UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended:February 29, 201228, 2015
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________________________ to _____________________________
Commission file number:000-52218
PEDIATRXQUINT MEDIA INC.
(Exact name of registrant as specified in its charter)
Nevada | 20-2590810 | |
State or other jurisdiction of | (I.R.S. Employer | |
incorporation or organization | Identification No.) |
90 Fairmount Road330 Clematis Street, Suite 217, West Califon, New Jersey 07830Palm Beach, FL 33401
(Address of principal executive offices and Zip Code)
Registrant's
Registrant’s telephone number, including area code:(908) 975-0753(561) 514-0936
Securities registered pursuant to Section 12(b) of the Act
Title of Each Class | Name of each Exchange on which registered | |
N/A |
Securities registered pursuant to Section 12(g) of the Act
Common Stock, par value $0.0001 per share
(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes [ ] No [X][X]
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Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes [ ] No [X][X]
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes [X][X] No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes [X][X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant'sregistrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
[X]X]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large“large accelerated filer," "accelerated filer"” “accelerated filer” and "smaller“smaller reporting company"company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] | Accelerated filer [ ] | |
Non-accelerated filer [ ] | Smaller reporting company [X] | |
(Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes [ ] No [X][X]
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant'sregistrant’s most recently completed second fiscal quarter.$2,099,118
15,186,000 shares of common stock at a price of $0.60 per share for an aggregate market value of $9,111,600.1
1The aggregate market value of the voting stock held by non-affiliates is computed by reference to the closing price of shares of common stock of the registrant on the OTC Bulletin Board on August 12, 2011 of $0.60 per share.
APPLICABLE ONLY TO CORPORATE REGISTRANTS
Indicate the number of shares outstanding of each of the registrant'sregistrant’s classes of common stock, as of the latest practicable date:20,836,000 409,202,970 shares of common stock are issued and outstanding as of May 18, 2012.22, 2015.
DOCUMENTS INCORPORATED BY REFERENCE
Not Applicable
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None.
TABLE OF CONTENTS
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PART I
Forward-Looking Statements
This annual report contains forward-looking statements. AllThe following discussion should be read in conjunction with our financial statements other than statements of historical facts containedand the related notes that appear elsewhere in this annual report including statements regarding our future financial position, business strategy and plans and objectives of management for future operations, are forward looking statements. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as "may", "should", "expect", "plan", "anticipate", "believe", "estimate", "predict", "potential" or "continue" or the negative of these terms or other comparable terminology. Such forward-looking statements include, without limitation, statements regarding our future products, statements regarding our anticipated future regulatory submissions and statements regarding our anticipated future cash position.on Form 10-K.
We have based these forward-looking statements largely on our current expectations and projections about future events that we believe may affect our financial condition, results of operations, business strategy, and financial needs. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks in the section entitled "Risk Factors" that may cause our company's or our industry's actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.
Moreover, we are a new entrant to the pharmaceutical business and our management cannot predict all of the risks we will face in establishing our company in this industry, nor can we assess the impact that these risk factors might have on our business or the extent to which any risk factor, or any combination of risk factors, may cause actual results to differ materially from those contained in any forward-looking statements. You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.
As used in this annual report on Form 10-K and unless otherwise indicated, the terms "we", "us", "PediatRx"“we,” “us,” “Quint” and "our"“our” refer to PediatRxQuint Media Inc., a Nevada corporation.corporation, and/or Exley Media Inc., a Nevada corporation, as the context may require. Unless otherwise specified, all dollar amounts are expressed in United States dollars and all references to "common shares"“common shares” refer to the common shares in PediatRx'sQuint’s capital stock.
Corporate Overview
OurOverview
We are a digital and social media and entertainment company was incorporated underfounded to connect people with content relating to their passions and interests, and with each other. As a key component of our cross-platform implementation, we are pioneering a mobile-native philosophy to transform the lawsway the public consumes news and information. This philosophy is supported by both proprietary technology and a team of Nevadainternational experts that are enabling content creation and consumption specifically for any smartphone or tablet device. In doing so, we believe we offer substantial value to businesses, brands and advertisers. This value will be facilitated by leveraging user data to offer specific targeted advertising and by integrating online marketing such as native and programmatic advertising, including real-time bidding. With real-time bidding, the value of an advertisement is determined in real-time based on March 18, 2005 under the name "Striker Energy Corp.". From inception untildemographic of the summeruser who will see the advertisement and the outcome of 2008, we were engaged inan auction, which selects the mineral exploration business. During the summerwinning advertiser.
The concept of 2008, we abandoned our mineral exploration propertiesnetwork is being engineered with a powerful digital ecosystem at its core. In addition to matching each user with content that is customized to that user’s interests, this center of activities processes and made the transition to oil and gas. On July 23, 2010, our wholly owned subsidiary PediatRx Inc., a Nevada corporation, completed the acquisition of Granisol® (granisetron HC1) oral solution ("Granisol") from Cypress Pharmaceutical, Inc. ("Cypress") and we abandoned our interest in the oil and gas business in favor of pursuing opportunities in the pharmaceutical industry. Effective December 28, 2010, we changed our name from "Striker Energy Corp." to "PediatRx Inc." to better reflect our new business. We effected this name change by a merger with our wholly-owned subsidiary, PediatRx Inc., a Nevada corporation.
Our Business
On June 17, 2010, we entered into a letter of intent with Cypress to acquireorganizes all of the assets associatedinformation and user data across our entire digital and social network. Feature-rich applications for iPhone, Android and Blackberry will allow users to follow the stories that matter most to them and receive up-to-the-second updates on those stories as they evolve over time. In doing so, they have important facts, statistics, quotes and multimedia without fluff, and remain updated without re-reading old information.
We strive to become an industry leader through innovation. For example, our ecosystem supports citizen journalism, a socially innovative feature that puts reporting into the public’s hands. Both efficient and interactive, it allows individuals to submit stories (scoops), photos and video of breaking news in any industry and monetize their own content. Bloggers and other individual authors can also partner with Granisol. First approvedus by contributing sought-after content to its communities. In return, partners can generate both traffic and revenue.
We are initially focused on brands relating to lifestyle, entertainment and fashion, with plans to expand our ecosystem to include social networking. Our underlying technology can be applied to any type of content community, regardless of the industry vertical. It is enterprise-grade and infinitely scalable, providing an excellent opportunity to support acquisitions and expansion.
We believe our users are a ready audience for businesses and brands seeking to promote their products and services. By incorporating a secure business intelligence data collection strategy across our ecosystem, we can leverage our valuable user data as a saleable commodity. The power of data analytics coupled with real-time access will help marketers effectively reach their target audiences.
Our Business
Exley
In 2013, we acquired the internet domain name “Slickx.com,” the website and related software, intellectual property rights, accounts, contracts, goodwill and infrastructure from Lakefield Media Holding AG (“Lakefield”) for $50,000. The platform was subsequently developed further and rebranded “Exley” (getexley.com). Constantin Dietrich, our President, Chief Executive Officer, Chief Financial Officer, Secretary and Treasurer, and a member of our board of directors, is the founder and Chief Executive Officer of Lakefield.
Functions and Services
We plan to enable users to not only consume digital content from the lifestyle, fashion and entertainment industry, but also to find, create and share the content within these verticals in 2008, Granisolwhich they are interested. Our service will connect consumers, creators and advertisers in an environment that is an oral, liquid granisetron solution, formerly distributed by Hawthorn Pharmaceuticals,both engaging and social. By building a wholly-owned subsidiary of Cypress.media network that delivers curated quality content we will offer a global platform that will enable the user to find, share and connect with like-minded people and opinion-leaders. The Food and Drug Administration has approved Granisol's use in cancer care to prevent nausea and vomiting associated with cancer therapy. On June 18, 2010, we caused PediatRx Inc.service is planned to be incorporated as a wholly-owned subsidiary of Striker Energy Corp. under the lawsavailable on multiple platforms including web, tablet and mobile.
Revenue Model
We plan to generate revenue from advertisements and subscriptions.
Advertisements. One of the statemajor benefits of Nevada. On July 23, 2010 we, through our wholly-owned subsidiary PediatRx Inc., acquired Granisol from Cypress and we turned our focus to the pharmaceutical industry and terminated our interest in oil and natural gas exploration. Effective December 28, 2010, we changed our name from "Striker Energy Corp." to "PediatRx Inc." to better reflect our new business. We effected this name change byadvertising on a merger with our wholly-owned subsidiary, PediatRx Inc.
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Granisolsocial media site is our first acquisition. We have been the sole distributor of Granisol and have focused our marketing efforts on specialists in the field of oncology and supportive care. We do not now, nor do we intend to manufacture our products. We contracted manufacturing to Therapex, a division of E-Z-EM Canada Inc., a subsidiary of E-Z-EM, Inc., the entity that manufactured Granisol for Cypress.
On September 12, 2011 we entered into a co-promotion agreement with Bi-Coastal Pharmaceutical Corp. ("Bi-Coastal"). Pursuant to the co-promotion agreement, Bi-Coastal granted us the non-exclusive right to promote Aquoral™ within the United States of America. Aquoral, a product whichadvertisers can be used in oncology supportive care, is an FDA-cleared treatment for xerostomia (the medical term for dry mouth due to a lack of saliva). Xerostomia is especially prevalent in patients undergoing various treatments for cancer and those with Sjogren's syndrome. We were required to include Aquoral in no less than 85% of our sales calls. In return for our promotional efforts, we were to receive compensation for each unit sold. The agreement with Bi-Coastal is for an initial term of two years and automatically renews for one year terms unless either party provides notice of non-renewal at least six months prior to the expirationtake advantage of the then-current term.users’ demographic information and target their ads appropriately. We may sell advertisement space to companies that may be interested in targeting our subscribers. We anticipate that interested advertisers will include premium brand advertisers as well as local and regional advertisers who are looking for innovative new and exciting formats to carefully target the consumer to create an experience that benefits consumers and advertisers. The agreement is terminable at any time, by either party, upon six months prior written noticefocus will be to offer content with targeted advertising that reaches the other partyright audience with the right content and is also terminable for cause.the right advertising.
On January 26, 2012,
Subscriptions. As the service matures, we entered intomay offer paid subscription services that enhance and augment the user experience. Further, there may be a binding term sheet (the "Term Sheet") with Apricus Biosciences, Inc. ("Apricus") for (1) a Co-Promotion Agreement in the United States for Granisol® (the "Co-Promotion Agreement"), (2) the assignment of our Co-Promotion Agreement with Bi-Coastal for Aquoral™ to Apricus (the "Assignment Agreement and (3) a Sale Agreement for Granisol® outside of the United States (the "Asset Purchase Agreement"). Also in the Term Sheet, we entered into a non-binding arrangement (the "Arrangement")cost for the sale of our companyconsumer to Apricus in a proposed merger transaction.download the application.
On February 21, 2012 we entered into three definitive agreements and one side letter with Apricus. The three definitive agreements consist of the Co-Promotion Agreement, the Assignment Agreement and the Asset Purchase Agreement. Pursuant to the Co-Promotion Agreement, we granted to Apricus the exclusive right to commercialize Granisol in six U.S. states and the non-exclusive right to commercialize Granisol in all other U.S. States, in addition to the right to manufacture Granisol. In addition, we have agreed that, for a period of five years from the effective date of the Co-Promotion Agreement, we will not license any co-promotion rights in the non-exclusive states to any third party.
Competition
We have retained the right to commercialize Granisol in the non-exclusive states. We intend to book sales in the non-exclusive states that we generate through our own promotional efforts. Each party has agreed to cooperate with the other in respect of promotional materials and efforts on terms specified in the Co-Promotion Agreement.
The initial term of the Co-Promotion Agreement is for a period of ten years from the effective date, though it may be terminated prior to expiration under certain conditions. If the Co-Promotion Agreement is terminated by us prior to the end of the initial term, we will be required to pay to Apricus an amount based upon a varying percentage of our net operating income related to Granisol for a period subsequent to termination depending upon when the termination occurs.
Pursuant to the Assignment Agreement, we have assigned all of our rights and responsibilities under our co-promotion agreement with Bi-Coastal for Aquoral, and Apricus has assumed all rights and responsibilities under the co-promotion agreement as of the effective date. Bi-Coastal has consented to the assignment of the co-promotion agreement.
Pursuant to the Asset Purchase Agreement, we have sold to Apricus all of our rights related to Granisol in all countries and territories outside of the United States. We have also agreed that we and our officers and directors will not compete in the field of anti-emetic products in certain areas outside of the United States.
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As consideration for entering into these three Agreements we received an initial payment of $325,000 from Apricus. The Co-Promotion agreement also provides for the payment to our company of a royalty that will be calculated based upon Apricus' U.S. generated net operating income related to Granisol.
The binding term sheet between our company and Apricus contemplates, in addition to the transactions reflected in the three agreements described above, a non-binding expression of interest in the merger of our company with Apricus. The non-binding portion of the term sheet contemplatesexpect that we will face substantial competition from dominant digital media and entertainment companies and websites such as gawker.com and Mode Media’s glam.com, as well as Facebook application providers in the social media space such as Pinterest. We believe that users often utilize multiple digital and social media and entertainment websites or applications, and the use of one of these website or application is not necessarily to the exclusion of others.
Achieving a critical mass of users or subscribers is crucial for digital and social websites and applications. Even though we seek to offer products and services that are unique in the industry, superior in quality, and more appealing than those of our competitors, we will need to establish a solid initial user base and critical mass.
Although we believe that we have access to the tools and certain inherent efficiencies to attract the initial user base, we need to do that at a lower cost per visitor than certain of our traditional online competitors in order to become successful. We also believe that the industry offers substantial room for growth as social networking application platforms and mobile platforms continue to expand and as the Internet especially mobile continues to become the primary source to engage with social media activities and consume, create and share news, events and other lifestyle-related content.
Marketing and Sales Strategy
The use of the Internet is continuing to evolve as a global platform for doing business. We anticipate that initially, our major focus will be acquiredto enhance the getexley.com website and the cultivation of our user base. We anticipate using various online marketing methods such as Facebook’s viral channels, online marketing programs and other advertising and marketing programs in order to drive traffic to our own website. We plan to take advantage of a well balanced mix of online and offline marketing strategies.
Our primary target market is focused on Internet users who already participate in social media websites. We, therefore, plan to take advantage of various well-established online marketing programs and make them an integral part of our long-term strategy. Our marketing campaigns will monitor daily statistics and track information such as interests, favorite topics and most read stories in order to quickly get synchronized with our Internet audience.
We plan to participate in other marketing activities that will also aim to raise awareness of the EXLEY brand and attract users by Apricuspromoting the unique content and quality of our product and services. We plan to primarily advertise through Internet and mobile advertising and will have to run extensive user acquisition campaigns at any given time, targeting various classifications of users.
We plan to use media buying and in-house tools to effectively and efficiently track, measure and optimize the success of our advertising campaigns. We plan to initiate a marketing strategy with a focus on campaigns that we believe will produce a positive return on ad-spend in the medium- to long-term.
Online Advertising
The majority of our advertising and promotional activities will be concentrated on online advertising campaigns and search engine marketing (“SEM”). SEM is a form of internet marketing that involves the promotion of websites by increasing their visibility in search engine results pages like Google or Bing through optimization and advertising. SEM may use search engine optimization (“SEO”) that adjusts or rewrites website content to achieve a higher ranking in search engine results pages or use pay per click listings. SEO is a technique which helps search engines find and rank a website or –page higher than others by affecting their visibility in a mergersearch engine’s “natural” or un-paid (“organic”) search results. Its objective is getting traffic from the “free,” “organic,” “editorial” or “natural” listings on search engines such as the major search engines Google, Yahoo and Bing that have such results. In general it is believed that a result (site) that appears earlier or higher and more frequently in exchangethe search results list on search engine results pages will get more visitors (traffic) from that search engine.
We have selected Google because of its success and popularity for $4,000,000,web users wishing to find something using internet search. The Google Adwords program will allow us to customize the text of our advertisements, the frequency of each advertisement’s appearance, and the length of the advertising contract. For our purposes, we believe that this will give us the maximum amount of flexibility and allow us to closely monitor the costs of the marketing campaign.
Using this strategy will allow us also to design our own ads, and to select target locations such as a city or state and use keywords in our ads. A keyword is a word that is used by an Internet user who is performing an online search to find out information on a specific topic.
Optimizing Our Website
We plan to work with the website development contractor to optimize our website in terms of SEO. SEO may target various kinds of search, including name search, local or image search, video search or search for events and news. Based on the type of search, search engine results pages and other content such as videos or local listings are shown and ranked based on what the search engine considers most relevant to users. Payment is not involved, as it is with paid SEM search ads.
As part of our internet marketing strategy, we regard SEO to consider how search engines work, what users search for, the actual search terms or keywords typed into search engines and which search engines are preferred by their targeted audience. Thus, SEO may involve editing our website’s and pages’ content, HTML and associated coding to both increase its relevance to specific keywords and to remove barriers to the indexing activities of search engines. We therefore plan to work with the web site development contractor to develop a series of keywords or meta-tags for each of the pages of our web site. Meta-tags are keywords that are added to a web page to make it easier to find that specific web page through search engines, web browser software and other applications. The information is not intended to be paid inseen by the common stock of Apricus, with $3,600,000 distributedcasual Internet user. Search engines like Google and Yahoo are designed to our shareholders immediately and $400,000 held back from shares that would be distributed to our Chief Executive Officer and Chief Financial Officerseek out these keywords when someone is performing an Internet search for a period of six months as an indemnity for breaches by us of our representations and warranties. Additionally, it contemplates that Apricus will assume certain debt and other liabilities of our company up to $675,000. The side letter referred to above refines the timing with respect to the parties' agreement – which is contained in the binding term sheet - that Apricus will pay to our company a 'break-up fee" (in the form of restricted stock of Apricus having a value, as of a specified date, of $1,000,000) if our two companies do not merge by June 1, 2012, (or such other date as may be mutually agreed to by the Parties) unless, prior to that date, we file for bankruptcy or the Granisol asset is materially impaired. There is no assurance that we will be able to complete the merger of our company with Apricus as contemplated above, or on terms acceptable to our company.specific topic.
We are pursuing the merger with Apricus, but are also continuing to focus our promotional efforts for Granisol on healthcare professionals, payers, end-users and their caregivers.
Competition
Granisol is the only oral, liquid granisetron HCl solution currently on the market and approved by the United States Food and Drug Administration.
Research and Development Expenditures
Expenditures attributable to research and development of Granisol over the last two fiscal years totaled $96,000.
Employees
At present, we have one employee who is also an officer of the Company, serving in the capacity of Chief Financial Officer. Our Chief Executive Officer serves pursuant to a consulting agreement.
Subsidiaries
We do not have any subsidiaries.
Intellectual Property
We own one registered trademark for Granisol.Granisol and an unregistered trade-mark “EXLEY.”
Government Regulations
We are planning to develop the EXLEY website and intend to protect its contents by registering for appropriate copyright and trademark protection where we deem such registration necessary or beneficial. We have soughtnot conducted any independent searches or other inquiry into patents or other intellectual property which may be owned by others and which may constrain our business plan, nor have we received approval fromindependent opinions of counsel on such matters.
Governmental Regulations
We are subject to a number of foreign and domestic laws and regulations that affect companies conducting business on the Internet, many of which are still evolving and could be interpreted in ways that could harm our business. In the United States Food and Drug Administrationabroad, laws relating to the liability of providers of online services for activities of their users and other third parties are currently being tested by a labeling codenumber of claims, including actions based on invasion of privacy and other torts, unfair competition, copyright and trademark infringement, and other theories based on the nature and content of the materials searched, the ads posted, or the content provided by users. Any court ruling or other governmental action that imposes liability on providers of online services for Granisol. The labeling code is required on packagingthe activities of pharmaceutical products distributed in healthcare facilities including hospitals. We have also appliedtheir users and other third parties could harm our business. In addition, rising concern about the use of social media technologies for and received all required state distribution licenses that permit us to begin distributing Granisol under PediatRx's label.
Successillegal conduct, such as the unauthorized dissemination of national security information, money laundering or supporting terrorist activities may in the United States pharmaceutical industry is dependent on approval byfuture produce legislation or other governmental action that could require changes to our products or services, restrict or impose additional costs upon the United States Food and Drug Administration for manyconduct of our business or cause users to abandon material aspects of our service.
In the business including product efficacy, product manufacturing, product distribution,area of information security and product marketing. To aid us in our effortsdata protection, many states have passed laws requiring notification to achieveusers when there is a security breach for personal data, or requiring the highest leveladoption of minimum information security standards that are often vaguely defined and difficult to practically implement. The costs of compliance with United States Foodthese laws may increase in the future as a result of changes in interpretation. Furthermore, any failure on our part to comply with these laws may subject us to significant liabilities.
We are also subject to federal, state, and Drug Administrationforeign laws regarding privacy and protection of member data. We intend to post on our website our privacy policy and user agreement, which describe our practices concerning the use, transmission and disclosure of member data. Any failure by us to comply with our posted privacy policy or privacy related laws and regulations could result in proceedings against us by governmental authorities or others, which could harm our business. In addition, the interpretation of data protection laws, and their application to the Internet is unclear and in a state of flux. There is a risk that these laws may be interpreted and applied in conflicting ways from state to state, country to country, or region to region, and in a manner that is not consistent with our current data protection practices. Complying with these varying international requirements could cause us to incur additional costs and change our business practices. Further, any failure by us to adequately protect our members’ privacy and data could result in a loss of member confidence in our services and ultimately in a loss of members and customers, which could adversely affect our business.
In addition, because we anticipate that our services will be accessible worldwide, certain foreign jurisdictions have claimed and others may claim that we are utilizing expertsrequired to comply with their laws, including in jurisdictions where we have no local entity, employees, or infrastructure.
Research and Development Activities
During the fieldyears ended February 28, 2015 and 2014, we spent $0 and $102,300 on website development costs, respectively. We have plans to continue certain research and development activities related to the development of pharmaceutical compliance.the Exley website.
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Employees
At present, we have no employees other than Constantin Dietrich, our President, Chief Executive Officer, Chief Financial Officer, Treasurer and director. We intend to conduct our digital and social media and entertainment business largely through agreements with consultants and other independent third parties.
Recent Developments
On March 10, 2015, we entered into a debt settlement agreement (the “Debt Settlement Agreement”) with Leone Group, LLC (“Leone”), American Capital Ventures, Inc. (“ACV”), Georgia Georgopoulos, Catherine Cozias and Trels Investments, Ltd. (“Trels” and collectively with Leone, ACV, Ms. Georgopoulos and Ms. Cozias, the “Holders”). Pursuant to the Debt Settlement Agreement, the Company and the Holders agreed to settle all of the outstanding debt owed under certain promissory notes and accounts payable, to each of the Holders, and the Holders agreed to convert their respective portions of the debt into shares of restricted common stock of the Company. The Company agreed to issue an aggregate of 346,319,970 shares of common stock in settlement of $1,038,959 of debt owed by the Company to the Holders. As a result of the issuance of shares pursuant to the Debt Settlement Agreement, Leone and ACV each hold approximately 37% of the Company’s common stock. As of March 10, 2015, we had a total of approximately 409,202,970 shares of common stock issued and outstanding.
On March 10, 2015, Joseph Carusone submitted his resignation as Vice President, Investor Relations, and a member of our Board of Directors. On November 13, 2014, Joseph Arcuri submitted his resignation as a member of our Board of Directors. There were no disagreements between us and Mr. Arcuri or Mr. Carusone as to our operations, policies (including accounting or financial policies), or practices.
An investment in our common stock involves a number of very significant risks. You should carefully consider the following risks and uncertainties in addition to other information in this report in evaluating our company and its business before purchasing shares of our company'scompany’s common stock. Our business, operating results and financial condition could be seriously harmed due to any of the following risks. You could lose all or part of your investment due to any of these risks.
Risks Related to Our Company
Our independent auditors have expressed substantial doubt about our ability to continue as a going concern.
We have generated minimal revenue from operations since our incorporation.
During the twelve month periodyear ended February 29, 2012,28, 2015, we incurredgenerated a net loss of $952,543.$423,421. From inception through February 29, 2012,28, 2015, we incurred an aggregate loss of $2,251,326.$3,748,088. We anticipate that we will continue to incur operating expenses which will be offset to some degree by revenues from the sales and co-promotion of Granisol. Unless we are able to grow the revenues from Granisol significantly through our own efforts and the co-promotion effort of Apricus, we may never reach a point where we have positive net income. If we cannot substantially increase our revenues from sales of Granisol, we will continue to generate losses and will require additional funding to remain in business. We estimate our average monthly expenses over the next 12 months to be approximately $105,000, including general and administrative expenses, but excluding any development or product acquisition costs in the event we are unsuccessful in completing the merger with Apricus. On February 29, 2012,28, 2015, we had cash and cash equivalents of approximately $258,140.$6,809. In order to fund our anticipated budget for the next 12 months, excluding any development or product acquisition costs, we believe that we will need to raise in excess of $1 million. This amount could increase if we encounter difficulties that we cannot anticipate at this time.additional capital. We have traditionally raised our operating capital from the sale of equity securities and the placement of notes payable, but there can be no assurance that we will continue to be able to do so. If we do not successfully merge with Apricus, and the Granisol asset has not been impaired, we are entitled to an additional payment from them of $1,000,000 in Apricus common stock. If for some reason we do not receive such payment, or if we are unable to convert such stock proceeds into cash and could not otherwise raise the money that we need in order to continue to operate our business, we will be forced to delay, scale back or eliminate some or all of our operations. If any of these were to occur, there is a substantial risk that our business would fail.
These circumstances raise substantial doubt about our ability to continue as a going concern, as described in the explanatory paragraph to our independent auditors' report REPORT OFINDEPENDENTREGISTEREDPUBLICACCOUNTINGFIRMon our financial statements for the year ended February 29, 2012.28, 2015. Although our financial statements raise substantial doubt about our ability to continue as a going concern, they do not reflect any adjustments that might result if we are unable to continue our business. Our financial statements contain additional note disclosure describing the circumstances that lead to this disclosure by our independent auditors.
Our substantial debt and other financial obligations could impair our financial condition and our ability to fulfill our debt obligations. Any refinancing of this substantial debt could be at significantly higher interest rates.
As of February 29, 2012, we had total debt of approximately $532,986 (including accrued interest of approximately $32,986). Our substantial indebtedness and other current financial obligations and any that we may become a party to in the future could:
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have a material adverse effect on us ifIf we fail to comply with financialgrow our user base, our revenue, business and affirmative and restrictive covenants in debt agreements and an event of default occurs as a result of a failure that is not cured or waived;operating results may be harmed.
require us to dedicate a substantial portion
The size of our cash flow for interest payments onuser base is critical to our indebtednesssuccess. Our financial performance will be determined significantly by our success in growing the number of users. If people do not perceive our products and other financial obligations, thereby reducing the availabilityservices to be useful, reliable and trustworthy, we may not be able to attract users and grow our revenue. A number of consumer-oriented websites that achieved early popularity have since seen their user bases or levels of engagement decline, in some cases precipitously. There is no guarantee that we will not experience a similar erosion of our cash flow to fund working capitaluser base or engagement levels. A number of factors could potentially negatively affect user growth and capital expenditures;engagement, including if:
limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate; and
● | users engage with other products, services or activities as an alternative to ours; | |
● | influential users or certain age demographics conclude that an alternative product or service is more relevant; | |
● | we are unable to convince potential new users of the value and usefulness of our products and services; | |
● | there is a decrease in the perceived quality of our content; | |
● | we fail to introduce new and improved products or services or if we introduce new or improved products or services that are not favorably received; | |
● | technical or other problems prevent us from delivering our products or services in a rapid and reliable manner or otherwise affect the user experience; | |
● | we are unable to present users with content that is interesting, useful and relevant to them; | |
● | users believe that their experience is diminished as a result of the decisions we make with respect to the frequency, relevance and prominence of advertisements that we display; | |
● | there are user concerns related to privacy and communication, safety, security or other factors; | |
● | there are adverse changes in our products or services that are mandated by, or that we elect to make to address, legislation, regulatory authorities or litigation, including settlements or consent decrees; | |
● | we fail to provide adequate customer service to users; or | |
● | we do not maintain our brand image or our reputation is damaged. |
place us at a competitive disadvantage compared to our competitors that have proportionally less debt.
If we are unable to meetincrease our debt service obligationsuser growth, or if it declines, this could result in our products and services being less attractive to potential new users, as well as advertisers, which would have a material and adverse impact on our business, financial condition and operating results.
Efforts to expand will place a significant strain on our management, operational, financial and other resources.
Given sufficient capital, we plan to expand our operations by marketing our Exley website, which will place a significant strain on our management, operations, technical performance and financial obligations,resources. There can be no assurance that we will be able to manage expansion effectively. Our current and planned personnel, systems, procedures, and controls may not be adequate to support and effectively manage our future operations, especially as we employ personnel in multiple geographic locations. We may not be able to hire, train, retain, motivate, and manage required personnel, which may limit our growth. If any of this were to occur, it could be forceddamage our reputation, limit our growth, negatively affect our operating results and harm our business. We do not currently have the required capital to restructure or refinance our indebtedness and other financial transactions, seek additional equity capital or sell our assets. We might then be unable to obtain such financing or capital or sell our assets on satisfactory terms, if at all. Any refinancingmarket either of our indebtedness could be at significantly higher interest rates, and/or incur significant transaction fees.the offerings.
We are an early-stage company with a limited operating history, which may hinder our ability to successfully meet our objectives.
We are an early-stage company with a limited operating history upon which to base an evaluation of our current business and future prospects. While we have recently acquired Granisol, our sales have been minimal and, there can be no assurance that we will be successful in our efforts to increase sales.new business. As a result, the revenue and income potential of our new business is unproven. In addition, because of our limited operating history, we have limited insight into trends that may emerge and affect our business. Errors may be made in predicting and reacting to relevant business trends and we will be subject to the risks, uncertainties and difficulties frequently encountered by early-stage companies in evolving markets. We may not be able to successfully address any or all of these risks and uncertainties. Failure to adequately do so could cause our business, results of operations and financial condition to suffer.
Our CEOdevelopment efforts rely on external software engineers.
We will be dependent on outside software engineers to drive our development. If our management is not able to execute on our business plan, it is likely stockholders would lose their entire investment.
Risks Relating to the Digital and CFOSocial Media and Entertainment Business
We are engaged elsewherea digital and social media and entertainment company in a highly competitive field with high investment costs and high risks.
We are a digital and social media and entertainment company. We must achieve a certain level of users of our website, Exley before it can be monetized and produce revenue for us. We will have to raise substantial additional capital to drive users to our website and eventually generate revenues and reach profitability, if ever. We will be dependent upon selling advertisements and finding other ways to monetize our users by selling add-on services. For a social application or site to be able to sell advertisements, it must first attract a sufficient number of users to gain the interest of advertisers in buying ads and offering products on the site or the application. It will take time, management effort and capital to attract users to our website. There can be no assurance that any users will come. These timeframes, along with the general state of development create additional uncertainty as to the potential success of our website. The application may not continue to work as we plan and even if it does, there can be no assurance that an economically viable level of users will come, that advertisers will want to advertise or that we can monetize it. Therefore, it will be costly to maintain the application and market it to attract users and advertisers.
We are entering a very crowded digital and social media and entertainment marketplace where existing competitors have years of experience, are well financed and have the name recognition to draw consumers, none of which we possess.
Our board of directors has determined that the future direction of our company will focus on development of Exley website. This puts our business focus in a very competitive field dominated by several very large and well financed companies such as Facebook, MySpace and Twitter. These companies have established an online presence and community that have become destinations in and of themselves and it will be difficult to make inroads into this space. We will be dependent on a new twist to entry into this space but in the end, all social media sites have similar features and it is likely that if any part of our offering becomes compelling, the competitors will adjust their offerings to be directly competitive with us. This creates substantial uncertainty on our ability to survive in this space or to be able to attract enough users to be able to monetize our site to produce revenues.
The revenue models for our digital and social media and entertainment business require we first obtain a sufficient number of users of our website before we can sell advertisements or generate other revenue and it will take time to generate such users and to then monetize the site.
We will be dependent on selling advertisements and finding other ways to monetize our users by selling add-on services. For a social media site to be able to sell advertisements, they first must attract a sufficient number of users to gain the interest of advertisers in buying ads on the sites. It will take time and effortmoney to bring users to our site and there is no assurance any users will come. These time frames along with the general state of development create additional uncertainty as to the potential success of our company. The site may not work as we plan and even if they do there can be no assurance any users will come, that advertisers will want to advertise or that we can monetize them. Additionally, it will be costly to maintain the offerings and market them to attract users.
The security risks or perception of risks of using social media websites may discourage users from using our website.
We and other market participants must be able to transmit confidential information securely over public networks. Third parties may have the technology or know-how to breach the security of user data. Any breach could cause users to lose confidence in the security of our website and choose not use our site.
We cannot assure you that advances in computer capabilities, new discoveries in the field of cryptography or other events or developments will not result in a compromise or breach of the algorithms that we will use to protect user data. If any such compromise of our security were to occur, it could harm our reputation, business, prospects, financial condition and results of operations. A party who is able to circumvent our security measures could misappropriate information or cause interruptions in our operations. We may be devotedrequired to expend significant capital and other resources to protect against such security breaches or to alleviate problems caused by such breaches. We cannot assure you that our security measures will prevent security breaches or that failure to prevent such security breaches will not harm our business, prospects, financial condition and results of operations.
We may be liable if third parties misappropriate our users’ personal information.
If third parties are able to penetrate our network security or otherwise misappropriate our users’ personal information, or if we give third parties improper access to our company full-time.users’ personal information, we could be subject to liability. This liability could include claims for impersonation or other similar fraud claims. This liability could also include claims for other misuses of personal information, including unauthorized marketing purposes. These claims could result in litigation. Liability for misappropriation of this information could adversely affect our business. In addition, the Federal Trade Commission and state agencies have been investigating various Internet companies regarding their use of personal information. We could incur additional expenses if new regulations regarding the use of personal information are introduced or if government agencies investigate our privacy practices.
System and online security failures could harm our business and operating results.
Our CEOservices will depend on the efficient and CFOuninterrupted operation of our computer and communications hardware systems. Our systems and operations will be vulnerable to damage or interruption from a number of sources, including fire, flood, power loss, telecommunications failure, break-ins, earthquakes and similar events. Our Internet host provider does not guarantee that our Internet access will be uninterrupted, error-free or secure. Our servers are each engagedalso vulnerable to computer viruses, physical, electrical or electronic break-ins and similar disruptions. Any substantial interruptions could result in other positionsthe loss of data and could completely impair our ability to generate revenues from our service. We do not presently have a full disaster recovery plan in effect to cover the loss of all facilities and equipment.
We currently do not have any patents associated with other companies. As a result, our company isExley website and will continue to be managed on a part-time basis. Our business could be adversely impacted by the lack of full time management.
Ifif we are unablenot able to successfully recruit qualified managerial and field personnel,develop intellectual property protection around our product offering, we may not be able to continueprevent competitors from recreating our operations.product offering.
In order
Other than certain unregistered trademarks, we do not have any intellectual property protection on the features and software behind our Exley website. We are planning to successfully implementdevelop our website and manageintend to protect its contents by registering for appropriate copyright and trademark protection where our management deems such registration necessary or beneficial, but there is no assurance that we will be able to obtain such protection. We have not conducted any independent searches or other inquiry into patents or other intellectual property which may be owned by others and which may constrain our business plan, nor have we will depend upon, among other things, successfully recruiting qualified managerial and field personnel having experience in the pharmaceutical industry. Competition for qualified individuals is intense. We may not be able to find, attract and retain qualified personnelreceived independent opinions of counsel on acceptable terms. such matters.
If we are unable to find, attract and retain qualified personnel with technical expertise, our business operations could suffer.
Risks Relating to the Pharmaceutical Business
Our pharmaceutical expenditures may not result in commercially successful products.
We cannot be sure our business expenditures will result in the successful partnering, acquisition, development or launch of products that will prove to be commercially successful or will improve the long-term profitability of our business. If such business expenditures do not result in successful partnering, acquisition, development or launch of commercially successful brand productsrespond to rapid technological changes, our results of operationsservices could become obsolete and financial condition could be materially adversely affected.
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Third-parties may claim that we infringe their proprietary rights and may prevent us from manufacturing and selling some of our products.
The manufacture, use and sale of new products that are the subject of conflicting patent rights have been the subject of substantial litigation in the pharmaceutical industry. These lawsuits relate to the validity and infringement of patents or proprietary rights of third parties. Litigation may be costly and time-consuming, and could divert the attention of our management and technical personnel. In addition, if we infringe on the rights of others, we could lose users.
To remain competitive, we will need to continually enhance and improve the functionality and features of our rightdigital and social media and entertainment website. We may face material delays in introducing new services, products and enhancements. If this happens, our users may forgo the use of our website and use those of our competitors. The Internet and the digital and social media and entertainment industry are rapidly changing. If competitors introduce new products and services using new technologies or if new industry standards and practices emerge, our existing website and our technology and systems may become obsolete. Our failure to respond to technological change or to adequately maintain, upgrade and develop our computer network and the systems used to process users’ uses of our website could harm our business, prospects, financial condition and results of operations.
Existing or future government regulation could harm our business, results of operation and financial condition.
We are subject to the same federal, state and local laws as other companies conducting business on the Internet. Today there are relatively few laws specifically directed towards conducting business on the Internet. However, due to the increasing popularity and use of the Internet, many laws and regulations relating to the Internet are being debated at the state and federal levels. These laws and regulations could cover issues such as user privacy, freedom of expression, pricing, fraud, quality of products and services, taxation, advertising, intellectual property rights and information security. Applicability to the Internet of existing laws governing issues such as property ownership, copyrights and other intellectual property issues, taxation, libel, obscenity and personal privacy could also harm our business. For example, United States and foreign laws regulate our ability to use user information and to develop, manufacturebuy and sell mailing lists. The vast majority of these laws were adopted prior to the advent of the Internet and do not contemplate or market products address the unique issues raised thereby. Those laws that do reference the Internet are only beginning to be interpreted by the courts and their applicability and reach are therefore uncertain. These current and future laws and regulations could harm our business, results of operation and financial condition.
The content of our website could expose us to various kinds of liability, which, if prosecuted successfully, could negatively impact our business.
We will face potential liability for negligence, copyright infringement, patent infringement, trademark infringement, defamation, and/or other claims based on the nature and content of the materials our user’s post. Various claims have been brought, and sometimes successfully prosecuted, against Internet content distributors. We could be requiredexposed to pay monetary damagesliability with respect to the unauthorized duplication of content or royaltiesunauthorized use of other parties’ proprietary technology. Any imposition of liability that is not covered by insurance, or is in excess of insurance coverage, could materially adversely affect our financial condition and results of operations. Any claim of infringement, with or without merit, could be time consuming, result in costly litigation or require us to license proprietary rights from third parties. Although the parties to patent and intellectual property disputes in the pharmaceutical industry have often settled their disputes throughenter into royalty or licensing agreements. Such royalty or similar arrangements, the costs associated with these arrangements may be substantial and could include on-going royalties. Furthermore, we cannot be certain that the necessary licenses wouldlicensing agreements might not be available on terms acceptable to us, on commercially reasonable terms, or at all. As a result, an adverse determination in a judicial or administrative proceeding or failure to obtain necessary licenses could preventany such claim of infringement against us from manufacturing and selling a number of our products, and could have a material adverse effect onupon our business, financial condition, results of operations financial condition and cash flows.
The loss of or inability to attract key personnel could cause our business to suffer.
The success of our present and future operations will depend, to a significant extent, upon the experience, abilities and continued services of key personnel. We cannot assure you that we will be able to attract and retain key personnel. Employment or consulting agreements with our senior executives do not guarantee that our senior executive officers will continue to work for us for a significant period of time, or at all. We do not carry key-employee life insurance on any of our officers.
We may need to raise additional funds in the future which may not be available on acceptable terms or at all.
We may consider issuing additional debt or equity securities in the future to fund potential acquisitions or investments, to refinance existing debt, or for general corporate purposes. If we issue equity or convertible debt securities to raise additional funds, our existing stockholders may experience dilution, and the new equity or debt securities may have rights, preferences and privileges senior to those of our existing stockholders. If we incur additional debt, it may increase our leverage relative to our earnings or to our equity capitalization, requiring us to pay additional interest expenses. We may not be able to market such issuances on favorable terms, or at all, in which case, we may not be able to develop or enhance our products, execute our business plan, take advantage of future opportunities, or respond to competitive pressures or unanticipated customer requirements.
Extensive industry regulation has had, and will continue to have, a significant impact on our business, especially our product development, manufacturing and distribution capabilities.
All pharmaceutical companies are subject to extensive, complex, costly and evolving government regulation. For the U.S., this is principally administered by the FDA and to a lesser extent by the DEA and state government agencies, as well as by varying regulatory agencies in foreign countries where products or product candidates are being manufactured and/or marketed. The Federal Food, Drug and Cosmetic Act, the Controlled Substances Act and other federal statutes and regulations, and similar foreign statutes and regulations, govern or influence the testing, manufacturing, packing, labeling, storing, record keeping, safety, approval, advertising, promotion, sale and distribution of our products.
Under these regulations, we may become subject to periodic inspection of our facilities, procedures and operations and/or the testing of our products by the FDA, the DEA and other authorities, which conduct periodic inspections to confirm that we are in compliance with all applicable regulations. In addition, the FDA and foreign regulatory agencies conduct pre-approval and post-approval reviews and plant inspections to determine whether our systems and processes are in compliance with cGMP and other regulations. Following such inspections, the FDA or other agency may issue observations, notices, citations and/or Warning Letters that could cause us to modify certain activities identified during the inspection. FDA guidelines specify that a Warning Letter is issued only for violations of "regulatory significance" for which the failure to adequately and promptly achieve correction may be expected to result in an enforcement action. We are required to report adverse events associated with our products to FDA and other regulatory authorities. Unexpected or serious health or safety concerns would result in labeling changes, recalls, market withdrawals or other regulatory actions.
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The range of possible sanctions includes, among others, FDA issuance of adverse publicity, product recalls or seizures, fines, total or partial suspension of production and/or distribution, suspension of the FDA's review of product applications, enforcement actions, injunctions, and civil or criminal prosecution. Any such sanctions, if imposed, could have a material adverse effect on our business, operating results, financial condition and cash flows. Under certain circumstances, the FDA also has the authority to revoke previously granted drug approvals. Similar sanctions as detailed above may be available to the FDA under a consent decree, depending upon the actual terms of such decree. If internal compliance programs do not meet regulatory agency standards or if compliance is deemed deficient in any significant way, it could materially harm our business.
The pharmaceutical industry is highly competitive.
The pharmaceutical industry has an intensely competitive environment that will require an on-going, extensive search for technological innovations and the ability to market products effectively, including the ability to communicate the effectiveness, safety and value of products to healthcare professionals in private practice, group practices and managed care organizations ("MCOs"). We are smaller than most of our competitors. Most of our competitors have been in business for a longer period of time than us, have a greater number of products on the market and have greater financial and other resources than we do. Furthermore, recent trends in this industry are toward further market consolidation of large drug companies into a smaller number of very large entities, further concentrating financial, technical and market strength and increasing competitive pressure in the industry. If we directly compete with them for the same markets and/or products, their financial strength could prevent us from capturing a profitable share of those markets. It is possible that developments by our competitors will make any products or technologies that we acquire non- competitive or obsolete.
Risks Relating to Our Common Stock
If we issue additional shares in the future, it will result in the dilution of our existing shareholders.
Our articles of incorporation authorize the issuance of up to 150,000,000450,000,000 shares of common stock with a par value of $0.0001 per share. Our Boardboard of Directorsdirectors may choose to issue some or all of such shares to acquire one or more products and to fund our overhead and general operating requirements. The issuance of any such shares will reduce the book value per share and may contribute to a reduction in the market price of the outstanding shares of our common stock. If we issue any such additional shares, such issuance will reduce the proportionate ownership and voting power of all current shareholders. Further, such issuance may result in a change of control of our corporation.
Trading of our stock is restricted by the Securities Exchange Commission'sCommission’s penny stock regulations, which may limit a stockholder'sstockholder’s ability to buy and sell our common stock.
The Securities and Exchange CommissionSEC has adopted regulations which generally define "penny stock"“penny stock” to be any equity security that has a market price (as defined) less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions. Our securities are covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers who sell to persons other than established customers and "accredited investors"“accredited investors”. The term "accredited investor"“accredited investor” refers generally to institutions with assets in excess of $5,000,000 or individuals with a net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouse. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a form prepared by the Securities and Exchange Commission, which provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the customer'scustomer’s account. The bid and offer quotations, and the broker-dealer and salesperson compensation information, must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customer'scustomer’s confirmation. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from these rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser'spurchaser’s written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for the stock that is subject to these penny stock rules. Consequently, these penny stock rules may affect the ability of broker-dealers to trade our securities. We believe that the penny stock rules discourage investor interest in and limit the marketability of our common stock.
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FINRA sales practice requirements may also limit a stockholder'sstockholder’s ability to buy and sell our stock.
In addition to the "penny stock"“penny stock” rules described above, the Financial Industry Regulatory Authority (known as "FINRA"“FINRA”) has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer'scustomer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers. FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock and have an adverse effect on the market for our shares.
Our common stock is illiquid and the price of our common stock may be negatively impacted by factors which are unrelated to our operations.
Although our common stock is currently listed for quotation on the OTCQB operated by the OTC Bulletin Board,Markets Group, trading through the OTC Bulletin BoardOTCQB is frequently thin and highly volatile. There is no assurance that a sufficient market will develop in our stock, in which case it could be difficult for shareholders to sell their stock. The market price of our common stock could fluctuate substantially due to a variety of factors, including market perception of our ability to achieve our planned growth, quarterly operating results of our competitors, trading volume in our common stock, changes in general conditions in the economy and the financial markets or other developments affecting our competitors or us. In addition, the stock market is subject to extreme price and volume fluctuations. This volatility has had a significant effect on the market price of securities issued by many companies for reasons unrelated to their operating performance and could have the same effect on our common stock.
We do not intend to pay dividends on any investment in the shares of stock of our company.
We have never paid any cash dividends and currently do not intend to pay any dividends for the foreseeable future. Because we do not intend to declare dividends, any gain on an investment in our company will need to come through an increase in the stock'sstock’s price. This may never happen and investors may lose all of their investment in our company.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not Applicable.applicable.
Executive Offices and Registered Agent
Our Chief Executive Officer and corporate headquarters isare located at 90 Fairmount Road330 Clematis Street, Suite 217, West Califon, New Jersey 07830. Our Chief Executive Officer utilizes a separate area on his personal property comprisedPalm Beach, Florida 33401. One of approximately 450 square feetour significant stockholders has provided use of the office space for which he charges no rent to us.
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Our registered office for service in the Stateus free of Nevada is located at National Registered Agents, Inc. of NV, 1000 East William Street Suite 204, Carson City NV 89701.charge.
Intellectual Property
We own one registered trademark for Granisol.
We know of no material, existing or pending legal proceedings against our company, nor are we involved as a plaintiff in any material proceeding or pending litigation. There are no proceedings in which any of our directors, officers or affiliates, or any registered or beneficial shareholder, is an adverse party or has a material interest adverse to our interest.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. MARKET FOR REGISTRANT'SREGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market informationInformation
Our common stock is quoted on the OTCQB operated by the OTC Bulletin Board of the Financial Industry Regulatory Authority, Inc.Markets Group. Our symbol is "PEDX.OB", and our CUSIP number is 70532X107.“QUNI.”
The following table shows the quarterly range of high and low bid information for our common stock over the fiscal quarters for the last two fiscal years as quoted on the OTC Bulletin Board.OTCQB. We obtained the following high and low bid information from the OTC Bulletin Board.OTCQB. These over-the-counter market quotations reflect inter-dealer prices without retail mark-up, mark-down or commission, and may not represent actual transactions.
Quarter Ended | High | Low |
February 29, 2012 | $0.08 | $0.00 |
November 30, 2011 | NA | NA |
August 31, 2011 | NA | NA |
May 31, 2011 | NA | NA |
February 28, 2011 | NA | NA |
November 30, 2010 | NA | NA |
August 31, 2010 | NA | NA |
May 31, 2010 | NA | NA |
Quarter Ended | High | Low | |||||||
February 28, 2015 | $ | 0.02 | $ | 0.02 | |||||
November 30, 2014 | $ | 0.10 | $ | 0.05 | |||||
August 31, 2014 | $ | 0.05 | $ | 0.05 | |||||
May 31, 2014 | $ | 0.03 | $ | 0.015 | |||||
February 28, 2014 | $ | 0.33 | $ | 0.15 | |||||
November 30, 2013 | $ | 0.40 | $ | 0.15 | |||||
August 7, 2013 to August 31, 2013 | $ | 0.25 | $ | 0.15 | |||||
June 1, 2013 to August 6, 2013 1 | $ | 0.20 | $ | 0.20 | |||||
May 31, 20132 | — | — |
1Not adjusted for a three-for-one forward stock split, which became effective with the OTC Markets Group on August 7, 2013.
2There were no bids for this quarter.
On May 14, 2012,22, 2015, the closing price of our common stock as reported byon the OTC Bulletin BoardOTCQB was $0.57$0.0067 per share.
Transfer Agent
Our shares of common stock are issued in registered form. The transfer agent and registrar for our common stock is Transfer Online, Inc, 512 SE Salmon Street, Portland, OR 97214.
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Holders of Common Stock
As of May 14, 2012,22, 2015, there were 11729 holders of record of our common stock. As of such date, 20,836,000409,202,970 shares were issued and outstanding.
Dividends
We have never declared or paid any cash dividends or distributions on our capital stock. We currently intend to retain our future earnings, if any, to support operations and to finance expansion and therefore we do not anticipate paying any cash dividends on our common stock in the foreseeable future.
Securities authorizedAuthorized for issuanceIssuance under equity compensation plans.Equity Compensation Plans
Effective February 18, 2011, our Boardboard of Directorsdirectors adopted and approved the 2011 stock option plan. The purpose of the 2011 stock option plan is to enhance the long-term stockholder value of our company by offering opportunities to directors, key employees, officers, independent contractors and consultants of our company to acquire and maintain stock ownership in our company in order to give these persons the opportunity to participate in our company'scompany’s growth and success, and to encourage them to remain in the service of our company. A total of 2,000,0006,000,000 shares of our common stock are available for issuance and during the 12 month period after the first anniversary of the adoption of the 2011 stock option plan by our Boardboard of Directors,directors, and during each 12 month period thereafter, our Boardboard of Directorsdirectors is authorized to increase the number of shares issuable by up to 500,0001,500,000 shares.
The following table summarizes certain information regarding our equity compensation plan as of February 29, 2012:28, 2015.
Equity Compensation Plan Information
Plan category | Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) | Weighted-average exercise price of outstanding options, warrants and rights (b) | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c) |
Equity compensation plans approved by security holders | None | None | None |
Equity compensation plans not approved by security holders | 887,500 | $1.13 | 1,112,500 |
Total | 887,500 | $1.13 | 1,112,500 |
Plan category | Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) | Weighted-average exercise price of outstanding options, warrants and rights (b) | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c) | |||||||
Equity compensation plans approved by security holders | - | N/A | - | |||||||
Equity compensation plans not approved by security holders | - | N/A | 6,000,000 | |||||||
Total | - | N/A | 6,000,000 |
Recent sales of unregistered securities
Since
During the beginning of our fiscal year ended February 29, 2012,28, 2015, we havedid not soldsell any equity securities that were not registered under the Securities Act of 1933, as amended, that were not previously reported in a quarterly report on Form 10-Q or in a current report on Form 8-K.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
None.
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ITEM 6. SELECTED FINANCIAL DATA
Not applicable.
ITEM 7. MANAGEMENT'SMANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Cautionary Note Regarding Forward-Looking Information and Factors That May Affect Future Results
This annual report on Form 10-K contains forward-looking statements regarding our business, financial condition, results of operations and prospects. The Securities and Exchange Commission (the “SEC”) encourages companies to disclose forward-looking information so that investors can better understand a company’s future prospects and make informed investment decisions. This annual report on Form 10-K and other written and oral statements that we make from time to time contain such forward-looking statements that set out anticipated results based on management’s plans and assumptions regarding future events or performance. We have tried, wherever possible, to identify such statements by using words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” “will” and similar expressions in connection with any discussion of future operating or financial performance. In particular, these include statements relating to future actions, future performance or results of current and anticipated sales efforts, expenses, the outcome of contingencies, such as legal proceedings, and financial results. Factors that could cause our actual results of operations and financial condition to differ materially are set forth in the “Risk Factors” section of this annual report on Form 10-K.
We caution that these factors could cause our actual results of operations and financial condition to differ materially from those expressed in any forward-looking statements we make and that investors should not place undue reliance on any such forward-looking statements. Further, any forward-looking statement speaks only as of the date on which such statement is made, and we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of anticipated or unanticipated events or circumstances. New factors emerge from time to time, and it is not possible for us to predict all of such factors. Further, we cannot assess the impact of each such factor on our results of operations or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.
The following discussion should be read in conjunction with our unaudited financial statements and the related notes that appear elsewhere in this annual report. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward looking statements. Factors that could cause or contribute to such differences include those discussed below and elsewhere in this annual report on Form 10-K.
Overview
We are a digital and social media and entertainment company founded to connect people with content relating to their passions and interests, and with each other. As a key component of our cross-platform implementation, we are pioneering a mobile-native philosophy to transform the way the public consumes news and information. This philosophy is supported by both proprietary technology and a team of international experts that are enabling content creation and consumption specifically for any smartphone or tablet device. In doing so, we believe we offer substantial value to businesses, brands and advertisers. This value will be facilitated by leveraging user data to offer specific targeted advertising and by integrating online marketing such as native and programmatic advertising, including real-time bidding. With real-time bidding, the value of an advertisement is determined in real-time based on the demographic of the user who will see the advertisement and the outcome of an auction, which selects the winning advertiser.
The concept of our network is being engineered with a powerful digital ecosystem at its core. In addition to matching each user with content that is customized to that user’s interests, this center of activities processes and organizes all of the information and user data across our entire digital and social network. Feature-rich applications for iPhone, Android and Blackberry will allow users to follow the stories that matter most to them and receive up-to-the-second updates on those stories as they evolve over time. In doing so, they have important facts, statistics, quotes and multimedia without fluff, and remain updated without re-reading old information.
We strive to become an industry leader through innovation. For example, our ecosystem supports citizen journalism, a socially innovative feature that puts reporting into the public’s hands. Both efficient and interactive, it allows individuals to submit stories (scoops), photos and video of breaking news in any industry and monetize their own content. Bloggers and other individual authors can also partner with us by contributing sought-after content to its communities. In return, partners can generate both traffic and revenue.
We are initially focused on brands relating to lifestyle, entertainment and fashion, with plans to expand our ecosystem to include social networking. Our underlying technology can be applied to any type of content community, regardless of the industry vertical. It is enterprise-grade and infinitely scalable, providing an excellent opportunity to support acquisitions and expansion.
We believe our users are a ready audience for businesses and brands seeking to promote their products and services. By incorporating a secure business intelligence data collection strategy across our ecosystem, we can leverage our valuable user data as a saleable commodity. The power of data analytics coupled with real-time access will help marketers effectively reach their target audiences.
Our Business
Exley
In 2013, we acquired the internet domain name “Slickx.com,” the website and related software, intellectual property rights, accounts, contracts, goodwill and infrastructure from Lakefield Media Holding AG (“Lakefield”) for $50,000. The platform was subsequently developed further and rebranded “Exley” (getexley.com). Constantin Dietrich, our President, Chief Executive Officer, Chief Financial Officer, Secretary and Treasurer, and a member of our board of directors, is the founder and Chief Executive Officer of Lakefield.
Functions and Services
We plan to enable users to not only consume digital content from the lifestyle, fashion and entertainment industry, but also to find, create and share the content within these verticals in which they are interested. Our service will connect consumers, creators and advertisers in an environment that is both engaging and social. By building a media network that delivers curated quality content we will offer a global platform that will enable the user to find, share and connect with like-minded people and opinion-leaders. The service is planned to be available on multiple platforms including web, tablet and mobile.
Revenue Model
We plan to generate revenue from advertisements and subscriptions.
Advertisements. One of the major benefits of advertising on a social media site is that advertisers can take advantage of the users’ demographic information and target their ads appropriately. We may sell advertisement space to companies that may be interested in targeting our subscribers. We anticipate that interested advertisers will include premium brand advertisers as well as local and regional advertisers who are looking for innovative new and exciting formats to carefully target the consumer to create an experience that benefits consumers and advertisers. The focus will be to offer content with targeted advertising that reaches the right audience with the right content and the right advertising.
Subscriptions. As the service matures, we may offer paid subscription services that enhance and augment the user experience. Further, there may be a cost for the consumer to download the application.
Competition
We expect that we will face substantial competition from dominant digital media and entertainment companies and websites such as gawker.com and Mode Media’s glam.com, as well as Facebook application providers in the social media space such as Pinterest. We believe that users often utilize multiple digital and social media and entertainment websites or applications, and the use of one of these website or application is not necessarily to the exclusion of others.
Achieving a critical mass of users or subscribers is crucial for digital and social websites and applications. Even though we seek to offer products and services that are unique in the industry, superior in quality, and more appealing than those of our competitors, we will need to establish a solid initial user base and critical mass.
Although we believe that we have access to the tools and certain inherent efficiencies to attract the initial user base, we need to do that at a lower cost per visitor than certain of our traditional online competitors in order to become successful. We also believe that the industry offers substantial room for growth as social networking application platforms and mobile platforms continue to expand and as the Internet especially mobile continues to become the primary source to engage with digital and social media and entertainment activities and consume, create and share news, events and other lifestyle-related content.
Marketing and Sales Strategy
The use of the Internet is continuing to evolve as a global platform for doing business. We anticipate that initially, our major focus will be to enhance the getexley.com website and the cultivation of our user base. We anticipate using various online marketing methods such as Facebook’s viral channels, online marketing programs and other advertising and marketing programs in order to drive traffic to our own website. We plan to take advantage of a well balanced mix of online and offline marketing strategies.
Our primary target market is focused on Internet users who already participate in social media websites. We, therefore, plan to take advantage of various well-established online marketing programs and make them an integral part of our long-term strategy. Our marketing campaigns will monitor daily statistics and track information such as interests, favorite topics and most read stories in order to quickly get synchronized with our Internet audience.
We plan to participate in other marketing activities that will also aim to raise awareness of the EXLEY brand and attract users by promoting the unique content and quality of our product and services. We plan to primarily advertise through Internet and mobile advertising and will have to run extensive user acquisition campaigns at any given time, targeting various classifications of users.
We plan to use media buying and in-house tools to effectively and efficiently track, measure and optimize the success of our advertising campaigns. We plan to initiate a marketing strategy with a focus on campaigns that we believe will produce a positive return on ad-spend in the medium- to long-term.
Online Advertising
The majority of our advertising and promotional activities will be concentrated on online advertising campaigns and search engine marketing (“SEM”). SEM is a form of internet marketing that involves the promotion of websites by increasing their visibility in search engine results pages like Google or Bing through optimization and advertising. SEM may use search engine optimization (“SEO”) that adjusts or rewrites website content to achieve a higher ranking in search engine results pages or use pay per click listings. SEO is a technique which helps search engines find and rank a website or –page higher than others by affecting their visibility in a search engine’s “natural” or un-paid (“organic”) search results. Its objective is getting traffic from the “free,” “organic,” “editorial” or “natural” listings on search engines such as the major search engines Google, Yahoo and Bing that have such results. In general it is believed that a result (site) that appears earlier or higher and more frequently in the search results list on search engine results pages will get more visitors (traffic) from that search engine.
We have selected Google because of its success and popularity for web users wishing to find something using internet search. The Google Adwords program will allow us to customize the text of our advertisements, the frequency of each advertisement’s appearance, and the length of the advertising contract. For our purposes, we believe that this will give us the maximum amount of flexibility and allow us to closely monitor the costs of the marketing campaign.
Using this strategy will allow us also to design our own ads, and to select target locations such as a city or state and use keywords in our ads. A keyword is a word that is used by an Internet user who is performing an online search to find out information on a specific topic.
Optimizing Our Website
We plan to work with the website development contractor to optimize our website in terms of SEO. SEO may target various kinds of search, including name search, local or image search, video search or search for events and news. Based on the type of search, search engine results pages and other content such as videos or local listings are shown and ranked based on what the search engine considers most relevant to users. Payment is not involved, as it is with paid SEM search ads.
As part of our internet marketing strategy, we regard SEO to consider how search engines work, what users search for, the actual search terms or keywords typed into search engines and which search engines are preferred by their targeted audience. Thus, SEO may involve editing our website’s and pages’ content, HTML and associated coding to both increase its relevance to specific keywords and to remove barriers to the indexing activities of search engines. We therefore plan to work with the web site development contractor to develop a series of keywords or meta-tags for each of the pages of our web site. Meta-tags are keywords that are added to a web page to make it easier to find that specific web page through search engines, web browser software and other applications. The information is not intended to be seen by the casual Internet user. Search engines like Google and Yahoo are designed to seek out these keywords when someone is performing an Internet search for a specific topic.
Intellectual Property
We own one registered trademark for Granisol and an unregistered trade-mark “EXLEY.”
We are planning to develop the EXLEY website and intend to protect its contents by registering for appropriate copyright and trademark protection where we deem such registration necessary or beneficial. We have not conducted any independent searches or other inquiry into patents or other intellectual property which may be owned by others and which may constrain our business plan, nor have we received independent opinions of counsel on such matters.
Recent Developments
On March 10, 2015, we entered into a debt settlement agreement (the “Debt Settlement Agreement”) with Leone Group, LLC (“Leone”), American Capital Ventures, Inc. (“ACV”), Georgia Georgopoulos, Catherine Cozias and Trels Investments, Ltd. (“Trels” and collectively with Leone, ACV, Ms. Georgopoulos and Ms. Cozias, the “Holders”). Pursuant to the Debt Settlement Agreement, the Company and the Holders agreed to settle all of the outstanding debt owed under certain promissory notes and accounts payable, to each of the Holders, and the Holders agreed to convert their respective portions of the debt into shares of restricted common stock of the Company. The Company agreed to issue an aggregate of 346,319,970 shares of common stock in settlement of $1,038,959 of debt owed by the Company to the Holders. As a result of the issuance of shares pursuant to the Debt Settlement Agreement, Leone and ACV each hold approximately 37% of the Company’s common stock. As of March 10, 2015, we had a total of approximately 409,202,970 shares of common stock issued and outstanding.
On March 10, 2015, Joseph Carusone submitted his resignation as Vice President, Investor Relations, and a member of our Board of Directors. On November 13, 2014, Joseph Arcuri submitted his resignation as a member of our Board of Directors. There were no disagreements between us and Mr. Arcuri or Mr. Carusone as to our operations, policies (including accounting or financial policies), or practices.
Results of Operations
Revenues
During the years ended February 28, 2015 and 2014, we generated revenue of $74 and $24, respectively.
Operating Expenses
During the year ended February 28, 2015, we incurred operating expenses totaling $492,267, compared with $534,230 for the year ended February 28, 2014. The decrease of $41,963 in operating expenses is mainly attributable to a decrease in professional fees of $208,999, a decrease in consulting fees – related party of $39,223 and a decrease in general and administrative expenses of $107,661 primarily attributable to a curtailment of operations, offset an increase in website amortization expense of $$34,880 and an increase in an impairment loss of $279,040. In November 2014, we assessed our long-lived assets for any impairment and concluded that there were indicators of impairment as of November 30, 2014 and we calculated that the estimated undiscounted cash flows were less than the carrying amount of the intangible asset. Based on our analysis, we recognized an impairment loss of $279,040 for the year ended February 28, 2015 which reduced the value of capitalized website and website development costs to $0. We did not record any impairment charge on website and website development costs during the year ended February 28, 2014.
Other Expenses
During the year ended February 28, 2015, we incurred interest expense of $40,677, as compared with $31,716 for the year ended February 28, 2014. The increase was due toan increase in our borrowings during the 2015 period.
Loss from Operations
During the year ended February 28, 2015, we realized a loss from continuing operations of $532,870, compared with a loss from continuing operations of $565,922 for the year ended February 28, 2014. The $33,052 increase in loss from continuing operations is mainly attributable to the factors discussed above.
Income (Loss) from Discontinued Operations
During the year ended February 28, 2015, we recorded a gain (loss) from discontinued operations of $109,449, as compared with $(191,481) for the year ended February 28, 2014.
Net Loss
During the year ended February 28, 2015, we realized a net loss of $423,421, or $0.01 per common share, as compared with a net loss of $757,403, or $0.01 per common share, for the year ended February 28, 2014.
Liquidity and Capital Resources
Our financial condition for the 12 months endedat February 29, 201228, 2015 and February 28, 2011 and the changes between those periods2014 for the respective items are summarized as follows:
below. We have suffered recurring losses from inception. Our ability to meet our financial liabilities and commitments is primarily dependent upon the continued financial support of our directors and shareholders, the continued issuance of equity to new or existing shareholders, and our ability to achieve and maintain profitable operations.
Working Capital Deficit
February 29, | February 28, | |||||
2012 | 2011 | |||||
Current Assets | $ | 384,293 | $ | 716,107 | ||
Current Liabilities | 882,960 | 564,425 | ||||
Working (Deficit) Capital | $ | (498,667 | ) | $ | 151,682 |
As of February 29, 2012, our working capital decreased by $650,349, due largely to a) our taking on additional debt in the form of a 5% unsecured promissory note in the amount of $250,000 due on May 6, 2012, which has been utilized to fund infrastructure and the launch of Granisol, b) an increase in accounts payable and accrued liabilities of $68,535 and c) a decrease in current assets of $331,814.
On May 6, 2011, we issued an unsecured promissory note in the amount of $250,000, bearing interest at five percent (5%) per annum on the principal balance. The unsecured promissory note is due on May 6, 2012. The principal amount, or such portion thereof as shall remain outstanding from time to time, shall accrue simple interest, calculated monthly in arrears at a rate of 5% per annum commencing on the date of this unsecured promissory note and payable at maturity. When not in default, the unsecured promissory note and any accrued interest, can be repaid in whole or in part without notice or penalty, with a minimum of six months interest due if repaid prior to the six month anniversary. As of April 19, 2012, we entered into an amendment for this promissory note to extend the maturity date until August 15, 2012.
February 28, 2015 | February 28, 2014 | |||||||
Current Assets | $ | 6,906 | $ | 17,885 | ||||
Current Liabilities | 1,051,165 | 970,083 | ||||||
Working Capital Deficit | $ | (1,044,259 | ) | $ | (952,198 | ) |
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Cash Flows
12 months | 12 months | |||||
ended | ended | |||||
February 29, | February 28, | |||||
2012 | 2011 | |||||
Cash used in operating activities | $ | (541,252 | ) | $ | (737,368 | ) |
Cash provided by financing activities | 250,000 | 2,280,000 | ||||
Cash used in investing activities | - | (1,000,000 | ) | |||
Net increase in cash | $ | (291,252 | ) | $ | 542,632 |
Year Ended February 28, 2015 | Year Ended February 28, 2014 | |||||||
Cash used in operating activities | $ | 181,148 | $ | 372,227 | ||||
Cash used in investing activities | - | 152,300 | ||||||
Cash provided by financing activities | 175,000 | 25,000 | ||||||
Net decrease in cash | $ | 6,148 | $ | 499,527 |
Cash Used in Operating Activities
Our cash used in operating activities for the twelve monthsyear ended February 29, 2012,28, 2015, compared to our cash used in operating activities for the twelve monthsyear ended February 28, 2011,2014, decreased by $196,116,$191,079, mainly due to a decrease in net loss in fiscal 2015 and compared to fiscal 2014.
Cash Used in Investing Activities
Our cash used in investing activities for the year ended February 28, 2015 was $0, compared to $152,300 for the year ended February 28, 2014, primarily due to during the receipt of $325,000year ended February 28, 2014, we used cash on websites and website development. We did not invest in co-promotion revenue related tothese items during the signing of the Co-Promotion Agreement with Apricus.year ended February 28, 2015.
Cash Provided byBy Financing Activities
Our cash provided by financing activities for the twelve monthsyear ended February 29, 2012,28, 2015 was $175,000 due to the issuance of two short-term promissory notes, compared to our cash provided by financing activities of $25,000 for the twelve monthsyear ended February 28, 2011, decreased2014 from proceeds received from the sale of our common stock of $75,000 and proceeds from promissory notes of $150,000 offset by $2,030,000 due tofrom the issuancerepayment of one $250,000 5% unsecuredshort-term promissory note due on May 6, 2012 during the twelve months ended February 29, 2012 while during the twelve month period ended February 28, 2011 we issued a $200,000, 5% unsecured promissory note due on July 26, 2012, and completed equity placements totalling $2,080,000 with the issuancenotes of a total of 3,825,000 shares of common stock.$200,000.
Cash Used in Investing ActivitiesRequirements
Our cash used in investing activities for the twelve months ended February 29, 2012, compared tomanagement does not believe that our cash provided by financing activities for the twelve months ended February 28, 2011, decreased by $1,000,000. During the twelve month period ended February 28, 2011, $1,000,000 was used to complete the acquisition of Granisol from Cypress while no cash was utilized in investing activities during the twelve month period ended February 29, 2012.
Cash Requirements
Our primary objectives for the next twelve month period are to pursue the merger with Apricus andcurrent capital resources will be adequate to continue operating our company and maintaining our business strategy for more than 12 months. Accordingly, we will have to commercialize Granisolraise additional capital in the non-exclusive states.
Specifically, we estimatenear future to meet our operating expenses, excluding stock based compensation and amortization expense, and working capital requirements for the next 12 months to be as follows:
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These expenses and working capital requirements will be offset to some degree by revenue generation from sales and co-promotion of Granisol. There can be no assurance that we will generate revenues significant enough to offset these expenses to some or any degree and that we will not have significant needs for other financing to support the activities of our company.requirements. There can be no assurance that additional financing will be available to us when needed or, if available, that it can be obtained on commercially reasonable terms. If we are not able to obtain the additional financing on a timely basis, if and when it is needed, we will be forced to scale down or perhaps even cease the operation of our business.
Results of Operation
The following summary of our results of operations should be read in conjunction with our audited financial statements for the twelve month periods ended February 29, 2012 and February 28, 2011.
Revenues
We have recognized $781,050 in net product revenue during the twelve month period ended February 29, 2012 and $266,808 during the twelve month periods ended February 28, 2011. This increase of $514,242 is partially due to the receipt of $260,000 related to the signing of the Co-Promotion Agreement with Apricus in February 2012, while there was no similar revenue during the twelve month period ended February 28, 2011. In addition, we sold Granisol for twelve months during the twelve month period ended February 29, 2012, while we only sold Granisol for five months during the twelve month period ended February 28, 2011. We recognized no revenue prior to 2010. We sell Granisol primarily to wholesalers. Our distribution channel includes our third party logistics distributor and independent wholesalers who distribute the product directly to hospitals and other end-user customers. The majority of our shipments are made to wholesalers, with whom we have contracted to distribute the product. We are also contracting with group purchasing organizations to increase awareness of, and reduce market barriers for, Granisol.
Cost of Goods Sold
We have recognized $219,438 in cost of goods sold during the twelve month period ended February 29, 2012, and $85,563 during the twelve month periods ended February 28, 2011. This increase of $133,875 is due to the fact that we sold Granisol for twelve months during the twelve month period ended February 29, 2012, while we only sold Granisol for five months during the twelve month period ended February 28, 2011. In addition, during the twelve month period ended February 29, 2012, we recorded a reserve for obsolescence for inventory in the amount of $90,500 to effectively write off inventory which will expire in September 2012 and become unsaleable. We recognized no cost of goods sold prior to 2010. Our cost of goods sold consists primarily of our third-party manufacturing costs, third-party inventory management and distribution costs, wholesaler fee for services costs and freight-in on inventory purchases.
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Expenses
The table below shows our expenses for the twelve month periods ended February 29, 2012 and February 28, 2011.
Year Ended | Year Ended | |||||
February 29, 2012 | February 28, 2011 | |||||
Expenses | ||||||
Employee expenses | 350,009 | 159,078 | ||||
Stock based compensation | 213,912 | - | ||||
Consulting fees | 226,335 | 380,607 | ||||
Marketing expense | 338,969 | 254,924 | ||||
Travel expense | 35,743 | 23,599 | ||||
Interest expense | 22,568 | 16,630 | ||||
Legal and accounting fees | 131,441 | 129,890 | ||||
Insurance expense | 56,181 | 60,890 | ||||
Regulatory expense | 47,606 | 57,915 | ||||
Rent | 5,410 | 3,796 | ||||
General and administrative expense | 62,599 | 91,505 | ||||
Amortization | 88,282 | 51,498 | ||||
Total | $ | 1,579,055 | $ | 1,230,332 |
In the twelve month period ended February 29, 2012, our expenses increased by $348,723 over the twelve month period ended February 28, 2011, due to an increase in employee expense of $190,931, and increase in marketing expense of $84,045 and an increase in travel expense of $12,144 which increases are primarily due to the incurrence of these expenses for a full twelve months during the twelve month period ended February 29, 2012 while these expenses were incurred for only eight months during the twelve month period ended February 28, 2011. Consulting fees decreased by $154,272 as a result of a shift of two consultants to employee status. Amortization expense increased by $36,784 due to the recording of amortization for a full twelve months during the twelve month period ended February 29, 2012 while amortization was only recorded for seven months during the twelve month period ended February 28, 2011. In addition, there was an increase in stock based compensation of $213,912 due to the issuance of stock options to employees, consultants and one director during the twelve month period ended February 29, 2012 while there were no stock option issuances during the twelve month period ended February 28, 2011. Other expenses including general and administrative expenses, rent, regulatory expenses, insurance expense, legal and accounting expense and interest expense decreased by a net amount of $34,821 due to cost reduction measures that we initiated during the twelve month period ended February 29, 2012.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to our stockholders.
Going Concern
Our audited financial statements and information for the periodyear ended February 29, 2012,28, 2015 have been prepared by our management on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. We have generated limited revenues to date, and have incurredhad a net loss of approximately $952,543 during$423,421 for the 12 month periodyear ended February 29, 2012,28, 2015 and approximately $2,251,326 from inception (March 18, 2005) throughhad a stockholders deficit, accumulated deficit and working capital deficit of $1,044,259, $3,748,088 and $1,044,259 at February 29, 2012.28, 2015, respectively. We cannot provide any assurance that we will ultimately achieve profitable operations or become cash flow positive, or raise additional funds through the sale of debt and/or equity.
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On February 29, 2012,28, 2015, we had cash of $258,140.$6,809. Our management does not believe that our current capital resources will be adequate to continue operating our company and maintaining our business strategy for more than three12 months. If we are unable to raise additional capital in the near future, or consummate our merger with Apricus Biosciences, Inc. within the next several months, we expect that we will need to curtail operations, liquidate any assets that we might own, seek additional capital on less favorable terms and/or pursue other remedial measures. Our financial statements do not include any adjustments related to the recoverability and classification of assets or the amounts and classification of liabilities that might be necessary should we be unable to continue as a going concern.
Application
Future Financing
We will require additional financing to fund our planned operations. We currently do not have committed sources of additional financing and may not be able to obtain additional financing particularly, if the volatile conditions of the stock and financial markets, and more particularly the market for early development stage company stocks persist.
There can be no assurance that additional financing will be available to us when needed or, if available, that it can be obtained on commercially reasonable terms. If we are not able to obtain the additional financing on a timely basis, if and when it is needed, we will be forced to further delay or further scale down some or all of our activities or perhaps even cease the operations of the business.
Since inception we have funded our operations primarily through equity and debt financings and we expect that we will continue to fund our operations through the equity and debt financing, either alone or through strategic alliances. If we are able to raise additional financing by issuing equity securities, our existing stockholders’ ownership will be diluted. Obtaining commercial or other loans, assuming those loans would be available, will increase our liabilities and future cash commitments.
There is no assurance that we will be able to maintain operations at a level sufficient for an investor to obtain a return on his, her, or its investment in our common stock. Further, we may continue to be unprofitable.
Critical Accounting Policies
The preparation
We have identified the following policies as critical to our business and results of financial statements in conformity withoperations. Our reported results are impacted by the application of the following accounting principles generally accepted in the U.S., or GAAP, requires uspolicies, certain of which require management to make certainsubjective or complex judgments. These judgments involve making estimates judgments and assumptions that affectabout the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of expenses during the reporting period. Some of our accounting policies require us to make difficult and subjective judgments, often as a result of the need to make estimateseffect of matters that are inherently uncertain. The followinguncertain and may significantly impact quarterly or annual results of operations. For all of these policies, management cautions that future events rarely develop exactly as expected, and the best estimates routinely require adjustment. Specific risks associated with these critical accounting policies involve critical accounting estimates because they are particularly dependent on estimates and assumptions made by management about matters that are highly uncertain at the time the accounting estimates are made. In addition, while we have used our best estimates based on facts and circumstances available to us at the time, different estimates reasonably could have been used. Changesdescribed in the accounting estimatesfollowing paragraphs.
Impairment of long-lived assets
In accordance with ASC Topic 360, we use are reasonably likely to occur from time to time, which may have a material impact on the presentation of our financial condition and results of operations.
The following is a summary of significant accounting policies used in the preparation of these financial statements.
Inventory
Inventory is stated at the lower-of-cost or market on an average cost basis. Reserves for excess, slow moving or obsolete inventory are established when we become aware of an impairment in a product's marketability due to changes in formulation, market demand and conditions or other factors. Such reserves are established based upon the difference between the product's cost and our estimate of its net realizable value.
Intangible Assets
Intangiblereview long-lived assets consist of product rights and know-how, the Granisol trademark, and a manufacturing and supply agreement. We are amortizing the product rights and know-how over a ten year period on a straight line basis.
Intangible assets of our company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable.
fully recoverable, or at least annually. We consider assets to be impaired ifrecognize an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying value exceedsamount of the future projected cash flows from related operations (undiscounted and without interest charges). Ifasset. The amount of impairment is deemed to exist, the assets will be written down to fair value.
Sales Deductions
Concurrently with the recognition of revenue, the estimated sales provisions for product returns, sales rebates, chargebacks, payment discounts and other sales allowances are recorded. Sales provisions are established based upon consideration of a variety of factors, including but not limited to, historical relationship to revenues, historical payment and return experience, customer rebate arrangements and current contract sales terms with wholesale and indirect customers. The following briefly describes the nature of each provision and how such provisions are estimated.
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Sales rebates are offered to certain customers to promote customer loyalty and encourage greater product sales. These rebate programs provide that, upon the attainment of pre-established volumes or the attainment of revenue milestones for a specified period, the customer receives either credit against purchases or cash payment. Other promotional programs are incentive programs periodically offered to customers. Due to the nature of these programs, we are able to estimate provisions for rebates and other promotional programs based on specific terms in each agreement at the time of shipment along with an estimate of the customer's purchases over the specified period.
Consistent with common industry practices, there are certain terms with customers to allow them to return a product that is within a certain period of the product's expiration date. Upon shipment of product to customers, an estimate for such returns is recorded. This estimate is determined by applying a historical relationship of products returned to products sold and market conditions including but not limited to the reformulation of products.
Generally, credits may be issued to customers for decreases that are made to selling prices for the value of inventory that is owned by customers at the date of the price reduction. These credits are not contractually agreed to; instead, we issue price adjustment credits at our discretion. Price adjustment credits are estimated at the time the price reduction occurs. The amount is calculated based on an estimate of customer inventory levels.
There are arrangements with certain parties establishing prices for products for which the parties independently select a wholesaler from which to purchase. Such parties are referred tomeasured as indirect customers. A chargeback represents the difference between the sales invoice price to the wholesaler and the indirect customer's contract price, which is lower. Provisions for estimating chargebacks are calculated primarily using historical chargeback experience, contract pricing and sales information provided by wholesalers and chains, among other factors.
Actual product returns, chargebacks and other sales allowances incurred are, however, dependent upon future events and may be different than our estimates. These sales deductions are continually monitored and we make adjustments to these provisions when it becomes evident that actual product returns, chargebacks and other sales allowances may differ from established allowances.
Stock-based Compensation
We account for all stock-based payments and awards under theasset’s estimated fair value based method. Stock-based payments to non-employees are measured atand its book value. Based on our analysis, we recognized an impairment loss of $279,040 for the fairyear ended February 28, 2015 which reduced the value of the consideration received, or the fair value of the equity instruments issued, or liabilities incurred, whichever is more reliably measurable. The fair value of stock-based paymentsintangible assets acquired to non-employees is periodically re-measured until the counterparty performance is complete, and any change therein is recognized over the vesting period of the award and in the same manner as if we had paid cash instead of paying with or using equity based instruments. Compensation costs for stock-based payments with graded vesting are recognized on a straight-line basis. The cost of the stock-based payments to non-employees that are fully vested and non-forfeitable as of the grant date is measured and recognized at that date, unless there is a contractual term for services in which case such compensation would be amortized over the contractual term.$0.
We account for the granting of share purchase options to employees using the fair value method whereby all awards to employees will be recorded at fair value on the date of the grant. The fair value of all share purchase options are expensed over their vesting period with a corresponding increase to additional paid-in capital.
We use the Black-Scholes option valuation model to calculate the fair value of share purchase options at the date of the grant. Option pricing models require the input of highly subjective assumptions, including the expected price volatility. Changes in these assumptions can materially affect the fair value estimates. Please refer to Note 7 – Stock Options, included in the financial statements appearing elsewhere in the report, for additional information regarding stock-based compensation.
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Recently issued accounting pronouncements
In May 2011, FASB amended the fair value measurement and disclosure guidance in ASC 820, Fair Value Measurement, to converge US GAAP and IFRS requirements for measuring amounts at fair value as well as disclosures about these measurements. FASB ASC 820 is effective for interim and annual periods beginning after December 15, 2011. The Company does not expect the application of FASB ASC 820 to have a material effect on the Company's consolidated results of operations and financial position.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicableapplicable.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Financial Statements and Financial Statement Schedules appearing on pages F-1 to F-16 of this annual report on Form 10-K.
PediatRx Inc.
(A Development Stage Company)
Financial StatementsFebruary 29, 2012
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Report of Independent Registered Public Accounting Firm
To the Board of Directors and StockholdersPediatRx Inc.
We have audited the accompanying balance sheets of PediatRx Inc. (a development stage company) (the "Company") as of February 29, 2012 and February 28, 2011 and the related statements of operations, stockholders' equity (deficit), and cash flows for the years then ended, and for the period from inception (March 18, 2005) to February 29, 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. The financial statements for the period from inception (March 18, 2005) to February 28, 2010 were audited by other auditors and our opinion, insofar as it relates to cumulative amounts included for such prior periods, is based solely on the report of other such auditors.
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 to have, nor were we 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 also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of February 29, 2012 and February 28, 2011, and the results of its operations and its cash flows for the years then ended, and for the period from inception (March 18, 2005) to February 29, 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 1 to the financial statements, the Company has suffered recurring losses from operations and is in the development stage of its operations. This raises substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/HORNE LLP
Ridgeland, MississippiMay 18, 2012
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Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders ofPediatRx Inc.(An Exploration Stage Company)
We have audited the accompanying statements of operations and cash flows and changes in stockholders' deficiency of PediatRx Inc. (the “Company”) for the year ended 28 February 2010 and for the period from the date of inception on 18 March 2005 to 28 February 2010. 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 audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform an audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. 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 presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the results of operations and cash flows of the Company for the year ended 28 February 2010 and for the period from the date of inception on 18 March 2005 to 28 February 2010 in conformity with accounting principles generally accepted in the United States.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, conditions exist which raise substantial doubt about the Company's ability to continue as a going concern unless it is able to generate sufficient cash flows to meet its obligations and sustain its operations. Management's plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
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PediatRx Inc.(A Development Stage Company)
BALANCE SHEETS
As of | As of | |||||
February 29, | February 28, | |||||
2012 | 2011 | |||||
Assets | ||||||
Current assets | ||||||
Cash and cash equivalents | $ | 258,140 | $ | 549,392 | ||
Accounts receivable, net of reserves | 106,635 | 55,080 | ||||
Inventories, net of reserve for obsolescence | 2,169 | 107,675 | ||||
Prepaid expenses | 17,349 | 3,960 | ||||
Total current assets | 384,293 | 716,107 | ||||
Intangible assets, net of accumulated amortization | 743,040 | 831,322 | ||||
Security deposits | 992 | 992 | ||||
Total assets | $ | 1,128,325 | $ | 1,548,421 | ||
Liabilities | ||||||
Current liabilities | ||||||
Accounts payable and accrued liabilities | $ | 382,960 | $ | 314,425 | ||
Promissory notes | 500,000 | 250,000 | ||||
Total liabilities | 882,960 | 564,425 | ||||
Stockholders’ equity | ||||||
Capital stock | ||||||
Authorized 150,000,000 common shares, par value $0.0001 Issued and outstanding February 29, 2012– 20,836,000 common shares February 28, 2011 – 20,836,000 common shares | 2,084 | 2,084 | ||||
Additional paid-in capital | 2,494,607 | 2,280,695 | ||||
Deficit accumulated during the development stage | (2,251,326 | ) | (1,298,783 | ) | ||
Total stockholders' equity | 245,365 | 983,996 | ||||
Total liabilities and stockholders' equity | $ | 1,128,325 | $ | 1,548,421 |
The accompanying notes are an integral part of these financial statements.
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PediatRx Inc.(A Development Stage Company)
STATEMENTS OF OPERATIONS
For the period | ||||||||||||
from the date | ||||||||||||
of inception on | For the year | For the year | For the year | |||||||||
March 18, 2005 | ended | ended | ended | |||||||||
to February 29, 2012 | February 29, 2012 | February 28, 2011 | February 28, 2010 | |||||||||
Net revenues | $ | 1,047,858 | $ | 781,050 | $ | 266,808 | $ | - | ||||
Cost of Goods Sold | 305,001 | 219,438 | 85,563 | - | ||||||||
Gross Margin | 742,857 | 561,612 | 181,245 | - | ||||||||
Expenses | ||||||||||||
Employee expenses | 509,087 | 350,009 | 159,078 | - | ||||||||
Stock based compensation | 213,912 | 213,912 | - | - | ||||||||
Consulting fees | 617,118 | 226,335 | 380,607 | - | ||||||||
Marketing expense | 593,893 | 338,969 | 254,924 | - | ||||||||
Travel expense | 59,342 | 35,743 | 23,599 | - | ||||||||
Interest expense | 40,975 | 22,568 | 16,630 | 1,777 | ||||||||
Legal and accounting fees | 389,363 | 131,441 | 129,890 | 36,394 | ||||||||
Mineral property expenditures | 15,124 | - | - | - | ||||||||
Insurance expense | 117,071 | 56,181 | 60,890 | - | ||||||||
Regulatory expense | 105,521 | 47,606 | 57,915 | - | ||||||||
Rent | 19,406 | 5,410 | 3,796 | 2,400 | ||||||||
General and administrative expense | 233,491 | 62,599 | 91,505 | 17,630 | ||||||||
Amortization expense | 139,780 | 88,282 | 51,498 | - | ||||||||
Write down of mineral property acquisition costs | 5,000 | - | - | - | ||||||||
Total Expenses | 3,059,083 | 1,579,055 | 1,230,332 | 58,201 | ||||||||
Gain on sale of product rights | 64,900 | 64,900 | - | - | ||||||||
Net loss for the period | $ | (2,251,326 | ) | $ | (952,543 | ) | $ | (1,049,087 | ) | $ | (58,201 | ) |
Basic and diluted loss per common share | $ | (0.046 | ) | $ | (0.048 | ) | $ | (0.003 | ) | |||
Weighted average number of common sharesused in per share calculations | 20,836,000 | 21,659,200 | 20,506,000 |
The accompanying notes are an integral part of these financial statements.
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PediatRx Inc.(A Development Stage Company)
Statements of Stockholders' Equity (Deficit)
Deficit, | |||||||||||||||
accumulated | Total | ||||||||||||||
Additional | during the | stockholders’ | |||||||||||||
Number of | Capital | paid-in | development | equity | |||||||||||
shares issued | stock | capital | stage | (deficit) | |||||||||||
Balance as of March 18, 2005 (inception) | - | $ | - | $ | - | $ | - | $ | - | ||||||
Restricted common shares issued for cash ($0.0005 per share) – September 2005 | 10,000,000 | 1,000 | 4,000 | - | 5,000 | ||||||||||
Contributions to capital by related parties – expenses | - | - | 600 | - | 600 | ||||||||||
Net loss for the period | - | - | - | (21,237 | ) | (21,237 | ) | ||||||||
Balance as of February 28, 2006 | 10,000,000 | 1,000 | 4,600 | (21,237 | ) | (15,637 | ) | ||||||||
Common shares issued for cash ($0.005 per share) – May 2006 | 10,000,000 | 1,000 | 49,000 | - | 50,000 | ||||||||||
Common shares issued for services ($0.005 per share) – August 2006 and February 2007 | 6,000 | 1 | 29 | - | 30 | ||||||||||
Contributions to capital by related parties – expenses | - | - | 11,400 | - | 11,400 | ||||||||||
Net loss for the year | - | - | - | (50,890 | ) | (50,890 | ) | ||||||||
Balance as of February 28, 2007 | 20,006,000 | 2,001 | 65,029 | (72,127 | ) | (5,097 | ) | ||||||||
Contributions to capital by related parties – expenses | - | - | 14,400 | - | 14,400 | ||||||||||
Common shares returned and cancelled for cash ($0.005 per share) – April 2007 | (1,000,000 | ) | (100 | ) | (4,900 | ) | - | (5,000 | ) | ||||||
Common shares issued for cash ($0.01 per share) – May 2007 | 1,000,000 | 100 | 4,900 | - | 5,000 | ||||||||||
Net loss for the year | - | - | - | (65,411 | ) | (65,411 | ) | ||||||||
Balance as of February 29, 2008 | 20,006,000 | 2,001 | 79,429 | (137,538 | ) | (56,108 | ) | ||||||||
Contributions to capital by related parties – expenses | - | - | 14,400 | - | 14,400 | ||||||||||
Contributions to capital by related parties – loan forgiveness | - | - | 38,950 | - | 38,950 | ||||||||||
Common shares issued for cash ($0.10 per share) – November 2008 | 500,000 | 50 | 49,950 | - | 50,000 | ||||||||||
Net loss for the year | - | - | - | (53,957 | ) | (53,957 | ) | ||||||||
Balance as of February 28, 2009 | 20,506,000 | 2,051 | 182,729 | (191,495 | ) | (6,715 | ) | ||||||||
Contributions to capital by related parties – expenses | - | - | 14,399 | - | 14,399 | ||||||||||
Net loss for the year | - | - | - | (58,201 | ) | (58,201 | ) | ||||||||
Balance as of February 28, 2010 | 20,506,000 | 2,051 | 197,128 | (249,696 | ) | (50,517 | ) | ||||||||
Contributions to capital by related parties – expenses | - | - | 3,600 | - | 3,600 | ||||||||||
Common shares issued for cash ($0.20 per share) – June 2010 | 1,500,000 | 150 | 299,850 | - | 300,000 | ||||||||||
Common shares issued for cash ($0.50 per share) – July 2010 | 1,500,000 | 150 | 749,850 | - | 750,000 | ||||||||||
Common shares issued for cash ($1.00 per share) – November 2010 | 825,000 | 83 | 824,917 | - | 825,000 | ||||||||||
Common shares returned and cancelled – November 2010 | (3,700,000 | ) | (370 | ) | 370 | - | - | ||||||||
Common shares issued for debt cancellation ($1.00 per share) – November 2010 | 205,000 | 20 | 204,980 | - | 205,000 | ||||||||||
Net loss for the year | - | - | - | (1,049,087 | ) | (1,049,087 | ) | ||||||||
Balance as of February 28, 2011 | 20,836,000 | 2,084 | 2,280,695 | (1,298,783 | ) | 983,996 | |||||||||
Stock based compensation | - | - | 213,912 | - | 213,912 | ||||||||||
Net loss for the year | - | - | - | (952,543 | ) | (952,543 | ) | ||||||||
Balance as of February 29, 2012 | 20,836,000 | $ | 2,084 | $ | 2,494,607 | $ | (2,251,326 | ) | $ | 245,365 |
The accompanying notes are an integral part of these financial statements.
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PediatRx Inc.(A Development Stage Company)
Statements of Cash Flows
For the period | ||||||||||||
from the date | ||||||||||||
of inception on | For the year ended | For the year ended | For the year ended | |||||||||
March 18, 2005 | February 29, | February 28, | February 28, | |||||||||
to February 29, 2012 | 2012 | 2011 | 2010 | |||||||||
Cash flows from operating activities | ||||||||||||
Net loss for the period | $ | (2,251,326 | ) | $ | (952,543 | ) | $ | (1,049,087 | ) | $ | (58,201 | ) |
Adjustments to reconcile loss to net cash used in operating activities | ||||||||||||
Amortization expense | 139,780 | 88,282 | 51,498 | - | ||||||||
Inventory obsolescence expense | 90,500 | 90,500 | - | - | ||||||||
Gain on sale of product rights | (64,900 | ) | (64,900 | ) | - | - | ||||||
Contributions to capital by related parties – expenses | 58,799 | - | 3,600 | 14,399 | ||||||||
Contributions to capital by related party – forgiveness of debt | 38,950 | - | - | - | ||||||||
Common shares issued for services | 30 | - | - | - | ||||||||
Write down of mineral property acquisition costs | 5,000 | - | - | - | ||||||||
Stock based compensation | 213,912 | 213,912 | - | - | ||||||||
Changes in operating assets and liabilities; net of effects from acquisition of Granisol product line in 2011 | ||||||||||||
Increase in accounts receivable | (106,635 | ) | (51,555 | ) | (55,080 | ) | - | |||||
Decrease in inventories | 24,511 | 15,006 | 9,505 | - | ||||||||
Increase in prepaids and deposits | (18,341 | ) | (13,389 | ) | (4,952 | ) | - | |||||
Increase (decrease) in accounts payable and accrued liabilities | 387,960 | 68,535 | 307,148 | (758 | ) | |||||||
Cash used in operating activities | (1,481,760 | ) | (606,152 | ) | (737,368 | ) | (44,560 | ) | ||||
Cash flows from investing activities | ||||||||||||
Acquisition of mineral property interest | (10,000 | ) | - | - | - | |||||||
Proceeds from sale of product rights | 64,900 | 64,900 | - | - | ||||||||
Acquisition of Granisol product line | (1,000,000 | ) | - | (1,000,000 | ) | - | ||||||
Cash used in investing activities | (945,100 | ) | 64,900 | (1,000,000 | ) | - | ||||||
Cash flows from financing activities | ||||||||||||
Decrease in due to related party | - | - | - | (1,128 | ) | |||||||
Proceeds from issuance of promissory notes | 705,000 | 250,000 | 405,000 | 50,000 | ||||||||
Common shares returned and cancelled | (5,000 | ) | - | - | - | |||||||
Proceeds from issuance of common stock | 1,985,000 | - | 1,875,000 | - | ||||||||
Cash provided by financing activities | 2,685,000 | 250,000 | 2,280,000 | 48,872 | ||||||||
Increase (decrease) in cash and cashequivalents | 258,140 | (291,252 | ) | 542,632 | 4,312 | |||||||
Cash and cash equivalents, beginning ofperiod | - | 549,392 | 6,760 | 2,448 | ||||||||
Cash and cash equivalents, end of period | $ | 258,140 | $ | 258,140 | $ | 549,392 | $ | 6,760 |
The accompanying notes are an integral part of these financial statements.
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PediatRx Inc.(A Development Stage Company)Notes to the Financial StatementsFebruary 29, 2012
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PediatRx Inc.(A Development Stage Company)Notes to the Financial StatementsFebruary 29, 2012
On February 21, 2012 the Company entered into three definitive agreements and one side letter with Apricus which include the Co-Promotion Agreement, the Assignment Agreement and the Asset Purchase Agreement. Pursuant to the Co-Promotion Agreement, the Company granted to Apricus the exclusive right to commercialize Granisol in six U.S. states and the non-exclusive right to commercialize Granisol in all other U.S. States, in addition to the right to manufacture Granisol. In addition, the Company has agreed that, for a period of five years from the effective date of the Co-Promotion Agreement, it will not license any co-promotion rights in the non-exclusive states to any third party. The Company has retained the right to commercialize Granisol in the non-exclusive states. The Company will recognize sales in the non-exclusive states that it generates through its own promotional efforts. Each party has agreed to cooperate with the other in respect of promotional materials and efforts on terms specified in the Co-Promotion Agreement.
The initial term of the Co-Promotion Agreement is for a period of ten years from the effective date, though it may be terminated prior to expiration under certain conditions. If the Co-Promotion Agreement is terminated by the Company prior to the end of the initial term, the Company will be required to pay to Apricus an amount based upon a varying percentage of its net operating income related to Granisol for a period subsequent to termination depending upon when the termination occurs.
Pursuant to the Assignment Agreement, the Company has assigned all of its rights and responsibilities under the Co-Promotion agreement with Bi-Coastal for Aquoral, and Apricus has assumed all rights and responsibilities under the Co-Promotion Agreement as of the effective date. Bi-Coastal has consented to the assignment of the co-promotion agreement.
Pursuant to the Asset Purchase Agreement, the Company sold to Apricus all of its rights related to Granisol in all countries and territories outside of the United States. The Company has also agreed that it and its officers and directors will not compete in the field of anti-emetic products in certain areas outside of the United States.
As consideration for entering into these three Agreements the Company received an initial payment of $325,000 from Apricus. The agreements also provide for the payment to the Company of a royalty that will be calculated based upon Apricus' United States generated net operating income related to Granisol. The Company has recognized revenues of $260,000 associated with the exclusive rights for Apricus to commercialize Granisol in six U.S. states. In addition, the Company has recognized a gain from sale of product rights totaling $64,000 associated with the Asset Purchase Agreement.
The binding term sheet between the Company and Apricus contemplates, in addition to the transactions reflected in the three agreements described above, a non-binding expression of interest in the merger of the Company with Apricus. The non-binding portion of the term sheet contemplates that the Company will be acquired by Apricus in a merger in exchange for $4,000,000, to be paid in the common stock of Apricus, with $3,600,000 distibuted to the shareholders of the Company immediately and $400,000 held back from shares that would be distributed to the Company's Chief Executive Officer and Chief Financial Officer for a period of six months as an indemnity for breaches by the Company of its representations and warranties. Additionally, it contemplates that Apricus will assume certain debt and liabilities of the Company up to $675,000. The side letter referred to above refines the timing with respect to the parties' agreement that Apricus will pay to the Company a 'break-up fee" (in the form of restricted stock of Apricus having a value of $1,000,000) if the two companies do not merge by June 1, 2012, (or such other date as may be mutually agreed to by the Parties) unless, prior to that date, the Company files for bankruptcy or the Granisol asset is materially impaired.
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PediatRx Inc.(A Development Stage Company)Notes to the Financial StatementsFebruary 29, 2012
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PediatRx Inc.(A Development Stage Company)Notes to the Financial StatementsFebruary 29, 2012
Accounts Receivable
Trade receivables are reported at net realizable value. In the normal course of business, credit is extended to customers on a short-term basis and generally collateral is not required. Management determines the allowance for doubtful accounts based on historical losses and current economic conditions. On a continuing basis, management analyzes delinquent receivables and once these receivables are determined to be uncollectible, they are written off through a charge against an existing allowance account. Additionally, management includes the reserve for sales discounts given at the time of sale in the accounts receivable balance. As of February 28, 2011, an allowance for sales discounts of $1,020 has been netted against accounts receivable. No allowance for sales discounts has been netted against accounts receivable as of February 29, 2012.
Inventories
Inventories, consisting primarily of a pharmaceutical drug are stated at the lower-of-cost or market on an average cost basis. Reserves for excess, slow moving or obsolete inventory are established when management becomes aware of an impairment in a product's marketability due to changes in formulation, market demand and conditions or other factors. Such reserves are established based upon the difference between the product's cost and management's estimate of its net realizable value. As of February 29, 2012, a reserve for obsolescence in the amount of $90,500 has been netted against inventories.
Intangible Assets
Intangible assets consist of product rights and know-how, the Granisol trademark, and a manufacturing and supply agreement. As of February 29, 2012, intangible assets include costs of $882,820 less related accumulated amortization of $139,780, which amortization began in August 2010. The Company is amortizing the product rights and know-how over the estimated useful life of ten years on a straight line basis. As of February 29, 2012, annual amortization expense for each of the succeeding five years is expected to be $88,282.
Intangible assets of the Company are reviewed for impairment whenever events or circumstances indicate that the carrying amount of assets may not be recoverable. Management considers assets to be impaired if the carrying value exceeds the future projected cash flows from related operations (undiscounted and without interest charges). If impairment is deemed to exist, the assets will be written down to fair value.
Income taxes
Deferred income taxes are reported for timing differences between items of income or expense reported in the financial statements and those reported for income tax purposes in accordance with ASC 740,Income Taxes, which requires the use of the asset/liability method of accounting for income taxes. Deferred income taxes are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and for tax losses and credit carry-forwards. 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 Company provides a valuation allowance for deferred tax assets when it is unable to conclude that it is more likely than not that the assets will be realized.
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PediatRx Inc.(A Development Stage Company)Notes to the Financial StatementsFebruary 29, 2012
The impact of an uncertain income tax position on the income tax return must be recognized at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. The Company classifies interest and penalties, if any, as a component of its income tax provision.
Revenue Recognition
Revenue is recognized from product sales when the merchandise is shipped. Accordingly, revenue is recognized when all of the following occur: a purchase order is received from a customer; title and risk of loss pass to the customer upon shipment of the merchandise under the terms of FOB destination; prices and estimated sales provisions for product returns, sales rebates, chargebacks, payment discounts and other promotional allowances are reasonably determinable; and the customer's payment ability has been reasonably assured.
Concurrently with the recognition of revenue, the estimated sales provisions for product returns, sales rebates, chargebacks, payment discounts and other sales allowances are recorded. Sales provisions are established based upon consideration of a variety of factors, including but not limited to, historical relationship to revenues, historical payment and return experience, customer rebate arrangements and current contract sales terms with wholesale and indirect customers. The following briefly describes the nature of each provision and how such provisions are estimated.
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PediatRx Inc.(A Development Stage Company)Notes to the Financial StatementsFebruary 29, 2012
There are arrangements with certain parties establishing prices for products for which the parties independently select a wholesaler from which to purchase. Such parties are referred to as indirect customers. A chargeback represents the difference between the sales invoice price to the wholesaler and the indirect customer's contract price, which is lower. Provisions for estimating chargebacks are calculated primarily using historical chargeback experience, contract pricing and sales information provided by wholesalers and chains, among other factors.
Actual product returns, chargebacks and other sales allowances incurred are, however, dependent upon future events and may be different than management's estimates. These sales deductions are continually monitored and management makes adjustments to these provisions when it becomes evident that actual product returns, chargebacks and other sales allowances may differ from established allowances.
The Company periodically enters into various types of revenue arrangements with third-parties, including agreements for the sale or license of product rights, promotion agreements and others. These agreements may include the receipt of upfront payments and royalties. Fees received upon entering into license and other collaborative agreements where the Company has continuing involvement are recorded as deferred revenue and recognized as other revenue over an appropriate period of time. Royalty revenue from licensees, which are based on third-party sales of licensed products, is recorded in accordance with the contract terms, when third-party sales can be reliably measured and collection of the funds is reasonably assured.
Basic and diluted net loss per share
The Company computes net income or loss per share in accordance with ASC 260,Earnings per Share ("ASC 260"). ASC 260 requires presentation of both basic and diluted earnings per share ("EPS") on the face of the statement of operations. Basic EPS is computed by dividing net income or loss available to common shareholders (numerator) by the weighted average number of common stock equivalents outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common stock equivalents outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive. There were no potentially dilutive common stock equivalents for the periods from inception through February 29, 2012.
Start-up expenses
ASC 720,Start-Up Costs("ASC 270"), requires that costs associated with start-up activities be expensed as incurred. Accordingly, start-up costs associated with the Company's formation have been included in the Company's expenses for the period from the date of inception (March 18, 2005) through February 29, 2012.
Stock-based Compensation
The Company accounts for all stock-based payments and awards under the fair value based method. Stock-based payments to non-employees are measured at the fair value of the consideration received, or the fair value of the equity instruments issued, or liabilities incurred, whichever is more reliably measurable. The fair value of stock-based payments to non-employees is periodically re-measured until the counterparty performance is complete, and any change therein is recognized over the vesting period of the award and in the same manner as if the Company had paid cash instead of paying with or using equity based instruments. Compensation costs for stock-based payments with graded vesting are recognized on a straight-line basis. The cost of the stock-based payments to non-employees that are fully vested and non-forfeitable as of the grant date is measured and recognized at that date, unless there is a contractual term for services in which case such compensation would be amortized over the contractual term.
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PediatRx Inc.(A Development Stage Company)Notes to the Financial StatementsFebruary 29, 2012
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PediatRx Inc.(A Development Stage Company)Notes to the Financial StatementsFebruary 29, 2012
Prior to the closing date, a purchase order was placed with Therapex for one lot of product to be delivered subsequent to the closing date. Such inventory to be delivered is an integral part of the acquisition and the seller has been paid by PediatRx as part of the $1 million cash consideration. The Company assigned $117,180 to inventory receivable on the balance sheet as of the Closing Date, with the remaining purchase price allocated to the product rights and know-how associated with the Abbreviated New Drug Application (“ANDA”), the Granisol trademark, and the manufacturing and supply agreement with Therapex. The related inventory was received in October 2010. The Company is amortizing the product rights and know-how over the estimated useful life of ten years on a straight line basis, beginning with August, 2010.
The purchase price for the Granisol product line was allocated in accordance with the acquisition method of accounting. The acquisition method of accounting is based on ASC 805,Business Combinations, and uses the fair value concepts defined in ASC 820,Fair Value Measurements and Disclosures,. For the twelve months ended February 28, 2011, the Company incurred $18,975 in costs related to the acquisition of the Granisol product line. These costs are reflected in expenses in the Statements of Operations.
The following unaudited pro forma information was prepared assuming that the acquisitions of Granisol had taken place at the beginning of fiscal 2010. In preparing the pro forma financial information, various assumptions were made; therefore, the Company does not imply that the future results will be indicative of the following pro forma information:
Twelve Months | Twelve Months | ||||||
Ended | Ended | ||||||
February 28, 2011 | February 28, 2010 | ||||||
Net sales | $ | 340,648 | $ | 193,993 | |||
Net loss | (1,072,916 | ) | (128,811 | ) | |||
Net loss per share - | |||||||
basic and diluted | (0.0495 | ) | (0.0063 | ) |
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PediatRx Inc.(A Development Stage Company)Notes to the Financial StatementsFebruary 29, 2012
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February 29, | February 28, | ||||||
2012 | 2011 | ||||||
Issued on June 15, 2009, this unsecured promissory note, bearing interest at five percent (5%) per annum on the principal balance of $50,000, was originally due on June 15, 2011. Effective May 18, 2011 this promissory note was amended whereby the maturity date of the note was extended until June 15, 2012. The principal amount or such portion thereof as shall remain outstanding from time to time shall accrue simple interest, calculated monthly in arrears, at a rate of 5% per annum commencing on the date of the promissory note and payable at maturity. When not in default, the unsecured promissory note and any accrued interest can be repaid in whole or in part without notice or penalty. | $ | 50,000 | $ | 50,000 | |||
Issued on July 26, 2010, this unsecured promissory note, bearing interest at five percent (5%) per annum on the principal balance of $200,000, was originally due on July 26, 2011. Effective May 23, 2011 this promissory note was amended whereby the maturity date of the note was extended until July 26, 2012. The principal amount or such portion thereof as shall remain outstanding from time to time shall accrue simple interest, calculated monthly in arrears, at a rate of 5% per annum commencing on the date of the promissory note and payable at maturity. When not in default, the unsecured promissory note and any accrued interest can be repaid in whole or in part without notice or penalty with a minimum of six months interest due if repaid prior to the six month anniversary. | 200,000 | 200,000 | |||||
Issued on May 6, 2011, this unsecured promissory note, bearing interest at five percent (5%) per annum on the principal balance of $250,000, is due on May 6, 2012. The principal amount or such portion thereof as shall remain outstanding from time to time shall accrue simple interest, calculated monthly in arrears, at a rate of 5% per annum commencing on the date of the promissory note and payable at maturity. When not in default, the unsecured promissory note and any accrued interest can be repaid in whole or in part without notice or penalty with a minimum of six months interest due if repaid prior to the six month anniversary. | 250,000 | - | |||||
Total Promissory Notes | $ | 500,000 | $ | 250,000 |
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PediatRx Inc.(A Development Stage Company)Notes to the Financial StatementsFebruary 29, 2012
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PediatRx Inc.(A Development Stage Company)Notes to the Financial StatementsFebruary 29, 2012
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Number of Warrants | Exercise Price | |||
Balance February 28, 2010 | - | - | ||
Issued | 515,000 | $1.75 | ||
Balance, February 28, 2011 | 515,000 | $1.75 | ||
Issued | - | - | ||
Balance, February 29, 2012 | 515,000 | $1.75 |
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PediatRx Inc.(A Development Stage Company)Notes to the Financial StatementsFebruary 29, 2012
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Number of Options | Weighted Average Exercise Price | |||
Balance, February 28, 2011 | - | - | ||
Issued | 1,202,500 | $1.13 | ||
Cancelled | (315,000) | $1.14 | ||
Balance, February 29, 2012 | 887,500 | $1.13 |
At February 29, 2012, the following stock options were outstanding:
Number of Options | ||||||||||||||
Average | ||||||||||||||
Aggregate | Remaining | |||||||||||||
Number | Exercise | Expiry | Intrinsic | Contractual | ||||||||||
Total | Vested | Price | Date | Value | Life (Yrs) | |||||||||
690,000 | 172,500 | $ 1.14 | March 4, 2015 | $ | - | 4.01 | ||||||||
105,000 | 105,000 | $ 1.14 | December 15, 2012 | - | 4.01 | |||||||||
42,500 | 11,389 | $ 1.00 | July 25, 2016 | - | 4.41 | |||||||||
50,000 | 12,500 | $ 1.00 | September 15, 2016 | - | 4.55 | |||||||||
887,500 | 301,389 | $ | - |
The original contractual life of all options issued is five years. The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the quoted market price of the Company's stock for the options that were in-the-money at February 29, 2012. The total grant date stock-based compensation expense for options outstanding during the twelve months ended February 29, 2012 was $213,912. As of February 29, 2012 unrecognized compensation costs of approximately $306,189 related to non-vested stock option awards granted after March 1, 2011 will be recognized on a straight-line basis over the remaining vesting period for each award. The weighted average fair value of the stock options granted during the twelve months ended February 29, 2012 is $0.60.
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PediatRx Inc.(A Development Stage Company)Notes to the Financial StatementsFebruary 29, 2012
The fair value of stock options granted has been determined using the Black-Scholes option pricing model using the following weighted average assumptions applied to stock options granted during the periods:
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PediatRx Inc.(A Development Stage Company)Notes to the Financial StatementsFebruary 29, 2012
Years Ended | ||||||||||
February 29, | February 28, | February 28, | ||||||||
2012 | 2011 | 2010 | ||||||||
Income tax benefit at federal statutory rate (34%) | $ | (323,865 | ) | $ | (356,690 | ) | $ | (19,788 | ) | |
State income tax benefit | (44,304 | ) | (62,102 | ) | - | |||||
Non-deductible stock based compensation | 71,885 | - | - | |||||||
Change in valuation allowance | 295,060 | 417,568 | 14,892 | |||||||
Other | 1,224 | 1,224 | 4,896 | |||||||
Total income tax expense | $ | - | $ | - | $ | - |
The composition of the Company's deferred tax assets as at February 29, 2012 and February 28, 2011 is as follows:
As of | As of | ||||||
February 29, | February 28, | ||||||
2012 | 2011 | ||||||
Net operating loss carry-forward | $ | 695,000 | $ | 469,000 | |||
Other | 82,000 | 12,000 | |||||
Less: Valuation allowance | (777,000 | ) | (481,000 | ) | |||
Net deferred tax asset | $ | - | $ | - |
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
On March 12, 2015, the Company’s Board of Directors approved the dismissal of MaloneBailey, LLP (“MaloneBailey”) as our independent registered public accounting firm. MaloneBailey was engaged as our independent registered public accounting firm to audit our financial statements for the fiscal year ended February 28, 2014. The Company informed MaloneBailey of its dismissal on March 12, 2015. The decision to dismiss MaloneBailey was effective as of the date of notification of dismissal.
The report of MaloneBailey on our financial statements for the fiscal year ended February 28, 2014 did not contain an adverse opinion or a disclaimer of opinion, nor was either such report qualified or modified as to uncertainty, audit scope, or accounting principles, except that such report raised substantial doubts on our ability to continue as a going concern as a result of our continued losses from operations since inception, and our stockholders’ and working capital deficiencies.
During the fiscal year ended February 28, 2014, and through the date of dismissal, (a) we had no disagreements with MaloneBailey on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreement, if not resolved to the satisfaction of MaloneBailey, would have caused it to make reference to the subject matter of the disagreement in connection with its reports and (b) there were no “reportable events” (as defined in Item 304(a)(1)(v) of Regulation S-K), except that, in connection with MaloneBailey’s audit of our financial statements for the fiscal year ended February 28, 2014, MaloneBailey advised us that there was a material weakness in our internal control over financial reporting relating to (1) the lack of multiple levels of management review on complex accounting and financial reporting issues, and (2) a lack of adequate segregation of duties and necessary corporate accounting resources in our financial reporting process and accounting function as a result of our limited financial resources to support hiring of personnel and implementation of accounting systems.
We provided MaloneBailey with a copy of this disclosure prior to its filing with the SEC, and requested that MaloneBailey furnish us with a letter addressed to the SEC stating whether they agree with the statements made in this Current Report on Form 8-K, and if not, stating the aspects with which they do not agree. A copy of the letter provided by MaloneBailey was filed as Exhibit 16.1 to our current report on Form 8-K filed with the SEC on March 16, 2015.
On March 12, 2015, our Board of Directors approved the engagement of Salberg & Company, P.A. (“Salberg”) as our independent registered public accounting firm, and Salberg was engaged on March 12, 2015. During our two most recent fiscal years and through March 11, 2015, neither the Company nor anyone on its behalf consulted Salberg regarding either (i) the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on our financial statements, and no written report or oral advice was provided to us that Salberg concluded was an important factor considered by us in reaching a decision as to the accounting, auditing or financial reporting issue; or (ii) any matter that was the subject of a disagreement or reportable event as defined in Regulation S-K, Item 304(a)(1)(iv) and Item 304(a)(1)(v).
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure controls and procedures
We maintain "disclosure“disclosure controls and procedures",procedures,” as that term is defined in Rule 13a-15(e), promulgated by the Securities and Exchange CommissionSEC pursuant to theSecurities Exchange Act of 1934,, as amended.amended (the “Exchange Act”). Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in our company'scompany’s reports filed under theSecurities Exchange Act of 1934is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission'sSEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal accountingfinancial officer to allow timely decisions regarding required disclosure.
As required by paragraph (b) of Rules 13a-15 under theSecurities Exchange Act of 1934, our Our management, with the participation of our principal executive officer and principal financial officer, evaluated our company'scompany’s disclosure controls and procedures as of the end of the period covered by this annual report on Form 10-K. Based on this evaluation, our managementprincipal executive officer and principal financial officer concluded that as of the end of the period covered by this annual report on Form 10-K,February 28, 2015, our disclosure controls and procedures were not effective. The ineffectiveness of our disclosure controls and procedures was due to material weaknesses, which we identified, in our report on internal control over financial reporting.
Internal control over financial reporting
Management'sManagement’s annual report on internal control over financial reporting
Our management, including our principal executive officer and principal financial officer, is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934)Act).
Our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our internal control over financial reporting as of February 29, 2012.28, 2015. Our management'smanagement’s evaluation of our internal control over financial reporting was based on the framework in Internal Control—IntegratedControl-Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, our management concluded that as of February 28, 2015, our internal control over financial reporting was effectivenot effective.
The ineffectiveness of our internal control over financial reporting was due to the following material weaknesses which we identified in our internal control over financial reporting: (1) the lack of multiples levels of management review on complex accounting and financial reporting issues, and (2) a lack of adequate segregation of duties and necessary corporate accounting resources in our financial reporting process and accounting function as a result of February 29, 2012our limited financial resources to support hiring of personnel and that there were noimplementation of accounting systems. Until such time as we expand our staff to include additional accounting personnel and hire a full time chief financial officer, it is likely we will continue to report material weaknesses in our internal control over financial reporting.
A material weakness is a deficiency or a combination of control 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.
Limitations on Effectiveness of Controls
Our principal executive officer and principal financial officer do not expect that our disclosure controls or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additional controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
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Changes in internal control over financial reporting
There were no changes in our internal control over financial reporting during the fourth quarter of our fiscal year ended February 29, 201228, 2015 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
As of April 19, 2012, we entered into an amendment for the promissory note dated June 15, 2009 in the principal amount of $50,000 to extend the maturity date of the note until August 15, 2012.
As of April 19, 2012, we entered into an amendment for the promissory note dated May 6, 2011 in the principal amount of $250,000 to extend the maturity date of the note until August 15, 2012.None.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Directors and Executive Officers
Our directorssole director and executive officers, theirofficer, his age, positions held, and duration of such, are as follows:
Name | Position Held with our | Age | Date First Elected or Appointed | |||
Director | 45 | February 15, 2013 | ||||
President, Chief Executive Officer, | ||||||
August | ||||||
Business Experience
The following is a brief account of the education and business experience of directorsour sole director and executive officersofficer during at least the past five years, indicating theirhis principal occupation during the period, and the name and principal business of the organization by which they werehe was employed:
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Dr. Cameron Durrant
Dr. Durrant was appointedConstantin Dietrich:Mr. Dietrich has over 20 years of experience in private equity, investing, marketing, media and executive/management leadership. Since 2012, he has acted as President,the Chief Executive Officer of Lakefield Media Holding AG, a company that he founded to acquire and a director of our company on November 17, 2010. Since May 28, 2010, Dr. Durrant servedleverage established digital and social media properties, located in a consulting capacity as PresidentSwitzerland. Mr. Dietrich has expertise in social networks and a director of PediatRx Inc., our wholly owned subsidiary until it was merged into Striker Energy Corp. on December 28, 2011.
Dr. Durrant's background includes executive-level positions with Merck & Co. (NYSE: MRK), Glaxo Smith Kline PLC (NYSE: GSK), Pharmacia Corporation (now part of Pfizer Inc. (NYSE: PFE) and Johnson & Johnson (NYSE: JNJ). He has been CEO of PediaMed Pharmaceuticals, Inc. and Spherics, Inc. and served on their boards.
Dr. Durrant also served as executive chairman and director of Anavex Life Sciences Corp. (OTCBB: AVXL), a publicly traded biopharmaceutical company engaged in the discovery and development of novel drug targets to treat serious diseases for which there are urgent unmet medical needs with a primary focus on Alzheimer's disease, from January 1, 2010 to September 16, 2011.
Dr. Durrant is a founding board member of Bexion Pharmaceuticals, a private oncology research and development company with therapeutics, diagnostic/imaging and drug delivery capabilities. Dr. Durrant has previously served on several public and private pharmaceutical company boards (including Topaz Pharmaceuticals, PDS Biotechnology Corporation and Pressure Point Inc) and has been an advisor to Pilgrim Software and to Saxa Private Equity Partners.
Dr. Durrant was a regional winner and national finalist for Ernst & Young's Entrepreneur of the Year award in 2005. Dr. Durrantsocial discovery. Mr. Dietrich holds a MBABachelor of Science degree in business administration from Henley Management College at Oxford and a MB and BCh (equivalent to the American MD degree) from the Welsh National SchoolUC of Medicine in Cardiff, U.K., a DRCOG, a DipCH and the MRCGP.Syracuse University.
We believe Dr. DurrantMr. Dietrich is qualified to serve on our Boardboard of Directors because of his knowledge of our company's history and current operations and his prior and current board experience, in addition to his education and business experiences described above.
David Tousley
Mr. Tousley was appointed as Secretary, Treasurer, Chief Financial Officer and a director of our company on November 17, 2010. Since July 1, 2010, Mr. Tousley served as the Secretary, Treasurer, Chief Financial Officer and a director of PediatRx Inc., our wholly owned subsidiary until it was merged into Striker Energy Corp. on December 28, 2011.
Mr. Tousley has over 25 years of senior-level experience in biotech, specialty pharmaceuticals and full-phase pharmaceutical companies. He has held the position of President, COO and CFO at companies including airPharma, PediaMed Pharmaceuticals, Inc., AVAX Technologies Inc. (OTCBB: AVXT), and Pasteur, Merieux, Connaught, (known today as Sanofi-Pasteur SA). During his career, Mr. Tousley has led all aspects of operations, including pharmaceutical development, in both the private and public company environment. His accomplishments include the raising of over $100 million in debt and equity financings and he has led key business development activities, including joint ventures, partnerships, acquisitions and divestitures in the U.S., Europe and Australia.
Mr. Tousley was Chief Financial Officer of Anavex Life Sciences Corp. (OTCBB: AVXL) from September 1, 2010 until May 9, 2011 and was a director of Anavex from June 3, 2008 until February 24, 2011.
Mr. Tousley currently serves as a director of ImmunoGenetix Therapeutics, Inc, a biotech company that is developing advanced DNA immunotherapies for HIV infection.
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Mr. Tousley holds an MBA in accounting from Rutgers Graduate School of Business and a B.A. in English from Rutgers College, both in New Jersey and belongs to the New Jersey Society of Certified Public Accountants and the American Institute of Certified Public Accountants.
We believe Mr. Tousley is qualified to serve on our Board of Directors because of his knowledge of our company's history and current operations, which he gained from his employment as Chief Financial Officer of PediatRx Inc., our wholly owned subsidiary since July 1, 2010, in addition to his education and business experiences described above.
Joseph Carusone
Mr. Carusone was appointed as Vice President, Investor Relations of our company on November 17, 2010 and as a director of our company on August 18, 2008. He also served as president, secretary and treasurer of our company from August 18, 2008 until November 17, 2010. For more than 10 years, Mr. Carusone has been involved in the founding of and management of private companies and partnerships including those in the oil and gas industry. His experience as a liaison between management and shareholders is extensive. He has been the president of Opex Energy Corp. since its inception on August 22, 2007. Since 2001, Mr. Carusone has been founder and president of the investor relations firm Primoris Group Inc. Between 1999 and 2001, Mr. Carusone was vice-president of operations of StockHouse Media Corporation. For eight years following his graduation from the University of Toronto with a degree in Engineering and Applied Science (1987), Mr. Carusone managed research activities in University of Toronto's Institute for Aerospace Studies' Space Robotics Group.
We believe Mr. Carusone is qualified to serve on our Board of Directors because of his knowledge of our company's history and current operations, which he gained from working for our company as described above, in addition to his education and business experiences as described above.
Paul Richardson
Mr. Richardson was appointed as a Director of our company on September 15, 2011.
Mr. Richardson is a pharmaceutical senior executive with more than 30 years of experience in US and global commercialization, product and business development, and organizational leadership. He brings significant expertise in sales management, business development, licensing, acquisition, commercialization and strategic marketing to PediatRx. Mr. Richardson most recently held the position of Regional President of Pfizer's North America Specialty Care business unit with direct accountability for the delivery, in 2010, of over $4.5 billion of annual revenue and associated profitability targets.
From 2006 until 2008, Mr. Richardson was Vice President and Therapeutic Cluster Lead for pain, inflammation, sex health, urology, respiratory and ophthalmology in Pfizer's Worldwide Commercial Development Group. Between 2003 and 2006, Mr. Richardson served as Vice President of Pfizer's diversified products, targeted brands and dermatology and ophthalmology therapy areas. Prior to 2004, Mr. Richardson served in a several roles of increasing senior responsibility with the Upjohn Company, Pharmacia and Upjohn and Pharmacia. He holds a BSc (honors) in Physiology from the University of Leeds, United Kingdom.
We believe Mr. Richardson is qualified to serve on our Board of Directorsdirectors because of his education and business experiences as described above.
Family Relationships
There are no family relationships between any director or executive officer.
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Involvement in Certain Legal Proceedings
Our directorssole director and executive officers haveofficer has not been involved in any of the following events during the past ten10 years:
1. | any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time; | |
2. | any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); | |
3. | being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; | |
4. | being found by a court of competent jurisdiction (in a civil action), the Securities and Exchange Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated; | |
5. | being the subject of, or a party to, any federal or state judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of: (i) any federal or state securities or commodities law or regulation; or (ii) any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease- and-desist order, or removal or prohibition order; or (iii) any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or | |
6. | being the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any |
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our executive officers and directors, and persons who own more than 10% of our common stock, to file reports regarding ownership of, and transactions in, our securities with the Securities and Exchange Commission and to provide us with copies of those filings. Based solely on our review of the copies of such forms received by us, or written representations from certain reporting persons we believe that during fiscal year ended February 29, 2012,28, 2015, all filing requirements applicable to our executive officers and directors, and greaterpersons who own more than ten percent beneficial owners10% of our common stock were complied with.
Code of Ethics
We have not adopted a code of ethics because our board of directors believes that our small size does not merit the expense of preparing, adopting and administering a code of ethics. Our board of directors intends to adopt a code of ethics when circumstances warrant.
Corporate Governance
Term of Office
Each director of our company is to serve for a term of one year ending on the date of subsequent annual meeting of stockholders following the annual meeting at which such director was elected. Notwithstanding the foregoing, each director is to serve until his successor is elected and qualified or until his death, resignation or removal. Our board of directors is to elect our officers and each officer is to serve until his successor is elected and qualified or until his death, resignation or removal.
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Committees of the Board
Our Boardboard of Directorsdirectors held no formal meetings during the year ended February 29, 2012.28, 2015. All proceedings of our Boardboard of Directorsdirectors were conducted by resolutions consented to in writing by all the directors and filed with the minutes of the proceedings of the directors. Such resolutions consented to in writing by the directors entitled to vote on that resolution at a meeting of the directors are, according to the corporate laws of the State of Nevada and our By-laws, as valid and effective as if they had been passed at a meeting of our directors duly called and held.
We currently do not have nominating or compensation committees or committees performing similar functions nor do we have a written nominating or compensation committee charter. Our Boardboard of Directorsdirectors does not believe that it is necessary to have such committees because it believes that the functions of such committees can be adequately performed by our Boardboard of Directors.directors.
We do not have any defined policy or procedure requirements for shareholders to submit recommendations or nominations for directors. We do not currently have any specific or minimum criteria for the election of nominees to our Boardboard of Directorsdirectors and we do not have any specific process or procedure for evaluating such nominees. Our Boardboard of Directorsdirectors assesses all candidates, whether submitted by management or shareholders, and makes recommendations for election or appointment.
A shareholder who wishes to communicate with our Boardboard of Directorsdirectors may do so by directing a written request to the address appearing on the first page of this annual report.
Audit Committee and Audit Committee Financial Expert
We do not have a standing audit committee at the present time. Our Boardboard of Directorsdirectors has determined that while we have a board member (David L. Tousley) that qualifies as an "audit committee financial expert" as defined in Item 407(d)(5)(ii) of Regulation S-K, we do not have a board member that qualifies as "independent"an “audit committee financial expert” as the term is used by NASDAQ Marketplace Rule 5605(a)(2)defined in Item 407(d)(5)(ii) of Regulation S-K.
We believe that our Boardboard of Directorsdirectors is capable of analyzing and evaluating our financial statements and understanding internal controls and procedures for financial reporting. The Boardboard of Directorsdirectors of our company does not believe that it is necessary to have an audit committee because we believe that the functions of an audit committee can be adequately performed by the Boardboard of Directors.directors. In addition, we believe that retaining an independent director who would qualify as an "audit“audit committee financial expert"expert” would be overly costly and burdensome and is not warranted in our circumstances given the early stages of our development.
ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation
The particulars of compensation paid to the following persons:
(a) | our principal executive | |
(b) | each of our two most highly compensated executive officers who were serving as executive officers at the end of the year ended February | |
(c) | up to two additional individuals for whom disclosure would have been provided under (b) but for the fact that the individual was not serving as our executive officer at the end of the most recently completed financial year,who we will collectively refer to as the named executive officers, for our fiscal years ended February |
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2015 SUMMARY COMPENSATION TABLE
Name and Principal Position | Fiscal Year | Salary ($) | Bonus ($) | Stock Awards ($) | Option Awards ($) | Non- Equity Incentive Plan Compensation ($) | Nonquali fied Deferred Compensation Earnings ($) | All Other Compensation ($) | Total ($) | |||||||||||||||||||||||||||
Constantin Dietrich, | ||||||||||||||||||||||||||||||||||||
2015 | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||
Treasurer and | 2014 | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||
| |||||||||||||||||||||||||||||||||||
Joseph Carusone | |||||||||||||||||||||||||||||||||||
2015 | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||
| |||||||||||||||||||||||||||||||||||
2014 | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||
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Employment Agreements
Dr. Cameron Durrant
Effective May 28, 2010, we entered into a consulting agreement with Dr. Cameron Durrant, a shareholder of our company, to assist management in the identification of opportunities available to us in the healthcare industry and to recommend terms of potential acquisitions. Under the agreement, we agreed to compensate Dr. Durrant(1) Mr. Carusone resigned as an executive officer on a time-spent basis at the rate of $1,000 per day, plus reimbursement of reasonable associated expenses. Dr. Durrant's agreement with our company dated May 28, 2010 was terminated in lieu of the September 24, 2010 agreement with PediatRx.
On September 24, 2010, with retroactive effect to July 1, 2010, we entered into a second consulting agreement with Dr. Cameron Durrant. Pursuant to the consulting agreement, Dr. Durrant agreed to perform such duties as are regularly and customarily performed by the Chief Executive Officer of a corporation in consideration for, among other things, $250,000 per annum. The term of the consulting agreement is one year from July 1, 2010, unless both parties agree to extend.
In addition, of the 4,250,000 shares of our common stock owned by Dr. Durrant, 2,833,333 shares are subject to a lockup agreement between us and Dr. Durrant, which lockup agreement became effective February 7, 2011. The lockup agreement expires on December 31,March 10, 2015.
During the twelve month period ended February 29, 2012, we incurred consulting fees of $208,333 (February 28, 2011 - $178,667, 2010 – $0, cumulative – $387,000) in connection with Dr. Durrant's consulting agreements. We have recorded a payable to Dr. Durrant of $170,253 and $75,423 related to consulting fees as of February 29, 2012 and February 28, 2011, respectively. In addition, we have recorded a payable to Dr. Durrant of $51,342 and $85,572 related to business establishment expenses incurred by Dr. Durrant that are unreimbursed to him as of February 29, 2012 and February 28, 2011, respectively.
David Tousley
On September 14, 2010, with retroactive effect to July 1, 2010, we entered into an employment agreement with Mr. David Tousley, Chief Financial Officer, Treasurer and Secretary of PediatRx. Pursuant to the employment agreement, Mr. Tousley agreed to perform such duties as are regularly and customarily performed by the Chief Financial Officer of a corporation in consideration for, among other things, $200,000 per annum. Mr. Tousley is also eligible to receive an annual bonus and an annual stock option award at the end of each year at the discretion of the Board of Directors of PediatRx. The term of the employment agreement is two years from July 1, 2010, unless both parties agree to extend.
In addition, of the 400,000 shares of our common stock owned by Mr. Tousley, 266,666 shares are subject to a lockup agreement between us and Mr. Tousley, which lockup agreement became effective February 7, 2011. The lockup agreement expires on December 31, 2015.
Effective March 4, 2011, we granted 690,000 stock options to David Tousley, our Chief Financial Officer and a director of our company. The stock options are exercisable at the exercise price of $1.14 per share until March 4, 2016 and vest on a quarterly basis over three years, beginning on June 4, 2011. Assumptions used in the calculation of fair value are described in the footnotes to our financial statements.
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Effective March 1, 2012, we gave notice to Mr. Tousley that we will be terminating his employment agreement pursuant to Section 6.3(b) of the agreement. As a result, Mr. Tousley's employment agreement will cease effective October 31, 2012.
Jorge Rodriguez
On September 14, 2010, with retroactive effect to July 1, 2010, we entered into an employment agreement with Mr. Jorge Rodriguez, Chief Commercial Officer of PediatRx. Pursuant to the employment agreement, Mr. Rodriguez agreed to perform such duties as are regularly and customarily performed by the Chief Commercial Officer of a corporation in consideration for, among other things, $150,000 per annum. Mr. Rodriguez was also eligible to receive an annual bonus and an annual stock option award at the end of each year at the discretion of the Board of Directors of PediatRx. The term of the employment agreement was two years from July 1, 2010, unless both parties agreed to extend.
Effective March 4, 2011, we granted 420,000 stock options to Jorge Rodriguez, our Vice President and Chief Commercial Officer. The stock options were exercisable at the exercise price of $1.14 per share until March 4, 2016 and vested on a quarterly basis over three years, beginning on June 4, 2011.
On December 15, 2011, Mr. Rodriguez, resigned from all positions with the company and the Company entered into an agreement with Mr. Rodriguez pursuant to which it terminated his employment agreement and amended his stock option agreement (dated March 4, 2011) in order to terminate all unvested options effective immediately and to extend the exercise period for his 105,000 vested options to December 15, 2012. In connection with the termination, the Company paid Mr. Rodriguez the amount of $19,500.
Outstanding Equity Awards at Fiscal Year-End
The following table sets forth for each named executive officer certain information concerning the outstanding equity awards as of February 29, 2012.28, 2015.
Option Awards | Stock Awards | ||||||||||||||||||||||||||||||||||||
Name | Number of Securities Underlying Unexercised Options Exercisable | Number of Securities Underlying Unexercised Options Unexercisable | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options | Option Exercise Price | Option Expiration Date | Number of Shares or Units of Stock that Have Not Vested | Market Value of Shares or Units of Stock that Have Not Vested | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights that Have Not Vested | Equity Incentive Plan Awards: Market or Payout Value Unearned Shares, Units Other Rights that Have Not Vested | ||||||||||||||||||||||||||||
Dietrich | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||
Joseph Carusone |
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Option Awards | Stock Awards | ||||||||
Name | Number of Securities Underlying Unexercised Options Exercisable | Number of Securities Underlying Unexercised Options Unexercisable | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options | Option Exercise Price | Option Expiration Date | Number of Shares or Units of Stock that Have Not Vested | Market Value of Shares or Units of Stock that Have Not Vested | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights that Have Not Vested | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights that Have Not Vested |
David Tousley | 172,500 | 517,500 | None | $1.14 | 03/04/2016 | None | None | None | None |
Jorge Rodriguez | 105,000(1) | None | None | $1.14 | 12/15/2012 | None | None | None | None |
| - | - | - | - | - | - | - |
Compensation of Directors
Our Boardboard of Directorsdirectors has received no compensation to date and there are no plans to compensate them in the near future, unless and until we become profitable in our business operations. We may issue options in the future as we retain the services of independent directors.
The table below shows the compensation of our non-employee directors for their services as directors for our last completedthe fiscal year ended February 29, 2012:28, 2015:
Name | Fees earned or paid in cash ($) | Stock awards ($) | Option awards ($) | Non-equity incentive plan compensation ($) | Nonqualified deferred compensation earnings ($) | All other compensation ($) | Total ($) |
Cameron Durrant | None | None | None | None | None | None | None |
Joseph Carusone | None | None | None | None | None | None | None |
David Tousley | None | None | None | None | None | None | None |
Paul Richardson(1) | None | None | $11,500 | None | None | None | $11,500 |
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earned or paid in cash ($) | Stock awards ($) | Option awards ($) | Non-equity incentive plan compensation ($) | Nonqualified deferred compensation earnings ($) | All other compensation ($) | Total ($) | ||||||||||||||||||||||
Joseph Arcuri (1) | - | - | - | - | - | - | - |
(1) Mr. Arcuri resigned as a director on November 13, 2014.
Long-Term Incentive Plans, Retirement or Similar Benefit Plans
There are currently no arrangements or plans in which we provide pension, retirement or similar benefits for directors or executive officers, except that we may reimburse our executive employees for up to 70% of their health insurance premiums under their individual policies. We may provide employee benefit plans to our employees in the future.
Our directors, executive officers and employees may receive stock options at the discretion of our Boardboard of Directors.directors.
Pursuant to the terms of the employment agreement with David Tousley, our Secretary, Treasurer and Chief Financial Officer, Mr. Tousley is eligible to receive an annual bonus at the end of each year, initially targeted to be 50% of his base salary. Both the decision to pay a bonus and the amount of the bonus is at the discretion of our Board of Directors. The bonus is payable in cash, equity or a combination of cash and equity so long as the cash portion is not less than 50% of the total value of the bonus.
Resignation, Retirement, Other Termination, or Change in Control Arrangements
We do not have arrangements in respect of remuneration received or that may be received by our executive officers to compensate such officers in the event of termination of employment (as a result of resignation, retirement, change of control) or a change of responsibilities following a change of control as follows:control.
Pursuant to the terms of the employment agreement with David Tousley, our Secretary, Treasurer and Chief Financial Officer, if the agreement is terminated for other than just cause by us then we agreed to continue to pay Mr. Tousley his base salary for the Termination Notice Period (defined as the period of six months plus two months per year of engagement of Mr. Tousley up to a maximum of twelve months) or, at our discretion to pay a lump sum amount equal to Mr. Tousley's base monthly salary times the number of months in the Termination Notice Period. Mr. Tousley may also be entitled to a pro-rata performance bonus based upon an objective evaluation by us of his achievement of certain pre-determined goals as of the date of termination.
In addition, if Mr. Tousley is terminated within six months following a change of control, or if the surviving entity fails to provide a similar agreement following a change of control, then we agreed to pay Mr. Tousley a lump sum amount equal to 150% of the amount calculated by multiplying (i) one twelfth of his base salary times (ii) not less than six months or the number of months in the Termination Notice Period.
Effective March 1, 2012, we gave notice to Mr. Tousley that we will be terminating his employment agreement pursuant to Section 6.3(b) of his agreement. As a result, Mr. Tousley's employment agreement will cease effective October 31, 2012.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
In the
The following table we have determinedsets forth certain information regarding beneficial ownership of our common stock and preferred stock as of May 22, 2015, by (i) each person known by us to be the numberbeneficial owner of more than 5% of our outstanding common stock, (ii) each director and percentageeach of shares beneficially owned in accordance with Rule 13d-3 of the Securities Exchange Act of 1934 based on information provided to us by our controlling shareholders,Named Executive Officers and (iii) all executive officers and directors as a group. As of May 22, 2015, there were 409,202,970 shares of our common stock outstanding.
The number of shares of common stock beneficially owned by each person is determined under the rules of the SEC and thisthe information doesis not necessarily indicateindicative of beneficial ownership for any other purpose. In determining the number of shares of our common stock beneficially owned by a person and the percentageUnder such rules, beneficial ownership of that person, we includeincludes any shares as to which thesuch person has sole or shared voting power or investment power as well asand also any shares subjectwhich the individual has the right to warrants or options held by that person that are currently exercisable or exercisableacquire within 60 days.
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Title of class | Name and address of beneficial owner | Amount and nature of beneficial ownership | Percent of class1 | |
Common Stock | Cameron Durrant 90 Fairmount Road West Califon, NJ 07830-3330 | 4,250,0002 | Direct | 20.40% |
Common Stock | Joseph Carusone 901-360 Bay Street Toronto, ON M5H 2V6 | 1,000,0003 | Direct/ Indirect3 | 4.80% |
Common Stock | David Tousley 14610 Pawnee Lane Leawood, KS 66224 | 630,0004 | Direct | 2.99% |
Common Stock | Paul Richardson 17 Country Oaks Road Lebanon, NJ 08833 | 37,5005 | Direct | * |
Common Stock | Jorge Rodriguez 10341 SW 45th Street Miami, FL 33165 | 105,0006 | Direct | * |
Directors & Executive Officers as a group (4 persons)7 | 5,917,500 | 28.04% |
* Less than 1%.
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Changes in Control
On January 26, 2012, we entered into a term sheet with Apricus Biosciences, Inc., which included a non-binding expression of interesthis or her spouse) with respect to the shares set forth in the mergerfollowing table. The inclusion herein of our company with Apricus. See "Item 1. Business – Our Business."any shares deemed beneficially owned does not constitute an admission of beneficial ownership of those shares.
Name and Address of Beneficial Owner (1) | Amount and Nature of Beneficial Ownership | Percent of Class | ||||||
Constantin Dietrich | 35,848,272 | 8.8 | % | |||||
All Officers and Directors as a group (1 person) | 35,848,272 | 8.8 | % | |||||
Leone Group, LLC 330 Clematis Street, Suite 217, West Palm Beach, FL 33401 | 132,893,954 | 32.5 | % | |||||
American Capital Ventures, Inc. 1507 Presidential Way North Miami Beach, FL 33179 | 132,893,954 | 32.5 | % | |||||
Trels Investments Ltd. | 21,283,788 | 5.2 | % | |||||
No. 4, offices at old Fort | ||||||||
Western Road | ||||||||
P.O. Box SP-63771, Patra | ||||||||
Greece | ||||||||
Georgia Georgopoulos Nausithoou -4, Patra Greece 26442 | 21,225,001 | 5.2 | % | |||||
Catherine Cozias 1108 - 6th Avenue SW, Unit 304 Calgary, AB T2P 5K1 Canada | 21,225,001 | 5.2 | % |
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ITEM 13. CERTAIN RELATIONSHIPSRELATNSHIPS AND RELATED TRANSACTIONS, AND DIRECTORDIRCTOR INDEPENDENCE
Transactions with related personsRelated Persons
Except as disclosed below, since March 1, 2010,2013, there have been no transactions, or currently proposed transactions, in which we were or are to be a participant and the amount involved exceeds the lesser of $120,000 or one percent1% of the average of our total assets at year end for the last two completed fiscal years, ($13,384), and in which any of the following persons had or will have a direct or indirect material interest:
(i) | Any director or executive officer of our company; | |
(ii) | Any person who beneficially owns, directly or indirectly, shares carrying more than 5% of the voting rights attached to our outstanding shares of common stock; | |
(iii) | Any of our promoters and control persons; and | |
(iv) | Any member of the immediate family (including spouse, parents, children, siblings and in- laws) of any of the foregoing persons. |
During the year ended February 28, 2011, Joseph Carusone, an officer and director of our company made contributions to capital for management fees in the amount of $3,000 and for rent in the amount of $600. There were no contributions to capital for management fees or rent made by Mr. Carusone for the year ended February 29, 2012
EffectiveOn May 28, 201017, 2013, we entered into a consulting agreementWeb Site Asset Purchase Agreement with Dr. Cameron Durrant,Lakefield Media Holding AG and its wholly-owned subsidiary, Flawsome XLerator GmbH to acquire the internet domain name “Slickx.com”, the website and related software, intellectual property rights, accounts, contracts, goodwill and infrastructure for $50,000. On May 21, 2013, we completed the acquisition of these assets and paid $50,000 to Lakefield. Constantin Dietrich, a shareholderdirector and executive officer of our company, to assist us inis the identificationfounder and Chief Executive Officer of opportunities available to us in the healthcare industry and to recommend terms of potential acquisitions. Under the agreement, we were to compensate Dr. Durrant on a time-spent basis at the rate of $1,000 per day, plus reimbursement of reasonable associated expenses. Dr. Durrant's agreement with the Company dated May 28, 2010 was terminated in lieu of the September 24, 2010 agreement with PediatRx.Lakefield.
On September 24, 2010, with retroactive effect to July 1, 2010,March 8, 2013, we entered into a second consulting agreementBusiness Development/Advisory Services Agreement with Phys Pharma LLC, a company of which Dr. Cameron Durrant. Pursuant to the consulting agreement, Dr. Durrant, agreed to perform such duties as are regularly and customarily performed by theformer President, Chief Executive Officer, of a corporation in consideration for, among other things, $250,000 per annum. The term of the consulting agreement is one year from July 1, 2010, unless both parties agree to extend.
In addition, of the 4,250,000 shares of our common stock owned by Dr. Durrant, 2,833,333 shares are subject to a lockup agreement with Dr. Durrant, which lockup agreement became effective February 7, 2011. The lockup agreement expires on December 31, 2015.
During the twelve month period ended February 29, 2012, we accrued a total of $208,333 (February 28, 2011 – $178,667, February 28, 2010 – none, cumulative – $387,000) and paid $113,503 in connection with Dr. Durrant's consulting agreements. During the twelve month period ended February 28, 2011 we accrued an additional 84,250 in expenses paid by him related to the establishment of PediatRx of which $34,536 has been repaid as of February 29, 2012. Interest associated with such accrued consulting and other expenses was accrued at 5% per annum through December 31, 2010. The largest amount outstanding to Dr. Durrant since March 1, 2010 was $221,595, including accrued interest of $1,628. As of February 29, 2012, we owed Dr. Durrant a total of $221,595 (consulting fees of $170,253, other expenses of $49,714 and interest of $1,628 (February 28, 2011 – $160,996).
On September 14, 2010, with retroactive effect to July 1, 2010, we entered into an employment agreement with Mr. David Tousley, Chief Financial Officer, Treasurer, and Secretary of PediatRx. Pursuant to the employment agreement, Mr. Tousley agreed to perform such duties as are regularly and customarily performed by the Chief Financial Officer of a corporation in consideration for, among other things, $200,000 per annum. Mr. Tousley is also eligible to receive an annual bonus and an annual stock option award at the end of each year at the discretion of our Board of Directors. The term of the employment agreement is two years from July 1, 2010, unless both parties agree to extend.
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In addition, of the 400,000 shares of our common stock owned by Mr. Tousley, 266,666 shares are subject to a lockup agreement with Mr. Tousley, which lockup agreement became effective February 7, 2011. The lockup agreement expires on December 31, 2015.
Effective March 4, 2011, we granted 690,000 stock options to David Tousley, our Chief Financial Officer and a director of our company. The stock options are exercisable at the exercise price of $1.14 per share until March 4, 2016 and vest oncompany, is a quarterly basis over three years, beginning on June 4, 2011.
As of March 1, 2012, we gave notice to Mr. Tousley that we will be terminating the employment agreement between Mr. Tousley and us pursuant to Section 6.3(b) of his Employment Agreement. As a result, Mr. Tousley's employment agreement will cease effective October 31, 2012.
On September 14, 2010, with retroactive effect to July 1, 2010, we entered into an employment agreement with Mr. Jorge Rodriguez, Chief Commercial Officer of PediatRx. Pursuant to the employment agreement, Mr. Rodriguez agreed to perform such duties as are regularly and customarily performed by the Chief Commercial Officer of a corporation in consideration for, among other things, $150,000 per annum. Mr. Rodriguez was also eligible to receive an annual bonus and an annual stock option award at the end of each year at the discretion of our Board of Directors. The term of the employment agreement was two years from July 1, 2010, unless both parties agreed to extend.
Effective March 4, 2011, we granted 420,000 stock options to Jorge Rodriguez, our Vice President and Chief Commercial Officer. The stock options were exercisable at the exercise price of $1.14 per share until March 4, 2016 and vested on a quarterly basis over three years, beginning on June 4, 2011.
On December 15, 2011, Mr. Rodriguez, resigned from all positions with the company and we entered into an agreement with Mr. Rodriguezprincipal, pursuant to which Phys Pharma agreed to provide us a list of select biopharmaceutical companies which might have an interest in acquiring Granisol and assist us in marketing and selling Granisol to the prospective purchasers. If we terminated his employment agreement and amended his stock option agreement (datedsell Granisol to the prospective purchaser introduced by Phys Pharma, we agreed to pay Phys Pharma a fee in an amount equal to 20% of the net proceeds received by us at closing. The Business Development/Advisory Services Agreement expired in March 4, 2011) in order to terminate all unvested options and to extend the exercise period for his 105,000 vested options to December 15, 2012. In connection with the termination, we paid Mr. Rodriguez the amount of $19,500.2014.
Director Independence
Our common stock is quoted on the OTC Bulletin BoardOTCQB operated by FINRA (the Financial Industry Regulatory Authority),the OTC Markets Group, which does not impose any director independence requirements. Under NASDAQ Marketplace Rule 5605(a)(2), a director is not considered to be independent if he is also an executive officer or employee of the company. Because Cameron Durrant, David Tousley and Joseph Carusone serve in executive capacities, we determined that Paul Richardson is our only "independent director"We currently have no independent directors as that term is defined by NASDAQ Marketplace Rule 5605(a)(2).
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ITEM 14. PRINCIPAL ACCOUNTINGACCOUNTANT FEES AND SERVICES
Audit Fees
The following table sets forth the fees billed to our company for the years ended February 29, 201228, 2015 and February 28, 20102014 for professional services rendered by Horne LLP, Certified Public Accountants,independent registered public accounting firms:
Fees | 2015 | 2014 | ||||||
Audit Fees | $ | 14,500 | (1) | 25,000 | ||||
Audit Related Fees | - | - | ||||||
Tax Fees | - | - | ||||||
Other Fees | - | - | ||||||
Total Fees | $ | 14,500 | (1) | 25,000 |
(1) Of these fees, $5,000 relates to services rendered by Salberg & Company, P.A., our current independent registered public accounting firm, since May 31, 2010:
Fees | 2012 | 2011 | ||||
Audit Fees | $ | 36,000 | $ | 47,000 | ||
Audit Related Fees | - | - | ||||
Tax Fees | 4,700 | - | ||||
Other Fees | - | - | ||||
Total Fees | $ | 40,700 | $ | 47,000 |
The following table sets forth the fees billedand $9,500 relates to our company for the years ended February 29, 2012 and February 28, 2010 for professional services rendered by James Stafford, Chartered Accountants,MaloneBailey LLP, our priorformer independent registered public accounting firm:firm. See Item 9, “Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.”
Fees | 2012 | 2011 | ||||
Audit Fees | $ | - | $ | 3,588 | ||
Audit Related Fees | - | 2,211 | ||||
Tax Fees | - | - | ||||
Other Fees | 3,500 | 3,000 | ||||
Total Fees | $ | 3,500 | $ | 8,799 |
Pre-Approval Policies and Procedures
Our entire Boardboard of Directors,directors, which acts as our audit committee, pre-approves all services provided by our independent auditors. All of the above services and fees were reviewed and approved by our board of directors before the respective services were rendered.
Our Boardboard of Directorsdirectors has considered the nature and amount of fees billed by James Stafford and Horne LLPour independent registered public accounting firm and believe that the provision of services for activities unrelated to the audit is compatible with maintaining their respective independence.
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PART IV
ITEM 15. EXHIBITS,EXHIBIT AND FINANCIAL STATEMENT SCHEDULES
Exhibits required by Item 601 of Regulation S-K:
No. | Description | |
3.1 | Articles of Incorporation | |
3.2 | Certificate of Change | |
3.3 | Articles of Merger | |
3.4 |
| Certificate of Change effective August 7, 2013 (incorporated by reference to |
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3.5 | Articles of | |
3.6 | Amended and Restated Bylaws (incorporated by reference to Exhibit 3.1 to the registrant’s current report on Form 8-K filed with the SEC on November 1, 2013). | |
10.1 | Form of promissory note dated June 15, 2009 | |
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Form of Promissory Note dated July 26, 2010 | ||
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Form of Promissory Note dated September 16, 2010 | ||
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10.4+ | 2011 Stock Option Plan (incorporated by reference to Exhibit 10.1 to the registrant’s current report on Form 8- K filed with the SEC on February 22, 2011). | |
10.5 | Form of Promissory Note Amendment dated May 18, 2011 (incorporated by reference to Exhibit 10.1 to the registrant’s current report on Form 8- K filed with the SEC on May 18, 2011). | |
10.6 | Form of Promissory Note Amendment dated May 23, 2011 (incorporated by reference to Exhibit 10.1 to the registrant’s current report on Form 8- K filed with the SEC on May 23, 2011). | |
10.7 | Form of $50,000 Promissory Note Amendment dated April 19, 2012(incorporated by reference to Exhibit 4.2 to the registrant’s annual report on Form 10-K for the fiscal year ended February 29, 2012 filed with the SEC on May 18, 2012). | |
10.8 | Form of $250,000 Promissory Note Amendment dated April 19, 2012 (incorporated by reference to Exhibit 4.3 to the registrant’s annual report on Form 10-K for the fiscal year ended February 29, 2012 filed with the SEC on May 18, 2012). | |
10.9 | Termination Agreement dated | |
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10.10 | Form of $200,000 Promissory Note Amendment dated | |
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10.11 | Form of $50,000 Promissory Note Amendment dated | |
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10.12 | Form of $250,000 Promissory Note Amendment dated | |
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10.13 | Web Site Asset Purchase Agreement dated May 17, 2013 between Lakefield Media Holding AG, Flawsome XLerator GmBH and Pediatrix Inc. (incorporated by reference to | |
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10.14 | Consulting Agreement |
Form of Private Placement Subscription Agreement including Form of Promissory Note | ||
10.16 | Form of Promissory Note Amendment dated | |
10.17 | Form of Promissory Note Amendment dated | |
10.18 | Form of | |
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10.19 | Form of Warrant Certificate (incorporated by reference to | |
10.20 | Form of |
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10.21 | Form of subscription agreement with | |
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10.22 | Form of subscription agreement with promissory note attached (incorporated by reference to | |
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10.23 | Form of subscription agreement with promissory note attached (incorporated by reference to Exhibit 10.23 to the registrant’s quarterly report on Form 10-Q for | |
10.24 | Debt Settlement Agreement dated March 10, 2015 by and | |
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| Subsidiaries of Quint Media Inc. | |
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32.1* | Certification of | |
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101.INS* | XBRL INSTANCE DOCUMENT | |
101.SCH* | XBRL TAXONOMY EXTENSION SCHEMA | |
101.CAL* | XBRL TAXONOMY EXTENSION CALCULATION LINKBASE | |
101.DEF* | XBRL TAXONOMY EXTENSION DEFINITION LINKBASE | |
101.LAB* | XBRL TAXONOMY EXTENSION LABEL LINKBASE | |
101.PRE* | XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE |
* Filed herewith.
+ Management contract or other compensatory plan, contract or arrangement.
27 |
- 60 -SIGNATURES
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
PEDIATRX INC.
QUINT MEDIA INC. | |||
By: | /s/ Constantin Dietrich | ||
Constantin Dietrich | |||
President, Chief Executive Officer, Chief Financial Officer, Secretary and | |||
Treasurer |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Title | Date | |||
President, Chief Executive Officer, Chief Financial Officer, Secretary, Treasurer and Director (principal executive officer, principal financial officer and principal accounting officer) | May 29, 2015 | |||
Constantin Dietrich |
QUINT MEDIA, INC.
INDEX TO FINANCIAL STATEMENTS
February 28, 2015 and 2014
CONTENTS
Report of Independent Registered Public Accounting Firms | F-2 |
Balance Sheets - As of February 28, 2015 and 2014 | F-4 |
F-5 | |
F-6 | |
Statements of Cash Flows - For the Years Ended February 28, 2015 and 2014 | F-7 |
F-8 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of:
Quint Media, Inc.
We have audited the accompanying balance sheet of Quint Media, Inc. as of February 28, 2015 and the related statements of operations, changes in stockholders’ deficit, and cash flows for the year then ended. 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 audit.
We conducted our audit 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. 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 presentation. We believe that our audit provides 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 Quint Media, Inc. as of February 28, 2015 and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company had a net loss and net cash used in operations of $423,421 and $181,148, respectively for the year ended February 28, 2015. The Company has a working capital deficit, accumulated deficit and stockholders’ deficit of $1,044,259, $3,748,088 and $1,044,259, respectively, at February 28, 2015. These matters raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ | |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors | |
Quint Media, Inc. | |
(formerly PediatRx Inc.) | |
(A Development Stage Company) | |
Miami, Florida |
We have audited the accompanying balance sheet of Quint Media, Inc. (formerly PediatRx Inc.) (a development stage company) (the “Company”) as of February 28, 2014 and the related statement of operations, stockholders’ equity (deficit), and cash flows for the year then ended. 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 audit.
We conducted our audit in accordance with 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 misstatements. The Company is not required to have, nor were we 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 presentation. We believe that our audit provides 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 the Company as of February 28, 2014 and the related results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.
/s/ MaloneBailey, LLP | |
www.malone-bailey.com | |
Houston, Texas | |
June 12, 2014 |
QUINT MEDIA, INC.
February 28, | ||||||||
2015 | 2014 | |||||||
ASSETS | ||||||||
CURRENT ASSETS: | ||||||||
Cash | $ | 6,809 | $ | 12,957 | ||||
Prepaid expenses and other current assets | 97 | 4,928 | ||||||
Total Current Assets | 6,906 | 17,885 | ||||||
OTHER ASSETS: | ||||||||
Website and website development cost, net | - | 331,360 | ||||||
Total Other Assets | - | 331,360 | ||||||
TOTAL ASSETS | $ | 6,906 | $ | 349,245 | ||||
LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
CURRENT LIABILITIES: | ||||||||
Short-term notes payable | $ | 625,000 | $ | 450,000 | ||||
Accounts payable and accrued liabilities | 121,222 | 106,046 | ||||||
Accounts payable and accrued liabilities, related party | 304,943 | 304,588 | ||||||
Liabilities from discontinued operations | - | 109,449 | ||||||
Total Current Liabilities | 1,051,165 | 970,083 | ||||||
STOCKHOLDERS’ DEFICIT: | ||||||||
Common stock: $.0001 par value, 450,000,000 shares authorized; 62,883,000 and 62,883,000 issued and outstanding at February 28, 2015 and 2014, respectively | 6,288 | 6,288 | ||||||
Additional paid-in capital | 2,697,541 | 2,697,541 | ||||||
Accumulated deficit | (3,748,088 | ) | (3,324,667 | ) | ||||
Total Stockholders’ Deficit | (1,044,259 | ) | (620,838 | ) | ||||
Total Liabilities and Stockholders’ Deficit | $ | 6,906 | $ | 349,245 |
See accompanying notes to financial statements.
QUINT MEDIA, INC.
For the Years Ended | ||||||||
February 28, | ||||||||
2015 | 2014 | |||||||
REVENUES | $ | 74 | $ | 24 | ||||
OPERATING EXPENSES: | ||||||||
Professional fees | 57,611 | 266,610 | ||||||
Website amortization | 52,320 | 17,440 | ||||||
Consulting fees - related party | 12,870 | 52,093 | ||||||
General and administrative expenses | 90,426 | 198,087 | ||||||
Impairment loss | 279,040 | - | ||||||
Total Operating Expenses | 492,267 | 534,230 | ||||||
LOSS FROM OPERATIONS | (492,193 | ) | (534,206 | ) | ||||
OTHER EXPENSE: | ||||||||
Interest expenses | (40,677 | ) | (31,716 | ) | ||||
Total Other Expense | (40,677 | ) | (31,716 | ) | ||||
LOSS FROM CONTINUING OPERATIONS | (532,870 | ) | (565,922 | ) | ||||
INCOME (LOSS) FROM DISCONTINUED OPERATIONS | 109,449 | (191,481 | ) | |||||
NET LOSS | $ | (423,421 | ) | $ | (757,403 | ) | ||
NET LOSS PER COMMON SHARE: | ||||||||
Loss from continuing operations - basic and diluted | $ | (0.01 | ) | $ | (0.01 | ) | ||
Loss from discontinued operations - basic and diluted | 0.00 | (0.00 | ) | |||||
Net loss per common share - basic and diluted | $ | (0.01 | ) | $ | (0.01 | ) | ||
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: | ||||||||
Basic and diluted | 62,883,000 | 62,605,603 |
See accompanying notes to financial statements.
QUINT MEDIA, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
FOR THE YEARS ENDED FEBRUARY 28, 2015 and 2014
Total | ||||||||||||||||||||
Stockholders’ | ||||||||||||||||||||
Common Stock | Additional | Accumulated | Equity | |||||||||||||||||
# of Shares | Amount | Paid-in Capital | Deficit | (Deficit) | ||||||||||||||||
Balance, February 28, 2013 | 62,508,000 | $ | 6,251 | $ | 2,622,578 | $ | (2,567,264 | ) | $ | 61,565 | ||||||||||
Common stock issued for cash - November 2013 | 375,000 | 37 | 74,963 | - | 75,000 | |||||||||||||||
Net loss | - | - | - | (757,403 | ) | (757,403 | ) | |||||||||||||
Balance, February 28, 2014 | 62,883,000 | $ | 6,288 | $ | 2,697,541 | $ | (3,324,667 | ) | $ | (620,838 | ) | |||||||||
Net loss | - | - | - | (423,421 | ) | (423,421 | ) | |||||||||||||
Balance, February 28, 2015 | 62,883,000 | $ | 6,288 | $ | 2,697,541 | $ | (3,748,088 | ) | $ | (1,044,259 | ) |
See accompanying notes to financial statements.
QUINT MEDIA, INC.
For the Years Ended | ||||||||
February 28, | ||||||||
2015 | 2014 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
Net loss | $ | (423,421 | ) | $ | (757,403 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Amortization expense | 52,320 | 17,440 | ||||||
Impairment loss | 279,040 | - | ||||||
Gain from reversal of reserve for returns - discontinued operations | (109,449 | ) | - | |||||
Change in operating assets and liabilities: | ||||||||
Prepaid expenses and other assets | 4,831 | 17,707 | ||||||
Accounts payable and accrued liabilities | 15,176 | 1,318 | ||||||
Accounts payable and accrued liabilities - related party | 355 | 108,088 | ||||||
Net cash used in continuing operations | (181,148 | ) | (612,850 | ) | ||||
Net cash provided by discontinued operations | - | 240,623 | ||||||
NET CASH USED IN OPERATING ACTIVITIES | (181,148 | ) | (372,227 | ) | ||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
Acquisition of SlickX and Flawsome | - | (50,000 | ) | |||||
Capitalized website and website development costs | - | (102,300 | ) | |||||
NET CASH USED IN INVESTING ACTIVITIES | - | (152,300 | ) | |||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
Proceeds from issuance of promissory notes | 175,000 | 150,000 | ||||||
Principal payments of promissory notes | - | (200,000 | ) | |||||
Proceeds from issuance of common stock | - | 75,000 | ||||||
NET CASH PROVIDED BY FINANCING ACTIVITIES | 175,000 | 25,000 | ||||||
NET DECREASE IN CASH | (6,148 | ) | (499,527 | ) | ||||
CASH, beginning of year | 12,957 | 512,484 | ||||||
CASH, end of year | $ | 6,809 | $ | 12,957 | ||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION | ||||||||
Cash paid during the period for interest | ||||||||
Interest | $ | - | $ | - | ||||
Income taxes | $ | - | $ | - | ||||
Non-cash investing activities: | ||||||||
Capitalized websire and website development costs | $ | - | $ | 196,500 |
See accompanying notes to financial statements.
F-7 |
QUINT MEDIA INC.
FEBRUARY 28, 2015 AND 2014
NOTE 1 -ORGANIZATION AND NATURE OF OPERATIONS
Quint Media Inc. (formerly PediatRx Inc.) (the “Company”, “Quint”, “we” , “us” or “our”) was incorporated under the laws of the State of Nevada on March 18, 2005. From the date of its acquisition of Granisol®(granisetron #C1) oral solution, on July 23, 2010, until early fiscal year 2014, Quint engaged in the pharmaceutical business. During the fiscal year ending February 28, 2014, Quint decided to divest itself of the balance of its pharmaceutical assets and engage in the digital media business, which encompasses social discovery aspects of the internet, primarily through an engagement website with mobile and tablet applications.
Effective August 7, 2013, Quint affected a three-for-one forward stock split of its authorized, and issued and outstanding shares of common stock. Authorized common stock increased from 150,000,000 shares of common stock to 450,000,000 shares of common stock, and issued and outstanding capital increased from 20,836,000 shares of common stock to 62,508,000 shares of common stock. All share and per share data in the accompanying financial statements have been retroactively restated to reflect the effect of the forward split.
NOTE 2 -BASIS OF PRESENTATION, GOING CONCERN AND SUMMARY OF SIGNIFICANT ACCOUNTINGPOLICIES
Basis of presentation
The accompanying financial statements for Quint Media Inc. have been prepared in accordance with accounting principles generally accepted in the United States of America (the “U.S. GAAP”).
Going concern
These financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. As reflected in the accompanying financial statements, the Company had a loss from continuing operations of $532,870 and $565,922 for the years ended February 28, 2015 and 2014, respectively, and net cash used in operations of $181,148 and $372,227 for the years ended February 28, 2015 and 2014, respectively. Additionally, the Company had an accumulated deficit, a stockholders’ deficit and a working capital deficit of $3,748,088, $1,044,259 and $1,044,259, respectively, at February 28. 2015, and minimal revenue for the year ended February 28, 2015. Management cannot provide assurance that the Company will ultimately achieve profitable operations or become cash flow positive, or raise additional debt and/or equity capital. Management believes that the Company’s capital resources are not currently adequate to continue operating and maintaining its business strategy for the fiscal year ending February 28, 2015.
The Company will seek to raise capital through additional debt and/or equity financings to fund its operations in the future. Although the Company has historically raised capital from sales of equity and from the issuance of promissory notes, there is no assurance that it will be able to continue to do so. If the Company is unable to raise additional capital or secure additional lending in the near future, management expects that the Company will need to curtail or cease operations. These financial statements do not include any adjustments related to the recoverability and classification of assets or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
As of February 28, 2015, the Company was in the process of transitioning to its new operating business and expects to incur operating losses for the next twelve months as it moves forward. This new operating business encompasses entrance into the social discovery aspects of the internet; primarily development of an engagement website with mobile and tablet application. The Company may also seek merger or acquisition candidates.
F-8 |
QUINT MEDIA INC.
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 2015 AND 2014
NOTE 2 -BASIS OF PRESENTATION, GOING CONCERN AND SUMMARY OF SIGNIFICANT ACCOUNTINGPOLICIES (continued)
Use of estimates
The preparation of the financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Significant estimates during the year ended February 28, 2015 and 2014 include the valuation of deferred tax assets and assumptions used in assessing impairment of long-term assets.
Fair value of financial instruments and fair value measurements
The Company adopted the guidance of Accounting Standards Codification (“ASC”) 820 for fair value measurements which clarifies the definition of fair value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows:
● | Level 1-Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date. | |
● | Level 2-Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data. | |
● | Level 3-Inputs are unobservable inputs which reflect the reporting entity’s own assumptions on what assumptions the market participants would use in pricing the asset or liability based on the best available information. |
The carrying amounts reported in the balance sheets for cash, short-term notes payable, accounts payable, and accrued liabilities, approximate their fair market value based on the short-term maturity of these instruments. The Company did not have any non-financial assets or liabilities that are measured at fair value on a recurring basis as of February 28, 2015 and 2014.
ASC 825-10 “Financial Instruments”, allows entities to voluntarily choose to measure certain financial assets and liabilities at fair value (fair value option). The fair value option may be elected on an instrument-by-instrument basis and is irrevocable, unless a new election date occurs. If the fair value option is elected for an instrument, unrealized gains and losses for that instrument should be reported in earnings at each subsequent reporting date. The Company did not elect to apply the fair value option to any outstanding instruments.
Cash and cash equivalents
Cash and cash equivalents consist of cash and short-term highly liquid investments purchased with original maturities of three months or less. There were no cash equivalents at February 28, 2015 and 2014.
Impairment of long-lived assets
In accordance with ASC Topic 360, the Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable, or at least annually. The Company recognizes an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference between the asset’s estimated fair value and its book value. The Company wrote-off the remaining approximately $200,000 in Granisol product rights during the year ended February 28, 2014. The impairment is presented in discontinued operations.
F-9 |
QUINT MEDIA INC.
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 2015 AND 2014
NOTE 2 -BASIS OF PRESENTATION, GOING CONCERN AND SUMMARY OF SIGNIFICANT ACCOUNTINGPOLICIES (continued)
Revenue recognition
The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the purchase price is fixed or determinable and collectability is reasonably assured. For all revenue sources discussed below, in accordance ASC 605-45 “Principal Agent Considerations”, the Company recognizes revenue net of amounts retained by third party entities. The Company’s specific revenue recognition policies are as follows:
The Company recognizes revenues from the placement of banner ads on its websites upon placement of the banner and when collection is reasonably assured.
Stock-based compensation
Stock-based compensation is accounted for based on the requirements of the Share-Based Payment Topic of ASC 718 which requires recognition in the financial statements of the cost of employee and director services received in exchange for an award of equity instruments over the period the employee or director is required to perform the services in exchange for the award (presumptively, the vesting period). The ASC also requires measurement of the cost of employee and director services received in exchange for an award based on the grant-date fair value of the award.
Pursuant to ASC Topic 505-50, for share-based payments to consultants and other third-parties, compensation expense is determined at the “measurement date.” The expense is recognized over the service period of the award. Until the measurement date is reached, the total amount of compensation expense remains uncertain. The Company initially records compensation expense based on the fair value of the award at the reporting date.
Income taxes
Deferred income tax assets and liabilities arise from temporary differences associated with differences between the financial statements and tax basis of assets and liabilities, as measured by the enacted tax rates, which are expected to be in effect when these differences reverse. Deferred tax assets and liabilities are classified as current or non-current, depending upon the classification of the asset or liabilities to which they relate. Deferred tax assets and liabilities not related to an asset or liability are classified as current or non-current depending on the periods in which the temporary differences are expected to reverse. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.
The Company follows the provisions of FASB ASC 740-10 “Uncertainty in Income Taxes” (ASC 740-10). Certain recognition thresholds must be met before a tax position is recognized in the financial statements. An entity may only recognize or continue to recognize tax positions that meet a “more-likely-than-not” threshold. As of February 28, 2015 and 2014, the Company does not believe it has any uncertain tax positions that would require either recognition or disclosure in the accompanying financial statements.
Basic and diluted earnings per share
Pursuant to ASC 260-10-45, basic earnings per common share is computed by dividing income (loss) available to common shareholders by the weighted average number of shares of common stock outstanding for the periods presented. Diluted income per share is computed by dividing net income (loss) by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during each period. Diluted income (loss) per share reflects the potential dilution that could occur if securities were exercised or converted into common stock or other contracts to issue common stock resulting in the issuance of common stock that would then share in the Company’s income (loss) subject to anti-dilution limitations.
F-10 |
QUINT MEDIA INC.
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 2015 AND 2014
NOTE 2 -BASIS OF PRESENTATION, GOING CONCERN AND SUMMARY OF SIGNIFICANT ACCOUNTINGPOLICIES (continued)
Basic and diluted earnings per share (continued)
Potentially dilutive common shares consist of common stock issuable for stock warrants (using the treasury stock method). These common stock equivalents may be dilutive in the future.All potentially dilutive common shares were excluded from the computation of diluted shares outstanding as they would have an anti-dilutive impact on the Company’s net losses and consisted of the following:
February 28, 2015 | February 28, 2014 | |||||||
Total stock warrants | 375,000 | 375,000 |
Recent accounting pronouncements
The Company has elected to early adopt Accounting Standards Update No. 2014-10, Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements. The adoption of this ASU allows the company to remove the inception to date information and all references to development stage.
Accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the financial statements upon adoption. The Company does not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to its financial condition, results of operations, cash flows or disclosures.
NOTE 3 -WEBSITE AND WEBSITE DEVELOPMENT COSTS
Websites acquired and website development costs were being amortized on a straight-line method over the estimated useful life of 5 years. In November 2014, the Company assessed its long-lived assets for any impairment and concluded that there were indicators of impairment as of November 30, 2014 and the Company calculated that the estimated undiscounted cash flows were less than the carrying amount of the intangible asset. Based on the Company’s analysis, the Company recognized an impairment loss of $279,040 for the year ended February 28, 2015 which reduced the value of intangible assets acquired to $0. The Company did not record any impairment charge on website and website development costs during the year ended February 28, 2014. For the years ended February 28, 2015 and 2014, amortization expense related to these costs amounted to $52,320 and $17,440, respectively.
NOTE 4 -SHORT-TERM NOTES PAYABLE
The Company entered into an amendment of a previously amended unsecured promissory note originally dated June 15, 2009 in the principal amount of $50,000. Effective September 1, 2013, the maturity date of the note was extended from December 31, 2012 until June 30, 2014 and the interest rate on the outstanding principal balance was decreased from twelve percent per annum to seven percent per annum. All other terms of the promissory note remain the same. In addition, as of February 28, 2014, the Company entered into an amendment of a previously amended unsecured promissory note originally dated May 6, 2011 in the principal amount of $250,000. Effective September 1, 2013, the maturity date of this note was been extended from December 31, 2012 until June 30, 2014 and the interest rate on the outstanding principal balance was decreased from 12% per annum to 7% per annum. All other terms of the promissory note remain the same.
The Company determined that concessions granted in the form of extensions of the due dates and reductions in interest rates on these above mentioned promissory notes are considered debt modifications as defined under Accounting Standards Codification 470-60, “Troubled Debt Restructurings by Debtors”.
F-11 |
QUINT MEDIA INC.
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 2015 AND 2014
NOTE 4 -SHORT-TERM NOTES PAYABLE (continued)
On March 31, 2014, the Company accepted a subscription from one non-US investor and issued a promissory note in the amount of $75,000. The promissory note is payable in full at maturity on March 31, 2015, and the principal amount or such portion thereof as shall remain outstanding from time to time accrues simple interest, calculated monthly, at a rate of 7% per annum commencing on the date of the promissory note.
On July 15, 2014, the Company accepted a subscription from one non-US investor and issued a promissory note in the amount of $100,000. The promissory note is payable in full at maturity on March 31, 2015, and the principal amount or such portion thereof as shall remain outstanding from time to time accrues simple interest, calculated monthly, at a rate of 7% per annum commencing on the date of the promissory note.
Accrued interest on promissory notes payable totaled $117,007 and $76,330 at February 28, 2015 and 2014, respectively, and is included in accounts payable and accrued liabilities on the accompanying balance sheets.
At February 28, 2015 and 2014, short-term notes payables consisted of the following:
February 28, 2015 | February 28, 2014 | |||||||
Unsecured promissory note dated June 15, 2009, originally bearing interest at 5% per annum on the principal balance of $50,000, was originally due on June 15, 2011. Effective May 18, 2011 this promissory note was amended and the maturity date of the note was extended until February 28, 2013. The promissory note became past due on February 28, 2013 and the principal amount or such portion thereof as shall remain outstanding from time to time accrued simple interest, calculated monthly in arrears, at a rate of 12% per annum commencing on the date of the promissory note and payable at maturity. Effective September 1, 2013, this promissory note was again amended whereby the maturity date of the note was extended until June 30, 2014 and the interest rate was reduced to 7%. The note is in default as of February 28, 2015. | $ | 50,000 | $ | 50,000 | ||||
Unsecured promissory note dated May 6, 2011, originally bearing interest at 5% per annum on the principal balance of $250,000, was originally due on February 28, 2013. The promissory note became past due on February 28, 2013 and the principal amount or such portion thereof as shall remain outstanding from time to time accrued simple interest, calculated monthly in arrears, at a rate of 12% per annum commencing on the date of the promissory note and payable at maturity. Effective September 1, 2013, this promissory note was again amended whereby the maturity date of the note was extended until June 30, 2014 and the interest rate was reduced to 7%. The note is in default as of February 28, 2015. | 250,000 | 250,000 | ||||||
Unsecured promissory note dated September 24, 2013, bearing interest at 7% per annum on the principal balance of $100,000 and due on June 30, 2014. This note is in default as of February 28, 2015. | 100,000 | 100,000 | ||||||
Unsecured promissory note dated February 13, 2014, bearing interest at 7% per annum on the principal balance of $50,000 and due on February 13, 2015. The note is in default as of February 28, 2015. | 50,000 | 50,000 |
QUINT MEDIA INC.
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 2015 AND 2014
NOTE 4 -SHORT-TERM NOTES PAYABLE (continued)
Unsecured promissory note dated March 31, 2014, bearing interest at 7% per annum on the principal balance of $75,000 and due on March 31, 2015. | 75,000 | - | ||||||
Unsecured promissory note dated July 15, 2014, bearing interest at 7% per annum on the principal balance of $100,000 and due on March 31, 2015. | 100,000 | - | ||||||
Total Short-term Notes Payable | $ | 625,000 | $ | 450,000 |
In March 2015, all short-term notes and all accrued interest were settled by the issuance the Company’s common stock (See Note 10 – Subsequent Events).
NOTE 5 –STOCKHOLDERS’ DEFICIT
On November 25, 2013, the Company sold 375,000 units of our securities at a price of $0.20 per unit for gross proceeds of $75,000. Each unit consists of one share of common stock and one non-transferable common stock purchase warrant, with each common stock purchase warrant entitling the holder to acquire one additional share of our common stock at a price of $0.50 per share for a period of 60 months.
Warrant activities for the years ended February 28, 2015 and 2014 are summarized as follows:
Number of Warrants | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term (Years) | Aggregate Intrinsic Value | |||||||||||||
Balance, February 28, 2013 | - | $ | - | - | $ | - | ||||||||||
Granted | 375,000 | 0.50 | 5.00 | - | ||||||||||||
Exercised or forfeited | - | - | - | - | ||||||||||||
Balance, February 28, 2014 | 375,000 | 0.50 | 4.74 | 78,713 | ||||||||||||
Exercised or forfeited | - | - | - | - | ||||||||||||
Balance, February 28, 2015 | 375,000 | $ | 0.50 | 3.74 | $ | - | ||||||||||
Exercisable, February 28, 2015 | 375,000 | $ | 0.50 | 3.74 | $ | - |
Stock Option Plan
Effective February 18, 2011, the Board of Directors adopted and approved the 2011 stock option plan. The purpose of the 2011 stock option plan is to enhance the long-term stockholder value of the Company by offering opportunities to directors, key employees, officers, independent contractors and consultants of the company to acquire and maintain stock ownership in the company in order to give these persons the opportunity to participate in the company’s growth and success, and to encourage them to remain in the service of the company. A total of 6,000,000 shares of our common stock are available for issuance and during the twelve-month period after the first anniversary of the adoption of the 2011 stock option plan by the Board of Directors. During each twelve-month period thereafter, the Board of Directors is authorized to increase the number of shares issuable by up to 1,500,000 shares.
NOTE 6 –INCOME TAXES
The Company maintains deferred tax assets and liabilities that reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The deferred tax assets at February 28, 2015 and 2014 consist of net operating loss carryforwards. The net deferred tax asset has been fully offset by a valuation allowance because of the uncertainty of the attainment of future taxable income. The net operating loss carryforward was approximately $2,374,000 at February 28, 2015. The Company provided a valuation allowance equal to the deferred income tax asset for the years ended February 28, 2015 and 2014 because it was not known whether future taxable income will be sufficient to utilize the loss carryforward. The decrease in the allowance was $226,000 in fiscal 2015. The potential tax benefit arising from the loss carryforward will expire in 2035. Additionally, the future utilization of the net operating loss carryforward to offset future taxable income may be subject to an annual limitation as a result of ownership changes that could occur in the future in accordance with Section 382 of the Internal Revenue Code. If necessary, the deferred tax assets will be reduced by any carryforward that expires prior to utilization as a result of such limitations, with a corresponding reduction of the valuation allowance. The Company’s 2012, 2013 and 2014 Corporate Income Tax Returns are subject to Internal Revenue Service examination.
QUINT MEDIA INC.
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 2015 AND 2014
NOTE 6 –INCOME TAXES (continued)
The items accounting for the difference between income taxes at the effective statutory rate and the provision for income taxes for the years ended February 28, 2015 and 2014 were as follows:
Years ended February 28, | ||||||||
2015 | 2014 | |||||||
Income tax benefit at U.S. statutory rate of 34% | $ | (143,963 | ) | $ | (258,956 | ) | ||
Non-deductible impairment loss and amortization | 112,662 | 68,000 | ||||||
Other non-deductible expenses | 257,301 | - | ||||||
Change in valuation allowance | (226,000 | ) | 190,956 | |||||
Total provision for income tax | $ | - | $ | - |
The Company’s approximate net deferred tax asset as of February 28, 2015 and 2014 was as follows:
Deferred Tax Asset: | February 28, 2015 | February 28, 2014 | ||||||
Net operating loss carryforward | $ | 807,000 | $ | 734,000 | ||||
Other | - | 299,000 | ||||||
Valuation allowance | (807,000 | ) | (1,033,000 | ) | ||||
Net deferred tax asset | $ | - | $ | - |
NOTE 7 -RELATED PARTY TRANSACTIONS
On May 17, 2013, the Company entered into a definitive Web Site Asset Purchase Agreement (the “Agreement”) with Lakefield Media Holding AG and its wholly-owned subsidiary, Flawsome XLerator GmbH (“Flawsome”). Constantin Dietrich, our current president and director of our company, is the founder and Chief Executive Officer of Lakefield Media Holding AG, which wholly-owns Flawsome. Pursuant to the Agreement, the Company acquired the internet domain name “Slickx.com”, the website and related software, intellectual property rights, accounts, contracts, goodwill and infrastructure for $50,000. This transaction was completed on May 21, 2013.
On May 29, 2013 the Company entered into a consulting agreement with Flawsome, whereby Flawsome agreed to provide certain services, including general management, product management, requirements engineering, quality management, project management, design creation, development team lead, deployment management, content management, reporting services, web development, mobile development, basic content creation, server hosting and monitoring and update services. The agreement expired December 31, 2013, but is continuing on a month-to-month basis. During the year ended February 28, 2015 and 2014, respectively, the Company capitalized $0 and $298,800 in web development costs contracted through Flawsome related to the “Exley.com” website and expensed $12,870 and $52,093 in website management expenses. As of February 28, 2015 and 2014, the Company owed $182,900 and $196,500 to Flawsome, respectively.
As of February 28, 2015 and 2014, respectively, the Company owed $15,000 and $30,000 for consulting services to a director and $75,123 and $70,500 to a Company whose shareholder is a director of the Company. Additionally, the Company owed $31,920 and $7,588 to an officer for expenses paid on behalf of the Company as of February 28, 2015 and 2014, respectively. The payables do not bear interest.
NOTE 8 -DISCONTINUED OPERATIONS
During the period ended February 28, 2014, the Company’s management elected to discontinue the operations of its pharmaceutical business, divest itself of the balance of its pharmaceutical assets and engage in the digital media business. As such, all assets, liabilities and expenses of the pharmaceutical business have been presented as discontinued operations in the financial statements.
F-14 |
QUINT MEDIA INC.
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 2015 AND 2014
NOTE 8 -DISCONTINUED OPERATIONS (continued)
A summary of those assets and liabilities as of February 28, 2015 and 2014 and revenues and expenses for the years ended February 28, 2015 and 2014 are as follows:
February 28, 2015 | February 28, 2014 | |||||||
Assets from Discontinued Operations | $ | - | $ | - | ||||
Liabilities from Discontinued Operations: | ||||||||
Accounts payable and accrued liabilities | $ | - | $ | 109,449 |
For the Year Ended February 28, | ||||||||
2015 | 2014 | |||||||
Net Revenues | $ | - | $ | 1,893 | ||||
Total Expenses | - | (205,816 | ) | |||||
Other Income: | ||||||||
Gain on expiration of product return liability | 109,449 | 12,442 | ||||||
Net Income (Loss) From Discontinued Operations | $ | 109,449 | $ | (191,481 | ) |
Certain terms with prior customers allowed the return of product within a certain period of the product’s expiration date. As such, upon shipment of product an estimate for returns was recorded. During the year ended February 28, 2015, the Company’s management deemed the remaining product return liabilities to be expired and no remaining liability exists. Accordingly, during the year ended February 28, 2015, the Company recognized a gain of $109,449 from the expiration of product return liabilities.
NOTE 9 –CONCENTRATIONS
Concentration of credit risk
The Company maintains its cash in bank and financial institution deposits that at times may exceed federally insured limits. The Company has not experienced any losses in such accounts through February 28, 2015. There were no balances in excess of FDIC insured levels as of February 28, 2015 and 2014.
Concentration of funding
During the years ended February 28, 2015 and 2014, all short-term notes payable were received from one investor.
NOTE 10 -SUBSEQUENT EVENTS
On March 10, 2015, the Company entered into a debt settlement agreement (the “Debt Settlement Agreement”) with Leone Group, LLC (“Leone”), American Capital Ventures, Inc. (“ACV”), Georgia Georgopoulos, Catherine Cozias and Trels Investments, Ltd. (“Trels” and collectively with Leone, ACV, Ms. Georgopoulos and Ms. Cozias, the “Holders”). Pursuant to the Debt Settlement Agreement, the Company and the Holders agreed to settle all of the outstanding debt owed under certain promissory notes and accounts payable, to Leone, ACV, Ms. Georgopoulos, Ms. Cozias and Trels, and the Holders agreed to convert their respective portions of the debt into shares of restricted common stock of the Company at $0.003 per share. The Company agreed to issue an aggregate of 346,319,970 shares of common stock in settlement of outstanding short-term notes payable with aggregate principal amounts of $625,000, accrued interest payable of $118,205 and accounts payable – related parties of $295,754, as follows:
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QUINT MEDIA INC.
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 2015 AND 2014
NOTE10 -SUBSEQUENT EVENTS (continued)
a. | 142,193,090 shares to Leone, in settlement of $234,375 in principal and $44,327 of accrued and unpaid interest pursuant to certain promissory notes, and $147,877 of accounts payable by the Company; | |
b. | 142,193,090 shares to ACV in settlement of $234,375 in principal and $44,327 of accrued and unpaid interest pursuant to a promissory note, and $147,877 of accounts payable by the Company; | |
c. | 21,225,001 shares to Ms. Georgopoulos, in settlement of $53,548 in principal and $10,127 of accrued and unpaid interest pursuant to a promissory note; | |
d. | 21,225,001 shares to Ms. Cozias, in settlement of $53,548 in principal and $10,127 of accrued and unpaid interest pursuant to a promissory note; and | |
e. | 19,483,788 shares to Trels, in settlement of $49,154 in principal and $9,297 of accrued and unpaid interest pursuant to a promissory note. |
Pursuant to the terms of the Debt Settlement Agreement, at any time before the Company’s entrance into a definitive agreement for the effectuation of a merger or acquisition that results in a change of control of the Company, the Holders shall have a first right of refusal, subject to the terms of the Debt Settlement Agreement, to participate in any future financing sought by the Company, on a pro rata basis, with the maximum funding amount of each future financing for each respective party being in proportion to that respective party’s total ownership percentage of the Company at that time, which shall only be triggered after a total of $50,000 in the aggregate in funding is obtained by the Company subsequent to the effective date of the Debt Settlement Agreement.
If the Company, at any time before the Company’s entrance into a definitive agreement for the effectuation of a merger or acquisition that results in a change of control of the Company, issues common stock at a price per share below $0.003 (the “Settlement Price”), or issues a security convertible at a conversion price per share below the Settlement Price, taking into account any applicable adjustments for a consolidation, recapitalization or reorganization of the Company (the “Lower Issuance Price”), the Holders shall have the right to receive additional shares of the Company’s common stock, without additional payment, such that the effective Settlement Price pursuant to the Debt Settlement Agreement would be equal to the Lower Issuance Price.
In connection with this debt settlement, the Company recorded debt settlement expense of $173,160.
Additionally, remaining liabilities of $9,207 due to the Company’s CEO and a Company controlled by him was forgiven by him in March 2015.
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