Blox, Inc. - Quarter Report: 2014 September (Form 10-Q)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

 [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2014

 [  ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____ to _____

Commission File Number: 333-150582

BLOX, INC.
(Exact name of registrant as specified in its charter)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 the definitions of "large accelerated filer," "accelerated filer," "non-accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

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

State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: 108,411,814 shares of common stock as of November 14, 2014.

BLOX, INC.

Quarterly Report on Form 10-Q
For The Quarterly Period Ended
September 30, 2014

INDEX

PART I.

As used in this quarterly report on Form 10-Q, the terms “we”, “us” “our”, the “Company” or the “registrant” refer to Blox Inc., a Nevada corporation, and its wholly-owned subsidiaries, Blox Energy Inc., Kenderesh Endeavors Corp., Kenderes Biogáz Korlatolt Fele Lossegu Tarsasag (“Kenderes Biogáz”), Quivira Minerals Inc. and Quivira Gold Inc.,  unless otherwise specified.

Our financial statements are stated in United States Dollars (US$) unless otherwise stated and are prepared in accordance with United States Generally Accepted Accounting Principles.

In this quarterly report, unless otherwise specified, all references to “common shares” refer to the common shares in our capital stock.

Forward-Looking Statements

This quarterly report contains “forward-looking statements”. All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws, including, but not limited to, any projections of earnings, revenue or other financial items; any statements of the plans, strategies and objections of management for future operations; any statements concerning proposed new services or developments; any statements regarding future economic conditions or performance; any statements or belief; and any statements of assumptions underlying any of the foregoing.

Forward-looking statements may include the words “may,” “could,” “estimate,” “intend,” “continue,” “believe,” “expect” or “anticipate” or other similar words. These forward-looking statements present our estimates and assumptions only as of the date of this report. Accordingly, readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the dates on which they are made. Except as required by applicable law, including the securities laws of the United States, we do not intend, and undertake no obligation, to update any forward-looking statement.

Although we believe the expectations reflected in any of our forward-looking statements are reasonable, actual results could differ materially from those projected or assumed in any of our forward-looking statements. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to change and inherent risks and uncertainties. The factors impacting these risks and uncertainties include, but are not limited to:

• our current lack of working capital;
• our ability to obtain any necessary financing on acceptable terms;
• timing and amount of funds needed for capital expenditures;
• timely receipt of regulatory approvals;
• our management team’s ability to implement our business plan;
• effects of government regulation;
• general economic and financial market conditions;
• the ability of Kenderes Biogáz to maintain profitable operations, including the provision of a steady and cost effective supply of biomass;
• the ability to sell electricity to the grid on favorable terms.
• the fact that our accounting policies and methods are fundamental to how we report our financial condition and results of operations, and they may require our management to make estimates about matters that are inherently uncertain; and

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

The following unaudited interim financial statements of Blox, Inc.(sometimes referred to as "we", "us" or "our Company") are included in this quarterly report on Form 10-Q:

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Blox, Inc.
Consolidated Interim Statements of Financial Position
(Unaudited)
(Expressed in U.S. Dollars)

Subsequent Event (Note 8)

These unaudited consolidated interim financial statements are authorized for issue by the Board of Directors on November 14, 2014.

See accompanying notes to the consolidated interim financial statements.

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Blox, Inc.
Consolidated Interim Statements of Comprehensive Loss
(Unaudited)
(Expressed in U.S. Dollars)

See accompanying notes to the consolidated interim financial statements.

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Blox, Inc.
Consolidated Interim Statements of Changes in Equity (Deficiency)
(Unaudited)
(Expressed in U.S. Dollars)

See accompanying notes to the consolidated interim financial statements.

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Blox, Inc.
Consolidated Interim Statements of Cash Flows
(Unaudited)                          
(Expressed in U.S. Dollars)

Supplemental Cash Flow Information (Note 11)

See accompanying notes to the consolidated interim financial statements.

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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with our financial statements and the related notes that appear elsewhere in this quarterly report. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward looking statements. Factors that could cause or contribute to such differences include those discussed below and elsewhere in this quarterly report on Form 10-Q.

Overview

We were incorporated in the State of Nevada on July 21, 2005. Following incorporation, we were engaged in the exploration of early-stage mineral properties. However, we were not successful in developing our mineral property interests and thus began to investigate other business opportunities in order to maximize shareholder value. As a result, we entered into the Amalgamation Agreement with Eco Endeavors, which closed on February 27, 2014.

Following the closing of the Amalgamation Agreement, we commenced focusing on the business currently carried on by Amalco, which operates as a renewable energy company that indirectly owns an operating biogas plant in Hungary. It is also engaged in the development of renewable energy projects and intends to expand into the provision of renewable energy services.  Amalco currently owns and operates a 1.14 MW biogas plant located just outside of Budapest, Hungary. The plant serves as a pilot project to demonstrate the potential for similar use of renewable energy in a variety of regions and climates.

The Company's biogas plant in Hungary is currently undergoing care and maintenance and the Company has elected to cancel its power contract during this idle time. The contract was between MAVIR Zrt. and Kenderes Biogáz Termelo Kft., the Company's subsidiary, for the sale of up to 5,842 megawatt-hours per year from July 2007 to December 2020. The power could be sold at three different rates each day: 37.72 Hungarian Forints per kilowatt-hour (HUF/kWh) at peak hours; 33.76 HUF/kWh at midday hours, and 13.75 HUF/kWh at night hours. The request was submitted on April 26, 2014 and approved on May 23, 2014 for termination on June 1, 2014. There were no penalties for the termination. Once the care and maintenance process has concluded, the Company will utilize the opportunity and seek competitive rates before establishing a new contract.

On August 6, 2014, the Company announced that it entered into a Deed of Assignment and Assumption Agreement dated July 24, 2014 (the "Assumption Agreement") with Joseph Boampong Memorial Institute Ltd. ("JBMIL") and Equus Mining Ltd. ("EML"), Burey Gold Guinee sarl ("BGGs") and Burey Gold Limited ("BGL") and, collectively with EML and BGGs, (the "Vendors"), pursuant to which the Company has agreed to assume JBMIL's right to acquire a 78% beneficial interest in the Mansounia Concession (the "Property") from the Vendors. The Company also announced that it has exercised that right and has acquired a 78% beneficial interest in the Property.

The Property lies in the southwest margin of the Siguiri Basin, in the Kouroussa Prefecture, Kankan Region, in Guinea, West Africa and covers a surface area of 145 square kilometres. The Property is located approximately 80 kilometres west, by road, from the country's third largest city, Kankan.

An exploration permit for the Property was granted by the Ministère des Mines et de la Géologie on August 20, 2013. As part of its due diligence, Blox obtained a legal opinion which confirmed that the license remains in good standing. It is the Company's intention to obtain an exploitation permit, which would give the Company the exclusive right to mine and dispose of minerals for 15 years, with a possible 5 year extension. The Company has already commenced work on the feasibility study required for obtaining this permit.

In consideration for the acquisition of the interest in the Property, the Company paid $107,143to BGL and $42,857to EML and on July 31, 2014, issued BGL and EML an aggregate of 6,514,350 shares of common stock of the Company (the "First Tranche Shares"), at a deemed price of $0.1765 per share, for an aggregate deemed value of $1,150,000. The First Tranche Shares were issued to BGL and EML in the proportions of 71.43% and 28.57%, respectively. For accounting purposes, the Company recorded the cash payment of $150,000 plus $781,722 as the fair value of the First Tranche Shares in mineral interest. The fair value of the First Tranche Shares was based on the closing price of the Company’s shares on the OTCQB on July 24, 2014.

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Within 14 days of commercial gold production being publicly declared from ore mined from the Property, the Company will issue BGL and EML a second tranche of shares of common stock of the Company (the "Second Tranche Shares"). The number of Second Tranche Shares to be issued shall be calculated by dividing $1,150,000 by the volume weighted average share price of the Company's common stock over a 20 day period preceding the issuance date. The Second Tranche Shares shall be issued to BGL and EML in the proportions of 71.43% and 28.57%, respectively.

Going Concern

Our financial statements are prepared using generally accepted accounting principles in the United States of America applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. We have not yet established an ongoing source of revenues sufficient to cover our operating costs and to allow us to continue as a going concern. The Company has incurred a net loss of $1,152,772 for the six months ended September 30, 2014, and has incurred cumulative losses since inception of $7,037,947.These factors raise substantial doubt about the ability of the Company to continue as going concern. Our ability to continue as a going concern is dependent on our ability to continue obtaining adequate capital to fund operating losses until we become profitable. If we are unable to obtain adequate capital, we could be forced to significantly curtail or cease operations.

We will need to raise additional funds to finance continuing operations. However, there are no assurances that we will be successful in raising additional funds. Without sufficient additional financing, it would be unlikely for us to continue as a going concern. Our ability to continue as a going concern is dependent upon our ability to successfully accomplish the plans described in this annual report and eventually secure other sources of financing and attain profitable operations.

Results of Operations

Three and Six Months Ended September 30, 2014 and 2013

The following summary of our results of operations should be read in conjunction with our audited consolidated interim financial statements for the three and six months ended September 30, 2014 and 2013 which are included herein:

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Revenue and Cost of Goods Sold

The Company's biogas plant in Hungary is currently undergoing care and maintenance and the Company has elected to cancel its power contract during this idle time. As a result, there were no revenues for the three and six months ended September 30, 2014 compared to net revenues of $280,657 and $427,294 for the comparative 2013 periods. Our cost of goods sold decreased during the 2014 periods compared to the 2013 periods, primarily due to the idling of the plant in Hungary resulting in lower raw materials and labor costs. 

Expenses

Our operating expenses were as follows:

Total operating expenses increased to $659,006 during the three months ended September 30, 2014 from $430,162 in the same quarter in 2013. Total operating expenses increased to $866,267 during the six months ended September 30, 2014 from $457,783 in the same period in 2013.

The increase in consulting and professional fees is primarily due to higher and additional consulting fees paid for the management of the corporate office. The consulting fee includes amortization of prepaid consulting services that arose when the Company’s stock was issued as compensation for consulting services. The prepaid consulting fees is being amortized over a period of 18 months beginning in April 2014. Consulting and professional fees also include increased legal costs and fees when our shares qualified for trading on the OTCQB.

Office and administration expense increased during the 2014 periods compared to the 2013 periods due primarily to increase in corporate activities which led to additional costs for filing fees, news releases, accounting, office rent, insurance premiums and travel costs. 

Share-based compensation is a non-cash expense that resulted when we granted 4,500,000 stock options to directors and employees on August 7, 2014. The stock options have a fair value of $0.15 each and are being amortized over a period of 18 months from the grant date.

We did not in incur any interest expense in 2014 compared to 2014 because the long-term debt existing in 2013 was converted to equity before the end of our fiscal 2014 year.

Management anticipates operating expenses will materially increase in future periods as our company expands our business operations and incurs increased costs as a result of being a public company with a class of securities registered under the Securities Exchange Act of 1934.

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Liquidity and Capital Resources

Working Capital

Current Assets

The decrease in current assets as of September 30, 2014 compared to March 31, 2014 was primarily due to the decrease in cash to $299,074 from $903,850, as a result of the reduction of revenues to $nil and increase in expenses, and the $150,000 cash payment made for the acquisition of the Mansounia mineral interest during the six months ended September 30, 2014 quarter.

Current Liabilities 

Current liabilities as at September 30, 2014 increased by $ 32,241 primarily due to the increase in expenses as a result of increased corporate activities during the three months ended September 30, 2014.

Cash Flow

Our cash flow was as follows:

 Operating activities

The increase in net cash used in operating activities for the three and six months ended September 30, 2014 compared to the same periods in 2013 was primarily as a result of increases in various expenses due to increased corporate activities and the reduction of revenues to $nil due to the idling of the plant in Hungary.

Investing activities

The higher amount of cash used in investing activities in the 2014 periods compared to the 2013 periods was primarily due to the $150,000 cash payment made for the acquisition of the Mansounia mineral interest.

Financing activities

Net cash provided by financing activities for the 2013 periods was from proceeds received from long-term debt.

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Critical Accounting Policies

There have been no significant changes to the critical accounting policies as described in our Annual Form 10-K for the year ended March 31, 2014.

Cash Requirements

We believe that the Company’s current cash position will meet our present and near-term cash needs.  Although as the Company continues to search for both mining and renewable opportunities, we will require additional cash resources, including the sale of equity or debt securities, to meet our planned capital expenditures and working capital requirements.  For the next 12 months we estimate that our capital needs will be $250,000 to $500,000 and we currently have approximately $299,000 in cash. We expect to incur significant capital expenditures once we make a decision to develop the Mansounia mineral interest and close our anticipated gold acquisition of Quivira in Ghana.  If our own financial resources and then current cash-flows from operations are insufficient to satisfy our capital requirements, we may seek to sell additional equity or debt securities or obtain additional credit facilities. The sale of additional equity securities will result in dilution to our stockholders. The incurrence of indebtedness will result in increased debt service obligations and could require us to agree to operating and financial covenants that could restrict our operations or modify our plans to grow the business. Financing may not be available in amounts or on terms acceptable to us, if at all. Any failure by us to raise additional funds on terms favorable to us, or at all, will limit our ability to expand our business operations and could harm our overall business prospects.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to our stockholders.

Contractual Obligations

Not applicable.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

A smaller reporting company, as defined by Item 10 of Regulation S-K, is not required to provide the information required by this item.

Item 4. Controls and Procedures

Our management, including our principal executive officer and our principal financial officer, is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934).

As required by paragraph (b) of Rules 13a-15 or 15d-15 under the Securities Exchange Act of 1934 (the “Exchange Act”), our principal executive officer and principal financial officer evaluated our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of the end of the period covered by this quarterly report on Form 10-Q. Based upon that evaluation, our chief executive officer, who is our principal executive officer and our principal financial officer, concluded that, as at September 30, 2014, our disclosure controls and procedures were not effective (1) to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and (2) to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to us, including our chief executive officer and chief financial officer, to allow timely decisions regarding required disclosure. The conclusion reached by our chief executive officer was a result of the material weaknesses described below.

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A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.  We have identified the following material weaknesses:

To address these material weaknesses, management performed additional analyses and other procedures to ensure that the financial statements included herein fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented.  Accordingly, we believe that the financial statements included in this report fairly present, in all material respects, our financial condition, results of operations and cash flows for the periods presented.

Remediation of Material Weaknesses

We intend to take appropriate and reasonable steps to make the necessary improvements to remediate these deficiencies. We intend to consider the results of our remediation efforts and related testing as part of our year-end 2015 assessment of the effectiveness of our internal control over financial reporting.

Due to our size and nature, segregation of all conflicting duties has not always been possible and may not be economically feasible. However, we are in the process of implementing processes and procedures intended to mitigate any material weaknesses identified

Subject to receipt of additional financing, we intend to undertake the below remediation measures to address the material weaknesses described in this Form 10-Q. Such remediation activities include the following:

Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within our company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake.

Management’s Report on Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over our financial reporting. In order to evaluate the effectiveness of internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act, our management, with the participation of our principal executive officer and principal financial officer has conducted an assessment, including testing, using the criteria in Internal Control — Integrated Framework (1992), issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Our system of internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

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Based on our evaluation under the framework in COSO, our management concluded that our internal controls over financial reporting were ineffective as of September 30, 2014 due to the above-noted material weaknesses.  The weaknesses and their related risks are not uncommon in a company of our size because of the limitations in the size and number of staff. We believe we have taken initial steps to mitigate these risks by consulting outside advisors where necessary.

Our management believes that because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions and that the degree of compliance with the policies or procedures may deteriorate.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

There are no pending legal proceedings to which the Company is a party or in which any director, officer or affiliate of the Company, any owner of record or beneficially of more than 5% of any class of voting securities of the Company, or security holder is a party adverse to the Company or has a material interest adverse to the Company.  The Company’s property is not the subject of any pending legal proceedings.   

Item 1A. Risk Factors

Smaller reporting companies are not required to provide the information required by this Item 1A.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Unregistered Sales of Equity Securities

None 

Purchases of equity securities by the issuer and affiliated purchasers

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Submission of Matters to a Vote of Securities Holders

None.

Item 5. Other Information 

Item 6. Exhibits

Exhibit 31 - Certification of Principal Executive and Financial Officer pursuant to Rule 13a-14 of the Securities and Exchange Act of 1934 as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Exhibit 32 – Certification of Principal Executive and Financial Officer Pursuant to 18 U.S.C Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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** XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

BLOX INC.

By: /s/ Robert Abenante                              
Robert J. Abenante
President, Chief Executive Officer and Director
(Principal Executive Officer)

Date: November 14, 2014

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

By: /s/ Robert Abenante                              
Robert J. Abenante
President, Chief Executive Officer and Director
(Principal Executive Officer)

Date: November 14, 2014

By: /s/ Rick Low                               
Rick Low
Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)

Date: November 14, 2014

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