OWC Pharmaceutical Research Corp. - Quarter Report: 2013 March (Form 10-Q)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________
FORM 10-Q
___________________
ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2013
Commission file number 0-54856
DYNAMIC
APPLICATIONS CORP.
(Exact Name Of Registrant
As Specified In Its Charter)
Delaware | 98-0573566 |
(State of Incorporation) | (I.R.S. Employer Identification No.) |
c/o Eli Gonen, 14 Menachem Begin Street, Ramat Gan, Israel | 52700 |
(Address of Principal Executive Offices) | (ZIP Code) |
Registrant's Telephone Number, Including Area Code: (972) 3-7523922
Indicate by check
mark whether the registrant (1) has filed all reports required to be filed by Section 13
or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer (as defined in Rule 12b-2 of the Exchange Act) or a smaller reporting company .
Large accelerated filer ¨ | Accelerated filer ¨ | Non-Accelerated filer ¨ | Smaller reporting company x |
On May 14, 2013, the Registrant had 15,829,450 shares of common stock outstanding.
Item |
Description |
Page |
|||
---|---|---|---|---|---|
PART I - FINANCIAL INFORMATION |
|||||
ITEM 1. | FINANCIAL STATEMENTS - UNAUDITED. | 3 | |||
Balance Sheets | 4 | ||||
Statements of Operations | 5 | ||||
Statements of Cash Flows | 6 | ||||
Notes to Financial Statements | 7 | ||||
ITEM 2. | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDISTIONS AND RESULTS OF OPERATIONS. | 8 | |||
ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. | 10 | |||
ITEM 4. | CONTROLS AND PROCEDURES. | 10 | |||
PART II - OTHER INFORMATION |
|||||
ITEM 1. | LEGAL PROCEEDINGS. | 11 | |||
ITEM 1A. | RISK FACTORS. | 11 | |||
ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS. | 11 | |||
ITEM 3. | DEFAULT UPON SENIOR SECURITIES. | 11 | |||
ITEM 4. | MINE SAFTY DISCLOSURE. | 11 | |||
ITEM 5. | OTHER INFORMATION. | 11 | |||
ITEM 6. | EXHIBITS. | 11 |
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS Back to Table of Contents
Dynamic Applications Corp. | ||||
(A Development Stage Company) | ||||
Balance Sheets | ||||
Back to Table of Contents | ||||
March 31, 2013 | ||||
(Unaudited) | December 31, 2012 |
|||
ASSETS |
||||
Current assets: | ||||
Cash | $ | 3,602 | $ | 8,101 |
Total current assets | 3,602 | 8,101 | ||
Total Assets | $ | 3,602 | $ | 8,101 |
LIABILITIES AND STOCKHOLDERS' DEFICIT |
||||
Current liabilities: | ||||
Accrued expenses | $ | 4,000 | $ | - |
Accrued interest | 12,272 | 9,458 | ||
Advances payable to related parties | 28,436 | 28,436 | ||
Convertible notes payable, net of discount | 59,325 | 50,470 | ||
Total current liabilities | 104,033 | 88,364 | ||
Total liabilities | 104,033 | 88,364 | ||
Stockholders' deficit: | ||||
Preferred stock, $0.00001 par value; 20,000,000 shares authorized; no shares issued and outstanding | - | - | ||
Common stock, $0.00001 par value; 500,000,000 shares authorized; and | ||||
15,829,450 issued and outstanding at March 31, 2013 and December 31, 2012, respectively | 158 | 158 | ||
Additional paid in capital | 475,167 | 424,474 | ||
Deficit accumulated during development stage | (575,756) | (504,895) | ||
Total stockholders' deficit | (100,431) | (80,263) | ||
Total Liabilities and Stockholders' Deficit | $ | 3,602 | $ |
8,101 |
See notes to unaudited interim financial statements. |
Dynamic Applications Corp. |
||||||
(A Development Stage Company) |
||||||
(Unaudited) |
||||||
For the period from |
||||||
For the three |
For the three |
Inception |
||||
months ended |
months ended |
(March 7, 2008) |
||||
March 31, 2013 |
March 31, 2012 |
to March 31, 2013 |
||||
Revenues |
$ |
- |
$ |
- |
$ |
- |
Expenses | ||||||
General and administrative | 59,190 |
24,121 |
454,145 |
|||
Research and development | - |
- |
45,000 |
|||
Loss from operations | (59,190) | (24,121) | (499,145) | |||
Other income (expense): | ||||||
Loss on foreign currency transactions | - | - | (5,014) | |||
Interest expense | (2,816) | (1,479) | (12,272) | |||
Amortization of debt discount | (8,855) |
(9,863) |
(59,325) |
|||
Total costs and expenses | (11,671) | (11,342) | (76,611) | |||
Net loss before income taxes | (70,861) | (35,463) | (575,756) | |||
Income tax | - |
- |
- |
|||
Net loss | $ |
(70,861) |
$ |
(35,463) |
$ |
(575,756) |
Basic and diluted per share amounts: | ||||||
Basic and diluted net loss | $ |
(0.00) |
$ |
(0.00) |
||
Weighted average shares outstanding (basic and diluted) | 15,829,450 |
15,822,637 |
||||
See notes to unaudited interim financial statements. |
Dynamic Applications Corp. |
||||||
(A Development Stage Company) |
||||||
(Unaudited) |
||||||
For the period from | ||||||
For the three months | For the three months | Inception (March 7, 2008) | ||||
ended March 31, 2013 | ended March 31, 2012 | to March 31, 2013 | ||||
Cash flows from operating activities: |
||||||
Net loss | $ |
(70,861) |
$ |
(35,463) |
$ |
(575,756) |
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||
Amortization of debt discount | 8,855 | 9,863 | 59,325 | |||
Common stock issued for services | - | - | 15,000 | |||
Fair value of warrants issued for services | 35,691 | - | 35,691 | |||
Changes in net assets and liabilities: | ||||||
Increase (decrease) in accounts payable and accrued liabilities | 6,816 |
(20,289) |
16,273 |
|||
Cash used in operating activities | (19,499) |
(45,889) |
(449,467) |
|||
Cash flow from financing activities: | ||||||
Proceeds from issuance of common stock | - | 12,005 | 339,833 | |||
Proceeds of debt borrowings | 15,000 | 29,800 | 84,800 | |||
Related party advances | - | - | 28,436 | |||
Cash provided by financing activities | 15,000 |
41,805 |
(453,069) |
|||
Change in cash | (4,499) |
(4,084) |
3,602 |
|||
Cash - beginning of period | 8,101 |
7,927 |
- |
|||
Cash - end of period | $ |
3,602 |
$ |
3,843 |
$ |
3,602 |
Supplement cash flow information: | ||||||
Non-cashn transactions: | ||||||
Debt discount | $ | 15,000 | $ | - | $ | 84,800 |
See notes to unaudited interim financial statements. |
DYNAMIC APPLICATIONS CORP.
Notes to Unaudited Interim
Financial Statements
Note 1. The Company
Organizational Background: Dynamic Applications Corp. (Dynamic Applications or the Company) is a Delaware corporation in the development stage and has not commenced operations. The Company was incorporated under the laws of the State of Delaware on March 7, 2008. The business plan of the Company is to develop a commercial application of the design in a patent of a Electromagnetic percussion device which is a device intended to provide an electromagnetic percussion hammer. The Company also intends to enhance the existing prototype, obtain approval of its patent application, and manufacture and market the product and/or seek third party entities interested in licensing the rights to manufacture and market the device. The accompanying financial statements of Dynamic Applications were prepared from the accounts of the Company under the accrual basis of accounting.
Basis of Presentation: The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern. The Company has not established any source of revenue to cover its operating costs, and as such, has incurred an operating loss since inception. Further, as of March 31, 2013, the cash resources of the Company were insufficient to meet its current business plan, and the Company had negative working capital. These and other factors raise substantial doubt about the Companys ability to continue as a going concern. The accompanying financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability of the Company to continue as a going concern.
Significant Accounting Policies
Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statement and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from the estimates.
Cash and Cash Equivalents: For financial statement presentation purposes, the Company considers those short-term, highly liquid investments with original maturities of three months or less to be cash or cash equivalents. There were no cash or cash equivalents as of March 31, 2013 and December 31, 2012.
Property and Equipment New property and equipment are recorded at cost. Property and equipment included in the bankruptcy proceedings and transferred to the Trustee had been valued at liquidation value. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, generally 5 years.
Expenditures for renewals and betterments are capitalized. Expenditures for minor items, repairs and maintenance are charged to operations as incurred. Gain or loss upon sale or retirement due to obsolescence is reflected in the operating results in the period the event takes place.
Development Stage Enterprise The Company has been in the development stage since inception.
Valuation of Long-Lived Assets: We review the recoverability of our long-lived assets including equipment, goodwill and other intangible assets, when events or changes in circumstances occur that indicate that the carrying value of the asset may not be recoverable. The assessment of possible impairment is based on our ability to recover the carrying value of the asset from the expected future pre-tax cash flows (undiscounted and without interest charges) of the related operations. If these cash flows are less than the carrying value of such asset, an impairment loss is recognized for the difference between estimated fair value and carrying value. Our primary measure of fair value is based on discounted cash flows. The measurement of impairment requires management to make estimates of these cash flows related to long-lived assets, as well as other fair value determinations.
Stock Based Compensation: Stock-based awards are accounted for using the fair value method in accordance with ASC 718, Share-Based Payments. Our primary type of share-based compensation consists of stock options. We use the Black-Scholes option pricing model in valuing options. The inputs for the valuation analysis of the options include the market value of the Companys common stock, the estimated volatility of the Companys common stock, the exercise price of the warrants and the risk free interest rate.
Accounting For Obligations And Instruments Potentially To Be Settled In The Companys Own Stock: We account for obligations and instruments potentially to be settled in the Companys stock in accordance with FASB ASC 815, Accounting for Derivative Financial Instruments. This issue addresses the initial balance sheet classification and measurement of contracts that are indexed to, and potentially settled in, the Companys own stock.
Fair Value of Financial Instruments: FASB ASC 825, Financial Instruments, requires entities to disclose the fair value of financial instruments, both assets and liabilities recognized and not recognized on the balance sheet, for which it is practicable to estimate fair value. FASB ASC 825 defines fair value of a financial instrument as the amount at which the instrument could be exchanged in a current transaction between willing parties. At March 31, 2013 and December 31, 2012, the carrying value of certain financial instruments (cash and cash equivalents, accounts payable and accrued expenses.) approximates fair value due to the short-term nature of the instruments or interest rates, which are comparable with current rates.
Fair value measurements: The Company measures fair value under a framework that utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). The three levels of inputs which prioritize the inputs used in measuring fair value are:
Level 1: Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the Company has the ability to access.
Level 2: Inputs to the valuation methodology include:
- Quoted prices for similar assets or liabilities in active markets;
- Quoted prices for identical or similar assets or liabilities in inactive markets;
- Inputs other than quoted prices that are observable for the asset or liability;
- Inputs that are derived principally from or corroborated by observable market data by
correlation or other means.
If the asset or liability has a specified (contractual) term, the level 2 input must be observable for substantially the full term of the asset or liability.
Level 3: Inputs to the valuation methodology are unobservable and significant to the fair value measurement.
The assets or liabilitys fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.
The following table presents assets that were measured and recognize at fair value on March 31, 2013 and December 31, 2012 on a recurring basis:
March 31, 2013 |
||||||||
Description of asset; | (Level 1) |
(Level 2) |
(Level 3) |
Realized Loss |
||||
None | $ |
- |
$ |
- | $ |
- |
$ |
- |
December 31, 2012 |
||||||||
Description of asset; | (Level 1) |
(Level 2) |
(Level 3) |
Realized Loss |
||||
None | $ |
- |
$ |
- | $ |
- |
$ |
- |
When the Company changes its valuation inputs for measuring financial assets and liabilities at fair value, either due to changes in current market conditions or other factors, it may need to transfer those assets or liabilities to another level in the hierarchy based on the new inputs used. The Company recognizes these transfers at the end of the reporting period that the transfers occur. For the period ended March 31, 2013 and fiscal period ended December 31, 2012, there were no significant transfers of financial assets or financial liabilities between the hierarchy levels.
Earnings per Common Share: We compute net income (loss) per share in accordance with ASC 260, Earning per Share. ASC 260 requires presentation of both basic and diluted earnings per share (EPS) on the face of the income statement. Basic EPS is computed by dividing net income (loss) available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing Diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect is anti dilutive. All per share disclosures retroactively reflect shares outstanding or issuable as though the reverse split had occurred January 1, 2010.
Income Taxes: We have adopted ASC 740, Accounting for Income Taxes. Pursuant to ASC 740, we are required to compute tax asset benefits for net operating losses carried forward. The potential benefits of net operating losses have not been recognized in these financial statements because the Company cannot be assured it is more likely than not it will utilize the net operating losses carried forward in future years.
We must make certain estimates and judgments in determining income tax expense for financial statement purposes. These estimates and judgments occur in the calculation of certain tax assets and liabilities, which arise from differences in the timing of recognition of revenue and expense for tax and financial statement purposes.
Deferred tax assets and liabilities are determined based on the differences between financial reporting and the tax basis of assets and liabilities using the tax rates and laws in effect when the differences are expected to reverse. ASC 740 provides for the recognition of deferred tax assets if realization of such assets is more likely than not to occur. Realization of our net deferred tax assets is dependent upon our generating sufficient taxable income in future years in appropriate tax jurisdictions to realize benefit from the reversal of temporary differences and from net operating loss, or NOL, carryforwards. We have determined it more likely than not that these timing differences will not materialize and have provided a valuation allowance against substantially all of our net deferred tax asset.
Management will continue to evaluate the realizability of the deferred tax asset and its related valuation allowance. If our assessment of the deferred tax assets or the corresponding valuation allowance were to change, we would record the related adjustment to income during the period in which we make the determination. Our tax rate may also vary based on our results and the mix of income or loss in domestic and foreign tax jurisdictions in which we operate.
In addition, the calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax regulations. We recognize liabilities for anticipated tax audit issues in the U.S. and other tax jurisdictions based on our estimate of whether, and to the extent to which, additional taxes will be due. If we ultimately determine that payment of these amounts is unnecessary, we will reverse the liability and recognize a tax benefit during the period in which we determine that the liability is no longer necessary. We will record an additional charge in our provision for taxes in the period in which we determine that the recorded tax liability is less than we expect the ultimate assessment to be.
ASC 740 which requires recognition of estimated income taxes payable or refundable on income tax returns for the current year and for the estimated future tax effect attributable to temporary differences and carry-forwards. Measurement of deferred income tax is based on enacted tax laws including tax rates, with the measurement of deferred income tax assets being reduced by available tax benefits not expected to be realized.
Uncertain Tax Positions
The Financial Accounting Standards Board issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes an interpretation of FASB Statement No. 109, Accounting for Income Taxes (FIN No. 48) which was effective for the Company on January 1, 2007. FIN No. 48 addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under FIN No. 48, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position. The tax benefits recognized in the financial statements from such position should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. FIN No. 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods and disclosure requirements.
Our federal and state income tax returns are open for fiscal years ending on or after December 31, 2007. We are not under examination by any jurisdiction for any tax year. At December 31, 2012 we had no material unrecognized tax benefits and no adjustments to liabilities or operations were required under FIN 48.
Recent Accounting Pronouncements
We qualify as an emerging growth company under the 2012 JOBS Act. Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. As an emerging growth company, we can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to take advantage of the benefits of this extended transition period.
In October 2012, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2012-04, Technical Corrections and Improvements in Accounting Standards Update No. 2012-04. The amendments in this update cover a wide range of Topics in the Accounting Standards Codification. These amendments include technical corrections and improvements to the Accounting Standards Codification and conforming amendments related to fair value measurements. The amendments in this update will be effective for fiscal periods beginning after December 15, 2012. The adoption of ASU 2012-04 is not expected to have a material impact on our financial position or results of operations.
In August 2012, the FASB issued ASU 2012-03, Technical Amendments and Corrections to SEC Sections: Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin (SAB) No. 114, Technical Amendments Pursuant to SEC Release No. 33-9250, and Corrections Related to FASB Accounting Standards Update 2010-22 (SEC Update) in Accounting Standards Update No. 2012-03. This update amends various SEC paragraphs pursuant to the issuance of SAB No. 114. The adoption of ASU 2012-03 is not expected to have a material impact on our financial position or results of operations.
In July 2012, the FASB issued ASU 2012-02, Intangibles Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment in Accounting Standards Update No. 2012-02. This update amends ASU 2011-08, Intangibles Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment and permits an entity first to assess qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform the quantitative impairment test in accordance with Subtopic 350-30, Intangibles - Goodwill and Other - General Intangibles Other than Goodwill. The amendments are effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted, including for annual and interim impairment tests performed as of a date before July 27, 2012, if a public entitys financial statements for the most recent annual or interim period have not yet been issued or, for nonpublic entities, have not yet been made available for issuance. The adoption of ASU 2012-02 is not expected to have a material impact on our financial position or results of operations.
Management does not anticipate that the adoption of these standards will have a material impact on the financial statements.
Note 2. Stockholders Equity
Common Stock
On February 5, 2009, the Company implemented a 3 for 1 forward stock split on its issued and outstanding shares of common stock to the holders of record as of February 5, 2009. As a result of the split, each holder of record on the record date automatically received two additional shares of the Companys common stock. After the split, the number of shares of common stock issued and outstanding were 86,145,000 (861,450 post most recent 1 for 100 reverse stock split) shares.
On October 19, 2012, we filed a Certificate of Amendment to our Certificate of Incorporation with the State of Delaware to change the authorized capital stock to 520,000,000 shares consisting of 500,000,000 shares of common stock, par value $0.00001 and 20,000,000 shares of preferred stock, par value $0.00001. The certificate of amendment also authorized a reverse split of common stock at the ratio of 1:100. The accompanying financial statements and related notes thereto have been adjusted accordingly to reflect this forward stock split and the reverse split in 2012. All per share disclosures retroactively reflect shares outstanding or issuable as though the reverse split had occurred at inception.
On March 17, 2008, the Company issued 9,000,000 (90,000 post most recent 1 for 100 reverse stock split) shares of its common stock to two individuals who are Directors and officers for proceeds of $300.
The Company has completed a capital formation activity in accordance with a Registration Statement on Form S-1 submitted to the SEC to register and sell in a self-directed offering 6,000,000 (60,000 post most recent 1 for 100 reverse stock split) shares of newly issued common stock at an offering price of $0.04 per share ($4.00 adjusted for most recent 1 for 100 reverse stock split) for proceeds of $80,000. The Registration Statement on Form S-1 was filed with the SEC on May 6, 2008 and declared effective on May 15, 2008. The Company had incurred $20,000 of deferred offering costs related to this capital formation activity.
As of December 10, 2008 the Company raised $200,000 and issued 60,000,000 (600,000 post most recent 1 for 100 reverse stock split) shares of its common stock pursuant to a private placement offering of 84,000,000 (840,000 post most recent 1 for 100 reverse stock split) shares, at a purchase price of $0.01 per share ($1.00 adjusted for most recent 1 for 100 reverse stock split). The Company received proceeds of $200,000. The Company incurred $20,000 of deferred offering costs related to this capital formation activity.
On January 28, 2009 the Company raised $37,150 and issued 111,450 shares of its common stock pursuant to a private placement offering.
On September 16, 2009, the Company raised $15,000 and issued 3,000 shares of its common stock pursuant to a private placement offering, at a purchase price of $5.00 per share.
On October 13, 2009, Dynamic Applications Corp. entered into an amendment to the Executive Employment Agreement between the Company and Mr. Asher Zwebner, the Company's chief financial officer. Under the Amendment, Mr. Zwebner's term of employment was extended until October 31, 2010 and in lieu of the existing employment compensation set forth in the employment agreement, Mr. Zwebner received 5,000 shares of common stock in the Company. The shares were valued at the trading price on the day that the shares were issued less 40% discount for restricted trading.
On August 23, 2011, the Company raised $3,487 and issued 1,100,000 shares of its common stock pursuant to a private placement offering, at a purchase price of $0.00317 per share.
On September 8, 2011, the Company amended its Certificate of Incorporation to increase the authorized share and to change the par value to $0.00001.
On September 27, 2011, the Company raised $26,844 and issued 8,480,000 shares of its common stock pursuant to a private placement offering, at a purchase price of $0.00317 per share .
On December 21, 2011, the Company raised $15,850 (of which $10,801 was receivable at December 31, 2011) and issued 5,000,000 shares of its common stock pursuant to a private placement offering, at a purchase price of $0.00317 per share.
On January 9, 2012, the Company raised $1,202 and issued 380,000 shares of its common stock pursuant to a private placement offering, at a purchase price of $0.00317 per share.
On October 19, 2012, we filed a Certificate of Amendment to our Certificate of Incorporation with the State of Delaware to change the authorized capital stock to 520,000,000 shares consisting of 500,000,000 shares of common stock, par value $0.00001 and 20,000,000 shares of preferred stock, par value $0.00001. The certificate of amendment also authorized a reverse split of common stock at the ration of 1:100. All per share disclosures retroactively reflect shares outstanding or issuable as though the reverse split had occurred January 1, 2008.
During the three months ended March 31, 2013, the Company recorded $
35,691 in expenses related to 200,000 vested warrants previously granted to GUMI Tel Aviv Ltd. The initial 200,000 warrants were valued at $35,691 using the Black-Scholes option pricing model. The inputs for the valuation analysis of the warrants include the market value of the Companys common stock were as follows: the estimated volatility of the Companys common stock used in the Black-Scholes option pricing model was 318%, the exercise price and the risk free interest rate used were $0.05 and 0.36%, respectively.Note 3. Related Party transactions not disclosed elsewhere
Due Related Parties: As of March 31, 2013 and December 31, 2012, a total or $28,436 was owed to Asher Zwebner, CFO and a director, and represented accrued but unpaid compensation for services during the period from 2008 to 2009. The amount owed is not formalized by a written agreement, does not carry a specific due date and is non-interest bearing.
Note 4. Convertible Notes
During the three months ended March 31, 2013, the Company received a total of $15,000 through the issuance of convertible notes to shareholders. The notes bear interest at the rate of 15% per annum and having a maturity date of 12 months. The notes are convertible into common stock par value $0.001 per share. The Company recorded interest expense in the amount of $237 and $1,578 in amortization of debt discount related to these newly-issued notes during the three months ended March 31, 2013. For the three months ended March 31, 2013, the Company recorded a total of $2,816 in interest expense and a total of $8,855 in amortization of debt discount related to its convertible notes outstanding.In August, 2011 we issued a $40,000 convertible promissory note. The note, which has a maturity date of December 31, 2013, bears interest at 15% per annum until paid or converted. The note is convertible at the option of the holder at any time and from time to time, on or after June 30, 2013, into our common stock at a fixed conversion price of $0.01 per share.
The convertible debt security was issued with a non-detachable conversion feature. We evaluate and account for such securities in accordance with ASC 470-20, Debt Debt with Conversion and Other Options. The note was considered to have an embedded beneficial conversion feature because the effective conversion price was less than the quoted market price at the time of the issuance. This resulted in a discount to the carrying amount of the note equal to:
- the difference between the effective conversion rate and the market price of our common stock on the date of issuance; multiplied by
- the number of shares into which the notes are convertible.
The initial beneficial conversion feature of $40,000 was recorded separately based on the intrinsic value method.
The value of the beneficial conversion feature was recorded as a discount to the note which was amortized over the term of the note using the effective interest method. Amortization of $12,055 of the discount arising from the beneficial conversion feature of was included in interest expense during the fiscal period ended December 31, 2011 and $27,945 in 2012.
During 2012 the Company signed a series of seven promissory notes with unrelated parties for an aggregate of $29,800. The notes bear interest at 15% per annum and are due approximately one year from the date of issuance. The notes have conversion rights that allow the holder of the note to convert the principal balance into the Companys common stock at any time after June 30, 2013 at the lender's sole discretion at $0.01 per share.
In accordance with ASC 470, the Company has analyzed the beneficial nature of the conversion terms and determined that a beneficial conversion feature (BCF) exists. The Company calculated the value of the BCF using the intrinsic method as stipulated in ASC 470. The BCF has been recorded as a discount to the notes payable and to Additional Paid-in Capital. As of December 31, 2012, the aggregate balance of convertible notes payable is $10,470 net of unamortized discounts of $19,330.
For the period ended December 31, 2012 the Company has recognized $1,632 in interest expense related to these notes and has amortized $10,470 of the beneficial conversion features which has also been recorded as interest expense. The aggregate carrying value of these notes is as follows:
December 31, 2012 |
|
Face amount of the notes | $29,800 |
Less unamortized discount | (19,330) |
Carrying Value | $10,470 |
As of December 31, 2012, the Company is not in default on any of its debt covenants.
Note 5. Future Commitment and Issuance of Warrants
On March 5, 2013, the Company and GUMI Tel Aviv Ltd, a major, privately-held Israeli technology company ("GUMI"), entered into development/manufacturing/marketing agreement ("GUMI Agreement"). GUMI is engaged in the manufacture, import/export, marketing and install industrial equipment and designing technical solutions.
Pursuant to the GUMI Agreement, GUMI agreed to: (i) complete the development of the Prototype of the Patented Device; (ii) manufacture the commercial model(s) of the Patented device; and (iii) market the commercial model(s) of the Patented Device.
In consideration for developing the Prototype and manufacturing and marketing/distributing commercial models of the Patented Device as well as incurring all related costs and expenses in connection therewith, the Company shall compensate GUMI as follows: (i) upon the execution of the GUMI Agreement, the Company granted GUMI warrants (the "Warrants") exercisable to purchase 200,000 shares of the Company's common stock ("Warrant Shares") at an exercise price of USD$0.05 per share (the "Exercise Price"); (ii) upon completion of the Prototype, granting GUMI additional Warrants to purchase 200,000 additional Warrant Shares at the Exercise Price; and (iii) upon completion of a Commercial Device ready for manufacture and sale, granting GUMI additional Warrants to purchase 200,000 additional Warrant Shares at the Exercise Price. The Warrants shall expire 3 years from the date of each grant and shall be subject to adjustment in the event of any recapitalization of the Company's capital stock.
In addition to the consideration represented by the grant of Warrants, the Agreement further provides that following commencement of sale of the Commercial Device and until such time that GUMI has recouped all costs and expenses that it has incurred and paid in connection with the completion of development of the Prototype and the manufacture of the Commercial Device ("Date of Recoupment"), one hundred (100%) percent of the net sales revenues shall be paid and distributed to GUMI. On and after the Date of Recoupment, net sales revenues shall be paid sixty-five (65%) percent to GUMI and thirty-five (35%) percent to the Company.
The initial 200,000 warrants issued and fully vested on March 5, 2013 were valued at $35,691 using the Black-Scholes option pricing model. The inputs for the valuation analysis of the warrants include the market value of the Companys common stock, the estimated volatility of the Companys common stock, the exercise price and the risk free interest rate.
The key inputs in determining grant date fair value are as follows:
2013 |
|
Risk-free interest rate | 0.36% |
Dividend yield | 0.00% |
Expected volatility | 318% |
Note 6. Subsequent Event
On April 17, 2013, the Company entered into a Modification Agreement, pursuant to which the distribution agreement with GUMI was modified and amended as follows: (i) GUMI engaged the services of Mr. Ygal Chapo, a Tel Aviv university trained mechanical engineer, to lead GUMI's design and engineering team developing a working prototype of the Company's patented electromagnetic percussion device ("Patented Device") and commercial models of the Patented Device; (ii) the Company agreed to contribute $10,000 to the compensation GUMI is paying its newly designated mechanical engineer; and (iii) the revenue sharing arrangement between GUMI and the Company was changed to 60% to GUMI and 40% to the Company from 65% to GUMI and 35% to the Company.
On May 5, 2013, the Company received a written report from GUMI (the "May 5 Report"), a copy of which is attached as an exhibit to this Form 10-Q. The May 5 Report announced that GUMI had concluded phase 1 of the engineering process, completing the full set of drawings, thereby enabling GUMI to manufacture the Prototype, following which GUMI will manufacture commercial models.
On April 17, 2013, the Company entered into an agreement with Sensoil Ltd, an Israeli company, with an address at 27 Maskit St., Hertzliya 46733 Israel ("Sensoil") that is engaged in the design, development, manufacture, installation and service of their Vaduze Monitoring Systems (VMS), a system designed to detect and monitor soil contamination, floods, breaching of dams and Heap Leaching processes. Pursuant to the agreement (the "Representative Agreement"), the Company has been designated as Sensoil's sales representative, on a non-exclusive basis, for the United States. The Representative Agreement is for an initial term of one year with automatic renewal terms of one year each. The Company will receive a commission equal to 25% of the first $5 million in sales revenues and 20% of sales revenues in excess of 45 million generated by the Company for Sensoil's products and services in the United States. The Representative Agreement with Sensoil Ltd is part of our plan to seek to enhance our revenue stream by entering into joint ventures or other business arrangements with third parties engaged in technology development, based upon our belief that there are many opportunities for us to develop relationships with technology companies in Israel that can generate revenues in the united States and elsewhere.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATION
Back to Table of ContentsThe following discussion contains forward-looking statements. Forward-looking statements give our current expectations or forecasts of future events. You can identify these statements by the fact that they do not relate strictly to historical or current facts. They use of words such as "anticipate", "estimate", "expect", "project", "intend", "plan", "believe", and other words and terms of similar meaning in connection with any discussion of future operating or financial performance. From time to time, we also may provide forward-looking statements in other materials we release to the public.
Plan of Operation
We are a development stage company that acquired the technology and received a patent for an electromagnetic percussion system, our Patented Device in 2008. From 2008 until 2011, we devote minimal resources and efforts to development of our Patented Device. During the later part of 2011 and into 2012, we renewed our interest in pursuing development of our Patented Device. Subsequent to our year-ended December 31, 2012, we entered into an agreement with GUMI Tel Aviv Ltd, a major, privately-held Israeli technology company engaged in the manufacture and sale of industrial equipment, to develop the Prototype and thereafter manufacture and distribute models of our Patented Device. We will continue to be dependent upon the ability of GUMI to successfully complete a fully-operational Prototype of our Patented Device and to manufacture and market commercial models. Our auditors have issued an opinion on our financial statements which includes a statement describing concern about our ability to continue as a going concern. This means that there is substantial doubt that we can continue as an on-going business for the next twelve months unless we obtain additional capital to pay our bills and meet our other financial obligations. This is because we have not generated any revenues and no revenues are anticipated until GUMI is successful in generating sufficient sales revenues to recoup its costs and thereafter generate additional revenues that profits we will share with GUMI on a 65%/35% basis. Accordingly, we must raise capital from sources other than the actual sale of the product until such time, if ever, that GUMI is successful with our Patented Device. In 2008, the Company completed a capital formation activity in accordance with a Registration Statement on Form S-1 submitted to the SEC to register and sell in a self-directed offering 2,000,000 shares of newly issued common stock at an offering price of $0.04 per share for proceeds of $80,000. The Company had incurred $20,000 of deferred offering costs related to this capital formation activity. In December 2008, the Company was successful in raising an additional $200,000 in equity capital. These funds were not sufficient, given the relatively high costs of executive compensation and consulting expenses, to permit the Company to devote sufficient resources to development of its Patented Device.
Our plan also contemplates that as we begin to generate revenues from our Patented Device, together with our belief in our ability to raise either debt or equity funding from both affiliated persons and from third parties, neither of which can there be any assurance, we will seek to enhance our revenue stream by entering into one or more joint ventures or other business arrangements with third parties engaged in technology development. While there can be no assurance that we will be successful in all such efforts, we believe that in Israel alone there are many opportunities that have and will continue to be presented to us as well as to our shareholders. To that end, we entered into an agreement with: (i) GUMI Tel Aviv Ltd to develop, manufacture and distribute our Patented Device; and (ii) Sensoil Ltd on April 17, 2013, to serve as their sales representative in the United States. Both agreements are discussed more fully under "Recent Developments" below.
Recent Developments
On October 26, 2012, the Company's reverse stock split on a 1:100 basis ("Reverse Split") was implemented and approved by FINRA. In connection with the Reverse Split, the Company also amended its Certificate of Incorporation to reduce its authorized shares of common stock from 20 billion shares, consisting of 19.8 billion shares of common stock and 20 million shares of preferred stock to 520 million shares consisting of 500 million shares of common stock and 20 million shares of preferred stock. While there can be no assurance, the Company believes that its capital structure, as amended, should make investment in our shares of common stock potentially more desirable to investors and the financial community in general.
On January 15, 2013, the Company entered into a consulting agreement with Gennady Nickelshur to serve as the Company's chief scientific advisor ("CSO"). The agreement with Mr. Nickelshpur provides for cash compensation based upon an hourly rate and the grant to the CSO of options pursuant to an ESOP to be adopted by the board of directors. To date, no options have been granted to Mr. Nickelshpur nor have the number of options or terms of the ESOP been determined.
On March 7, 2013, Dynamic Applications Corp., a Delaware corporation (the "Company"), reported in its Form 8-K that it had entered into a material definitive agreement (the "Development/Manufacturing/Marketing Agreement" or "Agreement"), with GUMI Tel Aviv Ltd. ("GUMI"), a large privately-held an Israeli corporation. Pursuant to the terms of the five (5) year Agreement, GUMI has agreed, at its own cost and expense, to: (i) complete the development of the prototype for the Company's patented, electromagnetic percussion device (the "Patented Device"); (ii) manufacture the commercial application of the Patented Device ("Commercial Device"); and (iii) market the Commercial Device.
On April 17, 2013, the Company entered into a Modification Agreement, pursuant to which the above referenced distribution agreement with GUMI was modified and amended as follows: (i) GUMI engaged the services of Mr. Ygal Chapo, a Tel Aviv university trained mechanical engineer, to lead GUMI's design and engineering team developing a working prototype of the Company's patented electromagnetic percussion device ("Patented Device") and commercial models of the Patented Device; (ii) the Company agreed to contribute $10,000 to the compensation GUMI is paying its newly designated mechanical engineer; and (iii) the revenue sharing arrangement between GUMI and the Company was changed to 60% to GUMI and 40% to the Company from 65% to GUMI and 35% to the Company.
On May 5, 2013, the Company received a written report from GUMI (the "May 5 Report"), a copy of which is attached as an exhibit to this Form 10-Q. The May 5 Report announced that GUMI had concluded phase 1 of the engineering process, completing the full set of drawings, thereby enabling GUMI to manufacture the Prototype, following which GUMI will manufacture commercial models. Also attached as an exhibit is the drawing.
On April 17, 2013, the Company entered into an agreement with Sensoil Ltd, an Israeli company, with an address at 27 Maskit St., Hertzliya 46733 Israel ("Sensoil") that is engaged in the design, development, manufacture, installation and service of their Vaduze Monitoring Systems (VMS), a system designed to detect and monitor soil contamination, floods, breaching of dams and Heap Leaching processes. Pursuant to the agreement (the "Representative Agreement"), the Company has been designated as Sensoil's sales representative, on a non-exclusive basis, for the United States. The Representative Agreement is for an initial term of one year with automatic renewal terms of one year each. The Company will receive a commission equal to 25% of the first $5 million in sales revenues and 20% of sales revenues in excess of $45 million generated by the Company for Sensoil's products and services in the United States.
The Representative Agreement with Sensoil Ltd is part of our plan to seek to enhance our revenue stream by entering into joint ventures or other business arrangements with third parties engaged in technology development, based upon our belief that there are many opportunities for us to develop relationships with technology companies in Israel that can generate revenues in the united States and elsewhere.
Reference is made to the Company's Form 8-K filed with the SEC on April 22, 2013, which discloses the GUMI Modification Agreement and the Sensoil Representative Agreement, both of which are attached as exhibits to the 8-K.
Results of Operations during the three months ended March 31, 2013 as compared to the three months ended March 31, 2012
We have not generated any revenues since inception. We have operating expenses related to general and administrative expenses being a public company and interest expenses. During the three-month period ended March 31, 2013, we incurred a net loss of $70,861 due to expenses consisting of general and administrative expenses of $59,190, interest expenses of $2,816 and amortization of debt discount of $8,855 compared to a net loss of $35,463 due to general and administrative expenses of $24,121, interest expenses of $1,479 and amortization of debt discount of $9,863 during the same priod in the prior year.
Liquidity and Capital Resources
On March 31, 2013, we had total assets of $3,602, all of which was in cash as compared to total assets of $8,101 as of December 31, 2012, all of which was in cash. On March 31, 2013. We had total current liabilities of $104,033 consisting of $4,000 in accrued expenses, $12,272 in accrued interest, $28,436 in advances payable to related parties and $59,325, which is the current portion of long term debt, compared to current liabilities of $88,364 comprised of $9,458 in accrued interest, $28,436 in advances payable to related parties and $50,470 in current portion of our long-term debt as of December 31, 2012. Our accumulated deficits as of March 31, 2013 and December 31, 2012 were $575,756 and $504,895, respectively.
We used $19,499 in our operating activities during the three months ended March 31, 2013, which was mainly due to a net loss of $70,861 offset by amortization of debt discount of $8,855, fair value of warrants expenses of $35,691 and accounts payable and increases in accrued liabilities of $6,816. We used $44,889 in our operating activities during the three months ended March 31, 2012, which was mainly due to a net loss of $35,463 offset by amortization of debt discount of $9,863 and accounts payable and increses in accrued liabilities of $20,289.
We financed our negative cash flow from operations during the three months ended March 31, 2013 through proceeds of debt borrowings of $15,000. We financed our negative cash flow from operations during the three months ended March 31, 2012 through the issuance of common stock for $12,005 and proceeds of issuance of debt borrowings of $29,800.
We do not have, at present, sufficient capital resources to fully implement our business plan. While we believe that we should be able to generate positive cash flow from operations during the 3rd or 4th quarters of 2013, there can be no assurance that this will prove to be correct or that revenues, if any, will be sufficient to fund our ongoing operating expenses. Accordingly, we plan to raise these funds through a private offering of our equity securities or through issuance of convertible debt instruments. There can be no assurance that additional capital will be available to us. We currently have no agreements, arrangements or understandings with any person to obtain funds through bank loans, lines of credit or any other sources.
Our auditors have issued an opinion on our financial statements which includes a statement describing our going concern status. This means that there is substantial doubt that we can continue as an on-going business for the next twelve months unless we obtain additional capital to pay our bills and meet our other financial obligations. This is because we have not generated any revenues and no revenues are anticipated until we begin marketing the product. Accordingly, we must raise capital from sources other than the actual sale of the product. We must raise capital to implement our project and stay in business. Even if we raise the maximum amount of money in this offering, we do not know how long the money will last, however, we do believe it will last at least twelve months.
There are no limitations in our articles of incorporation on our ability to borrow funds or raise funds through the issuance of restricted common stock. Our limited resources and lack of operating history may make it difficult to do borrow funds or raise capital. Our inability to borrow funds or raise funds through the issuance of restricted common stock required to facilitate our business plan may have a material adverse effect on our financial condition and future prospects. To the extent that debt financing ultimately proves to be available, any borrowing will subject us to various risks traditionally associated with indebtedness, including the risks of interest rate fluctuations and insufficiency of cash flow to pay principal and interest.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Back to Table of ContentsNone.
ITEM 4. CONTROLS AND PROCEDURES
Back to Table of ContentsEvaluation of disclosure controls and procedures. As of March 31, 2013, the Company's chief executive officer and chief financial officer conducted an evaluation regarding the effectiveness of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Exchange Act. Based upon the evaluation of these controls and procedures, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were not effective as of the end of the period covered by this report.
Changes in internal controls. During the quarterly period covered by this report, no changes occurred in our internal control over financial reporting that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
Back to Table of ContentsWe are not currently subject to any material legal proceedings, nor, to our knowledge, is any material legal proceeding threatened against us. However, from time to time, we may become a party to certain legal proceedings in the ordinary course of business.
Back to Table of ContentsIn addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, Item 1. Description of Business, subheading "Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2012, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K are not the only risks facing our company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Back to Table of ContentsNone.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Back to Table of ContentsNone.
ITEM 4. MINE SAFTY DISCLOSURE.
Back to Table of ContentsNot applicable.
Back to Table of ContentsNot applicable.
Back to Table of Contents(a) The following documents are filed as exhibits to this report on Form 10-Q or incorporated by reference herein. Any document incorporated by reference is identified by a parenthetical reference to the SEC filing that included such document.
Exhibit No. |
Description |
---|---|
10.3a | GUMI Tel Aviv Ltd Report dated May 5, 2013, filed herewith. |
10.3b | GUMI Drawing for Company's Electromagnetic Percussion Device, filed herewith. |
31.1 | Section 302 Certification of the Sarbanes-Oxley Act of 2002 of Sharar Ginsberg, filed herewith. |
32.1 | Section 906 of the Sarbanes-Oxley Act of 2002 of Sharar Ginsberg, filed herewith |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.
Dynamic Applications Corp. |
By: Ori Goore, CEO and Director |
/s/ Ori Goore |
Dynamic Applications Corp. |
By: Asher Zwebner, CFO and Director |
/s/ Asher Zwebner |