Notes
to Consolidated Financial Statements
June
30, 2016
(Unaudited)
Note
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Medifirst
Solutions, Inc. ("MSI" or the "Company") was incorporated in Nevada in November 2010. The Company has not
generated significant sales to date. The Company intends to have a diverse product line of consumer products. Since inception,
the Company has been engaged in business planning activities, including researching the industry, identifying target markets for
the Company's products, developing the Company's models and financial forecasts, performing due diligence regarding potential
geographic locations most suitable for establishing the Company's offices and identifying future sources of capital. At the present
time, the Company is building products and affiliations in and related to the cosmetic healthcare industry.
Pursuant
to a sale and purchase agreement dated August 19, 2015 between the Company and the Company's president, the Company acquired 100%
of the equity interests in Medical Lasers Manufacturer, Inc. ("MLM") with the total purchase price of 20,000 shares
of the Company's common stock at $0.001 per share (or $20). The fair value of the acquired entity was $20.
The
transaction was considered as a business acquisition and accordingly the acquisition method of accounting has been applied. MLM
had no assets at the date of the business combination.
The
Consolidated financial statements include the accounts of MSI and its only wholly owned subsidiary, MLM. All material intercompany
balances and transactions have been eliminated in consolidation.
The
Company’s activities are subject to significant risks and uncertainties, including failing to secure additional funding
to operationalize the Company’s current technology.
Basis
of Presentation
The
accompanying unaudited financial statements have been prepared in accordance with U.S. generally accepted accounting principles
for interim financial information. Certain information and footnote disclosures normally included in annual financial statements
prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted pursuant to such principles
and regulations of the Securities and Exchange Commission for Form 10-Q. All adjustments, consisting of normal recurring adjustments,
have been made which, in the opinion of management, are necessary for a fair presentation of the results of interim periods. The
results of operations for such interim periods are not necessarily indicative of the results that may be expected for a full year
because of, among other things, seasonality factors in the retail business. The unaudited financial statements contained herein
should be read in conjunction with the audited financial statements and notes thereto for the fiscal year ended December 31, 2015.
Revenue
Recognition
In
general, the Company records revenue when persuasive evidence of an arrangement exists, services have been rendered or product
delivery has occurred, the sales price to the customer is fixed or determinable, and collectability is reasonably assured. The
following policies reflect specific criteria for the various revenues streams of the Company:
Revenue
is recognized at the time the product is delivered or services are performed. Provision for sales returns are estimated based
on the Company's historical return experience. Revenue is presented net of returns.
Notes
receivable (Investor)
In January 2016 the company entered
into a securities purchase agreement with an investor (as more fully described in Note 5 below). As part of that agreement, the
company issued convertible 8% notes payable to the investor in the amounts of $105,000, $50,000, $50,000 and $46,803. The two notes
which were secured by fully collaterlized promissory notes receivable issued by the Investor to the Company in the total amount
of $96,803 ($50,000 and $46,803 - also known as the "back-end notes") closed during the quarter ended June 30, 2016.
These notes bear interest at the rate of 8% per annum. There are no notes receivable from investors at June 30, 2016.
Accounts
Receivable
The Company extends credit to its customers
in the normal course of business and performs ongoing credit evaluations of its customers, maintaining an allowance for potential
credit losses. Accounts receivable is reported net of the allowance for doubtful accounts. The allowance is based on management's
estimate of the amount of receivables that will actually be collected. The Company has not recorded an allowance for doubtful accounts
as of June 30, 2016 or December 31, 2015.
Inventory
Inventory
consists of finished goods and is stated at the lower of cost (first-in, first-out) or market value.
Equipment
Equipment,
consisting of computer equipment, is stated at cost less accumulated depreciation. Depreciation is calculated using the straight-line
method over the estimated useful lives of the assets, of five years.
Long-Lived
Assets
The
Company reviews long-lived assets, such as equipment, for impairment whenever events or changes in circumstances indicate the
carrying amount may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying
amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of
an asset exceeds the estimated future cash flows, an impairment loss will be recorded by the amount the carrying value exceeds
the fair value of the asset.
In
August 2015, the Company's wholly-owned subsidiary MLM, acquired a trademark for $20,000. Due to the uncertainty of future cash
flows from the trademark, management has deemed it to be impaired and recorded an impairment expense of $20,000 in September 2015.
Intangible
Asset- Licensing Agreement
On March 8th 2016, the company, through
its sole wholly-owned subsidiary ("Licensee"), entered into a Product and Know-How License Agreement ("Agreement")
with a Florida Corporation ("Licensor"). The license provides with respect to the Technology, Licensor hereby grants
to Licensee an irrevocable, nontransferable, royalty-bearing license, with a right of sublicense (the “License”), throughout
the Territory in the Field of Use, whether or not under the Licensed Patent, to:
-use
or submit or deliver the Technology and/or any Product to any regulatory body throughout the Territory for purposes of obtaining
approval to make, Sell, offer for Sale, import, export and distribute the Technology or Products; and
-
use or copy the Technology and/or any Product; and
-
market, make, have made, Sell, offer for Sale, import and distribute Products; and
-
sublicense the Technology; and
-
prepare, or have prepared on its behalf, modifications, enhancements and/or derivative works of the Technology.
In
connection with the license granted, Licensor hereby grants to Licensee a license to the Licensed Patents, whether now existing
or hereafter acquired.
The consideration for the licensing
agreement consisted of the issuance of 25,000 Series B Preferred stock shares to the Licensor (at par) plus a $150,000 promissory
note issued by the Company to the licensor. The last part of the consideration in this license agreement is the royalty payments
which have not taken effect yet as they are based on sales for which the company has none. Both the stock issuance and promissory
notes have "claw-back" provisions should certain events fail to occur.
The licensing agreement is for a ten
year period effective from March 8th 2016. The cost of the licensing agreement is being amortized over a ten-year period and charged
to income on a straight-line basis.
Debt
Issues Costs and Debt Discount
The
Company may pay debt issue costs, and record debt discounts in connection with raising funds through the issuance of convertible
debt. These costs are amortized over the life of the debt to interest expense. If a conversion of the underlying debt occurs,
a proportionate share of the unamortized amounts is immediately expensed. Beginning in 2015, the Company early-adopted ASU 2015-03:
Simplifying the Presentation of Debt Issuance Costs and has reflected the deferred financing costs as a direct reduction of the
related debt (See Note 7 to Consolidated Financial Statements).
Original
Issue Discount
For
certain convertible debt issued, the Company provides the debt holder with an original issue discount. The original issue discount
is recorded to debt discount, reducing the face amount of the note and is amortized to interest expense over the life of the debt.
Derivative
Liabilities
Fair
value accounting requires bifurcation of embedded derivative instruments such as conversion features in convertible debt or equity
instruments, and measurement of their fair value for accounting purposes. The Company assessed its securities for purposes of
determining the proper accounting treatment and valuation as set forth in the Statement of Financial Accounting Standard ASC 820–10–35–37
Fair Value in Financial Instruments
; Statement of Financial Accounting Standard ASC 815
Accounting for Derivative Instruments
and Hedging Activities
; and Emerging Issues Task Force (“EITF”) Issue No. 00–19 and EITF 07–05.
In
assessing the convertible debt instruments, management determines if the convertible debt host instrument is conventional convertible
debt and further if there is a beneficial conversion feature requiring measurement. If the instrument is not considered conventional
convertible debt, the Company will continue its evaluation process of these instruments as derivative financial instruments.
Once
the derivative liabilities are determined, they are adjusted to reflect fair value at each reporting period end, with any increase
or decrease in the fair value being recorded in results of operations as an adjustment to fair value of derivatives.
Use
of Estimates
The
preparation of condensed consolidated financial statements in conformity with accounting principles generally accepted in the
United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the dates of the condensed consolidated balance sheets and
the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
Financial
Instruments
The
carrying amounts reported in the balance sheets for cash, accounts receivable, accounts payable, and other accrued liabilities
approximate their fair values.
Segment
Information
The
Company follows Accounting Standards Codification ("ASC") 280, "Segment Reporting". The Company currently
operates in a single segment and will evaluate additional segment disclosure requirements as it expands its operations.
Net
Income (Loss) Per Common Share
The
Company calculates net income (loss) per share based on the authoritative guidance. Basic earnings (loss) per share is calculated
by dividing net income (loss) by the weighted average number of common shares outstanding for the period. Diluted earnings (loss)
per share is calculated by dividing net income (loss) by the weighted average number of common shares and dilutive common stock
equivalents outstanding. During periods in which the Company incurs losses, common stock equivalents, if any, are not considered,
as their effect would be anti-dilutive.
Income
Taxes
The
Company utilizes the accrual method of accounting for income taxes. Under the accrual method, deferred tax assets and liabilities
are determined based on the differences between the financial reporting basis and the tax basis of the assets and liabilities,
and are measured using enacted tax rates and laws that will be in effect when the differences are expected to reverse. An allowance
against deferred tax assets is recognized, when it is more likely than not, that such tax benefits will not be realized.
The
Company recognizes the financial statement benefit of an uncertain tax position only after considering the probability that a
tax authority would sustain the position in an examination. For tax positions meeting a “more-likely-than-not” threshold,
the amount recognized in the financial statements is the benefit expected to be realized upon settlement with the tax authority.
For tax positions not meeting the threshold, no financial statement benefit is recognized. The Company recognizes interest and
penalties, if any, related to uncertain tax positions in income tax expense. The Company did not have any unrecognized tax benefits
as of June 30, 2016, and does not expect this to change significantly over the next 12 months.
Stock-Based
Compensation
The
Company accounts for equity instruments issued to employees in accordance with ASC 718, Compensation - Stock Compensation. ASC
718 requires all share-based compensation payments to be recognized in the financial statements based on the fair value on the
issuance date.
Equity
instruments granted to non-employees are accounted for in accordance with ASC 505, Equity. The final measurement date for the
fair value of equity instruments with performance criteria is the date that each performance commitment for such equity instrument
is satisfied or there is a significant disincentive for non-performance.
Cash
and Cash Equivalents
The
Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. At June
30, 2016, the Company had $195,008 in cash equivalents.
Recent
Pronouncements
In
May 2014, FASB and IASB issued a new joint revenue recognition standard that supersedes nearly all GAAP guidance on revenue recognition.
The core principle of the standard is that revenue recognition should depict the transfer of goods and services to customers in
an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services.
The new standard is effective for the Company for the fiscal year beginning June 1, 2017. The Company is currently evaluating
the impact of this ASU on the consolidated financial statements.
On January 05, 2016, the FASB completed
its Classification and Measurement of Financial Instruments project by issuing ASU No. 2016-01, Financial Instruments—Overall
(Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The new guidance improves certain
aspects of recognition, measurement, presentation and disclosure of financial instruments. For public business entities, the
new guidance is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years.
The Company does not believe the impact of its pending adoption of this ASU on the Company’s consolidated financial statements
will be material.
In November 2015, FASB issued ASU 2015-17
- Income Taxes (Topic 740) Balance Sheet Classification of Deferred Taxes which simplifies the presentation of deferred income
taxes. For public business entities, the amendments in this Update are effective for financial statements issued for annual periods
beginning after December 15, 2016, and interim periods within those annual periods. The Company does not believe the impact of
its pending adoption of this ASU on the Company’s consolidated financial statements will be material.
In
February 2015, FASB issued ASU 2015-02 Consolidation (Topic 810) Amendments to the Consolidation Analysis. The amendments in this
Update affect reporting entities that are required to evaluate whether they should consolidate certain legal entities. All legal
entities are subject to reevaluation under the revised consolidation model. The amendments in this Update are effective for public
business entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015. The
Company does not believe the impact of its pending adoption of this ASU on the Company’s consolidated financial statements
will be material.
Note
2. PROPERTY, PLANT AND EQUIPMENT (NET)
Equipment
is recorded at cost and consisted of the following at June 30, 2016 and December 31, 2015:
|
|
2016
|
|
|
2015
|
|
Computer equipment
|
|
$
|
8,314
|
|
|
$
|
8,314
|
|
Less: accumulated depreciation
|
|
|
(6,723
|
)
|
|
|
(6,155
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,591
|
|
|
$
|
2,159
|
|
Depreciation
expense for the three- and six-month periods ended June 30, 2016 was $222 and $568, respectively, and for the three- and six-month
periods ended June 30, 2015 was $416 and $831, respectively.
Note
3. DUE TO RELATED PARTY
The Company was indebted to a related
party through common management in the amount of $8,921 at June 30, 2016 and December 31, 2015, respectively. The loan bears no
interest and is payable on demand.
Note
4. LOANS PAYABLE - STOCKHOLDERS
During
the periods ended June 30, 2016 and 2015 a stockholder of the Company advanced the Company $-0- and $20,670 respectively. The
loan has a balance of $4,882 at June 30, 2016. The loan bears no interest and is payable on demand.
At
June 30, 2016 and June 30, 2015, the Company was indebted to a stockholder in the amount of $1,200 and $3,850, respectively. The
loan has an interest rate of 20%. Principal and accrued interest were due and payable on July 2, 2012.
In December 2012, the Company issued
a promissory note to a stockholder in the amount of $5,000 with interest at 10% per annum. Principal and interest were due and
payable on June 2, 2013. In April 2014, the note was amended to provide the note holder with the option to convert the note to
the Company's common stock at $0.0001 per share. Subsequently, in 2014, in a private transaction, the note holder transferred $2,500
of note principal to third parties and the new holders converted their holdings into 2,500,000 shares of the Company's common stock.
During 2015, the original note holder transferred an additional $2,400 of note principal to third parties who converted their holdings
into 2,400,000 shares of the Company's common stock. At June 30, 2016 and June 30, 2015, the loan had balance was $100 and $100,
respectively.
At
June 30, 2016 and June 30, 2015, the Company was indebted to a stockholder in the amount of $1,500 and $1,500, respectively. The
loan has an interest rate of 26.7%. Principal and accrued interest were due and payable on January 1, 2014.
In
February 2016, the Company issued a promissory note to a stockholder in the amount of $7,000 with interest at the rate of 6% per
annum. The note matures on February 4th 2017. At June 30, 2016 the full $7,000 note is outstanding.
Note
5. CONVERTIBLE NOTES PAYABLE
Note
Payable-BS
In
March 2011, the Company issued $800 aggregate principal amount of 6% convertible notes due in January 2012. Interest on the notes
accrue at the rate of 6% per annum and are payable when the notes mature. The notes matured prior to conversion but have not been
repaid. Interest continues to accrue at the rate of 6% per annum.
The
holder of one of the notes converted $110 of note principal into 1,100,000 shares of common stock as follows:
Date of Conversion
|
|
Principal Amount Converted
|
|
|
Conversion Rate
|
|
|
Shares Received
|
|
June 2013
|
|
$
|
70
|
|
|
$
|
0.0001
|
|
|
|
700,000
|
|
August 2013
|
|
$
|
40
|
|
|
$
|
0.0001
|
|
|
|
400,000
|
|
In
August 2013, in a private transaction, the same note holder transferred $330 of the remaining note principal plus $55 in accrued
interest to a third party.
In
August 2013, in a private transaction, the new note holder transferred $5 of the remaining note principal to a third party who
then converted the note into 50,000 shares of common stock.
In
September 2013, the new note holder converted $100 of note principal into 1,000,000 shares of common stock.
In
September 2013, in a private transaction, the new note holder transferred $35 of the remaining note principal to a third party
who then converted the note into 350,000 shares of common stock.
In
November and December 2013, the new note holder converted an additional $90 of note principal into 900,000 shares of common stock
as follows:
Date of Conversion
|
|
Principal Amount Converted
|
|
|
Conversion Rate
|
|
|
Shares Received
|
|
November 2013
|
|
$
|
40
|
|
|
$
|
0.0001
|
|
|
|
400,000
|
|
December 2013
|
|
$
|
50
|
|
|
$
|
0.0001
|
|
|
|
500,000
|
|
In
March and April 2014, the new note holder converted an additional $90 of note principal into 900,000 shares of common stock as
follows:
Date of Conversion
|
|
Principal Amount Converted
|
|
|
Conversion Rate
|
|
|
Shares Received
|
|
March 2014
|
|
$
|
50
|
|
|
$
|
0.0001
|
|
|
|
500,000
|
|
April 2014
|
|
$
|
40
|
|
|
$
|
0.0001
|
|
|
|
400,000
|
|
Subsequent
to these conversions there remains $125 in note principal outstanding at June 30, 2016.
Note
Payable-SF
In
July 2013, the holder of the second note converted $240 of note principal into 400,000 shares of the Company's common stock at
$0.0006 per share. At June 30, 2016 and December 31 2015, the note had a remaining principal balance of $60 and $60, respectively.
At
any time on or after the maturity date, the holders of the notes, have the option of converting any of the unpaid principal and
interest into the Company's common stock. The notes plus any accrued but unpaid interest are convertible at the rate of $0.0001
per share at the time of conversion up to a maximum of 9.99% of the then issued and outstanding common stock, or 5,776,486 shares
at June 30, 2016 and 3,506,665 shares at December 31, 2015.
Note
Payable-RK
In
May 2012, the Company issued a $25,000 6% per annum note that matured in November 2012. In December 2012 the note was amended
to be a convertible note. Interest on the note accrues interest at 6% per annum and is payable when the note matures.
The
holder of the $25,000 note had the option of converting it at any time prior to maturity. The note plus any accrued but unpaid
interest were convertible at the rate of $0.001 per share at the time of conversion up to a maximum of 9.99% of the then issued
and outstanding common stock.
The
holder of the note converted $1,010 of note principal into 1,010,000 shares of common stock as follows:
Date of Conversion
|
|
Principal Amount Converted
|
|
|
Conversion Rate
|
|
|
Shares Received
|
|
December 2012
|
|
$
|
150
|
|
|
$
|
0.001
|
|
|
$
|
150,000
|
|
January 2013
|
|
$
|
660
|
|
|
$
|
0.001
|
|
|
$
|
660,000
|
|
March 2013
|
|
$
|
200
|
|
|
$
|
0.001
|
|
|
$
|
200,000
|
|
In
July 2013, the Company retired $14,000 of note principal in payment for consulting services provided to the note holder.
In
July 2013, the note holder converted $300 of note principal into 300,000 shares of the Company's common stock.
In
July 2013, in a private transaction, the note holder transferred the remaining note principal balance of $9,690 to a third party.
Note
Payable-NW
In
August 2013, in a private transaction, the new note holder transferred $4,475 of principal to a stockholder of the company.
In
October 2013, the note holder converted $400 of note principal into 400,000 shares of the Company's common stock at $0.001 per
share.
In
October 2014, the note holder converted $1,100 of note principal into 1,100,000 of the Company's common stock. At June 30, 2016
and December 31, 2015, the remaining principal on this portion of the note is $3,715. The note holder has the option of converting
the balance at any time with the approval of the Board of Directors. The note plus any accrued but unpaid interest are convertible
at the rate of $0.001 per share at the time of conversion up to a maximum of 9.99% of the then issued and outstanding common stock,
or 5,776,486 shares at June 30, 2016 and 3,506,665 shares at December 31, 2015.
Note
Payable-MC #1
In
August 2013, the note holder/stockholder converted $700 of note principal into 700,000 shares of the Company's common stock at
$0.001 per share. In October 2013, in a private transaction, this note holder transferred $1,000 of note principal to a third
party of which $700 was converted into 700,000 shares in June 2014. The remaining principal balance on this portion of the note
at June 30, 2016 and December 31, is $2,075. The note holder has the option of converting the balance at any time with the approval
of the Board of Directors. The note plus any accrued but unpaid interest are convertible at the rate of $0.001 per share at the
time of conversion up to a maximum of 9.99% of the then issued and outstanding common stock, or 5,776,486 shares at June 30, 2016
and 3,506,665 shares at December 31, 2015..
Note
Payable-MC #2
In
April 2015, the Company issued a $3,000 8% per annum note that matures in October 2015. The holder of the note has the right to
convert the principal into shares of the Company's common stock at any time 180 days after the closing date at $0.0001 per share.
Interest on the note accrues interest at 8% per annum and is payable when the note matures.
Convertible
Note Payable-VV to LG (8%)#1
In
July 2015, the Company issued a convertible note payable in the principal amount of $59,000. The note matured in March 2016 and
bears interest at 8%. Beginning 180 days following the closing date the note holder shall have the right to convert any or all
of the outranking principal balance into shares of the Company's common stock at the discounted rate of 55% of the average of
the three lowest market trading prices during the 10 days immediately preceding the conversion date. During the six months ended
June 30, 2016, the note holder converted $17,709 in note principal into common stock leaving a principal balance remaining on
the note in the amount of $41,291 at June 30, 2016
Convertible
Note Payable-VV (8%) #2
In
August 2015, the Company issued a convertible note payable in the principal amount of $38,000. The note matured in March 2016
and bears interest at 8%. Beginning 180 days following the closing date the note holder shall have the right to convert any or
all of the outranking principal balance into shares of the Company's common stock at the discounted rate of 55% of the average
of the three lowest market trading prices during the 10 days immediately preceding the conversion date.
Convertible
Note Payable-LGC(8%)
On
October 8, 2015, the Company issued a convertible note payable in the principal amount of $31,000 with an Original Issue Discount
of $1,500. The note matures on October 8, 2016 and bears interest at 8%. The note holder has has the right at any time to convert
any part or all of the outstanding unpaid principal balance into shares of the Company's common stock at the discounted rate of
58% of the lowest market trading price during the 20 days prior to and including the conversion date.
Debenture
Payable - (5%) B (Original $100K)
In
June 2015, the Company issued a convertible note payable in the principal amount of $100,000. The note matures in December 2015
and bears interest at 5%. Beginning 180 days following the closing date the note holder shall have the right to convert any or
all of the outranking principal balance into shares of the Company's common stock at the discounted rate of 50% of the average
of the three lowest market trading prices during the 3 days immediately preceding the conversion date.
Convertible
Note Payable-SO-B (8%) (Original $60k)
On
May 2, 2016, the Company issued to an Investor a replacement redeemable convertible note in the principal amount of $60,000 ("the
Replacement Note"). The Note, which matures on May 2, 2017, pays interest at the rate of 8% per annum. This Replacement Note
partially replaces a note originally issued on June 12, 2015 in the principal amount of $100,000 The holder of the note is entitled,
at its option beginning on the 6 month anniversary, to convert all or any of the principal face amount of the Note then outstanding
into shares of the Company's common stock at the price equal to 55% of the lowest trading price for the twenty prior trading days
including the date of conversion. Any unamortized original issue discount and deferred financing costs from the original note
was expensed upon replacement. The derivative discount and liability on the original note was appropriately accounted for upon
replacement and a new derivative discount and liability for the replacement note appropriately recorded.
During
the months of May and June 2016, the holder of the aforementioned $60,000 Replacement Note converted $12,471 in principal to common
stock leaving a principal balance payable of $47,529 on the note as of June 30, 2016.
Convertible
Note Payable-CB (5%) (Original $35k)
On
October 15, 2015 the Company issued a convertible note payable in the principal amount of $35,000 with an Original Issue Discount
of $5,000. The note matures on October 15, 2016 and bears interest at 5%. The note holder has has the right at any time on or
after the day that is six months from October 15, 2015 to convert any part or all of the outstanding unpaid principal balance
into shares of the Company's common stock at the discounted rate of 55% of the lowest market trading prices during the 20 days
prior to the conversion date.
During
the months of May and June 2016, the holder of the above $35,000 Note converted $16,088 in principal to common stock leaving a
principal balance payable of $18,913 on the note as of June 30, 2016.
Convertible
NoteS Payable-LGC (8%)
On January 7, 2016, the Company
entered into a Securities Purchase Agreement (the “Purchase Agreement”) with an accredited investor (the
“Investor”) for the sale of convertible redeemable notes in aggregate principal amount of $251,803. On January 7,
2016, the Company and the Investor conducted the first closing under the Purchase Agreement, pursuant to which the Company
issued to the Investor (i) a convertible redeemable note in principal amount of $105,000 containing an original issue
discount of $20,000 (the “$105K Note”); and (ii) a convertible redeemable note in principal amount of $50,000
(the “$50K Note” and together with the $105K Note, the “Notes”). Under the Purchase Agreement, on
March 15, 2016 and June 15, 2016, the Company and the Investor expect to conduct additional closing for the sale and purchase
of additional notes having the same terms as the Notes in principal amounts equal to $50,000 and $46, 803, respectively.
Convertible
NoteS Payable-LGC (8%) BEN
In
consideration for the issuance of the $105K Note, on January 13, 2016, the Company received net proceeds (after deducting the
original issue discount and legal fees) in the amount of $75,697. In consideration for the issuance of the $50K Note, the Investor
issued to the Company a $50,000 fully-collateralized secured promissory note (the “Investor Note”), pursuant to which
the Investor agreed to pay the Company $50,000 on or before April 30, 2016. The Notes, which are due on January 7, 2017, bear
interest at the rate of 8% per annum. Subject to a beneficial ownership limitation equal to 9.99%, principal and interest on the
Notes is convertible into shares of the Company’s common stock (“Common Stock”) at a conversion price equal
to 55% of the lowest trading price of Common Stock during the 20 trading day period prior to conversion.
In
accordance with the terms of the Purchase Agreement, the investor and the Company closed on the two outstanding notes ($50,000
and $46,803) in May and June 2016. The Company thereby received cash funding and offset the Note Receivables at June 30, 2016.
Convertible
NoteS Payable-SO (8%)
On
May 2, 2016, the Company issued to an Investor a convertible redeemable note in the principal amount of $57,750 ("the Note").
The Note, which matures on May 2, 2017, pays interest at the rate of 8% per annum. The note contains a 10% original issue discount.
The holder of the note is entitled, at its option beginning on the 6 month anniversary, to convert all or any of the principal
face amount of the Note then outstanding into shares of the Company's common stock at the price equal to 55% of the lowest trading
price for the twenty prior trading days including the date of conversion.
The
Company’s convertible notes payable and the related derivative liabilities, derivative discount, deferred financing costs
and original-issue discount are presented in the financial statements at June 30, 2016 as follows:
|
|
Remaining Principal
|
|
|
Original Issue
|
|
|
Derivative
|
|
|
Deferred Financing
|
|
|
Total Convertible Notes
|
|
|
Derivative
|
|
Debt
|
|
Amount
|
|
|
Discount
|
|
|
Discount
|
|
|
Costs
|
|
|
Payable
|
|
|
Liability
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note Payable - BS
|
|
$
|
125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
125
|
|
|
|
|
|
Note Payable - SF
|
|
|
60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60
|
|
|
|
|
|
Note Payable - MC #1
|
|
|
2,075
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,075
|
|
|
|
|
|
Note Payable - NW
|
|
|
3,715
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,715
|
|
|
|
|
|
Note Payable - MC #2
|
|
|
3,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,000
|
|
|
|
|
|
Debenture Payable (5%) - B (Original $100K)
|
|
|
40,000
|
|
|
|
|
|
|
|
|
|
|
|
(30
|
)
|
|
|
39,970
|
|
|
|
|
|
Convertible Note Payable - LGC (8%)
|
|
|
105,000
|
|
|
|
(10,818
|
)
|
|
|
(63,451
|
)
|
|
|
(10,748
|
)
|
|
|
19,984
|
|
|
|
68,693
|
|
Convertible Note Payable - LGC (8%) BEN
|
|
|
50,000
|
|
|
|
|
|
|
|
(39,072
|
)
|
|
|
|
|
|
|
10,928
|
|
|
|
54,386
|
|
Convertible Note Payable - LGC (8%) BEN
|
|
|
46,803
|
|
|
|
|
|
|
|
(38,475
|
)
|
|
|
|
|
|
|
8,328
|
|
|
|
50,718
|
|
Convertible Note Payable - LGC (8%)
|
|
|
50,000
|
|
|
|
|
|
|
|
(43,201
|
)
|
|
|
|
|
|
|
6,799
|
|
|
|
53,840
|
|
Convertible Note Payable - CB (5%) (Original $35k)
|
|
|
18,913
|
|
|
|
|
|
|
|
(14,482
|
)
|
|
|
|
|
|
|
4,431
|
|
|
|
21,225
|
|
Convertible Note Payable - LGC (8%)
|
|
|
31,000
|
|
|
|
|
|
|
|
(15,664
|
)
|
|
|
|
|
|
|
15,336
|
|
|
|
31,186
|
|
Convertible Notes Payable- VV to LG (8%) #1
|
|
|
41,291
|
|
|
|
|
|
|
|
(27,356
|
)
|
|
|
|
|
|
|
13,935
|
|
|
|
41,032
|
|
Convertible Notes Payable- VV (8%) #2
|
|
|
38,000
|
|
|
|
|
|
|
|
|
|
|
|
(680
|
)
|
|
|
37,320
|
|
|
|
|
|
Convertible Notes Payable- SO-B (8%) (Original $60k)
|
|
|
47,529
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47,529
|
|
|
|
29,564
|
|
Convertible Notes Payable- SO (8%)
|
|
|
57,750
|
|
|
|
(4,416
|
)
|
|
|
|
|
|
|
(4,192
|
)
|
|
|
49,142
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
535,261
|
|
|
$
|
(15,234
|
)
|
|
$
|
(241,701
|
)
|
|
$
|
(15,649
|
)
|
|
$
|
262,677
|
|
|
$
|
350,644
|
|
As
of June 30, 2016, the convertible notes payable can be converted into approximately 137,199,203 shares of common stock.
Note
6. DERIVATIVES AND FAIR VALUE INSTRUMENTS
The
Company applied paragraph 815-10-05-4 of the FASB Accounting Standards Codification to the 5% Convertible Notes Payable issued
June 12th 2015 and the 8% Convertible Note payable issued June 25th 2015 and for the 8% Convertible Notes Payable issued January
7, 2016 and March 7, 2016. Based on the guidance in paragraph 815-10-05-4 of the FASB Accounting Standards Codification the Company
concluded these instruments were required to be accounted for as derivatives on issuance date. The Company records the fair value
of the Convertible Notes Payable and certain warrants that are classified as derivatives on issuance date and the fair value changes
on each reporting date reflected in the consolidated statements of operations as “Gain (loss) on derivative liabilities.”
These derivative instruments are not designated as hedging instruments under paragraph 815-10-05-4 of the FASB Accounting Standards
Codification and are disclosed on the balance sheet under Derivative Liabilities.
The
Company follows paragraph 820-10-35-37 of the FASB Accounting Standards Codification (“Paragraph 820-10-35-37”) to
measure the fair value of its financial instruments and paragraph 825-10-50-10 of the FASB Accounting Standards Codification for
disclosures about fair value of its financial instruments. Paragraph 820-10-35-37 establishes a framework for measuring fair value
in accounting principles generally accepted in the United States of America (U.S. GAAP), and expands disclosures about fair value
measurements. To increase consistency and comparability in fair value measurements and related disclosures, Paragraph 820-10-35-37
establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three
(3) broad levels. The three (3) levels of fair value hierarchy defined by Paragraph 820-10-35-37 are described below:
Level
1 Quoted market prices available in active markets for identical assets or liabilities as of the reporting date.
Level
2 Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable
as of the reporting date.
Level
3 Pricing inputs that are generally observable inputs and not corroborated by market data.
Financial
assets are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies or
similar techniques and at least one significant model assumption or input is unobservable.
The
fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities
and the lowest priority to unobservable inputs. If the inputs used to measure the financial assets and liabilities fall within
more than one level described above, the categorization is based on the lowest level input that is significant to the fair value
measurement of the instrument.
The
carrying amounts of the Company’s financial assets and liabilities, such as cash, prepayments and other current assets,
accounts payable, and accrued expenses, approximate their fair values because of the short maturity of these instruments.
The
Company’s Level 3 financial liabilities consist of the 5% Convertible Notes Payable issued June 12th 2015 and the 8% Convertible
Note payable issued June 25th 2015 and for the 8% Convertible Notes Payable issued January 7, 2016 and March 7, 2016, for which
there is no current market for these securities such that the determination of fair value requires significant judgment or estimation.
We have valued the automatic conditional conversion, re-pricing/down-round, change of control; default and follow-on offering
provisions using a lattice model, with the assistance of a valuation consultant, for which management understands the methodologies.
These models incorporate transaction details such as Company stock price, contractual terms, maturity, risk free rates, as well
as assumptions about future financings, volatility, and holder behavior as of issuance and June 30, 2016. The primary assumptions
include: projected annual volatility of 170%-245%; the follow-on securities purchase option; the conversion feature as a percentage
of Market; automatic/conditional conversions; market price trigger events.
As
of June 30, 2016 the Company’s derivative financial instruments included:
1)
Embedded derivatives associated with certain of the Company’s unsecured convertible notes payable. The Company’s 5
% convertible notes payable and 8% convertible notes payable issued to four unrelated investors is a hybrid instrument, which
warrants separate accounting as a derivative instrument. The embedded derivative feature has been bifurcated from the debt host
contract, referred to as the Derivative Liability, which resulted in a reduction of the initial carrying amount (as unamortized
discount) of the Convertible Notes Payable. The unamortized discount is amortized to interest expense using the effective interest
method over the life of the Notes. The embedded derivative feature includes the conversion feature within the notes and an early
redemption option. The compound embedded derivatives within the convertible notes have been recorded at fair value at the date
of issuance; and are marked-to-market each reporting period with changes in fair value recorded to the Company’s statement
of operations as Change in fair value of derivative liabilities.
The
5% Convertible Note Payable and the 8% Convertible Notes Payable are valued at June 30, 2016. The following assumptions were used
for the valuation of the embedded derivative:
-
The stock price of $0.0089 to $0.0073 in this period (variable conversion price) would fluctuate with the Company projected volatility;
-
An event of default for the Convertible Note would occur 0% of the time, increasing 1.00% per month to a maximum of 5.0%;
-
Alternative financing for the Convertible Note would be initially available to redeem the note 0% of the time and increase monthly
by 1% to a maximum of 10%;
-
Capital raising events (a single financing at 1 month from the valuation date) are a factor for the VV to LG Convertible Note.
The full reset events projected to occur based on future stock issuance (single event) resulting in a reset exercise price.
-
The monthly trading volume would average $88,182 and would increase at 5% per month;ownership limits conversion across LG’s
6 notes based on 4.99% with shares outstanding increasing monthly by 1%.
-
The variable conversion price of 50% to 58% over 3 to 20 trading days would have effective rates of 35.83% to 52.39%;
-
The Note Holders would automatically convert the notes early (and not hold to maturity) with variable conversion prices and full
ratchet resets if the registration was effective and not in default;
-
The projected annual volatility for each valuation period was based on the historical volatility of the company:
|
3/31/2016
|
|
|
230
|
%
|
|
|
4/5/2016
|
|
|
232
|
%
|
|
|
4/12/2016
|
|
|
245
|
%
|
|
|
5/4/2016
|
|
|
223
|
%
|
|
|
5/5/2016
|
|
|
236
|
%
|
|
|
5/10/2016
|
|
|
224
|
%
|
|
|
6/23/2016
|
|
|
221
|
%
|
|
|
6/24/2016
|
|
|
223
|
%
|
|
|
6/27/2016
|
|
|
196
|
%
|
|
|
6/30/2016
|
|
|
170
|
%
|
|
The
foregoing assumptions are reviewed quarterly and are subject to change based primarily on management’s assessment of the
probability of the events described occurring. Accordingly, changes to these assessments could materially affect the valuation.
The
Company’s convertible notes payable and the related derivative liabilities, derivative discount and original-issue discount
are presented in the financial statements at June 30, 2016 as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter
|
|
|
|
|
|
|
|
|
|
|
|
Quarter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter
|
|
|
Ended
|
|
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
|
|
|
Ended
|
|
|
March 31,
|
|
|
Derivative
|
|
|
Ended
|
|
|
Ended
|
|
|
June
30,
|
|
|
Derivative
|
|
|
|
Derivative
|
|
|
|
Principal
|
|
|
Original
|
|
|
Valuation
|
|
|
March
31,
|
|
|
2016
|
|
|
Valuation
|
|
|
June
30,
|
|
|
June
30,
|
|
|
2016
|
|
|
Valuation
|
|
|
|
Treatment
|
|
Maturity
|
|
Note
|
|
|
Derivative
|
|
|
December 31,
|
|
|
2016
|
|
|
Mark-to-
|
|
|
March
31,
|
|
|
2016
|
|
|
2016
|
|
|
Mark-to-
|
|
|
June
30,
|
|
Convertible
Note
|
|
Date
|
|
Date
|
|
Amount
|
|
|
Valuation
|
|
|
2015
|
|
|
Conversions
|
|
|
Market
|
|
|
2016
|
|
|
Conversions
|
|
|
Issuances
|
|
|
Market
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8%
Convertible Note Payable-issued 10/8/2015
|
|
10/8/2015
|
|
10/8/2015
|
|
$
|
31,000
|
|
|
$
|
58,779
|
|
|
$
|
56,366
|
|
|
|
|
|
|
$
|
(4,203
|
)
|
|
$
|
52,163
|
|
|
|
|
|
|
|
|
|
|
$
|
(20,977
|
)
|
|
$
|
31,186
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5
% Convertible Note- Payable-issued 6/12/2015
|
|
12/9/2015
|
|
12/12/2015
|
|
|
100,000
|
|
|
|
37,827
|
|
|
|
35,176
|
|
|
|
|
|
|
|
(2,883
|
)
|
|
|
32,293
|
|
|
|
(11,835
|
)
|
|
|
|
|
|
|
9,106
|
|
|
|
29,564
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8%
Convertible Notes Payable-issued 6/25/2015
|
|
12/22/2015
|
|
1/7/2017
|
|
|
59,000
|
|
|
|
56,956
|
|
|
|
66,075
|
|
|
$
|
(10,151
|
)
|
|
|
3,285
|
|
|
|
59,209
|
|
|
|
(8,604
|
)
|
|
|
|
|
|
|
(9,573
|
)
|
|
|
41,032
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8%
Convertible Notes Payable-issued January 7, 2016
|
|
1/7/2016
|
|
1/7/2017
|
|
|
105,000
|
|
|
|
87,287
|
|
|
|
-
|
|
|
|
|
|
|
|
39,919
|
|
|
|
127,206
|
|
|
|
|
|
|
|
|
|
|
|
(58,513
|
)
|
|
|
68,693
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8%
Convertible Notes Payable-issued January 7, 2016
|
|
1/7/2016
|
|
1/7/2017
|
|
|
50,000
|
|
|
|
68,124
|
|
|
|
-
|
|
|
|
|
|
|
|
21,773
|
|
|
|
89,897
|
|
|
|
|
|
|
|
|
|
|
|
(35,511
|
)
|
|
|
54,386
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8%
Convertible Notes Payable-issued March 7, 2016
|
|
3/7/2016
|
|
3/7/2017
|
|
|
50,000
|
|
|
|
87,538
|
|
|
|
-
|
|
|
|
|
|
|
|
1,171
|
|
|
|
88,709
|
|
|
|
|
|
|
|
|
|
|
|
(34,869
|
)
|
|
|
53,840
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8%
Convertible Notes Payable-issued March 7, 2016
|
|
3/7/2016
|
|
1/7/2017
|
|
|
46,803
|
|
|
|
82,115
|
|
|
|
-
|
|
|
|
|
|
|
|
1,101
|
|
|
|
83,216
|
|
|
|
|
|
|
|
|
|
|
|
(32,498
|
)
|
|
|
50,718
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8%
Convertible Notes Payable-issued March 7, 2016
|
|
4/12/2016
|
|
1/7/2017
|
|
|
35,863
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(21,595
|
)
|
|
|
64,124
|
|
|
|
(21,304
|
)
|
|
|
21,225
|
|
|
|
|
|
|
|
$
|
477,666
|
|
|
$
|
478,626
|
|
|
$
|
157,617
|
|
|
$
|
(10,151
|
)
|
|
$
|
60,163
|
|
|
$
|
532,693
|
|
|
$
|
(42,034
|
)
|
|
$
|
64,124
|
|
|
$
|
(204,139
|
)
|
|
$
|
350,644
|
|
Note
7. STOCKHOLDERS' EQUITY
The
Company has authorized 1,500,000,000 shares of common stock with a par value of $0.0001 per share. There were 57,822,683 and 35,101,750
shares of common stock issued and outstanding at June 30, 2016 and December 31, 2015, respectively.
The
Company has authorized 1,000,000 shares of Series A preferred stock with a par value of $0.0001 per share. At June 30, 2016 and
December 31, 2015, 50,000 shares of Series A preferred stock were issued and outstanding. The preferred stock has preferential
voting rights of 100 votes per outstanding share.
The
Company has authorized 50,000 shares of Series B convertible preferred stock with a par value of $0.0001 per share. At June 30,
2016 there were 39,000 shares issued of which 12,900 shares of Series B preferred were converted into common stock in accordance
with the terms of the Series B Preferred stock. Therefore; there were 26,100 shares outstanding at June 30, 2016. The Series B
preferred stock has no voting rights. The holders of the Series B convertible preferred stock have the right to convert the same
into Common Stock of the Corporation at the ratio of one (1) share of Series B Convertible Preferred for five hundred (500) shares
of Common Stock.
During
the quarter ended March 31, 2015, the Company issued 2,000,000 shares of common stock at $0.001 per share as partial conversion
of notes.
During
the quarter ended March 31, 2015, the Company issued 800,000 shares of common stock at $0.0005 per share as partial conversion
of notes.
During
the quarter ended March 31, 2015, a stockholder of the Company returned 500,000 shares of common stock to the Company.
During
the quarter ended June 30, 2015, the Company issued 2,300,000 shares of common stock at $0.0005 per share as partial conversion
of notes.
During
the quarter ended September 30, 2015, the Company issued 3,800,000 shares of common stock at $0.0005 per share as partial conversion
of notes.
During
the quarter ended September 30, 2015, the Company issued 20,000 shares of common stock at $0.015 per share as to acquire 100%
of the outstanding shares of the Company's subsidiary.
During
the quarter ended September 30, 2015, the Company issued 3,000,000 shares of common stock at $0.01 per share as Officer's compensation.
During
the quarter ended September 30, 2015, the Company issued 500,000 shares of common stock at $0.01 per share for services provided
to the Company.
During
the quarter ended December 31, 2015, the Company issued 500,000 shares of common stock at $0.01 per share for services provided
to the Company.
During
the quarter ended December 31, 2015, the Company issued 200,000 shares of common stock at $0.01 per share to an investor.
During
the quarter ended March 31, 2016, the Company issued 1,095,036 shares of common stock at $0.00275 per share as partial conversion
of notes.
During
the quarter ended March 31, 2016, the Company issued 1,285,560 shares of common stock at $0.00275 per share as partial conversion
of notes.
During
the quarter ended March 31, 2016, the Company issued 906,533 shares of common stock at $0.003355 per share as partial conversion
of notes.
During
the quarter ended March 31, 2016, the Company issued 1,500,000 shares of common stock at $0.00275 per share as partial conversion
of notes.
During
the quarter ended March 31, 2016, the Company issued 1,700,000 shares of common stock upon conversion of 3,400 shares of Series
B preferred stock.
During
the quarter ended March 31, 2016, the Company issued 10,000 shares of Series B Preferred stock in settlement of the $50,000 liability
to a related party for the purchase of inventory.
During
the quarter ended June 30, 2016, the Company issued 1,584,873 shares of common stock at $0.0033 per share as partial conversion
of notes.
During
the quarter ended June 30, 2016, the Company issued 2,194,200 shares of common stock at $0.0033 per share as partial conversion
of notes.
During
the quarter ended June 30, 2016, the Company issued 2,000,000 shares of common stock at $0.0044 per share as partial conversion
of notes.
During
the quarter ended June 30, 2016, the Company issued 2,500,000 shares of common stock at $0.0029 per share as partial conversion
of notes.
During
the quarter ended June 30, 2016, the Company issued 783,062 shares of common stock at $0.0038 per share as partial conversion
of notes.
During
the quarter ended June 30, 2016, the Company issued 768,026 shares of common stock at $0.0036 per share as partial conversion
of notes.
During
the quarter ended June 30, 2016, the Company issued 853,643 shares of common stock at $0.0028 per share as partial conversion
of notes.
During
the quarter ended June 30, 2016 the Company amended a Convertible Debenture originally issued June 12, 2015. The Company issued
300,000 shares to the debenture holder for the main purpose of extending the maturity date to one year from the date of the amendment.
During
the quarter ended June 30, 2016, the Company issued 1,950,000 shares of common stock upon conversion of 3,900 shares of Series
B preferred stock.
During
the quarter ended June 30, 2016, the Company issued 1,100,000 shares of common stock upon conversion of 2,200 shares of Series
B preferred stock.
During
the quarter ended June 30, 2016, the Company issued 1,700,000 shares of common stock upon conversion of 3,400 shares of Series
B preferred stock.
During
the quarter ended June 30, 2016, the Company issued 4,000 shares of Series B Preferred stock in settlement of the $20,000 liability
to a related party for the purchase of a trademark.
On
April 15, 2016 the Company entered into a Business Consulting Agreement with a Michigan limited liability company ("Consultant").
The agreement provides for the Company retaining the Consultant for 125 days for general business and product development services.
The Consultant shall be paid $750 per month in cash and 500,000 shares of common stock of the Company valued at $5,000 as of the
effective date and another 500,000 common shares upon determination of the Company in its sole and absolut discretion.
During
the quarter ended June 30, 2016 pursuant to the Business Consulting Agreement, the Company issued 500,000 shares of common stock
at $0.01 per share for services provided to the Company.
Note
8. COMMITMENTS AND CONTINGENCIES
The
Company currently rents its offices on a month to month basis from the Company's President and stockholder for $575 per month
which amounted to $1,725 for the quarter-ended June 30, 2016. The Company also has ready-to-go office space available to be used
for meetings etc. at a nominal cost of approximately $100 per month with no commitment. The cost of this space for the quarter-ended
June 30, 2016 was $297.
Total
rent expense for the quarter ended June 30, 2016 and 2015, totaled $2,022 and $2,640, respectively and for the six months ended
June 30, 2016 and 2015 was $4,093 and $4,215 respectively..
Note
9. INCOME TAXES
The
Company's deferred tax asset consists primarily of carryforward net operating losses (NOLs). The Company believes that, at this
time, it is more likely than not that the benefit of the NOLs will not be realized and has therefore recorded a full valuation
allowance.
The
income tax benefit differs from the amount computed by applying the statutory federal and state income tax rates to the loss before
income taxes. The sources and tax effects of the differences are as follows:
|
|
December 31,
2015
|
|
|
December 31,
2014
|
|
Statutory federal income tax rate
|
|
|
34
|
%
|
|
|
34
|
%
|
State income taxes, net of federal taxes
|
|
|
9
|
%
|
|
|
9
|
%
|
Valuation allowance
|
|
|
(43
|
)%
|
|
|
(43
|
)%
|
Effective income tax rate
|
|
|
0
|
%
|
|
|
0
|
%
|
As of June 30, 2016, the Company has
a net operating loss carryforward of approximately $1,002,000 to reduce future federal taxable income which begins to expire in
the year 2030. The Company is also subject to corporate taxes in the State of New Jersey which has similar net operating loss carryover
provisions which start to expire in the year 2030.
The Company currently has no federal
or state tax examinations in progress, nor has it had any federal or state examinations since its inception. All of the Company's
open tax years beginning in tax year 2013 are subject to federal and state tax examinations. The Company is current on its tax
filings through 2015.
Note
10. RELATED PARTY TRANSACTIONS
In
August 2015, the Company acquired 100% of the issued and outstanding common stock of Medical Lasers Manufacturer, Inc. ("MLM")
from a stockholder and officer of the Company for 20,000 common shares which were valued at $0.015 per share. All intercompany
transactions were eliminated during consolidation.
As
more fully described in Note 4 to the Consolidated Financial Statements, the Company owed the following amounts to related parties
as of June 30:
|
|
2016
|
|
|
2015
|
|
Due to Related Party
|
|
$
|
8,921
|
|
|
$
|
8,921
|
|
Due to Officer/Stockholder
|
|
|
8,446
|
|
|
|
8,446
|
|
Due to other Stockholders
|
|
|
3,113
|
|
|
|
49,300
|
|
Total Related Party Obligations
|
|
$
|
20,480
|
|
|
$
|
66,667
|
|
The
company has entered into an employment agreement with its Chief Executive Officer (CEO) for the five year period beginning January
1, 2012. The agreement provides for base compensation, annual bonus, benefits, vacation and reimbursements. Under this agreement,
the base compensation of the Company's CEO is $100,000 per annum which has been accrued for the years ended December 13, 2015
and 2014. During the quarter ended June 30, 2016 the Company commenced payroll and is paying the CEO for current wages in this
manner. For the quarter ended June 30, 2016 the CEO was paid $15,500 via payroll and $9,500 was accrued. For the six months ended
June 30, 2016, $18,974 in accrued compensation was paid. Accrued compensation in the amount of $30,000 was converted to shares
of common stock during 2015.
In
August 2015, MLM acquired a trademark from the son of the Company’s President for $20,000 due 90 days from the date of acquisition.
During the quarter ended June 30, 2016, the Company issued 3,400 shares of Preferred Series B stock as settlement on this liability.
Due to the uncertainty of future cash flows from the trademark management has deemed it to be impaired and recorded an impairment
expense of $20,000 at September 30, 2015.
In
August 2015, subsequent to the date the Company acquired MLM, MLM purchased $50,000 in inventory from the son of the Company's
President. The inventory consisted of 20 hand-held laser devices. During the quarter-ended March 31, 2016, 10,000 shares of Series
B Preferred stock were issued in settlement of this liability.
As
more fully described in Note 1-Intangible Asset-Licensing Agreement, on March 8th 2016 the Company entered into a Licensing Agreement
with a Florida Corporation (Licensor) that is owned by a related party. The Company issued 25,000 shares of Series B Preferred
stock to the Licensor as partial consideration for the Licensing agreement plus a $150,000 promissory note to the Licensor for
the balance of the consideration. During the quarter-ended March 31, 2016, 3,400 shares of Series B Preferred stock were converted
into 1,700,000 shares of common stock in accordance with the terms of the Series B Preferred stock.
Note
11. BASIS OF REPORTING - GOING CONCERN
The
accompanying financial statements have been prepared assuming the Company will continue as a going concern, which contemplates
the recoverability of assets and the satisfaction of liabilities in the normal course of business.
The
Company has incurred losses from inception of approximately $1,336,041, which, among other factors, raises substantial doubt about
the Company's ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent upon
management's plans to raise additional capital from the sale of stock and receive additional loans from related parties. The accompanying
financial statements do not include any adjustments that might be required should the Company be unable to continue as a going
concern.
Note 12. SUBSEQUENT EVENTS
Subsequent to June 30, 2016, noteholders
elected to partially convert an aggregate of $69,698 of outstanding convertible notes in 25,721,665 shares of common stock.
On July 8, 2016, the Company, in response
to its Premarket Notification 510(k) submission for “The Time Machine” Series Laser, received clearance from the U.S.
Food and Drug Administration (“FDA”) to market its infrared Time Machine TTML-8102000 Laser Thermal Therapeutic Device.
On July 18, 2016, the “Company
issued a press release announcing that it has set a retail price for its Infrared Time Machine Laser at $9,995.
In July 2016, the Company adopted the
Medifirst Solutions, Inc. 2016 Equity Incentive Plan (the "Plan”) pursuant to which the Company may grant stock options,
restricted stock purchase offers and other equity-based awards up to an aggregate of 20,000,000 shares of common stock. The Plan
is designed to retain directors, executives and selected employees and consultants and reward them for making contributions to
the success of the Company. These objectives are accomplished by making long-term incentive awards under the Plan thereby providing
Participants with a proprietary interest in the growth and performance of the Company.
The Plan shall be administered by the
Board, provided, however, that the Board may delegate such administration to any committee of the Board it shall designate. Subject
to the provisions of the Plan, the Board shall have authority to (a) grant, in its discretion, Incentive Stock Options in accordance
with Section 422 of the Code, or Nonstatutory Options, Stock Awards or Restricted Stock Purchase Offers; (b) determine in good
faith the fair market value of the Stock covered by any Grant; (c) determine which eligible persons shall receive Grants and the
number of shares, restrictions, terms and conditions to be included in such Grants; (d) construe and interpret the Plan; (e) promulgate,
amend and rescind rules and regulations relating to its administration, and correct defects, omissions and inconsistencies in the
Plan or any Grant; (f) consistent with the Plan and with the consent of the Participant, as appropriate, amend any outstanding
Grant or amend the exercise date or dates thereof; (g) determine the duration and purpose of leaves of absence which may be granted
to Participants without constituting termination of their employment for the purpose of the Plan or any Grant; and (h) make all
other determinations necessary or advisable for the Plan's administration. The interpretation and construction by the Board of
any provisions of the Plan or selection of Participants shall be conclusive and final. No member of the Board shall be liable for
any action or determination made in good faith with respect to the Plan or any Grant made thereunder.
On August 9th, 2016, the Company issued
3,000,000 shares of common stock as payment to an individual for services in connection with the appointment of the individual
to the Company's Advisory Board.
On August 9th, 2016, the Company authorized
the issuance of 3,000,000 shares of common stock as payment to an individual (Doctor) hired as the Company's Medical Director and
Vice President.
On August 9th, 2016, the Company issued
4,000,000 shares of common stock under the 2016 Incentive Stock Plan as payment to an individual (attorney) in settlement of legal
services rendered in the amount of approximately $16,500 (including monthly fees through September 30, 2016).
On August 11th, 2016, the Company authorized
the issuance of 500,000 shares of common stock as payment to an individual (consultant) in settlement of general business development
consulting services rendered pursuant to an agreement effective November 21, 2015.