Attached files
| file | filename |
|---|---|
| EX-32.1 - CERTIFICATION - Cinnabar Ventures Inc | f10q0210ex32i_cinnabar.htm |
| EX-31.2 - CERTIFICATION - Cinnabar Ventures Inc | f10q0210ex31ii_cinnabar.htm |
| EX-32.2 - CERTIFICATION - Cinnabar Ventures Inc | f10q0210ex32ii_cinnabar.htm |
| EX-31.1 - CERTIFICATION - Cinnabar Ventures Inc | f10q0210ex31i_cinnabar.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
x QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the
quarterly period ended February 28,
2010
or
o TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
333-145443
Commission
File Number
Cinnabar
Ventures Inc.
(Exact
name of registrant as specified in its charter)
|
Nevada
|
98-0585450
|
|
|
(State
or other jurisdiction of
incorporation
or organization)
|
(I.R.S.
Employer Identification No.)
|
|
17595
S. Tamiami Trail, Suite 300
Fort
Myers, FL
|
33908
|
|
|
(Address
of principal executive offices)
|
(Zip
Code)
|
(239)
561-3827
(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
o
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Date 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 such shorter period that the
registrant was required to submit and post such
files). Yes
o No
o
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 o
Accelerated Filer o
Non-accelerated
filer o 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 o No x
As of
February 28, 2010, there were 20,220,000 shares outstanding of the
Company’s common stock.
PART
I – FINANCIAL INFORMATION
Item
1. Financial Statements.
CINNABAR
VENTURES, INC.
FINANCIAL
STATEMENTS
FEBRUARY
28, 2010
(UNAUDITED)
| Page(s) | |
| Financial Statements: | |
| Balance
Sheets as of February 28, 2010 (Unaudited) and
May
31, 2009 (Audited)
|
1 |
| Statements
of Operations for the Three and Nine Months Ended
February
28, 2010 and 2009, and For the Period from May 24, 2006
(Inception)
to
February 28, 2010 (Unaudited)
|
2 |
| Statements
of Cash Flows for the Nine Months Ended
February
28, 2010 and 2009, and For the Period from May 24, 2006
(Inception)
to
February 28, 2010 (Unaudited)
|
3 |
| Notes to Financial Statements (Unaudited) | 4-13 |
See
accompanying notes to financial statements
-1-
|
(A
Development Stage Company)
|
||||||||||||||||||||
|
Combined Statements of
Operations
|
||||||||||||||||||||
|
(Unaudited)
|
||||||||||||||||||||
|
For
the Period from
May
24, 2006
|
||||||||||||||||||||
|
For
the Three Months Ended February 28,
|
For
the Nine Months Ended February 28,
|
(Inception)
to
February
28,
|
||||||||||||||||||
|
2010
|
2009
|
2010
|
2009
|
2010
|
||||||||||||||||
|
Revenues
|
$ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||
|
General
and administrative expenses
|
2,344,284 | 9,375 | 4,179,304 | 32,735 | 4,283,442 | |||||||||||||||
|
Net
loss
|
$ | (2,344,284 | ) | $ | (9,375 | ) | $ | (4,179,304 | ) | $ | (32,735 | ) | $ | (4,283,442 | ) | |||||
|
Net
loss per common share - basic and diluted
|
$ | (0.11 | ) | $ | (0.00 | ) | $ | (0.21 | ) | $ | (0.00 | ) | $ | (0.23 | ) | |||||
|
Weighted
average number of common shares outstanding
|
||||||||||||||||||||
|
during
the period - basic and diluted
|
20,881,573 | 19,020,000 | 19,774,706 | 19,020,000 | 18,879,956 | |||||||||||||||
See
accompanying notes to financial statements
-2-
|
Combined
Statements of Cash Flows
|
||||||||||||
|
(Unaudited)
|
||||||||||||
|
For
the Period from
|
||||||||||||
|
Nine
Months Ended February 28,
|
May
24, 2006 (Inception) to
February
28,
|
|||||||||||
|
2010
|
2009
|
2010
|
||||||||||
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
||||||||||||
|
Net
loss
|
$ | (4,179,304 | ) | $ | (27,060 | ) | (4,283,442 | ) | ||||
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
||||||||||||
|
Contributed
services - former related party
|
4,500 | - | 58,500 | |||||||||
|
Stock
based compensation
|
1,618,936 | - | 1,618,936 | |||||||||
|
Stock
issued for services
|
363,600 | 13,500 | 363,600 | |||||||||
|
Changes
in operating assets and liabilities:
|
||||||||||||
|
Prepaid
expenses
|
(21,640 | ) | - | (21,640 | ) | |||||||
|
Due
from related party
|
(11,024 | ) | - | (11,024 | ) | |||||||
|
Accounts
payable and accrued liabilities
|
59,149 | (1,627 | ) | 59,464 | ||||||||
|
Net
Cash Used in Operating Activities
|
(2,165,784 | ) | (15,187 | ) | (2,215,607 | ) | ||||||
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
||||||||||||
|
Deposits
- advances for Advanced Network Solutions, Inc. and US Metro
acquisitions
|
(150,000 | ) | - | (150,000 | ) | |||||||
|
Acquisition
of YIPPY, Inc.
|
2,250,000 | - | 2,250,000 | |||||||||
|
Net
Cash Provided By Investing Activities
|
2,100,000 | - | 2,100,000 | |||||||||
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
||||||||||||
|
Proceeds
from loan payable - former related party
|
72,761 | 12,950 | 30,594 | |||||||||
|
Proceeds
from loan payable - related party
|
- | - | 64,636 | |||||||||
|
Proceeds
from issuance of common stock
|
- | - | 27,400 | |||||||||
|
Exercised
stock options
|
750 | - | 750 | |||||||||
|
Contributed
capital - related party
|
33,000 | - | 33,000 | |||||||||
|
Net
Cash Provided by Financing Activities
|
106,511 | 12,950 | 156,380 | |||||||||
|
Net
Increase (Decrease) in Cash
|
40,727 | (2,237 | ) | 40,772 | ||||||||
|
Cash
- Beginning of Period
|
45 | 2,271 | - | |||||||||
|
Cash
- End of Period
|
$ | 40,772 | $ | 34 | $ | 40,772 | ||||||
|
SUPPLEMENTARY CASH FLOW
INFORMATION:
|
||||||||||||
|
Cash
paid during the period for:
|
||||||||||||
|
Income
taxes
|
$ | - | $ | - | $ | - | ||||||
|
Interest
|
$ | - | $ | - | $ | - | ||||||
|
SUPPLEMENTARY DISCLOSURE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES:
|
||||||||||||
|
Forgiveness
of debt - related party
|
$ | 30,594 | $ | - | $ | 30,594 | ||||||
See
accompanying notes to financial statements
-3-
Cinnabar
Ventures, Inc.
Notes
to Combined Financial Statements
February
28, 2010
(Unaudited)
Note 1 Basis of
Presentation
The
accompanying unaudited financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of America
and the rules and regulations of the United States Securities and Exchange
Commission for interim financial information with the instructions to Form 10-Q
and Article 10 of Regulation S-X. Accordingly, they do not include all the
information and footnotes necessary for a comprehensive presentation of
financial position, results of operations, or cash flows. It is management's
opinion, however, that all material adjustments (consisting of normal recurring
adjustments) have been made which are necessary for a fair financial statement
presentation. The results for the interim period are not necessarily indicative
of the results to be expected for the full year.
The
unaudited interim financial statements should be read in conjunction with the
Company’s Annual Report on Form 10-K, which contains the audited financial
statements and notes thereto, together with the Management’s Discussion and
Analysis, for the fiscal year ended May 31, 2009. The interim results
for the period ended February 28, 2010 are not necessarily indicative of the
results for the full fiscal year.
Note 2 Organization, Nature
of Operations and Summary of Significant Accounting Policies
The
Company was incorporated in the State of Nevada on May 24, 2006. The
Company never commenced any material operations. The Company is
seeking strategic acquisitions and intends to continue its operations based upon
a yet to be determined business model. The Company’s year end is May
31.
Development
Stage
The
Company's financial statements are presented as those of a development stage
enterprise. Activities during the development stage primarily include equity
based financing and further implementation of the business plan. The Company has
not generated any revenues since inception.
Risks
and Uncertainties
The
Company's operations are subject to significant risk and uncertainties including
financial, operational, technological, and regulatory risks including the
potential risk of business failure.
Also see
Note 3 regarding going concern matters.
-4-
Cinnabar
Ventures, Inc.
Notes
to Combined Financial Statements
February
28, 2010
(Unaudited)
Use
of Estimates
The
preparation of financial statements in conformity with U.S. generally accepted
accounting principles 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 and
the reported amounts of revenues and expenses during the reporting
period.
Making
estimates requires management to exercise significant judgment. It is at least
reasonably possible that the estimate of the effect of a condition, situation or
set of circumstances that existed at the date of the financial statements, which
management considered in formulating its estimate could change in the near term
due to one or more future confirming events. Accordingly, the actual results
could differ significantly from estimates.
Principles
of Combination
All
intercompany transactions are eliminated in combination.
Cash
and Cash Equivalents
The
Company considers all highly liquid instruments purchased with a maturity of
three months or less to be cash equivalents. There were no cash
equivalents at February 28, 2010 or May 31, 2009, respectively.
The
Company minimizes its credit risk associated with cash by periodically
evaluating the credit quality of its primary financial institution. The balance
at times may exceed federally insured limits. At February 28, 2010 and May 31,
2009, respectively, the balance did not exceed the federally insured
limit.
Fair
Value of Financial Instruments
The
carrying amounts of the Company’s short-term financial instruments, including
the Company’s current assets (exclusive of cash) and current liabilities,
approximate fair value due to the relatively short period to maturity for these
instruments.
Earnings
per Share
In
accordance with accounting guidance now codified as FASB ASC Topic 260, “Earnings per
Share,” basic earnings (loss) per share is computed by
dividing net income (loss) by weighted average number of shares of common stock
outstanding during each period. Diluted earnings (loss) per share is
computed by dividing net income (loss) by the weighted average number of shares
of common stock, common stock equivalents and potentially dilutive securities
outstanding during the period.
-5-
Cinnabar
Ventures, Inc.
Notes
to Combined Financial Statements
February
28, 2010
(Unaudited)
The
Company had the following potential common stock equivalents at February 28,
2010 and 2009:
|
2010
|
2009
|
|||||||
|
Options
|
550,000 | - | ||||||
|
The
options listed are only for exercisable stock options at the reporting
period.
|
||||||||
Since the
Company reflected a net loss in 2009 and 2008, respectively, the effect of
considering any common stock equivalents, if outstanding, would have been
anti-dilutive. A separate computation of diluted earnings (loss) per share is
not presented.
On
October 16, 2009, the Company effected a 3 for 1 forward stock
split. All share and per share amounts have been retroactively
restated.
Segment
Information
During
the fiscal years 2010 and 2009, respectively, the Company only operated in one
segment; therefore, segment information has not been presented.
Share
Based Payments
Generally,
all forms of share-based payments, including stock option grants, restricted
stock grants and stock appreciation rights, are measured at their fair value on
the awards’ grant date, and based on the estimated number of awards that are
ultimately expected to vest. Share-based payment awards issued to non-employees
for services rendered are recorded at either the fair value of the services
rendered or the fair value of the share-based payment, whichever is more readily
determinable. The expense resulting from share-based payments are recorded as a
component of general and administrative expense.
Recent Accounting
Pronouncements
In
April 2009, the FASB issued guidance now codified as FASB ASC Topic 820,
“Fair Value Measurements and
Disclosures,” which amends previous guidance to require disclosures about
fair value of financial instruments in interim as well as annual financial
statements in the current economic environment. This pronouncement was effective
for periods ending after June 15, 2009. The adoption of this pronouncement
did not have a material impact on the Company’s business, financial condition or
results of operations; however, these provisions of FASB ASC Topic 820 resulted
in additional disclosures with respect to the fair value of the Company’s
financial instruments.
-6-
Cinnabar
Ventures, Inc.
Notes
to Combined Financial Statements
February
28, 2010
(Unaudited)
In
May 2009, the FASB issued guidance now codified as FASB ASC Topic 855,
“Subsequent Events,”
which establishes general standards of accounting for, and disclosures of,
events that occur after the balance sheet date but before financial statements
are issued or are available to be issued. This pronouncement was effective for
interim or fiscal periods ending after June 15, 2009. The adoption of this
pronouncement did not have a material impact on the Company’s business, results
of operations or financial position; however, the provisions of FASB ASC Topic
855 resulted in additional disclosures with respect to subsequent
events.
In
June 2009, the Financial Accounting Standards Board (FASB) issued guidance
now codified as FASB Accounting Standards Codification (ASC) Topic 105, “Generally Accepted Accounting
Principles,” as the single source of authoritative non-governmental U.S.
GAAP. FASB ASC Topic 105 does not change current U.S. GAAP, but is intended to
simplify user access to all authoritative U.S. GAAP by providing all
authoritative literature related to a particular topic in one place. All
existing accounting standard documents will be superseded and all other
accounting literature not included in the FASB Codification will be considered
non-authoritative. These provisions of FASB ASC Topic 105 were effective for
interim and annual periods ending after September 15, 2009 and,
accordingly, were effective for the Company for the current fiscal reporting
period. The adoption of this pronouncement did not have an impact on the
Company’s business, financial condition or results of operations, but will
impact the Company’s financial reporting process by eliminating all references
to pre-codification standards. On the effective date of FASB ASC Topic 105, the
Codification superseded all then-existing non-SEC accounting and reporting
standards, and all other non-grandfathered non-SEC accounting literature not
included in the Codification became non-authoritative.
In
January 2010, the Financial Accounting Standards Board ("FASB") issued updated
guidance to amend the disclosure requirements related to recurring and
nonrecurring fair value measurements. This update requires new disclosures on
significant transfers of assets and liabilities between Level 1 and
Level 2 of the fair value hierarchy (including the reasons for these
transfers) and the reasons for any transfers in or out of Level 3. This
update also requires a reconciliation of recurring Level 3 measurements
about purchases, sales, issuances and settlements on a gross basis. In addition
to these new disclosure requirements, this update clarifies certain existing
disclosure requirements. For example, this update clarifies that reporting
entities are required to provide fair value measurement disclosures for each
class of assets and liabilities rather than each major category of assets and
liabilities. This update also clarifies the requirement for entities to disclose
information about both the valuation techniques and inputs used in estimating
Level 2 and Level 3 fair value measurements. This update will become
effective for the Company with the interim and annual reporting period beginning
January 1, 2010, except for the requirement to provide the Level 3
activity of purchases, sales, issuances, and settlements on a gross basis, which
will become effective for the Company with the interim and annual reporting
period beginning January 1, 2011. The Company will not be required to
provide the amended disclosures for any previous periods presented for
comparative purposes. Other than requiring additional disclosures, adoption of
this update will not have a material effect on the Company's consolidated
financial statements.
-7-
Cinnabar
Ventures, Inc.
Notes
to Combined Financial Statements
February
28, 2010
(Unaudited)
Reclassifications
Certain
amounts in the fiscal year 2009 financial statements have been reclassified to
conform to the fiscal year 2010 presentation. The results of these
reclassifications did not materially affect financial position, results of
operations or cash flows.
Note 3 Going
Concern
As
reflected in the accompanying financial statements, the Company has a net loss
of $4,179,304 and net cash used in operations of $2,165,784 for the nine months
ended February 28, 2010.
The
Company may seek additional funds to finance its immediate and long-term
operations through debt and/or equity financing. The successful outcome of
future financing activities cannot be determined at this time and there is no
assurance that if achieved, the Company will have sufficient funds to execute
its intended business plan or generate positive operating results.
These
factors, among others, raise doubt about the Company’s ability to continue as a
going concern. The accompanying financial statements do not include any
adjustments related to recoverability and classification of asset carrying
amounts or the amount and classification of liabilities that might result should
the Company be unable to continue as a going concern.
In
response to these problems, management has taken the following
actions:
|
·
|
the
Company is searching for an operating business to execute a merger with
and develop new operating goals; in connection with this approach, the
Company acquired Yippy, Inc. on January 26, 2010 and Advanced Network
Solutions, Inc. on March 4, 2010;
and
|
|
·
|
the
Company is seeking third party
financing.
|
-8-
Cinnabar
Ventures, Inc.
Notes
to Combined Financial Statements
February
28, 2010
(Unaudited)
Note 4 Fair
Value
The
Company has categorized its assets and liabilities recorded at fair value based
upon the fair value hierarchy specified by GAAP.
The
levels of fair value hierarchy are as follows:
|
|
·
|
Level
1 inputs utilize unadjusted quoted prices in active markets for identical
assets or liabilities that the Company has the ability to
access;
|
|
|
·
|
Level
2 inputs utilize other-than-quoted prices that are observable, either
directly or indirectly. Level 2 inputs include quoted prices for similar
assets and liabilities in active markets, and inputs such as interest
rates and yield curves that are observable at commonly quoted intervals;
and
|
|
|
·
|
Level
3 inputs are unobservable and are typically based on our own assumptions,
including situations where there is little, if any, market
activity.
|
In
certain cases, the inputs used to measure fair value may fall into different
levels of the fair value hierarchy. In such cases, the Company categorizes such
financial asset or liability based on the lowest level input that is significant
to the fair value measurement in its entirety. Our assessment of the
significance of a particular input to the fair value measurement in its entirety
requires judgment and considers factors specific to the asset or
liability.
Both
observable and unobservable inputs may be used to determine the fair value of
positions that are classified within the Level 3 category. There were no
instruments requiring a fair value classification at February 28, 2010 or May
31, 2009.
Note 4 Commitments and
Contingencies
Litigations,
Claims and Assessments
From time
to time, the Company may become involved in various lawsuits and legal
proceedings, which arise in the ordinary course of business. However, litigation
is subject to inherent uncertainties, and an adverse result in these or other
matters may arise from time to time that may harm its business. At this time,
there are no pending lawsuits or legal proceedings.
-9-
Cinnabar
Ventures, Inc.
Notes
to Combined Financial Statements
February
28, 2010
(Unaudited)
Note 5 Loans Payable –
Related Party and Forgiveness
Period
Ended February 28, 2010
During
2010, the Company received advances totaling $34,761, from an affiliated entity.
The advances bear interest at 5%, unsecured and due on demand.
During
2010, the Company received advances from its Chief Executive Officer totaling
$29,875. The advances are non-interest bearing, unsecured and due on
demand.
On
September 22, 2009, the former director forgave all amounts previously advanced.
The Company recorded this debt forgiveness as a charge to additional paid in
capital totaling $30,594.
Period Ended February 28, 2009
During
2009, the Company received advances from a former director totaling
$12,950. The advances were non-interest bearing, unsecured and due on
demand.
Note 6 Stockholders’ Equity
(Deficit)
(A)
Common Stock Issuances
In May
2006, the Company issued 15,000,000 shares of common stock to its founders for
$5,000 ($0.0003/share).
In August
2006, the Company issued 720,000 shares of common stock for $2,400
($0.003/share).
In
September 2006, the Company issued 3,000,000 shares of common stock for $10,000
($0.003/share).
In
November 2006, the Company issued 300,000 shares of common stock for $10,000
($0.03/share).
On
October 14, 2009, the Company issued 825,000 shares of common stock to a
consultant, in exchange for services rendered, having a fair value of $46,750
($.056/share), based upon the quoted closing trading price.
On
December 5, 2009, the Company issued 96,000 shares of common stock to a
consultant, in exchange for services to be rendered over a period of one year,
having a fair value of $225,600 ($2.35/share), based upon the quoted closing
trading price.
-10-
Cinnabar
Ventures, Inc.
Notes
to Combined Financial Statements
February
28, 2010
(Unaudited)
On
December 18, 2009, the Company issued 75,000 shares of common stock in
connection with the exercise of stock options, for proceeds of $750 ($0.01 per
share).
On
December 31, 2009, the Company issued 25,000 shares of common stock to a
consultant, in exchange for services rendered, having a fair value of $91,250
($3.65/share), based upon the quoted closing trading price. Under the terms of
this agreement, the consultant will receive 25,000 shares of common stock each
on March 1, 2010, June 1, 2010 and September 1, 2010 (total of 100,000 shares
over life of agreement). The shares will be issued in advance of the
quarter for which services are to be provided. The valuation of these shares
will be determined at the grant date based upon the quoted closing trading
price.
On
January 26, 2010, the Company issued 2,340,000 shares of common stock for the
acquisition of YIPPY, Inc. (“Yippy”), a related entity under common control,
having a fair value of $2,340 ($0.001). See Note 7.
(B)
Contributed Services
For the
year ended May 31, 2007, the Company received contributed management services
and office space from a former director, having a fair value of
$18,000.
For the
year ended May 31, 2008, the Company received contributed management services
and office space from a former director, having a fair value of
$18,000.
For the
year ended May 31, 2009, the Company received contributed management services
and office space from a former director, having a fair value of
$18,000.
In 2010,
the Company received contributed services and office space from a former
director, having a fair value of $4,500.
(C)
Contributed Capital
During
November 2009, the Company’s Chief Executive Officer contributed
$23,000.
During
January 2010, the Company’s Chief Executive Officer contributed
$10,000.
(D)
Stock Options
On
October 14, 2009, the Company issued 75,000 stock options to a consultant for
services rendered. These options had a fair value of
$4,152. These options were fully vested and exercisable on the date
of grant. These options were exercised on December 18, 2009, and the Company
issued 75,000 shares of common stock for $750.
-11-
Cinnabar
Ventures, Inc.
Notes
to Combined Financial Statements
February
28, 2010
(Unaudited)
On
January 18, 2010, the Company issued 460,000 stock options to the President and
Chief Operating Officer (“COO”) as a signing bonus under the terms of an
employment agreement. These options had a fair value of $1,380,000 on the date
of grant. As part of the agreement, 300,000 options to purchase
common stock are fully vested upon grant.160,000 options to purchase common
stock are to be vested in equal amounts of 40,000 shares per year over the four
years following the first year of employment with the Company. The fair value of
these services will be amortized over a five year period to correlate to the
requisite service period.
On
February 15, 2010, the Company issued 150,000 stock options to the
Vice-President as a signing bonus under the terms of an employment agreement.
These options had a fair value of $390,000 on the date of grant. All
options are fully vested upon grant.
On
February 19, 2010, the Company issued 100,000 stock options to a Director for
services rendered. These options had a fair value of $314,000 on the
date of grant.
The
Company determined the fair of the options granted during fiscal year 2010,
based upon the following management assumptions:
|
Risk-free
interest rate
|
0.70%
- 0.95%
|
|
Expected
dividend yield
|
0%
|
|
Expected
volatility
|
616%
- 617%
|
|
Expected
life
|
90
– 730 days
|
|
Expected
forfeitures
|
0%
|
The
Company records stock based compensation based upon the stated vested provisions
in the related agreements, with recognition of expense recorded on the straight
line basis over the term of the related agreement. The vesting
provisions for these agreements have various terms as follows:
|
·
|
immediate
vesting
|
|
·
|
vesting
over four years following first year of
employment
|
-12-
Cinnabar
Ventures, Inc.
Notes
to Combined Financial Statements
February
28, 2010
(Unaudited)
The
following is a summary of the Company’s stock option activity:
|
Options
|
Weighted Average Exercise
Price
|
Weighted Average Remaining Contractual
Life
|
Aggregate Intrinsic Value
|
|||||||||||||
|
Outstanding
– May 31, 2009
|
- | $ | - | - | - | |||||||||||
|
Granted
|
785,000 | 2.92 | - | - | ||||||||||||
|
Exercised
|
(75,000 | ) | 0.06 | - | - | |||||||||||
|
Forfeited
|
- | - | - | - | ||||||||||||
|
Outstanding
– February 28, 2010
|
710,000 | $ | 2.94 |
2.68 years
|
$ | 280,300 | ||||||||||
|
Exercisable
– February 28, 2010
|
550,000 | $ | 2.92 |
1.94 years
|
$ | 227,500 | ||||||||||
The
weighted-average grant date fair value of options granted and exercisable during
2010 was $2.65/share and $2.57/share, respectively. Total compensation cost
recognized for the three and nine months ended February 28, 2010 for stock
options granted amounted to $1,614,784 and $1,618,936, respectively. Total
unamortized compensation expense related to stock options at February 28, 2010
amounted to $469,216.
Note 7 Merger of Entities
Under Common Control and Due from Affiliate
The
Company acquired on January 26, 2010. The transaction was treated as
the combination of entities under common control, similar to a pooling of
interests. Fair value accounting is not applicable in this
transaction. Yippy is considered an entity under common control since the Chief
Executive Officer and controlling shareholder of both entities is the same
individual. All historical financial information is presented as
combined since the date common control was established for both entities. Common
control was established in October 2009.
On
October 7, 2009, the Company issued 200,000 shares of common stock for $500,000
($2.50/share), to its founder.
On
October 7, 2009, the Company issued 700,000 shares of common stock, having a
fair value of $1,750,000 ($2.50/share), to its founders for services rendered,
based upon the recent cash offering price.
The par
value of these equity issuances is eliminated in combination.
Cinnabar
Ventures, Inc.
Notes
to Combined Financial Statements
February
28, 2010
(Unaudited)
Note 8
Commitments
In
December 2009, the Company entered into a one year (1) consulting agreement a
consultant, to serve as public relations counsel for the Company. Pursuant
to the agreement, the Company will pay a monthly cash fee of $5,000 and a $500
Media administration out of pocket fee. Additionally, the Company will
issue 25,000 shares of common stock payable quarterly in advance for a one year
(1) period totaling 100,000 shares. Delivery of the first quarterly
installment will on or before December 31, 2009. The Company is currently
disputing this agreement and its terms due to non performance.
In
December 2009, the Company entered into a one year (1) consulting agreement with
a consultant to facilitate the communication of information about the Company
and its business to investors and the public markets. Pursuant to the
agreement, the Company will pay a monthly cash fee of $6,000, the first month in
advance. Additionally, the Company will issue 96,000 shares of common
stock vesting quarterly. The Company is currently disputing this agreement and
its terms due to non performance.
In
January 2010, the Company entered into a five-year employment agreement with its
President and Chief Operating Officer (“COO”). Pursuant to the Employment
Agreement, this individual will be entitled to an annual base salary of $350,000
for the first year and $600,000 per year for years 2 thru 5 of employment.
In addition to his base salary, he will also be given a monthly allowance of
$2,000, a monthly expense reimbursement of $2,500, a quarterly revenue bonus
equal to one-half percent (0.5%) of Company revenue, and a signing bonus.
Signing bonus consists of 460,000 options to purchase common stock at a strike
of one cent ($0.01). Of these options, 300,000 vested immediately upon
grant and the remainder will be vested in equal amounts of 40,000 shares per
year over the four years following the first year of employment with the
Company. In addition to the base salary and signing bonus, the
Company shall issue 100,000 shares of common stock on each one (1) year
anniversary while employed with the Company.
In
February 2010, the Company entered into a five-year employment agreement with
its Vice-President and General Manager. Pursuant to the Employment
Agreement, this individual will be entitled to an annual base salary according
to the following schedule: (i) Year 1 of employment: $200,000; (ii) Year 2 of
employment $300,000; (iii) Year 3 of employment $350,000; (iiii) Years 4 and 5
of employment $400,000. In addition to his base salary, he will also be
given a monthly allowance of $1,000, a monthly expense reimbursement of $2,500,
a quarterly revenue bonus equal to one percent (1.0%) of Network Services
Divisions revenue, and a signing bonus. Signing bonus consists of 150,000
options to purchase common stock at a strike of one cent ($0.01), to be fully
vested immediately upon grant. In addition to the base salary and signing
bonus, the Company shall issue 100,000 shares of common stock on each one (1)
year anniversary while employed with the Company.
Note 9 Subsequent
Events
The
Company has evaluated for subsequent events between the balance sheet date of
February 28, 2010 and April 19, 2010, the date the financial statements were
issued.
On March
2, 2010, the Company issued 150,000 shares of common stock, having a fair value
of $502,500 ($3.35 per share), based on the quoted closing trading price and a
payment of $25,000 cash for the acquisition of Advanced Network Solutions, Inc.
The Company has filed the related pro forma financial information on Form
8K. As a result of this acquisition, the Company will still remain as
entities under common control.
During
March 2010, the Company received advances totaling $5,960, from an affiliated
entity. The advances bear interest at 5%, is unsecured and due on
demand.
-14-
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of
Operations.
Forward-Looking
Information
You
should read the following discussion and analysis of our financial condition and
plan of operations together with our financial statements and related notes
appearing elsewhere in this Quarterly Report. Various statements have been made
in this Quarterly Report on Form 10-Q that may constitute “forward-looking
statements.” Forward-looking statements may also be made in Cinnabar’s other
reports filed with or furnished to the United States Securities and Exchange
Commission (the “Commission”) and in
other documents. In addition, from time to time, Cinnabar, through its
management, may make oral forward-looking statements. Forward-looking statements
are subject to risks and uncertainties, which could cause actual results to
differ materially from such statements. The words “believe,” “expect,”
“anticipate,” “optimistic,” “intend,” “plan,” “aim,” “will,” “may,” “should,”
“could,” “would,” “likely” and similar expressions are intended to identify
forward-looking statements. Readers are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of the date on which they
are made. Cinnabar undertakes no obligation to update or revise any
forward-looking statements.
Plan
of Operation
Our
primary business encompasses multiple activities culminating in the design,
development, deployment and provisioning of cloud computing solutions enabled
through an applications services environment that has been fully developed and
integrated by the company. This applications services
environment includes software applications, entertainment content, advertising,
datacenter infrastructure, and client support for our business that is focused
initially on the family and youth market. Paramount to this focus is that we
provide a safe, secure, and respectful internet that is largely devoid of the
content not appropriate for our target users (families and their
children). As such it is our intent to actively filter such
content.
Our
current geographic focus is in North America, specifically our home market of
Southwest Florida. Over time we see a clear market opportunity to
leverage the needs of the family market directly into the business to business
market. Through the reporting period we successfully deployed a beta version of
our applications environment and performed extensive testing and field trial
reviews in order to ensure initial release of our production version in March of
2010.
Through
the reporting period, the Company announced and executed upon several major
acquisitions in terms of both human talent and business capability that will be
critical to the operation on a go forward basis.
Talent
Acquisitions
In the
reporting period the Company announced the appointment of Richard Lisa as
President and Chief Operating Officer and a member of the Board of
Directors. Lisa is a 30 year veteran of the technology
marketing including recent assignments that had him directly involved in the
development of major web search, e-commerce, and social networking properties
relevant to the business of Cinnabar. Mr. Lisa joins Richard
Granville, Chairman and CEO as the leaders of the Company. The
Company also hired Bruno Pasquali as SVP, Data Business Sales and Marketing
reporting to Mr. Lisa. Mr. Pasquali is a tenured professional in the
communications industry supporting deployments for data and network services
over an established fiber infrastructure. His experience and
industry relationships will serve Cinnabar well in helping growing its revenue
leveraging existing corporate agreements.
Company
Acquisitions
Yippy,
Inc. is a software company whose properties include a cloud based applications
services environment, entertainment content including video, audio, and games,
and an integrated media advertising engine under the brand name
“Yippy”. Cinnabar announced its intention to acquire Yippy, Inc. and
its holdings in January. In addition to the assets mentioned above,
Yippy, Inc. also owns over 200 internet domains that are ready to be used as
commercial sites or marketed for sales to potential
buyers. Included in these domains is the “Circuit Red” domain
that will be used to market business to business services in major markets
across North America and eventually worldwide. This acquisition was
completed in February and is pending completion of the full audit for inclusion
in this report.
-15-
Advanced
Network Solutions (ANS, dba Rent-A-Genius) is an IT consulting and Value Added
Reseller (VAR) of hardware and software products to largely commercial accounts
in the Southwest Florida market. The intended acquisition of this
business adds substantial human talent instrumental to the build out of the
Company IT systems and the end user production systems for the cloud based
solutions the company is bringing to market. In addition, ANS
brings forward initial revenue opportunities through its outside consulting
business and the resale, repair, and support for hardware and software products
marketed by the company. ANS is a licensed and approved VAR
currently holding contracts with NEC, HP, Microsoft, and Cisco to name but a few
of the relationships brought to bear by way of the this
acquisition. This acquisition was completed with a full audit as of
March 2nd,
2010.
Lastly we
announced our intention to acquire US Metropolitan Telecom LLC (US Metro) which
is a fiber based CLEC (Competitive Local Exchange Carrier) based in Bonita
Springs, FL. This company is full service carrier offering data,
telecommunications, and network services to the Lee, Collier, and Charlotte
counties in the area. They have direct connections over their
network to both the Tampa/St. Petersburg and Miami markets. Thus far
the companies have jointly signed a non-binding letter of intent to merge the
resources of the two companies.
Over the
reporting period, Cinnabar management has consistently indicated that high value
services incorporating streaming content (video, audio, conferencing, VoIP,
IPTV, and other like services) will be highly dependent on the network bandwidth
and the user support required provisioning them to the satisfaction of our
customers. As such, we have stated the position that a vertical
integration of capabilities such as those owned by Yippy, Inc, ANS, and US Metro
could be advantageous to all companies from a development, service quality,
support, and cost of operations standpoint. In return, each business
would have the opportunity to build their revenue opportunities around software
applications, services, and infrastructure that would help drive demand for the
individual capabilities of each business thus leading to new subscribers and
clients for their software, media, advertising, consulting, technical support,
telecom, data, and network services.
Leveraging
both our owned and anticipated resources, our planned deployments currently
focused in North America will include:
|
●
|
An
initial production release of the cloud based applications services
environment including such applications as audio and video players, games,
news, various user widgets, movies, videos, email, productivity suite,
storage, video conferencing, chat, and search. The datacenter
for this initial production release is to be housed in the US Metro
location in Bonita Springs, FL (Category 5, hardened facility) and
supported by resources acquired from ANS. At the
announcement of this report, this facility along with computing and
networking hardware is currently installed and fully
operational. We began accepting consumer users and
potential advertisers for our Yippy applications services on March 20,
2010 with substantial initial bandwidth for our
datacenter.
|
|
●
|
Initially
it is our plan to focus marketing and sales efforts for Cinnabar services
to the family and youth market in southwest Florida market. We
believe we can build strong synergies with target communities and
businesses as all of the companies we are rolling together are local to
the geography and have deep ties within the market. The
market offers in excess of 1 million potential consumers and in excess of
30 thousand businesses to which we can offer our integrated services to a
market that is underserved from a technology perspective (less than 1.4%
of the businesses in the market offer or support technology
solutions). It should be made clear that despite the fact
that we are focusing on Southwest Florida., we have the ability to accept
and support any users that have internet access
worldwide.
|
|
●
|
As
we establish ourselves as a reliable and consistent supplier of cloud
based network and computing services to the Southwest Florida market, we
intend to step our efforts out to multiple major metropolitan markets in
North America. We will establish content delivery nodes
(CDN’s) for Cinnabar solutions that will be built in cooperation with a
major carrier of fiber infrastructure with which the Company already has
established a multi-year contract. This will allow us to scale
our operations to address a national audience with more than sufficient
bandwidth and network resources ensure a high quality service no matter
the location of the users.
|
-16-
|
●
|
The
management team at Cinnabar strongly believe that the services we are
targeting at the youth and family market have significant value in the
business market as well. Business owners also want to provide a
safe, secure internet for workers that is devoid of unnecessary, wasteful,
or objectionable content. As such the Yippy software can be
fully customized (skinned) to the needs of a business
owner. Through customization only required applications and
internet resources are made available to the employees thus improving
productivity.
|
Cinnabar’s
capital requirement strategy for its planned business is as
follows:
|
●
|
Obtain
additional operating capital from joint venture partnerships, debt
financing or equity financing to fund our ongoing operations and the
continued development of our applications services environment and
datacenters in North America. Although the Company is in discussions with
potential financial and strategic sources of financing for
their planned initiatives no definitive agreements are in
place.
|
Results of
Operations
Three Months Ended February 28, 2010
Compared
to the Three Months Ended February 28, 2009
General
and Administrative Expenses
General
and Administrative Expenses were approximately $2,344,284 for the third quarter
of 2010, compared to $9,375 for the same period in 2009. The increase in general
and administrative costs is mainly due to the acquisition of additional
employees and full incorporation of the development and engineering resources of
the Company’s plan of operations.
Net
Loss
The
Company experienced a net loss of approximately $2,344,284 for the third quarter
of 2010, compared to $9,375 for the same period in 2009. The change
in net loss is mainly due to the acquisition of additional employees and full
incorporation of the development and engineering resources of the Company’s plan
of operations.
Nine
Months Ended February 28, 2010 Compared to the Nine Months Ended February 28,
2009
General
and Administrative Expenses
General
and Administrative Expenses were approximately $4,179,304 for the nine months
ended February 28, 2010, compared to $32,735 for the nine months ended February
28, 2009. The increase in general and administrative costs is mainly
due to the acquisition of additional employees and full incorporation of the
development and engineering resources of the Company’s plan of
operations.
Net
Loss
The
Company experienced a net loss of approximately $4,179,304 for the nine months
ended February 28, 2010, compared to $32,735 for the nine months ended February
28, 2009. The change in net loss is mainly due to the acquisition of
additional employees and full incorporation of the development and engineering
resources of the Company’s plan of operations.
-17-
Liquidity
and Capital Resources
As of
February 28, we had working capital of $99,337.
Net cash
used for operating activities for the nine months ended February 28, 2010
was $2,165,784 compared to $15,187 for the nine months ended February 28, 2009.
The Net loss for the nine months ended February 28, 2010, was $4,179,304
compared to 32,735 for the nine months ended February 28,
2009.
Net cash
obtained through all financing activities for the nine months ended
February 28, 2010 was $2,100,000 as compared to $-0- for the nine months ended
February 28, 2009.
Our
principal sources of liquidity consist of cash and cash
equivalents. To this point, we have funded our operations through
financing activities consisting primarily of private placements of debt and
equity securities with existing shareholders and outside investors. Our
principal use of funds has been for the further development of our software
solutions, acquisition of key talent, for capital expenditures in installing our
first production datacenter, and general corporate expenses. As of February
2010, we had cash and cash equivalents of $40,772. If necessary,
management has determined that general and administrative expenditures will be
reduced with measures such as a reduction of headcount, reducing employee
benefits and/or salary deferral, as needed.
We plan
to raise additional funds through joint venture partnerships, both project
equity and debt financings or through future sales of our common stock and
potentially restricted stock, until such time as our revenues are sufficient to
meet our cost structure, and ultimately achieve profitable
operations. Our consolidated financial statements do not include any
adjustments that might result from the outcome of these
uncertainties. If the Company is not successful in obtaining
additional, by the end of the September 2010, it may be limited in its
ability to further their development and/or design until additional proceeds are
received by the Company.
-18-
The
Company is currently in discussions with potential financial and strategic
sources of financing for the various business we have initiated but no
definitive agreements are in place at the time of this reporting.
Critical Accounting Policies
and Estimates
We have
identified critical accounting principles that affect our financial statements
by considering accounting policies that involve the most complex or subjective
decisions or assessments as well as considering newly adopted principals. They
are:
Use of
Estimates, Going Concern Consideration – The preparation of financial statements
in conformity with generally accepted accounting principles in the United States
of America 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 and the reported amounts
of revenue and expenses during the reporting period. Actual results could differ
from those estimates. Among the estimates we have made in the preparation of the
financial statements is an estimate of our projected revenues, expenses and cash
flows in making the disclosures about our liquidity in this report. As a
development stage company, many variables may affect our estimates of cash flows
that could materially alter our view of our liquidity and capital requirements
as our business develops. Our financial statements have been prepared
assuming we are a “going concern.” No adjustment has been made in the financial
statements which could result should we be unable to continue as a going
concern.
Share-Based
Compensation - US GAAP requires public companies to expense employee
share-based payments (including options, restricted stock units and performance
stock units) based on fair value. We must use our judgment to
determine key factors in determining the fair value of the share-based payment,
such as volatility, forfeiture rates and the expected term in which the award
will be outstanding.
-19-
Off-Balance Sheet
Arrangements
We do not
have any off-balance sheet arrangements, financings, or other relationships with
unconsolidated entities or other persons, also known as “special purpose
entities” (SPEs).
Item
3. Quantitative and Qualitative Disclosures About Market Risk.
We do not
hold any derivative instruments and do not engage in any hedging
activities.
Item
4T. Controls and Procedures.
(a) Evaluation of Disclosure Controls
and Procedures. Our Chief Executive Officer and Chief
Financial Officer evaluated the effectiveness of our disclosure controls and
procedures as of the end of the period covered by this report on Form 10-Q.
Based on that evaluation, our Chief Executive and Chief Financial Officer
concluded that our disclosure controls and procedures as of the end of the
period covered by this report were ineffective such that the information
required to be disclosed by us in reports filed under the Exchange Act is (i)
recorded, processed, summarized and reported within the time periods specified
in the Commission’s rules and forms and (ii) accumulated and communicated to our
Chief Executive Officer and Chief Financial Officer, as appropriate, to allow
timely decisions regarding disclosure. A controls system cannot provide absolute
assurance, however, that the objectives of the controls system are met, and no
evaluation of controls can provide absolute assurance that all control issues
and instances of fraud, if any, within a company have been
detected.
Our Chief
Executive Officer and Chief Financial Officer are responsible for
establishing and maintaining adequate internal control over financial reporting
(as defined in Rule 13a-15(f) under the Exchange Act). Our internal control over
financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with accounting
principles generally accepted in the United States.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Therefore, even those systems determined to be
effective can provide only reasonable assurance of achieving their control
objectives. Furthermore, smaller reporting companies face additional
limitations. Smaller reporting companies employ fewer individuals and find it
difficult to properly segregate duties. Often, one or two individuals control
every aspect of the Company’s operation and are in a position to override any
system of internal control. Additionally, smaller reporting companies tend to
utilize general accounting software packages that lack a rigorous set of
software controls.
Our Chief
Executive Officer and Chief Financial Officer evaluated the effectiveness of the
Company’s internal control over financial reporting as of February 28, 2010. In
making this assessment, our Chief Executive Officer and Chief Financial
Officer used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) in Internal Control - Integrated
Framework. Based on this evaluation, Our Chief Executive Officer and
Chief Financial Officer concluded that, as of February 28, 2010, our internal
control over financial reporting was effective.
(b) Changes in Internal
Control over Financial Reporting. There were no changes in
our internal control over financial reporting, as defined in Rules 13a-15(f) and
15d-15(f) under the Exchange Act, during our most recently completed fiscal
quarter that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
-20-
PART
II – OTHER INFORMATION
Item
1. Legal Proceedings.
We are
currently not involved in any litigation that we believe could have a material
adverse effect on our financial condition or results of operations. There is no
action, suit, proceeding, inquiry or investigation before or by any court,
public board, government agency, self-regulatory organization or body pending
or, to the knowledge of the executive officers of our company or any of our
subsidiaries, threatened against or affecting our company, our common stock, any
of our subsidiaries or of our companies or our subsidiaries’ officers or
directors in their capacities as such, in which an adverse decision could have a
material adverse effect.
Item
1A. Risk Factors.
We
believe there are no changes that constitute material changes from the risk
factors previously disclosed in our Annual Report of Form 10-K for the year
ended May 31, 2009, filed with the Commission on July 15, 2009.
Item
2. Unregistered Sales of Equity Securities and Use of Proceeds.
On
January 26, 2010 (the “Yippy Agreement Date”), the Company acquired Yippy, Inc.
in accordance with a share exchange agreement (the “Yippy Share Exchange
Agreement”). Cinnabar acquired 100% of the Yippy common stock from the
Yippy shareholders. In exchange for the Yippy Common Stock, the
Company issued the shares of its common stock to the Yippy shareholders,
representing approximately 10.51% of the issued and outstanding Common Stock of
the Company as of the Yippy Agreement Date. As of February 28, 2010,
share certificates had not yet been issued to the Yippy
shareholders.
These
securities qualified for exemption under Section 4(2) of the Securities Act
since the transaction did not involve a public offering. The offering was not a
“public offering” as defined in Section 4(2) due to the insubstantial number of
persons involved in the deal, size of the offering, manner of the offering and
number of securities offered. We did not undertake an offering in which we sold
a high number of securities to a high number of investors. In addition, these
shareholders had the necessary investment intent as required by Section 4(2)
since they agreed to and received share certificates bearing a legend stating
that such securities are restricted pursuant to Rule 144 of the Securities Act.
This restriction ensures that these securities would not be immediately
redistributed into the market and therefore not be part of a “public offering.”
Based on an analysis of the above factors, we have met the requirements to
qualify for exemption under Section 4(2) of the Securities Act for this
transaction.
Item
3. Defaults Upon Senior Securities.
There
were no defaults upon senior securities during the period ended February 28,
2010.
Item
4. (Removed and Reserved).
Item
5. Other Information
There is
no other information required to be disclosed under this item that was not
previously disclosed.
Item
6. Exhibits.
|
Exhibit
Number
|
Description
of Document
|
|
|
31.1
|
Rule
13a-14(a) / 15d-14(a) Certification of Richard Granville, Principal
Executive Officer of the Company
|
|
|
31.2
|
Rule
13a-14(a) / 15d-14(a) Certification of Richard Granville, Principal
Financial Officer of the Company
|
|
|
32.1
|
Certification
Pursuant to 18 U.S.C. section 1350 of Richard Granville, Principal
Executive Officer of the Company
|
|
|
32.2
|
Certification
Pursuant to 18 U.S.C. section 1350 of Richard Granville, Principal
Financial Officer of the Company
|
-21-
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, as amended, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
|
CINNABAR
VENTURES INC.
|
||
|
Date:
April 19, 2010
|
By:
|
/s/
Richard Granville
|
|
Richard
Granville
Chief
Executive Officer
Chief
Financial Officer
|
||
-22-