UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

[X]	Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
	For the quarterly period ended December 31, 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: 000-55155

 

Nano Mobile Healthcare, Inc.

(Exact name of registrant as specified in its charter)

 

Delaware	93-0659770
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)

 

3 Columbus Circle, 15th Floor New York, NY 10019

(Address of principal executive offices)

 

(917) 745-7202

(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

[X] 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). [X] 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	[X] 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 [X] No

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

435,712,455 shares of common stock as February 22, 2016

 

 

 

 Table of Contents

		Page
PART I – FINANCIAL INFORMATION
Item 1:	Financial Statements	3
Item 2:	Management’s Discussion and Analysis of Financial Condition and Results of Operations	4
Item 3:	Quantitative and Qualitative Disclosures About Market Risk	8
Item 4:	Controls and Procedures	8
PART II – OTHER INFORMATION
Item 1:	Legal Proceedings	9
Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds	9
Item 3:	Defaults Upon Senior Securities	10
Item 4:	Mine Safety Disclosures	10
Item 5:	Other Information	10
Item 6:	Exhibits	10

 

 

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

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

 

F-1	Balance Sheets as of December 31, 2015 and June 30, 2015 (unaudited);
F-2	Statements of Operations for the three and six months ended December 31, 2015 and 2014 (unaudited);
F-3	Statements of Cash Flows for the six months ended December 31, 2015 and 2014 (unaudited); and
F-4	Notes to the unaudited Financial Statements.

 

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 December 31, 2015 are not necessarily indicative of the results that can be expected for the full year.

 

 

NANO MOBILE HEALTHCARE, INC.

BALANCE SHEETS

AS OF DECEMBER 31, 2015

(UNAUDITED) 

 

		December 31, 2015				June 30, 2015
ASSETS
Current assets
Cash and cash equivalents		$	32,986			$	249,986
Prepaid expenses and other current assets			32,213				41,637
Total current assets			65,199				291,623
Fixed Assets			9,798				10,670
Securities-available for sale			400				400
Total assets			75,397				302,693
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Accounts payable and accrued liabilities		$	290,898			$	366,918
Convertible notes payable			670,769				341,585
Due to related parties			553,194				400,450
Derivative liabilities			5,701,672				2,494,236
Total current liabilities			7,216,533				3,603,189
Convertible debt			109,612				160,386
Total liabilities			7,326,145				3,763,575
Stockholders' deficit
Preferred stock; $0.001 par value; 50,000,000 shares authorized;
23,473,368 and 0 shares issued and outstanding
as of December 31, 2015 and June 30, 2015, respectively			23,473				—
Common stock; $0.001 par value; 450,000,000 shares authorized;
370,255,933 and 227,720,396 shares issued and outstanding
as of December 31, 2015 and June 30, 2014, respectively			370,256				227,721
Additional paid-in capital			4,017,859				3,286,063
Accumulated deficit			(11,662,336	)			(6,974,666	)
Total stockholders' deficit			(7,250,748	)			(3,460,882	)
Total liabilities and stockholders' deficit		$	75,397			$	302,693

 

 

 

 

See accompanying notes to unaudited financial statements

 

 

NANO MOBILE HEALTHCARE , INC.

STATEMENTS OF OPERATIONS

FOR THE THREE AND SIX MONTHS ENDED DECEMBER 31, 2015 AND 2014

(UNAUDITED)

 

 

	For the three months ended						For the six months ended
	December 31, 2015			December 31, 2014			December 31, 2015			December 31, 2014
Operating expenses
Professional fees		19,191			57,320			62,746			194,840
General and administrative expenses		53,439			159,737			155,692			321,845
Officer and director compensation		—			15,937			36,097			42,118
Consulting		332,556			294,116			612,931			580,701
Royalty expenses		—			25,000			—			100,000
Total operating expenses		405,186			552,110			867,466			1,239,504
Loss from operations		(405,186	)		(552,110	)		(867,466	)		(1,239,504	)
Other income (expense)
Interest income (expense)		(502,727	)		(238,496	)		(1,060,374	)		(246,449	)
Gain (loss) on derivative		(4,187,019	)		88,362			(2,759,830	)		255,875
Unrealized loss on investment		—			(5,800	)		—			(19,800	)
Total other income (expense)		(4,689,746	)		(155,934	)		(3,820,204	)		(10,374	)
Net loss	$	(5,094,932	)	$	(708,044	)	$	(4,687,670	)	$	(1,249,878	)
Net loss per common share: basic and diluted	$	(0.01	)	$	(0.00	)	$	(0.02	)	$	(0.01	)
weighted average common
shares outstanding: basic and diluted		319,500,994			195,497,415			261,536,471			192,985,925

 

 See accompanying notes to unaudited financial statements

 

 

NANO MOBILE HEALTHCARE, INC.

STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2015 AND 2014

(UNAUDITED)

				For the six months ended
				December 31, 2015		December 31, 2014
Cash Flows from Operating Activities
	Net income (loss)			(4,687,670)	$	(1,249,878)
Adjustments to reconcile net loss to net cash used in operating activities:
	Unrealized loss on investment			-		19,800
	Amortization of debt discount			956,011		232,429
	Loss (gain) on derivative liability			2,759,830)		(255,875)
	Warrants issued for services			-		58,000
	Shares issued for services			9,600		21,077
	Depreciation			872		621
Changes in assets and liabilities
	Prepaid expense			87,424		145,979
	Accounts payable and accrued expenses			(28,588)		(6,500)
		Net cash used in operating activities		(902,521)		(1,034,347)
Cash Flows from Investing Activities
	Purchase of fixed assets			-		(12,149)
		Net cash used in investing activities		-		(12,149)
Cash Flows from Financing Activities
	Proceeds from related party debt			667,075		587,139
	Payments on related party debt			(514,331)		(125,455)
	Proceeds from convertible notes payable			553,009		450,000
	Proceeds on loans payable			28,501		-
	Payments on loans payable			(48,733)		-
		Net cash from financing activities		685,521		911,684
Net increase (decrease) in cash				(217,000)		(134,812)
Cash, beginning of period				249,986		235,073
Cash, end of period			$	32,986	$	100,261
Supplemental disclosure of cash flow information
	Cash paid for interest		$	-	$	-
	Cash paid for tax		$	-	$	-
Non-Cash investing and financing transactions
	Common stock issued to settle convertible debt		$	294,898	$	213,818
	Shares issued for intangible assets		$		$	2,586
		Common stock issued to settle convertible debt	$	294,898	$
		Recognition of derivative debt discount	$	1,040,913	$	293,419
		Conversion of derivative liability	$	593,307	$
		Exchange of common shares to preferred shares	$	116,617	$

 

 

 

 

 

 

 See accompanying notes to unaudited financial statements

 

NANO MOBILE HEALTHCARE, INC.

NOTES TO FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 1 – BASIS OF PRESENTATION AND GOING CONCERN

  

Basis of Presentation

The accompanying unaudited interim financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission, and should be read in conjunction with the audited financial statements and notes thereto contained in the Company’s most recent Annual Financial Statements filed with the SEC on Form 10-K. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim period presented have been reflected herein. The results of operations for the interim period are not necessarily indicative of the results to be expected for the full year. Notes to the financial statements which would substantially duplicate the disclosures contained in the audited financial statements for the most recent fiscal period, as reported in the Form 10-K, have been omitted.

 

Going concern

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has incurred cumulative net losses of $11,662,336 since its inception and requires capital for its contemplated operational and marketing activities to take place. The ability of Nano Mobile Healthcare, Inc to continue as a going concern is dependent on the Company generating cash from the sale of its common stock and/or obtaining debt financing and attaining future profitable operations. Management’s plans include selling its equity securities and obtaining debt financing to fund its capital requirement and ongoing operations; however, there can be no assurance the Company will be successful in these efforts. The ability to successfully resolve these factors raise substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements of the Company do not include any adjustments that may result from the outcome of these aforementioned uncertainties.

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Fair Value of Financial Instruments

The carrying amounts reflected in the balance sheets for cash, accounts payable and accrued expenses approximate the respective fair values due to the short maturities of these items.

 

As required by the Fair Value Measurements and Disclosures Topic of the FASB ASC, fair value is measured based on a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows: (Level 1) observable inputs such as quoted prices in active markets; (Level 2) inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and (Level 3) unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

 

The three levels of the fair value hierarchy are described below:

 

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

 

Level 2: Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability;

 

Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).

   

A financial instrument's categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

 

 

Financial assets and liabilities measured at fair value on a recurring basis are summarized below for December 31, 2015:

 

 

		Level 1				Level 2				Level 3				Total
Assets
Securities -available for sale		$	400			$	—			$	—			$	400
Liabilities
Derivative Financial Instruments		$	—			$	—			$	5,701,672			$	5,701,672

 

 

Financial assets and liabilities measured at fair value on a recurring basis are summarized below for June 30, 2015:

 

		Level 1				Level 2				Level 3				Total
Assets
Securities -available for sale		$	400			$	—			$	—			$	400
Liabilities
Derivative Financial Instruments		$	—			$	—			$	2,494,236			$	2,494,236

 

Investment Securities

The Company has elected to account for its investments in securities at fair value under the fair value option provisions of FASB ASC 825, Financial Instruments (“FASB ASC 825”). The primary reason for electing the fair value option when it first became available in 2008, was to reduce the burden of monitoring the differences between the cost and the fair value of the Company’s investments, previously classified as available for sale securities, including the assessment as to whether the declines are temporary in nature and to further remove an element of management judgment. In addition, the election was made for certain investments that were previously required to be accounted for under the equity method because their fair value measurements were readily obtainable.

 

Such financial assets accounted for at fair value include in general, securities that would otherwise qualify for available for sale treatment.

 

The changes in fair value (realized and unrealized gains and losses) of these instruments for which the Company has elected the fair value option are recorded in principal transactions and other income in the consolidated statements of operations. All of the investments for which the Company has elected the fair value option are included as a component of securities available for sale, at fair value in the consolidated balance sheets. The Company recognized net losses of $0 and $14,000 related to changes in fair value of investments that are included as a component of other investments, at fair value during the three and six months ended December 31, 2015 and 2014, respectively.

 

NOTE 3 – PREPAID EXPENSES

 

During the six months ended December 31, 2015, the Company prepaid interest of $57,375 on convertible notes. As of December 31, 2015 and June 30, 2015, the balance that remained capitalized as prepaid expenses was $32,213 and $41,637, respectively. 

 

 

NOTE 4 – SECURITIES AVAILABLE FOR SALE

 

On January 16, 2014, the Company acquired 2,000,000 restricted common shares of a publicly traded company. The investment was acquired at market value of $0.03 per share, and is held for future trade. The value of the investment will be adjusted quarterly to reflect the change in market value of the holding. The investment does not represent a controlling interest in the publicly traded company. The company has elected the fair value option under ASC 825 allowing gains and losses to be recorded in earnings each period. From receipt of the shares on January 16, 2014 through December 31, 2015 the securities were reduced in value from $60,000 to $400 due to a change in the publicly traded company’s stock price. These securities are measured under level 1 of ASC 820.

 

The Company reported an unrealized loss on investment of $0 and $14,000 during the three and six months ending December 31, 2015 and 2014, respectively.

 

NOTE 5 – RELATED PARTY TRANSACTIONS

 

During the six months ended December 31, 2015 and 2014, the Company received cash advances from its majority shareholder in the amount of $667,075 and 587,139, of which $514,331 and $125,455 was repaid during the same period. As of December 31, 2015 and June 30, 2015 there was a balance due to the shareholder of $533,194 and $400,450, respectively. All amounts advanced to the Company are unsecured, non-interest bearing and due upon demand.

 

NOTE 6 – LOANS PAYABLE

 

On July 1, 2015, the Company issued a promissory note in the amount of $22,500 for $15,000 cash. The note was due on July 1, 2016 and bears interest at 15% per annum. During the six month period ended December 31, 2015, the Company has repaid the entire note balance.

 

On September 1, 2015, the Company issued a promissory note in the amount of $26,233 for $17,500 cash. The note was due on August 31, 2016 and bears interest at 15% per annum. During the six month period ended December 31, 2015, the Company has repaid the entire balance.

 

NOTE 7 - CONVERTIBLE NOTE PAYABLE

 

On April 18, 2014, the Company issued a convertible promissory note in which the Company will be taking tranche payments on pre-defined dates, the total of these payments cannot exceed $650,000. There is an original discount component of 10% per tranche and an additional expense fee of $5,000. Therefore, the funds available to the Company will be $650,000 and the liability (net of interest) will be $750,000 when all disbursements have been received by the Company. Each tranche is accounted for separately with each principal and OID balance becoming due 18 months after receipt. Each tranche bears interest at 8% per annum. The loan is secured by shares of the Company’s common stock. Each portion of the loan becomes convertible 180 days after date of the note. The loan and any accrued interest can then be converted into shares of the Company’s common stock at a rate of 50% multiplied by the market price, which is the lowest quoted price for the common stock during the 20 trading day period ending on the latest complete trading day prior to the conversion date.

 

During the year ended June 30, 2015, the Company received six additional tranche disbursements of $50,000 on July 15, 2014, $100,000 on September 30, 2014, $50,000 on November 3, 2014, $50,000 on December 1, 2014, $50,000 on December 29, 2014, and $50,000 on February 2, 2015.

 

On July 20, 2015, the Company entered into a settlement agreement with the holder of the convertible note. Under the agreement the note holder agreed not to seek to enforce its rights or remedies under the Note in relation to the notice of conversion issued to convert a balance of the note amounting to $57,933; to not to exercise its rights of conversion pursuant to the Note, and if an event of default occurs, the Holder agrees not to sell any shares of common stock of the Company having an aggregate conversion value of $30,000 or more per week until such time as it has sold all of the Company’s common stock that it owns.

 

 

Under the agreement the Company agreed to a penalty in relation to the issuance of a note in the amount of $95,000; to release the holder from its obligation to advance additional funds to the Company; and to pay or refinance the amount due under the note plus accrued interest in four installment payments due on July 20, 2015, August 10, 2015, September 14, 2015 and October 12, 2015. In accordance with the agreement, the Company made the payments due on July 20, 2015 and August 10, 2015.

 

In respect of prepayment penalties payable to the Holder pursuant to the Note, the Company agreed to issue to the Holder additional convertible promissory notes with each having the same form, terms, and conditions as the original note. The value of the notes, which are due by each installment payment date, are equal to 30% of the payment delivered. During the three months ended September 30, 2015, the Company issued two notes related to the prepayment penalties of the installments due on July 20, 2015 and August 10, 2015 of $35,399 and $35,610, respectively.

 

After the payment was made on August 10, 2015, the Company and the note holder agreed to forgo the final two payments, cancel the settlements agreement, and therefore allow the noteholder to convert the notes as agreed to in the original note agreement. During the three months ended September 30, 2015, the Company converted $5,000 of the penalty note issued on July 20, 2015 into 5,000,000 shares of common stock.

 

The following details the disbursements as of December 31, 2015:

 

Tranche Date		Principal with OID				Accrued Interest				Converted to Stock				Balance - December 31, 2015
April 21, 2014		$	110,776			$	6,167			$	116,943				—
May 6, 2014			55,384				4,443			$	59,827				—
June 11, 2014			55,384				5,147				None				—
July 16, 2014			55,384				4,236				None				—
September 30, 2014			110,768				6,628				None				—
November 3, 2014			55,384				4,006				None				55,384
December 1, 2014			55,384				3,417				None				55,384
December 29, 2014			55,384				3,110				None				55,384
February 2, 2015			55,384				2,901				None				55,384
July 14, 2015			35,610				609				None				35,610
July 20, 2015			95,000				1,420				16,500				78,500
August 20, 2015			35,399				318				None				35,399
Unamortized Original Issue Discount			(6,618	)			—								(6,618	)
		$	768,623			$	42,402								364,427

 

During the six months ended December 31, 2015 and 2014, $14,918 and $5,078 of the debt discount related to the outstanding tranches was amortized, respectively.

 

The Notes are shown net of an unamortized original issue discount of $6,618 as of December 31, 2015.

 

The Company analyzed the conversion options embedded in the Convertible Promissory Notes for derivative accounting consideration under ASC 815, Derivatives and Hedging, and determined that seven tranches received on November 3, 2014, December 1, 2014, December 29, 2014, February 2, 2015, July 14, 2015, July 20, 2015, and August 20, 2015 were convertible during the quarter ended September 30, 2015.

 

In accordance with the terms of the Note, the holder fully converted the tranche issued on April 21, 2014 during the year ended June 30, 2015 for 3,711,969 shares of common stock for principal and accrued interest of $116,943.

 

 

The Company recorded a debt discount in the amount of $110,776 in connection with the initial valuation of the derivative liability of the note to be amortized utilizing the effective interest method of accretion over the term of the note. Further, the Company recognized a derivative liability of $192,038 and an initial loss of $81,262 based on the Black Scholes Merton pricing model.

 

On October 21, 2014, the Note issued on May 6, 2014 became convertible at the option of the holder. On this date the Company recorded a debt discount in the amount of $55,384 in connection with the initial valuation of the derivative liability of the note to be amortized utilizing the effective interest method of accretion over the term of the note. Further, the Company recognized a derivative liability of $95,215 and an initial loss of $39,831 based on the Black Scholes Merton pricing model.

 

In accordance with the terms of the Note, the holder fully converted the tranche during the year ended June 30, 2015 for 4,943,581 shares of common stock for principal and interest of $59,827.

 

On December 8, 2014, the Note issued on June 11, 2014 became convertible at the option of the holder. On this date the Company recorded a debt discount in the amount of $55,384 in connection with the initial valuation of the derivative liability of the note to be amortized utilizing the effective interest method of accretion over the term of the note. Further, the Company recognized a derivative liability of $90,678 and initial loss on derivative liability of $35,294 based on the Black Scholes Merton pricing model.

 

During the quarter ended September 30, 2015, the note was assigned to another lender. As of December 31, 2015, $55,384 of the debt discount has been amortized. The fair value of the derivative liability at December 31, 2015 December 31, 2015 and June 30, 2015 was $0 and $91,995, respectively resulting in a gain on the change in fair value of the derivative of $91,995 during the six months ended December 31, 2015.

 

On January 12, 2015, the Note issued on July 16, 2014 became convertible at the option of the holder. On this date the Company recorded a debt discount in the amount of $55,384 in connection with the initial valuation of the derivative liability of the note to be amortized utilizing the effective interest method of accretion over the term of the note. Further, the Company recognized a derivative liability of $91,094 and initial loss on derivative liability of $35,710 based on the Black Scholes Merton pricing model.

 

During the six months ended December 31, 2015, the note was assigned to another lender. As of December 31, 2015, $55,384 of the debt discount has been amortized. The fair value of the derivative liability at December 31, 2015 and June 30, 2015 was $0 and $96,644 resulting in a gain on the change in fair value of the derivative of $96,644.

 

On March 29, 2015, the Note issued on September 30, 2014 became convertible at the option of the holder. On this date the Company recorded a debt discount in the amount of $110,768 in connection with the initial valuation of the derivative liability of the note to be amortized utilizing the effective interest method of accretion over the term of the note. Further, the Company recognized a derivative liability of $182,755 and initial loss on derivative liability of $71,987 based on the Black Scholes Merton pricing model.

 

In accordance with the terms of the Note, the holder converted $16,221of the note balance during the six month ended December 31, 2015 into 33,754,806 shares of common stock. The value of the share on the date of conversion was $34,753.

 

As of December 31, 2015, $62,419 of the debt discount has been amortized. The fair value of the derivative liability at December 31, 2015 and June 30, 2015 is $306,746 and $213,077 resulting in a gain on the change in fair value of the derivative of $158,744. The Note is shown net of a derivative debt discount of $20,280 at December 31, 2015.

 

On May 2, 2015, the Note issued on November 3, 2014 became convertible at the option of the holder. On this date the Company recorded a debt discount in the amount of $55,384 in connection with the initial valuation of the derivative liability of the note to be amortized utilizing the effective interest method of accretion over the term of the note. Further, the Company recognized a derivative liability of $94,120 and initial loss on derivative liability of $38,736 based on the Black Scholes Merton pricing model.

 

 

As of December 31, 2015, $30,776 of the debt discount has been amortized. The fair value of the derivative liability at December 31, 2015 and June 30, 2015 was $190,768 and $109,960, respectively resulting in a loss on the change in fair value of the derivative of $80,808. The Note is shown net of a derivative debt discount of $15,704 at December 31, 2015.

 

On May 30, 2015, the Note issued on December 1, 2014 became convertible at the option of the holder. On this date the Company recorded a debt discount in the amount of $55,384 in connection with the initial valuation of the derivative liability of the note to be amortized utilizing the effective interest method of accretion over the term of the note. Further, the Company recognized a derivative liability of $95,257 and initial loss on derivative liability of $39,873 based on the Black Scholes Merton pricing model.

 

As of December 31, 2015, $29,631 of the debt discount has been amortized. The fair value of the derivative liability at December 31, 2015 and June 30, 2015 was $198,292 and $115,438 resulting in a loss on the change in fair value of the derivative of $82,854 during the six months ended December 31, 2015. The Note is shown net of a derivative debt discount of $21,087 at December 31, 2015.

 

On June 29, 2015, the Note issued on December 29, 2014 became convertible at the option of the holder. On this date the Company recorded a debt discount in the amount of $55,384 in connection with the initial valuation of the derivative liability of the note to be amortized utilizing the effective interest method of accretion over the term of the note. Further, the Company recognized a derivative liability of $102,520 and initial loss on derivative liability of $47,136 based on the Black Scholes Merton pricing model.

 

As of December 31, 2015, $27,914 of the debt discount has been amortized. The fair value of the derivative liability at December 31, 2015 and June 30, 2015 was $203,347 and $116,072, respectively resulting in a loss on the change in fair value of the derivative of $87,275 during the six months ended December 31, 2015. The Note is shown net of a derivative debt discount of $27,018 at December 31, 2015.

 

On August 1, 2015, the Note issued on February 2, 2015 became convertible at the option of the holder. On this date the Company recorded a debt discount in the amount of $55,384 in connection with the initial valuation of the derivative liability of the note to be amortized utilizing the effective interest method of accretion over the term of the note. Further, the Company recognized a derivative liability of $93,642 and initial loss on derivative liability of $38,258 based on the Black Scholes Merton pricing model.

 

As of December 31, 2015, $22,938 of the debt discount has been amortized. The fair value of the derivative liability at December 31, 2015 and June 30, 2015 was $202,585 and $0, respectively resulting in a loss on the change in fair value of the derivative of $147,201 during the six months ended December 31, 2015. The Note is shown net of a derivative debt discount of $32,446 at December 31, 2015.

 

On July 20, 2015, the Note issued on July 20, 2015 became convertible at the option of the holder. On this date the Company recorded a debt discount in the amount of $95,000 in connection with the initial valuation of the derivative liability of the note to be amortized utilizing the effective interest method of accretion over the term of the note. Further, the Company recognized a derivative liability of $119,837 and initial loss on derivative liability of $24,837 based on the Black Scholes Merton pricing model.

 

In accordance with the terms of the Note, the holder partially converted the note during the six months ended December 31, 2015 for 24,000,000 shares of common stock for principal of $16,500. The fair value of at the date of conversion of $33,003 was written off to additional paid in capital.

 

As of December 31, 2015, $88,838 of the debt discount has been amortized. The fair value of the derivative liability at December 31, 2015 and June 30, 2015 was $45,284 and $0, respectively resulting in a gain on the change in fair value of the derivative of $74,553 during the six months ended December 31, 2015. The Note is shown net of a derivative debt discount of $6,162 at December 31, 2015.

 

 

On October 1, 2014, the Company issued a short-term convertible promissory note in the amount of $70,000 for $50,000 cash, an original issue discount of $12,500, and prepaid interest of $7,500. The note was due on March 30, 2015 and bears interest at 15% per annum, which was prepaid by the Company and is being amortized over the life of the loan. The loan is secured by shares of the Company’s common stock. The loan becomes convertible 180 days after date of the note. The loan and any accrued interest can then be converted into shares of the Company’s common stock at a rate of 50% multiplied by the market price, which is the lowest quoted price for the common stock during the 25 trading day period ending on the latest complete trading day prior to the conversion date. During the year ended June 30, 2015, $12,500 of the debt discount was been amortized. The note matured on March 30, 2015.

 

The Company elected to prepay the entire term’s interest of $7,500. This payment was capitalized as a prepaid asset and has been amortized over the term of the note. The interest expense related to this loan was $0 for the quarter ending December 31, 2015 and 2014.

 

On March 30, 2015, the Note became convertible at the option of the holder. On this date the Company recorded a debt discount in the amount of $70,000 in connection with the initial valuation of the derivative liability of the note to be amortized utilizing the effective interest method of accretion over the term of the note. Further, the Company recognized a derivative liability of $70,014 and initial loss of $14 based on the Black Scholes Merton pricing model.

 

As of June 30, 2015, $70,000 of the debt discount has been amortized. The fair value of the derivative liability at June 30, 2015 is $20,632.

 

As of December 31, 2015 and June 30, 2015, the holder of the note exercised his right to convert $14,000 and $56,000 of the note balance into 2,222,222 and 3,188,125 shares of common stock, respectively. The fair value of the derivative liability related to the converted debt as of December 31, 2015 and June 30, 2015 was $13,784 and $79,464, respectively.

 

On November 17, 2014, the Company issued a short-term convertible promissory note in the amount of $70,000, which consisted of cash proceeds of $50,000, a debt discount of $12,500 and prepaid interest of $7,500. The note is due on November 14, 2015 and bears interest at 15% per annum, which was prepaid by the Company and is being amortized over the life of the loan. The loan is secured by shares of the Company’s common stock. The loan becomes convertible 180 days after date of the note. The loan and any accrued interest can then be converted into shares of the Company’s common stock at a rate of 50% multiplied by the market price, which is the lowest quoted price for the common stock during the 25 trading day period ending on the latest complete trading day prior to the conversion date. As of September 30, 2015, $10,946 of the debt discount has been amortized. The Note is shown net of an unamortized debt discount of $1,554 at September 30, 2015.

 

The Company elected to prepay the entire term’s interest of $7,500. This payment was capitalized as a prepaid asset and has been amortized over the term of the note. The interest expense related to this loan was $1,885 and $0 for the quarter ending December 31, 2015 and 2014. As of December 31, 2015 and June 30, 2015 the remaining prepaid interest balance was $353 and $2,838, respectively.

 

On May 16, 2015, the Note became convertible at the option of the holder. On this date the Company recorded a debt discount in the amount of $70,000 in connection with the initial valuation of the derivative liability of the note to be amortized utilizing the effective interest method of accretion over the term of the note. Further, the Company recognized a derivative liability of $93,179 and initial loss of $23,179 based on the Black Scholes Merton pricing model.

 

As of December 31, 2015, the holder of the note exercised his right to convert $14,950 of the note balance into 26,045,455 shares of common stock, respectively. The fair value of the derivative liability related to the converted debt as of December 31, 2015 was $21,145.

 

As of December 31, 2015 and June 30, 2015, the holder of the note exercised his right to convert $20,000 and $35,000 of the note balance into 8,695,652 and 4,404,515 shares of common stock. The fair value of the derivative liability related to the converted debt at December 31, 2015 and June 30, 2015 was $57,121 and $54,324, respectively.

 

 

As of December 31, 2015, $52,692 of the debt discount has been amortized. The fair value of the derivative liability at December 31, 2015 and June 30, 2015 was $76,217 and $56,108, respectively resulting in a loss on the change in fair value of the derivative of $20,109. The Note is shown net of a derivative discount of $0 at December 31, 2015.

 

On December 23, 2014, the Company issued a short-term convertible promissory note in the amount of $70,000, which consisted of cash proceeds of $50,000, a debt discount of $12,500 and prepaid interest of $7,500. The note is due on December 18, 2015 and bears interest at 15% per annum, which was prepaid by the Company and is being amortized over the life of the loan. The loan is secured by shares of the Company’s common stock. The loan becomes convertible 180 days after date of the note. The loan and any accrued interest can then be converted into shares of the Company’s common stock at a rate of 50% multiplied by the market price, which is the lowest quoted price for the common stock during the 25 trading day period ending on the latest complete trading day prior to the conversion date. During the year ended June 30, 2015, $6,562 of the debt discount has been amortized. The Note is shown net of an unamortized debt discount of $2,743 at September 30, 2015.

 

The Company elected to prepay the entire term’s interest of $7,500. This payment was capitalized as a prepaid asset and has been amortized over the term of the note. The interest expense related to this loan was $1,896 and $0 for the year ending September 30, 2015 and 2014. As of September 30, 2015, the remaining prepaid interest balance was $782

 

On June 21, 2015, the Note became convertible at the option of the holder. On this date the Company recorded a debt discount in the amount of $70,000 in connection with the initial valuation of the derivative liability of the note to be amortized utilizing the effective interest method of accretion over the term of the note. Further, the Company recognized a derivative liability of $104,711 and initial loss of $34,711 based on the Black Scholes Merton pricing model.

 

As of December 31, 2015, $70,000 of the debt discount has been amortized. The fair value of the derivative liability at December 31, 2015 and June 30, 2015 was $190,068 and $116,694 resulting in a loss on the change in fair value of the derivative of $73,374. The Note is shown net of a derivative discount of $0 at December 31, 2015.

 

On January 13, 2015, the Company issued a short-term convertible promissory note in the amount of $74,000. The note is due on October 15, 2015 and bears interest at 8% per annum. The loan is secured by shares of the Company’s common stock. The loan becomes convertible 180 days after date of the note. The loan and any accrued interest can then be converted into shares of the Company’s common stock at a rate of 58% multiplied by the market price, which is the average of the lowest three quoted prices for the common stock during the 10 trading day period ending on the latest complete trading day prior to the conversion date.

 

On July 12, 2015, the Note became convertible at the option of the holder. On this date the Company recorded a debt discount in the amount of $74,000 in connection with the initial valuation of the derivative liability of the note to be amortized utilizing the effective interest method of accretion over the term of the note. Further, the Company recognized a derivative liability of $59,654 based on the Black Scholes Merton pricing model.

 

As of September 30, 2015, the holder of the note exercised his right to convert $76,960 of the note balance and accrued interest into 15,175,261 shares of common stock. The fair value of the derivative liability related to the converted debt at the date of conversion was $124,660.

 

On January 26, 2015, the Company issued a convertible promissory note in which the Company will be taking tranche payments based on amounts determined by the note holder for total payments of not more than $250,000. There is an original discount component of $25,000. Therefore, the funds available to the Company will be $225,000 and the liability (net of interest) will be $250,000 when all disbursements have been received by the Company. Each tranche is accounted for separately with each principal and OID balance becoming due 24 months after receipt. Each tranche bears interest at 12% per annum. The loan is secured by shares of the Company’s common stock. Each portion of the loan becomes convertible immediately upon issuance. The loan and any accrued interest can then be converted into shares of the Company’s common stock at a rate of the lesser of $0.045 per share or 60% multiplied by the market price per share, which is the lowest quoted

 

 

price for the common stock during the 25 trading day period ending on the latest complete trading day prior to the conversion date. During the period ended June 30, 2015, the Company has received two tranche disbursements of $75,000 on January 26, 2015 and 25,000 on April 28, 2015.

 

As of December 31, 2015, $38,679 of the debt discount has been amortized. The Notes are shown net of an unamortized debt discount of $51,431 at December 31, 2015.

 

On January 26, 2015, the first tranche became convertible at the option of the holder. On this date the Company recorded a debt discount in the amount of $82,500 in connection with the initial valuation of the derivative liability of the note to be amortized utilizing the effective interest method of accretion over the term of the note. Further, the Company recognized a derivative liability of $135,740 and initial loss on derivative liabilities of $53,240 based on the Black Scholes Merton pricing model.

 

As of December 31, 2015, the holder of the note exercised his right to convert $57,975 of the note balance into 59,183,000 shares of common stock. The fair value of the derivative liability related to the converted debt at December 31, 2015 was $151,708.

 

As of December 31, 2015, $30,177 of the debt discount has been amortized. The fair value of the derivative liability at December 31, 2015 and June 30, 2015 was $93,235 and $152,892 resulting in a loss on the change in fair value of the derivative of $76,083. The Note is shown net of a derivative discount of $34,806 at December 31, 2015.

 

On April 28, 2015, the second tranche became convertible at the option of the holder. On this date the Company recorded a debt discount in the amount of $27,500 in connection with the initial valuation of the derivative liability of the note to be amortized utilizing the effective interest method of accretion over the term of the note. Further, the Company recognized a derivative liability of $44,209 and initial loss on derivative liabilities of $16,709 based on the Black Scholes Merton pricing model.

 

As of December 31, 2015, $8,502 of the debt discount has been amortized. The fair value of the derivative liability at December 31, 2015 and June 30, 2015 was $106,534 and $54,756, respectively resulting in a loss on the change in fair value of the derivative of $41,778. The Note is shown net of a debt discount of $16,625 at December 31, 2015.

 

On April 15, 2015, the Company issued a short-term convertible promissory note in the amount of $70,000 for $50,000 cash, an original issue discount of $9,500, and prepaid interest of $10,500. The note is due on April 15, 2016 and bears interest at 15% per annum, which was prepaid by the Company and is being amortized over the life of the loan. The loan is secured by shares of the Company’s common stock. The loan becomes convertible 180 days after date of the note. The loan and any accrued interest can then be converted into shares of the Company’s common stock at a rate of 50% multiplied by the market price, which is the lowest quoted price for the common stock during the 25 trading day period ending on the latest complete trading day prior to the conversion date. As of the quarter ended September 30, 2015, $4,361 of the debt discount has been amortized and the note is shown net $5,139 in unamortized debt discount.

 

On October 12, 2015, the Note became convertible at the option of the holder. On this date the Company recorded a debt discount in the amount of $60,500 in connection with the initial valuation of the derivative liability of the note to be amortized utilizing the effective interest method of accretion over the term of the note. Further, the Company recognized a derivative liability of $248,055 and an initial loss on derivative liabilities of $187,555 based on the Black Scholes Merton pricing model.

 

As of December 31, 2015, $26,022 of the debt discount has been amortized. The fair value of the derivative liability at December 31, 2015 and June 30, 2015 was $286,113 and $0, respectively resulting in a loss on the change in fair value of the derivative of $98,558. The Note is shown net of a debt discount of $34,478 at December 31, 2015.

 

On May 20, 2015, the Company issued a convertible promissory note in the amount of $43,000 for $43,000 cash. The note is due on February 22, 2016 and bears interest at 8% per annum. The loan becomes convertible 180 days after date of the note. The loan can then be converted into shares of the Company’s common stock at a rate of 58% multiplied by the market price, which is the average of the lowest three (3) quoted price for the common stock during the 10 trading day period ending on the latest complete trading day prior to the conversion date. As of September 30, 2015, the note has not become convertible.

 

 

On November 16, 2015, the Note became convertible at the option of the holder. On this date the Company recorded a debt discount in the amount of $43,000 in connection with the initial valuation of the derivative liability of the note to be amortized utilizing the effective interest method of accretion over the term of the note. Further, the Company recognized a derivative liability of $52,875 and an initial loss on derivative liabilities of $9,875 based on the Black Scholes Merton pricing model.

 

As of December 31, 2015, the holder of the note exercised his right to convert $5,625 of the note balance into 17,045,455 shares of common stock. The fair value of the derivative liability related to the converted debt as of December 31, 2015 was $8,910.

 

As of December 31, 2015, $19,745 of the debt discount has been amortized. The fair value of the derivative liability at December 31, 2015 and June 30, 2015 was $144,435 and $0, respectively resulting in a loss on the change in fair value of the derivative of $91,560. The Note is shown net of a debt discount of 23,255 at December 31, 2015.

 

On June 7, 2015, the Company issued a short-term convertible promissory note in the amount of $70,000 for $50,000 cash, an original issue discount of $9,500, and prepaid interest of $10,500. The note is due on June 8, 2016 and bears interest at 15% per annum, which was prepaid by the Company and is being amortized over the life of the loan. The loan is secured by shares of the Company’s common stock. The loan becomes convertible 180 days after date of the note. The loan and any accrued interest can then be converted into shares of the Company’s common stock at a rate of 50% multiplied by the market price, which is the lowest quoted price for the common stock during the 25 trading day period ending on the latest complete trading day prior to the conversion date. As of December 31, 2015, $5,358 of the debt discount has been amortized and the note is shown net $4,142 in unamortized debt discount.

 

On December 4, 2015, the Note became convertible at the option of the holder. On this date the Company recorded a debt discount in the amount of $60,500 in connection with the initial valuation of the derivative liability of the note to be amortized utilizing the effective interest method of accretion over the term of the note. Further, the Company recognized a derivative liability of $121.252 and an initial loss on derivative liabilities of $60,752 based on the Black Scholes Merton pricing model.

 

As of December 31, 2015, $8,735 of the debt discount has been amortized. The fair value of the derivative liability at December 31, 2015 and June 30, 2015 was $305,445 and $0, respectively resulting in a loss on the change in fair value of the derivative of $184,193. The Note is shown net of a debt discount of 51,765 at December 31, 2015.

 

On June 19, 2015, the Company issued a short-term convertible promissory note in the amount of $37,500 for $25,000 cash, an original issue discount of $6,875, and prepaid interest of $5,625. The note is due on June 19, 2016 and bears interest at 15% per annum, which was prepaid by the Company and is being amortized over the life of the loan. The loan is secured by shares of the Company’s common stock. The loan becomes convertible 180 days after date of the note. The loan and any accrued interest can then be converted into shares of the Company’s common stock at a rate of 50% multiplied by the market price, which is the lowest quoted price for the common stock during the 25 trading day period ending on the latest complete trading day prior to the conversion date. As of December 31, 2015, $3,663 of the debt discount has been amortized and the note is shown net $3,212 in unamortized debt discount.

 

On December 16, 2015, the Note became convertible at the option of the holder. On this date the Company recorded a debt discount in the amount of $30,625 in connection with the initial valuation of the derivative liability of the note to be amortized utilizing the effective interest method of accretion over the term of the note. Further, the Company recognized a derivative liability of $122,955 and an initial loss on derivative liabilities of $92,330 based on the Black Scholes Merton pricing model.

 

 

As of December 31, 2015, $2,470 of the debt discount has been amortized. The fair value of the derivative liability at December 31, 2015 and June 30, 2015 was $166,587 and $0, respectively resulting in a loss on the change in fair value of the derivative of $43,632. The Note is shown net of a debt discount of 28,155 at December 31, 2015.

 

On June 28, 2015, the Company issued a convertible promissory note in the amount of $150,000 for $100,000 cash, an original issue discount of $50,000. The note is due on December 28, 2016 and bears interest at 15% per annum. The loan becomes convertible 180 days after date of the note. The loan can then be converted into shares of the Company’s common stock at a rate of 50% multiplied by the market price, which is the lowest quoted price for the common stock during the 25 trading day period ending on the latest complete trading day to the conversion date. As of December 31, 2015, $16,940 of the debt discount has been amortized and the note is shown net $33,060 in unamortized debt discount.

 

On December 25, 2015, the Note became convertible at the option of the holder. On this date the Company recorded a debt discount in the amount of $100,000 in connection with the initial valuation of the derivative liability of the note to be amortized utilizing the effective interest method of accretion over the term of the note. Further, the Company recognized a derivative liability of $624,135 and an initial loss on derivative liabilities of $524,135 based on the Black Scholes Merton pricing model.

 

As of December 31, 2015, $1,626 of the debt discount has been amortized. The fair value of the derivative liability at December 31, 2015 and June 30, 2015 was $685,878 and $0, respectively resulting in a loss on the change in fair value of the derivative of $61,743. The Note is shown net of a debt discount of $98,374 at December 31, 2015.

 

On June 29, 2015, the Company issued a convertible promissory note in which the Company will be taking tranche payments based on amounts determined by the note holder for total payments of not more than $100,000. There is an original discount component of $10,000. Therefore, the funds available to the Company will be $90,000 and the liability (net of interest) will be $100,000 when all disbursements have been received by the Company. Each tranche is accounted for separately with each principal and OID balance becoming due 24 months after receipt. Each tranche bears interest at 15% per annum. Each portion of the loan becomes convertible immediately upon issuance. The loan and any accrued interest can then be converted into shares of the Company’s common stock at a rate of the lesser of $0.02 per share or 50% multiplied by the market price per share, which is the lowest quoted price for the common stock during the 25 trading days immediately preceding the conversion date. During the period ended June 30, 2015, the Company has received one tranche disbursements of $30,000 on June 29, 2015.

 

As of December 31, 2015, $760 of the debt discount has been amortized. The Note is shown net of an unamortized debt discount of $2,240 at December 31, 2015.

 

On June 29, 2015, the first trance became convertible at the option of the holder. On this date the Company recorded a debt discount in the amount of $33,000 in connection with the initial valuation of the derivative liability of the note to be amortized utilizing the effective interest method of accretion over the term of the note. Further, the Company recognized a derivative liability of $67,818 and initial loss on derivative liabilities of $34,818 based on the Black Scholes Merton pricing model.

 

As of December 31, 2015, $8,340 of the debt discount has been amortized. The fair value of the derivative liability at December 31, 2015 and June 30, 2015 is $154,753 and $79,497, respectively resulting in a loss on the change in fair value of the derivative of $75,256 The Note is shown net of a derivative debt discount of $24,615 at December 31, 2015.

 

On July 7, 2015, the Company issued a convertible promissory note in the amount of $40,000 for $38,000 cash. The note is due on June 30, 2016 and bears interest at 8% per annum. The loan is secured by shares of the Company’s common stock. The loan becomes convertible as of the date of the note. The loan and any accrued interest can then be converted into shares of the Company’s common stock at a rate of 60% multiplied by the market price, which is the lowest quoted price for the common stock during the 25 trading day period ending on the latest complete trading day prior to the conversion date. During the six months ended December 31, 2015, $986 of the debt discount has been amortized. The Note is shown net of an unamortized debt discount of $1,014 at December 31, 2015.

 

 

On July 7, 2015, the note became convertible at the option of the holder. On this date the Company recorded a debt discount in the amount of $40,000 in connection with the initial valuation of the derivative liability of the note to be amortized utilizing the effective interest method of accretion over the term of the note. Further, the Company recognized a derivative liability of $60,307 and initial loss on derivative liabilities of $20,307 based on the Black Scholes Merton pricing model.

 

As of December 31, 2015, $19,721 of the debt discount has been amortized. The fair value of the derivative liability at December 31, 2015, was $121,109 resulting in a loss on the change in fair value of the derivative of $60,802. The Note is shown net of a derivative discount of $20,279 at December 31, 2015.

 

On July 24, 2015, the Company issued a convertible promissory note in the amount of $56,250 for $50,000 cash. The note is due on April 24, 2016 and bears interest at 10% per annum, which was prepaid by the Company and is being amortized over the life of the loan. The loan is secured by shares of the Company’s common stock. The loan becomes convertible as of the date of the note. The loan and any accrued interest can then be converted into shares of the Company’s common stock at a rate of 50% multiplied by the market price, which is the lowest quoted price for the common stock during the 20 trading day period ending on the latest complete trading day prior to the conversion date. The Note is shown net of an unamortized debt discount of $4,705at September 30, 2015.

 

On July 24, 2015, the note became convertible at the option of the holder. On this date the Company recorded a debt discount in the amount of $56,250 in connection with the initial valuation of the derivative liability of the note to be amortized utilizing the effective interest method of accretion over the term of the note. Further, the Company recognized a derivative liability of $101,339 and initial loss on derivative liabilities of $45,089 based on the Black Scholes Merton pricing model.

 

As of December 31, 2015, $32,727 of the debt discount has been amortized. The fair value of the derivative liability at December 31, 2015, was $235,493 resulting in a loss on the change in fair value of the derivative of $134,154. The Note is shown net of a derivative discount of $23,523 at December 31, 2015.

 

On August 3, 2015, the Company issued a convertible promissory note in the amount of $75,000 for $50,000 cash, an original issue discount of $13,750 and prepaid interest of $11,250. The note is due on January 29, 2016 and bears interest at 15% per annum, which was prepaid by the Company and is being amortized over the life of the loan. The loan is secured by shares of the Company’s common stock. The loan becomes convertible 180 days after date of the note. The loan and any accrued interest can then be converted into shares of the Company’s common stock at a rate of 50% multiplied by the market price, which is the lowest quoted price for the common stock during the 25 trading day period ending on the latest complete trading day prior to the conversion date. During the six months ended December 31, 2015, $13,750 of the debt discount has been amortized. The Note is shown net of an unamortized debt discount of $0 at December 31, 2015. As of December 31, 2015, the note has not become convertible.

 

On August 5, 2015, the Company issued a convertible promissory note in the amount of $37,500 for $25,000 cash, an original issue discount of $6,875 and prepaid interest of $5,625. The note is due on January 29, 2017 and bears interest at 15% per annum, which was prepaid by the Company and is being amortized over the life of the loan. The loan is secured by shares of the Company’s common stock. The loan becomes convertible 180 days after date of the note. The loan and any accrued interest can then be converted into shares of the Company’s common stock at a rate of 50% multiplied by the market price, which is the lowest quoted price for the common stock during the 25 trading day period ending on the latest complete trading day prior to the conversion date. During the six months ended December 31, 2015, $1,874 of the debt discount has been amortized. The Note is shown net of an unamortized debt discount of $5,001 at December 31, 2015. As of December 31, 2015, the note has not become convertible.

 

On August 12, 2015, the Company issued a convertible promissory note in the amount of $50,000 for $44,000 cash, an original issue discount of $6,000. The note is due on February 12, 2016 and bears interest at 12% per annum, which was prepaid by the Company and is being amortized over the life of the loan. The loan is secured by shares of the Company’s common stock. The loan becomes convertible as of the date of the note. The loan and any accrued interest can then be converted into shares of

 

 

the Company’s common stock at a rate of 50% multiplied by the market price, which is the lesser of lowest quoted price for the common stock during the previous 20 trading day period ending on the conversion date and the lowest trading price on the 30^th trading day after the funding of the note. During the six months ended December 31, 2015, $4,598 of the debt discount has been amortized. The Note is shown net of an unamortized debt discount of $1,402 at December 31, 2015.

 

On August 12, 2015, the note became convertible at the option of the holder. On this date the Company recorded a debt discount in the amount of $50,000 in connection with the initial valuation of the derivative liability of the note to be amortized utilizing the effective interest method of accretion over the term of the note. Further, the Company recognized a derivative liability of $358,250 and initial loss on derivative liabilities of $308,250 based on the Black Scholes Merton pricing model.

 

As of December 31, 2015, $38,315 of the debt discount has been amortized. The fair value of the derivative liability at December 31, 2015 was $153,697 resulting in a gain on the change in fair value of the derivative of $204,553. The Note is shown net of a derivative discount of $11,685 at December 31, 2015.

 

On August 12, 2015, the Company issued a convertible promissory note in the amount of $115,000 for $115,000 cash. The note is due on August 12, 2016 and bears interest at 12% per annum, which was prepaid by the Company and is being amortized over the life of the loan. The loan is secured by shares of the Company’s common stock. The loan becomes convertible as of the date of the note. The loan and any accrued interest can then be converted into shares of the Company’s common stock at a rate of 50% multiplied by the market price, which is the lesser of lowest quoted price for the common stock during the previous 20 trading day period ending on the conversion date and the lowest trading price on the 30^th trading day after the funding of the note.

 

On August 12, 2015, the note became convertible at the option of the holder. On this date the Company recorded a debt discount in the amount of $115,000 in connection with the initial valuation of the derivative liability of the note to be amortized utilizing the effective interest method of accretion over the term of the note. Further, the Company recognized a derivative liability of $215,932 and initial loss on derivative liabilities of $100,932 based on the Black Scholes Merton pricing model.

 

As of December 31, 2015, the holder of the note exercised his right to convert $23,334 of the note balance into 41,816,074 shares of common stock, respectively. The fair value of the derivative liability related to the converted debt as of December 31, 2015 was $69,667.

 

As of December 31, 2015, $44,425 of the debt discount has been amortized. The fair value of the derivative liability at December 31, 2015 was $54,786 resulting in a gain on the change in fair value of the derivative of $161,146. The Note is shown net of a derivative discount of $70,575 at December 31, 2015.

 

On September 8, 2015, the Company issued a short-term convertible promissory note in the amount of $70,000 for $50,000 cash, an original issue discount of $9,500, and prepaid interest of $10,500. The note is due on September 9, 2016 and bears interest at 15% per annum, which was prepaid by the Company and is being amortized over the life of the loan. The loan is secured by shares of the Company’s common stock. The loan becomes convertible 180 days after date of the note. The loan and any accrued interest can then be converted into shares of the Company’s common stock at a rate of 50% multiplied by the market price, which is the lowest quoted price for the common stock during the 25 trading day period ending on the latest complete trading day prior to the conversion date. During the year ended December 31, 2015, $2,951 of the debt discount has been amortized and the note is shown net $6,549 in unamortized debt discount. As of December 31, 2015, the note has not become convertible.

 

On October 29, 2015, the Company issued a convertible promissory note in the amount of $37,500 for $25,000 cash, an original issue discount of $7,500 and prepaid interest of $2,500. The note is due on October 28, 2016 and bears interest at 15% per annum, which was prepaid by the Company and is being amortized over the life of the loan. The loan is secured by shares of the Company’s common stock. The loan becomes convertible 180 days after date of the note. The loan and any accrued interest can then be converted into shares of the Company’s common stock at a rate of 50% multiplied by the market price, which is the lowest quoted price for the common stock during the 25 trading day period ending on the latest complete trading day prior to the conversion date. During the three months ended December 31, 2015, $1,295 of the debt discount has been amortized. The Note is shown net of an unamortized debt discount of $6,205 at December 31, 2015. As of December 31, 2015, the note has not become convertible.

 

 

On November 25, 2015, the Company issued two short-term convertible promissory note in the amount of $300,000 for $200,000 cash, an original issue discount of $75,000, and prepaid interest of $25,000. The notes are due on May 22, 2016 and bears interest at 15% per annum, which was prepaid by the Company and is being amortized over the life of the loan. The loan is secured by shares of the Company’s common stock. The loan becomes convertible 180 days after date of the note. The loan and any accrued interest can then be converted into shares of the Company’s common stock at a rate of 50% multiplied by the market price, which is the lowest quoted price for the common stock during the 25 trading day period ending on the latest complete trading day prior to the conversion date. During the six months ended December 31, 2015, $15,084 of the debt discount has been amortized and the note is shown net $59,916 in unamortized debt discount. As of December 31, 2015, the note has not become convertible.

 

Derivative liability for these notes were valued under the Black-Scholes model, with the following assumptions:

 

Fair value assumptions – derivative notes:		December 31, 2015
Risk free interest rate			0.00-0.86	%
Expected term (years)			0.01-1.32
Expected volatility			240-366.4	%
Expected dividends			0	%
Fair value assumptions – derivative notes:		June 30, 2015
Risk free interest rate			0.09-0.64	%
Expected term (years)			0.45-1.01
Expected volatility			198-288	%
Expected dividends			0	%

 

 

As of December 31, 2015, the company had the below commitments related to its outstanding convertible notes payable.

 

Commitments:		Amount
Within one year		$	1,694,127
After one year and within 5 years			0
Total		$	1,694,127

 

NOTE 8 – COMMON STOCK

 

On August 24, 2015, the Company filed with the Secretary of State of the State of Delaware a Certificate of Designations of Rights, Preferences, Privileges and Restrictions of Series A Convertible Preferred Stock.

 

Under the terms of the Certificate of Designation, 24,000,000 shares of the Company’s preferred stock will be designated as Series A Convertible Preferred. Each share of the Series A Convertible Preferred shall be convertible into five (5) shares of Common Stock without the payment of additional consideration by the holder thereof, subject to certain terms, conditions and adjustments as described in the Certificate of Designation. The holders of Series A Convertible Preferred shall be entitled to receive any dividends before the holders of the Common Stock, in an amount at least equal to the product of (x) the dividend payable on each share of Common Stock and (y) the number of shares of Common Stock issuable upon conversion of a share of Series A Convertible Preferred, in each case calculated on the record date for determination of holders entitled to receive such dividend. Each holder of outstanding Series A Convertible Preferred shall be entitled to vote with the holders of the Common Stock, as a single class, on all matters presented to the holders of Common Stock an as-converted basis calculated as of the record date for such vote.

 

 

On August 25, 2015, the Company entered into an exchange agreement with its majority shareholder, Nanobeak, LLC, pursuant to which Nanobeak exchanged 117,366,840 shares of the Company’s common stock in exchange for 23,473,368 shares of the Company’s Series A Convertible Preferred Stock.

 

During the six months ended December 31, 2015, the Company issued 255,152,377 shares of common stock valued at $294,898 for the conversion of notes payable.

 

During the six months ended December 31, 2015, the Company issued 4,000,000 shares of common stock valued at $9,600 for services.

 

NOTE 9 – STOCK WARRANTS

 

On December 16, 2013, the Board of Directors of the Company approved the election of William S. Rees, Jr. to serve as a member of the Board effective December 16, 2014. Mr. Rees has not yet been appointed to serve on any committee of the Board. There are no arrangements or understandings between Mr. Rees and any other person pursuant to which Mr. Rees was appointed as a director. The Company entered into an agreement with Mr. Rees pursuant to which it agreed to issue to him, in consideration of his services, a warrant to purchase up to 2,000,000 shares of the Company’s common stock for a period of five years at an exercise price of $0.05 per share. The Company determined the fair value of the warrants to be $99,764 using the Black Scholes Valuation Model. As of June 30, 2014 the warrants were fully vested and the Company recorded $99,764 as stock-based compensation expense.

 

On December 31, 2013, we issued to Accent Healthcare Advisors, LLC, a California limited liability company, as compensation for their past and future advisory services for the next several years in the bio-pharmaceutical and healthcare industries, a warrant to purchase up to 25,000,000 shares of the Company’s common stock, par value $.01 per share, for a period of seven years at an exercise price of $0.049 per share. The warrants issued vest immediately. The exercise price was calculated based on the prior ten days average closing price per share. The holder may not exercise the Warrant such that the number of shares of common stock beneficially owned by the holder and its affiliates exceeds 4.9% of the total outstanding shares of common stock of the Company. The fair value of the warrants using the Black Scholes valuation model was determined to be $2,994,407. The exercise price and number of Warrant Shares are subject to adjustment upon the subdivision or combination of the Company’s common stock. Further, upon the consolidation, merger or sale of the Company, the holder is entitled to receive, at the Company’s discretion, either (a) if the Warrant is exercised, the consideration payable with respect to or in exchange for those Warrant Shares that would have been received if no consolidation, merger or sale had taken place or (b) cash equal to the value of the Warrant as determined in accordance with the Black-Scholes option pricing formula. As of June 30, 2014 the stock-based compensation expense related to this issuance was $2,994,407.

 

On November 27, 2013, the Company issued 3,875,000 warrants for the Company’s common stock as stock based compensation for a three year period, par value $.01 per share, at an exercise price per share equal to $0.05. The warrants issued vest immediately. The warrants are exercisable any time after November 27, 2013 for a period of five years from date of issuance. The fair value of the warrants using the Black Scholes Valuation Model was $204,904. As of June 30, 2014 the stock-based compensation expense related to this issuance was 204,904.

 

On December 10, 2013, the Company issued 5,000,000 warrants for the Company’s common stock as stock based compensation for a three year period, par value $.01 per share, at an exercise price per share equal to the closing price on December 10, 2013 of $0.0478. The warrants are exercisable any time after December 10, 2013 for a period of seven years from date of issuance. The fair value of the warrants using the Black Scholes Valuation Model was $238,925. As of June 30, 2014 the stock-based compensation expense related to this issuance was $238,925.

 

On July 1, 2014 the Company granted stock warrants for 200,000 shares of common stock for services, which vested immediately. These warrants had an expiration date of July 1, 2019, and were valued using the Black Scholes Valuation Model, the stock price at the grant date was $0.29/share, the exercise price is $0.12495/share, the value of the issuance is $58,000.

 

On January 15, 2015, the Company granted stock warrants for 8,000,000 shares of common stock for services, which vested immediately. These warrants had an expiration date of January 15, 2020, and were valued using the Black Scholes Valuation Model, the stock price at the grant date was $0.0332/share, the exercise price is $0.05/share, the value of the issuance was $263,669.

 

 

During the quarter ended December 31, 2015 and 2014, the Company issued 796,875,000 and 291,494 warrants, respectively for shares of common stock to lenders in connection with loans received by the Company. The warrants have anti-dilution provisions, including a provision for adjustments to the exercise price and to the number of warrant shares purchasable if we issue or sell common shares at a price less than the then current exercise price. We determined that the warrants were not afforded equity classification because the warrants are not considered to be indexed to our own stock due to the anti-dilution provision. Accordingly, the warrants are treated as a derivative liability and are carried at fair value. We estimate the fair value of these derivative warrants at each balance sheet date and the changes in fair value are recognized in earnings in the statement of operations until such time as the derivative warrants are exercised or expire.

 

 On April 17, 2014 the Company granted stock warrants for 1,185,192 shares of common stock in association with a long-term loan at no cost to the lender. These warrants had an expiration date of April 17, 2019, and were valued using the Black Scholes Valuation Model, the stock price at the grant date was $0.09/share, the exercise price is $0.0701/share, the value of the issuance is $106,426.

 

On May 5, 2014 the Company granted stock warrants for 705,229 shares of common stock in association with a long-term loan at no cost to the lender. These warrants had an expiration date of May 5, 2019, and were valued using the Black Scholes Valuation Model, the stock price at the grant date was $0.09/share, the exercise price is $0.0589/share, the value of the issuance is $63,468.

 

On June 11, 2014 the Company granted stock warrants for 553,840 shares of common stock in association with a long-term loan at no cost to the lender. These warrants had an expiration date of June 11, 2019, and were valued using the Black Scholes Valuation Model, the stock price at the grant date was $0.1284/share, the exercise price is $0.0750/share, the value of the issuance is $71,110.

 

On July 15, 2014 the Company granted stock warrants for 291,494 shares of common stock in association with a long-term loan at no cost to the lender. These warrants have an expiration date of July 15, 2019, and were valued using the Black Scholes Valuation Model, the stock price at the grant date was $0.24/share, the exercise price is $0.0143/share, the value of the issuance is $69,956.

 

On October 1, 2014 the Company granted stock warrants for 320,122 shares of common stock in association with a short-term loan at no cost to the lender. These warrants have a term of five years, and were valued using the Black Scholes Valuation Model, the stock price at the grant date was $0.164/share, the exercise price is $0.123/share, the value of the issuance is $52,498.

 

On November 17, 2014 the Company granted stock warrants for 807,692 shares of common stock in association with a long-term loan at no cost to the lender. These warrants have a term of five years, and were valued using the Black Scholes Valuation Model, the stock price at the grant date was $0.065/share, the exercise price is $0.049/share, the value of the issuance is $52,498.

 

On December 23, 2014 the Company granted stock warrants for 1,158,940 shares of common stock in association with a long-term loan at no cost to the lender. These warrants have a term of five years, and were valued using the Black Scholes Valuation Model, the stock price at the grant date was $0.045/share, the exercise price is $0.034/share, the value of the issuance is $52,152.

 

On April 15, 2015 the Company granted stock warrants for 2,560,976 shares of common stock in association with a short-term loan at no cost to the lender. These warrants have a term of five years, and were valued using the Black Scholes Valuation Model, the stock price at the grant date was $0.0443/share, the exercise price is $0.017/share, the value of the issuance is $113,438.

 

 

On June 7, 2015 the Company granted stock warrants for 4,375,000 shares of common stock in association with a short-term loan at no cost to the lender. These warrants have a term of five years, and were valued using the Black Scholes Valuation Model, the stock price at the grant date was $0.024/share, the exercise price is $0.009/share, the value of the issuance is $104,985.

 

On June 19, 2015 the Company granted stock warrants for 2,556,818 shares of common stock in association with a short-term loan at no cost to the lender. These warrants have a term of five years, and were valued using the Black Scholes Valuation Model, the stock price at the grant date was $0.025/share, the exercise price is $0.009/share, the value of the issuance is $63,911.

 

On June 28, 2015 the Company granted stock warrants for 11,842,105 shares of common stock in association with a long-term loan at no cost to the lender. These warrants have a term of five years, and were valued using the Black Scholes Valuation Model, the stock price at the grant date was $0.021/share, the exercise price is $0.008/share, the value of the issuance is $278,251.

 

On September 8, 2015 the Company granted stock warrants for 35,000,000 shares of common stock in association with a short-term loan at no cost to the lender. These warrants have a term of five years, and were valued using the Black Scholes Valuation Model, the stock price at the grant date was $0.0034/share, the exercise price is $0.001/share, the value of the issuance is $118,985.

 

On November 23, 2015 the Company granted stock warrants for 750,000,000 shares of common stock in association with a short-term loan at no cost to the lender. These warrants have a term of five years, and were valued using the Black Scholes Valuation Model, the stock price at the grant date was $0.0012/share, the exercise price is $0.0045/share, the value of the issuance is $524,937.

 

On October 29, 2015 the Company granted stock warrants for 46,875,000 shares of common stock in association with a short-term loan at no cost to the lender. These warrants have a term of five years, and were valued using the Black Scholes Valuation Model, the stock price at the grant date was $0.0012/share, the exercise price is $0.0045/share, the value of the issuance is $60,930.

 

We issued warrants to purchase 38,874,998 shares of common stock to non-employees during the year ended June 30, 2014, during such time the warrants were accounted for as equity. During the year end June 30, 2015, the Company issued convertible notes payable that provide for the issuance of shares of common stock that became convertible. The conversion term for the convertible notes are variable based on certain factors. As of September 30, 2015, the number of shares to be issued under the notes are indeterminate. Due to the fact that the number of shares issuable are indeterminate, the equity environment is tainted and the warrants are included in the value of the derivative. On the date the equity environment became tainted, the Company recorded a reduction to additional paid in capital in the amount of $6,157,610 in connection with the initial valuation of the derivative liability of the warrants based on the Black Scholes Merton pricing model. The derivative liability related to these warrants was $45,780 and $913,168 as of December 31, 2015 and June 30, 2015, respectively. During the six months ended December 31, 2015 and 2014, the Company recorded a gain of $858,818 and $0, respectively, related to the change in fair value on the warrants.

 

In total the derivative liability related to the warrants as of December 31, 2015 and June 30, 2015 was $1,075,446 and $1,270,470, respectively and the Company recorded a gain in the change in fair value due to derivative warrant liability of $195,024 and $237,469 during the six months ended December 31, 2015 and 2014, respectively. The Company as recorded debt discount associated with the warrants in the amount of $275,000 and an initial loss of $429,852. As of December 31, 2015, $61,611 of the debt discount has been amortized. The associated notes are shown net of the $213,389 discount

 

 

 

Fair value assumptions – derivative warrants:		Grant Date
Risk free interest rate			1.59%- 1.88	%
Expected term (years)			5-7
Expected volatility			206-362	%
Expected dividends			0	%

 

Fair value assumptions – derivative warrants:		June 30, 2015
Risk free interest rate			1.63	%
Expected term (years)			5-7
Expected volatility			206.48	%
Expected dividends			0	%

 

Fair value assumptions – derivative warrants:		December 31 2015
Risk free interest rate			1.76	%
Expected term (years)			3-7
Expected volatility			303.02	%
Expected dividends			0	%

 

 

NOTE 10 – COMMITMENTS

 

On January 1, 2014, the Company entered into a Sub-License Agreement affiliated with the National Aeronautics and Space Administration (“NASA”) pursuant to which the Company was granted a royalty-bearing, non-transferable license to certain inventions and patent rights owned by NASA relating to chemical sensing nanotechnology, for use within the United States and its territories. The License is effective as of December 31, 2013 and subject to an initial five year term, during which the License will be exclusive to the Company. Following the initial five-year term, the License shall automatically convert to a non-exclusive license. The License may be terminated by NASA following a 30 day cure period, among other reasons, upon a breach of the License Agreement or upon its determination that the Company has failed to adequately develop or commercialize the licensed patents. Specific milestones and commercialization requirements are set forth in the License Agreement. NASA provides no warranties under the License Agreement and assumes no responsibility for our use, sale or other disposition of the licensed technology. We agree to indemnify NASA against all liabilities arising from such use, sale or other disposition. We must pay certain royalties in connection with the License as set forth in the License Agreement.

 

During the three and six months ended December 31, 2015 and 2014, the Company expensed $332,556 and $612,931 and 294,116 and $580,701, respectfully.

 

In relation to a sub-licensing agreement with NASA, a shareholder has paid royalty fees applicable to 2014 on behalf of the Company. The $100,000 payment was an additional investment in the Company and is not required to be repaid. During the three months ending December 31, 2015 and 2014, $0 and $25,000 of the royalties were recognized as an expense.

 

NOTE 11 – SUBSEQUENT EVENTS

 

On June 29, 2015, the Company issued a convertible promissory note in which the Company will be taking tranche payments based on amounts determined by the note holder for total payments of not more than $100,000. There is an original discount component of $10,000. Therefore, the funds available to the Company will be $90,000 and the liability (net of interest) will be $100,000 when all disbursements have been received by the Company. Each tranche is accounted for separately with each principal and OID balance becoming due 24 months after receipt. Each tranche bears interest at 15% per annum. Each portion of the loan becomes convertible immediately upon issuance. The loan and any accrued interest can then be converted into shares of the Company’s common stock at a rate of the lesser of $0.02 per share or 50% multiplied by the market price per share, which is the lowest quoted price for the common stock during the 25 trading days immediately preceding the conversion date. During the period ended June 30, 2015, the Company has received one tranche disbursements of $30,000 on June 29, 2015. Subsequent to year end the Company issued 25,000,000 shares of common stock for the conversion of $4,375 of the note payable.

 

On July 20, 2015, the Company entered into a settlement agreement with the holder of the convertible note. Under the agreement the note holder agreed to not to seek to enforce its rights or remedies under the Note in relation to the notice of conversion issued to convert a balance of the note amounting to $57,933; to not to exercise its rights of conversion pursuant to the Note, and if an event of default occurs, the Holder agrees not to sell any shares of common stock of the Company having an aggregate conversion value of $30,000 or more per week until such time as it has sold all of the Company’s common stock that it owns. Under the agreement the Company agreed to a penalty in relation to the issuance of a note in the amount of $95,000. Subsequent to quarter end, the Company issued 16,000,000 shares for the conversion of $4,800 of the note payable.

 

On July 24, 2015, the Company issued a convertible promissory note in the amount of $56,250 for $50,000 cash. The note is due on April 24, 2016 and bears interest at 10% per annum, which was prepaid by the Company and is being amortized over the life of the loan. The loan is secured by shares of the Company’s common stock. The loan becomes convertible as of the date of the note. The loan and any accrued interest can then be converted into shares of the Company’s common stock at a rate of 50% multiplied by the market price, which is the lowest quoted price for the common stock during the 20 trading day period ending on the latest complete trading day prior to the conversion date. Subsequent to quarter end, the Company issued 24,456,522 shares for the conversion of $1,774 of the note payable.

 

 

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 affect 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.

 

Overview

 

We were incorporated in the State of Nevada on April 21, 2010. We were initially in the business of becoming a pharmaceutical manufacturer with the specific intention of bidding on South African government health care contracts and tenders. We abandoned that business plan when, on November 7, 2013, Nanobeak, LLC, a Delaware limited liability company (formerly Nanobeak, Inc., a California corporation) (“Nanobeak”) acquired a majority interest in our company through the stock purchase of a controlling interest in our company from Bayview Terrace Limited.

 

Since the change of control, we have implemented a new business plan. On January 1, 2014, Nanobeak entered into a License Agreement (the “License Agreement”) with the National Aeronautics and Space Administration (“NASA”) pursuant to which Nanobeak was granted a royalty-bearing, non-transferable license (the “License”) to certain inventions and patent rights owned by NASA relating to chemical sensing nanotechnology, for use within the United States and its territories.

 

The License is effective as of December 31, 2013 and subject to an initial five year term, during which the License will be exclusive to Nanobeak. Following the initial five-year term, the License shall automatically convert to a non-exclusive license. Under the License, Nanobeak is required to develop and commercialize the licensed patents. NASA provided no warranties under the License Agreement and assumed no responsibility for our use, sale or other disposition of the licensed technology. Nanobeak has agreed to indemnify NASA against all liabilities arising from such use, sale or other disposition.

 

Pursuant to Section 3.1.1 of the License Agreement, Nanobeak is permitted to sublicense its rights under the License Agreement to subcontractors. Effective as of February 20, 2014, Nanobeak has sublicensed such rights to us as set forth in a Sublicense Agreement.

 

The Sublicense Agreement grants patent rights to us on the same terms as such rights have been granted to Nanobeak under the License Agreement; provided, however, that the field of use for the patent rights granted to us is limited to disease detection.

 

We must pay to Nanobeak certain royalties in connection with the Sublicense Agreement, which royalties are equivalent to those owed by Nanobeak to NASA pursuant to the License Agreement. We must further comply with other obligations of Nanobeak under the License Agreement as though we were a party thereto, including achievement of practical application of the patent rights and certain reporting obligations.

 

The Sublicense Agreement will terminate upon the earlier of (i) termination of the License Agreement or (ii) termination by either party to the Sublicense Agreement as set forth therein.

 

 

As a result of the License Agreement and Sublicense Agreement, we are now a mobile health technology company that is developing personalized and point-of-care screening using applications based upon chemical sensing methods.

 

We have been developing a low cost point-of-care screening device that will detect and analyze common components from human breath and provide an early indication of chronic diseases such as heart failure and various forms of cancer, as well as contagious diseases such as strep throat. The principles of operation are driven by technology developed by NASA. The sensor can connect via Bluetooth to any capable smart device running an iOS or Android operating system. Development efforts on the sensor were concluded and the device is now in a clinical environment. The final development stage for the healthcare sensor will be formal clinical trials and ultimately to obtain FDA approval.

 

The current Breathalyzer has a small footprint and can easily be operated by anyone with minimal instruction. State-of-the art engineering design techniques, advanced nanotechnology, and bio-informatics have been combined to create the following three main pieces of the device that is now being used to collect sample data from test patients for certain key biomarkers in a clinical setting:

 

1. Breath Capture Device – This component of the device attaches to the sensor module, captures breath from patient’s mouth, pre-filters the breath, and sends it to the sensor module at a controlled flow rate. Recent design improvements to the Breath Capture Device include the capability to simultaneously monitor respiratory rate, lung function, heart rate, and core body temperature. Iterations of the current design, which were optimized, using CAD (computer-aided design) and flow simulation tools, will soon be manufactured and tested using rapid prototyping techniques (3D printing).

 

2. Sensor Module – This component of the device contains an array filled with dozens of micro-fabricated nanomaterial-based chemical sensors, device hardware, and a battery pack. Each of these individual sensors is coated with specially formulated sensing materials that will show high sensitivity and specificity towards detecting biomarkers known by medical experts to be associated with particular diseases. Thus, the device will be used to simultaneously quantify levels of critical biomarkers exhaled by patients, record other medically relevant patient data (respiratory rate, core body temperature, and heart rate), and document experimentally relevant conditions (humidity, temperature, and pressure). Patient data collected by the Sensor Module will be sent to an iOS or Android smart device via Bluetooth, where it is collected, further processed, compared to an existing data library, and analyzed by our iOS/Android app. Design challenges that previously delayed critical milestones have been solved. Sensor Modules have been delivered to clinical researchers and preliminary data is being collected and analyzed. This data will be used to calibrate the device and quantify specific VOC’s known to be associated with the disease conditions that will be targeted first.

 

3. App/Software for the Smart Devices – This essential component of the device communicates with smart devices using a proprietary iOS/Android app, is used to interpret and present the results collected by the Sensor Module, and can easily be updated as the medical team collects more sample calibration data. It can also be calibrated to detect other diseases when sample data for those are collected. Each time a test is run on the breath capture device, data received by the app will be seamlessly pre-processed and post-processed through the algorithm and in nearly real-time a conclusive summary result will be provided on the device and/or sent/shared with Physicians via phone or Internet connections.

 

The sensor and related devices will ultimately be used to demonstrate an integrated approach that can be used to collect data from human breath and evaluate it for early disease screening purposes, effectively linking experts in the field, data scientists, and decision makers with results generated in real-time.

 

 

We have entered into a Strategic Partnership with Scripps Translational Sciences Institute (STSI) to assist in the development, advancement, and commercialization of the mobile technology. Scripps will also provide the testing, evaluation, and detection of certain combinations of Volatile Organic Compounds (VOCs) known as the breath signature and will assist in managing our clinical trials in partnership with several other research hospitals in the United States. These clinical trials will support the 510K that will be submitted to the FDA. It is expected that the contemplated clinical trials will take approximately four months with another four months expected for the 510K process within the FDA. We have not yet started the clinical trials. The clinical trials can cost as much as $5,000,000. We will first have to raise the money to commence the trials.

 

We have also entered into a Strategic Partnership with Theranostics Laboratory, a translational research company, with offices in the USA and New Zealand. Theranostics laboratory was founded at the Cleveland Clinic in 2010 and works on subcontracted research, in collaboration with the Auckland Bioengineering Institute (ABI), in New Zealand, and with NASA (via NASA Grant NCC 9-58).

 

The Auckland Bioengineering Institute is recognized as a world-leader in the field of personalized modeling and is part of the international Virtual Physiologic Human (VPH) project. The Institute has successfully commercialized numerous mHealth technologies, including wireless telemetry systems, wearable sensors and a needle-free injectable system into the US market.

 

The partnership between the Theranostics laboratory and the Auckland Bioengineering Institute (ABI) is a strategic alliance for us through which the lab will act as principal investigators for us in the areas of mobile strep detection, mobile virus detection and other related areas including breath sample conditioning methodologies. The partnership gives us access to world-class expertise and skill in the field of personalized modeling. It also provides us with cost-efficiencies working across multiple time zones, as well as insight into the Australasian MedTech market.

 

We have decided to work in conjunction with our majority shareholder, Nanobeak and NASA, to develop a mobile app to be used in connection with our sensor that will enable law enforcement to screen for marijuana use and deliver in-the-moment results to the officer’s smartphone, tablet or laptop in the field. We will not be distracted from our current efforts and resources in continuing to develop early lung cancer detection and detection for other diseases. The ability to go-to-market will be much faster than the process required for obtaining FDA approval for our lung cancer screening technology because the marijuana detection sensor for use by law enforcement will be exempt from the FDA approval process. With our President’s background and relationships, we believe we have an advantage when entering the law enforcement market with this product.

 

Results of operations for the three months ended December 31, 2015 and 2014

 

We have earned no revenues since our inception. We do not expect to earn any revenues until we complete our technology and bring it to market.

 

Our operating expenses decreased to $405,186 for the three months ended December 31, 2015, as compared with operating expenses of $552,110 for the three months ended December 31, 2014. Our operating expenses for the three months ended December 31, 2015 consisted of consulting expenses of $332,556, general and administrative expenses of $53,439 and professional fees in the amount of $19,191. Our operating expenses for the three months ended December 31, 2014 consisted of consulting expenses of $294,116, general and administrative expenses of $159,737, professional fees of $57,320, royalty expense of $25,000 and officer and director compensation of $15,937.

 

Our operating expenses decreased to $867,466 for the six months ended December 31, 2015, as compared with operating expenses of $1,239,504 for the six months ended December 31, 2014. Our operating expenses for the six months ended December 31, 2015 consisted of consulting expenses of $612,931, general and administrative expenses of $155,692, professional fees in the amount of $62,746 and compensation to our officers and directors of $36,097. Our operating expenses for the six months ended December 31, 2014 consisted of consulting expenses of $580,701, general and administrative expenses of $321,845, professional fees of $194,840, royalty expense of $100,000 and compensation to our officers and directors of $42,118.

 

  

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 developing and commercializing our technology and our continued reporting obligations with the Securities and Exchange Commission.

 

We recognized other expenses of $4,689,746 for the three months ended December 31, 2015, as compared with other expenses of $155,934 for the three months ended December 31, 2014. Our expenses in 2015 was attributable to a loss in the change in fair value due to derivative debt and warrant liability of $4,187,019 and by interest expense of $502,727.

 

We recognized other expenses of $3,820,204 for the six months ended December 31, 2015, as compared with other expenses of $10,374 for the six months ended December 31, 2014. Other expenses in 2015 was mainly attributable to a loss in the change in fair value due to derivative debt and warrant liability of $2,759,830, and by interest expense of $1,060,374.

 

We incurred a net loss of $5,094,932 for the three months ended December 31, 2015, compared with a net loss of $708,044 for the three months ended December 31, 2014. We incurred a net loss of $4,687,670 for the six months ended December 31, 2015, compared with a net loss of $1,249,878 for the six months ended December 31, 2014.

 

We have not attained profitable operations and are dependent upon obtaining financing to continue with our business plan. For these reasons, there is substantial doubt that we will be able to continue as a going concern.

 

Liquidity and Capital Resources

 

As of December 31, 2015, we had total current assets of $65,199, consisting of cash and prepaid expenses. We had current liabilities of $7,216,533 as of December 31, 2015. Accordingly, we had negative working capital of $7,151,334 as of December 31, 2015.

 

Operating activities used $902,521 in cash for six months ended December 31, 2015, as compared with $1,034,347 for six months ended December 31, 2014. Our negative operating cash flow for the six months ended December 31, 2015 was mainly attributable to our net loss for the period and offset mainly by a derivative gain and the amortization of debt discount.

 

Investing activities used $0 in cash for the six months ended December 31, 2015, as compared with $12,149 in cash used in investing activities for the six months ended December 31, 2014, associated with the purchase of fixed assets.

 

Financing activities for the six months ended December 31, 2015 provided $685,521 in cash, as compared with cash flows provided by financing activities of $911,684 for the six months ended December 31, 2014. Our positive cash flow for the six months ended December 31, 2015 was mainly the result of proceeds from related party debt and convertible notes, offset by payments on related party debt.

 

We continue to be dependent on raising capital to operate our business. As mentioned above, our plan is to develop a low cost point-of-care screening device that will detect and analyze common components from human breath and provide an early indication of chronic diseases. It could cost us up to $5,000,000 to conduct clinical trials before our product is ready for market. We are also working on a device to enable law enforcement to detect marijuana use. This, we hope, will provide us a product to generate revenues without the expenses and timeframe associated with a lengthy FDA process. However, we will need capital for both ventures in connection with marketing, distribution and sales efforts to commercialize our products. We will also need capital to maintain compliant with our filing obligations with the SEC.

 

 

To date, we have relied on related party advances and convertible notes for our immediate financing needs. We will need to find a more suitable arrangement to raise the money we need to implement our business plan. If we raise less than what we need, we will have to scale back our operations commensurate with the funding, if any, that we receive. 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.

 

We have been busy strategizing and outlining a plan to meet the requirements for making our company more attractive to the capital markets and to maintain our eligibility requirements on the OTCQB. As part of that process, we have approved a 10 for 1 reverse split of our common stock and an increase in our authorized common stock from 500,000,000 to 1,000,000,000 shares.

 

We hope the split and increase of authorized stock will make us more attractive to institutional investors whose investment strategies include working with companies on long-term financing. We have been working with our majority shareholder, Nanobeak, to develop and articulate a plan to attract seasoned investment bankers to assist us in raising capital. This process will take time and is not guaranteed, but we believe with hard work and the right partners, it is extremely achievable. As of the date of this report, Nanobeak has two such investment banking firms under agreement: China Merchants Bank New York and Barclays Capital Inc. We believe these firms care more about the fundamentals of our business and understand the long-term value of our company, our technology and our products. We have not yet raised capital but we hope to in the coming months.

 

As of December 31, 2015, we had $32,986 in cash. Until we are able to sustain our ongoing operations through sales revenue, we intend to fund operations through debt and/or equity financing arrangements, which may be insufficient to fund our capital expenditures, working capital, or other cash requirements. We do not have any formal commitments or arrangements for the sales of stock or the advancement or loan of funds at this time. There can be no assurance that such additional financing will be available to us on acceptable terms, or at all.

  

Off Balance Sheet Arrangements

 

As of December 31, 2015, there were no off balance sheet arrangements.

 

Going Concern

 

We have incurred cumulative net losses of $11,662,336 since our inception and require capital for our contemplated operational and marketing activities to take place. Our ability to continue as a going concern is dependent on us generating cash from the sale of our common stock and/or obtaining debt financing and attaining future profitable operations. Management’s plans include selling our equity securities and obtaining debt financing to fund our capital requirement and ongoing operations; however, there can be no assurance we will be successful in these efforts. The ability to successfully resolve these factors raise substantial doubt about our ability to continue as a going concern.

 

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

 

As required by Rule 13a-15 of the Securities Exchange Act of 1934, our principal executive officer and principal financial officer evaluated our company's disclosure controls and procedures (as defined in Rules 13a-15(e) of the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based on this evaluation, our principal executive officer and principal financial officer concluded that as of the end of the period covered by this report, these disclosure controls and procedures were not effective to ensure that the information required to be disclosed by our company in reports it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities Exchange Commission and to ensure that such information is accumulated and communicated to our company's management, including our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure. The conclusion that our disclosure controls and procedures were not effective was due to the presence of the following material weaknesses in internal control over financial reporting which are indicative of many small companies with small staff: (i) inadequate segregation of duties and effective risk assessment; and (ii) insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of both United States generally accepted accounting principles and Securities and Exchange Commission guidelines. Management anticipates that such disclosure controls and procedures will not be effective until the material weaknesses are remediated.

 

 

We plan to take steps to enhance and improve the design of our internal controls over financial reporting. During the period covered by this quarterly report on Form 10-Q, we have not been able to remediate the material weaknesses identified above. To remediate such weaknesses, we plan to implement the following changes during our fiscal year ending June 30, 2016, subject to obtaining additional financing: (i) appoint additional qualified personnel to address inadequate segregation of duties and ineffective risk management; and (ii) adopt sufficient written policies and procedures for accounting and financial reporting. The remediation efforts set out above are largely dependent upon our securing additional financing to cover the costs of implementing the changes required. If we are unsuccessful in securing such funds, remediation efforts may be adversely affected in a material manner.

 

Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within our 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.

 

Changes in Internal Control over Financial Reporting

 

There were no changes in our internal control over financial reporting during the quarter ended December 31, 2015 that have materially affected or are reasonably likely to materially affect, our internal control over financial reporting.

 

PART II – OTHER INFORMATION

 

Item 1. Legal Proceedings

 

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.

 

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

 

Aside from that provided below, there have been no issuances of securities without registration under the Securities Act of 1933 during the reporting period which were not previously included in a Quarterly Report on Form 10-Q or Current Report on Form 8-K.

 

During the six months ended December 31, 2015, we issued 255,152,377 shares of common stock valued at $294,898 for the conversion of notes payable.

 

During the six months ended December 31, 2015, we issued 4,000,000 shares of common stock valued at $9,600 for services.

 

On September 8, 2015 we granted stock warrants for 15,441,176 shares of common stock in association with a short-term loan at no cost to the lender. These warrants have a term of five years and an exercise price of $0.001/share.

 

On November 23, 2015 we granted stock warrants for 187,500,000 shares of common stock in association with a short-term loan at no cost to the lender. These warrants have a term of five years and an exercise price of $0.0045/share.

 

On October 29, 2015 we granted stock warrants for 23,437,500 shares of common stock in association with a short-term loan at no cost to the lender. These warrants have a term of five years and an exercise price of $0.0045/share.

 

Subsequent to quarter ended December 31, 2015, we issued 40,456,522 shares for the conversion of $6,574 in notes payable.

 

The above securities were issued in reliance upon the exemption from registration contained in Section 4(2) of the Securities Act of 1933, as amended, and Regulation D promulgated thereunder.

 

 

Item 3. Defaults upon Senior Securities

 

None

 

Item 4. Mine Safety Disclosures

 

Not applicable.

 

Item 5. Other Information

 

None

 

Item 6. Exhibits

 

Exhibit Number	Description of Exhibit
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 December 31, 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.

 

	Nano Mobile Healthcare, Inc.
Date:	February 22, 2016
By:	/s/ Joseph C. Peters
	Joseph C. Peters
Title:	Chief Executive Officer