UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 2012
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _________ to __________
Commission File Number: 333-167667
INNOVATIVE PRODUCT OPPORTUNITIES INC.
---------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 42-1770123
---------------------- --------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
28 Argonaut, Suite 140, Aliso Viejo, California 92656
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(Address of principal executive offices)
(347) 789-7131
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(Registrant's telephone number, including area code)
Not Applicable
---------------------
(Former name, former address and former fiscal year, if changed since last
report)
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] 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
(Section 232.405 of this chapter) during the preceding 12 months (or such
shorter period that the registrant was required to submit and post such
files). Yes [ ] No [ ]
Indicate by check mark whether the registrant is a large accelerated filed,
an accelerated filed, a non-accelerated filed, or a small reporting company.
See the definitions of "large accelerated filer," "accelerated filer" and
"small reporting 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 Exchange Act). Yes [ ] No [X]
As of November 14,2012 the Issuer had 348,000,000 shares of common stock issued
and outstanding, par value $0.0001 per share.
INNOVATIVE PRODUCT OPPORTUNITIES INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2012
(A Development Stage Enterprise)
TABLE OF CONTENTS
Page
PART I - FINANCIAL INFORMATION
Item 1 - Consolidated Balance Sheets (Unaudited) as of September 30, 2012
and December 31, 2011 ............................................F1
Consolidated Statements of Operations (Unaudited) for the three and
nine months ended September 30, 2012 and 2011 and from inception
(April 3, 2009) to September 30, 2012..............................F2
Consolidated Statements of Cash Flows (Unaudited) for the
nine months ended September 30, 2012 and 2011 and from inception
(April 3, 2009) to September 30, 2012.............................F3
Notes to Consolidated Financial Statements (Unaudited)..........F4-F9
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations...............................................4
Item 3 - Quantitative and Qualitative Disclosures About Market Risk..........7
Item 4T - Controls and Procedures.............................................7
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings...................................................8
Item 1A - Risk Factors........................................................8
Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds.........8
Item 3 - Defaults Upon Senior Securities.....................................8
Item 4 - Mine Safety Disclosures............................................ 8
Item 5 - Other Information ................................................. 8
Item 6 - Exhibits........................................................... 9
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
Innovative Product Opportunities Inc.
(A Development Stage Enterprise)
CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30, December 31,
2012 2011
----------- ---------
ASSETS
Current assets
Cash $4,871 $6,642
Accounts receivable 2,428 --
----------- ---------
Total current assets 7,299 6,642
----------- ---------
Total assets $7,299 $6,642
=========== =========
LIABILITIES AND STOCKHOLDERS'DEFICIT
Current liabilities
Accounts payable and accrued liabilities $25,048 $ 621
Notes payable 143,225 --
Due to related party 73,602 61,649
----------- ---------
Total current liabilities 241,875 62,270
----------- ---------
Total liabilities 241,875 62,270
----------- ---------
Stockholders' deficit
Preferred stock; $0.001 par value;
1,000,000 shares authorized,
-0- issued and outstanding -- --
Common stock; $0.0001 par value;
500,000,000 shares authorized,
208,000,000 and 118,000,0000 shares
issued and outstanding as of
September 30, 2012 and
December 31, 2011, respectively 20,800 11,800
Additional paid-in capital 5,523,200 5,335,200
Accumulated deficit during
development stage (5,695,653) (5,402,628)
----------- ---------
Total Innovative Product Opportunities,
Inc. stockholders' deficit (151,653) (55,628)
Non-controlling interest (82,923) --
----------- ---------
Total stockholders' deficit (234,576) (55,628)
----------- ---------
Total liabilities and stockholders' deficit $ 7,299 $ 6,642
=========== =========
The accompanying footnotes are an integral part of these consolidated financial
statements.
F1
Innovative Product Opportunities Inc.
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the For the For the For the from inception
three months three months nine months nine months (April 3, 2009)
ended September 30, ended September 30 ended September 30, ended September 30 through
2012 2011 2012 2011 September30 2012
=============== ============== ============== ============== ================
Sales $ 58,902 $ -- $ 103,546 $ -- $ 124,546
Cost of sales 14,295 -- 17,973 -- 17,973
-------------- ------------- ------------- ------------- ---------------
Gross profit 44,607 -- 85,573 -- 106,573
-------------- ------------- ------------- ------------- ---------------
Operating expenses
Bad debts -- -- -- 21,000 21,000
General and administrative 84,730 17,211 247,973 62,418 335,601
Stock-based compensation 47,668 -- 197,000 -- 5,512,000
-------------- ------------- ------------- ------------- ---------------
Total expenses 132,398 17,211 444,973 83,418 5,868,601
-------------- ------------- ------------- ------------- ---------------
Net operating loss (87,791) (17,211) (359,400) (83,418) (5,762,028)
-------------- ------------- ------------- ------------- ---------------
Other income (expense)
Gain on settlement of
accounts receivable -- -- -- -- 336,000
Other-than-temporary
impairment loss
on securities -- -- -- -- (124,950)
Loss on cancelation
of securities -- -- -- -- (211,050)
-------------- ------------- ------------- ------------- ---------------
-- -- -- -- --
-------------- ------------- ------------- ------------- ---------------
Net loss for the period (87,791) (17,211) (359,400) (83,418) (5,762,028)
Net loss attributable
to non-controlling interest 32,783 -- 66,375 -- 66,375
-------------- ------------- ------------- ------------- ---------------
Net loss attributable to
Innovative Product
Opportunities Inc. $ (55,008) $ (17,211) $(293,025) $ (83,418) $(5,695,653)
=============== ============== ============== ============== ================
Net loss attributed to
Innovative Product
Opportunities Inc.
per common share - basic $ 0.00 $ 0.00 $ 0.00 $ 0.00
=============== ============== ============== ==============
Weighted average number
of common shares
outstanding - basic 208,000,000 66,000,000 165,627,739 52,483,516
=============== ============== ============== ==============
The accompanying footnotes are an integral part of these financial statements.
F2
Innovative Product Opportunities Inc.
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) From Inception
For the nine For the nine (April 3,2009)
months ended months ended through
September 30, 2012 September 30, 2011 September 30,2012
Cash flows from ------------- ------------- ------------
operating activities
Net loss $ (359,400) $ (83,418) $(5,762,028)
Adjustments to reconcile
net loss to cash used in
operating activities
Shares issued to founder -- -- 2,000
Stock issued for services 97,000 5,000 5,512,000
Change in operating
assets and liabilities --
(Increase)decrease in
accounts receivable (2,428) 21,000 (2,428)
Increase in accounts payable
and accrued liabilities 24,427 1,349 25,048
Net cash used in
operating activities (140,401) (56,069) (225,408)
------------- ------------- ------------
Cash flow from investing activities
Cash received from Szar
International, Inc. 696 -- 696
Proceeds from issuance of
common shares by
Szar International, Inc. 252 -- 252
------------- ------------- ------------
Net cash provided by
investing activities 948 -- 948
------------- ------------- ------------
Cash flow from financing activities
advances by related party 28,494 71,649 335,143
Repayment of advances
to related party (16,541) (20,000) (231,541)
Advance on notes payable 125,729 -- 125,729
------------- ------------- ------------
Net cash provided by
financing activities 137,682 51,649 229,331
------------- ------------- ------------
Net change in cash (1,771) (4,420) 4,871
Cash, beginning of the period 6,642 15,775 --
------------- ------------- ------------
Cash, end of the period $ 4,871 $ 11,355 $ 4,871
============= ============= ============
Supplemental disclosure of
non-cash investing and
financing activities
Conversion of due to
related party for
common stock $ -- $ 30,000 $ 30,000
============= ============= ============
Notes payable on
acquisition of
Szar International, Inc. $ 15,050 $ -- $ 15,050
============= ============= ============
Due to related party on
acquisition of Szar I
nternational, Inc. $ 2,446 $ -- $ 2,446
============= ============= ============
The accompanying footnotes are an integral part of these consolidated
financial statements.
F3
Innovative Product Opportunities Inc.
(A Development Stage Enterprise)
(Unaudited)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - NATURE OF OPERATIONS AND BASIS OF PRESENTATION
Innovative Product Opportunities Inc. (the "Company" or "Innovative") was
incorporated on April 3, 2009 in the State of Delaware and established a fiscal
year end of December 31. The Company is a development stage enterprise
organized to provide product development. The Company is currently in the
development stage as defined in Financial Accounting Standards Board ("FASB")
Accounting Standard Codification ("ASC") 915. The Company has not generated
significant revenue from its operations and is currently seeking new business
opportunities.
On March 1, 2012 the company entered into a license agreement with Szar
International, Inc. (dba Cigar & Spirits Magazine) (-Cigar & Spirits-) and
moved offices to our new California address with Cigar and Spirits. The
agreement grants Innovative the right to market the products of Cigar &
Spirits including but not limited to the sales, promotion, and advertising
vehicles of the Magazine. There is no specific rent terms included in the
license agreement, but verbally they have agreed to allow IPRU to use their
office on an on-going basis free of additional charge.
The Company has determined that Cigar & Spirits is a Variable Interest
Entity and that Innovative Products Opportunities Inc. is the primary
beneficiary. As such, Cigar & Spirits has been consolidated into the
Company's financial statements.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Innovative
Product Opportunities Inc. have been prepared without audit pursuant to the
rules and regulations of the Securities and Exchange Commission requirements
for interim financial statements. Therefore, they do not include all of the
information and footnotes required by accounting principles generally accepted
in the United States for complete financial statements. The consolidated
financial statements should be read in conjunction with the annual financial
statements for the year ended December 31, 2011 of Innovative Product
Opportunities Inc. in our Form 10-K filed on March 30, 2012 and subsequently
amended on April 2, 2012.
The interim consolidated financial statements present the balance sheets,
statements of operations and cash flows of Innovative Product Opportunities Inc
The financial statements have been prepared in accordance with accounting
principles generally accepted in the United States.
The interim financial information is unaudited. In the opinion of management,
all adjustments necessary to present fairly the financial position as of
September 30, 2012 and the results of operations and cash flows presented
herein have been included in the financial statements. All such adjustments
are of a normal and recurring nature. Interim results are not necessarily
indicative of results of operations for the full year.
F4
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
GOING CONCERN
The Company's consolidated financial statements are prepared in accordance
with generally accepted accounting principles applicable to a going concern.
This contemplates the realization of assets and the liquidation of liabilities
in the normal course of business. Currently, the Company does not have
significant operations or a source of revenue sufficient to cover its operation
costs and allow it to continue as a going concern. The Company has an
accumulated deficit during development stage at September 30, 2012 and
December 31, 2011 of $(5,695,653) and $(5,402,628), respectively. The Company
will be dependent upon the raising of additional capital through placement of
its common stock in order to implement its business plan. There can be no
assurance that the Company will be successful in this situation. Accordingly,
these factors raise substantial doubt as to the Company's ability to continue
as a going concern. These financial statements do not include any adjustments
relating to the recoverability and classification of recorded asset amounts or
amounts and classifications of liabilities that might result from this
uncertainty. The Company is funding its initial operations by way of loans from
its Chief Executive Officer. The Company's officers and directors have
committed to advancing certain operating costs of the Company.
CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its variable interest entity ("VIE") in which the Company is the primary
beneficiary. The Company has adopted the accounting standards for
non-controlling interests and reclassified the equity attributable to its
non-controlling interests as a component of equity in the accompanying
consolidated balance sheets. All significant intercompany balances and
transactions have been eliminated in consolidation.
Management's determination of the appropriate accounting method with
respect to the Company's variable interests is based on accounting
standards for VIEs issued by the Financial Accounting Standards Board ("FASB")
.. The Company consolidates any VIEs in which it is the primary beneficiary and
discloses significant variable interests in VIEs of which it is not the
primary beneficiary, if any.
USE OF ESTIMATES AND ASSUMPTIONS
Preparation of the financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers highly
liquid financial instruments purchased with a maturity of three months or
less to be cash equivalents.
F5
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
INCOME TAXES
The Company accounts for income taxes in accordance with Financial Accounting
Standards Board ("FASB") Accounting Standards Codification ("FASB ASC") 740,
Income Taxes. Under the assets and liability method of FASB ASC 740, deferred
tax assets and liabilities are recognized for the estimated future tax
consequences attributable to differences between the financial statements
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax
rates in effect for the year in which those temporary differences are expected
to be recovered or settled. The Company provides a valuation allowance, if
necessary, to reduce deferred tax assets to their estimated realizable value.
NET LOSS PER SHARE
Basic net income (loss) per share includes no dilution and is computed by
dividing net income (loss) available to common stockholders by the weighted
average number of common shares outstanding for the period. Diluted earnings
per share is computed by dividing earnings available to common shareholders by
the weighted average number of common shares outstanding for the period
increased to include the number of additional common shares that would have
been outstanding if potentially dilutive securities had been issued. There were
no potentially dilutive securities outstanding during the periods presented.
STOCK-BASED COMPENSATION
The Company measures stock-based compensation at the grant date based on the
fair value of the award and recognizes stock-based compensation expense over
the requisite service period.
The Company also grants awards to non-employees and determines the fair value
of such stock-based compensation awards granted as either the fair value of
the consideration received or the fair value of the equity instruments issued,
whichever is more reliably measurable. If the fair value of the equity
instruments issued is used, it is measured using the stock price and other
measurement assumptions as of the earlier of (1) the date at which a commitment
for performance by the counterparty to earn the equity instruments is reached,
or (2) the date at which the counterparty's performance is completed.
The Company adopted a stock option plan on August 30, 2011, but has not granted
any stock options.
F6
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
FAIR VALUE OF FINANCIAL INSTRUMENTS
In accordance with the requirements of FASB ASC 820, Fair Value Measurements
and Disclosures, and FASB ASC 825, Financial Instruments, the Company has
determined the estimated fair value of financial instruments using available
market information and appropriate valuation methodologies. FASB ASC 820
defines fair value as the price that would be received to sell an asset or
paid to transfer a liability (exit price) in an orderly transaction between
market participants at the measurement date. The statement establishes market
or observable inputs as the preferred sources of values, followed by
assumptions based on hypothetical transactions in the absence of market inputs.
The statement requires fair value measurements be classified and disclosed in
one of the following categories:
Level 1 - Quoted prices in active markets for identical assets and liabilities.
Level 2 - Quoted prices in active markets for similar assets and liabilities,
quoted prices for identical or similar instruments in markets that are not
active and model-derived valuations whose inputs are observable or whose
significant value drivers are observable.
Level 3 - Significant inputs to the valuation model are unobservable.
Financial assets and liabilities are classified based on the lowest level of
input that is significant to the fair value measurement.
The fair values of financial instruments, other than Investment securities, are
classified as current assets or liabilities and approximate their carrying
value due to the short-term maturity of the instruments.
RECENT ACCOUNTING PRONOUNCEMENTS
There have been no recent accounting pronouncements or changes in accounting
pronouncements that impacted the quarter ended September 30, 2012 or which are
expected to impact future periods, that were not already adopted and disclosed
in prior periods.
3. VARIABLE INTEREST ENTITY
Following is a description of our financial interests in a variable interest
entity that we consider significant, those for which we have determined that we
are the primary beneficiary of the entity and, therefore, have consolidated the
entity into our financial statements.
Szar International, Inc. (dba Cigar & Spirits Magazine) (-Cigar & Spirits-) -
On March 1, 2012, we entered into a License Agreement with Cigar & Spirits.
Under the terms of the Agreement, we have the right to market the products of
Cigar & Spirits including but not limited to the sales, promotion and
advertising vehicles. We have agreed to pay a fee of 1.5% of all sales
generated plus a management fee of 1.5% based on the total monies paid for
employee salaries, benefits and commissions. The Company is responsible for
all expenses that relate to sales generated under the License Agreement.
Cigar & Spirits may at any time in its sole discretion, with sixty days prior
notice, terminate the agreement and revoke the license granted for any reason
whatsoever and upon such termination we will immediately stop using the
Cigar & Spirits trade names.
F7
3. VARIABLE INTEREST ENTITY (continued)
We have determined that we are the primary beneficiary of Cigar & Spirits as
our interest in the entity is subject to variability based on results from
operations and changes in the fair value. After February 29, 2012, all
operations of Cigar & Spirits are included in the License Agreement.
The results of operations for Cigar & Spirits have been included in the
financial statements of the Company. The Company did not pay consideration to
enter into the License Agreement. The acquisition has been accounted for using
the purchase method on March 1, 2012 as follows:
Cash $ 696
Due to related party (2,446)
Notes payable (15,050)
Non-controlling interest 16,800
---------
$ -
=========
At September 30, 2012 our consolidated balance sheet includes current assets of
$7,231 and current liabilities of $90,154 related to our interests in
Cigar & Spirits. Our statement of operations includes sales of $103,546, cost
of sales of $17,973 and selling, general and administrative expenses of
$151,948 related to our interest in Cigar & Spirits for the period from
March 1, 2012 to September 30, 2012. Additionally during the period from
March 1, 2012 to September 30, 2012, the Company received $252 in proceeds from
issuance of common shares by Szar International, Inc.
NOTE 4 - NOTES PAYABLE
On February 22, 2012, the company issued two promissory notes in the value of
$11,250 each for value received. These notes bear no interest and are payable
on demand by the note holders.
On March 6, 2012, the company issued two promissory notes in the value of
$2,500 each for value received. These notes bear no interest and are payable on
demand by the note holders.
On May 1, 2012, the company issued a promissory note in the value of $12,500
for value received. These notes bear no interest and are payable on demand by
the note holder.
On May 10, 2012, the company issued a promissory note in the value of $12,500
for value received. These notes bear no interest and are payable on demand by
the note holder.
On May 31, 2012, the company issued a promissory note in the value of $32,000
for value received. In May 2012, a total of $15,000 was paid back. These notes
bear no interest and are payable on demand by the note holder.
On July 31, 2012, the company issued a promissory note in the value of $1,750
for value received. These notes bear no interest and are payable on demand by
the note holder.
F8
NOTE 4 - NOTES PAYABLE (continued)
During the period from April 1, 2012 to September 30, 2012, Cigar & Spirits
received advances of $56,925. The balances are non-interest bearing, unsecured
and have no specified terms of repayment.
As of September 30, 2012 and December 31, 2011 notes payable totaling $143,225
and $0, respectively, were outstanding. The balances are non-interest bearing,
unsecured and have no specified terms of repayment.
NOTE 5 - RELATED PARTY TRANSACTIONS
As of September 30, 2012 and December 31, 2011 advances of $73,602 and $61,649,
respectively, were due to the Company's Chief Executive Officer and majority
shareholder. The balances are non-interest bearing, unsecured and have no
specified terms of repayment.
NOTE 6 - STOCKHOLDERS' EQUITY
The Company is authorized to issue an aggregate of 500,000,000 common shares
with a par value of $0.0001 per share and 1,000,000 shares of preferred stock
with a par value of $0.001 per share. No preferred shares have been issued.
On April 16, 2012, the Company issued 60,000,000 shares of common stock valued
at $143,000 with $95,333 expensed during the three months ended June 30, 2012
and $47,667 expensed during the three months ended September 30, 2012 as
compensation for business development, consulting, design and technical
services. The services are valued based on the closing price of the Company's
common stock on the date of the agreement exchanged for the services.
On June 21, 2012, the Company issued 30,000,000 shares of common stock valued
at $54,000 as compensation for business development and consulting services.
The services are valued based on the closing price of $0.0018 per share for
the shares of common stock exchanged for the services.
During the nine months ended September 30, 2012, the Company expensed
$197,000 for compensation for business development, consulting, design
and technical services.
NOTE 7 - SUBSEQUENT EVENTS
From October 10, 2012 to October 18, 2012, the Company issued 140,000,000
shares of common stock valued at $226,600 ($0.0016 per share) for payment of
principal totaling $14,000 on outstanding notes payable resulting in a loss
on settlement of debt of $212,600.
F9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This report on Form 10-Q contains "forward-looking statements" that involve
risks and uncertainties. You should not place undue reliance on these
forward-looking statements. Our actual results could differ materially from
those anticipated in the forward-looking statements for many reasons, including
the risks described in our Form 10-K filed on March 30, 2012 and subsequently
amended on April 2, 2012, and other filings we make with the Securities and
Exchange Commission. Although we believe the expectations reflected in the
forward-looking statements are reasonable, they relate only to events as of the
date on which the statements are made. We do not intend to update any of the
forward-looking statements after the date of this report to conform these
statements to actual results or to changes in our expectations, except as
required by law.
The following discussion and analysis of financial condition and results of
operations is based upon, and should be read in conjunction with our audited
financial statements and related notes thereto included elsewhere in this
report, and in our Form 10-K filed on March 30, 2012 and subsequently
amended on April 2, 2012.
BUSINESS OVERVIEW
We were incorporated on April 3, 2009 as Innovative Product Opportunities Inc.
under the laws of the State of Delaware. We are currently in the development
stage as the Company has not generated significant revenue from its operations
and is currently seeking new business opportunities. We expect to incur losses
in the foreseeable future due to significant costs associated with our business
startup, developing our business and costs associated with on-going operations.
Our business is to be a service only product development firm to meet the needs
of new and emerging product ideas available for sale today and in the future.
Our Certified Engineering Technicians can participate in the creation of
products, from hand sketches and design through prototyping and construction.
We offer project management to assist our client to produce finished parts
ready to market in numerous industries including, but not limited to, consumer
and household goods, office products, furniture, and toys. We believe that we
will be able to deliver a complete solution to startup and development stage
companies.
On March 1, 2012, we entered into a License Agreement with Szar International,
Inc. (dba Cigar & Spirits Magazine) ('Cigar & Spirits'). Under the terms of the
Agreement, we have the right to market the products of Cigar & Spirits
including but not limited to the sales, promotion and advertising vehicles. We
have agreed to pay a fee of 1.5% of all sales generated plus a management fee
of 1.5% based on the total monies paid for employee salaries, benefits and
commissions. The Company is responsible for all expenses that relate to sales
generated under the License Agreement. Cigar & Spirits may at any time in its
sole discretion, with sixty days prior notice, terminate the agreement and
revoke the license granted for any reason whatsoever and upon such termination
we will immediately stop using the Cigar & Spirits trade names.
4
RESULTS OF OPERATIONS
COMPARISON OF RESULTS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2012
AND 2011 AND FROM INCEPTION (APRIL 3, 2009) THROUGH SEPTEMBER 30, 2012.
REVENUES
Our revenue for the three and nine months ended September 30, 2012 was $58,902
and $103,546, respectively, compared to $0 and $0 for the three and nine months
ended September 30, 2011. Our revenue from inception (April 3, 2009) through
September 30, 2012 was $124,546. The increase in revenues was a result of the
License Agreement with Szar International, Inc. (dba Cigar & Spirits Magazine)
(-Cigar & Spirits-) on March 1, 2012. As a result of the License Agreement,
the Company has determined that it is the primary beneficiary of Cigar &
Spirits, a Variable Interest Entity, and Cigar & Spirits has been fully
consolidated in our financial statements.
COSTS OF GOODS SOLD
Our cost of sales for the three and nine months ended September 30, 2012
was $14,295 and $17,973, respectively, compared to $0 and $0 for the three and
nine months ended September 30, 2011. Our cost of goods sold from inception
(April 3, 2009) through September 30, 2012 was $17,973. The increase in cost
of sales was directly related to the sales associated with the License
Agreement with Cigar & Spirits.
GENERAL AND ADMINISTRATIVE EXPENSES
Our general and administrative expense for the three and nine months ended
September 30, 2012 was $84,730 and $247,973, respectively, compared to $17,211
and $62,418 for the three and nine months ended September 30, 2011. The
expenses can be primarily attributed to our need to pay for professional fees
and our transfer agent and for the operations of Cigar & Spirits. The increase
in general and administration expenses was primarily the result of the
additional expenses incurred through Cigar & Spirits. During the nine months
ended September 30, 2012, we issued 90,000,000 shares of common stock of the
Company valued at $197,000 for business development, consulting, design and
technical services. In addition, we incurred bad debt expense of $21,000 during
nine month period ended September 30, 2011.
NET INCOME/LOSS
Our net loss for the three and nine months ended September 30, 2012 was
$87,791 and $359,400, respectively, compared to $17,211 and $83,418 for the
three and nine months ended September 30, 2011. Our losses during the periods
ended September 30, 2012 is due to costs associated with professional fees, our
transfer agent and the operation of Cigar and Spirits as described above.
5
LIQUIDITY AND CAPITAL RESOURCES
LIQUIDITY
As of September 30, 2012, we had total current assets of $7,299 and total
current liabilities of $241,875, resulting in a working capital deficit of
$234,576. As of September 30, 2012, we had cash of $4,871. Our cash flows
from operating activities for the nine months ended September 30, 2012 resulted
in cash used of $140,401. Our current cash balance and cash flow from operating
activities will not be sufficient to fund our operations. Our cash flow from
investing activities for the nine months end September 30, 2012 was $948 and
our cash flow from financing activities for the nine months ended
September 30, 2012 was $137,682. The Company has an accumulated deficit during
development stage at September 30, 2012 and December 31, 2011 of $(5,695,653)
and $(5,402,628), respectively. These conditions led to our auditor reporting
substantial doubt about our ability to continue as a going concern.
Over the next 12 months we expect to expend approximately $50,000 in cash for
legal, accounting and related services and an additional $150,000 in cash to
implement our business plan. We hope to be able to compensate our independent
contractors with stock-based compensation, which will not require us to use our
cash, although there can be no assurances that we will be successful in these
efforts.
We expect to be able to secure capital through advances from our Chief
Executive Officer and others in order to pay expenses such as organizational
costs, filing fees, accounting fees and legal fees. We believe it will be
difficult to secure capital in the future because we have no assets to secure
debt and there is currently no trading market for our securities. We will need
additional capital in the next twelve months and if we cannot raise such
capital on acceptable terms, we may have to curtail our operations or terminate
our business entirely.
The inability to obtain financing or generate sufficient cash from operations
could require us to reduce or eliminate expenditures for developing products
and services, or otherwise curtail or discontinue our operations, which could
have a material adverse effect on our business, financial condition and results
of operations. Furthermore, to the extent that we raise additional capital
through the sale of equity or convertible debt securities, the issuance of such
securities may result in dilution to existing stockholders. If we raise
additional funds through the issuance of debt securities, these
securities may have rights, preferences and privileges senior to holders of our
common stock and the terms of such debt could impose restrictions on our
operations. Regardless of whether our cash assets prove to be inadequate to
meet our operational needs, we may seek to compensate providers of services by
issuing stock in lieu of cash, which may also result in dilution to existing
stockholders.
6
OPERATING CAPITAL AND CAPITAL EXPENDITURE REQUIREMENTS
We are currently funding our operations by way of cash advances from our Chief
Executive Officer and others. We hope to be able to compensate our independent
contractors with stock-based compensation, which will not require us to use our
cash, although there can be no assurances that we will be successful in these
efforts. We expect that we will be required to raise an additional $200,000 in
cash by issuing new debt or equity for operating costs in order to implement
our business plan in the next twelve months. The funds are loaned to the
Company as required to pay amounts owed by the Company. As such, our
operating capital is currently limited to the personal resources of our Chief
Executive Officer and others. The loans from our Chief Executive Officer and
others are unsecured and non-interest bearing and have no set terms of
repayment. Our common stock started trading over the counter and has been
quoted on the Over-The Counter Bulletin Board since February 17, 2011. The
stock currently trades under the symbol -IPRU.OB.-
OFF-BALANCE SHEET TRANSACTIONS
We currently have no off-balance sheet arrangements that have or are reasonably
likely to have a current or future material effect on our financial condition,
changes in financial condition, revenues or expenses, results of operations,
liquidity, capital expenditures or capital resources.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a Smaller Reporting Company, as defined by Rule 12b-2 of the Exchange Act
and in Item 10(f)(1) of Regulation S-K, we are electing scaled disclosure
reporting obligations and therefore are not required to provide the information
requested by this Item.
ITEM 4T. CONTROLS AND PROCEDURES
DISCLOSURE CONTROLS AND PROCEDURES
Our management evaluated, with the participation of our Chief Executive Officer
and our Chief Financial Officer, the effectiveness of our disclosure controls
and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934, as amended, as of the end of the period
covered by this quarterly report on Form 10-Q. Based on this evaluation, our
Chief Executive Officer and our Chief Financial Officer have concluded that our
disclosure controls and procedures are not effective to ensure that information
we are required to disclose in reports that we file or submit under the
Securities Exchange Act of 1934 (i) is recorded, processed, summarized and
reported within the time periods specified in Securities and Exchange
Commission rules and forms, and (ii) is accumulated and communicated to our
management, including our Chief Executive Officer and our Chief Financial
Officer, as appropriate to allow timely decisions regarding required
disclosure. Our disclosure controls and procedures are designed to provide
reasonable assurance that such information is accumulated and communicated
to our management. Our disclosure controls and procedures include components
of our internal control over financial reporting. Management's assessment of
the effectiveness of our internal control over financial reporting is
expressed at the level of reasonable assurance that the control system, no
matter how well designed and operated, can provide only reasonable, but not
absolute, assurance that the control system's objectives will be met.
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CHANGES IN INTERNAL CONTROLS OVER FINANCIAL REPORTING
There were no changes in our internal control over financial reporting that
occurred during the quarter ended September 30, 2012 that have materially
affected, or are reasonably likely to materially affect, our internal control
over financial reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
We may be involved from time to time in ordinary litigation, negotiation and
settlement matters that will not have a material effect on our operations or
finances. We are not aware of any pending or threatened litigation against our
Company or our officers and directors in their capacity as such that could have
a material impact on our operations or finances.
ITEM 1A. RISK FACTORS
A smaller reporting company is not required to provide the information
required by this Item.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
During the quarter ended September 30, 2012, we did not have any defaults
upon senior securities.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION.
Not applicable.
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ITEM 6. EXHIBITS
EXHIBIT NO. IDENTIFICATION OF EXHIBIT
3.1 Certificate of Incorporation, dated April 3, 2009 (included as
Exhibit 3.1 to the Form S-1 filed June 22, 2010, and incorporated
herein by reference).
3.2 Bylaws, dated April 3, 2009 (included as Exhibit 3.2 to the Form S-1
filed June 22, 2010, and incorporated herein by reference).
4.1 Specimen Stock Certificate (included as Exhibit 4.1 to the Form S-1
filed June 22, 2010, and incorporated herein by reference).
10.1 Innovative Product Opportunities Inc. Trust Agreement (included as
Exhibit 10.1 to the Form S-1 filed June 22, 2010, and incorporated
herein by reference).
31.1 Certification of Chief Executive Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
32.1 Certification of Officers pursuant to 18 U.S.C. Section 1350,as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned thereunto duly
authorized.
INNOVATIVE PRODUCTS OPPORTUNITIES INC.
Dated: November 14, 2012 By:/s/ Doug Clark
----------------------------
Doug Clark, Principal Executive Officer
President and Chairman of the Board
Dated: November 14, 2012 By:/s/ Robert McLean
----------------------------
Robert McLean,
Principal Accounting Officer
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