UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

☒     Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the quarterly period ended September 30, 2015

 

☐    Transition Report pursuant to 13 or 15(d) of the Securities Exchange Act of 1934

 

For the transition period from __________ to__________      

 

Commission File Number: 000-55373

 

RX Safes, Inc.

(Exact name of registrant as specified in its charter)

 

Nevada		27-2928918
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

 

170 Green Valley Parkway, Suite 300

Henderson, NV 89012

(Address of principal executive offices)

 

702-800-4620

(Registrant’s telephone number)

 

_______________________________________________________

(Former name, former address and former fiscal year, if changed since last report)

 

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 ☐ 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 (§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). ☒ Yes ☐ No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.

 

☐ Large accelerated filer	☐ Accelerated filer
☐ Non-accelerated filer	☒ Smaller reporting company

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No

 

State the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 1,378,782 common shares as of November 12, 2015.

 

 

 

 

 

TABLE OF CONTENTS

 

		Page
PART I – FINANCIAL INFORMATION
Item 1:	Financial Statements	1
Item 2:	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2
Item 3:	Quantitative and Qualitative Disclosures About Market Risk	12
Item 4:	Controls and Procedures	12
PART II – OTHER INFORMATION
Item 1:	Legal Proceedings	14
Item 1A:	Risk Factors	14
Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds	14
Item 3:	Defaults Upon Senior Securities	15
Item 4:	Mine Safety Disclosure	15
Item 5:	Other Information	15
Item 6:	Exhibits	15

 

 

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

Our financial statements included in this Form 10-Q are as follows:

 

RX SAFES INC.

FINANCIAL STATEMENTS

ENDED SEPTEMBER 30, 2015 AND 2014 (UNAUDITED) AND DECEMBER 31, 2014

 

CONTENTS

 

FINANCIAL STATEMENTS		Page(s)
Condensed Balance Sheets - (Unaudited) - September 30, 2015 and December 31, 2014		F-1
Condensed Statements of Operations - (Unaudited) The Three and Nine Month Ended September 30, 2015 and 2014		F-2
Condensed Statements of Cash Flows - (Unaudited) Nine Month Ended September 30, 2015 and 2014		F-3
Notes to Interim Condensed Financial Statements - (Unaudited)		F-4 - F-19

 

These financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and the SEC instructions to Form 10-Q. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating results for the interim period ended September 30, 2015 are not necessarily indicative of the results that can be expected for the full year.

 

  

RX SAFES INC.

CONDENSED BALANCE SHEETS

 

		September 30,				December 31,
		2015				2014
		(Unaudited)
ASSETS
Current Assets
Cash and cash equivalents		$	8,816			$	13,087
Inventory			116				25,698
Advance to Vendor			4,850				-
Total Current Assets			13,782				38,785
Total Assets		$	13,782			$	38,785
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities
Accounts payable and accrued expenses		$	153,993			$	226,274
Loans payable to related party			25,950				110,274
Convertible debt (net of discounts of $ 89,170 and $0 respectively)			64,080				-
Derivative liability			684,411				-
Interest payable			4,962				4,745
Total Current Liabilities			933,396				341,293
Total Liabilities			933,396				341,293
Stockholders Deficit
Preferred Stock, par value $.001, 55,000,000 authorized 0 and 0 shares issued and outstanding as of Sept. 30, 2015 and December 31, 2014			-				-
Common stock, par value $.001, 500,000,000 authorized 1,316,603 and 577,457 shares issued and outstanding as of September 30, 2015 and December 31, 2014			1,317				577
Additional paid in capital			3,073,749				1,857,249
Additional Paid in capital - Options			2,713,575				-
Additional paid in capital - Warrants			389,235				389,235
Additional paid in capital - expired options and warrants			21,302				21,302
Accumulated Deficit			(7,118,792	)			(2,570,871	)
Total Stockholders' Deficit			(919,614	)			(302,508	)
Total Liabilities and Stockholders' Deficit		$	13,782			$	38,785

 

See notes to interim condensed financial statements.

 

 

RX SAFES INC.

CONDENSED STATEMENTS OF OPERATIONS

(UNAUDITED)

 

		Three Months Ended September 30,								Nine Months Ended September 30,
		2015				2014				2015				2014
REVENUES			0				1,845				50,563				2,946
COST OF GOODS SOLD
		$	-			$	662			$	25,510			$	1,097
GROSS PROFIT			-				1,183				25,053				1,849
OPERATING EXPENSES
Selling, general and administrative expenses			1,441,718				74,831				3,546,267				130,978
NET LOSS FROM OPERATIONS			(1,441,718	)			(73,648	)			(3,521,214	)			(129,129	)
OTHER INCOME (EXPENSES)
Interest Expense (including amortization of debt discounts)			(173,932	)			(1,122	)			(293,261	)			(3,038	)
Other income			-				-				-				100
Loss from valuation and revaluation of derivative liability			(463,622	)			-				(733,446	)			-
TOTAL OTHER INCOME (EXPENSE)			(637,554	)			(1,122	)			(1,026,707	)			(2,938	)
Income (loss) before provision for income taxes			(2,079,272	)			(74,770	)			(4,547,921	)			(132,067	)
Provision for income taxes			-				-				-				-
Net income (loss)		$	(2,079,272	)		$	(74,770	)		$	(4,547,921	)		$	(132,067	)
BASIC AND DILUTED NET LOSS PER SHARE		$	(2.80	)		$	(0.13	)		$	(6.98	)		$	(0.23	)
WEIGHTED AVERAGE SHARES OUTSTANDING  FOR BASIC AND DILUTED CALCULATIONS			743,570				575,825				651,379				575,593

 

See notes to interim condensed financial statements.

 

 

RX SAFES INC.

CONDENSED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

		Nine Months Ended
		September 30,
		2015				2014
OPERATING ACTIVITIES
Net loss		$	(4,547,921	)		$	(132,067	)
Adjustments to reconcile net loss to net cash used in operations:
Common stock issued for services			90,131				25,000
Expenses related to issue of stock options			3,205,400				-
Amortization of debt discounts on convertible debt			278,080				-
Loss from valuation and revaluation of derivative liability			733,446				-
Decrease (increase) in assets
Inventory			25,582				2,788
Advance to Vendor			(4,850	)			(12,500	)
Advance to Consultant			-				-
Increase (decrease) in liabilities
Accounts payable & accrued expenses			91,717				17,500
Interest Payable			217				3,038
Net cash provided by/(used for) operating activities			(128,198	)			(96,241	)
INVESTING ACTIVITIES
FINANCING ACTIVITIES
Proceeds from issuance of convertible notes			203,250				-
Proceeds from issuance of common stock			-				30,000
Proceeds on related party loan advances			-				45,500
Proceeds on related party short term loans			24,500				-
Repayment of related party loan advances			(108,823	)			-
Repayment on converted note			(50,000	)
Proceeds under line of credit agreement			-				30,000
Proceeds from sale of preferred stock			55,000				-
Net cash from financing activities			123,927				105,500
NET INCREASE (DECREASE) IN CASH			(4,271	)			9,259
Cash and cash equivalents beginning of period			13,087				1,721
Cash and cash equivalents end of period		$	8,816			$	10,980
Supplemental Disclosure of Cash Flow Information
Cash Paid
Interest		$	13,738			$	-
Income Taxes		$	-			$	-
Non-cash financing activities:
Debt discounts recognized		$	278,080			$	-
Account Payable replaced with convertible debt		$	164,000
Conversion of Preferred stock to common stock			22,000
Conversion of convertible debt to common stock		$	164,000			$	-

 

See notes to interim condensed financial statements.

 

 

RX SAFES INC.

NOTES TO THE FINANCIAL STATEMENTS

SEPTEMBER 30, 2015

(UNAUDITED)

 

NOTE 1.

 

Nature of Operations:

 

Rx Safes, Inc. (“the Company”) was incorporated under the laws of the State of Nevada on June 1, 2010. The Company develops, designs, manufactures, and sells finger print activated medication safes and other health care storage equipment.

 

Interim reporting:

 

The interim condensed financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in the financial statements prepared in accordance with generally accepted accounting principles (“U.S. GAAP”) have been condensed or omitted pursuant to such rules and regulations, although we believe that the disclosures made are adequate to provide for fair presentation and a reasonable understanding of the information presented. The Interim Condensed Financial Statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in this Form 10-Q should be read in conjunction with the financial statements and the related notes, for the fiscal year ended December 31, 2014, previously filed with the SEC.

 

In the opinion of management, all adjustments (which include normal recurring adjustments) necessary to present a fair statement of financial position as of September 30, 2015, results of operations for the three and nine months ended September 30, 2015 and 2014, and cash flows for the nine months ended September 30, 2015 and 2014, as applicable, have been made. The results of operations for the three and nine months ended September 30, 2015 are not necessarily indicative of the operating results for the full fiscal year or any future periods.

 

NOTE 2.

 

Summary of Significant Accounting Policies:

 

The financial statements of the Company have been prepared using generally accepted accounting principles (“GAAP”) in the United States (“U.S.”) of America that are applicable to a going concern which contemplates that the Company will continue in operation for the foreseeable future and will be able to realize its assets and discharge its liabilities in the normal course of business.

 

Management’s use of estimates

 

The preparation of financial statements in conformity with U.S. generally accepted accounting principles 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

 

Cash and cash equivalents include funds on hand and short-term investments with original maturities of three months or less. Cash deposits are insured in limited amounts by the Federal Deposit Insurance Corporation (FDIC).

 

 

RX SAFES INC.

NOTES TO THE FINANCIAL STATEMENTS

SEPTEMBER 30, 2015

(UNAUDITED)

 

Inventories

 

Inventories consist of safes and brackets. All inventories are valued at lower of average cost or market. The company periodically reviews inventories and items considered obsolete or outdated are reduced to their estimated net realizable value.

 

The components of inventory as of September 30, 2015 and December 31, 2014 are valued as follows:

 

		September 30, 2015				December 31, 2014
Safes		$	72			$	25,652
Brackets			44				46
Total Inventory		$	116			$	25,698

 

Shipping and Handling Freight Fees and Costs

 

All amounts billed to a customer in a sales transaction related to shipping and handling represent revenues earned and are reported as revenue. The costs incurred by the Company for shipping and handling are reported as part of cost of goods sold.

 

Revenue recognition

 

Revenue is recognized when the four criteria for revenue recognition are met: (1) persuasive evidence of an arrangement exists; (2) shipment or delivery has occurred; (3) the price is fixed or determinable and (4) collectability is reasonably assured. The Company has recognized revenue associated with its mission as stated above in the nature of operations footnote. Sales to customers are recorded when the goods are shipped to the customer. Sales are reported net of allowances for estimated returns and allowances in the accompanying statements of income. Allowances for returns are estimated based on historical customer return rates. The Company has not had any product returns since inception. Customers pre-pay for orders though a website with their credit cards prior to the shipment of the goods, which takes place within a few days after the order is placed.

 

Advertising expense

 

The Company expenses advertising costs as incurred. Advertising expense charged to operating expenses was $10,588 and $2,706 for the nine months ended September 30, 2015 and 2014, respectively.

 

Rent expense

 

The Company pays rent on a month to month basis. Rent expense charged to operating expenses was $5,195 and $5,536 for the nine months ended September 30, 2015 and 2014, respectively.

 

Research and development costs

 

Research and development costs, consisting primarily of expenditures paid to our manufacturing and development partner in China, are expensed as incurred. Research and development expense charged to operating expenses was $2,442 and $772 for the nine months ended September 30, 2015 and 2014, respectively.

 

 

RX SAFES INC.

NOTES TO THE FINANCIAL STATEMENTS

SEPTEMBER 30, 2015

(UNAUDITED)

 

Fair value measurements

 

Generally accepted accounting principles require disclosing the fair value of financial instruments to the extent practicable for financial instruments which are recognized or unrecognized in the balance sheet. The fair value of the financial instruments disclosed herein is not necessarily representative of the amount that could be realized or settled, nor does the fair value amount consider the tax consequences of realization or settlement.

 

In assessing the fair value of financial instruments, the Company uses a variety of methods and assumptions, which are based on estimates of market conditions and risks existing at the time. For certain instruments, including cash and cash equivalents, accounts receivable, accounts payable, and accrued expenses, it was estimated that the carrying amount approximated fair value because of the short maturities of these instruments. All debt is based on current rates at which the Company could borrow funds with similar remaining maturities and approximates fair value.

 

GAAP establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use on unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The hierarchy is described below:

 

Level 1:  Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.

 

Level 2:  Observable prices that are based on inputs not quoted on active markets, but corroborated by market data.

 

Level 3:  Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs.

 

Determining which category an asset or liability falls within the hierarchy requires significant judgment. We evaluate our hierarchy disclosures each quarter

 

Recent Accounting Pronouncements

 

On May 1, 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606),” which is the new comprehensive revenue recognition standard that will supersede all existing revenue recognition guidance under GAAP. The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to a customer in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. This ASU is effective for annual and interim periods beginning on or after December 15, 2016, and early adoption is not permitted. Entities will have the option of using either a full retrospective approach or a modified approach to adopt the guidance in the ASU. The Company will continue to assess the impact on its financial statements.

 

In June 2014, the FASB issued ASU 2014-12, “Compensation - Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could be Achieved after the Requisite Service Period.” This ASU provides more explicit guidance for treating share-based payment awards that require a specific performance target that affects vesting and that could be achieved after the requisite service period as a performance condition. The new guidance is effective for annual and interim reporting periods beginning after December 15, 2015. The Company does not expect the adoption of this guidance to have a material impact on the financial statements. 

 

 

RX SAFES INC.

NOTES TO THE FINANCIAL STATEMENTS

SEPTEMBER 30, 2015

(UNAUDITED)

 

On June 10, 2014, the Financial Accounting Standards Board (“FASB”) issued update ASU 2014-10, Development Stage Entities (Topic 915). Amongst other things, the amendments in this update removed the definition of development stage entity from Topic 915, thereby removing the distinction between development stage entities and other reporting entities from US GAAP. In addition, the amendments eliminate the requirements for development stage entities to (1) present inception-to-date information on the statements of income, cash flows and shareholder’s equity, (2) label the financial statements as those of a development stage entity; (3) disclose a description of the development stage activities in which the entity is engaged and (4) disclose in the first year in which the entity is no longer a development stage entity that in prior years it had been in the development stage. The amendments are effective for annual reporting periods beginning after December 31, 2014 and interim reporting periods beginning after December 15, 2015, however entities are permitted to early adopt for any annual or interim reporting period for which the financial statements have yet to be issued. The Company has elected to early adopt these amendments and accordingly have not labeled the financial statements as those of a development stage entity and have not presented inception-to-date information on the respective financial statements.

 

In August 2014, the FASB issued ASU 2014-15, “Presentation of Financial Statements – Going Concern (Topic 205-40)”, which requires management to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern for each annual and interim reporting period. If substantial doubt exists, additional disclosure is required. This new standard will be effective for the Company for annual and interim periods beginning after December 15, 2016. Early adoption is permitted. The Company expects to adopt this new standard for the fiscal year ending December 31, 2015 and the Company will continue to assess the impact on its financial statements.

 

Income Taxes

 

The Company provides for income taxes under the provisions of Accounting Standards Codification (“ASC”) Topic No. 740, “Income Taxes”, which requires that an asset and liability based approach be used in accounting for income taxes. Deferred income tax assets and liabilities are recorded to reflect the tax consequences on future years of the temporary differences of revenue and expense items for financial statement and income tax purposes. Valuation allowances are provided against assets, which are not likely to be realized.

 

Stock-based Compensation

 

The Company adopted ASC 718, "Compensation - Stock Compensation" for stock-based compensation. ASC 718 requires that the fair value of the equity instruments (such as stock options) exchanged for services be recognized as an expense in the financial statements as the related services are performed.

 

Earnings Per Share

 

Earnings per share ("EPS") has been calculated in accordance with ASC 260, “Earnings Per Share" which requires the presentation of both basic net income per share and net income per common share assuming dilution. Basic earnings per share are computed by dividing income available to common stockholders by the weighted average number of shares outstanding for the year. Diluted earnings per share reflects the potential dilution that could occur upon the exercise of common stock options resulting in the issuance of common stock to stockholders who would then share in the earnings of the Company. ASC 260 precludes the inclusion of any potential common shares in the computation of any diluted per-share amounts when such inclusion is anti-dilutive.

 

 

RX SAFES INC.

NOTES TO THE FINANCIAL STATEMENTS

SEPTEMBER 30, 2015

(UNAUDITED)

 

NOTE 3.

 

RELATED PARTY TRANSACTIONS

 

Loans Payable

 

Effective May 1, 2013 entered into an agreement with Axius Consulting Group, Inc (“Axius”). It is the intent of both parties to create a line of credit agreement. The company may borrow up to $50,000 from Axius. The unpaid principal of this line of credit shall bear an interest rate of Four percent per annum. Interest on the unpaid balance of the note shall accrue monthly but shall not be due and payable until the principal balance becomes due and payable. The principal balance of the note is due and payable on December 31, 2014. The outstanding balance of the note payable was $0 and $25,274 at September 30, 2015 and 2014, respectively. Total interest accrued on the note was $836 and $1,642 for the nine months ended September 30, 2015 and 2014, respectively. On September 22, 2015 Axius agreed to provide the company with short term interest free loans. The total outstanding balance of the short term loan at September 30, 2015 was $19,500.

 

Effective January 1, 2014 entered into an agreement Lorraine Yarde It is the intent of both parties to create a line of credit agreement. The company may borrow up to $100,000 from Lorraine Yarde. The unpaid principal of this line of credit shall bear an interest rate of Four percent per annum. Interest on the unpaid balance of the note shall accrue monthly but shall not be due and payable until the principal balance becomes due and payable. The principal balance of the note is due and payable on December 31, 2014. The outstanding balance of the note payable was $3,300 and $55,000 at September 30, 2015 and 2014, respectively. Total interest accrued on the note was $2,825 and $1,500 at September 30, 2015 and 2014, respectively. On June 29, 2015 an extension agreement was signed extending the due date of the Note to December 31, 2015.

 

Effective January 1, 2014 the Company entered into a Master Promissory Note agreement with Naples Family Trust. It is the intent of both parties to create a line of credit agreement. Under the terms of the note the Company may borrow up to $100,000. The unpaid principal of this line of credit shall bear an interest rate of four percent per annum. Interest on the unpaid balance of the note shall accrue monthly but shall not be due and payable until the principal balance becomes due and payable. The principal balance of the note is due and payable on December 31, 2014. The outstanding balance of the note payable was $3,150 and $30,000 at September 30, 2015 and 2014, respectively. Total interest accrued on the note was $1,300 and $500 at September 30, 2015 and 2014, respectively. On June 29, 2015 an extension agreement was signed extending the due date of the Note to December 31, 2015.

 

NOTE 5.

 

License Agreements

 

Included in the assets purchase of Axius Consulting Group, Inc. was a Patent & Licensing Rights Agreement with bioMETRX. The agreement grants the licensee a royalty based, ($.50 per unit) exclusive license under their Patent License to use, manufacture, have manufactured, license and/or sell licensed intellectual property for any legal purpose with North America within the health care and consumer health markets. The term of the agreement is from the effective date (March 1, 2009) to the full end of the term or terms for which Patent Rights have not expired or, if only Technology Rights are licensed and no Patent Rights are applicable, for a term of 9 years.

 

NOTE 6.

 

Income Taxes

 

As of September 30, 2015, the Company has net operating loss carry forwards of approximately $7,119,000 that may be available to reduce future years’ taxable income in varying amounts through 2031. Future tax benefits which may arise as a result of these losses have not been recognized in these financial statements, as their realization is determined not likely to occur and accordingly , the Company has recorded a valuation allowance for the deferred tax asset relating to these tax loss carry-forwards.

 

 

RX SAFES INC.

NOTES TO THE FINANCIAL STATEMENTS

SEPTEMBER 30, 2015

(UNAUDITED)

  

The Company reviews tax positions taken to determine if it is more likely than not that the position would be sustained upon examination resulting in an uncertain tax position. The Company did not have any material unrecognized tax benefit at September 30 2015 and December 31, 2014, respectively. The Company recognizes interest accrued and penalties related to unrecognized tax benefits in tax expense. The Company recognized no interest and penalties during the nine months ended September 30, 2015 and year ending December 31, 2014, respectively.

 

The Company files U.S. federal tax returns and a tax return in states where obligated. All tax periods since inception remain open to examination by the taxing jurisdictions to which the Company is subject.

 

NOTE 7

  

Employment Agreement

 

The President of the Company, Ms. Lorraine Yarde, signed an employment contract effective January 1, 2015 which is effective until termination. The agreement stipulates a base salary of $175,000 plus an annual performance bonus targeted at fifty percent of salary. The agreement entitles Ms. Yarde to annual salary increases of ten percent as well as other customary employee benefits such as paid vacation and eligibility to participate in the Company’s health insurance plan or reimbursement of up to $1,000 per month until a company-health insurance plan is established. The agreement allows Ms. Yarde to convert any unpaid compensation to Company stock at a 50% discount to the then market price, in the form of unregistered securities. As of September 30, 2015 unpaid compensation under the agreement totaled $43,750. On September 21, 2015 Ms. Yarde converted $87,500 of the unpaid compensation into 265,152 shares of the company stock. Upon the signing of the agreement Ms. Yarde was granted employee stock options to purchase 50,000 shares of the Company’s Common Stock with vesting period and strike price as follows:

 

(i) 25,000 shares vested immediately with a strike price of $10.00 per share.

 

(ii) 12,500 shares vest on July 1, 2015 with a strike price of $10.00 per share.

 

(iii) 7,500 shares vest on January 1, 2016 with a strike price of $20.00 per share.

 

(iv) 5,000 shares vest on January 1, 2017 with a strike price of $50.00 per share.

 

On September 18, 2015, the employment agreement with Ms. Yarde was amended to reprice the exercise price on her 50,000 options to $0.001 per share. In addition, the calculation of the price at which Ms. Yarde is able to convert any then unpaid compensation to common stock of the Company was amended to a price equal to 50%, of the lowest trading price of the Company’s common stock as reported on the OTCQB for the ten prior trading days including the day upon which a notice of conversion is received by the Company. There were no other amendments made to the Yarde Agreement.

 

 

RX SAFES INC.

NOTES TO THE FINANCIAL STATEMENTS

SEPTEMBER 30, 2015

(UNAUDITED)

 

NOTE 8

 

Stock options and warrants

 

A summary of stock option and warrant activity for the period from January 1, 2015 to September 30, 2015 follows:

 

		Stock
Description		Options				Warrants
Outstanding at January 1, 2015			50,000				41,250
Issued January 1, 2015			12,500				-
Issued January 1, 2015			12,500				-
Cancelled March 3, 2015			-				(41,250	)
Issued May 20, 2015			12,500				-
Issued May 28, 2015			-				500
Issued May 28, 2015			-				500
Issued June 2, 2015			-				500
Issued June 2, 2015			-				1,250
Issued June 22, 2015			12,500				-
Issued September 18, 2015			12,500				-
Outstanding at September 30, 2015			112,500				2,750

  

Employee stock options totaling 50,000 shares granted to Ms. Yarde on January 1, 2015 can be exercised at any time, up to and including 24 months after expiration or termination of the agreement. The estimated fair value of the options at January 1, 2015 of $2,037,700, (calculated using the Black-Scholes option pricing model and the following assumptions: (i) $50.00(adjusted for one for two hundred reverse split,) share price, respectively, (ii) $10, $20, $20 and $50 exercise price, respectively, (iii) term of 2, 3, and 4 years, respectively, (iv) 100%, 100%, 100% and 100% expected volatility, respectively, and (v) 0.66%, 0.87%, 1.07% and 1.34% risk free interest rate, respectively) will be expensed over the two year vesting period of the options. Compensation expense attributable to stock options was $3,205,400 for the nine months ended September 30, 2015.

 

Stock options totaling 62,500 were granted during the first nine months of 2015 under the Director Compensation Plan effective January 1, 2015 to five directors in the amounts of 12,500 options to each. Director compensation recorded on the grants totaled $1,227,350 during the third quarter of 2015 (calculated using the Black Scholes option pricing model.

 

The total unrecognized cost at September 30, 2015 totaled $180,050.

 

NOTE 9

 

Equity

 

Common Stock.

 

Stock Split

 

On August 22, 2012 the Company amended its Certificate of Incorporation to split its outstanding shares of the companies’ common stock at a ratio of 5-for-1. The par value of the common stock was decreased to $.001 and increased the number of authorized shares to issue to 250,000,000. The accompanying financial statements have been adjusted to retroactively reflect the stock split.

 

Effective August 7, 2015 The aggregate number of shares which the Company shall have authority to issue is five hundred and fifty million (550,000,000) shares, consisting of two classes to be designated, respectively, "Common Stock" and "Preferred Stock," with all of such shares having a par value of $.001 per share. The total number of shares of Common Stock that the Corporation shall have authority to issue is five hundred million (500,000,000) shares. The total number of shares of Preferred Stock that the Corporation shall have authority to issue is fifty million (50,000,000) shares.

 

Reverse stock split

 

On September 28, 2015 the Company authorized a one for two hundred reverse split of the Company’s common stock issued and outstanding. Following this stock split the number of outstanding shares of the Company’s common stock will decrease from 263,320,562 to 1,316,603. The accompanying financial statements have been adjusted to retroactively reflect the stock split.

 

 

RX SAFES INC.

NOTES TO THE FINANCIAL STATEMENTS

SEPTEMBER 30, 2015

(UNAUDITED)

 

Preferred Stock.

 

The company is authorized to issue a second class of 50,000,000 preferred shares. In May 2015, the Company initiated a private offering of units consisting of 240,000 shares of its newly created Series A Preferred Stock and a warrant to purchase our common stock, for $2.50 per unit. The Company sold 22,000 units, consisting of 22,000 shares of our Series A Preferred Stock and warrants to purchase 550,000 shares of our common stock at $.01 per share for total proceeds of $55,000. As of September 30, 2015 all series A shares were converted to common.

 

Effective September 2015 Company is authorized to issue 2,000 Series B Preferred Stock with par value of $0.001 per share. As of September 30, 2015, the Company has issued all 2,000 Series B shares.

 

NOTE 10

 

Consulting Agreements

 

On February 20, 2014, the Company executed a Consulting Agreement with Wall Street Buy Sell Hold Inc. (the “Consultant) to become effective once the Company’s Form S-1 registration statement becomes effective. The Agreement provides for the Consultant to perform certain specified business and investor relations services for the Company for a term of six months commencing on the effective date of the Company’s Form S-1 registration statement. If an opt-out clause is not exercised at the end of the six months, the term will extend for an additional six month period. The Agreement provides for the payment of monthly cash compensation to the Consultant of $20,000 per month until such time as the Company has raised $1,500,000 in its public offering and $30,000 per month thereafter.

 

On February 10, 2014, the consultant was issued 25,000 post-reverse split shares of common stock for investor relations consulting services. These shares were returned by the consultant to treasury and the consultant was issued a warrant to purchase 25,000 shares of common stock. The issued warrant will vest immediately. Additionally, a warrant to purchase 12,500 shares will be issued at 6 months of service. A final warrant to purchase 12,500 shares will be issued at the end of 12 months if the company continues the agreement to 12 months. 

 

On December 1, 2014 the Company voided and terminated its agreement with the Consultant. The voiding and termination of the agreement will cancel all warrants previously issued under the agreement.

 

Effective August 19, 2014, the Company executed a Marketing Agreement with Josh Tolley who has become a spokesperson for the Company. In consideration for his services the Company shall issue 500 post-reverse split shares of common stock as stock based compensation for this Agreement. The term of the agreement is six months. At the end of the initial six month period, it is the intent of the Company to extend this relationship for an additional period, provided the Parties are in mutual agreement that they have established a good working relationship, at which time a new Agreement will be executed between the Parties. The shares were issued to Mr. Tolley on August 19, 2014.

 

Effective January 6th, 2015, the Company executed a business consulting agreement with Paramount Advisors, LLC. The consultant will act as advisor in co connection with the Company’s business matters, investor relations, and advertising services.

 

The Company shall pay the consultant the following:

 

(a) A total of 4,500 shares of validly issued unregistered shares of the Company’s common stock par value $0.001 per share, which trades on the OTC under the symbol “RXSF” in two equal installments as follows:

 

i. 2,250 shares due immediately; and 

 

ii. 2,250 shares due on or before March 1, 2015 

 

 

RX SAFES INC.

NOTES TO THE FINANCIAL STATEMENTS

SEPTEMBER 30, 2015

(UNAUDITED)

 

(b) A total of $18,000 in cash, payable in equal monthly installments of $3,000 per month. Said cash payments will not be due to consultant until the Company has successfully completed a capital raise of at least one hundred thousand dollars and upon that occurrence, the Company shall pay the consultant all monthly payments that it had accrued from the beginning of this Agreement and remain current on all cash payments from that time. The Agreement will commence on the date first set forth above and shall continue for a term of six months, thereafter.

 

Effective February 23^rd, 2015 the company terminated its agreement with Paramount advisors due to non-performance.

 

Effective February 12, 2015, the company executed a consulting agreement with Sean McManus. The Company has engaged Consultant to provide services in connection with the Company’s sale and distribution of its flagship Rx DrugSAFE product. Consultant will introduce the Company to sales opportunities, strategic partners and such other services as the Company and Consultant may deem appropriate. Upon execution of this Agreement, the Company shall pay to Consultant an initial retainer of 500 (post-reverse split) restricted shares of Rx Safes, Inc. common stock. For any sales of the Company’s products directly attributable to the efforts of the Consultant, Consultant will be paid a commission of 10% of the net sales to the Company for as long as any agreement is in effect between the Company and any Client directly introduced to Company by Consultant, and for a tail period of 24 months after the last date of any agreement, whether terminated or otherwise expired between Company and Client or 24 months after delivery of the product to the Client, whichever is later in time. This Agreement shall continue in full force and effect for 6 consecutive months. The Company and Consultant may negotiate to extend the term of this Agreement and the terms and conditions under which the relationship shall continue. 

 

On April 1, 2015, the Company executed an addendum to the Agreement dated February 12, 2015 with Sean McManus, extending the term for an additional 6 months and expanding the services to be performed by the Consultant. Upon execution of this addendum the Company issued the Consultant 5,000 restricted shares of Rx Safes, Inc. common stock.

 

Effective June 14, 2015 the agreement between Sean McManus and the company was terminated. Upon termination the consultant will return the 5,000 shares of restricted stock.

  

Effective March 1^st, 2015, the Company executed an investor relations agreement with Renmark Financial Communications Inc. The investor relations program is a continuous effort to create awareness and build an audience that will follow the growth of the Company. Renmark will establish a liaison between the company and its retail investors and make the company more visible in the market place. The agreement is on a monthly basis. The Company will have the right to terminate the agreement at any time. Compensation for the services rendered is a monthly fee of $4,000. As of June 1, 2015 the agreement was terminated by the Company.

 

Effective May 6^th, 2015, the Company executed an agreement with Almorli Advisors. Almorli will assist and advise the company in obtaining Financing and other advisory due diligence services. As compensation, Almorli will receive a fee of 10% of the total capital provided to the Company by investors they introduce, as well as 5% of the total Capital provided to the Company by Investors introduced to the Company by Almorli  divided by the closing price of the Company's stock on the date of the closing of the Financing.

 

In August 2015, the Company entered into a consulting agreement with our Director, Faruk Okcetin. As initial retainer for the agreement he was issued 5,000 post-reverse split shares of common stock.

 

Effective September 21, 2015 the Company entered into a consulting agreement with B&K Enterprises. As compensation for Consultant’s services required hereunder, Consultant was issued 3,750 rule 144 shares of the Company for services rendered. This contract is active for 30 days of consulting.

 

 

RX SAFES INC.

NOTES TO THE FINANCIAL STATEMENTS

SEPTEMBER 30, 2015

(UNAUDITED)

 

NOTE 11

 

Fair Value Measurements and Derivative Liability

 

The Company evaluates all of it financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported as charges or credits to income. For option-based derivative financial instruments, the Company uses the Black-Scholes option-pricing model to value the derivative instruments at inception and subsequent valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period.

 

Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date.

 

On February 25, 2015, the Company entered into an agreement Coventry Enterprises, LLC to invest up to $50,000 into the Company in exchange for the issuance of a convertible promissory note in the amount of $50,000.  The note bears interest at the rate of 8%.  All outstanding interest and principle is due and payable February 25, 2016.  The note is convertible by Coventry into shares of the Company’s common stock at any time on or after the Issuance Date.  The conversion price for each share is equal to 65% multiplied by the lowest trading price of the Common Stock on the OTC Market for the 20 prior trading days.

 

On June 17, 2015 the Company made payment of $63,738.48 in satisfaction of Coventry note dated February 25, 2015.

 

On February 25, 2015, the Company entered into an agreement with EMA Financial LLC to invest up to $50,000 into the Company in exchange for the issuance of a convertible promissory notes each in the amount of $50,000.  The note bears interest at the rate of 8%.  All outstanding interest and principle is due and payable February 25, 2016.  The note is convertible by EMA into shares of the Company’s common stock at any time on or after the Issuance Date.  The conversion price for each share is equal to 65% multiplied by the lowest trading price of the Common Stock on the OTC Market for the 20 prior trading days.

 

On May 13, 2015, the Company entered into an agreement with Gold Coast Capital LLC to convert a previous payable due to Axius of $35,000 into a convertible promissory note in the amount of $35,000. The note is convertible by Gold Coast Capital LLC into shares of the Company’s common stock at any time on or after the Issuance Date.  The conversion price for each share is equal to 65% multiplied by the lowest trading price of the Common Stock on the OTC Market for the 20 prior trading days. Gold Coast Capital immediately converted 100% of their note.

 

On May 29, 2015, the Company entered into an agreement LG Capital Funding to invest $26,500 into the Company in exchange for the issuance of a convertible promissory note. The note bears interest at the rate of 8%.  All outstanding interest and principle is due and payable May 29, 2016.  The note is convertible by LG into shares of the Company’s common stock at any time on or after the Issuance Date.  The conversion price for each share is equal to 65% multiplied by the lowest trading price of the Common Stock on the OTC Market for the 20 prior trading days.

 

 

RX SAFES INC.

NOTES TO THE FINANCIAL STATEMENTS

SEPTEMBER 30, 2015

(UNAUDITED)

 

On June 16, 2015, the Company entered into an agreement Auctus Fund LLC to invest $76,750 into the Company in exchange for the issuance of a convertible promissory note. The note bears interest at the rate of 8%.  All outstanding interest and principle is due and payable March 16, 2016.  The note is convertible by Auctus into shares of the Company’s common stock at any time on or after the Issuance Date.  The conversion price for each share is equal to 65% multiplied by the lowest trading price of the Common Stock on the OTC Market for the 20 prior trading days.

 

On August 28, 2015, the Company entered into an agreement with Craig Blaesing to convert a previous payable due to Axius of $15,000 into a convertible promissory note in the amount of $15,000. The note is convertible by Craig Blaesing into shares of the Company’s common stock at any time on or after the Issuance Date. The conversion price for each share is equal to 50% multiplied by the lowest trading price of the Common Stock on the OTC Market for the 10 prior trading days including the day upon which a Notice of Conversion is received. Craig Blaesing converted the whole note into 468,775 shares of our common stock on September 10, 2015.

 

On August 28, 2015, the Company entered into an agreement with Craig Blaesing to convert a previous payable due to Axius of $15,000 into a convertible promissory note in the amount of $15,000. The note is convertible by Craig Blaesing into shares of the Company’s common stock at any time on or after the Issuance Date. The conversion price for each share is equal to 50% multiplied by the lowest trading price of the Common Stock on the OTC Market for the 10 prior trading days including the day upon which a Notice of Conversion is received. Craig Blaesing converted the whole note into 9,375,000 shares of our common stock on September 10, 2015.

 

On September 9, 2015, the Company entered into an agreement with Timothy Jonk to convert a previous payable due to Axius of $5,000 into a convertible promissory note in the amount of $5,000. The note is convertible by Timothy Jonk into shares of the Company’s common stock at any time on or after the Issuance Date. The conversion price for each share is equal to 50% multiplied by the lowest trading price of the Common Stock on the OTC Market for the 10 prior trading days including the day upon which a Notice of Conversion is received. Timothy Jonk converted the whole note into 15,625 shares of our common stock on September 10, 2015.

 

On September 9, 2015, the Company entered into an agreement with Mary Ellen Renna to convert a previous payable due to Axius of $15,000 into a convertible promissory note in the amount of $15,000. The note is convertible by Mary Ellen Renna into shares of the Company’s common stock at any time on or after the Issuance Date. The conversion price for each share is equal to 50% multiplied by the lowest trading price of the Common Stock on the OTC Market for the 10 prior trading days including the day upon which a Notice of Conversion is received. Mary Ellen Renna converted the whole note into 46,875 shares of our common stock on September 10, 2015.

 

On September 9, 2015, the Company entered into an agreement with Robert Sanderson to convert a previous payable due to Axius of $5,000 into a convertible promissory note in the amount of $5,000. The note is convertible by Robert Sanderson into shares of the Company’s common stock at any time on or after the Issuance Date. The conversion price for each share is equal to 50% multiplied by the lowest trading price of the Common Stock on the OTC Market for the 10 prior trading days including the day upon which a Notice of Conversion is received. Robert Sanderson converted the whole note into 15,625 shares of our common stock on September 10, 2015.

 

On September 15, 2015, the Company entered into an agreement with Susan V Kutzner to convert a previous payable due to Axius of $10,000 into a convertible promissory note in the amount of $10,000. The note is convertible by Susan V Kutzner into shares of the Company’s common stock at any time on or after the Issuance Date. The conversion price for each share is equal to 50% multiplied by the lowest trading price of the Common Stock on the OTC Market for the 10 prior trading days including the day upon which a Notice of Conversion is received. Susan V Kutzner converted the whole note into 31,250 shares of our common stock on September 17, 2015.

 

 

RX SAFES INC.

NOTES TO THE FINANCIAL STATEMENTS

SEPTEMBER 30, 2015

(UNAUDITED)

 

On September 16, 2015, the Company entered into another agreement with Craig Blaesing to convert a previous payable due to Axius of $5,000 into a convertible promissory note in the amount of $5,000. The note is convertible by Craig Blaesing into shares of the Company’s common stock at any time on or after the Issuance Date. The conversion price for each share is equal to 50% multiplied by the lowest trading price of the Common Stock on the OTC Market for the 10 prior trading days including the day upon which a Notice of Conversion is received. Craig Blaesing converted the whole note into 31,250 shares of our common stock on September 16, 2015. 

 

On September 18, 2015, the Company entered into another agreement with Timothy Jonk to convert a previous payable due to Axius of $10,000 into a convertible promissory note in the amount of $10,000. The note is convertible by Timothy Jonk into shares of the Company’s common stock at any time on or after the Issuance Date. The conversion price for each share is equal to 50% multiplied by the lowest trading price of the Common Stock on the OTC Market for the 10 prior trading days including the day upon which a Notice of Conversion is received. Timothy Jonk converted the whole note into 31,250 shares of our common stock on September 18, 2015.

 

On September 18, 2015, the Company entered into another agreement with Robert Sanderson to convert a previous payable due to Axius of $10,000 into a convertible promissory note in the amount of $10,000. The note is convertible by Robert Sanderson into shares of the Company’s common stock at any time on or after the Issuance Date. The conversion price for each share is equal to 50% multiplied by the lowest trading price of the Common Stock on the OTC Market for the 10 prior trading days including the day upon which a Notice of Conversion is received. Robert Sanderson converted the whole note into 31,250 shares of our common stock on September 18, 2015.

 

On September 21, 2015, the Company entered into an agreement with Juan Rodriguez to convert a previous payable due to Axius of $4,000 into a convertible promissory note in the amount of $4,000. The note is convertible by Juan Rodriguez into shares of the Company’s common stock at any time on or after the Issuance Date. The conversion price for each share is equal to 50% multiplied by the lowest trading price of the Common Stock on the OTC Market for the 10 prior trading days including the day upon which a Notice of Conversion is received. Juan Rodriguez converted the whole note into 12,121 shares of our common stock on September 21, 2015.

 

The company identified embedded derivatives related to the William Koch, Craig Blaesing, Timothy Jonk, Mary Ellen Renna, Robert Sanderson, Susan K Kutzner, and Juan Rodriguez Coventry, EMA, Gold Coast Capital, LG Capital, and Auctus Fund LLC Convertible Promissory Notes. These embedded derivatives included certain conversion features. The accounting treatment of derivative financial instruments requires that the company record the fair value of the derivatives as of the inception date of the Convertible Promissory Note and to adjust the fair value as of each subsequent balance sheet date. Under ASC-815, the conversion options embedded in the notes payable described in Note 8 require derivate liability classification because they do not contain an explicit limit to the number of shares that could be issued upon settlement.

 

As defined in FASB ASC 820, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Company utilized the market data of similar entities in its industry or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable. The Company classifies fair value balances based on the observability of those inputs. FASB ASC 820 establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurement) and the lowest priority to unobservable inputs (level 3 measurement).

 

 

RX SAFES INC.

NOTES TO THE FINANCIAL STATEMENTS

SEPTEMBER 30, 2015

(UNAUDITED)

 

The three levels of the fair value hierarchy are as follows:

 

Level 1 – Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis. Level 1 primarily consists of financial instruments such as exchange-traded derivatives, marketable securities and listed equities.

 

Level 2 - Pricing inputs are other than quoted prices in active markets included in level 1, which are either directly or indirectly observable as of the reported date.

 

Level 3 - Pricing inputs include significant inputs that are generally less observable from objective sources. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value.

 

Derivative liability — the Company’s derivative liability is classified within Level 3 of the fair value hierarchy.

 

The Company uses the Black-Scholes Option Pricing Model to value its option based derivatives based upon the following assumptions: share conversion price $6.50 (post-reverse split) expected volatility of 637%, risk free interest rate at 0.26 % annually and an expected term equal to the remaining term of the note.

 

The following table sets forth by level within the fair value hierarchy the Company’s financial assets and liabilities that were accounted for at fair value as at September 30, 2015.

 

Recurring Fair Value Measurements		Level 1				Level 2				Level 3				Total
Liabilities:
Derivative liability – September 30, 2015		$	-			$	-			$	684,411			$	684,411

 

During the nine months ended September 30, 2015 the company amortized $64,080 of the debt discounts to the current period operations as interest expense.

 

Convertible Notes Payable		September 30, 2015				December 31, 2014
Convertible debt issued March 28, 2015, due March 28, 2016, convertible into common stock at 65% of the lowest closing for the twenty days trading immediately preceding the date of conversion, (less unamortized debt discount of $24,590 and $0		$	25,410			$	0
Convertible debt issued June 16, 2015, due March 16, 2016, convertible into common stock at 65% of the lowest closing for the twenty days trading immediately preceding the date of conversion, (less unamortized debt discount of $47,058 and $0		$	29,692
Convertible debt issued May 29, 2015, due May 29, 2016, convertible into common stock at 65% of the lowest closing for the twenty days trading immediately preceding the date of conversion, (less unamortized debt discount of $17,522 and $0		$	8,978
Total convertible debt		$	64,080			$	0

 

 

RX SAFES INC.

NOTES TO THE FINANCIAL STATEMENTS

SEPTEMBER 30, 2015

(UNAUDITED)

 

NOTE 12

 

Development and Marketing Agreement

 

On July 30, 2015 the Company entered into a co-operative developing and marketing agreement with Patient Safety Devices (PSD). The agreement relates to co-development, co-marketing and sales of a biometric patient controlled analgesia device. The Company will be responsible for the engineering and prototyping testing and manufacturing of the product as well as contributing its patent license for the use of the biometrics. PSD is responsible for contributing the design specifications and functionality of the product and shall also contribute previously developed intellectual property, assets and relationships. PSD will assign the rights of intellectual property and assets formerly owned by Redesign Company LLC. The Company will be solely responsible for the final sale of the product. The Company will pay PSD a commission of 10% of net sales. The initial term of the agreement is five years, and shall be automatically renewed for successive periods of one year.

 

NOTE 13

 

Going Concern

 

The accompanying financial statements have been prepared in conformity with generally accepted accounting principle, which contemplate continuation of the Company as a going concern. However, the Company had minimal revenues for the nine months ending September 30, 2015 and year ended December 31, 2014, respectively. The Company currently has limited working capital, and has not completed its efforts to establish a stabilized source of revenues sufficient to cover operating costs over an extended period of time.

 

Management anticipates that the Company will be dependent, for the near future, on additional investment capital to fund operating expenses. The Company intends to position itself so that it may be able to raise additional funds through the capital markets. In light of management’s efforts, there are no assurances that the Company will be successful in this or any of its endeavors or become financially viable and continue as a going concern.

 

NOTE 14

 

Legal Proceedings

 

On March 10, 2015, the Company filed a complaint in the District Court for Clark County, Nevada, against Wall Street Buy Sell Hold Inc., a New York corporation, for Fraud in the Inducement, Deceptive Trade Practices and Unjust Enrichment in connection with a Consulting Agreement dated February 10, 2014. As a result of the misrepresentations and actions perpetuated by Wall Street Buy Sell Hold Inc., the Company is asking court to award damages, recession of the Consulting Agreement and a return of monies paid thereunder, and for punitive damages. The action in Nevada has been stayed by the Court pending resolution of the preliminary action in the New York case.

 

On March 5, 2015, Wall Street Buy Sell Hold Inc. filed a complaint in the Supreme Court for Nassau County, NY against the Company in connection with the Consulting Agreement. Wall Street Buy Sell Hold Inc. has alleged breach of contract and specific performance for monies and warrants it believes it is owed under the agreement. The Company intends to vigorously defend this action.

 

NOTE 15

 

Subsequent Events

 

On October 1, 2015 EMA Financial converted $20,000 of $50,000 the Note dated March 28, 2015 into common stock the Company and paid the remaining balance plus interest. Total number of shares to be issued under the conversion are 55,928. 

 

On October 6, 2015, the Company entered into an agreement Auctus Fund LLC to invest $55,250 into the Company in exchange for the issuance of a convertible promissory note. The note bears interest at the rate of 8%.  All outstanding interest and principle is due and payable July 6, 2016.  The note is convertible by Auctus into shares of the Company’s common stock at any time on or after the Issuance Date.  The conversion price for each share is equal to 65% multiplied by the lowest trading price of the Common Stock on the OTC Market for the 20 prior trading days. The Company has the option to repay this note up to 180 days after issuance.

 

 

RX SAFES INC.

NOTES TO THE FINANCIAL STATEMENTS

SEPTEMBER 30, 2015

(UNAUDITED)

 

On October 6, 2015, the Company issued 1,250 (post- reverse split) shares of common shares to Auctus Private Equity Fund, LLC in connection a Securities Purchase Agreement.

 

On October 7, 2015, the Company entered into an agreement Kodiak Capital Group to invest $50,000 into the Company in exchange for the issuance of a $60,000 convertible promissory note. The note bears interest at the rate of 8%.  All outstanding interest and principle is due and payable October 7, 2016.  The note is convertible by Kodiak into shares of the Company’s common stock at any time on or after the Issuance Date.  The conversion price for each share is equal to 65% multiplied by the average of the three lowest trading prices of the Common Stock on the OTC Market for the 10 prior trading days. The Company has the option to repay this note up to 180 days after issuance.

 

On October 7, 2015 the Company entered into an Equity Purchase Agreement and Registration Rights Agreement with Kodiak Capital Group to purchase $1,000,000 of the Company’s common stock.

 

On October 9, 2015 the Company made payment of $51,243.84 to EMA Financial in satisfaction of the balance of the EMA note dated February 25, 2015.

 

On October 19, 2015 the Company entered into a consulting agreement with CorporateAds.com. The agreement will last for one year. As compensation the consultants will receive a $50,000 convertible promissory note.

 

On October 21, 2015, the Company entered into a consulting agreement with a consultant to provide social media services and issued him 5,000 shares of common stock under the agreement.

 

On October 26, 2015, the Company entered into an agreement Adar Bays, LLC to invest a total of $54,000 into the Company in exchange for the issuance of 2 convertible promissory notes, each $27,000. The first $27,000 note is a front end note and was purchased by Adar Bays, LLC on October 28, 2015. The second $27,000 note is a back end note and will be funded in month 8 following the date of the agreement. The Company has the option to cancel the back end note and any obligation thereof by giving 30 days written notice of cancellation no later than the 5^th month anniversary of the issuance of the front end note. The notes bear interest at the rate of 8%.  All outstanding interest and principle is due and payable May 29, 2016.  The note is convertible by Adar Bays into shares of the Company’s common stock at any time on or after the Issuance Date.  The conversion price for each share is equal to 65% multiplied by average of the three lowest trading prices of the Common Stock on the OTC Market for the 10 prior trading days. The Company has the option to prepay this note up to 180 days after issuance.

 

On November 2, 2015 the Company entered into a consulting agreement with Pentony Enterprises LLC to provide social media services. As compensation the consultant will receive $18,000 payable in shares of the Company’s common stock as well as monthly cash compensation of $600.

 

On November 11, 2015, the Company entered into an agreement EMA Financial LLC to invest $50,000 into the Company in exchange for the issuance of a convertible promissory note. The note bears interest at the rate of 8%. All outstanding interest and principle is due and payable November 11, 2016. The note is convertible by EMA Financial into shares of the Company’s common stock at any time on or after the Issuance Date. The conversion price for each share is equal to 65% multiplied by the lowest trading price of the Common Stock on the OTC Market for the 20 prior trading days. The Company has the option to repay this note up to 180 days after issuance.

 

 

RX SAFES INC.

NOTES TO THE FINANCIAL STATEMENTS

SEPTEMBER 30, 2015

(UNAUDITED)

 

On November 11, 2015 the Company entered into a binding letter of intent to purchase all right, title and interest to patent number 7,806,852. The Company will pay to the seller $100,000 in the form of warrants to purchase shares of the Companies common stock. The Company shall pay the seller $1.5 per unit on sales of current product as well as $3.00 per unit on sales of new devices incorporating the patented encasement. If the Company sells a majority interest or there is a change in management from the original founders, the seller has the option to continue the royalty agreement or take a one time $250,000 cash payout and waive future rights.

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Forward-Looking Statements

 

Certain statements, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements.” These forward-looking statements generally are identified by the words “believes,” “project,” “expects,” “anticipates,” “estimates,” “intends,” “strategy,” “plan,” “may,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on our operations and future prospects on a consolidated basis include, but are not limited to: changes in economic conditions, legislative/regulatory changes, availability of capital, interest rates, competition, and generally accepted accounting principles. These risks and uncertainties should also be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements.

 

Company Overview

 

Rx Safes, Inc. was incorporated in 2010 in the State of Nevada. Our founders are pioneers in the fingerprint recognition market and have over 30 years combined experience designing, manufacturing and marketing fingerprint security products including garage door openers, front door locks, thermostats and mail boxes for companies such as Master Lock Corporation, Honeywell and The Overhead Door Company. They have developed marketing and sales programs through multiple distribution channels, including major retailers such as The Home Depot, Costco and Sears, and through development and distribution agreements with leading manufacturers such as Kwikset, in various targeted markets.

 

The founders saw an opportunity to apply their knowledge with the commercialization of this technology to provide solutions for healthcare applications with an initial focus on drug security. With expertise in fingerprint security, we are taking a comprehensive approach to drug security providing a variety of secure fingerprint products and solutions for both the professional and consumer healthcare markets and we are positioning our company as the emerging leading provider of efficient and cost effective, autonomous fingerprint medical security solutions. Our products and technology address the economic and social impacts of drug diversion, unauthorized access to medications, prescription drug abuse and poor medication adherence.

 

Prescription drug abuse is national epidemic costing $600 billion dollars and 40,000 lives annually. Not only is the human cost unimaginably tragic, the ripple effect of the prescription drug abuse epidemic reaches far and wide:

 

●

More than 100 deaths each day in the US as a result of prescription drug misuse

●

Healthcare facilities lose billions each year from theft.

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Insurance costs for treatments are skyrocketing

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Pharmaceutical companies are under increased regulatory pressure to offset the negative impacts of prescription drugs.

 

Industry studies indicate that the problem is growing. By way of example:

 

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ER visits associated with pharmaceutical misuse or abuse increased 114% between 2004 and 2011(CDC)

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71,224 ER visits for medication overdoses annually involving children, representing 68.9% of visits for unintentional pediatric poisonings (CDC).

 

We are utilizing our proprietary patented fingerprint technology to develop medical devices and technology to improve healthcare security, limit liability, reduce overall costs and help save lives. Our products and technology integrate seamlessly into existing healthcare infrastructures to improve the storage, transportation, monitoring and delivery of controlled substances and target massive markets within professional healthcare and crossing over into the home healthcare marketplace.

 

 

We apply our proprietary autonomous fingerprint technology in a number of ways. We offer our proprietary fingerprint interface as a solution for customers to license and integrate into their own products, we jointly develop products with OEM partners to deliver enhanced security, accountability and convenience to their existing product offerings, we use our technology to develop our own fingerprint based medical devices and equipment and we offer customized add-on solutions for healthcare facilities. By introducing tighter controls and providing audit tracking and reporting capabilities in the securing of controlled substances, we help healthcare increase the levels of accountability, lessen the risk of diversion and reduce the overall costs associated with drug theft, patient liability and loss of productivity,

 

To support the refocusing or our business in the professional healthcare marketplace and our go to market strategy, we recently launched a new, dynamic rebranded website introducing our customers, partners and shareholders to our new corporate logo and illustrating the products and technology we have under development to support this new market focus.

 

Products and Technology

 

Our product roadmap incorporates comprehensive solutions to address all aspects of drug security including:

 

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Secure medication storage products for use in home, in healthcare facilities and out in the field;

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Secure data and medication management and monitoring products;

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Secure drug delivery products;

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Drug drop-boxes to dispose unused medication; and

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Rx Safes Fingerprint technology interface – to be licensed or integrated in to OEM products through co-development.

 

Our flagship product, the Rx DrugSAFE Fingerprint Medication Lockbox, is an example of the integration of our patented fingerprint technology into one of our own product offerings. The Rx DrugSAFE demonstrates how our fingerprint technology makes a product smarter and more secure to prevent accidental poisonings, drug theft and diversion within the home. We have recently taken steps to enhance our fingerprint interface and our current Rx DrugSAFE units offer a new, additional layer of security, by introducing an administrative function. This allows a homeowner, or a healthcare manager, to manage the enrollment of additional users who should have either permanent or temporary access to the safes contents.

 

The same technology is now being applied within commercial healthcare environments, to offer facilities a secure and convenient means by which to control and monitor access to medications, addressing loss prevention and providing tighter security and controls overall for variety of healthcare applications, in turn lowering facility costs and reducing liability. We are also in the process of incorporating new technology features to work in conjunction with our fingerprint interface, which will allow our products and technology to become “smarter” and provide additional benefits to end users, providing feedback and functionality through interactive applications that will run on smart devices and computers.

 

Over the course of the next 12 months, we intend to incorporate the following additional technology and functionality into our patented biometric interface:

 

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The introduction new touch and swipe sensor options to suit the needs of a variety of consumer and commercial healthcare products and applications;

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Bluetooth technology offering interoperability with multiple healthcare related applications on smart devices;

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WIFI capability with cloud based integration, providing two-way communication between our technology/products and remote applications;

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Improved audible feedback;

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Medication adherence features;

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Expanded administration to support commercial healthcare compliance; and

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GPS tracking capabilities to provide location-based information on portable healthcare security products using our technology interface.

 

 

As we continue to enhance our fingerprint technology interface with additional features, we expect that same interface will eventually be incorporated into all of our current and future product offerings.

 

We presently have additional products at various stages of design and testing. We have been testing a larger version of the Rx DrugSAFE; the Rx DrugSAFE Pro, which is designed to serve both the consumer and professional healthcare markets. The RxDrugSAFE PRO has been designed to accommodate a greater number of prescription pill bottles of various sizes to support the needs of a variety of healthcare environments including assisted living facilities, nursing homes and emergency service vehicles. The Rx DrugSAFE IC is designed to be securely mounted inside of an existing medicine cabinet and we have 3D drawings of our original concept for this product. The RxDrugSAFE Mini is designed for daily use while at work or play, can fit easily into a pocketbook or jacket pocket, and comes with a 4 x daily pill tray system that allows medications to be pre-loaded each week. We have a proof of concept of this product and are ready to move into the design and development phase.

 

We continue to identify new product opportunities for the implementation and licensing of our technology for commercial healthcare applications. To this end, we acquired rights to intellectual property to support the development of an innovative, biometrically controlled personal patient dosing device that is universal and works with all existing PCA (Patient Controlled Analgesia) manufactured pumps offered by Smiths Medical, Abbott Laboratories, Baxter and Hospira. The Rx SafeDOSE product is designed to prevent the administration of pain medications, such as morphine, by unauthorized family members, caregivers or clinicians, which can have serious and sometimes fatal effects on a patient.

 

The company recently announced the acquisition of patent number 7,806,852 – which covers the method and apparatus for patient-controlled medical therapeutics utilizing biometrics in a patient controlled administration of pain medications, with a priority date in April 2006. This patent strengthens the company’s overall intellectual property portfolio and offers device specific protection for the Rx SafeDOSE product. The patent also includes claims that cover additional control features on the pendant, which will provide an even greater level of safety for patients and allow Rx Safes the ability to corner the market for the secure patient administration of medications. The company believes that due to the strength of the IP protection surrounding this product, along with the fact that it is ready for commercialization, we will be able to leverage these things to establish relationships encompassing the development, regulatory approval and distribution of SafeDOSE with the leading OEM manufacturers in the PCA Infusion pump market.

 

The company also recently announced the availability of a professional grade fingerprint padlock, the Rx FieldLOCK. The Rx FieldLOCK is a heavy duty steel forged, fingerprint padlock that stores up to 64 unique biometric users, 5 of which can be registered as administrators of the lock. Rx FieldLOCK also offers access via pin code to an additional 32 users as a back-up feature. Unlike traditional padlocks, there is no key required to unlock Rx FieldLOCK making access more secure, convenient and expeditious under high stress situations. Rx FieldLOCK has been primarily designed for use by EMS personnel, law enforcement, ambulance crews and fire departments to securely lock up a variety of cases used to transport medications and equipment in the field. We are also taking steps to partner with GSA suppliers to have the Rx FieldLOCK included on the appropriate Federal Governments GSA schedule to facilitate streamlined purchase of the product by Government Agencies. There is also opportunity for the application of the Rx FieldLOCK product in other large global industries and we plan to establish relationships with distribution partners who can help offer the product to other markets.

 

The company is also working on a number professional fingerprint storage solutions, designed to provide a secure and convenient means to lock up prescription medications and other controlled substances for use by EMS workers, law enforcement, fire departments, ambulance companies and mobile health care workers while administering care in the field. These products will use custom durable cases made by Pelican cases and will incorporate a customized fingerprint interface developed by Rx Safes to control access and to include audit tracking, scheduling and reporting capabilities.

Rx DrugSAFE EMS – a customizable field EMS case with individual compartments to hold a variety of drugs, controlled substances and other field medical equipment and supplies.

 

Rx DrugSAFE MMS – customizable field mobile medical station with compartments for integrated medical monitoring equipment including vital signs monitoring, mobile printing, portable patient data tablet, and other necessary field medical equipment

 

 

Rx DrugSAFE COOL – refrigerated, customizable bio-medical field transportation case for carrying blood, organs, and other bio-medical samples and/or drugs requiring refrigeration

 

Our product development plan over the next 24 months includes a variety of new products incorporating our proprietary fingerprint interface including:

 

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Portable HIPAA compliant fingerprint EHR;

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Fingerprint OEM module;

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Finperprint Tele-Medicine solution;

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Biometric physical and electronic health records; and

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Custom fingerprint technology solutions.

 

Intellectual Property

 

We are committed to continue improving our fingerprint technology interface and building our intellectual property portfolio through development and acquisition. To this end, we plan to file new utility/design patent and trademark applications where applicable to further protect our business.

 

Our patent protection provides us with a competitive advantage and a barrier to entry for our competitors within the consumer and commercial healthcare marketplaces, which are the primary target markets for our fingerprint technology and products. We have already successfully defended our patent rights and prevented competitors from entering these markets with other embedded fingerprint-based products and we will continue to aggressively protect our intellectual property rights as we build our patent portfolio.

 

Sales and Distribution

 

We are in the early stages of establishing a market for our current and future products and we recognize the importance of having a strong sales and marketing plan. Our target customers for our products and technology include:

 

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OEMs – Manufacturers of Medical Devices, Narcotics Safes etc;

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Hospitals and Health Systems;

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Group Homes, Nursing Facilities and Hospice;

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Colleges Campuses;

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Home Health Care Providers; and

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Consumers with Children or Elderly Parents.

 

We are establishing a variety of channels to these customers through:

 

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Strategic relationships with leading industry stakeholders;

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OEM collaborations with brand named products and services companies;

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E-commerce – direct from company website and through online medical distributors/resellers;

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Private national and regional health insurers/Medicaid/Medicare;

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Medical equipment and supply distributors;

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Independent and retail chain pharmacies;

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Federal, State and Local Government Agencies – utilizing public grant funds targeted to reduce prescription drug abuse;

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Non-Profits and Community Coalitions Targeting prescription Drug Abuse;

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Independent Sales Reps and sales teams;

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Licensing our technology to key industry players;

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Pharmaceutical Companies that produce schedule 2 – 5 controlled substances;

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Medical and Dental Distributors; and

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Doctors.

 

 

Our key focus is to sell and distribute our products and technology through the development of business relationships with strategic partners who have a stake in our industry and have existing channels to market, or an audience for our products both in the consumer and commercial healthcare space. To this end, we recently announced the establishment of a strategic relationship with CVS, one of the largest national retail pharmacy chains, with more than 7,800 stores in North America and retail pharmacy sales exceeding $16.7 billion in 2014, specifically for our Rx DrugSAFE product. CVS is committed to providing the necessary resources, products and education for its customers to help reduce instances of addiction, abuse and accidental poisonings. We are presently working together with CVS on a pilot program to help drive sales of the Rx DrugSAFE product online at CVS.com. The program will be launched in 2 key strategic geographic markets initially, with the hopes that the results will warrant a national rollout some time in 2016.

 

We are also presently in discussions with a major academic establishment with a view to collaborating on research efforts incorporating the Rx DrugSAFE, which will be given to at risk families. The study would track the use and effectiveness of the Rx DrugSAFE in preventing access to dangerous narcotics and in turn preventing the potential injury caused by the use of these drugs by unauthorized persons. This collaboration may also include the co-development of a new product offering incorporating our patented fingerprint interface into a product concept developed by the facilities mechanical engineering group.

 

We have engaged with a leading provider of products into the educational market to provide the Rx DrugSAFE product for use in schools and college campuses.

 

We are working on a program for a major sports league brand where our products will be incorporated into a campaign sponsored by the entity to increase awareness on the dangers of prescription drugs and the importance of securing them in the home environment.

 

We have established relationships with a number of online medical device suppliers including MSEC, VSR Sales and Unbeatable Sales and we have just established the new Rx DrugSAFE online through Amazon.com.

 

We are also working to identify and obtain private, local, state and government grant funds to purchase our products as part of an overall services and educational anti-drug campaign. We have identified several grants that could fit our community support model to help local community groups acquire Rx DrugSAFEs as part of educational and services based programs to combat drug abuse in certain communities. We will provide more information publicly as we get closer to those grant filing deadlines. In addition there has been in excess of 100 million dollars recently awarded recently by federal government agencies to specifically address the prescription drug abuse epidemic. The CDC recently granted 16 states a total of $20 million, to be used primarily to reduce the unauthorized availability of prescription opioids. Similarly, through the White House Office Of Drug Control Policy under its Drug Free Communities Program, $86 million will fund 188 new Drug-Free Communities (DFC) grants, 486 continuation grants for coalitions already in a five-year cycle, 20 new DFC Mentoring (DFC-M) grants and 3 continuation DFC-M grants. These grants provide community coalitions needed support to prevent and reduce youth substance use and our Rx DrugSAFE product provides a real solution to address this. The company is committed to establishing a plan to secure some of these funds towards the purchase of Rx DrugSAFE units to distribute into the communities where it is needed the most. With our new focus in this area, our Director, Dr. Susan Kutzner, will be heading our community-focused grant initiatives. Dr. Kutzner has over 25 years of government grant writing experience and will be instrumental in shaping this program for us.

 

We have already taken steps to establish major distribution channels for our products and have begun to re-establish our relationships with McKesson and Cardinal Health, and expect to also distribute our products through Amerisource Bergen. We plan to invest in the participation of their various marketing programs to provide exposure for our products within their channels of distribution, which are the national pharmacy chains as well as the many independently owned or franchised neighborhood pharmacies. We have also revamped and have started to implement new sales initiatives in both the consumer and professional healthcare markets, but just like any new application of technology, establishing a footprint in these markets takes time and money, so we are busy securing the resources to do so. We are actively interviewing individuals to lead our sales efforts in all three industry categories, consumer, professional healthcare and government, and we will announce the appointment of these key personnel once secured. The company hopes to see initial results of these programs as early as the 1st quarter 2016.

 

 

Our ultimate goal for our consumer-focused products is to make them widely attainable to the public through medical reimbursement. To this end, we are continuing to pursue FDA registration, set aside funds to pay the necessary product and facility registration and have also begun the process of navigating CMS and private health insurance companies to recognize the Rx DrugSAFE product as a medical equipment and offer reimbursement of the majority of the purchase price through their plans so that their members will only have to pay a small co-payment to purchase the product.

 

Within the professional healthcare market, we are building a strong foundation of technology and IP for our medical device products and then plan to use this to leverage existing relationships enjoyed by major medical device manufacturers, where our products and technology offers a real value proposition. This approach reduces the overall cost and time to market and provides credibility through the establishment of relationships with trusted brands in each respective market for our products.

 

To this end, we have recently engaged in discussions with two major medical device manufacturers regarding the use of our fingerprint secured personal dosing device, MyDOSE, in conjunction with their products throughout their extensive distribution channels and will continue to seek out and establish these strategic relationships to move our medical device products into commercialization as well as offer our fingerprint technology interface to OEMs to improve their existing medical devices.

 

We have been in contact with the FDA regarding 510K pre-market certification on the Rx SafeDOSE product, the Rx SafeDOSE (PCA Pendant) and have engaged with a regulatory consultant who has over 30 years of experience bringing medical devices to market. Based on the initial feedback received from the FDA we plan to move forward with a De Nova application in the 4^th quarter while pursuing a parallel path with leading manufacturers in the PCA Infusion Pump market. Meanwhile, we are engaged in discussions with several major pharmaceutical companies to join in the FDA application for the MyDOSE product. The FDA requires that needleless injector certification be packaged along with a particular pharmaceutical formulary, and we are specifically targeting companies who offer controlled substances such as morphine, where security and authentication is of the utmost importance, in line with our overall business model of utilizing our fingerprint technology to improve the security of products which store and dispense controlled substances.

 

Market Size:

 

The United States remains the largest medical device market in the world with a market size of around $110 billion, and it is expected to reach $133 billion by 2016.  The U.S. market value represented about 38 percent of the global medical device market in 2012. In addition, the non-medical use of prescription painkillers costs more than $72.5 billion each year in direct health care costs.

 

Under the Controlled Substances Act (CSA) healthcare facilities have to ensure that controlled substances are used for patient care and are not diverted for non-medical use. Theft of these items is not only very costly financially but also effects public health and safety. In the largest settlement of its kind, Massachusetts General Hospital (MGH) agreed to pay $2.3 million to resolve allegations that lax controls enabled employees to divert controlled substances for personal use.  MGH agreed to implement a comprehensive corrective action plan to prevent, identify, and address future diversions.

 

Healthcare facilities throughout the US are heavily investing in similar measures and we are presently the only company focusing 100% of our efforts to provide solutions in broad compliance of the CSA, which is a significantly underserved market.

 

Our products and technology target three distinct, multi-billion dollar markets for drug security and controls:

 

 

Drug Storage and Security Products

 

Our secure medication lockboxes for use in the home and healthcare Rx DrugSAFE/Pro - The healthcare asset management market is expected to reach $29.6 Billion by 2020 from $6.7 Billion in 2015. (marketsandmarkets.com research report)

 

Drug Delivery Systems

 

SafeDose - The US market for PCA pumps and accessories was estimated at $7.1 billion in 2013.

 

MyDose - The US Market Injectable Drug Delivery market is expected to reach $16.6 Billion by 2017.

 

Custom Healthcare Technology Solutions

 

The North American healthcare information technology market is forecast to grow at a compound annual growth rate of 7.4 percent to reach $31.3 billion by 2017.

 

Results of Operations for the three and nine months ended September 30, 2015 and 2014

 

Revenues

 

Our total revenue reported for the three months ended September 30, 2015 was $0, a decrease from $1,845 for the same period ended 2014. Our total revenue reported for the nine months ended September 30, 2015 was $50,563, an increase from $2,946 for the same period ended 2014.

 

The revenues we had for the nine months ended September 30, 2015 were predominantly from the fulfillment of our purchase order from the Oklahoma Bureau of Narcotics. We had a gross profit for the nine months ended September 30, 2015 of $25,053, or approximately 50% of revenues. We hope to achieve increased revenues once we establish sales channels for our products and implement our business strategies as described above. If we are unable to obtain financing, however, the implementation of our business strategies will be frustrated and we could go out of business.

 

Operating Expenses

 

Operating expenses increased to $1,441,718 for the three months ended September 30, 2015 from $74,831 for the three months ended September 30, 2014. Operating expenses increased to $3,546,267 for the nine months ended September 30, 2015 from $130,978 for the nine months ended September 30, 2014.

 

 

The main reason for the sharp increase in operating expenses was due to a compensation expense for options issued under an employment agreement with our officer and director. The detail by major category is reflected in the table below.

 

		Three Months Ended September 30,								Nine Months Ended September 30,
		2015				2014				2015				2014
Merchant Account Fees		$	244			$	315			$	749			$	762
Advertising and Promotion			3,479				1,820				10,588				2,311
Automobile Expense			1,088				641				2,821				1,151
Bank Service Charges			122				116				605				146
Consulting			9,281				20,000				10,381				20,000
Dues and Subscriptions			0				0				450				0
Travel and Entertainment			0				0				195				0
Meals and Entertainment			501				649				2,948				2,000
Marketing Expenses			300				25,758				2,039				26,718
Computer and Internet Expenses			152				381				696				1,620
Freight and Shipping			956				0				2,024				134
Conferences and Seminars			40				0				40				0
Business Licenses			1,425				675				2,204				1,155
Printing and Stationary			417				0				417				189
Investor Relations Expense			0				0				12,000				0
Insurance Expenses			5,981				0				9,097				0
Trade Shows			0				2,292				12,583				3,301
Office Supplies			442				26				1,815				926
Office Expense			57				341				623				492
Officer’s Salary			43,750				0				131,250				0
Compensation Expense			1,321,650				0				3,205,400				0
Postage			164				312				2,195				701
Financial Reporting Services			234				0				666				0
Professional Fees			46,305				19,580				113,112				56,078
Rent Expense			1,190				1,853				5,195				5,536
Product Development			192				72				2,442				772
Samples			652				0				652				0
Telephone Expenses			1,348				0				3,576				0
Travel Expenses			1,613				0				9,369				6,985
Graphic Designs			135				0				135				0
Total Operating Expense		$	1,441,718			$	74,831			$	3,546,267			$	130,978

 

We anticipate our operating expenses will increase as we undertake our plan of operations. The increase will be attributable to administrative and operating costs associated with our business activities and the professional fees associated with our reporting obligations under the Securities Exchange Act of 1934.

 

Other Expenses

 

Other expenses increased to $637,554 for the three months ended September 30, 2015 from $1,122 for the three months ended September 30, 2014. Other expenses increased to $1,026,707 for the nine months ended September 30, 2015 from $2,938 for the nine months ended September 30, 2014.

 

Our other expenses for the three and nine months ended September 30, 2015 was a result of interest expenses of $173,932 and $293,261, respectively, and the loss from derivative liabilities of $463,622 and $733,446, respectively. Our other expenses for the three and nine months ended September 30, 2014 was mostly a result of interest expenses of $1,122 and $3,038, respectively.

 

Net Loss

 

We incurred a net loss of $2,079,272 for the three months ended September 30, 2015, compared to a net loss of $74,770 for the three months ended September 30, 2014. We incurred a net loss of $4,547,921 for the nine months ended September 30, 2015, compared to a net loss of $132,067 for the nine months ended September 30, 2014.

 

Liquidity and Capital Resources

 

As of September 30, 2015, we had total current assets of $13,782 and total current liabilities of $933,396. We had a working capital deficit of $919,614 as of September 30, 2015.

 

Operating activities used $128,198 in cash for the nine months ended September 30, 2015, as compared with $96,241 for the same period ended 2014. Our net loss of $4,547,921, offset mainly by expenses related to stock options of $3,205,400, loss from derivative liabilities of $733,446 and amortization of debt discounts on convertible debt of $278,080, was the main component of our negative operating cash flow.

 

 

Cash flows provided by financing activities during the nine months ended September 30, 2015 amounted to $123,927, as compared with $105,500 for the same period ended 2014. Proceeds from the issuance of convertible notes of $203,250, proceeds from the sale of our Series A Preferred Stock of $55,000 and proceeds from related party short term loans of $24,500, offset by repayments on related party loan advances of $108,823 and repayments on convertible notes of $50,000, were the main components of our positive financing cash flow.

 

We continue to be dependent on raising capital to operate the business and are in the process of pursuing a minimum of $500,000 equity investment to support our business objectives over the next 12 months. If we raise less than this amount, we will have to scale back our operations commensurate with the funding, if any, that we receive. This quarter and beyond, we have been able to raise some money. Our efforts are ongoing but we can provide no assurance that we will be able to raise the optimal amount needed to implement our business plan.

 

As described above, we continue to work on expanding our product offerings, but our progress, while blistering in some areas, is held back dramatically because of our current inability to attract real capital. In order to succeed with our product roadmap, we are taking the steps identified above to attract equity investment while positioning the company to move up to the NASDAQ exchange. However, recent shorting activity has negatively affected our stock price to the detriment of our company and our shareholders. We have been forced to seek interim funding through convertible debt financing, placing additional pressures on the balance sheet and making us look financially weaker. Fortunately, through our rebranding initiative, we have begun to attract new shareholders who believe in our strategy and support the long-term vision for our company.

 

We recently paid off the remaining balance of $51,243 under a convertible note, which had partially converted, by securing additional convertible notes with face amounts of $60,000 and $55,250. This was done to prevent further immediate dilution, which may have negatively impacted our stock. We have also taken steps to clear the balance of all outstanding convertible debt through the provision of a less dilutive $1,000,000 equity line. We have not completed the steps necessary to secure the equity line, which requires a registration statement with the SEC and is dependent on sustainable volume and market price to make the investment worthwhile. As such, we may still be subject to one additional conversion before the end of the year and cannot control how this affects the market. However, we hope but cannot guarantee, that the steps we are taking will limit the pressure on the stock and will serve to increase shareholder equity.

 

We have been busy strategizing and outlining a plan to meet the requirements for listing on a national exchange such as the NASDAQ. We believe that the NASDAQ will offer a more friendly, professional, stable and welcoming market for us. While we currently do not meet the listing requirements for the NASDAQ exchange, we are now positioning our company to start the process of meeting those requirements. As part of that process, we have approved a 200 for 1 reverse split of our common stock. The market effective date for this transaction was November 12, 2015, where we went from approximately 270,000,000 shares issued and outstanding to about 1,350,000 shares outstanding, with about 250,000 shares in the public float. We believe this is necessary step and in the best long-term interest of all of our shareholders,

 

We hope the split will make us more attractive to institutional lenders whose investment strategies include working with companies to secure listing on the NASDAQ. Our Board has already begun developing and articulating a new business plan to attract seasoned investment bankers to assist us in raising equity capital as well as up-listing. This process will take time and is not guaranteed, but we believe with hard work and the right partners, it is extremely achievable. We have already begun speaking with several investment banking firms with a focus in healthcare and the medical device space. These firms care more about the fundamentals of our business and understand the long-term value of our company, our technology and our products as they apply to an enormous underserved market suffering huge economic and social losses attributable to drug theft and diversion. While we have not yet entered into any agreements, we expect to announce a new investment banking relationship shortly.

 

Based upon our current financial condition, we do not have sufficient cash to operate our business at the current level for the next twelve months. We intend to fund operations through increased sales and debt and/or equity financing arrangements, which may be insufficient to fund expenditures or other cash requirements. We plan to seek additional financing in a private equity offering to secure funding for operations. There can be no assurance that we will be successful in raising additional funding. If we are not able to secure additional funding, the implementation of our business plan will be impaired. There can be no assurance that such additional financing will be available to us on acceptable terms or at all.

 

 

Going Concern

 

The accompanying financial statements have been prepared in conformity with generally accepted accounting principle, which contemplate continuation of our company as a going concern. However, we had minimal revenues for the three and nine months ending September 30, 2015 and year ended December 31, 2014. We currently have negative working capital, and have not completed our efforts to establish a stabilized source of revenues sufficient to cover operating costs over an extended period of time.

 

Management anticipates that we will be dependent, for the near future, on additional investment capital to fund operating expenses. We intend to position our company so that we may be able to raise additional funds through the capital markets. In light of management’s efforts, there are no assurances that we will be successful in this or any of our endeavors or become financially viable and continue as a going concern.

 

Critical Accounting Policies

 

In December 2001, the SEC requested that all registrants list their most “critical accounting polices” in the Management Discussion and Analysis. The SEC indicated that a “critical accounting policy” is one which is both important to the portrayal of a company’s financial condition and results, and requires management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. We do not believe that any accounting policies currently fit this definition. Our significant accounting policies are contained in Note 2 to our financial statements included herein.

 

Recently Issued Accounting Pronouncements

 

On May 1, 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606),” which is the new comprehensive revenue recognition standard that will supersede all existing revenue recognition guidance under GAAP. The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to a customer in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. This ASU is effective for annual and interim periods beginning on or after December 15, 2016, and early adoption is not permitted. Entities will have the option of using either a full retrospective approach or a modified approach to adopt the guidance in the ASU. The Company will continue to assess the impact on its financial statements.

 

In June 2014, the FASB issued ASU 2014-12, “Compensation - Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could be Achieved after the Requisite Service Period.” This ASU provides more explicit guidance for treating share-based payment awards that require a specific performance target that affects vesting and that could be achieved after the requisite service period as a performance condition. The new guidance is effective for annual and interim reporting periods beginning after December 15, 2015. The Company does not expect the adoption of this guidance to have a material impact on the financial statements.

 

On June 10, 2014, the Financial Accounting Standards Board (“FASB”) issued update ASU 2014-10, Development Stage Entities (Topic 915). Amongst other things, the amendments in this update removed the definition of development stage entity from Topic 915, thereby removing the distinction between development stage entities and other reporting entities from US GAAP. In addition, the amendments eliminate the requirements for development stage entities to (1) present inception-to-date information on the statements of income, cash flows and shareholder’s equity, (2) label the financial statements as those of a development stage entity; (3) disclose a description of the development stage activities in which the entity is engaged and (4) disclose in the first year in which the entity is no longer a development stage entity that in prior years it had been in the development stage. The amendments are effective for annual reporting periods beginning after December 31, 2014 and interim reporting periods beginning after December 15, 2015, however entities are permitted to early adopt for any annual or interim reporting period for which the financial statements have yet to be issued. The Company has elected to early adopt these amendments and accordingly have not labeled the financial statements as those of a development stage entity and have not presented inception-to-date information on the respective financial statements.

 

 

In August 2014, the FASB issued ASU 2014-15, “Presentation of Financial Statements – Going Concern (Topic 205-40)”, which requires management to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern for each annual and interim reporting period. If substantial doubt exists, additional disclosure is required. This new standard will be effective for the Company for annual and interim periods beginning after December 15, 2016. Early adoption is permitted. The Company expects to adopt this new standard for the fiscal year ending December 31, 2015 and the Company will continue to assess the impact on its financial statements.

 

Off Balance Sheet Arrangements

 

As of September 30, 2015, there were no off balance sheet arrangements.

 

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

 

A smaller reporting company is not required to provide the information required by this Item.

 

Item 4.  Controls and Procedures

 

Disclosure Controls and Procedures

 

We conducted an evaluation, with the participation of our Chief Executive Officer and Chief Financial Officer, 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 Securities Exchange Act of 1934, as amended, or the Exchange Act, as of September 30, 2015, 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 Securities Exchange Commission’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 principal executive and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of September 30, 2015, our disclosure controls and procedures were not effective at the reasonable assurance level due to the material weaknesses identified and described below.

 

Our principal executive officers do 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 officers have 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.

 

 

Remediation Plan to Address the Material Weaknesses in Internal Control over Financial Reporting

 

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. Management identified the following three material weaknesses that have caused management to conclude that, as of September 30, 2015, our disclosure controls and procedures, and our internal control over financial reporting, were not effective at the reasonable assurance level:

 

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 as of the period ending September 30, 2015. 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.

 

3.

Effective controls over the control environment were not maintained. Specifically, a formally adopted written code of business conduct and ethics that governs our employees, officers, and directors was not in place. Additionally, management has not developed and effectively communicated to employees its accounting policies and procedures. This has resulted in inconsistent practices. Further, our Board of Directors does not currently have any independent members and no director qualifies as an audit committee financial expert as defined in Item 407(d)(5)(ii) of Regulation S-K. Since these entity level programs have a pervasive effect across the organization, management has determined that these circumstances constitute a material weakness.

 

To address these material weaknesses, management performed additional analyses and other procedures to ensure that the 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 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.

 

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 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.

 

Changes in Internal Control over Financial Reporting

 

No change in our system of internal control over financial reporting occurred during the period covered by this report, the period ended September 30, 2015, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

 

PART II – OTHER INFORMATION

 

Item 1. Legal Proceedings

 

Aside from that below, we are not a party to any pending legal proceeding. We are not aware of any pending legal proceeding to which any of our officers, directors, or any beneficial holders of 5% or more of our voting securities are adverse to us or have a material interest adverse to us.

 

On March 10, 2015, we filed a complaint in the District Court for Clark County, Nevada, against Wall Street Buy Sell Hold Inc., a New York corporation, for Fraud in the Inducement, Deceptive Trade Practices and Unjust Enrichment in connection with a Consulting Agreement dated February 10, 2014. As a result of the misrepresentations and actions perpetuated by Wall Street Buy Sell Hold Inc., we are asking court to award us damages, recession of the Consulting Agreement and a return of monies paid thereunder, and for punitive damages. The action in Nevada has been stayed by the Court pending resolution of the preliminary action in the New York case.

 

On March 5, 2015, Wall Street Buy Sell Hold Inc. filed a complaint in the Supreme Court for Nassau County, NY against us in connection with the Consulting Agreement. Wall Street Buy Sell Hold Inc. has alleged breach of contract and specific performance for monies and warrants it believes it is owed under the agreement. We intend to vigorously defend this action.

 

Item 1A: Risk Factors

 

See risk factors included in the Company’s Annual Report on form 10-K for 2014.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

On November 2, 2015, we entered into a consulting agreement with Pentony Enterprises LLC to provide social media services. As compensation, the consultant will receive $18,000 payable in shares of our common stock as well as monthly cash compensation of $600.

 

On October 21, 2015, we issued 5,000 shares of our common stock to a consultant.

 

On October 6, 2015, we issued 1,250 shares of common shares to Auctus Private Equity Fund, LLC in connection a Securities Purchase Agreement.

 

On October 1, 2015, EMA Financial converted $20,000 of the principal on its convertible promissory note into a total of 55,928 shares of our common stock.

 

On September 23, 2015, we issued 2,000 of our newly created Series B Convertible Preferred Stock at $0.001 per share.

 

On September 22, 2015, our Director, William Koch, converted 10,000 shares of his Series A Convertible Stock into 5,000 shares of our common stock.

 

On September 21, 2015, Lorraine Yarde converted $87,500 in unpaid and accrued compensation into 265,152 shares of the Company's common stock.

 

On September 21, 2015, Axius Consulting Group sold a total of $129,000 of its aged payables to certain existing shareholders who then converted 100% of this debt into 402,747 shares of the Company’s common stock.

 

On September 21, 2015, we issued 3,750 shares of our common stock to a consultant.

 

On September 20, 2015 through September 22, 2015, we issued 6,000 shares of our common stock in conversion of 1,200 shares of Series A Convertible Preferred Stock.

 

We previously granted stock options to purchase 5,000 shares of common stock under the Director Compensation Plan effective January 1, 2015 to four directors with each having options to purchase 1,250 shares. On September 18, 2015, we increased the amount of shares of common stock under the options from 5,000 to 50,000 shares, or 12,500 to each of the four directors. We also granted an option to purchase 12,500 to Mark Basile, our new director, under the Director Compensation Plan.

 

In August 2015, we entered into a consulting agreement with our Director, Faruk Okcetin, and issued him 5,000 shares of our common stock under the agreement.

 

These securities were issued pursuant to Section 4(2) of the Securities Act and/or Rule 506 promulgated thereunder. The holders represented their intention to acquire the securities for investment only and not with a view towards distribution. The investors were given adequate information about us to make an informed investment decision. We did not engage in any general solicitation or advertising. We directed our transfer agent to issue the stock certificates with the appropriate restrictive legend affixed to the restricted stock.

 

 

Item 3. Defaults upon Senior Securities

 

None

 

Item 4. Mine Safety Disclosures

 

N/A

 

Item 5. Other Information

 

None

 

Item 6. Exhibits

 

Exhibit Number		Description of Exhibit
10.1		Consulting Agreement with Frank Okcetin, dated August 2015
31.1		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1		Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101**		The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2015 formatted in Extensible Business Reporting Language (XBRL).
		**Provided herewith

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

RX Safes, Inc.
Date:	November 16, 2015
By:	/s/ Lorraine Yarde
	Lorraine Yarde
Title:	President, Chief Executive Officer, and Director

 

 

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