The accompanying footnotes are an integral part of these financial statements.
The accompanying footnotes are an integral part of these financial statements.
The accompanying footnotes are an integral part of these financial statements.
The accompanying footnotes are an integral part of these financial statements.
Notes to the Interim Financial Statements
July 31, 2013
(Unaudited)
Note 1. Description of Business
BioCube, Inc. (formerly Alliance Network Communications Holdings, Inc.) (the “Company”) is a development stage company. The Company was incorporated in Delaware. The Company plans to market and distribute Li-ion batteries in North America. The aerosol based decontamination system business formerly operated by the Company was terminated in the quarter ended January 31, 2013 and the Company now is engaged solely in the business of developing and marketing Li-ion batteries in North America. There were no additional expenses or charges recorded as a result of the termination of the surge protection business.
Note 2. Significant Accounting Policies
Basis of Preparation
The accompanying financial statements have been prepared in conformity with generally accepted accounting principles, which assume the continuation of the Company as a going concern. This basis of accounting contemplates the recovery of the Company’s assets and the satisfaction of liabilities in the normal course of business. Since its formation, BioCube has been a development stage company and has not begun its efforts to produce and market electrical surge protection devices or the aerosol based decontamination system, and its activities, to date, have been organizational in nature, and have been directed towards the raising of capital and initiating its business plan.
The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all information and notes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The results of operations for interim periods are not necessarily indicative of results to be expected for the entire fiscal year or any other period.
The balance sheet at July 31, 2013 has been derived from the unaudited financial statements at that date but does not include all the information and footnotes required by generally accepted accounting principles for complete financial statements.
These interim financial statements should be read in conjunction with the Company's audited financial statements and notes for the year ended January 31, 2013 filed with the Securities and Exchange Commission on Form 10-K on April 30, 2013.
Going Concern
The Company may not be able to execute its current business plan and fund business operations long enough to achieve profitability without obtaining financing. The Company's ultimate success depends upon its ability to raise capital. There can be no assurance that funds will be available to the Company when needed from any source or, if available, on terms that are favorable to the Company. These conditions raise substantial doubt about the Company's ability to continue as a going concern. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of these uncertainties.
6
BioCube, Inc.
(A Development Stage Company)
Notes to the Interim Financial Statements
July 31, 2013
(Unaudited)
Note 2. Significant Accounting Policies (continued)
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reported period. Changes in the economic environment, financial markets, as well as in the healthcare industry and any other parameters used in determining these estimates could cause actual results to differ.
Concentration of Credit Risk
The Company may place its cash with various financial institutions and, at times, cash held in depository accounts at such institutions may exceed the Federal Deposit Insurance Corporation insured limit.
Revenue Recognition
Upon initiation of active operations, the Company will recognize revenues when persuasive evidence of an arrangement exists, product has been delivered or services have been rendered, the price is fixed or determinable and collectability is reasonably assured. Revenue will be recognized net of estimated sales returns and allowances.
Income Taxes
The Company accounts for income taxes using a method that requires recognition of deferred tax assets and liabilities for expected future tax consequences of temporary differences that currently exist between tax bases and financial reporting bases of the Company’s assets and liabilities (commonly known as the asset and liability method). In assessing the ability to realize deferred tax assets, the Company considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized.
The Company evaluates its tax positions taken or expected to be taken in the course of preparing the Company’s tax returns to determine whether the tax positions are ‘‘more-likely-than-not’’ of being sustained by the applicable tax authority. Tax positions not deemed to meet the “more-likely-than-not” threshold are recorded as an expense in the applicable year. The Company does not have a liability for any unrecognized tax benefits. Management’s evaluation of uncertain tax positions may be subject to review and adjustment at a later date based upon factors including, but not limited to, an on-going analysis of tax laws, regulations and interpretations thereof.
As of July 31, 2013 and January 31, 2013, the Company has approximately $2,346,499 and $2,012,003 of net operating loss carry forwards and other taxable temporary differences available to affect future taxable income. The Company has established a valuation allowance equal to the tax benefit of the net operating loss carry forwards and other taxable temporary differences as realization of the asset is not assured of $798,568 and $684,081 respectively at July 31, 2013 and January 31, 2013.
Utilization of net operating loss carry-forwards arising from our predecessor company are subject to a substantial annual limitation due to the ‘‘change in ownership’’ provisions of the Internal Revenue Code. The annual limitation may result in the expiration of net operating loss carry-forwards before utilization.
7
BioCube, Inc.
(A Development Stage Company)
Notes to the Interim Financial Statements
July 31, 2013
(Unaudited)
Note 2. Significant Accounting Policies (continued)
Income (loss) per share
Loss per common share is based upon the weighted average number of common shares outstanding during the periods. Diluted loss per common share is the same as basic loss per share, as the effect of potentially dilutive securities at July 31, 2013 (options – 21,667; warrants – 457,111; and convertible debentures – 142,543,738) are anti-dilutive.
Outstanding options were issued by the Company’s predecessor and are exercisable through 2018 with an exercise price of $5.70. Warrants for 322,111 shares of common stock were issued by our predecessor with weighted average exercise price of $11.21 and are exercisable through 2014. The balance of the outstanding warrants was issued in connection with the notes payable to a related party (see Note 3).
New Accounting Pronouncements
The Company has reviewed all recently issued, but not yet effective, accounting pronouncements and does not believe the future adoption of any such pronouncements may be expected to cause a material impact on its financial condition or the results of its operations.
Fair Value Measurements
All financial instruments, including derivatives, are to be recognized on the balance sheet initially at fair value. Subsequent measurement of all financial assets and liabilities except those held-for-trading and available for sale are measured at amortized cost determined using the effective interest rate method. Held –for-trading financial assets are measured at fair value with changes in fair value recognized in comprehensive income and reclassified to earnings when derecognized or impaired.
The carrying amounts of the Company’s other short-term financial instruments, including accounts payable and accrued liabilities, approximate fair value due to the relatively short period to maturity for these instruments. The Company does not utilize financial derivatives or other contracts to manage commodity price risks. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price).
The fair value of the Company’s financial assets and liabilities reflects the Company’s estimate of amounts that it would have received in connection with the sale of the assets or paid in connection with the transfer of the liabilities in an orderly transaction between market participants at the measurement date. In connection with measuring the fair value of its assets and liabilities, the Company seeks to maximize the use of observable inputs (market data obtained from sources independent from the Company) and to minimize the use of unobservable inputs (the Company’s assumptions about how market participants would price assets and liabilities). The following fair value hierarchy is used to classify assets and liabilities based on the observable inputs and unobservable inputs used in order to value the assets and liabilities:
8
BioCube, Inc.
(A Development Stage Company)
Notes to the Interim Financial Statements
July 31, 2013
(Unaudited)
Note 2. Significant Accounting Policies (continued)
|
|
|
|
·
|
Level 1 — Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis.
|
|
·
|
Level 2 — Pricing inputs are other than quoted prices in active markets included in Level 1, which are either directly observable as of the reported date and includes those financial instruments that are valued using models or other valuation methodologies.
|
|
·
|
Level 3 — pricing inputs include significant inputs that are generally less observable from objective sources. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value.
|
Derivatives
The Company evaluates embedded conversion features within convertible debt under ASC 815 “
Derivatives and Hedging
” to determine whether the embedded conversion feature should be bifurcated from the host instrument and accounted for as a derivative at fair value with changes in fair value recorded in earnings. The Company uses a Binomial pricing model to estimate the fair value of convertible debt conversion features at the end of each applicable reporting period. Changes in the fair value of these derivatives during each reporting period are included in the statements of operations. Inputs into the Binomial pricing model require estimates, including such items as estimated volatility of the Company’s stock, risk-free interest rate and the estimated life of the financial instruments being fair valued.
If the conversion feature does not require derivative treatment under ASC 815, the instrument is evaluated under ASC 470-20 “
Debt with Conversion and Other Options
” for consideration of any beneficial conversion feature.
Note 3. Related Party Transactions
During the year ended January 31, 2010, the Company borrowed an aggregate of $17,000 from LeadDog Capital LP through the issuance of notes payable for periods of 1 year each with interest payable at 16% per year. In connection with the issuance of these notes the Company granted the lender warrants for the purchase of 90,000 shares of the Company’s common stock at $.001. In addition, the Company issued warrants to purchase 45,000 shares of the Company’s common stock at $.001 to LeadDog Capital Markets LLC (the general partner) for due diligence services. LeadDog Capital LP and its affiliates are shareholders and warrant holders; however the group is restricted from becoming a beneficial owner (as such term is defined under Section 13(d) and Rule 13d-3 of the Securities Exchange Act of 1934, as amended, (the 1934 Act)), of the Company’s common stock which would exceed 4.9% of the number of shares of common stock outstanding.
The proceeds from issuance of the promissory notes were allocated to the notes and the warrants based upon their relative fair values. This allocation resulted in allocating $9,500 to the notes and $7,500 to the warrants. The warrants issued for services were recorded as prepaid financing fees of $6,750 and will be amortized to interest expense over the related loan periods. During the year ended January 31, 2011, the Company recorded expense of $4,800 for the amortization of the debt discount and prepaid financing fees. The fair value of the warrants was determined using the Black-Scholes option pricing model using the following weighted-average assumptions: volatility of 452 % and 457 %; risk-free interest rate of .87% and .94%; expected life of 3 years and estimated dividend yield of 0%.
9
BioCube, Inc.
(A Development Stage Company)
Notes to the Interim Financial Statements
July 31, 2013
(Unaudited)
Note 3. Related Party Transactions (continued)
LeadDog Capital Markets LLC, the general partner of LeadDog Capital LP, was due a fee for due diligence related to the convertible debenture arrangement discussed below. The total fee was $10,000 and would have been owed based on a formula related to the amount of the borrowings incurred.
All of the notes payable to Leaddog Capital were consolidated into a single convertible note payable in the amount of $204,601 during the quarter ended July 31, 2012, that consolidated note was sold to Crystal Falls Investments, LLC, an unrelated third party during the current quarter, and the note is now reported as Notes payable-non-current. The financing fee related to the former notes also has been terminated with the sale of the notes.
In November 2012, the Company agreed with Crystal Falls Investments, LLC to consolidate all existing debt, and accrued interest as of November 14, 2012, into a single convertible promissory note in the principal amount of $292,298, due in May 2013 with interest at 14 percent and convertible into common stock at $0.006 per share. No beneficial conversion feature has been calculated on this note as the conversion price is below the current trading price.
Also in November, 2012, Crystal Falls assigned $10,714 in principal on the note to each of 6 different parties and replacement notes were issued to each of the parties, on the same terms as the original note. Subsequently, in January 2013, the six assignees each converted the replacement notes into 1,785,714 shares of common stock; however, four of the six assignees failed to pay the agreed consideration for the note assignments and the assignments have been rescinded as of April 3, 2013. The shares issued in January 2013 as a result of the conversion of these 4 notes, a total of 7,142,856 common shares, have now been returned for cancellation and are no longer issued and outstanding. The principal balance of the notes previously converted, a total of $42,856, has been restored to the Crystal Falls note balance.
Note 4. Convertible Notes
The Company has issued a number of convertible promissory notes to various parties, which allow the holder to convert the notes into common stock of the Company, at a discount to the current market price of the common stock at the time of conversion. The following details the significant terms of these convertible notes payable, and the balances due at July 31, 2013, net of debt discounts related to the beneficial conversion features of the notes:
10
BioCube, Inc.
(A Development Stage Company)
Notes to the Interim Financial Statements
July 31, 2013
(Unaudited)
Note 4. Convertible Notes (continued)
|
|
|
|
|
|
|
July 31, 2013 (Unaudited)
|
|
January 31, 2013
|
|
Asher Enterprises
/Walter D. Whitt
On June 11, 2012, the Company issued its promissory note in the amount of $32,500 to an unrelated third party for additional working capital. The note is due March 7, 2013 and carries interest at 8 percent per annum, payable at maturity. The note is convertible into common stock of the Company after 180 days, at the election of the Holder, at 55 percent of the average of the three lowest closing bid prices of the common stock for the ten trading days prior to the date of the election to convert. The Company analyzed the conversion option for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the instrument should be classified as liabilities once the conversion option became effective after 180 days due to there being no explicit limit to the number of shares to be delivered upon settlement of the above conversion options. As of January 31, 2013, $7,800 of the note had been converted. On March 27, 2013, Asher Enterprises converted an additional $3,600 in principal on its remaining promissory note into 1,714,286 shares of common stock, leaving a balance due of $21,100. On April 11, 2013, Asher Enterprises sold the note to Walter D. Whitt, an unaffiliated party. There were no changes to the note terms. As of July 31, 2013, a derivative liability associated with the note totaled $36,278, and accrued interest was $1,434. The carrying amount of the debt discount was $0 and $12,781, respectively.
|
$ 21,100
|
|
$ 11,919
|
|
Loan to Officer:
On November 1, 2012, the Company converted $663,387 of accrued salaries due to Boris Rubizhevsky into a convertible note. The note is due April 1, 2013 and carries interest at 8 percent per annum, payable at maturity. The note is convertible into common stock of the Company immediately upon issuance, at the election of the Holder, at $0.015, which is closing market price at issue date. As of July 31, 2013, no amounts had been converted and no conversion liability or debt discount was recorded as features were not in the money upon issuance. As of July 31, 2013, accrued interest was $39,585.
|
663,387
|
|
663,387
|
11
BioCube, Inc.
(A Development Stage Company)
Notes to the Interim Financial Statements
July 31, 2013
(Unaudited)
Note 4. Convertible Notes (continued)
Crystal Falls Investments, LLC
|
|
|
|
|
On November 14, 2012, the Company consolidated several notes held by Crystal Falls Investments, LLC into one Consolidated and Amended convertible promissory note totaling $292,298 (of which a total of $64,285 was assigned and transferred to six other parties, with each party subsequently converting their note into 1,785,714 shares of common stock). In April, 2013, Crystal Falls Investments, LLC rescinded the assignment of 4 promissory notes made in November 2012. As a result, the conversion of the 4 notes into 1,785,714 shares of common stock each in January 2013 also has been rescinded and 7,142,856 common shares have been canceled and returned to the treasury.
The remaining note balance of $270,868 is due May 17, 2013 and carries interest at 14 percent per annum, payable at maturity. The note is convertible into common stock of the Company at any time after issuance of the note, at the election of the Holder, at $0.006 per share. No additional amounts had been converted as of July 31, 2013. The carrying amount of the debt discount was $18,688 and $130,827, respectively. Interest of $27,472 was accrued on this note as of July 31, 2013.
|
252,180
|
97,186
|
|
On December 14, 2012, the Company issued a promissory note totaling $4,099 to Crystal Falls Investments for additional working capital advances. The note is due September 14, 2013 and bears interest at 14 percent per annum, payable at maturity. The note is convertible into common stock of the Company at any time after issuance of the note, at the election of the Holder, at par value. No amounts had been converted as of July 31, 2013. The carrying amount of the debt discount was $2,035 and $3,381, respectively. Interest of $215 was accrued on this note as of July 31, 2013.
|
2,064
|
718
|
Blue Shoes Investments:
|
|
|
|
|
On December 14, 2012, the Company issued a promissory note totaling $6,500 to an unrelated third party for additional working capital advances. The note is due December 14, 2013 and bears interest at 14 percent per annum, payable at maturity. The note is convertible into common stock of the Company at any time after issuance of the note, at the election of the Holder, at par value. No amounts had been converted as of July 31, 2013. The carrying amount of the debt discount was $4,042 and $5,645, respectively. Interest of $570 was accrued on this note as of July 31, 2013.
|
2,458
|
855
|
|
|
|
|
12
BioCube, Inc.
(A Development Stage Company)
Notes to the Interim Financial Statements
July 31, 2013
(Unaudited)
Note 4. Convertible Notes (continued)
|
|
|
|
|
Other:
|
|
|
|
On June 14, 2012, the Company issued its promissory note in the amount of $20,000 (with original issue date of February 15, 2012) to an unrelated third party for additional working capital. The note is due February 15, 2015 and carries interest at 14 percent per annum, payable at maturity. The note is convertible into common stock of the Company at any time after issuance of the note, at the election of the Holder, at $0.007 per share. Interest of $3,733 was accrued on this note as of July 31, 2013. The carrying amount of the debt discount was $10,593 and $12,433, respectively.
|
9,407
|
7,567
|
|
|
|
|
|
|
|
Lotus Capital Investments:
|
|
|
|
On April 12, 2012, the Company issued its promissory note in the amount of $90,000 to an unrelated third party for additional working capital. The note is due April 12, 2013 and carries interest at 5 percent per annum, payable at maturity. The note is convertible into common stock of the Company at any time after issuance of the note, at the election of the Holder, at the lesser of 50 percent of the average of the ten lowest closing bid prices of the common stock for the ten trading days prior to the date of the election to convert or $0.05 per share. The Company analyzed the conversion option for derivative accounting consideration under ASC 815-15 “
Derivatives and Hedging
” and determined that the instrument should be classified as liabilities once the conversion option became effective due to there being no explicit limit to the number of shares to be delivered upon settlement of the above conversion options. The Company converted $7,200 of this note into 1,454,545 shares during the year ended January 31, 2013, leaving $82,800 as the remaining loan balance. As of July 31, 2013, a derivative liability associated with the note totaled $134,346 and accrued interest was $5,995. The carrying amount of the debt discount was $0 and $17,507, respectively.
|
82,800
|
65,293
|
|
Total debt
|
1,033,396
|
846,925
|
|
Current portion of long-term debt
|
(1,033,396)
|
(839,358)
|
|
Long-term debt
|
$
-
|
$
7,567
|
The convertible notes contain limitations on conversion such that note holders and affiliates generally cannot beneficially own more than 4.99% of the outstanding shares of common stock of the Company
Note 5 Derivative Liabilities
The Company has various convertible instruments outstanding more fully described in Note 4. Because the number of shares to be issued upon settlement cannot be determined under these instruments, the Company cannot determine whether it will have sufficient authorized shares at a given date to settle any other of its share-settleable instruments. As a result, under ASC 815-15 “
Derivatives and Hedging
”, all other share-settleable instruments must be classified as liabilities.
13
BioCube, Inc.
(A Development Stage Company)
Notes to the Interim Financial Statements
July 31, 2013
(Unaudited)
Note 5 Derivative Liabilities
(continued)
Embedded Derivative Liabilities in Convertible Notes
During the six months ended July 31, 2013 and as a result of conversion of notes payable described in Note 4, the Company reclassified $5,719 of derivative liabilities to equity and the change in fair value of derivatives was $41,864.
As of July 31, 2013, the fair value of the Company’s derivative liabilities was $170,624, and $41,864 was recognized as a loss on derivatives due to change in fair value of the liability during the quarter ended July 31, 2013.
The following table summarizes the derivative liabilities included in the balance sheet:
|
|
|
|
|
|
|
|
Fair Value
Measurements Using Significant
Unobservable
Inputs (Level 3)
|
|
Derivative Liabilities:
|
|
|
|
|
Balance at January 31, 2013
|
|
$
|
134,479
|
|
ASC 815-15 additions
|
|
|
-
|
|
Change in fair value
|
|
|
41,864
|
|
ASC 815-15 deletions
|
|
|
(5,719)
|
|
Balance at July 31, 2013
|
|
$
|
170,624
|
The following table summarizes the derivative gain or loss recorded as a result of the derivative liabilities above:
|
|
|
|
|
|
|
|
Included in Other Income (Expense) on
Statement of Operations
|
|
Gain/(Loss) on Derivative Liability:
|
|
|
|
|
Change in fair value of derivatives
|
|
$
|
(41,864)
|
|
Derivative expense
|
|
|
-
|
|
Balance quarter ended July 31, 2013
|
|
$
|
(41,864)
|
The fair values of derivative instruments were estimated using the Binomial pricing model based on the following weighted-average assumptions:
|
|
|
|
|
|
|
|
Convertible Debt Instruments
|
|
Risk-free rate
|
|
|
0.21% - 0.25%
|
|
Expected volatility
|
|
|
100% - 500%
|
|
Expected life
|
|
|
9-12 months
|
14
BioCube, Inc.
(A Development Stage Company)
Notes to the Interim Financial Statements
July 31, 2013
(Unaudited)
Note 6. Litigation
In October and December 2008, Blue Star Jets, LLC (“Blue Star”) filed a complaint against the Company and certain former employees, including our former President, who were former employees of Blue Star (“former Blue Star employee”) in the Supreme Court of New York, New York County alleging, among other matters, that the Blue Star’s former employees stole confidential information belonging to Blue Star prior to joining the Company and that one or more of such former employees violated post-employment restrictive covenants by joining the Company. The complaint seeks $7 million in damages. This action is a revival of an earlier action that was voluntarily discontinued by Blue Star in 2007. In January 2011, the Company was dismissed from the case. All other pending litigation against the Company was terminated during the year ended January 31, 2011, with no liability of any kind assessed against the Company.
Except as set forth above, there are no other pending or threatened legal proceedings against the Company and the Company has no claims or other potential matters that could be the subject of legal proceedings by the Company. Based on the advice of counsel, it is management's opinion that we have made adequate provision for potential liabilities, if any, arising from potential claims arising from litigation, governmental investigations, legal and administrative cases and proceedings. In connection with the sale of the Company’s Halcyon Jet subsidiary to the Company’s former Chief Executive Officer the Company was indemnified by the buyer against any liability which may arise from the above litigation.
Note 7. Subsequent Events
None
15