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Subsequent Events
6 Months Ended
Dec. 31, 2014
Subsequent Events [Abstract]  
Subsequent Events
Note 5. Subsequent Events
 
The Company evaluated all events or transactions that occurred after December 31, 2014 up through date the Company issued these financial statements and determined there were the following reportable events:
 
On May 5, 2014, Valor Invest Ltd. ("Valor"), on the Company's behalf, entered into a non-binding term sheet (the "Term Sheet"), pursuant to which it was contemplated that a newly-formed, Canadian wholly-owned subsidiary of the Registrant would merge with and into the Urban Cultivator Inc., a British Colombia corporation ("UC"), BC Northern Lights Enterprises Ltd., a British Colombia corporation ("BCNL"), and W3 Metal Inc., a British Colombia corporation ("W3," and together with UC and BCNL, the "Borrowers") (the "Merger"), as a result of which the Company would acquire all of the issued and outstanding capital stock of the Borrowers and the Borrowers would become wholly-owned subsidiaries of the Registrant through its Canadian subsidiary.  The Borrowers are private companies engaged in the business of manufacturing and selling commercial and residential hydroponic growing systems.
 
Pursuant to the terms of the Term Sheet, the Company agreed to provide bridge financing (the "Bridge Financing") to the Borrowers in exchange for Bridge Notes (defined below) and, between May 5, 2014 and October 9, 2014, the Company loaned to the Borrowers an aggregate of $760,000 in Bridge Financing. To finance the Bridge Financing, the Company sold an aggregate of $1,196,000 of its 10% Secured Convertible Promissory Notes (the "Investor Notes").  The Company used the balance of funds raised through the sale of the Investor Notes for working capital purposes.
 
The Investor Notes were offered and sold in a private placement (the "Notes Offering") to a limited number of non-U.S. persons pursuant to the exemptions from the registration requirements of the Securities Act of 1933, as amended (the "Securities Act"), provided by Section 4(a)(2) of, and Regulation S under, the Securities Act.  The Investor Notes bear interest at a rate of 10% per annum and are for a term of 8 months ("Maturity").  The Investor Notes are automatically convertible, subject to a 4.99% conversion blocker, upon closing of the Merger into units (the "Units"), at a conversion price of $0.30 per Unit.  Each Unit consists of one (1) share of the Registrant's common stock, $0.001 par value per share (the "Common Stock"), and a warrant to purchase one (1) share of Common Stock at an exercise price of $0.35 per share for two (2) years.
 
Upon the closing of the Merger, the Registrant shall issue to each of the Investors warrants (the "Bridge Warrants") to purchase a number of shares of Common Stock equal to one hundred percent (100%) of the number of shares of Common Stock comprising the Units issuable upon conversion of the Investor Notes, exercisable at a price of $0.35 per share, exercisable for two (2) years from the closing of the Merger.  The Bridge Warrants will have weighted average anti-dilution protection.  If the Merger does not close, the Investor Notes must be repaid in full and with interest at maturity, and no Bridge Warrants will be issued.
 
The Bridge Financing is evidenced by Secured Bridge Loan Promissory Notes (the "Bridge Notes") from the Borrowers to the Company. The Investor Notes and the Bridge Notes are secured by all of the assets of the Borrowers. This security interest is subordinated to that of a certain bank providing an existing credit facility to the Borrowers. The Bridge Notes are for a term of eight months from the particular closings of the Bridge Financing pursuant to which the specific Bridge Notes were issued. The Bridge Notes bear interest at the rate of 10% per annum. All obligations under the Bridge Notes will be deemed repaid in full and canceled upon the closing of the Merger. If the Merger does not close, the Bridge Notes must be repaid in full, with interest, by the Borrowers.
 
The Investor Notes contain customary events of default and include a default by the Borrowers under the Bridge Notes.  If the Registrant defaults under the Investor Notes, the full principal amount of the Investor Notes will, at the Investor's option, become immediately due and payable in cash.  In addition, upon an event of default, the Investor Notes will begin to bear interest at a rate of 12% per annum, or such lower maximum amount of interest permitted to be charged under applicable law.
 
A default by Borrowers under the Bridge Notes, including but not limited to the failure to repay the Bridge Notes at Maturity if the Merger doesn't close, will cause the full principal amount of the Bridge Notes, at the Registrant's option, to become immediately due and payable in cash.  In addition, upon an event of default, the Bridge Notes will begin to bear interest at a rate of 12% per annum, or such lower maximum amount of interest permitted to be charged under applicable law, which interest rate will continue until all defaults are cured.
 
On October 3, 2014, the Company entered into a binding letter of intent (the "LOI") with 0838373 B.C. Ltd. ("Numbered Company"), Urban Cultivator Inc., a British Colombia corporation ("UC"), BC Northern Lights Enterprises Ltd., a British Colombia corporation ("BCNL"), and W3 Metal Inc., a British Colombia corporation ("W3," and together with Numbered Company, UC and BCNL, the "Target Companies"). This LOI replaced and superseded the non-binding term sheet (the "Term Sheet") dated May 5, 2014 entered into between Valor and the Target Companies relating to the Merger.
 
Pursuant to the LOI, it is contemplated that a newly-formed, wholly-owned Canadian subsidiary ("Subco") of the Company will merge with and into the Target Companies, as a result of which the Target Companies will become wholly-owned subsidiaries of the Company. The Merger will be conducted in a tax-efficient manner under the tax laws of Canada and the United States, and pursuant to which all of the outstanding shares of capital stock of the Target Companies will be cancelled in exchange for exchangeable shares of Subco (the "Exchangeable Shares"), which Exchangeable Shares must be exchanged by the holders thereof into shares of common stock, par value $0.001 per share (the "Common Stock"), of the Company on or before October 30, 2019. The Target Companies are private companies engaged in the business of manufacturing and selling commercial and residential hydroponic growing systems.
 
 
The Merger is subject to the completion and delivery by the Target Companies to the Company, and the acceptance as satisfactory by the Company, of two year audited consolidated financial statements of the Target Companies. Additionally, the binding nature of the LOI is contingent upon the Company delivering to the Borrowers by October 31, 2014 (or by November 7, 2014 at the latest), an additional $120,000 in Bridge Financing (as defined and discussed in detail below).  These funds were delivered to the Borrowers in a timely manner.
 
Although the LOI provides that the proposed Merger is expected to close on or before November 30, 2014, there has been a delay in the preparation of the audited financial statements of the Target Companies and it is now expected that the proposed Merger will close on or about March 15, 2015, although there can be no assurance that this will, in fact, happen.
 
Pursuant to the terms of the LOI, the Company agreed to provide additional bridge financing (the "Additional Bridge Financing") to the Borrowers on the last day of each of the months of September and October 2014 in the amount of $120,000 per month, on the same terms as those of the Bridge Financing. The Company delivered the September $120,000 Bridge Financing installment to the Borrowers on October 15, 2014. To date, the Company has provided the Borrowers with an aggregate of $1,000,000 to finance the Bridge Financing and the Additional Bridge Financing. To finance the Bridge Financing and the Additional Bridge Financing, the Company has sold an aggregate of $1,500,000 of its Investor Notes.
 
In addition to the sale of the Investor Notes and pursuant to the terms of the LOI, the Company intends to engage in a private placement of its Units (defined below) for at least an additional $1,500,000 in gross proceeds to the Company (the "Subsequent Offering"). The closing of the Subsequent Offering and the closing of the Merger is each a condition precedent to the other and both are planned and expected to close concurrently.
 
As of the closing of the Merger and pursuant to the terms of the LOI, the existing shareholders of the Company will retain 12,400,000 shares of Common Stock, after giving effect to a split-off of the Company's legacy business and the related contribution by the Company's current majority shareholder, and cancellation of, 22,000,000 shares of Common Stock. The Target Companies will receive 32,000,000 Exchangeable Shares which will be exchangeable for a like number of shares of Common Stock. The Exchangeable Shares will be issued pro rata, 5,000,000 shares to the shareholders of UC and 27,000,000 shares to the shareholders of 0838373 B.C. Ltd., the sole shareholder of BCNL and W3. Holders of the Investor Notes and purchasers of the Units will receive an aggregate of 10,000,000 shares of Common Stock and warrants to purchase an additional 15,000,000 shares of Common Stock. Brokers and finders may receive warrants to purchase up to an aggregate of approximately 2,000,000 shares of Common Stock.
 
As an incentive to provide ongoing assistance with the management of the Company post-Merger, the Company will allot to Tarren Wolfe, the principal stockholder and officer of the Target Companies, or his designated assigns, an additional 10,000,000 restricted shares (the "Earn-Out Shares") of Common Stock for allocation and release annually over a period of 5 years starting with fiscal 2015 and ending with fiscal 2019, with the first such release to occur following completion of the Company's post-Merger 2015 audited financial statements, on the basis of one (1) share of Common Stock to be issued for each $5 of revenue earned in such fiscal year.
 
Upon the closing of the Merger, the Board of Directors of the Company (the "Board") will consist of five (5) members, at least three (3) of whom will be independent. Two (2) of the independent directors will be nominated by Valor and the Target Companies upon mutual agreement and one (1) of the independent directors will be nominated by Tarren Wolfe. The remaining two (2) directors will be Tarren Wolfe, who will also be nominated as Chairman, and Eric Sloan. After the Merger closing, the Board will appoint a Chief Financial Officer and head of sales and marketing reasonably acceptable to all members of the Board. Frank Terzo, the Company's current sole officer and director will resign upon the Merger closing. The new executive officers of the Company and certain other designated employees will enter into employment agreements with the Company effective as of the closing of the Merger.
 
The holders of the Investor Notes, Bridge Warrants and Units will have certain demand registration rights and, under certain circumstances, the holders of the shares of Common Stock issuable upon exchange of the Exchangeable Shares and the recipients of the Earn-Out Shares may have demand registration rights as well.
 
The Company has agreed to pay a finder a fee of $50,000 for introducing the Investors to the Company. The Company may pay finders' fees and broker commissions in connection with the offer and sale of Units in the Subsequent Closing.
 
Because of the delay in the closing of the proposed Merger, the Company's initial loan to the Target Companies in the amount of $400,000 became due and payable on January 20, 2015 and a second loan to the Target Companies in the amount of $120,000 became due and payable on February 4, 2015. The Company intends to extend the maturity date on these loans until the Merger closes, upon which time, in accordance with the terms of the LOI, these loans as well as the additional $480,000 in Bridge Financing to the Target Companies will be forgiven. There can be no guarantee, however, that the Merger will close.