ITEM 1. BUSINESS
Forward-Looking Statements
This annual report contains forward-looking statements. All statements other than statements of historical facts contained in this annual report, including statements regarding our future financial position, business strategy and plans and objectives of management for future operations, are forward looking statements. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may”, “should”, “expect”, “plan”, “anticipate”, “believe”, “estimate”, “predict”, “potential” or “continue” or the negative of these terms or other comparable terminology. Such forward-looking statements include, without limitation, statements regarding our future products and statements regarding our anticipated future cash position.
We have based these forward-looking statements largely on our current expectations and projections about future events that we believe may affect our financial condition, results of operations, business strategy, and financial needs. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks in the section entitled “Risk Factors” that may cause our company’s or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.
Moreover, we are a new entrant to the social media business and our management cannot predict all of the risks we will face in establishing our company in this industry, nor can we assess the impact that these risk factors might have on our business or the extent to which any risk factor, or any combination of risk factors, may cause actual results to differ materially from those contained in any forward-looking statements. You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.
As used in this annual report and unless otherwise indicated, the terms “we”, “us”, “PediatRx” and “our” refer to PediatRx Inc., a Nevada corporation. Unless otherwise specified, all dollar amounts are expressed in United States dollars and all references to “common shares” refer to the common shares in PediatRx’s capital stock.
Granisol
Since our acquisition of Granisol® (granisetron #C1) oral solution ("Granisol"), on July 23, 2010, we have been engaged in the pharmaceutical business. First approved in 2008, Granisol is an oral, liquid granisetron HCl solution. The Food and Drug Administration has approved Granisol’s use in cancer care to prevent nausea and vomiting associated with cancer therapy.
On January 26, 2012, we entered into a binding term sheet (the “Term Sheet”) with Apricus Biosciences, Inc. (“Apricus”) for (1) a Co-Promotion Agreement in the United States for Granisol (the “Co-Promotion Agreement”), (2) the assignment of our Co-Promotion Agreement with Bi-Coastal Pharmaceutical Corp.
(“Bi-Coastal”) for Aquoral to Apricus (the “Assignment Agreement”) and (3) a Sale Agreement for Granisol outside of the United States (the ”Asset Purchase Agreement”). Also in the Term Sheet, we entered into a non-binding arrangement for the sale of our company to Apricus in a proposed merger transaction.
On February 21, 2012 we entered into three definitive agreements and one side letter (the “Letter Agreement”) with Apricus. The three definitive agreements consist of the Co-Promotion Agreement, the Assignment Agreement and the Asset Purchase Agreement. Pursuant to the Co-Promotion Agreement, we granted to Apricus the exclusive right to commercialize Granisol in six U.S. states and the non-exclusive right to commercialize Granisol in all other U.S. States, in addition to the right to manufacture Granisol. In addition, we agreed that, for a period of five years from the effective date of the Co-Promotion Agreement, we would not license any co-promotion rights in the non-exclusive states to any third party. We retained the right to commercialize Granisol in the non-exclusive states. We intended to book sales in the non-exclusive states that we generate through our own promotional efforts. Each party agreed to cooperate with the other in respect of promotional materials and efforts on terms specified in the Co-Promotion Agreement.
The initial term of the Co-Promotion Agreement was for a period of ten years from the effective date, though it may be terminated prior to expiration under certain conditions. If the Co-Promotion Agreement was terminated by us prior to the end of the initial term, we would be required to pay to Apricus an amount based upon a varying percentage of our net operating income related to Granisol for a period subsequent to termination depending upon when the termination occurs.
Pursuant to the Assignment Agreement, we assigned all of our rights and responsibilities under our co-promotion agreement with Bi-Coastal for Aquoral, and Apricus assumed all rights and responsibilities under the co-promotion agreement as of the effective date. Bi-Coastal consented to the assignment of the co-promotion agreement for Aquoral.
Pursuant to the Asset Purchase Agreement, we sold to Apricus all of our rights related to Granisol in all countries and territories outside of the United States. We also agreed that we and our officers and directors will not compete in the field of anti-emetic products in certain areas outside of the United States.
As consideration for entering into these three Agreements we received an initial payment of $325,000 from Apricus. The Co-Promotion agreement provided for the payment to our company of a royalty that will be calculated based upon Apricus’ U.S. generated net operating income related to Granisol.
The Term Sheet also contemplated a non-binding expression of interest in the merger of our company with Apricus. The Letter Agreement refined the timing with respect to the parties’ agreement that Apricus would pay to our company $1,000,000 in Apricus unregistered common stock as a breakup fee if our two companies did not merge by June 1, 2012, (or such other date as may be mutually agreed to by the parties). As of June 1, 2012, Apricus and our company had mutually agreed to terminate discussions regarding the proposed merger.
On June 27, 2012, we entered in to a Termination Agreement (the “Termination Agreement”) with Apricus pursuant to which the parties acknowledged that they formally terminated discussions regarding the proposed merger of the two companies. Pursuant to the Termination Agreement, Apricus issued and delivered to us 373,134 shares of its common stock in full satisfaction of its obligation to pay us $1,000,000 in common stock as additional consideration to be paid by Apricus under each of the Asset Purchase Agreement and Co-Promotion Agreement.
In addition, pursuant to the Termination Agreement, on July 16, 2012, Apricus filed a Registration Statement on Form S-3 registering these shares for resale, which the Registration Statement was declared effective by the Securities and Exchange Commission on October 3, 2012. We agreed that if we propose to sell any of the shares on a public market or quotation service, we will only be permitted to sell on any given trading day, such number of shares as does not exceed 5% of the average daily volume of the Apricus’s common stock traded in the previous five trading days. Due to the sales restrictions, we determined the fair value using quoted prices for similar assets in active markets that are directly observable and thus represent a Level 2 fair value measurement. The fair value of the investment in Apricus was $1,000,000 at the effective date of the termination and August 31, 2012. We have recognized a loss on sale of investment in our statements of operations totaling $108,035 for the year ended February 28, 2013. By year end, all Apricus shares had been sold by the company.
We have decided not to focus on the pharmaceutical industry and we are looking to divest of our pharmaceutical assets. We recognized an impairment charge in the fourth quarter of 2013 to reduce the carrying amount of our pharmaceutical product rights to the estimated realizable value.
Slickx
Following the end of our fiscal year, on April 26, 2013, we entered into a non-binding letter of intent with Lakefield Media Holding AG (“Lakefield”) to acquire the Slickx name, technology, source code, domain name and all other tangible and intangible assets relating to internet portals and platforms commonly known as “Slickx” for $50,000.
In addition, the letter of intent provides that for a period of one year, Lakefield will not enter into discussions or negotiations with respect to an acquisition of its assets or company. During this time, we may negotiate with Lakefield the terms of a sale of all of the remaining assets of Lakefield, either by way of an asset sale or through the sale of all of the outstanding securities of Lakefield, for consideration consisting of a maximum of 10,650,000 shares of our common stock.
Constantin Dietrich, a director of our company, is the founder and Chief Executive Officer of Lakefield.
The completion of the transactions contemplated by the letter of intent is subject to the entry into definitive formal agreements. There is no assurance that the transactions contemplated by the letter of intent will be completed as planned or at all.
On May 17, 2013, we entered into a Web Site Asset Purchase Agreement with Lakefield Media Holding AG and its wholly-owned subsidiary, Flawsome XLerator GmbH to acquire the internet domain name “Slickx.com”, the website and related software, intellectual property rights, accounts, contracts, goodwill and infrastructure for $50,000. On May 21, 2013, we completed the acquisition of these assets and paid $50,000 to Lakefield.
Website
In connection with the acquisition of the internet domain name “Slickx.com” and related websites, we plan to offer a lifestyle media platform that focuses on building online lifestyle communities. We anticipate that our websites will allow consumers, content creators and advertisers to connect in one single network.
Our website at “Slickx.com” is accessible but is still a work-in-progress and it is currently in the testing phase as we are reviewing the operations of the social network and various features. The website will likely remain inaccessible for some time as we troubleshoot and test various aspects of the system.
We plan to engage Lakefield Media Holding AG to develop our website. On May 29th, the company entered into a consulting agreement with Flawsome Xlerator GmbH, a wholly owned subsidiary of Lakefied, to further develop the Slickx asset.
Functions and Services
We plan to enable users to not only consume digital content from the lifestyle, fashion and entertainment industry, but also to find, create and share the content within these verticals in which they are interested. Our service will connect consumers, creators and advertisers in an environment that is both engaging and social. By building a media network that delivers curated quality content we will offer a global platform that will enable the user to find, share and connect with like-minded people and opinion-leaders. The service is planned to be available on multiple platforms including web, tablet and mobile.
Revenue Model
We plan to generate revenue from the following:
Advertisements
One of the major benefits of advertising on a social media site is that advertisers can take advantage of the users’ demographic information and target their ads appropriately. We may sell advertisement space to companies that may be interested in targeting our subscribers. We anticipate that interested advertisers will include premium brand advertisers as well as local and regional advertisers who are looking for innovative new and exciting formats to carefully target the consumer to create an experience that benefits consumers and advertisers. The focus will be to offer content with targeted advertising that reaches the right audience with the right content and the right advertising.
Subscriptions
As the service matures, we may offer paid subscription services that enhance and augment the user experience. Further, there may be a cost for the consumer to download the application.
Competition
We will face substantial competition from dominant digital media companies and websites such as gawker.com and glam.com, as well as Facebook application providers in the social media space such as Pinterest. We believe that users often utilize multiple digital and social media websites or applications, and the use of one of these website or application is not necessarily to the exclusion of others.
Achieving a critical mass of users or subscribers is crucial for digital and social websites and applications. Even though we seek to offer products and services that are unique in the industry, superior in quality, and more appealing than those of our competitors, we will need to establish a solid initial user base and critical mass.
Although we believe that we have access to the tools and certain inherent efficiencies to attract the initial user base, we need to do that at a lower cost per visitor than certain of our traditional online competitors in order to essentially become successful. We also believe that the industry offers substantial room for growth as social networking application platforms and mobile platforms continue to expand and as the Internet especially mobile continues to become the primary source to engage with social media activities and consume, create and share news, events and other lifestyle-related content.
Marketing and Sales Strategy
The use of the Internet is continuing to evolve as a global platform for doing business. We anticipate that our major focus in the first year, after the acquisition of the internet domain name “Slickx.com”, will be enhancing the related website and cultivating our user base. We anticipate using various online marketing methods such as Facebook’s viral channels, online marketing programs and other advertising and marketing programs in order to drive traffic to our own website. We plan to take advantage of a well balanced mix of online and offline marketing strategies.
Our primary target market is focused on Internet users who already participate in social media websites. We therefore plan to take advantage of various well-established online marketing programs and make them an integral part of our long-term strategy. Our marketing campaigns will monitor daily statistics and track information such as interests, favorite topics and most read stories in order to quickly get synchronized with our Internet audience.
We plan to participate in other marketing activities that will also aim to raise awareness of the Slickx.com brand and attract users by promoting the unique content and quality of our product and services. We plan to primarily advertise through Internet and mobile advertising and will have to run extensive user acquisition campaigns at any given time, targeting various classifications of users.
We plan to use media buying and in-house tools to effectively and efficiently track, measure and optimize the success of our advertising campaigns. We plan to initiate a marketing strategy with a focus on campaigns that we believe will produce a positive return on ad-spend in the medium- to long-term.
Online Advertising
The majority of our advertising and promotional activities will be concentrated on online advertising campaigns and Search Engine Marketing (SEM). SEM is a form of internet marketing that involves the promotion of websites by increasing their visibility in search engine results pages (SERPs) like Google or Bing through optimization and advertising. SEM may use search engine optimization (SEO), that adjusts or rewrites website content to achieve a higher ranking in search engine results pages or use pay per click listings.
We have selected Google because of its success and popularity for web users wishing to find something using internet search. The Google Adwords program will allow us to customize the text of our advertisements, the frequency of each advertisement’s appearance, and the length of the advertising contract. For our purposes, we believe that this will give us the maximum amount of flexibility and allow us to closely monitor the costs of the marketing campaign.
Using this strategy will allow us also to design our own ads, and to select target locations such as a city or state and use keywords in our ads. A keyword is a word that is used by an Internet user who is performing an online search to find out information on a specific topic.
Optimizing Our Website
We plan to work with the web site development contractor to optimize our websites in terms of Search Engine Optimization (SEO). SEO is a technique which helps search engines find and rank a website or -page higher than others by affecting their visibility in a search engine's "natural" or un-paid ("organic") search results. Its objective is getting traffic from the “free,” “organic,” “editorial” or “natural” listings on search engines such as the major search engines Google, Yahoo and Bing that have such results. In general it is believed that a result (site) that appears earlier or higher and more frequently in the search results list on SERPs will get more visitors (traffic) from that search engine. SEO may target various kinds of search, including name search, local or image search, video search or search for events and news. Based on the type of search, SERPs Web pages and other content such as videos or local listings are shown and ranked based on what the search engine considers most relevant to users. Payment is not involved, as it is with paid search ads (SEM).
As part of our internet marketing strategy, we regard SEO to consider how search engines work, what users search for, the actual search terms or keywords typed into search engines and which search engines are preferred by their targeted audience. Thus, SEO may involve editing our website’s and -pages’ content, HTML and associated coding to both increase its relevance to specific keywords and to remove barriers to the indexing activities of search engines. We therefore plan to work with the web site development contractor to develop a series of keywords or meta-tags for each of the pages of our web site. Meta-tags are keywords that are added to a web page to make it easier to find that specific web page through search engines, web browser software and other applications. The information is not intended to be seen by the casual Internet user. Search engines like Google and Yahoo are designed to seek out these keywords when someone is performing an Internet search for a specific topic.
Intellectual Property
We own one registered trademark for Granisol and an unregistered trade-mark “Slickx”.
We are planning to develop the Slickx website and intend to protect its contents by registering for appropriate copyright and trademark protection where we deem such registration necessary or beneficial. We have not conducted any independent searches or other inquiry into patents or other intellectual property which may be owned by others and which may constrain our business plan, nor have we received independent opinions of counsel on such matters.
Governmental Regulations
We are subject to a number of foreign and domestic laws and regulations that affect companies conducting business on the Internet, many of which are still evolving and could be interpreted in ways that could harm our business. In the United States and abroad, laws relating to the liability of providers of online services for activities of their users and other third parties are currently being tested by a number of claims, including actions based on invasion of privacy and other torts, unfair competition, copyright and trademark infringement, and other theories based on the nature and content of the materials searched, the ads posted, or the content provided by users. Any court ruling or other governmental action that imposes liability on providers of online services for the activities of their users and other third parties could harm our business. In addition, rising concern about the use of social media technologies for illegal conduct, such as the unauthorized dissemination of national security information, money laundering or supporting terrorist activities may in the future produce legislation or other governmental action that could require changes to our products or services, restrict or impose additional costs upon the conduct of our business or cause users to abandon material aspects of our service.
In the area of information security and data protection, many states have passed laws requiring notification to users when there is a security breach for personal data, or requiring the adoption of minimum information security standards that are often vaguely defined and difficult to practically implement. The costs of compliance with these laws may increase in the future as a result of changes in interpretation. Furthermore, any failure on our part to comply with these laws may subject us to significant liabilities.
We are also subject to federal, state, and foreign laws regarding privacy and protection of member data. We intend to post on our website our privacy policy and user agreement, which describe our practices concerning the use, transmission and disclosure of member data. Any failure by us to comply with our posted privacy policy or privacy related laws and regulations could result in proceedings against us by governmental authorities or others, which could harm our business. In addition, the interpretation of data protection laws, and their application to the Internet is unclear and in a state of flux. There is a risk that these laws may be interpreted and applied in conflicting ways from state to state, country to country, or region to region, and in a manner that is not consistent with our current data protection practices. Complying with these varying international requirements could cause us to incur additional costs and change our business practices. Further, any failure by us to adequately protect our members’ privacy and data could result in a loss of member confidence in our services and ultimately in a loss of members and customers, which could adversely affect our business.
In addition, because we anticipate that our services will be accessible worldwide, certain foreign jurisdictions have claimed and others may claim that we are required to comply with their laws, including in jurisdictions where we have no local entity, employees, or infrastructure.
Research and Development Activities
Expenditures attributable to research and development of Granisol over the last two fiscal years were zero.
We have plans to undertake certain research and development activities during the first year of operation related to the development of the Slickx website.
Employees
At present, we have no employees. Cameron Durrant, our President, Chief Executive Officer, Chief Financial Officer, Treasurer and director serves our company pursuant to a consulting agreement. We intend to conduct our social media business largely through agreements with consultants and other independent third parties.
Subsidiaries
We do not have any subsidiaries.
ITEM 1A.
ITEM 1A. RISK FACTORS
An investment in our common stock involves a number of very significant risks. You should carefully consider the following risks and uncertainties in addition to other information in this report in evaluating our company and its business before purchasing shares of our company’s common stock. Our business, operating results and financial condition could be seriously harmed due to any of the following risks. You could lose all or part of your investment due to any of these risks.
Risks Related to Our Company
Our independent auditors have expressed substantial doubt about our ability to continue as a going concern.
During the fiscal year ended February 28, 2013, we generated net loss of $315,938. From inception through February 28, 2013, we incurred an aggregate loss of $2,567,264. We anticipate that we will continue to generate losses and will require additional funding to remain in business. We estimate our average monthly expenses over the next 12 months to be approximately $39,000, including general and administrative expenses, but excluding any development or product acquisition costs. On February 28, 2013, we had cash and cash equivalents of $512,484. In order to fund our anticipated budget for the next 12 months, excluding any development or product acquisition costs, we believe that we will need to raise in excess of $1,000,000. This amount could increase if we encounter difficulties that we cannot anticipate at this time. We have traditionally raised our operating capital from the sale of equity securities and the placement of notes payable, but there can be no assurance that we will continue to be able to do so. As a result of the termination of merger discussions with Apricus, we have received 373,134 shares of Apricus common stock in full satisfaction of its obligation to pay us $1,000,000. These shares were sold for aggregate proceeds of $891,965.
These circumstances raise substantial doubt about our ability to continue as a going concern, as described in the explanatory paragraph to our independent auditors’ report on our financial statements for the year ended February 28, 2013. Although our financial statements raise substantial doubt about our ability to continue as a going concern, they do not reflect any adjustments that might result if we are unable to continue our business. Our financial statements contain additional note disclosure describing the circumstances that lead to this disclosure by our independent auditors.
Our substantial debt and other financial obligations could impair our financial condition and our ability to fulfill our debt obligations. Any refinancing of this substantial debt could be at significantly higher interest rates.
As of February 28, 2013, we had total debt of $578,986 (including accrued interest of $78,986). Our substantial indebtedness and other current financial obligations and any that we may become a party to in the future could:
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impair our ability to obtain financing in the future for working capital, capital expenditures, partnerships, acquisitions or general corporate purposes;
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have a material adverse effect on us if we fail to comply with financial and affirmative and restrictive covenants in debt agreements and an event of default occurs as a result of a failure that is not cured or waived;
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require us to dedicate a substantial portion of our cash flow for interest payments on our indebtedness and other financial obligations, thereby reducing the availability of our cash flow to fund working capital and capital expenditures;
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limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate; and
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place us at a competitive disadvantage compared to our competitors that have proportionally less debt.
If we are unable to meet our debt service obligations and other financial obligations, we could be forced to restructure or refinance our indebtedness and other financial transactions, seek additional equity capital or sell our assets. We might then be unable to obtain such financing or capital or sell our assets on satisfactory terms, if at all. Any refinancing of our indebtedness could be at significantly higher interest rates, and/or incur significant transaction fees.
If we do not successfully divest our pharmaceutical assets, we may not have sufficient capital to pursue our new social media business.
We have decided not to focus on the pharmaceutical industry and we are looking to divest our pharmaceutical assets. If we do not successfully divest our pharmaceutical assets and we do not raise additional capital to pursue our social media projects, we will have to revisit our business strategy in an effort to determine what changes may be required in order for us to continue our operations. Further, we may need to consider raising additional capital or financing in order to continue as a going concern even if we do not pursue such projects or if the sale of our pharmaceutical assets is not completed. No assurance can be given whether we would be able to successfully raise capital or financing in such circumstances or, if so, under what terms.
Efforts to expand will place a significant strain on our management, operational, financial and other resources.
Given sufficient capital, we plan to expand our operations by marketing our Slickx website, which will place a significant strain on our management, operations, technical performance and financial resources. There can be no assurance that we will be able to manage expansion effectively. Our current and planned personnel, systems, procedures, and controls may not be adequate to support and effectively manage our future operations, especially as we employ personnel in multiple geographic locations. We may not be able to hire, train, retain, motivate, and manage required personnel, which may limit our growth. If any of this were to occur, it could damage our reputation, limit our growth, negatively affect our operating results and harm our business. We do not currently have the required capital to market either of the offerings.
We are an early-stage company with a limited operating history, which may hinder our ability to successfully meet our objectives.
We are an early-stage company with a limited operating history upon which to base an evaluation of our new business. As a result, the revenue and income potential of our new business is unproven. In addition, because of our limited operating history, we have limited insight into trends that may emerge and affect our business. Errors may be made in predicting and reacting to relevant business trends and we will be subject to the risks, uncertainties and difficulties frequently encountered by early-stage companies in evolving markets. We may not be able to successfully address any or all of these risks and uncertainties. Failure to adequately do so could cause our business, results of operations and financial condition to suffer.
Our CEO and CFO is engaged elsewhere and his time and effort will not be devoted to our company full-time.
Our CEO and CFO is engaged in other positions with other companies. As a result, our company is and will continue to be managed on a part-time basis. Our business could be adversely impacted by the lack of full time management.
Our existing management team has no experience in operating a social media business or any other web based business.
Our current management does not have any experience in operating a social media site and has never operated a web-based business. We will be dependent on outside software engineers to drive our development. If our management is not able to execute on our business plan, it is likely stockholders would lose their entire investment.
Risks Relating to the Social Media Business
After a sale of our pharmaceutical assets, we will become a pure social media company in a highly competitive field with high investment costs and high risks.
After the sale of our pharmaceutical assets, we will be a social media company, provided that we are able to obtain additional financing to develop our website, Slickx. We must achieve a certain level of users of Slickx before it can be monetized and produce revenue for us. We will have to raise substantial additional capital to drive users to our website and eventually generate revenues and reach profitability, if ever. We will be dependent upon selling advertisements and finding other ways to monetize our users by selling add-on services. For a social application or site to be able to sell advertisements, it must first attract a sufficient number of users to gain the interest of advertisers in buying ads and offering products on the site or the application. It will take time, management effort and capital to attract users to our website. There can be no assurance that any users will come. These timeframes, along with the general state of development create additional uncertainty as to the potential success of our website. The application may not continue to work as we plan and even if it does, there can be no assurance that an economically viable level of users will come, that advertisers will want to advertise or that we can monetize it. Therefore, it will be costly to maintain the application and market it to attract users and advertisers.
We are entering a very crowded social media marketplace where existing competitors have years of experience, are well financed and have the name recognition to draw consumers, none of which we possess.
Management has determined that the future direction of our company will focus on development of Slickx website. This puts our business focus in a very competitive field dominated by several very large and well financed companies such as Facebook, MySpace and Twitter. These companies have established an online presence and community that have become destinations in and of themselves and it will be difficult to make inroads into this space. We will be dependent on a new twist to entry into this space but in the end, all social media sites have similar features and it is likely that if any part of our offering becomes compelling, the competitors will adjust their offerings to be directly competitive with us. This creates substantial uncertainty on our ability to survive in this space or to be able to attract enough users to be able to monetize our site to produce revenues.
The revenue models for our social media business require we first obtain a sufficient number of users of our website before we can sell advertisements or generate other revenue and it will take time to generate such users and to then monetize the site.
We will be dependent on selling advertisements and finding other ways to monetize our users by selling add-on services. For a social media site to be able to sell advertisements, they first must attract a sufficient number of users to gain the interest of advertisers in buying ads on the sites. It will take time and money to bring users to our site and there is no assurance any users will come. These time frames along with the general state of development create additional uncertainty as to the potential success of our company. The site may not work as we plan and even if they do there can be no assurance any users will come, that advertisers will want to advertise or that we can monetize them. Additionally, it will be costly to maintain the offerings and market them to attract users.
The security risks or perception of risks of using social media websites may discourage users from using our website.
We and other market participants must be able to transmit confidential information securely over public networks. Third parties may have the technology or know-how to breach the security of user data. Any breach could cause users to lose confidence in the security of our website and choose not use our site.
We cannot assure you that advances in computer capabilities, new discoveries in the field of cryptography or other events or developments will not result in a compromise or breach of the algorithms that we will use to protect user data. If any such compromise of our security were to occur, it could harm our reputation, business, prospects, financial condition and results of operations. A party who is able to circumvent our security measures could misappropriate information or cause interruptions in our operations. We may be required to expend significant capital and other resources to protect against such security breaches or to alleviate problems caused by such breaches. We cannot assure you that our security measures will prevent security breaches or that failure to prevent such security breaches will not harm our business, prospects, financial condition and results of operations.
We may be liable if third parties misappropriate our users’ personal information.
If third parties are able to penetrate our network security or otherwise misappropriate our users’ personal information, or if we give third parties improper access to our users’ personal information, we could be subject to liability. This liability could include claims for impersonation or other similar fraud claims. This liability could also include claims for other misuses of personal information, including unauthorized marketing purposes. These claims could result in litigation. Liability for misappropriation of this information could adversely affect our business. In addition, the Federal Trade Commission and state agencies have been investigating various Internet companies regarding their use of personal information. We could incur additional expenses if new regulations regarding the use of personal information are introduced or if government agencies investigate our privacy practices.
System and online security failures could harm our business and operating results.
Our services will depend on the efficient and uninterrupted operation of our computer and communications hardware systems. Our systems and operations will be vulnerable to damage or interruption from a number of sources, including fire, flood, power loss, telecommunications failure, break-ins, earthquakes and similar events. Our Internet host provider does not guarantee that our Internet access will be uninterrupted, error-free or secure. Our servers are also vulnerable to computer viruses, physical, electrical or electronic break-ins and similar disruptions. Any substantial interruptions could result in the loss of data and could completely impair our ability to generate revenues from our service. We do not presently have a full disaster recovery plan in effect to cover the loss of all facilities and equipment.
We currently do not have any patents associated with our Slickx website and if we are not able to develop intellectual property protection around our product offering, we may not be able to prevent competitors from recreating our product offering.
Other than certain unregistered trademarks, we do not have any intellectual property protection on the features and software behind our Slickx website. We are planning to develop our website and intend to protect its contents by registering for appropriate copyright and trademark protection where our management deems such registration necessary or beneficial, but there is no assurance that we will be able to obtain such protection. We have not conducted any independent searches or other inquiry into patents or other intellectual property which may be owned by others and which may constrain our business plan, nor have we received independent opinions of counsel on such matters.
If we do not respond to rapid technological changes, our services could become obsolete and we could lose users.
To remain competitive, we will need to continually enhance and improve the functionality and features of our social media website. We may face material delays in introducing new services, products and enhancements. If this happens, our users may forgo the use of our website and use those of our competitors. The Internet and the social media industry are rapidly changing. If competitors introduce new products and services using new technologies or if new industry standards and practices emerge, our existing website and our technology and systems may become obsolete. Our failure to respond to technological change or to adequately maintain, upgrade and develop our computer network and the systems used to process users’ uses of our website could harm our business, prospects, financial condition and results of operations.
Existing or future government regulation could harm our business, results of operation and financial condition.
We are subject to the same federal, state and local laws as other companies conducting business on the Internet. Today there are relatively few laws specifically directed towards conducting business on the Internet. However, due to the increasing popularity and use of the Internet, many laws and regulations relating to the Internet are being debated at the state and federal levels. These laws and regulations could cover issues such as user privacy, freedom of expression, pricing, fraud, quality of products and services, taxation, advertising, intellectual property rights and information security. Applicability to the Internet of existing laws governing issues such as property ownership, copyrights and other intellectual property issues, taxation, libel, obscenity and personal privacy could also harm our business. For example, United States and foreign laws regulate our ability to use user information and to develop, buy and sell mailing lists. The vast majority of these laws were adopted prior to the advent of the Internet and do not contemplate or address the unique issues raised thereby. Those laws that do reference the Internet are only beginning to be interpreted by the courts and their applicability and reach are therefore uncertain. These current and future laws and regulations could harm our business, results of operation and financial condition.
The content of our website could expose us to various kinds of liability, which, if prosecuted successfully, could negatively impact our business.
We will face potential liability for negligence, copyright infringement, patent infringement, trademark infringement, defamation, and/or other claims based on the nature and content of the materials our user’s post. Various claims have been brought, and sometimes successfully prosecuted, against Internet content distributors. We could be exposed to liability with respect to the unauthorized duplication of content or unauthorized use of other parties’ proprietary technology. Any imposition of liability that is not covered by insurance, or is in excess of insurance coverage, could materially adversely affect our financial condition and results of operations. Any claim of infringement, with or without merit, could be time consuming, result in costly litigation or require us to enter into royalty or licensing agreements. Such royalty or licensing agreements might not be available on terms acceptable to us, or at all. As a result, any such claim of infringement against us could have a material adverse effect upon our business, financial condition, results of operations and cash flows.
Risks Relating to Our Common Stock
If we issue additional shares in the future, it will result in the dilution of our existing shareholders.
Our articles of incorporation authorize the issuance of up to 150,000,000 shares of common stock with a par value of $0.0001 per share. Our board of directors may choose to issue some or all of such shares to acquire one or more products and to fund our overhead and general operating requirements. The issuance of any such shares will reduce the book value per share and may contribute to a reduction in the market price of the outstanding shares of our common stock. If we issue any such additional shares, such issuance will reduce the proportionate ownership and voting power of all current shareholders. Further, such issuance may result in a change of control of our corporation.
Trading of our stock is restricted by the Securities Exchange Commission’s penny stock regulations, which may limit a stockholder’s ability to buy and sell our common stock.
The Securities and Exchange Commission has adopted regulations which generally define “penny stock” to be any equity security that has a market price (as defined) less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions. Our securities are covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers who sell to persons other than established customers and “accredited investors”. The term “accredited investor” refers generally to institutions with assets in excess of $5,000,000 or individuals with a net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouse. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a form prepared by the Securities and Exchange Commission, which provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the customer’s account. The bid and offer quotations, and the broker-dealer and salesperson compensation information, must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customer’s confirmation. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from these 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 level of trading activity in the secondary market for the stock that is subject to these penny stock rules. Consequently, these penny stock rules may affect the ability of broker-dealers to trade our securities. We believe that the penny stock rules discourage investor interest in and limit the marketability of our common stock.
FINRA sales practice requirements may also limit a stockholder’s ability to buy and sell our stock.
In addition to the “penny stock” rules described above, the Financial Industry Regulatory Authority (known as “FINRA”) has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers. FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock and have an adverse effect on the market for our shares.
Our common stock is illiquid and the price of our common stock may be negatively impacted by factors which are unrelated to our operations.
Although our common stock is currently listed for quotation on the OTC Bulletin Board, trading through the OTC Bulletin Board is frequently thin and highly volatile. There is no assurance that a sufficient market will develop in our stock, in which case it could be difficult for shareholders to sell their stock. The market price of our common stock could fluctuate substantially due to a variety of factors, including market perception of our ability to achieve our planned growth, quarterly operating results of our competitors, trading volume in our common stock, changes in general conditions in the economy and the financial markets or other developments affecting our competitors or us. In addition, the stock market is subject to extreme price and volume fluctuations. This volatility has had a significant effect on the market price of securities issued by many companies for reasons unrelated to their operating performance and could have the same effect on our common stock.
We do not intend to pay dividends on any investment in the shares of stock of our company.
We have never paid any cash dividends and currently do not intend to pay any dividends for the foreseeable future. Because we do not intend to declare dividends, any gain on an investment in our company will need to come through an increase in the stock’s price. This may never happen and investors may lose all of their investment in our company.
ITEM 1B.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not Applicable.
ITEM 2.
ITEM 2. PROPERTIES
Executive Offices and Registered Agent
Our Chief Executive Officer and corporate headquarters is located at 90 Fairmount Road West, Califon, New Jersey 07830. Our Chief Executive Officer utilizes a separate area on his personal property comprised of approximately 450 square feet of office space for which he charges no rent to us.
Our registered office for service in the State of Nevada is located at National Registered Agents, Inc. of NV, 1000 East William Street Suite 204, Carson City NV 89701.
Intellectual Property
See “Item 1 - Business”.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
We know of no material, existing or pending legal proceedings against our company, nor are we involved as a plaintiff in any material proceeding or pending litigation. There are no proceedings in which any of our directors, officers or affiliates, or any registered or beneficial shareholder, is an adverse party or has a material interest adverse to our interest.
ITEM 4.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market information
Our common stock is quoted on the OTCQB operated by the OTC Markets Group. Our symbol is “PEDX”, and our CUSIP number is 70532X107.
The following table shows the quarterly range of high and low bid information for our common stock over the fiscal quarters for the last two fiscal years as quoted on the OTCQB. We obtained the following high and low bid information from the OTCQB. These over-the-counter market quotations reflect inter-dealer prices without retail mark-up, mark-down or commission, and may not represent actual transactions.
Quarter Ended High Low
February 28, 2013 --1
November 30, 2012 $0.20 $0.13
August 31, 2012 $0.13 $0.13
May 31, 2012 $0.30 $0.06
February 29, 2012 $0.08 $0.00
November 30, 2011 NA NA
August 31, 2011 NA NA
May 31, 2011 NA NA
On May 6, 2013, the latest date that our common stock traded on the OTCQB, the closing price of our common stock was $0.15 per share.
1 - There were no bids for the quarter ended February 28, 2013.
Transfer Agent
Our shares of common stock are issued in registered form. The transfer agent and registrar for our common stock is Transfer Online, Inc., 512 SE Salmon Street, Portland, OR 97214.
Holders of Common Stock
As of June 11, 2013, there were 42 holders of record of our common stock. As of such date, 20,836,000 shares were issued and outstanding.
Dividends
We have never declared or paid any cash dividends or distributions on our capital stock. We currently intend to retain our future earnings, if any, to support operations and to finance expansion and therefore we do not anticipate paying any cash dividends on our common stock in the foreseeable future.
Securities authorized for issuance under equity compensation plans.
Effective February 18, 2011, our board of directors adopted and approved the 2011 stock option plan. The purpose of the 2011 stock option plan is to enhance the long-term stockholder value of our company by offering opportunities to directors, key employees, officers, independent contractors and consultants of our company to acquire and maintain stock ownership in our company in order to give these persons the opportunity to participate in our company’s growth and success, and to encourage them to remain in the service of our company. A total of 2,000,000 shares of our common stock are available for issuance and during the 12 month period after the first anniversary of the adoption of the 2011 stock option plan by our board of directors, and during each 12 month period thereafter, our board of directors is authorized to increase the number of shares issuable by up to 500,000 shares.
The following table summarizes certain information regarding our equity compensation plan as of February 28, 2013:
Recent sales of unregistered securities
Since the beginning of our fiscal year ended February 28, 2013, we have not sold any equity securities that were not registered under the Securities Act of 1933 that were not previously reported in a quarterly report on Form 10-Q or in a current report on Form 8-K.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
None.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
Not applicable.
ITEM 7.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our financial statements and the related notes that appear elsewhere in this annual report. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to such differences include those discussed below and elsewhere in this annual report on Form 10-K.
Liquidity and Capital Resources
Our financial condition for the 12 months ended February 28, 2013 and February 29, 2012 and the changes between those periods for the respective items are summarized as follows:
We have suffered recurring losses from inception. Our ability to meet our financial liabilities and commitments is primarily dependent upon the continued financial support of our directors and shareholders, the continued issuance of equity to new or existing shareholders, and our ability to achieve and maintain profitable operations.
Working Deficit
As of February 28, 2013, our working deficit decreased due largely to the sale of Apricus stock.
Cash Flows
Cash Used in Operating Activities
Our cash used in operating activities for the twelve months ended February 28, 2013, compared to our cash used in operating activities for the twelve months ended February 29, 2012, increased due to the payment of significant accounts payable and accrued liabilities in fiscal year 2013
Cash Provided by Financing Activities
Our cash provided by financing activities for the twelve months ended February 28, 2013, compared to our cash provided by financing activities for the twelve months ended February 29, 2012, decreased due to there being no financing activities in fiscal year 2013.
Cash Provided by Investing Activities
Our cash provided by investing activities for the twelve months ended February 28, 2013, compared to our cash provided by financing activities for the twelve months ended February 29, 2012, increased due to the receipt and sale of Apricus stock in fiscal year 2013.
Cash Requirements
We estimate our operating expenses, excluding stock based compensation and amortization expense, and working capital requirements for the next 12 months to be as follows:
Our management does not believe that our current capital resources will be adequate to continue operating our company and maintaining our business strategy for more than 12 months. Accordingly, we will have to raise additional capital in the near future to meet our working capital requirements. There can be no assurance that additional financing will be available to us when needed or, if available, that it can be obtained on commercially reasonable terms. If we are not able to obtain the additional financing on a timely basis, if and when it is needed, we will be forced to scale down or perhaps even cease the operation of our business.
Results of Operation
The following summary of our results of operations should be read in conjunction with our audited financial statements for the twelve-month periods ended February 28, 2013 and February 29, 2012.
Revenues
We have recognized $77,938 in net product revenue during the twelve month period ended February 28, 2013 and $781,050 during the twelve-month period ended February 29, 2012. This decrease of $703,112 is due to the discontinuation of product sales.
Cost of Goods Sold
We have recognized $52,359 in cost of goods sold during the twelve-month period ended February 28, 2013, and $219,438 during the twelve-month period ended February 29, 2012. This decrease of $167,079 is due to the discontinuation of product sales.
Expenses
The table below shows our expenses for the twelve-month periods ended February 28, 2013 and February 29, 2012.
In the twelve-month period ended February 28, 2013, our expenses decreased because of scaled back pharmaceutical operations.
We recognized an impairment charge of $456,554 during the twelve month period ended February 28, 2013 to reduce the carrying amount of our pharmaceutical product rights to the estimated realizable value.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to our stockholders.
Going Concern
Our audited financial statements and information for the period ended February 28, 2013, have been prepared by our management on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. We have decided not to focus on the pharmaceutical industry and we are looking to divest our pharmaceutical assets. We have generated limited revenues to date and have incurred a net loss of $315,938 during the 12-month period ended February 28, 2013, and $2,567,264 from inception (March 18, 2005) through February 28, 2013. We cannot provide any assurance that we will ultimately achieve profitable operations or become cash flow positive, or raise additional funds through the sale of debt and/or equity.
On February 28, 2013, we had cash of $512,484. Our management does not believe that our current capital resources will be adequate to continue operating our company and maintaining our business strategy for more than 12 months. If we are unable to raise additional capital in the near future, we expect that we will need to curtail operations, liquidate any assets that we might own, seek additional capital on less favorable terms and/or pursue other remedial measures. Our financial statements do not include any adjustments related to the recoverability and classification of assets or the amounts and classification of liabilities that might be necessary should we be unable to continue as a going concern.
Application of Critical Accounting Policies
The preparation of financial statements in conformity with accounting principles generally accepted in the U.S., or GAAP, requires us to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of expenses during the reporting period. Some of our accounting policies require us to make difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. The following accounting policies involve critical accounting estimates because they are particularly dependent on estimates and assumptions made by management about matters that are highly uncertain at the time the accounting estimates are made. In addition, while we have used our best estimates based on facts and circumstances available to us at the time, different estimates reasonably could have been used. Changes in the accounting estimates we use are reasonably likely to occur from time to time, which may have a material impact on the presentation of our financial condition and results of operations.
The following is a summary of significant accounting policies used in the preparation of these financial statements.
Inventory
Inventory is stated at the lower-of-cost or market on an average cost basis. Reserves for excess, slow moving or obsolete inventory are established when we become aware of an impairment in a product’s marketability due to changes in formulation, market demand and conditions or other factors. Such reserves are established based upon the difference between the product’s cost and our estimate of its net realizable value.
Intangible Assets
Intangible assets consist of product rights and know-how, the Granisol trademark, and a manufacturing and supply agreement. We are amortizing the product rights and know-how over a ten year period on a straight line basis.
Intangible assets of our company are reviewed for impairment whenever events or circumstances indicate that the carrying amount of assets may not be recoverable.
We consider assets to be impaired if the carrying value exceeds the future projected cash flows from related operations (undiscounted and without interest charges). If impairment is deemed to exist, the assets will be written down to fair value. We recognized an impairment charge of $456,554 during the twelve-month period ended February 28, 2013 to reduce the carrying amount of our pharmaceutical product rights to the estimated realizable value.
Sales Deductions
Concurrently with the recognition of revenue from pharmaceutical product sales, the estimated sales provisions for product returns, sales rebates, chargebacks, payment discounts and other sales allowances are recorded. Sales provisions are established based upon consideration of a variety of factors, including but not limited to, historical relationship to revenues, historical payment and return experience, customer rebate arrangements and current contract sales terms with wholesale and indirect customers. The following briefly describes the nature of each provision and how such provisions are estimated.
•
Payment discounts are reductions to invoiced amounts offered to customers for payment within a specified period and are estimated upon shipment utilizing historical customer payment experience.
•
Sales rebates are offered to certain customers to promote customer loyalty and encourage greater product sales. These rebate programs provide that, upon the attainment of pre- established volumes or the attainment of revenue milestones for a specified period, the customer receives either credit against purchases or cash payment. Other promotional programs are incentive programs periodically offered to customers. Due to the nature of these programs, we are able to estimate provisions for rebates and other promotional programs based on specific terms in each agreement at the time of shipment along with an estimate of the customer’s purchases over the specified period.
•
Consistent with common industry practices, there are certain terms with customers to allow them to return a product that is within a certain period of the product’s expiration date. Upon shipment of product to customers, an estimate for such returns is recorded. This estimate is determined by applying a historical relationship of products returned to products sold and market conditions including but not limited to the reformulation of products.
•
Generally, credits may be issued to customers for decreases that are made to selling prices for the value of inventory that is owned by customers at the date of the price reduction. These credits are not contractually agreed to; instead, we issue price adjustment credits at our discretion. Price adjustment credits are estimated at the time the price reduction occurs. The amount is calculated based on an estimate of customer inventory levels.
•
There are arrangements with certain parties establishing prices for products for which the parties independently select a wholesaler from which to purchase. Such parties are referred to as indirect customers. A chargeback represents the difference between the sales invoice price to the wholesaler and the indirect customer’s contract price, which is lower. Provisions for estimating chargebacks are calculated primarily using historical chargeback experience, contract pricing and sales information provided by wholesalers and chains, among other factors.
Actual product returns, chargebacks and other sales allowances incurred are, however, dependent upon future events and may be different than our estimates. These sales deductions are continually monitored and we make adjustments to these provisions when it becomes evident that actual product returns, chargebacks and other sales allowances may differ from established allowances.
Stock-based Compensation
We account for all stock-based payments and awards under the fair value based method. Stock-based payments to non-employees are measured at the fair value of the consideration received, or the fair value of the equity instruments issued, or liabilities incurred, whichever is more reliably measurable. The fair value of stock-based payments to non-employees is periodically re-measured until the counterparty performance is complete, and any change therein is recognized over the vesting period of the award and in the same manner as if we had paid cash instead of paying with or using equity based instruments. Compensation costs for stock-based payments with graded vesting are recognized on a straight-line basis. The cost of the stock-based payments to non-employees that are fully vested and non-forfeitable as of the grant date is measured and recognized at that date, unless there is a contractual term for services in which case such compensation would be amortized over the contractual term.
We account for the granting of share purchase options to employees using the fair value method whereby all awards to employees will be recorded at fair value on the date of the grant. The fair value of all share purchase options are expensed over their vesting period with a corresponding increase to additional paid-in capital.
We use the Black-Scholes option valuation model to calculate the fair value of share purchase options at the date of the grant. Option pricing models require the input of highly subjective assumptions, including the expected price volatility. Changes in these assumptions can materially affect the fair value estimates. Please refer to Note 7 - Stock Options, included in the financial statements appearing elsewhere in the report, for additional information regarding stock-based compensation.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PediatRx Inc.
(A Development Stage Company)
Financial Statements
February 28, 2013
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders
PediatRx, Inc.
We have audited the accompanying balance sheets of PediatRx, Inc. (a development stage company) (the "Company") as of February 28, 2013 and February 29, 2012 and the related statements of operations, stockholders' equity and cash flows for the years then ended, and for the period from inception (March 18, 2005) to February 28, 2013. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. The financial statements for the period from inception (March 18, 2005) to February 28, 2010 were audited by other auditors and our opinion, insofar as it relates to cumulative amounts included for such prior periods, is based solely on the report of other such auditors.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of February 28, 2013 and February 29, 2012, and the results of its operations and its cash flows for the years then ended, and for the period from inception (March 18, 2005) to February 28, 2013 in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered recurring losses from operations and is in the development stage of its operations. This raises substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ HORNE LLP
Ridgeland, Mississippi
June 28, 2013
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of 	
PediatRx Inc.
(formerly Striker Energy Corp.)
(An Exploration Stage Company)
We have audited the balance sheets of PediatRx Inc. (the “Company”) (formerly Striker Energy Corp.) as at 28 February 2010 and 2009, and the related statements of operations, cash flows and changes in stockholders’ deficiency for each of the years in the three-year period ended 28 February 2010 and for the period from the date of inception on 18 March 2005 to 28 February 2010. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States of America). Those standards require that we plan and perform an audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of 28 February 2010 and 2009 and the results of its operations, its cash flows and its changes in stockholders’ deficiency for each of the years in the three-year period ended 28 February 2010 and for the period from the date of inception on 18 March 2005 to 28 February 2010 in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, conditions exist which raise substantial doubt about the Company’s ability to continue as a going concern unless it is able to generate sufficient cash flows to meet its obligations and sustain its operations. Management’s plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ James Stafford
Vancouver, Canada Chartered Accountants
26 April 2010
PediatRx Inc.
(A Development Stage Company)
Balance Sheets
The accompanying notes are an integral part of these financial statements.
PediatRx Inc.
(A Development Stage Company)
Statements of Operations
The accompanying notes are an integral part of these financial statements.
PediatRx Inc.
(A Development Stage Company)
Statements of Stockholders’ Equity (Deficit)
The accompanying notes are an integral part of these financial statements.
PediatRx Inc.
(A Development Stage Company)
Statements of Cash Flows
The accompanying notes are an integral part of these financial statements.
PediatRx Inc.
(A Development Stage Company)
Notes to the Financial Statements
February 28,
1. Basis of Presentation and Nature and Continuance of Operations
PediatRx Inc. (the "Company", formerly Striker Energy Corp.) was incorporated under the laws of the State of Nevada on March 18, 2005. The Company originally intended to engage in the acquisition and exploration of mineral properties.
Effective September 12, 2008, the Company completed a stock split by the issuance of two new common shares for each one outstanding common share of the Company. Unless otherwise noted, all references herein to number of shares, price per share or weighted average number of shares outstanding have been adjusted to reflect this stock split on retroactive basis.
On June 17, 2010, the Company entered into a letter of intent with Cypress Pharmaceutical, Inc. ("Cypress") to acquire all of the assets associated with Granisol® (granisetron HC1) oral solution ("Granisol"). First approved in 2008, Granisol is an oral, liquid granisetron solution, formerly distributed by Hawthorn Pharmaceuticals, a subsidiary of Cypress. The Food and Drug Administration has approved Granisol's use in cancer care to treat nausea and vomiting associated with cancer therapy. On June 18, 2010, the Company caused PediatRx Inc. ("PediatRx") to be incorporated as a wholly-owned subsidiary of Striker Energy Corp. ("Striker") under the laws of the state of Nevada. On July 23, 2010, the Company concluded a definitive agreement to acquire Granisol from Cypress and turned its focus to the pharmaceutical industry and terminated its interest in oil and natural gas exploration.
On December 28, 2010 the Company completed a merger of PediatRx into Striker Energy Corp. and changed the name of Striker Energy Corp. to PediatRx Inc.
On September 12, 2011 the Company entered into a co-promotion agreement with Bi-Coastal Pharmaceutical Corp. ("Bi-Coastal"). Pursuant to the co-promotion agreement, Bi-Coastal granted the Company the non- exclusive right to promote Aquoral™ within the United States of America. Aquoral, another oncology supportive care product, is an FDA-cleared treatment for xerostomia (the medical term for dry mouth due to a lack of saliva). Xerostomia is especially prevalent in patients undergoing various treatments for cancer and those with Sjogren's syndrome. The Company was required to include Aquoral in no less than 85% of its sales calls. In return for its promotional efforts, the Company would receive compensation for each unit sold. The agreement with Bi-Coastal was for an initial term of two years and would automatically renew for one year terms unless either party provides notice of non-renewal at least six months prior to the expiration of the then- current term. The agreement was terminable at any time, by either party, upon six months prior written notice to the other party and is also terminable for cause.
On January 26, 2012, the Company entered into a binding term sheet (the "Term Sheet") with Apricus Biosciences, Inc. ("Apricus") for (1) a Co-Promotion Agreement in the United States for Granisol (the "Co- Promotion Agreement"), (2) the assignment of its Co-Promotion Agreement with Bi-Coastal for Aquoral™ to Apricus (the "Assignment Agreement”) and (3) a Sale Agreement for Granisol outside of the United States (the "Asset Purchase Agreement"). Also in the Term Sheet, the Company entered into a non-binding arrangement (the "Arrangement") for the sale of the Company to Apricus in a proposed merger transaction (the "Acquisition").
PediatRx Inc.
(A Development Stage Company)
Notes to the Financial Statements
February 28,
On February 21, 2012 the Company entered into three definitive agreements and one side letter with Apricus which include the Co-Promotion Agreement, the Assignment Agreement and the Asset Purchase Agreement. Pursuant to the Co-Promotion Agreement, the Company granted to Apricus the exclusive right to commercialize Granisol in six U.S. states and the non-exclusive right to commercialize Granisol in all other U.S. States, in addition to the right to manufacture Granisol. In addition, the Company agreed that, for a period of five years from the effective date of the Co-Promotion Agreement, it would not license any co-promotion rights in the non-exclusive states to any third party. The Company retained the right to commercialize Granisol in the non-exclusive states. The Company recognizes sales in the non-exclusive states that it generates through its own promotional efforts. Each party has agreed to cooperate with the other in respect of promotional materials and efforts on terms specified in the Co-Promotion Agreement.
The initial term of the Co-Promotion Agreement was for a period of ten years from the effective date, though it may be terminated prior to expiration under certain conditions. If the Co-Promotion Agreement was terminated by the Company prior to the end of the initial term, the Company would be required to pay to Apricus an amount based upon a varying percentage of its net operating income related to Granisol for a period subsequent to termination depending upon when the termination occurs.
Pursuant to the Assignment Agreement, the Company assigned all of its rights and responsibilities under the Co-Promotion agreement with Bi-Coastal for Aquoral, and Apricus assumed all rights and responsibilities under the Co-Promotion Agreement as of the effective date. Bi-Coastal consented to the assignment of the co-promotion agreement.
Pursuant to the Asset Purchase Agreement, the Company sold to Apricus all of its rights related to Granisol in all countries and territories outside of the United States. The Company agreed that it and its officers and directors would not compete in the field of anti-emetic products in certain areas outside of the United States.
As consideration for entering into these three Agreements the Company received an initial payment of $325,000 from Apricus. The agreements also provided for the payment to the Company of a royalty that would be calculated based upon Apricus' United States generated net operating income related to Granisol. On the effective date of the Agreements, the Company recognized revenues of $260,000 associated with the exclusive rights for Apricus to commercialize Granisol in six U.S. states. In addition, the Company has recognized a gain from sale of product rights totaling $65,000 associated with the Asset Purchase Agreement.
The binding term sheet between the Company and Apricus contemplated, in addition to the transactions reflected in the three agreements described above, a non-binding expression of interest in the merger of the Company with Apricus. The non-binding portion of the term sheet contemplated that the Company would be acquired by Apricus in a merger in exchange for $4,000,000, to be paid in the common stock of Apricus, with $3,600,000 distributed to the shareholders of the Company immediately and $400,000 held back from shares that would be distributed to the Company's Chief Executive Officer and Chief Financial Officer for a period of six months as an indemnity for breaches by the Company of its representations and warranties. Additionally, it contemplates that Apricus would assume certain debt and liabilities of the Company up to $675,000. The side letter referred to above refines the timing with respect to the parties' agreement that Apricus will pay to the Company a 'break-up fee" (in the form of restricted stock of Apricus having a value of $1,000,000) if the two companies did not merge by June 1, 2012, (or such other date as may be mutually agreed to by the Parties) unless, prior to that date, the Company files for bankruptcy or the Granisol asset is materially impaired.
PediatRx Inc.
(A Development Stage Company)
Notes to the Financial Statements
February 28,
On June 27, 2012, the Company entered into a Termination Agreement (the “Termination Agreement”) with Apricus Biosciences, Inc. (“Apricus”) pursuant to which the parties acknowledged that they formally terminated discussions regarding the proposed merger of the two companies.
Pursuant to the Termination Agreement, Apricus issued and delivered to us 373,134 shares of its common stock in full satisfaction of its obligation to pay us $1,000,000 in common stock as a break-up fee. The Company has recognized other income of $1,000,000 related to the break-up fee.
In addition, pursuant to the Termination Agreement, on July 16, 2012, Apricus filed a Registration Statement on Form S-3 registering these shares for resale, which the Registration Statement was declared effective by the Securities and Exchange Commission on October 3, 2012. The Company has agreed that if it proposes to sell any of the shares on a public market or quotation service, it will only be permitted to sell on any given trading day, such number of shares as does not exceed 5% of the average daily volume of the Apricus’ common stock traded in the previous five trading days. Due to the sales restrictions, the Company determined the fair value using quoted prices for similar assets in active markets that are directly observable and thus represent a Level 2 fair value measurement. The fair value of the investment in Apricus was $1,000,000 at the effective date. The Company has sold all of its shares of Apricus stock.
PediatRx intends to utilize the proceeds from the sale of Apricus common stock to pay off certain notes payable and other liabilities and for continuing operations. the Company is investigating other business development and product opportunities and strategic alternatives.
The Company has decided not to focus on the pharmaceutical industry and will be looking to divest its pharmaceutical assets.
The Company is a development stage enterprise, as defined in Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 915, Development Stage Entities. The Company is devoting substantially all of its present efforts to the initial marketing of Granisol and seeking to secure rights to other pharmaceutical products through acquisition and reformulation activities.
The Company's financial statements as of February 28, 2013 and for the year then ended have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. The Company has a net loss of $315,938 for the year ended February 28, 2013 (February 29, 2012 - $952,543 (loss)) and a working deficit as of February 28, 2013 of $138,435 (February 29, 2012 - working deficit of $498,667). The losses from operations of the Company raise substantial doubt about the Company's ability to continue as a going concern.
Management cannot provide assurance that the Company will ultimately achieve profitable operations or become cash flow positive, or raise additional debt and/or equity capital. As of February 28, 2013, the Company's assets consisted of cash and cash equivalents of $512,484 and accounts receivable from product sales, net of reserves for sales discounts of $50,556. Management believes that the Company's capital resources are not currently adequate to continue operating and maintaining its business strategy for the fiscal year ending February 28, 2014. The Company will seek to raise capital through additional debt and/or equity financings to allow the Company to fund its operations in the future. Although the Company has historically raised capital from sales of equity and from the issuance of promissory notes, there is no assurance that it will be able to continue to do so. If the Company is unable to raise additional capital or secure additional lending in the near future, management expects that the Company will need to curtail or cease operations. These financial statements do not include any adjustments related to the recoverability and classification of assets or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
As of February 28, 2013, the Company was in the process of transitioning its new operating business and expects to incur operating losses for the next twelve months as it moves forward. This new operating business encompasses entrance into the social discovery aspects of the internet; primarily development of a engagement website, mobile and tablet application.
2. Significant Accounting Policies and Recent Accounting Pronouncements
The following is a summary of significant accounting policies used in the preparation of these financial statements.
Cash and Cash Equivalents
Cash and cash equivalents include highly liquid investments with original maturities of three months or less when purchased.
PediatRx Inc.
(A Development Stage Company)
Notes to the Financial Statements
February 28,
Accounts Receivable
Trade receivables are reported at net realizable value. In the normal course of business, credit is extended to customers on a short-term basis and generally collateral is not required. Management determines the allowance for doubtful accounts based on historical losses and current economic conditions. On a continuing basis, management analyzes delinquent receivables and once these receivables are determined to be uncollectible, they are written off through a charge against an existing allowance account. Additionally, management includes the reserve for sales discounts given at the time of sale in the accounts receivable balance. As of February 28, 2013, an allowance for doubtful accounts of $33,150 has been netted against accounts receivable. No allowance for doubtful accounts has been netted against accounts receivable as of February 29, 2012.
Inventories
Inventories, consisting primarily of a pharmaceutical drug are stated at the lower-of-cost or market on an average cost basis. Reserves for excess, slow moving or obsolete inventory are established when management becomes aware of an impairment in a product's marketability due to changes in formulation, market demand and conditions or other factors. Such reserves are established based upon the difference between the product's cost and management's estimate of its net realizable value. As of February 28, 2013 and February 29, 2012, a reserve for obsolescence in the amount of $90,001 has been netted against inventories.
Intangible Assets
Intangible assets consist of product rights and know-how, the Granisol trademark, and a manufacturing and supply agreement. As of February 28, 2013, intangible assets include costs of $882,820 less related accumulated amortization and impairment charges of $682,820, which amortization began in August 2010. The product rights are considered available for sale assets at February 28, 2013.
Intangible assets of the Company are reviewed for impairment whenever events or circumstances indicate that the carrying amount of assets may not be recoverable. Management considers assets to be impaired if the carrying value exceeds the future projected cash flows from related operations (undiscounted and without interest charges). If impairment is deemed to exist, the assets will be written down to fair value. The Company recognized an impairment charge of $456,554 in the accompanying statements of operations for the year ended February 28, 2013. The Company estimated the net realizable value of the product rights and know how utilizing Level 2 inputs. See Fair Value Measurements at Note 1.
Income taxes
Deferred income taxes are reported for timing differences between items of income or expense reported in the financial statements and those reported for income tax purposes in accordance with ASC 740, Income Taxes , which requires the use of the asset/liability method of accounting for income taxes. Deferred income taxes are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and for tax losses and credit carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The Company provides a valuation allowance for deferred tax assets when it is unable to conclude that it is more likely than not that the assets will be realized.
PediatRx Inc.
(A Development Stage Company)
Notes to the Financial Statements
February 28,
The impact of an uncertain income tax position on the income tax return must be recognized at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. The Company classifies interest and penalties, if any, as a component of its income tax provision.
Revenue Recognition
Revenue is recognized from pharmaceutical product sales when the merchandise is shipped. Accordingly, revenue is recognized when all of the following occur: a purchase order is received from a customer; title and risk of loss pass to the customer upon shipment of the merchandise under the terms of FOB destination; prices and estimated sales provisions for product returns, sales rebates, chargebacks, payment discounts and other promotional allowances are reasonably determinable; and the customer's payment ability has been reasonably assured.
Concurrently with the recognition of revenue, the estimated sales provisions for product returns, sales rebates, chargebacks, payment discounts and other sales allowances are recorded. Sales provisions are established based upon consideration of a variety of factors, including but not limited to, historical relationship to revenues, historical payment and return experience, customer rebate arrangements and current contract sales terms with wholesale and indirect customers. The following briefly describes the nature of each provision and how such provisions are estimated.
•
Payment discounts are reductions to invoiced amounts offered to customers for payment within a specified period and are estimated upon shipment utilizing historical customer payment experience.
•
Sales rebates are offered to certain customers to promote customer loyalty and encourage greater product sales. These rebate programs provide that, upon the attainment of pre-established volumes or the attainment of revenue milestones for a specified period, the customer receives either credit against purchases or cash payment. Other promotional programs are incentive programs periodically offered to customers. Due to the nature of these programs, management is able to estimate provisions for rebates and other promotional programs based on specific terms in each agreement at the time of shipment along with an estimate of the customer's purchases over the specified period.
•
Consistent with common industry practices, there are certain terms with customers to allow them to return a product that is within a certain period of the product's expiration date. Upon shipment of product to customers, an estimate for such returns is recorded. This estimate is determined by applying a historical relationship of products returned to products sold and market conditions including but not limited to the reformulation of products.
•
Generally, credits may be issued to customers for decreases that are made to selling prices for the value of inventory that is owned by customers at the date of the price reduction. These credits are not contractually agreed to; instead, management issues price adjustment credits at its discretion. Price adjustment credits are estimated at the time the price reduction occurs. The amount is calculated based on an estimate of customer inventory levels.
PediatRx Inc.
(A Development Stage Company)
Notes to the Financial Statements
February 28,
•
There are arrangements with certain parties establishing prices for products for which the parties independently select a wholesaler from which to purchase. Such parties are referred to as indirect customers. A chargeback represents the difference between the sales invoice price to the wholesaler and the indirect customer's contract price, which is lower. Provisions for estimating chargebacks are calculated primarily using historical chargeback experience, contract pricing and sales information provided by wholesalers and chains, among other factors.
Actual product returns, chargebacks and other sales allowances incurred are, however, dependent upon future events and may be different than management's estimates. These sales deductions are continually monitored and management makes adjustments to these provisions when it becomes evident that actual product returns, chargebacks and other sales allowances may differ from established allowances.
Basic and diluted net loss per share
The Company computes net income or loss per share in accordance with ASC 260, Earnings per Share ("ASC 260"). ASC 260 requires presentation of both basic and diluted earnings per share ("EPS") on the face of the statement of operations. Basic EPS is computed by dividing net income or loss available to common shareholders (numerator) by the weighted average number of common stock equivalents outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common stock equivalents 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. There were no potentially dilutive common stock equivalents for the periods from inception through February 28, 2013.
Start-up expenses
ASC 720, Start-Up Costs ("ASC 270"), requires that costs associated with start-up activities be expensed as incurred. Accordingly, start-up costs associated with the Company's formation have been included in the Company's expenses for the period from the date of inception (March 18, 2005) through February 28, 2013.
Stock-based Compensation
The Company accounts for all stock-based payments and awards under the fair value based method. Stock-based payments to non-employees are measured at the fair value of the consideration received, or the fair value of the equity instruments issued, or liabilities incurred, whichever is more reliably measurable. The fair value of stock-based payments to non-employees is periodically re-measured until the counterparty performance is complete, and any change therein is recognized over the vesting period of the award and in the same manner as if the Company had paid cash instead of paying with or using equity based instruments. Compensation costs for stock-based payments with graded vesting are recognized on a straight-line basis. The cost of the stock-based payments to non-employees that are fully vested and non-forfeitable as of the grant date is measured and recognized at that date, unless there is a contractual term for services in which case such compensation would be amortized over the contractual term.
PediatRx Inc.
(A Development Stage Company)
Notes to the Financial Statements
February 28,
The Company accounts for the granting of share purchase options to employees using the fair value method whereby all awards to employees will be recorded at fair value on the date of the grant. The fair value of all share purchase options are expensed over their vesting period with a corresponding increase to additional paid-in capital. The Company uses the Black-Scholes option valuation model to calculate the fair value of share purchase options at the date of the grant. Option pricing models require the input of highly subjective assumptions, including the expected price volatility. Changes in these assumptions can materially affect the fair value estimates.
Use of estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenditures during the reporting period. Actual results could differ from these estimates.
Fair Value Measurements
Fair value is defined within the accounting rules as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The rules established a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. As presented in the tables below, this hierarchy consists of three broad levels:
Level 1
Valuations consist of unadjusted quoted prices in active markets for identical assets and liabilities and has the highest priority.
Level 2
Valuations rely on quoted prices in markets that are not active or observable inputs over the full term of the asset or liability.
Level 3
Valuations are based on prices or third party or internal valuation models that require inputs that are significant to the fair value measurement and are less observable and thus have the lowest priority.
3. The Granisol Acquisition
On July 23, 2010 (the "Closing Date"), the Granisol® product line was acquired by the Company for a cash consideration totaling $1 million. All inventories and intangibles associated with the Granisol product line were included in the purchase. Operations of the Granisol product line are included in the Company's statement of operations since the closing date.
As part of the closing and transfer of assets to PediatRx on July 23, 2010, PediatRx assumed a single product manufacturing and supply agreement with Therapex, a division of E-Z-EM Canada, Inc., to enable the manufacturing of the Granisol product line. Under the terms of the agreement, Therapex will manufacture the product in compliance with current Good Manufacturing Practice (cGMP) and oversee all quality control and packaging through to finished product to meet PediatRx's requirements.
Prior to the closing date, a purchase order was placed with Therapex for one lot of product to be delivered subsequent to the closing date. Such inventory to be delivered is an integral part of the acquisition and the seller has been paid by PediatRx as part of the $1 million cash consideration. The Company assigned $117,180 to inventory receivable on the balance sheet as of the Closing Date, with the remaining purchase price allocated to the product rights and know-how associated with the Abbreviated New Drug Application (“ANDA”), the Granisol trademark, and the manufacturing and supply agreement with Therapex. The related inventory was received in October 2010. The Company is amortizing the product rights and know-how over the estimated useful life of ten years on a straight line basis, beginning with August, 2010.
The purchase price for the Granisol product line was allocated in accordance with the acquisition method of accounting. The acquisition method of accounting is based on ASC 805, Business Combinations , and uses the fair value concepts defined in ASC 820, Fair Value Measurements and Disclosures.
PediatRx Inc.
(A Development Stage Company)
Notes to the Financial Statements
February 28,
4. Promissory Notes
February
February
28,
29,
Issued on June 15, 2009, this unsecured promissory note, bearing interest at five percent (5%) per annum on the principal balance of $50,000, was originally due on June 15, 2011. Effective May 18, 2011 this promissory note was amended whereby the maturity date of the note was extended until February 28, 2013. The principal amount or such portion thereof as shall remain outstanding from time to time shall accrue simple interest, calculated monthly in arrears, at a rate of 5% per annum commencing on the date of the promissory note and payable at maturity. When not in default, the unsecured promissory note and any accrued interest can be repaid in whole or in part without notice or penalty.
$ 50,000
$ 50,000
Issued on July 26, 2010, this unsecured promissory note, bearing interest at five percent (5%) per annum on the principal balance of $200,000, was originally due on July 26, 2011. Effective May 23, 2011 this promissory note was amended whereby the maturity date of the note was extended until February 28, 2013. The principal amount or such portion thereof as shall remain outstanding from time to time shall accrue simple interest, calculated monthly in arrears, at a rate of 5% per annum commencing on the date of the promissory note and payable at maturity. When not in default, the unsecured promissory note and any accrued interest can be repaid in whole or in part without notice or penalty with a minimum of six months interest due if repaid prior to the six-month anniversary.
200,000
200,000
Issued on May 6, 2011, this unsecured promissory note, bearing interest at five percent (5%) per annum on the principal balance of $250,000, is due on February 28, 2013. The principal amount or such portion thereof as shall remain outstanding from time to time shall accrue simple interest, calculated monthly in arrears, at a rate of 5% per annum commencing on the date of the promissory note and payable at maturity. When not in default, the unsecured promissory note and any accrued interest can be repaid in whole or in part without notice or penalty with a minimum of six months interest due if repaid prior to the six-month anniversary.
250,000
250,000
Total Promissory Notes
$ 500,000
$ 500,000
Subsequent to year-end, the Company repaid $200,000 in promissory notes. The remaining promissory notes are due on demand.
PediatRx Inc.
(A Development Stage Company)
Notes to the Financial Statements
February 28,
5. Related Party Transactions
Effective May 28, 2010, PediatRx entered into a consulting agreement with Dr. Cameron Durrant, a shareholder of the Company, to assist management in the identification of opportunities available to the Company in the healthcare industry and to recommend terms of potential acquisitions. Dr. Durrant's agreement with the Company dated May 28, 2010 was terminated in lieu of a new agreement on September 24, 2010.
On September 24, 2010, with retroactive effect to July 1, 2010, the Company entered into a second consulting agreement with Dr. Cameron Durrant. Pursuant to the consulting agreement, Dr. Durrant agreed to perform such duties as are regularly and customarily performed by the Chief Executive Officer of a corporation. The term of the consulting agreement is one year from July 1, 2010. On July 1, 2011, the agreement was extended for an additional two year period. On January 1, 2012, Dr. Durrant agreed to forgo any further consulting fees.
In addition, of the 4,250,000 shares of the Company's common stock owned by Dr. Durrant, 2,833,333 shares are subject to a lockup agreement between the Company and Dr. Durrant, which lockup agreement became effective February 9, 2011. Pursuant to the terms of the lockup agreement, Dr. Durrant agreed not to sell, assign or convey or otherwise dispose of any shares subject to the lockup agreement until December 31, 2015. The lockup agreement expires on December 31, 2015.
During the twelve month period ended February 28, 2013, the Company incurred consulting fees of $0 (February 29, 2012 - $208,333, cumulative - $387,000) in connection with Dr. Durrant's consulting agreements. The Company has recorded a payable to Dr. Durrant of $0 and $170,253 related to consulting fees as of February 28, 2013 and February 29, 2012, respectively. In addition, the Company has recorded a payable to Dr. Durrant of $2,014 and $51,342 related to business establishment expenses incurred by Dr. Durrant that are unreimbursed to him as of February 28, 2013 and February 29, 2012, respectively. During the audit process, it was discovered that Dr. Durrant was overpaid for accrued services by $50,556. Dr. Durrant agreed that there was an overpayment and there is a receivable of $50,556 as of February 28, 2013.
On September 14, 2010, with retroactive effect to July 1, 2010, the Company entered into an employment agreement with Mr. David Tousley, Chief Financial Officer, Treasurer and Secretary of PediatRx. Pursuant to the employment agreement, Mr. Tousley agreed to perform such duties as are regularly and customarily performed by the Chief Financial Officer of a Corporation. Mr. Tousley is also eligible to receive an annual bonus and an annual stock option award at the end of each year at the discretion of the Board of Directors of PediatRx. The term of the employment agreement is two years from July 1, 2010, unless both parties agree to extend.
As of March 1, 2012, the Company gave notice to Mr. Tousley, that it will be terminating the employment agreement between Mr. Tousley and the Company pursuant to Section 6.3(b) of Mr. Tousley’s Employment Agreement. As a result, Mr. Tousley’s employment agreement was terminated effective October 31, 2012.
In addition, of the 400,000 shares of the Company's common stock owned by Mr. Tousley, 266,666 shares are subject to a lockup agreement between the Company and Mr. Tousley, which lockup agreement became effective February 9, 2011. Pursuant to the terms of the lockup agreement, Mr. Tousley agreed not to sell, assign, convey, or otherwise dispose of any shares subject to the lockup agreement until December 31, 2015. The lockup agreement expires on December 31, 2015.
On September 14, 2010, with retroactive effect to July 1, 2010, the Company entered into an employment agreement with Mr. Jorge Rodriguez, Chief Commercial Officer of PediatRx. Pursuant to the employment agreement, Mr. Rodriguez agreed to perform such duties as are regularly and customarily performed by the Chief Commercial Officer of a corporation. Mr. Rodriguez is also eligible to receive an annual bonus and an annual stock option award at the end of each year at the discretion of the Board of Directors of PediatRx. The term of the employment agreement is two years from July 1, 2010, unless both parties agree to extend.
PediatRx Inc.
(A Development Stage Company)
Notes to the Financial Statements
February 28,
On December 15, 2011, Mr. Rodriguez, resigned from all positions with the Company and the Company entered into an agreement with Mr. Rodriguez pursuant to which it terminated his employment agreement and amended his stock option agreement (dated March 4, 2011) in order to terminate all unvested options effective immediately and to extend the exercise period for his 105,000 vested options to December 15, 2012. In connection with the termination, the Company paid Mr. Rodriguez the amount of $19,500.
On November 3, 2010, 3,700,000 shares of the Company owned by Opex Energy Corp., which corporation is controlled by Joseph Carusone, a director of PediatRx Inc., were returned to the Company for no cash or other consideration. These shares were cancelled.
6. Stock Warrants
On November 3, 2010, 400,000 units were issued at a purchase price of $1.00 per unit for total cash proceeds of $400,000. Each unit consisted of one share of common stock of the Company and one-half of one share non-detachable purchase warrant. Each whole warrant entitles the holder to purchase one share of common stock at a purchase price of $1.75 per share until November 3, 2012.
On November 30, 2010, 425,000 units were issued at a purchase price of $1.00 per unit for total cash proceeds of $425,000. Each unit consisted of one share of common stock of the Company and one-half of one share non-detachable purchase warrant. Each whole warrant entitles the holder to purchase one share of common stock at a purchase price of $1.75 per share until November 30, 2012.
On November 30, 2010, 205,000 units were issued at a purchase price of $1.00 per unit for cancellation of a promissory note in the principal amount of $200,000 plus accrued interest of $5,000. Each unit consisted of one share of common stock of the Company and one-half of one share non-detachable purchase warrant. Each whole warrant entitles the holder to purchase one share of common stock at a purchase price of $1.75 per share until November 30, 2012.
A summary of the Company's outstanding share purchase warrant activity for the twelve months ended February 29, 2012 and February 28, 2011 is presented below:
PediatRx Inc.
(A Development Stage Company)
Notes to the Financial Statements
February 28,
7. Stock Options
Effective February 18, 2011, the Board of Directors adopted and approved the 2011 stock option plan. The purpose of the 2011 stock option plan is to enhance the long-term stockholder value of the Company by offering opportunities to directors, key employees, officers, independent contractors and consultants of the company to acquire and maintain stock ownership in the company in order to give these persons the opportunity to participate in the company's growth and success, and to encourage them to remain in the service of the company. A total of 2,000,000 shares of our common stock are available for issuance and during the twelve-month period after the first anniversary of the adoption of the 2011 stock option plan by the Board of Directors. During each twelve-month period thereafter, the Board of Directors is authorized to increase the number of shares issuable by up to 500,000 shares.
A summary of the status of the Company's outstanding stock option activity for the twelve months ended February 28, 2013 is as follows:
As of February 28, 2013, unrecognized compensation costs related to non-vested stock option awards totaled $306,189. During the year ended February 28, 2013, unrecognized compensation costs was reduced by approximately $178,000 for estimated forfeitures of unvested stock options as a result of notice provided to Mr. Tousley of termination of his employment agreement effective October 31, 2012. On May 23, 2012, the Company agreed with all option holders to cancel any and all options outstanding as of that date. As a result, the Company expensed all unrecognized compensation costs as of the cancelation date. Total stock-based compensation expense for the year ended February 28, 2013 and February 29, 2012 was $132,138 and $213,912, respectively. The weighted fair value of stock options granted during the year ended February 29, 2012 was $0.60. There were no stock options granted during the year ended February 28, 2013.
PediatRx Inc.
(A Development Stage Company)
Notes to the Financial Statements
February 28,
The fair value of stock options granted has been determined using the Black-Scholes option pricing model using the following weighted average assumptions applied to stock options granted during the periods:
The volatility was determined based on an index of volatility from comparable companies. The expected term of the options granted to employees is derived from the simplified method as prescribed by SEC Staff Accounting Bulletin Topic 14, "Share-Based Payments" ("Topic 14"), given that the Company has no historical experience with the exercise of options for which to base an estimate of the expected term of options granted. Under the simplified method, the Company determined the expected life of the options based on an average of the graded vesting period and original contractual term. The Company anticipates it will discontinue the use of the simplified method of Topic 14 once sufficient historical option exercise behavior becomes apparent.
8. Income Taxes
The Company has losses to carry forward for income tax purposes as of February 28, 2013. There are no current or deferred tax expenses for the period ended February 28, 2013 due to the Company's loss position. The Company has fully reserved for any future benefits of these losses. The deferred tax consequences of temporary differences in reporting items for financial statement and income tax purposes are recognized, as appropriate. Realization of the future tax benefits related to the deferred tax assets is dependent on many factors, including the Company's ability to generate taxable income within the net operating loss carry-forward period. Management has considered these factors in reaching its conclusion as to the valuation allowance for financial reporting purposes.
A reconciliation between the income tax expense recognized in the Company's statements of operations and the income tax expense (benefit) computed by applying the domestic federal statutory income tax rate to the net loss for the period for fiscal years 2013 and 2012 is as follows:
PediatRx Inc.
(A Development Stage Company)
Notes to the Financial Statements
February 28,
The composition of the Company's deferred tax assets as at February 28, 2013 and February 29, 2012 is as follows:
As of February 28, 2013, the Company has an unused net operating loss carry forward of approximately $1,362,000 that is available to offset future taxable income. The potential income tax benefit of these losses has been offset by a full valuation allowance. This unused net operating loss carry-forward expires at various dates from 2026 to 2033.
9. Subsequent Events
Following the end of the fiscal year, on April 26, 2013, the Company entered into a non-binding letter of intent with Lakefield Media Holding AG (“Lakefield”) to acquire the Slickx name, technology, source code, domain name and all other tangible and intangible assets relating to internet portals and platforms commonly known as “Slickx” for $50,000.
Subsequent to year-end, the Company repaid $200,000 in promissory notes.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A.
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure controls and procedures
We maintain “disclosure controls and procedures”, as that term is defined in Rule 13a-15(e), promulgated by the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended. Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in our company’s reports filed under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal accounting officer to allow timely decisions regarding required disclosure.
As required by paragraph (b) of Rules 13a-15 under the Securities Exchange Act of 1934, our management, with the participation of our principal executive officer and principal financial officer, evaluated our company’s disclosure controls and procedures as of the end of the period covered by this annual report on Form 10-K. Based on this evaluation, our management concluded that as of the end of the period covered by this annual report on Form 10-K, our disclosure controls and procedures were not effective. The ineffectiveness of our disclosure controls and procedures was due to a material weakness, which we identified, in our internal control over financial reporting.
Internal control over financial reporting
Management’s annual report on internal control over financial reporting
Our management, including our principal executive officer and principal financial officer, is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934).
Our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our internal control over financial reporting as of February 28, 2013. Our management’s evaluation of our internal control over financial reporting was based on the framework in Internal Control-Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, our management concluded that as of February 28, 2013, our internal control over financial reporting were not effective.
The ineffectiveness of our internal control over financial reporting was due to a material weakness which we identified in our internal control over financial reporting primarily attributable to limited SEC reporting expertise within our company. Due to our development stage, we have limited financial ability to remedy this staffing deficiency at this time.
A material weakness is a deficiency or a combination of control deficiencies in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.
Limitations on Effectiveness of Controls
Our principal executive officer and principal financial officer do not expect that our disclosure controls or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additional controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
Changes in internal control over financial reporting
There were no changes in our internal control over financial reporting during the fourth quarter of our fiscal year ended February 28, 2013 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B.
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Directors and Executive Officers
Our directors and executive officers, their age, positions held, and duration of such, are as follows:
Name Position Held with
our Company
Age Date First Elected
or Appointed
Cameron Durrant
President, Chief Executive Officer, Chief Financial
Officer, Secretary, Treasurer and Director
November 17, 2010
October 31,
Joseph Carusone Vice President, Investor Relations and Director
August 18, 2008
Constantin Dietrich Director February 15, 2013
Joseph Arcuri Director February 15, 2013
Business Experience
The following is a brief account of the education and business experience of directors and executive officers during at least the past five years, indicating their principal occupation during the period, and the name and principal business of the organization by which they were employed:
Dr. Cameron Durrant
Dr. Durrant was appointed as President, Chief Executive Officer and a director of our company on November 17, 2010, and Chief Financial Officer, Treasurer and Secretary on October 31, 2012. Since May 28, 2010, Dr. Durrant served in a consulting capacity as President and a director of PediatRx Inc., our wholly owned subsidiary until it was merged into Striker Energy Corp. on December 28, 2011.
Dr. Durrant’s background includes executive-level positions with Merck & Co. (NYSE: MRK), Glaxo Smith Kline PLC (NYSE: GSK), Pharmacia Corporation (now part of Pfizer Inc. (NYSE: PFE) and Johnson & Johnson (NYSE: JNJ). He has been CEO of PediaMed Pharmaceuticals, Inc. and Spherics, Inc. and served on their boards.
Dr. Durrant also served as executive chairman and director of Anavex Life Sciences Corp. (OTCBB: AVXL), a publicly traded biopharmaceutical company engaged in the discovery and development of novel drug targets to treat serious diseases for which there are urgent unmet medical needs with a primary focus on Alzheimer’s disease, from January 1, 2010 to September 16, 2011.
Dr. Durrant is a founding board member of Bexion Pharmaceuticals, a private oncology research and development company with therapeutics, diagnostic/imaging and drug delivery capabilities. Dr. Durrant has previously served on several public and private pharmaceutical company boards (including Topaz Pharmaceuticals, PDS Biotechnology Corporation and Pressure Point Inc) and has been an advisor to Pilgrim Software and to Saxa Private Equity Partners.
Dr. Durrant was a regional winner and national finalist for Ernst & Young’s Entrepreneur of the Year award in 2005. Dr. Durrant holds a MBA from Henley Management College at Oxford and a MB and BCh (equivalent to the American MD degree) from the Welsh National School of Medicine in Cardiff, U.K., a DRCOG, a DipCH and the MRCGP.
We believe Dr. Durrant is qualified to serve on our board of directors because of his knowledge of our company’s history and current operations and his prior and current board experience, in addition to his education and business experiences described above.
Joseph Carusone
Mr. Carusone was appointed as Vice President, Investor Relations of our company on November 17, 2010 and as a director of our company on August 18, 2008. He also served as president, secretary and treasurer of our company from August 18, 2008 until November 17, 2010. For more than 10 years, Mr. Carusone has been involved in the founding of and management of private companies and partnerships including those in the oil and gas industry. His experience as a liaison between management and shareholders is extensive. He has been the president of Opex Energy Corp. since its inception on August 22, 2007. Since 2001, Mr. Carusone has been founder and president of the investor relations firm Primoris Group Inc. Between 1999 and 2001, Mr. Carusone was vice-president of operations of StockHouse Media Corporation. For eight years following his graduation from the University of Toronto with a degree in Engineering and Applied Science (1987), Mr. Carusone managed research activities in University of Toronto’s Institute for Aerospace Studies’ Space Robotics Group.
We believe Mr. Carusone is qualified to serve on our board of directors because of his knowledge of our company’s history and current operations, which he gained from working for our company as described above, in addition to his education and business experiences as described above.
Constantin Dietrich
Mr. Dietrich has over 20 years of experience in private equity, investing, marketing, media and executive/management leadership. Since March 2012, he has acted as the Chief Executive Officer of Lakefield Media Holding AG, a company that he founded to acquire and leverage established digital and social media properties, located in Switzerland. Mr. Dietrich has expertise in social networks and social discovery. Mr. Dietrich holds a Bachelor of Science degree in business administration from UC of Syracuse University.
We believe Mr. Dietrich is qualified to serve on our board of directors because of his education and business experiences as described above.
Joseph Arcuri
Mr. Arcuri has 20 years of executive and entrepreneurial experience in corporate finance, mergers and acquisitions, business restructuring, and technology. He has acted as Chief Financial Officer of GlassBox Television Inc., a media company located in Toronto, Ontario, Canada from April 2010 to October 2012. From April 2007 to March 2010, he was President of AOL Canada Inc., a Canadian company. In 1999 he co-founded Bird on a Wire Networks Inc. one of Canada’s first managed IT service companies. Mr. Arcuri also served as interim Chief Financial Officer of Biosyent Inc. from September 2002 to April 2004, a life sciences technology company. He is a chartered accountant within Canada.
We believe Mr. Arcuri is qualified to serve on our board of directors because of his education and business experiences as described above.
Family Relationships
There are no family relationships between any director or executive officer.
Involvement in Certain Legal Proceedings
Our directors and executive officers have not been involved in any of the following events during the past ten years:
1.
any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time;
2.
any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);
3.
being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities;
4.
being found by a court of competent jurisdiction (in a civil action), the Securities and Exchange Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated;
5.
being the subject of, or a party to, any federal or state judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of: (i) any federal or state securities or commodities law or regulation; or (ii) any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease- and-desist order, or removal or prohibition order; or (iii) any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or
6.
being the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Securities Exchange Act of 1934), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires our executive officers and directors, and persons who own more than 10% of our common stock, to file reports regarding ownership of, and transactions in, our securities with the Securities and Exchange Commission and to provide us with copies of those filings. Based solely on our review of the copies of such forms received by us, or written representations from certain reporting persons we believe that during year ended February 28, 2013 all filing requirements applicable to our executive officers and directors, and persons who own more than 10% of our common stock were complied with.
Code of Ethics
We have not adopted a code of ethics because our board of directors believes that our small size does not merit the expense of preparing, adopting and administering a code of ethics. Our board of directors intends to adopt a code of ethics when circumstances warrant.
Corporate Governance
Term of Office
Each director of our company is to serve for a term of one year ending on the date of subsequent annual meeting of stockholders following the annual meeting at which such director was elected. Notwithstanding the foregoing, each director is to serve until his successor is elected and qualified or until his death, resignation or removal. Our board of directors is to elect our officers and each officer is to serve until his successor is elected and qualified or until his death, resignation or removal.
Committees of the Board
Our board of directors held no formal meetings during the year ended February 28, 2013. All proceedings of our board of directors were conducted by resolutions consented to in writing by all the directors and filed with the minutes of the proceedings of the directors. Such resolutions consented to in writing by the directors entitled to vote on that resolution at a meeting of the directors are, according to the corporate laws of the State of Nevada and our By-laws, as valid and effective as if they had been passed at a meeting of our directors duly called and held.
We currently do not have nominating or compensation committees or committees performing similar functions nor do we have a written nominating or compensation committee charter. Our board of directors does not believe that it is necessary to have such committees because it believes that the functions of such committees can be adequately performed by our board of directors.
We do not have any defined policy or procedure requirements for shareholders to submit recommendations or nominations for directors. We do not currently have any specific or minimum criteria for the election of nominees to our board of directors and we do not have any specific process or procedure for evaluating such nominees. Our board of directors assesses all candidates, whether submitted by management or shareholders, and makes recommendations for election or appointment.
A shareholder who wishes to communicate with our board of directors may do so by directing a written request to the address appearing on the first page of this annual report.
Audit Committee and Audit Committee Financial Expert
We do not have a standing audit committee at the present time. Our board of directors has determined that we do not have a board member that qualifies as an “audit committee financial expert” as defined in Item 407(d)(5)(ii) of Regulation S-K, but we have two board members (Constantin Dietrich and Joseph Arcuri) that qualify as “independent” as the term is used by NASDAQ Marketplace Rule 5605(a)(2).
We believe that our board of directors is capable of analyzing and evaluating our financial statements and understanding internal controls and procedures for financial reporting. The board of directors of our company does not believe that it is necessary to have an audit committee because we believe that the functions of an audit committee can be adequately performed by the board of directors. In addition, we believe that retaining an independent director who would qualify as an “audit committee financial expert” would be overly costly and burdensome and is not warranted in our circumstances given the early stages of our development.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation
The particulars of compensation paid to the following persons:
(a)
our principal executive officer;
(b)
each of our two most highly compensated executive officers who were serving as executive officers at the end of the year ended February 28, 2013; and
(c)
up to two additional individuals for whom disclosure would have been provided under (b) but for the fact that the individual was not serving as our executive officer at the end of the most recently completed financial year, who we will collectively refer to as the named executive officers, for our years ended February 28, 2013 and February 29, 2012, are set out in the following summary compensation table:
(1)
Dr. Cameron Durrant was appointed as our President, Chief Executive Officer and a director on November 17, 2010 then appointed Chief Financial Officer, Treasurer and Secretary on October 31, 2012.
(2)
During the fiscal year ended February 29, 2012, Mr. Tousley was granted 690,000 stock options with a fair value of $427,800. For the twelve month period ended February 29, 2012 $142,600 has been recorded as stock based compensation expense. Assumptions used in the calculation of the fair value of options issued is described in the footnotes to our financial statements. Mr. Tousley resigned as an officer on October 31, 2012 and as a director on November 16, 2012.
Employment Agreements
Dr. Cameron Durrant
On September 24, 2010, with retroactive effect to July 1, 2010, we entered into a consulting agreement with Dr. Cameron Durrant. Pursuant to the consulting agreement, Dr. Durrant agreed to perform such duties as are regularly and customarily performed by the Chief Executive Officer of a corporation in consideration for, among other things, $250,000 per annum. The term of the consulting agreement is one year from July 1, 2010, unless both parties agree to extend.
During the fiscal years ended February 28, 2013 and February 29, 2012, we incurred consulting fees of $0 and $208,333, respectively, in connection with Dr. Durrant’s consulting agreement. We have recorded a payable to Dr. Durrant of $0 and $170,253 related to consulting fees as of February 28, 2013 and February 29, 2012, respectively. In addition, we have recorded a payable to Dr. Durrant of $2,014 and $51,342 related to business establishment expenses incurred by Dr. Durrant that are unreimbursed to him as of February 28, 2013 and February 29, 2012, respectively.
On March 8 , 2013, we entered into a Business Development/Advisory Services Agreement with Phys Pharma LLC, a company of which Dr. Durrant is a principal, pursuant to which Phys Pharma agreed to provide us a list of select biopharmaceutical companies which might have an interest in acquiring Granisol and assist us in marketing and selling Granisol to the prospective purchasers. If we sell Granisol to the prospective purchaser introduced by Phys Pharma, we agreed to pay Phys Pharma a fee in an amount equal to 20% of the net proceeds received by us at closing.
David Tousley
On September 14, 2010, with retroactive effect to July 1, 2010, we entered into an employment agreement with Mr. David Tousley, Chief Financial Officer, Treasurer and Secretary of PediatRx. Pursuant to the employment agreement, Mr. Tousley agreed to perform such duties as are regularly and customarily performed by the Chief Financial Officer of a corporation in consideration for, among other things, $200,000 per annum.
Effective March 4, 2011, we granted 690,000 stock options to David Tousley, our Chief Financial Officer and a director of our company. The stock options were exercisable at the exercise price of $1.14 per share until March 4, 2016 and vested on a quarterly basis over three years, beginning on June 4, 2011. Assumptions used in the calculation of fair value are described in the footnotes to our financial statements. These stock options are cancelled on May 25, 2012.
Pursuant to the terms of the employment agreement with Mr. Tousley, if the agreement is terminated for other than just cause by us then we agreed to continue to pay Mr. Tousley his base salary for the Termination Notice Period (defined as the period of six months plus two months per year of engagement of Mr. Tousley up to a maximum of twelve months) or, at our discretion to pay a lump sum amount equal to Mr. Tousley’s base monthly salary times the number of months in the Termination Notice Period.
Effective March 1, 2012, we gave notice to Mr. Tousley that we will be terminating his employment agreement pursuant to Section 6.3(b) of the agreement. As a result, Mr. Tousley’s employment agreement ceased effective October 31, 2012.
Constantin Dietrich
We have offered Mr. Constantin Dietrich a position as Executive Vice President of Business Development which will allow him to lead our entry into the digital media area. His compensation is expected to include an annual salary of $200,000 plus bonus. We expect Mr. Dietrich to join our company by August 1, 2013.
Outstanding Equity Awards at Fiscal Year-End
The following table sets forth for each named executive officer certain information concerning the outstanding equity awards as of February 28, 2013.
Option Awards Stock Awards
Name
Number of
Securities
Underlying
Unexercised
Options
Exercisable
Number of
Securities
Underlying
Unexercised
Options
Unexercisable
Equity
Incentive
Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options
Option
Exercise
Price
Option
Expiration
Date
Number
of Shares
or Units
of Stock
that
Have Not
Vested
Market
Value
of
Shares or
Units of
Stock
that
Have Not
Vested
Equity
Incentive
Plan
Awards:
Number of
Unearned
Shares,
Units or
Other
Rights
that
Have Not
Vested Equity
Incentive
Plan
Awards:
Market or
Payout
Value of
Unearned
Shares,
Units or
Other
Rights
that
Have Not
Vested
Dr. Cameron Durrant Nil Nil Nil N/A N/A Nil N/A Nil N/A
Joseph Carusone Nil Nil Nil N/A N/A Nil N/A Nil N/A
David Tousley Nil Nil Nil N/A N/A Nil N/A Nil N/A
Compensation of Directors
Our board of directors has received no compensation to date and there are no plans to compensate them in the near future, unless and until we become profitable in our business operations. We may issue options in the future as we retain the services of independent directors.
The table below shows the compensation of our directors for their services as directors for our last completed fiscal year ended February 28, 2013:
Name Fees
earned or
paid in
cash
($)
Stock
awards
($)
Option
awards
($) Non-equity
incentive
plan
compensation
($) Nonqualified
deferred
compensation
earnings
($)
All other
compensation
($)
Total
($)
Constantin Dietrich1 Nil Nil Nil Nil Nil Nil Nil
Joseph Arcuri1
Nil
Nil
Nil Nil Nil Nil Nil
Paul Richardson2 Nil Nil Nil Nil Nil Nil Nil
Messrs. Dietrich and Arcuri were both appointed as directors on February 15, 2013.
Mr. Richardson resigned as a director on December 21, 2012.
Long-Term Incentive Plans, Retirement or Similar Benefit Plans
There are currently no arrangements or plans in which we provide pension, retirement or similar benefits for directors or executive officers, except that we may reimburse our executive employees for up to 70% of their health insurance premiums under their individual policies. We may provide employee benefit plans to our employees in the future.
Our directors, executive officers and employees may receive stock options at the discretion of our board of directors.
Resignation, Retirement, Other Termination, or Change in Control Arrangements
We do not have arrangements in respect of remuneration received or that may be received by our executive officers to compensate such officers in the event of termination of employment (as a result of resignation, retirement, change of control) or a change of responsibilities following a change of control.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
In the following table, we have determined the number and percentage of shares beneficially owned in accordance with Rule 13d-3 of the Securities Exchange Act of 1934 based on information provided to us by our controlling shareholders, named executive officers and current directors, and this information does not necessarily indicate beneficial ownership for any other purpose. In determining the number of shares of our common stock beneficially owned by a person and the percentage ownership of that person, we include any shares as to which the person has sole or shared voting power or investment power, as well as any shares subject to warrants or options held by that person that are currently exercisable or exercisable within 60 days.
1 Percentage of ownership is based on 20,836,000 common shares issued and outstanding as of June 13, 2013. Except as otherwise indicated, we believe that the beneficial owners of the common stock listed above, based on information furnished by such owners, have sole investment and voting power with respect to such shares, subject to community property laws where applicable. Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities. Shares of common stock subject to options or warrants currently exercisable, or exercisable within 60 days, are deemed outstanding for purposes of computing the percentage ownership of the person holding such option or warrants, but are not deemed outstanding for purposes of computing the percentage ownership of any other person.
2 The shares are held indirectly by 3cl Holding GmbH, a limited liability company, based in Germany and 100% owned by Mr. Dietrich’s family. Mr. Dietrich and his wife together own about 70% of this company, while Mr. Dietrich’s in-laws own the rest. One of Mr. Dietrich’s in-laws is the only managing director of this company.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Transactions with related persons
Except as disclosed below, since March 1, 2011, there have been no transactions, or currently proposed transactions, in which we were or are to be a participant and the amount involved exceeds the lesser of $120,000 or one percent of the average of our total assets at year end for the last two completed fiscal years, and in which any of the following persons had or will have a direct or indirect material interest:
(i)
Any director or executive officer of our company;
(ii)
Any person who beneficially owns, directly or indirectly, shares carrying more than 5% of the voting rights attached to our outstanding shares of common stock;
(iii)
Any of our promoters and control persons; and
(iv)
Any member of the immediate family (including spouse, parents, children, siblings and in- laws) of any of the foregoing persons.
On May 17, 2013, we entered into a Web Site Asset Purchase Agreement with Lakefield Media Holding AG and its wholly-owned subsidiary, Flawsome XLerator GmbH to acquire the internet domain name “Slickx.com”, the website and related software, intellectual property rights, accounts, contracts, goodwill and infrastructure for $50,000. On May 21, 2013, we completed the acquisition of these assets and paid $50,000 to Lakefield. Constantin Dietrich, a director of our company, is the founder and Chief Executive Officer of Lakefield.
Compensation for Executive Officers and Directors
For information regarding compensation for our executive officers and directors, see Item 11 -“Executive Compensation”.
Director Independence
Our common stock is quoted on the OTCQB operated by the OTC Markets Group, which does not impose any director independence requirements. Under NASDAQ Marketplace Rule 5605(a)(2), a director is not considered to be independent if he is also an executive officer or employee of the company. Because Cameron Durrant, and Joseph Carusone serve in executive capacities, we determined that Constantine Dietrich and Joseph Arcuri are our “independent directors” as that term is defined by NASDAQ Marketplace Rule 5605(a)(2).
ITEM 14.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Audit Fees
The following table sets forth the fees billed to our company for the years ended February 28, 2013 and February 29, 2012 for professional services rendered by Horne LLP, Certified Public Accountants, our independent registered public accounting firm since May 31, 2010:
The following table sets forth the fees billed by our company for the years ended February 29, 2012 and February 28, 2013 for professional services rendered by James Stafford, Chartered Accountants, our prior independent registered public accounting firm:
Pre-Approval Policies and Procedures
Our entire board of directors, which acts as our audit committee, pre-approves all services provided by our independent auditors. All of the above services and fees were reviewed and approved by our board of directors before the respective services were rendered.
Our board of directors has considered the nature and amount of fees billed Horne LLP and believe that the provision of services for activities unrelated to the audit is compatible with maintaining its independence.
PART IV
ITEM 15.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Exhibits required by Item 601 of Regulation S-K:
No.
Description
3.1
Articles of Incorporation (attached as an exhibit to our registration statement on Form 10-SB filed on September 8, 2006)
3.2
Certificate of Change (attached as an exhibit to our current report on Form 8-K filed on September 15, 2008)
3.3
Articles of Merger (attached as an exhibit to our current report on Form 8-K filed on December 28, 2010)
3.4
Amended and Restated Bylaws (attached as an exhibit to our registration statement on Form 8-K filed on November 3, 2010)
10.1
Form of Private Placement Subscription Agreement (attached as an exhibit to our current report on Form 8-K filed on November 6, 2008)
10.2
Form of Private Placement Subscription Agreement dated June 15, 2009 (attached as an exhibit to our quarterly report on Form 10-Q filed on June 16, 2009)
10.3
Form of promissory note dated June 15, 2009 (attached as an exhibit to our quarterly report on Form 10-Q filed on June 16, 2009)
10.4
Consulting Agreement with Cameron Durrant dated May 28, 2010 (attached as an exhibit to our quarterly report on Form 10-Q filed on June 28, 2010)
10.5
Letter of Intent with Cypress Pharmaceuticals Inc. (attached as an exhibit to our quarterly report on Form 10-Q filed on June 28, 2010)
10.6
Form of Private Placement Subscription Agreement (attached as an exhibit to our current report on Form 8-K filed on June 17, 2010)
10.7
Form of Private Placement Subscription Agreement (attached as an exhibit to our current report on Form 8-K filed on July 9, 2010)
10.8
Asset Purchase Agreement dated July 22, 2010 with Cypress Pharmaceuticals, Inc. (attached as an exhibit to our current report on Form 8-K filed on July 28, 2010) (portions of the exhibit have been omitted pursuant to a request for confidential treatment)
10.9
Assignment and Assumption of Contract dated July 22, 2010 with Cypress Pharmaceuticals, Inc. (attached as an exhibit to our current report on Form 8-K filed on July 28, 2010)
10.10
Consent to Assignment by Therapex and E-Z-EM Canada Inc. (attached as an exhibit to our current report on Form 8-K filed on July 28, 2010)
10.11
Manufacturing and Supply Agreement dated July 22 2010 between Cypress Pharmaceuticals, Inc. and Therapex, a division of E-Z-EM Canada Inc. (attached as an exhibit to our current report on Form 8-K filed on July 28, 2010) (portions of the exhibit have been omitted pursuant to a request for confidential treatment)
10.12
Form of Private Placement Subscription Agreement (attached as an exhibit to our current report on Form 8-K filed on July 29, 2010)
10.13
Form of Promissory Note dated July 26, 2010 (attached as an exhibit to our current report on Form 8-K filed on July 29, 2010)
10.14
Employment Agreement effective July 1, 2010 with David L. Tousley (attached as an exhibit to our current report on Form 8-K filed on September 16, 2010)
10.15
Employment Agreement effective July 1, 2010 with Jorge Rodriguez (attached as an exhibit to our current report on Form 8-K filed on September 16, 2010)
10.16
Consulting Agreement effective July 1, 2010 with Cameron Durrant (attached as an exhibit to our current report on Form 8-K filed on September 28, 2010)
10.17
Form of Private Placement Subscription Agreement (attached as an exhibit to our current report on Form 8-K filed on September 28, 2010)
10.18
Form of Promissory Note dated September 16, 2010 (attached as an exhibit to our current report on Form 8-K filed on September 28, 2010)
10.19
Termination Agreement effective July 1, 2010 with Cameron Durrant (attached as an exhibit to our current report on Form 8-K filed on September 28, 2010)
10.20
Management Stock Agreement made effective July 1, 2010 with Cameron Durrant (attached as an exhibit to our current report on Form 8-K filed on November 3, 2010)
10.21
Management Stock Agreement made effective July 1, 2010 with David Tousley (attached as an exhibit to our current report on Form 8-K filed on November 3, 2010)
No.
Description
10.22
Form of Private Placement Subscription Agreement (attached as an exhibit to our current report on Form 8-K filed on November 3, 2010)
10.23
Form of Private Placement Subscription Agreement (attached as an exhibit to our current report on Form 8-K filed on December 2, 2010)
10.24
Form of Shares for Debt Subscription Agreement (attached as an exhibit to our current report on Form 8-K filed on December 2, 2010)
10.25
Cancellation Agreement dated February 9, 2011 with Cameron Durrant (attached as an exhibit to our current report on Form 8-K filed on February 10, 2011)
10.26
Cancellation Agreement dated February 9, 2011 with David Tousley (attached as an exhibit to our current report on Form 8-K filed on February 10, 2011)
10.27
Lock-up Agreement dated February 9, 2011 with Cameron Durrant (attached as an exhibit to our current report on Form 8-K filed on February 10, 2011)
10.28
Lock-up Agreement dated February 9, 2011 with David Tousley (attached as an exhibit to our current report on Form 8-K filed on February 10, 2011)
10.29
2011 Stock Option Plan (attached as an exhibit to our current report on Form 8-K filed on February 22, 2011)
10.30
Form of Stock Option Agreement (attached as an exhibit to our current report on Form 8-K filed on March 7, 2011)
10.31
Form of Private Placement Subscription Agreement including Form of Promissory Note dated May 6, 2011 (attached as an exhibit to our current report on Form 8-K filed on May 11, 2011)
10.32
Form of Promissory Note Amendment dated May 18, 2011 (attached as an exhibit to our current report on Form 8-K filed on May 18, 2011)
10.33
Form of Promissory Note Amendment dated May 23, 2011 (attached as an exhibit to our current report on Form 8-K filed on May 23, 2011)
10.34
Form of Stock Option Agreement (attached as an exhibit to our current report on Form 8-K filed on July 26, 2011)
10.35
Co-Promotion Agreement dated September 12, 2011 with Bi-Coastal Pharmaceutical Corp., (attached as an exhibit to our current report on Form 8-K filed on September 14, 2011)(portions of the exhibit have been omitted pursuant to a request for confidential treatment)
10.36
Form of Stock Option Agreement (attached as an exhibit to our current report on Form 8-K filed on September 15, 2011
10.37
Independent Contractor Agreement effective July 1, 2011 with Cameron Durrant (attached as an exhibit to our current report on Form 8-K filed on September 30, 2011)
10.38
Amendment to Stock Option Agreement, Waiver and Release dated December 15, 2011 with Jorge Rodriguez (attached as an exhibit to our quarterly report on Form 10-Q filed on January 17, 2012)
10.39
Binding term sheet for (1) Granisol and Aquoral US Co-promotion Agreement, (2) Sale of ex- US rights for Granisol and non-binding term sheet for merger of PediatRx Inc. and Apricus Biosciences, Inc. dated January 26, 2012 (attached as an exhibit to our current report on Form 8-K filed on January 27, 2012)
10.40
Asset Purchase Agreement dated February 21, 2012 with Apricus Biosciences, Inc. (attached as an exhibit to our annual report on Form 10-K filed on May 18, 2012)
10.41
Co-Promotion Agreement dated February 21, 2012 with Apricus Biosciences, Inc. (attached as an exhibit to our annual report on Form 10-K filed on May 18, 2012) (portions of the exhibit have been omitted pursuant to a request for confidential treatment)
10.42
Form of $50,000 Promissory Note Amendment dated April 19, 2012 (attached as an exhibit to our annual report on Form 10-K filed on May 18, 2012)
10.43
Form of $250,000 Promissory Note Amendment dated April 19, 2012 (attached as an exhibit to our annual report on Form 10-K filed on May 18, 2012)
10.44
Termination Agreement dated June 27, 2012 with Apricus Biosciences, Inc. (attached as an exhibit to our current report on Form 8-K filed on June 28, 2012)
10.45
Form of $200,000 Promissory Note Amendment dated July 25, 2012 (attached as an exhibit to our current report on Form 8-K filed on July 27, 2012)
10.46
Form of $50,000 Promissory Note Amendment dated July 25, 2012 (attached as an exhibit to our current report on Form 8-K filed on July 31, 2012)
No.
Description
10.47
Form of $250,000 Promissory Note Amendment dated July 25, 2012 (attached as an exhibit to our current report on Form 8-K filed on July 31, 2012)
10.48*
Business Development/Advisory Services Agreement dated March 8¸2013 with Phys Pharma LLC
10.49*
Web Site Asset Purchase Agreement dated May 17, 2013 between Lakefield Media Holding AG, Flawsome XLerator GmBH and Pediatrix Inc.
10.50*
Consulting Agreement dated May 29, 2013 with Flawsome XLerator GmBH
31.1*
Certification of Cameron Durrant Pursuant to Section 302 of the Sarbanes-Oxley Act Of 2002
32.1*
Certification of Cameron Durrant Pursuant to Section 906 of the Sarbanes-Oxley Act Of 2002
101.INS*
XBRL INSTANCE DOCUMENT
101.SCH*
XBRL TAXONOMY EXTENSION SCHEMA
101.CAL*
XBRL TAXONOMY EXTENSION CALCULATION LINKBASE
101.DEF*
XBRL TAXONOMY EXTENSION DEFINITION LINKBASE
101.LAB*
XBRL TAXONOMY EXTENSION LABEL LINKBASE
101.PRE*
XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE
* Filed herewith.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
PEDIATRX INC.
By:
/s/ Cameron Durrant
Cameron Durrant
President, Chief Executive Officer, Chief Financial Officer, Secretary, Treasurer and Director
(Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer)
Date: June 28, 2013
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 dates indicated.
By:
/s/ Cameron Durrant
Cameron Durrant
President, Chief Executive Officer, Chief Financial Officer, Treasurer, Secretary and Director
(Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer)
Date: June 28, 2013
By:
/s/ Joseph Carusone
Joseph Carusone
Vice President, Investor Relations and Director
Date: June 28, 2013
By:
/s/ Constantin Dietrich
Constantin Dietrich
Director
Date: June 28, 2013
By:
/s/ Joseph Arcuri
Joseph Arcuri
Director
Date: June 28, 2013