UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

Form 10-Q

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended February 28, 2014

 

Commission File Number: 333-175525

 

drug free solution Inc.

(formerly known as Living Breath Project, Inc.)

(Exact name of registrant as specified in its charter)

 

Nevada	99-0365611
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
1500 Rosecrans Avenue, Suite 500
Manhattan Beach, CA	11937
(Address of principal executive offices)	(Zip Code)

 

(800) 422-0691
(Registrant’s telephone number, including area code)

 

Indicate by checkmark whether the issuer: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

 

Indicate by check mark whether the Company has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Company was required to submit and post such files). Yes x No ¨

 

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

  

Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer	¨	Smaller reporting company	x

 

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

 

The number of shares outstanding of the Company's Common Stock as of October 2, 2014 was 35,942,913.

 

  

DRUG FREE SOLUTION INC.

TABLE OF CONTENTS

  

Part I	FINANCIAL INFORMATION
Item 1.	Consolidated Financial Statements	3
Item 2.	Management’s Discussion and Analysis or Plan of Operation	4
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	7
Item 4.	Controls and Procedures	7
Part II.	OTHER INFORMATION
Item 1.	Legal Proceedings	7
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	7
Item 3.	Defaults Upon Senior Securities	8
Item 4.	Mine Safety Disclosures	8
Item 5.	Other Information	8
Item 6.	Exhibits	8
SIGNATURES		9

 

  

FORWARD LOOKING STATEMENTS

 

The information in this report contains forward-looking statements. All statements other than statements of historical fact made in this report are forward looking. In particular, the statements herein regarding industry prospects and future results of operations or financial position are forward-looking statements. These forward-looking statements can be identified by the use of words such as “believes,” “estimates,” “could,” “possibly,” “probably,” anticipates,” “projects,” “expects,” “may,” “will,” or “should,” or other variations or similar words. No assurances can be given that the future results anticipated by the forward-looking statements will be achieved. Forward-looking statements reflect management’s current expectations and are inherently uncertain. Our actual results may differ significantly from management’s expectations.

 

Although these forward-looking statements reflect the good faith judgment of our management, such statements can only be based upon facts and factors currently known to us. Forward-looking statements are inherently subject to risks and uncertainties, many of which are beyond our control. As a result, our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth below under the caption “Risk Factors.” For these statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. You should not unduly rely on these forward-looking statements, which speak only as of the date on which they were made. They give our expectations regarding the future but are not guarantees. We undertake no obligation to update publicly or revise any forward-looking statements, whether as a result of new information, future events or otherwise, unless required by law.

 

 

Item 1. Financial Statements.

  

Drug Free Solution Inc.

 

(Formerly Living Breath Project, Inc.)

 

February 28, 2014 and 2013

 

Index to the Consolidated Financial Statements

 

Contents		Page(s)
Consolidated Balance Sheets at February 28, 2014 (Unaudited) and May 31, 2013		F-2
Consolidated Statements of Operations for the Nine Months and Three Months Ended February 28, 2014 and 2013 (Unaudited)		F-3
Consolidated Statement of Stockholders' Equity (Deficit) for the Interim Period Ended February 28, 2014 (Unaudited)		F-4
Consolidated Statements of Cash Flows for the Nine Months Ended February 28, 2014 and 2013 (Unaudited)		F-5
Notes to the Consolidated Financial Statements (Unaudited)		F-6

 

  

Drug Free Solution Inc.

(Formerly Living Breath Project, Inc.)

Consolidated Balance Sheets

 

		February 28, 2014				May 31, 2013
		(Unaudited)
ASSETS
CURRENT ASSETS:
Cash		$	7,124			$	8,157
Total Current Assets			7,124				8,157
PROPERTY AND EQUIPMENT
Computer equipment			4,866				4,866
iApp software			36,000				-
Property and equipment			40,866				4,866
Accumulated depreciation			(6,040	)			(1,228	)
Property and equipment, net			34,826				3,638
Trademarks
Trademarks			7,300				-
Accumulated amortization			(435	)			-
Trademarks, net			6,865				-
Website development costs
Website development costs			4,000				-
Accumulated amortization			(560	)			-
Website development costs, net			3,440				-
Total Assets		$	52,255			$	11,795
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable		$	147,356			$	20,855
Accrued expenses and other current liabilities			-				41,730
Deposits from stockholders			244,130				-
Total Current Liabilities			391,486				62,585
Total Liabilities			391,486				62,585
STOCKHOLDERS' DEFICIT:
Preferred stock par value $0.001: 10,000,000 shares authorized; none issued or outstanding			-				-
Common stock par value $0.001: 200,000,000 shares authorized; 35,942,913 and 28,642,913 shares issued and outstanding, respectively			35,943				28,643
Additional paid-in capital			1,303,047				1,303,047
Accumulated deficit			(1,678,221	)			(1,382,480	)
Total Stockholders' Deficit			(339,231	)			(50,790	)
Total Liabilities and Stockholders' Deficit		$	52,255			$	11,795

 

See accompanying notes to the consolidated financial statements.

 

  

Drug Free Solution Inc.

(Formerly Living Breath Project, Inc.)

Consolidated Statements of Operations

 

		For the Nine Months				For the Three Months				For the Nine Months				For the Three Months
		Ended				Ended				Ended				Ended
		February 28, 2014				February 28, 2014				February 28, 2013				February 28, 2013
		(Unaudited)				(Unaudited)				(Unaudited)				(Unaudited)
Revenue		$	2,101			$	-			$	-			$	-
Operating Expenses
Filming and incubator cost			41,428				-				-				-
Professional fees			104,073				26,001				70,034				18,041
Research and development			28,010				-				-				-
General and administrative expenses			124,331				94,345				113,863				96,701
Total operating expenses			297,842				120,346				183,897				114,742
Loss before Income Tax Provision			(295,741	)			(120,346	)			(183,897	)			(114,742	)
Income Tax Provision			-				-				-				-
Net Loss		$	(295,741	)		$	(120,346	)		$	(183,897	)		$	(114,742	)
Earnings per Share - Basic and Diluted		$	(0.01	)		$	(0.00	)		$	(0.01	)		$	(0.00	)
Weighted average common shares outstanding: - basic and diluted			32,841,143				34,974,933				22,625,000				28,385,769

 

See accompanying notes to the consolidated financial statements.

 

  

Drug Free Solution Inc.

(Formerly Living Breath Project, Inc.)

Consolidated Statement of Stockholders' Equity (Deficit)

For the Interim Period Ended February 28, 2014

(Unaudited)

 

		Common Stock Par Value $0.001								Additional								Total
		Number of								Paid-in								Stockholders'
		Shares				Amount				Capital				Accumulated Deficit				Equity (Deficit)
Balance, May 31, 2012			18,029,694			$	18,030			$	628,607			$	(626,612	)		$	20,025
Contributed capital											376,834								376,834
Reverse acqusition adjustment			10,305,000				10,305				(10,305	)							-
Issuance of common shares for cash at $1.00 per share			308,219				308				307,911								308,219
Net loss															(755,868	)			(755,868	)
Balance, May 31, 2013			28,642,913				28,643				1,303,047				(1,382,480	)			(50,790	)
Issuance of common shares for acquisition of OML on September 24, 2013 valued at $7,300			7,300,000				7,300				-								7,300
Net loss															(295,741	)			(295,741	)
Balance, February 28, 2014			35,942,913			$	35,943			$	1,303,047			$	(1,678,221	)		$	(339,231	)

 

See accompanying notes to the consolidated financial statements.

 

  

Drug Free Solution Inc.

(Formerly Living Breath Project, Inc.)

Consolidated Statements of Cash Flows

 

		For the Nine Months				For the Nine Months
		Ended				Ended
		February 28, 2014				February 28, 2013
		(Unaudited)				(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss		$	(295,741	)		$	(183,897	)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization			5,807				1,341
Changes in operating assets and liabilities:
Accounts payable			126,501				2,150
Accrued expenses and other current liabilities			(41,730	)			18,384
Net cash used in operating activities			(205,163	)			(162,022	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment			(36,000	)			(8,340	)
Website development costs			(4,000	)			-
Net cash used in investing activities			(40,000	)			(8,340	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Deposits from stockholder for Acquisition of Common Stock			244,130				-
Proceeds from sale of equity units			-				187,919
Capital contribution			-				250
Net cash provided by financing activities			244,130				188,169
Net change in cash			(1,033	)			17,807
Cash at beginning of the reporting period			8,157				8,340
Cash at end of the reporting period		$	7,124			$	26,147
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
Interest paid		$	-			$	-
Income tax paid		$	-			$	-
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
Issuance of common shares for acquisition of OML		$	7,300			$	-

 

See accompanying notes to the consolidated financial statements.

 

  

Drug Free Solution Inc.

(Formerly Living Breath Project, Inc.)

February 28, 2014 and 2013

Notes to the Consolidated Financial Statements

(Unaudited)

 

Note 1 – Organization and Operations

 

Living Breath Project, Inc. (Formerly Dilmax Corp.)

 

Living Breath Project, Inc. was incorporated under the laws of the State of Nevada, U.S. on April 14, 2011 as Dilmax Corp. The Company’s original business was on-line distribution of music for fitness.

 

On October 1, 2012, Genie O’Malley acquired 8,100,000 shares of the Company’s common stock, par value $0.001 per share (the Common Stock”), resulting in change in control of the Company. Also, on October 1, 2012, Clear Mind Technology Corp., a company owned and controlled by Ms. O’Malley, acquired 735,000 shares of the Company’s Common Stock from twenty-six non-affiliated shareholders.

 

On November 6, 2012, the Company amended its Articles of Incorporation to (i) change its name to Living Breath Project, Inc., (ii) increase the number of its authorized shares of capital stock from 75,000,000 to 210,000,000 shares of which (a) 200,000,000 shares were designated common stock, par value $0.001 per share and (b) 10,000,000 were designated preferred stock, par value $0.001 per share, and (iii) effectuated a three-for-one forward-split of its Common Stock for shareholders of record as of November 6, 2012.

 

On October 15, 2013, the Company amended its Articles of Incorporation to change its name from Living Breath Project, Inc. to Drug Free Solution Inc. (“the Company”).

 

iBreathe, Inc.

 

iBreathe, Inc. ("iBreathe”) was incorporated on December 27, 2005 under the laws of the State of Delaware. On July 9, 2008, iBreathe was re-domiciled as a Minnesota corporation by virtue of a merger with iBreathe, Inc., a Minnesota corporation.

 

Acquisition of iBreathe, Inc. Treated as a Reverse Acquisition

 

On November 6, 2012, the Company consummated an Agreement and Plan of Merger (the “Agreement”) with iBreathe, a Minnesota corporation whereby iBreathe merged with and into the Company (the “Merger”) in exchange for an aggregate of 18,029,694 shares (6,009,898 pre-split shares) (the “Merger Shares”) of the Company’s newly issued shares of Common Stock. The shares issued represented approximately 63.6% of the issued and outstanding common stock immediately after the consummation of the Acquisition Agreement.

 

As a result of the controlling financial interest of the former stockholder of iBreathe, for financial statement reporting purposes, the merger between the Company and iBreathe has been treated as a reverse acquisition with iBreathe deemed the accounting acquirer and the Company deemed the accounting acquiree under the acquisition method of accounting in accordance with section 805-10-55 of the FASB Accounting Standards Codification. The reverse acquisition is deemed a capital transaction and the net assets of iBreathe (the accounting acquirer) are carried forward to the Company (the legal acquirer and the reporting entity) at their carrying value before the acquisition.  The acquisition process utilizes the capital structure of the Company and the assets and liabilities of iBreathe which are recorded at their historical cost.  The equity of the Company is the historical equity of iBreathe retroactively restated to reflect the number of shares issued by the Company in the transaction.

 

Following the Merger, the Company adopted the business plan of iBreathe to provide proprietary and integrated products, services, education and film that can assist individuals to awaken stillness, direction, health and all over well-being using cleansing language of life. The Company has also been developing its website, product distribution procedures, and social media plan. The Company also intends to undertake a global research initiative studying the benefits of cleansing emotions individually and how this process can motivate change, healing and support within communities. The Company is an organization which is deeply passionate about recidivism, those who suffer within it and how communities can become free of the financial and emotional burdens presented by recidivism.

 

Note 2 - Significant and Critical Accounting Policies and Practices

 

The Management of the Company is responsible for the selection and use of appropriate accounting policies and the appropriateness of accounting policies and their application. Critical accounting policies and practices are those that are both most important to the portrayal of the Company’s financial condition and results and require management’s most difficult, subjective, or complex judgments, often as a result of the need to make estimates about the effects of matters that are inherently uncertain. The Company’s significant and critical accounting policies and practices are disclosed below.

 

  

Basis of Presentation - Unaudited Interim Financial Information

 

The accompanying unaudited interim consolidated financial statements and related notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information, and with the rules and regulations of the United States Securities and Exchange Commission (“SEC”) to Form 10-Q and Article 8 of Regulation S-X.  Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements.  The unaudited interim financial statements furnished reflect all adjustments (consisting of normal recurring accruals) which are, in the opinion of management, necessary to a fair statement of the results for the interim periods presented.  Interim results are not necessarily indicative of the results for the full year.  These unaudited interim consolidated financial statements should be read in conjunction with the consolidated financial statements of the Company for the fiscal year ended May 31, 2013 and notes thereto contained in the Company’s Annual Report on Form 10-K filed with the SEC on September 27, 2013.

 

Fiscal Year End

 

The Company elected May 31st as its fiscal year ending date.

 

Use of Estimates and Assumptions and Critical Accounting Estimates and Assumptions

 

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 disclosure of contingent assets and liabilities at the date(s) of the financial statements and the reported amounts of revenues and expenses during the reporting period(s).

 

Critical accounting estimates are estimates for which (a) the nature of the estimate is material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change and (b) the impact of the estimate on financial condition or operating performance is material. The Company’s critical accounting estimates and assumptions affecting the financial statements were:

 

(i)

Assumption as a going concern: Management assumes that the Company will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business.

(ii)

Impairment of long-lived assets: The realizable value of long-lived assets is generally determined using the asset’s expected future discounted cash flows or market value, if readily determinable. If long-lived assets are determined to be recoverable, but the newly determined remaining estimated useful lives are shorter than originally estimated, the net book values of the long-lived assets are depreciated over the newly determined remaining estimated useful lives. The Company considers the following to be some examples of important indicators that may trigger an impairment review: (i) significant under-performance or losses of assets relative to expected historical or projected future operating results; (ii) significant changes in the manner or use of assets or in the Company’s overall strategy with respect to the manner or use of the acquired assets or changes in the Company’s overall business strategy; (iii) significant negative industry or economic trends; (iv) increased competitive pressures; (v) a significant decline in the Company’s stock price for a sustained period of time; and (vi) regulatory changes. The Company evaluates acquired assets for potential impairment indicators at least annually and more frequently upon the occurrence of such events.

(iii)

Valuation allowance for deferred tax assets: Management assumes that the realization of the Company’s net deferred tax assets resulting from its net operating loss (“NOL”) carry–forwards for Federal income tax purposes that may be offset against future taxable income was not considered more likely than not and accordingly, the potential tax benefits of the net loss carry-forwards are offset by a full valuation allowance. Management made this assumption based on (a) the Company has incurred recurring losses, (b) general economic conditions, and (c) its ability to raise additional funds to support its daily operations by way of a public or private offering, among other factors.

(iv)

Estimates and assumptions used in valuation of equity instruments: Management estimates the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable, for all transactions in which goods or services are the consideration received for the issuance of equity instruments.

 

These significant accounting estimates or assumptions bear the risk of change due to the fact that there are uncertainties attached to these estimates or assumptions, and certain estimates or assumptions are difficult to measure or value.

 

Management bases its estimates on historical experience and on various assumptions that are believed to be reasonable in relation to the financial statements taken as a whole under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

 

Management regularly evaluates the key factors and assumptions used to develop the estimates utilizing currently available information, changes in facts and circumstances, historical experience and reasonable assumptions. After such evaluations, if deemed appropriate, those estimates are adjusted accordingly.

 

  

Actual results could differ from those estimates.

 

Principles of Consolidation

 

The consolidated financial statements include all accounts of iBreathe, Inc. for the periods presented and all accounts of the Company from the date of reverse merger (see Note 1).

 

All inter-company balances and transactions have been eliminated.

 

Reclassification

 

Certain amounts in the prior period financial statements have been reclassified to conform to the current period presentation. These reclassifications had no effect on reported losses.

 

Development Stage Company

 

Although the Company has recognized some nominal amount of revenues since inception, the Company is still devoting substantially all of its efforts on establishing the business.

 

The Company has elected to adopt early application of Accounting Standards Update No. 2014-10, Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements. Upon adoption, the Company no longer presents or discloses inception-to-date information and other remaining disclosure requirements of Topic 915.

 

Fair Value of Financial Instruments

 

The carrying amount of the Company’s financial assets and liabilities, such as cash, accounts payable, accrued expense and other current liabilities, approximate their fair values because of the short maturity of the instrument.

 

Cash Equivalents

 

The Company considers all highly liquid investments with maturities of three months or less at the time of purchase to be cash equivalents.

 

Property and Equipment

 

Property and equipment is recorded at cost. Expenditures for major additions and betterments are capitalized. Maintenance and repairs are charged to operations as incurred. Depreciation is computed by the straight-line method (after taking into account their respective estimated residual values) over the estimated useful lives of the respective assets as follows:

 

		Estimated Useful Life (Years)
Computer equipment		5
Software		3

 

Upon sale or retirement, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in the statements of operations.

 

Website Development Costs

 

The Company has adopted Subtopic 350-50 of the FASB Accounting Standards Codification for website development costs. Under the requirements of Sections 350-50-15 and 350-50-25, the Company capitalizes costs incurred to develop a website as website development costs, which are amortized on a straight-line basis over the estimated useful lives of three (3) years. Upon becoming fully amortized, the related cost and accumulated amortization are removed from the accounts.

 

Revenue Recognition

 

The Company follows paragraph 605-10-S99-1 of the FASB Accounting Standards Codification for revenue recognition. The Company will recognize revenue when it is realized or realizable and earned. The Company considers revenue realized or realizable and earned when all of the following criteria are met: (i) persuasive evidence of an arrangement exists, (ii) the product has been shipped or the services have been rendered to the customer, (iii) the sales price is fixed or determinable, and (iv) collectability is reasonably assured.

 

  

Revenue was recognized during the reporting period ended February 28, 2014 relating to one time wellness services provided to two families. Such revenue was recognized at the time the services were performed and collectability was assured.

 

Income Tax Provision

 

Uncertain Tax Positions

 

The Company did not take any uncertain tax positions and had no adjustments to its income tax liabilities or benefits pursuant to the provisions of Section 740-10-25 for the reporting period ended February 28, 2014 or 2013.

 

Earnings per Share

 

Earnings per share ("EPS") is the amount of earnings attributable to each share of common stock. For convenience, the term is used to refer to either earnings or loss per share. EPS is computed pursuant to section 260-10-45 of the FASB Accounting Standards Codification. Pursuant to ASC Paragraphs 260-10-45-10 through 260-10-45-16 Basic EPS shall be computed by dividing income available to common stockholders (the numerator) by the weighted-average number of common shares outstanding (the denominator) during the period. Income available to common stockholders shall be computed by deducting both the dividends declared in the period on preferred stock (whether or not paid) and the dividends accumulated for the period on cumulative preferred stock (whether or not earned) from income from continuing operations (if that amount appears in the income statement) and also from net income. The computation of diluted EPS is similar to the computation of basic EPS except that the denominator is increased to include the number of additional common shares that would have been outstanding if the dilutive potential common shares had been issued during the period to reflect the potential dilution that could occur from common shares issuable through contingent shares issuance arrangement, stock options or warrants.

 

There were no potentially dilutive shares outstanding for the reporting period ended February 28, 2014 or 2013.

 

Recently Issued Accounting Pronouncements – not yet adopted

 

In May 2014, the FASB issued the FASB Accounting Standards Update No. 2014-09 “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”)

 

This guidance amends the existing FASB Accounting Standards Codification, creating a new Topic 606, Revenue from Contracts with Customer. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

 

To achieve that core principle, an entity should apply the following steps:

 

1.

Identify the contract(s) with the customer

2.

Identify the performance obligations in the contract

3.

Determine the transaction price

4.

Allocate the transaction price to the performance obligations in the contract

5.

Recognize revenue when (or as) the entity satisfies a performance obligations

 

The ASU also provides guidance on disclosures that should be provided to enable financial statement users to understand the nature, amount, timing, and uncertainty of revenue recognition and cash flows arising from contracts with customers.  Qualitative and quantitative information is required about the following:

 

1.

Contracts with customers – including revenue and impairments recognized, disaggregation of revenue, and information about contract balances and performance obligations (including the transaction price allocated to the remaining performance obligations)

2.

Significant judgments and changes in judgments – determining the timing of satisfaction of performance obligations (over time or at a point in time), and determining the transaction price and amounts allocated to performance obligations

3.

Assets recognized from the costs to obtain or fulfill a contract.

 

  

ASU 2014-09 is effective for periods beginning after December 15, 2016, including interim reporting periods within that reporting period for all public entities.  Early application is not permitted.

 

In August 2014, the FASB issued the FASB Accounting Standards Update No. 2014-15 “Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (“ASU 2014-15”).

 

In connection with preparing financial statements for each annual and interim reporting period, an entity’s management should evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued (or within one year after the date that the financial statements are available to be issued when applicable). Management’s evaluation should be based on relevant conditions and events that are known and reasonably knowable at the date that the financial statements are issued (or at the date that the financial statements are available to be issued when applicable). Substantial doubt about an entity’s ability to continue as a going concern exists when relevant conditions and events, considered in the aggregate, indicate that it is probable that the entity will be unable to meet its obligations as they become due within one year after the date that the financial statements are issued (or available to be issued). The term probable is used consistently with its use in Topic 450, Contingencies.

 

The amendments in this Update are effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted.

 

Management does not believe that any other recently issued, but not yet effective accounting pronouncements, when adopted, will have a material effect on the accompanying financial statements.

 

Note 3 – Going Concern

 

The consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business.

 

As reflected in the consolidated financial statements, the Company had an accumulated deficit at February 28, 2014, a net loss and net cash used in operating activities for the reporting period then ended. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The Company has funded its operations since inception with the proceeds from the issuance of common stock and capital contributions.

 

The Company is attempting to commence operations, further implement its business plan and generate sufficient revenue; however, the Company’s cash position, if any, may not be sufficient to support its daily operations. While the Company believes in the viability of its strategy to commence operations, further implement its business plan and generate sufficient revenue and in its ability to raise additional funds by way of a public or private offering, there can be no assurances to that effect. The ability of the Company to continue as a going concern is dependent upon its ability to further implement its business plan and generate sufficient revenue and its ability to raise additional funds by way of a public or private offering.

 

The consolidated financial statements do not include any adjustments related 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.

 

Note 4 – Trademarks

 

On September 24, 2013, the Company acquired O’Malley Lifestyle, Inc. (“OML”), a related entity, for 7,300,000 newly-issued shares of the Company’s common stock. OML is the owner of the Clear Mind™, Clear Mind Technology™, Clear Mind Cognitive Healing Process™, Clear Mind Experience™, iBreathe™ properties and related proprietary service technologies, products and services. At the time of acquisition, OML had no significant assets, liabilities or operations. The Company valued 7,300,000 newly-issued shares at $7,300 based on the significant stockholder’s approximate cost basis. Trademarks are being amortized over their estimated useful lives of seven (7) years.

 

(i)   Amortization Expense

 

Amortization expense was $435 for the reporting period ended February 28, 2014.

 

Note 5 – Website Development Costs

 

(i)   Amortization Expense

 

Amortization expense was $560 for the reporting period ended February 28, 2014.

 

  

Note 6 – Stockholders' Equity

 

Shares Authorized

 

On November 6, 2012, the Company filed a Certificate of Amendment of Certificate of Incorporation, and (i) changed its name to Living Breath Project, Inc.; (ii) increased its total number of shares of all classes of stock which the Company is authorized to issue from Seventy Five Million (75,000,000) shares, inclusive of Seventy Five Million (75,000,000) shares of Common Stock, par value $0.001 per share, to Two Hundred Ten Million (210,000,000) shares, inclusive of (a) Ten Million (10,000,000) shares of Preferred Stock, par value $0.001 per share, and (b) Two Hundred Million (200,000,000) shares of Common Stock, par value $0.001 per share; and (iii) effectuated a 3-for-1 (1:3) forward stock split (the “Stock Split”).

 

All shares and per share amounts in the consolidated financial statements have been adjusted to give retroactive effect to the Stock Split.

 

Common Stock

 

Immediately prior to the consummation of the Agreement and Plan of Merger on November 6, 2012, the Company had 10,305,000 common shares issued and outstanding.

 

Upon consummation of the Agreement and Plan of Merger on November 6, 2012, the Company issued 18,029,694 shares of its common stock pursuant to the terms and conditions of the Agreement and Plan of Merger.

 

Deposits from Stockholder for Acquisition of Common Stock

  

During the nine month period ended February 28, 2014, five stockholders deposited $244,130 to acquire shares of the Company’s common stock.

 

Note 7 – Subsequent Events

 

The Company has evaluated all events that occurred after the balance sheet date through the date when the financial statements were issued to determine if they must be reported. The Management of the Company determined that there were no reportable subsequent event(s) to be disclosed.

 

 

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

 

General

 

Drug Free Solution Inc., (formerly known as “Living Breath Project, Inc.”) (the “Company”) was incorporated under the laws of the State of Nevada on April 14, 2011 as Dilmax Corp. The Company’s original business was on-line distribution of music for fitness. On October 1, 2012, Genie O’Malley acquired 7,000,000 shares of the Company’s common stock, par value $.001 per share (the Common Stock”) from Konstantin Kupert, resulting in a change of control of the Company. Also, on October 1, 2012, Clear Mind Technology Corp., a company owned and controlled by Ms. O’Malley, acquired approximately 735,000 shares of the Company’s Common Stock from non-affiliated shareholders.

 

On November 6, 2012, the Company consummated an Agreement and Plan of Merger (the “Agreement”) with iBreathe, Inc., a Minnesota corporation (“iBreathe”) whereby iBreathe merged with and into the Company (the “Merger”) in exchange for an aggregate of 6,009,898 shares (the “Merger Shares”) of the Company’s newly issued shares of common stock, par value $.001 per share (the Common Stock”). The merger was accounted for as a reverse merger using the purchase method of accounting, with the former shareholders of iBreathe controlling approximately 64% of the issued and outstanding common shares of the Company after the closing of the transaction. Accordingly, iBreathe was deemed to be the acquirer for accounting purposes and the financial statements are presented as a continuation of iBreathe and include the results of operations of iBreathe since incorporation on December 27, 2005, and the results of operations of the Company since the date of acquisition on November 6, 2012. Also on November 6, 2012, the Company amended its Articles of Incorporation to (i) change its name to Living Breath Project, Inc., (ii) increase the number of its authorized shares of capital stock from 75,000,000 to 210,000,000 shares of which (a) 200,000,000 shares were designated common stock, par value $0.001 per share and (b) 10,000,000 were designated “blank check” preferred stock, par value $0.001 per share, and (iii) effected a three-for-one forward-split of its Common Stock for shareholders of record as of November 6, 2012.

 

  

On October 15, 2013, upon authority of the majority shareholder of the Company’s Common Stock, and the sole member of the Board of Directors, the Company filed an amendment to its Articles of Incorporation to change the name of the Company to Drug Free Solution Inc.

 

Following the Merger, the Company adopted the business plan of iBreathe to provide proprietary and integrated products, services, education and film that can assist individuals to awaken stillness, direction, health and all over well-being using cleansing language life. The Company has developed its products line of forty-nine (49) protocols and associated materials, books, film, etc. which will be the Company’s main revenue stream. The Company has also been developing its website, product distribution procedures, and social media plan. The Company also intends to undertake a global research initiative studying the benefits of cleansing emotions individually and how this process can motivate change, healing and support within communities. The Company is an organization which is deeply passionate about recidivism, those who suffer within it and how communities can become free of the financial and emotional burdens presented by recidivism.

 

Results of Operations

 

Nine month period ended February 28, 2014 compared to the nine month period ended February 28, 2013.

 

Our net loss for the nine month period ended February 28, 2014 was $295,741 compared to a net loss of $183,897 for the nine month period ended February 28, 2013. During the nine months ended February 28, 2014, we generated $2,101 in revenue. No revenue generated for the nine month period ended February 28, 2013.

 

Revenue was recognized during the reporting period ended February 28, 2014 relating to one time wellness services provided to two families. Such revenue was recognized at the time the services were performed and collectability was assured.

 

During the nine month period ended February 28, 2014, we incurred operating expenses of $297,842 compared to $183,897 incurred during the nine month period ended February 28, 2013. Operating expenses incurred during the nine month period ended February 28, 2014 and 2013 were generally related to filming and incubator costs, professional fees, research and development and general and administrative expenses.

 

Operating expenses have and will vary from period to period based on the level of corporate activity, product development and capital-raising. Operating expenses for the nine month ended February 28, 2014 increased relative to the comparable period of the prior year due primarily to the fact that we incurred substantial amount of filming and incubator expenses, professional fees, research and development and general and administrative expenses in the current period.

 

Three month period ended February 28, 2014 compared to the three month period ended February 28, 2013.

 

Our net loss for the three month period ended February 28, 2014 was $120,346 compared to a net loss of $114,742 for the three month period ended February 28, 2013. No revenue was generated for the three month period ended February 28, 2014 or 2013.

 

During the three month period ended February 28, 2014, we incurred operating expenses of $120,346 compared to $114,742 incurred during the three month period ended February 28, 2013. Operating expenses incurred during the three month period ended February 28, 2014 and 2013 were generally related to professional fees and general and administrative expenses.

 

Operating expenses have and will vary from quarter to quarter based on the level of corporate activity, product development and capital-raising. Operating expenses in the most recently completed quarter slightly increased relative to the comparable period of the prior year due primarily to the fact that we incurred additional amounts of professional fees in the current quarter.

 

 

Liquidity and Capital Resources

 

As of February 28, 2014, our current assets and our current liabilities were $7,124 and $391,486, respectively. Current liabilities were comprised of $147,356 in accounts payable and $244,130 in deposits from stockholders.

 

During the nine months ended February 28, 2014, the Company received $244,130 from stockholders as a deposit for the acquisition of additional common stock.

 

There are no assurances that we will be able to obtain further funds required for continued operations. We are pursuing various financing alternatives to meet immediate and long-term financial requirements. There can be no assurance that additional financing will be available to us when needed or, if available, that it could be obtained on commercially reasonable terms. If we are not able to commence revenue producing operations or obtain the additional financing on a timely basis, we will not be able to continue with our business plan or meet our obligations as they come due.

 

Cash Flows from Operating Activities

 

We have not generated positive cash flows from operating activities. For the nine month period ended February 28, 2014, net cash flows used in operating activities was ($205,163) consisting of a net loss of ($295,741), depreciation of $5,807, increase in accounts payable of $126,501, and decrease in accrued expenses and other current liabilities of ($41,730).

 

Cash Flows from Investing Activities

 

For the nine month period ended February 28, 2014 net cash used in investing activities was ($40,000) consisting of acquisition of property and equipment of ($36,000) and costs associated with its website development of ($4,000).

 

Cash Flows from Financing Activities

 

We have financed our operations primarily from either advancements or the issuance of equity and debt instruments. For the nine month period ended February 28, 2014 net cash provided by financing activities was $244,130 consisting solely of deposits from stockholders.

 

Plan of Operation and Funding

 

We expect that working capital requirements will continue to be funded through a combination of our existing funds and further issuances of securities. Our working capital requirements are expected to increase in line with the growth of our business.

 

We have no lines of credit or other bank financing arrangements. Generally, we have financed operations to date through the proceeds of the private placement of equity and debt instruments. In connection with our business plan, management anticipates additional increases in operating expenses and capital expenditures relating to: (i) acquisition of inventory; (ii) developmental expenses associated with a start-up business; and (iii) marketing expenses. We intend to finance these expenses through revenues from sales of the Company’s products and services, with further issuances of securities, and debt issuances. Thereafter, we expect we will need to raise additional capital and generate revenues to meet long-term operating requirements. Additional issuances of equity or convertible debt securities will result in dilution to our current shareholders. Further, such securities might have rights, preferences or privileges senior to our common stock. Additional financing may not be available upon acceptable terms, or at all. If adequate funds are not available or are not available on acceptable terms, we may not be able to take advantage of prospective new business endeavors or opportunities, which could significantly and materially restrict our business operations. We will have to raise additional funds in the next twelve months in order to sustain and expand our operations. We currently do not have a specific plan of how we will obtain such funding; however, we anticipate that additional funding will be in the form of equity financing from the sale of our common stock. We have and will continue to seek to obtain short-term loans from our directors, although no future arrangement for additional loans has been made. We do not have any agreements with our directors concerning these loans. We do not have any arrangements in place for any future equity financing. In case we are unable to obtain debt or equity funding we may have to scale back our operations to stay in business.

 

 

Off-Balance Sheet Arrangements

 

None.

 

Going Concern

 

The Company is attempting to commence operations, further implement its business plan and generate sufficient revenue; however, the Company’s cash position, if any, may not be sufficient to support its daily operations. While the Company believes in the viability of its strategy to commence operations, further implement its business plan and generate sufficient revenue and in its ability to raise additional funds by way of a public or private offering, there can be no assurances to that effect. The ability of the Company to continue as a going concern is dependent upon its ability to further implement its business plan and generate sufficient revenue and its ability to raise additional funds by way of a public or private offering.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

 

Not required for smaller reporting companies.

 

Item 4. Controls and Procedures.

 

Our management is responsible for establishing and maintaining a system of disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) that is designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive officer or officers and principal financial officer or officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

 

An evaluation was conducted under the supervision and with the participation of our management of the effectiveness of the design and operation of our disclosure controls and procedures as of February 28, 2014. Based on that evaluation, our management concluded that our disclosure controls and procedures were not effective as of such date to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms. Such officer also confirmed that there was no material change in our internal control over financial reporting during the nine-month period ended February 28, 2014 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

PART II. OTHER INFORMATION

 

Item 1. Legal Proceedings.

 

Management is not aware of any legal proceedings contemplated by any governmental authority or any other party involving us or our properties. As of the date of this Quarterly Report, no director, officer or affiliate is (i) a party adverse to us in any legal proceeding, or (ii) has an adverse interest to us in any legal proceedings. Management is not aware of any other legal proceedings pending or that have been threatened against us or our properties.

 

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

 

On September 24, 2013, the Company entered into and consummated a Share Exchange Agreement with O’Malley Lifestyle, Inc., a Nevada corporation (“OML”), a related entity, whereby the Company acquired all of the issued and outstanding capital stock of OML solely in exchange for 7,300,000 newly-issued shares of the Company’s common stock.

 

All of the securities set forth above were issued by the Company pursuant to Section 4(2) of the Securities Act of 1933, as amended, or the provisions of Rule 504 of Regulation D promulgated under the Securities Act. All such shares issued contained a restrictive legend and the holders confirmed that they were acquiring the shares for investment and without intent to distribute the shares. All of the purchasers were friends or business associates of the Company’s management and all were experienced in making speculative investments, understood the risks associated with investments, and could afford a loss of the entire investment. Some of the investors were introduced to the Company by certain Agents that we call Finders. The Company had individual agreements with the Finders regarding fees payable to them. The Company has not utilized an underwriter for an offering of its unregistered securities.

 

  

Item 3. Defaults Upon Senior Securities

 

None.

 

Item 4. Mine Safety Disclosures.

 

Not applicable.

 

Item 5. Other Information.

 

Item 6. Exhibits.

 

(a)        Exhibit index.

 

Exhibit Number		Description
31.1*		Certification of the Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1+		Certification of the Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS**		XBRL Instance Document
101.SCH**		XBRL Taxonomy Extension Schema Document
101.CAL**		XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF**		XBRL Taxonomy Extension Definition Linkbase Document
101.LAB**		XBRL Taxonomy Extension Label Linkbase Document
101.PRE**		XBRL Taxonomy Extension Presentation Linkbase Document

 

*Filed with this report.

**Furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise not subject to liability under these sections.

+In accordance with SEC Release 3308238, Exhibit 32.1 is being furnished with this report.

 

  

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

	DRUG FREE SOLUTION INC.
Dated: October 2, 2014	By:	/s/   Genie O’Malley
		Name:  Genie O’Malley
		Title:  President, Chief Executive
		Officer, Chief Financial Officer,
		Secretary and Treasurer
		(Principal Executive Officer and
		Principal Financial Officer)