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EX-31.1 - SEC. 302 CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER - Urban Barns Foods Inc.exhibit31-1.htm
EX-32.1 - SEC. 906 CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER - Urban Barns Foods Inc.exhibit32-1.htm
EX-32.2 - SEC. 906 CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER - Urban Barns Foods Inc.exhibit32-2.htm
EX-31.2 - SEC. 302 CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER - Urban Barns Foods Inc.exhibit31-2.htm
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended October 31, 2012

[   ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______________________ To ______________________

Commission file number: 000-53942

URBAN BARNS FOODS INC.
(Exact name of registrant as specified in its charter)

Nevada N/A
(State or other jurisdiction of incorporation or (I.R.S. Employer Identification No.)
organization)  
   
7170 Glover Road  
Milner, B.C., Canada V0X 1T0 604-888-0420
(Address of principal executive offices) (Zip Code) (Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was require to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes [X]     No [   ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer [   ] Accelerated filer [   ] Non-accelerated filer [   ] Smaller reporting company [X]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes [   ]     No [X]

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.

[   ] Yes     [   ] No

APPLICABLE ONLY TO CORPORATE ISSUERS

As of December 13, 2012 the registrant’s outstanding common stock consisted of 148,821,165 shares.


Table of Contents



PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

The unaudited interim financial statements of Urban Barns Foods Inc. (the “Company”, “Urban Barns”, “we”, “our”, “us”) follow. All currency references in this report are to U.S. dollars unless otherwise noted.

 

 

URBAN BARNS FOODS INC.

(A Development Stage Company)

Consolidated Financial Statements

For the period ended October 31, 2012

(Expressed in U.S. dollars)

 

 

Financial Statement Index

Consolidated Balance Sheets F–2
   
Consolidated Statements of Operations F–3
   
Consolidated Statements of Cash Flows F–4
   
Notes to the Consolidated Financial Statements F–5


URBAN BARNS FOODS INC.
(A Development Stage Company)
Consolidated Balance Sheets
(expressed in U.S. dollars)

    October 31,     July 31,  
    2012     2012  
    $     $  
    (unaudited)        
ASSETS            
Current assets            
   Cash   239,403     24,051  
   Prepaid expenses and deposits (Note 8)   160,010     12,208  
Total current assets   399,413     36,259  
Deferred financing costs   1,335     4,438  
Property and equipment (Note 3)   117,834     117,420  
Intangible assets (Note 4)   34,353     33,211  
Total assets   552,935     191,328  
             
LIABILITIES AND STOCKHOLDERS’ DEFICIT            
Current liabilities            
 Accounts payable and accrued liabilities (Note 7)   203,760     175,898  
 Convertible debentures, net of unamortized discount of $4,976 and $23,522 (Note 5)   4,086     117,702  
 Derivative liabilities (Note 6)   6,699     21,249  
 Due to related parties (Note 7)   94,269     81,360  
Total liabilities   308,814     396,209  
Nature of operations and continuance of business (Note 1)            
Subsequent events (Note 10)            
Stockholders’ deficit            
   Preferred stock            
   Authorized: 100,000,000 common shares, par value $0.001 
   Issued and outstanding: nil shares
       
   Common stock, Class A            
   Authorized: 500,000,000 common shares, par value $0.001 
   Issued and outstanding: 145,266,817 and 58,823,647 shares, respectively
  145,267     58,824  
   Common stock, Class B            
   Authorized: 25,000,000 common shares, value of $0.001 
   Issued and outstanding: nil
       
   Additional paid-in capital   910,089     258,394  
   Deferred compensation (Note 8)   (143,425 )    
   Common stock issuable       4,200  
   Share issuance costs   (15,500 )    
   Deficit accumulated during the development stage   (652,310 )   (526,299 )
Total stockholders’ deficit   244,121     (204,881 )
Total liabilities and stockholders’ deficit   552,935     191,328  

(The accompanying notes are an integral part of these consolidated financial statements)

F-2


URBAN BARNS FOODS INC.
(A Development Stage Company)
Consolidated Statements of Operations
(expressed in U.S. dollars)

                Accumulated from  
                February 10,  
    For the Three     For the Three     2010 (date of
    Months Ended     Months Ended     inception)  
    October 31,     October 31,     to October 31,  
    2012     2011     2012  
    $     $     $  
                   
Revenue            
                   
Operating expenses                  
   Depreciation   7,334     2,252     30,773  
   Foreign exchange loss (gain)   (313 )   (4,110 )   (16,667 )
   General and administrative (Note 7)   74,160     73,818     271,654  
   Professional fees (Note 7)   43,596     60,020     205,999  
   Research and development   994     2,022     4,281  
   Write-down of property and equipment           3,463  
Total operating expenses   125,771     134,002     499,503  
Loss from operations   (125,771 )   (134,002 )   (499,503 )
Other income (expense)                  
   Accretion of discount on convertible debentures (Note 5)   (127,822 )       (140,024 )
   Amortization of deferred financing costs   (3,103 )       (9,415 )
   Gain on change in fair value of derivative liabilities (Note 6)   132,050         138,301  
   Interest expense   (1,365 )       (6,684 )
Total other income (expense)   (240 )       (17,822 )
Net loss   (126,011 )   (134,002 )   (517,325 )
                   
Net loss per share, basic and diluted              
                   
Weighted average shares outstanding   91,950,228     56,181,236        

(The accompanying notes are an integral part of these consolidated financial statements)

F-3


URBAN BARNS FOODS INC.
(A Development Stage Company)
Consolidated Statements of Cash Flows
(expressed in U.S. dollars)

                Accumulated from  
    For the Three     For the Three     February 10, 2010  
    Months Ended     Months Ended     (date of inception)  
    October 31,     October 31,     to October 31,  
    2012     2011     2012  
    $     $     $  
Operating Activities                  
Net loss   (126,011 )   (134,002 )   (517,325 )
Adjustments to reconcile net loss to net cash used in activities:            
   Accretion of discount on convertible debentures   127,822         140,024  
   Amortization of deferred financing costs   3,103         9,415  
   Depreciation   7,334     2,252     30,773  
   Deferred compensation   (143,425 )       (143,425 )
   Gain on change in fair value of derivative liabilities   (132,050 )       (138,301 )
   Shares issued for consulting fees   300,000     28,000     367,200  
   Stock-based compensation       11,575     11,575  
   Write-down of property and equipment           3,463  
Changes in operating assets and liabilities:                  
   Prepaid expenses and deposits   (147,802 )   3,573     (149,760 )
   Accounts payable and accrued liabilities   18,972     27,256     100,380  
   Due to related parties   12,909     (3,125 )   28,641  
Net cash used in operating activities   (79,148 )   (64,471 )   (257,340 )
Investing Activities                  
   Purchase of intangible assets           (33,211 )
   Purchase of property and equipment           (132,463 )
   Cash acquired on recapitalization           1,774  
Net cash used in investing activities           (163,900 )
Financing Activities                  
   Proceeds from issuance of convertible debentures           145,000  
   Finders’ fees paid   (15,500 )       (25,000 )
   Proceeds from issuance of common shares   310,000     46,004     540,643  
Net cash provided by financing activities   294,500     46,004     660,643  
Increase (decrease) in cash   215,352     (18,467 )   239,403  
Cash, beginning of period   24,051     32,907      
Cash, end of period   239,403     14,440     239,403  
Non-cash investing and financing activities                  
   Share issued upon conversion of debentures   123,938         135,938  
   Conversion of Class B shares to Class A shares           50,000  
Supplemental disclosures                  
   Interest paid            
   Income tax paid            

(The accompanying notes are an integral part of these consolidated financial statements)

F-4


URBAN BARNS FOODS INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
(expressed in U.S. dollars)

1.

Nature of Operations and Continuance of Business

     

Urban Barns Foods Inc. (the “Company”) was incorporated under the laws of the State of Nevada on May 21, 2007 as HL Ventures Inc.

     

On December 4, 2009, the Company closed a reverse takeover transaction with Urban Barns Foods Inc., a privately-held company incorporated on July 3, 2009 under the laws of the province of Alberta. In accordance with the transaction, the Company issued 125,000 shares of common stock to the shareholders of Urban Barns in exchange for 100% of the issued and outstanding shares of common stock of Urban Barns. As part of the acquisition, the Company also cancelled 102,500 shares of common stock held by management.

     

On June 2, 2011, the Company closed a reverse takeover transaction with Non Industrial Manufacture Inc. (“NIM”), a privately-held company incorporated on February 10, 2010, under the laws of the province of Alberta. In accordance with the transaction, the Company issued 2,500,000 shares of Class B common stock to the shareholders of Non Industrial in exchange for 100% of the issued and outstanding shares of common stock of Non Industrial.

     

The Company is a development stage company and is an urban produce production company that aims to be the supplier of choice for fresh and high-quality organic and conventional fruits and vegetables for urban consumers.

     

These financial statements have been prepared on the going concern basis, which assumes that the Company will be able to realize its assets and discharge its liabilities in the normal course of business. As at October 31, 2012, the Company has not realized any revenues, and has an accumulated deficit of $652,310. The continued operations of the Company are dependent on its ability to generate future cash flows from operations or obtain additional financing. These factors raise substantial doubt about the Company’s ability to continue as a going concern. These consolidated financial statements do not include any adjustments to the recorded assets or liabilities that might be necessary should the Company be unable to continue as a going concern.

     
2.

Significant Accounting Policies

     
(a)

Basis of Presentation and Principles of Consolidation

     

The consolidated financial statements and the related notes of the Company are prepared in accordance with generally accepted accounting principles in the United States and are expressed in United States dollars. The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Urban Barns Foods (Alberta) Inc., and Non-Industrial Manufacture Inc. All inter-company accounts and transactions have been eliminated. The Company’s fiscal year-end is July 31.

     
(b)

Use of Estimates

     

The preparation of these consolidated financial statements in conformity with generally accepted accounting principles in the United States 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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions related to the useful life and recoverability of long-lived assets, valuation of convertible debentures, assumptions used to determine the fair value of stock-based compensation and derivative liabilities, and deferred income tax 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.

F-5


URBAN BARNS FOODS INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
(expressed in U.S. dollars)

2.

Significant Accounting Policies (continued)

     
(c)

Cash and Cash Equivalents

     

The Company considers all highly liquid instruments with a maturity of three months or less at the time of issuance to be cash equivalents.

     
(d)

Property and Equipment

     

Property and equipment consists of production equipment and is stated at cost and amortized straight- line over five years.

     
(e)

Intangible assets

     

Intangible assets consist of patent development costs. Intangible assets acquired are initially recognized and measured at cost and amortized over its expected useful life once the patents are in use. Impairment tests are conducted annually or more frequently if events or changes in circumstances indicate that the asset may be impaired. The impairment test compares the carrying amount of the intangible asset with its fair value, and an impairment loss is recognized in income for the excess, if any. The amortization methods and estimated useful lives of intangible assets are reviewed annually.

     
(f)

Long-Lived Assets

     

In accordance with ASC 360, “Property, Plant and Equipment”, 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.

     
(g)

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 October 31 and July 31, 2012, the Company had no items that affected comprehensive loss.

     
(h)

Foreign Currency Translation

     

The Company’s functional and reporting currency is the U.S. dollar. Monetary assets and liabilities of integrated operations and other monetary assets and liabilities denominated in foreign currencies are translated to U.S. dollars at exchange rates in effect at the balance sheet date. Non-monetary assets and liabilities are translated at historical rates. Revenues and expenses are translated at average rates for the period, except for amortization, which is translated on the same basis as the related asset. The resulting exchange gains or losses are recognized in income.

F-6


URBAN BARNS FOODS INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
(expressed in U.S. dollars)

2.

Significant Accounting Policies (continued)

     
(i)

Loss Per Share

     

The Company computes net loss per share in accordance with ASC 260, “Earnings Per Share”, which requires presentation of both basic and diluted earnings per share (EPS) on the face of the income statement. Basic EPS is computed by dividing net income (loss) available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive. As at October 31, 2012, the Company had 787,320 (July 31, 2012 – 1,722,222) potentially dilutive shares.

     
(j)

Financial Instruments and Fair Value Measures

     

ASC 820, “Fair Value Measurements and Disclosures” 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 instrument’s 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.

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 payable and accrued liabilities, convertible debentures, derivative liabilities, and amount due to related parties. 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.

     
  (k)

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. Equity instruments issued to employees and the cost of the services received as consideration are measured and recognized based on the fair value of the equity instruments issued.

F-7


URBAN BARNS FOODS INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
(expressed in U.S. dollars)

2.

Significant Accounting Policies (continued)

     
(l)

Recent Accounting Pronouncements

     

The Company has implemented all new accounting pronouncements that are in effect. These pronouncements did not have any material impact on the consolidated financial statements unless otherwise disclosed, and the Company does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.

     
3.

Property and Equipment


                  October 31,        
                  2012     July 31,  
                  Net Carrying     2012  
            Accumulated     Value     Net Carrying  
      Cost     Depreciation     $     Value  
      $     $     (unaudited)     $  
  Production equipment   152,679     34,845     117,834     117,420  

4.

Intangible Assets


                  October 31,        
                  2012     July 31,  
                  Net Carrying     2012  
            Accumulated     Value     Net Carrying  
      Cost     Depreciation     $     Value  
      $     $     (unaudited)     $  
                           
  Patent development costs   34,353         34,353     33,211  

5.

Convertible Debentures

     
(a)

On January 4, 2012, the Company entered into a convertible promissory note agreement for $27,500, less deferred financing charges of $3,750 and common shares with a fair value of $1,250. Pursuant to the agreement, the loan is unsecured, bears interest at 8% per annum, and is due on October 6, 2012. The note is also convertible into common shares at a conversion price equal to 45% of the average of the three lowest closing prices for the Company’s common shares in the ten trading days prior to conversion, at the option of the note holder, commencing on July 2, 2012.

     

In accordance with ASC 470-20, “Debt with Conversion and Other Options”, the Company recognized the intrinsic value of the embedded beneficial conversion feature of $27,500. On July 16, 2012, the Company issued 1,061,947 common shares pursuant to the conversion of $12,000. On October 16, 2012, the Company issued 2,804,878 common shares pursuant to the conversion of $11,500. During the period ended October 31, 2012, the Company recorded accretion expense of $15,298 (2011 - $nil). As of October 31, 2012, the carrying value of the convertible note was $4,000 (July 31, 2012 - $202).

F-8


URBAN BARNS FOODS INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
(expressed in U.S. dollars)

5.

Convertible Debentures (continued)

     
(b)

On February 9, 2012, the Company entered into four convertible promissory note agreements for $85,000. Pursuant to the agreement, the loans are unsecured, bear interest at 8% per annum, and are due on November 9, 2012. The loans are convertible into common shares at a conversion price equal to 45% of the average of the three lowest closing prices for the Company’s common shares in the ten trading days prior to conversion, at the option of the note holders, commencing on August 5, 2012.

     

In accordance with ASC 470-20, “Debt with Conversion and Other Options”, the Company recognized the intrinsic value of the embedded beneficial conversion feature of $85,000. On August 28, 2012, the Company issued 18,826,134 common shares pursuant to the conversion of $85,000. During the period ended October 31, 2012, the Company recorded accretion expense of $85,000 (2011 - $nil).

     
(c)

On March 30, 2012, the Company entered into a convertible promissory note agreement for $32,500, less deferred financing charges of $5,750. Pursuant to the agreement, the loan is unsecured, bears interest at 8% per annum, and is due on January 4, 2013. The loan is convertible into common shares at a conversion price equal to 45% of the average of the three lowest closing prices for the Company’s common shares in the ten trading days prior to conversion, at the option of the note holder, commencing on September 26, 2012.

     

In accordance with ASC 470-20, “Debt with Conversion and Other Options”, the Company recognized the intrinsic value of the embedded beneficial conversion feature of $4,338. On October 16, 2012, the Company issued 6,692,158 common shares pursuant to the conversion of $27,438. During the period ended October 31, 2012, the Company recorded accretion expense of $27,524 (2011 - $nil). As at October 31, 2012, the carrying value of the convertible note was $86 (July 31, 2012 - $32,500) and had an unamortized discount of $4,976 (July 31, 2012 - $nil).

     
6.

Derivative Liabilities

     

As at October 31, 2012 and July 31, 2012, the following are the fair value of the derivative and the gain on the change in fair value of the derivatives:


      October 31,     July 31,  
      2012     2012  
      $     $  
  Derivative liabilities:            
   January 2012 convertible debenture   2,200     21,249  
   March 2012 convertible debenture   4,499      
      6,699     21,249  

      October 31,     July 31,  
      2012     2012  
      $     $  
  Gain on the change in fair value of the derivatives:            
   January 2012 convertible debenture   19,049     6,251  
   February 2012 convertible debenture   85,000      
   March 2012 convertible debenture   28,001      
      132,050     6,251  

F-9


URBAN BARNS FOODS INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
(expressed in U.S. dollars)

6.

Derivative Liabilities (continued)

   

The fair value of the derivative financial liabilities was determined using the Black-Scholes option pricing model using the following assumptions:


            Risk-              
            free     Expected     Expected  
      Expected     Interest     Dividend     Life (in  
      Volatility     Rate     Yield     years)  
  At the issuance date:                        
     January 2012 convertible debenture   213%     0.10%     0%     0.26  
     February 2012 convertible debenture   231%     0.11%     0%     0.26  
     March 2012 convertible debenture   161%     0.11%     0%     0.27  
                           
  As at October 31, 2012:                        
     January 2012 convertible debenture   328%     0.09%     0%     0.02  
     March 2012 convertible debenture   323%     0.11%     0%     0.18  

7.

Related Party Transactions

     
(a)

As at October 31, 2012, the Company owed $60,306 (July 31, 2012 - $52,809) to directors and officers of the Company. The amounts owing are unsecured, non-interest bearing, and due on demand.

     
(b)

As at October 31, 2012, the Company owed $3,363 (July 31, 2012 - $3,351) to a company controlled by an officer of the Company. The amounts owing are unsecured, non-interest bearing, and due on demand.

     
(c)

As at October 31, 2012, the Company owed $30,600 (July 31, 2012 - $25,200) for amounts owing to the spouse of the President of the Company. The amounts owing are unsecured, non-interest bearing, and due on demand.

     
(d)

As at October 31, 2012, the Company owed $106,250 (July 31, 2012 - $98,162) to companies controlled by directors and officers of the Company, which has been recorded in accounts payable and accrued liabilities. The amounts owing are unsecured, non-interest bearing, and due on demand.

     
(e)

During the period ended October 31, 2012, the Company incurred professional fees of $5,400 (October 31, 2011 - $5,400) to the spouse of the President of the Company.

     
(f)

During the period ended October 31, 2012, the Company incurred travel expenses fees of $13,807 (October 31, 2011 - $21,801) to directors and officers of the Company.

     
(g)

During the period ended October 31, 2012, the Company incurred consulting fees of $156,575 (October 31, 2011 - $19,020) to directors and officers of the Company.

     
(h)

During the period ended October 31, 2012, the Company incurred rental fees of $nil (October 31, 2011 - $3,359) to a company controlled by an officer of the Company.

     
8.

Common Stock

     

Share transactions for the period ended October 31, 2012:

     
(a)

On August 6, 2012, the Company issued 120,000 shares of Class A common stock for consulting services with a fair value of $4,200, which was recorded in common stock issuable as of July 31, 2012.

     
(b)

On August 28, 2012, the Company issued 18,826,134 shares of Class A common stock pursuant to the conversion of $85,000 of convertible debentures, as described in Note 5(b).

F-10


URBAN BARNS FOODS INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
(expressed in U.S. dollars)

8.

Common Stock (continued)

     
(c)

On September 13, 2012, the Company issued 30,000,000 shares of Class A common stock for consulting services with a fair value of $300,000 to consultants and directors of the Company. As of October 31, 2012, $150,000 (July 31, 2012 - $nil) of the amount was recorded in prepaid expense and $143,425 (July 31, 2012 - $nil) was recorded as deferred compensation.

     
(d)

On October 16, 2012, the Company issued 2,804,878 shares of Class A common stock pursuant to the conversion of $11,500 of the convertible debenture, as described in Note 5(a).

     
(e)

On October 16, 2012, the Company issued 6,692,158 shares of Class A common stock pursuant to the conversion of $27,438 of the convertible debenture, as described in Note 5(c).

     
(f)

On October 22, 2012, the Company issued 26,000,000 shares of Class A common stock at $0.01 per share for proceeds of $260,000. The Company paid a finders’ fee of $13,000 in conjunction with the private placement.

     
(g)

On October 23, 2012, the Company issued 2,000,000 shares of its Class A common stock at $0.025 per share for proceeds of $50,000. The Company incurred a finders’ fee of $2,500 in conjunction with the private placement.

     
9.

Commitments

     

On June 25, 2012, the Company entered into an agreement with a director of the Company. In accordance with the terms and provisions of the agreement, the director agreed to aid with introductions to management of the Company with respect to the current round of financing of a minimum of $1,000,000 on a best efforts basis through various sources of capital.

     

Pursuant to the agreement, the Company agreed to the following terms and provisions:

     
(a)

The Company agreed to pay a finders' fee of 5% on actual funds raised or 2% via third parties with regards to private placements.

     
(b)

The Company agreed to pay a finders' fee in the amount of 3% on actual funds loaned or 1.5% via third parties with regards to debt financings.

     
(c)

The Company agreed to pay a scalable finders' fee of 5% on the first $2,000,000, 4% of the next $2,000,000 and 3% on the remaining amount of $4,000,000 if the Company is merged with any other private or public entity with regards to an introduction to a third party who wishes to acquire, merger or perform a business combination; and

     
(d)

The Company agreed to pay a monthly fee of $4,000 as compensation for his role as a member of the Board of Directors for a twelve-month term upon the closing of a minimum of $1,000,000 raised.

     

As of October 31, 2012, no amounts were paid or payable.

     
10.

Subsequent Events

     
(a)

On November 8, 2012, the Company issued 554,348 shares of Class A common stock pursuant to the conversion of $4,000 of the convertible debenture and $1,100 of accrued interest, as described in Note 5(a).

     
(b)

On November 21, 2012, the Company entered into two consulting agreements a non-related party to provide public relations services and funding to the Company for a six-month term for the issuance of 3,000,000 common shares of the Company and a success fee of 7% of total financings provided.

     
(c)

On December 1, 2012, the Company entered into a research agreement with McGill University (“McGill”), where McGill will perform testing, research, and development towards the Company’s patent- pending growing machines. Under the terms of the agreement, the Company will pay $500,000, where $25,000 is due upon the signing of the agreement, $75,000 is due when the Company either completes financing or four growing machines, and $100,000 annually on January 1, 2014, 2015, 2016, and 2017. The agreement expires on January 1, 2018.

F-11


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.

Forward Looking Statements

This report on Form 10-Q contains certain forward-looking statements. All statements other than statements of historical fact are “forward-looking statements” for purposes of these provisions, including any projections of earnings, revenues, or other financial items; any statements of the plans, strategies, and objectives of management for future operation; any statements concerning proposed new products, services, or developments; any statements regarding future economic conditions or performance; statements of belief; and any statement of assumptions underlying any of the foregoing. Such forward-looking statements are subject to inherent risks and uncertainties, and actual results could differ materially from those anticipated by the forward-looking statements.

These forward-looking statements involve significant risks and uncertainties, including, but not limited to, the following: competition, promotional costs and the risk of declining revenues. Our actual results could differ materially from those anticipated in such forward-looking statements as a result of a number of factors. These forward-looking statements are made as of the date of this filing, and we assume no obligation to update such forward-looking statements. The following discusses our financial condition and results of operations based upon our consolidated financial statements which have been prepared in conformity with accounting principles generally accepted in the United States. It should be read in conjunction with our financial statements and the notes thereto included elsewhere herein.

Results of Operations

We are still in our development stage and have generated no revenues to date.

We incurred operating expenses of $125,771 for the three months ended October 31, 2012. These expenses consisted of $74,160 in general operating expenses, $994 in research and development expenses, and $43,596 in professional fees. For the same period ended October 31, 2011 we incurred operating expenses of $134,002.

Our net loss from inception (February 10, 2010) through October 31, 2012 was $517,325.

The following table provides selected financial data about our company for the quarter ended October 31, 2012.

    October 31,     July 31,  
    2012     2012  
    $     $  
             
Cash   239,403     24,051  
Current Assets   399,413     36,259  
Total Assets   552,935     191,328  
Current Liabilities   308,814     396,209  
Shareholders Equity (Deficit)   244,121     (204,881 )

Liquidity and Capital Resources

As of October 31, 2012 we had cash of $239,403, total current assets of $399,413, total current liabilities of $308,814 and working capital of $90,599 compared to cash of $24,051, total current assets of $36,259, total current liabilities of $396,209, and working capital deficit of $332,950 as of July 31, 2012. The increase in working capital is due primarily to the financings closed within the period (see Notes to the Financials – Notes 8(f) and 8(g).

During the period ended October 31, 2012, we received net cash of $294,500 from financing activities, compared to net cash received of $46,004 from financing activities during the period ended October 31, 2011. The increase is due to proceeds received from the issuance of common shares.

During the period ended October 31, 2012, we used net cash of $79,148 on operating activities, compared to $64,471 net cash used on operating activities during the period ended October 31, 2011. The increase in cash used was due to increase in operating activity during the current period.

12


During the period ended October 31, 2012 and 2011, we did not have any investing activities.

Since February 10, 2010 (inception) to October 31, 2012, our accumulated deficit was $652,310. We are dependent on the funds raised through our equity or debt financing, investing activities, and revenue generated through the sales of our products to fund our operations.

We anticipate that we will meet our ongoing cash requirements by retaining income as well as through equity or debt financing. We plan to cooperate with various individuals and institutions to acquire the financing required to produce and distribute our products and anticipate this will continue until we accrue sufficient capital reserves to finance all of our productions independently.

Plan of Operation

Our management has focused on acquiring or merging with one or more operating businesses. Our efforts to identify a target business resulted in the Share Exchange Agreement with Non Industrial Manufacture Inc. (NIM), a private company. On June 2, 2011 the share exchange with NIM closed. We are now an urban produce production company with patents pending that aims to be the supplier of choice of fresh, locally grown, high-quality organic and conventional fruits and vegetables for urban consumers.

We estimate that our expenses over the next 12 months will be approximately $1,925,000 as summarized in the table below. These estimates may change significantly depending on the nature of our future business activities and our ability to raise capital from investors or other sources.

Description Potential
Completion Date
Estimated
Expenses
($)
Cost of sales 12 months 500,000
Sales & Marketing 12 months 550,000
Payroll 12 months 300,000
General and administrative expenses 12 months 575,000
Total   1,925,000

Our general and administrative expenses for the year will consist of professional fees, office maintenance, communication expenses (cellular, internet, fax and telephone), bank charges, courier and postage costs, office supply costs and fees related to our website. Our professional fees will include legal, accounting and auditing fees related to our regulatory filings throughout the year.

Based on our planned expenditures, we require additional funds of $1,925,000 to proceed with our business plan over the next 12 months. If we are not able to obtain additional financing on a timely basis, we will be unable to conduct our operations as planned, and we will not be able to meet our obligations as they become due. In such event, we will be forced to scale down or perhaps even cease our operations.

Inflation

The amounts presented in the financial statements do not provide for the effect of inflation on our operations or financial position. The net operating losses shown would be greater than reported if the effects of inflation were reflected either by charging operations with amounts that represent replacement costs or by using other inflation adjustments.

13


Off-Balance Sheet Arrangements

As of October 31, 2012 we had no off balance sheet transactions that have or are reasonably likely to have a current or future effect on our financial condition, changes in our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Critical Accounting Policies

Our financial statements are impacted by the accounting policies used and the estimates and assumptions made by management during their preparation. A complete summary of these policies are included in note 2 of the Notes to our Financial Statements. 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 our management.

a. Basis of Accounting

The Company’s financial statements are prepared using the accrual method of accounting. The Company has elected a July 31 year-end.

b. Loss Per Share

The Company computes net loss per share in accordance with ASC 260 Earnings Per Share which requires presentation of both basic and diluted earnings per share (EPS) on the face of the income statement. Basic EPS is computed by dividing net income (loss) available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect is anti dilutive.

c. Use of Estimates and Assumptions

The preparation of these consolidated financial statements in conformity with generally accepted accounting principles in the United States 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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions related to the useful life and recoverability of long-lived assets, fair value of convertible debt and share-based payments, and deferred income tax 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.

d. Foreign Currency Translation

Transactions in foreign currencies are translated into the currency of measurement at the exchange rates in effect on the transaction date. Monetary balance sheet items expressed in foreign currencies are translated into U.S. dollars at the exchange rates in effect at the balance sheet date. The resulting exchange gains and losses are recognized in income.

The Company’s integrated foreign subsidiary is financially or operationally dependent on the Company. The Company uses the temporal method to translate the accounts of its integrated operations into U.S. dollars. Monetary assets and liabilities are translated at the exchange rates in effect at the balance sheet date. Non-monetary assets and liabilities are translated at historical rates. Revenues and expenses are translated at average rates for the period, except for amortization, which is translated on the same basis as the related asset. The resulting exchange gains or losses are recognized in income.

14


ITEM 4. CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures, as defined in Rule 13a-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 Securities and Exchange Commission's rules and forms 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. We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of October 31, 2012. Based on the evaluation of these disclosure controls and procedures the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective.

Changes in Internal Controls

During the quarter covered by this report 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.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

None.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCCEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. REMOVED AND RESERVED.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS.

The following exhibits are included with this quarterly filing:

Exhibit No. Description
   
31.1 Sec. 302 Certification of Principal Executive Officer
31.2 Sec. 302 Certification of Principal Financial Officer
32.1 Sec. 906 Certification of Principal Executive Officer
32.2 Sec. 906 Certification of Principal Financial Officer

15


SIGNATURES

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

December 14, 2012 Urban Barns Foods Inc.
   
   
   
  /s/ Jacob Benne
  By: Jacob Benne
  (Chief Executive Officer, President, & Director)
   
   
   
   
  /s/ Daniel Meikleham
  By: Daniel Meikleham
  (Chief Financial Officer, Principal Accounting Officer & Director)

16