10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 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 March 31, 2011

 or

o Transitional Report under Section 13 or 15(d) of the Securities Exchange Act of 1934

000-52327

(Commission file number)

    URBAN AG. CORP.

(Exact name of registrant as specified in its charter)

Delaware	80-0664054
(State of incorporation)	(IRS Employer Identification Number)

68 Phillips Beach Ave.

Swampscott, MA  01970

(Address of principal executive offices)

(781) 389-9703

(Registrant's telephone number)

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 such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, 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 the registrant was required to submit and post such files). Not Applicable.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. (Check one):

Large accelerated filer oAccelerated filer oNon-accelerated filer oSmaller Reporting Company x

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes o No x

As of May 12, 2011, there were 2,127,184 shares of the registrant's common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE:

None

FORWARD-LOOKING STATEMENTS

Certain statements made in this Quarterly Report on Form 10-Q are "forward-looking statements" (within the meaning of the Private Securities Litigation Reform Act of 1995) regarding the plans and objectives of management for future operations. Such statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements of Urban Ag Corp. (the "Company") to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. The forward-looking statements included herein are based on current expectations that involve numerous risks and uncertainties. The Company's plans and objectives are based, in part, on assumptions involving the continued expansion of business. Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond the control of the Company. Although the Company believes its assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove inaccurate and, therefore, there can be no assurance the forward-looking statements included in this Report will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by the Company or any other person that the objectives and plans of the Company will be achieved.

URBAN AG CORP.

FORM 10-Q

TABLE OF CONTENTS

PART IFINANCIAL INFORMATION
Item 1	Financial Statements (unaudited)
	Consolidated Balance Sheets
	Consolidated Statements of Operations
	Consolidated Statements of Cash Flows
	Notes to Consolidated Financial Statements
Item 2	Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3	Quantitative and Qualitative Disclosures about Market Risk
Item 4	Controls and Procedures
PART IIOTHER INFORMATION
Item 1	Legal Proceedings
Item 1A	Risk Factors
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds
Item 3	Defaults Upon Senior Securities
Item 4	(Removed and Reserved)
Item 5	Other Information
Item 6	Exhibits
SIGNATURES

1

PART I - FINANCIAL INFORMATION

Item 1 - Financial Statements

URBAN AG. CORP. (formerly AQUAMER MEDICAL CORP.)

(a development stage company)

 Consolidated Balance Sheets

	March 31, 2011 (unaudited)			December 31, 2010
Assets
Current assets:
Cash	$	4,596		$	1,945
Prepaid expenses		-			3,973
Total current assets		4,596			5,917
Other assets:
Net assets of discontinued operations		27,686			27,686
Intangible assets (net of accumulated amortization of $41,667 and $25,000, respectively)		958,333			975,000
Total Other assets		986,019			1,002,686
Total assets	$	990,615		$	1,008,603
Liabilities and Stockholders' Deficiency
Current liabilities:
Accounts payable	$	463,543		$	473,821
Accrued expenses payable		171,830			377,327
Balance due on license agreement		750,000			750,000
Notes payable		35,000			10,000
Due to related parties		12,813			12,813
Total current liabilities		1,433,186			1,623,961
Other liabilities
Long term debt		300,000			300,000
Total liabilities	$	1,733,186		$	1,923,961
Stockholders' deficiency
Preferred stock,
10,000,000 shares authorized, none issued		-			-
Common stock, $.0001 par value
15,000,000 shares authorized, 2,127,184 shares, issued and outstanding (2,002,184 in 2010)		213			200
Additional paid-in capital		2,701,216			2,418,732
Deficit accumulated during development stage		(3,444,000	)		(3,334,290	)
Total stockholders' equity (deficiency)		(742,571	)		(915,358	)
	$	990,615		$	1,008,603

See accompanying notes to consolidated financial statements.

F-1

URBAN AG. CORP. (formerly AQUAMER MEDICAL CORP.)

(a development stage company)

  Consolidated Statements of Operations 

	Three Months Ended
	March 31,2011 (unaudited)			March 31, 2010 (unaudited)			February 4, 2000  (inception) through  March 31, 2011 (unaudited)
Revenue	$	-		$	-		$	-
Costs and expenses:
General and administrative		92,678			22,484			2,006,453
Research and development		-			-			276,645
Depreciation		-			-			6,900
Amortization		16,667			-			41,667
Total costs and expenses		109,345			22,484			2,331,665
Income (Loss) before other income and discontinued operations		(109,345	)		(22,484	)		(2,331,665	)
Interest, net of interest income		365			-			(6,556	)
Impairment of  purchase commitment		-			-			145,000
Income from forgiveness of related party debt		-			-			(34,691	)
Total other (income) and expense		365			-			103,753
Income (Loss) before discontinued operations		(109,710	)		(22,484	)		(2,435,418	)
(Loss) from discontinued operations		-			(5,125	)		(1,008,582	)
Net income (loss)	$	(109,710	)	$	(27,609	)	$	(3,444,000	)
Basic and fully diluted loss per share	$	(0.05	)	$	(0.03	)
Weighted average number of shares outstanding		2,027,184			1,050,527

See accompanying notes to consolidated financial statements.

F-2

URBAN AG. CORP. (formerly AQUAMER MEDICAL CORP.)

(a development stage company)

Statements of Cash Flows

 (unaudited)

	Three Months  Ended March 31, 2011 (unaudited)			Three Months  Ended March 31, 2010 (unaudited)			Period from  February 4, 2000  (inception) through  March 31, 2011 (unaudited)
Cash flows from operating activities:
Net income (loss)	$	(109,710	)	$	(27,609	)	$	(3,444,000	)
Adjustments to reconcile deficit accumulated during development stage to net cash used in operating activities:
Depreciation		-			-			6,900
Amortization of intangibles		16,667			1,250			310,917
Impairment of intangible assets		-			-			660,564
Expenses paid by issuance of common Stock		65,000			-			833,044
Change in operating assets and liabilities:
Increase in prepaid expenses and other current assets		3,973			-			93,998
Increase in other assets		-			-			75,468
Increase  in accounts payable and accrued expenses		1,721			21,367			967,471
Net cash used in operating activities		(22,349	)		(4,992	)		(495,639	)
Cash flows from investing activities:
Purchase of equipment		-			-			(14,400	)
Net cash used in investing activities		-			-			(14,400	)
Cash flows from financing activities:
Proceeds from issuance of notes payable		25,000			-			35,000
Payments on notes payable		-			-			(100,000	)
Proceeds from issuance of common stock		-			-			233,025
Proceeds from issuance of preferred stock		-			-			175,000
Proceeds from issuance secured Convertible note		-			-			15,000
Payment on related party loans		-			-			(73,500	)
Loans from former parent company		-			-			213,295
Loans to Bellacasa Productions, Inc.		-			-			(30,000	)
Loans from related parties		-			5,232			46,815
Net cash generated by financing activities		25,000			5,232			514,635
Change in cash		2,651			240			4,596
Cash at beginning of period		1,945			493			-
Cash at end of period	$	4,596		$	733		$	4,596
Non-cash investing activities:
Common stock issued for acquisitions	$	-		$	-		$	756,000
Common stock issued to settle employment agreements		20,000			-		$	20,000

See accompanying notes to consolidated financial statements.

F-3

URBAN AG. CORP. (formerly AQUAMER MEDICAL CORP.)

(a development stage company)

Notes to Consolidated Financial Statements

March 31, 2011

(unaudited)

Note 1 - Organization

Urban Ag. Corp., ("Urban Ag" or the "Company") formerly Aquamer Medical Corp. was formed as a Delaware corporation on February 4, 2000, for the purpose of developing medical products, using water-based tissue-bulking technology, for the fields of dermatology, gastroenterology and urology.  The Company is not currently actively pursuing these technologies and is focusing its energies and resources on UAC’s vertical farming business discussed below.

On August 16, 2010, Urban Ag completed the acquisition of all business assets of Urban Agriculture Corporation (“UAC”) to enter the urban vertical farming business.

Note 2 - Basis of Presentation

The unaudited interim condensed consolidated financial statements as of and for the three months ended March 31, 2011 and 2010 have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial reporting. These condensed consolidated statements are unaudited and, in the opinion of management, include all adjustments (consisting of normal recurring adjustments and accruals) necessary for a fair statement for the periods presented. The year-end consolidated data was derived from audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America (“GAAP”). These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements of Urban Ag and notes thereto included in the Annual Report on Form 10-K for the year ended December 31, 2010, filed by the Company with the SEC.

The results of operations for the three month period ended March 31, 2011 are not necessarily indicative of the results to be expected for the entire fiscal year or any other period.

The financial statements include the results of the Company's wholly owned subsidiaries, Urban Agricultural Corporation (“UAC”) and Aquamer Shipping Corp. All significant inter-company account balances and transactions between the Company and its corporate subsidiaries have been eliminated in consolidation.

The financial statements have been presented in a "development stage" format. Since inception, the primary activities of Urban Ag and subsidiaries have been research and development and equity fund raising activities. The Company has not commenced revenue producing activities.

Certain amounts in the 2010 financial statements have been reclassified to conform to the 2011 presentation.

Note 3 - Summary of Significant Accounting Policies

In July 2009, the FASB Accounting Standards Codification (the "Codification") officially became the single source of authoritative nongovernmental U.S. GAAP, superseding existing FASB, American Institute of Certified Public Accountants, Emerging Issues Task Force, and related accounting literature. Going forward, only one level of authoritative GAAP will exist. All other accounting literature will be considered nonauthoritative.

F-4

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statement and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from the estimates.

Cash and Cash Equivalents

For financial statement presentation purposes, those short-term, highly liquid investments with original maturities of three months or less are considered to be cash or cash equivalents.

Property, Plant and Equipment

Property, plant and equipment are reported at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. Lives for property, plant and equipment are as follows: leasehold improvements— Lesser of term or useful life; machinery and equipment—5 to 15 years; furniture and fixtures—3 to 10 years; computer hardware and software 3 to 7 years. Routine maintenance costs are expensed as incurred. Expenditures for renewals and betterments are capitalized. The cost and related accumulated depreciation of assets retired or sold are removed from the accounts and gains or losses are recognized in operations.  There was no depreciation expense in the three month periods ending March 31, 2011 or 2010.

Valuation of Intangibles and Other Long Lived Assets

The recoverability of long-lived assets, including equipment and intangible assets, is reviewed when events or changes in circumstances occur that indicate that the carrying value of the asset may not be recoverable. The assessment of possible impairment is based on the ability to recover the carrying value of the asset from the expected future pre-tax cash flows (undiscounted and without interest charges) of the related operations. If these cash flows are less than the carrying value of such asset, an impairment loss is recognized for the difference between estimated fair value and carrying value. The primary measure of fair value is based on discounted cash flows. The measurement of impairment requires management to make estimates of these cash flows related to long-lived assets, as well as other fair value determinations.  See Note 6 of the Notes to the Consolidated Financial Statements.

Fair Value of Financial Instruments

FASB ASC 815 requires disclosure of fair value information about financial instruments. Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of December 31, 2010. The respective carrying value of certain on-balance sheet financial instruments approximated their fair values. These financial instruments include cash and cash equivalents, accounts payable and accrued expenses. Fair values were assumed to approximate carrying values for these financial instruments since they are short-term in nature and their carrying amounts approximate fair values or they are receivable or payable on demand. 

Stock Based Compensation

Stock based awards are accounted for according to the provisions of FASB ASC 718. Our primary type of share-based compensation consists of stock options. We use the Black-Scholes option pricing model in valuing options. The inputs for the valuation analysis of the options include the market value of the Company's common stock, the estimated volatility of the Company's common stock, the exercise price of the warrants and the risk free interest rate. 

F-5

Fair Value Measurements

FASB ASC 820 defines fair value and establishes a framework for measuring fair value and establishes a fair value hierarchy which prioritizes the inputs to the inputs to the valuation techniques. Fair value is the price that would be received to sell an asset or amount paid to transfer a liability in an orderly transaction between market participants at the measurement date. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market. Valuation techniques that are consistent with the market, income or cost approach, as specified by FASB ASC 820, are used to measure fair value. 

Fair Value Hierarchy

FASB ASC 820  specifies a hierarchy of valuation techniques based upon whether the inputs to those valuation techniques reflect assumptions other market participants would use based upon market data obtained from independent sources (observable inputs), or reflect the Company's own assumptions of market participant valuation (unobservable inputs). In accordance with FASB ASC 820, these two types of inputs have created the following fair value hierarchy: 

Level 1 - Quoted prices in active markets that are unadjusted and accessible at the measurement date for identical, unrestricted assets or liabilities.

Level 2 - Quoted prices for identical assets and liabilities in markets that are not active, quoted prices for similar assets and liabilities in active markets or financial instruments for which significant inputs are observable, either directly or indirectly.

Level 3 - Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.

FASB ASC 820 requires the use of observable market data if such data is available without undue cost and effort.  

The Company measures fair value as an exit price using the procedures described for all assets and liabilities measured at fair value. When available, the Company uses unadjusted quoted market prices to measure fair value and classifies such items within Level 1. If quoted market prices are not available, fair value is based upon internally developed models that use, where possible, current market-based or independently-sourced market parameters such as interest rates and currency rates. Items valued using internally generated models are classified according to the lowest level input or value driver that is significant to the valuation. Thus, an item may be classified in Level 3 even though there may be inputs that are readily observable. If quoted market prices are not available, the valuation model used generally depends on the specific asset or liability being valued. The determination of fair value considers various factors including interest rate yield curves and time value underlying the financial instruments. 

Income Taxes

Deferred tax assets and liabilities are recognized for temporary differences between the financial reporting basis and the tax basis of our assets and liabilities.  Deferred taxes are recognized for the estimated taxes ultimately payable or recoverable based on enacted tax laws.  Allowances are recorded if recovery is uncertain.

F-6

Earnings per Common Share

Basic net loss per share is computed using the weighted average number of common shares outstanding during the period. Diluted net loss per common share is computed using the weighted average number of common and dilutive equivalent shares outstanding during the period. Dilutive common equivalent shares consist of options to purchase common stock (only if those options are exercisable and at prices below the average share price for the period) and shares issuable upon the conversion of the Company's securities. The Company had no outstanding stock options or convertible securities at December 31, 2010 and December 31, 2009.

Impairment

Intangible assets with estimable lives and other long-lived assets are reviewed for impairment annually or whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. Recoverability of intangible assets with estimable lives and other long-lived assets is measured by a comparison of the carrying amount of an asset or asset group to future net undiscounted pretax cash flows expected to be generated by the asset or asset group. If these comparisons indicate that an asset is not recoverable, the impairment loss recognized is the amount by which the carrying amount of the asset or asset group exceeds the related estimated fair value. Estimated fair value is based on either discounted future pretax operating cash flows or appraised values, depending on the nature of the asset. Judgment is required to estimate future operating cash flows.

Recent Accounting Pronouncements

None.

Note 4 - Business Acquisitions

On August 16, 2010, Urban Ag completed the acquisition of all business assets of UAC.  The Company paid for these assets with 689,655 shares of its common stock.   UAC was formed on April 22, 2010 to conduct urban indoor vertical farming.  UAC currently holds an exclusive license (the "License Agreement") for Massachusetts and a has right of first refusal to purchase exclusive licenses for New Jersey, Pennsylvania and California from TerraSphere Systems, LLC, a company that designs and builds proprietary systems for growing fruits and vegetables in controlled, indoor environments.  UAC purchased the license on May 1, 2010 for $1,000,000, including a $750,000 note payable.  The technology is proprietary and unique.  The technology used under the license can not be disclosed or transferred to a third party without prior written consent of the licensor.  Nothing occurred between May 1, 2010 and the asset acquisition date to enhance the license value. Given these factors, combined with the brief period (fifteen weeks) from original purchase by UAC to the Urban Ag transaction date, the $1,000,000 historical cost is the fair value of the asset.

The costs associated with Urban Ag’s acquisition of UAC assets and liabilities are as follows:

Assets acquired
Cash	75,468
Other current assets	60,000
Intangible assets	1,000,000
Total Assets acquired	1,135,468
Liabilities assumed
Accrued Expenses	85,468
Balance due on license agreement	750,000
Long Term Debt	300,000
Total Liabilities assumed	1,135,468

F-7

Note 5 - Discontinued Operations

On March 21, 2010, the Company, through its wholly-owned subsidiary Aquamer Shipping Corp., consummated an asset acquisition in which it acquired certain technology related to the design and development of metalized liners potentially to be offered for sale in the intermodal shipping market. Pursuant to the terms of the Asset Purchase Agreement, the Company acquired a consulting contract; all of the technology, manufacturing processes and marketing material; and a nominal amount of fixed assets associated with the product for a purchase price consisting of a 120-day 6% promissory note in the principal amount of $100,000 and 172,414 post split shares of common stock of the Company.    The aggregate consideration for the transaction was $850,000.

Consideration paid is summarized as follows:

Common stock issued- 172,414 shares valued at $4.35  per share	$	750,000
Promissory note		100,000
Total consideration	$	850,000

Purchase price was allocated as follows:

Process technology	$	683,764
Consulting agreement		163,736
Fixed assets		2,500
Total assets acquired	$	850,000

In December 2010, management determined that Aquamer Shipping 's business no longer fit strategically with the Company and wrote down the value of the assets to their estimated net realizable value of $27,586 and is currently in the process of pursuing the sale or liquidation of Aquamer Shipping.  The Company has also evaluated the classification of the assets and liabilities of Aquamer Shipping and concluded that the net assets qualified as discontinued operations. The Company concluded that the future cash flows associated with Aquamer Shipping would be completely eliminated from the continuing operations of the Company. As such, the Company classified Aquamer Shipping’s results of operations as discontinued operations.

In 2010, management determined that developing a commercially viable product from the Patella patent no longer fit strategically with the Company.  Accordingly, the Company has written down the value of the patent to its net realizable value of $100.

Condensed operating statements for discontinued operations are summarized below:

	Three Months Ended 3/31/2011		Three Months Ended 3/31/2010
Costs and expenses		-	$	3,708
Interest		-		167
Amortization		-		1,250
Income (loss) from discontinued operations, net of taxes		-	$	(5,125	)

F-8

The carrying amounts of major classes of assets and liabilities at March 31, 2011 associated with discontinued operations are as follows:

	March 31, 2011
Fixed Assets	$	10,000
Intangible assets, net of amortization of  $259,250 and impairment of $615,564		17,686
Assets of discontinued operations	$	27,686

Note 6 – Intangible Assets

Intangible assets that have determinable useful lives are valued separately and amortized over their expected useful lives.  The acquired identifiable intangible asset as of March 31, 2011 is as follows:

	Cost		Accumulated Amortization		Net Book Value
License Agreement		1,000,000		41,667		958,333

The acquired UAC intangible asset is a license agreement for the use of patented, proprietary technology. On May 1, 2010 UAC acquired the license for proprietary technology for $1,000,000.  UAC also has first right of refusal to acquire licenses in New Jersey, Pennsylvania and California for $1,000,000 per license.  The technology is intended to be used by the licensee in the jurisdiction provided under the agreement and can not be disclosed or transferred to a third party without prior written consent of the licensor.  Nothing occurred between May 1, 2010 and the asset acquisition date to enhance the license value. Given these factors, combined with the brief period (fifteen weeks) from original purchase by UAC to the Urban Ag transaction date, the $1,000,000 historical cost is the fair value of the asset.  The Company is amortizing the asset over the estimated useful life of the agreement, 15 years.

Urban Ag assesses the impairment of amortizable intangible assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors the Company considers important that could trigger an impairment review include the following:

· a significant underperformance relative to expected historical or projected future operating results;

· a significant change in the manner of Urban Ag’s use of the acquired asset or the strategy for Urban Ag’s overall business;

· a significant negative industry or economic trend; and

· Urban Ag’s market capitalization relative to net book value.

If Urban Ag determines that an impairment review is required, Urban Ag would review the expected future undiscounted cash flows to be generated by the assets. If Urban Ag determines that the carrying value of intangible assets may not be recoverable, Urban Ag would measure any impairment based on a projected discounted cash flow method using a discount rate determined by Urban Ag to be commensurate with the risk inherent in Urban Ag’s current business model. If impairment is indicated through this review, the carrying amount of the asset would be reduced to its estimated fair value.  TerraSphere has extended the payment terms under the TerraSphere License through June 30, 2011.  If we are unable to pay the $750,000 balance due (described below) on the license in full or further extend the payment terms by the extended due date, the entire $1,000,000 license fee will become impaired.

Note 7 – Note Payable

On March 17, 2011, the Company entered into a Secured Promissory Note for an amount up to $30,000 with a corporate investor.  The note matures on September 13, 2011, carries an interest rate of 10% interest per annum.  The note is secured by all of the assets of the Company.  As of March 31, 2011, $25,000 had been funded.

Effective May, 2010, the Company’s wholly-owned subsidiary, UAC, purchased a License Agreement TerraSphere Systems, LLC, a company that designs and builds proprietary systems for growing fruits and vegetables in controlled, indoor environments. The total purchase price was $1,000,000.  The Company paid $250,000 on the purchase date.  The outstanding balance due of $750,000 is due in equal payments on November 1, 2010, February 1, 2011 and May 1, 2011.  We have not made the payments due under the TerraSphere License on November 1, 2010 and February 1, 2011.  TerraSphere has extended the payment terms under the TerraSphere License through June 30, 2011.  If we are unable to pay the license in full by the extended due date our ability to develop the vertical farming business may be materially adversely affected.

F-9

Effective April 23, 2010, the Company’s wholly-owned subsidiary, UAC, entered into a $300,000 promissory note and Note Purchase Agreement with an individual, who is also a shareholder.  The Note bears no interest except upon an Event of Default (late payment). In the event of late payment, interest is charged at an annual rate of 18%.  Principal is payable each quarter solely from UAC’s earnings before interest, taxes, depreciation and amortization (“EBITDA”) for the quarter then ended.  To the extent UAC does not have positive EBITDA for a quarter, no payment is due.  Until the principal amount of the Note is paid in full, the amount of the quarterly payment equals 21% of UAC's EBITDA. Thereafter, UAC is obligated to continue making quarterly payments to the holder equal to 3% of EBITDA for the quarter then ended.  Interest is not being accrued on this note as payment is not assured.  Interest expense will be recorded when payment is determined to be probable.

Note 8 - Stockholders' Equity          

Capital Structure

Effective December 20, 2010, the Company’s shareholders approved a 87:1 reverse stock split of the Company’s common stock reflected below.  At the same time, the Company's Certificate of Incorporation was amended to decrease the authorized shares of $0.0001 par value common stock from 200 million shares to 15 million shares. The Company is also authorized to issue 10 million shares of preferred stock. As of March 31, 2011 and December 31, 2010, there were 2,127,184 and 2,002,184 shares of common stock issued and outstanding, respectively.  As of March 31, 2011 there were 1,375,000 warrants convertible into shares of common stock outstanding, with an expiration date of April 2012 with a conversion price of $87.00 per share.  As of March 31, 2011 and December 31, 2010, no preferred shares were outstanding.

Common Stock Issuances

Issued for Settlement of Contractual Obligations

See Note 9 of the Notes to the Consolidated Financial Statements for discussion of shares issued.

Note 9 - Related Party Transactions

Executive Team Compensation

Edwin A. Reilly, Chief Executive Officer and Chairman of the Board of Directors of the Company resigned effective March 9, 2011.  In connection with Mr. Reilly's resignation, he entered into a Separation Agreement under which he will receive 62,500 shares of the Company's common stock in exchange for canceling his employment agreement and foregoing any unpaid and accrued compensation, such amount totaling $129,042 through 2010 and $33,333 for 2011.

Michael J, Mahoney, President and Chief Operating Officer and a member of the Board of Directors, also resigned effective March 9, 2011. In connection with Mr. Mahoney's resignation, he also entered into a Separation Agreement under which he will receive 62,500 shares of the Company's common stock in exchange for canceling his employment agreement and foregoing any unpaid and accrued compensation, such amount totaling $88,501 for 2010 and $31,667 for 2011.

F-10

The settlement of accrued compensation noted above with the Company’s common stock was recorded as an increase to additional paid in capital.

Marshall Sterman – Chief Executive Officer and Chairman

During 2009, a company related to Mr. Sterman provided consulting services for $45,000. As of March 31, 2011, the balance of $45,000 remains accrued and unpaid. Additionally, in 2009 and 2010, a party related to Mr. Sterman made non-interest bearing temporary advances to the Company totaling $12,813, which remains unpaid as of March 31, 2011.

Note 10 - Going Concern

The Company's financial statements have been presented on a going concern basis, which contemplates the realization and the satisfaction of liabilities in the normal course of business.  The liquidity of the Company has been adversely affected by losses since inception of approximately $3,400,000, and a working capital deficiency of $1,400,000, which raises substantial doubt about the Company's ability to continue as a going concern without additional capital contributions and/or achieving profitable operations. 

Management's plans are to raise additional capital either in the form of common stock or convertible securities to pursue the urban vertical farming business. There can be no assurance, however, that the Company will be successful in accomplishing its objectives.

Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations

General

Urban Ag. is the successor entity to Aquamer, Inc. (“AQUM”), a Delaware corporation, which was established in February 2000 to commercialize proprietary medical devices.  In 2005 AQUM became a wholly owned subsidiary of Bellacasa Productions, Inc. (“Bellacasa”) a publicly traded company, which in 2007 distributed 100% of its AQUM shares to its shareholders, thus creating a public entity renamed Aquamer Medical Corp. that traded as AQUM.

Business Overview

From 2007 to 2010 AQUM tried unsuccessfully to commercialize its medical device business and our Board of Directors closed those operations and acquired Urban Agricultural Corporation, a Delaware corporation (“UAC”). UAC holds the exclusive rights under a license from TerraSphere, Inc. (“TerraSphere”) to use their patented farming technology in Massachusetts, and the right of first refusal to purchase exclusive licenses for New Jersey, Pennsylvania and California.  Under the TerraSphere license the Company receives certain vertical farming intellectual property and know-how from TerraSphere .  The license was purchased by UAC in May, 2010 for $1,000,000 with $250,000 paid at acquisition and payments of $250,000 each due on November 1, 2010, February 1, 2011 and May 1, 2011.  We have not made the payments due under the TerraSphere License on November 1, 2010 and February 1, 2011.  TerraSphere has extended the payment terms under the TerraSphere License through June 30, 2011.  If we are unable to pay the license in full by the extended due date unless extended or renegotiated, the entire $1,000,000 license fee will become impaired and our ability to develop the vertical farming business may be materially adversely affected.

Vertical Farming

Vertical farming is a recent phenomenon a whose proponents believe will revolutionize the production of leafy green vegetables and other produce by growing these products in urban area buildings, using computer controlled technologies to virtually eliminate the many elements that are detrimental to traditional farming techniques.

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Using TerraSphere technology (see their web site at terraspheresystems.com) we believe we can provide competitively-priced, locally-grown produce in large urban structures (warehouses or factories) incorporating the use of concentrated production in a reduced physical footprint.  These “farms” can be located in densely-populated areas within easy reach of consumers thus dramatically reducing the costs and consequences of today’s significant carbon footprint. This should also result in fresher produce with longer shelf-life. We also believe that TerraSphere’s technology will greatly reduce, if not eliminate, , the need for chemical herbicides and pesticides, potentially providing an additional marketing advantage over produce grown on large, industrial farms, thus addressing consumer concerns over food safety issues.

TerraSphere’s system includes:

· Specialized equipment, including stackable racks incorporating growing trays, piping and lighting arrays;

· Nutrient delivery system;

· High efficiency lighting;

· Automated, computer-controlled lighting, watering and nutrient delivery cycles;

· Software that automatically adjusts light and nutrient cycles based on plant variety and maturity

We expect to work with TerraSphere to improve production yield through new techniques, improvements to our facilities and equipment, and the use of technologies developed in-house or by third parties in order to improve crop varieties with strong market demand.

We further believe TerraSphere’s system provides us with three key advantages over conventional field agriculture and greenhouses:

· Fresher, Longer Lasting Produce.  Our due diligence suggests that produce grown using the TerraSphere system remain attached to the roots longer than conventionally grown product resulting in a shelf life of up to twice as long as traditionally-grown and shipped premium organic and “no-spray” crops.  Therefore, we anticipate that our produce will stay fresh longer and taste better.

· Increased Productivity.  Growing food vertically, in cubic feet versus square feet, is considerably more efficient.  TerraSphere’s Vancouver facility produces approximately 55 pounds of produce per square foot annually. Based upon research conducted by Cornell University, field agriculture produces approximately two pounds of produce per square foot, per year, and the average greenhouse, 18 pounds per square foot, per year.

· Runoff, Saves Water.  TerraSphere’s patented closed-loop technology is designed to generate very little waste water and to eliminate the “runoff” of environmentally-damaging fertilizers and other chemicals associated with conventional field agriculture – even organic farms.

RESULTS OF OPERATIONS

The following discussion and analysis provides information, which our management believes is relevant to an assessment and understanding of our results of operations and financial condition. The discussion should be read in conjunction with the financial statements and related notes that appear elsewhere in this report.

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The financial statements included in this report are those of Urban Ag. Corp. for all historical periods.

Three months ended March 31, 2011 and March 31, 2010 and since inception

Continuing Operations

Sales - We did not have any sales during the three-month periods ended March 31, 2011 and March 31, 2010. Urban Ag is a development stage company and has not had any revenue since its incorporation in February 2000.

Costs and Expenses - Total expenses for the three months ended March 31, 2011 were $109,345, compared to $22,484 in the three months ended March 31, 2010.  Expenses in the first quarter of 2011 consisted of payroll, $65,000; professional fees, $26,857; office and travel expense, $821; and amortization, $16,667.  Expenses in the first quarter of 2010 consisted of professional fees, $21,500; and office and miscellaneous expenses, $984.

Other Expenses - Total other expense for the three months ended March 31, 2011 was comprised of  interest expense of $365.

Discontinued Operations  - Total expenses related to discontinued operations for the three months ended March 31, 2011 were $0, compared to $5,125 in the three months ended March 31, 2010.  Expenses in the first quarter of 2010 relating to discontinued operations consisted of professional fees, $1,500; employee expense, $2,208; amortization of patent, $1,250; and interest expense, $167.

Net Loss - Net loss for the three months ended March 31, 2011 was $109,710. Net loss for the three months ended March 31, 2010 was $27,609.           

We have not reduced our net income for the three months ended March 31, 2011 or our net loss for the three months ended March 31, 2010, by any tax expense or benefit, consequently, for both periods, our net income or loss was the same before and after taxes.

Basic and fully diluted net loss per share for the three months ended March 31, 2011 and 2010 was $0.05 and $0.03 per share, respectively.   Per share net losses for the first fiscal quarters of 2011 and 2010 were based on 2,027,184 and 1,050,527 weighted average common shares outstanding, respectively.

Since inception, our losses through March 31, 2011 totaled $3,444,000.

Liquidity and Capital Resources

As of March 31, 2011, our cash balance was $4,596.

As of March 31, 2011, our current liabilities totaled $1,433,186. The liabilities consist of accounts and accrued expenses payable, $635,373 primarily for payroll and professional services; due to related party $12,813; secured promissory note payable of $25,000; promissory note payable $10,000 and the balance due on the TerraSphere Systems license agreement, $750,000.

As of March 31, 2011, our long term liabilities totaled $300,000 and consisted of a note payable to an individual.

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We intend to meet our cash needs for the next 12 months by the sale of securities or borrowings. We need to raise additional capital in order to pursue our business plan, and the required additional financing may not be available on terms acceptable to us, or at all. No binding commitment for an investment of funds in our company has been made, and a number of factors beyond our control may make any future financings uncertain.  Although, we believe that becoming an independent public company and having our common stock trading on the OTC Bulletin Board, has enhanced our capital raising ability, there is no assurance that we will be able to sell our securities or borrow funds to pursue our business objectives. We will require the infusion of capital to sustain planned growth and continue the process for regulatory approval of the Urban Ag products.

Ability to Continue as a Going Concern and Plan of Operation

Our financial statements, which are included in this Form 10-Q, have been presented on a going concern basis, which contemplates the realization and the satisfaction of liabilities in the normal course of business.  Our liquidity has been adversely affected by losses of approximately $3,400,000 since Urban Ag's incorporation date, February 4, 2000, which raises substantial doubt about our ability to continue as a going concern without additional capital contributions and/or achieving profitable operations.  Our management's plan includes raising additional capital either in the form of common stock or convertible securities, aggressively entering the metalized liner business, continuing our research and development efforts and conducting clinical trials to obtain the necessary approvals to market our products, and to acquire additional patents and licenses in both medical and non-medical fields. There can be no assurance, however, that we will be successful in accomplishing our objectives

Capital Expenditures

In the three months ended March 31, 2011, we did not make any capital expenditures.  We expect to make a capital expenditure in 2011 of approximately $3,800,000 for production equipment for our UAC vertical farming subsidiary.

Item 3 - Quantitative and Qualitative Disclosures about Market Risk

Not applicable.

Item 4 - Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Commission's rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosures. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.

As of the end of the period covered by this report, we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of March 31, 2011. This evaluation was accomplished under the supervision and with the participation of our current chief executive officer and principal executive officer and our current chief financial officer and principal accounting officer who concluded that as of the end of the period covered by this report our disclosure controls and procedures are not effective.

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As of the date of this report, for the period covered by this report, both the Principle executive officer and principal accounting officers have identified the following material weakness of our internal controls: 

· Reliance upon independent financial reporting consultants for review of critical accounting areas and disclosures and material non-standard transactions.  

· Lack of sufficient accounting staff to ensure timely recording, processing and reporting of financial information necessary to allow timely decisions regarding required disclosures.

· Lack of sufficient written policies and procedures.

Consequently, we lack sufficient internal technical expertise and procedures to ensure that significant non-routine transactions, accounting estimates, and other adjustments were appropriately reviewed, analyzed and monitored by competent accounting staff on a timely basis.

In order to remedy our existing internal control deficiencies, as soon as our finances permit, we will hire a full-time Chief Financial Officer who will be sufficiently versed in public company accounting to implement appropriate procedures for timely and accurate disclosures.

Because of the inherent limitations in all disclosure control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, will be or have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, disclosure controls can be circumvented by the individual acts of some persons, by collusion of two or more people and/or by management override of such controls. The design of any system of disclosure controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, disclosure controls and procedures may become inadequate because of changes in conditions, and/or the degree of compliance with the policies and procedures may deteriorate. Also, misstatements due to error or fraud may occur and not be detected.

Changes in Internal Control over Financial Reporting

We have not yet made any changes in our internal control over financial reporting that occurred during the period covered by this report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II - OTHER INFORMATION

ITEM 1 – LEGAL PROCEEDINGS

None.

ITEM 1A – RISK FACTORS

There are a number of important factors that could cause our actual results to differ materially from those indicated or implied by forward-looking statements. We disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required by law.

Aside from those risks discussed below, there have been no material changes to the risk factors included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2010.

RISKS RELATED TO OUR BUSINESS

If our attempts to secure additional financing are not successful, we will be required to cease or curtail our operations, or obtain funds on unfavorable terms.  These factors create a substantial doubt about our ability to continue as a going concern.

Our available resources are not sufficient to fund our operations, without additional sources of financing we would not be able to continue our business, and we expect to incur operating losses for the foreseeable future.  Consequently, in order to maintain our operations, which we have already curtailed substantially, we will need to access additional equity or debt capital.  Securing financing is proving even more difficult than anticipated in light of the current global economic crisis and the turmoil impacting global financial markets.  These factors create a substantial doubt about our ability to continue as a going concern.  In light of our negative stockholders’ equity, there can be no assurance that we will be able to obtain the necessary additional capital on a timely basis or on acceptable terms, if at all, to continue our operations and, to the extent available, to fund the development of our business. In any of such events, the continuation of our operations would be materially and adversely affected and we may have to cease conducting business.

As noted above, Urban Ag is in the process of attempting to secure sufficient financing to continue operations.  We have been working to obtain financing from outside investors for more than 6 months, but have not yet been successful.  In the interim, short-term debt financing provided primarily by a corporate investor has secured all of the company’s assets, and is being utilized to support governance and compliance activities.  Additionally, non-payment of professional and other service providers and reduced general spending have been instituted until such time as financing is secured, if ever.  If we are unable to obtain financing, we will be required to further curtail our operations or cease conducting business.  Given our current level of debt, we do not expect that our stockholders would receive any proceeds if we declare bankruptcy or seek to liquidate Urban Ag.

We are substantially dependent on the TerraSphere License for our indoor vertical farming business. Our inability to meet our obligations on this license will have a negative effect on our results of operations, financial condition and cash flow.

Under the terms of TerraSphere License, we were obligated to make $250,000 payments on November 1, 2010, February 1, 2011 and May 1, 2011.  We have not made the payments that were due on November 1, 2010 and February 1, 2011.  TerraSphere has extended the payment terms under the TerraSphere License through June 30, 2011.  Our inability to pay the license in full by the extended due date unless extended and or renegotiated, will have a material adverse affect on our prospects and on the value of an investment in the Company. 

ITEM 2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS 

None.

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ITEM 3 – DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4 – (REMOVED AND RESERVED)

ITEM 5 – OTHER INFORMATION

None.

ITEM 6 – EXHIBITS

Exhibit 31.1  Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Exhibit 32.1  Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Urban Ag Medical Corp.
(Registrant)
By:	/s/ Marshall Sterman
	Marshall Sterman
	Chief Executive Officer

Date: May 20, 2011

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EX-31.1

Exhibit 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER  PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Marshall Sterman, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Urban Ag Medical Corp.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this report is being prepared;

(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter of the annual report) that has materially affected or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant's auditor and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: May 20, 2011

/s/ Marshall Sterman

Marshall Sterman

Chief Executive Officer
(Principal Executive Officer) and
Interim Chief Financial Officer
(Principal Accounting Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

 SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Urban Ag Medical Corp. (the "Company") on Form 10-Q for the quarter ending March 31, 2011, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Marshall Sterman, Chief Executive Officer and interim Chief Financial Officer, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

Date: May 20, 2011

/s/ Marshall Sterman

Marshall Sterman

Chief Executive Officer
(Principal Executive Officer) and
Interim Chief Financial Officer
(Principal Accounting Officer)