ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2015March 31, 2016
Commission file number: 0-15476
| Delaware | 68-0080601 |
| (State of Incorporation) | (I.R.S. Employer Identification No.) |
| 7 Imber Street, Petach Tivka, Israel | 4951141 |
| (Address of Principal Executive Offices) | (ZIP Code) |
Registrant's Telephone Number, Including Area Code: (972)+(972) 3-744-4505
| Large accelerated filer ¨ | Accelerated filer ¨ | Non-Accelerated filer ¨ | Smaller reporting company x |
On August 7, 2015,May 17, 2016, the Registrant had 13,589,90518,816,128 shares of common stock outstanding.
| Item | Description | Page | |||
|---|---|---|---|---|---|
| PART I - FINANCIAL INFORMATION | |||||
| ITEM 1. | FINANCIAL STATEMENTS | 3 | |||
| ITEM 2. | MANAGEMENT'S DISCUSSION AND ANALYSIS AND | 13 | |||
| ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | ||||
| ITEM 4. | CONTROLS AND PROCEDURES | ||||
| PART II - OTHER INFORMATION | |||||
| ITEM 1. | LEGAL PROCEEDINGS | ||||
| ITEM 1A. | RISK FACTORS | ||||
| ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS | ||||
| ITEM 3. | DEFAULT UPON SENIOR SECURITIES | ||||
| ITEM 4. | MINE SAFETY DISCLOSURE | ||||
| ITEM 5. | OTHER INFORMATION | ||||
| ITEM 6. | EXHIBITS | ||||
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS Back to Table of Contents| Zaxis International Inc. | ||||
| Balance Sheets | ||||
| Back to Table of Contents | ||||
| June 30, 2015 | ||||
| (Unaudited) | December 31, 2014 | |||
| ASSETS | ||||
| Current assets: | ||||
| Cash | $ | 467,380 | $ | 1,000 |
| Total current assets | 467,380 | 1,000 | ||
| Total Assets | $ | 467,380 | $ | 1,000 |
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||
| Current liabilities: | ||||
| Accounts payable and accrued liabilities | $ | - | $ | 7,500 |
| Advances payable | - | 120,979 | ||
| Accrued interest payable | - | 35,305 | ||
| Total current liabilities | - | 163,784 | ||
| Long-term liabilities: | ||||
| Notes payable | - | 22,375 | ||
| Total long-term liabilities | - | 22,375 | ||
| Total liabilities | - | 186,159 | ||
| Stockholders' equity (deficit): | ||||
| Preferred stock, $0.0001 par value; 10,000,000 shares authorized; none issued | ||||
| Common stock, $0.0001 par value; 100,000,000 shares authorized; | - | - | ||
| 6,550,602 shares issued and outstanding at June 30, 2015 and December 31, 2014 | 655 | 455 | ||
| Stock payable | 385,000 | - | ||
| Additional paid in capital | 1,283,342 | 388,450 | ||
| Accumulated deficit | (1,201,617) | (574,064) | ||
| Total stockholders' equity (deficit) | 467,380 | (185,159) | ||
| Total liabilities and stockholders' equity | $ | 467,380 | $ | 1,000 |
| See notes to unaudited interim financial statements | ||||
| Emerald Medical Applications Corp. | |||||
| Balance Sheets | |||||
| As of March 31, 2016 (Unaudited) and December 31, 2015 | |||||
| Back to Table of Contents | |||||
| March 31, 2016 (Unaudited) | December 31, 2015 | ||||
| Assets | |||||
| Current assets: | |||||
| Cash and cash equivalents | $ | 94,859 | $ | 115,449 | |
| Other receivable | - | 25,797 | |||
| Total current assets | 94,859 | 141,246 | |||
| Fixed assets, net | |||||
| Fixed assets, net of accumulated depreciation of $9,135 and $6,536, respectively | 18,521 | 21,120 | |||
| Total assets | $ | 113,380 | $ | 162,366 | |
| Liabilities and Stockholders' Equity (Deficit) | |||||
| Current liabilities: | |||||
| Accounts payable and accrued liabilities | $ | 86,416 | $ | 90,705 | |
| Employee payable | 19,023 | 25,612 | |||
| Employee payable - related party | 3,310 | 3,480 | |||
| Accrued interest payable | 7,759 | 19,285 | |||
| Short term notes payable | 202,224 | 119,974 | |||
| Convertible note payable, net of discount of $73,562 and $0, respectively | 31,157 | 29,719 | |||
| Total current liabilities | 349,889 | 288,775 | |||
| Total liabilities | 349,889 | 288,775 | |||
| Stockholders' equity (deficit) | |||||
| Preferred stock, $0.0001 par value; 10,000,000 shares authorized; none issued. | - | - | |||
| Common stock, $0.0001 par value; 490,000,000 shares authorized; | |||||
| 18,624,461 and 15,325,889 shares issued and outstanding at March 31, 2016 and December 31, 2015 | 1,863 | 1,533 | |||
| Accumulated other comprehensive income | (24,175) | (19,337) | |||
| Additional paid-in capital | 10,547,349 | 8,752,711 | |||
| Accumulated deficit | (10,761,546) | (8,861,316) | |||
| Total stockholders' deficit | (236,509) | (126,409) | |||
| Total liabilities and stockholders' equity (deficit) | $ | 113,380 | $ | 162,366 | |
| The accompanying notes are an integral part of these financial statements. | |||||
Zaxis International Inc. Statements of Operations Back to Table of Contents Three Months Three Months Six Months Six Months Ended Ended Ended Ended June 30, 2015 June 30, 2014 June 30, 2015 June 30, 2014 (Unaudited) (Unaudited) (Unaudited) (Unaudited) Revenue $ - $ - $ - $ - Costs and expenses: General and administrative 88,390 6,500 132,326 14,250 Other expenses - advances to related party 300,000 - 490,000 2,678 Total operating expenses 388,390 6,500 622,326 16,928 (Loss) from operations (388,390) (6,500) (622,326) (14,250) Interest expense (1,688) (307) (4,699) (2,678) Gain on debt settlement (528) - (528) - Financial income (expense) (2,216) (307) (5,277) (2,678) Provision for income taxes - - - - Net (loss) $ (390,606) $ (6,807) $ (627,553) $ (16,928) Basic and diluted per share amounts: Basic and diluted net loss $ (0.08) $ (0.00) $ (0.13) $ (0.01) Weighted average shares outstanding Basic and diluted 4,682,407 1,695,126 4,682,407 1,695,126 See notes to unaudited interim financial statements. Emerald Medical Applications Corp. Statements of Operations For the Three Months Ended March 31, 2016 and 2015 (Unaudited) Back to Table of Contents Three months Three months ended ended March 31, 2016 March 31, 2015 Revenues $ - $ - Expenses: Research and development (103,348) - General and administrative expenses (1,799,520) (178,725) Total operating expenses (1,902,868) (178,725) Loss from operations (1,902,868) (178,725) Other income (expense): Interest expense (7,759) (7,483) Change in fair value of derivative - 367 Depreciation expense (2,509) (399) Amortization expense (1,438) - Gain/(loss) from foreign currency 14,344 5,918 Financial income (expense) 2,638 (1,597) Provision for income taxes - - Net loss $ (1,900,230) $ (180,322) Basic and diluted (net loss per share) $ (0.11) $ (0.85) Weighted average shares outstanding - basic and diluted 17,351,957 213,001 The accompanying notes are an integral part of these financial statements.
Zaxis International Inc. Statements of Cash Flows Six Months Six Months Ended Ended June 30, 2015 June 30, 2014 (Unaudited) (Unaudited) Cash flows from operating activities: Net (loss) $ (627,533) $ (16,928) Loss (gain) on debt settlement 528 - Adjustments to reconcile net (loss) to net cash (used in) operating activities: Imputed interest 4,113 - (Decrease) increase in accounts payable (7,500) - (Decrease) increase in accrued expenses (35,833) 9,178 Net cash used in operating activities (666,245) (7,750) Cash flows from financing activities: Advances from related party - 7,500 Principal payments on debt (52,375) - Proceeds from sale of common stock (net of issuance expenses) 1,185,000 - Net cash provided by financing activities 1,132,625 7,750 Net increase (decrease) in cash 466,380 - Cash and cash equivalents - beginning of period 1,000 - Cash and cash equivalents - end of period $ 467,380 $ - Non-cash transactions: Transfer of convertible note from related party to unrelated parties $ - $ 85,000 Transfer of advances from related party to unrelated party $ - $ 40,000 See notes to unaudited interim financial statements Emerald Medical Applications Corp. Statements of Comprehensive Income (Loss) For the Three Months Ended March 31, 2016 and 2015 (Unaudited) Back to Table of Contents Three months Three months ended ended March 31, 2016 March 31, 2015 Net loss $ (1,900,230) $ (180,322) Change in unrealized foreign currency translation gain (loss) (4,838) (9,779) Total comprehensive loss $ (1,905,068) $ (190,101) The accompanying notes are an integral part of these financial statements.
Emerald Medical Applications Corp. Statements of Cash Flows For the Three Months Ended March 31, 2016 and 2015 (Unaudited) Back to Table of Contents Three months Three months ended ended March 31, 2016 March 31, 2015 Operating Activities: Net loss $ (1,900,230) $ (180,322) Adjustments to reconcile net (loss) to net cash (used in) operating activities: Depreciation expense 2,509 399 Amortization of debt discount 1,438 2,071 Change in fair value of derivative - (367) Shares issued for services 1,445,653 - Options issued for services 274,314 - Increase (decrease) in cash resulting from change in: Decrease (increase) in other receivable 25,797 (17,333) (Decrease) increase in accounts payable 17,670 62,828 (Decrease) increase in accrued expenses (32,394) - (Decrease) increase in accrued interest (7,759) 5,412 Net cash used in operating activities (173,002) (127,312) Investing Activities: Cash paid for fixed assets - (6,956) Net cash provided by investing activities - (6,956) Financing Activities: Proceeds from issuance of convertible debt 75,000 - Issuance of non-convertible note 82,250 - Proceeds from sale of common stock (net of issuance expenses) - 131,798 Net cash provided by financing activities 157,250 131,798 Foreign currency adjustment (4,838) (9,779) Net increase (decrease) in cash (20,570) (2,470) Cash and cash equivalents - beginning of period 115,449 14,411 Cash and cash equivalents - end of period $ 94,859 $ 2,162 Non-cash transactions: BCF due to convertible note payable $ 75,000 $ - Cashless conversion of class B warrants $ 193 $ - The accompanying notes are an integral part of these financial statements.
Zaxis International Inc.Emerald Medical Applications Corp
Notes to Unaudited Interim Financial StatementsJune 30, 2015March 31, 2016
Back to Table of Contents
Note 1. The Company
Organizational Background:Background
Emerald Medical Applications Corp. ("the Company") (f/k/a Zaxis International Inc.) was incorporated in Ohio in 1989.1989, it's fiscal year end is December 31st. On August 25, 1995, ZaxisThe Company merged with a subsidiary of The InFerGene Company ("InFerGene") and InFerGene changed its name to ZaxisThe Company International Inc. InFerGene was incorporated in California in 1984 and subsequently changed its domicile in connection with the merger into ZaxisThe Company to Delaware in 1985. Operations ceased operations in 2002. In November 2002, the Company and its subsidiaries filed a petition for bankruptcy in the U.S. Bankruptcy Court Northern District of Ohio. On October 13, 2004, the Company emerged from bankruptcy. At present,
On July 14, 2015 the closing of the Share Exchange Agreement was held (the "Closing") and as a result, Emerald Medical Applications Ltd. became a wholly-owned subsidiary of the Registrant. Pursuant to the Closing of the Share Exchange Agreement, the Company issued 5,474,545 shares of its common stock, par value $0.0001 (the "Shares" or "Common Stock") to Lior Wayn, Emerald's CEO and the sole holder of Emerald Medical Applications Ltd.'s ordinary Shares, representing 40.58% of the company's 13,489,905 outstanding Shares, in exchange for 100% of Emerald Medical Applications Ltd.'s ordinary Shares.
Subsequently to the Closing Mr. Lior Wayn has no business operationsbeen appointed as the Company's CEO, and has been granted considerable influence on the appointment of new directors thereby creating a new management structure for the company replacing the old management. Additionally Mr. Wayn is deemedto receive additional shares in the future contingent on the Company achieving commercial milestone. Thus the new management, headed by Mr. Wayn, is considered to be in control of more than 50% of the company and with the ability to make all management decisions.
Emerald is a shell company.company organized under the laws of the State of Israel on February 17, 2010. Emerald is digital health Startup Company engaged in the development, sale and service of imaging solutions utilizing its proprietary DermaCompare software that it developed for use in derma imaging and analytics ("DermaCompare"). Emerald believes that its proprietary DermaCompare software represents an advancement in skin cancer screening that should enable physicians to more readily identify and monitor changes in their patients' skin characteristics.
Emerald's DermaCompare solution allows dermatologists and other medical care professionals, using a set of 25 total body photography ("TBP"), to capture sets of skin lesion images with, among other devices, digital cameras, camera-equipped smartphones or tablets. These images are then transmitted online and are remotely analyzed by professionals using our DermaCompare software.
Emerald's sales and marketing plan is to sell licenses for our imaging software to: NHSs, HMOs, health insurance companies, hospitals and medical clinics through distributers, health care channel partners or directly through independent salespersons and/or web purchase to dermatologists and other physicians (GPs) that we expect to purchase licenses based on the number of potential numbers of patients.
Basis of Presentation:Presentation
The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern. The Company has not established any source of revenue to cover its operating costs, and as such, has incurred an operating losslosses since inception. Further, as of June 30, 2015,March 31, 2016, the cash resources of the Company were insufficient to meet its current business plan, and the Company had negative working capital. These and other factors raise substantial doubt about the Company's ability to continue as a going concern. The accompanying financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability of the Company to continue as a going concern.
The Company elected December 31 as its fiscal year end.
Significant Accounting Policies
Use of Estimates:Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statement and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from the estimates.
Cash and Cash Equivalents:Equivalents
For financial statement presentation purposes, the Company considers those short-term, highly liquid investments with original maturities of three months or less to be cash or cash equivalents. There were no cash equivalents as of June 30, 2015March 31, 2016 and December 31, 2014.2015.
Other Receivables
The company treats VAT refunds claimed resulting from excess VAT paid over VAT received as other receivables, amount shown as other receivables as of December 31, 2015 were collected in Q1 2016.
Currency Translation and other Comprehensive Income
Balance sheet items are translated using all current translation method for self-contained foreign operations (where functional currency = foreign currency) whereby assets and liabilities are translated using the exchange rate on the date of the balance sheet. It translates revenues, expenses, and net income using the average exchange rate during the period. The foreign exchange adjustment that results from applying the all-current method appears in other comprehensive income, a separate shareholders' equity account, and does not affect net income each period.
Property and Equipment:Equipment
New property and equipment are recorded at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, generally 5 years. Expenditures for renewals and betterments are capitalized. Expenditures for minor items, repairs and maintenance are charged to operations as incurred. Gain or loss upon sale or retirement due to obsolescence is reflected in the operating results in the period the event takes place.
Valuation of Long-Lived Assets:Assets
We review the recoverability of our long-lived assets including equipment, goodwill and other intangible assets, when events or changes in circumstances occur that indicate that the carrying value of the asset may not be recoverable. The assessment of possible impairment is based on our ability to recover the carrying value of the asset from the expected future pre-tax cash flows (undiscounted and without interest charges) of the related operations. If these cash flows are less than the carrying value of such asset, an impairment loss is recognized for the difference between estimated fair value and carrying value. Our primary measure of fair value is based on discounted cash flows. The measurement of impairment requires management to make estimates of these cash flows related to long-lived assets, as well as other fair value determinations.
Stock Based Compensation: Compensation
Stock-based awards are accounted for using the fair value method in accordance with ASC 718, Share-Based Payments.Payments. Our primary type of share-based compensation consists of stock options. We use the Black-Scholes option pricing model in valuing options. The inputs for the valuation analysis of the options include the market value of the Company's common stock, the estimated volatility of the Company's common stock, the exercise price of the warrants and the risk free interest rate.
Accounting For Obligations And Instruments Potentially To Be Settled In The Company's Own Stock:
We account for obligations and instruments potentially to be settled in the Company's stock in accordance with FASB ASC 815, Accounting for Derivative Financial Instruments. This issue addresses the initial balance sheet classification and measurement of contracts that are indexed to, and potentially settled in, the Company's own stock.
Fair Value of Financial Instruments:Measurements
The Company adopted the FASB ASC 825, Financial Instruments, requires entitiesstandard related to disclose the fair value of financial instruments, both assets and liabilities recognized and not recognized on the balance sheet, for which it is practicable to estimate fair value. FASB ASC 825measurement at inception. The standard defines fair value, establishes a framework for measuring fair value and expands disclosure of a financial instrument asfair value measurements. The standard applies under other accounting pronouncements that require or permit fair value measurements and, accordingly, does not require any new fair value measurements. The standard clarifies that fair value is an exit price, representing the amount at which the instrument couldthat would be exchangedreceived to sell an asset or paid to transfer a liability in a currentan orderly transaction between willing parties. At June 30, 2015 and 2014, the carrying value of certain financial instruments (cash and cash equivalents, accounts payable and accrued expenses.) approximatesmarket participants. As such, fair value due tois a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability.
As a basis for considering such assumptions, the short-term nature of the instruments or interest rates, which are comparable with current rates.
Fair Value Measurements: The Company measures fair value understandard established a framework that utilizes athree-tier fair value hierarchy, thatwhich prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). The three levels of inputs which prioritize the inputs used in measuring fair value are:as follows.
Level 1: Inputs to the valuation methodology are unadjusted1. Observable inputs such as quoted prices for identical assets or liabilities in active markets that the Company has the ability to access.Level 2: Inputs to the valuation methodology include:- Quoted prices for similar assets or liabilities in active markets;- Quoted prices for identical or similar assets or liabilities in inactive markets;-Level 2. Inputs, other than 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 Company values its derivative instruments related to embedded conversion features and warrants from the issuance of convertible debentures in accordance with the Level 3 guidelines. For the three month period ended March 31, 2016 and the twelve month period ending December 31, 2015, the following table reconciles the beginning and ending balances for financial instruments that are recognized at fair value in these consolidated financial statements. The fair value of embedded conversion features that have floating conversion features and tainted common stock equivalents (warrants and convertible debt) are estimated using a Binomial Lattice model. The key inputs to this valuation model as of December 31, 2015, were: Volatility of 143.9% for the asset or liability;- Inputs that are derived principally from or corroborated by observable market data by correlation or other means.Ifthree month period ended March 31, 2016 and 132.4% for the asset or liability has a specified (contractual) term, the level 2 input must be observable for substantially the fulltwelve months period ending December 31, 2015, inherent term of the asset or liability.Level 3: Inputsinstruments equal to the remaining contractual term, quoted closing stock prices on valuation methodology aredates, and various settlement scenarios and probability percentages summing to 100%.
Fair Value Measurements at March 31, 2016
| Level 3 - Derivative liabilities from: | Balance at March 31, 2016 | New Issuances | Settlements | Change in Fair Value | ||||||||
| Convertible Note | $ | - | $ | - | $ | - | - | |||||
Fair Value Measurements at December 31, 2015
| Level 3 - Derivative liabilities from: | Balance at December 31, 2015 | New Issuances | Extinguishment | Change in Fair Value | ||||||||
| Convertible Note | $ | - | $ | - | $ | (20,532) | - | |||||
Changes in the unobservable andinput values would likely cause material changes in the fair value of the Company's Level 3 financial instruments. The significant unobservable input used in the fair value measurement is the estimation for probability percentages assigned to thefuture expected settlement possibilities. A significant increase (decrease) in this distribution of percentages would result in a higher (lower) fair value measurement.
The assets or liability's fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs. The following table presents assets and liabilities that were measured and recognizerecognized at fair value onas of March 31, 2016 and December 31, 2015 and the three months and year then ended on a recurring basis:
Fair Value Measurements at March 31, 2016
| Level 1 | Level 2 | Level 3 | Total Unrealized (Gain) Loss | ||||||||
| 3/31/16 Derivative Liability | $ | - | $ | - | $ | - | $ | - | |||
| 12/31/15 Derivative Liability | $ | - | $ | - | $ | - | $ | 20,532 | |||
The following schedule summarizes the valuation of financial instruments at fair value on a recurring basis in the balance sheets as of March 31, 2016 and December 31, 2015:
Fair Value Measurements at March 31, 2016
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| Derivative liability | $ |
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Fair Value Measurements at December 31, 2015
| Level 3 | ||||||||
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| Liabilities | ||||||||
| Derivative liability | $ |
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When the Company changes its valuationThe fair values of our debts are deemed to approximate book value, and are considered Level 2 inputs for measuring financial assets and liabilities at fair value, either due to changes in current market conditions or other factors, it may need to transfer those assets or liabilities to another level in the hierarchy based on the new inputs used. The Company recognizes these transfers at the end of the reporting period that the transfers occur. For the fiscal periods ended Jun e30, 2015 and December 31, 2014, thereas defined by ASC Topic 820-10-35.
There were no significant transfers of financial assets or financial liabilities between Level 1, Level 2 and Level 3 inputs for the hierarchy levels.three months ended March 31, 2016 or the year ended December 31, 2015.
The Company had no other assets or liabilities valued at fair value on a recurring or non-recurring basis as of March 31, 2016 or December 31, 2015.
Earnings per Common Share:Share
We compute net income (loss) per share in accordance with ASC 260, Earning per Share.Share. ASC 260 requires presentation of both basic and diluted earnings per share (EPS) on the face of the income statement. Basic EPS is computed by dividing net income (loss) available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing Diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive. All per share disclosures retroactively reflect shares outstanding or issuable as though the reverse split had occurred January 1, 2012.
Income Taxes:Taxes
We have adopted FASB ASC 740, Accounting for Income Taxes.Taxes. Pursuant to ASC 740, we are required to compute tax asset benefits for net operating losses carried forward. The potential benefits of net operating losses have not been recognized in these financial statements because the Company cannot be assured it is more likely than not it will utilize the net operating losses carried forward in future years.
We must make certain estimates and judgments in determining income tax expense for financial statement purposes. These estimates and judgments occur in the calculation of certain tax assets and liabilities, which arise from differences in the timing of recognition of revenue and expense for tax and financial statement purposes.
Deferred tax assets and liabilities are determined based on the differences between financial reporting and the tax basis of assets and liabilities using the tax rates and laws in effect when the differences are expected to reverse. ASC 740 provides for the recognition of deferred tax assets if realization of such assets is more likely than not to occur. Realization of our net deferred tax assets is dependent upon our generating sufficient taxable income in future years in appropriate tax jurisdictions to realize benefit from the reversal of temporary differences and from net operating loss, or NOL, carryforwards. We have determined it more likely than not that these timing differences will not materialize and have provided a valuation allowance against substantially all of our net deferred tax asset. Management will continue to evaluate the realizability of the deferred tax asset and its related valuation allowance. If our assessment of the deferred tax assets or the corresponding valuation allowance were to change, we would record the related adjustment to income during the period in which we make the determination. Our tax rate may also vary based on our results and the mix of income or loss in domestic and foreign tax jurisdictions in which we operate.
In addition, the calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax regulations. We recognize liabilities for anticipated tax audit issues in the U.S. and other tax jurisdictions based on our estimate of whether, and to the extent to which, additional taxes will be due. If we ultimately determine that payment of these amounts is unnecessary, we will reverse the liability and recognize a tax benefit during the period in which we determine that the liability is no longer necessary. We will record an additional charge in our provision for taxes in the period in which we determine that the recorded tax liability is less than we expect the ultimate assessment to be.
ASC 740 which requires recognition of estimated income taxes payable or refundable on income tax returns for the current period and for the estimated future tax effect attributable to temporary differences and carry-forwards. Measurement of deferred income tax is based on enacted tax laws including tax rates, with the measurement of deferred income tax assets being reduced by available tax benefits not expected to be realized.
Uncertain Tax Positions:Positions
When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. In accordance with the guidance of FASB ASC 740-10, Accounting for Uncertain Income Tax Positions, the benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above should be reflected as a liability for unrecognized tax benefits in the accompanying consolidated balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination.
Our federal and state income tax returns are open for fiscal years ending on or after December 31, 2011. We are not under examination by any jurisdiction for any tax year. At March 31, 20152016 we had no material unrecognized tax benefits and no adjustments to liabilities or operations were required under FIN 48.
Recent Accounting Pronouncements
On June 10, 2014,In September, 2015, the FASB issued ASU No. 2015-16, Business Combinations (Topic 805) ("ASU 2015-16"). Topic 805 requires that an acquirer retrospectively adjust provisional amounts recognized in a business combination, during the measurement period. To simplify the accounting for adjustments made to provisional amounts, the amendments in the Update require that the acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amount is determined. The acquirer is required to also record, in the same period's financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. In addition an entity is required to present separately on the face of the income statement or disclose in the notes to the financial statements the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. ASU 2015-16 is effective for fiscal years beginning December 15, 2015. The adoption of ASU 2015-016 is not expected to have a material effect on the Company's consolidated financial statements.
In August, 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date ("ASU 2015-14"). The amendment in this ASU defers the effective date of ASU No. 2014-09 for all entities for one year. Public business entities, certain not-for-profit entities, and certain employee benefit plans should apply the guidance in ASU 2014-09 to annual reporting periods beginning December 15, 2017, including interim reporting periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 31, 2016, including interim reporting periods with that reporting period.
In April 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-10 2015-03, Interest-Imputation of Interest (Subtopic 835-30) ("ASU 2015-03"), which eliminates development stage reporting requirements under FASB ASC 915,changes the presentation of debt issuance costs in financial statements. ASU 2015-03 requires an entity to present such costs in the balance sheet as wella direct deduction from the related debt liability rather than as amends provisions of existing variable interest entity guidance under ASC 810. Additionally, the ASU indicates that the lack of commencement of principal operations represents a risk and uncertainty and, accordingly, is subject to the disclosure requirements of FASB ASC 275. As a resultan asset. Amortization of the changes, existing development stage entity presentation and disclosure requirements are eliminated. The presentation and disclosure changescosts will continue to FASB ASC 915 are effective for public entities for annual periods beginning after December 15, 2014, and the revisions to the consolidation standards are effective for annual periods beginning after December 15, 2015. The Company has adopted these provisions and enhanced disclosure of risks and uncertaintiesbe reported as required.
In April 2014, the FASB issued ASU 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. The amendments in this ASU change the criteria for reporting discontinued operations while enhancing disclosures in this area. Under the new guidance, only disposals representing a strategic shift in operations should be presented as discontinued operations. Those strategic shifts should have a major effect on the organization's operations and financial results and include disposals of a major geographic area, a major line of business, or a major equity method investment. The new guidance requires expanded disclosures about discontinued operations that will provide financial statement users with more information about the assets, liabilities, income, and expenses of discontinued operations. Additionally, the new guidance requires disclosure of the pre-tax income attributable to a disposal of a significant part of an organization that does not qualify for discontinued operations reporting. The amendments in the ASU are effective for public business entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2014. Early adoption is permitted. The Company is currently evaluating the impact of this pronouncement.
In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements - Going Concern. The new standard requires management of public and private companies to evaluate whether there is substantial doubt about the entity's ability to continue as a going concern and, if so, disclose that fact. Management will also be required to evaluate and disclose whether its plans alleviate that doubt. The standard requires management to evaluate, for each reporting period, whether there are conditions or events that raise substantial doubt about a company's ability to continue as a going concern within one year from the date the financial statements are issued. The new standardinterest expense. It is effective for annual periods ending after December 15, 2016, and interim periods within annualreporting periods beginning after December 15, 2016. Early adoption is permitted. We do not expectThe new guidance will be applied retrospectively to each prior period presented. The Company is currently in the process of evaluating the impact of adoption of the ASU to have a significant impact2015-03 on our consolidated financial statements.its balance sheets
Management does not anticipate that the adoption of these standards will have a material impact on the financial statements.
Note 2. Going Concern
The accompanying financial statements have been prepared assumingin conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company will continue as a going concern. The Company has not established any source of revenue to cover its operating costs, and as such, has incurred losses, has negative operationalan operating loss since inception. Further, as of March 31, 2016, the cash flows and has no revenues. The futureresources of the Company is dependent upon Management success inwere insufficient to meet its effortscurrent business plan, and limited resources to pursuethe Company had negative working capital. These and effect a business combination.
These conditionsother factors raise substantial doubt about the Company's ability to continue as a going concern. TheseThe accompanying financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that might arisemay result from this uncertainty.the possible inability of the Company to continue as a going concern.
Note 3.2. Stockholders' EquityEquity.
On January 8, 2015 the shareholders approved a resolution to increase the authorized common shares from 100,000,000 to 490,000,000 shares. All other provisions of the common shares remain unchanged. Also on that date, the Company declared a reverse split of common stock at the ration of 1:4. The stock split was effective January 8, 2015 for holders of record as of that date. Except as otherwise noted, all share, option and warrant numbers have been restated to give retroactive effect to this split. All per share disclosures retroactively reflect shares outstanding or issuable as though the reverse split had occurred at January 1, 2012.
Recent Issuances of Common Stock
During the period ended December 31, 2014 we issued 4,125,000 shares of our common stock (16,500,000 pre-reverse stock split) in exchange for converting $125,000 of promissory notes.
Between January 15, 2015 and March 15, 2015, the Company sold a total of 2,052,000 units for cash consideration of $780,000 at a price of $0.40 (the "Units"), each unit comprised of one share of common stock and one Class A warrant exercisable at $0.80 per share with a term 24 month. The relative fair value of the stock with embedded warrants was $351,419$351,433 for the common stock and $428,581$428,567 for the class A warrants. The warrants were valued using the Black-Scholes model with 216%153% volatility and discount rates ranging between 0.44% to 0.7%. The cash consideration is reflected inThese units were issued as stock payable as shares will be issued after reverse merger is completed.and the cash from sale of units was not received for the sale of stock pre-reverse merger.
Between April 1, 2015 and June 29, 2015, the Company sold a total of 1,012,500 units for cash consideration of $405,000 at a price of $0.40 (the "Units"), each unit comprised of one share of common stock and one Class A warrant exercisable at $0.80 per share with a term 24 month. The relative fair value of the stock with embedded warrants was $158,123 for the common stock and $246,877 for the class A warrants. The warrants were valued using the Black-Scholes model with volatility ranging between163% - 177% and discount rates ranging between 0.54% to 0.71%. TheThese units were issued as stock payable and the cash from sale of units was not received for the sale of stock pre-reverse merger.
Between July 1, 2015 and September 30, 2015, the Company sold a total of 140,000 units for cash consideration is reflected inof $15,000 at price of $0.107 (the "Units"), each unit comprised of one share of common stock and one Class A warrant exercisable at $0.80 per share with a term 24 month. The relative fair value of the stock with embedded warrants was $4,294 for the common stock and $10,706 for the class A warrants. The warrants were valued using the Black-Scholes model with volatility of 153% and discount rates of 0.61%. These units were issued as stock payable and the cash from sale of units was not received for the sale of stock pre-reverse merger.
Between July 1, 2015 and September 30, 2015, the Company sold a total of 862,500 units for cash consideration of $345,000 at price of $0.40 (the "Units"), each unit comprised of one share of common stock and one Class A warrant exercisable at $0.80 per share with a term 24 month. The relative fair value of the stock with embedded warrants was $118,415 for the common stock and $226,585 for the class A warrants. The warrants were valued using the Black-Scholes model with volatility ranging between 153% - 182% and discount rates ranging between 0.54% to 0.71%. Of these units $65,000 were issued as stock payable and the cash from sale of units was not received for the sale of stock pre-reverse merger and $280,000 cash was received subsequent to Closing of the reverse merger.
On July 16, 2015 and August 6, 2015, the company issue 517,900 shares willto one service provider and 100,000 shares to two service providers, respectively, for services valued at a total value of $617,900, arrived at using the stock price on date of grant of $1.00 per Nasdaq.com.
On July 16, 2015, 5 Emerald debt holders in amount of $87,910 converted their debt into 274,719 units at a conversion price of $0.32 per unit, each unit comprised of one share of common stock and one Class A warrant exercisable at $0.80 per share with a term 24 month. The Loss on Settlement of Debt recorded was $678,027.
On July 14, 2015 the Company issued Emerald's CEO and founder, Lior Wayn, 5,474,545 shares as per the share purchase agreement valued at $877,380, valued on the date of grant for the price of common stock.
On July 16, 2015 consultants were issued 2,500,000 Class B Warrants exercisable for a two-year period to acquire one (1) share of Common Stock at a price of $0.40 per share; The fair value of these warrants is $2,199,507. The warrants were valued using the Black-Scholes model with volatility of 182% and discount rate of 0.67%. The Class B warrants are fully vested and were accordingly included in expenses as stock based compensation.
On July 16, 2015 consultants were issued 2,536,247 Class C Warrants exercisable for a 90 day period, commencing 90 days after the effective date of this Registration Statement, at an exercise price of $0.40 to acquire one (1) share of Common Stock and one (1) Class A Warrant at an exercise price of $0.80. The fair value of these warrants is $3,143,581. The warrants were valued using the Black-Scholes model with volatility of 182% and discount rate of 0.67%. The Class C warrants are fully vested and were accordingly included in expenses as stock based compensation.
On November 17, 2015 the Company sold 250,000 units for cash consideration of $100,000 at price of $0.40 (the "Units"), each unit comprised of one share of common stock and one Class A warrant exercisable at $0.80 per share with a term 24 month. The relative fair value of the stock with embedded warrants was $41,304 for the common stock and $58,696 for the class A warrants. The warrants were valued using the Black-Scholes model with volatility ranging between 149% and discount rate of 0.50%. These warrants are fully vested and the fair value and included as stock based compensation on the prior year retained earnings.
Between November 5, 2015 and November 16, 2015 the company issue 268,084 shares to three service provider and for services valued at a total value of $268,084, arrived at using the stock price on date of grant of $1.00 per Nasdaq.com.
On October 1, 2015 the company granted a total of 534,400 stock options (the "Options") to three company employees. The options vest over 5 quarters and are exercisable at prices ranging from $0.01 to $0.40 per Share. The options were valued using the Black-Scholes model with 149% volatility and 0.67% discount rate for a total value of $528,857. Of this amount, $397,547 was expensed as of December 31, 2015 and $42,394 as of March 31, 2016.
On January 26, 2016 and March 17, 2016, the Company issued 125,000 shares to one service provider and 50,000 shares to two service providers, respectively, for services valued at a total value of $251,250, arrived at using the stock price on date of grant of $1.75 and $0.65, respectively, per Nasdaq.com.
On February 18, 2016, the Company issued 1,195,000 shares to three acting directors, for services valued at a total value of $1,194,403, arrived at using the stock price on date of grant of $1.00 per Nasdaq.com.
On January 26, 2016, consultants that were previously issued 2,500,000 Class B Warrants exercisable for a two-year period to acquire one (1) share of Common Stock at a price of $0.40 per share, exercised the warrants on a cashless basis resulting in 1,928,572 shares issued with no additional related expense booked.
On February 11 and 18, 2016, the Company granted a total of 403,333 stock options (the "Options") to three company employees. The options vest over periods of between 1 and 8 quarters and are exercisable at prices ranging from $0.01 to $0.40 per Share. The options were valued using the Black-Scholes model with 157% volatility and 0.56% discount rate for a total value of $400,914. Of this amount, $231,920 was expensed in Q1 2016 with the remaining balance to be expensed in 2016 and 2017.
On March 24, 2016, a convertible note payable was issued afterto GoldMed Ltd. The warrants were valued at a fair value of $56,030. The note included a beneficial conversion feature which resulted in a $75,000 discount recorded as a reduction of debt and an increase to additional paid in capital.
Note 3. Related Party Transactions
On July 16, 2015 5 Emerald debt holders in amount of $87,910 converted their debt into 274,719 units at a conversion price of $0.32 per unit, each unit comprised of one share of common stock and one Class A warrant exercisable at $0.80 per share with a term 24 month. The Loss on Settlement of Debt recorded was $678,027.
On July 14, 2015 the Company issued Emerald's CEO and founder, Lior Wayn, 5,474,545 shares as per the share purchase agreement valued at $877,380, valued on the date of grant for the price of common stock.
The company's CEO, Lior Wayn was owed $3,310 and $3,480 payable as of March 31, 2016 and December 31, 2015, respectively.
Following Closing of the reverse merger, is completed.$490,000 loan from Zaxis International Inc. to Emerald Medical Applications Ltd. was rendered an intercompany loan and as such was written off.
On February 18, 2016, the Company issued 1,195,000 shares to three acting directors, for services valued at a total value of $1,194,403, arrived at using the stock price on date of grant of $1.00 per Nasdaq.com.
Note 4. Related Party Transactions Not Disclosed ElsewhereEmployee Payable.
On March 25, 2014, our President and principal shareholder assigned accumulated advances and accruals totaling $124,229, to an unaffiliated third party. The advances carry no specific terms of repayment. On December 15, 2014, $22,375 of the then outstanding balance was converted to a promissory note. A summary of transactions is as follows:
| June 30, 2015 | December 31, 2014 | |||
| Beginning balance | $ | - | $ | 161,729 |
| Increase due to payments made on behalf of the company | $ | - | $ | 21,625 |
| Less March 24, 2014 conversion to convertible note | $ | - | $ | (40,000) |
| Less December 15, 2014 conversion to promissory note | $ | - | $ | (22,375) |
| Obligation transferred to unrelated party | $ | - | $ | (120,979) |
| Total | - | - | ||
| Less current portion | - | - | ||
| Due after one year | $ | - | $ | - |
There was no stated term of interest associated with this obligation. Accordingly, the company imputed interest at an appropriate rate estimated at 8% as prescribed under FASB ASC 835. For the period endingperiods ended March 31, 2016 and December 31, 20142015 the resultant charge of $11,210Company had $19,023 and $25,612, respectively, in employee payable related to interest expense was considered a contribution of capital.the monthly wages payable to the company's employees.
Note 5. Notes PayablePayable.
Convertible Notes Payable
On March 24, 2014, we issued a convertible promissory note in the amount of $40,000 to an unaffiliated party in consideration for past services provided to the Company. The Note bears interest at the rate of 1% per annum, is due and payable on March 24, 2015 and is convertible at a price of $0.005 per share. On March 24, 2014, the holder of the 2014 Note transferred and assigned the 2014 Note to five unaffiliated parties bearing the same interest rate and conversion price. In connection with the transfer and assignment of the 2014 Note, the Company agreed to extend the maturity date from March 24, 2015 to July 1, 2016.
On December 10, 2014, upon the request of all fifteen note holders, all convertible promissory notes in the aggregate principal amount of $125,000 were converted into 4,125,000 shares (16,500,000 pre-reverse stock split) consistent with the provisions of the notes. Related accrued interest of $35,295 was not included in the conversion and remains unpaid at June 30, 2015.
In accordance to ASC #815, Accounting for Derivative Instruments and Hedging Activities, we evaluated the holder's non-detachable conversion right provision and liquidated damages clause, contained in the terms governing the Note to determine whether the features qualify as an embedded derivative instruments at issuance. Such non-detachable conversion right provision and liquidated damages clause did not need to be accounted for as derivative financial instruments. Additionally, since the conversion price of the two notes represented the fair market value of the Company's common stock at the time of issuance, no beneficial conversion feature exists. We believe that the Company's shares of common stock is and have been very thinly traded during the last 3 years and that the fair value of the stock price was deemed not to be a fair value. Management decided that because the Company's ability to continue as a going concern was in question and that it has no revenue sources that the conversion price was a better measure of fair market value. Based on that decision, no beneficial conversion feature was reflected in the financial statements.
On March 24, 2016, the Company issued a convertible promissory note to GoldMed Ltd. in the amount of $75,000. The Convertible Note is convertible to 187,500 units at $0.40 (the "Units"), each unit comprised of one share of common stock and one Class A warrant exercisable at $0.80 per share with a term 12 months. Since the market price on the date of issuance was higher than the conversion price, a beneficial conversion feature was calculated at $78,750, but only $75,000 was recorded. $1,438 was recorded as amortization expense of for the period ending March 31, 2016, compared to amortization expense of $0 as of December 31, 2015.
Note 6. Payable - Not Convertible
On December 15,July 8, 2014 wethe company issued a convertible promissory note to Axel Springer Plug & Play Accelerator GmbH (the "Holder"), in the amounts of $29,719. The Convertible Notes are convertible at the lessor of a market based discounted and a fixed rate derived from a fixed market cap. The Holders have the right following the Date of Issuance, and until any time until the convertible Promissory Note is fully paid, to convert any outstanding and unpaid principal portion of the Convertible Promissory Note, and accrued interest, into fully paid and non-assessable shares of Common Stock. Holder was not issued warrants with the Convertible Promissory Note.
As of December 31, 2015 this note is no longer convertible since pursuant to the loan agreement the in the event that prior to December 31,2015 (the "Maturity Date"), the Company shall consummate a financing round led by unaffiliated investors in the amount of $22,375at least Euro 200,000, at a Company pre-money valuation on a fully diluted basis of at least Euro 750,000 (a "Qualified Round"), the Holder shall be entitled (but not obligated) to an unaffiliated party in consideration for payments made on behalfconvert the entire loan amount into the most senior class of shares of the Company for service providedissued in such Qualified Round, based on a price per share equal to the lower of the price per share reflected by a Company (the "December 2014 Note"). The December 2014 Note bears interestpre-money valuation on a fully diluted basis calculated at the ratetime of 1%conversion equal to Euro 1,500,000; or - price per annum, is due and payableshare which reflects a 20% discount on January 15, 2016 and isthe lowest price per share issued pursuant to such Qualified Round. If upon the occurrence of such event the note holder elects not convertible to common stock.convert upon receiving notice of such event, then the loan becomes non-convertible.
On January 14 and 16, 2015, we issued two promissory notes in the amount of $15,000 each to two different unaffiliated party in consideration for cash transferred to the Company (the "January 2015 Notes"). The January 2015 Notes bears interest at the rate of 1% per annum, are due and payable on January 14 and 16, 2016 and are not convertible to common stock.
One of the notes was repaid in full during the first quarteron March 3, 2015 with interest due waived the by the debtor, and the second note was repaid during the second quarteron April 22, 2015 with interest due waived the by the debtor.
During the second quarter the promissory note in the amount of $22,375 with interest due was repaid in full.
During the second quarter an agreement was reached with the holder of $120,979 advance payable note to settle the full amount due for $30,000 and interest due. The settlement with all note holders resulted in $528 loss on debt settlement due to the payment being higher than principal and accrued interest as of that date as well as a charge of $90,979 considered a contribution of capital.capital due to the fact that note holder, IMWT, was a related party.
We concluded that these notes have a stated rate of interest that is different from the rate of interest that is appropriate for this type of debt at the date of the transaction. Accordingly, the company imputed interest at an appropriate rate estimated at 8% as prescribed under FASB ASC 835. The resultant charge of $6,280 for the period ending December 31, 2014 and $4,113 for the period ending June 30, 2015March 31, 2016 to interest expense was considered a contribution of capital and was recorded in additional paid in capital.
On November 16, 2014 four individuals loaned amount to company, totaling $87,910 with maturity dates of November 16, 2015 and bearing an interest rate of 8% per annum, these notes were fully converted on July 16, 2015 to Company shares of commons stock and warrants as described in Note 3.
Between March 31, 2015 and March 31, 2016 the Chief Scientist Ministry of Israel loaned the company an amount of $167,677. The loan bears 17% interest and shall be due and payable when the company generates sales revenue from products in development.
On March 9, 2016 four individuals lent the company a total of $34,547 with maturity dates of November 16, 2015 and bearing an interest rate of 8% per annum.
For the periods ending June 30, 2015ended March 31, 2016 and December 31, 20142015, the Company has recognized $4,699$7,759 and $3,255$19,285, respectively, in accrued interest expense related to the stated interest rate on the notes and has recognized $4,113 and $17,490 in imputed interest expense.
Note 6. Income Taxes
We have adopted ASC 740 which providesnotes. Interest expense for the recognitionperiods ended March 31, 2016 and March 31, 2015, respectively, were $7,759 and $7,483, as well as $1,483 and $0 from the amortization of a deferred tax asset based upon the value the loss carry-forwards will have to reduce future income taxes and management's estimate of the probability of the realization of these tax benefits. Our net operating loss carryovers incurred prior to 2014 considered available to reduce future income taxes were reduced or eliminated through our recent change of control (I.R.C. Section 382(a)) and the continuity of business limitation of I.R.C. Section 382(c).
We have a current operating loss carry-forward of $784,725 resulting in deferred tax assets of $0. We have determined it more likely than not that these timing differences will not materialize and have provided a valuation allowance against substantially all our net deferred tax asset.
Future utilization of currently generated federal and state NOL and tax credit carry forwards may be subject to a substantial annual limitation due to the ownership change limitations provided by the Internal Revenue Code of 1986, as amended and similar state provisions. The annual limitation may result in the expiration of NOL and tax credit carry forwards before full utilization.
June 30, 2015 | December 31, 2014 | |||
| Individual components giving rise to the deferred tax assets are as follows: | $ | $ | ||
| Future tax benefit arising from net operating loss carryovers | 784,725 | 157,172 | ||
| Less valuation allowance | (784,725) | (157,172) | ||
| Net deferred asset | $ | - | $ | - |
The Company is not under examination by any jurisdiction for any tax year. Our federal and state income tax returns are open for fiscal years ending on or after December 31, 2011.debt discount.
Note 7. Advances to Related PartyDerivative Liabilities and Convertible Notes
On February 3,July 8, 2014 the company issued a convertible promissory note to Axel Springer Plug & Play Accelerator GmbH (the "Holder"), in the amounts of $29,719.
The Convertible note is convertible at the lessor of a market based discounted and a fixed rate derived from a fixed market cap. The Holder has the right following the Date of Issuance, and until any time until the convertible Promissory Note is fully paid, to convert any outstanding and unpaid principal portion of the Convertible Promissory Note, and accrued interest, into fully paid and non-assessable shares of Common Stock. The Holder was not issued warrants with the Convertible Promissory Note.
The following shows the changes in the derivative liability measured on a recurring basis for the three months ended March 31, 2016 and year ended December 31, 2015.
| Level 3 | ||
| Derivative Liability at December 31, 2014 | $ | 20,532 |
| Extinguishment of Derivative Liability | (20,532) | |
| Derivative Liability at December 31, 2015 | $ | - |
| Derivative Liability at March 31, 2016 | $ | - |
For the periods ended March 31, 2016 and December 31, 2015 the Company has recognized $0 and $2,013, respectively, in accrued interest expense related to the stated interest rate on the notes. Interest expense for the periods ended March 23,31, 2016 and December 31, 2015, 4 May, 2015, June 6, 2015 and June 26, 2015, $90,000, $100,000, $100,000, $100,000, $100,000 respectively, were advanced$7,759 and $30,604, of which $0 and $0 is from the amortization of debt discount related to this note The note is no longer considered convertible since the lender elected not to convert, and as such the derivative was written off.
As of December 31, 2015 the company has a $0 derivative liability and a $29,719 convertible note payable, net of discount of $0. As of March 31, 2016 the company that Zaxis ishas $0 derivative liability and $31,157 of convertible notes payable, net of discount of $73,562.
In accordance to ASC #815, Accounting for Derivative Instruments and Hedging Activities, we evaluated the holder's non-detachable conversion right provision and liquidated damages clause, contained in merger discussions with. These loans shall bear interestthe terms governing the Note to determine whether the features qualify as an embedded derivative instruments at issuance. Such non-detachable conversion right provision and liquidated damages clause did not need to be accounted for as derivative financial instruments. Additionally, since the conversion price of the two notes represented the fair market value of the Company's common stock at the ratetime of one (1%) percent per annum (the "Interest Rate")issuance, no beneficial conversion feature exists. We believe that the Company's shares of common stock is and shall be duehave been very thinly traded during the last 3 years and payable ninety (90) days fromthat the datefair value of the Loan (the "Maturity Date"). Since collectability isstock price was deemed not reasonably assured this amount is being expensedto be a fair value. Management decided that because the Company's ability to continue as a going concern was in question and that it has no revenue sources that the conversion price was a better measure of fair market value. Based on that decision, no beneficial conversion feature was reflected in the statementfinancial statements and the $20,165 extinguishment of operations.debt was reflected in the current period earnings and $0 extinguishment of debt was reflected in the current period earnings.
The abilityNote 8. Other Receivables
As of March 31, 2016 and December 31, 2015 the third party loanee Emerald Medical Applications Ltd to repayCompany had other receivables of $0 and $25,797, respectively, which represent VAT refunds claimed resulting from excess VAT paid over VAT received.
Note 9. Accounts Payable and Accrued Liabilities
As of March 31, 2016 and December 31, 2015 the loans as a standalone company is highly in doubt since it used the loan proceeds for ongoing business operations. If, for any reason, the merger with Zaxis, which is in advance stagesCompany had Accounts payable and accrued liabilities of closing, does not close Emerald Medical Applications Ltd. will not have sufficient funds to repay the loan.$86,416 and $90,705, respectively.
Note 8.10. Subsequent Events
In July 2015,On May 4, 2016, 150,000 shares were issued to three service providers as per the Company filedterms of the service agreement. On May 8, 2016, 41,667 shares were issued to a Form 8-K/12G withservice provider as the SEC forterms of the merger between the Company and Emerald Medical Applications Ltd. On August 5, 2015, the Company filed a registration statement on Form S-1 for selling security holders offering 19,361,758 shares of common stockservices agreement.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS AND PLANRESULTS OF OPERATIONS Back to Table of Contents
Some of the statements contained in this quarterly report of Zaxis International Inc., Delaware corporation (hereinafter referred to as "we", "us", "our", "Company" and the "Registrant") discuss future expectations, contain projections of ourOverview
The following plan of operation orprovides information which management believes is relevant to an assessment and understanding of our results of operations and financial condition or state other forward-looking information. Forward-lookingcondition. The discussion should be read along with our financial statements give our current expectations or forecasts of future events. In some cases, you can identify forward-looking statements by terminology such as "may," "will," "should," "could," "would," "expect," "plan," "anticipate," "believe," "estimate," "continue," or the negative of such terms or other similar expressions.
On December 30, 2014, the Registrant entered into a non-binding Memorandum of Understanding ("MOU") with Emerald Medical Applications Ltd., a private limited liability company incorporated under the laws of the State of Israel ("Emerald"). Emerald develops and owns proprietary technologies and methods relating to detection and diagnosis of early-stage Melanoma.
The MOU provides that the Registrant and Emerald will enter into a reverse merger (the "Reverse Merger"), subject to the execution of a definitive agreement (the "Definitive Agreement"). The execution of Definitive Agreement and the closing of the Reverse Merger will be subject to the Registrant's raise of $800,000 from third party investors, including but not limited to the Registrant's existing stockholders (the "Investors"), at terms and conditions to be agreed upon by the Registrant and Emerald.
Upon the closing, the holders of Emerald's capital stock will receive in exchangenotes thereto. This section includes a number of shares of the Registrant's common stock equalforward-looking statements that reflect our current views with respect to 45% of the Registrant's issuedfuture events and outstanding common stock on a fully-diluted basis as at immediately following the closing of the Reverse Merger, excluding Registrant's securitiesfinancial performance. Forward-looking statements are often identified by words like believe, expect, estimate, anticipate, intend, project and similar expressions, or words which refer to be issued to the Investors upon exercise of warrants issued to the Investors within the framework of the Reverse Merger. In addition, Emerald's holders will be issued up to an additional 21% of the Registrant's common stock in three equal tranches of 7% of the Registrant's issued and outstanding common stock as at immediately following the closing of the Reverse Merger,future events. These forward-looking statements are subject to Emerald's achievement of certain milestonesrisks and uncertainties that could cause actual results to be set forth in the Definitive Agreement.differ materially from our predictions.
The Definitive Agreement with Emerald closed on July 14, 2015 and Emerald became a wholly-owned subsidiary of the Company.
Plan of Operations
We are a digital health startup company engaged in the development, sale and service of imaging solutions utilizing our proprietary DermaCompare software that we developed for use in derma imaging and analytics (our “DermaCompare”"DermaCompare" or “Product”"Product"). In our development of the DermaCompare technology, we utilized the knowledge learned from advanced military image processing and data analytics to improve the analysis of medical images for the benefit of patients and the medical community. We believe that our proprietary DermaCompare software represents an advancement in skin cancer screening that should enable physicians to more readily identify and monitor changes in their patients’patients' skin characteristics.
DermaCompare is Emerald’sEmerald's first application of its technology, which we believe represents an advance in the early detection of skin cancer. DermaCompare is based on automated image analytics software using advanced algorithms for alignment, anchoring, identifying and detecting changes in the shapes, colors and sizes of skin lesions, which could potentially become Melanoma. We apply our DermaCompare technology in image capture, correction and intelligent data extraction in the market for derma imaging products.
Our DermaCompare solution allows dermatologists and other medical care professionals, using a set of 25 total body photography (“TBP”("TBP"), to capture sets of skin lesion images with, among other devices, digital cameras, camera-equipped smart phones or tablets. These images are then transmitted online and are remotely analyzed by professionals using our DermaCompare software.
Our DermaCompare imaging software has 2 main modules:
| ● | A SaaS cloud-based Dr. Module that can be launched on any desktop computer connected to the Internet; or | |
| ● | Mobile APP for mass population uses can be installed on smart phones or tablets with iOS or Android operating systems. |
Our future plans also contemplate the use of wearable computing and imaging devices such as Google glasses or other comparable devices.
Our sales and marketing plan, which has already commenced, is to sell licenses for our DermaCompare imaging software to: NHSs, HMOs, health insurance companies, hospitals and medical clinics through distributers, health care channel partners or directly through independent salespersons and/or web purchase to dermatologists and other physicians (GPs) that we expect to purchase licenses based on the number of potential numbers of patients.
In furtherance of our business plan, which has resulted in us becoming an operating company, we have entered into a series of agreements with unaffiliated third parties for the distribution of its DermaCompare Technology, as follows:
1. On August 12, 2013, Emerald entered into an exclusive distribution with Derma Italy Sri, organized under the laws of the Italy ("Derma Italy"), pursuant to which Derma Italy was granted exclusive distribution rights in Italy;
2. On December 1, 2013, Emerald entered into a distribution agreement with S. Bokhorst - Creatiekracht, organized under the laws of the Netherlands, pursuant to which S. Bokhorst was granted exclusive distribution in the Netherlands;
3. On February 6, 2014, Emerald entered into a distribution agreement with Medical Edge Pty Ltd, organized under the laws of Australia ("Medical Edge"), pursuant to which Medical Edge was granted exclusive distribution rights in the markets of Australia, New Zealand and Oceania;
4. On January 14, 2015, Emerald entered into a Project Agreement with Realize S.A. and Ubitech, entities engaged in IT related to medical technology in Greece, and MEDISP and MPUoP, academic and research institutes in Greece (collectively, the "Greek Partners"). Emerald and the Greek Partners anticipate imminent grants from the Office of Chief Scientist of the State of Israel and the General Secretariat for Research and Technology of Greece, respectively, the proceeds of which will be used for development of enhanced smartphone applications for diagnosis of early stage Melanoma.
During the quarterthree months ended March 31, 2015,2016 and the Company sold a totalyear ended December 31, 2015, we raised $1,162,976 through the issuance of 2,052,000 units for cash consideration of $780,000 at a price of $0.40 (the "Units"), each unit comprised of one share of common stockequity and one Class A warrant exercisable at $0.80 per share with a term 24 month.
Duringdebt and we may be expected to require up to an additional $1.5 million in capital during the quarter ended June 30, 2015, the Company sold a total of 1,012,500 units for cash consideration of $405,000 at a price of $0.40 (the "Units"), each unit comprised of one share of common stocknext 12 months to fully implement our business plan and one Class A warrant exercisable at $0.80 per share with a term 24 month.fund our operations.
Results of Operations during the three and six months ended June 30, 2015March 31, 2016 as compared to the three and six months ended June 30, 2014March 31, 2015
We have not generated any revenues during the three and six months ended June 30, 2015March 31, 2016 and 2014. We had operating expenses related to general and administrative expenses, being a public company and interest expenses.2015. During the three and six month period ended June 30,March 31, 2016 and 2015 we incurred $390,606$1,900,230 and $627,553,$180,322, respectively, in net loss compared to $6,807 and $16,928 during the same period in the prior year.losses.
Our general and administrative expenses increased to $88,390 and $132,326$1,799,520 for the three and six months ended June 30, 2015March 31, 2016 as compared to $6,500 and $14,250$178,725 during the same period in the prior year. The significant increase was due to increased expenses relating to the merger between the Company and Emerald Medical Applications Ltd. as well as share based compensation.
Other expenseOur research and development expenses increased to $300,000 and $490,000$103,348 for the three and six months ended June 30, 2015March 31, 2016 as compared to $0 during the same period in the prior year. The significant increase was due to research and development expenses of Emerald Medical Applications Ltd.
Interest expense increased to $7,759 for the three months ended March 31, 2016 as compared to $7,483 during the same period in the prior year due to increased loans.
Depreciation expense increased to $2,509 for the three months ended March 31, 2016 as compared to $399 during the same period in the prior year due to additional fixed assets purchased during the year.
Amortization expense increased to $1,438 for the three months ended March 31, 2016 as compared to $0 during the same period in the prior year due to advances madeincrease in convertible loans.
Liquidity and Capital Resources
Our balance sheet as of March 31, 2016 reflects current assets of $94,859 consisting of cash. As of December 31, 2015, we had current assets of $141,246 consisting of cash of $115,449, and other receivables of $25,797. We had fixed assets, net of $18,521, as of March 31, 2016 and $21,120 as of December 31, 2015.
As of March 31, 2016, we had total current liabilities of $349,889 consisting of $86,416 in accounts payable and accrued liabilities, $19,023 employee payable, $3,310 employee payable to related parties. Interestparty, $7,759 accrued interest payable, $31,157 in convertible notes payable and $202,224 in short term notes payable.
We had negative working capital of $236,509 as of March 31, 2016 compared to negative working capital $147,529 at December 31, 2015. Our total liabilities as of March 31, 2016 were $349,889 compared to $288,775 at December 31, 2015.
During the period ended March 31, 2016, we had negative cash flow from operations of $173,002, which was the result of a net loss of $1,900,230, decrease in accrued expenses of $32,394 and offset by $25,797 increase in other receivables, $1,445,653 shares issued for services, $274,314 options issued for services, $17,670 increase in accounts payable, $2,509 depreciation expense, increased to $1,698$1,438 amortization expense, and $4,699 foraccrued interest of $7,759.
During the three and six months ended June 30, 2015March 31, 2016, we had no investing activities as compared to $307 and $2678 during the same periodinvesting activities related to acquiring fixed assets valued at $6,956 in the prior year and gain of debt settlement increased to $528 and $0 for the three and six months ended June 30, 2015 as compared to $0 and $0 during the same period in the prior year.
On February 3, 2015,During the period ended March 23, 2015, 4 May, 2015, June 6, 201531, 2016, we had positive cash flow from financing activities of $157,250 which was the result of $75,000 proceeds from issuance of convertible debt and June 26, 2015, $90,000, $100,000, $100,000, $100,000, $100,000 respectively, were advanced to a company that Zaxis is in merger discussions with. These loans shall bear interest at the rate$82,250 from issuances of one (1%) percent per annum (the "Interest Rate") and shall be due and payable ninety (90) days from the date of the Loan (the "Maturity Date"). Since collectability is not reasonably assured this amount is being expensed in the statement of operations.
The ability of the third party loanee Emerald Medical Applications Ltd to repay the loans as a standalone company is highly in doubt since it used the loan proceeds for ongoing business operations. If, for any reason, the merger with Zaxis, which is in advance stages of closing, does not close Emerald Medical Applications Ltd will not have sufficient funds to repay the loan.
Liquidity and Capital Resources
At present, the Company has no business operations and no material cash resources. We are dependent upon interim funding provided by Management and/or affiliated parties to pay professional fees and expenses. Our Management and affiliated parties have agreed to provide funding as may be required to pay for accounting fees and other administrative expenses of the Company. If we require additional financing, we cannot predict whether equity or debt financing will become available at terms acceptable to us, if at all. The Company depends upon services provided by Management and affiliated consultants to fulfill its filing obligations under the Exchange Act. At present, the Company has limited financial resources to pay for such services and may be required to issue restricted shares in lieu of cash.
On June 30, 2015, we have had current cash assets of $467,380 and had $0 in current and long-term liabilities.
On December 31, 2014, we have had current cash assets of $1,000 and had $163,874 in current liabilities consisting of $7,500 in accounts payable, $35,305 in accrued interest expenses and $120,979 in advances payable to unrelated parties. We had long-term liabilities of $22,375 in notes payable.payables.
During the period ended June 30,March 31, 2015, we had negative cash flow from operations of $666,245,$127,312, which was the result of a net loss of $627,553 decrease$180,322 offset by depreciation expenses of $399, amortization expenses of $2,071, a loss of a change in accrued liabilitiesfair value of $35,833 and decreasederivatives of $367, an increase in other receivables of $17,333, an increase in accounts payable of $7,500$62,828 and offset by imputedan increase in accrued interest of $4,113 and $528 loss on debt settlement.$5,412.
During the period ended June 30,March 31, 2015, we had positive cash flow fromour financing activities of $1,132,625 which was the result of $1,185,000provided us with $131,798 from proceeds fromform the sale of common stock offset by $52,375 principal payments on debt.
During the period ended June 30, 2014, we had negative cash flow from operations of $7,750 which was the result of a net loss of $16,928 offset by increase in accrued expenses of $9,178 and advances from related party of $7,750 due to loans made by former Management.stock.
There are no limitations in the Company's certificate of incorporation on the Company's ability to borrow funds or raise funds through the issuance of restricted common stock to effect a business combination. The Company's limited resources and lack of having cash-generating business operations may make it difficult to borrow funds or raise capital. The Company's limitations to borrow funds or raise funds through the issuance of restricted capital stock required to effect or facilitate a business combination may have a material adverse effect on the Company's financial condition and future prospects, including the ability to complete a business combination. To the extent that debt financing ultimately proves to be available, any borrowing will subject us to various risks traditionally associated with indebtedness, including the risks of interest rate fluctuations and insufficiency of cash flow to pay principal and interest, including debt of an acquired business.
The Company has only limited capital. Additional financing is necessary for the Company to continue as a going concern. Our independent auditors have unqualified audit opinion for the period ended June 30, 2015March 31, 2016 with an explanatory paragraph on going concern.
In view of these matters, realization of a major portion of the assets in the accompanying balance sheet is dependent upon continued operations of the Company. Management believes that actions presently being taken to obtain additional equity financing will provide the opportunity to continue as a going concern.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKRISK> Back to Table of Contents
ITEM 4. CONTROLS AND PROCEDURES Back to Table of Contents
Evaluation of disclosure controls and procedures. As As of June 30, 2015,March 31, 2016, the Company's chief executive officer and chief financial officer conducted an evaluation regarding the effectiveness of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Exchange Act. Based upon the evaluation of these controls and procedures, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were not effective as of the end of the period covered by this report.
Changes in internal controls. During the quarterly period covered by this report, no changes occurred in our internal control over financial reporting that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
None.
ITEM 1A. RISK FACTORS Back to Table of ContentsSeeSeeSee risk factors discussed in the Company's registration statementPart I, "Item 1. Description of Business, subheading Risk Factors" in our Annual Report on Form S-1 as filed with10-K for the SEC on August 5,year ended December 31, 2015.
During the quarter ended June 30, 2015, the Company sold a total of 1,012,500 units for cash consideration of $405,000 at a price of $0.40 (the "Units"), each unit comprised of one share of common stock and one Class A warrant exercisable at $0.80 per share with a term 24 month. The issuances of these Warrants was made without registration under the Act in reliance upon the exemptions provided in Section 4(2) of the Act and Reg S.None.
None.
ITEM 4. MINE SAFETY DISCLOSURE Back to Table of ContentsNone.
ITEM 5. OTHER INFORMATION Back to Table of ContentsNone.
ITEM 6. EXHIBITS Back to Table of Contents(a) The following documents are filed as exhibits to this report on Form 10-Q or incorporated by reference herein.
| Exhibit No. | Description |
| 31.1 | Certification of CEO pursuant to Rule 13a-14(a) or 15d-14(a) of the Exchange Act pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| 31.2 | Certification of CFO pursuant to Rule 13a-14(a) or 15d-14(a) of the Exchange Act pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| 32.1 | Certification of CEO pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| 32.2 | Certification of CFO pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned.ZAXIS INTERNATIONAL INC.
EMERALD MEDICAL APPLICATIONS CORP.
By: /s/ Liron Carmel/s/ Lior WaynLiron CarmelLior Wayn
Chief Executive Officer and Chairman
(Principal Executive Officer)
Date: August 7, 2015May 17, 2016
By: /s/ Oded Gilboa
Oded Gilboa
Chief Financial Officer
(Principal Financial and Principal Accounting Officer)
Date: August 7, 2015May 17, 2016
Pursuant to the requirements of the Securities Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By: /s/ Liron Carmel/s/ Yair FudimLiron CarmelYair Fudim
Chairman(Principal Executive Officer)Date: May 17, 2016
By: /s/ Lior Wayn
Lior Wayn
Director
Date: August 7, 2015May 17, 2016