URBF
On February 10, 2015, the Company issued a promissory note for $166,000 to one investor, less deferred financing charges of $12,000. Pursuant to the agreement, the amount owing is unsecured, bears interest at 8% per annum, and is due on February 12, 2016. The amount owing is convertible into shares of the Company’s Class A common stock 180 days after the date of issuance of the debenture (August 9, 2015) at a conversion rate of 70% of the average of the three lowest closing bid prices of the Company’s Class A common stock for the twelve trading days ending one trading day prior to the date a notice of conversion is sent by the holder to the Company. As at April 30, 2015, the Company recorded accrued interest of $2,874 (July 31, 2014 - $nil), which has been included in accounts payable and accrued liabilities.
(b)
On March 23, 2015, the Company issued a promissory note for $115,000 to one investor, less deferred financing charges of $15,000. Pursuant to the agreement, the amount owing is unsecured, bears guaranteed interest at 7% per annum, and is due on March 23, 2016. The amount owing is convertible into shares of the Company’s Class A common stock at a price of $0.021 per share or 65% of the lowest closing bid price of the Company’s Class A common stock for the twenty trading days ending one day prior to the date a notice of conversion is sent by the holder to the Company. As at April 30, 2015, the Company recorded accrued interest of $8,050 (July 31, 2014 - $nil), which has been included in accounts payable and accrued liabilities.
The Company was required to classify the conversion feature contained within the convertible debenture as a derivative liability. As such, the Company recorded a derivative liability related to the convertible debt equal to the estimated fair value of the conversion feature of $115,000 with an equivalent discount on the convertible debenture.. The Company records accretion over the term of the convertible note up to its face value of $115,000. During the nine months ended April 30, 2015, the Company recorded accretion expense of $838 increasing the carrying value of the convertible debenture to $838. During the nine months ended April 30, 2015, the Company recorded a loss on the change in fair value of the conversion option derivative liability of $48,154 and as at April 30, 2015, the fair value of the conversion option derivative liability was $163,154.
F-9
URBAN BARNS FOODS INC.
Notes to the Consolidated Financial Statements
(expressed in U.S. dollars)
(unaudited)
5.
Convertible Notes (continued)
(c)
On March 23, 2015, the Company issued a promissory note for $27,500 to one investor, less deferred financing charges of $2,500. Pursuant to the agreement, the amount owing is unsecured, bears guaranteed interest at 7% per annum, and is due on March 23, 2016. The amount owing is convertible into shares of the Company’s Class A common stock at a price of $0.021 per share or 65% of the lowest closing bid price of the Company’s Class A common stock for the twenty trading days ending one day prior to the date a notice of conversion is sent by the holder to the Company. As at April 30, 2015, the Company recorded accrued interest of $1,925 (July 31, 2014 - $nil), which has been included in accounts payable and accrued liabilities.
The Company was required to classify the conversion feature contained within the convertible debenture as a derivative liability. As such, the Company recorded a derivative liability related to the convertible debt equal to the estimated fair value of the conversion feature of $27,500 with an equivalent discount on the convertible debenture. The Company records accretion expense over the term of the convertible note up to its face value of $27,500. During the nine months ended April 30, 2015, the Company recorded accretion expense of $200 increasing the carrying value of the convertible debenture to $200. During the nine months ended April 30, 2015, the Company recorded a loss on the change in fair value of the convertible option derivative liability of $11,515 and as at April 30, 2015, the fair value of the conversion option derivative liability was $39,015.
6.
Derivative Liabilities
The conversion options of the convertible debentures payable, as disclosed in Note 5, are required to be recorded as derivatives at their estimated fair values on each balance sheet date with changes in fair value reflected in the statements of operations.
The fair value of the derivative liabilities for the March 23, 2015 convertible debenture for $115,000 and the March 23, 2015 convertible debenture for $27,500 were $163,154 and $39,015 on vesting, respectively. The fair values as at April 30, 2015 and July 31, 2014 are as follows:
April 30, July 31,
2015 2014
$ $
Derivative liabilities:
March 23, 2015 convertible debenture for $115,000 163,154 –
March 23, 2015 convertible debenture for $27,500 39,015 –
202,169 –
During the period ended April 30, 2015, the Company recorded a loss on the change in fair value of derivative liabilities of $59,669 (2014 - $140,048).
The fair value of the derivative financial liabilities was determined using the Black-Scholes option pricing model using the following assumptions:
Expected Expected
Expected Risk-free Dividend Life (in
Volatility Interest Rate Yield years)
At the issuance date:
March 23, 2015 convertible debenture for $115,000 86% 0.24% 0% 1.00
March 23, 2015 convertible debenture for $27,500 86% 0.24% 0% 1.00
As at April 30, 2015:
March 23, 2015 convertible debenture for $115,000 86% 0.24% 0% 0.90
March 23, 2015 convertible debenture for $27,500 91% 0.24% 0% 0.90
7.
Note Payable
As at April 30, 2015, the Company owed $184,054 (Cdn$223,000) for a promissory note that was issued on October 29, 2014. The note is secured against the Company's net assets, bears interest at a rate of 12.68% per annum, and due the earlier of: (i) the Company raising Cdn$1,000,000 or more through issuance of equity or debt; or (ii) October 29, 2015. As at April 30, 2015, $11,212 (Cdn$13,585) (2014 - $nil) is owed for accrued interest, which is included in accounts payable and accrued liabilities.
F-10
URBAN BARNS FOODS INC.
Notes to the Consolidated Financial Statements
(expressed in U.S. dollars)
(unaudited)
8.
Related Party Transactions
(a)
As at April 30, 2015, the Company owed $4,448 (July 31, 2014 - $15,436) to the President of the Company which is unsecured, non-interest bearing, and due on demand.
(b)
As at April 30, 2015, the Company owed $nil (July 31, 2014 - $8,259) to the Vice President of the Company which is unsecured, non-interest bearing, and due on demand.
(c)
As at April 30, 2015, the Company was owed $1,551 (July 31, 2014 - $nil) from the Vice President of the Company relating to a prepayment of expenses.
(d)
As at April 30, 2015, the Company owes $49,521 (Cdn$60,000) for a loan payable to a director of the Company. The loan is secured against the Company’s assets, bears interest at a rate of 12.68% per annum and due on the earlier of i) the Company raising Cdn$1,000,000 or more through issuance of equity or debt or ii) December 18, 2015. As at April 30, 2015, $2,274 (Cdn$2,755) is owed for accrued interest.
(e)
As at April 30, 2015, the Company owed $49,521 (Cdn$60,000) for a loan payable to a director of the Company. The loan is secured against the Company’s assets, bears interest at a rate of 12.68% per annum and due on the earlier of i) the Company raising Cdn$1,000,000 or more through issuance of equity or debt or ii) January 7, 2016. As at April 30, 2015, $2,026 (Cdn$2,455) is owed for accrued interest.
(f)
As at April 30, 2015, the Company owed $3,302 (July 2014 - $3,673) to a company controlled by the former President of the Company which is unsecured, non-interest bearing, and due on demand.
(g)
As at April 30, 2015, the Company had deferred compensation of $12,420 (July 31, 2014 - $37,352) incurred to directors and officers of the Company. During the nine months ended April 30, 2015, deferred compensation of $24,932 (2014 - $187,397) was charged to operations and included in general and administrative expenses.
(h)
During the nine months ended April 30, 2015, the Company incurred professional fees of $nil (2014 - $12,600) to the spouse of the former President of the Company.
(i)
During the nine months ended April 30, 2015, the Company incurred consulting fees (included in general and administrative expenses) of $135,173 (2014 - $146,988) to directors and officers of the Company.
(j)
During the nine months ended April 30, 2015, the Company incurred consulting fees (included in general and administrative expenses) of $1,802 (2014 - $nil) to the daughter of the President of the Company.
