NOTES
TO CONDENSED FINANCIAL STATEMENTS
March
31, 2019
(Unaudited)
NOTE
1 - BACKGROUND
Business
Activity
REMSleep
Holdings, Inc., (the “Company”) was incorporated in the State of Nevada on June 6, 2007. On January 5, 2015 the name
of the Company was changed to REMSleep Holdings, Inc. and the business model was changed to reflect the new direction of the Company;
to develop and distribute products to help people affected by sleep apnea. On May 30, 2015 REMSleep LLC was formally merged into
REMSleep Holdings, Inc.
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation
These
unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the
United States of America (“US GAAP”) and the rules and regulations of the Securities and Exchange Commission (“SEC”).
These financial statements and the notes attached hereto should be read in conjunction with the financial statements and notes
included in the Company’s 10-K for its fiscal year ended December 31, 2018. In the opinion of the Company, all adjustments,
including normal recurring adjustments necessary to present fairly the financial position of the Company, as of March 31, 2019
and the results of its operations and cash flows for the three months, then ended have been included. The results of operations
for the interim period are not necessarily indicative of the results for the full year ending December 31, 2019.
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could
differ from those estimates.
Fair
Value of Financial Instruments
The
Company follows paragraph 825-10-50-10 of the FASB Accounting Standards Codification for disclosures about fair value of its financial
instruments and paragraph 820-10-35-37 of the FASB Accounting Standards Codification (“Paragraph 820-10-35-37”) to
measure the fair value of its financial instruments. Paragraph 820-10-35-37 establishes a framework for measuring fair value in
accounting principles generally accepted in the United States of America (U.S. GAAP), and expands disclosures about fair value
measurements. To increase consistency and comparability in fair value measurements and related disclosures, Paragraph 820-10-35-37
establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three
broad levels. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical
assets or liabilities and the lowest priority to unobservable inputs. The three levels of fair value hierarchy defined by Paragraph
820-10-35-37 are described below:
Level
1:
|
Quoted
market prices available in active markets for identical assets or liabilities as of the reporting date.
|
Level
2:
|
Pricing
inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of
the reporting date.
|
Level
3:
|
Pricing
inputs that are generally unobservable inputs and not corroborated by market data.
|
The
carrying amount of the Company’s financial assets and liabilities, such as cash, prepaid expenses and accrued expenses approximate
their fair value because of the short maturity of those instruments. The Company’s notes payable approximates the fair
value of such instruments as the notes bear interest rates that are consistent with current market rates.
The
following table classifies the Company’s liabilities measured at fair value on a recurring basis into the fair value hierarchy
as of:
March
31, 2019:
Description
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total Gains and (Losses)
|
|
Derivative
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
648,433
|
|
|
$
|
(361,714
|
)
|
December
31, 2018:
Description
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total Gains and (Losses)
|
|
Derivative
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
96,110
|
|
|
$
|
(23,985
|
)
|
Recent
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 will cause a material impact on its financial condition or the results of its operations.
NOTE
3 - GOING CONCERN
The
accompanying unaudited financial statements have been prepared on a going concern basis, which contemplates the realization of
assets and the satisfaction of liabilities in the normal course of business. The Company has an accumulated deficit of $2,093,754
at March 31, 2019, had a net loss of $591,732 and net cash used in operating activities of $42,026 for the three months ended
March 31, 2019. The Company’s ability to raise additional capital through the future issuances of common stock and/or debt
financing is unknown. The obtainment of additional financing, the successful development of the Company’s contemplated plan
of operations, and its transition, ultimately, to the attainment of profitable operations are necessary for the Company to continue
operations. These conditions and the ability to successfully resolve these factors over the next twelve months raise substantial
doubt about the Company’s ability to continue as a going concern. The financial statements of the Company do not include
any adjustments that may result from the outcome of these aforementioned uncertainties.
NOTE
4 - PROPERTY & EQUIPMENT
Long
lived assets, including property and equipment and certain intangible assets to be held and used by the Company are reviewed for
impairment whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable.
Impairment losses are recognized if expected future cash flows of the related assets are less than their carrying values. Measurement
of an impairment loss is based on the fair value of the asset. Long-lived assets and certain identifiable intangibles to be disposed
of are reported at the lower of carrying amount or fair value less cost to sell.
Property
and Equipment and intangible assets are first recorded at cost. Depreciation and/or amortization is computed using the straight-line
method over the estimated useful lives of the various classes of assets as follows between three and five years.
Maintenance
and repair expenses, as incurred, are charged to expense. Betterments and renewals are capitalized in plant and equipment accounts.
Cost and accumulated depreciation applicable to items replaced or retired are eliminated from the related accounts with any gain
or loss on the disposition included as income.
Assets
stated at cost, less accumulated depreciation consisted of the following:
|
|
March 31, 2019
|
|
|
December 31, 2018
|
|
Equipment
|
|
$
|
14,904
|
|
|
$
|
14,904
|
|
Office equipment
|
|
|
2,458
|
|
|
|
2,458
|
|
Automobile
|
|
|
16,963
|
|
|
|
16,963
|
|
Tooling / Molds
|
|
|
47,595
|
|
|
|
23,105
|
|
Less: accumulated depreciation
|
|
|
(20,396
|
)
|
|
|
(18,994
|
)
|
Fixed assets, net
|
|
$
|
61,524
|
|
|
$
|
38,436
|
|
Depreciation
expense
Depreciation
expense for the three months ended March 31, 2019 and 2018 was $1,402 and $516, respectively.
NOTE
5 - LOANS PAYABLE
On
October 24, 2017, the Company was notified that a petition had been filed in the Iowa District Court for Polk County by a Mr.
John M. Wesson for failure to repay a loan. Mr. Wesson had loaned the Company $30,000 and $20,000 on October 24, 2012 and June
12, 2013, respectively. The loans were to accrue interest at 5%. While the Company was under previous management the loans were
removed from the books in Q1 of 2015. On April 26, 2018, the Company agreed to repay the loan in full including accrued interest
and $5,000 for legal fees. The $50,000 plus $7,341 was booked to retained earnings in 2016 as a correction of an error. As of
March 31, 2019, there is $45,000 and $15,471 of principal and interest due on this loan. As of December 31, 2018, there is $45,000
and $14,841 of principal and interest due on this loan.
On
March 23, 2018, the Company purchased an automobile. The purchase price was $16,963 The interest rate on the loan is 5.8% and
matures on April 7, 2023. Payments on the loan, consisting of principal and interest, are $327 per month. As of March 31, 2019,
the balance on this loan is $13,940.
NOTE
6 - CONVERTIBLE NOTES
On
July 9, 2018, the Company issued a Convertible Promissory Note in favor of Power Up Lending Group LTD (“Power Up”).
The principal amount of the Note is $45,000 with an original issue discount of $3,000 and carries an interest rate of 12% per
annum. It becomes due and payable with accrued interest on July 9, 2019. Power Up has the option to convert the Note plus accrued
interest into common shares of the Company, after 180 days. The conversion rate is a 39% discount to the average of the lowest
two trading price for twenty days prior to the date of conversion. The company bifurcated the conversion feature and accounted
for it as a derivative liability. The Company recorded the derivative liability at its fair value of $89,020 based on the Black
Scholes Merton pricing model and a corresponding debt discount of $42,000 to be amortized utilizing the interest method of accretion
over the term of the note. As of March 31, 2019, the Company fair valued the derivative at $116,978. In addition, $29,671 of the
debt discount has been amortized to interest expense. The Company noted that calculations using the Black Scholes model are materially
consistent with those of the Binomial model.
On
August 30, 2018, the Company issued a Convertible Promissory Note in favor of LG Capital Funding LLC (“LG”). The principal
amount of the Note is $32,000 with an original issue discount of $2,000 and carries an interest rate of 10% per annum. It becomes
due and payable with accrued interest on August 30, 2019. During the first six months LG has the option to convert the Note plus
accrued interest at a fixed price of $0.10 per share. After the 6-month anniversary, the Conversion Price shall be equal to 60%
of the lowest closing bid price for the eighteen prior trading days including the day of conversion. The Company accounted for
the initial conversion feature as a beneficial conversion feature. A beneficial conversion feature arises when the conversion
price of a convertible instrument is below the per share fair value of the underlying stock into which it is convertible. If LG
were to convert at the price of $0.10 they could convert the full $32,000 into 320,000 shares of common stock. Using the stock
price on the date the note was issued of $.185 and the conversion price of $.10, the Company valued each share at $.085 for an
additional expense of $27,200. The Company has accounted for the $27,200 has debt discount with a credit to additional paid in
capital. The discount was fully amortized as of March 31, 2019. After the 6-month anniversary, the Company bifurcated the conversion
feature and accounted for it as a derivative liability. The Company recorded the derivative liability at its fair value of $36,331
based on the Black Scholes Merton pricing model. As of March 31, 2019, the Company fair valued the derivative at $98,138. The
Company noted that calculations using the Black Scholes model are materially consistent with those of the Binomial model.
On
January 23, 2019, the Company issued a Convertible Promissory Note in favor of ONE44 Capital LLC (“One44”). The principal
amount of the Note is $100,000 and carries an interest rate of 12% per annum. It becomes due and payable with accrued interest
on January 23, 2020. One44 has the option to convert the Note plus accrued interest into common shares of the Company, at any
time. The conversion rate is a 55% discount to the lowest trading price for twenty days prior to the date of conversion. The company
bifurcated the conversion feature and accounted for it as a derivative liability. The Company recorded the derivative liability
at its fair value of $189,378 based on the Black Scholes Merton pricing model and a corresponding debt discount of $100,000 to
be amortized utilizing the interest method of accretion over the term of the note. As of March 31, 2019, the Company fair valued
the derivative at $433,316. In addition, $23,356 of the debt discount has been amortized to interest expense. The Company noted
that calculations using the Black Scholes model are materially consistent with those of the Binomial model.
A
summary of the activity of the derivative liability for the notes above is as follows:
Balance at December 31, 2017
|
|
$
|
-
|
|
Increase to derivative due to new issuances
|
|
|
89,020
|
|
Derivative loss due to mark to market adjustment
|
|
|
7,090
|
|
Balance at December 31, 2018
|
|
|
96,110
|
|
Increase to derivative due to new issuances
|
|
|
225,709
|
|
Decrease to derivative due to conversion
|
|
|
(35,100
|
)
|
Derivative loss due to mark to market adjustment
|
|
|
361,714
|
|
Balance at March 31, 2019
|
|
$
|
648,433
|
|
A
summary of quantitative information about significant unobservable inputs (Level 3 inputs) used in measuring the Company’s
derivative liability that are categorized within Level 3 of the fair value hierarchy for the three months ended March 31, 2019
is as follows:
Inputs
|
|
March 31,
2019
|
|
|
Initial Valuation
|
|
Stock price
|
|
$
|
.0245
|
|
|
$
|
.55 - .032
|
|
Conversion price
|
|
$
|
.006
|
|
|
$
|
.244 - .0055
|
|
Volatility (annual)
|
|
|
207.28 – 373.79%
|
|
|
|
261.04% - 353.43
|
|
Risk-free rate
|
|
|
2.4
|
%
|
|
|
2.34% - 2.58
|
|
Years to maturity
|
|
|
.27 - .82
|
|
|
|
1
|
|
The
development and determination of the unobservable inputs for Level 3 fair value measurements and fair value calculations are the
responsibility of the Company’s management
NOTE
7 - RELATED PARTY TRANSACTIONS
The
Company has received support from parties related through common ownership and directorship. These loans are unsecured, non-interest
bearing and due on demand. As of March 31, 2019 and December 31, 2018, the balance due on these loans is $179,191 and $179,191,
respectively. Beginning on January 1, 2019, the balance due will accrue interest at 12.5%. As of March 31, 2019, total accrued
interest is $5,523.
The
Company executed an employment agreement with its CEO, Tom Wood, on January 1, 2018. Per the terms of the agreement Mr. Wood is
to be compensated $3,000 per month. The agreement expired on January 2, 2019; however, that Company will renew the agreement for
another year.
The
Company executed an employment agreement with its Chairman, Russell Bird, on January 1, 2019. Per the terms of the agreement Mr.
Wood is to be compensated $3,000 per month.
NOTE
8 - COMMON STOCK
During
the three months ended March 31, 2019, PowerUp converted $11,435 of principal into 939,138 shares of common stock.
During
the three months ended March 31, 2019, LG Capital converted $4,370 and $221 of principal and interest, respectively, into 584,153
shares of common stock.
NOTE
9 - SUBSEQUENT EVENTS
In
accordance with SFAS 165 (ASC 855-10) management has performed an evaluation of subsequent events through the date that the financial
statements were available to be issued and has determined that it does not have any material subsequent events to disclose in
these financial statements other then the following.
Subsequent
to March 31, 2019, PowerUp converted $21,740 into 2,836,769 shares of common stock.
Subsequent
to March 31, 2019, LG Capital converted $8,560 and $592, of principal and interest, respectively, into 1,544,977 shares of common
stock.
On
May 3, 2019, the Company issued a Convertible Promissory Note in favor of Odyssey Capital. The principal amount of the Note is
$100,000 (less $5,000 for fees) and carries an interest rate of 12% per annum. The note matures on May 2, 2020 and is convertible
into shares of common stock at any time at a 55% discount to the lowest trade in the twenty days preceding the conversion.