NTUR Natural Blue Resources Inc (CE)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

x  QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2010

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 000-12493

NATURAL BLUE RESOURCES, INC.

 (Exact name of registrant as specified in its charter)

Delaware

13-3134389

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification Number)

200 W. De Vargas Street, Suite 7, Santa Fe, New Mexico

87501

(address of principal executive offices)

(Zip Code)

Registrant’s telephone number: (321) 293-7420

Indicate by check mark whether registrant (1) has filed all reports 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.   x Yes  o 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).    x Yes  o 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 (Check one):

 

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

 

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

 

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

There were  54,521,909 shares of common stock issued and outstanding, respectively, as of November 13, 2010. 

 

TABLE OF CONTENTS

Part I - Financial Information

Page

Item 1.

Consolidated Financial Statements

3

Item 2.

Management's Discussion and Analysis of Financial Condition and Result of Operations

4

Item 4T.

Controls and Procedures

8

Part II - Other Information

Item 1.

Legal Proceedings

9

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

9

Item 6.

Exhibits and Reports on form 8-K

10

Signatures

11

 

PART I - FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

The accompanying interim unaudited financial statements of Natural Blue Resources, Inc., a Delaware corporation (the “Company,” “we,” “us,” or “our”), have been prepared in accordance with the requirements of Article 8 of  Regulation S-X promulgated under the Securities and Exchange Act of 1934, as amended (the “Exchange Act”) and, therefore, do not include all disclosures normally required by accounting principles generally accepted in the United States of America.

3

 

INDEX

 

Natural Blue Resources, Inc.

 

Consolidated Financial Statements (unaudited)

 

As of and for the Nine Months Ended September 30, 2010

 

  TABLE OF CONTENTS

CONTENTS

Page

Consolidated Balance Sheets as of September 30, 2010 (unaudited) and December 31, 2009

F-2

Consolidated Statements of Operations (unaudited) for the nine and three months ended September 30, 2010

  and the period from March 2, 2009 (inception) to September 30, 2010

F-3

Consolidated Statements of Cash Flows (unaudited) for the nine months ended September 30, 2010 and the period

  from March 2, 2009 (inception) to September 30, 2010

F-4

Notes to Consolidated Financial Statements (unaudited)

F-5

  

F-1

NATURAL BLUE RESOURCES, INC. AND SUBSIDIARIES

(A Development Stage Enterprise)

Consolidated Balance Sheets

September 30,

December 31,

ASSETS

2010

2009

(unaudited)

CURRENT ASSETS

Cash

$

20,880

$

689,899

Note Receivable, net

203,324

150,855

Prepaid Expenses

516

2,604

Total Current Assets

224,720

843,358

EQUIPMENT

422,015

463,849

OTHER ASSETS

Investment in available-for-sale securities

13,750

133,750

TOTAL ASSETS

$

660,485

$

1,440,957

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

CURRENT LIABILITIES

Accounts payable and accrued expenses

887,352

630,311

Notes payable - current portion

317,869

253,885

Total Current Liabilities

1,205,221

884,196

TOTAL LIABILITIES

1,205,221

884,196

STOCKHOLDERS' EQUITY (DEFICIT)

Common Stock, $0.0001 par value; 493,000,000 shares

authorized, 54,521,909 and 49,385,733 shares issued

 and outstanding, respectively

$

5,453

$

4,929

Additional paid-in capital

3,192,290

2,432,065

Unrealized net (loss) on available for sale securities

(520,100)

(401,250)

Accumulated deficit

(3,222,379)

(1,478,983)

Total Stockholders' Equity (Deficit)

(544,736)

556,761

TOTAL LIABILITIES AND

   STOCKHOLDER'S EQUITY (DEFICIT)

$

660,485

$

1,440,957

The accompanying notes are an integral part of the financial statements.

F-2

NATURAL BLUE RESOURCES, INC. AND SUBSIDIARIES

(A Development Stage Enterprise)

Consolidated Statements of Operations

From

March 2,

2009

(inception)

to

Three Months Ended

Nine Months Ended

September  30,

September 30,

September 30,

2010

2009

2010

2009

2010

(unaudited)

(unaudited)

(unaudited)

(unaudited)

(unaudited)

OPERATING EXPENSES

Depreciation expense

$

23,332

$

--

$

46,664

$

--

$

46,664

General and administrative

545,790

401,529

1,685,216

593,984

3,155,418

OPERATING EXPENSES

569,122

401,529

1,731,880

--

3,202,082

LOSS FROM OPERATIONS

(569,122)

(401,529)

(1,731,880)

(593,984)

(3,202,082)

OTHER EXPENSE

Interest, net

(3,931)

5,862

(11,516)

5,862

(20,297)

Total Other Expense

(3,931)

5,862

(11,516)

5,862

(20,297)

(LOSS) BEFORE INCOME TAXES

(573,053)

(395,667)

(1,743,396)

(599,846)

(3,222,379)

PROVISION FOR INCOME TAXES

--

--

--

--

--

NET (LOSS)

$

(573,053)

$

(395,667)

$

(1,743,396)

$

(599,846)

$

(3,222,379)

BASIC AND DILUTED:

Net (loss) per common share

$

(0.01)

$

(0.01)

$

(0.03)

$

(0.02)

Weighted average shares outstanding

53,564,626

47,999,359

50,942,872

41,050,298

The accompanying notes are an integral part of the financial statements.

 

  

F-3

  

NATURAL BLUE RESOURCES, INC. AND SUBSIDIARIES

(A Development Stage Enterprise)

Consolidated Statements of Cash Flows

 

From

March 2,

2009

Nine Months Ended

(inception) to

September 30,

September 30,

2010

2009

2010

(Unaudited)

(Unaudited)

(Unaudited)

CASH FLOWS FROM OPERATING ACTIVITIES:

Net (loss)

$

(1,743,396

$

(599,846)

$

(3,222,379)

Adjustments to reconcile net loss to net cash used

  in operating and other activities:

Depreciation expense

46,664

--

46,664

Sale of investment security

200

--

200

Reserve for notes receivable and advances

--

205,742

309,065

Changes in operating assets and liabilities:

Increase/(Decrease) in accounts payable and accruals

321,026

34,289

607,071

(Increase)/Decrease in prepaids

2,088

(3,635)

(515)

Net Cash Used by Operating Activities

(1,373,418)

(363,450)

(2,259,895)

CASH FLOWS FROM INVESTING ACTIVITIES:

Cash Acquired in share exchange with Datameg

--

23,479

135,818

Issuance of note receivable

(51,729)

(150,000)

(401,729)

Loss on sale of security held for investment

950

--

950

Advance of funds to Blue Earth Solutions, Inc.

--

--

(100,000)

Increase (decrease) in interest income

(740)

--

(1,595)

Purchase of equipment

(4,832)

(400,000)

(468,681)

Purchase of investments

--

(285,000)

(85,000)

Net Cash Used by Investing Activities

(56,351)

(811,521)

(920,237)

CASH FLOWS FROM FINANCING ACTIVITIES:

Issuance of  stock for services

425,500

--

425,500

Proceeds from private placement

335,250

2,470,264

2,775,512

Net Cash Provided by Financing Activities

760,750

2,470,264

3,201,012

NET INCREASE (DECREASE) IN CASH AND

  CASH EQUIVALENTS

(669,019)

1,295,293

20,880

CASH AND CASH EQUIVALENTS,

  BEGINNING OF PERIOD

689,899

--

--

CASH AND CASH EQUIVALENTS, END OF PERIOD

$

20,880

$

1,295,293

$

20,880

SUPPLEMENTAL SCHEDULE OF NONCASH ACTIVITIES:

Non Cash impact of Reverse Merger

$

--

$

29,443

$

3,272

The accompanying notes are an integral part of the financial statements.

  F-4

NATURAL BLUE RESOURCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of and for the Nine Months Ended September 30, 2010

(unaudited)

 

A. BASIS OF PRESENTATION AND ORGANIZATION

 

Natural Blue Resources, Inc., a Nevada corporation (“NBRN”), was formed on March 2, 2009 and is currently in the development stage, as that term is defined in Accounting Standards Codification (“ASC”) Topic 915, Development Stage Entities .  During this stage of our development, NBRN is devoting substantially all of its efforts in identifying companies and technologies for acquisition and development to further its business strategy.

As of September 30, 2010, the Company had six direct or indirect wholly-owned subsidiaries:

•

Natural Blue Resources, Inc., a Nevada corporation ("NBRN");

•

NetSymphony Corporation, an inactive North Carolina corporation ("NetSymphony"),

•

QoVox Corporation, an inactive North Carolina corporation ("QoVox"),

•

EcoWave, LLC, a Delaware limited liability company ("EcoWave"), and

•

Natural Blue Steel, Inc., a Delaware corporation ("NBS") and its wholly owned subsidiary Natural Blue International, LLC, a Florida limited liability company.

•

Natural Blue International, LLC., a Florida limited liability company.

In addition, the Company owns 40% of the equity interests of CASCommunications, Inc., an inactive Florida corporation.

On March 8, 2010 NBS formed a wholly-owned subsidiary, Natural Blue International, LLC, (“NBI”) a Florida limited liability company (“NBI”), for the purpose of engaging in business with third-party vendors for both the supply and distribution of scrap steel. NBI has not had any activity since its inception.

These consolidated financial statements reflect the consolidated financial statements of the Company, NBRN, NetSymphony, QoVox, Eco Wave, NBS and CASCommunications.  In accordance with ASC Topic 810 (FIN 46R), the Company continues to consolidate CASCommunications, as it expects to continue to absorb a majority of CASCommunications’ losses which were zero during the nine month period..

 

  

F-6

NATURAL BLUE RESOURCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of and for the Nine Months Ended September 30, 2010

 

NBRN is currently engaged in the business of exploring, acquiring and developing various interrelated “green” businesses, including waste stream recycling, plastic and steel recycling, and a “print responsibly” business segment (currently put on hold) that will, whenever possible, use recycled printing processes both online and in the traditional print process. NBRN is also exploring entering into the robust and eco-friendly business of energy management.  Going forward, NBRN generally intends to acquire, develop and operate businesses that generally have existing earnings and quality, knowledgeable management in place, and that utilize proprietary state-of-the-art technology.

 

Natural Blue Resources Nevada and Natural Blue Resources Delaware were merged on July 24, 2009. As the Company was newly formed, comparative analysis for the period ending September 30, 2010 to 2009 is not meaningful.

The Company operates under the name of Natural Blue Resources, Inc. and trades under the symbol NTUR on the OTCBB.

B. GOING CONCERN; OPERATING LOSSES

 

The accompanying consolidated financial statements have been prepared in conformity with generally accepted accounting principles, which contemplate continuation of the Company as a going concern.  At September 30, 2010, we had negative working capital as current liabilities exceeded current assets by $980,501; we had a loss from operations for the nine and three months and inception (March 2, 2009) to date ended September 30, 2010 of $593,984, $1,731,880  and $3,202,082 respectively. During the nine months ended September 30, 2010 we have used $1,373,478 in operating cash flow and for the period from inception, March 2, 2009 through September 30, 2010 we have used $2,259,895 in operating cash flow. However, the accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business.  The ability of the Company to continue as a going concern is dependent upon the Company’s ability to define and achieve its business objectives and the success of its future operations.  We are currently in our development stage and, accordingly, we have not generated revenue. The conditions and negative trends described above raise substantial doubt about our ability to continue as a going concern.

Our continuation as a going concern is dependent upon strategically deploying our existing capital, raising additional capital and further developing our green technologies so that they will become commercially viable and generate revenue. However, there can be no assurances that capital will be available at terms acceptable to our management, if at all, or that our acquired or developed technologies can achieve profitable operations. The accompanying financial statements do not include any adjustments that may result from the substantial doubt surrounding our ability to continue as a going concern.

 

C. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Principles of Consolidation: 

The accompanying consolidated financial statements present the consolidated financial statements on the basis that NBRN is the accounting acquirer in the share exchange transaction with the Company.   The consolidation of the financial statements includes the wholly-owned subsidiaries,  Natural Blue Resources Natural Blue Steel, QoVox, NetSymphony, and Eco Wave.  In addition, the financial statements of the Company have been consolidated into the NBRN financial statements.  All intercompany transactions and balances have been eliminated in the consolidation.

 

Basis of Accounting:

The accounts of the Company are maintained on the accrual basis of accounting whereby revenue is recognized when earned, and matching costs and expenses are recognized when identified.

F-7

NATURAL BLUE RESOURCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of and for the Nine Months Ended September 30, 2010

 

Use of Estimates:

Management uses estimates and assumptions in preparing financial statements in accordance with generally accepted accounting principles. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Actual results could vary from those estimates.

Risk and Uncertainties:

Our future results of operations and financial condition will be impacted by the following factors, among others: our lack of capital resources, dependence on the worldwide trend toward green solutions and rapidly changing technology, dependence on third-party management that operates the companies in which we invest and dependence on the successful development and marketing of new products in new and existing markets. Generally, we are unable to predict the future status of these areas of risk and uncertainty. However, negative trends or conditions in these areas could have an adverse affect on our business.

 

Cash:

Cash is maintained with a major financial institution in the United States. Deposits may exceed the amount of insurance provided on such deposits. Cash equivalents with an original maturity of three months or less are considered to be cash equivalents.  The Company does not have any cash equivalents at September 30, 2010. 

Prepaid Expenses:

The Company pays certain expenses, notably insurance, in advance of the insured year and expenses the related portion each reporting period.

Equipment:

Equipment consists of the microwave based technology and the trailer to transport the equipment for EcoWave.  The equipment was successfully tested during the quarter ended March 31, 2010 and was put into operations this quarter. The equipment is being depreciated over five years.

  

Fair Value of Financial Instruments:

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  The fair value hierarchy distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions about market participant assumptions based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3).  The three levels of the fair value hierarchy are described below:

•

Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

•

Level 2—Inputs other than quoted prices included within Level 1 that are observable for the asset or liability; either directly or indirectly, including quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability (e.g. interest rates); and inputs that are derived principally from or corroborated by observable market data by correlation or other means.

•

Level 3—Inputs that are both significant to the fair value measurement and unobservable.

 

 

  

F-8

NATURAL BLUE RESOURCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of and for the Nine Months Ended September 30, 2010

 

Fair value estimates discussed herein are based upon certain market assumption and pertinent information available to management as of September 30, 2010.  The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values due to the short-term nature of these instruments.  These financial instruments include cash, accounts receivable, accounts payable and accrued expenses.  The fair value of the Company’s note payable is estimated based on current rates that would be available for debt of similar terms which is not significantly different than its stated value.

Investments:

Our investments consist of common stock of publicly traded companies and are valued based on the closing stock price. We account for our investments in accordance with ASC Topic 320, Investments . We have designated our investments at September 30, 2010 as available-for-sale and reported these investments at fair value, with unrealized gains and losses recorded in other comprehensive income (loss). We determined the fair value of these investments based on the closing traded stock price on September 30, 2010.  We base the cost of the investment sold on the specific identification method using market rates.

 

Other-Than-Temporary Impairment:

All of our non-marketable and other investments are subject to a periodic impairment review. Investments are considered to be impaired when a decline in fair value is judged to be other-than-temporary. The indicators that we use to identify those events and circumstances include:

•

the investee’s revenue and earnings trends relative to predefined milestones and overall business prospects;

•

the technological feasibility of the investee’s products and technologies;

•

the general market conditions in the investee’s industry or geographic area, including regulatory or economic changes;

•

factors related to the investee’s ability to remain in business, such as the investee’s liquidity, debt ratios, and the rate at which the investee is using its cash; and

•

the investee’s receipt of additional funding at a lower valuation. If an investee obtains additional funding at a valuation lower than our carrying amount or a new round of equity funding is required for the investee to remain in business, and the new round of equity does not appear imminent, it is presumed that the investment is other than temporarily impaired, unless specific facts and circumstances indicate otherwise.

 

Concentrations of Credit Risk:

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash. The Company maintains its cash accounts with several commercial banks. Cash balances are insured by the Federal Deposit Insurance Corporation, up to $250,000 per financial institution.

 

Capital Structure:

The Company’s voting common stock is comprised of 54,521,909 and 49,285,733 shares issued and outstanding, as of September 30, 2010 and December 31, 2009, respectively.  The Company has authorized 493,000,000 shares of common stock with par value of $.0001 per share.

 

  

NATURAL BLUE RESOURCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of and for the Nine Months Ended September 30, 2010

 

Revenue Recognition:

The Company did not recognize any revenue during the six month period ended September 30, 2010 or during the period from March 2, 2009 (inception) to September 30, 2010.

 

Reclassifications:

Some of the prior period balances have been reclassified to conform to current period presentation. 

 

Research and Development: 

The Company expenses research and development costs as incurred.

 

Share-Based Payment:

We apply the grant-date fair value method to our share-based payment arrangements with employees and others under the rules provided in ASC Accounting for Share-Based Payment . Under ASC Topic 718, Stock Compensation , share-based compensation cost to employees is measured at the grant date fair value based on the value of the award and is recognized over the service period, which is usually the vesting period for employees. Share-based payments to non-employees are recorded at fair value on the measurement date and reflected in expense over the service period.

  

Income Taxes: 

The Company, a C-corporation, accounts for income taxes under ASC Topic 740 (SFAS No. 109) . Under this method, deferred tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.

 

The Company adopted the provisions of FASB ASC 740-10 “ Uncertainty in Income Taxes ” (ASC 740-10), on January 1, 2007. The Company has not recognized a liability as a result of the implementation of ASC 740-10. A reconciliation of the beginning and ending amount of unrecognized tax benefits has not been provided since there is no unrecognized benefit since the date of adoption. The Company has not recognized interest expense or penalties as a result of the implementation of ASC 740-10.  If there were an unrecognized tax benefit, the Company would recognize interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses.

Comprehensive Income:

ASC Topic 220 (SFAS No. 130) establishes standards for reporting comprehensive income and its components. Comprehensive income is defined as the change in equity during a period from transactions and other events from non-owner sources.  Per Note E of the consolidated financial statements, the Company has purchased available-for-sale securities that are subject to this reporting.

 

Loss Per Common Share:

The Company reports basic and diluted earnings per share (EPS) according to the provisions of ASC Topic 260, which requires the presentation of basic EPS and, for companies with complex capital structures, diluted EPS. Basic EPS excludes dilution and is computed by dividing net income (loss) available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted EPS is computed by dividing net income (loss) available to common stockholders, adjusted by other changes in income or loss that would result from the assumed conversion of those potential common shares, by the weighted number of common shares and common share equivalents (unless their effect is antidilutive) outstanding. The Company also considers the potential effects of the exercise of options and warrants outstanding during the reporting period. At September 30, 2010, the Company had options outstanding to employees and vendors of the Company to acquire 245,000 common shares. Exercising the options would have an antidilutive effect for existing shareholders. Thus, these options are not included in the calculation of diluted loss per share, resulting in basic and diluted loss per share being equal.

NATURAL BLUE RESOURCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of and for the Nine Months Ended September 30, 2010

 

Recently Issued Accounting Pronouncements:

In July, 2010 the FASB has issued ASU No. 2010-20, Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses. The Update will improve transparency in financial reporting by public and nonpublic companies that hold financing receivables, which include loans, lease receivables, and other long-term receivables. The Update requires companies to provide more information in their disclosures about the credit quality of their financing receivables and the credit reserves held against them. Short-term accounts receivables, receivables measured at fair value or lower of cost or fair value, and debt securities are exempt from the Update. The Company adopted ASU 2010-20 on July 21, 2010, which had no material impact on the financial statements.

 

In January 2010, the FASB issued ASU No. 2010-06, Fair Value Measurements and Disclosures (“ASU 2010-06”).  This standard updates FASB ASC 820, Fair Value Measurements (“ASC 820”). ASU 2010-06 requires additional disclosures about fair value measurements including transfers in and out of Levels 1 and 2 and separate disclosures about purchases, sales, issuances, and settlements relating to Level 3 measurements. It also clarifies existing fair value disclosures about the level of disaggregation and about inputs and valuation techniques used to measure fair value. The Company adopted ASU 2010-06 on January 1, 2010, which had no material impact on the financial statements.

 

In January 2010, the FASB issued ASU No. 2010-09 Subsequent Events (Topic 855): Amendments to Certain Recognition and Disclosure Requirements (“ASU No. 2010-09”).   ASU No. 2010-09 amended Subtopic 855-10, “ Subsequent Events – Overall ” by removing the requirement for a United States Securities and Exchange Commission (“SEC”) registrant to disclose a date, in both issued and revised financial statements, through which that filer had evaluated subsequent events. The Company adopted ASU 2010-09 on January 1, 2010, which had no material impact on the financial statements.

 

D. NOTE RECEIVABLE

On September 15, 2009, the Company entered into a letter of intent to purchase the assets of On Demand Color Group, LLC and certain of its affiliates (“On Demand”).   In accordance with the letter of intent the Company made a loan to On Demand in the principal amount of $150,000 which accrues interest at a rate of 2% per annum.  Such loan is evidenced by a promissory note dated September 16, 2009.  The Company has made a second loan to On Demand and its affiliates in the amount of $50,000 which also bears interest rate of 2% per annum.  The non-binding letter of intent contains various provisions that the Company and the Seller must comply with before the transaction can close.  These amounts, along with the accrued interest income thereon, are reflected as a Note Receivable on the balance sheet. No closing on the potential purchase of the assets of On Demand has occurred and discussions have been put on hold.

 

On May 22, 2009, NBRN made a loan in the amount of $200,000 to Samir Burshan (“Burshan”) who was a Director of NBRN at that time.  Mr. Burshan was appointed to the Board of the Company on August 24, 2009, and later resigned as a Director of the Company on October 31, 2009.  Such loan is evidenced by a promissory note dated January 29, 2010 and effective as of May 22, 2009, bears interest at the rate of 8% per annum and is due and payable in full on May 22, 2012.   The note is non-recourse to Burshan, but is to be secured by the assignment of a promissory note in the principal amount of $200,000 made by Prism One, Inc. (“Prism One”) to Burshan.  The Prism One note bears interest at the rate of 8% per annum and is payable in full on or about May 22, 2012. It is the Company’s belief that there exists substantial doubt that Prism One will be able to meet its obligations and has fully reserved for this loan.

 

In October, 2009 NBRN signed a non-binding letter of intent to potentially acquire the assets of Blue Earth Solutions, Inc.  In connection therewith, NBRN advanced $100,000 to Blue Earth Solutions, Inc.  Management determined as of December 31, 2009 that the deposit was uncollectible and the advance has been reserved as of December 31, 2009. BESN has been providing services and facilities to NBRN.

NATURAL BLUE RESOURCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of and for the Nine Months Ended September 30, 2010

 

E. INVESTMENT

In conjunction with the share exchange transaction, the Company has reviewed their Investments held and has valued them at fair value as of September 30, 2010.

Fair Value

Fair Value

at September 30,

at December 31,

Investment Type:

2010

2009

Common stock, 1,000,000 shares in Blue Earth Solutions, Inc.,

$0.01/share at 9.30.10 and $0.07/share at 12.31.09

10,000

70,000

Common Stock 370,000 shares at 09.30.10 and 375,000 shares

at 12.31.09 in Prism One , $0.01/share at 9.30.10 and $0.17/share

at 12.31.09

3,750

63,750

Total Investments Held

13,750

133,750

Fair value of the listed investments was determined by the closing price of the related common stock on September 30, 2010 and December 31, 2001, respectively; as of November 14, 2010 the closing price of the Blue Earth Solutions, Inc. common stock (BESN) was $0.01 and the closing price of Prism One (PMOZ) common stock was $0.01. Management intends to divest both of these investments.  Management views the price decline of the shares of these investments as temporary in nature. However, our investment in both Blue Earth Solutions Inc., and Prism One, Inc. are subject to the specific risks applicable to each of Blue Earth Solutions, Inc and Prism One specifically, and to market risks generally.

 

F. NOTES PAYABLE

 

Balances

as of

September 30,

December 31,

2010

2009

On July 1, 2008, QoVox executed a promissory note in favor of a consultant

for $230,605, which represents past-due fees previously included in accounts

payable. The note bears interest at the rate of 8% per annum. Payment terms

stated therein require monthly installments of $1,000 paid to the consultant

the last day of each month commencing July 31, 2008 through December

31, 2008; $2,000 per month starting January 2009 through September 2009;

and $3,000 per month thereafter until the remaining balance is paid. QoVox

made $3,000 in principal payments during 2008, and $1,000 in February 2009. 

QoVox is currently in default on the note, so the principal balance has been

reflected as a current liability.  We are currently disputing the balance of the

note but have recorded further interest expense of $4,532 during the quarter

ended September 30, 2010, which we have included in the Notes Payable

balance at September 30, 2010.

$

267,481$

253,885

Note payable to Nonlinear, dated September 2010, due December

16, 2010, with interest at 40% (Note M)

50,388

--

Total notes payable

$

317,869

$

253,885

NATURAL BLUE RESOURCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of and for the Nine Months Ended September 30, 2010

H. STOCK OPTIONS

At  September 30, 2010, the Company had a total of 245,000 options outstanding all of which are fully vested and exercisable.

The Company had options outstanding to three former employees for prior services rendered in the amount of 45,000 common shares.  In addition, during the quarter ended March 31, 2010, the Company entered into a investment consulting agreement, (“Consultant Agreement”) which requires the issuance of: (i) 30,000 shares of stock with a par value of $0.001 on the first of each month, beginning February 1, 2010; (ii)200,000 options at an exercise price of $0.87 per share, such options expire 12 months from the issuance date; (iii) an additional 200,000 options at an exercise price of $0.87 per share upon the signing of an additional 6 month period of the Consultant Agreement. The Company has the right to terminate the Consultant Agreement with 45 days written notice, at which time the consultants will be entitled to retain 75% of the options that were issued in the latest 6 month period as compensation.

Options

Options

Outstanding

Outstanding

Exercise

at 9.30.10

at 12.31.09

Date Options Issued

Date Options Expire

Price

25,000

25,000

November 23, 2004

January 1, 2013

$

5.38

10,000

10,000

September 1, 2005

September 1, 2011

$

3.32

10,000

10,000

August 25, 2005

January 1, 2011

$

28.25

200,000

0

February 15, 2010

February 14, 2011

$

0.87

245,000

45,000

Total Options

I. NET LOSS PER COMMON SHARE

As required by ASC Topic 260 (SFAS No. 128), the following is a reconciliation of the basic and diluted loss per share calculations for the periods presented:

 

BASIC AND DILUTED EARNINGS (LOSS) PER COMMON SHARE:

For the Three

For the Nine

For the Three

Months Ended

Months Ended

September 30,

September 30,

2010

2010

Basic & Diluted EPS

Net loss per share, continuing operations

$

(0.03)

$

(0.01)

$

Net earnings (loss) per share, discontinued operations

--

--

Total net loss per share

$

(0.03)

$

(0.01)

$

Weighted average common shares outstanding

50,942,872

53,942,872

At September 30, 2010 and December 31, 2009, the Company had 245,000 and 45,000 options outstanding, respectively. Exercising the options would have an antidilutive effect for existing shareholders. Thus, these options are not included in the calculation of diluted loss per share, resulting in basic and diluted loss per share being equal.   

NATURAL BLUE RESOURCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of and for the Nine Months Ended September 30, 2010

 

J. STOCKHOLDERS’ EQUITY

NBRN was initially capitalized in March 2009, and engaged in a private placement in March and April 2009 wherein 40,691,585 shares of its common stock were issued.  Gross proceeds from the offering were $2,469,464.

On July 24, 2009, the Company closed a share exchange transaction with the shareholders of NBRN, pursuant to which NBRN became a wholly-owned subsidiary of the Company and the former shareholders of NBRN became the holders of 90% of the then outstanding shares of the Company’s common stock.  Due to the nature of the transaction, NBRN is considered the accounting acquirer of the combined entity.   

On March 5, 2010, the Company engaged in a private placement wherein 316,176 shares of its common stock were issued.  Gross proceeds from the private placement were $268,750.

From May 18 to September 10, 2010, the Company engaged in a private placement wherein 625,000 shares of its common stock were issued.  Gross proceeds from the private placement were $62,500.

K. RELATED PARTY TRANSACTIONS

At September 30, 2010 and December 31, 2009, the Company was not indebted to any related parties.

The Company does not own any real property.  The Company utilizes certain office and warehouse space at 13511 Granville Avenue, Clermont, Florida, in a facility owned by Blue Earth Solutions, Inc. (“Blue Earth”), a company in which certain of the Company’s consultants and their affiliates are shareholders. There is a verbal agreement between the two parties that the rent and related expenses are offset by professional services rendered by the Company’s employees. There is no lease for such office and warehouse space and the Company provides Blue Earth Solutions certain services and use of certain personnel in consideration of the Company’s use of the space.  Because the Company does not pay rent for any of the space it currently occupies or uses, it may be removed from such premises at any time. Should the Company be removed from its current space, have rent imposed upon it or otherwise have to lease space for both its warehouse and office needs, there is no assurance that the Company could rent space under terms and rates that will be acceptable or affordable for the Company.

In November 2009, the Company executed an Engagement and Advisory Fee Agreement with JEC Corp. (“JEC”), which is owned by one of our shareholders and the shareholder is related to our consultants.  Pursuant to the agreement, JEC will provide to the Company professional services in identifying and representing the Company with respect to potential future merger and acquisition opportunities to assist the Company in expanding its business.  Upon execution of the agreement, JEC was entitled to receive 500,000 shares of the Company’s common stock, however, were not issued and after December 31, 2009 JEC waived the right to receive them.  The Company will also pay to JEC a fee of $20,000 for each letter of intent that the Company executes with a party in connection with a potential merger or acquisition with certain companies identified in the agreement.  In the event that the Company closes a merger or acquisition with any such company, the Company will pay to JEC a fee of $150,000.  This agreement also provides for the reimbursement of reasonable operating expenses, including costs for travel, cost of preparation of documents, reasonable fees and expenses of retained professionals and legal expenses, not to exceed $10,000 without prior consent of the Company.  Since inception of this agreement through September 30, 2010, the Company has paid JEC $60,000.

NATURAL BLUE RESOURCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of and for the Nine Months Ended September 30, 2010

 

In November 2009, the Company executed a second Advisory and Management Fee Agreement with JEC pursuant to which JEC would assist the Company in creating and managing NBS.  Upon execution of the agreement, JEC was entitled to receive (a) $100,000, payable 20% upon execution and the balance when NBS is fully operational and (i) achieves minimum gross revenue of $1,000,000 or (ii) receives funding from outside sources of more than $1,000,000.  JEC was also entitled to receive  100,000 shares of the Company’s common stock or, at JEC’s election, an option exercisable for 100,000 shares of common stock at a nominal exercise price however, the shares and options were not issued and after December 31, 2009 JEC waived the right to receive them.  JEC is further entitled to receive 20% of  the net profit derived from transactions for the sale of steel by NBS.  Net profit means the gross proceeds from such transactions less direct transaction expenses incurred in connection therewith.  Such payments shall be made monthly during NBS’ full operational life.   The agreement also provides for the reimbursement of reasonable operating expenses, including costs for travel, cost of preparation of documents, reasonable fees and expenses of retained professionals and legal expenses, not to exceed $10,000 without prior consent of the Company.  Since the inception of this agreement through September 30, 2010, the Company paid JEC $20,000

Beginning in January, 2010, JEC also receives a monthly consulting fee for ad-hoc projects as deemed necessary by the Company.  During the quarter ended September 30, 2010, the Company paid JEC $52,000.

On May 22, 2009, NBRN made a loan in the amount of $200,000 to Samir Burshan (“Burshan”) who was a Director of NBRN at that time.  Mr. Burshan was appointed to the Board of the Company on August 24, 2009, and later resigned as a Director of the Company on October 31, 2009.  Such loan is evidenced by a promissory note dated January 29, 2010 and effective as of May 22, 2009, bears interest at the rate of 8% per annum and is due and payable in full on May 22, 2012.   The note is non-recourse to Burshan, but is to be secured by the assignment of a promissory note in the principal amount of $200,000 made by Prism One, Inc. (“Prism One”) to Burshan.  The Prism One note bears interest at the rate of 8% per annum and is payable in full on or about May 22, 2012. It is the Company’s belief that there exists substantial doubt that Prism One will be able to meet its obligations and therefore, as of December 31, 2009, NBRN has fully reserved for this loan.

L. ECOWAVE LICENSE AGREEMENT

The Company’s subsidiary, EcoWave, holds an exclusive worldwide, excluding the Republic of Korea,  use and technology license to patent and technology rights for waste treatment using microwave technology previously licensed by Kaleida Eco Ventures, Inc., a Delaware corporation (“Kaleida”). EcoWave is required to pay a royalty to Kaleida of $200,000 per installed unit. The license term shall remain in effect for the life of the last-to-expire patents or for 20 years, whichever occurs last.

M. NONLINEAR CONSULTING AGREEMENT AND $50,000 NOTE PAYABLE

The Company borrowed $50,000 in September 2010 from the management of its Natural Blue Steel subsidiary.  The interest rate is 40% and the note is due on December 21, 2010.

N. SUBSEQUENT EVENTS

There were no material subsequent events to disclose during the period from September 30, 2010 to November 19, 2010, the date these financial statements were issued.

 

 

  

F-16

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

  

OVERVIEW

The Company intends to operate its business primarily through its current subsidiaries, as described below, as well as entities that may be formed or acquired in the future.

 

NBRN is a development stage company currently engaged in the business of exploring, acquiring and developing various interrelated “green” businesses, including waste stream recycling, plastic and steel recycling, and a “print responsibly” business segment (currently put on hold) that will, whenever possible, use recycled printing processes both online and in the traditional print process. NBRN is also exploring entering into the robust and eco-friendly business of energy management.  NBRN generally intends to acquire, develop and operate businesses that generally have existing earnings and quality, knowledgeable management in place and that utilize proprietary, state-of-the-art technology. NBRN intends to develop these businesses into an interrelated, environmentally friendly company.

 

CasCommunications

CasCommunications is an inactive Florida corporation.  We own 40% of the outstanding common stock of CasCommunications.  CasCommunications did not generate any revenue or expense for the fiscal year ended December 31, 2009 or the nine months ended September 30, 2010. The Company is exploring options related to CasCommunications, but has ceased any further investment in this company.

 

NetSymphony   and   QoVox

NetSymphony’s and QoVox are both currently inactive.  We have taken the necessary steps to cease all of NetSymphony’s and QoVox's operations and are evaluating the future prospects for such entities.  Neither entity has any employees.

EcoWave

EcoWave was acquired on August 14, 2009 by NBRN, our wholly-owned subsidiary, from Kaleida  Eco Ventures, Inc. a Delaware corporation, (“Kaleida”). 

 

EcoWave holds the exclusive worldwide, excluding the Republic of Korea, use and manufacturing license to patents and technology rights for waste treatment using microwave technology previously licensed by Kaleida.  Kaleida is currently licensing the technology for use in waste treatment plants located in Korea.  Kaleida is currently the sole manufacturer of the equipment which EcoWave intends to market and sell, but EcoWave is not subject to any restrictions or limitations which prevent it from sourcing the equipment elsewhere.  EcoWave is required to pay a royalty to Kaleida of $200,000 per installed unit.  The license term shall remain in effect for the life of the last-to-expire patents or for 20 years, whichever occurs last.

 

It is intended that EcoWave will sell waste treatment equipment into which is incorporated a proprietary process to third parties who will treat waste.  This process dries waste that is generated from the customers business processes, and converts the waste from a non-useable by-product to a useable by-product.  The drying process is capable of reducing the volume of waste by-product by eliminating the moisture content, without harming the core properties of the by-product so that it may be either used again, resold, or eliminated depending on the customer needs.  The process that the EcoWave equipment provides is to dry waste from all sources, so EcoWave is not dependant on any geographic or industry-specific market.  Currently, EcoWave is in preliminary discussions with potential customers in various industries including agriculture, mining, resorts, cruise lines and municipalities.

In December, 2009, EcoWave purchased the pilot unit necessary to allow EcoWave to facilitate a first hand review of the process and establish small scale residual processing.  In late January 2010 the preliminary tests proved that the EcoWave technology is working and the Company anticipates that EcoWave will start operating in fiscal 2011.

  

4

 

EcoWave has implemented formal agency and distribution agreements to market and sell the equipment.  These agreements provide for commissions based on sales performance.  Since we have no customers, and we have yet to generate revenue, we are not dependent on any one or a few major customers, EcoWave intends to sell this equipment across North America and eventually internationally.

EcoWave will have competition from other waste treatment providers as well as two separate companies that are using an alternate technology to dry waste.  None of these companies is leading the market and many of the older technologies are dependent upon fossil fuels and non eco-friendly methods.  However, each of these companies may have a distinct advantage as they are more seasoned, may have existing marketing and sales distribution channels and may have more readily available access to capital at rates that we may not achieve.

EcoWave is currently dependent upon one international manufacturer of the equipment it will sell, however, it is in the process of identifying several domestic sources for the equipment, but there can be no assurance that there will not be a delay in purchasing the equipment EcoWave sells.  Under the terms of the sub- license from Kaleida to EcoWave, EcoWave is allowed to source the equipment from any source that it finds reasonably and economically practical.

The technology EcoWave uses to treat waste is proprietary and EcoWave has the sole sub-license.

Waste treatment is regulated by several federal and state agencies and the effect of existing or probable governmental regulations on the business is not certain.  The impact of environmental laws may have a negative impact on our ability to start profitable operations.

Natural Blue Steel

The Company formed NBS in November 2009 to capitalize on the recycled steel market.  The Company, through NBS intends to make strategic and opportunistic arrangements for the purchase and subsequent resale of recycled steel, predominantly through the acquisition of abandoned buildings, which the Company will demolish in order to recover and sell the scrap steel.  NBS is a development stage company and there have been no revenues recorded to date.   The Company cannot provide reasonable assurance that NBS will meet these objectives.

NBS’ principal product and service will be the identification and procurement of recycled steel predominantly from old warehouses throughout North America and then the dismantling, cutting and transporting of scrap steel to its end customer.  Currently there is no supplier of recycled steel to the Company, the Company must source each of these contracts on an opportunistic basis.

As NBS was recently formed, it has no suppliers or customers and is not reliant on any supplier, customer or market.  Currently, the Company is still developing its business plan for NBS which would include the sales and marketing strategy, potential financing options and an evaluation of the impact of environmental regulations pertaining to recycled steel as well as the impact of any local, state or federal regulations. The Company intends to contract with certain entities to provide steel and other ferrous products for its potential customers. Currently several agreements are under negotiation and may or may not result in final contracts. If final contracts are signed there can be no assurance that the Company can obtain the necessary financing to proceed with its planned contract activities.

  

5

Currently, NBS has no employees and the Company is using outside consultants to help NBS devise and implement its business plan and strategy.  The Company has entered into an agreement on October 26, 2009 with two separate entities to identify and procure recycled steel on behalf of and to manage the business of NBS (“Steel Management Contract”).  Pursuant to the Steel Management Contract, the Company shall pay to the principals of the counterparties on a monthly basis, the amount of $15,000 or 10% of the net operating profit of NBS, whichever is greater.  In addition, should NBS achieve certain production and profit levels derived from the Steel Management Contract, the Company shall pay a bonus of 100,000 shares of the Company’s common stock for each month over a 16 month period that the target production and profit levels are achieved.  The Company also agreed to reimburse the principals of the Steel Management Contract for travel and other organizational expenses as incurred. These agreements are currently on hold and subject to further negotiation.  The Company also has borrowed $50,000 from the management of NBS.  The note is due on December 21, 2010.

On March 8, 2010 NBS formed a wholly-owned subsidiary, Natural Blue International, LLC, a Florida limited liability company (“NBI”), for the purpose of engaging in business with third-party vendors for both the supply and distribution of scrap steel.

PLAN FOR OTHER PRODUCTS AND SERVICE

The Company intends to operate its business primarily through its current subsidiaries, as described above, as well as entities that may be formed or acquired in the future.  The Company is still in its Development Stage and has not generated any revenues to date and is spending substantially all of its efforts upon strategically deploying our existing capital, raising additional capital and further developing our green technologies so that they will become commercially viable and generate revenue. However, there can be no assurances that capital will be available at terms acceptable to our management, if at all, or that our acquired or developed technologies can achieve profitable operations.

MARKETING PLAN AND SALES STRATEGY

The Company intends to operate its business primarily through its current subsidiaries, as well as entities that may be formed or acquired in the future.

EcoWave has implemented formal agency and distribution agreements to market and sell the equipment.  These agreements provide for commissions based on sales performance.  Since we have no customers, and we have yet to generate revenue, we are not dependent on any one or a few major customers, EcoWave intends to sell this equipment across North America and eventually internationally.

EcoWave will have competition from other waste treatment providers as well as two separate companies that are using an alternate technology to dry waste.  None of these companies is leading the market and many of the older technologies are dependent upon fossil fuels and non eco-friendly methods.  However, each of these companies may have a distinct advantage as they are more seasoned, may have existing marketing and sales distribution channels and may have more readily available access to capital at rates that we may not achieve.

NBS will continue to rely upon the consultants it has retained to source both suppliers of steel and sales contracts. Since we have no customers and have yet to generate revenue, we are not dependent on any one of a few major customers.  However, it is our intention to utilize NBI in conjunction with these consultants to source opportunistic deals for NBS.

 

SALES PERSONNEL

As of September 30, 2010, we continue to use the services of our executive management to sell our services and products. We have contracted with independent marketing and sales representatives to sell and distribute for EcoWave.  At the current time, we do not need additional sales support; however, should our services and products expand and sales increase, we plan to employ additional regional sales representatives to promote and sell our products and services to governments, companies, and other commercial entities. We intend to provide service and support to our sales representatives, including advertising and sales materials.   

6

GOVERNMENTAL REGULATION

We are unaware of and do not anticipate having to expend significant resources to comply with any non-environmental governmental regulations. We are subject to applicable laws and regulations in the jurisdictions where we will sell our products, which laws and regulations are generally applicable to business operations, such as business licensing requirements, income taxes and payroll taxes. In general, the collection, recycling, and sale of polystyrene in the United States are not subject to special non-environmentally related regulatory and/or supervisory requirements.

 

COMPLIANCE WITH ENVIRONMENTAL LAWS

Our business is subject to strict supervision and regulation by state and federal governmental environmental authorities, including  the U.S. Environmental Protection Agency (“EPA”) and state counterparts, which we intent to  comply with, including regulations pertaining to receiving and mixing chemicals.

 

CRITICAL ACCOUNTING POLICIES

Our significant accounting policies are described in Note 1 of the Financial Statements.

 

RESULTS OF OPERATIONS:

The Company incurred a loss from continuing operations of $569,122 and $1,731,880 for the nine and three months ended September 30, 2010, respectively.  The major components of these operating losses were as follows:

Total Amount

Total Amount

For the Nine

For the Three

Months Ended

Months Ended

September 30,

September 30,

2010

2010

Expense Category

Consulting

$

1,065,124

$

527,551

Professional Fees

363,799

8,340

Salaries and Wages

158,809

--

Bad Debt Expense

--

--

Depreciation

46,664

23,332

Travel

88,040

9,519

All Other Expenses

9,444

380

Total Operating Expenses

1,731,880

559,122

The company’s Natural Blue Resources Nevada and Natural Blue Resources Delaware were merged on July 24, 2009. As the Company was newly formed, comparative analysis for the period ending September 30, 2010 to 2009 is not meaningful.

During the quarter ended June 30, 2010. EcoWave began depreciating its demonstration equipment and recorded depreciation expense of $46,664 for the year to date. Most of the operating expenses incurred by the Company has been and is expected to remain for the near future for consultants and professional services.  As the Company has limited employee resources, it is reliant upon consultants and the services of other professionals, notably legal and accounting related, to work with the subsidiaries.  Since the Company is still in its Development Stage, there are no revenues to offset these expenses and the Company has used and continues to use significant amounts of cash while in this stage.   Without additional funding sources, it is likely that the Company will no longer be able to afford these consultant and professional fee expenses which would hamper the Company’s ability to meet its stated business objectives.

7

LIQUIDITY AND CAPITAL RESOURCES:

Currently, our sources of cash are limited to our current cash reserves.  Cash on hand was $20,880 and $689,899 as of September 30, 2010 and December 31 2009, respectively.  Our current businesses are operating on a negative cash flow basis and we do not have any sources of debt financing available to us.  Our ability to continue to operate our current businesses and to acquire and operate additional businesses in the future will be dependent upon raising capital and generating cash flow from existing businesses.  There are no assurances that we will be successful in raising capital at all, or that any capital available to us will be available on terms and conditions acceptable to us.  There are also no assurances that our existing businesses will be successful in generating cash flow sufficient to sustain them and allow their continued development.  We do not anticipate that we will have access to debt financing under terms acceptable to us in the foreseeable future.

ITEM 4T. CONTROLS AND PROCEDURES

 

The Company’s management, consisting of our Chief Executive Officer and Chief Financial Officer, evaluated 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 (the “Exchange Act”)) as of September 30, 2010. Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2010, our disclosure controls and procedures were not effective in providing reasonable assurance that information required to be disclosed in the reports that we file or submit under the Exchange Act, are timely recorded, processed, summarized and reported as required by the Exchange Act.

  

Management did not use a formal framework to conduct the required evaluation of the effectiveness of the Company’s internal control over financial reporting since, in the view of management, comparison with a formal framework was unwarranted because of (1) the small size of the Company’s current operations and (2) the Company’s executive management structure (consisting of only the Company’s principal executive officer and principal financial officer) which enables management to be aware of all transactions.  The Company has limited resources and as a result, a material weakness in financial reporting currently exists, because of our limited resources and personnel, including those described below.

•

The Company has in insufficient quantity of dedicated resources and experienced personnel involved in reviewing and designing internal controls.  As a result, a material misstatement of the interim and annual financial statements could occur and not be prevented or detected on a timely basis.

•

We have not achieved the optimal level of segregation of duties relative to key financial reporting functions.

•

We do not have an audit committee or an independent audit committee financial expert.  While not being legally obligated to have an audit committee or independent audit committee financial expert, it is the management’s view that to have an audit committee, comprised of independent board members, and an independent audit committee financial expert is an important entity-level control over the Company’s financial statements.

•

We have not achieved an optimal segregation of duties for executive officers of the Company.

A material weakness is a deficiency (within the meaning of the Public Company Accounting Oversight Board (PCAOB) auditing standard 5) or combination of deficiencies in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.  Management has determined that a material weakness exists due to a lack of segregation of duties, resulting from the Company’s limited resources and personnel.

 

  

8

PART II OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

On October 13, 2009 in the General Court of Justice, Superior Court Division, Wake County, North Carolina, Dan Ference, the former Chief Operating Officer of QoVox, brought suit against the Company, QoVox, NetSymphony, Datameg Corporation, and Bank of America. Mr. Ference contends he is owed unpaid salary in the amount of $302,013.  He denies that he settled this claim but acknowledges receipt of consideration the Company alleges was paid to him in order to settle such claim. The Company and its subsidiaries have retained North Carolina counsel.  The Company and its subsidiaries intend to vigorously defend the claim against them and have filed counterclaims against Mr. Ference.  On July 12, 2010, FIA Card Services and Bank of America Corporation filed a cross claim against the Company for $42,740.30 for credit card balances in the name of Qovox.  The Company denies that these obligations belong to the Company.

On February 19, 2010, in the General Court of Justice, Superior Court Division, Wake County, North Carolina, Francis Noser, a former employee of QoVox, brought suit against the Company and QoVox. Mr. Noser contends he is owed $230,605.36 plus interest under a promissory note from QoVox.  The Company and QoVox have retained North Carolina counsel.  The Company intend to vigorously defend the claim against it. 

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

On March 5, 2010, the Company engaged in a private placement wherein 316,176 shares of its common stock were issued.  Gross proceeds from the private placement were $268,750.

From May 18 to September 10, 2010, the Company engaged in a private placement wherein 625,000 shares of its common stock were issued.  Gross proceeds from the private placement were $62,500.

In July 2010 the Company sold 40,000 shares to one individual for cash of $4,000.

In the quarter ended September 30, 2010 the Company issued 4,255,000 shares of common stock for services valued at $.10 per share.

The offer and sale of common stock was made without public solicitation or advertising to a limited number of persons and therefore was exempt from registration under Section 4(2) of the Securities Act of 1933. No underwriter was involved.

Proceeds from the private placement were used in operations of the Company.

 

9

ITEM 6.  EXHIBITS

Exhibit

Number

Description

Notes

3.1

Certificate of Amendment to Certificate of Incorporation of Datameg Corporation

filed September 18, 2009 with the Secretary of State of Delaware

1

3.2

Bylaws of the Registrant, effective August 24, 2009

2

22.1

Published Report of Matters Submitted To Vote of Securities Holders, Change of Directors

3

31.1

Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities

Exchange Act of 1934

*

31.2

Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities

Exchange Act of 1934

*

32.1

Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 of Chapter 63

of Title 18 of the United States Code

*

32.2

Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 of Chapter 63

of Title 18 of the United States Code

*

 

Notes:

1.           This exhibit was filed as exhibit 3 to our Current Report on Form 8-K filed with the Securities and Exchange Commission on August 26, 2009, and is incorporated herein by reference thereto.

2.           This exhibit was filed as exhibit 3.2 to our Current Report on Form 8-K filed with the Securities and Exchange Commission on May 4, 2005, and is incorporated herein by reference thereto.

3.           This exhibit was filed as Schedule14F1 filed with the Securities and Exchange Commission on August 10, 2009, and is incorporated herein by reference thereto.

*           Filed herewith.

  

10

 

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.

NATURAL BLUE RESOURCES, INC.

Date:  November 19, 2010

By:

/s/ Toney Anaya

Toney Anaya

Chief Executive Officer and duly authorized officer

Date:  November 19, 2010

By:

/s/ Jehu Hand

Jehu Hand

Chief Financial  Officer (principal financial and accounting  officer)