UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

Quarterly Report under Section 13 or 15 (d) of

Securities Exchange Act of 1934

 

For the quarterly period ended March 31, 2015

 

Commission File Number 000-54118

 

Urban Hydroponics, Inc.

(Name of registrant as specified in its charter)

 

Nevada	72-1600437
(State of	(IRS Employer
Incorporation)	(ID Number)

 

224 Datura Street, Suite 505

West Palm Beach, FL 33401

(561) 543-8882

(Address and telephone number of principal executive offices)

 

Not applicable

(Former Address of principal executive offices)

 

Indicate by check mark whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceeding 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 last 90 days. YES x NO ¨

 

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 x

 

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," "non-accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer	¨	Accelerated filer ¨
Non-accelerated filer	¨	Smaller reporting company x

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES x NO ¨

 

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: 34,400,000 shares of common stock, par value $0.001, as of May 20, 2015.

 

 

TABLE OF CONTENTS

 

FORM 10-Q

URBAN HYDROPONICS, INC.

INDEX

 

		Page Number
PART I.  FINANCIAL INFORMATION		3
	Condensed Balance Sheets at March 31, 2014 (Unaudited) and June 30, 2013	4
	Condensed Statements of Operations for the Three and Nine Months Ended March 31, 2015 and 2014 (Unaudited)	5
	Statements of Changes in Stockholder's Equity(Deficit) From May 13, 2005 (Inception) through June 30, 2014	6
	Condensed Statements of Cash Flows for the Nine Months Ended March 31, 2015 and 2014 (Unaudited)	7
	Notes to the Condensed Financial Statements as of March 31, 2015 (Unaudited)	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	11
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	16
Item 4.	Controls and Procedures	16
PART II.  OTHER INFORMATION		17
Item 1.	Legal Proceedings	17
Item 1A.	Risk Factors	17
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	17
Item 3.	Defaults Upon Senior Securities	17
Item 4.	Mine Safety Disclosure	17
Item 5.	Other Information	18
Item 6.	Exhibits	18
SIGNATURES		19

 

 

PART I.        FINANCIAL INFORMATION

 

Item 1. Financial Statements.

 

The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States and the rules of the Securities and Exchange Commission (“SEC”), and should be read in conjunction with the audited financial statements and notes thereto contained in our Form 10-K for the fiscal year ended June 30, 2014, filed with the SEC on October 14, 2014, as amended by our Form 10-K/A, filed with the SEC on October 21, 2014. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the periods presented have been reflected herein. The results of operations for the periods presented are not necessarily indicative of the results to be expected for the full year.

 

 

URBAN HYDROPONICS, INC.

(A Development Stage Company)

Balance Sheets

(Stated in U.S. Dollars)

 

		(Unaudited)
		Three Months Ended				Year Ended
		March 31, 2015				June 30, 2014
ASSETS
CURRENT ASSETS
Cash and cash equivalents		$	693			$	77
Bridge Loans			1,000,000				520,000
Bridge loans accrued interest			72,918				5,379
Total current assets			1,073,611				525,456
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable		$	285,191			$	267,368
Secured loans			1,530,000				620,000
Secured loans accrued interest			97,746				6,422
Loan from related party			56,162				56,162
Total current liabilities			1,969,099				949,952
STOCKHOLDERS' EQUITY
Preferred stock, $0.001 par value, 10,000,000 authorized; none issued at March 31, 2015 and June 30, 2014 respectively			-				-
Common stock, $0.001 par value, 300,000,000 shares authorized; 34,400,000 shares issued and outstanding at March 31, 2015 and June 30, 2014 respectively			34,400				34,400
Additional paid-in capital			9,800				9,800
Deficit accumulated during development stage			(939,688	)			(468,696	)
TOTAL STOCKHOLDERS' EQUITY			(895,488	)			(424,496	)
TOTAL LIABILITITES AND STOCKHOLDERS' EQUITY		$	1,073,611			$	525,456

 

See the accompanying notes to the condensed financial statements.

 

 

Urban Hydroponics, Inc.

(A Development Stage Company)

Statement of Operations

(Stated in U.S. Dollars)

(Unaudited)

 

		(Unaudited)								(Unaudited)
		Three Months Ended				Three Months Ended				Nine Months Ended				Nine Months Ended
		March 31, 2015				March 31, 2014				March 31, 2015				March 31, 2014
REVENUES
Revenues			-
TOTAL REVENUES		$	-			$	-			$	-			$	-
OPERATING COSTS
Exploration expense			-				-				-				-
Amortization of mineral rights license			-				-				-				-
Administrative expenses			77,086				27,278				444,743				65,180
TOTAL OPERATING COSTS		$	77,086			$	27,278			$	444,743			$	65,180
OTHER EXPENSE
Interest expense			37,820				-				93,799				-
TOTAL OTHER EXPENSE			37,820				-				93,799				-
TOTAL EXPENSE		$	114,906				-			$	538,532				-
NET ORDINARY INCOME(LOSS)			(114,906	)			-				0				-
OTHER INCOME/EXPENSE
Other income
Interest income			24,998				-				67,540				-
TOTAL OTHER INCOME/EXPENSE							-				67,540				-
NET INCOME(LOSS)		$	(89,907	)		$	(27,278	)		$	(470,992	)		$	(65,180	)
BASIC AND DILUTED EARNINGS (LOSS) PER SHARE		$	(0.00	)		$	(0.00	)		$	(0.00	)		$	(0.00	)
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING			34,400,000				34,400,000				34,400,000				34,400,000

 

See the accompanying notes to the condensed financial statements.

 

 

URBAN HYDROPONICS, INC.

(A Development Stage Company)

Statements of Changes in Stockholder's Equity(Deficit)

From May 13, 2005 (Inception) through June 30, 2014

 

														Deficit
						Common								Accumulated
		Common				Stock				Additional				During
		Stock				Amount				Paid-in Capital				Exploration Stage				Total
Balance May 13, 2005			-			$	-			$	-			$	-			$	-
Stock issued for cash on May 20, 2005 at $0.001 per share			20,000,000				20,000				(10,000	)			-				10,000
Stock issued for cash on June 14, 2005 at $0.001 per share			8,400,000				8,400				(4,200	)			-				4,200
Stock issued for cash on June 30, 2005 at $0.001 per share			4,000,000				4,000				16,000				-				20,000
Net loss June 30, 2005															(3,500	)			(3,500	)
Balance June 30 2005			1,620,000			$	32,400			$	1,800			$	(3,500	)		$	30,700
Stock issued for services on May 22, 2006 at $0.01 per share			2,000,000				2,000				8,000				-				10,000
Net loss June 30, 2006															(25,885	)			(25,885	)
Balance, June 30, 2006			3,620,000				34,400				9,800				(29,385	)			14,815
Net loss June 30, 2007															(29,105	)			(29,105	)
Balance June 30, 2007			3,620,000				34,400				9,800				(58,490	)			(14,290	)
Net loss June 30, 2008															(18,023	)			(18,023	)
Balance June 30, 2008			3,620,000				34,400				9,800				(76,513	)			(32,313	)
Net loss June 30, 2009															(24,649	)			(24,649	)
Balance June 30, 2009			3,620,000				34,400				9,800				(101,162	)			(56,962	)
Net Loss June 30, 2010															(10,646	)			(10,646	)
Balance June 30, 2010			3,620,000				34,400				9,800				(111,808	)			(67,608	)
Net profit June 30, 2011															100,100				100,100
Balance June 30, 2011			3,620,000				34,400				9,800				(11,708	)			32,492
Net loss June 30, 2012															(106,168	)			(106,168	)
Balance June 30, 2012			3,620,000				34,400				9,800				(117,876	)			(73,676	)
Net loss June 30, 2013															(57,591	)			(57,591	)
Balance June 30, 2013			3,620,000				34,400				9,800				(175,467	)			(131,267	)
Net loss June 30,2014															(293,228	)			(293,228	)
Balance June 30, 2014			3,620,000				34,400				9,800				(468,696	)			(424,496	)

 

See the accompanying notes to the condensed financial statements.

 

 

URBAN HYDROPONICS, INC.

(A Development Stage Company)

Statement of Cash Flows

(Stated in U.S. Dollars)

(Unaudited)

 

		(Unaudited)
		Nine Months Ended				Nine Months Ended
		March 31, 2015				March 31, 2014
CASH FLOWS FROM OPERATING ACTIVITIES
Net income(loss)		$	(470,992	)		$	(65,180	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Discount of long term liabilities			-				-
Amortization of mineral rights license			-				-
Bridge Loans			910,000				-
(Accrued Interest bridge loans)			91,324				-
Changes in operating assets and liabilities:
Accounts receivable			-				-
Accounts payable and accrued expenses			17,823				39,246
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES			548,155				(25,934	)
CASH FLOWS FROM INVESTING ACTIVITIES
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES			-				-
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from loan from related party			-				25,934
Proceeds of loan from shareholder			-				-
Proceeds from secured promissory notes			(480,000	)			-
Accrued interest from secured promissory notes			(67,539	)
Issuance of common stock			-				-
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES			(547,539	)			-
NET INCREASE (DECREASE) IN CASH			616				-
CASH AT BEGINNING OF PERIOD			77				-
CASH AT END OF PERIOD		$	693			$	-
NON-CASH INVESTING AND FINANCIAL ACTIVITIES
Increase in mining rights license and long -term liabilities			-				-
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during year for :
Interest		$	-			$	-
Income Taxes		$	-			$	-

 

See the accompanying notes to the condensed financial statements.

 

 

Urban Hydroponics, Inc.

A Development Stage Company

Notes to Condensed Financial Statements

As of March 31, 2015

(Unaudited)

 

Note 1. Basis of Presentation

 

The accompanying unaudited interim financial statements of Urban Hydroponics, Inc. (the “Company”) (f/k/a) Placer Del Mar, Ltd., have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission (the “SEC”), and should be read in conjunction with the audited financial statements and notes thereto contained in Urban Hydroponics’ Form 10-K filed with SEC. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the financial statements which would substantially duplicate the disclosure contained in the audited financial statements for fiscal 2014 as reported in the Form 10-K, for the year ended June 30, 2014, have been omitted. It is management's opinion that all adjustments necessary for a fair statement of the results of the interim periods have been made, and all adjustments are of a normal recurring nature.

 

Note 2. Going Concern

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company reported revenue of $0 during the three and nine months ended March 31, 2015, and generated a net loss of $89,907 and $314,299, respectively, during the same periods. This condition raises substantial doubt about the Company’s ability to continue as a going concern. This condition raises substantial doubt about the Company’s ability to continue as a going concern. The Company will require additional funding for operations; this additional funding may be raised through debt or equity offerings. Management has yet to decide what type of offering the Company will use or how much capital the Company will attempt to raise. There is no guarantee that the Company will be able to raise any capital through any type of offerings.

 

Note 3. Recent Accounting Pronouncements

 

We have reviewed the FASB issued Accounting Standards Update (“ASU”) accounting pronouncements and interpretations thereof that have effectiveness dates during the periods reported and in future periods. The Company has carefully considered the new pronouncements that alter previous generally accepted accounting principles and does not believe that any new or modified principles will have a material impact on the corporation’s reported financial position or operations in the near term.

 

Note 4. Loan from Shareholder

 

Loan from shareholder represents funds loaned to the company by an officer and director. As of March 31, 2015 the loan balance is $56,162. The funds provided to the Company are unsecured and he has agreed to forego any penalties or interest should the Company be unable to repay any funds provided.

 

Note 5. Amended Promissory Notes

 

On July 16, 2014 the Company issued a 10% Convertible Secured Promissory Note due March 15, 2015 in the principal amount of $90,000 in favor of LAB S.A. The Note was issued pursuant to the terms that certain securities purchase agreement by and between the Company and LAB S.A. and in connection with a contemplated reverse merger which was expected to close no later than November 30, 2014. However the merger was not able to close by that date and is now expected to close no later than June 30, 2015. The Company and LAB S.A. agreed on March 15, 2015 to extend the note an additional 4 months to July 15, 2015 along with accrued interest through that date. All other terms of the note remain unchanged.

 

 

Urban Hydroponics, Inc.

A Development Stage Company

Notes to Condensed Financial Statements

As of March 31, 2015

(Unaudited)

 

On May 21, 2014 the Company issued a 10% Convertible Secured Promissory Note due January 20, 2015 in the principal amount of $250,000,000 in favor of Avatar Business Corp. (“Avatar”). The note was issued pursuant to the terms that certain securities purchase agreement by and between the Company and Avatar and in connection with a contemplated reverse merger which was expected to close no later than November 30, 2014. However the merger was not able to close by that date and is now expected to close no later than June 30, 2015. The Company and Avatar agreed on January 6, 2015 to extend the note to April 20, 2015 along with accrued interest through that date. All other terms of the note remain unchanged. On April 20, 2015, the Company and Avatar agreed to further extend the note for an additional six months to October 20, 2015.

 

On May 21, 2014 the Company issued a 10% Convertible Secured Promissory Note due January 20, 2015 in the principal amount of $250,000,000 in favor of Chaco Holding S.A. (“Chaco”). The note was issued pursuant to the terms that certain securities purchase agreement by and between the Company and Chaco and in connection with a contemplated reverse merger which was expected to close no later than November 30, 2014. However the merger was not able to close by that date and is now expected to close no later than June 30, 2015. The Company and Chaco agreed on January 6, 2015 to extend the note to April 20, 2015 along with accrued interest through that date. All other terms of the note remain unchanged. On April 20, 2015, the Company and Chaco agreed to further extend the note for an additional six months to October 20, 2015.

 

On July 16, 2014 the Company issued a 10% Convertible Secured Promissory Note due March 15, 2015 in the principal amount of $99,000 in favor of Claudio Gianascio. The Note was issued pursuant to the terms that certain securities purchase agreement by and between the Company and Mr. Gianascio and in connection with a contemplated reverse merger which was expected to close no later than November 30, 2014. However the merger was not able to close by that date and is now expected to close no later than June 30, 2015. The Company and Mr. Gianascio agreed on March 15, 2015 to extend the note an additional 4 months to July 15, 2015 along with accrued interest through that date. All other terms of the note remain unchanged.

 

On July 18, 2014 the Company issued a 10% Convertible Secured Promissory Note due March 17, 2015 in the principal amount of $60,000 in favor of Ecovalley Ventures S.A. The Note was issued pursuant to the terms that certain securities purchase agreement by and between the Company and Ecovalley Ventures S.A. and in connection with a contemplated reverse merger which was expected to close no later than November 30, 2014. However the merger was not able to close by that date and is now expected to close no later than June 30, 2015. The Company and EcoValley Ventures S.A. agreed on March 15, 2015 to extend the note an additional 4 months to July 17, 2015 along with accrued interest through that date. All other terms of the note remain unchanged.

 

On August 15, 2014 the Company issued a 10% Convertible Secured Promissory Note due April 14, 2015 in the principal amount of $30,000 in favor of Massimo D’Onofrio. The Note was issued pursuant to the terms that certain securities purchase agreement by and between the Company and Massimo D’Onofrio and in connection with a contemplated reverse merger which was expected to close no later than November 30, 2014. However the merger was not able to close by that date and is now expected to close no later than June 30, 2015. The Company and Massimo D’Onofrio agreed on March 17, 2015 to extend the note an additional 4 months to August 14, 2015 along with accrued interest through that date. All other terms of the note remain unchanged.

 

 

Urban Hydroponics, Inc.

A Development Stage Company

Notes to Condensed Financial Statements

As of March 31, 2015

(Unaudited)

 

Note 6. Subsequent Events

 

The Company evaluated all events or transactions that occurred after March 31, 2015 up through the date the Company issued these financial statements and determined there were the following reportable events:

 

Although the LOI provides that the proposed Merger is expected to close on or before November 30, 2014, there has been a delay in the preparation of the audited financial statements of the Target Companies and it is now expected that the proposed Merger will close on or about June 30, 2015, although there can be no assurance that this will, in fact, happen.

 

Subsequent to the March 31, 2015 financial statements and pursuant to the terms of the LOI, the Company agreed to provide additional bridge financing consisting of a loan of $151,000 in April 2015. To finance the Bridge Financing, pursuant to the March 31, 2015 financial statements the Company issued three of its 10% Secured Convertible Promissory Notes in the aggregate of $255,000.

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

Forward-Looking Statements

 

Except for historical information, this report contains forward-looking statements within the meaning of the federal securities laws.  Such forward-looking statements involve risks and uncertainties, including, among other things, statements regarding our business strategy, future revenues and anticipated costs and expenses.  Such forward-looking statements include, among others, those statements including the words “expects,” “anticipates,” “intends,” “believes” and similar language. Our actual results may differ significantly from those projected in the forward-looking statements.  Factors that might cause or contribute to such differences include, but are not limited to, those discussed herein. You should carefully review the risks described herein and in other documents we file from time to time with the Securities and Exchange Commission (“SEC”).  You are cautioned not to place undue reliance on the forward-looking statements, which speak only as of the date of this report. We undertake no obligation to publicly release any revisions to the forward-looking statements or reflect events or circumstances after the date of this document.

 

Although we believe that the expectations reflected in these forward-looking statements are based on reasonable assumptions, there are a number of risks and uncertainties that could cause actual results to differ materially from such forward-looking statements.

 

All references in this Form 10-Q to the “Company,” “we,” “us,” or “our” are to Urban Hydroponics, Inc. (formerly known as Placer Del Mar, Ltd.).

 

Going Concern

 

Our unaudited financial statements presented herein are prepared using accounting principles generally accepted in the United States of America applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. However, we do not have cash or other significant current assets, nor do we have an established source of revenues sufficient to cover our operating costs and to allow us to continue as a going concern.

 

In the course of its development activities, the Company has sustained loss of $89,907 and $27,278 in the three months ending March 31, 2015 and 2014, respectively. The Company expects to finance its operations primarily through one or more future financings and by the consummation of the Merger (as defined and described below) and transactions contemplated thereby. However, there exists substantial doubt about the Company’s ability to continue as a going concern for at least the next twelve months, because the Company will be required to obtain additional capital in the future to continue its operations and there is no assurance that it will be able to obtain such capital, through equity or debt financing, or any combination thereof, or on satisfactory terms or at all.

 

Our independent auditors have included an explanatory paragraph in their report on our consolidated financial statements included in this report that raises substantial doubt about our ability to continue as a going concern.  Our financial statements do not include any adjustments that may result from the outcome of this uncertainty.  We have generated minimal operating revenues since our inception. Our continuation as a going concern is dependent upon future events, including our ability to identify a suitable business combination, to raise additional capital and to generate positive cash flows.  Our consolidated financial statements have been prepared in accordance with generally accepted accounting principles applicable to a going concern, which implies we will continue to meet our obligations and continue our operations for the next twelve months.

 

 

Realization values may be substantially different from carrying values as shown, and our consolidated financial statements do not include any adjustments relating to the recoverability or classification of recorded asset amounts or the amount and classification of liabilities that might be necessary as a result of the going concern uncertainty. Under the going concern assumption, an entity is ordinarily viewed as continuing in business for the foreseeable future with neither the intention nor the necessity of liquidation, ceasing trading, or seeking protection from creditors pursuant to laws or regulations. Accordingly, assets and liabilities are recorded on the basis that the entity will be able to realize its assets and discharge its liabilities in the normal course of business.

 

As described in Note 2 of our accompanying financial statements, our losses to date and our lack of any guaranteed sources of future capital create substantial doubt as to our ability to continue as a going concern. If our business plan does not work, we could remain as a start-up company with limited material operations, revenues, or profits. Although management has believes their plan for Urban Hydroponics, Inc. will generate revenue and profit, there is no guarantee their past experiences will provide Urban Hydroponics, Inc. with similar future successes.

 

General Overview

 

The Company was incorporated in the State of Nevada on May 13, 2005 as Placer Del Mar. Ltd. Historically, we were engaged in the business of exploring for minerals. In June 2013, our management determined to discontinue our minerals exploration activities and to focus on attempting to acquire other assets or business operations that would maximize shareholder value.

 

Non-Binding letter of Intent

 

On May 5, 2014, Valor Invest Ltd., on our behalf, signed a non-binding term sheet (the “Term Sheet”) with Urban Cultivator Inc., a British Colombia corporation (“UC”), BC Northern Lights Enterprises Ltd., a British Colombia corporation (“BCNL”), and W3 Metal Inc., a British Colombia corporation (“W3,” and together with UC and BCNL, the “Target Companies”), regarding a possible business combination (the “Merger”) involving these three companies.  The Target Companies are private companies engaged in the business of manufacturing and selling commercial and residential hydroponic growing systems.  At that time, no definitive terms of the Merger were agreed to, and none of the party was bound to proceed with any transaction.  Pursuant to the terms of the Term Sheet, we lent the Target Companies $760,000 in a secured bridge financing (the “Bridge Financing”) for the Target Companies’ working capital needs.

 

Name Change

 

With the permission of the Target Companies, the Company changed its name to Urban Hydroponics, Inc. to facilitate our discussions with the Target Companies. Our new name was declared effective by the Financial Industry Regulatory Authority (“FINRA”) as of July 10, 2014, and FINRA approved our new ticker symbol which is “URHY.”

 

Authorized Capital Increase

 

In addition to the inclusion of the name change, we amended and restated our Articles of Incorporation to increase our authorized capital stock from 50,000,000 shares of common stock to 300,000,000 shares of common stock and from no shares of undesignated, “blank check” preferred stock to 10,000,000 shares of such preferred stock. The par value of each of these classes of stock is $0.001 per share. These changes were approved by the shareholder (the “Majority Shareholder”) holding a majority of our outstanding voting capital stock.

 

  

Forward stock Split

 

On May 28, 2014, our Board of Directors approved a 20-for-1 forward stock split on our common stock outstanding in the form of a dividend, with a Record Date of June 19, 2014. FINRA approved the forward split with a payment date of June 19, 2014 (the “Payment Date”), an ex-dividend date of June 20, 2104 and a due bill date of June 24, 2014.

 

This stock split in the form of a dividend entitled each common stock shareholder as of the Record Date to receive nineteen (19) additional shares of our common stock for each one (1) share owned. Additional shares issued as a result of the stock split were distributed on the Payment Date.

 

Equity Incentive Plan Amendment

 

On May 31, 2014, our Majority Shareholder approved an amendment (the “2012 Plan Amendment”) to our 2012 Equity Incentive Plan (the “2012 Plan”). Pursuant to the 2012 Plan Amendment, the number of shares of our common stock reserved for issuance under the 2012 Plan has been reduced to 380,000 from 7,000,000 shares. This reduction was adopted in view of our 20 for 1 forward stock split in the form of a dividend, which, taking into account the automatic adjustment provisions for stock dividends set forth in Section 14(a)(iii) of the 2012 Plan, has resulted in 7,600,000 shares of our common stock being available for grant under the 2012 Plan following effectiveness of the proposed forward stock split.

 

Recent Developments

 

Binding letter of Intent with the Target Companies

 

On October 3, 2014, we signed a Binding Letter of Intent (LOI), as amended on October 31, 2014 and February 23, 2015, to revise the terms of the proposed Merger with the Target Companies. This LOI replaced the Term Sheet dated May 5, 2014 which was non-binding.

 

Pursuant to the LOI, it is contemplated that a newly-formed, wholly-owned Canadian subsidiary (“Subco”) of the Company will merge with and into the Target Companies, as a result of which the Target Companies will become wholly-owned subsidiaries of the Company. In connection with the LOI, as amended, and pursuant to its terms, the Company agreed to provide additional bridge financing (the “Additional Bridge Financing”) to the Target Companies on the last day of each of the months of September and October 2014 in the amount of $120,000 per month.  The Company delivered the September $120,000 Additional Bridge Financing installment to the Target Companies on October 15, 2014 and the October $120,000 Additional Bridge Financing installment to the Target Companies on November 7, 2014. The Company provided an additional $151,000 in Additional Bridge Financing to the Target Companies on April 8, 2015. To date, the Company has provided the Target Companies with an aggregate of $1,151,000 in Bridge Financing and Additional Bridge Financing. To finance the Bridge Financing and the Additional Bridge Financing and to provide working capital to the Company, the Company has sold an aggregate of $1,755,000 of its 10% Secured Convertible Promissory Notes (the “Investor Notes”), to date. In addition to the Notes Offering (defined below), the Company intends to engage in an additional private placement of its securities for at least an additional $1,245,000 in gross proceeds to the Company (the “Subsequent Offering”) for working capital use post-Merger closing. The closing of the Subsequent Offering and the closing of the Merger is each a condition precedent to the other.

 

 

Although the original LOI provides that the proposed Merger is expected to close on or before November 30, 2014, there has been a delay in the preparation of the audited financial statements of the Target Companies and it is now expected that the proposed Merger will close on or about June 30, 2015. There is no certainty, however, that the Merger will close on that date or at all, that any transactions will be consummated with the Target Companies or that any other business projects will be identified and consummated. The Merger is subject to, among other things, the completion and delivery by the Target Companies to the Company, and the acceptance as satisfactory by the Company, of two year audited consolidated financial statements of the Target Companies.

 

On January 6, 2015, two of the Investor Notes which were to mature on January 20, 2015, in the aggregate principal amount of $500,000 were extended until April 20, 2015. These two notes have been further extended to October 20, 2015. On February 2, 2015, one of the Investor Notes in the principal amount of $120,000 was extended until June 3, 2015. On March 15, 2015, one of the Investor Notes in the principal amount of $60,000 was extended until July 17, 2015, one of the Notes in the principal amount of $90,000 was extended until July 15, 2015 and one of the Notes in the principal amount of $99,000 was extended until July 15, 2015. On March 17, 2015, one of the Investor Notes in the principal amount of $30,000 was extended until August 14, 2015.

 

Because of the delay in the closing of the proposed Merger, our loans to the Target Companies in the aggregate amount of $1,000,000 became due and payable to us between January 20, 2015 and February 4, 2015. Under the terms of the LOI amendment dated February 23, 2015, we extended the maturity dates on these loans to May 31, 2015. Upon the closing of the Merger, in accordance with the terms of the LOI, these loans as well as any additional Bridge Financing to the Target Companies will be forgiven. There can be no guarantee, however, that the Merger will close.

 

Results of Operations

 

Three Month Period ended March 31, 2015 Compared to Three Month Period Ended March 31, 2014.

 

Revenue and Other Income

 

We did not generate any revenue for the three months ended March 31, 2015 or 2014. We generated $24,998 in interest income from the Bridge Loans during the three months ended March 31, 2015.

 

Expenses

 

Operating expenses, consisting primarily of $77,086 in general and administrative expenses (including professional fees) and $37,820 in interest expense, totaled $114,906 in the three-month period ended March 31, 2015, compared to $27,278 in the three-month period ended March 31, 2014, which consisted of $27,278 in general and administrative expenses (including professional fees) and $0 in interest expense. The increase in interest expense is due to the interest on the 10% Notes.

 

Net Losses

 

As a result of the foregoing, we incurred a net loss of $89,907 for the three months ended March 31, 2015, compared to a net loss of $27,278 for the corresponding period ended March 31, 2014.

 

 

The following table provides selected financial data about our Company for the period ended March 31, 2015.

  

Balance Sheet Data:		3/31/2015
Cash		$	693
Total assets		$	1,073,611
Total liabilities		$	1,969,099
Shareholders' equity		$	(895,488	)

 

Nine Month Period ended March 31, 2015 Compared to Nine Month Period Ended March 31, 2014.

 

Revenue and Other Income

 

We did not generate any revenue for the nine months ended March 31, 2015 or 2014. We generated $48,619 in interest income during the nine months ended March 31, 2015.

 

Expenses

 

Operating expenses, consisting primarily of $291,369 in general and administrative expenses (including professional fees) and $71,550 in interest expense, totaled $362,919 in the nine-month period ended March 31, 2015, compared to $56,866 in the nine-month period ended March 31, 2014, which consisted of $56,866 in general and administrative expenses (including professional fees) and $0 in interest expense.

 

Net Losses

 

As a result of the foregoing, we incurred a net loss of $314,299 for the nine months ended March 31, 2015, compared to a net loss of $56,866 for the corresponding period ended March 31, 2014.

 

Liquidity and Capital Resources

 

Our cash in the bank at March 31, 2015 was $693. Cash provided by financing since inception was $10,000 from the sale of shares to our officer, $24,200 resulting from the sale of our common stock to 46 independent investors, and, through the date hereof, $1,775,000 resulting from the sale of our Investor Notes in the Notes Offering. Although we are raising funds through the financing of the Notes Offering, we have used $1,151,000 of the net proceeds derived from our issuance of the Investors Notes to provide Bridge Financing to the Target Companies for working capital, in accordance with the terms of the LOI. We are using the remainder of the net proceeds of the Notes Offering for general working capital purposes.

 

We estimate our general and administrative costs will require approximately $50,000 for the remainder of fiscal year ending June 30, 2015, exclusive of any business acquisition or combination costs. We plan to raise the necessary funds through loans from affiliates or others.

 

We may be unable to secure additional financing on terms acceptable to us, or at all, at times when we need such financing.  Our inability to raise additional funds on a timely basis could prevent us from achieving our business objectives and could have a negative impact on our business, financial condition, results of operations and the value of our securities.

 

 

If we raise additional funds by issuing additional equity or convertible debt securities, the ownership percentages of existing stockholders will be reduced and the securities that we may issue in the future may have rights, preferences or privileges senior to those of the current holders of our Common Stock.  Such securities may also be issued at a discount to the market price of our Common Stock, resulting in possible further dilution to the book value per share of Common Stock.  If we raise additional funds by issuing debt, we could be subject to debt covenants that could place limitations on our operations and financial flexibility.

 

Off-Balance Sheet Arrangements

 

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

 

As a smaller reporting company, as defined in Rule 12b-2 of the Exchange Act of 1934 (the “Exchange Act”), we are not required to provide disclosure under this Item 3.

 

Item 4. Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

Our management, with the participation of our Chief Executive Officer/Chief Financial Officer, Frank Terzo, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 under the Securities Exchange Act as of March 31, 2015. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.

 

Based on management’s evaluation, our Chief Executive Officer/Chief Financial Officer concluded that, as a result of the material weaknesses described below, as of March 31, 2015, our disclosure controls and procedures are not effective and are not presently designed at a level to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer/Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. The material weaknesses, which relate to internal control over financial reporting, that were identified are:

 

1.             As of March 31, 2015, we did not adequately segregate, or mitigate the risks associated with, incompatible functions among personnel to reduce the risk that a potential material misstatement of the financial statements would occur without being prevented or detected. Accordingly, management concluded that this control deficiency constituted a material weakness.

 

We are committed to improving our accounting and financial reporting functions. As part of this commitment, we have engaged consultants to assist in the preparation and filing of financial reports. We will continue to monitor and evaluate the effectiveness of our disclosure controls and procedures and our internal controls over financial reporting on an ongoing basis and are committed to taking further action and implementing additional enhancements or improvements, as necessary and as funds allow.

 

Changes in Internal Controls Over Financial Reporting

 

We regularly review our system of internal control over financial reporting and make changes to our processes and systems to improve controls and increase efficiency, while ensuring that we maintain an effective internal control environment. Changes may include such activities as implementing new, more efficient systems, consolidating activities, and migrating processes. 

 

 

PART II – OTHER INFORMATION

 

Item 1.  Legal Proceedings

 

We are not currently involved in any legal proceedings and we are not aware of any pending or potential legal actions.

 

Item 1A. Risk Factors

 

There have been no material changes to the risk factors previously discussed in Item 1A of our Annual Report on Form 10-K for the year ended June 30, 2014.

 

Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds

 

Since May 21, 2014, the Company has conducted a number of closings in which it has sold its eight month 10% Secured Convertible Promissory Notes to a limited number of non-U.S. persons in a private placement (the “Notes Offering”) pursuant to the exemptions from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”), provided by Section 4(a)(2) of, and Rule 506 of Regulation D and Regulation S under, the Securities Act.

 

As referenced in Item 2 of Part I, on October 31, 2014, we signed the amended LOI with the Target Company relating to the Bridge Financing which increased the aggregate principal amount of the Notes Offering to $1,500,000. The LOI was further amended on February 23, 2015 to increase the Bridge Financing to an aggregate principal amount of $1,750,000. On February 20, 2015, April 4, 2015 and April 10, 2015, the Company closed on the offer and sale of $30,000, $154,000 and $71,000, respectively, in principal amounts of the Investor Notes to certain investors. As of April 10, 2015, the Company had closed on an aggregate principal amount of $1,755,000 of the Investor Notes.

 

The Investor Notes contain customary events of default and include a default by the Borrowers under the Bridge Notes.  If the Company defaults under the Investor Notes, the full principal amount of the Investor Notes will, at the option of the Investors, become immediately due and payable in cash.  In addition, upon an event of default, the Investor Notes will begin to bear interest at a rate of 12% per annum, or such lower maximum amount of interest permitted to be charged under applicable law.

 

On January 6, 2015, two of the Investor Notes which were to mature on January 20, 2015, in the aggregate principal amount of $500,000 were extended until April 20, 2015. These two notes have been further extended until October 20, 2015. On February 2, 2015, one of the Investor Notes in the principal amount of $120,000 was extended until June 3, 2015. On March 15, 2015, one of the Investor Notes in the principal amount of $60,000 was extended until July 17, 2015, one of the Notes in the principal amount of $90,000 was extended until July 15, 2015 and one of the Notes in the principal amount of $99,000 was extended until July 15, 2015. On March 17, 2015, one of the Investor Notes in the principal amount of $30,000 was extended until August 14, 2015.

 

Item 3.  Defaults Upon Senior Securities

 

There were no defaults upon senior securities during the period covered by this report.

 

Item 4.  Mining Safety Disclosures

 

Not applicable.

 

 

Item 5. Other Information

 

 

Item 6. Exhibits

 

In reviewing the agreements included as exhibits to this Form 10-Q, please remember that they are included to provide you with information regarding their terms and are not intended to provide any other factual or disclosure information about the Company or the other parties to the agreements.  The agreements may contain representations and warranties by each of the parties to the applicable agreement.  These representations and warranties have been made solely for the benefit of the parties to the applicable agreement and:

 

·

should not in all instances be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements prove to be inaccurate;

 

·

have been qualified by disclosures that were made to the other party in connection with the negotiation of the applicable agreement, which disclosures are not necessarily reflected in the agreement;

 

·

may apply standards of materiality in a way that is different from what may be viewed as material to you or other investors; and

 

·

were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement and are subject to more recent developments.

 

Accordingly, these representations and warranties may not describe the actual state of affairs as of the date they were made or at any other time.  Additional information about the Company may be found elsewhere in this Form 10-Q and the Company’s other public filings, which are available without charge through the SEC’s website at http://www.sec.gov.

 

The following exhibits are included as part of this report:

 

Exhibit No.		Description
31.1/31.2		Certification of the Chief Executive and Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1/32.2*		Certification of the Chief Executive and Financial Officer pursuant to U.S.C. Section 1350 as adopted 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.LAB**	XBRL Label Linkbase Document
101.PRE**	XBRL Presentation Linkbase Document
101.DEF**	XBRL Definition Linkbase Document

 

*

This certification is being furnished and shall not be deemed “filed” with the SEC for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and shall not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference

 

**

XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act is deemed not filed for purposes of Section 18 of the Exchange Act and otherwise is not subject to liability under these sections.

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized on May 20, 2015.

 

	Urban Hydroponics, Inc.
	/s/ Frank Terzo
	By: Frank Terzo
	(Principal Executive Officer)