Attached files

file filename
EXCEL - IDEA: XBRL DOCUMENT - URBAN AG. CORPFinancial_Report.xls
XML - IDEA: XBRL DOCUMENT - URBAN AG. CORPR4.htm
XML - IDEA: XBRL DOCUMENT - URBAN AG. CORPR5.htm
XML - IDEA: XBRL DOCUMENT - URBAN AG. CORPR9.htm
XML - IDEA: XBRL DOCUMENT - URBAN AG. CORPR3.htm
XML - IDEA: XBRL DOCUMENT - URBAN AG. CORPR2.htm
XML - IDEA: XBRL DOCUMENT - URBAN AG. CORPR7.htm
XML - IDEA: XBRL DOCUMENT - URBAN AG. CORPR6.htm
XML - IDEA: XBRL DOCUMENT - URBAN AG. CORPR8.htm
XML - IDEA: XBRL DOCUMENT - URBAN AG. CORPR1.htm
XML - IDEA: XBRL DOCUMENT - URBAN AG. CORPR11.htm
XML - IDEA: XBRL DOCUMENT - URBAN AG. CORPR14.htm
XML - IDEA: XBRL DOCUMENT - URBAN AG. CORPR13.htm
XML - IDEA: XBRL DOCUMENT - URBAN AG. CORPR15.htm
XML - IDEA: XBRL DOCUMENT - URBAN AG. CORPR12.htm
EX-32.1 - CERTIFICATION - URBAN AG. CORPurban_10q-ex3201.htm
XML - IDEA: XBRL DOCUMENT - URBAN AG. CORPR10.htm
EX-31.1 - CERTIFICATION - URBAN AG. CORPurban_10q-ex3101.htm

 

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

 

Form 10-Q

 

S Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended June 30, 2011

 

or

 

£ Transitional Report under Section 13 or 15(d) of the Securities Exchange Act of 1934

 

000-52327

 

(Commission file number)

  

URBAN AG. CORP.

 

(Exact name of registrant as specified in its charter)

 

Delaware 80-0664054
(State of incorporation) (IRS Employer Identification Number)

 

99 Rosewood Drive, Suite 280
Danvers, MA  01923

 

(Address of principal executive offices)

 

(978) 739-9462

 

(Registrant's telephone number)

 

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 required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes £ No S

 

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 (or for such shorter period that the registrant was required to submit and post such files). Yes £ No S

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. (Check one):

 

Large accelerated filer  o Accelerated filer  o
Non-accelerated filer  o (Do not check if a smaller reporting company) Smaller reporting company  x

 

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

 

As of November 20, 2012, there were 20,308,164 shares of the registrant's common stock outstanding.

 

DOCUMENTS INCORPORATED BY REFERENCE:

 

None

 

 

 

 

 

FORWARD-LOOKING STATEMENTS

 

Certain statements made in this Quarterly Report on Form 10-Q are "forward-looking statements" (within the meaning of the Private Securities Litigation Reform Act of 1995) regarding the plans and objectives of management for future operations. Such statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements of Urban Ag Corp. (the "Company") to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. The forward-looking statements included herein are based on current expectations that involve numerous risks and uncertainties. The Company's plans and objectives are based, in part, on assumptions involving the continued expansion of business. Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond the control of the Company. Although the Company believes its assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove inaccurate and, therefore, there can be no assurance the forward-looking statements included in this Report will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by the Company or any other person that the objectives and plans of the Company will be achieved.

 

 

2
 

 

URBAN AG. CORP.

 

FORM 10-Q

 

JUNE 30, 2011

 

 

 

  

TABLE OF CONTENTS

 

PART I – FINANCIAL INFORMATION 5
   
Item 1 – Condensed Consolidated Financial Statements 5
   
Condensed Consolidated Balance Sheets 5
   
Condensed Consolidated Statements of Operations 6
   
Condensed Consolidated Statements of Cash Flows 7
   
Notes to Condensed Consolidated Financial Statements 8
   
Item 2 – Management's Discussion and Analysis of Financial Condition and Results of Operations 18
   
Item 3 – Quantitative and Qualitative Disclosures about Market Risk 21
   
Item 4 – Controls and Procedures 21
   
PART II - OTHER INFORMATION 23
   
ITEM 1 – LEGAL PROCEEDINGS 23
   
ITEM 1A – RISK FACTORS 23
   
ITEM 2 – UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS 23
   
ITEM 3 – DEFAULTS UPON SENIOR SECURITIES 23
   
ITEM 4 – MINE SAFETY DISCLOSURES 23
   
ITEM 5 – OTHER INFORMATION 23
   
ITEM 6 – EXHIBITS 23

 

3
 

 

EXPLANATORY NOTE

 

In order to better understand the information contained in this Quarterly Report as of and for the period ended June 30, 2011, it is important that you take into consideration the Company's activities since November 2011. As previously announced, and as discussed more fully in note 11 to the financial statements, we acquired CCS Environmental Worldwide, Inc. (“CCS”) by means of a stock acquisition on November 7, 2011. Since this acquisition occurred after June 30, 2011, it is not reflected in the accompanying consolidated financial statements. For further information concerning CCS and the effect of this acquisition refer to the Company’s Annual Report filed on form 10-K for the fiscal year ended December 31, 2011.

 

 

 

 

 

 

 

 

4
 

 

PART I – FINANCIAL INFORMATION

 

Item 1 – Condensed Consolidated Financial Statements

 

URBAN AG. CORP. (formerly AQUAMER MEDICAL CORP.)

(a development stage company)

 

Condensed Consolidated Balance Sheets 

 

   June 30, 2011
(unaudited)
   December 31, 2010
(audited)
 
           
Assets          
Current assets:          
Cash  $171   $1,945 
Prepaid expenses       3,973 
Total current assets   171    5,917 
           
Other assets:          
Net assets of discontinued operations       27,686 
Intangible assets (net of accumulated amortization of $58,333 and $25,000, respectively)   941,667    975,000 
Total other assets   941,667    1,002,686 
Total assets  $941,838   $1,008,603 
           
Liabilities and Stockholders' Deficiency          
Current liabilities:          
Accounts payable  $515,973   $473,821 
Accrued expenses payable   132,387    377,327 
Balance due on license agreement   750,000    750,000 
Notes payable   35,000    10,000 
Due to related parties   12,813    12,813 
Total current liabilities   1,446,173    1,623,961 
           
Other liabilities          
Long term debt   300,000    300,000 
Total liabilities  $1,746,173   $1,923,961 
           
Stockholders' deficiency          
Preferred stock, 50,000,000 shares authorized, none issued        
Common stock, $.0001 par value 200,000,000 shares authorized, 2,127,184 shares issued and outstanding (2,002,184 in 2010)   213    200 
Additional paid-in capital   2,701,217    2,418,732 
Deficit accumulated during development stage   (3,505,765)   (3,334,290 
Total stockholders' deficiency   (804,335)   (915,358 
Total liabilities and stockholders’ deficiency  $941,838   $1,008,603 

 

See accompanying notes to condensed consolidated financial statements.

 

5
 

 

 URBAN AG. CORP. (formerly AQUAMER MEDICAL CORP.)
(a development stage company)

 

Condensed Consolidated Statements of Operations

(unaudited)

 

   Three Months ended   Six Months ended   Period from
February 4, 2000
(inception)
through
 
   June 30,   June 30,   June 30,   June 30,   June 30, 
   2011   2010   2011   2010   2011 
                     
Revenue  $   $   $   $   $ 
                          
Costs and expenses:                         
General and administrative   16,605    19,093    109,284    41,577    2,023,059 
Research and development                   276,645 
Depreciation                   6,900 
Amortization   16,667        33,333        58,333 
Total costs and expenses   33,272    19,093    142,617    41,577    2,364,937 
                          
Loss before other income and discontinued operations   (33,272)   (19,093)   (142,617)   (41,577)   (2,364,937)
                          
Interest, net of interest income   807    (17)   1,172    (17)   (5,749)
Impairment of  purchase commitment                   145,000 
Income from forgiveness of related party debt                   (34,691)
Total other (income) and expense   807    (17)   1,172    (17)   104,560 
                          
Loss before discontinued operations   (34,079)   (19,076)   (143,789)   (41,560)   (2,469,497)
                          
Discontinued Operations   (27,686)   (324,485)   (27,686)   (329,610)   (1,036,268)
                          
Net loss  $(61,765)  $(343,561)  $(171,475)  $(371,170)  $(3,505,765)
Basic and diluted loss per share – continuing operations  $(0.02)  $(0.02)  $(0.07)  $(0.05)     
Basic and diluted loss per share – discontinued operations  $(0.01)  $(0.33)  $(0.01)  $(0.41)     
Basic and diluted loss per share  $(0.03)  $(0.35)  $(0.08)  $(0.46)     
                          
Weighted average number of shares outstanding   2,127,184    977,221    2,077,460    798,979      

 

See accompanying notes to condensed consolidated financial statements.

 

6
 

 

URBAN AG. CORP. (formerly AQUAMER MEDICAL CORP.)
(a development stage company)

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 

   Six Months Ended
June 30, 2011 (unaudited)
   Six Months Ended
June 30, 2010 (unaudited)
   Period from
February 4, 2000
(inception)
through
June 30, 2011 (unaudited)
 
                
Cash flows from operating activities:               
Net loss  $(171,475)  $(371,170)  $(3,505,765 
Adjustments to reconcile deficit accumulated during development stage to net cash used in operating activities:               
Depreciation           6,900 
Amortization of intangibles   33,333    87 ,250    327,583 
Impairment of intangible assets           660,564 
Expenses paid by issuance of common stock   65,000    213,750    833,044 
Loss in discontinued operations   27,686        27,686 
Change in operating assets and liabilities:               
Decrease in prepaid expenses and other current assets   3,973        93,998 
Decrease in other assets           75,468 
Increase  in accounts payable and accrued expenses   14,709    28,276    980,458 
Net cash used in operating activities   (26,774)   (41,894)   (500,064)
                
Cash flows from investing activities:               
Purchase of equipment       (4,500)   (14,400)
Net cash used in investing activities       (4,500)   (14,400)
                
Cash flows from financing activities:               
Proceeds from issuance of notes payable   25,000        35,000 
Payments on notes payable       (21,998)   (100,000)
Proceeds from issuance of common stock       180,975    233,025 
Proceeds from issuance of preferred stock           175,000 
Proceeds from issuance secured convertible note           15,000 
Payment on related party loans           (73,500)
Loans from former parent company           213,295 
Loans to Bellacasa Productions, Inc.           (30,000)
Loans from related parties       1,250    46,815 
Net cash generated by financing activities   25,000    160,227    514,635 
                
Change in cash   (1,774)   113,833    171 
                
Cash at beginning of period   1,945    493     
Cash at end of period  $171   $114,326   $171 
Non-cash investing activities:               
Common stock issued for acquisitions  $   $   $756,000 
Common stock issued to settle employment agreements   20,000       $20,000 

 

See accompanying notes to condensed consolidated financial statements.

 

7
 

 

URBAN AG. CORP. (formerly AQUAMER MEDICAL CORP)

(a development stage company)

 

Notes to Condensed Consolidated Financial Statements

June 30, 2011

(unaudited)

 

1.Organization

 

Urban Ag. Corp., ("Urban Ag" or the "Company") formerly Aquamer Medical Corp. was formed as a Delaware corporation on February 4, 2000, for the purpose of developing medical products, using water-based tissue-bulking technology, for the fields of dermatology, gastroenterology and urology. The Company is not currently actively pursuing these technologies and is focusing its energies and resources on the remediation/abatement, restoration and disaster recovery services business discussed in the second paragraph below.

 

On August 16, 2010, Urban Ag completed the acquisition of all business assets of Urban Agriculture Corporation (“UAC”) to enter the urban vertical farming business. The Company is not currently actively pursuing these technologies and is focusing its energies and resources on the remediation/abatement, restoration and disaster recovery services business discussed below. For further information regarding the current status of the Company refer to the Company’s Annual Report filed on form 10-K for the fiscal year ended December 31, 2011.

 

On November 7, 2011, Urban Ag entered into a Stock Purchase Agreement (the "Agreement”) with CCS Environmental World Wide, a Delaware corporation (“CCS”). Pursuant to the terms of the Agreement, the Company acquired 100% of the outstanding shares of CCS to enter the remediation/abatement, restoration and disaster recovery services industry. For further information concerning CCS and the effect of this acquisition refer to the company’s Annual Report filed on form 10-K for the fiscal year ended December 31, 2011.

 

Basis of Presentation

 

The unaudited interim consolidated financial statements as of and for the six months ended June 30, 2011 and 2010 have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial reporting. These consolidated statements are unaudited and, in the opinion of management, include all adjustments (consisting of normal recurring adjustments and accruals) necessary for a fair statement for the periods presented. The year-end consolidated data was derived from audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America (“GAAP”). These consolidated financial statements should be read in conjunction with the consolidated financial statements of Urban Ag and notes thereto included in the Annual Report on Form 10-K for the year ended December 31, 2010, filed by the Company with the SEC.

 

The results of operations for the six month period ended June 30, 2011 are not necessarily indicative of the results to be expected for the entire fiscal year or any other period.

 

The financial statements include the results of the Company's wholly owned subsidiaries, Urban Agriculture Corporation (“UAC”) and Aquamer Shipping Corp., an inactive subsidiary with no assets. All significant inter-company account balances and transactions between the Company and its corporate subsidiaries have been eliminated in consolidation.

 

8
 

 

The financial statements have been presented in a "development stage" format. Since inception, the primary activities of Urban Ag and subsidiaries have been research and development and equity fund raising activities. The Company has not commenced revenue producing activities.

 

Certain amounts in the 2010 financial statements have been reclassified to conform to the 2011 presentation.

 

2.Summary of Significant Accounting Policies

 

Use of Estimates

 

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statement and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from the estimates.

 

Cash and Cash Equivalents

 

For financial statement presentation purposes, those short-term, highly liquid investments with original maturities of three months or less are considered to be cash or cash equivalents.

 

Property, Plant and Equipment

 

Property, plant and equipment are reported at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. Lives for property, plant and equipment are as follows: leasehold improvements— Lesser of term or useful life; machinery and equipment—5 to 15 years; furniture and fixtures—3 to 10 years; computer hardware and software 3 to 7 years. Routine maintenance costs are expensed as incurred. Expenditures for renewals and betterments are capitalized. The cost and related accumulated depreciation of assets retired or sold are removed from the accounts and gains or losses are recognized in operations. There was no depreciation expense in the six month periods ending June 30, 2011 or 2010.

 

Valuation of Intangibles and Other Long Lived Assets

 

The recoverability of long-lived assets, including equipment and intangible assets, is reviewed when events or changes in circumstances occur that indicate that the carrying value of the asset may not be recoverable. The assessment of possible impairment is based on the ability to recover the carrying value of the asset from the expected future pre-tax cash flows (undiscounted and without interest charges) of the related operations. If these cash flows are less than the carrying value of such asset, an impairment loss is recognized for the difference between estimated fair value and carrying value. The primary measure of fair value is based on discounted cash flows. The measurement of impairment requires management to make estimates of these cash flows related to long-lived assets, as well as other fair value determinations. See Note 5 of the Notes to the Consolidated Financial Statements.

 

Fair Value of Financial Instruments

 

FASB ASC 815 requires disclosure of fair value information about financial instruments. Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of December 31, 2010. The respective carrying value of certain on-balance sheet financial instruments approximated their fair values. These financial instruments include cash and cash equivalents, accounts payable and accrued expenses. Fair values were assumed to approximate carrying values for these financial instruments since they are short-term in nature and their carrying amounts approximate fair values or they are receivable or payable on demand. 

 

9
 

 

Stock Based Compensation

 

Stock based awards are accounted for according to the provisions of FASB ASC 718. Our primary type of share-based compensation consists of stock options. We use the Black-Scholes option pricing model in valuing options. The inputs for the valuation analysis of the options include the market value of the Company's common stock, the estimated volatility of the Company's common stock, the exercise price of the warrants and the risk free interest rate. 

 

Fair Value Measurements

 

FASB ASC 820 defines fair value and establishes a framework for measuring fair value and establishes a fair value hierarchy which prioritizes the inputs to the inputs to the valuation techniques. Fair value is the price that would be received to sell an asset or amount paid to transfer a liability in an orderly transaction between market participants at the measurement date. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market. Valuation techniques that are consistent with the market, income or cost approach, as specified by FASB ASC 820, are used to measure fair value. 

 

Fair Value Hierarchy

 

FASB ASC 820  specifies a hierarchy of valuation techniques based upon whether the inputs to those valuation techniques reflect assumptions other market participants would use based upon market data obtained from independent sources (observable inputs), or reflect the Company's own assumptions of market participant valuation (unobservable inputs). In accordance with FASB ASC 820, these two types of inputs have created the following fair value hierarchy: 

 

·Level 1 - Quoted prices in active markets that are unadjusted and accessible at the measurement date for identical, unrestricted assets or liabilities.

 

·Level 2 - Quoted prices for identical assets and liabilities in markets that are not active, quoted prices for similar assets and liabilities in active markets or financial instruments for which significant inputs are observable, either directly or indirectly.

 

·Level 3 - Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.

 

FASB ASC 820 requires the use of observable market data if such data is available without undue cost and effort.  

 

The Company measures fair value as an exit price using the procedures described for all assets and liabilities measured at fair value. When available, the Company uses unadjusted quoted market prices to measure fair value and classifies such items within Level 1. If quoted market prices are not available, fair value is based upon internally developed models that use, where possible, current market-based or independently-sourced market parameters such as interest rates and currency rates. Items valued using internally generated models are classified according to the lowest level input or value driver that is significant to the valuation. Thus, an item may be classified in Level 3 even though there may be inputs that are readily observable. If quoted market prices are not available, the valuation model used generally depends on the specific asset or liability being valued. The determination of fair value considers various factors including interest rate yield curves and time value underlying the financial instruments. 

 

10
 

 

Income Taxes

 

Deferred tax assets and liabilities are recognized for temporary differences between the financial reporting basis and the tax basis of our assets and liabilities.  Deferred taxes are recognized for the estimated taxes ultimately payable or recoverable based on enacted tax laws.  Allowances are recorded if recovery is uncertain.

 

Earnings per Common Share

 

Basic net loss per share is computed using the weighted average number of common shares outstanding during the period. Diluted net loss per common share is computed using the weighted average number of common and dilutive equivalent shares outstanding during the period. Dilutive common equivalent shares consist of options to purchase common stock (only if those options are exercisable and at prices below the average share price for the period) and shares issuable upon the conversion of the Company's securities. The Company had no outstanding stock options or convertible securities at June 30, 2011 and December 31, 2010.

 

Impairment

 

Intangible assets with estimable lives and other long-lived assets are reviewed for impairment annually or whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. Recoverability of intangible assets with estimable lives and other long-lived assets is measured by a comparison of the carrying amount of an asset or asset group to future net undiscounted pretax cash flows expected to be generated by the asset or asset group. If these comparisons indicate that an asset is not recoverable, the impairment loss recognized is the amount by which the carrying amount of the asset or asset group exceeds the related estimated fair value. Estimated fair value is based on either discounted future pretax operating cash flows or appraised values, depending on the nature of the asset. Judgment is required to estimate future operating cash flows.

 

Recent Accounting Pronouncements

 

None.

 

3.Business Acquisitions

 

On August 16, 2010, Urban Ag completed the acquisition of all business assets of UAC. The Company paid for these assets with 689,655 shares of its common stock. UAC was formed on April 22, 2010 to conduct urban indoor vertical farming. UAC currently holds an exclusive license (the "License Agreement") for Massachusetts and a has right of first refusal to purchase exclusive licenses for New Jersey, Pennsylvania and California from TerraSphere Systems, LLC, a company that designs and builds proprietary systems for growing fruits and vegetables in controlled, indoor environments. UAC purchased the license on May 1, 2010 for $1,000,000, including a $750,000 note payable. The technology is proprietary and unique. The technology used under the license can not be disclosed or transferred to a third party without prior written consent of the licensor. Nothing occurred between May 1, 2010 and the asset acquisition date to enhance the license value. Given these factors, combined with the brief period (fifteen weeks) from original purchase by UAC to the Urban Ag transaction date, the $1,000,000 historical cost is the fair value of the asset.

 

11
 

 

The costs associated with Urban Ag’s acquisition of UAC assets and liabilities are as follows:

 

Assets acquired  
Cash 75,468
Other current assets 60,000
Intangible assets 1,000,000
Total Assets acquired 1,135,468
   
Liabilities assumed  
Accrued Expenses 85,468
Balance due on license agreement 750,000
Long Term Debt 300,000
Total Liabilities assumed 1,135,468

 

As discussed above, the Company is not currently actively pursuing these technologies and is focusing its energies and resources on the remediation/abatement, restoration and disaster recovery services business discussed below. Please see Note 11 of the Notes to these Condensed Consolidated Financial Statements and our Annual Report filed on Form 10-K for fiscal year ended December 31, 2011 for further discussion regarding the status of UAC.

 

4.Discontinued Operations

 

On March 21, 2010, the Company, through its wholly-owned subsidiary Aquamer Shipping Corp., consummated an asset acquisition in which it acquired certain technology related to the design and development of metalized liners potentially to be offered for sale in the intermodal shipping market. Pursuant to the terms of the Asset Purchase Agreement, the Company acquired a consulting contract; all of the technology, manufacturing processes and marketing material; and a nominal amount of fixed assets associated with the product for a purchase price consisting of a 120-day 6% promissory note in the principal amount of $100,000 and 172,414 post split shares of common stock of the Company.    The aggregate consideration for the transaction was $850,000.

 

Consideration paid is summarized as follows:

 

Common stock issued- 172,414 shares valued at $4.35  per share  $750,000 
Promissory note   100,000 
Total consideration  $850,000 

 

Purchase price was allocated as follows:

 

Process technology  $683,764 
Consulting agreement   163,736 
Fixed assets   2,500 
Total assets acquired  $850,000 

 

In December 2010, management determined that Aquamer Shipping 's business no longer fit strategically with the Company and wrote down the value of the assets to their estimated net realizable value of $27,586. During 2011 the Company pursued the sale of Aquamer Shipping, but was unsuccessful. Accordingly the Company wrote down the net realizable value to $0. The Company classified Aquamer Shipping’s assets and liabilities, results of operations and cash flows as discontinued operations in the corresponding financial statements.

 

12
 

  

In 2010, management determined that developing a commercially viable product from the Patella patent no longer fit strategically with the Company. Accordingly, the Company has written down the value of the patent to its net realizable value of $100. During 2011 the Company did not pursue commercial activities with the patents and accordingly wrote down the net realizable value to $0.

 

Condensed operating statements for discontinued operations are summarized below:

 

   Three Months Ended 6/30/2011   Three Months  Ended 6/30/2010   Six Months Ended 6/30/2011   Six Months Ended 6/30/2010 
                 
Costs and expenses  $27,686   $237,075   $27.686   $240,783 
Interest       1,410        1,577 
Amortization       86,000        87,250 
Income (loss) from discontinued operations, net of taxes  $(27,686)  $(324,485)  $(27,686)  $(329,610)

 

5.Intangible Assets

 

Intangible assets that have determinable useful lives are valued separately and amortized over their expected useful lives. The acquired identifiable intangible asset as of June 30, 2011 is as follows:

 

   Cost   Accumulated Amortization   Net Book Value 
License Agreement   1,000,000    58,333    941,667 

 

The acquired UAC intangible asset is a license agreement for the use of patented, proprietary technology. On May 1, 2010 UAC acquired the license for proprietary technology for $1,000,000. UAC also has first right of refusal to acquire licenses in New Jersey, Pennsylvania and California for $1,000,000 per license. The technology is intended to be used by the licensee in the jurisdiction provided under the agreement and can not be disclosed or transferred to a third party without prior written consent of the licensor. Nothing occurred between May 1, 2010 and the asset acquisition date to enhance the license value. Given these factors, combined with the brief period (fifteen weeks) from original purchase by UAC to the Urban Ag transaction date, the $1,000,000 historical cost is the fair value of the asset. The Company is amortizing the asset over the estimated useful life of the agreement, 15 years.

 

Urban Ag assesses the impairment of amortizable intangible assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors the Company considers important that could trigger an impairment review include the following:

 

·a significant underperformance relative to expected historical or projected future operating results;

 

·a significant change in the manner of Urban Ag’s use of the acquired asset or the strategy for Urban Ag’s overall business;

 

·a significant negative industry or economic trend; and

 

·Urban Ag’s market capitalization relative to net book value.

 

13
 

 

If Urban Ag determines that an impairment review is required, Urban Ag would review the expected future undiscounted cash flows to be generated by the assets. If Urban Ag determines that the carrying value of intangible assets may not be recoverable, Urban Ag would measure any impairment based on a projected discounted cash flow method using a discount rate determined by Urban Ag to be commensurate with the risk inherent in Urban Ag’s current business model. If impairment is indicated through this review, the carrying amount of the asset would be reduced to its estimated fair value. TerraSphere has extended the payment terms under the TerraSphere License through December 31, 2011. If we are unable to pay the $750,000 balance due (described below) on the license in full or further extend the payment terms by the extended due date, the entire $1,000,000 license fee will become impaired. Please see Note 11 to the Notes to these Condensed Consolidated Financial Statements and our Annual Report filed on Form 10-K for the fiscal year ended December 31, 2011 for further discussion regarding the status of the Terrasphere license and UAC.

 

6.Note Payable

 

On March 17, 2011, the Company entered into a Secured Promissory Note for an amount up to $30,000 with a corporate investor. The note matures on September 13, 2011, carries an interest rate of 10% interest per annum. The note is secured by all of the assets of the Company. As of June 30, 2011, $25,000 had been funded. The Company is in default on the note and is accruing interest.

 

Effective May, 2010, the Company’s wholly-owned subsidiary, UAC, purchased a License Agreement TerraSphere Systems, LLC, a company that designs and builds proprietary systems for growing fruits and vegetables in controlled, indoor environments. The total purchase price was $1,000,000. The Company paid $250,000 on the purchase date. The outstanding balance due of $750,000 is due in equal payments on November 1, 2010, February 1, 2011 and May 1, 2011. TerraSphere has extended the payment terms under the TerraSphere License through December 31, 2011. If we are unable to pay the license in full by the extended due date our ability to develop the vertical farming business may be materially adversely affected. Please see Note 11 to the Notes to these Condensed Consolidated Financial Statements and our Annual Report filed on Form 10-K for the fiscal year ended December 31, 2011 for further discussion regarding subsequent events impacting the status of the Terrasphere license and UAC.

 

Effective April 23, 2010, the Company’s wholly-owned subsidiary, UAC, entered into a $300,000 promissory note and Note Purchase Agreement with an individual, who is also a shareholder. The Note bears no interest except upon an Event of Default (late payment). In the event of late payment, interest is charged at an annual rate of 18%. Principal is payable each quarter solely from UAC’s earnings before interest, taxes, depreciation and amortization (“EBITDA”) for the quarter then ended. To the extent UAC does not have positive EBITDA for a quarter, no payment is due. Until the principal amount of the Note is paid in full, the amount of the quarterly payment equals 21% of UAC's EBITDA. Thereafter, UAC is obligated to continue making quarterly payments to the holder equal to 3% of EBITDA for the quarter then ended. Interest is not being accrued on this note as payment is not assured. Interest expense will be recorded when payment is determined to be probable. Please see Note 11 to the Notes to these Condensed Consolidated Financial Statements and our Annual Report filed on Form 10-K for the fiscal year ended December 31, 2011 for further discussion regarding subsequent events impacting the status of UAC.

 

14
 

 

7.Stockholders' Equity

 

Capital Structure

 

Effective December 20, 2010, the Company’s shareholders approved an 87:1 reverse stock split of the Company’s common stock reflected below. At the same time, the Company's Certificate of Incorporation was amended to decrease the authorized shares of $0.0001 par value common stock from 200 million shares to 15 million shares. The Company is also authorized to issue 10 million shares of preferred stock. As of June 30, 2011 and December 31, 2010, there were 2,127,184 and 2,002,184 shares of common stock issued and outstanding, respectively.  As of June 30, 2011 there were 1,375,000 warrants convertible into shares of common stock outstanding, with an expiration date of April 2012 with a conversion price of $87.00 per share. As of June 30, 2011 and December 31, 2010, no preferred shares were outstanding. Please see Note 11 to the Notes to these Condensed Consolidated Financial Statements and our Annual Report filed on Form 10-K for the fiscal year ended December 31, 2011 for further discussion regarding subsequent events impacting the status of the preferred and common stock issued.

 

Common Stock Issuances

 

Issued for Settlement of Contractual Obligations

 

See Note 9 of the Notes to the Consolidated Financial Statements for discussion of shares issued.

 

8.Related Party Transactions

 

Executive Team Compensation

 

Edwin A. Reilly, Chief Executive Officer and Chairman of the Board of Directors of the Company resigned effective March 9, 2011. In connection with Mr. Reilly's resignation, he entered into a Separation Agreement under which he will receive 62,500 shares of the Company's common stock in exchange for canceling his employment agreement and foregoing any unpaid and accrued compensation, such amount totaling $129,042 through 2010 and $33,333 for 2011.

 

Michael J, Mahoney, President and Chief Operating Officer and a member of the Board of Directors, also resigned effective March 9, 2011. In connection with Mr. Mahoney's resignation, he also entered into a Separation Agreement under which he will receive 62,500 shares of the Company's common stock in exchange for canceling his employment agreement and foregoing any unpaid and accrued compensation, such amount totaling $88,501 for 2010 and $31,667 for 2011.

 

The settlement of accrued compensation note above with the Company’s common stock was recorded as an increase to additional paid in capital.

 

Marshall Sterman – Chief Executive Officer and Chairman

 

During 2009, a company related to Mr. Sterman provided consulting services for $45,000. As of June 30, 2011, the balance of $45,000 remains accrued and unpaid. Additionally, in 2009 and 2010, a party related to Mr. Sterman made non-interest bearing temporary advances to the Company totaling $12,813, which remains unpaid as of June 30, 2011.

 

9.Going Concern

 

The Company's financial statements have been presented on a going concern basis, which contemplates the realization and the satisfaction of liabilities in the normal course of business.  The liquidity of the Company has been adversely affected by losses since inception of approximately $3,500,000, and a working capital deficiency of approximately $1,446,000, which raises substantial doubt about the Company's ability to continue as a going concern without additional capital contributions and/or achieving profitable operations. Additionally, the Company is in violation of loan covenants and several of our creditors of the acquisition entity have obtained judgments on amounts due them and the Company is dependent upon the continued cooperation and forbearance of its lenders and creditors.

 

15
 

 

Management's plans are to raise additional capital either in the form of common stock or convertible securities to pursue an acquisition strategy focused on the remediation/abatement, restoration and disaster recovery services industry serving commercial and residential customers and other potential targets based in the telecommunications and general construction industries. There can be no assurance, however, that the Company will be successful in accomplishing its objectives.

 

10.Subsequent Events

 

Refer to the Company’s Annual Report filed on Form 10-K for fiscal year ended December 31, 2011 for additional information regarding activities outlined below.

 

On November 2, 2011 Billy V. Ray Jr. was appointed Chief Executive Officer and Director.   There was and is no arrangement or understanding between Mr. Ray and any other person which led to their selection as an officer. At that time Mr. Ray entered into an employment agreement with the Company.  The agreement provides for Mr. Ray to serve as Chief Executive Officer of Urban Ag. Corp. for an initial term of three years at an annual salary of $200,000 per year and also provides for a possible bonus of up to 50% of his salary.  He was also granted 1,250,000 shares of the Company’s common stock and 85,087 stock options that vest after one year.  According to the agreement the Company may terminate it by giving notice to Mr. Ray not less than one (1) year prior to the termination date.  The agreement is automatically extended for additional one-year periods unless terminated by notice given 90 days prior to its expiration. Mr. Ray’s biography is set forth below:  

 

Billy V. Ray, Jr. has served in the capacity of Director, Chairman, Chief Executive officer and Chief Financial Officer of several multi-million dollar NYSE, NASDAQ and Over-the-Counter public entities with revenues ranging from $60 to $750 million. From February 2003 until February 2008 he served as President, CEO and as a member of the Board of Directors for Charys Holding Co., one of the largest international remediation companies, focused on remediation, reconstruction, wireless communications and data infrastructure. Charys grew from start-up to trailing 12-month revenue in excess of $700 million under Mr. Ray's leadership. Earlier, Mr. Ray served as Chief Executive Officer of Flagship Holdings, Inc. Mr. Ray also served as Vice President of Realm National Insurance Company and was a member of the Board of Directors. He was Executive Vice President of mergers and acquisitions for Bracknell Corporation, a NASDAQ publicly traded company. From January 1997 to December 2000, Mr. Ray held positions of Chairman, Chief Executive Officer, Chief Financial Officer and consultant of Able telecom Holding Corporation, trading on NASDAQ. During his tenure, revenues grew from under $30 million to over $700 million. For these and other companies, Mr. Ray raised debt and equity approaching $1 billion and participated in the development and implementation of the companies' strategic plans which included over 65 acquisitions. Mr. Ray has a B.A. in accounting from the University of North Carolina at Greensboro.

 

On November 7, 2011, the Company entered into a Stock Purchase Agreement (the "Agreement”) with CCS Environmental World Wide, a Delaware corporation (“CCS”). Pursuant to the terms of the Agreement, the Company acquired 100% of the outstanding shares of CCS. In exchange, the company issued to the CCS Shareholders an aggregate of 7,900,000 shares of the Company's common stock, representing 78.4% of the outstanding common stock after the acquisition. In addition to the shares of the Company’s common stock, the purchase price includes an earn out provision of up to 5,000,000 warrants priced at $3.00. The warrants become purchasable once CCS achieves $50,000,000 in revenue in a single year. The Company's common stock prior to the closing equaled approximately $395,000. The purchase price is subject to post-closing adjustments in the event of a breach of any representation or warranty by CCS. . The transaction was accounted for as a reverse merger and is the only operations of the Company.

 

16
 

 

On January 11, 2012, the Company executed a Loan Purchase and Sale Agreement with Summitbridge Credit Investments LLC (“Summitbridge”) in order to resolve certain outstanding loans owed by the recently acquired CCS Environmental Worldwide Inc. to Summitbridge, along with accrued interests and fees, in the amount of $2,018,339 (the “Summitbridge Settlement”). Pursuant to the Loan Purchase and Sale Agreement, the parties agreed to the following: (i) that Summitbridge sell, assign, convey and transfer to the Company, without recourse, representation or warranty all of Summitbridge’s interest in the loans; and (ii) the Company to pay Summitbridge the amount of $1,335,000.

 

On January 12, 2012, the Company entered into a Secured Promissory Note and Convertible Preferred Stock Purchase Agreement with Peter S. Johnson, Esq. as Trustee of the Magliochetti Family 2009 Trust DTD 1/12/09 (the “Magliochetti Trust”) whereby the parties agreed to the following: (i) the Magliochetti Trust agreed to lend to the Company $950,000, and (ii) for the Company to issue 10,000,000 shares of Series A Convertible Preferred Stock pursuant to a Certificate of Designation in form and substance acceptable to the Magliochetti Trust and to take all steps necessary and desirable to amend its Certificate of Incorporation to increase the number of authorized shares of the Company’s common stock such that a sufficient number of such shares of common stock shall be reserved for issuance upon conversion of the Series A Preferred Stock.

 

Effective January 12, 2012, a majority of the Company’s shareholders approved an increase in the authorized common stock class and authorized preferred stock class of securities. As a result of this action the number of the Company’s authorized shares of common stock was increased to 200,000,000 shares from 15,000,000 shares and authorized shares of preferred stock was increased to 50,000,000 shares from 10,000,000 shares.  

 

On March 9th, 2012, the Company entered into a Factoring & Security Agreement (the “Agreement”) with Midland American Capital (“Midland”). As part of the agreement, the Company sold its right, title and interest in its accounts receivable, with full recourse. The initial value of accounts receivable purchased by Midland was $1,100,002. As of March 31, 2012, the total outstanding accounts receivable of the Company that has been purchased by Midland is $2,317,155. As stipulated in the Agreement, approximately 80% of the amount of accounts receivable purchased by Midland throughout the term of the Agreement is funded to the Company for operational use and working capital. As of March 31, 2012, the Company has been funded a total of $1,672,291 and Midland has received a total of $236,419 in collections from the Company’s customers. The initial term of the Agreement is for 12 months and will automatically renew for an additional 12 months at the end of the initial term and each subsequent term unless terminated by the Company via 60 days written notice to Midland. The Agreement contains warranties and covenants that must be complied with on a continuing basis.

 

Effective on March 31, 2012 (“Effective Date”) the Company entered into a Stock Purchase Agreement (the "UAC Agreement”) with Distressed Asset Acquisitions, Inc. (“DAAI”) to divest itself of all ownership of its wholly owned subsidiary, Urban Agricultural Corporation (“UAC”). The UAC Agreement provides that DAAI will pay $100 and assume all liabilities as of the Effective Date for 100% of the stock in UAC.

 

The Company also executed a Stock Purchase Agreement with Green Wire, Inc. on March 31, 2012. Subsequently the transaction was rescinded.

 

On June 18, 2012, the Company entered into a Short Term Loan Agreement (“Short Term Loan”) with the Magliochetti Trust whereby the Magliochetti Trust agreed to lend to the Company $68,000 at an interest rate of 10.3%, and for the Company to issue 500,000 shares of common stock. The Promissory Note is payable on or before June 25, 2012. The Company has not repaid the Short Term Loan.

 

On July 15, 2012, the Company entered into a Promissory Note Agreement with the Magliochetti Trust whereby the Magliochetti Trust agreed to lend to the Company $500,000 at an interest rate of 10%. The Promissory Note is payable on or before December 31, 2012.

 

17
 

 

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

 

General

 

Urban Ag. is the successor entity to Aquamer, Inc. (“AQUM”), a Delaware corporation, which was established in February 2000 to commercialize proprietary medical devices. In 2005 AQUM became a wholly owned subsidiary of Bellacasa Productions, Inc. (“Bellacasa”) a publicly traded company, which in 2007 distributed 100% of its AQUM shares to its shareholders, thus creating a public entity renamed Aquamer Medical Corp. that traded as AQUM.

 

Business Overview

 

From 2007 to 2010 AQUM tried unsuccessfully to commercialize its medical device business and our Board of Directors closed those operations and acquired Urban Agricultural Corporation, a Delaware corporation (“UAC”). UAC holds the exclusive rights under a license from TerraSphere, Inc. (“TerraSphere”) to use their patented farming technology in Massachusetts, and the right of first refusal to purchase exclusive licenses for New Jersey, Pennsylvania and California. Under the TerraSphere license the Company receives certain vertical farming intellectual property and know-how from TerraSphere . The license was purchased by UAC in May, 2010 for $1,000,000 with $250,000 paid at acquisition and payments of $250,000 each due on November 1, 2010, February 1, 2011 and May 1, 2011. We have not made the payments due under the TerraSphere License on November 1, 2010 and February 1, 2011. TerraSphere has extended the payment terms under the TerraSphere License through December 31, 2011. If we are unable to pay the license in full by the extended due date unless extended or renegotiated, the entire $1,000,000 license fee will become impaired and our ability to develop the vertical farming business may be materially adversely affected.

 

During November 2011, based on the continued economic downturn, credit decline and struggling financial markets, AQUM modified the company’s strategic plan by transitioning from an emphasis on the vertical farming business to that of an acquisition strategy focused on the remediation/abatement, restoration and disaster recovery services industry serving commercial and residential customers and other potential targets based in the telecommunications and general construction industries. On November 7, 2011, Urban Ag entered into a Stock Purchase Agreement (the "Agreement”) with CCS Environmental World Wide, an environmental remediation firm based in Massachusetts with licenses to provide abatement, removal and other environmental engineering activities in 40 states (“CCS”). Pursuant to the terms of the Agreement, the Company acquired 100% of the outstanding shares of CCS to enter the remediation/abatement, restoration and disaster recovery services industry. Please see Note 11 and our Annual Report filed on Form 10-K for the fiscal year ended December 31, 2011 for further discussion.

 

Remediation/Abatement, Restoration and Disaster Recovery Services

 

CCS's core competencies feature removal of hazardous material, soil contamination remediation, disaster recovery, oil spill clean up, asbestos removal and other elimination of various environmental and toxic contaminants. The Company, with licensing in 40 states presents these services on an integrated basis enabling it to meet the customer’s entire project needs. The Company provides a host of innovative methods, technologies and experience-derived management devices to add value by forging result-oriented solutions to a wide range of requirements.

 

18
 

 

RESULTS OF OPERATIONS

 

The following discussion and analysis provides information, which our management believes is relevant to an assessment and understanding of our results of operations and financial condition. The discussion should be read in conjunction with the financial statements and related notes that appear elsewhere in this report.

 

The financial statements included in this report are those of Urban Ag. Corp. for all historical periods.    

 

Three months ended June 30, 2011 and June 30, 2010

 

Continuing Operations

 

Sales - We did not have any sales during the three-month periods ended June 30, 2011 and June 30, 2010. Urban Ag is a development stage company and has not had any revenue since its incorporation in February 2000.

 

Costs and Expenses - Total expenses for the three months ended June 30, 2011 were $34,079, compared to $19,076 in the three months ended June 30, 2010. Expenses in the 2011 second quarter consisted primarily of professional and consulting fees of approximately $13,000; office and travel of $3,606; amortization of $16,667; and interest expense, approximately $807. Expenses in the second quarter of 2010 consisted of expenditure for professional and consulting services, $18,100; office and travel expenses, $630; and interest income, $17

 

Discontinued Operations - Total expenses related to discontinued operations for the three months ended June 30, 2011 were $27,686, compared to $324,485 in the three months ended June 30, 2010. Expenses in the second quarter of 2011 consisted of the write down of assets in technologies the Company is no longer focusing on (medical patents and certain fixed assets) to their net realizable value of $0. Expenses in the second quarter of 2010 relating to discontinued operations consisted of professional and consulting fees, $237,075; employee expense, $2,208; amortization of $86,000; and interest expense, $1,410.

 

Net Loss - Net loss, before taxes, for the three months ended June 30, 2011 was $61,765. Net loss before taxes, for the three months ended June 30, 2010 was $343,561.           

 

Net loss per share for the three months ended June 30, 2011 was $0.03 per share. Net loss per share for the three months ended June 30, 2010 was $0.35.  Per share net losses for the second fiscal quarters of 2011 and 2010 were based on 2,127,184 and 977,221 weighted average common shares outstanding, respectively.

 

Six months ended June 30, 2011 and June 30, 2010 and since inception

 

Continuing Operations

 

Sales - We did not have any sales during the six-month periods ended June 30, 2011 and June 30, 2010. Urban Ag is a development stage company and has not had any revenue since its incorporation in February 2000.

 

Costs and Expenses - Total expenses for the six months ended June 30, 2011 were $142,617, compared to $41,577 in the six months ended June 30, 2010. Expenses in the first six months of 2011 consisted of payroll, $65,000; professional fees, $39,857; office and travel expense, $4,427; and amortization, $33,333. Expenses in the second quarter of 2010 consisted of professional fees, $29,500; and office and miscellaneous expenses, $12,077.

 

19
 

 

Other Expenses - Total other expense for the six months ended June 30, 2011 was comprised of interest expense of $1,172.

 

Discontinued Operations - Total expenses related to discontinued operations for the six months ended June 30, 2011 were $27,686, compared to $329,610 in the six months ended June 30, 2010. Expenses in the first six months of 2011 consisted of the write down of assets in technologies the Company is no longer focusing on (medical patents and certain fixed assets) to their net realizable value of $0. Expenses in the first six months of 2010 relating to discontinued operations consisted of payroll , $2,208; professional and consulting fees, $238,575; amortization of $87,275; and interest expense, $1,577.

 

Net Loss - Net loss for the six months ended June 30, 2011 was $171,475. Net loss for the six months ended June 30, 2010 was $371,170.

 

We have not reduced our net income for the six months ended June 30, 2011 or our net loss for the six months ended June 30, 2010, by any tax expense or benefit, consequently, for both periods, our net income or loss was the same before and after taxes.

 

Basic and fully diluted net loss per share for the six months ended June 30, 2011 and 2010 was $0.08 and $0.46 per share, respectively.   Per share net losses for the second fiscal quarters of 2011 and 2010 were based on 2,077,460 and 798,979 weighted average common shares outstanding, respectively.

 

Since inception, our losses through June 30, 2011 totaled $3,505,765.

 

Liquidity and Capital Resources

 

As of June 30, 2011, our cash balance was $171

 

As of June 30, 2011, our current liabilities totaled $1,446,173. The liabilities consist of accounts and accrued expenses payable, $648,360 primarily for payroll and professional services; due to related party $12,813; secured promissory note payable of $25,000; promissory note payable $10,000 and the balance due on the TerraSphere Systems license agreement, $750,000.

 

As of June 30, 2011, our long term liabilities totaled $300,000 and consisted of a note payable to an individual.

 

We intend to meet our cash needs for the next 12 months by the sale of securities or borrowings. We need to raise additional capital in order to pursue our business plan, and the required additional financing may not be available on terms acceptable to us, or at all. No binding commitment for an investment of funds in our company has been made, and a number of factors beyond our control may make any future financings uncertain.  Although, we believe that becoming an independent public company and having our common stock trading on the OTC Bulletin Board, has enhanced our capital raising ability, there is no assurance that we will be able to sell our securities or borrow funds to pursue our business objectives. We will require the infusion of capital to sustain planned growth and continue the process for regulatory approval of the Urban Ag products.

 

Ability to Continue as a Going Concern and Plan of Operation

 

Our financial statements, which are included in this Form 10-Q, have been presented on a going concern basis, which contemplates the realization and the satisfaction of liabilities in the normal course of business.  Our liquidity has been adversely affected by losses of approximately $3,505,765 since Urban Ag's incorporation date, February 4, 2000, which raises substantial doubt about our ability to continue as a going concern without additional capital contributions and/or achieving profitable operations.  Our management's plan includes raising additional capital either in the form of common stock or convertible securities, to pursue an acquisition strategy focused on the remediation/abatement, restoration and disaster recovery services industry serving commercial and residential customers and other potential targets based in the telecommunications and general construction industries. There can be no assurance, however, that we will be successful in accomplishing our objectives. For further information concerning the Company’s liquidity and capital resources and its ability, or lack thereof, to continue as a going concern refer to the Company’s Annual Report filed on form 10-K for the fiscal year ended December 31, 2011.

 

20
 

 

Capital Expenditures

 

In the six months ended June 30, 2011, we did not make any capital expenditures. We expect to make a capital expenditure in the next twelve months to pursue acquisitions focused on the remediation/abatement, restoration and disaster recovery services industry serving commercial and residential customers and other potential targets based in the telecommunications and general construction industries.

 

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 15d-15(e) under the Securities Exchange Act of 1934) that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Commission's rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosures. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.

 

As of the end of the period covered by this report, we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of June 30, 2011. This evaluation was accomplished under the supervision and with the participation of our current chief executive officer and principal executive officer and our current chief financial officer and principal accounting officer who concluded that as of the end of the period covered by this report our disclosure controls and procedures are not effective.

 

As of the date of this report, for the period covered by this report, both the Principle executive officer and principal accounting officers have identified the following material weakness of our internal controls:

 

·Reliance upon independent financial reporting consultants for review of critical accounting areas and disclosures and material non-standard transactions.

 

·Lack of sufficient accounting staff to ensure timely recording, processing and reporting of financial information necessary to allow timely decisions regarding required disclosures.

 

·Lack of sufficient written policies and procedures.

 

21
 

 

Consequently, we lack sufficient internal technical expertise and procedures to ensure that significant non-routine transactions, accounting estimates, and other adjustments were appropriately reviewed, analyzed and monitored by competent accounting staff on a timely basis.

 

In order to remedy our existing internal control deficiencies, as soon as our finances permit, we will hire a full-time Chief Financial Officer who will be sufficiently versed in public company accounting to implement appropriate procedures for timely and accurate disclosures.

 

Because of the inherent limitations in all disclosure control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, will be or have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, disclosure controls can be circumvented by the individual acts of some persons, by collusion of two or more people and/or by management override of such controls. The design of any system of disclosure controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, disclosure controls and procedures may become inadequate because of changes in conditions, and/or the degree of compliance with the policies and procedures may deteriorate. Also, misstatements due to error or fraud may occur and not be detected.

 

Changes in Internal Control over Financial Reporting  

 

We have not yet made any changes in our internal control over financial reporting that occurred during the period covered by this report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

 

 

22
 

  

PART II – OTHER INFORMATION

 

ITEM 1 – LEGAL PROCEEDINGS

 

None.

 

ITEM 1A – RISK FACTORS

 

There are a number of important factors that could cause our actual results to differ materially from those indicated or implied by forward-looking statements. We disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required by law.

 

Aside from those risks discussed below, there have been no material changes to the risk factors included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2010.

 

RISKS RELATED TO OUR BUSINESS

 

If our attempts to secure additional financing are not successful, we will be required to cease or curtail our operations, or obtain funds on unfavorable terms. These factors create a substantial doubt about our ability to continue as a going concern.

 

Our available resources are not sufficient to fund our operations, without additional sources of financing we would not be able to continue our business, and we expect to incur operating losses for the foreseeable future. Consequently, in order to maintain our operations, which we have already curtailed substantially, we will need to access additional equity or debt capital. Securing financing is proving even more difficult than anticipated in light of the current global economic crisis and the turmoil impacting global financial markets. These factors create a substantial doubt about our ability to continue as a going concern. In light of our negative stockholders’ equity, there can be no assurance that we will be able to obtain the necessary additional capital on a timely basis or on acceptable terms, if at all, to continue our operations and, to the extent available, to fund the development of our business. In any of such events, the continuation of our operations would be materially and adversely affected and we may have to cease conducting business.

 

As noted above, Urban Ag is in the process of attempting to secure sufficient financing to continue operations. We have been working to obtain financing from outside investors for more than 6 months, but have not yet been successful. In the interim, short-term debt financing provided primarily by a corporate investor has secured all of the company’s assets, and is being utilized to support governance and compliance activities. Additionally, non-payment of professional and other service providers and reduced general spending have been instituted until such time as financing is secured, if ever. If we are unable to obtain financing, we will be required to further curtail our operations or cease conducting business. Given our current level of debt, we do not expect that our stockholders would receive any proceeds if we declare bankruptcy or seek to liquidate Urban Ag.

 

ITEM 2 – UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

None

 

ITEM 3 – DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4 – MINE SAFETY DISCLOSURES

 

None.

 

ITEM 5 – OTHER INFORMATION

 

None.

 

ITEM 6 – EXHIBITS

 

Exhibit 31.1     Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit 32.1     Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

101.INS XBRL Instance Document
101.SCH XBRL Schema Document
101.CAL XBRL Calculation Linkbase Document
101.DEF XBRL Definition Linkbase Document
101.LAB XBRL Label Linkbase Document
101.PRE XBRL Presentation Linkbase Document

 

23
 

 

SIGNATURES

 

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  Urban Ag Corp.
  (Registrant)
     
Date: November 23, 2012 By: /s/ Billy V. Ray Jr.
    Billy V. Ray Jr.
Chief Executive Officer

 

 

 

 

 

 

 

 

 

24