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Document and Entity Information
6 Months Ended
Jun. 30, 2012
Aug. 20, 2012
Document And Entity Information
Entity Registrant Name Hanover Portfolio Acquisitions, Inc.
Entity Central Index Key 0001528172
Document Type 10-Q
Document Period End Date Jun 30, 2012
Amendment Flag false
Current Fiscal Year End Date --12-31
Is Entity a Well-known Seasoned Issuer? No
Is Entity a Voluntary Filer? No
Is Entity's Reporting Status Current? Yes
Entity Filer Category Smaller Reporting Company
Entity Common Stock, Shares Outstanding 50,670,111
Document Fiscal Period Focus Q2
Document Fiscal Year Focus 2012
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Consolidated Balance Sheets (USD $)
Jun. 30, 2012
Dec. 31, 2011
Current Assets
Cash $ 11,137 $ 9,247
Accounts receivable 639 0
Other current assets 14,000 0
Debt portfolios 0 0
Total Current Assets 25,776 9,247
Property Plant and Equipment, net 1,919 0
Intangible Assets 960,318 984,127
Total Assets 988,013 993,374
Current Liabilities
Accounts payable and accrued expenses 784,210 254,396
Current portion - notes payable license fee 240,000 240,000
Notes payable 175,000 175,000
Total Current Liabilities 1,199,210 669,396
Acquisition payable 155,000 0
Note payable - license fee, less current portion 750,000 750,000
Total Liabilities 2,104,210 1,419,396
Shareholders' Deficit
Common stock, 0.001 par value, 49,893,011 and 46,482,411 shares issued and outstanding 4,990 3,832
Additional paid-in capital 337,285 12,227
Accumulated deficit (1,458,472) (442,081)
Total Shareholders' Deficit (1,116,197) (426,022)
Total Liabilities and Shareholders' Deficit $ 988,013 $ 993,374
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Consolidated Balance Sheets (Parenthetical) (USD $)
Jun. 30, 2012
Dec. 31, 2011
COMMON STOCK
Common stock, par value $ 0.0001 $ 0.0001
Common stock, authorized 75,000,000 75,000,000
Common stock, issued 49,893,011 46,482,411
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Consolidated Statements of Operations (USD $)
3 Months Ended 6 Months Ended
Jun. 30, 2012
Jun. 30, 2012
Income Statement [Abstract]
Revenues, net $ 8,091 $ 9,765
Operating Expenses 403,753 830,967
Operating Loss (395,661) (821,202)
Other Income (Expense)
Interest income 4 12
Interest expense (34,950) (40,200)
Write-off acquisition goodwill 0 (155,000)
Loss Before Provision for Income Taxes (430,607) (1,016,391)
Provision for Income Taxes 0 0
Net Loss $ (430,607) $ (1,016,391)
Basic and diluted loss per common share $ (0.01) $ (0.05)
Weighted average common share outstanding - basic and diluted 48,429,970 21,234,053
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Consolidated Statement of Cash Flows (USD $)
6 Months Ended
Jun. 30, 2012
Cash Flows From Operating Activities
Net loss $ (1,016,391)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization expense 24,054
Fair value of shares issued for services 121,050
Acquisition goodwill expense 155,000
Changes in assets and liabilities:
Accounts receivable 4,315
Prepaid expenses (14,000)
Accounts payable and accrued expenses 529,814
Net Cash Used in Operating Activities (196,158)
Cash Flows From Investing Activities
Cash paid for acquisition of HPA, net of cash received 53,048
Net Cash Provided by Investing Activities 53,048
Sale of common stock 145,000
Net Cash Provided by Financing Activities 145,000
Net Increase (Decrease) in Cash 1,890
Cash, Beginning of Period 9,247
Cash, End of Period 11,137
Supplemental disclosure of cash flow information:
Cash paid for interest 0
Cash paid for income taxes 0
Noncash investing and financing activities:
Acquisition payable $ 155,000
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Note 1 - Organization and Nature of Business
6 Months Ended
Jun. 30, 2012
Notes to Financial Statements
Note 1 - Organization and Nature of Business

Note 1 – Organization and Nature of Business

 

Hanover Portfolio Acquisitions, Inc. (the “Company” or "HPA") operates in two business segments: 1) purchases distressed debt portfolios at a significant discount to their face value and seeks to either collect on the outstanding balances or resell some or all of the portfolios and 2) intellectual property licensing and commercialization.

 

IP Resources International, Inc. (“IPR”) formed its operations on September 1, 2011, under an operating agreement (“Operating Agreement”) with U.S. Debt Settlement, Inc. (“USDS”). The operator of IPR was a majority owner (“Operator”) of USDS. Under the terms of the Operating Agreement, USDS was to remain a publicly held entity. If USDS could not maintain its status as a publicly held company, the operator had the right to the operations. On October 13, 2011, USDS management informed the Operator that USDS had lost its status as a publicly held company. The Operator entered into an assumption agreement with USDS and all interested parties to transfer the operating assets and liabilities to a newly formed entity IPR. IPR was formed on October 17, 2011 with the majority shareholders’ of USDS as the majority shareholders of IPR. Since the majority ownership of the assets and liabilities of the operations did not significantly change, the asset and liabilities were transferred at their historical cost basis. The financial statements of IPR have been presented in the consolidated financial statements from inception, September 1, 2011.

 

Reverse Acquisition

 

On March 14, 2012, HPA, entered into a Share Exchange Agreement (“Agreement”) with IPR and certain of its shareholders. Under the Agreement, each participating IPR shareholder exchanged all of their issued and outstanding IPR common shares totaling 33,234,294, free and clear of all liens, and $155,000 for Company common shares of equal to 1.2342 times the number of IPR shares being transferred to the Company for a total of 41,017,766 shares. The $155,000 was not paid at closing. The Company recorded the $155,000 as long-term liability acquisition payable. IPR agreed to make payments of up to 25% of the proceeds from any private placement or gross profits earned by IPR until the obligation is satisfied. The percentage of the proceeds to be paid is at the sole discretion of IPR’s Chief Executive Officer and the ex-Chief Executive Officer of the Company based on the liquidity of the Company.

 

As a result of the Agreement, the former shareholders of IPR owned approximately 89% of the Company and its officer and directors constitute the majority of the officers and directors of the Company at the closing. Since the shareholders, offices and directors of IPR have control of the Company the acquisition constitutes a reverse acquisition, so IPR is the accounting acquirer and HPA is the accounting acquiree. For accounting purposes IPR becomes the parent and HPA becomes a wholly owned subsidiary. In comparison, the legal form of the acquisition is that HPA is the legal parent and IPR is the legal subsidiary.

 

The accompanying consolidated financial statements are presented as IPR being the parent company and HPA as the wholly owned subsidiary with the historical financial position and results of operations being of the operations of IPR, which include the results of operations of HPA from the date of acquisition on March 14, 2012. IPR began its operations on September 1, 2011.

 

As a result of this transaction, the Company will also operate as an intellectual property licensing and commercialization firm. IPR believes that its primary markets will include Asia, Brazil, and Europe.

 

As of the date of the acquisition, the sole director and officer and significant shareholder of HPA was a significant shareholder of IPR. Given the relationship, the transaction is considered not to be an arms length transaction and a step-up in the basis of the assets and liabilities acquired is precluded, as the transfer of assets and liabilities has not been affected. The Company has recorded the acquisition and issuance of 4,557,545 shares of its common stock at a value of $60,166, which is the historical cost basis of HPA as of the date of the transaction.

 

Unaudited Interim Consolidated Financial Statements

 

The accompanying interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and the instructions to Article 8 of Regulation S-X. The consolidated financial statements as of June 30, 2012 and for the six months ended June 30, 2012 are unaudited; however, in the opinion of management such interim consolidated financial statements reflect all adjustments, consisting solely of normal recurring adjustments, necessary for a fair presentation of the results for the periods presented. The results of operations for the Period presented are not necessarily indicative of the results that might be expected for future interim periods or for the full year.

 

Liquidity

 

To reduce the risk of not being able to continue as a going concern, management has implemented its business plan to materialize revenues from it license agreements and has initiated a private placement offering to raise capital through the sale of its common stock. Although, uncertainty exists as to whether the Company will be able generate enough cash from operations to fund the Company’s working capital needs or raise sufficient capital to meet the Company’s obligations as they become due, no adjustments have been made to the carrying value of assets or liabilities as a result of this uncertainty.

 

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Note 2 - License Agreements
6 Months Ended
Jun. 30, 2012
Notes to Financial Statements
Note 2 - License Agreements

Note 2 - License Agreements

 

Effective September 1, 2011, IPR entered into a license agreement with Personal 3D, Inc. (“P3D”)to acquire the rights to market and distribute certain intellectual property in the territories of the European and Eastern European counties. The term of the license agreement shall be for the greater of the life of the provisional patents, for the technology, or twenty-one years. The license agreement shall automatically renew for an additional one year term unless either party notifies the other that it does not desire to renew the license agreement ninety days before the then-current term of the license agreement expires. The license fee to be paid by IPR was $1,000,0000 and common stock of IPR in an amount that would give P3D 9.9% interest in outstanding common stock of IPR. The shares of IPR’s common stock were to be issued on or before October 12, 2011. The shares were issued on October 17, 2011, the date of incorporation of IPR. The $1,000,000 is required to be paid in installments as follows:

 

a) A payment of $10,000 on, or before, the second business day after the later of the execution and delivery of the license agreement and IPR’s receipt of $150,000 in bridge funding, which occurred on October 18, 2011 and the $10,000 was paid;

 

b) A payment of $90,000 within two business days after IPR’s receipt of an initial equity funding (excluding the funding referenced in (a) above) in the amount of at least $1,000,000 (which has not occurred as of the date of these consolidated financial statements);

 

c) A payment of $150,000 within six months after the payment reference in (b) above;

 

d) A payment of $250,000 twelve months after the payment referenced in (b) above;

 

e) A final payment of $500,000 eighteen months after the payment referenced in (b) above; and

 

f) Notwithstanding anything to the contrary, during the first one and half years of the license agreement a minimum of ten percent (10%) of all funding raised by IPR in excess $2,000,000, excluding funding reference in (a) above, shall be used to pay down the $1,000,000

 

The unpaid balance shall bear simple interest at a rate of 6% per annum commencing on the date of the initial payment of $10,000 as defined in (a) above. Also, in the event of a change in control of IPR the unpaid balance of the note shall accelerate and become immediately payable on five business days. Also, the license agreement is collateral for the note payable-license fee.

 

In addition to the license fee, IPR is required to pay a royalty of 25% of IPR’s quarterly profits from the P3D technology in Europe. Also, P3D has the right to terminate the license agreement

 

P3D shall have the right to terminate this Agreement if the amount paid in royalties under the license agreement for the twenty-four months, after the $150,000 funding as referenced in (c) above, does not equal or exceed $500,000 or if the amount paid in royalties for the twenty-fifth month through the forty-eighth month, after the $150,000 funding as referenced in (c) above, does not equal or exceed $500,000. IPR in its sole discretion may pay any portion of such minimum royalty to P3D, without regard to the actual amount of royalty generated in order to retain the license.

 

Effective November 11, 2011, IPR entered into an Exclusive License Agreement with CPAIR, Inc. (“CPaiR”) to acquire the rights to market and distribute certain intellectual property on a worldwide basis except for the United States. The terms of the license agreement shall be for the greater of the life of the provisional patents, for the technology, or twenty-one years. The term shall automatically renew for an additional one year term unless either party notifies the other that it does not desire to renew the license agreement ninety days before the then-current term of the license agreement expires. Under the Exclusive License Agreement, if IPR enters into a sublicense agreement, IPR is required to pay CPaiR 20% of royalties received by IPR. If IPR elects to distribute the product, without sublicenses, then CPaiR receives 10% of gross revenues. Also, IPR is required to pay to CPaiR 20% of any upfront license fee actually received by IPR in connection with the CPaiR intellectual property and 20% of the quarterly revenue actually received by IPR in connection with such intellectual property. If IPR does not pay a minimum of $1,000,000 to CPaiR within a period of three years from the Effective date, the license agreement will terminate. IPR has the right to pay the difference between the amounts paid by IPR and the minimum payment of $1,000,000. Under the terms of the agreement, IPR was not required to pay an upfront fees license fee.

 

Effective January 27, 2012, IPR entered into a License Agreement with American Cryostem Corp. ("ACSC") to acquire the rights to and to distribute certain intellectual property in China and Brazil. The term of the License Agreement shall be for one year. The term shall automatically renew for an additional one year term unless either party notifies the other that it does not desire to renew the License Agreement. Under the License Agreement, any distributer or sub-licensee, engaged by IPR, must pay a 25% of its quarterly gross revenue. Of the 25% of quarterly gross revenue, IPR and ACSC split 50/50. In the event that IPR receives any upfront license fee from a sub-licensee, IPR is required to pay to ACSC 50% of any upfront license fee actually received. Under the terms of the agreement, IPR was not required to pay an upfront fees license fee.

 

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Note 3 - Notes payable
6 Months Ended
Jun. 30, 2012
Notes to Financial Statements
Note 3 - Notes payable

Note 3 - Notes payable

 

IPR initiated a private placement for up to $1,000,000 of financing by the issuance of notes payable at a minimum of $25,000. The notes bear interest at 12% per annum and are due and payable with accrued interest one year from issuance. Also, IPR agreed to issue 102,850 shares of its common stock for every $25,000 invested.

 

The Company has issued a total of two notes, to two investors, for an aggregate principal amount of $175,000. In addition IPR issued 719,950 share of its common stock at a fair value of $1,267 as determined by a valuation performed by a third party valuation firm. These loans are secured by the P3D license agreement as described in Note 2- License Agreements.

 

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Note 4 - Shareholders' Deficit
6 Months Ended
Jun. 30, 2012
Notes to Financial Statements
Note 4 - Shareholders' Deficit

Note 4- Shareholders’ Deficit

 

IPR issued 30,916,710 shares of its common stock on the date of incorporation to the founders of the corporation.

 

IPR has entered into consulting agreements with various consultants for service to be provided to the Company. The agreements stipulate a monthly fee and a certain number of shares that the consultant vests over the term of the contract. The consultant is issued a prorated number of the shares of common at the beginning of the contract that the consultant earns over a three-month period. At the anniversary of each quarter, the consultant is issued a new allotment of common stock. In accordance with ASC 505-50 – Equity-Based Payment to Non-Employee, the common stock shares issued to the consultant are valued upon issuance. The shares of common stock that have been issued were valued based on a valuation performed by an independent valuation firm. As of June 30, 2012, the total awards granted was 25,215,600 shares with 5,912,832 vested shares and 19,302,768 shares unvested. The total expense recorded for the six months ended June 30, 2012 was $121,050.

 

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Note 5 - Segment Information
6 Months Ended
Jun. 30, 2012
Notes to Financial Statements
Note 5 - Segment Information

Note 5 – Segment Information

 

The Company has two reporting segments: debt portfolio management and intellectual property management. The debt portfolio segment purchases defaulted unsecured consumer receivables in the secondary market and generate revenue through collections utilizing an outsourced collection network and through the strategic resale of portfolios. The intellectual property management segment licenses various commercially desirable technologies and patents from companies that need operating capital or that need help commercializing their technology and sublicense such technology in designated territories. We have no intersegment sales or transfer. The Company’s reportable segments are strategic business units that offer different products and services. They are managed separately because each business requires different technology and marketing strategies. Most of the businesses were acquired as a unit, and the management at the time of the acquisition was retained.

 

For the three and six months ended June 30, 2012, net revenues of $8,091 and $9,765, respectively are contributed from our debt portfolio segment. For the three months ended June 30, 2012, the Company’s operating loss of approximately $431,000 was contributed by the intellectual property management for approximately $345,000, the debt portfolio management for approximately $46,000 and corporate overhead for approximately $40,000, respectively. For the six months ended June 30, 2012, the Company’s operating loss of approximately $1,016,000 was contributed by the intellectual property management for approximately $752,000, the debt portfolio management for approximately $54,000 and corporate overhead for approximately $210,000, respectively.

 

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Note 6 - Subsequent Events
6 Months Ended
Jun. 30, 2012
Notes to Financial Statements
Note 6 - Subsequent Events

Note 6 - Subsequent Events

 

Subsequent to June 30, 2012, the Company sold an aggregate of 80,000 shares of the Company’s common stock for $20,000.

 

On July 1, 2012, the Company purchased and financed a vehicle for $57,917 at an annual interest rate of 3.99% for 66 monthly payments of $980.

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Note 1 - Organization and Nature of Business (Policies)
6 Months Ended
Jun. 30, 2012
Notes to Financial Statements
Unaudited Interim Consolidated Financial Statements

Unaudited Interim Consolidated Financial Statements

 

The accompanying interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and the instructions to Article 8 of Regulation S-X. The consolidated financial statements as of June 30, 2012 and for the six months ended June 30, 2012 are unaudited; however, in the opinion of management such interim consolidated financial statements reflect all adjustments, consisting solely of normal recurring adjustments, necessary for a fair presentation of the results for the periods presented. The results of operations for the Period presented are not necessarily indicative of the results that might be expected for future interim periods or for the full year.

 

Liquidity

 

Liquidity

 

To reduce the risk of not being able to continue as a going concern, management has implemented its business plan to materialize revenues from it license agreements and has initiated a private placement offering to raise capital through the sale of its common stock. Although, uncertainty exists as to whether the Company will be able generate enough cash from operations to fund the Company’s working capital needs or raise sufficient capital to meet the Company’s obligations as they become due, no adjustments have been made to the carrying value of assets or liabilities as a result of this uncertainty.

 

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Note 1 - Organization and Nature of Business (Details Narrative) (USD $)
Mar. 14, 2012
Reverse Acquisition
IPR common shares transferred for HPA common shares per Share Exchange Agreement 33,234,294
Cash payment pleged by IPR per Share Exchange Agreement $ 155,000
Share exchange ratio 1.2342
Shares of HPA issued for IPR shares 41,017,766
Payment due recorded as long-term liability acquisition payable 155,000
Percent of IPR proceeds from any private placement or gross profits earned by IPR agreed to be paid to HPA until the obligation is satisfied 25.00%
Percent of shares owned by former shareholders of IPR 89.00%
Shares issued in acquisition 4,557,545
Value of shares issued in acquisition $ 60,166
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Note 2 - License Agreements (Details Narrative) (USD $)
18 Months Ended 24 Months Ended 36 Months Ended
Mar. 01, 2013
Mar. 01, 2017
Mar. 01, 2015
Nov. 11, 2014
Nov. 11, 2012
Jan. 27, 2012
Oct. 18, 2011
Oct. 17, 2011
Sep. 01, 2011
P3D Agreement
Minimum license agreement term (in years) 21 years
Renewal term if not cancelled by either party 90 days in advance of expiration 1 year
Minimum required cancellation notification required before expiration date to extend license a year 90 days
Interest in outstanding common stock of IPR that P3D retained 9.90%
Bridge funding received $ 150,000
License Fee payment paid to IPR after receipt of bridge funding 10,000
Total license fee to be paid by IPR 1,000,000
Distributer or sub licenser payment distribution ratio between IPR and ACSC 1
Fee due after initial equity funding 90,000
Fee payment due within 6 months of equity funding 150,000
Fee payment due within 12 months of equity funding 250,000
Final Fee payment due within 18 months of equity funding 500,000
Minimum percent of non-bridge loan funding to pay down $1,000,000 in first 1.5 years 10.00%
Minimum percentage applies on excess funding over certain amount 2,000,000
Period that minimum percent is applied to 1 year 6 months
Simple interest rate on unpaid balance of license fee commencing on date of first $10,000 payment 6.00%
Period in which license payment is due in full upon change of control of IPR (days) 5 days
Royalty percent payment due from IPR's quarterly profits from P3D technology in Europe 25.00%
Termination right if royalties after the $150,000 funding do not meet a minimum amount 500,000 500,000
CPaiR Agreement
Minimum license agreement term (in years) 21 years
Renewal term if not cancelled by either party 90 days in advance of expiration 1 year
Minimum required cancellation notification required before expiration date to extend license a year 90 days
Minimum payment to CPaiR to avoid termination 1,000,000
Royalties of sublease agreement paid percentage 20.00%
Payment of upfront license fee for CPaiR technology 20.00%
Percentage of gross revenues paid without subleasing 10.00%
Quarterly revenue paid to CPaiR 20.00%
ACSC Agreement
Upfront license fee paid to ACSC $ 0
License agreement term (in years) 1 year
Renewal term if not cancelled by either party 90 days in advance of expiration 1 year
Percent of quarterly gross revenue owed by distributor or sub-licensee 25.00%
Gross revenue split ratio between IPR and ACSC 1
Percent of upfront license fee paid to ACSC 50.00%
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Note 3 - Notes payable (Details Narrative) (USD $)
6 Months Ended
Jun. 30, 2012
Integer
Notes Payable
Private placement maximum offering amount $ 1,000,000
Private Placement Minimum Investment Amount 25,000
Life of notes (in years) 1 year
Number of notes issued 3
Number of investors in notes 2
Inerest on private placement notes payable 12.00%
Shares of common stock issued for every minimum invested 102,850
Aggregate amount of notes issued 175,000
Common stock issued for notes 719,950
Fair value of common stock issued $ 1,267
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Note 4 - Shareholders' Deficit (Details Narrative) (USD $)
6 Months Ended
Jun. 30, 2012
Sep. 01, 2011
Shareholders' Deficit
Common stock issued to founders 30,916,710
Award grant shares 25,215,600
Award grant shares vested 5,912,832
Award grant shares unvested 19,302,768
Expense recorder for fair value of shares issued for services $ 121,050
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Note 5 - Segment Information (Details Narrative) (USD $)
3 Months Ended 6 Months Ended
Jun. 30, 2012
Jun. 30, 2012
Segment Information
Net revenues of debt portfolio segment $ 8,091 $ 9,765
Operating loss of intellectual property management segment 345,000 752,000
Operating loss of debt portfolio management segment 46,000 54,000
Corporate overhead 40,000 210,000
Operating loss $ 430,607 $ 1,016,391
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Note 6 - Subsequent Events (Details Narrative) (USD $)
1 Months Ended
Aug. 13, 2012
Jul. 01, 2012
Notes to Financial Statements
Common stock issued for cash, shares 80,000
Common stock issued for cash, value $ 20,000
Financing amount on vehicle purchase 57,917
Interest rate of vehicle purchase financing 3.99%
Term of vehicle financing (in months) 66 months
Monthly financing payment $ 980
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