AGR TOOLS, INC. - FORM 10-Q - January 31, 2012

Attached files

file filename
EXCEL - IDEA: XBRL DOCUMENT - AGR TOOLS, INC.Financial_Report.xls
EX-32.2 - AGR TOOLS, INC.ex32-2.htm
EX-31.2 - AGR TOOLS, INC.ex31-2.htm
EX-32.1 - AGR TOOLS, INC.ex32-1.htm
EX-31.1 - AGR TOOLS, INC.ex31-1.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
 

FORM 10-Q
 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2011

or

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______________________ to ______________________

Commission File Number: 000-52043

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

Nevada
98-0480810
(State or other jurisdiction of incorporation or
(I.R.S. Employer Identification No.)
organization)
  

100 Lido Circle, Suite C-1
Lakeway, TX  78724
(Address of principal executive offices)

936-539-5744
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was require to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes o   No þ

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, 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 (of for such shorter period that the registrant was required to submit and post such files).  Yes þ   No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o   Accelerated filer o   Non-accelerated filer o   Smaller reporting company þ

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

As of January 31, 2012, there were 91,823,986 shares of common stock of the registrant outstanding.

 
TABLE OF CONTENTS


 
Item 1. Financial Statements
 
AGR TOOLS, INC.
(formerly known as Laburnum Ventures, Inc.)
Consolidated Financial Statements
For the three months ended September 30, 2011 and 2010
(unaudited)
 
 


AGR TOOLS, INC.
(formerly known as Laburnum Ventures, Inc.)
Consolidated Balance Sheets
 
   
September 30,
    
June 30,
  
   
2011
    
2011
  
   
$
    
$
  
   
(unaudited)
    
(audited)
  
ASSETS
            
             
Current assets
            
             
Cash
     4,665       8,621  
Accounts receivable
     4,149       2,731  
Inventory
     240,634       258,177  
Prepaid expenses and deposits
     12,018       12,018  
                 
Total current assets
     261,466       281,547  
                 
Property and equipment, net
     5,965       10,758  
                 
Total assets
     267,431       292,305  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
                
                 
Current liabilities
                
                 
Bank indebtedness
     23,541       23,126  
Accounts payable
     235,474       226,413  
Accounts payable – related parties
     18,635       16,485  
Accrued liabilities
     84,826       58,106  
Customer deposits
     110,675       121,266  
Convertible debt, net of discount
     80,000       64,860  
Current portion of loans payable
     325,000       325,000  
                 
Total current liabilities
     878,151       835,256  
                 
Total liabilities
     878,151       835,256  
                 
Stockholders’ deficit
                
 
                
Preferred stock
Authorized: 100,000,000 preferred shares, par value
$0.001 per share, Issued and outstanding: nil
     -       -  
                 
Common stock
Authorized: 200,000,000 shares, par value
$0.001 per share Issued and outstanding: 91,823,986 shares (June 30, 2011 – 87,823,986 shares)
     91,825       87,825  
                 
Additional Paid in Capital
     1,150,743       1,139,943  
Accumulated deficit
     (1,853,288 )     (1,770,719 )
                 
Total stockholders’ deficit
     (610,720 )     (542,951 )
                 
Total liabilities and stockholders’ deficit
     267,431       292,305  

(The accompanying notes are an integral part of these consolidated financial statements)
 
 
AGR TOOLS, INC.
(formerly known as Laburnum Ventures, Inc.)
Consolidated Statements of Operations
(Unaudited)
 
   
For the Three Months Ended
September 30,
  
   
2011
    
2010
  
Revenue
     33,724       205,443  
Cost of goods sold
     23,039       123,135  
                 
Gross profit
     10,685       82,308  
                 
Operating expenses
                
                 
Advertising and promotion
     4,863       14,370  
Automotive
     986       1,604  
Bad debts
     -       (500 )
Consulting fees
     -       1,500  
Depreciation
     4,793       3,600  
Insurance
     233       3,216  
Office and miscellaneous
     2,197       5,910  
Professional fees
     2,139       40,922  
Rent and utilities
     17,470       25,251  
Telephone and internet
     1,602       4,000  
Travel
     13       127  
Wages and benefits
     17,311       54,197  
Loss on settlement of debt
     10,800       -  
                 
Total operating expenses
     62,407       154,197  
                 
Loss from operations
     (51,722 )     (71,889 )
                 
Other income(expenses)
                
   Interest income
     75       910  
   Interest and bank charges
     (30,922 )     (7,812 )
Gain on disposal of property and equipment
     -       2,871  
                 
Total other expenses
     (30,847 )     (4,031 )
                 
Loss before income taxes
     (82,569 )     (75,920 )
                 
Income taxes (recovery)
     -       -  
                 
Net loss for the period
     (82,569 )     (75,920 )
                 
Net loss per share, basic and diluted
     (0.00 )     (0.00 )
                 
Weighted average number of shares outstanding
     88,389,199       98,306,081  
 
(The accompanying notes are an integral part of these consolidated financial statements)
 
 
AGR TOOLS, INC.
(formerly known as Laburnum Ventures, Inc.)
Consolidated Statements of Stockholder’s Deficit
For the Three Months Ended September 30, 2011
 
   
Common stock
                    
   
Number
    
Amount
    
Additional Paid in Capital
    
Accumulated deficit
    
Total stockholders’ deficit
  
                               
Balance, June 30, 2011
     87,823,986       87,825       1,139,943       (1,770,719 )     (542,951 )
                                         
Shares issued to settle debt
     4,000,000       4,000       10,800       –       14,800  
Net loss for the period (unaudited)
     –       –       –       (82,569 )     (82,569 )
                                         
Balance, September 30, 2011 (unaudited)
     91,823,986       91,825       1,150,743       (1,853,288 )     (610,720 )
 
(The accompanying notes are an integral part of these consolidated financial statements)
 
 
 
AGR TOOLS, INC.
(formally known as Laburnum Ventures, Inc.)
Consolidated Statements of Cash Flows
For the Three Months Ended September 30, 2011
(Unaudited)
 
   
For the Three Months Ended
September 30,
  
   
2011
    
2010
  
Operating activities
  
 
        
    Net loss for the period
     (82,569 )     (75,920 )
Adjustments to reconcile net loss to net cash
used in operating activities:
                
    Depreciation
     4,793       3,600  
    Amortization of debt discount
     15,140       -  
    Loss on settlement of debt
     10,800       -  
    Gain on disposal of property and equipment
     -       (2,871 )
Changes in operating assets and liabilities:
                
    Accounts receivable
     (1,418 )     (5,331 )
    Advances receivable
     -       640  
    Inventory
     17,543       24,616  
    Prepaid expenses and deposits
     -       4,118  
    Accounts payable
     13,061       3,453  
    Accrued liabilities
     26,720       7,466  
    Due to related parties
     2,150       (34,037 )
    Customer deposits
     (10,591 )     40,209  
                 
Net cash used in operating activities
     (4,371 )     (34,057 )
Financing activities
                
    Bank indebtedness, net
     415       (611 )
    Loans provided by related parties, net
     -       53,000  
                 
Net cash provided by financing activities
     415       52,389  
                 
Change in cash
     (3,956 )     18,332  
Cash, beginning of period
     8,621       11,396  
Cash, end of period
     4,665       29,728  
                 
Supplemental disclosures:   
                
Interest paid    
3,110
      
4,392
  
Income taxes paid
     -       -  
                 
Non-cash investing and financing activities:
                
    Shares issued for settlement of debt
     4,000       -  
    Cancellation of shares
     -       25,000  
 
(The accompanying notes are an integral part of these consolidated financial statements)
 
 
AGR TOOLS, INC.
(formally known as Laburnum Ventures, Inc.)
Notes to the Consolidated Financial Statements
 
 
1.  
Nature of Operations and Continuance of Business
 
Laburnum Ventures Inc. (the “Company”) was incorporated in the State of Nevada on March 11, 2004. On June 22, 2004, the Company acquired a 100% interest in five mineral claims located in the Similkameen Mining Division in British Columbia, Canada. In 2007 the Company abandoned these mineral claims. On September 10, 2009, the Company changed its name to AGR Tools, Inc. The Company was an exploration stage company, as defined by the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 915, “Development Stage Entities”.
 
AGR Stone & Tools USA, Inc. (“AGR USA”) was incorporated in the State of Texas on December 23, 2004 and is a manufacturer of diamond tooling and related products. The Company specializes in producing consumable tools for the natural stone, engineered stone, concrete and masonry industries.
 
Effective May 27, 2010, the Company closed a share exchange agreement with AGR USA. whereby the Company acquired all of the issued and outstanding shares of AGR USA. For financial statement reporting purposes, the share exchange was treated as a reverse acquisition with AGR USA deemed the accounting acquirer and the Company deemed the accounting acquiree under the purchase method of accounting in accordance with Accounting Standards Codification (“ASC”) 805-10-40, Business Combinations – Reverse Acquisitions. The reverse merger is deemed a recapitalization and the consolidated financial statements represent the continuation of the financial statements of AGR USA (the accounting acquirer/legal subsidiary) except for its capital structure, and the consolidated financial statements reflect the assets and liabilities of AGR USA recognized and measured at their carrying value before the combination and the assets and liabilities of the Company (the accounting acquiree/legal parent). The equity structure reflects the equity structure of the Company, the legal parent, and the equity structure of AGR Stone and Tools, USA, Inc., the accounting acquirer, as restated using the exchange ratios established in the share exchange agreement to reflect the numbers of shares of the legal parent.
 
2.  
Going Concern
 
These financial statements have been prepared on a going concern basis, which implies the Company will continue to realize its assets and discharge its liabilities in the normal course of business. The continuation of the Company as a going concern is dependent upon the continued financial support from its shareholders, the ability of management to raise additional equity capital through private and public offerings of its common stock, and the attainment of profitable operations. As at September 30, 2011, the Company had net working capital deficit of $616,685 and has an accumulated deficit of $1,853,288 since inception. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern. These financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
 
3.  
Summary of Significant Accounting Policies
 
a)  Basis of Presentation
 
These financial statements and related notes are presented in accordance with accounting principles generally accepted in the United States of America.
 
b)  Use of Estimates
 
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions related to allowance for doubtful accounts, inventory valuation, the useful lives and recoverability of long-lived assets, stock-based compensation and deferred income tax asset valuation allowances. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.
 
 
 
3.  
Summary of Significant Accounting Policies (continued)
 
c) Reclassification in prior period
 
Certain reclassifications to the financial statements have been made to prior period amounts toconform to the presentation of the current period.
 
d) Cash and Cash Equivalents
 
The Company considers all highly liquid instruments with maturity of three months or less at the time of issuance to be cash equivalents.  There were no cash equivalents at September 30, 2011 and June 30, 2011.
 
e) Accounts Receivable
 
The Company recognizes allowances for doubtful accounts to ensure accounts receivable are not overstated due to the inability or unwillingness of its customers to make required payments. The allowance is based on the age of receivable and the specific identification of receivables the Company considers at risk. The allowance for doubtful accounts was $0 at September 30, 2011 and June 30, 2011.
 
f) Advances Receivable
 
The Company advanced amounts to two independent contractors who earn commissions for sales generated. On October 31, 2009, the Company placed these independent contractors on the payroll and ceased all advances.  The Company obtained two promissory notes, each in the amount of $61,300, from these independent contractors for the amount owed.  The notes carry an interest rate of 3% and are reduced by semi-monthly payroll deductions of $129.17, which are composed of principal and interest.  The term of the notes is 5 years and a balloon payment is due at the end of the term of the loan for any unpaid principal and interest.  The payments under these notes are deducted from the employees’ paychecks on a semi-monthly basis.  The Company has recorded an allowance for doubtful accounts in the amount of $110,975 as of June 30, 2010.  The amount reserved at June 30, 2010 is equal to the balloon payment due on the notes.  As of September 30, 2011, a full valuation allowance was recorded based on an updated evaluation of the collectability of the receivable.
 
g) Inventory
 
Inventory consists of diamond tools and is carried at the lower of cost and market value. The Company uses the FIFO inventory costing method.
 
 
3.  
Summary of Significant Accounting Policies (continued)
 
h) Property and Equipment
 
Property and equipment are stated at cost. The Company depreciates the cost of property and equipment straight-line over their estimated useful lives:
 
Automotive
3 years
Computer equipment
3 years
Furniture and equipment
5 years
 
The depreciation expense for the three month period ended September 30, 2011 and 2010 were $4,793 and $3,600 respectively.
 
i) Corporate Taxes Receivable
 
Corporate taxes receivable pertain to refundable amounts owed to the Company for corporate taxes from the United States Treasury.  These amounts are recorded at the value anticipated to be received based on tax returns filed.
 
j) Long-lived Assets
 
In accordance with ASC 360, Impairment or Disposal of Long-Lived Assets, 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.  There was no impairment of long-lived assets for periods ended September 30, 2011 and June 30, 2011.
 
k) Income Taxes
 
The Company accounts for income taxes using the asset and liability method in accordance with ASC 740, Accounting for Income Taxes. 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 files federal, state and local income tax returns in the U.S., as applicable. The open taxation years range from 2007 to 2009. In certain circumstances, the U.S. federal statute of limitations can reach beyond the standard three and six year period. U.S. state statutes of limitations for income tax assessment vary from state to state. Tax authorities of the U.S. have not audited any of the Company’s income tax returns for the open taxation years noted above.
 
 
3.  
Summary of Significant Accounting Policies (continued)
 
The Company recognizes interest and penalties related to uncertain tax positions in tax expense. During the three months ended September 30, 2011 and September 30, 2010, there were no charges for interest or penalties.
 
l)  Revenue Recognition
      
The Company earns revenue from the sale of diamond tooling and related products. The Company recognizes revenue in accordance with ASC 605, Revenue Recognition. Revenue is recognized when the price is fixed or determinable, persuasive evidence of an arrangement exists, the goods have been delivered, and collectability is reasonably assured. Sales returns are recognized as incurred.  The amount of returns is not significant and the Company evaluates the need to record an allowance for each reporting period.
 
Payment is collected in advance of shipment. All goods are shipped FOB from the Company’s warehouse in Conroe, TX. Title passes when the goods leave the Company’s dock. The sale is recognized when shipment occurs. Prices are set by a definitive dealer price list and are agreed upon before payment occurs or the goods are shipped.
 
Generally, the Company has no special arrangements with dealers. All sales are paid in advance and the Company generally does not allow returns for merchandise purchased by dealers. The Company will, however, allow returns pertaining to the initial order placed by new dealers with a 20% restocking charge for those items that prove to be slow moving for their customer base. No warranty is offered. The amount of these returns is not significant and the Company evaluates the need to record an allowance each reporting period.
 
m)  Financial Instruments and Fair Value Measures
      
ASC 820, Fair Value Measurements and Disclosures, and ASC 825, Financial Instruments, requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. ASC 820, Fair Value Measurements and Disclosures and ASC 825, Financial Instruments requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 820 prioritizes the inputs into three levels that may be used to measure fair value:
 
 Level 1
 
Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities. 
 
Level 2
 
Level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data. 
 
 
3.  
Summary of Significant Accounting Policies (continued)
 
m)  Financial Instruments and Fair Value Measures (continued)
      
Level 3
 
Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities. 
 
The Company’s financial instruments consist principally of cash, accounts receivable, advances receivable, bank demand loan, accounts payable, accrued liabilities, corporate taxes payable/receivable, loans payable, and amount due to a related party. Pursuant to ASC 820, the fair value of cash is determined based on Level 1 inputs, which consist of quoted prices in active markets for identical assets. The recorded values of all other financial instruments approximate their current fair values because of their nature and respective maturity dates or durations.
 
n)  Concentrations
 
As at September 30, 2011, 95% (June 30, 2011 – 91%) of accounts receivable is comprised of two customers. (June 30, 2011 – two customers).  As at September 30, 2011, the specific concentrations of each customer included in this total were 69% and 26%.  As at June 30, 2011, the specific concentrations of each customer included in this total were 65% and 26%.  During the three months ended September 30, 2011, the Company has four customers that total 79% of its revenue. The specific concentrations of each customer included in this total were 25%, 19%, 18%, and 17%.
 
o)  Stock-based Compensation
 
The Company records stock-based compensation in accordance with ASC 718, Compensation - Stock Compensation using the fair value method. All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable.
 
The Company uses the Black-Scholes option pricing model to calculate the fair value of stock-based awards. This model is affected by the Company’s stock price as well as assumptions regarding a number of subjective variables. These subjective variables include, but are not limited to the Company’s expected stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors. The value of the portion of the award that is ultimately expected to vest is recognized as an expense in the statement of operations over the requisite service period.
 
p)  Earnings (Loss) Per Share
 
The Company computes earnings per share (“EPS’) in accordance with ASC 260, “Earning Per Share”.  ASC 260 requires companies with complex capital structures to present basic and diluted EPS.  Basic EPS is measured as net income divided by the weighted average common shares outstanding for the period.  Diluted EPS is similar to basic EPS but presents the dilutive effect on a per share basis of potential common shares (e.g., convertible securities, options and warrants) as if they had been converted at the beginning of the periods presented, or issuance date, if later.  Potential common shares that have an anti-dilutive effect (i.e., those that increase income per share or decrease loss per share) are excluded from the calculation of diluted EPS. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive. All potentially dilutive shares as of September 30, 2011 were anti-dilutive. There were no potentially dilutive shares as of September 30, 2010.
 
 
3.  
Summary of Significant Accounting Policies (continued)
 
q)  Comprehensive Loss
 
ASC 220, Comprehensive Income, establishes standards for the reporting and display of comprehensive loss and its components in the financial statements. As at September 30, 2011 and September 30, 2010, the Company has no items that represent a comprehensive loss and, therefore, has not included a schedule of comprehensive loss in the financial statements.
 
r)  Recent Accounting Pronouncements
 
In May 2011, the Financial Accounting Standards Board (FASB) issued ASU 2011-04, “Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs” (ASU 2011-04), which is effective for annual reporting periods beginning after December 15, 2011.  This guidance amends certain accounting and disclosure requirements related to fair value measurements.  Additional disclosure requirements in the update include: (1) for Level 3 fair value measurements, quantitative information about unobservable inputs used, a description of the valuation processes used by the entity, and a qualitative discussion about the sensitivity of the measurements to changes in the unobservable inputs; (2) for an entity’s use of a nonfinancial asset that is different from the asset’s highest and best use, the reason for the difference; (3) for financial instruments not measured at fair value but for which disclosure of fair value is required, the fair value hierarchy level in which the fair value measurements were determined; and (4) the disclosure of all transfers between Level 1 and Level 2 of the fair value hierarchy.  ASU 2011-04 will become effective for the Company on April 1, 2012.  We are currently evaluating ASU 2011-04 and have not yet determined the impact that adoption will have on our financial statements.

In September 2011, the FASB issued ASU 2011-05, “Comprehensive Income (Topic 220): Presentation of Comprehensive Income” (ASU 2011-05), which is effective for annual reporting periods beginning after December 15, 2011.  ASU 2011-05 will become effective for the Company on April 1, 2012.  This guidance eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity.  In addition, items of other comprehensive income that are reclassified to profit or loss are required to be presented separately on the face of the financial statements.  This guidance is intended to increase the prominence of other comprehensive income in financial statements by requiring that such amounts be presented either in a single continuous statement of income and comprehensive income or separately in consecutive statements of income and comprehensive income.  The adoption of ASU 2011-05 is not expected to have a material impact on our financial position or results of operations.

In December 2010, the FASB issued ASU 2010-29, “Business Combinations (Topic 805): Disclosure of supplementary pro forma information for business combinations.” This update changes the disclosure of pro forma information for business combinations. These changes clarify that if a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. Also, the existing supplemental pro forma disclosures were expanded to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. These changes become effective for the Company beginning January 1, 2011. The Company’s adoption of this update did not have an impact on the Company’s financial condition or results of operations.
 
 
3.  
Summary of Significant Accounting Policies (continued)
 
r)  Recent Accounting Pronouncements (continued)
 
In December 2010, the FASB issued ASU 2010-28, “Intangible –Goodwill and Other (Topic 350): When to perform Step 2 of the goodwill impairment test for reporting units with zero or negative carrying amounts.” This update requires an entity to perform all steps in the test for a reporting unit whose carrying value is zero or negative if it is more likely than not (more than 50%) that a goodwill impairment exists based on qualitative factors, resulting in the elimination of an entity’s ability to assert that such a reporting unit’s goodwill is not impaired and additional testing is not necessary despite the existence of qualitative factors that indicate otherwise. These changes become effective for the Company beginning January 1, 2011. The adoption of this ASU did not have a material impact on our financial statements.
 
4.  
Property and Equipment
 
   
September 30,
2011
Net carrying value
$
    
June 30,
2011
Net carrying value
$
  
             
Computer equipment
     422       3,665  
Furniture and equipment
     5,543       7,093  
                 
      5,965       10,758  
 
5.  
Bank Indebtedness
 
The Company has a revolving bank credit line with a limit of $24,300 which bears interest at 9.75% per annum and is secured by a personal guarantee of the Vice-President of the Company.  The balance in this account at September 30, 2011 was $23,541 (June 30, 2011 - $23,126).
 
6.  
Convertible Notes and Loans Payable
     
During the year ended June 30, 2011, the Company issued convertible notes for a total principal of $45,000 and $45,000, respectively. These notes carry an 8% annual interest rate.  These convertible notes of $45,000 each have stated terms as the following, convertible at the greater of a fixed conversion price of $.00009 or 55% of lowest average 3 trading price over 10 days preceding the day of the note.  In addition, there is a cap on the number of shares convertible under the note to prevent a derivative and these subordinated convertible debentures may have conversion prices that at issuance could be lower than the fair market value of the underlying stock. 
 
In addition, the Company recognized and measured the embedded beneficial conversion feature present in the convertible debts by allocating a portion of the proceeds equal to the intrinsic value of the feature to additional paid-in-capital.  The intrinsic value of the feature was calculated on the commitment date using the effective conversion price of the convertible debt.  This intrinsic value is limited to the portion of the proceeds allocated to the convertible debt. This beneficial conversion feature is amortized as a non-cash interest expense from the issuance date of the debenture through the earlier of the stated redemption date, which is nine months from issuance, or conversion into common stock. The amortization was calculated on a quarterly basis using the effective interest method. The offset was a credit to the discount.  The notes were discounted $82,506 at issuance for a carrying value of $7,494.  During the year ending June 30, 2011, the notes were accreted $67,366 and have a balance as of June 30, 2011 of $74,860.  During the period ending September 30, 2011, the notes were fully accreted and an additional $15,140 was expensed.
 
 
During the year ended June 30, 2011, the company issued non-convertible promissory notes in the amount of $325,000.  There were three notes and they were denominated in the amounts of $25,000, $100,000, and $200,000.  The note with a face value of $25,000 is due on August 13, 2011 and accrues interest of 12%.  The notes with face values of $100,000 and $200,000 are due on December 14, 2011 and accrue interest of 12%.  The note issued for $200,000 was issued as a payment of a finder’s fee to a third party for an oil and gas acquisition that is pending and not yet completed as of September 30, 2011.
 
7.  
Related Party Transactions
 
a)  During the period ended September 30, 2011, the Company incurred rent of $Nil (2010: $1,500) to the President of the Company.  As of September 30, 2011, the Company owes $12,500 to the President of the Company.
 
b)  During the period ended September 30, 2011, the Company incurred rent of $Nil (2010: $1,500) to the Secretary and Treasurer of the Company.  As of September 30, 2011, the Company owes $2,024 to the Secretary and Treasurer of the Company.
 
c)   As at September 30, 2011, the Company owes $1,961 to a company director.
 
8.  
Common Stock
   
Stock transactions during the three months ended September 30, 2011:
 
a)  On September 17, 2011, the Company settled debt of $4,000 by issuing 4,000,000 shares of stock at the fair market value of the date of grant, valued at $14,800.  This resulted in a loss of $10,800.
 
9.  
Litigation
   
The company is not aware of any material pending or threatened litigation through the date of these financial statements.  On January 13, 2012, a mediation involving the Company and a stocking dealer was concluded. The stocking dealer had purchased inventory from the Company, but had subsequently refused delivery and demanded a refund. The mediator held that the Company is required to deliver inventory of equal value to the stocking dealer.
 
10.  
Subsequent events
  
In January 2012, the controlling shareholders sold 40,267,390 shares of common stock of the Company to third parties. This sale resulted in these shareholders losing control of the Company.
 
 
Item 2. Management’s Discussion And Analysis Of Financial Condition And Results Of Operations
 
As used in this quarterly report: (i) the terms "we", "us", "our", and the “Company" mean AGR Tools, Inc. and its subsidiaries, unless otherwise indicated and (ii) all dollar amounts in this quarterly report refer to U.S. dollars unless otherwise indicated.
 
Cautionary Statement Regarding Forward-Looking Information
 
The statements in this report that are not reported financial results or other historical information are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, as amended. These statements appear in a number of different places in this report and can be identified by words such as “estimates”, “projects”, “expects”, “intends”, “believes”, “plans”, or their negatives or other comparable words. Also look for discussions of strategy that involve risks and uncertainties. Forward-looking statements include, among others, statements regarding our markets and the demand for our services
 
You are cautioned that any such forward-looking statements are not guarantees and may involve risks and uncertainties. Our actual results may differ materially from those in the forward-looking statements due to risks facing us or due to actual facts differing from the assumptions underlying our estimates. Some of these risks and assumptions include those set forth in reports and other documents we have filed with or furnished to the United States Securities and Exchange Commission (“SEC”). We advise you that these cautionary remarks expressly qualify in their entirety all forward-looking statements attributable to us or persons acting on our behalf. Unless required by law, we do not assume any obligation to update forward-looking statements based on unanticipated events or changed expectations. However, you should carefully review the reports and other documents we file from time to time with the SEC.
 
Our Business

We were incorporated under the name “Laburnum Ventures Inc.” on March 11, 2004, under the laws of the State of Nevada. Until recently, we were a pre-exploration stage company engaged in the acquisition and exploration of mineral properties. We formerly owned a 100% undivided interest in a mineral property located in the Province of British Columbia, Canada known as the Sum Mineral Claim, but we decided not to pursue this claim.

On July 21, 2009, we entered into a share exchange agreement (the “Original Share Exchange Agreement”) with AGR Stone & Tools USA, Inc., a private Texas company (“AGR USA”). Pursuant to the terms of the Original Share Exchange Agreement, we agreed to acquire all of the outstanding shares of AGR USA from its shareholders in exchange for our shares on a one-for-one basis which, if completed, would result in AGR USA becoming our wholly owned subsidiary.

On September 15, 2009, in contemplation of the completion of the share exchange with AGR USA, we completed a name change from Laburnum Ventures Inc. to AGR Tools, Inc. in accordance with Nevada law.
 
 
On October 29, 2009, pursuant to the terms of the Original Share Exchange Agreement, we agreed to terminate the Original Share Exchange Agreement with AGR USA and enter into a new share exchange agreement (the “New Share Exchange Agreement”). Under the New Share Exchange Agreement, we agreed to carry out the exchange of shares with the shareholders of AGR USA through a statutory process pursuant to Part 5 of the Texas Business Corporation Act in order to effect the transaction in a more efficient manner.

The closing of the transactions contemplated by the New Share Exchange Agreement occurred on May 27, 2010, at which time AGR USA became our wholly-owned operating subsidiary and we adopted the business of AGR USA. In connection with the closing, we issued 46,186,516 shares of our common stock to the shareholders of AGR USA and our former sole officer and director, Thomas Brown, cancelled 25,000,000 shares of our common stock held in his name.

In January 2012, our directors and officers resigned from the Company and sold all of the shares of the Company to third parties, resulting in a change of control of the Company. A new director and officer was appointed by a majority of the Company’s shareholders.

We are a Texas-based company in the business of manufacturing and selling tooling and accessories to the construction, building, maintenance and demolition industries in the United States and Canada. Tooling is the consumable disposal portion of a tool that makes the tool work. It wears out as the tool is operated, and as a result, demand for our products is driven by the need for original and replacement tool parts, not the tools themselves. We currently sell more than 700 products through our stocking dealer network, which consists of dealers in 15 U.S. states, and in two Canadian provinces. Our products include diamond-based blades, diamond drill bits, diamond cup wheels, resin polyesters, glues, inks, resin-based waterproof grinding stones and diamond polishing pads, all of which are manufactured in a number of different sizes.

Our products are manufactured in China on a contract basis, and we subject them to strict manufacturing standards. We field test these products by using them in construction, building and demolition projects, and also test them alongside the products of our competitors both in the field and in our testing facility. All of our products are accompanied by a warranty against defects in workmanship.

We currently focus on sales through our stocking dealers. We also sell a number of our products through our website, which are delivered to customers either through our storage centers or our stocking dealers. Our stocking dealers act as face-to-face contacts for our customers and provide support to one another by sharing order fulfillment with our storage centers. We train and provide training manuals to our stocking dealers and require each one to be familiar with at least 200 of our products during their initial training. We currently do not have brokers or commission sales representatives involved in the distribution of our products.
 
Results of Operations
 
The following discussion and analysis of our results of operations and financial condition for the three months ended September 30, 2011 should be read in conjunction with our interim financial statements and related notes included in this quarterly report, as well as our most recent annual report on Form 10-K.
 
 
Three Months Ended September 30, 2011 Compared to Three Months Ended September 30, 2010
 
Revenues

We generated revenue of $33,724 during the three months ended September 30, 2011, compared to revenue of $205,443 during the three months ended September 30, 2010. The decrease in revenue was primarily due to a decrease in overall activity in the construction, building and demolition industries in the United States and Canada during the most recent fiscal year.

Although the prices for our products are relatively stable, the recent global recession significantly affected demand in the construction, building and demolition industries in the United States and Canada and the corresponding demand for our products, and resulted in a decrease in the number of dealers in our network to whom we sell our products.  However, as world economies recover, particularly those of the United States and Canada, activity in the construction, building and demolition industries is expected to increase from the levels experienced during the recession. We anticipate that the demand for our products will increase when these economies grow and activity in our target industries increases.

Our cost of goods sold decreased to $23,039 in the three months ended September 30, 2011 from $123,135 in the prior period as a result of the decrease in overall activity in the construction, building and demolition industries in the United States and Canada during the most recent fiscal year. Consequently, we yielded gross profit of $10,685 during the three months ended September 30, 2011, compared to gross profit of $82,308 during the three months ended September 30, 2010.

Expenses

During the three months ended September 30, 2011, our total operating expenses decreased to $62,407 from $154,197 during the prior period. The decrease in our operating expenses was primarily due to the overall decrease in our operations resulting from the recent global recession significantly affecting demand in the construction, building and demolition industries in the United States and Canada and the corresponding demand for our products, and resulted in a decrease in the number of dealers in our network to whom we sell our products.

We incurred a loss from our operations of $51,722 during the three months ended September 30, 2011, compared to a loss from operations of $71,197 during the three months ended September 30, 2010.

Our total other expenses during the three months ended September 30, 2011 were $30,847 compared to $4,031 during the prior period, primarily due to increased interest and bank charges.

Net Loss

During the three months ended September 30, 2011, we incurred a net loss of $82,569. During the three months ended September 30, 2010, we incurred a net loss of $75,920.
 
 
Liquidity and Capital Resources

As of September 30, 2011, we had $4,665 in cash, $267,431 in total assets, $878,151 in total liabilities and a working capital deficit of $616,685. As of September 30, 2011, we had an accumulated deficit of $1,853,288.
 
During the three months ended September 30, 2011, operating activities used cash of $4,371, compared to $34,057 during the three months ended September 30, 2010. A decrease in inventory provided cash of $17,543 in the current period, compared to $24,616 in the prior period. An increase in accounts payable in the current period provided cash of $13,061, compared to $3,453 in the prior period. An increase in accrued liabilities provided cash of $26,720 in the current period, compared to $7,466 in the prior period. An increase in amounts due to related parties provided cash of $2,150 in the current period, compared to a decrease in same using cash of $34,037 in the prior period. A decrease in customer deposits used cash of $10,591 in the current period, compared to an increase in customer deposits providing cash of $40,209 in the prior period.

Investing activities used cash of $0 in the three months ended September 30, 2011 and 2010.

Financing activities in the three months ended September 30, 2011 provided cash of $415, compared to $52,389 in the prior period primarily from loans from related parties.

Our plan of operations over the next 12 months is to (i) expand our stocking dealer network throughout the Unites States and Canada, (ii) monitor the quality of our products and accessories, (iii) further develop our website and online sales volume, and (iv) increase our exposure to participants in the construction, building, maintenance and demolition industries. We expect we will require approximately $3.5 million to pursue our plan of operations over this period.

We intend to raise the additional funds we require from the sale of our equity securities or loans from related parties. There can be no assurance that we will be able to secure the necessary financing from the sale of our securities or loans from related parties. If we are unable to raise sufficient funds to finance our operations our business may fail. In addition, if we are unable to raise the funds required to expand our operations, we may be forced to proceed with a scaled back business plan based on our available financial resources. An investment in our securities involves significant risk and you could lose your entire investment.
 
Going Concern
 
Our financial statements for the three months ended September 30, 2011 have been prepared on a going concern basis and Note 2 to the financial statements identifies issues that raise substantial doubt about our ability to continue as a going concern.  Our financial statements do not include any adjustments that might result from the outcome of this uncertainty.

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, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to stockholders.
 
 
Item 3. Quantitative and Qualitative Disclosures About Market Risk
 
Not applicable.
 
Item 4. Controls and Procedures
 
Evaluation of Disclosure Controls and Procedures
 
We maintain disclosure controls and procedures, as defined in Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Securities Exchange Act of 1934 (the "Exchange Act"), that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
 
As of the end of the period covered by this report, our management, with the participation of our Chief Executive Officer and Chief Financial Officer, carried out an evaluation of the effectiveness of our disclosure controls and procedures. Based upon this evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were not effective to ensure that information we are required to disclose in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms due to the following deficiencies:
 
1.
Management override of existing controls is possible given our small size and lack of personnel; and
 
2.
We maintain an insufficient complement of personnel to carry out ongoing monitoring responsibilities and ensure effective internal control over financial reporting.
 
In light of the existence of these control deficiencies, our management concluded that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis by our internal controls.
 
Management is currently evaluating remediation plans for the above control deficiencies. Management plans to enhance our risk assessment, internal control design and documentation and implement other procedures in the internal control function.
 
Changes in Internal Control
 
Other than as described above, during the three months ended September 30, 2011, there were no changes in our internal control over financial reporting (as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Exchange Act) that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
 
 
PART II – OTHER INFORMATION
 
Item 1. Legal Proceedings
 
We are not a party to any material pending legal proceedings and are not aware of any legal proceedings that have been threatened against us. None of our directors, officers, affiliates, any owner of record or beneficially of more than 5% of our voting securities, or any associate of any such director, officer, affiliate or securityholder are (i) a party adverse to us in any legal proceedings, or (ii) have a material interest adverse to us in any legal proceedings.
 
On January 13, 2012, a mediation involving the Company and a stocking dealer was concluded. The stocking dealer had purchased inventory from the Company, but had subsequently refused delivery and demanded a refund. The mediator held that the Company is required to deliver inventory of equal value to the stocking dealer.
 
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
 
None.
 
Item 3. Defaults Upon Senior Securities
 
None.
 
Item 4. (Removed and Reserved)
 
Item 5. Other Information
 
None.
 
Item 6. Exhibits

Exhibit
Number
  
Exhibit Description
31.1
  
31.2
  
32.1
  
32.2
  
101.INS
XBRL Instance Document
101.SCH
 XBRL Taxonomy Extension Schema Document
101.CAL
 XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
 XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
 XBRL Taxonomy Extension Label Linkbase Document
101.PRE
 XBRL Taxonomy Extension Presentation Linkbase Document

 

 
SIGNATURES

Pursuant to the requirements of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
  AGR TOOLS, INC.  
       
Date: January 31, 2012
By:
/s/ Rock Rutherford  
    Rock Rutherford  
    Chief Executive Officer  
       

AGR TOOLS, INC. Reports

Also read