MSSV Meso Numismatics Inc (PK)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2019  

(unaudited)

NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS

Nature of Business

Meso Numismatics, Inc. (the “Company”) was originally organized under the laws of the state of Washington in 1999, as Spectrum Ventures, LLC to develop, market and sell VOIP (Voice Over Internet Protocol) services. In 2002, the Company changed its name to Nxtech Wireless Cable Systems, Inc. In August 2007, the Company changed its name to Oriens Travel and Hotel Management Corp. In November 2014, the Company changed its name to Pure Hospitality Solutions, Inc.

On November 16, 2016, the Company entered into an Agreement and Plan of Merger between the Company and Meso Numismatics Corp. (“Meso”). The acquisition of Meso is to support the Company’s overall mission of specializing in ventures related to Central America and the Latin countries of the Caribbean, not limited to tourism. Meso is a small but scalable numismatics operation that the Company can leverage for low cost revenues and product marketing.

Meso Numismatics maintains an online store with eBay ( www.mesocoins.com ) and participates in live auctions with major companies such as Heritage Auctions, Stacks Bowers Auctions and Lyn Knight Auctions.

The acquisition was completed on August 4, 2017 following the Company issuance of 25,000 shares of Series BB preferred stock to Meso to acquire one hundred (100%) percent of Meso’s common stock. The Company accounted for the acquisition as common control, as Melvin Pereira, the CEO and principal shareholder of the Company, controls, operates and owns both companies. On November 16, 2016, the date of the Merger Agreement, and June 30, 2017, the date of the Debt Settlement Agreement, Melvin Pereira, CEO of Pure Hospitality Solutions, owned 100% of the stock of Meso Numismatics. Pure Hospitality Solutions, Inc. and Meso Numismatics first came under common control on June 30, 2017.

On September 4, 2017, the Company decided to suspend its booking operations, Oveedia, to focus on continuing to build its numismatic business, Meso Numismatics. The Company did, however, use its footprint within the Latin American region to expand Meso Numismatics quickly.

In September 2018, the Company changed its name to Meso Numismatics, Inc. and was approved by FINRA, and on September 26, 2018, the new ticker symbol MSSV became effective as of October 16, 2018.

On July 2, 2018, the Board of Directors authorized and shareholders approved a 1-for-1,000 reverse stock split of its issued and outstanding shares of common stock held by the holders of record. The prior year financials have been changed to reflect the 1-for-1,000 reverse stock split.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation and Basis of Presentation

The audited consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, E-Network de Costa Rica MA SA and Meso Numismatics Corp. All intercompany transactions have been eliminated.

Use of Estimates in Financial Statement Presentation

The preparation of these 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 period. Actual results could differ from those estimates.

Reclassifications

Certain amounts for the prior year have been revised or reclassified to conform to the current year presentation.

Cash and Cash Equivalents

The Company considers all highly liquid accounts with original maturities of three months or less to be cash equivalents. At March 31, 2019 and December 31, 2018, all of the Company’s cash was deposited in major banking institutions. There were no cash equivalents as of March 31, 2019 and December 31, 2018.

Inventory 

The Company’s inventory is comprised of roughly 50% coins and medals and 50% paper money. The Company has a meticulous process for the acquisition and sales process for each coin item. The Company specializes in coins from the Meso region, but also acquires coins and medals from elsewhere around the world

As of March 31, 2019, the Company is working on an inventory tracking system by serial number. Until such time as an inventory tracking system exists, the inventory costs cannot be properly confirmed. Any inventory balances are therefore expensed during each reporting period.

Derivative Instruments

The derivative instruments are accounted for as liabilities. The derivative instrument is initially recorded at its fair market value and is then re-valued at each reporting date, with changes in fair value recognized in operations for each reporting period. The Company uses the Binomial option pricing model to value the derivative instruments.

Revenue Recognition

Effective January 1, 2018, the Company adopted ASC 606 — Revenue from Contracts with Customers. Under ASC 606, the Company recognizes revenue from the commercial sales of products by applying the following steps: (1) identifying the contract with a customer; (2) identifying the performance obligations in the contract; (3) determining the transaction price; (4) allocating the transaction price to each performance obligation in the contract; and (5) recognizing revenue when each performance obligation is satisfied. For the comparative periods, revenue has not been adjusted and continues to be reported under ASC 605 — Revenue Recognition. Under ASC 605, revenue is recognized when the following criteria are met: (1) persuasive evidence of an arrangement exists; (2) the performance of service has been rendered to a customer or delivery has occurred; (3) the amount of fee to be paid by a customer is fixed and determinable; and (4) the collectability of the fee is reasonably assured. The Company recognizes revenues and the related costs when persuasive evidence of an arrangement exists; delivery and acceptance has occurred; or service has been rendered, the price is fixed or determinable, and collection of the resulting receivable is reasonably assured. Amounts invoiced or collected in advance of product delivery or providing services are recorded as deferred revenue. The Company accrues for sales returns, bad debts, and other allowances based on its historical experience.

The Company acquires rare coins and banknotes from Latin America at reduced costs, which it then sends to Numismatic Guaranty Corporation and Paper Money Guaranty for authentication and grading. Once graded, the inventory is transferred to Meso’s Florida-based location and then sent around the world to the Company’s many customers, with sales recorded net of fees.

Income Taxes

The Company uses the liability method to record income tax activity. Deferred taxes are determined based upon the estimated future tax effects of differences between the financial reporting and tax reporting bases of assets and liabilities, given the provisions of currently enacted tax laws.

The accounting for uncertainty in income taxes recognized in an enterprise’s financial statements uses the threshold of more-likely-than-not to be sustained upon examination for inclusion or exclusion. Measurement of the tax uncertainty occurs if the recognition threshold has been met.

Net Earnings (Losses) Per Common Share

The Company computes earnings (loss) per share by dividing net earnings (loss) by the weighted average number of shares of common stock and dilutive common stock equivalents outstanding during the year. Dilutive common stock equivalents may consist of shares issuable upon conversion of convertible preferred shares and the exercise of the Company’s stock options (calculated using the treasury stock method). Common stock issuable is considered outstanding as of the original approval date for purposes of earnings per share computations.

Fair Value of Financial Instruments

The fair value of financial instruments, which include cash, accounts payable and accrued expenses and advances from related parties were estimated to approximate their carrying values due to the immediate or short-term maturity of these financial instruments. Management is of the opinion that the Company is not exposed to significant interest, currency or credit risks arising from financial instruments.

Fair value is defined as the price which would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A three-tier fair value hierarchy which prioritizes the inputs used in the valuation methodologies is as follows:

Level 1 Inputs - Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.

Level 2 Inputs - Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (such as interest rates, volatilities, prepayment speeds, credit risks, etc.) or inputs that are derived principally from or corroborated by market data by correlation or other means.

Level 3 Inputs - Unobservable inputs for determining the fair values of assets or liabilities that reflect an entity’s own assumptions about the assumptions that market participants would use in pricing the assets or liabilities.

At March 31, 2019 and December 31, 2018, the carrying amounts of the Company’s financial instruments, including cash, accounts payable, and accrued expenses, approximate their respective fair value due to the short-term nature of these instruments.

At March 31, 2019 and December 31, 2018, the Company does not have any assets or liabilities except for derivative liabilities and convertible notes payable required to be measured at fair value in accordance with FASB ASC Topic 820, Fair Value Measurement.

The following presents the Company’s fair value hierarchy for those assets and liabilities measured at fair value on non-recurring basis as of March 31, 2019 and December 31, 2018,

Comprehensive Income

The Company records comprehensive income as the change in equity of a business during a period from transactions and other events and circumstances from non-owner sources. It includes all changes in equity during a period except those resulting from investments by owners and distributions to owners. Other comprehensive income (loss) includes foreign currency translation adjustments and unrealized gains and losses on available-for-sale securities. As of March 31, 2019 and December 31, 2018, the Company had no items that represent comprehensive loss and, therefore, has not included a schedule of comprehensive loss in the financial statements.

Stock-Based Compensation

Stock-based compensation costs are measured at fair value on the date of grant and recognition of compensation over the service period for awards expected to vest. The Company determines the fair value of awards using the Black-Scholes valuation model.

New Accounting Pronouncements

In May 2014, ASU 2014-09 was issued, relating to revenue from contracts with customers. The ASU was further amended in August 2015, March 2016, April 2016, and May 2016 by ASU 2015-14, 2016-08, 2016-10 and 2016-12.

In August 2015, the effective date was deferred to reporting periods, including interim periods, beginning after December 31, 2017, and will be applied retrospectively. Early adoption is not permitted.

Since ASU 2014-09 was issued, several additional ASUs have been issued to clarify various elements of the guidance. These standards provide guidance on recognized revenue, including a five-step model to determine when revenue recognition is appropriate. The standard requires that an entity recognize revenue to depict the transfer of control of promised goods or services to customer in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Effective January 1, 2018, the Company has adopted ASU 2014-09, “Revenue from Contracts with Customers”. The results of operations for the reported periods after January 1, 2018 will be presented under this amended guidance, while prior period amounts are reported in accordance with ASC 605-Revenue Recognition.

The Company has completed its assessment of the impact of the new revenue standard on the Company’s financial position, results of operations, or cash flows and believes the new standard will not have a material impact.  The Company has adopted the standard using the modified retrospective method of adoption. The Company’s revenue arises from contracts with customers in which the sale of coins is the single performance obligation under the customer contract. Accordingly, revenue will continue to be recognized at a point in time when control of the asset is transferred to the customer, which is generally consistent with the Company’s current accounting policies. No material changes have been noted for use in implementation of this standard.

ASU 2014-09 provides presentation and disclosure requirements which are more detailed than under current GAAP.

In February 2016, FASB issued ASU 842 that requires lessees to recognize lease assets and corresponding lease liabilities on the balance sheet for all leases with terms of more than 12 months. The update, which supersedes existing lease guidance, will continue to classify leases as either finance or operating, with the classification determining the pattern of expense recognition in the income statement.

The ASU will be effective for annual and interim periods beginning January 1, 2019, with early adoption permitted, and is applicable on a modified retrospective basis with various optional practical expedients. The Company adopted the ASU 842 effective January 1, 2019 but had no leases that caused implementation in the period ending March 31, 2019 to assets and liabilities.

The Company reviews new accounting standards as issued. No new standards had any material effect on these financial statements. The accounting pronouncements issued subsequent to the date of these financial statements that were considered significant by management were evaluated for the potential effect on these consolidated financial statements. Management does not believe any of the subsequent pronouncements will have a material effect on these consolidated financial statements as presented and does not anticipate the need for any future restatement of these consolidated financial statements because of the retroactive application of any accounting pronouncements issued subsequent to March 31, 2019 through the date these financial statements were issued.

Going Concern

The financial statements have been prepared assuming the Company will continue as a going concern. The Company has incurred losses since inception, resulting in an accumulated deficit of approximately $28,063,325 and negative working capital of $7,225,156 as of March 31, 2019 and future losses are anticipated. These factors, among others, generally tend to raise substantial doubt to continue as a going concern as to its ability to obtain additional long-term debt or equity financing in order to have the necessary resources to further design, develop and launch the website and market the Company’s new service.

In order to continue as a going concern, the Company needs to develop a reliable source of revenues, and achieve a profitable level of operations in the future and/or to obtain the necessary financing to meet its obligations arising from normal business operations when they come due.

Accordingly, the audited financial statements account for the Company as if it is a going concern and do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amount and classification of liabilities or other adjustments that might be necessary should the Company be unable to continue as a going concern.

To fund basic operations for the next twelve months, the Company projects a need for $750,000 that will have to be raised through debt or equity. In addition to the estimated $300,000 for operating expenses, the Company is budgeting $180,000 for advertising and marketing and $90,000 for new technology. To attract more customers to Meso Numismatics, the Company plans on hiring an advertising firm and placing more ads on sites such as those of NGC and PMG. Along with the advertising program, the Company plans on investing in upgrading and expanding the Meso App. To continue expanding sales, the Company plans to invest $90,000 to acquire additional inventory, along with exploring possible acquisitions, which the Company estimates will require approximately $100,000.

Business Combinations

In the third quarter of 2017, the Company issued 25,000 Series BB Preferred Stock per the terms of the June 30, 2017 Debt Settlement Agreement to complete the acquisition of Meso Numismatics, fully satisfying the Merger Agreement, which was first entered into on November 16, 2016. The Company accounted for the acquisition as common control, as Melvin Pereira, the CEO and principal shareholder of the Company, controls, operates and owns both companies. On November 16, 2016, the date of the Merger Agreement and June 30, 2017, the date of the Debt Settlement Agreement, Melvin Pereira, CEO of Pure Hospitality Solutions, owned 100% of the stock of Meso Numismatics. Pure Hospitality Solutions, Inc. and Meso Numismatics first came under common control on June 30, 2017.

NOTE 3 – NOTES PAYABLE

Convertible Notes Payable

During 2003 through 2016, the Company entered into a series of convertible debentures, which bear interest at a rate varying from 0 to 10 percent, due on an annual basis. Any amount of interest which is not paid when due shall bear interest at 0 to 10 percent until paid in full.

Throughout 2014 and 2015, these particular convertible notes payable have been partitioned and sold in portions to multiple third parties in a combined amount totaling in excess of $450,000. In the majority of cases, these convertible notes payable, because they were in default, were subject to term adjustments at the note holders’ request. Thus, when the convertible notes payable were purchased, the new debt holders (generally) negotiated new terms with the Company. To this end, the Company would issue new notes, referred to as “replacement notes,” which often resulted in slightly better terms.

These debentures are convertible, at the investors’ sole option, into shares of common stock at the following terms:

During the periods ending March 31, 2019 and December 31, 2018 the Company received $0 and $63,000, respectively, in advances on existing convertible notes and $62,370 and $208,724, respectively, from funding on new convertible notes.

From 2016 to present, the Company has entered into Convertible Debentures with Union Capital LLC. The promissory note agreements bear interest at eight (8%) percent and have a one (1) year maturity date. The notes may be repaid in whole or in part at any time prior to maturity. There are no shares of common stock issuable upon the execution of the promissory notes. The notes are convertible, at the investors’ sole discretion, into shares of common stock at variable conversion prices. As of March 31, 2019, Union Capital LLC had advanced a total of $928,144 to the Company.

During the periods ending March 31, 2019 and December 31, 2018, the Company made no payments on the outstanding convertible notes, and converted $0 and $30,251, respectively, into 0 and 1,154,394 shares of common stock. As of March 31, 2019 and December 31, 2018, the balance of outstanding principal notes payable was $1,059,872 and $997,502, respectively.

Derivative Liabilities

The Company determined that the convertible notes outstanding as of March 31, 2019 and December 31, 2018 contained an embedded derivative instrument as the conversion price was based on a variable that was not an input to the fair value of a “fixed-for-fixed” option as defined under FASB ASC Topic No. 815 – 40.

The Company determined the fair values of the embedded convertible notes derivatives and tainted convertible notes using the lattice valuation model. During the period ended March 31, 2019, the Company incurred an expense of $2,482,993 as a result of changes in the fair values of the embedded convertible notes derivatives.

During the periods ending March 31, 2019 and March 31, 2018, the Company incurred losses of $0 and a gain of $3,205, respectively on the conversion of convertible notes. In connection with the convertible notes, the Company recorded $20,780 and $14,271, respectively, of interest expense and $77,188 and $83,860, respectively, of debt discount amortization expense. As of March 31, 2019 and December 31, 2018, the Company had approximately $458,234 and $437,458, respectively, of accrued interest.

NOTE 4 – STOCKHOLDERS EQUITY

Shares of Common Stock 

The Board of Directors was required to increase the number of authorized shares of common stock from (a) 200,000,000 to 500,000,000 during June 2015, (b) 500,000,000 to 1,500,000,000 during July 2015, and (c) 1,500,000,000 to 6,500,000,000 during March 2016, to adhere to the Company’s contractual obligation to maintain the required reserve share amount for debtholders.

On July 2, 2018, the Board of Directors authorized and shareholders approved a 1-for-1,000 reverse stock split of its issued and outstanding shares of common stock held by the holders of record. The below transactions have been changed to reflect the 1-for-1,000 reverse stock split.

As of March 31, 2019 and December 31, 2018, the Company has 4,901,024 shares of common stock issued and outstanding.

2019 Transactions

There have been no issuances of the Company’s common stock during the quarter ended March 31, 2019.

Designation of Series AA Super Voting Preferred Stock

On June 30, 2014, the Company filed with the Secretary of State with Nevada an amendment to the Company’s Articles of Incorporation, as amended (the “Articles of Incorporation”), authorizing the issuance of up to eleven million (11,000,000) of preferred stock with a par value $0.001 per share.

On May 2, 2014, the Company filed with the Secretary of State with Nevada in the form of a Certificate of Designation that authorized the issuance of up to one million (1,000,000) shares of a new series of preferred stock with a par value $0.001 per share, designated “Series AA Super Voting Preferred Stock,” for which the board of directors established the rights, preferences and limitations thereof.

Each holder of outstanding shares of Series AA Super Voting Preferred Stock shall be entitled to ten thousand (10,000) votes for each share of Series AA Super Voting Preferred Stock held on the record date for the determination of stockholders entitled to vote at each meeting of stockholders of the Company.

The holders of the Series AA Super Voting Preferred Stock shall not be entitled to receive dividends paid on the Company’s common stock.

Upon liquidation, dissolution and winding up of the affairs of the Company, whether voluntary or involuntary, the holders of the Series AA Super Voting Preferred Stock shall not be entitled to receive out of the assets of the Company, whether from capital or earnings available for distribution, any amounts which will be otherwise available to and distributed to the common shareholders.

The shares of the Series AA Super Voting Preferred Stock will not be convertible into the shares of the Company’s common stock.

During 2014, the Company and S & M Chuah Enterprises Ltd. agreed to an exchange of 900,000,000 shares of common stock previously issued to S & M Chuah Enterprises Ltd., an entity controlled by Ken Chua, CEO and board member for 500,000 shares of Series AA Preferred Stock of the Company with a par value of $0.001 per share. The 900,000,000 shares of common stock were returned to the Company’s transfer agent for cancellation. The shares were valued on the date of the agreement using the par value of $0.001, since the shares were non-convertible and non-tradable with super voting rights only.

During 2014, the Company and E-Network de Costa Rica S.A., an entity controlled by Melvin Pereira, mutually agreed to issue an amount of 500,000 shares of Series AA Preferred Stock of the Company with a par value $0.001 per share as a compensation for becoming the new CEO of Pure Hospitality Solutions Inc. The shares were valued on the date of the agreement and are non-convertible and non-tradable with super voting rights only.

As of March 31, 2019 and December 31, 2018, the Company had 1,000,000 preferred shares of Series AA Preferred Stock issued and outstanding.

Designation of Series BB Preferred Stock

On March 29, 2017, the Company filed with the Secretary of State with Nevada a Certificate of Designation that authorized the issuance of up to one million (1,000,000) shares of a new series of preferred stock, par value $0.001 per share, designated “Series BB Preferred Stock,” for which the board of directors established the rights, preferences and limitations thereof.

Each holder of outstanding shares of Series BB Preferred Stock shall be entitled to convert on a 1-for-1 basis into shares of the Company’s common stock, any or all of their shares of Series BB Preferred Stock after a minimum of six (6) months have elapsed from the issuance of the preferred stock to the holder. The Series BB Preferred Stock has no voting rights until the Holder redeems the preferred stock into the Company’s common stock. The Series BB Preferred Stock shall not be adjusted by the Company.

The holders of the Series BB Preferred Stock shall not be entitled to receive dividends paid on the Company’s common stock.

The Series BB Preferred Stock has a liquidation value of $1.00. Upon liquidation, dissolution and winding up of the affairs of the Company, whether voluntary or involuntary, the holders of the Series BB Preferred Stock shall be entitled to share equally and ratably in proportion to the preferred stock owned by the holder to receive out of the assets of the Company, whether from capital or earnings available for distribution, any amounts which will be otherwise available to and distributed to the common shareholders.

NOTE 5 – RELATED PARTY TRANSACTIONS

The Company currently shares its corporate registered offices with Ajene Watson LLC at 3265 Johnson Avenue, Suite 213, Riverdale, NY 10463. The lease is for a year-to-year term. During the quarter ended March 31, 2019 and the year ended December 31, 2018, the Company incurred no material rent expenses. The Company had no leases that required implementation of ASU 842 in the period ending March 31, 2019 to assets and liabilities.

NOTE 6 – COMMITMENTS AND CONTINGENCIES

On May 12, 2015, the Company issued a convertible promissory Note (the “Note”) in the principal amount of $25,000 to Tarpon Bay Partners, LLC (“Tarpon Bay”), whose principal at the time is now known as a “Bad Actor” under SEC rules. On or about January 23, 2017, Tarpon Bay elected to convert principal and interest under the Note into shares of the Company’s common stock. On or about June 6, 2017 the Note was assigned to J.P. Carey Enterprises, Inc. (“J.P.”). On or about June 7, 2017, J.P. elected to convert principal and interest under the Note into shares of the Company’s common stock. Joseph Canouse, a principal at J.P., initiated a lawsuit against the Company in Fulton County Court, in Georgia for, among other things, breach of contract. A default judgment was entered into against the Company for failure to response to these claims. The court then issued an Order of Judgement against the Company in the amount of $282,500 which was recorded in accounts payable as of December 31, 2017. The Company appealed the Courts’ decision and in November 2018, while the Court of Appeals affirmed liability under the judgment, the Court of Appeals vacated the award of the entire judgment amount and remanded the case back to the trial court with instructions.