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 EXCHANGE ACT OF 1934
For the quarterly period endedApril 30, 2012
[ ] 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:000-53942
URBAN BARNS FOODS INC.
(Exact name of registrant as specified in its charter)
| Nevada | N/A |
| (State or other jurisdiction of incorporation or | (I.R.S. Employer Identification No.) |
| organization) | |
| 7170 Glover Road | |
| Milner, B.C., Canada V0X 1T0 | 604-888-0420 |
| (Address of principal executive offices) (Zip Code) | (Registrant’s telephone number, including area code) |
Indicate by check mark whether the registrant (1) 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 require 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, or a non-accelerated filer. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer [ ] | Accelerated filer [ ] | Non-accelerated filer [ ] | Smaller reporting company [X] |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.
[ ] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS
As of June 13, 2012 the registrant’s outstanding common stock consisted of 57,761,671 shares.
Table of Contents
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
The unaudited interim financial statements of Urban Barns Foods Inc. (the “Company”, “Urban Barns”, “we”, “our”, “us”) follow. All currency references in this report are to U.S. dollars unless otherwise noted.
URBAN BARNS FOODS INC.
(A Development Stage Company)
April 30, 2012
(Unaudited)
Financial Statement Index
URBAN BARNS FOODS INC.
(A Development Stage Company)
Consolidated Balance Sheets
(expressed in U.S. dollars)
| April 30, | July 31, | |||||
| 2012 | 2011 | |||||
| $ | $ | |||||
| (unaudited) | ||||||
| ASSETS | ||||||
| Current assets | ||||||
| Cash | 67,001 | 32,907 | ||||
| Prepaid expenses and deposits | 33,337 | 13,606 | ||||
| Total current assets | 100,338 | 46,513 | ||||
| Deferred finance charges | 7,994 | – | ||||
| Property and equipment (Note 4) | 59,917 | 66,351 | ||||
| Total assets | 168,249 | 112,864 | ||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||
| Current liabilities | ||||||
| Accounts payable | 101,496 | 100,825 | ||||
| Convertible note (Note 5) | 145,000 | – | ||||
| Due to related parties (Note 6) | 57,010 | 79,837 | ||||
| Total liabilities | 303,506 | 180,662 | ||||
| Nature of Operations and Continuance of Business (Note 1) | ||||||
| Stockholders’ deficit | ||||||
| Preferred stock | ||||||
| Authorized: 100,000,000 common shares, with a par value of $0.001 per share Issued and outstanding: nil shares | – | – | ||||
| Common stock, Class A | ||||||
| Authorized: 500,000,000 common shares, with a par value of $0.001 per share Issued and outstanding: 57,761,671 and 50,261,671 common shares, respectively | 57,762 | 50,262 | ||||
| Common stock, Class B | ||||||
| Authorized: 25,000,000 common shares, with a par value of $0.001 per share Issued and outstanding: nil | – | – | ||||
| Additional paid-in capital | 674,494 | 54,919 | ||||
| Common stock issuable | 5,450 | – | ||||
| Share subscription receivable | (427,038 | ) | – | |||
| Accumulated deficit during the development stage | (445,925 | ) | (172,979 | ) | ||
| Total stockholders’ deficit | (135,257 | ) | (67,798 | ) | ||
| Total liabilities and stockholders’ deficit | 168,249 | 112,864 |
(The accompanying notes are an integral part of these consolidated financial statements)
4
URBAN BARNS FOODS INC.
(A Development Stage Company)
Consolidated Statements of Operations
(expressed in U.S. dollars)
(unaudited)
| Accumulated | |||||||||||||||
| from | |||||||||||||||
| February 10, | |||||||||||||||
| For the Three | For the Three | For the Nine | For the Nine | 2010 (Date of | |||||||||||
| Months Ended | Months Ended | Months Ended | Months Ended | Inception) to | |||||||||||
| April 30, | April 30, | April 30, | April 30, | April 30, | |||||||||||
| 2012 | 2011 | 2012 | 2011 | 2012 | |||||||||||
| $ | $ | $ | $ | $ | |||||||||||
| Revenue | – | – | – | – | – | ||||||||||
| Expenses | |||||||||||||||
| Depreciation | 2,181 | 80 | 8,454 | 80 | 14,783 | ||||||||||
| Foreign exchange loss (gain) | 1,355 | – | (10,692 | ) | – | (27,733 | ) | ||||||||
| General and administrative | 32,962 | 18,261 | 142,368 | 18,297 | 172,539 | ||||||||||
| Professional fees | 39,714 | – | 127,087 | – | 145,432 | ||||||||||
| Research and development | 731 | – | 3,294 | – | 3,484 | ||||||||||
| Total operating expenses | 76,943 | 18,341 | 270,511 | 18,377 | 308,505 | ||||||||||
| Net loss before other expense | (76,943 | ) | (18,341 | ) | (270,511 | ) | (18,377 | ) | (308,505 | ) | |||||
| Other expense | |||||||||||||||
| Interest expense | 2,435 | – | 2,435 | – | 2,435 | ||||||||||
| Net loss for the period | (79,378 | ) | (18,341 | ) | (272,946 | ) | (18,377 | ) | (310,940 | ) | |||||
| Loss per share – basic and diluted | – | – | – | – | |||||||||||
| Weighted average shares outstanding | 57,517,227 | 43,307,865 | 56,814,956 | 34,338,462 |
(The accompanying notes are an integral part of these consolidated financial statements)
5
URBAN BARNS FOODS INC.
(A Development Stage Company)
Consolidated Statements of Cash Flows
(expressed in U.S. dollars)
(unaudited)
| Accumulated | |||||||||
| from | |||||||||
| February 10, | |||||||||
| For the Nine | For the Nine | 2010 (Date of | |||||||
| Months Ended | Months Ended | Inception) to | |||||||
| April 30, | April 30, | April 30, | |||||||
| 2012 | 2011 | 2012 | |||||||
| $ | $ | $ | |||||||
| Operating Activities | |||||||||
| Net loss for the period | (272,946 | ) | (18,377 | ) | (310,940 | ) | |||
| Adjustments to reconcile net loss to net cash | |||||||||
| used in operating activities: | |||||||||
| Depreciation | 8,454 | 80 | 14,783 | ||||||
| Shares issued for consulting fees | 67,200 | – | 67,200 | ||||||
| Stock based compensation | 11,575 | – | 11,575 | ||||||
| Changes in operating assets and liabilities: | |||||||||
| Prepaid expenses and deposits | (19,731 | ) | – | (23,087 | ) | ||||
| Deferred financing cost | 2,756 | – | 2,756 | ||||||
| Accounts payable | 671 | – | 8,256 | ||||||
| Due to related parties | (21,815 | ) | 41,301 | (7,606 | ) | ||||
| Net cash used in operating activities | (223,836 | ) | 23,004 | (237,063 | ) | ||||
| Investing Activities | |||||||||
| Issuance of loan receivable | – | (7,990 | ) | – | |||||
| Purchase of property and equipment | (2,020 | ) | (48,301 | ) | (62,841 | ) | |||
| Cash acquired on recapitalization | – | – | 1,774 | ||||||
| Net cash used in investing activities | (2,020 | ) | (56,291 | ) | (61,067 | ) | |||
| Financing Activities | |||||||||
| Proceeds from issuance of a convertible debenture | 145,000 | – | 145,000 | ||||||
| Finders’ fees paid | (9,500 | ) | – | (9,500 | ) | ||||
| Proceeds from issuance of common shares | 125,462 | 10,198 | 230,643 | ||||||
| Repayment to due to related parties | (1,012 | ) | 29,228 | (1,012 | ) | ||||
| Net cash provided by financing activities | 259,950 | 39,426 | 365,131 | ||||||
| Increase in cash | 34,094 | 6,139 | 67,001 | ||||||
| Cash – beginning of period | 32,907 | 40 | – | ||||||
| Cash – end of period | 67,001 | 6,179 | 67,001 | ||||||
| Non-cash investing and financing activities | |||||||||
| Conversion of Class B shares to Class A shares | – | – | 50,000 | ||||||
| Supplemental disclosures | |||||||||
| Interest paid | – | – | – | ||||||
| Income tax paid | – | – | – |
(The accompanying notes are an integral part of these consolidated financial statements)
6
URBAN BARNS FOODS INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
(expressed in U.S. dollars)
(unaudited)
| 1. | Nature of Operations and Continuance of Business |
Urban Barns Foods Inc. (the “Company”) was incorporated under the laws of the State of Nevada on May 21, 2007 as HL Ventures Inc. | |
On December 4, 2009, the Company closed a reverse takeover transaction with Urban Barns Foods Inc., a privately-held company incorporated on July 3, 2009 under the laws of the province of Alberta. In accordance with the transaction, the Company issued 125,000 shares of common stock to the shareholders of Urban Barns in exchange for 100% of the issued and outstanding shares of common stock of Urban Barns. As part of the acquisition, the Company also cancelled 102,500 shares of common stock held by management. | |
On June 2, 2011, the Company closed a reverse takeover transaction with Non Industrial Manufacture Inc. (“Non Industrial”), a privately-held company incorporated on February 10, 2010, under the laws of the province of Alberta. In accordance with the transaction, the Company issued 2,500,000 shares of Class B common stock to the shareholders of Non Industrial in exchange for 100% of the issued and outstanding shares of common stock of Non Industrial. | |
The Company is a development stage company and is an urban produce production company that aims to be the supplier of choice for fresh and high-quality organic and conventional fruits and vegetables for urban consumers. | |
These financial statements have been prepared on the going concern basis, which assumes that the Company will be able to realize its assets and discharge its liabilities in the normal course of business. As at April 30, 2012, the Company has not realized any revenues, has a working capital deficit of $203,168 and has an accumulated deficit of $445,925. The continued operations of the Company are dependent on its ability to generate future cash flows from operations or obtain additional financing. These factors raise substantial doubt about the Company’s ability to continue as a going concern. These consolidated financial statements do not include any adjustments to the recorded assets or liabilities that might be necessary should the Company be unable to continue as a going concern. | |
| 2. | Significant Accounting Policies |
| (a) | Basis of Presentation and Principles of Consolidation | |
The consolidated financial statements and the related notes of the Company are prepared in accordance with generally accepted accounting principles in the United States and are expressed in United States dollars. The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Urban Barns Foods (Alberta) Inc., and Non- Industrial Manufacture Inc. All inter-company accounts and transactions have been eliminated. The Company’s fiscal year-end is July 31. | ||
| (b) | Use of Estimates | |
The preparation of these consolidated financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during 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 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. |
7
URBAN BARNS FOODS INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
(expressed in U.S. dollars)
(unaudited)
| 2. | Significant Accounting Policies(continued) | |
| (c) | Cash and Cash Equivalents | |
The Company considers all highly liquid instruments with a maturity of three months or less at the time of issuance to be cash equivalents. | ||
| (d) | Property and Equipment | |
Property and equipment consists of production equipment and is stated at cost and amortized straight-line over five years. | ||
| (e) | Impairment of Long-Lived Assets | |
In accordance with ASC 360,Property Plant and Equipment, the Company tests long-lived assets or asset groups for recoverability when events or changes in circumstances indicate that their carrying amount may not be recoverable. Circumstances which could trigger a review include, but are not limited to: significant decreases in the market price of the asset; significant adverse changes in the business climate or legal factors; accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of the asset; current period cash flow or operating losses combined with a history of losses or a forecast of continuing losses associated with the use of the asset; and current expectation that the asset will more likely than not be sold or disposed significantly before the end of its estimated useful life. Recoverability is assessed based on the carrying amount of the asset and its fair value which is generally determined based on the sum of the undiscounted cash flows expected to result from the use and the eventual disposal of the asset, as well as specific appraisal in certain instances. An impairment loss is recognized when the carrying amount is not recoverable and exceeds fair value. | ||
| (f) | Interim Financial Statements | |
These interim unaudited financial statements have been prepared on the same basis as the annual financial statements and in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the Company’s financial position, results of operations and cash flows for the periods shown. The results of operations for such periods are not necessarily indicative of the results expected for a full year or for any future period. | ||
| (g) | Comprehensive Loss | |
ASC 220,Comprehensive Income,establishes standards for the reporting and display of comprehensive loss and its components in the financial statements. As at April 30, 2012 and July 31, 2011, the Company had no items that affected comprehensive loss. | ||
| (h) | Foreign Currency Translation | |
The Company’s functional and reporting currency is the U.S. dollar. Monetary assets and liabilities of integrated operations and other monetary assets and liabilities denominated in foreign currencies are translated to U.S. dollars at exchange rates in effect at the balance sheet date. Non-monetary assets and liabilities are translated at historical rates. Revenues and expenses are translated at average rates for the period, except for amortization, which is translated on the same basis as the related asset. The resulting exchange gains or losses are recognized in income. | ||
8
URBAN BARNS FOODS INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
(expressed in U.S. dollars)
(unaudited)
| 2. | Significant Accounting Policies (continued) | |
| (i) | Loss Per Share | |
The Company computes net loss per share in accordance with ASC 260, “Earnings Per Share”,which requires presentation of both basic and diluted earnings per share (EPS) on the face of the income statement. Basic EPS is computed by dividing net income (loss) available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect is anti dilutive. | ||
| (j) | Financial Instruments and Fair Value Measures | |
ASC 820,“Fair Value Measurements and Disclosures”requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 820 prioritizes the inputs into three levels that may be used to measure fair value: | ||
Level 1
Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
Level 2
Level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.
Level 3
Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.
The Company’s financial instruments consist principally of cash, accounts payable and accrued liabilities, convertible note, and amounts due to related parties. Pursuant to ASC 820, the fair value of cash is determined based on “Level 1” inputs, which consist of quoted prices in active markets for identical assets. The recorded values of all other financial instruments approximate their current fair values because of their nature and respective maturity dates or durations. | ||
| (k) | Stock-based Compensation | |
The Company records stock-based compensation in accordance with ASC 718, “Compensation – Stock Compensation”,using the fair value method. All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. Equity instruments issued to employees and the cost of the services received as consideration are measured and recognized based on the fair value of the equity instruments issued. |
9
URBAN BARNS FOODS INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
(expressed in U.S. dollars)
(unaudited)
| 2. | Significant Accounting Policies(continued) | |
| (l) | Recent Accounting Pronouncements | |
The Company has implemented all new accounting pronouncements that are in effect. These pronouncements did not have any material impact on the consolidated financial statements unless otherwise disclosed, and the Company does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations. | ||
| 3. | Acquisition of Non Industrial Manufacture Inc. and Recapitalization | |
On June 2, 2011, the Company acquired 100% of the issued and outstanding shares of common stock of Non Industrial Manufacture Inc. (“NIM”) in exchange for 2,500,000 shares of Class B common stock. The acquisition was a capital transaction in substance and therefore was accounted for as a recapitalization of the business of NIM. Under recapitalization accounting, NIM is considered the acquirer for accounting and financial reporting purposes, and acquired the assets and assumed the liabilities of the Company. These financial statements include the accounts of the Company since the effective date of the recapitalization being June 2, 2011, and the historical accounts of the business of NIM since inception being February 10, 2010. | ||
The assets acquired and liabilities assumed are as follows: | ||
| $ | ||||
| Cash | 1,774 | |||
| Prepaid expenses | 10,250 | |||
| Property and equipment | 11,859 | |||
| Accounts payable | (89,718 | ) | ||
| Due to related parties | (69,150 | ) | ||
| Net liabilities assumed | (134,985 | ) |
| 4. | Property and Equipment |
| April 30, | July 31, | ||||||||||||
| 2012 | 2011 | ||||||||||||
| Accumulated | Net Carrying | Net Carrying | |||||||||||
| Cost | Amortization | Value | Value | ||||||||||
| $ | $ | $ | $ | ||||||||||
| Production equipment | 79,216 | 19,299 | 59,917 | 66,351 |
| 5. | Convertible Note | |
| a) | On January 4, 2012, the Company entered into a Convertible Promissory Note agreement for $27,500. Pursuant to the agreement, the loan is convertible into shares of common stock at a variable conversion price equal to the lower of 55% of the average of the lowest three closing bid prices for the common stock during the 10 trading days prior to the date of the conversion notice. The loan bears interest at 8% per year and the principal amount and any interest thereon are due on October 6, 2012. | |
Pursuant to ASC 815, “Derivatives and Hedging,” the Company will recognize the fair value of the embedded conversion feature as a derivative liability when the Note becomes convertible on October 6, 2012. The Company incurred $3,750 of deferred finance costs relating to the issuance of the Note. The Company also had common stock issuable of $1,250 as of April 30, 2012. As of April 30, 2012, the Company had recorded amortization of $2,120 and the remaining $2,880 will be charged to operation over the life of the note. | ||
10
URBAN BARNS FOODS INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
(expressed in U.S. dollars)
(unaudited)
| 5. | Convertible Note(continued) | |
| b) | On February 9, 2012, the Company entered into six Convertible Promissory Note agreements for a total of $85,000. Pursuant to the agreement, the loan is convertible into shares of common stock at a variable conversion price equal to the lower of 55% of the average of the lowest three closing bid prices for the common stock during the 10 trading days prior to the date of the conversion notice. The loan bears interest at 8% per year and the principal amount and any interest thereon are due on November 9, 2012. | |
Pursuant to ASC 815, “Derivatives and Hedging,” the Company will recognize the fair value of the embedded conversion feature as a derivative liability when the Note becomes convertible on November 9, 2012. | ||
| c) | On March 30, 2012, the Company entered into a Convertible Promissory Note agreement for $32,500. Pursuant to the agreement, the loan is convertible into shares of common stock at a variable conversion price equal to the lower of 55% of the average of the lowest three closing bid prices for the common stock during the 10 trading days prior to the date of the conversion notice. The loan bears interest at 8% per year and the principal amount and any interest thereon are due on January 4, 2013. | |
Pursuant to ASC 815, “Derivatives and Hedging,” the Company will recognize the fair value of the embedded conversion feature as a derivative liability when the Note becomes convertible on January 4, 2013. The Company paid $5,750 of deferred finance costs relating to the issuance of the Note. At April 30, 2012, the Company had recorded amortization of $637 and the remaining $5,113 will be charged to operation over the life of the note. | ||
| 6. | Related Party Transactions | |
| (a) | As at April 30, 2012, the Company owed $53,610 (2011 - $76,320) to directors and officers of the Company. The amounts owing are unsecured, non-interest bearing, and due on demand. | |
| (b) | As at April 30, 2012, the Company owed $3,400 (2011 - $3,517) to a company controlled by an officer of the Company. The amounts owing are unsecured, non-interest bearing, and due on demand. | |
| (c) | As at April 30, 2012, the Company had $19,800 (2011 - $5,400) recorded in accounts payable for amounts owing to the spouse of the President of the Company. The amounts owing are unsecured, non-interest bearing, and due on demand. | |
| (d) | As at April 30, 2012, the Company had $22,750 (2011 - $37,604) recorded in accounts payable for amounts owing to companies controlled by an officer of the Company. The amounts owing are unsecured, non-interest bearing, and due on demand. | |
| (e) | During the period ended April 30, 2012, the Company incurred accounting fees of $18,060 (2011 - $nil) to the spouse of the President of the Company. | |
| (f) | During the period ended April 30, 2012, the Company incurred travel expenses fees of $32,849 (2011 - $nil) to an officer of the Company. | |
| (g) | During the period ended April 30, 2012, the Company incurred consulting fees of $19,020 (2011 - $nil) to officers of the Company. | |
| (h) | During the period ended April 30, 2012, the Company incurred rental fees of $11,224 (2011 - $10,080) to a company controlled by an officer of the Company. | |
11
URBAN BARNS FOODS INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
(expressed in U.S. dollars)
(unaudited)
| 7. | Common Stock | |
| (a) | On August 8, 2011, the Company issued 3,400,000 shares of Class A common stock pursuant to the exercise of 3,400,000 stock options for proceeds of $510,000 of which $82,962 was received and $427,038 was recorded in share subscription receivable. | |
| (b) | On August 8, 2011, the Company issued 1,700,000 shares of Class A common stock pursuant to the exercise of 1,700,000 stock options for proceeds of $42,500. | |
| (c) | On August 9, 2011, the Company issued 951,000 common shares for consulting services with a fair value of $19,020. | |
| (d) | On August 9, 2011, the Company issued 449,000 common shares for consulting services with a fair value of $8,980. | |
| (e) | On February 22, 2012, the Company issued 1,000,000 common shares for consulting services with a fair value of $35,000. | |
| 8. | Share Purchase Warrants |
The following table summarizes the continuity of share purchase warrants: |
| Weighted | |||||||
| Average | |||||||
| Number of | Exercise Price | ||||||
| Warrants | $ | ||||||
| Balance, July 31, 2011 | 1,500 | 222 | |||||
| Expired | (1,500 | ) | 222 | ||||
| Balance, April 30, 2012 | – | – |
| 9. | Stock Options |
On August 8, 2011, the Company granted 1,700,000 stock options at an exercise price of $0.025 per share expiring on November 15, 2011 and granted 3,400,000 stock options at an exercise price of $0.15 per share expiring on November 15, 2011. All stock options were vested immediately. The fair value for these stock options was estimated at the date of grant using the Black-Scholes option- pricing model assuming a weighted average expected life of 0.25 years, a risk-free rate of 0.03%, an expected volatility of 195%, and a 0% dividend yield. The weighted average fair value of stock options granted was $0.11 per share. During the nine months ended April 30 2012, the Company recorded stock-based compensation of $11,575 (2011 - $nil) as general and administrative expense. | |
The following table summarizes the continuity of stock options: |
| Weighted | |||||||
| Average | |||||||
| Number of | Exercise Price | ||||||
| options | $ | ||||||
| Balance, July 31, 2011 | – | – | |||||
| Granted | 5,100,000 | 0.11 | |||||
| Exercised | (5,100,000 | ) | 0.11 | ||||
| Balance, April 30, 2012 | – | – |
12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
Forward Looking Statements
This report on Form 10-Q contains certain forward-looking statements. All statements other than statements of historical fact are “forward-looking statements” for purposes of these provisions, including any projections of earnings, revenues, or other financial items; any statements of the plans, strategies, and objectives of management for future operation; any statements concerning proposed new products, services, or developments; any statements regarding future economic conditions or performance; statements of belief; and any statement of assumptions underlying any of the foregoing. Such forward-looking statements are subject to inherent risks and uncertainties, and actual results could differ materially from those anticipated by the forward-looking statements.
These forward-looking statements involve significant risks and uncertainties, including, but not limited to, the following: competition, promotional costs and the risk of declining revenues. Our actual results could differ materially from those anticipated in such forward-looking statements as a result of a number of factors. These forward-looking statements are made as of the date of this filing, and we assume no obligation to update such forward-looking statements. The following discusses our financial condition and results of operations based upon our consolidated financial statements which have been prepared in conformity with accounting principles generally accepted in the United States. It should be read in conjunction with our financial statements and the notes thereto included elsewhere herein.
Results of Operations
We are still in our development stage and have generated no revenues to date.
We incurred operating expenses of $76,943 for the three months ended April 30, 2012. These expenses consisted of $32,962 in general operating expenses, $731 in research and development expenses, and $39,714 in professional fees. For the same period ended April 30, 2011 we incurred operating expenses of $18,341. These expenses are higher due to the fact that we had more operating activity in the current period compared to the prior period.
Our net loss from inception (February 10, 2010) through April 30, 2012 was $310,940.
The following table provides selected financial data about our company for the quarter ended April 30, 2012.
| April 30, | July 31, | |||||
| 2012 | 2011 | |||||
| $ | $ | |||||
| Current Assets | 100,338 | 46,513 | ||||
| Current Liabilities | 303,506 | 180,662 | ||||
| Working Capital (Deficit) | (203,168 | ) | (134,149 | ) |
Liquidity and Capital Resources
As of April 30, 2012, we had cash of $67,001, total current assets of $100,338, total current liabilities of $303,506 and working capital deficit of $203,168 compared to cash of $32,907, total current assets of $46,513, total current liabilities of $180,662, and working capital deficit of $134,149 as of July 31, 2011. The increase in liabilities is due primarily to as increase in account payable and due to related parties due to a lack of sufficient cashflows to pay our outstanding obligations.
During the period ended April 30, 2012, we received net cash of $259,950 from financing activities, compared to net cash received of $nil from financing activities during the period ended April 30, 2011. The increase is due to proceeds received from the exercise of stock options and funds received for convertible notes.
During the period ended April 30, 2012, we used net cash of $223,836 on operating activities, compared to $23,004 net cash used on operating activities during the period ended April 30, 2011. The increase in cash used was due to increase in operating activity during the current period.
During the period ended April 30, 2012, we incurred $2,020 for the purchase of property of equipment compared with $56,291 for the period ended April 30, 2011.
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Since February 10, 2010 (inception) to April 30, 2012, our accumulated deficit was $445,925. We are dependent on the funds raised through our equity or debt financing, investing activities, and revenue generated through the sales of our products to fund our operations. We have not attained profitable operations and are dependent upon obtaining financing to pursue any extensive acquisitions and activities. For these reasons, our auditors stated in their report on our audited financial statements that they have substantial doubt that we will be able to continue as a going concern without further financing.
We anticipate that we will meet our ongoing cash requirements by retaining income as well as through equity or debt financing. We plan to cooperate with various individuals and institutions to acquire the financing required to produce and distribute our products and anticipate this will continue until we accrue sufficient capital reserves to finance all of our productions independently.
Plan of Operation
Our management has focused on acquiring or merging with one or more operating businesses. Our efforts to identify a target business resulted in the Share Exchange Agreement with Non Industrial Manufacture Inc. (NIM), a private company. On June 2, 2011 the share exchange with NIM closed. We are now an urban produce production company with patents pending that aims to be the supplier of choice of fresh, locally grown, high-quality organic and conventional fruits and vegetables for urban consumers.
We estimate that our expenses over the next 12 months will be approximately $2,301,800 as summarized in the table below. These estimates may change significantly depending on the nature of our future business activities and our ability to raise capital from investors or other sources.
| Description | Potential Completion Date | Estimated Expenses ($) |
| Seedling purchases | 12 months | 96,000 |
| Packaging | 12 months | 76,800 |
| Direct cost of sales (including research and development) | 12 months | 979,200 |
| Shipping | 12 months | 225,000 |
| Payroll | 12 months | 350,000 |
| Advertising and marketing | 12 months | 370,000 |
| General and administrative expenses | 12 months | 204,800 |
| Total | 2,301,800 |
Our general and administrative expenses for the year will consist of professional fees, office maintenance, communication expenses (cellular, internet, fax and telephone), bank charges, courier and postage costs, office supply costs and fees related to our website. Our professional fees will include legal, accounting and auditing fees related to our regulatory filings throughout the year.
Based on our planned expenditures, we require additional funds of $2,301,800 to proceed with our business plan over the next 12 months. If we are not able to obtain additional financing on a timely basis, we will be unable to conduct our operations as planned, and we will not be able to meet our obligations as they become due. In such event, we will be forced to scale down or perhaps even cease our operations.
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Inflation
The amounts presented in the financial statements do not provide for the effect of inflation on our operations or financial position. The net operating losses shown would be greater than reported if the effects of inflation were reflected either by charging operations with amounts that represent replacement costs or by using other inflation adjustments.
Off-Balance Sheet Arrangements
As of April 30, 2012 we had no off balance sheet transactions that have or are reasonably likely to have a current or future effect on our financial condition, changes in our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
Critical Accounting Policies
Our financial statements are impacted by the accounting policies used and the estimates and assumptions made by management during their preparation. A complete summary of these policies are included in note 2 of the Notes to our Financial Statements. We have identified below the accounting policies that are of particular importance in the presentation of our financial position, results of operations and cash flows, and which require the application of significant judgment by our management.
a. Loss Per Share
The Company computes net loss per share in accordance with ASC 260Earnings Per Share which requires presentation of both basic and diluted earnings per share (EPS) on the face of the income statement. Basic EPS is computed by dividing net income (loss) available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect is anti dilutive.
b. Use of Estimates and Assumptions
The preparation of these consolidated financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions related to the useful life and recoverability of long-lived assets, fair value of convertible debt and share-based payments, and deferred income tax 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.
c. Foreign Currency Translation
Transactions in foreign currencies are translated into the currency of measurement at the exchange rates in effect on the transaction date. Monetary balance sheet items expressed in foreign currencies are translated into U.S. dollars at the exchange rates in effect at the balance sheet date. The resulting exchange gains and losses are recognized in income.
The Company’s integrated foreign subsidiary is financially or operationally dependent on the Company. The Company uses the temporal method to translate the accounts of its integrated operations into U.S. dollars. Monetary assets and liabilities are translated at the exchange rates in effect at the balance sheet date. Non-monetary assets and liabilities are translated at historical rates. Revenues and expenses are translated at average rates for the period, except for amortization, which is translated on the same basis as the related asset. The resulting exchange gains or losses are recognized in income.
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d. Financial Instruments and Fair Value Measurements
ASC 820,“Fair Value Measurements and Disclosures” requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 820 prioritizes the inputs into three levels that may be used to measure fair value:
Level 1
Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
Level 2
Level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.
Level 3
Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.
The Company’s financial instruments consist principally of cash, accounts payable and accrued liabilities, convertible note, and amounts due to related parties. Pursuant to ASC 820, the fair value of cash is determined based on “Level 1” inputs, which consist of quoted prices in active markets for identical assets. The recorded values of all other financial instruments approximate their current fair values because of their nature and respective maturity dates or durations.
ITEM 4. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures, as defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934 (the "Exchange Act"), that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of April 30, 2012. Based on the evaluation of these disclosure controls and procedures the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective.
Changes in Internal Controls
During the quarter covered by this report there were no changes in our internal control over financial reporting (as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Exchange Act) that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
The Company is not required by current SEC rules to include, and does not include, an auditor's attestation report. The Company's registered public accounting firm has not attested to Management's reports on the Company's internal control over financial reporting.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 1A. RISK FACTORS
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCCEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. REMOVED AND RESERVED.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS.
The following exhibits are included with this quarterly filing:
| Exhibit No. | Description | |
| 10.1 | Directors Consulting Agreements as filed on Form 8-K filed August 24, 2011 | |
| 10.2 | 2011 Stock and Option Plan as filed on Form S-8 filed August 12, 2011 | |
| 31.1 | Sec. 302 Certification of Principal Executive Officer | |
| 31.2 | Sec. 302 Certification of Principal Financial Officer | |
| 32.1 | Sec. 906 Certification of Principal Executive Officer | |
| 32.2 | Sec. 906 Certification of Principal Financial Officer |
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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.
| June 13, 2012 | Urban Barns Foods Inc. |
/s/ Jacob Benne
__________________________
By: Jacob Benne
(Chief Executive Officer, President, & Director)
/s/ Daniel Meikleham
__________________________
By: Daniel Meikleham
(Chief Financial Officer, Principal Accounting Officer & Director)
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