements with Wellington Shields and Co, LLC, the Company’s new investment banker.

In the first agreement, the Company engaged and retained Wellington Shields as its financial advisor as it relates to a private placement of up to $1,000,000, terminating at the close of business October 31, 2016. In consideration for the services rendered by Wellington Shields the Company agrees to pay a placement success fee equal to 10% of the gross proceeds and a warrant to purchase common shares of the Company equal to 4% of the amount of the placement at a purchase price equal to 110% of the implied price per share of the placement.

In the second agreement the Company engaged and retained Wellington Shields as a placement agent to Rx Safes, Inc as it relates to acquisition financing of up to $15,000,000, terminating at the close of business December 1, 2016. In consideration for the services rendered by Wellington Shields, the Company agrees to pay placement success fee equal to 8% of the gross proceeds of the placement, common shares equal to 3% of the outstanding shares of Rx Safes, Inc. post closing and a monthly accruing retainer of $10,000 per month, payable at the time of a financing at any amount of $5 million.

In the third agreement the Company engaged and retained Wellington Shields as its Exclusive Investment Banker for a twelve-month term as it relates to a Public Offering of up to $40,000,000 on a national exchange. In consideration for the services rendered by Wellington Shields the Company agrees to pay offering commission equal to 6% of the gross proceeds of the sale of the Company’s shares and offering warrants equal to 3% of the amounts raised at a purchase price equal to 110% of the implied price per share of the sale or 110% of the public market closing price of the Company’s common stock on the date of the sale, whichever is lower.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

Certain statements, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements.” These forward-looking statements generally are identified by the words “believes,” “project,” “expects,” “anticipates,” “estimates,” “intends,” “strategy,” “plan,” “may,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on our operations and future prospects on a consolidated basis include, but are not limited to: changes in economic conditions, legislative/regulatory changes, availability of capital, interest rates, competition, and generally accepted accounting principles. These risks and uncertainties should also be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements.

Company Overview

Rx Safes, Inc. was incorporated in 2010 in the State of Nevada. Our founders are pioneers in the fingerprint recognition market and have over 30 years combined experience designing, manufacturing and marketing fingerprint security products including garage door openers, front door locks, thermostats and mail boxes for companies such as Master Lock Corporation, Honeywell and The Overhead Door Company. They have developed marketing and sales programs through multiple distribution channels, including major retailers such as The Home Depot, Costco and Sears, and through development and distribution agreements with leading manufacturers such as Kwikset, in various targeted markets.

The founders saw an opportunity to apply their knowledge with the commercialization of this technology to provide solutions for healthcare applications with an initial focus on drug security. With expertise in fingerprint security, the company is taking a comprehensive approach to drug security providing a variety of secure fingerprint products and solutions for both the professional and consumer healthcare markets and we are positioning our company as a viable provider of efficient and cost effective, autonomous fingerprint medical security solutions for controlled substances. Our products and technology address the economic and social impacts of drug diversion, unauthorized access to medications, prescription drug abuse and poor medication adherence.

Our product roadmap incorporates comprehensive solutions to address all aspects of drug security including:

Secure medication storage products for use in home, in healthcare facilities and out in the field;

Secure data, medication adherence and monitoring products;

Secure drug delivery products;

Drug drop-boxes to dispose unused medication;

Integration of our products and technology via various communication protocols into enterprise Healthcare Information Systems (HIS); and

Rx Safes Fingerprint technology interface – to be licensed or integrated in to OEM products through co-development.

Our flagship product, the Rx DrugSAFE Fingerprint Medication Lockbox, is an example of the integration of our patent protected fingerprint technology into one of our own product offerings. The Rx DrugSAFE demonstrates how our fingerprint technology makes a product smarter and more secure to prevent accidental poisonings, drug theft and diversion within the home. We have recently taken steps to enhance our fingerprint interface and our current Rx DrugSAFE units offer a new, additional layer of security, by introducing an administrative function. This allows a homeowner, or a healthcare manager, to manage the enrollment of additional users who should have either permanent or temporary access to the safe’s contents.

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The same technology is now being applied within commercial healthcare environments, to offer facilities a secure and convenient means by which to control and monitor access to medications, addressing loss prevention and providing tighter security and controls overall for variety of healthcare applications, in turn lowering facility costs and reducing liability. We are also in the process of incorporating new technology features to work in conjunction with our fingerprint interface, which will allow our products and technology to become “smarter” and provide additional benefits to end users, providing feedback and functionality through interactive applications that will run on smart devices and computers.

Over the course of the next 12 months, we intend to incorporate the following additional technology and functionality into our patented biometric interface:

The introduction of new touch and swipe sensor options to suit the needs of a variety of consumers and commercial healthcare products and applications;

Bluetooth technology offering interoperability with multiple healthcare related applications on smart devices;

WIFI capability with cloud based integration, providing two-way communication between our technology/products and remote applications;

Improved audible feedback;

Medication adherence features;

Expanded administration to support commercial healthcare compliance; and

GPS tracking capabilities to provide location-based information on portable healthcare security products using our technology interface.

As we continue to enhance our fingerprint technology interface with additional features, we expect that same interface will eventually be incorporated into all of our current and future product offerings.

We have additional products at various stages of design and testing. We have been testing a larger version of the Rx DrugSAFE, the Rx DrugSAFE Pro, which is designed to serve both the consumer and professional healthcare markets. The RxDrugSAFE PRO has been designed to accommodate a greater number of prescription pill bottles of various sizes to support the needs of a variety of healthcare environments including assisted living facilities, nursing homes and emergency service vehicles. The Rx DrugSAFE IC is designed to be securely mounted inside of an existing medicine cabinet and we have 3D drawings of our original concept for this product. The RxDrugSAFE Mini is designed for daily use while at work or play, can fit easily into a pocketbook or jacket pocket, and comes with a 4 x daily pill tray system that allows medications to be pre-loaded each week. We have a proof of concept of this product and plan to move into the design and development phase, provided we raise adequate capital.

In advance of us going into production with our Rx DrugSAFE Pro product, we needed to address the need for larger fingerprint controlled safe products in various professional environments. To meet these needs we have established an exclusive relationship with a safe manufacturer in Guangdong, China who manufactures a large assortment of quality safe products. Their fingerprint safes could not be sold in the US as they would infringe on our Intellectual Property so we are providing distribution for them in this market. We have recently secured our first order for one of these such products from Manhattan Ogden school district in Kansas and expect to expand our presence within school districts and other professional environments with these new product offerings.

We continue to identify new product opportunities for the implementation and licensing of our technology for commercial healthcare applications. To this end, we acquired rights to intellectual property to support the development of our innovative, biometrically controlled personal patient dosing device that is universal and works with all existing PCA (Patient Controlled Analgesia) infusion pumps offered by Smiths Medical, Carefusion,Abbott Laboratories, Baxter and Hospira. The Rx SafeDOSE product is designed to prevent the administration of pain medications, such as morphine, by unauthorized family members, caregivers or clinicians, which can have serious and sometimes fatal effects on a patient.

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The company acquired patent number 7,806,852 – which covers the method and apparatus for patient-controlled medical therapeutics utilizing biometrics for patient controlled administration of pain medications, with a priority date in April 2006. This patent strengthens the company’s overall intellectual property portfolio and offers device specific protection for the Rx SafeDOSE product. The patent also includes claims that cover additional control features on the pendant, which will provide greater levels of safety for patients and allow Rx Safes the ability to lead the market for the secure patient administration of medications. The company believes that with the strength of the IP protection surrounding this product, along with our expertise in integrating biometrics into such products, the company will be able to leverage these aspects to establish relationships encompassing the regulatory approval and distribution of SafeDOSE with the leading OEM manufacturers in the PCA Infusion pump market. After receiving initial determination from the FDA that our Rx SafeDOSE product would require a “de-novo” application for 510K certification, the company determined that the best path to market would be to partner with OEMs (original equipment manufacturers), offering the SafeDOSE as a much needed improvement to their current patient controlled switches, which offer unsecure patient administration of IV pain medication via infusion pumps. We believe this model will significantly reduce the cost and time to market for the Rx SafeDOSE taking advantage of the OEM’s established distribution channels, brand recognition and their ability to expedite the FDA approval process for SafeDOSE as an improved accessory to their predicate devices. The Company has already begun dialog with some of these OEM manufactures and expects to have news about new partnerships for the Rx SafeDOSE product in subsequent filings.

The company is now offering a professional grade fingerprint padlock, the Rx FieldLOCK. The Rx FieldLOCK is a heavy duty steel forged fingerprint padlock that stores up to 64 unique users, 5 of which can be registered as administrators. Rx FieldLOCK also offers access via pin code to an additional 32 users as a back-up feature. Unlike traditional padlocks, there is no key required to unlock Rx FieldLOCK making access more secure, convenient and expeditious under high stress situations. Rx FieldLOCK has been primarily designed for use by EMS personnel, law enforcement, ambulance crews and fire departments to securely lock up a variety of cases used to transport medications and equipment in the field. We are taking steps to partner with GSA suppliers to have the Rx FieldLOCK included on the appropriate Federal Governments GSA schedule to facilitate streamlined purchase of the product by Government Agencies. The Rx FieldLOCK product can appeal to other large global industries and we have begun to establish relationships with distribution partners who can help offer this product in other markets.

The company has also recently launched a new product, the Rx SafeEHR, which is a HIPAA compliant, fingerprint-secured portable storage device that allows healthcare providers the ability to securely store and exchange patient health records with other medical professionals at the authority of the patient. The Rx SafeEHR also has application in various other markets and we have begun to explore opportunities in retail and other B2B markets outside of Healthcare.

The company is working on a number professional fingerprint storage solutions designed to provide a secure and convenient method to lock up prescription medications and other controlled substances for use by EMS workers, law enforcement, fire departments, ambulance companies and mobile health care workers while administering care in the field. These products consist of custom durable cases made by Pelican cases and will incorporate a customized fingerprint interface developed by Rx Safes to control access and to include audit tracking, scheduling and reporting capabilities. These products will include:

Rx DrugSAFE EMS – a customizable field EMS case with individual compartments to hold a variety of drugs, controlled substances and other field medical equipment and supplies.

Rx DrugSAFE MMS – customizable field mobile medical station with compartments for integrated medical monitoring equipment including vital signs monitoring, mobile printing, portable patient data tablet, and other necessary field medical equipment.

Rx DrugSAFE COOL – refrigerated, customizable bio-medical field transportation case for carrying blood, organs, and other bio-medical samples and/or drugs requiring refrigeration.

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In addition to the aforementioned products, our product roadmap over the next 24 months includes a variety of new products incorporating our proprietary fingerprint interface including:

Fingerprint OEM module incorporating bluetooth, wifi, RFID and other technology which can be integrated into existing legacy products to improve levels of security, tracking and reporting;

Fingerprint Tele-Medicine solution;

Biometric physical and electronic health records; and

Custom fingerprint technology solutions.

We have revamped and are implementing new sales initiatives in both the consumer and professional healthcare markets, but establishing a footprint in these markets takes time and money. To support our sales efforts, we have recently expanded our executive team with the addition of two individuals with extensive sales and marketing expertise. These individuals include: William V. Koch as Chief Sales and Marketing Officer and Faruk Okcetin as Vice President of Professional Sales. Mr. Koch and Mr. Okcetin have been hired to assist the company with its sales efforts into the consumer, professional healthcare and government markets. In addition, the company has hired the services of co-founder, Mark Basile, in the capacity of Chief Strategy Officer. Mr. Basile will help formulate new sales programs and initiatives to help drive sales. The company hopes to see initial results from the addition of these resources and implementation of new programs as early as the 2nd quarter 2016.

We are in the early stages of establishing a market for our current and future products and we recognize the importance of having a strong sales and marketing plan. We have begun to establish new distribution relationships with various businesses and individuals to introduce the Rx DrugSAFE, Rx FieldLOCK, Rx SafeEHR and our overall technology offerings to the market. Our target customers for these products include:

OEMs – Manufacturers of Medical Devices, Narcotics Safes etc.;

Hospitals and Health Systems;

Physicians

Group Homes, Nursing Facilities and Hospice;

Colleges Campuses;

Home Health Care Providers; and

Consumers with Children or Elderly Parents.

We are establishing a variety of channels to these customers through:

Strategic relationships with leading industry stakeholders;

OEM collaborations with brand named products and services companies;

E-commerce – direct from company website and through online medical distributors/resellers;

Private national and regional health insurers/Medicaid/Medicare;

Medical equipment and supply distributors;

Independent and retail chain pharmacies;

Federal, State and Local Government Agencies – utilizing public grant funds targeted to reduce prescription drug abuse;

Non-Profits and Community Coalitions Targeting prescription Drug Abuse;

Independent Sales Reps and sales teams;

Licensing our technology to key industry players;

Pharmaceutical Companies that produce schedule 2 – 5 controlled substances;

Medical and Dental Distributors; and

Doctors.

We are building a strong foundation of technology and IP in the professional healthcare market for our medical device products and plan to leverage existing relationships enjoyed by major medical device manufacturers, where our products and technology can offer a real value proposition by introducing new innovation into legacy OEM products. This approach is expected to reduce the overall cost and time to market and establishes credibility through the establishment of relationships with trusted brands in each respective market for our products.

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Our key focus is to sell and distribute our products and technology through the development of business relationships with strategic partners who have a stake in our industry and have existing channels to market, or an audience for our products both in the consumer and commercial healthcare space. In support of this strategy we recently launched the Rx Safes, Inc. DoctorDIRECT™ program at the American College of Physicians Conference in Washington, DC. The DoctorDIRECT™ program is a simple, no-cost sales program that targets more than 150,000 physicians nationwide, offering them financial incentives and supporting materials to help patients and their families safely store prescription medications in the home. Physicians play an important role in patient education and safety when prescribing medication, and by participating in the program each physician will receive materials including custom prescription/order pads, drug abuse educational materials, as well as accreditation as a “Prescription Safety Advocate” practice, demonstrated by a shield which may be displayed in their practice. The program is designed to extend the reach of the Rx DrugSAFE product offering into the physician’s offices and their patient’s homes. The Doctor Direct Program is Sunshine Act exempt, and is both REMS and ACO compliant. We have developed a dedicated page at our website where physicians can register for the program and request supporting materials and we have also re-established our direct e-commerce capabilities to take orders from patients at our site.

We continue to work with CVS, one of the largest national retail pharmacy chains, with more than 7,800 stores in North America and retail pharmacy sales exceeding $16.7 billion in 2014, to make the Rx DrugSAFE product available to it’s customers. CVS is committed to providing the necessary resources, products and education for its customers to help reduce instances of addiction, abuse and accidental poisonings. We initially launched a pilot program with CVS to help drive sales of the Rx DrugSAFE product online at CVS.com. The program has been launched in 2 key strategic geographic markets initially, with the hopes that the results will warrant a national rollout some time in 2016. We are now in discussions with them to expand this relationship to make the Rx DrugSAFE available inside their bricks and mortat stores in some key markets. We have begun discussions with other leading retail pharmacy chains, including Walgreens, to introduce the Rx DrugSAFE to their customers both in store and through their online distribution channels.

We recently entered into a non-exclusive license agreement with a padlock company to use our fingerprint technology in the development of fingerprint padlock products, to be branded under a different name. We are hopeful that our collaboration will result in a brand name for these products and a stream of revenue from a partner that wants to use our technology in applications separate and apart from our own designs and target markets.

We are also presently in discussions with a major academic establishment with a view to collaborating on research and development efforts to incorporate Rx Safes’ intellectual property with intellectual property developed by the establishment. This collaboration may include the co-development of a new product offering incorporating our patented fingerprint interface into a product concept developed by the facilities mechanical engineering group, which we expect will be commercialized by Rx Safes.

We have engaged with a leading provider of products into the educational market to provide the Rx DrugSAFE product for use in schools and college campuses. We are also working on a program with Fraternities and Sororities to introduce the Rx DrugSAFE through a grass roots effort on college campuses where prescription drug abuse has become a major issue.

We are working on a program for a major sports league brand where our products will be incorporated into a campaign sponsored by the entity to increase awareness on the dangers of prescription drugs and the importance of securing them in the home environment.

We have established relationships with a number of online medical device suppliers including MSEC, VSR Sales and Unbeatable Sales and we have just established the new Rx DrugSAFE online through Amazon.com.

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We are also working to identify and obtain private, local, state and government grant funds to purchase our products as part of an overall services and educational anti-drug campaign. We have had a successful test of this program with the Oklahoma Bureau of Narcotics that purchased 500 Rx DrugSAFES as part of a local state funded initiative to protect members of its elderly population from drug theft in their homes and in assisted living facilities. We have identified several new grants that could fit our community support model to help local community groups acquire Rx DrugSAFE’s as part of educational and services based programs to combat drug abuse in certain communities. We will provide more information publicly as we get closer to those grant filing deadlines. In addition, there has been in excess of 100 million dollars recently awarded recently by federal government agencies to specifically address the prescription drug abuse epidemic. The CDC recently granted 16 states a total of $20 million, to be used primarily to reduce the unauthorized availability of prescription opioids. Similarly, through the White House Office of Drug Control Policy under its Drug Free Communities Program, $86 million will fund 188 new Drug-Free Communities (DFC) grants, 486 continuation grants for coalitions already in a five-year cycle, 20 new DFC Mentoring (DFC-M) grants and 3 continuation DFC-M grants. These grants provide community coalitions needed support to prevent and reduce youth substance use and our Rx DrugSAFE product provides a real solution to address this. The company is committed to establishing a plan to secure some of these funds towards the purchase of Rx DrugSAFE units to distribute into the communities where it is needed the most.

We have taken steps to establish major distribution channels for our products and have begun to re-activate our relationships with McKesson and Cardinal Health, and expect to also establish distribution through Amerisource Bergen in the future. We plan to invest in the participation of their various marketing programs to provide exposure for our products within their channels of distribution, which are the national pharmacy chains as well as the many independently owned or franchised neighborhood pharmacies.

Our ultimate goal for our consumer-focused products is to make them widely attainable to the public through medical reimbursement by transforming these products from secure storage to secure medication adherence products. To this end, we have begun planning for the introduction of new features to our consumer focused secure storage products to not only provide a secure means of storage in the home environment and while traveling but also to provide assistance to patients in taking their medications as prescribed. Once we have these features available we will be pursuing FDA registration, and will set aside funds to pay the necessary product and facility registrations and and to navigate CMS. We have already begun to communicate with private health insurance companies to discuss how implementing the Rx DrugSAFE as part of a program for their members could help prevent the number of incidences of accidental ingestion or cases of addiction in our teenage population and ultimately reduce financial burden caused by these preventable occurrences. With both CMS and private payers we want the Rx DrugSAFE to be recognized as medical equipment and be offered through reimbursement for the majority of the purchase price through their plans so that their members will only have to pay a small co-payment to purchase the product.

We have entered into co-development, marketing and exclusive distribution agreements with Mika Medical covering the exclusive distribution of their needle free injections system into the North American market as well as for the integration of our fingerprint secured interface, with Mika’s product to create a new product which will be the world’s first fingerprint secured, needle free injector. The products are expected to be sold under the Rx Safes brand name, Rx MyDOSE. We plan to test the products, and promote, market and sell same in North America with plans to expand distribution globally. Any product that we improve with our technology shall be solely owned by Rx Safes and our agreements call for Mika to manufacture these products in Korea under contract based upon industry and corporate standards established by the company and any and all FDA standards including ISO 13485.

The company is engaged in discussions with several major pharmaceutical companies to package an FDA application for the MyDOSE product. The FDA requires that needle free injectors be packaged with a particular pharmaceutical formulary for certification, and we are initially targeting companies who offer liquid controlled substances such as morphine, where security and authentication is of the utmost importance, in line with our overall business model of utilizing our fingerprint technology to improve the security of products which store and dispense controlled substances. We will also plan on expanding these discussions to include pharmaceutical companies offering more widely used injectable medications, for example those used by diabetes patients.

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As part of the Company’s strategy to accomplish a listing to NASDAQ Capital Markets and to increase our opportunities to realize profitable growth and deliver shareholder value, we have been evaluating various synergistic acquisition targets. We have engaged in discussions with a number of private and public entities with complementary products and services, some of which have revenues and positive EBITDA. A number of the target companies have channels to market, which could create an opportunity for new market access to our products. We have also been looking at entities that would allow us to acquire skills and technologies needed to support our business more quickly or at lower cost than we could build in-house. We have not closed any transactions and we can provide no assurance that we will be able to find suitable candidates. We intend to continue to assess possible acquisition targets through the second quarter of 2016 and secure the services of an investment banker to assist us with raising acquisition capital and working with the Company to meet the NASDAQ Capital Markets listing requirements in conjunction with a public offering.

Results of Operations for the three and nine months ended March 31, 2016 and 2015

Revenues

Our total revenue reported for the three months ended March 31, 2016 was $3,063, a decrease from $49,920 for the same period ended 2015.

The revenues we had for the three months ended March 31, 2016 were predominantly from online sales of our Rx DrugSAFE product at CVS.com and Amazon.com. We hope to achieve increased revenues once we establish sales channels for our products and implement our business strategies as described above. If we are unable to obtain financing, however, the implementation of our business strategies will be frustrated and we could go out of business.

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Operating Expenses

Operating expenses increased to $23,226,390 for the three months ended March 31, 2016 from $1,479,641 for the three months ended March 31, 2015.

The main reason for the sharp increase in operating expenses was due to a compensation expenses of $22,826,319 associated with the conversion of shares of Series B Preferred Stock into 10,000,000 shares of common stock.

The detail by major category is reflected in the table below.

	Three Months Ended March 31
	2016		2015

Merchant Account Fees	$	449	$	225
Filing Fees		450		—
Advertising and Promotion		489		2,763
Automobile Expense		1,912		607
Bank Service Charges		532		138
Commissions		34,770		—
Consulting		15,650		—
Dues and Subscriptions		256		—
Meals and Entertainment		2,129		1,267
Marketing Expenses		14,530		2,806
Computer and Internet Expenses		350		358
Conference and Seminar		5,045		6,290
Business Licenses		433		223
Insurance		5,582		1,291
Office Supplies		705		677
Office Expense		347		82
Salaries		202,500		43,750
Compensation Expense		22,826,319		1,403,657
Postage		1,033		1,006
Financial Reporting Services		2,989		198
Professional Fees		81,735		7,886
Rent Expense		1,974		2,131
Telephone Expenses		2,018		1,264
Travel Expense		17,093		3,004
Samples		485		—
Payroll Taxes		4,622		—
Supplier Licenses		134		—
Website		192		—
Amortization		1,667		—
Total Operating Expense	$	23,226,390	$	1,479,641

We anticipate our operating expenses will increase as we undertake our plan of operations. The increase will be attributable to administrative and operating costs associated with our business activities and the professional fees associated with our reporting obligations under the Securities Exchange Act of 1934.

Other Income (Expenses)

We had other income of $145,998 for the three months ended March 31, 2016 from other expenses of $31,865 for the three months ended March 31, 2015. The other income in 2016 was the result of a gain on the reevaluation of derivative liabilities of $357,114. This was offset by interest expense of $211,116.

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Net Loss

We incurred a net loss of $23,078,996 for the three months ended March 31, 2016, compared to a net loss of $1,486,878 for the three months ended March 31, 2015.

Liquidity and Capital Resources

As of March 31, 2016, we had total current assets of $204,216 and total current liabilities of $1,742,679. We had a working capital deficit of $1,538,463 as of March 31, 2016.

Operating activities used $259,607 in cash for three months ended March 31, 2016, as compared with cash provided of $2,181 for the same period ended 2015. Our net loss of $ $23,078,996, offset mainly by the conversion of our Series B Preferred Stock to common stock of $22,826,318 was the main component of our negative operating cash flow.

Cash flows provided by financing activities during the three months ended March 31, 2016 amounted to $428,350, as compared with $59,726 for the same period ended 2014. Proceeds from the issuance of convertible notes of $459,000, offset by repayments on related party loan advances of $3,150 and repayments on convertible notes of $27,500, were the main components of our positive financing cash flow.

We continue to be dependent on raising capital to operate the business and are in the process of pursuing a minimum of $1,00,000 equity investment to support our business objectives over the next 12 months. If we raise less than this amount, we will have to scale back our operations commensurate with the funding, if any, that we receive. This quarter and beyond, we have been able to raise some money. Our efforts are ongoing but we can provide no assurance that we will be able to raise the optimal amount needed to implement our business plan.

As described above, we continue to work on expanding our product offerings, but our progress, while blistering in some areas, is held back dramatically because of our current inability to attract real capital. In order to succeed with our product roadmap, we are taking the steps identified above to attract equity investment while positioning the company to move up to the NASDAQ exchange. However, recent shorting activity has negatively affected our stock price to the detriment of our company and our shareholders. We have been forced to seek interim funding through convertible debt financing, placing additional pressures on the balance sheet and making us look financially weaker. Fortunately, through our rebranding initiative, we have begun to attract new shareholders who believe in our strategy and support the long-term vision for our company.

We paid off the remaining balance of $51,243 under a convertible note, which had partially converted, by securing additional convertible notes with face amounts of $60,000 and $55,250. In addition on March 4, 2016 the Company repaid the balance outstanding on the convertible note to JMJ of $27,788 including the OID and accrued interest and we recently repaid the balance outstanding on the convertible note to Adar Bays LLC of $37,512 including the accrued interest. These steps were taken to prevent further immediate dilution, which may have negatively impacted our stock. We have also been working with two of our note holders who have 144 eligible shares to lessen the impact of their conversions on our stock through the execution of strict leak out agreements whereby they are limited on the value of shares they can sell on a daily basis, which program is monitored by the company daily.

We have been busy strategizing and outlining a plan to meet the requirements for listing on a national exchange such as the NASDAQ. We believe that the NASDAQ will offer a more friendly, professional, stable and welcoming market for us. While we currently do not meet the listing requirements for the NASDAQ exchange, we are now positioning our company to start the process of meeting those requirements. As part of that process, we approved a 200 for 1 reverse split of our common stock. The market effective date for this transaction was November 12, 2015, where we went from approximately 270,000,000 shares issued and outstanding to about 1,350,000 shares outstanding, with about 250,000 shares in the public float. We believe this is necessary step and in the best long-term interest of all of our shareholders,

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We hope the split will make us more attractive to institutional lenders whose investment strategies include working with companies to secure listing on the NASDAQ. Our Board has already begun developing and articulating a new business plan to attract seasoned investment bankers to assist us in raising equity capital as well as up-listing. This process will take time and is not guaranteed, but we believe with hard work and the right partners, it is extremely achievable. We have engaged Ascendiant Capital Markets in a non-exclusive capacity as an investment banker to facilitate introductions to, and assist with structuring short-term traditional funding and strategic partnerships. We are also in discussions with numerous top-tier investment banking forms in our efforts to secure long term funding. .

Based upon our current financial condition, we do not have sufficient cash to operate our business at the current level for the next twelve months. We intend to fund operations through increased sales and debt and/or equity financing arrangements, which may be insufficient to fund expenditures or other cash requirements. We plan to seek additional financing in a private equity offering to secure funding for operations. There can be no assurance that we will be successful in raising additional funding. If we are not able to secure additional funding, the implementation of our business plan will be impaired. There can be no assurance that such additional financing will be available to us on acceptable terms or at all.

Going Concern

The accompanying financial statements have been prepared in conformity with generally accepted accounting principle, which contemplate continuation of our company as a going concern. However, we had minimal revenues for the three months ending March 31, 2016 and year ended December 31, 2015. We currently have negative working capital, and have not completed our efforts to establish a stabilized source of revenues sufficient to cover operating costs over an extended period of time.

Management anticipates that we will be dependent, for the near future, on additional investment capital to fund operating expenses. We intend to position our company so that we may be able to raise additional funds through the capital markets. In light of management’s efforts, there are no assurances that we will be successful in this or any of our endeavors or become financially viable and continue as a going concern.

Critical Accounting Policies

In December 2001, the SEC requested that all registrants list their most “critical accounting polices” in the Management Discussion and Analysis. The SEC indicated that a “critical accounting policy” is one which is both important to the portrayal of a company’s financial condition and results, and requires management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. We do not believe that any accounting policies currently fit this definition. Our significant accounting policies are contained in Note 2 to our financial statements included herein.

Recently Issued Accounting Pronouncements

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In August 2014, the FASB issued ASU 2014-15, “Presentation of Financial Statements – Going Concern (Topic 205-40)”, which requires management to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern for each annual and interim reporting period. If substantial doubt exists, additional disclosure is required. This new standard will be effective for the Company for annual and interim periods beginning after December 15, 2016. Early adoption is permitted. The Company expects to adopt this new standard for the fiscal year ending December 31, 2015 and the Company will continue to assess the impact on its financial statements.

Off Balance Sheet Arrangements

As of March 31, 2016, there were no off balance sheet arrangements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

A smaller reporting company is not required to provide the information required by this Item.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

We conducted an evaluation, with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, as of March 31, 2016, to ensure that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities Exchange Commission’s rules and forms, including to ensure that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of March 31, 2016, our disclosure controls and procedures were not effective at the reasonable assurance level due to the material weaknesses identified and described below.

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Our principal executive officers do not expect that our disclosure controls or internal controls will prevent all error and all fraud. Although our disclosure controls and procedures were designed to provide reasonable assurance of achieving their objectives and our principal executive officers have determined that our disclosure controls and procedures are effective at doing so, a control system, no matter how well conceived and operated, can provide only reasonable, not absolute assurance that the objectives of the system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented if there exists in an individual a desire to do so. There can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

Remediation Plan to Address the Material Weaknesses in Internal Control over Financial Reporting

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. Management identified the following three material weaknesses that have caused management to conclude that, as of March 31, 2016, our disclosure controls and procedures, and our internal control over financial reporting, were not effective at the reasonable assurance level:

We do not have written documentation of our internal control policies and procedures. Written documentation of key internal controls over financial reporting is a requirement of Section 404 of the Sarbanes-Oxley Act as of the period ending March 31, 2016. Management evaluated the impact of our failure to have written documentation of our internal controls and procedures on our assessment of our disclosure controls and procedures and has concluded that the control deficiency that resulted represented a material weakness.

We do not have sufficient segregation of duties within accounting functions, which is a basic internal control. Due to our size and nature, segregation of all conflicting duties may not always be possible and may not be economically feasible. However, to the extent possible, the initiation of transactions, the custody of assets and the recording of transactions should be performed by separate individuals. Management evaluated the impact of our failure to have segregation of duties on our assessment of our disclosure controls and procedures and has concluded that the control deficiency that resulted represented a material weakness.

Effective controls over the control environment were not maintained. Specifically, a formally adopted written code of business conduct and ethics that governs our employees, officers, and directors was not in place. Additionally, management has not developed and effectively communicated to employees its accounting policies and procedures. This has resulted in inconsistent practices. Further, our Board of Directors does not currently have any independent members and no director qualifies as an audit committee financial expert as defined in Item 407(d)(5)(ii) of Regulation S-K. Since these entity level programs have a pervasive effect across the organization, management has determined that these circumstances constitute a material weakness.

To address these material weaknesses, management performed additional analyses and other procedures to ensure that the financial statements included herein fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented. Accordingly, we believe that the financial statements included in this report fairly present, in all material respects, our financial condition, results of operations and cash flows for the periods presented.

To remediate the material weakness in our documentation, evaluation and testing of internal controls we plan to engage a third-party firm to assist us in remedying this material weakness once resources become available.

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We intend to remedy our material weakness with regard to insufficient segregation of duties by hiring additional employees in order to segregate duties in a manner that establishes effective internal controls once resources become available.

Changes in Internal Control over Financial Reporting

No change in our system of internal control over financial reporting occurred during the period covered by this report, the period ended March 31, 2016, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

Aside from that below, we are not a party to any pending legal proceeding. We are not aware of any pending legal proceeding to which any of our officers, directors, or any beneficial holders of 5% or more of our voting securities are adverse to us or have a material interest adverse to us.

On February 12, 2016 the company filed a lawsuit against Kodiak Capital Group LLC, Ryan Hodson, BMA Securities, as well as Island Capital Management LLC. Kodiak fraudulently purchased the companies existing convertible note from LG capital. Kodiak then began converting the note into common stock. The suit claims that Ryan Hodson, the principal of Kodiak Capital, engaged in a scheme to defraud the company. Additionally, the suit claims Hodson and BMA Securities engaged in market manipulation causing damage to the company. Island Capital is accused of a breach of fiduciary responsibility, by issuing Kodiak the shares of stock. In May, 2016 a Notice of Dismissal was filed for the New York case and on May 5, 2016 the company re-filed a lawsuit against all Kodiak Capital Group et al in the District of California, asserting all of the same allegations as the previously filed New York case. The case was re-filed in California Federal Court for the Central District of California because it allowed the company to include a California State law action for fraud against the California defendants that are residents of California.

Item 1A: Risk Factors

See risk factors included in the Company’s Annual Report on form 10-K for 2015.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The information set forth below relates to our issuances of securities without registration under the Securities Act of 1933 during the reporting period which were not previously included in a Quarterly Report on Form 10-Q or Current Report on Form 8-K.

On April 24, 2016, we engaged Mary Ellen Renna to be a spokesperson for the company. The agreement will be in effect for a period of two years, ending April 24, 2018 unless terminated early. Compensation is in the form of 100,000 shares of common stock. 50,000 shares will be issued upon execution of the agreement and 50,000 will be issued April 24, 2017. The shares are unissued as of the date of this report.

On May 10, 2016, we entered into a consulting agreement for social media services. The consultant will promote us through various social media outlets. The initial term of the agreement is for two months. As compensation, the consultant will receive 20,000 shares of company stock.

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These securities were issued pursuant to Section 4(2) of the Securities Act and/or Rule 506 promulgated thereunder. The holders represented their intention to acquire the securities for investment only and not with a view towards distribution. The investors were given adequate information about us to make an informed investment decision. We did not engage in any general solicitation or advertising. We directed our transfer agent to issue the stock certificates with the appropriate restrictive legend affixed to the restricted stock.

Item 3. Defaults upon Senior Securities

None

Item 4. Mine Safety Disclosures

N/A

Item 5. Other Information

None

Item 6. Exhibits


Exhibit Number	Description of Exhibit
31.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101**	The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2016 formatted in Extensible Business Reporting Language (XBRL).
	**Provided herewith

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	RX Safes, Inc.
Date:	May 23, 2016
By:	/s/ Lorraine Yarde
	Lorraine Yarde
Title:	President, Chief Executive Officer, and Director

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