UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTIONS 13 OR 15 (d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2016
Commission file number: 333-206839
HEALTH-RIGHT DISCOVERIES, INC.
(Exact name of registrant as specified in its charter)
| Florida | 45-3588650 |
| (State or Other Jurisdiction of | (I.R.S. Employer |
| Incorporation or Organization) | Identification No.) |
18851 NE 29th Avenue, Suite 700, Aventura, Florida 33180
(Address of Principal Executive Offices)
Registrant’s telephone number, including area code: (305) 705-3247
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined by Rule 405 of the Securities Act. Yes¨ Nox
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yesx No¨
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. Yesx No¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (ss.232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yesx No¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K 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.x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
| Large Accelerated Filer¨ | Accelerated Filer¨ |
| Non-accelerated filer¨ | Smaller reporting companyx |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes¨ Nox
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold, or the average bid and asked prices of such common equity as of the last business day of the registrant’s most recently completed second fiscal quarter: Not applicable.
The number of shares outstanding of the issuer’s common stock, $0.001 par value, as of April 4, 2017 was 17,533,332 shares.
TABLE OF CONTENTS
FORWARD LOOKING STATEMENTS
Certain statements made in this Annual Report on Form 10-K are “forward-looking statements” regarding the plans and objectives of management for future operations. Such statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. The forward-looking statements included herein are based on current expectations that involve numerous risks and uncertainties. Our plans and objectives are based, in part, on assumptions involving judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond our control. Although we believe that our assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove inaccurate and, therefore, there can be no assurance that the forward-looking statements included in this report will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein particularly in view of the current state of our operations, the inclusion of such information should not be regarded as a statement by us or any other person that our objectives and plans will be achieved. Factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements include, but are not limited to, the factors set forth herein under the headings “Item 1. Business” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.” We undertake no obligation to revise or update publicly any forward-looking statements for any reason.
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Unless the context otherwise requires, references in this report to “HRD,” “Health-Right,” “the Company,” “we,” “our” and “us” refers to Health-Right Discoveries, Inc.
Overview
Health-Right was founded as a natural biotech company that seeks to combine science and nutrition to develop branded ingredients, formulations and products that seek to provide a better quality of life for consumers who primarily suffer from stress-induced viruses and diseases. The Company developed a formulation platform by utilizing and scientifically combining various natural ingredients to help positively influence the interrelationship between stress and the immune system. The Company initially applied the formulation platform to Advanced H-Plex Defense Formula 11, its first product (“H-Plex Defense”), an all-natural dietary supplement whose formulation sought to address less than optimal nutrition and nutritional deficiencies to aid persons afflicted with Herpes Simplex Virus 1. Despite test marketing H-Plex Defense through the end of 2014 and positive customer feedback, HRD has been unable to raise sufficient capital to complete development of and commercialize H-Plex Defense.
Accordingly, during 2016, the Company shifted its focus to identifying and exploring various opportunities for growth and revenue generation through the acquisition of other products, technologies or companies in the natural biotech, healthcare, nutraceutical and related fields. However, the Company has not entered into any agreement with respect to any specific acquisition.
To date, the Company has generated limited revenues and has operated with limited capital. The Company will require significant capital to implement its refocused business plan. There can be no assurance that the Company can raise the necessary funds, on favorable terms or otherwise. Failure to obtain sufficient capital will substantially harm the Company’s prospects.
Corporate Information
The Company was incorporated in the state of Florida on October 11, 2011 under the name “Four Plex Partners, Inc.” and changed its name to “Health-Right Discoveries, Inc.” on March 22, 2012.
Our executive offices are located at 18851 NE 29th Avenue, Suite 700, Aventura, Florida 33180 and our telephone number is (305) 705-3247. Our corporate website iswww.health-right.com. Information appearing on our corporate website is not part of this report.
Employees
As of the date of this report the Company’s sole employee is its President and the Company relies on independent third party consultants in large part to perform additional services as needed.
Health-Right is a “smaller reporting company” as defined in Rule 12b-2 under the Exchange Act of 1934 (the “Exchange Act”), we are not required to provide the information required by this Item.
We do not own any real property. We maintain an office mailing address at 18829 NE 29th Avenue, Suite 700, Aventura, Florida 33180 at nominal cost and pay for the utilization of office and conference space at such location on an as needed basis.
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Currently there are no legal proceedings pending or threatened against us.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market Information
There is presently no public market for our common stock and there has never been a market for our common stock. We anticipate applying for quotation of our common stock on the OTCQX or the OTCQB operated by OTC Market Group, Inc. as soon as practicable. However, we cannot assure you that our shares will be quoted on any tier of OTC Markets Group or, if quoted, that a public market will develop and if developed, be liquid and be sustained.
Holders
As of the date of this report, we had 17,533,332 shares of common stock issued and outstanding and 24 shareholders of record of our common stock.
Dividends
The payment by us of dividends, if any, in the future rests within the discretion of our Board of Directors and will depend, among other things, upon our earnings, capital requirements and financial condition, as well as other relevant factors. We have not paid any dividends since our inception and we do not intend to pay any cash dividends in the foreseeable future, but intend to retain all earnings, if any, for use in our business.
Securities Authorized for Issuance under Equity Compensation Plans
| Plan category | Number of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted-average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) | |||
| Equity compensation plans approved by security holders | 3,000,000 shares(1) | None issued | 3,000,000 shares(1) | |||
| Equity compensation plans not approved by security holders | 0 shares | None issued | 0 shares | |||
| Total | 3,000,000 shares(1) | None issued | 3,000,000 shares(1) |
| (1) | Represents shares of common stock reserved for issuance under our 2015 Incentive Stock Plan. |
Item 6. Selected Financial Data.
As a “smaller reporting company,” as defined in Rule 12b-2 under the Exchange Act, we are not required to provide the information required by this Item.
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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Results of Operations
Year Ended December 31, 2016 Compared to Year Ended December 31, 2015
We had revenues of $8,959 for the year ended December 31, 2016, as compared to $22,875 for the year ended December 31, 2015, reflecting the tapering off of reorders resulting from trial-marketing of H-Plex Defense. Cost of sales declined to $3,251in 2016 from $6,396 in 2015, which resulted in gross profit of $5,708 in 2016, as compared to $16,479 in 2015.
General and administrative costs were $142,573 in 2016, as compared to $77,206 in 2015, because of increased efforts to implement our business plan and higher costs related to operating as a public company. Interest expense for 2016 and 2015 was $7,485 and $6,162, respectively, attributable mostly to shareholder loans.
Net losses for the years ended December 31, 2016 and December 31, 2015, were $144,350 and $66,889, respectively.
Liquidity and Capital Resources
As of December 31, 2016, total current assets were $18,373 as compared to $4,226 on December 31, 2015. Total current liabilities as of December 31, 2016 were $387,923, as compared to $269,426 as of December 31, 2015, reflecting increased accrued salary and related party loans, among other things.
For the year ended December 31, 2016, we raised $60,746 from shareholder loans.
Net cash used in operating activities was $44,330 in 2016, as compared to $31,386 for 2015, representing funds used to implement the Company’s business plan.
Net cash provided by financing activities in 2016 was $60,746, as compared to $32,734 in 2015 from shareholder loans.
Our primary source of capital to develop and implement our business plan has been from private placements of our securities and shareholder loans.
The Company will require additional financing to complete development to commercially launch and market its planned products. Our independent auditors report for the year ended December 31, 2016 includes an explanatory paragraph strategy that our lack of revenues and working capital raise substantial doubt about our ability to continue a growing concern. While we are seeking to raise additional financing, either through government grants and loans or additional securities or offerings, there can be no assurance that additional financing will be available to the Company when needed, on favorable terms or otherwise. Moreover, any such additional financing may dilute the interests of existing shareholders. The absence of additional financing, when needed, could cause the Company to delay implementation of its business plan in whole or in part, curtail its business activities and seriously harm the Company and its prospects.
Critical Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates included deferred revenue, costs incurred related to deferred revenue, the useful lives of property and equipment, the useful lives of intangible assets and accounting for the business combination.
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Income Taxes
The Company accounts for income taxes in accordance with ASC 740, Accounting for Income Taxes, as clarified by ASC 740-10, Accounting for Uncertainty in Income Taxes. Under this method, deferred income taxes are determined based on the estimated future tax effects of differences between the financial statement and tax basis of assets and liabilities given the provisions of enacted tax laws. Deferred income tax provisions and benefits are based on changes to the assets or liabilities from year to year. In providing for deferred taxes, the Company considers tax regulations of the jurisdictions in which the Company operates, estimates of future taxable income, and available tax planning strategies. If tax regulations, operating results or the ability to implement tax-planning strategies vary, adjustments to the carrying value of deferred tax assets and liabilities may be required. Valuation allowances are recorded related to deferred tax assets based on the “more likely than not” criteria of ASC 740.
ASC 740-10 requires that the Company recognize the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the “more-likely-than-not” threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority.
Off-Balance Sheet Arrangements
There are no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
Item 8. Financial Statements and Supplementary Data.
See the Index to the Financial Statements beginning on page F-1 below.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
| (a) | Disclosure Controls and Procedures |
Our President, as our sole executive officer, conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of December 31, 2016, to ensure that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, including to ensure that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is accumulated and communicated to our management, including our President, as our Principal Executive, Financial and Accounting Officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based on that evaluation, our President has concluded that as of December 31, 2016, our disclosure controls and procedures were not effective at the reasonable assurance level due to the material weaknesses identified and described inItem 9A(b) of this report.
Our President does not expect that our disclosure controls or internal controls will prevent all error and all fraud. Although our disclosure controls and procedures were designed to provide reasonable assurance of achieving their objectives and our principal executive officer has determined that our disclosure controls and procedures are effective at doing so, a control system, no matter how well conceived and operated, can provide only reasonable, not absolute assurance that the objectives of the system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented if there exists in an individual a desire to do so. There can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
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| (b) | Management’s Report on Internal Control over Financial Reporting |
Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act). Internal control over financial reporting is a process designed by, or under the supervision of, our President (our Principal Executive, Financial and Accounting Officer), to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with GAAP. Internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of our Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures of our company are being made only in accordance with authorizations of management and directors of our Company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our Company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not provide absolute assurance that a misstatement of our financial statements would be prevented or detected.
Further, the evaluation of the effectiveness of internal control over financial reporting was made as of a specific date, and continued effectiveness in future periods is subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our President (our Principal Executive, Financial and Accounting officer), conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2016 in accordance with the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") in Internal Control — Integrated Framework. Based on this assessment, Management identified the following two material weaknesses that have caused management to conclude that, as of December 31, 2016, our disclosure controls and procedures, and our internal control over financial reporting, were not effective at the reasonable assurance level in that:
1. We do not have written documentation of our internal control policies and procedures. Written documentation of key internal controls over financial reporting is a requirement of Section 404 of the Sarbanes-Oxley Act. Management evaluated the impact of our failure to have written documentation of our internal controls and procedures on our assessment of our disclosure controls and procedures and has concluded that the control deficiency that resulted represented a material weakness.
2. We do not have sufficient segregation of duties within accounting functions, which is a basic internal control. Due to our size and nature, segregation of all conflicting duties may not always be possible and may not be economically feasible. However, to the extent possible, the initiation of transactions, the custody of assets and the recording of transactions should be performed by separate individuals. Management evaluated the impact of our failure to have segregation of duties on our assessment of our disclosure controls and procedures and has concluded that the control deficiency that resulted represented a material weakness.
To address these material weaknesses, management performed additional analyses and other procedures to ensure that the consolidated financial statements included herein fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented. Accordingly, we believe that the consolidated financial statements included in this report fairly present, in all material respects, our financial condition, results of operations and cash flows for the periods presented.
This report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to the rules of the SEC that permit us to provide only our management’s report in this report.
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| (c) | Remediation of Material Weaknesses |
To remediate the material weakness in our documentation, evaluation and testing of internal controls we plan to engage a third-party firm to assist us in remedying this material weakness once resources become available.
We also intend to remedy our material weakness with regard to insufficient segregation of duties by hiring additional employees in order to segregate duties in a manner that establishes effective internal controls once resources become available.
| (d) | Changes in Internal Controls Over Financial Reporting |
There were no changes in our internal controls over financial reporting that occurred during the last fiscal quarter covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
None.
Item 10. Directors, Executive Officers and Corporate Governance.
Our directors and executive officers and their respective ages and titles are as follows:
| Name | Age | Position(s) and Office(s) Held | ||
| David Hopkins | 49 | President and Director | ||
| James Pande | 58 | Director |
Set forth below is a brief description of the background and business experience of our directors and executive officers.
David Hopkinsfounded Health-Right in 2011 and has served as President and a director since that time. From November 2009 until he founded the Company, Mr. Hopkins was a founder and managing member of Envirocare Solutions, LLC, a privately-held technology-driven manufacturer and wholesale distributor of products designed to deliver cold air micro-mist diffusion safely into the environment. In addition, since 2001, Mr. Hopkins has been a principal of Hopkins & Associates, a consulting firm providing turnaround and business development services to various private and public held companies engaged in a variety of industries, ranging from the production and distribution of soft drinks to biotechnology and environmental products. Mr. Hopkins holds a B.S. degree from Carroll University in Wisconsin.
James Pandehas served as a director of the Company since its inception in 2011. Since 2010, he has served as Vice President of Marketing and Sales Aldora Aluminum and Glass Products, based in Miramar, Florida. Prior thereto, he owned Smith Mountain Impact Systems in Miami, Florida, which he built into a respected manufacturer of hurricane impact windows and entrance doors. Mr. Pande holds a bachelor’s degree from the Cornell School of Hotel and Restaurant Management.
As soon as practicable, we intend to seek to expand our board of directors to include additional members, including “independent” directors.
Terms of Office
Our directors are appointed for a one-year term to hold office until the next annual meeting of our shareholders and until a successor is appointed and qualified, or until their removal, resignation, or death. Executive officers serve at the pleasure of the board of directors.
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Board Committees
Our board of directors does not currently have an audit committee, a compensation committee, or a corporate governance committee. We plan to establish such committees in the near future.
Code of Ethics
We do not currently have a Code of Ethics that applies to employees, including our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. We plan to adopt a Code of Ethics in near future.
Item 11. Executive Compensation.
Summary Compensation Table
The table below summarizes all compensation awarded to, earned by, or paid to our President, who was our sole executive officer for 2016 and 2015, including amounts accrued but not paid.
SUMMARY COMPENSATION TABLE
| Name and principal position | Year | Salary ($) | Bonus ($) | Stock Awards (#) | Option Awards (#) | Non-Equity Incentive Plan Compensation ($) | Nonqualified Deferred Compensation Earnings ($) | All Other Compensation ($) | Total ($) | |||||||||||||||||||||||||||
| David Hopkins, | 2016 | 52,000 | (1) | 0 | 0 | 0 | 0 | 0 | 7,200 | (2) | 59,200 | |||||||||||||||||||||||||
| President | 2015 | 52,000 | (1) | 0 | 0 | 0 | 0 | 0 | 3,000 | (2) | 55,000 | |||||||||||||||||||||||||
(1) Represents $39,000 and $52,000 in salary accrued but not paid to Mr. Hopkins in 2016 and 2015, respectively.
(2) Represents a $600 monthly car allowance for Mr. Hopkins, effective July 2015.
Employment Agreements
The Company is presently not party to an employment agreement with its executive officer.
Outstanding Equity Awards at Fiscal Year-End Table
The table below summarizes all unexercised options, stock that has not vested, and equity incentive plan awards for each named executive officer outstanding as of December 31, 2016.
| OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END | ||||||||||||||||||||||||||||||||||||
| OPTION AWARDS | STOCK AWARDS | |||||||||||||||||||||||||||||||||||
| Name | Number of Securities Underlying Unexercised Options (#) Exercisable | Number of Securities Underlying Unexercised Options (#) Unexercisable | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) | Option Exercise Price ($) | Option Expiration Date | Number of Shares or Shares of Stock That Have Not Vested (#) | Market Value of Shares or Shares of Stock That Have Not Vested ($) | Equity Incentive Plan Awards: Number of Unearned Shares, Shares or Other Rights That Have Not Vested (#) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Shares or Other Rights That Have Not Vested (#) | |||||||||||||||||||||||||||
| David Hopkins | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||||
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Compensation of Directors Table
The table below summarizes all compensation paid to our directors for our last completed fiscal year.
DIRECTOR COMPENSATION
| Name | Fees or Paid in Cash ($) | Stock Awards ($) | Option Awards ($) | Non-Equity Incentive Plan Compensation ($) | Non-Qualified Deferred Compensation Earnings ($) | All Other Compensation ($) | Total ($) | |||||||||||||||||||||
| David Hopkins | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||
| James Pande | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||
Narrative Disclosure to the Director Compensation Table
We currently do not compensate our non-employee directors. When we expand our board we will intend to implement a plan and compensate them with a combination of cash and stock option awards, depending on our financial resources at that time.
2015 Incentive Stock Plan
Our 2015 Incentive Stock Plan provides for equity incentives to be granted to our employees, executive officers or directors or to key advisers or consultants. Equity incentives may be in the form of stock options with an exercise price not less than the fair market value of the underlying shares as determined pursuant to the 2015 Incentive Stock Plan, restricted stock awards, other stock based awards, or any combination of the foregoing. The 2015 Incentive Stock Plan is administered by the board of directors. 3,000,000 shares of our common stock are reserved for issuance pursuant to the exercise of awards under the 2015 Incentive Stock Plan. The number of shares so reserved automatically adjusts upward on January 1 of each year, so that the number of shares covered by the 2015 Incentive Stock Plan is equal to 15% of our issued and outstanding common stock. No awards are outstanding as of the date of this report.
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Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The following table sets forth, as of the date of this report, the beneficial ownership of our common stock by each director and executive officer, by each person known by us to beneficially own 5% or more of our common stock and by directors and executive officers as a group. Unless otherwise stated, the address of the persons set forth in the table is c/o the Company, 18851 NE 29th Avenue, Suite 700, Aventura, Florida 33180.
Names and addresses of beneficial owners | Number of shares of common stock | Percentage of class (%) | ||||||
| Directors and executive officers: | ||||||||
| David Hopkins | 5,663,510 | 32.3 | % | |||||
| James Pande | 6,366,666 | 36.3 | % | |||||
| All directors and executive officers as a group (two (2) persons) | 12,030,176 | 68.6 | % | |||||
| Other 5% or greater shareholders: | ||||||||
| Michael Fabiano | 1,000,000 | 5.7 | % | |||||
The persons named above have full voting and investment power with respect to the shares indicated. Under the rules of the SEC, a person (or group of persons) is deemed to be a “beneficial owner” of a security if he or she, directly or indirectly, has or shares the power to vote or to direct the voting of such security, or the power to dispose of or to direct the disposition of such security. Accordingly, more than one person may be deemed to be a beneficial owner of the same security.
Securities Authorized for Issuance under Equity Compensation Plans
| Plan category | Number of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted-average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) | |||
| Equity compensation plans approved by security holders | 3,000,000 shares(1) | None issued | 3,000,000 shares(1) | |||
| Equity compensation plans not approved by security holders | 0 shares | None issued | 0 shares | |||
| Total | 3,000,000 shares(1) | None issued | 3,000,000 shares(1) |
| (1) | Represents shares of common stock reserved for issuance under our 2015 Incentive Stock Plan. |
Item 13. Certain Relationships and Related Transactions, and Director Independence.
Related Party Transactions
Since inception, the Company has relied in large part on loans from James Pande and David Hopkins, its principal shareholders, to fund its operations.
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Since inception, Mr. Pande advanced money to help fund the Company’s operations. During the years ended December 31, 2016 and 2015 he advanced amounts aggregating $2,500 and $7,500, respectively. These borrowings bear interest at 3% per annum with no maturity date. During the years ended December 31, 2016 and 2015 interest expense on these borrowings aggregated $1,677 and $997, respectively. As of December 31, 2016 and 2015 the balance due was $31,312 and $29,567, including accrued interest.
The Company also has a secured promissory note with Jim Pande. These borrowings bear interest at 3% per annum with no maturity date. During the years ended December 31, 2016 and 2015 interest expense on these borrowings aggregated $451 and $0, respectively. As of December 31, 2016 and 2015 the balance due was $15,451 and $15,000, respectively, including accrued interest.
Effective July 30, 2015 the Company entered into a secured future advance promissory note with Mr. Pande for a total amount of $75,000. During the years ended December 31, 2016 and 2015, the Company borrowed $25,000 and $50,000 under this note, respectively. The note bears interest at 7.5% per annum and matures on July 31, 2017. Interest expense on this note aggregated $6,711 and $1,269 for the years ended December 31, 2016 and 2015, respectively. The balance due on this note at December 31, 2016 and 2015 was $81,711 and $51,269, respectively, including accrued interest.
Since inception, Mr. Hopkins has also advanced money to help fund the Company’s operations. During the years ended December 31, 2016 and 2015, he advanced amounts aggregating $3,050 and $0, respectively. These borrowings bear interest at 3% per annum with no maturity date. During the years ended December 31, 2016 and 2015, interest expense on these borrowings aggregated $30 and $0, respectively. As of December 31, 2016 and 2015, the balance due was $3,080 and $0, respectively, including accrued interest.
Since inception, Mr. Hopkins advanced money to fund the Company’s operations. In 2013, he converted certain advances and accrued salary into a secured demand promissory note. These borrowings bear interest at 3% per annum with no maturity date. The balance of this loan at December 31, 2016 and 2015, was $30,903 and $30,000, respectively, and is subordinated to the future advance promissory note issued to Mr. Pande.
Mr. Hopkins also has made loans to the Company through direct charges on his credit card to pay for working capital purposes. The balance of this loan at December 31, 2016 and 2015 was $31,205 and $1,009, respectively. The founder is not charging the Company interest on these amounts.
The Company’s board of directors approved a salary to the Mr. Hopkins, the Company’s President, in the amount of $52,000 per annum plus a car allowance of $600 per month. As of December 31, 2016 and 2015, the amount unpaid and accrued amount aggregated $169,000 and $130,000, respectively. The President waived his car allowance from August 2013 until July 2015 and is owed $600 in accrued car allowance as of December 31, 2016.
Review, Approval and Ratification of Related Party Transactions
Given our small size and limited financial resources, we had not adopted formal policies and procedures for the review, approval or ratification of transactions with our executive officers, directors and significant shareholders. However, we intend that such transactions will, on a going-forward basis, be subject to the review, approval or ratification of our board of directors, or an appropriate committee thereof.
Item 14. Principal Accounting Fees and Services.
Paritz & Co., P.A. (“Paritz”) is our current independent registered public accounting firm.
Audit Fees
Aggregate audit fees billed by Paritz for the years ended December 31, 2016 and 2015 were $11,500 and $9,750, respectively.
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Audit-Related Fees
There were no audit-related fees billed by Paritz for the years ended December 31, 2016 and 2015.
Tax Fees
There were no tax fees billed by Paritz for the years ended December 31, 2016 and 2015.
Pre-Approval Policy
We do not currently have a standing audit committee. Provision of the above services was approved by our board of directors.
Item 15. Exhibits, Financial Statement Schedules.
| (a) | The following documents are filed as part of this Report: |
| (1) | Financial Statements. The following financial statements and the report of our independent registered public accounting firm, are filed as “Item 8. Financial Statements and Supplementary Data” of this report: |
Report of Independent Registered Public Accounting Firm
Balance Sheets at December 31, 2016 and 2015
Statements of Operations for the Years Ended December 31, 2016 and 2015
Statements of Cash Flows for the Years Ended December 31, 2016 and 2015
Statements of Stockholders’ Deficiency for the Years Ended December 31, 2016 and 2015
Notes to Financial Statements
| (2) | Financial Statement Schedules. |
Financial Statement Schedules are omitted because the information required is not applicable or the required information is shown in the financial statements or notes thereto.
| (3) | Exhibits. |
| Exhibit Number | Description | |
| 3.1(i) | Amended and Restated Articles of Incorporation* | |
| 3.2 | By-Laws* | |
| 10.1 | 2015 Stock Incentive Plan* | |
| 31.1 | Chief Executive Officer and Chief Financial Officer Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 ** | |
| 32.1 | Chief Executive Officer and Chief Financial Officer Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 ** |
* Filed as an Exhibit of the same number to the registrant’s Registration Statement on Form S-1 (File No. 333-206839) and incorporated herein by reference.
**Filed herewith.
| 13 |
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| HEALTH-RIGHT DISCOVERIES, INC. | ||
| Dated: April 5, 2017 | By: | /s/ David Hopkins |
| David Hopkins, President | ||
| (Principal Executive, Financial and Accounting Officer) | ||
In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| Signatures | Title(s) | Date | |||
| By: | /s/ David Hopkins | President and Director | April 5, 2017 | ||
| David Hopkins | (Principal Executive, Financial and Accounting Officer) | ||||
| By: | /s/ James Pande | Director | April 5, 2017 | ||
| James Pande | |||||
| 14 |
INDEX TO FINANCIAL STATEMENTS
| F-1 |
| Paritz& Company, P.A | 15 Warren Street, Suite 25 Hackensack, New Jersey 07601 (201) 342-7753 Fax: (201) 342-7598 E-Mail: PARITZ@paritz.com |
Certified Public Accountants
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders’
Health-Right Discoveries, Inc.
We have audited the accompanying balance sheets of Health-Right Discoveries, Inc. as of December 31, 2016 and 2015 and the related statements of operations, stockholders’ equity (deficiency) and cash flows for the years ended December 31, 2016 and 2015. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Health-Right Discoveries, Inc.as of December 31, 2016 and 2015, and the results of its operations and cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
The accompanying 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. As discussed in Note 3 the Company has generated minimal revenue since inception, has sustained losses since inception, and has a stockholders’ deficiency of $369,550 at December 31, 2016. These factors, among others, raise substantial doubt about the ability of the Company to continue as a going concern. Management plans are also discussed in Note 3.The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/S/Paritz & Company, P.A.
Hackensack, New Jersey
April 5, 2017
| F-2 |
HEALTH-RIGHT DISCOVERIES, INC.
BALANCE SHEETS
| December 31, 2016 | December 31, 2015 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS: | ||||||||
| Cash | $ | 18,373 | $ | 1,957 | ||||
| Inventories | - | 2,269 | ||||||
| Total Current Assets | 18,373 | 4,226 | ||||||
| TOTAL ASSETS | $ | 18,373 | $ | 4,226 | ||||
| LIABILITIES AND STOCKHOLDERS' DEFICIENCY | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Credit card payable | $ | - | $ | 7,222 | ||||
| Loans payable - related parties | 193,662 | 126,845 | ||||||
| Accrued interest - related parties | - | 1,813 | ||||||
| Salaries payable - related party | 169,000 | 130,000 | ||||||
| Other Current Liability | 25,261 | 3,546 | ||||||
| Total Current Liabilities | 387,923 | 269,426 | ||||||
| STOCKHOLDERS' DEFICIENCY | ||||||||
| Preferred Stock, .001 par value, 5,000,000 shares authorized No shares issued and outstanding December 31, 2016 and 2015 | - | - | ||||||
| Common Stock, .001 par value, 100,000,000 shares authorized 17,533,332 and 17,133,332 shares issued and outstanding December 31, 2016 and 2015, respectively | 17,533 | 17,133 | ||||||
| Additional Paid in Capital | 589,717 | 550,117 | ||||||
| Accumulated Deficiency | (976,800 | ) | (832,450 | ) | ||||
| TOTAL STOCKHOLDERS' DEFICIENCY | (369,550 | ) | (265,200 | ) | ||||
| TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY | $ | 18,373 | $ | 4,226 | ||||
The accompanying notes are an integral part of these financial statements
| F-3 |
HEALTH-RIGHT DISCOVERIES, INC.
STATEMENTS OF OPERATIONS
| Year ended December 31, | ||||||||
| 2016 | 2015 | |||||||
| Sales | $ | 8,959 | $ | 22,875 | ||||
| Cost of Sales | 3,251 | 6,396 | ||||||
| Gross Profit | 5,708 | 16,479 | ||||||
| COSTS AND EXPENSES: | ||||||||
| General and administrative | 142,573 | 77,206 | ||||||
| Interest expense - related parties | 6,071 | 6,162 | ||||||
| other | 1,414 | - | ||||||
| Total Cost and expenses | 150,058 | 83,368 | ||||||
| Loss before income tax provision | (144,350 | ) | (66,889 | ) | ||||
| Income tax provision | - | - | ||||||
| NET LOSS | $ | (144,350 | ) | $ | (66,889 | ) | ||
| Loss per common share | (0.01 | ) | (0.00 | ) | ||||
| Weighted average common shares outstanding | 17,532,236 | 17,131,107 | ||||||
The accompanying notes are an integral part of these financial statements
| F-4 |
HEALTH-RIGHT DISCOVERIES, INC.
STATEMENTS OF CASH FLOWS
| Year ended December 31, | ||||||||
| 2016 | 2015 | |||||||
| OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | (144,350 | ) | $ | (66,889 | ) | ||
| Adjustments to reconcile net loss to net | ||||||||
| cash used in operating activities: | ||||||||
| Stock based compensation | 40,000 | 1,000 | ||||||
| Accrued salary to related party | 39,000 | 52,000 | ||||||
| Accrued interest to related parties | 6,071 | |||||||
| Settlement of notes payable | - | (11,950 | ) | |||||
| Changes in operating assets and liabilities | ||||||||
| Inventories | 2,269 | (1,056 | ) | |||||
| Credit card payable | (7,222 | ) | (1,473 | ) | ||||
| Accrued interest | (1,813 | ) | (3,064 | ) | ||||
| Accrued expenses | 21,715 | 46 | ||||||
| NET CASH USED IN OPERATING ACTIVITIES | (44,330 | ) | (31,386 | ) | ||||
| FINANCING ACTIVITIES: | ||||||||
| Proceeds of loan from related parties | 60,746 | 57,500 | ||||||
| Repayment of related party loan | - | (24,766 | ) | |||||
| NET CASH PROVIDED BY FINANCING ACTIVITIES | 60,746 | 32,734 | ||||||
| INCREASE (DECREASE) IN CASH | 16,416 | 1,348 | ||||||
| CASH - BEGINNING OF YEAR | 1,957 | 609 | ||||||
| CASH - END OF YEAR | $ | 18,373 | $ | 1,957 | ||||
| $ | - | - | ||||||
Supplemental disclosures of cash flow information:
The accompanying notes are an integral part of these financial statements
| F-5 |
HEALTH-RIGHT DISCOVERIES, INC.
STATEMENT OF STOCKHOLDERS’ DEFICIENCY
| Additional | ||||||||||||||||||||
| ------COMMON STOCK------ | Paid-In | Accumulated | ||||||||||||||||||
| Shares | Amount | Capital | Deficit | Total | ||||||||||||||||
| BALANCE – January 1, 2015 | 17,123,332 | $ | 17,123 | $ | 549,127 | $ | (765,561 | ) | $ | (199,311 | ) | |||||||||
| Common stock issued for services | 10,000 | 10 | 990 | 1,000 | ||||||||||||||||
| Net Loss | (66,889 | ) | (66,889 | ) | ||||||||||||||||
| BALANCE – December 31, 2015 | 17,133,332 | $ | 17,133 | $ | 550,117 | $ | (832,450 | ) | $ | (265,200 | ) | |||||||||
| Common stck issued in private placement | - | - | - | - | ||||||||||||||||
| Common stock issued for services | 400,000 | 400 | 39,600 | 40,000 | ||||||||||||||||
| Net loss | (144,350 | ) | (144,350 | ) | ||||||||||||||||
| BALANCE – December 31, 2016 | 17,533,332 | $ | 17,533 | $ | 589,717 | $ | (976,800 | ) | $ | (369,550 | ) | |||||||||
The accompanying notes are an integral part of these financial statements
| F-6 |
HEALTH-RIGHT DISCOVERIES, INC.
Notes to Financial Statements
NOTE 1 – Business
Health-Right Discoveries, Inc. (the “Company”) was formed under the laws of the State of Florida on October 12, 2011 under the name Four Plex Partners, Inc. The company changed its name to Health-Right Discoveries, Inc. on March 22, 2012. The Company is a natural biotech company that seeks to combine science and nutrition to develop branded ingredients, formulations and products that seek to provide a better quality of life for consumers who primarily suffer from stress-induced viruses and diseases. The Company developed a formulation platform by utilizing and scientifically combining various natural ingredients to help positively influence the interrelationship between stress and the immune system. The Company initially applied the formulation platform to Advanced H-Plex Defense Formula 11, its first product (“H-Plex Defense”), an all-natural dietary supplement whose formulation sought to address less than optimal nutrition and nutritional deficiencies to aid persons afflicted with Herpes Simplex Virus 1. Despite test marketing H-Plex Defense through the end of 2014 and positive customer feedback, HRD has been unable to raise sufficient capital to complete development of and commercialize H-Plex Defense.
Accordingly, during 2016, the Company shifted its focus to identifying and exploring various opportunities for growth and revenue generation through the acquisition of other products, technologies or companies in the natural biotech, healthcare, nutraceutical and related fields. However, the Company has not entered into any agreement with respect to any specific.
NOTE 2 - Summary of Significant Accounting Policies
Use of Estimates
The preparation of the financial statements in conformity with Generally Accepted Accounting Principles (“GAAP”) 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 dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from those estimates. Certain of the Company’s estimates could be affected by external conditions, including those unique to its industry, and general economic conditions. It is possible that these external factors could have an effect on the Company’s estimates that could cause actual results to differ from its estimates. The Company re-evaluates all of its accounting estimates at least quarterly based on these conditions and record adjustments when necessary.
Cash
The Company considers all short-term highly liquid investments with an original maturity at the date of purchase of three months or less to be cash equivalents.
Revenue Recognition
The Company follows the guidance of the Accounting Standards Codification (“ASC”) Topic 605, “Revenue Recognition”. We record revenue when persuasive evidence of an arrangement exists, product delivery has occurred, the selling price to the customer is fixed or determinable and collectability of the revenue is reasonably assured. The Company has not experienced any significant returns from customers and accordingly, in management’s opinion, no reserve for returns has been provided.
Inventories
Inventories, which consist of the Company’s product held for resale, are stated at the lower of cost, determined using the first-in, first-out, and net realizable value. Net realizable value is the estimated selling price, in the ordinary course of business, less estimated costs to complete and dispose of the product.
| F-7 |
If the Company identifies excess, obsolete or unsalable items, its inventories are written down to their realizable value in the period in which the impairment is first identified. Shipping and handling costs incurred for inventory purchases and product shipments are recorded in cost of sales in the Company's statements of operations. During the year ended December 31, 2016 and 2015, the Company recorded a loss of $0 and $0, respectively due to management’s estimation of obsolete inventory.
Fair Value Measurements
The Company adopted the provisions of ASC Topic 820, “Fair Value Measurements and Disclosures”, which defines fair value as used in numerous accounting pronouncements, establishes a framework for measuring fair value and expands disclosure of fair value measurements.
The estimated fair value of certain financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and accrued expenses are carried at historical cost basis, which approximates their fair values because of the short-term nature of these instruments. The carrying amounts of our short and long term credit obligations approximate fair value because the effective yields on these obligations, which include contractual interest rates are comparable to rates of returns for instruments of similar credit risk.
ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 describes three levels of inputs that may be used to measure fair value:
Level 1 — quoted prices in active markets for identical assets or liabilities
Level 2 — quoted prices for similar assets and liabilities in active markets or inputs that are observable
Level 3 — inputs that are unobservable (for example cash flow modeling inputs based on assumptions)
The Company does not have any assets or liabilities measured at fair value on a recurring basis.
Stock-based compensation
The Company recognizes compensation expense for stock-based compensation in accordance with ASC Topic 718. For employee stock-based awards, the fair value of the award is calculated on the date of grant using the Black-Scholes method for stock options and the quoted price of our common stock for common shares; the expense is recognized over the service period for awards expected to vest. For non-employee stock-based awards, the fair value of the award on the date of grant is calculated in the same manner as employee awards. However, the awards are revalued at the end of each reporting period and the pro rata compensation expense is adjusted accordingly until such time the nonemployee award is fully vested, at which time the total compensation recognized to date equals the fair value of the stock-based award as calculated on the measurement date, which is the date at which the award recipient’s performance is complete. The estimation of stock-based awards that will ultimately vest requires judgment, and to the extent actual results or updated estimates differ from original estimates, such amounts are recorded as a cumulative adjustment in the period estimates are revised.
Advertising
Advertising and marketing expenses are charged to operations as incurred.
Income Taxes
The Company uses the asset and liability method of accounting for income taxes in accordance with ASC Topic 740, “Income Taxes.” Under this method, income tax expense is recognized for the amount of: (i) taxes payable or refundable for the current year and (ii) deferred tax consequences of temporary differences resulting from matters that have been recognized in an entity’s financial statements or tax returns. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is provided to reduce the deferred tax assets reported if based on the weight of the available positive and negative evidence, it is more likely than not some portion or all of the deferred tax assets will not be realized.
| F-8 |
ASC Topic 740.10.30 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC Topic 740.10.40 provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. The Company has no material uncertain tax positions for any of the reporting periods presented.
NOTE 3 – Going Concern
The accompanying 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 generated minimal revenues since inception. The Company has sustained losses since inception, and has a stockholders’ deficiency of $369,550 at December 31, 2016. 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 continuing operations of the Company are dependent upon its ability to continue 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 accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty.
During 2016, the Company shifted its focus to identifying and exploring various opportunities for growth and revenue generation through the acquisition of other products, technologies or companies in the natural biotech, healthcare, nutraceutical and related fields. However, the Company has not entered into any agreement with respect to any specific acquisition.
NOTE 4 – Stockholders’ Equity
The Company has authorized 100,000,000 shares of common stock $.001 par value and 5,000,000 shares of preferred stock $.001 par value.
During the year ended December 31, 2015, the Company issued 10,000 shares of common stock for services rendered which were valued at $1,000. The Company valued these shares based on the per share price in which unaffiliated investors purchased shares of common stock in the private placement referred to above.
During the year ended December 31, 2016, the Company issued 400,000 shares of common stock for services rendered which were valued at $40,000. The Company valued these shares based on the per share price in which unaffiliated investors purchased shares of common stock in the private placement referred to above.
NOTE 5 – Related Parties
Since inception a founder and director (“director”) of the Company has advanced money to help fund the Company’s operations. During the years ended December 31, 2016 and 2015 the director advanced amounts aggregating $2,500 and $7,500, respectively. These borrowing bear interest at 3% per annum with no maturity date. During the years ended December 31, 2016 and 2015 interest expense on these borrowings aggregated $1,677 and $997, respectively. As of December 31, 2016 and 2015, the balance due was $31,312 and $29,567 including accrued interest.
The Company has a secured promissory note with a founder and director (“director”) of the Company. These borrowings bear interest at 3% per annum with no maturity date. During the years ended December 31, 2016 and 2015 interest expense on these borrowings aggregated $451 and $0, respectively. As of December 31, 2016 and 2015, the balance due was $15,451 and 15,000 including accrued interest.
| F-9 |
Effective July 30, 2015 the Company entered into a secured future advance promissory note with the director referred to above for a total amount of $75,000. During the year ended December 31, 2015 the Company borrowed $50,000 in regards to this note. The note bears interest at 7.5% per annum and matured on July 31, 2016 and has been extended until July 31, 2017. Interest expense on this note aggregated $1,269 for the year ended December 31, 2015. The balance on this note at December 31, 2015 was $51,269 including accrued interest.
During the year ended December 31, 2016 the Company borrowed $25,000 in regards to this note. The note bears interest at 7.5% per annum and matured on July 31, 2016. Interest expense on this note aggregated $6,711 for the year ended December 31, 2016. The balance on this note at December 31, 2016 was $81,711 including accrued interest.
Since inception the Company’s President and Director (“President”) has advanced money to help fund the Company’s operations. During the years ended December 31, 2016 and 2015 the president advanced amounts aggregating $3,050 and $0, respectively. These borrowings bear interest at 3% per annum with no maturity date. During the years ended December 31, 2016 and 2015 interest expense on these borrowings aggregated $30 and $0, respectively. As of December 31, 2016 and 2015 the balance due was $3,080 and $0 including accrued interest
.
Since inception the Company’s President and Director (“President”) has advanced money to fund the Company’s operations. In 2013, the President converted certain advances and accrued salary into a secured demand promissory note. These borrowings bear interest at 3% per annum with no maturity date. The balance for the year ended December 31, 2016 and 2015 was $30,903 and $30,000, respectively, and is subordinated to the future advance promissory note issued to the director.
The Company’s President has made loans to the Company through direct charges on his credit card to pay for working capital purposes. The balance of this loan at December 31, 2016 and 2015 was $31,205 and $1,009 respectively. The founder is charging the Company 0% interest on the unpaid monthly balances
The Company’s board of directors approved a salary to the Company’s president in the amount of $52,000 per annum plus a car allowance of $600 per month. As of December 31, 2016 and 2015 the amount unpaid and accrued amount aggregated $169,000 and $130,000, respectively, Effective in August 2013, the president waived his car allowance which amount has not been accrued since that date. The president resumed his car allowance in July of 2015 and is owed $600 as of December 31, 2016.
NOTE 6 – Note payable
On January 10, 2014, the Company entered into a note payable in the amount of $15,000 to an unrelated party, for services rendered to the Company, that bears interest at 3% per annum and is payable upon a funding event of at least $50,000 to the Company or 9 months after the date of issuance, whichever comes first. The Company and the lender agreed to cancel the note payable and settled the amount owed for $3,500, which is included in other current liabilities on the accompanying balance sheet.
NOTE 7 – Credit card payable
The Company utilizes a credit card for working capital purposes. The card has a credit limit of $9,000, $0 and $7,222 outstanding at December 31, 2016 and 2015, respectively and bears interest at 16.49%.
NOTE 8 – Income Taxes
The reconciliation of income tax benefit at the U.S. statutory rate of 34% for the years ended December 31, 2016 and 2015 to the Company’s effective tax rate is as follows:
| Year Ended | ||||||||
| December 31, 2016 | December 31, 2015 | |||||||
| U.S. federal statutory rate | (34 | )% | (34 | )% | ||||
| State income tax, net of federal benefit | (6 | )% | (6 | )% | ||||
| Change in valuation allowance | (40 | )% | (40 | )% | ||||
| Income Tax provision (benefit) | 0 | % | 0 | % | ||||
| F-10 |
The tax effects of temporary differences that give rise to the Company’s net deferred tax liability as of December 31, 2016 and 2015 are as follows:
| Year Ended | ||||||||
| December 31, 2016 | December 31, 2015 | |||||||
| Deferred Tax Assets | ||||||||
| Net operating losses | $ | 390,000 | $ | 333,000 | ||||
| Less: Valuation allowance | (390,000 | ) | (333,000 | ) | ||||
| $ | - | $ | - | |||||
As of December 31, 2016, the Company had approximately $976,800 of federal and state net operating loss carryovers (“NOLs”) which begin to expire in 2031. Utilization of the NOLs may be subject to limitation under the Internal Revenue Code Section 382 should there be a greater than 50% ownership change as determined under regulations.
In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Based on the assessment, management has established a full valuation allowance against the entire deferred tax asset relating to NOLs for every period because it is more likely than not that all of the deferred tax asset will not be realized.
The Company files U.S. federal and state of Florida tax returns that are subject to audit by tax authorities beginning with the year ended December 31, 2013. The Company’s policy is to classify assessments, if any, for tax and related interest and penalties as tax expense.
NOTE 9 – Subsequent events
Management has evaluated subsequent events through, the date which the financial statements were available to be issued.
| F-11 |
