NOTES TO CONDENSED FINANCIAL STATEMENTS
March 31, 2020
(Unaudited)
NOTE 1 - BACKGROUND
Business Activity
REMSleep Holdings, Inc. (the “Company”)
was incorporated in the State of Nevada on June 6, 2007. On January 5, 2015 the name of the Company was changed to REMSleep Holdings,
Inc. and the business model was changed to reflect the new direction of the Company – to develop and distribute products
to help people affected by sleep apnea. Effective January 1, 2015, we completed an exchange agreement to purchase 100% of the outstanding
interests of REMSleep LLC in exchange for 50,000,000 common shares of REMSleep Holdings, Inc.’s stock, at which time REMSleep
LLC became our wholly-owned subsidiary and adopted their business of developing and distributing our sleep apnea products. On January
5, 2015, we changed our name to REMSleep Holdings, Inc. to reflect our new business model.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
These unaudited condensed financial statements
have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”)
and the rules and regulations of the Securities and Exchange Commission (“SEC”). These financial statements and the
notes attached hereto should be read in conjunction with the financial statements and notes included in the Company’s 10-K
for its fiscal year ended December 31, 2019. In the opinion of the Company, all adjustments, including normal recurring adjustments
necessary to present fairly the financial position of the Company, as of March 31, 2020 and the results of its operations and cash
flows for the three months then ended have been included. The results of operations for the interim period are not necessarily
indicative of the results for the full year ending December 31, 2020.
Use of Estimates
The preparation of financial statements
in conformity with accounting principles generally accepted in the United States of America requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
Fair Value of Financial Instruments
The Company follows paragraph 825-10-50-10
of the FASB Accounting Standards Codification for disclosures about fair value of its financial instruments and 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. 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 broad levels. 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. The three 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 unobservable inputs and not corroborated by market data.
|
The carrying amount of the Company’s
financial assets and liabilities, such as cash, prepaid expenses and accrued expenses approximate their fair value because of the
short maturity of those instruments. The Company’s notes payable approximates the fair value of such instruments as
the notes bear interest rates that are consistent with current market rates.
The following table classifies the Company’s liabilities
measured at fair value on a recurring basis into the fair value hierarchy as of March 31, 2020:
Description
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total Gains and (Losses)
|
|
Derivative
|
|
|
-
|
|
|
|
-
|
|
|
|
665,321
|
|
|
|
152,875
|
|
Total
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
665,321
|
|
|
$
|
152,875
|
|
December 31, 2019:
Description
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total Gains and (Losses)
|
|
Derivative
|
|
|
-
|
|
|
|
-
|
|
|
|
626,831
|
|
|
|
445,318
|
|
Total
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
626,831
|
|
|
$
|
445,318
|
|
Recently Adopted Accounting Pronouncements
The Company has implemented all new accounting
pronouncements that are in effect. These pronouncements did not have any material impact on the financial statements unless
otherwise disclosed, and the Company does not believe that there are any other new accounting pronouncements that have been issued
that might have a material impact on its financial position or results of operations.
NOTE 3 - GOING CONCERN
The accompanying unaudited financial statements
have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in
the normal course of business. The Company has an accumulated deficit of $5,667,361 at March 31, 2020, had a net loss of $273,522
(including approximately $272,000 on non-cash expense and losses related to convertible debt) and net cash used in operating activities
of $77,589 for the three months ended March 31, 2020. The Company’s ability to raise additional capital through the future
issuances of common stock and/or debt financing is unknown. The obtainment of additional financing, the successful development
of the Company’s contemplated plan of operations, and its transition, ultimately, to the attainment of profitable operations
are necessary for the Company to continue operations. These conditions and the ability to successfully resolve these factors over
the next twelve months raise substantial doubt about the Company’s ability to continue as a going concern. The financial
statements of the Company do not include any adjustments that may result from the outcome of these aforementioned uncertainties.
The Company is in the final stages of product
development and plans to begin selling its product in 2020. The Company will continue to finance its operations through debt and/or
equity financing as needed.
NOTE 4 - PROPERTY & EQUIPMENT
Long lived assets, including property and
equipment and certain intangible assets to be held and used by the Company are reviewed for impairment whenever events or changes
in circumstances indicate that the carrying value of the assets may not be recoverable. Impairment losses are recognized if expected
future cash flows of the related assets are less than their carrying values. Measurement of an impairment loss is based on the
fair value of the asset. Long-lived assets and certain identifiable intangibles to be disposed of are reported at the lower of
carrying amount or fair value less cost to sell.
Property and Equipment and intangible assets
are first recorded at cost. Depreciation and/or amortization is computed using the straight-line method over the estimated useful
lives of the various classes of assets as follows between three and five years.
Maintenance and repair expenses, as incurred,
are charged to expense. Betterments and renewals are capitalized in plant and equipment accounts. Cost and accumulated depreciation
applicable to items replaced or retired are eliminated from the related accounts with any gain or loss on the disposition included
as income.
Assets stated at cost, less accumulated depreciation consisted
of the following:
|
|
March 31, 2020
|
|
|
December 31,
2019
|
|
Furniture/fixtures
|
|
$
|
14,904
|
|
|
$
|
14,904
|
|
Office equipment
|
|
|
7,136
|
|
|
|
7,136
|
|
Automobile
|
|
|
16,979
|
|
|
|
16,963
|
|
Tooling/Molds
|
|
|
112,785
|
|
|
|
105,301
|
|
Less: accumulated depreciation
|
|
|
(47,607
|
)
|
|
|
(36,490
|
)
|
Fixed assets, net
|
|
$
|
104,197
|
|
|
$
|
107,814
|
|
Depreciation expense
Depreciation expense for the three months
ended March 31, 2020 and 2019 was $11,117 and $1,402, respectively.
NOTE 5 - LOANS PAYABLE
On October 24, 2017, the Company was notified
that a petition had been filed in the Iowa District Court for Polk County by a Mr. John M. Wesson for failure to repay a loan.
Mr. Wesson had loaned the Company $30,000 and $20,000 on October 24, 2012 and June 12, 2013, respectively. The loans were to accrue
interest at 5%. On April 26, 2018, the Company agreed to repay the loan in full including accrued interest and $5,000 for legal
fees. As of March 31, 2020, there is $45,000 and $17,652 of principal and interest due on this loan. As of December 31, 2019, there
was $45,000 and $17,901 of principal and interest due on this loan.
On March 23, 2018, the Company purchased
an automobile. The purchase price was $16,963 The interest rate on the loan is 5.8% and matures on April 7, 2023. Payments on the
loan, consisting of principal and interest, are $327 per month. As of March 31, 2020, the balance on this loan is $10,738.
NOTE 6 - CONVERTIBLE NOTES
The following table summarizes the convertible
notes and related activity as of March 31, 2020:
Note Holder
|
|
Date
|
|
Maturity Date
|
|
Interest
|
|
|
Balance
December 31,
2019
|
|
|
Additions
|
|
|
Conversions
|
|
|
Balance
March 31, 2020
|
|
Odyssey Capital Funding, LLC
|
|
5/3/2019
|
|
5/3/2020
|
|
|
12
|
%
|
|
|
35,000
|
|
|
|
-
|
|
|
|
(35,000
|
)
|
|
|
-
|
|
Armada Investment Fund LLC
|
|
5/30/2019
|
|
2/29/2020
|
|
|
12
|
%
|
|
|
20,850
|
|
|
|
-
|
|
|
|
(20,850
|
)
|
|
|
-
|
|
BHP Capital NY Inc.
|
|
5/30/2019
|
|
2/29/2020
|
|
|
12
|
%
|
|
|
7,394
|
|
|
|
-
|
|
|
|
(7,394
|
)
|
|
|
-
|
|
Jefferson Street Capital LLC
|
|
5/30/2019
|
|
2/29/2020
|
|
|
12
|
%
|
|
|
13,750
|
|
|
|
-
|
|
|
|
(13,750
|
)
|
|
|
-
|
|
Armada Investment Fund LLC
|
|
10/4/2019
|
|
7/4/2020
|
|
|
12
|
%
|
|
|
55,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
55,000
|
|
BHP Capital NY Inc.
|
|
10/4/2019
|
|
7/4/2020
|
|
|
12
|
%
|
|
|
55,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
55,000
|
|
Jefferson Street Capital LLC
|
|
10/4/2019
|
|
7/4/2020
|
|
|
12
|
%
|
|
|
55,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
55,000
|
|
Power Up Lending Group LTD
|
|
1/27/2020
|
|
1/27/2021
|
|
|
12
|
%
|
|
|
-
|
|
|
|
168,300
|
|
|
|
-
|
|
|
|
168,300
|
|
Power Up Lending Group LTD
|
|
3/2/2020
|
|
3/2/3021
|
|
|
12
|
%
|
|
|
-
|
|
|
|
80,300
|
|
|
|
-
|
|
|
|
80,300
|
|
|
|
|
|
Total
|
|
|
$
|
241,994
|
|
|
$
|
248,600
|
|
|
$
|
(76,994
|
)
|
|
$
|
413,600
|
|
|
|
Less debt discount
|
|
|
|
(164,998
|
)
|
|
|
|
|
|
|
|
|
|
|
(267,858
|
)
|
|
|
|
|
|
|
|
|
|
|
$
|
76,996
|
|
|
|
|
|
|
|
|
|
|
$
|
145,742
|
|
A summary of the activity of the derivative
liability for the notes above is as follows:
Balance at December 31, 2018
|
|
|
96,110
|
|
Increase to derivative due to new issuances
|
|
|
1,955,295
|
|
Decrease to derivative due to conversion
|
|
|
(979,290
|
)
|
Derivative loss due to mark to market adjustment
|
|
|
(445,284
|
)
|
Balance at December 31, 2019
|
|
$
|
626,831
|
|
Increase to derivative due to new issuances
|
|
|
406,365
|
|
Decrease to derivative due to conversion
|
|
|
(215,000
|
)
|
Derivative loss due to mark to market adjustment
|
|
|
(152,875
|
)
|
Balance at March 31, 2020
|
|
$
|
665,321
|
|
A summary of quantitative information about
significant unobservable inputs (Level 3 inputs) used in measuring the Company’s derivative liability that are categorized
within Level 3 of the fair value hierarchy for the three months ended March 31, 2020 is as follows:
Inputs
|
|
March
31,
2020
|
|
|
Initial
Valuation
|
|
Stock price
|
|
$
|
.0069
|
|
|
$
|
.0094
- .55
|
|
Conversion price
|
|
$
|
.003 - .007
|
|
|
$
|
003 - .244
|
|
Volatility (annual)
|
|
|
330.6 – 374
|
%
|
|
|
261.04% - 410.61
|
%
|
Risk-free rate
|
|
|
.11% - .17
|
%
|
|
|
.89% - 2.58
|
%
|
Dividend rate
|
|
|
-
|
|
|
|
-
|
|
Years to maturity
|
|
|
.26 - .92
|
|
|
|
.75 - 1
|
|
A summary of quantitative information about
significant unobservable inputs (Level 3 inputs) used in measuring the Company’s derivative liability that are categorized
within Level 3 of the fair value hierarchy at the time of conversion is as follows:
Inputs
|
|
|
|
Stock price
|
|
$
|
.0106 - .0296
|
|
Conversion price
|
|
$
|
.0034 - .0046
|
|
Volatility (annual)
|
|
|
312.5 – 363.9
|
|
Risk-free rate
|
|
|
1.54% - 1.56
|
%
|
Dividend rate
|
|
|
-
|
|
Years to maturity
|
|
|
.13 - .35
|
|
The development and determination of the
unobservable inputs for Level 3 fair value measurements and fair value calculations are the responsibility of the Company’s
management
NOTE 7 - RELATED PARTY TRANSACTIONS
The Company has received support from parties
related through common ownership and directorship. These loans are unsecured, and due on demand. As of March 31, 2020 and December
31, 2019, the balance due on these loans is $179,191 and $179,191, respectively. Beginning on January 1, 2019, the balance due
accrues interest at 12.5%. As of March 31, 2020, total accrued interest is $28,045.
The Company executed a new employment agreement
with Mr. Wood on April 1, 2019. Per the terms of the agreement Mr. Wood is to be compensated $4,000 per month. The agreement expired
on April 1, 2020 and has been renewed for another year.
The Company executed an employment agreement
with its Chairman, Russell Bird, on January 1, 2019. Per the terms of the agreement, which is effective for one year, Mr. Bird
is to be compensated $3,000 per month. As of March 31, 2020, there is $14,000 of accrued compensation due to Mr. Bird. Mr. Bird’s
employment agreement has been renewed in 2020.
NOTE 8 - COMMON STOCK
During the three
months ended March 31, 2020, Armada Capital Partners LLC converted $20,850 and $110 of principal and interest, respectively,
into 5,202,346 shares of common stock.
During the three
months ended March 31, 2020, BHP Capital NY Inc converted $7,394 and $35 of principal and interest, respectively, into 1,919,620
shares of common stock.
During the three
months ended March 31, 2020, Jefferson Street Capital LLC converted $13,750 of principal and $2,205 of interest, respectively,
into 3,989,090 shares of common stock.
During the three
months ended March 31, 2020, Odyssey Capital Funding LLC converted $35,000 of principal and $2,890 of interest, respectively,
into 8,630,042 shares of common stock.
During the three
months ended March 31, 2020, 36,769,439 shares of common stock were issued in conversion of 46,675,330 warrants.
NOTE 9 - PREFERRED STOCK
The Company is currently authorized to
issue 5,000,000 shares of Series A Preferred Stock, par value $0.001 per share value with 1:25 voting rights. The Series A Preferred
Stock ranks equal to the common stock on liquidation, pays no dividend and is convertible to common stock for one share of common
for one share of Series A Preferred Stock.
The Company is currently authorized to
issue 5,000,000 shares of Series B Preferred Stock, par value $0.001 per share. Each share of Series B Preferred Stock has a 1:100
voting right and is convertible into 100 shares of common stock. No dividends will be paid and in the event of liquidation all
shares of Series B will automatically convert into common stock. There are no shares of Series B Preferred Stock issued and outstanding.
The Company is currently authorized to
issue 5,000,000 shares of Series C Preferred Stock, par value $0.001 per share value. Each share of Series C Preferred Stock has
a 1:50 voting right and is convertible into 50 shares of common stock. No dividends will be paid and in the event of liquidation
all shares of Series C will automatically convert into common stock. There are no shares of Series C Preferred Stock issued and
outstanding.
NOTE 10 - WARRANTS
On May 30, 2019, the Company issued 1,500,000
warrants in conjunction with convertible debt. The warrants are exercisable for 3 years at $.10 per share. The warrants were evaluated
for purposes of classification between liability and equity. The warrants do not contain features that would require a liability
classification and are therefore considered equity. The Black Scholes pricing model was used to estimate the fair value of the
Warrants issued with the following inputs:
Using the fair value calculation, the relative
fair value between the debt issued and the warrants was calculated to determine the warrants recorded equity amount of $41,853,
accounted for in additional paid in capital.
Warrants
|
|
|
1,500,000
|
|
Share price
|
|
$
|
0.045
|
|
Exercise Price
|
|
$
|
0.07
|
|
Term
|
|
|
3 years
|
|
Volatility
|
|
|
406
|
%
|
Risk Free Interest Rate
|
|
|
2.0
|
%
|
Dividend rate
|
|
|
-
|
|
On October 4, 2019, the Company issued
1,500,000 warrants in conjunction with convertible debt. The warrants are exercisable for 3 years at $0.10 per share. The warrants
were evaluated for purposes of classification between liability and equity. The warrants do not contain features that would require
a liability classification and are therefore considered equity. The Black Scholes pricing model was used to estimate the fair value
of the Warrants issued with the following inputs:
Using the fair value calculation, the relative
fair value between the debt issued and the warrants was calculated to determine the warrants recorded equity amount of $36,606,
accounted for in additional paid in capital.
The Black Scholes pricing model was used
to estimate the fair value of the Warrants issued with the following inputs:
Warrants
|
|
|
1,500,000
|
|
Share price
|
|
$
|
0.0245
|
|
Exercise Price
|
|
$
|
0.10
|
|
Term
|
|
|
3 years
|
|
Volatility
|
|
|
356.53
|
%
|
Risk Free Interest Rate
|
|
|
1.35
|
%
|
Dividend rate
|
|
|
-
|
|
On January 22, 2020, the Company issued
63,236,369 additional warrants as part of the down round protection provisions. The adjusted exercise price was $0.00385. The warrants
were evaluated for purposes of classification between liability and equity. The warrants do not contain features that would require
a liability classification and are therefore considered equity.
The Black Scholes pricing model was used
to estimate the fair value of the Warrants issued with the following inputs:
Warrants
|
|
|
63,236,369
|
|
Share price
|
|
$
|
0.0249
|
|
Exercise Price
|
|
$
|
0.00385
|
|
Term
|
|
|
2.35 – 2.70 years
|
|
Volatility
|
|
|
392.73 – 410.10%
|
|
Risk Free Interest Rate
|
|
|
1.52 – 1.53
|
%
|
Dividend rate
|
|
|
-
|
|
A summary of the status of the Company’s
outstanding stock warrants and changes during the year is presented below:
Activity for the three months ended March
31, 2020 is as follows:
|
|
Number of
Warrants
|
|
|
Weighted
Average
Exercise Price
|
|
|
Weighted
Average
Remaining
Contract
Term
|
|
|
Aggregate Intrinsic Value
|
|
Outstanding at December 31, 2019
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
|
|
|
Granted
|
|
|
3,000,000
|
|
|
|
0.07
|
|
|
|
2.59
|
|
|
|
|
|
Expired
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Outstanding at December 31, 2019
|
|
|
3,000,000
|
|
|
|
0.07
|
|
|
|
2.59
|
|
|
|
|
|
Granted
|
|
|
63,236,369
|
|
|
|
0.00385
|
|
|
|
2.56
|
|
|
|
|
|
Expired
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Exercised
|
|
|
(46,675,330
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Exercisable at March 31, 2020
|
|
|
19,561,039
|
|
|
$
|
0.00385
|
|
|
|
2.51
|
|
|
$
|
-
|
|
Range of Exercise
Prices
|
|
|
Number Outstanding
3/31/2020
|
|
|
Weighted Average Remaining
Contractual Life
|
|
Weighted Average
Exercise Price
|
|
$
|
0.00385
|
|
|
|
19,561,039
|
|
|
2.51 years
|
|
$
|
0.00385
|
|
The aggregate intrinsic value represents
the total pretax intrinsic value, based on warrants with an exercise price less than the Company’s stock price as of March
31, 2020, which would have been received by the warrant holder had the warrant holder exercised their warrants as of that date.
NOTE 11 - SUBSEQUENT EVENTS
In accordance with SFAS 165 (ASC 855-10)
management has performed an evaluation of subsequent events through the date that the financial statements were available to be
issued and has determined that it does not have any material subsequent events to disclose in these financial statements other
than the following.
On January 30, 2020, the World Health Organization
declared the COVID-19 (coronavirus) outbreak a “Public Health Emergency of International Concern” and on March 10, 2020,
declared it to be a pandemic. The virus and actions taken to mitigate its spread have had and are expected to continue to have
a broad adverse impact on the economies and financial markets of many countries, including the geographical areas in which the
Company operates. The Company continues to execute its business plan. At the present time, the Company can not predict the full
impact of the COVID-19 virus on its business. Our projections on spending, product development and milestone achievements are likely
to be further revised as new information is obtained.
During April 1, 2020, the Company sold
11,000,000 shares of common stock for total cash proceeds of $55,000. The shares were sold pursuant to the offering statement recently
filed with the SEC.
Subsequent to March 31, 2020, the Company
issued 7,105, 263 shares of common stock in conversion of warrants held BHP Capital NY Inc.