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EXCEL - IDEA: XBRL DOCUMENT - Cubed, Inc. | Financial_Report.xls |
EX-32.1 - CERTIFICATION - Cubed, Inc. | cubed_ex321.htm |
EX-32.2 - CERTIFICATION - Cubed, Inc. | cubed_ex322.htm |
EX-31.1 - CERTIFICATION - Cubed, Inc. | cubed_ex311.htm |
EX-31.2 - CERTIFICATION - Cubed, Inc. | cubed_ex312.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10 - Q
(Mark One)
[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended August 31, 2014
[ ]
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: 000-55234
Cubed, Inc.
(Exact name of registrant as specified in its charter)
Nevada (State or other jurisdiction of incorporation or organization) | 37-1603977 (I.R.S. Employer Identification No.) |
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830 S. 4th Street Las Vegas, NV (Address of principal executive offices) | 89101 (Zip Code) |
Registrants telephone number, including area code: (702) 868-4277
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 X 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 __ |
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Non-accelerated filer __ | Smaller reporting company X |
(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes __ No X
Applicable only to issuers involved in bankruptcy proceedings during the preceding five years:
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes __ No __
Applicable only to corporate issuers:
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date. As of October 15, 2014, there were 30,265,455 shares issued and outstanding of common stock, par value $0.001.
2
CUBED, INC.
TABLE OF CONTENTS
3
PART I - FINANCIAL INFORMATION
This Quarterly Report includes forward-looking statements within the meaning of the Securities Exchange Act of 1934 (the Exchange Act). These statements are based on managements beliefs and assumptions, and on information currently available to management. Forward-looking statements include the information concerning our possible or assumed future results of operations set forth under the heading Managements Discussion and Analysis of Financial Condition and Results of Operations. Forward - looking statements also include statements in which words such as expect, anticipate, intend, plan, believe, estimate, consider or similar expressions are used.
Forward-looking statements are not guarantees of future performance. They involve risks, uncertainties and assumptions. Our future results and shareholder values may differ materially from those expressed in these forward-looking statements. Readers are cautioned not to put undue reliance on any forward - looking statements.
4
ITEM 1 Financial Statements
5
CUBED, INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)
AS OF AUGUST 31, 2014 and NOVEMBER 30, 2013
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| August 31, |
| November 30, | ||
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| 2014 |
| 2013 | ||
ASSETS |
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Current assets: |
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Cash and equivalents |
| $ | 31,684 |
| $ | 1,484 |
Prepaid expense |
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| 35,000 |
|
| - |
Total current assets |
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| 66,684 |
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| 1,484 |
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Other assets: |
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Property, plant and equipment, net |
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| 18,304 |
|
| - |
Software development costs |
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| 632,940 |
|
| - |
Other receivable from related party |
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| 16,600 |
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| - |
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|
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Total assets |
| $ | 734,528 |
| $ | 1,484 |
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LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) |
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Current liabilities: |
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Accounts payable |
| $ | 46,284 |
| $ | - |
Accrued professional fees |
|
| 59,814 |
|
| 116,491 |
Accrued payroll |
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| 34,936 |
|
| - |
Total current liabilities |
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| 141,034 |
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| 116,491 |
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Total liabilities |
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| 141,034 |
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| 116,491 |
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Stockholders' Equity (Deficit): |
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Preferred stock, $0.001 par value, 10,000,000 shares |
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authorized, no shares issued and outstanding |
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as of August 31, 2014 and November 30, 2013, respectively |
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| - |
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| - |
Common stock, $0.001 par value, 90,000,000 shares |
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authorized, 29,965,455 and 29,370,000 shares issued and outstanding |
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as of August 31, 2014 and November 30, 2013, respectively |
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| 29,965 |
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| 29,370 |
Additional paid in capital |
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| 4,563,441 |
|
| 8,630 |
Accumulated deficit |
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| (3,999,912) |
|
| (153,007) |
Total stockholders' equity (deficit) |
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| 593,494 |
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| (115,007) |
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Total liabilities and stockholders' equity (deficit) |
| $ | 734,528 |
| $ | 1,484 |
See Accompanying Notes to Unaudited Consolidated Financial Statements.
6
CUBED, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
FOR THE THREE AND NINE MONTHS ENDED AUGUST 31, 2014 AND 2013
|
| For the |
| For the |
| For the |
| For the | ||||
|
| three months ended |
| three months ended |
| nine months ended |
| nine months ended | ||||
|
| August 31, |
| August 31, |
| August 31, |
| August 31, | ||||
|
| 2014 |
| 2013 |
| 2014 |
| 2013 | ||||
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Revenue |
| $ | 3,000 |
| $ | - |
| $ | 4,500 |
| $ | - |
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Operating expenses: |
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Software development |
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| 23 |
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| - |
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| 496,309 |
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| - |
Professional fees |
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| 435,075 |
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| 2,100 |
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| 691,029 |
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| 6,300 |
Salaries and wages |
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| 116,087 |
|
| - |
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| 191,427 |
|
| - |
Executive compensation |
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| 135,031 |
|
| - |
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| 195,448 |
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| - |
General and administrative |
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| 144,817 |
|
| - |
|
| 247,192 |
|
| 699 |
Total operating expenses |
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| 831,033 |
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| 2,100 |
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| 1,821,405 |
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| 6,999 |
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Operating Loss |
|
| (828,033) |
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| (2,100) |
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| (1,816,905) |
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| (6,999) |
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Other expenses: |
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Loss on attempted acquisitions |
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| (2,030,000) |
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| - |
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| (2,030,000) |
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| - |
Total other expense |
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| (2,030,000) |
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| - |
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| (2,030,000) |
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| - |
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Net loss |
| $ | (2,858,033) |
| $ | (2,100) |
| $ | (3,846,905) |
| $ | (6,999) |
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Weighted average number of common |
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| 28,904,694 |
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| 11,000,000 |
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| 28,455,643 |
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| 11,000,000 |
shares outstanding - basic and diluted |
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Net loss per share - basic and diluted |
| $ | (0.10) |
| $ | (0.00) |
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| (0.14) |
| $ | (0.00) |
See Accompanying Notes to Unaudited Consolidated Financial Statements.
7
CUBED, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
FOR THE NINE MONTHS ENDED AUGUST 31, 2014 AND 2013
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| For the |
| For the | ||
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| nine months ended |
| nine months ended | ||
|
| August 31, |
| August 31, | ||
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| 2014 |
| 2013 | ||
CASH FLOWS FROM OPERATING ACTIVITIES |
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Net loss |
| $ | (3,846,905) |
| $ | (6,999) |
Adjustments to reconcile net loss |
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to net cash used in operating activities: |
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Depreciation and amortization |
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| 1,434 |
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| - |
Shares issued for services |
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| 383,000 |
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| - |
Shares issued and debt assumed for acquired intellectual property |
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| 355,582 |
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| - |
Loss on shares issued for attempted acquisitions |
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| 1,200,000 |
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| - |
Changes in operating assets and liabilities: |
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(Increase) in prepaid expenses |
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| (35,000) |
|
| - |
Increase in accounts payable |
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| 46,284 |
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| - |
Increase (decrease) in accrued professional fees |
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| 75,147 |
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| (1,950) |
Increase in note payable - related party |
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| 300 |
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Increase in accrued payroll |
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| 34,936 |
|
| - |
Net cash used in operating activities |
|
| (1,785,222) |
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| (8,949) |
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CASH FLOWS FROM INVESTING ACTIVITIES |
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Purchase of property, plant and equipment |
|
| (19,738) |
|
| - |
Purchase of intangible assets |
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| (632,940) |
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| - |
Net cash used in investing activities |
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| (652,678) |
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| - |
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CASH FLOWS FROM FINANCING ACTIVITIES |
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Payments for notes payable - related party |
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| (222,900) |
|
| - |
Proceeds from sale of common stock |
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| 2,691,000 |
|
| - |
Net cash provided by financing activities |
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| 2,468,100 |
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| - |
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NET CHANGE IN CASH |
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| 30,200 |
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| (8,949) |
CASH AT BEGINNING OF PERIOD |
|
| 1,484 |
|
| 10,433 |
CASH AT END OF PERIOD |
| $ | 31,684 |
| $ | 1,484 |
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SUPPLEMENTAL INFORMATION: |
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Interest paid |
| $ | - |
| $ | - |
Income taxes paid |
| $ | - |
| $ | - |
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NON-CASH INVESTING AND FINANCING ACTIVITIES: |
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Shares issued for settlement of debt |
| $ | 144,000 |
| $ | - |
Cancellation of liability and equity from former management |
| $ | 131,824 |
| $ | - |
See Accompanying Notes to Unaudited Consolidated Financial Statements.
8
CUBED, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 2014
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
Cubed, Inc. (Formerly Northwest Resources, Inc., referred to herein as the Company) was incorporated in Nevada on May 21, 2010. The Company was originally a mining exploration company that had not realized any revenues from its operations as of February 28, 2014. As a result, on March 18, 2014, the Company changed its business plan, purchased certain Intellectual Property Assets (as described herein), transferred its mining assets to its former officer and changed its name to Cubed, Inc. and is now a development stage company instead of being an exploration stage company.
The company has limited operations and is considered to be in the development stage. In the quarter ended August 31, 2014, the Company has elected to early adopt Accounting Standards Update No. 2014-10, Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements. The adoption of this ASU allows the company to remove the inception to date information and all references to development stage.
Basis of Presentation
The accompanying unaudited interim consolidated financial statements of Cubed, Inc. have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission (SEC), and should be read in conjunction with the audited financial statements and notes thereto contained in the Companys registration statement filed with the SEC on Form 10-K. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for the consolidated financial statements to be not misleading have been reflected herein. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the consolidated financial statements which would substantially duplicate the disclosure contained in the audited financial statements for the most recent fiscal year 2013 as reported in Form 10-K, have been omitted.
Principles of Consolidation
These unaudited consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, Cubed Asia PTE. LTD. All inter- company balances and transactions have been eliminated.
Fair Value of Financial Instruments
The Companys financial instruments consist of cash, accrued professional fees, and accrued payroll. The carrying amount of these financial instruments approximates fair value due to either length of maturity or interest rates that approximate prevailing market rates unless otherwise disclosed in these consolidated financial statements.
9
CUBED, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 2014
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Property, Plant and Equipment
The Company records all property and equipment at cost less accumulated depreciation. Improvements are capitalized while repairs and maintenance costs are expensed as incurred. Depreciation is calculated using the straight-line method over the estimated useful life of the assets or the lease term, whichever is shorter. Leasehold improvements include the cost of the Companys internal development and construction department. Depreciation periods are as follows:
Leasehold Improvements | 5 years |
Computer Equipment | 3 years |
Furniture and Fixtures | 5 years |
During the nine months ended August 31, 2014 and 2013, the Company recognized $1,434 and $0 of depreciation expenses and paid $19,738 and $0 for acquisition of fixed assets, respectively.
Capitalized Software Development Costs
Capitalized software costs include costs incurred in connection with the development of software and purchased software. Capitalized costs associated with internally developed software are amortized over their estimated economic life utilizing the straight-line method.
The Company exercises significant judgment in determining that capitalized application software costs meet the criteria established in Financial Accounting Standards Board ("FASB") ASC 350-40, Internal-Use Software. Software production costs for computer software that is to be used as an integral part of a product or process shall not be capitalized until both (a) technological feasibility has been established for the software and (b) all research and development activities for the other components of the product or process have been completed.
During the nine months ended August 31, 2014, a total of $632,940 was capitalized as software development costs and was paid with cash.
Revenue Recognition
The Company has commenced operations, and it will recognize revenues when delivery of goods or completion of services has occurred provided there is persuasive evidence of an agreement, acceptance has been approved by its customers, the fee is fixed or determinable based on the completion of stated terms and conditions, and collection of any related receivable is probable.
Stock-Based Compensation
The Company accounts for employee stock-based compensation in accordance with the guidance of FASB ASC Topic 718, Compensation - Stock Compensation which requires all share-based payments to employees, including grants of employee stock options, to be recognized in the consolidated financial statements based on their fair values. The fair value of the equity instrument is charged directly to compensation expense and credited to additional paid-in capital over the period during which services are rendered. As of August 31, 2014, there was no stock-based compensation issued to employees.
10
CUBED, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 2014
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company follows ASC Topic 505-50, formerly EITF 96-18, Accounting for Equity Instruments that are Issued to Other than Employees for Acquiring, or in Conjunction with Selling Goods and Services, for stock options and warrants issued to consultants and other non-employees. In accordance with ASC Topic 505-50, these stock options and warrants issued as compensation for services provided to the Company are accounted for based upon the fair value of the services provided or the estimated fair market value of the option or warrant, whichever can be more clearly determined. During the nine months ended August 31, 2014, the Company issued 383,000 shares of common stock valued at $383,000.
Recent Accounting Pronouncements
Cubed does not expect the adoption of recently issued accounting pronouncements to have a significant impact on the Companys results of operations, financial position or cash flow.
NOTE 2 - GOING CONCERN
The Company has not generated any significant revenues, has negative working capital, and has suffered a loss from operations since inception. These factors create substantial doubt about the Companys ability to continue as a going concern. The consolidated financial statements do not include any adjustment that might be necessary if the Company is unable to continue as a going concern.
The ability of Cubed to continue as a going concern is dependent on the Company generating cash from the sale of its common stock and/or obtaining debt financing and attaining future profitable operations or acquiring or merging with a profitable company. Managements plans include selling its equity securities and obtaining debt financing to fund its capital requirements; however, there can be no assurance the Company will be successful in these efforts.
NOTE 3 - MINERAL PROPERTY
On June 22, 2010, the Company purchased a 100% interest in mining claim number 296945 located in the State of California, County of Plumas. The total purchase price of the claim was $6,500.
Due to the inability of the Company to raise the necessary capital to develop the mining claim, the mineral property asset was fully impaired at November 30, 2013.
During the nine months ended August 31, 2014, the Company distributed the mineral property for the cancellation of 6,360,000 shares of common stock and the assumption of liabilities totaling $131,824.
11
CUBED, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 2014
NOTE 4 - SOFTWARE DEVELOPMENT COSTS
On March 21, 2014, the Company entered into an Intellectual Property Purchase Agreement (the Purchase Agreement) with Crackpot Inc., a Nevada corporation (Crackpot), a related party.
Under the terms of the Purchase Agreement, the Company purchased Crackpots Get CUBED mobile-first platform and related intellectual property. The Get CUBED mobile-first platform is a cloud-based, three-dimensional functional cube that appears on the screens of mobile device owners, allowing developers and users to present complex and contextual concepts in a clear and simple manner.
The purchased intellectual property includes certain patents and trademarks applications and internet domain names as set forth in Schedules 1 and 2 of the Purchase Agreement and all improvements thereto now existing, or that Crackpot may later discover (collectively, the Intellectual Property).
The Company agreed to pay Crackpot in consideration for the Intellectual Property $350,000, payable in four (4) equal monthly payments commencing on April 15, 2014, and 2,537,455 shares of our common stock, to be issued and delivered within three business days of the date of execution of the Purchase Agreement. The Company is obligated to pay Crackpot ten percent (10%) of any gross revenues received from the Intellectual Property outside of the United States and its territories. Crackpot is a related party since the individual that owns and controls Crackpot is a shareholder of the Company and a family member of an officer and director. As of August 31, 2014, we have made payments totaling $350,000 of which $144,000 was paid by issuance of stock and $206,000 was paid by cash. The Company also made another $16,600 cash payment, which was an overpayment on the note and recorded as a receivable from related party. See note 5 for the valuation of the shares.
NOTE 5 - CAPITAL STOCK
Pursuant to the approval of a majority of our shareholders and our board of directors, we have changed our corporate name to Cubed, Inc. In addition, our board of directors has approved a forward split of our common stock on the basis of 2.67 shares for each share issued and outstanding (the Forward Split). Shares issuable as a result of the split were paid to shareholders as a share dividend. The forward split did not affect the number of authorized common shares or the par value of the Companys stock.
During the nine months ended August 31, 2014, the Company issued 2,537,455 shares of common stock and $350,000 promissory note in exchange for intellectual property purchased from a related party. The shares issued for intellectual property were valued at the last sale of common stock for cash at $0.002 per share since it was the most readily determinable.
During the nine months ended August 31, 2014, the Company sold 2,691,000 shares of common stock at $1 per share for cash proceeds of $2,691,000, 144,000 shares of common stock at $1 per share for settlement of debt and 383,000 shares of common stock at $1 per share for services. The shares issued for debt and services were valued at $1 since it was the most readily determinable based on the recent sale of common stock for cash at $1 per share during the same time period as the issuance of shares for debt and services.
12
CUBED, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 2014
NOTE 5 - CAPITAL STOCK (CONTINUED)
During the nine months ended August 31, 2014, the Company issued 1,200,000 shares of common stock at $1 per share for an attempted acquisition. The shares issued were valued at $1 per share since it was the most readily determinable based on the recent sale of common stock for cash at $1 per share during the same time period. Refer to Note 7.
During the nine months ended August 31, 2014, the former management cancelled 6,360,000 shares of common stock for the assumption of liabilities of $131,824 and for the distribution of the mineral property.
The Company had 29,965,455 and 29,370,000 shares of common stock issued and outstanding as of August 31, 2014 and November 30, 2013, respectively.
The Company has 10,000,000 shares of $0.001 par value preferred stock authorized. There were no preferred shares issued and outstanding as of August 31, 2014 and November 30, 2013.
As of August 31, 2014, the Company had no warrants or options outstanding.
NOTE 6 - COMMITMENTS AND CONTINGENCIES
The Company neither owns nor leases any real or personal property. An officer has provided office services without charge. There is no obligation for the officer to continue this arrangement. Such costs are immaterial to the consolidated financial statements and accordingly are not reflected herein. The officers and directors are involved in other business activities and most likely will become involved in other business activities.
Employment Agreement with Chief Operating Officer
The Company executed an Employment Agreement with Paul Turino, for the position of Chief Operating Officer, dated May 16, 2014 (the Agreement). Under the Agreement, Mr. Turino will earn a base salary of no less than $150,000 per year, subject to adjustment from time to time. In addition, Mr. Turino will be eligible to earn an annual performance bonus equal to fifty percent (50%) of his base salary, payable at the discretion of the board and based upon certain annual financial and individual performance goals to be established by the board. Finally, we have agreed to issue Mr. Turino options to purchase 1,000,000 shares of our common stock, with various pricing and vesting requirements. The options are subject to Mr. Turinos continued employment on the vesting date and various other terms and conditions. As of August 31, 2014, no options were granted to Mr. Turino since the exercise term has not been determined.
13
CUBED, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 2014
NOTE 6 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
Temporary Trading Suspension
On July 17, 2014, the Securities and Exchange Commission (the SEC) announced the temporary suspension, pursuant to Section 12(k) of the Securities Exchange Act of 1934, of trading in the Companys common stock. The temporary suspension ended on July 30, 2014. According to a press release from the SEC, they suspended trading in Cubed stock before [certain individuals] could dump their shares on the market and could illegally profit further in connection with an alleged pump-and-dump scheme. On the same day, the SEC charged five individuals in connection with their trading of the stock of four different companies, of which we were one. Neither we, nor any member of our former or present management, were charged.
On July 23, 2014, the Company issued a press release regarding recent indirect allegations and announced that the Company has hired Lowenstein Sandler LLP to conduct an internal investigation to determine whether the Company was a victim of conduct allegedly engaged in by individuals, including our former outside legal counsel, as set forth in an indictment filed in the Eastern District of New York on July 17, 2014, and in an SEC complaint filed on the same day.
NOTE 7 - MATERIAL AGREEMENTS
Acquisition of Pop Solutions, LLC dba Ping Mobile
On April 1, 2014, the Company entered into a Letter of Intent (LOI) with Pop Solutions, LLC dba Ping Mobile, a Delaware corporation (Ping). Under the LOI, the Company paid a deposit of $200,000 and the parties agree to enter into a definitive agreement on or before July 31, 2014. Since a definitive agreement was not entered into before July 31, 2014, the Company agreed to either execute a promissory note for Ping to repay the Company for the deposit of $200,000 or apply the funds toward the use of the Pings services at the normal billable rates. As of the date of this filing, the Company had not completed the acquisition. As the acquisition will not be completed and the collectability of the deposit is uncertain the Company recorded a loss on attempted acquisition of $200,000. (see Wiki discussion below for the remaining $1,830,000 recorded as loss on acquisition)
Acquisition of WikiTechnologies, Inc.
On May 22, 2014, the Company entered into a Share Exchange Agreement (the Agreement) with WikiTechnologies, Inc., a Delaware corporation (Wiki). Under the Agreement, subject to certain conditions, we will acquire all of the issued and outstanding common stock of Wiki in exchange for 1,200,000 newly issued shares of our common stock, together with a total payment of $1,500,000 in cash. Previously, as part of a Letter of Intent dated May 2, 2014, we paid Wiki $100,000 separately, in effect for a standstill and agreement to negotiate, which resulted in the Agreement reported herein.
14
CUBED, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 2014
NOTE 7 - MATERIAL AGREEMENTS (CONTINUED)
The Agreement was expected to close upon satisfaction of all conditions, no later than July 15, 2014. The $1,500,000 cash payment is due in three installments of $500,000 each due on: (i) the closing date (paid); (ii) July 31, 2014; and (iii) August 30, 2014. The Agreement is conditional upon, among other things, our ability to raise private equity financing in an amount not less than $1,500,000. In the event we have not raised sufficient funds by the closing date, we have the option to extend the second and third $500,000 payments for up to thirty (30) days, for each, by making non-refundable $20,000 payments to Wiki. The Company was unable to complete the acquisition. As the acquisition will not be completed and the collectability of the funds advanced or shares issued is uncertain the Company recorded a loss on attempted acquisition of $1,830,000, out of which $1,200,000 was from share issuance, and the remaining $630,000 was from cash payments.
Joint Venture with Small Screen Casinos, Ltd.
On May 30, 2014, the Company entered into a non-exclusive Joint Venture Agreement (the Agreement) with Small Screen Casinos Ltd. (Small Screen). The purpose of the joint venture with Small Screen is to develop and deploy freemium casino style games. A freemium game is one in which access to the game is provided free of charge, but money (a premium) is charged for proprietary features and/or functionality. Under the Agreement, we will provide our proprietary Cube platform together with marketing within our cube ecosystem. Small Screen will provide the games as well as marketing within its jurisdictions. We own 51% of the joint venture, and Small Screen owns 49%. Profits are to be allocated on a 50/50 basis. The joint venture shall continue until May 5, 2019 unless dissolved upon a prior sale or disposal. The foregoing is a summary of the material terms of the Agreement with Small Screen and not a complete description of its contents. The Joint Venture Agreement, which was previously filed, should be consulted for additional information. As of August 31, 2014, there are no sales or operations in the joint venture.
Agreement with Consultant
On May 27, 2014, the Company entered into an investor relations services agreement with an entity for a period of one year. As compensation for their services, the Company agreed to issue 18,000 shares of common stock which was due within 30 days of the execution of the agreement. Additionally, the Company agreed to a monthly payment of $3,500. The shares were issued on June 5, 2014.
Agreement with Esportclub, LLC
On May 30, 2014, we also entered into a General Contract for Services (the Contract) with Esportclub, LLC, dba the Sports Club, and its sister company, Nevada Sportsbook Select, LLC (collectively ESport). Under this Contract, we have agreed to provide ESport with the following services using our proprietary Cubed platform:
i.
Publishing of sports book odds to public subscribers the day of the sporting events. Revenue from paid subscribers will be split 50/50 with ESport after deduction of direct costs.
15
CUBED, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 2014
NOTE 7 - MATERIAL AGREEMENTS (CONTINUED)
ii.
Creation of Sports Action Bingo, which is a sports prediction contest using a bingo game format with a progressive jackpot. Revenue from subscribers will also be split 50/50 with ESport after deduction of direct costs. This game will initially be offered as a freemium game. The game will eventually become a cash gaming endeavor, which will require the prior approval of the Nevada Gaming Commission.
iii.
Exchange wagering on the Cubed platform using Nevada Sportsbooks patented technology. This will require the Nevada Gaming Commission to certify that we have geo-fenced access to the wagering platform so as to prevent wagering on the system from outside the State of Nevada. Upon regulatory approval, we will be paid a percentage of the gross wagering amount bet through the platform.
In exchange for our services, which have already been largely completed, ESport will pay us a total of $200,000, with $50,000 to be paid upon execution of the Contract, $100,000 to be paid within 60 days thereafter, and $50,000 to be paid upon approval by the Nevada Gaming Control Board. The Contract shall continue until cancelled by either party upon 90 days written notice. The foregoing is a summary of the material terms of the Contract with ESport and not a complete description of its contents. The Contract, which was previously filed, should be consulted for additional information.
During the nine months ended August 31, 2014, the Company recorded $0 of revenue as part of this agreement with Esportclub, LLC due to the uncertainty of its collectability.
NOTE 8 - SUBSEQUENT EVENTS
On October 9, 2014, the Company entered into a securities purchase agreement with a third party pursuant to which the Company issued an unsecured promissory note in the original principal amount of $50,000 (the Note), and issued 300,000 shares of the Companys common stock, for a purchase price of $50,000. The Note bears interest at 8% and must be repaid simultaneous with debt or equity funding by the Company of at least $75,000. Repayment shall include a repayment premium of 50% of the original principal amount. For as long as the Note remains outstanding, the holder has a right of first refusal to match the terms of any debt or equity financing.
* * *
16
ITEM 2 Managements Discussion and Analysis of Financial Condition and Results of Operations
Three and Nine Months Ended August 31, 2014 compared to the Three and Nine Months Ended August 31, 2013
Results of Operations
Revenue
Our revenue, operating expenses and net loss for the three and nine months ended August 31, 2014, compared to the three and nine months ended August 31, 2013, were as follows:
|
| Three Months Ended |
|
| Nine Months Ended | ||||||||||
|
| August 31, |
|
| August 31, |
|
| August 31, |
|
| August 31, | ||||
|
| 2014 |
|
| 2013 |
|
| 2014 |
|
| 2013 | ||||
|
|
|
|
|
|
|
|
|
|
|
| ||||
Revenue |
| $ | 3,000 |
|
| $ | - |
|
| $ | 4,500 |
|
| $ | - |
Operating expenses |
|
| 831,033 |
|
|
| 2,100 |
|
|
| 1,821,405 |
|
|
| 6,999 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
| $ | (2,858,033) |
|
| $ | (2,100) |
|
| $ | (3,846,905) |
|
| $ | (6,999) |
Our nominal revenue for the three months ended August 31, 2014 was derived from fees earned for consulting on the design and building of cubes for two customers. We do not expect to have material revenue until the first quarter of our fiscal year ended November 30, 2015.
Operating Expenses
For the three months ended August 31, 2014, our operating expenses were $831,033 as compared to $2,100 for the three months ended August 31, 2013, an increase of $828,933. Similarly, for the nine months ended August 31, 2014, our operating expenses were $1,821,405 as compared to $6,999 for the nine months ended August 31, 2013, an increase of $1,814,406. In both instances, the significant increase was a result of our transition from an exploration stage company to a development stage company and the commencement of our current operations on March 21, 2014.
For the three and nine months ended August 31, 2014, and the three and nine months ended August 31, 2013, our operating expenses consisted of the following:
|
| Three Months Ended |
|
| Nine Months Ended | ||||||||||
|
| August 31, |
|
| August 31, |
|
| August 31, |
|
| August 31, | ||||
|
| 2014 |
|
| 2013 |
|
| 2014 |
|
| 2013 | ||||
|
|
|
|
|
|
|
|
|
|
|
| ||||
Software development |
| $ | 23 |
|
| $ | - |
|
| $ | 496,309 |
|
| $ | - |
Professional fees |
|
| 435,075 |
|
|
| 2,100 |
|
|
| 691,029 |
|
|
| 6,300 |
Salaries and wages |
|
| 116,087 |
|
|
| - |
|
|
| 191,427 |
|
|
| - |
Executive compensation |
|
| 135,031 |
|
|
| - |
|
|
| 195,448 |
|
|
| - |
General and administrative |
|
| 144,817 |
|
|
| - |
|
|
| 247,192 |
|
|
| 699 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
| $ | 831,033 |
|
| $ | 2,100 |
|
| $ | 1,821,405 |
|
| $ | 6,999 |
17
For the three months ended August 31, 2014, software development costs represent the value of the Get CUBED tm mobile-first platform and related intellectual property acquired from Crackpot, Inc. in March 2014. Professional fees include legal and accounting expenses, including $197,780 that was paid for with our common stock. Our general and administrative expenses consist primarily of travel expenses of $27,302, marketing expenses of $11,290, rent expense of $28,797, computer and internet expenses of $35,895, and insurance expenses of $7,889. Operating expenses for the three months ended August 31, 2013 were not material as it was before we commenced our current operations.
For the nine months ended August 31, 2014, software development costs represent the Get CUBED tm mobile-first platform and related intellectual property acquired from Crackpot, Inc. Professional fees include legal and accounting expenses, including $383,000 that was paid for with our common stock. Our general and administrative expenses consist primarily of travel expenses of $52,430, marketing expenses of $31,655, rent expense of $47,002, computer and internet expenses of $43,000, and insurance expenses of $14,888. Operating expenses for the nine months ended August 31, 2013 were not material as it was before we commenced our current operations.
Liquidity and Capital Resources
Our cash, current assets, total assets, current liabilities, and total liabilities as of August 31, 2014 and November 30, 2013 were as follows:
|
| August 31, 2014 |
|
| November 30, 2013 | ||
|
| (unaudited) |
|
| (audited) | ||
|
|
|
|
|
| ||
Cash |
| $ | 31,684 |
|
| $ | 1,484 |
Total current assets |
|
| 66,684 |
|
|
| 1,484 |
Total assets |
|
| 734,528 |
|
|
| 1,484 |
Total current liabilities |
|
| 141,034 |
|
|
| 116,491 |
Total liabilities |
|
| 141,034 |
|
|
| 116,491 |
Cash Requirements
We had $31,684 in cash and cash equivalents as of August 31, 2014. Our cash used in operations for the nine months ended August 31, 2014 was $1,785,222. We had a net loss for the nine months ended August 31, 2014 of $3,846,905, which included $496,309 of software development expenses from the purchase of the Get CUBED tm mobile-first platform. We had an accumulated deficit of $3,999,912 at August 31, 2014. At our current burn rate of approximately $250,000 per month, our cash on hand is not sufficient to cover our monthly expenses and we will continue to seek financing in the form of debt or stock sales to finance our operations until we reach break-even. We have no estimate of when we will reach break-even.
18
Sources and Uses of Cash
Operations
For the nine months ended August 31, 2014, our net cash used in operating activities was $1,785,222, which consisted of our net loss of $3,846,905, offset primarily by a loss on shares issued for attempted acquisitions of $1,200,000, shares issued for professional services of $383,000, shares issued and debt assumed for acquired intellectual property of $355,582, and an increase in accrued professional fees of $75,147. See Part II, Item 5, Rescission of Acquisition of WikiTechnologies, Inc. Operating activities for the nine months ended August 31, 2013 were not material as it was before we commenced our current operations.
Investments
For the nine months ended August 31, 2014, our net cash used in investing activities was $652,678, which consisted of the purchase of intangible assets of $632,940 and the purchase of property, plant and equipment of $19,738. Investing activities for the nine months ended August 31, 2013 were not material as it was before we commenced our current operations.
Financing
For the nine months ended August 31, 2014, our net cash provided by financing activities was $2,468,100, which consisted of proceeds from the sale of common stock of $2,691,000, offset by payments for notes payable to a related party of $222,900. Financing activities for the nine months ended August 31, 2013 were not material as it was before we commenced our current operations.
Debt Instruments, Guarantees, and Related Covenants
We have no disclosure required by this Item.
Critical Accounting Estimates
Capitalized Software Development Costs
Capitalized software costs include costs incurred in connection with the development of software and purchased software. Capitalized costs associated with internally developed software are amortized over their estimated economic life utilizing the straight-line method.
We exercise significant judgment in determining that capitalized application software costs meet the criteria established in Financial Accounting Standards Board (FASB) ASC 350-40, Internal-Use Software. Software production costs for computer software that is to be used as an integral part of a product or process shall not be capitalized until both (a) technological feasibility has been established for the software, and (b) all research and development activities for the other components of the product or process have been completed.
This analysis was conducted in connection with our purchase of the Get CUBED tm mobile-first platform and related intellectual property acquired from Crackpot, Inc. in March 2014.
19
Stock-Based Compensation
We account for employee stock-based compensation in accordance with the guidance of FASB ASC Topic 718, Compensation - Stock Compensation which requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values. The fair value of the equity instrument is charged directly to compensation expense and credited to additional paid-in capital over the period during which services are rendered. As of August 31, 2014, there was no stock-based compensation issued to employees.
We follow ASC Topic 505-50, formerly EITF 96-18, Accounting for Equity Instruments that are Issued to Other than Employees for Acquiring, or in Conjunction with Selling Goods and Services, for stock options and warrants issued to consultants and other non-employees. In accordance with ASC Topic 505-50, these stock options and warrants issued as compensation for services provided to the Company are accounted for based upon the fair value of the services provided or the estimated fair market value of the option or warrant, whichever can be more clearly determined. During the nine months ended August 31, 2014, we issued 383,000 shares of common stock valued at $383,000.
A significant portion of our professional fees during the three and nine months ended August 31, 2014 was paid for with our common stock.
Net Loss
For the nine months ended August 31, 2014, we had a net loss of $3,846,905.
ITEM 3 Quantitative and Qualitative Disclosures About Market Risk
As a smaller reporting company, we are not required to provide the information required by this Item.
ITEM 4 Controls and Procedures
(a) Disclosure Controls and Procedures
We conducted an evaluation, with the participation of our Chief Executive Officer and Chief Financial Officer, 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 Securities Exchange Act of 1934, as amended, or the Exchange Act, as of August 31, 2014, to ensure that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities Exchange Commissions rules and forms, including to ensure that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of August 31, 2014, our disclosure controls and procedures were not effective at the reasonable assurance level due to the material weaknesses identified and described in our Annual Report on Internal Control Over Financial Reporting filed in our Annual Report on Form 10-K.
20
Our principal executive officers do not expect that our disclosure controls or internal controls will prevent all error and all fraud. Although our disclosure controls and procedures were designed to provide reasonable assurance of achieving their objectives and our principal executive officers have determined that our disclosure controls and procedures are effective at doing so, a control system, no matter how well conceived and operated, can provide only reasonable, not absolute assurance that the objectives of the system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented if there exists in an individual a desire to do so. There can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
(b) Changes in Internal Control over Financial Reporting
No change in our system of internal control over financial reporting occurred during the period covered by this report, the three month period ended August 31, 2014, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
21
PART II - OTHER INFORMATION
ITEM 1 Legal Proceedings
In the ordinary course of business, we are from time to time involved in various pending or threatened legal actions. The litigation process is inherently uncertain and it is possible that the resolution of such matters might have a material adverse effect upon our financial condition and/or results of operations. However, in the opinion of our management, other than as set forth herein, matters currently pending or threatened against us are not expected to have a material adverse effect on our financial position or results of operations.
ITEM 1A Risk Factors
As a smaller reporting company, we are not required to provide the information required by this Item.
ITEM 2 Unregistered Sales of Equity Securities and Use of Proceeds
On June 5, 2014, we issued 18,000 shares of our common stock for services rendered. The issuance was exempt from registration pursuant to Section 4(a)(2) of the Securities Act, the investor was sophisticated and familiar with our operations, and there was no solicitation in connection with the offering.
On July 10, 2014, we issued a total of 1,200,000 shares of our common stock to two shareholders pursuant to the Share Exchange Agreement by which we attempted to acquire WikiTechnologies, Inc. The issuances were exempt from registration pursuant to Section 4(a)(2) of the Securities Act, the investors were sophisticated and familiar with our operations, and there was no solicitation in connection with the offering.
On July 15, 2014, we issued 300,000 shares of our common stock for services rendered. The issuance was exempt from registration pursuant to Section 4(a)(2) of the Securities Act, the investor was sophisticated and familiar with our operations, and there was no solicitation in connection with the offering.
ITEM 3 Defaults Upon Senior Securities
There have been no events which are required to be reported under this Item.
ITEM 4 Mine Safety Disclosures
Not applicable.
ITEM 5 Other Information
Unregistered Sales of Equity Securities
On March 21, 2014, we issued 2,537,455 shares of our common stock to Crackpot, Inc. pursuant to the terms of an Intellectual Property Purchase Agreement. The issuance was exempt from registration pursuant to Section 4(a)(2) of the Securities Act, the investor was sophisticated and familiar with our operations, and there was no solicitation in connection with the offering.
22
In May 2014, we issued a total of 65,000 shares of our common stock for services rendered. The issuances were exempt from registration pursuant to Section 4(a)(2) of the Securities Act, the investors were sophisticated and familiar with our operations, and there was no solicitation in connection with the offering.
Resignation of Chief Financial Officer
On September 27, 2014, Douglas Shinsato resigned as our Chief Financial Officer. The Board of Directors appointed Joseph White as Interim Chief Financial Officer until a replacement can be identified. Mr. Shinsato remains as our Interim Secretary and as a member of our Board of Directors.
Rescission of Acquisition of WikiTechnologies, Inc.
As reported in a Current Report on Form 8-K filed with the Commission on May 27, 2014, we entered into a Share Exchange Agreement to acquire WikiTechnologies, Inc. Subsequently, in a Current Report on Form 8-K filed with the Commission on July 15, 2014, we erroneously reported that we had completed the acquisition. On October 7, 2014, we received a Notice of Default from WikiTechnologies alleging that we had not fulfilled our obligations under the Share Exchange Agreement and that the purchase had not been consummated. We have elected to rescind the acquisition, and we will seek damages against WikiTechnologies and the sellers for the portion of the purchase price we have delivered to them, namely $500,000 cash and 1,200,000 shares of our common stock.
ITEM 6 Exhibits
(a) Exhibits
2.1 (1) |
| Share Exchange Agreement with WikiTechnologies, Inc. |
3.1 (2) |
| Articles of Incorporation |
3.2 (3) |
| Certificate of Amendment to Articles of Incorporation |
3.3 (3) |
| Certificate of Change |
3.4 (2) |
| Bylaws of Northwest Resources, Inc. |
31.1 |
| Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer |
31.2 |
| Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer |
32.1 |
| Chief Executive Officer Certification Pursuant to 18 USC, Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
32.2 |
| Chief Financial Officer Certification Pursuant to 18 USC, Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|
|
|
100.INS |
| XBRL Instance Document |
100.SCH |
| XBRL Schema Document |
100.CAL |
| XBRL Calculation Linkbase Document |
100.DEF |
| XBRL Definition Linkbase Document |
100.LAB |
| XBRL Lables Linkbase Document |
100.PRE |
| XBRL Presentation Linkbase Document |
(1) Incorporated by reference from our Current Report on Form 8-K dated and filed with the Commission on May 27, 2014.
(2) Incorporated by reference from our Registration Statement on Form S-1 filed with the Commission on December 23, 2010.
(3) Incorporated by reference from our Current Report on Form 8-K dated and filed with the Commission on March 14, 2014.
23
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| Cubed, Inc. |
|
|
|
|
Dated: October 20, 2014 | /s/ Joseph White |
| By: Joseph White |
| Its: President and Chief Executive Officer |
24