The accompanying footnotes are an integral part of these financial statements.
Notes to the Financial Statements
January 31, 2013
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 in April 2009, BioCube, the Company
’
s principal subsidiary, has been a development stage company and had 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.
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.
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 battery industry and any other parameters used in determining these estimates could cause actual results to differ.
Cash and Equivalents
For purposes of the statement of cash flows, the Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.
Impairment of Long-Lived Assets
The Company reviews and evaluates long-lived assets for impairment when events or changes in circumstances indicate that the related carrying amounts may not be recoverable. The assets are subject to impairment consideration under ASC 360-10-35-17 if events or circumstances indicate that their carrying amounts might not be
F-6
BioCube, Inc.
(A Development Stage Company)
Notes to the Financial Statements
January 31, 2013
Note 2. Significant Accounting Policies (continued)
recoverable. The Company performed impairment analyses using rules of ASC 930-360-35, Asset Impairment, and 360-10-15-3 through 15-5, Impairment or Disposal of Long-Lived Assets and has determined the license asset related to the decontamination unit was impaired due to termination of the license for non-payment to licensor and recorded a $24,000 charge to impairment loss on the accompanying statement of operation for the year ended January 31, 2012.
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 January 31, 2013 and January 31, 2012, the Company has approximately $2,012,003 and $1,248,000 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 $684,081and $424,000 respectively at January 31, 2013 and January 31, 2012.
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.
L
oss 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 January 31, 2013 (options-21,667; warrants-457,111; and convertible debentures-126,046,216) are anti-dilutive.
F-7
BioCube, Inc.
(A Development Stage Company)
Notes to the Financial Statements
January 31, 2013
Note 2. Significant Accounting Policies (continued)
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 4).
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 earnings. Available-for-sale 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:
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 or indirectly 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.
F-8
BioCube, Inc.
(A Development Stage Company)
Notes to the Financial Statements
January 31, 2013
Note 2. Significant Accounting Policies (continued)
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 consolidated statement of operation. 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. Decontamination Unit
In connection with the acquisition of BioCube in October 2010, the Company recorded an intangible asset related to the decontamination unit at its estimated fair value of $27,000. This asset was being amortized over its useful life of nine years on a straight-line basis.
By letter dated October 14, 2011, the licensor of the decontamination unit technology notified the Company that the license was terminated for non-payment on that date. As a result, an impairment loss of $24,000 was recorded during the year ended January 31, 2012.
Note 4. Related Party Transactions
Due to Related Parties
–
current portion includes the following:
|
|
|
|
|
January 31, 2013
|
|
January 31, 2012
|
Notes payable - net of discount
(1)
|
$ -
|
|
$ 17,000
|
Notes payable
–
BioCube acquisition
|
-
|
|
11,500
|
Financing fees
(2)
|
-
|
|
6,000
|
|
$ -
|
|
$ 34,500
|
(1)
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.
F-9
BioCube, Inc.
(A Development Stage Company)
Notes to the Financial Statements
January 31, 2013
Note 4. Related Party Transactions (continued)
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%.
(2)
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 April 30, 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 at May 9, 2013.
Note 5 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 January 31, 2013, net of debt discounts related to the beneficial conversion features of the notes:
F-10
BioCube, Inc.
(A Development Stage Company)
Notes to the Financial Statements
January 31, 2013
Note 5 Convertible Notes (continued)
|
|
|
|
Asher Enterprises
:
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, a derivative liability associated with the note totaled $20,555, and accrued interest was $1,012. The carrying amount of the debt discount was $12,781 and $0, respectively.
|
$ 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 January 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 January 31, 2013, accrued interest was $13,377.
|
663,387
|
|
-
|
F-11
BioCube, Inc.
(A Development Stage Company)
Notes to the Financial Statements
January 31, 2013
Note 5 Convertible Notes (continued)
Crystal Falls Investments, LLC