Forward-Looking Statements
This annual report contains forward-looking statements. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “could”, "may", "will", "should", "expects", "plans”, "anticipates", "believes", "estimates", "predicts", "potential" or “continue” or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors that may cause our or our industry's actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.
Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable laws, including the securities laws of the United States, we do not intend to update any of the forward-looking statements so as to conform these statements to actual results.
As used in this annual report, the terms "we," "us," "our," “company” and "Minerco" mean Minerco Resources, Inc., unless otherwise indicated.
All dollar amounts in this annual report refer to U.S. dollars unless otherwise indicated.
Company Overview
Our principal offices are located at 20 Trafalgar Square, Suite 455, Nashua, NH 03063. Our telephone number is 603-732-6948. Information about our businesses can be obtained from our website www.minercoresources.com. Information on website is not incorporated by reference into this report.
Company History
Minerco Resources, Inc. was incorporated as a Nevada company on June 21, 2007 and our only two subsidiaries are Level 5 Beverage Company, Inc. (“Level 5”) and Minerco Honduras S.A. From our inception in June 2007 through May 27, 2010, we were engaged in the acquisition of interests and leases in oil and natural gas properties. 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 a functional specialty beverage retailer that is developed and sold by Level 5 as an additional line of business, which has become our primary focus. As of September 20, 2013, we have completely discontinued operations of our renewable energy line of business. We continue to own royalty interests in two (2) renewable energy project(s) and an earned net revenue interest in one (1) renewable energy project; however, all operational control for all three (3) projects has been returned to the originating companies.
Specialty Beverage Business
Our main area of focus for the past fiscal year has been the development and expansion of our Level 5 business and its line of beverage products. Level 5 is a new entrant in the beverage industry. The LEVEL 5™ product line is a portfolio of highly functional, all-natural, reduced calorie 2.5 oz. “shots.” Level 5 currently has developed eight (8) products, RISE™, COFFEE BOOST™ (in Coffee, French Vanilla, Hazelnut and Mocha flavors), CURVES, ARMOR and FLEX , two of which (RISE™ and COFFEE BOOST™ in Coffee flavor), are available for sale in more than 250 stores in Southern California and Arizona and are also available for sale via the internet on Amazon.com.
On September 21, 2012, we incorporated Level 5 as a corporation in the State of Delaware. In October, 2012, we commenced the development, branding and sale of a line of functional beverage products through our majority owned subsidiary, Level 5.
We have partnered with Power Brands, LLC, a California Limited Liability Company (“Power Brands”), for the development of our products and the provision of brand management services. On February 26, 2013, we entered into an Agreement (the “Premium Product Development Agreement”) with Power Brands to render product development services for Level 5 Beverage Company, Inc. 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 provided prototypes for our four product variations in accordance with the terms of the Prototype Development Agreement. In accordance with the terms of the Premium Product Development Agreement, Power Brands formulated four products for us based upon our specifications and we paid them a fee of $24,500 for such services. On June 14, 2013, we entered into an Agreement (the “Brand Management Agreement”) with Power Brands, to render brand management services for Level 5 Beverage Company, Inc. The Brand Management Agreement provides that for a fee of $10,000 per month, Power Brands will manage the manufacturing process for our beverages, including the ordering of raw materials, invoicing, delivery and logistics as well as the marketing and sales personnel. We can terminate the Brand Management Agreement without cause upon 90 day notice and either party can terminate the agreement with cause upon a material breach of the agreement if such breach is not cured within 30 days of receipt of notice.
On May 22, 2013, we completed and approved the final formulation of four (4) of the LEVEL 5™ products: RISE™, CURVES, ARMOR and FLEX. On June 3, 2013, we completed and approved the final label design and artwork design for Level 5’s flagship product: RISE. On June 25, 2013, we received our GS1 US membership and company sku identifier for our LEVEL 5™
product line.
On July 25, 2013, we entered into a three year Agreement (the “Distribution Agreement – Exclusive Territory”) with Avanzar Sales and Distribution, LLC (“Avanzar”), a California Limited Liability Company, to exclusively distribute the entire product line of the LEVEL 5™
brand. The Distribution Agreement provides that Avanzar has the exclusive right to sell and distribute the LEVEL 5™
current products in the following California counties: Los Angeles, Riverside, San Bernardino, Orange County, San Diego County, and Imperial and the following Arizona counties: Maricopa, Pinal and Pima. The Distribution Agreement also provides that Avanzar shall have a right of first refusal for the distribution of any similar products developed in the future. The price per case to be paid by Avanzar will be $12-$14 based upon volume and promotions and subject to timely payment discounts. Either party may terminate the Distribution Agreement upon thirty day notice subject to a cure period, Avanzar may terminate the Distribution Agreement without cause upon 60 day notice or Level 5 may terminate the Distribution Agreement without cause after one year upon payment of a termination fee as disclosed in the Distribution Agreement.
In August, 2013 and September, 2013 we filed trademark applications with the USPTO for the trademark LEVEL 5™ (registration number 86042387), RISE™ (registration number 86078301) and COFFEE BOOST™ (registration number 86078270).
On August 21, 2013, we took delivery of our first commercial production run of RISE
TM
and COFFEE BOOST
TM
and on September 16, 2013, our initial LEVEL 5™ products, RISE™ and COFFEE BOOST™, were available in retail stores in Southern California.
On September 16, 2013, we started distributing and selling our LEVEL 5™ brands, RISE™ and COFFEE BOOST™, in retail locations in Southern California.
On September 30, 2013, we appointed Jason Fontaine as the Brand Manager for Level 5. The Brand Manager is responsible for managing the day to day operations, along with developing and executing all sales and marketing strategies, for all of our LEVEL 5™ brands.
On October 11, 2013 we started our online sales presence on Amazon.com for our LEVEL 5™ products, RISE
TM
and COFFEE BOOST
TM
.
As of October 31, 2013, our LEVEL 5™ products are placed in over 250 retail locations in Southern California and Arizona, in addition to our online presence on Amazon.com.
On October 31, 2013, the Company received inventory and preliminary sales reports from the sales of its LEVEL 5™ products. As of October 15, 2013, Level 5 had total depleted product of 784 cases (9,408 individual units) including 385 cases of COFFEE BOOST™ and 399 cases of RISE™.
Products
We have positioned the LEVEL 5™ product line to capitalize on two key trends we believe are impacting the beverage industry: (1) growing consumer awareness of the positive health benefits associated with functional ingredients such as “nutraceuticals,” vitamins, minerals, herbs and “super fruits” content, as well as (2) the continued growth and diversification of ready-to-drink (RTD) beverages and shots. We believe that the LEVEL 5™ products are the ideal alternative to high sugar beverages such as conventional energy drinks, juices, and soft drinks that can negatively impact an individual’s health. LEVEL 5™ products are designed to deliver an optimal blend of extremely healthy and potent amino acids, essential vitamins, and herbal adaptogens.
LEVEL 5™ is a line of functional shots, whose functional ingredients are aimed at addressing a spectrum of health concerns including energy, wellness, and performance. LEVEL 5™ is formulated with a proprietary blends of amino acids, essential vitamins and minerals, and natural adaptogens. Each ingredient has been carefully selected for its taste profile and health benefit. LEVEL 5™ shots are packaged in slender 2.5 oz. PET bottles, which are sophisticated in design and offer on-the-go convenience. The logo, graphics, and copy are designed to communicate the key branding elements: energy, wellness, protection, and stamina. The brand is premium priced, with a retail price of $2.99 for one 2.5 oz. container. LEVEL 5™ is bottled domestically via third party independent contract manufacturers. The product is hot filled to provide a minimum 12 month shelf life without the need of preservatives. This pasteurization process rapidly heats the product to high temperatures to kill harmful bacteria, the product is then cooled to room temperature to protect nutrients, flavor and color from damage.
The LEVEL 5™ product line features five (5) distinct varieties, each with a unique flavor profile aimed at addressing a specific targeted result: (diet and weight loss, wellness and energy). RISE
TM
C
OFFEE
B
OOST
TM
and FLEX are part of our energy line. Curves falls under the diet and weight loss category and Armor is a wellness product that is a blend of herbs, minerals and vitamins in a convenient easy-to-drink shot format.
RISE
TM
(Energy Supplement)
|
•
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Delicious coffee flavor Brewed Sumatra coffee
|
C
OFFEE
B
OOST
TM
(Energy Supplement)
|
•
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Coffee flavor (currently finalizing additional flavors to include: French Vanilla, Mocha and Hazelnut)
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•
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Designed as an additive to coffee rituals
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CURVES (Women’s Supplement)
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•
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Green Coffee Bean Extract
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Other vitamins and minerals specially formulated for women
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ARMOR (Wellness Supplement)
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Herbal extracts specially formulated
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FLEX (Workout Supplement)
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•
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5g Protein in each shot
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•
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Caffeine to enhance performance
|
More details about our products are available from our brands’ websites at:
www.level5energy.com
and
www.drinkcoffeeboost.com
.
Target Market
We have positioned the brand to appeal to the growing category of consumers who choose products based on their functional benefits. More specifically, we are targeting the on-the-go health and wellness oriented consumers who lead active professional and social lifestyles. This consumer segment spans the entire demographic spectrum of consumers that share an awareness of the health benefits associated with functional beverages and are willing to explore new items offering superior taste and efficacy.
Retail Activation
We provide health and wellness oriented individuals a beverage solution for “On-the-Go” (OTG) demand. We are targeting conventional retail distribution for the brand, including natural and organic chain grocery stores (such as Whole Foods), conventional chain and independent grocery accounts, drug stores, club stores, and mass merchandisers. We have contracted with third party Direct-Store-Delivery (DSD) distributors such as Avanzar to transport and merchandise the product line. Additionally, the product will be available for sale directly to consumers through our website.
Through our distributor, Avanzar, we have launched RISE
TM
and C
OFFEE
B
OOST
TM
in Southern California and Arizona, our targeted region for pilot testing before expanding into multiple markets and ultimately national distribution. We have also made our products available through our websites and on Amazon.com. We intend to do the same with our other products.
Distribution Systems
The beverage industry largely operates via a three tier distribution system: manufacturer → distributor → retailer. Third party distributors provide a vital service to beverage manufacturers who do not wish to bear the supply chain burden of moving product from bottling facilities to retail shelves. This operation requires supply chain management resources, significant labor, transportation resources, warehouse resources, as well as sales and merchandising expertise. Third party distributors allow beverage manufacturers to focus on core competencies: brand building, innovation, consumer marketing, research, and key account management. For this service, distributors command margin percentages of 20% to 30% based on wholesale price.
LEVEL 5™ products are distributed by regional third party direct-store-delivery (DSD) distributors focusing primarily on natural retail channels, conventional grocery, drug, mass and club channels, and secondarily focused on gas and convenience channels, as well as specialty retail (fitness clubs and gyms). The Company’s management team, specifically our Brand Manager, will train all participating distributors’ sales and merchandising personnel.
We have entered into an agreement with Avanzar, in Southern California, to distribute our entire line of all-natural, functional products. The Distribution Agreement provides that Avanzar has the exclusive right to sell and distribute the LEVEL 5™
current products in the following California counties: Los Angeles, Riverside, San Bernardino, Orange County, San Diego County, and Imperial and the following Arizona counties: Maricopa, Pinal and Pima. The Distribution Agreement also provides that Avanzar shall have a right of first refusal for the distribution of any similar products developed in the future. The price per case to be paid by Avanzar will be $12-$14 based upon volume and promotions and subject to timely payment discounts. Either party may terminate the Distribution Agreement upon thirty day notice subject to a cure period, Avanzar may terminate the Distribution Agreement without cause upon 60 day notice or Level 5 may terminate the Distribution Agreement without cause after one year upon payment of a termination fee as disclosed in the Distribution Agreement.
Production Facilities
We outsource the manufacturing and warehousing of our products to third party bottlers and independent contract manufacturers (“co-packers”). We purchase our raw materials from North American suppliers which deliver to our third party co-packers.
Raw Materials
Substantially, all of the raw materials used in the preparation, bottling and packaging of our products are purchased by us or by our contract manufacturers in accordance with our specifications. The raw materials used in the preparation and packaging of our products consist primarily of readily available, non-specialty products. We believe that we have adequate sources of raw materials, which are available from multiple suppliers.
Quality Control
We are committed to building products that meet or exceed the quality standards set by the U.S. government. Our products are made from high quality, all natural ingredients. We ensure that all of our products satisfy our quality standards. Contract manufacturers are selected and monitored by our own quality control representatives in an effort to assure adherence to our production procedures and quality standards. Samples of our products from each production run undertaken by our contract manufacturers are analyzed and categorized in a reference library. The manufacturing process steps include source selection, receipt and storage, filtration, disinfection, bottling, packaging, in-place sanitation, plant quality control and corporate policies affecting quality assurance. In addition, in the future, we will ensure that each bottle is stamped with a production date, time, and plant code to quickly isolate problems should they arise.
For every run of product, our contract manufacturer undertakes extensive testing of product quality and packaging. This includes testing levels of sweetness, taste, product integrity, packaging and various regulatory cross checks. For each product, the contract manufacturer must transmit all quality control test results to us for reference following each production run. Water quality is ensured through activated carbon and particulate filtration as well as alkalinity adjustment when required. We are committed to ongoing product improvement with a view toward ensuring the high quality of our product through a stringent contract packer selection and training program.
Growth Strategy
Our growth strategy includes:
•
|
Securing additional distributors within the United States;
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•
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Increasing brand awareness of LEVEL 5™;
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•
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Securing additional chain, convenience and key account store listings for our products across United States;
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Providing online sales through various online channels;
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Rolling out the additional products in our LEVEL 5™ line up (CURVES, FLEX and ARMOR);
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•
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Expanding our LEVEL 5™ brand by developing new proprietary formulations;
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•
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Expanding our brands to other segments (through development and/or acquisition);and
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•
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Completing the development of Coffee Boost to include additional flavors.
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7.
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Ensure packaging, nutritional value, and reseller locations collectively speak to target consumer.
|
U.S. Beverage Market
The U.S. beverage market was relatively stable (+1% growth) in 2012, according to Beverage Marketing Corp. However, soft drinks, once the largest segment in the industry, continued to decline in volume by -1.8% versus prior year. Category growth drivers came from the health and wellness beverage segment or functional beverages, including ready to drink tea, natural and organic beverages, energy drinks, and the bottled water category.
U.S. LIQUID REFRESHMENT BEVERAGE MARKET
CHANGE IN VOLUME BY SEGMENT
2011 — 2012
|
|
% Change
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|
Segments
|
|
2011/12
|
|
Energy Drinks
|
|
|
14.3
|
%
|
Ready-to-Drink Coffee
|
|
|
9.5
|
%
|
Bottled Water
|
|
|
5.8
|
%
|
Ready-to-Drink Tea
|
|
|
4.9
|
%
|
Sports Drinks
|
|
|
2.3
|
%
|
Value-Added Water
|
|
|
-1.5
|
%
|
Carbonated Soft Drinks
|
|
|
-1.8
|
%
|
Fruit Beverages
|
|
|
-4.1
|
%
|
|
|
|
|
|
TOTAL LRB
|
|
|
1.0
|
%
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|
|
|
|
|
Source:
Beverage Marketng
Corporaton
|
|
|
|
|
Functional B
e
verages
According to the chart above, the general trend toward a consumer preference for functional beverages is evident in nearly every beverage segment. The accelerated pace of innovation has increased the pressure on beverage companies to stay ahead of the pack by delivering new and interesting flavors, healthier ingredients and enhanced functionality to consumers who are bombarded with choices. U.S. retail sales of natural and organic foods and beverages rose to nearly $29B in 2011, an increase of 9% over the previous year, and 63% higher than sales five years earlier, according to the Organic Trade Association’s Organic Industry Survey (2011).
Perhaps the best illustration of the growing consumer demand for functional benefits from their beverages is the relatively recent emergence of the $8.9 billion energy drink category. This category didn’t exist until the introduction of Red Bull in 1997. It continues to be the fastest growing segment in the beverage industry, up 14.3% in retail dollar volume versus one year ago. This category is dominated by three top brands with national distribution: Red Bull, Monster and RockStar, however, there are many smaller and regional brands throughout the U.S. While core energy drink consumers are 18-24 year old males, trends indicate that females and older blue and white collar workers 25-40 are increasingly choosing energy drinks over coffee as an afternoon pick-me-up.
The recent innovation in the beverage industry has also impacted the major Super-natural retail chains (Whole Foods, Wild Oats, Trader Joes) where there is an increasingly wide range of healthy options, including flash-pasteurized juice and smoothie products from national leaders Odwalla and Naked Juice, and beverages such as Sambazon, based on super-fruits such as pomegranate, blueberry and the acai berry from Brazil. Beverages sold in this channel are primarily differentiated on features such as freshness (e.g., use of flash pasteurization), and perceived health benefits (e.g., use of super-fruits that have unusually high concentrations of antioxidants).
Beverage Industry Regulations
The processing, formulation, manufacturing, packaging, labeling, advertising, and distribution of our products are subject to federal laws and regulation by one or more federal agencies, including the FDA, the FTC, the Consumer Product Safety Commission, the United States Department of Agriculture, and the Environmental Protection Agency. These activities are also regulated by various state, local, and international laws and agencies of the states and localities in which our products are sold. Government regulations may prevent or delay the introduction, or require the reformulation, of our products, which could result in lost revenues and increased costs to us. For instance, the FDA regulates, among other things, the composition, safety, labeling, and marketing of dietary supplements (including vitamins, minerals, herbs, and other dietary ingredients for human use). The FDA may not accept the evidence of safety for any new dietary ingredient that we may wish to market, may determine that a particular dietary supplement or ingredient presents an unacceptable health risk, and may determine that a particular claim or statement of nutritional value that we use to support the marketing of a dietary supplement is an impermissible drug claim, is not substantiated, or is an unauthorized version of a “health claim.” Any of these actions could prevent us from marketing particular dietary supplement products or making certain claims or statements of nutritional support for them. The FDA could also require us to remove a particular product from the market. Any future recall or removal would result in additional costs to us, including lost revenues from any additional products that we are required to remove from the market, any of which could be material. Any product recalls or removals could also lead to liability, substantial costs, and reduced growth prospects. With respect to FTC matters, if the FTC has reason to believe the law is being violated (e.g., failure to possess adequate substantiation for product claims), it can initiate an enforcement action. The FTC has a variety of processes and remedies available to it for enforcement, both administratively and judicially, including compulsory process authority, cease and desist orders, and injunctions. FTC enforcement could result in orders requiring, among other things, limits on advertising, consumer redress, divestiture of assets, rescission of contracts, or such other relief as may be deemed necessary. Violation of these orders could result in substantial financial or other penalties. Any action against us by the FTC could materially and adversely affect our ability to successfully market our products.
The production and marketing of our proprietary beverages are subject to the rules and regulations of various federal, provincial, state and local health agencies, including the U.S. Food and Drug Administration (FDA). The FDA also regulates labeling of our products. From time to time, we may receive notifications of various technical labeling or ingredient reviews with respect to our products. We believe that we have a compliance program in place to ensure compliance with production, marketing and labeling regulations.
Packagers of our beverage products presently offer non-refillable, recyclable containers in the U.S. and various other markets. Legal requirements have been enacted in jurisdictions in the U.S. requiring that deposits or certain eco-taxes or fees be charged for the sale, marketing and use of certain non-refillable beverage containers. The precise requirements imposed by these measures vary. Other beverage container related deposit, recycling, eco-tax and/or product stewardship proposals have been introduced in various jurisdictions in the U.S. We anticipate that similar legislation or regulations may be proposed in the future at local, state and federal levels both in the U.S.
Additional Concerns
Additional or more stringent regulations of beverages and dietary supplements and other products have been considered from time to time. These developments could require reformulation of some products to meet new standards, recalls or discontinuance of some products not able to be reformulated, additional record-keeping requirements, increased documentation of the properties of some products, additional or different labeling, additional scientific substantiation, adverse event reporting, or other new requirements. Any of these developments could increase our costs significantly. For example, the Dietary Supplement and Nonprescription Drug Consumer Protection Act (S3546) which was passed by Congress in December 2006, imposes significant regulatory requirements on dietary supplements including reporting of “serious adverse events” to FDA and recordkeeping requirements. This legislation could raise our costs and negatively impact our business. In June 2007, the FDA adopted final regulations on GMPs in manufacturing, packaging, or holding dietary ingredients and dietary supplements, which apply to the products we manufacture and sell. These regulations require dietary supplements to be prepared, packaged, and held in compliance with certain rules. These regulations could raise our costs and negatively impact our business. Additionally, our third-party suppliers or vendors may not be able to comply with these rules without incurring substantial expenses. If our third-party suppliers or vendors are not able to timely comply with these new rules, we may experience increased cost or delays in obtaining certain raw materials and third-party products. Also, the FDA has announced that it plans to publish guidance governing the notification of new dietary ingredients. Although FDA guidance is not mandatory, it is a strong indication of the FDA’s current views on the topic discussed in the guidance, including its position on enforcement.
In addition, there are an increasing number of laws and regulations being promulgated by the United States government, governments of individual states and governments overseas that pertain to the Internet and doing business online. In addition, a number of legislative and regulatory proposals are under consideration by federal, state, local and foreign governments and agencies. Laws or regulations have been or may be adopted with respect to the Internet relating to:
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liability for information retrieved from or transmitted over the Internet;
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online content regulation;
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commercial e-mail;
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visitor privacy; and
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taxation and quality of products and services.
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Moreover, the applicability to the Internet of existing laws governing issues such as:
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intellectual property ownership and infringement;
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consumer protection;
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obscenity;
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defamation;
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employment and labor;
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the protection of minors;
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health information; and
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personal privacy and the use of personally identifiable information.
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This area is uncertain and developing. Any new legislation or regulation or the application or interpretation of existing laws may have an adverse effect on our business. Even if our activities are not restricted by any new legislation, the cost of compliance may become burdensome, especially as different jurisdictions adopt different approaches to regulation.
Intellectual Property
We, through Level 5, have applied for the following trademarks:
•
|
LEVEL 5
. On August 20, 2013, we filed a trademark application with the USPTO for a U.S. federal trademark for
LEVEL 5
(registration number 86-42387);
|
•
|
RISE
. On September 30, 2013, we filed a trademark application with the USPTO for a U.S. federal trademark for
RISE (
registration number 86078301
)
;
|
•
|
COFFEE BOOST
. On September 30, 2013, we filed a trademark application with the USPTO for a U.S. federal trademark for
COFFEE BOOST (
registration number 86078301
)
;
|
We consider our trademarks and trade secrets to be of considerable value and importance to our business.
Research and Development
The Company’s Research and Development (R&D) consisted of formulating the LEVEL 5™ product line including: RISE™, COFFEE BOOST™, CURVES, FLEX and ARMOR. The Company spent $-0- in the fiscal year ending July 31, 2013 and $-0- in the fiscal year ended July 31, 2012 in R&D activities. The R&D for LEVEL 5™ is the only R&D activities since the Company’s inception. The Company anticipates spending $100,000 in R&D activities over the next two fiscal years. The Company spent $38,360 on management and consulting fees activities for this product line. These fees have been recorded as selling, general, and administrative fees.
Renewable Energy Business Overview
As of September 23, 2013, we have completely discontinued operations of our Renewable Energy line of business. We continue to own royalty interests in two (2) renewable energy project(s) and an earned net revenue interest in one (1) renewable energy project(s); however, all operational control has been returned to the originating companies for all three (3) projects.
The projects that we have interests in are two (2) Hydro-Electric Projects and one (1) Wind Project in various parts of Honduras (collectively the “Projects”). Both of the Hydro-Electric projects are classified as run-of-the-river projects (not conventional retention dams). The Chiligatoro Hydro-Electric Project, is in the final permitting stage of development, and the Iscan Hydro-Electric Project is currently in the early feasibility stage of development. The wind project, Sayab Wind Project, is also in the early feasibility stage of development.
Effective May, 2013, we have a six percent (6%) royalty interest in the Sayab Wind Project after the Project is completed by Energia Renovable Hondurenas, S.A. (ERSHA) or his assigns. We also have a have a ten percent (10%) royalty interest in the Iscan Hydro-Electric Project after the Project is completed by ENERCOSA or his assigns. Both Projects are actively completing the Socialization and Feasibility stages of development.
On September 23, 2013, we entered into a Return of Asset Agreement with ROTA Inversiones, S.A. (“ROTA”) to return ninety-five percent (95%) of the Chiligatoro Hydro-Electric Project back to the originating company in exchange for our earned interest in the Project, estimated at five percent (5%) for credit of the monies spent by Minerco to develop the Project. The Chiligatoro Hydro-Electric Project is in the final permitting stage of development and is expected to receive final approval in 2014.
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. See Managements’ Discussion and Analysis. However, there can be no assurance that the owners of these projects will successfully develop or complete the projects or that we will receive a royalty or revenue interests from the Projects.
To the date hereof, the Projects have not completed construction; and therefore, we have not received any revenue from the projects. There can be no assurance given that the projects will be completed in a timely manner, if at all. Since we only have royalty or “earned” interests, we will require very minimal funds to maintain our ownership interests, estimated at $20,000 in the aggregate. Additionally, even if the Projects complete development, 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 advised that the Projects are still actively pursuing obtaining necessary permits and negotiating contracts including the Feasibility Permits, Power Purchase Agreements, Congressional Approval, Equity Partner Financing and Senior Debt Financing.
Renewable Energy Projects
Chiligatoro Hydro-Electric Project
On September 23, 2013, we entered into a Return of Asset Agreement with ROTA Inversiones, S.A. (“ROTA”) to return ninety-five percent (95%) of the Chiligatoro Hydro-Electric Project back to the originating company in exchange for our earned interest in the Project, estimated at five percent (5%) for credit of the monies spent by Minerco to develop the Project. We have been informed that the Chiligatoro Hydro-Electric Project is in the final permitting stage of development and is expected to receive final approval in 2014.
On May 27, 2010, we acquired 100% of the 6 mega-watt per hour (MWh) Chiligatoro Hydro-Electric Project (“Chiligatoro”) in Intibuca, Honduras. This project is classified as a run-of-the-river project (not a conventional retention dam) and is currently in the final permitting stage of development. To date, the construction of Chiligatoro has not started, and we have not received any revenues from the project. There is no assurance that Chiligatoro will be completed in a timely manner, if at all. Additionally, if Chiligatoro is completed, there is no guarantee that it will be successfully used to create electricity or that it will generate a consistent revenue stream for us.
Chiligatoro has received approval from the National Energy Commission, signed a 30 Year Operations Contract with SERNA and is currently negotiating its Power Purchase Agreement (PPA) with ENEE. Chiligatoro is awaiting final approval from the Honduran National Congress. This Congressional Approval acts as a “defacto” guarantee. This approval makes Chiligatoro’s Power Purchase Contracts a recorded law in the Honduran National Congress. Final approval and start of construction is anticipated in 2014.
We acquired the rights to Chiligatoro from ROTA INVERSIONES S.DE R.L. (“ROTA”), a corporation formed under the laws of Honduras, pursuant to the terms of an acquisition agreement we entered into with ROTA on May 27, 2010. As of the date hereof, 13,500,000 shares have been issued to ROTA in accordance with the terms of the agreement.
Iscan Hydro-Electric Project
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 to the originating company in exchange for ten percent (10%) royalty interest after the Project is completed by ENERCOSA or his assigns. We have been informed that the Iscan Project is actively completing the Socialization and Feasibility stages of development.
On January 5, 2011, we acquired 100% of the 4 mega-watt per hour (MWh) Iscan Hydro-Electric Project (“Iscan”) in Olancho, Honduras. This project is classified as a run-of-the-river project (not a conventional retention dam) and is currently in the feasibility stage of development. To date, construction of Iscan has not started, and we have not received any revenues from the project. There is no assurance that Iscan will be completed in a timely manner, if at all. Additionally, if the Iscan project is completed, there is no guarantee that it will be successfully used to create electricity or that it will generate a consistent revenue stream for us.
We acquired the rights to Iscan from Energetica de Occidente S.A. de C.V. (“ENERCOSA”), a corporation formed under the laws of Honduras, pursuant to the terms of an acquisition agreement we entered into with the Iscan Seller on January 5, 2011. We paid ENERCOSA a total of 1,500,000 shares of common stock foregoing.
Sayab Wind Project
On May 25, 2013, we entered into a Return of Asset Agreement with Energia Renovable Hondurenas S.A. (EHRSA) to return one hundred percent (100%) of the Sayab Wind Project to the originating company in exchange for six percent (6%) royalty interest after the Project is completed by EHRSA or his assigns. We have been informed that the Sayab Project is actively completing the Socialization and Feasibility stages of development.
On January 18, 2011, we acquired 100% of the 100 mega-watt per hour (MWh) Sayab Wind Project (“Sayab”) in Choluteca, Honduras. To date, the construction of Sayab has not started, and we have not received any revenues from the project. There is no assurance that Sayab will be completed in a timely manner, if at all. Additionally, if Sayab is completed, there is no guarantee that it will be successfully used to create electricity or that it will generate a consistent revenue stream for us.
We acquired the rights to Sayab from Energia Renovable Hondurenas S.A., a corporation formed under the laws of Honduras (the “Sayab Seller”), pursuant to the terms of an acquisition agreement we entered into with the Sayab Seller on January 18, 2011. We paid the Sayab Seller a total of 1,500,000 shares of common stock.
Clean, Renewable Energy Projects in Central America (Honduras)
We believe that there is market opportunity in renewable energy projects in Central America, specifically Honduras; however, we have been unable to capitalize on those opportunities due to a lack of financing, Due to growing concerns of energy security and climate change, the Central American Region has widely adopted a shift toward Clean, Renewable Energy generation. In 1998, Decrees No. 85-98 and 267-98 were passed into Honduran law to promote the development of renewable energy-generating plants. The decrees include tax breaks to developers and a secure buyer for energy at prices equivalent to the system’s short-term marginal cost. The national integrated utility ENEE, which is the default buyer, must pay a premium (10 percent of the same short-run marginal cost) for the electricity generated when the installed capacity is below 50 MW. This framework has facilitated the negotiation of about 30 public/private partnerships with ENEE for small renewable energy plants. In addition, Decree No. 85-98 also establishes tax exemptions in favor of developers including import and sales taxes on equipment and a five-year income tax holiday.. Most countries rely on fossil fuels for the majority of power generation. Very few countries in the region have native fossil fuel resources and spend huge portions of their budgets on “dirty” energy generation. However, they do have the natural resources for “clean” renewable, sustainable energy creation. In fact, these renewable natural resources are abundant, but they are underdeveloped and largely unexploited. In order to encourage and stimulate renewable energy investment and development in Central America the major markets have introduced or adopted additional regulatory and fiscal incentives. In addition, many countries have introduced measures to limit carbon emissions, making renewable energy more desirable.
Common Stock
Our common stock is quoted on the OTCQB under the symbol “MINE.” On March 30, 2010, the Company 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, decreasing the issued and outstanding share of common stock from 1,054,297,534 to 7,028,670 shares. On May 13, 2013, we effectuated an increase in our authorized shares of common stock from 1,175,000 to 2,500,000,000. All share amounts throughout this annual report have been retroactively adjusted for all periods to reflect this stock split.
Funding
To date, we have met our financing needs through private sale of shares of our common stock and other equity securities and loans from investors. With the launch of our LEVEL 5™ product line, we anticipate to start generating revenues this year; however, we are not guaranteed that our revenue from sales will be sufficient to meet our ongoing expansion; and, therefore we will need additional financing.
Employees
As of July 31, 2013, we had 1 full time employee. We currently expect to hire approximately 5 employees and/or consultants over the next 12 months providing that we have adequate funding to do so, which will cause us to incur additional costs.
Property
Our principal office is located at 20 Trafalgar Square, Suite 455, Nashua, NH 03063. This space consists of approximately 150 square feet. We are currently in a month to month lease for the property. We believe these facilities are adequate to serve our present corporate needs.
Our Brand Management Agreement with Power Brands, LLC provides us office space, at 16501 Sherman Way, #215, Van Nuys, CA 91406, which we utilize when necessary.
Inventory
As of October 31, 2013, our remaining inventory of products, produced in August, 2013, is estimated to be 408 cases (4,896 units) of RISE™ and 432 cases (5,184 units) of COFFEE BOOST™.