ITEM 1 - BUSINESS
Corporate History Through December 31, 2012
We were incorporated in Delaware as I-Web Media, Inc. on April 29, 2010. The corporation was formed under the Plan of Reorganization in the Chapter 11 bankruptcy proceedings of AP Corporate Services, Inc. This Plan of Reorganization was approved by the U.S. Bankruptcy Court. At the time of our incorporation we were a website design service company, but we never had any material operations as a website design company.
On October 28, 2010, the holder of the majority of our common stock, as well as one of our officers and directors, Mr. Kenneth S. Barton, entered into an Agreement to Purchase Common Stock with Rockland Group, LLC, a Texas limited liability company (“Rockland”), under which Rockland agreed to purchase an aggregate of 10,000,000 shares of our common stock from Mr. Barton in exchange for $250,000. These shares represent approximately 90% of our outstanding common stock. The transaction closed November 3, 2010. As a result of the Agreement to Purchase Common Stock between Mr. Barton and Rockland, all of our officers and one of our directors resigned immediately, and we appointed one new director and retained new executive officers. In addition, we changed our business focus from a website design service company to one focusing on investments and acquisition opportunities primarily in products and companies involved in the emerging and important market segments of clean and renewable energy, medical technology, nanotechnology, and environmentally-friendly (green) waste management.
Effective December 29, 2010, we amended our Articles of Incorporation to change our name to Heartland Bridge Capital, Inc., and to increase our authorized common stock to 250,000,000 shares, par value $0.0001. On the same date we approved amended and restated Bylaws and changed our fiscal year end from March 31st to December 31st. We changed our name to better reflect our current business operations. Detailed information regarding these corporate actions can be found in our Definitive Information Statement on Schedule 14-C, filed with the Commission on December 7, 2010.
In furtherance of our business focus, we purchased two material assets in December 2010 that gave us material operations: i) a portion of the proceeds from sales of the Myself® pelvic muscle trainer; and ii) a patent application for a novel medical applicator that is capable of delivering medicants and internal devices within the body in an atraumatic fashion (without producing injury or damage). Subsequent to these purchases we entered into agreements with, and made payments to, third parties to test and develop the market for our medical applicator. We also made investments in several companies with operations in our niche markets, namely HepatoChem, Inc. and Legends and Heroes, Inc.
Acquisition of Myself® Cash Flow Asset
On December 8, 2010, we entered into an Asset Purchase Agreement with New Horizon, Inc., a Texas corporation (the “New Horizon Agreement”). On December 9, 2010, the transactions contemplated by the New Horizon Agreement closed (the “Closing”). Pursuant to the New Horizon Agreement, we acquired certain assets from New Horizon, including the right to receive any proceeds New Horizon was entitled to receive from the sale of the Myself® pelvic muscle trainer. The calculation of the amounts we were entitled to receive from the sales of the Myself® pelvic muscle trainer are listed on Exhibit A to the New Horizon Agreement, which is incorporated herein as Exhibit 10.8.
Under the New Horizon Agreement, as consideration for the Asset, we agreed to issue to New Horizon the following: (i) a convertible promissory note in the principal amount of Two Million Dollars ($2,000,000), convertible into our common stock at the conversion ratio of One Dollar Fifty Cents ($1.50) per share, with the option by us to pay the note with our common stock in lieu of cash at the rate of one share of our common stock per One Dollar ($1) being paid (see Exhibit 10.2, attached hereto); (ii) Four Million (4,000,000) shares of our common stock, restricted in accordance with Rule 144; and (iii) Three Million (3,000,000) shares of a new series of preferred stock (the “Series B Convertible Preferred Stock”) to be created by us, restricted in accordance with Rule 144, with the following rights and preferences: (i) dividend rights equal to the dividend rights of our common stock; (ii) liquidation preference over our common stock and equal to that of our Series A Convertible Preferred Stock; (iii) each share of Series B Convertible Preferred Stock will be convertible into five (5) shares of our common stock; (iv) no redemption rights; (v) no call rights by us; and (vi) each share of Series B Convertible Preferred Stock will have one (1) vote on all matters validly brought to our common stockholders, with the other rights and preferences to be determined by the our Board of Directors. On August 31, 2012 and under the terms of the New Horizon Agreement, we issued an additional 1,500,000 and 18,000,000 shares of Series B Convertible Preferred and Common Stock, respectively, as the average closing price of our Common Stock did not meet a specified price threshold during July 2012.
Acquisition of Medical Applicator Asset
On December 10, 2010, we entered into an Asset Purchase Agreement with RWIP, LLC, an Oregon limited liability company (the “RWIP Agreement”). On December 13, 2010, the transactions contemplated by the RWIP Agreement closed (the “Closing”). Pursuant to the Agreement, we acquired certain assets from RWIP, including a patent for a novel medical applicator. The description of the assets is listed on Exhibit A to the RWIP Agreement, which is incorporated herein as Exhibit 10.11.
Under the RWIP Agreement, as consideration for the Asset, we agreed to issue the following: (i) a convertible promissory note in the principal amount of One Hundred Twenty Five Thousand Dollars ($125,000), convertible into our common stock at the conversion ratio of One Dollar Fifty Cents ($1.50) per share, and payable at the option of the Company in common stock in lieu of cash (ii) a warrant to purchase One Hundred Fifty Thousand (150,000) shares of our common stock, restricted in accordance with Rule 144, with an exercise price of Two Dollars ($2) per share, and (iii) royalties equal to twenty percent (20%) of the net income (revenue minus expenses) received by us in connection with the assets purchased from RWIP (in order to calculate this amount the revenue and expenses related to the RWIP assets will be calculated separately from our other business assets).
HepatoChem Investment
On September 15, 2011, we entered into a Series A Convertible Preferred Stock Purchase Agreement with HepatoChem, Inc., a Delaware corporation, under which we agreed to purchase up to 40,000 shares of HepatoChem’s Series A Convertible Preferred Stock for up to $400,000. Pursuant to this agreement, on October 13, 2011 we purchased 10,000 shares of HepatoChem Series A Convertible Preferred Stock for $100,000. The original funding schedule contemplated in the agreement was modified and subsequently on February 17, 2012 and March 20, 2012, we purchased 3,500 and 7,500 shares of HepatoChem Series A Convertible Preferred Stock for $35,000 and $75,000, respectively. We may purchase an additional 19,000 shares of HepatoChem Series A Convertible Preferred Stock for $190,000. HepatoChem’s Series A Convertible Preferred Stock has liquidation preference over HepatoChem’s common stock, is convertible into HepatoChem’s common stock, has voting rights, and has certain protective voting provisions to help maintain its preferential position.
HepatoChem (www.hepatochem.com) is a privately held company that offers pharmaceutical and biotech companies a reliable and efficient means of accessing small molecule metabolites in quantities needed in the drug development process.
Legends & Heroes Investment
On December 1, 2011 and as subsequently modified on March 7, 2012, we entered into a Letter of Intent (the “LOI”) with Legends & Heroes, Inc. (“Legends”), which described the terms under which we will purchase 25%, on a fully diluted basis, of the outstanding common stock of Legends for a total purchase price of $1,250,000 plus shares of our common stock and/or warrants in an amount to be determined. The purchase price is to be paid in tranches: i) $250,000 in cash in exchange for 2.5% of Legends’s common stock; ii) $200,000 in cash in equal weekly installments beginning on March 12, 2012 ending on April 30, 2012 in exchange for 2.0% of Legends’s common stock; iii) $800,000 in cash upon executing definitive transaction documents and closing the transaction in exchange for 8% of Legends’s common stock; and iii) a combination of our common stock and warrants in amounts to be determined, restricted in accordance with Rule 144, upon executing definitive transaction documents and closing the transaction in exchange for 12.5% of Legends’s common stock. The first tranche, $250,000 for 2.5% of Legends’s common stock is binding on both parties and the $250,000 was paid to Legends on December 7, 2011. The second tranche, $200,000 for 2.0% of Legends' common stock is binding on both parties and, as required, payments aggregating $75,000 were paid through March 26, 2012. The third and the fourth tranches for the remaining 20.5% of Legends’s common stock is non-binding and dependent upon the parties executing definitive transaction documents, which the parties have agreed to exert reasonable efforts to conclude during the second quarter of 2012. Additionally, if the parties consummate the entire transaction and we acquire 25% of Legends’s common stock we will have the right to appoint a majority of the directors to serve on Legends’s Board of Directors for at least the next three years after the close of the transaction.
Legends & Heroes, Inc. is the maker of Skineez Skincarewear™ which are comfortable and highly effective garments that constantly deliver healthy and natural cosmetic ingredients to your skin while you wear them. When we consummate the final transaction to acquire the additional 20.5% interest in Legends we will include additional information about Legends and its business.
iSafe Transaction
On March 21, 2011, we entered into a Reorganization and Stock Purchase Agreement (the “Agreement”) with iSafe Imaging Canada Ltd., an Alberta corporation, iSafe Imaging, LP, a Texas limited partnership, and eMediSafe, LP, a Texas limited partnership (together the “iSafe Entities”), and the individuals and entities listed on the signature page of the Agreement as the owners of the iSafe Entities (the “iSafe Holders”). On March 22, 2011, we closed the transaction contemplated by the Agreement and acquired all of the outstanding securities and ownership interests of the iSafe Entities, which are now our wholly-owned subsidiaries. The iSafe Entities provide digital file conversion services that convert legacy information of various formats into valuable, usable information. Services include document imaging, tape copying and transcription, data replication, and disaster recovery. Additional services provided by the iSafe Entities include physical storage and management of hard copy records and paper materials, document retention planning, and document disposal. These services enable the iSafe Entities to create unique and comprehensive data and information management solutions that deliver maximum value to their business and user communities.
In exchange for the securities and ownership interests of the iSafe Entities, we issued the iSafe Holders five hundred thousand (500,000) shares of our common stock, restricted in accordance with Rule 144, and warrants to purchase fifty thousand (50,000) shares of our common stock at an exercise price of $3.05 per share.
On August 11, 2011, we filed an amended Current Report on Form 8-K/A with the audited financial statements of the iSafe Entities for the year ended December 31, 2011. According to those audited financial statements, the iSafe Entities had combined revenues of approximately $1.3 million in 2010, an increase of approximately 50% over the 2009 revenues of approximately $0.9 million. Major iSafe Entities’ customers include companies in the energy, telecommunications, engineering, and medical sectors.
On November 22, 2011, we sold the iSafe Entities to a company controlled by our majority shareholder for a cash payment of $250,000 plus 130,000 shares of our common stock (restricted under Rule 144) and warrants for the purchase of 50,000 shares of our common stock with an exercise price of $3.05. We realized a gain of approximately $163,000 in connection with this transaction.
Effective March 31, 2012, we decided to further intensify our focus in the energy sector and the related opportunities within and, to that end, we elected to change the name of the Company to InterCore Energy, Inc. Simultaneously, our Board unanimously adopted, and stockholders holding a majority of the common stock approved, a resolution to effect a nine-for-one (9:1) forward stock split of our outstanding common stock and to increase the number of authorized shares of Common Stock from 250,000,000 to 750,000,000. These actions were effective May 16, 2012.
Epec Transaction
On May 21, 2012, we entered into a Common Stock Purchase Agreement with Epec Biofuels Holdings, Inc. (“Epec”). Under the terms of the agreement we agreed to purchase Twenty Million (20,000,000) shares of Epec’s common stock, par value $0.0001 per share, at a purchase price of Five Cents ($0.05) per Share, for total consideration of One Million Dollars ($1,000,000), (the “Consideration”) payable as follows: (i) One Hundred Fifty Thousand Dollars ($150,000) paid upon execution thereof, (ii) Six Hundred Thousand Dollars ($600,000) paid by us in 4 installments of $150,000 each on each of June 15, 2012, June 30, 2012, July 15, 2012, and July 31, 2012 (the “Installment Payments”) pursuant to the terms of a promissory note, and (iii) Two Million Two Hundred Fifty Thousand (2,250,000) shares of our common stock, restricted in accordance with Rule 144. The shares represent approximately 20% of Epec’s outstanding common stock, on a fully diluted basis. Under the Agreement we had the right to appoint one person to Epec’s Board of Directors upon execution of the agreement and a second director upon payment of the fourth Installment Payment. After several amendments to the promissory note we issued Epec a total of thirty five million (35,000,000) shares of our common stock and paid Epec a total of $275,000 in exchange for a total of twelve million five hundred thousand (12,500,000) shares of Epec’s common stock. As of the date of this report, there are no additional monies or shares due and owing to Epec, and Epec does not owe us any shares.
Corporate History Subsequent to December 31, 2012
SRG Transaction
On January 23, 2013, we consummated a transaction with SRG, Inc., a Quebec Province corporation (“SRG”), and the shareholders of SRG who are the owners of 100% of the outstanding common stock of SRG, pursuant to which the holders of 100% of the outstanding common stock of SRG transferred to us all of the common stock of SRG in exchange for the issuance of 5,000,000 shares of our Series C Convertible Preferred Stock, which shares are convertible into 80% of our then outstanding common stock immediately after a reverse stock split. As a result of this transaction and a transaction with HLBC Distribution Company, Inc. (whereby we sold our assets and operations in exchange for relief from certain debt obligations, as described below), SRG became our wholly-owned subsidiary and we are now a holding company with all of our operations conducted through SRG. Consequently, this transaction has been accounted for asa reverse merger.
Those operations consist primarily of researching, developing, and testing the ADS Software. The ADS Software is ADS™ (Alertness Detection Software), a system designed around proprietary alertness detection technologies, which helps operators in modulating their work activity based on real time knowledge of their actual state of alertness (the “ADS Software”). The ADS™ methodology employs a unique approach for assessing sleepiness and low alertness levels via the observed behavior of operators in real work conditions.
Assignment and Assumption Agreement
Simultaneous with consummating the transaction with SRG, we closed the transaction contemplated by an Assignment and Assumption Agreement by and between us and HLBC Distribution Company, Inc., a Nevada corporation (“HLBCDC”), under which certain of our assets were transferred to HLBCDC in exchange for HLBCDC assuming certain liabilities of ours. The assets we transferred to HLBCDC were the shares we owned in Legends & Heroes, Inc., and Epec Biofuels Holdings, Inc., as well as the intangible rights associated with the Myself™ pelvic muscle trainer and a novel medical applicator referred to as the “Soft and Smooth Assets.” In addition to transferring the assets we issued to HLBDC 40,203,785 shares of our common stock (the “HLBCDC Shares”), and warrants to purchase 50,000,000 shares of our common stock at the exercise price of $0.0055 per share (the fair market value of our common stock as of the date of the Agreement) (the “HLBCDC Warrant”). In exchange for the assets, shares and the warrant, HLBCDC agreed to assume $985,948 of liabilities consisting of fees owed to management, notes payables, and trade payables.
Asset Purchase Agreement
Simultaneous with consummating the transaction with SRG, we closed the transaction contemplated by an Asset Purchase Agreement between us and Rockland Group, LLC, our majority shareholder, in advance of the share exchange with SRG’s shareholders and an entity controlled by one of our Directors (“Rockland”), pursuant to which we sold the shares we owned in HepatoChem, Inc. to Rockland in exchange for Rockland agreeing to forgive $579,938 of the debt owed to it by us.
MeliaLife Agreement
On March 12, 2013, we entered into a Distribution Agreement (the “Distribution Agreement”) with MeliaLife International, Inc. (“MeliaLife”), pursuant to which we will distribute and sell various natural supplement products produced by MeliaLife. Under the terms of the Distribution Agreement we will be the exclusive distributor to sell the products as described in Schedule A of the Distribution Agreement, which products include, but are not limited to, Melia Essentials Multiminerals, Betterflex, Melia Royal Ginseng, Melia C, Melia B Plus, Calcium Cynergy, Melia Vision, Cholesterol Solution, Menomelia, Prostamune, Meliapure, Jus de Goji, Jus de Noni, and Innergium (the “Products”). The duration of the Distribution Agreement is a maximum five (5) years from the date of the Distribution Agreement, or when we purchase Products in an amount by which the MeliaLife has received $30 million dollars, representing 50% of the total product value of the Products purchased by us, whichever happens first. At the end of this contract, MeliaLife will assign its rights in all the Products to us for 4% of the net profit (total product value minus direct costs related to the Product), calculated and paid monthly, generated by the sale by us of those Products worldwide.
During the term of the Distribution Agreement, MeliaLife will grant us 4% of its net profit (total product value minus direct costs related to the Products), calculated and paid monthly, generated by sales in the areas set out in Schedule B of the Distribution Agreement. For each order we place with MeliaLife, we agreed to pay MeliaLife the total manufacturing cost for the products ordered on the date of the order, and will pay 50% of the total product value to the Manufacturer on the date of delivery of the products.
Business Overview
Because our operations as of December 31, 2012 consisted of attempting to develop our novel medical applicator that is capable of delivering medicants and internal devices within the body in an atraumatic fashion (without producing injury or damage), advising the companies where we had investments, including Epec, HepatoChem and Legends & Heroes, as well as looking for additional technologies and/or companies to acquire, this section will focus on those operations and not the SRG technology since that transaction did not close until post-December 31, 2012. As noted above, at the close of the SRG transaction SRG became our wholly-owned subsidiary and we are now a holding company with all of our operations conducted through SRG, which consists of researching, developing, and testing the ADS Software and the distribution of natural supplement products produced by MeliaLife . The ADS Software is ADS™ (Alertness Detection Software), a system designed around proprietary alertness detection technologies, which helps operators in modulating their work activity based on real time knowledge of their actual state of alertness (the “ADS Software”). The ADS™ methodology employs a unique approach for assessing sleepiness and low alertness levels via the observed behavior of operators in real work conditions. The various natural supplement products produced by MeliaLife include, but are not limited to, Melia Essentials Multiminerals, Betterflex, Melia Royal Ginseng, Melia C, Melia B Plus, Calcium Cynergy, Melia Vision, Cholesterol Solution, Menomelia, Prostamune, Meliapure, Jus de Goji, Jus de Noni, and Innergium. We may also venture into other business segments as opportunities present themselves. These additional operations will be further described in other filings with the Commission.
Myself® Cash Flow
Products and Services
As a result of our transaction with New Horizon, Inc., described above, we purchased the right to receive New Horizon’s distributions from sales of the Myself® pelvic muscle trainer. We did not acquire the product or any equity in the company that owns the Myself® pelvic muscle trainer; we purchased the rights to receive certain distributions based on the profitability of the sales of the Myself® pelvic muscle trainer. The calculation of the amounts we were entitled to receive from the sales of the Myself® pelvic muscle trainer are listed on Exhibit A to the New Horizon Agreement, which is attached hereto as Exhibit 10.8.
As noted above, we purchased a right to receive certain distributions based on the sales of the Myself® pelvic muscle trainer, we do not own the product itself or any equity in Jarden, Inc., the consumer products company that is the owner of the Myself® pelvic muscle trainer. However, we believe some information regarding the Myself® pelvic muscle trainer will better allow investors and shareholders to understand the product upon which our revenue stream right is based.
The Myself® pelvic muscle trainer is the first FDA cleared, non-prescription product available direct to the consumer for the treatment of female incontinence. This innovative device may provide some consumers a truly “curative” private solution to female incontinence. The product is a home-use biofeedback product with proprietary technology that allows a woman to successfully strengthen her pelvic floor muscles on her own. In addition to urinary incontinence, the Myself® product is an effective therapeutic choice for a number of other pelvic floor weakness-related conditions affecting millions of women. These include conditions arising out of pregnancy, menopausal symptoms, pelvic organ relaxation, and female sexual dysfunction.
The Urinary Incontinence Marketplace; Customers
According to various market studies related to female incontinence:
·over 1 in 3 women experience urinary incontinence at least once a month;
·over 40% of women experience sexual dissatisfaction;
·an estimated 37 million women suffer from menopausal symptoms;
·over 38% of women ages 50-79 have some form of prolapse;
·approximately 15% of women of age 18-50 experience chronic pelvic pain; and
·over 95% of adult women suffer from occasional vaginal dryness or more frequent vaginal discomfort symptoms.
As a result of the above figures, the marketplace for female incontinence medical devices, especially ones that can be purchased over the counter and used at home for such a personal matter, is substantial. It is estimated that the prevalence of female incontinence rises to 30-40% of all women around middle age and then steadily increases with aging (up to 50% in elderly women)1. These statistics, combined with the fact the U.S. Census estimates that the number of women over 40 in the United States will increase from 63 million today to 80 million in 2020, point to a very significant market potential for the Myself® product.
Competition
The Myself® product represents a new category of product in its primary market segments and, as a result, direct competitive efforts have yet to evolve. For the majority of women suffering from urinary incontinence that do not seek medical intervention, their over-the-counter options consist primarily of diapers or pads. Diapers carry a social stigma and are usually incompatible with an active lifestyle. Pads are a more discreet option, but are not as protective and they may still emit an embarrassing odor. A year’s use of adult diapers can cost an individual more than $2,000.
Low-tech, consumer-oriented pelvic muscle strengthening gadgets are available. These include intra-vaginal weights and spring-loaded resistance devices. These are mainly available through the internet and their cost is anywhere from $90-$130. These products do not offer the biofeedback component that is considered critical by most therapists to achieving any meaningful level of benefit. These gadgets are largely unproven and have yet to reach the mass market retail channel.
1 Kathryn Burgio, “Prevalence, Incidence, and Correlates of Urinary Incontinence in Healthy, Middle-Age Women,” J Urology, 146:1255-1259, Nov 1991(http://www.medscape.com/viewarticle/462756).
Intellectual Property
Jarden, Inc., the consumer products company that is the owner of the Myself® pelvic muscle trainer, or its affiliates, has multiple international and domestic patents for that device. That company also maintains a registered trademark for the name “Myself” for medical devices, namely, a muscle activity measuring device for use in the treatment of pelvic floor dysfunction in women in the United States.
Government Approvals and Regulations
The manufacture and sale of medical devices is subject to extensive regulatory requirements regarding production, product liability, distribution, importation, marketing, promotion, labeling, advertising, labor, and environmental issues. In the United States, the medical device industry is subject to strict federal and state government regulations covering virtually every aspect of its operations, including production, marketing, promotion, sales, distribution, pricing, labeling, packaging, and advertising.
Advertising, marketing, and sales of medical devices are subject to various restrictions in markets around the world.
Labeling of medical devices is also regulated in many markets, varying from health warning labels to consumer information.
Regulatory decisions and changes in the legal and regulatory environment could increase our costs and the potential liabilities associated with our business or impact our business activities.
Research and Development Activities
Extensive marketing research continues in support of a potential mass market launch for this product. All research and development activities for this product are the sole responsibility of the owner of the product.
Compliance with Environment Laws
We have no disclosure required by this Item.
Medical Applicator Asset
As a result of our transaction with RWIP, LLC, described above, we acquired certain assets from RWIP, including a patent application for a novel medical applicator that is capable of delivering medicants and internal devices within the body in an atraumatic fashion (without producing injury or damage).
Products and Services
The medical applicator technology has a number of potential uses in the medical device field. These include translumenal delivery of arterial repair devices such as stents and grafts, insertion of analgesics and other medicines to specific locations within a body orifice or vessel, and delivery of tamponading devices for achieving hemostasis within a body cavity. Of these applications, the use of the applicator technology as a vaginal tampon delivery device offers the largest and nearest-term commercial potential due to its large consumer market and is the first potential product we are currently researching and testing.
At December 31, 2012, a development team was working to refine the design criteria and market parameters for the project which will help them create clinical testing prototypes of the delivery device in its tampon applicator form.
The tampon applicator under development is designed to replace the plastic and cardboard applicators currently used by women to insert tampons. Targeted advantages for the new applicator include easier and pain-free insertion, superior disposability (flushable/biodegradable), and smaller size at a cost equal to or less than current plastic applicators.
Disposal of tampons and their plastic applicators is problematic for consumers and the environment. While plastic applicators are often preferred over flushable cardboard models due to their smoothness and functionality, today’s plastic applicators must be disposed of in a waste basket. As a result they require the user to take a two-step approach to disposal while contributing to landfill volume. When they do end up in the waste water system, they can cause blockages in residential and municipal systems. Furthermore, whether thrown away or flushed, tampons and their components often end up in waterways and oceans where they take a long time to degrade. Recognizing these shortcomings of existing applicators, our proposed tampon applicator is designed to be biodegradable and water dispersible so that no matter what its disposal path it will not harm the environment.
Research and Development Activities
On December 13, 2010, under the terms of the RWIP Agreement, we entered into a Development Services Agreement with RWIP under which RWIP agreed to provide services to us in connection with the development of the novel medical applicator asset. The staff with RWIP has extensive experience in new product development (specifically within the feminine protection category) and business development. RWIP earned $10,000 per month during 2011 and 2012 under that agreement. That agreement was terminated effective December 31, 2012.
Tampon Market Overview
The potential number of worldwide tampon users includes all women in their menstruating years - which, according to Population Reference Bureau figures - amounts to 1.62 billion women.2 In the United States, tampon sales in 2006 were valued at $577 million (excluding Wal-Mart sales).3 As in the United States and Canada, 70% of women in Europe use tampons over sanitary napkins making for a similar market opportunity in the European Union.4 Over 90% of tampon customers in the United States prefer applicator-equipped tampons compared with 30% of European women.5 Historically, annual growth rates for the tampon market in North America and Europe have been in the 2-4% range over the past few years, but there is evidence of slowing growth as female baby boomers continue to enter menopause.6 Tampon sales outside of Europe and North America are expected to increase as living standards improve. Increasing prosperity will allow more women the option of choosing tampons over inexpensive pads. Experts predict a market growth rate in the high single digits for the industrialized Asian countries.7
The tampon market has seen dynamic growth and favorable response to innovation since recovering from Toxic Shock Syndrome cases in the early 1980s. Innovations such as plastic applicators, compact tampons, flushable and biodegradable options, and products aimed at teens have helped fuel growth through the 1990s until today. Tampax’s Pearl built a 12% market share a year from launch in 2002 and built this to a 22% share by 2006.8 Brand awareness and heavy promotion helped this product’s breakout, but much of its staying power can be attributed to consumers’ affinity for its improved features, which included a smooth, user-friendly plastic applicator. The Tampax Pearl’s success came despite its 25% price premium relative to standard Tampax tampons. This success reflects consumers’ responsiveness to innovation in this marketplace.
Competition
Leading competitors in the tampon market include consumer giant P&G’s Tampax brand, Playtex, O.B., and Kimberly-Clark’s Kotex. Tampax is the market leader with a reported 50% share followed by Playtex at 20%, Kotex and O.B. at 12% and 8% respectively, and private label at 10%.9 Transfers in market share in this category have been driven by a cycle of innovation and promotion by Tampax and Playtex. Given the apparent value of tampon innovation, we believe that if the technology we are developing is successful, we will be in a position to sell or license it to one or more of the current tampon manufacturers.
http://www.prb.org/Datafinder/Geography/MultiCompare.aspx?variables=45&regions=6,70,101,115,172,33,53,8,63,7,16,83,74,73,69,116,163,136,151,117,196,174,207,186,5,3,4,2,223,1
Tampons Segment Needs a Spark, Chain Drug Review, August 14, 2006
http://www.stayfreemagazine.org/public/wsj_tampons.html
Fighting for footing in feminine products: industry leaders in feminine hygiene products hope to parlay the promise of new national brand developments into private label., Private Label Buyer, 9/01/2003
Proceed with care: growth in the feminine care category is varied by product, but product innovation and updated merchandising is helping spark overall growth, Private Label Buyer, 6/01/2006; and Sanitary Protection In The US. advances in technology and design help drive growth, NonWovens Industry, Nov. 2006
Wuagneux, Ellen, “Scent-sational San-Pro Strategies, NonWovens Industry, Nov, 2004
http://www.enquirer.com/editions/2003/09/07/biz_pgrivals07.html; and Tampons Segment Needs a Spark, Chain Drug Review, August 14, 2006
Canadian Advertising Success Stories 2008, www.cassies.ca, OB Brand Study
Intellectual Property
As part of the assets we purchased from RWIP, LLC, we acquired a U.S. Provisional Application, a PCT Patent Application, and a U.S. Continuation-in-Part Application related to the medical applicator. In the RWIP Asset Purchase Agreement, RWIP agreed not to compete with the medical applicator technology for a period of five (5) years, which will assist us protecting the asset. Additionally, our consulting agreement with RWIP contained a confidentiality provision, as well as an assignment of work product provision, both of which would have further protected our intellectual property rights.
Government Approvals and Regulations
Tampons are regulated by the FDA as a Class II product and require FDA clearance prior to commercial sale and marketing. Depending on the project’s commercialization status, the Company may pursue FDA clearance prior to transferring the technology to another company. This could potentially shorten the time-to-market for the device and add value to the asset.
Employees
We do not have any employees. Currently all of our officers are independent contractors. We believe that our relationship with our staff is good.
Description of Property
Currently, we do not lease office space, but maintain a virtual office at a cost of $219 per month, which provides us with a physical address, a phone number, answering service and use of certain office facilities, such as conference rooms, on a discounted basis, as needed.
Available Information
We are a fully reporting issuer, subject to the Securities Exchange Act of 1934. Our Quarterly Reports, Annual Reports, and other filings can be obtained from the SEC’s Public Reference Room at 100 F Street, NE., Washington, DC 20549, on official business days during the hours of 10 a.m. to 3 p.m. You may also obtain information on the operation of the Public Reference Room by calling the Commission at 1-800-SEC-0330. The Commission maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the Commission at http://www.sec.gov.
Our Internet website address is http://www.intercoreenergy.com.
ITEM 1A.
ITEM 1A. - RISK FACTORS.
As a smaller reporting company we are not required to provide a statement of risk factors. However, we believe this information may be valuable to our shareholders for this filing. We reserve the right to not provide risk factors in our future filings. Our primary risk factors and other considerations include:
We have a limited operating history and limited historical financial information upon which you may evaluate our performance.
You should consider, among other factors, our prospects for success in light of the risks and uncertainties encountered by companies that, like us, have a limited operating history. We may not successfully address these risks and uncertainties or successfully market our existing and new products. If we fail to do so, it could materially harm our business and impair the value of our common stock. Even if we accomplish these objectives, we may not generate the positive cash flows or profits we anticipate. To date we do not have any revenues and currently our future revenues are dependent upon the future sales of the Myself® pelvic muscle trainer, as well on the successful development and sale of our tampon applicator and on the growth of the businesses of the iSafe entities. Unanticipated problems, expenses, and delays are frequently encountered in establishing and developing new products in the medical technology field. These include, but are not limited to, inadequate funding, lack of consumer acceptance, competition, product development setbacks, and inadequate sales and marketing. The failure by us to address satisfactorily any of these conditions could have a materially adverse effect upon us and may force us to reduce or curtail operations. No assurance can be given that we can or will ever operate profitably.
We may not be able to meet our future capital needs.
To date, we have not generated any revenue and we have no cash liquidity or capital resources. Our future capital requirements will depend on many factors, including our ability to develop our intellectual property, our ability to generate positive cash flow from operations, and the effect of competing market developments. We will need additional capital in the near future. Any equity financings will result in dilution to our then-existing stockholders. Sources of debt financing may result in high interest expense. Any financing, if available, may be on terms deemed unfavorable.
If we are unable to meet our future capital needs, we may be required to reduce or curtail operations.
To date, we have relied on financing from investors and our officers and directors to fund operations, and we have generated no revenue. We have limited cash liquidity and capital resources. Our future capital requirements will depend on many factors, including our ability to market our products successfully, our ability to generate positive cash flow from operations, and our ability to obtain financing in the capital markets. Our business plan requires additional financing beyond our anticipated cash flow from current operations. Consequently, although we currently have no specific plans or arrangements for financing, we intend to raise funds through private placements, public offerings, or other such means. Any equity financings would result in dilution to our then-existing stockholders. Sources of debt financing may result in higher interest expense and may expose us to liquidity problems. Any financing, if available, may be on terms deemed unfavorable. If adequate funds are not obtained, we may be required to reduce or curtail operations.
If we are unable to attract and retain key personnel, we may not be able to compete effectively in our market.
Our success will depend, in part, on our ability to attract and retain key management, both including and beyond what we have today. We will attempt to enhance our management and technical expertise by recruiting qualified individuals who possess desired skills and experience in certain targeted areas. If we are unable to retain staff and to attract and retain sufficient additional employees, and the requisite information technology, engineering, and technical support resources, could have a material adverse effect on our business, financial condition, results of operations, and cash flows. The loss of key personnel could limit our ability to develop and market our products.
Competition could have a material adverse effect on our business.
As of December 31, 2012, our investments were in the medical field. The medical products industry is a highly competitive industry and the products that we currently have an interest in may not compete well in the marketplace, which could cause our revenues to be less than expected, and/or may cause us to increase the number of our personnel or our advertising or promotional expenditures to maintain our competitive position or for other reasons.
An increase in government regulations could have a material adverse effect on our business.
The U.S. and certain other countries in which we operate impose certain federal and state or provincial regulations, and also require warning labels and signage on medical products. New or revised regulations or increased licensing fees, requirements, or taxes could also have a material adverse effect on our financial condition or results of operations.
We may be unable to adequately protect our proprietary rights.
Our ability to compete partly depends on the superiority, uniqueness, and value of our intellectual property and technology. To protect our proprietary rights, we will rely on a combination of patent, copyright, and trade secret laws, confidentiality agreements with our employees and third parties, and protective contractual provisions. Despite these efforts, any of the following occurrences may reduce the value of our intellectual property:
·Our applications for patents relating to our business may not be granted or, if granted, may be challenged or invalidated;
·Issued patents may not provide us with any competitive advantages;
·Our efforts to protect our intellectual property rights may not be effective in preventing misappropriation of our technology;
·Our efforts may not prevent the development and design by others of products or technologies similar to, competitive with, or superior to, those we develop; or
·Another party may obtain a blocking patent and we would need to either obtain a license or design around the patent in order to continue to offer the contested feature or service in our products.
We may be forced to litigate to defend our intellectual property rights, or to defend against claims by third parties against us relating to intellectual property rights.
We may be forced to litigate to enforce or defend our intellectual property rights, to protect our trade secrets, or to determine the validity and scope of other parties’ proprietary rights. Any such litigation could be expensive and could distract our management from focusing on operating our business. The existence and/or outcome of any such litigation could harm our business.
We may not be able to effectively manage our growth and operations, which could have a material adverse effect on our business.
We may experience rapid growth and development in a relatively short period of time. Should this happen, the management of this growth could require, among other things, continued development of our financial and management controls and management information systems, stringent control of costs, increased marketing activities, the ability to attract and retain qualified management personnel, and the training of new personnel. We intend to retain additional personnel as appropriate to manage our expected growth and expansion. Failure to successfully manage our possible growth and development could have a material adverse effect on our business and the value of our common stock.
Our future research and development projects may not be successful.
The successful development of pharmaceutical products can be affected by many factors. Products that appear to be promising at their early phases of research and development may fail to be commercialized for various reasons, including the failure to obtain the necessary regulatory approvals. In addition, the research and development cycle for new products for which we may obtain such approvals certificate typically is long.
There is no assurance that any of our future research and development projects will be successful or completed within the anticipated time frame or budget or that we will receive the necessary approvals from relevant authorities for the production of these newly developed products, or that these newly developed products will achieve commercial success. Even if such products can be successfully commercialized, they may not achieve the level of market acceptance that we expect.
Any products we develop, acquire, or invest in may not achieve or maintain widespread market acceptance.
The success of any products we develop, acquire, or invest in will be highly dependent on market acceptance. We believe that market acceptance of any products will depend on many factors, including, but not limited to:
·the perceived advantages of our products over competing products and the availability and success of competing products;
·the effectiveness of our sales and marketing efforts;
·our product pricing and cost effectiveness;
·the safety and efficacy of our products and the prevalence and severity of adverse side effects, if any; and
·publicity concerning our products, product candidates, or competing products.
If our products fail to achieve or maintain market acceptance, or if new products are introduced by others that are more favorably received than our products, are more cost effective, or otherwise render our products obsolete, we may experience a decline in demand for our products. If we are unable to market and sell any products we develop successfully, our business, financial condition, results of operations, and future growth would be adversely affected.
Developments by competitors may render our products or technologies obsolete or non-competitive.
The medical device industry is intensely competitive and subject to rapid and significant technological changes. A large number of companies are pursuing the development of medical devices for markets that we are targeting. We face competition from pharmaceutical and biotechnology companies in the United States and other countries. In addition, companies pursuing different but related fields represent substantial competition. Many of the organizations competing with us have substantially greater capital resources, larger research and development staffs and facilities, longer medical device development history in obtaining regulatory approvals, and greater manufacturing and marketing capabilities than do we. These organizations also compete with us to attract qualified personnel and parties for acquisitions, joint ventures, or other collaborations.
If we fail to maintain an effective system of internal controls or discover material weaknesses in our internal controls over financial reporting, we may not be able to report our financial results accurately or timely or to detect fraud, which could have a material adverse effect on our business.
An effective internal control environment is necessary for us to produce reliable financial reports and is an important part of our effort to prevent financial fraud. We are required to periodically evaluate the effectiveness of the design and operation of our internal controls over financial reporting. Based on these evaluations, we may conclude that enhancements, modifications, or changes to internal controls are necessary or desirable. While management evaluates the effectiveness of our internal controls on a regular basis, these controls may not always be effective. There are inherent limitations on the effectiveness of internal controls, including collusion, management override, and failure of human judgment. In addition, control procedures are designed to reduce rather than eliminate business risks. If we fail to maintain an effective system of internal controls, or if management or our independent registered public accounting firm discovers material weaknesses in our internal controls, we may be unable to produce reliable financial reports or prevent fraud, which could have a material adverse effect on our business, including subjecting us to sanctions or investigation by regulatory authorities, such as the Securities and Exchange Commission. Any such actions could result in an adverse reaction in the financial markets due to a loss of confidence in the reliability of our financial statements, which could cause the market price of our common stock to decline or limit our access to capital.
Our common stock may be affected by limited trading volume and may fluctuate significantly.
There has been a limited public market for our common stock and there can be no assurance that an active trading market for our common stock will develop. This could adversely affect our shareholders’ ability to sell our common stock in short time periods or possibly at all. Our common stock has experienced and is likely to continue to experience significant price and volume fluctuations that could adversely affect the market price of our common stock without regard to our operating performance. Our stock price could fluctuate significantly in the future based upon any number of factors such as: general stock market trends; announcements of developments related to our business; fluctuations in our operating results; announcements of technological innovations, new products, or enhancements by us or our competitors; general conditions in the U.S. and/or global economies; developments in patents or other intellectual property rights; and developments in our relationships with our customers and suppliers. Substantial fluctuations in our stock price could significantly reduce the price of our stock.
Our common stock is traded on the "Over-the-Counter Bulletin Board," which may make it more difficult for investors to resell their shares due to suitability requirements.
Our common stock is currently traded on the OTC Bulletin Board (OTCBB) where we expect it to remain for the foreseeable future. Broker-dealers often decline to trade in OTCBB stocks given that the market for such securities is often limited, the stocks are often more volatile, and the risk to investors is often greater. In addition, OTCBB stocks are often not eligible to be purchased by mutual funds and other institutional investors. These factors may reduce the potential market for our common stock by reducing the number of potential investors. This may make it more difficult for investors in our common stock to sell shares to third parties or to otherwise dispose of their shares. This could cause our stock price to decline.
The report of our Independent Registered Public Accounting Firm regarding our financial statements as of and for the years ended December 31, 2011 and 2012 expresses substantial doubt about our ability to continue as a going concern.
Consequently, this may adversely affect our ability to obtain debt and/or equity financing to support future operations. If we are not able to obtain adequate financing with reasonable terms, we may be required to reduce or curtail operations.
ITEM 1B
ITEM 1B - UNRESOLVED STAFF COMMENTS
This Item is not applicable to us as we are not an accelerated filer, a large accelerated filer, or a well-seasoned issuer; however, we have not received written comments from the Commission staff regarding our periodic under the Securities Exchange Act of 1934 within the last 180 days before the end of our last fiscal year. On or about March 12, 2013, we did receive a written comment from the Commission staff to our Current Report filed with the Commission on January 29, 2013, related to whether or not we were a “shell” prior to the close of our transaction with SRG, as described above.
ITEM 2
ITEM 2 - PROPERTIES
We lease shared office space for use as our corporate headquarters in Mahwah, New Jersey on a month-to-month basis. Under the terms of this agreement, the annual rent aggregates $2,600 which includes certain administrative and support services.
ITEM 3
ITEM 3 - LEGAL PROCEEDINGS
We are not a party to or otherwise involved in any legal proceedings.
In the ordinary course of business, we may from time to time be involved in various pending or threatened legal actions. The litigation process is inherently uncertain and it is possible that the resolution of such matters might have a material adverse effect upon our financial condition and/or results of operations. However, in the opinion of our management, other than as set forth herein, matters currently pending or threatened against us are not expected to have a material adverse effect on our financial position or results of operations.
ITEM 4
ITEM 4 - MINE SAFETY DISCLOSURES
There is no information required to be disclosed under this Item.
PART II
ITEM 5
ITEM 5 - MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
Our common stock has been listed for trading on the OTC Bulletin Board since October 2010. Our current trading symbol is “ICOR.” Since our stock has been listed there have been a limited number of trades of our common stock.
The following table sets forth the high and low bid information for each quarter within the fiscal years ended December 31, 2012 and December 31, 2011, as best estimated by the company, adjusted to reflect the reverse stock split of our common stock effective May 16, 2012. The information reflects prices between dealers, and does not include retail markup, markdown, or commission, and may not represent actual transactions.
The Securities Enforcement and Penny Stock Reform Act of 1990 requires additional disclosure relating to the market for penny stocks in connection with trades in any stock defined as a penny stock. The Commission has adopted regulations that generally define a penny stock to be any equity security that has a market price of less than $5.00 per share, subject to a few exceptions which we do not meet. Unless an exception is available, the regulations require the delivery, prior to any transaction involving a penny stock, of a disclosure schedule explaining the penny stock market and the risks associated therewith.
Holders
As of June 20, 2013, there were 747,045,896 shares of our common stock outstanding held by approximately 300 holders of record and numerous shares held in brokerage accounts. Of these shares, 196,878,585 are held by non-affiliates and were free-trading. On the cover page of this filing we valued the 196,878,585 shares held by non-affiliates at $984,393. These shares were valued at $0.005 per share, based on recent trades of our common stock as listed on the OTC Bulletin Board.
Warrants
On December 15, 2010, our Board of Directors approved the issuance of warrants to purchase our common stock to certain of our officers, directors, and consultants to reward and compensate them for their outstanding service to the company. As a result, on December 29, 2010, we issued the following warrants to purchase our common stock:
These warrants and the underlying shares are restricted in accordance with Rule 144. The warrants were fully vested as of December 15, 2011 and expire on December 29, 2014. The issuance of the warrants was exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, and the recipients were either accredited or sophisticated and familiar with our operations.
In connection with the asset purchase agreement with RWIP, LLC, we issued warrants to RWIP to purchase an aggregate of 150,000 shares of our common stock at an exercise price of $2.00 per share. These warrants were transferred to other non-affiliated parties and may be exercised at any time within four (4) years from the issuance date. These warrants contain a cashless exercise provision.
Additionally, on April 29, 2010, pursuant to the Plan of Reorganization of AP Corporate Services, Inc. (the “Debtor”) we issued warrants to purchase 5,000,000 shares of our common stock, to certain creditors of the Debtor as part of the confirmed Plan of Reorganization. The warrants consist of 1,000,000 “A Warrants” each convertible into one share of our common stock at an exercise price of $1.00; 1,000,000 “B Warrants” each convertible into one share of our common stock at an exercise price of $2.00; 1,000,000 “C Warrants” each convertible into one share of our common stock at an exercise price of $3.00; 1,000,000 “D Warrants” each convertible into one share of our common stock at an exercise price of $4.00; and 1,000,000 “E Warrants” each convertible into one share of our common stock at an exercise price of $5.00. The “A” through “E” warrants are currently exercisable and may be exercised at any time prior to January 4, 2014. The “A” through “E” warrants contain a limitation providing that the warrants cannot be exercised if such exercise will cause the holder to own more than 4.9% of our then outstanding common stock.
On April 13, 2012, our Board of Directors approved, and we entered into a Warrant Repricing Agreement with the persons listed on Exhibit A to the Warrant Repricing Agreement to reprice and reissue warrants to purchase 9,000,000 shares of our common stock (the “Repriced Warrants”). The warrants to be repriced and reissued, were for the purchase of 9,000,000 shares of our common stock at $0.55 per share (the “Existing Warrants”). The parties to the Warrant Repricing Agreement agreed to cancel the Existing Warrants and exchange them, on a one to one basis, for new warrants to purchase shares of the common stock (the “Repriced Warrants”) of the Company. The Repriced Warrants have an exercise price per share of $0.056 with the remaining terms of the warrants staying the same. All stock and dollar amounts adjusted for our stock split that went effective May 16, 2012.
On May 14, 2012, our Board of Directors approved, and we entered into a Warrant Repricing Agreement with the persons listed on Exhibit A to the Warrant Repricing Agreement to reprice and reissue warrants to purchase 18,000,000 shares of our common stock (the “Repriced Warrants”). The warrants to be repriced and reissued, were for the purchase of 9,000,000 shares (pre-split) of our common stock at $0.44 per share and 9,000,000 shares of our common stock at $0.33 per share (the “Existing Warrants”). The parties to the Warrant Repricing Agreement agreed to cancel the Existing Warrants and exchange them, on a one to one basis, for new warrants to purchase shares of the common stock (the “Repriced Warrants”) of the Company. The Repriced Warrants have an exercise price per share of $0.056 with the remaining terms of the warrants staying the same. All stock and dollar amounts adjusted for our stock split that went effective May 16, 2012.
On July 20, 2012, our Board of Directors approved the issuance of warrants to purchase an aggregate of 23,500,000 shares of our common stock to certain of our officers, directors and consultants to reward and compensate them for their outstanding service to the company. We have not yet issued the warrants, but our Board of Directors approved the following warrants:
These warrants and the underlying shares are restricted in accordance with Rule 144. All of the warrants vested on January 23, 2013 in connection with the SRG transaction described in the preceding pages. The warrants expire in July 2022 and have a cashless exercise provision. The issuance of the warrants was exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, and the recipients were either accredited or sophisticated and familiar with our operations.
Dividends
There have been no cash dividends declared on our common stock, and we do not anticipate paying cash dividends in the foreseeable future. Dividends are declared at the sole discretion of our Board of Directors.
Securities Authorized for Issuance Under Equity Compensation Plans
There are no outstanding options or warrants to purchase shares of our common stock under any equity compensation plans.
Currently, we do not have any equity compensation plans. As a result, we did not have any options, warrants or rights outstanding as of December 31, 2012.
Recent Issuance of Unregistered Securities
The following securities were issued by us in the fourth quarter of 2012:
On November 2, 2012, we issued a total of 4,900,000 shares of our common stock, restricted in accordance with Rule 144, to three non-affiliate investors in exchange for a total of $16,500, or $0.0034 per share. The issuances were exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, and investors were sophisticated investors and familiar with our operations.
On November 16, 2012, we issued a total of 18,000,000 shares of our common stock, restricted in accordance with Rule 144, to New Horizon, Inc., one of our largest shareholders, pursuant to the terms of Asset Purchase Agreement by and between us and New Horizon, Inc. dated December 9, 2010, as penalty shares as a result of our common stock not having an average price of at least $2.00 for the month of July 2012. The issuance was exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, and investors were sophisticated investors and familiar with our operations.
On November 28, 2012, we issued a total of 3,010,000 shares of our common stock, restricted in accordance with Rule 144, to three non-affiliate investors in exchange for a total of $10,000, or $0.0033 per share. The issuances were exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, and investors were sophisticated investors and familiar with our operations.
On December 27, 2012, we issued 616,680 shares our common stock, restricted in accordance with Rule 144, to First Trust Management, Inc., in exchange for investor relations services. These shares were valued at $128,270. The issuance was exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, and investor was a sophisticated investor and familiar with our operations.
On December 27, 2012, we issued 410,940 shares of our common stock, restricted in accordance with Rule 144, to Kim Guenther upon her exercise of warrants to purchase our common stock. We did not receive any consideration for the exercise of these warrants as they were issued pursuant to the cashless exercise provisions contained in the warrants. The issuance was exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, and investor was a sophisticated investor and familiar with our operations.
On December 27, 2012, we issued a total of 2,800,000 shares of our common stock, restricted in accordance with Rule 144, to Kim Guenther in exchange for a total of $14,000, or $0.005 per share. The issuance was exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, and investor was sophisticated investors and familiar with our operations.
On December 27, 2012, we issued a total of 5,000,000 shares of our common stock, restricted in accordance with Rule 144, to Rockland Group, LLC, our largest shareholder and an entity controlled by Harry Pond, one of our then-officers and directors, in exchange for a total of $25,000, or $0.005 per share. The issuance was exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, and investor was sophisticated investors and familiar with our operations.
If our stock is listed on an exchange we will be subject to the Securities Enforcement and Penny Stock Reform Act of 1990 requires additional disclosure relating to the market for penny stocks in connection with trades in any stock defined as a penny stock. The Commission has adopted regulations that generally define a penny stock to be any equity security that has a market price of less than $5.00 per share, subject to a few exceptions which we do not meet. Unless an exception is available, the regulations require the delivery, prior to any transaction involving a penny stock, of a disclosure schedule explaining the penny stock market and the risks associated therewith.
ITEM 6
ITEM 6 - SELECTED FINANCIAL DATA
As a smaller reporting company we are not required to provide the information required by this Item.
ITEM 7
ITEM 7 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
Rounding
All dollar amounts in this section have been rounded to the nearest thousand.
Forward-Looking Statements
This annual report on Form 10-K of InterCore Energy, Inc. for the years ended December 31, 2011 and 2012 contains forward-looking statements, principally in this Section and “Business.” Generally, you can identify these statements because they use words like “anticipates,” “believes,” “expects,” “future,” “intends,” “plans,” and similar terms. These statements reflect only our current expectations. Although we do not make forward-looking statements unless we believe we have a reasonable basis for doing so, we cannot guarantee their accuracy and actual results may differ materially from those we anticipated due to a number of uncertainties, many of which are unforeseen, including, among others, the risks we face as described in this filing. You should not place undue reliance on these forward-looking statements which apply only as of the date of this annual report. These forward-looking statements are within the meaning of Section 27A of the Securities Act of 1933, as amended, and section 21E of the Securities Exchange Act of 1934, as amended, and are intended to be covered by the safe harbors created thereby. To the extent that such statements are not recitations of historical fact, such statements constitute forward-looking statements that, by definition, involve risks and uncertainties. In any forward-looking statement where we express an expectation or belief as to future results or events, such expectation or belief is expressed in good faith and believed to have a reasonable basis, but there can be no assurance that the statement of expectation of belief will be accomplished.
We believe it is important to communicate our expectations to our investors. There may be events in the future; however, that we are unable to predict accurately or over which we have no control. The risk factors listed in this filing, as well as any cautionary language in this annual report, provide examples of risks, uncertainties and events that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements. Factors that could cause actual results or events to differ materially from those anticipated, include, but are not limited to: changes in investment and business strategies; general economic, financial and business conditions; changes in and compliance with governmental regulations; changes in various tax laws; and the availability of key management and other personnel.
Critical Accounting Policies
Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States, which requires us to make estimates and assumptions in certain circumstances that affect amounts reported. In preparing these financial statements, management has made its best estimates and judgments of certain amounts, giving due consideration to materiality. We believe that of our significant accounting policies (more fully described in Notes to the Consolidated Financial Statements), the following are particularly important to the portrayal of our results of operations and financial position and may require the application of a higher level of judgment by our management, and as a result are subject to an inherent degree of uncertainty. Understanding our accounting policy with respect to share-based compensation is critical in fully understanding and evaluating our financial statements.
Recent Accounting Pronouncements
In June 2011, the Financial Accounting Standards Board issued Accounting Standards Update No. 2011-05, “Presentation of Comprehensive Income". This update provides companies two options for presenting Other Comprehensive Income (“OCI”) which currently is included as part of the statement of stockholders’ equity. An OCI statement can now be included within the income statement, which together will make a statement of total comprehensive income. Alternatively, companies can also present an OCI statement that is separate from an income statement, but the two statements must appear consecutively within a financial report. This statement was effective for fiscal quarters and years beginning after December 15, 2011. The effect of adopting this statement had no impact on the Company’s financial position or results of operations.
Overview
We were incorporated on April 29, 2010 as I-Web Media, Inc. to pursue a website development and internet marketing business. In connection with a change of control on November 3, 2010, we appointed new management and directors, changed our name to Heartland Bridge Capital, Inc., and changed our business focus to investments and acquisition opportunities primarily in products and companies involved in the market segments of clean and renewable energy, medical technology, nanotechnology, and environmentally-friendly (green) waste management.
During the period from November 3, 2010 to December 31, 2011 while operating as Heartland Bridge Capital, Inc. and as more fully described elsewhere in this Report,, we assembled and invested $350,000 in a portfolio of investments in the life sciences arena and looked forward to maximizing their value to our shareholders. During the three months ended March 31, 2012, we invested an additional $185,000 in those entities, but do not expect to make any additional investments of that nature in the long term.
On March 30, 2012, we decided to further intensify our focus in the energy sector and the related opportunities within and, to that end, we elected to change the name of the Company to InterCore Energy, Inc. During the six months ended September 30, 2012, we invested $375,000 in Epec Biofuels Holdings, Inc. This entity is developing alternative manufacturing technologies and distribution methods for ethanol and represents our first investment in the energy sector. Epec's technology allows sweet sorghum to be used to replace corn as the feedstock for bioethanol production. Sweet sorghum is abundant in supply, has a lower cost than corn, is tolerant of drought conditions, and allows for multiple annual harvests. Using Epec's integrated approach, bioethanol should be produced with dramatically higher yields on a pound-for-pound basis with significant valuable co-products.
For the long term, we believed that the more intense focus under our new name on the many exciting opportunities in the energy sector would provide returns at least as attractive but with better marketplace understanding and response.
On January 23, 2013, and as more fully described in the Subsequent Events footnote to our Financial Statements for the year ended December 31, 2012 included elsewhere in this Report, we entered into and closed upon an agreement with SRG, Inc., a privately held Canadian company ("SRG"), whereby we issued 5,000,000 of Series C Convertible Preferred Stock which are convertible into 80% of our outstanding common stock in exchange for 100% of the outstanding common shares of SRG. Consequently, effective January 23, 2012, SRG became our wholly-owned subsidiary and we became a holding company with all of our operations conducted through SRG.
Simultaneously with the above transaction on January 23, 2013, we entered into and closed upon an agreement with HLBC Distribution Company, Inc., a privately held company controlled by our management ("HLBC"), whereby certain of our investment assets were transferred to HLBC in exchange for HLBC assuming certain of our liabilities, the issuance to HLBC of shares of the Company's common stock, and the issuance to HLBC of a warrant for the purchase of shares of the Company's common stock. Additionally on that date, we entered into and closed upon an agreement with Rockland Group, LLC, our majority shareholder prior to January 23, 2013 and an entity controlled by one of our Directors (“Rockland”), whereby we sold the remainder of our investment assets to Rockland in exchange for Rockland agreeing to forgive a portion of the note payable owed to Rockland by us. We do not expect to record significant gains or losses in connection with these transactions.
These financial statements were prepared under the assumption that we will continue as a going concern. Our ability to do so is dependent upon our ability to obtain additional equity or debt financing, reduce expenditures, and/or generate revenue. These financial statements do not include any adjustments that might result from the outcome of that uncertainty.
As more fully described in the following paragraphs, we sold the operations of iSafe Imaging, LP, eMediSafe, LP, and iSafe Imaging Canada, Ltd on November 22, 2011. Consequently, we are a development stage company effective January 1, 2012 as we have not derived significant revenue from our principal operations during the year ended December 31, 2012.
Current cash and working capital resources, including funds received from the sale of equity securities, are not sufficient to support our activities. We plan to fund our activities through the sale of equity securities as more fully described in the Liquidity and Capital Resources section in the following paragraphs.
Liquidity and Capital Resources
We had cash of $54,000 at December 31, 2012 compared to $52,000 at December 31, 2011. This net increase of $2,000 consisted of:
We have incurred significant losses and negative cash flows from operations since our inception in April 2010. We have an accumulated deficit of $7,892,000 and a working capital deficiency of $3,607,000 as of December 31, 2012. These conditions raise substantial doubt about our ability to continue as a going concern. We have historically financed our activities through the private placement of equity securities. To date, we have dedicated most of our financial resources to general and administrative expenses in the pursuit of the business plan described in the preceding paragraphs.
We plan to fund our development and commercialization activities beyond December 31, 2012 primarily through the sale of debt and/or equity securities. We cannot be certain that such funding will be available on acceptable terms or available at all. To the extent that we secure additional debt or raise funds by issuing equity securities, our stockholders may experience significant dilution. If we are unable to raise funds when required or on acceptable terms, we may have to: a) Significantly delay, scale back, or discontinue the development and/or commercialization of one or more product candidates; b) Seek collaborators for product candidates at an earlier stage than would otherwise be desirable and/or on terms that are less favorable than might otherwise be available; or c) Relinquish or otherwise dispose of rights to technologies, product candidates, products, or services that we would otherwise seek to develop or commercialize ourselves.
We can give no assurance that such financing will be available on reasonable terms or available at all or that it can generate revenue. Should we not be successful in obtaining the necessary financing or generate revenue to fund our operations, we would need to curtail or cease operational activities. The accompanying condensed consolidated financial statements do not include any adjustments that might be necessary should we be unable to continue as a going concern.
Critical Accounting Policies
The following accounting policies are critical in fully understanding and evaluating our financial statements:
a)Valuation and recovery of intangible and investment assets; and
b)Stock-based compensation.
Our accounting policies are described in Note 3(A) to the financial statements for the year ended December 31, 2012 contained elsewhere in this Report.
Results of Operations
For the year ended December 31, 2012 compared to the year ended December 31, 2011
Revenue and Cost of Revenue
Our financial statements for the year ended December 31, 2011 do not report revenue and cost of revenue for iSafe as it was sold in November 2011 and, consequently, all such amounts have been reclassified to discontinued operations.
Revenue of $6,000 reported for the year ended December 31, 2012 are attributable to the licensing of development and marketing rights to a novel medical applicator. There were no similar revenue or expense for the comparable period in the prior year.
Research and Development Expense
Research and development expense for the year ended December 31, 2012 was $151,000 compared to $182,000 for the comparable period in the prior year. This decrease of $31,000 was attributable to multiple aspects of research and development activity occurring during 2011 associated with the novel medical applicator.
General and Administrative Expense
General and administrative expense for the year ended December 31, 2012 was $933,000 compared to $1,657,000 for the comparable period in the prior year. This decrease of $724,000 consisted primarily of: a) an overall decrease of $271,000 in professional fees; b) a decrease of $312,000 in stock based compensation expense for management; and c) a decrease of $141,000 in stock based compensation expense for financial advisory services. The first decrease was attributable to the absence of unusual and non-recurring activity in 2012 that was present in 2011 associated with the establishment of the business and the ownership of iSafe. Professional fees consist of management, legal, financial advisory, audit, and other professional services. The remaining decreases were attributable to the general absence of such compensatory arrangements during 2012. Stock-based compensation is a non-cash charge related to equity incentives for management and financial advisors.
Charge for Shares Issued in Connection With the Myself Acquisition
During the year ended December 31, 2012, the Company issued 18,000,000 shares of common stock and 1,500,000 shares of Series B Convertible Preferred Stock pursuant to the terms of the agreement dated concerning the acquisition of the Myself pelvic muscle trainer royalty stream in December 2010. Under the terms of that agreement, the Company was obligated to issue these additional shares if the average closing stock price of the Company's common stock during the month of July 2012 did not meet certain specified price thresholds. The fair value of these additional shares were determined to be $855,000 and the Company recorded an expense in that amount at that time.
There was no similar charge during the comparable period in the prior year.
Charge for Impairment of Intangible Asset
During the year ended December 31, 2011, the Company recorded an impairment charge of $2,950,000 which represents the full carrying value of the Myself pelvic muscle trainer intangible asset. The Company considered both qualitative and quantitative factors in its assessment and, based on current product information, the Company has determined that the future recoverability and expected cash flows associated with that asset to be uncertain.
There was no similar charge during the comparable period in the current year.
Interest Expense
Interest expense for the year ended December, 2012 was $250,000 compared to $199,000 for the comparable period in the prior year. These amounts are attributable to the increase in the aggregate balance of various notes payable outstanding during 2012.
Loss From Discontinued Operations
The loss from discontinued operations for the year ended December 31, 2011 consisted exclusively of the operating results of iSafe which was acquired on March 22, 2011 and subsequently sold on November 22, 2011. We realized a gain of approximately $163,000 in connection with this transaction. As this transaction was with a related party, the gain was recorded as a direct addition to the Company's equity.
There was no similar charge during the comparable period in the current year.
We had determined that this transaction was in the best interests of our shareholders as events occurring subsequent to our purchase of the iSafe, including but not limited to the resignation of iSafe’s Chief Executive Officer, would likely have resulted in an operating situation requiring significantly more attention by us than the investment warranted. It is our opinion that our shareholders were better served by having our time, attention, and resources focused on maximizing numerous other opportunities at hand.
Summarized financial information for discontinued operations for the year ended December 31, 2011 is a follows:
Provision for Income Taxes
The was no provision for income taxes for the year ended December 31, 2012 as we were in a net loss position. Deferred tax assets resulting from such losses are fully reserved since it is more likely than not that such assets will not be realized.
For the year ended December 31, 2011 compared to the period April 29, 2010 (date of inception) to December 31, 2010
Revenues
We changed our business focus in November 2010 as previously discussed and had yet to realize any revenues from operations.
Research and Development Expense
Research and development expense for the year ended December 31, 2011 was $182,000 compared to $135,000 for the period ended December 31, 2010. This increase of $47,000 was primarily attributable to increased research and development activity associated with the novel medical applicator.
General and Administrative Expense
General and administrative expense for the year ended December 31, 2011 was $1,657,000 compared to $165,000 for the period ended December 31, 2010. This increase of $1,493,000 consisted primarily of increases of $577,000 in professional fees and $787,000 in stock based compensation expenses associated with activities necessary to establish our operations and implement our business plan. Professional fees consist of management, legal, financial advisory, audit, and other professional fees while stock-based compensation is a non-cash charge related to equity incentives for management and financial advisors.
Charge for Impairment of Intangible Asset
As more fully discussed in the preceding section, during the year ended December 31, 2011, the Company recorded an impairment charge of $2,950,000 which represents the full carrying value of the Myself pelvic muscle trainer intangible asset.
Interest Expense
Interest expense for the year ended December 31, 2011 was $199,000 compared to $12,000 for the period ended December 31, 2010. This increase of $187,000 was attributable to the increase in the aggregate balance of various notes payable which were outstanding during 2011. In comparison, all notes issued during 2010 were outstanding for less than one month during that period.
Loss from Discontinued Operations
As more fully discussed in the preceding section, the loss from discontinued operations for the year ended December 31, 2011 consisted exclusively of the operating results of iSafe which was acquired and sold during 2011.
Provision for Income Taxes
The was no provision for income taxes for the year ended December 31, 2011 as we were in a net loss position. Deferred tax assets resulting from such losses are fully reserved since it is more likely than not that such assets will not be realized.
Contractual Obligations
The following table summarizes our contractual obligations as of December 31, 2012:
Off Balance Sheet Arrangements
We have no off balance sheet arrangements.
ITEM 7A
ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a smaller reporting company we are not required to provide the information required by this Item.
ITEM 8
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
For a list of financial statements and supplementary data filed as part of this Annual Report, see the Index to Financial Statements beginning at page of this Annual Report.
ITEM 9
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
There are no items required to be reported under this Item.
ITEM 9A
ITEM 9A - CONTROLS AND PROCEDURES
(a)Disclosure Controls and Procedures
We conducted an evaluation, with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation 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, or the Exchange Act, as of December 31, 2011, to ensure that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the Securities Exchange Commission's rules and forms, including to ensure that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of December 31, 2012, our disclosure controls and procedures were not effective at the reasonable assurance level due to the inability of the Company to file its 10-K for the year ended December 31, 2012 in a timely manner. This deficiency is attributable to cash flow issues which prevented the Company in obtaining the services of external professionals necessary to the filing of the 10-K.
(b)Management Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Exchange Act, as amended, as a process designed by, or under the supervision of, our Chief Executive Officer and Chief Financial Officer, and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States and includes those policies and procedures that:
•Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect our transactions and any disposition of our assets;
•Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and
•Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2012. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework. Based on this assessment, management has identified the following material weaknesses that have caused management to conclude that, as of December 31, 2012, our internal control over financial reporting, were not effective at the reasonable assurance level:
•We do not have sufficient segregation of duties within accounting functions, which is a basic internal control. Due to our size and nature, segregation of all conflicting duties may not always be possible and may not be economically feasible. However, to the extent possible, the initiation of transactions, the custody of assets and the recording of transactions should be performed by separate individuals. Management evaluated the impact of our failure to have segregation of duties on our assessment of our disclosure controls and procedures and has concluded that the control deficiency that resulted represented a material weakness.
•We have not documented our internal controls. We have limited policies and monitoring procedures that cover the recording and reporting of financial transactions and accounting provisions. As a result we may be delayed in our ability to calculate certain accounting provisions. While we believe these provisions are accounted for correctly in the attached audited financial statements our lack of internal controls could lead to a delay in our reporting obligations and possibly the delays we encountered with the iSafe transaction. Reporting companies have been required to provide written documentation of key internal controls over financial reporting beginning with fiscal years ended on or after December 31, 2009. Management evaluated the impact of our failure to have written documentation of our internal controls and procedures on our assessment of our disclosure controls and procedures and has concluded that the control deficiency that resulted represented a material weakness.
To address these material weaknesses, management performed additional analyses and other procedures to ensure that the financial statements included herein fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented. Accordingly, we believe that the consolidated financial statements included in this report fairly present, in all material respects, our financial condition, results of operations and cash flows for the periods presented.
(c)Remediation of Material Weaknesses
The weakness attributable to cash flow and the resulting inability to obtain the services of external professionals is expected to be remediated through fundraising efforts during 2013. The Company will strengthen controls and procedures related to financial reporting during 2013 through improved segregation of duties, development and adoption of formal accounting policies and procedures, and improved financial analysis procedures.
(d)Changes in Internal Control over Financial Reporting
There were no changes to our internal controls over financial reporting during the year ended December 31, 2012.
ITEM 9B
ITEM 9B - OTHER INFORMATION
There are no events required to be disclosed by the Item.
PART III
ITEM 10
ITEM 10 - DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Directors and Executive Officers
The following table sets forth the names and ages of our directors, director nominees, and executive officers, the principal offices and positions with the Company held by each person as of December 31, 2012 and the date such person became a director or executive officer of the Company. The executive officers of the Company are elected annually by the Board of Directors. The directors serve one-year terms until their successors are elected. The executive officers serve terms of one year or until their death, resignation, or removal by the Board of Directors. Unless described below, there are no family relationships among any of the directors and officers.
Name
Age
Position(s)
James F. Groelinger
Chief Executive Officer and Director
Frederick Larcombe
Chief Financial Officer and Secretary
Wayne LeBlanc
Senior Managing Director of Business Development and Director
Harry Pond
Director
James F. Groelinger was appointed as our Chief Executive Officer on November 3, 2010. Since 2007, Mr. Groelinger has been the Managing Director at Bellegrove Associates where he provides strategic guidance to emerging clean energy entrepreneurs and companies. This guidance includes, but is not limited to, evaluating potential energy-related investments, assisting inventors with energy-related patents and products, as well as developing strategies for creating joint ventures between U.S. and foreign entities or governments. Since 2009, Mr. Groelinger has also been the Executive Director of Clean Energy Alliance, Inc., which is a national association of clean energy incubators for the purpose of fund raising, policy development, and strategy. From 2001 to 2006, Mr. Groelinger was the Chief Executive Officer and a Director, and was President from 2007 to 2008, of EPV Solar, Inc., which was a photovoltaic technology company that developed a technology for the production of thin-film photovoltaic products. As CEO of EPV Solar, Mr. Groelinger led the company and oversaw sales as they increased from nil to more than $20 million annually, developed products sales in the U.S., Germany, and Spain, oversaw joint ventures with foreign manufacturers, and managed a complex $60 million debt-for-equity recapitalization, setting the stage for a $70 million third-party financing and initial public offering. Mr. Groelinger received his BChE from the City College of New York, New York, and his MBA in Finance from Temple University.
Frederick Larcombe was appointed as our Chief Financial Officer and Secretary on November 3, 2010. From early 2008 to the present, Mr. Larcombe, as a principal with Crimson Partners, a group of seasoned financial professionals, has served a number of clients primarily in the life sciences. In this connection, Mr. Larcombe has served from 2009 to 2011 as the Chief Financial Officer for iBio, Inc. (IBPM.OB), a biotechnology company focused on commercializing its proprietary manufacturing technology. From 2005 to 2007, he was simultaneously the Chief Financial Officer of Xenomics Inc., and FermaVir Pharmaceuticals, Inc. From 2004 to 2005, he was a consultant with Kroll Zolfo Cooper, a professional services firm providing interim management and turn-around services, and from 2000 to 2004, he was Chief Financial Officer of MicroDose Therapeutics. Prior to 2000, Mr. Larcombe held various positions with ProTeam.com, Cambrex, and PriceWaterhouseCoopers. Mr. Larcombe's received his BS in Accounting from Seton Hall University, was designated a Certified Public Accountant in New Jersey, and is an alumnus of the Management Development Program at Harvard Business School.
Wayne LeBlanc is our Senior Managing Director for Business Development, effective November 3, 2010. Mr. LeBlanc is a senior business development executive. Since 1999, Mr. LeBlanc has been a managing partner in Solutions for Energy Management where he has been involved in brokering electricity to large customers and serving as a consultant for demand side management. Mr. LeBlanc is also currently a managing partner in eMEDiSAFE, a company formed to address the recent requirements to convert to electronic medical records to reduce health care costs. From 2007-2008, Mr. LeBlanc was Vice President of Business Development for EPV Solar. In this position he was part of an executive team assembled to secure capital for manufacturing expansion, both in the U.S. and internationally, and recruitment of senior staff. From 2000-2004, Mr. LeBlanc was a founder of Utility Choice Electric, the first independent retail electric provider in Texas. .
Harry Pond, the Manager of the Rockland Group, LLC, the holder of 59% of our outstanding common stock, was appointed to serve on our Board of Directors on November 3, 2010. From 2005 to present, Mr. Pond has served as Managing Director of Rockland Group, LLC, which is a real estate development company active in the Houston, Texas real estate market. From 2008 to present, Mr. Pond has served as a senior business executive for Rockland Insurance Agency, Inc. In this position he is actively involved with the management of loss prevention, marketing, and recruiting to ensure the company’s profitability and productivity. From 1979 to present, Mr. Pond has owned and operated The Harry Pond Insurance Agency, a company that he is currently in the process of merging with Rockland Insurance Agency, Inc. Mr. Pond received his BS in mathematics and education from Texas State University.
Historical Compensation of Directors
Other than as set forth herein no compensation has been given to any of the directors, although they may be reimbursed for any pre-approved out-of-pocket expenses.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company’s directors and executive officers and persons who own more than ten percent of a registered class of the Company’s equity securities to file with the SEC initial reports of ownership and reports of changes in ownership of common stock and other equity securities of the Company. Officers, directors and greater than ten percent shareholders are required by SEC regulations to furnish the Company with copies of all Section 16(a) forms they file.
During the most recent fiscal year, to the Company’s knowledge, the following delinquencies occurred:
Board Meetings and Committees
During 2011 and 2012, the Board of Directors met as circumstances required and took written action on numerous other occasions. All the members of the Board attended the meetings and all written actions were by unanimous consent.
Code of Ethics
We have not adopted a written code of ethics, because we believe and understand that our officers and directors adhere to and follow ethical standards without the necessity of a written policy.
Audit Committee
We do not currently have an audit committee.
Compensation Committee
We do not currently have a compensation committee.
ITEM 11
ITEM 11 - EXECUTIVE COMPENSATION
Executive Officers and Directors
The following tables set forth certain information about compensation paid, earned or accrued for services by (i) the Company’s Chief Executive Officer and (ii) all other executive officers who earned in excess of $100,000 in the year ended December 31, 2012 and for the period from our inception (April 29, 2010) to December 31, 2012 (“Named Executive Officers”):
(1)Mr. Barton resigned from all positions, effective November 3, 2010.
Employment Contracts
We currently do not have written employment agreements with our executive officers.
Director Compensation
The following table sets forth director compensation as of for 2012:
Outstanding Equity Awards at Fiscal Year-End
The following table sets forth certain information concerning outstanding stock awards held by the Named Executive Officers on December 31, 2012:
* - Awards are in the form of warrants.
ITEM 12
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table sets forth, as of the close of business on June 20, 2013, certain information with respect to the Company’s common stock owned of record or beneficially by (i) each Officer and Director of the Company; (ii) each person who owns beneficially more than 5% of each class of the Company’s outstanding equity securities; and (iii) all Directors and Executive Officers as a group.
Common Stock
(1) Based on 747,045,896 shares outstanding as of June 20, 2013. Shares of common stock subject to options or warrants currently exercisable, or exercisable within 60 days, are deemed outstanding for purposes of computing the percentage of the person holding such options or warrants, but are not deemed outstanding for the purposes of computing the percentage of any other person.
(2) Unless indicated otherwise, the address of the shareholder is c/o InterCore Energy, Inc., 1 International Boulevard, Suite 400, Mahwah, New Jersey 07495.
(3) Indicates an officer and/or director of the Company
(4) Includes warrants to purchase Nine Hundred Thousand (900,000) shares of our common stock at an exercise of $0.167 per share. Includes warrants to purchase Two Million Five Hundred Thousand (2,500,000) shares of our common stock with 1/3rd having an exercise price of $0.12, 1/3rd having an exercise price of $0.20, and 1/3rd having an exercise price of $0.30.
(5) Includes warrants to purchase Four Hundred Fifty Thousand (450,000) shares of our common stock at an exercise of $0.167 per share. Includes warrants to purchase Five Million Five Hundred Thousand (5,500,000) shares of our common stock with 1/3rd having an exercise price of $0.12, 1/3rd having an exercise price of $0.20, and 1/3rd having an exercise price of $0.30.
(6) Includes warrants to purchase Four Hundred Fifty Thousand (450,000) shares of our common stock at an exercise of $0.167 per share and 2,925,000 shares of common stock owned by Solution for Energy Management, LP, which is controlled by Mr. LeBlanc’s wife. Includes warrants to purchase Three Million (3,000,000) shares of our common stock with 1/3rd having an exercise price of $0.12, 1/3rd having an exercise price of $0.20, and 1/3rd having an exercise price of $0.30.
(7) M. Scott Stevens is the principal owner of New Horizon, Inc.
(8) Includes 292,075,741 shares of our common stock held in the name of Rockland Group, LLC, an entity controlled by Mr. Pond. Includes warrants to purchase Two Million Five Hundred Thousand (2,500,000) shares of our common stock with 1/3rd having an exercise price of $0.12, 1/3rd having an exercise price of $0.20, and 1/3rd having an exercise price of $0.30.
The following table sets forth, as of the close of business on June 20, 2013, certain information with respect to the Company’s Series C Convertible Preferred Stock owned of record or beneficially by (i) each Officer and Director of the Company; (ii) each person who owns beneficially more than 5% of each class of the Company’s outstanding equity securities; and (iii) all Directors and Executive Officers as a group.
Preferred Stock
(1) Based on 12,597,100 shares of our Series C Convertible Preferred Stock outstanding as of June 20, 2013. Although we only have 5,000,000 shares of Series C Convertible Preferred Stock authorized, we are obligated to issue Fandeck Associates, Inc. 7,597,100 shares of our Series C Convertible Preferred Stock and we have included those shares as outstanding when calculating all the numbers in this table. There are no options or warrants, or other convertible instruments, that are convertible into our Series C Convertible Preferred Stock that are outstanding as of June 3, 2013.
(2) Unless indicated otherwise, the address of the shareholder is c/o InterCore Energy, Inc., 1 International Boulevard, Suite 400, Mahwah, New Jersey 07495.
(3) Indicates an officer and/or director of the Company
(4) For the sake of this table there are 12,597,100 shares of our Series C Preferred Stock outstanding, which shares are convertible into 80% of our then outstanding common stock immediately after a reverse stock split. The voting control percentages shown in this table are after immediately after a reverse stock split of our common stock.
(5) Includes 500,000 shares of our Series C Preferred Stock owned by 9244-7168 Quebec, Inc., 500,000 shares of our Series C Preferred Stock owned by 9244-7010 Quebec, Inc., and 700,000 shares of our Series C Preferred Stock owned by Seliztrine Corporation, all entities that are controlled by Mr. Brun.
(6) Mr. Frederick Voight is the controlling shareholder of Fandeck Associates, Inc.
(7) Includes 700,000 shares of our Series C Preferred Stock owned by Plomberie Lory, Inc. and 475,000 shares of our Series C Preferred Stock owned by Jamil Investment, both entities controlled by Mr. Huppe.
(8) Includes 524,000 shares of our Series C Preferred Stock owned by Gestion Seliztrine, an entity controlled by Mr. Cholette.
The Company is not aware of any person who owns of record, or is known to own beneficially, five percent or more of the outstanding securities of any class of the issuer, other than as set forth above. There are no classes of stock other than common stock issued or outstanding.
Change of Control Transaction
On January 23, 2013, we closed a transaction with SRG, Inc., a Quebec Province corporation (“SRG”), and the shareholders of SRG who are the owners of 100% of the outstanding common stock of SRG, pursuant to which the holders of 100% of the outstanding common stock of SRG transferred to us all of the common stock of SRG in exchange for the issuance of 5,000,000 shares of our Series C Convertible Preferred Stock, which shares are convertible into 80% of our then outstanding common stock immediately after a reverse stock split. This transaction resulted in a change in control transaction.
ITEM 14
ITEM 14 - PRINCIPAL ACCOUNTING FEES AND SERVICES
Audit
Marcum LLP earned fees for professional services totaling $105,000 and $173,000, respectively, relating to the audit of our financial statements for December 31, 2012 and December 2011, review of the financial statements included in our form 10-Qs, and the audit of the historical financial statements of iSafe.
Tax Fees
During the year ended December 31, 2012, Marcum LLP did not earn any fees for professional services for tax preparation. During the year ended December 31, 2011, Marcum LLP did not earn any fees for provide professional services for tax preparation.
All Other Fees
During the years ended December 31, 2012 and December 31, 2011, Marcum LLP did not provide any other services or invoice any additional fees.
All of the fees described above for the years ended December 31, 2012 and 2011, were approved by the entire Board of Directors.
PART IV
ITEM 15
ITEM 15 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a)(1)Financial Statements
For a list of financial statements and supplementary data filed as part of this Annual Report, see the Index to Financial Statements beginning at page of this Annual Report.
(a)(2)Financial Statement Schedules
We do not have any financial statement schedules required to be supplied under this Item.
(a)(3)Exhibits
Refer to (b) below.
(b)Exhibits
2.1 (1)
Plan of Reorganization of AP Corporate Services, Inc.
3.1 (1)
Articles of Incorporation of I-Web Media, Inc. filed April 29, 2010
3.2 (5)
Amended Articles of Incorporation of I-Web Media, Inc., filed December 8, 2010 (effective December 29, 2010)
3.3 (5)
Restated Articles of Incorporation of InterCore Energy, Inc., filed December 8, 2010 (effective December 29, 2010)
3.4 (13)
Amendment to Articles of Incorporation of Heartland Bridge Capital, Inc. filed November 26, 2012 (effective May 16, 2012)
3.5 (1)
Bylaws of I-Web Media, Inc.
3.5 (5)
Restated Bylaws of InterCore Energy, Inc.
3.7 (14)
Certificate of Designation for Series C Convertible Preferred Stock
10.1 (1)
Form of “A” Warrant
10.2 (1)
Form of “B” Warrant
10.3 (1)
Form of “C” Warrant
10.4 (1)
Form of “D” Warrant
10.5 (1)
Form of “E” Warrant
10.6 (2)
Agreement to Purchase Common Stock by and between Kenneth S. Barton, Rockland Group, LLC, and I-Web Media, Inc., dated November 3, 2010
10.7 (2)
Securities Purchase Agreement by and between I-Web Media, Inc. and Rockland Group, LLC, dated November 4, 2010
10.8 (3)
Asset Purchase Agreement with New Horizon, Inc. dated December 9, 2010
10.9 (6)
Amendment No. 1 to Asset Purchase Agreement with New Horizon, Inc.
10.10 (3)
Convertible Promissory Note Held by New Horizon, Inc. dated December 9, 2010
10.11 (3)
Assignment of Rights Agreement with New Horizon, Inc. dated December 9, 2010
10.12 (3)
Asset Purchase Agreement with RWIP, LLC dated December 10, 2010
10.13 (3)
Convertible Promissory Note Held by RWIP, LLC dated December 10, 2010
10.14 (3)
Warrant Agreement with RWIP, LLC dated December 10, 2010
10.15 (3)
Consulting Agreement with RWIP, LLC dated December 13, 2010
10.16 (4)
Development Services Agreement with NorthStar Partners Consulting, LLC, dated December 22,
10.17 (4)
Warrant Agreement with NorthStar Partners Consulting, LLC, dated December 22, 2010
10.18 (5)
Promissory Note Held by Rockland Group, LLC, dated December 16, 2010
10.19 (5)
Promissory Note Held by Rockland Group, LLC, dated December 27, 2010
10.20 (5)
Form of Warrant Issued to Officers, Directors and Consultants on December 29, 2010
10.21 (7)
Common Stock Purchase Warrant issued to Wexford Partners, L.P. dated March 21,
10.22 (7)
Reorganization and Stock Purchase Agreement with the iSafe Entities and iSafe Holders dated March 21, 2011
10.23 (7)
Employment Agreement with Joseph W. Tischner dated March 22, 2011
10.24 (8)
Promissory Note Held by Rockland Group dated December 29, 2010
10.25 (9)
Series A Preferred Stock Purchase Agreement by and between InterCore Energy, Inc. and HepatoChem, Inc. dated September 15, 2011
10.26 (9)
Purchase Agreement by and between InterCore Energy, Inc. and Digisort, LLC dated November 18, 2011
10.27 (10)
Letter of Intent with Legends & Heroes, Inc. dated December 1, 2011
10.28 (11)
Form of Warrant Repricing Agreement
10.29 (11)
Form of Repriced Warrant
10.30 (14)
Amended and Restated Share Exchange Agreement by and between InterCore Energy, Inc., SRG, Inc. and the shareholders of SRG dated January 15, 2013
10.31 (14)
Assignment and Assumption Agreement by and between InterCore Energy, Inc. and HLBC Distribution Company, Inc. dated January 15, 2013
10.31 (14)
Asset Purchase Agreement by and between InterCore Energy, Inc. and Rockland Group, LLC dated January 15, 2013
31.1*
Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
31.2*
Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
32.1*
Chief Executive Officer Certification Pursuant to 18 USC, Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*
Chief Financial Officer Certification Pursuant to 18 USC, 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 Extension Definition Linkbase Document
101.LAB**
XBRL Taxonomy Extension Label Linkbase Document
101.PRE**
XBRL Taxonomy Extension Presentation Linkbase Document
*Filed herewith.
**Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Act of 1934 and otherwise are not subject to liability.
(1)Incorporated by reference from our Registration Statement on Form 10-12G/A filed with the Commission on August 12, 2010.
(2)Incorporated by reference from our Current Report on Form 8-K filed with the Commission on November 8, 2010.
(3)Incorporated by reference from our Current Report on Form 8-K filed with the Commission on December 15, 2010.
(4)Incorporated by reference from our Current Report on Form 8-K filed with the Commission on December 23, 2010.
(5)Incorporated by reference from our Current Report on Form 8-K filed with the Commission on December 30, 2010.
(6)Incorporated by reference from our Current Report on Form 8-K filed with the Commission on January 14, 2011.
(7)Incorporated by reference from our Current Report on Form 8-K filed with the Commission on March 24, 2011.
(8)Incorporated by reference from our Annual Report on Form 10-K filed with the Commission on April 15, 2011.
(9)Incorporated by reference from our Quarterly Report on Form 10-Q filed with the Commission on November 21, 2011.
(10)Incorporated by reference from our Current Report on Form 8-K filed with the Commission on December 8, 2011
(11)Incorporated by reference from our Current Report on Form 8-K filed with the Commission on May 29, 2012
(12)Incorporated by reference from our Current Report on Form 8-K filed with the Commission on May 29, 2012
(13)Incorporated by reference from our Quarterly Report on Form 10-Q filed with the Commission on November 26, 2012
(14)Incorporated by reference from our Current Report on Form 8-K filed with the Commission on January 29, 2013
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Dated: June 25, 2013
/s/ Harry Pond
By: Harry Pond
Director
Dated: June 25, 2013
/s/ James F. Groelinger
By: James F. Groelinger
Director
Dated: June 25, 2013
/s/ Frederick A. Voight
By: Frederick A. Voight
Director
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders
InterCore Energy, Inc.
(Formerly Heartland Bridge Capital, Inc.)
(A Development Stage Company)
We have audited the accompanying balance sheets of InterCore Energy, Inc., Inc. (formerly Heartland Bridge Capital, Inc.) (A Development Stage Company) as of December 31, 2012 and 2011, and the related statements of operations, stockholders' deficiency and cash flow for the years ended December 31, 2012 and 2011 and for the period January 1, 2012 (date of re-entering the development stage) to December 31, 2012. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required, nor have we been engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentations. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of InterCore Energy, Inc. (formerly Heartland Bridge Capital, Inc.) (A Development Stage Company) as of December 31, 2012 and 2011, and its results of operations and cash flows for the years ended December 31, 2012 and 2011, and for the period January 1, 2012 (date of re-entering the development stage) to December 31, 2012, in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has regularly incurred net losses and negative cash flows from operating activities since inception. These matters raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans regarding these matters are also described in Note 2. The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ Marcum LLP
New York, NY
June 25, 2013
InterCore Energy, Inc.
(Formerly Heartland Bridge Capital, Inc.)
(A Development Stage Company)
Balance Sheets
The accompanying notes are an integral part of these financial statements.
InterCore Energy, Inc.
(Formerly Heartland Bridge Capital, Inc.)
(A Development Stage Company)
Statements of Operations
The accompanying notes are an integral part of these financial statements.
InterCore Energy, Inc.
(Formerly Heartland Bridge Capital, Inc.)
(A Development Stage Company)
Statements of Stockholders' Deficiency
For the Years Ended December 31, 2011 and 2012
The accompanying notes are an integral part of these financial statements.
InterCore Energy, Inc.
(Formerly Heartland Bridge Capital, Inc.)
(A Development Stage Company)
Statements of Cash Flows
InterCore Energy, Inc.
(Formerly Heartland Bridge Capital, Inc.)
(A Development Stage Company)
Statements of Cash Flows
The accompanying notes are an integral part of these financial statements.
InterCore Energy, Inc. and Subsidiaries
(Formerly Heartland Bridge Capital, Inc.)
(A Development Stage Company)
Notes to the Financial Statements
December 31, 2012
1)Business
InterCore Energy, Inc. (formerly known as Heartland Bridge Capital, Inc.) (A Development Stage Company) (the "Company") was organized under the laws of the State of Delaware on April 29, 2010. While operating as Heartland Bridge Capital, inc., the Company focused upon investments and acquisition opportunities primarily in products and companies involved in the market segments of clean and renewable energy, medical technology, nanotechnology, and environmentally-friendly (green) waste management. On March 30, 2012, the Company decided to intensify its focus in the energy sector and the related opportunities within and, to that end, the Board of Directors elected to change the name of the Company to InterCore Energy, Inc.
On March 22, 2011, the Company acquired 100% of the ownership interests in iSafe Imaging, LP, eMediSafe, LP, and iSafe Imaging Canada Ltd. (collectively referred to as "iSafe") which provided digital file conversion services that converted legacy information from various sources into current digital formats. On November 22, 2011, sold iSafe to a company controlled by the Company's majority shareholder.
Effective January 1, 2012, the Company re-entered the development stage.
On January 23, 2013 and as more fully described in Note 17, the Company:
a)Sold investments in exchange for the purchaser assuming certain obligations of the Company and converted the majority of the remaining accounts payable, notes payable, and other commitments into shares of common stock; and
b)Closed on a transaction with SRG, Inc. ("SRG") and its shareholders whereby the Company acquired 100% of the outstanding common stock of SRG in exchange for ICOR's issuance of 5,000,000 shares of a newly created Series C Convertible Preferred Stock. Those shares are convertible into 80% of the Company's then outstanding common stock immediately after a reverse stock split which is contemplated to occur during the second quarter of 2013. As a result of this transaction, the Company became a holding company with all day-to-day operations conducted through SRG.
The operations of SRG consist primarily of researching, developing, and testing ADS Software ("ADS"), a system designed around proprietary alertness detection technologies which helps operators (such a drivers of motor vehicles) in modulating their work activity based on real time knowledge of their actual state of alertness.
2)Basis of Presentation and Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company incurred significant losses and negative cash flows from operations since its inception in April 2010 and has an accumulated deficit of $7,892,015 as of December 31, 2012. Cash used in operating activities during the year ended December 31, 2012 totaled $258,466 and it has a working capital deficiency of $3,607,106 as of December 31, 2012. These conditions raise substantial doubt about the Company's ability to continue as a going concern. The Company has historically financed its activities through the private placement of equity securities. To date, it has dedicated most of its financial resources to general and administrative expenses in the pursuit of the business plan described in the preceding paragraphs.
The Company’s ability to execute its business plan is dependent upon its ability to raise additional equity, secure debt financing, and/or generate revenue.
The Company can give no assurance that such financing will be available on reasonable terms or available at all or that it can generate revenue. Should the Company not be successful in obtaining the necessary financing or generating revenue to fund its operations, the Company would need to curtail or cease its operational activities. The accompanying financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern.
As more fully described in Note 13(c), the Company sold the operations of iSafe Imaging, LP, eMediSafe, LP, and iSafe Imaging Canada, Ltd on November 22, 2011. Consequently, the Company considers itself a development stage company effective January 1, 2012 as it has not derived significant revenue from its principal operations during the year ended December 31, 2012.
3)Significant Accounting Policies and Recent Accounting Pronouncements
a)Significant Accounting Policies
Use of Estimates - The preparation of financial statements in conformity with US GAAP 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 of the financial statements and the reported amounts of revenues and expenses for the reporting period. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results could differ from those estimates.
Revenue Recognition - The Company recognizes revenue when persuasive evidence that an arrangement exists with a customer or client, the price to the purchaser is fixed or determinable, the product has been shipped or the service has been performed, the Company has no significant remaining obligation, and collectability is reasonably assured.
Research and Development - The Company expenses research and development costs as incurred. For the years ended December 31, 2012 and 2011, the Company incurred research and development expense of $151,450 and $182,100, respectively.
Stock-Based Compensation - The Company accounts for options granted to employees by measuring the cost of services received in exchange for the award of equity instruments based upon the fair value of the award on the date of grant. The fair value of that award is then ratably recognized as expense over the period during which the recipient is required to provide services in exchange for that award. Options and warrants granted to consultants and other non-employees are recorded at fair value as of the grant date and subsequently adjusted to fair value at the end of each reporting period until such options and warrants vest, and the fair value of such instruments, as adjusted, is expensed over the related vesting period.
Stock-based compensation expense aggregated $334,139 and $810,568 for the years ended December 31, 2012 and 2011, respectively was classified in general and administrative expense.
Income Taxes - The Company accounts for income taxes using the asset and liability method. Accordingly, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in the tax rate is recognized in income or expense in the period that the change is effective. Income tax benefits are recognized when it is probable that the deduction will be sustained. A valuation allowance is established when it is more likely than not that all or a portion of a deferred tax asset will either expire before the Company is able to realize the benefit, or that future deductibility is uncertain.
Earnings (Loss) Per Share - The Company calculates basic and diluted net loss per common share by dividing net loss by the weighted-average number of common shares outstanding for the period. Basic and diluted net loss per common share were the same since the inclusion of common shares issuable pursuant to the exercise of warrants and the conversion of preferred stock in the calculation of diluted net loss per common share would have been anti-dilutive.
The following table summarizes the number of common shares and common share equivalents excluded from the calculation of diluted net loss per common share for the years ended December 31, 2012 and 2011:
Intangible Assets - The Company accounts for intangible assets at their historical cost and records amortization utilizing the straight-line method over periods ranging from five years to ten years based upon their estimated useful lives. The Company reviews them for impairment whenever events or changes in business circumstances indicate that the carrying amount of such assets may not be fully recoverable. An impairment loss would be recognized when the estimated undiscounted future cash flow expected to be derived from the use of those assets is less than their carrying values. During the year ended December 31, 2011 and as more fully described in Note 13(a), the Company recorded an impairment loss of $2,950,000. No impairment loss was recorded during the year ended December 31, 2012.
Investments - The Company accounts for investments in other entities under the cost method of accounting when the Company does not hold a significant interest in nor has any management control over those entities. The Company has not recorded any impairment for these investments.
Fair Value - The Company determines the estimated fair value of amounts presented in these financial statements using available market information and appropriate methodologies. However, considerable judgment is required in interpreting market data to develop the estimates of fair value. The estimates presented in the financial statements are not necessarily indicative of the amounts that could be realize in a current exchange between buyer and seller. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. These fair value estimates were based upon pertinent information available as of December 31, 2012 and 2011 and, as of those dates, the carrying value of all amounts approximates fair value.
The Company has categorized its assets and liabilities at fair value based upon the following fair value hierarchy:
a)Level 1 inputs which utilize quoted prices (unadjusted) in active markets for identical assets or liabilities.
b)Level 2 inputs which utilize other-than-quoted prices that are observable, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, and inputs such as interest rates and other information that are observable at commonly quoted intervals.
c)Level 3 inputs which are unobservable and are typically based on assumptions, including situations where there is little, if any, market activity.
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the related asset or liability was categorized based on the lowest level input that is significant to the fair value measurement in its entirety. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.
Both observable and unobservable inputs may be used to determine the fair value of positions that are classified within the Level 3 category. As a result, the unrealized gains and losses for assets within the Level 3 category presented in the tables below may include changes in fair value that were attributable to both observable (e.g., changes in market interest rates) and unobservable (e.g., changes in historical company data) inputs.
The following are the major categories of assets were measured at fair value during the years ended December 31, 2012 and 2011, using quoted prices in active markets for identical assets (Level 1), significant other observable inputs (Level 2), and significant unobservable inputs (Level 3):
Based on its assessments, the Company recorded asset impairment charges of zero and $2,950,000 during the years ended December 31, 2012 and 2011, respectively. Additionally, there were no changes in fair value, including net transfers in and/or out of the Level 3 type asset/liability category, of all financial asset and liabilities measured at fair value on a recurring basis using significant unobservable inputs during the years ended December 31, 2012 and 2011.
Impairment of Long-Lived Assets - The Company reviews long-lived assets, including intangible assets other than goodwill, for impairment whenever changes in circumstances indicate that the carrying value of the asset may not be recoverable. In connection with this review, the Company also reevaluates the periods of depreciation and amortization for these assets. The Company assesses recoverability by determining whether the net book value of the related asset will be recovered through the projected undiscounted future cash flows of the asset. If the Company determined that the carrying value of the asset may not be recoverable, it measures any impairment based on the projected future discounted cash flows as compared to the asset’s carrying value. Based on its assessments, the Company did not incur any impairment charges during the years ended December 31, 2012 and 2011.
Contingent Liabilities - The Company records liabilities when it is probable a liability has been incurred and the amount can be reasonably estimated or determined. As of December 31, 2012 and 2011, there were no accruals for contingent liabilities.
Financial Instruments - The Company records financial instruments consisting of cash, accounts receivable, and accounts payable at historical cost and notes payable at face value less principal repayments and considers such amounts to approximate fair value due to their short term nature of those instruments.
Discontinued Operations - On March 22, 2011 and as more fully described in Note 13(c), the Company acquired the operations of iSafe and on November 22, 2011, sold it to a company controlled by the Company's majority shareholder. Consequently, the operating results of that entity during 2011 are presented in these financial statements as discontinued operations.
Retroactive Adjustment For Forward Stock Split - On May 15, 2012, the Company effected a nine-for-one forward stock split of its Common Stock. Consequently, all earnings per share and other share related amounts and disclosures have been retroactively adjusted for this action.
Subsequent Events - The Company has evaluated subsequent events and transactions through the date these financial statements were issued to determine if such events and transactions required adjustment to or disclosure in these financial statements.
b)Recent Accounting Pronouncements
Recent accounting pronouncements issued by the FASB and the SEC did not have, or are not believed by management to have, a material impact on the Company's present or future consolidated financial statements.
4)Intangible Assets
Intangible assets as of December 31, 2012 and 2011 consisted of the following:
During the year ended December 31, 2011, the Company recorded an impairment charge of $2,950,000 which represents the full carrying value of the Myself pelvic muscle trainer intangible asset as the company developing and marketing this product has not provided sufficient information to enable the Company to continue to carry this asset at its previous value.
As more fully described in Note 17(g), this asset was sold in connection with a series of transactions on January 23, 2013.
5)Investments
Investments as of December 31, 2012 and 2011 consisted of the following:
The Company owns 12% or less of the common stock of each entity on a fully diluted basis, and has no control or significant influence over management. All such investments are accounted for utilizing the cost method of accounting
a)HepatoChem, Inc.
HepatoChem is a privately held company that offers pharmaceutical and biotech companies a reliable and efficient means of accessing small molecule metabolites in quantities needed in the drug development process. The investment consists of 21,000 shares of Series A Convertible Preferred Stock as of December 31, 2012 representing approximately 8% of the total shares outstanding on a fully diluted basis as of that date. Such securities have liquidation preference over the company’s common stock, are convertible into the company’s common stock, have voting rights, and have certain protective voting provisions to help maintain their preferential position.
As more fully described in Note 17(f), this asset was sold in connection with a series of transactions on January 23, 2013.
b)Legends & Heroes, Inc.
Legends & Heroes is a privately held company that developed and markets garments that constantly delivers cosmetic and other ingredients to the wearer's skin. The investment consists of approximately 82,723 shares of common stock as of December 31, 2012 representing approximately 3% of the total shares outstanding as of that date.
As more fully described in Note 17(g), this asset was sold in connection with a series of transactions on January 23, 2013.
c)Epec Biofuels Holdings, Inc.
Epec Biofuels ("Epec") is a privately held company that is pursuing the development of ethanol production facilities which utilize sweet sorghum as a feedstock rather than corn or sugarcane. The investment consists of 8,000,000 shares of common stock as of December 31, 2012 representing approximately 10% of the total shares outstanding on a fully diluted basis as of that date.
Under the terms of the Epec investment agreement dated May 21, 2012:
i)The Company agreed to purchase 20,000,000 shares of common stock of Epec for the following consideration:
a)$150,000 cash;
b)2,250,000 shares of the Company's common stock; and
c)A commitment to pay an additional $600,000 in cash on or before August 15, 2012;
ii)8,000,000 of the 20,000,000 shares of Epec were issued to the Company and the balance of 12,000,000 shares will be issued upon payment of the $600,000 described above; and
iii)The Company has the right through May 2015 to elect one seat on Epec's Board of Directors and a second seat upon payment of the $600,000 described above.
The terms of this investment agreement were modified on August 23, 2012 and the Company made payments aggregating $50,000 through that date. The new terms provided for the remaining $550,000 to be paid in weekly installments of $25,000 from September 2012 through February 2013. In connection with the modification of the terms of this agreement, the Company agreed to issue an additional 7,750,000 shares of the Company's common stock which has been valued at fair market value and recorded as an additional cost of the investment in Epec. The Company has made five of the installment payments described above through December 31, 2012 and is not in compliance with the investment agreement as of that date. However, Epec did not issued the Company a formal notice of default.
The Company accounted for this investment at cost through December 31, 2012 as follows:
On January 10, 2013 and as more fully described in Note 17(a), Epec and the Company modified the agreement whereby:
i)The number of Epec shares to be issued to the Company was reduced to 12,500,000 and all such shares were released to the Company;
ii)The Company's remaining payment obligation to Epec of $475,000 was reduced to $100,000;
iii)The Company made a $50,000 payment; and
iv)Epec could convert the Company's remaining obligation of $50,000 into the Company's common stock at the rate of $0.002 per share.
On January 16, 2013, Epec converted the remaining payment obligation of $50,000 into 25,000,000 shares of the Company's common stock.
As more fully described in Note 17(g), this asset was sold in connection with a series of transactions on January 23, 2013.
6)Notes Payable
Notes payable as of December 31, 2012 and 2011 consisted of the following:
The notes payable described above were classified as current liabilities as of December 31, 2012 and 2011.
a)Convertible notes payable:
i)On December 8, 2010, the Company issued a convertible note payable in the amount of $2,000,000 in connection with the acquisition of rights to a royalty stream related to the sales of the Myself pelvic muscle trainer.
This note accrues interest at the rate of 10% per annum and such interest is payable monthly. The principal amount was due in five equal installments at the end of each quarter through June 30, 2012 and matured on that date. Principal and accrued interest is convertible into common stock at the rate of $0.167 per share at any time at the option of the holder. The Company has the option at any time to pay principal and accrued interest with common stock in lieu of cash at the rate of $0.111 per common share.
On March 31, 2011, the Company elected to pay principal of $333,333 and accrued interest of $60,821 through the issuance of 3,547,386 shares of common stock at the rate of $0.111 per share as permitted under the terms of the note.
As of September 30, 2012, the Company is not in compliance with the terms of this note due to non-payment of principle and interest. However, the note holder has not issued the Company a formal notice of default.
On January 23, 2013, this note and the related accrued was converted into shares of the Company's common stock as more fully described in Note 17.
ii)On December 13, 2010 and as more fully described in Note 13(b), the Company acquired rights and intangible assets related to a novel medical applicator and issued a convertible in the amount of $125,000. This note accrued interest at the rate of 10% per annum and principal and accrued interest was due on February 28, 2011. When the note matured and the Company elected to pay principal of $125,000 and accrued interest of $2,740 through the issuance of 1,149,660 shares of common stock at the rate of $0.11 per share as permitted under the terms of the note.
b)Note payable due to a related party
On various dates from December 16, 2010 through December 31, 2012, the Company entered into a series of short term notes with the Rockland Group, the Company's majority shareholder and an entity controlled by one of the Company's Directors in the aggregate principal amount of $581,447. During that period, principal and interest due for all these notes were consolidated into one note in the principal amount of $714,938 which accrues interest at the rate of 15% per annum and matures on March 31, 2013.
On January 23, 2013, this note and the related accrued was converted into shares of the Company's common stock as more fully described in Note 17.
7)Issuance of Preferred Stock
a)Series A Convertible Preferred Stock
i)On November 4, 2010, the Company entered into a Securities Purchase Agreement with the Rockland Group, the Company's majority shareholder and an entity controlled by one of the Company's Directors. Under the terms of that agreement, Rockland paid $100,000 for the purchase of 2,000,000 shares of a then yet to be created series of preferred stock designated Series A Convertible Preferred Stock at a purchase price of $0.05 per share. That amount was included in current liabilities as of December 31, 2010 under the caption "Stock subscription payable due to related party".
ii)On April 13, 2011, the Company issued 2,000,000 shares of Series A Convertible Preferred Stock in accordance with the agreement described above.
Series A Convertible Preferred Stock has the following rights and preferences: (i) dividend rights equal to the dividend rights of the Company's common stock; (ii) a $100,000 liquidation preference over the Company's common stock; (iii) each share of Series A Convertible Preferred Stock is convertible into nine shares of the Company's common stock; (iv) no redemption rights; (v) no call rights by the Company; (vi) each share of Series A Convertible Preferred stock has two hundred twenty five votes on all matters validly brought to the common stockholders for approval; (vii) mandatory approval by a majority of the Series A Convertible Preferred stockholders for certain change of control transactions by the Company; and (viii) other rights and preferences to be determined by the Company's Board of Directors.
On January 23, 2013, these shares were converted into shares of the Company's common stock as more fully described in Note 17.
b)Series B Convertible Preferred Stock
i)On December 8, 2010, the Company entered into an agreement to acquire the rights to a royalty stream related to the sales of the Myself pelvic muscle trainer. Under the terms of that agreement, the Company committed to issue 3,000,000 shares of a then yet to be created new class of preferred stock designated Series B Convertible Preferred Stock. The Company assigned a value to those shares of $750,000 and included that amount in current liabilities as of December 31, 2010 under the caption "Stock subscription payable".
ii)On April 13, 2011, the Company issued 3,000,000 shares of Series B Convertible Preferred Stock in accordance with the agreement described above.
iii)On August 31, 2012 and as more fully described in Note 9, the Company issued an additional 1,500,000 shares of Series B Convertible Preferred Stock pursuant to the terms of an agreement described above and recorded a charge to expense during the year ended December 31, 2012.
Series B Convertible Preferred Stock has the following rights and preferences: (i) dividend rights equal to the dividend rights of the Company's common stock; (ii) a $750,000 liquidation preference over common stock and equal to that of the Company's Series A Convertible Preferred Stock; (iii) each share of Series B Convertible Preferred Stock is convertible into five shares of the Company's common stock; (iv) no redemption rights; (v) no call rights by the Company; (vi) each share of Series B Convertible Preferred Stock has one vote on all matters validly brought to the common stockholders; and (vii) other rights and preferences to be determined by the Company's Board of Directors.
On January 23, 2013, these shares were converted into shares of the Company's common stock as more fully described in Note 17.
8)Issuance and Return of Common Stock
On March 30, 2012, the Company's the Board of Directors approved a resolution implementing a nine-for-one forward stock split of the Company's Common Stock and increasing the total number of authorized shares of Common Stock to 750,000,000. That action became effective on May 15, 2012. Consequently, all earnings per share and other share related amounts and disclosures have been retroactively adjusted to reflect such action.
a)On various dates between January 1 and December 31, 2011, the Company issued 2,228,670 shares of common stock at $0.111 per share to a private investor in connection with the exercise of warrants and received proceeds of $247,630.
b)On various dates between January 1 and May 27, 2011, the Company issued 588,870 shares of common stock at $0.194 to $0.200 per share to private investors and received proceeds of $115,703.
c)On various dates between January 1 and December 31, 2011, the Company issued 1,494,594 shares of common stock under the terms of a service agreement. Such shares were valued at an average of $0.267 per share during the year ended December 31, 2011 based upon the closing price of the Company's shares on the date of issuance. Therefore, during the year ended December 31, 2011, the Company recorded expense of $398,542.
d)On February 28, 2011 and March 31, 2011, the Company issued a total of 4,697,046 shares of common stock at the rate of $0.111 per share in payment of principal and interest due under the notes payable as described in Notes 6(a)(i) and 6(a)(ii).
e)On March 22, 2011, the Company issued 4,500,000 shares of common stock in connection with the acquisition of iSafe as described in Note 13(c). Such shares were valued at $0.194, the most recent amount per share for which the Company sold shares of common stock to third-party investors.
f)On November 22, 2011, the Company accepted 1,170,000 shares of common stock as part of the consideration in connection with the sale of iSafe as described in Note 13(c). Such shares were valued at $0.339, the closing price of the Company's shares on that date.
g)On various dates from February 10, 2012 through May 16, 2012, the Company issued 3,515,940 shares of common stock at $0.111 per share to private investors in connection with the exercise of warrants and received proceeds of $390,308.
h)On May 15, 2012, the Company issued 18,032,166 shares of common stock pursuant to the exercise of warrants by the holders for the purchase 27,000,000 shares of common stock utilizing the cashless exercise provision of those instruments. This transaction was accounted for as an increase to common stock of $1,803, representing the par value of the shares issued, with a corresponding decrease to additional paid-in capital.
i)On May 21, 2012 and August 23, 2012, the Company issued an aggregate of 10,000,000 shares of common stock in connection with an investment in Epec Biofuels Holdings, Inc. as more fully described in Note 4(c).
j)On various dates from July 18, 2012 through November 29, 2012, the Company issued 15,710,000 shares of common stock at $0.332 to$0.050 per share to private investors and received proceeds of $65,500.
k)On July 25, 2012, the Company issued 5,000,000 shares of common stock at $0.005 per share to the Rockland Group, the Company's majority shareholder and an entity controlled by one of the Company's Directors, and received proceeds of $25,000.
l)On August 31, 2012 and as more fully described in Note 9, the Company issued 18,000,000 shares of Common Stock pursuant to the terms of an agreement dated December 9, 2010 for the acquisition of a royalty stream related to the Myself pelvic muscle trainer and recorded a charge to expense during the year ended December 31, 2012.
m)On October 1, 2012, the Company issued 4,500,000 shares of common stock at $0.0033 per share to New Horizon, Inc., one of our largest shareholders, and received proceeds of $15,000.
n)On various dates during the years ended December 31, 2012 and 2011, the Company issued 986,688 and 1,494,594 shares of common stock, respectively, under the terms of a service agreement. Such shares were valued at an average of $0.26 and $0.27 per share, respectively, based upon the most recent closing price of the Company's shares on the date they were earned. During the years ended December 31, 2012 and 2011, the Company recorded expense in this connection of $257,773 and $398,542, respectively. All such amounts were classified in general and administrative expense.
9)Charge for Shares Issued in Connection with Myself Acquisition Agreement
On December 8, 2010, the Company entered into an agreement to acquire the rights to a royalty stream related to the sales of the Myself pelvic muscle trainer in exchange for the issuance of 3,000,000 and 36,000,000 shares of Series B Convertible Preferred and Common Stock, respectively.
On August 31, 2012 and under the terms of that agreement, the Company issued an additional 1,500,000 and 18,000,000 shares of Series B Convertible Preferred and Common Stock, respectively, as the average closing price of the Company's Common Stock did not meet a specified price threshold during July 2012.
These shares of Series B Preferred and Common Stock were valued at $0.45 and $0.01 per share, respectively, based upon the closing price of the Company's common shares on August 31, 2012 for total amounts of $180,000 and $675,000, respectively. During the year ended December 31, 2011, the Company had recorded an impairment charge which represented the full carrying value of the Myself pelvic muscle trainer intangible asset. Therefore, the $855,000 aggregate value of the Series B Preferred and Common Stock shares issued on August 31, 2012 was recorded as a charge to expense during the year ended December 31, 2012.
10)Warrants
The Company utilized the Black-Scholes option pricing model to estimate the fair value of such instruments. The stock price on the date of issuance was based upon the most recent price per share realized in the private placement of common shares as there is no established public market for the Company's common stock. The risk-free interest rate assumption was based upon the observed interest rates appropriate for the expected term of the equity instruments. The expected volatility assumption was based upon the historical volatility of the common stock of comparable companies. The expected dividend yield was assumed to be zero as the Company has not paid any dividends since its inception and does not anticipate paying dividends in the foreseeable future.
Assumptions made in calculating the fair value of warrants during the years ended December 31, 2012 and 2011 were as follows:
Activity during the years ended December 31, 2012 and 2011 is as follows:
a)On March 22, 2011, the Company issued warrants for the purchase of 50,000 shares of common stock in connection with the acquisition of the iSafe companies as described in Note 13(c). Such warrants were valued at $95,400 and recorded as an addition to additional paid-in capital.
b)On November 22, 2011, the Company accepted the warrants described immediately above as part of the consideration in connection with the sale of iSafe as described in Note 13(c). Such warrants were valued at $83,200 and recorded as a reduction to additional paid-in capital with the sale of iSafe.
c)On April 13, 2012 and May 14, 2012, the Company entered into warrant repricing agreements wherein the exercise price for Series C, D, and E Warrants of $0.56, $0.44, and $0.33 per share, respectively, were collectively revised to $0.056 per share. The Company recorded no expense during the year ended December 31, 2012 in connection with such repricing as the incremental value was determined to be de minimus.
d)On May 15, 2012, as previously described in Note 8(h), warrants for the purchase 27,000,000 shares of common stock were exercised by the holders utilizing the cashless exercise provision of those instruments.
e)On July 20, 2012, the Company granted warrants to officers and members of management for the purchase of 23,500,000 shares of common stock at prices ranging from $0.12 to $0.30 per share. Such warrants vest in equal amounts on February 1, 2013, August 1, 2013, and February 1, 2014. During the year ended December 31 2012, the Company recorded stock-based compensation of $76,366 in this connection.
A summary of the changes in warrants outstanding during the years ended December 31, 2012 and 2011 is as follows:
11)Licensing/Sale Agreement
One June 7, 2012, the Company entered into an agreement with Biopack Environmental, Inc. ("Biopack") granting it in exchange for the payment of a licensing fee of $10,000 the exclusive right to develop and market for a one year period beginning with the date of the agreement a novel medical applicator owned by the Company that is capable of delivering medicants and internal devices into the human body in an atraumatic fashion.
Terms of this agreement permit Biopack to acquire ownership of this product during the one year period beginning with the date of this agreement by assuming certain liabilities incurred by the Company related to the development of this product. Additionally, under certain terms and conditions during that period, the Company has the right to require Biopack to acquire ownership of this product.
The licensing fee is being amortized to income ratably over the term of the agreement. During the year ended December 31, 2012, the Company recognized revenue of $5,672 in connection with this agreement.
Biopack is a related party as it is controlled by the Rockland Group, the Company's majority shareholder and an entity controlled by one of the Company's Directors.
12)Income Taxes
The income tax provision (benefit) for the years ended December 31, 2012 and 2011 consists of the following:
The provision (benefit) for income taxes using the statutory federal tax rate as compared to the Company’s effective tax rate for the years ended December 31, 2012 and 2011 is summarized as follows:
As of December 31, 2012 and 2011 the deferred tax asset consisted of the following:
As of December 31, 2012 and 2011, the Company had approximately $2,238,000 and $1,449,000, respectively, of federal and state net operating loss (“NOLs”) carryovers available to offset future taxable income, which expire beginning in 2030. In accordance with Section 382 of the Internal Revenue Code, deductibility of the Company’s net operating loss carryovers may be subject to an annual limitation in the event of a change of control. On November 3, 2010, the holder of the majority of the Company's common stock, who also served as an officer and a director of the Company, sold his holding of 10,000,000 shares of the Company's common stock to the Rockland Group. Those shares represented approximately 90% of the Company's outstanding common stock on that date. Accordingly, this transaction resulted in a change of ownership, which resulted in an annual limitation of approximately $1,300 on the usage of the Company’s NOLs generated up through the date of ownership change. The Company is still in the process of filing its 2010, 2011, and 2012 federal and state tax returns. Therefore, the Company’s net operating loss carryovers will not be available to offset future taxable income, if any, until the returns are filed.
In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which temporary differences representing net future deductible amounts become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. After consideration of all of the information available, Management believes that significant uncertainty exists with respect to future realization of the deferred tax assets and has therefore established a full valuation allowance. For the year ended December 31, 2012 and 2011, the change in the valuation allowance was approximately $422,100 and $1,555,900.
The Company evaluated the provisions of ASC 740 related to the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. ASC 740 prescribes a comprehensive model for how a company should recognize, present, and disclose uncertain positions that the company has taken or expects to take in its tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. Differences between tax positions taken or expected to be taken in a tax return and the net benefit recognized and measured pursuant to the interpretation are referred to as ‘unrecognized benefits.” A liability is recognized (or amount of net operating loss carry forward or amount of tax refundable is reduced) for an unrecognized tax benefit because it represents an enterprise’s potential future obligation to the taxing authority for a tax position that was not recognized as a result of applying the provisions of ASC 740.
If applicable, interest costs related to unrecognized tax benefits are required to be calculated and would be classified as “Other expenses - Interest” in the statements of operation. Penalties would be recognized as a component of “General and administrative.”
No interest or penalties were recorded during the years ended December 31, 2012 and December 31, 2011, respectively. As of December 31, 2012 and December 31, 2011, no liability for unrecognized tax benefits was required to be reported. The Company does not expect any significant changes in its unrecognized tax benefits in the next year.
The Company files tax returns in U.S. federal and state jurisdictions and is subject to examination by tax authorities beginning with the year ended December 31, 2010.
13)Acquisitions
a)Acquisition of Rights to Myself Royalty Stream
On December 8, 2010, the Company acquired from New Horizon, Inc. the rights to a royalty stream related to the sales of the Myself pelvic muscle trainer for the calendar years 2011 through 2015 (the "Myself Agreement"). The Company issued the following in consideration for the acquisition of that asset:
i)A convertible promissory note in the principal amount of $2,000,000 as more fully described in Note 6(a)(i).
ii)36,000,000 shares of common stock; and
iii)3,000,000 shares of a then yet to be created series of preferred stock designated Series B Convertible Preferred Stock as more fully described in Note 7(b).
The Company accounted for this transaction by recording an intangible at its historical cost determined as follows:
The value of $0.0056 per common share was based upon the most recent price per share realized in the private placement of common shares as there was no established public market for the Company's common stock. The Company recorded a corresponding subscription liability for Series B Convertible Preferred Stock in the amount of $750,000 as of December 31, 2010 as:
i)That series of shares had yet to be created as of the date of the balance sheet and the Company was contractually obligated to do so; and
ii)The amount of the obligation could be determined.
Series B Convertible Preferred Stock was subsequently created and the requisite number of shares were issued during the year ended December 31, 2011.
During the year ended December 31, 2011, the Company recorded an impairment charge of $2,950,000 which represented the full carrying value of the Myself pelvic muscle trainer intangible asset. The Company considered both qualitative and quantitative factors in its assessment and, based on current product information, the Company had determined that the future recoverability and expected cashflow associated with that asset to be uncertain.
Additionally, under the terms of the Myself Agreement, the Company was obligated to issue up to an additional 18,000,000 shares of common stock and 1,500,000 shares of Series B Convertible Preferred Stock in August 2012 if the average closing stock price of the Company's common shares on any applicable stock exchange during the month of July 2012 was less than $0.22 per share. The average closing price of the Company's common shares during July 2012 did not attain that threshold and, therefore, such shares were issued as more fully described in Note 9.
b)Acquisition of Patent and Related Rights for Novel Medical Applicator and Entering Into Related Services Agreements
On December 13, 2010, the Company acquired from RWIP, LLC a patent application and related rights for a novel medical applicator (the "RWIP Agreement"). The Company issued the following in consideration for the acquisition of this asset:
i)A convertible promissory note in the principal amount of $125,000 as more fully described in Note 6(a)(ii).
ii)A warrant for the purchase of 1,350,000 shares of the Company's common stock at an exercise price of $0.22 per share through December 13, 2014. Terms of that warrant include the provision for a cashless exercise.
iii)Royalties equal to 20% of the net income derived by the Company in connection with the assets under the RWIP Agreement.
The Company accounted for this transaction by recording a charge for acquired in-process research and development of $125,000 which corresponded to the face value of the promissory note. The value of warrants issued was determined to be dimimis.
c)Acquisition of the iSafe Companies
On March 22, 2011, the Company acquired 100% of the ownership interests in iSafe Imaging, LP, eMediSafe, LP, and iSafe Imaging Canada Ltd. (the "iSafe Companies" or "iSafe").
The purchase price of $970,400 consisted of 4,500,000 shares of common stock with a value of $0.194 per share aggregating $875,000 and warrants for the purchase of 450,000 common shares with a calculated value of $95,400 as described in Notes 8(e) and 10(a), respectively.
The acquisition of iSafe was been accounted for by the Company under the purchase method of accounting whereby assets acquired and liabilities assumed by the Company are recorded at their estimated fair values as of the date of acquisition and the results of operations of the acquired company are consolidated with those of the Company from the date of acquisition.
The purchase price was allocated as follows:
The purchase price paid by the Company in excess of the net assets of iSafe was allocated to intangible assets as indicated above. The intangible asset was comprised of customer lists, know-how, and proprietary methods and was amortized over a three to five year period and the Company recorded amortization expense of $102,147 during the year ended December 31, 2011.
The following unaudited pro forma financial information presents the consolidated results of operations of the Company and iSafe for the year ended December 31, 2011 as if the acquisition had occurred on January 1, 2011 instead of March 22, 2011. The pro forma information only presents the results of operation of iSafe through November 22, 2011, the date the Company sold iSafe. The pro forma information does not necessarily reflect the results of operations that would have occurred had the entities been acquired as of January 1, 2011.
On November 22, 2011, the Company sold the iSafe to a company controlled by the Company's majority shareholder for a cash payment of $250,000 plus 1,170,000 shares of our common stock and warrants for the purchase of 450,000 shares of our common stock with an exercise price of $0.339. The Company realized a gain of approximately $163,000 in connection with this transaction. As this transaction was with a related party, the gain was recorded as a direct addition to the Company's equity.
14)Discontinued Operations
On March 22, 2011 and as more fully described in Note 13(c), the Company acquired the operations of iSafe and on November 22, 2011, sold it to a company controlled by the Company's majority shareholder. Consequently, the operating results of that entity are presented in these financial statements as discontinued operations.
Summarized financial information for discontinued operations for the year ended December 31, 2011 is a follows:
15)Commitments and Contingencies
a)In connection with the Company's investment in Epec and as more fully described in Note 5(c), the Company was committed to pay an additional $475,000 in cash. On January 10, 2013 and as more fully described in Note 17(a), Epec and the Company modified the agreement whereby that obligation was reduced to $100,000.
b)The Company is subject to litigation in the ordinary course of business. Management believes that the Company has adequate insurance coverage and accrues loss contingencies for all known matters that are probable and can be reasonably estimated and that the resolution of any such items will not have a material effect upon the Company's financial position or results of operations.
16)Related Party Transactions
The Rockland Group LLC ("Rockland") and Digisort LLC ("Digisort") are controlled by an individual who is an officer and director of the Company.
a)In November 2010 and as more fully described in Note 7(a), Rockland: agreed to purchase 2,000,000 shares of a yet to be created series of preferred stock in exchange for $100,000. Such shares were subsequently created and issued during the year ended December 31, 2011.
b)On various dates during the years ended December 31, 2012 and 2011 as more fully described in Note 6(b), Rockland loaned the Company an aggregate of $250,150 and $331,297, respectively.
c)On November 22, 2011 and as more fully described in Note 13(c), the Company sold iSafe to Digisort for a cash payment of $250,000 plus 1,170,000 shares of the Company's common stock and warrants for the purchase of 450,000 shares of the Company's common stock. The Company realized a gain of approximately $163,000 in connection with this transaction.
d)As more fully described in Note 13(c), on November 22, 2011, the Company sold iSafe to an entity that is controlled by one of the Company's Directors. That individual also controls the Rockland Group, the Company's majority shareholder.
e)As more fully described in Note 10, on June 7, 2012, the Company entered into a licensing/sale agreement for a novel medical product owned by the Company with an entity that is controlled by one of the Company's Directors. That individual also controls the Rockland Group, the Company's majority shareholder.
f)As more fully described in Note 6(k), on July 25, 2012 the Company sold shares of common stock to the Rockland Group, the Company's majority shareholder and an entity controlled by one of the Company's Directors.
g)As more fully described in Note 6(b), as of December 31, 2012, the Company has a note payable due to the Rockland Group, the Company's majority shareholder and an entity controlled by one of the Company's Directors.
h)Accounts payable due to related parties as of December 31, 2012 consists of $81,500 due to the Rockland Group, the Company's majority shareholder and an entity controlled by one of the Company's Directors, and $27,380 due to Rivercoach Partners, LP, an entity controlled by the Company's Vice President of Investments.
i)As more fully described in Note 17(j), on March 15, 2013, the Company issued a note payable to an investment group managed by the Company's Vice President of Investments with the face value of $50,000 plus a warrant for the purchase of 20,000,000 shares of the Company's common stock at $0.01 per share. As a result of the Company defaulting on that note on April 23, 2013, that investment group effectively owns 49% of the shares of the Company's common stock.
17)Subsequent Events
a)Modification of the Epec Investment Agreement and Issuance of Common Shares
i)On January 10, 2013 and as more fully described in Note 5(c), Epec and the Company modified the agreement whereby:
a)The number of Epec shares to be issued to the Company was reduced to 12,500,000 and all such shares were released to the Company;
b)The Company's remaining payment obligation to Epec of $475,000 was reduced to $100,000;
c)The Company made a $50,000 payment; and
d)Epec could convert the Company's remaining obligation of $50,000 into the Company's common stock at the rate of $0.002 per share.
ii)On January 16, 2013, Epec converted the remaining obligation of $50,000 into 25,000,000 shares of the Company's common stock pursuant to the terms of the agreement. The Company accounted for the $50,000 payment and the fair value of the 25,000,000 common shares issued as a cost of modifying the Epec investment agreement and recorded an expense of $100,000.
b)Issuance of Series C Preferred Shares and Acquisition of SRG, Inc.
On January 23, 2013, the Company closed on a transaction contemplated by an Amended and Restated Share Exchange Agreement (“Share Exchange Agreement”) with SRG, Inc., a Quebec Province corporation, (“SRG”) and the shareholders of SRG pursuant to which 100% of the holders of the outstanding common stock of SRG transferred to the Company all of the common stock of SRG in exchange for the issuance of 5,000,000 shares of the Company's newly created Series C Convertible Preferred Stock. Those shares are convertible into 80% of the Company's then outstanding common stock immediately after a reverse stock split which is contemplated to occur during the second quarter of 2013. Those shares are also entitled to vote on an “as converted” basis on all matters to which the holders of the Company’s Common Stock are entitled or required to vote.
The operations of SRG consist primarily of researching, developing, and testing the ADS Software ("ADS"), a system designed around proprietary alertness detection technologies which helps operators (such a drivers of motor vehicles) in modulating their work activity based on real time knowledge of their actual state of alertness. Currently, there is no third-party valuation available for SRG and the Company's common stock is thinly traded. Consequently, there is no immediately reliable method available to measure the fair value of this transaction. Thus, for the purpose of the schedule illustrating the effect of events subsequent to December 31, 2012 appearing in Note 18, this transaction is presented as an increase to intangible assets with a corresponding increase to preferred stock using the par value of the 5,000,000 Series C Preferred shares.
The acquisition of SRG will be accounted for by the Company under the purchase method of accounting whereby assets acquired and liabilities assumed by the Company will be recorded at their estimated fair values as of the date of acquisition and the results of operations of the acquired company are consolidated with those of the Company from the date of acquisition. The Company is in the process of valuing the assets and liabilities acquired and management contemplates that this valuation will be completed during the third quarter of 2013. Pro forma financial information presenting the consolidated results of operations of the Company and SRG for the years ended December 31, 2011 and 2012 as if the acquisition had occurred on January 1, 2011 will be included in future filings.
As a result of implementing the Share Exchange Agreement, the Company became a holding company with all day-to-day operations conducted by SRG. The purpose of this transaction was to provide the business of SRG with access to the capital markets in the United States for future expansion and growth.
c)Conversion of Convertible Note Payable into Common Shares
On January 23, 2013 and simultaneously with the closing of the Share Exchange Agreement described above, the holder of the convertible note payable elected to convert principal and accrued interest in the amounts of $1,216,667 and $292,694, respectively, into 9,056,164 shares of the Company's common stock at the rate of $0.1667 per share pursuant to the terms of the note dated December 8, 2010.
d)Negotiated Settlement of Accounts Payable Balance and Conversion of Remaining Balance into Common Shares
On January 23, 2013 and simultaneously with the closing of the Share Exchange Agreement described above, a vendor which the Company owed $230,000 agreed to reduce its claim to $50,000 and convert that amount into 14,800,000 shares of the Company's common stock at the rate of $0.0032 per share. The Company accounted for this transaction as a decrease to accounts payable of $230,000 with a corresponding increase to stockholders' equity.
e)Conversion of Accounts Payable Balances into Common Shares
On January 23, 2013 and simultaneously with the closing of the Share Exchange Agreement described above, two vendors which the Company owed a total of $112,000 agreed to convert such balances into 35,331,230 shares of the Company's common stock at the rate of $0.0032 per share. The Company accounted for this transaction as a decrease to accounts payable of $112,000 with a corresponding increase to stockholders' equity.
f)Transfer of Assets and Conversion of Convertible Note Payable into Common Shares with a Related Party
On January 23, 2013 and simultaneously with the closing of the Share Exchange Agreement described above:
i)The Company closed on a transaction contemplated by an Asset Purchase Agreement with Rockland Group, LLC, the Company's majority shareholder and an entity controlled by one of the Company's Directors (“Rockland”), pursuant to which the Company sold the shares it owned in HepatoChem, Inc. with a carrying value of $210,000 to Rockland in exchange for a reduction of the same amount of a convertible note payable due to Rockland; and
ii)Rockland elected to convert the remaining balance of $579,938 due in connection with the convertible note payable plus accounts payable balances totaling $75,000 into a total of 182,945,741 shares of the Company's common stock at the rate of $0.0032 per share.
g)Transfer of Certain Assets to and Assumption of Liabilities by HLBC Distribution Company, Inc.
On January 23, 2013 and simultaneously with the closing of the Share Exchange Agreement described above, the Company closed on a transaction contemplated by an Assignment and Assumption Agreement with HLBC Distribution Company, Inc., a Nevada corporation ("HLBCDC") pursuant to which certain of the Company assets were transferred to HLBCDC in exchange for HLBCDC assuming certain liabilities of the Company.
The assets transferred to HLBCDC consisted of:
i)The shares the Company owned in Legends & Heroes, Inc. and Epec Biofuels Holdings, Inc. as well as the intangible rights associated with the Myself™ pelvic muscle trainer and a novel medical applicator referred to as the “Soft and Smooth Assets” with a collective carrying value of $700,000;
ii)40,203,785 shares of the Company's common stock with a negotiated value of $127,446 ($0.0032 per share); and
iii)A warrant to purchase 50,000,000 shares of the Company's common stock at the exercise price of $0.0055 per share, the fair market value of such shares on the date of the closing. Such warrants were valued at $205,000 and recorded as an addition to additional paid-in capital in the schedule below.
In exchange for the assets, shares, and the warrant, HLBCDC assumed $985,946 of the Company's liabilities consisting of:
i)The remaining balance due of $450,000 in connection with the convertible note payable described in Note 17(c);
ii)Accrued liabilities of $386,500 due to management for services rendered; and
iii)Trade payables totaling $149,446;
The Company expects to record a loss of approximately $205,000 in connection with this transaction directly attributable to the theoretical value of $205,000 attributed to the warrants through the use of the Black-Scholes valuation formula.
h)Service Agreement and Issuance of Warrant
Effective February 1, 2013, the Company entered into a service agreement with Frederick Larcombe to fulfill the role of its Chief Financial Officer for a period of three months. Compensation for that period aggregated $45,000 consisting of $30,000 in cash and warrants for the purchase of a number of the Company's common shares at an exercise price per share equal to the price at which the Company raises funds during that period. The number of shares to be purchased via this warrant was to be computed by dividing $15,000 by the price per share at which the Company raises funds during that period. This agreement was modified effective March 28, 2013 through mutual agreement whereby cash compensation was reduced to $22,500 and the Company issued a warrant for the purchase of 2,250,000 shares of the Company's common stock at $0.01 per share for a period of five years. This warrant vested immediately upon issuance, contained provisions for a cashless exercise, was valued at $16,650, and was recorded as stock-based compensation expense.
i)Issuance of Demand Notes Payable
On various dates from February 15, 2013 through May 1, 2013, the Company's 100% owned Canadian subsidiary, SRG, Inc, issued a series of notes payable with face amounts totaling CAD$685,000 and received proceeds of the same amount. These notes are payable upon demand and accrue interest at the rate of 25% per annum compounded daily.
j)MeliaLife Agreement
On March 12, 2013, the Company entered into a Distribution Agreement (the “Distribution Agreement”) with MeliaLife International, Inc. (“MeliaLife”), pursuant to which the Company will be the exclusive distributor of natural supplement products produced by MeliaLife. The duration of the Distribution Agreement is five years or when the Company has purchased $60 million in products from MeliaLife, whichever happens first. At that time all rights to the MeliaLife products will inure to the Company in exchange for prospective payment to MeliaLife of 4% of net profits from the sale of such products.
k)Issuance of Short Term Convertible Note Payable and Change of Control
On March 15, 2013, the Company received $50,000 in return for issuing a note payable to an investment group managed by the Company's Vice President of Investments with the face value of $50,000 plus a warrant for the purchase of 20,000,000 shares of the Company's common stock at $0.01 per share for a period of five years. This note was due on April 15, 2013 along with a $25,000 service fee and accrued interest on the principal at the rate of 18% per annum compounded daily. Anytime after April 15, 2013, the holder could convert all amounts due in connection with this note into the Company's Preferred Series C Stock at the rate of $0.01 per share. The warrants were valued at $148,000 and the $25,000 service fee were recorded as interest expense. The bulk of the $50,000 received from this transaction was subsequently disbursed in connection with operating activities.
On April 16, 2013 and as a result of non-payment of the note upon its due date, the holder issued the Company a notice of default and a notice of conversion of all amounts due into Preferred Series C Stock.
On April 17, 2013, the Company and the holder reached an agreement whereby the Company issued 100,000 shares of its Preferred Series C Stock to the holder of the note and the due date was revised to April 23, 2013.
On April 24, 2013 and as a result of non-payment of the note upon its due date, the holder issued the Company a notice of default and a notice of conversion of $75,971 due in connection with the note into 7,597,100 shares of Preferred Series C Stock. This resulted in the holder of the note owning 61% of the total shares of Preferred Series C Stock. Upon conversion of the Series C Convertible Preferred Stock into 80% of the Company's outstanding common stock immediately after a reverse stock split, the holder will own 49% of the Company's outstanding common stock. In light of the holder's relationship with other common shareholders, this transaction resulted in a change in control transaction.
l)Issuance of Notes Payable
On various dates from April 26, 2013 through May 30, 2013, the Company issued a series of notes payable totaling $220,000. These notes accrue interest at the rate of 18% per annum and mature on September 30, 2013.
18)Unaudited Pro Forma Supplemental Information
The following unaudited pro forma supplemental information is presented exclusively to assist the reader of these financial statements in understanding the effects of the subsequent events described in Note 17 upon the balance sheet of the Company as of December 31, 2012. This unaudited pro forma supplemental information does not reflect all activity occurring after December 31, 2012 and should not be viewed as being representative of the results of operations after that date.
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