Glucose Health, Inc. - Annual Report: 2012 (Form 10-K)

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Nevada		333-147917		90-0557171
(State or Other Jurisdiction		(Commission		(I.R.S. Employer
of Incorporation or Organization)		File Number)		Identification No.)

 

 

 

Large accelerated filer	o	Accelerated filer	o
Non-accelerated filer	o	Small Business Issuer	x

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.   o  Yes    o  No

 

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PART I		Page
ITEM 1.	DESCRIPTION OF BUSINESS	4
ITEM 1A.	RISK FACTORS	7
ITEM 1B.	UNRESOLVED STAFF COMMENTS	14
ITEM 2.	DESCRIPTION OF PROPERTY	14
ITEM 3.	LEGAL PROCEEDINGS	14
ITEM 4.	MINE SAFETY DISCLOSURES	14
PART II
ITEM 5.	MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES	15
ITEM 6.	SELECTED FINANCIAL DATA	23
ITEM 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	23
ITEM 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	28
ITEM 8.	FINANCIAL STATEMENTS	F-1
ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	29
ITEM 9A.	CONTROLS AND PROCEDURES	29
ITEM 9B.	OTHER INFORMATION	29
PART III
ITEM 10.	DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE	30
ITEM 11.	EXECUTIVE COMPENSATION	32
ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS	34
ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE	35
ITEM 14.	PRINCIPAL ACCOUNTANT FEES AND SERVICES	35
PART IV
ITEM 15.	EXHIBITS, FINANCIAL STATEMENT SCHEDULES	36
SIGNATURES		37

CERTIFICATION PURSUANT TO SECTION 302 (A) OF THE SARBANES-OXLEY ACT OF 2002

Certificate of Amendment – Increase in Authorized Capital. On October 17, 2012, our Board of Directors and shareholders holding a majority of the total issued and outstanding shares of common stock pursuant to written consents in lieu of a meeting approved an amendment to our Articles of Incorporation to increase the authorized capital (the “Amendment”). The Amendment was filed with the Nevada Secretary of State on October 17, 2012 increasing our authorized capital from 90,000,000 shares of common stock to 200,000,000 shares of common stock, par value $0.001.

Our Business. The Company was a manufacturer of a pre-mix for chicken integrators called Nutra-Animal, a pre-mix anti-oxidant containing wheat middlings, vitamin E, calcium carbonate, silicone dioxyde, shrimp flour, sodium selenite and fish oil. The Company was also a distributor of GreenEx ™ in Africa. GreenEx ™ is a biological larvicide produced from a strain of Bacillus thuringiensis subspecies israelensis (Bti), a naturally occurring bacterium that produces a crystalline protein toxin (cystal) toxic for mosquitoes, vectors of Malaria. GreenEx ™ formulations are produced in the United States to strict manufacturing specifications, ensuring that the products are of high quality and without any harmful contaminants. We were not successful in this business endeavor.

On September 26, 2011, the Company acquired all the assets and intellectual property rights of Type 2 Defense, a natural dietary supplement formulated to support healthy glucose levels for type 2 diabetics and pre-diabetics. With the acquisition of Type 2 Defense we abandoned our former operations and now focus exclusively on the Type 2 Defense product. Since we abandoned our former operations, we wrote off any inventories attributable to our former operations.

THE BUSINESS:

 

We intend to sell and market the Product on the Internet. The target market is type 2 and pre-diabetics. The Product is delivered in 10 gram plastic packets (i.e. Emergent- C) conveniently packaged in a box of 30 servings. The targeted market is heath conscious individuals that have been diagnosed as Type II diabetics or individuals who are concerned with pre-diabetic symptoms.

We believe that there is a growing market place that lacks adequate healthy tools to maintain healthy blood glucose levels. Type2 Defense is a powder blend of natural ingredients that has been developed to maintain healthy blood glucose levels. The Type2 Defense powder blend is a flavorful supplement when mixed with water becomes an effective vehicle that encourages its target market with a convenient and all natural pure health beverage containing green tea blended with cinnamon and blueberry flavoring along with Type2 Defense proprietary blend. The Product’s goal is to provide a safe and natural supplement that will assist in the stabilization of healthy glucose levels along with providing strong antioxidants.

TYPE II and PRE-DIABETIES Market:

Expanding waistlines, poor diet and an overall lack of exercise are all contributing factors to diabetes. Medical reports speak in alarming tones about the increased frequency of overweight children being diagnosed with juvenile diabetes along with the increased diagnosis of elderly and adult onset diabetes. The American culture of little exercise and unhealthy eating choices have led the medical industry down the path of the American Diabetes epidemic. Studies show that the diabetes epidemic will only get worse. A projected 1.6 million Americans will be diagnosed with diabetes every year. While diabetes awareness is catching on, diabetes is a real danger to the general health populace and fiscal economics of this country.

The costs associated with diabetes are overwhelming. Diabetes can seriously devastate the average Americans budget, especially for those individuals who do not have medical insurance. Doctors’ visits, insulin, oral medication, test strips, syringes, all add up to thousands of dollars per year. The long term health costs are even more devastating. Over time diabetes will create nerve damage that will accelerate many common deadly health conditions leading to higher medical cost and a lower quality of life. Such changes include but are not limited to heart attack, stroke, and decreased circulation. Untreated diabetes will lead to a litany of deadly medical conditions.

The Centers for Disease Control and Prevention predicts that one of every three babies who were born in 2000 will develop diabetes. The CDC also claims 41 million people have blood-sugar levels that are higher than normal but not quite high enough to be called diabetes. This condition is called pre-diabetes, and it also raises the risk of diabetes, stroke and heart disease.

Marketing Strategies and Web Site

The Company’s business plan calls for hiring a nutritional spokesperson and or diabetic celebrity to be prominently featured on its website. Marketing Type2 Defense will be a web based with a strong social marketing focus.

Educational material regarding diabetes and links to popular sites will provide a content rich site. Health and fitness will be the main model of the website.

Internet ad click-throughs will lead prospective customers directly to our home page. The home page and other pages will be available for shoppers to peruse and satisfy curiosity. We anticipate that our web page will be fully operational within the next three months at which time we intend to sell Market Type2 Defense.

Leads driven to the Type2 Defense order page will see an offer for a one month free trial with paid shipping. Acceptance of the free offer will enroll the customer for monthly auto-ship program of one box per month with a 12 month minimum order which will be charged monthly to the customer’s credit card. Repeat customers on automatic monthly shipping schedules charged to credit cards will be the key to a steady flow of cash receipts.

Customers will have the opportunity to cancel memberships at any time after the first month’s free sample and purchase of one case.

We anticipate that most of our sales will be one box of 30 packets on auto-ship programs. We anticipate that the product will be shipped from a distribution facility and fulfillment service. Subject to changes in the market and our production costs we anticipate selling the Product for $42.00 per box.

We anticipate that our project will be produced by Nutricap Labs. If Nutricap Labs cannot fulfill our orders, we believe that there are several other manufacturers who can meet our exacting production standards. We intend to utilize third party providers to handle order fulfillment.

Government Regulation

The manufacturing, processing, formulating, packaging, labeling, distributing, selling and advertising of our Type2 Defense will be subject to regulation by one or more federal agencies. The most active regulation has been administered by The Food and Drug Administration (hereinafter the "FDA") which will regulate our Product. In particular, the FDA regulates the safety, manufacturing, labeling and distribution of dietary supplements, including vitamins, minerals and herbs, food additives, food supplements, over-the-counter drugs and prescription drugs, medical devices and cosmetics. In addition, the Federal Trade Commission (hereinafter the "FTC") has overlapping jurisdiction with the FDA to regulate the labeling, promotion and advertising of dietary supplements, over the counter drugs, cosmetics and foods.

 

Dietary supplement companies are authorized to make substantiated statements of nutritional support and, subject to several possible limitations, to market manufacture-substantiated-as-safe dietary supplement products without FDA pre-clearance. Failure to comply with applicable FDA requirements can result in sanctions being imposed on the Company or the manufacturers of our products, including but not limited to fines, injunctions, product recalls, seizures and criminal prosecution.

As for labeling, DSHEA permits "statements of nutritional support" for dietary supplements without FDA pre-approval. Such statements may describe how particular dietary ingredients affect the structure, function or general well-being of the body, or the mechanism of action by which a dietary ingredient may affect body structure, function or well-being (but may not state that a dietary supplement will diagnose, mitigate, treat, cure or prevent a disease). A company making a statement of nutritional support must possess substantiating evidence for the statement, and, for such statements that are not about the effects on the body as a result of a dietary supplement used as a tool for its nutritive value and are not otherwise "health claims," disclose on the label that the FDA has not reviewed that statement and that the product is not intended for use for a disease, and notify the FDA of the statement within thirty (30) days after its initial use.

Intellectual Property. Our intellectual property consists solely of the Type2 Defense formula acquired on September 26, 2011. We have filed an application with the United States Patent and Trademark Office for Type2 Defense.

Employees. We have two full-time employees. We will need to hire additional employees as we expand our business operations. We may also outsource services to third party providers and hire consultants to support our expansion and business development.

Facilities. Our executive, administrative and operating offices are located at 1250 NE Loop 410, Suite 200, San Antonio, TX 78209. This office space has been sufficient for our current operations. We do not believe that there will be any difficulty in obtaining additional office at competitive prices when necessary.

Item 1A. Risk Factors.

RISK FACTORS ASSOCIATED WITH OUR NEW BUSINESS MODEL

An investment in our common stock involves a high degree of risk. You should carefully consider the risk factors described below together with all of the other information contained herein. Each of these risks could have a material adverse effect on our business, operating results, financial condition and/or growth prospects. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our operations. If any of these risks actually occur, our business, financial condition or results of operations may be materially adversely affected. In such case, the trading price of our common stock could decline and shareholders could lose all or part of their investment.

 

We have never marketed a glucose control dietary supplement.

We intend to rely on a number of marketing and sales methods. Our primary focus will be Internet advertising. There can be no assurance that we will be able to launch a successful marketing campaign or that consumers will purchase our product. Our new management team has never sold products similar to the Type2 Defense.

 

There is no assurance that we will be able to generate sufficient revenues to achieve profitability. We anticipate that we will continue to generate operating losses and negative cash flow from operations at least through the end of 2012 or longer. We cannot be certain that we will ever achieve, or if achieved, maintain profitability. If our revenue grows at a slower rate than we anticipate or if our marketing and operating expenses exceed our expectations or cannot be adjusted accordingly, our business, results of operation and financial condition will be materially adversely affected and we may be unable to satisfy the terms and conditions of outstanding debentures or continue operations.

We have not implemented our marketing program.

We have not yet implemented our Type2 Defense marketing program. Our website is in the final developmental stages. Our officer has limited experience in the sales and marketing of this type of product. There can be no assurance that once our website becomes fully operational, revenues will be sufficient to support our ongoing operations or hire and retain qualified consultants to support our marketing program.

Our success will depend on external factors in the diabetic and nutritional supplement industries.

Type2 Defense will compete against more traditional medical treatments involve a substantial degree of risk. Consumer receptiveness to Type2 Defense is unpredictable. The commercial success of a Type2 Defense also depends upon:

·	the quality and acceptance of other competing brands and products;
·	creating brand awareness;

·	critical reviews;
·	the availability of alternatives;

·	general economic conditions; and
·	other tangible and intangible factors.

 

We, like any other retailer, distributor and manufacturer of products that are designed to be ingested, face an inherent risk of exposure to product liability or product recall claims in the event that the use of our products results in injury. Such claims may include, among others, that our products contain contaminants or include inadequate instructions as to use or inadequate warnings concerning side effects and interactions with other substances. We currently do not carry product liability insurance. If there are product liability claims, it is unlikely that we will be able satisfy these claims and as a result, we may be forced to terminate operations.

The scientific support for our products is subject to uncertainty.

Our research, scientific knowledge and clinical testing supporting the medicinal benefits of Type2 Defense is an essential element of our ability to legally market our products. We believe that are clinical trials are sound and that we have a reasonable basis to rely on them in marketing the product. There is, however, the risk that new or undiscovered information may become available that may undermine or refute our scientific support. A reduction in the credibility of our scientific support for the medicinal benefits of our products could have a material adverse effect on our operations and financial conditions.

We will be in competition with companies that are larger, more established and better capitalized than we are.

 

·	greater financial, technical, personnel, promotional and marketing resources;
·	longer operating histories;

·	greater name recognition; and
·	larger consumer bases than us.

Uncertain and Costly Compliance with Government Regulation.

The manufacturing, processing, formulating, packaging, labeling, distributing, selling and advertising of Type2 Defense will be subject to regulation by one or more federal agencies. The most active regulation has been administered by The Food and Drug Administration (hereinafter the "FDA") which regulates our products pursuant to the Federal Food, Drug and Cosmetic Act (hereinafter the "FDCA") and regulations promulgated thereunder. In particular, the FDA regulates the safety, manufacturing, labeling and distribution of nutritional and medical supplements. In addition, the Federal Trade Commission (hereinafter the "FTC") has overlapping jurisdiction with the FDA to regulate the labeling, promotion and advertising of dietary supplements, over the counter drugs, cosmetics and foods.

Compliance with applicable FDA and any state or local statute is critical. Although we believe that we will be in compliance with applicable statutes, there can be no assurance that, should the FDA amend its guidelines or impose more stringent interpretations of current laws or regulations, we would be able to comply with these new guidelines. We are unable to predict the nature of such future laws, regulations, interpretations or applications, nor can we predict what effect additional governmental regulations or administrative orders, when and if promulgated, would have on our business in the future. These regulations could, however, require the reformation of Type2 Defense or market withdrawal.

 

Unauthorized use of our intellectual property may affect our market share and profitability.

We do not have a registered trademark. We intend to apply for a trademark with the U.S. Patent and Trademark Office to protect our rights to use the name Type2 Defense as a nutritional supplement and to protect certain of our proprietary product formulations. We believe that our trademark application will be meritorious, but we can make no assurance that our applications may be not be materially limited or modified or denied in whole or in part in the course of their prosecution before the Patent and Trademark Office.

·	enforce intellectual property rights;
·	protect our trade secrets;

·	determine the validity and scope of the rights of others; or
·	defend against claims of infringement or invalidity.

Protecting and defending against intellectual property claims may have a material adverse effect on our business.

From time to time, we may receive notice that others have infringed on our proprietary rights or that we have infringed on the intellectual property rights of others. There can be no assurance that infringement or invalidity claims will not materially adversely affect our business, financial condition or results of operations. Regardless of the validity or the success of the assertion of claims, we could incur significant costs and diversion of resources in protecting or defending against claims, which could have a material adverse effect on our business, financial condition or results of operations.

We will need to raise additional capital to market our products and expand our operations. Our failure to raise additional capital will significantly affect our ability to fund our proposed activities.

Launching our Product will require additional capital. There is no commitment in place to secure this additional financing. Any equity financing may be dilutive to shareholders, and debt financing, if available, would increase expenses and may involve restrictive covenants. The Company will be required to raise additional capital, at times and in amounts, which are uncertain, especially under the current capital market conditions. Under these circumstances, if the Company is unable to acquire additional capital or is required to raise it on terms that are less satisfactory than desired, it may have a material adverse effect on its financial condition and you will lose your investment.

 

We have no experience in selling the Type 2 Defense diabetic treatment program. Our lack of operating history in this field makes an evaluation of our business and prospects very difficult. Our prospects must be considered speculative, considering the risks, expenses, and difficulties frequently encountered in the establishment of a new business. We cannot be certain that our business will be successful or that we will generate significant revenues and become profitable.

Because we are a development stage, we have limited revenues to sustain our operations.

We are a development stage company that is currently developing our business. To date, we have not generated any revenues from operations. . The success of our business operations will depend on our ability to obtain clients and provide quality products to those clients. We are not able to predict if we will be able to develop our business and generate significant revenues. If we are not able to complete the successful development of our business plan, generate significant revenues and attain sustainable operations, then our business will fail.

We have incurred a net loss for the year ended December 31, 2012, and expect to incur net losses for the foreseeable future.

As of December 31, 2012, our net loss for the year ended December 31, 2012 was $399,078. We expect to incur operating and capital expenditures for the next year and, as a result, we expect significant net losses in the future. We will need to generate significant revenues to achieve and maintain profitability. We may not be able to generate sufficient revenues to achieve profitable operations in which case operations may terminate.

Our products and processes can expose us to product liability claims.

Product liability claims or product recalls can adversely affect our business reputation and expose us to increased scrutiny by governmental regulators. The packaging, marketing and distribution of Type2 Defense involve an inherent risk of product liability and product recall and the resultant adverse publicity. We may be subject to significant liability if the consumption of our Product causes injury, illness or death. We could be required to recall our Product in the event of contamination or damage to the products. In addition to the risks of product liability or product recall due to deficiencies caused by our production or processing operations, we may encounter the same risks if any third party tampers with our Product. We cannot assure you that we will not be required to perform product recalls, or that product liability claims will not be asserted against us, in the future. Any claims that may be made may create adverse publicity that would negatively affect our ability to market our products successfully.

Our officer and directors are engaged in other activities that could conflict with our interests. Therefore our officers and directors may not devote sufficient time to our affairs, which may affect our ability to conduct marketing activities and generate revenues.

The individuals serving as officer and directors have existing responsibilities and may have additional responsibilities to provide management and services to other entities. As a result, conflicts of interest between us and the other activities may occur from time to time, in that our officers and directors shall have conflicts of interest in allocating time, services and functions between the other business ventures in which they may or become involved and our affairs. Outside demands on our management’s time may prevent them from devoting sufficient time to our operations.

Our executive officer, board of directors and key employees are crucial to our business, and we may not be able to recruit, integrate and retain the personnel we need to succeed.

Our success will depend upon a number of key management, sales, technical and other critical personnel. The loss of the services of any key personnel, or our inability to attract, integrate and retain highly skilled technical, management, sales and marketing personnel could result in significant disruption to our operations, including our inability or limited success in locating new sites, effectiveness of sales efforts, quality of customer service, and completion of our initiatives, including growth plans and the results of our operations. Any failure by us to find suitable replacements for our key senior management may be disruptive to our operations.

 

We are reliant on management to implement our business strategy. The demand on their time will increase because of our status as a public company. The interruption of the services of our management could significantly hinder our operations, profits and future development, if suitable replacements are not promptly obtained. We cannot guarantee that our management will remain with us.

The costs to meet our reporting requirements as a public company subject to the Exchange Act of 1934 will be substantial and may result in us having insufficient funds to operate our business. Complying with federal securities laws as a public company is expensive and we will incur significant time and expense enhancing, documenting, testing and certifying our internal control over financial reporting.

We will incur ongoing expenses associated with professional fees for accounting and legal expenses associated with being a public company. We estimate that these costs will range up to $50,000 per year for the next few years. Those fees will be higher if our business volume and activity increases. Those obligations will reduce and possibly eliminate our ability and resources to fund our operations and may prevent us from meeting our normal business obligations. Furthermore, SEC rules require that our chief executive officer/chief financial officer periodically certify the existence and effectiveness of our internal control over financial reporting.

Our auditors have questioned our ability to continue operations as a “going concern.” Investors may lose all of their investment if we are unable to continue operations and generate revenues.

In the absence of significant sales and profits, we may seek to raise additional funds to meet our working capital needs principally through the additional sales of our securities. However, we cannot guarantee that we will be able to obtain sufficient additional funds when needed, or that such funds, if available, will be obtainable on terms satisfactory to us. As a result, our auditors believe that substantial doubt exists about our ability to continue operations.

Risks Related to Owning Our Common Stock

Shares of our common stock may continue to be subject to price volatility and illiquidity because our shares may continue to be thinly traded and may never become eligible for trading on a national securities exchange.

While we may at some point be able to meet the requirements necessary for our common stock to be listed on a national securities exchange, we cannot assure you that we will ever achieve a listing of our common stock on a national securities exchange. Our shares are currently only eligible for quotation on the Over-The-Counter Pink Sheets, which is not an exchange. Initial listing on a national securities exchange is subject to a variety of requirements, including minimum trading price and minimum public “float” requirements, and could also be affected by the general skepticism of such markets concerning companies that are the result of mergers with inactive publicly-held companies. There are also continuing eligibility requirements for companies listed on public trading markets. If we are unable to satisfy the initial or continuing eligibility requirements of any such market, then our stock may not be listed or could be delisted. This could result in a lower trading price for our common stock and may limit your ability to sell your shares, any of which could result in you losing some or all of your investments.

 

The market valuation of emerging growth companies, such as us, frequently fluctuate due to factors unrelated to the past or present operating performance of such companies. Our market valuation may fluctuate significantly in response to a number of factors, many of which are beyond our control, including:

·	changes in securities analysts’ estimates of our financial performance, although there are currently no analysts covering our stock;
·	fluctuations in stock market prices and volumes, particularly among securities of emerging growth companies;
·	changes in market valuations of similar companies;
·	announcements by us or our competitors of significant contracts, new technologies, acquisitions, commercial relationships, joint ventures or capital commitments;
·	variations in our quarterly operating results;
·	fluctuations in related commodities prices; and
·	additions or departures of key personnel.

Our common stock is subject to penny stock regulations which may make it difficult for investors to sell their stock.

The Securities and Exchange Commission has adopted rules that regulate broker-dealer practices in connection with transactions in “penny stocks”. Penny stocks generally are equity securities with a price of less than $5.00 (other than securities registered on certain national securities exchanges or quoted on the NASDAQ system, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system). The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from those rules; deliver a standardized risk disclosure document prepared by the Commission, which specifies information about penny stocks and the nature and significance of risks of the penny stock market. The broker-dealer also must provide the customer with bid and offer quotations for the penny stock, the compensation of the broker-dealer and salesperson in the transaction, and monthly account statements indicating the market value of each penny stock held in the customer's account. In addition, the penny stock rules require that, prior to a transaction in a penny stock not otherwise exempt from those rules; the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written agreement to the transaction. These disclosure requirements may have the effect of reducing the trading activity in the secondary market for a stock that becomes subject to the penny stock rules. If our common stock becomes subject to the penny stock rules, holders of our shares may have difficulty selling those shares.

 

Our Articles of Incorporation, as amended, authorize the issuance of 200,000,000 shares of common stock. The Board of Directors has the authority to issue additional shares of our capital stock to provide additional financing in the future and the issuance of any such shares may result in a reduction of the book value or market price of the then outstanding shares of our common stock. We have entered into numerous convertible notes as a source of funding and, upon conversion, will result in the issuance of a substantial number of shares of common stock. If we do issue any such additional shares, such issuances will cause a reduction in the proportionate ownership and voting power of all other stockholders. As a result of such dilution, your proportionate ownership interest and voting power will be decreased accordingly. Further, any such issuance could result in a change of control.

 

 

 

 

 

		High Bid				Low Bid
2012
First Quarter		$	0.06			$	0.01
Second Quarter		$	0.04			$	0.02
Third Quarter		$	0.03			$	0.01
Fourth Quarter		$	0.03			$	0.01
2011
First Quarter		$	0.07			$	0.03
Second Quarter		$	0.08			$	0.02
Third Quarter		$	0.05			$	0.01
Fourth Quarter		$	0.02			$	0.01

 

Plan Category

Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights (a)

Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights (b)

Available for Future Issuance Under Equity Compensation Plans (excluding column (a)) (c)

Equity Compensation Plans Approved by Security Holders

n/a

n/a

n/a

Equity Compensation   Plans Not Approved by Security Holders

n/a

n/a

n/a

2011 Incentive and Equity Compensation Plan Stock Options

n/a

n/a

289,000

2013 Stock Incentive Plan

n/a

n/a

21,375,000

Total

n/a

n/a

21,664,000

We are authorized to issue 30,000,000 shares of our common stock pursuant to our 2013 Stock Incentive Plan. (the "2013 Plan"). To date, we have granted 8,625,000 shares under this plan.

2011 Plan

The purpose of the 2011 Plan is to enhance the profitability and value of the Company for the benefit of its stockholders by enabling the Company to attract, retain and reward directors, employees and consultants (collectively, “Participants”) and strengthen the mutuality of interests between such persons and the Company’s stockholders.

Awards

Pursuant to the 2011 Plan, the Company may issue non-qualified stock options (“Non-Qualified Stock Options”), incentive stock options (“Incentive Stock Options”, together with Non-Qualified Stock Options referred to herein as “Stock Options”), stock appreciation rights (“Stock Appreciation Rights”), restricted stock (“Restricted Stock”) and registered stock (“Registered Stock”), (collectively, the “Awards”) to eligible Participants.

All employees of and consultants to the Company and its affiliates are eligible to be granted Non-Qualified Stock Options, Stock Appreciation Rights, Restricted Stock and Registered Stock. All employees and directors of the Company and its affiliates are eligible to be granted Incentive Stock Options.

The aggregate number of shares of Common Stock which may be issued under the 2011 Plan with respect to which Awards may be granted shall not exceed 20,000,000 shares of common stock.

If any Stock Option or Stock Appreciation Right granted under the 2011 Plan expires, terminates or is cancelled for any reason without having been exercised in full or, with respect to Stock Options, the Company repurchases any Stock Option, the number of shares of Common Stock underlying the repurchased Stock Option, and/or the number of shares of Common Stock underlying any unexercised Stock Appreciation Right or Stock Option shall again be available for the purposes of Awards under the 2011 Plan.

·	The purchase price of shares of Common Stock subject to a Non-Qualified Stock Option shall be determined by the Committee.

·	The term of each Stock Option shall be fixed by the Committee, but no Stock Option shall be exercisable more than ten (10) years after the date the Stock Option is granted.

 

i.

on death or termination of employment or consultancy by reason of disability or retirement may be exercised, to the extent exercisable at the Participant’s death or termination, by the legal representative of the estate or Participant as the case may be, at any time within a period of one (1) year from the date of such death or termination;

ii.	on termination of employment or consultancy by involuntary termination without cause or for good reason may be exercised, by the Participant at any time within a period of ninety (90) days from the date of such termination; or

iii.

on termination of employment or consultancy by voluntary termination but without good reason and occurs prior to, or more than ninety (90) days after, the occurrence of an event which would be grounds for termination by the Company for cause, any Stock Option held by such Participant may be exercised, to the extent exercisable at termination, by the Participant at any time within a period of thirty (30) days from the date of such termination,

iv.	but in no event beyond the expiration of the stated term of such Stock Option.

 

 

 

Except to the extent an Award Agreement provides for a different result, notwithstanding anything elsewhere in the 2013 Plan or any rules adopted by the Committee pursuant to the 2013 Plan to the contrary, if a Triggering Event shall occur within the 12-month period beginning with a Change in Control of the Company, then, effective immediately prior to such Triggering Event, each outstanding Stock Option, to the extent that it shall not otherwise have become vested and exercisable, shall automatically become fully and immediately vested and exercisable, without regard to any otherwise applicable vesting requirement.

Forfeiture Events.

The Committee may specify in an Award Agreement at the time of the Award that the Participant’s rights, payments and benefits with respect to an Award shall be subject to reduction, cancellation, forfeiture or recoupment upon the occurrence of certain specified events, in addition to any otherwise applicable vesting or performance conditions of an Award. Such events shall include, but shall not be limited to, termination of Service for cause, violation of material Company policies, breach of noncompetition, confidentiality or other restrictive covenants that may apply to the Participant, or other conduct by the Participant that is detrimental to the business or reputation of the Company.

Effective Date; Amendment and Termination.

The 2013 Plan shall become effective following its adoption by the Board. The term of the 2013 Plan shall be ten (10) years from the date of adoption by the Board.

The Board may at any time and from time to time and in any respect, amend or modify the 2013 Plan. The Board may seek the approval of any amendment or modification by the Company’s stockholders to the extent it deems necessary or advisable in its discretion for purposes of compliance with Section 162(m) or Section 422 of the Code, or exchange or securities market or for any other purpose. No amendment or modification of the 2013 Plan shall adversely affect any Award theretofore granted without the consent of the Participant or the permitted transferee of the Award.

The 2013 Plan shall terminate on the tenth anniversary of the date of its adoption by the Board. The Board may, in its discretion and at any earlier date, terminate the 2013 Plan. Notwithstanding the foregoing, no termination of the 2013 Plan shall adversely affect any Award theretofore granted without the consent of the Participant or the permitted transferee of the Award.

S-8 Registration Statements

On March 27, 2011, we filed an S-8 registration statement registering an aggregate of 20,000,000 shares of common stock under our 2011 Plan. As of the date of this Annual Report, an aggregate 19,711,000 shares of the Company’s common stock have been granted under the 2011 Plan.

On March 4, 2013, we filed an S-8 registration statement with the Securities and Exchange Commission registering up to 30,000,000 shares of common stock under our 2013 Plan. As of the date of this Annual Report, an aggregate 8,625,000 shares of the Company’s common stock have been granted under the 2013 Plan.

As of the date of this Annual Report, no Stock Options have been awarded.

 

a)	On February 22, 2012, three consultants were issued 1,650,000 unregistered shares of the Company’s common stock for services to the Company. These shares were valued between $0.01 and $0.06 per share or $41,500.

b)	On April 18, 2012, the holder of a November 10, 2009 promissory note for $10,000 (CAD) converted the note plus accrued interest of $833 (CAD) into 100,000 shares of the Company’s unregistered common stock at a per share price of $0.109 to fully settle the debt.

c)	On July 31, 2012, a director was issued 2,000,000 unregistered shares of the Company’s common stock for director compensation. These shares were valued at $0.024 per share or $48,000.

d)	On July 31, 2012, three consultants were issued 3,250,000 unregistered shares of the Company’s common stock for sales, financing and investor/public relations compensation. These shares were valued at $0.024 per share or $78,000.

e)	On July 31, 2012, the holder of a December 16, 2011 promissory note for $4,100 partially converted $2,500 of the note into 1,000,000 shares of the Company’s unregistered common stock at a per share price of $0.0025.

f)	On September 6, 2012, a former director was issued 250,000 unregistered shares of the Company’s common stock for director compensation. These shares were valued at $0.022 per share or $5,500.

g)

On September 11, 2012, the holder of a December 16, 2011 promissory note for $4,100 partially converted $1,600 of the note into 640,000 shares of the Company’s unregistered common stock at a per share price of $0.0025. This conversion fully satisfied the terms of the promissory note. On October 3, 2012, our chief executive officer was issued 15,000,000 unregistered shares of the Company’s common stock as part of his employment contract dated July 1, 2012.  These shares were valued at $0.015 per share or $225,000.

h)	On October 30, 2012, the Company issued 1,708,334 unregistered shares of the Company’s common stock to settle a convertible note payable plus accrued interest. These shares were valued at $0.009 per share or $15,375.

i)	On November 30, 2012 and December 18, 2012, the Company issued 3,000,000 and 2,000,000, respectively, unregistered shares of the Company’s common stock to settle two convertible notes payable. These shares were valued at $0.0025 per share or $12,608.

j)	On December 17, 2012, the Company issued 399,011 unregistered shares of the Company’s common stock to settle a convertible note payable plus accrued interest. These shares were valued at $0.009 per share or $3,566.

k)	On December 17, 2012, the Company issued 578,120 unregistered shares of the Company’s common stock to settle a convertible note payable plus accrued interest. These shares were valued at $0.009 per share or $5,228.

l)	On January 18, 2013, a consultant was issued 2,000,000 unregistered shares of the Company’s common stock for marketing services to the Company. These shares were valued at $0.014 per share or $28,000.

m)	On January 23, 2013, the Company issued 1,464,286 unregistered shares of the Company’s common stock to settle a convertible note payable plus accrued interest. These shares were valued at $0.007 per share or $10,250.

n)	On January 25, 2013, the Company issued 732,436 unregistered shares of the Company’s common stock to settle a convertible note payable plus accrued interest. These shares were valued at $0.007 per share or $5,127.

o)	On February 7, 2013, the Company issued 1,485,519 unregistered shares of the Company’s common stock to settle a convertible note payable plus accrued interest. These shares were valued at $0.007 per share or $10,399.

p)	On March 4, 2013, the Company issued 743,933 unregistered shares of the Company’s common stock to settle a convertible note payable plus accrued interest. These shares were valued at $0.007 per share or $5,208.

 

 

·

the aggregate shares of common stock were issued to eight United States residents and a Canadian resident in reliance on Section 4(2) and Rule 506 promulgated under the Securities Act of 1933, as amended. The shares of common stock have not been registered under the Securities Act or under any state securities laws and may not be offered or sold without registration with the United States Securities and Exchange Commission or an applicable exemption from the registration requirements. The investors acknowledged that the securities to be issued have not been registered under the Securities Act, that they understood the economic risk of an investment in the securities, and that they had the opportunity to ask questions of and receive answers from our management concerning any and all matters related to acquisition of the securities;

·

the sale was made to a sophisticated or accredited investor, as defined in Rule 502;

·

we gave the purchaser the opportunity to ask questions and receive answers concerning the terms and conditions of the offering and to obtain any additional information which we possessed or could acquire without unreasonable effort or expense that is necessary to verify the accuracy of information furnished;

·

at a reasonable time prior to the sale of securities, we advised the purchaser of the limitations on resale in the manner contained in Rule 502(d)2; and

·

neither we nor any person acting on our behalf sold the securities by any form of general solicitation or general advertising.

·	a description of the nature and level of risk in the market for penny stocks in both public offerings and secondary trading;

·	a description of the broker’s or dealer’s duties to the customer and of the rights and remedies available to the customer with respect to violation to such duties or other requirements of securities’ laws

·	a brief, clear, narrative description of a dealer market, including "bid" and "ask” prices for penny stocks and the significance of the spread between the "bid" and "ask" price;

·	a toll-free telephone number for inquiries on disciplinary actions;

·	definitions of significant terms in the disclosure document or in the conduct of trading in penny stocks; and

·	such other information and is in such form (including language, type, size and format), as the Securities and Exchange Commission shall require by rule or regulation.

·	the bid and offer quotations for the penny stock;

·	the compensation of the broker-dealer and its salesperson in the transaction:

·	the number of shares to which such bid and ask prices apply, or other comparable information relating to the depth and liquidity of the market for such stock; and

·	monthly account statements showing the market value of each penny stock held in the customer’s account.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

	Report of Independent Registered Public Accounting Firm	F-1
	Balance Sheets as of December 31, 2012 and 2011	F-2
	Statements of Operations and Accumulated Other Comprehensive Loss for the Years Ended December 31, 2012 and 2011 and Development Stage from October 1, 2011 to December 31, 2012	F-3
	Statements of Changes in Stockholders’ Equity (Deficit) for the Years Ended December 31, 2012 and 2011 and Development Stage from October 1, 2011 to December 31, 2012	F-4
	Statements of Cash Flows For the Years Ended December 31, 2012 and 2011 and Development Stage from October 1, 2011 to December 31, 2012	F-5
	Notes to Financial Statements	F-6