Forward Looking Statements
This quarterly report on Form 10-Q for the quarter ended April 30, 2013 contains forward-looking statements that involve risks and uncertainties. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology including “could”, “may”, “will”, “should”, “expect”, “plan”, “anticipate”, “believe”, “estimate”, “predict”, “potential” and the negative of these terms or other comparable terminology. These statements are only predictions. Actual events or results may differ materially.
While these forward-looking statements, and any assumptions upon which they are based, are made in good faith and reflect our current judgment regarding the direction of our business, actual results will almost always vary, sometimes materially, from any estimates, predictions, projections, assumptions or other future performance suggested in this report.
Business Overview
Minerco Resources, Inc. was incorporated as a Nevada company on June 21, 2007 and our only two subsidiaries are Minerco Honduras S.A. and Level 5 Beverage Company, Inc. We were engaged in the acquisition of interests and leases in oil and natural gas properties from our inception in June 2007 through May 27, 2010. In May 2010 we changed the focus of our business to the development, production and provision of clean, renewable energy solutions in Central America. On October 16, 2012, we added an additional line of business, Level 5 Beverage Company, Inc., a progressive specialty beverage retailer.
Clean Energy
We currently have an interest in one Hydro-Electric Project in Honduras. The Hydro-Electric project is classified as run-of-the-river project (not conventional retention dams) and is in the permitting stage of development. To date, we have not completed construction of the project and therefore we have not received any revenue from the project. There can be no assurance given that this project will be completed in a timely manner, if at all. We will require additional funds to complete the development of this project, estimated at $200,000 in the aggregate. Additionally, even if we complete development of the project, there is no guarantee that it will be successfully used to create electricity or that it will generate a consistent revenue stream for us. As of July 31, 2012, these assets were impaired due to inactivity; however we are still actively pursuing obtaining necessary permits and negotiating contracts for the Chiligatoro Hydro-Electric Project including the Power Purchase Agreement, Congressional Approval, Equity Partner Financing and Senior Debt Financing.
Until May 2013, we had a 100% interest in one other Hydro-Electric Project and a Wind Project. On May 25, 2013, we entered into a Return of Asset Agreement with Energia Renovable Hondurenas, S.A. (ERSHA) to return one hundred percent (100%) of the Sayab Wind Project back to the originating company in exchange for a six percent (6%) royalty interest after the Project is completed by EHSHA or its assigns. On May 28, 2013, we entered into a Return of Asset Agreement with ENERCOSA to return one hundred percent (100%) of the Iscan Hydro-Electric Project back to the originating company in exchange for a six percent (10%) royalty interest after the Project is completed by ENERCOSA or its assigns. The Iscan Hydro-Electric Project is actively completing the Socialization and Feasibility stages of development. The feasibility stage of development is the stage of development where the preliminary permits are obtained, measurement of the water flow for hydro-electric projects or wind and weather patterns for wind projects are observed, and final project size are determined. However, there can be no assurance that the owners of these projects will successfully develop the projects or that we will receive a royalty from the projects.
Retail Beverage
Our subsidiary, Level 5, is being developed to target the consumers who expect a beverage that is functional and healthy.
On February 26, 2013, we entered into an Agreement (the “Premium Product Development Agreement”) with Power Brands, LLC, a California Limited Liability Company (“Power Brands”) to render product development services for Level 5 Beverage Company, Inc. Power Brands was compensated $25,000 as per the Premium Product Development Agreement. Our product formulation, labels and artwork are complete.
On February 26, 2013, we also entered into an Agreement (the “Prototype Development Agreement”) with Power Brands to render prototype development services for Level 5 Beverage Company, Inc. Power Brands was compensated $5,000 as per the Prototype Development Agreement.
The Level 5 product line is a portfolio of functional, all-natural, reduced calorie 2.5 oz. “shots.”The Level 5 product line features four (4) distinct varieties, each with a unique flavor profile and addressing a specific functional need. Level 5 is positioned as a lifestyle brand, with a convenient easy-to-drink shot format to remedy health and wellness needs at any time of day or night.
As of May 22, 2013, we have completed and approved the final formulation of all four (4) of our products.
RISE (Energy Supplement)
●
|
Completely unique in the category, no other coffee-based shots currently in the market.
|
●
|
Coffee flavor, perfect as a get-up-and-go morning shot.
|
CURVES (Women's Supplement)
●
|
Intended to aid Weight Management
|
●
|
Green Coffee Bean Extract
|
●
|
Other vitamins and minerals specially formulated for women
|
ARMOR (Immunity Supplement)
FLEX (Workout Supplement)
●
|
Delivers 5g Protein in each shot
|
●
|
Caffeine designed to enhance performance
|
●
|
100% B-Vitamin blend designed for lasting energy and endurance
|
As of June 3, 2013, we completed and approved the final label design and artwork design for the Level 5 brand.
On June 13, 2013, we received our GS1 US membership and company sku identifier for our product line. Our Level 5 GS1 bar code(s) are pending approval. Upon completion and receipt of our bar code(s), we will order our “prototypes” as outlined in the Prototype Development Agreement with Power Brands.
On June 14, 2013, we entered into an Agreement (the “Brand Management Agreement”) with Power Brands, LLC to manage the branding, production, marketing, sales and distribution for Level 5 Beverage Company, Inc. Power Brands was compensated with a $10,000 retainer as per the Brand Management Agreement.
Common Stock
On March 30, 2010, we effected a 6 for 1 forward stock split, increasing the issued and outstanding shares of common stock from 55,257,500 to 331,545,000 shares. On February 13, 2012, the Company effected a 150 for 1 reverse stock split, increasing the issued and outstanding share of common stock from 1,054,297,534 to 7,028,670 shares. On May 15, 2013. We increased our authorized common stock to 2,500,000,000 shares. All share amounts throughout this Annual Report have been retroactively adjusted for all periods to reflect this stock split.
Results of Operations
|
|
Three Months
Ended
April 30,
2013
|
|
|
Three Months
Ended
April 30,
2012
|
|
Loan Recovery
|
|
$
|
-
|
|
|
$
|
-
|
|
Impairment of Note Receivable
|
|
|
-
|
|
|
|
-
|
|
General and Administrative Expenses
|
|
|
138,787
|
|
|
|
156,031
|
|
Chiligatoro Operating Expenses
|
|
|
-
|
|
|
|
-
|
|
Interest Expense
|
|
|
12,355
|
|
|
|
2,355
|
|
Accretion of discount on convertible debt
|
|
|
6,674
|
|
|
|
22,264
|
|
(Gain) / Loss on derivative liability
|
|
|
36,887
|
|
|
|
1,544,155
|
|
Gain on settlement of debt
|
|
|
-
|
|
|
|
-
|
|
Loss on Debt Conversion
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Net (Income) Loss
|
|
$
|
194,703
|
|
|
$
|
1,724,805
|
|
Net Loss per Share –Basic and Diluted
|
|
$
|
(0.00
|
)
|
|
$
|
(0.07
|
)
|
Weighted Average Shares Outstanding
|
|
|
428,324,586
|
|
|
|
23,784,215
|
|
Results of Operations for the Three months ended April 30, 2013
During the three months ended April 30, 2013 we incurred a net loss of $194,703, compared to a net loss of $1,724,805 during the same period in fiscal 2012. The decrease in our net loss during the three months ended April 30, 2013 was primarily due to decrease on loss on derivative liability.
Our total general and administrative expenses for the three months ended April 30, 2013 were $138,787, compared to operating expenses of $156,031 during the same period in fiscal 2012. Our total general and administrative expenses during the three months ended April 30, 2013 consisted of $22,625 in compensation expense, $9,221 in professional fees, $91,500 in consulting fees
(mostly to develop our Level 5 beverage line)
and $15,441 in general and administrative expense and during the three months ended April 30, 2013 consisted entirely of general,
rent
and administrative expenses, and we did not incur any foreign exchange losses, management fees or other operating expenses.
Our general and administrative expenses consist of professional fees, transfer agent fees, investor relations expenses and general office expenses. Our professional fees include legal, accounting and auditing fees.
|
|
Nine months
Ended
April 30,
2013
|
|
|
Nine months
Ended
April 30,
2012
|
|
Loan Recovery
|
|
$
|
-
|
|
|
$
|
-
|
|
Impairment of Note Receivable
|
|
|
-
|
|
|
|
-
|
|
General and Administrative Expenses
|
|
|
167,917
|
|
|
|
595,737
|
|
Chiligatoro Operating Expenses
|
|
|
-
|
|
|
|
-
|
|
Interest Expense
|
|
|
31,664
|
|
|
|
8,034
|
|
Accretion of discount on convertible debt
|
|
|
577,090
|
|
|
|
370,548
|
|
(Gain) / Loss on derivative liability
|
|
|
(1,456,855
|
)
|
|
|
2,067,474
|
|
Gain on settlement of debt
|
|
|
-
|
|
|
|
-
|
|
Loss on Debt Conversion
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Net (Income) Loss
|
|
$
|
(680,184
|
)
|
|
$
|
3,041,793
|
|
Net Loss per Share –Basic and Diluted
|
|
$
|
0.00
|
|
|
$
|
(0.13
|
)
|
Weighted Average Shares Outstanding
|
|
|
179,410,491
|
|
|
|
22,677,491
|
|
Results of Operations for the Nine months ended April 30, 2013
During the nine months ended April 30, 2013 we incurred a net gain of $680,184, compared to a net loss of $3,041,793 during the same period in fiscal 2012. The increase in our net loss during the nine months ended April 30, 2013 was primarily due to increased gain on derivative liability.
Our total general and administrative expenses for the nine months ended April 30, 2013 were $167,917, compared to operating expenses of $595,737 during the same period in fiscal 2012. Our total general and administrative expenses during the three months ended April 30, 2013 consisted of $22,625 in compensation expense, $25,912 in professional, $91,500 in consulting fees and $27,880 in general and administrative expense fees for the
development of our Retail Beverage Business
and during the nine months ended April 30, 2013 consisted entirely of general and administrative expenses including professional and consulting fees for the development of our Retail Beverage Business, and we did not incur any foreign exchange losses, management fees or other operating expenses.
Our general and administrative expenses consist of consulting fees
(beverage product development
), professional
fees, transfer agent fees, investor relations expenses and general office expenses. Our professional fees include legal, accounting and auditing fees.
Liquidity and Capital Resources
As of April 30, 2013 we had $919 in cash and $26,419 in total assets, $1,722,928 in total liabilities and a working capital deficit of $1,137,710. Our accumulated deficit from our inception on June 21, 2007 to April 30, 2013 was $6,591,655 and was funded primarily through advances from related parties, equity and debt financing.
From our inception on June 21, 2007 to April 30, 2013 we used net cash of $617,545 in operating activities. During the nine months ended April 30, 2013 we used net cash of $66,831 in operating activities, compared to net cash used $59,245 in operating activities during the same period in fiscal 2012. The increase in expenditures on operating activities for the nine months ended April 30, 2013 was primarily due to an increased net gain offset by a gain on derivatives.
From our inception on June 21, 2007 to April 30, 2013 we used net cash of $35,500 on investing activities, all of which was in the form of a loan to a third party. We used net cash of $25,500 on investing activities during the nine months ended April 30, 2013 and $0 in the same period for fiscal 2012.
From our inception on June 21, 2007 to April 30, 2013 we received net cash of $653,964 from financing activities, which consists of $90,514 from the issuance of our common stock, $520,250 from debt financing, $0 in proceeds from a related party, and $1,182 in capital contributions. During the nine months ended April 30, 2013 we received $93,250 net cash from financing activities, compared to net cash received of $59,095 during the same period in fiscal 2012. The increase in receipts from financing activities for the nine months ended April 30, 2013 was primarily higher proceeds from loans and related parties.
As of April 30, 2013, our outstanding debt was $785,521. There can be no assurance that we generate enough revenue when the debt matures to repay any debt if demand for repayment should be made.
We estimate our planned expenses for the next 24 months (beginning March 2013) to be approximately $3,619,000, as summarized in the table below
.
Description
|
Potential
|
|
Estimated Expenses
|
|
Energy
|
completion date
|
|
($)
|
|
Complete Feasibility & Environmental Studies
|
6 months
|
|
|
100,000
|
|
Project Permitting
|
6 months
|
|
|
20,000
|
|
Lease/Land Purchase
|
6 months
|
|
|
125,000
|
|
Final Construction Design
|
6 months
|
|
|
37,500
|
|
Engineering & Construction Consultants
|
6 months
|
|
|
50,000
|
|
Mobilization of Equipment
|
6 months
|
|
|
50,000
|
|
Stage 1 Construction
|
12 months
|
|
|
650,000
|
|
Stage 2 Construction
|
18 months
|
|
|
700,000
|
|
Stage 3 Construction
|
24 months
|
|
|
1,000,000
|
|
Professional Fees (legal and accounting)
|
12 months
|
|
|
25,000
|
|
Project Supervision
|
12 months
|
|
|
37,500
|
|
Project Socialization
|
12 months
|
|
|
15,000
|
|
General and administrative expenses
|
12 months
|
|
|
250,000
|
|
Contingencies (10%)
|
|
|
|
306,000
|
|
EnergyTotal
|
|
|
|
3,366,000
|
|
|
|
|
|
|
|
Beverage
|
|
|
|
|
|
Product Formulation
|
Complete
|
|
|
25,000
|
|
Product Samples
|
1 month
|
|
|
5,000
|
|
Product Branding
|
1 month
|
|
|
25,000
|
|
Product Marketing
|
1 month
|
|
|
25,000
|
|
Product Manufacturing
|
1 month
|
|
|
50,000
|
|
Product Expansion / Development
|
3 months
|
|
|
100,000
|
|
Contingencies (10%)
|
|
|
|
23,000
|
|
Beverage Total
|
|
|
|
253,000
|
|
|
|
|
|
|
|
Grand Total (All Business Lines)
|
|
|
|
3,619,000
|
|
Our general and administrative expenses for the year will consist primarily of transfer agent fees, investor relations expenses and general office expenses. The professional fees are related to our regulatory filings throughout the year.
Based on our planned expenditures, we require additional funds of approximately $3,618,081 (a total of $3,619,000 less our approximately $919 in cash as of April 30, 2013) to proceed with our business plan over the next 24 months. If we secure less than the full amount of financing that we require, we will not be able to carry out our complete business plan and we will be forced to proceed with a scaled back business plan based on our available financial resources.
We anticipate that we will incur substantial losses for the foreseeable future. Although we acquired a 100% interest in the Hydro-Electric project, there is no assurance that we will receive any revenues from this interest. Meanwhile, even if we purchase other non-operated interests in hydro-electric projects or begin construction activities on any properties we may acquire, this does not guarantee that these projects or properties will be commercially exploitable. In addition, our success will depend upon our ability to commercialize and successfully market the Level 5 products, and there can be no assurance that our commercialization or merketing efforts will be successful.
Our activities will be directed by John Powers, our President and Chief Executive Officer, who will also manage our operations and supervise our other planned acquisition activities.
Future Financings
Our financial statements for the three and nine months ended April 30, 2013 have been prepared on a going concern basis and there is substantial doubt about our ability to continue as a going concern. We have not generated any revenues, have achieved losses since our inception, and rely upon the sale of our securities to fund our operations. We may not generate any revenues from our interest in the various Hydro-Electric and Wind Projects, or from any of the hydro-electric or wind projects in which we acquire an interest. Accordingly, we are dependent upon obtaining outside financing to carry out our operations and pursue any acquisition and exploration activities.
Of the $3,619,000 we require for the next 24 months, we had approximately $919 in cash as of April 30, 2013. We intend to raise the balance of our cash requirements for the next 24 months (approximately $3,618,081), private placements, shareholder loans or possibly a registered public offering (either self-underwritten or through a broker-dealer). If we are unsuccessful in raising enough money through such efforts, we may review other financing possibilities such as bank loans. At this time we do not have a commitment from any broker-dealer to provide us with financing other than the equity line, and there is no guarantee that any financing will be successful. We intend to negotiate with our management and any consultants we may hire to pay parts of their salaries and fees with stock and stock options instead of cash.
If we are unable to obtain the necessary additional financing, then we plan to reduce the amounts that we spend on our acquisition and exploration activities and our general and administrative expenses so as not to exceed the amount of capital resources that are available to us. Specifically, we anticipate that we will defer drilling programs and certain acquisitions pending the receipt of additional financing. Still, if we do not secure additional financing our current cash reserves and working capital will be not be sufficient to enable us to sustain our operations and for the next 12 months, even if we do decide to scale back our operations.
Product Research and Development
We anticipate spending $100,000 in connection with product research and development activities during the next 12 months for expansion of our Level 5 Retail Beverage business.
Outstanding Indebtedness
Outstanding Indebtedness
Set forth below is a chart of our outstanding debt obligations as of April 30, 2013:
Bridge Notes Payable
|
|
Name
|
|
Amount
|
|
Date of Issuance
|
|
Maturity Date
|
|
Features
|
|
|
|
|
|
|
|
|
|
Convertible Promissory Note
|
|
$
|
14,905
|
|
6/6/11
|
|
On Demand
|
|
5% interest rate
converts at the lower of $0.001 or 50% of market based on the lowest day during the preceding 5 days
|
Convertible Promissory Note
|
|
$
|
18,000
|
|
8/6/11
|
|
2/6/12
|
|
5% interest rate
converts at a variable conversion price of 50% of the market price calculated based on the average of the lowest day during the preceding 5 days
|
Convertible Promissory Note
|
|
$
|
34,200
|
|
9/1/11
|
|
On Demand
|
|
0% interest rate
converts at the lower of $0.001 or 50% of market based on the lowest day during the preceding 5 days but in no case less than a 51% interest in the Company
|
Convertible Promissory Note
|
|
$
|
5,200
|
|
9/1/11
|
|
On Demand
|
|
0% interest rate
converts at the lower of $0.001 or 50% of market based on the lowest day during the preceding 5 days but in no case less than a 51% interest in the Company
|
Convertible Promissory Note
|
|
$
|
27,000
|
|
11/6/11
|
|
5/6/12
|
|
5% interest rate
converts at a variable conversion price of 50% of the market price calculated based on the average of the lowest day during the preceding 5 days
|
Convertible Promissory Note
|
|
$
|
584,299
|
|
7/23/12
|
|
1/23/13
|
|
5% interest rate
converts at a variable conversion price of 50% of the market price calculated based on the average of the lowest day during the preceding 5 days
|
Convertible Promissory Note
|
|
$
|
19,250
|
|
11/1/12
|
|
8/5/13
|
|
8% interest rate
converts at a variable conversion price of 45% of the market price calculated based on the lowest day during the preceding 20 days
|
Convertible Promissory Note
|
|
$
|
20,000
|
|
12/11/12
|
|
9/15/13
|
|
8% interest rate
converts at a variable conversion price of 45% of the market price calculated based on the lowest day during the preceding 20 days
|
Convertible Promissory Note
|
|
$
|
4,667
|
|
2/1/13
|
|
8/1/13
|
|
5% interest rate
converts at a variable conversion price of 50% of the market price calculated based on the average of the lowest day during the preceding 5 days
|
Convertible Promissory Note
|
|
$
|
42,500
|
|
2/4/13
|
|
11/8/13
|
|
8% interest rate
converts at a variable conversion price of 45% of the market price calculated based on the lowest day during the preceding 20 days
|
Convertible Promissory Note
|
|
$
|
15,500
|
|
3/7/13
|
|
12/11/13
|
|
8% interest rate
converts at a variable conversion price of 45% of the market price calculated based on the lowest day during the preceding 20 days
|
Convertible Promissory Note
|
|
|
47,500
|
|
5/16/13
|
|
2/17/14
|
|
8% interest rate
converts at a variable conversion price of 45% of the market price calculated based on the lowest day during the preceding 20 days
|
Convertible Promissory Note
|
|
$
|
27,000
|
|
5/30/13
|
|
11/30/13
|
|
8% interest rate
converts at a variable conversion rate of 45% of the market price calculated based on the lowest day during the preceding 20 days
|
Outstanding Notes
As of April 30, 2013 our obligations under outstanding notes totaled an aggregate principal amount of $785,521. Of such amount $670,805 is due on demand, $19,250 is due August 5, 2013, $20,000 is due September 15, 2013, $56,000 is due August 1, 2013, $42,500 is due November 8, 2013 and $15,500 is due December 11, 2013. We currently do not have sufficient funds to pay any of the past due or future notes.
On October 12, 2010, we issued a promissory note to an unrelated third party in the amount of $200,000 in consideration for monies loaned to our company. The promissory note is non-interest bearing and due on demand. We currently do not have the funds necessary to repay this debt if a demand were to be made. The promissory note was subsequently sold to two unrelated parties, each acquiring $100,000 of the principal amount owed under the promissory note. On September 1, 2011, we entered into two agreements, each of which provide for the exchange of the principal amount of $100,000 of the promissory notes for convertible promissory notes (the “Convertible Notes”) in the aggregate principal amount of $100,000. Each Convertible Note plus accrued interest of 10% may be converted into shares of common stock of the Company at any time before the maturity date by the Convertible Note holder at a conversion price of $0.0004 per share at the time of conversion. In the event of a default by the Company, each Convertible Note plus accrued interest may be converted into shares of common stock of the Company at any time after the default date by the Convertible Note holder at a conversion price of the lower of (i) par value or (ii) half of the average bid price over the five trading days prior to the conversion date, but in no case for an amount less than a 51% interest in the Company. The Company is obligated to register the shares underlying the Convertible Notes under the Securities Act of 1933 until shares become available for resale under Rule 144(k). On February 20, 2012, we amended the notes with a remaining aggregate balance of $73,600 to convert at the lower of $0.001 or 50% of market based on the lowest day during the preceding 5 days.
On each of November 1, 2012, December 11, 2012, February 4, 2013, March 7, 2013 and May 16, 2013 we entered into a Securities Purchase Agreement and Convertible Promissory Note with Asher Enterprises for $19,250, $20,000, $42,500, $15,500 and $47,500, respectively. The convertible notes carries an 8% rate of interest and are convertible into common stock at a variable conversion price of 45% of the market price of which shall be calculated as the average of the lowest 3 days during the preceding 20 days before conversion.
On June 6, 2011, August 6, 2011 and November 6, 2011, we entered into a Securities Purchase Agreement and Convertible Promissory Note between the Company and SE Media Partners, Inc. for $36,000, $18,000 and $27,000, respectively. The convertible notes carry a 5% rate of interest and are convertible into common stock at a variable conversion price of 50% of the market price which shall be calculated as the lowest day during the preceding 5 days before conversion. The June Convertible Promissory Note was due on December 6, 2011 and has $16,105 in principal remaining, the August Convertible Promissory Note was due on February 6, 2012 and the November Convertible Promissory Note is due on May 6, 2012. On February 1, 2012, we amended the note dated June 6, 2011 for $36,000 to convert at the lower of $0.001 or 50% of market based on the lowest day during the preceding 5 days.
On July 23, 2012, we entered into a Securities Purchase Agreement and Convertible Promissory Note between the Company and its former Chief Executive Officer and former Chief Financial Officer for $320,301 and $267,998, respectively. The convertible notes carry a 5% rate of interest and are convertible into common stock at a variable conversion price of 50% of the market price which shall be calculated as the lowest day during the preceding 5 days before conversion. The Convertible Promissory Notes are due on January 23, 2012. On July 23, 2013, the former Chief Financial Officer assigned his note to the former Chief Executive Officer.
On May 30, 2013, the Company issued a $27,000 note to LG Capital Funding, LLC, payable at 8% and due November 30, 2013. The note is convertible into shares of common stock at a conversion price equal to 45% of the lowest three trading prices during the 20 days preceding the conversion.
Acquisition of Plants and Equipment and Other Assets
Apart from our interest in the Hydro-Electric Project, we do not anticipate selling or acquiring any material properties, plants or equipment during the next 12 months unless we are successful in obtaining additional financing.
Off-Balance Sheet Arrangements
We have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to stockholders.
Inflation
The amounts presented in the financial statements do not provide for the effect of inflation on our operations or financial position. The net operating losses shown would be greater than reported if the effects of inflation were reflected either by charging operations with amounts that represent replacement costs or by using other inflation adjustments.