UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
T Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period endedDecember 31, 2008
£ 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:000-52827
OMNICITY CORP.
(Exact name of registrant as specified in its charter)
Nevada | 98-0512569 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
#253-280 Nelson Street |
|
(Address of principal executive offices) | (Zip Code) |
(778) 389-3663 | |
(Registrant's telephone number, including area code) | |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer [ ] | Accelerated filer [ ] |
Non-accelerated filer [ ] | Smaller reporting company [X] |
(Do not check if a smaller reporting company) |
|
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of common equity as of the latest practicable date:As of February 11, 2009, there were 43,967,007shares of common stock, par value $0.001, outstanding.
__________
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Omnicity Corp.
(formerly Bear River Resources, Inc.)
(A Development Stage Company)
Balance Sheets
(Expressed in US dollars)
December 31, | June 30, | ||
ASSETS | |||
Current Assets | |||
Cash | - | 919 | |
Total Assets | - | 919 | |
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) | |||
Current Liabilities | |||
Accounts payable | 109,735 | 21,171 | |
Accrued liabilities | - | 1,157 | |
Due to related party (Note 3) | 100 | - | |
Total Liabilities | 109,835 | 22,328 | |
Nature of Operations and Continuance of Business (Note 1) | |||
Stockholders' Equity (Deficit) | |||
Common Stock, 200,000,000 shares authorized, $0.001 par value | 43,967 | 43,967 | |
Additional Paid-in Capital | 32,533 | 32,533 | |
Donated Capital (Note 3(a)) | 17,500 | 13,000 | |
Deficit Accumulated During the Development Stage | (203,835) | (110,909) | |
Total Stockholders' Equity (Deficit) | (109,835) | (21,409) | |
Total Liabilities and Stockholders' Equity (Deficit) | - | 919 | |
Omnicity Corp.
(formerly Bear River Resources, Inc.)
(A Development Stage Company)
Statements of Operations
(Expressed in US dollars)
(unaudited)
Accumulated | Three Months Ended | Three Months Ended | Six Months Ended | Six Months Ended | |
$ | $ | $ | $ | $ | |
Revenue | - | - | - | - | - |
Expenses | |||||
Donated rent (Note 3(a)) | 6,500 | 750 | 750 | 1,500 | 1,500 |
Donated services (Note 3(b)) | 11,000 | 1,500 | 1,500 | 3,000 | 3,000 |
Foreign exchange | (6,277) | (6,136) | 669 | (6,978) | 669 |
General and administrative | 6,018 | 2,415 | 1,611 | 3,336 | 1,654 |
Impairment of mineral property | 15,787 | - | - | - | - |
Mineral property expenses | 15,982 | - | 15,508 | - | 15,982 |
Professional fees | 154,825 | 66,826 | 11,139 | 92,068 | 40,320 |
Total Expenses | (203,835) | 65,355 | 31,177 | 92,926 | 63,125 |
Net Loss | (203,835) | (65,355) | (31,177) | (92,926) | (63,125) |
Net Loss Per Share - Basic and Diluted | - | - | - | - | |
Weighted Average Shares Outstanding (Note 5(b)) | 43,967,000 | 43,967,000 | 43,967,000 | 43,967,000 | |
Omnicity Corp.
(formerly Bear River Resources, Inc.)
(A Development Stage Company)
Statements of Cash Flows
(Expressed in US dollars)
(unaudited)
Six Months Ended | Six Months Ended | ||
Operating Activities | |||
Net loss for the period | (92,926) | (62,125) | |
Adjustments to reconcile net loss to cash used in operating activities | |||
Donated services and expenses | 4,500 | 4,500 | |
Changes in operating assets and liabilities | |||
Accounts payable and accrued liabilities | 87,407 | 4,693 | |
Net Cash Used in Operating Activities | (1,019) | (53,932) | |
Net Cash Used in Investing Activities | - | - | |
Financing Activities | |||
Loan from a related party | 100 | - | |
Net Cash Provided by Financing Activities | 100 | - | |
(Decrease) In Cash | (919) | (53,932) | |
Cash - Beginning of Period | 919 | 56,391 | |
Cash - End of Period | - | 2,459 | |
Supplemental Disclosures | |||
Interest paid | - | - | |
Income tax paid | - | - | |
Omnicity Corp.
(formerly Bear River Resources, Inc.)
(A Development Stage Company)
Statement of Stockholders' Equity (Deficit)
For the Period from October 12, 2006 (Date of Inception) to December 31, 2008
(Expressed in US dollars)
(unaudited)
Deficit | ||||||
Accumulated | ||||||
Additional | During the | |||||
Paid-in | Donated | Exploration | ||||
Shares | Amount | Capital | Capital | Stage | Total | |
(Note 5 (b)) | ||||||
# | $ | $ | $ | $ | $ | |
Balance - October 12, 2006 | 7 | - | - | - | - | - |
June 18, 2007 - issuance of | 33,880,000 | 33,880 | (22,880) | - | - | 11,000 |
June 19, 2007 - issuance of | 10,087,000 | 10,087 | 55,413 | - | - | 65,500 |
Donated rent and services | - | - | - | 4,000 | - | 4,000 |
Net loss for the period | - | - | - | - | (30,524) | (30,524) |
Balance - June 30, 2007 | 43,967,000 | 43,967 | 32,533 | 4,000 | (30,524) | 49,976 |
Donated rent and services | - | - | - | 9,000 | - | 9,000 |
Net loss for the year | - | - | - | - | (80,385) | (80,385) |
Balance - June 30, 2008 | 43,967,000 | 43,967 | 32,533 | 13,000 | (110,909) | (21,409) |
Donated rent and services | - | - | - | 4,500 | - | 4,500 |
Net loss for the period | - | - | - | - | (92,926) | (92,926) |
Balance - December 31, 2008 | 43,967,000 | 43,967 | 32,533 | 17,500 | (203,835) | (109,835) |
1. Nature of Operations and Continuance of Business
The Company was incorporated as Bear River Resources, Inc. in the State of Nevada on October 12, 2006 and has been registered as an extraprovincial company under the Business Corporations Act of British Columbia on November 6, 2006. The Company is a Development Stage Company, as defined by Statement of Financial Accounting Standard ("SFAS") No.7 "Accounting and Reporting for Development Stage Enterprises". The Company's principal business is the acquisition and exploration of mineral resources. The Company has not presently determined whether its properties contain mineral reserves that are economically recoverable.
The Company filed an SB-2 Registration Statement with the United States Securities and Exchange Commission to register 10,087,000 post-forward split common shares for sale by existing shareholders. The Company will not receive any proceeds from the resale of common stock by existing shareholders. The SB-2 Registration Statement was declared effective on September 18, 2007.
On October 21, 2008 the Company changed its name to Omnicity Corp. and increased its issued share capital on a 7.7 new for 1 old basis. There are 43,967,007 common shares outstanding after the forward split. The Company increased its authorized share capital to 200,000,000 common shares and changed its trading symbol to "OMCY". All share and per share amounts have been retroactively restated.
On December 29, 2008, the Company entered into an Agreement and Plan of Merger with Omnicity Acquisition Co., a wholly-owned Indiana subsidiary, and Omnicity Incorporated in connection with the proposed acquisition of all of the issued and outstanding shares of Omnicity Incorporated, an Indiana company. Omnicity Incorporated is presently engaged in the business of the build-out and expansion into full broadband solutions, including a rollup and consolidation of the United States rural WISP market. The total purchase price will consist of 23,000,000 post-forward split restricted common shares of the Company. In addition, and under the terms of the Agreement and Plan of Merger the Company will cause 33,880,000 founders' post-forward split common shares of the Company to be cancelled leaving 10,087,007 post-forward split common shares issued and outstanding. Under the terms of the Agreement and Plan of Merger the Company had agreed to raise a minimum of $1,500,000 and a maximum of $2,000,000 by way of a private placement financing at $0.35 per post-forward split common share. The Company is offering a $0.35 per unit private placement of securities ("Unit") and a $0.35 per unit debt private placement of securities ("Debt Unit"). Each Debt Unit will be issued to certain creditors of Omnicity Incorporated who have subscribed for such Debt Units. Each Unit or Debt Unit contains one common share and one-half of a share purchase warrant. Each whole warrant is exercisable into one common share at an exercise price of $0.50 per share for a period of two years from acceptance of the investor's subscription. This offering is open until March 31, 2009. The maximum number of Units or Debt Units offered is 5,714,286 and the maximum consideration to be received in cash or settlement of Omnicity Incorporated debt is $2,000,000. These Units and Debt Units are being offered as part of Agreement and Plan of Merger dated December 29, 2008.
These financial statements have been prepared on a going concern basis, which implies the Company will continue to realize its assets and discharge its liabilities in the normal course of business. The Company has never generated revenues since inception and has never paid any dividends and is unlikely to pay dividends or generate earnings in the immediate or foreseeable future. The continuation of the Company as a going concern is dependent upon the continued financial support from its shareholders, the ability of the Company to obtain necessary equity financing to continue operations, and the attainment of profitable operations. As at December 31, 2008, the Company had a working capital deficit of $109,835 and accumulated losses of $203,835 since inception. These factors raise substantial doubt regarding the Company's ability to continue as a going concern. These financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and cla ssification of liabilities that might be necessary should the Company be unable to continue as a going concern.
2. Summary of Significant Accounting Policies
a) Basis of Presentation
These financial statements and related notes are presented in accordance with accounting principles generally accepted in the United States, and are expressed in US dollars. The Company's fiscal year-end is June 30. On January 7, 2009 the Company incorporated a wholly-owned Indiana subsidiary, Omnicity Acquisition Co.
b) Interim Financial Statements
The interim unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions for Securities and Exchange Commission ("SEC") Form 10-Q. They do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. Therefore, these financial statements should be read in conjunction with the Company's audited financial statements and notes thereto for the year ended June 30, 2008, included in the Company's Form 10KSB filed on September 22, 2008 with the SEC.
The financial statements included herein are unaudited; however, they contain all normal recurring accruals and adjustments that, in the opinion of management, are necessary to present fairly the Company's financial position at December 31, 2008, and the results of its operations and cash flows for the three and six months ended December 31, 2008 and 2007. The results of operations for the three and six months ended December 31, 2008 are not necessarily indicative of the results to be expected for future quarters or the full year.
c) Use of Estimates
The preparation of financial statements in accordance with United States generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses in the reporting period. The Company regularly evaluates estimates and assumptions related to the useful life and recoverability of long-lived assets, stock-based compensation and deferred income tax asset valuation allowances. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company's estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.
d) Cash and Cash Equivalents
The Company considers all highly liquid instruments with maturity of three months or less at the time of issuance to be cash equivalents.
e) Mineral Property Costs
The Company has been in the exploration stage since its inception on October 12, 2006 and has not yet realized any revenues from its planned operations. It is primarily engaged in the acquisition and exploration of mining properties. Mineral property exploration costs are expensed as incurred. Mineral property acquisition costs are initially capitalized when incurred using the guidance in EITF 04-02, "Whether Mineral Rights Are Tangible or Intangible Assets". The Company assesses the carrying costs for impairment under SFAS 144, "Accounting for Impairment or Disposal of Long Lived Assets" at each fiscal quarter end. When it has been determined that a mineral property can be economically developed as a result of establishing proven and probable reserves, the costs then incurred to develop such property, are capitalized. Such costs will be amortized using the units-of-production method over the estimated life of the probable reserve. If mineral properties are subsequently abandoned or impaired, any capitalized costs will be charged to operations.
f) Long-Lived Assets
In accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", the carrying value of long-lived assets is reviewed on a regular basis for the existence of facts or circumstances that may suggest impairment. The Company recognizes impairment when the sum of the expected undiscounted future cash flows is less than the carrying amount of the asset. Impairment losses, if any, are measured as the excess of the carrying amount of the asset over its estimated fair value.
g) Financial Instruments
The fair value of financial instruments, which include cash and accounts payable, were estimated to approximate their carrying values due to the immediate or short-term maturity of these financial instruments. Foreign currency transactions are primarily undertaken in Canadian dollars. The financial risk is the risk to the Company's operations that arise from fluctuations in foreign exchange rates and the degree of volatility of these rates. Currently, the Company does not use derivative instruments to reduce its exposure to foreign currency risk.
h) Foreign Currency Translation
The Company's functional and reporting currency is the United States dollar. Monetary assets and liabilities denominated in foreign currencies are translated in accordance with SFAS No. 52 "Foreign Currency Translation", using the exchange rate prevailing at the balance sheet date. Gains and losses arising on settlement of foreign currency denominated transactions or balances are included in the determination of income. Foreign currency transactions are primarily undertaken in Canadian dollars. The Company has not, to the date of these financials statements, entered into derivative instruments to offset the impact of foreign currency fluctuations.
i) Recent Accounting Pronouncements
In May 2008, the Financial Accounting Standards Board ("FASB") issued SFAS No. 163, "Accounting for Financial Guarantee Insurance Contracts - An interpretation of FASB Statement No. 60". SFAS No. 163 requires that an insurance enterprise recognize a claim liability prior to an event of default when there is evidence that credit deterioration has occurred in an insured financial obligation. It also clarifies how Statement 60 applies to financial guarantee insurance contracts, including the recognition and measurement to be used to account for premium revenue and claim liabilities, and requires expanded disclosures about financial guarantee insurance contracts. It is effective for financial statements issued for fiscal years beginning after December 15, 2008, except for some disclosures about the insurance enterprise's risk-management activities. SFAS No. 163 requires that disclosures about the risk-management activities of the insurance enterprise be effective for the first period be ginning after issuance. Except for those disclosures, earlier application is not permitted. The adoption of this statement is not expected to have a material effect on the Company's financial statements.
In May 2008, the FASB issued SFAS No. 162, "The Hierarchy of Generally Accepted Accounting Principles". SFAS No. 162 identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles in the United States. It is effective 60 days following the SEC's approval of the Public Company Accounting Oversight Board amendments to AU Section 411, "The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles". The adoption of this statement is not expected to have a material effect on the Company's financial statements.
In March 2008, the Financial Accounting Standards Board ("FASB") issued SFAS No. 161, "Disclosures about Derivative Instruments and Hedging Activities - an amendment to FASB Statement No. 133". SFAS No. 161 is intended to improve financial standards for derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity's financial position, financial performance, and cash flows. Entities are required to provide enhanced disclosures about: (a) how and why an entity uses derivative instruments; (b) how derivative instruments and related hedged items are accounted for under Statement 133 and its related interpretations; and (c) how derivative instruments and related hedged items affect an entity's financial position, financial performance, and cash flows. It is effective for financial statements issued for fiscal years beginning after November 15, 2008, with early adoption encouraged. The Company is curren tly evaluating the impact of SFAS No. 161 on its financial statements, and the adoption of this statement is not expected to have a material effect on the Company's financial statements.
In December 2007, the Financial Accounting Standards Board ("FASB") issued SFAS No. 141 (revised 2007), "Business Combinations". This statement replaces SFAS No. 141 and defines the acquirer in a business combination as the entity that obtains control of one or more businesses in a business combination and establishes the acquisition date as the date that the acquirer achieves control. SFAS 141 (revised 2007) requires an acquirer to recognize the assets acquired, the liabilities assumed, and any non-controlling interest in the acquired at the acquisition date, measured at their fair values as of that date. SFAS 141 (revised 2007) also requires the acquirer to recognize contingent consideration at the acquisition date, measured at its fair value at that date. This statement is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. Earlier adoption is prohibited. The adoption of this statement is not expected to have a material eff ect on the Company's financial statements.
In December 2007, the FASB issued SFAS No. 160, "Non-controlling Interests in Consolidated Financial Statements Liabilities -an Amendment of ARB No. 51". This statement amends ARB 51 to establish accounting and reporting standards for the Non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary. This statement is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. Earlier adoption is prohibited. The adoption of this statement is not expected to have a material effect on the Company's financial statements.
3. Related Party Transactions
a) During the three months ended December 31, 2008, the Company recognized a total of $750 (2007 - $750) for donated rent at $250 per month provided by the President and CFO of the Company.
b) During the three months ended December 31, 2008, the Company recognized a total of $1,500 (2007 - $1,500) for donated services at $500 per month provided by the President and CFO of the Company.
c) On September 11, 2008 the President and CEO of the Company loaned $100 on an unsecured, non-interest bearing demand basis.
4. Mineral Properties
On November 22, 2006, the Company acquired a 100% interest in the Redoubt 1 and Redoubt 2 mineral claims covering approximately 1,000 hectares located in the Stewart Mining Division in the Province of British Columbia, Canada, in consideration for $10,000. The claims were registered in the name of the Company on August 16, 2007. The cost of the mineral property, a property report and assessment work was initially capitalized. For the year ended June 30, 2007, the Company recognized an impairment loss of $15,787, as the Company has not yet determined whether the claims have proven or probable reserves on the property. On October 15, 2007 the Company advanced CND$15,000 to its geologist to conduct an exploratory work program on the claims which was conducted in November, 2007. The Company received a geologist report on February 6, 2008 dated January 27, 2008. The results were not as expected and the Company evaluated a Phase 2, CDN $15,000, work program recommended by the Company's geol ogist for the summer of 2008, however, management decided to let the claims lapse on July 29, 2008.
5. Common Stock and Agreement in Principle
a) The Company filed an SB-2 Registration Statement with the United States Securities and Exchange Commission to register 10,087,000 post-forward split common shares for sale by existing shareholders. The Company will not receive any proceeds from the resale of common stock by existing shareholders. The SB-2 Registration Statement was declared effective on September 18, 2007.
b) On October 21, 2008 the Company changed its name to Omnicity Corp. and increased its issued share capital on a 7.7 new for 1 old basis. There are 43,967,007 common shares outstanding after the forward split. The Company increased its authorized share capital to 200,000,000 common shares and changed its trading symbol to "OMCY". All share and per share amounts have been retroactively restated.
c) On December 29, 2008, the Company entered into an Agreement and Plan of Merger with Omnicity Acquisition Co., a wholly-owned Indiana subsidiary, and Omnicity Incorporated in connection with the proposed acquisition of all of the issued and outstanding shares of Omnicity Incorporated, an Indiana company. Omnicity Incorporated is presently engaged in the business of the build-out and expansion into full broadband solutions, including a rollup and consolidation of the United States rural WISP market. The total purchase price will consist of 23,000,000 post-forward split restricted common shares of the Company. In addition, and under the terms of the Agreement and Plan of Merger the Company will cause 33,880,000 founders' post-forward split common shares of the Company to be cancelled leaving 10,087,007 post-forward split common shares issued and outstanding. Under the terms of the Agreement and Plan of Merger the Company had agreed to raise a minimum of $1,500 ,000 and a maximum of $2,000,000 by way of a private placement financing at $0.35 per post-forward split common share. The Company is offering a $0.35 per unit private placement of securities ("Unit") and a $0.35 per unit debt private placement of securities ("Debt Unit"). Each Debt Unit will be issued to certain creditors of Omnicity Incorporated who have subscribed for such Debt Units. Each Unit or Debt Unit contains one common share and one-half of a share purchase warrant. Each whole warrant is exercisable into one common share at an exercise price of $0.50 per share for a period of two years from acceptance of the investor's subscription. This offering is open until March 31, 2009. The maximum number of Units or Debt Units offered is 5,714,286 and the maximum consideration to be received in cash or settlement of Omnicity Incorporated debt is $2,000,000. These Units and Debt Units are being offered as part of Agreement and Plan of Merger dated December 29, 2008.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Forward-Looking Statements
This quarterly report contains forward-looking statements as that term is defined in Section 27A of the United States Securities Act of 1933 and Section 21E of the United States Securities Exchange Act of 1934. These statements relate to future events or our future financial performance, including the proposed acquisition of Omnicity Incorporated. In some cases, you can identify forward-looking statements by terminology such as "may", "should", "expect", "plan", "anticipate", "believe", "estimate", "predict", "potential" or "continue" or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks in the section entitled "Risk Factors" in our annual report, that may cause our or our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or imp lied by these forward-looking statements. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.
Our interim unaudited financial statements are stated in United States dollars and are prepared in accordance with United States generally accepted accounting principles. The following discussion should be read in conjunction with our interim unaudited financial statements and the related notes that appear elsewhere in this quarterly report.
In this quarterly report, unless otherwise specified, all dollar amounts are expressed in United States dollars. All references to "common shares" refer to the common shares in our capital stock. As used in this quarterly report, the terms "we", "us" and "our" refer to Omnicity Corp.
Overview
Up to July 29, 2008 we were an exploration stage company engaged in the acquisition and exploration of mineral properties. On November 22, 2006, the Company acquired a 100% interest in the Redoubt 1 and Redoubt 2 mineral claims (the "Property or "Claims") covering approximately 1,000 hectares located in the Stewart Mining Division in the Province of British Columbia, Canada, from Silver Grail Resources Ltd. and Teuton Resources Corp. in consideration for $10,000. The claims were registered in the name of the Company on August 16, 2007. The cost of the mineral property, a property report and assessment work was initially capitalized. For the year ended June 30, 2008, the Company recognized an impairment loss of $15,787, as the Company has not yet determined whether the claims have proven or probable reserves on the property. On October 15, 2007 the Company advanced CND$15,000 to its geologist to conduct an exploratory work program on the claims which was conducted in November, 2007. Th e Company received a geologist report on February 6, 2008 dated January 27, 2008. The results were not as expected and the Company evaluated a Phase 2, Cnd$15,000, work program recommended by the Company's geologist for the summer of 2008, however, management decided to let the claims lapse on July 29, 2008.
On October 21, 2008 the Company changed its name to Omnicity Corp. and increased its issued share capital on a 7.7 new for 1 old common share basis. There are 43,967,007 common shares outstanding after the forward split. The Company increased its authorized share capital from 200,000,000 common shares to 1,540,000,000 common shares and changed its trading symbol to "OMCY".
Proposed Acquisition of Omnicity Incorporated
On December 29, 2008, the Company entered into an Agreement and Plan of Merger with Omnicity Acquisition Co., a wholly-owned Indiana subsidiary, and Omnicity Incorporated in connection with the proposed acquisition of all of the issued and outstanding shares of Omnicity Incorporated, an Indiana company. Omnicity Incorporated is presently engaged in the business of the build-out and expansion into full broadband solutions, including a rollup and consolidation of the United States rural WISP market. The total purchase price will consist of 23,000,000 post-forward split restricted common shares of the Company. In addition, and under the terms of the Agreement and Plan of Merger the Company will cause 33,880,000 founders' post-forward split common shares of the Company to be cancelled leaving 10,087,007 post-forward split common shares issued and outstanding. Under the terms of the Agreement and Plan of Merger the Company had agreed to raise a minimum of $1,500,000 and a maximum of $2,000 ,000 by way of a private placement financing at $0.35 per post-forward split common share. The Company is offering a $0.35 per unit private placement of securities ("Unit") and a $0.35 per unit debt private placement of securities ("Debt Unit"). Each Debt Unit will be issued to certain creditors of Omnicity Incorporated who have subscribed for such Debt Units. Each Unit or Debt Unit contains one common share and one-half of a share purchase warrant. Each whole warrant is exercisable into one common share at an exercise price of $0.50 per share for a period of two years from acceptance of the investor's subscription. This offering is open until March 31, 2009. The maximum number of Units or Debt Units offered is 5,714,286 and the maximum consideration to be received in cash or settlement of Omnicity Incorporated debt is $2,000,000. These Units and Debt Units are being offered as part of Agreement and Plan of Merger dated December 29, 2008.
Upon completion of the acquisition of Omnicity Incorporated, we will no longer be considered a shell company nor an exploration stage company. However, there can be no assurance that the acquisition will be completed.
Overview of Omnicity Incorporated
Omnicity Incorporatedprovides broadband access, including advanced services of voice video and data, in un-served and underserved small and rural markets in the Midwestern United States and is planning to be a consolidator of rural market broadband nationwide. Omnicity's strategy is to provide a total broadband solution. Omnicity's value proposition is providing internet access in rural America at significantly lower cost than wire or fiber optics. In the future, Omnicity also expects to provide other value-added services for its customers including telecommunication (VOIP) and video on demand. Since its inception in 2003 Omnicity has grown in the Midwest through acquisitions and organic growth. Management plans further growth through ongoing acquisitions of smaller regional service providers and continued organic growth.
Plan of Operations
Our plan of operations for the next twelve months is to complete the acquisition of Omnicity Incorporated in accordance with the Agreement and Plan of Merger executed on December 29, 2008, and pursue its business and financing for its business. The Company will continually seek secondary equity and debt financing and re-finance assets purchased with debt financing and roll-out the business plan of Omnicity Incorporated. Omnicity plans to take advantage of Indiana State Investment Tax Credits ("ITC's") by flowing a 20% ITC to Indiana State taxpayers that either loan or acquire equity in the Company.
As at December 31, 2008, the Company had no cash and a working capital deficit of $46,730. We will require an additional $120,000 in financing to cover our working capital deficiency and pay for the remainder of closing costs that we expect to incur up until closing of the proposed acquisition of Omnicity Incorporated.
During the twelve-month period following the date of this report, we anticipate closing on the acquisition of Omnicity Incorporated and related asset purchase agreements pending by Omnicity Incorporated, to expand its network and number of subscribers. As a result, we expect that we will generate revenue and cash flow on a consolidated basis from subscriber revenues. As indicated above, we will require additional financing to acquire business assets and to cover all of our overhead costs that we expect to incur over the next twelve months. We anticipate that funding available at closing along with equipment leasing financing available from Agility Leasing will be enough to pay for closing costs, reduce the Company's and Omnicity Incorporated working capital deficiencies and to acquire the four pending asset purchases by Omnicity Incorporated. After closing of the acquisition of Omnicity Incorporated we expect we will need to raise a further approximately $1 million in the short-term to expand our network, continue to reduce our working capital deficiency and to continue to acquire WISP operating assets. The financing will be a combination of equity in the form of common shares and warrants; and by way of secured interest bearing debt as well as operating leases from Agility Leasing. We believe that debt financing will be an alternative for funding additional business asset acquisitions and to re-finance network equipment previously purchased for cash. Omnicity Incorporated has secured an equipment leasing line of credit in the amount of $1 million. In the absence of such financing, we will not be able to continue expanding our network and subscribers as rapidly as planned.
There can be no assurance that our plan of operations will be achieved.
Results of Operations
Revenues
We have had no operating revenues since our incorporation on October 12, 2006 to December 31, 2008. In the future we plan to earn revenues from subscribers pending the acquisition of Omnicity Incorporated as discussed above.
Expenses
Our general and administrative expenses for the three months and six months ended December 31, 2008 and for the period from October 12, 2006 (date of inception) to December 31, 2008 are summarized below:
Expenses | Three Months Ended | Six Months Ended | Accumulated From October 12, 2006 (Date of Inception) to December 31, 2008 |
Donated Rent | 750 | 1,500 | 6,500 |
Donated Services | 750 | 3,000 | 11,000 |
Foreign Exchange | (6,136) | (6,978) | (6,277) |
General and administrative | 2,415 | 3,336 | 6,018 |
Impairment of mineral | - | - | 15,787 |
Mineral property expenses | - | - | 15,982 |
Professional fees | 66,826 | 92,068 | 154,825 |
Total expenses and net loss | 65,355 | 92,926 | 203,835 |
Six Months Ended December 31, 2008 and Accumulated from Inception to December 31, 2008
We have experienced a net loss of $92,926 for the six months ended December 31, 2008, mainly as a result of legal fees of $92,068. The accumulated net loss of $203,835 from Inception to December 31, 2008 is mainly due to: acquisition and subsequent impairment of the cost of our mineral property totalling $15,787; our exploration program costing $15,508 (CAD$15,500) and a BC free miners certificate costing $474 (CAD$500); and professional fees of $154,825, which includes audit fees of $11,100 and legal fees of $143,725 associated with the completion of our SB-2 Registration Statement and 15C2-11 application to FINRA for our trading symbol and legal fees of $87,3268 associated with the Agreement in Principle, name change, stock split, Agreement and Plan of Merger, drafting an 8K Prospectus and all other related reorganization costs. Net loss also includes donated rent and services totalling $17,500 which is a non-cash charge to operations.
Liquidity and Capital Resources
We had no cash and a working capital deficit of $109,835 as of December 31, 2008.
Cash Used in Operating Activities
Net cash used in operating activities was $1,019 for the six months ended December 31, 2008. These balances are mainly made up of our net loss as disclosed above less expenses incurred during the six months not yet paid for of $109,835.
Cash Used in Investing Activities
Net cash used in investing activities was $Nil for the six months ended December 31, 2008.
Cash from Financing Activities
We have funded our business to date primarily from sales of our common stock. We did not obtain any cash from financing activities during the six months ended December 31, 2008. However, from our inception, on October 12, 2006, to December 31, we have raised a total of $76,500 from private offerings of our securities including $11,000 from our President who subscribed for 33,800,000 post forward split common shares and $65,500 from a private placement of 10,087,000 common shares.
Going Concern
We have not attained profitable operations and are dependent upon obtaining financing to pursue our proposed business acquisition For these reasons our auditors stated in their report for the period from October 12, 2006 (Date of Inception) to December 31, 2008 that they have substantial doubt we will be able to continue as a going concern.
Future Financing
We anticipate continuing to rely on equity sales of our common shares in order to continue to fund our business operations. Issuances of additional shares will result in dilution to our existing shareholders. There is no assurance that we will achieve any additional sales of our equity securities or arrange for debt or other financing to fund our planned business acquisition.
Off-Balance Sheet Arrangements
As of December 31, 2008, we had no off-balance sheet arrangements.
Application of Critical Accounting Policies
Our consolidated financial statements and accompanying notes are prepared in accordance with generally accepted accounting principles used in the United States. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. These estimates and assumptions are affected by management's application of accounting policies. We believe that understanding the basis and nature of the estimates and assumptions involved with the following aspects of our consolidated financial statements is critical to an understanding of our financials.
Use of Estimates
The preparation of financial statements in accordance with United States generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses in the reporting period. The Company regularly evaluates estimates and assumptions related to the useful life and recoverability of long-lived assets, stock-based compensation and deferred income tax asset valuation allowances. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company's estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.
Mineral Property Costs
The Company has been in the exploration stage since its inception on October 12, 2006 and has not yet realized any revenues from its planned operations. It is primarily engaged in the acquisition and exploration of mining properties. Mineral property exploration costs are expensed as incurred. Mineral property acquisition costs are initially capitalized when incurred using the guidance in EITF 04-02, "Whether Mineral Rights Are Tangible or Intangible Assets". The Company assesses the carrying costs for impairment under SFAS 144, "Accounting for Impairment or Disposal of Long Lived Assets" at each fiscal quarter end. When it has been determined that a mineral property can be economically developed as a result of establishing proven and probable reserves, the costs then incurred to develop such property, are capitalized. Such costs will be amortized using the units-of-production method over the estimated life of the probable reserve. If mineral properties are subsequently abandone d or impaired, any capitalized costs will be charged to operations.
Long-Lived Assets
In accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", the carrying value of long-lived assets is reviewed on a regular basis for the existence of facts or circumstances that may suggest impairment. The Company recognizes impairment when the sum of the expected undiscounted future cash flows is less than the carrying amount of the asset. Impairment losses, if any, are measured as the excess of the carrying amount of the asset over its estimated fair value.
Recently Issued Accounting Policies
In May 2008, the Financial Accounting Standards Board ("FASB") issued SFAS No. 163, "Accounting for Financial Guarantee Insurance Contracts - An interpretation of FASB Statement No. 60". SFAS No. 163 requires that an insurance enterprise recognize a claim liability prior to an event of default when there is evidence that credit deterioration has occurred in an insured financial obligation. It also clarifies how Statement 60 applies to financial guarantee insurance contracts, including the recognition and measurement to be used to account for premium revenue and claim liabilities, and requires expanded disclosures about financial guarantee insurance contracts. It is effective for financial statements issued for fiscal years beginning after December 15, 2008, except for some disclosures about the insurance enterprise's risk-management activities. SFAS No. 163 requires that disclosures about the risk-management activities of the insurance enterprise be effective for the first perio d beginning after issuance. Except for those disclosures, earlier application is not permitted. The adoption of this statement is not expected to have a material effect on the Company's financial statements.
In May 2008, the FASB issued SFAS No. 162, "The Hierarchy of Generally Accepted Accounting Principles". SFAS No. 162 identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles in the United States. It is effective 60 days following the SEC's approval of the Public Company Accounting Oversight Board amendments to AU Section 411, "The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles". The adoption of this statement is not expected to have a material effect on the Company's financial statements.
In March 2008, the Financial Accounting Standards Board ("FASB") issued SFAS No. 161, "Disclosures about Derivative Instruments and Hedging Activities - an amendment to FASB Statement No. 133". SFAS No. 161 is intended to improve financial standards for derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity's financial position, financial performance, and cash flows. Entities are required to provide enhanced disclosures about: (a) how and why an entity uses derivative instruments; (b) how derivative instruments and related hedged items are accounted for under Statement 133 and its related interpretations; and (c) how derivative instruments and related hedged items affect an entity's financial position, financial performance, and cash flows. It is effective for financial statements issued for fiscal years beginning after November 15, 2008, with early adoption encouraged. The Company is curren tly evaluating the impact of SFAS No. 161 on its financial statements, and the adoption of this statement is not expected to have a material effect on the Company's financial statements.
In December 2007, the Financial Accounting Standards Board ("FASB") issued SFAS No. 141 (revised 2007), "Business Combinations". This statement replaces SFAS No. 141 and defines the acquirer in a business combination as the entity that obtains control of one or more businesses in a business combination and establishes the acquisition date as the date that the acquirer achieves control. SFAS 141 (revised 2007) requires an acquirer to recognize the assets acquired, the liabilities assumed, and any non-controlling interest in the acquired at the acquisition date, measured at their fair values as of that date. SFAS 141 (revised 2007) also requires the acquirer to recognize contingent consideration at the acquisition date, measured at its fair value at that date. This statement is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. Earlier adoption is prohibited. The adoption of this statement is not expected to have a material eff ect on the Company's financial statements.
In December 2007, the FASB issued SFAS No. 160, "Non-controlling Interests in Consolidated Financial Statements Liabilities -an Amendment of ARB No. 51". This statement amends ARB 51 to establish accounting and reporting standards for the Non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary. This statement is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. Earlier adoption is prohibited. The adoption of this statement is not expected to have a material effect on the Company's financial statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable because we are a smaller reporting company.
Item 4. Controls and Procedures.
Disclosure Controls and Procedures
As required by Rule 13a-15 under the Securities Exchange Act of 1934, we have carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this quarterly report, being December 31, 2008. This evaluation was carried out under the supervision and with the participation of our management, including our president (our principal executive officer, principal financial officer, and principal accounting officer). Based upon that evaluation, our president concluded that our disclosure controls and procedures are effective as at the end of the period covered by this quarterly report.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal controls over financial reporting that occurred during the period covered by this quarterly report that have materially affected, or are reasonably likely to materially affect our internal controls over financial reporting.
Item 1. Legal Proceedings
We know of no material, active or pending legal proceedings against our company, nor are we involved as a plaintiff in any material proceeding or pending litigation. There are no proceedings in which our director and officer or affiliates, or any registered or beneficial shareholder, is an adverse party or has a material interest adverse to our interest.
Item 1A. Risk Factors
Not applicable because we are a smaller reporting company.
Item 2. Unregistered Sales of Equity Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Securities Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits
The following exhibits are included with this Quarterly Report on Form 10-Q:
Exhibit Number | Description of Exhibit |
3.1 (1) | Articles of Incorporation |
3.2 (2) | Articles of Merger as filed with the Nevada Secretary of State, effective as of October 21, 2008, pursuant to which the Company's Articles of Incorporation were amended to change the Company's name to "Omnicity Corp." |
3.3 (2) | Certificate of Change as filed with the Nevada Secretary of State, effective as of October 21, 2008, pursuant to which the Company's authorized share capital has been increased from 200,000,000 shares of common stock to 1,540,000,000 shares of common stock, with the same par value of $0.001 per share |
3.4 (1) | Bylaws |
10.1 (3) | Agreement and Plan of Merger among the Company, Omnicity Acquisition Co. and Omnicity Incorporated dated December 29, 2008 |
31.1 | Rule 13a-14(a)/15(d)-14(a) Certification of Principal Executive Officer and Principal Financial Officer |
32.1 | 18 U.S.C. Section 1350 Certification of Principal Executive Officer and Principal Financial Officer |
(1) Incorporated by reference from our registration statement on Form SB-2 as filed with the SEC on September 10, 2007.
(2) Incorporated by reference from our Current Report on Form 8-K as filed with the SEC on October 23, 2008.
(3) Incorporated by reference from our Current Report on Form 8-K as filed with the SEC on December 31, 2008.
SIGNATURES
In accordance with 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.
OMNICITY CORP. | |
By: |
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__________
