UNITED STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
Form
10-Q
(Mark
One)
| x | QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended September 30, 2014
| ¨ | 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: 000-53125
InterCore,
Inc.
(Exact name
of registrant as specified in its charter)
Delaware
(State
or other jurisdiction of
incorporation
or organization) |
27-2506234
(I.R.S.
Employer
Identification
No.) |
|
|
1615
South Congress Avenue - Suite 103
Delray
Beach, FL
(Address
of principal executive offices) |
33445
(Zip
Code) |
Registrant’s
telephone number, including area code (561) 900-3709
|
(Former
Name, 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
¨
No x.
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 ¨
No 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 accelerated filer,” “accelerated filer” and “smaller 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 ¨
Nox.
Applicable
only to issuers involved in bankruptcy proceedings during the preceding five years:
Indicate
by check mark whether the registrant filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Exchange
Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ¨
No ¨
Applicable
only to corporate issuers:
Indicate the
number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. As of January
16, 2015, there were 41,933,066 shares of common stock, $0.0001 par value, issued and outstanding.
INTERCORE,
INC.
TABLE
OF CONTENTS
PART I
– FINANCIAL INFORMATION
This Quarterly
Report includes forward-looking statements within the meaning of the Securities Exchange Act of 1934 (the “Exchange Act”).
These statements are based on management’s beliefs and assumptions, and on information currently available to management.
Forward-looking statements include the information concerning our possible or assumed future results of operations set forth under
the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Forward-looking
statements also include statements in which words such as “expect,” “anticipate,” “intend,”
“plan,” “believe,” “estimate,” “consider,” or similar expressions are used.
Forward-looking
statements are not guarantees of future performance. They involve risks, uncertainties, and assumptions. Our future results and
shareholder values may differ materially from those expressed in these forward-looking statements. Readers are cautioned not to
put undue reliance on any forward-looking statements.
ITEM 1 Financial
Statements
InterCore,
Inc. and Subsidiary
Condensed
Consolidated Balance Sheets
| |
September 30, | | |
December 31, | |
| |
2014 | | |
2013 | |
| |
(Unaudited) | | |
(Audited) | |
| |
| | | |
| | |
Assets | |
| | | |
| | |
| |
| | | |
| | |
Current assets: | |
| | | |
| | |
| |
| | | |
| | |
Cash | |
$ | 127,818 | | |
$ | 23,225 | |
Accounts receivable | |
| 400,864 | | |
| 49,714 | |
Prepaid expenses and other current assets | |
| 227,434 | | |
| 288,828 | |
| |
| | | |
| | |
Total current assets | |
| 756,116 | | |
| 361,767 | |
| |
| | | |
| | |
Fixed assets | |
| 1,421,172 | | |
| - | |
Deferred financing costs, net | |
| 1,102,590 | | |
| - | |
Other | |
| 15,364 | | |
| - | |
| |
| | | |
| | |
Total assets | |
$ | 3,295,242 | | |
$ | 361,767 | |
| |
| | | |
| | |
Liabilities and Stockholders' Deficiency | |
| | | |
| | |
| |
| | | |
| | |
Current liabilities: | |
| | | |
| | |
| |
| | | |
| | |
Accounts payable | |
$ | 707,788 | | |
$ | 253,970 | |
Accounts payable due to related parties | |
| 308,289 | | |
| 58,500 | |
Accrued expenses | |
| 703,625 | | |
| 152,663 | |
Credit facility - $3,827,073 balance net of discount
of $3,184,250 | |
| 662,323 | | |
| - | |
Notes payable | |
| 805,961 | | |
| 803,343 | |
Note payable due to related party | |
| 480,000 | | |
| 800,000 | |
Derivative financial instrument liability | |
| 7,825,283 | | |
| - | |
| |
| | | |
| | |
Total liabilities | |
| 11,493,269 | | |
| 2,068,476 | |
| |
| | | |
| | |
Commitments and contingencies | |
| - | | |
| - | |
| |
| | | |
| | |
Stockholders' deficiency: | |
| | | |
| | |
| |
| | | |
| | |
Preferred stock, $0.0001 par value, 20,000,000 shares authorized;
302,000 and 142,000 shares of Series D issued and outstanding as of September 30, 2014 and December 31, 2013, respectively;
Liquidation preferences of $9,751 and $4,275 as of September 30, 2014 and December 31, 2013, respectively; Liquidation
preferences of $-0- and $4,275 as of September 30, 2014 and December 31, 2013, respectively. | |
| 30 | | |
| 14 | |
| |
| | | |
| | |
Common stock, $0.0001 par value, 275,000,000 shares authorized,
40,603,031 and 40,595,031 shares issued and outstanding as of September 30, 2014 and December 31, 2013, respectively. | |
| 4,060 | | |
| 4,059 | |
| |
| | | |
| | |
Additional paid-in capital | |
| 16,667,567 | | |
| 12,428,791 | |
| |
| | | |
| | |
Accumulated deficit | |
| (24,513,944 | ) | |
| (14,108,050 | ) |
| |
| | | |
| | |
Accumulated other comprehensive gains | |
| (355,740 | ) | |
| (31,523 | ) |
| |
| | | |
| | |
Total stockholders' deficiency | |
| (8,198,027 | ) | |
| (1,706,709 | ) |
| |
| | | |
| | |
Total liabilities and
stockholders' deficiency | |
$ | 3,295,242 | | |
$ | 361,767 | |
The accompanying
notes are an integral part of these condensed consolidated financial statements.
InterCore,
Inc. and Subsidiary
Condensed
Consolidated Statements of Operations
and Comprehensive
Income/(Loss)
(Unaudited)
| |
Three months ended September 30, | | |
Nine months ended September 30, | |
| |
2014 | | |
2013 | | |
2014 | | |
2013 | |
| |
| | |
| | |
| | |
| |
Revenues | |
$ | 351,450 | | |
$ | 42,932 | | |
$ | 615,374 | | |
$ | 67,620 | |
| |
| | | |
| | | |
| | | |
| | |
Operating expenses: | |
| | | |
| | | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | |
Research and development | |
| 1,506,789 | | |
| 751,344 | | |
| 3,990,777 | | |
| 1,611,020 | |
Charge for acquired in-process research and development | |
| - | | |
| - | | |
| - | | |
| 1,467,505 | |
General and administrative | |
| 447,041 | | |
| 91,966 | | |
| 1,472,839 | | |
| 407,046 | |
| |
| | | |
| | | |
| | | |
| | |
Total operating expenses | |
| 1,953,830 | | |
| 843,310 | | |
| 5,463,616 | | |
| 3,485,571 | |
| |
| | | |
| | | |
| | | |
| | |
Operating loss | |
| (1,602,380 | ) | |
| (800,378 | ) | |
| (4,848,242 | ) | |
| (3,417,951 | ) |
| |
| | | |
| | | |
| | | |
| | |
Other income (expense): | |
| | | |
| | | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | |
Interest expense: | |
| | | |
| | | |
| | | |
| | |
Derivative financial instrument | |
| (1,934,380 | ) | |
| - | | |
| (4,154,872 | ) | |
| - | |
Amortization of deferred financing costs | |
| (282,146 | ) | |
| - | | |
| (465,910 | ) | |
| - | |
Amortization of debt discount | |
| (549,766 | ) | |
| - | | |
| (687,467 | ) | |
| - | |
Note payable to Fandeck (related party) | |
| - | | |
| - | | |
| - | | |
| (182,490 | ) |
Other | |
| (151,062 | ) | |
| (106,733 | ) | |
| (337,772 | ) | |
| (189,647 | ) |
Change in fair value of derivative financial instrument | |
| 71,661 | | |
| - | | |
| 88,369 | | |
| - | |
Charge to expense for: | |
| | | |
| | | |
| | | |
| | |
Loss on settlement with Epec | |
| - | | |
| - | | |
| - | | |
| (187,500 | ) |
Loss on settlement of related party note payable | |
| - | | |
| - | | |
| - | | |
| (883,628 | ) |
Loss on settlement with vendors | |
| - | | |
| - | | |
| - | | |
| (170,650 | ) |
Loss on distribution of assets to HLBCDC (related party) | |
| - | | |
| - | | |
| - | | |
| (327,000 | ) |
| |
| | | |
| | | |
| | | |
| | |
Other income (expense) | |
| (2,845,693 | ) | |
| (106,733 | ) | |
| (5,557,652 | ) | |
| (1,940,915 | ) |
| |
| | | |
| | | |
| | | |
| | |
Net loss | |
| (4,448,073 | ) | |
| (907,111 | ) | |
| (10,405,894 | ) | |
| (5,358,866 | ) |
| |
| | | |
| | | |
| | | |
| | |
Other comprehensive gain (loss) - Foreign currency transalation | |
| (163,445 | ) | |
| (46,571 | ) | |
| (324,217 | ) | |
| 35,890 | |
| |
| | | |
| | | |
| | | |
| | |
Comprehensive loss | |
$ | (4,611,518 | ) | |
$ | (953,682 | ) | |
$ | (10,730,111 | ) | |
| (5,322,976 | ) |
| |
| | | |
| | | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | |
Net loss per common share - Basic and diluted | |
$ | (0.11 | ) | |
$ | (0.12 | ) | |
$ | (0.26 | ) | |
$ | (0.76 | ) |
| |
| | | |
| | | |
| | | |
| | |
Weighted average common shares outstanding - Basic and diluted | |
| 40,597,553 | | |
| 7,470,459 | | |
| 40,595,881 | | |
| 7,025,762 | |
The accompanying
notes are an integral part of these condensed consolidated financial statements.
InterCore,
Inc. and Subsidiary
Condensed
Consolidated Statement of Stockholders' Deficiency
For the Nine
Months Ended September 30, 2014
(Unaudited)
| |
Preferred
Stock Series D | | |
Common
Stock | | |
Additional | | |
Accumulated | | |
Accumulated | | |
Total | |
| |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
Paid-In Capital | | |
Deficit | | |
Other | | |
Stockholders' | |
| |
| | |
| | |
| | |
| | |
| | |
| | |
Comprehensive | | |
Deficiency | |
| |
| | |
| | |
| | |
| | |
| | |
| | |
Loss | | |
| |
| |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Balance, December 31, 2013 | |
| 142,000 | | |
$ | 14 | | |
| 40,595,031 | | |
| 4,059 | | |
$ | 12,428,791 | | |
$ | (14,108,050 | ) | |
$ | (31,523 | ) | |
$ | (1,706,709 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Issuance of warrants on January
3, 2014 in connection with the issuance of a promissory note - Note 11 | |
| - | | |
| - | | |
| - | | |
| - | | |
| 5,914 | | |
| - | | |
| - | | |
| 5,914 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Issuance of warrant on March 6,
2014 for services received - Note 11 | |
| - | | |
| - | | |
| - | | |
| - | | |
| 14,275 | | |
| - | | |
| - | | |
| 14,275 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Issuance of warrant on May 2, 2014
in connection with a debt agreement - Note 11 | |
| - | | |
| - | | |
| - | | |
| - | | |
| 1,382,000 | | |
| - | | |
| - | | |
| 1,382,000 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Issuance of shares of Series D
Preferred Stock on various dates between January 3, 2014 and June 26, 2014 at $10 per share net of commissions - Note 8 | |
| 160,000 | | |
| 16 | | |
| - | | |
| - | | |
| 1,522,484 | | |
| - | | |
| - | | |
| 1,522,500 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Issuance of common shares on September
1, 2014 in connection with issuance of a note payable - Note 9 | |
| - | | |
| - | | |
| 8,000 | | |
| 1 | | |
| 25,999 | | |
| - | | |
| - | | |
| 26,000 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Issuance of warrants on September
2, 2014 for cash - Note 11 | |
| - | | |
| - | | |
| - | | |
| - | | |
| 18,000 | | |
| - | | |
| - | | |
| 18,000 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Reclass warrant to derivative liability
on September 2, 2014 - Note 11 | |
| - | | |
| - | | |
| - | | |
| - | | |
| (161,330 | ) | |
| - | | |
| - | | |
| (161,330 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Share based compensation - Options
issued to management - Note 10 | |
| - | | |
| - | | |
| - | | |
| - | | |
| 1,431,434 | | |
| - | | |
| - | | |
| 1,431,434 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net loss | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (10,405,894 | ) | |
| - | | |
| (10,405,894 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Unrealized
loss on foreign currency translation | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (324,217 | ) | |
| (324,217 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balance, September 30, 2014 | |
| 302,000 | | |
$ | 30 | | |
| 40,603,031 | | |
$ | 4,060 | | |
$ | 16,667,567 | | |
$ | (24,513,944 | ) | |
$ | (355,740 | ) | |
$ | (8,198,027 | ) |
The accompanying
notes are an integral part of these condensed consolidated financial statements.
InterCore,
Inc. and Subsidiary
Condensed
Consolidated Statements of Cash Flows
(Unaudited)
| |
Nine Months Ended September 30, | |
| |
2014 | | |
2013 | |
| |
| | |
| |
Cash flows used in operating activities: | |
| | | |
| | |
| |
| | | |
| | |
Net loss | |
$ | (10,405,894 | ) | |
$ | (5,358,866 | ) |
| |
| | | |
| | |
Adjustments to reconcile net loss from continuing operations to net cash used in operating activities: | |
| | | |
| | |
Stock-based compensation expense: | |
| | | |
| | |
Options issued for services | |
| 1,431,434 | | |
| - | |
Warrants issued for services | |
| 14,275 | | |
| 60,361 | |
Amortization of deferred financing costs | |
| 465,910 | | |
| - | |
Amortization of debt discount | |
| 687,467 | | |
| 50,000 | |
Charge to interest expense related to derivative financial instruments | |
| 4,154,872 | | |
| - | |
Change in the fair value of derivative financial instrument | |
| (88,369 | ) | |
| - | |
Charge for acquired in-process research and development | |
| - | | |
| 1,467,505 | |
Debt issuance charges related to Fandeck note recorded as interest expense: | |
| - | | |
| 181,870 | |
Charges for issuance of common shares in connection with: | |
| | | |
| | |
Settlement with Epec | |
| - | | |
| 137,500 | |
Settlement of note due to Rockland | |
| - | | |
| 883,628 | |
Settlement of trade accounts payable | |
| - | | |
| 170,649 | |
Loss on distribution of assets and liabilities and issuance of common shares and warrants to HLBCDC | |
| - | | |
| 330,684 | |
| |
| | | |
| | |
Changes in operating assets and liabilities: | |
| | | |
| | |
Increase in accounts receivable | |
| (351,150 | ) | |
| (32,948 | ) |
(Increase) decrease in prepaid expenses and other current assets | |
| 66,394 | | |
| (325,430 | ) |
Increase in other assets | |
| (15,364 | ) | |
| - | |
Increase in accounts payable | |
| 453,814 | | |
| 81,823 | |
Decrease (decrease) in accounts payable due to related parties | |
| 249,789 | | |
| (86,130 | ) |
Increase in accrued compensation | |
| - | | |
| 22,500 | |
Increase in accrued expenses | |
| 550,962 | | |
| 233,596 | |
Decrease in deferred revenue | |
| - | | |
| (4,328 | ) |
| |
| | | |
| | |
Net cash used in operations | |
| (2,785,860 | ) | |
| (2,187,586 | ) |
| |
| | | |
| | |
Cash flows provided by (used in) investing activities: | |
| | | |
| | |
| |
| | | |
| | |
Investment in fixed assets | |
| (1,421,172 | ) | |
| - | |
Cash acquired in SRG acquisition | |
| - | | |
| 240,731 | |
| |
| | | |
| | |
Net cash provided by (used in) investing activities | |
| (1,421,172 | ) | |
| 240,731 | |
| |
| | | |
| | |
Cash flows provided by (used in) financing activities: | |
| | | |
| | |
| |
| | | |
| | |
Proceeds from sale of preferred stock | |
| 1,522,504 | | |
| 812,250 | |
Proceeds from sale of warrants | |
| 13,000 | | |
| - | |
Proceeds from credit facility | |
| 3,827,073 | | |
| | |
Cash paid for facility fee and origination fees
| |
| (409,623 | ) | |
| - | |
Proceeds from issuance of notes payable | |
| 72,206 | | |
| 1,000,428 | |
Proceeds from issuance of notes payable to related party | |
| - | | |
| 50,000 | |
Proceeds from issuance of notes payable - Other | |
| - | | |
| 28,174 | |
Repayment of notes payable | |
| (69,318 | ) | |
| (11,263 | ) |
Repayment of notes payable - Related party | |
| (320,000 | ) | |
| - | |
| |
| | | |
| | |
Net cash flows provided by financing activities | |
| 4,635,842 | | |
| 1,879,589 | |
| |
| | | |
| | |
Net increase (decrease) in cash | |
| 428,810 | | |
| (67,266 | ) |
| |
| | | |
| | |
Effect of foreign exchange rate changes on cash | |
| (324,217 | ) | |
| 35,892 | |
| |
| | | |
| | |
Cash - Beginning of period | |
| 23,225 | | |
| 53,744 | |
| |
| | | |
| | |
Cash - End of period | |
$ | 127,818 | | |
$ | 22,370 | |
| |
| | | |
| | |
Supplemental disclosures of cash flow information: | |
| | | |
| | |
| |
| | | |
| | |
Cash paid for: | |
| | | |
| | |
Interest | |
$ | - | | |
$ | 115 | |
Income taxes | |
$ | - | | |
$ | - | |
| |
| | | |
| | |
Supplemental disclosures of non-cash operating, investing, and financing activities: | |
| | | |
| | |
| |
| | | |
| | |
Issuance of Common and Preferred Stock: | |
| | | |
| | |
Conversion of note payable into Series C Convertible Preferred Stock | |
$ | - | | |
$ | 75,971 | |
Settlement of note payable to New Horizon, Inc. | |
$ | - | | |
$ | 1,509,361 | |
Settlement of note payable to the Rockland Group, Inc. | |
$ | - | | |
$ | 1,463,566 | |
Settlement of accounts payable | |
$ | - | | |
$ | 513,053 | |
Distribution/assumption of assets and liabilities to HLBC Distribution Company, Inc. | |
$ | - | | |
$ | 321,630 | |
| |
| | | |
| | |
Issuance of warrants: | |
| | | |
| | |
Issuance in connection with credit facility | |
$ | 1,387,914 | | |
$ | - | |
Transfer of assets and liabilities to HLBC Distribution Company, Inc. | |
$ | - | | |
$ | 295,000 | |
| |
| | | |
| | |
Acquisition of SRG International, Inc.: | |
| | | |
| | |
Acquisition of assets other than cash | |
$ | - | | |
$ | 1,722,941 | |
Assumption of liabilities | |
$ | - | | |
$ | 1,596,970 | |
Issuance of Series C Convertible Preferred Stock - Purchase price | |
$ | - | | |
$ | 125,971 | |
The accompanying
notes are an integral part of these condensed consolidated financial statements.
InterCore,
Inc. and Subsidiary
Notes to
the Condensed Consolidated Financial Statements
September
30, 2014
(Unaudited)
InterCore,
Inc. (the "Company") was incorporated under the laws of the State of Delaware on April 29, 2010. Through March 20, 2012,
the Company focused upon investments and acquisition opportunities primarily in products and companies involved in the market
segments of clean and renewable energy, medical technology, nanotechnology, and environmentally-friendly (green) waste management.
On March 30, 2012, the Company decided to intensify its focus in the energy sector and the related opportunities within and, to
that end, the Board of Directors elected to change the name of the Company from Heartland Bridge Capital, Inc., to InterCore Energy,
Inc.
On January
23, 2013, the Company:
| a) | Transferred
investments to a related party in exchange for the assumption of certain obligations.
The Company then converted the majority of the remaining accounts payable, notes payable,
and other commitments into shares of its common stock; and |
| b) | Closed on
a transaction with SRG International, Inc. ("SRG") and its shareholders whereby
the Company acquired 100% of the outstanding common stock of SRG in exchange for ICOR's
issuance of 5,000,000 shares of a newly created Series C Convertible Preferred Stock
("Series C"). Immediately after a reverse split of the Company's common stock,
which occurred on December 31, 2013, all of the then outstanding shares of Series C automatically
converted into 80% of the then outstanding shares of the Company's common stock and the
acquisition was accounted for as a purchase of a business. The SRG shareholders which
received the initial block of Series C in January 2013 did not perfect their interest
in such securities due to non-performance of certain provisions of the acquisition agreement.
On October 28, 2013, the Company waived such provisions. Subsequent to January 2013,
the Company issued additional shares of Series C to other investors. On December 31,
2013, all outstanding shares of Series C converted into 80% of the then outstanding common
shares of the Company. |
| | During 2013
the operations of SRG consisted primarily of researching, developing, and testing the
Driver Alertness Detection System ("DADS™"). DADS™ is designed
around proprietary alertness detection technologies, which enables individuals to modulate
their work activity based on real time assessment of their actual state of alertness.
The DADS™ methodology employs a unique approach for assessing sleepiness and low
alertness levels via the observed behavior of individuals in real work conditions. |
On December
31, 2013, the name of the Company was changed to InterCore, Inc.
The accompanying
unaudited condensed financial statements of the Company have been prepared in accordance with the instructions to Form 10-Q of
the Securities and Exchange Commission. Accordingly, they do not include all of the information and disclosures required by accounting
principles generally accepted in the United States of America. However, in the opinion of management, the accompanying unaudited
condensed financial statements contain all normal and recurring adjustments necessary to present fairly the financial position
of the Company as of September 30, 2014 and the related statements of operations and cash flows for the interim period then ended.
The balance sheet amounts as of December 31, 2013 were derived from audited financial statements. For further information, refer
to the audited financial statements and related disclosures that were filed by the Company with the Securities and Exchange Commission
on Form 10-K for the fiscal year ended December 31, 2013 on November 13, 2014. Certain prior year amounts have been reclassified
to conform to current year presentation.
The
accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company
incurred significant losses and negative cash flows from operations since its inception in April 2010 and has an accumulated
deficit of $24,513,944 as of September 30, 2014. Cash used in operating activities during the nine months ended September 30,
2014 and 2013 totaled $2,785,860 and $2,187,568, respectively, and the Company has a working capital deficiency of
$10,737,153 as of September 30, 2014. These conditions raise substantial doubt about the Company's ability to continue as a
going concern. The Company has historically financed its activities through the private placement of debt and equity
securities. Since inception, it has dedicated most of its financial resources to general and administrative expenses in the
pursuit of the business plan described in the preceding paragraphs and, effective January 23, 2013, research, development,
testing and commercialization of the DADS™ technology. As of January 12, 2015, the Company had cash-on-hand of
approximately $125,000.
The Company’s
ability to continue those activities is dependent upon its ability to raise additional equity, secure debt financing, and/or generate
revenue.
The Company
can give no assurance that such financing will be available on acceptable terms or at all, or that it can generate revenue. Should
the Company not be successful in obtaining the necessary financing or generating revenue to fund its operations, the Company would
need to curtail or cease its operational activities. The accompanying financial statements do not include any adjustments that
might be necessary should the Company be unable to continue as a going concern.
| 4) | Significant Accounting
Policies |
Principles
of Consolidation - The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary.
All other significant inter-company balances and transactions have been eliminated in consolidation.
Use of
Estimates - The preparation of financial statements in conformity with US GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and expenses for the reporting period. Management bases
its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances.
Actual results could differ from those estimates.
Revenue
Recognition - The Company recognizes revenue when persuasive evidence that an arrangement exists with a customer or client,
the price to the purchaser is fixed or determinable, the product has been shipped or the service has been performed, the Company
has no significant remaining obligation, and collectability is reasonably assured. Revenue from cloud-based services arrangements
that allow for the use of a hosted software product or service over a contractually determined period of time without taking possession
of software are accounted for as subscriptions and recognized as revenue ratably over the coverage period beginning on the date
the service is made available to customers.
Research
and Development - The Company expenses research and development costs as incurred. The Company incurred research and development
expense of $1,506,789 and $751,344 during the three months ended September 30, 2014 and 2013, respectively, and $3,990,777 and
$1,611,020 during the nine months ended September 30, 2014 and 2013, respectively. Additionally, the Company recorded a charge
for acquired research and development of $1,467,505 during the three months ended March 31, 2013.
Stock-Based
Compensation - The Company accounts for options granted to employees by measuring the cost of services received in exchange
for the award of equity instruments based upon the fair value of the award on the date of grant. The fair value of that award
is then ratably recognized as expense over the period during which the recipient is required to provide services in exchange for
that award. Options and warrants granted to consultants and other non-employees are recorded at fair value as of the grant date
and subsequently adjusted to fair value at the end of each reporting period until such options and warrants vest, and the fair
value of such instruments, as adjusted, is expensed over the related vesting period.
Stock-based
compensation expense totaled $577,748 and $14,550 for the three months ended September 30, 2014 and 2013, respectively, and $1,445,709
and $60,361 for the nine months ended September 30, 2014 and 2013, respectively, and was classified as follows:
| |
Three Months Ended | | |
Nine Months Ended | |
| |
September 30, | | |
September 30, | |
| |
2014 | | |
2013 | | |
2014 | | |
2013 | |
| |
| | |
| | |
| | |
| |
Research and development expense | |
$ | 505,539 | | |
$ | - | | |
$ | 906,429 | | |
$ | - | |
General and administrative expense | |
| 72,209 | | |
| 14,550 | | |
| 539,280 | | |
| 60,361 | |
| |
$ | 577,748 | | |
$ | 14,550 | | |
$ | 1,445,709 | | |
$ | 60,361 | |
Earnings
(Loss) Per Share - The Company calculates basic and diluted net loss per common share by dividing net loss by the weighted-average
number of common shares outstanding for the period. Basic and diluted net loss per common share were the same since the inclusion
of common shares issuable pursuant to the exercise of warrants and the conversion of preferred stock in the calculation of diluted
net loss per common share would have been anti-dilutive.
The following
table summarizes the number of common shares and common share equivalents excluded from the calculation of diluted net loss per
common share for the three and nine months ended September 30, 2014 and 2013:
| |
2014 | | |
2013 | |
| |
| | |
| |
Options | |
| 4,600,000 | | |
| - | |
Warrants | |
| 3,328,304 | | |
| 1,293,304 | |
Conversion shares underlying the credit facility | |
| 3,417,029 | | |
| - | |
| |
| 11,345,333 | | |
| 1,293,304 | |
Fair
Value - The Company determines the estimated fair value of amounts presented in these financial statements using available
market information and appropriate methodologies. However, considerable judgment is required in interpreting market data to develop
the estimates of fair value. The estimates presented in the financial statements are not necessarily indicative of the amounts
that could be realized in a current exchange between buyer and seller. The use of different market assumptions and/or estimation
methodologies may have a material effect on the estimated fair value amounts. These fair value estimates were based upon pertinent
information available as of September 30, 2013 and, as of that date, the carrying value of all amounts approximates fair value.
The Company
has categorized its assets and liabilities at fair value based upon the following fair value hierarchy:
| a) | Level 1 inputs
which utilize quoted prices (unadjusted) in active markets for identical assets or liabilities. |
| b) | Level 2 inputs
which utilize other-than-quoted prices that are observable, either directly or indirectly.
Level 2 inputs include quoted prices for similar assets and liabilities in active markets,
and inputs such as interest rates and other information that are observable at commonly
quoted intervals. |
| c) | Level 3 inputs
which are unobservable and are typically based on assumptions, including situations where
there is little, if any, market activity. |
In certain
cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the related
asset or liability was categorized based on the lowest level input that is significant to the fair value measurement in its entirety.
Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers
factors specific to the asset or liability.
Both observable
and unobservable inputs may be used to determine the fair value of positions that are classified within the Level 3 category.
As a result, the unrealized gains and losses for assets within the Level 3 category presented in the tables below may include
changes in fair value that were attributable to both observable (e.g., changes in market interest rates) and unobservable (e.g.,
changes in historical company data) inputs.
Financial
assets and liabilities are considered Level 3 when their fair values are determined using pricing models, discounted cash
flow methodologies or similar techniques, and at least one significant model assumption or input is unobservable.
The Company’s Level 3 liabilities consisted of derivative liabilities associated with the convertible credit facility
that contains an indeterminable conversion share price as the Company cannot determine if it will have sufficient
authorized common stock to settle such arrangements.
The carrying
amounts of the Company’s cash, accounts receivables, prepaid expenses, accounts payable and accrued expenses, debt and other
current liabilities approximate fair value to the short-term nature of these investments.
The
following are the major categories of liabilities were measured at fair value as of September 30, 2014 using quoted prices
in active markets for identical liabilities (Level 1), significant other observable inputs (Level 2), and significant
unobservable inputs (Level 3):
| |
Level 1: | | |
| | |
| | |
| |
| |
Quoted Prices | | |
| | |
| | |
| |
| |
In Active | | |
| | |
| | |
| |
| |
Markets For | | |
Level 2: | | |
| | |
| |
| |
Identical | | |
Significant | | |
Level 3: | | |
| |
| |
Liabilities Or | | |
Other | | |
Significant | | |
| |
| |
Financial | | |
Observable | | |
Unobservable | | |
| |
| |
Instruments | | |
Inputs | | |
Inputs | | |
Total | |
| |
| | |
| | |
| | |
| |
Embedded conversion option | |
$ | - | | |
$ | - | | |
$ | 7,674,648 | | |
$ | 7,674,648 | |
Warrant | |
| - | | |
| - | | |
| 150,635 | | |
| 150,635 | |
| |
$ | - | | |
$ | - | | |
$ | 7,825,283 | | |
$ | 7,825,283 | |
The following
table provides a summary of the Company’s level 3 changes in fair value, including net transfers in and/or out, of all financial
liabilities measured at fair value on a recurring basis using significant unobservable inputs during the nine months ended September
30, 2014:
| |
Embedded | | |
| | |
| |
| |
Conversion | | |
| | |
| |
| |
Option | | |
Warrants | | |
Total | |
| |
| | |
| | |
| |
Balance - December 31, 2013 | |
$ | - | | |
$ | - | | |
$ | - | |
Included in debt discount (Note 6) | |
| 3,597,450 | | |
| - | | |
| 3,597,450 | |
Included in interest expense (Note 6) | |
| 4,154,872 | | |
| - | | |
| 4,154,872 | |
Reclassification of additional paid-in capital to derivative liability (Note 11) | |
| - | | |
| 161,330 | | |
| 161,330 | |
Change in fair value of derivative liability | |
| (77,674 | ) | |
| (10,695 | ) | |
| (88,369 | ) |
Balance - September 30, 2014 | |
$ | 7,674,648 | | |
$ | 150,635 | | |
$ | 7,825,283 | |
The
Company utilized the Binomial Lattice Model for determining the fair value of the liabilities related to the embedded
conversion option. The following table summarizes significant unobservable inputs in the fair value measurement of the
Company’s embedded conversion feature as of September 30, 2014:
Stock price |
$2.80 |
Risk free interest rate |
1.3% |
Expected life of the agreement |
3.6 years |
Expected stock price volatility |
100% |
Expected dividend yield |
Zero |
The stock prices
are based upon the Company's closing prices in the open market. The risk free interest rates were United States Treasury rates
for the applicable periods. The expected life of the agreement is the remaining term of the credit facility. The expected stock
price volatility was determined by reference to the historical volatility of the Company's own stock price and the expected volatility
as reported by industry peers. The expected dividend yield is zero because the Company has not paid dividends in the past and
does not expect to pay dividends in the foreseeable future.
The Company utilized the Black Scholes
Model for determining the fair value of the liabilities related to the warrants. The following table summarizes significant unobservable
inputs in the fair value measurement of the Company’s warrants as of September 30, 2014:
Stock price |
$2.80 |
Risk free interest rate |
0.5% |
Expected life of the agreement |
1.9 years |
Expected stock price volatility |
100% |
Expected dividend yield |
Zero |
Foreign
Operations - The Company operates in the United States and Canada. Revenues and other financial statistics are attributed
to the country in which each legal entity is domiciled. The financial information by geographic area is as follows:
| |
US | | |
Canada | | |
Total | |
| |
| | |
| | |
| |
Three months ended September 30, 2014: | |
| | | |
| | | |
| | |
Revenues by geographic area | |
$ | - | | |
$ | 351,450 | | |
$ | 351,450 | |
Operating loss by geographic area | |
| 502,340 | | |
| 1,100,040 | | |
| 1,602,380 | |
Net loss by geographic area | |
| 3,348,033 | | |
| 1,100,040 | | |
| 4,448,073 | |
| |
| | | |
| | | |
| | |
Three months ended September 30, 2013: | |
| | | |
| | | |
| | |
Revenues by geographic area | |
| - | | |
| 42,932 | | |
| 42,932 | |
Operating loss by geographic area | |
| 550,204 | | |
| 250,174 | | |
| 800,378 | |
Net loss by geographic area | |
| 656,937 | | |
| 250,174 | | |
| 907,111 | |
| |
| | | |
| | | |
| | |
Nine months ended September 30, 2014: | |
| | | |
| | | |
| | |
Revenues by geographic area | |
| - | | |
| 615,374 | | |
| 615,374 | |
Operating loss by geographic area | |
| 1,627,426 | | |
| 3,220,816 | | |
| 4,848,242 | |
Net loss by geographic area | |
| 7,185,078 | | |
| 3,220,816 | | |
| 10,405,894 | |
| |
| | | |
| | | |
| | |
Nine months ended September 30, 2013: | |
| | | |
| | | |
| | |
Revenues by geographic area | |
| 644 | | |
| 66,976 | | |
| 67,620 | |
Operating loss by geographic area | |
| 919,814 | | |
| 2,498,137 | | |
| 3,417,951 | |
Net loss by geographic area | |
| 2,860,729 | | |
| 2,498,137 | | |
| 5,358,866 | |
| |
| | | |
| | | |
| | |
As of September 30, 2014 | |
| | | |
| | | |
| | |
Identifiable assets by geographic area | |
| 1,144,336 | | |
| 2,150,906 | | |
| 3,295,242 | |
Long lived assets by geographic area | |
| 1,156,591 | | |
| 1,436,535 | | |
| 2,593,126 | |
| |
| | | |
| | | |
| | |
As of December 31, 2013 | |
| | | |
| | | |
| | |
Identifiable assets by geographic area | |
| 32,370 | | |
| 329,397 | | |
| 361,767 | |
Long lived assets by geographic area | |
| - | | |
| - | | |
| - | |
Concentration
of Activities - During the three and nine months ended September 30, 2014, the Company earned 100% of its revenues from
one customer. As of September 30, 2014, 100% of its outstanding accounts receivable were due from that customer.
Fixed
Assets - Fixed assets are stated at cost, net of accumulated depreciation, and are depreciated on a straight line basis
over their estimated useful lives ranging from three to five years. Leasehold improvements are depreciated on a straight line
basis over the term of the related lease. Expenditures for additions, major renewals, or betterments are capitalized and expenditures
for maintenance and repairs are charged to expense as incurred.
Deferred
Financing Costs - Cost incurred in conjunction with the debt financing has been capitalized and will be amortized to interest
expense using the straight line method, which approximates the interest rate method over the term of the debt and is included
as a component of other assets. The Company incurred amortization expense of $282,146 and zero during the three months ended September
30, 2014 and 2013, respectively, and $465,910 and zero during the nine months ended September 30, 2014 and 2013, respectively.
Derivative
Liabilities - In connection with the Company entering into a convertible credit facility, the terms of the agreement included
an embedded conversion feature; which provided for the settlement of the credit facility into shares of common stock at a rate
which was determined to be variable. The Company determined that the conversion feature was an embedded derivative instrument
pursuant to ASC 815 “Derivatives and Hedging”. The accounting treatment of derivative financial instruments requires
that the Company record the conversion option as of the inception date of the agreements and at fair value as of each subsequent
balance sheet date. Any change in fair value was recorded as a change in the fair value of derivative liabilities for each reporting
period at each balance sheet date. The Company reassesses the classification at each balance sheet date. If the classification
changes as a result of events during the period, the contract is reclassified as of the date of the event that caused the reclassification.
The fair value
of an embedded conversion option that is convertible into a variable amount of shares are deemed to be a “down-round protection”
and therefore, do not meet the scope exception for treatment as a derivative under ASC 815. Since, “down-round protection”
is not an input into the calculation of the fair value of the conversion option and cannot be considered “indexed to the
Company’s own stock” which is a requirement for the scope exception as outlined under ASC 815.
The Company
used the Binomial Lattice Model to determine the fair value of embedded conversion option. The Company used the Black Scholes Model to determine the fair value of the warrant liability. The warrants
have a fixed exercise price and do not have any down round price protection features.
As a result
of entering into a convertible credit facility (Note 6) for which such instruments contained a variable conversion feature with
no floor, the Company has adopted a sequencing policy in accordance with ASC 815-40-35-12 whereby all future instruments may be
classified as a derivative liability with the exception of instruments related to share-based compensation.
Foreign
Currency Translation - The functional currency of the Company's Canadian operations is the Canadian dollar. Assets
and liabilities related to that operation are translated at end-of-period exchange rates while the related revenues and
expenses are translated at average exchange rates prevailing during the period. Unrealized foreign currency translation gains
and losses are recorded in Accumulated Other Comprehensive Gains/Losses on the balance sheet and presented as separate
components of activity in the statements of operations. Foreign currency translation gains (losses) totaled ($163,445) and
($46,571) for the three months ended September 30, 2014 and 2013, respectively, and ($324,217) and $35,890 for the nine
months ended September 30, 2014 and 2013, respectively,
Comprehensive
Income (Loss) - The Company reports comprehensive income (loss) and components thereof in the condensed consolidated statement
of operations. Comprehensive loss consists of net loss and foreign currency translation adjustments affecting shareholder’s
deficiency which, under US GAAP, are excluded from net loss.
Retroactive Adjustment For Stock
Splits - On December 31, 2013, the Company effected a one hundred-for-one reverse stock split of its Common Stock. Consequently,
all earnings per share and other share related amounts and disclosures have been retroactively adjusted for those actions.
Subsequent Events - The
Company has evaluated subsequent events and transactions through the date these financial statements were issued to determine
if such events and transactions required adjustment to or disclosure in these financial statements.
Fixed assets as of September 30, 2014
and December 31, 2013 consist of the following:
| |
2014 | | |
2013 | |
| |
| | |
| |
Computer equipment | |
$ | 914,064 | | |
$ | - | |
Software | |
| 156,196 | | |
| | |
Leasehold improvements | |
| 350,912 | | |
| - | |
| |
| | | |
| | |
| |
$ | 1,421,172 | | |
$ | - | |
No depreciation or amortization has been
recorded during the nine months ended September 30, 2014 as those assets have yet to be placed in service.
On January 3, 2014, the Company issued
a note payable in the amount of $40,000 plus a warrant for the purchase of 10,000 shares of the Company's common stock at $2.00
per share until May 1, 2017. This warrant was 100% vested upon issuance. This note matures on May 1, 2014 and accrues interest
at the rate of 12% per annum for the first six months they are outstanding and then 18% per annum thereafter. The warrants were
valued at $6,940. This note was issued to a related party as further described in Note 13. The
Company recorded a debt discount based on the estimated relative fair values of the instruments issued in the transaction. The
Company recorded a debt discount of $5,914 which was amortized over the life of the debt.
The interest expense associated with this
note for the nine months ended September 30, 2014 consisted of the following:
Accrued interest of the face amount of the note | |
$ | 2,344 | |
Amortization of debt discount | |
| 5,914 | |
| |
$ | 8,258 | |
The Company is not in compliance with
the terms of this note or others similar to it with principal amounts totaling $664,000. However, those noteholders have not issued
the Company a formal notice of default.
On September 2, 2014, the entered into
a note payable with Epec in the amount of $110,000. The note earns 18% annually compounded daily, requires
monthly principal payments of $3,000 on the 15th of each month from September through December and matures on December 31, 2014.
In connection with the issuance of that note, the Company issued to Epec 8,000 shares of its common stock with a value of $26,000
based upon the closing price of $3.25 per share on that date. The value of those shares was recorded as a debt discount and is
being amortized to financing expense ratably over the life of the note.
| 7) | Convertible Credit Facility |
On May 5, 2014, the Company entered into
a Loan and Security Agreement and a Secured Promissory Note (collectively the "Credit Facility") with Rhine Partners,
LP ("Rhine"). The Credit Facility permits borrowings up to $4,000,000, bears interest at 18% per annum, is secured by
a lien on the assets of the Company, and matures on November 15, 2015. The credit facility is collateralized by substantially
all of the Company's assets.
In connection with securing this Credit
Facility, the Company paid a 4.5% facility fee of $180,000 and granted to Rhine a warrant for the purchase of up to 2,000,000
shares of the Company's common stock at an exercise price of $1.00 per share through May 2, 2018. The warrant had a fair value
of $1,382,000. This warrant was fully vested and its fair value was determined by utilizing the Black Scholes valuation model.
The combined amount of $1,562,000 represents costs incurred to secure this Credit Facility and are being amortized on a straight
lines over the term of this agreement. Additionally, the Company is obligated to pay a 6% origination fee at the time of each
withdrawal.
Outstanding principal may be converted
at the election of Rhine at any time into the Company's Series D Preferred Shares at the price of $10.00 per share or into restricted
common stock at a price equal to 40% of the market price based upon the average closing price of the five days preceding such
election. Additionally, Rhine has the right to make such a conversion election up to five days after the Company has tendered
repayment of the principal.
The Company accounted for proceeds from
this Credit Facility in accordance with ASC 815 "Derivatives and Hedging". The fair value of the embedded conversion
option for each individual advance was determined using the Binomial Lattice Model and recorded on the date of such advances as
a derivative liability. They are collectively marked-to-market at the end of each reporting period with a related non-cash charge
or benefit recorded in the Other Income (Expense) section in the Statement of Operations. As a result of entering into a convertible
credit facility (Note 6) for which such instruments contained a variable conversion feature with no floor, the Company has adopted
a sequencing policy in accordance with ASC 815-40-35-12 whereby all future instruments may be classified as a derivative liability
with the exception of instruments related to share-based compensation.
During the three months ended September
30, 2014, the Company received gross advances of $1,802,074 and simultaneously recorded a derivative liability of $3,628,330.
To account for the market discounts of the conversion rights, the gross advances were recorded net of debt discounts immediately
for $108,124 related to the 6% origination fee and $1,693,950 related to the fair value attributed to the embedded conversion
options. To the extent the derivative liability exceeded the debt discount value attributed to the embedded conversion options,
that difference of $1,934,380 was immediately recorded as interest expense in the Statement of Operations.
During the nine months ended September
30, 2014, the Company received gross advances of $3,827,073 and simultaneously recorded a derivative liability of $7,752,322.
To account for the market discounts of the conversion rights, the gross advances were recorded net of debt discounts immediately
for $229,623 related to the 6% origination fee and $3,597,450 related to the fair value attributed to the embedded conversion
options. To the extent the derivative liability exceeded the debt discount value attributed to the embedded conversion options,
that difference of $4,154,872 was immediately recorded as interest expense in the Statement of Operations.
The debt discount associated with each
Advance is being charged to interest expense ratably over the remaining term of the Credit Facility.
The Company used the Binomial Lattice
Model to calculate the fair value of the embedded conversion options upon the date of each advance. The significant inputs and
assumptions are summarized in the following table:
Stock price | |
| $0.76 to $3.80 | |
Risk free interest rate | |
| 1.3% | |
Expected life of the agreement | |
| 3.6 to 4.00 years | |
Expected stock price volatility | |
| 100% | |
Expected dividend yield | |
| Zero | |
The stock prices are based upon the Company's
closing prices in the open market. The risk free interest rates were United States Treasury rates for the applicable periods.
The expected life of the agreement is the remaining term of the credit facility. The expected stock price volatility was determined
by reference to the historical volatility of the Company's own stock price and the expected volatility as reported by industry
peers. The expected dividend yield is zero because the Company has not paid dividends in the past and does not expect to pay dividends
in the foreseeable future.
The Company is obligated to commence repayment
of the principal when it becomes cash flow positive and may do so without penalty. As of September 30, 2014 the principal balance
of $3,827,073 is presented less a debt discount of $3,164,750 resulting in a net amount of $662,323. The credit facility has been
classified as a current liability since it may be terminated by the lender at any time.
On November 28, 2014, the Company repaid
principal and interest of $518,477 and $273,523, respectively. Therefore, the total principal currently outstanding in connection
with this Credit Facility is $3,308,596.
| 8) | Series D Preferred Stock |
Series D Preferred Stock has the following
rights and preferences: (i) For each $200,000 invested in 20,000 shares of Series D Preferred Stock at $10 per share, the holder
of such shares is entitled to royalty payments equal to: a) one percent of the Company's gross revenue until $1,000,000 has been
paid to such holder; and b) one half of one percent of the Company's gross revenue until an additional $1,000,000 has been paid
to such holder. Such payments are due on a quarterly basis and once payments totaling $2,000,000 have been made to such holder,
those shares will cease earning royalty payments and be returned to the Company for no additional consideration; (ii) no dividend
rights; (iii) no liquidation rights other than what is owed in connection with the terms described in "(i)" above; (iv)
no conversion rights; (v) no redemption rights; (v) no call rights by the Company; and (vi) no voting rights.
On various dates from January 3, 2014
to June 26, 2014, the Company raised $1,600,000 through the sale of 160,000 shares of Series D Preferred Stock and received net
proceeds of $1,522,500. In this connection, a commission of $77,500 was earned by a related party as further described in Note
13.
On September 2, 2014 and as more fully
described in Note 6 in connection with the amendment of a note payable, the Company issued 8,000 shares of its common stock with
a value of $26,000 based upon the closing price of $3.25 per share on that date.
| 10) | Adoption of Stock Option Plan and Issuance of Options |
On February 3, 2014, the Company's Board
of Directors approved the adoption of the InterCore, Inc. 2014 Non-Qualified Stock Option Plan (the “Plan”). The Plan
is intended to aid the Company in maintaining and developing a management team, attracting qualified officers and employees capable
of assisting in the future success of the Company, and rewarding those individuals who have contributed to the success of the
Company.
On that same date, the Board approved
the issuance of options to the Company's management team for the purchase of up to 4,600,000 shares of the Company's common stock
at $1.00 per share for a period of ten years. The fair value of that option award was $1,384,000. Such options were one-third
vested on the date of issuance and the remaining thirds will vest on December 31, 2014 and 2015. During the three and nine months
ended September 30, 2014, the Company recorded share-based compensation of $647,667 and $1,445,705, respectively, in this connection.
Assumptions made in calculating the fair
value of those options were as follows:
Risk free interest rate | |
1.5% |
Dividend yield | |
Zero |
Volatility | |
100% |
Expected term | |
4.5 years |
The stock prices are based upon the Company's
closing prices in the open market. The risk free interest rates were United States Treasury rates for the applicable periods.
The expected life of the agreement is the remaining term of the option. The expected stock price volatility was determined by
reference to the historical volatility of the Company's own stock price and the expected volatility as reported by industry peers.
The expected dividend yield is zero because the Company has not paid dividends in the past and does not expect to pay dividends
in the foreseeable future.
A summary of the changes in options outstanding
during the nine months ended September 30, 2014 is as follows:
| |
| | |
Weighted | | |
Weighted | | |
| |
| |
| | |
Average | | |
Average | | |
| |
| |
| | |
Exercise | | |
Remaining | | |
Aggregate | |
| |
Number of | | |
Price | | |
Contractual | | |
Intrinsic | |
| |
Shares | | |
Per Share | | |
Term (Years) | | |
Value | |
| |
| | |
| | |
| | |
| |
Outstanding at December 31, 2013 | |
| - | | |
| - | | |
| - | | |
| - | |
Granted | |
| 4,600,000 | | |
$ | 1.00 | | |
| 10.0 | | |
| - | |
Exercised | |
| - | | |
| | | |
| | | |
| | |
Forfeited | |
| - | | |
| | | |
| | | |
| | |
Outstanding at September 30, 2014 | |
| 4,600,000 | | |
$ | 1.00 | | |
| 9.3 | | |
$ | 8,280,000 | |
| |
| | | |
| | | |
| | | |
| | |
Options exercisable at September 30, 2014 | |
| 1,533,333 | | |
$ | 1.00 | | |
| 9.3 | | |
$ | 2,759,999 | |
On January 3, 2014 and as more fully described
in Note 6 in connection with the issuance of a note payable, the Company issued a warrant for the purchase of 10,000 shares of
common stock through May 1, 2017 at $2.00 per share. This warrant was 100% vested upon issuance and had a fair value of $6,940.
On March 6, 2014, the Company granted
a warrant to an advisor to the Company for services rendered for the purchase of 25,000 shares of common stock through March 6,
2019 at $1.00 per share. This warrant was 100% vested upon issuance and had a fair value of $14,275. During the nine months ended
September 30, 2014, the Company recorded share-based compensation of $14,275 in this connection.
On May 2, 2014 and as more fully described
in Note 7 in connection with entering into a credit facility, the Company issued a warrant for the purchase of 2,000,000 shares
of common stock through May 2, 2018 at $1.00 per share. This warrant was 100% vested upon issuance and had a fair value of $1,382,000.
On September 2, 2014, the Company issued
to independent investors a series of warrants for the purchase of 85,000 shares of restricted common stock through September 2,
2016 at $1.75 per share and received proceeds of $18,000. These warrants were 100% vested upon issuance.
In accordance with its sequencing policy,
the Company could not determine if it had sufficient authorized shares to settle the contract as the outstanding Credit Facility
(Note 7) is convertible into a variable amount of shares with no floor. On the date of the issuance of the warrants, the Company
reclassified the fair value of the warrants of $161,330 from additional paid-in capital to derivative liability. These warrants
are collectively marked-to-market at the end of each reporting period with a related non-cash charge or benefits recorded in the
Statement of operations as a change in fair value of derivative liability.
The Company used the Black Scholes Model
to calculate the fair value of the warrants upon the date of issuance and each reporting date thereafter. The significant inputs
and assumptions are summarized in the following table:
Risk free interest rate | |
0.5% |
Dividend yield | |
Zero |
Volatility | |
100% |
Expected term | |
1.9 to 2.0 years |
The stock prices are based upon the Company's
closing prices in the open market. The risk free interest rates were United States Treasury rates for the applicable periods.
The expected life of the agreement is the remaining term of the warrant. The expected stock price volatility was determined by
reference to the historical volatility of the Company's own stock price and the expected volatility as reported by industry peers.
The expected dividend yield is zero because the Company has not paid dividends in the past and does not expect to pay dividends
in the foreseeable future.
A summary of the changes in warrants outstanding
during the nine months ended September 30, 2014 is as follows:
| |
| | |
Weighted | | |
Weighted | | |
| |
| |
| | |
Average | | |
Average | | |
| |
| |
| | |
Exercise | | |
Remaining | | |
Aggregate | |
| |
Number of | | |
Price | | |
Contractual | | |
Intrinsic | |
| |
Shares | | |
Per Share | | |
Term (Years) | | |
Value | |
| |
| | |
| | |
| | |
| |
Outstanding at December 31, 2013 | |
| 1,293,304 | | |
$ | 5.80 | | |
| 3.9 | | |
| - | |
Granted | |
| 2,120,000 | | |
$ | 1.00 | | |
| 3.8 | | |
| - | |
Exercised | |
| - | | |
| | | |
| | | |
| | |
Forfeited | |
| - | | |
| | | |
| | | |
| | |
Outstanding at September 30, 2014 | |
| 3,413,304 | | |
$ | 2.86 | | |
| 3.6 | | |
$ | 5,311,300 | |
| |
| | | |
| | | |
| | | |
| | |
Warrants exercisable at September 30, 2014 | |
| 3,413,304 | | |
$ | 2.86 | | |
| 3.6 | | |
$ | 5,311,300 | |
| 12) | Commitments and Contingencies |
The Company is subject to litigation in
the ordinary course of business. Certain conditions may exist as of the date the condensed consolidated financial statements are
issued, which may result in a loss to the Company, but which will only be resolved when one or more future events occur or fail
to occur. The Company assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. In
assessing loss contingencies related to legal proceedings that are pending against the Company, or unasserted claims that may
result in such proceedings, the Company evaluates the perceived merits of any legal proceedings or unasserted claims, as well
as the perceived merits of the amount of relief sought or expected to be sought therein.
If the assessment of a contingency indicates
that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated
liability would be accrued in the Company’s condensed consolidated financial statements. If the assessment indicates that
a potentially material loss contingency is not probable, but is reasonably possible, or is probable but cannot be estimated, then
the nature of the contingent liability and an estimate of the range of possible losses, if determinable and material, would be
disclosed.
Loss contingencies considered remote are
generally not disclosed, unless they involve guarantees, in which case the guarantees would be disclosed. There can be no assurance
that such matters will not materially and adversely affect the Company’s business, financial position, and results of operations
or cash flows. As of September 30, 2014 and December 31, 2013 the Company has not accrued for any loss contingencies.
| 13) | Related Party Transactions |
On January 3, 2014 and as more fully described
in Note 6, the Company issued a note payable in the amount of $40,000 plus a warrant for the purchase of 10,000 shares of the
Company's common stock. This note was purchased by an entity controlled by Mr. Frederick Voight, the Company's Vice president
of Investments and a member of the Company's Board of Directors.
During the nine months ended September
30, 2014 and as more fully described in Note 8, the Company raised $1,600,000 through the sale of shares of Series D Preferred
Stock. Mr. Frederick Voight, the Company's Vice president of Investments and a member of the Company's Board of Directors, earned
a commission of $77,500 in connection with these issuances.
| a) | Compensation for Services |
On October 8, 2014, the
Company entered into an agreement with its major customer to be compensated for software licenses provided by the Company
during the nine months ended September 30, 2014 through the payment of twelve monthly amounts of $125,000 in Canadian
dollars. Due to the uncertainty of payment, revenue is being recognized upon the collection of such funds. The Company has
recorded revenues of $351,450 in connection with this agreement during the three and nine months ended September 30,
2014.
| b) | Issuance of Convertible Note Payable #1 to Topside |
On October 15, 2014, the Company
entered into a Loan and Security Agreement and Secured Promissory Note (collectively the "Note") with Topside Partners,
LP ("Topside") under which the Company borrowed various amounts between that date and October 22, 2014 totaling $1,000,000
and received net proceeds of $974,900. The Note bears interest at 18% per annum, is secured by a lien on all the Company's assets,
and matures on April 30, 2015. The Company is obligated to commence repayment of the principal when it becomes cash flow positive
and may do so without penalty. Outstanding principal may be converted at the election of Topside at any time into the Company's
Series D Preferred Shares at the price of $10.00 per share or into restricted common stock at a price of a 60% discount to market
based on the average closing price of the five days preceding such election except that through April 15, 2015, Topside may convert
the outstand principal into common stock at a price equal to the lesser of: a) $2.00 per share; or b) a 60% discount to market
based upon the average closing price five days preceding such election. Topside has the right to make such a conversion election
up to five days after the Company has tendered repayment of the principal. Additionally on that same day and under the terms of
the Note, the Company issued a warrant for Topside to purchase up to 2,000,000 shares of the Company's common stock at an exercise
price of $1.00 per share for a period of four years. The warrant was 100% vested upon issuance.
On October 15 and November 7,
2014, we issued 1,290,491 shares of restricted common stock to Topside in connection with its exercise of warrants to purchase
1,518,130 shares of our common stock. We did not receive any consideration for the exercise of these warrants as they were issued
pursuant to the cashless exercise provision contained in those warrants.
| d) | Issuance of Convertible Note Payable
#2 to Topside |
On October 29, 2014, the Company
entered into a Loan and Security Agreement and Secured Promissory Note (collectively the "Note") with Topside Partners,
LP ("Topside") under which the Company borrowed various amounts between that date and November 5, 2014 totaling $1,000,000
and received net proceeds of $895,000. The Note bears interest at 18% per annum, is secured by a lien on all the Company's assets,
and matures on May 31, 2015. The Company is obligated to commence repayment of the principal when it becomes cash flow positive
and may do so without penalty. Outstanding principal may be converted at the election of Topside at any time into the Company's
Series D Preferred Shares at the price of $10.00 per share or into restricted common stock at a price of a 60% discount to market
based on the average closing price of the five days preceding such election except that through April 29, 2015, Topside may convert
the outstand principal into common stock at a price equal to the lesser of: a) $2.00 per share; or b) a 60% discount to market
based upon the average closing price five days preceding such election. Topside has the right to make such a conversion election
up to five days after the Company has tendered repayment of the principal. Additionally on that same day and under the terms of
the Note, the Company issued a warrant for Topside to purchase up to 2,000,000 shares of the Company's common stock at an exercise
price of $1.00 per share for a period of four years. The warrant was 100% vested upon issuance.
| e) | Issuance of Convertible Note Payable
#3 to Topside |
On November 7, 2014, the Company
entered into a Loan and Security Agreement and Secured Promissory Note (collectively the "Note") with Topside Partners,
LP ("Topside") under which the Company borrowed various amounts between that date and November 19, 2014 totaling $1,000,000
and received net proceeds of $900,000. The Note bears interest at 18% per annum, is secured by a lien on all the Company's assets,
and matures on May 31, 2015. The Company is obligated to commence repayment of the principal when it becomes cash flow positive
and may do so without penalty. Outstanding principal may be converted at the election of Topside at any time into the Company's
Series D Preferred Shares at the price of $10.00 per share or into restricted common stock at a price of a 60% discount to market
based on the average closing price of the five days preceding such election except that through April 29, 2015, Topside may convert
the outstand principal into common stock at a price equal to the lesser of: a) $2.00 per share; or b) a 60% discount to market
based upon the average closing price five days preceding such election. Topside has the right to make such a conversion election
up to five days after the Company has tendered repayment of the principal. Additionally on that same day and under the terms of
the Note, the Company issued a warrant for Topside to purchase up to 2,000,000 shares of the Company's common stock at an exercise
price of $1.00 per share for a period of four years. The warrant was 100% vested upon issuance.
| f) | Issuance of Series D Preferred Stock |
On various dates from November
5, 2014 through November 26, 2014, the Company raised $1,117,000 through the sale of 111,700 shares of Series D Preferred Stock
and received net proceeds of $1,061,150.
| | On November 12, 2014, the Company issued
18,750 shares of restricted common stock at $2.00 per share to private investors in connection
with the exercise of warrants and received proceeds of $37,500. |
| | On November 18 2014, the Company issued
17,000 shares of restricted common stock at $2.95 per share to a private investor and
received proceeds of $50,150. |
| i) | Repayments In Connection With The Credit
Facility |
On November 26, 2014, the Company
made principal and interest payments totaling $792,000 in connection with the Credit Facility. Therefore, the total principal
currently outstanding in connection with the Credit Facility is $3,308,596 and $73,599, respectively.
| j) | Issuance of $300K note to Rhine. |
| | On December 8, 2014, the Company entered
into a Loan Agreement ("Note") with Rhine Partners, LP ("Rhine")
under which the Company borrowed $300,000. The Note bears interest at the rate of 1.5%
every ten days or portions thereof and matures on January 30, 2015. Additionally, a one-time
facility fee of $25,000 was earned by Rhine upon the execution of the Note. Outstanding
principal may be converted at the election of Rhine at any time into the Company's Series
D Preferred Shares at the price of $10.00 per share or into restricted common stock at
a price of a 40% discount to market based on the average closing price of the five days
preceding such election. Rhine has the right to make such a conversion election up to
five days after the Company has tendered repayment of the principal. Additionally on
that same day and under the terms of the Note, the Company issued a warrant for Rhine
to purchase up to 500,000 shares of the Company's common stock at an exercise price of
$1.00 per share for a period of four years. The warrant was 100% vested upon issuance.
If the Company fails to repay the loan in full by the maturity date, the Company must
pay a penalty of $35,000 and issue a warrant to Rhine for the purchase of 2,000,000 shares
of the Company's common stock at an exercise price of $1.00 per share for a period of
four years. The warrant would be 100% vested upon issuance. |
| | On December 29, 2013, the Company entered
into a lease agreement for 3,250 square feet for offices in Montreal which expires at
the end of December 2016. Effective July 1 and October 1, 2014, the company entered into
two additional lease agreements for 12,036 and 5,486 square feet for additional office
space in the same building in Montreal which expires at the end of November 2018 and
December 2016, respectively. |
| | Total remaining commitments under
these three lease agreements as of September 30, 2014 are as follows: |
2014 | |
$ | 54,904 | |
2015 | |
| 386,724 | |
2016 | |
| 396,228 | |
2017 | |
| 291,108 | |
2018 | |
| 279,379 | |
| |
$ | 1,408,343 | |
* * * * *
| ITEM 2 | Management’s Discussion and Analysis of Financial
Condition and Results of Operations |
Our Management’s
Discussion and Analysis contains statements that are historical facts and statements that are forward-looking (within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934). Forward-looking statements
are, by their very nature, uncertain and risky. These risks and uncertainties include international, national, and local general
economic and market conditions; demographic changes; our ability to sustain, manage, or forecast growth; our ability to successfully
make and integrate acquisitions; raw material costs and availability; new product development and introduction; existing government
regulations and changes in, or the failure to comply with, government regulations; adverse publicity; competition; the loss of
significant customers or suppliers; fluctuations and difficulty in forecasting operating results; changes in business strategy
or development plans; business disruptions; the ability to attract and retain qualified personnel; the ability to protect technology;
and other risks that might be detailed from time to time in our filings with the Securities and Exchange Commission.
Although the forward-looking statements
in this Quarterly Statement reflect the good faith judgment of our management, such statements can only be based on facts and
factors currently known or believed by them. Consequently, and because forward-looking statements are inherently subject to risks
and uncertainties, the actual results and outcomes may differ materially from the results and outcomes discussed in the forward-looking
statements. You are urged to carefully review and consider the various disclosures made by us in this report and in our other
reports as we attempt to advise interested parties of the risks and factors that may affect our business, financial condition,
results of operations, and prospects.
The following discussion and analysis
of financial condition and results of operations of the Company is based upon, and should be read in conjunction with, its unaudited
financial statements and related notes elsewhere in this Form 10-Q, which have been prepared in accordance with accounting principles
generally accepted in the United States. All dollar amounts in this section have been rounded to the nearest thousand.
Overview
Corporate History Prior to December
31, 2012
We were incorporated under the laws of
the State of Delaware on April 29, 2010. Through March 20, 2012, we focused on investments and acquisition opportunities primarily
in products and companies involved in the market segments of clean and renewable energy, medical technology, nanotechnology, and
environmentally-friendly (green) waste management.
On March 30, 2012, we decided to further
intensify our focus in the energy sector and the related opportunities within and, to that end, we elected to change the name
of the Company to InterCore Energy, Inc.
Through December 31, 2012 and as more
fully described in our Annual Report on Form 10-K for the year then ended as filed with the Commission on June 25, 2013, we assembled
a portfolio of investments in the life sciences and energy arenas. However, we found this approach to be lacking in appeal to
investors, thereby making it difficult to raise capital to fund investments once we identified them and to fund the operations
of the Company.
Corporate History Subsequent to
December 31, 2012
| a) | Acquisition of SRG International, Inc. |
On January 23, 2013, we consummated
a transaction with SRG, and the shareholders of SRG who were the owners of 100% of the outstanding common stock of SRG, pursuant
to which the shareholders of SRG transferred to us all of the common stock of SRG in exchange for 5,000,000 shares of our Series
C Convertible Preferred Stock, which shares were convertible into 80% of our then outstanding common stock immediately after consummation
of a reverse stock split. As a result of this transaction and a transaction with HLBCDC (whereby we sold our assets and operations
in exchange for relief from certain debt obligations, as described earlier and in greater detail below), SRG became our wholly-owned
subsidiary and we became a holding company with all of our current operations conducted through SRG.
Those operations consisted primarily
of researching, developing, and testing the Driver Alertness Detection System ("DADS™"). DADS™ is designed
around proprietary alertness detection technologies, which enables individuals to modulate their work activity based on real time
assessment of their actual state of alertness. The DADS™ methodology employs a unique approach for assessing sleepiness
and low alertness levels via the observed behavior of individuals in real work conditions.
| b) | Assignment and Assumption Agreement |
Simultaneously with consummating
the transaction with SRG, we closed a transaction contemplated by an Assignment and Assumption Agreement between us and HLBCDC
pursuant to which the majority of the assets we owned prior to the acquisition of SRG were transferred to HLBCDC in exchange for
HLBCDC assuming the majority of our liabilities and receiving our common shares and a warrant for the purchase of additional common
shares. The assets we transferred to HLBCDC were the shares we owned in Legends and Epec as well as the intangible rights associated
with the Myself™ pelvic muscle trainer and a novel medical applicator referred to as the “Soft and Smooth Assets.”
In addition to transferring those assets, we issued to HLBDC 402,038 shares of our common stock (the “HLBCDC Shares”)
and warrants to purchase 500,000 shares of our common stock at the exercise price of $0.55 per share (the fair market value of
our common stock as of the date of the Agreement) (the “HLBCDC Warrant”). In exchange for the assets, the HLBCDC Shares,
and the HLBCDC Warrant, HLBCDC agreed to assume liabilities valued at $985,948 consisting of fees owed to management, notes payables,
and trade payables.
| c) | Asset Purchase Agreement |
Immediately prior to consummating
the transaction with SRG, we closed a transaction contemplated by an Asset Purchase Agreement with Rockland, our majority shareholder.
and an entity controlled by one of our Directors. Pursuant to that agreement, we sold the shares we owned in HepatoChem to Rockland
in exchange for Rockland agreeing to forgive $579,938 of debt owed to it by us.
On March 12, 2013, we entered
into a Distribution Agreement (the “Distribution Agreement”) with MeliaLife International, Inc. (“MeliaLife”),
pursuant to which we were awarded the rights to distribute and sell various natural supplement products produced by MeliaLife.
Under the terms of the Distribution Agreement we would be the exclusive distributor to sell certain products as described therein
(the “Products”). The duration of the Distribution Agreement is the lesser of five (5) years, or when we purchase
Products in an amount by which the MeliaLife has received $30 million, representing 50% of the total product value of the Products
purchased by us, whichever happens first. At the end of this contract, MeliaLife would assign its rights in all the Products to
us for 4% of future net profits (total product value minus direct costs related to the Products), calculated and paid monthly,
generated by the sale by us of those Products worldwide.
Our relationship with MeliaLife
as been inactive since the date of the Distribution Agreement and we expect it to expire of its own accord with the passage of
time.
Going Concern
These financial statements were prepared
under the assumption that we will continue as a going concern. Our ability to do so is dependent upon our ability to obtain additional
equity or debt financing, reduce expenditures, and/or generate revenue, any and all of which is uncertain. These financial statements
do not include any adjustments that might result from the outcome of that uncertainty.
Current cash and working capital resources,
including funds recently received from the sale of equity securities, are not sufficient to support our activities. We plan to
fund our activities through the sale of equity securities as more fully described in the Liquidity and Capital Resources
section in the following paragraphs.
Liquidity and Capital Resources
We had cash of $128,000 as of September
30, 2014 compared to $23,000 as of December 31, 2013. This net increase of $105,000 was attributable:
$ | 4,636,000 | | |
Cash received through financing activities |
| (3,110,000 | ) | |
Cash used in operating activities net of the effect of foreign exchange rate changes |
| (1,421,000 | ) | |
Cash used in investing activities |
$ | 105,000 | | |
Net increase |
We have incurred significant losses and
negative cash flows from operations since our inception in April 2010. We have an accumulated deficit of $24,514,000 and a working
capital deficiency of $10,737,000 as of September 30, 2014. These conditions raise substantial doubt about our ability to continue
as a going concern. We have historically financed our activities through the sale of debt and the private placement of equity
securities. Through December 31, 2012, we have dedicated our financial resources to investments as well as general and administrative
expenses in the pursuit of the business plan described in the preceding paragraphs. Subsequent to that date, we have dedicated
our financial resources to the researching, developing, and testing of the Driver Alertness Detection System™ (DADS™)
as well as general and administrative expenses.
We plan to fund our development and eventually
commercialization activities beyond September 30, 2014 primarily through the sale of debt and/or equity securities. Subsequent
to September 30, 2014 and through the date of this report, we have raised $4,280,000 through the sale of debt and equity securities.
As of January 12, 2015, the Company had cash-on-hand of approximately $125,000.
However, we cannot be certain that such
funding will continue to be available on acceptable terms or at all. To the extent that we secure additional debt or raise funds
by issuing equity securities, our stockholders may experience significant dilution. If we are unable to raise funds when required
or on acceptable terms, we may have to: a) Significantly delay, scale back, or discontinue the development and/or commercialization
of DADS™; b) Seek collaborators at an earlier stage than would otherwise be desirable and/or on terms that are less favorable
than might otherwise be available; c) Relinquish or otherwise dispose of rights to technologies, product candidates, products,
or services that we would otherwise seek to develop or commercialize ourselves; or d) Otherwise curtail or cease operational activities.
The accompanying condensed consolidated
financial statements do not include any adjustments that might be necessary should we be unable to continue as a going concern.
Critical Accounting Policies
The following accounting policies are critical in fully understanding
and evaluating our financial statements:
| a) | Accounting for acquisitions; |
| b) | Accounting for research and development costs; |
| c) | Accounting for derivative financial instruments; and |
| d) | Stock-based compensation. |
Our accounting policies are described
in Note 3 to the condensed consolidated financial statements for the nine months ended September 30, 2014 contained elsewhere
in this report and in Note 3 to the audited financial statements contained in our Annual Report on Form 10-K for the year ended
December 31, 2013.
Results of Operations
For the three months ended September
30, 2014 compared to the three months ended September 30, 2013
Revenues
Revenues for the three months ended September
30, 2014 were $351,000 compared to $43,000 for the comparable period in the prior year. Such revenues were exclusively related
to DADS™ and this increase of $308,000 was attributable to expanded activities with clients in connection with the testing
and development of that technology.
There were no significant direct costs
of revenues associated with such revenue.
Research and Development Expense
Research and development expense for the
three months ended September 30, 2014 was $1,507,000 compared to $751,000 for the comparable period in the prior year. Such expenses
during were exclusively related to the development of DADS™. This increase of $756,000 was attributable primarily to expanded
activities in that regard and consisted primarily of an increase in salaries and benefits of $158,000, an increase in the use
of subcontractors of $230,000 and an increase in stock-based compensation expense of $505,000 which was offset by a decrease in
hardware and software related costs of $64,000.
General and Administrative Expense
General and administrative expense for
the three months ended September 30, 2014 was $447,000 compared to $92,000 for the comparable period in the prior year. This increase
of $355,000 was primarily attributable to an increase in salaries and benefits of $245,000 and an increase in stock-based compensation
expense of $58,000.
Other Expense
Other expense for the three months ended
September, 2014 was $2,846,000 compared to $107,000 for the comparable period in the prior year. This increase of $2,739,000 was
attributable to an increase of $1,934,000 related to the issuance of derivative financial instruments, an increase of $282,000
in amortization of deferred financing costs, and an increase of $550,000 in amortization of debt discount costs. Those increases
were offset by a $61,000 benefit related to the change in the fair value of derivative financial instruments. Other amounts included
in other expense for the three months ended September 30, 2014 consisted primarily of interest related to notes payable and such
amounts were consistent with those in the comparable period in the prior year.
Other
Comprehensive Loss
Other comprehensive loss for the
three months ended September 30, 2014 and 2013 was $163,000 and $47,000, respectively. Such variations are attributable to
changes in the exchange rate between the Canadian and United States dollars and the effect of those changes upon the
translation of SRG's financial statements into United States dollars.
For the nine months ended September
30, 2014 compared to the nine months ended September 30, 2013
Revenues
Revenues for the nine months ended September
30, 2014 were $615,000 compared to $68,000 for the comparable period in the prior year. Such revenues were exclusively related
to DADS™ and this increase of $547,000 was attributable to expanded activities with clients in connection with the testing
and development of that technology.
There were no significant direct costs
of revenues associated with such revenue.
Research and Development Expense
Research and development expense for the
nine months ended September 30, 2014 was $3,991,000 compared to $1,611,000 for the comparable period in the prior year. Such
expenses during were exclusively related to the development of DADS™. This increase of $2,380,000 was attributable to expanded
activities in that regard and consisted primarily of an increase in salaries and benefits of $827,000, an increase in the use
of subcontractors of $683,000, and an increase in stock-based compensation expense of $906,000.
Charge for Acquired Research and Development
Expense
The charge for acquired research and development
expense for the nine months ended September 30, 2013 was $1,468,000. We acquired SRG on January 23, 2013 and its operations consist
primarily of research, development, testing, and commercialization of the DADS™ System. We accounted for the acquisition
of SRG under the purchase method of accounting whereby assets acquired and liabilities were recorded at their estimated fair values
as of the date of the acquisition. A total of $1,468,000 was allocated to acquired in-process research and development and, in
conformity with generally accepted accounting practices to expense such costs as incurred, that amount was immediately charged
to expense.
There was no similar expense for the nine
months ended September 30, 2014.
General and Administrative Expense
General and administrative expense for
the nine months ended September 30, 2014 was $1,473,000 compared to $407,000 for the comparable period in the prior year. This
increase of $1,066,000 was attributable to an increase in salaries and benefits of $657,000 and an increase in stock-based compensation
expense of $479,000. The remaining general and administrative expenses were generally consistent with the comparable period in
the prior year.
Other Expense
Other expense for the nine months ended
September, 2014 was $5,558,000 compared to $1,941,000 for the comparable period in the prior year. This increase of $3,617,000
in expenses was attributable to:
| a) | An increase in expenses totaling $5,308,000
consisting of an increase of $4,155,000 related to the issuance of derivative financial
instruments, an increase of $466,000 in amortization of deferred financing costs, and
an increase of $687,000 in amortization of debt discount costs; |
| b) | An increase in a benefit of $78,000
related to the change in the fair value of derivative financial instruments; and |
| c) | A decrease in expenses totaling $1,569,000
consisting primarily of a number of charges related to transactions executed in advance
of the acquisition of SRG on January 23, 2013. In those transactions we divested ourselves
of a number of assets which were not complimentary to our stated goal of developing DADS™. |
Other amounts included in other expense
for the nine months ended September, 2014 consisted primarily of interest related to notes payable and such amounts were consistent
with those in the comparable period in the prior year.
Other
Comprehensive Income (Loss)
Other comprehensive income (loss) for
the nine months ended September 30, 2014 was ($324,000) compared to $36,000 for the comparable period in the prior year. Such
variations are attributable to changes in the exchange rate between the Canadian and United States dollars and the effect of those
changes upon the translation of SRG's financial statements into United States dollars.
| ITEM 3 | Quantitative and Qualitative Disclosures About Market
Risk |
As a smaller reporting company, we are not required to provide
the information required by this Item.
| ITEM 4 | Controls and Procedures |
| a) | Disclosure Controls and Procedures |
We conducted an evaluation, with the participation
of our Chief Executive Officer (our principal executive officer) and Chief Financial Officer (our principal financial officer),
of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e)
under the Securities Exchange Act of 1934, as amended, or the Exchange Act, as of September 30, 2014 to ensure that information required
to be disclosed by us in the reports filed or submitted by us under the Exchange Act is recorded, processed, summarized, and reported
within the time periods specified in the Securities Exchange Commission's rules and forms, including to ensure that information
required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is accumulated and communicated to
our management, including our principal executive and principal financial officer, or persons performing similar functions, as
appropriate to allow timely decisions regarding required disclosure. Based on that evaluation, our Chief Executive Officer and
Chief Financial Officer have concluded that as of September 30, 2014, our disclosure controls and procedures were not effective
at the reasonable assurance level as evidenced by the inability of the Company to file its 10-Q for the quarter ended September
30, 2014 in a timely manner. This deficiency is attributable to an insufficient number of qualified financial personnel within
the Company, specifically at SRG, and cash flow constraints that limited the Company in obtaining the services of external professionals
necessary to fulfill its reporting obligations in a timely manner.
| b) | Management Reporting on Internal Controls Over Financial
Reporting |
Our management is responsible for establishing
and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rules
13a-15(f) and 15d-15(f) promulgated under the Exchange Act, as amended, as a process designed by, or under the supervision of,
our Chief Executive Officer and Chief Financial Officer, and effected by our board of directors, management and other personnel,
to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles in the United States and includes those policies
and procedures that:
| i) | Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect our
transactions and any disposition of our assets; |
| ii) | Provide reasonable assurance that transactions are recorded as necessary to permit preparation
of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are
being made only in accordance with authorizations of our management and directors; and |
| iii) | Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition,
use or disposition of our assets that could have a material effect on the financial statements. |
A material weakness is a deficiency, or
a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a
material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. Our management
assessed the effectiveness of our internal control over financial reporting as of September 30, 2014. In making this assessment,
our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal
Control-Integrated Framework. Based on this assessment, management has identified the following material weaknesses that have caused
management to conclude that, as of September 30, 2014, our internal control over financial reporting, were not effective at the
reasonable assurance level:
| i) | We do not have a sufficient number of qualified internal accounting personnel, specifically at
SRG, nor an adequate internal reporting structure necessary to meet the reporting requirements of a public company. |
| ii) | We do not have sufficient segregation of duties within accounting functions, which is a basic internal
control. Due to our size and nature, segregation of all conflicting duties may not always be possible and may not be economically
feasible. However, to the extent possible, the initiation of transactions, the custody of assets, and the recording of transactions
should be performed by separate individuals. Management evaluated the impact of our failure to have segregation of duties on our
assessment of our disclosure controls and procedures and has concluded that the control deficiency that resulted represented a
material weakness. |
| iii) | We have not documented our internal controls. We have limited policies and monitoring procedures
that cover the recording and reporting of financial transactions and accounting provisions. As a result we may be delayed in our
ability to calculate certain accounting provisions. While we believe these provisions are accounted for correctly in the attached
unaudited financial statements, our lack of internal controls could lead to a delay in our reporting obligations and possibly the
delays we encountered with the SRG transaction. Reporting companies have been required to provide written documentation of key
internal controls over financial reporting beginning with fiscal years ended on or after December 31, 2009. Management evaluated
the impact of our failure to have written documentation of our internal controls and procedures on our assessment of our disclosure
controls and procedures and has concluded that the control deficiency that resulted represented a material weakness. |
To address these material weaknesses, management
performed additional analyses and other procedures to ensure that the financial statements included herein fairly present, in all
material respects, our financial position, results of operations and cash flows for the periods presented. Accordingly, we believe
that the consolidated financial statements included in this report fairly present, in all material respects, our financial condition,
results of operations and cash flows for the periods presented.
| c) | Remediation of Material Weaknesses |
The material weaknesses described above
and summarized below are expected to be remediated when additional financial resources are made available to us through either
additional fundraising and/or cash flows from operations. Those weaknesses consist of:
| i) | The absence of a sufficient number of qualified internal accounting personnel, specifically at
SRG, and an adequate internal reporting structure necessary to meet the reporting requirements of a public company; |
| ii) | The lack of segregation of duties; and |
| iii) | The absence of documented internal controls. |
During 2015, the Company plans to hire
qualified personnel, improve the internal reporting structure, improve segregation of duties, and document internal controls as
financial resources permit.
| d) | Changes in Internal Control over Financial Reporting |
As previously reported, effective January
23, 2013 we acquired SRG, a foreign entity based in Canada through which we conduct most of our day-to-day business activities.
Consequently, the material weaknesses described above combined with the acquisition of SRG have affected our internal control over
financial reporting as described in the preceding paragraphs.
There were no changes in internal control
over financial reporting during the quarter ended September 30, 2014.
PART II – OTHER INFORMATION
We are not a party to or otherwise involved
in any legal proceedings.
In the ordinary course
of business, we are from time to time involved in various pending or threatened legal actions. The litigation process is inherently
uncertain and it is possible that the resolution of such matters might have a material adverse effect upon our financial condition
and/or results of operations. However, in the opinion of our management, other than as set forth herein, matters currently pending
or threatened against us are not expected to have a material adverse effect on our financial position or results of operations.
As a smaller reporting company, we are
not required to provide the information required by this Item.
| ITEM 2 | Unregistered Sales of Equity Securities and Use of Proceeds |
| | On September 1, 2014 and in connection with the revision of a debt agreement, we issued 8,000 shares
of common stock with a market price that day of $3.35 per share. The issuance of the warrants are exempt from registration pursuant
to Section 4(2) of the Securities Act of 1933, due to the fact the investors are either accredited or sophisticated investors and
are familiar with our operations |
| 3) | Sale of Warrants to Purchase Common Stock |
| | On September 2, 2014, we sold warrants for the purchase of up to 85,000 shares of common stock
through September 2, 2016 at $1.75 per share and received proceeds of $18,000. The issuance of the warrants are exempt from registration
pursuant to Section 4(2) of the Securities Act of 1933, due to the fact the investors are either accredited or sophisticated investors
and are familiar with our operations. |
| | On May 5, 2014, we entered into a Loan and Security Agreement and Secured Promissory Note (collectively
the "Note") with Rhine Partners, LP ("Rhine") under which we borrowed various amounts between that date and
September 29, 2014 totaling $3,827,073 and received net proceeds of $3,417,450. The Note bears interest at 18% per annum, is secured
by a lien on substantially all of our assets, and matures on November 15, 2015. We are obligated to commence repayment of the principal
when we become cash flow positive and may do so without penalty. Outstanding principal may be converted at the election of the
Rhine at any time into shares of our Series D Preferred Stock at the price of $10.00 per share or into restricted shares of our
common stock at a price of a 60% discount to market based on the average closing price of the five days preceding such election.
Rhine has the right to make such a conversion election up to five days after we have tendered repayment of the principal. Additionally
on that same day and under the terms of the Note, we issued a warrant for Rhine to purchase up to 2,000,000 shares of our common
stock at an exercise price of $1.00 per share through May 2, 2018. The warrant was 100% vested upon issuance. The issuance of the
Note and the warrant are exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, due to the fact the investors
are either accredited or sophisticated investors and are familiar with our operations. |
| ITEM 3 | Defaults Upon Senior Securities |
There have been no events which are required
to be reported under this Item.
| ITEM 4 | Mine Safety Disclosures |
There have been no events which are required
to be reported under this Item.
There have been no events which are required
to be reported under this Item.
2.1 (1) |
|
Plan of Reorganization of AP Corporate Services, Inc. |
|
|
|
3.1 (1) |
|
Articles of Incorporation of I-Web Media, Inc. filed April 29, 2010 |
|
|
|
3.2 (5) |
|
Amended Articles of Incorporation of I-Web Media, Inc., filed December 8, 2010 (effective December 29, 2010) |
|
|
|
3.3 (5) |
|
Restated Articles of Incorporation of InterCore Energy, Inc., filed December 8, 2010 (effective December 29, 2010) |
|
|
|
3.4 (13) |
|
Amendment to Articles of Incorporation of Heartland Bridge Capital, Inc. filed November 26, 2012 (effective May 16, 2012) |
|
|
|
3.5 (1) |
|
Bylaws of I-Web Media, Inc. |
|
|
|
3.5 (5) |
|
Restated Bylaws of InterCore Energy, Inc. |
|
|
|
3.7 (14) |
|
Certificate of Designation for Series C Convertible Preferred Stock |
|
|
|
10.1 (1) |
|
Form of “A” Warrant |
|
|
|
10.2 (1) |
|
Form of “B” Warrant |
|
|
|
10.3 (1) |
|
Form of “C” Warrant |
|
|
|
10.4 (1) |
|
Form of “D” Warrant |
|
|
|
10.5 (1) |
|
Form of “E” Warrant |
|
|
|
10.6 (2) |
|
Agreement to Purchase Common Stock by and between Kenneth S. Barton, Rockland Group, LLC, and I-Web Media, Inc., dated November 3, 2010 |
|
|
|
10.7 (2) |
|
Securities Purchase Agreement by and between I-Web Media, Inc. and Rockland Group, LLC, dated November 4, 2010 |
|
|
|
10.8 (3) |
|
Asset Purchase Agreement with New Horizon, Inc. dated December 9, 2010 |
10.9 (6) |
|
Amendment No. 1 to Asset Purchase Agreement with New Horizon, Inc. |
|
|
|
10.10 (3) |
|
Convertible Promissory Note Held by New Horizon, Inc. dated December 9, 2010 |
|
|
|
10.11 (3) |
|
Assignment of Rights Agreement with New Horizon, Inc. dated December 9, 2010 |
|
|
|
10.12 (3) |
|
Asset Purchase Agreement with RWIP, LLC dated December 10, 2010 |
|
|
|
10.13 (3) |
|
Convertible Promissory Note Held by RWIP, LLC dated December 10, 2010 |
|
|
|
10.14 (3) |
|
Warrant Agreement with RWIP, LLC dated December 10, 2010 |
|
|
|
10.15 (3) |
|
Consulting Agreement with RWIP, LLC dated December 13, 2010 |
|
|
|
10.16 (4) |
|
Development Services Agreement with NorthStar Partners Consulting, LLC, dated December 22, 2010 |
|
|
|
10.17 (4) |
|
Warrant Agreement with NorthStar Partners Consulting, LLC, dated December 22, 2010 |
|
|
|
10.18 (5) |
|
Promissory Note Held by Rockland Group, LLC, dated December 16, 2010 |
|
|
|
10.19 (5) |
|
Promissory Note Held by Rockland Group, LLC, dated December 27, 2010 |
|
|
|
10.20 (5) |
|
Form of Warrant Issued to Officers, Directors and Consultants on December 29, 2010 |
|
|
|
10.21 (7) |
|
Common Stock Purchase Warrant issued to Wexford Partners, L.P. dated March 21, 2011 |
|
|
|
10.22 (7) |
|
Reorganization and Stock Purchase Agreement with the iSafe Entities and iSafe Holders dated March 21, 2011 |
|
|
|
10.23 (7) |
|
Employment Agreement with Joseph W. Tischner dated March 22, 2011 |
|
|
|
10.24 (8) |
|
Promissory Note Held by Rockland Group dated December 29, 2010 |
10.25 (9) |
|
Series A Preferred Stock Purchase Agreement by and between InterCore Energy, Inc. and HepatoChem, Inc. dated September 15, 2011 |
|
|
|
10.26 (9) |
|
Purchase Agreement by and between InterCore Energy, Inc. and Digisort, LLC dated November 18, 2011 |
|
|
|
10.27 (10) |
|
Letter of Intent with Legends & Heroes, Inc. dated December 1, 2011 |
|
|
|
10.28 (11) |
|
Form of Warrant Repricing Agreement |
|
|
|
10.29 (11) |
|
Form of Repriced Warrant |
|
|
|
10.30 (14) |
|
Amended and Restated Share Exchange Agreement by and between InterCore Energy, Inc., SRG, Inc. and the shareholders of SRG dated January 15, 2013 |
|
|
|
10.31 (14) |
|
Assignment and Assumption Agreement by and between InterCore Energy, Inc. and HLBC Distribution Company, Inc. dated January 15, 2013 |
|
|
|
10.32 (14) |
|
Asset Purchase Agreement by and between InterCore Energy, Inc. and Rockland Group, LLC dated January 15, 2013 |
|
|
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10.33 (15) |
|
Promissory Note issued to Fandeck Associates, Inc., a Texas corporation, dated March 15, 2013 |
|
|
|
10.34 (15) |
|
Letter Agreement with Fandeck Associates, Inc. dated April 17, 2013 |
|
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|
99.1 (16) |
|
InterCore, Inc. 2014 Non-Qualified Stock Option Plan |
|
|
|
31.1* |
|
Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer |
|
|
|
31.2* |
|
Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer |
32.1* |
|
Chief Executive Officer Certification Pursuant to 18 USC, Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
32.2* |
|
Chief Financial Officer Certification Pursuant to 18 USC, Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
101.INS** |
|
XBRL Instance Document |
|
|
|
101.SCH** |
|
XBRL Taxonomy Extension Schema Document |
|
|
|
101.CAL** |
|
XBRL Taxonomy Extension Calculation Linkbase Document |
|
|
|
101.DEF** |
|
XBRL Extension Definition Linkbase Document |
|
|
|
101.LAB** |
|
XBRL Taxonomy Extension Label Linkbase Document |
|
|
|
101.PRE** |
|
XBRL Taxonomy Extension Presentation Linkbase Document |
| ** | Pursuant to Rule 406T of Regulation S-T, these interactive
data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities
Act of 1933 or Section 18 of the Securities Act of 1934 and otherwise are not subject to liability. |
| (1) | Incorporated by reference from our Registration Statement
on Form 10-12G/A filed with the Commission on August 12, 2010. |
| (2) | Incorporated by reference from our Current Report on
Form 8-K filed with the Commission on November 8, 2010. |
| (3) | Incorporated by reference from our Current Report on
Form 8-K filed with the Commission on December 15, 2010. |
| (4) | Incorporated by reference from our Current Report on
Form 8-K filed with the Commission on December 23, 2010. |
| (5) | Incorporated by reference from our Current Report on
Form 8-K filed with the Commission on December 30, 2010. |
| (6) | Incorporated by reference from our Current Report on
Form 8-K filed with the Commission on January 14, 2011. |
| (7) | Incorporated by reference from our Current Report on
Form 8-K filed with the Commission on March 24, 2011. |
| (8) | Incorporated by reference from our Annual Report on Form
10-K filed with the Commission on April 15, 2011. |
| (9) | Incorporated by reference from our Quarterly Report on
Form 10-Q filed with the Commission on November 21, 2011. |
| (10) | Incorporated by reference from our Current Report on
Form 8-K filed with the Commission on December 8, 2011 |
| (11) | Incorporated by reference from our Current Report on
Form 8-K filed with the Commission on May 29, 2012 |
| (12) | Incorporated by reference from our Current Report on
Form 8-K filed with the Commission on May 29, 2012 |
| (13) | Incorporated by reference from our Quarterly Report on
Form 10-Q filed with the Commission on November 26, 2012 |
| (14) | Incorporated by reference from our Current Report on
Form 8-K filed with the Commission on January 29, 2013 |
| (15) | Incorporated by reference from our Current Report on
Form 8-K filed with the Commission on June 25, 2013 |
| (16) | Incorporated by reference from our Quarterly Report on
Form 10-Q filed with the Commission on December 23, 2014 |
SIGNATURES
Pursuant to the requirements 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.
|
InterCore, Inc. |
|
|
|
Dated: January 21, 2015 |
/s/ |
James F. Groelinger |
|
By: |
James F. Groelinger |
|
Its: |
Chief Executive Officer |
EXHIBIT 31.1
Rule 13a-14(a)/15d-14(a)
Certification of Chief Executive Officer
I, James F. Groelinger, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q of InterCore, Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this
report fairly present in all material respects the financial condition, results of operations and cash flows of the registrant
as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exhibit Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures
to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being
prepared; |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented
in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered
by this report based on such evaluation; and |
| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting
that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case
of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal
control over financial reporting; and |
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s
board of directors (or persons performing the equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s
ability to record, process, summarize, and report financial information; and |
| (b) | Any fraud, whether or not material, that involves management
or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Dated: January 21, 2015 |
/s/ |
James F. Groelinger |
|
By: |
James F. Groelinger |
|
Its: |
Chief Executive Officer |
EXHIBIT 31.2
Rule 13a-14(a)/15d-14(a)
Certification of Chief Financial Officer
I, Frederick Larcombe, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q of InterCore, Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this
report fairly present in all material respects the financial condition, results of operations and cash flows of the registrant
as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exhibit Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures
to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being
prepared; |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented
in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered
by this report based on such evaluation; and |
| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting
that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case
of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal
control over financial reporting; and |
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s
board of directors (or persons performing the equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control
over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize
and report financial information; and |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant’s internal control over financial reporting. |
Dated: January 21, 2015 |
/s/ |
Frederick Larcombe |
|
By: |
Frederick Larcombe |
|
Its: |
Chief Financial Officer |
EXHIBIT 32.1
CERTIFICATION PURSUANT TO 18 USC, SECTION
1350,
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report
of InterCore, Inc. (the “Company”) on Form 10-Q for the quarter ended September 30, 2014, as filed with the Securities
and Exchange Commission on or about the date hereof (the “Report”), I, James F. Groelinger, Chief Executive Officer
of the Company, certify, pursuant to 18 U.S.C. Sec. 1350, as adopted pursuant to Sec. 906 of the Sarbanes-Oxley Act of 2002, that:
| (1) | The Report fully complies with the requirements of Sections 13(a) or 15(d) of the Securities Exchange
Act of 1934; and |
| (2) | Information contained in the Report fairly presents, in all material respects, the financial condition
and results of operations of the Company. |
Dated: January 21, 2015 |
/s/ |
James F. Groelinger |
|
By: |
James F. Groelinger |
|
Its: |
Chief Executive Officer |
A signed original of this written statement
required by Section 906 has been provided to InterCore, Inc. and will be retained by InterCore, Inc. and furnished to the Securities
and Exchange Commission or its staff upon request.
EXHIBIT 32.2
CERTIFICATION PURSUANT TO 18 USC, SECTION
1350,
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY
ACT OF 2002
In connection with the Quarterly Report
of InterCore, Inc. (the “Company”) on Form 10-Q for the quarter ended September 30, 2014, as filed with the Securities
and Exchange Commission on or about the date hereof (the “Report”), I, Frederick Larcombe, Chief Financial Officer
of the Company, certify, pursuant to 18 U.S.C. Sec. 1350, as adopted pursuant to Sec. 906 of the Sarbanes-Oxley Act of 2002, that:
| (1) | The Report fully complies with the requirements of Sections 13(a) or 15(d) of the Securities Exchange
Act of 1934; and |
| (2) | Information contained in the Report fairly presents, in all material respects, the financial condition
and results of operations of the Company. |
Dated: January 21, 2015 |
/s/ |
Frederick Larcombe |
|
By: |
Frederick Larcombe |
|
Its: |
Chief Financial Officer |
A signed original of this written statement
required by Section 906 has been provided to InterCore, Inc. and will be retained by InterCore, Inc. and furnished to the Securities
and Exchange Commission or its staff upon request.