PSCR Proto Script Pharmaceutical Corporation (CE)

Notes to Condensed Consolidated Financial Statements

For the Nine Months Ended September 30, 2017 and 2016

(unaudited)

Note 1 - Organization and Basis of Presentation

Organization and Line of Business

Proto Script Pharmaceutical Corp. (formerly Yanex Group, Inc.) (the “Company” or “Proto Script”) was incorporated under the laws of the State of Nevada on November 18, 2010. On October 13, 2016, the Company changed its name from Yanex Group, Inc. to Proto Script Pharmaceutical Corp.

Proto-Script Pharmaceuticals, Corp. (“PSPC”) was incorporated under the laws of the state of California on September 27, 2001 and currently operates as PSP Homecare (dba). PSPC has contracts with Medicare, Medi-Cal, IEHP and various other state and governmental insurance providers. These contracts provide PSPC the right to sell and repair durable medical equipment (“DME”). PSP bills the insurance providers for payment. PSPC’s primary business is to repair power wheelchairs and scooters which are classified as DME products and reimbursable by healthcare insurance providers.

Effective June 29, 2016, the Company and PSPC entered into a share exchange agreement whereby the Company acquired 100% of the issued and outstanding shares of common stock of PSPC, in exchange for 300,000,000 shares of the Company’s common stock. Upon completion of the transaction, the Company had an aggregate of 330,480,000 shares of common stock issued and outstanding. As a result of the share exchange agreement, PSPC is now a wholly owned subsidiary of the Company.

The exchange of shares with PSPC was accounted for as a reverse acquisition under the purchase method of accounting since the Company had no net monetary assets and PSPC obtained control of the Company. Accordingly, the merger of PSPC into the Company was recorded as a recapitalization of PSPC, PSPC being treated as the continuing entity. The historical financial statements presented are the financial statements of PSPC. The equity of PSPC is presented as the equity of the combined company and the capital stock account of PSPC is adjusted to reflect the par value of the outstanding and issued common stock of the legal acquirer (Proto Script) after giving effect to the number of shares issued in the share exchange agreement. The share exchange agreement has been treated as a recapitalization and not as a business combination; therefore, no pro forma information is disclosed. At the date of this transaction, the net liabilities of the legal acquirer, Proto Script, were $106,262.

The Company’s health care insurance contracts allow it the ability to service patients nationally. The Company is seeking to expand its market through additional contracts and open several repair facilities throughout the continental United States. Currently the Company has repair facilities in Las Vegas, Nevada, Rancho-Cucamonga, and Anaheim, California.

The unaudited interim condensed consolidated financial statements have been prepared by us pursuant to the rules and regulations of the Securities and Exchange Commission. The information furnished herein reflects all adjustments (consisting of normal recurring accruals and adjustments) which are, in the opinion of management, necessary to fairly present the operating results for the respective periods. Certain information and footnote disclosures normally present in the annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted pursuant to such rules and regulations. These unaudited condensed consolidated interim financial statements should be read in conjunction with the audited consolidated financial statements and notes for the year ended December 31, 2016. The results of the nine months ended September 30, 2017 and 2016 are not necessarily indicative of the results to be expected for the full year ending December 31, 2017 and 2016.

Stock Split

On October 13, 2016, the Company affected a 10 for 1 forward stock split. All share and per share information has been retroactively restated to reflect this forward stock split.

PROTO SCRIPT PHARMACEUTICAL CORP.

Notes to Condensed Consolidated Financial Statements

For the Nine Months Ended September 30 , 2017 and 2016

(unaudited)

Going Concern

The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has sustained a net loss of $1,122,088 and $7,182,722 for the nine months ended September 30, 2017 and for the year ended December 31, 2016, respectively and at September 30, 2017 and December 31, 2016 had a stockholders’ deficit of $1,441,823 and $319,736, respectively. The Company’s ability to continue as a going concern for the next twelve (12) months is dependent upon its ability to generate sufficient cash flows from operations to meet its obligations. These factors, among others, raise substantial doubt about the ability of the Company to continue as a going concern for a reasonable period of time. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

Management plans to raise equity capital to the Company as necessary to fund expenditures until the Company’s planned principal operations can generate sufficient cash flows to sustain operations. No assurance can be made that these efforts will be successful and sustain the Company for a reasonable period of time.

Note 2 – Summary of Significant Accounting Policies

Accounting Method

The Company’s financial statements are prepared using the accrual method of accounting. The Company has elected a fiscal year ending on December 31.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of the Company, its wholly-owned subsidiary, PSPC, and PSPC’s wholly-owned subsidiary, Proto-Script Pharmaceuticals, Corp., a Nevada Corporation, and have been prepared in conformity with accounting principles generally accepted in the United States of America. All significant intercompany transactions and balances have been eliminated.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. It is possible that accounting estimates and assumptions may be material to the Company due to the levels of subjectivity and judgment involved.

Cash

Cash and cash equivalents include cash on hand and cash in time deposits, certificates of deposit and all highly liquid debt instruments with original maturities of three months or less. As of September 30, 2017 and December 31, 2016, the Company did not have any cash equivalents.

Concentration of Risk

The Company maintains various bank accounts at financial institutions located in California and Nevada. Accounts at each bank are temporarily insured by the Federal Deposit Insurance Corporation (FDIC) up to $250,000. As of September 30, 2017 and December 31, 2016, the Company had no uninsured cash balances. The Company experienced no losses from such accounts and management believes it places its cash on deposit with financial institutions that are financially stable.

PROTO SCRIPT PHARMACEUTICAL CORP.

Notes to Condensed Consolidated Financial Statements

For the Nine Months Ended September 30 , 2017 and 2016

(unaudited)

Accounts Receivable

Trade accounts receivable are stated at the amount the Company expects to collect. The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. Past due balances over 90 days and other higher risk amounts are reviewed individually for collectability. If the financial condition of the Company’s customers were to deteriorate, adversely affecting their ability to make payments, additional allowances would be required. Based on management’s assessment, the Company provides for estimated uncollectible amounts through a charge to earnings and a credit to a valuation allowance. Balances that remain outstanding after the Company has used reasonable collection efforts are written off through a charge to the valuation allowance and a credit to accounts receivable. Bad debt expense for the nine months ended September 30, 2017 and 2016 was $8,522 and $0, respectively.

Collectability

The Company is governed by Medicare standards and therefore agrees to accept the Medicare-approved amounts as the total payment for the service or item. The Company also agrees to bill Medicare and other suppliers directly on behalf of the patient.

We report patient accounts receivable net of estimated allowances for doubtful accounts and adjustments. Patient accounts receivable are uncollateralized and primarily consist of amounts due from Medicare, other third-party payers and patients. Our process for estimating the allowance for doubtful accounts is based upon our assessment of historical and expected net collections and trends in reimbursement. 

Revenue Recognition

The Company’s revenue recognition policies comply with FASB ASC Topic 605, “Revenue Recognition.” The Company recognizes revenue when it provides the services, ships the products and bills its customers, insurance companies, and government agencies, and no other significant obligations of the Company exist and collectability is reasonably assured. The Company’s billings are subject to insurance company and government regulatory agency adjustments. The Company revises the amount of revenue recognized when the insurance company and government regulatory adjustments are known to the Company. No historical adjustments are used. The adjustments to the amounts the Company can bill are changed approximately every five years when the government asks companies to submit a new bid. There is approximately one year between the time the Company is notified of any price changes until the time the new amounts come into effect.

Inventory

The Company purchases inventory from third party vendors, which consists of wheelchairs and scooters. Inventory, when carried if at all, represents finished goods, which is stated at lower of cost or market. The Company periodically reviews the value of items held in inventory and provides for write-downs or write-offs based on its assessment of market conditions. Write-downs and write-offs are charged to cost of goods sold. The Company generally purchases product when it has a firm sale or service order. At September 30, 2017 and December 31, 2016, the Company had no inventory on hand.

Long-Lived Assets

The Company applies the provisions of ASC Topic 360, Property, Plant, and Equipment , which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Recoverability of these assets is determined by comparing the forecasted undiscounted net cash flows of the operation to which the assets relate to the carrying amount. If the operation is determined to be unable to recover the carrying amount of its assets, then assets are written down first, followed by other long-lived assets of the operation to fair value. Fair value is determined based on discounted cash flows or appraised values, depending on the nature of the assets. As September 30, 2017 and December 31, 2016, there were no impairment losses recognized for long-lived assets.

PROTO SCRIPT PHARMACEUTICAL CORP.

Notes to Condensed Consolidated Financial Statements

For the Nine Months Ended September 30 , 2017 and 2016

(unaudited)

Property and Equipment

Property and equipment are stated at cost. Expenditures for maintenance and repairs are charged to earnings as incurred; additions, renewals and betterments are capitalized. When property and equipment are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the respective accounts, and any gain or loss is included in operations. Depreciation is computed on the straight-line basis over 60 months, the estimated useful life.

Property and equipment consists of:

For the nine months ended September 30, 2017 and 2016, the Company recognized $6,837 and $3,576 in depreciation expense, respectively.

Intangible assets

Intangible assets with finite lives are amortized over their estimated useful life. The Company monitors conditions related to these assets to determine whether events and circumstances warrant a revision to the remaining amortization period. The Company tests its intangible assets with finite lives for potential impairment whenever management concludes events or changes in circumstances indicate that the carrying amount may not be recoverable. The original estimate of an asset’s useful life and the impact of an event or circumstance on either an asset’s useful life or carrying value involves significant judgment.

During 2012, the Company purchased a competitor patient list for $230,000. The purchase price consisted of a cash payment of $35,000 and an installment purchase obligation of $195,000. At December 31, 2013, the installment purchase obligation was paid in full. The Company amortized the patient list over its estimated useful life of 36 months. The patient list was fully amortized as of December 31, 2016.

During 2014, the Company purchased a competitor customer list for $10,000. Purchase price consisted of a cash payment of $10,000. The Company amortizes the customer list over its estimated useful life of 12 months.

PROTO SCRIPT PHARMACEUTICAL CORP.

Notes to Condensed Consolidated Financial Statements

For the Nine Months Ended September 30, 2017 and 2016

(unaudited)

Intangible assets consist of:

For the nine months ended September 30, 2017 and 2016, the Company recognized $0 and $0 in amortization expense, respectively.

Derivative Financial Instruments

The Company evaluates all of its agreements to determine if such instruments have derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the statements of operations. For stock-based derivative financial instruments, the Company uses a weighted average Black-Scholes-Merton option pricing model to value the derivative instruments at inception and on subsequent valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date. As of September 30, 2017, the Company’s only derivative financial instrument was an embedded conversion feature associated with convertible notes payable due to certain provisions that allow for a change in the conversion price based on a percentage of the Company’s stock price at the date of conversion.

Fair Value of Financial Instruments

For certain of the Company’s financial instruments, including cash and equivalents, restricted cash, accounts receivable, advances to suppliers, accounts payable, accrued liabilities and short-term debt, the carrying amounts approximate their fair values due to their short maturities.

FASB ASC Topic 820, Fair Value Measurements and Disclosures , requires disclosure of the fair value of financial instruments held by the Company. FASB ASC Topic 825, Financial Instruments , defines fair value, and establishes a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value measures. The carrying amounts reported in the balance sheets for receivables and current liabilities each qualify as financial instruments and are a reasonable estimate of their fair values because of the short period of time between the origination of such instruments and their expected realization and their current market rate of interest. The three levels of valuation hierarchy are defined as follows:

PROTO SCRIPT PHARMACEUTICAL CORP.

Notes to Condensed Consolidated Financial Statements

For the Nine Months Ended September 30 , 2017 and 2016

(unaudited)

The Company analyzes all financial instruments with features of both liabilities and equity under FASB ASC Topic 480, Distinguishing Liabilities from Equity , and FASB ASC Topic 815, Derivatives and Hedging .

As of December 31, 2016, the Company did not identify any assets and liabilities required to be presented on the balance sheet at fair value; however at September 30, 2017, the Company identified the following liabilities that are required to be presented on the balance sheet at fair value:

Income Taxes

The Company accounts for income taxes in accordance with ASC Topic 740, Income Taxes . ASC 740 requires a company to use the asset and liability method of accounting for income taxes, whereby deferred tax assets are recognized for deductible temporary differences, and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion, or all of, the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

Under ASC 740, a tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. The adoption had no effect on the Company’s financial statements.

Prior to the transaction described in Note 1, PSPC was taxed as an S corporation for income tax purposes as provided for under §1362 of the Internal Revenue Code of 1986, as amended. Therefore, all income is required to be reported on the individual stockholder’s income tax returns. An S corporation is not a taxpaying entity for federal income tax purposes. Accordingly, no federal income tax expense has been recorded in the financial statements prior to September 29, 2016.

PROTO SCRIPT PHARMACEUTICAL CORP.

Notes to Condensed Consolidated Financial Statements

For the Nine Months Ended September 30 , 2017 and 2016

(unaudited)

Basic and Diluted Earnings Per Share

Earnings per share is calculated in accordance with ASC Topic 260, Earnings Per Share . Basic earnings per share (“EPS”) is based on the weighted average number of common shares outstanding. Diluted EPS is based on the assumption that all dilutive convertible shares and stock warrants were converted or exercised. Dilution is computed by applying the treasury stock method. Under this method, options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period. The only dilutive instruments outstanding in 2017 are the common shares underlying the conversion of the convertible notes and preferred A shares. The conversion price is 39%-40 % of the share price at the time of conversion, therefore, numbers of common stock issued at conversion cannot be calculated at this time. There were no potentially dilutive securities outstanding during 2016. Due to the net loss incurred during all the periods presented, any dilutive security would be anti-dilutive; therefore, basic and diluted loss per share are the same. As of September 30, 2017 the Company had 37,284,722 common stock equivalents that were not included in the calculation of dilutive earnings per share as theireffect is anti-dilutive.

Recent Accounting Pronouncements

In January 2017, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Update (“ASU”) 2017-01, Business Combinations (Topic 805) Clarifying the Definition of a Business . The amendments in this update clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions or disposals of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation. The guidance is effective for interim and annual periods beginning after December 15, 2017 and should be applied prospectively on or after the effective date. The Company is in the process of evaluating the impact of this accounting standard update.

Other recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the Securities and Exchange Commission did not or are not believed by management to have a material impact on the Company’s present or future financial statements.

Note 3 – Other Payables

The Company received funds from two non-related parties, in order to fund working capital expenses. In addition, a non-related party also has paid of professional fees on behalf of the Company. The amounts are unsecured and carry no interest rate or repayment terms. At September 30, 2017 and December 31, 2016, the amount outstanding was $168,825 and $167,411, respectively.

PROTO SCRIPT PHARMACEUTICAL CORP.

Notes to Condensed Consolidated Financial Statements

For the Nine Months Ended September 30 , 2017 and 2016

(unaudited)

A roll-forward of the convertible note from December 31, 2016 to September 30, 2017 is below:

Note 5 - Derivative Liability

The convertible notes payable discussed in Note 4 has a conversion price that can be adjusted based on the Company’s stock price which results in the conversion feature being recorded as a derivative liability.

The fair value of the derivative liability is recorded and shown separately under current liabilities. Changes in the fair value of the derivative liability is recorded in the statement of operations under other income (expense).

The Company uses a weighted average Black-Scholes-Merton option pricing model with the following assumptions to measure the fair value of derivative liability at September 30, 2017:

  PROTO SCRIPT PHARMACEUTICAL CORP.

Notes to Condensed Consolidated Financial Statements

For the Nine Months Ended September 30 , 2017 and 2016

(unaudited)

The following table represents the Company’s derivative liability activity for the three months ended September 30, 2017:

Note 6 – Related Party Transactions

Loan to stockholder

During the year ended December 31, 2016, the Company made distributions to stockholder of $59,593.

The loan to stockholder balance at September 30, 2017 and December 31, 2016 was $0 and $0, respectively.

At September 30, 2017 and December 31, 2016, $318,000 and $45,000, respectively, of the accrued compensation was due to the Company’s CEO and majority stockholder.

Due to related party

At September 30, 2017 and December 31, 2016, $17,330 is due to a former director of the Company. The amount is unsecured, non-interest bearing and due on demand.

Note 7 – Stockholders’ Equity and Preferred Shares

On October 13, 2016, the Company affected a 10 for 1 forward stock split. All share and per share information has been retroactively restated to reflect this forward stock split.

On September 15, 2016, the Board of Directors of the corporation authorized the designation of 10,000,000 shares of the corporation’s preferred stock as series A Preferred Stock. Series A Preferred shares have no dividend rights and can be converted at a ratio of 1:20. The holders of shares of Series A Preferred Stock can vote on an as converted basis or twenty votes for each share of preferred owned. The preferred shares have liquidation preference over common shares, and have no redemption option.

On January 31, 2017, the company entered into a Share Exchange Agreement with its sole director, Michelle Rico to exchange 295,000,000 shares of common stock that she owns into 1,500,000 shares of Series A Preferred stock.

PROTO SCRIPT PHARMACEUTICAL CORP.

Notes to Condensed Consolidated Financial Statements

For the Nine Months Ended September 30 , 2017 and 2016

(unaudited)

Note 8 – Commitments and Contingencies

The Company leases its office/warehouse space from various third parties.

For the nine months ended September 30, 2017 and 2016, the Company recognized $54,059 and $68,791, respectively, in rental or lease expense included in selling, general and administrative expense.

Litigation

The Company is subject to other potential liabilities under government regulations and various claims and legal actions that may be asserted. Matters may arise in the ordinary course and conduct of the Company’s business, as well as through its acquisition of certain intangible assets. Claim estimates that are probable and can be reasonably estimated are reflected as liabilities of the Company. The ultimate resolution of these matters is subject to many uncertainties. It is reasonably possible that matters, which may be asserted, could ultimately be decided unfavorably for the Company. During the Nine months ended September 30, 2017 and 2016, the Company did not face any new claims or litigation.

In November 2016, the company was sued by Independent Medical for amount owing to them of ($26,013). They subsequently garnished the company’s bank account for the same amount. Lawsuit was dropped.

In July 2017, Power Up Lending Group filed a suit against the Company for failing to file Form 10-K for the period ending December 31, 2016. The plaintiff was demanding immediate payment of $305,250 together with interest and default interest, plus legal costs. Since then the plaintiff has not moved the case forward. If the company files all delinquent reports with SEC, it is believed that this case will be dropped.