Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $0.001 per share
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
¨
No
x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes
¨
No
x
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
x
No
¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes
x
No
¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
¨
No
x
The aggregate market value of the voting and non-voting common equity stock held by non-affiliates of the registrant was approximately $3,600,000 as of June 29, 2018, the last business day of the registrant’s most recently completed second fiscal quarter, based on the last sale price of the registrant’s common stock on such date of $1.12 per share, as reported on the OTC Bulletin Board.
If an emerging growth company, indicate by a check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐
As of April 16, 2019, there were 14,205,417 shares of the registrant’s common stock outstanding.
As used in this annual report, the terms “we,” “us,” “our,” and words of like import, and the “Company” refers to Precheck Health Services, Inc. and its subsidiaries, unless the context indicates otherwise.
This annual report on Form 10-K contain “forward-looking statements,” within the meaning of the Private Securities Litigation Reform Act of 1995, all of which are subject to risks and uncertainties. Forward-looking statements can be identified by the use of words such as “expects,” “plans,” “will,” “forecasts,” “projects,” “intends,” “estimates,” and other words of similar meaning. One can identify them by the fact that they do not relate strictly to historical or current facts. These statements are likely to address our growth strategy, financial results and product and development programs. One must carefully consider any such statement and should understand that many factors could cause actual results to differ from our forward looking statements. These factors may include inaccurate assumptions and a broad variety of other risks and uncertainties, including some that are known and some that are not. No forward looking statement can be guaranteed and actual future results may vary materially.
These risks and uncertainties, many of which are beyond our control, include, and are not limited to:
Information regarding market and industry statistics contained in this annual report is included based on information available to us that we believe is accurate. It is generally based on industry and other publications that are not produced for purposes of securities offerings or economic analysis. We have not reviewed or included data from all sources. Forecasts and other forward-looking information obtained from these sources are subject to the same qualifications and the additional uncertainties accompanying any estimates of future market size, revenue and market acceptance of products and services. We do not assume any obligation to update any forward-looking statement. As a result, you should not place undue reliance on these forward-looking statements.
The forward-looking statements in this report speak only as of the date of this report and you should not to place undue reliance on any forward-looking statements. Forward-looking statements are subject to certain events, risks, and uncertainties that may be outside of our control. When considering forward-looking statements, you should carefully review the risks, uncertainties and other cautionary statements in this report as they identify certain important factors that could cause actual results to differ materially from those expressed in or implied by the forward-looking statements. These factors include, among others, the risks described under in this report, including those described under “Business,” “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” as well as in other reports and documents we file with the SEC. We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements, except as required by law. Given these risks and uncertainties, you are cautioned not to place undue reliance on such forward-looking statements.
PART I
ITEM 1. BUSINESS
General
Prior to the fourth quarter of 2018, through our subsidiaries, we operated four restaurants that offered healthy food. In the fourth quarter of 2018, we discontinued the restaurant business, although we continue to have obligations under restaurant leases.
Our current business is the distribution of a medical screening device, the PC8B, which we purchase from the manufacturer pursuant to a private label contract. The PC8B medical device is a screening tool designed for use by physicians and medical personnel in managing patient’s health. The device screens patients for biomarkers which are pre-cursors to certain diseases. The PC8B is designed to provide the physician with risk indications of multiple health issues of the patient being screened. The result of the screening is that the PC8B provides physicians with the capability to view data regarding certain biomarkers, immediately after the screening, which can assists them in preventing chronic diseases such as diabetes, cardiovascular disease, and many others. The PC8B is non-invasive, and combined with its ankle brachial index test, takes less than 8 minutes to complete an assessment.
We believe that the PC8B has a convenient and simple one page physician dashboard that provides a comprehensive overview of key elements of a patient’s health, while covering eight key risk factors. The physician can use this information to determine the best course of action to resolve the patient’s condition depending on the risk score for each factor.
The manufacturer has obtained FDA clearances to market its device for measuring body signs such as photo plethysmography, volume plethysmography, and galvanic skin response. The mathematical analysis of those body signals provides markers of cardio metabolic risk, autonomic neuropathy, vascular dysfunction and other risk factors. The manufacturer has obtained patent protection for its product. The PC8B is the same product that the manufacturer sells to others except that it has our private label indicia.
Marketing
We plan to market the PC8B medical device to physicians under an agreement pursuant to which the physician will pay us a fixed fee per month plus an additional fee per every test performed by the physician. Physicians are reimbursed by insurance, Medicare and Medicaid. Reimbursements vary from state to state and by payer, and coverage and reimbursement rates are subject to change. Under these arrangements, we would offer to provide the medical practice with billing and processing after the test has been performed by the practice. The tests are scheduled and administered by the physician’s office. We would collect paperwork or electronic records from the practice reflecting the completion of the test. Once we have collected these records from the practice, we process them and submit them to the appropriate insurance, Medicaid, or Medicare on behalf of the practice. Once the practice receives the reimbursement deposit from the payor, we invoice the practice and collect the fees from the practice. We do not receive any payment unless the practice receives reimbursement from the third-party payor. The administrative services are performed on our behalf by JAS Consulting, which is owned by Justin Anderson, our chief operating officer, for which we pay JAS Consulting a fee of $10 or $20 per test, depending on the test.
We also sell the PC8B to physicians. All revenue for the year ended December 31, 2018 was generated by sales of the equipment.
We are planning three marketing programs to obtain service agreements for the PC8B from the physicians -- independent medical device representatives, direct contact with physicians utilizing webinar presentations, and attendance at medical trade shows which cater to the preventive care, general care, functional medicine, and anti-aging focused physicians. We cannot assure you that we will be able to successfully implement our marketing programs.
Agreement with Supplier
On November 12, 2018, we entered into a supply and private label agreement with LD Technology, LLC pursuant to which LD Technology will manufacture and sell to us on a private label basis a non-invasive medical system that we market as the PC8B.
The agreement provides that LD Technology will provide the equipment on a private label basis is subject to our making minimum purchases on a quarterly basis based on contract years ending on November 30. The minimum purchases, based on agreed-up pricing, start at $140,000 for the first quarter, which is the quarter that ended February 28, 2019, and $202,500 per quarter for the balance of the first contract year, increasing annually to $375,000 for each quarter in the fourth contract year. We are required to make payment at the time the purchase order is placed. If we fail to meet the purchase and payment requirements for any contract quarter, we have 15 business days from the end of the contract quarter to purchase and pay for the shortfall for such quarter, and, in the event that we fail to pay for such shortfall, the agreement shall automatically terminate without any notice from LD Technology. We met our purchase requirements for the quarter ended February 28, 2019.
Government Regulations
In order to market medical devices including the PC8B, FDA clearance is required. The manufacturer has obtained FDA clearance to market its product, which is the same equipment as the PC8B, for the diagnostic tests for which we market the PC8B.
Intellectual Property
We have no patent, trademark or other intellectual property rights.
.
Research and Development Activities
We have not engaged in any research and development activities
Employees
As of December 31, 2018, we had three employees, two of whom, including our chief executive officer, are full time.
Our Organization
We are a Florida corporation organized under the name Hip Cuisine, Inc. on March 19, 2014. We changed our corporate name to Nature’s Best Brand, Inc. on June 15, 2018 and to PreCheck Health Services, Inc. on January 3, 2019. Our executive offices are located at 305 W. Woodard Street, Suite 221, Denison TX 75020, telephone (903) 337-1872. Our website is www.precheckhealth.com. Any information on or derived from our website or any other website does not constitute a part of this annual report.
ITEM 1A. RISK FACTORS
An investment in our common stock involves a high degree of risk. You should carefully consider the risks described below together with all of the other information included in this annual report before making an investment decision with regard to our securities. The statements contained in this annual report include forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from those set forth in or implied by forward-looking statements. The risks set forth below are not the only risks facing us. Additional risks and uncertainties may exist that could also adversely affect our business, prospects or operations. If any of the following risks actually occurs, our business, financial condition or results of operations could be harmed. In that case, the trading price of our common stock could decline, and you may lose all or a significant part of your investment.
Risks Concerning Our Business
We have not generated any gross profit from our present business and, as a start-up company, you have no way to evaluate our ability to operate profitably, and we cannot assure you that we can or will operate profitably.
We have incurred losses since inception. We commenced our business in the sale and marketing of diagnostic equipment in November 2018, and, for the year ended December 31, 2018, we generated revenue of $70,000, no gross profit and a loss from operations of $6,430,794, and a net loss of $7,926,516. As a result, you will have no way to evaluate our ability to generate revenue and profits. We are subject to risks common to start-up enterprises, including, among other factors, undercapitalization, cash shortages, dependence on one product, limitations with respect to personnel, financial and other resources and lack of revenues. Our ability to generate revenues and operate profitably is dependent upon our ability to market our equipment to medical practices and the use by the physicians of our equipment, and we have not demonstrated our ability to market our product or of the willingness of physicians to use our equipment. We cannot assure you that we will be successful in achieving profitability and the likelihood of our success must be considered in light of our early stage of operations. There can be no assurance that we will be able to operate profitably or generate positive cash flow.
We require significant funding for our operations.
We require significant funding for our operations. Under our agreement with our supplier, we must pay for the equipment we sell or license in advance. We also require funding for operations, including the development of a distribution network, compensation, including executive compensation, and other marketing and related expenses. We cannot assure you as to the availability or the terms of any future financing. We do not have any agreements or understandings with respect to any potential financing. Our low stock price and the lack of an active market in our stock may affect our ability to raise funds and the terms on which we will be able to raise funds. Our failure to obtain necessary financing could impair our ability to operate profitably. To the extent that we raise funds through the issuance of equity securities, such issuance may result in significant dilution to our stockholders. Further, any financing involving equity or convertible securities could result in significant dilution to our stockholders and could result in a significant reset in the exercise price of outstanding warrants and the conversion price of our outstanding convertible debt and could significantly impair the price of our common stock.
Our auditors’ report includes a going concern paragraph.
Our independent auditors included an explanatory paragraph in their report on the accompanying consolidated financial statements expressing concerns about our ability to continue as a going concern. We have not generated significant revenues since inception. As at December 31, 2018, we have an accumulated deficit of $7,396,651, and for the year ended December 31, 2018, had no gross margin and we sustained loss from operations of $6,430,794 and a net loss of $7,926,516. These factors among others raise substantial doubt about our ability to continue as a going concern for a reasonable period of time.
Because we are a one-product company, we are dependent upon our success in developing a market for this product.
We currently have one product which we plan to sell or license, the PC8B diagnostic equipment. Because we only market one product, we are dependent upon our ability to obtain sufficient quantity of our product and to develop and sustain a market for our product at a price that enables us to generate an acceptable gross margin. In the event that our product becomes obsolete or physicians do not wish to purchase or use our product, we have no other product to sell, and we may not be able to continue in business. A number of factors may affect the willingness of a physician to purchase or license medical equipment, including, but not limited to, insurance reimbursement, the cost of the equipment, the availability of dedicated office space for our equipment, the ease of use, overhead, feedback from patients, problems with the equipment and the ease of obtaining maintenance for the equipment; the perceived utility of the tests performed by our equipment which could be performed by other equipment, technological developments which may make our product obsolete or less desirable, and other factors that affect the decision of a physician or medical group to allocate space, personnel and resources to medical equipment. We cannot assure you that we can develop and sustain a market for our equipment. Further, since our agreement with LD Technology only covers the equipment that we market as the PC8B and enhancements, we cannot assure you that we will be able to purchase any other equipment which LD Technology may develop or that we will be able to negotiate a supply agreement with another company to obtain other equipment. In order for us to develop our business and to reduce the risks associated with being a one-product company, we need to obtain distribution rights to complementary products both to protect ourselves against market declines in the PC8B and to develop a marketing organization that can market more than one product, and it may be difficult to change or add products to our proposed marketing program. We can give no assurance that we can or will be able to develop distribution relationships for other products and the failure to do so could impair our ability to generate revenue and operate profitably.
Because we are dependent upon one equipment supplier, the failure or inability of this supplier to deliver the equipment would affect our operations.
The PC8B diagnostic equipment is manufactured for us by LD Technology pursuant to a supply and private label agreement dated November 12, 2018. The PC8B is LD Technology’s diagnostic equipment with certain private label indicia to meet our requirements. Our right to LD Technology’s product is non-exclusive, and LD Technology has the right to sell the equipment to others without our private label indicia. Further, since LD Technology can sell the equipment to others and manufactures other equipment for the medical industry, we are dependent upon LD Technology’s allocation of resources and we cannot assure you that LD Technology will be able to meet our requirements. The failure of LD Technology to meet our requirement could materially impair our ability to generate revenue since we do not have any other products. Since the PC8B is LD Technology’s product, we cannot have the product made by another supplier. We are dependent upon LD Technology to meet our requirements and to maintain the quality of the equipment it sells to us. If LT Technologies discontinues the PB8B, we will not be able to generate revenue from the product and, if we do not obtain distribution rights for other products, we may not be able to continue in business.
Because our agreement with LD Technology is non-exclusive, LD Technology may sell the same or similar equipment to others.
Since LD Technology has the right to sell to others the same equipment that it sells to us, without our private label indicia, on such terms as it may determine, we may compete both with other distributors of LD Technology diagnostic equipment, which may include advanced version of our equipment, and with distributors of diagnostic equipment manufactured by others.
Our agreement with LD Technology automatically terminates in the event that we fail to meet the purchase order and payment requirements.
LD Technology’s agreement to sell us the PC8B on a private label basis is subject to our making minimum purchases on a quarterly basis for based on contract years ending on November 30. The minimum purchases, based on agreed-up pricing, start at $140,000 for the first quarter and $202,500 per quarter for the balance of the first contract year, increasing annually to $375,000 for each quarter in the fourth contract year. We are required to make payment at the time the purchase order is placed. If we fail to meet the purchase and payment requirements for any contract quarter, we have 15 business days from the end of the contract quarter to purchase and pay for the shortfall for such quarter, and, in the event that we fails to pay for such shortfall, the agreement shall automatically terminate without any notice from LD Technology.
Because we pass on to our customer’s LD Technology’s product warranty, we are dependent upon LT Technology to service products we sell and to provide warranty service.
We pass to our customers LD Technology’s standard product warranty. In the event that the equipment does not function as warranted, the user will be dependent upon LD Technology’s ability to address any problems which may arise on a timely basis. Even though our customers acknowledge in their agreement with us that they are relying on the manufacturer’s warranty, we cannot assure you that they will not make a claim against us for any malfunction or damages and that we will not be held liable for any damages the customer may incur. Further, the failure of LD Technology to provide warranty service to our customers could impair our ability to sell our product.
We are dependent upon the ability of LD Technology to develop enhancements in the PC8B to meet the real or perceived requirements of physicians and to meet technological development.
The medical equipment field is characterized by the rapid technological changes and the development of new products or enhancements of existing product to take advantage of the latest technological advances as well as changes in the kind of equipment physicians want to purchase. We do not have any research and development capabilities, and we are dependent upon LD Technology to develop enhancements in its products. We can give no assurance that LD Technologies will develop enhancements to the PC8B to enable the product to be competitive, both in terms of price and function. Because LD Technologies offers a range of products, it may orient its research and development activities to products other than the PC8B. Our inability to offer products in the price range and with the functions desired by physicians could impair our ability to generate revenues and operate profitably.
Our manufacturer may not be able to protect its intellectual property.
We are relying LT Technologies to protect its intellectual property relating to the PC8B. We cannot assure you that any equipment we sell, whether manufactured by LT Technology or another manufacturer, will not violate the intellectual property rights of third parties. Any claim of violation of the intellectual property rights of a third party, whether or not there is infringement, could result in litigation against us and could impair our ability to generate revenue or operate profitably. Further, the failure of our manufacturer to obtain rights to intellectual property of third parties, or the potential for intellectual property litigation, could result in our manufacturer’s discontinuing to offer the product.
Any recall or threat of recall of products we sell could impair our ability to generate revenues.
Medical equipment may be subject to recall or threat of recall in the event of adverse events which result from or are claimed to result from the use of the equipment. We cannot assure you that any equipment that we market will not be subject to recall. Further, word of mouth complaints about the equipment, whether raised by physicians, posted on our or LD Technology’s website and in social media could impair our ability to market our product with the result that our revenues and net income could be impaired.
Our failure to offer customers a financing alternative may impair its ability to sell products.
Although we plan to market the PC8B medical device to physicians under an agreement pursuant to which the physician will pay us a fixed fee per month plus an additional fee per every test performed by the physician, we do not offer any financing arrangements to potential customers looking to purchase our equipment, and we do not have the financial ability to offer financing arrangements. Our failure or inability to offer customers a financing option may impair our ability to market products.
Changes in insurance company, Medicare and Medicaid practices could impair the market for our products.
The market for medical equipment is strongly affected by the extent that physicians who use the equipment can receive reimbursement for the use of the equipment. Reimbursement policies are subject to change, and any changes in insurance, Medicare or Medicaid policies that make to more difficult for physicians to receive reimbursement for tests performed using our equipment could impair our ability to generate revenue and operate profitably.
Our ability to sell our products can be impaired by any action by the Federal Food and Drug Administration (the “FDA”) to modify or revoke the terms of its marketing approval of our products.
Medical equipment is subject to regulations of the Food and Drug Administration, and pre-marketing approval is required before any medical equipment can be marketed. LD Technology has advised us that it has obtained FDA approval to market its equipment, any changes or any revocation of any approval previously give can impair our ability to derive revenue from the product.
We may be responsible for the operation of our products even though we do not manufacture the products.
Even though we does not manufacture its products, we may be held ultimately responsible for any defects in the products we sell. We cannot assure you that customers will not experience operational process failures or other problems, including through intentional acts, that could result in potential product safety, regulatory or environmental risks, and that we will not be held responsible for any resulting loss or damages. We do not have product liability insurance. Although our agreement with LD Technology provides that LD Technology maintain product liability insurance with covereage limited of not less that $1,000,000 which covers the products sold by LD Technology to us, we cannot assure you that LD Technology will maintian such insurance or that any insurance which LD Technology maintains will be sufficient to cover any liability to which we may be subject.
We are dependent upon our executive officers.
We are dependent upon our executive officers, principally Lawrence Biggs, our chief executive officer, and Justin Anderson, our chief operating officer. Although we have employment agreements with Mr. Biggs and Mr. Anderson, the employment agreement do not guarantee that Mr. Biggs and Mr. Anderson will continue with us. The loss of Mr. Biggs and Mr. Anderson would materially impair our ability to conduct its business. Further, in December 2018 and January 2019, Mr. Biggs was hospitalized and, he was released from the hospital. We cannot assure you that heath issues will not impair Mr. Biggs’ ability to serve as our chief executive officer. The ability of Mr. Biggs to serve us on a full-time basis is critical to our ability to develop our business and any loss of his services, even for a short period, could impair our ability to develop our business.
If we are unable to attract, train and retain marketing, technical and financial personnel, our business may be materially and adversely affected.
Our future success depends, to a significant extent, on our ability to attract, train and retain key management, marketing, technical and financial personnel. Recruiting and retaining capable personnel, particularly those with expertise in medical equipment, are vital to our success. There is substantial competition for qualified personnel, and this competition will increase. We cannot assure you we will be able to attract or retain the technical and financial personnel it requires. If we are unable to attract and retain qualified employees, our business may be materially and adversely affected.
Failure to manage our business effectively could cause our business to suffer.
As a start-up company with one product, we will need to manage our business effectively. We will need to hire, train, retain and evaluate qualified personnel, evaluate the market and marketing strategy for our products, evaluate and negotiate agreements for potential products that complement our existing product, review, evaluate and revise, on an ongoing basis our marketing strategy and its implementation, negotiate financing in advance of our immediate cash needs, insure compliance with applicable laws relating to our business, establish and enforce labor practices including non-discrimination and anti-harassment policies, and generally manage our business. Our failure to manage all aspects of our business could impair our reputation and our ability to hire and retain qualified personnel and to generate profits from our business. We cannot assure you that we will be able to manage our business effectively or that our business will not be impaired by our failure to manage our business.
Risks Affecting our Common Stock
We have has not established internal controls over financial accounting and reporting, and a failure of our control systems to prevent error or fraud may materially harm us.
We have not established any internal controls over financial accounting and reporting, and we may be unable to establish effective internal controls. The failure to establish internal controls would leave us without the ability to reliably assimilate and compile financial information about us and could significantly impair our ability to prevent error and detect fraud, all of which would have a negative impact on us. Moreover, we do not expect that disclosure controls or internal control over financial reporting, even if established, will prevent all error and fraud. Since we few employees with an accounting background and little, if any, segregation of duties, it will be difficult, if not impossible, to establish internal controls over financial reporting. Because of the inherent limitations in all control systems, no evaluation of controls can provide assurance that all control issues and instances of fraud, if any, have been detected. Failure of our control systems to prevent error or fraud could materially adversely impact us. Further, our failure to establish internal controls could result in enforcement action by the SEC.
Because our common stock is a penny stock, you may have difficulty selling the common stock in the secondary trading market.
Our common stock is a penny stock, as defined by the SEC regulations, and therefore is subject to the rules adopted by the SEC regulating broker-dealer practices in connection with transactions in penny stocks. The SEC rules may have the effect of reducing trading activity in our common stock by making it more difficult for investors to purchase and sell their shares. The SEC’s rules require a broker or dealer proposing to effect a transaction in a penny stock to deliver the customer a risk disclosure document that provides certain information prescribed by the SEC, including, but not limited to, the nature and level of risks in the penny stock market. The broker or dealer must also disclose the aggregate amount of any compensation received or receivable by him in connection with such transaction prior to consummating the transaction. In addition, the SEC’s rules also require a broker or dealer to make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction before completion of the transaction. The existence of the SEC’s rules may result in a lower trading volume of in our common stock and lower trading prices. Further, some broker-dealers will not process transactions in penny stocks and many clearing firms do not clear penny stocks, which could impair your ability to sell shares of our common stock.
There is presently a thin market for our common stock, which may make it difficult for you to sell your stock.
Our common stock is quoted on the OTC Pink marketplace under the symbol HLTY. The OTC Pink market is not a national securities exchange and does not provide the benefits to stockholders which a national exchange provides. Furthermore, according to the OTC Markets website, the OTC Pink “is for all types of companies that are there by reasons of default, distress or design, which is why they are further segmented based on the level of information that they provide.” The trading market for our common stock is very thin, there are days when there is no or minimal trading in our common stock and often the reported trading volume is less than 5,000 shares. Accordingly, even if an active market develops, as to which we can give no assurance, there can be no assurance as to the liquidity of our common stock, the ability of holders of our common stock to sell common stock, or the prices at which holders may be able to sell our common stock. If there is not a significant float, the reported bid and asked prices may have little relationship to the price you would pay if you wanted to buy shares or the price you would receive if you wanted to sell shares. Further, a thinly traded stock can be a target for persons seeking to manipulate the price of the common stock.
The stock price of our common stock has been volatile and your investment in our common stock could suffer a decline in value.
The dollar volume trading in our common stock is low, and we cannot assure you that any significant market will develop. As a result, any reported prices may not reflect the price at which you would be able to sell shares if you want to sell any shares you own or buy shares if you wish to buy shares. Further, stocks with a low trading volume may be more subject to manipulation than a stock that has a significant public float. The price of our stock may fluctuate significantly in response to a number of factors, many of which are beyond its control. These factors include, but are not limited to, the following, in addition to the risks described above and general market and economic conditions:
|
|
·
|
the low stock price, which may result in a modest dollar purchase or sale of our common stock having a disproportionately large effect on the stock price;
|
|
|
|
|
|
|
·
|
the market’s perception as to our ability to generate positive cash flow or earnings;
|
|
|
|
|
|
|
·
|
changes in our or securities analysts’ estimate of our financial performance;
|
|
|
|
|
|
|
·
|
our ability or perceived ability to obtain necessary financing for its operations;
|
|
|
|
|
|
|
·
|
the perception of the market of our ability to generate revenue and cash flow;
|
|
|
|
|
|
|
·
|
the anticipated or actual results of our operations;
|
|
|
|
|
|
|
·
|
changes or anticipated changes on FDA policy or in insurance company, Medicare and Medicaid reimbursement policies;
|
|
|
|
|
|
|
·
|
changes in market valuations of other companies in whose business is the sale of medical equipment;
|
|
|
|
|
|
|
·
|
litigation or changes in regulations affecting medical equipment;
|
|
|
|
|
|
|
·
|
concern about our lack of internal controls;
|
|
|
|
|
|
|
·
|
any discrepancy between anticipated or projected results and actual results of our operations;
|
|
|
|
|
|
|
·
|
actions by third parties to either sell or purchase stock in quantities which would have a significant effect on the stock price of our common stock; and
|
|
|
|
|
|
|
·
|
other factors not within our control.
|
Raising funds by issuing equity or convertible debt securities could dilute the net tangible book value of the common stock and impose restrictions on our working capital.
If we were to raise additional capital by issuing equity securities, either alone or in connection with a non-equity financing, the net tangible book value of the then outstanding common stock could decline. If the additional equity securities were issued at a per share price less than the market price, which is customary in the private placement of equity securities, the holders of the outstanding shares would suffer a dilution, which could be significant. We may have difficulty in raising funds through the sale of debt securities because of both our financial position, the lack of any collateral on which a lender may place a value, and the absence of any history of revenue or operations. If we are able to raise funds from the sale of debt securities, the lenders may impose restrictions on our operations and may impair our working capital as we service any such debt obligations.
Our officers, directors and principal stockholders may be able to take any action requiring stockholder approval without the vote of the other stockholders.
Our officers, directors and principal stockholders own 75.1% of our outstanding common stock, which gives them the ability, without the vote of other stockholders, to elect all directors and to take any action requiring stockholder approval.
Lawrence Biggs was the subject of an SEC order in 2001.
On August 1, 2001, the SEC announced the filing of an action in the United States District Court for the Northern District of Texas, seeking an injunction and civil penalties against Larry Biggs, Jr. and other former officers of MAX Internet Communications, Inc., a former Nasdaq-listed company. The complaint alleged that the defendants overstated MAX’s sales which resulted in an increase in the stock price of MAX’s common stock in violation of Sections 10(b) and 13 of the Securities Exchange Act and rules thereunder. In settling the matter, Mr. Biggs agreed to accept a permanent injunction barring future violations of the anti-fraud, record-keeping and reporting provisions of the federal securities laws. Additionally, Mr. Biggs paid a $40,000 penalty. MAX was not named as a defendant, and the SEC order does not prohibit Mr. Biggs from serving as an officer or director of a public company.
We do not intend to pay any cash dividends in the foreseeable future.
We have not paid any cash dividends on our common stock and do not intend to pay cash dividends on its common stock in the foreseeable future.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
The Company does not own any real estate properties.
ITEM 3. LEGAL PROCEEDINGS
None
ITEM 4. MINE SAFETY DISCLOSURE
Not Applicable.
Notes to the Consolidated Financial Statements
Years Ended December 31, 2018 and 2017
NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS
PreCheck Health Services Inc. (the “Company”) is a Florida corporation organized under the name Hip Cuisine, Inc. on March 19, 2014. The Company changed its corporate name to Nature’s Best Brands, Inc. on June 15, 2018 and to PreCheck Health Services, Inc. on January 3, 2019. The Company is engaged in U.S. distribution of a medical screening device, the PC8B. The Company’s fiscal year end is December 31.
The Company has two subsidiaries, Hip Cuisine, Inc. (“Hip Cuisine”), a Panama corporation, and Rawkin Juice, Inc. (“Rawkin Juice”), a California corporation. The Company, through these subsidiaries, operated four restaurants that offered healthy food, coffee and juice, two in Panama and two in California. As of December 31, 2018, the Company had ceased restaurant operations, although it continues to have obligations under restaurant leases. The restaurant operations are treated as discontinued operations.
Under the new management, the Company changed its business, and, during the fourth quarter of 2018, the Company commenced operations for the U.S. distribution of a medical screening device, the PC8B, which it purchases from a domestic supplier. The PC8B medical device is a screening tool for use by physicians in managing a patient’s health. The Company can give no assurance that it can or will compete in the marketing of medical equipment, operate profitably or generate positive cash flow.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements and related disclosures have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). These consolidated financial statements have been prepared using the accrual basis of accounting in accordance with Generally Accepted Accounting Principles (“GAAP”) of the United States.
Basis of Consolidation
These consolidated condensed financial statements include the accounts of the Company and its wholly-owned subsidiaries. All material intercompany balances and transactions have been eliminated.
Foreign Currency Translation and Re-measurement
The Company’s functional currency and reporting currency is the U.S. dollar. The functional currency of Hip Cuisine, which operated two restaurants in Panama, is the Panamanian Balboa. All transactions initiated in Panamanian Balboa were translated into U.S. dollars in accordance with ASC 830-30, “Translation of Financial Statements.” Since the Panamanian Balboa is pegged with the U.S. dollar at par, the Company recognized no gain or loss on foreign exchange translations during the years ended December 31, 2018 and 2017.
Use of Estimates and Assumptions
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 and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid instruments with a maturity of three months or less at the time of issuance to be cash equivalents.
Fair Value of Financial Instruments
The Company adopted ASC Topic 820,
Fair Value Measurements
(“ASC Topic 820”), which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. The standard provides a consistent definition of fair value which focuses on an exit price that would be received upon sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The standard also prioritizes, within the measurement of fair value, the use of market-based information over entity specific information and establishes a three-level hierarchy for fair value measurements based on the nature of inputs used in the valuation of an asset or liability as of the measurement date.
The three-level hierarchy for fair value measurements is defined as follows:
Level 1 – inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets; liabilities in active markets;
Level 2 – inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability other than quoted prices, either directly or indirectly, including inputs in markets that are not considered to be active; or directly or indirectly including inputs in markets that are not considered to be active;
Level 3 – inputs to the valuation methodology are unobservable and significant to the fair value measurement
The Company’s financial instruments consist primarily of cash, prepaid expenses, accounts payable and accrued expenses, convertible notes and stockholder’s loan. The carrying amounts of such financial instruments approximate their respective estimated fair value due to the short-term maturities and approximate market interest rates of these instruments.
Concentrations of Credit Risks
The Company’s financial instruments that are exposed to concentrations of credit risk primarily consist of its cash and cash equivalents. The Company places its cash and cash equivalents with financial institutions of high credit worthiness. The Company’s management plans to assess the financial strength and credit worthiness of any parties to which it extends funds, and as such, it believes that any associated credit risk exposures are limited.
Related Parties
The Company follows ASC 850, “Related Party Disclosures,” for the identification of related parties and disclosure of related party transactions.
Inventories
Inventories consist of medical screening devices, the PC8B, purchased from a domestic supplier. Inventories are stated at lower of cost or net realizable value, with cost being determined on the first-in, first-out (“FIFO”) method.
Only finished goods inventory are held at year-end. No reserves is considered necessary for slow moving or obsolete inventory as inventory on hand at year-end was purchased near the end of the year. The Company continuously evaluates the adequacy of these reserves and makes adjustments to these reserves as required.
Equipment and Furniture
Property and equipment are stated at cost. Depreciation is computed on the straight-line method. The depreciation and amortization methods are designed to amortize the cost of the assets over their estimated useful lives, in years, of the respective assets as follows:
|
Equipment
|
5 Years
|
|
Furniture and Fixtures
|
5 Years
|
|
Leasehold Improvement
|
3 Years
|
|
Construction in Progress
|
7 Years
|
Maintenance and repairs are charged to expense as incurred. Improvements of a major nature are capitalized. At the time of retirement or other disposition of property and equipment, the cost and accumulated depreciation are removed from the accounts and any gains or losses are reflected in income.
The long-lived assets of the Company are reviewed for impairment in accordance with ASC 360, “Property, Plant and Equipment” (“ASC 360”), whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted cash flows expected to be generated by the assets. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. During the years ended December 31, 2018 and 2017, no impairment losses have been identified.
With the cessation of the restaurant operations at the end of 2018, all the existing leasehold improvements, equipment and furniture in the Company’s possession were either disposed of or reclassified and reported as net assets held for sale from discontinued operations at December 31, 2018.
Net Assets Held for Sale from Discontinued Operations
Net assets held for sale from discontinued operations represent equipment and furniture for locations that have met the criteria of “held for sale” accounting, as specified by ASC360. With the cease of the restaurant operations and the Company’s move out of the restaurant locations during the year ended December 31, 2018, all the existing equipment and furniture still under the Company’s possession were depreciated through the last date of their usage in respective restaurant locations. The net assets held for sale are being marketed for sale and it is the Company’s intention to complete the sales of these assets within the upcoming year.
Goodwill and Other Intangible Assets
The Company accounts for goodwill and intangible assets (including trademarks) in accordance with ASC 350 “Intangibles-Goodwill and Other” (“ASC 350”). ASC 350 requires that goodwill and other intangibles with indefinite lives be tested for impairment annually or on an interim basis if events or circumstances indicate that the fair value of an asset has decreased below its carrying value. In addition, ASC 350 requires that goodwill be tested for impairment at the reporting unit level (operating segment or one level below an operating segment) on an annual basis and between annual tests when circumstances indicate that the recoverability of the carrying amount of goodwill may be in doubt. Application of the goodwill impairment test requires judgment, including the identification of reporting units; assigning assets and liabilities to reporting units, assigning goodwill to reporting units, and determining the fair value. Significant judgments required to estimate the fair value of reporting units include estimating future cash flows, determining appropriate discount rates and other assumptions. Changes in these estimates and assumptions or the occurrence of one or more confirming events in future periods could cause the actual results or outcomes to materially differ from such estimates and could also affect the determination of fair value and/or goodwill impairment at future reporting dates.
The cost of intangible assets with determinable useful lives is amortized to reflect the pattern of economic benefits consumed, either on a straight-line or accelerated basis over the estimated periods benefited. Patents, technology and other intangibles with contractual terms are generally amortized over their respective legal or contractual lives. When certain events or changes in operating conditions occur, an impairment assessment is performed and lives of intangible assets with determinable lives may be adjusted.
With the cessation of the restaurant operations at the end of 2018, the Company fully impaired all goodwill and trademarks associated with the restaurant business.
Revenue Recognition
The Company recognizes revenue from the sale of the medical screening device, the PC8B, in accordance with ASC 606,”
Revenue Recognition
”, (“Topic 606”) following the five steps procedure:
Step 1: Identify the contract(s) with customers
Step 2: Identify the performance obligations in the contract
Step 3: Determine the transaction price
Step 4: Allocate the transaction price to performance obligations
Step 5: Recognize revenue when the entity satisfies a performance obligation
The Company recognizes revenue when it satisfies its obligation by transferring control of the goods to the customer. A performance obligation is satisfied over time if one of the following criteria are met:
|
|
a.
|
the customer simultaneously receives and consumes the benefits as the entity performs;
|
|
|
b.
|
the entity’s performance creates or enhances an asset that the customer controls as the asset is created or enhanced; or
|
|
|
c.
|
the entity’s performance does not create an asset with an alternative use to the entity, and the entity has an enforceable right to payment for performance completed to date.
|
The adoption of Topic 606 resulted in enhanced revenue-related disclosures, including any significant judgments and changes in judgments. Additionally, this standard requires the deferral of incremental direct selling costs to the period in which the related revenue is recognized. We adopted Topic 606 as of January 1, 2018 using the modified retrospective approach applied to all contracts that were not completed at adoption based on the contract terms in existence at adoption.
Stock-Based Compensation
ASC 718,
“Compensation - Stock Compensation,”
prescribes accounting and reporting standards for all share-based payment transactions in which employee services are acquired. Transactions include incurring liabilities, or issuing or offering to issue shares, options and other equity instruments such as employee stock ownership plans and stock appreciation rights. Share-based payments to employees, including grants of employee stock options, are recognized as compensation expense in the financial statements based on their fair values. That expense is recognized over the period during which an employee is required to provide services in exchange for the award, known as the requisite service period (usually the vesting period).
For the years ended December 31, 2018 and 2017, the Company accounted for stock-based compensation issued to non-employees and consultants in accordance with the provisions of ASC 505-50, “
Equity - Based Payments to Non-Employees.”
Measurement of share-based payment transactions with non-employees is based on the fair value of whichever is more reliably measurable: (a) the goods or services received; or (b) the equity instruments issued. The fair value of the share-based payment transaction is determined at the earlier of performance commitment date or performance completion date. Effective January 1, 2019, the Company is accounting for stock-based compensation to non-employees pursuant to Topic 718, with the result that stock-based compensation is treated the same for employees and non-employees.
During the year ended December 31, 2018, the Company incurred a stock-based compensation expense of $6,142,500 from the issuance of 5,250,000 shares of common stock to the employees and consultants for services. The Company did not incur any stock-based compensation expense for the year ended December 31, 2017.
Income Taxes
The Company accounts for income taxes using the asset and liability method in accordance with ASC 740, “Accounting for Income Taxes.” The asset and liability method provides that deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities and for operating losses and tax credit carry forwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company records a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized. As at December 31, 2018 and 2017, the Company did not have any amounts recorded pertaining to uncertain tax positions.
Basic and Diluted Net Loss per Share
The Company computes loss per share in accordance with ASC 260, “Earnings per Share” which requires presentation of both basic and diluted earnings per share on the face of the statement of operations. Basic loss per share is computed by dividing net losses available to common stockholders by the weighted average number of outstanding shares of common stock during the period. Diluted loss per share gives effect to all dilutive potential shares of common stock outstanding during the period unless the effect would be antidilutive. During the year ended December 31, 2017, the Company had no potential dilutive instruments and accordingly basic loss and diluted loss per share are the same. During the year ended December 31, 2018, the inclusion of potentially dilutive instruments would have been anti-dilutive.
For the year ended December 31, 2018 and 2017, respectively, the following convertible notes and warrants were excluded from the computation of diluted net loss per shares as the result of the computation was anti-dilutive:
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
<Shares>
|
|
|
<Shares>
|
|
|
Convertible notes payable
|
|
|
640,040
|
|
|
|
-
|
|
|
Warrants
|
|
|
75,000
|
|
|
|
-
|
|
|
|
|
|
715,040
|
|
|
|
-
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
2018
|
|
|
2017
|
|
|
Net loss from Continued Operations
|
|
$
|
(6,779,369
|
)
|
|
$
|
(444,564
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from Discontinued Operations
|
|
|
(1,147,147
|
)
|
|
|
(1,055,511
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(7,926,516
|
)
|
|
$
|
(1,500,075
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Loss from Continued Operations per share: Basic and Diluted
|
|
$
|
(0.71
|
)
|
|
$
|
(0.06
|
)
|
|
Loss from Discontinued Operations per share: Basic and Diluted
|
|
$
|
(0.12
|
)
|
|
$
|
(0.13
|
)
|
|
Net loss per share: Basic and Diluted
|
|
$
|
(0.83
|
)
|
|
$
|
(0.19
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted Weighted Average Shares of Common Stock Outstanding
|
|
|
9,571,486
|
|
|
|
7,841,860
|
|
Recently Issued Accounting Pronouncements
The Company has reviewed all recently issued, but not yet effective, accounting pronouncements and does not believe the future adoption of any such pronouncements may be expected to cause a material impact on the Company’s financial statements.
NOTE 3 – GOING CONCERN
The accompanying consolidated 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 not generated significant revenues since inception and has discontinued its restaurant business and changed its business operation focusing on establishing ourselves as the U.S. distributor of a medical screening device. As of December 31, 2018, the Company has an accumulated deficit from continuing operations of $7,396,651 and accumulated deficit from discontinued operations of $2,450,462. During the year ended December 31, 2018, the Company sustained a net loss from continued operations of $6,779,369 and a net loss from discontinued operations of $1,147,147. These factors among others raise substantial doubt about the ability of the Company to continue as a going concern for a reasonable period of time. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
The continuing operations of the Company are dependent upon its ability to develop its proposed business of marketing medical devices used for screening, to raise adequate financing and to commence profitable operations in the future and repay its liabilities arising from normal business operations as they become due. The ability of the Company to raise financing may be impaired by the terms of the Company’s outstanding convertible notes and warrants.
NOTE 4 – INVENTORIES
Inventories consist of medical screening devices, the PC8B, purchased from a domestic supplier. Inventories are stated at lower of cost or net realizable value, with cost being determined on the first-in, first-out (“FIFO”) method. As of December 31, 2018 and 2017, the Company had finished goods inventory totaling $70,000 and $0, respectively.
NOTE 5 – EQUIPMENT AND FURNITURE
|
|
|
December 31,
2018
|
|
|
December 31,
2017
|
|
|
Equipment
|
|
$
|
235,846
|
|
|
$
|
233,423
|
|
|
Furniture
|
|
|
61,924
|
|
|
|
61,306
|
|
|
Leasehold improvements
|
|
|
-
|
|
|
|
543,636
|
|
|
Less accumulated depreciation
|
|
|
(119,942
|
)
|
|
|
(204,232
|
)
|
|
|
|
$
|
177,828
|
|
|
$
|
634,133
|
|
Equipment and furniture are stated at cost. Depreciation is computed on the straight-line method. The depreciation methods are designed to amortize the cost of the assets over their estimated useful lives, in years, of the respective assets as follows:
|
Equipment
|
5 Years
|
|
Furniture and Fixtures
|
5 Years
|
|
Leasehold Improvement
|
3 Years
|
During the years ended December 31, 2018 and 2017, the depreciation expense was $195,226 and $158,867, respectively.
With the cessation of the restaurant operations during the year ended December 31, 2018, the Company recognized a loss on disposal of leasehold improvements of $279,793. All the existing equipment and furniture under the Company’s possession were depreciated through the last date of their usage in respective restaurant locations and reported as non-current assets held for sale from discontinued operations as of December 31, 2018.
NOTE 6 – INTANGIBLE ASSETS
Intangible assets consist of the following at December 31, 2018 and 2017, respectively::
|
|
|
December 31,
2018
|
|
|
December 31,
2017
|
|
|
Trademarks:
|
|
|
|
|
|
|
|
Living Goumet
1
|
|
$
|
-
|
|
|
$
|
5,985
|
|
|
Medidate Coffee
2
|
|
|
-
|
|
|
|
12,219
|
|
|
Total Trademarks
|
|
|
-
|
|
|
|
18,204
|
|
|
Goodwill
3
|
|
|
-
|
|
|
|
37,894
|
|
|
Total Intangible Assets
|
|
$
|
-
|
|
|
$
|
56,098
|
|
______________
1
The Company acquired the rights to the Living Gourmet trademark in February 2017 for which the Company issued 10,000 shares of common stock, valued at $0.63 per share, which was the market price of the common stock on the date of the acquisition, from an unaffiliated party. The Company agreed to pay a royalty of 20% of the net profits, as defined, generated from the use of the trademark.
2
On June 15, 2017, the Company issued 8,000 shares of common stock valued at $12,640, based on market price of $1.58 per share, to the managing member of Medidate Coffee Ltd., pursuant to an agreement with Medidate Coffee pursuant to which the Company obtained the exclusive rights to distribute Medidate coffee in Panama, Colombia and Costa Rica and received a 10% membership interest in Medidate Coffee. The Company agreed to pay 20% of net profit derived from the sales of Medidate Coffee sold in Company-owned outlets and 20% of the net profit derived from sales of Medidate Coffee products that were produced in the kitchens of the Company’s restaurants. The Company and Medidate Coffee have the exclusive right to use the Medidate Coffee brand name.
3
Goodwill is generated from the acquisition of net assets from Rawkin Bliss LLC by Rawkin Juice.
With the cessation of the restaurant operations at the end of 2018, the Company recorded impairment on goodwill and trademarks associated with the restaurant business of $37,894. The total amount of intangible assets and goodwill included in non-current assets held for sale from discontinued operations at December 31, 2018 and 2017 totaled $0 and $56,098, respectively. During the years ended December 31, 2018 and 2017, the amortization expense totaled $20,869 and $736, respectively
NOTE 7 – BANK LOAN
The Company had the following bank loan outstanding as of December 31, 2018 and 2017:
|
|
|
December 31,
|
|
|
|
|
2018
|
|
|
2017
|
|
|
Bank loan, at $80,000 principal, repayable in monthly installments of $829 with an annual interest rate of 2%, maturing Nov 29, 2026
|
|
$
|
-
|
|
|
$
|
71,845
|
|
|
Less, current portion
|
|
|
-
|
|
|
|
(9,156
|
)
|
|
Long-term portion
|
|
|
-
|
|
|
|
62,689
|
|
During the years ended December 31, 2018 and 2017, the interest expense on bank loans was $1,487 and $1,484.
NOTE 8 – RELATED PARTY TRANSACTIONS
Chief Executive Officer
Pursuant to the employment agreement with the chief executive officer, the Company agreed to employ him as its chief executive officer for a term ending on December 31, 2021, which continues thereafter on a year-to-year basis unless terminated by either the chief executive officer or the Company on not less than 30 days’ prior written notice. As compensation for his services, on November 5, 2018, the Company issued 5,000,000 shares of common stock, valued at $1.17 per share, which was the closing price for the common stock on November 5, 2018, for a total of $5,850,000, and the Company agreed to pay him an annual salary of $300,000, which will commence at such time as the Company has raised $2,000,000 from the private placement of its equity securities, at which time the Company believed it would have the funds to enable it to pay his salary.
Chief Operating Officer
Pursuant to the employment agreement with the chief operating officer, the Company agreed to employ him as chief operating officer for a term ending on October 31, 2021, which continues thereafter on a year-to-year basis unless terminated by either the chief operating officer or the Company on not less than 30 days’ prior written notice. The chief operating officer has other business activities which do not conflict with his duties to the Company. The compensation for the chief executive officer consists of 750,000 shares, of which the Company, on November 5, 2018, issued the initial 250,000 shares, which are valued at $1.17 per share for a total of $292,500. The Company is to issue 250,000 shares on each of October 31, 2019 and October 31, 2020.
For the year ended December 31, 2018, the Company recognized revenue of $70,000 from the sale of five PC8B units at cost to JAS Consulting, a company owned by our chief operating officer.
JAS Consulting also provides us with office space in its offices in Denison, Texas for no charge.
On January 2, 2019, the Company entered into an agreement with JAS Consulting for performing the administrative services relating to agreements that we may have with physicians whereby we are to process insurance filings on behalf of physicians who are using our equipment, for which we pay JAS Consulting a fee of $10 or $20 per test, depending on the test.
Chief Financial Officer
Total notes payable to the chief financial officer totaled $52,000 as of December 31, 2017. During the year ended December 31, 2018, the Company’s chief financial officer advanced $90,000 cash to the Company for working capital and made payment to a vendor to acquire inventory in the amount of $42,000 on behalf of the Company. During 2018, the Company repaid $99,000 to the chief financial officer. The remaining balance of $85,000 was converted to a convertible note during the year ended December 31, 2018.
On March 20, 2018, the Company issued a convertible note to the chief financial officer in the principal amount of $80,250 with $5,250 original issuance discount and two year-warrants to purchase 75,000 shares of common stock at $1.20 per share. The note and warrant were issued in satisfaction of the Company’s obligations to the chief financial officer in the principal amount of $75,000 for advances made by the chief financial officer to or for the benefit of the Company. The issuance of the note on March 20, 2018 did not have substantially different terms than the original note, and is not considered to be a debt modification under U.S. GAAP guidance. The convertible note bears interest at a rate of 2% per annum, and was payable on September 20, 2018. The note is convertible into common stock at a variable conversion rate commencing 180 days after issuance.
On September 30, 2018, the Company entered into an agreement with the chief financial officer pursuant to which the Company agreed to pay $90,000 to settle the note on or prior to December 31, 2018, and the Company would purchase the warrants for $12,500 no later than December 31, 2018, unless the chief financial officer agreed to accept 37,500 shares of common stock in exchange for the warrant. Pursuant to the agreement, the chief financial officer agreed not to covert the note or exercise the warrant prior to December 31, 2018. The change of conversion feature from the agreement is considered to be a debt modification which resulted in loss on extinguishment of debt of $22,250. As of December 31, 2018, the amount due to the chief financial officer in respect of the promissory note and warrants was $102,500, which could be satisfied by a payment of $90,000 and the issuance of 37,500 shares of common stock. Outstanding balance on the note totaled $100,421 at December 31, 2018 (including principal of $102,500 and unamortized debt discount of $2,079).
On November 26, 2018, the Company issued a non-interest bearing convertible note due November 30, 2019 to the chief financial officer in the principal amount of $98,400, reflecting an original issuance discount of $16,400. The note was issued in respect to advances made to and on behalf of the Company in the aggregate amount of $85,000. The convertible note is payable on November 30, 2019. The principal amount of the note is convertible at the option of the holder into such securities as are issued in the next financing, except that the amount of the principal of the note represented by the original issuance discount ($16,400) is automatically converted into securities issued in the next financing. Outstanding balance on the note totaled $88,350 at December 31, 2018 (including principal of $98,400 and unamortized debt discount of $10,050).
Principal Stockholder and Former Chief Executive Officer
The Company’s former chief executive officer, who resigned on October 15, 2018, and who is a principal stockholder of the Company, periodically made interest-free advances to the Company for working capital, and the Company has made periodic repayments to her. Amounts due to the former chief executive officer on account of these advances were $387,841 and $258,139 at December 31, 2018 and 2017, respectively. The advances are payable on demand.
During the year ended December 31, 2018, the Company’s former chief executive officer advanced $257,374 to the Company, and the Company repaid $127,672 to the former chief executive officer.
During the year ended December 31, 2017, the Company’s former chief executive officer advanced $453,386 to the Company, and the Company repaid $387,500 to the former chief executive officer.
NOTE 9 – CONVERTIBLE NOTES
On March 8, 2018 the Company issued a convertible note with principal amount of $160,500. The note was issued for a purchase price of $160,500, with an original issue discount of $10,500. The convertible note was due six months from funding are, accordingly, was treated as current liability. In connection with the issuance of the convertible note, the Company issued to the holders of the convertible note, two-year warrants to purchase 150,000 shares of common stock at an exercise price of $1.20 per share, subject to adjustment. The warrants were valued at $69,650 which is treated as a debt issuance discount. On August 20, 2018 the Company entered into a note amendment with the note settlement amount amended to $180,000 and note expiry date extended to October 16, 2018. Additionally, the warrants to purchase the original 150,000 shares of common stock will be settled by the Company through $25,000 to be paid to the warrant holder no later than October 16, 2018, or the issuance of 75,000 shares of common stock, at the option of the holder, per the modified terms. The change of conversion feature from the note amendment is considered to be a debt modification which resulted in loss on extinguishment of debt of $44,500. On October 11, 2018, the Company settled the warrants by issuing 75,000 shares of common stock, valued at $76,501, based on market price of $1.02 per share. The modification of the debt and settlement of warrants resulted in note extinguishment expense of $51,500. The note was repaid by December 31, 2018 and related debt discount was fully amortized to interest expense.
On March 20, 2018 the Company issued a convertible note with principal amount of $80,250. The note was issued for a purchase price of $80,250, with an original issue discount of $5,250. The convertible note was due six months from funding and, accordingly, was treated as current liability. In connection with the issuance of the convertible note, the Company issued to the holders of the convertible note, two-year warrants to purchase 75,000 shares of common stock at an exercise price of $1.20 per share, subject to adjustment. The warrants were valued at $43,046 which is treated as a debt issuance discount. On September 30, 2018, the Company entered into a note amendment with the note settlement amount amended to $90,000 and note expiry date extended to March 30, 2019. Additionally, the warrants to purchase the original 75,000 shares of common stock will be settled by the Company through $12,500 to be paid to the warrant holder no later than March 30, 2019, or the issuance of 37,500 shares of common stock, at the option of the holder, per the modified terms. The change of conversion feature from the note amendment is considered to be a debt modification which resulted in loss on extinguishment of debt of $22,250. Outstanding balance on the note totaled $91,624 at December 31, 2018 (including principal of $102,500 and unamortized debt discount of $10,876).
On October 12, 2018, the Company issued a non-interest bearing convertible note to an unaffiliated party in the principal amount of $216,000 with $36,000 original issuance discount for cash proceeds of $180,000. The convertible note is payable on November 30, 2019. The note is convertible into common stock at a purchase price of the conversion securities in the next financing. Outstanding balance on the note totaled $189,000 at December 31, 2018 (including principal of $216,000 and unamortized debt discount of $27,000).
On October 17, 2018, Lucid Marketing Inc. entered into an agreement with FirstFire Global Opportunities Fund, LLC to buy out the outstanding principal amount and accrued interest of the promissory note at $120,000 with $10,000 original issuance discount. The note is non-interest bearing and matures on November 30, 2019. The note is convertible into common stock at a purchase price of the conversion securities in the next financing. Outstanding balance on the note totaled $112,500 at December 31, 2018 (including principal of $120,000 and unamortized debt discount of $7,500).
NOTE 10 – CAPITAL STOCK
Authorized Stock
On January 3, 2019, the Company amended and restated its articles of incorporation with the filing with the Secretary of State of Florida of its Amended and Restated Articles of Incorporation (the “Restated Articles”).
Under the Restated Articles, the total number of shares of capital stock which the Corporation shall have authority to issue is 110,000,000 shares, of which (i) 10,000,000 shares are preferred stock, with a par value of $0.0001 per share, and (ii) 100,000,000 shares are common stock, with a par value of $0.0001 per share. The par value of the common stock changed from $0.001 to $0.0001 per share, and the changes are retrospectively reflected in the share capital and additional paid in capital in the balance sheet.
Common Stock
On February 7, 2017, the Company issued 10,000 shares of common stock valued at $6,300, based on market price of $0.63 per share, for the acquisition of a trademark from an unaffiliated party.
In March 2017, the Company sold 1,000,000 shares of common stock in a public offering at $0.75, from which the Company received net proceeds of $675,000 after expenses of $75,000.
On June 15, 2017, the Company issued 8,000 shares of common stock valued at $12,640, based on market price of $1.58 per share, to the managing member of Medidate Coffee Ltd., pursuant to an agreement whereby the Company obtained the exclusive rights to distribute Medidate coffee in Panama, Colombia and Costa Rica and received a 10% membership interest in Medidate Coffee.
On August 25, 2017, the Company sold 250,000 shares of common stock at $1.00 for cash proceeds of $250,000.
On October 17, 2017, the Company issued 115,000 shares of common stock valued at $1.00 per share, based on the market price of the stock, to employees of the Company as compensation.
During the year ended December 31, 2017, the Company issued 233,000 shares of common stock valued at $251,360, based on market price on the respective issuance dates, to consultants to assist in managing its locations, locating expansion of restaurants and promoting the new restaurant locations.
During the year ended December 31, 2017, the Company issued 306,250 shares of common stock valued at $398,750, based on the market price on the respective issuance dates, to repay notes of $132,500 which was assumed by the Company in connection with its acquisition of the net assets of Rawkin Bliss LLC. A loss on debt settlement of $266,250 was incurred related to the repayment of the notes.
On January 25, 2018, the Company issued 137,000 shares of common stock, valued at $124,670, based on market price of $0.91 per share, for services provided to the Company.
On January 25, 2018, the Company issued 25,000 shares of common stock, valued at $22,750, based on market price of $0.91 per share for consulting services.
On February 23, 2018, the Company issued 60,000 shares of common stock valued at $60,000, based on market price of $1.00 per share, to an investment banking firm for pursuant to a six-month investment banking agreement.
On May 21, 2018, the Company issued 15,834 shares of common stock, valued at $15,674 based on market price of $0.99 on the date of issuance, for leasehold improvements.
On October 3, 2018, the Company issued 60,000 shares of common stock, valued at $60,000, based on market price of $1.00 per share, for services provided to the Company.
On October 11, 2018, the Company issued 75,000 shares of common stock, valued at $76,501, based on market price of $1.02 per share, to repay the outstanding warrants of the promissory note, resulting in note extinguishment expense of $51,500. See Note 9.
On November 5, 2018, the Company issued 5,000,000 shares of common stock, valued at $5,850,000, based on market price of $1.17 per share, to its newly appointed chief executive officer as compensation for his service.
On November 5, 2018, the Company issued 250,000 shares of common stock, valued at $292,500, based on market price of $1.17 per share, to its newly appointed chief operating officer as compensation for his service.
W
arrants
The Company accounts for the issuance of warrants in connection with the issuance of convertible notes as an equity instrument and recognized the warrants under the Black-Scholes valuation model based on the market price of the Company’s common stock on the grant date at the exercise price of $1.20 per share. The holders of the warrants have piggyback registration rights with respect to the shares of common stock issuable upon exercise of the warrants.
The exercise price of the warrants is subject to adjustment in the event of any issuance of common stock or convertible securities with respect to which the purchase price or the conversion or exercise price is less than the exercise price of the warrants. The adjusted exercise price would be the purchase price per share or exercise price per share in the dilutive issuance. Unlike the comparable provisions in the convertible notes, there are no excluded issuances, so any dilutive issuance, even an issuance which would not result in an adjustment of the conversion price of the convertible notes, would result in an adjustment in the exercise price of the warrants.
In March 2018, the Company issued three convertible promissory notes due September 2018 in the aggregate principal amount of $321,000. In connection with these convertible notes, the Company issued two-year warrants to purchase a total of 300,000 shares of common stock at an exercise price of $1.20 per share. The warrants were valued at $155,742. 75,000 of these warrants were issued to a related party.
On August 20, 2018, the Company entered into an agreement with the holder of a convertible note that held a warrant to purchase 150,000 shares of common stock. Pursuant to the agreement, on October 11, 2018, the Company issued 75,000 shares of common stock, valued at $76,501, based on market price of $1.02 per share, and cancelled the warrant, resulting in note extinguishment expense of $51,500. See Note 10.
On September 30, 2018, the Company entered into agreements with the holders of two convertible promissory notes, one of whom is the Company’s chief financial officer, each of whom held warrants to purchase 75,000 shares of common stock. Pursuant to the agreements, the Company agreed to purchase the warrants from the each of holders for $12,500, or will issue 37,500 shares of common stock to each of them by December 31, 2018. At December 31, 2018, the note had not been paid and the warrants remained outstanding. See Notes 9 and 10.
The fair value of each warrant on the date of grant was estimated using the Black-Scholes option valuation model. The following weighted-average assumptions were used for options granted during the years ended December 31, 2018. There were no warrants issued or outstanding during 2017.The below table summarizes warrant activity during the nine months ended December 31, 2018:
The following table summarizes activity in the warrants during the year ended December 31, 2018.
|
|
|
Number of
Shares
|
|
|
Weighted -
Average
Exercise Price
|
|
|
Balances as of December 31, 2017
|
|
|
-
|
|
|
$
|
-
|
|
|
Granted
|
|
|
300,000
|
|
|
|
1.20
|
|
|
Cancellation of warrants pursuant to convertible promissory note amendments
|
|
|
(150,000
|
)
|
|
|
-
|
|
|
Balances as of December 31, 2018
|
|
|
150,000
|
|
|
$
|
1.20
|
|
The following table summarizes information concerning the valuation of the outstanding warrants.
|
|
|
December 31, 2018
|
|
|
Exercise price
|
|
$
|
1.20
|
|
|
Expected term
|
|
|
2 years
|
|
|
Expected average volatility
|
|
|
87
|
%
|
|
Expected dividend yield
|
|
|
-
|
|
|
Risk-free interest rate
|
|
|
2.25%-2.34
|
%
|
The following table summarizes information relating to outstanding and exercisable warrants as of December 31, 2018:
|
Warrants Outstanding
|
|
|
Warrants Exercisable
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
|
|
|
|
|
|
Number
|
|
|
Remaining Contractual
|
|
|
Weighted Average
|
|
|
Number
|
|
|
Weighted Average
|
|
|
of Shares
|
|
|
life (in years)
|
|
|
Exercise Price
|
|
|
of Shares
|
|
|
Exercise Price
|
|
|
150,000
|
|
|
|
1.22
|
|
|
$
|
1.20
|
|
|
|
-
|
|
|
$
|
-
|
|
The valuation of the warrants at issuance date was $155,742, based on the Black-Sholes model discussed above, resulting in a debt discount of $155,742. During the year ended December 31, 2018, amortization of debt discount related to the warrants was $155,742. The warrants are treated as not being exercisable at December 31, 2018 pursuant to an agreement by which the holders agreed not to exercise the warrants prior to December 31, 2018. See Note 9 and Note 10.
Aggregate intrinsic value is the sum of the amounts by which the quoted market price of the Company’s stock exceeded the exercise price of the warrants at December 31, 2018, for those warrants for which the quoted market price was in excess of the exercise price (“in-the-money” warrants). As of December 31, 2018, the aggregate intrinsic value of warrants outstanding was $0 based on the closing market price of $0.999 on December 31, 2018.
NOTE 11 – NET ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS
At the end of 2018, the Company discontinued operations relating to the restaurant operations as a result of the change in management and business direction as the U.S. distributor of the medical screening device.
In the fourth quarter of 2018, in connection with ceasing restaurant operations, the Company has classified various assets (including equipment and furniture) as held for sale. We expect to complete the sale of these assets within the next twelve months. Net assets held for sale from discontinued operations totaled $177,828 and $690,231 at December 31, 2018 and 2017, respectively.
Results of operations, financial position and cash flows for these businesses are separately reported as discontinued operations for all periods presented.
The following table shows the results of operations of the restaurant operations for the years ended December 31, 2018 and 2017 which are included in the net loss from discontinued operations:
|
|
|
Year Ended
|
|
|
|
|
December 31,
|
|
|
|
|
2018
|
|
|
2017
|
|
|
Revenues
|
|
$
|
388,713
|
|
|
$
|
650,385
|
|
|
Cost of goods sold
|
|
|
(258,589
|
)
|
|
|
(301,159
|
)
|
|
Gross Profit
|
|
|
130,124
|
|
|
|
349,226
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
216,095
|
|
|
|
159,603
|
|
|
General and administrative
|
|
|
520,134
|
|
|
|
554,304
|
|
|
Salaries and wages
|
|
|
111,888
|
|
|
|
341,403
|
|
|
Stock based compensation
|
|
|
124,670
|
|
|
|
366,360
|
|
|
Total Operating Expenses
|
|
|
972,787
|
|
|
|
1,421,670
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from Operations
|
|
|
(842,663
|
)
|
|
|
(1,072,444
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Other Income (Expenses)
|
|
|
|
|
|
|
|
|
|
Loss on disposal of leasehold improvements
|
|
|
(279,793
|
)
|
|
|
-
|
|
|
Impairment on goodwill and trademark
|
|
|
(37,894
|
)
|
|
|
-
|
|
|
Other income
|
|
|
13,203
|
|
|
|
16,933
|
|
|
Total Other Income (Expense)
|
|
|
(304,484
|
)
|
|
|
16,933
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss Before Income Taxes
|
|
|
(1,147,147
|
)
|
|
|
(1,055,511
|
)
|
|
Provision for income taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss from Discontinued Operations
|
|
$
|
(1,147,147
|
)
|
|
$
|
(1,055,511
|
)
|
NOTE 12 – INCOME TAXES
We did not provide any current or deferred U.S. federal income tax provision or benefit for any of the periods presented because we have experienced operating losses since inception. Accounting for Uncertainty in Income Taxes when it is more likely than not that a tax asset cannot be realized through future income the Company must allow for this future tax benefit.
We provided a full valuation allowance on the net deferred tax asset, consisting of net operating loss carry forwards, because management has determined that it is more likely than not that we will not earn income sufficient to realize the deferred tax assets during the carry forward period.
On December 22, 2017, the United States enacted the Tax Cuts and Jobs Act (the “
Act
”) resulting in significant modifications to existing law. The Company has completed the accounting for the effects of the Act during the year ended December 31, 2018. The Company’s financial statements for the year ended December 31, 2018 reflect certain effects of the Act which includes a reduction in the corporate tax rate from 34% to 21% as well as other changes.
The components of the Company’s deferred tax asset and reconciliation of income taxes computed at the statutory federal income tax rate at 21% and Panama income tax rate at 25% to the income tax amount recorded for the years ended December 31, 2018 and 2017 is as follows:
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
|
December 31, 2018
|
|
|
December 31, 2017
|
|
|
|
|
USA
|
|
|
Panama
|
|
|
Total
|
|
|
USA
|
|
|
Panama
|
|
|
Total
|
|
|
Net operating loss carryforward
|
|
$
|
1,516,728
|
|
|
$
|
1,538,962
|
|
|
$
|
3,055,690
|
|
|
$
|
933,510
|
|
|
$
|
620,729
|
|
|
$
|
1,554,239
|
|
|
Effective tax rate
|
|
|
34
|
%
|
|
|
25
|
%
|
|
|
29
|
%
|
|
|
34
|
%
|
|
|
25
|
%
|
|
|
30
|
%
|
|
Deferred tax asset
|
|
|
515,688
|
|
|
|
384,741
|
|
|
|
900,428
|
|
|
|
317,393
|
|
|
|
155,182
|
|
|
|
472,575
|
|
|
Effect of change in the statutory rate
|
|
|
(197,175
|
)
|
|
|
-
|
|
|
|
(197,175
|
)
|
|
|
(121,356
|
)
|
|
|
-
|
|
|
|
(121,356
|
)
|
|
Less: Valuation allowance
|
|
|
(318,513
|
)
|
|
|
(384,741
|
)
|
|
|
(703,254
|
)
|
|
|
(196,037
|
)
|
|
|
(155,182
|
)
|
|
|
(351,219
|
)
|
|
Net deferred asset
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
At December 31, 2017, the Company had approximately $3,050,000 in net operating losses (“NOLs”) that may be available to offset future taxable income, which begin to expire between 2033 and 2038. In accordance with Section 382 of the U.S. Internal Revenue Code, the usage of the Company’s net operating loss carry forwards is subject to annual limitations following greater than 50% ownership changes.
NOTE 13 – COMMITMENTS AND CONTINGENCIES
Leases
The Company’s subsidiaries entered into leases for restaurant properties. The Company no longer operates any of the restaurants and is seeking to negotiate a termination of the leases or to find a subtenant. As of December 31, 2018, the Company owed a total of $38,265 with respect to its leases which has been included in Accounts payable and accrued liabilities in the Balance Sheets. The Company has continuing lease obligations in connection with these leases.
At December 31, 2018, the Company does not have any lease obligations with respect to its continuing operations.
The following is a schedule by years of minimum future rentals on leases, all of which relate to the discontinued operations, as of December 31, 2018:
|
Year Ending December 31:
|
|
|
|
|
2019
|
|
|
230,879
|
|
|
2020
|
|
|
202,010
|
|
|
Thereafter
|
|
|
286,400
|
|
|
Total minimum future rentals
|
|
$
|
719,289
|
|
Supply and Private Label Agreement
On November 12, 2018, the Company entered into an agreement with the manufacturer of the medical screening device. Under the agreement, the manufacturer sells PC8B units to the Company on a private label basis under the contract term of 4 years commencing November 12, 2018 through August 31, 2022. In order to maintain the manufacturer’s obligation to provide the Company private labeling of the product, the Company must make the agreed purchases, the failing of which would terminate the agreement.
The following is a schedule by years of minimum future committed PC8B purchases as of December 31 2018 in order to retain its right to purchase the product:
|
Year Ending December 31:
|
|
|
|
|
2019
|
|
|
857,500
|
|
|
2020
|
|
|
1,062,500
|
|
|
Thereafter
|
|
|
2,437,500
|
|
|
Total minimum future unit purchase
|
|
$
|
4,357,500
|
|
NOTE 14 – SUBSEQUENT EVENTS
Management has evaluated subsequent events for the period of December 31, 2018 through the date that these financials were issued and noted the following subsequent events:
On January 2, 2019, the Company entered into an employment agreement with its newly-appointed director of sales, who is the brother of the Company’s chief operating officer, for a term expiring on December 31, 2019 and continuing on a quarter-to-quarter basis thereafter unless terminated by either party. The agreement provides for an annual salary of $60,000 plus a commission on sales. The director of sales’ salary is deferred until the earlier of the completion by the Company of one or more private financings that raise at least $1,000,000 or four months from the date of the agreement, at which time the Company will pay the director of sales on a current basis. The Company’s is to pay the amount of salary deferred when it has raised $3,000,000 from one or more private financings. On January 30, 2019, the Company issued 50,000 shares of common stock, valued at $48,500, to the director of sales in consideration of his agreement to the salary deferral provisions of his employment agreement. The stock was valued at the market price of $0.97 per share.
In January 2019, the Company’s chief operating officer advanced the Company $25,000, which is to be paid, without interest, from the proceeds of the Company’s next financing. In consideration of the loan, the Company issued to the chief operating officer, 25,000 shares of common stock, valued at $25,250, based at the market price of $1.01 per share on January 19, 2019.
On March 15, 2019, the Company entered into agreements with two holders of convertible notes, each in the principal amount of $80,250, to extend the agreements to May 31, 2019 both the maturity date of the notes and the Company’s obligations to purchase the notes and the related warrants. One of these notes is held by the Company’s chief financial officer.