Item 1. Business
Forward Looking Statements
This Annual Report contains forward-looking statements that involve risks and uncertainties. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology including "could", "may", "will", "should", "expect", "plan", "anticipate", "believe", "estimate", "predict", "potential" and the negative of these terms or other comparable terminology. These statements are only predictions. Actual events or results may differ materially.
While these forward-looking statements, and any assumptions upon which they are based, are made in good faith and reflect our current judgment regarding the direction of our business, actual results will almost always vary, sometimes materially, from any estimates, predictions, projections, assumptions or other future performance suggested in this report.
Presentation of Information
As used in this Annual Report, the terms "we", "us" and "our" mean AGR Tools, Inc. and its subsidiaries, unless otherwise indicated.
All dollar amounts in this Annual Report refer to U.S. dollars unless otherwise indicated.
Business Overview
We are a Texas-based company in the business of manufacturing and selling tooling and accessories to the construction, building, maintenance and demolition industries in the United States and Canada. Tooling is the consumable disposal portion of a tool that makes the tool work. It wears out as the tool is operated, and as a result, demand for our products is driven by the need for original and replacement tool parts, not the tools themselves.
Our products are manufactured in China on a contract basis, and we subject them to strict manufacturing standards. We field test these products by using them in construction, building and demolition projects, and also test them alongside the products of our competitors both in the field and in our testing facility.
We currently focus on sales through our stocking dealers. We also sell a number of our products through our website, which are delivered to customers either through our storage centers or our stocking dealers.
Development of Business
We were incorporated under the name Laburnum Ventures Inc. on March 11, 2004 under the laws of the State of Nevada. Until recently, we were an exploration stage company engaged in the acquisition and exploration of mineral properties. We formerly owned a 100% undivided interest in a mineral property located in the Province of British Columbia, Canada known as the Sum Mineral Claim, but determined not to pursue this claim in early 2009.
On July 21, 2009, we entered into a share exchange agreement (the “Original Share Exchange Agreement”) with AGR Stone & Tools USA, Inc., a private Texas company (“AGR USA”). Pursuant to the terms of the Original Share Exchange Agreement, we agreed to acquire all of the outstanding shares of AGR USA from its shareholders in exchange for shares of our company on a one-for-one basis which, if completed, would result in AGR USA becoming our wholly owned subsidiary.
On September 15, 2009, in contemplation of the completion of the share exchange with AGR USA, we completed a name change from Laburnum Ventures Inc. to AGR Tools, Inc. in accordance with Nevada law.
On October 29, 2009, pursuant to the terms of the Original Share Exchange Agreement, we agreed to terminate the Original Share Exchange Agreement with AGR USA and enter into a new share exchange agreement (the “New Share Exchange Agreement”). Under the New Share Exchange Agreement, we agreed to carry out the exchange of shares with the shareholders of AGR USA through a statutory process pursuant to Part 5 of the Texas Business Corporation Act in order to effect the transaction in a more efficient matter.
The following is a description of certain material terms of the New Share Exchange Agreement, a copy of which is included as an exhibit to our Current Report of Form 8-K filed with the Securities and Exchange Commission on November 2, 2009:
1.
we agreed to issue one share of our common stock to the current shareholders of AGR USA for each share held by them;
2.
AGR USA agreed to obtain approval for the share exchange from holders of at least two-thirds of its voting securities pursuant to the Texas Business Corporation Act;
3.
AGR USA agreed that it would have no more than 48,186,516 shares of its common stock issued and outstanding on the closing date of the New Share Exchange Agreement;
4.
both AGR USA and us would be reasonably satisfied with our respective due diligence investigation of the other;
5.
AGR USA agreed to deliver to us audited financial statements for its last two fiscal years and any applicable interim period ended no more than 35 days before the closing of the New Share Exchange Agreement, prepared in accordance with United States generally accepted accounting principles and audited by an independent auditor registered with the Public Company Accounting Oversight Board in the United States;
6.
Tom Brown, our former sole officer and Director, agreed to cancel 25,000,000 shares of our common stock held in his name;
7.
AGR USA agreed to file all required documentation with the Texas Secretary of State to effect the share exchange; and
8.
David Chapman, our former director, agreed to subsequently resign and AGR USA would appoint a new director to fill the resulting vacancy.
On October 29, 2009, AGR USA received approval for the transactions contemplated by the New Share Exchange Agreement from holders of approximately 77% of its voting securities by written resolution in lieu of holding a meeting. We subsequently consummated the transactions contemplated by the New Share Exchange Agreement on May 27, 2010.
Accounting Treatment
Our acquisition of AGR USA has been accounted for as a “reverse merger” with AGR USA treated as the continuing reporting entity and acquirer for accounting purposes. The assets, liabilities and historical operations reflected in our consolidated financial statements prior to the closing of the share exchange are those of AGR USA and were recorded at the historical cost basis of AGR USA. Following the completion of the share exchange, our assets, liabilities and operations are reflected in our consolidated financial statements as are those of AGR USA.
As a result of the completion of the reverse merger, on May 27, 2010, we adopted June 30 as our fiscal year end to coincide with the fiscal year end of AGR USA.
Plan of Operations
Our plan of operations over the next 12 months is to (i) expand our stocking dealer network throughout the Unites States and Canada, (ii) monitor the quality of our products and accessories, (iii) further develop our website and online sales volume, and (iv) increase our exposure to participants in the construction, building, maintenance and demolition industries. We expect we will require approximately $3.5 million to pursue our plan of operations over this period.
As at June 30, 2011, we had cash of $8,621 and a working capital deficit of $553,709 and will require significant financing to pursue our plans. There can be no assurance that we will obtain the required financing, on terms acceptable to us or at all. In the event we are unable to obtain the required financing, our business may fail. An investment in our securities involves significant risks and you could lose your entire investment.
Corporate Structure
Our principal offices are located at 100 Lido Circle, Suite C-1, Lakeway, TX 78734. Our telephone number is (936) 539-5744. AGR USA is our wholly-owned operating subsidiary. Our fiscal year end is June 30. Our website address is www.agrtools.com. The information contained on this or any other website does not form a part hereof.
Current Business
We are a Texas-based company in the business of manufacturing and selling tooling and accessories to the construction, building, maintenance and demolition industries in the United States and Canada. Tooling is the consumable disposal portion of a tool that makes the tool work. It wears out as the tool is operated, and as a result, demand for our products is driven by the need for original and replacement tool parts, not the tools themselves. We currently sell more than 700 products through our stocking dealer network, consisting of dealers in 15 U.S. states and two Canadian provinces as of December 29, 2011. Our products include diamond-based blades, diamond drill bits, diamond cup wheels, resin polyesters, glues, inks, resin-based waterproof grinding stones and diamond polishing pads, all of which are manufactured in a number of different sizes.
Our products are manufactured in China on a contract basis, and we subject them to strict manufacturing standards. We field test these products by using them in construction, building and demolition projects, and also test them alongside the products of our competitors both in the field and in our testing facility. All of our products are accompanied by a warranty against defects in workmanship.
We currently focus on sales through our stocking dealers. We also sell a number of our products through our website, which are delivered to customers either through our storage centers or our stocking dealers. Our stocking dealers act as face-to-face contacts for our customers and provide support to one another by sharing order fulfillment with our storage centers. We train and provide training manuals to our stocking dealers and require each one to be familiar with at least 200 of our products during their initial training. We currently do not have brokers or commission sales representatives involved in the distribution of our products.
Our business strategy consists of the follow elements:
·
expanding our stocking dealer network throughout the United States and Canada;
·
monitoring the quality of our products and accessories;
·
developing our website and online sales volume; and
·
increasing our exposure to participants in the construction, building, maintenance and demolition industries.
Our Markets
We offer products for use in the construction, building, maintenance and demolition industries in the United States and Canada. Our customer base includes:
·
granite fabricators
·
tile and flooring installers
·
concrete, brick and stone contractors and builders
·
general contractors
·
project managers
·
building and factory maintenance entities
·
federal, state, county and city supply sources
We believe the range of the products we offer provides our customers with the ability to obtain the products they need for their businesses quickly and efficiently.
Market Trends
The recent global recession significantly affected demand in the construction, building and demolition industries in the United States and Canada and the corresponding demand for our products. As world economies recover, particularly those of the United States and Canada, activity in the construction, building and demolition industries is expected to increase from the levels experienced during the recession. We anticipate that the demand for our products will increase when these economies grow and activity in our target industries increases.
Contract Manufacturing
We contract manufacture our products in China using several different manufacturers to avoid production delays. We issue our production orders with the codes and standards by which they are to be produced. None of our production agreements are exclusive to any single manufacturer.
Products and Services
We sell over 700 products and accessories for use in the construction, building, maintenance and demolition industries. Our products are manufactured in a variety of different sizes to meet customer demand.
We offer a complete line of diamond-based blades, diamond drill bits, diamond cup wheels, resin polyester, glues, ink colors, resin-based waterproof grinding stones and diamond polishing pads. All of our products are accompanied by a warranty against defects in workmanship, whereby we replace defective products either fully or on a prorated basis depending on use and damage.
We offer ongoing support services to our customers through our dealer distribution centers. Each stocking dealer personally services customers in its trade area. If required, we engage our staff to service our customer’s needs as well.
Our products and accessories are used in a variety of aspects of the construction, building, maintenance and demolition industries, ranging from cutting steel, granite, fiber glass, brick, concrete or other materials; grinding, shaping, smoothing or polishing materials; using adhesives to bind materials together; and employing colors to stain materials. We can also create specialty products to meet the specific needs of customers. If demand for any new products or accessories arises, we plan to develop something to meet this demand.
We field test our products by actually using them in construction, building and demolition projects to determine their quality and whether improvements may be required. We also test the quality of our products against similar products made by other manufacturers, in both our testing center and in the field.
We constantly monitor our products to ensure their quality. We also monitor the price of our products relative to our competitors to ensure that they remain competitive.
Distribution Methods
We currently sell our products primarily through our stocking dealers. We also currently sell some of our products online through our website and plan to expand the number of products offered on the site.
Stocking Dealers
We enter into agreements with each of our stocking dealers pursuant to which each of our dealers is granted the right to sell our products within a defined trade area exclusive to the dealer, subject to certain exceptions described below. Each of our stocking dealers is an independent contractor and is required to maintain appropriate licenses, tax certificates and other requirements of governmental agencies as required.
Each of our stocking dealers is required to establish distribution channels, distribution locations and maintain adequate inventories of our products. We provide our dealers with support to enable them to fill orders and maintain adequate levels of inventory. However, in the event adequate inventories are not maintained and we are required to manage a dealer’s account, the dealer is required to pay all expenses incurred by us.
Each dealer is initially required to purchase a certain volume of our products, based on, among other things, the size of its trade area, at a price determined by us. Each dealer is subsequently required to re-order a minimum of 25% of the value of its initial purchase order within the first calendar quarter and 50% of its initial purchase order in all subsequent calendar quarters. In the event a dealer does not re-order the minimum required volume of product from us, we or our other stocking dealers may sell our products in that dealer’s trade area. We have the right to change the pricing structure for our products upon 30 days prior notice to our stocking dealers.
During the term of our agreements with our stocking dealers and for a period of 12 months thereafter, our stocking dealers cannot assist in the sale of or sell products similar to our products within a 50 mile radius of any location where our products are sold.
Our stocking dealers are not authorized to create a website for or sell our products over the Internet without our consent. In addition, they may not use any printed material in connection with the sale of our products without our consent.
The agreements with our stocking dealers are generally for a term of 10 years and are automatically renewed for a 10 year term, unless terminated for breach of a provision of the agreement. In the event of a breach of an agreement by a dealer, notice is required to be sent to the breaching party, which then has 30 days to rectify such breach.
Website
Our customers may purchase our products online via our website, www.agrtools.com. We currently offer some of our products on the website and are in the process of building out the site to offer substantially more of them. We plan to offer all our products on the website in the future. All orders placed online are shipped to customers by our stocking dealers or from our warehouses currently located in Montgomery, TX, Conroe, TX and Anaheim, CA.
If we complete a sale in a dealer’s trade area from an order received on our website, we are required to pay the profits from such sale to the dealer less 10%.
Recruitment and Training of Stocking Dealers
We recruit our stocking dealers through advertisements in magazines and trade publications. In addition, certain of our officers have developed relationships with persons and companies in the construction and demolition industries and market the opportunity to join our network to such persons and companies. Dealers may also hear of this opportunity by word-of-mouth.
Given the number of products we produce and the nature of our business, we train only one dealer at a time at our training facility. The training sessions are four days long, after which we follow up with training-related emails, product manuals and procedures to be implemented by the stocking dealer in question.
Technology
We have retained information technology personnel that have developed a dealer email system and intranet communication network for our stocking dealers. We are also in the process of building out our website and developing an online shopping cart and software to expand our referral and re-ordering sales base.
Competition
There are a number of large international companies that control a majority of the market for our products worldwide, including Pearl Tools in Japan, Ewa Tools in South Korea, St. Gabon in France and Diamond B in the United States. Further, there are many companies that sell their products through catalogues, including Grand Quartz, Hard Rock Tools, Vic Tools, Braxton-Bag and PBI. These companies usually cannot lock their manufacturers into exclusive distribution contracts.
The markets in which we currently compete and plan to compete are intensely competitive. We face significant competition from our existing competitors in these markets, many of which are substantially larger and have longer operating histories and records of successful operations; greater financial resources, technical expertise, managerial capabilities and other resources; more employees; more contracts with significant companies; and more extensive facilities than we have or will have in the foreseeable future. Our operations may fail due to our inability to compete with existing competitors in these markets.
Sales and Marketing
We currently market our products through a network of stocking dealers. We also market our products through certain of our officers that have developed relationships with persons and companies involved in the construction and demolition industries. In addition, we operate a website that describes the products and services we offer. We also have a complete product catalogue available to all our stocking dealers. We plan to market our products through advertisements in trade magazines, appearances at industry shows and through government contacts.
Research and Development
We conduct research and development with respect to new products that we believe may be marketable in connection with our business. In addition, we continually test our products against those of our competitors and, if the quality of a product is determined to be below that of a competitor, we reformulate the product. We spend approximately 5% of our gross profits annually engaging in such research and development activities.
Intellectual Property
We own the trademark to our diamond matrix product line, Matrixx-Max, and our website domain www.agrtools.com. We currently do not own any patents for our products. We plan to trademark our corporate name.
Significant Customers
During the year ended June 30, 2011, the Company had three customers that totaled 51% of its revenue. The specific concentrations of each customer included in this total were 26%, 14% and 11%.
Employees
As of December 29, 2011, we had nine employees all of whom we employed on a full time basis.
Item 1A.
Item 1A. Risk Factors
Not required.
Item 1B.
Item 1B. Unresolved Staff Comments
None.
Item 2.
Item 2. Properties
Our executive office is located at 100 Lido Circle, Suite C-1, Lakeway, TX 78734. This office is provided to us by our Secretary and Treasurer, for which we recognize expenses of $500 per month. The lease for this office expired December 31, 2010 and has not been renewed. However, we continue to use this space as our principal office.
We lease approximately three acres of land in Conroe, TX which contains an administration building of approximately 2,000 square feet, a work shop and training facility of approximately 1,500 square feet, a warehouse of approximately 5,000 square feet and an engineering development building of approximately 1,500 square feet. We pay $62,000 annually under this lease.
In addition, we lease an office and warehouse space in Montgomery, TX that is approximately 1,000 square feet for which we pay $6,000 annually.
Item 3.
Item 3. Legal Proceedings
We are not aware of any legal proceedings (i) to which we are a party, (ii) to which AGR USA is a party, or (iii) of which either our or AGR USA’s property is the subject. None of our directors, officers, affiliates, any owner of record or beneficially of more than 5% of our voting securities, or any associate of any such director, officer, affiliate or security holder are (i) a party adverse to us in any legal proceedings, or (ii) have a material interest adverse to us in any legal proceedings. We are not aware of any other legal proceedings that have been threatened against us.
Item 4.
Item 4. (Removed and Reserved)
PART II
Item 5.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
Our common stock is not traded on any exchange. Our common stock is quoted on the OTC Bulletin Board under the trading symbol “AGRT”. Trading in stocks quoted on the OTC Bulletin Board is often thin and is characterized by wide fluctuations in trading prices due to many factors that may have little to do with a company's operations or business prospects. We cannot assure you that there will be a market for our common stock in the future.
Our common stock became eligible for quotation on the OTC Bulletin Board on April 16, 2007. The following table shows for the periods presented the high and low bid quotations for our common stock based on inter-dealer prices, without retail mark-up, mark-down or commission, and may not represent actual transactions.
Holders
As of December 29, 2011, there were approximately 42 holders of record of our common stock.
Dividends
To date, we have not paid dividends on shares of our common stock and we do not expect to declare or pay dividends on shares of our common stock in the foreseeable future. The payment of any dividends will depend upon our future earnings, if any, our financial condition, and other factors deemed relevant by our Board of Director.
Equity Compensation Plans
As of December 29, 2011, we did not have any equity compensation plans.
Recent Sales of Unregistered Securities
During the fiscal year ended June 30, 2011, we did not complete any unreported sales of our equity securities that were not registered under the Securities Act.
Item 6.
Item 6. Selected Financial Data
Not required.
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with our audited consolidated financial statements for the fiscal years ended June 30, 2011 and 2010, including the notes thereto, and the section of this report entitled “Business”, appearing elsewhere in this Annual Report.
On May 27, 2010, we completed a reverse merger with our wholly-owned subsidiary, AGR USA. As a result, the assets, liabilities and historical operations reflected in our consolidated financial statements prior to the completion of the reverse merger are those of AGR USA and were recorded at the historical cost basis of AGR USA. Following the completion of the reverse merger, our assets, liabilities and operations are reflected in our consolidated financial statements as are those of AGR USA. Upon completion of the reverse merger, we adopted June 30 as our fiscal year end to coincide with the fiscal year end of AGR USA.
We are a Texas-based company in the business of manufacturing and selling tooling and accessories to the construction, building, maintenance and demolition industries in the United States and Canada. Tooling is the consumable disposal portion of a tool that makes the tool work. It wears out as the tool is operated, and as a result, demand for our products is driven by the need for original and replacement tool parts, not the tools themselves.
Our products are manufactured in China on a contract basis, and we subject them to strict manufacturing standards. We field test these products by using them in construction, building and demolition projects, and also test them alongside the products of our competitors both in the field and in our testing facility. All of our products are accompanied by a warranty against defects in workmanship.
We currently focus on sales through our stocking dealers. We also sell a number of our products through our website, which are delivered to customers either through our storage centers or our stocking dealers.
Our plan of operations over the next 12 months is to (i) expand our stocking dealer network throughout the Unites States and Canada, (ii) monitor the quality of our products and accessories, (iii) further develop our website and online sales volume, and (iv) increase our exposure to participants in the construction, building, maintenance and demolition industries. We expect we will require approximately $3.5 million to pursue our plan of operations over this period.
As at June 30, 2011, we had cash of $8,621 and a working capital deficit of $553,709 and will require significant financing to pursue our plans. There can be no assurance that we will obtain the required financing, on terms acceptable to us or at all. In the event we are unable to obtain the required financing, our business may fail. An investment in our securities involves significant risks and you could lose your entire investment.
Results of Operations
Revenues
We generated revenue of $394,252 during the fiscal year ended June 30, 2011, compared to revenue of $530,694 during the fiscal year ended June 30, 2010. The decrease in revenue was primarily due to a decrease in overall activity in the construction, building and demolition industries in the United States and Canada during the most recent fiscal year.
Although the prices for our products are relatively stable, the recent global recession significantly affected demand in the construction, building and demolition industries in the United States and Canada and the corresponding demand for our products, and resulted in a decrease in the number of dealers in our network to whom we sell our products. However, as world economies recover, particularly those of the United States and Canada, activity in the construction, building and demolition industries is expected to increase from the levels experienced during the recession. We anticipate that the demand for our products will increase when these economies grow and activity in our target industries increases.
Our cost of goods sold decreased to $221,216 in the year ended June 30, 2011 from $309,063 in the prior year as a result of reduced duties on our imported products and decrease in overall activity in the construction, building and demolition industries in the United States and Canada during the most recent fiscal year. Consequently, we yielded gross profit of $173,036 during the fiscal year ended June 30, 2011, compared to gross profit of $221,631 during the fiscal year ended June 30, 2010.
Expenses
During the fiscal year ended June 30, 2011, our total operating expenses increased to $718,143 from $538,871 during the prior fiscal year. The increase in our operating expenses was primarily due to an increase in consulting fees from $12,148 in fiscal 2010 to $346,637 in fiscal 2011 relating primarily to a review of our operations and funding requirements therefor, offset by decreases in our wages and benefits expenses, advertising and promotion expenses, office and miscellaneous expenses and rent and utilities expenses.
We incurred a loss from our operations of $545,107 during the fiscal year ended June 30, 2011, compared to a loss from operations of $317,240 during the fiscal year ended June 30, 2010.
Our total other expenses during the recent fiscal year increased to $89,858 from $58,129 during the prior fiscal year, primarily due to increased interest and bank charges.
Net Loss
During the fiscal year ended June 30, 2011, we incurred a net loss of $634,965. During the fiscal year ended June 30, 2010, we incurred a net loss of $375,369.
Liquidity and Capital Resources
As of June 30, 2011, we had $8,621 in cash, $292,305 in total assets, $835,256 in total liabilities and a working capital deficit of $553,709. As of June 30, 2011, we had an accumulated deficit of $1,770,719.
During the fiscal year ended June 30, 2011, operating activities used cash of $279,367, compared to $49,638 during the fiscal year ended June 30, 2010. A decrease in prepaid expenses and deposits used cash of $197,848 in the current year, compared to an increase in same providing cash of $2,926 in the prior year. An increase in accounts payable in the current year provided cash of $28,855, compared to $43,323 in the prior year. An increase in accrued liabilities provided cash of $54,263 in the current year, compared to $1,133 in the prior year. A decrease in amounts due to related parties used cash of $34,870 in the current period, compared to $13,869 in the prior period. A decrease in customer deposits used cash of $22,763 in the current year, compared to an increase in customer deposits providing cash of $103,992 in the prior year.
Investing activities used cash of $0 in the year ended June 30, 2011, compared to $4,328 in the prior year due to the purchase of property and equipment.
Financing activities in the year ended June 30, 2011 provided cash of $276,594 primarily from loans from related and other parties and the issuance of convertible debt. Financing activities in the year ended June 30, 2010 provided cash of $61,679 primarily from loans from related parties.
Our plan of operations over the next 12 months is to (i) expand our stocking dealer network throughout the Unites States and Canada, (ii) monitor the quality of our products and accessories, (iii) further develop our website and online sales volume, and (iv) increase our exposure to participants in the construction, building, maintenance and demolition industries. We expect we will require approximately $3.5 million to pursue our plan of operations over this period.
We intend to raise the additional funds we require from the sale of our equity securities or loans from related parties. There can be no assurance that we will be able to secure the necessary financing from the sale of our securities or loans from related parties. If we are unable to raise sufficient funds to finance our operations our business may fail. In addition, if we are unable to raise the funds required to expand our operations, we may be forced to proceed with a scaled back business plan based on our available financial resources. An investment in our securities involves significant risk and you could lose your entire investment.
Going Concern
Our financial statements for the fiscal year ended June 30, 2011 have been prepared on a going concern basis and Note 2 to the financial statements identifies issues that raise substantial doubt about our ability to continue as a going concern. Our financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Off-Balance Sheet Arrangements
We have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to stockholders.
Critical Accounting Policies
Our financial statements are affected by the accounting policies used and the estimates and assumptions made by management during their preparation. A complete summary of these policies is included in Note 3 of the notes to our financial statements for the fiscal year ended June 30, 2011. We have identified below the accounting policies that are of particular importance in the presentation of our financial position, results of operations and cash flows, and which require the application of significant judgment by management.
Reclassification in Prior Period
Certain reclassifications to our financial statements have been made to prior period amounts to conform to the presentation of the current period.
Inventory
Inventory consists of diamond tooling and related products and is carried at the lower of cost and market value. We use the FIFO inventory costing method.
Revenue Recognition
The Company earns revenue from the sale of diamond tooling and related products. The Company recognizes revenue in accordance with ASC 605, Revenue Recognition. Revenue is recognized when the price is fixed or determinable, persuasive evidence of an arrangement exists, the goods have been delivered, and collectability is reasonably assured. Sales returns are recognized as incurred. The amount of returns is not significant and the Company evaluates the need to record an allowance for each reporting period.
Payment is collected in advance of shipment. All goods are shipped FOB from the Company’s warehouse in Conroe, TX. Title passes when the goods leave the Company’s dock. The sale is recognized when shipment occurs. Prices are set by a definitive dealer price list and are agreed upon before payment occurs or the goods are shipped.
Generally, the Company has are no special arrangements with dealers. All sales are paid in advance and the Company generally does not allow returns for merchandise purchased by dealers. The Company will, however, allow returns pertaining to the initial order placed by new dealers with a 20% restocking charge for those items that prove to be slow moving for their customer base. No warranty is offered. The amount of these returns is not significant and the Company evaluates the need to record an allowance each reporting period.
Concentrations
As at June 30, 2011, 91% (June 30, 2010 - 89%) of accounts receivable is comprised of two customers (June 30, 2010 - four customers). As at June 30, 2011, the specific concentrations of each customer included in this total were 65% and 26%. As at June 30, 2010, the specific concentrations of each customer included in this total were 40%, 17%, 16% and 16%. During the year ended June 30, 2011, the Company has three customers that total 51% of its revenue. The specific concentrations of each customer included in this total were 26%, 14% and 11%.
Item 7A.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Not required.
Item 8.
Item 8. Financial Statements and Supplementary Data
AGR TOOLS, INC.
(formerly known as Laburnum Ventures, Inc.)
Consolidated Financial Statements
For the years ended June 30, 2011 and 2010
Index
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Stockholders’ Deficit
Consolidated Statements of Cash Flows
Notes to the Consolidated Financial Statements
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
AGR Tools, Inc.
We have audited the accompanying consolidated balance sheets of AGR Tools, Inc. (formerly known as AGR Stone & Tools USA, Inc.), as of June 30, 2011 and 2010, and the related consolidated statements of operations, stockholders’ equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of AGR Tools, Inc. as of June 30, 2011 and 2010, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has an accumulated deficit of $1,770,719, which raises substantial doubt about its ability to continue as a going concern. Management’s plans concerning these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ M&K CPAS, PLLC
Houston, Texas
October 13, 2011
www.mkacpas.com
AGR TOOLS, INC.
(formerly known as Laburnum Ventures, Inc.)
Consolidated Balance Sheets
(The accompanying notes are an integral part of these consolidated financial statements)
AGR TOOLS, INC.
(formerly known as Laburnum Ventures, Inc.)
Consolidated Statements of Operations
(The accompanying notes are an integral part of these consolidated financial statements)
AGR TOOLS, INC.
(formerly known as Laburnum Ventures, Inc.)
Consolidated Statements of Stockholder’s Deficit
For the Years Ended June 30, 2011 and 2010
(The accompanying notes are an integral part of these consolidated financial statements)
AGR TOOLS, INC.
(formally known as Laburnum Ventures, Inc.)
Consolidated Statements of Cash Flows
(The accompanying notes are an integral part of these consolidated financial statements)
1. Nature of Operations and Continuance of Business
Laburnum Ventures Inc. (the “Company”) was incorporated in the State of Nevada on March 11, 2004. On June 22, 2004, the Company acquired a 100% interest in five mineral claims located in the Similkameen Mining Division in British Columbia, Canada. In 2007 the Company abandoned these mineral claims. On September 10, 2009, the Company changed its name to AGR Tools, Inc. The Company was an exploration stage company, as defined by the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 915, “Development Stage Entities”.
AGR Stone & Tools USA, Inc. (“AGR USA”) was incorporated in the State of Texas on December 23, 2004 and is a manufacturer of diamond tooling and related products. The Company specializes in producing consumable tools for the natural stone, engineered stone, concrete and masonry industries.
Effective May 27, 2010, the Company closed a share exchange agreement with AGR USA. whereby the Company acquired all of the issued and outstanding shares of AGR USA. For financial statement reporting purposes, the share exchange was treated as a reverse acquisition with AGR USA deemed the accounting acquirer and the Company deemed the accounting acquiree under the purchase method of accounting in accordance with Accounting Standards Codification (“ASC”) 805-10-40, Business Combinations - Reverse Acquisitions. The reverse merger is deemed a recapitalization and the consolidated financial statements represent the continuation of the financial statements of AGR USA (the accounting acquirer/legal subsidiary) except for its capital structure, and the consolidated financial statements reflect the assets and liabilities of AGR USA recognized and measured at their carrying value before the combination and the assets and liabilities of the Company (the accounting acquiree/legal parent). The equity structure reflects the equity structure of the Company, the legal parent, and the equity structure of AGR Stone and Tools, USA, Inc., the accounting acquirer, as restated using the exchange ratios established in the share exchange agreement to reflect the numbers of shares of the legal parent.
2. Going Concern
These financial statements have been prepared on a going concern basis, which implies the Company will continue to realize its assets and discharge its liabilities in the normal course of business. The continuation of the Company as a going concern is dependent upon the continued financial support from its shareholders, the ability of management to raise additional equity capital through private and public offerings of its common stock, and the attainment of profitable operations. As at June 30, 2011, the Company had a net working capital deficit of $553,709 and has an accumulated deficit of $1,770,719 since inception. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern. These financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
3. Summary of Significant Accounting Policies
a) Basis of Presentation
These financial statements and related notes are presented in accordance with accounting principles generally accepted in the United States of America.
b) Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions related to allowance for doubtful accounts, inventory valuation, the useful lives and recoverability of long-lived assets, stock-based compensation and deferred income tax asset valuation allowances. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.
3. Summary of Significant Accounting Policies (continued)
c) Reclassification in prior period
Certain reclassifications to the financial statements have been made to prior period amounts to conform to the presentation of the current period.
d) Cash and Cash Equivalents
The Company considers all highly liquid instruments with maturity of three months or less at the time of issuance to be cash equivalents. There were no cash equivalents at June 30, 2011 and June 30, 2010.
e) Accounts Receivable
The Company recognizes allowances for doubtful accounts to ensure accounts receivable are not overstated due to the inability or unwillingness of its customers to make required payments. The allowance is based on the age of receivable and the specific identification of receivables the Company considers at risk. The allowance for doubtful accounts was $0 at June 30, 2011 and June 30, 2010.
f) Advances Receivable
The Company advanced amounts to two independent contractors who earn commissions for sales generated. On October 31, 2009, the Company placed these independent contractors on the payroll and ceased all advances. The Company obtained two promissory notes, each in the amount of $61,300, from these independent contractors for the amount owed. The notes carry an interest rate of 3% and are reduced by semi-monthly payroll deductions of $129.17, which are composed of principal and interest. The term of the notes is 5 years and a balloon payment is due at the end of the term of the loan for any unpaid principal and interest. The payments under these notes are deducted from the employees’ paychecks on a semi-monthly basis. The Company has recorded an allowance for doubtful accounts in the amount of $110,975 as of June 30, 2010. The amount reserved at June 30, 2010 is equal to the balloon payment due on the notes. As of June 30, 2011, a full valuation allowance was recorded based on an updated evaluation of the collectability of the receivable.
g) Inventory
Inventory consists of diamond tools and is carried at the lower of cost and market value. The Company uses the FIFO inventory costing method.
3. Summary of Significant Accounting Policies (continued)
h) Property and Equipment
Property and equipment are stated at cost. The Company depreciates the cost of property and equipment straight-line over their estimated useful lives:
Automotive
3 years
Computer equipment
3 years
Furniture and equipment
5 years
The depreciation expense for the years ended June 30, 2011 and 2010 were $5,855 and $14,547 respectively.
i) Corporate Taxes Receivable
Corporate taxes receivable pertain to refundable amounts owed to the Company for corporate taxes from the United States Treasury. These amounts are recorded at the value anticipated to be received based on tax returns filed.
j) Long-lived Assets
In accordance with ASC 360, Impairment or Disposal of Long-Lived Assets, the Company tests long-lived assets or asset groups for recoverability when events or changes in circumstances indicate that their carrying amount may not be recoverable. Circumstances which could trigger a review include, but are not limited to: significant decreases in the market price of the asset; significant adverse changes in the business climate or legal factors; accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of the asset; current period cash flow or operating losses combined with a history of losses or a forecast of continuing losses associated with the use of the asset; and current expectation that the asset will more likely than not be sold or disposed significantly before the end of its estimated useful life. Recoverability is assessed based on the carrying amount of the asset and its fair value which is generally determined based on the sum of the undiscounted cash flows expected to result from the use and the eventual disposal of the asset, as well as specific appraisal in certain instances. An impairment loss is recognized when the carrying amount is not recoverable and exceeds fair value. There was no impairment of long-lived assets for years ended June 30, 2011 and June 30, 2010.
k) Income Taxes
The Company accounts for income taxes using the asset and liability method in accordance with ASC 740, Accounting for Income Taxes. The asset and liability method provides that deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities and for operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company records a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized.
The Company files federal, state and local income tax returns in the U.S., as applicable. The open taxation years range from 2007 to 2009. In certain circumstances, the U.S. federal statute of limitations can reach beyond the standard three and six year period. U.S. state statutes of limitations for income tax assessment vary from state to state. Tax authorities of the U.S. have not audited any of the Company’s income tax returns for the open taxation years noted above.
3. Summary of Significant Accounting Policies (continued)
The Company recognizes interest and penalties related to uncertain tax positions in tax expense. During the years ended June 30, 2011 and June 30, 2010, there were no charges for interest or penalties.
l) Revenue Recognition
The Company earns revenue from the sale of diamond tooling and related products. The Company recognizes revenue in accordance with ASC 605, Revenue Recognition. Revenue is recognized when the price is fixed or determinable, persuasive evidence of an arrangement exists, the goods have been delivered, and collectability is reasonably assured. Sales returns are recognized as incurred. The amount of returns is not significant and the Company evaluates the need to record an allowance for each reporting period.
Payment is collected in advance of shipment. All goods are shipped FOB from the Company’s warehouse in Conroe, TX. Title passes when the goods leave the Company’s dock. The sale is recognized when shipment occurs. Prices are set by a definitive dealer price list and are agreed upon before payment occurs or the goods are shipped.
Generally, the Company has are no special arrangements with dealers. All sales are paid in advance and the Company generally does not allow returns for merchandise purchased by dealers. The Company will, however, allow returns pertaining to the initial order placed by new dealers with a 20% restocking charge for those items that prove to be slow moving for their customer base. No warranty is offered. The amount of these returns is not significant and the Company evaluates the need to record an allowance each reporting period.
m) Financial Instruments and Fair Value Measures
ASC 820, Fair Value Measurements and Disclosures, and ASC 825, Financial Instruments, requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair ASC 820, Fair Value Measurements and Disclosures and ASC 825, Financial Instruments requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instruments categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 820 prioritizes the inputs into three levels that may be used to measure fair value:
Level 1
Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
Level 2
Level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.
3. Summary of Significant Accounting Policies (continued)
m) Financial Instruments and Fair Value Measures (continued)
Level 3
Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.
The Company’s financial instruments consist principally of cash, accounts receivable, advances receivable, bank demand loan, accounts payable, accrued liabilities, corporate taxes payable/receivable, loans payable, and amount due to a related party. Pursuant to ASC 820, the fair value of cash is determined based on Level 1 inputs, which consist of quoted prices in active markets for identical assets. The recorded values of all other financial instruments approximate their current fair values because of their nature and respective maturity dates or durations.
n) Concentrations
As at June 30, 2011, 91% (June 30, 2010 - 89%) of accounts receivable is comprised of two customers (June 30, 2010 - four customers). As at June 30, 2011, the specific concentrations of each customer included in this total were 65% and 26%. As at June 30, 2010, the specific concentrations of each customer included in this total were 40%, 17%, 16% and 16%. During the year ended June 30, 2011, the Company has three customers that total 51% of its revenue. The specific concentrations of each customer included in this total were 26%, 14% and 11%.
o) Stock-based Compensation
The Company records stock-based compensation in accordance with ASC 718, Compensation Stock Compensation using the fair value method. All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable.
The Company uses the Black-Scholes option pricing model to calculate the fair value of stock-based awards. This model is affected by the Company’s stock price as well as assumptions regarding a number of subjective variables. These subjective variables include, but are not limited to the Company’s expected stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors. The value of the portion of the award that is ultimately expected to vest is recognized as an expense in the statement of operations over the requisite service period.
p) Earnings (Loss) Per Share
The Company computes earnings per share (“EPS’) in accordance with ASC 260, “Earning Per Share”. ASC 260 requires companies with complex capital structures to present basic and diluted EPS. Basic EPS is measured as net income divided by the weighted average common shares outstanding for the period. Diluted EPS is similar to basic EPS but presents the dilutive effect on a per share basis of potential common shares (e.g., convertible securities, options and warrants) as if they had been converted at the beginning of the periods presented, or issuance date, if later. Potential common shares that have an anti-dilutive effect (i.e., those that increase income per share or decrease loss per share) are excluded from the calculation of diluted EPS. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive. All potentially dilutive shares as of June 30, 2011 were anti-dilutive. There were no potentially dilutive shares as of June 30, 2010.
3. Summary of Significant Accounting Policies (continued)
q) Comprehensive Loss
ASC 220, Comprehensive Income, establishes standards for the reporting and display of comprehensive loss and its components in the financial statements. As at June 30, 2011 and June 30, 2010, the Company has no items that represent a comprehensive loss and, therefore, has not included a schedule of comprehensive loss in the financial statements.
r) Recent Accounting Pronouncements
In May 2011, the Financial Accounting Standards Board (FASB) issued ASU 2011-04, “Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs” (ASU 2011-04), which is effective for annual reporting periods beginning after December 15, 2011. This guidance amends certain accounting and disclosure requirements related to fair value measurements. Additional disclosure requirements in the update include: (1) for Level 3 fair value measurements, quantitative information about unobservable inputs used, a description of the valuation processes used by the entity, and a qualitative discussion about the sensitivity of the measurements to changes in the unobservable inputs; (2) for an entity’s use of a nonfinancial asset that is different from the asset’s highest and best use, the reason for the difference; (3) for financial instruments not measured at fair value but for which disclosure of fair value is required, the fair value hierarchy level in which the fair value measurements were determined; and (4) the disclosure of all transfers between Level 1 and Level 2 of the fair value hierarchy. ASU 2011-04 will become effective for the Company on April 1, 2012. We are currently evaluating ASU 2011-04 and have not yet determined the impact that adoption will have on our financial statements.
In June 2011, the FASB issued ASU 2011-05, “Comprehensive Income (Topic 220): Presentation of Comprehensive Income” (ASU 2011-05), which is effective for annual reporting periods beginning after December 15, 2011. ASU 2011-05 will become effective for the Company on April 1, 2012. This guidance eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity. In addition, items of other comprehensive income that are reclassified to profit or loss are required to be presented separately on the face of the financial statements. This guidance is intended to increase the prominence of other comprehensive income in financial statements by requiring that such amounts be presented either in a single continuous statement of income and comprehensive income or separately in consecutive statements of income and comprehensive income. The adoption of ASU 2011-05 is not expected to have a material impact on our financial position or results of operations.
In December 2010, the FASB issued ASU 2010-29, “Business Combinations (Topic 805): Disclosure of supplementary pro forma information for business combinations.” This update changes the disclosure of pro forma information for business combinations. These changes clarify that if a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. Also, the existing supplemental pro forma disclosures were expanded to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. These changes become effective for the Company beginning January 1, 2011. The Company’s adoption of this update did not have an impact on the Company’s financial condition or results of operations.
3. Summary of Significant Accounting Policies (continued)
r) Recent Accounting Pronouncements (continued)
In December 2010, the FASB issued ASU 2010-28, “Intangible -Goodwill and Other (Topic 350): When to perform Step 2 of the goodwill impairment test for reporting units with zero or negative carrying amounts.” This update requires an entity to perform all steps in the test for a reporting unit whose carrying value is zero or negative if it is more likely than not (more than 50%) that a goodwill impairment exists based on qualitative factors, resulting in the elimination of an entity’s ability to assert that such a reporting unit’s goodwill is not impaired and additional testing is not necessary despite the existence of qualitative factors that indicate otherwise. These changes become effective for the Company beginning January 1, 2011. The adoption of this ASU did not have a material impact on our financial
4. Property and Equipment
5. Bank Indebtedness
The Company has a revolving bank credit line with a limit of $24,300 which bears interest at 9.75% per annum and is secured by a personal guarantee of the Vice-President of the Company. The balance in this account at June 30, 2011 was $21,126 (June 30, 2010 - $19,532).
6. Acquisition
During the year ended June 30, 2010, the Company entered into a share exchange agreement with AGR USA, the legal subsidiary of the parent company.
On May 27, 2010, the closing date, and the deemed date of the acquisition of AGR USA, the Company acquired 100% of the issued and outstanding stock of AGR USA in a reverse merger in consideration for the issuance of 46,186,516 shares of the Company’s common stock. The management and board of directors of AGR USA replaced the management and board of directors of the Company. The management of AGR USA retains control of the Company after the acquisition. The acquisition was closed pursuant to the New Share Exchange Agreement, as amended by an Amendment to the New Share Exchange Agreement, also dated May 27, 2010.
This transaction has been accounted for, using the purchase method of accounting, as a reverse acquisition because the acquiring entity has been identified, in accordance with ASC 805- 10-40, as AGR USA. The Company is the legal parent and is deemed to be a continuation of the business of the legal subsidiary, AGR USA. The post-acquisition entity is accounted for as a recapitalization of AGR USA.
7. Convertible Notes and Loans Payable
During the year ended June 30, 2011, the Company issued convertible notes for a total principal of $45,000 and $45,000, respectively. These notes carry an 8% annual interest rate. These convertible notes of $45,000 each have stated terms as the following, convertible at the greater of a fixed conversion price of $.00009 or 55% of lowest average 3 trading price over 10 days preceding the day of the note. In addition, there is a cap on the number of shares convertible under the note to prevent a derivative and these subordinated convertible debentures may have conversion prices that at issuance could be lower than the fair market value of the underlying stock.
In addition, the Company recognized and measured the embedded beneficial conversion feature present in the convertible debts by allocating a portion of the proceeds equal to the intrinsic value of the feature to additional paid-in-capital. The intrinsic value of the feature was calculated on the commitment date using the effective conversion price of the convertible debt. This intrinsic value is limited to the portion of the proceeds allocated to the convertible debt. This beneficial conversion feature is amortized as a non-cash interest expense from the issuance date of the debenture through the earlier of the stated redemption date, which is nine months from issuance, or conversion into common stock. The amortization was calculated on a quarterly basis using the effective interest method. The offset was a credit to the discount. The notes were discounted $82,506 at issuance for a carrying value of $7,494. During the year ending June 30, 2011, the notes were accreted $67,366 and have a balance as of June 30, 2011 of $64,860.
During the year ended June 30, 2011, the company issued non-convertible promissory notes in the amount of $325,000. There were three notes and they were denominated in the amounts of $25,000, $100,000, and $200,000. The note with a face value of $25,000 is due on August 13, 2011 and accrues interest of 12%. The notes with face values of $100,000 and $200,000 are due on December 14, 2011 and accrue interest of 12%. The note issued for $200,000 was issued as a payment for services rendered to a third party.
8. Related Party Transactions
a) During the year ended June 30, 2011, the Company incurred consulting fees of $Nil (2010: $12,148) and rent of $3,750 (2010: $6,000) to the President of the Company. As of June 30, 2011, the Company owes $12,500 to the President of the Company.
b) During the year ended June 30, 2011, the Company incurred rent of $3,750 (2010: $6,000) to the Secretary and Treasurer of the Company. As of June 30, 2011, the Company owes $2,024 to the Secretary and Treasurer of the Company.
c) During the year ended June 30, 2011, the Company cancelled 25,000,000 shares from the former President of the Company.
d) As at June 30, 2011, the Company owes a total of $Nil (June 30, 2010 - $59,370) to the Secretary/Treasurer of the Company which bear 4% interest, is unsecured and due on July 1, 2015. $80,844 of debt was exchanged for 808,440 in common shares on October 6, 2010.
e) On October 6, 2010, the Company exchanged the $25,000 promissory note and accrued interest, totaling $30,395, for 620,306 common shares.
f) October 6, 2010, the Company exchanged $208,846 in related party debt for 2,088,460 common shares to a shareholder of the Company.
g) On January 9, 2011, the Company cancelled 2,088,460 shares from a former director of the Company.
h) As at June 30, 2011, the Company owes $1,961 to a company director.
9. Common Stock
Stock transactions during the year ended June 30, 2010:
a) On May 27, 2010, in connection with the reverse merger as described in Note 1 and Note 6, the Company issued 46,186,516 shares of common stock.
b) During the year ended June 30, 2010, several related parties waived payment of accrued payroll as of that date in the total amount of $220,420. The reduction of accrued liabilities in the balance sheet was offset by an increase in additional paid-in capital.
c) During the year ended June 30, 2010, the Company recognized $32,971 in imputed interest on related party loans.
Stock transactions during the year ended June 30, 2011:
a) On September 1, 2010, the Company cancelled 25,000,000 shares from the former President of the Company
b) On October 16, 2010, the Company issued 5,200,120 shares to related parties to extinguish $520,012 in debt at $0.10 per share.
c) On December 31, 2010, the Company issued 300,000 common shares at $0.05 per share for payment of consulting fees.
d) On January 9, 2011, the Company cancelled 2,088,460 shares from a former director of the Company.
e) On May 16, 2011, the Company issued 3,225,806 shares at $.0031 per share to convert debt in the amount of $10,000 in accordance with the terms of the convertible note. No gains or loss on the conversion was recognized.
10. Deposits and fees
During the month of June 2011, the Company incurred $325,000 pertaining to deposits and fees related to the purchase of an interest in a letter of intent to acquire assets. Through the date of this report, the Company has not finalized any acquisition pursuant to this letter of intent and there is no assurance that an agreement will be reached. Due to the fact that the amounts paid do not represent a future economic benefit, the amounts are expensed during the period ending June 30, 2011.
11. Income Taxes
During the years ending June 30, 2011 and 2010, the Company incurred tax losses which may be applied against future taxable income. The potential tax benefits arising from these losses carried forward expires beginning in 2029 and is offset by a valuation allowance due to the uncertainty of profitable operations in the future. The net operating losses carried forward were $1,115,019 as at June 30, 2011. The significant components of the deferred income tax asset as at June 30, 2011 are as follows:
12. Litigation
The company is not aware of any pending or threatened litigation through the date of these financial statements.
13. Subsequent events
There are no subsequent events to disclose through the date of this filing.
Item 9.
Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure
On June 28, 2010, we formally informed Saturna Group of their dismissal as our independent accountant and engaged M&K CPAS, PLLC ("M&K") as our new independent accountant. The decision to dismiss Saturna Group was a result of a change in our principal offices from Canada to Texas upon our acquisition of AGR USA and was approved by our Board of Directors, acting as the audit committee, on June 28, 2010.
During our fiscal year ended October 31, 2009, and through June 28, 2010, neither we nor anyone on our behalf consulted with M&K regarding any of the following:
(i)
either the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on our consolidated financial statements, and neither a written report nor oral advice was provided to us that M&K concluded was an important factor considered by us in reaching a decision as to any accounting, auditing or financial reporting issue; or
(ii)
any matter that was either the subject of a disagreement (as defined in Item 304(a)(1)(iv) of Regulation S-K and the related instructions to Item 304 of Regulation S-K) or a reportable event (as defined in Item 304(a)(1)(v) of Regulation S-K).
The report of Saturna Group regarding our financial statements for the fiscal year ended October 31, 2009 did not contain any adverse opinion or disclaimer of opinion and was not qualified or modified as to uncertainty, audit scope or accounting principles, except to indicate that there was substantial doubt about our ability to continue as a going concern.
During the fiscal year ended October 31, 2009 and through June 28, 2010 there were no disagreements (as defined in Item 304(a)(1)(iv) of Regulation S-K and the related instructions to Item 304 of Regulation S-K) with Saturna Group on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedures, which disagreements, if not resolved to the satisfaction of Saturna Group, would have caused it to make reference thereto in connection with its report.
During the fiscal year ended October 31, 2009 and through June 28, 2010, there were no reportable events (as defined in Item 304(a)(1)(v) of Regulation S-K), except that our Board of Directors discussed with Saturna Group the existence of material weaknesses in our internal control over financial reporting, as more fully described in our amended Annual Report on Form 10-K/A for the year ended October 31, 2009, filed on February 26, 2010 with the SEC.
We requested that Saturna Group furnish us with a letter addressed to the SEC stating whether or not it agrees with the above statements and, if it does not agree, the respects in which it does not agree. A copy of the letter, dated July 2, 2010, was filed as Exhibit 16.1 to our current report on Form 8-K filed with the SEC on July 6, 2010.
Item 9A.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures, as defined in Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Securities Exchange Act of 1934 (the "Exchange Act"), that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
As of the end of the period covered by this report, our management, with the participation of our Chief Executive Officer and Chief Financial Officer, carried out an evaluation of the effectiveness of our disclosure controls and procedures. Based upon this evaluation, and the material weaknesses outlined in our Management Report on Internal Control Over Financial Reporting, our management concluded that our disclosure controls and procedures were not effective to ensure that information we are required to disclose in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information was not accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
Management Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining effective internal control over financial reporting. Under the supervision of our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of June 30, 2011 using the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. In our assessment of the effectiveness of internal control over financial reporting as of June 30, 2011, we determined that there were control deficiencies that constituted material weaknesses, as described below.
1.
Certain entity level controls establishing a “tone at the top” were considered material weaknesses. We did not establish an audit committee until September 30, 2009. We do not have a formal policy on fraud.
2.
Management override of existing controls is possible given our small size and lack of personnel.
3.
We do not have a system in place to review and monitor internal control over financial reporting. We maintain an insufficient complement of personnel to carry out ongoing monitoring responsibilities and ensure effective internal control over financial reporting.
Management is currently evaluating remediation plans for the above control deficiencies.
In light of the existence of these control deficiencies, we concluded that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis by our internal controls.
As a result of the material weaknesses described above, management has concluded that we did not maintain effective internal control over financial reporting as of June 30, 2011 based on criteria established in Internal Control-Integrated Framework issued by COSO.
Changes in Internal Control
During the fiscal quarter ended June 30, 2011 there were no changes in our internal control over financial reporting (as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Exchange Act) that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B.
Item 9B. Other Information
On September 28, 2010, Michal Killman resigned as our Chief Financial Officer and Principal Accounting Officer and we appointed John Kuykendall, our Secretary, Treasurer and director, to fill the resulting vacancies. Mr. Killman’s resignation was not the result of any disagreement with us regarding our operations, policies, practices or otherwise.
PART III
Item 10.
Item 10. Directors, Executive Officers and Corporate Governance
The following table sets forth the name, age and position of our executive officers and directors as of December 29, 2011.
Our current directors will serve as such until our next annual shareholder meeting or until their successors are elected and qualified. Our executive officers serve at the discretion of our Board of Directors. There are no arrangements, agreements or understandings between non-management security holders and management under which non-management security holders may directly or indirectly participate in or influence the management of our affairs.
Rock Rutherford - President, Chief Executive Officer, Director
Rock Rutherford is 67 years of age and has been our President and Chief Executive Officer since August 7, 2009 and our director since September 9, 2010.
Mr. Rutherford has been an international trader and business consultant specializing in the Chinese market since 1983. He has been living and conducting business in Asia for more than thirty five years and was involved in the first trade fair held in Beijing through the offices of the United Nations in 1985. Mr. Rutherford is currently an advisor to the World Import/Export Bank for the development of American manufacturing and export of American made products into China. He also works with the U.S. State Department in advising American development with the commerce sections of the U.S. Embassies in mainland China.
From 1994 to 2001, Mr. Rutherford was the Chief Executive Officer and Managing Director of CPR Ltd. and was responsible for all of its mining and commodities operations in Asian and East Africa. From 2001 to the present, Mr. Rutherford has served as the Chief Executive Officer and Managing Director for AGR Stone & Tools USA, Inc., our wholly owned subsidiary.
Mr. Rutherford is currently a director of Global Security Agency Inc., a company whose common stock is quoted on the OTC Bulletin Board under the symbol “GSAG”, and has served as such since April 8, 2010. Other than that, he has not been a director of any company with a class of securities registered pursuant to section 12 of the Exchange Actor subject to the requirements of section 15(d) of the Exchange Act, or any company registered as an investment company under the Investment Company Act of 1940 during the past five years.
John Kuykendall - Secretary, Treasurer, Director
John Kuykendall is 70 years of age and has been our Secretary and Treasurer since August 7, 2009, our Chief Financial Officer and Principal Accounting Officer since September 28, 2010 and our director since September 9, 2010.
Mr. Kuykendall is one of the founders of AGR Stone & Tools USA, Inc., our wholly owned subsidiary. He began the company in 2001, is presently engaged as its Secretary and Treasurer and is responsible for all of its financial functions. Earlier in his career, he was the part owner and Chief Financial Officer of Home Furniture Company, one of the larger retail furniture chains in the southwest United States. Since 1986, he has acted as the principal of John D. Kuykendall, CPA, LLC, a position he continues to occupy today. He has been practicing as a Certified Public Accountant for the last twenty years and has clients based in Austin, San Antonio and Houston.
Mr. Kuykendall received a B.B.A. degree from Southern Methodist University and is licensed as a Certified Public Accountant in the State of Texas. He is currently a director of Global Security Agency Inc., a company whose common stock is quoted on the OTC Bulletin Board under the symbol “GSAG”, and has served as such since April 8, 2010. Other than that, he has not been a director of any company with a class of securities registered pursuant to section 12 of the Exchange Actor subject to the requirements of section 15(d) of the Exchange Act, or any company registered as an investment company under the Investment Company Act of 1940 during the past five years.
Michael Todd Rutherford - Vice President of Information Technology, Director
Michael Todd Rutherford is 40 years of age and has been our Vice President of Information Technology since August 7, 2009 and our director since September 9, 2010.
Mr. Rutherford is an information technology professional with management experience in a broad array of industries spanning the past 17 years. He has served numerous systems management functions on Department of Defense research projects and clients such as Bank of America and Fleet Mortgage. He has served as IT Director for several commodities companies located in the EU and Far East. He has helped coordinate multi-million dollar expansions and upgrades of corporate data centers including the implementation of cutting-edge server virtualization technology that has resulted in significant cost savings and expanded technological flexibility for these facilities.
From 2001 to the present, Mr. Rutherford has been working with Memorial Hospitals as a Systems Manager in charge of all technology systems including voice and data networks for multiple facilities. From 2006 to the present he has also been working as Vice President of Information Technology with AGR Stone & Tools USA, Inc. He has been responsible for the strategy and implementation of all network and computer systems for the enterprise involving all aspects of information technologies research including hardware, software and services specification.
During the past five years, Mr. Rutherford has not been a director of any company with a class of securities registered pursuant to section 12 of the Exchange Act or subject to the requirements of section 15(d) of the Exchange Act, or any company registered as an investment company under the Investment Company Act of 1940.
Significant Employees
Other than our executive officers, we have no employees that make a significant contribution to our business.
Family Relationships
Rock Rutherford, our President, Chief Executive Officer and director, is the father of Michael Todd Rutherford, our Vice President of Information Technology and director. Other than that, there are no family relationships among our directors or executive officers.
Legal Proceedings
None of our directors, executive officers, promoters or control persons has been involved in any of the following events during the past ten years:
·
any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time;
·
any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offences);
·
being subject to any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining or otherwise limiting his involvement in any type of business, securities or banking activities;
·
being found by a court of competent jurisdiction in a civil action or by the SEC or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been subsequently reversed, suspended, or vacated;
·
any judicial or administrative proceedings resulting from involvement in mail or wire fraud or fraud in connection with any business activity;
·
and judicial or administrative proceedings based on violations of federal or state securities, commodities, banking or insurance laws and regulations, or any settlement to such actions; or
·
any disciplinary sanctions or orders imposed by a stock, commodities or derivatives exchange or other self-regulatory organization.
Section 16(a) Beneficial Ownership Compliance Reporting
Section 16(a) of the Exchange Act requires our directors, executive officers and persons who own more than 10% of our common stock to file reports regarding ownership of, and transactions in, our securities with the SEC and to provide us with copies of those filings. Based solely on our review of the copies of such forms received by us, we believe that during fiscal year ended June 30, 2011, our directors, executive officers and 10% stockholders complied with all applicable filing requirements.
Code of Ethics
We have not yet adopted a code of ethics that applies to our Chief Executive Officer, Chief Financial Officer, Principal Accounting Officer or controller, or persons performing similar functions due to our size and limited financial resources. We plan to adopt a code of ethics as our business develops.
Audit Committee
On September 30, 2009 we established an audit committee and directed the audit committee to carry out its duties in accordance with a charter. A current copy of our audit committee charter is not yet available to our security holders on our website, but we plan to make it available in the near future. Rock Rutherford, John Kuykendall and Michael Todd Rutherford are the members of our audit committee.
Our audit committee has:
·
reviewed and discussed our audited financial statements with management;
·
recommended to our Board of Directors that the audited financial statements be included this Annual Report on Form 10-K;
·
discussed with our independent auditors the matters required to be discussed by the statement on Auditing Standards No. 61, as amended (AICPA, Professional Standards, Vol. 1, AU section 380), as adopted by the Public Company Accounting Oversight Board (the “PCAOB”) in Rule 3200T; and
·
received the written disclosures and the letter from the independent accountant required by applicable requirements of the PCAOB regarding the independent accountant’s communications with the audit committee concerning independence, and discussed with the independent accountant the independent accountant's independence.
Our Board of Directors has determined that we do not have an audit committee financial expert serving on our audit committee. The Board has determined that the cost of hiring an audit committee financial expert to do so outweighs the benefits of having such a financial expert serving on our audit committee.
Nominating Committee
Due to our size and limited financial resources, we do not have a nominating committee and we have not undertaken any material changes to the procedures by which security holders may recommend nominees to our Board of Directors since our last Annual Report on Form 10-K.
Item 11.
Item 11. Executive Compensation
The following summary compensation table sets forth the total annual compensation awarded to, earned by or paid to our Chief Executive Officer and Chief Financial Officer during our fiscal years ended June 30, 2011 and 2010. None of our other executive officers or any other individual received total compensation in excess of $100,000 during such fiscal years.
We have omitted certain columns in the summary compensation table pursuant to Item 402(a)(5) of Regulation S-K.
Name and Principal Position
Year
Salary
($)
Total
($)
Rock Rutherford, CEO
5,000
5,000
60,550
60,550
Name and Principal Position
Year
Salary
($)
Total
($)
John Kuykendall, CFO
2,500
2,500
40,367
40,367
Pension, Retirement or Similar Benefit Plans
There are no arrangements or plans pursuant to which we provide pension, retirement or similar benefits to our directors or executive officers. We have no material bonus or profit sharing plans pursuant to which cash or non-cash compensation is or may be paid to our directors or executive officers, except that stock options may be granted at the discretion of our Board of Directors.
Compensation Committee
We currently do not have a compensation committee of the Board of Directors or a committee performing a similar function. It is the view of the Board that it is appropriate for us not to have such a committee because of our size and because the Board as a whole determines executive compensation.
Compensation of Directors
We reimburse our directors for expenses incurred in connection with attending board meetings but have not paid any director's fees or other compensation to our directors for services rendered.
We have no standard arrangement pursuant to which our directors are compensated for their services in their capacity as directors.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
We do not have any compensation plans or individual compensation arrangements under which our securities are authorized for issuance to either employees or non-employees.
The following table sets forth the ownership, as of December 29, 2011, of our common stock by each of our directors, by all of our executive officers and directors as a group and by each person known to us who is the beneficial owner of more than 5% of any class of our securities. As of December 29, 2011, there were 87,823,986 shares of our common stock issued and outstanding. All persons named have sole or shared voting and investment control with respect to the shares, except as otherwise noted. The number of shares described below includes shares which the beneficial owner described has the right to acquire within 60 days of the date of this Annual Report.
(1)
Mr. Rutherford is our President, Chief Executive Officer and director.
(2)
Mr. Kuykendall is our Chief Financial Officer, Principal Accounting Officer, Secretary, Treasurer and director.
(3)
Mr. Rutherford is our Vice President of Information Technology and director.
Change of Control
There are no arrangements known to us the operation of which may, at a subsequent date, result in a change in our control.
Item 13.
Item 13. Certain Relationships and Related Transactions, and Director Independence
During the year ended June 30, 2011, the Company incurred consulting fees of $Nil (2010: $12,148) and rent of $3,750 (2010: $6,000) to Rock Rutherford, the President of the Company. As of June 30, 2011, the Company owes $12,500 to Mr. Rutherford.
During the year ended June 30, 2011, the Company incurred rent of $3,750 (2010: $6,000) to John Kuykendall, the Secretary and Treasurer of the Company. As of June 30, 2011, the Company owes $2,024 to Mr. Kuykendall.
During the year ended June 30. 2011, the Company cancelled 25,000,000 shares from Tom Brown, the former President of the Company.
As at June 30, 2011, the Company owes a total of $Nil (June 30, 2010 - $59,370) to Mr. Kuykendall, which bear 4% interest, is unsecured and due on July 1, 2015. $80,844 of debt was exchanged for 808,440 in common shares on October 6, 2010.
On October 6, 2010, the Company exchanged the $25,000 promissory note and accrued interest, totaling $30,395, for 620,306 common shares with Mr. Rutherford.
October 6, 2010, the Company exchanged $208,846 in related party debt for 2,088,460 common shares to Richard Smith, a shareholder of the Company.
On January 9, 2011, the Company cancelled 2,088,460 shares from Michael Chapman a former director of the Company.
As at June 30, 2011, the Company owes $1,961 to a company director.
Related party transactions are not pre-approved unless they are deemed to be extraordinary transactions, in which case they would be pre-approved by our Board of Directors and any interested director would abstain from voting on such matters.
There have been no other transactions since the beginning of our last fiscal year or any currently proposed transactions in which we are, or plan to be, a participant and the amount involved exceeds the lesser of $120,000 or 1% of the average of our total assets for the last two completed fiscal years, and in which any related person had or will have a direct or indirect material interest.
Director Independence
We currently have three directors, none of whom is considered to be independent under applicable SEC rules
Item 14.
Item 14. Principal Accountant Fees and Services
The following table sets forth the fees for professional services rendered by our auditors in connection with the audit of our financial statements for the years ended June 30, 2011 and 2010 and the review of our quarterly financial statements during such years, as well as any other fees billed for services rendered by our auditors during these periods:
Since our inception, our Board of Directors, performing the duties of the audit committee, has reviewed all audit fees and non audit-related fees at least annually. The Board, acting as the audit committee, pre-approved all audit related services for the year ended June 30, 2011.
PART IV
Item 15.
Item 15. Exhibits, Financial Statement Schedules
Exhibit
Number
Exhibit
Description
3.1
Articles of Merger and Plan of Merger filed with the Nevada Secretary of State on September 15, 2009 (1)
10.1
Share Exchange Agreement with AGR Stone & Tools USA, Inc. dated July 21, 2009 (2)
10.2
Share Exchange Agreement with AGR Stone & Tools USA, Inc. dated October 29, 2009 (3)
31.1
Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) promulgated under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2
Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) promulgated under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1
Certification of the Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2
Certification of the Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(1) Included as an exhibit to our Current Report on Form 8-K filed on September 16, 2009.
(2) Included as an exhibit to our Current Report on Form 8-K filed on July 27, 2009.
(3) Included as an exhibit to our Current Report on Form 8-K filed on November 2, 2009.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Pursuant to the requirements of the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
SIGNATURE
TITLE
DATE
/s/ Rock Rutherford
President, Chief Executive Officer, Director
December 29, 2011
Rock Rutherford
/s/ John Kuykendall
Chief Financial Officer, Principal Accounting Officer, Secretary, Treasurer, Director
December 29, 2011
John Kuykendall
/s/ Michael Todd Rutherford
Vice President of Information Technology, Director
December 29, 2011
Michael Todd Rutherford