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Urban Barns Foods Inc. (URBF) SEC Filing 10-K Annual report for the fiscal year ending Sunday, July 31, 2011

Urban Barns Foods Inc.

CIK: 1410253 Ticker: URBF

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

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

For the fiscal year ended July 31, 2011

[   ] 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 000-53480

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

Nevada 20-0215404
(State or Other Jurisdiction of Incorporation of (I.R.S. Employer Identification No.)
Organization)  
   
7170 Glover Road  
Milner BC V0Z 1T0 604-888-0420
(Address of principal executive offices) (ZIP Code) (Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section12 (g) of the Act: Common Stock, $0.001 par value

Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes [   ] No [ x ]

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes [   ] No [ x ]

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for shorter period that the registrant as required 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 registration has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that he registrant was required to submit and post such files).
Yes [   ] No[   ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [   ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

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 Act)
Yes [   ] No [ x ]

State the aggregate market value of voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and ask price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter.


The aggregate market value of Common Stock held by non-affiliates of the Registrant on October 31, 2011 was $3,588,632 based on a $0.60 closing price for the Common Stock on October 31, 2011. For purposes of this computation, all executive officers and directors have been deemed to be affiliates. Such determination should not be deemed to be an admission that such executive officers and directors are, in fact, affiliates of the Registrant.

Indicate the number of shares outstanding of each of the registrant’s classes of common stock as of the latest practicable date.

56,786,671 shares of common stock issued & outstanding as of Oct 31, 2011

DOCUMENTS INCORPORATED BY REFERENCE

None.


TABLE OF CONTENTS

PART I   17
    Item 1. Business 17
      Item 1A. Risk Factors 22
      Item 1B. Unresolved Staff Comments 22
    Item 2. Properties 22
     Item3. Legal Proceedings 22
    Item 4. [Removed and Reserved] 23
PART II   23
Item 5. Market for Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 23
      Item 6. Selected Financial Data 24
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 24
    Item 8. Financial Statements and Supplementary Data 29
Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure 30
    Item 9A. Controls and Procedures 30
    Item 9B. Other Information 31
PART III   31
      Item10. Directors, Executive Officers and Corporate Governance 31
    Item 11. Executive Compensation 38
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 39
Item 13. Certain Relationships and Related Transactions, and Director Independence 40
      Item 14. Principal Accountant Fees and Services. 41
PART IV   41
      Item 15. Exhibits, Financial Statement Schedules 42
SIGNATURES 43

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PART I

Item 1. Business

Forward-looking Statements

This annual report contains forward-looking statements. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as "may", "will", "should", "expects", "plans", "anticipates", "believes", "estimates", "predicts", "potential" or "continue" or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors that may cause our or our industry's actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable laws, including the securities laws of the United States, we do not intend to update any of the forward-looking statements so as to conform these statements to actual results.

As used in this annual report, the terms "we", "us", "our", “our company”, and "Urban Barns" mean Urban Barns Foods Inc. and of our subsidiary, unless otherwise indicated.

All dollar amounts refer to US dollars unless otherwise indicated.

Overview

We were incorporated as HL Ventures Inc. on May 21, 2007 under the laws of the State of Nevada. Non Industrial Manufacture Inc. was incorporated on February 10, 2010 under the laws of the Province of Alberta. On June 2, 2011 we acquired all of the issued and outstanding common shares of Non Industrial Manufacture Inc. pursuant to a share exchange agreement dated May 2, 2011. As a result, Non Industrial Manufacture Inc. is now our wholly owned subsidiary. Our principal executive office is located at 7170 Glover Drive, Milner, British Columbia, Canada V0X 1T0. Our telephone number is 604.888.0420. Our fiscal year end is July 31.

Current Business

We are an urban produce production company that aims to be the supplier of choice of fresh, locally grown, high-quality organic and conventional fruits and vegetables for urban consumers.

We have identified a revenue opportunity in the produce industry which we believe is currently underutilized. This consists primarily of producing select fruits and vegetables in a secure, indoor environment in close proximity to urban centers, where the population of potential consumers exceeds that of rural locales, regardless of regional climate or outdoor growing season constraints. Our business plan therefore seeks to eliminate two of the most important logistical problems facing both producers and consumers of organic and conventional fruits and vegetables today:

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  • costs and delays related to shipping fresh produce from where it is grown to where it can be sold; and

  • variations in climate that prevents certain produce from being grown in certain markets.

Our strategy is to develop a series of “Urban Barns” that we use to grow our fruits and vegetables in a number of urban centers, beginning with Vancouver, Canada and San Juan, Puerto Rico. To do this, we plan to lease and retrofit a series of warehouse-type facilities in high density strategic locations and purchase and install proprietary growing machines to grow our organic and conventional produce. We hope that this will provide consumers with a desirable degree of food security in addition to the other benefits associated with vertical farming, such as a reduced ecological footprint. As of the date of this Prospectus, we have not secured any such locations and have not begun growing fruit and vegetables in commercially viable quantities.

Our mission is to become the first company to create brand-name awareness for its produce by providing locally-grown fruits and vegetables to local retailers and businesses at prices that compete with those at which conventional and organic produce is typically offered. We believe that this will permit consumers to substitute fresh, healthy, high-quality local equivalents into their diet in place of fruits and vegetables grown in distant regions at a similar or more competitive price point.

Currently, geography and logistics make local grown organic fruit and vegetables specialty or seasonal produce in areas with harsh winters such as the Northeast and Mid-West of the USA and all of Canada. The most common method of tapping into this market is with greenhouses. Unfortunately, this is a solution with high fixed costs and high variable costs. Due to the harsh winters and the encroachment on prime agricultural land, there is no realistic way for greenhouse growers to rapidly scale their operations to service all major urban markets. The main suppliers in the sector are large commercial enterprises in South California, or foreign enterprises in Mexico, Chile and Holland. According to figures generated by our management, shipping currently constitutes about seventy percent of the produce supply chain cost. As such, we believe there is an opportunity for Urban Barns to do two things: lower shipping costs without raising the fixed costs, and differentiate its product from other available produce.

Technology

The technology that we plan to use to cultivate our fruits and vegetables consists of a proprietary vertical farming apparatus used to grow produce indoors which takes up a limited amount of space and subjects plants to a variety of light spectrums over the course of their growing cycles. In addition to the land-use benefits it provides, we believe that the growing apparatus makes efficient use of light, energy, water, temperature, production cycle, transportation and labor, and is capable of producing safe, healthy, fresh, high-quality produce in controlled indoor environments. Our strategy of using this technology strategically located in densely populated urban areas will allow us to reduce the cost of production, water usage, carbon emissions and herbicide and pesticide use as compared to traditional methods of farming.

Our technology was developed by us and although the machine is not yet protected by patent, we anticipate that we will file a Canadian patent application in the next 12 months to protect this proprietary technology. Currently, we rely on business secrets and know-how to protect our proprietary technology.

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In addition to our proprietary technology, we are also actively seeking to acquire the rights to patented growing equipment developed by third parties. Our management believes that our growing machines, which are set to occupy approximately 150 square feet of floor space, will be able to yield as much output as 1500 square feet of greenhouse space, and allow a single plant to produce up to five times the crop yield that it would using standard greenhouse cultivation practices.

Products and Services

We plan to initially offer the following fruits and vegetables for sale, as we have found that they are relatively easy to propagate and can be grown to maturity in short production cycles: lettuce, spinach, basil, strawberries, cucumbers, eggplant, peppers and tomatoes. We have identified these items due to their high demand and profit potential, but this list is by no means exhaustive.

Our President, Chief Executive Officer and Director, Jacob Benne is also the founder of Bevo Agro Inc., a premier propagator of plants in North America. As of the date of this Prospectus, Bevo Agro has been awarded Organic Crop Improvement Association (OCIA) International certification for cucumbers, eggplant, peppers and tomatoes (including the campari variety), and we anticipate cultivating organic varieties of these along with conventional varieties of lettuce, spinach, basil and strawberries.

We have identified major urban centers in the United States and Canada, where the population is dense and many people live in areas serviced by a relatively small number of distant large food growers situated in South California, Mexico and Chile. We envision a network of ‘Urban Barns’ delivering hundreds of tons of food daily to retailers servicing these urban centers, and millions of people gaining access to our locally grown, fresh, high-quality produce instead of being shipped from Mexico, California or Chile. We believe that this will effectively increase quality of the produce as well as reduce shipping times and costs to bring fresh produce to market.

Market

Currently, geography and logistics make produce farming a specialty or seasonal enterprise. We are dedicated to changing this perception by growing fresh, safe, healthy organic and conventional fruits and vegetables in urban facilities regardless of climate on a year-round basis in a more environmentally-sustainable manner than traditional or greenhouse cultivation would permit. Through the use of our specialized growing machines and the selection of strategic locations for our “Urban Barns”, we believe that we can both service and expand the ever-increasing market for locally-grown produce in a cost-effective and competitive manner.

The value of the 2008 US vegetable crop was estimated at $10.4 billion, up 4 percent from 2007. In terms of production, the three largest crops were onions, head lettuce and watermelons, which combined to account for 37 percent of the total production. Tomatoes, head lettuce and onions claimed the highest values, accounting for 32 percent of the total value when combined. California continued to be the leader in fresh vegetable and melon production, accounting for 49 percent of annual fresh vegetable and melon output. (Vegetables Annual Summary, NASS, USDA, 2009.)

There are strong indications that consumers are now, more than ever, interested in purchasing safe, locally-grown produce that is subject to a standard of quality such as organic certification. The recent growth of farmer’s markets and the expansion of supermarket chains such as Whole Foods demonstrates that demand for such produce exists, as do public concern over herbicide and pesticide use, country-of-origin labeling and greenhouse gas emissions associated with shipping produce hundreds, and even thousands, of miles from farm to retail outlet. The “eat locally” movement has even been touted in the mainstream U.S. media as a method of reducing one’s carbon footprint.

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Organic products account for less than 2% of Canada’s food supply and occupy less than 1% of its dedicated cropland. Nevertheless, over the past decade the market for such products has grown by approximately 20% and it is projected to continue to grow for the foreseeable future.

We plan to capitalize on the opportunity presented by this shift in consumer attitudes by offering them fresh; locally-grown organic and conventional produce alternatives that are competitively-priced and capable of instilling a measure of brand recognition. To achieve the latter, we plan to employ shop-floor selling techniques (i.e. “taste-before-you-buy” campaigns) at the retail level, engage in targeted print advertising and leverage existing social networks on the Internet. We also plan to target additional markets that require bulk produce on a continuous basis, such as produce processors, hotels and restaurants, and we believe that our ability to provide a constant supply of select high volume fruits and vegetables regardless of the local climate will differentiate our produce from that of our competitors.

Distribution Methods

We plan to become a leading supplier of produce to large retail chains by differentiating our fruits and vegetables from other available produce and substantially lowering the shipping costs required to transport most produce from its point of origin to point of sale. To accomplish this, we plan to acquire and retrofit a network of buildings in high density urban locations and equip them with proprietary growing machines to cultivate a variety of fruits and vegetables. The technology will allow us to grow produce with high yields using a fast growing cycle in any location regardless of the local climate.

Once we have grown our produce, we plan to leverage the infrastructure established by Robyn Jackson, our Vice President, Logistics and Director, to distribute our fruits and vegetables on a cost-effective basis throughout western Canada. We anticipate entering into agreements with a variety of regional distributors in any other locations in which we plan to operate once we have established the validity of our business model. Robyn Jackson is currently the President and CEO or Robyn’s Trucking, one of Western Canada’s largest food distributors and Mr. Jackson will be in charge for establishing logistics solutions for Urban Barns fruit and produce as well as development of relationships with local distributors and major retailers.

Locations

We plan to establish our first two “Urban Barns” in Vancouver, Canada and San Juan, Puerto Rico. We have entered into negotiations with Jacob Benne, our President, Chief Executive Officer and Director, to supply space for our first commercial facility in Vancouver and we have also met with the Secretary of Agriculture of the Commonwealth of Puerto Rico, who has indicated an interest in donating government property to attract us to establish a facility in San Juan. We targeted Puerto Rico for our second location based on tax incentives, the presence of a large potential customer base, and a thriving tourism industry whose hotels, cruise ships and restaurants require a supply of fresh, high-quality produce year-round. Mr. Cesar Montilla is our Director of Business Development. Mr. Montilla is a resident of Puerto Rico and will be our local representative in this region.

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Following the set-up of our first two “urban barns”, we anticipate investigating other potential locations in North America and evaluating such attributes as local production costs, our existing and prospective distributor relationships, typical local produce prices and local competition before we commit to establishing a facility in any urban center.

Competition

We will compete with a number of unrelated seasonal operators of greenhouses spread across our target market areas. This common method of growing high-quality produce is limited in terms of cost and scale. Operators must incur both high fixed and variable costs to build and maintain specialized structures for this purpose, which makes it difficult for them to scale their operations to optimal size in multiple locations.

We plan to establish a network of controlled indoor environments in multiple urban locations for the purpose of growing fresh fruit and vegetables and supplying this produce to major food retailers on a year-round basis. Since we plan to acquire and retrofit existing vacant run-down buildings and use proprietary technology to grow our fruits and vegetables, we will not have to incur a significant capital outlay to establish our “urban barns”, and the only limitations we will face in terms of scale will be related to the cost of acquiring and renovating similar facilities in close proximity to multiple urban centers.

We also face competition from producers of organic fruits and vegetables that are grown and shipped from such locations as California, Mexico and Chile. In many cases, these producers are able to grow produce year-round, but they face uncertainty related to shipping costs and delays and variations in climate, as well as environmental risks related to runoff exposure and the presence of airborne agents from surrounding farms.

Intellectual Property

We own the copyright of our logo and all of the contents of our website, www.urbanbarnsfoods.com. We have not filed for any protection of our trademark and we do not currently own any other intellectual property rights.

Research and Development

We have spent $190on research and development activities from our inception on February 10, 2010 to July 31, 2011.

Reports to Security Holders

Although we are not currently subject to the reporting and other requirements of the Exchange Act, we intend to furnish our shareholders with annual reports containing financial statements audited by our independent auditors and to make available quarterly reports containing unaudited financial statements for each of the first three quarters of our fiscal year.

The public may read and copy any materials that we file with the SEC at the SEC's Public Reference Room at 100 F Street NE, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site at www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.

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Government Regulation

We do not currently require any government approvals for our current business activities. However, once we have established our planned “urban barns” locations, we anticipate that we will have to obtain the necessary government licenses, authorizations and labor permits to legally manage our facilities in the locations in which we plan to operate. Many of our facilities and products will be subject to various laws and regulations administered by the United States Department of Agriculture, the Federal Food and Drug Administration, the Occupational Safety and Health Administration, and other federal, state, local, and foreign governmental agencies relating to the quality and safety of products, sanitation, safety and health matters, and environmental control. We believe that we comply with such laws and regulations in all material respects, and that continued compliance with such regulations will not have a material effect upon capital expenditures, earnings, or our competitive position.

While our intended business activities do not currently violate any laws, any regulatory changes that impose restrictions or requirements on us or on our potential customers could adversely affect us by increasing our operating costs, which could have a material adverse effect on our results of operations.

We do not currently incur any significant expenses related to compliance with environmental regulations, and do not believe that this will be a significant expense once we establish our ‘Urban Barns’.

Employees

As of November 11, 2011 we did not have any employees. Our directors and officers provide us with services on a consulting basis. We plan to hire a number of full-time employees in the near future to engage in administrative tasks and the development of our first two “urban barn” facilities in Vancouver, Canada and San Juan, Puerto Rico. Once we have entered into definitive agreements to distribute our produce, we anticipate hiring additional employees to operate these facilities and engaging various consultants to provide legal, accounting, marketing and software development services to us.

Item 1A. Risk Factors

As a “smaller reporting company”, we are not required to provide the information required by this Item.

Item 1B. Unresolved Staff Comments

As a “smaller reporting company”, we are not required to provide the information required by this Item.

Item 2. Properties

Our executive office is located at 7170 Glover Drive, Milner, British Columbia, Canada V0X 1T0. We have not entered into any agreement regarding this office, which is provided to us at no charge by Jacob Benne, our President, Chief Executive Officer and Director.

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Item 3. Legal Proceedings

We are not aware of any pending or threatened legal proceedings which involve us or any of our products or services.

Item 4. [Removed and Reserved]

PART II

Item 5. Market for 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 OTC Bulletin Board under the trading symbol “URBF.OB”. We cannot assure you that there will be a market in the future for our common stock.

OTC Bulletin Board securities are not listed and traded on the floor of an organized national or regional stock exchange. Instead, OTC Bulletin Board securities transactions are conducted through a telephone and computer network connecting dealers. OTC Bulletin Board issuers are traditionally smaller companies that do not meet the financial and other listing requirements of a national or regional stock exchange.

The following table reflects the high and low bid information for our common stock obtained from Stockwatch and reflects inter-dealer prices, without retail mark-up, markdown or commission, and may not necessarily represent actual transactions.

The high and low bid prices of our common stock for the periods indicated below are as follows:

FINRA OTC Bulletin Board
Quarter Ended High Low
July 31, 2011 $0.04 $0.02
April 30, 2011 $0.12 $0.04
January 31, 2011 $0.08 $0.04
October 31, 2010 $0.14 $0.07

Holders

As of November 11, 2011 there were 81 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 Directors.

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Equity Compensation Plans

On July 25, 2011 our board of directors approved the establishment of the 2011 Employee Stock and Option Plan which provides for the issuance of 7,000,000 shares or options to acquire our common stock to our directors, officers, employees and consultants. As of November 14, 2011, 1,500,000 shares and 5,100,000 options had been issued.

Recent Sales of Unregistered Securities

We have not made any previously unreported sales to July 31, 2011.

Recent Purchases of Equity Securities by us and our Affiliated Purchases

We have not repurchased any of our common stock and have no publicly announced repurchase plans or programs as of November 11, 2011.

Item 6. Selected Financial Data

As a “smaller reporting company”, we are not required to provide the information required by this Item.

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

We are a development stage company with limited operations and revenues from our business operations. Our auditors have issued a going concern opinion. This means that our auditors believe there is substantial doubt that we can continue as an on-going business for the next twelve months unless we obtain additional financing to fund our operations. Our only source of cash at this time is investments by others in our company.

Forward-Looking Statements

This 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 Annual Report.

Liquidity and Capital Resources

As of July 31, 2011 we had cash of $32,907, total current assets of $46,513, total current liabilities of $180,662 and working capital deficit of $134,149 compared to working capital deficit of $3,480 as of July 31, 2010.

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During the year ended July 31, 2011, we received net cash of $104,867 from financing activities, compared to net cash received of $314 from financing activities during the period from February 10, 2010 (inception) to July 31, 2010. The increase in cash from financing activities was due to the issuance of common stock.

During the year ended July 31, 2011, we used net cash of $12,955 on operating activities, compared to $272 net cash used on operating activities during the period from February 10, 2010 (inception) to July 31, 2010. The increase in cash used on operating activities was due to the increase of activities after our reverse merger with Non Industrial Manufacture Inc.

During the year ended July 31, 2011, we used net cash of $59,047 from investing activities compared to $0 provided from investing activities during the period from February 10, 2010 (inception) to July 31, 2010. The reason for the decrease in cash was due to the recapitalization of our company in the reverse merger with Non Industrial Manufacture Inc.

Since February 10, 2010 (inception) to July 31, 2011, our accumulated deficit was $172,979. 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

We are an urban produce production company that aims to be the supplier of choice of fresh, locally grown, high-quality organic and conventional fruits and vegetables located close to urban consumers.

We estimate that our expenses over the next 12 months will be approximately $2,301,800 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
($)
Seedling purchases 12 months 96,000
Packaging 12 months 76,800
Direct cost of sales (including research and development) 12 months 979,200
Shipping 12 months 225,000
Payroll 12 months 350,000
Advertising and marketing 12 months 370,000
General and administrative expenses 12 months 204,800
Total    2,301,800

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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 $2,301,800 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.

Results of Operations for the Years Ended July 31, 2011 and 2010

The following summary of our results of operations should be read in conjunction with our audited financial statements for the years ended July 31, 2011 and 2010.

Our operating results for the years ended July 31, 2011 and 2010 are summarized as follows:

    Year Ended  
    July 31  
    2011     2010  
             
Revenue $  Nil   $  Nil  
Depreciation   6,329   $  Nil  
Foreign exchange (gain) loss   (17,041 ) $  Nil  
General and administrative   26,377   $  3,794  
Professional fees   18,345   $  Nil  
Research and development   190   $  Nil  

Revenues

We have not earned any revenues since inception.

Expenses

For the year ended July 31, 2011, we have total operating expenses of $34,200compared to total operating expenses of $3,794 for the period from February 10, 2010 (inception) to July 31, 2010.

Our operating expenses increased in connection with our merger of the business with Non Industrial Manufacture. Additionally, the period ended July 31, 2010 was shorter than the year ended July 31, 2011.

Net Loss

Since our inception on February 10, 2010 to July 31, 2011, we incurred net a loss of $37,994. For the year ended July 31, 2011, we incurred net loss of $34,200 compared to $3,794 for the period from February 10, 2010 (inception) to July 31, 2010. Our net loss per share was $0.00 for the year ended July 31, 2011 and $0.00 for the period from February 10, 2010 (inception) to July 31, 2010.

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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, changes in our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to our stockholders.

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.

Critical Accounting Policies

Our financial statements and accompanying notes have been prepared in conformity with accounting principles generally accepted in the United States of America for financial statements. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. These estimates and assumptions are affected by management’s application of accounting policies. We believe that understanding the basis and nature of the estimates and assumptions involved with the following aspects of our financial statements is critical to an understanding of our financials.

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. We regularly evaluate 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. We base our estimates and assumptions on current facts, historical experience and various other factors that we believe 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 us may differ materially and adversely from our estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.

Stock-Based Compensation

We record stock-based compensation using the fair value method in accordance with ASC 718, Compensation – Stock Compensation. 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.

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We use the Black-Scholes option pricing model to calculate the fair value of stock-based awards. This model is affected by our stock price as well as assumptions regarding a number of subjective variables. These subjective variables include, but are not limited to our 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 consolidated statement of operations over the requisite service period.

Loss Per Share

We compute 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.

Item 7A Qualitative and Qualitative Disclosures about Market Risk

As a “smaller reporting company”, we are not required to provide the information required by this Item.

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Item 8. Financial Statements and Supplementary Data



URBAN BARNS FOODS INC.
 
(A Development Stage Company)
Consolidated Financial Statements
(Expressed in U.S. dollars)
July 31, 2011 and 2010


Financial Statement Index 
Report of Independent Registered Public Accounting Firm F–1
Consolidated Balance Sheets F–2
Consolidated Statements of Operations F–3
Consolidated Statements of Stockholder's Deficit F–4
Consolidated Statements of Cash Flows F–5
Notes to the Consolidated Financial Statements F–6

29



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of
Urban Barns Foods Inc.
(A Development Stage Company)

We have audited the accompanying consolidated balance sheets of Urban Barns Foods Inc. (A Development Stage Company) as of July 31, 2011 and 2010, and the related consolidated statements of operations, stockholders’ equity (deficit) and cash flows for the year ended July 31, 2011, the period from February 10, 2010 (Date of Inception) to July 31, 2010, and accumulated from February 10, 2010 (Date of Inception) to July 31, 2011. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated 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 consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of July 31, 2011 and 2010, and the results of its operations and its cash flows for the year ended July 31, 2011, the period from February 10, 2010 (Date of Inception) to July 31, 2010, and accumulated from February 10, 2010 (Date of Inception) to July 31, 2011, in conformity with accounting principles generally accepted in the United States.

The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has a working capital deficit and has incurred operating losses since inception. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also discussed in Note 1 to the consolidated financial statements. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ SATURNA GROUP CHARTERED ACCOUNTANTS LLP
Saturna Group Chartered Accountants LLP
Vancouver, Canada
November 15, 2011

F-1



Urban Barns Foods Inc.
(A Development Stage Company)
Consolidated Balance Sheets
(expressed in U.S. dollars)

    July 31,     July 31,  
    2011     2010  
     

ASSETS

           

Current assets

           

   Cash

  32,907     42  

   Prepaid expenses and deposits

  13,606      

Total current assets

  46,513     42  

Property and equipment (Note 4)

  66,351      

Total assets

  112,864     42  

 

           

LIABILITIES AND STOCKHOLDERS’ DEFICIT

           

Current liabilities

           

   Accounts payable

  100,825      

   Due to related parties (Note 5)

  79,837     3,522  

Total liabilities

  180,662     3,522  

Nature of Operations and Continuance of Business (Note 1)

           

Subsequent Events (Note 9)

           

Stockholders’ deficit

           

Preferred stock

           

   Authorized: 100,000,000 common shares, with a par value of $0.001 per share

           

   Issued and outstanding: nil shares

       

Common stock, Class A

           

   Authorized: 500,000,000 common shares, with a par value of $0.001 per share

           

   Issued and outstanding: 50,261,671 and 30,000,000 common shares, respectively

  50,262      

Common stock, Class B

           

   Authorized: 25,000,000 common shares, with a par value of $0.001 per share

           

   Issued and outstanding: nil and 2,500,000 common shares, respectively

      2,500  

Additional paid-in capital

  54,919     (2,186 )

Accumulated deficit during the development stage

  (172,979 )   (3,794 )

Total stockholders’ deficit

  (67,798 )   (3,480 )

Total liabilities and stockholders’ deficit

  112,864     42  

(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  
          Period from     from  
          February 10,     February 10,  
    For the     2010 (Date of    2010 (Date of 
    Year Ended     Inception)     Inception) to  
    July 31,     July 31,     July 31,  
    2011     2010     2011  
       
                   
                   
Revenue            
                   
Expenses                  
   Depreciation   6,329         6,329  
   Foreign exchange gain   (17,041 )       (17,041 )
   General and administrative   26,377     3,794     30,171  
   Professional fees   18,345         18,345  
   Research and development   190         190  
                   
Total expenses   34,200     3,794     37,994  
Net loss   (34,200 )   (3,794 )   (37,994 )
                   
Loss per share – basic and diluted              
                   
Weighted average shares outstanding   15,481,000     2,500,000        

(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
    Period from from
    February 10, February 10,
  For the Year 2010 (Date of 2010 (Date of
  Ended Inception) to Inception) to
  July 31, July 31, July 31,
  2011 2010 2011
  $ $ $
Operating Activities      
Net loss for the period (34,200) (3,794) (37,994)
Adjustments to reconcile net loss to net cash used in operating activities:      
   Depreciation 6,329 6,329
Changes in operating assets and liabilities:      
   Prepaid expenses and deposits (3,356) (3,356)
   Accounts payable 7,585 7,585
   Due to related parties 10,687 3,522 14,209
Net cash used in operating activities (12,955) (272) (13,227)
Investing Activities      
   Purchase of property and equipment (60,821) (60,821)
   Cash acquired on recapitalization 1,774 1,774
Net cash used in investing activities (59,047) (59,047)
Financing Activities      
   Proceeds from issuance of common shares 104,867 314 105,181
Net cash provided by financing activities 104,867 314 105,181
Increase in cash 32,865 42 32,907
Cash – beginning of period 42
Cash – end of period 32,907 42 32,907
Non-cash investing and financing activities      
   Conversion of Class B shares to Class A shares 50,000 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)
Consolidated Statements of Stockholders’ Deficit
(Expressed in U.S. dollars)

                                  Deficit        
                                  Accumulated        
          Common Stock           Additional     During the        
  Class A Class B   Paid-In     Development        
    Shares     Amount     Shares     Amount     Capital     Stage     Total  
    #       #          

Balance – February 10, 2010 (Date of Inception)

                           

Issuance for cash

          2,500,000     2,500     (2,186 )       314  

Net loss for the period

                      (3,794 )   (3,794 )

Balance – July 31, 2010

          2,500,000     2,500     (2,186 )   (3,794 )   (3,480 )

Issuance for cash

  20,000,000     20,000             84,867         104,867  

June 2, 2011 – recapitalization transactions

                                         

   Shares cancelled on acquisition

  (20,000,000 )   (20,000 )           20,000          

   Shares held by legal parent

  261,671     262             (262 )        

   Net liabilities assumed upon recapitalization

                      (134,985 )   (134,985 )

Conversion of Class B common stock

  50,000,000     50,000     (2,500,000 )   (2,500 )   (47,500 )        

Net loss for the year

                      (34,200 )   (34,200 )

Balance – July 31, 2011

  50,261,671     50,262             54,919     (172,979 )   (67,798 )

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

F-5



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. (“Non Industrial”), 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 July 31, 2011, the Company has not realized any revenues, has a working capital deficit of $134,149 and has an accumulated deficit of $172,979. 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, stock-based compensation, 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-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)

     
(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)

Impairment of 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.

     
(f)

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.

     

As of July 31, 2011 and 2010, the Company did not have any amounts recorded pertaining to uncertain tax positions.

     

The Company files federal and provincial income tax returns in Canada and federal, state and local income tax returns in the U.S., as applicable. The Company may be subject to a reassessment of federal and provincial income taxes by Canadian tax authorities for a period of three years from the date of the original notice of assessment in respect of any particular taxation year. In certain circumstances, the U.S. federal statute of limitations can reach beyond the standard three year period. U.S. state statutes of limitations for income tax assessment vary from state to state. Tax authorities of Canada and U.S. have not audited any of the Company’s, or its wholly-owned subsidiary’s income tax returns for the years ended July 31, 2011 and 2010.

     

The Company recognizes interest and penalties related to uncertain tax positions in tax expense. During the years ended July 31, 2011 and 2010, there were no charges for interest or penalties.

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)

     
(f)

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 July 31, 2011 and 2010, the Company had no items that affected comprehensive loss.

     
(g)

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.

     
(h)

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.

     
(i)

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.

F-8



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)

Financial Instruments and Fair Value Measures (continued)

     

The Company’s financial instruments consist principally of cash, accounts payable and accrued liabilities, and amounts 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.

     
(j)

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.

     
(k)

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.

Acquisition of Non Industrial Manufacture Inc. and Recapitalization

     

On June 2, 2011, the Company acquired 100% of the issued and outstanding shares of common stock of Non Industrial Manufacture Inc. (“NIM”) in exchange for 2,500,000 shares of Class B common stock. The acquisition was a capital transaction in substance and therefore was accounted for as a recapitalization of the business of NIM. Under recapitalization accounting, NIM is considered the acquirer for accounting and financial reporting purposes, and acquired the assets and assumed the liabilities of the Company. These financial statements include the accounts of the Company since the effective date of the recapitalization being June 2, 2011, and the historical accounts of the business of NIM since inception being February 10, 2010.

     

The assets acquired and liabilities assumed are as follows:


     
  Cash   1,774  
  Prepaid expenses   10,250  
  Property and equipment   11,859  
  Accounts payable   (89,718 )
  Due to related parties   (69,150 )
  Net liabilities assumed   (134,985 )

F-9



Urban Barns Foods Inc.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
(expressed in U.S. dollars)

4.

Property and Equipment


                  2011     2010  
            Accumulated     Net Carrying     Net Carrying  
      Cost     Amortization     Value     Value  
           
  Production equipment   76,752     10,401     66,351      

5.

Related Party Transactions

     
(a)

As at July 31, 2011, the Company owed $76,320 (2010 - $3,522) to directors and officers of the Company. The amounts owing are unsecured, non-interest bearing, and due on demand.

     
(b)

As at July 31, 2011, the Company owed $3,517 (2010 - $nil) to a company controlled by an officer of the Company. The amounts owing are unsecured, non-interest bearing, and due on demand.

     
6.

Common Stock

     
(a)

On February 10, 2010, NIM issued 30,000,000 shares of common stock at $0.00001 per share for proceeds of $314 (Cdn $300).

     
(b)

In January 2011, NIM issued 19,800,000 shares of common stock at $0.00001 per share for proceeds of $206 (Cdn $198).

     
(c)

On February 26, 2011, NIM issued 200,000 shares of common stock at $0.50 per share for proceeds of $104,661 (Cdn $100,000).

     
(d)

On May 20, 2011, the Company filed an amendment to its articles of incorporation designating that of the authorized 100,000,000 shares of common stock, 97,500,000 shares would be designated as Class A common stock and 2,500,000 shares would be designated as Class B common stock (the “Designation”). In accordance with the terms of the Designation, each share of Class B common stock is entitled to 20 votes per share, and is convertible into 20 shares of Class A common stock for a period of 12 months from the issuance date.

     
(e)

On May 31, 2011, the Company effected a 200:1 reverse stock split of the issued and outstanding common stock. All share amounts have been retroactively adjusted for all periods presented.

     
(f)

On June 2, 2011, the Company executed a share exchange agreement whereby the Company acquired 50,000,000 of the issued and outstanding common shares of Non Industrial. As part of the share exchange agreement, the Company issued 2,500,000 shares of Class B common stock of the Company to shareholders of Non Industrial. The 2,500,000 shares of Class B common stock were converted into 50,000,000 shares of Class A common stock.

     
(g)

On June 28, 2011, the Company filed an amendment to its articles of incorporation increasing its authorized capital stock to 525,000,000 shares consisting of 500,000,000 shares of Class A common stock and 25,000,000 shares of Class B common stock. The amendment also amended the Designation providing that the holders of the shares of Class B common stock could convert immediately upon issuance or any time thereafter at the sole option of the holder into shares of Class A common stock.

F-10



Urban Barns Foods Inc.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
(expressed in U.S. dollars)

7.

Share Purchase Warrants

   

The following table summarizes the continuity of share purchase warrants:


            Weighted  
            Average  
      Number of     Exercise Price  
      Warrants    
  Balance, February 10, 2010 (Date of Inception)        
     Issued   1,858     236  
  Balance, July 31, 2010   1,858     236  
     Expired   (358 )   300  
  Balance, July 31, 2011   1,500     222  

As at July 31, 2011, the following share purchase warrants were outstanding:

    Exercise  
  Number of Price  
  Warrants $ Expiry Date
  250 250 December 17, 2011
  1,250 216 February 10, 2012
  1,500    

   
8.

Income Taxes

The Company has net operating losses carried forward of $152,527 available to offset taxable income in future years which expires in beginning in fiscal 2030.

The Company is subject to United States federal and state income taxes and Canadian federal and provincial taxes. The reconciliation of the provision for income taxes compared to the Company’s income tax expense as reported is as follows:

      2011     2010  
       
  Income tax recovery at statutory rate   (139,708 )   (114,173 )
  Permanent differences and other   33,579     32,871  
  Change in enacted tax rates   2,724     9,580  
  Valuation allowance change   103,405     71,722  
  Provision for income taxes        

The significant components of deferred income taxes and assets as at July 31, 2011 and 2010 are as follows:

      2011     2010  
       
  Net operating losses carried forward   175,321     71,916  
  Valuation allowance   (175,321 )   (71,916 )
  Net deferred income tax asset        

As at July 31, 2011, the Company is in arrears on filing its statutory corporate income tax returns and the amounts presented above are based on estimates. The actual losses available could differ from these estimates.

F-11



Urban Barns Foods Inc.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
(expressed in U.S. dollars)

9.

Subsequent Events

     
(a)

On August 8, 2011, the Company granted 3,400,000 stock options to consultants at an exercise price of $0.30 per share of Class A common stock expiring on November 15, 2011. On August 8, 2011, the Company issued 3,400,000 shares of Class A common stock pursuant to the exercise of 3,400,000 stock options for proceeds of $1,020,000.

     
(b)

On August 8, 2011, the Company granted 1,700,000 stock options to consultants at an exercise price of $0.025 per share of Class A common stock expiring on November 15, 2011. On August 8, 2011, the Company issued 1,700,000 shares of Class A common stock pursuant to the exercise of 1,700,000 stock options for proceeds of $42,500.

     
(c)

On August 9, 2011, the Company entered into entered into one-year consulting agreements with several officers and directors of the Company for strategic business planning and management services. In consideration, the Company agreed to issue an aggregate of 675,000 shares of common stock.

     
(d)

On August 9, 2011, the Company entered into entered into certain other consulting agreements with various consultants for business planning and development services. In consideration, the Company agreed to issue an aggregate of 750,000 shares of common stock.

     
(e)

On August 19, 2011, the Company issued a total of 1,425,000 shares of common stock pursuant to the consulting agreements described in Note 9(c) and 9(d).

F-12


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Ticker: URBF
CIK: 1410253
Form Type: 10-K Annual Report
Accession Number: 0001204459-11-003091
Submitted to the SEC: Wed Nov 16 2011 10:16:55 AM EST
Accepted by the SEC: Wed Nov 16 2011
Period: Sunday, July 31, 2011
Industry: Agricultural Production Crops

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