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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 September 30, 2012

 

o          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 o 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 November 1, 2012, there were 85,501,557 shares of the registrant’s common stock outstanding.

 

 
 

 

TABLE OF CONTENTS

 

CERES VENTURES, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTER ENDED SEPTEMBER 30, 2012

 

PART I FINANCIAL INFORMATION
 
Item 1. Consolidated Financial Statements (Unaudited)
     
Consolidated Balance Sheets 3
     
Consolidated Statements of Operations 4
     
Consolidated Statements of Stockholders’ Deficit 5
     
Consolidated Statements of Cash Flows 6
     
Notes to Consolidated Financial Statements 7
     
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 16
     
Item 4. Controls and Procedures 20
     
PART II OTHER INFORMATION
 
Item 1. Legal Proceedings 21
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 21
     
Item 3. Defaults Upon Senior Securities 21
     
Item 5. Other Information 21
     
Item 6. Exhibits 21
     
PART IV    
     
SIGNATURES 24
   
CERTIFICATIONS  

 

2
 

 

PART I - FINANCIAL INFORMATION

 

CERES VENTURES, INC.

(A Development Stage Company)

 

CONSOLIDATED BALANCE SHEETS

 

 

   September 30, 2012  December 31, 2011
   (Unaudited)   
ASSETS          
Current assets          
Cash  $4,809   $113,937 
Prepaid expenses   1,916    - 
           
Total current assets   6,725    113,937 
           
Intangible assets   73,755    51,054 
Total assets  $80,480   $164,991 
           
LIABILITIES AND STOCKHOLDERS' DEFICIT          
Current liabilities          
Accounts payable  $125,537   $120,378 
Accounts payable - related party   118,215    290,242 
Convertible note payable   50,000    100,000 
Accrued interest on notes payable   7,756    5,240 
Accrued payroll liabilities   30,277    30,277 
Promissory note payable   12,000    - 
           
Total current liabilities   343,785    546,137 
           
Long term liabilities          
Promissory note payable   -    12,000 
Convertible note payable, net of unamoritized discount   138,477    - 
Accrued interest on notes payable   3,683    1,187 
           
Total liabilities   485,945    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: 85,501,557 and  85,031,557 shares issued and outstanding on September 30, 2012 and December 31, 2011, respectively   854    850 
Additional paid-in capital   553,946    227,273 
Deficit accumulated  during the development stage   (960,265)   (622,456)
Total stockholders' deficit   (405,465)   (394,333)
           
Total liabilities and stockholders' deficit  $80,480   $164,991 

 

See accompanying notes to the consolidated financial statements

 

3
 

 

CERES VENTURES, INC.

(A Development Stage Company)

 

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited) 

 

               For the Period from
               October 14, 2010
   For the Three Months Ended  For the Nine Months Ended  (Inception) through
   September 30, 2012  September 30, 2011  September 30, 2012  September 30, 2011  September 30, 2012
                
REVENUE  $-   $-   $-   $-   $- 
                          
COSTS AND OPERATING EXPENSES                         
Research and development   29,971    46,154    50,124    127,628    251,677 
Investor relations and marketing   12,345    13,694    23,095    17,866    43,398 
Director and management fees   35,807    36,420    107,818    95,599    246,028 
Professional fees   32,454    24,000    95,642    136,100    308,867 
Travel, office and facilities expenses   11,698    6,637    31,850    31,503    79,758 
Costs and operating expenses   122,275    126,905    308,529    408,696    929,728 
                          
LOSS FROM OPERATIONS   (122,275)   (126,905)   (308,529)   (408,696)   (929,728)
                          
OTHER EXPENSE                         
Interest expense   26,447    254    29,280    741    30,537 
Total other expense   26,447    254    29,280    741    30,537 
                          
LOSS BEFORE INCOME TAX   (148,722)   (127,159)   (337,809)   (409,437)   (960,265)
                          
INCOME TAX PROVISION   -    -    -    -    - 
                          
NET LOSS  $(148,722)  $(127,159)  $(337,809)  $(409,437)  $(960,265)
                          
NET LOSS PER COMMON SHARE                         
Basic and Diluted  $(0.00)  $(0.00)  $(0.00)  $(0.01)     
                          
Weighted Average Shares Outstanding   85,501,557    70,000,677    85,200,444    67,709,202      

 

See accompanying notes to the consolidated financial statements

 

4
 

 

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)
                          
Issuance of units at $0.20 per share on June 30, 2012   335,000    3    66,997    -    67,000 
Share based compensation   135,000    1    6,282    -    6,283 
Debt discount related to benenficial conversion feature and warrants   -    -    253,394    -    253,394 
Net loss   -    -    -    (337,809)   (337,809)
                          
Balance, September 30, 2012   85,501,557   $854   $553,946   $(960,265)  $(405,465)

 

See accompanying notes to the consolidated financial statements

 

5
 

 

CERES VENTURES, INC.

(A Development Stage Company)

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited) 

 

         For the Period from
         October 14, 2010
   For the Nine Months Ended  (Inception) through
   September 30, 2012  September 30, 2011  September 30, 2012
          
CASH FLOWS FROM OPERATING ACTIVITIES               
Net loss  $(337,809)  $(409,437)  $(960,265)
Adjustments to reconcile net loss to net cash used in operating activities               
Share based compensation   6,284    9,860    24,393 
Amortization of debt discount   21,182    -    21,182 
Changes in operating assets and liabilities:               
Prepaid expenses   (1,916)   -    (1,916)
Accounts payable   203,820    247,969    584,401 
Accrued interest   5,012    741    6,269 
Net cash used in operating activities   (103,427)   (150,867)   (325,936)
                
CASH FLOWS FROM INVESTING ACTIVITY               
Purchase of intangible assets   (22,701)   (11,638)   (73,755)
Net cash used in investing activity   (22,701)   (11,638)   (73,755)
                
CASH FLOWS FROM FINANCING ACTIVITIES               
Advances from investors   -    (99,000)   99,000 
Proceeds from issuance of promissory note payable   -    -    12,000 
Proceeds from issuance of common stock and warrants   67,000    295,500    343,500 
Repayment of convertible note payable   (50,000)   -    (50,000)
Net cash provided by financing activities   17,000    196,500    404,500 
                
NET CHANGE IN CASH   (109,128)   33,995    4,809 
                
CASH               
BEGINNING OF PERIOD   113,937    127,000    - 
END OF PERIOD  $4,809   $160,995   $4,809 
                
NON-CASH INVESTING AND FINANCING ACTIVITIES               
Liabilities assumed as part of reverse merger  $-   $-   $451,915 
Conversion of accounts payable to common stock  $-   $28,162   $118,845 
Conversion of convertible note to common stock  $-   $-   $167,585 
Conversion of accounts payable to note payable  $370,688   $-   $370,688 
Debt discount on notes payable  $253,394   $-   $253,394 
                
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION               
Interest paid  $3,086   $-   $- 
Income tax paid  $-   $-   $- 

 

See accompanying notes to the consolidated financial statements

 

6
 

 

CERES VENTURES, INC.

(A Development Stage Company)

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 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 stock split (the “Reverse Split”). The par value and total number of authorized shares were unaffected by the Reverse 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 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 pursuant to which BluFlow became a wholly-owned subsidiary of Ceres Ventures. The merger was 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 nine month period ended September 30, 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”).

 

Going Concern

 

As of September 30, 2012, the Company had cash of $4,809. 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 $337,060, reported an accumulated deficit of $960,265 as of September 30, 2012, and does not have positive cash flows from operating activities.

 

7
 

 

During the nine month period ended September 30, 2012, the Company raised $67,000 from the sale of its equity securities. 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, and/or sell rights to its BluFlow TM Treatment System, BluFlow TM Nanoparticles or BluFlow TM 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.

 

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.

 

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, approximate their fair value because of the short-term nature of these instruments and their liquidity. Due to conversion features and other terms, it is not practical to estimate the fair value of notes payable and convertible notes payable. 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 September 30, 2012 and December 31, 2011, the Company had no cash equivalents.

 

8
 

 

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 September 30, 2012, the Company had $73,755 of intangible assets on the Consolidated Balance Sheet representing the costs for a license agreement, patent usage rights and patent filing costs. 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.

 

The Company determined there was no impairment of long-lived assets for the period ended September 30, 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, 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 2. 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 the Company’s 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 the Company’s 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, the Company’s policy is to classify interest and penalties related to tax positions as interest expense. Since the Company’s inception, no such interest or penalties have been incurred.

 

Recently Issued and Adopted Accounting Pronouncements

 

Accounting Standards Update 2012-02: Intangibles - Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment

 

In July 2012, the FASB issued Accounting Standards Update ("ASU") 2012-02, "Intangibles - Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment," allowing entities to make a qualitative evaluation about the likelihood of impairment of an indefinite-lived intangible asset to determine whether the quantitative test is required, as opposed to required annual quantitative impairment testing. The update is effective for interim and annual impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted. The Company has elected to not adopt this guidance early. The implementation of this guidance is not expected to affect the Company's financial condition, results of operations, or cash flows.

 

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NOTE 2. 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 and nine month periods ended September 30, 2012 and 2011, excludes the following potentially dilutive securities because their inclusion would be anti-dilutive: 360,000 and nil, respectively of stock options; 6,750,000 and 4,582,500, respectively, of warrants outstanding; and 3,815,909 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  For the Nine Months Ended
   September 30, 2012  September 30, 2011  September 30, 2012  September 30, 2011
Numerator - net loss  $(148,722)  $(127,159)  $(337,809)  $(409,437)
                     
Denominator for basic loss per share - weighted average shares outstanding   85,501,557    70,000,677    85,200,444    67,709,202 
                     
Dilutive effective of common equivalent shares   -    -    -    - 
                     
Denominator for dilutive loss per share - adjusted weighted average shares outstanding   85,501,557    70,000,677    85,200,444    67,709,202 
                     
Net loss per share                    
Basic  $(0.00)  $(0.00)  $(0.00)  $(0.01)
Diluted  $(0.00)  $(0.00)  $(0.00)  $(0.01)

 

NOTE 3. SPONSORED RESEARCH AGREEMENT

 

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 BluFlow TM Treatment System, which incorporates the BluFlow TM Nanoparticles and BluFlow TM AUT, as well as research and development to determine additional applications for the BluFlow TM 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.

 

NOTE 4. 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 the Company’s 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, the Company 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. 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. At June 30, 2012, the Company did not have the cash on hand to pay the outstanding principal of $50,000 and accrued interest of $4,518. In accordance with the terms of the promissory note, the interest rate increased to 10% per annum beginning July 1, 2012.

 

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For the three and nine month ended September 30, 2012, the Company recorded $1,260 and $2,624 for interest expense related to this convertible note payable.

 

NOTE 5. CONVERTIBLE PROMISSORY NOTES

 

S&C Convertible Note

 

On June 30, 2012, the Company entered into a debt restructuring agreement (the “S&C Restructuring Agreement”) with Sierchio & Company, LLP (“S&C”), to restructure the $225,688 owed to S&C for legal services rendered to the Company from inception through June 30, 2012, and issued a convertible promissory note in the amount of $225,688 to S&C (the “S&C Convertible Note”). The S&C Convertible Note bears interest at the rate of 4% per annum, which interest is accrued and payable on the maturity date of the S&C Convertible Note, December 31, 2013. As long as the S&C 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 S&C 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 the Company’s common stock equal to the amount of the converted indebtedness divided by $0.10 per share. In the event of default, as defined in the S&C 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.

 

Pursuant to the terms of the S&C Restructuring Agreement, the Company issued S&C a Series E Stock Purchase Warrant (the “Series E Warrant”) allowing the holder to purchase up to 1,000,000 shares of the Company’s common stock at a purchase price of $0.10 per share through December 31, 2016. The Series E Warrant includes a “cashless exercise” provision.

 

Mr. Joseph Sierchio, a non-employee director and a major shareholder of the Company, is the managing partner of S&C.

 

The Company first allocated the fair value of the liability between the S&C Convertible Note and the Series E Warrants based upon their relative fair values. The estimated fair value of the Series E Warrants issued with the note of $97,869 was calculated using the Black-Scholes option pricing model and the following assumptions: market price of common stock - $0.10 per share; estimated volatility - 216.5%; risk free interest rate - 0.72%; expected dividend rate - 0% and expected life - 4.5 years. This resulted in allocating $68,266 to the Series E Warrants and $157,422 to the S&C Convertible Note.

 

The intrinsic value of the beneficial conversion feature was computed as the difference between the fair value of the common stock issuable upon conversion of the note and the total price to convert based on the effective conversion price. The calculated intrinsic value was $68,266. The resulting $68,266 discount to the note is being accreted over the 18 month term of the note using the effective interest method.

 

During the three and nine months ended September 30, 2012, the Company recognized $2,226 and $2,243, respectively, of interest expense related to this S&C Convertible Note and $11,370 and $11,412, respectively, of accretion related to the debt discount. The remaining debt discount of $125,120 will be amortized through December 31, 2013.

 

Strategic Convertible Note

 

On June 30, 2012, the Company entered into a debt restructuring agreement (the “Strategic Restructuring Agreement”) with Strategic Edge, LLC (“Strategic”), to restructure the $145,000 owed to Strategic for consulting services rendered to the Company from January 1, 2011 through June 30, 2012, and issued a convertible promissory note in the amount of $145,000 to Strategic (the “Strategic Convertible Note”). The Strategic Convertible Note bears interest at the rate of 4% per annum, which interest is accrued and payable on the maturity date of the Strategic Convertible Note, December 31, 2013. As long as the Strategic 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 Strategic 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 the Company’s common stock equal to the amount of the converted indebtedness divided by $0.10 per share. In the event of default, as defined in the Strategic 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.

 

Pursuant to the terms of the Strategic Restructuring Agreement, the Company issued Strategic a Series E Warrant allowing the holder to purchase up to 1,000,000 shares of the Company’s common stock at a purchase price of $0.10 per share through December 31, 2016. The Series E Warrant includes a “cashless exercise” provision.

 

Mr. Meetesh Patel, the Company’s President and Chief Executive Officer, an employee director and a major shareholder of the Company, is the sole shareholder of Strategic.

 

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The Company first allocated the fair value of the liability between the Strategic Convertible Note and the Series E Warrants based upon their relative fair values. The estimated fair value of the Series E Warrants issued with the Strategic Convertible Note of $97,869 was calculated using the Black-Scholes option pricing model and the following assumptions: market price of common stock - $0.10 per share; estimated volatility - 216.5%; risk free interest rate - 0.72%; expected dividend rate - 0% and expected life - 4.5 years. This resulted in allocating $58,431 to the Series E Warrants and $86,569 to the Strategic Convertible Note.

 

The intrinsic value of the beneficial conversion feature was computed as the difference between the fair value of the common stock issuable upon conversion of the Strategic Convertible Note and the total price to convert based on the effective conversion price. The calculated intrinsic value was $58,431. The resulting $58,431 discount to the Strategic Convertible Note is being accreted over the 18 month term of the Strategic Convertible Note using the effective interest method.

 

During the three and nine months ended September 30, 2012, the Company recognized $1,430 and $1,439, respectively, of interest expense related to the Strategic Convertible Note and $9,733 and $9,768, respectively, of accretion related to the debt discount. The remaining debt discount of $107,091 will be amortized through December 31, 2013.

 

NOTE 6. STOCKHOLDERS’ DEFICIT

 

Common Stock

 

From February through June 2012, the Company conducted a private placement of units of its securities at a purchase price or $0.20 per unit. 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 (the “Series D Warrants”). Each full Series D Warrant entitles the holder thereof to purchase one additional share of common stock at a price of $0.30 for a period commencing on the date of issuance and terminating on December 31, 2013. As of the termination date of the offering, the Company sold 335,000 units for gross proceeds of $67,000. The Company issued 335,000 shares of its common stock, and Series D Warrants to purchase up to 167,500 shares of common stock at an exercise price of $0.30 per share to the investors having subscribed for the units. The relative fair value of the warrants was not significant. This offering was conducted in reliance upon exemptions afforded to the Company by, but not limited to, the provisions of Section 4(2) of the 1933 Act and Regulation D as promulgated by the SEC under the 1933 Act.

 

Warrants

 

On December 29, 2011, the date of the merger, Ceres Ventures had Series B Stock Purchase Warrants (the “Series B Warrants”) outstanding to purchase 400,000 shares of common stock at an exercise price of $1.50 per share. All the Series B Warrants expired on May 19, 2012, unexercised.

 

As part of the November 2010 - May 2011 private placement, BluFlow issued a total of 4,582,500 Series C Warrants.

 

As part of the February - June 2012 private placement, Ceres Ventures issued a total of 167,500 Series D Warrants.

 

On June 30, 2012, pursuant to the terms of the S&C Restructuring Agreement and Strategic Restructuring Agreement, both as discussed further in “Note 5: Convertible Promissory Notes”, the Company issued to each of S&C and Strategic a Series E Warrant allowing each of the holders to purchase up to 1,000,000 shares of the Company’s common stock at a purchase price of $0.10 per share through December 31, 2016. The Series E Warrant includes a “cashless exercise” provision.

 

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:

 

   Series C Warrants  Series D Warrants  Series E Warrants
Number of warrants issued   4,582,500    167,500    2,000,000 
Exercise price  $0.16   $0.30   $0.10 
Black-Scholes option pricing model assumptions:               
Risk-free interest rate   0.60%   0.23%   0.72%
Expected term (in years)   1.8    1.6    4.5 
Expected volatility (*)   152.86%   267.38%   216.50%
Dividend per share  $0   $0   $0 
Expiration date   December 31, 2012    December 31, 2013    December 31, 2016 

 

* As a newly formed entity it is not practicable for it to estimate the expected volatility of its share price. The Company selected two comparable public companies listed on OTC Markets Group Inc. QB tier 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.

 

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The following table summarizes warrant activity during the nine months ended September 30, 2012:

 

   Number of Warrants  Weighted Average
Exercise Price per
Share
Outstanding at December 31, 2011   4,982,500   $0.27 
Expired   (400,000)  $1.50 
Granted   2,167,500   $0.12 
Outstanding at September 30, 2012   6,750,000   $0.15 

 

NOTE 7. SHARE 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 September 30, 2012, 9,505,000 shares remain available for issuance pursuant to the 2011 Plan.

 

The table below summarizes the Company’s stock option activities through September 30, 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 September 30, 2012   360,000   $0.083    8.77   $-
Exercisable at September 30, 2012   120,000   $0.083    8.77   $-

 

The Company recorded $870 ($261) and $1,966 ($261) in stock option compensation expense for the three and nine month period ended September 30, 2012 and 2011, respectively, as research and development expenses. An estimated $838 will be expensed over the remaining vesting period of 1 year.

 

Restricted Stock

 

The table below summarizes the Company’s restricted stock activities through September 30, 2012:

 

   Number of Restricted
Shares
  Weighted Average Grant
Date Fair Value
Nonvested at December 31, 2011   270,000   $0.033 
Granted   -      
Vested   (135,000)     
Cancelled or expired   -      
Nonvested at September 30, 2012   135,000   $0.033 

 

The Company recorded $1,696 ($3,133) and $4,318 ($9,599) in restricted stock compensation expense for the three and nine month periods ended September 30, 2012 and 2011, respectively. An estimated $5,081 will be expensed over the remaining vesting period of .69 years.

 

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NOTE 8. RELATED PARTY TRANSACTIONS

 

The Company was provided legal services by a law firm of which one of the Company’s directors and major shareholders is a managing partner. The Company recorded $24,000 ($112,100) and $72,000 ($136,100) for these services for the three and nine month periods ended September 30, 2012 and 2011, respectively.

 

On June 30, 2012, the Company entered into a debt restructuring agreement (the “S&C Restructuring Agreement”) with Sierchio & Company, LLP (“S&C”), to restructure the $225,688 owed to S&C for legal services rendered to the Company from inception through June 30, 2012, and issued a convertible promissory note in the amount of $225,688 to S&C (the “S&C Convertible Note”). The S&C Convertible Note bears interest at the rate of 4% per annum, which interest is accrued and payable on the maturity date of the S&C Convertible Note, December 31, 2013. For further details see “Note 5 - Convertible Promissory Notes”.

 

On June 30, 2012, the Company entered into a debt restructuring agreement (the “Strategic Restructuring Agreement”) with Strategic Edge, LLC (“Strategic”), to restructure the $145,000 owed to Strategic for consulting services rendered to the Company from January 1, 2011 through June 30, 2012, and issued a convertible promissory note in the amount of $145,000 to Strategic (the “Strategic Convertible Note”). The Strategic Convertible Note bears interest at the rate of 4% per annum, which interest is accrued and payable on the maturity date of the Strategic Convertible Note, December 31, 2013. For further details see “Note 5 - Convertible Promissory Notes”.

 

NOTE 9. 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 September 30, 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 .

 

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.

 

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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 BluFlow Treatment System TM .

 

Results of Operations

 

Three and Nine months Ended September 30, 2012 and 2011

 

Operating Expenses

 

Below is a summary of our operating expense for the three and nine months ended September 30, 2012 and 2011:

 

   For the Three Months Ended      
   September 30, 2012  September 30, 2011  $ Change  % Change
          
COSTS AND OPERATING EXPENSES                    
Research and development  $29,971   $46,154   $(16,183)   (35.1%)
Investor relations and marketing   12,345    13,694    (1,349)   (9.9%)
Director and management fees   35,807    36,420    (613)   (1.7%)
Professional fees   32,454    24,000    8,454    35.2%
Travel, office and facilities expenses   11,698    6,637    5,061    76.3%
Costs and operating expenses  $122,275   $126,905   $(4,630)   (3.6%)
OTHER EXPENSE                    
Interest expense   26,447    254    26,193    10,312.2%
NET LOSS  $148,722   $127,159   $21,563    17.0%
                     
   For the Nine Months Ended      
   September 30, 2012  September 30, 2011  $ Change  % Change
          
COSTS AND OPERATING EXPENSES                    
Research and development  $50,124   $127,628   $(77,504)   (60.7%)
Investor relations and marketing   23,095    17,866    5,229    29.3%
Director and management fees   107,818    95,599    12,219    12.8%
Professional fees   95,642    136,100    (40,458)   (29.7%)
Travel, office and facilities expenses   31,850    31,503    347    1.1%
Costs and operating expenses  $308,529   $408,696   $(100,167)   (24.5%)
OTHER EXPENSE                    
Interest expense   29,280    741    28,539    3,851.4%
NET LOSS  $337,809   $409,437   $(71,628)   (17.5%)

 

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

 

During the three and nine months ended September 30, 2012 and 2011, we had a net loss of $148,722, $337,809 and $127,159, $409,437, respectively; explanations for the changes are included below.

 

Research and Development:

 

The $16,183 and $77,504 decrease in research and development costs for the three and nine months ended September 30, 2012, compared to September 30, 2011, is primarily due to the Company managing cash flow.

 

Investor Relations and Marketing

 

The $5,229 increase in investor relations and marketing expenses for the nine months ended September 30, 2012 compared to the same period in 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 our payment for the distribution of press releases.

 

The $1,349 decrease in investor relations and marketing expenses for the three months ended September 30, 2012 compared to the same period in 2011 is due to timing of invoices.

 

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Director and Management Fees

 

The decrease of $613 and increase $12,219 in director and management fees during the three and nine months ended September 30, 2012, compared to September 30, 2011, is primarily due to hiring a chief financial officer and increasing the compensation of our president.

 

Professional Fees

 

The $8,454 increase in professional fees for the three months ended September 30, 2012 compared to the same period in 2011 is due to an increase in audit and review services as we are now a public company as a result of the completion of the December 29, 2011 Reverse Merger.

 

The $40,458 decrease in professional fees during the nine month period ended September 30, 2012 compared to the same period in 2011 is due primarily to decreased legal fees as a result of negotiating a flat monthly rate with our legal counsel.

 

Travel, Office and Facilities Expenses

 

The $5,061 and $347 increase in travel, office and facilities expenses for the three and nine months ended September 30, 2012, compared to September 30, 2011, is primarily due to increased state tax filing fees.

 

Interest Expense

 

The increase in interest expense of $26,193 and $28,539 the three and nine months ended September 30, 2012, compared to September 30, 2011, is primarily due to the amortization of the debt discount on the convertible loans entered into on June 30, 2012.

 

Liquidity and Capital Resources

 

We have incurred cumulative losses of $960,265 from inception through September 30, 2012, and do not have positive cash flows from operating activities. 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. 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 expand the range and scope of our business operations. 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.

 

Our principal source of liquidity is cash in the bank. At September 30, 2012, we had cash and cash equivalents of $4,809. We have financed our operations primarily from funds received pursuant to the BluFlow Offering and the Ceres Offering, as further described below.

 

Net cash used in operating activities was $103,427 for the nine months ended September 30, 2012, compared to $150,867 for the nine months ended September 30, 2011. The decrease in cash used in operating activities is further described above.

 

Ceres Offering

 

During 2012, we sold 335,000 units of our securities at a price of $0.20 per unit for gross receipts of $67,000. Each unit consisted of one share of common stock, $0.00001 par value per share and one-half of one Series D Stock Purchase Warrant (each a “ Series D Warrant ”). Each Series D Warrant entitled the holder to purchase one additional share of common stock at an exercise price of $0.30 per share, expiring on December 31, 2013. We issued 335,000 shares of common stock and Series D Warrants to purchase up to 167,500 shares of our common stock.

 

Convertible Notes Payable-

 

During 2012, we negotiated the conversion of accounts payable amounting to $370,688 into convertible notes payable which are due on December 31, 2013.

 

Sidhu Convertible Note

 

On May 20, 2011, we issued a one year convertible promissory note in the amount of $100,000 to Mr. Jeet Sidhu (the “ Sidhu Convertible Note ”), one of our 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.

 

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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 paid $50,000 of the outstanding balance (plus $3,086 of accrued and unpaid interest) of the Sidhu Convertible Note; on April 29, 2012, we amended the Sidhu Convertible Note so that the final payment is due on June 30, 2012. At June 30, 2012, the Company did not have the cash on hand to pay the outstanding principal of $50,000 and accrued interest of $4,518. In accordance with the terms of the promissory note, the interest rate increased to 10% per annum beginning July 1, 2012.

 

As of September 30, 2012, the Company had outstanding $5,778 in accrued interest on this note.

 

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.

 

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 September 30, 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) Changes in internal controls

 

There were no changes in our internal control over financial reporting during the three months ended September 30, 2012 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

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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 (1)
     
2.2   Certificate of Merger (1)
     
3.1   Amended and Restated Articles of Incorporation (2)
     
3.2   By Laws (2)
     
3.3   Certificate of Amendment to the Articles of Incorporation (3)
     
3.4   Certificate of Change (3)
     
4.1   Form of Subscription Agreement+
     
4.2   Form of Series B Stock Purchase Warrant (2)
     
4.3   Form of Series C Stock Purchase Warrant (1)
     
4.4   Form of Series D Stock Purchase Warrant+
     
4.5   Form of Series E Stock Purchase Warrant+
     
10.1   Restated 8.5% Convertible Promissory Note in the principal amount of $100,000 dated May 20, 2011, between J. Sidhu and PhytoMedical Technologies, Inc. (4)

 

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10.2   Amendment No. 1 dated July 14, 2011, to the Promissory Note in the principal amount of $100,000 dated May 20, 2011, between J. Sidhu and PhytoMedical Technologies, Inc. (5)
     
10.3   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. (1)
     
10.4   Redacted Letter of Intent dated May 11, 2010, between Appeal Capital Corp. and the Regents of the University of California (1) (6)
     
10.5   Redacted Asset Purchase Agreement dated October 20, 2010, between Appeal Capital Corp, and AcquaeBlu Corp. (1) (6)
     
10.6   8% Non-Negotiable Promissory Note dated October 20, 2010, in the original principal amount of $12,000 issued t0 Appeal Capital Corp. (1)
     
10.7   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) (6)
     
10.8   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) (6)
     
10.9   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) (6)
     
10.10   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) (6)
     
10.11   Redacted Research Agreement dated December 9, 2010, between Nascent Water Technologies, Inc. and the Regents of the University of California (1) (6))
     
10.12   Redacted Service Agreement dated July 7, 2011, between BluFlow Technologies, Inc. and Applied Power Concepts, Inc. (1) (6)
     
10.13   Redacted Exclusive License Agreement dated October 10, 2011, between BluFlow Technologies, Inc. and the Regents of the University of California (1) (6)
     
10.14   Rayat Settlement Agreement dated December 29, 2011 (1)
     
10.15   Sidhu Settlement Agreement dated December 29, 2011 (1) (6)
     
10.16   S&C Settlement Agreement dated December 29, 2011 (1) (6)
     
10.17   At-Will Consulting Agreement dated December 29, 2011, between Ceres Ventures, Inc. and Meetesh Patel (1)
     
10.18   At-Will Consulting Agreement dated December 29, 2011, between Ceres Ventures, Inc. and Janet Bien (1)
     
10.19   Debt Restructuring Agreement dated June 30, 2012, between Ceres Ventures, Inc. and Sierchio & Company, LLP
     
10.20   4% Non Negotiable Convertible Promissory Note dated June 30, 2012 in the principal amount of $223,537 dated June 30, 2012, between Sierchio & Company, LLP and Ceres Ventures, Inc.

 

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10.21   Debt Restructuring Agreement dated June 30, 2012, between Ceres Ventures, Inc. and Strategic Edge, LLC
     
10.22   4% Non Negotiable Convertible Promissory Note dated June 30, 2012 in the principal amount of $144,999.96 dated June 30, 2012, between Strategic Edge, LLC and Ceres Ventures, Inc.
     
21.1   List of Subsidiaries of Ceres Ventures, Inc. (1)
     
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 (1)
     
101.INS   Instance Document
     
101.SCH   Taxonomy Extension Schema
     
101.CAL   Taxonomy Extension Calculation Linkbase  
     
101.DEF   Taxonomy Extension Definition Linkbase
     
101.LAB   Taxonomy Extension Label Linkbase  
     
101.PRE   Taxonomy Extension Presentation Linkbase

 

 

+ Filed herewith

 

(1) Incorporated by reference to the Form 8-K filed by Ceres Ventures, Inc. on January 5, 2012.

 

(2) Incorporated by reference to the Form S-1/A filed by Ceres Ventures, Inc. on April 26, 2010.

 

(3) Incorporated by reference to the Form 8-K filed by Ceres Ventures, Inc. on November 29, 2011.

 

(4) Incorporated by reference to the Form 8-K filed by Ceres Ventures, Inc. on May 25, 2011.

 

(5) Incorporated by reference to the Form 8-K filed by Ceres Ventures, Inc. on July 18, 2011.

 

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

 

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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)
     
November 13, 2012 By /s/ Janet Bien
  Name: Janet Bien
  Title: Chief Financial Officer
  (Principal Financial Officer, and Principal Accounting Officer)

 

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