RemSleep Holdings Inc.: Form 10-Q for the period ended Sep 30, 2019

Forward-looking Statements

There are “forward-looking statements” contained in this quarterly report. All statements that express expectations, estimates, forecasts or projections are forward-looking statements. In addition, other written or oral statements which constitute forward-looking statements may be made by us or on our behalf. Words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “estimate,” “project,” “forecast,” “may,” “should,” and variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions which are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in or suggested by such forward-looking statements. We undertake no obligation to update or revise any of the forward-looking statements after the date of this quarterly report to conform forward-looking statements to actual results. Important factors on which such statements are based are assumptions concerning uncertainties, including but not limited to, uncertainties associated with the following:

• Inadequate capital and barriers to raising the additional capital or to obtaining the financing needed to implement our business plans;
• Our failure to earn revenues or profits;
• Inadequate capital to continue business;
• Volatility or decline of our stock price;
• Potential fluctuation in quarterly results;
• Rapid and significant changes in markets;
• Litigation with or legal claims and allegations by outside parties; and
• Insufficient revenues to cover operating costs.

The following discussion should be read in conjunction with the financial statements and the notes thereto which are included in this quarterly report. This discussion contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ substantially from those anticipated in any forward-looking statements included in this discussion as a result of various factors.

Overview

We were incorporated in the State of Nevada on June 6, 2007. On August 26, 2010, we changed our name from Bella Viaggio, Inc. to Kat Gold Holdings Corp. Effective January 1, 2015, we completed an exchange agreement to purchase 100% of the outstanding interests of RemSleep LLC in exchange for 50,000,000 shares of common stock of RemSleep Holdings, Inc. at which time RemSleep LLC became our wholly-owned subsidiary and we adopted their business of developing and distributing sleep apnea products. On January 5, 2015, we changed our name to REMSleep Holdings, Inc. to reflect our new business model.

Our officers have 35 years of sleep-industry experience, including having been employed at sleep industry companies. Our officers invented our DeltaWave CPAP interface (the “DeltaWave

Our officers have 35 years of sleep-industry experience, including having been employed at sleep industry companies. Our officers invented our DeltaWave CPAP interface (the “DeltaWave”) as an innovative new device to treat patients with sleep apnea. The patent-pending DeltaWave product is a nasal-pillows type interface that will result in better comfort and, therefore, better compliance since it was specifically designed with unique airflow characteristics to enable patients with sleep apnea to breathe normally. A survey that appeared in DME Business found that 89% of patients stated that mask-interface comfort was their primary concern. The primary issue that we have addressed with the DeltaWave is the “work of breathing” component. We believe that our DeltaWave is designed to effectively address the stubborn issues that continue to affect a patient’s ability to comply with treatment, as follows:

• Does not disrupt normal breathing mechanics;
• Is not claustrophobic;
• Causes zero work of breathing (WOB);
• Minimizes or eliminates drying of the sinuses;
• Uses less driving pressure; and
• Allows users to feel safe and secure while sleeping.

Pending adequate financing, we plan to conduct clinical trials to test product effectiveness.

On June 28, 2016, we applied for a patent for a new, innovative sleep apnea product that serves as an interface for the delivery of CPAP therapy and other respiratory needs. Our goal is to develop sleep products that achieve optimum compliance and comfort for CPAP patients.

Our website is located at: http://www.remsleeptech.com. The contents of our website are not incorporated by reference into this report.

Results of Operations

The three months ended September 30, 2019 compared to the three months ended September 30, 2018

We have not generated revenue in the three months ended September 30, 2019 and 2018.

Professional fees were $10,250 compared to $5,650 for the three months ended September 30, 2019 and 2018, respectively, an increase of $4,600, or 81.4%. Professional fees consist mostly of accounting, audit and legal fees. The increase in the current period is due to legal expense in connection with the preparation of an Offering Statement on Form 1-A filed with the Securities and Exchange Commission on October 4, 2019.

Consulting expense was $37,000 compared to $220,000 for the three months ended September 30, 2019 and 2018, respectively. A majority of the consulting expense is due to the granting of common stock. In the current period there was a significant decrease in the number of shares issued for consulting services, thus decreasing the expense.

Compensation expense was $21,000 and $9,000 for the three months ended September 30, 2019 and 2018, respectively, an increase of $12,000. The increase is due to an increase in monthly salary to our CEO and the addition of director compensation.

General and administrative expense was $44,190 and $8,289 for the three months ended September 30, 2019 and 2018, respectively, an increase of $35,901, or 433%. The increase in the current period can be largely attributed to an increase in depreciation, development and web design expense.

Total other income for the three months ended September 30, 2019, was $35,292. Other income includes $114,358 of debt discount amortization and a gain in the change of fair value of $164,829. These are expenses related to our convertible debt. We also incurred $15,179 of interest expense. In the prior period we had $14,936 of debt discount amortization, a loss on the issuance of convertible debt of $47,020, a loss in the change of fair value of $41,894 and $2,130 of interest expense.

Net Loss

For the three months ended September 30, 2019, we had a net loss of $77,148 as compared to a net loss of $348,919 for the three months ended September 30, 2018. Our net loss was lower in the current period primarily due to the expense associated with the other non-cash expense from the issuance of convertible debt and common stock issued for services.

The nine months ended September 30, 2019 compared to the nine months ended September 30, 2018

We have not generated revenue in the nine months ended September 30, 2019 and 2018.

Professional fees were $35,650 compared to $41,750 for the nine months ended September 30, 2019 and 2018, respectively, a decrease of $6,100, or 14.6%. Professional fees consist mostly of accounting, audit and legal fees. The decrease was due primarily to lower legal expense. In the prior year we retained an attorney with a monthly fee of $2,000. We no longer use this attorney’s services in the current period.

Consulting expense was $54,720 compared to $603,799 for the nine months ended September 30, 2019 and 2018, respectively. A majority of the consulting expense is due to the granting of common stock. In the current period there was a significant decrease in the number of shares issued for consulting services, thus decreasing the expense.

Compensation expense was $2,083,000 and $27,000 for the nine months ended September 30, 2019 and 2018, respectively. In the current period we issued 25,000,000 common shares each to both our Chairman and CEO for services for total non-cash expense of $2,000,000. We also issued our Chairman 500,000 shares of series A preferred stock for total non-cash compensation expense of $20,000. In addition, there was an increase in monthly salary to our CEO and the addition of director compensation.

General and administrative expense was $78,318 and $21,990 for the nine months ended September 30, 2019 and 2018, respectively, an increase of $56,328, or 256.1%. The increase in the current period can be largely attributed to an increase in depreciation, development and web design expense.

Total other expense for the nine months ended September 30, 2019, was $763,948. Other expense includes $216,417 of debt discount amortization, a $1,051,207 loss on the issuance of convertible debt and a gain in the change of fair value of $541,020. These are all expenses related to our convertible debt. We also incurred $37,344 of interest expense. In the prior period we had $14,936 of debt discount amortization, a loss on the issuance of convertible debt of $47,020, a loss in the change of fair value of $58,789 and $3,369 of interest expense.

Net Loss

For the nine months ended September 30, 2019, we had a net loss of $3,015,636 as compared to a net loss of $818,653 for the nine months ended September 30, 2018. Our net loss was higher in the current period primarily due to the expense associated with the other non-cash expense from the issuance of convertible debt and common stock issued for services.

Liquidity and Capital Resources

Cash flow from operations

Cash used in operating activities for the nine months ended September 30, 2019 was $150,272 as compared to $89,496 cash used in operating activities for the nine months ended September 30, 2018.

Cash Flows from Investing

Cash used in investing activities for the purchase of equipment and tooling for the nine months ended September 30, 2019 was $54,331 as compared to $25,563 of cash used in investing activities for the nine months ended September 30, 2018.

Cash Flows from Financing

For the nine months ended September 30, 2019, we received $292,000 from the issuance of convertible debt and repaid $2,350 on our auto loan. For the nine months ended September 30, 2018, we received $90,000 from the sale of common stock, $72,000 from convertible debt loans and repaid $8,000 on other loan payables.

As of September 30, 2019, we owe $250,250 to our convertible debt holders.

Going Concern

As of September 30, 2019, there is substantial doubt regarding our ability to continue as a going concern as we have not generated sufficient cash flow to fund our proposed business.

We have suffered recurring losses from operations since our inception. In addition, we have yet to generate an internal cash flow from our business operations or successfully raised the financing required to develop our proposed business. As a result of these and other factors, our independent auditor has expressed substantial doubt about our ability to continue as a going concern. Our future success and viability, therefore, are dependent upon our ability to generate capital financing. The failure to generate sufficient revenues or raise additional capital may have a material and adverse effect upon us and our shareholders.

Management’s plans with regard to these matters encompass the following actions: (i) obtaining funding from new investors to alleviate our working capital deficiency, and (ii) implementing a plan to generate sales. Our continued existence is dependent upon our ability to resolve our liquidity problems and increase profitability in our current business operations. However, the outcome of management’s plans cannot be ascertained with any degree of certainty. Our financial statements do not include any adjustments that might result from the outcome of these risks and uncertainties.

Off Balance Sheet Arrangements

We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

Critical Accounting Policies

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Note 2 to the Financial Statements describes the significant accounting policies and methods used in the preparation of the Financial Statements. Estimates are used for, but not limited to, contingencies and taxes. Actual results could differ materially from those estimates. The following critical accounting policies are impacted significantly by judgments, assumptions, and estimates used in the preparation of the Financial Statements.

We are subject to various loss contingencies arising in the ordinary course of business. We consider the likelihood of loss or impairment of an asset or the incurrence of a liability, as well as our ability to reasonably estimate the amount of loss in determining loss contingencies. An estimated loss contingency is accrued when management concludes that it is probable that an asset has been impaired, or a liability has been incurred and the amount of the loss can be reasonably estimated. We regularly evaluate current information available to us to determine whether such accruals should be adjusted.

We recognize deferred tax assets (future tax benefits) and liabilities for the expected future tax consequences of temporary differences between the book carrying amounts and the tax basis of assets and liabilities. The deferred tax assets and liabilities represent the expected future tax return consequences of those differences, which are expected to be either deductible or taxable when the assets and liabilities are recovered or settled. Future tax benefits have been fully offset by a 100% valuation allowance as management is unable to determine that it is more likely than not that this deferred tax asset will be realized.

Recent Accounting Pronouncements

In February 2016, the FASB issued Accounting Standard Update (“ASU”) 2016-02, Leases (Topic 842). This ASU requires that a lessee recognize the assets and liabilities that arise from operating leases. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. This new guidance is effective for annual reporting periods beginning after December 15, 2018, including interim periods within those annual reporting periods, and early adoption is permitted. In transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. The Company has elected to not recognize lease assets and liabilities for leases with a term less than twelve months.

We have reviewed other recently issued accounting pronouncements and plan to adopt those that are applicable to us. We do not expect the adoption of any other pronouncements to have an impact on our results of operations or financial position.

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and, as such, are not required to provide the information under this Item.

Disclosure Controls and Procedures

Each of our principal executive and principal financial officer has evaluated the effectiveness of our disclosure controls and procedures, as defined in Rules 13a - 15(e) and 15d - 15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this quarterly report. Based on their evaluation, each such person concluded that our disclosure controls and procedures were not effective as of September 30, 2019 due to a lack of segregation of duties and timely and accurate reconciliation of accounts.

In designing and evaluating disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute assurance of achieving the desired objectives. Also, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs.

Changes in Internal Control over Financial Reporting.

Our management has evaluated whether any change in our internal control over financial reporting occurred during the last fiscal quarter. Based on that evaluation, management concluded that there has been no change in our internal control over financial reporting during the relevant period that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and, as such, are not required to provide the information under this Item.