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 ended April 30, 2010
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________________To ______________________
Commission file number: 333-145897
URBAN BARNS FOODS INC.
(Exact name of registrant as specified in its charter)
| Nevada | | N/A |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
| | | |
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 o
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 o Accelerated filer o Non-accelerated filer o Smaller reporting company þ
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o 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. o Yes o No
APPLICABLE ONLY TO CORPORATE ISSUERS
As of June 21, 2010 the registrant’s outstanding common stock consisted of 49,804,758 shares.
Table of Contents
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, 2010
(Unaudited)
Financial Statement Index
Consolidated Balance Sheets | F-1 |
Consolidated Statements of Expenses | F-2 |
Consolidated Statements of Cash Flows | F-3 |
| Notes to the Financial Statements | F-4 |
Urban Barns Foods Inc.
(fromerly HL Ventures Inc.)
(A Development Stage Company)
(expressed in U.S. dollars)
| | | April 30, 2010 $ (unaudited) | | | July 31, 2009 $ | |
| | | | | | | |
| ASSETS | | | | | | |
| | | | | | | |
| Current Assets | | | | | | |
| | | | | | | |
| Cash | | | 144,787 | | | | 1,081 | |
| Prepaid Expenses | | | 11,000 | | | | – | |
| | | | | | | | | |
| Total Current Assets | | | 155,787 | | | | 1,081 | |
| | | | | | | | | |
| Deferred Financing Charges | | | 250,175 | | | | – | |
| Property and Equipment (Note 4) | | | 14,384 | | | | – | |
| Website (Note 4) | | | 6,553 | | | | – | |
| | | | | | | | | |
| Total Assets | | | 426,899 | | | | 1,081 | |
| | | | | | | | | |
| | | | | | | | | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | | |
| | | | | | | | | |
| Current Liabilities | | | | | | | | |
| | | | | | | | | |
| Accounts Payable | | | 63,790 | | | | – | |
| Due to a Related Party (Note 7) | | | 18,648 | | | | – | |
| Capital Lease Payable | | | 5,307 | | | | – | |
| | | | | | | | | |
| Total Liabilities | | | 87,745 | | | | – | |
| | | | | | | | | |
| Stockholders’ Equity | | | | | | | | |
| | | | | | | | | |
Common Stock Authorized: 100,000,000 common shares, with a par value of $0.001 per share Issued and outstanding: 49,804,768 and 400,000 common shares, respectively | | | 49,805 | | | | 1,846 | |
| | | | | | | | | |
| Additional Paid-In Capital | | | 496,291 | | | | – | |
| | | | | | | | | |
| Accumulated Deficit During the Development Stage | | | (206,942 | ) | | | (765 | ) |
| | | | | | | | | |
| Total Stockholders’ Equity | | | 339,154 | | | | 1,081 | |
| | | | | | | | | |
| Total Liabilities and Stockholders’ Equity | | | 426,899 | | | | 1,081 | |
Nature of Operations and Continuance of Business (Note 1)
(The accompanying notes are an integral part of these financial statements)
Urban Barns Foods Inc.
(formerly HL Ventures Inc.)
(A Development Stage Company)
(expressed in U.S. dollars)
(unaudited)
| | | For the Three Months Ended April 30, 2010 $ | | | For the Nine Months Ended April 30, 2010 $ | | | Accumulated from July 3, 2009 (Date of Inception) to April 30, 2010 $ | |
| | | | | | | | | | | | | |
| Revenue | | | – | | | | – | | | | – | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Expenses | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Accretion expense | | | 4,128 | | | | 14,033 | | | | 14,033 | |
| Depreciation (Note 4) | | | 980 | | | | 1,632 | | | | 1,632 | |
| Foreign exchange loss | | | 2,235 | | | | 4,565 | | | | 4,565 | |
| General and administrative | | | 28,089 | | | | 35,564 | | | | 35,655 | |
| Professional fees | | | 52,076 | | | | 110,278 | | | | 110,952 | |
| Research and development | | | 8,427 | | | | 28,858 | | | | 28,858 | |
| | | | | | | | | | | | | |
| Total Expenses | | | 95,935 | | | | 194,930 | | | | 195,695 | |
| | | | | | | | | | | | | |
| Operating Loss | | | (95,935 | ) | | | (194,930 | ) | | | (195,695 | ) |
| | | | | | | | | | | | | |
| Other Expenses | | | | | | | | | | | | |
| Interest expense | | | (422 | ) | | | (2,311 | ) | | | (2,311 | ) |
| Loss on settlement of convertible debt | | | – | | | | (8,936 | ) | | | (8,936 | ) |
| | | | | | | | | | | | | |
| Net Loss | | | (96,357 | ) | | | (206,177 | ) | | | (206,942 | ) |
| | | | | | | | | | | | | |
Loss Per Share – Basic and Diluted Net Loss Per Share – Basic and Diluted | | | – | | | | (0.01 | ) | | | | |
| | | | | | | | | | | | | |
| Weighted Average Shares Outstanding | | | 48,561,893 | | | | 26,625,204 | | | | | |
(The accompanying notes are an integral part of these financial statements)
(formerly HL Ventures Inc.)
(A Development Stage Company)
(expressed in U.S. dollars)
| | | For the Nine Months Ended April 30, 2010 $ | | | Accumulated from July 3, 2009 (Date of Inception) to April 30, 2010 $ | |
| | | | | | | |
| Operating Activities | | | | | | |
| | | | | | | |
| Net loss for the period | | | (206,177 | ) | | | (206,942 | ) |
| | | | | | | | | |
| Adjustments to reconcile net loss to net cash | | | | | | | | |
| provided by (used in) operating activities: | | | | | | | | |
| | | | | | | | | |
| Accretion expense | | | 14,033 | | | | 14,033 | |
| Depreciation | | | 1,632 | | | | 1,632 | |
| Loss on settlement of convertible debt | | | 8,936 | | | | 8,936 | |
| | | | | | | | | |
Changes in operating assets and liabilities: | | | | | | | | |
| | | | | | | | | |
| Prepaid expense | | | (11,000 | ) | | | (11,000 | ) |
| Accounts payable | | | 34,507 | | | | 34,507 | |
| Capital lease payable | | | 5,307 | | | | 5,307 | |
| | | | | | | | | |
| Net Cash Used In Operating Activities | | | (152,762 | ) | | | (153,527 | ) |
| | | | | | | | | |
| Investing Activities | | | | | | | | |
| | | | | | | | | |
| Purchase of property and equipment | | | (3,326 | ) | | | (3,326 | ) |
| | | | | | | | | |
| Net Cash Used In Investing Activities | | | (3,326 | ) | | | (3,326 | ) |
| | | | | | | | | |
| Financing Activities | | | | | | | | |
| | | | | | | | | |
| Cash acquired on acquisition | | | 86,401 | | | | 86,401 | |
| Proceeds from issuance of common shares | | | 202,691 | | | | 204,537 | |
| Repayment of loan payable | | | (7,946 | ) | | | (7,946 | ) |
| Proceeds from related parties | | | 18,648 | | | | 18,648 | |
| | | | | | | | | |
| Net Cash Provided By Financing Activities | | | 299,794 | | | | 301,640 | |
| | | | | | | | | |
| Increase in Cash | | | 143,706 | | | | 144,787 | |
| | | | | | | | | |
| Cash – Beginning of Period | | | 1,081 | | | | – | |
| | | | | | | | | |
| Cash – End of Period | | | 144,787 | | | | 144,787 | |
| | | | | | | | | |
| | | | | | | | | |
| Supplemental Disclosures | | | | | | | | |
| Interest paid | | | – | | | | – | |
| Income tax paid | | | – | | | | – | |
| | | | | | | | | |
| Non-cash investing and financing activities: | | | | | | | | |
| Issuance of common shares to settle loan payable | | | 42,500 | | | | – | |
| Issuance of common shares for financing fees | | | 250,000 | | | | – | |
| Issuance of common shares to settle convertible debt | | | 83,447 | | | | – | |
(The accompanying notes are an integral part of these financial statements)
Urban Barns Foods Inc.
(formerly HL Ventures Inc.)
(A Development Stage Company)
(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 July 22, 2009 the Company filed an amendment to its articles of incorporation to change its name from HL Ventures Inc. to Urban Barns Foods Inc. as well as increase the number of authorized common shares from 75,000,000 to 100,000,000 shares.
On December 4, 2009, the Company closed a reverse takeover transaction with Urban Barns Foods Inc., a privately-held company incorporated July 3, 2009 under the laws of the Province of Alberta (“UB”). In accordance with the RTO, the Company issued 25,000,000 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 20,500,000 shares of common stock held by our former President, Chief Executive Officer, Chief Financial Officer, Secretary, Treasurer and Director. 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 hi gh-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, 2010, the Company has not realized any revenues and has an accumulated deficit of $206,942. 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 subsidiary, Urban Barns USA Inc. All inter-company accounts and transactions have been eliminated. The Company’s fiscal year-end is July 31.
| | 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 on share-based payments, and valuation allowances on deferred income tax losses. 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. |
Urban Barns Foods Inc.
(formerly HL Ventures 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) | Interim Financial Statements |
These interim unaudited consolidated financial statements have been prepared on the same basis as the annual consolidated 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.
| (e) | Website Development Costs |
Website development costs consist of costs incurred to develop internet web sites to promote, advertise, and earn revenue with respect to the Company’s business operations. Costs are capitalized in accordance with ASC 350-50, Intangible Assets – Goodwill and Other - Web Site Development Costs, and are amortized at a rate of 30% per annum commencing when the internet web site has been completed subject to a half-year rule in the first year of amortization.
| (f) | Property and Equipment |
Property and equipment consists of office equipment and is stated at cost and amortized at 25% per annum.
| (g) | Impairment of Long-Lived Assets |
In accordance with ASC 360, Property Plant and Equipment, management tests long-lived assets to be held and used for recoverability whenever events or changes in circumstances indicate that their carrying amount may not be recoverable.
The Company recognizes revenue in accordance with ASC 605, Revenue Recognition. Revenue consists of the sale of produce and is recognized only when the price is fixed or determinable, persuasive evidence of an arrangement exists, the product is shipped, and collectibility is reasonably assured.
Potential benefits of income tax losses are not recognized in the accounts until realization is more likely than not. The Company has adopted ASC 740, Income Taxes as of its inception. Pursuant to ASC 740, the Company is required to compute tax asset benefits for net operating losses carried forward. The potential benefits of net operating losses have not been recognized in these financial statements because the Company cannot be assured it is more likely than not it will utilize the net operating losses carried forward in future years.
Urban Barns Foods Inc.
(formerly HL Ventures Inc.)
(A Development Stage Company)
Notes to the Consolidated Financial Statements
(expressed in U.S. dollars)
(unaudited)
2. | Significant Accounting Policies (continued) |
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, 2010 and July 31, 2009, the Company had no items that affected comprehensive loss.
| (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.
| (l) | Foreign Currency Translation |
The Company’s functional currency and its reporting currency is the United States dollar and foreign currency transactions are primarily undertaken in Canadian dollars. The financial statements of the Company are translated to US dollars in accordance with ASC 830, Foreign Currency Translation Matters using the exchange rate prevailing at the balance sheet date. Gains and losses arising on translation or settlement of foreign currency denominated transactions or balances are included in the determination of income.
| (m) | Basic and Diluted Net 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.
| (n) | Financial Instruments and Fair Value Measures |
The Company’s financial instruments consist principally of cash, deferred financing charges, accounts payable and accrued liabilities, and amounts due to a related party. Pursuant to ASC 820, Fair Value Measurements and Disclosures and ASC 825, Financial Instruments, the fair value of our cash and cash equivalents is determined based on “Level 1” inputs, which consist of quoted prices in active markets for identical assets. Management believes that the recorded values of all other financial instruments approximate their current fair values because of their nature and respective maturity dates or durations .
The Company’s operations are in Canada, which results in exposure to market risks from changes in foreign currency rates. 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.
Urban Barns Foods Inc.
(formerly HL Ventures Inc.)
(A Development Stage Company)
Notes to the Consolidated Financial Statements
(expressed in U.S. dollars)
(unaudited)
| 2. | Significant Accounting Policies (continued) |
| (o) | Recent Accounting Pronouncements |
In January 2010, the FASB issued an amendment to ASC 505, Equity, where entities that declare dividends to shareholders that may be paid in cash or shares at the election of the shareholders are considered to be a share issuance that is reflected prospectively in EPS, and is not accounted for as a stock dividend. This standard is effective for interim and annual periods ending on or after December 15, 2009 and is to be applied on a retrospective basis. The adoption of this standard is not expected to have a significant impact on the Company’s financial statements.
In October 2009, the FASB issued an amendment to the accounting standards related to certain revenue arrangements that include software elements. This standard clarifies the existing accounting guidance such that tangible products that contain both software and non-software components that function together to deliver the product’s essential functionality, shall be excluded from the scope of the software revenue recognition accounting standards. Accordingly, sales of these products may fall within the scope of other revenue recognition standards or may now be within the scope of this standard and may require an allocation of the arrangement consideration for each element of the arrangement. This standard, for which the Company is currently assessing the impact, will bec ome effective on January 1, 2011.
In October 2009, FASB issued an amendment to the accounting standards related to the accounting for revenue in arrangements with multiple deliverables including how the arrangement consideration is allocated among delivered and undelivered items of the arrangement. Among the amendments, this standard eliminated the use of the residual method for allocating arrangement considerations and requires an entity to allocate the overall consideration to each deliverable based on an estimated selling price of each individual deliverable in the arrangement in the absence of having vendor-specific objective evidence or other third party evidence of fair value of the undelivered items. This standard also provides further guidance on how to determine a separate unit of accounting in a mul tiple-deliverable revenue arrangement and expands the disclosure requirements about the judgments made in applying the estimated selling price method and how those judgments affect the timing or amount of revenue recognition. This standard, for which the Company is currently assessing the impact, will become effective on January 1, 2011.
On September 30, 2009, the Company adopted changes issued by FASB to the authoritative hierarchy of GAAP. These changes establish the FASB Accounting Standards Codification (Codification) as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with GAAP. Rules and interpretive releases of the Securities and Exchange Commission (SEC) under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. The FASB will no longer issue new standards in the form of Statements, FASB Staff Positions, or Emerging Issues Task Force Abstracts; instead the FASB will issue Accounting Standards Updates. ; Accounting Standards Updates will not be authoritative in their own right as they will only serve to update the Codification. These changes and the Codification itself do not change GAAP. Other than the manner in which new accounting guidance is referenced, the adoption of these changes had no impact on the Company’s financial statements.
In August 2009, FASB issued an amendment to the accounting standards related to the measurement of liabilities that are recognized or disclosed at fair value on a recurring basis. This standard clarifies how a company should measure the fair value of liabilities and that restrictions preventing the transfer of a liability should not be considered as a factor in the measurement of liabilities within the scope of this standard. This standard is effective for the Company on October 1, 2009. The adoption of this amendment did not have a material effect on the Company’s financial statements.
Urban Barns Foods Inc.
(formerly HL Ventures Inc.)
(A Development Stage Company)
Notes to the Consolidated Financial Statements
(expressed in U.S. dollars)
(unaudited)
| 2. | Significant Accounting Policies (continued) |
| (o) | Recent Accounting Pronouncements (continued) |
Effective June 30, 2009, the Company adopted a new accounting standard issued by the FASB related to the disclosure requirements of the fair value of the financial instruments. This standard expands the disclosure requirements of fair value (including the methods and significant assumptions used to estimate fair value) of certain financial instruments to interim period financial statements that were previously only required to be disclosed in financial statements for annual periods. In accordance with this standard, the disclosure requirements have been applied on a prospective basis and did not have a material impact on the Company’s financial statements.
In June 2009, the FASB issued guidance now codified as ASC 105, Generally Accepted Accounting Principles as the single source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with U.S. GAAP, aside from those issued by the SEC. ASC 105 does not change current U.S. GAAP, but is intended to simplify user access to all authoritative U.S. GAAP by providing all authoritative literature related to a particular topic in one place. The adoption of ASC 105 did not have a material impact on the Company’s consolidated financial statements, but did eliminate all references to pre-codification standards.
The Company has implemented all new accounting pronouncements that are in effect. These pronouncements did not have any material impact on the 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 Urban Barns Foods Inc. |
On December 4, 2009, the Company acquired 100% of the issued and outstanding common shares of Urban Barns Foods Inc. (“Urban Barns”) in exchange for 25,000,000 common shares. As part of the acquisition of Urban Barns, the Company transferred 43,400,000 issued and outstanding common shares to Urban Barns and cancelled 20,500,000 common shares held by the former President and Director of the Company. The transaction was accounted for as a “reverse merger” using the purchase method of accounting, with the former shareholders of Urban Barns controlling 52% of the issued and outstanding common shares of the Company after the closing of the acquisition. Accordingly, Urban Barns was deemed to be the acquirer for accounting purposes.
The purchase price was allocated to the following assets and liabilities:
| | | | $ | |
| Fair value of Urban Barns net assets | | | | |
| | | | | |
| Cash and cash equivalents | | | 86,401 | |
| Deposit | | | 175 | |
| Property and equipment | | | 19,243 | |
| Accounts payable | | | (31,394 | ) |
| Convertible Debentures | | | (108,813 | ) |
| | | | | |
| Excess purchase price | | | (34,388 | ) |
| Fair value of common shares issued (25,000,000 shares) | | | 34,388 | |
| | | | – | |
Urban Barns Foods Inc.
(formerly HL Ventures Inc.)
(A Development Stage Company)
Notes to the Consolidated Financial Statements
(expressed in U.S. dollars)
(unaudited)
| | | Cost $ | | | Accumulated Amortization $ | | | April 30, 2010 Net Carrying Value $ | | | July 31, 2009 Net Carrying Value $ | |
| Equipment | | | 15,408 | | | | 1,024 | | | | 14,384 | | | | – | |
| Website Development Costs | | | 7,161 | | | | 608 | | | | 6,553 | | | | – | |
| | | | | | | | | | | | | | | | | |
| | | | 22,569 | | | | 1,632 | | | | 20,937 | | | | – | |
| a) | In September 2009, the Company issued $59,000 of convertible debentures due interest at 12% per annum, secured by the Company’s assets, due in three years from the date of issuance, and convertible into common shares of the Company at the option of the note holder at a conversion rate of $1.00 per common share. Furthermore, the convertible debentures includes the issuance of 59,000 share purchase warrants, where each warrant allows the warrant holder to purchase one additional common share of the Company at $1.50 per common share for a period of two years from the date of issuance. In accordance with ASC 470, Debt – Debt with Conversions and Other Options, the Company determined that the multiple financial instruments issued in th e convertible promissory notes resulted in an allocation of the fair value between the convertible note and the share purchase warrants which resulted in a discount on the convertible notes of $12,260 that was recorded against the note payable and a corresponding credit to additional paid-in capital. As at April 30, 2010, the convertible debentures have been converted into common shares. |
| b) | On October 30, 2009, the Company issued $12,500 of convertible debentures due interest at 12% per annum, secured by the Company’s assets, due in three years from the date of issuance, and convertible into common shares of the Company at the option of the note holder at a conversion rate of $1.00 per common share. Furthermore, the convertible debentures includes the issuance of 59,000 share purchase warrants, where each warrant allows the warrant holder to purchase one additional common share of the Company at $1.50 per common share for a period of two years from the date of issuance. In accordance with ASC 470, Debt – Debt with Conversions and Other Options, the Company determined that the multiple financial instruments issued in the convertible promissory notes resulted in an allocation of the fair value between the convertible note and the share purchase warrants which resulted in a discount on the convertible notes of $2,598 that was recorded against the note payable and a corresponding credit to additional paid-in capital. As at April 30, 2010, the convertible debentures have been converted into common shares. |
| a) | On August 14, 2009, the Company issued 600,000 common shares for proceeds of $2,774. |
| b) | On December 4, 2009, the Company executed a share exchange agreement whereby the Company acquired 43,400,000 of the issued and outstanding common shares of Urban Barns. As part of the share exchange agreement, the Company issued 25,000,000 common shares of the Company to shareholders of Urban Barns and cancelled 20,500,000 common shares that were previously issued to the former President and Director of the Company. |
| c) | On December 17, 2009, the Company issued 50,000 units at $0.85 per unit to settle outstanding loans payable of $42,500. Each unit is comprised of one common share of the Company and one share purchase warrant to purchase one additional common share at $1.25 per share for a period of two years from the date of issuance. |
Urban Barns Foods Inc.
(formerly HL Ventures Inc.)
(A Development Stage Company)
Notes to the Consolidated Financial Statements
(expressed in U.S. dollars)
(unaudited)
6. | Common Shares (continued) |
| d) | On January 14, 2010, the Company issued 59,573 common shares to settle outstanding convertible debentures. |
| e) | On February 10, 2010, the Company issued 250,000 units at $0.80 per unit for proceeds of $200,000. Each unit is comprised of one common share of the Company and one share purchase warrant to purchase one additional common share at $1.08 per share for a period of two years from the date of issuance. |
| f) | On March 26, 2010, the Company issued 74,607 common shares to settle outstanding convertible debentures. |
| g) | On April 13, 2010, the Company issued 1,470,588 shares at $0.17 per share for payment of financing fees of $250,000 for a private placement that has not been finalized as at April 30, 2010. |
| 7. | Share Purchase Warrants |
The following table summarizes the continuity of share purchase warrants:
| | | Number of Warrants | | | Weighted Average Exercise Price $ | |
| | | | | | | |
| Balance, July 31, 2009 | | | – | | | | – | |
| | | | | | | | | |
| Issued | | | 371,500 | | | | 1.18 | |
| | | | | | | | | |
| Balance, April 30, 2010 (unaudited) | | | 371,500 | | | | 1.18 | |
As at April 30, 2010, the following share purchase warrants were outstanding:
| Number of Warrants | Exercise Price $ | Expiry Date |
| 49,000 | 1.50 | March 25, 2011 |
| 10,000 | 1.50 | March 30, 2011 |
| 12,500 | 1.50 | April 30, 2011 |
| 50,000 | 1.25 | December 17, 2011 |
| 250,000 | 1.08 | February 10, 2012 |
| 371,500 | | |
| 8. | Related Party Transactions |
As at April 30, 2010, the Company owed $18,648 (2009 - $nil) to the Chief Financial Officer and Director of the Company for expenditures incurred on behalf of the Company. The amounts owing are unsecured, non-interest bearing, and due on demand.
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 $194,930 for the nine months ended April 30, 2010. These expenses consisted of $35,564 in general operating expenses, $1,632 in depreciation expenses, $28,858 in research and development expenses, and $110,278 in professional fees. For the same period ended April 30, 2009 we incurred operating expenses of $nil as the Company was incorporated on July 3, 2009.
Our net loss from our inception on July 3, 2009 through April 30, 2010 was $206,942.
The following table provides selected financial data about our company for the quarter ended April 30, 2010.
| Balance Sheet Data: | | April 30, 2010 | |
| Cash | | $ | 144,787 | |
| Property and Equipment | | $ | 14,384 | |
| Website | | $ | 6,553 | |
| Total assets | | $ | 426,899 | |
| Total liabilities | | $ | 87,745 | |
| Shareholders' equity | | $ | 339,154 | |
Liquidity and Capital Resources
As of April 30, 2010, we had cash of $144,787 and working capital of $68,042.
For the nine months ended April 30, 2010, we used cash of $152,762 on operating activities. The use of the cash in operating activities for the nine months ended April 30, 2010 was primarily due to general operating costs with respect to the development of our business.
During the nine months ended April 30, 2010, we used cash of $3,326 for investing activities. The use of cash from investing activities was due to the acquisition of growing equipment.
During the nine months ended April 30, 2010, we received net cash of $299,794 from financing activities. The cash proceeds from financing activities were due to the issuance of convertible debentures and the issuance of common stock.
Our cash level increased by $143,706 during the nine months ended April 30, 2010.
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
Recently, our management decided to focus on acquiring or merging with one or more operating businesses. Our efforts to identify a target business resulted in the Share Exchange Agreement with Urban Barns Foods Inc., a private company. On December 4, 2009 the share exchange with Urban Barns closed, and we accordingly adopted the business of Urban Barns. We are now an urban produce production company 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 (beginning December 2009) 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.
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, 2010 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 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.
Basic Earnings per Share
In February 1997, the FASB issued ASC-260, “Earnings per Share”, which specifies the computation, presentation and disclosure requirements for earnings (loss) per share for entities with publicly held common stock. ASC-260 supersedes the provisions of APB No. 15, and requires the presentation of basic earnings (loss) per share and diluted earnings (loss) per share. We have adopted the provisions of ASC-260 effective May 21, 2007 (inception). Basic net loss per share amounts is computed by dividing the net loss by the weighted average number of common shares outstanding. Diluted earnings per share are the same as basic earnings per share due to the lack of dilutive items in our company.
Use of Estimates and Assumptions
The preparation of financial statements in conformity with generally accepted accounting principles 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 financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. In accordance with FASB 16 all adjustments are normal and recurring.
Depreciation
We depreciate our fixed assets once they have been placed into service. Equipment purchased or leased for research and development are fully expensed as research and development. We are currently developing an interactive website and classify it as a balance sheet asset and is depreciated over 5 years.
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 operatio n of our disclosure controls and procedures as of April 30, 2010. 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.
None.
During the period covered by this report we had the following issuances of previously undisclosed and unregistered securities:
| ● | On January 14, 2010 we converted $50,637.50 worth of convertible debentures into shares of our common stock for an aggregate of 59,573 shares. The former debenture holders continue to own Warrants which represent the right to purchase from the Company up to 49,000 shares of common stock at the purchase price of $1.50 per share exercisable at any time until April 30, 2011. These securities were issued pursuant to exemptions from prospectus requirements under Regulation S of the Securities Act of 1933, as amended. |
| ● | On February 10, 2010 we issued 250,000 units at $0.80 per unit for gross proceeds of $200,000 to one non-US investor. Each unit consists of one share of our common stock and a warrant to purchase an additional share of our common stock at $1.08 per share for a period of twelve months or at $1.25 per share for a period of twenty four months. These securities were issued pursuant to exemptions from prospectus requirements under Regulation S of the Securities Act of 1933, as amended. |
| ● | On March 26, 2010 we converted $23,874.42 worth of convertible debentures into shares of our common stock for an aggregate of 74,607 shares. The former debenture holders continue to own Warrants which represent the right to purchase from the Company up to 22,500 shares of common stock at the purchase price of $1.50 per share exercisable at any time until April 30, 2011. These securities were issued pursuant to exemptions from prospectus requirements under Regulation S of the Securities Act of 1933, as amended. |
None.
None.
None.
The following exhibits are included with this quarterly filing:
| Exhibit No. | Description |
| 10.1 | Preferred Stock Purchase Agreement dated April 13, 2010 (1) |
| |
| |
| |
| |
(1) Filed as an exhibit to our Form 8-K on April 19, 2010.
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 21, 2010 | | Urban Barns Foods Inc. |
| | By: | |
| | | /s/ Jacob Benne |
| | | Jacob Benne |
| | | (Chief Executive Officer, President, & Director) |
| | | |
| | By: | |
| | | /s/ Daniel Meikleham |
| | | Daniel Meikleham |
| | | (Chief Financial Officer, Principal Accounting Officer & Director) |
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