UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended July 31, 2015
[ ] 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 |
20-0215404 |
(State or other jurisdiction of incorporation or |
(I.R.S. Employer Identification No.) |
organization) |
|
13000 Chemin Bélanger, |
450-434-4344 |
Mirabel, Québec, |
|
J7J 2N8 |
|
(Address of principal executive offices) (Zip Code) |
(Registrants telephone number, including
area code) |
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section12 (g) of the
Act: Common Stock, $0.001 par value
Indicate by check mark whether the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes [ ] No [X]
Indicate by check mark if the registrant is not required to
file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes [ ] No [X]
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for shorter period that the
registrant as 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 has submitted
electronically and posted on its corporate Website, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation
S-T (§232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such files).
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not
contained herein, and will not be contained, to the best of registrants
knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K.
[ ]
Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, or a
non-accelerated filer. See definition of accelerated filer and large
accelerated filer in Rule 12b-2 of the Exchange Act. (Check one):
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 Act)
Yes [
] No [X]
State the aggregate market value of voting and non-voting
common equity held by non-affiliates computed by reference to the price at which
the common equity was last sold, or the average bid and ask price of such common
equity, as of the last business day of the registrants most recently completed
second fiscal quarter.
The aggregate market value of common stock held by
non-affiliates of the registrant on January 30, 2015 was $3,697,787.45 based on
a $0.0335 closing price for the common stock on January 30, 2015. For purposes
of this computation, all executive officers and directors have been deemed to be
affiliates. Such determination should not be deemed to be an admission that such
executive officers and directors are, in fact, affiliates of the registrant.
Indicate the number of shares outstanding of each of the
registrants classes of common stock as of the latest practicable date.
As of October 28, 2015, the registrant had 429,904,770
shares of common stock issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None.
TABLE OF CONTENTS
1
PART I
Forward-looking Statements
This annual report contains forward-looking statements. These
statements relate to future events or our future financial performance. In some
cases, you can identify forward-looking statements by terminology such as may,
will, should, expects, plans, anticipates, believes, estimates,
predicts, potential or continue or the negative of these terms or other
comparable terminology. These statements are only predictions and involve known
and unknown risks, uncertainties and other factors that may cause our or our
industry's actual results, levels of activity, performance or achievements to be
materially different from any future results, levels of activity, performance or
achievements expressed or implied by these forward-looking statements.
Although we believe that the expectations reflected in the
forward-looking statements are reasonable, we cannot guarantee future results,
levels of activity, performance or achievements. Except as required by
applicable laws, including the securities laws of the United States, we do not
intend to update any of the forward-looking statements so as to conform these
statements to actual results.
As used in this annual report, the terms we, us, our,
our company, and Urban Barns mean Urban Barns Foods Inc. and our
consolidated subsidiaries, unless otherwise indicated.
All dollar amounts refer to U.S. dollars unless otherwise
indicated.
Overview
We were incorporated as HL Ventures Inc. on May 21, 2007 under
the laws of the State of Nevada and changed our company name to Urban Barns
Foods Inc. on July 22, 2009. . On December 4, 2009, we acquired all of the
issued and outstanding common shares of Urban Barns Foods (Canada) Inc., a
company incorporated under the laws of the Province of Alberta on July 3, 2009
and continued as a federal Canadian corporation on November 12, 2012, pursuant
to a share exchange agreement dated October 9, 2009. As a result, Urban Barns
Foods (Canada) Inc. became our wholly owned subsidiary. On June 2, 2011, we
acquired all of the issued and outstanding common shares of Non Industrial
Manufacture Inc., a company incorporated under the laws of the Province of
Alberta on February 10, 2010, pursuant to a share exchange agreement dated May
2, 2011. As a result, Non Industrial Manufacture Inc. also became our wholly
owned subsidiary. Our principal executive office is located at 13,000 Chemin
Bélanger, Mirabel, Québec, Canada J7J 2N8. Our telephone number is 450-443-4344.
Our fiscal year end is July 31.
Current Business
We are a produce production company, or grower, that aims to be
the supplier of choice for fresh, locally grown, Kosher-certified, organic or
high-quality fruits and vegetables for urban consumers.
We have identified a revenue opportunity in the produce
industry that we believe is currently underutilized. This consists primarily of
producing select fruits and vegetables in a secure, controlled indoor
environment in close proximity to urban centers, where the population of
potential consumers exceeds that of rural locales, regardless of regional
climate or outdoor growing season constraints. Our business plan therefore seeks
to eliminate two problems facing producers and consumers of fresh, organic and
conventional fruits and vegetables:
|
|
costs and delays related to shipping fresh
produce from where it is grown to where it can be sold; and |
|
|
|
|
|
variations in climate that prevents certain
produce from being grown in certain markets. |
2
Our strategy is to develop a series of urban barns that we
use to grow our fruits and vegetables in a number of urban centers, beginning
with Montréal, Canada. To do this, we plan to lease and retrofit a series of
warehouse-type facilities in high-density strategic locations and purchase and
install our proprietary CUBIC FARMINGTM growing machines to grow our
organic and conventional produce. As of the date of this annual report, we have
established our first growing facility at one such location, in Mirabel, Québec,
a suburb of Montréal, and have begun commercial-scale sales and operations. We
have not yet secured any additional locations.
Our strategy is to create brand-name awareness for produce that
is Kosher-certified, which commands a selling price premium at the wholesale and
retail levels of North Americas food distribution system. We are servicing two
categories of consumer: those seeking fresh leafy vegetables that are
Kosher-certified, and those seeking superior quality fresh leafy vegetables.
Technology
The CUBIC FARMINGTM technology we use to cultivate
our fruits and vegetables consists of a patent-pending proprietary apparatus.
This apparatus subjects plants to a variety of light spectrums over the course
of their growing cycle in an indoor, controlled environment. It uses far less
land and water than is typically used for outdoor farming and is also efficient
in terms of labour costs. However, it consumes more electricity because it
relies on LED lights rather than the sun. It is worth noting that our apparatus
grows produce without herbicide or pesticide chemicals, made possible by being
housed in an environmentally controlled environment.
Our technology was developed by us and although the growing
apparatus is not yet protected by patent, we have filed for patent protection in
15 countries, including the USA, Canada, China, India and Japan. Currently, we
rely on proprietary know-how and controlled access to protect our technology.
Products
We currently offer the following leafy green vegetables for
sale, as we have found that they are relatively easy to propagate and can be
grown to maturity in short production cycles: multiple varieties of lettuce,
basil and various herbs. However, this list is by no means exhaustive. We plan
to offer additional products after testing other varieties of fruits and
vegetables on our CUBIC FARMING apparatus, and as funding becomes available to
increase our production capacity at our existing and future facilities.
We have identified the Kosher market in Canada and the United
States as a niche for our products. All of our products are Kosher-certified by
MK, Canadas Kosher certifier and the Beth Din of Montréal.
Our raw materials consist primarily of seeds and nutrients
which are sourced from suppliers both in the United States and Canada. We do not
anticipate any difficulty in sourcing these materials. There is an adequate and
reliable supply of electricity to operate our facility.
Market
The value of the 2013 vegetable crop produced in the United
States was estimated at $11.4 billion, up 14.7% from 2012. In terms of
production, the three largest crops by weight are onions, head lettuce and
watermelons, which together account for 37% of the countrys total. Tomatoes,
head lettuce and onions claim the highest values, accounting for 32% of the
total value when combined. California is the largest producing region in terms
of fresh vegetable and melon production, accounting for 49% of output, followed
by Florida with 14% and Arizona with 8%. (Source: Vegetables Annual Summary,
National Agricultural Statistics Service (NASS), USDA, 2014).
There are strong indications that consumers are now, more than
ever, interested in purchasing safe, locally grown produce that is subject to a
standard of quality such as Kosher certification, organic certification, non-GMO
(genetically modified organism) verification and grown without the use of chemicals. The recent expansion of supermarket chains such as
Whole Foods Market demonstrates that demand for such produce exists, as does
public concern over herbicide and pesticide use, country-of-origin labeling and
greenhouse gas emissions associated with shipping produce long distances from
farm to retail outlet. The eat locally movement has also regularly been touted
in the mainstream U.S. media as a method of reducing ones carbon footprint.
3
Organic products account for less than 2% of Canadas food
supply and occupy less than 1% of its dedicated cropland. Nevertheless, over the
past decade the market for such products has grown by approximately 20% and it
is projected to continue to grow for the foreseeable future.
Distribution Methods
We plan to capitalize on the opportunity presented by this
shift in consumer attitudes by offering them fresh; locally grown organic and
conventional produce alternatives that are premuim-priced and capable of
instilling a measure of brand recognition. To achieve the latter, we plan to
employ shop-floor selling techniques (i.e. taste-before-you-buy campaigns) at
the retail level, engage in targeted print advertising and leverage existing
social networks on the Internet. We also plan to target additional markets that
require bulk produce on a continuous basis, such as produce processors, hotels
and restaurants, and we believe that our ability to provide a constant supply of
select high quality fruits and vegetables regardless of the local climate will
differentiate our produce from that of our competitors.
Competition
We face competition from growers in such locations as
California, Mexico and Chile. In the summertime, we also face competition from
local growers. That acknowledged, few industry participants grow
Kosher-certified leafy green vegetables. As well, a study by McGill University
reveals that our produce is more nutritious than that grown by the average
grower in Canada and the United States. As such, we rely on a unique product
offering to stimulate demand and to shield ourselves from price competition.
An offset to our unique product offering is that we are saddled
with a high cost structure relative to our competition. This is largely the
consequence of our lack of economy of scale. As funding for expansion becomes
available, we will embark on scaling up our production several-fold and thereby
lower our costs.
Intellectual Property
We own the copyright of our Urban Barns Foods logo and all of
the contents of our website, www.urbanbarns.net. Additionally, we received a
notice of allowance from the Canadian Intellectual Property Office for our CUBIC
FARMINGTM trademark on August 28, 2015 as well as a notice of
publication from the United States Patent and Trademark Office on August 19,
2015. We do not currently own any other intellectual property rights; however,
we have filed for patent protection for our technology as noted above.
Research and Development
During the fiscal year ended July 31, 2015, we spent $527,255
to operate our existing urban barn in Mirabel, Québec, a cost that has been
capitalized as a research and development activity. In addition, we spent
$20,532 on patent protection filings during the year, and $145,432 to improve
the efficiency of our growing apparatus, lighting and environmental control
systems. The latter two costs have similarly been classified as research and
development expenses for financial reporting purposes.
Other than payments we are required to make to McGill
University of Montréal, Québec, Canada pursuant to our research agreement with
that institution, we do not anticipate incurring any substantial research and
development expenses for the foreseeable future.
4
Reports to Security Holders
We are currently subject to the reporting and other
requirements of the Exchange Act, and are therefore required to furnish our
shareholders with annual reports containing financial statements audited by our
independent auditors and to make available quarterly reports containing
unaudited financial statements for each of the first three quarters of our
fiscal year.
The public may read and copy any materials that we file with
the United States Securities and Exchange Commission (the SEC) at the SEC's
Public Reference Room at 100 F Street NE, Washington, DC 20549. The public may
obtain information on the operation of the Public Reference Room by calling the
SEC at 1-800-SEC-0330. The SEC maintains an Internet site at www.sec.gov that
contains reports, proxy and information statements, and other information
regarding issuers that file electronically with the SEC.
Government Regulation
We are required to obtain the necessary government licenses,
authorizations and labor permits to legally manage our facilities in the
locations in which we operate or plan to operate. Many of our facilities and
products will be subject to various laws and regulations administered by the
United States Department of Agriculture, the Food and Drug Administration, the
Occupational Safety and Health Administration, and other federal, state, local,
and foreign governmental agencies relating to the quality and safety of
products, sanitation, safety and health matters, and environmental control. We
believe that we comply with such laws and regulations in all material respects,
and that continued compliance with such regulations will not have a material
effect upon capital expenditures, earnings, or our competitive position.
While our business activities do not currently violate any
laws, any regulatory changes that impose restrictions or requirements on us or
on our customers could adversely affect us by increasing our operating costs,
which could have a material adverse effect on our results of operations. We do
not currently incur any significant expenses related to compliance with
environmental regulations, and do not believe that this will be a significant
expense once we establish additional urban barns.
Employees
As of October 28, 2015 we had three paid employees, all of whom
engage in administrative tasks connected to our first urban barn facility in
Mirabel, Québec, Canada. Two officers provide us with services on a consulting
basis. One other officer, as well as the three directors on our Board of
Directors, receive no cash compensation for their services. Once we are better
funded, however, we anticipate compensating all officers and employees.
As a smaller reporting company, we are not required to
provide the information required by this Item.
Item 1B. |
Unresolved Staff Comments
|
None.
Our executive office and growing facility is located at 13000
Chemin Bélanger, Mirabel, Québec, Canada J7J 2N8.
Item 3. |
Legal Proceedings |
We are not aware of any pending or threatened legal proceedings
that involve us or any of our products or services.
5
Item 4. |
Mine Safety Disclosures
|
Not applicable.
6
PART II
Item 5. |
Market for Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity Securities
|
Market Information
Our common stock is not traded on any exchange. Our common
stock is quoted on OTCQB under the trading symbol URBF. We cannot assure you
that there will be a market in the future for our common stock.
OTCQB securities are not listed and traded on the floor of an
organized national or regional stock exchange. Instead, OTCQB securities
transactions are conducted through a telephone and computer network connecting
dealers. OTCQB issuers are traditionally smaller companies that do not meet the
financial and other listing requirements of a national or regional stock
exchange.
The following table reflects the high and low bid information
for our common stock and reflects inter-dealer prices, without retail mark-up,
markdown or commission, and may not necessarily represent actual transactions.
The high and low bid prices of our common stock for the periods
indicated below are as follows:
OTCQB |
|
|
|
High |
|
|
Low |
|
Quarter Ended |
|
($) |
|
|
($) |
|
July 31, 2015 |
|
0.0291 |
|
|
0.011 |
|
April 30, 2015 |
|
0.377 |
|
|
0.016 |
|
January 31, 2015 |
|
0.045 |
|
|
0.03 |
|
October 31, 2014 |
|
0.055 |
|
|
0.0312 |
|
July 31, 2014 |
|
0.055 |
|
|
0.0401 |
|
April 30, 2014 |
|
0.048 |
|
|
0.018 |
|
January 31, 2014 |
|
0.05 |
|
|
0.0151 |
|
October 31, 2013 |
|
0.033 |
|
|
0.01 |
|
Holders
As of October 28, 2015 there were approximately 95 holders of
record of our common stock.
Dividends
To date, we have not paid dividends on our common stock and we
do not expect to declare or pay dividends for the foreseeable future. The
payment of any dividends will depend upon our future earnings, if any, our
financial condition, and other factors deemed relevant by our Board of
Directors.
Equity Compensation Plans
On September 5, 2014 our Board of Directors approved our 2014
Stock Option Plan that provides for the issuance of up to a maximum of 10% of
our common stock or options to acquire our common stock to our directors,
officers, employees and consultants. As of October 28, 2015, we had granted
options to purchase 17,500,000 shares under the plan and its predecessor.
Recent Sales of Unregistered Securities
We did not complete any previously unreported sales of
unregistered securities during the past three years.
7
Recent Purchases of Equity Securities by us and our
Affiliated Purchases
As of October 28, 2015, we had not repurchased any shares of
our common stock and we do not have any publicly announced repurchase plans or
programs.
Item 6. |
Selected Financial Data
|
As a smaller reporting company, we are not required to
provide the information required by this Item.
Item 7. |
Management's Discussion and Analysis of
Financial Condition and Results of Operations
|
We are a development stage company with limited operations and
revenues from our business operations. Our auditors have issued a going concern
opinion. This means that our auditors believe there is substantial doubt that we
can continue as an ongoing business for the next 12 months unless we obtain
additional financing to fund our operations. Our only sources of cash at this
time are fully secured loans that two of our directors have agreed to extend to
us.
Liquidity and Capital Resources
As of July 31, 2015, we had cash of $7,442 and total assets of
$650,817 compared to cash of $75,969 and total assets of $829,743 as of July 31,
2014. The decrease in cash is attributed to the fact that accounts receivable
and inventories increased as a result of the increase in our revenues for the
year, offset by the reduction in amounts receivable and lower prepaid expenses.
Our non-cash assets increased during the year due to additional purchases of
property and equipment.
Our working capital deficit at July 31, 2015 was $1,071,854
compared with a working capital deficit of $43,124 at July 31, 2014. The
increase in the working capital deficit was due to the fact that we financed our
operating costs with the issuance of convertible debentures, a note payable, and
amounts due to related parties.
As at July 31, 2015, our accumulated deficit was $5,772,477. We
are dependent on funds raised through equity or debt financing, investing
activities, and revenue generated through the sales of our produce to fund our
operations.
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 grow and sell our produce and anticipate that this will continue
until we accrue sufficient capital reserves to finance production independently.
Cash Flow from Operating Activities
During the year ended July 31, 2015, we used cash of $1,068,087
for operating activities compared with use of $1,043,982 during the year ended
July 31, 2014. The increase in cash used for operating activities was
attributable to the fact that we had more operating activity during the year as
we opened our first commercial growing facility during the latter part of the
prior year.
Cash Flow from Investing Activities
During the year ended July 31, 2015, we used cash of $106,572
for investing activities compared with the use of $463,469 during the year ended
July 31, 2014. The decrease in cash used for investing activities was due in
large part to the purchase of property and equipment for our first commercial
growing facility being carried out in the prior year.
8
Cash Flow from Financing Activities
During the year ended July 31, 2015, we received cash of
$1,106,132 from financing activities compared with the receipt of $1,553,803
from financing activities during the year ended July 31, 2014. The decrease in
cash provided from financing activities was due to $1,059,500 less in proceeds
from the issuance of our common stock, offset by an increase of $246,500 from
the issuance of convertible debentures, $170,930 in proceeds from a note payable
and $142,723 in proceeds from related parties.
Plan of Operation
We estimate that our expenses over the next 12 months will be
approximately $1,632,021 as summarized in the
table below. These estimates may change significantly depending on the nature of
our future business activities and our ability to raise capital from investors
or other sources.
Description |
|
Potential
Completion Date |
|
|
Estimated
Expenses ($) |
|
Cost of sales |
|
12 months |
|
|
282,248 |
|
Direct and indirect labour |
|
12 months |
|
|
407,531 |
|
Rent |
|
12 months |
|
|
151,709 |
|
Professional fees |
|
12 months |
|
|
100,000 |
|
General & administrative
expenses |
|
12 months |
|
|
212,105 |
|
Purchase of
additional growing machines & building improvements |
|
12
months |
|
|
478,428 |
|
Total |
|
|
|
|
1,632,021 |
|
Our general and administrative expenses for the year will
consist of consulting 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. We plan to build 12
new large capacity growing machines for installation into currently available
space within our Mirabel, Québec growing facility.
Based on our planned expenditures, we require additional funds
of at least $1,600,000 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
delay our growing capacity expansion, scale down or perhaps even cease our
operations.
Results of Operations for the Years Ended July 31, 2015
and 2014
The following summary of our results of operations should be
read in conjunction with our audited consolidated financial statements for the
years ended July 31, 2015 and 2014.
Our operating results for the years ended July 31, 2015 and
2014 are summarized as follows:
|
|
Year
Ended |
|
|
|
July 31
|
|
|
|
2015 |
|
|
2014 |
|
|
|
|
|
|
|
|
Revenue |
$ |
101,148
|
|
$ |
992 |
|
Depreciation |
|
106,280 |
|
$ |
55,884 |
|
Foreign exchange loss |
|
8,198 |
|
$ |
11,659 |
|
General and administrative |
|
1,085,413 |
|
$ |
1,118,153 |
|
Professional
fees |
|
140,754 |
|
$ |
150,207
|
|
Research and development |
|
535,506 |
|
$ |
205,795 |
|
9
Revenues
During the year ended July 31, 2015, we earned revenues of
$101,148 from the sale of produce compared to revenues of $992 during the year
ended July 31, 2014.
Expenses
For the year ended July 31, 2015, we had total operating
expenses of $1,910,784 compared to total operating expenses of $1,603,196 for
the year ended July 31, 2014. The increase in operating expenses was
attributable to the fact that we engaged in more operating activity due to the
increase of production at our first commercial growing facility during the year.
Net Loss
Our net loss for the year ended July 31, 2015 was $1,636,165
compared to $1,911,274 for the year ended July 31, 2014. In addition to
operating expenses during the year, we also incurred $52,818 of interest expense
for interest incurred on convertible debentures, a loss of $87,635 for the
change in the fair value of the derivative liability relating to the floating
conversion price of our convertible debentures, and a loss of $31,694 on the
settlement of accounts payable, as offset by the recovery of $390,900 in warrant
derivative liability.
During the fiscal year ended July 31, 2015, we incurred a
comprehensive loss of $1,716,148, compared to a comprehensive loss of $1,911,274
during the year ended July 31, 2014. Our net loss per share was $0.01 for the
year ended July 31, 2015 and $0.01 for the year ended July 31, 2014.
Off-Balance Sheet Arrangements
We have no significant off-balance sheet arrangements 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 that are
material to our stockholders.
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.
Critical Accounting Policies
Our consolidated financial statements and accompanying notes
have been prepared in conformity with accounting principles generally accepted
in the United States of America. Preparing financial statements requires
management to make estimates and assumptions that affect the reported amounts of
assets, liabilities, revenue, and expenses. These estimates and assumptions are
affected by managements application of accounting policies. We believe that
understanding the basis and nature of the estimates and assumptions involved
with the following aspects of our financial statements is critical to an
understanding of our financial position.
Revenue Recognition
We derive revenue from the sale of agricultural products.
Revenue is recognized when persuasive evidence of an arrangement exists,
delivery has occurred, the sales amount is fixed and determinable, and collectability of the revenue is reasonably assured.
10
Stock-Based Compensation
We record stock-based 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.
Foreign Currency Translation
Our functional and reporting currency is the Canadian, dollar,
and our reporting currency is the U.S. dollar. Accordingly, monetary assets and
liabilities denominated in a foreign currency are translated at the exchange
rate in effect at the balance sheet date while non-monetary assets and
liabilities denominated in a foreign currency are translated at historical
rates. Revenue and expense items denominated in a foreign currency are
translated at exchange rates prevailing when such items are recognized in the
statement of operations and comprehensive loss.
Exchange gains or losses arising on translation of foreign
currency items are included in the statement of operations. We follow the
current rate method of translation with respect to the presentation of our
consolidated financial statements in the reporting currency, which is the United
States dollar. Accordingly, assets and liabilities are translated into United
States dollars at the period-end exchange rates while revenue and expenses are
translated at the prevailing exchange rates during the period. Related exchange
gains and losses are included in a separate component of stockholders equity
(deficit) as accumulated other comprehensive income.
Inventory
Inventory is comprised of seeds for growing agricultural
products and packaging materials, and is recorded at the lower of cost or net
realizable value on a first-in first-out basis. We establish inventory reserves
for estimated obsolete or unsaleable inventory equal to the difference between
the cost of inventory and the estimated realizable value based upon assumptions
about future and market conditions.
Item 7A |
Qualitative and Qualitative Disclosures
about Market Risk |
As a smaller reporting company, we are not required to
provide the information required by this Item.
11
Item 8. |
Financial Statements and Supplementary
Data |
URBAN BARNS FOODS INC.
Consolidated Financial
Statements
July 31, 2015 and 2014
(Expressed in U.S. dollars)
Financial Statement Index
12
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors of Urban Barns Foods
Inc.
We have audited the accompanying consolidated balance sheet of
Urban Barns Foods Inc. (the Company) as at July 31, 2015 and the related
consolidated statements of operations, stockholders equity (deficit) and cash
flows for the year then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform an audit to obtain reasonable assurance whether
the consolidated financial statements are free of material misstatement. The
Company is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audit included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Companys internal control
over financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements present
fairly, in all material respects, the financial position of the Company as at
July 31, 2015 and the results of its operations and its cash flows for the year
then ended, in conformity with accounting principles generally accepted in the
United States of America.
The accompanying consolidated financial statements have been
prepared assuming that the Company will continue as a going concern. As
discussed in Note 1 to the consolidated financial statements, to date the
Company has reported losses since inception from operations and requires
additional funds to meet its obligations and fund the costs of its operations.
These factors raise substantial doubt about the Companys ability to continue as
a going concern. Managements plans in this regard are described in Note 1. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
|
DALE MATHESON CARR-HILTON LABONTE LLP |
CHARTERED PROFESSIONAL ACCOUNTANTS |
Vancouver, Canada
October 29, 2015
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Urban Barns Foods Inc.
We have audited the accompanying consolidated balance sheets of Urban Barns Foods Inc. as of July 31, 2014 and 2013, and the related consolidated statements of operations, stockholders’ equity (deficit), and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of July 31, 2014 and 2013, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States.
The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has a working capital deficit and has incurred operating losses since inception. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also discussed in Note 1 to the consolidated financial statements. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ SATURNA GROUP CHARTERED ACCOUNTANTS LLP
Saturna Group Chartered Accountants LLP
Vancouver, Canada
October 28, 2014
F-2
URBAN BARNS FOODS INC.
Consolidated Balance Sheets
(expressed in U.S. dollars)
|
|
July 31, |
|
|
July 31, |
|
|
|
2015 |
|
|
2014 |
|
|
|
$ |
|
|
$ |
|
|
|
|
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
Cash |
|
7,442 |
|
|
75,969 |
|
Accounts receivable |
|
20,141 |
|
|
1,318 |
|
Other
receivables |
|
21,229 |
|
|
57,976 |
|
Inventory |
|
18,767 |
|
|
13,444 |
|
Prepaid expenses and deposits |
|
3,304 |
|
|
52,469 |
|
Total current assets |
|
70,883 |
|
|
201,176 |
|
Prepaid expenses and deposits
non-current |
|
23,221 |
|
|
|
|
Property and equipment |
|
449,800 |
|
|
523,286 |
|
Intangible assets |
|
106,913 |
|
|
105,281 |
|
Total assets |
|
650,817 |
|
|
829,743 |
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
(DEFICIT) |
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
Accounts payable and accrued
liabilities |
|
336,478 |
|
|
168,800 |
|
Notes payable |
|
244,854 |
|
|
61,813 |
|
Convertible debentures (elected to
record at fair value) |
|
396,135 |
|
|
|
|
Due to related parties |
|
165,270 |
|
|
13,687 |
|
Total current liabilities |
|
1,142,737 |
|
|
244,300 |
|
|
|
|
|
|
|
|
Warrant derivative liability |
|
35,262 |
|
|
- |
|
|
|
|
|
|
|
|
Total liabilities |
|
1,177,999 |
|
|
244,300 |
|
Stockholders equity
(deficit) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock Authorized: 100,000,000 shares, par value
$0.001 Issued and outstanding: nil shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock, Class A Authorized: 500,000,000
shares, par value $0.001 Issued and outstanding: As
at July 31, 2015 and 2014, 289,500,928 and 270,746,982 shares,
respectively |
|
289,501 |
|
|
270,747 |
|
|
|
|
|
|
|
|
Common
stock, Class B Authorized: 25,000,000 shares, value
of $0.001 Issued and outstanding: nil shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
paid-in capital |
|
5,036,168 |
|
|
4,370,807 |
|
Common stock issuable |
|
1,618 |
|
|
117,553 |
|
Deferred
compensation |
|
(2,009 |
) |
|
(37,352 |
) |
Accumulated other comprehensive
loss |
|
(79,983 |
) |
|
- |
|
Deficit |
|
(5,772,477 |
) |
|
(4,136,312 |
) |
Total stockholders equity (deficit) |
|
(527,182 |
) |
|
585,443 |
|
Total liabilities and stockholders equity (deficit) |
|
650,817 |
|
|
829,743 |
|
Nature of operations and continuance of business (Note 1)
Commitments and contingencies (Note 13)
Subsequent events (Note 15)
(The accompanying notes are an integral part of these
consolidated financial statements)
F-3
URBAN BARNS FOODS INC.
Consolidated Statements of
Operations
(expressed in U.S. dollars)
|
|
Year Ended |
|
|
Year Ended |
|
|
|
July 31, |
|
|
July 31, |
|
|
|
2015 |
|
|
2014 |
|
|
|
$ |
|
|
$ |
|
|
|
|
|
|
|
|
Revenue |
|
101,148 |
|
|
992 |
|
Cost
of sales |
|
45,282 |
|
|
34 |
|
|
|
|
|
|
|
|
Gross margin |
|
55,866 |
|
|
958 |
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
Bad debts |
|
5,133 |
|
|
|
|
Depreciation |
|
106,280 |
|
|
55,884 |
|
Finance fees |
|
29,500 |
|
|
- |
|
Foreign exchange loss |
|
8,198 |
|
|
11,659 |
|
General and
administrative |
|
1,085,413 |
|
|
1,118,153 |
|
Professional fees |
|
140,754 |
|
|
150,207 |
|
Research and
development |
|
535,506 |
|
|
205,795 |
|
Write-down of property and equipment |
|
|
|
|
61,498 |
|
Total operating expenses |
|
1,910,784 |
|
|
1,603,196 |
|
Loss
from operations |
|
(1,854,918 |
) |
|
(1,602,238 |
) |
Other income (expenses) |
|
|
|
|
|
|
Accretion of discounts on
convertible debentures |
|
- |
|
|
(76,781 |
) |
Amortization of
deferred financing costs |
|
- |
|
|
(2,863 |
) |
Interest expense |
|
(52,818 |
) |
|
(29,115 |
) |
Warrant
derivative liability recovery |
|
390,900 |
|
|
- |
|
Loss on change in fair value of
derivative liabilities |
|
(87,635 |
) |
|
(138,113 |
) |
Loss on settlement of accounts payable |
|
(31,694 |
) |
|
(62,164 |
) |
Total other income (expenses) |
|
218,753 |
|
|
(309,036 |
) |
Net loss |
|
(1,636,165 |
) |
|
(1,911,274 |
) |
Translation adjustment |
|
(79,983 |
) |
|
- |
|
Comprehensive loss |
|
(1,716,148 |
) |
|
(1,911,274 |
) |
|
|
|
|
|
|
|
Net loss per share, basic and diluted |
|
(0.01 |
) |
|
(0.01 |
) |
|
|
|
|
|
|
|
Weighted average shares outstanding |
|
284,402,949 |
|
|
223,303,185 |
|
(The accompanying notes are an integral part of these
consolidated financial statements)
F-4
URBAN BARNS FOODS INC.
Consolidated Statement of Stockholders Equity (Deficit)
(Expressed
in U.S. dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
Common Stock |
|
|
Additional |
|
|
Common |
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
Class A |
|
|
Paid-In |
|
|
Stock |
|
|
Deferred |
|
|
Comprehensive |
|
|
|
|
|
|
|
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Issuable |
|
|
Compensation |
|
|
Loss |
|
|
Deficit |
|
|
Total |
|
|
|
# |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
Balance, July 31, 2013 |
|
153,546,367 |
|
|
153,546 |
|
|
2,024,755 |
|
|
|
|
|
(256,027 |
) |
|
|
|
|
(2,225,038 |
) |
|
(302,764 |
) |
Shares issued for conversion of debenture
and accrued interest |
|
10,841,414 |
|
|
10,842 |
|
|
126,958 |
|
|
17,553 |
|
|
|
|
|
|
|
|
|
|
|
155,353 |
|
Shares issued for cash |
|
88,935,089 |
|
|
88,935 |
|
|
1,411,065 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,500,000 |
|
Shares issued for settlement of debt |
|
17,424,112 |
|
|
17,424 |
|
|
461,738 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
479,162 |
|
Share issuance costs |
|
|
|
|
|
|
|
(140,811 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(140,811 |
) |
Fair value of brokers warrants |
|
|
|
|
|
|
|
60,811 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60,811 |
|
Derivative liabilities
relating to debentures converted to shares |
|
|
|
|
|
|
|
214,291 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
214,291 |
|
Share subscriptions received |
|
|
|
|
|
|
|
|
|
|
100,000 |
|
|
|
|
|
|
|
|
|
|
|
100,000 |
|
Fair value of stock options
granted |
|
|
|
|
|
|
|
212,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
212,000 |
|
Deferred compensation costs charged to
operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
218,675 |
|
|
|
|
|
|
|
|
218,675 |
|
Net loss for the year |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,911,274 |
) |
|
(1,911,274 |
) |
Balance, July 31, 2014 |
|
270,746,982 |
|
|
270,747 |
|
|
4,370,807 |
|
|
117,553 |
|
|
(37,352 |
) |
|
|
|
|
(4,136,312 |
) |
|
585,443 |
|
Shares issued for cash |
|
13,510,000 |
|
|
13,510 |
|
|
626,990 |
|
|
(100,000 |
) |
|
|
|
|
|
|
|
|
|
|
540,500 |
|
Shares issued for settlement of debt |
|
1,736,445 |
|
|
1,737 |
|
|
84,153 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
85,890 |
|
Shares issued for conversion
of debenture and accrued interest in prior year |
|
425,865 |
|
|
426 |
|
|
17,127 |
|
|
(17,553 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued for consulting services |
|
3,081,636 |
|
|
3,081 |
|
|
104,293 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
107,374 |
|
Share issuance costs |
|
|
|
|
|
|
|
(27,021 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(27,021 |
) |
Fair value of stock options granted |
|
|
|
|
|
|
|
285,981 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
285,981 |
|
Shares to be issued for
consulting services |
|
|
|
|
|
|
|
|
|
|
1,618 |
|
|
|
|
|
|
|
|
|
|
|
1,618 |
|
Deferred compensation costs charged to
operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
35,343 |
|
|
|
|
|
|
|
|
35,343 |
|
Warrant derivative liability
|
|
- |
|
|
- |
|
|
(426,162 |
) |
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
(426,162 |
) |
Translation adjustment |
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
(79,983 |
) |
|
|
|
|
(79,983 |
) |
Net loss for the year |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,636,165 |
) |
|
(1,636,165 |
) |
Balance, July 31, 2015 |
|
289,500,928 |
|
|
289,501 |
|
|
5,036,168 |
|
|
1,618 |
|
|
(2,009 |
) |
|
(79,983 |
) |
|
(5,772,477 |
) |
|
(527,182 |
) |
(The accompanying notes are an integral part of these
consolidated financial statements)
F-5
URBAN BARNS FOODS INC.
Consolidated Statements of
Cash Flows
(expressed in U.S. dollars)
|
|
Year Ended |
|
|
Year Ended |
|
|
|
July 31, |
|
|
July 31, |
|
|
|
2015 |
|
|
2014 |
|
|
|
$ |
|
|
$ |
|
Operating Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for the year |
|
(1,636,165 |
) |
|
(1,911,274 |
) |
|
|
|
|
|
|
|
Adjustments to reconcile net
loss to net cash used in operating activities: |
|
|
|
|
|
|
Accretion of discounts on
convertible debentures |
|
|
|
|
76,781 |
|
Amortization of
deferred financing costs |
|
- |
|
|
2,863 |
|
Accrued interest expense |
|
47,098 |
|
|
|
|
Depreciation |
|
106,280 |
|
|
55,884 |
|
Finance fee |
|
29,500 |
|
|
- |
|
Loss on change
in fair value of debenture |
|
87,635 |
|
|
138,113 |
|
Loss on settlement of accounts
payable |
|
31,694 |
|
|
62,164 |
|
Warrant
liability recovery |
|
(390,900 |
) |
|
|
|
Deferred compensation |
|
35,343 |
|
|
218,675 |
|
Shares issued
for consulting fees |
|
107,374 |
|
|
|
|
Stock-based compensation |
|
285,981 |
|
|
212,000 |
|
Shares to be
issued for services |
|
1,618 |
|
|
|
|
Write-down of property and
equipment |
|
|
|
|
61,498 |
|
Changes in operating assets
and liabilities: |
|
|
|
|
|
|
Accounts receivable |
|
(18,823 |
) |
|
(175 |
) |
Other
receivables |
|
36,747 |
|
|
(49,361 |
) |
Inventory |
|
5,483 |
|
|
(12,395 |
) |
Prepaid expenses
and deposits |
|
25,944 |
|
|
(36,848 |
) |
Accounts payable and accrued
liabilities |
|
177,104 |
|
|
271,074 |
|
Due to related parties |
|
|
|
|
(132,981 |
) |
Net
cash used in operating activities |
|
(1,068,087 |
) |
|
(1,043,982 |
) |
Investing Activities |
|
|
|
|
|
|
Purchase of intangible assets
|
|
(20,788 |
) |
|
(70,417 |
) |
Purchase of property and equipment |
|
(85,784 |
) |
|
(393,052 |
) |
Net
cash used in investing activities |
|
(106,572 |
) |
|
(463,469 |
) |
Financing Activities |
|
|
|
|
|
|
Proceeds from issuance of
convertible debentures, net of financing fees |
|
279,000 |
|
|
32,500 |
|
Proceeds from
issuance of common stock |
|
540,500 |
|
|
1,600,000 |
|
Proceeds from note payable |
|
170,930 |
|
|
|
|
Proceeds from
related parties |
|
142,723 |
|
|
48,424 |
|
Repayment to related parties |
|
|
|
|
(47,121 |
) |
Share issuance costs |
|
(27,021 |
) |
|
(80,000 |
) |
Net
cash provided by financing activities |
|
1,106,132 |
|
|
1,553,803 |
|
Effect of foreign exchange on cash |
|
|
|
|
|
|
Increase (decrease) in cash |
|
(68,527 |
) |
|
46,352 |
|
Cash, beginning of year |
|
75,969 |
|
|
29,617 |
|
Cash, end of year |
|
7,442 |
|
|
75,969 |
|
Non-cash investing and
financing activities |
|
|
|
|
|
|
Fair value of broker warrants
issued |
|
|
|
|
60,811 |
|
Shares issued
for settlement of debt |
|
85,890 |
|
|
479,162 |
|
Shares issued for conversion of
convertible debentures and accrued interest |
|
|
|
|
155,353 |
|
Derivative
liabilities recorded as additional paid-in capital upon conversion of
debentures |
|
|
|
|
214,291 |
|
Inventory purchased included in
accounts payable |
|
10,806 |
|
|
|
|
Property and equipment included in accounts
payable |
|
59,008 |
|
|
|
|
Supplemental disclosures: |
|
|
|
|
|
|
Interest paid
|
|
|
|
|
|
|
Income tax paid |
|
|
|
|
|
|
(The accompanying notes are an integral part of these
consolidated financial statements)
F-6
URBAN BARNS FOODS INC. |
Notes to the Consolidated Financial Statements |
July 31, 2015 |
(expressed in U.S. dollars) |
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. The Company is a produce production company, or grower, that aims to be the supplier of choice for fresh, locally grown, Kosher-certified organic or high-quality fruits and vegetables for urban consumers.
These consolidated 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 July 31, 2015, the Company has a working capital deficit of $1,071,854, has reported losses since inception from operations, and has an accumulated deficit of $5,772,477. The continued operations of the Company are dependent on its ability to generate future cash flows from operations or obtain additional financing. Management is obtaining working capital through debt or equity financing until such time that the Company’s operations generate positive operating cash flow. 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 Canada Inc.,
and Non-Industrial Manufacture Inc. All inter-company accounts and transactions
have been eliminated. The Companys 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 collectability of accounts and amounts receivable, valuation of
inventory, useful life and recoverability of long-lived assets, valuation of
convertible debentures, assumptions used to determine the fair value of
stock-based compensation and derivative liabilities, 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 Companys estimates. To the extent there are material
differences between the estimates and the actual results, future results of
operations will be affected.
|
(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.
Accounts receivable represents
invoiced amounts to customers for the sale of agricultural products. Amounts are
presented net of the allowance for doubtful accounts, which represents the
Companys best estimate of the amount of probable credit losses in the existing
accounts receivable balance. The Company determines allowance for doubtful
accounts based upon historical experience and current economic conditions. The
Company reviews the adequacy of its allowance for doubtful accounts on a regular
basis. As of July 31, 2015 and 2014, the Company had no allowances for doubtful
accounts.
F-7
URBAN BARNS FOODS INC.
Notes to the Consolidated
Financial Statements
July 31, 2015
(expressed in U.S. dollars)
2. |
Significant Accounting Policies
(continued) |
Inventory is comprised of seeds for
growing agricultural products and packaging materials, and is recorded at the
lower of cost or net realizable value on a first-in first-out basis. The Company
establishes inventory reserves for estimated obsolete or unsaleable inventory
equal to the difference between the cost of inventory and the estimated
realizable value based upon assumptions about future and market conditions.
|
(f) |
Property and Equipment |
Property and equipment consists of
production equipment and is stated at cost and amortized straight-line over five
years.
Intangible assets consist of patent
development costs. Intangible assets acquired are initially recognized and
measured at cost and amortized over the expected useful life once the patents
are in use. Impairment tests are conducted annually or more frequently if events
or changes in circumstances indicate that the asset may be impaired. The
impairment test compares the carrying amount of the intangible asset with its
fair value, and an impairment loss is recognized in income for the excess, if
any. The amortization methods and estimated useful lives of intangible assets
are reviewed annually.
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.
The Company derives revenue from the
sale of agricultural products. Revenue is recognized when persuasive evidence of
an arrangement exists, delivery has occurred, the sales amount is fixed and
determinable, and collectability of the revenue is reasonably assured.
Comprehensive loss is presented net of
applicable income taxes, and is composed of revenues, expenses, gains and losses
that are reported as separate components of stockholders equitys instead of net
loss.
|
(k) |
Foreign Currency Translation |
The Companys functional currency is
the Canadian dollar, and its reporting currency is the U.S. dollar. Accordingly,
monetary assets and liabilities denominated in a foreign currency are translated
at the exchange rate in effect at the balance sheet date while non-monetary
assets and liabilities denominated in a foreign currency are translated at
historical rates. Revenue and expense items denominated in a foreign currency
are translated at exchange rates prevailing when such items are recognized in
the statement of operations and comprehensive loss.
F-8
URBAN BARNS FOODS INC.
Notes to the Consolidated
Financial Statements
July 31, 2015
(expressed in U.S. dollars)
2. |
Significant Accounting Policies
(continued) |
|
(k) |
Foreign Currency Translation
(continued) |
Exchange gains or losses arising on
translation of foreign currency items are included in the statement of
operations. The Company follows the current rate method of translation with
respect to its presentation of these consolidated financial statements in the
reporting currency, which is the United States dollar. Accordingly, assets and
liabilities are translated into United States dollars at the period-end exchange
rates while revenue and expenses are translated at the prevailing exchange rates
during the period. Related exchange gains and losses are included in a separate
component of stockholders equity (deficit) as accumulated other comprehensive
income.
The Company accounts for income taxes
using the asset and liability method. The asset and liability method
provides that deferred tax assets and liabilities are recognized for the
expected future tax consequences of temporary differences between the financial
reporting and tax bases of assets and liabilities and for operating loss and tax
credit carry forwards. Deferred tax assets and liabilities are measured using
the currently enacted tax rates and laws that will be in effect when the
differences are expected to reverse. The Company records a valuation allowance
to reduce deferred tax assets to the amount that is believed more likely than
not to be realized.
The Company recognizes interest and
penalties related to uncertain tax positions in tax expense. During the years
ended July 31, 2015 and 2014, there were no charges for interest or penalties.
The Company computes basic net loss
per share by dividing net loss available to common shareholders by the weighted
average number of shares outstanding during the period. Diluted loss per share
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 loss per share, 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 loss per share
excludes all dilutive potential shares if their effect is anti-dilutive.
|
(n) |
Financial Instruments and Fair Value
Measures |
The fair value of financial
instruments is determined using a fair value hierarchy:
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 has elected to record its
convertible debentures at fair value.
The Companys financial instruments
consist principally of cash, accounts receivable, accounts payable, convertible
debentures, warrant derivative liability, and amounts due to related parties.
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, with the exception of
convertible debentures and warrant derivative liability which are a Level 3
input.
F-9
URBAN BARNS FOODS INC.
Notes to the Consolidated
Financial Statements
July 31, 2015
(expressed in U.S. dollars)
2. |
Significant Accounting Policies
(continued) |
|
(o) |
Stock-based Compensation |
The Company records stock-based
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.
Certain financial statement captions
have been reclassified from the prior year to conform to the current year
presentation.
|
(q) |
Recent Accounting Pronouncements |
"Income Taxes (ASC Topic 740): Presentation of an Unrecognized Tax Benefit when a Net Operating Loss Carry-forward, a Similar Tax Loss, or a Tax Credit Carry-forward Exists" ("ASU 2013-11") was issued during July 2013. FASB issued guidance on how to present an unrecognized tax benefit. The guidance is effective for annual periods beginning after December 15, 2013 for public companies. The Company has adopted this pronouncement. The adoption of ASC Topic 740 did not have a significant impact on the Company's results of operations, financial performance or cash flows.
In May 2014, the FASB issued ASU No. 2014-09, Revenue From Contracts With Customers (“ASU 2014-09”), which outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. ASU 2014-09 is effective for fiscal years (and interim reporting periods within those years) beginning after December 15, 2017. The Company is currently evaluating the impact of the provisions of ASU 2014-09.
In August 2014, the FASB issued ASU No. 2014-15, “Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern.” This ASU is intended to define management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. Specifically, ASU 2014-15 provides a definition of the term substantial doubt and requires an assessment for a period of one year after the date that the financial statements are issued (or available to be issued). It also requires certain disclosures when substantial doubt is alleviated as a result of consideration of management’s plans and requires an express statement and other disclosures when substantial doubt is not alleviated. The new standard will be effective for annual reporting periods, including interim periods within those annual periods, beginning after December 15, 2016, with early adoption permitted. The Company is currently evaluating the impact of this standard on its financial statements.
In April 2015, the FASB issued ASU No. 2015-03, Simplifying The Presentation Of Debt Issuance Costs (“ASU 2015-03”), which changes the presentation of debt issuance costs in financial statements. ASU 2015-03 is effective for fiscal years (and interim reporting periods within those years) beginning after December 15, 2015. The Company is currently evaluating the impact of this standard on its financial statements.
In July 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2015-11 – Simplifying the Measurement of Inventory, which changed the subsequent measurement guidance from the lower of cost or market to the lower of cost or net realizable value, with net realizable value defined as the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. No other changes were made to the current guidance on inventory measurement. The Company is currently evaluating the impact of this standard on its financial statements.
F-10
URBAN BARNS FOODS INC.
Notes to the Consolidated
Financial Statements
July 31, 2015
(expressed in U.S. dollars)
2. |
Significant Accounting Policies (continued) |
|
(q) |
Recent Accounting Pronouncements |
In September 2015, the FASB issued ASU No. 2015-16, Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments ("ASU 2015-16"), which simplifies the accounting for measurement-period adjustments to provisional amounts recognized in a business combination. ASU 2015-16 is effective for fiscal years (and interim reporting periods within those years) beginning after December 15, 2016. The provisions of ASU 2015-16 are not expected to have a material effect on the Company's financial condition, results of operations, or cash flows.
3. |
Property and Equipment |
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
Net Carrying |
|
|
|
|
Cost |
|
|
Depreciation |
|
|
Impairment |
|
|
Value |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
Production equipment July
31, 2015 |
|
700,621 |
|
|
200,233 |
|
|
50,588 |
|
|
449,800 |
|
|
Production equipment July 31, 2014 |
|
707,994 |
|
|
123,210 |
|
|
61,498 |
|
|
523,286 |
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
Cost |
|
|
Depreciation |
|
|
Net Carrying Value |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
Patent development costs July
31, 2015 |
|
106,913 |
|
|
|
|
|
106,913 |
|
|
Patent development costs July 31, 2014 |
|
105,281 |
|
|
|
|
|
105,281 |
|
|
(a) |
On February 10, 2015, the Company issued a promissory
note for $166,000, less an initial financing charge of $12,000. Pursuant to the
note, the amount owing is unsecured, bears interest at 8% per annum, and
is due on February 12, 2016. The amount owing is convertible at the option
of the holder into shares of the Companys Class A common stock 180 days
after the date of issuance of the debenture (August 9, 2015) at a
conversion rate of 70% of the average of the three lowest closing bid
prices of the Companys Class A common stock for the 12 trading days
ending one trading day prior to the date a notice of conversion is sent by
the holder to the Company. As at July 31, 2015, the Company recorded
accrued interest of $6,222, which has been included in accounts payable
and accrued liabilities |
|
|
|
|
|
The Company has elected to record this note at fair
value. As at July 31, 2015, the fair value of the note was
$166,000 , which is based on the expected future cash flows. |
|
|
|
|
(b) |
On March 23, 2015, the Company issued a promissory note
for $115,000, less an initial financing charges of $15,000. Pursuant to the note, the
amount owing is unsecured, bears guaranteed interest at 7% per annum, and
is due on March 23, 2016. The amount owing is convertible at the option of
the holder into shares of the Companys Class A common stock at a price of
$0.021 per share or 65% of the lowest closing bid price of the Companys
Class A common stock for the 20 trading days ending one day prior to the
date a notice of conversion is sent by the holder to the Company. As at
July 31, 2015, the Company recorded accrued interest of $8,050, which has
been included in accounts payable and accrued liabilities. |
|
|
|
|
|
The Company has elected to record this note at fair value. As at July 31, 2015, the fair value of the note is $185,817, resulting in a loss on change of fair value of $70,817 during the year ended July 31, 2015 recorded on the statement of operations. Fair value was determined using the Black-Scholes model, using the estimated number of shares to be issued on conversion, assuming a risk free rate of 0.33%, an expected life of 0.65 years, and volatility of 103%. |
|
|
|
|
(c) |
On March 23, 2015, the Company issued a promissory note
for $27,500, less an initial financing charge of $2,500. Pursuant to the
note, the amount owing is unsecured, bears guaranteed interest at 7% per
annum, and is due on March 23, 2016. The amount owing is convertible at
the option of the holder into shares of the Companys Class A common stock
at a price of $0.021 per share or 65% of the lowest closing bid price of
the Companys Class A common stock for the 20 trading days ending one day
prior to the date a notice of conversion is sent by the holder to the
Company. As at July 31, 2015, the Company recorded accrued interest of
$1,925, which has been included in accounts payable and accrued
liabilities. |
|
|
|
|
|
The Company has elected to record this note at fair value. As at July 31, 2015, the fair value of the note is $44,318, resulting in a loss on change of fair value of $16,818 during the year ended July 31, 2015 recorded on the statement of operations. Fair value was determined using the Black-Scholes model, using the estimated number of shares to be issued on conversion, assuming a risk free rate of 0.33%, an expected life of 0.65 years, and volatility of 95%. |
F-11
URBAN BARNS FOODS INC.
Notes to the Consolidated
Financial Statements
July 31, 2015
(expressed in U.S. dollars)
5. |
Convertible Notes (continued) |
|
(d) |
On September 17, 2013, the Company entered into a
convertible promissory note agreement for $32,500, less deferred financing
charges of $2,500. Pursuant to the agreement, the note was unsecured, bore
interest at 8% per annum, and was due on June 19, 2014. The note was
convertible into shares of the Companys Class A common stock at a
conversion price equal to 61% of the average of the three lowest closing
prices for the Companys common shares in the 35 trading days prior to
conversion, at the option of the note holder, commencing on March 16,
2014. |
|
|
|
|
|
The Company recognized the fair value of the embedded
beneficial conversion feature of $32,500. On March 21, 2014, the Company
issued 1,271,186 shares of Class A common stock pursuant to the conversion
of $15,000. On April 2, 2014, the Company issued 1,468,750 shares of Class
A common stock pursuant to the conversion of the remaining principal of
$17,500 plus accrued interest of $1,300. During the year ended July 31,
2014, the Company recorded accretion expense of
$32,500. |
6. |
Warrant Derivative
Liability |
The non-compensatory warrants issued, as disclosed in note 11, are a derivative liability due to being exercisable in a currency different than the functional currency of the Company. These warrants will continue to be a derivative liability until exercised or expired.
The fair values as at July 31, 2015 and
July 31, 2014 are as follows:
|
|
|
July 31, |
|
|
July 31, |
|
|
|
|
2015 |
|
|
2014 |
|
|
|
|
$ |
|
|
$ |
|
|
Warrant derivative liabilities: |
|
|
|
|
|
|
|
6,500,000 warrants issued on
August 20, 2014 |
|
20,520 |
|
|
|
|
|
3,150,000 warrants issued on September 17,
2014 |
|
11,590 |
|
|
|
|
|
1,736,445 warrants issued on February 19,
2015 |
|
3,512 |
|
|
|
|
|
|
|
35,262 |
|
|
|
|
The fair value of the warrants at issuance was $426,162. The Company recorded a recovery of $390,900 being the reduction in the fair value to July 31, 2015.
During the period ended July 31, 2014, the Company recorded a loss on the change in fair value of derivative liabilities of $138,113 for convertible notes issued in prior years.
The fair value of the derivative
financial liabilities was determined using the Black-Scholes Model using the
following assumptions:
|
|
|
|
|
|
Risk-free |
|
|
Expected |
|
|
Expected |
|
|
|
|
Expected |
|
|
Interest |
|
|
Dividend |
|
|
Life (in |
|
|
|
|
Volatility |
|
|
Rate |
|
|
Yield |
|
|
years) |
|
|
At the issuance date: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,500,000 warrants issued on
August 20, 2014 |
|
281% |
|
|
0.94% |
|
|
0% |
|
|
3.00 |
|
|
3,150,000 warrants issued on
September 17, 2014 |
|
281% |
|
|
1.08% |
|
|
0% |
|
|
3.00 |
|
|
1,736,445 warrants issued on
February 19, 2015 |
|
144% |
|
|
0.67% |
|
|
0% |
|
|
2.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at July 31, 2015: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,500,000 warrants issued on
August 20, 2014 |
|
137% |
|
|
0.67% |
|
|
0% |
|
|
2.06 |
|
|
3,150,000 warrants issued
on September 17, 2014 |
|
137% |
|
|
0.67% |
|
|
0% |
|
|
2.13 |
|
|
1,736,445 warrants issued on February 19,
2015 |
|
107% |
|
|
0.67% |
|
|
0% |
|
|
1.56 |
|
F-12
URBAN BARNS FOODS INC.
Notes to the Consolidated
Financial Statements
July 31, 2015
(expressed in U.S. dollars)
7. |
Accounts Payable and Accrued
Liabilities |
|
|
|
July 31, 2015 |
|
|
July 31, 2014 |
|
|
|
|
$ |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
320,281 |
|
|
152,334 |
|
|
Accrued
liabilities |
|
16,197 |
|
|
16,466 |
|
|
|
|
336,478 |
|
|
168,800 |
|
|
(a) |
During the year ended July 31, 2014, the Company entered
into an agreement with certain shareholders, whereby the shareholders
would buy certain licenses required by the Company. The Company would then
buy back the licenses for Cdn$50,500 plus a 25% premium within the first
90 days, a 35% premium for the balance of the first 12 months, and a 50%
premium during months 13-24. If the Company does not buy the licenses back
within 2 years (expiring October 21, 2015), the license will be subject to
a 5% royalty for the following 3 years. As at July 30, 2015, the Company
owed $58,059 (Cdn $75,750), (July 31, 2014 - $61,813 (Cdn $68,175)) in
order to buy back the licenses. |
|
|
|
|
(b) |
As at July 31, 2015, the Company owed $170,930
(Cdn$223,000) for a promissory note that was issued on October 29, 2014.
The note is secured against the Company's net assets, bears interest at a
rate of 12.68% per annum, and is due the earlier of: (i) the Company
raising Cdn$1,000,000 or more through issuance of equity or debt; or (ii)
October 29, 2015. As at July 31, 2015, $186,795 is owed on this note which
includes accrued interest of $15,865. This note was issued to a
significant shareholder of the Company. |
9. |
Related Party Transactions |
The following are related party
transactions not disclosed elsewhere in these statements:
|
(a) |
During the year ended July 31, 2015, the Company accrued
$17,964 for severance pay to the former President and CEO of the Company
which is unsecured, non-interest bearing, and due on demand. As at July
31, 2015, $17,964 (July 31, 2014 - $1,755) was owing to the former
President. |
|
|
|
|
(b) |
As at July 31, 2015, the Company owed $nil (July 31, 2014
- $8,259) to the Vice President of the Company which was unsecured,
non-interest bearing, and due on demand. |
|
|
|
|
(c) |
As at July 31, 2015, the Company was owed $1,374 (July
31, 2014 - $nil) from the Vice President of the Company which is
unsecured, non-interest bearing, and due on demand. |
|
|
|
|
(d) |
As at July 31, 2015, the Company owed $45,988
(Cdn$60,000) (July 31, 2014 - $nil) for a loan payable to a director of
the Company. The loan is secured against the Companys assets, bears
interest at a rate of 12.68% per annum and due on the earlier of i) the
Company raising Cdn$1,000,000 or more through issuance of equity or debt
or ii) December 18, 2015. As at July 31, 2015, $3,581 (Cdn$4,673) is owed
for accrued interest. |
|
|
|
|
(e) |
As at July 31, 2015, the Company owed $45,988
(Cdn$60,000) (July 31, 2014 - $nil) for a loan payable to a director of
the Company. The loan is secured against the Companys assets, bears
interest at a rate of 12.68% per annum and due on the earlier of i) the
Company raising Cdn$1,000,000 or more through issuance of equity or debt
or ii) January 7, 2016. As at July 31, 2015, $3,351 (Cdn$4,373) is owed
for accrued interest. |
|
|
|
|
(f) |
As at July 31, 2015, the Company owed $24,591
(Cdn$32,082) (July 31, 2014 - $nil) for a loan payable to a director of
the Company. The loan is secured against the Companys assets, bears
interest at a rate of 12.68% per annum and due on January 31, 2016. As at
July 31, 2015, $404 (Cdn$528) is owed for accrued
interest. |
F-13
URBAN BARNS FOODS INC.
Notes to the Consolidated
Financial Statements
July 31, 2015
(expressed in U.S. dollars)
9. |
Related Party Transactions
(continued) |
|
(g) |
As at July 31, 2015, the Company owed $21,337
(Cdn$27,839) (July 31, 2014 - $nil) for a loan payable to a director of
the Company. The loan is secured against the Companys assets, bears
interest at a rate of 12.68% per annum and due on January 31, 2016. As at
July 31, 2015, $375 (Cdn$489) is owed for accrued interest. |
|
|
|
|
(h) |
As at July 31, 2015, the Company owed $3,065 (Cdn$4,000)
(July 2014 - $3,673) to a company controlled by the former President of
the Company which is unsecured, non-interest bearing, and due on
demand. |
|
|
|
|
(i) |
Included in accounts payable as at July 31, 2015 is
$20,275 (July 31, 2014 - $18,134) owing to related parties for expense
reimbursements. |
|
|
|
|
(j) |
As at July 31, 2015, the Company had deferred
compensation of $2,009 (July 31, 2014 - $37,352) incurred to directors and
officers of the Company. During the year ended July 31, 2015, deferred
compensation of $35,343 (2014 - $218,675) was charged to operations and
included in general and administrative expenses. |
|
|
|
|
(k) |
During the year ended July 31, 2015, the Company incurred
professional fees of $nil (2014 - $12,600) to the spouse of the former
President of the Company. |
|
|
|
|
(l) |
During the year ended July 31, 2015, the Company incurred
consulting fees (included in general and administrative expenses) of
$207,924 (2014 - $362,389) to directors and officers of the
Company. |
|
|
|
|
(m) |
During the year ended July 31, 2015, the Company incurred
consulting fees (included in general and administrative expenses) of
$3,822 (2014 - $nil) to the daughter of the former President of the
Company. |
|
|
|
|
(n) |
During the year ended July 31, 2015, the Company incurred
consulting fees (included in general and administrative expenses) of
$11,155 (2014 - $nil) and research and development expenses of $48,113
(2014 - $nil) to the daughter of the Vice President of the
Company. |
|
|
|
|
(o) |
During the year ended July 31, 2015, the Company granted
6,125,000 (2014 - 3,000,000) stock options with a fair value of $242,929
(2014 - $120,000) (included in general and administrative expenses) to
directors and officers of the Company. |
|
|
|
|
(p) |
During the year ended July 31, 2015, the Company granted
200,000 (2014 - nil) stock options with a fair value of $8,000 (2014 -
$nil) (included in general and administrative expenses) for bookkeeping
services to the spouse of the former President of the Company. |
|
|
|
|
(q) |
During the year ended July 31, 2015, the Company incurred
consulting fees of $1,618 (2014 - $nil) to an officer of the Company, for
which it will pay shares of Class A common stock. As of July 31, 2015,
these shares were still to be issued. |
Share transactions for the year ended
July 31, 2015:
|
(a) |
On August 20, 2014, the Company completed the first tranche of a private placement and issued 6,500,000 units at a price of $0.05 per unit for gross proceeds of $325,000, of which $100,000 had been received as at July 31, 2014 and recorded as common stock issuable. Each unit consisted of one share of Class A common stock and one share purchase warrant exercisable into one additional share of Class A common stock at a price of $0.075 per share until August 20, 2017. On September 16, 2014, the Company completed the second tranche, and issued an additional 3,510,000 units at a price of $0.05 per unit for gross proceeds of $175,500. Each unit consisted of one share of Class A common stock and one share purchase warrant exercisable into one additional share of Class A common stock at a price of $0.075 per share until September 17, 2017. The Company incurred $27,021 in share issuance costs associated with this private placement. |
F-14
URBAN BARNS FOODS INC.
Notes to the Consolidated
Financial Statements
July 31, 2015
(expressed in U.S. dollars)
10. |
Common Stock (continued) |
Share transactions for the year ended
July 31, 2015 (continued):
|
(b) |
On October 31, 2014, the Company issued 425,865 shares of
Class A common stock pursuant to the conversion of a convertible debenture
that was agreed to during the year ended July 31, 2014. |
|
|
|
|
(c) |
On January 13, 2015, the Company entered into an
agreement pursuant to which the Company issued 811,636 shares of Class A
common stock with a value of $32,464 for consulting services
rendered. |
|
|
|
|
(d) |
On February 4, 2015, the Company issued 3,500,000 shares
of Class A common stock at a price of $0.04 per share for proceeds of
$140,000. |
|
|
|
|
(e) |
On February 19, 2015, the Company issued 1,736,445 units
with a fair value of $85,890 to settle amounts owing of $55,637, resulting
in a loss on settlement of debt of $30,253. Each unit consisted of one
share of Class A common stock and one share purchase warrant exercisable
into one additional share of Class A common stock at a price $0.04 per
share until February 19, 2017. The shares were valued at $52,093, and the
warrants had a fair value of $33,796 (Note 11). |
|
|
|
|
(f) |
On March 19, 2015, the Company entered into an agreement
pursuant to which the Company issued 2,270,000 shares of Class A common
stock with a fair value of $74,910 for investor relations services
rendered. |
|
|
|
|
(g) |
During the year ended July 31, 2015, the Company incurred
$1,618 in consulting fees payable in Class A common stock. As at July 31,
2015, these shares were still to be issued. |
Share transactions for the year ended
July 31, 2014:
|
(a) |
On October 21, 2013, the Company issued 67,567,568 shares
of Class A common stock at $0.015 per share for proceeds of $1,000,000.
The Company incurred a finders fee of $80,000 and issued 2,027,027
agents warrants with a fair value of $60,811 in conjunction with the
private placement. |
|
|
|
|
(b) |
On December 26, 2013, the Company issued 1,438,849 shares
of Class A common stock pursuant to the conversion of $20,000 of a
convertible debenture. |
|
|
|
|
(c) |
On January 6, 2014, the Company issued 2,158,273 shares
of Class A common stock pursuant to the conversion of $30,000 of a
convertible debenture. |
|
|
|
|
(d) |
On January 14, 2014, the Company issued 1,937,984 shares
of Class A common stock pursuant to the conversion of $25,000 of a
convertible debenture. |
|
|
|
|
(e) |
On January 23, 2014, the Company issued 2,566,372 shares
of Class A common stock pursuant to the conversion of $25,000 of a
convertible debenture and $4,000 of accrued interest. |
|
|
|
|
(f) |
On March 21, 2014, the Company issued 1,271,186 shares of
Class A common stock pursuant to the conversion of $15,000 of a
convertible debenture. |
|
|
|
|
(g) |
On April 2, 2014, the Company issued 1,468,750 shares of
Class A common stock pursuant to the conversion of $17,500 of a
convertible debenture and $1,300 of accrued interest. |
|
|
|
|
(h) |
On April 8, 2014, the Company issued 21,367,521 shares of
Class A common stock at $0.023 per share for proceeds of
$500,000. |
|
|
|
|
(i) |
On April 11, 2014, the Company issued 17,424,112 shares
of Class A common stock with a fair value of $479,162 to settle amounts
outstanding amounts owing of $416,998, resulting in a loss on settlement
of debt of $62,164. |
|
|
|
|
(j) |
On June 11, 2014, the Company agreed to issue 425,865
shares of Class A common stock pursuant to the conversion of $5,062 of a
convertible debenture and $3,601 of accrued interest . On conversion, $8,890 included in derivative liability was reclassified to equity. As at July 31, 2014,
the common shares had not been issued. |
F-15
URBAN BARNS FOODS INC.
Notes to the Consolidated
Financial Statements
July 31, 2015
(expressed in U.S. dollars)
10. |
Common Stock
(continued) |
|
(k) |
As at July 31, 2014, the Company received share
subscription proceeds of $100,000 related to a private placement that
closed on August 20, 2014. |
|
|
|
|
(l) |
During the year ended July 31, 2014, the Company recorded
additional paid-in capital of $214,291 related to the fair value of
derivative liabilities recorded in equity upon conversion of the
convertible debentures. |
11. |
Share Purchase Warrants |
On November 1, 2013, the Company issued
2,027,027 share purchase warrants pursuant to a financing agreement. The
warrants have an exercise price of $0.07 per share of Class A common stock and
expire on October 31, 2016. The fair value of the warrants were valued at
$60,811 using the Black-Scholes option pricing model assuming a risk free rate
of 0.61%, an expected life of 3 years, volatility of 539%, and no expected
dividends.
On August 20, 2014, the Company issued
6,500,000 share purchase warrants pursuant to a financing agreement. The
warrants have an exercise price of $0.075 per share of Class A common stock and
expire on August 20, 2017. The fair value of the warrants were valued at
$254,752 using the Black-Scholes option pricing model assuming a risk free rate
of 0.94%, an expected life of 3 years, volatility of 281%, and no expected
dividends.
On September 17, 2014, the Company
issued 3,510,000 share purchase warrants pursuant to a financing agreement. The
warrants have an exercise price of $0.075 per share of Class A common stock and
expire on September 17, 2017. The fair value of the warrants were valued at
$137,614 using the Black-Scholes option pricing model assuming a risk free rate
of 1.08%, an expected life of 3 years, volatility of 281%, and no expected
dividends.
On February 19, 2015, the Company
issued 1,736,445 share purchase warrants pursuant to a financing agreement. The
warrants have an exercise price of $0.04 per share of Class A common stock and
expire on February 19, 2017. The fair value of the warrants were valued at
$33,796 using the Black-Scholes option pricing model assuming a risk free rate
of 0.67%, an expected life of 2 years, volatility of 144%, and no expected
dividends.
The following table summarizes the
continuity of share purchase warrants:
|
|
|
|
|
|
Weighted Average |
|
|
|
|
Number of |
|
|
Exercise Price |
|
|
|
|
Warrants |
|
|
$ |
|
|
Balance, July 31,2013 |
|
|
|
|
|
|
|
Issued |
|
2,027,027 |
|
|
0.07
|
|
|
Balance, July 31, 2014 |
|
2,027,027 |
|
|
0.07 |
|
|
Issued |
|
11,746,445 |
|
|
0.07
|
|
|
Balance, July 31, 2015 |
|
13,773,472 |
|
|
0.07 |
|
A summary of share purchase warrants
outstanding and exercisable as at July 31, 2015 is as follows:
|
|
|
Exercise Price |
|
|
Number of warrants |
|
|
Remaining life |
|
|
Expiry Date
|
|
$ |
|
|
Outstanding and exercisable |
|
|
(years) |
|
|
|
|
|
|
|
|
|
|
|
|
|
October 29, 2016 |
|
0.070 |
|
|
2,027,027 |
|
|
1.35 |
|
|
February 19, 2017 |
|
0.040 |
|
|
6,500,000 |
|
|
1.56 |
|
|
August 20, 2017 |
|
0.075 |
|
|
3,510,000 |
|
|
2.06 |
|
|
September 17, 2017
|
|
0.075
|
|
|
1,736,445 |
|
|
2.13
|
|
|
|
|
|
|
|
13,773,472 |
|
|
1.90 |
|
F-16
URBAN BARNS FOODS INC.
Notes to the Consolidated
Financial Statements
July 31, 2015
(expressed in U.S. dollars)
The Company has adopted a stock option
plan pursuant to which options may be granted to directors, officers, employees
and consultants of the Company to a maximum of 25,000,000 shares issued and
outstanding at the time of the grant. The exercise price of each option is equal
to the market price on the date of the grant. The options vest at the discretion
of the Board of Directors.
On September 5, 2014 the Company
granted 7,000,000 stock options exercisable at $0.10 until September 4, 2024
valued at $280,000.
On March 5, 2015 the Company granted
200,000 stock options exercisable at $0.10 until March 4, 2025 valued at $5,981.
During the year ended July 31, 2014,
the Company granted 5,300,000 stock options exercisable at $0.10 until February
6, 2024, valued at $212,000.
The following table summarizes the
continuity of the Companys stock options:
|
|
|
|
|
|
Weighted |
|
|
Aggregate |
|
|
|
|
|
|
|
Average |
|
|
Intrinsic |
|
|
|
|
Number |
|
|
Exercise Price |
|
|
Value |
|
|
|
|
of Options |
|
|
$ |
|
|
$ |
|
|
Outstanding, July 31, 2013
|
|
15,800,000 |
|
|
0.10 |
|
|
|
|
|
Granted |
|
5,300,000 |
|
|
0.10 |
|
|
|
|
|
Expired |
|
(600,000 |
) |
|
0.10 |
|
|
|
|
|
Forfeited |
|
(10,000,000 |
) |
|
0.10 |
|
|
|
|
|
Outstanding, July 31, 2014
|
|
10,500,000 |
|
|
0.10 |
|
|
|
|
|
Granted |
|
7,200,000 |
|
|
0.10 |
|
|
|
|
|
Expired |
|
(200,000 |
) |
|
0.10 |
|
|
|
|
|
Outstanding, July 31, 2015 |
|
17,500,000 |
|
|
0.10 |
|
|
|
|
A summary of stock options outstanding
and exercisable as at July 31, 2015 is as follows:
|
|
|
Exercise |
|
|
|
|
|
|
|
|
|
|
Price |
|
|
Number of warrants |
|
|
Remaining life |
|
|
Expiry Date |
|
$ |
|
|
Outstanding and exercisable |
|
|
(years) |
|
|
|
|
|
|
|
|
|
|
|
|
|
November 1, 2022 |
|
0.10 |
|
|
5,000,000 |
|
|
7.26 |
|
|
February 6, 2024 |
|
0.10 |
|
|
5,300,000 |
|
|
8.52 |
|
|
September 5, 2024 |
|
0.10 |
|
|
7,000,000 |
|
|
9.11 |
|
|
March 5, 2025 |
|
0.10 |
|
|
200,000 |
|
|
9.60 |
|
|
|
|
|
|
|
17,500,000 |
|
|
8.41 |
|
The fair values for stock options
granted have been estimated using the Black-Scholes option pricing model
assuming no expected dividends and the following weighted average assumptions:
|
|
2015 |
2014 |
|
Risk-free interest rate |
1.75% |
2.71% |
|
Expected life (in years) |
10.0 |
10.0 |
|
Expected volatility |
374% |
475%
|
F-17
URBAN BARNS FOODS INC.
Notes to the Consolidated
Financial Statements
July 31, 2015
(expressed in U.S. dollars)
12. |
Stock Options (continued) |
The fair value of stock options vested
during the year ended July 31, 2015 was $285,981 (2014 - $212,000) which was
recorded as stock-based compensation and charged to operations. The weighted
average fair value of stock options granted during the year ended July 31, 2015
was $0.04 (2014 - $0.04) per option.
13. |
Commitments and
Contingencies |
|
(a) |
The Company has entered into a research agreement with
McGill University (McGill), where McGill will perform testing, research
and development towards improvements and efficiency gains on the Companys
patent-pending growing machines. Under the terms of the agreement, the
Company will pay $500,000, where $25,000 was due upon the signing of the
agreement (paid), $75,000 is due when the Company either completes
financing or four growing machines, and $100,000 annually on October 1,
2014 (paid), October 1, 2015, October 1, 2016, and October 1, 2017. The
agreement expires on January 1, 2018. |
|
|
|
|
(b) |
On March 19, 2014, the Company leased a warehouse located
in Québec. The term of the lease commenced on March 20, 2014, and expires
on May 31, 2019. The monthly lease rate is subject to an annual increase
of 2%. The minimum lease payments over the remaining term of the lease are
as follows: |
|
Year |
|
Cdn$ |
|
|
2016 |
|
184,824 |
|
|
2017 |
|
188,520 |
|
|
2018 |
|
192,291 |
|
|
2019 |
|
195,487 |
|
|
|
|
761,122 |
|
|
(c) |
On July 17, 2014, the Company entered into a lease
agreement for a delivery van at a rate of Cdn$630 per month until July 17,
2019. The minimum lease payments over the remaining term of the lease are
follows: |
|
Year |
|
Cdn$ |
|
|
2016 |
|
7,560 |
|
|
2017 |
|
7,560 |
|
|
2018 |
|
7,560 |
|
|
2019 |
|
7,560 |
|
|
|
|
30,240 |
|
|
(d) |
On December 1, 2014, the Company entered into a lease
agreement for a vehicle at a rate of Cdn$952 per month until October 31,
2018. The minimum lease payments over the remaining term of the lease are
as follows: |
|
Year |
|
Cdn$ |
|
|
2016 |
|
11,424 |
|
|
2017 |
|
11,424 |
|
|
2018 |
|
11,424 |
|
|
2019 |
|
2,856 |
|
|
|
|
37,128 |
|
|
(e) |
During the year ended July 31, 2015, the Company was
subject to two civil claims totaling $25,380, filed by family members of a
former director and officer of the Company. The family members received a
judgement in their favor. As at July 31, 2015, $25,380 remained unpaid and
has been recorded in accounts payable and accrued
liabilities. |
F-18
URBAN BARNS FOODS INC.
Notes to the Consolidated
Financial Statements
July 31, 2015
(expressed in U.S. dollars)
The Company is subject to United States
federal and state income taxes and Canadian federal and provincial taxes. The
reconciliation of the provision for income taxes compared to the Companys
income tax expense as reported is as follows:
|
|
|
2015 |
|
|
2014 |
|
|
|
|
$ |
|
|
$ |
|
|
Income tax recovery at
statutory rate |
|
(845,000 |
) |
|
(557,521 |
) |
|
Permanent differences and other |
|
144,000 |
|
|
128,492 |
|
|
Change in enacted tax rates
|
|
|
|
|
10,937 |
|
|
Adjustment to prior years provision versus
statutory tax returns and |
|
|
|
|
|
|
|
expiry of non-capital losses
|
|
31,000 |
|
|
|
|
|
Change in temporary unrecognized deductible temporary
differences |
|
393,000 |
|
|
418,092 |
|
|
Provision for income taxes |
|
|
|
|
|
|
The significant components of deferred
income taxes assets and liabilities as at July 31, 2015 and 2014 are as follows:
|
|
|
2015 |
|
|
2014 |
|
|
|
|
$ |
|
|
$ |
|
|
Net operating losses United
States |
|
299,000 |
|
|
136,500 |
|
|
Net operating losses - Canada |
|
770,000 |
|
|
830,908 |
|
|
Property and equipment |
|
20,000 |
|
|
(6,359 |
) |
|
|
|
1,089,000 |
|
|
(961,049 |
) |
|
Unrecognized deferred tax assets |
|
(1,089,000 |
) |
|
(961,049 |
) |
|
Net
deferred tax assets |
|
|
|
|
|
|
The Company has non-capital losses for
Canadian income tax purposes of approximately $2,963,000 which may be carried
forward and applied against taxable income in future years. These losses, if not
utilized, will expire from 2028 through 2035.
The Company has non-capital losses for
United States income tax purposes of approximately $881,000 which may be carried
forward and applied against taxable income in future years. These losses, if not
utilized, will expire from 2034 through 2035.
As at July 31, 2015, the Company is in
arrears on filing its statutory corporate income tax returns and the amounts
presented above are based on estimates. The actual losses available could differ
from these estimates.
|
(a) |
On August 17, 2015, the Company received a loan of $9,990
(Cdn$13,077) from a director of the Company. The loan is secured against
the Companys assets, bears interest at a rate of 12.68% per annum and is
due on January 31, 2016. |
|
|
|
|
(b) |
On August 17, 2015, the Company received a loan of $9,944
(Cdn$13,000) from a director of the Company. The loan is secured against
the Companys assets, bears interest at a rate of 12.68% per annum and is
due on January 31, 2016. |
|
|
|
|
(c) |
On August 19, 2015, the Company issued 1,785,714 shares
of Class A common stock at $0.0084 per share pursuant to the conversion of
$15,000 of the convertible debenture as described in Note 5(a). |
|
|
|
|
(d) |
On September 8, 2015, the Company received a loan of
$1,890 (Cdn$2,500) from a director of the Company. The loan is secured
against the Companys assets, bears interest at a rate of 12.68% per annum
and is due on January 31, 2016. |
F-19
URBAN BARNS FOODS INC.
Notes to the Consolidated
Financial Statements
July 31, 2015
(expressed in U.S. dollars)
15. |
Subsequent Events
(continued) |
|
(e) |
On September 8, 2015, the Company received a loan of
$1,890 (Cdn$2,500) from a director of the Company. The loan is secured
against the Companys assets, bears interest at a rate of 12.68% per annum
and is due on January 31, 2016. |
|
|
|
|
(f) |
On September 17, 2015, the Company received a loan of
$3,790 (Cdn$5,000) from a director of the Company. The loan is secured
against the Companys assets, bears interest at a rate of 12.68% per annum
and is due on January 31, 2016. |
|
|
|
|
(g) |
On September 17, 2015, the Company received a loan of
$3,790 (Cdn$5,000) from a director of the Company. The loan is secured
against the Companys assets, bears interest at a rate of 12.68% per annum
and is due on January 31, 2016. |
|
|
|
|
(h) |
On September 21, 2015, the Company received a loan of
$8,300 (Cdn$11,000) from a director of the Company. The loan is secured
against the Companys assets, bears interest at a rate of 12.68% per annum
and is due on January 31, 2016. |
|
|
|
|
(i) |
On September 21, 2015, the Company received a loan of
$8,300 (Cdn$11,000) from a director of the Company. The loan is secured
against the Companys assets, bears interest at a rate of 12.68% per annum
and is due on January 31, 2016. |
|
|
|
|
(j) |
On September 25, 2015, the Company issued 8,823,529
shares of Class A common stock at $0.0017 per share pursuant to the
conversion of $15,000 of the convertible debenture as described in Note
5(a). |
|
|
|
|
(k) |
On October 2, 2015, the Company received a loan of $5,676
(Cdn$7,500) from a director of the Company. The loan is secured against
the Companys assets, bears interest at a rate of 12.68% per annum and is
due on January 31, 2016. |
|
|
|
|
(l) |
On October 2, 2015, the Company received a loan of $1,890
(Cdn$2,500) from a director of the Company. The loan is secured against
the Companys assets, bears interest at a rate of 12.68% per annum and is
due on January 31, 2016. |
|
|
|
|
(m) |
On October 2, 2015, the Company issued 5,000,000 shares
of Class A common stock at $0.0015 per share pursuant to the conversion of
$7,475 of the convertible debenture as described in Note 5(c). |
|
|
|
|
(n) |
On October 2, 2015, the Company issued 7,246,377 shares
of Class A common stock at $0.0014 per share pursuant to the conversion of
$10,000 of the convertible debenture as described in Note 5(b). |
|
|
|
|
(o) |
On October 12, 2015, the Company issued 13,333,333 shares
of Class A common stock at $0.0015 per share pursuant to the conversion of
$20,000 of the convertible debenture as described in Note 5(a). |
|
|
|
|
(p) |
On October 12, 2015, the Company issued 14,888,889 shares
of Class A common stock at $0.0009 per share pursuant to the conversion of
$13,400 of the convertible debenture as described in Note 5(b). |
|
|
|
|
(q) |
On October 15, 2015, the Company issued 13,636,364 shares
of Class A common stock at $0.0011 per share pursuant to the conversion of
$15,000 of the convertible debenture as described in Note 5(a). |
|
|
|
|
(r) |
On October 15, 2015, the Company issued 7,000,000 shares
of Class A common stock at $0.0009 per share pursuant to the conversion of
$5,915 of the convertible debenture as described in Note 5(c). |
|
|
|
|
(s) |
On October 16, 2015, the Company received a loan of
$2,325 (Cdn$3,000) from a director of the Company. The loan is secured
against the Companys assets, bears interest at a rate of 12.68% per annum
and is due on January 31, 2016. |
|
|
|
|
(t) |
On October 16, 2015, the Company received a loan of
$3,100 (Cdn$4,000) from a director of the Company. The loan is secured
against the Companys assets, bears interest at a rate of 12.68% per annum
and is due on January 31, 2016. |
F-20
URBAN BARNS FOODS INC.
Notes to the Consolidated
Financial Statements
July 31, 2015
(expressed in U.S. dollars)
15. |
Subsequent Events
(continued) |
|
(u) |
On October 20, 2015, the Company issued 17,670,886 shares
of Class A common stock at $0.0008 per share pursuant to the conversion of
$13,960 of the convertible debenture as described in Note 5(a). |
|
|
|
|
(v) |
On October 20, 2015, the Company issued 18,060,417 shares
of Class A common stock at $0.0005 per share pursuant to the conversion of
$8,669 of the convertible debenture as described in Note
5(b). |
|
|
|
|
(w) |
On October 22, 2015, the Company issued 18,958,333 shares of Class A common stock at $0.0005 per share pursuant to the conversion of $9,100 of the convertible debenture as described in Note 5(b). |
|
|
|
|
(x) |
On October 22, 2015, the Company issued 14,000,000 shares of Class A common stock at $0.0005 per share pursuant to the conversion of $7,280 of the convertible debenture as described in Note 5(c). |
|
|
|
|
(y) |
On October 22, 2015, the Company received a loan of $3,815 (Cdn$5,000) from a Director of the Company. The loan is secured against the Company’s assets, bears interest at a rate of 12.68% per annum and is due on January 31, 2016. |
|
|
|
|
(z) |
On October 22, 2015, the Company received a loan of $3,815 (Cdn$5,000) from a Director of the Company. The loan is secured against the Company’s assets, bears interest at a rate of 12.68% per annum and is due on January 31, 2016. |
|
|
|
|
(aa) |
On October 26, 2015, the Company received a notice of default from one of the convertible note holders (note 5(a)) (the “Convertible Note”). Subsequent to July 31, 2015, as a result of the Company issuing shares of Class A common stock pursuant to the conversion of other outstanding notes, the number of authorized shares reserved for issuance upon conversion of the Convertible Note was lower than the contractually agreed number. As a consequence of being in default, the Convertible Note holder exercised its right to demand payment of $174,080 (the “Default Sum”) plus accrued and unpaid interest to extinguish the Company’s obligations pursuant to the terms of the Convertible Note. Under the terms of the Convertible Note, the Convertible Note holder has the right to convert the Default Sum into Class A common stock under the same terms as the Convertible Note. |
|
|
|
|
(bb) |
On October 27, 2015, the Company issued 16,500,000 shares of Class A common stock at $0.0005 per share pursuant to the conversion of $8,580 of the convertible debenture as described in Note 5(c). |
F-21
Item 9. |
Changes In and Disagreements with
Accountants on Accounting and Financial Disclosure
|
None.
Item 9A. |
Controls and Procedures
|
Evaluation of Disclosure Controls and
Procedures
Under the supervision and with the participation of our
management, including our principal executive officer and principal financial
officer, we conducted an evaluation of the effectiveness of the design and
operation of our disclosure controls and procedures, as defined in Rules
13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934, as
amended (the Exchange Act), as of the end of the period covered by this
report. Based on this evaluation, our principal executive officer and principal
financial officer concluded as of the evaluation date that our disclosure
controls and procedures were effective such that the material information
required to be included in our SEC reports is accumulated and communicated to
our management, including our principal executive and financial officer,
recorded, processed, summarized and reported within the time periods specified
in the SECs rules and forms relating, particularly during the period when this
report was being prepared.
Management's Annual Report on Internal Control Over
Financial Reporting
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting as such term is defined in
Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Internal control over
financial reporting includes those policies and procedures that: (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of our assets; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted accounting
principles, and that our receipts and expenditures are being made only in
accordance with authorizations of our management and directors; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of our assets that could have a material effect
on the financial statements.
Management recognizes that there are inherent limitations in
the effectiveness of any system of internal control, and accordingly, even
effective internal control can provide only reasonable assurance with respect to
financial statement preparation and may not prevent or detect material
misstatements. In addition, effective internal control at a point in time may
become ineffective in future periods because of changes in conditions or due to
deterioration in the degree of compliance with our established policies and
procedures.
A material weakness is a significant deficiency, or combination
of significant deficiencies, that results in there being a more than remote
likelihood that a material misstatement of the annual or interim financial
statements will not be prevented or detected.
Under the supervision and with the participation of our
principal executive officer and principal financial officer, management
conducted an evaluation of the effectiveness of our internal control over
financial reporting as of July 31, 2015, based on the framework set forth in
Internal Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Based on its evaluation under
this framework, management concluded that our internal control over financial
reporting was effective as of the evaluation date.
This annual report does not include an attestation report of
our registered public accounting firm regarding internal control over financial
reporting. Management's report was not subject to attestation by our registered
public accounting firm pursuant to temporary rules of the SEC that permit us to
provide only managements report in this annual report.
13
Changes in Internal Controls Over Financial
Reporting
There were no changes in our internal control over financial
reporting that occurred during the last quarter of our fiscal year ended July
31, 2015 that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
Item 9B. |
Other Information |
None.
14
PART III
Item 10. |
Directors, Executive Officers and Corporate
Governance |
The following table sets forth the name, age, and position of
our executive officers and directors of as of October 28, 2015.
Name |
Age |
Position |
Horst Hueniken |
57 |
President, Chief
Executive Officer, Secretary, Treasurer and Director |
Jeremy Kendall |
75 |
Chairman and Director |
Hugh Blakely |
64 |
Director of Finance and
Principal Accounting Officer |
Robyn Jackson |
69 |
Director
|
Our directors will serve in that capacity until our next annual
stockholder meeting or until their successors are elected and qualified.
Officers hold their positions at the will of our Board of Directors. There are
no arrangements, agreements or understandings between non-management security
holders and management under which non-management security holders may directly
or indirectly participate in or influence the management of our affairs.
Horst Hueniken, President, Chief Executive Officer,
Secretary, Treasurer and Director
Horst Hueniken has been our President and Chief Executive
Officer since June 30, 2015. Mr. Hueniken formerly served as our Chairman from
December 11, 2013 until June 30, 2015, and our Chief Financial Officer from
December 11, 2013 to March 18, 2015. He has acted as our Secretary and Treasurer
since December 11, 2013, and our director since October 29, 2013.
For the past 27 years, Mr. Hueniken has served as Managing
Director, Research Analyst and Portfolio Manager of a number of corporations on
the buy- and sell-sides of the investment management and investment dealer
businesses. Since January 2009, he has focused on investments in the agriculture
and aquaculture sectors, globally, and from July 2012 until April 2015 he was a
Vice President and Portfolio Manager at Goodman & Company, Investment
Counsel Inc. (a Dundee Corporation company), where he was responsible for
investing the firms capital in private and public firms across the entire
agricultural and aquaculture value chains. From February 2014 until February
2015 he additionally was Chief Executive Officer of the portfolio company Blue
Goose, a producer of organic beef, poultry and fish. Prior to that, from October
2011 through May 2012, Mr. Hueniken was a self-employed Portfolio Manager, where
he spearheaded the launch of Hybrid Global Agriculture, an investment fund for
accredited investors.
From September 2002 through September 2011, Mr. Hueniken was a
Managing Director at Stifel, Nicolaus & Company, Inc. as well as two of its
predecessor firms. Mr. Hueniken earned a Masters of Business Administration
degree in 1987 from the Richard Ivey School of Business in London, Ontario,
graduating on the Deans List. He also earned a Bachelor of Applied Science in
Mechanical Engineering in 1982 from the University of Waterloo, Ontario. Mr.
Hueniken earned the designation of Chartered Financial Analyst in 1992, is
former Chairman of AgriMarine Holdings Inc., and a former non-executive director
of Blue Goose Capital Corp., Xylitol Canada Inc. and Liberty Resources Limited.
Jeremy Kendall, Chairman and Director
Mr. Kendall has been our director since February 7, 2014 and
our Chairman since June 30, 2015. Mr. Kendall is currently Chairman of Opta Minerals Inc. (TSX:
OPM) and Chairman of Jemtec Inc. (TSX.V: JTC). In addition, Mr. Kendall serves
on the Board of Directors of SunOpta Inc. (TSX: SOY). He is also a director of a
number of private and charitable organizations and was Chairman of the College
of Naturopathic Medicine for five years from 1993 to 1997. Mr. Kendall has a BA
in Economics (1962) and an MBA (1964) from the University of Western Ontario.
15
Hugh Blakely, Director of Finance and Principal Accounting
Officer
Mr. Blakely has been our Director of Finance and Principal
Accounting Officer since March 18, 2015. Mr. Blakely is a senior financial
executive with extensive experience in finance, operations and general
management in North America, South America and Russia, and serves as our
principal financial officer. His areas of expertise include mergers and
acquisitions, treasury management, financial reporting and corporate governance.
Mr. Blakely was most recently the Controller at Novacap, a
successful Montréal-based private equity group with $1.2B in assets under
management. Prior to Novacap, Mr. Blakely acted as the Controller for White
Tiger Gold Ltd., a company formerly listed on the Toronto Stock Exchange, and
the CFO for Century Mining Corporation, a company formerly listed on the TSX
Venture Exchange. Prior to working at Century Mining, he served as the Senior
Vice-President and CFO for IVACO,a Heico company, and IVACO Inc., a leading
North American producer of steel and fabricated steel products.
Mr. Blakely is a Chartered Accountant with an understanding of
public company reporting and disclosure requirements in the United States and
Canada, and has spent his career focusing on mining, manufacturing and growth
stage companies.
Robyn Jackson, Director
Mr. Jackson has been our director since December 4, 2009.
Mr. Jackson founded Robyns Transportation & Distribution
Services Ltd. (formerly Robyns Trucking) in Alberta, Canada in 1976, served as
its President and Chief Executive Officer for 33 years and built the company
into a niche refrigerated shipper of food and propagated plants, with annual
revenues of more than CAD$17 million. Mr. Jacksons former company owned five
refrigerated distribution facilities across Western Canada, employed more than
60 professional drivers and shipped food products and plants to all Wal-Mart,
Sobeys and Canadian Tire stores in Canada located west of Thunder Bay, Ontario.
It also delivered goods to Canadian Superstore and Safeway warehouses across
Western Canada.
Board of Directors and Director Nominees
Our Board of Directors will consider candidates for directors
proposed by security holders, although no formal procedures for submitting
candidates have been adopted. Unless otherwise determined, at any time not less
than 90 days prior to the next annual stockholder meeting at which directors are
elected, the Board will accept written submissions from proposed nominees that
include the name, address and telephone number of the proposed nominee; a brief
statement of the nominees qualifications to serve as a director; and a
statement as to why the security holder submitting the proposed nominee believes
that the nomination would be in the best interests of our security holders. If
the proposed nominee is not the same person as the security holder submitting
the name of the nominee, a letter from the nominee agreeing to the submission of
his or her name for consideration should be provided at the time of submission.
The letter should be accompanied by a résumé supporting the nominee's
qualifications to serve on the Board, as well as a list of references.
The Board identifies director nominees through a combination of
referrals from different people, including management, existing Board members
and security holders. Once a candidate has been identified, the Board reviews
the individuals experience and background and may discuss the proposed nominee
with the source of the recommendation. If the Board believes it to be
appropriate, Board members may meet with the proposed nominee before making a final determination
whether to include him or her as a nominee submitted to our stockholders holders
for election to the Board.
16
Some of the factors which the Board considers when evaluating
proposed nominees include their knowledge of and experience in business matters,
finance, capital markets and mergers and acquisitions. The Board may request
additional information from each candidate prior to reaching a determination.
The Board is under no obligation to formally respond to all recommendations,
although as a matter of practice, it will endeavor to do so.
Conflicts of Interest
Except for Robyn Jackson, our directors are not obligated to
commit their full time and attention to our business and, accordingly, they may
encounter a conflict of interest in allocating their time between our operations
and those of other businesses. In the course of their other business activities,
they may become aware of investment and business opportunities which may be
appropriate for presentation to us as well as other entities to which they owe a
fiduciary duty. As a result, they may have conflicts of interest in determining
to which entity a particular business opportunity should be presented. They may
also in the future become affiliated with entities, engaged in business
activities similar to those we conduct.
In general, officers and directors of a corporation are
required to present business opportunities to a corporation if:
|
|
the corporation could financially undertake the
opportunity; |
|
|
the opportunity is within the corporations
line of business; and |
|
|
it would be unfair to the corporation and its
stockholders not to bring the opportunity to the attention of the
corporation. |
We have a code of ethics manual that obligates our directors,
officers and employees to disclose potential conflicts of interest and prohibits
those persons from engaging in such transactions without our consent.
Significant Employees
Other than as described above, we do not expect any other
individuals to make a significant contribution to our business.
Legal Proceedings
None of our directors, executive officers, promoters or control
persons has been involved in any of the following events during the past 10
years:
|
|
any bankruptcy petition filed by or against any business
of which such person was a general partner or executive officer either at
the time of the bankruptcy or within two years prior to that time;
|
|
|
|
|
|
any conviction in a criminal proceeding or being subject
to a pending criminal proceeding (excluding traffic violations and other
minor offenses); |
|
|
|
|
|
being subject to any order, judgment or decree, not
subsequently reversed, suspended or vacated, of any court of competent
jurisdiction, permanently or temporarily enjoining, barring, suspending or
otherwise limiting his involvement in any type of business, securities or
banking activities; |
|
|
|
|
|
being found by a court of competent jurisdiction (in a
civil action), the SEC or the Commodity Futures Trading Commission to have
violated any federal or state securities or commodities law, and the
judgment has not been reversed, suspended or vacated;
|
17
|
|
being the subject of, or a party to, any federal or state
judicial or administrative order, judgment, decree or finding, not
subsequently reversed, suspended or vacated, relating to an alleged
violation of any law or regulation prohibiting mail or wire fraud or fraud
in connection with any business activity; |
|
|
|
|
|
being the subject of, or a party to, any judicial or
administrative order, judgment, decree or finding, not subsequently
reversed, suspended or vacated relating to an alleged violation of any
federal or state securities or commodities law or regulation or any law or
regulation respecting financial institutions or insurance companies; or
|
|
|
|
|
|
being the subject of, or a party to, any sanction or
order, not subsequently reversed, suspended or vacated, of any stock,
commodities or derivatives exchange or other self-regulatory organization.
|
Except as set forth in our discussion below in Certain
Relationships and Related Transactions, none of our directors or executive
officers has been involved in any transactions with us or any of our directors,
executive officers, affiliates or associates which are required to be disclosed
pursuant to the rules and regulations of the SEC.
Director Independence
Our securities are quoted on the OTCQB which does not have any
director independence requirements. However, we plan to develop a definition of
independence in the near future and scrutinize our Board of Directors with
regard to this definition.
Audit Committee
On February 5, 2010, we established an audit committee, the
current members of which are Horst Hueniken, Jeremy Kendall and Robyn Jackson.
Mr. Hueniken is not an independent member of the committee pursuant to NASDAQ
Listing Rule 5605(a)(2) and National Instrument 52-110 of the Canadian
Securities Administrators (NI 52-110), since he is our executive officer. The
Board of Directors adopted a charter for the audit committee on February 5,
2010.
The audit committee is responsible for reviewing both our
interim and annual consolidated financial statements. For the purposes of
performing their duties, the members of the audit committee have the right, at
all times, to inspect all our books and financial records and discuss with
management and our independent auditors any accounts, records and matters
relating to our financial statements. The audit committee is required to meet at
least four times per year and at least quarterly with our independent auditors.
Our Board of Directors has determined that we do not have an
audit committee financial expert on our Board of Directors carrying out the
duties of the audit committee. The Board of Directors has determined that the
cost of hiring a financial expert to act as a director of us and to be a member
of the audit committee or otherwise perform audit committee functions outweighs
the benefits of having a financial expert on the audit committee.
Family Relationships
There are no family relationships among our officers or
directors.
Section 16(a) Beneficial Ownership Compliance Reporting
Section 16(a) of the Exchange Act requires our executive
officers and directors, and persons who own more than 10% of our common stock,
to file reports regarding ownership of, and transactions in, our securities with
the SEC and to provide us with copies of those filings. Based solely on our
review of the copies of such forms received by us, or written representations
from certain reporting persons, we believe that during the year ended July 31,
2015, all filing requirements applicable to our officers, directors and greater
than 10% beneficial owners were complied with.
18
Code of Ethics
Our Board of Directors adopted a Code of Business Conduct and
Ethics that applies to, among other persons, members of our Board of Directors,
our officers including our President, Chief Executive Officer and Chief
Financial Officer, employees, consultants and advisors. As adopted, our Code of
Business Conduct and Ethics sets forth written standards that are designed to
deter wrongdoing and to promote:
|
1. |
honest and ethical conduct, including the ethical
handling of actual or apparent conflicts of interest between personal and
professional relationships; |
|
|
|
|
2. |
full, fair, accurate, timely, and understandable
disclosure in reports and documents that we file with, or submit to, the
SEC and in other public communications made by us; |
|
|
|
|
3. |
compliance with applicable governmental laws, rules and
regulations; |
|
|
|
|
4. |
the prompt internal reporting of violations of the Code
of Business Conduct and Ethics to an appropriate person or persons
identified in the Code of Business Conduct and Ethics; and |
|
|
|
|
5. |
accountability for adherence to the Code of Business
Conduct and Ethics. |
Our Code of Business Conduct and Ethics requires, among other
things, that all of our senior officers commit to timely, accurate and
consistent disclosure of information; that they maintain confidential
information; and that they act with honesty and integrity.
In addition, our Code of Business Conduct and Ethics emphasizes
that all employees, and particularly senior officers, have a responsibility for
maintaining financial integrity within our company, consistent with generally
accepted accounting principles, and federal and state securities laws. Any
senior officer who becomes aware of any incidents involving financial or
accounting manipulation or other irregularities, whether by witnessing the
incident or being told of it, must report it to us. Any failure to report such
inappropriate or irregular conduct of others is to be treated as a severe
disciplinary matter. It is against our company policy to retaliate against any
individual who reports in good faith the violation or potential violation of our
Code of Business Conduct and Ethics by another.
Our Code of Business Conduct and Ethics was included as Exhibit
14.1 to our Registration Statement on Form S-1 filed with the SEC on June 3,
2010. We will provide a copy of the Code of Business Conduct and Ethics to any
person without charge, upon request. Requests can be sent to: Urban Barns Foods
Inc., 13,000 Chemin Bélanger, Mirabel, Québec, Canada J7J 2N8.
Item 11. |
Executive Compensation
|
The following summary compensation table sets forth the total
annual compensation paid or accrued by us to or for the account of certain of
our directors and executive officers. None of our other executive officers
received compensation in excess of $100,000 during the fiscal year ended July
31, 2015.
Summary Compensation
19
Name and Principal Position |
Year
Ended
July 31 |
Salary
($)
|
Bonus
($)
|
Stock
Awards
($) |
Option
Awards ($) |
Non-
Equity
Incentive Plan Compensation
($) |
Non-qualified
Deferred Compensation
Earnings ($) |
All Other
Compensation ($) |
Total
($) |
Horst Hueniken
President, CEO and Director
(1) |
2015 |
0 |
0 |
0 |
40,000 |
0 |
0 |
0 |
40,000 |
2014 |
0 |
0 |
0 |
40,000 |
0 |
0 |
0 |
40,000 |
Jeremy Kendall
Chairman and Director (2)
|
2015 |
0 |
0 |
0 |
40,000 |
0 |
0 |
0 |
40,000 |
2014 |
0 |
0 |
0 |
40,000 |
0 |
0 |
0 |
40,000 |
Hugh Blakely
Director of Finance (3)
|
2015 |
18,800 |
0 |
0 |
5,981 |
0 |
0 |
0 |
23,981 |
N/A |
N/A |
N/A |
N/A |
N/A |
N/A |
N/A |
N/A |
N/A |
Robyn Jackson
Director (4)
|
2015 |
79,200 |
0 |
0 |
51,000 |
0 |
0 |
0 |
130,200 |
2014 |
60,000 |
0 |
0 |
40,000 |
0 |
0 |
0 |
100,000 |
Richard T. Groome
Former President, CEO and
Director (5) |
2015 |
110,000 |
0 |
0 |
106,000 |
0 |
0 |
0 |
216,000 |
2014 |
60,000 |
0 |
0 |
0 |
0 |
0 |
0 |
60,000 |
Daniel Meikleham
Former President, CEO, CFO
and Director (6) |
2015 |
N/A |
N/A |
N/A |
N/A |
N/A |
N/A |
N/A |
N/A |
2014 |
25,000 |
0 |
0 |
0 |
0 |
0 |
0 |
25,000 |
|
(1) |
Horst Hueniken has been our President and CEO since June
30, 2015, our Secretary, and Treasurer since December 11, 2013, and our
director since October 29, 2013. He was also our CFO from December 11,
2013 to March 18, 2015, and our Chairman from December 11, 2013 to June
30, 2015. |
|
(2) |
Jeremy Kendall has been our director since February 7,
2014 and our Chairman since June 30, 2015. |
|
(3) |
Hugh Blakely has been our Director of Finance since March
18, 2015. |
|
(4) |
Robyn Jackson has been our director since December 4,
2009. |
|
(5) |
Richard Groome was our President and CEO from December
11, 2013 to June 25, 2015, andour director from June 25, 2012 to September
18, 2015. |
|
(6) |
Daniel Meikleham was our President, CEO, CFO and director
from December 4 2009 to December 10, 2013. |
We pay compensation of $5,200 and
$5,000 per month to Robyn Jackson and Hugh Blakely, respectively, for their
services as consultants. On August 19, 2014, we amended our consulting agreement
with Richard T. Groome to increase his fees to $125,000 per annum, which
agreement was subsequently terminated on June 25, 2015.
20
Except for options granted to Horst Hueniken, Jeremy Kendall,
Hugh Blakely, Robyn Jackson and Richard T. Groome as provided below, our
executive officers and directors did not receive any other compensation or
benefits for serving as directors or officers.
Option Grants
We granted 14,125,000 options to purchase common stock at an
exercise price of $0.10 to our executive officers and directors from our
inception to July 31, 2015.
Management Agreements
On September 13, 2012, we entered into an executive service
agreement with Richard T. Groome as our director. In accordance with the terms
and provisions of the agreement, we issued 5,000,000 shares of common stock to
Mr. Groome. Furthermore, we issued an additional 15,000,000 shares of common
stock to Mr. Groome for directly or indirectly introducing us to a third party
who invested a minimum of $1,000,000 in our securities.
On November 1, 2012, we entered into a consulting agreement
with Mr. Groome as our officer pursuant to which we were obligated to pay Mr.
Groome a consulting fee of $5,000 per month until November 1, 2017. On August
19, 2014, we amended the terms of our consulting agreement with Mr. Groome to
$125,000 per annum.
On June 25, 2015, our Board of Directors terminated Mr.
Groomes consulting agreement dated November 1, 2012 and Mr. Groome concurrently
resigned as our President and Chief Executive Officer. Mr. Groome subsequently
resigned as our director on September 18, 2015.
Compensation of Directors
Our directors received a total of 5,925,000 options to purchase
shares of our common stock as compensation for their services as directors
during the year ended July 31, 2014. Subsequent to that date, 2,650,000 of those
options held by Richard T. Groome expired automatically in accordance with the
terms of our 2014 Stock Option Plan.
We will compensate our directors for their services in the
future, and such directors are expected in the future to receive cash, shares of
our common stock and/or options to purchase additional shares of our common
stock as awarded by our Board of Directors or by any compensation committee that
may be established.
Pension, Retirement or Similar Benefit Plans
There are no arrangements or plans in which we provide pension,
retirement or similar benefits to our directors or executive officers. We have
no material bonus or profit sharing plans pursuant to which cash or non-cash
compensation is or may be paid to our directors or executive officers, except
that stock options may be granted at the discretion of the Board of Directors or
a committee thereof.
Compensation Committee
We do not currently have a compensation committee of the Board
of Directors or a committee performing similar functions. The Board of Directors
as a whole participates in the consideration of executive officer and director
compensation.
Change of Control
As of October 28, 2015, we had no pension plans or compensatory
plans or other arrangements which provide compensation on the event of
termination of employment or change in control of us.
21
Item 12. |
Security Ownership of Certain Beneficial
Owners and Management and Related Stockholder Matters
|
The following table sets forth certain information concerning
the number of shares of our common stock owned beneficially as of October 28,
2015 by: (i) each of our directors, (ii) each of our named executive officers
and (iii) each stockholder known to be the beneficial owner of 5% or more of our
common stock.
A person is considered to beneficially own any shares: (i) over
which such person, directly or indirectly, exercises sole or shared voting or
investment power, or (ii) of which such person has the right to acquire
beneficial ownership at any time within 60 days through an exercise of stock
options or warrants or otherwise. Unless otherwise indicated, voting and
investment power relating to the shares shown in the table for our directors and
executive officers is exercised solely by the beneficial owner or shared by the
owner and the owners spouse or children.
For purposes of this table, a person or group of persons is
deemed to have beneficial ownership of any shares that such person has the
right to acquire within 60 days of the date of this annual report. For purposes
of computing the percentage of outstanding shares held by each person or group
of persons named above, any shares that such person or persons has the right to
acquire within 60 days of the date of this annual report is deemed to be
outstanding, but is not deemed to be outstanding for the purpose of computing
the percentage ownership of any other person. The inclusion herein of any shares
listed as beneficially owned does not constitute an admission of beneficial
ownership.
Title of Class |
Name and Address of
Beneficial Owner |
Amount and
Nature
of Beneficial
Ownership(1) |
Percent of
Class
(1) |
Common Stock |
Horst Hueniken (2)
13000 Chemin
Bélanger Mirabel, Québec Canada J7J 2N8 |
2,000,000 (3) |
(4) |
Common Stock |
Jeremy Kendall (5)
17121 Mississauga Road
Belfountain, Ontario Canada L7K 0G1 |
7,273,504 (6) |
1.7 |
Common Stock |
Robyn Jackson (7)
72 Prestwick
Estate Way SE Calgary, Alberta Canada T2Z 3Y9 |
5,613,172 (8) |
1.3 |
Common Stock |
Hugh Blakely (9)
13000 Chemin Bélanger
Mirabel, Québec Canada J7J 2N8 |
200,000 (10) |
(4) |
|
All Officers and Directors as a Group
|
15,086,676 |
3.0 |
Common Stock |
Dundee Agricultural Corporation 1 Adelaide Street East,
Suite 2100 Toronto, Ontario Canada M5C 2V9 |
114,411,585 (11) |
26.4 |
Common Stock |
Richard T. Groome (12)
Suite
205 290 Lakeshore Road Pointe-Claire, Québec Canada H9S 4L3 |
32,567,595 (13) |
7.4 |
Common Stock |
Jacob Benne (14) 7170 Glover Drive Milner,
British Columbia Canada V0X 1T0 |
31,371,912 (15) |
7.3 |
22
(1) |
Based on 429,904,770 issued and outstanding
shares. |
(2) |
Horst Hueniken is our President, CEO, Secretary, Treasurer and director. |
(3) |
Includes options to purchase 2,000,000 shares. |
(4) |
Less than 1%. |
(5) |
Jeremy Kendall is our Chairman and director. |
(6) |
Includes 5,273,504 shares, options to purchase 1,000,000
shares and warrants to purchase 1,000,000 shares. |
(7) |
Robyn Jackson is our director. |
(8) |
Includes 3,338,172 shares and options to purchase
2,275,000 shares. |
(9) |
Hugh Blakely is our Director of Finance and Principal
Accounting Officer. |
(10) |
Includes options to purchase 200,000 shares. |
(11) |
Includes 110,411,585 shares and warrants to purchase
4,000,000 shares. |
(12) |
Richard T. Groome is our former President, CEO and
director. |
(13) |
Includes 3,097,595 shares held by Mr. Groome directly,
20,000,000 shares held by Notre-Dame Capital Inc., a company over which
Mr. Groome exercises shared voting and investment power, 1,500,000 shares
held by Roxy & Bear Investments Inc., a company over which Mr. Groome
exercises shared voting and investment power, 110,000 shares held by Mr.
Groomes two children; options to purchase 7,850,000 shares, of which
200,000 are held by Mr. Groomes spouse; and warrants to purchase 10,000
shares held by one of Mr. Groomes children. |
(14) |
Jacob Benne is our former President, CEO and director. |
(15) |
Includes 21,775,000 shares held by the Benne Family Trust, a trust over which Mr. Benne exercises sole voting and investment power, 9,334,412 shares held by CGM Ventures Inc., a company over which Mr. Benne exercises shared voting and investment power, and 262,500 shares held by Mr. Benne directly. |
Item 13. |
Certain Relationships and Related
Transactions, and Director Independence |
The following includes a summary of transactions since August 1, 2013, or any currently proposed transaction, in which we were or are to be a participant and the amount involved exceeded or exceeds $120,000 and in which any related person had or will have a direct or indirect material interest. We believe the terms obtained or consideration that we paid or received, as applicable, in connection with the transactions described below were comparable to terms available or the amounts that would be paid or received, as applicable, in arm’s-length transactions.
- During the year ended July 31, 2015, we accrued $17,964 for severance pay to Richard Groome, our former President, CEO and director, which is unsecured, non-interest bearing, and due on demand. As at July 31, 2015, $17,964 (July 31, 2014 - $1,755) was owing to Mr. Groome.
- As at July 31, 2015, we owed $nil (July 31, 2014 - $8,259) to Robyn Jackson, our director, which was unsecured, non-interest bearing, and due on demand.
- As at July 31, 2015, we were owed $1,374 (July 31, 2014 - $nil) from Mr. Jackson which is unsecured, non-interest bearing, and due on demand.
- As at July 31, 2015, we owed $45,988 (Cdn$60,000) (July 31, 2014 - $nil) for a loan payable to Jeremy Kendall, our Chairman and director. The loan is secured against our assets, bears interest at a rate of 12.68% per annum and due on the earlier of i) us raising Cdn$1,000,000 or more through issuance of equity or debt or ii) December 18, 2015. As at July 31, 2015, $3,581 (Cdn$4,673) is owed for accrued interest.
- As at July 31, 2015, we owed $45,988 (Cdn$60,000) (July 31, 2014 - $nil) for a loan payable to Mr. Kendall. The loan is secured against our assets, bears interest at a rate of 12.68% per annum and due on the earlier of i) us raising Cdn$1,000,000 or more through issuance of equity or debt or ii) January 7, 2016. As at July 31, 2015, $3,351 (Cdn$4,373) is owed for accrued interest.
- As at July 31, 2015, we owed $24,591 (Cdn$32,082) (July 31, 2014 - $nil) for a loan payable to Horst Hueniken, our President, CEO, Secretary, Treasurer and director. The loan is secured against our assets, bears interest at a rate of 12.68% per annum and due on January 31, 2016. As at July 31, 2015, $404 (Cdn$528) is owed for accrued interest.
- As at July 31, 2015, we owed $21,337 (Cdn$27,839) (July 31, 2014 - $nil) for a loan payable to Mr. Kendall. The loan is secured against the Company’s assets, bears interest at a rate of 12.68% per annum and due on January 31, 2016. As at July 31, 2015, $375 (Cdn$489) is owed for accrued interest.
- As at July 31, 2015, we owed $3,065 (Cdn$4,000) (July 2014 - $3,673) to a company controlled by Jacob Benne, our former President, CEO and director, which is unsecured, non-interest bearing, and due on demand.
- Included in accounts payable as at July 31, 2015 is $20,275 (July 31, 2014 - $18,134) owing to related parties for expense reimbursements.
- As at July 31, 2015, we had deferred compensation of $2,009 (July 31, 2014 - $37,352) incurred to our directors and officers. During the year ended July 31, 2015, deferred compensation of $35,343 (2014 - $218,675) was charged to operations and included in general and administrative expenses.
- During the year ended July 31, 2015, we incurred professional fees of $nil (2014 - $12,600) to the spouse of Mr. Groome.
- During the year ended July 31, 2015, we incurred consulting fees (included in general and administrative expenses) of $207,924 (2014 - $362,389) to directors and officers of the Company.
- During the year ended July 31, 2015, we incurred consulting fees (included in general and administrative expenses) of $3,822 (2014 - $nil) to the daughter of Mr. Groome.
- During the year ended July 31, 2015, we incurred consulting fees (included in general and administrative expenses) of $11,155 (2014 - $nil) and research and development expenses of $48,113 (2014 - $nil) to the daughter of Mr. Groome.
- During the year ended July 31, 2015, we granted 6,125,000 (2014 - 3,000,000) stock options with a fair value of $242,929 (2014 - $120,000) (included in general and administrative expenses) to our directors and officers.
- During the year ended July 31, 2015, we granted 200,000 (2014 - nil) stock options with a fair value of $8,000 (2014 - $nil) (included in general and administrative expenses) for bookkeeping services to the spouse of Mr. Groome.
- During the year ended July 31, 2015, we incurred consulting fees of $1,618 (2014 - $nil) to Hugh Blakely, our Director of Finance and Principal Accounting Officer, for which we will pay shares of Class A common stock. As of July 31, 2015, these shares were still to be issued.
Other than as described above, we have not entered into any transactions with our officers, directors, persons nominated for these positions, beneficial owners of 5% or more of our common stock, or family members of those persons wherein the amount involved in the transaction or a series of similar transactions exceeded the lesser of $120,000 or 1% of the average of our total assets for the last two fiscal years.
NI 52-110
We are a reporting issuer in the Province of Québec. NI 52-110
requires us, as a venture issuer, to disclose in our annual report certain
information concerning the constitution of our audit committee and our
relationship with our independent auditor. As defined in NI 52-110, Host
Hueniken is not an independent director. A description of the education and
experience of our directors that is relevant to the performance of their
responsibilities as audit committee members is included in Item 10 of this
annual report.
The only member of our audit committee that is financially
literate as defined in NI 52-110 is Horst Hueniken.
Since the commencement of our most recently completed financial
year, our Board of Directors has not failed to adopt a recommendation of the
audit committee to nominate or compensate an external auditor.
Since the commencement of our most recently completed financial
year, we have not relied on the exemptions contained in sections 2.4 or 8 of NI
52-110. Section 2.4 (De Minimis Non-audit Services) provides an exemption
from the requirement that the audit committee must pre-approve all non-audit
services to be provided by the auditor, where the total amount of fees related
to the non-audit services are not expected to exceed 5% of the total fees
payable to the auditor in the fiscal year in which the non-audit services were
provided. Section 8 (Exemptions) permits us to apply to a securities
regulatory authority for an exemption from the requirements of NI 52-110 in
whole or in part.
23
Our audit committee has adopted specific policies and
procedures for the engagement of non-audit services as set out in our audit
committee charter.
National Instrument 58-101
As a reporting issuer in the Province of Québec, National
Instrument 58-101 of the Canadian Securities Administrators requires us, as a
venture issuer, to disclose in our annual report certain information concerning
corporate governance disclosure.
Board of Directors
Our Board of Directors currently consists of three directors.
We have determined that Robyn Jackson and Jeremy Kendall are independent as that
term is defined in NI 52-110 due to the fact that our other director is also an
executive officer.
Directorships
Other than as described above, our directors are not currently
directors of any other reporting issuers (or the equivalent in a foreign
jurisdiction).
Orientation and Continuing Education
We have an informal process to orient and educate new recruits
to our Board of Directors regarding their role on the Board and our committees,
as well as the nature and operations of our business. This process provides for
an orientation with key members of management, and further provides access to
materials necessary to inform them of the information required to carry out
their responsibilities as a member of our Board of Directors. This information
includes our most recent budget approved by the Board of Directors, our most
recent annual report, our audited financial statements and copies of our interim
financial statements.
The Board does not provide continuing education for our
directors. Each director is responsible for maintaining the skills and knowledge
necessary to meet their obligations as a director.
Ethical Business Conduct
Other than as set out in our Code of Business Conduct and
Ethics, our Board of Directors does not take any formal steps to encourage and
promote a culture of ethical business conduct as it has found that the fiduciary
duties placed on individual directors by our governing corporate legislation and
the common law have been sufficient to ensure that the Board operates
independently of management and in our best interests.
Nomination of Directors
See Board of Directors and Director Nominees in Item 10 of
this annual report.
Compensation
See Compensation of Directors in Item 11 of this annual
report. Assessments
Our Board of Directors intends for individual director
assessments to be conducted by other directors, taking into account each
directors contributions at Board meetings, service on committees, experience
base, and their general ability to contribute to one or more of our major needs.
However, due to our stage of development and our need to deal with other urgent
priorities, the Board has not yet implemented such a process of assessment.
24
Item 14. |
Principal Accounting Fees and Services.
|
Audit and Non-Audit Fees
The aggregate fees billed for our most recently completed
fiscal year ended July 31, 2015 and for our fiscal year ended July 31, 2014 for
professional services rendered by our independent auditors for the audit of our
annual financial statements and review of the financial statements included in
our quarterly reports on Form 10-Q as well as services that are normally
provided by our independent auditors in connection with statutory and regulatory
filings or engagements for these fiscal periods were as follows:
|
|
Year
Ended July 31 |
|
|
|
2015
($) |
|
|
2014
($) |
|
Audit Fees |
|
25,600 |
|
|
24,800 |
|
Audit Related Fees |
|
Nil |
|
|
Nil |
|
Tax Fees |
|
6,200 |
|
|
Nil |
|
All Other Fees |
|
Nil |
|
|
Nil |
|
Total |
|
31,800 |
|
|
24,800 |
|
Our Board of Directors pre-approves all services provided by
our independent auditors. All of the above services and fees were reviewed and
approved by the Board of Directors either before or after the respective
services were rendered.
Our Board of Directors has considered the nature and amount of
fees billed by our independent auditors and believes that the provision of
services for activities unrelated to the audit is compatible with maintaining
our independent auditors independence.
25
PART IV
Item 15. |
Exhibits, Financial Statement Schedules
|
(a) (1) Financial Statements
See Index to Consolidated Financial Statements set forth on
page F-1.
(a) (2) Financial Statement Schedules
None. The financial statement schedules are omitted because
they are inapplicable or the requested information is shown in our financial
statements or related notes thereto.
Exhibits
Exhibit Number |
Exhibit Description
|
|
|
2.1 |
Share Exchange Agreement with
Non Industrial Manufacture Inc. dated May 2, 2011 (Incorporated by
reference from our Current Report on Form 8-K/A filed on June 2, 2011)
|
|
|
3.1 |
Articles of Incorporation of
Urban Barns Foods Inc. (formerly HL Ventures Inc.) (Incorporated by
reference from our Registration Statement on Form SB-2 filed on September
6, 2007) |
|
|
3.2 |
Certificate of Amendment filed
with the Nevada Secretary of State on June 28, 2011 (Incorporated by
reference from our Current Report on Form 8-K filed on July 25, 2011)
|
|
|
3.3 |
Bylaws (Incorporated by
reference from our Registration Statement on Form SB-2 filed on September
6, 2007) |
|
|
10.1 |
2014 Stock Option Plan
(Incorporated by reference from our Current Report on Form 8-K filed on
September 11, 2014) |
|
|
14.1 |
Code of Business Conduct and
Ethics (Incorporated by reference from our Registration Statement filed on
Form S-1 June 3, 2010) |
|
|
21 |
List of Subsidiaries: Urban
Barns Foods Canada Inc., a Canadian company, Non-Industrial Manufacture,
an Alberta, Canada company |
|
|
31.1* |
Section 302 Certification of
Principal Executive Officer |
|
|
31.2* |
Section 302 Certification of
Principal Financial Officer |
|
|
32.1* |
Section 906 Certification of
Principal Executive Officer |
|
|
32.2* |
Section 906 Certification
Principal Financial Officer |
*filed herewith.
26
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Exchange Act, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned thereunto duly authorized.
|
URBAN BARNS FOODS INC. |
|
|
|
Date: October 29, 2015 |
By: |
/s/
Horst Hueniken |
|
|
Horst Hueniken |
|
|
President, Chief Executive Officer, Secretary,
|
|
|
Treasurer and Director |
Pursuant to the requirements of the Exchange Act this Report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
SIGNATURES |
|
TITLE |
|
DATE |
|
|
|
|
|
/s/ Horst
Hueniken |
|
|
|
October 29, 2015 |
Horst Hueniken |
|
President, Chief Executive Officer, |
|
|
|
|
Secretary, Treasurer and Director |
|
|
|
|
|
|
|
/s/ Jeremy
Kendall |
|
|
|
October 29, 2015 |
Jeremy Kendall |
|
Chairman and Director |
|
|
|
|
|
|
|
/s/ Hugh
Blakely |
|
|
|
October 29, 2015 |
Hugh Blakely |
|
Director of Finance and Principal |
|
|
|
|
Accounting Officer |
|
|
|
|
|
|
|
/s/ Robyn
Jackson |
|
|
|
October 29, 2015 |
Robyn Jackson |
|
Director |
|
|
27
Exhibit 31.1
CERTIFICATION
I, Horst Hueniken, certify that:
1. |
I have reviewed this report on Form 10-K of Urban Barns
Foods Inc. |
|
|
|
2. |
Based on my knowledge, this report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period
covered by this report; |
|
|
|
3. |
Based on my knowledge, the financial statements, and
other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
report; |
|
|
|
4. |
The registrants other certifying officer(s) and I
responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d- 15(f)) for the registrant and have: |
|
|
|
|
a) |
Designed such disclosure controls and procedures or
caused such disclosure controls and procedures to be designed under my
supervision, to ensure that material information relating to the
registrant is made known to me particularly during the period in which
this report is being prepared; |
|
|
|
|
b) |
Designed such internal control over financial reporting,
or caused such internal control over financial reporting to be designed
under my supervision, 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; |
|
|
|
|
c) |
Evaluated the effectiveness of the registrants
disclosure controls and procedures and presented in this report my
conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based on
such evaluation; and |
|
|
|
|
d) |
Disclosed in this report any change in the registrants
internal control over financial reporting that occurred during the
registrants most recent fiscal quarter (the registrants fourth fiscal
quarter in the case of an annual report) that has materially affected, or
is reasonably likely to materially affect, the registrants internal
control over financial reporting; and |
|
|
|
5. |
I have disclosed, based on my most recent evaluation of
internal control over financial reporting, to the registrants auditors
and the audit committee of registrants board of directors (or persons
performing the equivalent functions): |
|
|
|
|
a) |
All significant deficiencies and material weaknesses in
the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrants ability to
record, process, summarize and report financial information; and |
|
|
|
|
b) |
Any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrants internal control over financial
reporting. |
Date: October 29, 2015
/s/ Horst Hueniken
Horst Hueniken
President, Chief Executive Officer, Secretary, Treasurer and Director
Exhibit 31.2
CERTIFICATION
I, Hugh Blakely, certify that:
1. |
I have reviewed this report on Form 10-K of Urban Barns
Foods Inc. |
|
|
|
2. |
Based on my knowledge, this report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period
covered by this report; |
|
|
|
3. |
Based on my knowledge, the financial statements, and
other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
report; |
|
|
|
4. |
The registrants other certifying officer(s) and I are
responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d- 15(f)) for the registrant and have: |
|
|
|
|
a) |
Designed such disclosure controls and procedures or
caused such disclosure controls and procedures to be designed under my
supervision, to ensure that material information relating to the
registrant is made known to me particularly during the period in which
this report is being prepared; |
|
|
|
|
b) |
Designed such internal control over financial reporting,
or caused such internal control over financial reporting to be designed
under my supervision, 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; |
|
|
|
|
c) |
Evaluated the effectiveness of the registrants
disclosure controls and procedures and presented in this report my
conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based on
such evaluation; and |
|
|
|
|
d) |
Disclosed in this report any change in the registrants
internal control over financial reporting that occurred during the
registrants most recent fiscal quarter (the registrants fourth fiscal
quarter in the case of an annual report) that has materially affected, or
is reasonably likely to materially affect, the registrants internal
control over financial reporting; and |
|
|
|
5. |
I have disclosed, based on my most recent evaluation of
internal control over financial reporting, to the registrants auditors
and the audit committee of registrants board of directors (or persons
performing the equivalent functions): |
|
|
|
|
a) |
All significant deficiencies and material weaknesses in
the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrants ability to
record, process, summarize and report financial information; and |
|
|
|
|
b) |
Any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrants internal control over financial
reporting. |
Date: October 29, 2015
/s/ Hugh Blakely
Hugh Blakely
Director of
Finance and Principal Accounting Officer
Exhibit 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO 18
U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002
In connection with the annual report of Urban Barns Foods Inc.
(the Company) on Form 10-K for the period ending July 31, 2015 as filed with
the Securities and Exchange Commission on the date hereof (the Report), I,
Horst Hueniken, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to
§906 of the Sarbanes-Oxley Act of 2002, that:
|
(1) |
The Report fully complies with the requirements of
section 13(a) or 15(d) of the Securities Exchange Act of 1934;
and |
|
|
|
|
(2) |
The information contained in the Report fairly presents,
in all material respects, the financial condition and result of operations
of the Company. |
Date: October 29, 2015
/s/ Horst Hueniken
President, Chief
Executive Officer, Secretary, Treasurer and Director
Exhibit 32.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO 18
U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002
In connection with the annual report of Urban Barns Foods Inc.
(the Company) on Form 10-K for the period ending July 31, 2015 as filed with
the Securities and Exchange Commission on the date hereof (the Report), I,
Hugh Blakely certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906
of the Sarbanes-Oxley Act of 2002, that:
|
(1) |
The Report fully complies with the requirements of
section 13(a) or 15(d) of the Securities Exchange Act of 1934;
and |
|
|
|
|
(2) |
The information contained in the Report fairly presents,
in all material respects, the financial condition and result of operations
of the Company. |
Date: October 29, 2015
/s/ Hugh Blakely
Director of Finance
and Principal Accounting Officer
Urban Barns Foods (CE) (USOTC:URBF)
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