PINX:CEVE Ceres Ventures Inc Quarterly Report 10-Q Filing - 3/31/2012

Effective Date 3/31/2012

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

¨   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2012

 

¨       TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ___________ to ___________

 

Commission file number 000-28790

 

Ceres Ventures, Inc.

(Exact name of registrant as specified in its charter)

 

Nevada 87-0429962
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
   

430 Park Avenue, Suite 702 

 
New York, New York 10022
(Address of principal executive offices) (Zip Code)

 

(800) 611-3388

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ¨   Accelerated filer ¨
         
Non-accelerated filer (Do not check if a smaller reporting company) ¨   Smaller reporting company x

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.). Yes ¨ No x

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: As of May 21, 2012, there were 85,031,557 shares of the registrant’s common stock outstanding.

 

 
 

 

TABLE OF CONTENTS

 

CERES VENTURES, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTER ENDED MARCH 31, 2012 

 

PART I FINANCIAL INFORMATION
     
Item 1. Consolidated Financial Statements (Unaudited)  2
     
Consolidated Balance Sheets 2
     
Consolidated Statements of Operations 3
     
Consolidated Statements of Stockholders’ Deficit 4
     
Consolidated Statements of Cash Flows 5
     
Notes to Consolidated Financial Statements 6
     
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 18
     
Item 4. Controls and Procedures 22
     
PART II OTHER INFORMATION
 
Item 1. Legal Proceedings 23
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 23
     
Item 3. Defaults Upon Senior Securities 23
     
Item 5. Other Information 23
     
Item 6. Exhibits 23
     
Item 14. Principal Accounting Fees and Services  
     
PART IV    
     
SIGNATURES 27
   
CERTIFICATIONS  

 

 
 

 

PART I – FINANCIAL INFORMATION

 

Item 1. Consolidated Financial Statements

 

CERES VENTURES, INC.

(A Development Stage Company)

 

CONSOLIDATED BALANCE SHEETS

 

   March 31, 2012   December 31, 2011 
   (unaudited)     
ASSETS          
Current assets          
    Cash  $1,369   $113,937 
           
Total current assets   1,369    113,937 
           
Intangible assets   64,551    51,054 
Total assets  $65,920   $164,991 
           
LIABILITIES AND STOCKHOLDERS' DEFICIT          
Current liabilities          
    Accounts payable  $112,487   $120,378 
    Accounts payable - related party   347,670    290,242 
    Convertible note payable   50,000    100,000 
    Promissory note payable   12,000    12,000 
    Accrued interest on notes payable   4,904    6,427 
    Accrued payroll liabilities   30,277    30,277 
           
Total current liabilities   557,338    559,324 
           
Commitments and contingencies   -    - 
           
Stockholders' deficit          
     Preferred stock, $0.25 par value, 1,000,000 shares          
         authorized; none issued and outstanding   -    - 
     Common stock, $0.00001 par value; 2,000,000,000 shares          
         authorized; 85,031,557 shares issued and outstanding          
         at both March 31, 2012 and December 31, 2011   850    850 
     Additional paid-in capital   229,143    227,273 
     Deficit accumulated  during the development stage   (721,411)   (622,456)
Total stockholders' deficit   (491,418)   (394,333)
           
Total liabilities and stockholders' deficit  $65,920   $164,991 

 

See accompanying notes to the consolidated financial statements

 

2
 

 

CERES VENTURES, INC.

(A Development Stage Company)

 

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

 

           For the Period from 
           October 14, 2010 
   For the Three Months Ended   (Inception) through 
   March 31, 2012   March 31, 2011   March 31, 2012 
             
REVENUE  $-   $-   $- 
                
COSTS AND OPERATING EXPENSES               
    Research and development   28,592    40,737    230,145 
    Investor relations and marketing   6,572    2,735    26,875 
    Director and management fees   35,983    25,000    174,193 
    Professional fees   24,187    43,213    237,412 
    Travel, office and facilities expenses   2,058    9,766    49,966 
          Costs and operating expenses   97,392    121,451    718,591 
                
LOSS FROM OPERATIONS   (97,392)   (121,451)   (718,591)
                
OTHER EXPENSE               
     Interest expense   1,563    240    2,820 
         Total other expense   1,563    240    2,820 
                
LOSS BEFORE INCOME TAX   (98,955)   (121,691)   (721,411)
                
INCOME TAX PROVISION   -    -    - 
                
NET LOSS  $(98,955)  $(121,691)  $(721,411)
                
NET LOSS PER COMMON SHARE               
    Basic and Diluted  $(0.00)  $(0.00)     
                
Weighted Average Shares Outstanding   85,031,557    64,144,833      

 

See accompanying notes to the consolidated financial statements

 

3
 

 

CERES VENTURES, INC.

(A Development Stage Company)

 

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT

(unaudited)

 

               Deficit     
               Accumulated     
               during the   Total 
   Common Stock   Additional   Development   Stockholders' 
   Shares   Amount   Paid-in Capital   Stage   Deficit 
                     
Balance, October 14, 2010 (Inception)   -   $-   $-   $-   $- 
                          
Issuance of common stock at $0.00033                         
per share on October 14, 2010   60,000,000    600    19,400    -    20,000 
                          
Issuance of Units at $0.033 per share                         
on October 14, 2010   300,000    3    9,997    -    10,000 
                          
Net loss   -    -    -    (50,855)   (50,855)
                          
Balance, December 31, 2010   60,300,000    603    29,397    (50,855)   (20,855)
                          
Issuance of Units at $0.033 per share                         
on January 31, 2011   5,865,000    59    195,441    -    195,500 
                          
Issuance of Units at $0.033 per share                         
on March 31, 2011   2,437,500    24    81,226    -    81,250 
                          
Issuance of Units at $0.033 per share                         
on May 10, 2011   562,500    6    18,744    -    18,750 
                          
Conversion of accounts payable to                         
common stock on July 1, 2011   844,860    8    28,154    -    28,162 
                          
Share based compensation   285,000    3    18,106    -    18,109 
                          
Issuance of common stock at $0.033                         
per share on December 15, 2011   1,500,000    15    49,985    -    50,000 
                          
Effect of reverse merger recapitalization                         
on December 29, 2011   4,829,872    48    (451,963)   -    (451,915)
                          
Conversion of accounts payable to common                         
stock on December 29, 2011   906,825    9    90,673    -    90,682 
                          
Conversion of note payable to common stock                         
on December 29, 2011   7,500,000    75    167,510    -    167,585 
                          
Net loss   -    -    -    (571,601)   (571,601)
                          
Balance, December 31, 2011   85,031,557    850    227,273    (622,456)   (394,333)
                          
Share based compensation             1,870    -    1,870 
                          
Net loss   -    -    -    (98,955)   (98,955)
                          
Balance, March 31, 2012   85,031,557   $850   $229,143   $(721,411)  $(491,418)

 

See accompanying notes to the consolidated financial statements

 

4
 

 

CERES VENTURES, INC.

(A Development Stage Company)

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

 

       For the Period from 
       October 14, 2010 
   For the Three Months   (Inception) through 
   March 31, 2012   March 31, 2011   March 31, 2012 
             
 CASH FLOWS FROM OPERATING ACTIVITIES               
      Net loss  $(98,955)  $(121,691)  $(721,411)
     Adjustments to reconcile net loss to net cash used in operating activities           
          Share based compensation   1,870    -    19,979 
  Changes in operating assets and liabilities:               
          Accounts payable   49,537    76,127    430,118 
          Accrued interest   (1,523)   240    (266)
                        Net cash used in operating activities   (49,071)   (45,324)   (271,580)
                
 CASH FLOWS FROM INVESTING ACTIVITY               
    Purchase of intangible assets   (13,497)   (3,110)   (64,551)
                       Net cash used in investing activity   (13,497)   (3,110)   (64,551)
                
 CASH FLOWS FROM FINANCING ACTIVITIES               
     Advances from investors   -    (94,000)   99,000 
     Proceeds from issuance of promissory note payable   -    -    12,000 
     Proceeds from issuance of common stock and warrants   -    237,500    276,500 
     Repayment of convertible note payable   (50,000)   -    (50,000)
                
                       Net cash provided by (used in) financing activities   (50,000)   143,500    337,500 
                
 NET CHANGE IN CASH   (112,568)   95,066    1,369 
                
 CASH               
      BEGINNING OF PERIOD   113,937    127,000    - 
      END OF PERIOD  $1,369   $222,066   $1,369 
                
NON-CASH INVESTING AND FINANCING ACTIVITIES               
     Liabilities assumed as part of reverse merger  $-   $-   $451,915 
     Conversion of accounts payable to common stock  $-   $-   $118,845 
     Conversion of convertible note to common stock  $-   $-   $167,585 
                
 SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION               
      Interest paid  $3,086   $-   $- 
      Income tax paid  $-   $-   $- 

 

See accompanying notes to the consolidated financial statements

 

5
 

 

CERES VENTURES, INC.

(A Development Stage Company)

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2012

(Unaudited)

 

NOTE 1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Nature of Business

 

Ceres Ventures, Inc. (“Ceres Ventures”, the Company”), together with its wholly-owned subsidiary, BluFlow Technologies, Inc. (“BluFlow”), is focused on the research, development, and eventual commercialization of emerging next-generation clean technologies for the remediation of polluted water, soil, and air in an environmentally friendly and cost effective manner.

 

Ceres Ventures, formerly known as PhytoMedical Technologies, Inc., was incorporated in the State of Nevada on July 25, 2001 under the name Enterprise Technologies, Inc. BluFlow was incorporated on October 14, 2010 under the laws of the State of Delaware.

 

Ceres Ventures Name Change and Reverse Split

 

On November 21, 2011, PhytoMedical Technologies, Inc. changed its name to Ceres Ventures, Inc. and implemented a one-for-fifty reverse share consolidation. The par value and total number of authorized shares were unaffected by the reverse stock split. All shares and per share amounts in these financial statements and notes thereto have been retrospectively adjusted to all periods presented to give effect to the reverse stock split. The Reverse Split was declared effective by the Financial Industry Regulatory Authority (FINRA”) on December 12, 2011.

 

Reverse Merger

 

On December 29, 2011, Ceres Ventures, a public shell company, and BluFlow entered into an agreement and plan of merger (the Merger Agreement”) pursuant to which BluFlow became a wholly-owned subsidiary of Ceres Ventures as more fully described in Note 2. The merger is being accounted for as a reverse-merger and recapitalization and BluFlow is considered the acquirer for accounting purposes and Ceres Ventures the acquired company. The business of BluFlow became the business of Ceres Ventures.

 

Significant Accounting Policies

 

Basis of Presentation and Principles of Consolidation

 

The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all information and disclosures required by generally accepted accounting principles (“GAAP”) in the United States (“U.S.”), and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Therefore, this information should be read in conjunction with Ceres Ventures, Inc. financial statements and notes contained in its 2011 Annual Report on Form 10-K. The unaudited consolidated financial statements include the accounts of the Company and its subsidiaries after elimination of intercompany accounts and transactions. The information furnished herein reflects all adjustment that are, in the opinion of management, necessary for the fair statement of the results for the interim periods reported. All such adjustments are, in the opinion of management, of a normal recurring nature. Operating results for the three month period ended March 31, 2012, are not necessarily indicative of the results that may be expected for the year ending December 31, 2012.

 

Applicable Accounting Guidance

 

Any reference in these notes to applicable accounting guidance is meant to refer to the authoritative non-governmental United States GAAP as found in the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”).

 

6
 

 

Going Concern

 

As of March 31, 2012, the Company had cash of $1,369. The Company is a development stage company, and does not currently have any commercial products and there is no assurance that it will successfully be able to design, develop, manufacture, or sell any commercial products in the future. The Company has not generated any revenue since inception. The Company had a working capital deficit of $555,969, reported an accumulated deficit of $721,411 as of March 31, 2012, and does not have positive cash flows from operating activities.

 

Currently, the Company is seeking additional financing but has no commitments to obtain any such financing, and there can be no assurance that financing will be available in amounts or on terms acceptable to the Company, if at all. If adequate funds are not available on reasonable terms or at all, it would result in a material adverse effect on the Company’s business, operating results, financial condition and prospects. In particular, the Company may be required to delay, reduce the scope of or terminate its research programs, sell rights to its BluFlowTM Treatment Systems, BluFlowTM Nanoparticles or BluFlowTM AUT.

 

In view of these conditions, the ability of the Company to continue as a going concern is in substantial doubt and dependent upon the Company obtaining necessary financing to fund ongoing operations. These consolidated financial statements do not give effect to any adjustments which will be necessary should the Company be unable to continue as a going concern and therefore be required to realize its assets and discharge its liabilities in other than the normal course of business and at amounts different from those reflected in the accompanying consolidated financial statements.

 

Reverse Merger

 

On December 29, 2011, Ceres Ventures entered into an agreement and plan of merger with its newly organized wholly-owned subsidiary, Ceres Ventures Acquisition Corp. (“CVA”), a Delaware corporation, and BluFlow. Pursuant to the merger agreement CVA merged with and into BluFlow, with BluFlow remaining as the surviving corporation and a wholly-owned subsidiary of the Company (“the Reverse Merger”). The former stockholders of BluFlow received shares of the Company that constituted a majority of the outstanding shares.

 

The Reverse Merger has been accounted for as a reverse acquisition under which BluFlow was considered the acquirer of Ceres Ventures. As such, the financial statements of BluFlow are treated as the historical financial statements of the combined company, with the results of Ceres Ventures being included from December 29, 2011.

 

As a result of the Reverse Merger with Ceres Ventures, historical common stock amounts and additional paid in capital have been retroactively adjusted. See Note 2 for additional discussion of the Reverse Merger and the conversion ratio.

 

Development Stage Company

 

The Company is a development stage company. The Company is still devoting substantially all of its efforts on establishing the business and its planned principal operations have not commenced. All losses accumulated since inception have been considered as part of the Company’s development stage activities.

 

Use of Estimates and Assumptions

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported amount of revenues and expenses during the reporting period.

 

The Company’s significant estimates and assumptions include the fair value of financial instruments; the carrying value, recoverability and impairment, if any, of long-lived assets, including the values assigned to and the estimated useful lives of intangible assets; income tax rate, income tax provision, deferred tax assets and the valuation allowance of deferred tax assets; and the assumption that the Company is a going concern. Those significant accounting estimates or assumptions bear the risk of change due to the fact that there are uncertainties attached to those estimates or assumptions, and certain estimates or assumptions are difficult to measure or value.

 

7
 

 

Management bases its estimates on experience and on various assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

 

Management regularly reviews its estimates utilizing currently available information, changes in facts and circumstances, their experience and reasonable assumptions. After such reviews, and if deemed appropriate, those estimates are adjusted accordingly. Actual results could differ from these estimates.

 

Fair Value

 

The Company measures fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. The Company utilizes a three-tier hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value:

 

Level 1. Valuations based on quoted prices in active markets for identical assets or liabilities. The Company has no assets or liabilities valued with Level 1 inputs.

 

Level 2. Valuations based on quoted prices for similar assets or liabilities, quoted prices for identical assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable data for substantially the full term of the assets or liabilities. The Company has no assets or liabilities valued with Level 2 inputs.

 

Level 3. Valuations based on inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. The Company has no assets or liabilities valued with Level 3 inputs.

 

Fair Value of Financial Instruments

 

The carrying value of cash, accounts payable, accrued interest, accrued payroll liabilities, and notes payable approximate their fair value because of the short-term nature of these instruments and their liquidity. Management is of the opinion that the Company is not exposed to significant interest or credit risks arising from these financial instruments.

 

Cash Equivalents

 

The Company considers all highly liquid investments with maturities of three months or less at the time of purchase to be cash equivalents. As of March 31, 2012 and December 31, 2011, the Company had no cash equivalents.

 

Intangible Assets

 

Intangible assets include license agreements and related patent costs. The Company has entered into a license agreement whereby it has been assigned the exclusive rights to certain licensed materials used in its products. The Company capitalizes the rights to the licensed materials and amortizes such costs over their estimated useful life which is consistent with the life of the patents underlying the license agreements.

 

As of March 31, 2012, the Company had $64,551 of intangible assets on the Consolidated Balance Sheet representing the costs for a license agreement and patent usage rights. These costs were not subject to amortization as the patents are pending.

 

Impairment of Long-Lived Assets

 

Intangible assets are evaluated and reviewed for impairment annually or more frequently whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. The Company recognizes impairment of long-lived assets in the event the carrying amount exceeds the fair value of the assets. An impairment loss is recognized equal to the amount to that excess. Such analyses necessarily involve significant judgment.

 

8
 

 

The Company determined there was no impairment of long-lived assets for the period ended March 31, 2012, and the year ended December 31, 2011.

 

Research and Development Costs

 

Research and development costs are charged to expense when incurred. Research and development includes costs such as contracted research and license agreement fees with no alternative future use, supplies and materials, salaries and employee benefits, equipment depreciation and allocation of various corporate costs, and amortization of intangible assets.

 

Stock-Based Compensation

 

The Company measures all employee stock-based compensation awards using a fair value method on the date of grant and recognizes such expense in its consolidated financial statements over the requisite service period. The Company uses the Black-Scholes pricing model to determine the fair value of stock-based compensation awards on the date of grant. The Black-Scholes pricing model requires management to make assumptions regarding option lives, expected volatility, and risk free interest rates.

 

Loss Per Share

 

The computation of basic net income (loss) per common share is based on the weighted average number of shares that were outstanding during the year. The computation of diluted net income (loss) per common share is based on the weighted average number of shares used in the basic net income (loss) per share calculation plus the number of common shares that would be issued assuming the exercise of all potentially dilutive common shares outstanding using the treasury stock method. See “Note 3. Loss Per Share” for further discussion.

 

Income Taxes

 

Income taxes are accounted for using an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in our financial statements or tax returns. A valuation allowance is established to reduce deferred tax assets if all, or some portion, of such assets will more than likely not be realized.

 

The Company recognizes income taxes on an accrual basis based on tax positions taken or expected to be taken in our tax returns. A tax position is defined as a position in a previously filed tax return or a position expected to be taken in a future tax filing that is reflected in measuring current or deferred income tax assets and liabilities. Tax positions are recognized only when it is more likely than not (i.e., likelihood of greater than 50%), based on technical merits, that the position would be sustained upon examination by taxing authorities. Tax positions that meet the more likely than not threshold are measured using a probability-weighted approach as the largest amount of tax benefit that is greater than 50% likely of being realized upon settlement. Should they occur, our policy is to classify interest and penalties related to tax positions as interest expense. Since our inception, no such interest or penalties have been incurred.

 

Recently Issued and Adopted Accounting Pronouncements

 

The Company reviews new accounting standards as issued. Although some of these accounting standards issued or effective after the end of the Company’s previous fiscal year may be applicable to the Company, it has not identified any standards that it believes merit further discussion. The Company believes that none of the new standards will have a significant impact on its consolidated financial statements.

 

9
 

 

NOTE 2. REVERSE MERGER

 

On December 29, 2011, the Effective Date of the Reverse Merger, each share of BluFlow common stock, par value $0.0001 per share, that was outstanding immediately prior to the Effective Date was converted into the right to receive three (3) shares of the Company’s common stock, par value $0.00001. Accordingly, the Company issued to the former holders of BluFlow common stock, in consideration of their capital stock of BluFlow, an aggregate of 71,794,860 shares of the Company’s common stock representing approximately 84% of the Company’s issued and outstanding shares of common stock, without giving effect to the exercise of outstanding Exchange Warrants or Exchange Options, as defined and described below, but after giving effect to Debt Conversions, as defined and described below.

 

On December 29, 2011, the Company exchanged with BluFlow stockholders who were also holders of common stock purchase warrants to purchase up to an aggregate of 1,527,500 shares of BluFlow common stock at an initial price of $0.50 per share, substantially identical warrants to purchase up to 4,582,500 shares of the Company’s common stock at an initial exercise price of $0.16 per share (“the Exchange Warrants”). The expiration date of each Exchange Warrant is substantially identical to the BluFlow warrant for which it was exchanged, December 31, 2012. The exercise price of the Exchange Warrants and the number of shares issuable upon the exercise of the warrants are subject to proportional adjustment in the event of stock splits, dividends, recapitalizations or similar transactions.

 

On December 29, 2011, the Company exchanged with holders of BluFlow stock options who held options to purchase, subject to the holders meeting certain vesting milestones, up to an aggregate of 120,000 shares of BluFlow common stock at an exercise price of $0.25 per share, substantially identical options to purchase up to 360,000 shares of the Company’s common stock at an initial exercise price of $0.083 per share (“the Exchange Options”). The exercise price of the Exchange Options and the number of shares issuable upon the exercise of the options are subject to proportional adjustment in the event of stock splits, dividends, recapitalizations or similar transactions.

 

On December 29, 2011, each pre-merger issued and outstanding share of capital stock of Ceres Ventures was converted into and become one fully paid and nonassessable share of common stock of the Company for a total of 4,829,872 shares of common stock. Additionally, Ceres Ventures had outstanding prior to the merger 400,000 shares of Series B Common Stock Purchase Warrants which remained outstanding after the Merger with the same terms and conditions.

 

As part of the Merger, the Company assumed $451,915 in Ceres Ventures pre-merger liabilities as follows:

 

Liabilities Assumed  Balance at
12/29/2011
 
Accounts payable  $58,201 
Accrued payroll liabilities - see Note 7   30,277 
Convertible note payable and accrued interest - see Note 6   105,170 
Liabilities converted to stock at merger date (see below)   258,267 
   $451,915 

 

On December 29, 2011, as a precondition to the Reverse Merger, the Company entered into the Rayat Settlement Agreement pursuant to which Mr. Rayat, our former Chief Financial Officer, director, and majority stockholder, was issued 7,500,000 shares of the Company’s common stock as payment in full of the principal amount of the Rayat Convertible Note. Pursuant to the terms of the Rayat Settlement Agreement, Mr. Rayat agreed to forgive all accrued and unpaid interest due him under the Rayat Convertible Note. The carrying value of the note payable and interest was $167,584 at the time of conversion.

On December 29, 2011, as a precondition to the Reverse Merger, the Company entered into the Sidhu Settlement Agreement, pursuant to which Mr. Sidhu, a director of the Company, was issued 30,000 shares of the Company’s common stock as payment in full for $3,000 of director compensation owed him.

 

On December 29, 2011, as a precondition to the Reverse Merger, the Company entered into the S&C Settlement Agreement, pursuant to which Mr. Sierchio, a director of the Company and a managing partner of Sierchio & Company, LLP was issued 876,825 shares of the Company’s common stock as payment in full of the accrued but unpaid legal fees of $87,682 due to Sierchio & Company, LLP.

 

10
 

 

NOTE 3. LOSS PER SHARE

 

Basic net income (loss) per share is computed by dividing the net income (loss) by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per share is computed by dividing the net income (loss) by the weighted average number of common and dilutive common equivalent shares outstanding during the period.

 

The computation of loss per share for the three month periods ended March 31, 2012 and 2011 excludes the following potentially dilutive securities because their inclusion would be anti-dilutive: 360,000 and nil, respectively; 4,982,500 and 4,151,250, respectively, of warrants outstanding; and 106,916 and nil, respectively, of shares of common stock (equivalent common shares) from convertible notes payable and accrued interest issued.

 

The loss per share is as follows:

 

   For the Three Months Ended 
   March 31, 2012   March 31, 2011 
Numerator - net loss  $(98,955)  $(121,691)
           
Denominator for basic loss per share - weighted average shares outstanding   85,031,557    64,144,833 
Dilutive effective of common equivalent shares   -    - 
Denominator for dilutive loss per share - adjusted weighted average shares outstanding   85,031,557    64,144,833 
           
Net loss per share          
    Basic  $(0.00)  $(0.00)
    Diluted  $(0.00)  $(0.00)

 

NOTE 4. SPONSORED RESEARCH AGREEMENT

 

University of California, Santa Barbara

 

On December 9, 2010, the Company entered into the sponsored Research Agreement with the University of California, Santa Barbara (UCSB”) providing for the continuing development of the UCSB Nanoparticles. The research agreement was effective for the period January 1, 2011 through December 31, 2014. The terms of the agreement were on a “cost reimbursement” basis. The agreement could be terminated by either party, without cause, with a 60-day written notice. Pursuant to SEC Rule 24b-2, certain portions of this agreement have been granted confidential treatment and therefore have not been disclosed.

 

On October 24, 2011, the Company provided a 60-day written termination notice to UCSB as management believes it can further the research and development of the technology on a more cost effective manner than UCSB.

 

Applied Power Concepts, Inc.

 

On July 7, 2011, the Company entered into a services agreement (the “Services Agreement”) with Applied Power Concepts, Inc. (“APC”) and additional ancillary agreements pursuant to which APC assists the Company in the development of the patent pending BluFlowTM Treatment System, which incorporates the BluFlowTM Nanoparticles and BluFlowTM AUT, as well as research and development to determine additional applications for the BluFlowTM Nanoparticles. Pursuant to the terms of the Services Agreement any technologies developed by APC for the Company, including any patents arising therefrom, belong to the Company. Pursuant to SEC Rule 24b-2, certain portions of this agreement have been granted confidential treatment and therefore have not been disclosed.

 

Payment under the Services Agreement is based upon time and materials and includes a bonus of stock options to purchase the Company’s common stock with vesting based on performance milestones. The Services Agreement can be terminated at any time by either party.

 

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NOTE 5. LICENSE AGREEMENT

 

On October 11, 2011, the Company entered into the License Agreement with UCSB pursuant to which the Company obtained a worldwide exclusive license to market and sell the UCSB Nanoparticles. The License Agreement includes an execution fee and non-refundable and non-cancellable royalty payments over the life of the patents. Pursuant to SEC Rule 24b-2, certain portions of this agreement have been granted confidential treatment and therefore have not been disclosed.

 

NOTE 6. CONVERTIBLE NOTE PAYABLE

 

On May 20, 2011, Ceres Ventures issued a one year convertible promissory note in the amount of $100,000 to Mr. Jeet Sidhu (the “Sidhu Convertible Note”), one of Ceres Ventures’ non-employee directors. The Sidhu Convertible Note bears interest at the rate of 8.5% per annum, which interest is accrued and payable on the maturity date of the Sidhu Convertible Note. As long as the Sidhu Convertible Note remains outstanding and not fully paid, the holder has the right, but not the obligation, to convert all or any portion of the aggregate outstanding principal amount of the Sidhu Convertible Note, together with all or any portion of the accrued and unpaid interest into that number of shares, subject to certain terms and conditions, of our common stock equal to the amount of the converted indebtedness divided by $0.50 per share (after giving effect to the Reverse Split). In the event of default, as defined in the Sidhu Convertible Note agreement, the annual interest rate increases to 10% and is due on demand. Certain events of default will result in all sums of principal and interest then remaining unpaid immediately due and payable, upon demand of the holder. The issuance of the Sidhu Convertible Note did not result in a beneficial conversion feature.

 

Pursuant to an amendment dated December 29, 2011, the Sidhu Convertible Note is payable as follows: (a) $50,000 plus accrued and unpaid interest thereon on or before January 31, 2012 and (b) the balance of $50,000 plus accrued and unpaid interest thereon on or before April 30, 2012.

 

On January 31, 2012, we made the first $50,000 installment payment plus accrued interest on that amount according to the terms of the amended agreement for a total payment of $53,086.

 

At March 31, 2012, accrued interest on the Sidhu Convertible Note was $3,458.

 

On April 29, 2012, the Company and Mr. Sidhu entered into Amendment No. 3 related to the Sidhu Convertible Note modifying the principal and interest payment date from April 30, 2012 to June 30, 2012.

 

NOTE 7. ACCRUED PAYROLL LIABILITIES

 

On March 15, 2010, Mr. Greg Wujek tendered his resignation as Ceres Ventures’ President and Chief Executive Officer (“CEO”). On June 17, 2010, Mr. Wujek tendered his resignation as one of Ceres Ventures’ directors. As of his resignation date as the Company’s President and CEO, the Company owed Mr. Wujek $30,277 for salary and related payroll taxes earned, but not paid. Management intends to repay Mr. Wujek in full when it has the capital resources to do so. Mr. Wujek has not made any demand for payment.

 

NOTE 8. PROMISSORY NOTE

 

On October 20, 2010, the Company identified and obtained the exclusive right to license certain highly specialized magnetized nanoparticles, initially developed at UCSB for, among other things, potential water treatment applications and solutions. These highly specialized magnetized nanoparticles are the subject of three patent applications. BluFlow obtained the option for the exclusive license rights from Appeal Capital Corp. (“Appeal”), a privately held corporation controlled by the president of the Company and a director. Pursuant to SEC Rule 24b-2, certain portions of this agreement have been granted confidential treatment and therefore have not been disclosed.

 

Consideration given to Appeal for the license rights was $12,000 which was paid through the issuance of a promissory note. The note bears interest of 8% per annum and is compounded quarterly. In the event of default, the interest rate shall increase to 18% per annum and be due on demand.

 

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On October 11, 2011, we entered into an Exclusive License Agreement with UCSB to exclusively license the technologies. For further details of the license agreement refer to Note 5 - License Agreement.

 

During the three month periods ended March 31, 2012 and 2011, we recorded interest expense of $259 and $240, respectively, related to this promissory note payable. At March 31, 2012, accrued interest related to the promissory note payable was $1,446.

 

NOTE 9. STOCKHOLDERS’ DEFICIT

 

Shares Authorized

 

The Company’s authorized capital consists of 1,000,000 shares of preferred stock, par value $0.25, and 2,000,000,000 shares of common stock, par value of $0.00001. As of March 31, 2012, there were zero shares of preferred stock issued and outstanding and 85,031,557 shares of common stock issued and outstanding.

 

Common Stock

 

BluFlow was incorporated on October 14, 2010, with the issuance of 60,000,000 shares of common stock at $0.00033 per share to two investors and the issuance of 300,000 Units at $0.033 per Unit to one investor for total proceeds of $30,000. A Unit equals one share of common stock and a Series C Warrants to purchase one-half share of common stock at an exercise price of $0.16 per share, with an exercise period commencing January 1, 2011 and expiring on December 31, 2012. The portion of the Unit proceeds allocated to common stock and warrants was $8,308 and $1,692, respectively, and was determined using the Black-Scholes model as described below.

 

From November 2010 through May 2011, we conducted a private placement of up to 60,000,000 units of its securities at a price of $0.033 per unit. Each unit consisted of one share of common stock, $0.00001 par value per share and one-half of one Series C Warrant. Each Series C Warrant entitled the holder to purchase one additional share of common stock at a an exercise price of $0.16 per share, expiring on December 31, 2012. As of the termination date of the Offering, we sold 8,865,000 units for gross receipts of $295,500. The Company issued 8,865,000 shares of its common stock and Series C Warrants to purchase up to 4,432,500 shares of common stock at an exercise price of $0.16 per share to the investors having subscribed for the units. The portion of the proceeds allocated to common stock and warrants was $194,460 and $101,040, respectively, and was determined using the Black-Scholes model as described below.

 

On December 15, 2011, we completed a subscription agreement for the sale of 1,500,000 shares of common stock at $0.033 per share for total proceeds of $50,000. This offering was exempt from registration pursuant to the provisions of Section 4(2) of the Securities Act of 1933, as amended (“the 1933 Act”) and Regulation D as promulgated by the SEC under the 1933 Act.

 

On February 13, 2012, the Company began offering for sale up to 15,000,000 units of its securities on a best efforts basis no with minimum at a price of $0.20 per unit ($3,000,000 in the aggregate). Each unit consists of: (i) one share of its common stock, $0.00001 par value per share; and (ii) one-half of one Series D Stock Purchase Warrant. Each full Series D Warrant entitles the holder to purchase one additional share of our common stock at a price of $0.30 for a period commencing on the date of issuance and terminating on December 31, 2013.

 

Warrants

 

As part of the November 2010 – May 2011 private placement discussed above, BluFlow issued a total of 4,582,500 Series C Common Stock Purchase Warrants. On December 29, 2011, the date of the merger, Ceres Ventures had warrants outstanding to purchase 400,000 shares of common stock at an exercise price of $1.50 per share. The Ceres Ventures’ warrants expire on May 19, 2012.

 

The Company estimated the fair value of the warrants on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:

 

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   Series C Warrants 
Number of warrants issued   4,582,500 
Exercise price   $0.16 
Black-Scholes option pricing model assumptions:     
Risk-free interest rate   0.60% 
Expected term (in years)   1.8 
Expected volatility (*)   152.86% 
Dividend per share   $0 
Expiration date   December 31, 2012 

 

* As a newly formed entity it is not practicable for it to estimate the expected volatility of its share price. The Company selected two (2) comparable public companies listed on NYSE Amex or NASDAQ Capital Market engaged in similar activities to calculate the expected volatility. The Company calculated the comparable companies’ historical volatility over the expected life and averaged them as its expected volatility.

 

During the three month period ended March 31, 2012, no warrants were granted, exercised or cancelled.

 

NOTE 10. SHARED BASED COMPENSATION

 

On December 29, 2011, the Company approved the 2011 Long Term Stock Incentive Plan (the “2011 Plan”), pursuant to which the Board is authorized to grant up to 10,000,000 shares of the Company’s common stock, which have been reserved for issuance. The 2011 Plan has not yet been approved by the Company’s stockholders.

 

In accordance with the 2011 Plan, shares issued may be either authorized but unissued shares, treasury shares or any combination of these shares. Additionally, the 2011 Plan permits the reuse or reissuance of shares of common stock which were canceled, expired, forfeited or, in the case of stock appreciation rights (“SARs”), paid out in the form of cash. Awards include non-qualified and incentive stock options, stock appreciation rights, restricted stock, other stock-based awards, and performance-based compensation awards, any or all of which may be subject to time-based or performance-based vesting requirements. The compensation committee has the discretionary authority to determine the type, vesting requirements, and size of an award with a maximum of 2,000,000 shares to be granted to any participate in any plan year. As of March 31, 2012, 9,370,000 shares remain available for issuance pursuant to the 2011 Plan.

 

Stock Options

 

On June 10, 2011, the Company granted options to purchase 180,000 shares of the Company’s common stock to each of two individuals at an exercise price of $0.033 per share. On June 10, 2011, the Company granted options to purchase 180,000 shares of the Company’s common stock to each of three (3) individuals at an exercise price of $0.037 per share. The options granted on June 10, 2011 vest as follows: one-third vested on grant date, one-third vesting one year from grant date, and the final one-third vesting two years from grant date.

 

On November 10, 2011, in connection with the resignation of one of the Company’s directors, Arturo Keller, management canceled 180,000 stock options granted to him on June 10, 2011 in accordance with the Long Term Incentive Plan, and awarded him 150,000 shares of restricted common stock. The fair value of the options exchanged, calculated using the Black-Scholes valuation model, was $3,370 immediately prior to the exchange and the fair value of the new awards was calculated at $5,000. Therefore, the $1,630 incremental value of the new award over the exchanged options and the $2,184 of unrecognized compensation expense for the original award, or $3,814, was recognized immediately.

 

On November 14, 2011, the Company entered into option exchange agreements with three of the five individuals granted stock options on June 10, 2011 whereby the stock options were exchanged for a lesser number of shares of restricted common stock. The restricted stock was granted with the same vesting terms as the stock options which is one-third vesting on grant date, one-third vesting one year from grant date, and the final one-third vesting two years from grant date. As a result of this agreement, 540,000 stock options were cancelled and 405,000 shares of restricted common stock were issued with a vesting schedule as follows: one-third vesting immediately, one-third vesting on each June 10, 2012 and 2013.

 

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The fair value of the options exchanged, calculated using the Black-Scholes valuation model, was $10,230 immediately prior to the exchange and the fair value of the new awards was calculated at $13,500. Therefore, the $3,270 incremental value of the new awards over the exchanged options and the $6,895 of unrecognized compensation expense for the original award, or $10,165, will be amortized on a straight line basis, over the remaining vesting period.

 

On November 14, 2011, the stock options for the fifth individual issued stock on June 10, 2011 were cancelled. As no replacement award was granted, all remaining unamortized compensation expense was recognized immediately in the amount of $2,623.

 

The table below summarizes the Company’s stock option activities through March 31, 2012:

 

   Number of
Options
   Weighted Average
Exercise Price per
Share
   Weighted Average
Remaining
Contractual Life
   Aggregate
Intrinsic
Value
 
Outstanding at December 31, 2011   360,000   $0.083           
 Granted   -                
 Exercised   -                
Cancelled or expired   -                
Outstanding at March 31, 2012   360,000   $0.083    9.27   $2,400 
                     
Exercisable at March 31, 2012   120,000   $0.083    9.27   $2,400 

 

The Company estimated the fair value of the stock options on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:

 

   Stock Options 
   Granted
6/10/2011
   Granted
7/7/2011
 
Weighted average fair value of awards   $0.077    $0.027 
Black-Scholes option pricing model assumptions:          
Risk-free interest rate   0.41%    0.18% 
Expected term (in years)   2.0    .25 - 1.82 
Expected volatility (*)   171.05%    139.57% 
Dividend per share   $0    $0 

 

* As a newly formed nonpublic entity it is not practicable for it to estimate the expected volatility of its share price. The Company selected two (2) comparable public companies listed on NYSE Amex or NASDAQ Capital Market engaged in similar activities to calculate the expected volatility. The Company calculated the comparable companies’ historical volatility over the expected life and averaged them as its expected volatility.

 

We recorded $387 and $nil in stock option compensation expense for the three month periods ended March 31, 2012 and 2011, respectively, as research and development expenses. An estimated $2,417 will be expensed over the remaining vesting period of 1 year.

 

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Restricted Stock

 

The table below summarizes the Company’s restricted stock activities through March 31, 2012:

 

   Number of
Restricted
Shares
   Weighted Average
Grant Date Fair
Value
 
Nonvested at December 31, 2011   270,000   $0.033 
Granted   -      
Vested   -      
Cancelled or expired   -      
Nonvested at March 31, 2012   270,000   $0.033 

  

We recorded $1,483 and $nil in restricted stock compensation expense for the three month periods ended March 31, 2012 and 2011, respectively. An estimated $7,916 will be expensed over the remaining vesting period of 1.19 years.

 

NOTE 11. RELATED PARTY TRANSACTIONS

 

Legal Services

 

The Company was provided legal services by a company owned by a director. The Company recorded $24,000 and $41,463 for these services for the three month periods ended March 31, 2012 and 2011, respectively.

 

Office Space

 

The Company has been provided office space at no cost by an entity under common control of a director of the Company, which holds a formal lease to the premises. No formal lease exists with the Company and the director may choose to cease providing the Company with office space at any time. The management determined that such cost is nominal and did not recognize rent expense in its financial statements.

 

NOTE 12. COMMITMENTS

 

Consulting Agreements

 

On January 1, 2011, the Company entered into an At-Will Consulting Agreement with its President and Chief executive officer which requires that he be paid an annual salary of $100,000. On July 1, 2011, the annual salary to be paid was amended to $120,000. The agreement is at will and can be terminated by either party, at any time, with or without cause, by providing written notice. The officer has the right, but is not obligated, to convert all compensation owed into the Company’s common stock at a price of $0.01 per share, adjusted for any increase or decrease in the number of issued shares of stock of the Company resulting from a stock split, stock dividend combination, subdivision or reclassification of shares. On June 10, 2011, the officer was granted options to purchase 180,000 shares of the Company’s common stock at $0.033 per share, with 60,000 options vesting immediately, 60,000 vesting on the one year anniversary and 60,000 vesting on the 2 year anniversary. On November 14, 2011, the 180,000 stock options were exchanged for 135,000 shares of restricted common stock with the same vesting schedule.

 

On June 9, 2011, the Company entered into an At-Will Consulting Agreement with its chief financial officer which requires that she be paid on a monthly basis of $1,500 per month. One third of this monthly fee is to be deferred without accruing interest until the Company shall effect one or more financing transactions from which the Company receives net proceeds of not less than $500,000. The officer was granted, at signing, options to purchase 180,000 shares of the Company’s common stock at $0.033 per share, with 60,000 options vesting at signing, 60,000 vesting on the one year anniversary and 60,000 vesting on the 2 year anniversary. On November 14, 2011, the 180,000 stock options were exchanged for 135,000 shares of restricted common stock with the same vesting schedule. The agreement is at will and can be terminated by either party, at any time, with or without cause, by providing written notice.

 

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NOTE 13. SUBSEQUENT EVENTS

 

The Company has evaluated all events that occurred after the balance sheet through the date when the financial statements were issued for possible adjustment to the financial statements or disclosures. Management of the Company determined that there were no reportable subsequent events to be disclosed.

 

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Item 2. Management’s Discussion and Analysis of Financial Conditions and Results of Operations

 

Forward-Looking Statements

 

Except for the historical information presented in this document, the matters discussed in this Form 10-Q (this “Form 10-Q”) for the quarter ended March 31, 2012, contain forward-looking statements which involve assumptions and our future plans, strategies, and expectations. These statements are generally identified by the use of words such as “may,” “will,” “should,” “expect,” “anticipate,” “estimate,” “believe,” “intend,” or “project” or the negative of these words or other variations on these words or comparable terminology. These statements are expressed in good faith and based upon a reasonable basis when made, but there can be no assurance that these expectations will be achieved or accomplished.

 

Such forward-looking statements include statements regarding, among other things, (a) the potential markets for our technologies, our potential profitability, and cash flows (b) our growth strategies (c) expectations from our ongoing research and development activities (d) anticipated trends in the technology industry (e) our future financing plans and (f) our anticipated needs for working capital. This information may involve known and unknown risks, uncertainties, and other factors that may cause our actual results, performance, or achievements to be materially different from the future results, performance, or achievements expressed or implied by any forward-looking statements. These statements may be found under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” as well as in this Form 10-Q generally. Actual events or results may differ materially from those discussed in forward-looking statements as a result of various factors, including, without limitation, the matters described in this Form 10-Q generally. In light of these risks and uncertainties, there can be no assurance that the forward-looking statements contained in this filing will in fact occur. In addition to the information expressly required to be included in this filing, we will provide such further material information, if any, as may be necessary to make the required statements, in light of the circumstances under which they are made, not misleading.

 

Although forward-looking statements in this report reflect the good faith judgment of our management, forward-looking statements are inherently subject to known and unknown risks, business, economic and other risks and uncertainties that may cause actual results to be materially different from those discussed in these forward-looking statements. Readers are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. We assume no obligation to update any forward-looking statements in order to reflect any event or circumstance that may arise after the date of this report, other than as may be required by applicable law or regulation. Readers are urged to carefully review and consider the various disclosures made by us in our reports filed with the Securities and Exchange Commission which attempt to advise interested parties of the risks and factors that may affect our business, financial condition, results of operation and cash flows. If one or more of these risks or uncertainties materialize, or if the underlying assumptions prove incorrect our actual results may vary materially from those expected or projected.

 

Except where the context otherwise requires and for purposes of this 10-Q only, “we,” “us,” “our,” “Company,” “our Company,” and “Ceres” refer to Ceres Ventures, Inc., a Nevada corporation, and its consolidated subsidiary.

 

Overview

 

The following discussion and analysis of our financial condition and results of operations (“MD&A”) should be read in conjunction with our consolidated financial statements and the accompanying notes to the consolidated financial statements included in this Form 10-Q.

 

The MD&A is based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses and related disclosure of contingent assets and liabilities. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

 

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Background

 

We were incorporated in the State of Nevada on July 25, 2001, under the name “Enterprise Technologies, Inc.,” we changed our name to Ceres Ventures, Inc. on November 21, 2011. The accompanying consolidated financial statements include the accounts of the Company and our wholly owned subsidiary BluFlow Technologies, Inc. (“BluFlow”). BluFlow was incorporated on October 14, 2010, in the State of Delaware.

 

Prior to our acquisition of BluFlow we had been a “shell company,” as that term is defined in Rule 405 of the Securities Act of 1933, as amended (the “Securities Act”) and had initiated our search for a commercially viable business. In order to facilitate our efforts, on November 21, 2011, we changed our name to Ceres Ventures, Inc. and implemented a one-for-fifty reverse share consolidation (the “Reverse Split”). The Reverse Split was declared effective by the Financial Industry Regulatory Authority (“FINRA”) on December 12, 2011. All shares and share prices have been retroactively changed to reflect the Reverse Split.

 

Reverse Merger

 

On December 29, 2011, Ceres Ventures, Inc. entered into an Agreement of Merger and Plan of Reorganization (the “Merger Agreement”) with BluFlow, a privately held Delaware corporation, and Ceres Ventures Acquisition Corp., Ceres Ventures, Inc.’s newly formed, wholly-owned Delaware subsidiary (“Acquisition Sub”), pursuant to which BluFlow merged with and into Acquisition Sub, with BluFlow as the surviving entity, causing BluFlow to become a wholly-owned subsidiary (the “Reverse Merger”). The Reverse Merger was completed in order to obtain access to public markets for financing for the Company’s patented BluFlowTM Treatment System.

 

On December 29, 2011, each pre-merger issued and outstanding share of capital stock of Ceres Ventures, Inc. was converted into and became one fully paid share of common stock of the Company for a total of 4,829,872 shares of common stock.

 

Pursuant to the terms of the Merger Agreement the Company issued 71,794,860 shares of its common stock to the stockholders of BluFlow for 23,931,620 shares of BluFlow common stock and exchanged with BluFlow stockholders who were also holders of common stock purchase warrants to purchase up to an aggregate of 1,527,500 shares of BluFlow common stock at an initial price of $0.50 per share, substantially identical warrants to purchase up to 4,582,500 shares of the Company’s common stock at an initial exercise price of $0.16 per share (the “Exchange Warrants”), which expire on December 31, 2012. The exercise price of the Exchange Warrants and the number of shares issuable upon the exercise of the warrants are subject to proportional adjustment in the event of stock splits, dividends, recapitalizations or similar transactions.

 

BluFlow’s stockholders were issued the shares of the Company’s common stock and the Exchange Warrants in reliance upon exemptions afforded to the Company by, but not limited to, the provisions of Regulation D and Regulation S and upon representations made to the Company by those stockholders that they meet the exemption requirements afforded by Regulation D or Regulation S.

 

Pursuant to the terms of Merger Agreement, BluFlow became a wholly-owned subsidiary of the Company. As a precondition to the entrance into the Merger Agreement, certain of our creditors holding an aggregate of $840,683 of our debt agreed to convert the principal amount of the debt into an aggregate of 8,406,825 shares of our common stock at a conversion price of $0.10 per share and forgave a total of $488,054 in accrued and unpaid interest.

 

Results of Operations

 

Three Months Ended March 31, 2012 and 2011

 

As a result of the ownership interests of the former shareholders of BluFlow, for financial statement reporting purposes, the merger between Ceres Ventures, Inc. and BluFlow has been treated as a reverse acquisition with BluFlow deemed the accounting acquirer and Ceres deemed the accounting acquiree under the purchase method of accounting in accordance with section 805-10-55 of the FASB Accounting Standards Codification. Accordingly, the results of operations presented in this Form 10-Q represent the historical results of operations of BluFlow.

 

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   For the Three Months Ended         
   March 31, 2012   March 31, 2011   $ Change   % Change 
             
COSTS AND OPERATING EXPENSES                    
Research and development  $28,592   $40,737   $(12,145)   (29.8)%
Investor relations and marketing   6,572    2,735    3,837    140.3%
Director and management fees   35,983    25,000    10,983    43.9%
Professional fees   24,187    43,213    (19,026)   (44.0)%
Travel, office and facilities expenses   2,058    9,766    (7,708)   (78.9)%
Costs and operating expenses  $97,392   $121,451   $(24,059)   (19.8)%
OTHER EXPENSE                    
Interest expense   1,563    240    1,323    551.3%
NET LOSS  $98,955   $121,691   $(22,736)   (18.7)%

 

We are still in the development stage and have no revenues to date.

 

During the three months ended March 31, 2012 and 2011, we had a net loss of $98,955 and $121,691, respectively; explanations for the decrease in our net loss of $22,736 are included below.

 

Research and Development:

 

The $12,145 decrease in research and development costs for the three months ended March 31, 2012, compared to March 31, 2011, is primarily due to changing our research and development service provider to a lower cost provider.

 

Investor Relations and Marketing

 

The $3,837 increase in investor relations and marketing expenses for the three months ended March 31, 2012, compared to March 31, 2011, is primarily due to increased filing fees as we are now a public company as a result of the completion of the December 29, 2011 reverse merger and hiring an investor relations consultant.

 

Director and Management Fees

 

The increase of $10,983 in director and management fees during the three months ended March 31, 2012, compared to March 31, 2011, is primarily due to hiring a chief financial officer and increasing the compensation of the Company’s president.

 

Professional Fees

 

The decrease in professional fees of $19,026 for the three months ended March 31, 2012, compared to March 31, 2011 is primarily due to decreased legal fees as a result of negotiating a flat monthly rate with our legal counsel.

 

Travel, Office and Facilities Expenses

 

The $7,708 decrease in travel, office and facilities expenses for the three months ended March 31, 2012 compared to March 31, 2011 is primarily due to less travel expenses.

 

Liquidity and Capital Resources

 

At March 31, 2012, we had cash of $1,369, intangible assets of $64,551, outstanding liabilities totaling $557,338 and a stockholders' deficit of $491,418. We have financed our operations primarily from funds received pursuant to the BluFlow Offering as further described below.

 

We had a working capital deficit of $555,969 and reported cumulative losses of $721,411 from inception (October 14, 2010) through March 31, 2012. We face all the risks common to companies that are relatively new, including under capitalization and uncertainty of funding sources, high initial expenditure levels, uncertain revenue streams, and difficulties in managing growth. These conditions raise substantial doubt about our ability to continue as a going concern.

 

20
 

 

Management recognizes that in order to meet our capital requirements, and continue to operate, additional financing will be necessary. We expect to raise additional funds through private or public equity investments in order to fund ongoing research and development activities of our BluFlowTM Treatment System, BluFlowTM Nanoparticles and BluFlowTM AUT We will seek access to private or public equity but there is no assurance that such additional funds will be available for us to finance our operations on acceptable terms, if at all. If we are unable to raise additional capital or generate positive cash flow, it is unlikely that we will be able to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

Net cash used in operating activities was $49,071 for the three months ended March 31, 2012, compared to $45,324 for the three months ended March 31, 2011. The increase in cash used in operating activities is further described above.

 

Net cash used in investing activities was $13,497 and $3,110 for the three month periods ended March 31, 2012 and 2011, respectively. We used capital to invest in the patents underlying our proprietary BluFlowTM Treatment System.

 

Net cash used in financing activities was $50,000 for the three months ended March 31, 2012, representing repayment of debt and net cash generated from financing activities was $143,500 for the three month periods ended March 31, 2011, representing funding received from the issuance of common stock and warrants.

 

BluFlow Offering

 

From November 2010 through May 2011, BluFlow conducted a private placement of up to 60,000,000 units of its securities at a price of $0.033 per unit. Each unit consisted on one share of common stock, $0.00001 par value per share and one-half of one Series C Warrant. Each Series C Warrant entitled the holder to purchase one additional share of common stock at an exercise price of $0.16 per share, expiring on December 31, 2012. As of the termination date of the offering, BluFlow sold 8,865,000 units for gross receipts of $295,500. BluFlow issued 8,865,000 shares of its common stock and Series C Warrants to purchase up to 4,432,500 shares of common stock at an exercise price of $0.16 per share to the investors having subscribed for the units.

 

On December 15, 2011, BluFlow completed the sale of 1,500,000 shares of common stock at $0.033 per share for total proceeds of $50,000. This offering was exempt from registration pursuant to the provisions of Section 4(2) of the Securities Act and Regulation D as promulgated by the SEC under the Securities Act.

 

Off-Balance Sheet Arrangements

 

We have no off-balance sheet arrangements.

 

Recently Issued and Adopted Accounting Pronouncements

 

We review new accounting standards as issued. Although some of these accounting standards issued or effective after the end of our previous fiscal year may be applicable to us, we have not identified any standards that we believe merit further discussion. We believe that none of the new standards will have a significant impact on our consolidated financial statements.

 

21
 

 

Item 4. Controls and Procedures

 

Disclosure Controls and Procedures

 

(a) Evaluation of Disclosure Controls and Procedures

 

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of the end of the period covered by this quarterly report. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded as of March 31, 2012, that our disclosure controls and procedures were effective such that the information required to be disclosed in our reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

 

(b) Management’s Report on Internal Control over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that our internal control over financial reporting was effective as of March 31, 2012.

 

22
 

 

PART II – OTHER INFORMATION

 

Item 1. Legal Proceedings

 

As of the date of this report, we are not a party to any material pending legal proceedings or government actions, including any bankruptcy, receivership, or similar proceedings. In addition, management is not aware of any known litigation or liabilities involving the operators of our properties that could affect our operations. Should any liabilities incur in the future, they will be accrued based on management’s best estimate of the potential loss. As such, there is no adverse effect on our financial position, results of operations or cash flow at this time. Furthermore, we do not believe that there are any proceedings to which any of our directors, officers, or affiliates, any owner of record of the beneficially or more than five percent of our common stock, or any associate of any such director, officer, affiliate, or security holder is a party adverse or has a material interest adverse to us.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

None.

 

Item 3. Defaults Upon Senior Securities

 

None.

 

Item 5. Other Information

 

None.

 

Item 6. Exhibits

 

Exhibit Index

 

Exhibit No.   Description of Exhibit
     
2.1   Agreement and Plan of Merger between Ceres Ventures, Inc., Ceres Ventures Acquisition Corp. and BluFlow Technologies, Inc., dated December 29, 2011*
     
2.2   Certificate of Merger*
     
3.1   Amended and Restated Articles of Incorporation*
     
3.2   By Laws*
     
3.3   Certificate of Amendment to the Articles of Incorporation*
     
3.4   Certificate of Change*
     
4.1   Form of Subscription Agreement*
     
4.2   Form of Series B Warrant*
     
4.3   Form of Exchange Warrant*
     
10.1   Sponsored Research Agreement with Iowa State University dated February 1, 2007*
     
10.2   Exclusive license agreement with Iowa State University Research Foundation Inc. dated June 12, 2006*
     
10.3   Agreement with Latitude Pharmaceuticals, Inc. dated July 6, 2009*

 

23
 

 

10.4   Amendment dated October 23, 2009, to the Latitude Agreement*
     
10.5   Redacted License Agreement dated September 1, 2008, with the Trustees of Dartmouth College*
     
10.6   Sponsored Research Agreement dated May 25, 2007 with Dartmouth College*
     
10.7   Technologies Research Agreement with Dartmouth College as amended*
     
10.8   Employment Agreement with Greg Wujek dated April 6, 2006*
     
10.9   Stock Option Agreement with Greg Wujek dated August 1, 2006*
     
10.10   Employment Agreement with James F. Lynch dated March 15, 2010*
     
10.11   Stock Option Agreement with James F. Lynch dated March 15, 2010*
     
10.12   Convertible Promissory Note dated March 1, 2010, in the original principal amount of $1,067,527.40*
     
10.13   Convertible Promissory Note dated March 2, 2010, in the original principal amount of $40,000*
     
10.14   Amendment No. 1 dated April 13, 2010, to the March 2, 2010, Promissory Note*
     
10.15   Stock Option Agreement between PhytoMedical Technologies and Raymond Krauss*
10.16   Stock Option Agreement between PhytoMedical Technologies and Gary Branning*
     
10.17   Stock Option Agreement between PhytoMedical Technologies and Greg Wujek*
     
10.18   Employment Resignation Agreement between PhytoMedical Technologies, Inc. and Greg Wujek*
     
10.19   Executive Services Agreement Dated June 3, 2010, between PhytoMedical Technologies, Inc. and Amit S. Dang*
     
10.20   Memorandum of Intent dated August 25, 2010, between PhytoMedical Technologies, Inc. and Standard Gold Corp.*
     
10.21   Bridge Loan Agreement dated August 25, 2010, between PhytoMedical Technologies, Inc. and Standard Gold Corp.*
     
10.22   Promissory Note dated August 25, 2010, issued by Standard Gold Corp.*
     
10.24   Share Exchange Agreement dated October 22, 2010, between PhytoMedical Technologies, Inc., Standard Gold Corp. and the stockholders of Standard Gold Corp.*
     
10.25   Termination Agreement and Mutual Release dated December 24, 2010, between PhytoMedical Technologies, Inc. and Standard Gold Corp.*
     
10.26   Letter from Dartmouth College dated January 20, 2011, terminating the Exclusive License Agreement dated September 1, 2008, between Dartmouth College and PhytoMedical Technologies, Inc.*
     
10.27   Restated 8.5% Convertible Promissory Note in the principal amount of $100,000 dated May 20, 2011, between Jeet Sidhu and PhytoMedical Technologies, Inc.*

 

24
 

 

10.28   Amendment No. 1 dated July 14, 2011, to the Promissory Note in the principal amount of $100,000 dated May 20, 2011, between Jeet Sidhu and PhytoMedical Technologies, Inc.*
     
10.29   Amendment No. 2 dated December 29, 2011, to the Promissory Note in the principal amount of $100,000 dated May 20, 2011, between Jeet Sidhu and PhytoMedical Technologies, Inc.*
     
10.30   Redacted Letter of Intent dated May 11, 2010, between Appeal Capital Corp. and the Regents of the University of California* (1)
     
10.31   Redacted Asset Purchase Agreement dated October 20, 2010, between Appeal Capital Corp, and AcquaeBlu Corp.* (1)
     
10.32   8% Non-Negotiable Promissory Note dated October 20, 2010, in the original principal amount of $12,000 issued it Appeal Capital Corp.*
     
10.33   Redacted Consent of Substitution of Party dated October 21, 2010, between Appeal Capital Corp., Nascent Water Technologies, Inc. and the Regents of the University of California* (1)
     
10.34   Redacted Amendment No. 1 to Letter of Intent dated September 10, 2010, between Nascent Water Technologies, Inc. and the Regents of the University of California* (1)
     
10.35   Redacted Amendment No. 2 to Letter of Intent dated December 7, 2010, between Nascent Water Technologies, Inc. and the Regents of the University of California* (1)
10.36   Redacted Amendment No. 3 to Letter of Intent dated May 5, 2011, between Nascent Water Technologies, Inc. and the Regents of the University of California* (1)
     
10.37   Redacted Research Agreement dated December 9, 2010, between Nascent Water Technologies, Inc. and the Regents of the University of California* (1)
     
10.38   Redacted Service Agreement dated July 7, 2011, between BluFlow Technologies, Inc. and Applied Power Concepts, Inc.* (1)
     
10.39   Redacted Exclusive License Agreement dated October 10, 2011, between BluFlow Technologies, Inc. and the Regents of the University of California* (1)
     
10.40   Rayat Settlement Agreement dated December 29, 2011*
     
10.41   Sidhu Settlement Agreement dated December 29, 2011*
     
10.42   S&C Settlement Agreement dated December 29, 2011*
     
10.43   At-Will Consulting Agreement dated December 29, 2011, between Ceres Ventures, Inc. and Meetesh Patel*
     
10.44   At-Will Consulting Agreement dated December 29, 2011, between Ceres Ventures, Inc. and Janet Bien*
     
10.45   Amendment No. 3 dated April 29, 2012, to the Promissory Note in the principal amount of $100,000 dated May 20, 2011, between Jeet Sidhu and PhytoMedical Technologies, Inc.+
     
21.1   List of Subsidiaries of Ceres Ventures, Inc.*

 

25
 

 

31.1   Certification of Principal Executive Officer Pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002+
     
31.2   Certification of Principal Financial Officer Pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002+
     
32.1   Certification of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002+
     
99.1   Ceres Ventures, Inc. 2011 Long-Term Incentive Plan*

  

 

 

* Previously filed

 

+ Filed herewith

 

(1) Portions of this exhibit have previously been redacted and separately filed with the Securities and Exchange Commission with a request for confidential treatment.

 

26
 

 

SIGNATURES

 

Pursuant to the requirements of Sections 13 or 15(d) of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

Ceres Ventures, Inc.
    (Registrant)
   
May 21, 2012 By /s/ Janet Bien
  Name: Janet Bien
  Title: Chief Financial Officer
  (Principal Financial Officer, and Principal Accounting Officer)

 

27

 

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